<PAGE>
As filed with the Securities and Exchange
Commission on November 30, 1998
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.
Post-Effective Amendment No. 24 X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF l940
Amendment No. 26 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
It is proposed that this filing will become effective (check
appropriate box)
<PAGE>
immediately upon filing pursuant to paragraph (b)
on (date) pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a)
X on February 1, 1999 pursuant to paragraph (a).
75 days after filing pursuant to paragraph (a)(2)
on (date) pursuant to paragraph (a)(2) of rule 485.
<PAGE>
CROSS REFERENCE SHEET
(as required by Rule 404(c))
N-1A Item No. Location in
Prospectuses
(Caption)
PART A
Item 1. Front and Back Cover Pages..........Cover Pages
Item 2. Risk/Return Summary:
Investments, Risks, and
Performance.........................Risk/Return
Summary
Item 3. Risk/Return Summary:
Fee Table...........................Risk/Return
Summary
Item 4. Investment Objectives,
Principal Investment Strategies,
And Related Risks...................Other
Information
About the
Fund's
Objectives,
Strategies, and
Risks
Item 5. Management's Discussion of
Fund Performance....................Not Applicable
Item 6. Management, Organization,
And Capital Structure...............Management of
the Fund
Item 7. Shareholder Information.............Purchase and
Sale of Shares
Item 8. Distribution Arrangements...........Distribution
Arrangements
Item 9. Financial Highlights
Information.........................Financial
Highlights
<PAGE>
PART B Location in Statements
Of Additional Information
(Caption)
Item 10. Cover Page and
Table of Contents...................Cover Page
Item 11. Fund History........................Management of
the Fund;
General
Information
Item 12. Description of the Fund and
Its Investments and Risks...........Investment
Policies and
Restrictions
Item 13. Management of the Fund..............Management of
the Fund
Item 14. Control Persons and Principal
Holders of Securities...............Management of
the Fund
Item 15. Investment Advisory and
Other Services......................Management of
the Fund
Item 16. Brokerage Allocation and
Other Practices.....................Brokerage and
Portfolio
Transactions
Item 17. Capital Stock and Other
Securities..........................General
Information
Item 18. Purchase, Redemption and
Pricing of Shares ..................Purchase,
Redemption and
Repurchase of
Shares; Net
Asset Value
Item 19. Taxation of the Fund................Dividends,
Distributions
and Taxes
Item 20. Underwriters........................General
Information
<PAGE>
Item 21. Calculation of Performance Data.....General
Information
Item 22. Financial Statements................Financial
Statements;
Report of
Independent
Auditors
<PAGE>
<PAGE>
<PAGE>
ALLIANCE MUNICIPAL
INCOME PORTFOLIOS
PROSPECTUS
FEBRUARY 1, 1999
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
The Alliance Municipal Income Portfolios seek to provide the
highest level of income exempt from federal and state tax that is
available without assuming undue risk.
The Securities and Exchange Commission has not approved or
disapproved these securities or passed upon the adequacy of this
prospectus. Any representation to the contrary is a criminal
offense.
<PAGE>
TABLE OF CONTENTS
PAGE
RISK/RETURN SUMMARY..................................
National Portfolios.............................
State Portfolios................................
Other State Portfolios..........................
Summary of Principal Risks......................
Principal Risks by Portfolio....................
EXPENSE INFORMATION..................................
GLOSSARY.............................................
DESCRIPTION OF THE PORTFOLIOS........................
Investment Objectives...........................
Additional Investment Practices.................
Additional Risk Considerations..................
MANAGEMENT OF THE PORTFOLIO..........................
PURCHASE AND SALE OF SHARES..........................
How The Fund Values Its Shares..................
How to Buy Shares...............................
How to Exchange Shares..........................
How To Sell Shares..............................
DIVIDENDS AND DISTRIBUTIONS..........................
TAXES................................................
DISTRIBUTION ARRANGEMENTS............................
GENERAL INFORMATION..................................
FINANCIAL HIGHLIGHTS.................................
<PAGE>
BF=1>
1
<EF=1>
RISK/RETURN SUMMARY
The following is a summary of certain key information about the
Alliance Municipal Income Portfolios. You will find additional
information about each Portfolio including a detailed description
of the risks of an investment in each Portfolio after this
summary.
The Portfolios' investment adviser is Alliance Capital Management
L.P., a global investment manager providing diversified services
to institutions and individuals through a broad line of
investments including more than 100 mutual funds. Since 1971,
Alliance has earned a reputation as a leader in the investment
world with over $___ billion in assets under management as of
December 31, 1998. Alliance provides investment management
services to employee benefit plans for ___ of the FORTUNE 100
companies.
The Risk/Return Summary describes the Portfolios' objectives,
principal investment strategies, risks, and fees. More detailed
descriptions of the Portfolios can be found further back in the
Prospectus. Please be sure to read the more complete
descriptions of the Portfolios following this summary, including
the risks associated with investing in the Portfolios, BEFORE you
invest. Each of the Portfolios also may at times use certain
types of investment derivatives such as options, futures,
forwards, and swaps. The use of these techniques includes
special risks that are discussed in this Prospectus.
The Summary includes a table showing the Portfolio's average
annual returns and a bar chart showing each Portfolio's annual
returns. The table and the bar chart provide an indication of
the historical risk of an investment in each Portfolio by
showing:
-- how the Portfolio's average annual returns for one, five
and 10 years (or life of the Portfolio) compare to those
of a broad based securities market index; and
-- changes in the Portfolio's performance from year to year
over 10 years or, if shorter, the life of the Portfolio.
A Portfolio's past performance, of course, does not necessarily
indicate how it will perform in the future.
<PAGE>
Other important things for you to note:
-- You may gain or lose money by investing in the
Portfolios.
-- An investment in the Portfolios is not a deposit in a
bank and is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government
agency.
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objective of each Portfolio, other than the
Insured California Portfolio, is to earn the highest level of
current income, exempt from Federal and state taxation, that is
available without assuming what Alliance considers to be undue
risk, by investing principally in high-yielding, predominantly
medium-quality municipal securities. The average weighted
maturity of the Portfolios' securities normally will range
between 10 and 25 years.
The investment objective of Insured California Portfolio is to
provide as high a level of current income exempt from Federal
income tax and California personal property tax as is consistent
with preservation of capital.
Under their investment policies, the Portfolios will invest:
-- At least 75% of their total assets in municipal
securities rate BBB or Baa or above (or, if unrated,
determined by Alliance to be of comparable quality);
-- In municipal securities with a remaining average
weighted maturity of 10-30 years;
-- At least 65% of their total assets in income producing
securities.
In addition, under their policies, the Portfolios may invest:
-- More than 25% of their assets in revenue bonds
(generally bonds without the pledge of credit of the
issuer);
-- In zero coupon municipal securities, and in variable,
floating, and inverse floating rate municipal
securities; and
-- In options, futures, forwards, and swaps.
PRINCIPAL INVESTMENT STRATEGIES AND RETURN INFORMATION
NATIONAL PORTFOLIOS
NATIONAL PORTFOLIO
The National Portfolio invests principally in municipal
securities paying interest wholly exempt from federal income
taxes, except the Alternative Minimum Tax ("AMT"). The Portfolio
may invest 25% or more of its total assets in municipal
securities whose issuers are located in the same state.
<PAGE>
INSURED NATIONAL PORTFOLIO
The Insured National Portfolio invests principally in municipal
securities paying interest wholly exempt from Federal income
taxes, including the AMT. The Portfolio normally invests at
least 65% of its total assets in insured securities. The
Portfolio may invest 25% or more of its total assets in municipal
securities whose issuers are located in the same state.
<PAGE>
PERFORMANCE INFORMATION AND BAR CHART
NATIONAL PORTFOLIO
PERFORMANCE TABLE
1 YEAR 5 YEARS 10 YEARS
Class A
Class B
Class C
[Relevant Index]
BAR CHART
The annual returns in the bar chart are for the Portfolio's Class
A shares and do not reflect sales loads. If sales loads were
reflected, returns would be less than those shown.
[INSERT CHART]
You should consider an investment in the Portfolio as a long-term
investment. The Portfolio's returns will, however, fluctuate
over shorter periods. For example, during the period shown in
the bar chart, the Portfolio's:
BEST QUARTER was: up ___%, ________ quarter, 19__
WORST QUARTER was: down ___%, _________ quarter, 19__
INSURED NATIONAL PORTFOLIO
PERFORMANCE TABLE
1 YEAR 5 YEARS 10 YEARS
Class A
Class B
Class C
[Relevant Index]
BAR CHART
The annual returns in the bar chart are for the Portfolio's Class
A shares and do not reflect sales loads. If sales loads were
reflected, returns would be less than those shown.
[INSERT CHART]
You should consider an investment in the Portfolio as a long-term
investment. The Portfolio's returns will, however, fluctuate
over shorter periods. For example, during the period shown in
the bar chart, the Portfolio's:
<PAGE>
BEST QUARTER was: up ___%, ________ quarter, 19__
WORST QUARTER was: down ___%, _________ quarter, 19__
STATE PORTFOLIOS
INSURED CALIFORNIA PORTFOLIO
The Insured California Portfolio invests substantially all its
assets in a portfolio of municipal securities paying interest
exempt from federal and California personal income tax. The
Portfolio normally invests at least:
-- 80% of its total assets in municipal securities paying
interest exempt from the AMT;
-- 65% of its total assets in insured securities (and its
current policy is to invest at least 80% in insured
securities; and
-- 65% of its total assets in bonds issued by California or
its political subdivisions.
The Portfolio may invest in municipal securities that are not
issued by California governmental entities if the securities pay
interest exempt from federal and California personal income tax.
While the Portfolio normally invests substantially all of its
total assets in California municipal securities, it may invest in
securities paying interest exempt only from federal income tax if
Alliance believes that California municipal securities meeting
the Portfolio's quality standards are not available.
CALIFORNIA PORTFOLIO
The California Portfolio invests substantially all its assets in
a portfolio of municipal securities paying interest exempt from
federal and California personal income tax. The Portfolio
normally invests at least:
-- 80% of its total assets in municipal securities;
-- 65% of its total assets in municipal securities issued
by California or its political subdivisions; and
-- 65% of its assets in municipal securities subject to the
AMT.
The Portfolio may invest in municipal securities that are not
issued by California governmental entities if the securities pay
interest exempt from federal and California personal income tax.
While the Portfolio normally invests substantially all of its
total assets in California municipal securities, it may invest in
securities paying interest exempt only from federal income tax if
Alliance believes that California municipal securities meeting
the Portfolio's quality standards are not available.
<PAGE>
PERFORMANCE INFORMATION AND BAR CHART
INSURED CALIFORNIA PORTFOLIO
PERFORMANCE TABLE
1 Year 5 Years 10 Years
Class A
Class B
Class C
[Relevant Index]
BAR CHART
The annual returns in the bar chart are for the Portfolio's Class
A shares and do not reflect sales loads. If sales loads were
reflected, returns would be less than those shown.
[INSERT CHART]
You should consider an investment in the Portfolio as a long-term
investment. The Portfolio's returns will, however, fluctuate
over shorter periods. For example, during the period shown in
the bar chart, the Portfolio's:
BEST QUARTER was: up ___%, ________ quarter, 19__
WORST QUARTER was: down ___%, _________ quarter, 19__
CALIFORNIA PORTFOLIO
PERFORMANCE TABLE
1 YEAR 5 YEARS 10 YEARS
Class A
Class B
Class C
[Relevant Index]
BAR CHART
The annual returns in the bar chart are for the Portfolio's Class
A shares and do not reflect sales loads. If sales loads were
reflected, returns would be less than those shown.
[INSERT CHART]
You should consider an investment in the Portfolio as a long-term
investment. The Portfolio's returns will, however, fluctuate
over shorter periods. For example, during the period shown in
the bar chart, the Portfolio's:
<PAGE>
BEST QUARTER was: up ___%, ________ quarter, 19__
WORST QUARTER was: down ___%, _________ quarter, 19__
OTHER STATE PORTFOLIOS
ARIZONA PORTFOLIO NEW JERSEY PORTFOLIO
FLORIDA PORTFOLIO NEW YORK PORTFOLIO
MASSACHUSETTS PORTFOLIO OHIO PORTFOLIO
MICHIGAN PORTFOLIO PENNSYLVANIA PORTFOLIO
MINNESOTA PORTFOLIO VIRGINIA PORTFOLIO
These Portfolios invest substantially all their assets in a
portfolio of municipal securities paying interest exempt from
federal income tax and personal income tax in the named state,
or, for the Florida Portfolio, the Florida intangible tax. The
Portfolios may invest without limit in bonds paying interest
subject to the AMT. The New York Portfolio will invest at least
65% of its assets in bonds paying interest subject to AMT. The
Portfolios normally will invest at least:
-- 65% of their total assets in the municipal securities of
each Portfolio's named state; and
-- 80% of their net assets in municipal securities paying
interest exempt from federal income tax.
A Portfolio may invest in a state's municipal securities that are
not issued by that state's governmental entities if the
securities pay interest exempt from federal and state personal
income tax (or the Florida intangible tax). While a Portfolio
normally invests substantially all of its total assets in the
municipal securities of the Portfolio's state, it may invest in
securities paying interest exempt only from federal income tax if
Alliance believes that state municipal securities meeting the
Portfolio's quality standards are not available.
<PAGE>
PERFORMANCE INFORMATION AND BAR CHARTS FOR
THE OTHER STATE PORTFOLIOS
ARIZONA PORTFOLIO
PERFORMANCE TABLE
1 YEAR 5 YEARS 10 YEARS
Class A
Class B
Class C
[Relevant Index]
BAR CHART
The annual returns in the bar chart are for the Portfolio's Class
A shares and do not reflect sales loads. If sales loads were
reflected, returns would be less than those shown.
[INSERT CHART]
You should consider an investment in the Portfolio as a long-term
investment. The Portfolio's returns will, however, fluctuate
over shorter periods. For example, during the period shown in
the bar chart, the Portfolio's:
BEST QUARTER was: up ___%, ________ quarter, 19__
WORST QUARTER was: down ___%, _________ quarter, 19__
FLORIDA PORTFOLIO
PERFORMANCE TABLE
1 YEAR 5 YEARS 10 YEARS
Class A
Class B
Class C
[Relevant Index]
BAR CHART
The annual returns in the bar chart are for the Portfolio's Class
A shares and do not reflect sales loads. If sales loads were
reflected, returns would be less than those shown.
[INSERT CHART]
You should consider an investment in the Portfolio as a long-term
investment. The Portfolio's returns will, however, fluctuate
over shorter periods. For example, during the period shown in
the bar chart, the Portfolio's:
<PAGE>
BEST QUARTER was: up ___%, ________ quarter, 19__
WORST QUARTER was: down ___%, _________ quarter, 19__
MASSACHUSETTS PORTFOLIO
PERFORMANCE TABLE
1 YEAR 5 YEARS 10 YEARS
Class A
Class B
Class C
[Relevant Index]
BAR CHART
The annual returns in the bar chart are for the Portfolio's Class
A shares and do not reflect sales loads. If sales loads were
reflected, returns would be less than those shown.
[INSERT CHART]
You should consider an investment in the Portfolio as a long-term
investment. The Portfolio's returns will, however, fluctuate
over shorter periods. For example, during the period shown in
the bar chart, the Portfolio's:
BEST QUARTER was: up ___%, ________ quarter, 19__
WORST QUARTER was: down ___%, _________ quarter, 19__
MICHIGAN PORTFOLIO
PERFORMANCE TABLE
1 YEAR 5 YEARS 10 YEARS
Class A
Class B
Class C
[Relevant Index]
BAR CHART
The annual returns in the bar chart are for the Portfolio's Class
A shares and do not reflect sales loads. If sales loads were
reflected, returns would be less than those shown.
[INSERT CHART]
You should consider an investment in the Portfolio as a long-term
investment. The Portfolio's returns will, however, fluctuate
<PAGE>
over shorter periods. For example, during the period shown in
the bar chart, the Portfolio's:
BEST QUARTER was: up ___%, ________ quarter, 19__
WORST QUARTER was: down ___%, _________ quarter, 19__
MINNESOTA PORTFOLIO
PERFORMANCE TABLE
1 YEAR 5 YEARS 10 YEARS
Class A
Class B
Class C
[Relevant Index]
BAR CHART
The annual returns in the bar chart are for the Portfolio's Class
A shares and do not reflect sales loads. If sales loads were
reflected, returns would be less than those shown.
[INSERT CHART]
You should consider an investment in the Portfolio as a long-term
investment. The Portfolio's returns will, however, fluctuate
over shorter periods. For example, during the period shown in
the bar chart, the Portfolio's:
BEST QUARTER was: up ___%, ________ quarter, 19__
WORST QUARTER was: down ___%, _________ quarter, 19__
NEW JERSEY PORTFOLIO
PERFORMANCE TABLE
1 YEAR 5 YEARS 10 YEARS
Class A
Class B
Class C
[Relevant Index]
BAR CHART
The annual returns in the bar chart are for the Portfolio's Class
A shares and do not reflect sales loads. If sales loads were
reflected, returns would be less than those shown.
[INSERT CHART]
<PAGE>
You should consider an investment in the Portfolio as a long-term
investment. The Portfolio's returns will, however, fluctuate
over shorter periods. For example, during the period shown in
the bar chart, the Portfolio's:
BEST QUARTER was: up ___%, ________ quarter, 19__
WORST QUARTER was: down ___%, _________ quarter, 19__
NEW YORK PORTFOLIO
PERFORMANCE TABLE
1 YEAR 5 YEARS 10 YEARS
Class A
Class B
Class C
[Relevant Index]
BAR CHART
The annual returns in the bar chart are for the Portfolio's Class
A shares and do not reflect sales loads. If sales loads were
reflected, returns would be less than those shown.
[INSERT CHART]
You should consider an investment in the Portfolio as a long-term
investment. The Portfolio's returns will, however, fluctuate
over shorter periods. For example, during the period shown in
the bar chart, the Portfolio's:
BEST QUARTER was: up ___%, ________ quarter, 19__
WORST QUARTER was: down ___%, _________ quarter, 19__
OHIO PORTFOLIO
PERFORMANCE TABLE
1 YEAR 5 YEARS 10 YEARS
Class A
Class B
Class C
[Relevant Index]
BAR CHART
The annual returns in the bar chart are for the Portfolio's Class
A shares and do not reflect sales loads. If sales loads were
reflected, returns would be less than those shown.
<PAGE>
[INSERT CHART]
You should consider an investment in the Portfolio as a long-term
investment. The Portfolio's returns will, however, fluctuate
over shorter periods. For example, during the period shown in
the bar chart, the Portfolio's:
BEST QUARTER was: up ___%, ________ quarter, 19__
WORST QUARTER was: down ___%, _________ quarter, 19__
PENNSYLVANIA PORTFOLIO
PERFORMANCE TABLE
1 YEAR 5 YEARS 10 YEARS
Class A
Class B
Class C
[Relevant Index]
BAR CHART
The annual returns in the bar chart are for the Portfolio's Class
A shares and do not reflect sales loads. If sales loads were
reflected, returns would be less than those shown.
[INSERT CHART]
You should consider an investment in the Portfolio as a long-term
investment. The Portfolio's returns will, however, fluctuate
over shorter periods. For example, during the period shown in
the bar chart, the Portfolio's:
BEST QUARTER was: up ___%, ________ quarter, 19__
WORST QUARTER was: down ___%, _________ quarter, 19__
VIRGINIA PORTFOLIO
PERFORMANCE TABLE
1 YEAR 5 YEARS 10 YEARS
Class A
Class B
Class C
[Relevant Index]
*Since inception.
<PAGE>
BAR CHART
The annual returns in the bar chart are for the Portfolio's Class
A shares and do not reflect sales loads. If sales loads were
reflected, returns would be less than those shown.
[INSERT CHART]
You should consider an investment in the Portfolio as a long-term
investment. The Portfolio's returns will, however, fluctuate
over shorter periods. For example, during the period shown in
the bar chart, the Portfolio's:
BEST QUARTER was: up ___%, ________ quarter, 19__
WORST QUARTER was: down ___%, _________ quarter, 19__
SUMMARY OF PRINCIPAL RISKS
The value of an investment in a Portfolio changes with the values
of that Portfolio's investments. Many factors can affect those
values. In this summary, we describe the principal risks that
may affect a particular Portfolio's investments as a whole. All
of the Portfolios are subject to these risks and could be subject
to additional principal risks because the types of investments
made by each Portfolio can change over time. This prospectus has
additional descriptions of investments that appear in bold type
in the discussions under "Additional Investment Practices" or
"Risk Considerations." Those sections also include more
information about the Portfolios, their investments, and related
risks.
-- INTEREST RATE RISK. This is the risk that changes in
interest rates will affect the value of a Portfolio's
investments in fixed-income debt securities such as
bonds and notes. Increases in interest rates may cause
the value of a Portfolio's investments to decline.
The Portfolios may experience increased market risk to
they extent they invest in:
-- lower rated securities or comparable unrated
securities;
-- debt securities with longer maturities;
-- debt securities paying no interest, such as zero
coupon securities; or
-- debt securities paying non-cash interest in the
form of other debt securities (pay-in-kind
securities).
<PAGE>
-- CREDIT RISK. This is the risk that the issuer or the
guarantor of a debt security, or the counterparty to a
derivatives contract, will be unable or unwilling to
make timely principal and/or interest payments, or to
otherwise honor its obligations. The degree of risk for
a particular security may be reflected in its credit
rating. Credit risk is greater for lower-rated
securities. These debt securities and similar non-rated
securities (commonly known as "junk bonds") have
speculative elements or are predominately speculative
credit risks.
-- MUNICIPAL MARKET RISK. This is the risk that special
factors may adversely affect the value of municipal
securities and have a significant effect on the value of
a Portfolio's investments. These factors include
political or legislative changes, uncertainties related
to the tax status of municipal securities, or the rights
of investors in these securities. The Portfolios'
investments in certain municipal securities with
principal and interest payments that are made from the
revenues of a specific project or facility, and not
general tax revenues, may have increased risks. Factors
affecting the project or facility, such as local
business or economic conditions, could have a
significant effect on the project's ability to make
payments of principal and interest on these securities.
-- DIVERSIFICATION RISK. Most analysts believe that
overall risk can be reduced through diversification,
while concentration of investments in a small number of
securities increases risks. The State Portfolios are
not "diversified." This means they can invest in a
relatively small number of issuers with greater
concentration of risk. Factors affecting these issuers
can have a more significant effect on the Portfolio's
net asset value. Similarly, a Portfolio is more
vulnerable to events adversely affecting the Portfolio's
state, including economic, political, or regulatory
occurrences. To the extent that the National Portfolios
invest heavily in a particular state's municipal
securities, the National Portfolios also will be
vulnerable to events adversely affecting that state.
-- LEVERAGING RISK. When a Portfolio borrows money or
otherwise leverages its portfolio, the value of an
investment in that Portfolio will be more volatile and
all other risks will tend to be compounded. Each
Portfolio may create leverage by using reverse
repurchase agreements, inverse floating rate instruments
or derivatives or by borrowing money.
<PAGE>
-- DERIVATIVES RISK. All Portfolios may use derivatives,
which are financial contracts whose value depends on, or
is derived from, the value of an underlying asset,
reference rate, or index. Alliance will sometimes use
derivatives as part of a strategy designed to reduce
other risks. Generally, however, the Portfolios use
derivatives as direct investments to earn income,
enhance yield, and broaden portfolio diversification,
which entail greater risk than if used solely for
hedging purposes. In addition to other risks such as
the credit risk of the counterparty, derivatives involve
the risk of difficulties in pricing and valuation and
the risk that changes in the value of the derivative may
not correlate perfectly with relevant assets, rates, or
indices.
-- LIQUIDITY RISK. Liquidity risk exists when particular
investments are difficult to purchase or sell, possibly
preventing a Portfolio from selling out of these
illiquid securities at an advantageous price. All of the
Portfolios are subject to liquidity risk because
derivatives and securities involving substantial market
and/or credit risk tend to involve greater liquidity
risk. In addition, liquidity risk tends to increase to
the extent a Portfolio invests in debt securities whose
sale may be restricted by law or by contract.
-- MANAGEMENT RISK. Each Portfolio is subject to
management risk because it is an actively managed
investment portfolio. Alliance will apply its
investment techniques and risk analyses in making
investment decisions for the Portfolios, but there can
be no guarantee that they will produce the desired
results.
<PAGE>
EXPENSE INFORMATION
This table describes the fees and expenses that you may pay
if you buy and hold shares of the Portfolios.
SHAREHOLDER TRANSACTION EXPENSES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS A SHARES CLASS B SHARES CLASS C SHARES
Maximum Sales Charge 4.25% None None
(Load) Imposed on
Purchases (as a
percentage of
offering price)
Maximum Deferred Sales None 3.0% during 1.0% during
Charge (Load) (as a the 1st year, the 1st year,
percentage of original decreasing 0% thereafter
purchase price or 1.0% annually
redemption proceeds, to 0% after
whichever is lower) the 3rd year*
Exchange Fee None None None
* Class B Shares of every Portfolio automatically convert to Class A Shares
after 6 years.
ANNUAL PORTFOLIO OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM PORTFOLIO ASSETS) AND EXAMPLE
The example is to help you compare the cost of investing in a
Portfolio with the cost of investing in other Portfolios. It
assumes that you invest $10,000 in the Portfolio for the time
periods indicated and then redeem all of your shares at the end
of those periods. It also assumes that your investment has a 5%
return each year and that the Fund's operating expenses stay the
same. Your actual costs may be higher or lower.
<PAGE>
<TABLE>
OPERATING EXPENSES EXAMPLES
NATIONAL PORTFOLIO CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C+ CLASS C++
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees % % % After 1st Yr. $ $ $ $ $
Rule 12b-1 Fees % % % After 3 Yrs. $ $ $ $ $
Other Expenses % % % After 5 Yrs. $ $ $ $ $
After 10 Yrs. $ $(a) $(a) $ $
Total Portfolio % %
Operating Expenses %
Waiver and/or Expense
Reimbursement+++
Net Expenses
INSURED NATIONAL
PORTFOLIO CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C+ CLASS C++
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees % % .% After 1st Yr. $ $ $ $ $
Rule 12b-1 Fees % % % After 3 Yrs. $ $ $ $ $
Other Expenses % % % After 5 Yrs. $ $ $ $ $
After 10 Yrs. $ $(a) $(a) $ $
Total Portfolio % %
Operating Expenses %
Waiver and/or Expense
Reimbursement+++
Net Expenses
</TABLE>
<PAGE>
<TABLE>
OPERATING EXPENSES EXAMPLES
ARIZONA PORTFOLIO CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C+ CLASS C++
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees % % .% After 1st Yr. $ $ $ $ $
Rule 12b-1 Fees % % % After 3 Yrs. $ $ $ $ $
Other Expenses % % % After 5 Yrs. $ $ $ $ $
After 10 Yrs. $ $(a) $(a) $ $
Total Portfolio % %
Operating Expenses %
Waiver and/or Expense
Reimbursement+++
Net Expenses
CALIFORNIA
PORTFOLIO CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C+ CLASS C++
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees % % .% After 1st Yr. $ $ $ $ $
Rule 12b-1 Fees % % % After 3 Yrs. $ $ $ $ $
Other Expenses % % % After 5 Yrs. $ $ $ $ $
After 10 Yrs. $ $(a) $(a) $ $
Total Portfolio % %
Operating Expenses %
Waiver and/or Expense
Reimbursement+++
Net Expenses
INSURED CALIFORNIA
PORTFOLIO CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C+ CLASS C++
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees % % .% After 1st Yr. $ $ $ $ $
Rule 12b-1 Fees % % % After 3 Yrs. $ $ $ $ $
Other Expenses % % % After 5 Yrs. $ $ $ $ $
After 10 Yrs. $ $(a) $(a) $ $
Total Portfolio % %
Operating Expenses %
Waiver and/or Expense
Reimbursement+++
Net Expenses
FLORIDA PORTFOLIO CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C+ CLASS C++
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees % % .% After 1st Yr. $ $ $ $ $
Rule 12b-1 Fees % % % After 3 Yrs. $ $ $ $ $
<PAGE>
Other Expenses % % % After 5 Yrs. $ $ $ $ $
After 10 Yrs. $ $(a) $(a) $ $
Total Portfolio % %
Operating Expenses %
Waiver and/or Expense
Reimbursement+++
Net Expenses
MASSACHUSETTS
PORTFOLIO CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C+ CLASS C++
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees % % .% After 1st Yr. $ $ $ $ $
Rule 12b-1 Fees % % % After 3 Yrs. $ $ $ $ $
Other Expenses % % % After 5 Yrs. $ $ $ $ $
After 10 Yrs. $ $(a) $(a) $ $
Total Portfolio % %
Operating Expenses %
Waiver and/or Expense
Reimbursement+++
Net Expenses
</TABLE>
<PAGE>
<TABLE>
OPERATING EXPENSES EXAMPLES
MICHIGAN PORTFOLIO CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C+ CLASS C++
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees % % .% After 1st Yr. $ $ $ $ $
Rule 12b-1 Fees % % % After 3 Yrs. $ $ $ $ $
Other Expenses % % % After 5 Yrs. $ $ $ $ $
After 10 Yrs. $ $(a) $(a) $ $
Total Portfolio % %
Operating Expenses %
Waiver and/or Expense
Reimbursement+++
Net Expenses
NEW JERSEY
PORTFOLIO CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C+ CLASS C++
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees % % .% After 1st Yr. $ $ $ $ $
Rule 12b-1 Fees % % % After 3 Yrs. $ $ $ $ $
Other Expenses % % % After 5 Yrs. $ $ $ $ $
After 10 Yrs. $ $(a) $(a) $ $
Total Portfolio % %
Operating Expenses %
Waiver and/or Expense
Reimbursement+++
Net Expenses
NEW YORK PORTFOLIO CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C+ CLASS C++
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees % % .% After 1st Yr. $ $ $ $ $
Rule 12b-1 Fees % % % After 3 Yrs. $ $ $ $ $
Other Expenses % % % After 5 Yrs. $ $ $ $ $
After 10 Yrs. $ $(a) $(a) $ $
Total Portfolio % %
Operating Expenses %
Waiver and/or Expense
Reimbursement+++
Net Expenses
OHIO PORTFOLIO CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C+ CLASS C++
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees % % .% After 1st Yr. $ $ $ $ $
Rule 12b-1 Fees % % % After 3 Yrs. $ $ $ $ $
Other Expenses % % % After 5 Yrs. $ $ $ $ $
<PAGE>
After 10 Yrs. $ $(a) $(a) $ $
Total Portfolio % %
Operating Expenses %
Waiver and/or Expense
Reimbursement+++
Net Expenses
PENNSYLVANIA
PORTFOLIO CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C+ CLASS C++
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees % % .% After 1st Yr. $ $ $ $ $
Rule 12b-1 Fees % % % After 3 Yrs. $ $ $ $ $
Other Expenses % % % After 5 Yrs. $ $ $ $ $
After 10 Yrs. $ $(a) $(a) $ $
Total Portfolio % %
Operating Expenses %
Waiver and/or Expense
Reimbursement+++
Net Expenses
</TABLE>
<PAGE>
<TABLE>
OPERATING EXPENSES EXAMPLES
VIRGINIA PORTFOLIO CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C+ CLASS C++
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees % % .% After 1st Yr. $ $ $ $ $
Rule 12b-1 Fees % % % After 3 Yrs. $ $ $ $ $
Other Expenses % % % After 5 Yrs. $ $ $ $ $
After 10 Yrs. $ $(a) $(a) $ $
Total Portfolio % %
Operating Expenses %
Waiver and/or Expense
Reimbursement+++
Net Expenses
<FN>
+ Assumes redemption at end of period.
++ Assumes no redemption at end of period.
+++ Reflects Alliance's waiver of a portion of its advisory fee and/or reimbursement of a portion of the Portfolio's
operating expenses. The level of waiver or reimbursement may be changed upon 60 days notice to the Portfolios.
(a) Assumes Class B shares convert to Class A shares after 6 years.
</TABLE>
<PAGE>
________________________________________________________________
Glossary
_________________________________________________________________
This Prospectus uses the following terms.
TYPES OF SECURITIES
AMT-EXEMPT BONDS are municipal securities the interest on which
is not subject to the AMT.
AMT-SUBJECT BONDS are municipal securities, the interest on which
is an item of "tax preference" and thus subject to the AMT when
received by a person in a tax year during which the person is
subject to the AMT. These securities are primarily private
activity bonds, including revenue bonds.
BONDS are fixed, floating and variable rate debt obligations and
may include zero coupon securities.
HIGH QUALITY COMMERCIAL NOTES are commercial notes rated MIG-2
(or VMIG-2) or higher by Moody's, SP-2 or higher by S&P, D-1 or
higher by Duff & Phelps or FIN-2 or higher by Fitch.
INSURED SECURITIES are municipal securities that are insured as
to the payment of principal and interest.
LOWER-RATED MUNICIPAL SECURITIES are municipal securities rated
Ba or BB or below, or determined by Alliance to be of equivalent
quality, and are commonly referred to as "junk bonds."
MEDIUM-QUALITY MUNICIPAL SECURITIES are municipal securities
rated A or Baa by Moody's, or A or BBB by S&P, Duff & Phelps or
Fitch, or determined by Alliance to be of equivalent quality.
MUNICIPAL SECURITIES are 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 respective political
subdivisions, agencies and instrumentalities. Municipal
securities include municipal bonds, which are intended to meet
longer-term capital needs and municipal notes, which are intended
to fulfill short-term capital needs.
RULE 144A SECURITIES are securities that may be resold under Rule
144A under the Securities Act.
<PAGE>
ZERO COUPON SECURITIES are bonds, notes and other debt securities
issued without interest coupons.
COMPANIES AND RATING AGENCIES
ACA is American Capital Access Corporation.
AGI is Asset Guaranty Insurance Company.
AMBAC is AMBAC Indemnity Corporation.
DUFF & PHELPS is Duff & Phelps Credit Rating Co.
FITCH is Fitch IBCA, Inc.
FGIC is Financial Guaranty Insurance Company.
FSA is Financial Security Assurance Inc.
MBIA is Municipal Bond Investors Assurance Corporation.
MOODY'S is Moody's Investors Service, Inc.
S&P is Standard & Poor's Ratings Services.
OTHER
AMT is the federal alternative minimum tax.
CODE is the Internal Revenue Code of 1986, as amended.
COMMISSION is the Securities and Exchange Commission.
EXCHANGE is the New York Stock Exchange.
1940 ACT is the Investment Company Act of 1940, as amended.
SECURITIES ACT is the Securities Act of 1933, as amended.
________________________________________________________________
DESCRIPTION OF THE PORTFOLIOS
________________________________________________________________
This section of the Prospectus provides a more complete
description of the principal investment objectives, strategies,
and risks of the Alliance Municipal Income Portfolios. Of
course, there can be no assurance that any Portfolio will achieve
its investment objective.
<PAGE>
Please note:
- -- Additional discussion of the Portfolios' investments,
including the risks of the investments that appear in bold
type can be found in the discussion under ADDITIONAL
INVESTMENT PRACTICES following this section.
- -- The description of a Portfolio's risks may include risks
defined in the SUMMARY OF RISKS above. Additional
Information about risks of investing in a Portfolio can be
found in the discussions under ADDITIONAL RISK
CONSIDERATIONS.
- -- Additional descriptions of each Portfolio's strategies and
investments, as well as other strategies and investments not
described below, may be found in the Portfolio's Statement of
Additional Information or SAI.
- -- Except as noted, (i) the Portfolio's investment objectives
are "fundamental" and cannot be changed without a shareholder
vote and (ii) the Portfolio's investment policies are not
fundamental and thus can be changed without a shareholder
vote.
INVESTMENT OBJECTIVES
The investment objective of each Portfolio (other than the
Insured California Portfolio) is to earn the highest level of
current income, by investing principally in tax-exempt, high-
yielding, predominantly medium-quality, municipal securities. The
investment objective of the Insured California Portfolio is to
provide as high a level of current income, exempt from federal
and state tax, as is consistent with preservation of capital.
HOW THE PORTFOLIOS PURSUE THEIR OBJECTIVES
NATIONAL AND INSURED NATIONAL PORTFOLIOS. 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 is subject
to the AMT. The Insured National Portfolio invests principally in
a diversified portfolio of AMT-Exempt bonds that are also insured
securities. 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.
The investment policies of the Insured National Portfolio differ
from those of the National Portfolio in two respects:
- -- the National Portfolio invests principally (and is permitted
to invest without limit) in AMT-Subject bonds and the Insured
National Portfolio invests principally in AMT-Exempt bonds;
and
<PAGE>
- -- 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.
STATE PORTFOLIOS. Each of the twelve State Portfolios invests in
a non-diversified portfolio of municipal securities.
Substantially all the interest from these securities is exempt
from federal and state personal income tax, or in the case of
Florida, the Florida intangible personal property tax. Florida
currently imposes no income tax on individuals. Normally,
substantially all of the total assets of each State Portfolio
will be invested in municipal securities of the indicated state.
Each State Portfolio other than the Insured California Portfolio
may invest without limit in AMT-Subject bonds.
CALIFORNIA AND INSURED CALIFORNIA PORTFOLIOS. 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. Additionally under normal circumstances, the
California Portfolio will also invest at least 65% of its total
assets in securities issued by California or it its political
subdivisions.
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 bonds issued by California or
its political subdivisions, at least 80% of its total assets in
insured securities, and not to invest in AMT-Subject bonds. The
remainder of the Insured California Portfolio's total assets may
be invested in uninsured securities.
NEW YORK PORTFOLIO. As a matter of fundamental policy, at least
65% of the New York Portfolio's total assets normally will be
invested in AMT-Subject bonds issued by New York State and its
political subdivisions. 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.
ARIZONA, FLORIDA, MASSACHUSETTS, MICHIGAN, MINNESOTA, NEW JERSEY,
OHIO, PENNSYLVANIA AND VIRGINIA PORTFOLIOS. As a matter of
fundamental policy, each of these Portfolios normally will 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. Each State Portfolio also may invest in municipal
securities issued by governmental entities (for example, U.S.
territories) outside the named state if such municipal securities
<PAGE>
generate interest exempt from federal income tax and personal
income tax (or the Florida intangible personal property 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. The two principal classifications of
municipal securities are bonds and notes. Municipal bonds are
intended to meet longer-term capital needs while municipal notes
are intended to fulfill short-term capital needs. Municipal
notes generally have original maturities not exceeding one year.
Municipal notes include tax anticipation notes, revenue
anticipation notes, bond anticipation notes, variable rate demand
obligations and tax-exempt commercial paper. The average weighted
maturity of the securities in each Portfolio will normally range
between 10 and 30 years.
Municipal securities are typically classified as either "general
obligation" or "revenue" (or "special tax") securities. 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 net assets in revenue
bonds, which generally do not have the pledge of the credit of
the issuer. The payment of the principal and interest on such
revenue 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
financed as security for such payment. Each Portfolio may invest
more than 25% of its total assets in securities or obligations
that 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).
Current federal tax law distinguishes between municipal
securities issued to finance certain private activities ("private
activity bonds") and other municipal securities. Private activity
bonds, most of which are AMT-Subject bonds and are also revenue
bonds, include bonds issued to finance such projects as airports,
housing projects, resource recovery programs, solid waste
disposal facilities, and student loan programs. Interest on AMT-
Subject bonds is an item of "tax preference" and thus subject to
the 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
<PAGE>
generally will provide somewhat higher yields than AMT-Exempt
bonds of comparable quality and maturity.
The yields of municipal securities depend on, among other
factors, conditions in the municipal bond market and fixed-income
markets generally, the size of a particular offering, the
maturity of the obligations, and the rating of the issue.
Normally, lower-rated municipal securities provide higher yields
than 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, or A or BBB by S&P, Duff & Phelps or Fitch. 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
or, if unrated, as determined by Alliance to be of comparable
quality. 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 their fiscal years ended in 1998, 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' fiscal years
ended in 1998, on a weighted average basis, the percentages of
the Portfolios' total 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, and the percentage of the Portfolios' net assets
invested in AMT-Subject bonds, were as follows:
<PAGE>
A AND AMT-SUBJECT
PORTFOLIO ABOVE BBB BB B BONDS
National
Arizona
California
Florida
Massachusetts
Michigan
Minnesota
New Jersey
New York
Ohio
Pennsylvania
Virginia
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. 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. Based
upon the expected composition of each of the INSURED NATIONAL and
<PAGE>
INSURED CALIFORNIA PORTFOLIOS, Alliance estimates that the annual
premiums for insurance 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
insurance, which are paid from each of the INSURED NATIONAL and
INSURED CALIFORNIA PORTFOLIO'S assets, will reduce those
Portfolios' current yields. Insurance is not a substitute for the
basic credit of an issuer, but supplements the existing credit
and provides additional credit support. While insurance 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 securities or purchase insured
municipal securities covered by policies issued by any insurer
having a claims-paying ability rated A or higher by Moody's, S&P,
Duff & Phelps or Fitch. No more than 25% of each Portfolio's
total assets may be invested in insured municipal securities
covered by policies issued by insurers having a claims-paying
ability rated below AA by Moody's, S&P, Duff & Phelps or Fitch.
Alliance is familiar with six such insurers, MBIA, FGIC, AMBAC,
FSA, AGI and ACA. MBIA, FGIC, AMBAC, FSA have been rated AAA,
with respect to their claims paying ability, AGI has been rated
AA and ACA has been rated A. Further information with respect to
MBIA, FGIC, AMBAC, FSA, AGI and ACA is provided in the Statement
of Additional Information of Alliance Municipal Income Fund, Inc.
ADDITIONAL INVESTMENT PRACTICES
This section describes the investment practices of the Portfolios
and risks associated with these practices. Unless otherwise
noted, a Portfolio's use of any of these practices was noted in
the previous section.
DERIVATIVES. The Portfolios may use derivatives to achieve their
investment objectives. Derivatives are financial contracts whose
value depend 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.
<PAGE>
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 to replace 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, which entail greater risk than
if 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.
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, and 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 is 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
<PAGE>
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 these
securities are 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 involve risks different from, and, in certain cases,
greater than, the risks presented by more traditional
investments. The 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
<PAGE>
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 an investment 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
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
<PAGE>
be an effective means of, and sometimes could be
counterproductive to, furthering the Portfolio's investment
objective.
DERIVATIVES USED BY THE PORTFOLIOS. The following describes
specific derivatives that one or more of the Portfolios may use.
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
<PAGE>
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. 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.
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 of futures contracts upon exercise. 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 cases,
a forward commitment may be conditioned upon the occurrence of a
subsequent event, such as approval and consummation of a merger,
<PAGE>
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.
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 realize a gain or incur a 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
<PAGE>
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.
<PAGE>
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.
Each Portfolio may invest in Variable Rate Demand Notes (VRDN)
which are instruments whose interest rates change on a specific
date (such as coupon date or interest payment date) or whose
interest rates vary with changes in a designated base rate (such
as prime interest rate). This instrument is payable on demand and
is secured by letters of credit or other credit support
agreements from major banks.
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.
Each Portfolio may invest in "inverse floaters," which are
securities with two variable components that, when combined,
result in a fixed interest rate. The "auction component"
typically pays an interest rate that is reset periodically
through an auction process, while the "residual component" pays a
current residual interest rate based on the difference between
the total interest paid on the securities and the auction rate
paid on the auction component. A Portfolio may purchase both
auction and residual components. When an inverse floater is in
the residual mode (leveraged), the interest rate typically resets
in the opposite direction from the variable or floating market
rate of interest on which the floater is based. The degree of
leverage inherent in inverse floaters is associated with a
greater degree of volatility of market value, such that the
market values of inverse floaters tend to decrease more rapidly
during periods of rising interest rates, and increase more
rapidly during periods of falling interest rates, than those of
fixed-rate securities.
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
<PAGE>
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. None of the Portfolios will maintain more
than 15% (10% for NATIONAL, INSURED NATIONAL, NEW YORK,
CALIFORNIA and INSURED CALIFORNIA) of its net assets in illiquid
securities. Illiquid securities generally include, (i) direct
placements or other securities for which there is no readily
available market (e.g. when market makers do not exist or will
not entertain bids or offers), (ii) over-the-counter options and
assets used to cover over-the-counter options, and (iii)
repurchase agreements not terminable within seven days. Rule 144A
securities that have legal or contractual restrictions on resale
but have a readily available market are not deemed illiquid.
Alliance will monitor the liquidity of each Portfolio's Rule 144A
portfolio securities under the supervision of the Directors or
Trustees of that Portfolio. A Portfolio that invests in illiquid
securities may not be able to sell such securities and may not be
able to realize their full value upon sale.
TEMPORARY DEFENSIVE POSITION. For temporary defensive purposes
when business or financial conditions warrant, each Portfolio may
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 also
may invest without limit in high-quality municipal notes or
variable rate demand obligations, 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. The portfolio turnover rate for each
Portfolio is included in the FINANCIAL HIGHLIGHTS section. 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.
<PAGE>
A higher rate of portfolio turnover involves correspondingly
greater expenses than a lower rate and these expenses must be
borne by a Portfolio and its shareholders. The execution costs
for municipal securities, however, are substantially less than
those for equivalent dollar values of equity securities.
ADDITIONAL 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.
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 also are generally considered to be
subject to greater market risk than higher-rated securities. 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.
<PAGE>
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. There can, however,
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. In considering investments for a Portfolio, Alliance
will attempt to identify issuers of lower-rated securities whose
financial condition are adequate to meet future obligations, has
improved, or is expected to improve in the future.
NON-RATED SECURITIES. Alliance also will consider investments in
non-rated securities for a Portfolio when Alliance believes that
the financial condition of the issuers of the securities, or the
protection afforded by the terms of the securities themselves,
limits the risk to the Portfolio to a degree comparable to rated
securities that 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 to local
risk factors than a geographically diversified municipal
securities portfolio. 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.
Each Portfolio's SAI provides certain information about the state
in which a Portfolio invests.
YEAR 2000. Many computer systems and applications in use today
process transactions using two-digit date fields for the year of
the transaction, rather than the full four digits. If these
systems are not modified or replaced, transactions occurring
after 1999 could be processed as year "1900", which could result
in processing inaccuracies and computer system failures. This is
commonly known as the Year 2000 problem. Should any of the
computer systems employed by the Portfolios' major service
providers fail to process Year 2000 related information properly,
that could have a significant negative impact on the Portfolios'
operations and the services that are provided to the Portfolios'
shareholders. In addition, to the extent that the operations of
issuers of securities held by the Portfolios are impaired by the
<PAGE>
Year 2000 problem, or prices of securities held by the Portfolios
decline as a result of real or perceived problems relating to the
Year 2000, the value of the Portfolios' shares may be materially
affected.
With respect to the Year 2000, the Portfolios have been advised
that Alliance, each Portfolio's investment adviser, Alliance Fund
Distributors, Inc, ("AFD"), each Portfolio's principal
underwriter, and Alliance Fund Services, Inc. ("AFS"), each
Portfolio's registrar, transfer agent and dividend disbursing
agent (collectively, "Alliance") began to address the Year 2000
issue several years ago in connection with the replacement or
upgrading of certain computer systems and applications. During
1997, Alliance began a formal Year 2000 initiative, which
established a structured and coordinated process to deal with the
Year 2000 issue. Alliance reports that it has completed its
assessment of the Year 2000 issues on its domestic and
international computer systems and applications. Currently,
management of Alliance expects that the required modifications
for the majority of its significant systems and applications that
will be in use on January 1, 2000, will be completed and tested
by the end of 1998. Full integration testing of these systems and
testing of interfaces with third-party suppliers will continue
through 1999. At this time, management of Alliance believes that
the costs associated with resolving this issue will not have a
material adverse effect on its operations or on its ability to
provide the level of services it currently provides to the
Portfolios.
The Portfolios and Alliance have been advised by the Portfolios'
Custodians that they are also in the process of reviewing their
systems with the same goals. As of the date of this prospectus,
the Portfolios and Alliance have no reason to believe that the
Custodians will be unable to achieve these goals.
______________________________________________________________
MANAGEMENT OF THE PORTFOLIOS
______________________________________________________________
INVESTMENT ADVISER AND PORTFOLIO MANAGER
Each Portfolio's Adviser is Alliance Capital Management, L.P.
("Alliance"), 1345 Avenue of the Americas, New York, New York
10105. Alliance is a leading international adviser supervising
client accounts with assets as of December 31, 1998 totaling more
than $___ billion (of which approximately $____ billion
represented assets of investment companies). Alliance's clients
are primarily major corporate employee benefit plans, public
employee retirement systems, investment companies, foundations,
and endowment funds. The ___ registered investment companies,
<PAGE>
with more than ___ separate portfolios, managed by Alliance
currently have over two million shareholders. As of December 31,
1998, Alliance was retained as investment manager for over ___ of
the FORTUNE 100 Companies.
Alliance provides investment advisory services and order
placement facilities for the Portfolios. For these advisory
services, each Portfolio paid Alliance as a percentage of net
assets:
PORTFOLIO FEE AS A PERCENTAGE FISCAL YEAR
OF NET ASSETS* ENDING
National Portfolio
Insured National Portfolio
California Portfolio
Insured California
Portfolio
Arizona Portfolio
Florida Portfolio
Massachusetts Portfolio
Michigan Portfolio
Minnesota Portfolio
New Jersey Portfolio
New York Portfolio
Ohio Portfolio
Pennsylvania Portfolio
Virginia Portfolio
*Fees are stated net of waivers and/or reimbursements. See the
"Fee Table" at the beginning of the Prospectus for more
information about fee waivers.
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 a 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 is a Vice President of ACMC with which he has been
associated since 1995. Previously he was an associate and trader
in the Municipal Derivative Products department at Merrill Lynch
Capital Markets.
<PAGE>
The Portfolios' Statements of Additional Information have more
detailed information about Alliance and other Portfolio service
providers.
________________________________________________________________
PURCHASE AND SALE OF SHARES
_________________________________________________________________
HOW THE PORTFOLIO VALUES ITS SHARES
The Portfolios' net asset value or NAV is calculated at 4 p.m.
Eastern time each day the Exchange is open for business. To
calculate NAV, each Portfolio's assets are valued and totaled,
liabilities are subtracted, and the balance, called net assets,
is divided by the number of shares outstanding. The Portfolios
value their securities 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 Portfolios'
directors believe accurately reflect fair market value.
Your order for the purchase, sale, or exchange of shares is
priced at the next NAV calculated after your order is accepted by
the Portfolio. Your purchase of Portfolio shares may be subject
to an initial sales charge. Sales of Portfolio shares may be
subject to a contingent deferred sales charge or CDSC. See the
section of the Prospectus under DISTRIBUTION ARRANGEMENTS for
details.
HOW TO BUY SHARES
You may purchase shares of any of the Portfolios through broker-
dealers, banks, or other financial intermediaries. You also may
purchase shares directly from the Portfolios' principal
underwriter, Alliance Fund Distributors, Inc., or AFD.
Minimum investment amounts are:
- Initial: $ 250
- Subsequent: $ 50
- Automatic Investment Program: $ 25
If you are an existing portfolio shareholder, you may purchase
shares by electronic funds transfer in amounts not exceeding
$500,000 if you have completed the appropriate section of the
Subscription Application or the Shareholder Options form. Call
(800) 221-5672 to arrange a transfer from your bank account.
Each Portfolio is required to withhold 31% of taxable dividends,
capital gains distributions, and redemptions paid to shareholders
who have not provided the Portfolio with their certified taxpayer
<PAGE>
identification number. To avoid this, you must provide your
correct Tax Identification Number (Social Security Number for
most investors) on your account application.
Each Portfolio may refuse any order to purchase shares. In this
regard, the Portfolios reserve the right to restrict purchases of
shares (including through exchanges) when they appear to evidence
a pattern of frequent purchases and sales made in response to
short-term considerations.
HOW TO EXCHANGE SHARES
You may exchange your Portfolio shares for shares of the same
class of other Alliance Mutual Funds (including AFD Exchange
Reserves, a money market fund managed by Alliance). Exchanges of
shares are made at the next determined NAV, without sales or
service charges. You may request an exchange by mail or
telephone. You must call by 4:00 p.m. Eastern time to receive
that day's NAV. The Portfolios may change, suspend, or terminate
the exchange service on 60 days' written notice.
HOW TO SELL SHARES
You may "redeem" your shares (i.e., sell your shares to a
Portfolio) on any day the Exchange is open, either directly or
through your financial intermediary. Your sales price will be the
next-determined NAV, less any applicable CDSC, after the
Portfolio receives your sales request in proper form. Normally,
proceeds will be sent to you within 7 days. However, if you
recently purchased your shares by check or electronic funds
transfer, you cannot redeem any portion of it until the Portfolio
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 submit it to the Portfolio by 5:00 p.m. Eastern time,
for you to receive that day's NAV, less any applicable CDSC. Your
broker is responsible for furnishing all necessary documentation
to the Portfolios, and may charge you for this service.
- -- SELLING SHARES DIRECTLY TO A PORTFOLIO
BY MAIL:
- Send a signed letter of instruction or stock power form,
along with your certificates, to:
<PAGE>
Alliance Fund Services
P.O. Box 1520
Secaucus, NJ 07096-1520
1-800-221-5672
- For your protection, a bank, a member firm of a national
stock exchange or other eligible guarantor institution,
must guarantee signature. 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.
If you have any questions about these procedures,
contact AFS.
BY TELEPHONE:
- You may redeem your shares for which no stock
certificates have been issued by telephone request.
Call AFS at 800-221-5672 with instructions on how you
wish to receive your sale proceeds.
- A telephone request must be made by 4:00 p.m. Eastern
time for you to receive that day's NAV, less any
applicable CDSC.
- If you have selected electronic funds transfer in your
Shareholder Application, the redemption proceeds may be
sent directly to your bank. Otherwise, the proceeds
will be mailed to you.
- Redemption requests by electronic funds transfer may not
exceed $100,000 per day and redemption requests by check
cannot exceed $50,000 per day.
- 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.
<PAGE>
________________________________________________________________
DIVIDENDS, DISTRIBUTIONS
AND TAXES
_________________________________________________________________
DIVIDENDS AND DISTRIBUTIONS
Dividends on shares of a Portfolio will be declared on each
Portfolio 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 Portfolios 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
Distributions to shareholders out of tax-exempt interest income
earned by a Portfolio are not subject to federal income tax.
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
<PAGE>
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. Since a
Portfolio's investment income is derived from interest rather
than dividends, no portion of its 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-Subject bonds
should consult their tax advisers before purchasing shares of a
Portfolio.
Any capital gains distributions may be taxable to you as capital
gains. A capital gains distribution received by a shareholder on
shares of a Portfolio will have the effect of reducing the net
asset value of such shares by the amount of such distribution.
Furthermore, a distribution made shortly after the purchase of
such shares by a shareholder, although in effect a return of
capital to that particular shareholder, would be taxable to him
or her as described above.
The sale or exchange of Fund shares is a taxable transaction for
federal income tax purposes. If a shareholder holds shares for
six months or less and during that time receives a distribution
of net capital gains, 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 that are
exempt from federal income taxes. The Portfolios will report
annually to shareholders the percentage and source of interest
earned by a Portfolio that 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 that is exempt from Florida
intangible personal property 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.
<PAGE>
ARIZONA PORTFOLIO. It is anticipated that substantially all of
the dividends paid by the Portfolio will be exempt from Arizona
individual, corporate and fiduciary income taxes. Distributions
of capital gains will be subject to Arizona income taxes.
Interest on indebtedness incurred to purchase or carry shares of
the Portfolio generally will not be deductible for purposes of
the Arizona income tax.
CALIFORNIA AND INSURED CALIFORNIA PORTFOLIOS. It is anticipated
that substantially all of the dividends paid by these Portfolios
will be exempt from California personal income tax.
FLORIDA PORTFOLIO. It is anticipated that Portfolio shares will
be exempt from the Florida intangible personal property tax.
Florida does not impose an individual income tax. 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 and fiduciary income taxes. Distributions
designated as attributable to capital gains, other than gains on
certain Massachusetts municipal securities, are subject to the
state personal and fiduciary income taxes at capital gains tax
rates. Distributions paid to corporate shareholders are subject
to the 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, intangible and single business taxes and from the uniform
city income tax imposed by certain Michigan cities. Capital gain
distributions attributable to the sale of non-Michigan municipal
securities are subject to Michigan income and single business
taxes but are exempt from the intangibles tax to the extent
reinvested in portfolio shares.
MINNESOTA PORTFOLIO. It is anticipated that substantially all of
the dividends paid by the Portfolio will be exempt from Minnesota
personal and fiduciary income taxes. Certain individuals may be
subject to the Minnesota alternative minimum tax on distributions
attributable to Portfolio income from AMT-Subject bonds.
Distributions to corporate shareholders are subject to the
Minnesota franchise tax.
NEW JERSEY PORTFOLIO. It is anticipated that substantially all of
the income dividends and capital gains distributions paid by the
Portfolio to individuals and fiduciaries will be exempt from the
New Jersey personal income tax. Exempt interest-dividends paid to
a corporate shareholder will be subject to the New Jersey
corporation business (franchise) and corporation income taxes.
<PAGE>
NEW YORK PORTFOLIO. It is anticipated that substantially all of
the dividends paid by the Portfolio will be exempt from New York
State and New York City personal and fiduciary income taxes.
Distributions of capital gains will be subject to these taxes.
Interest on indebtedness incurred to buy or carry shares of the
Portfolio generally will not be deductible for New York income
tax purposes. Distributions paid to corporate shareholders will
be included in New York entire net income for purposes of the
franchise tax.
OHIO PORTFOLIO. It is anticipated that substantially all
distributions of income and capital gains paid by the Portfolio
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 tax base of the Ohio
franchise tax. 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. It is anticipated that substantially all
of the dividends paid by the Portfolio will be exempt from
Pennsylvania personal and fiduciary income taxes, the
Philadelphia School District investment net income tax and
Pennsylvania corporate net income tax, and that shares of the
Portfolio will be exempt from Pennsylvania county personal
property taxes. Distributions of capital gains will be subject to
Pennsylvania individual, fiduciary and corporate income taxes but
will not be taxable for purposes of the Philadelphia School
District Income tax. Portfolio shares are included for purposes
of determining a corporation's capital stock value subject to the
Pennsylvania capital stock/franchise tax.
VIRGINIA PORTFOLIO. It is anticipated that substantially all of
the dividends paid by the Portfolio will be exempt from Virginia
individual income, estate, trust, and corporate income taxes.
Distributions attributable to capital gains 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 to
purchase or carry shares of the Portfolio generally will not be
deductible for Virginia income tax purposes.
<PAGE>
_________________________________________________________________
DISTRIBUTION ARRANGEMENTS
_________________________________________________________________
The Portfolios offer three classes of shares.
CLASS A SHARES -- INITIAL SALES CHARGE ALTERNATIVE
You can purchase Class A shares at NAV with an initial sales
charge, as follows:
INITIAL SALES CHARGE
AS % OF COMMISSION
AMOUNT PURCHASED NET AS % OF TO
AMOUNT OFFERING DEALER/AGENT
INVESTED PRICE AS % OF
OFFERING
PRICE
_________________________________________________________________
Up to $100,000 4.44% 4.25% 4.00%
$100,000 up to $250,000 3.36 3.25 3.00
$250,000 up to $500,000 2.30 2.25 2.00
$500,000 to $1,000,000 1.78 1.75 1.50
You pay no initial sales charge on purchases of Class A Shares in
the amount of $1,000,000 or more, but may you pay a 1% CDSC if
you redeem your shares within 1 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 Portfolio'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 about these options.
CLASS B SHARES -- DEFERRED SALES CHARGE ALTERNATIVE
You can purchase Class B shares at NAV without an initial sales
charge. A Portfolio will thus receive the full amount of your
purchase. Your investment, however, will be subject to a CDSC if
you redeem shares within 3 years of purchase. The CDSC varies
depending on the number of years that you hold the shares. The
CDSC amounts are:
<PAGE>
YEAR SINCE PURCHASE CDSC
First 3%
Second 2%
Third 1%
Fourth None
If you exchange your shares for the Class B shares of another
Alliance Fund, the CDSC also will apply to those Class B shares.
The CDSC period begins with the date of your original purchase,
not the date of exchange for the other Class B shares.
Class B shares purchased for cash automatically convert to Class
A shares six years after the end of the month of your purchase,
If you purchase shares by exchange for the Class B shares of
another Alliance Fund, the conversion period runs from the date
of your purchase.
CLASS C SHARES -- ASSET-BASED SALES CHARGE ALTERNATIVE
You can purchase Class C shares at NAV without any initial sales
charge. The Portfolio will thus receive the full amount of your
purchase. Your investment, however, will be subject to a 1% CDSC
if you redeem your shares within 1 year. If you exchange your
shares for the Class C shares of another Alliance Fund, the 1%
CDSC also will apply to those Class C shares. The 1-year period
for the CDSC begins with the date of your original purchase, not
the date of the exchange for the other Class C shares.
Class C shares do not convert to any other class of shares of the
Portfolio.
ASSET-BASED SALES CHARGE OR RULE 12B-1 FEES
Each Portfolio has adopted as plan under Commission Rule 12b-1
that allows the Portfolio to pay asset-based sales charges or
distribution and service fees for the distribution and sale of
its shares. The amount of these fees for each class of the
Portfolio's shares is:
Rule 12b-1 Fee (as a percent of Aggregate average net assets)
Class A .30%
Class B 1.00%
Class C 1.00%
Because these fees are paid out of the Portfolio's assets on an
on-going basis, over time these fees will increase the cost of
your investment and may cost you more than paying other types of
sales fees. Class B and Class C shares are subject to higher
distribution fees than Class A shares (Class B shares are subject
<PAGE>
to these higher fees for a period of six years, after which they
convert to Class A shares). The higher fees mean a higher expense
ratio, so Class B and Class C shares pay correspondingly lower
dividends and may have a lower net asset value than Class A
shares.
CHOOSING A CLASS OF SHARES
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 sales charge and, as long as
the shares are held for one year or more. 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 $1,000,000.
APPLICATION OF THE CDSC
The CDSC is applied to the lesser of the original cost of shares
being redeemed or NAV at the time of redemption (or, as to
Portfolio shares acquired through an exchange, the cost of the
Alliance Fund shares originally purchased for cash). Shares
obtained from dividend or distribution reinvestment are not
subject to the CDSC. The Portfolios may waive the CDSC on
redemptions of shares following the death or disability of a
shareholder, to meet the requirements of certain qualified
retirement plans, or under a monthly, bimonthly, or quarterly
systematic withdrawal plan. See the Portfolio's SAI for further
information about CDSC waivers.
OTHER
A transaction, service, administrative or other similar fee may
be charged by your broker-dealer, agent, financial intermediary
or other financial representative with respect to the purchase,
sale or exchange of Class A, Class B or Class C shares made
through such financial representative. Such financial
intermediaries may also impose requirements with respect to the
purchase, sale, or exchange of shares that are different from, or
in addition to, those imposed by a Portfolio, including
requirements as to the minimum initial and subsequent investment
amounts.
In addition to the discount or commission paid to dealers or
agents, AFD from time to time pays additional cash or other
<PAGE>
incentives to dealers or agents, including EQ Financial
Consultants, 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 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.
________________________________________________________________
GENERAL INFORMATION
________________________________________________________________
Under unusual circumstances, a Portfolio may suspend redemptions
or postpone payment for up to seven days or longer, as permitted
by federal securities law. Each Portfolio reserves 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 Subscription Application. A shareholder's manual
explaining all available services will be provided upon request.
To request a shareholder manual, call 800-227-4618.
<PAGE>
FINANCIAL HIGHLIGHTS
[TO BE INSERTED]
<PAGE>
For more information about the Portfolios, the following
documents are available upon request:
- -- ANNUAL/SEMI-ANNUAL REPORTS TO SHAREHOLDERS
The Portfolios' annual and semi-annual reports to shareholders
contain additional information on the Portfolios' investments.
In the annual report, you will find a discussion of the market
conditions and investment strategies that significantly affected
a Portfolio's performance during its last fiscal year.
- -- STATEMENT OF ADDITIONAL INFORMATION (SAI)
Each Portfolio has an SAI, which contains more detailed
information about the Portfolio, including its operations and
investment policies. The Portfolios' SAIs are incorporated by
reference into (and is legally part of) this prospectus.
You may request a free copy of the current annual/semi-annual
report or the SAI, by contacting your broker or other financial
intermediary, or by contacting Alliance:
BY MAIL: C/O ALLIANCE FUND SERVICES, INC.
P.O. BOX 1520, SECAUCUS, NJ 07096-1520
BY PHONE: For Information: (800) 221-5672
For Literature: (800) 227-4618
Or you may view or obtain these documents from the SEC:
IN PERSON: at the SEC's Public Reference Room in
Washington, D.C.
BY PHONE: 1-800-SEC-0330
BY MAIL: Public Reference Section
Securities and Exchange Commission
Washington, DC 20549-6009
(duplicating fee required)
ON THE INTERNET: www.sec.gov
You also may find more information about Alliance and the
Portfolios on the Internet at: www.Alliancecapital.com.
<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 1, 1999
________________________________________________________________
This Statement of Additional Information is not a
prospectus but supplements and should be read in conjunction with
the current Prospectus for the National Portfolio, Insured
National Portfolio, California Portfolio, Insured California
Portfolio and New York Portfolio (the "Portfolios") of the
Alliance Municipal Income Fund, Inc. (the "Fund") that offers the
Class A, Class B and Class C shares of the Portfolios (the
"Prospectus") and, if the Portfolios begin to offer Advisor Class
shares, the Prospectus for the Portfolios that offers the Advisor
Class shares of the Portfolios (the "Advisor Class Prospectus"
and, together with the Prospectus for the Portfolios that offers
the Class A, Class B and Class C shares, the "Prospectus(es)").
The Portfolios currently do not offer Advisor Class shares.
Copies of such Prospectus(es) may be obtained by contacting
Alliance Fund Services, Inc. at the address or the "For
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..........................
Brokerage and 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
________________________________________________________________
Alliance Municipal Income Fund, Inc. (the "Fund") is an
open-end investment company comprising the diversified National
and Insured National Portfolios and the non-diversified
California, Insured California and New York Portfolios. 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
2
<PAGE>
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
specific detail on each of these obligations in which Fund assets
may be invested.
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,
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
3
<PAGE>
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 March 1997 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 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 an
Official Statement, dated March 1, 1997, relating to $214,070,000
General Obligation Bonds, the Comptroller's Report on the
Financial Condition of New York State - 1997, and the State
Comptroller's 1997-98 Budget: Fiscal Review and Analysis, dated
September 10, 1997.
4
<PAGE>
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.
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 throughout the fiscal year without relying on
short-term seasonal borrowings. The 1996-97 State Financial Plan
included no seasonal borrowing. Recently, the State has
attempted to reduce its dependence on the LGAC. The projected
1997-98 General Fund cash flow will not depend on either short-
term spring borrowing or the issuance of LGAC bonds. The new-
money bond issuance portion of the LGAC program was completed in
1995-96, and provisions prohibiting the State from returning to a
reliance upon cash-flow manipulation to balance its budget will
remain in bond covenants until the LGAC bonds are retired.
Recent Developments
The national economy has resumed a more robust rate of
growth after a "soft landing" in 1995, with over 13 million jobs
added nationally since early 1992. The State economy has
continued to expand, but growth remains somewhat slower than in
the nation. Since 1992, New York's job growth has ranked 48th in
the nation. From April 1996 to April 1997 the State gained
97,800 jobs or 1.2 percent, while the United States gained
2,685,000 jobs or 2.3 percent. Most of the job growth has
occurred in service jobs while manufacturing and government
employment has declined.
While total State personal income has increased 22
percent between 1993 and 1997, compared to a 24 percent increase
nationwide over the same period, the State's per capita income
continues to exceed the national average. The State ranked
fourth highest in per capita personal income in 1995. The
State's per capita personal income is projected to grow at a
slightly higher rate than the national average during 1997.
The State's moderate economic growth in employment,
wages and personal income is projected to slow slightly in 1998.
Personal income was estimated to have grown by 5.2 percent in
1996 and 4.5 percent in 1997, fueled in part by an unusually
large increase in financial sector bonus payments, and is
projected to grow 4.2 percent in 1998. Overall employment growth
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is projected to continue at a modest rate, reflecting the
moderate growth of the national economy, continued spending
restraint in government, and restructuring in the health care,
social service and banking sectors.
1997-98 Fiscal Year
The increase in Wall Street revenues since 1995
continues to be the most significant factor in the State's
ability to balance its budget. New York is projected to spend
$67.4 billion on an all-funds basis in 1997-98, 7 percent more
than in 1996-97. The enacted budget contained $1.2 billion more
spending than was included in the Governor's budget proposal.
However, based on over $2 billion in reestimated revenue
increases, the financial plan enacted for 1997-98 is balanced
with virtually no spending cuts and includes a planned $350
million year-end surplus. The Comptroller predicts that, because
the financial plan's revenue and spending projections are
conservative, the actual year-end surplus could be $530 million.
1996-97 Fiscal Year
The State ended its 1996-97 fiscal year on March 31,
1997 in balance on a cash basis, with a 1996-97 General Fund cash
surplus as reported by the Division of the Budget ("DOB") of
approximately $1.4 billion. The cash surplus was derived
primarily from higher-than-expected revenues and lower-than-
expected spending for social services programs. Of the cash
surplus amount, $1.05 billion was previously budgeted by the
Governor in his Executive Budget to finance the 1997-98 Financial
Plan, and the additional $373 million is available for use in
financing the 1997-98 State Financial Plan.
The General Fund closing fund balance was $433 million.
Of that amount, $317 million was in the Tax Stabilization Reserve
Fund (the "TSRF"), after a required deposit of $15 million and an
additional deposit of $65 million in 1996-97. The TSRF can be
used in the event of any future General Fund deficit, as provided
under the State Constitution and State Finance Law. In addition,
$41 million remains on deposit in the Contingency Reserve Fund
(the "CRF"). This fund assists the State in financing any
extraordinary litigation during the fiscal year. The remaining
$75 million reflects amounts on deposit in the Community Projects
Fund. This fund was created to fund certain legislative
initiatives. The General Fund closing fund balance does not
include $1.86 billion in the tax refund reserve account, of which
$521 million was made available as a result of the LGAC financing
program and was required to be on deposit as of March 31, 1997.
General Fund receipts and transfers from other funds for
the 1996-97 fiscal year totaled $33.04 billion, an increase of
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less than 1 percent from 1995-96 levels (excluding deposits into
the tax refund reserve account). This was $129 million lower
than originally projected in the 1996-97 State Financial Plan as
enacted in July 1996. As compared to the State's July
projections, personal income tax receipts were $730 million less
than projected. Tax receipts in all other categories were higher
than estimated in the July projections, including user taxes and
fees ($72 million), business tax receipts ($457 million) and
other taxes and fees ($133 million). Miscellaneous receipts and
transfers were a combined $63 million less than projected in the
original 1996-97 Financial Plan. The large variance in the
personal income tax projections reflects year-end actions that
had the effect of reducing personal income tax receipts and
miscellaneous receipts by about $1.7 billion. These actions
included early implementation of withholding table changes
accompanying scheduled 1997 personal income tax reductions,
accelerated payment of an estimated $217 million in personal
income tax refunds, and a $1.26 billion deposit of otherwise
excess receipts to the tax refund reserve account. Adjusted for
these actions, personal income taxes were almost $1 billion
higher than expected, largely due to higher-than-projected
withholding and estimated tax collections as a result of
stronger-than-expected economic growth, particularly in the
financial markets and the securities industries.
General Fund disbursements and transfers to other funds
totaled $32.90 billion for the 1996-97 fiscal year, an increase
of less than 1 percent from unadjusted 1995-96 levels.
Disbursements and transfers were $226 million lower than levels
projected in the July 1996-97 Financial Plan forecast. As
compared to the July projections, grants to local governments
were $250 million lower, State operations spending was $38
million lower, general State charges and debt service were $35
million lower than projected, and transfers to other funds for
debt service, capital projects and other purposes were $99
million higher than originally projected. Much of the decline in
local assistance spending was the result of a lower-than-
projected public assistance caseload, while the increase in
transfers relates to reestimates in lottery proceeds.
Disbursements in Governmental Funds for the 1996-97
fiscal year totaled $62.95 billion, $3 billion lower than
projected at the beginning of the fiscal year. Much of this
variance was due to the uncertainty surrounding federal action on
entitlement spending at the beginning of the fiscal year. Total
unadjusted Government Funds spending decreased $278 million or
0.4 percent below the 1995-96 fiscal year.
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1995-96 Fiscal Year
The State ended its 1995-96 fiscal year on March 31,
1996 with a General Fund cash surplus. DOB reported that
revenues exceeded projections by $270 million, while spending for
social service programs was lower than forecast by $120 million
and all other spending was lower by $55 million. From the
resulting benefit of $445 million, a $65 million voluntary
deposit was made into the TSRF, and $380 million was used to
reduce 1996-97 Financial Plan liabilities by accelerating 1996-97
payments, deferring 1995-96 revenues, and making a deposit to the
tax refund reserve account.
The General Fund closing fund balance was $287 million,
an increase of $129 million from 1994-95 levels. The $120
million change in fund balance is attributable to the $65 million
voluntary deposit to the TSRF, a $15 million required deposit to
the TSRF, a $40 million deposit to the CRF, and a $9 million
deposit to the Revenue Accumulation Fund. The closing fund
balance included $237 million on deposit in the TSRF, to be used
in the event of any future General Fund deficit as provided under
the State Constitution and State Finance Law. In addition, $41
million was on deposit in the CRF. The remaining $9 million
reflected amounts on deposit in the Revenue Accumulation Fund.
This fund was created to hold certain tax receipts temporarily
before the deposit to other accounts. In addition, $678 million
was on deposit in the tax refund reserve account, of which $521
million was necessary to complete the restructuring of the
State's cash flow under the LGAC program.
General Fund receipts totaled $32.81 billion, a decrease
of 1.1 percent from 1994-95 levels. This decrease reflects the
impact of tax reductions enacted and effective in both 1994 and
1995. General Fund disbursements totaled $32.68 billion for the
1995-96 fiscal year, a decrease of 2.2 percent from 1994-95
levels. Mid-year spending reductions, taken as part of a
management review undertaken in October at the direction of the
Governor, yielded savings from Medicaid utilization controls,
office space consolidation, overtime and contractual expense
reductions, and statewide productivity improvements achieved by
State agencies. Together with decreased social services
spending, this management review accounts for the bulk of the
decline in spending.
1994-95 Fiscal Year
The State ended its 1994-95 fiscal year with the General
Fund in balance. The $241 million decline in the fund balance
reflects the planned use of $264 million from the CRF, partially
offset by the required deposit of $23 million to the TSRF. In
addition, $278 million was on deposit in the tax refund reserve
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account, $250 million of which was deposited to continue the
process of restructuring the State's cash flow as part of the
LGAC program. The closing fund balance of $158 million reflects
$157 million in the TSRF and $1 million in the CRF.
General Fund receipts totaled $33.16 billion, an
increase of 2.9 percent from 1993-94 levels. General Fund
disbursements totaled $33.40 billion for the 1994-95 fiscal year,
an increase of 4.7 percent for the previous fiscal year. The
increase in disbursements was primarily the result of one-time
litigation costs for the State, funded by the use of the CRF,
offset by $188 million in spending reductions initiated in
January 1995 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.
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.
1996-97 Fiscal Year: GAAP Basis
The State completed its 1996-97 fiscal year with a
combined Governmental Funds operating surplus of $2.1 billion,
which included an operating surplus in the General Fund of $1.9
billion, in Capital Projects Funds of $98 million and in the
Special Revenue Funds of $65 million, offset in part by an
operating deficit of $37 million in the Debt Service Funds.
The State reported a General Funds operating surplus of
$1.93 billion for the 1996-97 fiscal year, as compared to an
operating surplus of $380 million for the prior fiscal year. The
1996-97 fiscal year GAAP operating surplus reflects several major
factors, including the cash basis operating surplus, the benefit
of bond proceeds which reduced the State's pension liability, an
increase in taxes receivable of $493 million, and a reduction in
tax refund liabilities of $196 million. This was offset by an
increased payable to local governments of $244 million.
1995-96 Fiscal Year: GAAP Basis
The State completed its 1995-96 fiscal year with a
combined Governmental Funds operating surplus of $432 million,
which included an operating surplus in the General Fund of $380
million, in the Capital Projects Funds of $276 million and in the
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Debt Service Funds of $185 million, offset in part by an
operating deficit of $409 million in the Special Revenue Funds.
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 services sector which includes entertainment,
personal services, such as health care and auto repairs, and
business-related services, such as information processing, law
and accounting, is the State's leading economic sector. The
service sector accounts for more than three of every ten
nonagricultural jobs in New York. New York's economy is somewhat
more reliant than the rest of the nation on this sector.
Manufacturing employment continues to decline in
importance in New York, as in most other states, and New York's
economy is less reliant on this sector than is the nation.
Manufacturing's share of total employment declined from 20.1 to
12.0 percent between 1980 and 1995. The principal manufacturing
industries in recent years produced printing and publishing
materials, instruments and related products, machinery, apparel
and finished fabric products, electronic and other electric
equipment, food and related products, chemicals and allied
products, and fabricated metal products.
Wholesale and retail trade is the second largest sector
in terms of nonagricultural jobs in New York but is considerably
smaller when measured by income share. Trade consists of
wholesale businesses and retail businesses such as department
stores and eating and drinking establishments.
New York City (the "City") is the nation's leading
center of banking and finance, and, as a result, this is a far
more important sector in the State than in the nation as a whole.
Although this sector accounts for under one-tenth of all
nonagricultural jobs in the State, it contributes one-seventh of
all nonfarm labor and proprietors' income.
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Farming is an important part of the economy of large
regions of the State, although it constitutes a very minor part
of total State output. Principal agricultural products of the
State include milk and dairy products, greenhouse and nursery
products, apples and other fruits, and fresh vegetables. New
York ranks among the nation's leaders in the production of these
commodities.
Federal, State and local government account for almost
18 percent of nonagricultural State employment and 16 percent of
nonfarm labor income.
The State is likely to be less affected than the nation
as a whole during an economic recession that is concentrated in
manufacturing and construction, but likely to be more affected
during a recession that is concentrated more in the service-
producing sector.
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 1997, the State's
rate of economic growth was somewhat slower than that of the
nation. In the 1990-91 recession and post-recession period, 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 1987. The
unemployment rate in the State dipped below the national rate in
the second half of 1981 and 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.
State per capita personal income has historically been
significantly higher than the national average, although the
ratio has varied substantially. Because the City is a regional
employment center for a multi-state region, state personal income
measured on a residence basis understates the relative importance
of the State to the national economy and the size of the base to
which State taxation applies.
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
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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, 1996, the date of
the latest data available, there were 17 Authorities that had
outstanding debt of $100 million or more, and the aggregate
outstanding debt, including refunding bonds, of these Authorities
was $75.4 billion. At the end of fiscal year 1996-97, aggregate
Authority debt outstanding as State-supported debt was
$32.7 billion and as State-related debt was $38.4 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. 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 1997-98
fiscal year.
In addition to the moral obligation financing
arrangements described above, State law provides for the creation
of 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") was created in 1975 to provide financing assistance to
the City. 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 and now issued by the Dormitory
Authority of the State of New York 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 1997-98 fiscal year.
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The Metropolitan Transportation Authority (the "MTA")
oversees the operation of the City's subway and bus lines,
certain commuter rail and bus lines, a rapid transit line on
Staten Island and 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. Since 1980, the State has enacted
several taxes to fund operating or capital assistance to the MTA.
For the 1997-1998 fiscal year, total State assistance to the MTA
is estimated at approximately $1.2 billion, an increase of $76
million over the 1996-97 fiscal year.
State legislation accompanying the 1996-97 adopted State
budget authorized the MTA, TBTA and TA to issue an aggregate of
$6.5 billion in bonds to finance a portion of a new $11.98
billion MTA capital plan for the 1995 through 1999 calendar years
(the "1995-99 Capital Program"). This plan is designed to
upgrade the performance of the MTA's transportation systems by
investing in new following stock, maintaining replacement
schedules for existing assets and bringing the MTA system to a
state of good repair. The 1995-99 Capital Program assumes the
issuance of an estimated $5.1 billion in bonds under this $6.5
billion aggregate bonding authority. The remainder of the plan
is projected to be financed through assistance from the State,
the federal government, and the City of New York, and from
various other revenues generated from actions taken by the MTA.
Should funding levels fall below current projections,
the MTA would have to revise its 1995-99 Capital Program
accordingly. If the 1995-99 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.
New York City
The fiscal health of the State may also be affected by
the fiscal health of the City, which 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
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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. A
"Control Period" 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, 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 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.
Implementation of the Financial Plan is also dependent
upon the ability of the City and certain entities issuing debt
for the benefit of the City to market their securities
successfully. The City issues securities to finance, refinance
and rehabilitate infrastructure and other capital needs, as well
as for seasonal financing needs. In order to help the City to
avoid exceeding its State Constitutional general debt limit, the
State created the New York City Transitional Finance Authority to
finance a portion of the City's capital program. Despite this
additional financing mechanism, the City currently projects that,
if no further action is taken, it will reach its debt limit in
City fiscal year 1999-2000. On June 2, 1997, an action was
commenced seeking a declaratory judgment to declare the
legislation establishing the Transitional Finance Authority
unconstitutional. If such legislation were voided, projected
contracts for City capital projects would exceed the City's debt
limit during fiscal year 1997-98. Future developments concerning
the City or entities issuing debt for the benefit of the City,
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
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entities and may also affect the market for their outstanding
securities.
OSDC and Control Board Reports
The staffs of the Control Board, OSDC and the City
Comptroller issue periodic reports on the City's Financial Plans
which analyze the City's forecasts of revenues and expenditures,
cash flow, and debt service requirements for, and Financial Plan
compliance by, the City and its Covered Organizations. According
to recent staff reports, the City's economy has experienced weak
employment and moderate wage and income growth throughout the
mid-1990s. Although this trend is expected to continue for the
rest of the decade, there is the risk of a slowdown in the City's
economy in the next few years, which would depress revenue growth
and put further strains on the City's budget. These reports have
also indicated that recent City budgets have been balanced in
part through the use of non-recurring resources; that the City's
Financial Plan tends to rely on actions outside its direct
control; that the City has not yet brought its expenditure growth
in line with recurring revenue growth; and that the City is
therefore likely to continue to face substantial future budget
gaps that must be closed with reduced expenditures and/or
increased revenues.
Financing Requirements
The City requires significant amounts of financing for
seasonal and capital purposes. The City issued $880 million
notes for seasonal financing purposes in fiscal year 1997. 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, roads, bridges, mass transit, schools, hospitals and
housing.
In connection with the Financial Plan, the City has
outlined a gap-closing program for the 1998 through 2000 fiscal
years to substantially reduce the remaining $1.7 billion and $3.4
billion projected budget gaps for such fiscal years. This
program, which is not specified in detail, assumes additional
agency programs to reduce expenditures or increase revenues by
$674 million, $959 million and $1.1 billion in the 1998 through
2000 fiscal years, respectively; additional reductions in
entitlement costs of $400 million, $750 million and $1.0 billion
in the 1998 through 2000 fiscal years, respectively; additional
savings of $250 million, $300 million and $500 million in the
1998 through 2000 fiscal years, respectively, resulting from
restructuring City government by consolidating operations,
privatization and mandate management and other initiatives;
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additional proposed Federal and State aid of $105 million, $200
million and $300 million in the 1998 through 2000 fiscal years,
respectively; additional revenue initiatives and asset sales of
$155 million, $350 million and $400 million in the 1998 through
2000 fiscal years, respectively; and the availability in each of
the 1998 through 2000 fiscal years of $100 million of the General
Reserve.
In 1997, record performance on Wall Street enabled the
City to recognize nearly $1.3 billion in surplus revenues. The
surplus will be used to meet half of the City's gap closing
needs. The City has also created a stabilization fund, which
includes $300 million to be used towards fiscal year 1999 and
$200 million in the General Reserve. However, the 1998 New York
City Financial Plan projects a 7.4 percent spending increase
while revenues are projected to decrease.
Other Localities
Certain localities outside the City have experienced
financial problems and have requested additional State assistance
during the last several State fiscal years. The potential impact
on the State of any future requests by localities is not included
in the projections of the State's receipts and disbursements for
the State's 1997-98 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.
Beginning in 1990, the City of Troy experienced a series
of budgetary deficits that resulted in the establishment of a
Supervisory Board for the City of Troy in 1994. The Supervisory
Board's powers were increased in 1995, when Troy MAC was created
to help Troy avoid default on certain obligations. The
legislation creating Troy MAC prohibits the City of Troy from
seeking federal bankruptcy protection while Troy MAC bonds are
outstanding.
Eighteen municipalities received extraordinary
assistance during the 1996 legislative session through $50
million in special appropriations targeted for distressed cities,
aid that was largely continued in 1997. Twenty-eight
municipalities are scheduled to share the more than $32 million
in targeted unrestricted aid allocated in the 1997-98 budget. An
additional $21 million will be dispersed among all cities, towns
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and villages, a 3.97 percent increased in General Purpose State
Aid.
Certain Municipal Indebtedness
Municipalities and school districts have engaged in
substantial short-term and long-term borrowings. In 1995, the
total indebtedness of all localities in the State other than the
City was approximately $19.0 billion. A small portion
(approximately $102.3 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. Seventeen
localities had outstanding indebtedness for deficit financing at
the close of their fiscal year ending in 1995.
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 legal proceedings involving
State finances, State programs and miscellaneous tort, real
property and contract claim where the monetary damages sought are
substantial. These proceedings could affect adversely the
financial condition of the State in the 1997-98 fiscal year or
thereafter.
Adverse developments in these proceedings or the
initiation of new proceedings could affect the ability of the
State to maintain a balanced 1997-98 State Financial Plan. The
State believes that the 1997-98 State Financial Plan includes
sufficient reserves for the payment of judgments that may be
required during the 1997-98 fiscal year. There can be no
assurance, however, that an adverse decision in any of these
proceedings would not exceed the amount of the 1997-98 State
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Financial Plan. In its General Purpose Financial Statements, the
State reports its estimated liability in subsequent fiscal years
for awarded 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 following is based on information obtained from an
Official Statement dated March 1, 1997 relating to $525,000,000
State of California Various Purpose General Obligation Bonds.
Limits on Spending and Taxes
Under California (the "State") constitutional
amendments, the State is subject to an annual appropriations
limit. The Appropriations Limit may be exceeded in cases of
emergency. The State's yearly Appropriations Limit is based on
the 1986-87 fiscal year budget authorizations 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.
On November 8, 1988, voters approved Proposition 98, a
combined initiative constitutional amendment and statute, which
changed State funding of public education 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, K-14 schools are
guaranteed the greater of a fixed percentage of General Fund
revenues or the prior year's appropriation adjusted adjusted for
growth.
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. The settlement in this case provides,
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among other things, 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
by forgiveness of the amount owed, while schools will repay $825
million. The State share of the repayment will be reflected as an
appropriation 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. The Director of Finance has certified that
a settlement has occurred, allowing approximately $351 million in
appropriations from the 1995-96 Fiscal Year to be disbursed to
schools in August 1996.
Short-Term Borrowing of California
As part of its cash management program, the State has
regularly issued short-term obligations to meet cash flow needs.
Between spring 1992 and summer 1994, the State had 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 issued $3.0
billion of revenue anticipation notes for the 1996-97 Fiscal
Year, which notes matured on June 30, 1997.
The State Treasurer is working closely with the State
Controller and the Department of Finance to manage the State's
cash flow on a regular basis, with the goal of reducing the
State's external cash flow borrowing. The three offices are also
working to develop programs to use commercial paper in whole or
in part for the State's cash flow borrowing needs, and for
construction period financing for both general obligation
bond-funded and lease-revenue bond-funded projects. As of March
1, 1997 the Finance Committees had authorized the issuance of
approximately $3.356 billion of commercial paper notes, but as of
that date only $367.78 million aggregate principal amount of
general obligation commercial paper notes was actually issued and
outstanding.
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.
1997-98 Fiscal Year Proposed Budget
On January 9, 1997, the Governor released his
proposed budget for the 1997-98 Fiscal Year (the "Governor's
Budget"). The Governor's Budget projects General Fund
revenues and transfers in 1997-98 of $50.7 billion, a 4.6
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percent increase from revised 1996-97 figures. The Governor
proposes expenditures of $50.3 billion, a 3.9 percent
increase from 1996-97. The Governor's Budget projects a
balance in the Special Fund for Economic Uncertainties (the
"SFEU") of $553 million on June 30, 1998 and also
anticipates about $3 billion of external borrowing for cash
flow purposes during the year, with no requirement for
cross-fiscal year borrowing.
Among the major initiatives and features of the
Governor's Budget are the following:
1. A proposed 10 percent cut in the Bank and
Corporation Tax rate, to be phased in over two years.
2. Proposition 98 funding for K-14 schools will be
increased again, as a result of stronger revenues. Per-
pupil funding for K-12 schools will reach $5,010, compared
to $4,220 as recently as the 1993-94 Fiscal Year. Part of
the new funding is proposed to be dedicated to the
completion of the current program to reduce class size to 20
pupils in lower elementary grades, and to expand the program
by one grade, so that it will cover K-3rd grade.
3. Funding for higher education will be increased
consistent with a four-year "compact" established in 1995-
96. No increase in student fees at any of the three levels
of the State higher education system is projected.
4. The Governor's Budget assumes approximately
$500 million in savings contingent upon federal action. It
assumes that federal law will be enacted to remove the
maintenance-of-effort requirement for Supplemental Security
Income (SSI) payments, thereby enabling the State to reduce
grant levels pursuant to previously enacted state law. The
Governor's Budget also assumes the federal government will
fund $216 million in costs of health care for illegal
immigrants.
1996-97 Fiscal Year
The 1996-97 Budget Act was signed by the Governor
on July 15, 1996, along with various implementing bills.
The Governor vetoed about $82 million of appropriations
(both General Fund and Special Fund). With the signing of
the Budget Act, the State implemented its regular cash flow
borrowing program with the issuance of $3.0 billion of
Revenue Anticipation Notes to mature on June 30, 1997. The
Budget Act appropriated a modest budget reserve in the SFEU
of $305 million, as of June 30, 1997. The Department of
Finance projected that, on June 30, 1997, the State's
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available internal borrowable (cash) resources would be $2.9
billion, after payment of all obligations due by that date,
so that no cross-fiscal year borrowing would be needed.
Revenues The Legislature rejected the Governor's
proposed 15 percent cut in personal income taxes (to be
phased over three years), but did approve a 5 percent cut in
bank and corporation taxes, to be effective for income years
starting on January 1, 1997. As a result, revenues for the
Fiscal Year were estimated to total $47.643 billion, a 3.3
percent increase over the final estimated 1995-96 revenues.
Special Fund revenues were estimated to be $13.3 billion.
Expenditures The Budget Act contained General Fund
appropriations totaling $47.251 billion, a 4.0 percent
increase over the final estimated 1995-96 expenditures.
Special Fund expenditures were budgeted at $12.6 billion.
Subsequent Developments Following enactment of the
1996-97 Budget Act, Congress passed and, on August 22, 1996,
President Clinton signed into law The Personal
Responsibility and Work Opportunity Act of 1996, which made
significant reforms to the current welfare system. The law
provides California approximately $3.7 billion in block
grant funds for Fiscal Year 1996-97. The law required
states to implement new plans not later than July 1, 1997
and provided a prorated block grant effective the date of
application. The California State Plan was approved
November 27, 1996 to allow grant reductions to be
implemented effective January 1, 1997 and to allow the State
to capture approximately $267 million in additional federal
block grant funds over the currently budgeted level. The
1996-97 Budget Act assumed savings of approximately $660
million in health and welfare costs as a result of
anticipated changes in federal law. None of the other
federal changes needed to achieve the balance of the $660
million cost savings were enacted. Thus, in lieu of the
$660 million savings initially assumed to be saved, it is
now projected that savings will total approximately $320
million.
With the continued strong economic recovery in the
State, the Department of Finance has estimated, in
connection with the release of the Governor's Budget that
revenues for the 1996-97 Fiscal Year will exceed initial
projections by about $760 million. This increase will be
offset by higher expenditures for K-14 school aid (pursuant
to Proposition 98) and for health and welfare costs, because
federal law changes and other federal actions did not
provide as much assistance to the State as was initially
planned in the Budget Act. The Department's updated
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projections show a balance in the SFEU of $197 million,
slightly lower than projected in July, 1996. The Department
also projects the State's cash position will be stronger
than originally estimated, with unused internal borrowable
resources at June 30, 1997 of about $4.3 billion.
1995-96 Fiscal Year
Final data for the 1995-96 Fiscal Year showed
revenues and transfers of $46.1 billion, $2 billion over the
original fiscal year estimate, which was attributed to the
strong economic recovery. Expenditures also increased, to
an estimated $45.4 billion, as a result of the requirement
to expend revenues for schools under Proposition 98, and,
among other things, failure of the federal government to
enact welfare reform during the fiscal year and to budget
new aid for illegal immigrant costs, both of which had been
counted on to allow reductions in State costs. The SFEU had
a negative balance of about $87 million at June 30, 1996,
all but eliminating the accumulated budget deficit from the
early 1990's. Available internal borrowable resources
(available cash, after payment of all obligations due) on
June 30, 1996 was about $3.8 billion, representing a
significant improvement in the State's cash position, and
ending the need for deficit borrowing over the end of the
fiscal year. The State's improved cash position allowed it
to repay the $4.0 billion Revenue Anticipation Warrant issue
on April 25, 1996, and to issue only $2.0 billion of revenue
anticipation notes during the fiscal year, which matured on
June 28, 1996.
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.
After suffering through a severe recession,
California's economy has been on a steady recovery since the
start of 1994. More than 300,000 nonfarm jobs were added in
the State in 1996, while personal income grew by more than
$55 billion. California's economic expansion is being
fueled by strong growth in high-technology industries,
including computer software, electronics manufacturing and
motion picture production, all of which have offset the
recession-related losses which were heaviest in aerospace
and defense-related industries (which accounted for two-
thirds of the job losses), finance and insurance.
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California's economy is approaching a major
milestone in 1997 as gross state domestic product is
expected to pass the $1 trillion mark. As a stand-alone
economy, California's economy would rank seventh in the
world, ahead of China's and behind the United Kingdom's.
The State's Employment Development Department
reports that the State's unemployment rate dropped from 9.4
percent in 1993 to 7.3 percent in 1996. This rate is still
running above the national unemployment rate, which averaged
5.4 percent in 1996.
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
200 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' losses at about $1.69
billion, or about 23 percent 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. The county has embarked on a fiscal
recovery plan based on sharp reductions in services and
personnel, and rescheduling of outstanding short-term debt
using certain new revenues transferred to the County from
other local governments pursuant to special legislation
enacted in October 1995.
The State has no existing obligation with respect
to any outstanding obligations or securities of the County
or any of the other participating entities.
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. Following are significant
lawsuits involving the State as of March 1, 1997:
In Hayes v. Commission on State Mandates, the State
is appealing an order to reimburse local school districts
for special education programs. The potential liability to
the State has been estimated at more than $1 billion.
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In State v. Stringfellow, the State is seeking
recovery for cleanup costs of a toxic waste site presently
owned by the State. Present estimates of the cleanup range
from $200 million to $800 million.
The State is a defendant in a coordinated action
involving 3,000 plaintiffs seeking recovery for damages
caused by the Yuba River flood of 1986. The State's
potential liability to all plaintiffs in this lawsuit ranges
from $1.3 billion to $1.5 billion.
In California State Employees Association v. Wilson
and Professional Engineers in California Government v.
Wilson, the petitioners have challenged transfers of funds
from the State Highway Account and the Motor Vehicle Account
to the General Fund. The loss to the State's General Fund
from both suits could be up to $608 million.
In Just Say No To Tobacco Campaign v. State of
California, the petitioners are challenging certain
appropriations from the State's Cigarette and Tobacco
Products Surtax Fund. If the State loses, the General Fund
would be used to reimburse the Surtax Fund for approximately
$166 million. Similarly, in Hathaway v. Wilson, the
plaintiffs seek reimbursement to various special funds of
approximately $335 million for challenged transfers and
appropriations.
In two related cases, Beno v. Sullivan and Welch v.
Anderson, concerning reductions in Aid to Families with
Dependent Children (AFDC) grant payments, the State's
potential liability for retroactive AFDC payments is
estimated at $831 million if the plaintiffs are awarded the
full amount in both cases.
On February 19, 1997, the State Court of Appeals
affirmed a judgment requiring the State to transfer
approximately $900 million to the Public Employees'
Retirement System (PERS) representing deferred payments of
the State's employer contribution to PERS. The State
intends to seek review of the decision by the State Supreme
Court.
Insurance Feature
The insurance feature is generally described in the
Prospectus under "--Insurance Feature of the Insured National and
Insured California Portfolios". Although the Insured National
and Insured California Portfolios may purchase municipal notes
that are insured, municipal notes generally are not insured.
Accordingly, the Insured National and Insured California
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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.
The Insured National Portfolios and Insured California
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 "A"
or better by S&P or Moody's. The Adviser is aware of six such
insurers, Municipal Bond Insurance Association Corporation
("MBIA"), Financial Guaranty Insurance Company ("FGIC"), Ambac
Assurance Corporation ("AMBAC"), a wholly-owned subsidiary of
Ambac Financial Group, Inc., Financial Security Assurance Inc., a
wholly-owned subsidiary of Financial Security Assurance Holdings
Ltd. ("FSA"), American Capital Access Corporation ("ACA"), and
Asset Guaranty Insurance Company ("AGI"), a wholly-owned
subsidiary of Enhance Financial Services Group Inc. 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
Portfolios reduces credit risk by ensuring that a 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.
The information relating to MBIA, FGIC, AMBAC, FSA, ACA
and AGI 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
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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, 1996, MBIA had total
assets of $8,562 million, and total liabilities of $6,082.3
million. 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, 1996, FGIC
had total assets of $2,654.1 million and total liabilities of
$969.7 million. 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. As of September 30, 1997,
AMBAC held, on a statutory accounting basis, total capital and
claims paying resources of $3,237.9 million. The address of
AMBAC's administrative offices is One State Street Plaza, 17th
Floor, New York, New York 10004.
FSA. FSA 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, 1996, FSA held, on a consolidated
basis, total assets of $1,899.5 million and total liabilities of
$1,005.1 million. The registered office of FSA is located at 350
Park Avenue, New York, New York 10022.
ACA. ACA is a Maryland-domiciled insurance company
specializing in guaranteeing transactions in underserved segments
of the municipal, structured finance, international and special
surety markets. ACA is licensed to do business in all 50 states,
the District of Columbia, Puerto Rico, Guam and the U.S. Virgin
Islands. ACA was founded in 1997 with an initial capitalization
of $242 million consisting of $117 million cash capitalization, a
$50 million capital facility from Zurich Reinsurance, N.A., and a
$75 million excess of loss reinsurance policy from Capital
Reinsurance Company. ACA's principal business office is located
at One Liberty Plaza, 52nd Floor, New York, New York 10006.
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AGI. AGI is domiciled in the State of New York and is
subject to regulation by the State of New York Insurance
Department. AGI specializes in insuring investment-grade
securities that do not qualify for coverage from the primary
financial guaranty insurance companies. As of June 30, 1997, AGI
held total assets of $253.1 million and total liabilities of
$115.7 million. AGI's principal business office is located at
335 Madison Avenue, 25th Floor, New York, New York 10017-4605.
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, Alliance Capital Management L.P. (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 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
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any, of real and personal property so financed as security for
such payment.
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
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value of an equal principal amount of a fixed rate municipal
security having similar credit quality, redemption provisions and
maturity.
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, Duff & Phelps 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.
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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,
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 30 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 (the "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, Duff & Phelps 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
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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,
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 the Portfolios'
investment objectives and policies.
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 Fund has adopted a policy 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
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market value of the futures contracts subject to outstanding
options written by the Portfolio would exceed 50% of the total
assets.
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 liquid
assets 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
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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
maintained by the Portfolio in liquid assets in a segregated
account with the Fund's custodian. A put option written by a
Portfolio is "covered" if the Portfolio maintains liquid assets
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 liquid assets 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, 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
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Portfolio were exercised, the Portfolio would be obligated to
sell the underlying security at the exercise price. The risk
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 may be 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
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party selling such interest rate cap. The purchase of an
interest rate floor entitles the purchaser, to the extent that a
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 the Portfolios hedging its assets
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 liquid assets 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 liquid assets 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
35
<PAGE>
imperfectly with the price of the asset or liability being
hedged.
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, liquid assets having value equal to, or greater than,
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any commitments to purchase municipal securities on a when-issued
or forward commitment basis and, with respect to 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
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not be possible to effect a closing transaction in the option
(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.
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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 or BB by S&P, Duff & Phelps or Fitch 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.
The ratings of fixed-income securities by Moody's, S&P,
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 differences in credit
risk of securities within each rating category. See Appendix A
for a description of such ratings.
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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 are fundamental policies which may not be changed
with respect to any 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 than 50% of the outstanding shares,
whichever is less.
Each of the National, Insured National, California and
New York Portfolios may not:
(1) Invest 25% or more of its total assets in the
securities of issuers conducting their principal
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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
Investment Company Act of 1940, as amended (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 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 (the "Securities Act");
(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
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(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 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
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
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(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
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 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
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 1940 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 1940 Act of at least 300% for all borrowings of the
Portfolio. In addition, under the 1940 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
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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 "Financial Highlights" in the Prospectus
for the portfolio turnover rates for each of the Portfolios.
________________________________________________________________
MANAGEMENT OF THE FUND
________________________________________________________________
Adviser
Alliance Capital Management L.P. (the "Adviser"), a
Delaware limited partnership 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 of the Fund's Board of Directors (see "Management
of the Funds" in the Prospectus).
The Adviser is a leading international investment
manager supervising client accounts with assets as of
December 31, 1998, totaling more than $_____ billion (of which
more than $____ 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. The _____
registered investment companies managed by the Adviser,
comprising _____ separate investment portfolios, currently have
more than 3.5 million shareholders. As of December 31, 1998, the
Adviser and its subsidiaries employed approximately 2,000
employees who operate out of domestic offices and the offices of
subsidiaries in Bahrain, Bangalore, Cairo, Chennai, Hong Kong,
Istanbul, Johannesburg, London, Luxembourg, Madrid, Moscow,
Mumbai, New Delhi, Paris, Pune, Sao Paolo, Seoul, Singapore,
Sydney, Tokyo, Toronto, Vienna and Warsaw. As of December 31,
1998, the Adviser was retained as an investment manager for
employee benefit plan assets of ___ of the FORTUNE 100 companies.
Alliance Capital Management Corporation ("ACMC"), 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"). ECI is a holding
company controlled by AXA-UAP ("AXA") a French insurance holding
44
<PAGE>
company which at March 1, 1998, beneficially owned approximately
59% of the outstanding voting shares of ECI. As of June 30,
1998, 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 57%
of the issued and outstanding units representing assignments of
beneficial ownership of limited partnership interests in the
Adviser.
AXA is a holding company for an international group of
insurance and related financial services companies. AXA's
insurance operations include activities in life insurance,
property and casualty insurance and reinsurance. The insurance
operations are diverse geographically, with activities
principally in Western Europe, North America and the Asia/Pacific
area. AXA is also engaged in asset management, investment
banking, securities trading, brokerage, real estate and other
financial services activities principally in the United States,
as well as in Western Europe and the Asia/Pacific area.
Based on information provided by AXA, as of March 31,
1998, more than 30% of the voting power of AXA was controlled
directly and indirectly by FINAXA, a French holding company. As
of March 31, 1998 approximately 74% of the voting power of FINAXA
was controlled directly and indirectly by four French mutual
insurance companies (the "Mutuelles AXA"), one of which, AXA
Assurances I.A.R.D. Mutuelle, itself controlled directly and
indirectly more than 42% of the voting power of FINAXA. Acting
as a group, the Mutuelles AXA control AXA and FINAXA.
Under the Advisory Agreement, 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 certain expenses incurred by the Fund including,
for example, office facilities and certain administrative
services, and 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 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
45
<PAGE>
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 Fund
paid to the Adviser a total of $_____ in respect of such services
during the fiscal year of the Fund ended in 1998.
For the fiscal year ended October 31, 1996, advisory
fees payable to the Adviser with respect to the National, Insured
National, New York, California and Insured California Portfolios
amounted to $4,179,489, $1,447,924, $1,946,292, $4,527,101 and
$800,847 respectively. Of such amounts, $2,760,334, $250,000,
$1,468,820, $2,025,214 and $0 was waived by the Adviser.
For the fiscal year ended October 31, 1997, advisory
fees payable to the Adviser with respect to the National, Insured
National, New York, California and Insured California Portfolios
amounted to 3,829,514, 1,466,189, 1,937,934, 4,430,718 and
777,943,respectively. Of such amounts, $2,507,326, $293,238,
$1,472,830, $1,953,318, and $-0- was waived by the Adviser.
For the fiscal year ended October 31, 1998, advisory
fees payable to the Adviser with respect to the National, Insured
National, New York, California and Insured California Portfolios
amounted to $______, $______, $______, $______, and $______
respectively. Of such amounts, $______, $______, $______,
$______, and $______ was waived by the Adviser.
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 for each Portfolio until September 30, 1999 at their
Meeting held on July 16, 1998.
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
46
<PAGE>
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 Alliance Institutional Reserves,
Inc., AFD Exchange Reserves, The Alliance Fund, Inc., Alliance
All-Asia Investment Fund, Inc., Alliance Balanced Shares, Inc.,
Alliance Bond Fund, Inc., Alliance Capital Reserves, Alliance
Global Dollar Government Fund, Inc., Alliance Global Environment
Fund, Inc., Alliance Global Small Cap Fund, Inc., Alliance Global
Strategic Income Trust, Inc., Alliance Government Reserves,
Alliance Greater China '97 Fund Inc., Alliance High Yield Fund,
Inc., Alliance Growth and Income Fund, Inc., Alliance
Institutional Funds, Inc. Alliance International Fund, Alliance
Money Market Fund, Alliance Mortgage Securities Income Fund,
Inc., Alliance Limited Maturity Government Fund, Inc., Alliance
Multi-Market Strategy Trust, 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 Real Estate Investment Fund, Inc., Alliance/Regent
Sector Opportunity Fund, Inc., Alliance Select Investor Series,
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, 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, Alliance World Dollar
Government Fund, Inc., Alliance World Dollar Government Fund II,
Inc., The Austria Fund, Inc., The Korean Investment Fund, Inc.,
47
<PAGE>
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,1 53, is the President, Chief Operating
Officer and a Director of ACMC, with which he has been associated
since prior to 1993.
RUTH BLOCK, 67, was formerly Executive Vice President
and Chief Insurance Officer of Equitable. She is a Director of
Ecolab Incorporated (specialty chemicals) and Amoco Corporation
(oil and gas). Her address is 75 Briar Woods Trail, Stamford,
Connecticut, 06903.
DAVID H. DIEVLER, 68, is an independent consultant. He
was formerly a Senior Vice President of ACMC, with which he was
associated until 1994. His address is P.O. Box 167, Spring Lake,
New Jersey, 07762.
JOHN H. DOBKIN, 56, is President of Historic Hudson
Valley(historic preservation) since prior to 1993. Previously he
was a Director of the National Academy of Design. His address is
150 White Plains Road, Tarrytown, New York 10591.
WILLIAM H. FOULK, Jr., 66, is an investment adviser and
independent consultant. He was formerly Senior Manager of
Barrett Associates, Inc., a registered investment adviser, with
which he has been associated since prior to 1993. His address is
Room 100, 2 Greenwich Plaza, Greenwich, Connecticut 06831.
DR. JAMES M. HESTER, 74, is President of the Harry Frank
Guggenheim Foundation with which he has been associated since
prior to 1993. He was formerly President of New York University,
the New York Botanical Garden and Rector of the United Nations
University. His address is 25 Cleveland Lane, Princeton, NJ
08540.
_________________________
1An interested person of the Fund as defined in the 1940
Act.
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<PAGE>
CLIFFORD L. MICHEL, 59, is a member of the law firm of
Cahill Gordon & Reindel with which he has been associated since
prior to 1993. He is President and Chief Executive Officer of
Wenonah Development Company (investments) and a Director of
Placer Dome, Inc. (mining). His address is 80 Pine Street, New
York, NY 10005.
DONALD J. ROBINSON, 64, was formerly a partner at
Orrick, Herrington & Sutcliff and is currently Senior Counsel to
that law firm. His address is 98 Hell's Peak Road, Weston, VT
05161.
Officers
JOHN D. CARIFA, Chairman and President, (see biography,
above).
SUSAN P. KEENAN 41, Senior Vice President, is a Senior
Vice President of ACMC with which she has been associated since
prior to 1993.
WAYNE D. LYSKI, 57, Senior Vice President, is an
Executive Vice President of ACMC with which he has been
associated since prior to 1993.
KATHLEEN A. CORBET, 38, Senior Vice President, is an
Executive Vice President of ACMC since July 1993. Previously,
she headed Equitable Capital Management Corporation's fixed
income management department since prior to 1993.
WILLIAM E. OLIVER 46, Vice President, is a Vice
President of ACMC since 1993. Previously, he was a Vice
President and Director of Investment Grade Municipal Research
with the Prudential Capital Management Group.
DAVID M. DOWDEN 32, Vice President, is a 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.
TERRANCE T. HULTS 31, Vice President, is Vice President
of ACMC, with which he has been associated since 1993.
Previously, he was an Associate and trader in the Municipal
Derivative Products Department at Merrill Lynch Capital Markets.
EDMUND P. BERGAN, JR., 48, Secretary, is a Senior Vice
President and the General Counsel of Alliance Fund Distributors,
Inc. ("AFD") and Alliance Fund Services, Inc. ("AFS") with which
he has been associated since prior to 1993.
49
<PAGE>
DOMENICK PUGLIESE, 37, Assistant Secretary, is Vice
President and Assistant General Counsel of AFD with which he has
been associated since May 1995. Previously, he was Vice
President and Counsel of Concord Financial Holding Corporation
since 1994, and Vice President and Associate General Counsel of
Prudential Securities since prior to 1993.
ANDREW L. GANGOLF, 44, Assistant Secretary, has been a
Vice President and Assistant General Counsel of AFD, with which
he has been associated since December 1994. Prior thereto he was
a Vice President and Assistant Secretary of Delaware Management
Company, Inc. since prior to 1993.
EMILIE D. WRAPP, 42, Assistant Secretary, is a Vice
President and Assistant General Counsel of AFD, with which she
has been associated since prior to 1993.
MARK D. GERSTEN 48, Treasurer and Chief Financial
Officer, is a Vice President of AFD and a Senior Vice President
of AFS, with which he has been associated since prior to 1993.
The aggregate compensation paid by the Fund to each of
the Directors during its fiscal year ended October 31, 1998, the
aggregate compensation paid to each of the Directors during
calendar year 1998 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 (and separate investment portfolios within
those companies) in the Alliance Fund Complex with respect to
which each of the Directors serves as a director or trustee, are
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 directors or
trustees. Each of the Directors is a director or trustee of one
or more other registered investment companies in the Alliance
Fund Complex.
50
<PAGE>
Total Number
Total Number of Investment
of Funds in Portfolios
the Alliance within the
Total Fund Complex, Funds,
Compensation Including the Including
from the Fund, as to the Fund, as
Alliance which the to which the
Aggregate Fund Complex, Trustee is Trustee is a
Compensation Including a Director Director or
Name of Director from the Fund the Fund or Trustee Trustee
John D. Carifa -0- -0- 53 118
David H. Dievler $ $ 46 83
Ruth Block $ $ 40 81
John H. Dobkin $ 43 80
William H. Foulk, Jr. $ 43 113
Dr. James M. Hester $ $ 40 73
Clifford L. Michel $ $ 41 93
Donald J. Robinson $ $ 44 117
______________________
As of ___________, 1999, the Directors and officers of the Fund
as a group owned less than 1% of the shares of the Fund.
________________________________________________________________
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 Principal Underwriter to distribute
the Fund's shares and to permit the Fund to pay distribution
services fees to defray expenses associated with the distribution
of its Class A, Class B and Class C 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
under the 1940 Act (the "Rule 12b-1 Plan").
In approving the Agreement, the Directors of the Fund
determined that there was a reasonable likelihood that the
Agreement would benefit the Fund and its shareholders. The
distribution services fee of a particular class will not be used
to subsidize the provision of distribution services with respect
to any other class.
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<PAGE>
During the fiscal year ended October 31, 1998, the
National, Insured National, New York, California and Insured
California Portfolios paid distribution services fees for
expenditures under the Agreement, with respect to Class A shares,
in amounts aggregating $______, $______, $______, $______, and
$______, respectively, which constituted approximately ___% of
each Portfolio's average daily net assets attributable to Class A
shares during the period, and the Adviser made payments from its
own resources as described above aggregating $______. Of the
$______ paid by the Fund and the Adviser with respect to the
Class A shares under the Agreement, $______ was spent on
advertising, $______ on the printing and mailing of prospectuses
for persons other than current shareholders, $______ for
compensation to broker-dealers and other financial intermediaries
(including, $______ to the Fund's Principal Underwriters),
$______ for compensation to sales personnel, $______ was spent on
printing of sales literature, travel, entertainment, due
diligence and other promotional expenses, and $______ was spent
on interest on Class A shares financing.
During the fiscal year ended October 31, 1998, the
National, Insured National, New York, California and Insured
California Portfolios paid distribution services fees for
expenditures under the Agreement, with respect to Class B shares,
in amounts aggregating $______, $______, $______, $______ and
$______,respectively, which constituted approximately ___% of the
average daily net assets attributable to Class B shares during
the period, and the Adviser made payments from its own resources
as described above aggregating $______. Of the $______ paid by
the Fund and the Adviser with respect to the Class B shares under
the Agreement, $______ was spent on advertising, $______ on the
printing and mailing of prospectuses for persons other than
current shareholders, $______ for compensation to broker-dealers
and other financial intermediaries (including, $______ to the
Fund's Principal Underwriters), $______ for compensation to sales
personnel, $______ was spent on printing of sales literature,
travel, entertainment, due diligence and other promotional
expenses, and $______ was spent on interest on Class B shares
financing.
During the fiscal year ended October 31, 1998, the
National, Insured National, New York, California and Insured
California Portfolios paid distribution services fees for
expenditures under the Agreement, with respect to Class C shares,
in amounts aggregating $______, $______, $______, $_______ and
$______,respectively, which constituted approximately ___% of
each Portfolio's average daily net assets attributable to Class C
shares during the period, and the Adviser made payments from its
own resources as described above aggregating $______. Of the
$______ paid by the Fund and the Adviser with respect to the
Class C shares under the Agreement, $______ was spent on
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<PAGE>
advertising, $______ on the printing and mailing of prospectuses
for persons other than current shareholders, $______ for
compensation to broker-dealers and other financial intermediaries
(including, $______ to the Fund's Principal Underwriters),
$______ for compensation to sales personnel, $______ was spent on
printing of sales literature, travel, entertainment, due
diligence and other promotional expenses, and $______ was spent
on interest on Class C shares financing.
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
such shares through broker-dealers without the assessment of an
initial 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 charges and
distribution services fees on the Class B and Class C shares, are
the same as those of the initial sales charge and distribution
services fee with respect to the Class A shares in that the sales
charge and distribution services fee provide for the financing of
the distribution of the relevant class of the Portfolio's shares.
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, (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 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.
The Agreement will continue in effect until
September 30, 1998 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 1940 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 1940 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, 1999 at
their meeting held on July 16, 1998.
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<PAGE>
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.
Unreimbursed distribution expenses incurred as of
October 31, 1998, and carried over for reimbursement in future
years in respect of the Class B and Class C shares for the Fund
were, as of that time, as follows:
Amount of Unreimbursed Distribution Expenses
Carried Over (as % of Class's Net Assets)
____________________________________________
Class B Class C
National $_____ ____% $_____ ____%
Insured National $_____ ____% $_____ ____%
California $_____ ____% $_____ ____%
Insured California $_____ ____% $_____ ____%
New York $_____ ____% $_____ ____%
The Rule 12b-1 Plan is 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 Fund's 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
services arrangements would be made and that shareholders would
not be adversely affected.
Transfer Agency Agreement
Alliance Fund Services, Inc., an indirect wholly-owned
subsidiary of the Adviser located at 500 Plaza Drive, Secaucus,
New Jersey 07094, receives a transfer agency fee per account
54
<PAGE>
holder of the Class A shares, Class B shares and Class C shares
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 and Class C shares is higher than the transfer
agency fee with respect to the Class A shares. For the fiscal
year ended October 31, 1998, the Fund paid Alliance Fund 13.89Ser
vices, Inc. $[ ] for transfer agency services.
________________________________________________________________
PURCHASE OF SHARES
________________________________________________________________
The following information supplements that set forth in
the Fund's Prospectus(es) 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 ("Class A shares"), with a
contingent deferred sales charge ("Class B shares"), or without
any initial sales charge and, as long as the shares are held one
year or more, without any contingent deferred sales charge
("Class C shares"), or, to investors eligible to purchase Advisor
Class shares, without any initial, contingent deferred or asset
based sales charge, in each case as described below. Shares of
each Portfolio that are offered subject to a sales charge are
offered 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"), and (iii) the Principal Underwriter.
Advisor Class shares of the Fund may be purchased and
held solely (i) through accounts established under fee-based
programs, sponsored and maintained by registered broker-dealers
or other financial intermediaries and approved by the Principal
Underwriter, (ii) through self-directed defined contribution
employee benefit plans (e.g., 401(k) plans) that have at least
1,000 participants or $25 million in assets, (iii) by the
categories of investors described in clauses (i) through (iv)
below under "--Sales at Net Asset Value" (other than officers,
directors and present and full-time employees of selected dealers
or agents, or relatives of such person, or any trust, individual
retirement account or retirement plan account for the benefit of
such relative, none of whom is eligible on the basis solely of
such status to purchase and hold Advisor Class shares) or (iv) by
55
<PAGE>
directors and present or retired full-time employees of CB
Richard Ellis, Inc. Generally, a fee-based program must charge
an asset-based or other similar fee and must invest at least
$250,000 in Advisor Class shares of the Fund in order to be
approved by the Principal Underwriter for investment in Advisor
Class shares.
Investors may purchase shares of the Fund either through
selected broker-dealer, agents, financial intermediaries or other
financial representatives, or directly through the Principal
Underwriter. A transaction, service, administrative or other
similar fee may be charged by your broker-dealer, agent,
financial intermediary or other financial representative with
respect to the purchase, sale or exchange of Class A, Class B,
Class C or Advisor Class shares made through such financial
representative. Such financial representative may also impose
requirements with respect to the purchase, sale or exchange of
shares that are different from, or in addition to, those imposed
by the Fund, including requirements as to the minimum initial and
subsequent investment amounts. Sales personnel of selected
dealers and agents distributing the Fund's shares may receive
differing compensation for selling Class A, Class B, Class C or
Advisor Class shares.
The Fund may refuse any order for the purchase of
shares. The Fund reserves the right to suspend the sale of the
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 Class A shares, a
sales charge which will vary depending on the purchase
alternative chosen by the investor, as shown in the table below
under "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. Eastern time) by dividing the value of the
Portfolio's total assets, less its liabilities, by the total
number of its shares then outstanding. A Fund business day is
any day on which the Exchange is open for trading.
The respective per share net asset values of the
Class A, Class B, Class C and Advisor Class 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 values
of the Class A and Advisor Class shares, as a result of the
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<PAGE>
differential daily expense accruals of the distribution and
transfer agency fees applicable with respect to those classes of
shares. Even under those circumstances, the per share net asset
values of the four 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.
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, agents or financial
representatives, as applicable, the applicable public offering
price will be the net asset value as so determined, but only if
the selected dealer, agent or financial representatives receives
the order prior to the close of regular trading on the Exchange
and transmits it to the Principal Underwriter prior to 5:00 p.m.
Eastern time. The selected dealer, agent or financial
representative, as applicable, is responsible for transmitting
such orders by 5:00 p.m. Eastern time (certain selected dealers,
agents or financial representatives may enter into operating
agreements permitting them to transmit purchase information to
the Principal Underwriter after 5:00 p.m. Eastern time and
receive that day's net asset value.) If the selected dealer,
agent or financial representative fails to do so, the investor's
right to that day's closing price must be settled between the
investor and the selected dealer, agent or financial
representative, as applicable. If the selected dealer, agent or
financial representatives, as applicable, 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 "For Literature" telephone
number shown on the cover of this Statement of Additional
Information. Except with respect to certain omnibus accounts,
telephone purchase order may not exceed $500,000. 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
57
<PAGE>
House Association ("NACHA"). If a shareholder's telephone
purchase request is received before 3:00 p.m. Eastern 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 or other incentives to dealers or agents,
including EQ Financial Consultants, Inc. formerly 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 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
taken 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.
Class A, Class B, Class C and Advisor Class 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 and Class C shares bear the expense of
the deferred sales charge, (ii) Class B shares and Class C shares
each bear the expense of a higher distribution services fee than
do Class A shares, and Advisor Class shares do not bear such a
fee, (iii) Class B and Class C shares bear higher transfer agency
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<PAGE>
costs than that borne by Class A and Advisor Class shares,
(iv) each of Class A, Class B and Class C shares has exclusive
voting rights with respect to provisions of the Rule 12b-1 Plan
pursuant to which its distribution services fee is paid and other
matters for which separate class voting is appropriate under
applicable law, provided that, if each Portfolio submits to a
vote of the Class A 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 then such amendment
will also be submitted to the Class B and Advisor Class
shareholders and the Class A shareholders, the Class B
shareholders and the Advisor Class shareholders will vote
separately by class and (v) Class B and Advisor Class shares are
subject to a conversion feature. Each class has different
exchange privileges and certain different shareholder service
options available.
The Directors of the Fund have determined that currently
no conflict of interest exists between or among the Class A,
Class B, Class C and Advisor Class shares. On an ongoing basis,
the Directors of the Fund, pursuant to their fiduciary duties
under the 1940 Act and state law, will seek to ensure that no
such conflict arises.
Alternative Retail Purchase Arrangements -- Class A, Class B
and Class C Shares2
The alternative purchase arrangements available with
respect to Class A shares, Class B shares and Class C shares
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 the Portfolio, the
accumulated distribution services fee and contingent deferred
sales charge on Class B shares prior to conversion, or the
accumulated distribution services fee and contingent deferred
sales charge 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 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
_________________________
2Advisor Class shares are sold only to investors described
above in this section under "--General."
59
<PAGE>
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 $1,000,000 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, 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
being subject to a contingent deferred sales charge for a three-
year and one-year period, respectively. For example, based on
current fees and expenses, an investor subject to the 4.25%
initial sales charge or Class A shares 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.
During the Fund's fiscal years ended October 31, 1996,
1997 and 1998, the aggregate amount of underwriting commission
payable with respect to shares of the National Portfolio were
$1,002,148, $1,125,797 and $_____; the Insured National Portfolio
were $141,083 $393,163, and $_____; the New York Portfolio were
$771,571, $713,011 and $_____; the California Portfolio were
$1,784,420, $2,050,508 and $_____; and the Insured California
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<PAGE>
Portfolio were $288,199, $266,043 and $_____; of that amount, the
Principal Underwriter, received the amounts of $50,984, $12,822,
and $_____; for the National Portfolio; $17,440, $19,944, and
$_____; for the Insured National Portfolio; $29,267, $29,137 and
$_____; for the New York Portfolio; $78,399, $73,095, and $_____;
for the California Portfolio; and, $14,356, $-0-, and $_____; 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 years ended in 1996, 1997 and 1998, the Principal
Underwriter received in contingent deferred sales charges with
respect to Class B redemptions $264,900, $109,119 and $_____ for
the National Portfolio, $99,819, $29,576 and $_____ for the
Insured National Portfolio, $224,923, $113,659 and $_____ for the
California Portfolio, $39,020, $29,098 and $_____ for the Insured
California Portfolio and $115,061, $78,379 and $_____ for the New
York Portfolio. During the fiscal years ended in 1996, 1997 and
1998, the Principal Underwriter received in contingent deferred
sales charges with respect to Class C redemptions $1,118, $19,971
and $_____ for the National Portfolio, $194, $9,128 and $_____
for the Insured National Portfolio, $958, $25,188 and $_____ for
the California Portfolio, $0, $964 and $_____ for the Insured
California Portfolio and $1,122, $15,274 and $____ for the
New York Portfolio.
Class A Shares
The public offering price of Class A shares is the net
asset value plus a sales charge, as set forth below.
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Sales 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 redemption, as described below under "--Class B
Shares." In determining the contingent deferred sales charge
applicable to a redemption of Class A shares, it will be assumed
that the redemption is, first, of any shares that are not subject
to a contingent deferred sales charge (for example, because an
initial sales charge was paid with respect to the shares, or they
have been held beyond the period during which the charge applies
or were acquired upon the reinvestment of dividends and
distributions) and, second, of shares held longest during the
time they are subject to the sales charge. 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
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<PAGE>
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 Distribution Services Agreement described above,
pay such dealers or agents from its own resources a fee of up to
1% of the amount invested to compensate 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, (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 ("AFDER")
that were purchased for cash without the payment of an initial
sales charge and without being subject to a contingent deferred
sales charge or (iii) upon the automatic conversion of Class B
shares or Advisor Class shares as described below under "Class B
Shares--Conversion Feature" and "--Conversion of Advisor Class
Shares to Class A Shares." 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. In this regard, 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.
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, 1998.
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<PAGE>
National Portfolio
Net Asset Value per Share at
October 31, 1998 $
_____
Per Share Sales Charge - 4.25%
of offering price (4.44% of
net asset value per share)
$_____
Per Share Offering Price to
the Public $
_____
Insured National Portfolio
Net Asset Value per Share at
October 31, 1998 $
_____
Per Share Sales Charge - 4.25%
of offering price (4.44% of
net asset value per share) $
_____
Per Share Offering Price to
the Public $
_____
New York Portfolio
Net Asset Value per Share at
October 31, 1998 $
_____
Per Share Sales Charge - 4.25%
of offering price (4.44% of
net asset value per share) $
_____
Per Share Offering Price to
the Public $
_____
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<PAGE>
California Portfolio
Net Asset Value per Share at
October 31, 1998 $
_____
Per Share Sales Charge - 4.25%
of offering price (4.44% of
net asset value per share) $
_____
Per Share Offering Price to
the Public $
_____
Insured California Portfolio
Net Asset Value per Share at
October 31, 1998 $
_____
Per Share Sales Charge - 4.25%
of offering price (4.44% of
net asset value per share) $
_____
Per Share Offering Price to
the Public $
_____
Investors choosing the initial sales charge alternative
may under certain circumstances be entitled to pay (i) no initial
sales charge (but subject in most such cases to a contingent
deferred sales charge, or (ii) a reduced initial sales charge.
The circumstances under which investors may pay a reduced 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"
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<PAGE>
also includes purchases by any "company," as the term is defined
in the 1940 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.
Alliance All-Asia Investment Fund, Inc.
Alliance Balanced Shares, Inc.
Alliance Bond Fund, Inc.
-Corporate Bond Portfolio
-U.S. Government Portfolio
Alliance Global Dollar Government Fund, Inc.
Alliance Global Environment Fund, Inc.
Alliance Global Small Cap Fund, Inc.
Alliance Global Strategic Income Trust, Inc.
Alliance Greater China '97 Fund, Inc.
Alliance Growth and Income Fund, Inc.
Alliance High Yield Fund, Inc.
Alliance International Fund
Alliance International Premier Growth Fund
Alliance Limited Maturity Government Fund, Inc.
Alliance Mortgage Securities Income Fund, Inc.
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.
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<PAGE>
Alliance Premier Growth Fund, Inc.
Alliance Quasar Fund, Inc.
Alliance Real Estate Investment Fund, Inc.
Alliance Technology Fund, Inc.
Alliance Utility Income Fund, Inc.
Alliance Worldwide Privatization Fund, Inc.
The Alliance Portfolios
-Alliance Growth Fund
-Alliance Conservative Investors Fund
-Alliance Growth Investors Fund
-Alliance Short-Term U.S. Government Fund
Prospectuses for the Alliance Mutual Funds may be
obtained without charge by contacting Alliance Fund Services,
Inc. at the address or the "For 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 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 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.
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<PAGE>
Statement of Intention. Class A investors may also
obtain the reduced 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,
Class C and/or Advisor Class 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 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% sales charge on the total amount being invested (the 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 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 sales charge will be adjusted for the entire amount purchased
at the end of the 13-month period. The difference in the sales
charge will be used to purchase additional shares of the Fund
subject to the rate of the sales charge applicable to the actual
amount of the aggregate purchases.
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<PAGE>
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
such a plan's initial purchase. The sales charge applicable to
such initial purchase of shares of the Portfolios will be that
normally applicable, under the schedule of 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 total purchase previously made during
the 13-month period and (ii) the current month's purchase
multiplied by the number of months (including the current month)
remaining in 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 or Class B 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 (i) such reinvestment is made within 120 calendar days after
the redemption or repurchase date and (ii) for Class B shares, a
contingent deferred sales charge, has been paid and the Principal
Underwriter has approved, at its discretion, the reinvestment of
such shares. 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 income tax purposes
except that no loss will be recognized to the extent that the
proceeds are reinvested in shares of a Portfolio within 30
calendar days after the redemption or repurchase transaction.
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 a contingent deferred sales charge to certain
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<PAGE>
categories of investors including: (i) investment management
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 or 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")
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) the Adviser, Principal
Underwriter, Alliance Fund Services, Inc. and their affiliates;
certain employee benefit plans for employees of the Adviser, the
Principal Underwriter, Alliance Fund Services, Inc. and their
affiliates; (iv) registered investment advisers or other
financial intermediaries who charge a management, consulting or
other fee for their service and who purchase shares through a
broker or agent approved by the Principal Underwriter and clients
of such registered investment advisers or financial
intermediaries whose accounts are linked to the master account of
such investment adviser or financial intermediary on the books of
such approved broker or agent; (v) 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 (vi) 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 and (vii) employer-sponsored
qualified pension or profit-sharing plans (including Section
401(k) plans), custodial accounts maintained pursuant to Section
403(b)(7) retirement plans and individual retirement accounts
(including individual retirement accounts to which simplified
employee pension ("SEP") contributions are made), if such plans
or accounts are established or administered under programs
sponsored by administrators or other persons that have been
approved by the Principal Underwriter.
Class B Shares
Investors may 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
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<PAGE>
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
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.
In addition, no charge will be assessed on shares derived from
reinvestment of dividends or capital gains distributions.
To illustrate, assume that an investor purchased 100
Class B 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 the 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.
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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 of Class B shares, it will be assumed
that the redemption is, first, of any shares that were acquired
upon the reinvestment of dividends or distributions) and, second,
of shares held longest during the time they are subject to the
sales charge. When shares acquired in an exchange are redeemed,
the applicable contingent deferred sales charge and conversion
schedules will be the schedules that applied at the time of the
purchase of shares of the corresponding class of the Alliance
Mutual Fund originally purchased by the shareholder.
The contingent deferred sales charges is 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 distribution from an individual
retirement account or other retirement plan to a shareholder who
has attained the age of 70-1/2, (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. 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 occur 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
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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 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.
Class C Shares
Investors may 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, as long as the
shares are held for one year or more, 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, as long as the shares are held for one year or more,
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, as
long as the shares are held for one year or more. Class C shares
do not convert to any other class of shares of the Portfolio and
incur higher distribution services fees and transfer agency costs
than Class A shares and Advisor Class shares, and will thus have
a higher expense ratio and pay correspondingly lower dividends
than Class A shares and Advisor Class shares.
Class C shares that are redeemed within one year of
purchase will be subject to a contingent deferred sales charge of
1%, 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. 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 C
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shares will be waived on certain redemptions, as described above
under "--Class B Shares."
In determining the contingent deferred sales charge
applicable to a redemption of Class C shares, it will be assumed
that the redemption is, first, of any shares that are not subject
to a contingent deferred sales charge (for example, because the
shares have been held beyond the period during which the charge
applies or were acquired upon the reinvestment of dividends or
distributions) and, second, of shares held longest during the
time they are subject to the sales charge.
Proceeds from the contingent deferred sales charge 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 sale of the Class C shares, such as the
payment of compensation to selected dealers and agents for
selling Class C shares. The combination of the contingent
deferred sales charge and the distribution services fee enables
the Fund to sell the Class C shares without a sales charge being
deducted at the time of purchase. The higher distribution
services fee incurred by Class C shares will cause such shares to
have a higher expense ratio and to pay lower dividends than those
related to Class A shares and Advisor Class shares.
Conversion of Advisor Class Shares to Class A Shares
Advisor Class shares may be held solely through the fee-
based program accounts and employee benefit plans and registered
investment advisory or other financial intermediary relationships
described above under "Purchase of Shares--General," and by
investment advisory clients of, and by certain other persons
associated with, the Adviser and its affiliates or the Fund. If
(i) a holder of Advisor Class shares ceases to participate in the
fee-based program or plan, or to be associated with the
investment adviser or financial intermediary that satisfies the
requirements to purchase shares set forth under "Purchase of
Shares--General" or (ii) the holder is otherwise no longer
eligible to purchase Advisor Class shares as described in the
Advisor Class Prospectus and this Statement of Additional
Information (each, a "Conversion Event"), then all Advisor Class
shares held by the shareholder will convert automatically and
without notice to the shareholder, other than the notice
contained in the Advisor Class Prospectus and this Statement of
Additional Information, to Class A shares of the Fund during the
calendar month following the month in which the Fund is informed
of the occurrence of the Conversion Event. The failure of a
shareholder or a fee-based program to satisfy the minimum
investment requirements to purchase Advisor Class shares will not
constitute a Conversion Event. The conversion would occur on the
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basis of the relative net asset values of the two classes and
without the imposition of any sales load, fee or other charge.
Class A shares currently bear a .30% distribution services fee
and have a higher expense ratio than Advisor Class shares. As a
result, Class A shares may pay correspondingly lower dividends
and have a lower net asset value than Advisor Class shares.
The conversion of Advisor Class shares to Class A shares
is subject to the continuing availability of an opinion of
counsel to the effect that the conversion of Advisor Class shares
to Class A shares does not constitute a taxable event under
federal income tax law. The conversion of Advisor Class 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, the Advisor Class shareholder would be required to
redeem his Advisor Class shares, which would constitute a taxable
event under federal income tax law.
________________________________________________________________
REDEMPTION AND REPURCHASE OF SHARES
________________________________________________________________
The following information supplements that set forth in
the Fund's Prospectus(es) under the heading "Purchase and Sale of
Shares--How to Sell Shares." If you are an Advisor Class
shareholder through an account established under a fee-based
program your fee-based program may impose requirements with
respect to the purchase, sale or exchange of Advisor Class shares
of the Fund that are different from those described herein. A
transaction fee may be charged by your financial representative
with respect to the purchase, sale or exchange of Advisor Class
shares made through such financial representative.
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, Class B shares or Class C
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. If a shareholder is in doubt about
what documents are required by his or her fee-based program or
employee benefit plan, the shareholder should contact his or her
financial representative.
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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 Commission determines
that trading thereon is restricted, or for any period during
which an emergency (as determined by the Commission) exists as a
result of which disposal by the Fund of securities owned by it is
not reasonably 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 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, Class B and Class C
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 share
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 "eligible guarantor institution" as defined in
Rule 17Ad-15 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act").
To redeem shares of the Fund represented by share
certificates, the investor should forward the appropriate share
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
share 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.
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Telephone Redemption By Electronic Funds Transfer. Each
Fund shareholder is entitled to request redemption by electronic
funds transfer of shares for which no stock certificates have
been issued 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.
Prior to March 1, 1998, this service can be employed only once in
any 30 day period (except for certain omnibus accounts). A
telephone redemption request by electronic funds transfer may not
exceed $100,000 (except for certain omnibus accounts), 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. Each Fund shareholder is
eligible to request redemption by check 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 day. Prior to
March 1, 1998, this service can be employed only once in any 30
day period (except for certain omnibus accounts). Proceeds of
such redemptions are remitted by check to the shareholder's
address of record. 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.
Telephone Redemptions-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. Telephone
redemption by check is not available with respect to shares
(i) for which certificates have been issued, (ii) held in 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.
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
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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.
Repurchase
The Fund may repurchase shares through the Principal
Underwriter, selected financial intermediaries 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, Class B and Class C 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 financial intermediary or selected
dealer or agent is responsible for transmitting the request to
the Principal Underwriter by 5:00 p.m. Eastern time (certain
selected dealers, agents or financial representatives may enter
into operating agreements permitting them to transmit purchase
information to the Principal Underwriter after 5:00 p.m. Eastern
time and receive that day's net asset value.) If the financial
intermediary or 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, Class B and Class C shares). Normally, if
shares of a Portfolio are offered through a financial
intermediary or 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
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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.
________________________________________________________________
SHAREHOLDER SERVICES
________________________________________________________________
The following information supplements that set forth in
the Fund's Prospectus(es) under the heading "Purchase and Sale of
Shares--Shareholder Services." The shareholder services set
forth below are applicable to Class A, Class B, Class C and
Advisor Class shares unless otherwise indicated. If you are an
Advisor Class shareholder through an account established under a
fee-based program your fee-based program may impose requirements
with respect to the purchase, sale or exchange of Advisor Class
shares of the Fund that are different from those described
herein. A transaction fee may be charged by your financial
representative with respect to the purchase, sale or exchange of
Advisor Class shares made through such financial representative.
Automatic Investment Program
Investors may purchase shares of a Portfolio through an
automatic investment program utilizing electronic fund transfer
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. 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
You may exchange your investment in the Fund for shares
of the same class of other Alliance Mutual Funds (including AFD
Exchange Reserves, a money market fund managed by the Adviser).
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In addition, (i) present officers and full-time employees of the
Adviser, (ii) present Directors or Trustees of any Alliance
Mutual Fund and (iii) certain employee benefit plans for
employees of the Adviser, the Principal Underwriter, Alliance
Fund Services, Inc. and their affiliates may on a tax-free basis,
exchange Class A shares of the Fund for Advisor Class shares of
the Fund. Exchanges of shares are made at the net asset value
next determined and without sales or service charges. Exchanges
may be made by telephone or written request. Telephone exchange
requests must be received by Alliance Fund Services, Inc. by
4:00 p.m. Eastern time on a Fund business day in order to receive
that day's net asset value.
Shares will continue to age without regard to exchanges
for purpose of determining the CDSC, if any, upon redemption and,
in the case of Class B shares, for the purpose 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.
Please read carefully the prospectus of the mutual fund
into which you are exchanging before submitting the request. Call
Alliance Fund Services, Inc. at 800-221-5672 to exchange
uncertificated shares. Except with respect to exchanges of
Class A shares of the Fund for Advisor Class shares of the Fund,
exchanges of shares as described above in this section are
taxable transactions for federal tax purposes. The exchange
service may be changed, suspended, or terminated on 60 days'
written notice.
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 or
electronic funds transfer will be permitted only after the
Alliance Mutual Fund whose shares have been tendered for exchange
is reasonably assured that the check or electronic funds transfer
has cleared, normally up to 15 calendar days following the
purchase date. Exchange of shares of Alliance Mutual Funds will
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generally result in the realization of a capital gain or loss for
federal income tax purpose.
Each Portfolio shareholder, and the shareholder's
selected dealer, agent or financial representative, as
applicable, 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.
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 prior thereto.
None of the Alliance Mutual Funds, 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, agents or
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financial representatives, as applicable, 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, Class C or Advisor Class Portfolio
account, a Class A, Class B, Class C or Advisor Class account
with one or more other Alliance Mutual Funds may direct that
income dividends and/or capital gains paid his or her Class A,
Class B, Class C or Advisor Class Portfolio shares 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 "For 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 payments will be subject to
any taxes applicable to redemptions and, except as discussed
below, any applicable contingent deferred sales charge. 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
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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.
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 "For Literature" telephone number shown on the
cover of this Statement of Additional Information.
CDSC Waiver for Class B and Class C Shares. 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
or Class C shares in a shareholders account may be redeemed free
of any contingent deferred sales charge.
With respect to Class B shares, the waiver applies only
with respect to shares acquired after July 1, 1995. Class B
shares that are not subject to a contingent deferred sales charge
(such as shares acquired with reinvested dividends or
distributions) will be redeemed first and will count toward the
foregoing limitations. Remaining Class B shares that are held
the longest will be redeemed next. Redemption of Class B shares
in excess of the foregoing limitations will be subject to any
otherwise applicable contingent deferred sales charge.
With respect to Class C shares, shares held the longest
will be redeemed first and will count toward the foregoing
limitations. Redemptions in excess of those limitations will be
subject to any otherwise applicable contingent deferred sales
charge.
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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 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. Canceled (paid) checks
are returned to the shareholder. The checkwriting service
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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 is computed in accordance
with the Fund's Articles of Incorporation and By-Laws at the next
close of regular trading on the Exchange (ordinarily 4:00 p.m.
Eastern time) following receipt of a purchase or redemption order
by the Fund on each Fund business day on which such an order is
received and on such other days as the Directors of the Fund deem
necessary in order to comply with Rule 22c-1 under the 1940 Act.
The Fund's per share net asset value is calculated by dividing
the value of the Fund's total assets, less its liabilities, by
the total number of its shares then outstanding. A Fund business
day is any weekday on which the Exchange is open for trading.
In accordance with applicable rules under the 1940 Act,
portfolio securities are valued at current market value or at
fair value as determined in good faith by the Board of Directors.
The Board of Directors has delegated to the Adviser certain of
the Boards duties with respect to the following procedures.
Readily marketable securities listed on the Exchange are valued,
except as indicated below, at the last sale price reflected on
the consolidated tape at the close of the Exchange on the
business day as of which such value is being determined. If
there has been no sale on such day, the securities are valued at
the quoted bid prices on such day. If no bid prices are quoted
on such day, then the security is valued at the mean of the bid
and asked prices at the close of the Exchange on such day as
obtained from one or more dealers regularly making a market in
such security. Where a bid and asked price can be obtained from
only one such dealer, the security is valued at the mean of the
bid and asked price obtained from such dealer unless it is
determined that such price does not represent current market
value, in which case the security shall be valued in good faith
at fair value by, or in accordance with procedures established
by, the Board of Directors. Securities for which no bid and
asked price quotations are readily available are valued in good
faith at fair value by, or in accordance with procedures
established by, the Board of Directors. Readily marketable
securities not listed on the Exchange or on a foreign securities
exchange are valued in like manner. Portfolio securities traded
on the Exchange and on one or more other foreign or other
national securities exchanges, and portfolio securities not
traded on the Exchange but traded on one or more foreign or other
national securities exchanges are valued in accordance with these
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procedures by reference to the principal exchange on which the
securities are traded.
Readily marketable securities traded only in the over-
the-counter market, securities listed on a foreign securities
exchange whose operations are similar to those of the United
States over-the-counter market, and debt securities listed on a
U.S. national securities exchange whose primary market is
believed to be over-the-counter, are valued at the mean of the
bid and asked prices at the close of the Exchange on such day as
obtained from two or more dealers regularly making a market in
such security. Where a bid and asked price can be obtained from
only one such dealer, such security is valued at the mean of the
bid and asked price obtained from such dealer unless it is
determined that such price does not represent current market
value, in which case the security shall be valued in good faith
at fair value by, or in accordance with procedures established
by, the Board of Directors.
Listed put and call options purchased by the Fund are
valued at the last sale price. If there has been no sale on that
day, such securities will be valued at the closing bid prices on
that day.
Open futures contracts and options thereon will be
valued using the closing settlement price or, in the absence of
such a price, the most recent quoted bid price. If there are no
quotations available for the day of valuations, the last
available closing settlement price will be used.
U.S. Government Securities and other debt instruments
having 60 days or less remaining until maturity are valued at
amortized cost if their original maturity was 60 days or less, or
by amortizing their fair value as of the 61st day prior to
maturity if their original term to maturity exceeded 60 days
(unless in either case the Board of Directors determines that
this method does not represent fair value).
Fixed-income securities may be valued on the basis of
prices provided by a pricing service when such prices are
believed to reflect the fair market value of such securities.
The prices provided by a pricing service take into account many
factors, including institutional size trading in similar groups
of securities and any developments related to specific
securities.
All other assets of the Fund are valued in good faith at
fair value by, or in accordance with procedures established by,
the Board of Directors.
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The Board of Directors may suspend the determination of
the Funds net asset value (and the offering and sales of shares),
subject to the rules of the Commission and other governmental
rules and regulations, at a time when: (1) the Exchange is
closed, other than customary weekend and holiday closings, (2) an
emergency exists as a result of which it is not reasonably
practicable for the Fund to dispose of securities owned by it or
to determine fairly the value of its net assets, or (3) for the
protection of shareholders, the Commission by order permits a
suspension of the right of redemption or a postponement of the
date of payment on redemption.
For purposes of determining the Funds net asset value
per share, all assets and liabilities initially expressed in a
foreign currency will be converted into U.S. Dollars at the mean
of the current bid and asked prices of such currency against the
U.S. Dollar last quoted by a major bank that is a regular
participant in the relevant foreign exchange market or on the
basis of a pricing service that takes into account the quotes
provided by a number of such major banks. If such quotations are
not available as of the close of the Exchange, the rate of
exchange will be determined in good faith by, or under the
direction of, the Board of Directors.
The assets attributable to the Class A shares, Class B
shares, Class C shares and Advisor Class shares will be invested
together in a single portfolio. The net asset value of each
class will be determined separately by subtracting the
liabilities allocated to that class from the assets belonging to
that class in conformance with the provisions of a plan adopted
by the Fund in accordance with Rule 18f-3 under the 1940 Act.
________________________________________________________________
DIVIDENDS, DISTRIBUTIONS AND TAXES
________________________________________________________________
General
Each Portfolio of the Fund intends for each taxable year
to qualify 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.
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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
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
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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
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.
Substantially all of the dividends paid by the Fund are
anticipated to be exempt from federal income taxes. Shortly
after the close of each calendar year, a notice is sent to each
shareholder advising him of the total dividends paid into his
account for the year and the portion of such total that is exempt
from federal income taxes. This portion is determined by the
ratio of the tax-exempt income to total income for the entire
year and, thus, is an annual average rather than a day-by-day
determination for each shareholder.
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.
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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
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
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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
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.
State Taxation of the Portfolios
California Portfolio and Insured California Portfolio. It is
anticipated that substantially all of the dividends paid by the
California Portfolio and Insured California Portfolio will be
exempt from California personal income tax. Dividends will be
exempt from this tax to the extent derived from municipal
securities issued by the State of California or its political
subdivisions. Distributions paid to corporate shareholders will
be subject to the California corporate franchise tax.
New York Portfolio. It is anticipated that substantially all
of the dividends paid by the New York Portfolio will be exempt
from New York State and New York City personal and fiduciary
income taxes. Dividends will be so exempt to the extent that
they are either (i) exempt from regular federal income tax and
attributable to interest from New York municipal securities or
(ii) attributable to interest on U.S. government securities,
provided that the Portfolio qualifies as a regulated investment
company under the Code and provided that, at the close of each
quarter of the Portfolio's year, at least 50% of its total assets
consist of obligations of the U.S. and its possessions.
Distributions of capital gains will be subject to New York State
and New York City personal and fiduciary income taxes. Interest
on indebtedness incurred to buy or carry shares of the New York
Portfolio generally will not be deductible for New York income
tax purposes. Distributions paid to corporate shareholders will
be included in New York entire net income for purposes of the
franchise tax.
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________________________________________________________________
BROKERAGE AND 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
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 Conduct Rules 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.
No transactions for the Fund's Portfolios are executed
through any broker or dealer affiliated with the Fund's Adviser,
or with Donaldson, Lufkin & Jenrette Securities Corporation, an
affiliate of the Adviser. During the fiscal years ended
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October 31, 1995, 1996 and 1997 the Fund incurred no brokerage
commissions.
________________________________________________________________
GENERAL INFORMATION
________________________________________________________________
Capitalization
The authorized capital stock of the Fund consists solely
of 45,350,000,000 shares of Common Stock having a par value of
$.001 per share, of which 9,100,000,000 shares are presently
designated for each of the Insured National and National
Portfolios and 9,050,000,000 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 1940 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.
It is anticipated that annual shareholder meetings will
not be held; shareholder meetings will be held only when required
by federal or state law. Shareholders have available certain
procedures for the removal of Directors.
A shareholder will be entitled to share pro rata with
other holders of the same class of shares all dividends and
distributions arising from each Portfolio's assets and, upon
redeeming shares, will receive the then current net asset value
of the Portfolio represented by the redeemed shares less any
applicable contingent deferred sales charge. The Fund is
empowered to establish, without shareholder approval, additional
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portfolios, which may have different investment objectives and
policies than those of the Fund, and additional classes of shares
within each Portfolio. If an additional portfolio or class were
established in the Fund, each share of the portfolio or class
would normally be entitled to one vote for all purposes.
Generally, shares of each portfolio and class would vote together
as a single class on matters, such as the election of Directors,
that affect each portfolio and class in substantially the same
manner. Class A, B, C and Advisor Class shares have identical
voting, dividend, liquidation and other rights, except that each
class bears its own transfer agency expenses, each of Class A,
Class B and Class C shares of the Fund bears its own distribution
expenses and Class B shares and Advisor Class shares convert to
Class A shares under certain circumstances. Each class of shares
of the Fund votes separately with respect to the Fund's Rule 12b-
1 distribution 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
Directors and, in liquidation of the Fund, are entitled to
receive the net assets of the Fund.
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
1940 Act and Maryland law.
At ____________, 1999, there were outstanding __________
voting shares of common stock of the Fund, including,
____________ Class A shares, ___________ Class B shares and
__________ Class C shares of the National Portfolio; __________
Class A shares, ___________ Class B shares and __________ Class C
shares of the Insured National Portfolio; __________ Class A
shares, ___________ Class B shares and __________ Class C shares
of the New York Portfolio; __________ Class A shares, __________
Class B shares and __________ Class C shares of the California
Portfolio; and __________ Class A shares, ___________ Class B
shares and ___________ Class C shares of the Insured California
Portfolio. 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 as of __________, 1999.
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No. of
Shares % of % of % of
Name and Address Of Class Class A Class B Class C
National Portfolio
Insured National Portfolio
California Portfolio
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<PAGE>
No. of
Shares % of % of % of
Name and Address Of Class Class A Class B Class C
Insured California Portfolio
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<PAGE>
No. of
Shares % of % of % of
Name and Address Of Class Class A Class B Class C
New York Portfolio
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. 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. Under the Distribution Services
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.
Counsel
Legal matters in connection with the issuance of the
shares offered hereby are passed upon by Seward & Kissel, New
York, New York. Seward & Kissel has relied upon the opinion of
Venable, Baetjer and Howard, LLP, Baltimore, Maryland, for
matters relating to Maryland law.
Independent Auditors
Ernst & Young LLP, New York, New York, 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 Commission which provides for
compounding on a semi-annual basis. A Portfolio may advertise a
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"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 rate. 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 is substituted for net investment
income per share. The actual distribution rate is computed
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, five and
ten year periods (or the period since the Portfolio's inception).
A Portfolio's actual distribution rate is computed separately for
Class A, Class B and Class C shares. A Portfolio's total return
for such a 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 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
received and the maximum sales charge applicable to purchases of
Portfolio shares is assumed to have been paid.
Yield Calculations
30 Day Tax
30 Day Tax Equivalent Yield
(period ended (period ended Distribution
10/31/98) 10/31/98) Rate
Fund
Insured National
Class A % % %
Class B % % %
Class C % % %
National
Class A % % %
Class B % % %
Class C % % %
New York
Class A % % %
Class B % % %
Class C % % %
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California
Class A % % %
Class B % % %
Class C % % %
Insured
California
Class A % % %
Class B % % %
Class C % % %
Total Return Calculations
One Year period Five Year period Ten Year period
Fund ended 10/31/98 ended 10/31/98 ended 10/31/98
Insured National
Class A % % %
Class B % % *
Class C % % *
National
Class A % % %
Class B % % *
Class C % % *
New York
Class A % % %
Class B % % *
Class C % % *
California
Class A % % %
Class B % % *
Class C % % *
Insured
California
Class A % % %
Class B % % *
Class C % % *
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)
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taxes in computing federal taxable income. The tax rates used in
these calculations were: federal-- %, New York State-- %,
New York City-- % and California-- %. 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.
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.
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
Commission under the Securities Act. Copies of the Registration
Statement 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.
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________________________________________________________________
REPORT OF INDEPENDENT AUDITORS AND FINANCIAL STATEMENTS
________________________________________________________________
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ALLIANCE MUNICIPAL INCOME FUND
ANNUAL REPORT
OCTOBER 31, 1997
ALLIANCE CAPITAL
NATIONAL PORTFOLIO
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1997 ALLIANCE MUNICIPAL INCOME FUND
_______________________________________________________________________________
STANDARD PRINCIPAL
& POOR'S AMOUNT
RATINGS# (000) VALUE
- -------------------------------------------------------------------------
MUNICIPAL BONDS-97.7%
LONG TERM MUNICIPAL BONDS-88.2%
ALABAMA-0.2%
AAA West Jefferson PCR
(Alabama Power) MBIA Ser 93C
6.05%, 5/01/23 $1,010 $ 1,035,402
ARIZONA-6.2%
NR Goodyear
Assess Dist #1 (Palm Valley) Ser 96C
7.25%, 7/01/16 4,940 5,159,237
AA+ Maricopa Cnty
Util Rev (Citizen's Util) Ser 95 AMT
6.20%, 5/01/30 7,705 8,223,315
AAA Maricopa Cnty
MFHR (Tempe Grove Apts)
GNMA Ser 96A AMT
6.20%, 1/20/39 5,320 5,577,967
AA- Mohave Cnty IDR
(Cargill/No Star Steel Proj)
Ser 95A AMT
6.70%, 3/01/20 8,770 9,735,489
AA+ Mohave Cnty IDR
Util Rev (Citizen's Util) Ser 93B AMT
5.80%, 11/15/28 2,000 2,055,120
AA+ Phoenix Sr Lien
(Civic Plaza Bldg Corp) Ser 94
6.00%, 7/01/12 1,015 1,081,117
NR Prescott Comm Fac Dist
(Hassayampa) Ser 96
7.75%, 7/01/21 4,785 4,881,466
NR Scottsdale GO
(McDowell Ranch) Ser 97
6.50%, 7/15/22 1,300 1,313,000
------------
38,026,711
CALIFORNIA-4.5%
AA- California Poll Ctl Fin Auth
PCR (Pacific Gas & Elec) Ser 93A AMT
5.875%, 6/01/23 12,145 12,468,664
A+ California Poll Ctl Fin Auth
PCR (So Calif Edison) Ser 92B AMT
6.40%, 12/01/24 $3,000 3,248,130
AA- Long Beach Harbor Rev
Ser 93 AMT
5.125%, 5/15/18 5,000 4,806,550
NR Sacramento Comm Fac Dist
#97-1 (No. Natomas Proj)
Series 97A
6.70%, 9/01/17 6,805 6,818,678
------------
27,342,022
COLORADO-6.1%
Aa2* Arapahoe Cnty
(E-470 Public Highway Auth)
7.00%, Prere: 8/31/05 11,830 14,011,452
BBB Denver City & Cnty
(Arpt System Rev) Ser 92C
6.75%, 11/15/22 9,500 10,332,239
BB+ Denver City & Cnty Arpt Auth
(United Airlines) Ser 92A AMT
6.875%, 10/01/32 11,775 12,855,238
------------
37,198,929
FLORIDA-13.1%
NR Collier Cnty Comm Fac Dist
(Fiddler's Creek) Ser 96
7.50%, 5/01/18 3,275 3,432,364
NR Collier Cnty IDR
(Southern St Util) Ser 96 AMT
6.50%, 10/01/25 12,605 13,363,191
AAA Dade Cnty Arpt Rev
(Miami Int'l) MBIA Ser 95B AMT
6.00%, 10/01/24 6,550 6,935,664
AAA Escambia Cnty HFA
SFMR (Multi County) GNMA Ser 95B AMT
6.25%, 4/01/28 9,690 10,137,775
7
NATIONAL PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED) ALLIANCE MUNICIPAL INCOME FUND
_______________________________________________________________________________
STANDARD PRINCIPAL
& POOR'S AMOUNT
RATINGS# (000) VALUE
- -------------------------------------------------------------------------
AAA Jacksonville Wtr & Swr
(United Waterworks)
AMBAC Ser 95 AMT
6.35%, 8/01/25 $1,500 $ 1,641,855
NR Northern Palm Beach Cnty
Imp Dist #9A (ABACOA) Ser 96A
7.20%, 8/01/16 3,070 3,315,201
7.30%, 8/01/27 15,600 16,839,888
AA- Orlando Util Comm
(Wtr & Elec) Ser 93B
6.809%, 10/06/17 (b) 4,550 4,742,283
A+ Palm Beach Cnty Hlth Fac
(Lourdes-McKeen Residence) Ser 96
6.625%, 12/01/26 1,210 1,313,322
NR St. John's Cnty Comm Dev
(Julington Creek Plantation) Ser 97
6.70%, 5/01/07 3,090 3,186,130
7.125%, 5/01/19 8,695 8,991,238
Baa2* Volusia Cnty Ed Fac Auth
(Embry-Riddle Aero Univ) Ser 96A
6.125%, 10/15/26 3,870 4,021,549
AA Volusia Cnty Hlth Fac Auth
(John Knox Village)
Ser 96A Asset Gty
6.00%, 6/01/17 1,885 1,975,103
------------
79,895,563
GEORGIA-5.3%
AAA Atlanta
Arpt Fac Rev MBIA AMT
Zero coupon, 1/01/10 60,535 32,587,807
INDIANA-7.0%
BB+ Indianapolis Arpt Auth
(United Airlines) Ser 95A AMT
6.50%, 11/15/31 39,670 42,474,272
MARYLAND-0.2%
NR Maryland Ind Dev Fin Auth Eco Dev
(Med Waste Assoc) Ser 89 AMT
8.75%, 11/15/10 1,405 1,464,628
MASSACHUSETTS-6.5%
AAA Massachusetts HFA
MFHR (Harbor Point Dev)
AMBAC Ser 96A AMT
6.40%, 12/01/15 1,330 1,421,624
AAA Massachusetts HFA
MFHR (Rental Hsg) AMBAC Ser 95E AMT
6.00%, 7/01/37 2,680 2,755,656
A3* Massachusetts Ind Fin Auth
Ed Fac (Brooks School) Ser 93
5.95%, 7/01/23 1,050 1,080,429
AAA Massachusetts Ind Fin Auth
MFHR (Heights Crossing)
FHA Ser 95 AMT
6.15%, 2/01/35 5,790 5,980,259
AAA Massachusetts Port Auth
(Boston Fuel Corp)
MBIA Ser 97 AMT
6.00%, 7/01/36 20,960 21,777,860
AAA Massachusetts Port Auth
(USAir Proj) MBIA Ser 96A AMT
5.875%, 9/01/23 6,285 6,459,220
------------
39,475,048
MICHIGAN-3.6%
AAA Kent Cnty GO Arpt Rev
(Kent Cnty Int'l) Ser 95 AMT
6.10%, 1/01/25 4,240 4,442,417
AAA Michigan HDA
MFHR (Rental Hsg Rev )
AMBAC Ser 97A AMT
6.10%, 10/01/33 8,400 8,714,076
AA+ Michigan HDA
SFMR (Mortgage Rev) Ser 96B AMT
6.20%, 6/01/27 5,270 5,532,288
A- Michigan Strategic Fund
PCR (General Motors Corp) Ser 95
6.20%, 9/01/20 2,765 2,962,117
------------
21,650,898
8
ALLIANCE MUNICIPAL INCOME FUND
_______________________________________________________________________________
STANDARD PRINCIPAL
& POOR'S AMOUNT
RATINGS# (000) VALUE
- -------------------------------------------------------------------------
MINNESOTA-3.6%
A Bass Brook PCR
(Minnesota Pwr & Light) Ser 92
6.00%, 7/01/22 $1,305 $ 1,345,964
AAA Duluth GO
Arpt Lease Rev Ser 95C AMT
6.25%, 8/01/14 4,085 4,330,999
AA+ Minnesota HFA
SFMR (Home Mortgage) Ser 93-C2 AMT
6.15%, 7/01/23 2,350 2,424,941
AA+ Minnesota HFA
SFMR (Home Mortgage) Ser 96F AMT
6.30%, 1/01/28 3,760 3,946,534
AA+ Minnesota HFA
SFMR (Home Mortgage) Ser 96G AMT
6.25%, 7/01/26 8,500 8,889,215
AA+ Rochester Hosp Rev
(Mayo Med Ctr) Ser 92H
8.022%, 11/15/15 (b) 1,000 1,126,800
------------
22,064,453
NEW JERSEY-2.5%
AAA New Jersey Eco Dev Auth
PCR (Pub Svc Elec & Gas)
MBIA Ser 94A AMT
6.40%, 5/01/32 1,450 1,549,717
A+ New Jersey Eco Dev Auth
Swr Rev (Anheuser-Busch) Ser 95 AMT
5.85%, 12/01/30 5,590 5,827,295
AAA New Jersey Eco Dev Auth
Wtr Fac (NJ American Wtr Co)
FGIC AMT
6.875%, 11/01/34 1,635 1,832,966
AAA New Jersey Hsg & Mtg Fin Agy
MFHR (Pooled Loan)
AMBAC Ser 96A AMT
6.25%, 5/01/28 1,275 1,342,129
AA- New Jersey Hwy Auth
(Garden State Pkwy)
6.25%, 1/01/14 1,250 1,329,687
AAA Vineland
Sewer Rev: Landis Sewer Auth Ser 93
7.16%, 9/19/19 3,250 3,662,100
------------
15,543,894
NEW YORK-2.9%
AAA Niagara Frontier Trans
Arpt Rev (Gtr Buffalo Int'l)
AMBAC Ser 94A AMT
6.25%, 4/01/24 1,550 1,649,820
AAA NYS Energy Res & Dev Auth
PCR (NYS Elec & Gas)
MBIA Ser 88A AMT
5.95%, 12/01/27 6,700 6,894,032
AA- Port Auth of NY & NJ
Cons Rev (95th Ser) AMT
6.125%, 7/15/29 8,835 9,395,051
------------
17,938,903
OHIO-8.4%
AAA Cleveland Arpt Rev
(Cleveland Int'l)
FGIC Ser 94A AMT
6.25%, 1/01/20 10,000 10,683,000
AAA Columbus Arpt Rev
(Port Columbus Int'l)
MBIA Ser 94A AMT
6.25%, 1/01/24 4,000 4,259,520
A Cuyahoga Cnty Hosp Rev
(Meridia Hlth Sys) Ser 95
6.25%, 8/15/24 2,885 3,098,577
BBB Dayton Spec Fac
(Emery Air Freight) Ser 96D AMT
6.20%, 10/01/09 5,680 6,074,874
BBB+ Ohio Air Quality Dev Auth
PCR (Columbus So Pwr) Ser 85B
6.25%, 12/01/20 2,695 2,819,832
AA- Ohio Air Quality Dev Auth
PCR (Dayton Power & Light) Ser 92B
6.40%, 8/15/27 2,000 2,157,960
AAA Ohio Air Quality Dev Auth
PCR (JMG Funding/Ohio Pwr Co)
AMBAC Ser 94B AMT
6.375%, 4/01/29 7,850 8,402,169
9
NATIONAL PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED) ALLIANCE MUNICIPAL INCOME FUND
_______________________________________________________________________________
STANDARD PRINCIPAL
& POOR'S AMOUNT
RATINGS# (000) VALUE
- -------------------------------------------------------------------------
AAA Ohio HFA
SFMR (Residental Mtg)
GNMA Ser 97 AMT
6.15%, 3/01/29 $4,835 $ 5,113,689
A Ohio Wtr Dev Auth Solid
Waste (North Star/BHP) AMT
6.45%, 9/01/20 5,245 5,639,319
Aa3 Toledo-Lucas Cnty Port Auth
(Cargill Inc Proj)
5.90%, 12/01/15 3,000 3,122,310
------------
51,371,250
PENNSYLVANIA-2.8%
BBB Pennsylvania Eco Dev Auth
Waste Wtr (Sun Co) Ser 94A AMT
7.60%, 12/01/24 935 1,067,368
AAA Pennsylvania Higher Ed
Student Loan Rev
AMBAC Ser 88D AMT
6.05%, 1/01/19 7,625 7,902,702
AAA Philadelphia Aprt Sys Rev
AMBAC Ser 95A AMT
6.10%, 6/15/25 6,500 6,832,215
AA Potter Cnty Hosp Rev
(Charles Cole Mem) Ser 96 Asset Gty
6.05%, 8/01/24 1,005 1,046,788
------------
16,849,073
RHODE ISLAND-1.1%
AA+ Rhode Island Hsg & Mtg Fin Corp
SFMR (Home Ownership)
Ser 92-7A AMT
6.75%, 10/01/25 6,030 6,399,398
SOUTH DAKOTA-1.6%
AA+ South Dakota HDA
SFMR (Home Ownership)
Ser 93-II AMT
6.15%, 5/01/26 9,600 9,842,592
TENNESSEE-0.2%
BBB Memphis Shelby Cnty
Spec Fac (Federal Express)
Ser 93 AMT
6.20%, 7/01/14 1,000 1,042,530
TEXAS-3.4%
BBB- Alliance Arpt Auth
Fac Imp (American Airlines)
Ser 90 AMT
7.50%, 12/01/29 $11,690 $12,800,667
BB- Houston Arpt Rev
(Continental Airlines) Ser 97B AMT
6.125%, 7/15/27 8,000 8,178,000
------------
20,978,667
VIRGINIA-5.8%
A Alexandria Redev & Hsg
MFHR (Buckingham Village) Ser 96A AMT
6.15%, 1/01/29 3,545 3,680,206
A+ Giles Cnty IDR
(Hoechst-Celanese Corp)
Ser 96 AMT
6.45%, 5/01/26 3,325 3,645,497
AAA Harrisonburg Redev & Hsg Auth
MFHR (Greens of Salem Run)
FSA Ser 97 AMT
6.30%, 4/01/29 3,565 3,794,693
AA Henrico Cnty IDR
(Henrico Cnty Reg Jail) Ser 94
7.125%, 8/01/21 2,000 2,304,040
A Henrico Cnty Swr Rev
(Browning-Ferris) Ser 97A AMT
5.875%, 3/01/17 2,290 2,382,356
A+ Henry Cnty Hosp Rev
(Martinsville & Henry Mem Hsp)
Ser 97
6.00%, 1/01/27 1,250 1,299,362
A- Isle of Wight Cnty
Solid Waste (Union Camp Corp)
Ser 94 AMT
6.55%, 4/01/24 3,545 3,878,088
A+ James Cnty Swr Rev
(Anheuser-Busch Proj) Ser 97 AMT
6.00%, 4/01/32 3,740 3,886,421
10
ALLIANCE MUNICIPAL INCOME FUND
_______________________________________________________________________________
STANDARD PRINCIPAL
& POOR'S AMOUNT
RATINGS# (000) VALUE
- -------------------------------------------------------------------------
Aa2 Prince William Cnty
Hosp Rev (Potomac Hosp Grp)
Ser 95
6.75%, 10/01/15 $1,820 $ 2,003,875
NR Staunton Ed Fac
(Mary Baldwin College) Ser 96
6.75%, 11/01/21 1,150 1,200,773
AA Virginia Beach
Hosp Rev (Sentara Bayside)
6.30%, 11/01/21 555 587,012
AA+ Virginia HDA SFMR
(Commonwealth Mtg) Ser 96B AMT
6.375%, 1/01/26 5,000 5,319,700
AA Virginia Res Auth Swr Rev
(Hopewell Fac) Ser 95A AMT
6.00%, 10/01/25 1,375 1,423,689
-------------
35,405,712
WASHINGTON-0.8%
BBB+ Pilchuck Dev Pub Corp
Spec Fac (BF Goodrich) Ser 93 AMT
6.00%, 8/01/23 4,500 4,591,485
WISCONSIN-2.4%
AAA Wisconsin GO
MBIA Ser 96B AMT
6.20%, 11/01/26 13,930 14,755,910
TOTAL LONG TERM MUNICIPAL BONDS
(cost $511,403,739) 537,935,147
SHORT TERM MUNICIPAL NOTES-9.5%
ARIZONA-1.6%
A-1 Apache Cnty
PCR (Tuscon Elec) Ser 81B VRDN
3.75%, 10/01/21 (a) 9,500 9,500,000
SOUTH CAROLINA-2.5%
A-1+ Berkeley Cnty IDR
(Nucor Corp Proj) Ser 97 AMT VRDN
3.75%, 4/01/30 (a) 15,000 15,000,000
VIRGINIA-3.9%
P-1* Bedford Cnty IDR
(Nekoosa Pkg) Ser 95A AMT VRDN
4.00%, 12/01/25 (a) 9,350 9,350,000
A-1+ Peninsula Ports Auth IDR
(Ziegler Coal Proj)
Ser 97 AMT VRDN
4.25%, 5/01/22 (a) 14,400 14,400,000
------------
23,750,000
WASHINGTON-1.5%
A-1 Yakima Cnty IDR
(Macro Plastics Inc) AMT VRDN
3.80%, 12/01/26 (a) 9,400 9,400,000
TOTAL SHORT TERM MUNICIPAL NOTES
(cost $57,650,000) 57,650,000
TOTAL INVESTMENTS-97.7%
(cost $569,053,739) 595,585,147
Other assets less liabilities-2.3% 14,277,218
NET ASSETS-100% $609,862,365
See footnote summary on page 21.
See Glossary of Terms on page 21.
See notes to financial statements.
11
INSURED NATIONAL PORTFOLIO
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1997 ALLIANCE MUNICIPAL INCOME FUND
_______________________________________________________________________________
STANDARD PRINCIPAL
& POOR'S AMOUNT
RATINGS# (000) VALUE
- -------------------------------------------------------------------------
MUNICIPAL BONDS-98.9%
LONG TERM MUNICIPAL BONDS-82.6%
ALASKA-17.0%
AAA Alaska Hsg Fin Corp
MFHR (Mtg Rev) MBIA Ser 96A
6.00%, 12/01/15 $ 1,400 $ 1,461,180
6.05%, 12/01/17 2,000 2,095,360
AAA Alaska Hsg Fin Corp
SFMR (Mtg Rev) MBIA Ser 97A
6.00%, 6/01/27 25,000 25,949,750
6.10%, 12/01/37 10,000 10,421,100
------------
39,927,390
ARIZONA-4.0%
AAA Glendale
Ed Fac (Midwestern Univ)
CONNIE LEE Ser 96A
6.00%, 5/15/26 640 672,614
AAA Maricopa Cnty
Hosp Rev (Cath Hlth West)
MBIA Ser 93
7.152%, 7/01/13 (b) 1,950 2,073,942
AAA Maricopa Cnty GO
Kyrene Elem Sch Imp #28 FGIC Ser 95B
6.00%, 7/01/14 2,000 2,099,200
AAA Tempe
MFHR (Quadrangles) FHA Ser 93
6.25%, 6/01/26 4,310 4,513,217
------------
9,358,973
CALIFORNIA-15.8%
AAA Mojave Wtr Agy
Imp Dist M (Morongo Basin Pipeline)
FGIC Ser 96
5.80%, 9/01/22 5,000 5,245,450
AAA No Calif Trans Agy Elec
Rev (Calif-Oregon Trans)
MBIA Ser 93A
6.609%, 4/29/24 (b) 11,600 11,788,036
AAA Orange Cnty
(Saddleback Valley Sch Dist)
FSA Ser 95A
5.65%, 9/01/17 2,000 2,042,140
AAA Palm Springs ETM COP
Ser 91B
Zero coupon, 4/15/21 43,025 11,705,812
AAA So Tahoe Joint Pwr Fin Auth
Ser 95A CAP MAC
5.75%, 10/01/25 4,500 4,629,780
AAA Univ of California Regents
Hosp Rev (UCLA Med Ctr)
MBIA Ser 94
5.50%, 12/01/20 1,685 1,699,120
------------
37,110,338
COLORADO-2.8%
AAA Denver City & Cnty Arpt Sys Rev
MBIA Ser 95A
5.70%, 11/15/25 6,375 6,496,699
ILLINOIS-2.1%
AAA Metro Pier & Expo Auth
(McCormick Place Expo)
FGIC Ser 93A
Zero coupon, 6/15/19 15,850 4,989,897
MASSACHUSETTS-9.5%
AAA Chelsea GO
AMBAC Ser 94
6.00%, 6/15/14 765 815,743
AAA Massachusetts HFA
MFHR (Residential Dev)
AMBAC Ser 93A
6.15%, 10/01/15 3,500 3,698,485
AAA Massachusetts HFA
MFHR (Residential Dev)
FNMA Coll Sec 8 Ser 92F
6.25%, 11/15/12 5,000 5,299,600
AAA Massachusetts HFA
SFMR (Residential Dev)
FNMA Ser 92A
6.90%, 11/15/24 1,500 1,636,875
AAA Massachusetts Hlth & Ed
Fac Hosp Rev (Beth Israel) AMBAC
8.42%, 7/01/25 (b) 1,000 1,096,390
AAA Massachusetts Hlth & Ed Fac Hosp Rev
(New England Med Ctr) MBIA
6.48%, 7/01/18 (b) 5,000 4,953,900
12
ALLIANCE MUNICIPAL INCOME FUND
_______________________________________________________________________________
STANDARD PRINCIPAL
& POOR'S AMOUNT
RATINGS# (000) VALUE
- -------------------------------------------------------------------------
AAA Massachusetts Muni Wholesale Elec
(Pwr Supply Sys) MBIA Ser 92A
6.00%, 7/01/18 $4,800 $ 4,946,592
------------
22,447,585
MICHIGAN-14.4%
AAA Detroit GO
FGIC Ser 93
6.35%, 4/01/14 3,370 3,614,662
AAA Detroit Swr Sys Rev
FGIC Ser 93A
7.517%, 7/01/23 (b) 13,200 13,652,496
AAA Grand Rapids Swr Sys Rev
MBIA Ser 92
6.00%, 1/01/22 1,755 1,825,182
AAA Kalamazoo Hosp Fin Auth
Hosp Rev (Borgess Med Ctr)
FGIC Ser 94A
6.528%, 6/01/11 (b) 7,500 7,682,700
AAA Michigan Strategic Fund
PCR (Detroit Edison Co.)
MBIA Ser 95AA
6.40%, 9/01/25 4,275 4,635,041
AAA Three Rivers GO
Sch Dist MBIA Ser 96
6.00%, 5/01/23 2,400 2,554,416
------------
33,964,497
MINNESOTA-5.0%
Aaa* Eagan
MFHR (Woodridge Apts)
GNMA Ser 97A
5.95%, 2/01/32 1,475 1,540,003
Aaa* Little Canada
MFHR (Cedars Lakeside Apt)
GNMA Ser 97A
5.95%, 2/01/32 1,720 1,795,800
AAA Minneapolis
(Spec Sch Dist #1) MBIA Ser 96A
5.90%, 2/01/17 4,070 4,255,796
AAA Minnesota HFA
MFHR (Rental Hsg) MBIA Ser 95D
6.00%, 2/01/22 4,115 4,286,266
------------
11,877,865
NEBRASKA-1.5%
AAA Nebraska Inv Fin Auth Hosp Rev
(Bishop Clarkson Mem) MBIA Ser 91
9.242%, 12/08/16 (b) 3,000 3,571,170
NEW YORK-2.6%
Aaa* Glen Cove IDR
(The Regency at Glen Cove)
Ser 92B ETM
Zero coupon, 10/15/19 20,500 6,126,835
OHIO-0.9%
AAA Ohio Capital Corp
MFHR (Sect 8 Assist) FHA MBIA Ser 95E
6.35%, 1/01/22 1,965 2,080,915
PENNSYLVANIA-1.2%
AAA Pennsylvania Conv Ctr
MBIA Ser 94A
6.75%, 9/01/19 2,500 2,818,275
VIRGINIA-4.9%
AAA Harrisonburg Redev & Hsg Auth
MFHR (Battery Heights Assoc)
GNMA Ser 96A
6.25%, 4/20/36 5,185 5,486,767
AAA Loudoun Cnty Hosp Rev
(Loudoun Hosp Ctr) FSA Ser 95
5.80%, 6/01/20 2,500 2,575,750
AAA Newport News
Hlth Fac (Mennowood) GNMA Ser 96A
6.25%, 8/01/36 2,180 2,317,863
AAA Richmond Met Auth
(Expressway Rev) FGIC Ser 92B
6.25%, 7/15/22 1,000 1,056,890
------------
11,437,270
WEST VIRGINIA-0.9%
AAA West Virginia Pkwys Eco Dev
(Parkway Rev) FGIC Ser 93
7.555%, 5/16/19 (b) 2,100 2,232,426
13
INSURED NATIONAL PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED) ALLIANCE MUNICIPAL INCOME FUND
_______________________________________________________________________________
STANDARD PRINCIPAL
& POOR'S AMOUNT
RATINGS# (000) VALUE
- -------------------------------------------------------------------------
TOTAL LONG TERM MUNICIPAL BONDS
(cost $182,742,091) $194,440,135
SHORT TERM MUNICIPAL NOTES-16.3%
FLORIDA-4.6%
A-1+ Tampa Occup License Tax Rev
FGIC Ser 96A VRDN
3.65%, 10/01/18 (a) $10,900 10,900,000
ILLINOIS-4.6%
A-1+ Illinois Dev Fin Auth
PCR (Com Edison Co)
AMBAC Ser 96A VRDN
3.65%, 12/01/06 (a) 10,800 10,800,000
PENNSYLVANIA-4.8%
A-1+ Emmaus GO
FSA Ser 96 VRDN
3.85%, 12/01/28 (a) 11,300 11,300,000
TEXAS-2.3%
A-1+ North Central Hlth Fac
(Presbyterian Med Ctr)
MBIA Ser 85C VRDN
4.05%, 12/01/15 (a) $5,300 $ 5,300,000
TOTAL SHORT TERM MUNICIPAL NOTES
(cost $38,300,000) 38,300,000
TOTAL INVESTMENTS-98.9%
(cost $221,042,091) 232,740,135
Other assets less liabilities-1.1% 2,490,855
NET ASSETS-100% $235,230,990
See footnote summary on page 21.
See Glossary of Terms on page 21.
See notes to financial statements.
14
NEW YORK PORTFOLIO
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1997 ALLIANCE MUNICIPAL INCOME FUND
_______________________________________________________________________________
STANDARD PRINCIPAL
& POOR'S AMOUNT
RATINGS# (000) VALUE
- -------------------------------------------------------------------------
NEW YORK MUNICIPAL BONDS-100.2%
LONG TERM MUNICIPAL BONDS-95.3%
A- Essex County IDR
(Int'l Paper) Ser 95A AMT
5.80%, 12/01/19 $7,000 $ 7,165,830
Aaa* Glen Cove IDR
(The Regency at Glen Cove)
Ser 92B ETM
Zero coupon, 10/15/19 19,510 5,830,954
AAA Islip Res Rec Agy
AMBAC Ser 94B AMT
6.125%, 7/01/12 2,020 2,145,826
BBB+ New York City GO
Ser 93A
6.25%, 8/01/18 6,000 6,239,640
BBB+ New York City GO
Ser 93D
8.057%, 8/29/14 (b) 10,000 10,794,400
AAA New York City GO
Ser 93E MBIA
6.00%, 5/15/11 5,000 5,305,800
BBB+ New York City GO
Ser 96J
6.00%, 2/15/24 13,580 14,020,128
BBB+ New York City GO
Ser 97A
6.25%, 8/01/17 16,750 17,714,967
BBB- New York City IDR
(American Airlines) Ser 94 AMT
6.90%, 8/01/24 12,000 13,308,480
AAA New York City IDR
(Japan Airlines) FSA Ser 91 AMT
6.00%, 11/01/15 4,400 4,678,828
A New York City IDR
(Terminal One LP) Ser 94 AMT
6.125%, 1/01/24 36,500 38,272,805
AAA Niagara Frontier Trans Arpt Auth
(Gtr Buffalo Int'l)
AMBAC Ser 94A AMT
6.25%, 4/01/24 14,575 15,513,630
AAA NYS Energy Res & Dev Auth
(Brooklyn Union Gas) MBIA AMT
7.356%, 7/08/26 (b) 6,000 6,047,700
AAA NYS Energy Res & Dev Auth
(Brooklyn Union Gas)
MBIA Ser 89B AMT
6.75%, 2/01/24 7,500 8,249,775
AAA NYS Energy Res & Dev Auth
(Rochester Gas & Elec) MBIA AMT
6.50%, 5/15/32 6,460 6,989,785
A+ NYS Energy Res & Dev Auth
PCR (Consolidated Edison)
Ser 94A AMT
7.125%, 12/01/29 22,000 25,278,660
AAA NYS Energy Res & Dev Auth
PCR (NYS Elec & Gas)
MBIA Ser 87A AMT
6.15%, 7/01/26 15,000 15,999,300
BBB NYS Envir Fac Auth IDR
(Occidental Petroleum) Ser 93A AMT
5.70%, 9/01/28 6,950 6,929,289
AAA NYS Envir Fac Corp
Wtr Fac (Spring Valley Wtr)
AMBAC Ser 94A AMT
6.30%, 8/01/24 11,800 12,590,128
AAA NYS HFA
MFHR (Erie/Monroe Cnty Proj) AMBAC
Ser 89B AMT
7.55%, 11/01/29 9,315 9,765,287
Aa* NYS HFA
MFHR (Westchester/Onondaga
/Rockland Proj)
Ser 92F AMT
6.70%, 8/15/25 6,000 6,381,300
Aa2* NYS Mtg Agy
SFMR Ser 42 AMT
6.65%, 4/01/26 4,500 4,808,790
Aa2* NYS Mtg Agy
SFMR Ser 46 AMT
6.65%, 10/01/25 19,850 21,271,061
15
NEW YORK PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED) ALLIANCE MUNICIPAL INCOME FUND
_______________________________________________________________________________
STANDARD PRINCIPAL
& POOR'S AMOUNT
RATINGS# (000) VALUE
- -------------------------------------------------------------------------
AAA Onondaga Cnty
PCR (Bristol-Myers Squibb) AMT
5.75%, 3/01/24 $ 4,000 $ 4,259,480
AAA Port Auth of NY & NJ
(JFK Int'l Proj) MBIA
Ser 97-6 AMT
5.75%, 12/01/22 9,905 10,182,439
AA- Port Auth of NY & NJ
Cons Rev (95th Ser) AMT
6.125%, 7/15/29 4,035 4,290,779
AAA Port Auth of NY & NJ
Cons Rev (96th Ser) FGIC AMT
6.60%, 10/01/23 10,000 11,019,700
AAA Troy Hsg Dev Corp
MFHR (Ninth St #2) FHA Ser 90B
8.10%, 2/01/24 3,515 4,089,386
AAA Troy Hsg Dev Corp
MFHR (TUR Proj) FHA Ser 90C
8.10%, 2/01/24 2,390 2,780,550
TOTAL LONG TERM MUNICIPAL BONDS
(cost $280,124,351) 301,924,697
SHORT TERM MUNICIPAL NOTES-4.9%
A-1+ New York City Cultural
Res Trust
(American National Museum)
MBIA Ser 91B VRDN
3.65%, 4/01/21 (a) 3,800 3,800,000
A-1+ Niagara Cnty IDA
(American Ref-Fuel Co)
Ser 96D AMT VRDN
3.70%, 11/15/26 (a) 4,200 4,200,000
VMIG-1* NYS Job Dev Auth
Ser A-1 to A-21 AMT VRDN
4.10%, 3/01/03 (a) 2,600 2,600,000
VMIG-1* Suffolk Cnty Wtr Auth
BAN Ser 97 VRDN
3.70%, 12/21/99 (a) 5,000 5,000,000
TOTAL SHORT TERM MUNICIPAL NOTES
(cost $15,600,000) 15,600,000
TOTAL INVESTMENTS-100.2%
(cost $295,724,351) 317,524,697
Other assets less liabilities-(0.2%) (770,135)
NET ASSETS-100% $316,754,562
See footnote summary on page 21.
See Glossary of Terms on page 21.
See notes to financial statements.
16
CALIFORNIA PORTFOLIO
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1997 ALLIANCE MUNICIPAL INCOME FUND
_______________________________________________________________________________
STANDARD PRINCIPAL
& POOR'S AMOUNT
RATINGS# (000) VALUE
- --------------------------------------------------------------------------
CALIFORNIA MUNICIPAL BONDS-97.6%
LONG TERM MUNICIPAL BONDS-95.1%
NR California Comm Dev Auth
(San Diego Space & Science)
Ser 96
7.50%, 12/01/16 $ 3,500 $ 3,794,630
A+ California GO
(Veterans Hsg) Ser 95 AMT
6.40%, 2/01/20 29,175 29,919,546
AAA California HFA
MFHR (Home Mtg Rev)
MBIA Ser 91A AMT
7.20%, 2/01/26 3,450 3,675,147
AAA California HFA
MFHR (Home Mtg Rev)
MBIA Ser 91C AMT
7.00%, 8/01/23 1,475 1,569,946
A+ California HFA
MFHR (Multi-Unit Rental Hsg)
Ser 92A AMT
6.50%, 2/01/14 4,865 5,125,034
AAA California HFA
SFMR (Home Mtg Rev)
AMBAC Ser 96H AMT
6.20%, 2/01/27 8,000 8,356,320
AA- California HFA
SFMR (Home Mtg Rev) Ser 91G AMT
7.05%, 8/01/27 5,265 5,554,996
AAA California HFA
SFMR (Home Mtg Rev)
Ser 95A-2 AMT AMBAC
6.45%, 8/01/25 13,400 14,188,992
AA- California HFA
SFMR (Home Mtg Rev) Ser 94E AMT
6.70%, 8/01/25 9,395 10,054,435
A California Poll Ctl Fin Auth
(Keller Canyon/Browning-Ferris Ind)
Ser 92 AMT Asset Gty
6.875%, 11/01/27 5,000 5,494,550
AA- California Poll Ctl Fin Auth
PCR (Pacific Gas & Elec) Ser 93A AMT
5.875%, 6/01/23 33,200 34,084,780
AA- California Poll Ctl Fin Auth
PCR (Pacific Gas & Elec) Ser 93B AMT
5.85%, 12/01/23 56,000 57,481,200
A+ California Poll Ctl Fin Auth
PCR (San Diego Gas & Elec)
Ser 93A-C AMT
5.85%, 6/01/21 32,335 33,147,255
A+ California Poll Ctl Fin Auth
PCR (So Calif Edison) Ser 92B AMT
6.40%, 12/01/24 33,030 35,761,911
A+ Chula Vista
PCR (San Diego Gas & Elec)
Ser 92A AMT
6.40%, 12/01/27 28,240 30,076,447
Aaa* Contra Costa Cnty
MFHR (Byron Park Proj)
GNMA Ser 93A AMT
6.40%, 1/20/31 11,860 12,615,126
NR Encinitas Comm Fac Dist #1
(Encinitas Ranch) Ser 95A
7.375%, 9/01/26 23,000 24,341,820
NR Encinitas Rec Rev
(Encinitas Ranch Golf Course)
Ser 96A
7.75%, 9/01/26 10,760 11,255,606
NR Fairfield Assess Dist
(No Cordelia Imp Dist) Ser 93
7.375%, 9/02/18 2,390 2,465,357
NR Fontana Comm
Fac Dist #3 (Hunters Ridge) Ser 90A
8.70%, 10/01/15 8,000 8,421,760
AAA Garden Grove
MFHR (Tudor Grove) GNMA Ser 89 AMT
7.25%, 5/20/32 1,150 1,179,383
AA- Long Beach Harbor Rev
Ser 93 AMT
5.125%, 5/15/18 12,325 11,848,146
17
CALIFORNIA PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED) ALLIANCE MUNICIPAL INCOME FUND
_______________________________________________________________________________
STANDARD PRINCIPAL
& POOR'S AMOUNT
RATINGS# (000) VALUE
- -------------------------------------------------------------------------
AAA Los Angeles Cnty Arpt Rev
(Ontario Int'l Arpt) FGIC
Ser 96A AMT
6.00%, 5/15/22 $12,780 $13,422,706
NR Los Angeles Cnty Comm
Fac Dist #3 (Valencia/
Newhall Area) Ser 95A
7.125%, 9/01/20 5,500 5,782,645
NR Los Angeles Cnty Comm
Fac Dist #4 (Calabasas Area)
Ser 92A
7.65%, 9/01/17 7,500 7,893,750
NR Los Angeles Cnty Comm
Fac Dist #92-1
(Castaic Union SD/Northlake Proj)
Ser 92
9.00%, 10/01/19 8,710 9,233,210
BB Los Angeles Comm Redev
MFHR (Grand Ctrl Proj) Ser 93A AMT
5.85%, 12/01/26 4,030 3,914,742
AAA Los Angeles Harbor Rev
MBIA Ser 96B AMT
6.20%, 8/01/25 10,000 10,707,000
AA Los Angeles Harbor Rev
Ser 95B AMT
6.625%, 8/01/25 24,000 26,026,080
NR Novato Comm
Fac Dist #94-1 (Hamilton Field)
Ser 95
7.375%, 9/01/25 4,400 4,810,828
NR Ontario Assess Dist #107
(CA Commerce Ctr So)
7.70%, 9/02/10 6,130 6,326,466
NR Orange Cnty
Comm Fac Dist # 92-1:
Las Flores/Capistrano USD Ser 97
7.10%, 9/01/21 3,200 3,394,304
AAA Orange Cnty Arpt Rev
(John Wayne Int'l)
MBIA Ser 93 AMT
5.50%, 7/01/18 5,050 5,074,593
BBB- Orange Cnty Sr Lien
Foothill/Eastern Corridor Agy
Ser 95A
Zero coupon, 1/01/15 18,500 7,030,370
Zero coupon, 1/01/25 15,000 3,200,550
Zero coupon, 1/01/27 10,000 1,904,300
Zero coupon, 1/01/28 10,000 1,799,000
AAA* Orange Cnty Sr Lien
San Joaquin Hills Transp Corridor
Ser 93 ETM
Zero coupon, 1/01/17 16,000 5,797,920
Zero coupon, 1/01/19 20,000 6,478,400
Zero coupon, 1/01/20 20,000 6,115,800
Zero coupon, 1/01/21 20,000 5,797,200
Zero coupon, 1/01/23 35,000 9,116,100
Zero coupon, 1/01/25 18,100 4,236,124
7.00%, Prere: 1/01/03 13,400 14,989,240
AAA Palm Springs ETM
COP Ser 91B
Zero coupon, 4/15/21 10,000 2,720,700
AAA Palm Springs Fin Auth
Arpt Rev
(Palm Springs Regional Arpt)
MBIA Ser 92 AMT
6.00%, 1/01/22 6,860 7,119,720
A Port of Oakland
(Mitsui OSK Lines) Ser 92A AMT
6.80%, 1/01/19 3,700 3,924,072
AAA Port of Oakland
MBIA Ser 92E AMT
6.40%, 11/01/22 23,370 25,196,132
6.50%, 11/01/16 8,000 8,697,200
NR Riverside Cnty Assess Dist #161
(Winchester Prop) Ser 94C
10.00%, 9/02/14 6,825 7,402,054
NR Riverside Comm
Fac Dist #90-1
(Highlander Proj) Ser 91A
8.50%, 9/01/15 2,000 2,093,560
NR Sacramento
Comm Fac Dist # 97-01
(No. Natomas Proj) Ser 97A
6.75%, 9/01/27 9,370 9,388,740
18
ALLIANCE MUNICIPAL INCOME FUND
_______________________________________________________________________________
STANDARD PRINCIPAL
& POOR'S AMOUNT
RATINGS# (000) VALUE
- -------------------------------------------------------------------------
AAA Sacramento Cnty Arpt Sys Rev
FGIC Ser 92A AMT
6.00%, 7/01/20 $11,750 $ 12,191,212
AAA Sacramento Cnty Arpt Sys Rev
MBIA Ser 96A AMT
5.90%, 7/01/24 5,050 5,243,819
AAA San Bernardino Cnty Solid Waste
(Inland Empire) FSA Ser 96B AMT
6.00%, 8/01/16 2,500 2,627,025
NR San Diego Comm
Fac Dist #1
(Miramar Ranch North) Ser 95B
7.10%, 9/01/20 7,000 7,505,330
AAA San Francisco City & Cnty Int'l Arpt
AMBAC Ser 94 II-6 AMT
6.60%, 5/01/24 5,000 5,490,750
AAA San Francisco City & Cnty Int'l Arpt
FGIC Ser 94 II-5 AMT
6.50%, 5/01/24 11,000 11,987,470
AAA San Francisco City & Cnty Int'l Arpt
FGIC Ser 96-II AMT
6.25%, 5/01/26 7,000 7,464,590
AAA San Francisco City & Cnty Int'l Arpt
MBIA Ser 10A AMT
5.70%, 5/01/26 9,385 9,555,432
AAA San Francisco City & Cnty Int'l Arpt
MBIA Ser 93 II-3 AMT
6.10%, 5/01/13 5,390 5,711,675
6.20%, 5/01/20 14,500 15,325,340
AAA San Jose Arpt Rev
(San Jose Arpt) FGIC Ser 93 AMT
5.70%, 3/01/18 8,825 8,971,936
AAA So Calif HFA
SFMR GNMA/FNMA Ser 91B AMT
6.90%, 10/01/24 1,635 1,734,277
AAA So Calif HFA
SFMR GNMA/FNMA Ser 92A AMT
6.75%, 9/01/22 1,425 1,511,697
A- Vacaville Redev Agy
MFHR (Vacaville Comm Hsg) Ser 94A
7.85%, 11/01/24 2,455 2,664,387
BBB+ Westminster Redev Agy
MFHR (Rose Garden Apt) Ser 93A AMT
6.75%, 8/01/24 4,300 4,498,445
AAA Yolo Cnty Hsg Auth
MFHR (Waggener Ranch Apts)
FHA Ser 91 AMT
7.00%, 10/01/33 9,000 9,763,560
TOTAL LONG TERM MUNICIPAL BONDS
(cost $634,369,283) 692,252,838
SHORT TERM MUNICIPAL NOTES-2.5%
A-1+ California Comm Dev Rev
(Tri-Valley Growers Proj)
Ser 95E AMT VRDN
3.55%, 12/01/10 (a) 3,200 3,200,000
A-1+ California Poll Ctl Fin Auth
PCR (Shell Oil) Ser 94 AMT VRDN
4.10%, 10/01/24 (a) 15,100 15,100,000
TOTAL SHORT TERM MUNICIPAL NOTES
(cost $18,300,000) 18,300,000
TOTAL INVESTMENTS-97.6%
(cost $652,669,283) 710,552,838
Other assets less liabilities-2.4% 17,305,524
NET ASSETS-100% $727,858,362
See footnote summary on page 21.
See Glossary of Terms on page 21.
See notes to financial statements.
19
INSURED CALIFORNIA PORTFOLIO
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1997 ALLIANCE MUNICIPAL INCOME FUND
_______________________________________________________________________________
STANDARD PRINCIPAL
& POOR'S AMOUNT
RATINGS# (000) VALUE
- -------------------------------------------------------------------------
CALIFORNIA MUNICIPAL BONDS-98.8%
LONG TERM MUNICIPAL BONDS-90.1%
AAA Alhambra COP
Assess Dist #91-1 (Police Fac)
AMBAC Ser 92
6.75%, 9/01/23 $ 5,000 $ 5,443,600
AAA Brea Pub Fin Auth
Tax Alloc Redev Proj B
MBIA Ser 91A
7.00%, 8/01/15 1,470 1,621,528
AAA California HFA
MFHR (Home Mtg Rev)
AMBAC Ser 95A
6.25%, 2/01/37 5,000 5,274,050
AAA Coronado Comm Dev Proj
Tax Alloc FSA Ser 96
6.00%, 9/01/26 8,700 9,254,886
AAA Fontana Pub Fin Auth
Tax Alloc (No Fontana)
MBIA Ser 93A
5.625%, 9/01/24 8,805 8,960,320
NR Fontana Redev Agy BAN
(Jurupa Hills Proj) Ser 94 ETM
8.00%, 1/01/98 5,000 5,012,600
AAA Glendale Hlth Fac Rev
(Glendale Mem Hosp)
CONNIE LEE Ser 95A
5.60%, 11/15/25 2,000 2,013,680
AAA La Mirada Redev Agy
Tax Alloc (Commercial Redev)
FSA Ser 95B
5.90%, 8/15/24 5,000 5,218,400
Aa* Lancaster Redev Agy FHA
MFHR (High Valley Apts) Ser 96A
6.00%, 6/01/27 4,170 4,317,076
AAA Los Angeles Cnty
Metro Trans Auth MBIA Ser 93A
5.625%, 7/01/18 3,000 3,066,120
AAA Los Angeles Cnty Comm Redev
Tax Alloc (Bunker Hill Proj)
FSA Ser 93H
5.60%, 12/01/28 9,000 9,104,310
AAA Los Angeles Cnty
Transportation Commission
FGIC Ser 91B
6.50%, 7/01/15 5,000 5,388,300
AAA Madera Cnty
Hosp Rev (Valley Children's Hosp)
MBIA Ser 95
6.125%, 3/15/23 4,000 4,268,120
AAA Mojave Wtr Agy
Imp Dist M
(Morongo Basin Pipeline)
FGIC Ser 96
5.80%, 9/01/22 5,000 5,245,450
AAA No Calif Trans Agy Elec Rev
(Calif-Oregon Trans) MBIA Ser 93A
6.609%, 4/29/24 (b) 7,650 7,774,007
AAA Orange Cnty
(Loma Ridge Data Ctr Proj)
AMBAC Ser 91
6.00%, 6/01/19 1,000 1,082,540
AAA Orange Cnty Recovery
MBIA Ser 96A
6.00%, 7/01/26 3,000 3,189,150
AAA Palm Springs ETM COP
Ser 91B
Zero coupon, 4/15/21 17,475 4,754,423
AAA Rancho Wtr Dist Fin Auth
AMBAC Ser 91
8.974%, Prere: 9/11/01 (b) 3,000 3,578,760
AAA Redding
Elec Sys Rev MBIA Ser 92A
8.66%, 7/01/22 (b) 2,000 2,677,500
AAA Sacramento Cnty Arpt Sys Rev
MBIA Ser 96B
5.75%, 7/01/26 3,260 3,359,234
AAA Sacramento Muni Util Dist
Elec Rev MBIA Ser 93E
5.75%, 5/15/22 5,000 5,131,800
AAA San Bernardino Cnty Redev
(Ontario Proj #1) MBIA Ser 93
5.80%, 8/01/23 10,000 10,306,700
20
ALLIANCE MUNICIPAL INCOME FUND
_______________________________________________________________________________
STANDARD PRINCIPAL
& POOR'S AMOUNT
RATINGS# (000) VALUE
- -------------------------------------------------------------------------
AAA San Bernardino Redev
Agy Tax Alloc (Joint Pwr Fin)
FSA Ser 95A
5.75%, 10/01/25 $ 5,000 $ 5,163,600
AAA San Dimas Redev Agy
(Creative Growth) FSA Ser 91A
6.75%, 9/01/16 1,000 1,088,720
AAA San Francisco City & Cnty Int'l Arpt
MBIA Ser 93 II-4
6.00%, 5/01/14 5,000 5,283,500
AAA Shasta Lake COP
Elec Sys Rev FSA Ser 96-2
6.00%, 4/01/16 2,895 3,060,970
TOTAL LONG TERM MUNICIPAL BONDS
(cost $122,553,650) 130,639,344
SHORT TERM MUNICIPAL NOTES-8.7%
A-1 Oakland IDR
(Allen Temple Fam Life)
Ser 97A VRDN
3.55%, 8/01/27 (a) 4,600 4,600,000
A-1+ Orange Cnty
(Sanitation Dist No.1,2,3)
AMBAC VRDN
3.80%, 8/01/16 (a) 3,100 3,100,000
A-1+ So Calif Pub Pwr Auth
(Transmisson Proj) AMBAC VRDN
3.40%, 7/01/19 (a) 5,000 5,000,000
TOTAL SHORT TERM MUNICIPAL NOTES
(cost $12,700,000) 12,700,000
TOTAL INVESTMENTS-98.8%
(cost $135,253,650) 143,339,344
Other assets less liabilities-1.2% 1,719,881
NET ASSETS-100% $145,059,225
# Unaudited.
* Moody's or Fitch Rating.
(a) Variable Rate Demand Notes (VRDN) are instruments whose interest rates
change on a specific date (such as coupon date or interest payment date) or
whose interest rates vary with changes in a designated base rate (such as the
prime interest rate). These instruments are payable on demand and are secured
by letters of credit or other credit support agreements from major banks.
(b) Inverse floater security--security with variable or floating interest rate
that moves in opposite direction of short-term interest rates.
See notes to financial statements.
Glossary of Terms:
AMBAC American Municipal Bond Assurance Corporation
AMT Alternative Minimum Tax - (subject to)
BAN Bond Anticipation Note
CAP MAC Capital Markets Assurance Corporation
CONNIE LEE Connie Lee Insurance Company
COP Certificate of Participation
ETM Escrow 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
HFA Housing Finance Authority
IDR Industrial Development Revenue
MBIA Municipal Bond Investors Assurance
MFHR Multi-Family Housing Revenue
NR Rating not applied for
PCR Pollution Control Revenue
SFMR Single Family Mortgage Revenue
21
STATEMENTS OF ASSETS AND LIABILITIES
OCTOBER 31, 1997 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-
$569,053,739; Ins. National-$221,042,091; New
York-$295,724,351; California-$652,669,283;
Ins. California-$135,253,650, respectively) $595,585,147 $232,740,135 $317,524,697 $710,552,838 $143,339,344
Cash 83,990 -0- -0- -0- 21,935
Receivable for investment securities sold 11,954,247 271,360 100,000 6,244,089 -0-
Interest receivable 9,661,973 2,960,750 4,865,794 12,941,994 2,128,575
Receivable for capital stock sold 3,237,435 346,719 980,945 1,428,845 158,493
Prepaid expenses 23,338 11,067 -0- -0- -0-
Total assets 620,546,130 236,330,031 323,471,436 731,167,766 145,648,347
LIABILITIES
Due to custodian -0- 25,813 320,292 379,091 -0-
Payable for investment securities purchased 7,038,381 -0- 5,000,000 -0- -0-
Payable for capital stock redeemed 2,090,026 454,212 606,576 1,099,802 78,241
Dividends payable 899,142 331,364 478,221 1,084,337 211,003
Distribution fee payable 320,443 98,168 160,575 335,904 61,355
Advisory fee payable 102,993 99,010 40,192 183,997 67,551
Unclaimed dividends 78,007 -0- -0- 90,989 90,989
Accrued expenses 154,773 90,474 111,018 135,284 79,983
Total liabilities 10,683,765 1,099,041 6,716,874 3,309,404 589,122
NET ASSETS $609,862,365 $235,230,990 $316,754,562 $727,858,362 $145,059,225
COMPOSITION OF NET ASSETS
Capital stock, at par $ 55,771 $ 22,415 $ 31,352 $ 65,916 $ 10,446
Additional paid-in capital 587,507,625 219,401,181 298,914,571 682,656,328 137,180,364
Undistributed net investment income (loss) (496,611) (331,364) (419,120) (152,219) 116,368
Accumulated net realized gain (loss) on
investment transactions (3,735,828) 4,440,714 (3,572,587) (12,595,218) (333,647)
Net unrealized appreciation of investments 26,531,408 11,698,044 21,800,346 57,883,555 8,085,694
$609,862,365 $235,230,990 $316,754,562 $727,858,362 $145,059,225
CLASS A SHARES
Net assets $329,540,284 $170,631,382 $181,745,387 $470,444,202 $103,647,106
Shares of capital stock outstanding 30,135,988 16,259,299 17,988,797 42,604,280 7,464,162
CLASS B SHARES
Net assets $190,530,450 $ 45,542,415 $ 96,118,711 $166,672,223 $ 27,976,270
Shares of capital stock outstanding 17,423,816 4,339,709 9,513,629 15,094,150 2,014,717
CLASS C SHARES
Net assets $ 89,791,631 $ 19,057,193 $ 38,890,464 $ 90,741,937 $ 13,435,849
Shares of capital stock outstanding 8,211,346 1,815,949 3,849,294 8,217,767 967,585
CALCULATION OF MAXIMUM OFFERING PRICE
CLASS A SHARES
Net asset value and redemption price per share $10.94 $10.49 $10.10 $11.04 $13.89
Sales charge--4.25% of public offering price .49 .47 .45 .49 .62
Maximum offering price $11.43 $10.96 $10.55 $11.53 $14.51
CLASS B SHARES
Net asset value and offering price per share $10.94 $10.49 $10.10 $11.04 $13.89
CLASS C SHARES
Net asset value and offering price per share $10.94 $10.49 $10.10 $11.04 $13.89
</TABLE>
See notes to financial statements.
22
STATEMENTS OF OPERATIONS
YEAR ENDED OCTOBER 31, 1997 ALLIANCE MUNICIPAL INCOME FUND
_______________________________________________________________________________
<TABLE>
<CAPTION>
INSURED INSURED
NATIONAL NATIONAL NEW YORK CALIFORNIA CALIFORNIA
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Interest $37,294,957 $13,763,261 $18,916,699 $43,981,173 $ 8,775,760
EXPENSES
Advisory fee 3,829,514 1,466,189 1,937,934 4,430,718 777,943
Distribution fee - Class A 969,311 498,660 534,527 1,368,415 305,769
Distribution fee - Class B 1,995,677 482,383 946,504 1,625,675 265,870
Distribution fee - Class C 900,510 201,322 372,434 902,092 129,342
Transfer agency 537,778 154,576 276,264 441,391 78,864
Custodian 153,743 100,726 89,814 157,041 93,808
Administrative 99,000 99,000 99,000 99,000 99,000
Registration 78,202 62,020 6,384 5,299 3,649
Audit and legal 76,306 54,705 71,608 60,851 52,868
Taxes 47,835 18,642 24,225 55,635 13,641
Printing 46,315 20,537 36,533 72,460 12,755
Directors' fees 3,988 3,988 3,988 3,988 3,988
Miscellaneous 33,394 13,080 12,479 9,430 9,371
Total expenses 8,771,573 3,175,828 4,411,694 9,231,995 1,846,868
Less advisory fee waived (see note B) (2,507,326) (293,238) (1,472,830) (1,953,318) -0-
Net expenses 6,264,247 2,882,590 2,938,864 7,278,677 1,846,868
Net investment income 31,030,710 10,880,671 15,977,835 36,702,496 6,928,892
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investment transactions 14,826,601 4,944,358 4,174,320 5,003,142 1,740,386
Net change in unrealized appreciation of
investments 9,340,351 3,352,744 9,967,051 24,720,704 3,440,458
Net gain on investments 24,166,952 8,297,102 14,141,371 29,723,846 5,180,844
NET INCREASE IN NET ASSETS FROM OPERATIONS $55,197,662 $19,177,773 $30,119,206 $66,426,342 $12,109,736
</TABLE>
See notes to financial statements.
23
STATEMENTS OF CHANGES IN NET ASSETS ALLIANCE MUNICIPAL INCOME FUND
_______________________________________________________________________________
<TABLE>
<CAPTION>
NATIONAL INSURED NATIONAL
---------------------------- ----------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS
Net investment income $ 31,030,710 $ 34,751,054 $ 10,880,671 $ 11,513,311
Net realized gain on investment transactions 14,826,601 16,964,535 4,944,358 8,542,348
Net change in unrealized appreciation
of investments 9,340,351 (13,559,055) 3,352,744 (3,328,071)
Net increase in net assets from operations 55,197,662 38,156,534 19,177,773 16,727,588
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A (17,434,356) (18,357,293) (8,055,946) (8,246,992)
Class B (9,363,672) (11,489,379) (1,989,680) (2,490,145)
Class C (4,232,682) (5,041,417) (835,045) (998,865)
Distributions in excess of net investment income
Class A (108,116) -- (357,318) --
Class B (167,843) -- (141,497) --
Class C (83,616) -- (54,455) --
Net realized gain on investments
Class A -0- -0- (2,137,301) -0-
Class B -0- -0- (675,181) -0-
Class C -0- -0- (283,681) -0-
CAPITAL STOCK TRANSACTIONS
Net decrease (50,361,494) (65,588,040) (4,760,384) (16,451,516)
Total decrease (26,554,117) (62,319,595) (112,715) (11,459,930)
NET ASSETS
Beginning of year 636,416,482 698,736,077 235,343,705 246,803,635
End of year $609,862,365 $636,416,482 $235,230,990 $235,343,705
</TABLE>
See notes to financial statements.
24
ALLIANCE MUNICIPAL INCOME FUND
_______________________________________________________________________________
NEW YORK
----------------------------
YEAR ENDED YEAR ENDED
OCT. 31, 1997 OCT. 31, 1996
------------- -------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income $15,977,835 $16,689,380
Net realized gain on investment transactions 4,174,320 4,364,814
Net change in unrealized appreciation
of investments 9,967,051 (3,048,492)
Net increase in net assets from operations 30,119,206 18,005,702
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income
Class A (9,716,748) (10,253,521)
Class B (4,491,417) (4,792,337)
Class C (1,769,670) (1,717,798)
Distribution in excess of net
investment income
Class A (212,191) --
Class B (93,630) --
Class C (39,023) --
CAPITAL STOCK TRANSACTIONS
Net decrease (8,015,166) (914,884)
Total increase 5,781,361 327,162
NET ASSETS
Beginning of year 310,973,201 310,646,039
End of year $316,754,562 $310,973,201
See notes to financial statements.
25
STATEMENTS 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, 1997 OCT. 31, 1996 OCT. 31, 1997 OCT. 31, 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income $ 36,702,496 $ 38,549,087 $ 6,928,892 $ 7,251,129
Net realized gain (loss) on investment 5,003,142 (2,028,050) 1,740,386 1,834,892
Net change in unrealized appreciation
transations of investments 24,720,704 11,344,019 3,440,458 (1,363,432)
Net increase in net assets from operations 66,426,342 47,865,056 12,109,736 7,722,589
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income
Class A (24,763,762) (26,160,727) (5,193,881) (5,222,731)
Class B (7,675,192) (8,034,602) (1,166,553) (1,268,940)
Class C (4,263,542) (4,353,711) (567,563) (605,238)
Distribution in excess of net investment income
Class A (117,642) -- (38,493) --
Class B (23,966) -- (254) --
Class C (10,658) -- -- --
CAPITAL STOCK TRANSACTIONS
Net decrease (17,969,648) (26,146,521) (1,148,149) (5,640,530)
Total increase (decrease) 11,601,932 (16,830,505) 3,994,843 (5,014,850)
NET ASSETS
Beginning of year 716,256,430 733,086,935 141,064,382 146,079,232
End of year (including undistributed
net investment income of $116,368 for
the Insured California Portfolio) $727,858,362 $716,256,430 $145,059,225 $141,064,382
</TABLE>
See notes to financial statements.
26
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1997 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% for purchases not
exceeding $1,000,000. 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 of 1%. 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
subject to a contingent deferred sales charge of 1% on redemptions made within
the first year after purchase. 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 in
determining values.
If market quotations are not readily available from such pricing service, a
municipal security is valued at its fair value as determined in good faith by
the Fund's Adviser, Alliance Capital Management, L.P. 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 approximate market
value, unless this method does not represent fair value.
2. TAXES
It is the policy 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 INVESTMENT TRANSACTIONS
Interest income is accrued daily. Investment transactions are accounted for on
the date the securities are purchased or sold. Investment gains and losses are
determined on the identified cost basis. The Fund amortizes premiums and
accretes 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. INCOME AND EXPENSES
All income earned and expenses incurred by the Fund are borne on a pro-rata
basis by each settled class of shares, based on the proportionate interest in
the Fund represented by the net assets of such class, except that the Fund's
Class B and Class C shares bear higher distribution and transfer agent fees
than Class A shares.
5. DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions to shareholders are recorded on the ex-dividend
date.
Income and capital gains distributions are determined in accordance with
federal tax regulations and may differ from those determined in accordance with
generally accepted accounting principles. To the extent these differences are
permanent, such amounts are reclassified with the capital accounts based on
their federal tax basis treatment; temporary differences, do not require such
reclassification. During the current fiscal year, certain portfolios had
permanent differences, primarily due to distributions in excess of net
tax-exempt investment income which resulted in a net decrease in distributions
in excess of net investment income and a corresponding decrease in additional
paid-in capital for those portfolios. These reclassifications had no affect on
net assets.
27
NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCE MUNICIPAL INCOME FUND
_______________________________________________________________________________
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.
For the year ended October 31, 1997 the Adviser voluntarily agreed to waive
part of its advisory fee for the National, Insured National, New York and
California Portfolios. The aggregate amounts of such fee waivers were: National
Portfolio, $2,507,326; Insured National Portfolio, $293,238; New York
Portfolio, $1,472,830 and California Portfolio, $1,953,318. Pursuant to the
Advisory Agreement, the Fund paid $495,000 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: National Portfolio, $392,417; Insured National
Portfolio, $106,538; the New York Portfolio, $194,749; California Portfolio,
$291,440 and Insured California Portfolio, $46,156.
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, 1997 were: National
Portfolio, $12,822; Insured National Portfolio, $19,944; New York Portfolio,
$29,137; California Portfolio, $73,095. The amount of contingent deferred sales
charge imposed upon redemptions by shareholders of Class A shares were New York
$1,562; and California $4,926. National, Insured National and Insured
California had no contingent deferred sales charges. The amount of contingent
deferred sales charges imposed upon redemptions by shareholders of Class B
shares were: National Portfolio, $109,119; Insured National Portfolio, $29,576;
New York Portfolio, $78,379; California Portfolio, $113,659; and Insured
California Portfolio, $29,098. The amount of contingent deferred sales charges
imposed upon redemptions by shareholders of Class C shares were:National
Portfolio, $19,971; Insured National Portfolio, $9,128; New York Portfolio,
$15,274; California Portfolio, $25,188; and Insured California, $964.
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 $3,269,945 $2,600,719
Insured National 1,723,132 882,396
New York 2,984,535 1,203,405
California 4,398,447 2,267,530
Insured California 1,488,429 577,218
28
ALLIANCE MUNICIPAL INCOME FUND
_______________________________________________________________________________
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
and U.S. government securities) for the year ended October 31, 1997 were as
follows:
PORTFOLIO PURCHASES SALES
- --------- ------------ ------------
National $431,813,674 $544,581,413
Insured National 214,156,738 253,019,567
New York 102,008,189 121,598,903
California 135,249,196 182,068,254
Insured California 45,634,615 56,619,250
There were no purchases or sales of U.S. government and government agency
obligations for the year ended October 31, 1997.
At October 31, 1997, the cost of securities for federal income tax purposes,
gross unrealized appreciation, gross unrealized depreciation and net unrealized
appreciation/depreciation of investments for each Portfolio were as follows:
GROSS UNREALIZED NET
---------------------------- UNREALIZED
TAX COST APPRECIATION (DEPRECIATION) APPRECIATION
------------ ------------ -------------- ------------
National $569,086,430 $27,824,085 $(1,325,368) $26,498,717
Insured National 221,043,160 11,698,258 (1,283) 11,696,975
New York 295,745,246 21,779,451 -0- 21,779,451
California 652,669,283 57,883,555 -0- 57,883,555
Insured California 135,253,650 8,085,694 -0- 8,085,694
NOTE E: TAXES
For Federal income tax purposes at October 31, 1997, the Fund had capital loss
carryforwards for the following Portfolios: $3,702,936 expiring in 2003 for the
National Portfolio; $3,551,488 expiring in 2003 for the New York Portfolio;
$10,543,156 expiring in 2003 and $2,052,062 expiring in 2004 for the California
Portfolio; and $333,647 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,
1997 1996 1997 1996
------------ ------------ -------------- --------------
CLASS A
Shares sold 3,200,221 5,575,925 $ 34,152,888 $ 58,487,725
Shares issued in
reinvestment of
dividends 965,819 1,019,710 10,298,158 10,606,458
Shares converted
from Class B 966,203 1,147,625 10,317,831 11,942,215
Shares redeemed (5,936,090) (9,175,311) (63,228,325) (95,864,424)
Net decrease (803,847) (1,432,051) $ (8,459,448) $(14,828,026)
CLASS B
Shares sold 2,028,317 2,083,622 $ 21,665,451 $ 21,678,779
Shares issued in
reinvestment of
dividends 595,412 691,706 6,345,911 7,193,169
Shares converted
to Class A (966,312) (1,147,625) (10,317,831) (11,942,215)
Shares redeemed (4,683,031) (5,326,953) (49,816,107) (55,286,254)
Net decrease (3,025,614) (3,699,250) $(32,122,576) $(38,356,521)
CLASS C
Shares sold 1,388,588 2,326,094 $ 14,824,288 $ 24,279,598
Shares issued in
reinvestment of
dividends 388,719 335,126 4,147,274 3,484,071
Shares redeemed (2,709,926) (3,859,000) (28,751,032) (40,167,162)
Net decrease (932,619) (1,197,780) $ (9,779,470) $(12,403,493)
INSURED NATIONAL PORTFOLIO
SHARES AMOUNT
-------------------------- ------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1997 1996 1997 1996
------------ ------------ -------------- --------------
CLASS A
Shares sold 1,963,755 1,382,575 $ 20,121,552 $ 13,902,664
Shares issued in
reinvestment of
dividends and
distributions 606,956 414,861 6,193,387 4,198,610
Shares converted
from Class B 72,137 24,166 741,691 243,256
Shares redeemed (1,983,414) (2,661,772) (20,244,010) (26,886,521)
Net increase(decrease) 659,434 (840,170) $ 6,812,620 $ (8,541,991)
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,
1997 1996 1997 1996
------------ ------------ -------------- --------------
CLASS B
Shares sold 445,318 725,416 $ 4,550,886 $ 7,364,166
Shares issued in
reinvestment of
dividends and
distributions 189,204 149,506 1,928,668 1,512,818
Shares converted
to Class A (72,158) (24,166) (741,691) (243,256)
Shares redeemed (1,295,176) (1,637,886) (13,217,186) (16,598,949)
Net decrease (732,812) (787,130) $ (7,479,323) $ (7,965,221)
CLASS C
Shares sold 607,973 713,617 $ 6,236,279 $ 7,183,108
Shares issued in
reinvestment of
dividends and
distributions 100,042 66,139 1,023,363 669,187
Shares redeemed (1,106,023) (777,517) (11,353,323) (7,796,599)
Net increase
(decrease) (398,008) 2,239 $ (4,093,681) $ 55,696
NEW YORK PORTFOLIO
SHARES AMOUNT
-------------------------- ------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1997 1996 1997 1996
------------ ------------ -------------- --------------
CLASS A
Shares sold 1,656,405 1,703,514 $ 16,287,832 $ 16,329,024
Shares issued in
reinvestment of
dividends 622,430 661,612 6,108,602 6,340,256
Shares converted
from Class B 68,401 25,442 672,992 280,942
Shares redeemed (2,933,918) (2,945,222) (28,752,201) (28,238,945)
Net decrease (586,682) (554,654) $ (5,682,775) $ (5,288,723)
CLASS B
Shares sold 1,571,739 1,812,208 $ 15,455,527 $ 17,384,846
Shares issued in
reinvestment of
dividends 335,027 323,928 3,289,276 3,102,964
Shares converted
to Class A (68,401) (25,442) (672,992) (280,942)
Shares redeemed (2,361,128) (1,885,403) (23,120,896) (18,010,268)
Net increase
(decrease) (522,763) 225,291 $ (5,049,085) $ 2,196,600
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,
1997 1996 1997 1996
------------ ------------ -------------- --------------
CLASS C
Shares sold 1,428,234 1,388,105 $ 14,035,181 $ 13,398,638
Shares issued in
reinvestment of
dividends 199,225 132,115 1,958,524 1,265,387
Shares redeemed (1,355,750) (1,295,305) (13,277,011) (12,486,786)
Net increase 271,709 224,915 $ 2,716,694 $ 2,177,239
CALIFORNIA PORTFOLIO
SHARES AMOUNT
-------------------------- ------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1997 1996 1997 1996
------------ ------------ -------------- --------------
CLASS A
Shares sold 3,738,289 4,406,385 $ 40,219,966 $ 46,067,687
Shares issued in
reinvestment of
dividends 1,166,476 1,158,430 12,506,829 12,118,531
Shares converted
from Class B 142,469 108,411 1,524,654 1,125,538
Shares redeemed (5,919,965) (8,003,914) (63,313,282) (83,570,318)
Net decrease (872,731) (2,330,688) $(9,061,833) $(24,258,562)
CLASS B
Shares sold 2,222,122 2,529,481 $ 23,864,126 $ 26,499,615
Shares issued in
reinvestment of
dividends 443,701 404,752 4,759,751 4,234,295
Shares converted
to Class A (142,456) (108,411) (1,524,654) (1,125,538)
Shares redeemed (2,999,262) (3,207,605) (32,131,158) (33,548,529)
Net decrease (475,895) (381,783) $ (5,031,935) $ (3,940,157)
CLASS C
Shares sold 1,575,361 2,465,162 $ 16,866,778 $ 25,830,785
Shares issued in
reinvestment of
dividends 377,469 250,607 4,052,166 2,619,923
Shares redeemed (2,319,763) (2,530,143) (24,794,824) (26,398,510)
Net increase
(decrease) (366,933) 185,626 $ (3,875,880) $ 2,052,198
32
ALLIANCE MUNICIPAL INCOME FUND
_______________________________________________________________________________
INSURED CALIFORNIA PORTFOLIO
SHARES AMOUNT
-------------------------- ------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1997 1996 1997 1996
------------ ------------ -------------- --------------
CLASS A
Shares sold 579,093 827,900 $ 7,766,679 $ 10,898,263
Shares issued in
reinvestment of
dividends 194,618 189,983 2,638,958 2,517,761
Shares converted
from Class B 12,441 1,804 170,252 23,470
Shares redeemed (903,548) (1,244,117) (12,186,021) (16,388,925)
Net decrease (117,396) (224,430) $ (1,610,132) $ (2,949,431)
CLASS B
Shares sold 362,181 558,000 $ 4,900,540 $ 7,459,223
Shares issued in
reinvestment of
dividends 62,833 51,658 852,376 684,457
Shares converted
to Class A (12,440) (1,804) (170,252) (23,470)
Shares redeemed (391,053) (703,582) (5,261,290) (9,300,020)
Net increase (decrease) 21,521 (95,728) $ 321,374 $ (1,179,810)
CLASS C
Shares sold 145,518 198,597 $ 1,971,410 $ 2,664,787
Shares issued in
reinvestment of
dividends 35,557 32,458 482,604 429,912
Shares redeemed (171,093) (349,078) (2,313,405) (4,605,988)
Net increase
(decrease) 9,982 (118,023) $ 140,609 $ (1,511,289)
33
FINANCIAL HIGHLIGHTS ALLIANCE MUNICIPAL INCOME FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR
NATIONAL PORTFOLIO
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------------
YEAR ENDED OCTOBER 31,
---------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $10.51 $10.45 $ 9.41 $11.05 $10.19
INCOME FROM INVESTMENT OPERATIONS
Net investment income (a) .57(b) .58 .58 .57 .61
Net realized and unrealized gain (loss)
on investment transactions .44 .06 1.04 (1.37) .88
Net increase (decrease) in net asset
value from operations 1.01 .64 1.62 (.80) 1.49
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.58) (.58) (.58) (.57) (.62)
Distributions in excess of net
investment income -0- -0- -0- (.03) -0-
Distributions from net realized gains -0- -0- -0- (.24) (.01)
Total dividends and distributions (.58) (.58) (.58) (.84) (.63)
Net asset value, end of year $10.94 $10.51 $10.45 $ 9.41 $11.05
TOTAL RETURN
Total investment return based on
net asset value (c) 9.88% 6.32% 17.73% (7.65)% 14.94%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $329,540 $325,288 $338,311 $338,814 $386,484
Ratio to average net assets of:
Expenses, net of fee waivers .69% .69% .71% .62% .65%
Expenses, before fee waivers 1.11% 1.10% 1.09% 1.09% 1.08%
Net investment income, net of
fee waivers 5.40% 5.55% 5.84% 5.61% 5.69%
Portfolio turnover rate 72% 137% 118% 110% 233%
</TABLE>
See footnote summary on page 48.
34
ALLIANCE MUNICIPAL INCOME FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
NATIONAL PORTFOLIO
<TABLE>
<CAPTION>
CLASS B
----------------------------------------------------------------
JANUARY 4,
1993(D)
YEAR ENDED OCTOBER 31, TO
-------------------------------------------------- OCTOBER 31,
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $10.51 $10.45 $ 9.41 $11.05 $10.43
INCOME FROM INVESTMENT OPERATIONS
Net investment income (a) .50(b) .51 .51 .50 .44
Net realized and unrealized gain (loss)
on investment transactions .44 .06 1.04 (1.38) .63
Net increase (decrease) in net asset
value from operations .94 .57 1.55 (.88) 1.07
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.50) (.51) (.51) (.50) (.45)
Distributions in excess of net
investment income (.01) -0- -0- (.02) -0-
Distributions from net realized gains -0- -0- -0- (.24) -0-
Total dividends and distributions (.51) (.51) (.51) (.76) (.45)
Net asset value, end of period $10.94 $10.51 $10.45 $ 9.41 $11.05
TOTAL RETURN
Total investment return based on
net asset value (c) 9.16% 5.61% 16.91% (8.34)% 10.43%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $190,530 $214,994 $252,357 $250,391 $216,489
Ratio to average net assets of:
Expenses, net of fee waivers 1.40% 1.40% 1.42% 1.32% 1.36%(e)
Expenses, before fee waivers 1.79% 1.81% 1.80% 1.80% 1.78%(e)
Net investment income, net of
fee waivers 4.69% 4.85% 5.13% 4.91% 4.59%(e)
Portfolio turnover rate 72% 137% 118% 110% 233%
</TABLE>
See footnote summary on page 48.
35
FINANCIAL HIGHLIGHTS (CONTINUED) ALLIANCE MUNICIPAL INCOME FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
NATIONAL PORTFOLIO
<TABLE>
<CAPTION>
CLASS C
----------------------------------------------------------------
MAY 3,
1993(D)
YEAR ENDED OCTOBER 31, TO
-------------------------------------------------- OCTOBER 31,
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $10.51 $10.45 $ 9.41 $11.05 $10.70
INCOME FROM INVESTMENT OPERATIONS
Net investment income (a) .50(b) .51 .51 .50 .26
Net realized and unrealized gain (loss)
on investment transactions .44 .06 1.04 (1.38) .36
Net increase (decrease) in net asset
value from operations .94 .57 1.55 (.88) .62
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.50) (.51) (.51) (.50) (.27)
Distributions in excess of net
investment income (.01) -0- -0- (.02) -0-
Distributions from net realized gains -0- -0- -0- (.24) -0-
Total dividends and distributions (.51) (.51) (.51) (.76) (.27)
Net asset value, end of period $10.94 $10.51 $10.45 $ 9.41 $11.05
TOTAL RETURN
Total investment return based on
net asset value (c) 9.18% 5.62% 16.93% (8.33)% 5.84%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $89,792 $96,134 $108,068 $133,249 $150,953
Ratio to average net assets of:
Expenses, net of fee waivers 1.39% 1.39% 1.41% 1.31% 1.36%(e)
Expenses, before fee waivers 1.81% 1.80% 1.78% 1.79% 1.78%(e)
Net investment income, net of
fee waivers 4.70% 4.85% 5.16% 4.89% 4.17%(e)
Portfolio turnover rate 72% 137% 118% 110% 233%
</TABLE>
See footnote summary on page 48.
36
ALLIANCE MUNICIPAL INCOME FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR
INSURED NATIONAL PORTFOLIO
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------------
YEAR ENDED OCTOBER 31,
---------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $10.28 $10.07 $ 8.96 $10.76 $ 9.87
INCOME FROM INVESTMENT OPERATIONS
Net investment income (a) .50(b) .51 .51 .53 .56
Net realized and unrealized gain (loss)
on investment transactions .37 .22 1.13 (1.40) .96
Net increase (decrease) in net asset
value from operations .87 .73 1.64 (.87) 1.52
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.50) (.52) (.51) (.53) (.57)
Distributions in excess of net
investment income (.02) -0- (.02) (.01) -0-
Distributions from net realized gains (.14) -0- -0- (.39) (.06)
Total dividends and distributions (.66) (.52) (.53) (.93) (.63)
Net asset value, end of year $10.49 $10.28 $10.07 $ 8.96 $10.76
TOTAL RETURN
Total investment return based on
net asset value (c) 8.77% 7.43% 18.72% (8.69)% 15.82%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $170,631 $160,425 $165,548 $153,656 $185,876
Ratio to average net assets of:
Expenses, net of fee waivers 1.02% 1.02% 1.01% .66% .73%
Expenses, before fee waivers 1.15% 1.12% 1.12% 1.11% 1.11%
Net investment income, net of
fee waivers 4.85% 5.04% 5.37% 5.40% 5.40%
Portfolio turnover rate 98% 157% 171% 149% 165%
</TABLE>
See footnote summary on page 48.
37
FINANCIAL HIGHLIGHTS (CONTINUED) ALLIANCE MUNICIPAL INCOME FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
INSURED NATIONAL PORTFOLIO
<TABLE>
<CAPTION>
CLASS B
----------------------------------------------------------------
JANUARY 4,
1993(D)
YEAR ENDED OCTOBER 31, TO
-------------------------------------------------- OCTOBER 31,
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $10.28 $10.07 $ 8.96 $10.76 $10.10
INCOME FROM INVESTMENT OPERATIONS
Net investment income (a) .42(b) .44 .45 .46 .40
Net realized and unrealized gain (loss)
on investment transactions .38 .22 1.12 (1.40) .66
Net increase (decrease) in net asset
value from operations .80 .66 1.57 (.94) 1.06
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.42) (.45) (.45) (.46) (.40)
Distributions in excess of net
investment income (.03) -0- (.01) (.01) -0-
Distributions from net realized gains (.14) -0- -0- (.39) -0-
Total dividends and distributions (.59) (.45) (.46) (.86) (.40)
Net asset value, end of period $10.49 $10.28 $10.07 $ 8.96 $10.76
TOTAL RETURN
Total invesment return based on
net asset value (c) 8.07% 6.74% 17.91% (9.38)% 10.68%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $45,542 $52,156 $58,990 $51,439 $42,954
Ratio to average net assets of:
Expenses, net of fee waivers 1.75% 1.73% 1.72% 1.37% 1.45%(e)
Expenses, before fee waivers 1.86% 1.83% 1.83% 1.82% 1.83%(e)
Net investment income, net of
fee waivers 4.12% 4.32% 4.65% 4.71% 4.31%(e)
Portfolio turnover rate 98% 157% 171% 149% 165%
</TABLE>
See footnote summary on page 48.
38
ALLIANCE MUNICIPAL INCOME FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
INSURED NATIONAL PORTFOLIO
<TABLE>
<CAPTION>
CLASS C
----------------------------------------------------------------
MAY 3,
1993(D)
YEAR ENDED OCTOBER 31, TO
-------------------------------------------------- OCTOBER 31,
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $10.28 $10.07 $ 8.96 $10.76 $10.41
INCOME FROM INVESTMENT OPERATIONS
Net investment income (a) .42(b) .44 .45 .46 .24
Net realized and unrealized gain (loss)
on investment transactions .38 .22 1.12 (1.40) .35
Net increase (decrease) in net asset
value from operations .80 .66 1.57 (.94) .59
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.42) (.45) (.45) (.46) (.24)
Distributions in excess of net
investment income (.03) -0- (.01) (.01) -0-
Distributions from net realized gains (.14) -0- -0- (.39) -0-
Total dividends and distributions (.59) (.45) (.46) (.86) (.24)
Net asset value, end of period $10.49 $10.28 $10.07 $ 8.96 $10.76
TOTAL RETURN
Total invesment return based on
net asset value (c) 8.07% 6.74% 17.91% (9.38)% 5.75%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $19,057 $22,763 $22,265 $24,112 $28,862
Ratio to average net assets of:
Expenses, net of fee waivers 1.72% 1.72% 1.71% 1.36% 1.45%(e)
Expenses, before fee waivers 1.84% 1.82% 1.82% 1.81% 1.83%(e)
Net investment income, net of fee waivers 4.15% 4.34% 4.69% 4.68% 3.98%(e)
Portfolio turnover rate 98% 157% 171% 149% 165%
</TABLE>
See footnote summary on page 48.
39
FINANCIAL HIGHLIGHTS (CONTINUED) ALLIANCE MUNICIPAL INCOME FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR
NEW YORK PORTFOLIO
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------------
YEAR ENDED OCTOBER 31,
---------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 9.66 $ 9.62 $ 8.72 $10.17 $ 9.53
INCOME FROM INVESTMENT OPERATIONS
Net investment income (a) .53(b) .55 .55 .55 .57
Net realized and unrealized gain (loss)
on investment transactions .46 .04 .90 (1.40) .79
Net increase (decrease) in net asset
value from operations .99 .59 1.45 (.85) 1.36
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.54) (.55) (.55) (.55) (.58)
Distributions in excess of net
investment income (.01) -0- -0- (.01) -0-
Distributions from net realized gains -0- -0- -0- (.04) (.14)
Total dividends and distributions (.55) (.55) (.55) (.60) (.72)
Net asset value, end of year $10.10 $ 9.66 $ 9.62 $ 8.72 $10.17
TOTAL RETURN
Total investment return based on net
asset value (c) 10.52% 6.30% 17.10% (8.76)% 14.71%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $181,745 $179,452 $183,987 $182,170 $214,259
Ratio to average net assets of:
Expenses, net of fee waivers .65% .64% .75% .66% .68%
Expenses, before fee waivers 1.12% 1.11% 1.12% 1.11% 1.13%
Net investment income, net of
fee waivers 5.45% 5.66% 5.93% 5.75% 5.76%
Portfolio turnover rate 34% 64% 69% 69% 63%
</TABLE>
See footnote summary on page 48.
40
ALLIANCE MUNICIPAL INCOME FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
NEW YORK PORTFOLIO
<TABLE>
<CAPTION>
CLASS B
----------------------------------------------------------------
JANUARY 4,
1993(D)
YEAR ENDED OCTOBER 31, TO
-------------------------------------------------- OCTOBER 31,
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.66 $ 9.62 $ 8.72 $10.17 $ 9.61
INCOME FROM INVESTMENT OPERATIONS
Net investment income (a) .46(b) .48 .48 .48 .41
Net realized and unrealized gain (loss)
on investment transactions .46 .04 .90 (1.41) .56
Net increase (decrease) in net asset
value from operations .92 .52 1.38 (.93) .97
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.47) (.48) (.48) (.47) (.41)
Distributions in excess of net
investment income (.01) -0- -0- (.01) -0-
Distributions from net realized gains -0- -0- -0- (.04) -0-
Total dividends and distributions (.48) (.48) (.48) (.52) (.41)
Net asset value, end of period $10.10 $ 9.66 $ 9.62 $ 8.72 $10.17
TOTAL RETURN
Total investment return based on net
asset value (c) 9.72% 5.52% 16.19% (9.44)% 10.29%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $96,119 $96,959 $94,400 $81,941 $58,504
Ratio to average net assets of:
Expenses, net of fee waivers 1.35% 1.35% 1.45% 1.36% 1.39%(e)
Expenses, before fee waivers 1.84% 1.82% 1.83% 1.82% 1.84%(e)
Net investment income, net of fee waivers 4.75% 4.95% 5.21% 5.05% 4.70%(e)
Portfolio turnover rate 34% 64% 69% 69% 63%
</TABLE>
See footnote summary on page 48.
41
FINANCIAL HIGHLIGHTS (CONTINUED) ALLIANCE MUNICIPAL INCOME FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
NEW YORK PORTFOLIO
<TABLE>
<CAPTION>
CLASS C
----------------------------------------------------------------
MAY 3,
1993(D)
YEAR ENDED OCTOBER 31, TO
-------------------------------------------------- OCTOBER 31,
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.66 $ 9.62 $ 8.72 $10.17 $ 9.89
INCOME FROM INVESTMENT OPERATIONS
Net investment income (a) .46(b) .48 .48 .48 .24
Net realized and unrealized gain (loss)
on investment transactions .46 .04 .90 (1.41) .29
Net increase (decrease) in net asset
value from operations .92 .52 1.38 (.93) .53
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.47) (.48) (.48) (.47) (.25)
Distributions in excess of net
investment income (.01) -0- -0- (.01) -0-
Distributions from net realized gains -0- -0- -0- (.04) -0-
Total dividends and distributions (.48) (.48) (.48) (.52) (.25)
Net asset value, end of period $10.10 $ 9.66 $ 9.62 $ 8.72 $10.17
TOTAL RETURN
Total investment return based on net
asset value (c) 9.72% 5.52% 16.19% (9.44)% 5.37%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $38,890 $34,562 $32,259 $34,646 $38,245
Ratio to average net assets of:
Expenses, net of fee waivers 1.35% 1.34% 1.44% 1.36% 1.38%(e)
Expenses, before fee waivers 1.82% 1.81% 1.82% 1.81% 1.84%(e)
Net investment income, net of fee waivers 4.75% 4.95% 5.24% 5.03% 4.42%(e)
Portfolio turnover rate 34% 64% 69% 69% 63%
</TABLE>
See footnote summary on page 48.
42
ALLIANCE MUNICIPAL INCOME FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR
CALIFORNIA PORTFOLIO
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------------
YEAR ENDED OCTOBER 31,
---------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $10.59 $10.45 $ 9.43 $10.90 $10.06
INCOME FROM INVESTMENT OPERATIONS
Net investment income (a) .58(b) .58 .59 .59 .61
Net realized and unrealized gain (loss)
on investment transactions .45 .14 1.02 (1.41) .85
Net increase (decrease) in net asset
value from operations 1.03 .72 1.61 (.82) 1.46
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.58) (.58) (.59) (.59) (.61)
Distributions from net realized gains -0- -0- -0- (.06) (.01)
Total dividends and distributions (.58) (.58) (.59) (.65) (.62)
Net asset value, end of year $11.04 $10.59 $10.45 $ 9.43 $10.90
TOTAL RETURN
Total investment return based on net
asset value (c) 10.07% 7.15% 17.55% (7.73)% 14.90%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $470,444 $460,444 $478,535 $470,308 $531,293
Ratio to average net assets of:
Expenses, net of fee waivers .78% .77% .74% .64% .74%
Expenses, before fee waivers 1.05% 1.05% 1.04% 1.05% 1.06%
Net investment income, net of
fee waivers 5.43% 5.57% 5.90% 5.78% 5.74%
Portfolio turnover rate 20% 49% 39% 45% 83%
</TABLE>
See footnote summary on page 48.
43
FINANCIAL HIGHLIGHTS (CONTINUED) ALLIANCE MUNICIPAL INCOME FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
CALIFORNIA PORTFOLIO
<TABLE>
<CAPTION>
CLASS B
----------------------------------------------------------------
JANUARY 4,
1993(D)
YEAR ENDED OCTOBER 31, TO
-------------------------------------------------- OCTOBER 31,
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $10.59 $10.45 $ 9.43 $10.90 $10.27
INCOME FROM INVESTMENT OPERATIONS
Net investment income (a) .51(b) .51 .51 .52 .44
Net realized and unrealized gain (loss)
on investment transactions .45 .14 1.02 (1.41) .63
Net increase (decrease) in net asset
value from operations .96 .65 1.53 (.89) 1.07
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.51) (.51) (.51) (.52) (.44)
Distributions from net realized gains -0- -0- -0- (.06) -0-
Total dividends and distributions (.51) (.51) (.51) (.58) (.44)
Net asset value, end of period $11.04 $10.59 $10.45 $ 9.43 $10.90
TOTAL RETURN
Total investment return based on net
asset value (c) 9.29% 6.37% 16.64% (8.43)% 10.60%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $166,672 $164,895 $166,759 $160,879 $126,688
Ratio to average net assets of:
Expenses, net of fee waivers 1.48% 1.47% 1.45% 1.35% 1.44%(e)
Expenses, before fee waivers 1.76% 1.75% 1.75% 1.75% 1.78%(e)
Net investment income, net of
fee waivers 4.72% 4.87% 5.19% 5.07% 4.66%(e)
Portfolio turnover rate 20% 49% 39% 45% 83%
</TABLE>
See footnote summary on page 48.
44
ALLIANCE MUNICIPAL INCOME FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
CALIFORNIA PORTFOLIO
<TABLE>
<CAPTION>
CLASS C
----------------------------------------------------------------
MAY 3,
1993(D)
YEAR ENDED OCTOBER 31, TO
-------------------------------------------------- OCTOBER 31,
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $10.59 $10.45 $ 9.43 $10.90 $10.54
INCOME FROM INVESTMENT OPERATIONS
Net investment income (a) .51(b) .51 .51 .52 .26
Net realized and unrealized gain (loss)
on investment transactions .45 .14 1.02 (1.41) .36
Net increase (decrease) in net asset
value from operations .96 .65 1.53 (.89) .62
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.51) (.51) (.51) (.52) (.26)
Distributions from net realized gains -0- -0- -0- (.06) -0-
Total dividends and distributions (.51) (.51) (.51) (.58) (.26)
Net asset value, end of period $11.04 $10.59 $10.45 $ 9.43 $10.90
TOTAL RETURN
Total investment return based on net
asset value (c) 9.29% 6.38% 16.64% (8.43)% 5.98%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $90,742 $90,917 $87,793 $103,622 $117,379
Ratio to average net assets of:
Expenses, net of fee waivers 1.48% 1.47% 1.44% 1.34% 1.44%(e)
Expenses, before fee waivers 1.74% 1.75% 1.74% 1.75% 1.78%(e)
Net investment income, net of
fee waivers 4.73% 4.87% 5.22% 5.06% 4.42%(e)
Portfolio turnover rate 20% 49% 39% 45% 83%
</TABLE>
See footnote summary on page 48.
45
FINANCIAL HIGHLIGHTS (CONTINUED) ALLIANCE MUNICIPAL INCOME FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR
INSURED CALIFORNIA PORTFOLIO
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------------
YEAR ENDED OCTOBER 31,
---------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $13.39 $13.32 $11.79 $14.25 $12.99
INCOME FROM INVESTMENT OPERATIONS
Net investment income .69(b) .69 .68(a) .69(a) .70(a)
Net realized and unrealized gain (loss)
on investment transactions .50 .06 1.54 (1.99) 1.30
Net increase (decrease) in net asset
value from operations 1.19 .75 2.22 (1.30) 2.00
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.68) (.68) (.68) (.69) (.71)
Dividends in excess of net
investment income (.01) -0- (.01) -0- -0-
Distributions from net realized gains -0- -0- -0- (.47) (.03)
Total dividends and distributions (.69) (.68) (.69) (1.16) (.74)
Net asset value, end of year $13.89 $13.39 $13.32 $11.79 $14.25
TOTAL RETURN
Total investment return based on net
asset value (c) 9.18% 5.79% 19.29% (9.73)% 15.64%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $103,647 $101,542 $103,940 $94,857 $120,734
Ratio to average net assets of:
Expenses, net of fee waivers 1.11% 1.08% 1.04% .82% .94%
Expenses, before fee waivers 1.11% 1.08% 1.09% 1.08% 1.08%
Net investment income, net of
fee waivers 5.09% 5.19% 5.34% 5.29% 5.06%
Portfolio turnover rate 35% 118% 103% 100% 186%
</TABLE>
See footnote summary on page 48.
46
ALLIANCE MUNICIPAL INCOME FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
INSURED CALIFORNIA PORTFOLIO
<TABLE>
<CAPTION>
CLASS B
----------------------------------------------------------------
JANUARY 4,
1993(D)
YEAR ENDED OCTOBER 31, TO
-------------------------------------------------- OCTOBER 31,
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $13.39 $13.32 $11.79 $14.25 $13.37
INCOME FROM INVESTMENT OPERATIONS
Net investment income .59(b) .60 .58(a) .60(a) .49(a)
Net realized and unrealized gain (loss)
on investment transactions .50 .05 1.54 (2.00) .89
Net increase (decrease) in net asset
value from operations 1.09 .65 2.12 (1.40) 1.38
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.59) (.58) (.58) (.59) (.50)
Distributions in excess of net
investment income -0- -0- (.01) -0- -0-
Distributions from net realized gains -0- -0- -0- (.47) -0-
Total dividends and distributions (.59) (.58) (.59) (1.06) (.50)
Net asset value, end of period $13.89 $13.39 $13.32 $11.79 $14.25
TOTAL RETURN
Total investment return based on net
asset value (c) 8.37% 4.99% 18.35% (10.43)% 10.43%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $27,976 $26,696 $27,816 $24,591 $21,234
Ratio to average net assets of:
Expenses, net of fee waivers 1.81% 1.79% 1.74% 1.53% 1.65%(e)
Expenses, before fee waivers 1.81% 1.79% 1.80% 1.78% 1.79%(e)
Net investment income, net of
fee waivers 4.39% 4.49% 4.61% 4.60% 3.85%(e)
Portfolio turnover rate 35% 118% 103% 100% 186%
</TABLE>
See footnote summary on page 48.
47
FINANCIAL HIGHLIGHTS (CONTINUED) ALLIANCE MUNICIPAL INCOME FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
INSURED CALIFORNIA PORTFOLIO
<TABLE>
<CAPTION>
CLASS C
----------------------------------------------------------------
MAY 3,
1993(D)
YEAR ENDED OCTOBER 31, TO
-------------------------------------------------- OCTOBER 31,
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $13.39 $13.32 $11.79 $14.25 $13.78
INCOME FROM INVESTMENT OPERATIONS
Net investment income .59(b) .60 .58(a) .60(a) .29(a)
Net realized and unrealized gain (loss)
on investment transactions .50 .05 1.54 (2.00) .48
Net increase (decrease) in net asset
value from operations 1.09 .65 2.12 (1.40) .77
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.59) (.58) (.58) (.59) (.30)
Distributions in excess of net
investment income -0- -0- (.01) -0- -0-
Distributions from net realized gains -0- -0- -0- (.47) -0-
Total dividends and distributions (.59) (.58) (.59) (1.06) (.30)
Net asset value, end of period $13.89 $13.39 $13.32 $11.79 $14.25
TOTAL RETURN
Total investment return based on net
asset value (c) 8.37% 4.99% 18.35% (10.43)% 5.63%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $13,436 $12,826 $14,323 $12,472 $15,971
Ratio to average net assets of:
Expenses, net of fee waivers 1.81% 1.78% 1.74% 1.52% 1.65%(e)
Expenses, before fee waivers 1.81% 1.78% 1.79% 1.77% 1.79%(e)
Net investment income, net of
fee waivers 4.39% 4.49% 4.64% 4.59% 3.74%(e)
Portfolio turnover rate 35% 118% 103% 100% 186%
</TABLE>
(a) Net of fees voluntarily waived by the Adviser.
(b) Based on average shares outstanding.
(c) 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.
(d) Commencement of distribution.
(e) Annualized
48
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 statements 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, 1997, and the
related statements of operations for the year then ended, the statements 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, 1997, 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, 1997, 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.
New York, New York
December 4, 1997
FEDERAL TAX INFORMATION (UNAUDITED)
_______________________________________________________________________________
In accordance with Federal tax law, the following table represents each
portfolio's designation of "exempt-interest dividends" and long-term capital
gain distributions paid during the fiscal year ended October 31, 1997. As
required by Federal tax law, shareholders will receive notification of their
portion of each portfolio's taxable ordinary dividends (if any) and capital
gain distributions (if any) paid for the 1997 calendar year on Form 1099-DIV
which will be mailed by January 31, 1998.
EXEMPT-INTEREST LONG-TERM CAPITAL
PORTFOLIO DIVIDENDS GAIN DISTRIBUTIONS
- ------------------- --------------- ------------------
National $30,101,325 $ -0-
Insured National 10,121,194 2,731,909
New York 16,183,619 -0-
California 36,375,062 -0-
Insured California 6,153,340 -0-
49
<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
characteristics as well; Ba, B, Caa, Ca, C - protection of
A-1
<PAGE>
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
obligations. Commercial paper issuers rated "A" by S&P have the
A-2
<PAGE>
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
interest and repay principal is considered to be adequate.
A-3
<PAGE>
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 judgment, 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
B-2
<PAGE>
liquidity of the futures market depends on participants entering
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 heading "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.
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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.
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PART C
OTHER INFORMATION
ITEM 23. Exhibits
(a) Articles of Incorporation of the Registrant
- Incorporated by reference to Exhibit 1 to
Post-Effective Amendment No. 24 of the
Registrant's Registration Statement on Form
N-1A (File Nos. 33-7812 and 811-4791) filed
with the Securities and Exchange Commission
on January 30, 1998.
(b) By-Laws of the Registrant - Incorporated by
reference to Exhibit 2 to Post-Effective
Amendment No. 24 of the Registrant's
Registration Statement on Form N-1A (File
Nos. 33-7812 and 811-4791) filed with the
Securities and Exchange Commission on
January 30, 1998.
(c) Not applicable.
(d) Advisory Agreement between the Registrant
and Alliance Capital Management L.P. -
Incorporated by reference to Exhibit 5 to
Post-Effective Amendment No. 24 of the
Registrant's Registration Statement on Form
N-1A (File Nos. 33-7812 and 811-4791) filed
with the Securities and Exchange Commission
on January 30, 1998.
(e) (1) Distribution Services Agreement between
the Registrant and Alliance Fund
Distributors, Inc. - Incorporated by
reference to Exhibit 6(a) to Post-
Effective Amendment No. 24 of the
Registrant's Registration Statement on
Form N-1A (File Nos. 33-7812 and 811-
4791) filed with the Securities and
Exchange Commission on January 30,
1998.
(2) Amendment to Distribution Services
Agreement between the and Registrant
Alliance Fund Distributors, Inc. -
Incorporated by reference to Exhibit
6(b) to Post-Effective Amendment No. 24
of the Registrant's Registration
Statement on Form N-1A (File Nos. 33-
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7812 and 811-4791) filed with the
Securities and Exchange Commission on
February 1, 1997.
(3) Selected Dealer Agreement between
Alliance Fund Distributors, Inc. and
selected dealers offering shares of
Registrant - Incorporated by reference
to Exhibit 6(c) to Post-Effective
Amendment No. 24 of the Registrant's
Registration Statement on Form N-1A
(File Nos. 33-7812 and 811-4791) filed
with the Securities and Exchange
Commission on January 30, 1998.
(4) Selected Agent Agreement between
Alliance Fund Distributors, Inc. and
selected agents making available shares
of Registrant - Incorporated by
reference to Exhibit 6(d) to Post-
Effective Amendment No. 24 of the
Registrant's Registration Statement on
Form N-1A (File Nos. 33-7812 and 811-
4791) filed with the Securities and
Exchange Commission on January 30,
1998.
(f) Not applicable.
(g) (1) 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 by reference to Exhibit
8(a) to Post-Effective Amendment No. 24
of the Registrant's Registration
Statement on Form N-1A (File Nos. 33-
7812 and 811-4791) filed with the
Securities and Exchange Commission on
January 30, 1998.
(2) 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 by reference to Exhibit
8(b) to Post-Effective Amendment No. 24
of the Registrant's Registration
Statement on Form N-1A (File Nos. 33-
7812 and 811-4791) filed with the
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Securities and Exchange Commission on
January 30, 1998.
(h) Transfer Agency Agreement between
Registrant and Alliance Fund Services, Inc.
- Incorporated by reference to Exhibit 9 to
Post-Effective Amendment No. 24 of the
Registrant's Registration Statement on Form
N-1A (File Nos. 33-7812 and 811-4791) filed
with the Securities and Exchange Commission
on January 30, 1998.
(i) Not applicable.
(j) Not applicable.
(k) Not applicable.
(l) Not applicable.
(m) Rule 12b-1 Plan - See Exhibit (e)(1)
hereto.
(n) Not applicable.
(o) Amended and Restated Rule 18f-3 Plan -
Incorporated by reference to Exhibit 18(b)
to Post-Effective Amendment No. 24 of the
Registrant's Registration Statement on Form
N-1A (File Nos. 33-7812 and 811-4791) filed
with the Securities and Exchange Commission
on January 30, 1998.
Other Exhibits:
Powers of Attorney of Ruth S. Block, John
D. Carifa, David H. Dievler, John H.
Dobkin, William H. Foulk, Jr., James M.
Hester, Clifford L. Michel and Donald J.
Robinson - Incorporated by reference to
Other Exhibits to Post-Effective Amendment
No. 24 of the Registrant's Registration
Statement on Form N-1A (File Nos. 33-7812
and 811-4791) filed with the Securities and
Exchange Commission on January 30, 1998.
ITEM 24. Persons Controlled by or under Common Control with
Registrant
None.
ITEM 25. Indemnification
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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 (a) in response to Item
23, and Section 10 of the proposed Distribution Services
Agreement filed as Exhibit (e)(1), 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 (d) in
response to Item 23 of 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 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
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<PAGE>
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 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
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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.
(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
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<PAGE>
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:
(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
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<PAGE>
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
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<PAGE>
indemnification by the corporation
as authorized in this section has
been met; and
(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:
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<PAGE>
(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 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,
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<PAGE>
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.
(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
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<PAGE>
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 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
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<PAGE>
Alliance Capital Management L.P. and the
Distribution Services Agreement between the
Registrant and Alliance Fund Distributors, Inc.
which are filed as Exhibits (a), (d), and (e)(1),
respectively, in response to Item 23 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.
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 26. 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
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<PAGE>
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 27. 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 for the following registered
investment companies:
AFD Exchange Reserves
Alliance All-Asia Investment Fund, Inc.
Alliance Balanced Shares, Inc.
Alliance Bond Fund, Inc.
Alliance Capital Reserves
Alliance Global Dollar Government Fund, Inc.
Alliance Global Environment Fund, Inc.
Alliance Global Small Cap Fund, Inc.
Alliance Global Strategic Income Trust, Inc.
Alliance Government Reserves
Alliance Greater China '97 Fund, Inc.
Alliance Growth and Income Fund, Inc.
Alliance High Yield Fund, Inc.
Alliance Institutional Funds, Inc.
Alliance Institutional Reserves, Inc.
Alliance International Fund
Alliance International Premier Growth
Fund, Inc.
Alliance Limited Maturity Government Fund, Inc.
Alliance Money Market Fund
Alliance Mortgage Securities Income Fund, 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.
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Alliance Real Estate Investment Fund, Inc.
Alliance Select Investor Series, Inc.
Alliance Utility Income Fund, Inc.
Alliance Variable Products Series Fund, Inc.
Alliance Worldwide Privatization Fund, Inc.
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 POSITIONS AND
OFFICES WITH OFFICES WITH
NAME UNDERWRITER REGISTRANT
Michael J. Laughlin Director & Chairman
John D. Carifa Director
Robert L. Errico Director & President
Geoffrey L. Hyde Director & Senior
Vice President
Dave H. Williams Director
David D. Conine Executive Vice
President
Richard K. Saccullo Executive Vice
President
Edmund P. Bergan, Jr. Senior Vice Secretary
President, General
Counsel & Secretary
Richard A. Davies Senior Vice President
& Managing Director
Robert H. Joseph, Jr. Senior Vice President
& Chief Financial Officer
Anne S. Drennan Senior Vice President
& Treasurer
Karen J. Bullot Senior Vice President
James S. Comforti Senior Vice President
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James L. Cronin Senior Vice President
Daniel J. Dart Senior Vice President
Byron M. Davis Senior Vice President
Mark J. Dunbar Senior Vice President
Donald N. Fritts Senior Vice President
Bradley F. Hanson Senior Vice President
Richard E. Khaleel Senior Vice President
Stephen R. Laut Senior Vice President
Susan L. Matteson-King Senior Vice President
Daniel D. McGinley Senior Vice President
Ryne A. Nishimi Senior Vice President
Antonios G. Poleondakis Senior Vice President
Robert E. Powers Senior Vice President
Raymond S. Sclafani 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
Gerard J. Friscia Vice President & Controller
Jamie A. Atkinson Vice President
Benji A. Baer Vice President
Kenneth F. Barkoff Vice President
Casimir F. Bolanowski Vice President
Michael E. Brannan Vice President
Timothy W. Call Vice President
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Kevin T. Cannon Vice President
John R. Carl Vice President
William W. Collins, Jr. Vice President
Leo H. Cook Vice President
Richard W. Dabney Vice President
Stephen J. Demetrovits Vice President
John F. Dolan Vice President
John C. Endahl Vice President
Sohaila S. Farsheed Vice President
Shawn C. Gage Vice President
Andrew L. Gangolf Vice President and Assistant
Assistant General Secretary
Counsel
Mark D. Gersten Vice President Treasurer and
Chief
Financial
Officer
Joseph W. Gibson Vice President
John Grambone Vice President
George C. Grant Vice President
Charles M. Greenberg Vice President
Alan Halfenger Vice President
William B. Hanigan Vice President
Scott F. Heyer Vice President
George R. Hrabovsky Vice President
Valerie J. Hugo Vice President
Scott Hutton Vice President
Richard D. Keppler Vice President
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Gwenn M. Kessler Vice President
Donna M. Lamback Vice President
Henry Michael Lesmeister Vice President
James M. Liptrot Vice President
James P. Luisi Vice President
Jerry W. Lynn Vice President
Christopher J. MacDonald Vice President
Michael F. Mahoney Vice President
Shawn P. McClain Vice President
Jeffrey P. Mellas Vice President
Thomas F. Monnerat Vice President
Christopher W. Moore Vice President
Timothy S. Mulloy Vice President
Joanna D. Murray Vice President
Nicole Nolan-Koester Vice President
John C. O'Connell Vice President
John J. O'Connor Vice President
James J. Posch Vice President
Domenick Pugliese Vice President and Assistant
Assistant General Secretary
Counsel
Bruce W. Reitz Vice President
Karen C. Satterberg Vice President
John P. Schmidt Vice President
Robert C. Schultz Vice President
Richard J. Sidell Vice President
Teris A. Sinclair Vice President
C-18
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Scott C. Sipple Vice President
Elizabeth Smith Vice President
Martine H. Stansbery, Jr. Vice President
Andrew D. Strauss Vice President
Michael J. Tobin Vice President
Joseph T. Tocyloski Vice President
Thomas J. Vaughn Vice President
Martha D. Volcker Vice President
Patrick E. Walsh Vice President
Mark E. Westmoreland Vice President
William C. White Vice President
David E. Willis Vice President
Emilie D. Wrapp Vice President and Assistant
Assistant General Secretary
Counsel
Patrick Look Assistant Vice
President & Assistant
Treasurer
Michael W. Alexander Assistant Vice President
Richard J. Appaluccio Assistant Vice President
Charles M. Barrett Assistant Vice President
Robert F. Brendli Assistant Vice President
Maria L. Carreras Assistant Vice President
John P. Chase Assistant Vice President
Russell R. Corby Assistant Vice President
Jean A. Cronin Assistant Vice President
John W. Cronin Assistant Vice President
Terri J. Daly Assistant Vice President
C-19
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Ralph A. DiMeglio Assistant Vice President
Faith C. Deutsch Assistant Vice President
John E. English Assistant Vice President
Duff C. Ferguson Assistant Vice President
James J. Hill Assistant Vice President
Theresa Iosca Assistant Vice President
Erik A. Jorgensen Assistant Vice President
Eric G. Kalender Assistant Vice President
Edward W. Kelly Assistant Vice President
Michael Laino Assistant Vice President
Nicholas J. Lapi Assistant Vice President
Kristine J. Luisi Assistant Vice President
Kathryn Austin Masters Assistant Vice President
Richard F. Meier Assistant Vice President
Mary K. Moore Assistant Vice President
Richard J. Olszewski Assistant Vice President
Catherine N. Peterson Assistant Vice President
Rizwan A. Raja Assistant Vice President
Carol H. Rappa Assistant Vice President
Clara Sierra Assistant Vice President
Gayle S. Stamer Assistant Vice President
Eileen Stauber Assistant Vice President
Vincent T. Strangio Assistant Vice President
Marie R. Vogel Assistant Vice President
Wesley S. Williams Assistant Vice President
Matthew Witschel Assistant Vice President
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Christopher J. Zingaro Assistant Vice President
Mark R. Manley Assistant Secretary
(c) Not applicable.
ITEM 28. 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 29. Management Services.
Not applicable.
ITEM 30. 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.
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SIGNATURE
Pursuant to the requirements of the Securities Act of
1933, as amended, and the Investment Company Act of 1940, as
amended, the Registrant 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 30th day of November, 1998.
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
Principal
Executive Officer
\S\John D. Carifa Chairman and November 30, 1998
John D. Carifa President
Principal Financial
and Accounting Officer
\S\Mark D. Gersten Treasurer and November 30, 1998
Mark D. Gersten Chief Financial
Officer
All of the Directors
David H. Dievler
Ruth S. Block
John D. Carifa
John H. Dobkin
William H. Foulk, Jr.
James M. Hester
Clifford L. Michel
Donald J. Robinson
by \S\Edmund P. Bergan, Jr. November 30, 1998
(Attorney-in-fact)
Edmund P. Bergan, Jr.
C-22
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Index to Exhibits
Document No.
None.
23
00250011.AP3
