<PAGE>
As filed with the Securities and Exchange
Commission on February 3, 1997
File No. 33-60560
811-07618
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. 9 X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF l940
Amendment No. 9 X
ALLIANCE MUNICIPAL INCOME FUND II
(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)
It is proposed that this filing will become effective (check
appropriate box)
X immediately upon filing pursuant to paragraph (b)
on (date) pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a)(1)
on (date) pursuant to paragraph (a)(1)
75 days after filing pursuant to paragraph (a)(2)
<PAGE>
on (date) pursuant to paragraph (a)(2) of rule 485.
If appropriate, check the following box:
this post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
Registrant has registered an indefinite number of shares of its
shares of beneficial interest pursuant to Rule 24f-2 under the
Investment Company Act of 1940. Registrants filed a notice
pursuant to such Rule for its fiscal year ended September 30,
1996 on November 22, 1996.
<PAGE>
CROSS REFERENCE SHEET
(as required by Rule 404(c))
N-1A Item No. Location in Prospectus
(Caption)
PART A
Item 1. Cover Page.......................... Cover Page
Item 2. Synopsis............................ The Portfolios
at a Glance
Item 3. Condensed Financial Information..... Expense
Information;
Financial
Highlights
Item 4. General Description of Registrant... Description of
the Portfolios
Item 5. Management of the Fund.............. Management of
the Funds;
General
Information
Item 6. Capital Stock and Other Securities... General
Information;
Dividends,
Distributions
and Federal
Income Taxes
Item 7. Purchase of Securities Being Offered.. Purchase and
Sale of Shares;
General
Information
Item 8. Redemption or Repurchase............. Purchase and
Sale of Shares
Item 9. Pending Legal Proceedings............ Not Applicable
PART B Location in Statement
of Additional Information
(Caption)
Item 10. Cover Page............................ Cover Page
Item 11. Table of Contents..................... Cover Page
<PAGE>
CROSS REFERENCE SHEET
(as required by Rule 404(c))
PART B Location in Statement
of Additional Information
(Caption)
Item 12. General Information.................... Management of
the Fund;
General
Information
Item 13. Investment Objectives and Policies..... Investment
Policies and
Restrictions
Item 14. Management of the Registrant........... Management of
the Fund
Item 15. Control Persons and Principal
Holders of Securities.................. Management of
the Fund
Item 16. Investment Advisory and
Other Services...................... Management of
the Fund
Item 17. Brokerage Allocation and
Other Practices..................... Brokerage and
Portfolio
Transactions
Item 18. Capital Stock and Other Securities.. General
Information
Item 19. Purchase, Redemption and Pricing
of Securities Being Offered......... Purchase,
Redemption and
Repurchase of
Shares; Net
Asset Value
Item 20. Tax Status.......................... Dividends,
Distributions
and Federal
Income Taxes
Item 21. Underwriters........................ General
Information
<PAGE>
Item 22. Calculation of Performance Data..... General
Information
Item 23. Financial Statements................ Financial
Statements;
Report of
Independent
Auditors
<PAGE>
<PAGE>
Alliance Municipal
------------------
Income Portfolios
------------------
P.O. Box 1520, Secaucus, New Jersey 07096-1520
Toll Free (800) 221-5672
For Literature: Toll Free (800) 227-4618
Prospectus and Application
February 3, 1997
National Portfolio Michigan Portfolio
Insured National Portfolio Minnesota Portfolio
Arizona Portfolio New Jersey Portfolio
California Portfolio New York Portfolio
Insured California Portfolio Ohio Portfolio
Florida Portfolio Pennsylvania Portfolio
Massachusetts Portfolio Virginia Portfolio
Table of Contents Page
The Portfolios At A Glance.................... 2
Expense Information........................... 3
Financial Highlights.......................... 5
Description of the Portfolios................. 12
Investment Objective........................ 12
How the Portfolios Pursue Their Objective... 12
Additional Investment Practices............. 14
Certain Fundamental Investment Policies..... 19
Risk Considerations......................... 19
Purchase and Sale of Shares................... 20
Management of the Funds....................... 23
Dividends, Distributions and Taxes............ 24
General Information........................... 26
Adviser
Alliance Capital Management L.P.
1345 Avenue Of The Americas
New York, New York 10105
The fourteen Alliance Municipal Income Portfolios, by investing principally in
high-yielding, predominantly medium-quality municipal securities, seek to
provide their shareholders with the highest level of income exempt from Federal
and state tax that is available without assuming undue risk. These securities
generally offer current yields above those of higher quality municipal
obligations.
Each Portfolio is a series of Alliance Municipal Income Fund, Inc. or Alliance
Municipal Income Fund II (each a "Fund"), which are open-end management
investment companies. This Prospectus sets forth concisely the information
which a prospective investor should know about each Fund before investing. A
"Statement of Additional Information" for each Fund which provides further
information regarding certain matters discussed in this Prospectus and other
matters which may be of interest to some investors has been filed with the
Securities and Exchange Commission and is incorporated herein by reference. For
a free copy, call or write Alliance Fund Services, Inc. at the indicated address
or call the "For Literature" telephone number shown above.
Each Portfolio offers three classes of shares which may be purchased at the
investor's choice at a price equal to their net asset value (i) plus an initial
sales charge imposed at the time of purchase (the "Class A shares"), (ii) with a
contingent deferred sales charge imposed on most redemptions made within three
years of purchase (the "Class B shares"), or (iii) without any initial or
contingent deferred sales charge (the "Class C shares"). See "Purchase and Sale
of Shares."
An investment in these securities is not a deposit or obligation of, or
guaranteed or endorsed by, any bank and is not federally insured by the Federal
Deposit Insurance Corporation, the Federal Reserve Board or any other agency.
Investors are advised to read this Prospectus carefully and to retain it for
future reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Alliance/R/
Investing without the Mystery./SM/
/R//SM/ These are registered marks used under licenses from the owner, Alliance
Capital Management L.P.
<PAGE>
The Portfolios At A Glance
The following summary is qualified in its entirety by the more detailed
information contained in this Prospectus.
ALLIANCE MUNICIPAL
INCOME PORTFOLIOS
National Portfolio
Insured National Portfolio
Arizona Portfolio
California Portfolio
Insured California Portfolio
Florida Portfolio
Massachusetts Portfolio
Michigan Portfolio
Minnesota Portfolio
New Jersey Portfolio
New York Portfolio
Ohio Portfolio
Pennsylvania Portfolio
Virginia Portfolio
The Portfolios Seek...
High current tax-free income.
The National Portfolios Invest Principally in...
Diversified portfolios of medium-quality and investment grade municipal
securities.
The State Portfolios Invest Principally in...
Non-diversified portfolios of medium-quality and investment grade municipal
securities.
The Funds' Investment Manager Is...
Alliance Capital Management L.P. ("Alliance"), a global investment manager
providing diversified services to institutions and individuals through a broad
line of investments including more than 100 mutual funds. Since 1971, Alliance
has earned a reputation as a leader in the investment world with over $173
billion in assets under management as of September 30, 1996. Alliance provides
investment management services to employee benefit plans for 33 of the FORTUNE
100 companies.
The Type Of Investor Who May Want To Invest In These Portfolios Is...
An investor who wants tax-free income or is interested in the advantage of tax-
free investing. An investment in one of the Portfolios may soften the "tax
bite" because the income an investor earns is tax-free. Of course, bond prices
and yields will fluctuate with market conditions, so that your shares, when
redeemed, may be worth more or less than their original cost.
A Word About Risk...
The prices of the shares of the Alliance Municipal Income Portfolios will
fluctuate as the daily prices of the individual bonds in which they invest
fluctuate, so that your shares, when redeemed, may be worth more or less than
their original cost. Price fluctuations may be caused by changes in the general
level of interest rates or changes in bond credit quality ratings. Changes in
interest rates have a greater effect on bonds with longer maturities than those
with shorter maturities. While the Portfolios invest principally in bonds and
other fixed-income securities, in order to achieve their investment objectives,
the Portfolios may at times use certain types of derivative instruments, such as
options, futures, forwards and swaps. These involve risks different from, and,
in certain cases, greater than, the risks presented by more traditional
investments. These risks are fully discussed in this Prospectus. See
"Description of the Portfolios--Additional Investment Practices" and "--Risk
Considerations."
Getting Started...
Shares of the Portfolios are available through your financial representative and
most banks, insurance companies and brokerage firms nationwide. Shares can be
purchased for a minimum initial investment of $250, and subsequent investments
can be made for as little as $50. For detailed information about purchasing and
selling shares, see "Purchase and Sale of Shares." In addition, the Portfolios
offer several time and money saving services to investors. Be sure to ask your
financial representative about:
Automatic Reinvestment
Automatic Investment Program
Shareholder Communications
Dividend Direction Plans
Auto Exchange
Systematic Withdrawals
Checkwriting
A Choice of Purchase Plans
Telephone Transactions
24 Hour Information
Alliance/R/
Investing without the Mystery./SM/
/R//SM/ These are registered marks used under licenses from the owner, Alliance
Capital Management L.P.
2
<PAGE>
- --------------------------------------------------------------------------------
Expense Information
- --------------------------------------------------------------------------------
Shareholder Transaction Expenses are one of several factors to consider when you
invest in a Portfolio. The following table summarizes your maximum transaction
costs from investing in a Portfolio and annual expenses for each class of shares
of each Portfolio. For each Portfolio, the "Examples" to the right of the table
below show the cumulative expenses attributable to a hypothetical $1,000
investment in each class for the periods specified.
<TABLE>
<CAPTION>
Class A Shares Class B Shares Class C Shares
--------------- --------------------------- --------------
<S> <C> <C> <C>
Maximum sales charge imposed on purchases (as
a percentage of offering price)...................... 4.25% (a) None None
Sales charge imposed on dividend reinvestments....... None None None
Deferred sales charge (as a percentage of original
purchase price or redemption proceeds, whichever
is lower)............................................. None 3.0% during the first year, 1% during the
decreasing 1.0% annually first year;
to 0% after the third year(b) 0% thereafter
Exchange fee.......................................... None None None
</TABLE>
(a) Reduced for larger purchases. Purchases of $1,000,000 or more are not
subject to an initial sales charge but may be subject to a 1% deferred
sales charge on redemptions within one year of purchase. See "Purchase and
Sale of Shares--How to Buy Shares" - page 20.
(b) Class B shares of each Portfolio automatically convert to Class A shares
after six years. See "Purchase and Sale of Shares--How to Buy Shares" -
page 20.
<TABLE>
<CAPTION>
Operating Expenses Examples
- ------------------------------------------------------- ----------------------------------------------------------------------------
National Portfolio Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
------- ------- ------- ------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees (after
waiver) .20% .20% .20% After 1 year $ 49 $44 $ 14 $ 24 $ 14
12b-1 fees .30% 1.00% 1.00% After 3 years $ 64 $54 $ 44 $ 44 $ 44
Other expenses (a) .19% .20% .19% After 5 years $ 79 $77 $ 77 $ 76 $ 76
---- ---- ----
Total Portfolio After 10 years $125 $131(c) $131(c) $167 $167
Operating expenses (b) .69% 1.40% 1.39%
==== ==== ====
Insured National Portfolio Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
Management fees (after ------- ------- ------- ------- -------- --------- -------- ---------
waiver) .50% .50% .50% After 1 year $ 52 $48 $ 18 $ 27 $ 17
12b-1 fees .30% 1.00% 1.00% After 3 years $ 74 $64 $ 54 $ 54 $ 54
Other expenses (a) .22% .23% .22% After 5 years $ 96 $94 $ 94 $ 93 $ 93
---- ---- ----
Total Portfolio After 10 years $162 $168(c) $168(c) $203 $203
Operating expenses (b) 1.02% 1.73% 1.72%
==== ==== ====
Arizona Portfolio Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
------- ------- ------- ------- -------- --------- -------- ---------
Management fees (after
waiver) .00% .00% .00% After 1 year $ 50 $ 45 $ 15 $ 25 $ 15
12b-1 fees .30% 1.00% 1.00% After 3 years $ 66 $ 57 $ 47 $ 47 $ 47
Other expenses (after After 5 years $ 84 $ 81 $ 81 $ 81 $ 81
reimbursement) (a) .48% .48% .48% After 10 years $135 $140(c) $140(c) $177 $177
---- ---- ----
Total Portfolio
Operating expenses (b) .78% 1.48% 1.48%
==== ==== ====
California Portfolio Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
------- ------- ------- ------- -------- --------- -------- ---------
Management fees (after
waiver) .35% .35% .35% After 1 year $ 50 $45 $ 15 $ 25 $ 15
12b-1 fees .30% 1.00% 1.00% After 3 years $ 66 $56 $ 46 $ 46 $ 46
Other expenses (a) .12% .12% .12% After 5 years $ 83 $80 $ 80 $ 80 $ 80
---- ---- ----
Total Portfolio After 10 years $134 $139(c) $139(c) $176 $176
Operating expenses (b) .77% 1.47% 1.47%
==== ==== ====
Insured California Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
Portfolio ------- ------- ------- ------- -------- --------- -------- ---------
Management fees .55% .55% .55% After 1 year $ 53 $48 $ 18 $ 28 $ 18
12b-1 fees .30% 1.00% 1.00% After 3 years $ 75 $66 $ 56 $ 56 $ 56
Other expenses (a) .23% .24% .23% After 5 years $100 $97 $ 97 $ 96 $ 96
---- ---- ----
Total Portfolio After 10 years $169 $175(c) $175(c) $209 $209
Operating expenses 1.08% 1.79% 1.78%
==== ==== ====
Florida Portfolio Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
------- ------- ------- ------- -------- --------- -------- ---------
Management fees (after
waiver) .11% .11% .11% After 1 year $ 50 $45 $ 15 $ 25 $ 15
12b-1 fees .30% 1.00% 1.00% After 3 years $ 65 $55 $ 45 $ 45 $ 45
Other expenses (a) .32% .32% .32% After 5 years $ 81 $78 $ 78 $ 78 $ 78
---- ---- ----
Total Portfolio After 10 years $129 $135(c) $135(c) $171 $171
Operating expenses (b) .73% 1.43% 1.43%
==== ==== ====
</TABLE>
- --------------------------------------------------------------------------------
Please refer to the footnotes on page 4 and the discussion following these
tables on page 5.
3
<PAGE>
<TABLE>
<CAPTION>
Operating Expenses Examples
- ------------------------------------------------------- ----------------------------------------------------------------------------
Massachusetts Portfolio Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
------- ------- ------- ------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees (after
waiver) .00% .00% .00% After 1 year $ 49 $ 43 $ 13 $ 23 $ 13
12b-1 fees .30% 1.00% 1.00% After 3 years $ 62 $ 52 $ 42 $ 42 $ 42
Other expenses (after
reimbursement) (a) .32% .32% .31% After 5 years $ 76 $ 72 $ 72 $ 72 $ 72
--- --- ---
Total Portfolio After 10 years $117 $122(c) $122(c) $158 $158
Operating expenses (b) .62% 1.32% 1.31%
=== === ===
Michigan Portfolio Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
Management fees (after ------- ------- ------- ------- -------- --------- -------- ---------
waiver) .00% .00% .00% After 1 year $ 52 $ 47 $ 17 $ 27 $ 17
12b-1 fees .30% 1.00% 1.00% After 3 years $ 72 $ 62 $ 52 $ 52 $ 52
Other expenses (after
reimbursement) (a) .66% .66% .66% After 5 years $ 93 $ 90 $ 90 $ 90 $ 90
--- --- ---
Total Portfolio After 10 years $155 $161(c) $161(c) $197 $197
Operating expenses (b) .96% 1.66% 1.66%
==== ==== ====
Minnesota Portfolio Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
------- ------- ------- ------- -------- --------- -------- ---------
Management fees (after
waiver) .00% .00% .00% After 1 year $ 50 $ 44 $ 14 $ 24 $ 14
12b-1 fees .30% 1.00% 1.00% After 3 years $ 65 $ 55 $ 45 $ 45 $ 45
Other expenses (after After 5 years $ 81 $ 78 $ 78 $ 77 $ 77
reimbursement) (a) .42% .42% .41% After 10 years $128 $134(c) $134(c) $169 $169
---- ---- ----
Total Portfolio
Operating expenses (b) .72% 1.42% 1.41%
==== ==== ====
New Jersey Portfolio Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
------- ------- ------- ------- -------- --------- -------- ---------
Management fees (after
waiver) .18% .18% .18% After 1 year $ 51 $ 46 $ 16 $ 25 $ 15
12b-1 fees .30% 1.00% 1.00% After 3 years $ 68 $ 58 $ 48 $ 48 $ 48
Other expenses (a) .34% .35% .34% After 5 years $ 86 $ 83 $ 83 $ 83 $ 83
---- ---- ----
Total Portfolio After 10 years $140 $146(c) $146(c) $181 $181
Operating expenses (b) .82% 1.53% 1.52%
==== ==== ====
New York Portfolio Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
------- ------- ------- ------- -------- --------- -------- ---------
Management fees (after
waiver .15% .15% .15% After 1 year $ 49 $ 44 $ 14 $ 24 $ 14
12b-1 fees .30% 1.00% 1.00% After 3 years $ 62 $ 53 $ 43 $ 42 $ 42
Other expenses (a) .19% .20% .19% After 5 years $ 77 $ 74 $ 74 $ 73 $ 73
---- ---- ----
Total Portfolio After 10 years $119 $125(c) $125(c) $161 $161
Operating expenses .64% 1.35% 1.34%
==== ==== ====
Ohio Portfolio Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
------- ------- ------- ------- -------- --------- -------- ---------
Management fees (after
waiver) .02% .02% .02% After 1 year $ 50 $ 45 $ 15 $ 25 $ 15
12b-1 fees .30% 1.00% 1.00% After 3 years $ 65 $ 56 $ 46 $ 46 $ 46
Other expenses (a) .43% .44% .43% After 5 years $ 82 $ 80 $ 80 $ 79 $ 79
---- ---- ----
Total Portfolio After 10 years $132 $138(c) $138(c) $174 $174
Operating expenses (b) .75% 1.46% 1.45%
==== ==== ====
Pennsylvania Portfolio Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
------- ------- ------- ------- -------- --------- -------- ---------
Management fees (after
waiver) .23% .23% .23% After 1 year $ 52 $ 47 $ 17 $ 27 $ 17
12b-1 fees .30% 1.00% 1.00% After 3 years $ 73 $ 64 $ 54 $ 54 $ 54
Other expenses (after
reimbursement) (a) .47% .48% .47% After 5 years $ 95 $ 93 $ 93 $ 92 $ 92
---- ---- ----
Total Portfolio After 10 years $160 $166(c) $166(c) $201 $201
Operating expenses (b) 1.00% 1.71% 1.70%
==== ==== ====
Virginia Portfolio Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
------- ------- ------- ------- -------- --------- -------- ---------
Management fees (after
waiver) .00% .00% .00% After 1 year $ 49 $ 44 $ 14 $ 24 $ 14
12b-1 fees .30% 1.00% 1.00% After 3 years $ 63 $ 53 $ 43 $ 43 $ 43
Other expenses (a) .37% .37% .37% After 5 years $ 78 $ 75 $ 75 $ 75 $ 75
---- ---- ----
Total Portfolio After 10 years $122 $128(c) $128(c) $165 $165
Operating expenses (b) .67% 1.37% 1.37%
==== ==== ====
</TABLE>
- --------------------------------------------------------------------------------
+ Assumes redemption at end of period.
++ Assumes no redemption at end of period.
(a) These expenses include a transfer agency fee payable to Alliance Fund
Services, Inc., an affiliate of Alliance, based on a fixed dollar amount
charged to the Portfolio for each shareholder's account.
(b) Net of any voluntary fee waiver and expense reimbursement.
(c) Assumes Class B shares converted to Class A shares after six years.
4
<PAGE>
The purpose of the foregoing table is to assist the investor in understanding
the various costs and expenses that an investor in a Portfolio will bear
directly or indirectly. Long-term shareholders of a Portfolio may pay aggregate
sales charges totaling more than the economic equivalent of the maximum initial
sales charges permitted by the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. See "Management of the Funds--
Distribution Services Agreements." The Rule 12b-1 fee for each class
comprises a service fee not exceeding .25% of the aggregate average daily net
assets of the portfolio attributable to the class and an asset-based sales
charge equal to the remaining portion of the Rule 12b-1 fee. The management fees
listed in the above tables are net of voluntary fee waivers and total expenses
are, for certain funds, net of expense reimbursements. Absent such waivers and
reimbursements, (i) the management fees for the National, Insured National,
California and New York Portfolios would have been .625%, .604%, .625% and .625%
of daily average net assets, respectively, and total portfolio operating
expenses would have been 1.10%, 1.12%, 1.05% and 1.11% of daily average net
assets, respectively, of the Class A shares; 1.81%, 1.83%, 1.75% and 1.82% of
daily average net assets, respectively, of the Class B shares; and 1.80%, 1.82%,
1.75% and 1.81% of daily net average net assets, respectively, of the Class C
shares; and (ii) the management fees for the Arizona, Florida, Massachusetts,
Michigan, Minnesota, New Jersey, Ohio, Pennsylvania and Virginia Portfolios
would have been .625% of daily average net assets for each Portfolio, and total
portfolio operating expenses would have been 3.69%, 1.33%, 3.15%, 2.77%, 2.19%,
1.35%, 1.48%, 1.45% and 5.18% of daily average net assets, respectively, of the
Class A shares, 4.40%, 2.03%, 3.85%, 3.48%, 2.89%, 2.05%, 2.18%, 2.15% and 5.88%
of daily average net assets, respectively, of Class B shares, and 4.41%, 2.02%,
3.84%, 3.48%, 2.88%, 2.04%, 2.16%, 2.14% and 5.88% of daily average net assets
for each Portfolio's Class C shares. The examples set forth above assume
reinvestment of all dividends and distributions and utilize a 5% annual rate of
return as mandated by Commission regulations. The examples should not be
considered representative of past or future expenses; actual expenses may be
greater or less than those shown.
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
The tables on the following pages present, for each Portfolio, per share income
and capital changes for a share outstanding throughout each period indicated.
The information in the tables has been audited by Ernst & Young LLP, the Funds'
independent auditors, whose report thereon (referring to financial highlights)
appears in the Statement of Additional Information for each Fund. The following
information for each Fund should be read in conjunction with financial
statements and related notes which are included in each Fund's Statement of
Additional Information.
Further information about the Portfolios' performance is contained in each
Fund's annual report to shareholders, which may be obtained without charge by
contacting Alliance Fund Services, Inc. at the address or the "For Literature"
telephone number shown on the cover of this Prospectus.
5
<PAGE>
<TABLE>
<CAPTION>
Net Net Net
Asset Realized and Increase
Value Unrealized (Decrease) In Dividends From Distributions
Beginning Of Net Investment Gain (Loss) On Net Asset Value Net Investment From Net
Fiscal Year or Period Period Income++ Investments From Operations Income Realized Gains
- --------------------- ------------ -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
National Portfolio
Class A
Year ended 10/31/96............ $10.45 $0.58 $0.06 $0.64 $(0.58) $0.00
Year ended 10/31/95............ 9.41 0.58 1.04 1.62 (0.58) 0.00
Year ended 10/31/94............ 11.05 0.57 (1.37) (0.80) (0.57) (0.24)
Year ended 10/31/93............ 10.19 0.61 0.88 1.49 (0.62) (0.01)
Year ended 10/31/92............ 9.96 0.65 0.28 0.93 (0.65) (0.05)
Year ended 10/31/91............ 9.47 0.66 0.49 1.15 (0.66) 0.00
Year ended 10/31/90............ 9.56 0.68 (0.07) 0.61 (0.68) (0.02)
Year ended 10/31/89............ 9.48 0.69 0.09 0.78 (0.70) 0.00
Year ended 10/31/88............ 8.61 0.71 0.86 1.57 (0.70) 0.00
12/29/86+ to 10/31/87.......... 9.60 0.61 (0.99) (0.38) (0.61) 0.00
Class B
Year ended 10/31/96............ 10.45 0.51 0.06 0.57 (0.51) 0.00
Year ended 10/31/95............ 9.41 0.51 1.04 1.55 (0.51) 0.00
Year ended 10/31/94............ 11.05 0.50 (1.38) (0.88) (0.50) (0.24)
1/4/93+ to 10/31/93............ 10.43 0.44 0.63 1.07 (0.45) 0.00
Class C
Year ended 10/31/96............ 10.45 0.51 0.06 0.57 (0.51) 0.00
Year ended 10/31/95............ 9.41 0.51 1.04 1.55 (0.51) 0.00
Year ended 10/31/94............ 11.05 0.50 (1.38) (0.88) (0.50) (0.24)
5/3/93+ to 10/31/93............ 10.70 0.26 0.36 0.62 (0.27) 0.00
Insured National Portfolio
Class A
Year ended 10/31/96............ $10.07 $0.51 $0.22 $0.73 $(0.52) $0.00
Year ended 10/31/95............ 8.96 0.51 1.13 1.64 (0.51) 0.00
Year ended 10/31/94............ 10.76 0.53 (1.40) (0.87) (0.53) (0.39)
Year ended 10/31/93............ 9.87 0.56 0.96 1.52 (0.57) (0.06)
Year ended 10/31/92............ 9.88 0.60 0.15 0.75 (0.60) (0.16)
Year ended 10/31/91............ 9.39 0.61 0.49 1.10 (0.61) 0.00
Year ended 10/31/90............ 9.49 0.62 (0.03) 0.59 (0.62) (0.07)
Year ended 10/31/89............ 9.38 0.62 0.11 0.73 (0.62) 0.00
Year ended 10/31/88............ 8.62 0.62 0.76 1.38 (0.62) 0.00
12/29/86+ to 10/31/87.......... 9.60 0.57 (0.98) (0.41) (0.57) 0.00
Class B
Year ended 10/31/96............ 10.07 0.44 0.22 0.66 (0.45) 0.00
Year ended 10/31/95............ 8.96 0.45 1.12 1.57 (0.45) 0.00
Year ended 10/31/94............ 10.76 0.46 (1.40) (0.94) (0.46) (0.39)
1/4/93+ to 10/31/93............ 10.10 0.40 0.66 1.06 (0.40) 0.00
Class C
Year ended 10/31/96............ 10.07 0.44 0.22 0.66 (0.45) 0.00
Year ended 10/31/95............ 8.96 0.45 1.12 1.57 (0.45) 0.00
Year ended 10/31/94............ 10.76 0.46 (1.40) (0.94) (0.46) (0.39)
5/3/93+ to 10/31/93............ 10.41 0.24 0.35 0.59 (0.24) 0.00
Arizona Portfolio
Class A
Year ended 9/30/96............. $10.29 $0.55 $0.14 $0.69 $(0.55) $(0.08)
Year ended 9/30/95............. 9.77 0.56 0.53 1.09 (0.56) 0.00
6/1/94+ to 9/30/94............. 10.00 0.20 (0.23) (0.03) (0.20) 0.00
Class B
Year ended 9/30/96............. 10.29 0.47 0.14 0.61 (0.47) (0.08)
Year ended 9/30/95............. 9.77 0.49 0.53 1.02 (0.49) 0.00
6/1/94+ to 9/30/94............. 10.00 0.18 (0.24) (0.06) (0.17) 0.00
Class C
Year ended 9/30/96............. 10.30 0.47 0.13 0.60 (0.47) (0.08)
Year ended 9/30/95............. 9.77 0.49 0.54 1.03 (0.49) 0.00
6/1/94+ to 9/30/94............. 10.00 0.17 (0.23) (0.06) (0.17) 0.00
California Portfolio
Class A
Year ended 10/31/96............ $10.45 $0.58 $0.14 $0.72 $(0.58) $(0.00)
Year ended 10/31/95............ 9.43 0.59 1.02 1.61 (0.59) 0.00
Year ended 10/31/94............ 10.90 0.59 (1.41) (0.82) (0.59) (0.06)
Year ended 10/31/93............ 10.06 0.61 0.85 1.46 (0.61) (0.01)
Year ended 10/31/92............ 9.97 0.65 0.13 0.78 (0.65) (0.04)
Year ended 10/31/91............ 9.58 0.67 0.39 1.06 (0.67) 0.00
Year ended 10/31/90............ 9.65 0.68 (0.03) 0.65 (0.68) (0.04)
Year ended 10/31/89............ 9.49 0.68 0.17 0.85 (0.69) 0.00
Year ended 10/31/88............ 8.73 0.70 0.75 1.45 (0.69) 0.00
12/29/86+ to 10/31/87.......... 9.60 0.58 (0.87) (0.29) (0.58) 0.00
Class B
Year ended 10/31/96............ 10.45 0.51 0.14 0.65 (0.51) (0.00)
Year ended 10/31/95............ 9.43 0.51 1.02 1.53 (0.51) 0.00
Year ended 10/31/94............ 10.90 0.52 (1.41) (0.89) (0.52) (0.06)
1/4/93+ to 10/31/93............ 10.27 0.44 0.63 1.07 (0.44) 0.00
</TABLE>
- --------------------------------------------------------------------------------
Please refer to the footnotes on pages 12 and 13.
6
<PAGE>
<TABLE>
<CAPTION>
Total Net Asset Ratio of Net
Distributions Total Net Asset Investment At End Of Ratio Of Investment
In Excess of Dividends Value Return Based Period Expenses Income
Net Investment And End Of of Net Asset (000's To Average To Average Portfolio
Fiscal Year Or Period Income Distributions Period Value omitted) Net Assets Net Assets Turnover Rate
- --------------------- -------------- ------------- ------ ------------ -------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
National Portfolio
Class A
Year ended 10/31/96 $0.00 $(0.58) $10.51 6.32% $325,288 0.69%(a) 5.55% 137%
Year ended 10/31/95 0.00 (0.58) 10.45 17.73 338,311 0.71 (a) 5.84 118
Year ended 10/31/94 (0.03) (0.84) 9.41 (7.65) 338,814 0.62 (a) 5.61 110
Year ended 10/31/93 (0.00) (0.63) 11.05 14.94 386,484 0.65 (a) 5.69 233
Year ended 10/31/92 (0.00) (0.70) 10.19 9.60 261,895 0.83 (a) 6.35 86
Year ended 10/31/91 (0.00) (0.66) 9.96 12.55 207,167 0.75 (a) 6.81 64
Year ended 10/31/90 (0.00) (0.70) 9.47 6.52 185,832 0.60 (a) 7.06 105
Year ended 10/31/89 (0.00) (0.70) 9.56 8.55 127,149 0.38 (a) 7.25 216
Year ended 10/31/88 (0.00) (0.70) 9.48 18.87 59,357 0.40 (a) 7.71 261
12/29/86+ to 10/31/87 (0.00) (0.61) 8.61 (4.14) 20,704 0.50 (a)* 7.71* 181
Class B
Year ended 10/31/96 0.00 (0.51) 10.51 5.61 214,994 1.40 (a) 4.85 137
Year ended 10/31/95 0.00 (0.51) 10.45 16.91 252,357 1.42 (a) 5.13 118
Year ended 10/31/94 (0.02) (0.76) 9.41 (8.34) 250,391 1.32 (a) 4.91 110
1/4/93+ to 10/31/93 0.00 (0.45) 11.05 10.43 216,489 1.36 (a)* 4.59* 233
Class C
Year ended 10/31/96 0.00 (0.51) 10.51 5.62 96,134 1.39 (a) 4.85 137
Year ended 10/31/95 0.00 (0.51) 10.45 16.93 108,068 1.41 (a) 5.16 118
Year ended 10/31/94 (0.02) (0.76) 9.41 (8.33) 133,249 1.31 (a) 4.89 110
5/3/93+ to 10/31/93 0.00 (0.27) 11.05 5.84 150,953 1.36 (a)* 4.17* 233
Insured National Portfolio
Class A
Year ended 10/31/96 $0.00 $(0.52) $10.28 7.43% $160,425 1.02%(b) 5.04% 157%
Year ended 10/31/95 (0.02) (0.53) 10.07 18.72 165,548 1.01 (b) 5.37 171
Year ended 10/31/94 (0.01) (0.93) 8.96 (8.69) 153,656 0.66 (b) 5.40 149
Year ended 10/31/93 0.00 (0.63) 10.76 15.82 185,876 0.73 (b) 5.40 165
Year ended 10/31/92 0.00 (0.76) 9.87 7.88 149,632 0.81 (b) 6.04 105
Year ended 10/31/91 0.00 (0.61) 9.88 12.08 130,723 0.92 (b) 6.34 96
Year ended 10/31/90 0.00 (0.69) 9.39 6.44 118,240 0.92 (b) 6.56 69
Year ended 10/31/89 0.00 (0.62) 9.49 8.07 107,740 1.05 (b) 6.61 91
Year ended 10/31/88 0.00 (0.62) 9.38 16.56 103,864 1.32 6.93 173
12/29/86+ to 10/31/87 0.00 (0.57) 8.62 (4.48) 103,426 1.20 (b)* 6.87* 105
Class B
Year ended 10/31/96 0.00 (0.45) 10.28 6.74 52,156 1.73 (b) 4.32 157
Year ended 10/31/95 (0.01) (0.46) 10.07 17.91 58,990 1.72 (b) 4.65 171
Year ended 10/31/94 (0.01) (0.86) 8.96 (9.38) 51,439 1.37 (b) 4.71 149
1/4/93+ to 10/31/93 0.00 (0.40) 10.76 10.68 42,954 1.45 (b)* 4.31* 165
Class C
Year ended 10/31/96 0.00 (0.45) 10.28 6.74 22,763 1.72 (b) 4.34 157
Year ended 10/31/95 (0.01) (0.46) 10.07 17.91 22,265 1.71 (b) 4.69 171
Year ended 10/31/94 (0.01) (0.86) 8.96 (9.38) 24,112 1.36 (b) 4.68 149
5/3/93+ to 10/31/93 0.00 (0.24) 10.76 5.75 28,862 1.45 (b)* 3.98* 165
Arizona Portfolio
Class A
Year ended 9/30/96 $(0.03) $(0.66) $10.32 6.84% $ 4,409 .78%(c) 5.33% 244%
Year ended 9/30/95 (0.01) (0.57) 10.29 11.56 2,379 .78 (c) 5.56 85
6/1/94+ to 9/30/94 0.00 (0.20) 9.77 (0.35) 930 .78 (c)* 5.82* 81
Class B
Year ended 9/30/96 (0.03) (0.58) 10.32 6.10 5,199 1.48 (c) 4.62 244
Year ended 9/30/95 (0.01) (0.50) 10.29 10.78 3,166 1.48 (c) 4.89 85
6/1/94+ to 9/30/94 0.00 (0.17) 9.77 (0.58) 1,677 1.48 (c)* 5.13* 81
Class C
Year ended 9/30/96 (0.03) (0.58) 10.32 6.00 710 1.48 (c) 4.61 244
Year ended 9/30/95 (0.01) (0.50) 10.30 10.89 481 1.48 (c) 4.90 85
6/1/94+ to 9/30/94 0.00 (0.17) 9.77 (0.58) 485 1.48 (c)* 4.70* 81
California Portfolio
Class A
Year ended 10/31/96 $0.00 $(0.58) $10.59 7.15% $460,444 0.77%(d) 5.57% 49%
Year ended 10/31/95 0.00 (0.59) 10.45 17.55 478,535 0.74 (d) 5.90 39
Year ended 10/31/94 0.00 (0.65) 9.43 (7.73) 470,308 0.64 (d) 5.78 45
Year ended 10/31/93 0.00 (0.62) 10.90 14.90 531,293 0.74 (d) 5.74 83
Year ended 10/31/92 0.00 (0.69) 10.06 8.05 361,661 0.59 (d) 6.38 77
Year ended 10/31/91 0.00 (0.67) 9.97 11.42 228,755 0.39 (d) 6.80 106
Year ended 10/31/90 0.00 (0.72) 9.58 7.03 143,557 0.39 (d) 7.04 88
Year ended 10/31/89 0.00 (0.69) 9.65 9.25 92,000 0.53 (d) 7.03 193
Year ended 10/31/88 0.00 (0.69) 9.49 17.14 34,112 0.40 (d) 7.45 196
12/29/86+ to 10/31/87 0.00 (0.57) 8.73 (3.14) 7,200 0.50 (d)* 7.28* 197
Class B
Year ended 10/31/96 0.00 (0.51) 10.59 6.37 164,895 1.47 (d) 4.87 49
Year ended 10/31/95 0.00 (0.51) 10.45 16.64 166,759 1.45 (d) 5.19 39
Year ended 10/31/94 0.00 (0.58) 9.43 (8.43) 160,879 1.35 (d) 5.07 45
1/4/93+ to 10/31/93 0.00 (0.44) 10.90 10.60 126,688 1.44 (d)* 4.66* 83
</TABLE>
- -------------------------------------------------------------------------------
7
<PAGE>
<TABLE>
<CAPTION>
Net Net
Asset Realized and Increase
Value Unrealized (Decrease)In Dividends From Distributions
Beginning Of Net Investment Gain (Loss) On Net Asset Value Net From Net
Fiscal Year or Period Period Income++ Investments From Operations Income Realized Gains
- -------------------- ------------ -------------- ----------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
California Portfolio
(cont'd)
Class C
Year ended 10/31/96 $10.45 $0.51 $0.14 $0.65 $(0.51) $0.00
Year ended 10/31/95 9.43 0.51 1.02 1.53 (0.51) 0.00
Year ended 10/31/94 10.90 0.52 (1.41) (0.89) (0.52) (0.06)
5/3/93+ to 10/31/93 10.54 0.26 0.36 0.62 (0.26) 0.00
Insured California
Portfolio
Class A
Year ended 10/31/96 $13.32 $0.69 $0.06 $0.75 $(0.68) $0.00
Year ended 10/31/95 11.79 0.68 1.54 2.22 (0.68) 0.00
Year ended 10/31/94 14.25 0.69 (1.99) (1.30) (0.69) (0.47)
Year ended 10/31/93 12.99 0.70 1.30 2.00 (0.71) (0.03)
Year ended 10/31/92 12.80 0.76 0.18 0.94 (0.75) 0.00
Year ended 10/31/91 12.19 0.77 0.61 1.38 (0.77) 0.00
Year ended 10/31/90 12.23 0.78 (0.04) 0.74 (0.78) 0.00
Year ended 10/31/89 12.18 0.79 0.06 0.85 (0.80) 0.00
Year ended 10/31/88 11.25 0.85 0.92 1.77 (0.84) 0.00
Ten months ended 10/31/87 13.06 0.73 (1.69) (0.96) (0.73) (0.12)
Class B
Year ended 10/31/96 13.32 0.60 0.05 0.65 (0.58) 0.00
Year ended 10/31/95 11.79 0.58 1.54 2.12 (0.58) 0.00
Year ended 10/31/94 14.25 0.60 (2.00) (1.40) (0.59) (0.47)
1/4/93+ to 10/31/93 13.37 0.49 0.89 1.38 (0.50) 0.00
Class C
Year ended 10/31/96 13.32 0.60 0.05 0.65 (0.58) 0.00
Year ended 10/31/95 11.79 0.58 1.54 2.12 (0.58) 0.00
Year ended 10/31/94 14.25 0.60 (2.00) (1.40) (0.59) (0.47)
5/3/93+ to 10/31/93 13.78 0.29 0.48 0.77 (0.30) 0.00
Florida Portfolio
Class A
Year ended 9/30/96 $9.58 $0.54 $0.16 $0.70 $(0.54) $0.00
Year ended 9/30/95 8.89 0.55 0.69 1.24 (0.55) 0.00
Year ended 9/30/94 10.25 0.55 (1.35) (0.80) (0.55) (0.01)
6/25/93+ to 9/30/93 10.00 0.16 0.25 0.41 (0.16) 0.00
Class B
Year ended 9/30/96 9.58 0.47 0.17 0.64 (0.47) 0.00
Year ended 9/30/95 8.89 0.47 0.70 1.17 (0.47) 0.00
Year ended 9/30/94 10.25 0.48 (1.35) (0.87) (0.48) (0.01)
6/25/93+ to 9/30/93 10.00 0.14 0.25 0.39 (0.14) 0.00
Class C
Year ended 9/30/96 9.58 0.47 0.17 0.64 (0.47) 0.00
Year ended 9/30/95 8.89 0.47 0.70 1.17 (0.47) 0.00
Year ended 9/30/94 10.25 0.48 (1.35) (0.87) (0.48) (0.01)
6/25/93+ to 9/30/93 10.00 0.14 0.25 0.39 (0.14) 0.00
Massachusetts Portfolio
Class A
Year ended 9/30/96 $10.50 $0.60 $0.44 $1.04 $(0.59) $(0.08)
Year ended 9/30/95 10.12 0.58 0.41 0.99 (0.58) 0.00
3/29/94+ to 9/30/94 10.00 0.31 0.11 0.42 (0.30) 0.00
Class B
Year ended 9/30/96 10.49 0.52 0.45 0.97 (0.52) (0.08)
Year ended 9/30/95 10.12 0.52 0.39 0.91 (0.52) 0.00
3/3/94+ to 9/30/94 10.00 0.27 0.11 0.38 (0.26) 0.00
Class C
Year ended 9/30/96 10.49 0.52 0.45 0.97 (0.52) (0.08)
Year ended 9/30/95 10.12 0.52 0.39 0.91 (0.52) 0.00
3/29/94+ to 9/30/94 10.00 0.25 0.13 0.38 (0.26) 0.00
Michigan Portfolio
Class A
Year ended 10/31/96 $10.10 $0.52 $0.22 $0.74 $(0.52) $(0.17)
Year ended 10/31/95 9.35 0.52 0.78 1.30 (0.52) 0.00
2/25/94+ to 10/31/94 10.00 0.33 (0.65) (0.32) (0.33) 0.00
Class B
Year ended 10/31/96 10.10 0.45 0.22 0.67 (0.45) (0.17)
Year ended 10/31/95 9.35 0.45 0.78 1.23 (0.45) 0.00
2/25/9+ to 10/31/94 10.00 0.29 (0.65) (0.36) (0.29) 0.00
Class C
Year ended 10/31/96 10.10 0.45 0.22 0.67 (0.45) (0.17)
Year ended 10/31/95 9.35 0.45 0.78 1.23 (0.45) 0.00
2/25/94+ to 10/31/94 10.00 0.29 (0.65) (0.36) (0.29) 0.00
</TABLE>
- --------------------------------------------------------------------------------
Please refer to the footnotes on pages 12 and 13.
8
<PAGE>
<TABLE>
<CAPTION>
Total Net Assets Ratio of Net
Distributions Total Net Asset Investment At End Of Ratio Of Investment
in Excess of Dividends Value Return Based Period Expenses Income
Net Investment and End Of on Net Asset (000's To Average To Average Portfolio
Fiscal Year or Period Income Distributions Period Value omitted) Net Assets Net Assets Turnover Rate
- -------------------- ------------- ------------ -------- ------------ ---------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
California Portfolio
(cont'd)
Class C
Year ended 10/31/96 $0.00 $(0.51) $10.59 6.38% $ 90,917 1.47%(d) 4.87% 49%
Year ended 10/31/95 0.00 (0.51) 10.45 16.64 87,793 1.44 (d) 5.22 39
Year ended 10/31/94 0.00 (0.58) 9.43 (8.43) 103,622 1.34 (d) 5.06 45
5/3/93+ to 10/31/93 0.00 (0.26) 10.90 5.98 117,379 1.44 (d)* 4.42* 83
Insured California
Portfolio
Class A
Year ended 10/31/96 $0.00 $(0.68) $13.39 5.79% $101,542 1.08% 5.19% 118%
Year ended 10/31/95 (0.01) (0.69) 13.32 19.29 103,940 1.04 (e) 5.34 103
Year ended 10/31/94 0.00 (1.16) 11.79 (9.73) 94,857 0.82 (e) 5.29 100
Year ended 10/31/93 0.00 (0.74) 14.25 15.64 120,734 0.94 (e) 5.06 186
Year ended 10/31/92 0.00 (0.75) 12.99 7.52 90,477 0.78 (e) 5.77 60
Year ended 10/31/91 0.00 (0.77) 12.80 11.62 69,757 0.79 (e) 6.13 59
Year ended 10/31/90 0.00 (0.78) 12.19 6.29 56,933 0.86 (e) 6.42 104
Year ended 10/31/89 0.00 (0.80) 12.23 7.24 53,302 0.90 (e) 6.43 100
Year ended 10/31/88 0.00 (0.84) 12.18 16.27 46,017 0.32 (e) 7.27 112
Ten months ended 10/31/87 0.00 (0.85) 11.25 16.18 25,254 0.10 (e)* 7.56* 116
Class B
Year ended 10/31/96 0.00 (0.58) 13.39 4.99 26,696 1.79 4.49 118
Year ended 10/31/95 (0.01) (0.59) 13.32 18.35 27,816 1.74 (e) 4.61 103
Year ended 10/31/94 0.00 (1.06) 11.79 (10.43) 24,591 1.53 (e) 4.60 100
1/4/93+ to 10/31/93 0.00 (0.50) 14.25 10.43 21,234 1.65 (e)* 3.85* 186
Class C
Year ended 10/31/96 0.00 (0.58) 13.39 4.99 12,826 1.78 4.49 118
Year ended 10/31/95 (0.01) (0.59) 13.32 18.35 14,323 1.74 (e) 4.64 103
Year ended 10/31/94 0.00 (1.06) 11.79 (10.43) 12,472 1.52 (e) 4.59 100
5/3/93+ to 10/31/93 0.00 (0.30) 14.25 5.63 15,971 1.65 (e)* 3.74* 186
Florida Portfolio
Class A
Year ended 9/30/96 $(0.01) $(0.55) $9.73 7.45% $ 14,297 0.73%(f) 5.52% 237%
Year ended 9/30/95 0.00 (0.55) 9.58 14.44 11,956 0.73 (f) 5.91 146
Year ended 9/30/94 0.00 (0.56) 8.89 (8.03) 8,227 0.38 (f) 5.70 185
6/25/93+ to 9/30/93 0.00 (0.16) 10.25 4.10 4,145 0.00 (f)* 5.44* 82
Class B
Year ended 9/30/96 (0.01) (0.48) 9.74 6.78 22,235 1.43 (f) 4.81 237
Year ended 9/30/95 (0.01) (0.48) 9.58 13.56 20,660 1.42 (f) 5.22 146
Year ended 9/30/94 0.00 (0.49) 8.89 (8.72) 18,048 1.08 (f) 4.99 185
6/25/93+ to 9/30/93 0.00 (0.14) 10.25 3.91 9,588 0.61 (f)* 4.74* 82
Class C
Year ended 9/30/96 (0.01) (0.48) 9.74 6.78 30,121 1.43 (f) 4.81 237
Year ended 9/30/95 (0.01) (0.48) 9.58 13.56 30,787 1.42 (f) 5.27 146
Year ended 9/30/94 0.00 (0.49) 8.89 (8.72) 42,405 1.08 (f) 4.97 185
6/25/93+ to 9/30/93 0.00 (0.14) 10.25 3.91 28,249 0.61 (f)* 4.74* 82
Massachusetts Portfolio
Class A
Year ended 9/30/96 $(0.02) $(0.69) $10.85 10.25% $ 3,211 0.62%(g) 5.62% 246%
Year ended 9/30/95 (0.03) (0.61) 10.50 10.19 1,337 0.60 (g) 5.67 155
3/29/94+ to 9/30/94 0.00 (0.30) 10.12 4.14 565 0.60 (g)* 5.98* 146
Class B
Year ended 9/30/96 (0.02) (0.62) 10.84 9.52 3,683 1.32 (g) 4.93 246
Year ended 9/30/95 (0.02) (0.54) 10.49 9.32 1,754 1.30 (g) 4.90 155
3/3/94+ to 9/30/94 0.00 (0.26) 10.12 3.78 725 1.30 (g)* 5.13* 146
Class C
Year ended 9/30/96 (0.02) (0.62) 10.84 9.52 4,514 1.31 (g) 4.88 246
Year ended 9/30/95 (0.02) (0.54) 10.49 9.32 2,556 1.30 (g) 4.85 155
3/29/94+ to 9/30/94 0.00 (0.26) 10.12 3.78 774 1.30 (g)* 4.00* 146
Michigan Portfolio
Class A
Year ended 10/31/96 $(0.03) $(0.72) $10.12 7.54% $ 6,123 0.96%(h) 5.21% 242%
Year ended 10/31/95 (0.03) (0.55) 10.10 14.40 5,158 1.36 (h) 5.27 151
2/25/94+ to 10/31/94 0.00 (0.33) 9.35 (3.24) 2,473 0.93 (h)* 5.83* 222
Class B
Year ended 10/31/96 (0.03) (0.65) 10.12 6.80 3,553 1.66 (h) 4.51 242
Year ended 10/31/95 (0.03) (0.48) 10.10 13.58 2,424 2.06 (h) 4.57 151
2/25/94+ to 10/31/94 0.00 (0.29) 9.35 (3.65) 1,722 1.63 (h)* 4.93* 222
Class C
Year ended 10/31/96 (0.03) (0.65) 10.12 6.80 3,940 1.66 (h) 4.50 242
Year ended 10/31/95 (0.03) (0.48) 10.10 13.58 2,886 2.06 (h) 4.69 151
2/25/94+ to 10/31/94 0.00 (0.29) 9.35 (3.65) 2,778 1.63 (h)* 4.92* 222
</TABLE>
- --------------------------------------------------------------------------------
9
<PAGE>
<TABLE>
<CAPTION>
Net
Net Asset Realized and Net Increase
Value Unrealized (Decrease) In Dividends From Distributions
Beginning Of Net Investment Gain (Loss) On Net Asset Value Net Investment From Net
Fiscal Year or Period Period Income+ Investments From Operations Income Realized Gains
- --------------------- ------------ -------------- -------------- --------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Minnesota Portfolio
Class A
Year ended 9/30/96 $ 9.49 $0.53 $ 0.11 $ 0.64 $(0.53) $ 0.00
Year ended 9/30/95 9.19 0.53 0.32 0.85 (0.53) 0.00
Year ended 9/30/94 10.28 0.55 (1.09) (0.54) (0.55) 0.00
6/25/93+ to 9/30/93 10.00 0.15 0.28 0.43 (0.15) 0.00
Class B
Year ended 9/30/96 9.49 0.46 0.11 0.57 (0.46) 0.00
Year ended 9/30/95 9.18 0.46 0.33 0.79 (0.46) 0.00
Year ended 9/30/94 10.28 0.48 (1.10) (0.62) (0.48) 0.00
6/25/93+ to 9/30/93 10.00 0.13 0.28 0.41 (0.13) 0.00
Class C
Year ended 9/30/96 9.50 0.46 0.10 0.56 (0.46) 0.00
Year ended 9/30/95 9.19 0.46 0.33 0.79 (0.46) 0.00
Year ended 9/30/94 10.27 0.48 (1.08) (0.60) (0.48) 0.00
6/25/93+ to 9/30/93 10.00 0.13 0.27 0.40 (0.13) 0.00
New Jersey Portfolio
Class A
Year ended 9/30/96 $ 9.65 $0.51 $ 0.11 $ 0.62 $(0.51) $ 0.00
Year ended 9/30/95 9.07 0.54 0.59 1.13 (0.54) 0.00
Year ended 9/30/94 10.29 0.55 (1.22) (0.67) (0.55) 0.00
6/25/93+ to 9/30/93 10.00 0.15 0.29 0.44 (0.15) 0.00
Class B
Year ended 9/30/96 9.66 0.44 0.10 0.54 (0.45) 0.00
Year ended 9/30/95 9.07 0.47 0.60 1.07 (0.47) 0.00
Year ended 9/30/94 10.28 0.48 (1.21) (0.73) (0.48) 0.00
6/25/93+ to 9/30/93 10.00 0.13 0.28 0.41 (0.13) 0.00
Class C
Year ended 9/30/96 9.66 0.44 0.10 0.54 (0.45) 0.00
Year ended 9/30/95 9.07 0.47 0.60 1.07 (0.47) 0.00
Year ended 9/30/94 10.28 0.48 (1.21) (0.73) (0.48) 0.00
6/25/93+ to 9/30/93 10.00 0.13 0.28 0.41 (0.13) 0.00
New York Portfolio
Class A
Year ended 10/31/96 $ 9.62 $0.55 $ 0.04 $ 0.59 $(0.55) $ 0.00
Year ended 10/31/95 8.72 0.55 0.90 1.45 (0.55) 0.00
Year ended 10/31/94 10.17 0.55 (1.40) (0.85) (0.55) (0.04)
Year ended 10/31/93 9.53 0.57 0.79 1.36 (0.58) (0.14)
Year ended 10/31/92 9.30 0.60 0.24 0.84 (0.60) (0.01)
Year ended 10/31/91 8.78 0.62 0.52 1.14 (0.62) 0.00
Year ended 10/31/90 8.92 0.64 (0.14) 0.50 (0.64) 0.00
Year ended 10/31/89 8.88 0.65 0.04 0.69 (0.65) 0.00
Year ended 10/31/88 8.11 0.65 0.77 1.42 (0.65) 0.00
12/29/86+ to 10/31/87 9.60 0.58 (1.49) (0.91) (0.58) 0.00
Class B
Year ended 10/31/96 9.62 0.48 0.04 0.52 (0.48) 0.00
Year ended 10/31/95 8.72 0.48 0.90 1.38 (0.48) 0.00
Year ended 10/31/94 10.17 0.48 (1.41) (0.93) (0.47) (0.04)
1/4/93+ to 10/31/93 9.61 0.41 0.56 0.97 (0.41) 0.00
Class C
Year ended 10/31/96 9.62 0.48 0.04 0.52 (0.48) 0.00
Year ended 10/31/95 8.72 0.48 0.90 1.38 (0.48) 0.00
Year ended 10/31/94 10.17 0.48 (1.41) (0.93) (0.47) (0.04)
5/3/93+ to 10/31/93 9.89 0.24 0.29 0.53 (0.25) 0.00
Ohio Portfolio
Class A
Year ended 9/30/96 $ 9.53 $0.52 $ 0.11 $ 0.63 $(0.53) $ 0.00
Year ended 9/30/95 9.06 0.54 0.48 1.02 (0.54) 0.00
Year ended 9/30/94 10.26 0.55 (1.19) (0.64) (0.55) (0.01)
6/25/93+ to 9/30/93 10.00 0.15 0.26 0.41 (0.15) 0.00
Class B
Year ended 9/30/96 9.54 0.46 0.09 0.55 (0.46) 0.00
Year ended 9/30/95 9.06 0.47 0.49 0.96 (0.47) 0.00
Year ended 9/30/94 10.26 0.48 (1.19) (0.71) (0.48) (0.01)
6/25/93+ to 9/30/93 10.00 0.13 0.26 0.39 (0.13) 0.00
Class C
Year ended 9/30/96 9.54 0.46 0.09 0.55 (0.46) 0.00
Year ended 9/30/95 9.06 0.47 0.49 0.96 (0.47) 0.00
Year ended 9/30/94 10.26 0.48 (1.19) (0.71) (0.48) (0.01)
6/25/93+ to 9/30/93 10.00 0.13 0.26 0.39 (0.13) 0.00
</TABLE>
- --------------------------------------------------------------------------------
Please refer to the footnotes on pages 12 and 13.
10
<PAGE>
<TABLE>
<CAPTION>
Total Net Assets Ratio Of Net
Distributions Total Net Asset Investment At End Of Ratio Of Investment
in Excess of Dividends Value Return Based Period Expenses Income
Net Investment And End Of on Net Asset (000's To Average To Average Portfolio
Income Distributions Period Value omitted) Net Assets Net Assets Turnover Rate
------------- ------------- -------- ------------ --------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Minnesota Portfolio
Class A
Year ended 9/30/96 $(0.02) $(0.55) $9.58 6.95% $ 3,165 0.72%(i) 5.54% 195%
Year ended 9/30/95 (0.02) (0.55) 9.49 9.63 2,414 0.71 (i) 5.71 117
Year ended 9/30/94 0.00 (0.55) 9.19 (5.35) 2,125 0.09 (i) 5.71 143
6/25/93+ to 9/30/93 0.00 (0.15) 10.28 4.34 994 0.00 (i)* 5.20* 61
Class B
Year ended 9/30/96 (0.02) (0.48) 9.58 6.15 8,291 1.42 (i) 4.82 195
Year ended 9/30/95 (0.02) (0.48) 9.49 8.90 7,299 1.42 (i) 4.97 117
Year ended 9/30/94 0.00 (0.48) 9.18 (6.15) 6,150 0.80 (i) 5.00 143
6/25/93+ to 9/30/93 0.00 (0.13) 10.28 4.16 2,665 0.43 (i)* 4.50* 61
Class C
Year ended 9/30/96 (0.02) (0.48) 9.58 6.03 6,553 1.41 (i) 4.82 195
Year ended 9/30/95 (0.02) (0.48) 9.50 8.89 7,305 1.41 (i) 5.05 117
Year ended 9/30/94 0.00 (0.48) 9.19 (5.95) 9,489 0.79 (i) 4.90 143
6/25/93+ to 9/30/93 0.00 (0.13) 10.27 4.06 6,697 0.43 (i)* 4.50 61
New Jersey Portfolio
Class A
Year ended 9/30/96 $(0.04) $(0.55) $9.72 6.57% $ 15,520 0.82%(j) 5.26% 132%
Year ended 9/30/95 (0.01) (0.55) 9.65 12.91 11,612 0.82 (j) 5.73 86
Year ended 9/30/94 0.00 (0.55) 9.07 (6.67) 9,257 0.20 (j) 5.65 171
6/25/93+ to 9/30/93 0.00 (0.15) 10.29 4.44 6,679 0.00 (j)* 5.37* 47
Class B
Year ended 9/30/96 (0.03) (0.48) 9.72 5.66 39,099 1.53 (j) 4.56 132
Year ended 9/30/95 (0.01) (0.48) 9.66 12.15 34,695 1.53 (j) 5.03 86
Year ended 9/30/94 0.00 (0.48) 9.07 (7.28) 30,459 0.91 (j) 4.96 171
6/25/93+ to 9/30/93 0.00 (0.13) 10.28 4.16 15,637 0.63 (j)* 4.67* 47
Class C
Year ended 9/30/96 (0.03) (0.48) 9.72 5.66% 22,579 1.52 (j) 4.56 132
Year ended 9/30/95 (0.01) (0.48) 9.66 12.14 21,255 1.52 (j) 5.09 86
Year ended 9/30/94 0.00 (0.48) 9.07 (7.28) 26,472 0.90 (j) 4.93 171
6/25/93+ to 9/30/93 0.00 (0.13) 10.28 4.16 21,193 0.63 (j)* 4.67* 47
New York Portfolio
Class A
Year ended 10/31/96 $0.00 $(0.55) $9.66 6.30% $179,452 0.64%(k) 5.66% 64%
Year ended 10/31/95 0.00 (0.55) 9.62 17.10 183,987 0.75 (k) 5.93 69
Year ended 10/31/94 (0.01) (0.60) 8.72 (8.76) 182,170 0.66 (k) 5.75 69
Year ended 10/31/93 0.00 (0.72) 10.17 14.71 214,259 0.68 (k) 5.76 63
Year ended 10/31/92 0.00 (0.61) 9.53 9.39 162,549 0.70 (k) 6.37 69
Year ended 10/31/91 0.00 (0.62) 9.30 13.36 136,484 0.65 (k) 6.81 48
Year ended 10/31/90 0.00 (0.64) 8.78 5.71 118,875 0.44 (k) 7.08 101
Year ended 10/31/89 0.00 (0.65) 8.92 8.03 70,766 0.37 (k) 7.14 119
Year ended 10/31/88 0.00 (0.65) 8.88 18.08 27,731 0.43 (k) 7.43 146
12/29/86+ to 10/31/87 0.00 (0.58) 8.11 (9.77) 9,985 0.20 (k)* 7.68* 210
Class B
Year ended 10/31/96 0.00 (0.48) 9.66 5.52 96,959 1.35 (k) 4.95 64
Year ended 10/31/95 0.00 (0.48) 9.62 16.19 94,400 1.45 (k) 5.21 69
Year ended 10/31/94 (0.01) (0.52) 8.72 (9.44) 81,941 1.36 (k) 5.05 69
1/4/93+ to 10/31/93 0.00 (0.41) 10.17 10.29 58,504 1.39 (k)* 4.70* 63
Class C
Year ended 10/31/96 0.00 (0.48) 9.66 5.52 34,562 1.34 (k) 4.95 64
Year ended 10/31/95 0.00 (0.48) 9.62 16.19 32,259 1.44 (k) 5.24 69
Year ended 10/31/94 (0.01) (0.52) 8.72 (9.44) 34,646 1.36 (k) 5.03 69
5/3/93+ to 10/31/93 0.00 (0.25) 10.17 5.37 38,245 1.38 (k)* 4.42* 63
Ohio Portfolio
Class A
Year ended 9/30/96 $(0.02) $(0.55) $9.61 6.72% $ 6,054 0.75%(l) 5.47% 182%
Year ended 9/30/95 (0.01) (0.55) 9.53 11.63 4,170 0.75 (l) 5.74 108
Year ended 9/30/94 0.00 (0.56) 9.06 (6.44) 2,810 0.04 (l) 5.67 161
6/25/93+ to 9/30/93 0.00 (0.15) 10.26 4.15 1,050 0.00 (l)* 5.30* 55
Class B
Year ended 9/30/96 (0.02) (0.48) 9.61 5.82 25,334 1.46 (l) 4.77 182
Year ended 9/30/95 (0.01) (0.48) 9.54 10.88 21,821 1.46 (l) 5.08 108
Year ended 9/30/94 0.00 (0.49) 9.06 (7.13) 20,267 0.74 (l) 4.95 161
6/25/93+ to 9/30/93 0.00 (0.13) 10.26 3.97 8,952 0.17 (l)* 4.60* 55
Class C
Year ended 9/30/96 (0.02) (0.48) 9.61 5.82 17,203 1.45 (l) 4.78 182
Year ended 9/30/95 (0.01) (0.48) 9.54 10.88 18,874 1.45 (l) 5.14 108
Year ended 9/30/94 0.00 (0.49) 9.06 (7.13) 26,294 0.74 (l) 4.89 161
6/25/93+ to 9/30/93 0.00 (0.13) 10.26 3.97 19,894 0.17 (l)* 4.60* 55
</TABLE>
- --------------------------------------------------------------------------------
11
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Pennsylvania Portfolio
Class A
Year ended 9/30/96............ $ 9.64 $ 0.49 $ 0.28 $ 0.77 $(0.53) $ 0.00
Year ended 9/30/95............ 9.18 0.54 0.48 1.02 (0.54) 0.00
Year ended 9/30/94............ 10.25 0.56 (1.06) (0.50) (0.56) (0.01)
6/25/93+ to 9/30/93........... 10.00 0.16 0.25 0.41 (0.16) 0.00
Class B
Year ended 9/30/96............ 9.65 0.46 0.24 0.70 (0.46) 0.00
Year ended 9/30/95............ 9.18 0.47 0.49 0.96 (0.47) 0.00
Year ended 9/30/94............ 10.25 0.49 (1.06) (0.57) (0.49) (0.01)
6/25/93+ to 9/30/93........... 10.00 0.14 0.25 0.39 (0.14) 0.00
Class C
Year ended 9/30/96............ 9.65 0.46 0.24 0.70 (0.46) 0.00
Year ended 9/30/95............ 9.18 0.47 0.49 0.96 (0.47) 0.00
Year ended 9/30/94............ 10.24 0.49 (1.05) (0.56) (0.49) (0.01)
6/25/93+ to 9/30/93........... 10.00 0.14 0.24 0.38 (0.14) 0.00
Virginia Portfolio
Class A
Year ended 9/30/96............ $10.29 $0.57 $ 0.37 $ 0.94 $(0.57) $(0.08)
Year ended 9/30/95............ 9.69 0.56 0.61 1.17 (0.56) 0.00
4/29/94+ to 9/30/94........... 10.00 0.24 (0.31) (0.07) (0.24) 0.00
Class B
Year ended 9/30/96............ 10.29 0.50 0.36 0.86 (0.50) (0.08)
Year ended 9/30/95............ 9.69 0.49 0.61 1.10 (0.49) 0.00
4/29/94+ to 9/30/94........... 10.00 0.22 (0.32) (0.10) (0.21) 0.00
Class C
Year ended 9/30/96............ 10.29 0.50 0.36 0.86 (0.50) (0.08)
Year ended 9/30/95............ 9.70 0.49 0.60 1.09 (0.49) 0.00
4/29/94+ to 9/30/94........... 10.00 0.21 (0.30) (0.09) (0.21) 0.00
</TABLE>
- --------------------------------------------------------------------------------
+ Commmencement of operations and/or distribution.
++ Net of expenses assumed and/or waived by Alliance, except in the case
of the Insured National Portfolio for the fiscal year ended October 31, 1988
and the Insured California Portfolio for the fiscal year ended October 31,
1996.
* Annualized.
(a) If the National Portfolio had borne all expenses, the respective expense
ratios (beginning with those of the most recent fiscal period) would have
been 1.10%, 1.09%, 1.09%, 1.08%, 1.11%, 1.14%, 1.15%, 1.31%, 1.62% and
2.25% for Class A shares, 1.81%, 1.80%, 1.80% and 1.78% for Class B shares
and 1.80% ,1.78%, 1.79% and 1.78% for Class C shares.
(b) If the Insured National Portfolio had borne all expenses, the respective
expense ratios (beginning with those of the most recent fiscal period)
would have been 1.12%, 1.12%, 1.11%, 1.11%, 1.12%, 1.17%, 1.20%, 1.29% and
1.54% for Class A shares, 1.83%, 1.83%, 1.82% and 1.83% for Class B shares
and 1.82%, 1.82%, 1.81% and 1.83% for Class C shares.
(c) If the Arizona Portfolio had borne all expenses, the respective expense
ratios would have been 3.69%, 4.88% and 7.71% for Class A shares, 4.40%,
5.58% and 8.41% for Class B shares and 4.41%, 5.58% and 8.41% for Class C
shares.
(d) If the California Portfolio had borne all expenses, the respective expense
ratios (beginning with those of the most recent fiscal period) would have
been 1.05%, 1.04%, 1.05%, 1.06%, 1.07%, 1.11%, 1.13%, 1.39%, 1.89% and
2.30% for Class A shares, 1.75%, 1.75%, 1.75% and 1.78% for Class B shares
and 1.74%, 1.75%, 1.75% and 1.78% for Class C shares.
(e) If the Insured California Portfolio had borne all expenses, the respective
expense ratios (beginning with the fiscal year ended 10/31/95) would have
been 1.09%, 1.08%, 1.08%, 1.09%, 1.20%, 1.23%, 1.37%, 1.45% and 1.36% for
Class A shares, 1.80%, 1.78% and 1.79% for Class B shares and 1.79%, 1.77%
and 1.79% for Class C shares.
12
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Pennsylvania Portfolio
Class A
Year ended 9/30/96 $(0.03) $(0.56) $9.85 8.17% $ 21,104 1.00%(m) 5.40% 185%
Year ended 9/30/95 (0.02) (0.56) 9.64 11.53 8,721 1.00 (m) 5.78 114
Year ended 9/30/94 0.00 (0.57) 9.18 (5.02) 7,149 0.45 (m) 5.73 156
6/25/93+ to 9/30/93 0.00 (0.16) 10.25 4.12 4,170 0.00 (m)* 5.67* 75
Class B
Year ended 9/30/96 (0.03) (0.49) 9.86 7.38 30,440 1.71 (m) 4.69 185
Year ended 9/30/95 (0.02) (0.49) 9.65 10.78 28,559 1.71 (m) 5.09 114
Year ended 9/30/94 0.00 (0.50) 9.18 (5.72) 25,637 1.16 (m) 5.01 156
6/25/93+ to 9/30/93 0.00 (0.14) 10.25 3.94 12,173 0.40 (m)* 4.97* 75
Class C
Year ended 9/30/96 (0.03) (0.49) 9.86 7.37 13,996 1.70 (m) 4.69 185
Year ended 9/30/95 (0.02) (0.49) 9.65 10.78 15,052 1.70 (m) 5.09 114
Year ended 9/30/94 0.00 (0.50) 9.18 (5.63) 18,198 1.15 (m) 4.99 156
6/25/93+ to 9/30/93 0.00 (0.14) 10.24 3.84 13,541 0.40 (m)* 4.97* 75
Virginia Portfolio
Class A
Year ended 9/30/96 $0.00 $(0.65) $10.58 9.39% $ 2,455 0.67%(n) 5.39% 298%
Year ended 9/30/95 (0.01) (0.57) 10.29 12.46 1,855 0.67 (n) 5.59 128
4/29/94+ to 9/30/94 0.00 (0.24) 9.69 (0.71) 1,249 0.57 (n)* 5.62* 65
Class B
Year ended 9/30/96 0.00 (0.58) 10.57 8.57 3,345 1.37 (n) 4.70 298
Year ended 9/30/95 (0.01) (0.50) 10.29 11.67 1,193 1.37 (n) 4.80 128
4/29/94+ to 9/30/94 0.00 (0.21) 9.69 (1.01) 224 1.27 (n)* 4.97* 65
Class C
Year ended 9/30/96 0.00 (0.58) 10.57 8.58 642 1.37 (n) 4.73 298
Year ended 9/30/95 (0.01) (0.50) 10.29 11.56 122 1.37 (n) 4.81 128
4/29/94+ to 9/30/94 0.00 (0.21) 9.70 (0.91) 43 1.27 (n)* 4.67* 65
</TABLE>
- --------------------------------------------------------------------------------
(f) If the Florida Portfolio had borne all expenses, the respective expense
ratios (beginning with those of the more recent fiscal period) would have
been 1.33%, 1.33%, 1.27% and 1.30% for Class A shares, 2.03%, 2.03%, 1.98%
and 2.00% for Class B shares and 2.02%, 2.03%, 1.97% and 2.00% for Class C
shares.
(g) If the Massachusetts Portfolio had borne all expenses, the respective
expense ratios would have been 3.15%, 6.44% and 13.2% for Class A shares,
3.85%,7.14% and 13.9% for Class B shares and 3.84%, 7.14% and 13.9% for
Class C shares.
(h) If the Michigan Portfolio had borne all expenses, the respective expense
ratios would have been 2.77%, 3.43% and 3.97% for Class A shares, 3.48%,
4.12% and 4.67% for Class B shares and 3.48%, 4.13% and 4.67% for Class C
shares.
(i) If the Minnesota Portfolio had borne all expenses, the respective expense
ratios (beginning with those of the more recent fiscal period) would have
been 2.19%, 2.30%, 2.12% and 1.89% for Class A shares, 2.89%, 3.02%, 2.83%
and 2.59% for Class B shares and 2.88%, 3.00%, 2.82% and 2.59% for Class C
shares.
(j) If the New Jersey Portfolio had borne all expenses, the respective expense
ratios (beginning with those of the more recent fiscal period) would have
been 1.35%, 1.35%, 1.33% and 1.29% for Class A shares, 2.05%, 2.06%, 2.03%
and 1.99% for Class B shares and 2.04%, 2.06%, 2.02% and 1.99% for Class C
shares.
(k) If the New York Portfolio had borne all expenses, the respective expense
ratios (beginning with those of the most recent fiscal period) would have
been 1.11%, 1.12%, 1.11%, 1.13%, 1.13%, 1.20%, 1.23%, 1.48%, 1.98% and
2.30% for Class A shares, 1.82%, 1.83%, 1.82% and 1.84% for Class B shares
and 1.81%, 1.82%, 1.81% and 1.84% for Class C shares.
(l) If the Ohio Portfolio had borne all expenses, the respective expense ratios
(beginning with those of the more recent fiscal period) would have been
1.48%, 1.51%, 1.42% and 1.32% for Class A shares, 2.18%, 2.21%, 2.13% and
2.02% for Class B shares and 2.16%, 2.20%, 2.12% and 2.02% for Class C
shares.
(m) If the Pennsylvania Portfolio had borne all expenses, the respective
expense ratios (beginning with those of the more recent fiscal period)
would have been 1.45%, 1.47%, 1.46% and 1.31% for Class A shares, 2.15%,
2.17%, 2.16% and 2.01% for Class B shares and 2.14%, 2.17%, 2.15% and 2.01%
for Class C shares.
(n) If the Virginia Portfolio had borne all expenses, the respective expense
ratios would have been 5.18%, 8.96% and 12.29% for Class A shares, 5.88%,
9.66% and 12.99% for Class B shares and 5.88%, 9.66% and 12.99% for Class C
shares.
13
<PAGE>
- --------------------------------------------------------------------------------
Description Of The Portfolios
- --------------------------------------------------------------------------------
Each Portfolio is a separate pool of assets constituting, in effect, a separate
fund. Except as otherwise indicated, the Portfolios' investment policies are not
"fundamental policies" and may, therefore, be changed without a shareholder
vote. However, no Portfolio will change its investment policies without
contemporaneous written notice to its shareholders. There is no guarantee that
any Portfolio will achieve its investment objective.
Investment Objective
The investment objective of each Portfolio (other than the Insured California
Portfolio, as discussed below) is to earn the highest level of current income,
exempt from Federal and state taxation to the extent described, that is
available without assuming what Alliance considers to be undue risk by investing
principally in high-yielding, predominantly medium-quality, intermediate and
long-term debt obligations issued by: (i) in the case of the National and
Insured National Portfolios, states, territories and possessions of the United
States and the District of Columbia, and their political subdivisions, duly
constituted authorities and corporations and, (ii) in the case of each of the
State Portfolios, the named state, and its political subdivisions, agencies and
instrumentalities. These securities are generally known as "municipal
securities." The average weighted maturity of the securities in each Portfolio
normally will range between 10 and 25 years.
Current Federal tax law distinguishes between municipal securities issued to
finance certain "private activities" and other municipal securities. Such
private activity bonds include bonds issued to finance such projects as
airports, housing projects, resource recovery programs, solid waste disposal
facilities, student loan programs, and water and sewage projects. Interest from
such "private activity bonds" ("AMT-Subject Bonds") becomes an item of "tax
preference" which is subject to the alternative minimum tax ("AMT") when
received by a person in a tax year during which the person is subject to that
tax. Because interest on AMT-Subject Bonds is taxable to certain investors, it
is expected, although there can be no guarantee, that such municipal securities
generally will provide somewhat higher yields than other municipal securities
("AMT-Exempt Bonds") of comparable quality and maturity.
How the Portfolios Pursue Their Objective
The National Portfolio invests principally in a diversified portfolio of
municipal securities, the interest from which is wholly exempt from Federal
income taxes except when received by a shareholder who will be subject to the
AMT. The National Portfolio may invest without limit in AMT-Subject Bonds. As of
October 31, 1996, 89% of the National Portfolio's total net assets was invested
in AMT-Subject Bonds.
The Insured National Portfolio invests principally in AMT-Exempt Bonds that are
insured as to the payment of principal and interest ("insured securities"). The
investment policies of the Insured National Portfolio differ from those of the
National Portfolio in two respects: (i) whereas the National Portfolio invests
principally in AMT-Subject Bonds, the Insured National Portfolio invests
principally in a diversified portfolio of AMT-Exempt Bonds; and (ii) as a matter
of fundamental policy, the Insured National Portfolio, under normal market
conditions, invests at least 65% of its total assets in insured securities. (See
page 14 for a further discussion of the insurance feature.) The Insured National
Portfolio may be suitable for an investor who will be subject to the AMT to the
extent that the after-tax yield of the National Portfolio to such an investor is
less than the yield of the Insured National Portfolio. From time to time, the
National and Insured National Portfolios may invest 25% or more of their
respective total assets in municipal securities whose issuers are located in the
same state.
Each of the twelve State Portfolios invests in a non-diversified portfolio of
municipal securities the interest from which, in the opinion of bond counsel to
the issuer, is exempt from Federal income tax and from personal income tax in
the named state, or in the case of the Florida Portfolio, from the Florida
intangible tax (Florida currently imposes no income taxes on individuals.)
Normally, substantially all of the total assets of each State Portfolio will be
invested in municipal securities of the indicated state. Each Portfolio other
than the Insured National and Insured California Portfolios may invest without
limit in AMT-Subject Bonds.
The Insured California Portfolio seeks to provide as high a level of current
income exempt from Federal income tax and California personal income tax as is
consistent with the preservation of capital. As a matter of fundamental policy,
the Insured California Portfolio normally invests at least 80% of its total
assets in municipal bonds, at least 80% of its total assets in AMT-Exempt Bonds
and at least 65% of its total assets in insured securities. The Insured
California Portfolio's current policy is to invest at least 65% of its total
assets in municipal bonds issued by California or its political subdivisions
("California Bonds"), at least 80% of its total assets in insured bonds, and not
to invest in AMT-Subject Bonds. The remainder of the Insured California
Portfolio's total assets may be invested in uninsured California Bonds.
The California Portfolio invests in AMT-Subject Bonds issued by California and
its political subdivisions. As a matter of fundamental policy, at least 80% of
the California Portfolio's total assets normally will be invested in municipal
securities and at least 65% of its total assets normally will be invested in
AMT-Subject Bonds. The California Portfolio normally will invest at least 65% of
its total assets in California Bonds. As of October 31, 1996, 73% of the
California Portfolio's total net assets was invested in AMT-Subject Bonds.
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<PAGE>
The New York Portfolio invests in AMT-Subject Bonds issued by New York State and
its political subdivisions. As a matter of fundamental policy, at least 65% of
the New York Portfolio's total assets normally will be so invested. In addition,
the Portfolio will invest in at least 80% of its net assets in municipal
securities the interest on which is exempt from Federal income tax. As of
October 31, 1996, 76% of the Portfolio's total net assets was invested in AMT-
Subject Bonds.
As of September 30, 1996, 43% of the Arizona Portfolio's total net assets, 51%
of the Florida Portfolio's total net assets, 57% of the Massachusetts
Portfolio's total net assets, 25% of the Michigan Portfolio's total assets, 43%
of the Minnesota Portfolio's total net assets, 58% of the New Jersey Portfolio's
total net assets, 60% of the Ohio Portfolio's total net assets, 77% of the
Pennsylvania Portfolio's total net assets and 39% of the Virginia Portfolio's
total net assets were invested in AMT-Subject Bonds.
As a matter of fundamental policy, each of the Arizona, Florida, Massachusetts,
Michigan, Minnesota, New Jersey, Ohio, Pennsylvania and Virginia Portfolios will
normally invest (i) at least 65% of its total assets in municipal securities of
the named state, and (ii) at least 80% of its net assets in municipal securities
the interest on which is exempt from Federal income tax. In addition, the New
Jersey Portfolio will invest at least 80% of its net assets in securities the
interest on which is exempt from New Jersey personal income tax (i.e., New
Jersey municipal securities and obligations of the U.S. government, its agencies
and instrumentalities ("U.S. Government Securities")). Where consistent with
applicable state law, each State Portfolio may also invest in municipal
securities issued by governmental entities (for example, U.S. territories)
outside the named state if such municipal securities generate interest exempt
from Federal income tax and personal income tax (or the Florida intangible tax)
in the named state. When Alliance believes that municipal securities of the
named state that meet the Portfolio's quality standards are not available, any
State Portfolio may invest in securities whose interest payments are only
federally tax-exempt.
Municipal Securities--Further Information. The two principal classifications of
municipal securities are bonds and notes. Municipal bonds, which are intended to
meet longer-term capital needs, are typically classified as either "general
obligation" or "revenue" (or "special tax") bonds. General obligation bonds are
secured by the issuer's pledge of its full faith, credit and taxing power for
the payment of principal and interest. Revenue or special tax bonds are payable
only from the revenues derived from a particular facility or class of facilities
or, in some cases, from the proceeds of a special excise or other tax, but not
from general tax revenues. Each Portfolio may invest more than 25% of its assets
in tax-exempt private activity bonds, which in most cases are revenue bonds and
generally do not have the pledge of the credit of the issuer. The payment of the
principal and interest on such private activity bonds is dependent solely on the
ability of the user of the facilities financed by the bonds to meet its
financial obligations and the pledge, if any, of real and personal property so
financed as security for such payment. Each Portfolio may invest more than 25%
of its total assets in securities or obligations which are related in such a way
that business or political developments or changes affecting one such security
could also affect the others (for example, securities the interest on which is
paid from projects of a similar type.)
Municipal notes, which may be either "general obligation" or "revenue"
securities, are intended to fulfill short-term capital needs and generally have
original maturities not exceeding one year. They include tax anticipation notes,
revenue anticipation notes, bond anticipation notes, construction loan notes and
tax-exempt commercial paper.
The yields of municipal securities depend on, among other things, conditions in
the municipal bond market and fixed income markets generally, the size of a
particular offering, the maturity of the obligation, and the rating of the
issue. Normally, lower-rated municipal securities provide yields superior to
those of more highly rated securities, but involve greater risks. When the
spread between the yields of lower-rated obligations and those of more highly
rated issues is relatively narrow, a Portfolio may invest in the latter since
they will provide optimal yields with somewhat less risk.
The high tax-free yields sought by the Portfolios are generally obtainable from
medium-quality municipal securities rated A or Baa by Moody's Investors Service,
Inc. ("Moody's"), or A or BBB by Standard & Poor's Ratings Services (S&P), Duff
& Phelps Credit Rating Co. ("Duff & Phelps") or Fitch Investors Service, Inc.
("Fitch"). Each Portfolio may maintain up to 25% of its net assets, in municipal
securities rated below Baa by Moody's and below BBB by S&P, Duff & Phelps and
Fitch or, if non-rated, determined by Alliance to be of comparable quality. At
least 75% of the total assets of each Portfolio will be invested in municipal
securities rated at the time of purchase Baa or higher by Moody's or BBB or
higher by S&P, Duff & Phelps or Fitch. It is expected that no Portfolio will
retain a municipal security downgraded below Caa by Moody's and CCC by S&P, Duff
& Phelps and Fitch, or if unrated, determined by Alliance to have undergone
similar credit quality deterioration.
Non-rated municipal securities may be purchased by a Portfolio when Alliance
believes that the financial condition of the issuers of such obligations and the
protection afforded by their terms limit risk to a level comparable to that of
rated securities that are consistent with the Portfolio's investment policies.
During the fiscal year ended October 31, 1996, 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'
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<PAGE>
fiscal years ended in 1996, on a weighted average basis, the percentages of the
assets invested in securities rated in particular rating categories by S&P or,
if not rated by S&P, considered by Alliance to be of equivalent quality to such
ratings, were as follows:
<TABLE>
<CAPTION>
Portfolio A and above BBB BB B
- ---------------------------------------------
<S> <C> <C> <C> <C>
National 74% 21% 5% --
Arizona 73 14 13 --
California 75 9 11 5%
Florida 60 17 23 --
Massachusetts 88 12 -- --
Michigan 95 5 -- --
Minnesota 70 17 13 --
New Jersey 85 15 -- --
New York 89 10 -- 1
Ohio 66 29 5 --
Pennsylvania 76 24 -- --
Virginia 82 -- 18 --
</TABLE>
Each Portfolio may invest up to 35% of its total assets in zero coupon municipal
securities. Each Portfolio also may invest in municipal securities that have
fixed, variable, floating or inverse floating rates of interest. See "Additional
Investment Practices--Zero Coupon Securities" and "--Variable, Floating and
Inverse Floating Rate Investments." Each Portfolio normally will invest at least
65% of its total assets in income-producing securities (including zero coupon
securities).
Insurance Feature of the Insured National and Insured California Portfolios. The
Insured National and Insured California Portfolios normally will invest at least
65% and 80%, respectively, of their total assets in insured securities. At the
time of purchase by a Portfolio, insured securities are either (i) insured under
an insurance policy that relates to the specific municipal security in question
(a "Specific Issue Insurance Policy") or (ii) insured under a Mutual Fund
Insurance Policy issued to the Portfolio's Fund by an appropriate insurer. If a
municipal security is already covered by a Specific Issue Insurance Policy when
acquired by the Portfolio, then coverage will not be duplicated by a Mutual Fund
Insurance Policy. Based upon the expected composition of each of the Insured
National and Insured California Portfolios, Alliance estimates that the annual
premiums for a Mutual Fund Insurance Policy and/or Special Issue Insurance
Policy will range from .12 of 1% to .75 of 1% of the average net assets of each
Portfolio. Although the insurance feature reduces certain financial risks, the
premiums for a Mutual Fund Insurance Policy, and for many Specific Issue
Insurance Policies, which are paid from each of the Insured National and Insured
California Portfolio's assets, will reduce each Portfolio's current yield.
Insurance is not a substitute for the basic credit of an issuer, but supplements
the existing credit and provides additional security therefor. While insurance
coverage for municipal securities held by the Insured National and Insured
California Portfolios reduces credit risk by insuring that the Portfolios will
receive payment of principal and interest, it does not protect against market
fluctuations caused by changes in interest rates or other factors.
The Insured National and Insured California Portfolios may obtain insurance on
their municipal bonds or purchase insured municipal bonds covered by policies
issued by any insurer having a claims-paying ability rated AA by S&P or Aaa by
Moody's. Alliance is familiar with five such insurers, Municipal Bond Investors
Assurance Corporation ("MBIA"), Financial Guaranty Insurance Company ("FGIC"),
AMBAC Indemnity Corporation ("AMBAC"), Financial Security Assurance Inc. ("FSA")
and Asset Guaranty. S&P has rated AAA the claims-paying ability of MBIA, FGIC,
AMBAC, FSA and AA the claims paying ability of Asset Guaranty and the municipal
bonds insured by these organizations. Further information with respect to MBIA,
FGIC, AMBAC, FSA and Asset Guaranty is provided in the Statement of Additional
Information of Alliance Municipal Income Fund, Inc.
ADDITIONAL INVESTMENT PRACTICES
Some or all of the Portfolios may engage in the following investment practices
to the extent described in this Prospectus. See the Statement of Additional
Information of each Fund for a further discussion of the uses, risks and costs
of engaging in these practices.
Derivatives. The Portfolios may use derivatives in furtherance of their
investment objectives. Derivatives are financial contracts whose value depends
on, or is derived from, the value of an underlying asset, reference rate or
index. These assets, rates, and indices may include bonds, stocks, mortgages,
commodities, interest rates, bond indices and stock indices. Derivatives can be
used to earn income or protect against risk, or both. For example, one party
with unwanted risk may agree to pass that risk to another party who is willing
to accept the risk, the second party being motivated, for example, by the desire
either to earn income in the form of a fee or premium from the first party, or
to reduce its own unwanted risk by attempting to pass all or part of that risk
to the first party.
Derivatives can be used by investors such as the Portfolios to earn income and
enhance returns, to hedge or adjust the risk profile of an investment portfolio,
and in place of more traditional direct investments. Each of the Portfolios is
permitted to use derivatives for one or more of these purposes, although most of
the Portfolios generally use derivatives primarily as direct investments in
order to enhance yields and broaden portfolio diversification. Each of these
uses entails greater risk than if derivatives were used solely for hedging
purposes. Derivatives are a valuable tool which, when used properly, can provide
significant benefit to Portfolio shareholders. A Portfolio may take a
significant position in those derivatives that are within its investment
policies if, in Alliance's judgement, this represents the most effective
response to current or anticipated market conditions.
Derivatives may be (i) standardized, exchange-traded contracts or (ii)
customized, privately negotiated contracts. Exchange-traded derivatives tend to
be more liquid and subject to less credit risk than those that are privately
negotiated.
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<PAGE>
There are four principal types of derivative instruments--options, futures,
forwards and swaps--from which virtually any type of derivative transaction can
be created.
. Options--An option, which may be standardized and exchange-traded, or
customized and privately negotiated, is an agreement that, for a premium
payment or fee, gives the option holder (the buyer) the right but not the
obligation to buy or sell the underlying asset (or settle for cash an
amount based on an underlying asset, rate or index) at a specified price
(the exercise price) during a period of time or on a specified date. A call
option entitles the holder to purchase, while a put option entitles the
holder to sell, the underlying asset (or settle for cash an amount based on
an underlying asset, rate or index). Likewise, when an option is exercised
the writer of the option would be obligated to sell (in the case of a call
option) or to purchase (in the case of a put option) the underlying asset
(or settle for cash an amount based on an underlying asset, rate or index).
. Futures--A futures contract is an agreement that obligates the buyer to buy
and the seller to sell a specified quantity of an underlying asset (or
settle for cash the value of a contract based on an underlying asset, rate
or index) at a specific price on the contract maturity date. Futures
contracts are standardized, exchange-traded instruments and are fungible
(i.e., considered to be perfect substitutes for each other). This
fungibility allows futures contracts to be readily offset or cancelled
through the acquisition of equal but opposite positions, which is the
primary method in which futures contracts are liquidated. A cash-settled
futures contract does not require physical delivery of the underlying asset
but instead is settled for cash equal to the difference between the values
of the contract on the date it is entered into and its maturity date.
. Forwards--A forward contract is an obligation by one party to buy, and the
other party to sell, a specific quantity of an underlying commodity or
other tangible asset for an agreed upon price at a future date. Forward
contracts are customized, privately negotiated agreements designed to
satisfy the objectives of each party. A forward contract usually results in
the delivery of the underlying asset upon maturity of the contract in
return for the agreed upon payment.
. Swaps--A swap is a customized, privately negotiated agreement that
obligates two parties to exchange a series of cash flows at specified
intervals (payment dates) based upon or calculated by reference to changes
in specified prices or rates (e.g., interest rates in the case of interest
rate swaps) for a specified amount of an underlying asset (the "notional"
principal amount). The payment flows are netted against each other, with
the difference being paid by one party to the other. The notional principal
amount is used solely to calculate the payment streams but is not
exchanged.
Debt instruments that incorporate one or more of these building blocks for the
purpose of determining the principal amount of and/or rate of interest payable
on the debt instruments are often referred to as "structured securities."
Examples of this type of structured security include certain securities
described below under "Variable, Floating and Inverse Floating Rate
Instruments."
While the judicious use of derivatives by highly experienced investment managers
such as Alliance can be quite beneficial, derivatives also involve risks
different from, and, in certain cases, greater than, the risks presented by more
traditional investments. Following is a general discussion of important risk
factors and issues concerning the use of derivatives that investors should
understand before investing in a Portfolio.
. Market Risk--This is the general risk attendant to all investments that the
value of a particular investment will change in a way detrimental to the
Portfolio's interest.
. Management Risk--Derivative products are highly specialized instruments
that require investment techniques and risk analyses different from those
associated with stocks and bonds. The use of a derivative requires an
understanding not only of the underlying instrument but also of the
derivative itself, without the benefit of observing the performance of the
derivative under all possible market conditions. In particular, the use and
complexity of derivatives require the maintenance of adequate controls to
monitor the transactions entered into, the ability to assess the risk that
a derivative adds to a Portfolio's portfolio and the ability to forecast
price and interest rate movements correctly.
. Credit Risk--This is the risk that a loss may be sustained by a Portfolio
as a result of the failure of another party to a derivative (usually
referred to as a "counterparty") to comply with the terms of the derivative
contract. The credit risk for exchange-traded derivatives is generally less
than for privately negotiated derivatives, since the clearing house, which
is the issuer or counterparty to each exchange-traded derivative, provides
a guarantee of performance. This guarantee is supported by a daily payment
system (i.e., margin requirements) operated by the clearing house in order
to reduce overall credit risk. For privately negotiated derivatives, there
is no similar clearing agency guarantee. Therefore, the Portfolios consider
the creditworthiness of each counterparty to a privately negotiated
derivative in evaluating potential credit risk.
. Liquidity Risk--Liquidity risk exists when a particular instrument is
difficult to purchase or sell. If a derivative transaction is particularly
large or if the relevant market is illiquid (as is the case with many
privately negotiated derivatives), it may not be possible to initiate a
transaction or liquidate a position at an advantageous price.
. Leverage Risk--Since many derivatives have a leverage component, adverse
changes in the value or level of the underlying asset, rate or index can
result in a loss substantially greater than the amount invested in the
derivative itself. In the case of swaps, the risk of loss
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<PAGE>
generally is related to a notional principal amount, even if the parties
have not made any initial investment. Certain derivatives have the
potential for unlimited loss, regardless of the size of the initial
investment.
. OTHER RISKS--Other risks in using derivatives include the risk of
mispricing or improper valuation of derivatives and the inability of
derivatives to correlate perfectly with underlying assets, rates and
indices. Many derivatives, in particular privately negotiated derivatives,
are complex and often valued subjectively. Improper valuations can result
in increased cash payment requirements to counterparties or a loss of value
to a Portfolio. Derivatives do not always perfectly or even highly
correlate or track the value of the assets, rates or indices they are
designed to closely track. Consequently, a Portfolio's use of derivatives
may not always be an effective means of, and sometimes could be
counterproductive to, furthering the Portfolio's investment objective.
Derivatives Used by the Portfolios. Following is a description of specific
derivatives currently used by one or more of the Portfolios.
Options on Municipal and U.S. Government Securities. In an effort to increase
current income and to reduce fluctuations in net asset value, the Portfolios
intend to write covered put and call options and purchase put and call options
on municipal securities and U.S. Government securities that are traded on U.S.
exchanges. There are no specific limitations on the writing and purchasing of
options by the Portfolios. In purchasing an option on securities, a Portfolio
would be in a position to realize a gain if, during the option period, the price
of the underlying securities increased (in the case of a call) or decreased (in
the case of a put) by an amount in excess of the premium paid; otherwise the
Portfolio would experience a loss not greater than the premium paid for the
option. Thus, a Portfolio would realize a loss if the price of the underlying
security declined or remained the same (in the case of a call) or increased or
remained the same (in the case of a put) or otherwise did not increase (in the
case of a put) or decrease (in the case of a call) by more than the amount of
the premium. If a put or call option purchased by a Portfolio were permitted to
expire without being sold or exercised, its premium would represent a loss to
the Portfolio.
A Portfolio may write a put or call option in return for a premium, which is
retained by the Portfolio whether or not the option is exercised. Except with
respect to uncovered call options written for cross-hedging purposes, none of
the Portfolios will write uncovered call or put options. A call option written
by a Portfolio is "covered" if the Portfolio owns the underlying security, has
an absolute and immediate right to acquire that security upon conversion or
exchange of another security it holds, or holds a call option on the underlying
security with an exercise price equal to or less than that of the call option it
has written. A put option written by a Portfolio is covered if the Portfolio
holds a put option on the underlying securities with an exercise price equal to
or greater than that of the put option it has written.
The risk involved in writing an uncovered put option is that there could be a
decrease in the market value of the underlying securities. If this occurred, a
Portfolio could be obligated to purchase the underlying security at a higher
price than its current market value. Conversely, the risk involved in writing an
uncovered call option is that there could be an increase in the market value of
the underlying security, and a Portfolio could be obligated to acquire the
underlying security at its current price and sell it at a lower price. The risk
of loss from writing an uncovered put option is limited to the exercise price of
the option, whereas the risk of loss from writing an uncovered call option is
potentially unlimited.
A Portfolio may write a call option on a security that it does not own in order
to hedge against a decline in the value of a security that it owns or has the
right to acquire, a technique referred to as "cross-hedging." A Portfolio would
write a call option for cross-hedging purposes, instead of writing a covered
call option, when the premium to be received from the cross-hedge transaction
exceeds that to be received from writing a covered call option, while at the
same time achieving the desired hedge. The correlation risk involved in cross-
hedging may be greater than the correlation risk involved from other hedging
strategies.
The Portfolios may purchase or write privately negotiated options on securities.
A Portfolio that purchases or writes privately negotiated options on securities
will effect such transactions only with investment dealers and other financial
institutions (such as commercial banks or savings and loan institutions) deemed
creditworthy by Alliance, and Alliance has adopted procedures for monitoring the
creditworthiness of such counterparties. Privately negotiated options purchased
or written by a Portfolio may be illiquid, and it may not be possible for the
Portfolio to effect a closing transaction at an advantageous time. See "Illiquid
Securities" below.
Futures Contracts and Options on Futures Contracts. Futures contracts that a
Portfolio may buy and sell may include futures contracts on municipal securities
or U.S. Government Securities and contracts based on any index of municipal
securities or U.S. Government securities.
Options on futures contracts are options that call for the delivery upon
exercise of futures contracts. Options on futures contracts written or purchased
by a Portfolio will be traded on U.S. exchanges and will be used only for
hedging purposes.
A Portfolio will not enter into a futures contract or option on a futures
contract if immediately thereafter the market values of the outstanding futures
contracts of the Portfolio and the futures contracts subject to outstanding
options written by the Portfolio would exceed 50% of its total assets.
Forward Commitments. Each Portfolio may purchase or sell municipal securities on
a forward commitment basis. Forward commitments are forward contracts for the
purchase or sale of securities, including purchases on a "when-issued" basis or
purchases or sales on a "delayed delivery" basis. In some
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<PAGE>
cases, a forward commitment may be conditioned upon the occurrence of a
subsequent event, such as approval and consummation of a merger, corporate
reorganization or debt restructuring or approval of a proposed financing by
appropriate authorities (i.e., a "when, as and if issued" trade).
When forward commitments with respect to fixed-income securities are negotiated,
the price, which is generally expressed in yield terms, is fixed at the time the
commitment is made, but payment for and delivery of the securities take place at
a later date. Normally, the settlement date occurs within two months after the
transaction, but settlements beyond two months may be negotiated. Securities
purchased or sold under a forward commitment are subject to market fluctuation,
and no interest or dividends accrue to the purchaser prior to the settlement
date. At the time a Portfolio enters into a forward commitment, it records the
transaction and thereafter reflects the value of the security purchased or, if a
sale, the proceeds to be received, in determining its net asset value. Any
unrealized appreciation or depreciation reflected in such valuation would be
canceled if the required conditions did not occur and the trade were canceled.
The use of forward commitments helps a Portfolio to protect against anticipated
changes in interest rates and prices. For instance, in periods of rising
interest rates and falling bond prices, a Portfolio might sell securities in its
portfolio on a forward commitment basis to limit its exposure to falling bond
prices. In periods of falling interest rates and rising bond prices, a Portfolio
might sell a security in its portfolio and purchase the same or a similar
security on a when-issued or forward commitment basis, thereby obtaining the
benefit of currently higher cash yields. No forward commitments will be made by
a Portfolio if, as a result, the Portfolio's aggregate forward commitments under
such transactions would be more than 20% of its total assets.
A Portfolio's right to receive or deliver a security under a forward commitment
may be sold prior to the settlement date. The Portfolios enter into forward
commitments, however, only with the intention of actually receiving securities
or delivering them, as the case may be. If a Portfolio, however, chooses to
dispose of the right to acquire a when-issued security prior to its acquisition
or dispose of its right to deliver or receive against a forward commitment, it
may incur a gain or loss.
Interest Rate Transactions (Swaps, Caps and Floors). Each Portfolio may enter
into interest rate swap, cap or floor transactions primarily for hedging
purposes, which may include preserving a return or spread on a particular
investment or portion of its portfolio or protecting against an increase in the
price of securities the Portfolio anticipates purchasing at a later date. The
Portfolios do not intend to use these transactions in a speculative manner.
Interest rate swaps involve the exchange by a Portfolio with another party of
their respective commitments to pay or receive interest (e.g., an exchange of
floating rate payments for fixed rate payments) computed based on a
contractually-based principal (or "notional") amount. Interest rate swaps are
entered into on a net basis (i.e., the two payment streams are netted out, with
the Portfolio receiving or paying, as the case may be, only the net amount of
the two payments). Interest rate caps and floors are similar to options in that
the purchase of an interest rate cap or floor entitles the purchaser, to the
extent that a specified index exceeds (in the case of a cap) or falls below (in
the case of a floor) a predetermined interest rate, to receive payments of
interest on a notional amount from the party selling the interest rate cap or
floor. A Portfolio may enter into interest rate swaps, caps and floors on either
an asset-based or liability-based basis, depending upon whether it is hedging
its assets or liabilities.
There is no limit on the amount of interest rate transactions that may be
entered into by a Portfolio that is permitted to enter into such transactions. A
Portfolio will not enter into an interest rate swap, cap or floor transaction
unless the unsecured senior debt or the claims-paying ability of the other party
thereto is then rated in the highest rating category of at least one nationally
recognized rating organization.
The swap market has grown substantially in recent years, with a large number of
banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. As a result, the swap market has
become well established and relatively liquid. Caps and floors are less liquid
than swaps. These transactions do not involve the delivery of securities or
other underlying assets or principal. Accordingly, unless there is a
counterparty default, the risk of loss to a Portfolio from interest rate
transactions is limited to the net amount of interest payments that the
Portfolio is contractually obligated to make.
Zero Coupon Securities. Zero coupon securities are debt securities that have
been issued without interest coupons or stripped of their unmatured interest
coupons, and include receipts or certificates representing interests in such
stripped debt obligations and coupons. Such a security pays no interest to its
holder during its life. Its value to an investor consists of the difference
between its face value at the time of maturity and the price for which it was
acquired, which is generally an amount significantly less than its face value.
Such securities usually trade at a deep discount from their face or par value
and are subject to greater fluctuations in market value in response to changing
interest rates than debt obligations of comparable maturities and credit quality
that make current distributions of interest. On the other hand, because there
are no periodic interest payments to be reinvested prior to maturity, these
securities eliminate reinvestment risk and "lock in" a rate of return to
maturity.
Current federal tax law requires that a holder (such as a Portfolio) of a zero
coupon security accrue a portion of the discount at which the security was
purchased as income each year even though the holder receives no interest
payment in cash on the security during the year. As a result, in order to make
the distributions necessary for a Portfolio not to be subject to federal income
or excise taxes, the Portfolio might be required to pay out as an income
distribution each year an amount, obtained by liquidation of portfolio
securities or borrowings if necessary, greater than the total amount of cash
that the Portfolio has actually received as interest during the year. Each
Portfolio believes, however, that it is highly unlikely
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that it would be necessary to liquidate portfolio securities or borrow money in
order to make such required distributions or to meet its investment objective.
For a discussion of the tax treatment of zero coupon Treasury securities, see
"Dividends, Distributions and Taxes--Zero Coupon Treasury Securities" in the
Statement of Additional Information of each Fund.
Variable, Floating and Inverse Floating Rate Instruments. Municipal securities
may have fixed, variable or floating rates of interest. Variable and floating
rate securities pay interest at rates that are adjusted periodically, according
to a specified formula. A "variable" interest rate adjusts at predetermined
intervals (e.g., daily, weekly or monthly), while a "floating" interest rate
adjusts whenever a specified benchmark rate (such as the bank prime lending
rate) changes.
A Portfolio may invest in fixed-income securities that pay interest at a coupon
rate equal to a base rate, plus additional interest for a certain period of time
if short-term interest rates rise above a predetermined level or "cap." The
amount of such an additional interest payment typically is calculated under a
formula based on a short-term interest rate index multiplied by a designated
factor.
Each Portfolio may invest in municipal securities, the interest rate on which
has been divided into two variable components, which when combined result in a
fixed interest rate. These are generally known as inverse floaters. Typically,
the first of the components (the "auction component") pays an interest rate that
is reset periodically through an auction process, while the second of the
components (the "residual component") pays a current residual interest rate
based on the difference between the total interest paid by the issuer on the
municipal securities and the auction rate paid on the auction component. A
Portfolio may purchase both auction and residual components. 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 in terms of market
value, such that the market values of inverse floaters will tend to decrease
more rapidly during periods of rising interest rates, and increase more rapidily
in periods of falling interest rates, than those of fixed rate municipal
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 buyer's money is
invested in the security. Such agreements permit a Portfolio to keep all of its
assets at work while retaining "overnight" flexibility in pursuit of investments
of a longer-term nature. A Portfolio requires continual maintenance of
collateral in an amount equal to, or in excess of, the resale price. If a vendor
defaults on its repurchase obligation, a Portfolio would suffer a loss to the
extent that the proceeds from the sale of the collateral were less than the
repurchase price. If a vendor goes bankrupt, a Portfolio might be delayed in, or
prevented from, selling the collateral for its benefit. There is no percentage
restriction on any Portfolio's ability to enter into repurchase agreements. The
Portfolios may enter into repurchase agreements with member banks of the Federal
Reserve System or "primary dealers" (as designated by the Federal Reserve Bank
of New York).
Illiquid Securities. Subject to any applicable fundamental investment policy,
each Portfolio may not maintain more than 15% of its net assets in illiquid
securities. These securities include, among others, securities for which there
is no readily available market, options purchased by a Portfolio over-the-
counter, the cover for such options and repurchase agreements not terminable
within seven days.
Because of the absence of a trading market for illiquid securities, a Portfolio
may not be able to realize their full value upon sale. With respect to each
Portfolio that may invest in such securities, Alliance will monitor their
illiquidity under the supervision of the Directors or Trustees of the Fund. To
the extent permitted by applicable law, Rule 144A securities will not be treated
as "illiquid" for purposes of the foregoing restriction so long as such
securities meet liquidity guidelines established by a Fund's Directors or
Trustees.
Defensive Position. Under normal circumstances, substantially all of the total
assets of each Portfolio will be invested in the types of municipal securities
described in "How The Portfolios Pursue Their Objective" above. However, when
business or financial conditions warrant, each Portfolio may assume a temporary
defensive position and invest without limit in other municipal securities that
are in all other respects consistent with the Portfolio's investment policies.
For temporary defensive purposes, each Portfolio may also invest without limit
in high-quality municipal notes, rated SP-2 or higher by S&P, MIG-2 (or VMIG-2)
or higher by Moody's, D-1 or higher by Duff & Phelps or FIN-2 or higher by
Fitch, or in taxable cash equivalents (limited, in the case of the Florida
Portfolio, to short-term U.S. Government Securities or repurchase agreements).
Portfolio Turnover. From time to time, the Portfolios may engage in active
short-term trading to benefit from yield disparities among different issues of
municipal securities, to seek short-term profits during periods of fluctuating
interest rates, or for other reasons. Such trading will increase a Portfolio's
rate of turnover and the incidence of short-term capital gain taxable as
ordinary income. Management anticipates that the annual turnover in each
Portfolio will not exceed 250%. An annual turnover rate of 200% occurs, for
example, when all of the securities in a Portfolio are replaced twice in a
period of one year. A high rate of portfolio turnover involves correspondingly
greater expenses than a lower rate, which expenses must be borne by a Portfolio
and its shareholders. However, the execution costs for municipal securities are
substantially less than those for equivalent dollar values of equity securities.
See "Dividends, Distributions and Taxes."
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<PAGE>
CERTAIN FUNDAMENTAL INVESTMENT POLICIES
Each Portfolio has adopted certain fundamental investment policies listed below,
which may not be changed without the approval of its shareholders. Additional
investment restrictions with respect to a Portfolio are set forth in the
Statements of Additional Information.
No Portfolio other than the Insured California Portfolio may: (i) invest more
than 5% of its total assets in the securities of any one issuer except the U.S.
Government, although with respect to 25% of the total assets of the National and
Insured National Portfolios and 50% of the total assets of the State Portfolios
(other than the Insured California Portfolio) each such Portfolio may invest in
any number of issuers; (ii) invest 25% or more of its total assets in the
securities of issuers conducting their principal business activities in any one
industry, provided that for purposes of this policy (a) there is no limitation
with respect to investments in municipal securities issued by governmental users
(including private activity bonds issued by governmental users), U.S. Government
Securities and (b) consumer finance companies, industrial finance companies and
gas, electric, water and telephone utility companies are each considered to be
separate industries (for purposes of this restriction, the Portfolio will regard
the entity with the primary responsibility for the payment of interest and
principal as the issuer); (iii) purchase more than 10% of any class of the
voting securities of any one issuer; (iv) have more than 5% of its assets
invested in repurchase agreements with the same dealer; (v) borrow money except
from banks for temporary or emergency purposes and then in amounts not exceeding
20% of its total assets; or (vi) in the case of the National, Insured National,
New York and California Portfolios, invest more than 10% of its total assets in
repurchase agreements not terminable within seven days (whether or not illiquid)
or other illiquid investments.
The Insured California Portfolio may not: (i) except when investing for
temporary defensive purposes, invest more than 35% of its total assets in
securities not covered by insurance which provides for the payment of principal
of and interest on such securities or invest more than 20% of its total assets
in securities the interest from which is subject to Federal income tax and
California personal income tax (there is no limit on the amount of securities
that may be insured by a single insurance company); (ii) invest more than 5% of
its total assets in the securities of any one issuer or invest in more than 10%
of the voting securities of any one issuer except that up to 50% of the Insured
California Portfolio's total assets may be invested without regard to this
limitation and except that this does not limit the amount of the Insured
California Portfolio's assets that may be invested in U.S. Government
Securities; (iii) invest more than 25% of its total assets in a single industry,
except that there is no limit on the amount of its assets which may be invested
in municipal securities issued by governments or political subdivisions thereof,
in a particular segment of the municipal securities market or (subject to (ii)
above) in U.S. Government Securities; (iv) invest more than 10% of its total
assets in repurchase agreements not terminable within seven days (whether or not
illiquid) or other illiquid investments; or (v) borrow money, except from banks
for temporary purposes and then in amounts not in excess of 10% of the value of
its total assets at the time of such borrowing; or mortgage, pledge or
hypothecate any assets except in connection with any such borrowing in amounts
not in excess of 15% of its total assets at the time of such borrowing.
RISK CONSIDERATIONS
Municipal Securities. The value of each Portfolio's shares will fluctuate with
the value of its investments. The value of each Portfolio's investments will
change as the general level of interest rates fluctuates. During periods of
falling interest rates, the values of a Portfolio's securities generally rise.
Conversely, during periods of rising interest rates, the values of a Portfolio's
securities generally decline.
In seeking to achieve a Portfolio's investment objective, there will be times,
such as during periods of rising interest rates, when depreciation and
realization of capital losses on securities in a Portfolio's portfolio will be
unavoidable. Moreover, medium- and lower-rated securities and non-rated
securities of comparable quality may be subject to wider fluctuations in yield
and market values than higher-rated securities under certain market conditions.
Such fluctuations after a security is acquired do not affect the cash income
received from that security but are reflected in the net asset value of a
Portfolio.
Securities Ratings. The ratings of securities by S&P, Moody's, Duff & Phelps and
Fitch are a generally accepted barometer of credit risk. They are, however,
subject to certain limitations from an investor's standpoint. The rating of an
issuer is heavily weighted by past developments and does not necessarily reflect
probable future conditions. There is frequently a lag between the time a rating
is assigned and the time it is updated. In addition, there may be varying
degrees of difference in credit risk of securities within each rating category.
Securities rated Aaa by Moody's and AAA by S&P, Duff & Phelps and Fitch are
considered to be of the highest quality; capacity to pay interest and repay
principal is extremely strong. Securities rated Aa by Moody's and AA by S&P,
Duff & Phelps and Fitch are considered to be high quality; capacity to repay
principal is considered very strong, although elements may exist that make risks
appear somewhat larger than exist with securities rated Aaa or AAA. Securities
rated A are considered by Moody's to possess adequate factors giving security to
principal and interest. S&P, Duff & Phelps and Fitch consider such securities to
have a strong capacity to pay interest and repay principal. Such securities are
more susceptible to adverse changes in economic conditions and circumstances
than higher-rated securities.
Securities rated Baa by Moody's and BBB by S&P, Duff & Phelps and Fitch are
considered to have an adequate capacity to pay interest and repay principal.
Such securities are
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<PAGE>
considered to have speculative characteristics and share some of the same
characteristics as lower-rated securities. Sustained periods of deteriorating
economic conditions or of rising interest rates are more likely to lead to a
weakening in the issuer's capacity to pay interest and repay principal than in
the case of higher-rated securities. Securities rated Ba by Moody's and BB by
S&P, Duff & Phelps and Fitch are considered to have speculative characteristics
with respect to capacity to pay interest and repay principal over time; their
future cannot be considered as well-assured. Securities rated B by Moody's, S&P,
Duff & Phelps and Fitch are considered to have highly speculative
characteristics with respect to capacity to pay interest and repay principal.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
Securities rated Caa by Moody's and CCC by S&P, Duff & Phelps and Fitch are of
poor standing and there is a present danger with respect to payment of principal
or interest. See the Statements of Additional Information for a description of
the ratings used by Moody's, S&P, Duff & Phelps and Fitch.
Investments in Lower-Rated Securities. Lower-rated securities, i.e., those rated
Ba and lower by Moody's or BB and lower by S&P, Duff & Phelps and Fitch
(commonly known as "junk bonds"), are subject to greater risk of loss of
principal and interest than higher rated securities. They are also generally
considered to be subject to greater market risk than higher-rated securities,
and the capacity of issuers of lower-rated securities to pay interest and repay
principal is more likely to weaken than is that of issuers of higher-rated
securities in times of deteriorating economic conditions or rising interest
rates. In addition, lower-rated securities may be more susceptible to real or
perceived adverse economic conditions than investment grade securities, although
the market values of securities rated below investment grade and comparable
unrated securities tend to react less to fluctuations in interest rate levels
than do those of higher-rated securities.
The market for lower-rated securities may be thinner and less active than that
for higher-rated securities, which can adversely affect the prices at which
these securities can be sold. To the extent that there is no established
secondary market for lower-rated securities, a Portfolio may experience
difficulty in valuing such securities and, in turn, the Portfolio's assets.
Alliance will try to reduce the risk inherent in investment in lower-rated
securities through credit analysis, diversification and attention to current
developments and trends in interest rates and economic and political conditions.
However, there can be no assurance that losses will not occur. Since the risk of
default is higher for lower-rated securities, Alliance's research and credit
analysis are a correspondingly more important aspect of its program for managing
a Portfolio's securities than would be the case if a Portfolio did not invest in
lower-rated securities.
Non-rated Securities. Non-rated securities will also be considered for
investment by a Portfolio when Alliance believes that the financial condition of
the issuers of such securities, or the protection afforded by the terms of the
securities themselves, limits the risk to the Portfolio to a degree comparable
to that of rated securities which are consistent with the Portfolio's objective
and policies.
Non-diversified Status. Each of the State Portfolios is a "non-diversified"
investment company, which means the Portfolio is not limited in the proportion
of its assets that may be invested in the securities of a single issuer. Because
each State Portfolio will normally invest solely or substantially in municipal
securities of a particular state, it is more susceptible than a geographically
diversified municipal securities portfolio to local risk factors. Such risks
arise from the financial condition of the state involved and its municipalities.
To the extent such state or local governmental entities are unable to meet their
financial obligations, the income derived by the State Portfolios, their ability
to preserve or realize appreciation of their portfolio assets and their
liquidity could be impaired. The Statements of Additional Information of the
Funds provide certain information about the particular states.
Each Portfolio, however, intends to conduct its operations so as to qualify to
be taxed as a "regulated investment company" for purposes of the Internal
Revenue Code, which will relieve the Portfolio of any liability for federal
income tax to the extent its earnings are distributed to shareholders. See
"Dividends, Distributions and Taxes" in the Statements of Additional
Information. To so qualify, among other requirements, each Portfolio will limit
its investments so that, at the close of each quarter of the taxable year, (i)
not more than 25% of the Portfolio's total assets will be invested in the
securities of a single issuer, and (ii) with respect to 50% of its total assets,
not more than 5% of its total assets will be invested in the securities of a
single issuer and the Portfolio will not own more than 10% of the outstanding
voting securities of any such single issuer. A Portfolio's investments in U.S.
Government securities are not subject to these limitations.
Purchase And Sale Of Shares
How To Buy Shares
You can purchase shares of any of the Portfolios through broker-dealers, banks
or other financial intermediaries, or directly through Alliance Fund
Distributors, Inc. ("AFD"), each Fund's principal underwriter. The minimum
initial investment in each Portfolio is $250. The minimum for subsequent
investments in each Portfolio is $50. Investments of $25 or more are allowed
under the automatic investment program in each Portfolio. Share certificates are
issued only upon request. Under certain conditions, the Funds may suspend
purchases of shares. See the Subscription Application and Statements of
Additional Information for more information. In the case of the State
Portfolios, each Portfolio is available only to residents of the indicated
state.
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<PAGE>
Existing shareholders may make subsequent purchases by electronic funds transfer
if they have completed the Telephone Transactions section of the Subscription
Application or the Shareholder Options form obtained from Alliance Fund
Services, Inc. ("AFS"), each Fund's registrar, transfer agent and dividend
disbursing agent. Telephone purchase orders can be made by calling (800) 221-
5672, may not exceed $500,000, must be received by the Fund by 3:00 p.m. Eastern
time on a Fund business day and will be made at the next day's net asset value
(less any applicable sales charge).
Each Portfolio offers three classes of shares, Class A, Class B and Class C. The
Funds may refuse any order to purchase shares. In this regard, the Funds reserve
the right to restrict purchases of Fund shares (including through exchanges)
when they appear to evidence a pattern of frequent purchases and sales made in
response to short-term considerations.
CLASS A SHARES -- INITIAL SALES CHARGE ALTERNATIVE
You can purchase Class A shares at net asset value plus an
initial sales charge, as follows:
<TABLE>
<CAPTION>
Initial Sales Charge
as % of Commission to
Net Amount as % of Dealer/Agent as %
Amount Purchased Invested Offering Price of Offering Price
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $100,000 4.44% 4.25% 4.00%
- ---------------------------------------------------------------------------
$100,000 to
less than $250,000 3.36 3.25 3.00
- ---------------------------------------------------------------------------
$250,000 to
less than $500,000 2.30 2.25 2.00
- ---------------------------------------------------------------------------
$500,000 to
less than $1,000,000 1.78 1.75 1.50
- ---------------------------------------------------------------------------
</TABLE>
On purchases of $1,000,000 or more, you pay no initial sales charge but may pay
a contingent deferred sales charge ("CDSC") equal to 1% of the lesser of net
asset value at the time of redemption or original cost if you redeem within one
year; Alliance may pay the dealer or agent a fee of up to 1% of the dollar
amount purchased. Certain purchases of Class A shares may qualify for reduced or
eliminated sales charges in accordance with a Fund's Combined Purchase
Privilege, Cumulative Quantity Discount, Statement of Intention, Privilege for
Certain Retirement Plans, Reinstatement Privilege and Sales at Net Asset Value
programs. Consult the Subscription Application and the Statements of Additional
Information.
CLASS B SHARES -- DEFERRED SALES CHARGE ALTERNATIVE
You can purchase Class B shares at net asset value without an initial sales
charge. However, you may pay a CDSC if you redeem shares within three years
after purchase. The amount of the CDSC (expressed as a percentage of the lesser
of the current net asset value or original cost) will vary according to the
number of years from the purchase of the Class B shares until the redemption of
those shares, as follows:
YEAR SINCE PURCHASE CDSC
- -------------------------
First 3%
Second 2%
Third 1%
Fourth None
Class B shares are subject to higher distribution fees than Class A shares for a
period of six years (at which time they convert to Class A shares). The higher
fees mean a higher expense ratio, so Class B shares pay correspondingly lower
dividends and may have a lower net asset value than Class A shares.
CLASS C SHARES -- ASSET-BASED SALES CHARGE ALTERNATIVE
You can purchase Class C shares without any initial sales charge. The Portfolio
will thus receive the full amount of your purchase, and, if you hold your shares
for one year or more, you will receive the entire net asset value of your shares
upon redemption. Class C shares incur higher distribution fees than Class A
shares and do not convert to any other class of shares of the Portfolio. The
higher fees mean a higher expense ratio, so Class C shares pay correspondingly
lower dividends and may have a lower net asset value than Class A shares.
Class C shares redeemed within one year of purchase will be subject to a CDSC
equal to 1% of the lesser of their original cost or net asset value at the time
of redemption.
APPLICATION OF THE CDSC
Shares obtained from dividend or distribution reinvestment are not subject to
the CDSC. The CDSC is deducted from the amount of the redemption and is paid to
AFD. The CDSC will be waived on redemptions of shares following the death or
disability of a shareholder, to meet the requirements of certain qualified
retirement plans or pursuant to a monthly, bimonthly or quarterly systematic
withdrawal plan. See the Statements of Additional Information.
HOW THE PORTFOLIOS VALUE THEIR SHARES
The net asset value of each Class of shares in a Portfolio is calculated by
dividing the value of the Portfolio's net assets allocable to that Class by the
outstanding shares of that Class. Shares are valued each day the New York Stock
Exchange (the "Exchange") is open as of the close of regular trading (currently
4:00 p.m. Eastern time). The securities in a Portfolio are valued at their
current market value determined on the basis of market quotations or, if such
quotations are not readily available, such other methods as the Fund's Directors
or Trustees believe would accurately reflect fair market value.
GENERAL
The decision as to which Class is more beneficial to you depends on the amount
and intended length of your investment. If you are making a large investment,
thus qualifying for a reduced sales charge, you might consider Class A shares.
If you are making a smaller investment, you might consider Class B shares
because 100% of your purchase is invested immediately. If you are unsure of the
length of your investment, you might consider Class C shares because there is no
initial sales charge and no CDSC as long as the shares are held for one year or
more. Consult your financial agent. Dealers and agents may receive differing
compensation for selling Class A, Class B or Class C shares. There is no size
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<PAGE>
limit on purchases of Class A shares. The maximum purchase of Class B shares is
$250,000. The maximum purchase of Class C shares is $5,000,000.
In addition to the discount or commission paid to dealers or agents, AFD from
time to time pays additional cash or other incentives to dealers or agents,
including 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.
HOW TO SELL SHARES
You may "redeem", i.e., sell your shares in a Portfolio to a Fund on any day the
Exchange is open, either directly or through your financial intermediary. The
price you will receive is the net asset value (less any applicable CDSC) next
calculated after the Fund receives your request in proper form. Proceeds
generally will be sent to you within seven days. However, for shares recently
purchased by check or electronic funds transfer, a Fund will not send proceeds
until it is reasonably satisfied that the check or electronic funds transfer has
been collected (which may take up to 15 days).
Selling Shares Through Your Broker
Your broker must receive your request before 4:00 p.m. Eastern time, and your
broker must transmit your request to the Fund by 5:00 p.m. Eastern time, for you
to receive that day's net asset value (less any applicable CDSC). Your broker is
responsible for furnishing all necessary documentation to the Funds, and may
charge you for this service.
Selling Shares Directly To A Fund
Send a signed letter of instruction or stock power form to AFS along with your
certificates, if any, that represent the shares you want to sell. For your
protection, signatures must be guaranteed by a bank, a member firm of a national
stock exchange or other eligible guarantor institution. Stock power forms are
available from your financial intermediary, AFS, and many commercial banks.
Additional documentation is required for the sale of shares by corporations,
intermediaries, fiduciaries and surviving joint owners. For details contact:
Alliance Fund Services
P.O. Box 1520
Secaucus, NJ 07096-1520
1-800-221-5672
Alternatively, a request for redemption of shares for which no stock
certificates have been issued can also be made by telephone to 800-221-5672.
Telephone redemption requests must be made by 4 p.m. Eastern time on a Fund
business day in order to receive that day's net asset value and, except for
certain omnibus accounts, may be made only once in any 30-day period. A
shareholder who has completed the Telephone Transactions section of the
Subscription Application, or the Shareholder Options form obtained from AFS, can
elect to have the proceeds of their redemption sent to their bank via an
electronic funds transfer. Proceeds of telephone redemptions also may be sent by
check to a shareholder's address of record. Redemption requests by electronic
funds transfer may not exceed $100,000 and redemption requests by check may not
exceed $50,000. Telephone redemption is not available for shares held in nominee
or "street name" accounts or retirement plan accounts or shares held by a
shareholder who has changed his or her address of record within the previous 30
calendar days.
General
The sale of shares is a taxable transaction for federal tax purposes. Under
unusual circumstances, a Fund may suspend redemptions or postpone payment for up
to seven days or longer, as permitted by federal securities law. The Funds
reserve the right to close an account that through redemption has remained below
$200 for 90 days. Shareholders will receive 60 days' written notice to increase
the account value before the account is closed.
During drastic economic or market developments, you might have difficulty in
reaching AFS by telephone, in which event you should issue written instructions
to AFS. AFS is not responsible for the authenticity of telephonic requests to
purchase, sell or exchange shares. AFS will employ reasonable procedures to
verify that telephone requests are genuine, and could be liable for losses
resulting from unauthorized transactions if it failed to do so. Dealers and
agents may charge a commission for handling telephonic requests. The telephone
service may be suspended or terminated at any time without notice.
SHAREHOLDER SERVICES
AFS offers a variety of shareholder services. For more information about these
services or your account, call AFS's toll-free number, 800-221-5672. Some
services are described in the attached Application. A shareholder's manual
explaining all available services will be provided upon request. To request a
shareholder manual, call 800-227-4618.
HOW TO EXCHANGE SHARES
You may exchange your shares of any Portfolio for shares of the same class of
other Alliance Mutual Funds (which include AFD Exchange Reserves, a money market
fund managed by Alliance). Exchanges of shares are made at the net asset values
next determined, without sales or service charges. Exchanges may be made by
telephone or written request. Telephone exchange request must be received by AFS
by 4:00 p.m. Eastern time on a Fund business day in order to receive that day's
net asset value.
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<PAGE>
Shares will continue to age without regard to exchanges for purposes of
determining the CDSC, if any, upon redemption and, in the case of Class B
shares, for the purposes of conversion to Class A shares. After an exchange,
your Class B shares will automatically convert to Class A shares in accordance
with the conversion schedule applicable to the Class B shares of the Alliance
Mutual Fund you originally purchased for cash ("original shares"). When
redemption occurs, the CDSC applicable to the original shares is applied.
Please read carefully the Prospectus of the mutual fund into which you are
exchanging before submitting the request. Call AFS at 800-221-5672 to exchange
uncertificated shares. An exchange is a taxable capital transaction for federal
tax purposes. The exchange service may be changed, suspended, or terminated on
60 days' written notice.
- --------------------------------------------------------------------------------
MANAGEMENT OF THE FUNDS
- --------------------------------------------------------------------------------
ADVISER
Alliance, which is a Delaware limited partnership with principal offices at 1345
Avenue of the Americas, New York, New York 10105, has been retained under an
advisory agreement (the "Advisory Agreement"), to provide investment advice and,
in general, to conduct the management and investment program of each Portfolio
of each Fund, subject to the general supervision and control of the Board of
Directors or Trustees of that Fund.
The employees of Alliance principally responsible for each Portfolio's
investment program are Mrs. Susan P. Keenan, Mr. David M. Dowden and Mr.
Terrance T. Hults. Mrs. Keenan has served in this capacity for each Portfolio
since it commenced operations. Messrs. Dowden and Hults have served in this
capacity for each Portfolio since 1994 and 1995, respectively. Mrs. Keenan is a
Senior Vice President of Alliance Capital Management Corporation ("ACMC"), with
which she has been associated since prior to 1990. Mr. Dowden is an Assistant
Vice President of ACMC with which he has been associated since 1994. Previously
he was an analyst in the Municipal Strategy Group at Merrill Lynch Capital
Markets. Mr. Hults has been an Assistant Vice President of ACMC since 1995.
Previously he was an associate and trader in the Municipal Derivative Products
department at Merrill Lynch Capital Markets.
Alliance is a leading international investment manager supervising client
accounts with assets as of September 30, 1996 totaling more than $173 billion
(of which approximately $59 billion represented the assets of investment
companies). Alliance's clients are primarily major corporate employee benefit
funds, public employee retirement systems, investment companies, foundations and
endowment funds. The 52 registered investment companies managed by Alliance
comprising 110 separate investment portfolios currently have over two million
shareholders. As of September 30, 1996, Alliance was retained as an investment
manager of employee benefit plan assets for 33 of the Fortune 100 companies.
ACMC, the sole general partner of, and the owner of a 1% general partnership
interest in, Alliance, is an indirect wholly-owned subsidiary of The Equitable
Life Assurance Society of the United States ("Equitable"), one of the largest
life insurance companies in the United States, which is a wholly-owned
subsidiary of The Equitable Companies Incorporated, a holding company controlled
by AXA, a French insurance holding company. Certain information concerning the
ownership and control of Equitable by AXA is set forth in the Statements of
Additional Information under "Management of the Fund."
DISTRIBUTION SERVICES AGREEMENTS
Rule 12b-1 adopted by the Securities and Exchange Commission (the "Commission")
under the 1940 Act permits an investment company to pay expenses associated with
the distribution of its shares in accordance with a duly adopted plan. Each Fund
has adopted a Rule 12b-1 plan (the "Plan") and has entered into a Distribution
Services Agreement (the "Agreement") with AFD. Pursuant to the Plan, each
Portfolio pays to AFD a Rule 12b-1 distribution services fee, which may not
exceed an annual rate of .30% of the Portfolio's aggregate average daily net
assets attributable to the Class A shares, 1.00% of the Portfolio's aggregate
average daily net assets attributable to the Class B shares and 1.00% of the
Portfolio's aggregate average daily net assets attributable to the Class C
shares, for distribution expenses. The Plans provide that a portion of the
distribution services fee in an amount not to exceed .25% of the aggregate
average daily net assets of each Portfolio attributable to each class of shares
constitutes a service fee used for personal service and/or the maintenance of
shareholder accounts.
The Plans provide that AFD will use the distribution services fee received from
a Portfolio in its entirety for payments (i) to compensate broker-dealers or
other persons for providing distribution assistance, (ii) to otherwise promote
the sale of shares of the Portfolio, and (iii) to compensate broker-dealers,
depository institutions and other financial intermediaries for providing
administrative, accounting and other services with respect to the Portfolio's
shareholders. In this regard, some payments under the Plans are used to
compensate financial intermediaries with trail or maintenance commissions in an
amount equal to .25%, annualized, with respect to Class A shares and Class B
shares, and 1.00%, annualized, with respect to Class C shares, of the assets
maintained in a Portfolio by their customers. Distribution services fees
received from the Portfolios with respect to Class A shares will not be used to
pay any interest expenses, carrying charges or other financing costs or
allocation of overhead of AFD. Distribution services fees received from the
Portfolios, with respect to Class B and Class C shares, may be used for these
purposes. The Plans also provide that Alliance may use its own resources to
finance the distribution of each Portfolio's shares.
The Portfolios are not obligated under the Plans to pay any distribution
services fee in excess of the amounts set forth above. With respect to Class A
shares of each Portfolio,
25
<PAGE>
distribution expenses accrued by AFD in one fiscal year may not be paid from
distribution services fees received from the Portfolio in subsequent fiscal
years.
AFD's compensation with respect to Class B and Class C shares under the Plans is
directly tied to its expenses incurred. Actual distribution expenses for Class B
and Class C shares for any given year, however, will probably exceed the
distribution services fees payable under the applicable Plan with respect to the
class involved and, in the case of Class B and Class C shares, payments received
from CDSCs. The excess will be carried forward by AFD and reimbursed from
distribution services fees payable under the Plan with respect to the class
involved and, in the case of Class B shares, payments subsequently received
through CDSCs, so long as the Plan and the Agreement are in effect.
Unreimbursed distribution expenses incurred as of the end of each Portfolio's
most recently completed fiscal year, and carried over for reimbursement in
future years in respect of the Class B and Class C shares for all Portfolios
were, as of that time, as follows:
<TABLE>
<CAPTION>
Amount of unreimbursed Distribution Expenses
Carried Over (as % of Class's Net Assets)
Class B Class C
<S> <C> <C> <C> <C>
National $3,752,255 (1.75%) $2,193,843 (2.28%)
Insured National $1,813,206 (3.48%) $ 789,090 (3.47%)
Arizona $ 574,137 (11.04%) $ 102,785 (14.48%)
California $4,465,745 (2.71%) $1,852,542 (2.04%)
Insured California $1,344,057 (5.03%) $ 479,829 (3.74%)
Florida $ 875,269 (3.94%) $ 884,271 (2.94%)
Massachusetts $ 461,771 (12.54%) $ 430,278 (9.53%)
Michigan $ 439,303 (12.36%) $ 513,896 (13.04%)
Minnesota $ 822,187 (9.92%) $ 533,757 (8.15%)
New Jersey $1,664,772 (4.26%) $ 550,787 (2.44%)
New York $2,914,342 (3.01%) $ 880,036 (2.55%)
Ohio $1,216,859 (4.80%) $ 641,860 (3.73%)
Pennsylvania $1,173,017 (3.85%) $ 559,425 (4.00%)
Virginia $ 575,512 (17.21%) $ 113,956 (17.75%)
</TABLE>
The Plans are in compliance with rules of the National Association of Securities
Dealers, Inc. which effectively limit the annual asset-based sales charges and
service fees that a mutual fund may pay on a class of shares to .75% and .25%,
respectively, of the average annual net assets attributable to that class. The
rules also limit the aggregate of all front-end, deferred and asset-based sales
charges imposed with respect to a class of shares by a mutual fund that also
charges a service fee to 6.25% of cumulative gross sales of shares of that
class, plus interest at the prime rate plus 1% per annum.
The Glass-Steagall Act and other applicable laws may limit the ability of a bank
or other depository institution to become an underwriter or distributor of
securities. However, in the opinion of the Funds' management, based on the
advice of counsel, these laws do not prohibit such depository institutions from
providing services for investment companies such as the administrative,
accounting and other services referred to in the Agreements. In the event that a
change in these laws prevented a bank from providing such services, it is
expected that other service arrangements would be made and that shareholders
would not be adversely affected. The State of Texas requires that shares of the
National and Insured National Portfolio may be sold in that state only by
dealers or other financial institutions that are registered there as broker-
dealers.
- --------------------------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS
- --------------------------------------------------------------------------------
AND TAXES
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS
Dividends on shares of a Portfolio will be declared on each Fund business day
from the Portfolio's net investment income. Dividends on shares for Saturdays,
Sundays and holidays will be declared on the previous business day. The Funds
pay dividends on shares of each Portfolio after the close of business on the
twentieth day of each month or, if such day is not a business day, the first
business day thereafter. At your election (which you may change at least 30 days
prior to the record date for a particular dividend or distribution), dividends
and distributions are paid in cash or reinvested without charge in additional
shares of the same class having an aggregate net asset value as of the payment
date of the dividend or distribution equal to the cash amount thereof.
If you receive an income dividend or capital gains distribution in cash, you
may, within 120 days following the date of its payment, reinvest the dividend or
distribution in additional shares of that Portfolio without charge by returning
to Alliance, with appropriate instructions, the check representing such dividend
or distribution. Thereafter, unless you otherwise specify, you will be deemed to
have elected to reinvest all subsequent dividends and distributions in shares of
that Portfolio.
There is no fixed dividend rate and there can be no assurance that a Portfolio
will pay any dividends. The amount of any dividend or distribution paid on
shares of a Portfolio must necessarily depend upon the realization of income and
capital gains from the Portfolio's investments.
TAXES
Generally. Each Portfolio intends to qualify for each taxable year to be taxed
as a regulated investment company under the Internal Revenue Code (the "Code")
and, as such, will not be liable for federal income and excise taxes on the
investment company taxable income and net capital gains distributed to its
shareholders.
Distributions to shareholders out of tax-exempt interest income earned by a
Portfolio are not subject to Federal income tax. However, under current tax law,
some individuals and corporations may be subject for Federal income tax purposes
to the AMT on distributions to shareholders out of income from the AMT-Subject
Bonds in which all Portfolios (other than the Insured National and Insured
California Portfolios) principally invest. Further, under current tax law,
certain corporate taxpayers may be subject to the AMT based on their "adjusted
current earnings." Distributions from a Portfolio that are excluded from gross
income and from AMT taxable income will be included in such corporation's
"adjusted current earnings" for purposes of computation of the AMT.
Distributions out of taxable interest, other investment income, and net realized
short-term capital gains are taxable to shareholders as
26
<PAGE>
ordinary income, and distributions to shareholders of net realized long-term
capital gains are taxable to shareholders as long-term capital gains
irrespective of the length of time a shareholder has held his or her Portfolio
shares. Since a Portfolio's investment income is derived from interest rather
than dividends, no portion of such distributions is eligible for the dividends-
received deduction available to corporations.
Interest on indebtedness incurred by shareholders to purchase or carry shares of
a Portfolio is not deductible for Federal income tax purposes. Further, persons
who are "substantial users" (or related persons) of facilities financed by AMT-
Subject Bonds should consult their tax advisers before purchasing shares of a
Portfolio.
If a shareholder holds shares for six months or less and during that time
receives a distribution taxable to such shareholder as long-term capital gain,
any loss realized on the sale of such shares during such six-month period would
be a long-term capital loss to the extent of such distribution. If a shareholder
holds shares for six months or less and during that time receives a distribution
of tax-exempt interest income, any loss realized on the sale of such shares
would be disallowed to the extent of such distribution.
Substantially all of the dividends paid by a Portfolio are anticipated to be
exempt from regular federal income taxes. Shareholders may be subject to state
and local taxes on distributions from a Portfolio, including distributions which
are exempt from federal income taxes. The Funds will report annually to
shareholders the percentage and source of interest earned by a Portfolio which
is exempt from federal income tax and, except in the case of the National and
Insured National Portfolios, relevant state and local personal income taxes,
and, in the case of the Florida Portfolio, the portion of the net asset value of
such Portfolio which is exempt from Florida intangible tax.
EACH INVESTOR SHOULD CONSULT HIS OR HER OWN TAX ADVISER TO DETERMINE THE TAX
STATUS, WITH REGARD TO HIS OR HER TAX SITUATION, OF DISTRIBUTIONS FROM THE
PORTFOLIOS.
Arizona Portfolio. It is anticipated that substantially all of the dividends
paid by the Portfolio will be exempt from the Arizona income tax imposed on
individuals, corporations, estates and trusts. Such dividends will be exempt
from Arizona income tax to the extent they are derived from Arizona municipal
securities and U.S. Government Securities. Arizona law does not permit a
deduction for interest paid or accrued on indebtedness incurred or continued to
purchase or carry obligations the interest of which is exempt from Arizona state
income taxes.
California and Insured California Portfolios. Distributions of interest income
by the California Portfolio and by the Insured California Portfolio, to the
extent derived from California tax-exempt obligations, will be exempt from
California personal income tax.
Florida Portfolio. Dividends paid by the Portfolio to individual Florida
shareholders will not be subject to Florida income tax, which is imposed only on
corporations. However, Florida currently imposes an intangible personal property
tax at the rate of $2.00 per $1,000 taxable value of certain securities, such as
shares of the Portfolio, and other intangible assets owned by Florida residents.
U.S. Government Securities and Florida municipal securities are exempt from this
intangible tax. It is anticipated that the Portfolio's shares will qualify for
exemption from the Florida intangible tax. In order to so qualify, the Portfolio
must, among other things, have its entire portfolio invested in U.S. Government
Securities and Florida municipal securities on December 31 of any year. Exempt-
interest dividends paid by the Portfolio to corporate shareholders will be
subject to Florida corporate income tax.
Massachusetts Portfolio. It is anticipated that substantially all of the
dividends paid by the Portfolio will be exempt from the Massachusetts personal
income tax. Such dividends will be exempt from Massachusetts personal income tax
to the extent attributable to interest from Massachusetts municipal securities
exempt from the Massachusetts personal income tax or U.S. Government Securities
and are so designated. Dividends designated as attributable to capital gains
will be subject to the Massachusetts personal income tax at capital gains tax
rates except to the extent designated as attributable to gains on certain
Massachusetts municipal securities. Dividends paid by the Portfolio to a
corporate shareholder will be subject to Massachusetts corporate excise tax.
Michigan Portfolio. It is anticipated that substantially all of the dividends
paid by the Portfolio will be exempt from Michigan income, intangibles and
single business taxes. Such dividends will be exempt from Michigan personal
income tax, the Michigan intangible personal property tax and the Michigan
single business tax to the extent that such distributions are derived from
Michigan municipal securities and U.S. Government Securities, and provided that
at least 50% of the total assets of the Portfolio consist of Michigan municipal
securities at the close of each quarter of the Fund's taxable year. To the
extent the distributions are not subject to Michigan income tax, they are not
subject to the uniform city income tax imposed by certain Michigan cities. For
Michigan income, intangibles and single business tax purposes, distributions
representing income derived by the Portfolio from sources other than Michigan
municipal securities and U.S. Government Securities will be included in Michigan
taxable income and will be included in the taxable bases of the Michigan single
business and intangibles taxes, except that distributions from capital gains
which are reinvested in Portfolio shares are exempt from intangibles taxes.
Minnesota Portfolio. It is anticipated that substantially all of the dividends
paid by the Portfolio to individuals will be exempt from Minnesota personal
income tax. However, at least 95% of the exempt-interest dividends paid by the
Portfolio during a Fund fiscal year must be derived from Minnesota municipal
securities in order for any portion of the exempt-interest dividends paid by the
Portfolio to be exempt from the Minnesota personal income tax. Under current
Minnesota tax law, some individuals may be subject to the Minnesota AMT on
distributions to shareholders out of the income from AMT-Subject Bonds in which
the Portfolio invests. Exempt-interest dividends paid by the Portfolio to
shareholders that are corporations are subject to Minnesota franchise tax.
27
<PAGE>
New Jersey Portfolio. It is anticipated that substantially all of the dividends
paid by the Portfolio to individuals will be exempt from New Jersey personal
income tax. In order to pass through tax-exempt interest for New Jersey personal
income tax purposes, the Portfolio must, among other things, invest only in
interest bearing obligations, obligations issued at a discount, and cash and
cash items including receivables and financial options, futures, forward
contracts and other similar financial instruments related to such obligations or
to bond indices. In addition, it must have not less than 80% of the aggregate
principal amount of its investments, excluding certain financial options and
similar financial instruments described above and cash and cash items, invested
in New Jersey municipal securities or U.S. Government Securities at the close of
each quarter of the tax year. Distributions attributable to gains from New
Jersey municipal securities also will be exempt from New Jersey personal income
tax, provided the Portfolio satisfies the above requirements. Exempt-interest
dividends paid by the Portfolio to a corporate shareholder will be subject to
New Jersey corporation business (franchise) tax and the New Jersey corporation
income tax.
New York Portfolio. Distributions of interest income by the Portfolio, to the
extent derived from New York State municipal securities, or from obligations
issued by the government of Puerto Rico or by its authority, will be exempt from
New York State and New York City personal income taxes.
Ohio Portfolio. Distributions of interest income and gain by the Portfolio, to
the extent such distributions are derived from Ohio municipal securities, will
be exempt from the Ohio personal income tax, Ohio school district income taxes
and Ohio municipal income taxes, and will not be includable in the net income
base of the Ohio corporate franchise tax; provided that at all times at least
50% of the value of the total assets of the Portfolio consists of Ohio municipal
securities or similar obligations of other states or their subdivisions. Shares
of the Portfolio will be included in a corporation's tax base for purposes of
computing the Ohio corporate franchise tax on a net worth basis.
Pennsylvania Portfolio. Dividends paid by the Portfolio will not be subject to
the Pennsylvania personal income tax or the Philadelphia School District
investment net income tax to the extent that the dividends are attributable to
interest received by the Portfolio from its investments in Pennsylvania
municipal securities or U.S. Government Securities. Exempt-interest dividends
paid by the Portfolio and dividends attributable to interest on U.S. Government
securities also are not subject to the Pennsylvania Corporate Net Income Tax.
Portfolio shares are not considered exempt assets for the purposes of
determining a corporation's capital stock value subject to the Pennsylvania
Capital Stock/Franchise Tax. Shares of the Portfolio also are exempt from
Pennsylvania county personal property taxes to the extent that the Portfolio
consists of Pennsylvania municipal securities or U.S. Government Securities.
Virginia Portfolio. Shareholders may be subject to state and local taxes on
distributions from the Portfolio, including distributions which are exempt from
Federal income taxes. It is anticipated that substantially all of the dividends
paid by the Portfolio will be exempt from Virginia income taxes. So long as the
Portfolio qualifies as a regulated investment company under the Code and at
least 50% of the value of the total assets of the Portfolio at the end of each
quarter of its taxable year consists of obligations whose interest is exempt
from Federal income taxes, dividends paid by the Portfolio will be exempt from
Virginia individual, estate, trust, and corporate income taxes to the extent
such distributions are either (i) exempt from regular Federal income tax and
attributable to interest on Virginia municipal securities or obligations issued
by Puerto Rico, the United States Virgin Islands, or Guam or (ii) attributable
to interest on obligations of the United States or any authority, commission or
instrumentality of the United States. As a general rule, distributions
attributable to gains of the Portfolio and gains recognized on the sale or other
disposition of shares of the Portfolio (including the redemption or exchange of
shares) will be subject to Virginia income taxes. Interest on indebtedness
incurred (directly or indirectly) by shareholders to purchase or carry shares of
the Portfolio generally will not be deductible for Virginia income tax purposes.
- --------------------------------------------------------------------------------
GENERAL INFORMATION
- --------------------------------------------------------------------------------
PORTFOLIO TRANSACTIONS
Consistent with the Conduct Rules of the National Association of Securities
Dealers, Inc., and subject to seeking best price and execution, a Fund may
consider sales of its shares of a Portfolio as a factor in the selection of
dealers to enter into portfolio transactions with the Funds.
ORGANIZATION
Alliance Municipal Income Fund, Inc. is a Maryland corporation organized on July
30, 1986. Alliance Municipal Income Fund II is a Massachusetts business trust
organized on April 2, 1993. It is anticipated that annual shareholder meetings
will not be held; shareholder meetings will be held only when required by
Federal or, in the case of Alliance Municipal Income Fund, Inc., state law.
Shareholders have available certain procedures for the removal of Directors or
Trustees.
A shareholder in a Portfolio will be entitled to share pro rata with other
holders of the same class of shares all dividends and distributions arising from
that Portfolio's assets and, upon redeeming shares, will receive the then
current net asset value of that Portfolio represented by the redeemed shares
less any applicable CDSC. The Funds are empowered to establish, without
shareholder approval, additional portfolios which may have different investment
objectives and additional classes of shares. If an additional portfolio or class
were established in a Fund, each share of the portfolio or class would normally
be entitled to one vote for all purposes. Generally, shares of each Fund vote
together as a single class on matters, such as the election of Directors or
Trustees, that affect each Portfolio in substantially the same manner. Class A,
Class B and Class C shares of a Portfolio have identical voting, dividend,
liquidation and other rights, except that
28
<PAGE>
each class bears its own distribution and transfer agency expenses. Each class
of shares votes separately with respect to a Fund's Rule 12b-1 plan and other
matters for which separate class voting is appropriate under applicable law.
Shares are freely transferable, are entitled to dividends as determined by the
Board of Directors or Trustees and, in liquidation of a Portfolio, are entitled
to receive the net assets of that Portfolio. Since this Prospectus sets forth
information about both Funds, it is theoretically possible that one Fund might
be liable for any materially inaccurate or incomplete disclosure in this
Prospectus concerning the other Fund. Based on the advice of counsel, however,
the Funds believe that the potential liability of each Fund with respect to the
disclosure in this Prospectus extends only to the disclosure relating to that
Fund. Certain additional matters relating to the organization of a Fund are
discussed in its Statement of Additional Information.
REGISTRAR, TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT
AFS, an indirect wholly-owned subsidiary of Alliance, located at 500 Plaza
Drive, Secaucus, New Jersey 07094, acts as the Funds' registrar, transfer agent
and dividend-disbursing agent for a fee based upon the number of shareholder
accounts maintained for the Funds. The transfer agency fee with respect to the
Class B shares will be higher than the transfer agency fee with respect to the
Class A shares or Class C shares.
PRINCIPAL UNDERWRITER
AFD, an indirect wholly-owned subsidiary of Alliance, located at 1345 Avenue of
the Americas, New York, New York 10105, is the Principal Underwriter of shares
of the Funds.
PERFORMANCE INFORMATION
From time to time, the Portfolios advertise their "yield" and "total return",
which are computed separately for Class A, Class B and Class C shares. A
Portfolio's yield for any 30-day (or one-month) period is computed by dividing
the net investment income per share earned during such period by the maximum
public offering price per share on the last day of the period, and then
annualizing such 30-day (or one-month) yield in accordance with a formula
prescribed by the Commission which provides for compounding on a semi-annual
basis. The Portfolios may also state a "taxable equivalent yield" that is
calculated by assuming that net investment income per share is increased by an
amount sufficient to offset the benefit of tax exemptions at the stated income
tax rate. The Portfolios may also state in sales literature an "actual
distribution rate" for each class which is computed in the same manner as yield
except that actual income dividends declared per share during the period in
question are substituted for net investment income per share.
The actual distribution rate is computed separately for Class A, Class B and
Class C shares. Advertisements of a Portfolio's total return disclose the
Portfolio's average annual compounded total return for the periods prescribed by
the Commission. A Portfolio's total return for each such period is computed by
finding, through the use of a formula prescribed by the Commission, the average
annual compounded rate of return over the period that would equate an assumed
initial amount invested to the value of the investment at the end of the period.
For purposes of computing total return, income dividends and capital gains
distributions paid on shares of a Portfolio are assumed to have been reinvested
when paid and the maximum sales charges applicable to purchases and redemptions
of the Portfolio's shares are assumed to have been paid. These advertisements
may quote performance rankings or ratings of the Portfolios by financial
publications or independent organizations such as Lipper Analytical Services,
Inc. and Morningstar, Inc. or compare a Portfolio's performance to various
indices.
ADDITIONAL INFORMATION
This Prospectus and the Statements of Additional Information, which have been
incorporated by reference herein, do not contain all the information set forth
in the Registration Statement filed by each Fund with the Commission under the
Securities Act. Copies of the Registration Statements may be obtained at a
reasonable charge from the Commission or may be examined, without charge, at the
offices of the Commission in Washington, D.C.
This prospectus does not constitute an offering in any state in which such
offering may not lawfully be made.
This prospectus is intended to constitute an offer by each Fund only of the
securities of which it is the issuer and is not intended to constitute an offer
by a Fund of the securities of the other Fund whose securities are also offered
by this prospectus. Neither Fund intends to make any representation as to the
accuracy or completeness of the disclosure in this prospectus relating to the
other Fund. See "General Information--Organization."
29
<PAGE>
<TABLE>
<CAPTION>
SUBSCRIPTION APPLICATION
- ------------------------------------------------------------------------------------------------------------------------------------
THE ALLIANCE MUNICIPAL INCOME PORTFOLIOS
(see instructions at the front of the application)
====================================================================================================================================
<S> <C>
[ ] INDIVIDUAL OR JOINT ACCOUNT
[ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ]
Owner's Name (First Name) (MI) (Last Name)
[ ][ ][ ][-][ ][ ][-][ ][ ][ ][ ]
Social Security Number (Required to open account)
[ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ]
Joint Owner's Name* (First Name) (MI) (Last Name)
* Joint Tenants with right of survivorship unless Alliance Fund Services is informed otherwise.
[ ] GIFT/TRANSFER TO A MINOR
[ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ]
Custodian - One Name Only (First Name) (MI) (Last Name)
[ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ]
Minor (First Name) (MI) (Last Name)
[ ][ ][ ][-][ ][ ][-][ ][ ][ ][ ]
Minor's Social Security Number (Required to open account) Under the State of________ (Minor's Residence)
Uniform Gifts/Transfer to Minor's Act
[ ] TRUST ACCOUNT
[ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ]
Name of Trustee
[ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ]
Name of Trust
[ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ]
Name of Trust (cont'd)
[ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ] [ ][ ][ ][ ][ ][ ][ ][ ][ ]
Trust Dated Tax ID or Social Security Number (Required to open account)
[ ] OTHER
[ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ]
Name of Corporation, Partnership, investment only retirement plan, or other Entity
[ ][ ][ ][ ][ ][ ][ ][ ][ ] [ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ]
Tax ID Number Trustee Name (Retirement Plans Only)
====================================================================================================================================
[ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ]
Street
[ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ]
City State Zip Code
[ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ]
If Non-U.S., Specify Country
[ ][ ][ ][-][ ][ ][ ][-][ ][ ][ ][ ] [ ][ ][ ][-][ ][ ][ ][-][ ][ ][ ][ ]
Daytime Phone Evening Phone
I am a: [ ] U.S. Citizen [ ] Non-Resident Alien [ ] Resident Alien [ ] Other
For Alliance Use Only
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
3. YOUR INITIAL INVESTMENT
- ------------------------------------------------------------------------------------------------------------------------------------
The minimum investment is $250 per fund. The maximum investment in Class B is $250,000; Class C is $5,000,000.
I hereby subscribe for shares of the following Alliance Municipal Income Fund Portfolio(s) and elect distribution options as
indicated.
<S> <C>
Dividend and Capital Gain Distribution Options: R Reinvestment distributions into my fund account.
- --------------------------
- ------------------------------------------ C Send my distributions in cash to the address I have provided in
BROKER/DEALER USE ONLY - -----------------------------
WIRE CONFIRM # Section 2. (Complete Section 4D for direct deposit to your bank
- ------------------------------------------ account. Complete Section 4E for payment to a third party.)
D Direct my distributions to another Alliance fund. Complete the
- ------------------------------------------ - ------------------------------------------------
appropriate portion of Section 4A to direct your distributions
(dividends and capital gains) to another Alliance Fund (the $250
minimum investment requirement applies to Funds into which
distributions are directed).
<CAPTION>
- ------------------------------------
CLASS OF SHARES
Make all checks payable to ------------------------------------------------------- DISTRIBUTIONS OPTIONS
Alliance Fund Services CONTINGENT *CIRCLE*
INITIAL SALES DEFERRED ASSET-BASED ---------------------
- ------------------------------------ CHARGE SALES CHARGE SALES CHARGE CAPITAL
ALLIANCE FUND NAME A B C DIVIDENDS GAINS
- ------------------------------------ ---------------- ------------------ ---------------- --------- ---------
<S> <C> <C> <C> <C> <C>
National Portfolio $ (84) $ (284) $ (384) R C D R C D
- ---------------------------------------------------------------------------------------------------------------------
Insured National Portfolio (86) (286) (386) R C D R C D
- ---------------------------------------------------------------------------------------------------------------------
Arizona Portfolio (114) (214) (314) R C D R C D
- ---------------------------------------------------------------------------------------------------------------------
California Portfolio (85) (285) (385) R C D R C D
- ---------------------------------------------------------------------------------------------------------------------
Insured California Portfolio (91) (291) (391) R C D R C D
- ---------------------------------------------------------------------------------------------------------------------
Florida Portfolio (65) (265) (365) R C D R C D
- ---------------------------------------------------------------------------------------------------------------------
Massachusetts Portfolio (115) (215) (315) R C D R C D
- ---------------------------------------------------------------------------------------------------------------------
Michigan Portfolio (117) (217) (317) R C D R C D
- ---------------------------------------------------------------------------------------------------------------------
Minnesota Portfolio (61) (261) (361) R C D R C D
- ---------------------------------------------------------------------------------------------------------------------
New Jersey Portfolio (69) (269) (369) R C D R C D
- ---------------------------------------------------------------------------------------------------------------------
New York Portfolio (83) (283) (383) R C D R C D
- ---------------------------------------------------------------------------------------------------------------------
Ohio Portfolio (80) (280) (380) R C D R C D
- ---------------------------------------------------------------------------------------------------------------------
Pennsylvania Portfolio (67) (267) (367) R C D R C D
- ---------------------------------------------------------------------------------------------------------------------
Virginia Portfolio (121) (221) (321) R C D R C D
- ---------------------------------------------------------------------------------------------------------------------
R C D R C D
- ---------------------------------------------------------------------------------------------------------------------
R C D R C D
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT $ $ $
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
- --------------------------------
SIGNATURE CARD NAME OF FUND: For Class A and C only:
- -------------------------------- -----------------------------------------
<S> <C>
CLASS A OR CLASS C ACCOUNT #
(if known) To apply for checkwriting privileges, please
- ------------------------------------------------------------------------------ complete the signature card to the left. The
ACCOUNT NAME(S) AS REGISTERED minimum amount any check can be written
for is $500. The checkwriting privilege is not
- ------------------------------------------------------------------------------ transferable to any other fund account. If the
SOCIAL SECURITY NUMBER account registration is changed, the check
writing privilege terminates and must be reap-
- ------------------------------------------------------------------------------ plied for.
AUTHORIZED SIGNATURE(S) -- for joint accounts, all owners, or their legal
representatives, must sign this card. Checkwriting may result in the imposition of a
contingent deferred sales charge against your
1. ........................................................................ account.
2. ........................................................................
3. ........................................................................
- ------------------------------------------------------------------------------
Check One Box [ ] All the above signatures are required on checks written
against this account.
[ ] Any one signature is acceptable on checks written against
this account.
[ ] A combination of signatures is required (specify number).
Subject to conditions printed on reverse side.
STATE STREET BANK AND TRUST COMPANY
</TABLE>
<PAGE>
MY SOCIAL SECURITY (TAX IDENTIFICATION) NUMBER IS: [ ][ ][ ][ ][ ][ ][ ][ ][ ]
- --------------------------------------------------------------------------------
4. YOUR SHAREHOLDER OPTIONS
- --------------------------------------------------------------------------------
- -----------------------------------
A. AUTOMATIC INVESTMENT PLANS (AIP)
- -----------------------------------
[ ] WITHDRAW FROM MY BANK ACCOUNT
I authorize Alliance to draw on my bank account for investment in my fund
account(s) as indicated below (Complete Section 4D also for the bank account you
wish to use).
<TABLE>
<CAPTION>
Monthly Dollar Amount Day of Withdrawal
Fund Name ($25 minimum) (1st thru 31st) Circle "all" or applicable months
<S> <C> <C> <C>
All J F M A M J J A S O N D
- ------------------------------ ------------------------------- ------------------------------ ---------------------------------
All J F M A M J J A S O N D
- ------------------------------ ------------------------------- ------------------------------ ---------------------------------
All J F M A M J J A S O N D
- ------------------------------ ------------------------------- ------------------------------ ---------------------------------
All J F M A M J J A S O N D
- ------------------------------ ------------------------------- ------------------------------ ---------------------------------
</TABLE>
Your bank must be a member of the National Automated Clearing House Association
(NACHA).
[ ] DIRECT MY DISTRIBUTIONS
As indicated in Section 3, I would like my dividends and/or capital gains
directed to another Alliance fund within the same class of shares.
<TABLE>
<CAPTION>
"From" Fund Name "From" Fund Account # "To" Fund Name "To" Fund Account #
(if existing) (if existing)
<S> <C> <C> <C>
[ ] New
[ ] Existing
- ------------------------------ ------------------------------- ------------------------------ ---------------------------------
[ ] New
[ ] Existing
- ------------------------------ ------------------------------- ------------------------------ ---------------------------------
[ ] New
[ ] Existing
- ------------------------------ ------------------------------- ------------------------------ ---------------------------------
[ ] New
[ ] Existing
- ------------------------------ ------------------------------- ------------------------------ ---------------------------------
</TABLE>
[ ] EXCHANGE SHARES MONTHLY
I authorize Alliance to transact monthly exchanges within the same class of
shares between my fund accounts as listed below.
<TABLE>
<CAPTION>
"From" Fund Account # Dollar Amount Day of Exchange/**/ "To" Fund Account #
"From" Fund Name (if existing) ($25 minimum) (1st thru 31st) "To" Fund Name (if existing)
<S> <C> <C> <C> <C> <C>
[ ] New
[ ] Existing
- -------------------- ----------------------- -------------- -------------------- ----------------------- ----------------------
[ ] New
[ ] Existing
- -------------------- ----------------------- -------------- -------------------- ----------------------- ----------------------
[ ] New
[ ] Existing
- -------------------- ----------------------- -------------- -------------------- ----------------------- ----------------------
[ ] New
[ ] Existing
- -------------------- ----------------------- -------------- -------------------- ----------------------- ----------------------
</TABLE>
/**/ Shares exchanged will be redeemed at the net asset value on the "Day of
Exchange" (If the "Day of Exchange" is not a fund business day, the
exchange transaction will be processed on the next fund business day). The
exchange privilege is not available if stock certificates have been issued.
- ------------------------------------
B. SYSTEMATIC WITHDRAWAL PLANS (SWP)
- ------------------------------------
In order to establish a SWP, you must reinvest all dividends and capital gains
and own or purchase shares of the Fund having a current net asset value of at
least:
. $10,000 for monthly payments, . $5,000 for bi-monthly payments,
. $4,000 for quarterly or less frequent payments
Your bank must be a member of the National Automated Clearing House Association
(NACHA) in order for you to receive SWP proceeds directly into your checking
account.
[ ] I authorize Alliance to transact periodic redemptions from my fund account
and send the proceeds to me as indicated below.
<TABLE>
<CAPTION>
Fund Name and Class of Shares Dollar Amount ($50 minimum) Circle "all" or applicable months
<S> <C> <C>
All J F M A M J J A S O N D
- ------------------------------------------------------ --------------------------------------- ---------------------------------
All J F M A M J J A S O N D
- ------------------------------------------------------ --------------------------------------- ---------------------------------
All J F M A M J J A S O N D
- ------------------------------------------------------ --------------------------------------- ---------------------------------
All J F M A M J J A S O N D
- ------------------------------------------------------ --------------------------------------- ---------------------------------
</TABLE>
PLEASE SEND MY SWP PROCEEDS TO:
[ ] MY CHECKING ACCOUNT (via EFT)-
(1st - 31st)
I would like to have these payments occur on or about the [ ]
of the months circled above. (Complete Section 4D)
[ ] MY ADDRESS OF RECORD (via CHECK)
[ ] THE PAYEE AND ADDRESS SPECIFIED IN SECTION 4E (via CHECK)
60088GEN-MIApp
<PAGE>
- ------------------------------------
C. PURCHASES AND REDEMPTIONS VIA EFT
- ------------------------------------
You can call our toll-free number 1-800-221-5672 and instruct Alliance Fund
Services, Inc. in a recorded conversation to purchase, redeem or exchange
shares for your account. Purchase and redemption requests will be processed
via electronic funds transfer (EFT) to and from your bank account.
Instructions: . Review the information in the Prospectus about telephone
transaction services.
. If you select the telephone purchase or redemption privilege,
you must write "VOID" across the face of a check from the
bank account you wish to use and attach it to Section 4D of
this application.
PURCHASES AND REDEMPTIONS VIA EFT
[ ] I hereby authorize Alliance Fund Services, Inc. to effect the purchase
and/or redemption of Fund shares for my account according to my telephone
instructions or telephone instructions from my Broker/Agent, and to
withdraw money or credit money for such shares via EFT from the bank
account I have selected.
In the case of shares purchased by check or EFT, redemption proceeds may
not be made available until the Fund is reasonably assured that the check
has cleared, normally 15 calendar days after the purchase date.
- -------------------
D. BANK INFORMATION
- -------------------
This bank account information will be used for:
[ ] Distributions (Section 3) [ ] Automatic Investments (Section 4A)
[ ] Systematic Withdrawals (Section 4B) [ ] Telephone Transactions (Section 4C)
Please attach a voided check:
- -
Tape Preprinted Voided Check Here.
We Cannot Establish These Services Without it.
- -
Your bank must be a member of the National Automated Clearing House Association
(NACHA) in order to have EFT transactions processed to your fund account.
For EFT transactions, the fund requires signatures of bank account owners
exactly as they appear on bank records.
- ------------------------------
E. THIRD PARTY PAYMENT DETAILS
- ------------------------------
This third party payee information will be used for:
[ ] Distributions (Section 3) [ ] Systematic Withdrawals (Section 4B)
[ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ]
Name
[ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ]
Address - Line 1
[ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ]
Address - Line 2
[ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ]
Address - Line 3
- ---------------------------------
F. REDUCED CHARGES (CLASS A ONLY)
- ---------------------------------
If you, your spouse or minor children own shares in other Alliance funds, you
may be eligible for a reduced sales charge. Please complete the Right of
Accumulation section or the Statement of Intent section.
A. RIGHT OF ACCUMULATION
[ ] Please link the tax idemnification numbers or account numbers listed below
for Right of Accumulation privileges, so that this and future purchases
will receive any discount for which they are eligible.
B. STATEMENT OF INTENT
[ ] I want to reduce my sales charge by agreeing to invest the following amount
over a 13-month period:
[ ] $100,000 [ ] $250,000 [ ] $500,000 [ ] $1,000,000
If the full amount indicated is not purchased within 13 months, I
understand that an additional sales charge must be paid from my account.
- -------------------------- -------------------------- --------------------------
Tax ID or Account # Tax ID or Account # Tax ID or Account #
<PAGE>
- --------------------------------------------------------------------------------
5. SHAREHOLDER AUTHORIZATION This section MUST be completed
----
- --------------------------------------------------------------------------------
Telephone Exchanges and Redemptions by Check
Unless I have checked one or both boxes below, these privileges will
automatically apply, and by signing this application, I hereby authorize
Alliance Fund Services, Inc. to act on my telephone instructions, or on
telephone instructions from any person representing himself to be an authorized
employee of an investment dealer or agent requesting a redemption or exchange on
my behalf. (NOTE: Telephone exchanges may only be processed between accounts
that have identical registrations.) Telephone redemption checks will only be
mailed to the name and address of record; and the address must have no change
within the last 30 days. The maximum telephone redemption amount is $50,000.
This service can be enacted once every 30 days.
[_] I do not elect the telephone [_] I do not elect the telephone
--- ---
exchange service. redemption by check service.
I certify under penalty of perjury that the number shown in Section 1 of this
form is my correct tax identification number or social security number and that
I have not been notified that this account is subject to backup withholding.
By selecting any of the above telephone privileges, I agree that neither the
Fund nor Alliance, Alliance Fund Distributors, Inc., Alliance Fund Services,
Inc. or other Fund Agent will be liable for any loss, injury, damage or expense
as a result of acting upon telephone instructions purporting to be on my behalf,
that the Fund reasonably believes to be genuine, and that neither the Fund nor
any such party will be responsible for the authenticity of such telephone
instructions. I understand that any or all of these privileges may be
discontinued by me or the Fund at any time. I understand and agree that the Fund
reserves the right to refuse any telephone instructions and that my investment
dealer or agent reserves the right to refuse to issue any telephone instructions
I may request.
For non-residents only: Under penalties of perjury, I certify that to the best
of my knowledge and belief, I qualify as a foreign person as indicated in
Section 2.
I am of legal age and capacity and have received and read the Prospectus and
agree to its terms.
The Internal Revenue Service does not require your consent to any provision of
this document other than the certification required to avoid back-up
withholding.
- ------------------------------------ ------------------
Signature Date
- ------------------------------------ ------------------ -----------------
Signature Date Acceptance Date
- --------------------------------------------------------------------------------
DEALER/AGENT AUTHORIZATION For selected Dealers or Agents ONLY.
- --------------------------------------------------------------------------------
We hereby authorize Alliance Fund Services, Inc. to act as our agent in
connection with transactions under this authorization form; and we guarantee the
signature(s) set forth in Section 5, as well as the legal capacity of the
shareholder.
- ----------------------------------------- -----------------------------------
Dealer/Agent Firm Authorized Signature
- ----------------------------------------- ------ --------------------------
Representative First Name MI Last Name
- --------------------------------------------------------------------------------
Representative Number
- --------------------------------------------------------------------------------
Branch Office Address
- --------------------------------------------------------------------------------
City State Zip Code
( )
- --------------------------------------------------------------------------------
Branch Number Branch Phone
- --------------------------------------------------------------------------------
The payment of funds is authorized by the signature(s) appearing on the reverse
side.
If this card is signed by more than one person, all checks will require all
signatures appearing on the reverse side unless a lesser number is indicated.
If no indication is given, all checks will require all signatures. Each
signatory guarantees the genuineness of the other signatures.
The Bank is hereby appointed agent by the person(s) signing this card (the
"Depositor[s]") and, as agent, is authorized and directed to present checks
drawn on this checking account to Alliance __________________________________
("the Fund") or its transfer agent as requests to redeem shares of "the Fund"
registered in the name of the Depositor(s) in the amounts of such checks and to
deposit the proceeds of such redemptions in this checking account. The Bank
shall be liable only for its own negligence.
The Depositor(s) agrees to be subject to the rules and regulations of the Bank
pertaining to this checking account as amended from time to time. The Bank and
"the Fund" reserve the right to change, modify or terminate this checking
account and authorization at any time.
Checks may not be for less than $500 or such other minimum amount as may from
time to time be established by "the Fund" upon prior written notice to its
shareholders. Shares purchases by check (including certified or cashier's
check) will not be redeemed within 15 calendar days of such purchase by
checkwriting or any other method of redemption.
No checkwriting available on Alliance World Income and Alliance Corporate Bond.
ENCLOSE THIS CARD WITH THE APPLICATION FORM
60000GEN-SF
<PAGE>
ALLIANCE SUBSCRIPTION APPLICATION
- --------------------------------------------------------------------------------
ALLIANCE MUNICIPAL INCOME PORTFOLIOS
National Portfolio Florida Portfolio New Jersey Portfolio
Insured National Portfolio Massachusetts Portfolio New York Portfolio
Arizona Portfolio Michigan Portfolio Ohio Portfolio
California Portfolio Minnesota Portfolio Pennsylvania Portfolio
Insured California Portfolio Virginia Portfolio
- --------------------------------------------------------------------------------
INFORMATION AND INSTRUCTIONS
- --------------------------------------------------------------------------------
To Open Your New Alliance Account...
Please complete the application and For certified or overnight
mail it to: deliveries, send to:
Alliance Fund Services, Inc. Alliance Fund Services, Inc.
P.O. Box 1520 500 Plaza Drive
Secaucus, New Jersey 07096-1520 Secaucus, New Jersey 07094
- ---------
Section 1 Your Account Registration (Required)
- ---------
Complete one of the available choices. To ensure proper tax reporting to the
IRS:
[RIGHT ARROW] Individuals, Joint Tenants and Gift/Transfer to a Minor:
. Indicate your name(s) exactly as it appears on your social
security card.
[RIGHT ARROW] Trust/Other:
. Indicate the name of the entity exactly as it appeared on
the notice you received from the IRS when your Employer
Identification number was assigned.
- ---------
Section 2 Your Address (Required)
- ---------
Complete in full.
- ---------
Section 3 Your Initial Investment (Required)
- ---------
For each fund in which you are investing: 1) Write the dollar amount of your
initial purchase in the column corresponding to the class of shares you have
chosen (If you are eligible for a reduced sales charge, you must also complete
Section 4F) 2) Circle a distribution option for your dividends 3) Circle a
distribution option for your capital gains. All distributions (dividends and
capital gains) will be reinvested into your fund account unless you direct
otherwise. If you want distributions sent directly to your bank account, then
you must complete Section 4D and attach a voided check for that account. If you
want your distributions sent to a third party you must complete Section 4E.
- ---------
Section 4 Your Shareholder Options (Complete only those options you want)
- --------
A. Automatic Investment Plans (AIP) - You can make periodic investments into
any of your Alliance Funds in one of three ways. First, by a periodic
withdrawal ($25 minimum) directly from your bank account and invested into
an Alliance Fund. Second, you can direct your distributions (dividends and
capital gains) from one Alliance Fund into another Fund. Or third, you can
automatically exchange monthly ($25 minimum) shares of one Alliance Fund for
shares of another Fund. To elect one of these options, complete the
appropriate portion of Section 4A.
B. Systematic Withdrawal Plans (SWP) - Complete this option if you wish to
periodically redeem dollars from one of your fund accounts. Payments can be
made via Electronic Funds Transfer (EFT) to your bank account or by check.
C. Telephone Transactions via EFT - Complete this option if you would like to
be able to transact via telephone between your fund account and your bank
account.
D. Bank Information - If you have elected any options that involve transactions
between your bank account and your fund account or have elected cash
distribution options and would like the payments sent to your bank account,
please tape a voided check of the account you wish to use to this section
of the application.
E. Third Party Payment Details - If you have chosen cash distributions and/or a
Systematic Withdrawal Plan and would like the payments sent to a person
and/or address other than those provided in section 1 or 2, complete this
option.
F. Reduced Charges (Class A only) - Complete if you would like to link fund
accounts that have combined balances that might exceed $100,000 so that
future purchases will receive discounts. Complete if you intend to
purchase over $100,000 within 13 months.
- ---------
Section 5 Shareholder Authorization (Required)
- ---------
All owners must sign. If it is a custodial, corporate, or trust account, the
custodian, an authorized officer, or the trustee respectively must sign.
If We Can Assist You In Any Way, Please Do Not Hesitate To Call Us At:
(800) 221-5672.
<PAGE>
<PAGE>
ALLIANCE MUNICIPAL
- --------------------------------------------------------------------------------
INCOME PORTFOLIOS
- --------------------------------------------------------------------------------
P.O. Box 1520, Secaucus, New Jersey 07096-1520
Toll Free (800) 221-5672
For Literature: Toll Free (800) 227-4618
Prospectus and Application
(Advisor Class)
June [ ], 1996
National Portfolio Michigan Portfolio
Insured National Portfolio Minnesota Portfolio
Arizona Portfolio New Jersey Portfolio
California Portfolio New York Portfolio
Insured California Portfolio Ohio Portfolio
Florida Portfolio Pennsylvania Portfolio
Massachusetts Portfolio Virginia Portfolio
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Table of Contents Page
<S> <C>
The Portfolios At A Glance ............................................. 2
Expense Information .................................................... 3
Financial Highlights ................................................... 4
Description of the Portfolios .......................................... 5
Investment Objective ................................................ 5
How the Portfolios Pursue Their Objective ........................... 5
Additional Investment Practices ..................................... 8
Certain Fundamental Investment Policies ............................. 13
Risk Considerations ................................................. 13
Purchase and Sale of Shares ............................................ 14
Management of the Funds ................................................ 16
Dividends, Distributions and Taxes ..................................... 16
General Information .................................................... 19
</TABLE>
- --------------------------------------------------------------------------------
Adviser
Alliance Capital Management L.P.
1345 Avenue Of The Americas
New York, New York 10105
The fourteen Alliance Municipal Income Portfolios, by investing principally in
high-yielding, predominantly medium-quality municipal securities, seek to
provide their shareholders with the highest level of income exempt from Federal
and state tax that is available without assuming undue risk. These securities
generally offer current yields above those of higher quality municipal
obligations.
Each Portfolio is a series of Alliance Municipal Income Fund, Inc. or Alliance
Municipal Income Fund II (each a "Fund"), which are open-end management
investment companies. This Prospectus sets forth concisely the information which
a prospective investor should know about each Fund before investing. A
"Statement of Additional Information" for each Fund which provides further
information regarding certain matters discussed in this Prospectus and other
matters which may be of interest to some investors has been filed with the
Securities and Exchange Commission and is incorporated herein by reference. For
a free copy, write Alliance Fund Services, Inc. at the indicated address or call
the "For Literature" telephone number shown above.
This Prospectus offers the Advisor Class shares of each Portfolio which may be
purchased at net asset value without any initial or contingent deferred sales
charges and without ongoing distribution expenses. Advisor Class shares are
offered solely to (i) investors participating in fee-based programs meeting
certain standards established by Alliance Fund Distributors, Inc., each Fund's
principal underwriter, and (ii) participants in self-directed defined
contribution employee benefit plans (e.g., 401(k) plans) that meet certain
minimum standards. See "Purchase and Sale of Shares."
An investment in these securities is not a deposit or obligation of, or
guaranteed or endorsed by, any bank and is not federally insured by the Federal
Deposit Insurance Corporation, the Federal Reserve Board or any other agency.
Investors are advised to read this Prospectus carefully and to retain it for
future reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Alliance(R)
Mutual funds without the Mystery(SM)
(R)/SM These are registered marks used under licenses from the owner, Alliance
Capital Management L.P.
<PAGE>
The Portfolios At A Glance
The following summary is qualified in its entirety by the more detailed
information contained in this Prospectus.
- --------------------------------------------------------------------------------
ALLIANCE MUNICIPAL
INCOME PORTFOLIOS
National Portfolio
Insured National Portfolio
Arizona Portfolio
California Portfolio
Insured California Portfolio
Florida Portfolio
Massachusetts Portfolio
Michigan Portfolio
Minnesota Portfolio
New Jersey Portfolio
New York Portfolio
Ohio Portfolio
Pennsylvania Portfolio
Virginia Portfolio
- --------------------------------------------------------------------------------
The Portfolios Seek...
High current tax-free income.
The National Portfolios Invest Principally in...
Diversified portfolios of medium-quality and investment grade municipal
securities.
The State Portfolios Invest Principally in...
Non-diversified portfolios of medium-quality and investment grade municipal
securities.
The Funds' Investment Manager Is...
Alliance Capital Management L.P. ("Alliance"), a global investment manager
providing diversified services to institutions and individuals through a broad
line of investments including 107 mutual funds. Since 1971, Alliance has earned
a reputation as a leader in the investment world with over $156 billion in
assets under management as of March 1, 1996. Alliance provides investment
management services to 34 of the FORTUNE 100 companies.
The Type Of Investor Who May Want To Invest In These Portfolios Is...
An investor who wants tax-free income or is interested in the advantage of
tax-free investing. An investment in one of the Portfolios may soften the "tax
bite" because the income an investor earns is tax-free. Of course, bond prices
and yields will fluctuate with market conditions, so that your shares, when
redeemed, may be worth more or less than their original cost.
A Word About Risk...
The prices of the shares of the Alliance Municipal Income Portfolios will
fluctuate as the daily prices of the individual bonds in which they invest
fluctuate, so that your shares, when redeemed, may be worth more or less than
their original cost. Price fluctuations may be caused by changes in the general
level of interest rates or changes in bond credit quality ratings. Changes in
interest rates have a greater effect on bonds with longer maturities than those
with shorter maturities. While the Portfolios invest principally in bonds and
other fixed-income securities, in order to achieve their investment objectives,
the Portfolios may at times use certain types of derivative instruments, such as
options, futures, forwards and swaps. These involve risks different from, and,
in certain cases, greater than, the risks presented by more traditional
investments. These risks are fully discussed in this Prospectus. See
"Description of the Portfolios--Additional Investment Practices" and "--Risk
Considerations."
Getting Started...
Shares of the Portfolios are available through your financial representative.
Each Portfolio offers multiple classes of shares, of which only the Advisor
Class is offered by this Prospectus. Advisor Class shares may be purchased at
net asset value without any initial or contingent deferred sales charges and
without distribution expenses. Advisor Class shares may be purchased solely by
investors (i) through accounts established under a fee-based program, sponsored
and maintained by a registered broker-dealer or other financial intermediary and
approved by Alliance Fund Distributors, Inc., each Fund's principal underwriter,
pursuant to which each investor pays an asset-based fee at an annual rate of at
least .50% of the assets in the investor's account, to the broker-dealer or
financial intermediary, or its affiliate or agent, for investment advisory or
administrative services, or (ii) through a self-directed defined contribution
employee benefit plan (e.g., a 401(k) plan) that has at least 1,000 participants
or $25 million in assets. Shares can be purchased for a minimum initial
investment of $250, and subsequent investments can be made for as little as $50.
Fee-based programs through which Advisor Class shares may be purchased may
impose different requirements with respect to minimum initial and subsequent
investment levels than described above. For detailed information about
purchasing and selling shares, see "Purchase and Sale of Shares." Be sure to ask
your financial representative about:
- --------------------------------------------------------------------------------
AUTOMATIC REINVESTMENT
- --------------------------------------------------------------------------------
AUTOMATIC INVESTMENT PROGRAM
- --------------------------------------------------------------------------------
SHAREHOLDER COMMUNICATIONS
- --------------------------------------------------------------------------------
DIVIDEND DIRECTION PLANS
- --------------------------------------------------------------------------------
AUTO EXCHANGE
- --------------------------------------------------------------------------------
SYSTEMATIC WITHDRAWALS
- --------------------------------------------------------------------------------
CHECKWRITING
- --------------------------------------------------------------------------------
TELEPHONE TRANSACTIONS
- --------------------------------------------------------------------------------
24 HOUR INFORMATION
- --------------------------------------------------------------------------------
Alliance(R)
Mutual funds without the Mystery(SM)
(R)/SM These are registered marks used under licenses from the owner, Alliance
Capital Management L.P.
2
<PAGE>
- --------------------------------------------------------------------------------
EXPENSE INFORMATION
- --------------------------------------------------------------------------------
Shareholder Transaction Expenses are one of several factors to consider when you
invest in a Portfolio. The following table summarizes your maximum transaction
costs from investing in the Advisor Class shares of each Portfolio and annual
expenses for Advisor Class shares of each Portfolio. For each Portfolio, the
"Examples" to the right of the table below show the cumulative expenses
attributable to a hypothetical $1,000 investment in Advisor Class shares for the
periods specified.
<TABLE>
<CAPTION>
Advisor Class Shares
--------------------
<S> <C>
Maximum sales charge imposed on purchases ............. None
Sales charge imposed on dividend reinvestments ........ None
Deferred sales charge ................................. None
Exchange fee .......................................... None
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Operating Expenses Examples
- ---------------------------------------------------------- -----------------------------------------
National Portfolio Advisor Class Advisor Class
------------- -------------
<S> <C> <C> <C>
Management fees (after waiver) .24% After 1 year $ 4
Other expenses (a) .17% After 3 years $13
---
Total Portfolio
Operating expenses (b) .41%
===
Insured National Portfolio Advisor Class Advisor Class
------------- -------------
Management fees (after waiver) .49% After 1 year $ 7
Other expenses (a) .22% After 3 years $23
---
Total Portfolio
Operating expenses (b) .71%
===
Arizona Portfolio Advisor Class Advisor Class
------------- -------------
Management fees (after waiver) .00% After 1 year $ 5
Other expenses (after After 3 years $15
reimbursement) (a) .48%
---
Total Portfolio
Operating expenses (b) .48%
===
California Portfolio Advisor Class Advisor Class
------------- -------------
Management fees (after waiver) .32% After 1 year $ 5
Other expenses (a) .12% After 3 years $14
---
Total Portfolio
Operating expenses (b) .44%
===
Insured California Portfolio Advisor Class Advisor Class
------------- -------------
Management fees .55% After 1 year $ 8
Other expenses (a) .24% After 3 years $25
---
Total Portfolio
Operating expenses (b) .79%
===
Florida Portfolio Advisor Class Advisor Class
------------- -------------
Management fees (after waiver) .14% After 1 year $ 4
Other expenses (a) .29% After 3 years $14
---
Total Portfolio
Operating expenses (b) .43%
===
</TABLE>
- --------------------------------------------------------------------------------
Please refer to the footnotes on page [ ] and the discussion following these
tables on page [ ].
3
<PAGE>
<TABLE>
<CAPTION>
Operating Expenses Examples
- ---------------------------------------------------------- -----------------------------------------
<S> <C> <C> <C>
Massachusetts Portfolio Advisor Class Advisor Class
------------- -------------
Management fees (after waiver) .00% After 1 year $ 3
Other expenses (after After 3 years $10
reimbursement (a) .30%
---
Total Portfolio
Operating expenses (b) .30%
===
Michigan Portfolio Advisor Class Advisor Class
------------- -------------
Management fees (after waiver) .00% After 1 year $ 7
Other expenses (after After 3 years $21
reimbursement (a) .66%
---
Total Portfolio
Operating expenses (b) .66%
===
Minnesota Portfolio Advisor Class Advisor Class
------------- -------------
Management fees (after waiver) .00% After 1 year $ 4
Other expenses (after After 3 years $13
reimbursement (a) .41%
---
Total Portfolio
Operating expenses (b) .41%
===
New Jersey Portfolio Advisor Class Advisor Class
------------- -------------
Management fees (after waiver) .20% After 1 year $ 5
Other expenses (a) .32% After 3 years $17
---
Total Portfolio
Operating expenses .52%
===
New York Portfolio Advisor Class Advisor Class
------------- -------------
Management fees (after waiver) .25% After 1 year $ 5
Other expenses (a) .20% After 3 years $14
---
Total Portfolio
Operating expenses (b) .45%
===
Ohio Portfolio Advisor Class Advisor Class
------------- -------------
Management fees (after waiver) .00% After 1 year $ 5
Other expenses (a) .45% After 3 years $14
---
Total Portfolio
Operating expenses (b) .45%
===
Pennsylvania Portfolio Advisor Class Advisor Class
------------- -------------
Management fees (after waiver) .30% After 1 year $ 7
Other expenses (a) .40% After 3 years $22
---
Total Portfolio
Operating expenses (b) .70%
===
Virginia Portfolio Advisor Class Advisor Class
------------- -------------
Management fees (after waiver) .00% After 1 year $ 4
Other expenses (after After 3 years $12
reimbursement) (a) .37%
---
Total Portfolio
Operating expenses (b) .37%
===
</TABLE>
- --------------------------------------------------------------------------------
(a) These expenses include a transfer agency fee payable to Alliance Fund
Services, Inc., an affiliate of Alliance, based on a fixed dollar amount
charged to the Portfolio for each shareholder's account.
(b) Net of any voluntary fee waiver and expense reimbursement.
4
<PAGE>
The purpose of the foregoing table is to assist the investor in understanding
the various costs and expenses that an investor in a Portfolio will bear
directly or indirectly. The examples do not reflect any charges or expenses
imposed by your financial representative or your employee benefit plan. The
management fees listed in the above tables are net of voluntary fee waivers and
total expenses are, for certain funds, net of expense reimbursements. Absent
such waivers and reimbursements, (i) the management fees for the National,
Insured National, California and New York Portfolios would have been .625%,
.604%, .625% and .625% of daily average net assets, respectively, and total
portfolio operating expenses would have been .79%, .82%, .74%, .79% and .82% of
average daily net assets, respectively, (ii) the management fees for the
Arizona, Florida, Massachusetts, Michigan, Minnesota, New Jersey, Ohio,
Pennsylvania and Virginia Portfolios would have been .625% of daily average net
assets for each Portfolio, and total operating expenses would have been 4.04%,
1.04%, 3.09%, 2.62%, 2.00%, 1.06%, 1.25%, 1.18% and 6.10% of average daily net
assets, respectively. "Other Expenses" are based on estimated amounts for each
Portfolio's current fiscal year. The examples set forth above assume
reinvestment of all dividends and distributions and utilize a 5% annual rate of
return as mandated by Commission regulations. The examples should not be
considered representative of future expenses; actual expenses may be greater or
less than those shown.
5
<PAGE>
- --------------------------------------------------------------------------------
DESCRIPTION OF THE PORTFOLIOS
- --------------------------------------------------------------------------------
Each Portfolio is a separate pool of assets constituting, in effect, a separate
fund. Except as otherwise indicated, the Portfolios' investment policies are not
"fundamental policies" and may, therefore, be changed without a shareholder
vote. However, no Portfolio will change its investment policies without
contemporaneous written notice to its shareholders. There is no guarantee that
any Portfolio will achieve its investment objective.
INVESTMENT OBJECTIVE
The investment objective of each Portfolio (other than the Insured California
Portfolio, as discussed below) is to earn the highest level of current income,
exempt from Federal and state taxation to the extent described, that is
available without assuming what Alliance considers to be undue risk by investing
principally in high-yielding, predominantly medium-quality, intermediate and
long-term debt obligations issued by: (i) in the case of the National and
Insured National Portfolios, states, territories and possessions of the United
States and the District of Columbia, and their political subdivisions, duly
constituted authorities and corporations and, (ii) in the case of each of the
State Portfolios, the named state, and its political subdivisions, agencies and
instrumentalities. These securities are generally known as "municipal
securities." The average weighted maturity of the securities in each Portfolio
normally will range between 10 and 25 years.
Current Federal tax law distinguishes between municipal securities issued to
finance certain "private activities" and other municipal securities. Such
private activity bonds include bonds issued to finance such projects as
airports, housing projects, resource recovery programs, solid waste disposal
facilities, student loan programs, and water and sewage projects. Interest from
such "private activity bonds" ("AMT-Subject Bonds") becomes an item of "tax
preference" which is subject to the alternative minimum tax ("AMT") when
received by a person in a tax year during which the person is subject to that
tax. Because interest on AMT-Subject Bonds is taxable to certain investors, it
is expected, although there can be no guarantee, that such municipal securities
generally will provide somewhat higher yields than other municipal securities
("AMT-Exempt Bonds") of comparable quality and maturity.
HOW THE PORTFOLIOS PURSUE THEIR OBJECTIVE
The National Portfolio invests principally in a diversified portfolio of
municipal securities, the interest from which is wholly exempt from Federal
income taxes except when received by a shareholder who will be subject to the
AMT. The National Portfolio may invest without limit in AMT-Subject Bonds. As of
October 31, 1995, 82% of the National Portfolio's total net assets was invested
in AMT-Subject Bonds.
The Insured National Portfolio invests principally in AMT-Exempt Bonds that are
insured as to the payment of principal and interest ("insured securities"). The
investment policies of the Insured National Portfolio differ from those of the
National Portfolio in two respects: (i) whereas the National Portfolio invests
principally in AMT-Subject Bonds, the Insured National Portfolio invests
principally in a diversified portfolio of AMT-Exempt Bonds; and (ii) as a matter
of fundamental policy, the Insured National Portfolio, under normal market
conditions, invests at least 65% of its total assets in insured securities. (See
page 14 for a further discussion of the insurance feature.) The Insured National
Portfolio may be suitable for an investor who will be subject to the AMT to the
extent that the after-tax yield of the National Portfolio to such an investor is
less than the yield of the Insured National Portfolio. From time to time, the
National and Insured National Portfolios may invest 25% or more of their
respective total assets in municipal securities whose issuers are located in the
same state.
Each of the twelve State Portfolios invests in a non-diversified portfolio of
municipal securities the interest from which, in the opinion of bond counsel to
the issuer, is exempt from Federal income tax and from personal income tax in
the named state, or in the case of the Florida Portfolio, from the Florida
intangible tax (Florida currently imposes no income taxes on individuals.)
Normally, substantially all of the total assets of each State Portfolio will be
invested in municipal securities of the indicated state. Each Portfolio other
than the Insured National and Insured California Portfolios may invest without
limit in AMT-Subject Bonds.
The Insured California Portfolio seeks to provide as high a level of current
income exempt from Federal income tax and California personal income tax as is
consistent with the preservation of capital. As a matter of fundamental policy,
the Insured California Portfolio normally invests at least 80% of its total
assets in municipal bonds, at least 80% of its total assets in AMT-Exempt Bonds
and at least 65% of its total assets in insured securities. The Insured
California Portfolio's current policy is to invest at least 65% of its total
assets in municipal bonds issued by California or its political subdivisions
("California Bonds"), at least 80% of its total assets in insured bonds, and not
to invest in AMT-Subject Bonds. The remainder of the Insured California
Portfolio's total assets may be invested in uninsured California Bonds.
The California Portfolio invests in AMT-Subject Bonds issued by California and
its political subdivisions. As a matter of fundamental policy, at least 80% of
the California Portfolio's total assets normally will be invested in municipal
securities and at least 65% of its total assets normally will be invested in
AMT-Subject Bonds. The California Portfolio normally will invest at least 65% of
its total assets in California Bonds. As of October 31, 1995, 69% of the
California Portfolio's total net assets was invested in AMT-Subject Bonds.
6
<PAGE>
The New York Portfolio invests in AMT-Subject Bonds issued by New York State and
its political subdivisions. As a matter of fundamental policy, at least 65% of
the New York Portfolio's total assets normally will be so invested. In addition,
the Portfolio will invest in at least 80% of its net assets in municipal
securities the interest on which is exempt from Federal income tax. As of
October 31, 1995, 81% of the Portfolio's total net assets was invested in
AMT-Subject Bonds.
As of September 30, 1995, 36% of the Arizona Portfolio's total net assets, 63%
of the Florida Portfolio's total net assets, 34% of the Massachusetts
Portfolio's total net assets, 25% of the Michigan Portfolio's total assets, 29%
of the Minnesota Portfolio's total net assets, 55% of the New Jersey Portfolio`s
total net assets, 40% of the Ohio Portfolio's total net assets, 52% of the
Pennsylvania Portfolio`s total net assets and 38% of the Virginia Portfolio's
total net assets were invested in AMT-Subject Bonds.
As a matter of fundamental policy, each of the Arizona, Florida, Massachusetts,
Michigan, Minnesota, New Jersey, Ohio, Pennsylvania and Virginia Portfolios will
normally invest (i) at least 65% of its total assets in municipal securities of
the named state, and (ii) at least 80% of its net assets in municipal securities
the interest on which is exempt from Federal income tax. In addition, the New
Jersey Portfolio will invest at least 80% of its net assets in securities the
interest on which is exempt from New Jersey personal income tax (i.e., New
Jersey municipal securities and obligations of the U.S. government, its agencies
and instrumentalities ("U.S. Government Securities")). Where consistent with
applicable state law, each State Portfolio may also invest in municipal
securities issued by governmental entities (for example, U.S. territories)
outside the named state if such municipal securities generate interest exempt
from Federal income tax and personal income tax (or the Florida intangible tax)
in the named state. When Alliance believes that municipal securities of the
named state that meet the Portfolio's quality standards are not available, any
State Portfolio may invest in securities whose interest payments are only
federally tax-exempt.
Municipal Securities--Further Information. The two principal classifications of
municipal securities are bonds and notes. Municipal bonds, which are intended to
meet longer-term capital needs, are typically classified as either "general
obligation" or "revenue" (or "special tax") bonds. General obligation bonds are
secured by the issuer's pledge of its full faith, credit and taxing power for
the payment of principal and interest. Revenue or special tax bonds are payable
only from the revenues derived from a particular facility or class of facilities
or, in some cases, from the proceeds of a special excise or other tax, but not
from general tax revenues. Each Portfolio may invest more than 25% of its assets
in tax-exempt private activity bonds, which in most cases are revenue bonds and
generally do not have the pledge of the credit of the issuer. The payment of the
principal and interest on such private activity bonds is dependent solely on the
ability of the user of the facilities financed by the bonds to meet its
financial obligations and the pledge, if any, of real and personal property so
financed as security for such payment. Each Portfolio may invest more than 25%
of its total assets in securities or obligations which are related in such a way
that business or political developments or changes affecting one such security
could also affect the others (for example, securities the interest on which is
paid from projects of a similar type.)
Municipal notes, which may be either "general obligation" or "revenue"
securities, are intended to fulfill short-term capital needs and generally have
original maturities not exceeding one year. They include tax anticipation notes,
revenue anticipation notes, bond anticipation notes, construction loan notes and
tax-exempt commercial paper.
The yields of municipal securities depend on, among other things, conditions in
the municipal bond market and fixed income markets generally, the size of a
particular offering, the maturity of the obligation, and the rating of the
issue. Normally, lower-rated municipal securities provide yields superior to
those of more highly rated securities, but involve greater risks. When the
spread between the yields of lower-rated obligations and those of more highly
rated issues is relatively narrow, a Portfolio may invest in the latter since
they will provide optimal yields with somewhat less risk.
The high tax-free yields sought by the Portfolios are generally obtainable from
medium-quality municipal securities rated A or Baa by Moody's Investors Service,
Inc. ("Moody's"), or A or BBB by Standard & Poor's Ratings Services (S&P), Duff
& Phelps Credit Rating Co. ("Duff & Phelps") or Fitch Investors Service, Inc.
("Fitch"). Each Portfolio may maintain up to 25% of its net assets, in municipal
securities rated below Baa by Moody's and below BBB by S&P, Duff & Phelps and
Fitch or, if non-rated, determined by Alliance to be of comparable quality. At
least 75% of the total assets of each Portfolio will be invested in municipal
securities rated at the time of purchase Baa or higher by Moody's or BBB or
higher by S&P, Duff & Phelps or Fitch. It is expected that no Portfolio will
retain a municipal security downgraded below Caa by Moody's and CCC by S&P, Duff
& Phelps and Fitch, or if unrated, determined by Alliance to have undergone
similar credit quality deterioration.
Non-rated municipal securities may be purchased by a Portfolio when Alliance
believes that the financial condition of the issuers of such obligations and the
protection afforded by their terms limit risk to a level comparable to that of
rated securities that are consistent with the Portfolio's investment policies.
During the fiscal year ended October 31, 1995, the Insured National and Insured
California Portfolios invested all of their assets in securities rated A and
above by S&P, or if unrated by S&P, considered by Alliance to be of equivalent
quality to securities rated A or above. During the following Portfolios'
7
<PAGE>
fiscal years ended in 1995, on a weighted average basis, the percentages of the
assets invested in securities rated in particular rating categories by S&P or,
if not rated by S&P, considered by Alliance to be of equivalent quality to such
ratings, were as follows:
<TABLE>
<CAPTION>
Portfolio A and above BBB BB B
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
National 84% 16% -- --
Arizona 95 5 -- --
California 81 11 7 1%
Florida 75 25 -- --
Massachusetts 91 9 -- --
Michigan 81 19 -- --
Minnesota 79 21 -- --
New Jersey 81 19 -- --
New York 92 8 -- --
Ohio 79 15 6 --
Pennsylvania 78 22 -- --
Virginia 95 5 -- --
</TABLE>
Each Portfolio may invest up to 35% of its total assets in zero coupon municipal
securities. Each Portfolio also may invest in municipal securities that have
fixed, variable, floating or inverse floating rates of interest. See "Additional
Investment Practices--Zero Coupon Securities" and "--Variable, Floating and
Inverse Floating Rate Investments." Each Portfolio normally will invest at least
65% of its total assets in income-producing securities (including zero coupon
securities).
Insurance Feature of the Insured National and Insured California Portfolios. The
Insured National and Insured California Portfolios normally will invest at least
65% and 80%, respectively, of their total assets in insured securities. At the
time of purchase by a Portfolio, insured securities are either (i) insured under
an insurance policy that relates to the specific municipal security in question
(a "Specific Issue Insurance Policy") or (ii) insured under a Mutual Fund
Insurance Policy issued to the Portfolio's Fund by an appropriate insurer. If a
municipal security is already covered by a Specific Issue Insurance Policy when
acquired by the Portfolio, then coverage will not be duplicated by a Mutual Fund
Insurance Policy. Based upon the expected composition of each of the Insured
National and Insured California Portfolios, Alliance estimates that the annual
premiums for a Mutual Fund Insurance Policy and/or Special Issue Insurance
Policy will range from .12 of 1% to .75 of 1% of the average net assets of each
Portfolio. Although the insurance feature reduces certain financial risks, the
premiums for a Mutual Fund Insurance Policy, and for many Specific Issue
Insurance Policies, which are paid from each of the Insured National and Insured
California Portfolio's assets, will reduce each Portfolio's current yield.
Insurance is not a substitute for the basic credit of an issuer, but supplements
the existing credit and provides additional security therefor. While insurance
coverage for municipal securities held by the Insured National and Insured
California Portfolios reduces credit risk by insuring that the Portfolios will
receive payment of principal and interest, it does not protect against market
fluctuations caused by changes in interest rates or other factors.
The Insured National and Insured California Portfolios may obtain insurance on
their municipal bonds or purchase insured municipal bonds covered by policies
issued by any insurer having a claims-paying ability rated AA by S&P or Aaa by
Moody's. Alliance is familiar with five such insurers, Municipal Bond Investors
Assurance Corporation ("MBIA"), Financial Guaranty Insurance Company ("FGIC"),
AMBAC Indemnity Corporation ("AMBAC"), Financial Security Assurance Inc. ("FSA")
and Capital Guaranty Insurance Company ("CGIC"). S&P has rated AAA the
claims-paying ability of MBIA, FGIC, AMBAC, FSA and CGIC, and the municipal
bonds insured by these organizations. Further information with respect to MBIA,
FGIC, AMBAC, FSA and CGIC is provided in the Statement of Additional Information
of Alliance Municipal Income Fund, Inc.
ADDITIONAL INVESTMENT PRACTICES
Some or all of the Portfolios may engage in the following investment practices
to the extent described in this Prospectus. See the Statement of Additional
Information of each Fund for a further discussion of the uses, risks and costs
of engaging in these practices.
Derivatives. The Portfolios may use derivatives in furtherance of their
investment objectives. Derivatives are financial contracts whose value depends
on, or is derived from, the value of an underlying asset, reference rate or
index. These assets, rates, and indices may include bonds, stocks, mortgages,
commodities, interest rates, bond indices and stock indices. Derivatives can be
used to earn income or protect against risk, or both. For example, one party
with unwanted risk may agree to pass that risk to another party who is willing
to accept the risk, the second party being motivated, for example, by the desire
either to earn income in the form of a fee or premium from the first party, or
to reduce its own unwanted risk by attempting to pass all or part of that risk
to the first party.
Derivatives can be used by investors such as the Portfolios to earn income and
enhance returns, to hedge or adjust the risk profile of an investment portfolio,
and in place of more traditional direct investments. Each of the Portfolios is
permitted to use derivatives for one or more of these purposes, although most of
the Portfolios generally use derivatives primarily as direct investments in
order to enhance yields and broaden portfolio diversification. Each of these
uses entails greater risk than if derivatives were used solely for hedging
purposes. Derivatives are a valuable tool which, when used properly, can provide
significant benefit to Portfolio shareholders. A Portfolio may take a
significant position in those derivatives that are within its investment
policies if, in Alliance's judgement, this represents the most effective
response to current or anticipated market conditions.
Derivatives may be (i) standardized, exchange-traded contracts or (ii)
customized, privately negotiated contracts. Exchange-traded derivatives tend to
be more liquid and subject to less credit risk than those that are privately
negotiated.
There are four principal types of derivative instruments--options, futures,
forwards and swaps--from which virtually any type of derivative transaction can
be created.
8
<PAGE>
o Options--An option, which may be standardized and exchange-traded, or
customized and privately negotiated, is an agreement that, for a premium
payment or fee, gives the option holder (the buyer) the right but not the
obligation to buy or sell the underlying asset (or settle for cash an
amount based on an underlying asset, rate or index) at a specified price
(the exercise price) during a period of time or on a specified date. A call
option entitles the holder to purchase, while a put option entitles the
holder to sell, the underlying asset (or settle for cash an amount based on
an underlying asset, rate or index). Likewise, when an option is exercised
the writer of the option would be obligated to sell (in the case of a call
option) or to purchase (in the case of a put option) the underlying asset
(or settle for cash an amount based on an underlying asset, rate or index).
o Futures--A futures contract is an agreement that obligates the buyer to buy
and the seller to sell a specified quantity of an underlying asset (or
settle for cash the value of a contract based on an underlying asset, rate
or index) at a specific price on the contract maturity date. Futures
contracts are standardized, exchange-traded instruments and are fungible
(i.e., considered to be perfect substitutes for each other). This
fungibility allows futures contracts to be readily offset or cancelled
through the acquisition of equal but opposite positions, which is the
primary method in which futures contracts are liquidated. A cash-settled
futures contract does not require physical delivery of the underlying asset
but instead is settled for cash equal to the difference between the values
of the contract on the date it is entered into and its maturity date.
o 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.
o Swaps--A swap is a customized, privately negotiated agreement that
obligates two parties to exchange a series of cash flows at specified
intervals (payment dates) based upon or calculated by reference to changes
in specified prices or rates (e.g., interest rates in the case of interest
rate swaps) for a specified amount of an underlying asset (the "notional"
principal amount). The payment flows are netted against each other, with
the difference being paid by one party to the other. The notional principal
amount is used solely to calculate the payment streams but is not
exchanged.
Debt instruments that incorporate one or more of these building blocks for the
purpose of determining the principal amount of and/or rate of interest payable
on the debt instruments are often referred to as "structured securities."
Examples of this type of structured security include certain securities
described below under "Variable, Floating and Inverse Floating Rate
Instruments."
While the judicious use of derivatives by highly experienced investment managers
such as Alliance can be quite beneficial, derivatives also involve risks
different from, and, in certain cases, greater than, the risks presented by more
traditional investments. Following is a general discussion of important risk
factors and issues concerning the use of derivatives that investors should
understand before investing in a Portfolio.
o 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.
o Management Risk--Derivative products are highly specialized instruments
that require investment techniques and risk analyses different from those
associated with stocks and bonds. The use of a derivative requires an
understanding not only of the underlying instrument but also of the
derivative itself, without the benefit of observing the performance of the
derivative under all possible market conditions. In particular, the use and
complexity of derivatives require the maintenance of adequate controls to
monitor the transactions entered into, the ability to assess the risk that
a derivative adds to a Portfolio's portfolio and the ability to forecast
price and interest rate movements correctly.
o 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.
o 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.
o 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.
9
<PAGE>
o Other Risks--Other risks in using derivatives include the risk of
mispricing or improper valuation of derivatives and the inability of
derivatives to correlate perfectly with underlying assets, rates and
indices. Many derivatives, in particular privately negotiated derivatives,
are complex and often valued subjectively. Improper valuations can result
in increased cash payment requirements to counterparties or a loss of value
to a Portfolio. Derivatives do not always perfectly or even highly
correlate or track the value of the assets, rates or indices they are
designed to closely track. Consequently, a Portfolio's use of derivatives
may not always be an effective means of, and sometimes could be
counterproductive to, furthering the Portfolio's investment objective.
Derivatives Used by the Portfolios. Following is a description of specific
derivatives currently used by one or more of the Portfolios.
Options on Municipal and U.S. Government Securities. In an effort to increase
current income and to reduce fluctuations in net asset value, the Portfolios
intend to write covered put and call options and purchase put and call options
on municipal securities and U.S. Government securities that are traded on U.S.
exchanges. There are no specific limitations on the writing and purchasing of
options by the Portfolios. In purchasing an option on securities, a Portfolio
would be in a position to realize a gain if, during the option period, the price
of the underlying securities increased (in the case of a call) or decreased (in
the case of a put) by an amount in excess of the premium paid; otherwise the
Portfolio would experience a loss not greater than the premium paid for the
option. Thus, a Portfolio would realize a loss if the price of the underlying
security declined or remained the same (in the case of a call) or increased or
remained the same (in the case of a put) or otherwise did not increase (in the
case of a put) or decrease (in the case of a call) by more than the amount of
the premium. If a put or call option purchased by a Portfolio were permitted to
expire without being sold or exercised, its premium would represent a loss to
the Portfolio.
A Portfolio may write a put or call option in return for a premium, which is
retained by the Portfolio whether or not the option is exercised. Except with
respect to uncovered call options written for cross-hedging purposes, none of
the Portfolios will write uncovered call or put options. A call option written
by a Portfolio is "covered" if the Portfolio owns the underlying security, has
an absolute and immediate right to acquire that security upon conversion or
exchange of another security it holds, or holds a call option on the underlying
security with an exercise price equal to or less than that of the call option it
has written. A put option written by a Portfolio is covered if the Portfolio
holds a put option on the underlying securities with an exercise price equal to
or greater than that of the put option it has written.
The risk involved in writing an uncovered put option is that there could be a
decrease in the market value of the underlying securities. If this occurred, a
Portfolio could be obligated to purchase the underlying security at a higher
price than its current market value. Conversely, the risk involved in writing an
uncovered call option is that there could be an increase in the market value of
the underlying security, and a Portfolio could be obligated to acquire the
underlying security at its current price and sell it at a lower price. The risk
of loss from writing an uncovered put option is limited to the exercise price of
the option, whereas the risk of loss from writing an uncovered call option is
potentially unlimited.
A Portfolio may write a call option on a security that it does not own in order
to hedge against a decline in the value of a security that it owns or has the
right to acquire, a technique referred to as "cross-hedging." A Portfolio would
write a call option for cross-hedging purposes, instead of writing a covered
call option, when the premium to be received from the cross-hedge transaction
exceeds that to be received from writing a covered call option, while at the
same time achieving the desired hedge. The correlation risk involved in
cross-hedging may be greater than the correlation risk involved from other
hedging strategies.
The Portfolios may purchase or write privately negotiated options on securities.
A Portfolio that purchases or writes privately negotiated options on securities
will effect such transactions only with investment dealers and other financial
institutions (such as commercial banks or savings and loan institutions) deemed
creditworthy by Alliance, and Alliance has adopted procedures for monitoring the
creditworthiness of such counterparties. Privately negotiated options purchased
or written by a Portfolio may be illiquid, and it may not be possible for the
Portfolio to effect a closing transaction at an advantageous time. See "Illiquid
Securities" below.
Futures Contracts and Options on Futures Contracts. Futures contracts that a
Portfolio may buy and sell may include futures contracts on municipal securities
or U.S. Government Securities and contracts based on any index of municipal
securities or U.S. Government securities.
Options on futures contracts are options that call for the delivery upon
exercise of futures contracts. Options on futures contracts written or purchased
by a Portfolio will be traded on U.S. exchanges and will be used only for
hedging purposes.
A Portfolio will not enter into a futures contract or option on a futures
contract if immediately thereafter the market values of the outstanding futures
contracts of the Portfolio and the futures contracts subject to outstanding
options written by the Portfolio would exceed 50% of its total assets.
Forward Commitments. Each Portfolio may purchase or sell municipal securities on
a forward commitment basis. Forward commitments are forward contracts for the
purchase or sale of securities, including purchases on a "when-issued" basis or
purchases or sales on a "delayed delivery" basis. In some cases, a forward
commitment may be conditioned upon the occurrence of a subsequent event, such as
approval and consummation of a merger, corporate reorganization or debt
10
<PAGE>
restructuring or approval of a proposed financing by appropriate authorities
(i.e., a "when, as and if issued" trade).
When forward commitments with respect to fixed-income securities are negotiated,
the price, which is generally expressed in yield terms, is fixed at the time the
commitment is made, but payment for and delivery of the securities take place at
a later date. Normally, the settlement date occurs within two months after the
transaction, but settlements beyond two months may be negotiated. Securities
purchased or sold under a forward commitment are subject to market fluctuation,
and no interest or dividends accrue to the purchaser prior to the settlement
date. At the time a Portfolio enters into a forward commitment, it records the
transaction and thereafter reflects the value of the security purchased or, if a
sale, the proceeds to be received, in determining its net asset value. Any
unrealized appreciation or depreciation reflected in such valuation would be
canceled if the required conditions did not occur and the trade were canceled.
The use of forward commitments helps a Portfolio to protect against anticipated
changes in interest rates and prices. For instance, in periods of rising
interest rates and falling bond prices, a Portfolio might sell securities in its
portfolio on a forward commitment basis to limit its exposure to falling bond
prices. In periods of falling interest rates and rising bond prices, a Portfolio
might sell a security in its portfolio and purchase the same or a similar
security on a when-issued or forward commitment basis, thereby obtaining the
benefit of currently higher cash yields. No forward commitments will be made by
a Portfolio if, as a result, the Portfolio's aggregate forward commitments under
such transactions would be more than 20% of its total assets.
A Portfolio's right to receive or deliver a security under a forward commitment
may be sold prior to the settlement date. The Portfolios enter into forward
commitments, however, only with the intention of actually receiving securities
or delivering them, as the case may be. If a Portfolio, however, chooses to
dispose of the right to acquire a when-issued security prior to its acquisition
or dispose of its right to deliver or receive against a forward commitment, it
may incur a gain or loss.
Interest Rate Transactions (Swaps, Caps and Floors). Each Portfolio may enter
into interest rate swap, cap or floor transactions primarily for hedging
purposes, which may include preserving a return or spread on a particular
investment or portion of its portfolio or protecting against an increase in the
price of securities the Portfolio anticipates purchasing at a later date. The
Portfolios do not intend to use these transactions in a speculative manner.
Interest rate swaps involve the exchange by a Portfolio with another party of
their respective commitments to pay or receive interest (e.g., an exchange of
floating rate payments for fixed rate payments) computed based on a
contractually-based principal (or "notional") amount. Interest rate swaps are
entered into on a net basis (i.e., the two payment streams are netted out, with
the Portfolio receiving or paying, as the case may be, only the net amount of
the two payments). Interest rate caps and floors are similar to options in that
the purchase of an interest rate cap or floor entitles the purchaser, to the
extent that a specified index exceeds (in the case of a cap) or falls below (in
the case of a floor) a predetermined interest rate, to receive payments of
interest on a notional amount from the party selling the interest rate cap or
floor. A Portfolio may enter into interest rate swaps, caps and floors on either
an asset-based or liability-based basis, depending upon whether it is hedging
its assets or liabilities.
There is no limit on the amount of interest rate transactions that may be
entered into by a Portfolio that is permitted to enter into such transactions. A
Portfolio will not enter into an interest rate swap, cap or floor transaction
unless the unsecured senior debt or the claims-paying ability of the other party
thereto is then rated in the highest rating category of at least one nationally
recognized rating organization.
The swap market has grown substantially in recent years, with a large number of
banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. As a result, the swap market has
become well established and relatively liquid. Caps and floors are less liquid
than swaps. These transactions do not involve the delivery of securities or
other underlying assets or principal. Accordingly, unless there is a
counterparty default, the risk of loss to a Portfolio from interest rate
transactions is limited to the net amount of interest payments that the
Portfolio is contractually obligated to make.
Zero Coupon Securities. Zero coupon securities are debt securities that have
been issued without interest coupons or stripped of their unmatured interest
coupons, and include receipts or certificates representing interests in such
stripped debt obligations and coupons. Such a security pays no interest to its
holder during its life. Its value to an investor consists of the difference
between its face value at the time of maturity and the price for which it was
acquired, which is generally an amount significantly less than its face value.
Such securities usually trade at a deep discount from their face or par value
and are subject to greater fluctuations in market value in response to changing
interest rates than debt obligations of comparable maturities and credit quality
that make current distributions of interest. On the other hand, because there
are no periodic interest payments to be reinvested prior to maturity, these
securities eliminate reinvestment risk and "lock in" a rate of return to
maturity.
Current federal tax law requires that a holder (such as a Portfolio) of a zero
coupon security accrue a portion of the discount at which the security was
purchased as income each year even though the holder receives no interest
payment in cash on the security during the year. As a result, in order to make
the distributions necessary for a Portfolio not to be subject to federal income
or excise taxes, the Portfolio might be required to pay out as an income
distribution each year an amount, obtained by liquidation of portfolio
securities or borrowings if necessary, greater than the total amount of cash
that the Portfolio has actually received as interest during the year. Each
Portfolio believes, however, that it is highly unlikely
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that it would be necessary to liquidate portfolio securities or borrow money in
order to make such required distributions or to meet its investment objective.
For a discussion of the tax treatment of zero coupon Treasury securities, see
"Dividends, Distributions and Taxes--Zero Coupon Treasury Securities" in the
Statement of Additional Information of each Fund.
Variable, Floating and Inverse Floating Rate Instruments. Municipal securities
may have fixed, variable or floating rates of interest. Variable and floating
rate securities pay interest at rates that are adjusted periodically, according
to a specified formula. A "variable" interest rate adjusts at predetermined
intervals (e.g., daily, weekly or monthly), while a "floating" interest rate
adjusts whenever a specified benchmark rate (such as the bank prime lending
rate) changes.
A Portfolio may invest in fixed-income securities that pay interest at a coupon
rate equal to a base rate, plus additional interest for a certain period of time
if short-term interest rates rise above a predetermined level or "cap." The
amount of such an additional interest payment typically is calculated under a
formula based on a short-term interest rate index multiplied by a designated
factor.
Each Portfolio may 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. These are generally known as inverse floaters.
Typically, the first of the components (the "auction component") pays an
interest rate that is reset periodically through an auction process, while the
second of the components (the "residual component") pays a current residual
interest rate based on the difference between the total interest paid by the
issuer on the municipal securities and the auction rate paid on the auction
component. A Portfolio may purchase both auction and residual components. When
an inverse floater is in the residual mode the interest rate typically resets in
the opposite direction from the variable or floating market rate of interest on
which the inverse floater is based. An inverse floater may be considered to be
leveraged to the extent that its interest rate varies by a magnitude that
exceeds the magnitude of the change in such variable or floating rate of
interest. The degree of leverge inherent in inverse floaters is associated with
a greater degree of volatility in terms of market value, such that the market
values of inverse floaters will tend to decrease more rapidly during periods of
rising interest rates, and increase more rapidily in periods of falling interest
rates, than those of fixed rate municipal 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 buyer's money is
invested in the security. Such agreements permit a Portfolio to keep all of its
assets at work while retaining "overnight" flexibility in pursuit of investments
of a longer-term nature. A Portfolio requires continual maintenance of
collateral in an amount equal to, or in excess of, the resale price. If a vendor
defaults on its repurchase obligation, a Portfolio would suffer a loss to the
extent that the proceeds from the sale of the collateral were less than the
repurchase price. If a vendor goes bankrupt, a Portfolio might be delayed in, or
prevented from, selling the collateral for its benefit. There is no percentage
restriction on any Portfolio's ability to enter into repurchase agreements. The
Portfolios may enter into repurchase agreements with member banks of the Federal
Reserve System or "primary dealers" (as designated by the Federal Reserve Bank
of New York).
Illiquid Securities. Subject to any applicable fundamental investment policy,
each Portfolio may not maintain more than 15% of its net assets in illiquid
securities. These securities include, among others, securities for which there
is no readily available market, options purchased by a Portfolio
over-the-counter, the cover for such options and repurchase agreements not
terminable within seven days.
Because of the absence of a trading market for illiquid securities, a Portfolio
may not be able to realize their full value upon sale. With respect to each
Portfolio that may invest in such securities, Alliance will monitor their
illiquidity under the supervision of the Directors or Trustees of the Fund. To
the extent permitted by applicable law, Rule 144A securities will not be treated
as "illiquid" for purposes of the foregoing restriction so long as such
securities meet liquidity guidelines established by a Fund's Directors or
Trustees.
Defensive Position. Under normal circumstances, substantially all of the total
assets of each Portfolio will be invested in the types of municipal securities
described in "How The Portfolios Pursue Their Objective" above. However, when
business or financial conditions warrant, each Portfolio may assume a temporary
defensive position and invest without limit in other municipal securities that
are in all other respects consistent with the Portfolio's investment policies.
For temporary defensive purposes, each Portfolio may also invest without limit
in high-quality municipal notes, rated SP-2 or higher by S&P, MIG-2 (or VMIG-2)
or higher by Moody's, D-1 or higher by Duff & Phelps or FIN-2 or higher by
Fitch, or in taxable cash equivalents (limited, in the case of the Florida
Portfolio, to short-term U.S. Government Securities or repurchase agreements).
Portfolio Turnover. From time to time, the Portfolios may engage in active
short-term trading to benefit from yield disparities among different issues of
municipal securities, to seek short-term profits during periods of fluctuating
interest rates, or for other reasons. Such trading will increase a Portfolio's
rate of turnover and the incidence of short-term capital gain taxable as
ordinary income. Management anticipates that the annual turnover in each
Portfolio will not exceed 250%. An annual turnover rate of 200% occurs, for
example, when all of the securities in a Portfolio are replaced twice in a
period of one year. A high rate of portfolio turnover involves correspondingly
greater expenses than a lower rate, which expenses must be borne by a Portfolio
and its shareholders.
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However, the execution costs for municipal securities are substantially less
than those for equivalent dollar values of equity securities. See "Dividends,
Distributions and Taxes."
CERTAIN FUNDAMENTAL INVESTMENT POLICIES
Each Portfolio has adopted certain fundamental investment policies listed below,
which may not be changed without the approval of its shareholders. Additional
investment restrictions with respect to a Portfolio are set forth in the
Statements of Additional Information.
No Portfolio other than the Insured California Portfolio may: (i) invest more
than 5% of its total assets in the securities of any one issuer except the U.S.
Government, although with respect to 25% of the total assets of the National and
Insured National Portfolios and 50% of the total assets of the State Portfolios
(other than the Insured California Portfolio) each such Portfolio may invest in
any number of issuers; (ii) invest 25% or more of its total assets in the
securities of issuers conducting their principal business activities in any one
industry, provided that for purposes of this policy (a) there is no limitation
with respect to investments in municipal securities issued by governmental users
(including private activity bonds issued by governmental users), U.S. Government
Securities and (b) consumer finance companies, industrial finance companies and
gas, electric, water and telephone utility companies are each considered to be
separate industries (for purposes of this restriction, the Portfolio will regard
the entity with the primary responsibility for the payment of interest and
principal as the issuer); (iii) purchase more than 10% of any class of the
voting securities of any one issuer; (iv) have more than 5% of its assets
invested in repurchase agreements with the same dealer; (v) borrow money except
from banks for temporary or emergency purposes and then in amounts not exceeding
20% of its total assets; or (vi) in the case of the National, Insured National,
New York and California Portfolios, invest more than 10% of its total assets in
repurchase agreements not terminable within seven days (whether or not illiquid)
or other illiquid investments.
The Insured California Portfolio may not: (i) except when investing for
temporary defensive purposes, invest more than 35% of its total assets in
securities not covered by insurance which provides for the payment of principal
of and interest on such securities or invest more than 20% of its total assets
in securities the interest from which is subject to Federal income tax and
California personal income tax (there is no limit on the amount of securities
that may be insured by a single insurance company); (ii) invest more than 5% of
its total assets in the securities of any one issuer or invest in more than 10%
of the voting securities of any one issuer except that up to 50% of the Insured
California Portfolio's total assets may be invested without regard to this
limitation and except that this does not limit the amount of the Insured
California Portfolio's assets that may be invested in U.S. Government
Securities; (iii) invest more than 25% of its total assets in a single industry,
except that there is no limit on the amount of its assets which may be invested
in municipal securities issued by governments or political subdivisions thereof,
in a particular segment of the municipal securities market or (subject to (ii)
above) in U.S. Government Securities; (iv) invest more than 10% of its total
assets in repurchase agreements not terminable within seven days (whether or not
illiquid) or other illiquid investments; or (v) borrow money, except from banks
for temporary purposes and then in amounts not in excess of 10% of the value of
its total assets at the time of such borrowing; or mortgage, pledge or
hypothecate any assets except in connection with any such borrowing in amounts
not in excess of 15% of its total assets at the time of such borrowing.
RISK CONSIDERATIONS
Municipal Securities. The value of each Portfolio's shares will fluctuate with
the value of its investments. The value of each Portfolio's investments will
change as the general level of interest rates fluctuates. During periods of
falling interest rates, the values of a Portfolio's securities generally rise.
Conversely, during periods of rising interest rates, the values of a Portfolio's
securities generally decline.
In seeking to achieve a Portfolio's investment objective, there will be times,
such as during periods of rising interest rates, when depreciation and
realization of capital losses on securities in a Portfolio's portfolio will be
unavoidable. Moreover, medium- and lower-rated securities and non-rated
securities of comparable quality may be subject to wider fluctuations in yield
and market values than higher-rated securities under certain market conditions.
Such fluctuations after a security is acquired do not affect the cash income
received from that security but are reflected in the net asset value of a
Portfolio.
Securities Ratings. The ratings of securities by S&P, Moody's, Duff & Phelps and
Fitch are a generally accepted barometer of credit risk. They are, however,
subject to certain limitations from an investor's standpoint. The rating of an
issuer is heavily weighted by past developments and does not necessarily reflect
probable future conditions. There is frequently a lag between the time a rating
is assigned and the time it is updated. In addition, there may be varying
degrees of difference in credit risk of securities within each rating category.
Securities rated Aaa by Moody's and AAA by S&P, Duff & Phelps and Fitch are
considered to be of the highest quality; capacity to pay interest and repay
principal is extremely strong. Securities rated Aa by Moody's and AA by S&P,
Duff & Phelps and Fitch are considered to be high quality; capacity to repay
principal is considered very strong, although elements may exist that make risks
appear somewhat larger than exist with securities rated Aaa or AAA. Securities
rated A are considered by Moody's to possess adequate factors giving security to
principal and interest. S&P, Duff & Phelps and Fitch consider such securities to
have a strong capacity to pay interest and repay principal. Such securities are
more susceptible to
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adverse changes in economic conditions and circumstances than higher-rated
securities.
Securities rated Baa by Moody's and BBB by S&P, Duff & Phelps and Fitch are
considered to have an adequate capacity to pay interest and repay principal.
Such securities are considered to have speculative characteristics and share
some of the same characteristics as lower-rated securities. Sustained periods of
deteriorating economic conditions or of rising interest rates are more likely to
lead to a weakening in the issuer's capacity to pay interest and repay principal
than in the case of higher-rated securities. Securities rated Ba by Moody's and
BB by S&P, Duff & Phelps and Fitch are considered to have speculative
characteristics with respect to capacity to pay interest and repay principal
over time; their future cannot be considered as well-assured. Securities rated B
by Moody's, S&P, Duff & Phelps and Fitch are considered to have highly
speculative characteristics with respect to capacity to pay interest and repay
principal. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Securities rated Caa by Moody's and CCC by S&P, Duff & Phelps and Fitch are of
poor standing and there is a present danger with respect to payment of principal
or interest. See the Statements of Additional Information for a description of
the ratings used by Moody's, S&P, Duff & Phelps and Fitch.
Investments in Lower-Rated Securities. Lower-rated securities, i.e., those rated
Ba and lower by Moody's or BB and lower by S&P, Duff & Phelps and Fitch
(commonly known as "junk bonds"), are subject to greater risk of loss of
principal and interest than higher rated securities. They are also generally
considered to be subject to greater market risk than higher-rated securities,
and the capacity of issuers of lower-rated securities to pay interest and repay
principal is more likely to weaken than is that of issuers of higher-rated
securities in times of deteriorating economic conditions or rising interest
rates. In addition, lower-rated securities may be more susceptible to real or
perceived adverse economic conditions than investment grade securities, although
the market values of securities rated below investment grade and comparable
unrated securities tend to react less to fluctuations in interest rate levels
than do those of higher-rated securities.
The market for lower-rated securities may be thinner and less active than that
for higher-rated securities, which can adversely affect the prices at which
these securities can be sold. To the extent that there is no established
secondary market for lower-rated securities, a Portfolio may experience
difficulty in valuing such securities and, in turn, the Portfolio's assets.
Alliance will try to reduce the risk inherent in investment in lower-rated
securities through credit analysis, diversification and attention to current
developments and trends in interest rates and economic and political conditions.
However, there can be no assurance that losses will not occur. Since the risk of
default is higher for lower-rated securities, Alliance's research and credit
analysis are a correspondingly more important aspect of its program for managing
a Portfolio's securities than would be the case if a Portfolio did not invest in
lower-rated securities.
Non-rated Securities. Non-rated securities will also be considered for
investment by a Portfolio when Alliance believes that the financial condition of
the issuers of such securities, or the protection afforded by the terms of the
securities themselves, limits the risk to the Portfolio to a degree comparable
to that of rated securities which are consistent with the Portfolio's objective
and policies.
Non-diversified Status. Each of the State Portfolios is a "non-diversified"
investment company, which means the Portfolio is not limited in the proportion
of its assets that may be invested in the securities of a single issuer. Because
each State Portfolio will normally invest solely or substantially in municipal
securities of a particular state, it is more susceptible than a geographically
diversified municipal securities portfolio to local risk factors. Such risks
arise from the financial condition of the state involved and its municipalities.
To the extent such state or local governmental entities are unable to meet their
financial obligations, the income derived by the State Portfolios, their ability
to preserve or realize appreciation of their portfolio assets and their
liquidity could be impaired. The Statements of Additional Information of the
Funds provide certain information about the particular states.
Each Portfolio, however, intends to conduct its operations so as to qualify to
be taxed as a "regulated investment company" for purposes of the Internal
Revenue Code, which will relieve the Portfolio of any liability for federal
income tax to the extent its earnings are distributed to shareholders. See
"Dividends, Distributions and Taxes" in the Statements of Additional
Information. To so qualify, among other requirements, each Portfolio will limit
its investments so that, at the close of each quarter of the taxable year, (i)
not more than 25% of the Portfolio's total assets will be invested in the
securities of a single issuer, and (ii) with respect to 50% of its total assets,
not more than 5% of its total assets will be invested in the securities of a
single issuer and the Portfolio will not own more than 10% of the outstanding
voting securities of any such single issuer. A Portfolio's investments in U.S.
Government securities are not subject to these limitations.
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PURCHASE AND SALE OF SHARES
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HOW TO BUY SHARES
Each Portfolio offers multiple classes of shares, of which only the Advisor
Class is offered by this Prospectus. Advisor Class shares of each Portfolio may
be purchased through your financial representative at net asset value without
any initial or contingent deferred sales charges and without distribution
expenses. Advisor Class shares may be purchased solely by investors (i) through
accounts established under a fee-based
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program, sponsored and maintained by a registered broker-dealer or other
financial intermediary and approved by Alliance Fund Distributors, Inc. ("AFD"),
each Fund's principal underwriter, pursuant to which each investor pays an
asset-based fee at an annual rate of at least .50% of the assets in the
investor's account, to the broker-dealer or financial intermediary, or its
affiliate or agent, for investment advisory or administrative services, or (ii)
through a self directed defined contribution employee benefit plan (e.g., a
401(k) plan) that has at least 1,000 participants or $25 million in assets. The
minimum initial investment in each Portfolio is $250. The minimum for subsequent
investments in each Portfolio is $50. Investments of $25 or more are allowed
under the automatic investment program in each Portfolio and under a 403(b)(7)
retirement plan. Share certificates are issued only upon request. Under certain
conditions, the Funds may suspend purchases of shares. See the Subscription
Application and Statements of Additional Information for more information. In
the case of the State Portfolios, each Portfolio is available only to residents
of the indicated state.
The Portfolios may refuse any order to purchase Advisor Class shares. In this
regard, the Portfolios reserve the right to restrict purchases of Advisor Class
shares (including exchanges) when there appears to be evidenced of a pattern of
frequent purchases and sales made in response to short-term fluctuations in
share price.
How The Portfolios Value Their Shares
The net asset value of Advisor Class shares of a Portfolio is calculated by
dividing the value of the Portfolio's net assets allocable to the Advisor Class
by the outstanding shares of the Advisor Class. Shares are valued each day the
New York Stock Exchange (the "Exchange") is open as of the close of regular
trading (currently 4:00 p.m. Eastern time). The securities in a Portfolio are
valued at their current market value determined on the basis of market
quotations or, if such quotations are not readily available, such other methods
as the Fund's Directors or Trustees believe would accurately reflect fair market
value.
HOW TO SELL SHARES
You may "redeem", i.e., sell your shares in a Portfolio to a Fund on any day the
Exchange is open, either directly or through your financial representative. The
price you will receive is the net asset value next calculated after the Fund
receives your request in proper form. Proceeds generally will be sent to you
within seven days. However, for shares recently purchased by check or electronic
funds transfer, a Fund will not send proceeds until it is reasonably satisfied
that the check or electronic funds transfer has been collected (which may take
up to 15 days). If you are in doubt about what documents are required by your
fee-based program or employee retirement plan, you should consult your financial
representative.
Selling Shares Through Your Financial Representative
Your financial representative must receive your request before 4:00 p.m. Eastern
time, and your financial representative must transmit your request to the Fund
by 5:00 p.m. Eastern time, for you to receive that day's net asset value. Your
financial representative is responsible for furnishing all necessary
documentation to the Funds, and may charge you for this service.
Selling Shares Directly To A Fund
Send a signed letter of instruction or stock power form to Alliance Fund
Serivces, Inc. ("AFS") along with your certificates, if any, that represent the
shares you want to sell. For your protection, signatures must be guaranteed by a
bank, a member firm of a national stock exchange or other eligible guarantor
institution. Stock power forms are available from your financial representative,
AFS, and many commercial banks. Additional documentation is required for the
sale of shares by corporations, intermediaries, fiduciaries and surviving joint
owners. For details contact:
Alliance Fund Services
P.O. Box 1520
Secaucus, NJ 07096-1520
1-800-221-5672
Alternatively, a request for redemption of shares for which no stock
certificates have been issued can also be made by telephone to 800-221-5672.
Telephone redemption requests must be made by 4 p.m. Eastern time on a Fund
business day in order to receive that day's net asset value and, except for
certain omnibus accounts, may be made only once in any 30-day period. A
shareholder who has completed the Telephone Transactions section of the
Subscription Application, or the Shareholder Options form obtained from AFS, can
elect to have the proceeds of their redemption sent to their bank via an
electronic funds transfer. Proceeds of telephone redemptions also may be sent by
check to a shareholder's address of record. Except for certain omnibus accounts,
redemption requests by electronic funds transfer may not exceed $100,000 and
redemption requests by check may not exceed $50,000. Telephone redemption is not
available for shares held in nominee or "street name" accounts or retirement
plan accounts or shares held by a shareholder who has changed his or her address
of record within the previous 30 calendar days.
General
The sale of shares is a taxable transaction for federal tax purposes. Under
unusual circumstances, a Fund may suspend redemptions or postpone payment for up
to seven days or longer, as permitted by federal securities law. The Funds
reserve the right to close an account that through redemption has remained below
$200 for 90 days. Shareholders will receive 60 days' written notice to increase
the account value before the account is closed.
During drastic economic or market developments, you might have difficulty in
reaching AFS by telephone, in which event you should issue written instructions
to AFS. AFS is not responsible for the authenticity of telephonic requests to
purchase, sell or exchange shares. AFS will employ reasonable procedures to
verify that telephone requests are genuine, and could be liable for losses
resulting from unauthorized transactions if it failed to do so. Dealers and
agents may charge a commission for handling telephonic requests. The telephone
service may be suspended or terminated at any time without notice.
SHAREHOLDER SERVICES
AFS offers a variety of shareholder services. For more information about these
services or your account, call AFS's toll-free number, 800-221-5672.
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HOW TO EXCHANGE SHARES
You may exchange your Advisor Class shares of any Portfolio for Advisor Class
shares of other Alliance Mutual Funds (which include AFD Exchange Reserves, a
money market fund managed by Alliance). Exchanges of shares are made at the net
asset values next determined, without sales or service charges. Exchanges may be
made by telephone or written request. Telephone exchange request must be
received by AFS by 4:00 p.m. Eastern time on a Fund business day in order to
receive that day's net asset value.
Please read carefully the Prospectus of the mutual fund into which you are
exchanging before submitting the request. Call AFS at 800-221-5672 to exchange
uncertificated shares. An exchange is a taxable capital transaction for federal
tax purposes. The exchange service may be changed, suspended, or terminated on
60 days' written notice.
GENERAL
If you are a Fund 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 a Fund that are different
from those described in this Prospectus. 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.
Each Portfolio offers three classes of shares other than the Advisor Class,
which are Class A, Class B and Class C. All classes of shares of a Portfolio
have a common investment objective and investment portfolio. Class A shares are
offered with an initial sales charge and pay a distribution services fee. Class
B shares have a contingent deferred sales charge (a "CDSC") and also pay a
distribution services fee. Class C shares have no initial sales charge or CDSC
but pay a distribution services fee. Because Advisor Class shares have no
initial sales charge or CDSC and pay no distribution services fee, Advisor Class
shares are expected to have different performance from Class A, Class B or Class
C shares. You may obtain more information about Class A, Class B and Class C
shares, which are not offered by this Prospectus, by contacting AFS by telephone
at 1-800-221-5672 or by contacting your financial representative.
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MANAGEMENT OF THE FUNDS
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ADVISER
Alliance, which is a Delaware limited partnership with principal offices at 1345
Avenue of the Americas, New York, New York 10105, has been retained under an
advisory agreement (the "Advisory Agreement"), to provide investment advice and,
in general, to conduct the management and investment program of each Portfolio
of each Fund, subject to the general supervision and control of the Board of
Directors or Trustees of that Fund.
The employees of Alliance principally responsible for each Portfolio's
investment program are Mrs. Susan P. Keenan, Mr. David M. Dowden and Mr.
Terrance T. Hults. Mrs. Keenan has served in this capacity for each Portfolio
since it commenced operations. Messrs. Dowden and Hults have served in this
capacity for each Portfolio since 1994 and 1995, respectively. Mrs. Keenan is a
Senior Vice President of Alliance Capital Management Corporation ("ACMC"), with
which she has been associated since prior to 1990. Mr. Dowden is an Assistant
Vice President of ACMC with which he has been associated since 1994. Previously
he was an analyst in the Municipal Strategy Group at Merrill Lynch Capital
Markets. Mr. Hults has been an Assistant Vice President of ACMC since 1995.
Previously he was an associate and trader in the Municipal Derivative Products
department at Merrill Lynch Capital Markets.
Alliance is a leading international investment manager supervising client
accounts with assets as of March 1, 1996 totaling more than $156 billion (of
which approximately $48 billion represented the assets of investment companies).
Alliance's clients are primarily major corporate employee benefit funds, public
employee retirement systems, investment companies, foundations and endowment
funds. The 50 registered investment companies managed by Alliance comprising 107
separate investment portfolios currently have over two million shareholders. As
of March 1, 1996, Alliance was retained as an investment manager for 34 of the
Fortune 100 companies.
ACMC, the sole general partner of, and the owner of a 1% general partnership
interest in, Alliance, is an indirect wholly-owned subsidiary of The Equitable
Life Assurance Society of the United States ("Equitable"), one of the largest
life insurance companies in the United States, which is a wholly-owned
subsidiary of The Equitable Companies Incorporated, a holding company controlled
by AXA, a French insurance holding company. Certain information concerning the
ownership and control of Equitable by AXA is set forth in the Statements of
Additional Information under "Management of the Fund."
DISTRIBUTION SERVICES AGREEMENTS
Each Fund has entered into a Distribution Services Agreement with AFD with
respect to Advisor Class shares. The Glass-Steagall Act and other applicable
laws may limit the ability of a bank or other depository institution to become
an underwriter or distributor of securities. However, in the opinion of the
Funds' management, based on the advice of counsel, these laws do not prohibit
such depository institutions from providing services for investment companies
such as the administrative, accounting and other services referred to in the
Agreements. In the event that a change in these laws prevented a bank from
providing such services, it is expected that other service arrangements would be
made and that shareholders would not be adversely affected. The State of Texas
requires that shares of the National and Insured National Portfolio may be sold
in that state only by dealers or other financial institutions that are
registered there as broker-dealers.
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DIVIDENDS, DISTRIBUTIONS
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AND TAXES
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS
Dividends on shares of a Portfolio will be declared on each Fund business day
from the Portfolio's net investment income.
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Dividends on shares for Saturdays, Sundays and holidays will be declared on the
previous business day. The Funds pay dividends on shares of each Portfolio after
the close of business on the twentieth day of each month or, if such day is not
a business day, the first business day thereafter. At your election (which you
may change at least 30 days prior to the record date for a particular dividend
or distribution), dividends and distributions are paid in cash or reinvested
without charge in additional shares of the same class having an aggregate net
asset value as of the payment date of the dividend or distribution equal to the
cash amount thereof.
If you receive an income dividend or capital gains distribution in cash, you
may, within 120 days following the date of its payment, reinvest the dividend or
distribution in additional shares of that Portfolio without charge by returning
to Alliance, with appropriate instructions, the check representing such dividend
or distribution. Thereafter, unless you otherwise specify, you will be deemed to
have elected to reinvest all subsequent dividends and distributions in shares of
that Portfolio.
There is no fixed dividend rate and there can be no assurance that a Portfolio
will pay any dividends. The amount of any dividend or distribution paid on
shares of a Portfolio must necessarily depend upon the realization of income and
capital gains from the Portfolio's investments.
TAXES
Generally. Each Portfolio intends to qualify for each taxable year to be taxed
as a regulated investment company under the Internal Revenue Code (the "Code")
and, as such, will not be liable for federal income and excise taxes on the
investment company taxable income and net capital gains distributed to its
shareholders.
Distributions to shareholders out of tax-exempt interest income earned by a
Portfolio are not subject to Federal income tax. However, under current tax law,
some individuals and corporations may be subject for Federal income tax purposes
to the AMT on distributions to shareholders out of income from the AMT-Subject
Bonds in which all Portfolios (other than the Insured National and Insured
California Portfolios) principally invest. Further, under current tax law,
certain corporate taxpayers may be subject to the AMT based on their "adjusted
current earnings." Distributions from a Portfolio that are excluded from gross
income and from AMT taxable income will be included in such corporation's
"adjusted current earnings" for purposes of computation of the AMT.
Distributions out of taxable interest, other investment income, and net realized
short-term capital gains are taxable to shareholders as ordinary income, and
distributions to shareholders of net realized long-term capital gains are
taxable to shareholders as long-term capital gains irrespective of the length of
time a shareholder has held his or her Portfolio shares. Since a Portfolio's
investment income is derived from interest rather than dividends, no portion of
such distributions is eligible for the dividends-received deduction available to
corporations.
Interest on indebtedness incurred by shareholders to purchase or carry shares of
a Portfolio is not deductible for Federal income tax purposes. Further, persons
who are "substantial users" (or related persons) of facilities financed by
AMT-Subject Bonds should consult their tax advisers before purchasing shares of
a Portfolio.
If a shareholder holds shares for six months or less and during that time
receives a distribution taxable to such shareholder as long-term capital gain,
any loss realized on the sale of such shares during such six-month period would
be a long-term capital loss to the extent of such distribution. If a shareholder
holds shares for six months or less and during that time receives a distribution
of tax-exempt interest income, any loss realized on the sale of such shares
would be disallowed to the extent of such distribution.
Substantially all of the dividends paid by a Portfolio are anticipated to be
exempt from regular federal income taxes. Shareholders may be subject to state
and local taxes on distributions from a Portfolio, including distributions which
are exempt from federal income taxes. The Funds will report annually to
shareholders the percentage and source of interest earned by a Portfolio which
is exempt from federal income tax and, except in the case of the National and
Insured National Portfolios, relevant state and local personal income taxes,
and, in the case of the Florida Portfolio, the portion of the net asset value of
such Portfolio which is exempt from Florida intangible tax.
Each investor should consult his or her own tax adviser to determine the tax
status, with regard to his or her tax situation, of distributions from the
Portfolios.
Arizona Portfolio. It is anticipated that substantially all of the dividends
paid by the Portfolio will be exempt from the Arizona income tax imposed on
individuals, corporations, estates and trusts. Such dividends will be exempt
from Arizona income tax to the extent they are derived from Arizona municipal
securities and U.S. Government Securities. Arizona law does not permit a
deduction for interest paid or accrued on indebtedness incurred or continued to
purchase or carry obligations the interest of which is exempt from Arizona state
income taxes.
California and Insured California Portfolios. Distributions of interest income
by the California Portfolio and by the Insured California Portfolio, to the
extent derived from California tax-exempt obligations, will be exempt from
California personal income tax.
Florida Portfolio. Dividends paid by the Portfolio to individual Florida
shareholders will not be subject to Florida income tax, which is imposed only on
corporations. However, Florida currently imposes an intangible personal property
tax at the rate of $2.00 per $1,000 taxable value of certain securities, such as
shares of the Portfolio, and other intangible assets owned by Florida residents.
U.S. Government Securities and Florida municipal securities are exempt from this
intangible tax. It is anticipated that the Portfolio's shares will qualify for
exemption from the Florida intangible tax. In order to so qualify, the Portfolio
must, among other things, have its entire portfolio invested in U.S. Government
Securities and Florida municipal securities on December 31 of any year.
Exempt-interest dividends paid by the
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Portfolio to corporate shareholders will be subject to Florida corporate income
tax.
Massachusetts Portfolio. It is anticipated that substantially all of the
dividends paid by the Portfolio will be exempt from the Massachusetts personal
income tax. Such dividends will be exempt from Massachusetts personal income tax
to the extent attributable to interest from Massachusetts municipal securities
exempt from the Massachusetts personal income tax or U.S. Government Securities
and are so designated. Dividends designated as attributable to capital gains
will be subject to the Massachusetts personal income tax at capital gains tax
rates except to the extent designated as attributable to gains on certain
Massachusetts municipal securities. Dividends paid by the Portfolio to a
corporate shareholder will be subject to Massachusetts corporate excise tax.
Michigan Portfolio. It is anticipated that substantially all of the dividends
paid by the Portfolio will be exempt from Michigan income, intangibles and
single business taxes. Such dividends will be exempt from Michigan personal
income tax, the Michigan intangible personal property tax and the Michigan
single business tax to the extent that such distributions are derived from
Michigan municipal securities and U.S. Government Securities, and provided that
at least 50% of the total assets of the Portfolio consist of Michigan municipal
securities at the close of each quarter of the Fund's taxable year. To the
extent the distributions are not subject to Michigan income tax, they are not
subject to the uniform city income tax imposed by certain Michigan cities. For
Michigan income, intangibles and single business tax purposes, distributions
representing income derived by the Portfolio from sources other than Michigan
municipal securities and U.S. Government Securities will be included in Michigan
taxable income and will be included in the taxable bases of the Michigan single
business and intangibles taxes, except that distributions from capital gains
which are reinvested in Portfolio shares are exempt from intangibles taxes.
Minnesota Portfolio. It is anticipated that substantially all of the dividends
paid by the Portfolio to individuals will be exempt from Minnesota personal
income tax. However, at least 95% of the exempt-interest dividends paid by the
Portfolio during a Fund fiscal year must be derived from Minnesota municipal
securities in order for any portion of the exempt-interest dividends paid by the
Portfolio to be exempt from the Minnesota personal income tax. Under current
Minnesota tax law, some individuals may be subject to the Minnesota AMT on
distributions to shareholders out of the income from AMT-Subject Bonds in which
the Portfolio invests. Exempt-interest dividends paid by the Portfolio to
shareholders that are corporations are subject to Minnesota franchise tax.
New Jersey Portfolio. It is anticipated that substantially all of the dividends
paid by the Portfolio to individuals will be exempt from New Jersey personal
income tax. In order to pass through tax-exempt interest for New Jersey personal
income tax purposes, the Portfolio must, among other things, invest only in
interest bearing obligations, obligations issued at a discount, and cash and
cash items including receivables and financial options, futures, forward
contracts and other similar financial instruments related to such obligations or
to bond indices. In addition, it must have not less than 80% of the aggregate
principal amount of its investments, excluding certain financial options and
similar financial instruments described above and cash and cash items, invested
in New Jersey municipal securities or U.S. Government Securities at the close of
each quarter of the tax year. Distributions attributable to gains from New
Jersey municipal securities also will be exempt from New Jersey personal income
tax, provided the Portfolio satisfies the above requirements. Exempt-interest
dividends paid by the Portfolio to a corporate shareholder will be subject to
New Jersey corporation business (franchise) tax and the New Jersey corporation
income tax.
New York Portfolio. Distributions of interest income by the Portfolio, to the
extent derived from New York State municipal securities, or from obligations
issued by the government of Puerto Rico or by its authority, will be exempt from
New York State and New York City personal income taxes.
Ohio Portfolio. Distributions of interest income and gain by the Portfolio, to
the extent such distributions are derived from Ohio municipal securities, will
be exempt from the Ohio personal income tax, Ohio school district income taxes
and Ohio municipal income taxes, and will not be includable in the net income
base of the Ohio corporate franchise tax; provided that at all times at least
50% of the value of the total assets of the Portfolio consists of Ohio municipal
securities or similar obligations of other states or their subdivisions. Shares
of the Portfolio will be included in a corporation's tax base for purposes of
computing the Ohio corporate franchise tax on a net worth basis.
Pennsylvania Portfolio. Dividends paid by the Portfolio will not be subject to
the Pennsylvania personal income tax or the Philadelphia School District
investment net income tax to the extent that the dividends are attributable to
interest received by the Portfolio from its investments in Pennsylvania
municipal securities or U.S. Government Securities. Exempt-interest dividends
paid by the Portfolio and dividends attributable to interest on U.S. Government
securities also are not subject to the Pennsylvania Corporate Net Income Tax.
Portfolio shares are not considered exempt assets for the purposes of
determining a corporation's capital stock value subject to the Pennsylvania
Capital Stock/Franchise Tax. Shares of the Portfolio also are exempt from
Pennsylvania county personal property taxes to the extent that the Portfolio
consists of Pennsylvania municipal securities or U.S. Government Securities.
Virginia Portfolio. Shareholders may be subject to state and local taxes on
distributions from the Portfolio, including distributions which are exempt from
Federal income taxes. It is anticipated that substantially all of the dividends
paid by the Portfolio will be exempt from Virginia income taxes. So long as the
Portfolio qualifies as a regulated investment company under the Code and at
least 50% of the value of the total assets of the
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Portfolio at the end of each quarter of its taxable year consists of obligations
whose interest is exempt from Federal income taxes, dividends paid by the
Portfolio will be exempt from Virginia individual, estate, trust, and corporate
income taxes to the extent such distributions are either (i) exempt from regular
Federal income tax and attributable to interest on Virginia municipal securities
or obligations issued by Puerto Rico, the United States Virgin Islands, or Guam
or (ii) attributable to interest on obligations of the United States or any
authority, commission or instrumentality of the United States. As a general
rule, distributions attributable to gains of the Portfolio and gains recognized
on the sale or other disposition of shares of the Portfolio (including the
redemption or exchange of shares) will be subject to Virginia income taxes.
Interest on indebtedness incurred (directly or indirectly) by shareholders to
purchase or carry shares of the Portfolio generally will not be deductible for
Virginia income tax purposes.
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GENERAL INFORMATION
- --------------------------------------------------------------------------------
PORTFOLIO TRANSACTIONS
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc., and subject to seeking best price and execution, a
Fund may consider sales of its shares of a Portfolio as a factor in the
selection of dealers to enter into portfolio transactions with the Funds.
ORGANIZATION
Alliance Municipal Income Fund, Inc. is a Maryland corporation organized on July
30, 1986. Alliance Municipal Income Fund II is a Massachusetts business trust
organized on April 2, 1993. It is anticipated that annual shareholder meetings
will not be held; shareholder meetings will be held only when required by
Federal or, in the case of Alliance Municipal Income Fund, Inc., state law.
Shareholders have available certain procedures for the removal of Directors or
Trustees.
A shareholder in a Portfolio will be entitled to his pro rata share of all
dividends and distributions arising from that Portfolio's assets and, upon
redeeming shares, will receive the then current net asset value of that
Portfolio represented by the redeemed shares. The Funds are empowered to
establish, without shareholder approval, additional portfolios which may have
different investment objectives and additional classes of shares. If an
additional portfolio or class were established in a Fund, each share of the
portfolio or class would normally be entitled to one vote for all purposes.
Generally, shares of each Fund vote together as a single class on matters, such
as the election of Directors or Trustees, that affect each Portfolio in
substantially the same manner. Advisor Class, Class A, Class B and Class C
shares of a Portfolio have identical voting, dividend, liquidation and other
rights, except that each class bears its own transfer agency expenses and each
of Class A, Class B and Class C shares bears its own distribution expenses. Each
class of shares votes separately with respect to matters for which separate
class voting is appropriate under applicable law. Shares are freely
transferable, are entitled to dividends as determined by the Board of Directors
or Trustees and, in liquidation of a Portfolio, are entitled to receive the net
assets of that Portfolio. Since this Prospectus sets forth information about
both Funds, it is theoretically possible that one Fund might be liable for any
materially inaccurate or incomplete disclosure in this Prospectus concerning the
other Fund. Based on the advice of counsel, however, the Funds believe that the
potential liability of each Fund with respect to the disclosure in this
Prospectus extends only to the disclosure relating to that Fund. Certain
additional matters relating to the organization of a Fund are discussed in its
Statement of Additional Information.
REGISTRAR, TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT
AFS, an indirect wholly-owned subsidiary of Alliance, located at 500 Plaza
Drive, Secaucus, New Jersey 07094, acts as the Funds' registrar, transfer agent
and dividend-disbursing agent for a fee based upon the number of shareholder
accounts maintained for the Funds.
PRINCIPAL UNDERWRITER
AFD, an indirect wholly-owned subsidiary of Alliance, located at 1345 Avenue of
the Americas, New York, New York 10105, is the Principal Underwriter of shares
of the Funds.
PERFORMANCE INFORMATION
From time to time, the Portfolios advertise their "yield" and "total return",
which are computed separately for each class of shares, including Advisor Class
shares. A Portfolio's yield for any 30-day (or one-month) period is computed by
dividing the net investment income per share earned during such period by the
maximum public offering price per share on the last day of the period, and then
annualizing such 30-day (or one-month) yield in accordance with a formula
prescribed by the Commission which provides for compounding on a semi-annual
basis. The Portfolios may also state a "taxable equivalent yield" that is
calculated by assuming that net investment income per share is increased by an
amount sufficient to offset the benefit of tax exemptions at the stated income
tax rate. The Portfolios may also state in sales literature an "actual
distribution rate" for each class which is computed in the same manner as yield
except that actual income dividends declared per share during the period in
question are substituted for net investment income per share.
The actual distribution rate is computed separately for each class of shares,
including Advisor Class shares. Advertisements of a Portfolio's total return
disclose the Portfolio's average annual compounded total return for the periods
prescribed by the Commission. A Portfolio's total return for each such period is
computed by finding, through the use of a formula prescribed by the Commission,
the average annual compounded rate of return over the period that would equate
an assumed initial amount invested to the value of the investment at the end of
the
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period. For purposes of computing total return, income dividends and capital
gains distributions paid on shares of a Portfolio are assumed to have been
reinvested when paid and the maximum sales charges applicable to purchases and
redemptions of the Portfolio's shares are assumed to have been paid.
Advertisements may quote performance rankings or ratings of the Portfolios by
financial publications or independent organizations such as Lipper Analytical
Services, Inc. and Morningstar, Inc. or compare a Portfolio's performance to
various indices.
ADDITIONAL INFORMATION
This Prospectus and the Statements of Additional Information, which have been
incorporated by reference herein, do not contain all the information set forth
in the Registration Statement filed by each Fund with the Commission under the
Securities Act. Copies of the Registration Statements may be obtained at a
reasonable charge from the Commission or may be examined, without charge, at the
offices of the Commission in Washington, D.C.
This prospectus does not constitute an offering in any state in which such
offering may not lawfully be made.
This prospectus is intended to constitute an offer by each Fund only of the
securities of which it is the issuer and is not intended to constitute an offer
by a Fund of the securities of the other Fund whose securities are also offered
by this prospectus. Neither Fund intends to make any representation as to the
accuracy or completeness of the disclosure in this prospectus relating to the
other Fund. See "General Information--Organization."
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(LOGO) ALLIANCE MUNICIPAL INCOME FUND II
_________________________________________________________________
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 3, 1997
_________________________________________________________________
This Statement of Additional Information is not a prospectus but
supplements and should be read in conjunction with the current
Prospectus for the Alliance Municipal Income Fund II (the "Fund")
that offers the Class A, Class B and Class C shares of the Fund
and if the Fund begins to offer Advisor Class shares the
Prospectus for the Fund that offers the Advisor Class shares of
the Fund (the "Advisor Class Prospectus" and, together with the
Prospectus for the Fund that offers the Class A, Class B and
Class C shares, the "Prospectuses"). The Fund currently does 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
Portfolio Transactions
General Information
Report of Independent Auditors and
Financial Statements
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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
(R): This registered service mark used under license from the
Owner, Alliance Capital Management L.P.
9
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_________________________________________________________________
INVESTMENT POLICIES AND RESTRICTIONS
_________________________________________________________________
The following investment policies and restrictions
supplement, and should be read in conjunction with, the
information regarding the investment objectives, policies and
restrictions of each Portfolio set forth in the Fund's
Prospectus. Except as otherwise noted, each Portfolio's
investment policies are not fundamental and may be changed by the
Trustees of the Fund with respect to a Portfolio without approval
of the shareholders of such Portfolio; however, such shareholders
will be notified prior to a material change in such policies.
Alternative Minimum Tax
Under current Federal income tax law, (1) interest on
tax-exempt municipal securities issued after August 7, 1986 which
are "specified private activity bonds," and the proportionate
share of any exempt-interest dividend paid by a regulated
investment company which receives interest from such specified
private activity bonds, will be treated as an item of tax
preference for purposes of the alternative minimum tax ("AMT")
imposed on individuals and corporations, though for regular
Federal income tax purposes such interest will remain fully tax-
exempt, and (2) interest on all tax-exempt obligations will be
included in "adjusted current earnings" of corporations for AMT
purposes. Such private activity bonds ("AMT-Subject Bonds"),
which include industrial development bonds and bonds issued to
finance such projects as airports, housing projects, solid waste
disposal facilities, student loan programs and water and sewage
projects, have provided, and may continue to provide, somewhat
higher yields than other comparable municipal securities.
Investors should consider that, in most instances, no
state, municipality or other governmental unit with taxing power
will be obligated with respect to AMT-Subject Bonds. AMT-Subject
Bonds are in most cases revenue bonds and do not generally have
the pledge of the credit or the taxing power, if any, of the
issuer of such bonds. AMT-Subject Bonds are generally limited
obligations of the issuer supported by payments from private
business entities and not by the full faith and credit of a state
or any governmental subdivision. Typically the obligation of the
issuer of AMT-Subject Bonds is to make payments to bond holders
only out of and to the extent of, payments made by the private
business entity for whose benefit the AMT-Subject Bonds were
issued. Payment of the principal and interest on such revenue
bonds depends solely on the ability of the user of the facilities
financed by the bonds to meet its financial obligations and the
pledge, if any, of real and personal property so financed as
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security for such payment. It is not possible to provide
specific detail on each of these obligations in which Fund assets
may be invested.
Risks 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
obligers 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
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.
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The following brief summaries are included for the
purpose of providing certain information regarding the economic
climate and financial condition of the states of Arizona,
Florida, Massachusetts, Michigan, Minnesota, New Jersey, Ohio,
Pennsylvania and Virginia, and are based primarily on information
from state publications with respect to Arizona, and from
official statements made available in July 1995 with respect to
Michigan and Minnesota, September 1995 with respect to Ohio and
Virginia, November 1995 with respect to Massachusetts and
Pennsylvania and December 1995 with respect to Florida and New
Jersey 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 Portfolios invest 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
Portfolios. 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 obligers 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.
Arizona Portfolio
The Arizona Portfolio seeks the highest level of current
income exempt from both federal income tax and State of Arizona
("Arizona" or the "State") personal income tax that is available
without assuming what the Fund's Adviser considers to be undue
risk to income or principal by investing in medium-quality,
intermediate and long-term debt obligations issued by the State,
its political subdivisions, agencies and instrumentalities the
interest on which, in the opinion of bond counsel to the issuer,
is exempt from federal income tax and State of Arizona personal
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<PAGE>
income tax. As a matter of fundamental policy, at least 65% of
the Portfolio's total assets will be so invested (except when the
Portfolio is in a temporary defensive position), although it is
anticipated that under normal circumstances substantially all of
the Portfolio's assets will be invested in such Arizona
securities. As a matter of fundamental policy, the Arizona
Portfolio will invest at least 80% of its net assets in municipal
securities the interest on which is exempt from federal income
tax. Under normal market conditions, at least 65% of the Arizona
Portfolio's total assets will be invested in income-producing
securities (including zero coupon securities). Shares of the
Arizona Portfolio are available only to Arizona residents.
Economic Climate
Arizona has been, and is projected to continue to be,
one of the fastest growing states in the United States. Over the
last several decades, Arizona has outpaced most other regions of
the country in virtually every major category of growth. For
example, Arizona's 35% population growth during the 1980s was the
third fastest rate in the nation, next to Alaska and Nevada.
During the 1990's, Arizona's 20.8% population growth is second
only to Nevada. The unemployment rate in Arizona for 1996 was
5.6% and for 1995 was 5.7% compared to a national rate of 5.8% in
1996 and 6.2% in 1995.
Geographically, Arizona is the nation's sixth largest
state in terms of area (113,417 square miles) and the twenty-
first largest in population (4,461,000 residents). The State is
divided into fifteen counties. Two of these counties, Maricopa
County and Pima County, are more urban in nature and account for
approximately 78% of total population and 86% of total wage and
salary employment in Arizona.
The growth of Arizona's two major metropolitan
statistical areas has historically compared favorably with that
of the average for the United States, as well as other major
metropolitan areas, during periods of both economic contraction
and expansion. Beginning in late 1993 Arizona's economy began a
significant expansion resulting in substantial job creation
outside the State's historically dominant employment sectors.
Over the past decade, Arizona's two major metropolitan
areas have diversified their employment base in an attempt to
buffer against the cyclical nature of various industries and
markets. While employment in the mining and agricultural
industries has diminished over the last 25 years, job growth has
occurred in the aerospace and high technology, construction,
finance, insurance, tourism and real estate industries. The
service industry is Arizona's single largest employment sector.
A significant percentage of these jobs are directly related to
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tourism. In the late 1980's and early 1990's, Arizona's economy
was adversely affected by problems in the real estate industry,
including an excessive supply of unoccupied commercial and retail
buildings and severe problems with Arizona-based savings and loan
associations, many of which were liquidated by the Resolution
Trust Corporation. The winding-up of the RTC has led to a
substantially improved real estate market in 1995, and commercial
and industrial vacancy rates sharply declined in 1996. Current
and proposed reductions in Federal military expenditures are
expected to negatively affect the State's economy. Defense-
related business plays an important role in Arizona's economy,
particularly in the manufacturing sector, and reductions in the
defense budget could adversely affect these businesses. In 1994,
the Arizona Legislature expanded existing defense restructuring
legislation intended to transition defense-related industries
into civilian manufacturing. This legislation has been initially
successful in preserving Arizona employment in this sector.
Arizona has experienced a degree of political instability in
recent years, including the impeachment of its Governor in 1988
and a bribery scandal at the Capitol, which resulted in
convictions of seven sitting legislators. Arizona's sitting
Governor J. Fife Symington III, was indicted on twenty-three
counts of violations of federal law in December, 1995 relating to
his involvement in various Arizona real estate projects. His
trial is scheduled for May, 1997. Symington had previously filed
for bankruptcy and his case in bankruptcy court is suspended
pending the criminal trial. However, Arizona voters improved the
State's image with the passage of the Martin Luther King state
holiday in 1992.
A reform-minded legislature has taken steps to improve
Arizona's business climate by reducing taxes and eliminating
unnecessary government regulation. Arizona experienced nearly
annual budget crises during the late 1980's. However, between
1992 and 1996 the Legislature restrained the growth of State
expenditures while substantially reducing taxes. Individual
income tax rates have been reduced more than 20% and businesses
received corporate income tax and property tax reductions of a
substantial magnitude. Nevertheless, tax collectionsrose more
than 8% for fiscal year 1995, and 4.8% for fiscal year 1996,
reflecting strong economic growth in the State as well as a
perceived improvement in the State's business climate.
Per capita income levels in Arizona have traditionally
lagged behind the United States average. However, Arizona's per
capita increase in personal income was second in the nation in
1994, and led the nation in 1995. The diversification of
Arizona's economy, and its current strength, led to this increase
in per capita income, although Arizona still lags behind the
United States average. Substantial Indian Reservations and
retiree populations are a drag on growth and per capita personal
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income, although these demographic factors do not suggest an
adverse impact on State and local budgets.
Problems associated with the phenomenal growth Arizona
experienced in the 1980's and early 1990's, e.g., air quality,
water quality, transportation, and public infrastructure, are
currently being addressed by the Arizona legislature and other
public bodies. An issue of interest to Arizona municipalities is
the availability of sufficient water supplies for current demands
and future development. This issue is complex, and any analysis
necessarily varies from municipality to municipality. In
general, the Arizona legislature has taken steps to help ensure
the long-term supplies of water for the State. To this end,
Arizona enacted the Groundwater Management Act in 1980, which is
comprehensive statute regulating the withdrawal and use of
groundwater in the State, particularly those areas with the
greatest water demands, including the Phoenix, Tucson, and
Prescott metropolitan areas. By 1994, the Central Arizona
Project Canal was substantially complete. The CAP delivers water
to central Arizona (including the Phoenix and Tucson metropolitan
areas), although the price of CAP water still is generally higher
than groundwater.
Another issue of interest, particularly in Maricopa
County, is air quality. The Arizona Legislature adopted air
quality legislation in 1994, complying with a December 31, 1994
deadline imposed by the United States Environmental Protection
Agency ("EPA"). Although Arizona has imposed air quality
requirements on businesses and motor vehicles, EPA recently
reclassified Maricopa County from a moderate to a severe carbon
monoxide nonattainment area and has proposed reclassifying
Maricopa County from a moderate to severe ozone nonattainment
area. The Governor has proposed additional air quality
requirements in an effort to improve the air quality in Maricopa
County. EPA's proposal to modify the national air quality
standard for particulate matter also may result in the need for
additional legislation or regulatory action to avoid EPA
reclassifying additional parts of Arizona as nonattainment areas
with respect to particulate matter.
Notwithstanding the strain which had accompanied the
recent recession, Arizona is likely to experience continued
population growth in the 1990's. The current expansion rate of
more than 2% is forecast to continue for the remainder of the
decade to be driven by jobs affordable housing, a warm climate
and entrepreneurial flight from more heavily regulated states
such as California. It is likely that affordable land and a
pervasive pro-development culture will continue to attract
employers and job seekers. Arizona's housing industry enjoyed
its best year ever in 1995, and has had a robust 20% expansion
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since 1993. It is unlikely that this rate of growth in
residential housing will continue in 1997.
Financial Condition
The Finance Division of the Arizona Department of
Administration is responsible for preparing and updating
financial statements and reports. The State's financial
statements are prepared in accordance with generally accepted
governmental accounting principles.
While general obligation bonds are often issued by local
governments, the State of Arizona is constitutionally prohibited
from issuing general obligation debt. The State relies on pay-
as-you-go capital outlays, revenue bonds and certificates of
participation to finance capital projects. Each such project is
individually rated based on its specific creditworthiness.
Certificates of Participation rely upon annual appropriations for
debt service payments. Failure of the obligated party to
appropriate funds would have a negative impact upon the price of
the bond and could lead to a default.
Arizona's State constitution limits the amount of debt
payable from general tax revenues that may be contracted by the
state to $350,000. This, as a practical matter, precludes the
use of general revenue bonds for state projects. Additionally,
certain other issuers have the statutory power to issue
obligations payable from other sources of revenue which affect
the whole or large portions of the state. The debts are not
considered debts of the State because they are secured solely by
separate revenue sources. For example, the Arizona Department of
Transportation may issue debt for highways that is paid from
revenues generated from, among other sources, state gasoline
taxes. The three Arizona universities may issue debt for
university building projects payable from tuition and other fees.
Salt River Project Agricultural & Improvement District, an
agricultural improvement district that operates the Salt River
Project (a Federal reclamation project and an electric system
which generates, purchases, and distributes electric power to
residential, commercial, industrial, and agricultural power users
in a 2,900 square-mile service area around Phoenix), may issue
debt payable from a number of sources.
Arizona's Constitution also restricts the debt of
certain of the state's political subdivisions. No county, city,
town, school district, or other municipal corporation of the
state may for any purpose become indebted in any manner in an
amount exceeding six percent of the taxable property in such
county, city, town, school district, or other municipal
corporation without the assent of a majority of the qualified
electors thereof voting at an election provided by law to be held
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for that purpose; provided, however, that (a) under no
circumstances may any county or school district of the state
become indebted in an amount exceeding 15% (or 30% in the case of
a unified school district) of such taxable property and (b) any
incorporated city or town of the State with such assent may be
allowed to become indebted up to a 20% additional amount for
(i) supplying such city or town with water, artificial light, or
sewers, when the works for supplying such water, light, or sewers
are or shall be owned and controlled by the municipality,
(ii) the acquisition and development by the incorporated city or
town of land or interests therein for open space preserves,
parks, playgrounds and recreational facilities, and (iii) the
construction, reconstruction, improvement or acquisition of
streets, highways or bridges or interests in land for rights-of-
way for streets, highways or bridges. Irrigation, power,
electrical, agricultural improvement, drainage, flood control and
tax levying public improvement districts are, however, exempt
from the restrictions on debt set forth in Arizona's constitution
and may issue obligations for limited purposes, payable from a
variety of revenue sources.
Arizona's local governmental entities are subject to
certain other limitations on their ability to assess taxes and
levies which could affect their ability to meet their financial
obligations. Subject to certain exceptions, the maximum amount
of property taxes levied by any Arizona county, city, town or
community college district for their operations and maintenance
expenditures cannot exceed the amount levied in a preceding year
by more than 2%. Certain taxes are specifically exempt from this
limit, including taxes levied for debt service payments.
Arizona is required by law to maintain a balanced
budget. To achieve this objective, the State has, in the past,
utilized a combination of spending reductions and tax increases.
For the 1990-91 budget, the Arizona Legislature increased taxes
by over $250 million, which led to a citizen's referendum
designed to repeal the tax increase until the voters could
consider the measure at a general election. After an
unsuccessful court challenge, the tax increase went into effect.
In 1992, Arizona voters adopted Proposition 108, an initiative
and amendment to the State's constitution which requires a two-
thirds vote by the Legislature and signature by the Governor for
any net increase in state revenues, including the imposition of a
new tax, an increase in a tax rate or rates and a reduction or
elimination of a tax deduction. If the Governor vetoes the
measure, then the legislation will not become effective unless it
is approved by an affirmative vote of three-fourths of the
members of each house of the Legislature. This makes any future
tax increase more difficult to achieve. The issue of tax
increases has become problematic given the conservative nature of
Arizona's Legislature. From 1992 through 1996, the State adopted
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substantial tax relief, including the 20% individual income tax
reduction described above. In 1996, the Legislature reduced
property taxes by $200 million, in part by repealing the state
tax levy of $.47 per $100 assessed valuation.
Arizona's budget outlook has improved significantly in
recent years. The State budget grew by only 1.8% to $4.5 billion
in 1996. The Arizona State budget for fiscal year 1997 is $4.9
billion and is projected to be $5.2 billion for fiscal year 1998.
These increases are in line with Arizona's growth. State
revenues have consistently exceeded projections. The State
currently has an operating funds balance of $273.2 million and a
healthy budget stabilization or "rainy day" fund. The improving
Arizona economy has resulted in reduced social welfare
expenditures, including the State medicaid program, and
substantial reversions into the State's general fund for fiscal
years 1995-1997.
Arizona Municipalities rely on a variety of revenue
sources. While municipalities cannot collect an income tax, they
do impose sales and property taxes. Municipalities also rely on
state shared revenues. School districts are funded by a
combination of local property taxes and state assistance. In
1993 Maricopa County had a $4.5 million general fund deficit and
no reserves. The Maricopa County Board of Supervisors, however,
passed a deficit reduction plan which purports to cut the deficit
to zero and create a $10 million reserve for contingency
liabilities, such as lawsuits. Maricopa County's financial
condition has recently improved. However, The Maricopa County
health care budget currently is running a substantial deficit.
Litigation
Arizona's school financing system has historically
relied heavily upon local property taxes. In 1991, a lawsuit was
filed by a group of school districts challenging the school
financing system. On July 21, 1994, the Arizona Supreme Court
found unconstitutional the State's method of funding public
education. The State Supreme Court also recently affirmed a lower
court order directing the Legislature to remedy the
constitutional defect by June 30, 1998. The Legislature will
debate school finance reform in the 1997 session.
A lawsuit decided by the U.S. Supreme Court invalidated
Arizona's tax treatment of Federal Retirement Benefits for years
prior to 1989. In June 1993 the Court, in Harper v. Virginia,
directed states, including Arizona, to give meaningful relief
under their own laws to federal retirees who the Court said were
improperly taxed. As a result, the Arizona Department of Revenue
has issued refunds and credit vouchers to federal retirees who
paid income taxes on their pensions in the 1984-88 tax years.
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Florida Portfolio
The Florida Portfolio seeks the highest level of current
income exempt from both federal income tax and State of Florida
("Florida" or the "State") intangible tax that is available
without assuming what the Fund's Adviser considers to be undue
risk to income to principal by investing in medium-quality,
intermediate and long-term debt obligations issued by the State,
its political subdivisions, agencies and instrumentalities the
interest on which, in the opinion of bond counsel to the issuer,
is exempt from federal income tax and State of Florida intangible
tax. As a matter of fundamental policy at least 65% of the
Portfolio's total assets will be so invested (except when the
Portfolio is in a temporary defensive position), although it is
anticipated that under normal circumstances substantially all of
the Portfolio's assets will be invested in such Florida
Securities. As a matter of fundamental policy, the Florida
Portfolio will invest as least 80% of its net assets in municipal
securities the interest which is exempt from federal income tax.
Under normal market conditions, at least 65% of the Florida
Portfolio's total assets will be invested in income-producing
securities (including zero coupon securities). Shares of the
Florida Portfolio are available only to Florida residents.
The following is based on information obtained from an
Official Statement, dated September 1, 1996, relating to
$250,000,000 State of Florida Full Faith and Credit State Board
of Education Public Education Capital Outlay Bonds, 1996 Series
A.
Economic Climate
As of April 1, 1995 Florida was the fourth most populous
state in the nation with an estimated population of 14.1 million.
The State's average annual population growth since 1985 has been
approximately 2.3% while the nation's average annual growth rate
for the same period was approximately 1.0%. During this same
period, Florida maintained an average growth of approximately
227,000 new residents per year.
From 1985 through 1995 Florida's per capita income rose
an average of 5.0% per year, while the national per capita income
increased an average of 4.9%. The structure of Florida's income
differs from that of the nation. Because Florida has a
proportionally greater retiree population, property income
(dividends, interest and rent) and transfer payments (social
security and pension benefits) are a relatively more important
source of income. Florida's employment income in 1995
represented 60.6% of total personal income, while the U.S. share
of total personal income in the form of wages and salaries and
other labor benefits was 70.8%. One positive aspect of this
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greater diversity is that transfer payments are typically less
sensitive to the business cycle than employment income, and,
therefore, act as stabilizing forces in weak economic periods.
From 1985 through 1995, Florida's total personal income increased
by 103% and per capita income expanded by approximately 62.5%.
For the U.S., total and per capita personal income increased by
approximately 77.8% and 61.0%, respectively. The Southeast as a
whole increased its personal income by 90.2% and its per capita
income by approximately 68.2%.
Since 1985, Florida's total employment increased by
approximately 28.5% Since 1985 non-agricultural job creation
has increased by over 36% compared to the national average which
increased by 17% over the same period. Contributing to Florida's
rapid rate of growth in employment and income is international
trade. Structural changes to Florida's economy have also
contributed heavily to the State's strong performance. The State
is now less dependent on employment from construction and
construction-related manufacturing and resource based
manufacturing, which have declined as a proportion of total state
employment.
Florida's service industries sector accounts for nearly
87% of total non-farm employment in Florida. While structurally
the southeast and the nation are endowed with a greater
proportion of manufacturing jobs, which tend to pay higher wages
than some types of service jobs, service employment,
historically, tends to be less sensitive to the business cycle.
Moreover, manufacturing jobs nationwide and in the southeast are
concentrated in areas such as heavy equipment, primary metals,
chemicals, and textile mill products. Florida's manufacturing
section has a concentration in high-tech and high value added
sectors, such as electrical and electronic equipment, as well as
printing and publishing. These types of jobs tend to be less
cyclical than other forms of manufacturing. Since the beginning
of the nineties Florida's manufacturing sector has kept pace with
the nation at about 2.6% of total U.S. manufacturing. Tourism is
also one of Florida's most important industries. Approximately
40.7 million people visited the State in 1995.
Florida's dependency on the highly cyclical construction
and construction-related manufacturing sectors has declined. For
example, total contract construction employment as a share of
total non-farm employment reached a peak of over 10% in 1973. In
1980, the share was roughly 7.5% percent, and in 1995, the share
had edged downward to nearly 5%. This trend is expected to
continue as Florida's economy continues to diversify. Florida,
nevertheless, has a dynamic construction industry, with single
and multi-family housing starts accounting for approximately 8.5%
of total U.S. housing starts in 1995, while the State's
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population is 5.4% of the nation's population. Total housing
starts were 115,500 in 1995.
Florida's unemployment rate through the 1980's tracked
above the national average. In recent years, however, the
unemployment rate has tracked above the national average. The
average rate of unemployment for Florida since 1986 is 6.2%,
while the national average is also 6.2%.
Fiscal Matters
In December 1992 the State legislature enacted a law
whereby the projected revenue windfall will be transferred from
the General Revenue Fund to a Trust Fund to defray the costs of
matching funds and a wide array of expenditures related to
Hurricane Andrew. The amount of the transfer will change based on
revisions made by the State's Revenue Estimating Conference. The
State's Revenue Estimating Conference has estimated that
additional non-recurring general revenues of $159 million during
fiscal year 1994-95 will be generated as a result of increased
economic activity due to Hurricane Andrew.
On November 8, 1994 a constitutional amendment was
ratified by the voters which limits the growth in state revenues
in a given fiscal year to no more than the average annual growth
rate in Florida personal income over the previous five years.
Revenues collected in excess of the limitation are to be
deposited into the Budget Stabilization Fund unless 2/3 of the
members of both houses of the legislature vote to raise the
limit. For the first year which is fiscal year 1995-96, the
limit is based on actual revenues from fiscal year 1994-95.
State revenues are defined as taxes, licenses, fees, charges for
services imposed by the Legislature on individuals, business or
agencies outside of state government and revenue from the sale of
lottery tickets.
Florida prepares an annual budget which is formulated
each year and presented to the Governor and Legislature. Under
current law, the State budget as a whole, and each separate fund
within the State budget, must be kept in balance from currently
available revenues each State fiscal Year.
In fiscal year 1995-1996, Florida derived an estimated
66% of its total direct revenues from State taxes and fees.
Federal funds and other special revenues accounted for the
remaining revenues. Florida does not currently impose an
individual income tax. The greatest single source of tax receipts
in Florida is the sales and use tax, accounting for 69% of
general revenue funds available. For the fiscal year which ended
June 30, 1996, receipts from this source were $11,461 million, an
increase of 7.4% from fiscal year 1994-95
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For fiscal year 1995-96 general revenue plus working
capital and budget stabilization funds were $15,311.3 million, a
3.3% increase over 1994-95. Based on effective general revenue
fund appropriations of $14,808.6 million, unencumbered reserves
at the end of fiscal year 1995-96 are estimated at 502.7 million.
In fiscal year 1996-97, the estimated general revenue
plus working capital and budget stabilization funds available are
estimated to be $16,094.7 million, a 5.1% increase from fiscal
year 1995-96. The $15,236.5 million in estimated revenues
represents a 4.8% increase from the analogous figures in 1995-96.
With combined general revenue, working capital and budget
stabilization fund appropriations at $15,576.5 million
unencumbered reserves at the end of 1996-97 are estimated at
$518.2 million.
The Florida Constitution places limitations on the ad
valorem taxation of real estate and tangible personal property
for all county, municipal or school purposes, and for water
management districts. Counties, school districts and
municipalities are authorized by law, and special districts may
be authorized by law, to levy ad valorem taxes. The State does
not levy ad valorem taxes on real property or tangible personal
property. These limitations do not apply to taxes levied for
payment of bonds and taxes levied for periods not longer than two
years when authorized by a vote of the electors. The Florida
Constitution and the Florida Statutes provide for the exemption
of homesteads from all taxation, except for assessments for
special benefits, up to the assessed valuation of $5,000. For
every person who is entitled to the foregoing exemption, the
exemption is increased to a total of $25,000 of assessed
valuation for taxes levied by governing bodies.
Massachusetts Portfolio
The Massachusetts Portfolio seeks the highest level of
current income exempt from both federal income tax and
Commonwealth of Massachusetts ("Massachusetts" or the
"Commonwealth") personal income tax that is available without
assuming what the Fund's Adviser considers to be undue risk to
income or principal by investing in medium-quality, intermediate
and long-term debt obligations issued by the Commonwealth, its
political subdivisions, agencies and instrumentalities the
interest on which, in the opinion of bond counsel to the issuer,
is exempt from federal income tax and Commonwealth of
Massachusetts personal income tax. As a matter of fundamental
policy at least 65% of the Portfolio's total assets will be so
invested (except when the Portfolio is in a temporary defensive
position), although it is anticipated that under normal
circumstances substantially all of the Portfolio's assets will be
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invested in such Massachusetts securities. As a matter of
fundamental policy, the Massachusetts Portfolio will invest at
least 80% of its net assets in municipal securities the interest
on which is exempt from federal income tax. Under normal market
conditions, at least 65% of the Massachusetts Portfolio's total
assets will be invested in income-producing securities (including
zero coupon securities). Shares of the Massachusetts Portfolio
are available only to Massachusetts residents.
The following was obtained from an Official Statement,
dated October 4, 1996, relating to $722,620,000 General
Obligation Refunding Bonds, 1996 Series A and $200,000,000
General Obligation Bonds, Consolidated Loan of 1996, Series D.
Economic Climate
The Commonwealth of Massachusetts is a densely populated
urban state with a well-educated population, comparatively high
income levels, low rates of unemployment and a relatively
diversified economy. According to the 1990 census, Massachusetts
had a population density of 768 persons per square mile, as
compared to 70.3 for the United States as a whole. It thus had
the third greatest population density following Rhode Island and
New Jersey. Massachusetts experienced a modest increase in
population between 1980 and 1990. . In 1995, the population of
Massachusetts was approximately 6,074,000.
Per capita personal income for Massachusetts residents,
unadjusted for differentials in the cost of living, was $26,994
in 1995, as compared to the national average of $22,788. While
per capita personal income is, on a relative scale, higher in
Massachusetts than in the United States as a whole, this is
offset to some extent by the higher cost of living in
Massachusetts.
The Massachusetts service sector, which constituted
35.2% of the total non-agricultural work force in August 1996, is
the largest sector in the Massachusetts economy. Government
employment represents 12.2% of the Massachusetts work force.
While total employment in construction, manufacturing, trade,
government, services, and finance, insurance and real estate
declined between 1988 and 1992, total employment in all those
sectors, excluding manufacturing, increased in 1993 and 1994.
Between 1982 and 1988, the economies of Massachusetts
and New England were among the strongest performers in the
nation. Since 1989, however, both Massachusetts and New England
have experienced growth rates significantly below the national
average. An economic recession in 1990 and 1991 caused negative
growth rates in Massachusetts and New England. In 1992, the
Gross State Product for Massachusetts grew at a rate of 1.5
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percent while the total Gross Domestic Product for the United
States grew at a rate of 2.5 percent. Between 1988 and 1992,
total employment in Massachusetts declined 10.7%. In 1993, 1994
and 1995, however, total employment increased by 1.6% and 2.2%
and 2.4%, respectively. Massachusetts' unemployment rate
averaged 8.6% in 1992, 6.9% in 1993, 6.0% in 1994 and 5.4% in
1995. During the first seven months of 1996, the unemployment
rate fluctuated between 5.3% and 5.8%.
Financial Condition
Under its constitution, the Commonwealth may borrow
money (a) for defense or in anticipation of receipts from taxes
or other sources, any such loan to be paid out of the revenue of
the year in which the loan is made, or (b) by a two-thirds vote
of the members of each house of the Legislature present and
voting thereon.
Certain independent authorities and agencies within the
Commonwealth are statutorily authorized to issue bonds and notes
for which the Commonwealth is either directly, in whole or in
part, or indirectly liable. The Commonwealth's liabilities with
respect to these bonds and notes are classified as either (a)
Commonwealth-supported debt, (b) Commonwealth-guaranteed debt or
(c) indirect obligations.
Debt service expenditures of the Commonwealth in fiscal
year 1992 totaled $898.3 million, representing a 4.7% decrease
from fiscal year 1991. Debt service expenditures for fiscal year
1993, fiscal year 1994, fiscal year 1995 and fiscal year 1996
were $1.140 billion, $1.149 billion and $1.231 billion and $1.183
billion, respectively, and are projected to be $1.293 billion for
fiscal year 1997. In January 1990, legislation was enacted which
imposes a 10% limit on the total appropriations in any fiscal
year that may be expended for payment of interest on general
obligation debt (excluding Fiscal Recovery Bonds) of
Massachusetts.
The budgeted operating funds of the Commonwealth ended
fiscal year 1994 with a surplus of revenues and other sources
over expenditures and other uses of $26.8 million and aggregate
ending fund balances in the budgeted operating fund of the
Commonwealth of approximately $589.3 million. Budgeted revenues
and other sources for fiscal year 1994 totaled approximately
$15.550 billion, including tax revenues of $10.607 billion. The
budgeted operating funds of the Commonwealth ended fiscal year
1995 with a surplus of revenues and other sources over
expenditures and other uses of $136.7 billion and aggregate
ending fund balances in the budgeted operating funds of the
Commonwealth of approximately $726 million. Budgeted revenues
and other sources for fiscal year 1995 totaled approximately
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$16.387 billion, including tax revenues of $11.163 billion.
Total revenues and other sources increased by approximately 5.4%
from fiscal year 1994 to fiscal year 1995 while tax revenues
increased by 5.2% for the same period. Unaudited financial
information for fiscal year 1996 shows that budgeted revenues and
other sources collected in fiscal year 1996 were approximately
$17.323 billion, including tax revenues of approximately $12.049
billion. Budgeted revenues and other sources increased by
approximately 5.7% from fiscal 1995 to fiscal 1996, while tax
revenues increased by approximately 7.9% for the same period.
Budgeted expenditures and other uses of funds in fiscal year 1996
were approximately $16.896 billion, approximately 4.0% above
fiscal year 1995 budgeted expenditures.
The fiscal year 1997 budget was enacted by the
Legislature on June 20, 1996, and the Governor approved it on
June 30, 1996. The Executive Office for Administration and
Finance estimates total spending in fiscal year 1997 to be
approximately $17.710 billion, including $261.5 million in
continuing appropriations and reserved balances from fiscal 1996,
and total budgeted revenues to be approximately $17.242 billion,
including approximately $12.123 billion in tax revenues. The tax
revenue estimate amounts to an increase of approximately $74
million, or 0.6%, over fiscal year 1996 tax collections. Fiscal
year 1997 non-tax revenues are estimated to total approximately
$5.119 billion. After adjusting for certain shifts to and from
non-budgeted funds, this represents a decrease of $28 million, or
0.7%, from fiscal 1996 non-tax revenues. This change is
attributable almost entirely to Federal reimbursements received
in fiscal year 1996 that will not recur in fiscal year 1997.
Accordingly, fiscal year 1997 estimates show a year-end
structural imbalance of approximately $468 million, of which
approximately $337 million is attributable to non-recurring
factors (the largest being a $233.8 million reduction in tax
revenues funded by a 1996 transfer from the General Fund to the
Tax Reduction Fund).
The fiscal year 1997 annual appropriations act
(i) includes increases in spending in certain priority areas,
including education, local aid to Massachusetts cities and towns,
law enforcement and criminal justice and daycare for those in
transitional assistance programs; (ii) provides for certain
increased costs, including Medicaid, pensions and debt service;
and (iii) includes a series of reorganization proposals designed
to streamline the operations of state government, including a
reduction in the number of cabinet secretariats and the
consolidation of many departments and purchasing activities.
Current estimates indicate that the passage of the
Federal welfare reform legislation enacted in August 1996 will
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have no impact on the Commonwealth's spending on public
assistance programs. While current estimates also indicate a
$86.25 million increase in Federal revenues for the Commonwealth
in fiscal year 1997, this has not yet been incorporated into
estimates for 1997 revenues for purposes of the estimates given
herein.
In November 1980, voters in the Commonwealth approved a
state-wide tax limitation initiative petition, commonly known as
Proposition 2 1/2, to constrain levels of property taxation and
to limit the charges and fees imposed on cities and towns by
certain government entities, including county governments. The
law is not a constitutional provision and accordingly is subject
to amendment or repeal by the legislature. Proposition 2 1/2
limits the property taxes that a Massachusetts city or town may
assess in any fiscal year to the lesser of (i) 2.5% of the full
and fair cash value of real estate and personal property therein
and (ii) 2.5% over the previous fiscal year's levy limit plus any
growth in the base from certain new construction and parcel
subdivisions. In addition, Proposition 2 1/2 limits any increase
in the charges and fees assessed by certain governmental
entities, including county governments, on cities and towns to
the sum of (i) 2.5% of the total charges and fees imposed in the
preceding fiscal year, and (ii) any increase in charges for
services customarily provided locally or services obtained by the
city or town. The law contains certain override provisions and,
in addition, permits certain debt servicings and expenditures for
identified capital projects to be excluded from the limits by a
majority vote, in a general or special election.
During the 1980's, Massachusetts increased payments to
its cities, towns and regional school districts ("Local Aid") to
mitigate the impact of Proposition 2 1/2 on local programs and
services. In fiscal year 1997, approximately 19.9% of
Massachusetts' budget is estimated to be allocated to Local Aid.
Direct Local Aid increased from $2.359 billion in fiscal year
1992 to $2.547 billion in fiscal year 1993, to $2.727 billion in
fiscal year 1994 and to $2.976 billion in fiscal year 1995.
Fiscal year 1996 expenditures for direct Local Aid were $3.246
billion, a 9.1% increase over 1995. It is estimated that fiscal
year 1997 expenditures for local aid will be $3.534 billion,
which is an increase of approximately 8.9% above the fiscal year
1996 level. In addition to direct Local Aid, Massachusetts
provides substantial indirect aid to local governments.
In November 1990 voters approved a petition which
regulates the distribution of Local Aid by requiring, subject to
appropriation, distribution to cities and towns of no less than
40% of collection from personal income taxes, sales and use
taxes, corporate excise taxes, and lottery fund proceeds. The
Local Aid distribution to each city or town would equal no less
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than 100% of the total Local Aid received for fiscal year 1989.
Distributions in excess of fiscal year 1989 levels would be based
on new formulas that would replace the current Local Aid
distribution formulas. By its terms, the new formulas would have
called for a substantial increase in direct Local Aid in fiscal
year 1992, and would call for such an increase in fiscal year
1993 and in subsequent years. However, Local Aid payments
expressly remain subject to annual appropriation, and fiscal year
1992, fiscal year 1993, fiscal year 1994, fiscal year 1995 and
fiscal year 1996 appropriations for Local Aid did not meet, and
fiscal year 1997 appropriations for Local Aid do not meet, the
levels set forth in the initiative law.
During fiscal years 1993, 1994, 1995 and 1996, Medicaid
expenditures of the Commonwealth were $3.151 billion, $3.313
billion, $3.898 billion and $3.416 billion, respectively. The
average annual growth rate from fiscal year 1992 to fiscal year
1996 was 3.9%, compared to an average annual growth rate of
approximately 17% between fiscal year 1987 and fiscal year 1991.
The Executive Office for Administration and Finance estimates
that fiscal year 1997 Medicaid expenditures will be approximately
$3.394 billion. Factoring out one-time payments in fiscal year
1996 to settle bills from hospitals and nursing homes dating back
to the 1980's, and adjusting for a change in the account
structure of the Medicaid program, Medicaid expenditures are
projected to remain flat from fiscal year 1996 to fiscal year
1997. The decrease in the rate of growth is due to a number of
savings and cost control initiatives that the Division of Medical
Assistance continues to implement and refine, including managed
care, utilization review and the identification of third party
liabilities.
Litigation
There are pending in courts within the Commonwealth and
in the Supreme Court of the United States various suits in which
the Commonwealth is a defendant. In the opinion of the Attorney
General, as of the date of the Official Statement referred to
above, no litigation was pending or, to his knowledge, threatened
which is likely to result, either individually or in the
aggregate, in final judgments against the Commonwealth that would
affect materially its financial condition.
Michigan Portfolio
The Michigan Portfolio seeks the highest level of
current income exempt from both federal income tax and State of
Michigan ("Michigan" or the "State") personal income tax that is
available without assuming what the Fund's Adviser considers to
be undue risk to income or principal by investing in medium-
quality, intermediate and long-term debt obligations issued by
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the State, its political subdivisions, agencies and
instrumentalities the interest on which, in the opinion of bond
counsel to the issuer, is exempt from federal income tax and
State of Michigan personal income tax. As a matter of
fundamental policy at least 65% of the Portfolio's total assets
will be so invested (except when the Portfolio is in a temporary
defensive position), although it is anticipated that under normal
circumstances substantially all of the Portfolio's assets will be
invested in such Michigan securities. As a matter of fundamental
policy, the Michigan Portfolio will invest at least 80% of its
net assets in municipal securities the interest on which is
exempt from federal income tax. Under normal market conditions,
at least 65% of the Michigan Portfolio's total assets will be
invested in income- producing securities (including zero coupon
securities). Shares of the Michigan Portfolio are available only
to Michigan residents.
The following is based on information obtained from an
Official Statement, dated February 14, 1996, relating to
$900,000,000 State of Michigan Full Faith and Credit General
Obligation Notes.
Economic Climate
In recent years, Michigan's economy has been
diversifying, although manufacturing is still an important
component of the State's economy.In 1994, employment in durable
goods manufacturing accounted for 14.9% of the State's workforce.
Michigan's economy is recovering from a recessionary
period. In 1992, 1993 and 1994, employment increased by .4%,
1.8% and 1.1%, respectively, compared with a flat growth in the
region as well as the nation. The State's forecast for the
Michigan economy projected a 2.3% growth in real gross domestic
product and a 1.5% growth in total salary and wage employment in
1996. This slight growth reflects the ongoing diversification of
the Michigan economy. Unemployment rates, which had averaged
approximately 9.2% in 1991 and 8.8% in 1992, were reduced to 7.0%
in 1993, 5.9% in 1994, and a projected 5.4% in 1995 and 6.0% in
1996, continuing the recent trend of Michigan's unemployment rate
being below the national average, compared to the 15 year history
of having higher unemployment. State manufacturing employment,
which had decreased from 1990 to 1991, increased during 1992,
1993 and 1994. Similarly, Michigan's personal income amounts
increased during the same three years.
Financial Condition
As amended in 1978, Michigan's Constitution limits the
amount of total State revenues that may be raised from taxes and
other sources. State revenues (excluding federal aid and
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revenues used for payment of principal and interest on general
obligation bonds) in any fiscal year are limited to a specified
percentage of Michigan personal income in the prior calendar year
or an average of the prior three calendar years, whichever is
greater. The percentage is based upon the ratio of the 1978-79
fiscal year revenues to total 1977 Michigan personal income (the
total income received by persons in Michigan from all sources as
defined and officially reported by the United States Department
of Commerce). If revenues in any fiscal year exceed the revenue
limitation by one percent or more, the entire amount exceeding
the limitation must be rebated in the following fiscal year's
personal income tax or single business tax. Annual excesses of
less than one percent may be transferred into Michigan's Budget
and Economic Stabilization Fund ("BSF"). Michigan may raise
taxes in excess of the limit in emergency situations.
The State Constitution provides that the proportion of
State spending paid to all units of local government to total
State spending may not be reduced the proportion in effect in the
1978-79 fiscal year. The State originally determined that
proportion to be 41.6%. If such spending does not meet the
required level in a given year, an additional appropriation for
local government units is required by the "following fiscal
year," which means the year following the determination of the
shortfall, according to an opinion issued by the State's Attorney
General. Spending for local units met this requirement for
fiscal years 1986-87 through 1991-2.
The State has settled litigation regarding the
classification of State expenditures for certain mental health
programs as spending for local units of government. As a part of
the settlement, the State reclassified these expenditures
beginning in the report for fiscal year 1992-1993. As
recalculated, the proportion of state spending from state sources
which is to be paid to local units of government is 48.97%. In
fiscal 1992-3, the proportion of state spending which was paid to
local units of government was 48.25%, or a shortfall from this
proportional percentage of $96,638,380. As required by statute,
an amount at least equal to this shortfall will be appropriated
to the State's local government payment fund in the next budget
submission. The fiscal year 1993-1994 report was issued in
October, 1995, and reported that 50% of State spending from State
sources was paid to local units of government.
The State Constitution also requires the State to
finance any new or expanded activity of local governments
mandated by State law. Any expenditures required by this
provision would be counted as State spending for local units of
government for purposes of determining compliance with the
provision cited above.
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Michigan finances its operations through its General
Fund and special revenue funds. The Michigan Constitution
provides that proposed expenditures from, and revenues of, any
fund must be in balance and that any prior year's surplus or
deficit in any fund must be included in the succeeding year's
budget for that fund.
The Michigan State General Fund balances for the
1989-90, 1990-91, 1991-92, 1992-93 and 1993-94 fiscal years were
a positive $61.1 million, a negative $310 million, a negative
$169.4 million, $0.0 and a positive $26 million, respectively.
The State's budget for fiscal year 1995-6 included
General Purpose appropriations of $8,409.5 million, 3.3% above
fiscal year 1994-5 expenditures, and projected General Purpose
revenues of approximately $8,397 million and total General
Purpose resources of approximately $8,465 billion. The
Governor's Executive Budget for fiscal years 1996-1997 was
submitted to the State's legislature on February 8, 1996. The
fiscal year 1996-1997 General Fund-General Purpose Executive
Budget recommendation totalled $8,246.6 million, and assumed,
among other things, certain federal budget reforms. If the
assumed federal budget reforms do not occur, cuts of
approximately $320 million in the State's 1996-1997 Executive
Budget may be required.
The Michigan Constitution limits Michigan general
obligation debt to (i) short-term debt for State operating
purposes which must be repaid in the same fiscal year in which it
is issued and which cannot exceed 15% of the undedicated revenues
received by Michigan during the preceding fiscal year,
(ii) short- and long-term debt unlimited in amount for the
purpose of making loans to school districts and (iii) long-term
debt for voter-approved purposes.
On August 19, 1993, the Governor of the State signed
into law Act 145, Public Acts of Michigan, 1993 ("Act 145"), a
measure which would have significantly impacted financing of
primary and secondary school operations and which has resulted in
additional property tax and school finance reform legislation.
In order to replace local property tax revenues lost as a result
of Act 145, the Michigan Legislature, in December 1993, enacted
several statutes which address property tax and school finance
reform. The property tax and school finance reform measures
included a ballot proposal ("Proposal A") which was subject to
voter approval and was in fact approved on March 15, 1994. Under
Proposal A as approved, effective May 1, 1994, the State sales
and use tax was increased from 4% to 6%, the State income tax was
decreased from 4.6% to 4.4%, the cigarette tax was increased from
$.25 to $.75 per pack and an additional tax of 16% of the
wholesale price began to be imposed on certain other tobacco
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products. A .75% real estate transfer tax became effective
January 1, 1995. Beginning in 1994, a State property tax of 6
mills began to be imposed on all real and personal property
subject to the general property tax. All local school boards
can, with voter approval, levy up to the lesser of 18 mills or
the number of mills levied in 1993 for school operating purposes,
on non-homestead and non-qualified agricultural property.
Proposal A contains additional provisions regarding the ability
of local school districts to levy taxes as well as a limit on
assessment increases for each parcel of property, beginning in
1995 to the lesser of 5% or the rate of inflation. When property
is subsequently sold, its assessed value will revert to the
current assessment level of 50% of true cash value. Under
Proposal A, much of the additional revenue generated by the new
taxes will be dedicated to the State School Aid Fund. Proposal A
shifts significant portions of the cost of local school
operations from local school districts to the State and raises
additional State revenues to fund these additional State
expenses. These additional revenues will be included within the
State's constitutional revenue limitations and may impact the
State's ability to raise additional revenues in the future.
Litigation
The State is involved in litigation that, if unfavorably
resolved from the point of view of the State, could substantially
affect State programs or finances. These lawsuits involve
programs generally in the areas of corrections, tax collection,
commerce and budgetary reductions to school districts and
governmental units and court funding. Relief sought includes
damages in tort cases generally, alleviation of prison
overcrowding, improvement of prison medical and mental health
care, and refund claims under state taxes. The ultimate
disposition and consequences of all of these proceedings are not
presently determinable.
Many of Michigan's local school districts have filed
lawsuits against the State regarding the manner in which the
State disburses funds to school districts for special education
and special education transportation, bilingual education, driver
education and school lunch programs. The aggregate total amount
of liability on the lower court judgments in these cases,
including a case captioned Donald Durant, et.al. v. State of
Michigan, which is on appeal before the Michigan Supreme Court,
was estimated at $495 million as of August 1995.
Minnesota Portfolio
The Minnesota Portfolio seeks the highest level of
current income exempt from both federal income tax and State of
Minnesota ("Minnesota" or the "State") personal income tax that
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is available without assuming what the Fund's Adviser considers
to be undue risk to income or principal by investing in medium-
quality, intermediate and long-term debt obligations issued by
the State, its political subdivisions, agencies and
instrumentalities the interest on which, in the opinion of bond
counsel to the issuer, is exempt from federal income tax and
State of Minnesota personal income tax. As a matter of
fundamental policy at least 65% of the Portfolio's total assets
will be so invested (except when the Portfolio is in a temporary
defensive position), although it is anticipated that under normal
circumstances substantially all of the Portfolio's assets will be
invested in such Minnesota securities. As a matter of
fundamental policy, the Minnesota Portfolio will invest at least
80% of its net assets in municipal securities the interest on
which is exempt from federal income tax. Under normal market
conditions, at least 65% of the Minnesota Portfolio's total
assets will be invested in income-producing securities (including
zero coupon securities). Shares of the Minnesota Portfolio are
available only to Minnesota residents.
The following is based on information obtained from an
Official Statement, dated October 22, 1996, relating to
$170,000,000 State of Minnesota General Obligation State Various
Purpose Bonds.
Economic Climate
Minnesota resident population grew from 4,085,000 in
1980 to 4,387,000 in 1990 or, at an average annual compound rate
of 0.7%. In comparison, United States population grew at an
annual compound rate of 0.9% during this period. Minnesota
population is currently forecast to grow at an annual compounded
rate of 0.8% through 2005.
In 1995, the structure of Minnesota's economy paralleled
the structure of the United States economy as a whole. State
employment in ten major sectors was distributed in approximately
the same proportions as national employment. In all sectors, the
share of total State employment was within two percentage points
of national employment share.
In the period 1980 to 1990, overall employment growth in
Minnesota increased by 17.9%, lagging behind the nation, whose
growth increased by 20.1%. While the importance of the
agricultural sector in the State has decreased, manufacturing has
been a strong sector, with Minnesota employment growth
outperforming that of the United States in both the 1980-1990 and
1990-1995 periods. In the durable goods industries, the State's
employment in 1994 was highly concentrated in the industrial
machinery, instrument and miscellaneous categories. Of
particular importance is the industrial machinery category in
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which 31.1% of the State's durable goods employment was
concentrated in 1995, as compared to 19.3% for the United States
as a whole.
The importance of the State's rich resource base for
overall employment is apparent in the employment mix in
non-durable goods industries. In 1995, 29.0% of Minnesota's non-
durable goods employment was concentrated in food and kindred
industries and 18.2% in paper and allied industries. This
compares to 21.7% and 8.9%, respectively, for comparable sectors
in the national economy. Both of these sectors rely heavily on
renewable resources in the State. Over half of the State's
acreage is devoted to agricultural purposes, and nearly one-third
to forestry. Printing and publishing is also relatively more
important in the State than in the U.S.
Mining is currently a less significant factor in the
State economy than it was previously. Mining employment,
primarily in the iron ore or taconite industry, dropped from
17.3 thousand employed in 1979 to 7.9 thousand employed in 1995.
It is not expected that mining employment will return to 1979
levels. However, Minnesota retains vast quantities of taconite
as well as copper, nickel, cobalt, and peat which may be utilized
in the future.
Since 1980, State per capita personal income has been
within four percentage points of national per capita personal
income. In 1995, Minnesota per capita personal income was 103.3%
of its United States counterpart. During the period 1980 to
1990, Minnesota ranked first in growth of personal income and
fifth during the period 1990 to 1995 among the 12 states in the
North Central Region. Over the period 1980 to 1990, Minnesota
non-agricultural employment grew 20.3 percent while the entire
North Central Region grew 14.4 percent. During the 1990-1995
period, Minnesota non-agricultural employment increased 11.5
percent, while regional employment increased 8.5 percent.
Between 1985 and 1995, increases in retail sales in Minnesota
averaged 5.6% per year, compounded. This growth, however, was
not uniform from year to year. For example, retail sales
declined 0.1% in 1987, while growing 11.9% in 1984 and 10.5% in
1992.
During 1994 and 1995, the State's monthly unemployment
rate was generally less than the national unemployment rate,
averaging 3.6% in 1995, as compared to the national average of
5.2%. As of September 1996, Minnesota's unemployment rate
averaged 3.9%, while averaging 5.0% nationally.
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Financial Condition
Minnesota operates on a biennial budget basis. Prior to
each fiscal year of a biennium, the Department of Finance allots
a portion of the applicable biennial appropriation to each State
agency or other entity for which an appropriation has been made.
Supplemental appropriation and changes in revenue measures are
sometimes adopted by the Legislature during the biennium. An
agency or entity may not expend moneys in excess of its
allotment. The State's principal sources of nondedicated
revenues are taxes of various types. The Accounting General Fund
receives no unrestricted federal grants. The only federal funds
deposited into the Accounting General Fund are to reimburse the
State for expenditures on behalf of federal programs.
In January 1995, the Governor submitted a proposed
budget to the legislature for the 1995-97 biennium (the "Current
Biennium"). The proposed budget was based on the November 1994
forecast of Accounting General Fund revenues and expenditures.
In March 1995, the Department of Finance prepared a
revised forecast of revenues and expenditures, and on the basis
of this forecast, the Governor provided supplemental budget
recommendations to the legislature in March 1995. Legislative
hearings were conducted, after which the legislature enacted
appropriation and tax bills having the effect of either adopting
or modifying the Governor's proposals. The Governor signed into
law most of the bills passed by the legislature, but he also
exercised his authority to veto appropriation bills in total or
on an item-by-item basis.
Prior to the Current Biennium, Minnesota law established
a Budget Reserve and Cash Flow Account in the Accounting General
Fund which served two functions. In 1995, the Minnesota
legislature separated the Budget Reserve and Cash Flow Account
into two separate accounts; the Cash Flow Account and the Budget
Reserve Account, each having a different function.
The Cash Flow Account was established in the Accounting
General Fund for the purpose of providing sufficient cash
balances to cover monthly revenue and expenditure imbalances. The
use of funds from the Cash Flow Account is governed by statute.
The Cash Flow Account Balance is set for the Current Biennium at
$350 million. No provision has been made for increasing the
balance of the Cash Flow Account from increases in forecast
revenues over forecast expenditures.
The Budget Reserve Account was established in the
Accounting General Fund for the purpose of reserving funds to
cushion the State from an economic downturn. The use of funds
from the Budget Reserve Account and the allocation of surplus
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forecast balances to the Budget Reserve Account are governed by
statute. The Budget Reserve Account balance is set for the
Current Biennium at $204 million. However, under current law, if
during the first year of the Current Biennium Accounting General
Fund revenues are forecast to exceed forecast Accounting General
Fund expenditures by more than previously forecast, any forecast
increased balance is first allocated to increase the Budget
Reserve Account to a balance of $220 million. Second, any
additional forecast balances in an odd-numbered fiscal year are
allocated to reducing school aid property tax recognition
percentages to zero. Any remaining forecast balance is
unallocated.
On the basis of the Governor's February 1995
recommendation, the Accounting General Fund would end the Current
Biennium on June 30, 1997 with an Unreserved Accounting General
Fund balance of $573 million, comprising a Cash Flow Account of
$350 million, a Budget Reserve Account of $220 million and an
Unrestricted Accounting General Fund balance of $3 million.
During the 1995 legislative session and the First
Special Session, revenue and expenditure measures were enacted
for the Current Biennium. Compared to the Governor's February
recommendation, these measures increased total resources by $137
million, increased expenditures by $156 million and reduced the
recommended Budget Reserve Account by $16 million, from $220
million to $204 million.
A revenue and expenditure forecast for the Current
Biennium was prepared in February, 1996. Accounting General Fund
revenues were estimated to be $19.474 billion and Accounting
General Fund expenditures were estimated to be $18.840 billion,
which resulted in a forecast Unreserved Accounting General Fund
balance of $634 million at June 30, 1997.
Taking into account revenue and expenditure changes and
accounting adjustments made from the November, 1995 forecast, the
February, 1996 forecast reflected a $49 million improvement in
the outlook for the Accounting General Fund. Under current law,
of this amount $5 million was allocated for revised estimates of
reducing the property tax recognition percentage to zero.
For purposes of the forecast, the Budget Reserve Account
remained at $220 million and the Cash Flow Account remained at
$350 million. An Unrestricted Accounting General Fund balance of
$64 million was forecast for the end of the Current Biennium, up
$49 million from the November forecast.
The forecast for total Accounting General Fund revenues
for the Current Biennium increased by $104 million. Revenues
from the four major taxes increased by $63 million and the
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forecast for other tax and non-tax revenues increased $41
million. Forecast Accounting General Fund expenditures increased
by $19 million. The balance at the beginning of the Current
Bienium was expected to be $36 million lower than forecast in
November.
The legislative measures enacted for the Current
Biennium contain no significant changes to existing tax laws and
do not provide for a significant revenue increase. Changes which
were enacted included federal conformity changes for personal and
corporate income taxes and a rate increase for insurance gross
earnings taxes. Individually and in total these changes are not
deemed significant by the State.
Legislation passed by the 1992 legislature established
the Minnesota Care program to provide subsidized health care
insurance for long term uninsured Minnesotans, reform individual
and small group health insurance regulations, create a health
care analysis unit to collect condition-specific data about
health care practices in order to develop practice parameters for
health care providers, implement certain cost containment
measures into the system, and establish an office of rural health
to ensure the health care needs of all Minnesotans are being met.
A separate account, the Health Care Access Fund, has
been established in the State's Special Revenue Fund to account
for revenues and expenditures for the Minnesota Care program.
Program expenditures are limited to revenues received in the
account. Total resources available to the Health Care Access
Fund are forecast to total $439 million in the Current Biennium.
A previously required transfer from the Health Care
Access Fund to the Accounting General Fund was eliminated after
Fiscal Year 1995. The purpose of the transfer was to pay for
increased costs in the generally funded Medicaid ("MA") and
General Assistance Medical Care ("GAMC") programs, due to
applicants found ineligible for MinnesotaCare, but qualifying for
MA or GAMC.
The 1995 legislature increased eligibility for
MinnesotaCare, the program for low income working Minnesotans.
Single adults earning up to 135 percent of the federal poverty
level will be eligible for enrollment beginning October 1, 1995.
Currently, single adults earning up to 125 percent of the federal
poverty level may enroll in the program. The increased
enrollment may only occur if projected expenditures do not exceed
revenues.
Based on the level of the Cash Flow Account, the Budget
Reserve Account and existing statutory authority to adjust State
aid payments to local taxing districts and systems of higher
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education, the Commissioner of Finance currently estimates that
no short-term borrowing will be required during the Current
Biennium.
Litigation
There are now pending against the State legal actions
which could, if determined adversely to the State, have a
material adverse effect on the State's expenditures and revenues
during the Current Biennium.
In 1994, in Cambridge State Bank et al. v. James the
Minnesota Supreme Court ruled that the State must refund a
portion of the Minnesota bank excise taxes paid by financial
institutions for tax years 1979 through 1983. The 1995 Minnesota
Legislature authorized the Commissioner of Finance to issue up to
$400 million of State revenue bonds to pay the judgment and the
related obligations.
As of October 3, 1996, $125.4 million of the $200
million of bond proceeds had been expended to pay the judgment
and related obligations. The Commissioner of Revenue now expects
the total payment to be approximately $220 million. Additional
claims have been filed which the Commissioner of Revenue has
contested as barred by the statute of limitations. The
Commissioner of Revenue now estimates that maximum total payment
of all such contested claims would be an additional $40 million.
On April 12, 1996 the Minnesota Supreme Court ruled in
the Alternative Minimum Tax (AMT) actions that the tax did not
violate either the Commerce Clause or the Equal Protection Clause
of the U.S. Constitution. Two of the plaintiffs will have 90
days from the entry of judgment to file a petition for writ of
certiorari to the U.S. Supreme Court, in a case captioned Fairway
Foods, Inc. and Henkel Corporation v. State of Minnesota, et al.
The State has filed a brief in opposition to the petition. A
decision by the U.S. Supreme Court on the petition for certiorari
is anticipated before the end of the year.
In Independent School District No. 625, Saint Paul,
Minnesota v. State of Minnesota, the St. Paul School District
("District") commenced a suit in state court against the State of
Minnesota, the Legislature, the Governor, the Board of Education,
and the Department of Children, Families and Learning and its
Commissioner claiming that the State has failed to provide
sufficient resources to the District to enable it to provide an
adequate education to the District's poor and minority students
and students in need of special education and English
instruction. The complaint seeks declaratory relief and an order
that the State provide the District with the resources it needs.
The complaint also seeks an order enjoining the State from
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continuing to use the current State compensatory aid funding
formula which provides additional funding to districts based on
the number of students enrolled from families receiving AFDC
benefits. While it is impossible at this point to accurately
predict the State's exposure in this case, it is possible that
the State could be ordered to pay in excess of $10 million to the
District.
Plaintiffs in Minnesota Home Health Care Association v.
Gomez allegedly represent a class of all home health care
agencies in the State of Minnesota. They have sued the
Department of Human Services ("DHS") for declaratory and
injunctive relief claiming that DHS has violated federal law (i)
by failing to determine payment rates for home health care
service provides which are consistent with efficiency, economy
and quality of care and which are sufficient to provide adequate
patient access, and (ii) by failing to comply with the State
Medical Assistance (MA) Plan and DHS rules which allegedly
require DHS to pay for services at the provider's submitted
charge. The potential loss to the State is estimated at $20
million and may impact the Accounting General Fund. The State
prevailed in the District Court. The case is on appeal to the
Eighth Court of Appeals.
In Minnesota Association of Homes for the Aging (MAHA)
v. Gomez Plaintiff, a trade association for non-profit nursing
homes in Minnesota, seeks a declaratory judgment that the
Department of Human Services (DHS) implemented medical assistance
payment rates to nursing homes violates the procedural and
substantive requirements of the Boren Amendment of the Social
Security Act. Plaintiff seeks to enjoin DHS from implementing
the new rates. The potential loss to the State is estimated at
$32 million in State dollars and $37 million in federal dollars
over the Current Biennium and would adversely impact the
Accounting General Fund. The case was dismissed by the District
Court and the time for appeal has passed.
In Minneapolis Branch of the NAACP v. State of
Minnesota, the Minnesota Branch of the NAACP and several
Minneapolis school children and their parents brought suit in
State Court against the State of Minnesota, the Governor, the
Treasurer, the Auditor, the Attorney General, the Legislature,
various legislators, the State Department of Children, Families
and Learning and several of its officials, the State Board of
Education and its members, and the Metropolitan Council, claiming
that the segregation of minority and poor students in the
Minneapolis public schools has deprived the students of an
adequate education in violation of the Minnesota Constitution.
The plaintiffs also claim that the unequal education received by
Minneapolis students relative to students in suburban schools
violates the Minneapolis students' right to equal protection
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under the Minnesota Constitution. It is impossible at this point
to estimate the State's exposure in this case especially since
the plaintiffs have not articulated the precise relief they are
seeking. It is possible that the relief the plaintiffs will
ultimately request will involve the redisstribution of minority
and poor families in the Minneapolis/St. Paul metropolitan area.
The cost of any such relief, if required to be paid by the State,
could exceed $10 million. The district court denied the State's
motion to dismiss as to the State and certain principal named
defendants but the district court did grant the motion to dismiss
as to certain other state officials. The district court denied
the plaintiffs' motion for partial summary judgment. The
District Court is preparing to certify some legal questions to
the Minnesota Supreme Court. The parties are also planning to
mediate the issues in dispute. In the meantime, District Court
proceedings are continuing.
Plaintiffs in Peter v. Johnson, et al. claim that the
State and school districts are required to provide certain
special education services in private, parochial schools by the
First Amendment freedom of speech and religion, the Fourteenth
Amendment, the Equal Protection Clause, the Religious Freedom
Restoration Act and the Individuals with Disabilities Education
Act. Although damages, costs and attorneys' fees are claimed, no
specific dollar amount is identified. If the State should lose
the case, the amount of any judgment is difficult to estimate and
it is possible that any relief granted could result in the
expenditure of funds for education programs in excess of
$10,000,000 above current levels. The case is in the discovery
stage and dispositive motions are anticipated to be heard by the
end of 1996 or early 1997.
New Jersey Portfolio
The New Jersey Portfolio seeks the highest level of
current income exempt from both federal income tax and State of
New Jersey ("New Jersey" or the "State") personal income tax that
is available without assuming what the Fund's Adviser considers
to be undue risk to income or principal by investing in medium-
quality, intermediate and long-term debt obligations issued by
the State, its political subdivisions, agencies and
instrumentalities the interest on which,in the opinion of bond
counsel to the issuer, is exempt from federal income tax and
fundamental policy at least 65% of the Portfolio's total assets
will be so invested (except when the Portfolio is in a temporary
defensive position). The Fund will invest at least 80% of its
net assets in securities the interest on which is exempt from New
Jersey personal income tax (i.e. New Jersey municipal
securities). In addition, during periods when the Fund's Adviser
believes that New Jersey municipal securities that meet the
Portfolio's standards are not available, the Portfolio may invest
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a portion of its assets in securities whose interest payments are
only federally tax-exempt. However, it is anticipated that under
normal circumstances substantially all of the Portfolio's total
assets will be invested in New Jersey municipal securities. As a
matter of fundamental policy, the New Jersey Portfolio will
invest at least 80% of its net assets in municipal securities the
interest on which is exempt from federal income tax. Under
normal market conditions, at least 65% of the New Jersey
Portfolio's total assets will be invested in income-producing
securities (including zero coupon securities). Shares of the New
Jersey Portfolio are available only to New Jersey residents.
The following is based on information obtained from an
Official Statement, dated April 15, 1996, relating to
$526,800,000 State of New Jersey General Obligation Bonds,
Refunding Bonds (Series E) and $270,000,000 State of New Jersey
General Obligation Bonds (various purpose).
Economic Climate
New Jersey is the ninth largest state in population and
the fifth smallest in land area. With an average of 1,062
persons per square mile, it is the most densely populated of all
the states. Between 1980 and 1990 the annual population growth
rate was .49% and between 1990 and 1994 the growth rate
accelerated to .52%. While this rate of growth compared
favorably with other Middle Atlantic States, it was less than the
national rate of increase.
The State's economic base is diversified, consisting of
a variety of manufacturing, construction and service industries,
supplemented by commercial agriculture. In 1976, voters approved
casino gambling for Atlantic City, and that city has again become
an important State tourist attraction.
Total personal income in New Jersey stood at $210.9
billion for 1993 and $219.3 billion for 1994. Personal income
increased 4% between 1993 and 1994 but was below the national
rate of 5.3%. Historically, New Jersey's average per capita
income has been well above the national average. The
differential narrowed during the 1970s but widened in the 1980s.
In 1994, the State ranked second among all states in per capita
personal income ($27,742).
After experiencing a boom during the mid-1980s, New
Jersey, as well as the rest of the Northeast United States,
slipped into a slowdown well before the onset of the national
recession, which officially began in July 1990 (according to the
National Bureau of Economic Research). By the beginning of the
national recession, there had already been a decline in
construction activity and the growth in the service sectors and
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the long-term downtrend of factory employment had accelerated,
partly because of a leveling off of industrial demand nationally.
The onset of recession caused an acceleration of New Jersey's job
losses in construction and manufacturing as well as an employment
downturn in such previously growing sectors as wholesale trade,
retail trade, finance, utilities and trucking and warehousing.
Reflecting the downturn, the rate of unemployment in New
Jersey rose from 3.6% during the first quarter of 1989 to a
recessionary peak of 9.3% in 1992. The jobless rate averaged
6.4% during the first ten months of 1995.
For the recovery period as a whole, May 1992 to October
1995, service-producing employment in New Jersey has expanded by
188,300 jobs. Hiring has been reported by food stores, auto
dealers, wholesale distributors, trucking and warehousing firms,
utilities, business and engineering/management service firms,
hotels/hotel-casinos, social service agencies and health care
providers other than hospitals. Employment growth was
particularly strong in business services and its personnel supply
component with increases of 14,400 and 5,800, respectively, in
the 12-month period ending October 1995.
The manufacturing sector showed evidence of improvement
through 1994. Factory employment losses slowed between 1992 and
1994, as the plant closings and layoffs of the recessionary
period tapered off and were increasingly counterbalanced by the
expansionary impact of rising industrial demand. After totaling
about 134,000 over the four-year period through the end of 1992
(an average of 33,500 per year), New Jersey's factory job losses
tapered off to 11,100 during 1993 and 5,400 during 1994. During
1995, however, manufacturing job losses appeared to have
accelerated, reflecting a slowdown in national manufacturing
production activity, with an employment loss of 16,600 for the
12-month period ending October 1995. After having enjoyed actual
growth in the number of production workers in 1994, the number of
blue-collar workers resumed their decline in 1995 at the same
time that managerial and office staff were also reduced as part
of nationwide downsizing.
Conditions have slowly improved in the construction
industry, where employment has risen by 21,200 since its low in
May 1992. When it began during the late spring of 1992, this
sector's hiring rebound was driven primarily by increased
homebuilding and public works projects. Nonresidential
construction activity has begun to increase in the last two
years. Contract awards in this sector posted a 9.7% gain in 1993
and 19.8% in 1994. More recently, nonresidential building
construction contracts increased by 9.0% in the first three
quarters of 1995 compared with the same period in 1994.
Residential construction contracts through September 1995,
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despite monthly fluctuations, stayed almost even with 1994
($1,671 million in the first three quarters of 1995 versus $1,677
million in the same period of 1994). Despite a 7.2% decline in
nonbuilding or infrastructure construction, largely due to a
slowing in public construction projects, total construction
contracts rose by 1.6% when comparing the first nine months of
1994 and 1995. Vehicle registrations issued during 1993 were up
18% from 1992 and rose 5.5% from 1993 to 1994. However,
registrations were down 2.3% through August 1995, when compared
to the same time period in 1994.
Another indicator of economic improvement is increased
consumer spending as evidenced by rising retail sales. While
overall retail sales in New Jersey grew by only 1.5% during 1993,
they performed much better in 1994 and continued to increase,
despite some fall off in the winter of 1995. Sales advanced
briskly with retail receipts up 8.1% during 1994 compared with
1993, which was somewhat higher than the 7.8% growth registered
nationwide. Consumer spending was sluggish during the winter
months of 1995 both nationally and in the State. Statewide sales
of retail stores regained momentum in May 1995 and were on a
moderately upward trend through August 1995, resulting in sales
growth of 3.1% when comparing the first eight months of 1994 with
those of 1995. The rising trend in retail sales has translated
into steady increases in retail trade jobs (both full- and part-
time) and, in September and October 1995, retail employment rose
by a total of 5,600 jobs.
Financial Condition
The State Constitution provides, in part, that no money
may be drawn from the State Treasury except for appropriations
made by law and that no law appropriating money for any State
purpose shall be enacted if the amount of money appropriated
therein, together with all other prior appropriations made for
the same fiscal year, exceeds the total amount of revenue on hand
and anticipated to be available for such fiscal year, as
certified by the Governor.
Should it appear that revenues will be less than the
amount anticipated in the budget for a fiscal year, the Governor
may take steps to reduce State expenditures. The State
Constitution additionally provides that no supplemental
appropriation may be enacted after adoption of an appropriations
act except where there are sufficient revenues on hand or
anticipated, as certified by the Governor, to meet such
appropriation.
For the fiscal year ended June 30, 1997, the
undesignated fund balances in the General Fund, in which the
largest part of the financial operations of the state is
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accounted for, were projected to be $607.0 million and $569.2
million for fiscal year 1996. Such balance was $1.4 million for
the 1992 fiscal year, $760.8 million for the 1993 fiscal year,
$937.4 million for the 1994 fiscal year, and $926.0 million for
the 1995 fiscal year.
There are 567 municipalities and 21 counties in New
Jersey. During 1993, 1994 and 1995 no county exceeded its
statutory debt limitations or incurred a cash deficit in excess
of 4% of its tax levy. The number of municipalities which
exceeded statutory debt limits was six as of December 31, 1994.
Two municipalities incurred a cash deficit greater than 4% of its
tax levy for 1994 and 1995. No New Jersey municipality or county
has defaulted on the payment of interest or principal on any
outstanding debt obligation since the 1930's.
The Local Authorities Fiscal Control Law provides for
State supervision of the fiscal operations and debt issuance
practices of local financing authorities. The Local Authorities
Fiscal Control law applies to all autonomous public bodies
created by counties or municipalities empowered to issue bonds,
impose facility or service charges, or levy taxes in their
districts. This encompasses most autonomous local authorities
(sewerage, municipal utilities, parking, pollution control,
improvement, etc.) and special taxing districts (fire, water,
etc.).
As of June 30, 1994, there were 196 locally created
authorities with a total outstanding capital debt of
approximately $7.0 billion (figures do not include housing
authorities and redevelopment agencies). This amount reflects
outstanding bonds, notes, and loans payable by the authorities as
of their respective fiscal years ended nearest to June 30, 1994.
Litigation
There are a number of suits making monetary claims
against the State, its agencies and employees that together if
decided in favor of the complainants would significantly increase
State expenditures above those anticipated. There are also
individual suits that could have that effect. Among them are
suits challenging (a) amendments to the pension laws enacted on
June 30, 1994; (b) the method of calculating/collecting the
hospital assessment authorized by the Health Care Reform Act of
1992; (c) the constitutionality of annual A-901 hazard and solid
waste licensure renewals fees collected by the Department of
Environmental Protection and Energy; (d) the state's failure to
provide funding to hospitals required by state law to treat all
patients, regardless of ability to pay; and (e) the states
compliance with the court order in Abbot v. Burke to close the
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spending gap between poor urban school districts and wealthy
districts.
Ohio Portfolio
The Ohio Portfolio seeks the highest level of income
exempt from both federal income tax and State of Ohio ("Ohio" or
the "State") personal income tax that is available without
assuming what the Fund's Adviser considers to be undue risk to
income or principal by investing in medium-quality, intermediate
and long-term debt obligations issued by the State, its political
subdivisions, agencies and instrumentalities the interest on
which, in the opinion of bond counsel to the issuer, is exempt
from federal income tax and State of Ohio personal income tax. As
a matter of fundamental policy at least 65% of the Portfolio's
total assets will be so invested (except when the Portfolio is in
a temporary defensive position), although it is anticipated that
under normal circumstances substantially all of the Portfolio's
assets will be invested in such Ohio securities. As a matter of
fundamental policy, the Ohio Portfolio will invest at least 80%
of its net assets in municipal securities the interest on which
is exempt from federal income tax. Under normal market
conditions, at least 65% of the Ohio Portfolio's total assets
will be invested in income-producing securities (including zero
coupon securities). Shares of the Ohio Portfolio are available
only to Ohio residents.
The following is based on information obtained from an
Official Statement, dated January 1, 1997, relating to
$120,000,000 State of Ohio Full Faith and Credit General
Obligation Infrastructure Improvement Bonds, Series 1997.
Economic Climate
Ohio's 1995 estimated population of over 11 million
ranked Ohio seventh among the states in population. Ohio has a
mixture of urban and rural population, with approximately three-
quarters urban. There are approximately 943 incorporated cities
and villages (municipalities with populations under 5,000) in the
State. Six cities have population of over 100,000 and 19 over
50,000.
The greatest growth in Ohio employment in recent years,
consistent with national trends, has been in the nonmanufacturing
area. Nonmanufacturing industries now employ more than three-
fourths of all non-agricultural payroll workers in Ohio.
However, manufacturing (including auto-related manufacturing)
remains an important part of Ohio's economy and Ohio ranked
fourth in the nation in 1991 in gross state product derived from
manufacturing. Economic activity in Ohio, as in many other
industrially developed states, tends to be more cyclical than in
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some other states and in the nation as a whole. Since 1960 the
ratio of Ohio to United States aggregate personal income has
declined, with Ohio moving from fifth among the states in 1960 to
seventh in 1994. The unemployment rate in Ohio has fluctuated
between 6.0% and 4.3% during the first ten months of 1996.
Financial Condition
Ohio operates on the basis of a fiscal biennium for its
appropriations and expenditures. The State Constitution imposes
a duty on the Ohio General Assembly to "provide for raising
revenue, sufficient to defray the expenses of the State, for each
year, and also a sufficient sum to pay the principal and interest
as they become due on the State debt." The State is effectively
precluded by law from ending a fiscal year or a biennium in a
"deficit" position. State borrowing to meet casual deficits or
failures in revenues or to meet expenses not otherwise provided
for is limited by the Constitution to $750,000. The Governor has
the power to issue orders to State agencies that will prevent
their expenditures and incurred obligations from exceeding
available revenue receipts and balances, if he ascertains that
such revenue receipts and balances for a current fiscal year will
in all probability be less than the appropriations for such year.
Most State operations are financed through the General
Revenue Fund ("GRF") with personal income and sales-use taxes
being the major GRF sources. State statutory provisions provide
for the use of the Total Operating Fund ("TOF") to manage
temporary GRF cash flow deficiencies by permitting the adjustment
of payment schedules. The State does not do external revenue
anticipation borrowing.
The TOF includes the total consolidated cash balances,
revenues, disbursements and transfers of the GRF and several
other specified funds. These cash balances are consolidated only
for the purpose of meeting cash flow requirements and, except for
the GRF, a positive cash balance must be maintained for each
discrete fund included in the TOF. The GRF is permitted to incur
a temporary cash deficiency by drawing upon the available
consolidated cash balance in the TOF. The amount of that
permitted GRF cash deficiency at any time is limited to 10% of
GRF revenues for the then preceding fiscal year. GRF cash flow
deficiencies occurred in 7 months in fiscal year 1996 with the
highest being approximately $742 million . All those actual, and
those projected, cash flow deficiencies are within the TOF
limitations discussed above.
Local school districts in Ohio receive a major portion
(on a state-wide basis, in the range of 44% in recent years) of
their operating moneys from State subsidies, but are dependent on
local property taxes and, in 120 districts, income taxes for
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significant portions of their budgets. A number of the State's
612 public and 49 joint vocational school districts have in any
year required special assistance to avoid year-end deficits. A
current program provides for individual district local
borrowing, with direct application of certain subsidy
distributions to repayment, if needed. In fiscal year 1996 under
this program, 20 districts borrowed a total of $87,167,016.
New legislation addresses larger school districts with
financial difficulties. The legislation is similar in
application to that employed with respect to municipalities, as
discussed below. It has been applied to two districts and five
have been placed on a preliminary "fiscal watch" status.
In July 1994, a State trial court judge ruled Ohio's
current method of subsidizing local schools unconstitutional
because it permits wide spending disparities among districts.
The State appealed, and in August 1995 a court of appeals
reversed the trial court's findings. An appeal by plaintiffs of
the court of appeals decision is pending on appeal in the Ohio
Supreme Court.
Ohio's incorporated cities and villages rely primarily
on property and municipal income taxes for their operations, and,
with other local governments, receive certain State subsidies and
reimbursements distributed by the State. Procedures have been
established for those few cities and villages that have on
occasion faced significant financial problems, which include
establishment of a joint State/local commission to monitor the
municipality's fiscal affairs, with a financial plan developed to
eliminate deficits and cure any defaults. Since inception in
1979, these procedures have been applied to 24 cities and
villages. In 19 of these cities and villages the fiscal
situation has been resolved and the procedures terminated. A
recent amendment to the fiscal emergency legislation extended its
potential application to counties and townships. The provisions
of the amendments to the fiscal emergency legislation have been
applied to one city.
At present the State itself does not levy any ad valorem
taxes on real or tangible personal property. Those taxes are
levied by political subdivisions and other local taxing
districts. The State Constitution limits the amount of the
aggregate levy of ad valorem property taxes, without a vote of
the electors or municipal charter provision, to 1% of true value
in money, and statutes limit the amount of the aggregate levy
without a vote or charter provision to 10 mills per $1 of
assessed valuation (commonly referred to as the "ten-mill
limitation"). Voted general obligations of subdivisions are
payable from property taxes unlimited as to amount or rate.
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Litigation pending in Federal district court contests
the Ohio Department of Human Services' ("ODHS") prior Medicaid
financial eligibility rules for married couples where one spouse
is living in a nursing facility and the other spouse resides in
the community. ODHS promulgated new eligibility rules effective
January 1, 1996. It is appealing a court order directing it to
provide notice to persons potentially effected by the former
rules from 1990 through 1995. It is not possible at this time to
state whether this appeal will be successful or, should
plaintiffs prevail, the period (beyond the current fiscal year)
during which necessary additional Medicaid expenditures would
have to be made. Plaintiffs have estimated total additional
Medicaid expenditures of $600,000,000 for the retroactive period
and, based on current law, it is estimated that the State's share
of those additional Medicaid expenditures would be approximately
$240,000,000.
Pennsylvania Portfolio
The Pennsylvania Portfolio seeks the highest level of
current income exempt from both federal income tax and
Commonwealth of Pennsylvania ("Pennsylvania" or the
"Commonwealth") personal income tax that is available without
assuming what the Fund's Adviser considers to be undue risk to
income or principal by investing in medium-quality, intermediate
and long-term debt obligations issued by the Commonwealth, its
political subdivisions, agencies and instrumentalities the
interest on which, in the opinion of bond counsel to the issuer,
is exempt from federal income tax and Commonwealth of
Pennsylvania personal income tax. As a matter of fundamental
policy at least 65% of the Portfolio's total assets will be so
invested (except when the Portfolio is in a temporary defensive
position), although it is anticipated that under normal
circumstances substantially all of the Portfolio's assets will be
invested in such Pennsylvania securities. As a matter of
fundamental policy, the Pennsylvania Portfolio will invest at
least 80% of its net assets in municipal securities the interest
on which is exempt from federal income tax. Under normal market
conditions, at least 65% of the Pennsylvania Portfolio's total
assets will be invested in income-producing securities (including
zero coupon securities). Shares of the Pennsylvania Portfolio
are available only to Pennsylvania residents.
The following was obtained from an Official Statement
dated October 2, 1996, relating to the issuance of $550,000,000
Commonwealth of Pennsylvania Tax Anticipation Notes, First Series
of 1996-1997.
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Economic Climate
The Commonwealth of Pennsylvania is the fifth most
populous state. Pennsylvania historically was identified as a
heavy industry state, although that reputation changed as the
industrial composition of the Commonwealth diversified when the
coal, steel and railroad industries began to decline. The major
new sources of growth in Pennsylvania are in the service sector,
including trade, medical and the health services, education and
financial institutions. Pennsylvania's agricultural industries
are also an important component of the Commonwealth's economic
structure, accounting for more than $3.6 billion in crop and
livestock products annually, while agribusiness and food related
industries support $39 billion in economic activity annually.
Non-agricultural employment in Pennsylvania over the
last ten years increased at an annual rate of 1.02 percent. This
rate compares to a 0.36 percent rate for the middle Atlantic
region and 1.8 percent for the U.S. during the period 1986
through 1995. For the last three years, employment in the
Commonwealth has increased 3.4 percent. The growth in employment
experienced in Pennsylvania during this period is higher than the
2.9 percent growth in the Middle Atlantic region.
Non-manufacturing employment has increased in recent
years to its 1995 level of 82.1 percent of total employment in
Pennsylvania. Consequently, manufacturing employment constitutes
a diminished share of total employment within the Commonwealth.
Manufacturing, contributing 17.9 percent of 1995 non-agricultural
employment, has fallen behind both the services sector and the
trade sector as the largest single source of employment within
the Commonwealth. [In 1995, the services sector accounted for
30.4 percent of all non-agricultural employment while the trade
sector accounted for 22.8 percent.]
Pennsylvania's annual average unemployment rate was
below the national average from 1986 until 1990. Slower economic
growth caused the unemployment rate in the Commonwealth to rise
to 6.9 percent in 1991 and 7.5 percent in 1992. The resumption
of faster economic growth resulted in a decrease in the
Commonwealth's unemployment rate to 7.1 percent in 1993. As of
August 1996, the most recent month for which data is available,
the seasonally adjusted unemployment rate for the Commonwealth
was 5.3 percent, compared to 5.1 percent for the United States.
Personal income in the Commonwealth for 1995 was $281.0
billion, an increase of 5.1% over the previous year. During the
same period, national personal income increased at a rate of
6.0%. Based on the 1995 personal income estimates, per capita
income for 1995 is estimated at $23,279 in the Commonwealth,
compared to per capita income in the United States of $22,788.
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Financial Condition
Pennsylvania utilizes the fund method of accounting.
The General Fund, the Commonwealth's largest and principal
operating fund, receives all tax receipts, revenues federal
grants and reimbursements that are not specified by law to be
deposited elsewhere. The majority of the Commonwealth's
operating and administrative expenses are payable from the
General Fund. Debt service on all obligation, except that issued
for highway purposes or for the benefit of other special revenue
funds, is payable from the General Fund.
Financial information for the General Fund is maintained
on a budgetary basis of accounting. Since 1984 the Commonwealth
has also prepared annual financial statements in accordance with
generally accepted accounting principles (GAAP).
Fiscal 1995 Financial Results (Budgetary Basis):
Commonwealth revenues for the fiscal year were above estimate and
exceeded fiscal year expenditures and encumbrances. Fiscal 1995
was the fourth consecutive fiscal year the Commonwealth reported
an increase in the fiscal year-end unappropriated balance. Prior
to reserves for transfer to the Tax Stabilization Reserve Fund,
the fiscal 1995 closing unappropriated surplus was $540.0
million, an increase of $204.2 million over the fiscal 1994
closing unappropriated surplus prior to transfers.
Commonwealth revenues were $459.4 million, 2.9 percent,
above the estimate of revenues used at the time the budget was
enacted. Corporation taxes contributed $329.4 million of the
additional receipts largely due to higher receipts from the
corporate net income tax. Fiscal 1995 revenues from the
corporate net income tax were 22.6 percent over collections in
fiscal 1994 and include the effects of the reduction of the tax
rate from 12.25 percent to 11.99 percent that became effective
with tax years beginning on and after January 1, 1994. The sales
and use tax and miscellaneous revenues also showed strong year-
over-year growth that produced above-estimate revenue
collections. Sales and use tax revenues were $5,526.9 million,
$128.8 million above the enacted budget estimate and 7.9 percent
over fiscal 1994 collections. Tax receipts from both motor
vehicle and non-motor vehicle sales contributed to the higher
collections. Miscellaneous revenue collections for fiscal 1995
were $183.5 million, $44.9 million above estimate and were
largely due to additional investment earnings, escheat revenues
and other miscellaneous revenues. Personal income tax receipts
for fiscal 1995 were slightly above the budgeted estimate.
Receipts totaled $5,083.2 million, $5.1 million above the
estimate and 4.3 percent over collections for fiscal 1994. The
higher than estimated revenues from tax sources were due to
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faster economic growth in the national and state economy than had
been projected when the budget was adopted. The higher rate of
economic growth for the nation and the state gave rise to
increases in employment, income and sales higher than expected
which translated into above-estimate tax revenues.
Tax revenue refunds were also higher than estimated in
the budget. The reserve for tax refunds was increased during the
fiscal year from $410 million to $460 million, a 110 percent
increase over refunds budgeted in fiscal 1994 which were usually
low due to a carryover of $160 million of reserves for tax
refunds from fiscal 1993. An acceleration of the tax refund
process for corporation taxes, litigation settlements, and an
increase in the personal income tax poverty exemption contributed
to tax refunds being higher than initially budgeted.
Expenditures (excluding pooled financing expenditures)
from commonwealth revenues, including $65.5 million of
supplemental appropriations enacted at the close of the 1995
fiscal year, totaled $15,674.7 million, representing an increase
of 5 percent over spending during fiscal 1994.
Funds held in reserve at the end of fiscal 1995 for
transfer to the Tax Stabilization Reserve Fund totaled $111.0
million. Of this total, $54.0 million represented the 10 percent
transfer of the fiscal year-end balance prescribed in state law
at that time. The remaining $57.0 million represented an
additional 5 percent of the year-end balance and an additional
$30 million proposed by the Governor to be transferred to the Tax
Stabilization Reserve Fund. These additional reserves for
transfer were authorized in legislation subsequent to the close
of the fiscal year.
Fiscal 1996 Financial Results (Budgetary Basis): The
unappropriated surplus (prior to transfers to Tax Stabilization
Reserve Fund) at the close of the fiscal year for the General
Fund was $183.8 million, $65.5 million above estimate. For the
fiscal year, net expenditures and encumbrances from commonwealth
revenues, including $113.0 million of supplemental appropriations
but excluding pooled financing expenditures, totaled $16,162.9
million. Expenditures exceeded available revenues and lapses by
$253.2 million. The difference was funded from a planned partial
drawdown of the $437.0 million fiscal year adjusted beginning
unappropriated surplus.
Commonwealth revenues (prior to tax refunds) for the
fiscal year increased by $113.9 million over the prior fiscal
year to $16,338.5 million representing a growth rate of 0.7
percent. Tax rate reductions and other tax law changes
substantially reduced the amount and rate of revenue growth for
the fiscal year. It is estimated that tax changes enacted for
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the fiscal year reduced commonwealth revenues by $283.4 million
representing 1.7 percentage points of fiscal 1996 growth in
commonwealth revenues. The most significant tax changes enacted
for the fiscal year were (i) the reduction of the corporate net
income tax rate to 9.99 percent; (ii) double weighting of the
sales factor of the corporate net income apportionment
calculation; (iii) an increase in the maximum annual allowance
for a net operating loss deduction from $0.5 million to $1.0
million; (iv) an increase in the basic exemption amount for the
capital stock and franchise tax; (v ) the repeal of the tax on
annuities; and (vi) the elimination of inheritance tax on
transfers of certain property to surviving spouses.
Among the major sources of commonwealth revenues for the
fiscal year, corporate tax receipts declined $338.4 million from
receipts in the prior fiscal year, largely due to the various tax
changes enacted for these taxes. Corporate tax changes were
enacted to reduce the cost of doing business in Pennsylvania for
the purpose of encouraging business to remain in Pennsylvania and
to expand employment opportunities within the state. Sales and
use tax receipts for the fiscal year increased $155.5 million, or
2.8 percent, over receipts during fiscal 1995. All of the
increase was produced by the non-motor vehicle portion of the tax
as receipts from the sale of motor vehicles declined slightly for
fiscal 1996. Personal income tax receipts for the fiscal year
increased $291.1 million, or 5.7 percent, over receipts during
fiscal 1995. Personal income tax receipts were aided by a 10.2
percent increase in non-withholding tax payments which generally
are comprised of quarterly estimated and annual final return tax
payments. Non-tax receipts for the fiscal year increased $23.7
million for the fiscal year. Included in that increase was $67
million in net receipts from a tax amnesty program that was
available for a portion of the 1996 fiscal year. Some portion of
the tax amnesty receipts represent normal collections of
delinquent taxes. The tax amnesty program is not expected to be
repeated.
Transfers to the Tax Stabilization Reserve Fund from
fiscal 1996 operations will be $27.6 million. This amount
represents the fifteen percent of the fiscal year ending
unappropriated surplus transfer provided under current law. With
the addition of this transfer and anticipated interest earnings.
the Tax Stabilization Reserve Fund balance will be $211 million.
Fiscal 1997 Budget: The enacted fiscal 1997 budget
provides for expenditures from commonwealth revenues of $16,375.8
million, an increase of 0.6% over appropriated amounts from
commonwealth revenues for fiscal 1996. The fiscal 1997 budget is
based on anticipated commonwealth revenues before refunds of
$16,744.5 million, an increase over actual fiscal 1996 revenues
of 2.5 percent. The revenue estimate for fiscal 1997 includes
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provision for a $15 million tax credit program enacted with the
fiscal 1997 budget for businesses creating new jobs. Staggered
corporation tax years cause fiscal 1997 revenues to continue to
be affected by the business tax reductions enacted during the
past two completed fiscal years. These reductions, together with
the new job creation tax credit, cause revenue growth comparisons
between fiscal 1996 and fiscal 1997 to be understated. When
taking into account the effect of the recent tax changes,
revenues are anticipated in the fiscal 1997 budget to increase at
a rate of 3.0 percent. The fiscal 1997 revenue estimate is based
on a forecast of the national economy for real gross domestic
product to slow to a growth rate of 2.0 percent for 1996 and
below 1.5 percent for 1997. The expectation for slowing economic
growth is based on an assumption that the Federal Reserve Board
does not cut interest rates and an assumption that foreign
economic growth is weak. The consequence of this economic
scenario is a U.S. economy with very low growth, slow gains in
consumer spending, declining inflation rates, but increasing
unemployment which raises the unemployment rate to over 6.0
percent by the end of 1996.
Increased authorized spending for fiscal 1997 is driven
largely by increased costs of the corrections and the probation
and parole programs. Continuation of the trend of rapidly rising
inmate populations increases operating costs for correctional
facilities and requires the opening of new facilities. The
fiscal 1997 budget contains an appropriation increase in excess
of $11O million for these programs. The approved budget also
contains some departmental restructurings. The Department of
Community Affairs was eliminated with certain of its programs
transferred to the Department of Commerce that has been re-named
the Department of Community and Economic Development. In
addition to assuming some of the community programs, a
significant restructuring of the economic development programs
was completed with the establishment of the new Department of
Community and Economic Development. Although the departmental
restructurings are estimated to save approximately $8 million, a
$25 million increase in funds was committed to economic and
community development programs for fiscal 1997.
Providing funding for these program increases in a
fiscal year budget where appropriations increased by only $96.7
million, or 0.6 percent, required reductions and savings in other
programs funded from the General Fund. A major reform of the
current welfare system was enacted in May 1996 to encourage
recipients toward self-sufficiency through work requirements, to
provide temporary support for families showing personal
responsibility and to maintain safeguards for those who cannot
help themselves. Net savings to the fiscal 1997 budget of $176.5
million is anticipated. Many of these savings are redirected in
the fiscal 1997 budget toward providing additional support
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services to those working and seeking work. Of the net savings,
$21 million is committed to job training opportunities and an
additional $69 million towards making day care services available
to welfare recipients for work opportunities. The fiscal 1997
budget also provides additional funding without requiring
additional appropriations. An actuarial reduction of 112 basis
points in the employer contribution rate is estimated to save
school districts approximately $21 million for the fiscal year.
Additional savings can be expected to be realized by school
districts from legislated changes to teacher sabbatical leaves,
worker's compensation insurance and to revised prevailing wage
surveys by the Department of Labor and Industry. These savings
and program funding increases to special education and pupil
transportation programs and an initiative for technology
improvements for schools are estimated to be equal to
approximately $138 million of increased funding to local schools,
equivalent to a 4.5% increase in the basic education funding for
fiscal 1997.
The fiscal 1997 budget anticipates receiving $60 million
of proceeds from the securitization of $151.7 million of loans
held by the Sunny Day Fund. This fund was created to finance
large-scale economic development loans to attract significant
employment opportunities to the Commonwealth. Its funding was
generally obtained from General Fund appropriations. The fund
has been abolished and its loans have been transferred to the
Pennsylvania Industrial Development Fund ("PIDA"). PIDA will
issue bonds secured by its loan revenues, including the Sunny Day
Fund loans. The bond proceeds will be used to refund outstanding
debt of the Commonwealth. The effect of this transaction on the
fiscal 1997 budget is to reduce the amount of debt service needed
to be appropriated from the General Fund by at least $60 million.
The fiscal 1997 budget is based on the presumption that
federally enacted reforms to Medicaid would raise the federal
reimbursement percentage for those costs to 57 percent from an
approximate 53 percent rate for fiscal 1996. The higher
reimbursement rate, expected to be effective in October 1996, was
anticipated to provide an additional $260 million of federal
funds during fiscal 1997 and enable the Commonwealth to reduce
its appropriations for the medical assistance program by a like
amount for fiscal 1997. The U.S. Congress has not approved the
legislation making these changes. Current expectations are that
the additional federal funds will not be available at the time
and in the amount as anticipated in the approved fiscal 1997
budget. The Commonwealth expects to use intergovernmental
transfer funds obtained through a pooling transaction to help
make up the loss of this funding.
The fiscal 1997 budget assumes a drawdown of the $156.3
million fiscal year beginning unappropriated surplus to fund the
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enacted level of appropriations within the current estimate of
revenues. The anticipated drawdown of the balance does not
consider the availability of appropriation lapses normally
occurring during a fiscal year that are used to fund supplemental
appropriations or increase unappropriated surplus.
City of Philadelphia
Philadelphia is the largest city in the Commonwealth
with an estimated population of 1,585,577 according to the 1990
Census. The audited General Fund balances of Philadelphia as of
June 30, 1995 showed a surplus of approximately $80.5. million,
up from approximately $15.4 million as of June 30, 1994.
In June 1991, the Pennsylvania Intergovernmental
Cooperation Authority ("PICA") was created to assist the City of
Philadelphia in remedying fiscal emergencies through the issuance
of funding debt to make factual findings and recommendations to
Philadelphia concerning its budgetary and fiscal affairs. PICA
has issued $1,761,710,000 of its Special Tax Revenue Bonds.
Currently, Philadelphia is operating under a five-year fiscal
plan approved by PICA on April 30, 1996.
Commonwealth Debt
The current Constitutional provisions pertaining to
Commonwealth debt permit the issuance of the following types of
debt: (i) debt to suppress insurrection or rehabilitate areas
affected by disaster, (ii) electorate approved debt, (iii) debt
for capital projects subject to an aggregate debt limit of 1.75
times the annual average tax revenues of the preceding five
fiscal years, and (iv) tax anticipation notes payable in the
fiscal year of issuance. All debt except tax anticipation notes
must be amortized in substantial and regular amounts.
Outstanding general obligation debt totaled $5,054.5
million at June 30, 1996, an increase of $9.1 million from June
30, 1995. Over the 10-year period ending June 30, 1996, total
outstanding general obligation debt increased at an annual rate
of 1.1 percent. Within the most recent 5-year period, outstanding
general obligation debt has grown at an annual rate of 1.1
percent.
Certain state-created organizations have statutory
authorization to issue debt for which state appropriations to pay
debt service thereon are not required. The debt of these
organizations is funded by assets of, or revenues derived from
the various projects financed and is not a statutory or moral
obligation of the Commonwealth. However, some of these
organizations are indirectly dependent upon Commonwealth
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operating appropriations. In addition, the Commonwealth may
choose to take action to financially assist these organizations.
Litigation
On September 28, 1978 the General Assembly approved a
limited waiver of sovereign immunity. Damages for any loss are
limited to $250,000 for each person and $1,000,000 for each
accident. The Supreme Court of Pennsylvania held that this
limitation is constitutional. Approximately 3,500 suits against
the Commonwealth remain open.
The Commonwealth's Office of Attorney General and its
Office of General Counsel have reviewed the status of pending
litigation against the Commonwealth, its officers and employees,
and have identified certain cases as ones where an adverse
decision may have a material effect on government operations of
the Commonwealth and, consequently, the Commonwealth's ability to
pay debt service on its obligations.
The following are certain significant cases pending
against the Commonwealth:
Baby Neal v. Commonwealth et al.
The American Civil Liberties Union and various named
plaintiffs are seeking an order that would require the
Commonwealth to provide additional funding for child welfare
services. No figures for the amount of funding sought are
available. A similar lawsuit filed in the Commonwealth Court of
Pennsylvania was resolved through a court approved settlement
that provided for more Commonwealth funding for these services
for fiscal year 1991 as well as a commitment to pay to counties
$30.0 million over five years.
In January of 1992, the U.S. District Court denied the
ACLU's motion for class certification and held that the "next
friends" seeking to represent the interests of the 16 minor
plaintiffs in the case were inadequate representatives. The
Commonwealth filed a motion for summary judgment on most of the
counts in ACLU's complaint. After the motion for summary
judgment was filed, the ACLU filed a renewed motion to certify
sub-classes.
In December of 1994, the Third Circuit reversed the
ruling. Consistent with the Third Circuit's ruling, the District
Court recently certified the class, and the parties have resumed
discovery.
County of Allegheny v. Commonwealth of Pennsylvania
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On December 7, 1987, the Supreme Court of Pennsylvania
held in County of Allegheny v. Commonwealth of Pennsylvania, that
the statutory scheme for county funding of the judicial system is
in conflict with the Pennsylvania Constitution. However, the
Supreme Court of Pennsylvania stayed its judgement to afford the
General Assembly an opportunity to enact appropriate funding
legislation consistent with its opinion and ordered that the
prior system of county funding shall remain in place until this
is done.
On December 7, 1992, the State Association of County
Commissioners filed a new action in mandamus seeking to compel
the Commonwealth to comply with the decision in County of
Allegheny. The Commonwealth has filed a response in opposition
to the new action. The Court issued the writ on July 26, 1996,
and appointed retired Justice Frank J. Montemuro, Jr. as special
master to devise and submit a plan for implementation. Recently
the President of the Senate and the Speaker of the House have
filed a petition seeking reconsideration from the Court.
The General Assembly has yet to consider legislation
implementing the Supreme Court of Pennsylvania's judgment.
Fidelity Bank v. Commonwealth of Pennsylvania
On November 30, 1989, Fidelity Bank, N.A. ("Fidelity")
filed a declaratory judgment action in the Commonwealth Court of
Pennsylvania in which Fidelity raised various challenges to the
constitutional validity of the amended Bank Shares Act and
related legislation. Pursuant to a Settlement Agreement dated as
of April 21, 1995, the Commonwealth agreed to enter a credit in
favor of Fidelity in the amount of $4,100,000 in settlement of
the constitutional and non-constitutional issues, including
interest. Pursuant to a separate Settlement Agreement dated as
of April 21, 1995, the Commonwealth settled with intervening
banks.
Although the described settlements have quantified the
Commonwealth's exposure to Fidelity and the intervening banks,
other banks have filed protective Petitions which are currently
pending with the Board of Appeals or Board of Finance and
Revenue. Depending upon the outcomes of these administrative
appeals, one or more of these banks may seek to raise the issues
which were advanced by Fidelity, although not brought to final
resolution by the Pennsylvania Supreme Court.
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Pennsylvania Association of Rural and Small Schools
("PARSS") v. Casey
This litigation challenges the constitutionality of the
Commonwealth's system for funding local school districts. The
trial in state court has been scheduled to commence on January 6,
1997 and the federal court case has been indefinitely stayed.
Autin v. Department of Corrections, et al.
In November 1990, the American Civil Liverties Union
("ACLU") brought a class action lawsuit in the United States
District Court for the Eastern District of Pennsylvania on behalf
of the inmate populations in thirteen Commonwealth correctional
institutions. The lawsuit challenged the conditions of
confinement at each institution and included specific allegations
of over-crowding, deficiencies in medical health services,
inadequate enviornmental conditions, disparate treatment of HIV
positive prisoners and other assorted claims. No damages are
sought. The ACLU sought injunctive relief which would modify
conditions, change practices and procedures, and increase the
number of staff deployment.
On August 1, 1994, the parties submitted a proposed
settlement agreement to the Court for its review. The Court held
hearings on the proposed Settlement Agreement in December 1994.
The Court approved the Settlement Agreement with a January 17,
1995 Memorandum. On February 3, 1995, the Commonwealth paid $1.3
million in attorneys' fees to the plaintiffs' attorneys in
accordance with the Agreement. The remaining $100,000 in
attorneys' fees will paid upon dismissal of the preliminary
injunction relating to certain health issues. The parties are
currently complying with monitoring provisions outlined in the
Agreement. The monitoring phase will expire on January 6, 1998.
The attorneys' fees for the 3-year monitoring period will not
exceed $60,000 in any one year.
Envirotest/Synterra Partners
This litigation was brought by companies which had
invested $200 million in reliance on the Commonwealth's adopting
an emissions testing program. On December 15, 1995, the
Commonwealth of Pennsylvania entered into a Settlement Agreement
("Agreement") pursuant to which the parties settled all claims
which Envirotest might have had against the Commonwealth arising
from the suspension of the emissions testing program. Under the
Agreement, Envirotest is to receive $145 million, with interest
at 6 percent per annum, payable $25 million in 1995, $40 million
each in 1996, 1997 and 1998. An additional $15 million may be
required to be paid in 1998, depending upon the results of
property liquidations by Envirotest.
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Trial commenced on May 30, 1996. During the course of
the trail, upon motion of the Commonwealth, the Supreme Court of
Pennsylvania on July 1, 1996 assumed extraordinary plenary
jurisdiction and directed Judge Smith to conclude the proceedings
within 60 days and to file with the Supreme Court findings of
fact, conclusions of law and a final opinion. The Supreme Court
retained jurisdiction. Judge Smith specifically found that
"[b]ecause of the lack of adequate funds to comply with the
remedial order, the School District is entitled to additional
resources for 1996-1997 of $45.1 million.
On September 10, 1996, the Supreme Court of Pennsylvania
issued an order granting the Commonwealth's Motion to Vacate.
The Court directed its Prothonotary to establish a briefing
schedule and a date for oral argument and indicated that it would
issue a further order limiting the issues to be addressed.
Finally, the Supreme Court stated that Commonwealth Court "is
divested of jurisdiction of th[e] matter..., and all further
proceedings in the Commonwealth Court are stayed pending further
order of th[e Supreme] Court." The Supreme Court again retained
jurisdiction.
Virginia Portfolio
The Virginia Portfolio seeks the highest level of
current income exempt from both federal income tax and
Commonwealth of Virginia ("Virginia" or the "Commonwealth")
personal income tax that is available without assuming what the
Fund's Adviser considers to be undue risk to income or principal
by investing in medium-quality, intermediate and long-term debt
obligations issued by the Commonwealth, its political
subdivisions, agencies and instrumentalities the interest on
which, in the opinion of bond counsel to the issuer, is exempt
from federal income tax and Commonwealth of Virginia personal
income tax. As a matter of fundamental policy at least 65% of
the Portfolio's total assets will be so invested (except when the
Portfolio is in a temporary defensive position), although it is
anticipated that under normal circumstances substantially all of
the Portfolio's assets will be invested in such Virginia
securities. As a matter of fundamental policy, the Virginia
Portfolio will invest as least 80% of its net assets in municipal
securities the interest on which is exempt from federal income
tax. Under normal market conditions, at least 65% of the
Virginia Portfolio's total assets will be invested in income-
producing securities (including zero coupon securities). Shares
of the Virginia Portfolio are available only to Virginia
residents.
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The following is based on information obtained from an
Official Statement, dated May 15, 1996, relating to $111,515,000
Commonwealth of Virginia General Obligation Bonds, Series 1996.
Economic Climate
The Commonwealth of Virginia is the twelfth most
populous state in the nation, with approximately 6,646,000
residents. In 1995, its population density was 168 persons per
square mile, compared with 72 persons per square mile for the
United States.
The Commonwealth is divided into five distinct regions--
a coastal plain cut into peninsulas by four large tidal rivers, a
piedmont plateau of rolling farms and woodlands, the Blue Ridge
Mountains, the fertile Shenandoah Valley and the Appalachian
plateau extending over the southwest corner of the Commonwealth.
Approximately one-third of all land in Virginia is used for
farming and other agricultural services. This variety of
terrain, the location of the Commonwealth on the Atlantic
Seaboard at the southern extremity of the northeast population
corridor and its close proximity to the nation's capital have had
a significant influence on the development of the present
economic structure of the Commonwealth.
The largest metropolitan area is the Northern Virginia
portion of the Washington, D.C. This is the fastest growing
metropolitan area in the Commonwealth and had a 1994 population
of 1,889,000. Northern Virginia has long been characterized by
the large number of people employed in both civilian and military
work with the federal government. However, it is also one of the
nation's leading high-technology centers for computer software
and telecommunications. Per capita income for the Northern
Virginia portion of Washington, D.C. in 1994 was $27,761.
According to the U.S. Department of Commerce, Virginians
received over $148 billion in personal income in 1994,
representing an increase of 89% over 1985 and greater than the
national gain of 71.3% for the same period. In 1994, Virginia
had per capita income of $22,594, the highest of the Southeast
region and greater than the national average of $21,809.
Virginia's per capita income rose from 94% to 104% of the
national average from 1970 to 1994. However, Virginia per capita
personal income in 1990, 1992 and 1994 grew at a lower rate than
the U.S. average. Much of Virginia's per capita income gain in
the last decade has been due to the continued strength of the
manufacturing sectors and the rapid growth of the high-technology
industries.
The value of all residential unit permits issued in 1994
was $3.9 billion, a 6.1 percent increase from 1993. Total
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residential building permits increased 3.5 percent between 1993
and 1994 but displayed an overall decline of 18 percent between
1989 and 1994. Residential construction in the Virginia portion
of Washington, D.C., the Norfolk-Virginia Beach-Portsmouth area
and the Richmond-Petersburg area accounted for nearly two-thirds
of the state's total residential construction.
More than 3 million residents of the Commonwealth are in
the civilian labor force. Services, the largest employment
sector, accounts for 28.4% of nonagricultural employment, and has
increased 19.1% from 1991-1995. Manufacturing is also a
significant employment sector, accounting for 13.1% of
nonagricultural employment in 1995. The industries with the
greatest manufacturing employment are transportation equipment,
textiles, food processing, printing, electric and electronic
equipment, apparel, chemicals, lumber and wood products and
machinery. Employment in the manufacturing sector decreased 2.4%
from 1991 to 1995.
Virginia generally has one of the lowest unemployment
rates in the nation, according to statistics published by the
U.S. Department of Labor. During 1995, an average of 4.5% of
Virginia's citizens were unemployed as compared with the national
average which was 5.6%.
Virginia is one of twenty states with a Right-to-Work
Law and has a record of good labor management relations. Its
favorable business climate is reflected in the relatively small
number of strikes and other work stoppages it experiences.
Virginia is one of the least unionized of the more
industrialized states. Three major reasons for this situation
are the Right-to-Work Law, the importance of manufacturing
industries such as textiles, apparel, electric and electronic
equipment and lumber which are not highly organized in Virginia
and the importance of federal civilian and military employment.
Typically the percentage of nonagricultural employees who belong
to unions in the Commonwealth has been approximately half the
U.S. average.
Financial Condition
The Constitution of Virginia limits the ability of the
Commonwealth to create debt. The Constitution requires the
Governor to ensure that expenses do not exceed total revenues
anticipated plus fund balances during the period of two years and
six months following the end of the General Assembly session in
which the appropriations are made. An amendment to the
Constitution, effective January 1, 1993, established the Revenue
Stabilization Fund. The Revenue Stabilization Fund is used to
offset, in part, anticipated shortfalls in revenues in years when
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appropriations, based on previous forecasts, exceed expected
revenues in subsequent forecasts.
On May 16, 1996, the Governor indicated his intention
not to sign the 1996 Budget Bill, as amended, and the Attorney
General of the Commonwealth of Virginia filed a petition for a
writ of mandamus against the Comptroller in the Supreme Court of
Virginia (Gilmore v. Landsidle, Record No. 961014). The purpose
of this action is to determine the validity of the 1996 Budget
Bill, as amended, and to clarify the scope of the Governor's
constitutional authority to veto budgetary items. The spending
authority in dispute has no effect on any debt service payments
on any bonds of the Commonwealth, its agencies or
instrumentalities, but challenges only the 1996 amendments to the
1994-96 biennial budget and does not question the 1996-98
Appropriation Act.
Tax-supported debt of Virginia includes both general
obligation debt and debt of agencies, institutions, boards and
authorities for which debt service is expected to be made in
whole or in part from appropriations of tax revenues. Certain
bonds issued by certain authorities that are designed to be self-
supporting from their individual loan programs are secured in
part by a moral obligation pledge of Virginia. Virginia may fund
deficiencies that may occur in debt service reserves for moral
obligation debt. To date, these authorities have not requested
that the Commonwealth fund reserve deficiencies for this debt.
There are also several authorities and institutions of the
Commonwealth that issue debt for which debt service is not paid
through appropriations of state tax revenues and for which there
is no moral obligation pledge to consider funding debt service or
reserve fund deficiencies.
In fiscal year 1995, revenues increased 6.2% from 1994
while total expenditures increased by 10.25%. Although revenues
exceeded expenditures in fiscal year 1995, the total general fund
balance decreased by $168.0 million. This decrease in the
general fund is attributable to a 23% increase in transfers from
the general fund, including a $60.0 million settlement payment to
federal retirees (see "Litigation" below).
Litigation
The Commonwealth, its officials and employees are named
as defendants in legal proceedings which occur in the normal
course of governmental operations, some involving substantial
amounts. It is not possible at the present time to estimate the
ultimate outcome or liability, if any, of the Commonwealth with
respect to these lawsuits. However, the ultimate liability
resulting from these suits is not expected to have a material,
adverse effect on the financial condition of the Commonwealth.
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In Davis v. Michigan (decided March 28, 1989), the
United States Supreme Court ruled unconstitutional states'
exempting from state income tax the retirement benefits paid by
the state or local governments without exempting retirement
benefits paid by the federal government. At that time, Virginia
exempted state and local retirement benefits but not federal
retirement benefits. At a Special Session held in April 1989,
the General Assembly repealed the exemption of state and local
retirement benefits.
In Harper v. Department of Taxation, commenced in 1989,
federal retirees sought refunds of state income taxes during
1985-1988. In a Special Session in 1994, the General Assembly
passed emergency legislation to provide payments to federal
retirees in settlement of their claims for overpaid taxes.
Approximately 91% of the retirees accepted the settlement which
provided for annual payments over a five-year period, commencing
March 31, 1995.
On September 15, 1995, the Virginia Supreme Court
rendered its decision in Harper, reversed the judgment of the
trial court, entered final judgment in favor of the plaintiff
retirees who elected not to settle, and directed that the amounts
unlawfully collected be refunded with statutory interest. The
total cost of refunding all Virginia income taxes paid on federal
pensions on account of the settlement (approximately $316.2
million) and the judgment ($78.7 million) is approximately $394.9
million, of which $203.2 million ($124.5 in respect of the
settlement and the entire $78.7 million in respect of the
judgment) has been paid, leaving $191.7 million payable in
respect of the settlement--approximately $63.2 million in fiscal
year 1997, $62.5 million on March 31, 1998, and (subject to
appropriation) $66 million on March 31, 1999.
The foregoing 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
Portfolios will invest or the private business entities whose
obligations support the payments on AMT-Subject Bonds in which
the Portfolios will invest. For further information on these
securities and their issuers, see the general discussions above
under "Risks of Concentration. In a Single State" and below
under "Additional Investment Policies."
Additional Investment Policies
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
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commercial paper. In the event a Portfolio invests in demand
notes, the Adviser will continually monitor the ability of the
obligor under such notes to meet its obligations. Typically,
municipal bonds are issued to obtain funds used to construct a
wide range of public facilities, such as schools, hospitals,
housing, mass transportation, airports, highways and bridges. The
funds may also be used for general operating expenses, refunding
of outstanding obligations and loans to other public institutions
and facilities.
Municipal bonds have two principal classifications:
general obligation bonds and revenue or special obligation bonds.
General obligation bonds are secured by the issuer's pledge of
its faith, credit and taxing power for the payment of principal
and interest. Revenue or special obligation bonds are payable
only from the revenues derived from a particular facility or
class of facilities or, in some cases, from the proceeds of a
special excise tax or other specific revenue source but not from
general tax and other unrestricted revenues of the issuer. The
term "issuer" means the agency, authority, instrumentality or
other political subdivision whose assets and revenues are
available for the payment of principal of and interest on the
bonds. Certain types of private activity bonds are also
considered municipal bonds if the interest thereon is exempt from
federal income tax. Private activity bonds are issued by or on
behalf of public authorities to obtain funds for various
privately-operated manufacturing facilities, airports, housing
projects, resource recovery programs, solid waste disposal
facilities, student loan programs and water and sewage disposal
facilities.
Private activity bonds are in most cases revenue bonds
and do not generally constitute the pledge of the credit or
taxing power of the issuer of such bonds. The payment of the
principal and interest on such private activity bonds depends
solely on the ability of the user of the facilities financed by
the bonds to meet its financial obligations and the pledge, if
any, of real and personal property so financed as security for
such payment.
A 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
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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.
A Portfolio may also invest in municipal securities, the
interest rate on which has been divided into two different and
variable components, which together result in a fixed interest
rate. Typically, the first of the components (the "Auction
Component") pays an interest rate that is reset periodically
through an auction process, whereas the second of the components
(the "Residual Component") pays a current residual interest rate
based on the difference between the total interest paid by the
issuer on the municipal securities and the auction rate paid on
the Auction Component. A Portfolio may purchase both Auction and
Residual Components.
Because the interest rate paid to holders of Residual
Components is generally determined by subtracting the interest
rate paid to the holders of Auction Components from a fixed
amount, the interest rate paid to Residual Component holders will
decrease the Auction Component's rate increases and increase as
the Auction Component's rate decreases. Moreover, the extent of
the increases and decreases in market value of Residual
Components may be larger than comparable changes in the market
value of an equal principal amount of a fixed rate municipal
security having similar credit quality, redemption provisions and
maturity.
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
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on a demand note may be a market rate that is adjusted at
specified intervals.
Other short-term obligations constituting municipal
notes include tax anticipation notes, revenue anticipation notes
and bond anticipation notes, and tax-exempt commercial paper.
Tax anticipation notes are issued to finance working
capital needs of municipalities. Generally, they are issued in
anticipation of various seasonal tax revenues, such as ad
valorem, income, sales, use and business taxes. Revenue
anticipation notes are issued in expectation of receipt of other
types of revenues, such as federal revenues available under the
Federal Revenue Sharing Programs. Bond anticipation notes are
issued to provide interim financing until long-term financing can
be arranged. In most such cases, the long-term bonds provide the
money for the repayment of the notes.
Tax-exempt commercial paper is a short-term obligation
with a stated maturity of 365 days or less (however, issuers
typically do not issue such obligations with maturities longer
than seven days). Such obligations are issued by state and local
municipalities to finance seasonal working capital needs or as
short-term financing in anticipation of longer-term financing.
There are, of course, variations in the terms of, and
the security underlying, municipal securities, both within a
particular rating classification and between such
classifications, depending on many factors. The ratings of
Moody's, S&P and Fitch represent their opinions of the quality of
the municipal securities rated by them. It should be emphasized
that such ratings are general and are not absolute standards of
quality. Consequently, municipal securities with the same
maturity, coupon and rating may have different yields, while the
municipal securities of the same maturity and coupon, but with
different ratings, may have the same yield. The Adviser
appraises independently the fundamental quality of the securities
included in the Fund's portfolios.
Yields on municipal securities are dependent on a
variety of factors, including the general conditions of the
municipal securities market, the size of a particular offering,
the maturity of the obligation and the rating of the issue. An
increase in interest rates generally will reduce the market value
of portfolio investments, and a decline in interest rates
generally will increase the value of portfolio investments.
Municipal securities with longer maturities tend to produce
higher yields and are generally subject to greater price
movements than obligations with shorter maturities. Under normal
circumstances the average weighted maturity of the securities in
each Portfolio will range between 10 and 25 years. However, no
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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.
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 or Fitch may change as a
result of changes in such organizations or their rating systems,
the Adviser will attempt to use such changed ratings in a manner
consistent with the Fund's quality criteria as described in the
Prospectus for each of its Portfolios.
Obligations of issuers of municipal securities are
subject to the provisions of bankruptcy, insolvency, and other
laws affecting the rights and remedies of creditors, such as the
Federal Bankruptcy Code. In addition, the obligations of such
issuers may become subject to laws enacted in the future by
Congress, state legislatures, or referenda extending the time for
payment of principal and/or interest, or imposing other
constraints upon enforcement of such obligations or upon the
ability of municipalities to levy taxes. There is also the
possibility that, as a result of litigation or other conditions,
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.
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Additionally, the Fund would reevaluate its investment objectives
and policies.
Defensive Position. Under normal circumstances,
substantially all of the total assets of each Portfolio will be
invested in the types of securities described in "Investment
Objective and Policies" in the Prospectus. For temporary
defensive purposes, each Portfolio may also invest without limit
in high-quality municipal notes, rated SP-2 or higher by S&P,
MIG-2 (or VMIG-2) or higher by Moody's, or FIN-2 or higher by
Fitch, or in taxable cash equivalents, including, in the case of
each Portfolio other than the Florida Portfolio, (i) short-term
obligations of the U.S. Government and its agencies or
instrumentalities ("U.S. Government Securities"), (ii)
certificates of deposit, bankers' acceptances and interest-
bearing savings deposits of banks having total assets of more
than $1 billion and which are members of the Federal Deposit
Insurance Corporation, (iii) commercial paper of prime quality
rated A-1 or higher by S&P, Prime-1 or higher by Moody's, or
Fitch-1 or higher by Fitch or, if not rated, issued by companies
which have an outstanding debt issue rated AA or higher by S&P or
Fitch or Aa or higher by Moody's and (iv) repurchase agreements
and, in the case of the Florida Portfolio, only (a) short-term
U.S. Government Securities and (b) repurchase agreements. If for
any reason there is not an adequate supply of Minnesota municipal
securities, the Minnesota Portfolio may have to hold cash
uninvested in order to preserve the Minnesota tax status of its
dividends. Cash held uninvested will not earn income. See
"Dividends, Distributions and Taxes."
Apart from temporary defensive purposes, each Portfolio,
other than the Florida Portfolio, may at any time elect to invest
up to 20% of its total assets in taxable cash equivalents and
repurchase agreements of the types specified in the preceding
paragraph. The Florida Portfolio may at any time elect to invest
up to 20% of its total assets in short-term U.S. Government
Securities and repurchase agreements of the types specified in
the preceding paragraph. Nonetheless, it is anticipated that
under normal circumstances substantially all of the assets of the
Portfolios will be invested in municipal securities generating
tax-exempt income.
Non-Diversified Status. Each Portfolio is non-
diversified, which means that the Portfolio is not subject to any
statutory restriction under the Investment Company Act of 1940,
as amended (the "Act") with respect to the investment of its
assets in the securities of a relatively few municipal issuers.
As a non-diversified investment company, each Portfolio may
present greater risks than a diversified company. Nevertheless,
in order to qualify as a "regulated investment company" for
Federal income tax purposes, each Portfolio will be restricted in
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that, among other limitations, at the close of each quarter of
the taxable year, at least 50% of the value of each Portfolio's
total assets must be represented by cash, government securities
and other securities limited in respect of any one issuer to not
more than 5% in value of the total assets of each Portfolio, and
to not more than 10% of the outstanding voting securities of any
one issuer. In addition, at the close of each quarter of its
taxable year, not more than 25% in value of each Portfolio's
total assets may be invested in securities of one issuer.
Futures Contracts and Options on Futures Contracts.
Each Portfolio may enter into contracts for the purchase or sale
for future delivery of municipal securities, U.S. Government
Securities or contracts based on financial indices, including any
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 investments techniques will be used only to hedge
against anticipated future changes in interest rates which
otherwise might either adversely affect the prices of securities
which a Portfolio intends to purchase at a later date.
A Portfolio's ability to dispose of its position in
futures contracts and options on futures contracts will depend on
the availability of liquid markets in such instruments. Markets
in futures contracts and options on futures contracts 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 a secondary market does not
exist with respect to an option purchased or written by a
Portfolio over-the-counter, it might not be possible to effect a
closing transaction in the option (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 may not be able to sell
portfolio securities covering an option written by the Portfolio
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until the option expires or it delivers the underlying security
or futures contract upon exercise. Therefore, no assurance can
be given that a Portfolio will be able to utilize these
instruments effectively for the purposes set forth above.
Furthermore, a Portfolio's ability to engage in options and
futures transactions may be limited by tax considerations.
The Trustees have adopted the requirement that futures
contracts and options on futures contracts only be used as a
hedge and not for speculation. In addition to this requirement,
the Trustees have also restricted the Portfolios' use of futures
contracts so that the aggregate of the market value of the
outstanding futures contracts of the Portfolio and the market
value of the futures contracts subject to outstanding options
written by the Portfolio not exceed 50% of the market value of
the total assets of the Portfolio. These restrictions will not
be changed by the Fund's Trustees without considering the
policies and concerns of the various applicable Federal and state
regulatory agencies.
The successful use of futures and related options draws
upon the Adviser's special skills and experience with respect to
such instruments and usually depends on the Adviser's ability to
forecast interest rate movements correctly. 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. Should
interest rates move in an unexpected manner, a Portfolio may not
achieve the anticipated benefits of futures contracts or options
on futures contracts or may realize losses and thus will be in a
worse position than if such strategies had not been used. In
addition, the correlation between movements in the price of
futures contracts or options on futures contracts and movements
in the price of the securities hedged or used for cover will not
be perfect and could produce unanticipated losses. If the value
of the index increases, the purchaser of the futures contract
thereon will be entitled to a cash payment. Conversely, if the
value of the index declines, the seller of a futures contract
will be entitled to a cash payment. In connection with its
purchase of index futures each Portfolio will deposit cash, or
liquid, high-grade debt obligations equal to the market value of
the futures contract (less related margin) in a segregated
account with the Fund's custodian or a futures margin account
with a broker. 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.
A Portfolio will not enter into any futures contracts or
options on futures contracts if immediately thereafter the
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aggregate of the market value of the Portfolio's outstanding
futures contracts and the market value of the futures contracts
subject to outstanding options written by the Portfolio would
exceed 50% of the total assets.
For additional information on the use, risks and costs
of futures contracts and options on futures contracts, see
Appendix B.
Options on Municipal and U.S. Government Securities. In
an effort to increase current income and to reduce fluctuations
in net asset value, the Portfolios intend to write covered put
and call options and purchase put and call options on municipal
securities and U.S. Government Securities that are traded on U.S.
exchanges. There are no specific limitations on the writing and
purchasing of options by those Portfolios.
A put option gives the purchaser of such option, upon
payment of a premium, the right to deliver a specified amount of
a security to the writer of the option on or before a fixed date
at a predetermined price. A call option gives the purchaser of
the option, upon payment of a premium, the right to call upon the
writer to deliver a specified amount of a security on or before a
fixed date at a predetermined price. A call option written by a
Portfolio is "covered" if the Portfolio owns the underlying
security covered by the call or has an absolute and immediate
right to acquire that security without additional cash
consideration (or for additional cash consideration held in a
segregated account by its custodian) upon conversion or exchange
of other securities held in its portfolio. A call option is also
covered if the Portfolio holds a call on the same security and in
the same principal amount as the call written where the exercise
price of the call held (i) is equal to or less than the exercise
price of the call written or (ii) is greater than the exercise
price of the call written if the difference is 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
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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 call option,
while at the same time achieving the desired hedge.
In purchasing a call option, a Portfolio would be in a
position to realize a gain if, during the option period, the
price of the underlying security increased by an amount in excess
of the premium paid. It would realize a loss if the price of the
underlying security declined or remained the same or did not
increase during the period by more than the amount of the
premium. In purchasing a put option, the Portfolio would be in a
position to realize a gain if, during the option period, the
price of the underlying security declined by an amount in excess
of the premium paid. It would realize a loss if the price of the
underlying security increased or remained the same or did not
decrease during that period by more than the amount of the
premium. If a put or call option purchased by a Portfolio were
permitted to expire without being sold or exercised, its premium
would be lost by the Portfolio.
If a put option written by a Portfolio were exercised
the Portfolio would be obligated to purchase the underlying
security at the exercise price. If a call option written by a
Portfolio were exercised, the Portfolio would be obligated to
sell the underlying security at the exercise price. The risk
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.
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The Portfolios may purchase or write options on
securities of the types in which they are permitted to invest in
privately negotiated (i.e., over-the-counter) transactions.
These Portfolios will effect such transactions only with
investment dealers and other financial institutions (such as
commercial banks or savings and loan institutions) deemed
creditworthy by the Adviser, and the Adviser has adopted
procedures for monitoring the creditworthiness of such entities.
Options purchased or written in negotiated transactions are
illiquid and it may not be possible for the Portfolios to effect
a closing transaction at a time when the Adviser believes it
would be advantageous to do so. See "Description of the
Portfolios - Additional Investment Policies - 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 may also enter into these
transactions to protect against price increases of securities the
Adviser anticipates purchasing for the Portfolio at a later date.
The Portfolios do not intend to use these transactions in a
speculative manner. Interest rate swaps involve the exchange by
a Portfolio with another party of their respective commitments to
pay or receive interest, e.g., an exchange of floating rate
payments for fixed rate payments. The purchase of an interest
rate cap entitles the purchaser, to the extent that a specified
index exceeds a predetermined interest rate, to receive payments
of interest on a contractually-based principal amount from the
party selling such interest rate cap. The purchaser 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 they are hedging their assets or their
liabilities, and will usually enter into interest rate swaps on a
net basis, i.e., the two payment streams are netted out, with the
Portfolio receiving or paying, as the case may be, on the 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
cap 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
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ability of the other party thereto is then rated in the highest
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 as 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 having an aggregate net asset value at least equal to the
full amount, accrued daily, of the Portfolio's obligations with
respect to any caps or floors.
The use of interest rate swaps is a highly specialized
activity which involves investment techniques and risks different
from those associated with ordinary portfolio securities
transactions. If the Adviser were incorrect in its forecasts of
market values, interest rates and other applicable factors, the
investment performance of the Portfolios would diminish compared
with what they would have been if these investment techniques
were not used. Moreover, even if the Adviser is correct in its
forecasts, there is a risk that the swap position may correlate
imperfectly with the price of the asset or liability being
hedged.
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
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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 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,
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 and
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.
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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 United States Government securities. It is the
Fund's current practice to enter into repurchase agreements only
with such primary dealers.
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 the
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
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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. If, for example, a secondary market did
not exist with respect to an option purchased or written by a
Portfolio over-the-counter, it might not be possible to effect a
closing transaction in the option (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 of 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
consideration.
Illiquid Securities. Subject to any applicable
fundamental investment policy, each Portfolio may maintain up to
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, the Portfolios may not be
able to realize their value upon sale.
Defensive Position. Under normal circumstances,
substantially all of the total assets of each Portfolio will be
invested in the types of municipal securities described in
"Description of the Portfolios - How The Portfolios Pursue Their
Objective" in the Prospectus. However, when business or
financial conditions warrant, each Portfolio may assume a
temporary defensive position and invest without limits in other
municipal securities that are in all other respects consistent
with the Portfolio's investment policies. For temporary
defensive purposes, each Portfolio may also invest without limit
in high-quality municipal notes, rated SP-2 or higher by S&P,
MIG-2 (or VMIG-2) or higher by Moody's, or FIN-2 or higher by
Fitch, or taxable cash equivalents (limited, in the case of the
Florida Portfolio, to short-term U.S Government Securities or
repurchase agreements).
Portfolio Turnover. From time to time, the Portfolios
may engage in active short-term trading to benefit from yield
disparities among different issues of municipal securities, to
seek short-term profits during periods of fluctuating interest
rates, or for other reasons. Such trading will increase a
Portfolio's rate of turnover and the incidence of short-term
capital gain taxable as ordinary income. Management anticipates
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that the annual turnover in each Portfolio will not exceed 250%.
An annual turnover rate of 200% occurs, for example, when all of
the securities in a Portfolio are replaced twice in a period of
one year. A high rate of portfolio turnover involves
correspondingly greater expenses than a lower rate, which
expenses must be borne by a Portfolio and its shareholders.
However, the execution costs for municipal securities are
substantially less than those for equivalent dollar value of
equity securities. See "Dividends, Distributions and Taxes."
The portfolio turnover rates of securities of the
Arizona Portfolio, Florida Portfolio, Massachusetts Portfolio,
Michigan Portfolio, Minnesota Portfolio, New Jersey Portfolio,
Ohio Portfolio, Pennsylvania Portfolio and Virginia Portfolio for
the fiscal year ended September 30, 1995 were 85%, 146%, 155%,
151%, 117%, 86%, 108%, 114% and 128%, respectively.
The portfolio turnover rates of securities of the
Arizona Portfolio, Florida Portfolio, Massachusetts Portfolio,
Michigan Portfolio, Minnesota Portfolio, New Jersey Portfolio,
Ohio Portfolio, Pennsylvania Portfolio and Virginia Portfolio for
the fiscal year ended September 30, 1996 were 244%, 237%, 246%,
242%, 195%, 132%, 182%, 185% and 298%, respectively.
Special Risk Considerations. Securities rated Baa are
considered by Moody's to have speculative characteristics.
Sustained periods of deteriorating economic conditions or rising
interest rates are more likely to lead to a weakening in the
issuer's capacity to pay interest and repay principal than in the
case of higher-rated securities. Securities rated below
investment grade, i.e., Ba or BB and lower, ("lower-rated
securities") are subject to greater risk of loss of principal and
interest than higher-rated securities and are considered to be
predominantly speculative with respect to the issuer's capacity
to pay interest and repay principal, which may in any case
decline during sustained periods of deteriorating economic
conditions or rising interest rates. They are also generally
considered to be subject to greater market risk than higher-rated
securities in times of deteriorating economic conditions. In
addition, lower-rated securities may be more susceptible to real
or perceived adverse economic and competitive industry conditions
than investment grade securities.
The market for lower-rated securities may be thinner and
less active than that for higher-quality securities, which can
adversely affect the prices at which these securities can be
sold. To the extent that there is no established secondary
market for lower-rated securities, the Portfolio may experience
difficulty in valuing such securities and, in turn, the
Portfolio's assets. In addition, adverse publicity and investor
perceptions about lower-rated securities, whether or not based on
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fundamental analysis, may tend to decrease the market value and
liquidity of such lower-rated securities. Under the Financial
Institutions Reform, Recovery, and Enforcement Act of 1989,
federally-insured savings and loan associations are required to
divest their investments in non-investment grade corporate debt
securities by July 1, 1994. Such divestiture could have a
material effect on the market and prices of such securities.
The ratings of fixed-income securities by Moody's, S&P
and Fitch are a generally accepted barometer of credit risk.
They are, however, subject to certain limitations from an
investor's standpoint. The rating of an issuer is heavily
weighted by past developments and does not necessarily reflect
probable future conditions. There is frequently a lag between
the time a rating is assigned and the time it is updated. In
addition, there may be varying degrees of differences in credit
risk of securities within each rating category. See Appendix A
for a description of such ratings.
The Adviser will try to reduce the risk of investment in
lower-rated securities through credit analysis, attention to
current developments and trends in interest rates and economic
conditions. However, there can be no assurance that losses will
not occur. Since the risk of default is higher for lower-quality
securities, the Adviser's research and credit analysis are a
correspondingly important aspect of its program for managing the
Portfolio's securities. In considering investments for the
Portfolio, the Adviser will attempt to identify those high-risk,
high-yield securities whose financial condition is adequate to
meet future obligations, has improved or is expected to improve
in the future. The Adviser's analysis focuses on relative values
based on such factors as interest coverage, financial prospects
and the strength of the issuer.
Non-rated municipal securities will also be considered
for investment by the Portfolio when the Adviser believes that
the financial condition of the issuers of such obligations and
the protection afforded by the terms of the obligations
themselves limit the risk to the Portfolio to a degree comparable
to that of rated securities which are consistent with the
Portfolio's objective and policies.
In seeking to achieve the Portfolio's objective, there
will be times, such as during periods of rising interest rates,
when depreciation and realization of capital losses on securities
in the portfolio will be unavoidable. Moreover, medium- and
lower-rated securities and non-rated securities of comparable
quality may be subject to wider fluctuations in yield and market
values than higher-rated securities under certain market
conditions. Such fluctuations after a security is acquired do
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not affect the cash income received from that security but are
reflected in the net asset value of the Portfolio.
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.
Investment Restrictions
Unless specified to the contrary, the following
restrictions apply to each Portfolio and are fundamental policies
which may not be changed with respect to any such Portfolio
without the affirmative vote of the holders of a majority of such
Portfolio's outstanding voting securities, which means with
respect to any such Portfolio (1) 67% or more or the shares
represented at a meeting at which more than 50% of the
outstanding shares are present in person or by proxy or (2) more
than 50% of the outstanding shares, whichever is less. Each such
Portfolio may not:
(1) Invest 25% or more of its total assets in the
securities of issuers conducting their principal
business activities in any one industry, provided that
for purposes of this policy (a) there is no limitation
with respect to investments in municipal securities
issued by governmental users (including private activity
bonds issued by governmental users) or securities issued
or guaranteed by the United States Government and (b)
consumer finance companies, industrial 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
with the primary responsibility for the payment of
interest an 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;
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(5) Issue any senior security within the meaning
of the Act, except that the Fund may borrow money 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;
(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 8 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) Purchase or sell commodities or commodity
contracts, (except forward commitment contracts or
contracts for the future acquisition of debt securities
and related options, futures contracts and options on
futures contracts and other similar contracts);
(9) Write put and call options except in
accordance with its investment objective and policies;
or
(10) Purchase or sell real estate.
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 Act, a Portfolio is not
permitted to borrow unless immediately after such borrowing there
is "asset coverage," as that term is defined and used in the Act
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of at least 300% for all borrowings of the Portfolio. In
addition, under the Act, in the event asset coverage falls below
300%, a Portfolio must within three days reduce the amount of its
borrowing to such an extent that the asset coverage of its
borrowings is at least 300%.
_________________________________________________________________
MANAGEMENT OF THE FUND
_________________________________________________________________
Adviser
Alliance Capital Management L.P., a New York Stock
Exchange listed company with principal offices at 1345 Avenue of
the Americas, New York, New York 10105, has been retained under
an investment advisory agreement (the "Advisory Agreement") to
provide investment advice and, in general, to conduct the
management and investment program of the Fund under the
supervision and control of the Fund's Board of Directors.
The Adviser is a leading international investment
manager supervising client accounts with assets as of September
30, 1996 of more than $173 billion (of which more than $59
billion represented the assets of investment companies). The
Adviser's clients are primarily major corporate employee benefit
funds, public employee retirement systems, investment companies,
foundations and endowment funds and included, as of September 30,
1996, 33 of the FORTUNE 100 Companies. As of that date, the
Adviser and its subsidiaries employed approximately 1450
employees who operated out of domestic offices and the overseas
offices of subsidiaries in Bombay, Istanbul, London, Paris, Sao
Paolo, Sydney, Tokyo, Toronto, Bahrain, Luxembourg and Singapore.
The 52 registered investment companies comprising 110 separate
investment portfolios managed by the Adviser currently have more
than two million shareholders.
Alliance Capital Management Corporation, the sole
general partner of, and the owner of a 1% general partnership
interest in, the Adviser, is an indirect wholly-owned subsidiary
of The Equitable Life Assurance Society of the United States
("Equitable"), one of the largest life insurance companies in the
United States and a wholly-owned subsidiary of The Equitable
Companies Incorporated ("ECI"), a holding company controlled by
AXA, a French insurance holding company. As of June 30, 1996,
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 ("Units"). As of June 30, 1996, approximately 33% and
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10% of the Units were owned by the public and employees of the
Adviser and its subsidiaries, respectively, including employees
of the Adviser who serve as Directors of the Fund.
As of September 6, 1996, AXA and its subsidiaries owned
approximately 60.7% of the issued and outstanding shares of
capital stock of ECI. AXA is the 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
in France, the United States, Australia, the United Kingdom,
Canada and other countries, principally in Europe and the
Asia/Pacific area. AXA is also engaged in asset management,
investment banking, securities trading, brokerage, real estate
and other financial services activities in the United States, as
well as in Western Europe and the Asia/Pacific area.
Based on information provided by AXA, as of September 9,
1996, 36.3% of the issued ordinary shares (representing 49.1% of
the voting power) of AXA were owned directly or indirectly by
Finaxa, a French holding company ("Finaxa"). As of September 6,
1996, 61.3% of the voting shares (representing 73.5% of the
voting power) of Finaxa were owned by five French mutual
insurance companies (the "Mutuelles AXA") (one of which, AXA
Assurances I.A.R.D. Mutuelle, owned 34.8% of the voting shares
representing 40.6% of the voting power), and 23.7% of the voting
shares of Finaxa (representing 15.0% of the voting power) were
owned by Banque Paribas, a French bank. Including the ordinary
shares directly or indirectly owned by Finaxa, the Mutuelles AXA
directly or indirectly owned 42.0% of the issued ordinary shares
(representing 56.8% of the voting power) of AXA as of September
9, 1996. Acting as a group, the Mutuelles AXA control AXA and
Finaxa. In addition, as of September 9, 1996, 7.8% of the issued
ordinary shares of AXA without the power to vote were owned by
subsidiaries of AXA.
Under the Advisory Agreement, the Adviser provides
investment advisory services and order placement facilities for
the Fund and pays all compensation of Trustees and officers of
the Fund who are affiliated persons of the Adviser. The Adviser
or its affiliates also furnishes the Fund, without charge,
management supervision and assistance and office facilities and
provides persons satisfactory to the Fund's Trustees to serve as
the Fund's officers. The advisory fee is accrued daily and paid
monthly.
For the fiscal year ended September 30, 1994 advisory
fees payable to the Adviser with respect to the Florida,
Minnesota, New Jersey, Ohio and Pennsylvania Portfolios amounted
to $0, $0, $0, $0 and $0, respectively.
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For the fiscal period from February 25, 1994
(commencement of operations) to September 30, 1994 advisory fees
payable to the Adviser with respect to the Michigan Portfolio
amounted to $0.
For the fiscal period from March 29, 1994 (commencement
of operations) to September 30, 1994 advisory fees payable to the
Adviser with respect to the Massachusetts Portfolio amounted to
$0.
For the fiscal period from April 29, 1994 (commencement
of operations) to September 30, 1994 advisory fees payable to the
Adviser with respect to the Virginia Portfolio amounted to $0.
For the fiscal period from June 1, 1994 (commencement of
operations) to September 30, 1994 advisory fees payable to the
Adviser with respect to the Arizona Portfolio amounted to $0.
For the fiscal year ended September 30, 1995 advisory
fees payable to the Adviser with respect to the Arizona, Florida,
Massachusetts, Michigan, Minnesota, New Jersey, Ohio,
Pennsylvania and Virginia Portfolios amounted to $0, $12,756,
$0, $0, $0, $58,162, $0, $80,386 and $0, respectively.
For the fiscal year ended September 30, 1996 advisory
fees payable to the Adviser with respect to the Arizona, Florida,
Massachusetts, Michigan, Minnesota, New Jersey, Ohio,
Pennsylvania and Virginia Portfolios amounted to $0, $69,715, $0,
$0, $0, $132,135, $9,284, $154,349 and $0, respectively.
The Advisory Agreement became effective on May 12, 1993
having been approved by the unanimous vote, cast in person, of
the Fund's Trustees, including the Trustees who are not parties
to the Advisory Agreement or interested persons as defined in the
Act of any such party, at a meeting called for that purpose and
held on May 12, 1993, and by each Portfolio's initial shareholder
on May 12, 1993.
The Advisory Agreement will continue in effect from year
to year with respect to each Portfolio if approved at least
annually by a vote of a majority of the outstanding voting
securities of each Portfolio or by the Fund's Trustees, including
in either case, approval by a majority of the Trustees who are
not parties to the Advisory Agreement or interested persons of
any such party as defined by the Act. Most recently, the
Trustees approved the continuance of the Advisory Agreement until
September 30, 1997 at their meeting held on September 11, 1996.
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 Trustees on 60 days' written notice, or by
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<PAGE>
the Adviser on 60 days' written notice, and will terminate
automatically in the event of its assignment. The Advisory
Agreement provides that in the absence of willful misfeasance,
bad faith or gross negligence on the part of the Adviser, or of
reckless disregard of its obligations thereunder, the Adviser
shall not be liable for any action or failure to act in
accordance with its duties thereunder.
Certain other clients of the Adviser may have investment
objectives and policies similar to those of the Fund. The Adviser
may, from time to time, make recommendations which result in the
purchase or sale of a particular security by its other clients
simultaneously with the Fund. If transactions on behalf of more
than one client during the same period increase the demand for
securities being purchased or the supply of securities being
sold, there may be an adverse effect on price or quantity. It is
the policy of the Adviser to allocate advisory recommendations
and the placing of orders in a manner which is deemed equitable
by the Adviser to the accounts involved, including the Fund.
When two or more of the clients of the Adviser (including the
Fund) are purchasing or selling the same security on a given day
from the same broker-dealer, such transactions may be averaged as
to price.
The Adviser may act as an investment adviser to other
persons, firms or corporations, including investment companies,
and is investment adviser to ACM Institutional Reserves, Inc.,
AFD Exchange Reserves, The Alliance Fund, Inc., Alliance Balanced
Shares, Inc., Alliance Bond Fund, Inc., Alliance Capital
Reserves, Alliance Developing Markets Fund, Inc., Alliance Global
Dollar Government Fund, Inc., Alliance Global Small Cap Fund,
Inc., Alliance Global Strategic Income Trust, Inc., Alliance
Government Reserves, Alliance Growth and Income Fund, Inc.,
Alliance Income Builder Fund, 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, 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 Short-Term Multi-Market Trust, Inc., Alliance
Technology Fund, Inc., Alliance Utility Income Fund, Inc.,
Alliance Variable Products Series Fund, Inc., Alliance World
Income Trust, Inc., Alliance Worldwide Privatization Fund, Inc.,
The Alliance Portfolios, Fiduciary Management Associates and The
Hudson River Trust, all registered open-end investment companies;
and to ACM Government Income Fund, Inc., ACM Government
Securities Fund, Inc., ACM Government Spectrum Fund, Inc., ACM
Government Opportunity Fund, Inc., ACM Managed Dollar Income
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<PAGE>
Fund, Inc., ACM Managed Income Fund, Inc., ACM Municipal
Securities Income Fund, Inc., Alliance Global Environment Fund,
Inc., Alliance World Dollar Government Fund, Inc., Alliance World
Dollar Government Fund II, Inc., The Austria Fund, Inc., The
Korean Investment Fund, Inc., The Southern Africa Fund, Inc. and
The Spain Fund, Inc., all registered closed-end investment
companies.
Trustees and Officers
The Trustees and principal officers of the Fund, their
ages and their primary occupations during the past five years are
set forth below. Each such Trustee 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 each such persons is 1345 Avenue of the
Americas, New York, New York 10105.
Trustees
JOHN D. CARIFA1 - 51, Chairman and President of the
Fund, is the President, Chief Operating Officer and a Director of
Alliance Capital Management Corporation ("ACMC") with which he
has been associated since prior to 1992.
DAVID H. DIEVLER - 67, is an independent consultant. He
was formerly Chairman of the Board and President of the Fund and
Senior Vice President of ACMC, with which he had been associated
since prior to 1992 through 1994. His address is P.O. Box 167.
Spring Lake, New Jersey 07762.
RUTH BLOCK - 66, is a Director of Ecolab Incorporated
(specialty chemicals) and Amoco Corporation (oil and gas).
Previously, she was an Executive Vice President and the Chief
Insurance Officer of Equitable since prior to 1992. Her address
is Box 4653, Stamford, Connecticut 06903.
JAMES R. GREENE - 75, has been an independent financial
consultant since prior to 1992. He is also a Director of ASARCO,
Incorporated (metals smelting and refining), Bank Leumi Trust
Co., Buck Engineering Company (manufacturing), American Reliance
Insurance Co. (insurance) and United Tote (computer software).
His address is 134 Buttonwood Drive, Fair Haven, New Jersey
07701.
DR. JAMES M. HESTER - 72, is President of the Harry
Frank Guggenheim Foundation and a Director of Union Carbide
Corporation with which he has been associated since prior to
_________________________
1An "interested person" of the Fund as defined in the Act.
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<PAGE>
1992. He was formerly President of New York University, the New
York Botanical Garden and Rector of the United Nations
University. His address is 45 East 89th Street, New York, New
York 10128.
CLIFFORD L. MICHEL - 57, is a member of the law firm of
Cahill Gordon & Reindel since prior to 1992. He is President and
Chief Executive Officer of Wenonah Development Company
(investments) and a Director of Placer Dome, Inc. (mining). His
address is St. Bernard's Road, Gladstone, New Jersey 07934.
DONALD J. ROBINSON - 62, was formerly a partner at
Orrick, Herrington & Sutcliff and is currently of counsel to that
law firm. His address is 666 Fifth Avenue, 19th Floor, New York,
New York 10103.
Officers
JOHN D. CARIFA, Chairman and President, (see biography,
above).
WAYNE D. LYSKI, 55, Senior Vice President, is an
Executive Vice President of ACMC with which he has been
associated since prior to 1992.
KATHLEEN A. CORBET, 36, Senior Vice President, has been
a Senior Vice President of ACMC since July 1993. Previously, she
held various responsibilities as head of Equitable Capital
Management Corporation's Fixed Income Management Department,
Private Placement Secondary Trading and Fund Management since
prior to 1992.
SUSAN P. KEENAN 39, Senior Vice President, is a Senior
Vice President of ACMC, with which she has been associated since
prior to 1992.
WILLIAM E. OLIVER 45, Vice President, has been a Vice
President of ACMC, since May 1993. Previously, he was a Vice
President and Director of Investment Grade Municipal Research
with the Prudential Capital Management Group.
DAVID M. DOWDEN 31, Vice President, is an Assistant Vice
President of ACMC, with which he has been associated since 1993.
Previously, he was an analyst in the Municipal Strategy Group at
Merrill Lynch Capital Markets.
TERRANCE T. HULTS 30, Vice President, is an Assistant
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.
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<PAGE>
EDMUND P. BERGAN JR., 46, Secretary, is a Senior Vice
President and the General Counsel of Alliance Fund Distributors,
Inc. and Alliance Fund Services, Inc. and Vice President and
Associate General Counsel of ACMC, with which he has been
associated since prior to 1992.
DOMENICK PUGLIESE, Assistant Secretary, 35, is Vice
President and Associate General Counsel of Alliance Fund
Distributors, Inc. with which he has been associated since May
1995. Previously, he was Vice President and Counsel, Concord
Financial Holding Corporation since 1994, Vice President and
Associate General Counsel of Prudential Securities since 1992.
MARK D. GERSTEN 45, Treasurer and Chief Financial
Officer, is a Vice President of Alliance Fund Distributors, Inc.
and Senior Vice President of Alliance Fund Services, Inc., with
which he has been associated since prior to 1992.
JUAN RODRIGUEZ 39, Controller, is an Assistant Vice
President of Alliance Fund Services, Inc. with which he has been
associated since prior to 1992.
MELVIN OLIVER 39, Assistant Controller, is an Accounting
Manager of Alliance Fund Services Inc. with which he has been
associated since prior to 1992.
The aggregate compensation paid by the Fund to each of
the Trustees during its fiscal year ended September 30, 1996, the
aggregate compensation paid to each of the Trustees during
calendar year 1996 by all of the funds to which the Adviser
provides investment advisory services (collectively, the
"Alliance Fund Complex") and the total number of registered
investment companies in the Alliance Fund Complex with respect to
which each of the Trustees serves as a trustee or director, are
set forth below. Neither the Fund nor any other fund in the
Alliance Fund Complex provides compensation in the form of
pension or retirement benefits to any of its trustees or
directors. Each of the Trustees is a trustee of one or more
other registered investment companies in the Alliance Fund
Complex.
Total Com- Total Number of Funds in
pensation From the Alliance FundComplex,
Aggregate the Alliance Including the Fund, as to
Name of Director Compensation Fund Complex, which the Director is
of the Fund from the Fund Including the Fund a Trustee or Director
John D. Carifa $0 $0 50
David H. Dievler $3,312 $182,000 43
Ruth Block $3,339 $157,500 37
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<PAGE>
James R. Greene $3,612 $ 63,000 11
Dr. James M. Hester $3,339 $148,500 38
Clifford L. Michel $3,339 $146,068 38
Donald J. Robinson $ 418 $137,250 38
__________________________
As of January 17, 1997, the Trustees 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
adopted by the Commission under the Act (the "Rule 12b-1 Plan").
Distribution services fees are accrued daily and paid
monthly and are charged as expenses of the Portfolio as accrued.
The distribution services fees attributable to the Class B shares
and Class C shares are designed to permit an investor to purchase
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 respective contingent deferred sales
charges and respective distribution services fees on the Class B
shares, and the distribution services fee on the Class C shares,
are the same as those of the initial sales charge and
distribution services fee with respect to the Class A shares in
that in each case the sales charge and distribution services fee
provide for the financing of the distribution of the relevant
class of the Portfolio's shares.
Under the Agreement, the Treasurer of the Fund reports
the amounts expended under the Rule 12b-1 Plan and the purposes
for which such expenditures were made to the Trustees of the Fund
for their review on a quarterly basis. Also, the Agreement
provides that the selection and nomination of Trustees who are
not interested persons of the Fund (as defined in the Act) are
committed to the discretion of such disinterested Trustees then
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<PAGE>
in office. The Agreement was initially approved by the Trustees
of the Fund at a meeting held on May 12, 1992, and by each
Portfolio's initial shareholder on May 12, 1993.
During the fiscal year ended September 30, 1996, the
Arizona, Florida, Massachusetts, Michigan, Minnesota, New Jersey,
Ohio, Pennsylvania and Virginia Portfolios paid distribution
services fees for expenditures under the Agreement in the case of
the Class A shares in amounts aggregating $9,777, $39,668,
$6,772, $16,462, $8,515, $42,673, $15,933, $30,938 and $6,461
which constituted .30%, .30%, .30%, .30%, .30%, .30%, .30%, .30%
and .30%, respectively, of each Portfolio's average daily net
assets attributable to the Class A shares. In addition, during
the fiscal year ended September 30, 1996, the Adviser made
aggregate payments under the Agreement from its own resources in
the case of the Class A shares as described above of $946,720. Of
the $1,123,919 paid by the Fund and the Adviser under the
Agreement in the case of the Class A shares, $182,341 was spent
on advertising, $23,541 on the printing and mailing of
prospectuses for persons other than current shareholders,
$448,164 for compensation to broker-dealers and other financial
intermediaries (including $131,455 to the Fund's Principal
Underwriter), $41,812 for compensation to sales personnel and
$428,061 was spent on printing of sales literature, travel,
entertainment, due diligence and other promotional expenses.
During the fiscal year September 30, 1996, the Arizona,
Florida, Massachusetts, Michigan, Minnesota, New Jersey, Ohio,
Pennsylvania and Virginia Portfolios paid distribution services
fees for expenditures under the Agreement in the case of the
Class B shares in amounts aggregating $41,509, $220,314, $26,336,
$30,299, $79,160, $378,156, $237,212, $298,967 and $21,264 which
constituted 1.00%, 1.00%, 1.00%, 1.00%, 1.00%, 1.00%, 1.00%,
1.00% and 1.00%, respectively, of each Portfolio's average daily
net assets attributable to the Class B shares. In addition,
during the fiscal year September 30, 1996, the Adviser made
aggregate payments under the Agreement from its own resources in
the case of the Class B shares as described above of $1,868,257.
Of the $3,201,474 paid by the Fund and the Adviser under the
Agreement in the case of the Class B shares, $354,957 was spent
on advertising, $43,782 on the printing and mailing of
prospectuses for persons other than current shareholders,
$1,776,608 for compensation to broker-dealers and other financial
intermediaries (including $331,412 to the Fund's Principal
Underwriter), $60,016 for compensation to sales personnel and
$767,241 was spent on printing of sales literature, travel,
entertainment, due diligence and other promotional expenses and
$198,870 for interest on Class B shares financing. Unreimbursed
distribution expenses incurred during the fiscal year ended
September 30, 1996 and carried over for reimbursement in future
years in respect of the Class B shares amounted to approximately
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<PAGE>
$240,289 or 4.62% for Arizona Portfolio, $118,859 or .53% for
Florida Portfolio, $168,097 or 4.56% for Massachusetts Portfolio,
$166,910 or 4.70% for Michigan Portfolio, $240,159 or 2.90% for
Minnesota Portfolio, $273,933 or .70% for New Jersey Portfolio,
$277,010 or 1.09% for Ohio Portfolio, $84,030 or .28% for
Pennsylvania Portfolio and $298,969 or 8.94% for Virginia
Portfolio, of the net assets represented by the Class B shares of
each such Portfolio on that date.
During the fiscal year ended September 30, 1996, the
Arizona, Florida, Massachusetts, Michigan, Minnesota, New Jersey,
Ohio, Pennsylvania and Virginia Portfolios paid distribution
services fees for expenditures under the Agreement in the case of
the Class C shares in amounts aggregating $5,434, $299,957,
$42,578, $34,819, $69,382, $224,193, $179,991, $146,783 and
$4,865 which constituted 1.00%, 1.00%, 1.00%, 1.00%, 1.00%,
1.00%, 1.00%, 1.00% and 1.00%, respectively, of each Portfolio's
average daily net assets attributable to the Class C shares. In
addition, during the fiscal year ended September 30, 1996, the
Adviser made aggregate payments under the Agreement from its own
resources in the case of the Class C shares as described above of
$1,133,456. Of the $2,141,458 paid by the Fund and the Adviser
under the Agreement in the case of the Class C shares, $214,406
was spent on advertising, $27,761 on the printing and mailing of
prospectuses for persons other than current shareholders,
$1,397,141 for compensation to broker-dealers and other financial
intermediaries (including $995,373 to the Fund's Principal
Underwriter), $42,844 for compensation to sales personnel and
$459,306 was spent on printing of sales literature, travel,
entertainment, due diligence and other promotional expenses.
Unreimbursed distribution expenses incurred during the Fund's
fiscal year ended September 30, 1996 and carried over for
reimbursement in future years in respect of the Class C shares
amounted to approximately $20,141 or 2.84% for the Arizona
Portfolio, $194,805 or .65% for the Florida Portfolio, $179,739
or 3.98% for the Massachusetts Portfolio, $187,150 or 4.75% for
the Michigan Portfolio, $166,004 or 2.53 % for the Minnesota
Portfolio, $350,395 or 1.55 % for the New Jersey Portfolio,
$303,939 or 1.77% for the Ohio Portfolio, $276,323 or 1.97% for
the Pennsylvania Portfolio and $83,005 or 12.93% for the Virginia
Portfolio of the net assets represented by the Class C shares of
each such Portfolio on that date.
The Adviser will from time to time and from its own
funds or such other resources as may be permitted by rules of the
Commission make 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.
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The Agreement will continue in effect until September
30, 1997 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 Trustees of the
Fund or by vote of the holders of a majority of the outstanding
voting securities (as defined in the Act) of that class, and in
either case, by a majority of the Trustees of the Fund who are
not parties to this agreement or interested persons, as defined
in the Act, of any such party (other than as trustees 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 Trustees approved the continuance of
the Agreement until September 30, 1997 at their meeting on
September 11, 1996.
In the event that the Agreement is terminated or not
continued with respect to the Class A shares, Class B shares or
Class C shares of a Portfolio, (i) no distribution services fees
(other than current amounts accrued but not yet paid) would be
owed by the Fund to the Principal Underwriter with respect to
that class, and (ii) the Fund would not be obligated to pay the
Principal Underwriter for any amounts expended under the
Agreement not previously recovered by the Principal Underwriter
from distribution services fees in respect of shares of such
class or through deferred sales charges.
All material amendments to the Agreement will become
effective only upon approval as provided in the preceding
paragraph; and the Agreement may not be amended in order to
increase materially the costs that a particular class or
Portfolio may bear pursuant to the Agreement without the approval
of a majority of the holders of the outstanding voting shares of
such class or Portfolio affected. The Agreement may be
terminated (a) by the Fund without penalty at any time by a
majority vote of the holders of the outstanding voting securities
of the Portfolio, voting separately by class, or by a majority
vote of the disinterested Trustees or (b) by the Principal
Underwriter. To terminate the Agreement, any party must give the
other parties 60 days' written notice; to terminate the Rule
12b-1 Plan only, the Fund is not required to give prior notice to
the Principal Underwriter. The Rule 12b-1 Plan will terminate
automatically in the event of its assignment.
Transfer Agency Agreement
Alliance Fund Services, Inc., an indirect wholly-owned
subsidiary of the Adviser, receives a transfer agency fee per
account holder of the Class A shares, Class B shares and Class C
shares of each Portfolio of the Fund, plus reimbursement for out-
of-pocket expenses. The transfer agency fee with respect to the
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Class B shares and Class C shares is higher than the transfer
agency fee with respect to the Class A shares and Advisor Class
shares or the Class C shares reflecting the additional costs
associated with the Class B shares and Class C shares contingent
deferred sales charge. For the fiscal year ended September 30,
1996, the Fund paid Alliance Fund Services, Inc. $206,192 for
transfer agency services and out of pocket expenses.
_________________________________________________________________
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, pursuant to which each investor pays an asset-based
fee at an annual rate of at least .50% of the assets in the
investor's account, to the sponsor, or its affiliates or agent,
(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
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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 directors and present
or retired full-time employees of Koll Real Estate Services.
If you are a Fund shareholder through account
established under 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 in the Advisor Class Prospectus and this
Statement of Additional Information. 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.
Investors may purchase shares of a Portfolio either
through selected dealers, agents or financial representatives or
directly through the Principal Underwriter. 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 each Portfolio's shares to the public in
response to conditions in the securities markets or for other
reasons.
The public offering price of shares of each Portfolio is
their net asset value, plus, in the case of 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 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
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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. 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
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.
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As a convenience to the subscriber, and to avoid unnecessary
expense to a Portfolio, share 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 or in part, to
provide additional compensation to registered representatives who
sell shares of the Portfolio. On some occasions, such cash or
other incentives may 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 performances, or payment for travel,
lodging and entertainment incurred in connection with travel
taken by persons associated with the dealer or agent, 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 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
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
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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 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 Fund, the accumulated
distribution services fee and contingent deferred sales charges
on Class B shares prior to conversion, or the accumulated
distribution services fee and contingent deferred sales charges
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 the
investor who qualifies to purchase Class A shares at net asset
value. For this reason, the Principal Underwriter will reject
any order for more than $5,000,000 for Class C shares.
Class A shares are subject to a lower distribution
services fee and, accordingly, pay correspondingly higher
dividends per share than Class B shares or Class C shares.
However, because initial sales charges are deducted at the time
of purchase, 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
_________________________
2Advisor Class shares are sold only to investors described
above in this section under "--General."
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<PAGE>
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 period 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.
Class A Shares
The public offering price of Class A shares is the net
asset value plus a sales charge, as set forth below.
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
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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 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 offering price. In
addition, no charge will be assessed on shares derived from
reinvestment of dividends or capital gain distributions. The
contingent deferred sales charge on Class A shares will be waived
on certain redemptions, 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 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 .25 of 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
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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 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.
During the Fund's fiscal year ended September 30, 1996,
the aggregate amount of underwriting commissions payable with
respect to shares of the Florida Portfolio were $223,267; the
Minnesota Portfolio were $43,060; the New Jersey Portfolio were
$246,008; the Ohio Portfolio were $105,920; the Pennsylvania
Portfolio were $183,685; the Michigan Portfolio were $88,128; the
Massachusetts Portfolio were $75,492; the Virginia Portfolio were
$47,115; and the Arizona Portfolio were $124,091; of that amount,
the Principal Underwriter, received the amount of $8,352 for the
Florida Portfolio; $1,328 for the Minnesota Portfolio; $8,654 for
the New Jersey Portfolio; $3,682 for the Ohio Portfolio; $6,546
for the Pennsylvania Portfolio; $2,409 for the Michigan
Portfolio; $3,001 for the Massachusetts Portfolio; $1,756 for the
Virginia Portfolio and $5,423 for the Arizona Portfolio
representing that portion of the sales charges paid on shares of
each Portfolio of that Fund sold during the year which was not
reallowed to selected dealers (and was, accordingly, retained by
the Principal Underwriter). During the fiscal year ended
September 30, 1996, the Principal Underwriter received in
contingent deferred sales charges with respect to Class B
redemptions $38,548 for the Florida Portfolio; $14,547 for the
Minnesota Portfolio; $61,041 for the New Jersey Portfolio;
$31,911 for the Ohio Portfolio, $35,245 for the Pennsylvania
Portfolio, $3,076 for the Michigan Portfolio, $4,230 for the
Massachusetts Portfolio, $6,613 for the Virginia Portfolio and
$3,142 for the Arizona Portfolio. During the fiscal year ended
September 30, 1996, the Principal Underwriter received in
contingent deferred sales charges with respect to Class C
redemptions $17 for the Florida Portfolio; $89 for the Minnesota
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Portfolio; $1,555 for the New Jersey Portfolio; $528 for the Ohio
Portfolio; $651 for the Pennsylvania Portfolio; $61 for the
Michigan Portfolio; $21 for the Massachusetts Porfolio; $0 for
the Virginia Portfolio and $0 for the Arizona Portfolio.
During the Fund's fiscal year ended September 30, 1995,
the aggregate amount of underwriting commissions payable with
respect to shares of the Florida Portfolio were $172,259; the
Minnesota Portfolio were $24,112; the New Jersey Portfolio were
$167,818; the Ohio Portfolio were $98,492; the Pennsylvania
Portfolio were $135,691; the Michigan Portfolio were $30,720; the
Massachusetts Portfolio were $43,577; the Virginia Portfolio were
$31,457; and the Arizona Portfolio were $80,901; of that amount,
the Principal Underwriter, received the amount of $7,186 for the
Florida Portfolio; $1,073 for the Minnesota Portfolio; $6,558 for
the New Jersey Portfolio; $3,299 for the Ohio Portfolio; $4,741
for the Pennsylvania Portfolio; $999 for the Michigan Portfolio;
$1,736 for the Massachusetts Portfolio; $694 for the Virginia
Portfolio and $3,098 for the Arizona Portfolio representing that
portion of the sales charges paid on shares of each Portfolio of
that Fund sold during the year which was not reallowed to
selected dealers (and was, accordingly, retained by the Principal
Underwriter). During the fiscal year ended September 30, 1995,
the Principal Underwriter received in contingent deferred sales
charges with respect to Class B redemptions $59,396 for the
Florida Portfolio; $17,775 for the Minnesota Portfolio; $87,046
for the New Jersey Portfolio; $47,836 for the Ohio Portfolio,
$68,849 for the Pennsylvania Portfolio, $20,509 for the Michigan
Portfolio, $6,273 for the Massachusetts Portfolio, $240 for the
Virginia Portfolio and $5,862 for the Arizona Portfolio.
During the Fund's fiscal year ended September 30, 1994,
the aggregate amount of underwriting commissions payable with
respect to shares of the Florida Portfolio were $401,765; the
Minnesota Portfolio were $98,931; the New Jersey Portfolio were
$483,392; the Ohio Portfolio were $204,851; and the Pennsylvania
Portfolio were $290,755; of that amount, the Principal
Underwriter, received the amount of $10,004 for the Florida
Portfolio; $1,577 for the Minnesota Portfolio; $9,734 for the New
Jersey Portfolio; $8,054 for the Ohio Portfolio; and $7,788 for
the Pennsylvania Portfolio; representing that portion of the
sales charges paid on shares of each Portfolio of that Fund sold
during the year which was not reallowed to selected dealers (and
was, accordingly, retained by the Principal Underwriter). During
the fiscal period ended September 30, 1994, the Principal
Underwriter received in contingent deferred sales charges with
respect to Class B redemptions $29,086 for the Florida Portfolio;
$22,023 for the Minnesota Portfolio; $29,864 for the New Jersey
Portfolio; $39,413 for the Ohio Portfolio and $18,210 for the
Pennsylvania Portfolio.
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During the Fund's fiscal period from February 25, 1994
(commencement of operations) to September 30, 1994, the aggregate
amount of underwriting commissions payable with respect to shares
of the Michigan Portfolio were $75,159; of that amount, the
Principal Underwriter, received the amount of $4,272 for the
Michigan Portfolio; representing that portion of the sales
charges paid on shares of each Portfolio of that Fund sold during
the year which was not reallowed to selected dealers (and was,
accordingly, retained by the Principal Underwriter). During the
same period, the Principal Underwriter received in contingent
deferred sales charges with respect to Class B redemptions $9,488
for the Michigan Portfolio.
During the Fund's fiscal period from March 29, 1994
(commencement of operations) to September 30, 1994, the aggregate
amount of underwriting commissions payable with respect to shares
of the Massachusetts Portfolio were $4,532; of that amount, the
Principal Underwriter, received the amount of $198 for the
Massachusetts Portfolio; representing that portion of the sales
charges paid on shares of each Portfolio of that Fund sold during
the year which was not reallowed to selected dealers (and was,
accordingly, retained by the Principal Underwriter). During the
same period, the Principal Underwriter received in contingent
deferred sales charges with respect to Class B redemptions $1,518
for the Massachusetts Portfolio.
During the Fund's fiscal period from April 29, 1994
(commencement of operations) to September 30, 1994, the aggregate
amount of underwriting commissions payable with respect to shares
of the Virginia Portfolio were $91,813; of that amount, the
Principal Underwriter, received the amount of $1,794 for the
Virginia Portfolio; representing that portion of the sales
charges paid on shares of each Portfolio of that Fund sold during
the year which was not reallowed to selected dealers (and was,
accordingly, retained by the Principal Underwriter). During the
same period, the Principal Underwriter received in contingent
deferred sales charges with respect to Class B redemptions $0 for
the Virginia Portfolio.
During the Fund's fiscal period from June 1, 1994
(commencement of operations) to September 30, 1994, the aggregate
amount of underwriting commissions payable with respect to shares
of the Arizona Portfolio were $61,936; of that amount, the
Principal Underwriter, received the amount of $3,048 for the
Arizona Portfolio; representing that portion of the sales charges
paid on shares of each Portfolio of that Fund sold during the
year which was not reallowed to selected dealers (and was,
accordingly, retained by the Principal Underwriter). During the
same period, the Principal Underwriter received in contingent
deferred sales charges with respect to Class B redemptions $1,506
for the Arizona Portfolio.
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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 each 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 September 30, 1996.
Arizona Portfolio
Net Asset Value per Share
at September 30, 1996 $10.32
Per Share Sales Charge - 4.25%
of offering price (4.44% of
net asset value per share) $.46
Per Share Offering Price to
the Public $10.78
Florida Portfolio
Net Asset Value per Share at
September 30, 1996 $9.73
Per Share Sales Charge - 4.25%
of offering price (4.44% of
net asset value per share) $.43
Per Share Offering Price to
the Public $10.16
Massachusetts Portfolio
Net Asset Value per Share
at September 30, 1996 $10.85
Per Share Sales Charge - 4.25%
of offering price (4.44% of
net asset value per share) $.48
Per Share Offering Price to
the Public $11.33
Michigan Portfolio
Net Asset Value per Share
at September 30, 1996 $10.12
Per Share Sales Charge - 4.25%
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of offering price (4.44% of
net asset value per share) $.45
Per Share Offering Price to
the Public $10.57
Minnesota Portfolio
Net Asset Value per Share at
September 30, 1996 $9.58
Per Share Sales Charge - 4.25%
of offering price (4.44% of
net asset value per share) $.43
Per Share Offering Price to
the Public $10.01
New Jersey Portfolio
Net Asset Value per Share at
September 30, 1996 $9.72
Per Share Sales Charge - 4.25%
of offering price (4.44% of
net asset value per share) $.43
Per Share Offering Price to
the Public $10.15
Ohio Portfolio
Net Asset Value per Share at
September 30, 1996 $9.61
Per Share Sales Charge - 4.25%
of offering price (4.44% of
net asset value per share) $.43
Per Share Offering Price to
the Public $10.04
Pennsylvania Portfolio
Net Asset Value per Share at
September 30, 1996 $9.85
Per Share Sales Charge - 4.25%
of offering price (4.44% of
net asset value per share) $.44
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Per Share Offering Price to
the Public $10.29
Virginia Portfolio
Net Asset Value per Share
at September 30, 1996 $10.58
Per Share Sales Charge - 4.25%
of offering price (4.44% of
net asset value per share) $.47
Per Share Offering Price to
the Public $11.05
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"
also includes purchases by any "company," as the term is defined
in the Act, but does not include purchases by any such company
which has not been in existence for at least six months or which
has no purpose other than the purchase of shares of a Portfolio
or shares of other registered investment companies at a discount.
The term "purchase" does not include purchases by any group of
individuals whose sole organizational nexus is that the
participants therein are credit card holders of a company, policy
holders of an insurance company, customers of either a bank or
broker-dealer or clients of an investment adviser. A "purchase"
may also include shares, purchased at the same time through a
single selected dealer or agent, of any other "Alliance Mutual
Fund." Currently, the Alliance Mutual Funds include:
AFD Exchange Reserves
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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 Developing Markets Fund, Inc.
Alliance Global Dollar Government Fund, Inc.
Alliance Global Small Cap Fund, Inc.
Alliance Global Strategic Income Trust, Inc.
Alliance Growth and Income Fund, Inc.
Alliance Income Builder Fund, Inc.
Alliance International 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.
Alliance Premier Growth Fund, Inc.
Alliance Quasar Fund, Inc.
Alliance Real Estate Investment Fund, Inc.
Alliance/Regent Sector Opportunity Fund, Inc.
Alliance Short-Term Multi-Market Trust, Inc.
Alliance Technology Fund, Inc.
Alliance Utility Income Fund, Inc.
Alliance World Income Trust, Inc.
Alliance Worldwide Privatization Fund, Inc.
The Alliance Portfolios
-Alliance Growth Fund
-Alliance Conservative Investors Fund
-Alliance Growth Investors Fund
-Alliance Strategic Balanced Fund
-Alliance Short-Term U.S. Government Fund
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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.
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
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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.
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 initial
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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 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 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.
The reinstatement privilege may be used by the shareholder only
once, irrespective of the number of shares redeemed or
repurchased, except that the privilege may be used more than once
in connection with transactions whose sole purpose is to transfer
a shareholder's interest in a Portfolio to his or her individual
retirement account or other qualified retirement plan account.
Investors may exercise the reinstatement privilege by written
request sent to the Fund at the address shown on the cover of
this Statement of Additional Information.
Sales at Net Asset Value. Each Portfolio may sell its
Class A shares at net asset value (i.e., without an initial sales
charge), and without a contingent deferred sales charge to
certain categories of investors including: (i) investment
management clients of the Adviser or its affiliates; (ii)
officers and present or former 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,
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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 such persons pay an asset-based fee to such broker-dealer
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 in the Fund, within such time period as my be
designated by the Principal Underwriter, proceeds of their
redemption of shares of such other registered investment
companies as may be designated from time to time 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
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
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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.
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,
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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 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
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
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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 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
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
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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
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.
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_________________________________________________________________
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
Share--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 Agreement and Declaration of Trust requires 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.
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
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portfolio securities at the time of such redemption or
repurchase. Redemption proceeds on Class A shares and Class B
shares will reflect the deduction of the contingent deferred
sales charge, if any. Payment 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 institution that is 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.
Telephone Redemption By Electronic Funds Transfer. Each
Fund shareholder is entitled to request redemption by electronic
funds transfer, once in any 30-day period (except for certain
omnibus accounts), of shares for which no share 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.
A telephone redemption request 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. Except for certain
omnibus accounts or as noted below, each Fund shareholder is
eligible to request redemption by check, once in any 30-day
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period, of Portfolio shares for which no stock certificates have
been issued by telephone at (800) 221-5672 before 4:00 p.m.
Eastern time on a Fund business day in an amount not exceeding
$50,000. Proceeds of such redemptions are remitted by check to
the shareholder's address of record. Telephone redemption by
check is not available with respect to shares (i) for which
certificates have been issued, (ii) held in nominee or "street
name" accounts, (iii) held by a shareholder who has changed his
or her address of record within the preceding 30 calendar days or
(iv) held in any retirement plan account. A shareholder
otherwise eligible for telephone redemption by check may cancel
the privilege by written instruction to Alliance Fund Services,
Inc., or by checking the appropriate box on the Subscription
Application found in the Prospectus.
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. Neither the Fund
nor the Adviser, the Principal Underwriter or Alliance Fund
Services, Inc. will be responsible for the authenticity of
telephone requests for redemptions that the Fund reasonably
believes to be genuine. The Fund will employ reasonable
procedures in order to verify that telephone requests for
redemptions are genuine, including, among others, recording such
telephone instructions and causing written confirmations of the
resulting transactions to be sent to shareholders. If the Fund
did not employ such procedures, it could be liable for losses
arising from unauthorized or fraudulent telephone instructions.
Selected dealers or agents may charge a commission for handling
telephone requests for redemptions.
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 shares and 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
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Underwriter prior to its close of business on that day (normally
5:00 p.m. Eastern time). The selected dealer or agent is
responsible for transmitting the request to the Principal
Underwriter by 5:00 p.m. If the 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
shares, 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
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.
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Shareholder Services Applicable to All Three Classes
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 the Prospectus 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).
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.
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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
will be permitted only after the Alliance Mutual Fund whose
shares have been tendered for exchange is reasonably assured that
the check has cleared, normally up to 15 calendar days following
the purchase date.
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 share 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
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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
financial representative, 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 on 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
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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
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 Class
A 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
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the address or the "Literature" telephone number shown on the
cover of this Statement of Additional Information.
CDSC Waiver for Class B Shares 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.
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
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month's accumulated dividends and shares for which certificates
have been issued). A Class A or Class C shareholder wishing to
establish this checkwriting service subsequent to the opening of
his or her Portfolio account should contact the Fund by telephone
or mail. Corporations, fiduciaries and institutional investors
are required to furnish a certified resolution or other evidence
of authorization. This checkwriting service will be subject to
the Bank's customary rules and regulations governing checking
accounts, and the Fund and the Bank each reserve the right to
change or suspend the checkwriting service. There is no charge
to the shareholder for the initiation and maintenance of this
service or for the clearance of any checks.
When a check is presented to the Bank for payment, the
Bank, as the shareholder's agent, causes the Fund to redeem, at
the net asset value next determined, a sufficient number of full
and fractional shares of a Portfolio in the shareholder's account
to cover the check. Because the level of net assets in a
shareholder's account constantly changes due, among various
factors, to market fluctuations, a shareholder should not attempt
to close his or her account by use of a check. In this regard,
the Bank has the right to return checks (marked "insufficient
funds") unpaid to the presenting bank if the amount of the check
exceeds 90% of the assets in the account. Cancelled (paid)
checks are returned to the shareholder. The checkwriting service
enables the shareholder to receive the daily dividends declared
on the shares to be redeemed until the day that the check is
presented to the Bank for payment.
_________________________________________________________________
NET ASSET VALUE
_________________________________________________________________
The per share net asset value of each Portfolio is
computed in accordance with the Fund's Agreement and Declaration
of Trust and By-Laws as of the next close of trading on the
Exchange (currently 4:00 p.m.) following receipt of a purchase or
redemption order by the Fund, on each Fund business day on which
such an order is received and trading in the types of securities
in which the Portfolio invests might materially affect the value
of the Portfolio's shares, by dividing the value of the
Portfolio's total assets less its liabilities, by the total
number of its shares then outstanding.
For purposes of this computation, portfolio securities
that are actively traded in the over-the-counter market,
including listed securities for which the primary market is
believed to be over-the-counter, are valued at the mean between
the most recently quoted bid and asked prices provided by the
principal market makers. Any security for which the primary
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market is on an exchange is valued at the last sale price on such
exchange on the day of valuation or, if there was no sale on such
day, the last bid price quoted on such day. Options will be
valued at market value or fair value if no market exists.
Futures contracts will be valued in a like manner, except that
open futures contracts sales will be valued using the closing
settlement price or, in the absence of such a price, the most
recent quoted asked price. Securities and assets for which
market quotations are not readily available are valued at fair
value as determined in good faith by or under the direction of
the Board of Directors of the Fund. However, readily marketable
fixed-income securities may be valued on the basis of prices
provided by a pricing service when such prices are believed by
the Fund to reflect the fair market value of such securities. The
prices provided by a pricing service take into account
institutional size trading in similar groups of securities and
any developments related to specific securities. U.S.
Government Securities and other debt instruments having sixty
days or less remaining until maturity are stated at amortized
cost if their original maturity was 60 days or less, or by
amortizing their fair value as of the 61st day prior to maturity
if their original term to maturity exceeded 60 days (unless in
either case the Fund's Board of Directors determines that this
method does not represent fair value).
_________________________________________________________________
DIVIDENDS, DISTRIBUTIONS AND TAXES
_________________________________________________________________
General Each Portfolio of the Fund 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.
Until the Trustees 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
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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 Trustees to be in the best interests of the
Portfolio. Dividends paid by a Portfolio, if any, with respect
to Class A, Class B and Class C shares will be calculated in the
same manner at the same time on the same day and will be in the
same amount, except that the higher distribution services fees
applicable to Class B and Class C shares, and any incremental
transfer agency costs relating to Class B shares, will be borne
exclusively by the class to which they relate.
The information set forth in the Prospectus and the
following discussion relates generally to Federal income taxes on
dividends and distributions by each Portfolio of the Fund and
assumes that each Portfolio of the Fund qualifies to be taxed as
a regulated investment company. Investors should consult their
own tax counsel with respect to the specific tax consequences of
their being shareholders of a Portfolio, including the effect and
applicability of Federal, state, and local tax laws to their own
particular situation and the possible effects of changes therein.
Each Portfolio intends to declare and distribute
dividends in the amounts and at the times necessary to avoid the
application of the 4% Federal excise tax imposed on certain
undistributed income of regulated investment companies. For
Federal income and excise tax purposes, dividends declared and
payable to shareholders of record as of a date in October,
November or December but actually paid during the following
January will be treated as having been distributed by the
Portfolio, and will be taxable to these shareholders, for the
year declared, and not for the subsequent calendar year in which
the shareholders actually receive the dividend.
For shareholders' Federal income tax purposes,
distributions to shareholders out of tax-exempt interest income
earned by each Portfolio of the Fund are not subject to Federal
income tax if, at the close of each quarter of such Portfolio's
taxable year, at least 50% of the value of such Portfolio's total
assets consists of tax-exempt obligations. Each Portfolio
intends to meet this requirement. Insurance proceeds received by
a Portfolio under any insurance policies in respect of scheduled
interest payments on defaulted municipal securities, as described
herein, will be excludable from gross income in the same manner
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.
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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.
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
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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
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 reflects 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
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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.
________________________________________________________________
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
(15) principal market maker dealers with whom the Adviser
maintains regular contact. Most transactions made by the Fund
will be principal transactions at net prices and the Fund will
incur little or no brokerage costs. Where possible, securities
will be purchased directly from the issuer or from an underwriter
or market maker for the securities unless the Adviser believes a
better price and execution is available elsewhere. Purchases
from underwriters of newly-issued securities for inclusion in a
Portfolio usually will include a concession paid to the
underwriter by the issuer and purchases from dealers serving as
market makers will include the spread between the bid and asked
price.
The Fund has no obligation to enter into transactions in
portfolio securities with any broker, dealer, issuer, underwriter
or other entity. In placing orders, it is the policy of the Fund
to obtain the best price and execution for its transactions.
Where best price and execution may be obtained from more than one
broker or dealer, the Adviser may, in its discretion, purchase
and sell securities through brokers and dealers who provide
research, statistical and other information to the Adviser. Such
services may be used by the Adviser for all of its investment
advisory accounts and, accordingly, not all such services may be
used by the Adviser in connection with the Fund. The
supplemental information received from a dealer is in addition to
the services required to be performed by the Adviser under the
Advisory Agreement, and the expenses of the Adviser will not
necessarily be reduced as a result of the receipt of such
information. Consistent with the Rules of Fair Practice of the
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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,
Alliance Capital Management L.P., or with Donaldson, Lufkin &
Jenrette Securities Corporation, an affiliate of the Adviser.
During the fiscal year ended September 30, 1994, the Florida,
Minnesota, New Jersey, Ohio and Pennsylvania Portfolios incurred
no brokerage commissions. During the fiscal period from February
25, 1994 to September 30, 1994, the Michigan Portfolio incurred
no brokerage commissions. During the fiscal period from March
29, 1994 to September 30, 1994, the Massachusetts Portfolio
incurred no brokerage commissions. During the fiscal period from
April 29, 1994 to September 30, 1994, the Virginia Portfolio
incurred no brokerage commissions. During the fiscal period from
June 1, 1994 to September 30, 1994, the Arizona Portfolio
incurred no brokerage commissions. During the fiscal year ended
September 30, 1995, the Arizona, Florida, Massachusetts,
Michigan, Minnesota, New Jersey, Ohio, Pennsylvania and Virginia
Portfolios incurred no brokerage commissions. During the fiscal
year ended September 30, 1996, the Arizona, Florida,
Massachusetts, Michigan, Minnesota, New Jersey, Ohio,
Pennsylvania and Virginia Portfolios incurred no brokerage
commissions.
________________________________________________________________
GENERAL INFORMATION
________________________________________________________________
Capitalization
The Fund has an unlimited number of authorized Class A,
Class B and Class C shares of beneficial interest par value $.01
per share. Such shares are currently divided into five series,
one underlying each Portfolio of the Fund. All shares of the
Fund, when issued, are fully paid and non-assessable. The
Trustees are authorized to reclassify and issue any unissued
shares to any number of additional classes or series without
shareholder approval. Accordingly, the Trustees 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 classes or series
of shares. Any issuance of shares of another class would be
governed by the Act and the law of the Commonwealth of
Massachusetts. Shares of each Portfolio participate equally in
dividends and distributions from that Portfolio, including any
distributions in the event of a liquidation. Shares of each
129
<PAGE>
Portfolio are normally entitled to one vote for all purposes.
Generally, shares of all Portfolios vote as a single series for
the election of Trustees and on any other matter affecting all
Portfolios in substantially the same manner. 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. Certain procedures for
the removal by shareholders of Trustees of investment trusts,
such as the Fund, are set forth in Section 16(c) of the Act.
Shareholder Liability
Under Massachusetts law, shareholders could, under
certain circumstances, be held personally liable for the
obligations of the Fund. However, the Agreement and Declaration
of Trust disclaims shareholder liability for acts or obligations
of the Fund and requires that the Trustees use their best efforts
to ensure that notice of such disclaimer be given in each note,
bond, contract, instrument, certificate or undertaking made or
issued by the Trustees or officers of the Fund. The Agreement
and Declaration of Trust provides for indemnification out of the
property of the Fund for all loss and expense of any shareholder
of the Fund held personally liable for the obligations of the
Fund. Thus, the risk of a shareholder incurring financial loss
on account of shareholder liability is limited to circumstances
in which the Fund would be unable to meet its obligations. In
the view of the Adviser, such risk is not material.
At January 17, 1997, there were outstanding: 32,158,817
shares of beneficial interest of the Fund, including: 600,431
Class A shares, 519,386 Class B shares and 118,962 Class C shares
of the Arizona Portfolio; 1,455,542 Class A shares, 2,246,049
Class B shares and 3,027,452 Class C shares of the Florida
Portfolio; 393,913 Class A shares, 377,737 Class B shares and
471,495 Class C shares of the Massachusetts Portfolio; 592,620
Class A shares, 394,070 Class B shares and 418,457 Class C shares
of the Michigan Portfolio; 360,110 Class A shares, 828,968 Class
B shares and 752,259 Class C shares of the Minnesota Portfolio;
1,404,832 Class A shares, 3,886,339 Class B shares and 2,262,468
Class C shares of the New Jersey Portfolio; 658,839 Class A
shares, 2,507,797 Class B shares and 1,586,321 Class C shares of
the Ohio Portfolio; 2,206,167 Class A shares, 3,034,411 Class B
shares and 1,370,054 Class C shares of the Pennsylvania
Portfolio; 236,189 Class A shares, 354,661 Class B shares and
93,288 Class C shares of the Virginia Portfolio. The following
is a list of all persons who owned of record or beneficially 5%
or more of each class of shares of each Portfolio at January 17,
1997.
NO. OF % OF % OF % OF
NAME AND ADDRESS SHARES CLASS A CLASS B CLASS C
130
<PAGE>
ARIZONA PORTFOLIO
MLPF&S For the 30,525 5.08%
Sole Benefit of Its
Customers
Attn. Fund Administration
4800 Deer Lake Dr.
East 3rd Floor
Jacksonville FL 32246-6484
Smith Barney Inc. 93,533 15.58%
00129216171
388 Greenwich St.
New York NY 10013-2375
131
<PAGE>
NO. OF % OF % OF % OF
NAME AND ADDRESS SHARES CLASS A CLASS B CLASS C
Smith Barney Inc. 73,335 12.21%
00129216170
388 Greenwich St.
New York NY 10013-2375
Prudential Securities FBO 32,473 6.25%
Charles R. Gardner
Lucie Gardner Co-TTEES
Gardner Family Trust
13719 W. Springdale Dr.
Sun City West AZ 85375-5419
MLPF&S For the 134,548 25.91%
Sole Benefit of Its
Customers 29,476 24.78%
Attn. Fund Administration
4800 Deer Lake Dr.
East 3rd Floor
Jacksonville FL 32246-6484
Quentin N. Stromseth & 29,147 5.61%
Norma J. Stromseth JT Ten
14645 Ravenswood Dr.
Sun City West AZ 85375-5701
Muritta Anne Steer TTEE 6,225 5.23%
Muritta Anne Steer Trust
Agreement
DTD 6/03/1987
5040 E. Desert Jewel
Paradise Valley AZ
85253-3050
Painewebber For the 13,807 11.61%
Benefit of A. Burdelle
Kerns Trust DTD 6/23/1994
10621 W. Hazelwood Court
Sun City AZ 85373-1028
132
<PAGE>
NO. OF % OF % OF % OF
NAME AND ADDRESS SHARES CLASS A CLASS B CLASS C
FLORIDA PORTFOLIO
MLPF&S For the 179,963 12.36%
Sole Benefit of Its
Customers 395,019 17.59%
Attn. Fund Administration
4800 Deer Lake Dr. 1,503,439 49.66%
East 3rd Floor
Jacksonville FL 32246-6484
Perry Lloyd Jr. 83,420 5.73%
Revocable Living Trust
Perry Lloyd Jr. TTEE UTD
12/02/1992
1807 South 8th St.
Ft. Pierce FL
34950-8135
Jack W. Liebert & 664,841 21.96%
Glenn W. Leibert
& Larry E. Wilson
TTEE Jack W. Liebert
Rev Trust DTD 7/23/1987
4602 Oak Leaf Dr.
Naples FL 34119-8580
MASSACHUSETTS PORTFOLIO
LPF&S For the 30,965 7.86%
Sole Benefit of Its
Customers 49,257 13.04%
Attn. Fund Administration
4800 Deer Lake Dr.
East 3rd Floor
Jacksonville FL 32246-6484
Painwebber For the 20,394 5.18%
Benefit of David
P. Wilfert
64 Cleveland St.
Arlington MA 02174-6916
NFSC FEBO 34,223 8.69%
#OS3-104698
Linda J. Verville
89 Ruddock Rd.
Sudbury MA 01776-1360
133
<PAGE>
NO. OF % OF % OF % OF
NAME AND ADDRESS SHARES CLASS A CLASS B CLASS C
NFSC FEBO 37,382 9.49%
#OS3-003573
Clyde Kessel
385 Curve St.
Carlisle MA 01742-4774
NFSC FEBO 30,867 7.84%
#OS3-014753
Richard V. Paulson
293 Caterina Heights
Concord MA 01742-4774
Alliance Capital 39,535 10.04%
Management LP
Attn. Paul Greenberg
1345 Ave. of the
Americas
New York NY 10105-0302
Sybil N. Wetzler & 22,373 5.92%
Teresa A. Wetzler-Finn
& Steven A. Finn TTEE
Sybil N. Wetzler Rev. Trust
U/A DTD 6/01/1991
5 Tallyho Lane
Andover MA 01810-4514
Vincent Dorazio & 30,640 8.11%
Norma Dorazio JT Ten
95 Gertrude St.
Lynn MA 01902-1552
Tammy M. Rivard 21,616 5.72%
116 Brooksville Rd.
Templeton MA 01468-1340
Merrill Lynch 33,085 7.02%
Mutual Fund Operations
4800 Deer Lake Dr.
East 3rd Floor
Jacksonville FL
32246-6486
NFSC FEBO 41,182 8.73%
#OS3-009512
Bruce D. Glabe
60 Sherburne Rd.
Lexington MA 02173-7010
134
<PAGE>
NO. OF % OF % OF % OF
NAME AND ADDRESS SHARES CLASS A CLASS B CLASS C
NFSC FEBO 162,883 34.55%
#OS3-126497
Richard B. Snyder
193 Parkerville Rd.
Southborough MA 01772-1751
Smith Barney Inc. 34,453 7.31%
00144318447
388 Greenwich St.
New York NY 10013-2375
MINNESOTA PORTFOLIO
Donald D. Pasek 21,302 5.92%
2122 Appalachain St.
Duluth MN 55811-3122
Paul A. Zoschke 43,102 11.97%
Marsanne Wallace
JT Ten
2928 Lake Blvd.
North St. Paul
MN 55109-1653
August W. Winkelman 21,762 6.04%
& Pricilla A. Williams
& Gerald G. Winkelman
& August E. Winkelman &
John J. Winkelman JT Tens
1801 Collegeway Apt. 113
Worthington MN 56187-3092
Curtis J. Zupfer 19,605 5.44%
Rosemary Zupfer
JTWROS
957 Belvista Dr.
North Manikato MN
56003-3607
Deloris Nelson 19,393 5.39%
PO Box 587
Willmar MN 56201-0587
135
<PAGE>
NO. OF % OF % OF % OF
NAME AND ADDRESS SHARES CLASS A CLASS B CLASS C
MLPF&S For the 272,953 36.28%
Sole Benefit of Its
Customers
Attn. Fund Administration
4800 Deer Lake Dr.
East 3rd Floor
Jacksonville FL 32246-6484
James G. Hynes and 51,798 6.89%
Carol Y. Hynes JTTEN
4268 Churchill Circle
Minnetonka MN 55345-2509
Haldeman Homme Inc. 58,505 7.78%
430 Industrial Blvd.
Minneapolis MN 55413-2931
MICHIGAN PORTFOLIO
Douglas E. Ward 85,857 14.49%
Barbara E. Ward
JTWROS
2837 North Imperial Dr.
Hale MI 48739-9545
Gods Blessing 213,506 36.03%
Attn. Ken and Jean
Assink
13395 Tyler
Holland MI 49424-9421
MLPF&S For the 94,148 23.89%
Sole Benefit of Its
Customers 160,989 38.47%
Attn. Fund Administration
4800 Deer Lake Dr.
East 3rd Floor
Jacksonville FL 32246-6484
136
<PAGE>
NO. OF % OF % OF % OF
NAME AND ADDRESS SHARES CLASS A CLASS B CLASS C
NEW JERSEY PORTFOLIO
MLPF&S For the 149,917 10.67%
Sole Benefit of Its
Customers 914,660 23.54%
Attn. Fund Administration
4800 Deer Lake Dr. 1,574,102 69.57%
East 3rd Floor
Jacksonville FL 32246-6484
OHIO PORTFOLIO
MLPF&S For the 94,378 14.32%
Sole Benefit of Its
Customers 333,440 13.30%
Attn. Fund Administration
4800 Deer Lake Dr. 1,000,494 63.07%
East 3rd Floor
Jacksonville FL 32246-6484
Dean Witter For the 107,115 16.26%
Benefit of MAG-NIF Inc.
PO Box 720
Mentor OH 44061-0720
Michael R. Cowen 87,663 5.53%
Bonnie R. Cowen
JT Ten
548 Conestoga Dr.
Columbus OH 43213-2612
PENNSYLVANIA PORTFOLIO
MLPF&S For the 135,084 6.12%
Sole Benefit of Its
Customers 779,277 25.68%
Attn. Fund Administration
4800 Deer Lake Dr. 891,488 65.07%
East 3rd Floor
Jacksonville FL 32246-6484
James E. Beasley, Esq. 1,031,869 46.77%
c/o Beasley, Casey
& Erbstein
1125 Walnut St.
Philadelphia PA 19107-4918
137
<PAGE>
NO. OF % OF % OF % OF
NAME AND ADDRESS SHARES CLASS A CLASS B CLASS C
VIRGINIA PORTFOLIO
orma F. Goldberg 14,153 5.99%
14303 Brandermill Wood
TR, Apt. 315
Midlothian VA 23112-4171
Alliance Capital 35,821 15.17%
Management LP
Attn. Paul Greenberg
1345 Ave. of the
Americas
New York NY 10105-0302
Prudential Securities FBO 25,380 10.75%
Irwin Bloomberg TTEE
The Julie Sue Abrams Trust
UA DTD 3/04/1992
3550 Galt Ocean Dr.
Apt. 1707
Fort Lauderdale FL
33308-6844
MLPF&S For the 45,854 12.93%
Sole Benefit of Its
Customers
Attn. Fund Administration
4800 Deer Lake Dr.
East 3rd Floor
Jacksonville FL 32246-6484
138
<PAGE>
NO. OF % OF % OF % OF
NAME AND ADDRESS SHARES CLASS A CLASS B CLASS C
Stephens Inc. FBO 19,871 5.60%
Acct. 84324030
PO Box 34127
Little Rock AR 72203-4127
Stephens Inc. FBO 31,077 33.31%
Acct. 84320273
PO Box 34127
Little Rock AR 72203-4127
Stephens Inc. FBO 6,451 6.92%
Acct. 84373515
PO Box 34127
Little Rock AR 72203-4127
Angel M. Tomarchio Trust 5,117 5.49%
DTD 8/22/1996
Joseph G. Tomarchio TTEE
7028 Bradwood Court
Springfield VA 22151-3525
Painewebber For the 23,908 25.63%
Benefit of Francis B.
Andrew
8723 Higginbotham Place
Richmond VA 23229-7935
Custodian
Bank of New York, 48 Wall Street, New York, New York
10286, acts as custodian for the securities and cash of the Fund
but plays no part in deciding the purchase or sale of portfolio
securities.
Principal Underwriter
Alliance Fund Distributors, Inc., 1345 Avenue of the
Americas, New York, New York 10105, serves as the Fund's
Principal Underwriter, and as such may solicit orders from the
public to purchase shares of the Fund. Under the 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.
139
<PAGE>
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
Sullivan & Worcester, Boston, Massachusetts, for matters relating
to Massachusetts 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
"taxable equivalent yield" that is calculated by assuming that
net investment income per share is increased by an amount
sufficient to offset the benefit of tax exemptions at the stated
income tax rate. For example, under 1995 federal individual
income tax rates and assuming that there are no applicable state
income taxes, a tax-exempt yield of 5% would equal a tax
equivalent yield of 6.94% (28% tax bracket), 7.25% (31% tax
bracket), 7.81% (36% tax bracket), and 8.28% (39.6% tax bracket),
respectively; 6% would equal 8.33% (28% tax bracket), 8.70% (31%
tax bracket), 9.38% (36% tax bracket) and 9.93% (39.6% tax
bracket), respectively; and 7% would equal 9.72% (28% tax
bracket), 10.14% (31% tax bracket), 10.94% (36% tax bracket), and
11.59% (39.6% tax bracket), respectively. A Portfolio's "actual
distribution rate," which may be stated in sales literature, is
computed in the same manner as yield except that actual income
dividends declared per share during the period in question are
substituted for net investment income per share. The actual
distribution rate is compounded separately for Class A, Class B
and Class C shares. Computed separately for each class, a
Portfolio's "total return" is its average annual compounded total
return for recent one year, five year or ten year periods (or the
period since the Portfolio's inception). A Portfolio's total
return for such a period is computed by finding, through the use
of a formula prescribed by the 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
140
<PAGE>
at the end of the period. For purposes of computing total
return, income dividends and capital gains distributions paid on
shares of a Portfolio are assumed to have been reinvested when
paid and the maximum sales charge applicable to purchases of such
Portfolio's shares is assumed to have been paid.
The yield for the fiscal year ended September 30, 1996
for the Florida Portfolio was 5.37% for Class A shares, 4.91% for
Class B shares and 4.91% for Class C shares; for the Minnesota
Portfolio, 5.42% for Class A shares, 4.96% for Class B shares and
4.97% for Class C shares; for the New Jersey Portfolio, 5.14% for
Class A shares, 4.67% for Class B shares and 4.67% for Class C
shares; for the Ohio Portfolio, 5.41% for Class A shares, 4.95%
for Class B shares and 4.96% for Class C shares; for the
Pennsylvania Portfolio, 5.28% for Class A shares, 4.80% for Class
B shares and 4.81% for Class C shares; for the Michigan
Portfolio, 5.12% for Class A shares, 4.65% for Class B shares and
4.65% for Class C shares; for the Massachusetts Portfolio, 5.59%
for Class A shares, 5.15% for Class B shares and 5.15% for Class
C shares; for the Virginia Portfolio, 5.34% for Class A shares,
4.88% for Class B shares and 4.88% for Class C shares; and for
the Arizona Portfolio, 5.26% for Class A shares, 4.81% for Class
B shares and 4.81% for Class C shares.
The tax equivalent yield for such period for the Florida
Portfolio was 8.69% for Class A shares, 7.95% for Class B shares
and 7.95% for Class C shares; for the Minnesota Portfolio, 8.90%
for Class A shares, 8.14% for Class B shares and 8.16% for Class
C shares; for the New Jersey Portfolio, 8.81% for Class A shares,
8.01% for Class B shares and 8.01% for Class C shares; for the
Ohio Portfolio, 9.66% for Class A shares, 8.84% for Class B
shares and 8.85% for Class C shares; for the Pennsylvania
Portfolio, 8.89% for Class A shares, 8.08% for Class B shares and
8.09% for Class C shares; for the Michigan Portfolio, 8.77% for
Class A shares, 7.97% for Class B shares and 7.97% for Class C
shares; for the Massachusetts Portfolio, 9.95% for Class A
shares, 9.17% for Class B shares and 9.17% for Class C shares;
for the Virginia Portfolio, 9.06% for Class A shares, 8.28% for
Class B shares and 8.28% for Class C shares; and for the Arizona
Portfolio, 9.23% for Class A shares, 8.44% for Class B hares and
8.44% for Class C shares.
The tax equivalent yield calculations assume that the
taxpayer is an individual in the highest federal and state income
tax bracket, who is not subject to federal or state alternative
minimum taxes and who is able to fully deduct state taxes in
computing federal taxable income. The tax rates used in these
calculations were: federal--39.6%, Florida--0%, Minnesota--8.50%,
New Jersey--6.58%, Ohio--7.50%, Pennsylvania--2.80%, Michigan-
- -4.40%, Massachusetts--12.00%, Virginia--5.75% and Arizona-
- -5.60%. The tax equivalent yield is computed by dividing that
141
<PAGE>
portion of the yield of a Portfolio that is tax-exempt by one
minus the applicable marginal income tax rates and adding the
quotient to that portion, if any, of the yield of the Portfolio
that is not tax-exempt.
The actual distribution rate for the Florida Portfolio
was 5.39% for Class A shares, 4.89% for Class B shares and 4.89%
for Class C shares; for the Minnesota Portfolio, 5.34% for Class
A shares, 4.83% for Class B shares and 4.83% for Class C shares;
for the New Jersey Portfolio, 5.11% for Class A shares, 4.58% for
Class B shares and 4.58% for Class C shares; for the Ohio
Portfolio, 5.33% for Class A shares, 4.82% for Class B shares and
4.82% for Class C shares; for the Pennsylvania Portfolio, 5.43%
for Class A shares, 4.94% for Class B shares and 4.94% for Class
C shares; for the Michigan Portfolio, 5.22% for Class A shares,
4.77% for Class B shares and 4.77% for Class C shares; for the
Massachusetts Portfolio, 5.40% for Class A shares, 4.99% for
Class B shares and 4.99% for Class C shares; for the Virginia
Portfolio, 5.15% for Class A shares, 4.72% for Class B shares and
4.72% for Class C shares; and for the Arizona Portfolio, 5.33%
for Class A shares, 4.88% for Class B shares and 4.88% for Class
C shares.
The average annual total return for the period since
inception to September 30, 1996 for the Florida Portfolio was
3.74% for Class A shares, 4.37% for Class B shares and 4.37% for
Class C shares; for the Minnesota Portfolio, 3.22% for Class A
shares, 3.81% for Class B shares and 3.81% for Class C shares;
for the New Jersey Portfolio, 3.62% for Class A shares, 4.21% for
Class B shares and 4.21% for Class C shares; for the Ohio
Portfolio, 3.30% for Class A shares, 3.89% for Class B shares and
3.89% for Class C shares; for the Pennsylvania Portfolio, 4.16%
for Class A shares; 4.80% for Class B shares and 4.80% for Class
C shares; for the Michigan Portfolio, 5.18% for Class A shares,
5.82% for Class B shares and 6.18% for Class C shares; for the
Massachusetts Portfolio, 7.95% for Class A shares, 8.67% for
Class B shares and 9.03% for Class C shares; for the Virginia
Portfolio, 6.67% for Class A shares, 7.43% for Class B shares and
7.80% for Class C shares and for the Arizona Portfolio 5.67% for
Class A shares; 6.49% for the Class B shares and 6.88% for Class
C shares.
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
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<PAGE>
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. 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 and 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.
Additional Information
Any shareholder inquiries may be directed to the
shareholder's broker or to Alliance Fund Services, Inc. at the
address or telephone numbers shown on the front cover of this
Statement of Additional Information. This Statement of
Additional Information does not contain all the information set
forth in the Registration Statement filed by the Fund with the
Securities and Exchange Commission under the Securities Act of
1933. Copies of the Registration Statement may be obtained at a
reasonable charge from the Commission or may be examined, without
charge, at the offices of the Commission in Washington, D. C.
________________________________________________________________
REPORT OF INDEPENDENT AUDITORS AND
FINANCIAL STATEMENTS
________________________________________________________________
143
<PAGE>
ARIZONA PORTFOLIO
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1996 ALLIANCE MUNICIPAL INCOME FUND II
_______________________________________________________________________________
STANDARD PRINCIPAL
& POOR'S AMOUNT
RATINGS# (000) VALUE
- -------------------------------------------------------------------------
MUNICIPAL BONDS-112.5%
ARIZONA-96.1%
AAA Glendale - IDA
(Midwestern Univ) Ser 96A
6.00%, 5/15/26 $ 480 $ 490,435
NR Goodyear Assessment District
Dist No. 1 Ser 96C
7.25%, 7/01/16 1,500 1,505,625
AAA Maricopa Cnty IDA Hlth Fac Rev
Ser 93B (Catholic Healthcare West)
7.363%, 7/01/13 (a) 1,245 1,224,595
AA+ Maricopa Cnty IDR
(Citizens Utilities) Ser 95 AMT
6.20%, 5/01/30 465 478,634
AAA Maricopa Cnty Sch Dist #80 GO
(Chandler) FGIC Ser 95
6.00%, 7/01/13 465 484,776
AAA Mohave Cnty IDA MFHR Care Rev
(Chris & Silver Ridge)
GNMA Coll Ser 96
6.375%, 11/01/31 1,000 1,034,620
AAA Mohave Cnty IDA
Baptist Hosp Sys MBIA
5.75%, 9/01/26 420 415,829
AA- Mohave Cnty IDR (Cargill) Ser 95A AMT
6.70%, 3/01/20 450 482,526
AAA Phoenix Arpt Rev MBIA Ser 94D AMT
6.30%, 7/01/10 475 499,657
AA+ Phoenix Civic Plaza Bldg Corp Senior
Lien Excise Tax Ser 94
6.00%, 7/01/12 465 478,071
AA Phoenix IDA MFHR
(Woodstone & Silver Springs)
6.25%, 4/01/23 490 496,757
AAA Tempe IDA MFHR (Quadrangles) FHA
6.25%, 6/01/26 475 481,603
AAA Yuma IDA AMT (Alexandrite Sands Apt)
MFHR FHA Ser 90 AMT
7.70%, 12/01/29 1,750 1,839,950
-----------
9,913,078
PUERTO RICO-16.4%
BB+ Puerto Rico Port Auth Rev Spec Fac
(American Airlines) Ser 96A AMT
6.25%, 6/01/26 1,675 1,694,179
TOTAL INVESTMENTS-112.5%
(cost $11,357,729) 11,607,257
Other assets less liabilities-(12.5%) (1,289,468)
NET ASSETS-100% $10,317,789
# Unaudited
(a) Inverse floater security--security with variable or floating interest rate
that moves in opposite direction of short-term interest rates.
See Glossary of Terms on page 17.
See notes to financial statements.
9
FLORIDA PORTFOLIO
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1996 ALLIANCE MUNICIPAL INCOME FUND II
_______________________________________________________________________________
STANDARD PRINCIPAL
& POOR'S AMOUNT
RATINGS# (000) VALUE
- -------------------------------------------------------------------------
MUNICIPAL BONDS-103.7%
FLORIDA-98.6%
AAA Brevard Cnty IDR (NUI Corp Project)
AMBAC Ser 94
AMT 6.40%, 10/01/24 $3,000 $ 3,179,400
BBB+ Collier Cnty Hlth Fac
(The Moorings Proj) Ser 94
7.00%, 12/01/19 2,000 2,094,480
AAA Dade Cnty Arpt Rev
(Miami Int'l Arpt)
MBIA Ser 95B AMT
6.00%, 10/01/24 2,080 2,108,392
A* Dade Cnty Spec Obl
(Courthouse Ctr Proj) Ser 95
6.10%, 4/01/20 3,000 3,077,100
AAA Escambia Cnty Hsg Fin Auth
SFMR FNMA/GNMA Coll Ser 96B AMT
6.25%, 4/01/28 3,300 3,320,130
Baa1* Escambia Cnty PCR
(Champion Int'l Corp Proj) Ser 96 AMT
6.40%, 9/01/30 5,000 5,028,600
AAA Florida Hsg Fin Agy
(Brittany of Rosemont) MFHR AMBAC AMT
6.25%, 7/01/35 1,350 1,357,411
AAA Florida Hsg Fin Agy
(Landings Boot Ranch)
AMBAC Ser 95K AMT
6.10%, 11/01/35 2,050 2,025,789
AAA Florida Hsg Fin Agy
(Turtle Creek Apts Proj)
AMBAC Ser 96C AMT
6.20%, 5/01/36 3,245 3,250,095
AAA Florida Hsg Fin Agy Home
Mtg SFMR Ser 95A AMT
6.65%, 1/01/24 6,845 7,096,143
AAA Florida Hsg Fin Agy SFMR
GNMA/FNMA Coll Ser 94B AMT
6.65%, 7/01/26 1,125 1,155,668
AAA Jacksonville Wtr & Swr
(United Waterworks)
AMBAC Ser 95 AMT
6.35%, 8/01/25 1,500 1,569,180
Aa3* North Miami Hlth Fac Auth Rev
(Catholic Hlth Svcs Oblig Grp)
6.00%, 8/15/24 1,200 1,188,660
NR Northern Palm Beach Cnty Wtr Ctl
& Imp Dist - Unit Dev 9A-A,
7.30%, 8/01/27 15,600 15,695,784
A+ Palm Beach Cnty IDR
(Geriatric Care Inc Prog)
6.625%, 12/01/26 4,000 4,084,960
Aaa* Pinellas Cnty Hsg Fin Auth
SFMR Ser 94A AMT
6.55%, 8/01/27 3,145 3,229,412
Baa* Volusia Cnty Ed Fac Auth Rev
(Embry-Riddle Aero Univ)
6.125%, 10/15/26 3,200 3,225,632
AA Volusia Cnty Hlth Fac
Auth Rev (John Knox Village)
6.00%, 6/01/17 3,000 3,062,790
------------
65,749,626
WASHINGTON-4.9%
BBB+ Pilchuck Dev Pub Corp
Spec Fac Arpt Rev
(Tramco Inc. Proj)
6.00%, 8/01/23 3,400 3,294,022
UTAH-0.2%
A-1+ Morgan Cnty Solid Waste Disposal Rev
(Holnam Inc. Proj) AMT VRDN (a)
3.90%, 8/01/31 100 100,000
TOTAL INVESTMENTS-103.7%
(cost $68,003,822) 69,143,648
Other assets less liabilities- (3.7%) (2,490,839)
NET ASSETS-100% $66,652,809
# Unaudited
* Moody's 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 prime
interest rate). This instrument is payable on demand and is secured by letters
of credit or other credit support agreements from major banks.
See Glossary of Terms on page 17.
See notes to financial statements.
10
MASSACHUSETTS PORTFOLIO
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1996 ALLIANCE MUNICIPAL INCOME FUND II
_______________________________________________________________________________
STANDARD PRINCIPAL
& POOR'S AMOUNT
RATINGS# (000) VALUE
- -------------------------------------------------------------------------
MUNICIPAL BONDS-97.6%
MASSACHUSETTS-86.1%
AAA Chelsea GO AMBAC Ser 94
6.00%, 6/15/14 $ 545 $ 564,805
AAA Holyoke GO FSA Ser 93B
6.125%, 8/01/13 530 552,493
A+ Massachusetts Bay
Transportation Auth Ser 92C
6.10%, 3/01/23 540 554,515
AAA Massachusetts Ed Fin Auth
Educational Loan Rev
AMBAC Ser 94E AMT
6.00%, 1/01/12 560 562,397
AAA Massachusetts Hlth & Ed
Fac Auth Hosp Rev (Beth Israel Hosp)
AMBAC Ser G-4
8.522%, 7/01/25 (a) 2,000 2,020,500
AAA Massachusetts Hsg Fin Agy MFHR
(Harbor Pt Development)
AMBAC Ser 96A AMT
6.40%, 12/01/15 550 555,791
A+ Massachusetts Hsg Fin Auth
SFMR Ser 40 AMT
6.65%, 12/01/27 2,215 2,272,546
AAA Massachusetts Ind Fin Agy
Rev (Nantucket Elec Proj)
AMBAC Ser 96A AMT
5.875%, 7/01/17 550 550,170
AAA Massachusetts Ind Fin Auth
Rev (Heights Crossing Ltd)
FHA Ser 95 AMT
6.15%, 2/01/35 555 555,389
AAA Massachusetts Muni Wholesale Elec Pwr
Supply Sys MBIA Ser 92A
6.00%, 7/01/18 510 514,126
AA- Massachusetts Wtr Pollution Abatement
(So Essex Prog) Ser 94A
6.375%, 2/01/15 530 560,263
A1* New England Ed Loan Mktg
(Student Loan Rev) Ser 93H AMT
6.90%, 11/01/09 525 560,968
------------
9,823,963
PUERTO RICO-11.5%
BB+ Puerto Rico Port Auth Rev Spec Fac
(American Airlines) Ser 96A AMT
6.25%, 6/01/26 1,295 1,309,828
TOTAL INVESTMENTS-97.6%
(cost $10,886,836) 11,133,791
Other assets less liabilities-2.4% 274,247
NET ASSETS-100% $11,408,038
# Unaudited
* Moody's Rating.
(a) Inverse floater security--security with variable or floating interest rate
that moves in opposite direction of short-term interest rates.
See Glossary of Terms on page 17.
See notes to financial statements.
11
MICHIGAN PORTFOLIO
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1996 ALLIANCE MUNICIPAL INCOME FUND II
_______________________________________________________________________________
STANDARD PRINCIPAL
& POOR'S AMOUNT
RATINGS# (000) VALUE
- -------------------------------------------------------------------------
MUNICIPALBONDS-97.5%
MICHIGAN-92.6%
BBB Detroit GO Ser 93
6.35%, 4/01/14 $ 665 $ 665,858
AAA Grand Rapids Swr Sys Rev
MBIA Ser 92
6.00%, 1/01/22 645 655,901
AAA Kalamazoo Hosp Fin Auth
6.608%, 6/01/11(a) 1,500 1,365,555
AAA Kent Cnty Arpt Fac Rev
(Kent Cnty Int'l) Ser 95 AMT
6.10%, 1/01/25 635 648,506
AAA Michigan Hosp Fin Auth Hosp Rev
(St Johns Hosp) AMBAC Ser 92A
6.00%, 5/15/13 645 661,951
AA+ Michigan Hsg Dev Auth
SFMR Mortgage Rev Ser 95B AMT
7.05%, 6/01/26 1,860 1,940,482
AA Michigan Muni Bond Auth
Revolving Fund Ser 93
5.40%, 10/01/14 675 658,314
AAA Michigan Strategic Fund
(Detroit Edison) MBIA Ser 95AA
6.40%, 9/01/25 625 657,025
A- Michigan Strategic Fund
PCR (General Motors) Ser 95
6.20%, 9/01/20 $640 $654,208
NR Romulus Tax increment
Finance Auth Rev
6.75%, 11/01/19 1,585 1,633,929
AAA Three Rivers Cmnty Schs
GO MBIA Ser 96 School Dist
6.00%, 5/01/23 655 676,497
AA Troy MI Downtown Dev
Auth Asset Gty Ser 95A
6.375%, 11/01/18 1,675 1,744,462
AAA Yale Pub Sch Dist GO AMBAC
5.50%, 5/01/23 670 647,287
------------
12,609,975
PUERTO RICO-4.9%
BB+ Puerto Rico Port Auth Rev Spec Fac
(American Airlines) Ser 96A AMT
6.25%, 6/01/26 660 667,557
TOTAL INVESTMENTS-97.5%
(cost $12,980,092) 13,277,532
Other assets less liabilities-2.5% 338,726
NET ASSETS-100% $13,616,258
# Unaudited
(a) Inverse floater security--security with variable or floating interest rate
that moves in opposite direction of short-term interest rates.
See Glossary of Terms on page 17.
See notes to financial statements.
12
MINNESOTA PORTFOLIO
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1996 ALLIANCE MUNICIPAL INCOME FUND II
_______________________________________________________________________________
STANDARD PRINCIPAL
& POOR'S AMOUNT
RATINGS# (000) VALUE
- -------------------------------------------------------------------------
MINNESOTA MUNICIPAL BONDS-97.5%
BBB+ Bass Brook PCR
(Minn Power & Light) Ser 92
6.00%, 7/01/22 $ 900 $ 896,391
AAA Burnsville Eagan Savage GO
Ind Sch Dist #191 CGIC Ser 95A
6.20%, 2/01/17 850 890,979
AA+ Duluth Arpt Lease Rev St
Secured GO Ser 95C AMT
6.25%, 8/01/14 860 890,556
AAA Lakeville Ind Sch Dist #194
GO FGIC Ser 93
5.60%, 2/01/18 850 837,445
BBB+ Minneapolis Common Bond
Fund Community Dev Agy Ser 95-2 AMT
6.625%, 12/01/15 1,245 1,293,045
AAA Minneapolis GO SFMR Homeownership
Renovation Stage III Ser 93 AMT
5.70%, 12/01/23 720 694,894
AAA Minneapolis Cop Special School
Dist #1 MBIA Ser 96A
5.90%, 2/01/17 880 892,514
NR Minnesota Agric & Econ Dev Brd
IDR Small Business Loan Prog
Ser 96A AMT
6.75%, 8/01/16 1,450 1,479,420
NR Minnesota Agric & Econ Dev IDR Small
Business Loan Prog Ser 96B AMT
7.00%, 8/01/16 750 772,815
Baa1* Minnesota Higher Ed Fac
Auth (Hamline Univ) Ser 4-I
6.00%, 10/01/16 790 791,754
AA+ Minnesota Hsg Fin Agy
SFMR Ser 89A AMT
7.90%, 7/01/19 2,260 2,362,920
AAA Minnesota Pub Fac Auth
Wtr Pol Ctl Rev Ser 95A
6.25%, 3/01/15 220 231,735
AAA Minnesota Pub Fac Auth
Wtr Pol Ctl Rev Ser 95A
6.25%, 3/01/16 610 642,537
AA+ Rochester Hlth Care Fac Hosp Rev
Ser 92H Mayo Med Cntr
8.067%, 11/15/15 (a) 3,000 3,083,490
BBB- South St. Paul Hsg & Redev Hosp Rev
(Health East Proj) Ser 94
6.75%, 11/01/09 870 894,899
AAA St Francis GO Ind Sch Dist # 15
CGIC Ser 95A
6.375%, 2/01/16 835 894,594
TOTAL INVESTMENTS-97.5%
(cost $17,075,505) 17,549,988
Other assets less liabilities-2.5% 459,002
NET ASSETS-100% $18,008,990
# Unaudited
* Moody's Rating.
(a) Inverse floater security--security with variable or floating interest rate
that moves in opposite direction of short-term interest rates.
See Glossary of Terms on page 17.
See notes to financial statements.
13
NEW JERSEY PORTFOLIO
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1996 ALLIANCE MUNICIPAL INCOME FUND II
_______________________________________________________________________________
STANDARD PRINCIPAL
& POOR'S AMOUNT
RATINGS# (000) VALUE
- -------------------------------------------------------------------------
NEW JERSEY MUNICIPAL BONDS-98.3%
AAA Essex Cnty Impt Auth Util
Rev (Orange Twp) MBIA Ser 93
6.00%, 12/01/17 $2,510 $ 2,562,911
AA Gloucester Cnty PCR
(Mobil Oil Refining) Ser 93
5.625%, 12/01/28 3,000 2,936,430
AAA Landis Swr Rev
7.27%, 9/19/19 (a) 3,250 3,231,670
AA- New Jersey Eco Dev Auth
(Anheuser-Busch Proj) Ser 95 AMT
5.85%, 12/01/30 8,600 8,586,498
AAA New Jersey Eco Dev Auth
(Elizabethtown Wtr Co)
MBIA Ser 95 AMT
5.60%, 12/01/25 4,000 3,822,840
AAA New Jersey Eco Dev Auth
(Hackensack Wtr Co)
MBIA Ser 94B AMT
5.90%, 3/01/24 3,850 3,858,008
AAA New Jersey Eco Dev Auth
(Pub Ser Elec & Gas)
MBIA Ser 94A AMT
6.40%, 5/01/32 3,700 3,844,633
BB+ New Jersey Eco Dev Auth
Spec Fac (American Airlines) AMT
7.10%, 11/01/31 4,500 4,705,290
AAA New Jersey Eco Dev Auth Wtr Fac
(NJ American Wtr Co) FGIC AMT
6.875%, 11/01/34 5,000 5,507,750
BBB- New Jersey Hlth Care Fac
(Franciscan Sisters,St. Mary's Hosp)
Ser 93
5.875%, 7/01/12 2,755 2,652,101
AAA New Jersey Hlth Care Fac Fin Hlth
Fac (Monmouth Med Ctr) CGIC Ser 93
6.25%, 7/01/24 2,750 2,851,173
BBB New Jersey Hlth Care Fac
(Englewood Hosp) Ser 94
6.75%, 7/01/24 4,230 4,363,372
AAA New Jersey Hsg & Mtg Fin
Agy MBIA Ser 95O AMT
6.35%, 10/01/27 5,000 5,047,200
AAA New Jersey Hsg & Mtg Fin
Agy AMBAC Ser 96A AMT
6.25%, 5/01/28 1,050 1,054,221
A+ New Jersey Hsg & Mtg Fin
Agy MFHR (Sect 8) Ser 1
6.70%, 11/01/28 8,500 8,782,625
AA- New Jersey Hwy Auth
Garden State Parkway
6.25%, 1/01/14 1,250 1,299,212
AAA Passaic Valley Sewer Comm
AMBAC Ser 92D
5.75%, 12/01/15 3,400 3,408,466
AA- Port Auth of NY & NJ Cons
Rev 95th Ser AMT
6.125%, 7/15/29 3,770 3,817,954
AA Salem Cnty NJ Waste Disposal Auth
(E. I. Dupont) Ser 92A
6.125%, 7/15/22 3,500 3,554,740
TOTAL INVESTMENTS-98.3%
(cost $73,595,291) 75,887,094
Other assets less liabilities-1.7% 1,310,805
NET ASSETS-100% $77,197,899
# Unaudited
(a) Inverse floater security--security with variable or floating interest rate
that moves in opposite direction of short-term interest rates.
See Glossary of Terms on page 17.
See notes to financial statements.
14
OHIO PORTFOLIO
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1996 ALLIANCE MUNICIPAL INCOME FUND II
_______________________________________________________________________________
STANDARD PRINCIPAL
& POOR'S AMOUNT
RATINGS# (000) VALUE
- -------------------------------------------------------------------------
OHIO MUNICIPAL BONDS-98.8%
BBB- Butler Cnty Hosp Rev
(Fort Hamilton Hughes)
7.50%, 1/01/10 $1,400 $ 1,470,350
AAA Columbus Municipal Arpt
Rev (Columbus Int'l Arpt)
MBIA Ser 94A AMT
6.25%, 1/01/24 2,190 2,269,015
A Cuyahoga Cnty Hosp Rev
(Meridia Health Sys) Ser 93
6.25%, 8/15/24 2,360 2,408,262
AAA Cuyahoga Cnty MFHR
(Nat'l Terminal Apts Proj)
FNMA Coll AMT
6.40%, 7/01/16 5,180 5,213,307
BBB- Dayton Spec Fac Rev
(Emery Air Freight) Ser 96D
6.20%, 10/01/09 8,000 8,042,480
BBB Hamilton Cnty Hlth Sys
(Hlth Fac & Franciscan
Sisters Providence Hosp)
6.875%, 7/01/15 2,000 2,046,020
Aaa* Kent Ohio MFHR
(Silver Meadows Apt Proj)
GNMA Coll Ser 95 AMT
7.15%, 12/20/26 2,000 2,113,880
NR Mahoning Valley Sanitary
Dist Oblig Ser 94
7.75%, 5/15/14 2,500 2,586,925
Baa3* Ohio Air Quality Dev Auth
(Columbus Southern Pwr) PCR Ser 85B
6.25%, 12/01/20 2,400 2,409,696
AAA Ohio Air Quality Dev Auth
(JMG Funding/Ohio Pwr)
AMBAC Ser 94B AMT
6.375%, 4/01/29 2,150 2,247,739
AA- Ohio Air Quality Dev Auth PCR
(Dayton Pwr & Light) Ser 92B
6.40%, 8/15/27 2,100 2,187,906
AAA Ohio Capital Corp Sec 8
Assist MBIA FHA Ser 95E
6.35%, 1/01/22 1,965 1,991,547
Aa* Ohio Hsg Fin Agy Mtg FHA
(Insured Bridgeview Villas II)
MFHR AMT
6.45%, 12/01/33 1,965 1,994,691
AAA Ohio Hsg Fin Agy Residential Mtg SFMR
GNMA Coll Ser 94 B2 AMT
6.70%, 3/01/25 5,885 6,047,367
A Ohio St Wtr Dev Auth Solid
Waste Disposal
(North Star BHP - Broken Hill) AMT
6.45%, 9/01/20 1,125 1,155,049
AA- Ohio Turnpike Commission
Turnpike Rev Ser 94A
5.75%, 2/15/24 1,450 1,438,023
Aa3* Toledo-Lucas Cnty Port Auth
(Cargill Inc Proj)
5.90%, 12/01/15 2,360 2,394,905
TOTAL INVESTMENTS-98.8%
(cost $47,002,761) 48,017,162
Other assets less liabilities-1.2% 573,400
NET ASSETS-100% $48,590,562
# Unaudited
* Moody's Rating.
See Glossary of Terms on page 17.
See notes to financial statements.
15
PENNSYLVANIA PORTFOLIO
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1996 ALLIANCE MUNICIPAL INCOME FUND II
_______________________________________________________________________________
STANDARD PRINCIPAL
& POOR'S AMOUNT
RATINGS# (000) VALUE
- -------------------------------------------------------------------------
MUNICIPAL BONDS-97.4%
PENNSYLVANIA-94.5%
AAA Allegheny Cnty Arpt Rev
(Pittsburgh Int'l) FSA Ser 92B AMT
6.625%, 1/01/22 $3,020 $ 3,212,374
AAA Berks Cnty GO FGIC Ser 92
Zero Coupon, 11/15/18 6,000 1,658,220
A- Bradford Cnty IDA Solid Waste Disposal
(Int'l Paper) Ser 95A AMT
6.60%, 3/01/19 2,500 2,587,300
A- Bradford Cnty IDA Solid Waste
Disposal (Int'l Paper) Ser 95B AMT
5.90%, 12/01/19 5,620 5,467,417
A- Cambria Twnship Ind Wtr
Auth Rev Ser 93A AMT
6.00%, 12/01/12 3,100 3,215,816
A New Morgan IDA Solid Waste Disp Rev
(New Morgan Landfill Co Inc PJ)
Ser 94 AMT
6.50%, 4/01/19 3,125 3,225,406
BBB- Pennsylvania Econ Dev Fin Auth
(Macmillan Bloedel Clarion Proj)
Ser 95 AMT
7.60%, 12/01/20 5,000 5,536,500
BBB+ Pennsylvania Econ Dev Auth
Wastewater Rev
(Sun Company) Ser 94A AMT
7.60%, 12/01/24 5,000 5,564,550
AA+ Pennsylvania Hsg Fin Agy SFMR
Ser 94 41B AMT
6.65%, 4/01/25 5,000 5,095,000
AA+ Pennsylvania Hsg Fin Agy SFMR
Ser 92 35D
8.414%, 4/01/25(a) 7,500 7,266,675
AAA Pennsylvania Higher Ed
Student Loan AMBAC Ser 88D AMT
6.05%, 1/01/19 3,200 3,227,712
AAA Pennsylvania Turnpike
Commission Oil Franchise
Tax Rev Ser 94A AMBAC
6.00%, 12/01/19 3,000 3,089,400
AAA Philadelphia Airport
System Rev Ser 95A AMBAC AMT
6.10%, 6/15/25 3,175 3,227,007
A- Philadelphia Hosp Rev
(Temple Univ) Ser 93A
6.625%, 11/15/23 3,100 3,158,032
AA Potter Cnty Hosp Auth Rev
(Charles Cole Memorial Hosp)
Asset Guaranty Ser 96
6.05%, 8/01/24 3,190 3,200,368
BBB+ Warren Cnty Hosp Rev
(Warren Gen Hosp Proj) Ser 94B
7.00%, 4/01/19 2,200 2,283,314
AAA Westmoreland Cnty GO FGIC Ser 93C
Zero Coupon, 8/15/17 3,160 939,152
------------
61,954,243
PUERTO RICO-2.9%
BB+ Puerto Rico Port Auth Rev Spec Fac
(American Airlines) Ser 96A AMT
6.25%, 6/01/26 1,845 1,866,125
TOTAL INVESTMENTS-97.4%
(cost $62,215,579) 63,820,368
Other assets less liabilities-2.6% 1,719,430
NET ASSETS-100% $65,539,798
# Unaudited
(a) Inverse floater security--security with variable or floating interest rate
that moves in opposite direction of short-term interest rates.
See Glossary of Terms on page 17.
See notes to financial statements.
16
VIRGINIA PORTFOLIO
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1996 ALLIANCE MUNICIPAL INCOME FUND II
_______________________________________________________________________________
STANDARD PRINCIPAL
& POOR'S AMOUNT
RATINGS# (000) VALUE
- -------------------------------------------------------------------------
VIRGINIA MUNICIPAL BONDS-97.7%
Aa3* Chesapeake Ind Dev Auth IDR
(Cargill Inc Proj) Ser 93
5.875%, 3/01/13 $ 295 $ 301,027
A+ Gile Cnty IDR (Hoechst Celanese)
Ser 96 AMT
6.45%, 5/01/26 300 308,607
AA Henrico Cnty IDR
(Henrico Cnty Reg Jail) Ser 94
7.125%, 8/01/21 265 300,849
AAA Loudon Cnty IDR Hosp Rev
(Loudon Hospital Ctr) FSA Ser 95
5.80%, 6/1/20 300 301,629
AAA Metro Airports Auth Airport MBIA Rev
Ser 94A AMT
5.75%, 10/01/20 320 313,475
AAA Newport News IDA (Mennowood Cmntys)
MFHR Ser 96A GNMA
6.25%, 8/01/36 580 585,029
A* Prince William Cnty IDA Hosp
Rev (Potomac Hosp Group) Ser 95
6.75%, 10/01/15 290 306,843
AAA Richmond Metro Auth
Expwy Rev FGIC Ser 92B
6.25%, 7/15/22 300 310,032
NR Staunton IDA Ed Fac
(Mary Baldwin College) Ser 96
6.75%, 11/01/21 1,145 1,146,786
AAA Suffolk Redev & Hsg Auth MFHR
(Prince William Commons) FNMA
Ser 95A AMT
6.50%, 6/01/29 600 609,000
AA Virginia Beach Hlth Care
Hosp Rev (Sentara Bayside)
6.30%, 11/01/21 300 307,191
AA Virginia College Bldg Auth Ed Fac Rev
(Washington & Lee)
5.80%, 1/01/24 315 312,408
AA+ Virginia Hsg Dev Auth SFMR
(Commonwealth Mtg) Ser 94G AMT
7.125%, 7/01/22 850 878,883
AA Virginia Resources Auth Swr Rev
(Hopewell Regl Waste Wtr) Ser 95A AMT
6.00%, 10/01/25 310 313,227
TOTAL INVESTMENTS-97.7%
(cost $6,232,452) 6,294,986
Other assets less liabilities-2.3% 146,795
NET ASSETS-100% $6,441,781
# Unaudited
* Moody's Rating.
Glossary Of Terms
AMBAC American Municipal Bond Assurance Corporation
AMT Alternative Minimum Tax - Subject to
CGIC Capital Guaranty Insurance Company
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
IDA Industrial Development Authority
IDR Industrial Development Revenue
MBIA Municipal Bond Investors Assurance
MFHR Multi-Family Housing Revenue
PCR Pollution Control Revenue
SFMR Single Family Mortgage Revenue
VRDN Variable Rate Demand Note
See notes to financial statements.
17
STATEMENTS OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1996 ALLIANCE MUNICIPAL INCOME FUND II
_______________________________________________________________________________
<TABLE>
<CAPTION>
ARIZONA FLORIDA MASSACHUSETTS
------------ ------------ -------------
<S> <C> <C> <C>
ASSETS
Investment in securities, at value (cost:
$11,357,729, $68,003,822, $10,886,836, $12,980,092,
$17,075,505, $73,595,291, $47,002,761, $62,215,579,
$6,232,452, respectively) $11,607,257 $69,143,648 $11,133,791
Cash -0- -0- 6,227
Receivable for investment securities sold -0- -0- 15,528
Interest receivable 189,438 1,178,550 169,091
Receivable due from Adviser 127,559 304 119,545
Receivable for shares of beneficial interest sold 72,461 233,628 4,850
Other assets 23,769 25,341 17,756
Total assets 12,020,484 70,581,471 11,466,788
LIABILITIES
Due to custodian 135,775 255,212 -0-
Payable for investment securities purchased 1,500,000 3,300,000 -0-
Dividends payable 14,548 92,663 16,389
Payable for shares of beneficial interest redeemed 7,433 202,177 -0-
Distribution fee payable 5,680 46,104 7,381
Advisory fee payable -0- -0- -0-
Accrued expenses and other liabilities 39,259 32,506 34,980
Total liabilities 1,702,695 3,928,662 58,750
NETASSETS $10,317,789 $66,652,809 $11,408,038
COMPOSITION OF NET ASSETS
Shares of beneficial interest, at par $ 9,993 $ 68,455 $ 10,521
Additional paid-in capital 10,069,786 71,949,865 10,958,066
Distributions in excess of net investment income (14,548) (92,663) (16,389)
Accumulated net realized gain (loss) on investments 3,030 (6,412,674) 208,885
Net unrealized appreciation of investments 249,528 1,139,826 246,955
$10,317,789 $66,652,809 $11,408,038
CLASS A SHARES
Net assets $ 4,409,048 $14,296,967 $ 3,211,330
Shares of beneficial interest outstanding 427,051 1,469,256 295,976
CLASS B SHARES
Net assets $ 5,198,677 $22,234,840 $ 3,683,265
Shares of beneficial interest outstanding 503,513 2,283,350 339,774
CLASS C SHARES
Net assets $ 710,064 $30,121,002 $ 4,513,443
Shares of beneficial interest outstanding 68,776 3,092,885 416,382
CALCULATION OF MAXIMUM OFFERING PRICE
CLASS A SHARES
Net asset value and redemption price per share $10.32 $ 9.73 $10.85
Sales charge--4.25% of public offering price .46 .43 .48
Maximum offering price $10.78 $10.16 $11.33
CLASS B SHARES
Net asset value and offering price per share $10.32 $ 9.74 $10.84
CLASS C SHARES
Net asset value and offering price per share $10.32 $ 9.74 $10.84
</TABLE>
See NOTES TO FINANCIAL STATEMENTS.
18
ALLIANCE MUNICIPAL INCOME FUND II
_______________________________________________________________________________
<TABLE>
<CAPTION>
MICHIGAN MINNESOTA NEW JERSEY OHIO PENNSYLVANIA VIRGINIA
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
$13,277,532 $17,549,988 $75,887,094 $48,017,162 $63,820,368 $6,294,986
1,627,652 -0- -0- -0- 73,177 87,802
25,416 250,362 -0- -0- 115,000 1,000,000
222,861 230,681 1,490,543 653,688 1,474,732 98,053
88,077 93,024 -0- 9,546 -0- 130,244
12,944 10,291 55,962 210,595 332,455 2,227
13,660 23,895 23,895 24,985 32,432 15,168
15,268,142 18,158,241 77,457,494 48,915,976 65,848,164 7,628,480
-0- 71,666 19,218 139,378 -0- -0-
1,585,000 -0- -0- -0- -0- 1,145,000
18,985 24,987 101,587 65,846 78,234 8,785
4,047 8,500 32,683 49,348 157,038 1,094
7,515 12,873 54,037 36,094 38,770 3,705
-0- -0- 8,179 -0- 4,904 -0-
36,337 31,225 43,891 34,748 29,420 28,115
1,651,884 149,251 259,595 325,414 308,366 1,186,699
$13,616,258 $18,008,990 $77,197,899 $48,590,562 $65,539,798 $6,441,781
$ 13,454 $ 18,799 $ 79,416 $ 50,559 $ 66,489 $ 6,091
13,195,320 19,233,242 80,557,528 51,665,618 66,764,639 6,216,982
(18,985) (24,987) (101,587) (65,846) (78,234) (8,785)
129,029 (1,692,547) (5,629,261) (4,074,170) (2,817,885) 164,959
297,440 474,483 2,291,803 1,014,401 1,604,789 62,534
$13,616,258 $18,008,990 $77,197,899 $48,590,562 $65,539,798 $6,441,781
$ 6,122,712 $ 3,165,062 $15,520,265 $ 6,054,197 $21,103,652 $2,455,452
605,047 330,400 1,597,418 630,134 2,142,109 232,136
$ 3,553,160 $ 8,291,382 $39,098,854 $25,333,901 $30,439,872 $3,344,483
351,119 865,489 4,021,823 2,635,922 3,087,401 316,301
$ 3,940,386 $ 6,552,546 $22,578,780 $17,202,464 $13,996,274 $ 641,846
389,225 683,989 2,322,310 1,789,800 1,419,394 60,706
$10.12 $ 9.58 $ 9.72 $ 9.61 $ 9.85 $10.58
.45 .43 .43 .43 .44 .47
$10.57 $10.01 $10.15 $10.04 $10.29 $11.05
$10.12 $ 9.58 $ 9.72 $ 9.61 $ 9.86 $10.57
$10.12 $ 9.58 $ 9.72 $ 9.61 $ 9.86 $10.57
</TABLE>
19
STATEMENTS OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1996 ALLIANCE MUNICIPAL INCOME FUND II
_______________________________________________________________________________
<TABLE>
<CAPTION>
ARIZONA FLORIDA MASSACHUSETTS
---------- ------------ -------------
<S> <C> <C> <C>
INVESTMENT INCOME
Interest $ 485,267 $4,071,070 $ 568,876
EXPENSES
Advisory fee 49,708 407,810 57,179
Distribution fee - Class A 9,777 39,668 6,772
Distribution fee - Class B 41,509 220,314 26,336
Distribution fee - Class C 5,434 299,957 42,578
Custodian 78,110 90,644 76,475
Administrative 55,000 55,000 55,000
Audit & legal 37,673 42,034 32,578
Transfer agency 26,631 42,984 21,952
Amortization of organizational expenses 8,945 14,702 7,152
Printing 4,423 9,377 2,400
Registration 3,351 1,263 3,454
Trustees' fees 2,400 2,400 2,400
Taxes 706 728 454
Miscellaneous 3,496 3,836 1,631
Total expenses 327,163 1,230,717 336,361
Less: expenses waived and assumed by Adviser(see Note B) (232,267) (393,096) (231,724)
Net expenses 94,896 837,621 104,637
Net investment income 390,371 3,233,449 464,239
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on investments 45,864 1,662,326 227,868
Net change in unrealized appreciation of investments 83,969 (590,349) 132,436
Net gain on investments 129,833 1,071,977 360,304
NET INCREASE IN NET ASSETS FROM OPERATIONS $520,204 $4,305,426 $824,543
</TABLE>
See notes to financial statements.
20
ALLIANCE MUNICIPAL INCOME FUND II
_______________________________________________________________________________
MICHIGAN MINNESOTA NEW JERSEY OHIO PENNSYLVANIA VIRGINIA
- ---------- ------------ ------------ ------------ ------------ -----------
$ 739,899 $1,104,954 $4,530,076 $2,927,127 $3,509,673 $ 289,222
74,987 110,574 465,371 293,946 343,048 29,790
16,462 8,515 42,673 15,933 30,938 6,461
30,299 79,160 378,156 237,212 298,967 21,264
34,819 69,382 224,193 179,991 146,783 4,865
80,270 79,655 99,591 89,845 85,365 78,179
55,000 55,000 55,000 55,000 55,000 55,000
36,261 38,274 40,933 35,936 38,359 28,129
28,197 22,024 68,753 47,038 59,702 24,482
5,709 13,860 13,860 14,490 18,801 5,743
3,235 6,670 20,719 8,420 21,162 2,730
6,592 1,072 6,117 2,317 562 2,538
2,400 2,400 2,400 2,400 2,400 2,400
697 732 671 732 304 732
3,901 2,471 5,792 1,471 6,200 2,945
378,829 489,789 1,424,229 984,731 1,107,591 265,258
(218,064) (258,598) (388,236) (339,662) (243,699) (215,034)
160,765 231,191 1,035,993 645,069 863,892 50,224
579,134 873,763 3,494,083 2,282,058 2,645,781 238,998
310,017 566,704 926,101 1,554,258 1,880,108 180,231
(40,072) (399,102) (334,852) (1,132,174) (602,626) (28,212)
269,945 167,602 591,249 422,084 1,277,482 152,019
$ 849,079 $1,041,365 $4,085,332 $2,704,142 $3,923,263 $ 391,017
21
STATEMENTS OF CHANGES IN NET ASSETS ALLIANCE MUNICIPAL INCOME FUND II
_______________________________________________________________________________
<TABLE>
<CAPTION
ARIZONA FLORIDA MASSACHUSETTS
---------------------------- ---------------------------- ----------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995 1996 1995
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS
Net investment income $ 390,371 $ 230,706 $ 3,233,449 $ 3,383,708 $ 464,239 $ 171,242
Net realized gain (loss) on
investments 45,864 37,377 1,662,326 (1,403,139) 227,868 42,515
Net change in unrealized
appreciation (depreciation)
of investments 83,969 209,846 (590,349) 5,767,509 132,436 130,631
Net increase in net assets from
operations 520,204 477,929 4,305,426 7,748,078 824,543 344,388
DIVIDENDSAND DISTRIBUTIONS
TO SHAREHOLDERS FROM:
Net investment income
Class A (172,713) (95,444) (732,184) (574,240) (125,448) (51,642)
Class B (192,483) (113,965) (1,058,719) (1,000,470) (129,553) (44,254)
Class C (25,175) (21,297) (1,442,546) (1,808,998) (209,238) (75,346)
Distributions in excess of net
investment income
Class A (10,334) (2,415) (14,102) (3,384) (3,990) (3,443)
Class B (11,517) (2,883) (20,392) (5,895) (4,120) (2,950)
Class C (1,507) (539) (27,785) (10,659) (6,654) (5,024)
Net realized gain on investments
Class A (18,449) -0- -0- -0- (12,500) -0-
Class B (25,982) -0- -0- -0- (13,699) -0-
Class C (3,713) -0- -0- -0- (30,280) -0-
TRANSACTIONS INSHARESOF BENEFICIAL
INTEREST
Net increase (decrease) 4,233,239 2,692,697 2,240,362 (9,621,625) 5,472,421 3,420,458
Total increase (decrease) 4,291,570 2,934,083 3,250,060 (5,277,193) 5,761,482 3,582,187
NET ASSETS
Beginning of year 6,026,219 3,092,136 63,402,749 68,679,942 5,646,556 2,064,369
End of year $10,317,789 $6,026,219 $66,652,809 $63,402,749 $11,408,038 $5,646,556
</TABLE>
See notes to financial statements.
22
ALLIANCE MUNICIPAL INCOME FUND II
_______________________________________________________________________________
<TABLE>
<CAPTION>
MICHIGAN MINNESOTA NEW JERSEY
---------------------------- ---------------------------- ----------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995 1996 1995
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS
Net investment income $ 579,134 $ 378,382 $ 873,763 $ 850,853 $ 3,494,083 $ 3,306,560
Net realized gain (loss) on
investments 310,017 126,954 566,704 (1,158,947) 926,101 (1,275,992)
Net change in unrealized
appreciation (depreciation) of
investments (40,072) 489,511 (399,102) 1,686,335 (334,852) 5,130,792
Net increase in net assets from
operations 849,079 994,847 1,041,365 1,378,241 4,085,332 7,161,360
DIVIDENDS AND DISTRIBUTIONS
TO SHAREHOLDERS FROM:
Net investment income
Class A (284,490) (171,195) (157,583) (132,290) (747,181) (594,213)
Class B (137,182) (90,481) (381,606) (319,841) (1,724,184) (1,568,929)
Class C (157,462) (116,706) (334,574) (398,722) (1,022,718) (1,143,418)
Distributions in excess of net
investment income
Class A (16,370) (14,065) (6,547) (5,501) (53,494) (14,954)
Class B (7,894) (7,434) (15,854) (13,299) (123,442) (39,484)
Class C (9,061) (9,588) (13,899) (16,579) (73,220) (28,776)
Net realized gain on investments
Class A (83,366) -0- -0- -0- -0- -0-
Class B (44,698) -0- -0- -0- -0- -0-
Class C (49,542) -0- -0- -0- -0- -0-
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST
Net increase (decrease) 3,089,421 2,909,212 860,087 (1,238,319) 9,294,813 (2,398,032)
Total increase (decrease) 3,148,435 3,494,590 991,389 (746,310) 9,635,906 1,373,554
NET ASSETS
Beginning of year 10,467,823 6,973,233 17,017,601 17,763,911 67,561,993 66,188,439
End of year $13,616,258 $10,467,823 $18,008,990 $17,017,601 $77,197,899 $67,561,993
</TABLE>
See notes to financial statements.
23
STATEMENTS OF CHANGES IN NET ASSETS (CONT.) ALLIANCE MUNICIPAL INCOME FUND II
_______________________________________________________________________________
<TABLE>
<CAPTION>
OHIO PENNSYLVANIA VIRGINIA
---------------------------- ---------------------------- ----------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995 1996 1995
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS
Net investment income $ 2,282,058 $ 2,328,229 $ 2,645,781 $ 2,580,960 $ 238,998 $ 112,959
Net realized gain (loss) on
investments 1,554,258 (2,332,469) 1,880,108 (1,548,029) 180,231 17,096
Net change in unrealized
appreciation (depreciation) of
investments (1,132,174) 4,348,549 (602,626) 3,927,440 (28,212) 132,592
Net increase in net assets from
operations 2,704,142 4,344,309 3,923,263 4,960,371 391,017 262,647
DIVIDENDS AND DISTRIBUTIONS
TO SHAREHOLDERS FROM:
Net investment income
Class A (291,324) (184,425) (555,739) (465,490) (115,677) (72,700)
Class B (1,131,284) (1,041,482) (1,401,785) (1,330,120) (100,364) (36,282)
Class C (859,450) (1,102,322) (688,257) (785,350) (22,957) (3,977)
Distributions in excess of net
investment income
Class A (9,978) (3,226) (33,335) (16,051) (902) (2,164)
Class B (38,746) (18,217) (84,082) (45,868) (783) (1,080)
Class C (29,435) (19,282) (41,283) (27,082) (179) (119)
Net realized gain on investments
Class A -0- -0- -0- -0- (15,668) -0-
Class B -0- -0- -0- -0- (10,549) -0-
Class C -0- -0- -0- -0- (1,013) -0-
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST
Net increase (decrease) 3,381,831 (6,481,382) 12,089,059 (941,588) 3,148,417 1,509,328
Total increase (decrease) 3,725,756 (4,506,027) 13,207,841 1,348,822 3,271,342 1,655,653
NET ASSETS
Beginning of year 44,864,806 49,370,833 52,331,957 50,983,135 3,170,439 1,514,786
End of year $48,590,562 $44,864,806 $65,539,798 $52,331,957 $6,441,781 $3,170,439
</TABLE>
See notes to financial statements.
24
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 ALLIANCE MUNICIPAL INCOME FUND II
_______________________________________________________________________________
NOTE A: SIGNIFICANT ACCOUNTING POLICIES
Alliance Municipal Income Fund II (the "Fund") which is a Massachusetts
Business Trust, is registered under the Investment Company Act of 1940, as a
non-diversified open-end management investment company. The Fund operates as a
series company currently comprised of nine portfolios: Arizona Portfolio,
Florida Portfolio, Massachusetts Portfolio, Michigan Portfolio, Minnesota
Portfolio, New Jersey Portfolio, Ohio Portfolio, Pennsylvania Portfolio and
Virginia Portfolio (the "Portfolios"). Each series is considered to be a
separate entity for financial reporting and tax purposes. Each portfolio offers
Class A, Class B and Class C shares. Class A shares are sold with a front-end
sales charge of up to 4.25%. Class B shares are sold with a contingent deferred
sales charge which declines from 3% to zero depending on the period of time the
shares are held. Class B shares will automatically convert to Class A shares
six years after the end of the calendar month of purchase. Class C shares
purchased on or after July 1, 1996 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 by appraisal 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 Trustees. Short-term securities
which mature in 60 days or less are valued at amortized cost, which
approximates market value, unless this method does not represent fair value.
2. ORGANIZATION EXPENSES
Organization expenses of approximately $68,000 for the Minnesota, $68,000 for
the New Jersey, $87,200 for the Pennsylvania, $71,000 for the Ohio, and $72,000
for the Florida Portfolios have been deferred and are being amortized on a
straight-line basis through June, 1998. Organization expenses of approximately
$25,550 for the Michigan, $31,450 for the Massachusetts, $27,200 for the
Virginia and $41,750 for the Arizona Portfolios have been deferred and are
being amortized on a straight-line basis through February, March, April and
June, 1999, respectively.
3. TAXES
It is the intention of each Portfolio to meet the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute all
of its investment company taxable income and net realized gains, if applicable,
to its shareholders. Therefore, no provisions for federal income or excise
taxes are required.
4. INVESTMENT INCOME AND SECURITY TRANSACTIONS
Interest income is accrued daily. Security transactions are accounted for on
the date the securities are purchased or sold. Security gains and losses are
determined on the identified cost basis. The Fund amortizes premium and accrues
original issue discount and market discount as adjustments to interest income.
The 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.
5. DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions to shareholders are recorded on the ex-dividend
date and are determined in accordance with income tax regulations.
25
NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCE MUNICIPAL INCOME FUND II
_______________________________________________________________________________
6. RECLASSIFICATION OF COMPONENTS OF NET ASSETS
The following represent reclassifications of components of net assets at
September 30, 1996. These reclassifications were the result of permanent
book-to-tax differences resulting from distributions in excess of net
tax-exempt income. These reclassifications had no effect on net investment
income, net realized gains or net assets.
DISTRIBUTIONS
IN EXCESS OF
NET INVESTMENT PAID-IN
INCOME CAPITAL
-------------- -----------
Arizona Portfolio $ 13,514 $ (13,514)
Florida Portfolio (9,097) 9,097
Massachusetts Portfolio 8,448 (8,448)
Michigan Portfolio 26,270 (26,270)
Minnesota Portfolio 33,864 (33,864)
New Jersey Portfolio 229,968 (229,968)
Ohio Portfolio 52,009 (52,009)
Pennsylvania Portfolio 141,453 (141,453)
Virginia Portfolio (3,687) 3,687
NOTE B: ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of an investment advisory agreement, the Fund pays Alliance
Capital Management L.P., (the "Adviser") an advisory fee at an annual rate of
.625 of 1% of each Portfolio's average daily net assets. Such fees are accrued
daily and paid monthly. The Adviser has agreed, under the terms of the
investment advisory agreement, to reimburse the Fund to the extent that the
expenses of each of its Portfolios (exclusive of interest, taxes, brokerage,
distribution fees, and extraordinary expenses) exceed the limits prescribed by
any state in which that Portfolio's shares are qualified for sale. No such
reimbursement was required for the year ended September 30, 1996. For the year
ended September 30, 1996 the Adviser voluntarily agreed to waive all or a
portion of its advisory fees. The aggregate amounts of such fee waivers were:
Arizona Portfolio, $49,708; Florida Portfolio, $338,096; Massachusetts
Portfolio, $57,179; Michigan Portfolio, $74,987; Minnesota Portfolio, $110,574;
New Jersey Portfolio, $333,236; Ohio Portfolio, $284,662; Pennsylvania
Portfolio, $188,699; and Virginia Portfolio $29,790.
Pursuant to the advisory agreement, the Adviser provides to each Portfolio
certain legal and accounting services. For the year ended September 30, 1996,
the Adviser voluntarily agreed to waive its fees for such services. In
addition, the Adviser agreed to reimburse each Portfolio for certain operating
expenses. Such expenses amounted to $127,559 for the Arizona Portfolio,
$119,545 for the Massachusetts Portfolio, $88,077 for the Michigan Portfolio,
$93,024 for the Minnesota Portfolio and $130,244 for the Virginia Portfolio.
There was no such reimbursement for the Florida Portfolio, New Jersey
Portfolio, Ohio Portfolio and the Pennsylvania Portfolio.
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 $18,000 for the Arizona Portfolio, $23,097 for the
Florida Portfolio, $18,000 for the Massachusetts Portfolio, $18,000 for the
Michigan Portfolio, $18,000 for the Minnesota Portfolio, $35,824 for the New
Jersey Portfolio, $23,506 for the Ohio Portfolio, $33,765 for the Pennsylvania
Portfolio and $18,000 for the Virginia Portfolio.
Alliance Fund Distributors, Inc. (a wholly-owned subsidiary of the Adviser)
serves as the Distributor of the Fund's shares. The amount of front-end sales
charges received by the Distributor from sales of each respective Portfolio's
Class A shares for the year ended September 30, 1996 were: Arizona Portfolio,
$5,723; Florida Portfolio, $3,343; Massachusetts Portfolio, $1,752; Michigan
Portfolio, $2,655; Minnesota Portfolio, $1,328; New Jersey Portfolio, $5,362;
Ohio Portfolio, $1,889; Pennsylvania Portfolio, $3,474; and Virginia Portfolio,
$1,756. The amount of contingent deferred sales charges imposed upon
redemptions by shareholders of Class B shares for the same period were: Arizona
Portfolio, $1,046; Florida Portfolio, $18,913; Massachusetts Portfolio, $646;
Michigan Portfolio, $1,731; Minnesota Portfolio, $8,339; New Jersey Portfolio,
26
ALLIANCE MUNICIPAL INCOME FUND II
_______________________________________________________________________________
$18,319; Ohio Portfolio, $16,155; Pennsylvania Portfolio, $17,552; and Virginia
Portfolio, $4,678. The amount of contingent deferred sales charges imposed upon
redemptions by shareholders of Class C shares for the period from July 1, 1996
to September 30, 1996 were: Arizona Portfolio $300 and Minnesota Portfolio,
$102. The remaining portfolios had no contingent deferred sales charges.
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, respectively. Such fee is accrued daily and paid monthly.
The Agreement provides that the Distributor will use such payments in their
entirety for distribution assistance and promotional activities. Since the
commencement of operations of each Portfolio the Distributor has incurred
expenses in excess of the distribution costs reimbursed by each Portfolio as
follows:
PORTFOLIO CLASS B CLASS C
- ---------------- ----------- ---------
Arizona $ 574,137 $102,785
Florida 875,269 884,271
Massachusetts 461,771 430,278
Michigan 439,303 513,896
Minnesota 822,187 533,757
New Jersey 1,664,772 550,787
Ohio 1,216,859 641,860
Pennsylvania 1,173,017 559,425
Virginia 575,512 113,956
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 investments
and U.S. Government Securities) for the year ended September 30, 1996, were as
follows:
PORTFOLIO PURCHASES SALES
- ----------------- ------------- -------------
Arizona $ 25,368,340 $ 19,766,228
Florida 162,249,770 156,789,544
Massachusetts 27,696,886 22,429,953
Michigan 31,236,603 28,803,919
Minnesota 35,581,369 34,836,811
New Jersey 106,542,353 97,805,714
Ohio 88,046,558 85,620,708
Pennsylvania 113,821,558 102,923,418
Virginia 17,237,550 14,186,400
NOTE E: TAXES
For Federal income tax purposes at September 30, 1996, the Fund had capital
loss carryforwards for the following Portfolios: $7,679 expiring in 2002,
$5,261,150 expiring in 2003, $349,704 expiring 2004, for New Jersey Portfolio;
$6,340,331 expiring in 2003, for Florida Portfolio; $3,714,202 expiring in
2003, $331,999 expiring in 2004, for Ohio Portfolio; $2,750,115 expiring in
2003, for Pennsylvania Portfolio; and $1,185,373 expiring in 2003, $492,981
expiring in 2004, for Minnesota Portfolio. Any net capital losses incurred
after October 31 ("Post October losses") within the taxable year are deemed to
arise on the first business day of each Portfolio's next taxable year. None of
the portfolios had post October losses.
27
NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCE MUNICIPAL INCOME FUND II
_______________________________________________________________________________
At September 30, 1996, the cost of securities for federal income tax purposes,
gross unrealized appreciation, gross unrealized depreciation and net unrealized
appreciation of investments for each Portfolio were as follows:
GROSS GROSS NET
UNREALIZED UNREALIZED UNREALIZED
PORTFOLIO TAX COST APPRECIATION (DEPRECIATION) APPRECIATION
- --------------- ------------ ------------ -------------- ------------
Arizona $11,364,695 $ 249,528 $ (6,966) $ 242,562
Florida 68,072,493 1,202,395 (131,240) 1,071,155
Massachusetts 10,899,871 253,991 (20,071) 233,920
Michigan 12,982,500 297,997 (2,965) 295,032
Minnesota 17,090,203 483,036 (23,251) 459,785
New Jersey 73,615,836 2,461,095 (189,837) 2,271,258
Ohio 47,015,331 1,038,715 (36,884) 1,001,831
Pennsylvania 62,274,328 1,654,574 (108,534) 1,546,040
Virginia 62,232,452 68,872 (6,338) 62,534
NOTE F: SHARES OF BENEFICIAL INTEREST
There is an unlimited number of $.01 par value shares of beneficial interest
authorized for Class A, Class B and Class C shares.
Transactions in shares of beneficial interest in each Portfolio were as follows:
SHARES AMOUNT
--------------------------- ------------------------------
Year Ended Year Ended Year Ended Year Ended
ARIZONA PORTFOLIO SEP. 30,1996 SEP. 30,1995 SEP. 30,1996 SEP. 30,1996
- ------------------- ------------ ------------ -------------- -------------
CLASS A
Shares sold 245,077 179,031 $2,497,924 $1,777,357
Shares issued in
reinvestment of
dividends and
distributions 7,348 4,255 75,448 42,481
Shares converted
from Class B 8,585 -0- 85,589 -0-
Shares redeemed (65,056) (47,391) (660,264) (477,515)
Net increase 195,954 135,895 $1,998,697 $1,342,323
CLASS B
Shares sold 222,576 161,670 $2,277,718 $1,621,211
Shares issued in
reinvestment of
dividends and
distributions 9,322 5,382 95,597 53,513
Shares converted
to Class A (8,585) -0- (85,589) -0-
Shares redeemed (27,452) (31,136) (280,976) (312,965)
Net increase 195,861 135,916 $2,006,750 $1,361,759
CLASS C
Shares sold 44,293 70,824 $ 451,216 $ 699,946
Shares issued in
reinvestment of
dividends and
distributions 2,349 2,011 24,160 19,819
Shares redeemed (24,564) (75,752) (247,584) (731,150)
Net increase(decrease) 22,078 (2,917) $ 227,792 $ (11,385)
28
ALLIANCE MUNICIPAL INCOME FUND II
_______________________________________________________________________________
SHARES AMOUNT
-------------------------- ------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
FLORIDA PORTFOLIO SEP. 30,1996 SEP. 30,1995 SEP. 30,1996 SEP. 30,1995
- ------------------- ------------ ------------ -------------- -------------
Shares sold 519,985 509,383 $ 5,045,697 $ 4,618,993
Shares issued in
reinvestment of
dividends 29,497 28,075 286,857 254,915
Shares converted
from Class B 22,916 -0- 219,737 -0-
Shares redeemed (351,639) (214,506) (3,406,503) (1,942,117)
Net increase 220,759 322,952 $ 2,145,788 $ 2,931,791
CLASS B
Shares sold 649,530 692,583 $ 6,337,001 $ 6,210,101
Shares issued in
reinvestment of
dividends 44,597 52,413 434,054 473,711
Shares converted
to Class A (22,916) -0- (219,737) -0-
Shares redeemed (544,509) (618,576) (5,277,524) (5,601,581)
Net increase 126,702 126,420 $ 1,273,794 $ 1,082,231
CLASS C
Shares sold 594,748 602,179 $ 5,803,084 $ 5,420,341
Shares issued in
reinvestment of
dividends 85,081 89,459 834,227 826,873
Shares redeemed (800,351) (2,248,394) (7,816,531) (19,882,861)
Net decrease (120,522) (1,556,756) $(1,179,220) $(13,635,647)
SHARES AMOUNT
-------------------------- --------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
MASSACHUSETTS PORTFOLIO SEP. 30,1996 SEP. 30,1995 SEP. 30,1996 SEP. 30,1995
- ----------------------- ------------ ------------ ------------ ------------
Shares sold 172,711 84,385 $ 1,833,733 $ 846,860
Shares issued in
reinvestment of
dividends and
distributions 4,244 1,677 45,329 16,995
Shares redeemed (8,362) (14,517) (89,000) (147,082)
Net increase 168,593 71,545 $ 1,790,062 $ 716,773
CLASS B
Shares sold 191,547 134,315 $ 2,024,593 $1,379,176
Shares issued in
reinvestment of
dividends and
distributions 5,666 1,760 60,463 17,847
Shares redeemed (24,584) (40,636) (264,300) (402,150)
Net increase 172,629 95,439 $ 1,820,756 $ 994,873
CLASS C
Shares sold 371,867 212,201 $ 3,967,597 $2,178,365
Shares issued in
reinvestment of
dividends and
distributions 18,527 7,004 197,520 71,499
Shares redeemed (217,586) (52,122) (2,303,514) (541,052)
Net increase 172,808 167,083 $ 1,861,603 $1,708,812
29
NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCE MUNICIPAL INCOME FUND II
_______________________________________________________________________________
SHARES AMOUNT
-------------------------- ----------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
MICHIGAN PORTFOLIO SEP. 30,1996 SEP. 30,1995 SEP. 30,1996 SEP. 30,1995
- ------------------- ------------ ------------ ------------- -------------
Shares sold 101,489 276,931 $ 1,014,340 $ 2,738,565
Shares issued in
reinvestment of
dividends and
distributions 25,151 11,339 255,525 109,493
Shares converted
from Class B 8,229 -0- 81,522 -0-
Shares redeemed (40,577) (41,977) (412,901) (385,329)
Net increase 94,292 246,293 $ 938,486 $ 2,462,729
CLASS B
Shares sold 159,283 156,377 $ 1,598,649 $ 1,459,362
Shares issued in
reinvestment of
dividends and
distributions 9,868 5,917 100,283 56,625
Shares converted
to Class A (8,229) -0- (81,522) -0-
Shares redeemed (49,958) (106,263) (499,250) (978,875)
Net increase 110,964 56,031 $ 1,118,160 $ 537,112
CLASS C
Shares sold 250,006 248,250 $ 2,504,024 $ 2,360,494
Shares issued in
reinvestment of
dividends and
distributions 16,967 10,635 171,824 101,189
Shares redeemed (163,569) (270,068) (1,643,073) (2,552,312)
Net increase(decrease) 103,404 (11,183) $ 1,032,775 $ (90,629)
SHARES AMOUNT
-------------------------- ----------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
MINNESOTA PORTFOLIO SEP. 30,1996 SEP. 30,1995 SEP. 30,1996 SEP. 30,1995
- ------------------- ------------ ------------ ------------- -------------
Shares sold 92,916 59,025 $ 881,265 $ 535,578
Shares issued in
reinvestment of
dividends 12,846 11,459 122,393 105,730
Shares converted
from Class B 387 -0- 3,685 -0-
Shares redeemed (30,018) (47,539) (284,383) (447,134)
Net increase 76,131 22,945 $ 722,960 $ 194,174
CLASS B
Shares sold 222,829 216,010 $ 2,141,082 $ 1,983,579
Shares issued in
reinvestment of
dividends 28,415 26,096 270,706 240,734
Shares converted
to Class A (387) -0- (3,685) -0-
Shares redeemed (154,177) (142,922) (1,473,158) (1,290,257)
Net increase 96,680 99,184 $ 934,945 $ 934,056
CLASS C
Shares sold 123,688 72,048 $ 1,186,392 $ 667,481
Shares issued in
reinvestment of
dividends 30,164 37,923 287,651 348,475
Shares redeemed (238,952) (373,870) (2,271,861) (3,382,505)
Net decrease (85,100) (263,899) $ (797,818) $(2,366,549)
30
ALLIANCE MUNICIPAL INCOME FUND II
_______________________________________________________________________________
SHARES AMOUNT
-------------------------- ----------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
NEW JERSEY PORTFOLIO SEP. 30,1996 SEP. 30,1995 SEP. 30,1996 SEP. 30,1995
- -------------------- ------------ ------------ ------------- -------------
CLASS A
Shares sold 625,486 426,481 $ 6,081,158 $ 3,927,489
Shares issued in
reinvestment of
dividends 52,967 44,652 512,440 411,328
Shares converted
from Class B 10,942 -0- 110,519 -0-
Shares redeemed (295,089) (288,408) (2,850,599) (2,664,713)
Net increase 394,306 182,725 $ 3,853,518 $ 1,674,104
CLASS B
Shares sold 1,079,052 921,717 $10,515,892 $ 8,533,273
Shares issued in
reinvestment of
dividends 109,643 109,495 1,062,642 1,007,537
Shares converted
to Class A (10,942) -0- (110,519) -0-
Shares redeemed (749,409) (795,035) (7,256,786) (7,215,765)
Net increase 428,344 236,177 $ 4,211,229 $ 2,325,045
CLASS C
Shares sold 633,743 260,713 $ 6,162,975 $.2,395,820
Shares issued in
reinvestment of
dividends 78,732 96,647 763,028 885,664
Shares redeemed (591,207) (1,074,250) (5,695,937) (9,678,665)
Net increase(decrease) 121,268 (716,890) $ 1,230,066 $(6,397,181)
SHARES AMOUNT
-------------------------- ----------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
OHIO PORTFOLIO SEP. 30,1996 SEP. 30,1995 SEP. 30,1996 SEP. 30,1995
- ------------------- ------------ ------------ ------------- -------------
CLASS A
Shares sold 254,120 187,714 $ 2,463,924 $ 1,745,161
Shares issued in
reinvestment of
dividends 20,355 14,798 195,466 136,073
Shares converted
from Class B 6,776 -0- 64,703 -0-
Shares redeemed (88,508) (75,120) (851,889) (655,825)
Net increase 192,743 127,392 $ 1,872,204 $ 1,225,409
CLASS B
Shares sold 708,116 418,493 $ 6,793,206 $ 3,836,071
Shares issued in
reinvestment of
dividends 84,542 88,923 813,053 811,788
Shares converted
to Class A (6,776) -0- (64,703) -0-
Shares redeemed (437,800) (455,507) (4,210,177) (4,110,296)
Net increase 348,082 51,909 $ 3,331,379 $ 537,563
CLASS C
Shares sold 306,053 184,387 $ 2,943,537 $ 1,674,321
Shares issued in
reinvestment of
dividends 58,817 83,246 566,008 763,381
Shares redeemed (553,963) (1,189,899) (5,331,297) (10,682,056)
Net decrease (189,093) (922,266) $(1,821,752) $(8,244,354)
31
NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCE MUNICIPAL INCOME FUND II
_______________________________________________________________________________
SHARES AMOUNT
-------------------------- --------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
PENNSYLVANIA PORTFOLIO SEP. 30,1996 SEP. 30,1995 SEP. 30,1996 SEP. 30,1995
- ---------------------- ------------ ------------ ------------ ------------
CLASS A
Shares sold 1,374,963 300,278 $13,527,078 $ 2,762,892
Shares issued in
reinvestment of
dividends 22,540 29,254 220,725 269,638
Shares converted
from Class B 48,579 -0- 472,346 -0-
Shares redeemed (208,292) (203,919) (2,034,747) (1,876,487)
Net increase 1,237,790 125,613 $12,185,402 $ 1,156,043
CLASS B
Shares sold 533,742 680,168 $ 5,244,693 $ 6,247,762
Shares issued in
reinvestment of
dividends 81,750 91,028 800,878 839,841
Shares converted
to Class A (48,579) -0- (472,346) -0-
Shares redeemed (440,056) (603,060) (4,312,987) (5,537,065)
Net increase 126,857 168,136 $ 1,260,238 $ 1,550,538
CLASS C
Shares sold 325,151 395,768 $ 3,213,975 $ 3,738,239
Shares issued in
reinvestment of
dividends 45,719 56,156 448,507 512,839
Shares redeemed (511,735) (873,994) (5,019,063) (7,899,247)
Net decrease (140,865) (422,070) $(1,356,581) $(3,648,169)
SHARES AMOUNT
-------------------------- ----------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
Virginia Portfolio SEP. 30,1996 SEP. 30,1995 SEP. 30,1996 SEP. 30,1995
- ------------------- ------------ ------------ ------------- -------------
CLASS A
Shares sold 71,182 78,719 $ 740,685 $ 791,882
Shares issued in
reinvestment of
dividends and
distributions 8,689 6,335 90,991 62,455
Shares converted
from Class B 103 -0- 1,094 -0-
Shares redeemed (28,103) (33,609) (294,511) (331,886)
Net increase 51,871 51,445 $ 538,259 $ 522,451
CLASS B
Shares sold 226,100 96,151 $ 2,369,231 $ 942,868
Shares issued in
reinvestment of
dividends and
distributions 7,632 2,972 79,869 29,586
Shares converted
to Class A (103) -0- (1,094) -0-
Shares redeemed (33,245) (6,267) (345,773) (58,483)
Net increase 200,384 92,856 $ 2,102,233 $ 913,971
CLASS C
Shares sold 59,047 10,903 $ 615,683 $ 105,949
Shares issued in
reinvestment of
dividends and
distributions 2,054 306 21,491 3,042
Shares redeemed (12,272) (3,732) (129,249) (36,085)
Net increase 48,829 7,477 $ 507,925 $ 72,906
32
FINANCIAL HIGHLIGHTS ALLIANCE MUNICIPAL INCOME FUND II
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD
<TABLE>
<CAPTION>
ARIZONA PORTFOLIO
-----------------------------------------------------------------
CLASS A CLASS B
-------------------------------- -------------------------------
JUNE 1, JUNE 1,
1994(C) 1994(C)
YEAR ENDED SEP. 30, TO YEAR ENDED SEP. 30, TO
------------------- SEP. 30, ------------------- SEP. 30,
1996 1995 1994 1996 1995 1994
--------- -------- ----------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $10.29 $9.77 $10.00 $10.29 $9.77 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (a) .55(b) .56 .20 .47(b) .49 .18
Net realized and unrealized gain (loss)
on investments .14 .53 (.23) .14 .53 (.24)
Net increase (decrease) in net asset
value from operations .69 1.09 (.03) .61 1.02 (.06)
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.55) (.56) (.20) (.47) (.49) (.17)
Distributions in excess of net
investment income (.03) (.01) -0- (.03) (.01) -0-
Distributions from net realized gains (.08) -0- -0- (.08) -0- -0-
Total dividends and distributions (.66) (.57) (.20) (.58) (.50) (.17)
Net asset value, end of period $10.32 $10.29 $9.77 $10.32 $10.29 $9.77
TOTAL RETURN
Total investment return based on
net asset value (d) 6.84% 11.56% (.35)% 6.10% 10.78% (.58)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period(000's omitted) $4,409 $2,379 $930 $5,199 $3,166 $1,677
Ratio to average net assets of:
Expenses, net of waivers/reimbursements .78% .78% .78%(e) 1.48% 1.48% 1.48%(e)
Expenses, before waivers/reimbursements 3.69% 4.88% 7.71%(e) 4.40% 5.58% 8.41%(e)
Net investment income, net of waivers/
reimbursements 5.33% 5.56% 5.82%(e) 4.62% 4.89% 5.13%(e)
Portfolio turnover rate 244% 85% 81% 244% 85% 81%
</TABLE>
CLASS C
--------------------------------------
JUNE 1,1994(C)
YEAR ENDED SEPTEMBER 30, TO
----------------------- SEPTEMBER 30,
1996 1995 1994
----------- --------- ------------
Net asset value, beginning of period $10.30 $ 9.77 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (a) .47(b) .49 .17
Net realized and unrealized gain (loss)
on investments .13 .54 (.23)
Net increase (decrease) in net asset
value from operations .60 1.03 (.06)
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.47) (.49) (.17)
Distributions in excess of net
investment income (.03) (.01) -0-
Distributions from net realized gains (.08) -0- -0-
Total dividends and distributions (.58) (.50) (.17)
Net asset value, end of period $10.32 $10.30 $ 9.77
TOTAL RETURN
Total investment return based on
net asset value (d) 6.00% 10.89% (.58)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $710 $481 $485
Ratio to average net assets of:
Expenses, net of waivers/reimbursements 1.48% 1.48% 1.48%(e)
Expenses, before waivers/reimbursements 4.41% 5.58% 8.41%(e)
Net investment income, net of waivers/
reimbursements 4.61% 4.90% 4.70%(e)
Portfolio turnover rate 244% 85% 81%
See footnote summary on page 47.
33
FINANCIAL HIGHLIGHTS (CONTINUED) ALLIANCE MUNICIPAL INCOME FUND II
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD
<TABLE>
<CAPTION>
FLORIDA PORTFOLIO
---------------------------------------------
CLASS A
----------------------------------------------------
JUNE 25,1993(C)
YEAR ENDED SEPTEMBER 30, TO
------------------------------------- SEPTEMBER 30,
1996 1995 1994 1993
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $9.58 $8.89 $10.25 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (a) .54(b) .55 .55 .16
Net realized and unrealized gain (loss)
on investments .16 .69 (1.35) .25
Net increase (decrease) in net asset
value from operations .70 1.24 (.80) .41
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.54) (.55) (.55) (.16)
Distributions in excess of net
investment income (.01) -0- -0- -0-
Distributions from net realized gains -0- -0- (.01) -0-
Total dividends and distributions (.55) (.55) (.56) (.16)
Net asset value, end of period $9.73 $9.58 $ 8.89 $10.25
TOTAL RETURN
Total investment return based on
net asset value (d) 7.45% 14.44% (8.03)% 4.10%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $14,297 $11,956 $8,227 $4,145
Ratio to average net assets of:
Expenses, net of waivers/reimbursements .73% .73% .38% -0-%(e)
Expenses, before waivers/reimbursements 1.33% 1.33% 1.27% 1.30%(e)
Net investment income, net of waivers/
reimbursements 5.52% 5.91% 5.70% 5.44%(e)
Portfolio turnover rate 237% 146% 185% 82%
</TABLE>
<TABLE>
<CAPTION>
CLASS B
----------------------------------------------------
JUNE 25,1993(C)
YEAR ENDED SEPTEMBER 30, TO
------------------------------------- SEPTEMBER 30,
1996 1995 1994 1993
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $9.58 $8.89 $10.25 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (a) .47(b) .47 .48 .14
Net realized and unrealized gain (loss)
on investments .17 .70 (1.35) .25
Net increase (decrease) in net asset
value from operations .64 1.17 (.87) .39
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.47) (.47) (.48) (.14)
Distributions in excess of net
investment income (.01) (.01) -0- -0-
Distributions from net realized gains -0- -0- (.01) -0-
Total dividends and distributions (.48) (.48) (.49) (.14)
Net asset value, end of period $9.74 $9.58 $ 8.89 $10.25
TOTAL RETURN
Total investment return based on
net asset value (d) 6.78% 13.56% (8.72)% 3.91%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $22,235 $20,660 $18,048 $9,588
Ratio to average net assets of:
Expenses, net of waivers/reimbursements 1.43% 1.42% 1.08% .61%(e)
Expenses, before waivers/reimbursements 2.03% 2.03% 1.98% 2.00%(e)
Net investment income, net of waivers/
reimbursements 4.81% 5.22% 4.99% 4.74%(e)
Portfolio turnover rate 237% 146% 185% 82%
</TABLE>
See footnote summary on page 47.
34
ALLIANCE MUNICIPAL INCOME FUND II
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD
<TABLE>
<CAPTION>
FLORIDA PORTFOLIO
---------------------------------------------
CLASS C
----------------------------------------------------
JUNE 25,1993(C)
YEAR ENDED SEPTEMBER 30, TO
------------------------------------- SEPTEMBER 30,
1996 1995 1994 1993
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $9.58 $8.89 $10.25 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (a) .47(b) .47 .48 .14
Net realized and unrealized gain (loss)
on investments .17 .70 (1.35) .25
Net increase (decrease) in net asset
value from operations .64 1.17 (.87) .39
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.47) (.47) (.48) (.14)
Distributions in excess of net
investment income (.01) (.01) -0- -0-
Distributions from net realized gains -0- -0- (.01) -0-
Total dividends and distributions (.48) (.48) (.49) (.14)
Net asset value, end of period $9.74 $9.58 $ 8.89 $10.25
TOTAL RETURN
Total investment return based on
net asset value (d) 6.78% 13.56% (8.72)% 3.91%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $30,121 $30,787 $42,405 $28,249
Ratio to average net assets of:
Expenses, net of waivers/reimbursements 1.43% 1.42% 1.08% .61%(e)
Expenses, before waivers/reimbursements 2.02% 2.03% 1.97% 2.00%(e)
Net investment income, net of waivers/
reimbursements 4.81% 5.27% 4.97% 4.74%(e)
Portfolio turnover rate 237% 146% 185% 82%
</TABLE>
See footnote summary on page 47.
35
FINANCIAL HIGHLIGHTS (CONTINUED) ALLIANCE MUNICIPAL INCOME FUND II
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD
<TABLE>
<CAPTION>
MASSACHUSETTS PORTFOLIO
--------------------------------------------------------------------
CLASS A CLASS B
--------------------------------- ---------------------------------
MARCH 29, MARCH 29,
1994(C) 1994(C)
YEAR ENDED SEP. 30, TO YEAR ENDED SEP. 30, TO
-------------------- SEP. 30, -------------------- SEP. 30,
1996 1995 1994 1996 1995 1994
---------- -------- ----------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $10.50 $10.12 $10.00 $10.49 $10.12 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (a) .60(b) .58 .31 .52(b) .52 .27
Net realized and unrealized gain on
investments .44 .41 .11 .45 .39 .11
Net increase in net asset value from
operations 1.04 .99 .42 .97 .91 .38
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.59) (.58) (.30) (.52) (.52) (.26)
Distributions in excess of net investment
income (.02) (.03) -0- (.02) (.02) -0-
Distributions from net realized gains (.08) -0- -0- (.08) -0- -0-
Total dividends and distributions (.69) (.61) (.30) (.62) (.54) (.26)
Net asset value, end of period $10.85 $10.50 $10.12 $10.84 $10.49 $10.12
TOTAL RETURN
Total investment return based on net
asset value (d) 10.25% 10.19% 4.14% 9.52% 9.32% 3.78%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $3,211 $1,337 $565 $3,683 $1,754 $725
Ratio to average net assets of:
Expenses, net of waivers/reimbursements .62% .60% .60%(e) 1.32% 1.30% 1.30%(e)
Expenses, before waivers/reimbursements 3.15% 6.44% 13.20%(e) 3.85% 7.14% 13.90%(e)
Net investment income, net of waivers/
reimbursements 5.62% 5.67% 5.98%(e) 4.93% 4.90% 5.13%(e)
Portfolio turnover rate 246% 155% 146% 246% 155% 146%
</TABLE>
CLASS C
------------------------------------
MARCH 29,
YEAR ENDED SEP. 30, 1994(C) TO
--------------------- SEPTEMBER 30,
1996 1995 1994
----------- -------- -------------
Net asset value, beginning of period $10.49 $10.12 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (a) .52(b) .52 .25
Net realized and unrealized gainon
investments .45 .39 .13
Net increase in net asset value from
operations .97 .91 .38
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.52) (.52) (.26)
Distributions in excess of net
investment income (.02) (.02) -0-
Distributions from net realized gains (.08) -0- -0-
Total dividends and distributions (.62) (.54) (.26)
Net asset value, end of period $10.84 $10.49 $10.12
TOTAL RETURN
Total investment return based on net
asset value (d) 9.52% 9.32% 3.78%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $4,514 $2,556 $774
Ratio to average net assets of:
Expenses, net of waivers/reimbursements 1.31% 1.30% 1.30%(e)
Expenses, before waivers/reimbursements 3.84% 7.14% 13.90%(e)
Net investment income, net of waivers/
reimbursements 4.88% 4.85% 4.00%(e)
Portfolio turnover rate 246% 155% 146%
See footnote summary on page 47.
36
ALLIANCE MUNICIPAL INCOME FUND II
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD
<TABLE>
<CAPTION>
MICHIGAN PORTFOLIO
--------------------------------------------------------------------
CLASS A CLASS B
--------------------------------- ---------------------------------
FEB. 25, FEB. 25,
YEAR ENDED SEP. 30, 1994(C) TO YEAR ENDED SEP. 30, 1994(C) TO
-------------------- SEP. 30, -------------------- SEP. 30,
1996 1995 1994 1996 1995 1994
---------- -------- ----------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $10.10 $ 9.35 $10.00 $10.10 $ 9.35 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (a) .52(b) .52 .33 .45(b) .45 .29
Net realized and unrealized gain (loss)
on investments .22 .78 (.65) .22 .78 (.65)
Net increase (decrease) in net asset
value from
operations .74 1.30 (.32) .67 1.23 (.36)
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.52) (.52) (.33) (.45) (.45) (.29)
Distributions in excess of net
investment income (.03) (.03) -0- (.03) (.03) -0-
Distributions from net realized gains (.17) -0- -0- (.17) -0- -0-
Total dividends and distributions (.72) (.55) (.33) (.65) (.48) (.29)
Net asset value, end of period $10.12 $10.10 $ 9.35 $10.12 $10.10 $ 9.35
TOTAL RETURN
Total investment return based on net
asset value (d) 7.54% 14.40% (3.24)% 6.80% 13.58% (3.65)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $6,123 $5,158 $2,473 $3,553 $2,424 $1,722
Ratio to average net assets of:
Expenses, net of waivers/reimbursements .96% 1.36% .93%(e) 1.66% 2.06% 1.63%(e)
Expenses, before waivers/reimbursements 2.77% 3.43% 3.97%(e) 3.48% 4.12% 4.67%(e)
Net investment income, net of waivers/
reimbursements 5.21% 5.27% 5.83%(e) 4.51% 4.57% 4.93%(e)
Portfolio turnover rate 242% 151% 222% 242% 151% 222%
</TABLE>
CLASS C
-----------------------------------
FEBRUARY 25,
YEAR ENDED SEP. 30, 1994(C) TO
-------------------- SEPTEMBER 30,
1996 1995 1994
---------- -------- -------------
Net asset value, beginning of period $10.10 $ 9.35 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (a) .45(b) .45 .29
Net realized and unrealized gain (loss)
on investments .22 .78 (.65)
Net increase (decrease) in net asset
value from operations .67 1.23 (.36)
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.45) (.45) (.29)
Distributions in excess of net
investment income (.03) (.03) -0-
Distributions from net realized gains (.17) -0- -0-
Total dividends and distributions (.65) (.48) (.29)
Net asset value, end of period $10.12 $10.10 $ 9.35
TOTAL RETURN
Total investment return based on
net asset value (d) 6.80% 13.58% (3.65)%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (000'S OMITTED) $3,940 $2,886 $2,778
Ratio to average net assets of:
Expenses, net of waivers/reimbursements 1.66% 2.06% 1.63%(e)
Expenses, before waivers/reimbursements 3.48% 4.13% 4.67%(e)
Net investment income, net of waivers/
reimbursements 4.50% 4.69% 4.92%(e)
Portfolio turnover rate 242% 151% 222%
See footnote summary on page 47.
37
FINANCIAL HIGHLIGHTS (CONTINUED) ALLIANCE MUNICIPAL INCOME FUND II
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD
<TABLE>
<CAPTION>
MINNESOTA PORTFOLIO
-----------------------------------------------
CLASS A
------------------------------------------------------
JUNE 25,
YEAR ENDED SEPTEMBER 30, 1993(C) TO
--------------------------------------- SEPTEMBER 30,
1996 1995 1994 1993
------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $9.49 $9.19 $10.28 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (a) .53(b) .53 .55 .15
Net realized and unrealized gain (loss)
on investments .11 .32 (1.09) .28
Net increase (decrease) in net asset
value from operations .64 .85 (.54) .43
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.53) (.53) (.55) (.15)
Distributions in excess of net
investment income (.02) (.02) -0- -0-
Total dividends and distributions (.55) (.55) (.55) (.15)
Net asset value, end of period $9.58 $9.49 $ 9.19 $10.28
TOTAL RETURN
Total investment return based on net
asset value (d) 6.95% 9.63% (5.35)% 4.34%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $3,165 $2,414 $2,125 $994
Ratio to average net assets of:
Expenses, net of waivers/reimbursements .72% .71% .09% -0-%(e)
Expenses, before waivers/reimbursements 2.19% 2.30% 2.12% 1.89%(e)
Net investment income, net of waivers/
reimbursements 5.54% 5.71% 5.71% 5.20%(e)
Portfolio turnover rate 195% 117% 143% 61%
</TABLE>
<TABLE>
<CAPTION>
CLASS B
-----------------------------------------------------
JUNE 25,
YEAR ENDED SEPTEMBER 30, 1993(C) TO
--------------------------------------- SEPTEMBER 30,
1996 1995 1994 1993
------------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $9.49 $9.18 $10.28 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (a) .46(b) .46 .48 .13
Net realized and unrealized gain (loss)
on investments .11 .33 (1.10) .28
Net increase (decrease) in net asset
value from operations .57 .79 (.62) .41
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.46) (.46) (.48) (.13)
Distributions in excess of net
investment income (.02) (.02) -0- -0-
Total dividends and distributions (.48) (.48) (.48) (.13)
Net asset value, end of period $9.58 $9.49 $ 9.18 $10.28
TOTAL RETURN
Total investment return based on net
asset value (d) 6.15% 8.90% (6.15)% 4.16%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $8,291 $7,299 $6,150 $2,665
Ratio to average net assets of:
Expenses, net of waivers/reimbursements 1.42% 1.42% .80% .43%(e)
Expenses, before waivers/reimbursements 2.89% 3.02% 2.83% 2.59%(e)
Net investment income, net of waivers/
reimbursements 4.82% 4.97% 5.00% 4.50%(e)
Portfolio turnover rate 195% 117% 143% 61%
</TABLE>
See footnote summary on page 47.
38
ALLIANCE MUNICIPAL INCOME FUND II
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD
<TABLE>
<CAPTION>
MINNESOTA PORTFOLIO
----------------------------------------------
CLASS C
-----------------------------------------------------
JUNE 25,
YEAR ENDED SEPTEMBER 30, 1993(C) TO
--------------------------------------- SEPTEMBER 30,
1996 1995 1994 1993
------------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $9.50 $9.19 $10.27 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (a) .46(b) .46 .48 .13
Net realized and unrealized gain (loss)
on investments .10 .33 (1.08) .27
Net increase (decrease) in net asset
value from operations .56 .79 (.60) .40
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.46) (.46) (.48) (.13)
Distributions in excess of net
investment income (.02) (.02) -0- -0-
Total dividends and distributions (.48) (.48) (.48) (.13)
Net asset value, end of period $9.58 $9.50 $ 9.19 $10.27
TOTAL RETURN
Total investment return based on net
asset value (d) 6.03% 8.89% (5.95)% 4.06%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $6,553 $7,305 $9,489 $6,697
Ratio to average net assets of:
Expenses, net of waivers/reimbursements 1.41% 1.41% .79% .43%(e)
Expenses, before waivers/reimbursements 2.88% 3.00% 2.82% 2.59%(e)
Net investment income, net of waivers/
reimbursements 4.82% 5.05% 4.90% 4.50%(e)
Portfolio turnover rate 195% 117% 143% 61%
</TABLE>
See footnote summary on page 47.
39
FINANCIAL HIGHLIGHTS (CONTINUED) ALLIANCE MUNICIPAL INCOME FUND II
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD
<TABLE>
<CAPTION>
NEW JERSEY PORTFOLIO
------------------------------------------------------
CLASS A
------------------------------------------------------
JUNE 25,
YEAR ENDED SEPTEMBER 30, 1993(C) TO
--------------------------------------- SEPTEMBER 30,
1996 1995 1994 1993
------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $9.65 $9.07 $10.29 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (a) .51(b) .54 .55 .15
Net realized and unrealized gain (loss)
on investments .11 .59 (1.22) .29
Net increase (decrease) in net asset
value from operations .62 1.13 (.67) .44
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.51) (.54) (.55) (.15)
Distributions in excess of net
investment income (.04) (.01) -0- -0-
Total dividends and distributions (.55) (.55) (.55) (.15)
Net asset value, end of period $9.72 $9.65 $ 9.07 $10.29
TOTAL RETURN
Total investment return based on net
asset value (d) 6.57% 12.91% (6.67)% 4.44%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $15,520 $11,612 $9,257 $6,679
Ratio to average net assets of:
Expenses, net of waivers/reimbursements .82% .82% .20% -0-%(e)
Expenses, before waivers/reimbursements 1.35% 1.35% 1.33% 1.29%(e)
Net investment income, net of waivers/
reimbursements 5.26% 5.73% 5.65% 5.37%(e)
Portfolio turnover rate 132% 86% 171% 47%
</TABLE>
<TABLE>
<CAPTION>
CLASS B
------------------------------------------------------
JUNE 25,
YEAR ENDED SEPTEMBER 30, 1993(C) TO
--------------------------------------- SEPTEMBER 30,
1996 1995 1994 1993
------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $9.66 $9.07 $10.28 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (a) .44(b) .47 .48 .13
Net realized and unrealized gain (loss)
on investments .10 .60 (1.21) .28
Net increase (decrease) in net asset
value from operations .54 1.07 (.73) .41
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.45) (.47) (.48) (.13)
Distributions in excess of net
investment income (.03) (.01) -0- -0-
Total dividends and distributions (.48) (.48) (.48) (.13)
Net asset value, end of period $9.72 $9.66 $ 9.07 $10.28
TOTAL RETURN
Total investment return based on net
asset value (d) 5.66% 12.15% (7.28)% 4.16%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $39,099 $34,695 $30,459 $15,637
Ratio to average net assets of:
Expenses, net of waivers/reimbursements 1.53% 1.53% .91% .63%(e)
Expenses, before waivers/reimbursements 2.05% 2.06% 2.03% 1.99%(e)
Net investment income, net of waivers/
reimbursements 4.56% 5.03% 4.96% 4.67%(e)
Portfolio turnover rate 132% 86% 171% 47%
</TABLE>
See footnote summary on page 47.
40
ALLIANCE MUNICIPAL INCOME FUND II
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD
<TABLE>
<CAPTION>
NEW JERSEY PORTFOLIO
------------------------------------------------------
CLASS C
------------------------------------------------------
JUNE 25,
YEAR ENDED SEPTEMBER 30, 1993(C) TO
--------------------------------------- SEPTEMBER 30,
1996 1995 1994 1993
------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $9.66 $9.07 $10.28 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (a) .44(b) .47 .48 .13
Net realized and unrealized gain (loss)
on investments .10 .60 (1.21) .28
Net increase (decrease) in net asset
value from operations .54 1.07 (.73) .41
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.45) (.47) (.48) (.13)
Distributions in excess of net
investment income (.03) (.01) -0- -0-
Total dividends and distributions (.48) (.48) (.48) (.13)
Net asset value, end of period $9.72 $9.66 $ 9.07 $10.28
TOTAL RETURN
Total investment return based on net
asset value (d) 5.66% 12.14% (7.28)% 4.16%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $22,579 $21,255 $26,472 $21,193
Ratio to average net assets of:
Expenses, net of waivers/reimbursements 1.52% 1.52% .90% .63%(e)
Expenses, before waivers/reimbursements 2.04% 2.06% 2.02% 1.99%(e)
Net investment income, net of waivers/
reimbursements 4.56% 5.09% 4.93% 4.67%(e)
Portfolio turnover rate 132% 86% 171% 47%
</TABLE>
See footnote summary on page 47.
41
FINANCIAL HIGHLIGHTS (CONTINUED) ALLIANCE MUNICIPAL INCOME FUND II
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD
<TABLE>
<CAPTION>
OHIO PORTFOLIO
------------------------------------------------------
CLASS A
------------------------------------------------------
JUNE 25,
YEAR ENDED SEPTEMBER 30, 1993(C) TO
--------------------------------------- SEPTEMBER 30,
1996 1995 1994 1993
------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $9.53 $9.06 $10.26 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (a) .52(b) .54 .55 .15
Net realized and unrealized gain (loss)
on investments .11 .48 (1.19) .26
Net increase (decrease) in net asset
value from operations .63 1.02 (.64) .41
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.53) (.54) (.55) (.15)
Distributions in excess of net
investment income (.02) (.01) -0- -0-
Distributions from net realized gains -0- -0- (.01) -0-
Total dividends and distributions (.55) (.55) (.56) (.15)
Net asset value, end of period $9.61 $9.53 $ 9.06 $10.26
TOTAL RETURN
Total investment return based on net
asset value (d) 6.72% 11.63% (6.44)% 4.15%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $6,054 $4,170 $2,810 $1,050
Ratio to average net assets of:
Expenses, net of waivers/reimbursements .75% .75% .04% -0-%(e)
Expenses, before waivers/reimbursements 1.48% 1.51% 1.42% 1.32%(e)
Net investment income, net of waivers/
reimbursements 5.47% 5.74% 5.67% 5.30%(e)
Portfolio turnover rate 182% 108% 161% 55%
</TABLE>
<TABLE>
<CAPTION>
CLASS B
------------------------------------------------------
JUNE 25,
YEAR ENDED SEPTEMBER 30, 1993(C) TO
--------------------------------------- SEPTEMBER 30,
1996 1995 1994 1993
------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $9.54 $9.06 $10.26 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (a) .46(b) .47 .48 .13
Net realized and unrealized gain (loss)
on investments .09 .49 (1.19) .26
Net increase (decrease) in net asset
value from operations .55 .96 (.71) .39
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.46) (.47) (.48) (.13)
Distributions in excess of net
investment income (.02) (.01) -0- -0-
Distributions from net realized gains -0- -0- (.01) -0-
Total dividends and distributions (.48) (.48) (.49) (.13)
Net asset value, end of period $9.61 $9.54 $ 9.06 $10.26
TOTAL RETURN
Total investment return based on net
asset value (d) 5.82% 10.88% (7.13)% 3.97%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $25,334 $21,821 $20,267 $8,952
Ratio to average net assets of:
Expenses, net of waivers/reimbursements 1.46% 1.46% .74% .17%(e)
Expenses, before waivers/reimbursements 2.18% 2.21% 2.13% 2.02%(e)
Net investment income, net of waivers/
reimbursements 4.77% 5.08% 4.95% 4.60%(e)
Portfolio turnover rate 182% 108% 161% 55%
</TABLE>
See footnote summary on page 47.
42
ALLIANCE MUNICIPAL INCOME FUND II
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD
<TABLE>
<CAPTION>
OHIO PORTFOLIO
------------------------------------------------------
CLASS C
------------------------------------------------------
JUNE 25,
YEAR ENDED SEPTEMBER 30, 1993(C) TO
--------------------------------------- SEPTEMBER 30,
1996 1995 1994 1993
------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $9.54 $9.06 $10.26 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (a) .46(b) .47 .48 .13
Net realized and unrealized gain (loss)
on investments .09 .49 (1.19) .26
Net increase (decrease) in net asset
value from operations .55 .96 (.71) .39
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.46) (.47) (.48) (.13)
Distributions in excess of net
investment income (.02) (.01) -0- -0-
Distributions from net realized gains -0- -0- (.01) -0-
Total dividends and distributions (.48) (.48) (.49) (.13)
Net asset value, end of period $9.61 $9.54 $ 9.06 $10.26
TOTAL RETURN
Total investment return based on net
asset value (d) 5.82% 10.88% (7.13)% 3.97%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $17,203 $18,874 $26,294 $19,894
Ratio to average net assets of:
Expenses, net of waivers/reimbursements 1.45% 1.45% .74% .17%(e)
Expenses, before waivers/reimbursements 2.16% 2.20% 2.12% 2.02%(e)
Net investment income, net of waivers/
reimbursements 4.78% 5.14% 4.89% 4.60%(e)
Portfolio turnover rate 182% 108% 161% 55%
</TABLE>
See footnote summary on page 47.
43
FINANCIAL HIGHLIGHTS (CONTINUED) ALLIANCE MUNICIPAL INCOME FUND II
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD
<TABLE>
<CAPTION>
PENNSYLVANIA PORTFOLIO
------------------------------------------------------
CLASS A
------------------------------------------------------
JUNE 25,
YEAR ENDED SEPTEMBER 30, 1993(C) TO
--------------------------------------- SEPTEMBER 30,
1996 1995 1994 1993
------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $9.64 $9.18 $10.25 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (a) .49(b) .54 .56 .16
Net realized and unrealized gain (loss)
on investments .28 .48 (1.06) .25
Net increase (decrease) in net asset
value from operations .77 1.02 (.50) .41
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.53) (.54) (.56) (.16)
Distributions in excess of net
investment income (.03)- (.02) -0- -0-
Distributions from net realized gains -0- -0- (.01) -0-
Total dividends and distributions (.56) (.56) (.57) (.16)
Net asset value, end of period $9.85 $9.64 $ 9.18 $10.25
TOTAL RETURN
Total investment return based on net
asset value (d) 8.17% 11.53% (5.02)% 4.12%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $21,104 $8,721 $7,149 $4,170
Ratio to average net assets of:
Expenses, net of waivers/reimbursements 1.00% 1.00% .45% -0-%(e)
Expenses, before waivers/reimbursements 1.45% 1.47% 1.46% 1.31%(e)
Net investment income, net of waivers/
reimbursements 5.40% 5.78% 5.73% 5.67%(e)
Portfolio turnover rate 185% 114% 156% 75%
</TABLE>
<TABLE>
<CAPTION>
CLASS B
------------------------------------------------------
JUNE 25,
YEAR ENDED SEPTEMBER 30, 1993(C) TO
--------------------------------------- SEPTEMBER 30,
1996 1995 1994 1993
------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $9.65 $9.18 $10.25 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (a) .46(b) .47 .49 .14
Net realized and unrealized gain (loss)
on investments .24 .49 (1.06) .25
Net increase (decrease) in net asset
value from operations .70 .96 (.57) .39
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.46) (.47) (.49) (.14)
Distributions in excess of net
investment income (.03) (.02) -0- -0-
Distributions from net realized gains -0- -0- (.01) -0-
Total dividends and distributions (.49) (.49) (.50) (.14)
Net asset value, end of period $9.86 $9.65 $ 9.18 $10.25
TOTAL RETURN
Total investment return based on net
asset value (d) 7.38% 10.78% (5.72)% 3.94%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $30,440 $28,559 $25,637 12,173
Ratio to average net assets of:
Expenses, net of waivers/reimbursements 1.71% 1.71% 1.16% .40%(e)
Expenses, before waivers/reimbursements 2.15% 2.17% 2.16% 2.01%(e)
Net investment income, net of waivers/
reimbursements 4.69% 5.09% 5.01% 4.97%(e)
Portfolio turnover rate 185% 114% 156% 75%
</TABLE>
See footnote summary on page 47.
44
ALLIANCE MUNICIPAL INCOME FUND II
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD
<TABLE>
<CAPTION>
PENNSYLVANIA PORTFOLIO
------------------------------------------------------
CLASS C
------------------------------------------------------
JUNE 25,
YEAR ENDED SEPTEMBER 30, 1993(C) TO
--------------------------------------- SEPTEMBER 30,
1996 1995 1994 1993
------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $9.65 $9.18 $10.24 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (a) .46(b) .47 .49 .14
Net realized and unrealized gain (loss)
on investments .24 .49 (1.05) .24
Net increase (decrease) in net asset
value from operations .70 .96 (.56) .38
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.46) (.47) (.49) (.14)
Distributions in excess of net
investment income (.03) (.02) -0- -0-
Distributions from net realized gains -0- -0- (.01) -0-
Total dividends and distributions (.49) (.49) (.50) (.14)
Net asset value, end of period $9.86 $9.65 $ 9.18 $10.24
TOTAL RETURN
Total investment return based on net
asset value (d) 7.37% 10.78% (5.63)% 3.84%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $13,996 $15,052 $18,198 $13,541
Ratio to average net assets of:
Expenses, net of waivers/reimbursements 1.70% 1.70% 1.15% .40%(e)
Expenses, before waivers/reimbursements 2.14% 2.17% 2.15% 2.01%(e)
Net investment income, net of waivers/
reimbursements 4.69% 5.09% 4.99% 4.97%(e)
Portfolio turnover rate 185% 114% 156% 75%
</TABLE>
See footnote summary on page 47.
45
FINANCIAL HIGHLIGHTS (CONTINUED) ALLIANCE MUNICIPAL INCOME FUND II
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD
<TABLE>
<CAPTION>
VIRGINIA PORTFOLIO
--------------------------------------------------------------------
CLASS A CLASS B
--------------------------------- ---------------------------------
APRIL 29, APRIL 29,
YEAR ENDED SEP. 30, 1994(C) TO YEAR ENDED SEP. 30, 1994(C) TO
-------------------- SEP. 30, -------------------- SEP. 30,
1996 1995 1994 1996 1995 1994
---------- -------- ----------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $10.29 $ 9.69 $10.00 $10.29 $ 9.69 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (a) .57(b) .56 .24 .50(b) .49 .22
Net realized and unrealized gain (loss)
on investments .37 .61 (.31) .36 .61 (.32)
Net increase (decrease) in net asset
value from operations .94 1.17 (.07) .86 1.10 (.10)
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.57) (.56) (.24) (.50) (.49) (.21)
Distributions in excess of net
investment income -0- (.01) -0- -0- (.01) -0-
Distributions from net realized gains (.08) -0- -0- (.08) -0- -0-
Total dividends and distributions (.65) (.57) (.24) (.58) (.50) (.21)
Net asset value, end of period $10.58 $10.29 $ 9.69 $10.57 $10.29 $ 9.69
TOTAL RETURN
Total investment return based on net
asset value (d) 9.39% 12.46% (.71)% 8.57% 11.67% (1.01)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $2,455 $1,855 $1,249 $3,345 $1,193 $224
Ratio to average net assets of:
Expenses, net of waivers/reimbursements .67% .67% .57%(e) 1.37% 1.37% 1.27%(e)
Expenses, before waivers/reimbursements 5.18% 8.96% 12.29%(e) 5.88% 9.66% 12.99%(e)
Net investment income, net of waivers/
reimbursements 5.39% 5.59% 5.62%(e) 4.70% 4.80% 4.97%(e)
Portfolio turnover rate 298% 128% 65% 298% 128% 65%
</TABLE>
CLASS C
------------------------------------
APRIL 29,
YEAR ENDED SEP. 30, 1994(C) TO
--------------------- SEPTEMBER 30,
1996 1995 1994
----------- -------- -------------
Net asset value, beginning of period $10.29 $ 9.70 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (a) .50(b) .49 .21
Net realized and unrealized gain (loss)
on investments .36 .60 (.30)
Net increase (decrease) in net asset
value from operations .86 1.09 (.09)
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.50) (.49) (.21)
Distributions in excess of net
investment income -0- (.01) -0-
Distributions from net realized gains (.08) -0- -0-
Total dividends and distributions (.58) (.50) (.21)
Net asset value, end of period $10.57 $10.29 $ 9.70
TOTAL RETURN
Total investment return based on net
asset value (d) 8.58% 11.56% (.91)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $642 $122 $43
Ratio to average net assets of:
Expenses, net of waivers/reimbursements 1.37% 1.37% 1.27%(e)
Expenses, before waivers/reimbursements 5.88% 9.66% 12.99%(e)
Net investment income, net of waivers/
reimbursements 4.73% 4.81% 4.67%(e)
Portfolio turnover rate 298% 128% 65%
See footnote summary on page 47.
46
ALLIANCE MUNICIPAL INCOME FUND II
_______________________________________________________________________________
FOOTNOTE SUMMARY
(a) Net of fee waived and expenses reimbursed by the Adviser.
(b) Based on average shares.
(c) Commencement of operations.
(d) 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.
(e) Annualized.
47
REPORT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS ALLIANCE MUNICIPAL INCOME FUND II
_______________________________________________________________________________
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES ALLIANCE MUNICIPAL INCOME FUND II
We have audited the accompanying statements of assets and liabilities,
including the portfolios of investments, of Alliance Municipal Income Fund II
(comprising, respectively, the Arizona, Florida, Massachusetts, Michigan,
Minnesota, New Jersey, Ohio, Pennsylvania and Virginia Portfolios), as of
September 30, 1996, 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
September 30, 1996, 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 II
at September 30, 1996, 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
November 1, 1996
48
144
<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-l/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 judgement, changing circumstances
warrant such action.
Fitch Certificate of Deposit ratings are assigned at the
request of the issuer to deposits with maturities of up to three
years. Ratings apply to uninsured principal and interest and
reflect only those credit characteristics inherent in
certificates of deposit. Such ratings should be considered only
in the context of ratings assigned to certificates of deposit and
not to ratings which may be assigned to non-deposit liabilities.
Ratings for CDs with maturities over 3 years will be assigned
bond rating symbols. For definitions refer to page 1 of the
Rating Register.
Fitch commercial paper ratings are grouped into four
categories, two of which are defined below:
Fitch-1 (Highest Grade) Commercial paper assigned this
rating is regarded as having the strongest
degree of assurance for timely payment.
Fitch-2 (Very Good Grade) issues assigned this rating
reflect an assurance of timely payment only
slightly less in degree than the strongest
issues.
Fitch Investment Note Ratings
Fitch investment Note Ratings are grouped into four
categories with the indicated symbols. The ratings on notes with
maturities generally up to three years reflect Fitch's current
appraisal of the degree of assurance of timely payment, whatever
the source.
A-4
<PAGE>
FIN-1 -- Notes assigned this rating are regarded as
having the strongest degree of assurance for
timely payment.
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% to 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 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 24. Financial Statements and Exhibits
(a) Financial Statements
Included in the Prospectus:
Financial Highlights
Included in the Statement of Additional
Information:
Portfolio of Investments - September 30, 1996
- Florida Portfolio
- Minnesota Portfolio
- New Jersey Portfolio
- Ohio Portfolio
- Pennsylvania Portfolio
- Michigan Portfolio
- Massachusetts Portfolio
- Arizona Portfolio
- Virginia Portfolio
Statements of Assets and Liabilities - September 30, 1996
Statements of Operations for the period ended September 30, 1996
Statements of Changes in Net Assets for the period ended
September 30, 1996 and September 30, 1995
Notes to Financial Statements - September 30, 1996
Financial Highlights.
Report of Independent Auditors
Included in Part C of the Registration Statement
All other schedules are either inapplicable or the
required information is contained in the financial
statements.
(b) Exhibits
(1)(a) Copy of Agreement and Declaration of Trust of the
Registrant - Incorporated herein by reference as
Exhibit 1 to Registrant's Registration Statement on
Form N-1A, filed on April 2, 1993 (File Nos. 33-
60560 and 811- 07618).
(b) Certificate of Amendment - filed herewith.
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(2) Copy of By-Laws of the Registrant - Incorporated
herein by reference as Exhibit 2 to Registrant's
Registration Statement on Form N-1A, filed on April
2, 1993 (File Nos. 33- 60560 and 811-07618).
(3) Not Applicable.
(4)(a) Form of Share Certificate for Class A shares of
Registrant's Florida Portfolio - Incorporated herein
by reference as Exhibit 4(a) to Pre-Effective
Amendment No. 1 to Registrant's Registration
Statement on Form N-1A, filed on May 21, 1993 (File
Nos. 33- 60560 and 811-07618).
(b) Form of Share Certificate for Class B shares of
Registrant's Florida Portfolio - Incorporated herein
by reference as Exhibit 4(b) to Pre-Effective
Amendment No. 1 to Registrant's Registration
Statement on Form N-1A, filed on May 21, 1993 (File
Nos. 33- 60560 and 811-07618).
(c) Form of Share Certificate for Class C shares of
Registrant's Florida Portfolio - Incorporated herein
by reference as Exhibit 4(c) to Pre-Effective
Amendment No. 1 to Registrant's Registration
Statement on Form N-1A, filed on May 21, 1993 (File
Nos. 33-60560 and 811-07618).
(d) Form of Share Certificate for Class A shares of
Registrant's Minnesota Portfolio - Incorporated
herein by reference as Exhibit 4(d) to Pre-Effective
Amendment No. 1 to Registrant's Registration
Statement on Form N-1A, filed on May 21, 1993 (File
Nos. 33- 60560 and 811-07618).
(e) Form of Share Certificate for Class B shares of
Registrant's Minnesota Portfolio - Incorporated
herein by reference as Exhibit 4(e) to Pre-Effective
Amendment No. 1 to Registrant's Registration
Statement on Form N-1A, filed on May 21, 1993 (File
Nos. 33- 60560 and 811-07618).
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(f) Form of Share Certificate for Class C shares of
Registrant's Minnesota Portfolio - Incorporated
herein by reference as Exhibit 4(f) to Pre-Effective
Amendment No. 1 to Registrant's Registration
Statement on Form N-1A, filed on May 21, 1993 (File
Nos. 33- 60560 and 811-07618).
(g) Form of Share Certificate for Class A shares of
Registrant's New Jersey Portfolio - Incorporated
herein by reference as Exhibit 4(g) to Pre-Effective
Amendment No. 1 to Registrant's Registration
Statement on Form N-1A, filed on May 21, 1993 (File
Nos. 33- 60560 and 811-07618).
(h) Form of Share Certificate for Class B shares of
Registrant's New Jersey Portfolio - Incorporated
herein by reference as Exhibit 4(h) to Pre-Effective
Amendment No. 1 to Registrant's Registration
Statement on Form N-1A, filed on May 21, 1993 (File
Nos. 33- 60560 and 811-07618).
(i) Form of Share Certificate for Class C shares of
Registrant's New Jersey Portfolio - Incorporated
herein by reference as Exhibit 4(i) to Pre-Effective
Amendment No. 1 to Registrant's Registration
Statement on Form N-1A, filed on May 21, 1993 (File
Nos. 33- 60560 and 811-07618).
(j) Form of Share Certificate for Class A shares of
Registrant's Ohio Portfolio - Incorporated herein by
reference as Exhibit 4(j) to Pre- Effective
Amendment No. 1 to Registrant's Registration
Statement on Form N-1A, filed on May 21, 1993 (File
Nos. 33-60560 and 811- 07618).
(k) Form of Share Certificate for Class B shares of
Registrant's Ohio Portfolio - Incorporated herein by
reference as Exhibit 4(k) to Pre- Effective
Amendment No. 1 to Registrant's Registration
Statement on Form N-1A, filed on May 21, 1993 (File
Nos. 33-60560 and 811- 07618).
(l) Form of Share Certificate for Class C shares of
Registrant's Ohio Portfolio - Incorporated herein by
reference as Exhibit 4(l) to Pre- Effective
Amendment No. 1 to Registrant's Registration
Statement on Form N-1A, filed on May 21, 1993 (File
Nos. 33-60560 and 811- 07618).
(m) Form of Share Certificate for Class A shares of
Registrant's Pennsylvania Portfolio - Incorporated
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herein by reference as Exhibit 4(m) to Pre-Effective
Amendment No. 1 to Registrant's Registration
Statement on Form N-1A, filed on May 21, 1993 (File
Nos. 33- 60560 and 811-07618).
(n) Form of Share Certificate for Class B shares of
Registrant's Pennsylvania Portfolio - Incorporated
herein by reference as Exhibit 4(n) to Pre-Effective
Amendment No. 1 to Registrant's Registration
Statement on Form N-1A, filed on May 21, 1993 (File
Nos. 33- 60560 and 811-07618).
(o) Form of Share Certificate for Class C shares of
Registrant's Pennsylvania Portfolio - Incorporated
herein by reference as Exhibit 4(o) to Pre-Effective
Amendment No. 1 to Registrant's Registration
Statement on Form N-1A, filed on May 21, 1993 (File
Nos. 33- 60560 and 811-07618).
(p) Form of Share Certificate for Class A shares of
Registrant's Arizona Portfolio - Incorporated herein
by reference as Exhibit 4(p) to Post-Effective
Amendment No. 2 to Registrant's Registration
Statement on Form N-1A, filed on January 3, 1994
(File Nos. 33- 60560 and 811-07618).
(q) Form of Share Certificate for Class B shares of
Registrant's Arizona Portfolio - Incorporated herein
by reference as Exhibit 4(q) to Post-Effective
Amendment No. 2 to Registrant's Registration
Statement on Form N-1A, filed on January 3, 1994
(File Nos. 33- 60560 and 811-07618).
(r) Form of Share Certificate for Class C shares of
Registrant's Arizona Portfolio - Incorporated herein
by reference as Exhibit 4(r) to Post-Effective
Amendment No. 2 to Registrant's Registration
Statement on Form N-1A, filed on January 3, 1994
(File Nos. 33- 60560 and 811-07618).
(s) Form of Share Certificate for Class A shares of
Registrant's Massachusetts Portfolio - Incorporated
herein by reference as Exhibit 4(s) to Post-
Effective Amendment No. 2 to Registrant's
Registration Statement on Form N-1A, filed on
January 3, 1994 (File Nos. 33- 60560 and 811-07618).
(t) Form of Share Certificate for Class B shares of
Registrant's Massachusetts Portfolio - Incorporated
herein by reference as Exhibit 4(t) to Post-
Effective Amendment No. 2 to Registrant's
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Registration Statement on Form N-1A, filed on
January 3, 1994 (File Nos. 33- 60560 and 811-07618).
(u) Form of Share Certificate for Class C shares of
Registrant's Massachusetts Portfolio - Incorporated
herein by reference as Exhibit 4(u) to Post-
Effective Amendment No. 2 to Registrant's
Registration Statement on Form N-1A, filed on
January 3, 1994 (File Nos. 33- 60560 and 811-07618).
(v) Form of Share Certificate for Class A shares of
Registrant's Michigan Portfolio - Incorporated
herein by reference as Exhibit 4(v) to Post-
Effective Amendment No. 2 to Registrant's
Registration Statement on Form N-1A, filed on
January 3, 1994 (File Nos. 33- 60560 and 811-07618).
(w) Form of Share Certificate for Class B shares of
Registrant's Michigan Portfolio - Incorporated
herein by reference as Exhibit 4(w) to Post-
Effective Amendment No. 2 to Registrant's
Registration Statement on Form N-1A, filed on
January 3, 1994 (File Nos. 33- 60560 and 811-07618).
(x) Form of Share Certificate for Class C shares of
Registrant's Michigan Portfolio - Incorporated
herein by reference as Exhibit 4(x) to Post-
Effective Amendment No. 2 to Registrant's
Registration Statement on Form N-1A, filed on
January 3, 1994 (File Nos. 33- 60560 and 811-07618).
(y) Form of Share Certificate for Class A shares of
Registrant's Virginia Portfolio - Incorporated
herein by reference as Exhibit 4(y) to Post-
Effective Amendment No. 2 to Registrant's
Registration Statement on Form N-1A, filed on
January 3, 1994 (File Nos. 33- 60560 and 811-07618).
(z) Form of Share Certificate for Class B shares of
Registrant's Virginia Portfolio - Incorporated
herein by reference as Exhibit 4(z) to Post-
Effective Amendment No. 2 to Registrant's
Registration Statement on Form N-1A, filed on
January 3, 1994 (File Nos. 33- 60560 and 811-07618).
(zz) Form of Share Certificate for Class C shares of
Registrant's Virginia Portfolio - Incorporated
herein by reference as Exhibit 4(zz) to Post-
Effective Amendment No. 2 to Registrant's
Registration Statement on Form N-1A, filed on
January 3, 1994 (File Nos. 33- 60560 and 811-07618).
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(aa) Form of Share Certificate for Advisor Class shares
of Registrant's Florida Portfolio - Incorporated
herein by reference as Exhibit 4(aa) to Post-
Effective Amendment No. 9 to Registrant's
Registration Statement on Form N-1A, filed on April
22, 1996 (File Nos. 33- 60560 and 811-07618).
(bb) Form of Share Certificate for Advisor Class shares
of Registrant's Minnesota Portfolio - Incorporated
herein by reference as Exhibit 4(bb) to Post-
Effective Amendment No. 9 to Registrant's
Registration Statement on Form N-1A, filed on April
22, 1996 (File Nos. 33- 60560 and 811-07618).
(cc) Form of Share Certificate for Advisor Class shares
of Registrant's New Jersey Portfolio - Incorporated
herein by reference as Exhibit 4(cc) to Post-
Effective Amendment No. 9 to Registrant's
Registration Statement on Form N-1A, filed on April
22, 1996 (File Nos. 33- 60560 and 811-07618).
(dd) Form of Share Certificate for Advisor Class shares
of Registrant's Ohio Portfolio - Incorporated herein
by reference as Exhibit 4(dd) to Post-Effective
Amendment No. 9 to Registrant's Registration
Statement on Form N-1A, filed on April 22, 1996
(File Nos. 33- 60560 and 811-07618).
(ee) Form of Share Certificate for Advisor Class shares
of Registrant's Pennsylvania Portfolio -
Incorporated herein by reference as Exhibit 4(ee) to
Post-Effective Amendment No. 9 to Registrant's
Registration Statement on Form N-1A, filed on April
22, 1996 (File Nos. 33- 60560 and 811-07618).
(ff) Form of Share Certificate for Advisor Class shares
of Registrant's Arizona Portfolio - Incorporated
herein by reference as Exhibit 4(ff) to Post-
Effective Amendment No. 9 to Registrant's
Registration Statement on Form N-1A, filed on April
22, 1996 (File Nos. 33- 60560 and 811-07618).
(gg) Form of Share Certificate for Advisor Class shares
of Registrant's Massachusetts Portfolio -
Incorporated herein by reference as Exhibit 4(gg) to
Post-Effective Amendment No. 9 to Registrant's
Registration Statement on Form N-1A, filed on April
22, 1996 (File Nos. 33- 60560 and 811-07618).
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(hh) Form of Share Certificate for Advisor Class shares
of Registrant's Michigan Portfolio - Incorporated
herein by reference as Exhibit 4(hh) to Post-
Effective Amendment No. 9 to Registrant's
Registration Statement on Form N-1A, filed on April
22, 1996 (File Nos. 33- 60560 and 811-07618).
(ii) Form of Share Certificate for Advisor Class shares
of Registrant's Virginia Portfolio - Incorporated
herein by reference as Exhibit 4(ii) to Post-
Effective Amendment No. 9 to Registrant's
Registration Statement on Form N-1A, filed on April
22, 1996 (File Nos. 33- 60560 and 811-07618).
(5)(a) Advisory Agreement between the Registrant and
Alliance Capital Management L.P. - Incorporated
herein by reference as Exhibit 5(a) to Post-
Effective Amendment No. 1 to Registrant's
Registration Statement on Form N-1A, filed on
October 29, 1993 (File Nos. 33- 60560 and 811-
07618).
(5)(b) Amended Advisory Agreement to reflect the Arizona
Portfolio, Massachusetts Portfolio, Michigan
Portfolio and Virginia Portfolio - Incorporated
herein by reference as Exhibit 5(b) to Post-
Effective Amendment No. 5 to Registrant's
Registration Statement on Form N-1A, filed on
January 27, 1995
(File Nos. 33-60560 and 811-07618).
(6)(a) Distribution Services Agreement between the
and 15 Registrant and Alliance Fund Distributors, Inc. -
Incorporated herein by reference as Exhibit 6(a) to
Post-Effective Amendment No. 1 to Registrant's
Registration Statement on Form N-1A, filed on
October 29, 1993 (File Nos. 33- 60560 and 811-
07618).
(b) Amendment to Distribution Services Agreement between
the Registrant and Alliance Fund Distributors, Inc.
- filed herewith.
(c) Selected Dealer Agreement between Alliance Fund
Distributors, Inc. and selected dealers offering
shares of Registrant - Incorporated herein by
reference as Exhibit 6(b) to Post- Effective
Amendment No. 1 to Registrant's Registration
Statement on Form N-1A, filed on October 29, 1993
(File Nos. 33-60560 and 811- 07618).
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(d) Selected Agent Agreement between Alliance Fund
Distributors, Inc. and selected agents making
available shares of Registrant - Incorporated
herein by reference as Exhibit 6(c) to Post-
Effective Amendment No. 1 to Registrant's
Registration Statement on Form N-1A, filed on
October 29, 1993 (File Nos. 33-60560 and 811-
07618).
(7) Not Applicable.
(8) Custodian Contract with The Bank of New York as
assigned to Registrant - Incorporated herein by
reference as Exhibit 8 to Post- Effective Amendment
No. 5 to Registrant's Registration Statement on Form
N-1A, filed on January 27, 1995 (File Nos. 33-60560
and 811- 07618).
(9) Transfer Agency Agreement between Registrant and
Alliance Fund Services, Inc - Incorporated herein by
reference as Exhibit 9 to Post- Effective Amendment
No. 1 to Registrant's Registration Statement on Form
N-1A, filed on October 29, 1993 (File Nos. 33-60560
and 811- 07618).
(10)(a) Opinion and Consent of Seward & Kissel -
Incorporated by reference as Exhibit 10(a) to Pre-
Effective Amendment No. 1 to Registrant's
Registration Statement on Form N-1A, filed on May
21, 1993 (File Nos. 33-60560 and 811- 07618).
(b) Opinion and Consent of Sullivan & Worchester -
Incorporated by reference as Exhibit 10(b) to Pre-
Effective Amendment No. 1 to Registrant's
Registration Statement on Form N-1A, filed on May
21, 1993 (File Nos. 33-60560 and 811- 07618).
(11) Consent of Independent Auditors - Filed herewith.
(12) Not Applicable.
(13) Investment representation letter of Alliance Capital
Management L.P. - Incorporated by reference as
Exhibit 13 to Pre-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-1A,
filed on May 21, 1993 (File Nos. 33-60560 and 811-
07618).
(14) Not Applicable.
(15) Rule 12b-1 Plan - See Exhibit 6(a) hereto.
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(16) Schedule for computation of each Yield and Total
Return Performance quotations - Incorporated by
reference as Exhibit 16 to Post-Effective Amendment
No. 1 to Registrant's Registration Statement on Form
N-1A, filed on October 29, 1993 (File Nos. 33-60560
and 811- 07618).
(17) Financial Data Schedule - Filed herewith.
(18)(a) Rule 18f-3 Plan - Incorporated by reference as
Exhibit 18 to Post-Effective Amendment No. 7 to
Registrant's Registration Statement on Form N-1A,
filed on January 31, 1996 (File Nos. 33- 60560 and
811-07618).
(b) Amended and Restated Rule 18f-3 Plan - filed
herewith.
Other Exhibit:
Powers of Attorney of James R. Greene, and Eugene F.
O'Neil - Incorporated by reference as "Other
Exhibit" to Post-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-1A,
filed on October 29, 1993 (File Nos. 33-60560 and
811-07618).
Powers of Attorney of Ruth S. Block, John D. Carifa,
David H. Dievler, James M. Hester, Clifford L.
Michel and Robert C. White - Incorporated herein by
reference as "Other Exhibit" Pre-Effective Amendment
No. 1 to Registrant's Registration Statement on Form
N-1A, filed on May 21, 1993 (File Nos. 33- 60560 and
811-07618)
Powers of Attorney of David H. Dievler, Ruth S.
Block, John D. Carifa, James R. Greene, James H.
Hester, Clifford L. Michel, Donald J. Robinson -
filed herewith.
ITEM 25. Persons Controlled by or under Common Control with
Registrant
None.
ITEM 26. Number of Holders of Securities
Registrant had, as of January 17, 1997, record
holders of shares of Beneficial Interest as follows:
Florida Portfolio -
- Class A............................... 289
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- Class B............................... 536
- Class C............................... 176
Minnesota Portfolio -
- Class A .............................. 94
- Class B ............................... 322
- Class C ............................... 136
New Jersey Portfolio -
- Class A .............................. 344
- Class B .............................. 982
- Class C .............................. 273
Ohio Portfolio -
- Class A .............................. 146
- Class B .............................. 679
- Class C .............................. 189
Pennsylvania Portfolio -
- Class A .............................. 342
- Class B .............................. 863
- Class C .............................. 230
Michigan Portfolio -
- Class A .............................. 96
- Class B .............................. 130
- Class C .............................. 167
Massachusetts Portfolio -
- Class A .............................. 62
- Class B .............................. 97
- Class C .............................. 58
Arizona Portfolio -
- Class A .............................. 100
- Class B .............................. 120
- Class C .............................. 50
Virginia Portfolio -
- Class A .............................. 73
- Class B .............................. 113
- Class C .............................. 43
ITEM 27. Indemnification
It is the Registrant's policy to indemnify its trustees
and officers, employees and other agents as set forth in Article
VIII and Article III of Registrant's Agreement and Declaration of
Trust, filed as Exhibit 1 in response to Item 24 and Section 10
of the proposed Distribution Services Agreement filed as
Exhibit 6(a), all as set forth below. The liability of the
Registrant's trustees and officers is dealt with in Article VIII
of Registrant's Agreement and Declaration of Trust, 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
proposed Advisory Agreement filed as Exhibit 5 to this
Registration Statement, as set forth below.
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Article VIII of Registrant's Agreement and Declaration
of Trust reads as follows:
"Section 8.1. Trustees, Shareholders, etc. Not
Personally Liable; Notice. The Trustees and
officers of the Trust, in incurring any debts,
liabilities or obligations, or in taking or omitting
any other actions for or in connection with the
Trust, are or shall be deemed to be acting as
Trustees or officers of the Trust and not in their
own capacities. No Shareholder shall be subject to
any personal liability whatsoever in tort, contract
or otherwise to any other Person or Persons in
connection with the assets or the affairs of the
Trust or of any Portfolio, and subject to Section
8.4 hereof, no Trustee, officer, employee or agent
of the Trust shall be subject to any personal
liability whatsoever in tort, contract, or
otherwise, to any other Person or Persons in
connection with the assets or affairs of the Trust
or of any Portfolio, save only that arising from his
own willful misfeasance, bad faith, gross negligence
or reckless disregard of the duties involved in the
conduct of his office or the discharge of his
functions. The Trust (or if the matter relates only
to a particular Portfolio, that Portfolio) shall be
solely liable for any and all debts, claims,
demands, judgments, decrees, liabilities or
obligations of any and every kind, against or with
respect to the Trust or such Portfolio in tort,
contract or otherwise in connection with the assets
or the affairs of the Trust or such Portfolio, and
all Persons dealing with the Trust or any Portfolio
shall be deemed to have agreed that resort shall be
had solely to the Trust Property of the Trust or the
Portfolio Assets of such Portfolio, as the case may
be, for the payment or performance thereof.
The Trustees shall use their best efforts to ensure
that every note, bond, contract, instrument,
certificate or undertaking made or issued by the
Trustees or by any officers or officer shall give
notice that this Declaration of Trust is on file
with the Secretary of The Commonwealth of
Massachusetts and shall recite to the effect that
the same was executed or made by or on behalf of the
Trust or by them as Trustees or Trustee or as
officers or officer, and not individually, and that
the obligations of such instrument are not binding
upon any of them or the Shareholders individually
but are binding only upon the assets and property of
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the Trust, or the particular Portfolio in question,
as the case may be, but the omission thereof shall
not operate to bind any Trustees or Trustee or
officers or officer or Shareholders or Shareholder
individually, or to subject the Portfolio Assets of
any Portfolio to the obligations of any other
Portfolio.
SECTION 8.2. Trustees' Good Faith Action; Expert
Advice; No Bond or Surety. The exercise by the
Trustees of their powers and discretion hereunder
shall be binding upon everyone interested. Subject
to Section 8.4 hereof, a Trustee shall be liable for
his own willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties
involved in the conduct of the office of Trustee,
and for nothing else, and shall not be liable for
errors of judgement or mistakes of fact or law.
Subject to the foregoing, (i) the Trustees shall not
be responsible or liable in any event for any
neglect or wrongdoing of any officer, agent,
employee, consultant, Investment Adviser,
Administrator, Distributor or Principal Underwriter,
Custodian or Transfer Agent, Dividend Disbursing
Agent, Shareholder Servicing Agent or Accounting
Agent of the Trust, nor shall any Trustee be
responsible for the act or omission of any other
Trustee; (ii) the Trustees may take advice of
counsel or other experts with respect to the meaning
and operation of this Declaration of Trust and their
duties as Trustees, and shall be under no liability
for any act or omission in accordance with such
advice or for failing to follow such advice; and
(iii) in discharging their duties, the Trustees,
when acting in good faith, shall be entitled to rely
upon the books of account of the Trust and upon
written reports made to the Trustees by any officer
appointed by them, any independent public
accountant, and (with respect to the subject matter
of the contract involved) any officer, partner or
responsible employee of a Contracting Party
appointed by the Trustees pursuant to Section 5.2
hereof. The Trustees as such shall not be required
to give any bond or surety or any other security for
the performance of their duties.
SECTION 8.3. Indemnification of Shareholders. If
any Shareholder (or former Shareholder) of the Trust
shall be charged or held to be personally liable for
any obligation or liability of the Trust solely by
reason of being or having been a Shareholder and not
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because of such Shareholder's acts or omissions or
for some other reason, the Trust (upon proper and
timely request by the Shareholder) shall assume the
defense against such charge and satisfy any judgment
thereon, and the Shareholder or former Shareholder
(or the heirs, executors, administrators or other
legal representatives thereof, or in the case of a
corporation or other entity, its corporate or other
general successor) shall be entitled (but solely out
of the assets of the Portfolio of which such
Shareholder or former Shareholder is or was the
holder of Shares) to be held harmless from and
indemnified against all loss and expense arising
from such liability.
SECTION 8.4. Indemnification of Trustees, Officers,
etc. Subject to the limitations set forth
hereinafter in this Section 8.4, the Trust shall
indemnify (from the assets of the Portfolio or
Portfolios to which the conduct in question relates)
each of its Trustees and officers (including Persons
who serve at the Trust's request as directors,
officers or trustees of another organization in
which the Trust has any interest as a shareholder,
creditor or otherwise [hereinafter, together with
such Person's heirs, executors, administrators or
personal representative, referred to as a "Covered
Person"]) against all liabilities, including but not
limited to amounts paid in satisfaction of
judgments, in compromise or as fines and penalties,
and expenses, including reasonable accountants' and
counsel fees, incurred by any Covered Person in
connection with the defense or disposition of any
action, suit or other proceeding, whether civil or
criminal, before any court or administrative or
legislative body, in which such Covered Person may
be or may have been involved as a party or otherwise
or with which such Covered Person may be or may have
been threatened, while in office or thereafter, by
reason of being or having been such a Trustee or
officer, director or trustee, except with respect to
any matter as to which it has been determined that
such Covered Person (i) did not act in good faith in
the reasonable belief that such Covered Person's
action was in or not opposed to the best interests
of the Trust or (ii) had acted with willful
misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of
such Covered Person's office (either and both of the
conduct described in clauses (i) and (ii) of this
sentence being referred to hereafter as "Disabling
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Conduct"). A determination that the Covered Person
is entitled to indemnification may be made by (i) a
final decision on the merits by a court or other
body before whom the proceeding was brought that the
Covered Person to be indemnified was not liable by
reason of Disabling Conduct, (ii) dismissal of a
court action or an administrative proceeding against
a Covered Person for insufficiency of evidence of
Disabling Conduct, or (iii) a reasonable
determination, based upon a review of the facts,
that the indemnitee was not liable by reason of
Disabling Conduct by (a) a vote of a majority of a
quorum of Trustees who are neither "interested
persons" of the Trust as defined in Section 2(a)(19)
of the 1940 Act nor parties to the proceeding, or
(b) an independent legal counsel in a written
opinion. Expenses, including accountants' and
counsel fees so incurred by any such Covered Person
(but excluding amounts paid in satisfaction of
judgments, in compromise or as fines or penalties),
may be paid from time to time by the Portfolio or
Portfolios to which the conduct in question related
in advance of the final disposition of any such
action, suit or proceeding; provided, that the
Covered Person shall have undertaken to repay the
amounts so paid to such Portfolio or Portfolios if
it is ultimately determined that indemnification of
such expenses is not authorized under this Article 8
and (i) the Covered Person shall have provided
security for such undertaking, (ii) the Trust shall
be insured against losses arising by reason of any
lawful advances, or (iii) a majority of a quorum of
the disinterested Trustees, or an independent legal
counsel in a written opinion, shall have determined,
based on a review of readily available facts (as
opposed to a full trial-type inquiry), that there is
reason to believe that the Covered Person ultimately
will be found entitled to indemnification.
SECTION 8.5. Compromise Payment. As to any matter
disposed of by a compromise payment by any such
Covered Person referred to in Section 8.4 hereof,
pursuant to a consent decree or otherwise, no such
indemnification either for said payment or for any
other expenses shall be provided unless such
indemnification shall be approved (i) by a majority
of a quorum of the disinterested Trustees or (ii) by
an independent legal counsel in a written opinion.
Approval by the Trustees pursuant to clause (i) or
by independent legal counsel pursuant to clause (ii)
shall not prevent the recovery from any Covered
C-14
<PAGE>
Person of any amount paid to such Covered Person in
accordance with either of such clauses as
indemnification if such Covered Person is
subsequently adjudicated by a court of competent
jurisdiction not to have acted in good faith in the
reasonable belief that such Covered Person's action
was in or not opposed to the best interests of the
Trust or to have been liable to the Trust or its
Shareholders by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the
duties involved in the conduct of such Covered
Person's office.
SECTION 8.6 Indemnification Not Exclusive, etc.
The right of indemnification provided by this
Article 8 shall not be exclusive of or affect any
other rights to which any such Covered Person may be
entitled. As used in this Article 8, a
"disinterested" Person is one against whom none of
the actions, suits or other proceedings in question,
and no other action, suit or other proceeding on the
same or similar grounds is then or has been pending
or threatened. Nothing contained in this Article 8
shall affect any rights to indemnification to which
personnel of the Trust, other than Trustees and
officers, and other Persons may be entitled by
contract or otherwise under law, nor the power of
the Trust to purchase and maintain liability
insurance on behalf of any such Person.
SECTION 8.7. Liability of Third Persons Dealing
with Trustees. No person dealing with the Trustees
shall be bound to make any inquiry concerning the
validity of any transaction made or to be made by
the Trustees or to see to the application of any
payments made or property transferred to the Trust
or upon its order."
Article III of Registrant's Agreement and
Declaration of Trust reads, in pertinent part, as
follows:
"Without limiting the foregoing and to the extent
not inconsistent with the 1940 Act or other
applicable law, the Trustees shall have power and
authority:
(s) Indemnification. In addition to the
mandatory indemnification provided for in
Article 8 hereof and to the extent
permitted by law, to indemnify or enter
C-15
<PAGE>
into agreements with respect to
indemnification with any Person with whom
this Trust has dealings, including,
without limitation, any independent
contractor, to such extent as the
Trustees shall determine."
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 the
Registrant or its security holders to which it would
otherwise be subject by reason of wilful misfeasance,
bad faith or gross negligence in the performance of its
duties thereunder, or by reason of reckless disregard of
its duties and 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
Securities Act of 1933 (the ``Securities Act"), 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 the
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.
The foregoing summaries are qualified by the entire
text of Registrant's Agreement and Declaration of Trust,
the Advisory Agreement between Registrant and Alliance
Capital Management L.P. and the Distribution Services
Agreement between Registrant and Alliance Fund
Distributors, Inc. which are filed herewith as Exhibits
1, 5 and 6(a), respectively, in response to Item 24 and
each of which are incorporated by reference herein.
Insofar as indemnification for liabilities arising
under the Securities Act may be permitted to trustees,
officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the
C-16
<PAGE>
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 trustee, officer or the Registrant
in the successful defense of any action, suit or
proceeding) is asserted by such trustee, 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.
In accordance with Release No. IC-11330
(September 2, 1980), the Registrant will indemnify its
trustees, officers, investment manager and principal
underwriters only if (1) a final decision on the merits
was issued by the court or other body before whom the
proceeding was brought that the person to be indemnified
(the "indemnitee") was not liable by reason or willful
misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his
office ("disabling conduct") or (2) a reasonable
determination is made, based upon a review of the facts,
that the indemnitee was not liable by reason of
disabling conduct, by (a) the vote of a majority of a
quorum of the trustees who are neither "interested
persons" of the Registrant as defined in section
2(a)(19) of the Investment Company Act of 1940 nor
parties to the proceeding ("disinterested, non-party
trustees"), or (b) an independent legal counsel in a
written opinion. The Registrant will advance attorneys
fees or other expenses incurred by its trustees,
officers, investment adviser or principal underwriters
in defending a proceeding, upon the undertaking by or on
behalf of the indemnitee to repay the advance unless it
is ultimately determined that he is entitled to
indemnification and, as a condition to the advance,
(1) the indemnitee shall provide a security for his
undertaking, (2) the Registrant shall be insured against
losses arising by reason of any lawful advances, or
(3) a majority of a quorum of disinterested, non-party
trustees of the Registrant, or an independent legal
counsel in a written opinion, shall determine, based on
a review of readily available facts (as opposed to a
full trial-type inquiry), that there is reason to
C-17
<PAGE>
believe that the indemnitee ultimately will be found
entitled to indemnification.
The Registrant participates in a joint
trustees/directors and officers liability insurance
policy issued by the ICI Mutual Insurance Company.
Coverage under this policy has been extended to
directors, trustees and officers of the investment
companies managed by Alliance Capital Management L.P.
Under this policy, outside trustees and directors are
covered up to the limits specified for any claim against
them for acts committed in their capacities as trustee
or director. A pro rata share of the premium for this
coverage is charged to each investment company and to
the Adviser.
ITEM 28. Business and Other Connections of Adviser.
The descriptions of Alliance Capital
Management L.P. under the caption "Management
of the Fund" in the Prospectus and in the
Statement of Additional Information
constituting Parts A and B, respectively, of
this Registration Statement are incorporated
by reference herein.
The information as to the directors and
officers of Alliance Capital Management
Corporation, the general partner of Alliance
Capital Management L.P., set forth in Alliance
Capital Management L.P.'s Form ADV filed with
the Securities and Exchange Commission on
April 21, 1988 (File No. 801- 32361) and
amended through the date hereof, is
incorporated by reference.
ITEM 29. Principal Underwriters
(a) Alliance Fund Distributors, Inc., the Registrant's
Principal Underwriter in connection with the
sale of shares of the Registrant, also acts as
Principal Underwriter or Distributor for the
following investment companies:
ACM Institutional Reserves Inc.
AFD Exchange Reserves
Alliance All-Asia Investment Fund, Inc.
Alliance Balanced Shares, Inc.
Alliance Bond Fund, Inc.
Alliance Capital Reserves
Alliance Developing Markets Fund, Inc.
C-18
<PAGE>
Alliance Global Dollar Government Fund, Inc.
Alliance Global Small Cap Fund, Inc.
Alliance Global Strategic Income Trust, Inc.
Alliance Government Reserves
Alliance Growth and Income Fund, Inc.
Alliance Income Builder Fund, Inc.
Alliance International Fund
Alliance 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.
Alliance Real Estate Investment Fund, Inc.
Alliance/Regent Sector Opportunity Fund, Inc.
Alliance Short-Term Multi-Market Trust, Inc.
Alliance Technology Fund, Inc.
Alliance Utility Income Fund, Inc.
Alliance Variable Products Series Fund, Inc.
Alliance World Income Trust, Inc.
Alliance Worldwide Privatization Fund, Inc.
Fiduciary Management Associates
The Alliance Fund, Inc.
The Alliance Portfolios
(b) The following are the Directors and
Officers of Alliance Fund Distributors,
Inc., the principal place of business of
which is 1345 Avenue of the Americas, New
York, New York, 10105.
Positions and Offices Positions and Offices
Name With Underwriter With Registrant
Michael J. Laughlin Chairman
Robert L. Errico President
Kimberly A. Gardner Senior Vice President
Edmund P. Bergan, Jr. Senior Vice President, Secretary
General Counsel &
Secretary
Daniel J. Dart Senior Vice President
C-19
<PAGE>
Richard A. Davies Senior Vice President,
Managing Director
Byron M. Davis Senior Vice President
Geoffrey L. Hyde Senior Vice President
Richard E. Khaleel Senior Vice President
Barbara J. Krumsiek Senior Vice President
Stephen R. Laut Senior Vice President
Daniel D. McGinley Senior Vice President
Dusty W. Paschall Senior Vice President
Antonios G. Poleonadkis Senior Vice President
Gregory K. Shannahan Senior Vice President
Joseph F. Sumanski Senior Vice President
Peter J. Szabo Senior Vice President
Nicholas K. Willett Senior Vice President
Richard A. Winge Senior Vice President
Jamie A. Atkinson Vice President
Benji A. Baer Vice President
Warren W. Babcock III Vice President
Kenneth F. Barkoff Vice President
William P. Beanblosson Vice President
Jack C. Bixler Vice Presidnet
Casimir F. Bolanowski Vice President
Kevin T. Cannon Vice President
William W. Collins, Jr. Vice President
Leo H. Cook Vice President
Richard W. Dabney Vice President
C-20
<PAGE>
John F. Dolan Vice President
Mark J. Dunbar Vice President
Sohaila S. Farsheed Vice President
Linda A. Finnerty Vice President
William C. Fisher Vice President
Robert M. Frank Vice President
Gerard J. Friscia Vice President & Controller
Andrew L. Gangolf Vice President &
Associate Assistant
General Counsel Secretary
Mark D. Gersten Vice President Treasurer and
Chief Financial
Officer
Joseph W. Gibson Vice President
Troy L. Glawe Vice President
Herbert H. Goldman Vice President
James E. Gunter Vice President
Alan Halfenger Vice President
Daniel M. Hazard Vice President
George R. Hrabovsky Vice President
Valerie J. Hugo Vice President
Thomas K. Intoccia Vice President
Robert H. Joseph, Jr. Vice President & Treasurer
Richard D. Keppler Vice President
Sheila F. Lamb Vice President
Thomas Leavitt, III Vice President
Donna M. Lamback Vice President
James M. Liptrot Vice President
C-21
<PAGE>
James P. Luisi Vice President
Christopher J. MacDonald Vice President
Michael F. Mahoney Vice President
Maura A. McGrath Vice President
Matthew P. Mintzer Vice President
Joanna D. Murray Vice President
Nicole Nolan-Koester Vice President
Daniel J. Phillips Vice President
Robert T. Pigozzi Vice President
James J. Posch Vice President
Robert E. Powers Vice President
Domenick Pugliese Vice President &
Assistant General
Counsel
Bruce W. Reitz Vice President
Dennis A. Sanford Vice President
Raymond S. Scalfani Vice President
Richard J. Sidell Vice President
J. William Strott, Jr. Vice President
Richard E. Tambourine Vice President
Joseph T. Tocyloski Vice President
Neil S. Wood Vice President
Emilie D. Wrapp Vice President & Assistant
Special Counsel Secretary
Maria L. Carreras Assistant Vice President
John W. Cronin Assistant Vice President
Leon M. Fern Assistant Vice President
C-22
<PAGE>
William B. Hanigan Assistant Vice President
John C. Hershock Assistant Vice President
James J. Hill Assistant Vice President
Edward W. Kelly Assistant Vice President
Patrick Look Assistant Vice President
& Assistant Treasurer
Thomas F. Monnerat Assistant Vice President
Jeanette M. Nardella Assistant Vice President
Carol H. Rappa Assistant Vice President
Lisa Robinson-Cronin Assistant Vice President
Clara Sierra Assistant Vice President
Martha Volcker Assistant Vice President
Wesley S. Williams Assistant Vice President
Mark R. Manley Assistant Secretary
(c) Not applicable.
ITEM 30. Location of Accounts and Records.
The majority of the accounts, books and other documents
required to be maintained by Section 31(a) of the Investment
Company Act of 1940 and the Rules thereunder are maintained as
follows: journals, ledgers, securities records and other original
records are maintained principally at the offices of Alliance
Fund Services, Inc., 500 Plaza Drive, Secaucus, New Jersey 07094,
and at the offices of State Street Bank and Trust Company, the
Registrant's Custodian, 225 Franklin Street, Boston,
Massachusetts 02110. All other records so required to be
maintained are maintained at the offices of Alliance Capital
Management L.P., 1345 Avenue of the Americas, New York, New York
10105.
ITEM 31. Management Services.
Not applicable.
ITEM 32. Undertakings
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<PAGE>
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
Trustee of the Fund in accordance with Section 16 of the
Investment Company Act of 1940.
C-24
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Act of
1933, as amended, and the Investment Company Act of 1940, as
amended, the Registrant certifies that it meets all of the
requirements for effectiveness of this Amendment to its
Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this Amendment to its
Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in The City of New York
and the State of New York, on the 29th day of January, 1997.
ALLIANCE MUNICIPAL INCOME FUND II
by /s/ John D. Carifa
John D. Carifa
Chairman and President
Pursuant to the requirements of the Securities Act of
l933, this Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated:
Signature Title Date
1) Principal
Executive Officer
/s/ John D. Carifa Chairman and January 29, 1997
John D. Carifa President
Principal Financial
and Accounting Officer
/s/ Mark D. Gersten Treasurer and January 29, 1997
Mark D. Gersten Chief Financial
Officer
3) All of the Trustees
David H. Dievler
Ruth S. Block
John D. Carifa
James R. Greene
James M. Hester
Clifford L. Michel
Donald J. Robinson
by /s/ Edmund P. Bergan, Jr. January 29, 1997
(Attorney-in-fact)
Edmund P. Bergan, Jr.
C-25
<PAGE>
C-26
<PAGE>
Index to Exhibits
Page
1(b) Certificate of Amendment to Declaration of Trust
6(b) Amendment to Distribution Services Agreement
(11) Consent of Independent Auditors
(17) Financial Data Schedule
(18)(b) Amended and Restated Rule 18f-3 Plan
Other Exhibits:
Powers of Attorney of David H. Dievler, Ruth S.
Block, John D. Carifa, James R. Greene, James H.
Hester, Clifford L. Michel and Donald J. Robinson.
C-27
00250151.AS8
<PAGE>
ALLIANCE MUNICIPAL INCOME FUND II
CERTIFICATE OF AMENDMENT
The undersigned, being the Secretary of Alliance
Municipal Income Fund II (hereinafter referred to as the
"Trust"), a trust with transferable shares of the type commonly
called a Massachusetts business trust, DOES HEREBY CERTIFY that,
pursuant to the authority conferred upon the Trustees of the
Trust by Section 9.3 of the Agreement and Declaration of Trust,
dated April 2, 1993, (hereinafter referred to as the
"Declaration"), and by the affirmative vote of a Majority of the
Trustees duly cast at a meeting duly called and held on September
30, 1996 the Declaration is hereby amended as follows:
I. Section 1.4 of the Declaration is amended by adding thereto
the following definition:
"Advisor Class Shares" shall mean, with respect to
Shares of any Portfolio established and designated by the
Declaration, that class of Shares which are not subject to a
sales charge or "load" upon the purchase thereof and the proceeds
of the redemption of which are not subject to a contingent
deferred sales charge payable on such redemption.
II. The first paragraph of Section 6.2 is hereby amended and
restated in its entirety to read as follows:
"SECTION 6.2. Establishment and Designation of Certain
Portfolios; General Provisions for All Portfolios. Without
limiting the authority of the Trustees set forth in Section
6.1(a) hereof to establish and designate additional Portfolios,
there is hereby established and designated the Florida Portfolio,
the Minnesota Portfolio, the New Jersey Portfolio, the
Pennsylvania Portfolio and the Ohio Portfolio (collectively, the
"Initial Portfolios", and each singly, and "Initial Portfolio"),
the Shares of which shall be divided into four separate Classes,
designated Class A, Class B, Class C and Advisor Class, which
shall represent interests only in the Initial Portfolio. An
unlimited number of Shares of each such Class may be issued. All
Shares of the Initial Portfolios outstanding on the date on which
the amendments of this Declaration first providing for four
Classes of Shares of any Series become effective shall continue
to be Shares of the Class to which they belonged immediately
prior to the effectiveness of such amendments. Subject to the
power of the Trustees to classify or reclassify any unissued
Shares of a Series pursuant to Section 6.1(a), the Shares of such
<PAGE>
Portfolio, and the Shares of any further Portfolios that may from
time to time be established and designated by the Trustees shall
(unless the Trustees otherwise determine with respect to some
further Portfolio at the time of establishing and designating the
same) have the following relative rights and preferences:"
IN WITNESS WHEREOF, the undersigned has set his
hand and seal this 30th day of September, 1996.
/s/ Edmund P. Bergan, Jr.
Name: Edmund P. Bergan, Jr.
Title: Secretary
ACKNOWLEDGMENT
STATE OF NEW YORK )
: ss.
COUNTY OF NEW YORK) , 1996
Then personally appeared the above named Edmund P.
Bergan, Jr., and acknowledged the foregoing instrument to be
his free act and deed.
Before me,
/s/ Melanie S. Pangilinan
_____________________________
Notary Public
2-17-97
My Commission Expires ________
2
00250151.AT0
<PAGE>
AMENDMENT TO
DISTRIBUTION SERVICES AGREEMENT
AMENDMENT made this 30th day of September, 1996 between
ALLIANCE MUNICIPAL INCOME FUND II, a Massachusetts Business Trust
(the "Fund"), and ALLIANCE FUND DISTRIBUTORS INC., a Delaware
corporation (the "Underwriter").
WITNESSETH:
WHEREAS, the Fund and the Underwriter wish to amend the
Distribution Services Agreement dated as of October 30, 1993 (the
"Agreement") in the manner set forth herein;
NOW, THEREFORE, the parties agree as follows:
1. Amendment of Agreement. Section 1 and the first
full paragraph of Section 4(a) of the Agreement are hereby
amended and restated to read as follows:
Section 1. Appointment of Underwriter. "The Trust
hereby appoints the Underwriter as the principal
underwriter and distributor of the Fund to sell the
public shares of its Class A Common Stock (the "Class A
shares"), Class B Common Stock (the "Class B shares"),
Class C Common Stock (the "Class C shares"), Advisor
Class Common Stock (the "Advisor Class shares"), and
shares of such other class or classes as the Fund and
the Underwriter shall from time to time mutually agree
shall become subject to the Agreement ("New shares"),
(the Class A shares, Class B shares, Class C shares,
Advisor Class shares, and New shares shall be
collectively referred to herein as the "shares") and
hereby agrees during the term of this Agreement to sell
shares to the Underwriter upon the terms and conditions
set forth herein."
Section 4(a). "Any of the outstanding shares may be
tendered for redemption at any time, and the Fund agrees
to redeem or repurchase the shares so tendered in
accordance with its obligations as set forth in Section
6.2(e) of Article VI of its Declaration of Trust and in
accordance with the applicable provisions set forth in
the Prospectus and Statement of Additional Information.
The price to be paid to redeem or repurchase the shares
shall be equal to the net asset value calculated in
accordance with the provisions of Section 3(d) hereof,
less any applicable sales charge. All payments by the
Fund hereunder shall be made in the manner set forth
below. The redemption or repurchase by the Fund of any
of the Class A shares purchased by or through the
<PAGE>
Underwriter will not affect the initial sales charge
secured by the Underwriter or any selected dealer or
compensation paid to any selected agent (unless such
selected dealer or selected agent has otherwise agreed
with the Underwriter), in the course of the original
sale, regardless of the length of the time period
between the purchase by an investor and his tendering
for redemption or repurchase."
2. Class References. Any and all references in the
Agreement to Class Y shares are hereby amended to read Advisor
Class shares.
3. No Other Changes. Except as provided herein, the
Agreement shall be unaffected hereby.
IN WITNESS WHEREOF, the parties hereto have executed
this Amendment to the Agreement.
ALLIANCE MUNICIPAL INCOME FUND II
By: /s/ Edmund P. Bergan, Jr.
Edmund P. Bergan, Jr.
Secretary
ALLIANCE FUND DISTRIBUTORS, INC.
By: /s/ Robert L. Erricco
Robert L. Errico
President
Accepted as of the date first written above:
ALLIANCE CAPITAL MANAGEMENT L.P.
By: Alliance Capital Management Corporation,
General Partner
By: /s/ John D. Carifa
John D. Carifa
President
2
00250151.AS9
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the
captions "Financial Highlights", "Shareholder Services -
Statements and Reports" and "General Information -
Independent Auditors" and to the use of our report dated
November 1, 1996, in this Registration Statement (Form N-1A
33-60560) of Alliance Municipal Income Fund II.
/s/ ERNST & YOUNG LLP
New York, New York
January 28, 1997
00250151.AT3
<PAGE>
ALLIANCE MUNICIPAL INCOME FUND II
Amended and Restated Plan pursuant to Rule 18f-3
under the Investment Company Act of 1940
Effective as amended and restated September 30, 1996
The Plan (the "Plan") pursuant to Rule 18f-3 under the
Investment Company Act of 1940 (the "Act") of Municipal Income
Fund II (the "Fund"), which sets forth the general
characteristics of, and the general conditions under which the
Fund may offer, multiple classes of shares of its now existing
and hereafter created portfolios,* is hereby amended and
restated in its entirety. This Plan may be revised or amended
from time to time as provided below.
Class Designations
The Fund** may from time to time issue one or more of
the following classes of shares: Class A shares, Class B shares,
Class C shares and Advisor Class shares. Each of the four
classes of shares will represent interests in the same portfolio
of investments of the Fund and, except as described herein, shall
have the same rights and obligations as each other class. Each
class shall be subject to such investment minimums and other
conditions of eligibility as are set forth in the prospectus or
statement of additional information through which such shares are
issued, as from time to time in effect (the "Prospectus").
Class Characteristics
Class A shares are offered at a public offering price
that is equal to their net asset value ("NAV") plus an initial
sales charge, as set forth in the Prospectus. Class A shares may
also be subject to a Rule 12b-1 fee, which may include a service
fee and, under certain circumstances, a contingent deferred sales
charge ("CDSC"), as described in the Prospectus.
____________________
* This Plan is intended to allow the Fund to offer multiple
classes of shares to the full extent and in the manner
permitted by Rule 18f-3 under the Act (the "Rule"), subject
to the requirements and conditions imposed by the Rule.
** For purposes of this Plan, if the Fund has existing more than
one portfolio pursuant to which multiple classes of shares
are issued, then references in this Plan to the "Fund" shall
be deemed to refer instead to each portfolio.
<PAGE>
Class B shares are offered at their NAV, without an
initial sales charge, and may be subject to a CDSC and a Rule
12b-1 fee, which may include a service fee, as described in the
Prospectus.
Class C shares are offered at their NAV, without an
initial sales charge, and may be subject to a CDSC and a Rule
12b-1 fee, which may include a service fee, as described in the
Prospectus.
Advisor Class shares are offered at their NAV, without
any initial sales charge, CDSC or Rule 12b-1 fee.
The initial sales charge on Class A shares and CDSC on
Class A, B and C shares are each subject to reduction or waiver
as permitted by the Act, and as described in the Prospectus.
Allocations to Each Class
Expense Allocations
The following expenses shall be allocated, to the extent
practicable, on a class-by-class basis: (i) Rule 12b-1 fees
payable by the Fund to the distributor or principal underwriter
of the Fund's shares (the "Distributor"), and (ii) transfer
agency costs attributable to each class. Subject to the approval
of the Fund's Board of Trustees, including a majority of the
independent Trustees, the following "Class Expenses" may be
allocated on a class-by-class basis: (a) printing and postage
expenses related to preparing and distributing materials such as
shareholder reports, prospectuses and proxy statements to current
shareholders of a specific class,*** (b) SEC registration fees
incurred with respect to a specific class, (c) blue sky and
foreign registration fees and expenses incurred with respect to a
specific class, (d) the expenses of administrative personnel and
services required to support shareholders of a specific class
(including, but not limited to, maintaining telephone lines and
personnel to answer shareholder inquiries about their accounts or
about the Fund), (e) litigation and other legal expenses relating
to a specific class of shares, (f) Trustees' fees or expenses
incurred as a result of issues relating to a specific class of
shares, (g) accounting and consulting expenses relating to a
specific class of shares, (h) any fees imposed pursuant to a non-
Rule 12b-1 shareholder services plan that relate to a specific
____________________
*** For Advisor Class shares, the expenses of preparation,
printing and distribution of prospectuses and shareholder
reports, as well as other distribution-related expenses, will
be borne by the investment adviser of the Fund (the
"Adviser") or the Distributor from their own resources.
2
<PAGE>
class of shares, and (i) any additional expenses, not including
advisory or custodial fees or other expenses related to the
management of the Fund's assets, if these expenses are actually
incurred in a different amount with respect to a class, or if
services are provided with respect to a class that are of a
different kind or to a different degree than with respect to one
or more other classes.
All expenses not now or hereafter designated as Class
Expenses ("Fund Expenses") will be allocated to each class on the
basis of the net asset value of that class in relation to the net
asset value of the Fund.
Waivers and Reimbursements
The Adviser or Distributor may choose to waive or
reimburse Rule 12b-1 fees, transfer agency fees or any Class
Expenses on a voluntary, temporary basis. Such waiver or
reimbursement may be applicable to some or all of the classes and
may be in different amounts for one or more classes.
Income, Gains and Losses
Income, and realized and unrealized capital gains and
losses shall be allocated to each class on the basis of the net
asset value of that class in relation to the net asset value of
the Fund.
Conversion and Exchange Features
Conversion Features
Class B shares of the Fund automatically convert to
Class A shares of the Fund after a certain number of months or
years after the end of the calendar month in which the
shareholder's purchase order was accepted as described in the
Prospectus. Class B shares purchased through reinvestment of
dividends and distributions will be treated as Class B shares for
all purposes except that such Class B shares will be considered
held in a separate sub-account. Each time any Class B shares in
the shareholder's account convert to Class A shares, an equal
pro-rata portion of the Class B shares in the sub-account will
also convert to Class A shares.
Advisor Class shares of the Fund automatically convert
to Class A shares of the Fund during the calendar month following
the month in which the Fund is informed that the beneficial owner
of the Advisor Class shares has ceased to participate in a fee-
based program or employee benefit plan that satisfies the
requirements to purchase Advisor Class shares as described in the
3
<PAGE>
Prospectus or is otherwise no longer eligible to purchase Advisor
Class shares as provided in the Prospectus.
The conversion of Class B and Advisor Class shares to
Class A shares may be suspended if the opinion of counsel
obtained by the Fund that the conversion does not constitute a
taxable event under current federal income tax law is no longer
available. Class B and Advisor Class shares will convert into
Class A shares on the basis of the relative net asset value of
the two classes, without the imposition of any sales load, fee or
other charge.
In the event of any material increase in payments
authorized under the Rule 12b-1 Plan (or, if presented to
shareholders, any material increase in payments authorized by a
non-Rule 12b-1 shareholder services plan) applicable to Class A
shares, existing Class B and Advisor Class shares will stop
converting into Class A shares unless the Class B and Advisor
Class shareholders, voting separately as a class, approve the
increase in such payments. Pending approval of such increase, or
if such increase is not approved, the Trustees shall take such
action as is necessary to ensure that existing Class B and
Advisor Class shares are exchanged or converted into a new class
of shares ("New Class A") identical in all material respects to
Class A shares as existed prior to the implementation of the
increase in payments, no later than such shares were previously
scheduled to convert to Class A shares. If deemed advisable by
the Trustees to implement the foregoing, such action may include
the exchange of all existing Class B and Advisor Class shares for
new classes of shares ("New Class B" and "New Advisor Class,"
respectively) identical to existing Class B and Advisor Class
shares, except that New Class B and New Advisor Class shares
shall convert to New Class A shares. Exchanges or conversions
described in this paragraph shall be effected in a manner that
the Trustees reasonably believe will not be subject to federal
income taxation. Any additional cost associated with the
creation, exchange or conversion of New Class A, New Class B and
New Advisor Class shares shall be borne by the Adviser and the
Distributor. Class B and Advisor Class shares sold after the
implementation of the fee increase may convert into Class A
shares subject to the higher maximum payment, provided that the
material features of the Class A plan and the relationship of
such plan to the Class B and Advisor Class shares are disclosed
in an effective registration statement.
Exchange Features
Shares of each class generally will be permitted to be
exchanged only for shares of a class with similar characteristics
in another Alliance Mutual Fund and shares of certain Alliance
money market funds, except that certain holders of Class A shares
4
<PAGE>
of the Fund eligible to purchase and hold Advisor Class shares of
the Fund may also exchange their Class A shares for Advisor Class
shares. If the aggregate net asset value of shares of all
Alliance Mutual Funds held by an investor in the Fund reaches the
minimum amount at which an investor may purchase Class A shares
at net asset value without a front-end sales load on or before
December 15 in any year, then all Class B and Class C shares of
the Fund held by that investor may thereafter be exchanged, at
the investor's request, at net asset value and without any front-
end sales load or CDSC for Class A shares of the Fund. All
exchange features applicable to each class will be described in
the Prospectus.
Dividends
Dividends paid by the Fund with respect to its Class A,
Class B, Class C and Advisor Class shares, to the extent any
dividends are paid, will be calculated in the same manner, at the
same time and will be in the same amount, except that any Rule
12b-1 fee payments relating to a class of shares will be borne
exclusively by that class and any incremental transfer agency
costs or, if applicable, Class Expenses relating to a class shall
be borne exclusively by that class.
Voting Rights
Each share of a Fund entitles the shareholder of record
to one vote. Each class of shares of the Fund will vote
separately as a class with respect to the Rule 12b-1 plan
applicable to that class and on other matters for which class
voting is required under applicable law. Class A, Class B and
Advisor Class shareholders will vote as three separate classes to
approve any material increase in payments authorized under the
Rule 12b-1 plan applicable to Class A shares.
Responsibilities of the Trustees
On an ongoing basis, the Trustees will monitor the Fund
for the existence of any material conflicts among the interests
of the four classes of shares. The Trustees shall further
monitor on an ongoing basis the use of waivers or reimbursement
by the Adviser and the Distributor of expenses to guard against
cross-subsidization between classes. The Trustees, including a
majority of the independent Trustees, shall take such action as
is reasonably necessary to eliminate any such conflict that may
develop. If a conflict arises, the Adviser and Distributor, at
their own cost, will remedy such conflict up to and including
establishing one or more new registered management investment
companies.
5
<PAGE>
Reports to the Trustees
The Adviser and Distributor will be responsible for
reporting any potential or existing conflicts among the four
classes of shares to the Trustees. In addition, the Trustees
will receive quarterly and annual statements concerning
distributions and shareholder servicing expenditures complying
with paragraph (b)(3)(ii) of Rule 12b-1. In the statements, only
expenditures properly attributable to the sale or servicing of a
particular class of shares shall be used to justify any
distribution or service fee charged to that class. The
statements, including the allocations upon which they are based,
will be subject to the review of the independent Trustees in the
exercise of their fiduciary duties. At least annually, the
Trustees shall receive a report from an expert, acceptable to the
Trustees, (the "Expert"), with respect to the methodology and
procedures for calculating the net asset value, dividends and
distributions for the classes, and the proper allocation of
income and expenses among the classes. The report of the Expert
shall also address whether the Fund has adequate facilities in
place to ensure the implementation of the methodology and
procedures for calculating the net asset value, dividends and
distributions for the classes, and the proper allocation of
income and expenses among the classes. The Fund and the Adviser
will take immediate corrective measures in the event of any
irregularities reported by the Expert.
Amendments
The Plan may be amended from time to time in accordance
with the provisions and requirements of Rule 18f-3 under the Act.
Amended and restated by action of the Board of Trustees
this 30th day of September, 1996.
By: /s/ Edmund P. Bergan, Jr.
Edmund P. Bergan, Jr.
Secretary
6
00250151.AT4
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose
signature appears below hereby revokes all prior powers granted
by the undersigned to the extent inconsistent herewith and
constitutes and appoints John D. Carifa, Edmund P. Bergan, Jr.,
and Domenick Pugliese, and each of them, to act severally as
attorneys-in-fact and agents, with power of substitution and
resubstitution, for the undersigned in any and all capacities,
solely for the purpose of signing the Registration Statement, and
any amendments thereto, on Form N-1A of Alliance Municipal Income
Fund II and filing the same, with exhibits thereto, and other
documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that
said attorneys-in-fact, or their substitute or substitutes, may
do or cause to be done by virtue hereof.
/s/ Donald J. Robinson
______________
Donald J. Robinson
Dated: September 30, 1996
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose
signature appears below hereby revokes all prior powers granted
by the undersigned to the extent inconsistent herewith and
constitutes and appoints John D. Carifa, Edmund P. Bergan, Jr.,
and Domenick Pugliese, and each of them, to act severally as
attorneys-in-fact and agents, with power of substitution and
resubstitution, for the undersigned in any and all capacities,
solely for the purpose of signing the Registration Statement, and
any amendments thereto, on Form N-1A of Alliance Municipal Income
Fund II and filing the same, with exhibits thereto, and other
documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that
said attorneys-in-fact, or their substitute or substitutes, may
do or cause to be done by virtue hereof.
/s/ Clifford L. Michel
____________________
Clifford L. Michel
Dated: September 30, 1996
000250203.AT6
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose
signature appears below hereby revokes all prior powers granted
by the undersigned to the extent inconsistent herewith and
constitutes and appoints John D. Carifa, Edmund P. Bergan, Jr.,
and Domenick Pugliese, and each of them, to act severally as
attorneys-in-fact and agents, with power of substitution and
resubstitution, for the undersigned in any and all capacities,
solely for the purpose of signing the Registration Statement, and
any amendments thereto, on Form N-1A of Alliance Municipal Income
Fund II and filing the same, with exhibits thereto, and other
documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that
said attorneys-in-fact, or their substitute or substitutes, may
do or cause to be done by virtue hereof.
/s/ James M. Hester
James M. Hester
Dated: September 30, 1996
000250203.AT6
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose
signature appears below hereby revokes all prior powers granted
by the undersigned to the extent inconsistent herewith and
constitutes and appoints John D. Carifa, Edmund P. Bergan, Jr.,
and Domenick Pugliese, and each of them, to act severally as
attorneys-in-fact and agents, with power of substitution and
resubstitution, for the undersigned in any and all capacities,
solely for the purpose of signing the Registration Statement, and
any amendments thereto, on Form N-1A of Alliance Municipal Income
Fund II and filing the same, with exhibits thereto, and other
documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that
said attorneys-in-fact, or their substitute or substitutes, may
do or cause to be done by virtue hereof.
/s/ David H. Dievler
David H. Dievler
Dated: September 30, 1996
000250203.AT6
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose
signature appears below hereby revokes all prior powers granted
by the undersigned to the extent inconsistent herewith and
constitutes and appoints John D. Carifa, Edmund P. Bergan, Jr.,
and Domenick Pugliese, and each of them, to act severally as
attorneys-in-fact and agents, with power of substitution and
resubstitution, for the undersigned in any and all capacities,
solely for the purpose of signing the Registration Statement, and
any amendments thereto, on Form N-1A of Alliance Municipal Income
Fund II and filing the same, with exhibits thereto, and other
documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that
said attorneys-in-fact, or their substitute or substitutes, may
do or cause to be done by virtue hereof.
/s/ James R. Greene
___________________
James R. Greene
Dated: September 30, 1996
000250203.AT6
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose
signature appears below hereby revokes all prior powers granted
by the undersigned to the extent inconsistent herewith and
constitutes and appoints John D. Carifa, Edmund P. Bergan, Jr.,
and Domenick Pugliese, and each of them, to act severally as
attorneys-in-fact and agents, with power of substitution and
resubstitution, for the undersigned in any and all capacities,
solely for the purpose of signing the Registration Statement, and
any amendments thereto, on Form N-1A of Alliance Municipal Income
Fund II and filing the same, with exhibits thereto, and other
documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that
said attorneys-in-fact, or their substitute or substitutes, may
do or cause to be done by virtue hereof.
/s/ Ruth S. Block
__________________
Ruth S. Block
Dated: September 30, 1996
000250203.AT6
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose
signature appears below hereby revokes all prior powers granted
by the undersigned to the extent inconsistent herewith and
constitutes and appoints John D. Carifa, Edmund P. Bergan, Jr.,
and Domenick Pugliese, and each of them, to act severally as
attorneys-in-fact and agents, with power of substitution and
resubstitution, for the undersigned in any and all capacities,
solely for the purpose of signing the Registration Statement, and
any amendments thereto, on Form N-1A of Alliance Municipal Income
Fund II and filing the same, with exhibits thereto, and other
documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that
said attorneys-in-fact, or their substitute or substitutes, may
do or cause to be done by virtue hereof.
/s/ John D. Carifa
John D. Carifa
Dated: September 30, 1996
000250151.AT6
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<PAGE>
<ARTICLE> 6
<CIK> 0000899774
<NAME> ALLIANCE MUNICIPAL INCOME FUND, II
<SERIES>
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<NAME> ARIZONA PORTFOLIO CLASS A
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 11,357,729
<INVESTMENTS-AT-VALUE> 11,607,257
<RECEIVABLES> 389,458
<ASSETS-OTHER> 23,769
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 12,020,484
<PAYABLE-FOR-SECURITIES> 1,500,000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 202,695
<TOTAL-LIABILITIES> 1,702,695
<SENIOR-EQUITY> 9,993
<PAID-IN-CAPITAL-COMMON> 10,069,786
<SHARES-COMMON-STOCK> 427,051
<SHARES-COMMON-PRIOR> 231,097
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (14,548)
<ACCUMULATED-NET-GAINS> 3,030
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 249,528
<NET-ASSETS> 10,317,789
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 485,267
<OTHER-INCOME> 0
<EXPENSES-NET> 94,896
<NET-INVESTMENT-INCOME> 390,371
<REALIZED-GAINS-CURRENT> 45,864
<APPREC-INCREASE-CURRENT> 83,969
<NET-CHANGE-FROM-OPS> 520,204
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (172,713)
<DISTRIBUTIONS-OF-GAINS> (18,449)
<DISTRIBUTIONS-OTHER> (10,334)
<NUMBER-OF-SHARES-SOLD> 253,662
<NUMBER-OF-SHARES-REDEEMED> (65,056)
<SHARES-REINVESTED> 7,348
<NET-CHANGE-IN-ASSETS> 4,291,570
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 5,310
<OVERDISTRIB-NII-PRIOR> (4,704)
<OVERDIST-NET-GAINS-PRIOR> 0
<PAGE>
<GROSS-ADVISORY-FEES> 49,708
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 327,163
<AVERAGE-NET-ASSETS> 3,259,079
<PER-SHARE-NAV-BEGIN> 10.29
<PER-SHARE-NII> 0.55
<PER-SHARE-GAIN-APPREC> 0.14
<PER-SHARE-DIVIDEND> (0.55)
<PER-SHARE-DISTRIBUTIONS> (0.11)
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<EXPENSE-RATIO> 0.78
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
00250151.AS4
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<CIK> 0000899774
<NAME> ALLIANCE MUNICIPAL INCOME FUND, II
<SERIES>
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<NAME> ARIZONA PORTFOLIO CLASS B
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 11,357,729
<INVESTMENTS-AT-VALUE> 11,607,257
<RECEIVABLES> 389,458
<ASSETS-OTHER> 23,769
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 12,020,484
<PAYABLE-FOR-SECURITIES> 1,500,000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 202,695
<TOTAL-LIABILITIES> 1,702,695
<SENIOR-EQUITY> 9,993
<PAID-IN-CAPITAL-COMMON> 10,069,786
<SHARES-COMMON-STOCK> 503,513
<SHARES-COMMON-PRIOR> 307,652
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (14,548)
<ACCUMULATED-NET-GAINS> 3,030
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 249,528
<NET-ASSETS> 10,317,789
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 485,267
<OTHER-INCOME> 0
<EXPENSES-NET> 94,896
<NET-INVESTMENT-INCOME> 390,371
<REALIZED-GAINS-CURRENT> 45,864
<APPREC-INCREASE-CURRENT> 83,969
<NET-CHANGE-FROM-OPS> 520,204
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (192,483)
<DISTRIBUTIONS-OF-GAINS> (25,982)
<DISTRIBUTIONS-OTHER> (11,517)
<NUMBER-OF-SHARES-SOLD> 222,576
<NUMBER-OF-SHARES-REDEEMED> (36,037)
<SHARES-REINVESTED> 9,322
<NET-CHANGE-IN-ASSETS> 4,291,570
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 5,310
<OVERDISTRIB-NII-PRIOR> (4,704)
<OVERDIST-NET-GAINS-PRIOR> 0
<PAGE>
<GROSS-ADVISORY-FEES> 49,708
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 327,163
<AVERAGE-NET-ASSETS> 4,150,932
<PER-SHARE-NAV-BEGIN> 10.29
<PER-SHARE-NII> 0.47
<PER-SHARE-GAIN-APPREC> 0.14
<PER-SHARE-DIVIDEND> (0.47)
<PER-SHARE-DISTRIBUTIONS> (0.11)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.32
<EXPENSE-RATIO> 1.48
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
00250151.AS5
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<CIK> 0000899774
<NAME> ALLIANCE MUNICIPAL INCOME FUND, II
<SERIES>
<NUMBER> 083
<NAME> ARIZONA PORTFOLIO CLASS C
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 11,357,729
<INVESTMENTS-AT-VALUE> 11,607,257
<RECEIVABLES> 389,458
<ASSETS-OTHER> 23,769
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 12,020,484
<PAYABLE-FOR-SECURITIES> 1,500,000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 202,695
<TOTAL-LIABILITIES> 1,702,695
<SENIOR-EQUITY> 9,993
<PAID-IN-CAPITAL-COMMON> 10,069,786
<SHARES-COMMON-STOCK> 68,776
<SHARES-COMMON-PRIOR> 46,698
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (14,548)
<ACCUMULATED-NET-GAINS> 3,030
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 249,528
<NET-ASSETS> 10,317,789
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 485,267
<OTHER-INCOME> 0
<EXPENSES-NET> 94,896
<NET-INVESTMENT-INCOME> 390,371
<REALIZED-GAINS-CURRENT> 45,864
<APPREC-INCREASE-CURRENT> 83,969
<NET-CHANGE-FROM-OPS> 520,204
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (25,175)
<DISTRIBUTIONS-OF-GAINS> (3,713)
<DISTRIBUTIONS-OTHER> (1,507)
<NUMBER-OF-SHARES-SOLD> 44,293
<NUMBER-OF-SHARES-REDEEMED> (24,564)
<SHARES-REINVESTED> 2,349
<NET-CHANGE-IN-ASSETS> 4,291,570
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 5,310
<OVERDISTRIB-NII-PRIOR> (4,704)
<OVERDIST-NET-GAINS-PRIOR> 0
<PAGE>
<GROSS-ADVISORY-FEES> 49,708
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 327,163
<AVERAGE-NET-ASSETS> 543,385
<PER-SHARE-NAV-BEGIN> 10.30
<PER-SHARE-NII> 0.47
<PER-SHARE-GAIN-APPREC> 0.13
<PER-SHARE-DIVIDEND> (0.47)
<PER-SHARE-DISTRIBUTIONS> (0.11)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.32
<EXPENSE-RATIO> 1.48
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
00250151.AS6
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<ARTICLE> 6
<CIK> 0000899774
<NAME> ALLIANCE MUNICIPAL INCOME FUND, II
<SERIES>
<NUMBER> 011
<NAME> FLORIDA PORTFOLIO CLASS A
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 68,003,822
<INVESTMENTS-AT-VALUE> 69,143,648
<RECEIVABLES> 1,412,482
<ASSETS-OTHER> 25,341
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 70,581,471
<PAYABLE-FOR-SECURITIES> 3,300,000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 628,662
<TOTAL-LIABILITIES> 3,928,662
<SENIOR-EQUITY> 68,455
<PAID-IN-CAPITAL-COMMON> 71,949,865
<SHARES-COMMON-STOCK> 1,469,256
<SHARES-COMMON-PRIOR> 1,248,497
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (92,663)
<ACCUMULATED-NET-GAINS> (6,412,674)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,139,826
<NET-ASSETS> 66,652,809
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,071,070
<OTHER-INCOME> 0
<EXPENSES-NET> 837,621
<NET-INVESTMENT-INCOME> 3,233,449
<REALIZED-GAINS-CURRENT> 1,662,326
<APPREC-INCREASE-CURRENT> (590,349)
<NET-CHANGE-FROM-OPS> 4,305,426
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (732,184)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (14,102)
<NUMBER-OF-SHARES-SOLD> 542,901
<NUMBER-OF-SHARES-REDEEMED> (351,639)
<SHARES-REINVESTED> 29,497
<NET-CHANGE-IN-ASSETS> 3,250,060
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (8,075,000)
<OVERDISTRIB-NII-PRIOR> (21,287)
<OVERDIST-NET-GAINS-PRIOR> 0
<PAGE>
<GROSS-ADVISORY-FEES> 407,810
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,230,717
<AVERAGE-NET-ASSETS> 13,222,741
<PER-SHARE-NAV-BEGIN> 9.58
<PER-SHARE-NII> 0.54
<PER-SHARE-GAIN-APPREC> 0.16
<PER-SHARE-DIVIDEND> (0.54)
<PER-SHARE-DISTRIBUTIONS> (0.01)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.73
<EXPENSE-RATIO> 0.73
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
00250188.AA3
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<PAGE>
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<NAME> ALLIANCE MUNICIPAL INCOME FUND, II
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00250195.AA2
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
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<NAME> ALLIANCE MUNICIPAL INCOME FUND, II
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00250195.AA3
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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<NAME> ALLIANCE MUNICIPAL INCOME FUND, II
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00250193.AA4
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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<NAME> ALLIANCE MUNICIPAL INCOME FUND, II
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00250193.AA5
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<NAME> ALLIANCE MUNICIPAL INCOME FUND, II
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00250193.AA6
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<NAME> ALLIANCE MUNICIPAL INCOME FUND, II
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00250192.AA1
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<NAME> ALLIANCE MUNICIPAL INCOME FUND, II
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00250192.AA2
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
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<NAME> ALLIANCE MUNICIPAL INCOME FUND, II
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00250192.AA3
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000899774
<NAME> ALLIANCE MUNICIPAL INCOME FUND, II
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<PAGE>
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00250189.AA3
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
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<NAME> ALLIANCE MUNICIPAL INCOME FUND, II
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00250189.AA4
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
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<NAME> ALLIANCE MUNICIPAL INCOME FUND, II
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<PAGE>
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00250189.AA5
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000899774
<NAME> ALLIANCE MUNICIPAL INCOME FUND, II
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00250190.AA2
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
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<NAME> ALLIANCE MUNICIPAL INCOME FUND, II
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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00250190.AA4
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<NAME> ALLIANCE MUNICIPAL INCOME FUND, II
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00250191.AA1
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
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<NAME> ALLIANCE MUNICIPAL INCOME FUND, II
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00250191.AA2
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
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<NAME> ALLIANCE MUNICIPAL INCOME FUND, II
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00250191.AA3
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
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<NAME> ALLIANCE MUNICIPAL INCOME FUND, II
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00250194.AA2
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
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<NAME> ALLIANCE MUNICIPAL INCOME FUND, II
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00250194.AA3
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
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<NAME> ALLIANCE MUNICIPAL INCOME FUND, II
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00250194.AA4
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