<PAGE>
As filed with the Securities and Exchange
Commission on January 30,1998
File No. 33-60560
811-07618
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
Post-Effective Amendment No. 10 X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF l940
Amendment No. 10 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)
on (date) pursuant to paragraph (a)(2) of rule 485.
<PAGE>
CROSS REFERENCE SHEET
(as required by Rule 404(c))
N-1A Item No. Location in 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 General Information;
Securities Dividends, Distribu-
tions and Taxes
Item 7. Purchase of Securities Being Purchase and Sale of
Offered Shares; General
Information
Item 8. Redemption or Repurchase Purchase and Sale of
Shares
Item 9. Pending Legal Proceedings Not Applicable
<PAGE>
PART B Location in State-
ment of Additional
Information
(Caption)
Item 10. Cover Page Cover Page
Item 11. Table of Contents Cover Page
Item 12. General Information Management of the
Fund; General
Information
Item 13. Investment Objectives and Investment Policies
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 Brokerage and
Other Practices Portfolio
Transactions
Item 18. Capital Stock and Other
Securities General Information
Item 19. Purchase, Redemption and Purchase, Redemption
Pricing of Securities Being and Repurchase of
Offered Shares; Net Asset
Value
Item 20. Tax Status Dividends, Distribu-
tions and Taxes
Item 21. Underwriters General Information
Item 22. Calculation of Performance Data General Information
Item 23. Financial Statements Financial Statements;
Report of Independent
Auditors
<PAGE>
<PAGE>
ALLIANCE MUNICIPAL
------------------------
INCOME PORTFOLIOS
------------------------
c/o Alliance Fund Services, Inc.
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 2, 1998
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
Glossary ............................................................. 14
Description of the Portfolios ........................................ 15
Investment Objective .............................................. 15
How the Portfolios Pursue Their Objective ......................... 15
Additional Investment Practices ................................... 17
Certain Fundamental Investment Policies ........................... 21
Risk Considerations ............................................... 21
Purchase and Sale of Shares .......................................... 23
Management of the Funds .............................................. 25
Dividends, Distributions and Taxes ................................... 26
General Information .................................................. 28
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, as long as the shares are held for one year or
more (the "Class C shares"). See "Purchase and Sale of Shares."
An investment in these securities is not a deposit or obligation of, or
guaranteed or endorsed by, any bank and is not federally insured by the Federal
Deposit Insurance Corporation, the Federal Reserve Board or any other agency.
Investors are advised to read this Prospectus carefully and to retain it for
future reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
[LOGO]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 Adviser 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 $217
billion in assets under management as of September 30, 1997. Alliance provides
investment management services to employee benefit plans for 28 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. The Insured
National and Insured California Portfolios may be suitable for an investor who
expects to be subject to the federal alternative minimum tax ("AMT"), while the
National Portfolio and California and other State Portfolios may be suitable for
an investor who does not expect to be subject to the AMT.
A Word About Risk...
The prices of the shares of the Alliance Municipal Income Portfolios will
fluctuate daily as the 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 investments involve risks different
from, and, in certain cases, greater than, the risks presented by more
traditional investments. These risks are fully discussed in this Prospectus. See
"Description of the Portfolios--Additional Investment Practices" and "--Risk
Considerations."
Getting Started...
Shares of the Portfolios are available through your financial representative and
most banks, insurance companies and brokerage firms nationwide. Shares can be
purchased for a minimum initial investment of $250, and subsequent investments
can be made for as little as $50. For detailed information about purchasing and
selling shares, see "Purchase and Sale of Shares." In addition, the Portfolios
offer several time and money saving services to investors. Be sure to ask your
financial representative about:
- --------------------------------------------------------------------------------
AUTOMATIC REINVESTMENT
- --------------------------------------------------------------------------------
AUTOMATIC INVESTMENT PROGRAM
- --------------------------------------------------------------------------------
SHAREHOLDER COMMUNICATIONS
- --------------------------------------------------------------------------------
DIVIDEND DIRECTION PLANS
- --------------------------------------------------------------------------------
AUTO EXCHANGE
- --------------------------------------------------------------------------------
SYSTEMATIC WITHDRAWALS
- --------------------------------------------------------------------------------
CHECKWRITING
- --------------------------------------------------------------------------------
A CHOICE OF PURCHASE PLANS
- --------------------------------------------------------------------------------
TELEPHONE TRANSACTIONS
- --------------------------------------------------------------------------------
24-HOUR INFORMATION
- --------------------------------------------------------------------------------
[LOGO]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 23.
(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 23.
<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) .22% .22% .22% 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) .17% .18% .17% After 5 years $ 79 $ 77 $ 77 $ 76 $ 76
--- --- --- After 10 years $125 $131(c) $131(c) $167 $167
Total Portfolio
Operating expenses (b) .69% 1.40% 1.39%
=== ==== ====
<CAPTION>
Insured National Portfolio Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
------- ------- ------- ------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees (after waiver) .50% .50% .50% After 1 year $ 52 $ 48 $ 18 $ 27 $ 17
12b-1 fees .30% 1.00% 1.00% After 3 years $ 74 $ 65 $ 55 $ 54 $ 54
Other expenses (a) .22% .25% .22% After 5 years $ 96 $ 95 $ 95 $ 93 $ 93
--- ---- ---- After 10 years $162 $169(c) $169(c) $203 $203
Total Portfolio
Operating expenses (b) 1.02% 1.75% 1.72%
==== ==== ====
<CAPTION>
Arizona Portfolio Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
------- ------- ------- ------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees (after waiver) None None None 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%
==== ==== ====
<CAPTION>
California Portfolio Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
------- ------- ------- ------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees (after waiver) .35% .35% .35% 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 (a) .13% .13% .13% After 5 years $ 84 $ 81 $ 81 $ 81 $ 81
--- ---- ---- After 10 years $135 $140(c) $140(c) $177 $177
Total Portfolio
Operating expenses (b) .78% 1.48% 1.48%
==== ==== ====
<CAPTION>
Insured California Portfolio Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
------- ------- ------- ------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees .55% .55% .55% After 1 year $ 53 $ 48 $ 18 $ 28 $ 18
12b-1 fees .30% 1.00% 1.00% After 3 years $ 76 $ 67 $ 57 $ 57 $ 57
Other expenses (a) .26% .26% .26% After 5 years $101 $ 98 $ 98 $ 98 $ 98
--- ---- ---- After 10 years $172 $177(c) $177(c) $213 $213
Total Portfolio
Operating expenses 1.11% 1.81% 1.81%
==== ==== ====
<CAPTION>
Florida Portfolio Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
------- ------- ------- ------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees (after waiver) .10% .10% .10% 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) .33% .33% .33% After 5 years $ 81 $ 78 $ 78 $ 78 $ 78
--- ---- ---- After 10 years $129 $135(c) $135(c) $171 $171
Total Portfolio
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) None None None 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 $ 78 $ 78
reimbursement) (a) .42% .42% .42% After 10 years $128 $134(c) $134(c) $170 $170
--- ---- ----
Total Portfolio
Operating expenses (b) .72% 1.42% 1.42%
=== ==== ====
<CAPTION>
Michigan Portfolio Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
------- ------- ------- ------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees (after waiver) None None None 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 After 5 years $ 93 $ 90 $ 90 $ 90 $ 90
reimbursement) (a) .66% .66% .66% After 10 years $155 $161(c) $161(c) $197 $197
--- ---- ----
Total Portfolio
Operating expenses (b) .96% 1.66% 1.66%
=== ==== ====
<CAPTION>
Minnesota 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) None None None 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 (after After 5 years $ 82 $ 80 $ 80 $ 79 $ 79
reimbursement) (a) .45% .46% .45% After 10 years $132 $138(c) $138(c) $174 $174
--- ---- ----
Total Portfolio
Operating expenses (b) .75% 1.46% 1.45%
=== ==== ====
<CAPTION>
New Jersey Portfolio Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
------- ------- ------- ------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees (after waiver) .19% .19% .19% 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) .33% .34% .33% After 5 years $ 86 $ 83 $ 83 $ 83 $ 83
--- ---- ---- After 10 years $140 $146(c) $146(c) $181 $181
Total Portfolio
Operating expenses (b) .82% 1.53% 1.52%
=== ==== ====
<CAPTION>
New York Portfolio Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
------- ------- ------- ------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <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 $ 43 $ 43
Other expenses (a) .20% .20% .20% After 5 years $ 77 $ 74 $ 74 $ 74 $ 74
--- ---- ---- After 10 years $120 $126(c) $126(c) $162 $162
Total Portfolio
Operating expenses (b) .65% 1.35% 1.35%
=== ==== ====
<CAPTION>
Ohio Portfolio Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
------- ------- ------- ------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees (after waiver) None None None 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) .45% .46% .45% After 5 years $ 82 $ 80 $ 80 $ 79 $ 79
--- ---- ---- After 10 years $132 $138(c) $138(c) $174 $174
Total Portfolio
Operating expenses (b) .75% 1.46% 1.45%
=== ==== ====
<CAPTION>
Virginia Portfolio Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
------- ------- ------- ------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees (after waiver) .27% .27% .27% After 1 year $ 52 $ 47 $ 17 $ 27 $ 17
12b-1 fees .30% 1.00% 1.00% After 3 years $ 71 $ 62 $ 52 $ 52 $ 52
Other expenses (a) .38% .39% .38% After 5 years $ 93 $ 90 $ 90 $ 90 $ 90
--- ---- ---- After 10 years $154 $160(c) $160(c) $195 $195
Total Portfolio
Operating expenses (b) .95% 1.66% 1.65%
=== ==== ====
<CAPTION>
Virginia Portfolio Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
------- ------- ------- ------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees (after waiver) None None None 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 (after After 5 years $ 78 $ 75 $ 75 $ 75 $ 75
reimbursement) (a) .37% .37% .37% After 10 years $122 $128(c) $128(c) $165 $165
--- ---- ----
Total Portfolio
Operating expenses (b) .67% 1.37% 1.37%
=== ==== ====
</TABLE>
- --------------------------------------------------------------------------------
+ Assumes redemption at end of period.
++ Assumes no redemption at end of period.
(a) These expenses include a transfer agency fee payable to Alliance Fund
Services, Inc., an affiliate of Alliance.
(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 Conduct Rules 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 Portfolios,
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%, .607%, .625% and .625% of daily average net
assets, respectively, and total portfolio operating expenses would have been
1.11%, 1.15%, 1.05% and 1.12% of daily average net assets, respectively, of the
Class A shares; 1.79%, 1.86%, 1.76% and 1.84% of daily average net assets,
respectively, of the Class B shares; and 1.81%, 1.84%, 1.74% and 1.82% of daily
net average net assets, respectively, of the Class C shares; and (ii) the
management fees for the Arizona, Florida, Massachusetts, Michigan, Minnesota,
New Jersey, Ohio, Pennsylvania and Virginia Portfolios would have been .625% of
daily average net assets for each Portfolio, and total portfolio operating
expenses would have been 2.71%, 1.35%, 2.40%, 2.46%, 2.22%, 1.34%, 1.52%, 1.40%
and 3.57% of daily average net assets, respectively, of the Class A shares,
3.40%, 2.05%, 3.07%, 3.23%, 2.91%, 2.04%, 2.22%, 2.09% and 4.29% of daily
average net assets, respectively, of Class B shares, and 3.39%, 2.03%, 3.09%,
3.20%, 2.89%, 2.03%,2.20%, 2.10% and 4.25% 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 Realized Increase
Asset and (Decrease) In Dividends
Value Unrealized Net Asset From Distributions
Beginning Net Gain Value Net From Net
Of Investment (Loss) On From Investment Realized
Fiscal Year or Period Period Income++ Investments Operations Income Gains
--------------------- --------- ---------- ----------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
National Portfolio
Class A
Year ended 10/31/97 ....... $10.51 $0.57 $0.44 $1.01 $(0.58) $0.00
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
Class B
Year ended 10/31/97 ....... 10.51 0.50 0.44 0.94 (0.50) 0.00
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 10/31/97 ....... 10.51 0.50 0.44 0.94 (0.50) 0.00
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 10/31/97 ....... $10.28 $0.50 $0.37 $0.87 $(0.50) $(0.14)
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
Class B
Year ended 10/31/97 ....... 10.28 0.42 0.38 0.80 (0.42) (0.14)
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 10/31/97 ....... 10.28 0.42 0.38 0.80 (0.42) (0.14)
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 9/30/97 ........ $10.32 $0.57 $0.48 $1.05 $(0.57) $(0.02)
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 9/30/97 ........ 10.32 0.50 0.48 0.98 (0.50) (0.02)
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 9/30/97 ........ 10.32 0.50 0.48 0.98 (0.50) (0.02)
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 10/31/97 ....... $10.59 $0.58 $0.45 $1.03 $(0.58) $0.00
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)
</TABLE>
- --------------------------------------------------------------------------------
Please refer to the footnotes on pages 12, 13 and 14.
6
<PAGE>
<TABLE>
<CAPTION>
Distributions Total Ratio Of
In Excess Investment Net Assets Net
of Total Net Asset Return At End Of Ratio Of Investment
Net Dividends Value Based on Period Expenses Income Portfolio
Investment And End Of Net Asset (000's To Average To Average Turnover
Income Distributions Period Value omitted) Net Assets Net Assets Rate
------------- ------------- --------- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
$0.00 $(0.58) $10.94 9.88% $329,540 0.69%(a) 5.40% 72%
0.00 (0.58) 10.51 6.32 325,288 0.69(a) 5.55 137
0.00 (0.58) 10.45 17.73 338,311 0.71(a) 5.84 118
(0.03) (0.84) 9.41 (7.65) 338,814 0.62(a) 5.61 110
(0.00) (0.63) 11.05 14.94 386,484 0.65(a) 5.69 233
(0.00) (0.70) 10.19 9.60 261,895 0.83(a) 6.35 86
(0.00) (0.66) 9.96 12.55 207,167 0.75(a) 6.81 64
(0.00) (0.70) 9.47 6.52 185,832 0.60(a) 7.06 105
(0.00) (0.70) 9.56 8.55 127,149 0.38(a) 7.25 216
(0.00) (0.70) 9.48 18.87 59,357 0.40(a) 7.71 261
(0.01) (0.51) 10.94 9.16 190,530 1.40(a) 4.69 72
0.00 (0.51) 10.51 5.61 214,994 1.40(a) 4.85 137
0.00 (0.51) 10.45 16.91 252,357 1.42(a) 5.13 118
(0.02) (0.76) 9.41 (8.34) 250,391 1.32(a) 4.91 110
0.00 (0.45) 11.05 10.43 216,489 1.36(a)* 4.59* 233
(0.01) (0.51) 10.94 9.18 89,792 1.39(a) 4.70 72
0.00 (0.51) 10.51 5.62 96,134 1.39(a) 4.85 137
0.00 (0.51) 10.45 16.93 108,068 1.41(a) 5.16 118
(0.02) (0.76) 9.41 (8.33) 133,249 1.31(a) 4.89 110
0.00 (0.27) 11.05 5.84 150,953 1.36(a)* 4.17* 233
$(0.02) $(0.66) $10.49 8.77% $170,631 1.02%(a) 4.85% 98%
0.00 (0.52) 10.28 7.43 160,425 1.02(b) 5.04 157
(0.02) (0.53) 10.07 18.72 165,548 1.01(b) 5.37 171
(0.01) (0.93) 8.96 (8.69) 153,656 0.66(b) 5.40 149
0.00 (0.63) 10.76 15.82 185,876 0.73(b) 5.40 165
0.00 (0.76) 9.87 7.88 149,632 0.81(b) 6.04 105
0.00 (0.61) 9.88 12.08 130,723 0.92(b) 6.34 96
0.00 (0.69) 9.39 6.44 118,240 0.92(b) 6.56 69
0.00 (0.62) 9.49 8.07 107,740 1.05(b) 6.61 91
0.00 (0.62) 9.38 16.56 103,864 1.32 6.93 173
(0.03) (0.59) 10.49 8.07 45,542 1.75(a) 4.12 98
0.00 (0.45) 10.28 6.74 52,156 1.73(b) 4.32 157
(0.01) (0.46) 10.07 17.91 58,990 1.72(b) 4.65 171
(0.01) (0.86) 8.96 (9.38) 51,439 1.37(b) 4.71 149
0.00 (0.40) 10.76 10.68 42,954 1.45(b)* 4.31* 165
(0.03) (0.59) 10.49 8.07 19,057 1.72(a) 4.15 98
0.00 (0.45) 10.28 6.74 22,763 1.72(b) 4.34 157
(0.01) (0.46) 10.07 17.91 22,265 1.71(b) 4.69 171
(0.01) (0.86) 8.96 (9.38) 24,112 1.36(b) 4.68 149
0.00 (0.24) 10.76 5.75 28,862 1.45(b)* 3.98* 165
$0.00 $(0.59) $10.78 10.54% $9,225 0.78%(a) 5.42% 193%
(0.03) (0.66) 10.32 6.84 4,409 .78(c) 5.33 244
(0.01) (0.57) 10.29 11.56 2,379 .78(c) 5.56 85
0.00 (0.20) 9.77 (0.35) 930 .78(c)* 5.82* 81
0.00 (0.52) 10.78 9.80 6,531 1.48%(a) 4.73% 193%
(0.03) (0.58) 10.32 6.10 5,199 1.48(c) 4.62 244
(0.01) (0.50) 10.29 10.78 3,166 1.48(c) 4.89 85
0.00 (0.17) 9.77 (0.58) 1,677 1.48(c)* 5.13* 81
0.00 (0.52) 10.78 9.80 1,775 1.48%(a) 4.70% 193%
(0.03) (0.58) 10.32 6.00 710 1.48(c) 4.61 244
(0.01) (0.50) 10.30 10.89 481 1.48(c) 4.90 85
0.00 (0.17) 9.77 (0.58) 485 1.48(c)* 4.70* 81
$0.00 $(0.58) $11.04 10.07% $470,444 0.78%(a) 5.43% 20%
0.00 (0.58) 10.59 7.15 460,444 0.77(d) 5.57 49
0.00 (0.59) 10.45 17.55 478,535 0.74(d) 5.90 39
0.00 (0.65) 9.43 (7.73) 470,308 0.64(d) 5.78 45
0.00 (0.62) 10.90 14.90 531,293 0.74(d) 5.74 83
0.00 (0.69) 10.06 8.05 361,661 0.59(d) 6.38 77
0.00 (0.67) 9.97 11.42 228,755 0.39(d) 6.80 106
0.00 (0.72) 9.58 7.03 143,557 0.39(d) 7.04 88
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Net Net
Net Realized Increase
Asset and (Decrease) In Dividends
Value Unrealized Net Asset From Distributions
Beginning Net Gain Value Net From Net
Of Investment (Loss) On From Investment Realized
Fiscal Year or Period Period Income++ Investments Operations Income Gains
--------------------- --------- ---------- ----------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
California Portfolio (cont'd)
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
Class B
Year ended 10/31/97 ....... 10.59 0.51 0.45 0.96 (0.51) 0.00
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
Class C
Year ended 10/31/97 ....... 10.59 0.51 0.45 0.96 (0.51) 0.00
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 10/31/97 ....... $13.39 $0.69 $0.50 $1.19 $(0.68) $0.00
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
Class B
Year ended 10/31/97 ....... 13.39 0.59 0.50 1.09 (0.59) 0.00
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 10/31/97 ....... 13.39 0.59 0.50 1.09 (0.59) 0.00
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 9/30/97 ........ $9.73 $0.55 $0.41 $0.96 $(0.55) $0.00
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 9/30/97 ........ 9.74 0.48 0.40 0.88 (0.48) 0.00
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 9/30/97 ........ 9.74 0.49 0.39 0.88 (0.48) 0.00
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 9/30/97 ........ $10.85 $0.58 $0.57 $1.15 $(0.58) $(0.20)
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 9/30/97 ........ 10.84 0.51 0.58 1.09 (0.51) (0.20)
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 9/30/97 ........ 10.84 0.51 0.58 1.09 (0.51) (0.20)
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
</TABLE>
- --------------------------------------------------------------------------------
Please refer to the footnotes on pages 12, 13 and 14.
8
<PAGE>
<TABLE>
<CAPTION>
Distributions Total Ratio Of
In Excess Investment Net Assets Net
of Total Net Asset Return At End Of Ratio Of Investment
Net Dividends Value Based on Period Expenses Income Portfolio
Investment And End Of Net Asset (000's To Average To Average Turnover
Income Distributions Period Value omitted) Net Assets Net Assets Rate
------------- ------------- --------- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
$0.00 $(0.69) $9.65 9.25% $92,000 0.53%(d) 7.03% 193%
0.00 (0.69) 9.49 17.14 34,112 0.40(d) 7.45 196
0.00 (0.51) 11.04 9.29 166,672 1.48 4.72 20
0.00 (0.51) 10.59 6.37 164,895 1.47(d) 4.87 49
0.00 (0.51) 10.45 16.64 166,759 1.45(d) 5.19 39
0.00 (0.58) 9.43 (8.43) 160,879 1.35(d) 5.07 45
0.00 (0.44) 10.90 10.60 126,688 1.44(d)* 4.66* 83
0.00 (0.51) 11.04 9.29 90,742 1.48 4.73 20
0.00 (0.51) 10.59 6.38 90,917 1.47(d) 4.87 49
0.00 (0.51) 10.45 16.64 87,793 1.44(d) 5.22 39
0.00 (0.58) 9.43 (8.43) 103,622 1.34(d) 5.06 45
0.00 (0.26) 10.90 5.98 117,379 1.44(d)* 4.42* 83
$(0.01) $(0.69) $13.89 9.18% $103,647 1.11% 5.09% 35%
0.00 (0.68) 13.39 5.79 101,542 1.08 5.19 118
(0.01) (0.69) 13.32 19.29 103,940 1.04(e) 5.34 103
0.00 (1.16) 11.79 (9.73) 94,857 0.82(e) 5.29 100
0.00 (0.74) 14.25 15.64 120,734 0.94(e) 5.06 186
0.00 (0.75) 12.99 7.52 90,477 0.78(e) 5.77 60
0.00 (0.77) 12.80 11.62 69,757 0.79(e) 6.13 59
0.00 (0.78) 12.19 6.29 56,933 0.86(e) 6.42 104
0.00 (0.80) 12.23 7.24 53,302 0.90(e) 6.43 100
0.00 (0.84) 12.18 16.27 46,017 0.32(e) 7.27 112
0.00 (0.59) 13.89 8.37 27,976 1.81 4.39 35
0.00 (0.58) 13.39 4.99 26,696 1.79 4.49 118
(0.01) (0.59) 13.32 18.35 27,816 1.74(e) 4.61 103
0.00 (1.06) 11.79 (10.43) 24,591 1.53(e) 4.60 100
0.00 (0.50) 14.25 10.43 21,234 1.65(e)* 3.85* 186
0.00 (0.59) 13.89 8.37 13,436 1.81 4.39 35
0.00 (0.58) 13.39 4.99 12,826 1.78 4.49 118
(0.01) (0.59) 13.32 18.35 14,323 1.74(e) 4.64 103
0.00 (1.06) 11.79 (10.43) 12,472 1.52(e) 4.59 100
0.00 (0.30) 14.25 5.63 15,971 1.65(e)* 3.74* 186
$0.00 $(0.55) $10.14 10.14% $17,516 0.73% 5.58% 204%
(0.01) (0.55) 9.73 7.45 14,297 0.73(f) 5.52 237
0.00 (0.55) 9.58 14.44 11,956 0.73(f) 5.91 146
0.00 (0.56) 8.89 (8.03) 8,227 0.38(f) 5.70 185
0.00 (0.16) 10.25 4.10 4,145 0.00(f)* 5.44* 82
0.00 (0.48) 10.14 9.24 24,820 1.43% 4.87% 204%
(0.01) (0.48) 9.74 6.78 22,235 1.43(f) 4.81 237
(0.01) (0.48) 9.58 13.56 20,660 1.42(f) 5.22 146
0.00 (0.49) 8.89 (8.72) 18,048 1.08(f) 4.99 185
0.00 (0.14) 10.25 3.91 9,588 0.61(f)* 4.74* 82
0.00 (0.48) 10.14 9.23 25,722 1.43% 4.89% 204%
(0.01) (0.48) 9.74 6.78 30,121 1.43(f) 4.81 237
(0.01) (0.48) 9.58 13.56 30,787 1.42(f) 5.27 146
0.00 (0.49) 8.89 (8.72) 42,405 1.08(f) 4.97 185
0.00 (0.14) 10.25 3.91 28,249 0.61(f)* 4.74* 82
$(0.03) $(0.81) $11.19 11.14% $9,461 0.72% 5.40% 134%
(0.02) (0.69) 10.85 10.25 3,211 0.62(g) 5.62 246
(0.03) (0.61) 10.50 10.19 1,337 0.60(g) 5.67 155
0.00 (0.30) 10.12 4.14 565 0.60(g)* 5.98* 146
(0.03) (0.74) 11.19 10.52 7,230 1.42% 4.73% 134%
(0.02) (0.62) 10.84 9.52 3,683 1.32(g) 4.93 246
(0.02) (0.54) 10.49 9.32 1,754 1.30(g) 4.90 155
0.00 (0.26) 10.12 3.78 725 1.30(g)* 5.13* 146
(0.03) (0.74) 11.19 10.52 7,815 1.42 4.75% 134%
(0.02) (0.62) 10.84 9.52 4,514 1.31(g) 4.88 246
(0.02) (0.54) 10.49 9.32 2,556 1.30(g) 4.85 155
0.00 (0.26) 10.12 3.78 774 1.30(g)* 4.00* 146
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Net Net
Net Realized Increase
Asset and (Decrease) In Dividends
Value Unrealized Net Asset From Distributions
Beginning Net Gain Value Net From Net
Of Investment (Loss) On From Investment Realized
Fiscal Year or Period Period Income++ Investments Operations Income Gains
--------------------- --------- ---------- ----------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Michigan Portfolio
Class A
Year ended 10/31/97........... $10.12 $0.53 $0.55 $1.08 $(0.53) $(0.13)
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 10/31/97........... 10.12 0.46 0.55 1.01 (0.46) (0.13)
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
Class C
Year ended 10/31/97........... 10.12 0.46 0.55 1.01 (0.46) (0.13)
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
Minnesota Portfolio
Class A
Year ended 9/30/97............ $ 9.58 $0.53 $0.39 $0.92 $(0.53) $0.00
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 9/30/97............ 9.58 0.46 0.39 0.85 (0.46) 0.00
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 9/30/97............ 9.58 0.46 0.39 0.85 (0.46) 0.00
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 9/30/97............ $ 9.72 $0.51 $0.44 $0.95 $(0.51) $0.00
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 9/30/97............ 9.72 0.44 0.45 0.89 (0.44) 0.00
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 9/30/97............ 9.72 0.44 0.45 0.89 (0.44) 0.00
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 10/31/97........... $ 9.66 $0.53 $0.46 $0.99 $(0.54) $0.00
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
Class B
Year ended 10/31/97........... 9.66 0.46 0.46 0.92 (0.47) 0.00
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
</TABLE>
- --------------------------------------------------------------------------------
Please refer to the footnotes on pages 12, 13 and 14.
10
<PAGE>
<TABLE>
<CAPTION>
Distributions Total Ratio Of
In Excess Investment Net Assets Net
of Total Net Asset Return At End Of Ratio Of Investment
Net Dividends Value Based on Period Expenses Income Portfolio
Investment And End Of Net Asset (000's To Average To Average Turnover
Income Distributions Period Value omitted) Net Assets Net Assets Rate
------------- ------------- --------- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
$(0.02) $(0.68) $10.52 11.05% $ 5,836 0.96% 5.24% 161%
(0.03) (0.72) 10.12 7.54 6,123 0.96(h) 5.21 242
(0.03) (0.55) 10.10 14.40 5,158 1.36(h) 5.27 151
0.00 (0.33) 9.35 (3.24) 2,473 0.93(h)* 5.83* 222
(0.02) (0.61) 10.52 10.30 5,300 1.66 4.53 161
(0.03) (0.65) 10.12 6.80 3,553 1.66(h) 4.51 242
(0.03) (0.48) 10.10 13.58 2,424 2.06(h) 4.57 151
0.00 (0.29) 9.35 (3.65) 1,722 1.63(h)* 4.93* 222
(0.02) (0.61) 10.52 10.30 5,089 1.66 4.55 161
(0.03) (0.65) 10.12 6.80 3,940 1.66(h) 4.50 242
(0.03) (0.48) 10.10 13.58 2,886 2.06(h) 4.69 151
0.00 (0.29) 9.35 (3.65) 2,778 1.63(h)* 4.92* 222
$0.00 $(0.53) $ 9.97 9.93% $ 4,120 0.75% 5.44% 131%
(0.02) (0.55) 9.58 6.95 3,165 0.72(i) 5.54 195
(0.02) (0.55) 9.49 9.63 2,414 0.71(i) 5.71 117
0.00 (0.55) 9.19 (5.35) 2,125 0.09(i) 5.71 143
0.00 (0.15) 10.28 4.34 994 0.00(i)* 5.20* 61
0.00 (0.46) 9.97 9.13 8,517 1.46 4.75 131
(0.02) (0.48) 9.58 6.15 8,291 1.42(i) 4.82 195
(0.02) (0.48) 9.49 8.90 7,299 1.42(i) 4.97 117
0.00 (0.48) 9.18 (6.15) 6,150 0.80(i) 5.00 143
0.00 (0.13) 10.28 4.16 2,665 0.43(i)* 4.50* 61
0.00 (0.46) 9.97 9.13 7,358 1.45 4.76 131
(0.02) (0.48) 9.58 6.03 6,553 1.41(i) 4.82 195
(0.02) (0.48) 9.50 8.89 7,305 1.41(i) 5.05 117
0.00 (0.48) 9.19 (5.95) 9,489 0.79(i) 4.90 143
0.00 (0.13) 10.27 4.06 6,697 0.43(i)* 4.50 61
$(0.01) $(0.52) $10.15 10.01% $ 16,309 0.82% 5.16% 61%
(0.04) (0.55) 9.72 6.57 15,520 0.82(j) 5.26 132
(0.01) (0.55) 9.65 12.91 11,612 0.82(j) 5.73 86
0.00 (0.55) 9.07 (6.67) 9,257 0.20(j) 5.65 171
0.00 (0.15) 10.29 4.44 6,679 0.00(j)* 5.37* 47
(0.01) (0.45) 10.16 9.32 38,308 1.53 4.45 61
(0.03) (0.48) 9.72 5.66 39,099 1.53(j) 4.56 132
(0.01) (0.48) 9.66 12.15 34,695 1.53(j) 5.03 86
0.00 (0.48) 9.07 (7.28) 30,459 0.91(j) 4.96 171
0.00 (0.13) 10.28 4.16 15,637 0.63(j)* 4.67* 47
(0.01) (0.45) 10.16 9.32% 21,404 1.52 4.47 61
(0.03) (0.48) 9.72 5.66 22,579 1.52(j) 4.56 132
(0.01) (0.48) 9.66 12.14 21,255 1.52(j) 5.09 86
0.00 (0.48) 9.07 (7.28) 26,472 0.90(j) 4.93 171
0.00 (0.13) 10.28 4.16 21,193 0.63(j)* 4.67* 47
$(0.01) $(0.55) $10.10 10.52% $181,745 0.65% 5.45% 34%
0.00 (0.55) 9.66 6.30 179,452 0.64(k) 5.66 64
0.00 (0.55) 9.62 17.10 183,987 0.75(k) 5.93 69
(0.01) (0.60) 8.72 (8.76) 182,170 0.66(k) 5.75 69
0.00 (0.72) 10.17 14.71 214,259 0.68(k) 5.76 63
0.00 (0.61) 9.53 9.39 162,549 0.70(k) 6.37 69
0.00 (0.62) 9.30 13.36 136,484 0.65(k) 6.81 48
0.00 (0.64) 8.78 5.71 118,875 0.44(k) 7.08 101
0.00 (0.65) 8.92 8.03 70,766 0.37(k) 7.14 119
0.00 (0.65) 8.88 18.08 27,731 0.43(k) 7.43 146
(0.01) (0.48) 10.10 9.72 96,119 1.35 4.75 34
0.00 (0.48) 9.66 5.52 96,959 1.35(k) 4.95 64
0.00 (0.48) 9.62 16.19 94,400 1.45(k) 5.21 69
(0.01) (0.52) 8.72 (9.44) 81,941 1.36(k) 5.05 69
0.00 (0.41) 10.17 10.29 58,504 1.39(k)* 4.70* 63
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
Net Net
Net Realized Increase
Asset and (Decrease) In Dividends
Value Unrealized Net Asset From Distributions
Beginning Net Gain Value Net From Net
Of Investment (Loss) On From Investment Realized
Fiscal Year or Period Period Income++ Investments Operations Income Gains
--------------------- --------- ---------- ----------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
New York Portfolio (cont'd)
Class C
Year ended 10/31/97........... $ 9.66 $0.46 $0.46 $0.92 $(0.47) $0.00
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 9/30/97............ $ 9.61 $0.54 $0.54 $1.08 $(0.53) $0.00
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 9/30/97............ 9.61 0.48 0.53 1.01 (0.46) 0.00
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 9/30/97............ 9.61 0.47 0.54 1.01 (0.46) 0.00
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
Pennsylvania Portfolio
Class A
Year ended 9/30/97............ $ 9.85 $0.55 $0.49 $1.04 $(0.55) $0.00
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 9/30/97............ 9.86 0.47 0.49 0.96 (0.47) 0.00
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 9/30/97............ 9.86 0.47 0.49 0.96 (0.47) 0.00
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 9/30/97............ $10.58 $0.57 $0.57 $1.14 $(0.57) $(0.25)
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 9/30/97............ 10.57 0.50 0.58 1.08 (0.50) (0.25)
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 9/30/97............ 10.57 0.50 0.58 1.08 (0.50) (0.25)
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>
+ Commencement of operations and/or distribution.
++ Net of expenses assumed and/or waived by Alliance, except in the case of
the Insured National Portfolio for the fiscal year ended October 31, 1988
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 1.11%, 1.10%, 1.09%, 1.09%, 1.08%, 1.11%, 1.14%, 1.15%, 1.31%, and
1.62% for Class A shares, 1.79%, 1.81%, 1.80%, 1.80% and 1.78% for Class B
shares and 1.81%, 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 1.15%, 1.12%, 1.12%, 1.11%, 1.11%, 1.12%, 1.17%, 1.20%,
1.29% and 1.54% for Class A shares, 1.86%, 1.83%, 1.83%, 1.82% and 1.83%
for Class B shares and 1.84%, 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 2.71%, 3.69%, 4.88% and 7.71% for Class A shares,
3.40%, 4.40%, 5.58% and 8.41% for Class B shares and 3.39%, 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%, 1.05%, 1.04%, 1.05%, 1.06%, 1.07%, 1.11%, 1.13%, 1.39%, and
1.89% for Class A shares, 1.76%, 1.75%, 1.75%, 1.75% and 1.78% for Class B
shares and 1.74%, 1.75%, 1.74%, 1.75% and 1.78% for Class C shares.
footnotes continued on page 13
- -------------------------------------------------------------------------------
12
<PAGE>
<TABLE>
<CAPTION>
Distributions Total Ratio Of
In Excess Investment Net Assets Net
of Total Net Asset Return At End Of Ratio Of Investment
Net Dividends Value Based on Period Expenses Income Portfolio
Investment And End Of Net Asset (000's To Average To Average Turnover
Income Distributions Period Value omitted) Net Assets Net Assets Rate
------------- ------------- --------- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
$(0.01) $(0.48) $10.10 9.72% $38,890 1.35%(a) 4.75% 34%
0.00 (0.48) 9.66 5.52 34,562 1.34(k) 4.95 64
0.00 (0.48) 9.62 16.19 32,259 1.44(k) 5.24 69
(0.01) (0.52) 8.72 (9.44) 34,646 1.36(k) 5.03 69
0.00 (0.25) 10.17 5.37 38,245 1.38(k)* 4.42* 63
$0.00 $(0.53) $10.16 11.60% $ 7,596 0.75%(a) 5.49% 104%
(0.02) (0.55) 9.61 6.72 6,054 0.75(l) 5.47 182
(0.01) (0.55) 9.53 11.63 4,170 0.75(l) 5.74 108
0.00 (0.56) 9.06 (6.44) 2,810 0.04(l) 5.67 161
0.00 (0.15) 10.26 4.15 1,050 0.00(l)* 5.30* 55
0.00 (0.46) 10.16 10.80 26,821 1.46(a) 4.81 104
(0.02) (0.48) 9.61 5.82 25,334 1.46(l) 4.77 182
(0.01) (0.48) 9.54 10.88 21,821 1.46(l) 5.08 108
0.00 (0.49) 9.06 (7.13) 20,267 0.74(l) 4.95 161
0.00 (0.13) 10.26 3.97 8,952 0.17(l)* 4.60* 55
0.00 (0.46) 10.16 10.80 14,878 1.45(a) 4.81 104
(0.02) (0.48) 9.61 5.82 17,203 1.45(l) 4.78 182
(0.01) (0.48) 9.54 10.88 18,874 1.45(l) 5.14 108
0.00 (0.49) 9.06 (7.13) 26,294 0.74(l) 4.89 161
0.00 (0.13) 10.26 3.97 19,894 0.17(l)* 4.60* 55
$(0.01) $(0.56) $10.33 10.85% $24,948 0.95%(a) 5.44% 85%
(0.03) (0.56) 9.85 8.17 21,104 1.00(m) 5.40 185
(0.02) (0.56) 9.64 11.53 8,721 1.00(m) 5.78 114
0.00 (0.57) 9.18 (5.02) 7,149 0.45(m) 5.73 156
0.00 (0.16) 10.25 4.12 4,170 0.00(m)* 5.67* 75
(0.02) (0.49) 10.33 9.95 30,078 1.66(a) 4.72 85
(0.03) (0.49) 9.86 7.38 30,440 1.71(m) 4.69 185
(0.02) (0.49) 9.65 10.78 28,559 1.71(m) 5.09 114
0.00 (0.50) 9.18 (5.72) 25,637 1.16(m) 5.01 156
0.00 (0.14) 10.25 3.94 12,173 0.40(m)* 4.97* 75
(0.02) (0.49) 10.33 9.95 15,486 1.65(a) 4.73 85
(0.03) (0.49) 9.86 7.37 13,996 1.70(m) 4.69 185
(0.02) (0.49) 9.65 10.78 15,052 1.70(m) 5.09 114
0.00 (0.50) 9.18 (5.63) 18,198 1.15(m) 4.99 156
0.00 (0.14) 10.24 3.84 13,541 0.40(m)* 4.97* 75
$0.00 $(0.82) $10.90 11.32% $ 3,530 0.67%(a) 5.39% 258%
0.00 (0.65) 10.58 9.39 2,455 0.67(n) 5.39 298
(0.01) (0.57) 10.29 12.46 1,855 0.67(n) 5.59 128
0.00 (0.24) 9.69 (0.71) 1,249 0.57(n)* 5.62* 65
0.00 (0.75) 10.90 10.70 5,020 1.37(a) 4.68 258
0.00 (0.58) 10.57 8.57 3,345 1.37(n) 4.70 298
(0.01) (0.50) 10.29 11.67 1,193 1.37(n) 4.80 128
0.00 (0.21) 9.69 (1.01) 224 1.27(n)* 4.97* 65
0.00 (0.75) 10.90 10.70 1,207 1.37(a) 4.66 258
0.00 (0.58) 10.57 8.58 642 1.37(n) 4.73 298
(0.01) (0.50) 10.29 11.56 122 1.37(n) 4.81 128
0.00 (0.21) 9.70 (0.91) 43 1.27(n)* 4.67* 65
</TABLE>
- --------------------------------------------------------------------------------
(e) If the Insured California Portfolio had borne all expenses, the respective
expense ratios (beginning with those of the most recent fiscal period)
would have been 1.11%, 1.09%, 1.08%, 1.08%, 1.09%, 1.20%, 1.23%, 1.37%,
1.45% and 1.36% for Class A shares, 1.81%, 1.79%, 1.80%, 1.78% and 1.79%
for Class B shares and 1.81%, 1.78%, 1.79%, 1.77% and 1.79% for Class C
shares.
(f) If the Florida Portfolio had borne all expenses, the respective expense
ratios (beginning with those of the most recent fiscal period) would have
been 1.35%, 1.33%, 1.33%, 1.27% and 1.30% for Class A shares, 2.05%, 2.03%,
2.03%, 1.98% and 2.00% for Class B shares and 2.03%, 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 (beginning with those of the most recent fiscal periods)
would have been 2.40%, 3.15%, 6.44% and 13.2% for Class A shares, 3.07%,
3.85%,7.14% and 13.9% for Class B shares and 3.09%, 3.84%, 7.14% and 13.9%
for Class C shares.
(h) If the Michigan Portfolio had borne all expenses, the respective expense
ratios (beginning with those of the most recent fiscal period) would have
been 2.46%, 2.77%, 3.43% and 3.97% for Class A shares, 3.23%, 3.48%, 4.12%
and 4.67% for Class B shares and 3.20%, 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 most recent fiscal period) would have
been 2.22%, 2.19%, 2.30%, 2.12% and 1.89% for Class A shares, 2.91%, 2.89%,
3.02%, 2.83% and 2.59% for Class B shares and 2.89%, 2.88%, 3.00%, 2.82%
and 2.59% for Class C shares.
footnotes continued on page 14
13
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GLOSSARY
- --------------------------------------------------------------------------------
The following terms are frequently used in this Prospectus. Many of them are
explained in greater detail under "Description of the Portfolios."
Municipal securities are debt obligations issued by (i) in the case of the
National and Insured National Portfolios, states, territories and possessions of
the United States and the District of Columbia, and their political
subdivisions, duly constituted authorities and corporations, and (ii) in the
case of each of the State Portfolios, the named state and its respective
political subdivisions, agencies and instrumentalities. Municipal securities
include municipal bonds, which are intended to meet longer-term capital needs
and municipal notes, which are intended to fulfill short-term capital needs.
Bonds are fixed, floating and variable rate debt obligations and may include
zero coupon securities.
Zero coupon securities are bonds, notes and other debt securities issued without
interest coupons.
AMT is the federal alternative minimum tax.
AMT-Subject bonds are municipal securities, the interest on which is an item of
"tax preference" and thus subject to the AMT when received by a person in a tax
year during which the person is subject to the AMT. These securities are
primarily private activity bonds, including revenue bonds.
AMT-Exempt bonds are municipal securities the interest on which is not subject
to the AMT.
Insured securities are municipal securities that are insured as to the payment
of principal and interest.
MBIA is Municipal Bond Investors Assurance Corporation.
FGIC is Financial Guaranty Insurance Company.
AMBAC is AMBAC Indemnity Corporation.
FSA is Financial Security Assurance Inc.
AGI is Asset Guaranty Insurance Company.
ACA is American Capital Access Corporation.
Medium-quality municipal securities are municipal securities rated A or Baa by
Moody's, or A or BBB by S&P, Duff & Phelps or Fitch, or determined by Alliance
to be of equivalent quality.
Lower-rated municipal securities are municipal securities rated Ba or BB or
below, or determined by Alliance to be of equivalent quality, and are commonly
referred to as "junk bonds."
High quality commercial notes are commercial notes rated MIG-2 (or VMIG-2) or
higher by Moody's, SP-2 or higher by S&P, D-1 or higher by Duff & Phelps or
FIN-2 or higher by Fitch.
Moody's is Moody's Investors Service, Inc.
S&P is Standard & Poor's Ratings Services.
Duff & Phelps is Duff & Phelps Credit Rating Co.
Fitch is Fitch IBCA, Inc.
Rule 144A securities are securities that may be resold pursuant to Rule 144A
under the Securities Act of 1933, as amended (the "Securities Act").
1940 Act is the Investment Company Act of 1940, as amended.
Code is the Internal Revenue Code of 1986, as amended.
Commission is the Securities and Exchange Commission.
- --------------------------------------------------------------------------------
(j) If the New Jersey Portfolio had borne all expenses, the respective expense
ratios (beginning with those of the most recent fiscal period) would have
been 1.34%, 1.35%, 1.35%, 1.33% and 1.29% for Class A shares, 2.04%, 2.05%,
2.06%, 2.03% and 1.99% for Class B shares and 2.03%, 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 1.12%, 1.11%, 1.12%, 1.11%, 1.13%, 1.13%, 1.20%, 1.23%, 1.48%, and
1.98% for Class A shares, 1.84%, 1.82%, 1.83%, 1.82% and 1.84% for Class B
shares and 1.82%, 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 most recent fiscal period) would have been
1.52%, 1.48%, 1.51%, 1.42% and 1.32% for Class A shares, 2.22%, 2.18%,
2.21%, 2.13% and 2.02% for Class B shares and 2.20%, 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 most recent fiscal period)
would have been 1.40%, 1.45%, 1.47%, 1.46% and 1.31% for Class A shares,
2.09%, 2.15%, 2.17%, 2.16% and 2.01% for Class B shares and 2.10%, 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 (beginning with those of the most recent fiscal periods) would have
been 3.57%, 5.18%, 8.96% and 12.29% for Class A shares, 4.29%, 5.88%, 9.66%
and 12.99% for Class B shares and 4.25%, 5.88%, 9.66% and 12.99% for Class
C shares.
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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) 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, municipal securities. The
investment objective of the Insured California Portfolio is to provide as high a
level of current income exempt from federal income tax and California personal
property tax as is consistent with preservation of capital.
HOW THE PORTFOLIOS PURSUE THEIR OBJECTIVE
National and Insured National Portfolios. The National Portfolio invests
principally in a diversified portfolio of municipal securities, the interest
from which is wholly exempt from federal income taxes except when received by a
shareholder who is subject to the AMT. The Insured National Portfolio invests
principally in a diversified portfolio of AMT-Exempt bonds that are also insured
securities. The National and Insured National Portfolios may invest 25% or more
of their respective total assets in municipal securities whose issuers are
located in the same state. The investment policies of the Insured National
Portfolio differ from those of the National Portfolio in two respects: (i)
whereas the National Portfolio invests principally (and is permitted to invest
without limit) in AMT-Subject bonds, the Insured National Portfolio invests
principally in 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.
State Portfolios. Each of the twelve State Portfolios invests in a
non-diversified portfolio of municipal securities substantially all the interest
from which (and substantially all the related dividends to shareholders) 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 personal
property 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 State Portfolio
other than the Insured California Portfolio may invest without limit in
AMT-Subject bonds.
California and Insured California Portfolios. As a matter of fundamental policy,
at least 80% of the California Portfolio's total assets normally will be
invested in municipal securities and at least 65% of its total assets normally
will be invested in AMT-Subject bonds. The California Portfolio normally will
invest at least 65% of its total assets in securities issued by California or it
its political subdivisions. As a matter of fundamental policy, the Insured
California Portfolio normally invests at least 80% of its total assets in
municipal bonds, at least 80% of its total assets in AMT-Exempt bonds and at
least 65% of its total assets in insured securities. The Insured California
Portfolio's current policy is to invest at least 65% of its total assets in
bonds issued by California or its political subdivisions, at least 80% of its
total assets in insured securities, and not to invest in AMT-Subject bonds. The
remainder of the Insured California Portfolio's total assets may be invested in
uninsured securities.
New York Portfolio. As matter of fundamental policy, at least 65% of the New
York Portfolio's total assets normally will be invested in AMT-Subject bonds
issued by New York State and its political subdivisions. In addition, the
Portfolio will invest in at least 80% of its net assets in municipal securities
the interest on which is exempt from federal income tax.
Arizona, Florida, Massachusetts, Michigan, Minnesota, New Jersey, Ohio,
Pennsylvania and Virginia Portfolios. As a matter of fundamental policy, each of
these Portfolios 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.
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 personal property tax) in the
named state. When Alliance believes that municipal securities of the named state
that meet the Portfolio's quality standards are not available, any State
Portfolio may invest in securities whose interest payments are only federally
tax-exempt.
Municipal Securities. The two principal classifications of municipal securities
are bonds and notes. Municipal bonds are intended to meet longer-term capital
needs while municipal notes are intended to fulfill short-term capital needs,
and generally have original maturities not exceeding one year. Municipal notes
include tax anticipation notes, revenue anticipation notes, bond anticipation
notes, variable rate demand obligations and tax-exempt commercial paper. The
average weighted maturity of the securities in each Portfolio will normally
range between 10 and 30 years. Municipal securities are typically classified as
either "general obligation" or "revenue" (or "special tax") securities. General
obligation bonds are secured by the issuer's pledge of its full faith, credit
and taxing power for the payment of principal and interest. Revenue or special
tax bonds are payable only from the revenues derived from a particular facility
or class of facilities or, in some cases, from the proceeds of a special excise
or
15
<PAGE>
other tax, but not from general tax revenues. Each Portfolio may invest more
than 25% of its net assets in revenue bonds, which generally do not have the
pledge of the credit of the issuer. The payment of the principal and interest on
such revenue bonds is dependent solely on the ability of the user of the
facilities financed by the bonds to meet its financial obligations and the
pledge, if any, of real and personal property so financed as security for such
payment. Each Portfolio may invest more than 25% of its total assets in
securities or obligations that are related in such a way that business or
political developments or changes affecting one such security could also affect
the others (for example, securities the interest on which is paid from projects
of a similar type).
Current federal tax law distinguishes between municipal securities issued to
finance certain private activities ("private activity bonds") and other
municipal securities. Private activity bonds, most of which are AMT-Subject
bonds and are also revenue bonds, include bonds issued to finance such projects
as airports, housing projects, resource recovery programs, solid waste disposal
facilities, and student loan programs. Interest on AMT-Subject bonds is an item
of "tax preference" and thus subject to the AMT when received by a person in a
tax year during which the person is subject to that tax. Because interest on
AMT-Subject bonds is taxable to certain investors, it is expected, although
there can be no guarantee, that such municipal securities generally will provide
somewhat higher yields than AMT-Exempt bonds of comparable quality and maturity.
The yields of municipal securities depend on, among other factors, conditions in
the municipal bond market and fixed-income markets generally, the size of a
particular offering, the maturity of the obligations, and the rating of the
issue. Normally, lower-rated municipal securities provide 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, or A or BBB by
S&P, Duff & Phelps or Fitch. At least 75% of the total assets of each Portfolio
will be invested in municipal securities rated at the time of purchase Baa or
higher by Moody's or BBB or higher by S&P, Duff & Phelps or Fitch or, if
unrated, as determined by Alliance to be of comparable quality. It is expected
that no Portfolio will retain a municipal security downgraded below Caa by
Moody's and CCC by S&P, Duff & Phelps and Fitch, or if unrated, determined by
Alliance to have undergone similar credit quality deterioration.
Non-rated municipal securities may be purchased by a Portfolio when Alliance
believes that the financial condition of the issuers of such obligations and the
protection afforded by their terms limit risk to a level comparable to that of
rated securities that are consistent with the Portfolio's investment policies.
During their fiscal years ended in 1997, the Insured National and Insured
California Portfolios invested all of their assets in securities rated A and
above by S&P, or if unrated by S&P, considered by Alliance to be of equivalent
quality to securities rated A or above. During the following Portfolios' fiscal
years ended in 1997, on a weighted average basis, the percentages of the
Portfolios' total assets invested in securities rated in particular rating
categories by S&P or, if not rated by S&P, considered by Alliance to be of
equivalent quality to such ratings, and the percentage of the Portfolios' net
assets invested in AMT-Subject bonds, were as follows:
<TABLE>
<CAPTION>
AMT-Subject
Portfolio A and Above BBB BB B Bonds
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
National 69% 19% 12% 0 75%
Arizona 77 0 23 0 43
California 73 11 10 6% 72
Florida 67 11 22 0 61
Massachusetts 96 4 0 0 64
Michigan 90 5 5 0 39
Minnesota 95 5 0 0 47
New Jersey 83 17 0 0 58
New York 93 7 0 0 76
Ohio 59 37 4 0 67
Pennsylvania 72 28 0 0 62
Virginia 80 20 0 0 63
</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. Based
upon the expected composition of each of the Insured National and Insured
California Portfolios, Alliance estimates that the annual premiums for insurance
will range from .12 of 1% to .75 of 1% of the average net assets of each
Portfolio. Although the insurance feature reduces certain financial risks, the
premiums for insurance, which are paid from each of the Insured National and
Insured California Portfolio's assets, will reduce those Portfolios' current
yields. Insurance is not a substitute for the basic credit of an issuer, but
supplements the existing credit and provides additional security therefor. While
insurance for municipal securities held by the Insured National and Insured
California Portfolios reduces credit risk by insuring that the Portfolios will
receive payment of principal and interest, it does not protect against market
fluctuations caused by changes in interest rates or other factors.
The Insured National and Insured California Portfolios may obtain insurance on
their municipal securities or purchase insured municipal securities covered by
policies issued by any insurer having a claims-paying ability rated A or higher
by
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<PAGE>
Moody's, S&P, Duff & Phelps or Fitch. No more than 25% of each Portfolio's total
assets may be invested in insured municipal securities covered by policies
issued by insurers having a claims-paying ability rated below AA by Moody's,
S&P, Duff &Phelps or Fitch. Alliance is familiar with six such insurers, MBIA,
FGIC, AMBAC, FSA, AGI and ACA. MBIA, FGIC, AMBAC, FSA have been rated AAA, with
respect to their claims paying ability, AGI has been rated AA and ACA has been
rated A. Further information with respect to MBIA, FGIC, AMBAC, FSA, AGI and ACA
is provided in the Statement of Additional Information of Alliance Municipal
Income Fund, Inc.
ADDITIONAL INVESTMENT PRACTICES
Some or all of the Portfolios may engage in the following investment practices
to the extent described in this Prospectus. See the Statements of Additional
Information 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 to replace more traditional direct investments. Each of the Portfolios is
permitted to use derivatives for one or more of these purposes, although most of
the Portfolios generally use derivatives primarily as direct investments in
order to enhance yields and broaden portfolio diversification, which entail
greater risk than if used solely for hedging purposes. Derivatives are a
valuable tool which, when used properly, can provide significant benefit to
Portfolio shareholders. A Portfolio may take a significant position in those
derivatives that are within its investment policies if, in Alliance's judgement,
this represents the most effective response to current or anticipated market
conditions.
Derivatives may be (i) standardized, exchange-traded contracts or (ii)
customized, privately negotiated contracts. Exchange-traded derivatives tend to
be more liquid and subject to less credit risk than those that are privately
negotiated.
There are four principal types of derivative instruments--options, futures,
forwards and swaps--from which virtually any type of derivative transaction can
be created.
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, a put option entitles the holder to
sell, the underlying asset (or settle for cash an amount based on an
underlying asset, rate or index). Likewise, when an option is exercised,
the writer of the option is obligated to sell (in the case of a call
option) or to purchase (in the case of a put option) the underlying asset
(or settle for cash an amount based on an underlying asset, rate or index).
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 these securities are described below under "Variable, Floating and
Inverse Floating Rate Instruments."
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<PAGE>
Derivatives 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 an investment 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.
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.
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<PAGE>
A Portfolio may write a call option on a security that it does not own in order
to hedge against a decline in the value of a security that it owns or has the
right to acquire, a technique referred to as "cross-hedging." A Portfolio would
write a call option for cross-hedging purposes, instead of writing a covered
call option, when the premium to be received from the cross-hedge transaction
exceeds that to be received from writing a covered call option, while at the
same time achieving the desired hedge. The correlation risk involved in
cross-hedging may be greater than the correlation risk involved from other
hedging strategies.
The Portfolios may purchase or write privately negotiated options on securities.
A Portfolio that purchases or writes privately negotiated options on securities
will effect such transactions only with investment dealers and other financial
institutions (such as commercial banks or savings and loan institutions) deemed
creditworthy by Alliance. Alliance has adopted procedures for monitoring the
creditworthiness of such counterparties. Privately negotiated options purchased
or written by a Portfolio may be illiquid, and it may not be possible for the
Portfolio to effect a closing transaction at an advantageous time. 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 of futures
contracts upon exercise. Options on futures contracts written or purchased by a
Portfolio will be traded on U.S. exchanges and will be used only for hedging
purposes.
A Portfolio will not enter into a futures contract or option on a futures
contract if immediately thereafter the market values of the outstanding futures
contracts of the Portfolio and the futures contracts subject to outstanding
options written by the Portfolio would exceed 50% of its total assets.
Forward Commitments. Each Portfolio may purchase or sell municipal securities on
a forward commitment basis. Forward commitments are forward contracts for the
purchase or sale of securities, including purchases on a "when-issued" basis or
purchases or sales on a "delayed delivery" basis. In some cases, a forward
commitment may be conditioned upon the occurrence of a subsequent event, such as
approval and consummation of a merger, 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 realize a gain or incur a loss.
Interest Rate Transactions (Swaps, Caps and Floors). Each Portfolio may enter
into interest rate swap, cap or floor transactions primarily for hedging
purposes, which may include preserving a return or spread on a particular
investment or portion of its portfolio or protecting against an increase in the
price of securities the Portfolio anticipates purchasing at a later date. The
Portfolios do not intend to use these transactions in a speculative manner.
Interest rate swaps involve the exchange by a Portfolio with another party of
their respective commitments to pay or receive interest (e.g., an exchange of
floating rate payments for fixed rate payments) computed based on a
contractually-based principal (or "notional") amount. Interest rate swaps are
entered into on a 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
19
<PAGE>
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.
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 "inverse floaters," which are securities with two
variable components that, when combined, result in a fixed interest rate. The
"auction component" typically pays an interest rate that is reset periodically
through an auction process, while the "residual component" pays a current
residual interest rate based on the difference between the total interest paid
on the securities and the auction rate paid on the auction component. A
Portfolio may purchase both auction and residual components. When an inverse
floater is in the residual mode (leveraged), the interest rate typically resets
in the opposite direction from the variable or floating market rate of interest
on which the floater is based. The degree of leverage inherent in inverse
floaters is associated with a greater degree of volatility of market value, such
that the market values of inverse floaters tend to decrease more rapidly during
periods of rising interest rates, and increase more rapidly during periods of
falling interest rates, than those of fixed-rate securities.
Repurchase Agreements. A Portfolio may seek additional income by investing in
repurchase agreements pertaining only to U.S. Government securities. A
repurchase agreement arises when a buyer purchases a security and simultaneously
agrees to resell it to the vendor at an agreed-upon future date, normally a day
or a few days later. The resale price is greater than the purchase price,
reflecting an agreed-upon interest rate for the period the 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,
none of the Portfolios will maintain more than 15% of its net assets in illiquid
securities. Illiquid securities generally include, (i) direct placements or
other securities for which there is no readily available market (e.g. when
market makers do not exist or will not entertain bids or offers), (ii)
over-the-counter options and assets used to cover over-the-counter options, and
(iii) repurchase agreements not terminable within seven days. Rule 144A
securities that have legal or contractual restrictions on resale but have a
readily available market are not deemed illiquid. Alliance will monitor the
liquidity of each Portfolio's Rule 144A portfolio securities under the
supervision of the Directors or Trustees of that Fund. A Portfolio that invests
in illiquid securities may not be able to sell such securities and may not be
able to realize their full value upon sale.
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." 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 or variable rate demand obligations, or in
20
<PAGE>
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. Portfolio turnover rates are set forth under "Financial
Highlights". 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.
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, whose fundamental
investment policies appear below) 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, whose fundamental investment policies appear
below) 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
Portfolio's total assets may be invested without regard to this limitation and
except that this does not limit the amount of the 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;
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<PAGE>
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 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 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.
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. In considering investments for a Portfolio, Alliance
will attempt to identify issuers of lower-rated securities whose financial
condition is adequate to meet future obligations, has improved, or is expected
to improve in the future.
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 the 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 to local risk factors
than a geographically diversified municipal securities portfolio. Such risks
arise from the financial condition of the state involved and its municipalities.
To the extent such state or local governmental entities are unable to meet their
financial obligations, the income derived by the State Portfolios, their ability
to preserve or realize appreciation of their portfolio assets and their
liquidity could be impaired. The Statements of Additional Information 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 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 its 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.
Year 2000 Many computer software systems in use today cannot properly process
date-related information from and after January 1, 2000. Should any of the
computer systems employed by the Funds' major service providers fail to process
this type of information properly, that could have a negative impact on the
Funds' operations and the services that are provided to the Funds' shareholders.
Alliance, each Portfolio's investment adviser, Alliance Fund Distributors, Inc.
("AFD"), each Portfolio's principal underwriter, and Alliance Fund Services,
Inc.("AFS"), each Portfolio's registrar, transfer agent and dividend disbursing
agent,
22
<PAGE>
have advised the Funds that they are reviewing all of their computer systems
with the goal of modifying or replacing such systems prior to January 1, 2000 to
the extent necessary to foreclose any such negative impact. In addition,
Alliance has been advised by the Funds' custodian that it is also in the process
of reviewing its systems with the same goal. As of the date of this Prospectus,
the Funds and Alliance have no reason to believe that these goals will not be
achieved.
- --------------------------------------------------------------------------------
PURCHASE AND SALE OF SHARES
- --------------------------------------------------------------------------------
HOW TO BUY SHARES
You can purchase shares of any of the Portfolios at a price based on the next
calculated net asset value after receipt of a proper purchase order either
through broker-dealers, banks or other financial intermediaries, or directly
through AFD. 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 of 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.
Existing shareholders may make subsequent purchases by electronic funds transfer
if they have completed the appropriate section of the Subscription Application
or the Shareholder Options form obtained from AFS. Telephone purchase orders can
be made by calling (800) 221-5672 and may not exceed $500,000.
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 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. The Portfolio will thus receive the full amount of your purchase.
However, you may pay a CDSC if you redeem shares within three years after
purchase. The amount of the CDSC (expressed as a percentage of the lesser of the
current net asset value or original cost) will vary according to the number of
years from the purchase of the Class B shares until the redemption of those
shares, as follows:
<TABLE>
<CAPTION>
Year Since Purchase CDSC
- --------------------------------------------------------------------------------
<S> <C>
First 3%
Second 2%
Third 1%
Fourth None
</TABLE>
Class B shares are subject to higher distribution fees than Class A shares for a
period of six years (after which 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 of a Portfolio is calculated by
dividing the value of that Portfolio's net assets allocable to that class by the
outstanding shares of that class.
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<PAGE>
Shares are valued each day 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 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, as long as the shares are held for one year or more,
no CDSC. Consult your financial agent. Dealers and agents may receive differing
compensation for selling Class A, Class B or Class C shares. There is no size
limit on purchases of Class A shares. The maximum purchase of Class B shares is
$250,000. The maximum purchase of Class C shares is $1,000,000.
A transaction, service, administrative or other similar fee may be charged by
your broker-dealer, agent, financial intermediary or other financial
representative with respect to the purchase, sale or exchange of Class A, Class
B or Class C shares made through such financial representative. Such financial
intermediaries may also impose requirements with respect to the purchase, sale
or exchange of shares that are different from, or in addition to, those imposed
by a Fund, including requirements as to the minimum initial and subsequent
investment amounts.
In addition to the discount or commission paid to dealers or agents, AFD from
time to time pays additional cash or other 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" your shares (i.e., sell your shares in a Portfolio to the
Portfolio) 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 4:00 p.m. Eastern time on a Fund
business day in order to receive that day's net asset value and, for redemptions
made before March 1, 1998, may be made only once in any 30-day period (except
for certain omnibus accounts). A shareholder who has completed the appropriate
section of the Subscription Application, or the Shareholder Options form
obtained from AFS, can elect to have the proceeds of his or her redemption sent
to his or her 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 per day. Telephone
redemption is not available for shares held in nominee or "street name" accounts
or retirement plan accounts or shares held by a shareholder who has changed his
or her address of record within the previous 30 calendar days.
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.
24
<PAGE>
During drastic economic or market developments, you might have difficulty in
reaching AFS by telephone, in which event you should issue written instructions
to AFS. AFS is not responsible for the authenticity of telephonic requests to
purchase, sell or exchange shares. AFS will employ reasonable procedures to
verify that telephone requests are genuine, and could be liable for losses
resulting from unauthorized transactions if it failed to do so. Dealers and
agents may charge a commission for handling telephonic requests. The telephone
service may be suspended or terminated at any time without notice.
SHAREHOLDER SERVICES
AFS offers a variety of shareholder services. For more information about these
services or your account, call AFS's toll-free number, 800-221-5672. Some
services are described in the attached Subscription Application. A shareholder's
manual explaining all available services will be provided upon request. To
request a shareholder manual, call 800-227-4618.
HOW TO EXCHANGE SHARES
You may exchange your shares of any Portfolio for shares of the same class of
other Alliance Mutual Funds (including AFD Exchange Reserves, a money market
fund managed by Alliance). Exchanges of shares are made at the net asset values
next determined, without sales or service charges. Exchanges may be made by
telephone or written request. Telephone exchange requests 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.
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 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 a Vice
President of ACMC with which he has been associated since 1994. Previously he
was an analyst in the Municipal Strategy Group at Merrill Lynch Capital Markets.
Mr. Hults is a Vice President of ACMC with which he has been associated since
1995. Previously he was an associate and trader in the Municipal Derivative
Products department at Merrill Lynch Capital Markets.
Alliance is a leading international investment manager supervising client
accounts with assets as of September 30, 1997 totaling more than $217 billion
(of which approximately $81 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 56 registered investment companies managed by Alliance
comprising 118 separate investment portfolios currently have over two million
shareholders. As of September 30, 1997, Alliance was retained as an investment
manager of employee benefit plan assets for 28 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-UAP, a French insurance holding company. Certain information concerning
the ownership and control of Equitable by AXA-UAP is set forth in the Statements
of Additional Information under "Management of the Fund."
DISTRIBUTION SERVICES AGREEMENTS
Rule 12b-1 adopted by 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.
25
<PAGE>
The Plans provide that AFD will use the distribution services fee received from
a Portfolio in its entirety for payments (i) to compensate broker-dealers or
other persons for providing distribution assistance, (ii) to otherwise promote
the sale of shares of the Portfolio, and (iii) to compensate broker-dealers,
depository institutions and other financial intermediaries for providing
administrative, accounting and other services with respect to the Portfolio's
shareholders. In this regard, some payments under the Plans are used to
compensate financial intermediaries with trail or maintenance commissions in an
amount equal to .25%, annualized, with respect to Class A shares and Class B
shares, and 1.00%, annualized, with respect to Class C shares, of the assets
maintained in a Portfolio by their customers. Distribution services fees
received from the Portfolios with respect to Class A shares will not be used to
pay any interest expenses, carrying charges or other financing costs or
allocation of overhead of AFD. Distribution services fees received from the
Portfolios, with respect to Class B and Class C shares, may be used for these
purposes. The Plans also provide that Alliance may use its own resources to
finance the distribution of each Portfolio's shares.
The Portfolios are not obligated under the Plans to pay any distribution
services fee in excess of the amounts set forth above. With respect to Class A
shares of each Portfolio, distribution expenses accrued by AFD in one fiscal
year may not be paid from distribution services fees received from the Portfolio
in subsequent fiscal years. AFD's compensation with respect to Class B and Class
C shares under the Plans is directly tied to the expenses incurred by AFD.
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 $3,269,945 (1.72%) $2,600,719 (2.90%)
Insured National $1,723,132 (3.78%) $ 882,396 (4.63%)
Arizona $ 737,147 (11.29%) $ 176,290 (9.93%)
California $4,398,447 (2.64%) $2,267,530 (2.50%)
Insured California $1,488,429 (5.32%) $ 577,218 (4.30%)
Florida $1,121,048 (4.52%) $1,152,723 (4.48%)
Massachusetts $ 654,399 (9.05%) $ 605,448 (7.75%)
Michigan $ 633,711 (11.96%) $ 728,261 (14.31%)
Minnesota $ 990,510 (11.63%) $ 727,660 (9.89%)
New Jersey $1,797,139 (4.69%) $ 759,019 (3.55%)
New York $2,984,535 (3.11%) $1,203,405 (3.10%)
Ohio $1,490,274 (5.56%) $ 762,570 (5.13%)
Pennsylvania $1,276,781 (4.24%) $ 680,204 (4.39%)
Virginia $ 845,124 (16.83%) $ 235,241 (19.49%)
- --------------------------------------------------------------------------------
</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
26
<PAGE>
necessarily depend upon the realization of income and capital gains from the
Portfolio's investments.
TAXES
Each Portfolio intends to qualify for each taxable year to be taxed as a
regulated investment company under the Code and, as such, will not be liable for
federal income 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. Since a
Portfolio's investment income is derived from interest rather than dividends, no
portion of its distributions is eligible for the dividends-received deduction
available to corporations.
Pursuant to the Taxpayer Relief Act of 1997, two different tax rates apply to
net capital gains--that is, the excess of net gains from capital assets held for
not more than one year over net losses from capital assets held for not more
than one year. One rate (generally 28%) applies to net gains on capital assets
held for more than one year but not more than 18 months ("mid-term gains"), and
a second rate (generally 20%) applies to the balance of such net capital gains
("adjusted net capital gains"). Distributions of mid-term gains and adjusted net
capital gains will be taxable to shareholders as such, regardless of how long a
shareholder has held shares in a Portfolio.
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.
A capital gains distribution received by a shareholder on shares of a Portfolio
will have the effect of reducing the net asset value of such shares by the
amount of such distribution. Furthermore, a distribution made shortly after the
purchase of such shares by a shareholder, although in effect a return of capital
to that particular shareholder, would be taxable to him or her as described
above.
If a shareholder holds shares for six months or less and during that time
receives a distribution of net capital gains, any loss realized on the sale of
such shares during such six-month period would be a long-term capital loss to
the extent of such distribution. If a shareholder holds shares for six months or
less and during that time receives a distribution of tax-exempt interest income,
any loss realized on the sale of such shares would be disallowed to the extent
of such distribution.
Substantially all of the dividends paid by a Portfolio are anticipated to be
exempt from regular federal income taxes. Shareholders may be subject to state
and local taxes on distributions from a Portfolio, including distributions which
are exempt from federal income taxes. The Funds will report annually to
shareholders the percentage and source of interest earned by a Portfolio that is
exempt from federal income tax and, except in the case of the National and
Insured National Portfolios, relevant state and local personal income taxes and,
in the case of the Florida Portfolio, the portion of the net asset value of such
Portfolio that is exempt from Florida intangible personal property tax.
Each investor should consult his or her own tax adviser to determine the tax
status, with regard to his or her tax situation, of distributions from the
Portfolios.
Arizona Portfolio. It is anticipated that substantially all of the dividends
paid by the Portfolio will be exempt from Arizona individual, corporate and
fiduciary income taxes. Distributions of capital gains will be subject to
Arizona income taxes. Interest on indebtedness incurred to purchase or carry
shares of the Portfolio generally will not be deductible for purposes of the
Arizona income tax.
California and Insured California Portfolios. It is anticipated that
substantially all of the dividends paid by these Portfolios will be exempt from
California personal income tax.
Florida Portfolio. It is anticipated that Portfolio shares will be exempt from
the Florida intangible personal property tax. Florida does not impose an
individual income tax. Dividends paid by the Portfolio to corporate shareholders
will be subject to Florida corporate income tax.
Massachusetts Portfolio. It is anticipated that substantially all of the
dividends paid by the Portfolio will be exempt from the Massachusetts personal
and fiduciary income taxes. Distributions designated as attributable to capital
gains, other than gains on certain Massachusetts municipal securities, are
subject to the state personal and fiduciary income taxes at capital gains tax
rates. Distributions paid to corporate shareholders are subject to the
Massachusetts corporate excise tax.
Michigan Portfolio. It is anticipated that substantially all of the dividends
paid by the Portfolio will be exempt from Michigan income, intangible and single
business taxes and from the uniform city income tax imposed by certain Michigan
cities. Capital gain distributions attributable to the sale of non-Michigan
municipal securities are subject to Michigan income and single business taxes
but are exempt from the intangibles tax to the extent reinvested in portfolio
shares.
Minnesota Portfolio. It is anticipated that substantially all of the dividends
paid by the Portfolio will be exempt from Minnesota personal and fiduciary
income taxes. Certain individuals may be subject to the Minnesota alternative
minimum tax on distributions attributable to Portfolio income from AMT-Subject
bonds. Distributions to corporate shareholders are subject to the Minnesota
franchise tax.
27
<PAGE>
New Jersey Portfolio. It is anticipated that substantially all of the income
dividends and capital gains distributions paid by the Portfolio to individuals
and fiduciaries will be exempt from the New Jersey personal income tax. Exempt
interest-dividends paid to a corporate shareholder will be subject to the New
Jersey corporation business (franchise) and corporation income taxes.
New York Portfolio. It is anticipated that substantially all of the dividends
paid by the Portfolio will be exempt from New York State and New York City
personal and fiduciary income taxes. Distributions of capital gains will be
subject to these taxes. Interest on indebtedness incurred to buy or carry shares
of the Portfolio generally will not be deductible for New York income tax
purposes. Distributions paid to corporate shareholders will be included in New
York entire net income for purposes of the franchise tax.
Ohio Portfolio. It is anticipated that substantially all distributions of income
and capital gains paid by the Portfolio will be exempt from the Ohio personal
income tax, Ohio school district income taxes and Ohio municipal income taxes,
and will not be includable in the net income tax base of the Ohio franchise tax.
Shares of the Portfolio will be included in a corporation's tax base for
purposes of computing the Ohio corporate franchise tax on a net worth basis.
Pennsylvania Portfolio. It is anticipated that substantially all of the
dividends paid by the Portfolio will be exempt from Pennsylvania personal and
fiduciary income taxes, the Philadelphia School District investment net income
tax and Pennsylvania corporate net income tax, and that shares of the Portfolio
will be exempt from Pennsylvania county personal property taxes. Distributions
of capital gains will be subject to Pennsylvania individual, fiduciary and
corporate income taxes but will not be taxable for purposes of the Philadelphia
School District Income tax. Portfolio shares are included for purposes of
determining a corporation's capital stock value subject to the Pennsylvania
capital stock/franchise tax.
Virginia Portfolio. It is anticipated that substantially all of the dividends
paid by the Portfolio will be exempt from Virginia individual income, estate,
trust and corporate income taxes. Distributions attributable to capital gains
and gains recognized on the sale or other disposition of shares of the Portfolio
(including the redemption or exchange of shares) will be subject to Virginia
income taxes. Interest on indebtedness incurred to purchase or carry shares of
the Portfolio generally will not be deductible for Virginia income tax purposes.
- --------------------------------------------------------------------------------
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 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
the Portfolio's assets and, upon redeeming shares, will receive the then current
net asset value of the Portfolio represented by the redeemed shares less any
applicable CDSC. The Funds are empowered to establish, without shareholder
approval, additional portfolios which may have different investment objectives
and additional classes of shares. If an additional portfolio or class were
established in a Fund, each share of the portfolio or class would normally be
entitled to one vote for all purposes. Generally, shares of each Fund vote
together as a single class on matters, such as the election of Directors or
Trustees, that affect each Portfolio in substantially the same manner. Class A,
Class B and Class C shares of a Portfolio have identical voting, dividend,
liquidation and other rights, except that each class bears its own distribution
and transfer agency expenses. Each class of shares votes separately with respect
to a Fund's Rule 12b-1 plan and other matters for which separate class voting is
appropriate under applicable law. Shares are freely transferable, are entitled
to dividends as determined by the Board of Directors or Trustees and, in
liquidation of a Portfolio, are entitled to receive the net assets of the
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 a Fund's organization 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.
28
<PAGE>
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. A Portfolio's
advertisements may quote performance rankings or ratings of the Portfolio by
financial publications or independent organizations such as Lipper Analytical
Services, Inc. and Morningstar, Inc. or compare the 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 Statements filed by the Funds 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>
- --------------------------------------------------------------------------------
Signature Card
- --------------------------------------------------------------------------------
Alliance Capital [LOGO]
Medallion Signature Guarantee (see reverse)
- --------------------------------------------------------------------------------
Dealer/Bank Name ..............................................................
FUND ACCT. NO.:* ...........................................| *Information |
| Necessary to |
FUND NAME:* ................................................| Complete Request |
ACCOUNT NAMES(S) AS REGISTERED:
..............................................................................
..............................................................................
SHAREHOLDER ADDRESS:
..............................................................................
..............................................................................
SOCIAL SECURITY OR TAX IDENTIFICATION NUMBER:*
..............................................................................
AUTHORIZED SIGNATURES:
1. ............................................................................
2. ............................................................................
3. ............................................................................
Joint Accounts check one: |_| Either owner is authorized to sign
Redemption Checks
|_| All owners are required to sign
Redemption Checks
(If no box is checked, only one signature
will be required.)
Checkbooks are not transferable to other accounts. If you change account
numbers, change funds or change ownership you must reapply for check-writing.
STATE STREET BANK AND TRUST COMPANY Subject to conditions on reverse side.
<PAGE>
- --------------------------------------------------------------------------------
Signature Card
- --------------------------------------------------------------------------------
The payment of funds is authorized by the signature(s) appearing on the reverse
side. Each signatory guarantees the genuineness of the other signatures.
State Street Bank and Trust Company (the "Bank") is hereby appointed agent by
the person(s) signing this card (the Depositor(s)") and, as agent, is authorized
and directed, upon presentment of checks to the Bank.
(1) if pertaining to an Alliance deposit account (the "Account")-to direct
Alliance, which as the Depositor's agent and nominee maintains such Account
on the Depositors behalf at one or more depository institutions, to
withdraw funds from the Account in the amount of such checks for deposit in
this checking account. Alliance hereby appointed the Depositor's agent and,
where appropriate, messenger for the purpose of effecting such withdrawals.
(2) if pertaining to an Alliance Mutual Fund (the "Fund")-to transmit such
checks to the Fund or its transfer agent as requests to redeem shares
registered in the name of the Depositor(s) in the amounts of such checks
for deposit in this checking account.
This checking arrangement is subject to the applicable terms and restrictions,
including charges, set forth in the current Prospectus or Statement of
Additional Information for each Alliance mutual fund or deposit account as to
which the Depositor has arranged to redeem shares or withdraw funds by check-
writing. The Bank is further authorized to effect withdrawals or redemptions to
defray the Bank's charges relating to this checking arrangement. The
Depositor(s) agrees that he will be subject to the rules and regulations of the
Bank pertaining to this checking arrangement as amended from time to time, that
the bank has the right not to honor checks which do not meet the Bank's normal
standards for checks presented to it, that the Bank and Alliance have the right
to change, modify or terminate this check-writing service at any time; and that
the Bank shall be liable only for its own negligence.
Medallion Signature Guarantee - Signatures must be guaranteed by an institution
that is an "eligible guarantor" as defined in Rule 17 Ad-15 of the Securities
Exchange Act of 1934. This would include such institutions such as banks and
brokerage firms.
Send this card with any necessary authorizing documentation to:
Alliance Fund Services
Attn: Checkwriting Department
P.O. Box 1520
Secaucus, NJ 07096-1520
<PAGE>
================================================================================
Alliance Municipal Income
Portfolios Subscription Application
================================================================================
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
To Open Your New Alliance Account...
Please complete the application and mail
it to:
Alliance Fund Services, Inc.
P.O. Box 1520
Secaucus, New Jersey 07096-1520
For certified or overnight deliveries, send to:
Alliance Fund Services, Inc.
500 Plaza Drive
Secaucus, New Jersey 07094
Section 1 Your Account Registration (Required)
Complete one of the available choices. To ensure proper tax reporting to the
IRS:
-- Individuals, Joint Tenants, Transfer on Death and Gift/Transfer to a
Minor:
o Indicate your name(s) exactly as it appears on your social
security card.
-- Transfer on Death:
o Ensure that your state participates
-- Trust/Other:
o 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.
-- Non-Resident Alien:
o Indicate your permanent country of residence.
Section 3 Your Initial Investment (Required)
For each Fund in which you are investing: (1) Write the three digit fund number
in the column titled 'Indicate three digit fund number located below'.
(2) Write the dollar amount of your initial purchase in the column titled
'Indicate Dollar Amount'.
(If you are eligible for a reduced sales charge, you must also complete Section
4F). (3) Check off a distribution option for your dividends. (4) Check off a
distribution
<PAGE>
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 preprinted, 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 & 4D. If more than one dividend direction or monthly exchange is desired,
please call our Literature Center to obtain a Shareholder Account Services
Options Form for completion.
B. 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.
C. 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.
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 preprinted, 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.
Medallion Signature Guarantee is required if your account is not maintained by a
broker dealer.
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.
================================================================================
For Literature Call: (800) 227-4618
================================================================================
<PAGE>
The Alliance Municipal Income Portfolios Subscription Application
<TABLE>
- --------------------------------------------------------------------------------------------------------------------------
1. YOUR ACCOUNT REGISTRATION (Please Print in Capital Letters and Mark Check Boxes Where Applicable)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C>
|_| Individual Account { |_| Male |_| Female } --or-- Joint Account --or--
|_| Transfer On Death { |_| Male |_| Female } --or-- Gift/Transfer to a Minor
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_| |_| |_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
Owner or Custodian (First Name) (MI) (Last Name)
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_| |_| |_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
(First Name) Joint Owner*, Transfer On Death Beneficiary or Minor's Name (MI) (Last Name)
|_|_|_|-|_|_|-|_|_|_|_| If Uniform Gift/Transfer
Social Security Number of Owner or Minor (required to open account) to Minor Account:
|_| |_| Minor's State of Residence
If Joint Tenants Account: *The Account will be registered
"Joint Tenants with right of Survivorship" unless you indicate
otherwise below:
|_| In Common |_| By Entirety |_| Community Property
|_| Trust --or-- |_| Corporation --or-- |_| Other_____________________________
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_| |_| |_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
Name of Trustee if applicable (First Name) (MI) (Last Name)
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
Name of Trust or Corporation or Other Entity
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
Name of Trust or Corporation or Other Entity continued
|_|_|_|_|_|_|_|_| |_|_|_|_|_|_|_|_|_|
Trust Dated (MM,DD,YYYY) Tax ID Number (required to open account)
|_| Employer ID Number --or-- |_| Social Security
Number
- --------------------------------------------------------------------------------------------------------------------------
2. YOUR ADDRESS
- --------------------------------------------------------------------------------------------------------------------------
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_| |_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
Street Number Street Name
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_| |_|_| |_|_|_|_|_|
City State Zip code
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_| |_|_|_| - |_|_|_| - |_|_|_|_|
If Non-U.S., Specify Country Daytime Phone Number
|_| U.S. Citizen |_| Resident Alien |_| Non-Resident Alien
</TABLE>
Alliance Capital[LOGO](R)
80046GEN-TAMBFApp-P1
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<PAGE>
<TABLE>
- --------------------------------------------------------------------------------------------------------------------------
3. Your Initial Investment The minimum investment is $250 per fund.
The maximum investment in Class B is $250,000; Class C is $1,000,000.
- --------------------------------------------------------------------------------------------------------------------------
<S> <C>
I hereby subscribe for shares of the following Alliance Municipal Income Portfolios and elect distribution options as indicated.
Dividend and Capital Gain Distribution Options:
R Reinvest distributions into my fund account.
- ------------------------------------------ -
Broker/Dealer Use Only: Wire Confirm # C Send my distributions in cash to the address I have provided in
|_|_|_|_|_|_|_|_| - 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).
- ------------- ============== ======================== =============================
Indicate three Distributions Options
digit Fund "Check One"
number located Indicate Dollar Amount =============================
below Dividends Captital Gains
Make all ============== ======================== =============================
checks
payable to: |_|_|_| $ R C D R C D
Alliance
Funds |_|_|_| $ R C D R C D
- ------------- |_|_|_| $ R C D R C D
|_|_|_| $ R C D R C D
==========================
Total Investment $
==========================
- --------------------------------------------------------------------------------------------------------------------------
Alliance Municipal Income Portfolios Names and Numbers
- --------------------------------------------------------------------------------------------------------------------------
For checkwriting privileges, please send the enclosed signature card with your
application. Checkwriting is offered on Class A and Class C shares only. A
Medallion Signature Guarantee is required if your account is not maintained by a
broker/dealer. For Class C shares, checkwriting may result in the imposition of
a contingent deferred sales charge against your account. The minimum amount for
checkwriting is $500.
<CAPTION>
======= ========== ===========
Contingent
Initial Deferred Asset-Based
Sales Sales Sales
Charge Charge Charge
A B C
======= ========== ===========
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
National Portfolio 84 284 384
- -----------------------------------------------------------------------------
Insured National Portfolio 86 286 386
- -----------------------------------------------------------------------------
Arizona Portfolio 114 214 314
- -----------------------------------------------------------------------------
California Portfolio 85 285 385
- -----------------------------------------------------------------------------
Insured California Portfolio 91 291 391
- -----------------------------------------------------------------------------
Florida Portfolio 65 265 365
- -----------------------------------------------------------------------------
Massachusetts Portfolio 115 215 315
- -----------------------------------------------------------------------------
Michigan Portfolio 117 217 317
- -----------------------------------------------------------------------------
Minnesota Portfolio 61 261 361
- -----------------------------------------------------------------------------
New Jersey Portfolio 69 269 369
- -----------------------------------------------------------------------------
New York Portfolio 83 283 383
- -----------------------------------------------------------------------------
Ohio Portfolio 80 280 380
- -----------------------------------------------------------------------------
Pennsylvania Portfolio 67 267 367
- -----------------------------------------------------------------------------
Virginia Portfolio 121 221 321
- -----------------------------------------------------------------------------
</TABLE>
80046GEN-TAMBFApp-P1
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<PAGE>
<TABLE>
- --------------------------------------------------------------------------------------------------------------------------
4. Your Shareholder Options
- --------------------------------------------------------------------------------------------------------------------------
<S> <C>
A. Automatic Investment Plans (AIP)
|_| Withdraw From My Bank Account Via EFT*
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).
1- |_|_|_| |_|_|_|_| |_|_| , |_|_|_| .00 |_|
Fund Number Beginning Date (MM,DD) Amount ($25 minimum) Frequency
Frequency:
2- |_|_|_| |_|_|_|_| |_|_| , |_|_|_| .00 |_| M = monthly
Fund Number Beginning Date (MM,DD) Amount ($25 minimum) Frequency Q = quarterly
A = Annually
3- |_|_|_| |_|_|_|_| |_|_| , |_|_|_| .00 |_|
Fund Number Beginning Date (MM,DD) Amount ($25 minimum) Frequency
*Electronic Funds Transfer. 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 the same class of shares of
another Alliance Fund.
FROM: |_|_|_| |_|_|_|_|_|_|_|_|_|_| - |_|
Fund Number Account Number (if existing)
TO: |_|_|_| |_|_|_|_|_|_|_|_|_|_| - |_|
Fund Number Account Number (if existing)
|_| Exchange My Shares Monthly
I authorize Alliance to transact monthly exchanges, within the same class of shares, between my fund accounts as
listed below.
FROM: |_|_|_| |_|_|_|_|_|_|_|_|_|_| - |_|
Fund Number Account Number (if existing)
|_|_| , |_|_|_| .00 |_|_|
Amount ($25 minimum) Day of Exchange**
TO: |_|_|_| |_|_|_|_|_|_|_|_|_|_| - |_|
Fund Number Account Number (if existing)
**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. 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: o Review the information in the Prospectus about telephone transaction services.
o 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.
- --------------------------------------------------------------------------------------------------------------------------
For shares recently purchased by check or electronic funds transfer, redemption proceeds will not be made available
until the Fund is reasonably assured that the check or electronic fund transfer has been collected, normally 15
calendar days after the purchase date.
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
80046GEN-TAMBFApp-P1
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<PAGE>
<TABLE>
- --------------------------------------------------------------------------------------------------------------------------
4. Your Shareholder Options (CONTINUED)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C>
C. Systematic Withdrawal Plans (SWP)
In order to establish a SWP, you must reinvest all dividends and capital gains.
|_| I authorize Alliance to transact periodic redemptions from my fund account and send the proceeds to me as indicated
below.
1- |_|_|_| |_|_|_|_| |_|_| , |_|_|_| .00 |_|
Fund Number Beginning Date (MM,DD) Amount ($25 minimum) Frequency
Frequency:
2- |_|_|_| |_|_|_|_| |_|_| , |_|_|_| .00 |_| M = monthly
Fund Number Beginning Date (MM,DD) Amount ($25 minimum) Frequency Q = quarterly
A = Annually
3- |_|_|_| |_|_|_|_| |_|_| , |_|_|_| .00 |_|
Fund Number Beginning Date (MM,DD) Amount ($25 minimum) Frequency
Please send my SWP proceeds to:
|_| My Address of Record (via check) |_| My checking account-via EFT (complete section 4D)
Your bank must be a member of the National
Automated Clearing House Association (NACHA) in
|_| The Payee and address specified in section 4E (via check) order for you to receive SWP proceeds directly
(Medallion Signature Guarantee required) into your bank account. Otherwise payment will be
made by check
D. Bank Information This bank account information will be used for:
|_| Distributions (Section 3) |_| Telephone Transactions (Section 4B)
|_| Automatic Investments (Section 4A) |_| Withdrawals (Section 4C)
- ---------------------------------------------------------------------------------------------------------------------------
Please Tape a Pre-printed Voided Check Here*
- ---------------------------------------------------------------------------------------------------------------------------
* The above services
cannot be established
[GRAPHIC OF BLANK CHECK WITH THE WORD VOID PRINTED ON IT.] without a pre-printed
voided check.
For EFT transactions,
the Fund requires
signatures of bank
account owners exactly
as they appear on bank
records. If the
registration at the
bank differs from that
on the Alliance mutual
fund, all parties must
sign in Section 5.
|_|_|_|_|_|_|_|_|_| |_|_|_|_|_|_|_|_|_|_|_|_|_|
Your Bank's ABA Routing Number Your Bank Account Number
|_| Checking Account |_| Savings Account
</TABLE>
80046GEN-TAMBFApp-P1
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<PAGE>
<TABLE>
- --------------------------------------------------------------------------------------------------------------------------
4. YOUR SHAREHOLDER OPTIONS(CONTINUED)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C>
E. THIRD PARTY PAYMENT DETAILS Your signautre(s) in Section 5 must be Medallion Signature Guaranteed if your account is
not maintained by a dealer/broker. This third party payee information will be used for:
|_| Distributions (section 3) |_| Systematic Withdrawals (section 4C)
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_| |_| |_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_||_|_|_|_|
Name (First Name) (MI) (Last Name)
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_| |_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
Street Number Street Name
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_| |_|_| |_|_|_|_|_|
City State Zip code
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 identification 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.
|________________________| |________________________| |________________________|
Tax ID or Account Number Tax ID or Account Number Tax ID or Account Number
|_| 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.
- --------------------------------------------------------------------------------------------------------------------------
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
|_____________________________________________________________| |_______________________________________________________|
Dealer/Agent Firm Number Representative Number
|_____________________________________________________________| |_______________________________________________________|
Branch Number Branch Telephone Number
|_____________________________________________________________| |_______________________________________________________|
Branch Office Address
|_____________________________________________________________| |_||_| |_______________________________________________|
City State Zip Code
</TABLE>
80046GEN-TAMBFApp-P1
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<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 not have changed 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 exchange service.
|_| I do not elect the telephone redemption by check service.
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.
I CERTIFY UNDER PENALTY OF PERJURY THAT THE NUMBER SHOWN IN SECTION 1 OF
THIS FORM IS MY CORRECT TAX IDENTIFICATION NUMBER OR I AM WAITING FOR A
NUMBER TO BE ISSUED TO ME AND THAT I HAVE NOT BEEN NOTIFIED THAT THIS
ACCOUNT IS SUBJECT TO BACKUP WITHHOLDING.
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISION
OF THIS DOCUMENT OTHER THAN THE CERTIFICATE REQUIRED TO AVOID BACKUP
WITHHOLDING.
|__________________________________________________| |_______________________|
Signature Date
|__________________________________________________| |_______________________|
Signature Date
- ----------------------------------------------
Medallion Signature Guarantee required if
completing Section 4E and your mutual fund is
not maintained by a broker dealer
Alliance Capital [LOGO](R)
80046GEN-TAMBFApp-P1
6
<PAGE>
[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 2, 1998
________________________________________________________________
This Statement of Additional Information is not a
prospectus but supplements and should be read in conjunction with
the current Prospectus for the Arizona Portfolio, Florida
Portfolio, Massachusetts Portfolio, Michigan Portfolio, Minnesota
Portfolio, New Jersey Portfolio, Ohio Portfolio, Pennsylvania
Portfolio and Virginia Portfolio (the "Portfolios") of Alliance
Municipal Income Fund II (the "Fund") that offers the Class A,
Class B and Class C shares of the Portfolios (the "Prospectus")
and, if the Portfolios begin to offer Advisor Class shares, the
prospectus for the Portfolios that offers the Advisor Class
shares of the Portfolios (the "Advisor Class Prospectus" and,
together with the Prospectus for the Portfolios that offers the
Class A, Class B and Class C shares, the "Prospectus(es)"). The
Portfolios currently do not offer Advisor Class shares. Copies
of such Prospectus(es) may be obtained by contacting Alliance
Fund Services, Inc. at the address or the "For Literature"
telephone number shown above.
TABLE OF CONTENTS
PAGE
Investment Policies and Restrictions
Management of the Fund
Expenses of the Fund
Purchase of Shares
Redemption and Repurchase of Shares
Shareholder Services
Net Asset Value
Dividends, Distributions and Taxes
Brokerage and Portfolio Transactions
General Information
Report of Independent Auditors and
Financial Statements
Appendix A: Bond and Commercial Paper Ratings A-1
Appendix B: Futures Contracts and Related Options B-1
Appendix C: Options on Municipal and U.S.
Government Securities C-1
<PAGE>
____________________
(R): This registered service mark used under license from the
Owner, Alliance Capital Management L.P.
<PAGE>
_________________________________________________________________
INVESTMENT POLICIES AND RESTRICTIONS
_________________________________________________________________
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
2
<PAGE>
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" 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.
3
<PAGE>
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 May 1997 with respect to
Virginia, August 1997 with respect to Minnesota, September 1997
with respect to Florida and Massachusetts, November 1997 with
respect to Michigan and Pennsylvania and December 1997 with
respect to New Jersey and Ohio 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 obligors to make
timely payments of principal and interest on such obligations. In
addition, a number of factors may adversely affect the ability of
the issuers of municipal securities to repay their borrowings
that are unrelated to the financial or economic condition of a
state, and that, in some cases, are beyond their control.
Furthermore, issuers of municipal securities are generally not
required to provide ongoing information about their finances and
operations to holders of their debt obligations, although a
number of cities, counties and other issuers prepare annual
reports.
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
4
<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 2.9% population growth from July 1995 to July
1996 was the second fastest rate in the nation, and compares to a
national growth rate of 0.91% for the same period. From 1990
through 1996, Arizona's 22% population growth was second only to
Nevada's. The unemployment rate in Arizona for the first three
quarters of 1997 was 4.3% compared to a national rate of 4.9%.
Geographically, Arizona is the nation's sixth largest
state in terms of area (113,417 square miles) and has the twenty-
first largest population (4.55 million 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.
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 1997 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 collections have risen
each year since 1994 and the Joint Legislative Budget Committee
projects that, despite a $110 million income tax reduction in
1998, the 1998 corporate income tax collections will increase
37.3% and individual income tax collections will increase 13.1%
over 1997. Such results reflect 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, and is
expected to continue to lag behind, the United States average.
Arizona is likely to experience continued population
growth in the remainder of 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 1996, and has had a robust 20% expansion
since 1993.
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
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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
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
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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 its 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 conservative nature
of Arizona's Legislature means that tax increases are less
likely. From 1992 through 1996, the State adopted 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 Arizona State budget for fiscal year 1997 was
$4.9 billion and is $5.1 billion for fiscal year 1998. These
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increases are in line with Arizona's growth. State revenues have
consistently exceeded projections. The State's operating funds
balance is projected to be $550.4 million for fiscal year 1997
and $528.9 million for fiscal year 1998. The State has
accumulated more than $282 million in a 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 1995-1998.
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.
The county is considering privatization of its health care
operations.
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 capital facilities. The State Supreme Court also
affirmed a lower court order directing the Legislature to remedy
the constitutional defect by June 30, 1998. In 1996, the
legislature amended the financing system but on January 15, 1997,
the Supreme Court ruled that the amendments were insufficient to
comply with its earlier mandate. In 1997, the legislature
amended the system again with the Assistance to Build Classrooms
Fund ("ABC" legislation). On December 23, 1997, the Arizona
Supreme Court ruled that the ABC legislation failed to comply
with the Court's mandate. The Legislature will debate further
school finance reform in the 1998 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
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has issued refunds and credit vouchers to federal retirees who
paid income taxes on their pensions in the 1984-88 tax years.
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, 1997, relating to
$202,595,000 State of Florida Department of Environmental
Protection Preservation 2000 Revenue Refunding Bonds, Series
1997B.
Economic Climate
As of April 1, 1996 Florida was the fourth most populous
state in the nation with an estimated population of 14.4 million.
The State's average annual population growth since 1987 has been
approximately 2.2 percent while the nation's average annual
growth rate for the same period was approximately 1.0 percent.
During this same period, Florida maintained an average growth of
approximately 224,000 new residents per year.
From 1985 through 1995 Florida's per capita income rose
an average of 5.0 percent per year, while the national per capita
income increased an average of 4.9 percent. 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
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important source of income. Florida's employment income in 1995
represented 60.6 percent 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 percent. One positive aspect
of this 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 percent and per capita income expanded by approximately
62.5 percent. For the U.S., total and per capita personal income
increased by approximately 77.8 percent and 61.0 percent,
respectively. The southeast as a whole increased its personal
income by 90.2 percent and its per capita income by approximately
68.2 percent.
Between 1987 and 1996, Florida's total employment has
increased by approximately 27.5 percent Since 1987 non-
agricultural job creation has increased by over 35.6 percent
compared to the national average which increased by 20.2 percent
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 percent 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 percent of total U.S. manufacturing.
Tourism is also one of Florida's most important industries.
Approximately 42.9 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 percent in
1973. In 1980, the share was roughly 7.5 percent percent, and in
1996, the share had edged downward to nearly 5 percent. This
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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 8.1 percent of total U.S. housing starts in
1996, while the State's population is 5.5 percent of the nation's
population. Total housing starts were 118,400 in 1996.
Florida's unemployment rate through much of the 1980's
tracked below the national average. From 1988 to 1994, however,
the unemployment rate tracked above the national average. Since
1994, the average rate of unemployment for Florida has been 5.4
percent, while the national average has been 5.5 percent.
Florida's unemployment rate is projected to remain slightly below
the national average through 1998.
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 was fiscal year 1995-96, the
limit was 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 percent of its total direct revenues from State taxes and
fees. Federal funds and other special revenues accounted for the
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remaining revenues. Florida does not currently impose an
individual income tax. The greatest single source of tax receipts
in Florida during fiscal year 1995-1996, is the sales and use
tax, accounting for 69 percent 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 percent from fiscal year 1994-95.
In fiscal year 1996-97, the estimated General Revenue
plus Working Capital and Budget Stabilization Funds available
total $16,617.4 million, a 6.7 percent increase from fiscal year
1995-96. The $15,568.7 million in Estimated Revenues represents
a 6.3 percent increase from the analogous figures in 1995-96.
With combined General Revenue, Working Capital Fund and Budget
Stabilization Fund appropriations at $15,537.2 million
unencumbered reserves at the end of 1996-97 are estimated at
$1,080.0 million.
For fiscal year 1997-98, the General Revenue plus
Working Capital and Budget Stabilization Funds available total
$17,553.9 million, a 5.6 percent increase over 1996-97. The
$16,321.6 million in Estimated Revenues represent a 4.8 percent
increase over the analogous figure in 1996-97. With combined
General Revenue, Working Capital Fund, and Budget Stabilization
Fund appropriations at $16,716.5 million, unencumbered reserves
at the end of 1997-98 are estimated at $837.4 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.
Litigation
Due to its size and broad range of activities, the State
is involved in numerous routine legal actions. The departments
involved believe that the results of such pending or anticipated
litigation will not materially affect the State of Florida's
financial position.
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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
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 August 6, 1997, relating to $271,280,000 General Obligation
Refunding Bonds, 1997 Series B and the Governor's Budget
Recommendation for Fiscal Year 1998.
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 1996, the population of
Massachusetts was approximately 6,092,000.
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
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Massachusetts. During 1996, personal income in Massachusetts
grew 5.0 percent.
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 since 1993.
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 the first
three quarters of 1996, the Gross State Product for Massachusetts
grew at a rate of 2.9 percent, approximately the same rate as the
national average. Between 1988 and 1992, total employment in
Massachusetts declined 10.7%. In 1993, 1994, 1995 and 1996,
however, total employment increased by 1.6%, 2.2%, 2.4% and 2.3%,
respectively. Massachusetts' unemployment rate averaged 8.6% in
1992, 6.9% in 1993, 6.0% in 1994, 5.4% in 1995 and 4.3% in 1996.
During the first nine months of 1997, the unemployment rate
averaged 4.0%, nearly a full percentage point lower than the
national average.
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
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billion, respectively, and are projected to be $1.284 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. In 1998, when the Commonwealth retires its last
Fiscal Recovery Bond, the long-term debt service obligations are
projected to decrease by 2 percent, or $26.24 million, from
fiscal year 1997. Short-term debt service obligations are
expected to increase to approximately $15 million in fiscal year
1998 as Central Artery/Tunnel Project cash flow requirements
begin to outpace the inflow of federal revenues. The
Commonwealth will fund this interim cash shortfall with Grant
Anticipation Notes to be paid back as federal reimbursements are
received.
In Fiscal Year 1990, Massachusetts had a GAAP basis
budget deficit of nearly $1.9 billion. That deficit margin
steadily decreased and in 1995, the Commonwealth ended the year
with a GAAP basis budget surplus of $287.4 million. In 1996, the
GAAP basis budget surplus was $709.2 million and the statutory
basis surplus was $1.1 billion.
In Fiscal Year 1996, the Commonwealth Stabilization Fund
was funded to its statutory limit of $543.3 million. An
additional $232 million was available for deposit into the Fund
but, because it had reached its statutory ceiling, these funds
flowed into the Tax Reduction Fund, triggering a $150 million
income tax cut for Tax Year 1996 and an $84 million tax cut for
Tax Year 1997.
Preliminary results indicate that Fiscal Year 1997 tax
collections totaled approximately $12.861 billion, an increase of
approximately $812 million, or 6.7 percent, over Fiscal Year 1996
and approximately $354 million higher than previous official
estimates. Total 1997 revenues are estimated to have been
approximately $17.918 billion. Projected total Fiscal Year 1997
expenditures are approximately $17.735 billion, including $212.8
million in supplemental spending requests filed by the Governor.
Under these spending and revenue estimates, approximately $241
million would be transferred to the Commonwealth Stabilization
Fund on account of Fiscal Year 1997, bringing its balance to
approximately $804.3 million, and $160.7 million would be
transferred to a newly established capital projects fund.
The Fiscal Year 1998 budget, approved on July 10, 1997,
is based on a consensus revenue forecast of $12.85 billion which,
according to preliminary results, is equivalent to the amount of
actual tax receipts for Fiscal Year 1997. On July 30, 1997, the
Executive Office revised the Fiscal Year 1998 tax forecast to
$13.06 billion and filed legislation that would reduce the tax
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rate on certain income. The Executive Office estimates the cost
of this tax cut at $196 million in 1998, $587 million in 1999,
$985 million in 2000 and $1.229 billion in 2001, at which time
the rate reduction would be fully implemented. The Fiscal Year
1998 budget provides for total appropriations of approximately
$18.4 billion, a 3.3 percent increase over Fiscal Year 1997
expenditures. Governor William Weld vetoed or reduced
appropriations totaling $3.3 million.
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 will be 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
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taxes, corporate excise taxes, and lottery fund proceeds. The
Local Aid distribution to each city or town would equal no less
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
appropriations for Local Aid in fiscal years 1992 through 1997
did 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 estimated
that fiscal year 1997 Medicaid expenditures were 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-
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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 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 November 4, 1997, 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 1996, employment in
manufacturing accounted for 22.2% of the State's workforce.
Michigan's economy has recovered from the recessionary
period of the early 1990s. Unemployment rates, which had
averaged approximately 9.3% in 1991, declined to 4.9% in 1996.
The 1996 unemployment rate was Michigan's lowest in over 30 years
and was approximately 0.5% lower than the national average,
compared to the 27 year history of having unemployment higher
than the national average. State manufacturing employment, which
had decreased from 1990 to 1991, has increased each year since.
Similarly, Michigan's average hourly manufacturing wage increased
approximately 20.3% between 1990 and 1996, compared to an 18%
increase nationwide. In 1992, Michigan per capita income was
more than $500 below the national average. Since that time, per
capita income in Michigan has increased 24%, compared to an 18%
increase nationwide, and in 1996 was more than $500 above the
national average.
The State's May 1997 economic forecast for calendar year
1998 projects healthy growth. Real gross domestic product is
projected to grow 2.0% in 1998. Total wage and salary employment
is projected to grow 1.3% and the unemployment rate is projected
to decline slightly to 4.8%.
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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
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 below 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 1995-96.
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.
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 State's budget for fiscal year 1997-98 includes
General Purpose appropriations of 8.58 billion, 2.1 percent above
fiscal year 1996-97 expenditures, and projected General Purpose
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revenues of approximately $8,595.9 million and total General
Purpose resources of approximately $8,700.3 million. As of
September 30, 1997, the accrued balance of the BSF was $646.3
million net of a reserve for future education funding of $529.1
million.
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 approved by
voters on March 15, 1994. Under Proposal A, 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
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.
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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.
In an order dated June 10, 1997 and a decision rendered
July 31, 1997, the Michigan Supreme Court decided, in the
consolidated cases of Durant v. State of Michigan and Schmidt v.
State of Michigan, that the special education and special
education transportation, bilingual education, driver education
and school lunch programs provided by local school districts are
state mandated programs and, therefore, under the Michigan
Constitution the state is obligated to fund these programs. The
Court ruled that money damages, without interest, shall be paid
to the 84 plaintiff school districts for the full amount of the
underfunding for state mandated programs during the 1991-92,
1992-93, and 1993-94 school years. It is presently estimated
that the underfunding for the 84 plaintiff school districts for
those three years amounts to $212 million.
On October 30, 1997 legislative leaders of both parties
and representatives of the executive branch jointly announced a
tentative resolution of remaining 1997-98 budget matters
including proposed funding of the 84 plaintiff school district
claims. This tentative resolution, if implemented, could result
in a fiscal year 1997-98 BSF reduction of approximately $212
million. Approximately 400 other school districts have asserted
similar claims. Proposed resolutions of all these claims are
currently under consideration. It is not known at this time what
action will be taken concerning those claims.
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
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
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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 August 1, 1997, relating to $11,000,000
State of Minnesota General Obligation Taxable State Various
Purpose Bonds.
Economic Climate
Minnesota resident population grew from 4,085,000 in
1980 to 4,657,800 in 1996. The state's population growth rate
from 1995 to 1996 was 0.93%. In comparison, United States
population grew at an annual compound rate of 0.91% during this
period. Minnesota population is currently forecast to grow at an
annual compounded rate of 0.8% through 2005.
In 1996, 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
1990-1996 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
which 30.3% of the State's durable goods employment was
concentrated in 1996, as compared to 19.6% for the United States
as a whole.
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The importance of the State's rich resource base for
overall employment is apparent in the employment mix in
non-durable goods industries. In 1996, 29.8% of Minnesota's non-
durable goods employment was concentrated in food and kindred
industries and 17.8% in paper and allied industries. This
compares to 22.1% 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
17,300 employed in 1979 to 7,900 employed in 1996. 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 1996, Minnesota per capita personal income was 105.6%
of its United States counterpart. During the period 1980 to
1990, Minnesota ranked first in growth of personal income and
second during the period 1990 to 1996 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 1990-1996
period, Minnesota non-agricultural employment increased 14.2
percent, while regional employment increased 10.4 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.
From January 1995 through the first half of 1997, the
State's monthly unemployment rate was generally less than the
national unemployment rate, averaging 3.7% in 1995 and 4.0% in
1996, as compared to the national averages of 5.6% and 5.4%,
respectively. As of June 1997, Minnesota's 1997 unemployment
rate averaged 3.5%, while the national monthly unemployment rate
averaged 5.3%.
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
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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 1997, the Governor submitted a proposed
budget to the legislature for the 1997-99 biennium (the "Current
Biennium"). The proposed budget was based on the November 1996
forecast of Accounting General Fund revenues and expenditures.
In February 1997, 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 February 1997. 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
forecast balances to the Budget Reserve Account are governed by
statute. The Budget Reserve Account balance is set for the
Current Biennium at $522 million.
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A special Property Tax Reform Reserve Account of $46
million was appropriated to be used for reform of the property
tax system. In addition, 60% of any remaining forecast balance
in an odd-numbered year must be added to the Property Tax Reform
Reserve Account.
A revenue and expenditure forecast for the Current
Biennium was prepared at the end of the 1997 first special
legislative session in June 1997. Accounting General Fund
revenues for the Current Biennium were estimated to be $21.926
billion and Accounting General Fund expenditures were estimated
to be $20.904 billion. On the basis of these estimates, the
Accounting General Fund would end the Current Biennium on June
30, 1999 with an Unreserved Accounting General Fund balance of
$1.022 billion, comprising a Cash Flow Account of $350 million, a
Budget Reserve Account of $522 million, a Property Tax Reform
Reserve Account of $46 million, appropriations carried forward of
$72 million and an Unrestricted Accounting General Fund balance
of $32.3 million.
MinnesotaCare Program. Legislation passed by the 1992
legislature established the MinnesotaCare 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 that 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. Program revenues are derived from dedication of
insurance premiums and taxes on hospitals, healthcare providers,
HMOs and prescription drugs. Total resources available to the
Health Care Access Fund in the Current Biennium are forecast to
total $609 million with projected expenditures of $371 million.
School District Credit Enhancement Program. In 1993,
the Legislature established a school district credit enhancement
program. Under this program, the state may, in certain
circumstances and subject to the availability of funds, issue a
warrant and pay debt service coming due on school district
obligations. The amounts paid on behalf of any school district
are required to be repaid by it with interest either through a
reduction of subsequent state-aid payments or, with state
approval, by the levy of an ad valorem tax.
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Based upon the amount of certificates of indebtedness
and capital notes for equipment and bonds enrolled in the program
as of August 1997, during the Current Biennium the total amount
of principal and interest coming due is estimated at $345
million, with the maximum amount of principal and interest
payable in any one month being $108 million. These amounts are
expected to increase. However, the state has not had to make any
debt service payments on behalf of school districts under the
program and does not expect to make any payments in the future.
If such payments are made the state expects to recover all or
substantially all the amounts so paid pursuant to contractual
agreements with the school districts.
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 July 30, 1997, $191.2 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 $216 million, and $16.6 million
has been appropriated to pay the amount of the claims in excess
of the $200 million funded with bond proceeds. 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.
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.
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 and an appeal to the Eighth Circuit Court of
Appeals was decided in favor of the State.
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
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 redistribution 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 has denied several
pretrial motions by the State to dismiss the case. Pretrial
proceedings are continuing and, as of January 1998, no trial date
had been set.
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.
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
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expenditure of funds for education programs in excess of $10
million above current levels.
In PepsiCo, et al. v. Commissioner of Revenue, a case
before the Tax Court, the taxpayers are twelve corporations who
claim unconstitutional treatment under certain provisions of the
Minnesota tax law. The most significant issue in the case
involves the tax provision which accorded a special research and
development credit only to domiciliary corporations. The
Department of Revenue has not determined the potential refund
liability were the plaintiffs to prevail; however, the aggregate
refunds to all similarly-situated taxpayers could exceed $10
million.
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
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 December 1, 1997, relating to
$703,940,000 New Jersey Transportation Trust Fund Authority
Transportation System Bonds, 1997 Series A.
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Economic Climate
New Jersey is the ninth largest state in population and
the fifth smallest in land area. With an average of 1,077
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 1996 the growth rate
accelerated to .53%. 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 $237.2
billion for 1995 and $248.1 billion for 1996. Personal income
increased 4.6% between 1995 and 1996 but was below the national
rate of 5.4%. Historically, New Jersey's average per capita
income has been well above the national average. In 1996, the
State ranked second among all states in per capita personal
income ($31,053).
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
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. Since then, the unemployment
rate fell to an average of 6.2% in 1996 and 5.5% for the first
six months of 1997.
For the recovery period as a whole, May 1992 to June
1997, service-producing employment in New Jersey has expanded by
283,500 jobs. Hiring has been reported by food stores, auto
dealers, wholesale distributors, trucking and warehousing firms,
utilities, business and engineering/management service firms,
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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 17,300 and 7,500, respectively, in
the 12-month period ending June 1997.
In the manufacturing sector, employment losses slowed
between 1992 and 1994. After an average annual job loss of
33,500 from 1989 through 1992, New Jersey's factory job losses
fell to 13,300 during 1993 and 7,300 during 1994. During 1995
and 1996, however, manufacturing job losses increased slightly to
10,100 and 13,900 respectively, reflecting a slowdown in national
manufacturing production activity.
Conditions have slowly improved in the construction
industry, where employment has risen by 18,600 since its low in
May 1992. Between 1992 and 1996, this sector's hiring rebound
was driven primarily by increased homebuilding and nonresidential
projects. During 1996 and the first six months of 1997, public
works projects and homebuilding became the growth segments while
nonresidential construction lessened but remained positive.
Nonresidential construction activity, as measured by
contract awards, grew by 19.6% in 1994, 3.0% in 1995 and 7.0% in
1996. More recently, nonresidential building construction
contracts increased by 45.8% in the first five months of 1997
compared with the same period in 1996. Residential construction
contracts, despite monthly fluctuations, increased by 17.1% for
the first five months of 1997 as compared to the first five
months of 1996 ($989 million and $845 million, respectively).
Nonbuilding or infrastructure construction rose robustly by 64.0%
during this period. Helped by these increases, total
construction contracts rose by 41.0% when comparing the first
five months of 1996 and 1997.
Total new vehicle registrations rose in 1994 by 5.8%,
declined by 4.4% in 1995, then rose 2.6% in 1996. Through May
1997, however, total new vehicle registration rose by 2.8% when
compared to the same time period in 1996.
The rising economic trend experienced in new Jersey has
led to higher retail sales, which showed steady growth from 1992
through 1996, including a 3.8% increase from 1995 to 1996. The
higher retail sales, in turn, produced steady increases in retail
trade jobs (both full- and part-time). Retail trade employment
has risen by nearly 49,000 since a May 1992 low point. From
December 1996 to June 1997, the number of retail jobs rose by
8,700.
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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 1998 fiscal year, the undesignated fund balances
in the General State Funds, accounting for the largest part of
the financial operations of the state, are projected to be $553.5
million. Such balances were estimated at $1.07 billion for the
1997 fiscal year and the actual balances for fiscal years 1996
and 1995 were $882.2 million and $950.2 million respectively.
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.).
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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 State's
compliance with the court order in Abbot v. Burke to close the
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 December 1, 1997, relating to
$40,000,000 State of Ohio Mental Health Capital Facilities Bonds,
Series II-1997A.
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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
Ohio. 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. 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 1996. The
unemployment rate in Ohio has declined from 4.9% in 1996 to 4.0%
by October 1997.
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.
The last complete fiscal biennium ended June 30, 1997 with a
General Revenue Fund ("GRF") fund balance of $834,900,000. At
the end of 1997, the Budget Stabilization Fund had a balance of
$862,700,000.
Most State operations are financed through the 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.
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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 four months in fiscal year 1997, with
the highest being approximately $566 million. The Office of
Budget and Management projects that GRF cash flow deficiencies
will occur in eight months in fiscal year 1998. All those
actual, and those projected, cash flow deficiencies are within
the TOF limitations discussed above.
Schools
The Ohio Supreme Court concluded in a March 1997
decision that major aspects of the State's school funding system
are unconstitutional because the system permits spending
disparities among districts. It ordered the State to provide for
and fund sufficiently a system complying with the Ohio
Constitution, staying its order for a year to permit time for
responsive corrective actions by the legislature. The Court has
indicated that property taxes may still play a role in, but "can
no longer be the primary means" of, school funding.
Under the current financial structure, 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 119 districts, income taxes for 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 1997 under this program, 12 districts
borrowed a total of $113,164,000.
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 five districts and nine
have been placed on a preliminary "fiscal watch" status.
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Municipalities
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 18 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 Ohio 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.
Litigation
The State of Ohio is a party to various legal
proceedings seeking damages or injunctive relief and generally
incidental to its operations. The ultimate disposition of these
proceedings is not presently determinable, but in the opinion of
the Ohio Attorney General will not have a material adverse effect
on payment of State obligations. Litigation pending in federal
district court and in the Ohio Court of Claims 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
predict 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
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Medicaid expenditures of $600,000,000 for the retroactive period
and, based on current law, it is estimated that Ohio's share of
those additional Medicaid expenditures would be approximately
$240,000,000. The Court of Claims case may come to trial later
this year.
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 November 13, 1997, relating to the issuance of $225,000,000
Commonwealth of Pennsylvania 4.50% Tax Anticipation Notes, Series
of 1997-1998.
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 services 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.
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Non-agricultural employment in Pennsylvania over the ten
years ending in 1996 increased at an annual rate of 1.03 percent.
This rate compares to a 0.41 percent rate for the middle Atlantic
region and 1.8 percent for the U.S. during the period 1986
through 1996. For the last three years, employment in the
Commonwealth has increased 3.6 percent. The growth in employment
experienced in Pennsylvania during this period is higher than the
3.0 percent growth in the Middle Atlantic region.
Non-manufacturing employment has increased in recent
years to its 1996 level of 82.5 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 1996 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 1996, the services sector accounted for
31.1 percent of all non-agricultural employment while the trade
sector accounted for 22.7 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
September 1997, the most recent month for which data is
available, the seasonally adjusted unemployment rate for the
Commonwealth was 5.3 percent, compared to 4.9 percent for the
United States.
Personal income in the Commonwealth for 1996 was $299.0
billion, an increase of 4.9% over the previous year. During the
same period, national personal income increased at a rate of
5.6%. Based on the 1996 personal income estimates, per capita
income for 1996 is estimated at $24,803 in the Commonwealth,
compared to per capita income in the United States of $24,426.
Personal income in Pennsylvania for the first quarter of 1997 is
estimated on a seasonally adjusted annual basis to be $309.2
million, an increase of 6.1% over the first quarter of 1996.
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 obligations, except that
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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 1998 Budget (Budgetary Basis): The budget for
fiscal 1998 was enacted in May 1997. Commonwealth revenues for
the fiscal year at that time were estimated to be $17.435 billion
before reserves for tax refunds. That estimate represented an
increase over estimated fiscal 1997 Commonwealth revenues of 1.0
percent. Although fiscal 1997 revenues exceeded the estimate,
the adopted fiscal 1998 budget revenue estimate remains unchanged
and represents a 0.7 percent increase over actual fiscal 1997
revenues. Fiscal 1998 estimates for commonwealth revenues are
based on an economic forecast for national economic growth to
slow through the remainder of calendar year 1997. A growth rate
of just above 1.0 percent is anticipated to be maintained for the
last two quarters of the fiscal year and result in a 1.2 percent
growth rate in real gross domestic product for the second
calendar quarter of 1998 over the second quarter of 1997. This
anticipated rate of economic growth is a result of anticipated
slowing of gains in consumer spending, business investment and
residential housing. Inflation is projected to remain modest and
the unemployment rate is expected to reach 6.0 percent by the
second calendar quarter of 1998.
The rate of anticipated growth of Commonwealth revenues
is also effected by the enactment of tax reductions and tax
revenue dedications effective for the 1998 fiscal year.
Excluding these newly enacted changes, revenues are projected to
increase by 2.4 percent during fiscal 1998. Tax reductions
enacted for the 1998 fiscal year budget totaled an estimated
$170.6 million, including $16.2 million that is reflected in
higher projected tax refunds. In addition, $75 million of
existing sales tax revenue has been earmarked for mass transit
funding and one cent of the cigarette tax ($10.8 million) has
been earmarked for a children's health program and are no longer
included in the General Fund. Major changes to taxes enacted for
fiscal 1998 include: (i) the repeal of the sales and use tax on
computer services ($79.1 million); (ii) an increase in the amount
of income that is exempt from the personal income tax for low-
income families ($25.4 million); (iii) enactment of a research
and development tax credit program for business ($15.0 million);
(iv) conforming state tax laws to federal laws for sub-chapter S
and limited liability companies ($16.3 million); and various
other miscellaneous changes. Most changes were effective
beginning in July 1997 although some are effective retroactively
to January 1997.
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The reserve for tax refunds for fiscal 1998 has been
increased by 21.3 percent to $655.0 million. A portion of the
additional reserves reflect tax refund liabilities that are
expected to result in cash payments in a subsequent fiscal year.
Appropriations enacted for fiscal 1998 are 3.7 percent
($618 million) above appropriations enacted for fiscal 1997
(including supplemental appropriations.) Major funding increases
provided by the fiscal 1998 budget include: (i) $166 million of
appropriations for elementary and secondary education plus an
estimated $51 million in reduced employer retirement
contributions payable by local school districts due to a
reduction in the contribution rate; (ii) $42 million for higher
education institutions plus $16 million for student scholarships;
(iii) $70 million for higher caseload, utilization, and cost of
nursing home care; (iv) $60 million for economic development
assistance through programs providing incentive grants and loans;
and (v) $38 million for corrections including $17 million for
operating costs for new and expanded facilities. The balance of
the increase is spread over many other departments and program
operations.
Based on current expectations and the adopted budget for
fiscal 1998 and excluding any estimate for appropriation lapses
during the fiscal year, the unappropriated surplus is projected
to decline from $402.7 million at the beginning of the fiscal
year to $16.7 million at fiscal year-end (prior to transfers to
the Tax Stabilization Reserve Fund).
Fiscal 1997 Financial Results (Budgetary Basis):
Commonwealth General Fund revenues for the fiscal year were above
estimate and exceeded fiscal year expenditures and encumbrances.
For fiscal year 1997, 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
1997 closing unappropriated surplus was $591.4 million, an
increase of $403.1 million over the fiscal 1996 closing
unappropriated surplus prior to transfers.
Commonwealth revenues were $576.1 million, 3.4 percent,
above the estimate of revenues used at the time the budget was
enacted. Tax revenue in fiscal 1997 grew 6.1 percent over tax
revenues in fiscal 1996. Receipts from the personal income tax
produced the largest single component of higher revenues for the
fiscal year: collections were $236.3 million over estimate
representing a 6.9 percent increase over fiscal 1996 receipts.
Expenditures (excluding pooled financing expenditures)
from Commonwealth revenues totaled $16,347.7 million,
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representing an increase of 1.7 percent over spending during
fiscal 1996.
Transfers to the Tax Stabilization Reserve Fund for
fiscal 1997 operations were $88.7 million, representing fifteen
percent of the ending unappropriated balance, plus an additional
$100 million authorized by the General Assembly when it enacted
the fiscal 1998 budget.
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, 1996 showed a surplus of approximately $118.5 million,
an increase of approximately $28 million over the previous fiscal
year surplus.
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 $1,761.7 million of its Special Tax Revenue Bonds.
PICA's authority to issue bonds has expired and, as of June 30,
1997, PICA had $1,102.4 million in special revenue bonds
outstanding. Currently, Philadelphia is operating under a five-
year fiscal plan approved by PICA on May 20, 1997.
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 $4,795.1
million at June 30, 1997, a decrease of $261 million from June
30, 1996. Over the 10-year period ending June 30, 1997, total
outstanding general obligation debt increased at an annual rate
of 0.5 percent. Within the most recent 5-year period, outstanding
general obligation debt has decreased at an annual rate of 0.3
percent.
Certain state-created organizations have statutory
authorization to issue debt for which state appropriations to pay
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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
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
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Court recently certified the class, and the parties have resumed
discovery.
County of Allegheny v. Commonwealth of Pennsylvania
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 judgment 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 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. Following
issuance of the writ, the President of the Senate and the Speaker
of the House have filed a petition seeking reconsideration from
the Court.
On January 28, 1997, the Supreme Court announced the
establishment of a tripartite committee, including
representatives of the Executive Department, the Legislative
Department and Justice Montemuro, to develop an implementation
plan. On July 26, 1997, Justice Montemuro filed a report
recommending a four phase implementation plan. The first phase
of the recommended plan, transfer of of specified court employees
into the state payroll system, was to begin on January 1, 1998
with completion of the final phase early next century.
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.
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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.
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
litigation consists of two parallel cases; a federal court case
has been indefinitely stayed, pending resolution of a state court
case.
Trial and post-trial briefing have been completed, and
oral argument was heard on September 8, 1997 before Judge
Pellegrini of the Commonwealth Court. Judge Pellegrini took the
case under advisement.
Autin v. Department of Corrections, et al.
In November 1990, the American Civil Liberties 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 environmental 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
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.
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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 $11 million may be
required to be paid in 1998, depending upon the results of
property liquidations by Envirotest.
Pennsylvania Human Relations Commission/School
District of Philadelphia, et al. v. Commonwealth of
Pennsylvania, et al.
On November 3, 1995, the Commonwealth of Pennsylvania
and the Governor of Pennsylvania, along with the City of
Philadelphia and the Mayor of Philadelphia, were joined as
additional respondents in an enforcement action commenced in
Commonwealth Court in 1973 by the Pennsylvania Human Relations
Commission against the School District of Philadelphia pursuant
to the Pennsylvania Human Relations Act. The enforcement action
was pursued to remedy unintentional conditions of segregation in
the public schools of Philadelphia. The Commonwealth and the
City were joined in the "remedial phase" of the proceeding "to
determine their liability, if any, to pay additional costs
necessary to remedy the unlawful conditions found to exist in the
Philadelphia public schools."
Trial commenced on May 30, 1996. 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. The Court 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
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order of the [Supreme] Court." The Supreme Court again retained
jurisdiction.
On January 28, 1997, the Supreme Court set forth three
issues to be briefed and established a briefing schedule. Briefs
have been filed, but the Supreme Court has not scheduled oral
arguments.
Marrero, et al. v. Commonwealth, et al.
On February 24, 1997, five residents of Philadelphia,
the City of Philadelphia, the School District of Philadelphia,
and two non-profit organizations filed in the Commonwealth Court
a civil action for declaratory judgment that the present
statutory scheme for funding public education, as applied to the
School District of Philadelphia, violates the Constitution of
Pennsylvania. Petitioners seek an order that requires, among
other things, the legislature to amend the present education
legislation to assure that funding for Philadelphia public
schools makes adequate provision for the greater needs of
disadvantaged Philadelphia students.
The respondents have filed preliminary objections
seeking dismissal of the action. After briefs were filed, the
Commonwealth Court heard oral argument on September 10, 1997 and
took the matter under advisement.
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
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securities). Shares of the Virginia Portfolio are available
only to Virginia residents.
The following is based on information obtained from
an Official Statement, dated June 1, 1997, relating to
$152,075,000 Commonwealth of Virginia General Obligation
Bonds, Series 1997.
Economic Climate
The Commonwealth of Virginia is the twelfth most
populous state in the nation, with approximately 6,677,200
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. metropolitan area.
This is the fastest growing metropolitan area in the
Commonwealth and had a 1996 population of 1,970,900.
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 the Washington, D.C.
metropolitan area in 1994 was $28,762.
According to the U.S. Department of Commerce,
Virginians received over $166 billion in personal income in
1996, representing an increase of 83.4 percent over 1986 and
greater than the national gain of 68.9 percent for the same
period. In 1996, Virginia had per capita income of $24,925,
the highest of the Southeast region and greater than the
national average of $24,231. Virginia's per capita income
rose from 94 percent to 103 percent of the national average
from 1970 to 1996. From 1986 to 1995, Virginia's 5 percent
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average rate of growth in personal per capita income was
approximately equal to the national rate of growth. Much of
Virginia's per capita income gain in the last decade has
been due to the continued strength of the manufacturing
sectors, rapid growth of high-technology industries, basic
business services, corporate headquarters and regional
offices and the attainment of parity with the nation in
labor force participation rates.
More than 3.5 million residents of the Commonwealth
are in the civilian labor force. Services, the largest
employment sector, accounts for 28.4 percent of
nonagricultural employment, and has increased 19.1 percent
from 1991-1995. Manufacturing is also a significant
employment sector, accounting for 13.1 percent 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 percent 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 1996, an
average of 4.4 percent of Virginia's citizens were
unemployed as compared with the national average which was
5.4 percent. During the first six months of 1997,
Virginia's unemployment rate averaged 4.25 percent and in
August 1997 was down to 4.1 percent.
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.
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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 appropriations, based
on previous forecasts, exceed expected revenues in
subsequent forecasts. As of June 30, 1996, $84.9 million
was on deposit in the Revenue Stabilization Fund. In
addition, $151.6 million of the General Fund balance on
June 30, 1996 was reserved for deposit in the Revenue
Stabilization Fund.
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.
On April 7, 1996, the 1996-98 Appropriation Act
became effective. That Act appropriated $35.078 billion for
the 1996-98 biennium -- approximately $1.411 billion in
spending increases above the level necessary to continue FY
1996 workloads and costs. Of these increases, $107.2
million resulted from the deposits to the Revenue
Stabilization Fund ($66.6 million for deposit on June 30,
1997 and an estimated $40.6 million scheduled for deposit on
June 30, 1998). The remainder provided the state share of
Standards of Quality for public schools, proposed increases
in higher education, increased spending for adult and
juvenile corrections, expansion of economic development, and
mandated increases in several entitlement programs in health
and human resources, primarily for Medicaid. The Act also
included more than $200 million in settlement payments to
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federal retirees (see "Litigation" below). The Act
projected over $35.258 billion in revenues, providing for an
unappropriated balance surplus on June 30, 1998.
On April 30, 1997, the Governor signed the 1997
Appropriation Act amending the 1996-98 budget. The 1997 Act
included general fund spending amendments totaling about
$226.1 million above the 1996-98 Appropriation Act. Of this
total, $187.7 million supported operating expenses and $17.7
million was required for deposit into the Revenue
Stabilization Fund. An additional $9.1 million was left
unappropriated, bringing the total general fund
unappropriated balance to $20.7 million on June 30, 1998.
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.
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 percent 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
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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.
Additional Investment Policies
Except as otherwise noted, the following investment
policies apply to all Portfolios of the Fund.
General. Municipal securities include municipal bonds
as well as short-term (i.e., maturing in under one year to as
much as three years) municipal notes, demand notes and tax-exempt
commercial paper. In the event a Portfolio invests in demand
notes, Alliance Capital Management L.P. (the "Adviser") will
continually monitor the ability of the obligor under such notes
to meet its obligations. Typically, municipal bonds are issued
to obtain funds used to construct a wide range of public
facilities, such as schools, hospitals, housing, mass
transportation, airports, highways and bridges. The funds may
also be used for general operating expenses, refunding of
outstanding obligations and loans to other public institutions
and facilities.
Municipal bonds have two principal classifications:
general obligation bonds and revenue or special obligation bonds.
General obligation bonds are secured by the issuer's pledge of
its faith, credit and taxing power for the payment of principal
and interest. Revenue or special obligation bonds are payable
only from the revenues derived from a particular facility or
class of facilities or, in some cases, from the proceeds of a
special excise tax or other specific revenue source but not from
general tax and other unrestricted revenues of the issuer. The
term "issuer" means the agency, authority, instrumentality or
other political subdivision whose assets and revenues are
available for the payment of principal of and interest on the
bonds. Certain types of private activity bonds are also
considered municipal bonds if the interest thereon is exempt from
federal income tax.
Private activity bonds are in most cases revenue bonds
and do not generally constitute the pledge of the credit or
taxing power of the issuer of such bonds. The payment of the
principal and interest on such private activity bonds depends
solely on the ability of the user of the facilities financed by
the bonds to meet its financial obligations and the pledge, if
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any, of real and personal property so financed as security for
such payment.
Each Portfolio may invest a portion of its assets in
municipal securities that pay interest at a coupon rate equal to
a base rate plus additional interest for a certain period of time
if short-term interest rates rise above a predetermined level or
"cap." Although the specific terms of these municipal securities
may differ, the amount of any additional interest payment
typically is calculated pursuant to a formula based upon an
applicable short-term interest rate index multiplied by a
designated factor. The additional interest component of the
coupon rate of these municipal securities generally expires
before the maturity of the underlying instrument. These
municipal securities may also contain provisions that provide for
conversion at the option of the issuer to constant interest rates
in addition to standard call features.
A Portfolio may invest a maximum of 35% of its total
assets in zero coupon securities, which are debt obligations that
do not entitle the holder to any periodic payments prior to
maturity and are issued and traded at a discount from their face
amounts. The discount varies depending on the time remaining
until maturity, prevailing interest rates, liquidity of the
security and perceived credit quality of the issuer. The market
prices of zero coupon securities are generally more volatile than
the market prices of securities that pay interest periodically
and are likely to respond to changes in interest rates to a
greater degree than do securities having similar maturities and
credit quality that do pay periodic interest.
Each Portfolio may also invest in municipal securities,
the interest rate on which has been divided into two different
and variable components, which together result in a fixed
interest rate. Typically, the first of the components (the
"Auction Component") pays an interest rate that is reset
periodically through an auction process, whereas the second of
the components (the "Residual Component") pays a current residual
interest rate based on the difference between the total interest
paid by the issuer on the municipal securities and the auction
rate paid on the Auction Component. A Portfolio may purchase
both Auction and Residual Components.
Because the interest rate paid to holders of Residual
Components is generally determined by subtracting the interest
rate paid to the holders of Auction Components from a fixed
amount, the interest rate paid to Residual Component holders will
decrease the Auction Component's rate increases and increase as
the Auction Component's rate decreases. Moreover, the extent of
the increases and decreases in market value of Residual
Components may be larger than comparable changes in the market
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value of an equal principal amount of a fixed rate municipal
security having similar credit quality, redemption provisions and
maturity.
Municipal notes in which a Portfolio may invest include
demand notes, which are tax-exempt obligations that have stated
maturities in excess of one year, but permit the holder to sell
back the security (at par) to the issuer within 1 to 7 days
notice. The payment of principal and interest by the issuer of
these obligations will ordinarily be guaranteed by letters of
credit offered by banks. The interest rate on a demand note may
be based upon a known lending rate, such as a bank's prime rate,
and may be adjusted when such rate changes, or the interest rate
on a demand note may be a market rate that is adjusted at
specified intervals.
Other short-term obligations constituting municipal
notes include tax anticipation notes, revenue anticipation notes,
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 Investors Services, Inc. ("Moody"), Standard & Poors
Rating Services ("S&P"), Duff & Phelps Credit Rating Co. ("Duff &
Phelp") and Fitch IBCA, Inc. ("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
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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 30 years. However, no
Portfolio has any restrictions on the maturity of municipal
securities in which it may invest. Since the Portfolios'
objective is to provide high current income, they will emphasize
income rather than stability of net asset values, and the average
maturity of the Portfolios will vary depending on anticipated
market conditions. The Portfolios will seek to invest in
municipal securities of such maturities that, in the judgment of
the Adviser, will provide a high level of current income
consistent with liquidity requirements and market conditions.
The achievement of the Portfolios' respective investment
objectives depends in part on the continuing ability of the
issuers of municipal securities in which the Fund invests to meet
their obligations for the payment of principal and interest when
due. Municipal securities historically have not been subject to
registration with the Securities and Exchange Commission (the
"Commission"), although from time to time there have been
proposals which would require registration in the future.
After purchase by a Portfolio, a municipal security may
cease to be rated or its rating may be reduced below the minimum
required for purchase by such Portfolio. Neither event requires
sales of such security by such Portfolio, but the Adviser will
consider such event in its determination of whether such
Portfolio should continue to hold the security. To the extent
that the ratings given by Moody's, S&P, Duff & Phelps or Fitch
may change as a result of changes in such organizations or their
rating systems, the Adviser will attempt to use such changed
ratings in a manner consistent with the Fund's quality criteria
as described in the Prospectus for each of its Portfolios.
Obligations of issuers of municipal securities are
subject to the provisions of bankruptcy, insolvency, and other
laws affecting the rights and remedies of creditors, such as the
Federal Bankruptcy Code. In addition, the obligations of such
issuers may become subject to laws enacted in the future by
Congress, state legislatures, or referenda extending the time for
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payment of principal and/or interest, or imposing other
constraints upon enforcement of such obligations or upon the
ability of municipalities to levy taxes. There is also the
possibility that, as a result of litigation or other conditions,
the ability of any issuer to pay, when due, the principal or the
interest on its municipal bonds may be materially affected.
From time to time, proposals have been introduced before
Congress for the purpose of restricting or eliminating the
federal income tax exemption for interest on municipal
securities. It can be expected that similar proposals may be
introduced in the future. If such a proposal were enacted, the
availability of municipal securities for investment by the Fund
and the value of the Fund's Portfolios would be affected.
Additionally, the Fund would reevaluate the Portfolios'
investment objectives and policies.
Futures Contracts and Options on Futures Contracts.
Each Portfolio may enter into contracts for the purchase or sale
for future delivery of municipal securities or obligations of the
U.S. Government securities or contracts based on financial
indices, including an index of municipal securities or U.S.
Government securities ("futures contracts") and may purchase and
write put and call options to buy or sell futures contracts
("options on futures contracts"). A "sale" of a futures contract
means the acquisition of a contractual obligation to deliver the
securities called for by the contract at a specified price on a
specified date. A "purchase" of a futures contract means the
incurring of a contractual obligation to acquire the securities
called for by the contract at a specified price on a specified
date. The purchaser of a futures contract on an index agrees to
take or make delivery of an amount of cash equal to the
difference between a specified dollar multiple of the value of
the index on the expiration date of the contract ("current
contract value") and the price at which the contract was
originally struck. No physical delivery of the fixed-income
securities underlying the index is made. Options on futures
contracts written or purchased by a Portfolio will be traded on
U.S. exchanges or over-the-counter. These investment techniques
will be used only to hedge against anticipated future changes in
interest rates which otherwise might either adversely affect the
value of the securities held by a Portfolio or adversely affect
the prices of securities which a Portfolio intends to purchase at
a later date.
The Fund has adopted a policy that futures contracts and
options on futures contracts only be used as a hedge and not for
speculation. In addition to this requirement, a Portfolio will
not enter into any futures contracts or options on futures
contracts if immediately thereafter the aggregate of the market
value of the Portfolio's outstanding futures contracts and the
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market value of the futures contracts subject to outstanding
options written by the Portfolio would exceed 50% of the total
assets.
The correlation between movements in the price of
futures contracts or options on futures contracts and movements
in the price of the securities hedged or used for cover will not
be perfect and could produce unanticipated losses. If the value
of the index increases, the purchaser of the futures contract
thereon will be entitled to a cash payment. Conversely, if the
value of the index declines, the seller of a futures contract
will be entitled to a cash payment. In connection with its
purchase of index futures each Portfolio will deposit liquid
assets equal to the market value of the futures contract (less
related margin) in a segregated account with the Fund's custodian
or a futures margin account with a broker. If the Adviser were
to forecast incorrectly, a Portfolio might suffer a loss arising
from adverse changes in the current contract values of the bond
futures or index futures which it had purchased or sold. A
Portfolio's ability to hedge its positions through transactions
in index futures depends on the degree of correlation between
fluctuations in the index and the values of the securities which
the Portfolio owns or intends to purchase, or general interest
rate movements.
For additional information on the use, risks and costs
of futures contracts and options on futures contracts, see
Appendix B.
Options on Municipal and U.S. Government Securities. In
an effort to increase current income and to reduce fluctuations
in net asset value, the Portfolios intend to write covered put
and call options and purchase put and call options on municipal
securities and U.S. Government securities that are traded on U.S.
exchanges. There are no specific limitations on the writing and
purchasing of options by those Portfolios.
A put option gives the purchaser of such option, upon
payment of a premium, the right to deliver a specified amount of
a security to the writer of the option on or before a fixed date
at a predetermined price. A call option gives the purchaser of
the option, upon payment of a premium, the right to call upon the
writer to deliver a specified amount of a security on or before a
fixed date at a predetermined price. A call option written by a
Portfolio is "covered" if the Portfolio owns the underlying
security covered by the call or has an absolute and immediate
right to acquire that security without additional cash
consideration (or for additional cash consideration held in a
segregated account by its custodian) upon conversion or exchange
of other securities held in its portfolio. A call option is also
covered if the Portfolio holds a call on the same security and in
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the same principal amount as the call written where the exercise
price of the call held (i) is equal to or less than the exercise
price of the call written or (ii) is greater than the exercise
price of the call written if the difference is maintained by the
Portfolio in liquid assets in a segregated account with the
Fund's custodian. A put option written by a Portfolio is
"covered" if the Portfolio maintains liquid assets with a value
equal to the exercise price in a segregated account with the
Fund's custodian, or else holds a put on the same security and in
the same principal amount as the put written where the exercise
price of the put held is equal to or greater than the exercise
price of the put written. The premium paid by the purchaser of
an option will reflect, among other things, the relationship of
the exercise price to the market price and volatility of the
underlying security, the remaining term of the option, supply and
demand and interest rates.
The Portfolios intend to write call options for cross-
hedging purposes. A call option is for cross-hedging purposes if
a Portfolio does not own the underlying security, and is designed
to provide a hedge against a decline in value in another security
which the Portfolio owns or has the right to acquire. In such
circumstances, a Portfolio collateralizes its obligation under
the option by maintaining in a segregated account with the Fund's
custodian liquid assets in an amount not less than the market
value of the underlying security, marked to market daily. A
Portfolio would write a call option for cross-hedging purposes,
instead of writing a covered call option, when the premium to be
received from the cross-hedge transaction would exceed that which
would be received from writing a covered call option, while at
the same time achieving the desired hedge.
In purchasing a call option, a Portfolio would be in a
position to realize a gain if, during the option period, the
price of the underlying security increased by an amount in excess
of the premium paid. It would realize a loss if the price of the
underlying security declined or remained the same or did not
increase during the period by more than the amount of the
premium. In purchasing a put option, the Portfolio would be in a
position to realize a gain if, during the option period, the
price of the underlying security declined by an amount in excess
of the premium paid. It would realize a loss if the price of the
underlying security increased or remained the same or did not
decrease during that period by more than the amount of the
premium. If a put or call option purchased by a Portfolio were
permitted to expire without being sold or exercised, its premium
would be lost by the Portfolio.
If a put option written by a Portfolio were exercised
the Portfolio would be obligated to purchase the underlying
security at the exercise price. If a call option written by a
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Portfolio were exercised, the Portfolio would be obligated to
sell the underlying security at the exercise price. The risk
involved in writing a put option is that there could be a
decrease in the market value of the underlying security caused by
rising interest rates or other factors. If this occurred, the
option could be exercised and the underlying security would then
be sold by the option holder to the Portfolio at a higher price
than its current market value. The risk involved in writing a
call option is that there could be an increase in the market
value of the underlying security caused by declining interest
rates or other factors. If this occurred, the option could be
exercised and the underlying security would then be sold by the
Portfolio at a lower price than its current market value. These
risks could be reduced by entering into a closing transaction.
The Portfolio retains the premium received from writing a put or
call option whether or not the option is exercised. See Appendix
C for a further discussion of the use, risks and costs of option
trading.
The Portfolios may purchase or write options on
securities of the types in which they are permitted to invest in
privately negotiated (i.e., over-the-counter) transactions. These
Portfolios will effect such transactions only with investment
dealers and other financial institutions (such as commercial
banks or savings and loan institutions) deemed creditworthy by
the Adviser, and the Adviser has adopted procedures for
monitoring the creditworthiness of such entities. Options
purchased or written in negotiated transactions may be are
illiquid and it may not be possible for the Portfolios to effect
a closing transaction at a time when the Adviser believes it
would be advantageous to do so. See "Description of the
Portfolios-Additional Investment Policies and Practices -Illiquid
Securities" in the Prospectus.
Interest Rate Transactions. Each Portfolio may enter
into interest rate swaps and may purchase or sell interest rate
caps and floors.
A Portfolio enters into these transactions primarily to
preserve a return or spread on a particular investment or portion
of its portfolio. A Portfolio may also enter into these
transactions to protect against price increases of securities the
Adviser anticipates purchasing for the Portfolio at a later date.
The Portfolios do not intend to use these transactions in a
speculative manner. Interest rate swaps involve the exchange by
a Portfolio with another party of their respective commitments to
pay or receive interest, e.g., an exchange of floating rate
payments for fixed rate payments. The purchase of an interest
rate cap entitles the purchaser, to the extent that a specified
index exceeds a predetermined interest rate, to receive payments
of interest on a contractually-based principal amount from the
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party selling such interest rate cap. The purchase of an
interest rate floor entitles the purchaser, to the extent that a
specified index falls below a predetermined interest rate, to
receive payments of interest on a contractually-based principal
amount from the party selling such interest rate floor.
Each Portfolio may enter into interest rate swaps, caps
and floors on either an asset-based or liability-based basis,
depending upon whether they are hedging their assets or their
liabilities, and will usually enter into interest rate swaps on a
net basis, i.e., the two payment streams are netted out, with the
Portfolio receiving or paying, as the case may be, only the net
amount of the two payments. The net amount of the excess, if any,
of a Portfolio's obligations over its entitlements with respect
to each interest rate swap will be accrued daily, and an amount
of liquid assets having an aggregate net asset value at least
equal to the accrued excess will be maintained in a segregated
account by the custodian. If a Portfolio enters into an interest
rate swap on other than a net basis, the Portfolio will maintain
in a segregated account with the custodian the full amount,
accrued daily, of the Portfolio's obligations with respect to the
swap. A Portfolio will not enter into any interest rate swap, cap
or floor unless the unsecured senior debt or the claims paying
ability of the other party thereto is then rated in the highest
rating category of at least one nationally recognized rating
organization. The Adviser will monitor the creditworthiness of
counterparties on an ongoing basis. If there were a default by
such a counterparty, the Portfolios would have contractual
remedies. The swap market has grown substantially in recent
years, with a large number of banks and investment banking firms
acting both as principals and agents utilizing standardized swap
documentation. The Adviser has determined that, as a result, the
swap market has become relatively liquid. Caps and floors are
more recent innovations for which standardized documentation has
not yet been developed and, accordingly they are less liquid than
swaps. To the extent a Portfolio sells (i.e., writes) caps and
floors it will maintain in a segregated account with the
custodian liquid assets equal to the full amount, accrued daily,
of the Portfolio's obligations with respect to any caps or
floors.
The use of interest rate swaps is a highly specialized
activity which involves investment techniques and risks different
from those associated with ordinary portfolio securities
transactions. If the Adviser were incorrect in its forecasts of
market values, interest rates and other applicable factors, the
investment performance of the Portfolios would diminish compared
with what they would have been if these investment techniques
were not used. Moreover, even if the Adviser is correct in its
forecasts, there is a risk that the swap position may correlate
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imperfectly with the price of the asset or liability being
hedged.
There is no limit on the amount of interest rate swap
transactions that may be entered into by any of the Portfolios.
These transactions do not involve the delivery of securities or
other underlying assets of principal. Accordingly, the risk of
loss with respect to interest rate swaps is limited to the net
amount of interest payments that a Portfolio is contractually
obligated to make. If the other party to an interest rate swap
defaults, the Portfolio's risk of loss consists of the net amount
of interest payments that the Portfolio contractually is entitled
to receive. A Portfolio may purchase and sell (i.e., write) caps
and floors without limitation, subject to the segregated account
requirement described above.
When-Issued Securities and Forward Commitments. Each
Portfolio may purchase municipal securities offered on a "when-
issued" basis and may purchase or sell municipal securities on a
"forward commitment" basis. When such transactions are
negotiated, the price, which is generally expressed in yield
terms, is fixed at the time the commitment is made, but delivery
and payment for the securities take place at a later date.
Normally, the settlement date occurs within two months after the
transaction, but delayed settlements beyond two months may be
negotiated. During the period between a commitment by a
Portfolio and settlement, no payment is made for the securities
purchased by the purchaser, and, thus, no interest accrues to the
purchaser from the transaction. The use of when-issued
transactions and forward commitments enables a Portfolio to hedge
against anticipated changes in interest rates and prices. For
instance, in periods of rising interest rates and falling bond
prices, a Portfolio might sell municipal securities which it
owned on a forward commitment basis to limit its exposure to
falling bond prices. In periods of falling interest rates and
rising bond prices, a Portfolio might sell a municipal security
held by the Portfolio and purchase the same or a similar security
on a when-issued or forward commitment basis, thereby obtaining
the benefit of currently higher cash yields. However, if the
Adviser were to forecast incorrectly the direction of interest
rate movements, the Portfolio might be required to complete such
when-issued or forward transactions at prices less favorable than
the current market value.
When-issued municipal securities and forward commitments
may be sold prior to the settlement date, but a Portfolio enters
into when-issued and forward commitment transactions only with
the intention of actually receiving or delivering the municipal
securities, as the case may be. To facilitate such transactions,
the Fund's custodian bank will maintain, in a separate account of
the Fund, liquid assets having value equal to, or greater than,
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any commitments to purchase municipal securities on a when-issued
or forward commitment basis and, with respect to forward
commitments to sell portfolio securities of a Portfolio, the
portfolio securities themselves. If a Portfolio, however,
chooses to dispose of the right to acquire a when-issued security
prior to its acquisition or dispose of its right to deliver or
receive against a forward commitment, it can incur a gain or
loss. When-issued municipal securities may include bonds
purchased on a "when, as and if issued" basis under which the
issuance of the securities depends upon the occurrence of a
subsequent event, such as approval of a proposed financing by
appropriate municipal authorities. Any significant commitment of
Portfolio assets to the purchase of securities on a "when, as an
if issued" basis may increase the volatility of the Portfolio's
net asset value. At the time a Portfolio makes the commitment to
purchase or sell a municipal security on a when-issued or forward
commitment basis, it records the transaction and reflects the
value of the security purchased or, if a sale, the proceeds to be
received, in determining its net asset value. No when-issued or
forward commitments will be made by any Portfolio if, as a
result, more than 20% of the value of such Portfolio's total
assets would be committed to such transactions.
General. The successful use of the foregoing investment
practices, all of which are highly specialized investment
activities, draws upon the Adviser's special skill and experience
with respect to such instruments and usually depends on Adviser's
ability to forecast interest rate movements correctly. Should
interest rates move in an unexpected manner, the Portfolios may
not achieve the anticipated benefits of futures contracts,
options, interest rate transactions or forward commitment
contracts, or may realize losses and thus be in a worse position
than if such strategies had not been used. Unlike many exchange-
traded futures contracts and options on futures contracts, there
are no daily price fluctuation limits with respect to forward
contracts, and adverse market movements could therefore continue
to an unlimited extent over a period of time. In addition, the
correlation between movements in the price of such instruments
and movements in the price of the securities hedged or used for
cover will not be perfect and could produce unanticipated losses.
A Portfolio's ability to dispose of its position in
futures contracts, options, interest rate transactions and
forward commitment contracts will depend on the availability of
liquid markets in such instruments. Markets for all these
vehicles with respect to municipal securities are relatively new
and still developing. It is impossible to predict the amount of
trading interest that may exist in various types of futures
contracts and options on futures contracts. If, for example, a
secondary market did not exist with respect to an option
purchased or written by a Portfolio over-the-counter, it might
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not be possible to effect a closing transaction in the option
(i.e., dispose of the option) with the result that (i) an option
purchased by the Portfolio would have to be exercised in order
for the Portfolio to realize any profit and (ii) the Portfolio
might not be able to sell portfolio securities covering the
option until the option expired or it delivered the underlying
security or futures contract upon exercise. No assurance can be
given that the Portfolios will be able to utilize these
instruments effectively for the purposes set forth above.
Furthermore, the Portfolios' ability to engage in options and
futures transactions may be limited by tax considerations.
Repurchase Agreements. Each Portfolio may seek
additional income by investing in repurchase agreements
pertaining only to U.S. Government securities. A repurchase
agreement arises when a buyer purchases a security and
simultaneously agrees to resell it to the vendor at an agreed-
upon future date, normally one day or a few days later. The
resale price is greater than the purchase price, reflecting an
agreed-upon market rate which is effective for the period of time
the buyer's money is invested in the security and which is not
related to the coupon rate on the purchased security. Such
agreements permit a Portfolio to keep all of its assets at work
while retaining "overnight" flexibility in pursuit of investments
of a longer-term nature. Each Portfolio maintains procedures for
evaluating and monitoring the creditworthiness of vendors of
repurchase agreements. In addition, each Portfolio requires
continual maintenance of collateral held by the Fund's custodian
in an amount equal to, or in excess of, the market value of the
securities which are the subject of the agreement. In the event
that a vendor defaulted on its repurchase obligation, a Portfolio
might suffer a loss to the extent that the proceeds from the sale
of the collateral were less than the repurchase price. In the
event of a vendor's bankruptcy, a Portfolio might be delayed in,
or prevented from, selling the collateral for its benefit.
Repurchase agreements may be entered into with member banks of
the Federal Reserve System including the Fund's custodian or
"primary dealers" (as designated by the Federal Reserve Bank of
New York) in U.S. Government securities. It is the Fund's current
practice to enter into repurchase agreements only with such
primary dealers.
Illiquid Securities. Subject to any applicable
fundamental investment policy, a Portfolio will not maintain more
than 15% of its net assets in illiquid securities. These
securities include, among others, securities for which there is
no readily available market, options purchased by a Portfolio
over-the-counter, the cover for such options and repurchase
agreements not terminable within seven days. Because of the
absence of a trading market for these investments, a Portfolio
may not be able to realize their value upon sale.
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Future Developments. A Portfolio may, following written
notice to its shareholders, take advantage of other investment
practices which are not at present contemplated for use by the
Portfolio or which currently are not available but which may be
developed, to the extent such investment practices are both
consistent with the Portfolio's investment objective and legally
permissible for the Portfolio. Such investment practices, if
they arise, may involve risks which exceed those involved in the
activities described above.
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 value of
equity securities. See "Financial Highlights" in the Prospectus
for the portfolio turnover rates of each Portfolio
Special Risk Considerations. Securities rated Baa are
considered by Moody's or BB by S&P, Duff & Phelps or Fitch to
have speculative characteristics. Sustained periods of
deteriorating economic conditions or rising interest rates are
more likely to lead to a weakening in the issuer's capacity to
pay interest and repay principal than in the case of higher-rated
securities. Securities rated below investment grade, i.e., Ba or
BB and lower, ("lower-rated securities") are subject to greater
risk of loss of principal and interest than higher-rated
securities and are considered to be predominantly speculative
with respect to the issuer's capacity to pay interest and repay
principal, which may in any case decline during sustained periods
of deteriorating economic conditions or rising interest rates.
They are also generally considered to be subject to greater
market risk than higher-rated securities in times of
deteriorating economic conditions. In addition, lower-rated
securities may be more susceptible to real or perceived adverse
economic and competitive industry conditions than investment
grade securities.
The market for lower-rated securities may be thinner and
less active than that for higher-quality securities, which can
adversely affect the prices at which these securities can be
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sold. To the extent that there is no established secondary
market for lower-rated securities, the Portfolio may experience
difficulty in valuing such securities and, in turn, the
Portfolio's assets. In addition, adverse publicity and investor
perceptions about lower-rated securities, whether or not based on
fundamental analysis, may tend to decrease the market value and
liquidity of such lower-rated securities.
The ratings of fixed-income securities by Moody's, S&P,
Duff & Phelps and Fitch are a generally accepted barometer of
credit risk. They are, however, subject to certain limitations
from an investor's standpoint. The rating of an issuer is heavily
weighted by past developments and does not necessarily reflect
probable future conditions. There is frequently a lag between
the time a rating is assigned and the time it is updated. In
addition, there may be varying degrees of differences in credit
risk of securities within each rating category. See Appendix A
for a description of such ratings.
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.
Investment Restrictions
Unless specified to the contrary, the following
restrictions are fundamental policies which may not be changed
with respect to any Portfolio without the affirmative vote of the
holders of a majority of such Portfolio's outstanding voting
securities, which means with respect to any such Portfolio (1)
67% or more or the shares represented at a meeting at which more
than 50% of the outstanding shares are present in person or by
proxy or (2) more than 50% of the outstanding shares, whichever
is less. Each 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;
(5) Issue any senior security within the meaning
of the Investment Company Act of 1940, as
amended (the "1940 Act"), except that the Fund
may borrow money from banks for temporary or
emergency purposes, including the meeting of
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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
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limitations resulting from a change in values or net assets will
not be considered a violation. Under the 1940 Act, a Portfolio
is not permitted to borrow unless immediately after such
borrowing there is "asset coverage," as that term is defined and
used in the 1940 Act of at least 300% for all borrowings of the
Portfolio. In addition, under the 1940 Act, in the event asset
coverage falls below 300%, a Portfolio must within three days
reduce the amount of its borrowing to such an extent that the
asset coverage of its borrowings is at least 300%.
_________________________________________________________________
MANAGEMENT OF THE FUND
_________________________________________________________________
Adviser
Alliance Capital Management L.P., a Delaware limited
partnership with principal offices at 1345 Avenue of the
Americas, New York, New York 10105, has been retained under an
investment advisory agreement (the "Advisory Agreement") to
provide investment advice and, in general, to conduct the
management and investment program of the Fund under the
supervision of the Fund's Trustees (see "Management of the Fund"
in the Prospectus).
The Adviser is a leading international investment
manager supervising client accounts with assets as of September
30, 1997 of more than $217 billion (of which more than $81
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. As of September 30, 1997, the
Adviser was an investment manager of employee benefit fund assets
for 28 of the FORTUNE 100 Companies. As of that date, the
Adviser and its subsidiaries employed approximately 1,500
employees who operated out of domestic offices and the overseas
offices of subsidiaries in Bahrain, Bangalore, Chennai, Istanbul,
London, Madrid, Mumbai, Paris, Singapore, Tokyo and Toronto and
affiliated offices located in Vienna, Warsaw, Hong Kong, Sao
Paulo and Moscow. The 56 registered investment companies
comprising more than 118 separate investment portfolios managed
by the Adviser currently have more than two million shareholders.
Alliance Capital Management Corporation ("ACMC"), the
sole general partner of, and the owner of a 1% general
partnership interest in, the Adviser, is an indirect wholly-owned
subsidiary of The Equitable Life Assurance Society of the United
States ("Equitable"), one of the largest life insurance companies
in the United States and a wholly-owned subsidiary of The
Equitable Companies Incorporated ("ECI"). ECI is a holding
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company controlled by AXA-UAP, a French insurance holding company
which at September 30, 1997, beneficially owned approximately 59%
of the outstanding voting shares of ECI. As of June 30, 1997,
ACMC, Inc. and Equitable Capital Management Corporation, each a
wholly-owned direct or indirect subsidiary of Equitable, together
with Equitable, owned in the aggregate approximately 57% of the
issued and outstanding units representing assignments of
beneficial ownership of limited partnership interests in the
Adviser.
AXA-UAP is a holding company for an international group
of insurance and related financial services companies. AXA-UAP's
insurance operations include activities in life insurance,
property and casualty insurance and reinsurance. The insurance
operations are diverse geographically, with activities
principally in Western Europe, North America and the Asia/Pacific
area. AXA-UAP is also engaged in asset management, investment
banking, securities trading, brokerage, real estate and other
financial services activities principally in the United States,
as well as in Western Europe and the Asia/Pacific area.
Based on information provided by AXA-UAP, as of
September 30, 1997, more than 25% of the voting power of AXA-UAP
was controlled directly and indirectly by Finaxa, a French
holding company ("Finaxa"). As of September 30, 1997, more than
25% of the voting power of Finaxa were owned by four French
mutual insurance companies (the "Mutuelles AXA"), one of which,
AXA Assurances I.A.R.D. Mutuelle, itself controlled directly and
indirectly more than 25% of the voting power of Finaxa. Acting
as a group, the Mutuelles AXA control AXA-UAP and Finaxa.
Under the Advisory Agreement, the Adviser furnishes
advice and recommendations with respect to the portfolios of
securities and investments and provides persons satisfactory to
the Trustees to act as officers and employees of the Fund. Such
officers and employees, as well as certain trustees of the Fund,
may be employees of the Adviser or its affiliates.
The Adviser is, under the Advisory Agreement,
responsible for certain expenses incurred by the Fund including,
for example, office facilities and certain administrative
services, and any expenses incurred in promoting the sale of Fund
shares (other than the portion of the promotional expenses borne
by the Fund in accordance with an effective plan pursuant to Rule
12b-1 under the 1940 Act, and the costs of printing Fund
prospectuses and other reports to shareholders and fees related
to registration with the Commission and with state regulatory
authorities).
The Fund has, under the Advisory Agreement, assumed the
obligation for payment of all of its other expenses. As to the
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obtaining of services other than those specifically provided to
the Fund by the Adviser, the Fund may employ its own personnel.
For such services, it also may utilize personnel employed by the
Adviser or by affiliates of the Adviser. In such event, the
services will be provided to the Fund at cost and the payments
specifically approved by the Fund's Trustees. The Fund paid to
the Adviser a total of $-0-, $-0-, $-0-, $-0-, $-0-, $-0-, $-0-,
$-0- and $-0- in respect of such services during the fiscal year
of the Fund ended in 1997 for Arizona, Florida, Massachusetts,
Michigan, Minnesota, New Jersey, Ohio, Pennsylvania and Virginia,
respectively.
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.
For the fiscal year ended September 30, 1997 advisory
fees payable to the Advisor with respect to the Arizona, Florida
Massachusetts, Michigan, Minnesota, New Jersey, Ohio,
Pennsylvania and Virginia Portfolios amounted to $-0-, $63,642,
$-0-, $-0-, $-0-, 140,698, $-0-, $178,565 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
1940 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 1940 Act. Most recently, the
Trustees approved the continuance of the Advisory Agreement with
respect to each Portfolio until September 30, 1998 at their
meeting held on September 10, 1997.
The Advisory Agreement is terminable with respect to a
Portfolio without penalty by a vote of a majority of the
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Portfolio's outstanding voting securities or by a vote of a
majority of the Fund's Trustees on 60 days' written notice, or by
the Adviser on 60 days' written notice, and will terminate
automatically in the event of its assignment. The Advisory
Agreement provides that in the absence of willful misfeasance,
bad faith or gross negligence on the part of the Adviser, or of
reckless disregard of its obligations thereunder, the Adviser
shall not be liable for any action or failure to act in
accordance with its duties thereunder.
Certain other clients of the Adviser may have investment
objectives and policies similar to those of the Fund. The Adviser
may, from time to time, make recommendations which result in the
purchase or sale of a particular security by its other clients
simultaneously with the Fund. If transactions on behalf of more
than one client during the same period increase the demand for
securities being purchased or the supply of securities being
sold, there may be an adverse effect on price or quantity. It is
the policy of the Adviser to allocate advisory recommendations
and the placing of orders in a manner which is deemed equitable
by the Adviser to the accounts involved, including the Fund.
When two or more of the clients of the Adviser (including the
Fund) are purchasing or selling the same security on a given day
from the same broker-dealer, such transactions may be averaged as
to price.
The Adviser may act as an investment adviser to other
persons, firms or corporations, including investment companies,
and is investment adviser to ACM Institutional Reserves, Inc.,
AFD Exchange Reserves, The Alliance Fund, Inc., Alliance All-Asia
Investment Fund, Inc., Alliance Balanced Shares, Inc., Alliance
Bond Fund, Inc., Alliance Capital Reserves, Alliance Developing
Markets Fund, Inc., Alliance Global Dollar Government Fund, Inc.,
Alliance Global Environment Fund, Inc., Alliance Global Small Cap
Fund, Inc., Alliance Global Strategic Income Trust, Inc.,
Alliance Government Reserves, Alliance Greater China '97 Fund
Inc., Alliance High Yield Fund, Inc., Alliance Growth and Income
Fund, Inc., Alliance Income Builder Fund, Inc., Alliance
Institutional Funds, Inc. Alliance International Fund, Alliance
Money Market Fund, Alliance Mortgage Securities Income Fund,
Inc., Alliance Limited Maturity Government Fund, Inc., Alliance
Multi-Market Strategy Trust, Inc., Alliance Municipal Income
Fund, 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
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Portfolios, Fiduciary Management Associates and The Hudson River
Trust, all registered open-end investment companies; and to ACM
Government Income Fund, Inc., ACM Government Securities Fund,
Inc., ACM Government Spectrum Fund, Inc., ACM Government
Opportunity Fund, Inc., ACM Managed Dollar Income Fund, Inc., ACM
Managed Income Fund, Inc., ACM Municipal Securities Income Fund,
Inc., Alliance All-Market Advantage Fund, 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 officers of the Fund, their ages and
their principal 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 the following persons is 1345 Avenue of the
Americas, New York, New York 10105.
Trustees
JOHN D. CARIFA,1 52, Chairman and President of the
Fund, is the President, Chief Operating Officer and a Director of
ACMC, with which he has been associated since prior to 1992.
RUTH BLOCK, 66, was formerly Executive Vice President
and Chief Insurance Officer of Equitable. She is a Director of
Ecolab Incorporated (specialty chemicals) and Amoco Corporation
(oil and gas). Her address is Box 4653, Stamford, Connecticut,
06903.
DAVID H. DIEVLER, 68, is an independent consultant. He
was formerly Chairman of the Board and President of the Fund and
a Senior Vice President of ACMC, with which he was associated
since prior to 1992 through 1994. He is currently an independent
consultant. His address is P.O. Box 167, Spring Lake, New
Jersey, 07762.
JOHN H. DOBKIN, 55, is President of Historic Hudson
Valley (historic preservation) since prior to 1992. Previously
he was a Director of the National Academy of Design. His address
is Historic Hudson Valley, 105 White Plains Road, Tarrytown, New
York 10591.
_________________________
1An "interested person" of the Fund as defined in the 1940
Act.
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WILLIAM H. FOULK, Jr., 64, is an investment adviser and
independent consultant. He was formerly Senior Manager of Barrett
Associates, Inc., a registered investment adviser, with which he
has been associated since prior to 1992. His address is 2 Hekma
Road, Greenwich, Connecticut 06831.
DR. JAMES M. HESTER, 73, is President of the Harry Frank
Guggenheim Foundation and a Director of Union Carbide Corporation
with which he has been associated since prior to 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, 58, is a partner of the law firm of
Cahill Gordon & Reindel with which he has been associated since
prior to 1992. He is President and Chief Executive Officer of
Wenonah Development Company (investment holding company) and a
Director of Placer Dome, Inc. (mining). His address is 80 Pine
Street, New York, NY 10005.
DONALD J. ROBINSON, 63, was formerly a senior partner at
Orrick, Herrington & Sutcliff and is currently senior 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).
SUSAN P. KEENAN, 39, Senior Vice President, is a Senior
Vice President of ACMC with which she has been associated since
prior to 1992.
WAYNE D. LYSKI, 56, Senior Vice President, is an
Executive Vice President of ACMC with which he has been
associated since prior to 1992.
KATHLEEN A. CORBET, 37, Senior Vice President, is an
Executive Vice President of ACMC, with which she has been
associated since July 1993. Previously, she headed Equitable
Capital Management Corporation's fixed income management
department 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 a Vice President
of ACMC, with which he has been associated since 1993.
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Previously, he was an analyst in the Municipal Strategy Group at
Merrill Lynch Capital Markets.
TERRANCE T. HULTS, 30, Vice President, is Vice President
of ACMC, with which he has been associated since 1993.
Previously, he was an Associate and trader in the Municipal
Derivative Products Department at Merrill Lynch Capital Markets.
EDMUND P. BERGAN, JR., 47, Secretary, is a Senior Vice
President and the General Counsel of Alliance Fund Distributor,
Inc. ("AFD"), with which he has been associated since prior to
1992.
DOMENICK PUGLIESE, 36, Assistant Secretary, is Vice
President and Assistant General Counsel of AFD, with which he
has been associated since May 1995. Previously, he was Vice
President and Counsel of Concord Financial Holding Corporation
since 1994, and Vice President and Associate General Counsel of
Prudential Securities since 1992.
MARK D. GERSTEN, 47, Treasurer and Chief Financial
Officer, is a Vice President of AFD and a Senior Vice President
of Alliance Fund Services, Inc., ("AFS")with which he has been
associated since prior to 1992.
JUAN RODRIGUEZ, 40, Controller, is an Assistant Vice
President of AFS with which he has been associated since prior to
1992.
MELVIN OLIVER, 40, 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 October 31, 1997, the
aggregate compensation paid to each of the Trustees during
calendar year 1997 by all of the funds to which the Adviser
provides investment advisory services (collectively, the
"Alliance Fund Complex") and the total number of registered
investment companies (and separate investment portfolios within
those funds) 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 or director of one or more other
registered investment companies in the Alliance Fund Complex.
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Total Number
Total Number of Investment
of Funds in Portfolios
the Alliance within the
Total Fund Complex, Funds,
Compensation Including the the Fund, as
from the Fund, as to Including
Alliance which the to which
Aggregate Fund Complex, Trustee is the Trustee
Compensation Including a Director is a Director
Name of Trustee from the Fund the Fund or Trustee or Trustee
John D. Carifa -0- -0- 52 114
David H. Dievler $3,360 $188,526 45 79
Ruth Block $3,384 $163,997 38 76
John H. Dobkin -0- $127,996 31 52
William H. Foulk, Jr. -0- $174,996 34 70
Dr. James M. Hester $3,357 $136,494 39 73
Clifford L. Michel $3,074 $194,494 39 88
Donald J. Robinson $3,321 $235,500 41 94
______________________
As of January 16, 1998, 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 1940 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
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with the sale of such shares. In this regard the purpose and
function of the combined contingent deferred sales charges and
distribution services fees on the Class B and Class C shares are
the same as those of the initial sales charge and distribution
services fee with respect to the Class A shares, in that 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 1940 Act)
are committed to the discretion of such disinterested Trustees
then 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, 1997, 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 t
he Class A shares in amounts aggregating $20,379, $45,848,
$16,048, $17,587, $10,498, $43,523, $19,085, $69,378 and $8,679
which constituted .30% of each Portfolio's average daily net
assets attributable to the Class A shares. In addition, during
the fiscal year ended September 30, 1997, the Adviser made
aggregate payments under the Agreement from its own resources in
the case of the Class A shares as described above of $1,747,202.
Of the $1,998,765 paid by the Fund and the Adviser under the
Agreement in the case of the Class A shares, $264,865 was spent
on advertising, $17,139 on the printing and mailing of
prospectuses for persons other than current shareholders,
$857,383 for compensation to broker-dealers and other financial
intermediaries (including $536,505 to the Fund's Principal
Underwriter), $121,998 for compensation to sales personnel and
$737,380 was spent on printing of sales literature, travel,
entertainment, due diligence and other promotional expenses.
During the fiscal year September 30, 1997, 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 $55,737, $230,909, $48,450,
$42,552, $81,010, $378,572, $252,445, $300,896 and $39,933 which
constituted 1.00% of each Portfolio's average daily net assets
attributable to the Class B shares. In addition, during the
fiscal year September 30, 1997, the Adviser made aggregate
payments under the Agreement from its own resources in the case
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<PAGE>
of the Class B shares as described above of $1,917,085. Of the
$3,347,587 paid by the Fund and the Adviser under the Agreement
in the case of the Class B shares, $303,622 was spent on
advertising, $14,045 on the printing and mailing of prospectuses
for persons other than current shareholders, $2,079,711 for
compensation to broker-dealers and other financial intermediaries
(including $614,242 to the Fund's Principal Underwriter), $53,953
for compensation to sales personnel and $723,052 was spent on
printing of sales literature, travel, entertainment, due
diligence and other promotional expenses and $173,204 for
interest on Class B shares financing. Unreimbursed distribution
expenses incurred during the fiscal year ended September 30, 1997
and carried over for reimbursement in future years in respect of
the Class B shares amounted to approximately $163,010 or 2.50%
for Arizona Portfolio, $245,799 or .99% for Florida Portfolio,
$192,628 or 2.66% for Massachusetts Portfolio, $194,408 or 3.67%
for Michigan Portfolio, $168,323 or 1.98% for Minnesota
Portfolio, $132,367 or .35% for New Jersey Portfolio, $273,415 or
1.02% for Ohio Portfolio, $103,764 or .34% for Pennsylvania
Portfolio and $269,612 or 5.37% 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, 1997, 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 $13,828, $278,572,
$53,327, $44,984, $71,069, $219,135, $149,184, $141,862 and
$9,957 which constituted 1.00% of each Portfolio's average daily
net assets attributable to the Class C shares. In addition,
during the fiscal year ended September 30, 1997, the Adviser made
aggregate payments under the Agreement from its own resources in
the case of the Class C shares as described above of $1,508,134.
Of the $2,492,051 paid by the Fund and the Adviser under the
Agreement in the case of the Class C shares, $231,939 was spent
on advertising, $14,564 on the printing and mailing of
prospectuses for persons other than current shareholders,
$1,614,904 for compensation to broker-dealers and other financial
intermediaries (including $456,948 to the Fund's Principal
Underwriter), $33,038 for compensation to sales personnel,
$513,923 was spent on printing of sales literature, travel,
entertainment, due diligence and other promotional expenses and
$83,683 for interest on Class C shares financing. Unreimbursed
distribution expenses incurred during the Fund's fiscal year
ended September 30, 1997 and carried over for reimbursement in
future years in respect of the Class C shares amounted to
approximately $1,329 or .07% for the Arizona Portfolio, $1,136 or
.01% for the Florida Portfolio, $2,193 or .03% for the
Massachusetts Portfolio, $2,053 or .04% for the Michigan
Portfolio, $1,172 or .02% for the Minnesota Portfolio, $2,401 or
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.01 % for the New Jersey Portfolio, $2,176 or .01% for the Ohio
Portfolio, $1,087 or .01% for the Pennsylvania Portfolio and
$186 or .02% 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.
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 1940 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 1940 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, 1998 at their meeting on
September 10, 1997.
In the event that the Agreement is terminated or not
continued with respect to the Class A, Class B 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
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<PAGE>
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
Class B shares and Class C shares is higher than the transfer
agency fee with respect to the Class A shares reflecting the
additional costs associated with the Class B shares and Class C
shares contingent deferred sales charge. For the fiscal year
ended October 31, 1997, the Fund paid Alliance Fund Services,
Inc. $212,895 for transfer agency services.
_______________________________________________________________
PURCHASE OF SHARES
_______________________________________________________________
The following information supplements that set forth in
the Fund's Prospectus(es) under the heading "Purchase and Sale of
Shares --How To Buy Shares."
General
Shares of each Portfolio are offered on a continuous
basis at a price equal to their net asset value plus an initial
sales charge at the time of purchase ("Class A shares"), with a
contingent deferred sales charge ("Class B shares"), or without
any initial sales charge and, as long as the shares are held one
year or more, without any contingent deferred sales charge
("Class C shares"), or, to investors eligible to purchase Advisor
Class shares, without any initial, contingent deferred or asset
based sales charge, in each case as described below. Shares of
each Portfolio that are offered subject to a sales charge are
offered through (i) investment dealers that are members of the
National Association of Securities Dealers, Inc. and have entered
into selected dealer agreements with the Principal Underwriter
("selected dealers"), (ii) depository institutions and other
financial intermediaries or their affiliates, that have entered
into selected agent agreements with the Principal Underwriter
("selected agents"), and (iii) the Principal Underwriter.
Advisor Class shares of the Fund may be purchased and
held solely (i) through accounts established under fee-based
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programs, sponsored and maintained by registered broker-dealers
or other financial intermediaries and approved by the Principal
Underwriter, (ii) through self-directed defined contribution
employee benefit plans (e.g., 401(k) plans) that have at least
1,000 participants or $25 million in assets, (iii) by the
categories of investors described in clauses (i) through (iv)
below under "--Sales at Net Asset Value" (other than officers,
directors and present and full-time employees of selected dealers
or agents, or relatives of such person, or any trust, individual
retirement account or retirement plan account for the benefit of
such relative, none of whom is eligible on the basis solely of
such status to purchase and hold Advisor Class shares) or (iv) by
directors and present or retired full-time employees of CB
Commercial Real Estate Group, Inc. Generally, a fee-based
program must charge an asset-based or other similar fee and must
invest at least $250,000 in Advisor Class shares of the Fund in
order to be approved by the Principal Underwriter for investment
in Advisor Class shares.
Investors may purchase shares of a Portfolio either
through selected dealers, agents, financial representatives or
directly through the Principal Underwriter. A transaction,
service, administrative or other similar fee may be charged by
your broker-dealer, agent, financial intermediary or other
financial representative with respect to the purchase, sale or
exchange of Class A, Class B or Advisor Class shares made through
such financial representative. Such financial representative may
also impose requirements with respect to the purchase, sale or
exchange of shares that are different from, or in addition to,
those imposed by the Fund, including requirements as to the
minimum initial and subsequent investment amounts. Sales
personnel of selected dealers and agents distributing the Fund's
shares may receive differing compensation for selling Class A,
Class B, Class C or Advisor Class shares.
The Fund may refuse any order for the purchase of
shares. The Fund reserves the right to suspend the sale of
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
Agreement and Declaration of Trust and By-Laws as of the next
close of regular trading on the New York Stock Exchange (the
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"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
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
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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.
As a convenience to the subscriber, and to avoid unnecessary
expense to a Portfolio, stock certificates representing shares of
a Portfolio are not issued except upon written request to the
Fund by the shareholder or his or her authorized selected dealer
or agent. This facilitates later redemption and relieves the
shareholder of the responsibility for and inconvenience of lost
or stolen certificates. No certificates are issued for
fractional shares, although such shares remain in the
shareholder's account on the books of the Fund.
In addition to the discount or commission amount paid to
dealers or agents, the Principal Underwriter from time to time
pays additional cash or other incentives to dealers or agents,
including EQ Financial Consultants, Inc. formerly Equico
Securities, Inc., an affiliate of the Principal Underwriter, in
connection with the sale of shares of a Portfolio. Such
additional amounts may be utilized, in whole of in part, to
provide additional compensation to registered representatives who
sell shares of a Portfolio. On some occasions, such cash or
other incentives will be conditioned upon the sale of a specified
minimum dollar amount of the shares of a Portfolio and/or other
Alliance Mutual Funds, as defined below, during a specific period
of time. On some occasions, such cash or other incentives may
take the form of payment for attendance at seminars, meals,
sporting events or theater performance, or payment for travel,
lodging and entertainment incurred in connection with travel
taken by persons associated with a dealer or agent and their
immediate family members to urban or resort locations within or
outside the United States. Such dealer or agent may elect to
receive cash incentives of equivalent amounts in lieu of such
payments.
Class A, Class B, Class C and Advisor Class shares each
represent an interest in the same portfolio of investments of
each Portfolio, have the same rights and are identical in all
respects, except that (i) Class A shares bear the expense of the
initial sales charge (or contingent deferred sales charge, when
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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
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 Trustees 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 Trustees of the Fund, pursuant to their fiduciary duties
under the 1940 Act and state law, will seek to ensure that no
such conflict arises.
Alternative Retail Purchase Arrangements --Class A, Class B
and Class C Shares2
The alternative purchase arrangements available with
respect to Class A shares, Class B shares and Class C shares
permit an investor to choose the method of purchasing shares that
is most beneficial given the amount of the purchase, the length
of time the investor expects to hold the shares, and other
circumstances. Investors should consider whether, during the
anticipated life of their investment in the Portfolio, the
accumulated distribution services fee and contingent deferred
sales charge on Class B shares prior to conversion, or the
accumulated distribution services fee and contingent deferred
sales charge on Class C shares would be less than the initial
sales charge and accumulated distribution services fee on Class A
shares purchased at the same time and to what extent such
differential would be offset by the higher return of Class A
shares. Class A shares will normally be more beneficial than
Class B shares to the investor who qualifies for reduced initial
_________________________
2Advisor Class shares are sold only to investors described
above in this section under "--General."
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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 $1,000,000 for Class C shares.
Class A shares are subject to a lower distribution
services fee and, accordingly, pay correspondingly higher
dividends per share than Class B shares or Class C shares.
However, because initial sales charges are deducted at the time
of purchase, investors purchasing Class A shares would not have
all their funds invested initially and, therefore, would
initially own fewer shares. Investors not qualifying for reduced
initial sales charges who expect to maintain their investment for
an extended period of time might consider purchasing Class A
shares because the accumulated continuing distribution charges on
Class B shares or Class C shares may exceed the initial sales
charge on Class A shares during the life of the investment.
Again, however, such investors must weigh this consideration
against the fact that, because of such initial sales charges, not
all their funds will be invested initially.
Other investors might determine, however, that it would
be more advantageous to purchase Class B shares or Class C shares
in order to have all their funds invested initially, although
remaining subject to higher continuing distribution charges and
being subject to a contingent deferred sales charge for a three-
year and one-year period, respectively. For example, based on
current fees and expenses, an investor subject to the 4.25%
initial sales charge or Class A shares would have to hold his or
her investment approximately seven years for the Class C
distribution services fee to exceed the initial sales charge plus
the accumulated distribution services fee of Class A shares. In
this example, an investor intending to maintain his or her
investment for a longer period might consider purchasing Class A
shares. This example does not take into account the time value of
money, which further reduces the impact of the Class C
distribution services fees on the investment, fluctuations in net
asset value or the effect of different performance assumptions.
Those investors who prefer to have all of their funds
invested initially but may not wish to retain Portfolio shares
for the three-year period during which Class B shares are subject
to a contingent deferred sales charge may find it more
advantageous to purchase Class C shares.
During the Fund's fiscal year ended September 30, 1997,
the aggregate amount of underwriting commissions payable with
respect to shares of the Florida Portfolio were $179,295; the
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Minnesota Portfolio were $76,848; the New Jersey Portfolio were
$200,989; the Ohio Portfolio were $136,379; and the Pennsylvania
Portfolio were $166,634; $103,555 for the Michigan Portfolio;
$152,917 for the Massachusetts Portfolio; $66,692 for the
Virginia Portfolio; and $197,939 for the Arizona Portfolio. Of
that amount, the Principal Underwriter, received the amount of
$6,676 for the Florida Portfolio; $2,259 for the Minnesota
Portfolio; $6,728 for the New Jersey Portfolio; $-0- for the Ohio
Portfolio; $6,672 for the Pennsylvania Portfolio; $3,231 for the
Michigan Portfolio; $6,544 for the Massachusetts Portfolio;
$2,344 for the Virginia Portfolio; and $8,550 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, 1997, the Principal Underwriter received in
contingent deferred sales charges with respect to Class B
redemptions $24,195 for the Florida Portfolio; $10,660 for the
Minnesota Portfolio; $51,440 for the New Jersey Portfolio;
$23,986 for the Ohio Portfolio, $19,985 for the Pennsylvania
Portfolio, $4,700 for the Michigan Portfolio, $5,545 for the
Massachusetts Portfolio, $6,835 for the Virginia Portfolio and
$26,432 for the Arizona Portfolio. During the fiscal year ended
September 30, 1997, the Principal Underwriter received in
contingent deferred sales charges with respect to Class C
redemptions $1,137 for the Florida Portfolio; $1,172 for the
Minnesota Portfolio; $2,401 for the New Jersey Portfolio; $2,176
for the Ohio Portfolio; $1,087 for the Pennsylvania Portfolio;
$2,053 for the Michigan Portfolio; $2,193 for the Massachusetts
Portfolio; $187 for the Virginia Portfolio and $1,329 for the
Arizona Portfolio.
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 $23,267; the
Minnesota Portfolio were $43,060; the New Jersey Portfolio were
$46,008; the Ohio Portfolio were $105,920; the Pennsylvania
Portfolio were $183,685; the Michigan Portfolio were $8,128; 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 $3,352 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
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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
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 Portfolio; $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.
Class A Shares
The public offering price of Class A shares is the net
asset value plus a sales charge, as set forth below.
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Sales Charge
Discount or
Commission
As % of to Dealers
As % of the or Agents
Net Public As % of
Amount of Amount Offering Offering
Purchase Invested Price Price
Less than
$100,000. . . 4.44% 4.25% 4.00%
$100,000 but
less than
$250,000. . . 3.36 3.25 3.00
$250,000 but
less than
$500,000. . . 2.30 2.25 2.00
$500,000 but
less than
$1,000,000.* . 1.78 1.75 1.50
____________________
* There is no initial sales charge on transactions of $1,000,000
or more.
With respect to purchases of $1,000,000 or more, Class A
shares redeemed within one year of purchase will be subject to a
contingent deferred sales charge equal to 1% of the lesser of the
cost of the shares being redeemed or their net asset value at the
time of redemption. Accordingly, no sales charge will be imposed
on increases in net asset value above the initial purchase price.
In addition, no charge will be assessed on shares derived from
reinvestment of dividends or capital gains distributions. The
contingent deferred sales charge on Class A shares will be waived
on certain redemption, as described below under "--Class B
Shares." In determining the contingent deferred sales charge
applicable to a redemption of Class A shares, it will be assumed
that the redemption is, first, of any shares that are not subject
to a contingent deferred sales charge (for example, because an
initial sales charge was paid with respect to the shares, or they
have been held beyond the period during which the charge applies
or were acquired upon the reinvestment of dividends and
distributions) and, second, of shares held longest during the
time they are subject to the sales charge. Proceeds from the
contingent deferred sales charge on Class A shares are paid to
the Principal Underwriter and are used by the Principal
Underwriter to defray the expenses of the Principal Underwriter
related to providing distribution-related services to the Fund in
connection with the sales of Class A shares, such as the payment
of compensation to selected dealers and agents for selling
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Class A Shares. With respect to purchases of $1,000,000 or more
made through selected dealers or agents, the Adviser may,
pursuant to the Distribution Services Agreement described above,
pay such dealers or agents from its own resources a fee of up to
1% of the amount invested to compensate such dealers or agents
for their distribution assistance in connection with such
purchases.
No initial sales charge is imposed on Class A shares
issued (i) pursuant to the automatic reinvestment of income
dividends or capital gains distributions, (ii) in exchange for
Class A shares of other "Alliance Mutual Funds" (as that term is
defined under "Combined Purchase Privilege" below), except that
an initial sales charge will be imposed on Class A shares issued
in exchange for Class A shares of AFD Exchange Reserves ("AFDER")
that were purchased for cash without the payment of an initial
sales charge and without being subject to a contingent deferred
sales charge or (iii) upon the automatic conversion of Class B
shares or Advisor Class shares as described below under "Class B
Shares--Conversion Feature" and "--Conversion of Advisor Class
Shares to Class A Shares." Each Portfolio receives the entire
net asset value of its Class A shares sold to investors. The
Principal Underwriter's commission is the sales charge shown
above less any applicable discount or commission "reallowed" to
selected dealers and agents. The Principal Underwriter will
reallow discounts to selected dealers and agents in the amounts
indicated in the table above. In this regard, the Principal
Underwriter may, however, elect to reallow the entire sales
charge to selected dealers and agents for all sales with respect
to which orders are placed with the Principal Underwriter. A
selected dealer who receives reallowance in excess of 90% of such
a sales charge may be deemed to be an "underwriter" under the
Securities Act.
Set forth below is an example of the method of computing
the offering price of the Class A shares. The example assumes a
purchase of Class A shares of 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, 1997.
Arizona Portfolio
Net Asset Value per Share
at September 30, 1997 $10.78
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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 $11.26
Florida Portfolio
Net Asset Value per Share at
September 30, 1997 $10.14
Per Share Sales Charge -4.25%
of offering price (4.44% of
net asset value per share) $ .45
Per Share Offering Price to
the Public $10.59
Massachusetts Portfolio
Net Asset Value per Share
at September 30, 1997 $11.19
Per Share Sales Charge -4.25%
of offering price (4.44% of
net asset value per share) $ .50
Per Share Offering Price to
the Public $11.69
Michigan Portfolio
Net Asset Value per Share
at September 30, 1997 $10.52
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 $10.99
Minnesota Portfolio
Net Asset Value per Share at
September 30, 1997 $ 9.97
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Per Share Sales Charge -4.25%
of offering price (4.44% of
net asset value per share) $ .44
Per Share Offering Price to
the Public $10.41
New Jersey Portfolio
Net Asset Value per Share at
September 30, 1997 $10.15
Per Share Sales Charge -4.25%
of offering price (4.44% of
net asset value per share) $ .45
Per Share Offering Price to
the Public $10.60
Ohio Portfolio
Net Asset Value per Share at
September 30, 1997 $10.16
Per Share Sales Charge -4.25%
of offering price (4.44% of
net asset value per share) $ .45
Per Share Offering Price to
the Public $10.61
Pennsylvania Portfolio
Net Asset Value per Share at
September 30, 1997 $10.33
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 $10.79
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Virginia Portfolio
Net Asset Value per Share
at September 30, 1997 $10.90
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 $11.38
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 1940 Act, but does not include purchases by any such
company which has not been in existence for at least six months
or which has no purpose other than the purchase of shares of a
Portfolio or shares of other registered investment companies at a
discount. The term "purchase" does not include purchases by any
group of individuals whose sole organizational nexus is that the
participants therein are credit card holders of a company, policy
holders of an insurance company, customers of either a bank or
broker-dealer or clients of an investment adviser. A "purchase"
may also include shares, purchased at the same time through a
single selected dealer or agent, of any other "Alliance Mutual
Fund." Currently, the Alliance Mutual Funds include:
AFD Exchange Reserves
The Alliance Fund, Inc.
Alliance All-Asia Investment Fund, Inc.
Alliance Balanced Shares, Inc.
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Alliance Bond Fund, Inc.
-Corporate Bond Portfolio
-U.S. Government Portfolio
Alliance Developing Markets Fund, Inc.
Alliance Global Dollar Government Fund, Inc.
Alliance Global Environment Fund, Inc.
Alliance Global Small Cap Fund, Inc.
Alliance Global Strategic Income Trust, Inc.
Alliance Greater China '97 Fund, Inc.
Alliance Growth and Income Fund, Inc.
Alliance High Yield Fund, Inc.
Alliance Income Builder Fund, Inc.
Alliance International Fund
Alliance Mortgage Securities Income Fund, Inc.
Alliance Limited Maturity Government 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
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-Alliance Short-Term U.S. Government Fund
Prospectuses for the Alliance Mutual Funds may be
obtained without charge by contacting Alliance Fund Services,
Inc. at the address or the "For Literature" telephone number
shown on the front cover of this Statement of Additional
Information.
Cumulative Quantity Discount (Right of Accumulation). An
investor's purchase of additional Class A shares of a Portfolio
may qualify for a Cumulative Quantity Discount. The applicable
sales charge will be based on the total of:
(i) the investor's current purchase;
(ii) the net asset value (at the close of business on
the previous day) of (a) all shares of a Portfolio
held by the investor and (b) all shares of any
other Alliance Mutual Fund held by the investor;
and
(iii) the net asset value of all shares described in
paragraph (ii) owned by another shareholder
eligible to combine his or her purchase with that
of the investor into a single "purchase" (see
above).
For example, if an investor owned shares of an Alliance
Mutual Fund worth $200,000 at their then current net asset value
and, subsequently, purchased Class A shares of a Portfolio worth
an additional $100,000, the sales charge for the $100,000
purchase would be at the 2.25% rate applicable to a single
$300,000 purchase of shares of the Fund, rather than the 3.25%
rate.
To qualify for the Combined Purchase Privilege or to
obtain the Cumulative Quantity Discount on a purchase through a
selected dealer or agent, the investor or selected dealer or
agent must provide the Principal Underwriter with sufficient
information to verify that each purchase qualifies for the
privilege or discount.
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
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<PAGE>
of the dollar amount indicated in the Statement of Intention. At
the investor's option, a Statement of Intention may include
purchases of shares of a Portfolio or any other Alliance Mutual
Fund made not more than 90 days prior to the date that the
investor signs the Statement of Intention; however, the 13-month
period during which the Statement of Intention is in effect will
begin on the date of the earliest purchase to be included.
Investors qualifying for the Combined Purchase Privilege
described above may purchase shares of the Alliance Mutual Funds
under a single Statement of Intention. For example, if at the
time an investor signs a Statement of Intention to invest at
least $100,000 in Class A shares of a Portfolio, the investor and
the investor's spouse each purchase shares of a Portfolio worth
$20,000 (for a total of $40,000), it will be necessary to invest
only a total of $60,000 during the following 13 months in shares
of the Fund or any other Alliance Mutual Fund, to qualify for the
3.25% sales charge on the total amount being invested (the sales
charge applicable to an investment of $100,000).
The Statement of Intention is not a binding obligation
upon the investor to purchase the full amount indicated. The
minimum initial investment under a Statement of Intention is 5%
of such amount. Shares purchased with the first 5% of such
amount will be held in escrow (while remaining registered in the
name of the investor) to secure payment of the higher sales
charge applicable to the shares actually purchased if the full
amount indicated is not purchased, and such escrowed shares will
be involuntarily redeemed to pay the additional sales charge, if
necessary. Dividends on escrowed shares, whether paid in cash or
reinvested in additional Portfolio shares, are not subject to
escrow. When the full amount indicated has been purchased, the
escrow will be released. To the extent that an investor
purchases more than the dollar amount indicated on the Statement
of Intention and qualifies for a further reduced sales charge,
the sales charge will be adjusted for the entire amount purchased
at the end of the 13-month period. The difference in the sales
charge will be used to purchase additional shares of the Fund
subject to the rate of the sales charge applicable to the actual
amount of the aggregate purchases.
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.
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Certain Retirement Plans. Multiple participant payroll
deduction retirement plans may also purchase shares of the
Portfolios or any other Alliance Mutual Fund at a reduced sales
charge on a monthly basis during the 13-month period following
such a plan's initial purchase. The sales charge applicable to
such initial purchase of shares of the Portfolios will be that
normally applicable, under the schedule of sales charges set
forth in this Statement of Additional Information, to an
investment 13 times larger than such initial purchase. The sales
charge applicable to each succeeding monthly purchase will be
that normally applicable, under such schedule, to an investment
equal to the sum of (i) the total purchase previously made during
the 13-month period and (ii) the current month's purchase
multiplied by the number of months (including the current month)
remaining in the 13-month period. Sales charges previously paid
during such period will not be retroactively adjusted on the
basis of later purchases.
Reinstatement Privilege. A shareholder who has caused
any or all of his or her Class A or Class B shares of a Portfolio
to be redeemed or repurchased may reinvest all or any portion of
the redemption or repurchase proceeds in Class A shares of the
Portfolio at net asset value without any sales charge, provided
that (i) such reinvestment is made within 120 calendar days after
the redemption or repurchase date and (ii) for Class B shares, a
contingent deferred sales charge has been paid and the Principal
Underwriter has approved, at its discretion, the reinvestment of
such shares. Shares are sold to a reinvesting shareholder at the
net asset value next determined as described above. A
reinstatement pursuant to this privilege will not cancel the
redemption or repurchase transaction; therefore, any gain or loss
so realized will be recognized for federal income tax purposes
except that no loss will be recognized to the extent that the
proceeds are reinvested in shares of a Portfolio within 30
calendar days after the redemption or repurchase transaction.
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 Directors or Trustees of the Fund; present or
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former directors and trustees of other investment companies
managed by the Adviser; present or retired full-time employees of
the Adviser, the Principal Underwriter, Alliance Fund Services,
Inc. and their affiliates; officers and directors of ACMC, the
Principal Underwriter, Alliance Fund Services, Inc. and their
affiliates; officers, directors and present and full-time
employees of selected dealers or agents; or the spouse, sibling,
direct ancestor or direct descendant (collectively "relatives")
of any such person; or any trust, individual retirement account
or retirement plan account for the benefit of any such person or
relative; or the estate of any such person or relative, if such
shares are purchased for investment purposes (such shares may not
be resold except to the Fund); (iii) the Adviser, Principal
Underwriter, Alliance Fund Services, Inc. and their affiliates;
certain employee benefit plans for employees of the Adviser, the
Principal Underwriter, Alliance Fund Services, Inc. and their
affiliates; (iv) registered investment advisers or other
financial intermediaries who charge a management, consulting or
other fee for their service and who purchase shares through a
broker or agent approved by the Principal Underwriter and clients
of such registered investment advisers or financial
intermediaries whose accounts are linked to the master account of
such investment adviser or financial intermediary on the books of
such approved broker or agent; (v) persons participating in a fee
based program, sponsored and maintained by a registered broker-
dealer and approved by the Principal Underwriter, pursuant to
which persons pay an asset-based fee to such or its affiliate or
agent, for services in the nature of investment advisory or
administrative services; and (vi) persons who establish to the
Principal Underwriter's satisfaction that they are investing,
within such time period as may be designated by the Principal
Underwriter, proceeds of redemption of share of such other
registered investment companies as may be designated from time to
time by the Principal Underwriter and (vii) employer-sponsored
qualified pension or profit-sharing plans (including Section
401(k) plans), custodial accounts maintained pursuant to Section
403(b)(7) retirement plans and individual retirement accounts
(including individual retirement accounts to which simplified
employee pension (SEP) contributions are made), if such plans or
accounts are established or administered under programs sponsored
by administrators or other persons that have been approved by the
Principal Underwriter.
Class B Shares
Investors may purchase Class B shares at the public
offering price equal to the net asset value per share of the
Class B shares on the date of purchase without the imposition of
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.
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Proceeds from the contingent deferred sales charge on
Class B shares are paid to the Principal Underwriter and are used
by the Principal Underwriter to defray the expenses of the
Principal Underwriter related to providing distribution-related
services to a Portfolio in connection with the sale of the Class
B shares, such as the payment of compensation to selected dealers
and agents for selling Class B shares. The combination of the
contingent deferred sales charge and the distribution services
fee enables a Portfolio to sell the Class B shares without a
sales charge being deducted at the time of purchase. The higher
distribution services fee incurred by Class B shares will cause
such shares to have a higher expense ratio and to pay lower
dividends than those related to Class A shares.
Contingent Deferred Sales Charge. Class B shares which
are redeemed within three years of purchase will be subject to a
contingent deferred sales charge at the rates set forth below
charged as a percentage of the dollar amount subject thereto. The
charge will be assessed on an amount equal to the lesser of the
cost of the shares being redeemed or their net asset value at the
time of redemption. Accordingly, no sales charge will be imposed
on increases in net asset value above the initial purchase price.
In addition, no charge will be assessed on shares derived from
reinvestment of dividends or capital gains distributions.
To illustrate, assume that an investor purchased 100
Class B shares at $10 per share (at a cost of $1,000) and in the
second year after purchase, the net asset value per share is $12
and, during such time, the investor has acquired 10 additional
shares upon dividend reinvestment. If at such time the investor
makes his or her first redemption of 50 Class B shares (proceeds
of $600), 10 Class B shares will not be subject to the charge
because of dividend reinvestment. With respect to the remaining
40 Class B shares, the charge is applied only to the original
cost of $10 per share and not to the increase in net asset value
of $2 per share. Therefore, $400 of the $600 redemption proceeds
will be charged at a rate of 2.0% (the applicable rate in the
second year after purchase as set forth below).
The amount of the contingent deferred sales charge, if
any, will vary depending on the number of years from the time of
payment for the purchase of Class B shares until the time of
redemption of such shares.
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Contingent Deferred
Sales Charge as a %
of Dollar Amount
Year Since Purchase Subject to Charge
First 3.0%
Second 2.0%
Third 1.0%
Fourth None
In determining the contingent deferred sales charge
applicable to a redemption of Class B shares, it will be assumed
that the redemption is, first, of any shares that were acquired
upon the reinvestment of dividends or distributions and, second,
of shares held longest during the time they are subject to the
sales charge. When shares acquired in an exchange are redeemed,
the applicable contingent deferred sales charge and conversion
schedules will be the schedules that applied at the time of the
purchase of shares of the corresponding class of the Alliance
Mutual Fund originally purchased by the shareholder.
The contingent deferred sales charges is waived on
redemptions of shares (i) following the death or disability, as
defined in the Internal Revenue Code of 1986, as amended (the
"Code"), of a shareholder, (ii) to the extent that the redemption
represents a minimum required distribution from an individual
retirement account or other retirement plan to a shareholder who
has attained the age of 70-1/2, (iii) that had been purchased by
present or former Directors or Trustees of the Fund, by the
relative of any such person, by any trust, individual retirement
account or retirement plan account for the benefit of any such
person or relative, or by the estate of any such person or
relative, or (iv) pursuant to a systematic withdrawal plan (see
"Shareholder Services--Systematic Withdrawal Plan" below).
Conversion Feature. Six years after the end of the
calendar month in which the shareholder's purchase order was
accepted, Class B shares will automatically convert to Class A
shares and will no longer be subject to a higher distribution
services fee. Such conversion will occur on the basis of the
relative net asset values of the two classes, without the
imposition of any sales load, fee or other charge. The purpose
of the conversion feature is to reduce the distribution services
fee paid by holders of Class B shares that have been outstanding
long enough for the Principal Underwriter to have been
compensated for distribution expenses incurred in the sale of
such shares.
For purposes of conversion to Class A, Class B shares
purchased through the reinvestment of dividends and distributions
paid in respect of Class B shares in a shareholder's account will
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be considered to be held in a separate sub-account. Each time
any Class B shares in the shareholder's account (other than those
in the sub-account) convert to Class A, an equal pro-rata portion
of the Class B shares in the sub-account will also convert to
Class A.
The conversion of Class B shares to Class A shares is
subject to the continuing availability of an opinion of counsel
to the effect that the conversion of Class B shares to Class A
shares does not constitute a taxable event under federal income
tax law. The conversion of Class B shares to Class A shares may
be suspended if such an opinion is no longer available at the
time such conversion is to occur. In that event, no further
conversions of Class B shares would occur, and shares might
continue to be subject to the higher distribution services fee
for an indefinite period which may extend beyond the period
ending six years after the end of the calendar month in which the
shareholder's purchase order was accepted.
Class C Shares
Investors may purchase Class C shares at the public
offering price equal to the net asset value per share of the
Class C shares on the date of purchase without the imposition of
a sales charge either at the time of purchase or, as long as the
shares are held for one year or more, upon redemption. Class C
shares are sold without an initial sales charge so that each
Portfolio will receive the full amount of the investor's purchase
payment and, as long as the shares are held for one year or more,
without a contingent deferred sales charge so that the investor
will receive as proceeds upon redemption the entire net asset
value of his or her Class C shares. The Class C distribution
services fee enables each Portfolio to sell Class C shares
without either an initial or contingent deferred sales charge, as
long as the shares are held for one year or more. Class C shares
do not convert to any other class of shares of the Portfolio and
incur higher distribution services fees and transfer agency costs
than Class A shares and Advisor Class shares, and will thus have
a higher expense ratio and pay correspondingly lower dividends
than Class A shares and Advisor Class shares.
Class C shares that are redeemed within one year of
purchase will be subject to a contingent deferred sales charge of
1%, charged as a percentage of the dollar amount subject thereto.
The charge will be assessed on an amount equal to the lesser of
the cost of the shares being redeemed or their net asset value at
the time of redemption. Accordingly, no sales charge will be
imposed on increases in net asset value above the initial
purchase price. In addition, no charge will be assessed on
shares derived from reinvestment of dividends or capital gains
distributions. The contingent deferred sales charge on Class C
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shares will be waived on certain redemptions, as described above
under "--Class B Shares."
In determining the contingent deferred sales charge
applicable to a redemption of Class C shares, it will be assumed
that the redemption is, first, of any shares that are not subject
to a contingent deferred sales charge (for example, because the
shares have been held beyond the period during which the charge
applies or were acquired upon the reinvestment of dividends or
distributions) and, second, of shares held longest during the
time they are subject to the sales charge.
Proceeds from the contingent deferred sales charge are
paid to the Principal Underwriter and are used by the Principal
Underwriter to defray the expenses of the Principal Underwriter
related to providing distribution-related services to the Fund in
connection with the sale of the Class C shares, such as the
payment of compensation to selected dealers and agents for
selling Class C shares. The combination of the contingent
deferred sales charge and the distribution services fee enables
the Fund to sell the Class C shares without a sales charge being
deducted at the time of purchase. The higher distribution
services fee incurred by Class C shares will cause such shares to
have a higher expense ratio and to pay lower dividends than those
related to Class A shares and Advisor Class shares.
Conversion of Advisor Class Shares to Class A Shares
Advisor Class shares may be held solely through the fee-
based program accounts and employee benefit plans and registered
investment advisory or other financial intermediary relationships
described above under "Purchase of Shares--General," and by
investment advisory clients of, and by certain other persons
associated with, the Adviser and its affiliates or the Fund. If
(i) a holder of Advisor Class shares ceases to participate in the
fee-based program or plan, or to be associated with the
investment adviser or financial intermediary that satisfies the
requirements to purchase shares set forth under "Purchase of
Shares--General" or (ii) the holder is otherwise no longer
eligible to purchase Advisor Class shares as described in the
Advisor Class Prospectus and this Statement of Additional
Information (each, a "Conversion Event"), then all Advisor Class
shares held by the shareholder will convert automatically and
without notice to the shareholder, other than the notice
contained in the Advisor Class Prospectus and this Statement of
Additional Information, to Class A shares of the Fund during the
calendar month following the month in which the Fund is informed
of the occurrence of the Conversion Event. The failure of a
shareholder or a fee-based program to satisfy the minimum
investment requirements to purchase Advisor Class shares will not
constitute a Conversion Event. The conversion would occur on the
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basis of the relative net asset values of the two classes and
without the imposition of any sales load, fee or other charge.
Class A shares currently bear a .30% distribution services fee
and have a higher expense ratio than Advisor Class shares. As a
result, Class A shares may pay correspondingly lower dividends
and have a lower net asset value than Advisor Class shares.
The conversion of Advisor Class shares to Class A shares
is subject to the continuing availability of an opinion of
counsel to the effect that the conversion of Advisor Class shares
to Class A shares does not constitute a taxable event under
federal income tax law. The conversion of Advisor Class shares
to Class A shares may be suspended if such an opinion is no
longer available at the time such conversion is to occur. In
that event, the Advisor Class shareholder would be required to
redeem his Advisor Class shares, which would constitute a taxable
event under federal income tax law.
_______________________________________________________________
REDEMPTION AND REPURCHASE OF SHARES
_______________________________________________________________
The following information supplements that set forth in
the Fund's Prospectus(es) under the heading "Purchase and Sale of
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 require that the Fund
redeem the shares of each Portfolio tendered to it, as described
below, at a redemption price equal to their net asset value as
next computed following the receipt of shares tendered for
redemption in proper form. Except for any contingent deferred
sales charge which may be applicable to Class A shares, Class B
shares or Class C shares, there is no redemption charge. Payment
of the redemption price will be made within seven days after the
Fund's receipt of such tender for redemption. If a shareholder
is in doubt about what documents are required by his or her fee-
based program or employee benefit plan, the shareholder should
contact his or her financial representative.
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The right of redemption may not be suspended or the date
of payment upon redemption postponed for more than seven days
after shares are tendered for redemption, except for any period
during which the Exchange is closed (other than customary weekend
and holiday closings) or during which the Commission determines
that trading thereon is restricted, or for any period during
which an emergency (as determined by the Commission) exists as a
result of which disposal by the Fund of securities owned by it is
not reasonably practicable or as a result of which it is not
reasonably practicable for the Fund fairly to determine the value
of its net assets, or for such other periods as the Commission
may by order permit for the protection of security holders of the
Fund.
Payment of the redemption price will be made in cash.
The value of a shareholder's shares on redemption or repurchase
may be more or less than the cost of such shares to the
shareholder, depending upon the market value of the Fund's
portfolio securities at the time of such redemption or
repurchase. Redemption proceeds on Class A, Class B and Class C
shares will reflect the deduction of the contingent deferred
sales charge, if any. Payment (either in cash or in portfolio
securities) received by a shareholder upon redemption or
repurchase of his shares, assuming the shares constitute capital
assets in his hands, will result in long-term or short-term
capital gains (or loss) depending upon the shareholder's holding
period and basis in respect of the shares redeemed.
To redeem shares of a Portfolio for which no share
certificates have been issued, the registered owner or owners
should forward a letter to the Fund containing a request for
redemption. The signature or signatures on the letter must be
guaranteed by an "eligible guarantor institution" as defined in
Rule 17Ad-15 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act").
To redeem shares of the Fund represented by share
certificates, the investor should forward the appropriate share
certificate or certificates, endorsed in blank or with blank
stock powers attached, to the Fund with the request that the
shares represented thereby, or a specified portion thereof, be
redeemed. The stock assignment form on the reverse side of each
share certificate surrendered to the Fund for redemption must be
signed by the registered owner or owners exactly as the
registered name appears on the face of the certificate or,
alternatively, a stock power signed in the same manner may be
attached to the stock certificate or certificates or, where
tender is made by mail, separately mailed to the Fund. The
signature or signatures on the assignment form must be guaranteed
in the manner described above.
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Telephone Redemption By Electronic Funds Transfer. Each
Fund shareholder is entitled to request redemption by electronic
funds transfer of shares for which no stock certificates have
been issued by telephone at (800) 221-5672 by a shareholder who
has completed the appropriate portion of the Subscription
Application or, in the case of an existing shareholder, an
"Autosell" application obtained from Alliance Fund Services, Inc.
Prior to March 1, 1998 this service can be employed only once in
any 30 day period (except for certain Omnibus accounts). A
telephone redemption request by electronic funds transfer may not
exceed $100,000 (except for certain omnibus accounts), and must
be made by 4:00 p.m. Eastern time on a Fund business day as
defined above. Proceeds of telephone redemptions will be sent by
Electronic Funds Transfer to a shareholder's designated bank
account at a bank selected by the shareholder that is a member of
the NACHA.
Telephone Redemption By Check. Except for certain
omnibus accounts or as noted below, each Fund shareholder is
eligible to request redemption by check of Portfolio shares for
which no stock certificates have been issued by telephone at
(800) 221-5672 before 4:00 p.m. Eastern time on a Fund business
day in an amount not exceeding $50,000 per day. Prior to
March 1, 1998 this service can be employed only once in any 30
day period (except for certain Omnibus accounts). Proceeds of
such redemptions are remitted by check to the shareholder's
address of record. A shareholder otherwise eligible for
telephone redemption by check may cancel the privilege by written
instruction to Alliance Fund Services, Inc., or by checking the
appropriate box on the Subscription Application found in the
Prospectus.
Telephone Redemptions-General. During periods of
drastic economic or market developments, such as the market break
of October 1987, it is possible that shareholders would have
difficulty in reaching Alliance Fund Services, Inc. by telephone
(although no such difficulty was apparent at any time in
connection with the 1987 market break). If a shareholder were to
experience such difficulty, the shareholder should issue written
instructions to Alliance Fund Services, Inc. at the address shown
on the cover of this Statement of Additional Information. The
Fund reserves the right to suspend or terminate its telephone
redemption service at any time without notice. Telephone
redemption is not available with respect to shares (i) for which
certificates have been issued, (ii) held in nominee or "street
name" accounts, (iii) held by a shareholder who has changed his
or her address of record within the preceding 30 calendar days or
(iv) held in any retirement plan account. Neither the Fund nor
the Adviser, the Principal Underwriter or Alliance Fund Services,
Inc. will be responsible for the authenticity of telephone
requests for redemptions that the Fund reasonably believes to be
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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, Class B and Class C shares), except
that requests placed through selected dealers or agents before
the close of regular trading on the Exchange on any day will be
executed at the net asset value determined as of such close of
regular trading on that day if received by the Principal
Underwriter prior to its close of business on that day (normally
5:00 p.m. Eastern time). The financial intermediary or selected
dealer or agent is responsible for transmitting the request to
the Principal Underwriter by 5:00 p.m. If the financial
intermediary or selected dealer or agent fails to do so, the
shareholder's right to receive that day's closing price must be
settled between the shareholder and the dealer or agent. A
shareholder may offer shares of a Portfolio to the Principal
Underwriter either directly or through a selected dealer or
agent. Neither the Fund nor the Principal Underwriter charges a
fee or commission in connection with the repurchase of shares
(except for the contingent deferred sales charge, if any, with
respect to Class A, Class B and Class C shares). Normally, if
shares of a Portfolio are offered through a financial
intermediary or selected dealer or agent, the repurchase is
settled by the shareholder as an ordinary transaction with or
through the selected dealer or agent, who may charge the
shareholder for this service. The repurchase of shares of a
Portfolio as described above is a voluntary service of the Fund
and the Fund may suspend or terminate this practice at any time.
General
The Fund reserves the right to close out an account that
through redemption has remained below $200 for 90 days.
Shareholders will receive 60 days' written notice to increase the
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
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of a Portfolio recently purchased by check, redemption proceeds
will not be made available until the Fund is reasonably assured
that the check has cleared, normally up to 15 calendar days
following the purchase date.
_______________________________________________________________
SHAREHOLDER SERVICES
_______________________________________________________________
The following information supplements that set forth in
the Fund's Prospectus(es) under the heading "Purchase and Sale of
Shares--Shareholder Services." The shareholder services set
forth below are applicable to Class A, Class B, Class C and
Advisor Class shares unless otherwise indicated. If you are an
Advisor Class shareholder through an account established under a
fee-based program your fee-based program may impose requirements
with respect to the purchase, sale or exchange of Advisor Class
shares of the Fund that are different from those described
herein. A transaction fee may be charged by your financial
representative with respect to the purchase, sale or exchange of
Advisor Class shares made through such financial representative.
Automatic Investment Program
Investors may purchase shares of a Portfolio through an
automatic investment program utilizing electronic fund transfer
drawn on the investor's own bank account. Under such a program,
pre-authorized monthly drafts for a fixed amount (at least $25)
are used to purchase shares through the selected dealer or
selected agent designated by the investor at the public offering
price next determined after the Principal Underwriter receives
the proceeds from the investor's bank. In electronic form,
drafts can be made on or about a date each month selected by the
shareholder. Investors wishing to establish an automatic
investment program in connection with their initial investment
should complete the appropriate portion of the Subscription
Application found in the Prospectus. Current shareholders should
contact Alliance Fund Services, Inc. at the address or telephone
numbers shown on the cover of this Statement of Additional
Information to establish an automatic investment program.
Exchange Privilege
You may exchange your investment in the Fund for shares
of the same class of other Alliance Mutual Funds (including AFD
Exchange Reserves, a money market fund managed by the Adviser).
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
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Fund Services, Inc. and their affiliates may on a tax-free basis,
exchange Class A shares of the Fund for Advisor Class shares of
the Fund. Exchanges of shares are made at the net asset value
next determined and without sales or service charges. Exchanges
may be made by telephone or written request. Telephone exchange
requests must be received by Alliance Fund Services, Inc. by
4:00 p.m. Eastern time on a Fund business day in order to receive
that day's net asset value.
Shares will continue to age without regard to exchanges
for purpose of determining the CDSC, if any, upon redemption and,
in the case of Class B shares, for the purpose of conversion to
Class A shares. After an exchange, your Class B shares will
automatically convert to Class A shares in accordance with the
conversion schedule applicable to the Class B shares of the
Alliance Mutual Fund you originally purchased for cash ("original
shares"). When redemption occurs, the CDSC applicable to the
original shares is applied.
Please read carefully the prospectus of the mutual fund
into which you are exchanging before submitting the request. Call
Alliance Fund Services, Inc. at 800-221-5672 to exchange
uncertificated shares. Except with respect to exchanges of
Class A shares of the Fund for Advisor Class shares of the Fund,
exchanges of shares as described above in this section are
taxable transactions for federal tax purposes. The exchange
service may be changed, suspended, or terminated on 60 days'
written notice.
All exchanges are subject to the minimum investment
requirements and any other applicable terms set forth in the
prospectus for the Alliance Mutual Fund whose shares are being
acquired. An exchange is effected through the redemption of the
shares tendered for exchange and the purchase of shares being
acquired at their respective net asset values as next determined
following receipt by the Alliance Mutual Fund whose shares are
being exchanged of (i) proper instructions and all necessary
supporting documents as described in such fund's Prospectus, or
(ii) a telephone request for such exchange in accordance with the
procedures set forth in the following paragraph. Exchanges
involving the redemption of shares recently purchased by check or
electronic funds transfer will be permitted only after the
Alliance Mutual Fund whose shares have been tendered for exchange
is reasonably assured that the check or electronic funds transfer
has cleared, normally up to 15 calendar days following the
purchase date.
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
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instruction to the contrary from the shareholder, or the
shareholder declines the privilege by checking the appropriate
box on the Subscription Application found in the Prospectus. Such
telephone requests cannot be accepted with respect to shares then
represented by stock certificates. Shares acquired pursuant to a
telephone request for exchange will be held under the same
account registration as the shares redeemed through such
exchange.
Eligible shareholders desiring to make an exchange
should telephone Alliance Fund Services, Inc. with their account
number and other details of the exchange, at (800) 221-5672
before 4:00 p.m., Eastern time, on a Fund business day as defined
above. Telephone requests for exchange received before 4:00 p.m.
Eastern time on a Fund business day will be processed as of the
close of business on that day. During periods of drastic
economic or market developments, such as the market break of
October 1987, it is possible that shareholders would have
difficulty in reaching Alliance Fund Services, Inc. by telephone
(although no such difficulty was apparent at any time in
connection with the 1987 market break). If a shareholder were to
experience such difficulty, the shareholder should issue written
instructions to Alliance Fund Services, Inc. at the address shown
on the cover of this Statement of Additional Information.
A shareholder may elect to initiate a monthly "Auto
Exchange" whereby a specified dollar amount's worth of his or her
Fund shares (minimum $25) is automatically exchanged for shares
of another Alliance Mutual Fund. Auto Exchange transactions
normally occur on the 12th day of each month, or the following
Fund business day prior thereto.
None of the Alliance Mutual Funds, the Adviser, the
Principal Underwriter or Alliance Fund Services, Inc. will be
responsible for the authenticity of telephone requests for
exchanges that the Fund reasonably believes to be genuine. The
Fund will employ reasonable procedures in order to verify that
telephone requests for exchanges are genuine, including, among
others, recording such telephone instructions and causing written
confirmations of the resulting transactions to be sent to
shareholders. If the Fund did not employ such procedures, it
could be liable for losses arising from unauthorized or
fraudulent telephone instructions. Selected dealers, agents or
financial representatives, as applicable, may charge a commission
for handling telephone requests for exchanges.
The exchange privilege is available only in states where
shares of the Alliance Mutual Funds being acquired may be legally
sold. Each Alliance Mutual Fund reserves the right, at any time
on 60 days' notice to its shareholders, to reject any order to
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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
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,
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redemptions of shares under the plan may reduce or even liquidate
a shareholder's account and may subject the shareholder to the
Fund's involuntary redemption provisions. See "Redemption and
Repurchase of Shares--General." Purchases of additional shares
concurrently with withdrawals are undesirable because of sales
charges when purchases are made. While an occasional lump-sum
investment may be made by a shareholder of Class A shares who is
maintaining a systematic withdrawal plan, such investment should
normally be an amount equivalent to three times the annual
withdrawal or $5,000, whichever is less.
Payments under a systematic withdrawal plan may be made
by check or electronically via the Automated Clearing House
("ACH") network. Investors wishing to establish a systematic
withdrawal plan in conjunction with their initial investment in
shares of a Portfolio should complete the appropriate portion of
the Subscription Application found in the Prospectus, while
current Portfolio shareholders desiring to do so can obtain an
application form by contacting Alliance Fund Services, Inc. at
the address or the "For Literature" telephone number shown on the
cover of this Statement of Additional Information.
CDSC Waiver for Class B and Class C Shares. Under a
systematic withdrawal plan, up to 1% monthly, 2% bi-monthly or 3%
quarterly of the value at the time of redemption of the Class B
or Class C shares in a shareholders account may be redeemed free
of any contingent deferred sales charge.
With respect to Class B shares, the waiver applies only
with respect to shares acquired after July 1, 1995. Class B
shares that are not subject to a contingent deferred sales charge
(such as shares acquired with reinvested dividends or
distributions) will be redeemed first and will count toward the
foregoing limitations. Remaining Class B shares that are held
the longest will be redeemed next. Redemption of Class B shares
in excess of the foregoing limitations will be subject to any
otherwise applicable contingent deferred sales charge.
With respect to Class C shares, shares held the longest
will be redeemed first and will count toward the foregoing
limitations. Redemptions in excess of those limitations will be
subject to any otherwise applicable contingent deferred sales
charge.
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
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confirmation of each purchase and redemption. By contacting his
or her broker or Alliance Fund Services, Inc., a shareholder can
arrange for copies of his or her account statements to be sent to
another person.
Shareholder Services Applicable to
Class A and Class C Shareholders Only
Checkwriting
A new Class A or Class C investor may fill out the
Signature Card which is included in the Prospectus to authorize
the Fund to arrange for a checkwriting service through State
Street Bank and Trust Company (the "Bank") to draw against Class
A or Class C shares of a Portfolio redeemed from the investor's
account. Under this service, checks may be made payable to any
payee in any amount not less than $500 and not more than 90% of
the net asset value of the Class A or Class C shares in the
investor's account (excluding for this purpose the current
month's accumulated dividends and shares for which certificates
have been issued). A Class A or Class C shareholder wishing to
establish this checkwriting service subsequent to the opening of
his or her Portfolio account should contact the Fund by telephone
or mail. Corporations, fiduciaries and institutional investors
are required to furnish a certified resolution or other evidence
of authorization. This checkwriting service will be subject to
the Bank's customary rules and regulations governing checking
accounts, and the Fund and the Bank each reserve the right to
change or suspend the checkwriting service. There is no charge
to the shareholder for the initiation and maintenance of this
service or for the clearance of any checks.
When a check is presented to the Bank for payment, the
Bank, as the shareholder's agent, causes the Fund to redeem, at
the net asset value next determined, a sufficient number of full
and fractional shares of a Portfolio in the shareholder's account
to cover the check. Because the level of net assets in a
shareholder's account constantly changes due, among various
factors, to market fluctuations, a shareholder should not attempt
to close his or her account by use of a check. In this regard,
the Bank has the right to return checks (marked "insufficient
funds") unpaid to the presenting bank if the amount of the check
exceeds 90% of the assets in the account. Canceled (paid) checks
are returned to the shareholder. The checkwriting service
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.
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_______________________________________________________________
NET ASSET VALUE
_______________________________________________________________
The per share net asset value is computed in accordance
with the Fund's Agreement and Declaration of Trust and By-Laws at
the next close of regular trading on the Exchange (ordinarily
4:00 p.m. Eastern time) following receipt of a purchase or
redemption order by the Fund on each Fund business day on which
such an order is received and on such other days as the Trustees
deem appropriate or necessary in order to comply with Rule 22c-1
under the 1940 Act. The Fund's per share net asset value is
calculated by dividing the value of the Fund's total assets, less
its liabilities, by the total number of its shares then
outstanding. A Fund business day is any weekday on which the
Exchange is open for trading.
In accordance with applicable rules under the 1940 Act,
portfolio securities are valued at current market value or at
fair value as determined in good faith by the Trustees. The
Trustees has delegated to the Adviser certain of the Trustee's
duties with respect to the following procedures. Readily
marketable securities listed on the Exchange are valued, except
as indicated below, at the last sale price reflected on the
consolidated tape at the close of the Exchange on the business
day as of which such value is being determined. If there has
been no sale on such day, the securities are valued at the quoted
bid prices on such day. If no bid prices are quoted on such day,
then the security is valued at the mean of the bid and asked
prices at the close of the Exchange on such day as obtained from
one or more dealers regularly making a market in such securities.
Where a bid and asked price can be obtained from only one such
dealer, the security is valued at the mean of the bid and asked
price obtained from such dealer, unless it is determined that
such price does not represent current market value, in which case
the security shall be valued in good faith at fair value by, or
in accordance with procedures established by, the Trustees.
Securities for which no bid and asked price quotations are
readily available are valued in good faith at fair value by, or
in accordance with procedures established by, the Trustees.
Readily marketable securities not listed on the Exchange but
listed on other national securities exchanges are valued in like
manner. Portfolio securities traded on the Exchange and on one
or more other national securities exchanges, and portfolio
securities not traded on the Exchange but traded on one or more
other national securities exchanges are valued in accordance with
these procedures by reference to the principal exchange on which
the securities are traded.
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Readily marketable securities traded only in the over-
the-counter market, and debt securities listed on a national
securities exchange whose primary market is believed to be over-
the-counter, are valued at the mean of the bid and asked prices
at the close of the Exchange on such day as obtained from two or
more dealers regularly making a market in such securities. Where
a bid and asked price can be obtained from only one such dealer,
such security is valued at the mean of the bid and asked prices
obtained from such dealer unless it is determined that such price
does not represent current market value, in which case the
security shall be valued in good faith at fair value by, or in
accordance with procedure established by, the Trustees.
Listed put and call options purchased by the Fund are
valued at the last sale price. If there has been no sale on that
day, such securities will be valued at the closing bid prices on
that day.
Open futures contracts and options thereon will be
valued using the closing settlement price or, in the absence of
such a price, the most recent quoted bid price. If there are no
quotations available for the day of valuations, the last
available closing settlement price will be used.
U.S. Government securities and other debt instruments
having 60 days or less remaining until maturity are valued at
amortized cost if their original maturity was 60 days or less, or
by amortizing their fair value as of the 61st day prior to
maturity if their original term to maturity exceeded 60 days
(unless in either case the Trustees determines that this method
does not represent fair value).
Fixed-income securities may be valued on the basis of
prices provided by a pricing service when such prices are
believed to reflect the fair market value of such securities.
The prices provided by a pricing service take into account many
factors, including institutional size trading in similar groups
of securities and any developments related to specific
securities.
All other assets of the Fund are valued in good faith at
fair value by, or in accordance with procedures established by,
the Trustees.
The Trustees may suspend the determination of the Fund's
net asset value (and the offering and sales of shares), subject
to the rules of the Commission and other governmental rules and
regulations, at a time when: (1) the Exchange is closed, other
than customary weekend and holiday closings, (2) an emergency
exists as a result of which it is not reasonably practicable for
the Fund to dispose of securities owned by it or to determine
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fairly the value of its net assets, or (3) for the protection of
shareholders, the Commission by order permits a suspension of the
right of redemption or a postponement of the date of payment on
redemption.
The assets attributable to the Class A shares, Class B
shares, Class C shares and Advisor Class shares will be invested
together in a single portfolio. The net asset value of each
class will be determined separately by subtracting the
liabilities allocated to that class from the assets belonging to
that class in conformance with the provisions of a plan adopted
by the Fund in accordance with Rule 18f-3 under the 1940 Act.
_________________________________________________________________
DIVIDENDS, DISTRIBUTIONS AND TAXES
_________________________________________________________________
General Each Portfolio of the Fund intends for each
taxable year to qualify as a "regulated investment company" under
the Code. Such qualification relieves a Portfolio of federal
income tax liability on the part of its net investment company
taxable income and net realized capital gains which it timely
distributes to its shareholders. Such qualification does not, of
course, involve governmental supervision of management or
investment practices or policies. Investors should consult their
own counsel for a complete understanding of the requirements each
Portfolio must meet to qualify for such treatment.
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
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
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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.
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
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notified by the Internal Revenue Service that he is subject to
backup withholding.
United States Federal Income Taxation of the Portfolios
The following discussion relates to certain significant
United States Federal income tax consequences to the Portfolios
with respect to the determination of their "investment company
taxable income" each year. This discussion assumes that each
Portfolio will be taxed as a regulated investment company for
each of its taxable years.
Options and Futures Contracts. Certain listed options
and regulated futures contracts are considered "section 1256
contracts" for Federal income tax purposes. Section 1256
contracts held by a Portfolio at the end of each taxable year
will be "marked to market" and treated for Federal income tax
purposes as though sold for fair market value on the last
business day of such taxable year. Gain or loss realized by a
Portfolio on section 1256 contracts will generally be considered
60% long-term and 40% short-term capital gain or loss. A
Portfolio can elect to exempt its section 1256 contracts which
are part of a "mixed straddle" (as described below) from the
application of section 1256.
With respect to over-the-counter options, gain or loss
realized by a Portfolio upon the lapse or sale of such options
held by the Portfolio will be either long-term or short-term
capital gain or loss depending upon the Portfolio's holding
period with respect to such option. However, gain or loss
realized upon the lapse or closing out of such options that are
written by a Portfolio will be treated as short-term capital gain
or loss. In general, if a Portfolio exercises an option, or an
option that the Portfolio has written is exercised, gain or loss
on the option will not be separately recognized but the premium
received or paid will be included in the calculation of gain or
loss upon disposition of the property underlying the option.
Tax Straddles. Any option, futures contract, interest
rate swap, cap or floor, or other position entered into or held
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
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<PAGE>
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
the year. Such distributions will be made from the cash assets
of the Portfolio, from borrowings or by liquidation of portfolio
securities, if necessary. If a distribution of cash necessitates
the liquidation of portfolio securities, the Adviser will select
which securities to sell. A Portfolio may realize a gain or loss
from such sales. In the event a Portfolio realizes capital gains
from such sales, its shareholders may receive larger
distributions than they would receive in the absence of such
sales.
State Taxation of the Portfolios
Arizona Portfolio. It is anticipated that substantially
all of the dividends paid by the Arizona Portfolio will be exempt
from Arizona individual, corporate and fiduciary income taxes.
Dividends will be exempt from such taxes to the extent
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<PAGE>
attributable to interest received from the Portfolio's
investments in Arizona municipal securities or U.S. government
securities. Distributions of capital gains will be subject to
Arizona income taxes. Interest on indebtedness incurred to
purchase or carry securities which yield income which is exempt
from Arizona income tax is not deductible for purposes of Arizona
income tax.
Florida Portfolio. Although Florida does not impose on
individual income tax, it imposes an intangible personal property
tax on Florida resident individuals and trusts at the rate of $2
per $1,000 taxable value of certain securities and other
intangible assets, including mutual fund shares. Florida
municipal securities and U.S. Government securities are exempt
from the intangible tax. Shares of the Florida Portfolio will
qualify as exempt if, among other things, the entire Portfolio is
invested in exempt securities at the close of the calendar year.
It is anticipated that Florida Portfolio shares will qualify and
will be exempt from the intangible tax. Exempt interest-
dividends and gain paid by the Portfolio to corporate
shareholders will be subject to Florida corporate income tax.
Corporate shareholders who are subject to Federal alternative
minimum tax (AMT) may be subject to Florida AMT on portfolio
distributions out of the income of AMT-subject bonds in which the
Florida Portfolio invests.
Massachusetts Portfolio. It is anticipated that
substantially all of the dividends paid by the Massachusetts
Portfolio will be exempt from the Massachusetts personal and
fiduciary income taxes. Dividends will be exempt from such taxes
to the extent attributable to interest derived from Massachusetts
municipal securities or U.S. Government securities.
Distributions designated as attributable to capital gains, other
than gains on certain Massachusetts municipal securities, are
subject to the Massachusetts personal and fiduciary income taxes
at capital gains tax rates. Distributions to corporate
shareholders are subject to the Massachusetts corporate excise
tax.
Michigan Portfolio. It is anticipated that
substantially all of the dividends paid by the Michigan Portfolio
will be exempt from Michigan income, intangible and single
business taxes. Dividends will be exempt from such taxes to the
extent that they are derived from Michigan municipal securities
and U.S. Government securities, provided that at least 50% of the
Portfolio's total assets consist of Michigan municipal securities
at the close of each quarter of the Portfolio's taxable year.
Dividends exempt from Michigan income tax are also exempt from
the uniform city income tax imposed by certain Michigan cities.
Capital gain distributions which are attributable to the sale of
non-Michigan municipal securities are subject to Michigan income
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<PAGE>
and single business taxes; but are exempt from Michigan
intangible tax to the extent that such distributions reinvested
in Portfolio shares.
Minnesota Portfolio. It is anticipated that
substantially all of the dividends paid by the Minnesota
Portfolio will be exempt from Minnesota personal and fiduciary
income taxes. Portfolio dividends will be exempt from these tax
to the extent that they are derived from Minnesota municipal
securities, provided that at least 95% of the dividends paid by
the Portfolio during its fiscal year are derived from Minnesota
municipal securities. Distributions of capital gains from the
Minnesota Portfolio will be subject to Minnesota and fiduciary
incomes taxes and certain taxpayers may also be subject to the
Minnesota alternative minimum tax ("AMT") on distributions
attributable to the AMT-Subject bonds in which the Portfolio
invests. Interest on indebtedness incurred to purchase or carry
securities which yield income which is exempt from Minnesota
income tax will not be deductible for Minnesota income tax
purposes. Distributions to corporate shareholders are subject to
Minnesota franchise tax.
New Jersey Portfolio. It is anticipated that
substantially all distributions paid by the New Jersey Portfolio
to individuals and fiduciaries will be exempt from the New Jersey
income tax, provided the Portfolio is a New Jersey "qualified
investment fund". Distributions of dividends and capital gains
will be exempt from such taxes to the extent derived from New
Jersey or U.S. Government securities provided, among other
things, that the Portfolio invest only in interest bearing
obligations, obligations issued at a discount, 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, at least 80% of the
aggregate principal amount of the Portfolio's investments,
excluding cash and cash items and financial options and similar
financial instruments described above, must be invested in New
Jersey municipal securities or U.S. Government securities at the
close of each quarter of the tax year. Distributions to
corporate shareholders are subject to New Jersey corporation
business (franchise) and New Jersey corporation income taxes.
Ohio Portfolio. It is anticipated that substantially
all of the distributions of income and capital gains paid by the
Ohio Portfolio will be exempt from the Ohio personal income tax,
Ohio school district income taxes and Ohio municipal income
taxes, and that such distributions will not be includible in the
net income tax base of the Ohio franchise tax. Distributions
will be so exempt to the extent that they are derived from Ohio
municipal securities, provided that at all times at least 50% of
the value of the total assets of the Portfolio consists of Ohio
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municipal securities or similar obligations of other states or
their subdivisions. Shares of the Ohio Portfolio will be
included in a corporation's tax base for purposes of computing
the Ohio corporate franchise tax on a net worth basis.
Pennsylvania Portfolio. It is anticipated that
substantially all of the dividends paid by the Pennsylvania
Portfolio will be exempt from Pennsylvania personal and fiduciary
income taxes, the Philadelphia School District investment net
income tax and the Pennsylvania corporate net income tax.
Dividends will be exempt from such taxes to the extent
attributable to interest received from the Portfolio's
investments in Pennsylvania municipal securities and U.S.
Government securities. Distributions of capital gain from the
Portfolio are subject to Pennsylvania individual, fiduciary and
corporate income taxes, but are not taxable for purposes of the
Philadelphia School District income tax. Shares of the
Pennsylvania Portfolio will be exempt from Pennsylvania county
personal property taxes to the extent that the Portfolio consists
of Pennsylvania municipal securities or U.S. Government
securities. Portfolio shares are included for purposes of
determining a corporation's capital stock value subject to the
Pennsylvania capital stock/franchise tax.
Virginia Portfolio. It is anticipated that
substantially all of the dividends paid by the Virginia Portfolio
will be exempt from Virginia individual income, estate, trust and
corporate income taxes. Dividends will be exempt to the extent
that they are either (i) exempt from regular federal income tax
and attributable to interest from Virginia municipal securities
or (ii) attributable to interest on U.S. Government securities,
provided that the Portfolio qualifies as a regulated investment
company under the Code and at the end of each quarter of its
taxable year at least 50% of the value of the Portfolio's total
assets consist of obligations Whose interest is exempt from
Federal income tax. Distributions attributable to capital gains
and gains recognized on the sale or other disposition of shares
of the Portfolio (including the redemption or exchange of shares)
will be subject to Virginia income taxes. Interest on
indebtedness incurred (directly or indirectly) to purchase or
carry shares of the Virginia Portfolio generally will not be
deductible for Virginia income tax purposes.
________________________________________________________________
BROKERAGE AND PORTFOLIO TRANSACTIONS
________________________________________________________________
Subject to the general supervision of the Trustees of
the Fund, the Adviser makes the investment decisions and places
the orders for portfolio securities for each of the Fund's
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Portfolios and determines the broker or dealer to be used in each
specific transaction. Most transactions for the Fund's
Portfolios, including transactions in listed securities, are
executed in the over-the-counter market by approximately fifteen
principal market maker dealers with whom the Adviser maintains
regular contact. Most transactions made by the Fund will be
principal transactions at net prices and the Fund will incur
little or no brokerage costs. Where possible, securities will be
purchased directly from the issuer or from an underwriter or
market maker for the securities unless the Adviser believes a
better price and execution is available elsewhere. Purchases
from underwriters of newly-issued securities for inclusion in a
Portfolio usually will include a concession paid to the
underwriter by the issuer and purchases from dealers serving as
market makers will include the spread between the bid and asked
price.
The Fund has no obligation to enter into transactions in
portfolio securities with any broker, dealer, issuer, underwriter
or other entity. In placing orders, it is the policy of the Fund
to obtain the best price and execution for its transactions.
Where best price and execution may be obtained from more than one
broker or dealer, the Adviser may, in its discretion, purchase
and sell securities through brokers and dealers who provide
research, statistical and other information to the Adviser. Such
services may be used by the Adviser for all of its investment
advisory accounts and, accordingly, not all such services may be
used by the Adviser in connection with the Fund. The
supplemental information received from a dealer is in addition to
the services required to be performed by the Adviser under the
Advisory Agreement, and the expenses of the Adviser will not
necessarily be reduced as a result of the receipt of such
information. Consistent with the Conduct Rules of the National
Association of Securities Dealers, Inc., and subject to seeking
best price and execution, the Fund may consider sales of shares
of the Fund as a factor in the selection of dealers to enter into
portfolio transactions with the Fund.
No transactions for the Fund's Portfolios are executed
through any broker or dealer affiliated with the Fund's Adviser,
or with Donaldson, Lufkin & Jenrette Securities Corporation, an
affiliate of the Adviser. During the fiscal year ended September
30, 1995, 1996 and 1997, the Arizona, Florida, Massachusetts,
Michigan, Minnesota, New Jersey, Ohio, Pennsylvania and Virginia
Portfolios incurred no brokerage commissions.
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________________________________________________________________
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 nine 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 1940 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
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 1940 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.
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NO. OF
SHARES % OF % OF % OF
At January 16, 1998, there were outstanding: 38,137,074
shares of beneficial interest of the Fund, including: 1,568,433
Class A shares, 763,831 Class B shares and 175,406 Class C shares
of the Arizona Portfolio; 2,094,652 Class A shares, 2,625,256
Class B shares and 2,630,967 Class C shares of the Florida
Portfolio; 1,004,214 Class A shares, 830,052 Class B shares and
829,143 Class C shares of the Massachusetts Portfolio; 601,589
Class A shares, 640,187 Class B shares and 658,838 Class C shares
of the Michigan Portfolio; 470,174 Class A shares, 986,435 Class
B shares and 698,183 Class C shares of the Minnesota Portfolio;
1,641,921 Class A shares, 3,947,056 Class B shares and 2,137,826
Class C shares of the New Jersey Portfolio 865,896 Class A
shares,2,830,408 Class B shares and 1,405,735 Class C shares of
the Ohio Portfolio; 2,401,624 Class A shares, 3,064,085 Class B
shares and 1,566,065 Class C shares of the Pennsylvania
Portfolio; 403,165 Class A shares, 560,215 Class B shares and
135,718 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 16,
1998.
NO. OF
SHARES % OF % OF % OF
NAME AND ADDRESS OF CLASS CLASS A CLASS B CLASS C
ARIZONA PORTFOLIO
MLPF&S For the 106,648 6.80
Sole Benefit of Its
Customers 175,429 22.97
Attn. Fund Administration
4800 Deer Lake Dr. 19,718 11.24
East 3rd Floor
Jacksonville FL 32246-6484
Smith Barney Inc. 100,133 6.38
00129216171
388 Greenwich St.
New York NY 10013-2375
Smith Barney Inc. 81,447 5.19
00129216170
388 Greenwich St.
New York NY 10013-2375
Smith Barney Inc. 14,312 8.16
0011911373
388 Greenwich Street
New York NY 10013-2371
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NO. OF
SHARES % OF % OF % OF
Foundersaz 251,946 16.06
A Partnership
7335 East Double Tree
Ranch Road
Scottsdale, AZ 85258-2047
Barbara R. McQuillan 9,263 5.28
Desert Highlands #618
10040 E. Happy Valley Rd.
Scottsdale AZ 85255-2395
Herder Plumbing 14,250 8.12
261 N Mondel Drive
Gilbert AZ 85233-4623
Painewebber For the 13,807 7.87
Benefit of A. Burdelle
Kerns Trust DTD 6/23/1994
10621 W. Hazelwood Court
Sun City AZ 85373-1028
FLORIDA PORTFOLIO
MLPF&S For the 206,906 9.88
Sole Benefit of Its
Customers 395,019 371,726 14.16
Attn. Fund Administration
4800 Deer Lake Dr. 1,571,036 59.71
East 3rd Floor
Jacksonville FL 32246-6484
MASSACHUSETTS PORTFOLIO
MLPF&S For the 85,875 8.55
Sole Benefit of Its
Customers
Attn. Fund Administration 211,489 25.48
4800 Deer Lake Dr.
East 3rd Floor
Jacksonville FL 32246-6484
NFSC FEBO 82,980 8.26
#OS3-200484
Marie A. Stewart
86 Concord Road
Weston MA 02193-1214
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NO. OF
SHARES % OF % OF % OF
NFSC FEBO 84,378 8.40
#OS3-034231
Richard O. Stewart
86 Concord Road
Weston MA 02193-1214
Smith Barney Inc. 53,312 5.31
00163207638
388 Greenwich Street
New York NY 10013-2339
Vincent Dorazio & 49,724 5.99
Norma Dorazio JT Ten
95 Gertrude St.
Lynn MA 01902-1552
Merrill Lynch 191,243 23.07
Mutual Fund Operations
4800 Deer Lake Dr.
East 3rd Floor
Jacksonville FL
32246-6486
NFSC FEBO 161,890 19.52
#OS3-126497
Richard B. Snyder
193 Parkerville Rd.
Southborough MA 01772-1751
Prudential Securities 44,689 5.39
Inc. FBO
Mrs. Dorothy M. Bryle
TOD Account
7 Ripley Street
Malden MA 02148-2613
MINNESOTA PORTFOLIO
Richard P. Erickson DR 36,125 5.17
Nancy A. Erickson
Personal & Confidential
4901 Rolling Green Pkwy
Edina MN 55436-1349
Paul A. Zoschke 45,508 9.68
Marsanne Wallace
JT Ten
2928 Lake Blvd.
North St. Paul
MN 55109-1653
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NO. OF
SHARES % OF % OF % OF
Deloris Nelson 30,246 6.43
PO Box 587
Willmar MN 56201-0587
MLPF&S For the 217,619 31.17
Sole Benefit of Its
Customers
Attn. Fund Administration
4800 Deer Lake Dr.
East 3rd Floor
Jacksonville FL 32246-6484
James G. Hynes and 54,292 7.78
Carol Y. Hynes JTTEN
4268 Churchill Circle
Minnetonka MN 55345-2509
Haldeman Homme Inc. 61,322 8.78
430 Industrial Blvd.
Minneapolis MN 55413-2931
Smith Barney Inc. 24,500 5.21
00123945135
388 Greenwich Street
New York NY 10013-2339
MICHIGAN PORTFOLIO
Douglas E. Ward 91,691 15.24
Barbara E. Ward
JTWROS
2837 North Imperial Dr.
Hale MI 48739-9545
Verlin R. Eppert & 112,587 17.09
Rosalie A. Eppert
JT TEN
31490 Bellvine Trail
Birmingham MI 48025-3703
MLPF&S For the 130,092 20.32
Sole Benefit of Its
Customers 183,812 27.90
Attn. Fund Administration
4800 Deer Lake Dr.
East 3rd Floor
Jacksonville FL 32246-6484
124
<PAGE>
NO. OF
SHARES % OF % OF % OF
NEW JERSEY PORTFOLIO
Justine Locke TTEE 30,873 5.13
Justine Locke TR OTD
3/20/91
3027 Lakeshore Road
Harbor Beach MI 48441-8982
Jerome P. Ciaramitaro 48,556 8.07
Michelle M. Ciaramitaro
JTWROS
38938 Santa Barbara
Clinton TWP MI 48036-6026
MLPF&S For the 176,639 10.76
Sole Benefit of Its
Customers 914,660 809,935 20.52
Attn. Fund Administration
4800 Deer Lake Dr. 1,391,604 65.09
East 3rd Floor
Jacksonville FL 32246-6484
John W. Stouda Jr. 119,844 7.30
Trustee
ET AL Grantor Trust
220 Bowne Road
Atlantic Highlands NJ
07716
OHIO PORTFOLIO
MLPF&S For the 249,091 28.77
Sole Benefit of Its
Customers 333,440 358,244 12.66
Attn. Fund Administration
4800 Deer Lake Dr. 829,775 59.03
East 3rd Floor
Jacksonville FL 32246-6484
Michael R. Cowen 91,819 6.53
Bonnie R. Cowen
JT Ten
548 Conestoga Dr.
Columbus OH 43213-2612
125
<PAGE>
NO. OF
SHARES % OF % OF % OF
PENNSYLVANIA PORTFOLIO
MLPF&S For the 217,634 9.06
Sole Benefit of Its
Customers 779,277 728,719 23.78
Attn. Fund Administration
4800 Deer Lake Dr. 1,086,055 69.35
East 3rd Floor
Jacksonville FL 32246-6484
James E. Beasley, Esq. 899,262 37.44
c/o Beasley, Casey
& Erbstein
1125 Walnut St.
Philadelphia PA 19107-4918
VIRGINIA PORTFOLIO
Alliance Capital 38,901 9.65
Management LP
Attn. Sarah Powell
1345 Ave. of the
Americas
New York NY 10105-0302
Prudential Securities FBO 27,562 6.84
Irwin Bloomberg TTEE
The Julie Sue Abrams Trust
UA DTD 3/04/1992
3550 Galt Ocean Dr.
Apt. 1707
Fort Lauderdale FL
33308-6844
Wheat First Securities, 36,803 9.13
Inc.
A/C 2623-4081
Stephen D'Amico
& Linda D. Wieboldt
1350 Beverly Rd., Apt. 504
McLean VA 22101-3921
MLPF&S For the 61,233 10.93
Sole Benefit of Its
Customers
Attn. Fund Administration 19,071 14.05
4800 Deer Lake Dr.
East 3rd Floor
Jacksonville FL 32246-6484
126
<PAGE>
NO. OF
SHARES % OF % OF % OF
J.C. Bradford & Co. Cust. 33,505 24.69
FB
Elizabeth Kenny Call
330 Commerce Street
Nashville, TN 37201-1899
Virginia V. Melton & 7,564 5.57
Dorothy H. Burke
James B. Burke JTWROS
4903 Brook Hills Dr.
Annandale VA 22003-5516
Painewebber For the 25,796 19.01
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.
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.
127
<PAGE>
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. 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 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.
Yield Calculations
30 Day Tax
30 Day Yield Equivalent Yield
(period ended (period ended Distribution
Fund 10/31/97) 10/31/97) Rate
Florida
Class A 5.04% 8.13% 5.19%
Class B 4.56% 7.35% 4.73%
Class C 4.56% 7.35% 4.73%
128
<PAGE>
30 Day Tax
30 Day Yield Equivalent Yield
(period ended (period ended Distribution
Fund 10/31/97) 10/31/97) Rate
Minnesota
Class A 4.71% 8.51% 5.09%
Class B 4.21% 7.61% 4.61%
Class C 4.22% 7.63% 4.61%
New Jersey
Class A 4.55% 8.02% 4.91%
Class B 4.03% 7.10% 4.43%
Class C 4.05% 7.13% 4.43%
Pennsylvania
Class A 4.99% 8.37% 5.19%
Class B 4.50% 7.55% 4.74%
Class C 4.51% 7.57% 4.74%
Massachusetts
Class A 4.88% 9.18% 5.22%
Class B 4.40% 8.28% 4.83%
Class C 4.39% 8.26% 4.83%
Arizona
Class A 4.81% 8.44% 5.06%
Class B 4.33% 7.59% 4.64%
Class C 4.32% 7.58% 4.64%
Ohio
Class A 4.70% 8.21% 5.00%
Class B 4.19% 7.32% 4.53%
Class C 4.20% 7.34% 4.53%
Virginia
Class A 5.05% 8.86% 5.00%
Class B 4.58% 8.03% 4.59%
Class C 4.58% 8.03% 4.59%
129
<PAGE>
30 Day Tax
30 Day Yield Equivalent Yield
(period ended (period ended Distribution
Fund 10/31/97) 10/31/97) Rate
Michigan
Class A 4.68% 7.95% 5.00%
Class B 4.19% 7.12% 4.56%
Class C 4.20% 7.13% 4.56%
Total Return Calculations
Ten Year
One Year period Five Year period period ended
Fund ended 10/3/197 ended 10/31/97 10/31/97
Florida
Class A 5.47% 5.20%* N/A
Class B 6.24% 5.49%* N/A
Class C 8.23% 5.49%* N/A
Minnesota
Class A 5.21% 4.75%* N/A
Class B 6.13% 5.03%* N/A
Class C 8.13% 5.03%* N/A
New Jersey
Class A 5.36% 5.09%* N/A
Class B 6.32% 5.38%* N/A
Class C 8.32% 5.38%* N/A
Pennsylvania
Class A 6.11% 5.69%* N/A
Class B 6.95% 5.98%* N/A
Class C 8.95% 5.98%* N/A
Massachusetts
Class A 6.43% 8.85%* N/A
Class B 7.52% 9.45%* N/A
Class C 9.52% 9.45%* N/A
____________________
* Since Inception
130
<PAGE>
30 Day Tax
30 Day Yield Equivalent Yield
(period ended (period ended Distribution
Fund 10/31/97) 10/31/97) Rate
Arizona
Class A 5.82 7.12%* N/A
Class B 6.80 7.77%* N/A
Class C 8.80 7.77%* N/A
Ohio
Class A 6.83 5.19%* N/A
Class B 7.80 5.47%* N/A
Class C 9.80 5.47%* N/A
Virginia
Class A 6.59% 8.01%* N/A
Class B 7.70% 8.64%* N/A
Class C 9.70% 8.64%* N/A
Michigan
Class A 6.32% 6.77%* N/A
Class B 7.30% 7.31%* N/A
Class C 9.30% 7.31%* N/A
____________________
* Since Inception
A Portfolio's yield and total return are not fixed and
will fluctuate in response to prevailing market conditions or as
a function of the type and quality of the securities held by such
Portfolio, its average portfolio maturity and its expenses.
Yield and total return information is useful in reviewing a
Portfolio's performance but such information may not provide a
basis for comparison with bank deposits or other investments
which pay a fixed yield for a stated period of time. An
investor's principal invested in a Portfolio is not fixed and
will fluctuate in response to prevailing market conditions.
Advertisements quoting performance ratings of the
Portfolios as measured by financial publications or by
independent organizations such as Lipper Analytical Services,
Inc. 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.
131
<PAGE>
Additional Information
Any shareholder inquiries may be directed to the
shareholder's broker or to Alliance Fund Services, Inc. at the
address or telephone numbers shown on the front cover of this
Statement of Additional Information. This Statement of
Additional Information does not contain all the information set
forth in the Registration Statement filed by the Fund with the
Commission under the Securities Act. Copies of the Registration
Statement may be obtained at a reasonable charge from the
Commission or may be examined, without charge, at the offices of
the Commission in Washington, D.C.
132
<PAGE>
________________________________________________________________
REPORT OF INDEPENDENT AUDITORS AND
FINANCIAL STATEMENTS
________________________________________________________________
133
<PAGE>
ALLIANCE MUNICIPAL INCOME FUND II
ANNUAL REPORT
SEPTEMBER 30, 1997
ALLIANCE CAPITAL
ARIZONA PORTFOLIO
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1997 ALLIANCE MUNICIPAL INCOME FUND II
_______________________________________________________________________________
STANDARD & PRINCIPAL
POOR'S AMOUNT
RATINGS# (000) VALUE
- -------------------------------------------------------------------------------
MUNICIPAL BONDS-102.3%
ARIZONA LONG TERM MUNICIPAL BONDS-87.5%
AAA Glendale (Midwestern Univ)
Connie Lee Ser 96A
6.00%, 5/15/26 $ 795 $ 833,104
NR Goodyear Assessment
District Dist No. 1 Ser 96C
7.25%, 7/01/16 760 792,133
NR Hassayampa Cmnty Fac
Dist Spec Assessment Lien
7.75%, 7/01/21 2,530 2,581,359
AAA Maricopa Cnty Hlth Fac Rev
(Catholic Healthcare West)
MBIA Ser 93
7.152%, 7/01/13 (a) 750 793,380
AAA Maricopa Cnty MFHR (Tempe Grove Apts)
GNMA Ser 96A AMT
6.20%, 1/20/39 755 789,889
AA+ Maricopa Cnty IDR (Citizens Utilities)
Ser 95 AMT
6.20%, 5/01/30 775 825,824
AA- Mohave Cnty IDR (Cargill/North Star Steel)
Ser 95A AMT
6.70%, 3/01/20 750 831,307
AAA Mohave Cnty IDR Hlth Care Rev
(Chris Ridge & Silver) GNMA Ser 96
6.375%, 11/01/31 1,000 1,074,490
AAA Phoenix Arpt Rev
(Sky Harbor/Goodyear/Deer Valley)
MBIA Ser 94D AMT
6.30%, 7/01/10 655 714,933
AA Phoenix MFHR (Woodstone & Silver Springs)
Asset Gty Ser 93
6.25%, 4/01/23 795 828,740
AAA Pima Cnty SFMR GNMA/FNMA/FHLMC
Ser 97A AMT
6.25%, 11/01/30 2,750 2,881,505
NR Scottsdale GO Cmnty Fac Dist
(McDowell Mt Ranch) Ser 97
6.50%, 7/15/22 700 707,000
AAA Tempe MFHR (Quadrangles) FHA Ser 93
6.25%, 6/01/26 795 831,284
AAA Yuma MFHR (Alexandrite Sands Apt)
FHA Ser 90 AMT
7.70%, 12/01/29 805 847,222
TOTAL ARIZONA LONG TERM MUNICIPAL BONDS
(cost $14,844,283) 15,332,170
SHORT TERM MUNICIPAL NOTES-14.8%
A-1 Apache Cnty PCR (Tucson Elec Pwr Co)
Ser 81B VRDN (b)
4.20%, 10/01/21 1,000 1,000,000
VMIG1* Phoenix Civic Impt Corp Excise Tax Rev
Ser 95 VRDN (b) AMT
4.20%, 6/01/20 700 700,000
A-1+ Pima Cnty IDR (Tucson Elec Pwr Co)
Ser 82 VRDN (b)
4.15%, 7/01/22 700 700,000
VMIG1* Yavapai Cnty IDR (Kachina Pointe)
Ser 88 VRDN (b)
3.80%, 1/01/09 200 200,000
TOTAL SHORT TERM MUNICIPAL NOTES
(cost $2,600,000) 2,600,000
TOTAL INVESTMENTS-102.3%
(cost $17,444,283) 17,932,170
Other assets less liabilities-(2.3%) (401,443)
NET ASSETS-100% $ 17,530,727
# 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.
(b) 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 19.
See notes to financial statements.
9
FLORIDA PORTFOLIO
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1997 ALLIANCE MUNICIPAL INCOME FUND II
_______________________________________________________________________________
STANDARD & PRINCIPAL
POOR'S AMOUNT
RATINGS# (000) VALUE
- -------------------------------------------------------------------------------
MUNICIPAL BONDS-110.2%
LONG TERM MUNICIPAL BONDS-96.6%
FLORIDA-93.6%
NR Collier Cnty Fiddlers Creek
Cmnty Dev Dist
7.50%, 5/01/18 $13,500 $ 14,099,940
BBB+ Collier Cnty Hlth Fac
(The Moorings) Ser 94
7.00%, 12/01/19 2,000 2,186,320
AAA Dade Cnty Arpt Rev (Miami Int'l)
MBIA Ser 95B AMT
6.00%, 10/01/24 3,180 3,303,448
A3* Dade Cnty Spec Oblig
(Courthouse Ctr) Ser 95
6.10%, 4/01/20 3,000 3,154,380
AAA Escambia Cnty Hsg Fin Auth
SFMR FNMA/GNMA Ser 96B AMT
6.25%, 4/01/28 2,565 2,678,783
Baa1* Escambia Cnty PCR
(Champion Int'l Corp) Ser 96 AMT
6.40%, 9/01/30 5,000 5,310,350
AAA Florida Hsg Fin Agy
MFHR (Brittany of Rosemont)
AMBAC Ser 95G AMT
6.25%, 7/01/35 1,350 1,421,860
AAA Florida Hsg Fin Agy
MFHR (Landings at Boot Ranch)
AMBAC Ser 95K AMT
6.10%, 11/01/35 2,050 2,137,515
AAA Florida Hsg Fin Agy
MFHR (Turtle Creek Apts)
AMBAC Ser 96C AMT
6.20%, 5/01/36 3,245 3,393,621
AAA Florida Hsg Fin Agy SFMR GNMA/FNMA
Ser 94B AMT
6.65%, 7/01/26 2,950 3,078,620
AAA Florida Hsg Fin Agy SFMR GNMA/FNMA
Ser 95A AMT
6.65%, 1/01/24 6,720 7,218,019
AAA Hillsborough Cnty Aviation Auth
(Tampa Int'l Arpt) FGIC Ser 96A AMT
6.00%, 10/01/23 1,500 1,584,075
Aa3* North Miami Hlth Fac
Auth (Catholic Hlth Svcs Oblig Grp) Ser 96
6.00%, 8/15/24 1,200 1,241,544
NR Northern Palm Beach Cnty
(Abacoa) Ser 96A
7.20%, 8/01/16 1,930 2,063,035
A+ Palm Beach Cnty IDR
(Geriatric Care Inc) Ser 96
6.625%, 12/01/26 2,790 3,022,267
Aaa* Pinellas Cnty Hsg Fin Auth SFMR GNMA/FNMA
Ser 94A AMT
6.55%, 8/01/27 3,130 3,323,371
Baa2* Volusia Cnty Ed Fac Auth
(Embry-Riddle Aero Univ) Ser 96A
6.125%, 10/15/26 3,190 3,310,391
AA Volusia Cnty Hlth Fac Auth
(John Knox Village) Asset Gty
6.00%, 6/01/17 1,115 1,170,438
-------------
63,697,977
CALIFORNIA-3.0%
A+ California GO Ser 95 AMT
6.40%, 2/01/20 2,000 2,054,720
TOTAL LONG TERM MUNICIPAL BONDS
(cost $63,257,978) 65,752,697
10
ALLIANCE MUNICIPAL INCOME FUND II
_______________________________________________________________________________
STANDARD & PRINCIPAL
POOR'S AMOUNT
RATINGS# (000) VALUE
- -------------------------------------------------------------------------------
SHORT TERM MUNICIPAL NOTES-13.6%
ARIZONA-4.9%
A-1 Apache Cnty PCR (Tucson Elec Pwr Co)
Ser 81B VRDN (a)
4.20%, 10/01/21 $ 3,300 $ 3,300,000
SOUTH CAROLINA-4.9%
A-1+ Berkeley Cnty IDR (Nucor Corp)
Ser 97 VRDN (a) AMT
4.25%, 4/01/30 3,300 3,300,000
TEXAS-1.0%
A Brazos River Harbor Dist (Dow Chemical Co)
Ser 97 VRDN (a) AMT
4.05%, 5/01/27 700 700,000
WASHINGTON-2.8%
A-1 Yakima Cnty Pub Corp (Macro Plastics Inc)
VRDN (a) AMT
4.20%, 12/01/26 1,950 1,950,000
TOTAL SHORT TERM MUNICIPAL NOTES
(cost $9,250,000) 9,250,000
TOTAL INVESTMENTS-110.2%
(cost $72,507,978) 75,002,697
Other assets less liabilities-(10.2%) (6,944,620)
NET ASSETS-100% $ 68,058,077
# 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 19.
See notes to financial statements.
11
MASSACHUSETTS PORTFOLIO
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1997 ALLIANCE MUNICIPAL INCOME FUND II
_______________________________________________________________________________
STANDARD & PRINCIPAL
POOR'S AMOUNT
RATINGS# (000) VALUE
- -------------------------------------------------------------------------------
MUNICIPAL BONDS-92.6%
MASSACHUSETTS-88.5%
AAA Chelsea GO AMBAC Ser 94
6.00%, 6/15/14 $1,140 $ 1,215,388
AAA Holyoke GO FSA Ser 93B
6.125%, 8/01/13 1,115 1,194,366
AAA Massachusetts Ed Fin Auth
(Educational Loan) AMBAC Ser 94E AMT
6.00%, 1/01/12 1,080 1,124,582
AAA Massachusetts Hlth & Ed Fac Auth
(Beth Israel) AMBAC Ser G-4
8.370%, 7/01/25 (a) 1,000 1,089,550
AAA Massachusetts Hsg Fin Agy
MFHR (Harbor Point) AMBAC
Ser 96A AMT
6.40%, 12/01/15 1,110 1,184,126
A+ Massachusetts Hsg Fin Agy
SFMR Ser 40 AMT
6.65%, 12/01/27 5,350 5,735,361
A3* Massachusetts Ind Fin Agy
(Brooks School)
5.95%, 7/01/23 1,200 1,231,272
AAA Massachusetts Ind Fin Agy
(Heights Crossing) FHA Ser 95 AMT
6.15%, 2/01/35 1,150 1,185,328
AAA Massachusetts Muni Wholesale
Elec Pwr Supply Sys MBIA Ser 92A
6.00%, 7/01/18 1,140 1,172,011
AAA Massachusetts Port Auth Spec Fac
(US Air) MBIA Ser 96A AMT
5.875%, 9/01/23 1,135 1,162,955
AA+ Massachusetts Wtr Pollution Abatement
(So Essex Prog) Ser 94A
6.375%, 2/01/15 1,100 1,180,410
A1* New England Ed Loan Mktg Ser 93H AMT
6.90%, 11/01/09 3,805 4,217,043
-------------
21,692,392
PUERTO RICO-4.1%
BBB- Puerto Rico Port Auth
(American Airlines) Ser 96A AMT
6.25%, 6/01/26 950 1,009,964
TOTAL INVESTMENTS-92.6%
(cost $22,064,371) 22,702,356
Other assets less liabilities-7.4 % 1,803,527
NET ASSETS-100% $ 24,505,883
# 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 19.
See notes to financial statements.
12
MICHIGAN PORTFOLIO
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1997 ALLIANCE MUNICIPAL INCOME FUND II
_______________________________________________________________________________
STANDARD & PRINCIPAL
POOR'S AMOUNT
RATINGS# (000) VALUE
- -------------------------------------------------------------------------------
MUNICIPAL BONDS-98.0%
LONG TERM MUNICIPAL BONDS-83.8%
MICHIGAN-79.0%
AAA Detroit GO FGIC Ser 93
6.35%, 4/01/14 $ 385 $ 413,070
AAA Grand Rapids Swr Sys MBIA Ser 92
6.00%, 1/01/22 745 773,549
Aa2* Independence MFHR (Greenery Health)
FHA Ser 97
6.15%, 8/01/17 1,850 1,980,851
AAA Kent Cnty Arpt Fac
(Kent Cnty Int'l) Ser 95 AMT
6.10%, 1/01/25 760 794,861
AAA Michigan Hosp Fin Auth
Hosp Rev (St Johns) AMBAC Ser 92A
6.00%, 5/15/13 760 799,733
AA+ Michigan Hsg Dev Auth
SFMR Mortgage Rev FHA Ser 96B AMT
6.20%, 6/01/27 535 560,455
AA+ Michigan Hsg Dev Auth
SFMR Mortgage Rev Ser 95B AMT
7.05%, 6/01/26 3,245 3,425,454
AAA Michigan Strategic Fund
PCR (Detroit Edison) MBIA Ser 95AA
6.40%, 9/01/25 725 784,552
A- Michigan Strategic Fund
PCR (General Motors) Ser 95
6.20%, 9/01/20 735 785,443
A** Romulus Tax Increment
Finance Auth Ser 94
6.75%, 11/01/19 1,585 1,716,761
AA Troy MI Downtown Dev
Auth Asset Gty Ser 95A
6.375%, 11/01/18 735 788,912
-------------
12,823,641
PUERTO RICO-4.8%
BBB- Puerto Rico Port Auth
(American Airlines) Ser 96A AMT
6.25%, 6/01/26 725 770,762
TOTAL LONG TERM MUNICIPAL BONDS
(cost $13,069,055) 13,594,403
SHORT TERM MUNICIPAL NOTES-14.2%
VMIG1* Michigan Higher Ed Student
Loan Auth AMBAC
Ser XII-D AMT VRDN (a)
4.20%, 10/01/15 800 800,000
VMIG1* Michigan Hosp Rev
(Hospital Equipment Loan Program)
Ser 96A VRDN (a)
4.15%, 12/01/23 700 700,000
VMIG1* Michigan Hosp Rev
(Mt Clemens Hospital) VRDN (a)
4.20%, 8/15/15 800 800,000
TOTAL SHORT TERM MUNICIPAL NOTES
(cost $2,300,000) 2,300,000
TOTAL INVESTMENTS-98.0%
(cost $15,369,055) 15,894,403
Other assets less liabilities-2.0% 330,604
NET ASSETS-100% $ 16,225,007
# Unaudited.
* Moody's Rating.
** Fitch Rating.
(a) Variable Rate Demand Notes (VRDN) are instruments whose interest rates
change on a specific date (such as coupon date or interest payment date) or
whose interest rates vary with changes in a designated base rate (such as 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 19.
See notes to financial statements.
13
MINNESOTA PORTFOLIO
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1997 ALLIANCE MUNICIPAL INCOME FUND II
_______________________________________________________________________________
STANDARD & PRINCIPAL
POOR'S AMOUNT
RATINGS# (000) VALUE
- -------------------------------------------------------------------------------
MUNICIPAL BONDS-98.9%
MINNESOTA LONG TERM MUNICIPAL BONDS-87.9%
BBB+ Bass Brook PCR
(Minn Power & Light) Ser 92
6.00%, 7/01/22 $ 945 $ 972,830
AAA Duluth Arpt Lease St
Secured GO Ser 95C AMT
6.25%, 8/01/14 915 968,820
Aaa* Eagan MFHR (Woodridge Apts)
GNMA Ser 97A
5.95%, 2/01/32 930 968,828
Aaa* Little Canada MFHR
(Cedar Lakeside) GNMA Ser 97A
5.95%, 2/01/32 930 968,828
A- Minneapolis Common Bond
Fund Community Dev Agy
Ser 95-2 AMT
6.625%, 12/01/15 1,245 1,330,245
A- Minneapolis Common Bond
Fund Community Dev Agy
Ser 97-2 AMT
6.20%, 6/01/17 1,205 1,255,622
AAA Minneapolis COP Special
School Dist #1 MBIA Ser 96A
5.90%, 2/01/17 930 970,278
NR Minnesota Agric & Econ Dev Brd
(Small Business Loan Prog)
Ser 96A AMT
6.75%, 8/01/16 1,450 1,558,242
NR Minnesota Agric & Econ Dev Brd
(Small Business Loan Prog)
Ser 96B AMT
7.00%, 8/01/16 750 793,523
Baa1* Minnesota Higher Ed Fac
Auth (Hamline Univ) Ser 4-I
6.00%, 10/01/16 790 823,986
AA+ Minnesota Hsg Fin Agy
SFMR FHA Ser 89A AMT
7.90%, 7/01/19 2,660 2,768,129
AA+ Rochester Hlth Care Fac
(Mayo Med Ctr) Ser 92H
7.884%, 11/15/15 (a) 2,000 2,241,860
BBB South St. Paul Hosp Rev
(Health East) Ser 94
6.75%, 11/01/09 900 976,878
AAA St Francis GO Ind
Sch Dist # 15 CGIC Ser 95A
6.375%, 2/01/16 880 982,467
TOTAL MINNESOTA LONG TERM MUNICIPAL BONDS
(cost $16,606,347) 17,580,536
SHORT TERM MUNICIPAL NOTES-11.0%
A-1+ Cloquet PCR (Potlatch Corp)
Ser 85 VRDN (b)
4.05%, 12/01/09 600 600,000
VMIG1* Minnesota Higher Ed Fac Auth
(University of St Thomas)
Ser 97O VRDN (b)
4.05%, 10/01/21 900 900,000
AAA Plymouth MFHR
(The Lakes Apts) FNMA
Coll Ser 97A AMT VRDN (b)
4.30%, 5/15/27 700 700,000
TOTAL SHORT TERM MUNICIPAL NOTES
(cost $2,200,000) 2,200,000
TOTAL INVESTMENTS-98.9%
(cost $18,806,347) 19,780,536
Other assets less liabilities-1.1% 214,262
NET ASSETS-100% $ 19,994,798
# 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.
(b) 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 19.
See notes to financial statements.
14
NEW JERSEY PORTFOLIO
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1997 ALLIANCE MUNICIPAL INCOME FUND II
_______________________________________________________________________________
STANDARD & PRINCIPAL
POOR'S AMOUNT
RATINGS# (000) VALUE
- -------------------------------------------------------------------------------
MUNICIPAL BONDS-96.9%
NEW JERSEY LONG TERM MUNICIPAL BONDS-91.9%
AAA Essex Cnty Imp Auth Util Rev (Orange Twp)
MBIA Ser 93
6.00%, 12/01/17 $2,510 $ 2,633,442
BBB- New Jersey Eco Dev
(American Airlines) AMT
7.10%, 11/01/31 4,500 4,891,950
A+ New Jersey Eco Dev (Anheuser-Busch)
Ser 95 AMT
5.85%, 12/01/30 3,500 3,638,285
AAA New Jersey Eco Dev
(Hackensack Wtr Co) MBIA
Ser 94B AMT
5.90%, 3/01/24 3,545 3,656,100
AAA New Jersey Eco Dev (NJ American Wtr Co)
FGIC AMT
6.875%, 11/01/34 3,275 3,666,592
AAA New Jersey Eco Dev
(Pub Ser Elec & Gas) MBIA
Ser 94A AMT
6.40%, 5/01/32 3,400 3,625,964
BBB New Jersey Hlth Care Fac
(Englewood Hosp) Ser 94
6.75%, 7/01/24 4,230 4,565,354
BBB New Jersey Hlth Care Fac
(Franciscan Sisters,
St. Mary's Hosp) Ser 93
5.875%, 7/01/12 2,755 2,800,072
AAA New Jersey Hlth Care Fac
(Monmouth Med Ctr) CGIC Ser C
6.25%, 7/01/24 2,750 2,940,575
AAA New Jersey Hsg & Mtg MFHR AMBAC
Ser 96A AMT
6.25%, 5/01/28 4,000 4,191,200
A+ New Jersey Hsg & Mtg
MFHR (Sect 8) Ser 1
6.70%, 11/01/28 8,500 9,115,825
AAA New Jersey Hsg & Mtg SFMR MBIA
Ser 95O AMT
6.35%, 10/01/27 5,000 5,299,700
AAA Passaic Valley Sewer AMBAC Ser 92D
5.75%, 12/01/15 3,400 3,516,484
AAA Port Auth of NY & NJ
(JFK Int'l Arpt)
MBIA Ser 6 AMT
5.75%, 12/01/22 7,590 7,769,503
AA- Port Auth of NY & NJ 95th Ser AMT
6.125%, 7/15/29 3,205 3,327,912
AA- Salem Cnty NJ Waste Disposal Auth
(E.I. Dupont) Ser 92A AMT
6.125%, 7/15/22 3,500 3,672,550
BBB South Jersey Transportation
Auth NJ Lease Rev
(Raytheon Aircraft Service)
Ser 97A AMT
6.15%, 1/01/22 500 526,505
TOTAL NEW JERSEY LONG TERM MUNICIPAL BONDS
(cost $65,738,092 ) 69,838,013
SHORT TERM MUNICIPAL NOTES-5.0%
VMIG1* Essex Cnty Imp Auth
Ser 86 VRDN (a)
4.00%, 7/01/26 3,500 3,500,000
A-1 Newark NJ Hlth Care Fac (New Community)
FHA/GNMA Ser 95A VRDN (a)
4.15%, 6/01/30 300 300,000
TOTAL SHORT TERM MUNICIPAL NOTES
(cost $3,800,000 ) 3,800,000
TOTAL INVESTMENTS-96.9%
(cost $69,538,092) 73,638,013
Other assets less liabilities-3.1% 2,383,047
NET ASSETS-100% $ 76,021,060
# 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 19.
See notes to financial statements.
15
OHIO PORTFOLIO
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1997 ALLIANCE MUNICIPAL INCOME FUND II
_______________________________________________________________________________
STANDARD & PRINCIPAL
POOR'S AMOUNT
RATINGS# (000) VALUE
- -------------------------------------------------------------------------------
MUNICIPAL BONDS-96.0%
LONG TERM MUNICIPAL BONDS-91.4%
OHIO-86.9%
BBB Akron (Akron Municipal
Baseball Stad) Ser 96
Zero Coupon, 12/01/16 $5,000 $ 4,212,050
BBB- Butler Cnty Hosp Rev
(Fort Hamilton Hughes)
7.50%, 1/01/10 1,400 1,531,796
AAA Cuyahoga Cnty MFHR
(Nat'l Terminal Apts)
FNMA Ser 96 AMT
6.40%, 7/01/16 5,180 5,527,837
BBB Dayton Spec Fac Rev (Emery Air Freight)
Ser 96D AMT
6.20%, 10/01/09 2,225 2,380,639
BBB Hamilton Cnty Hlth Sys (Franciscan
Sisters Providence) Ser 92
6.875%, 7/01/15 2,000 2,130,320
Aaa* Kent Ohio MFHR (Silver Meadows Apt)
GNMA Ser 95 AMT
7.15%, 12/20/26 2,000 2,210,680
NR Mahoning Valley Sanitary Dist Ser 94
7.75%, 5/15/14 1,500 1,673,100
Baa1* Ohio Air Quality Dev Auth
(Columbus Southern Pwr) Ser 85B
6.25%, 12/01/20 2,305 2,406,443
AAA Ohio Air Quality Dev Auth
(JMG Funding/Ohio Pwr)
AMBAC Ser 94B AMT
6.375%, 4/01/29 2,150 2,296,200
BB+ Ohio Air Quality Dev Auth
(Toledo Edison Co) Ser 97A AMT
6.10%, 8/01/27 5,000 5,096,550
Aa2* Ohio Hsg Fin Agy MFHR
(Insured Bridgeview Villa II) FHA AMT
6.45%, 12/01/33 1,965 2,056,491
AAA Ohio Hsg Fin Agy SFMR
GNMA Ser 94 B2 AMT
6.70%, 3/01/25 5,710 6,075,554
AAA Ohio Hsg Fin Agy SFMR GNMA
Ser 97 A1 AMT
6.15%, 3/01/29 735 775,638
BB+ Ohio Wtr Dev Auth (Cleveland Electric)
Ser 97A AMT
6.10%, 8/01/20 2,000 2,038,620
A Ohio Wtr Dev Auth
(North Star/BHP) AMT
6.45%, 9/01/20 2,255 2,418,645
-------------
42,830,563
PUERTO RICO-4.5%
BBB- Puerto Rico Port Auth
(American Airlines) Ser 96A AMT
6.25% 6/01/26 2,075 2,205,974
TOTAL LONG TERM MUNICIPAL BONDS
(cost $42,432,641) 45,036,537
SHORT TERM MUNICIPAL NOTE-4.6%
VMIG1* Ohio Hsg Fin Agy MFHR
(Kenwood Congregate) Ser 85 VRDN (a)
3.70%, 12/01/15
(cost $2,300,000) 2,300 2,300,000
TOTAL INVESTMENTS-96.0%
(cost $44,732,641) 47,336,537
Other assets less liabilities-4.0% 1,958,482
NET ASSETS-100% $ 49,295,019
# 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 19.
See notes to financial statements.
16
PENNSYLVANIA PORTFOLIO
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1997 ALLIANCE MUNICIPAL INCOME FUND II
_______________________________________________________________________________
STANDARD & PRINCIPAL
POOR'S AMOUNT
RATINGS# (000) VALUE
- -------------------------------------------------------------------------------
MUNICIPAL BONDS-98.0%
LONG TERM MUNICIPAL BONDS-85.1%
PENNSYLVANIA-82.5%
AAA Allegheny Cnty Arpt Rev
(Pittsburgh Int'l) FSA
Ser 92B AMT
6.625%, 1/01/22 $2,715 $ 2,921,258
BBB- Allegheny Cnty IDR (USX) Ser 96
6.10%, 1/15/18 3,000 3,118,800
A- Bradford Cnty IDR
Solid Waste Disp Rev
(Int'l Paper) Ser 95A AMT
6.60%, 3/01/19 2,500 2,753,500
BBB+ Cumberland Cnty
Municipal Auth Rev
(Presbyterian Homes Inc) Ser 96
6.00%, 12/01/26 4,000 4,084,320
A New Morgan IDR Solid Waste Disp Rev
(Browning-Ferris) Ser 94 AMT
6.50%, 4/01/19 4,000 4,306,320
BBB- Pennsylvania Econ Dev
(Macmillan Bloedel Clarion)
Ser 95 AMT
7.60%, 12/01/20 5,000 5,753,800
BBB Pennsylvania Econ Dev (Sun Co Inc)
Ser 94A AMT
7.60%, 12/01/24 1,965 2,240,513
AAA Pennsylvania Higher Ed
Student Loan AMBAC Ser 88D AMT
6.05%, 1/01/19 3,175 3,285,617
AA+ Pennsylvania Hsg Fin Agy
SFMR Ser 92 35D AMT
8.009%, 4/01/25(a) 9,500 10,121,110
AA+ Pennsylvania Hsg Fin Agy
SFMR Ser 94 41B AMT
6.65%, 4/01/25 5,000 5,333,600
AAA Pennsylvania Turnpike AMBAC Ser 94A
6.00%, 12/01/19 3,000 3,146,160
A- Philadelphia Hosp Rev
(Temple Univ) Ser 93A
6.625%, 11/15/23 3,250 3,473,372
AAA Pittsburgh Urban Redev SFMR
FHA/GNMA/FNMA Ser 97A AMT
6.25%, 10/01/28 1,200 1,255,092
AAA Pittsburgh Urban Redev SFMR
Ser 95A AMT
7.15%, 10/01/27 520 563,004
AA Potter Cnty Hosp Auth
(Charles Cole Memorial)
Asset Gty Ser 96
6.05%, 8/01/24 3,335 3,463,531
BBB+ Warren Cnty Hosp Auth
(Warren Gen) Ser 94A
7.00%, 4/01/19 2,200 2,377,738
-------------
58,197,735
PUERTO RICO-2.6%
BBB- Puerto Rico Port Auth (American Airlines)
Ser 96A AMT
6.25%, 6/01/26 1,725 1,833,882
TOTAL LONG TERM MUNICIPAL BONDS
(cost $56,062,965) 60,031,617
SHORT TERM MUNICIPAL NOTES-12.9%
A-1+ Delaware Valley Regl Fin
Auth Loc Govt Rev Ser C VRDN (b)
4.15%, 12/01/20 2,100 2,100,000
17
PENNSYLVANIA PORTFOLIO
PORTFOLIO OF INVESTMENTS
(CONTINUED) ALLIANCE MUNICIPAL INCOME FUND II
_______________________________________________________________________________
STANDARD & PRINCIPAL
POOR'S AMOUNT
RATINGS# (000) VALUE
- -------------------------------------------------------------------------------
A-1+ Emmaus GO
FSA Ser 96 VRDN (b)
4.05%, 12/01/28 $3,500 $ 3,500,000
Aaa* Pennsylvania Energy Dev
Auth (B&W Ebensburg)
Ser 88 VRDN (b) AMT
4.20%, 12/01/11 3,500 3,500,000
TOTAL SHORT TERM MUNICIPAL NOTES
(cost $9,100,000) 9,100,000
TOTAL INVESTMENTS-98.0%
(cost $65,162,965) 69,131,617
Other assets less liabilities-2.0% 1,380,513
NET ASSETS-100% $ 70,512,130
# 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.
(b) 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 19.
See notes to financial statements.
18
VIRGINIA PORTFOLIO
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1997 ALLIANCE MUNICIPAL INCOME FUND II
_______________________________________________________________________________
STANDARD & PRINCIPAL
POOR'S AMOUNT
RATINGS# (000) VALUE
- -------------------------------------------------------------------------------
MUNICIPAL BONDS-97.2%
VIRGINIA LONG TERM MUNICIPAL BONDS-92.6%
A Alexandria MFHR
(Buckingham Village Apts)
Ser 96A AMT
6.15%, 1/01/29 $ 455 $ 471,385
A+ Giles Cnty IDR (Hoechst Celanese Corp)
Ser 96 AMT
6.45%, 5/01/26 435 475,916
AAA Harrisonburg MFHR (Greens of Salem Run)
FSA Ser 97 AMT
6.30%, 4/01/29 595 632,027
A Henrico Cnty IDR Solid Waste Rev
(Browning-Ferris) Ser 97A AMT
5.875%, 3/01/17 460 477,199
A- Isle of Wight Cnty Solid Waste Rev
(Union Camp Corp) Ser 94 AMT
6.55%, 4/01/24 325 355,459
A+ James City Cnty Solid Waste Rev
(Anheuser-Busch) Ser 97 AMT
6.00%, 4/01/32 460 476,666
AAA Newport News MFHR (Mennowood Cmntys)
GNMA Ser 96A
6.25%, 8/01/36 445 472,105
A2* Prince William Cnty Hosp Rev
(Potomac Hosp Corp) Ser 95
6.75%, 10/01/15 430 472,901
NR Staunton Ed Fac
(Mary Baldwin College) Ser 96
6.75%, 11/01/21 1,815 1,891,049
AAA Suffolk MFHR
(Prince William Commons)
FNMA Ser 96A AMT
6.50%, 6/01/29 455 484,320
AA Virginia Beach Hlth Care
(Sentara Bayside Hosp)
6.30%, 11/01/21 445 470,476
AA+ Virginia Hsg Dev Auth SFMR
(Commonwealth Mtg) Ser 94G AMT
7.125%, 7/01/22 2,240 2,355,046
TOTAL VIRGINIA LONG TERM MUNICIPAL BONDS
(cost $8,814,442) 9,034,549
SHORT TERM MUNICIPAL NOTE-4.6%
P-1* Bedford Cnty IDR (Nekoosa Pkg Corp)
Ser 95A VRDN (a) AMT
4.45%, 12/01/25
(cost $450,000) 450 450,000
TOTAL INVESTMENTS-97.2%
(cost $9,264,442) 9,484,549
Other assets less liabilities-2.8% 273,072
NET ASSETS-100% $ 9,757,621
# 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 notes to financial statements.
Glossary of Terms:
AMBAC American Municipal Bond Assurance Corporation
AMT Alternative Minimum Tax-Subject to
CGIC Capital Guaranty Insurance Company
COP Certificate of Participation
FGIC Financial Guaranty Insurance Company
FHA Federal Housing Administration
FHLMC Federal Home Loan Mortgage Corporation
FNMA Federal National Mortgage Association
FSA Financial Security Assurance, Inc.
MBIA Municipal Bond Investors Assurance
GNMA Government National Mortgage Association
GO General Obligation
IDR Industrial Development Revenue
MFHR Multi-Family Housing Revenue
NR Rating not applied for
PCR Pollution Control Revenue
SFMR Single Family Mortgage Revenue
19
STATEMENTS OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1997 ALLIANCE MUNICIPAL INCOME FUND II
_______________________________________________________________________________
<TABLE>
<CAPTION>
ARIZONA FLORIDA MASSACHUSETTS
------------- ------------- -------------
<S> <C> <C> <C>
ASSETS
Investment in securities, at value
(cost: $17,444,283, $72,507,978, $22,064,371,
$15,369,055, $18,806,347, $69,538,092,
$44,732,641, $65,162,965, $9,264,442,
respectively) $17,932,170 $75,002,697 $22,702,356
Cash -0- -0- 114,303
Receivable for shares of beneficial interest sold 379,151 442,015 327,664
Interest receivable 304,060 1,387,633 396,767
Receivable due from Adviser 123,739 -0- 107,044
Receivable for investment securities sold -0- -0- 1,200,000
Other assets 14,849 10,679 10,624
Total assets 18,753,969 76,843,024 24,858,758
LIABILITIES
Due to custodian 102,248 1,543 -0-
Payable for investment securities purchased 1,000,000 8,550,000 -0-
Dividends payable 24,233 91,719 34,111
Distribution fee payable 8,865 45,413 13,852
Payable for shares of beneficial interest redeemed 2,000 41,134 235,781
Advisory fee payable -0- 1,508 -0-
Accrued expenses and other liabilities 85,896 53,630 69,131
Total liabilities 1,223,242 8,784,947 352,875
NET ASSETS $17,530,727 $68,058,077 $24,505,883
COMPOSITION OF NET ASSETS
Shares of beneficial interest, at par $ 16,266 $ 67,097 $ 21,900
Additional paid-in capital 16,707,137 70,749,224 23,436,817
Distributions in excess of net investment income (24,233) (91,719) (34,111)
Accumulated net realized gain (loss) on
investment transactions 343,670 (5,161,244) 443,292
Net unrealized appreciation of investments 487,887 2,494,719 637,985
$17,530,727 $68,058,077 $24,505,883
CLASS A SHARES
Net assets $ 9,224,832 $17,515,926 $ 9,461,448
Shares of beneficial interest outstanding 855,925 1,726,861 845,524
CLASS B SHARES
Net assets $ 6,530,863 $24,820,437 $ 7,229,832
Shares of beneficial interest outstanding 606,006 2,447,015 646,146
CLASS C SHARES
Net assets $ 1,775,032 $25,721,714 $ 7,814,603
Shares of beneficial interest outstanding 164,699 2,535,869 698,396
CALCULATION OF MAXIMUM OFFERING PRICE
CLASS A SHARES
Net asset value and redemption price per share $10.78 $10.14 $11.19
Sales charge--4.25% of public offering price .48 .45 .50
Maximum offering price $11.26 $10.59 $11.69
CLASS B SHARES
Net asset value and offering price per share $10.78 $10.14 $11.19
CLASS C SHARES
Net asset value and offering price per share $10.78 $10.14 $11.19
</TABLE>
See notes to financial statements.
20
ALLIANCE MUNICIPAL INCOME FUND II
_______________________________________________________________________________
<TABLE>
<CAPTION>
MICHIGAN MINNESOTA NEW JERSEY OHIO PENNSYLVANIA VIRGINIA
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
$ 15,894,403 $ 19,780,536 $ 73,638,013 $ 47,336,537 $ 69,131,617 $ 9,484,549
-0- -0- 51,389 296,519 85,725 11,210
31,650 119,397 105,118 185,725 179,231 8,374
255,025 252,484 1,521,365 653,489 1,440,284 197,118
77,841 100,637 -0- 7,172 -0- 124,932
156,657 -0- 1,050,080 1,115,500 -0- -0-
7,966 10,072 10,072 10,535 13,682 9,441
16,423,542 20,263,126 76,376,037 49,605,477 70,850,539 9,835,624
86,662 141,355 -0- -0- -0- -0-
-0- -0- -0- -0- -0- -0-
21,367 26,544 95,883 63,456 96,781 12,981
9,654 13,820 52,307 35,691 43,266 5,866
8,435 14,933 136,267 143,212 114,064 2,000
-0- -0- 7,820 -0- 17,048 -0-
72,417 71,676 62,700 68,099 67,250 57,156
198,535 268,328 354,977 310,458 338,409 78,003
$ 16,225,007 $ 19,994,798 $ 76,021,060 $ 49,295,019 $ 70,512,130 $ 9,757,621
$ 15,419 $ 20,049 $ 74,857 $ 48,496 $ 68,239 $ 8,950
15,256,515 20,444,992 76,094,278 49,793,182 68,446,219 9,237,555
(21,367) (26,544) (95,883) (63,456) (96,781) (12,981)
449,092 (1,417,888) (4,152,113) (3,087,099) (1,874,199) 303,990
525,348 974,189 4,099,921 2,603,896 3,968,652 220,107
$ 16,225,007 $ 19,994,798 $ 76,021,060 $ 49,295,019 $ 70,512,130 $ 9,757,621
$ 5,836,154 $ 4,119,747 $ 16,309,352 $ 7,595,710 $ 24,948,296 $ 3,530,325
554,541 413,115 1,606,058 747,254 2,414,386 323,796
$ 5,300,345 $ 8,516,932 $ 38,307,684 $ 26,821,226 $ 30,078,121 $ 5,020,095
503,732 853,980 3,772,191 2,638,614 2,910,826 460,437
$ 5,088,508 $ 7,358,119 $ 21,404,024 $ 14,878,083 $ 15,485,713 $ 1,207,201
483,598 737,839 2,107,406 1,463,689 1,498,634 110,727
$10.52 $ 9.97 $10.15 $10.16 $10.33 $10.90
.47 .44 .45 .45 .46 .48
$10.99 $10.41 $10.60 $10.61 $10.79 $11.38
$10.52 $ 9.97 $10.16 $10.16 $10.33 $10.90
$10.52 $ 9.97 $10.16 $10.16 $10.33 $10.90
</TABLE>
21
STATEMENTS OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1997 ALLIANCE MUNICIPAL INCOME FUND II
_______________________________________________________________________________
<TABLE>
<CAPTION>
ARIZONA FLORIDA MASSACHUSSETTS
------------ ------------- --------------
<S> <C> <C> <C>
INVESTMENT INCOME
Interest $ 852,537 $ 4,180,751 $ 954,449
EXPENSES
Advisory fee 85,933 413,941 97,045
Distribution fee - Class A 20,379 45,848 16,048
Distribution fee - Class B 55,735 230,909 48,450
Distribution fee - Class C 13,828 278,572 53,327
Custodian 88,802 92,088 85,869
Administrative 55,000 55,000 55,000
Audit & legal 41,628 45,894 37,320
Transfer agency 28,822 45,240 25,800
Printing 9,342 11,777 2,404
Amortization of organizational expenses 8,921 14,662 7,132
Registration 5,373 1,918 7,502
Trustees' fees 2,459 2,459 2,459
Miscellaneous 4,390 7,111 3,771
Total expenses 420,612 1,245,419 442,127
Less: expenses waived and reimbursed by
Adviser (see Note B) (264,673) (405,299) (259,088)
Net expenses 155,939 840,120 183,039
Net investment income 696,598 3,340,631 771,410
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investment transactions 377,624 1,247,758 489,674
Net change in unrealized appreciation of
investments 238,359 1,354,893 391,030
Net gain on investments 615,983 2,602,651 880,704
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 1,312,581 $ 5,943,282 $ 1,652,114
</TABLE>
See notes to financial statements.
22
ALLIANCE MUNICIPAL INCOME FUND II
_______________________________________________________________________________
<TABLE>
<CAPTION>
MICHIGAN MINNESOTA NEW JERSEY OHIO PENNSYLVANIA VIRGINIA
------------ ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
$ 906,099 $ 1,171,979 $ 4,442,574 $ 2,914,876 $ 4,304,648 $ 476,768
91,349 117,961 464,240 290,778 421,262 49,263
17,587 10,998 43,523 19,085 69,378 8,679
42,552 81,010 378,572 252,445 300,896 39,933
44,984 71,069 219,135 149,184 141,862 9,957
85,928 88,100 89,264 89,057 97,949 77,711
55,000 55,000 55,000 55,000 55,000 55,000
40,406 40,366 55,084 46,130 51,575 34,977
26,655 27,172 64,060 44,546 61,392 25,900
4,601 6,340 15,805 15,331 21,425 1,614
5,694 13,823 13,823 14,450 18,750 5,727
4,243 1,976 1,094 1,121 3,948 1,280
2,459 2,459 2,459 2,459 2,459 2,459
4,332 6,144 7,747 5,963 5,059 4,431
425,790 522,418 1,409,806 985,549 1,250,955 316,931
(224,191) (273,599) (378,542) (352,951) (297,697) (229,195)
201,599 248,819 1,031,264 632,598 953,258 87,736
704,500 923,160 3,411,310 2,282,278 3,351,390 389,032
539,839 275,164 1,486,965 971,673 934,665 306,700
227,908 499,706 1,808,118 1,589,495 2,363,863 157,573
767,747 774,870 3,295,083 2,561,168 3,298,528 464,273
$ 1,472,247 $ 1,698,030 $ 6,706,393 $ 4,843,446 $ 6,649,918 $ 853,305
</TABLE>
23
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,
1997 1996 1997 1996 1997 1996
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS
Net investment income $ 696,598 $ 390,371 $ 3,340,631 $ 3,233,449 $ 771,410 $ 464,239
Net realized gain on investment
transactions 377,624 45,864 1,247,758 1,662,326 489,674 227,868
Net change in unrealized
appreciation (depreciation) of
investments 238,359 83,969 1,354,893 (590,349) 391,030 132,436
Net increase in net assets from
operations 1,312,581 520,204 5,943,282 4,305,426 1,652,114 824,543
DIVIDENDS AND DISTRIBUTIONS
TO SHAREHOLDERS FROM:
Net investment income
Class A (367,913) (172,713) (847,240) (732,184) (288,776) (125,448)
Class B (263,634) (192,483) (1,112,789) (1,058,719) (229,220) (129,553)
Class C (65,051) (25,175) (1,346,149) (1,442,546) (253,414) (209,238)
Distributions in excess of net
investment income
Class A (1,655) (10,334) -0- (14,102) (9,236) (3,990)
Class B (3,731) (11,517) -0- (20,392) (10,381) (4,120)
Class C (1,548) (1,507) -0- (27,785) (10,837) (6,654)
Net realized gain on investments
Class A (12,807) (18,449) -0- -0- (77,311) (12,500)
Class B (11,580) (25,982) -0- -0- (71,686) (13,699)
Class C (2,601) (3,713) -0- -0- (86,735) (30,280)
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST
Net increase (decrease) 6,630,877 4,233,239 (1,231,836) 2,240,362 12,483,327 5,472,421
Total increase 7,212,938 4,291,570 1,405,268 3,250,060 13,097,845 5,761,482
NET ASSETS
Beginning of year 10,317,789 6,026,219 66,652,809 63,402,749 11,408,038 5,646,556
End of year $17,530,727 $10,317,789 $68,058,077 $66,652,809 $24,505,883 $11,408,038
</TABLE>
See notes to financial statements.
24
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,
1997 1996 1997 1996 1997 1996
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS
Net investment income $ 704,500 $ 579,134 $ 923,160 $ 873,763 $ 3,411,310 $ 3,494,083
Net realized gain on investment
transactions 539,839 310,017 275,164 566,704 1,486,965 926,101
Net change in unrealized
appreciation (depreciation)of
investments 227,908 (40,072) 499,706 (399,102) 1,808,118 (334,852)
Net increase in net assets from
operations 1,472,247 849,079 1,698,030 1,041,365 6,706,393 4,085,332
DIVIDENDS AND DISTRIBUTIONS
TO SHAREHOLDERS FROM:
Net investment income
Class A (307,066) (284,490) (199,592) (157,583) (748,666) (747,181)
Class B (192,911) (137,182) (384,953) (381,606) (1,683,216) (1,724,184)
Class C (204,523) (157,462) (338,557) (334,574) (979,428) (1,022,718)
Distributions in excess of net
investment income
Class A (9,747) (16,370) (1,867) (6,547) (10,862) (53,494)
Class B (7,521) (7,894) (555) (15,854) (20,887) (123,442)
Class C (7,811) (9,061) -0- (13,899) (8,404) (73,220)
Net realized gain on investments
Class A (73,030) (83,366) -0- -0- -0- -0-
Class B (46,231) (44,698) -0- -0- -0- -0-
Class C (52,615) (49,542) -0- -0- -0- -0-
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST
Net increase (decrease) 2,037,957 3,089,421 1,213,302 860,087 (4,431,769) 9,294,813
Total increase (decrease) 2,608,749 3,148,435 1,985,808 991,389 (1,176,839) 9,635,906
NET ASSETS
Beginning of year 13,616,258 10,467,823 18,008,990 17,017,601 77,197,899 67,561,993
End of year $16,225,007 $13,616,258 $19,994,798 $18,008,990 $76,021,060 $77,197,899
</TABLE>
See notes to financial statements.
25
STATEMENTS OF CHANGES IN NET ASSETS
(CONTINUED) 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,
1997 1996 1997 1996 1997 1996
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS
Net investment income $ 2,282,278 $ 2,282,058 $ 3,351,390 $ 2,645,781 $ 389,032 $ 238,998
Net realized gain on investment
transactions 971,673 1,554,258 934,665 1,880,108 306,700 180,231
Net change in unrealized
appreciation (depreciation)
of investments 1,589,495 (1,132,174) 2,363,863 (602,626) 157,573 (28,212)
Net increase in net assets from
operations 4,843,446 2,704,142 6,649,918 3,923,263 853,305 391,017
DIVIDENDS AND DISTRIBUTIONS
TO SHAREHOLDERS FROM:
Net investment income
Class A (345,718) (291,324) (1,258,375) (555,739) (155,809) (115,677)
Class B (1,189,291) (1,131,284) (1,421,685) (1,401,785) (186,794) (100,364)
Class C (703,427) (859,450) (671,330) (688,257) (46,429) (22,957)
Distributions in excess of net
investment income
Class A -0- (9,978) (30,406) (33,335) (12) (902)
Class B -0- (38,746) (39,276) (84,082) (1,795) (783)
Class C -0- (29,435) (16,414) (41,283) (515) (179)
Net realized gain on investments
Class A -0- -0- -0- -0- (59,025) (15,668)
Class B -0- -0- -0- -0- (85,912) (10,549)
Class C -0- -0- -0- -0- (22,732) (1,013)
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST
Net increase (decrease) (1,900,553) 3,381,831 1,759,900 12,089,059 3,021,558 3,148,417
Total increase 704,457 3,725,756 4,972,332 13,207,841 3,315,840 3,271,342
NET ASSETS
Beginning of year 48,590,562 44,864,806 65,539,798 52,331,957 6,441,781 3,170,439
End of year $49,295,019 $48,590,562 $70,512,130 $65,539,798 $9,757,621 $6,441,781
</TABLE>
See notes to financial statements.
26
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 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% for purchases not exceeding $1,000,000. With
respect to purchases of $1,000,000 or more, Class A shares redeemed within one
year of purchase will be subject to a contingent deferred sales charge of 1%.
Class B shares are currently sold with a contingent deferred sales charge which
declines from 3% to zero depending on the period of time the shares are held.
Class B shares will automatically convert to Class A shares six years after the
end of the calendar month of purchase. Class C shares are subject to a
contingent deferred sales charge of 1% on redemptions made within the first
year after purchase. All three classes of shares have identical voting,
dividend, liquidation and other rights and the same terms and conditions,
except that each class bears different distribution expenses and has exclusive
voting rights with respect to its distribution plan. The following is a summary
of the significant accounting policies followed by the Fund.
1. SECURITY VALUATION
The Fund values municipal securities at fair value based on prices provided by
a recognized pricing service which uses information with respect to
transactions in bonds, quotations from bond dealers, market transactions in
comparable securities and various relationships between securities in
determining values.
If market quotations are not readily available from such pricing service, a
municipal security is valued at its fair value as determined in good faith by
the Fund's Adviser, Alliance Capital Management, L.P. under procedures
established by the Fund's Board of 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 policy of each Portfolio to meet the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute all
of its investment company taxable income and net realized gains, if applicable,
to its shareholders. Therefore, no provisions for federal income or excise
taxes are required.
4. INVESTMENT INCOME AND INVESTMENT TRANSACTIONS
Interest income is accrued daily. Investment transactions are accounted for on
the date securities are purchased or sold. Investment gains and losses are
determined on the identified cost basis. The Fund amortizes premium and
accretes 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. INCOME AND EXPENSES
All income earned and expenses incurred by the Fund are borne on a pro-rata
basis by each settled class of shares, based on the proportionate interest in
the Fund represented by the net assets of such class, except that the Fund's
Class B and Class C shares bear higher distribution and transfer agent fees
than Class A shares.
27
NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCE MUNICIPAL INCOME FUND II
_______________________________________________________________________________
6. DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions to shareholders are recorded on the ex-dividend
date.
Income and capital gains distribution are determined in accordance with federal
tax regulations and may differ from those determined in accordance with
generally accepted accounting principles. To the extent these differences are
permanent, such amounts are reclassified with the capital accounts based on
their federal tax basis treatment; temporary differences, do not require such
reclassification. During the current fiscal year, certain portfolios had
permanent differences, primarily due to distributions in excess of net
tax-exempt investment income which resulted in a net decrease in distributions
in excess of net investment income and a corresponding decrease in additional
paid-in capital for those portfolios. These reclassifications had no affect on
net assets.
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. For the year ended September 30, 1997, the Adviser
voluntarily agreed to waive all or a portion of its advisory fees. The
aggregate amounts of such fee waivers were: Arizona Portfolio, $85,933; Florida
Portfolio, $350,299; Massachusetts Portfolio, $97,045; Michigan Portfolio,
$91,349; Minnesota Portfolio, $117,961; New Jersey Portfolio, $323,542; Ohio
Portfolio, $290,778; Pennsylvania Portfolio, $242,697; and Virginia Portfolio
$49,263.
Pursuant to the advisory agreement, the Adviser provides to each Portfolio
certain legal and accounting services. For the year ended September 30, 1997,
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: Arizona Portfolio, $178,740; Massachusetts
Portfolio, $162,043; Michigan Portfolio, $132,842; Minnesota Portfolio,
$155,638; Ohio Portfolio, $62,173 and Virginia Portfolio, $179,932. There was
no such reimbursement for the Florida Portfolio, New Jersey 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: Arizona Portfolio, $18,000; Florida Portfolio,
$24,556; Massachusetts Portfolio, $18,000; Michigan Portfolio, $18,000;
Minnesota Portfolio, $18,000; New Jersey Portfolio, $38,674; Ohio Portfolio,
$24,949; Pennsylvania Portfolio, $34,716; and Virginia Portfolio, $18,000.
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, 1997 were: Arizona Portfolio
$8,550; Florida Portfolio $6,676; Massachusetts Portfolio $6,544; Michigan
Portfolio $3,231; Minnesota Portfolio, $2,259; New Jersey Portfolio, $6,728;
Pennsylvania Portfolio, $6,672; and Virginia Portfolio, $2,344. The amount of
contingent deferred sales charges imposed upon redemptions by shareholders of
Class B shares for the same period were: Arizona Portfolio, $26,432; Florida
Portfolio, $24,195; Massachusetts Portfolio, $5,545; Michigan Portfolio,
$4,700; Minnesota Portfolio, $10,660; New Jersey Portfolio, $51,440; Ohio
Portfolio, $23,986; Pennsylvania Portfolio, $19,985; and Virginia Portfolio,
$6,835. The amount of contingent deferred sales charges imposed upon
redemptions by shareholders of Class C shares for the year ended September 30,
1997 were: Arizona Portfolio, 1,329; Florida Portfolio, $1,137; Massachusetts
Portfolio, $2,193; Michigan Portfolio, $2,053; Minnesota Portfolio, $1,172; New
Jersey Portfolio, $2,401; Ohio Portfolio, $2,176; Pennsylvania Portfolio,
$1,087; and Virginia Portfolio, $187.
28
ALLIANCE MUNICIPAL INCOME FUND II
_______________________________________________________________________________
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. 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 Class A shares and 1% of each Portfolio's average daily net
assets attributable to both Class B and Class C shares. 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 $ 737,147 $ 176,290
Florida 1,121,048 1,152,723
Massachusetts 654,399 605,448
Michigan 633,711 728,261
Minnesota 990,510 727,660
New Jersey 1,797,139 759,019
Ohio 1,490,274 762,570
Pennsylvania 1,276,781 680,204
Virginia 845,124 235,241
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, 1997 were as
follows:
PORTFOLIO PURCHASES SALES
- -------------- ------------ ------------
Arizona $ 32,012,466 $ 26,292,554
Florida 141,479,088 138,210,915
Massachusetts 31,281,233 20,575,225
Michigan 25,194,536 23,337,789
Minnesota 25,882,173 24,409,819
New Jersey 45,128,561 50,633,071
Ohio 48,093,498 51,547,216
Pennsylvania 58,633,704 56,627,335
Virginia 22,532,846 19,798,346
At September 30, 1997, the cost of investments 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 $ 17,445,084 $ 487,086 $ -0- $ 487,086
Florida 72,507,978 2,494,719 -0- 2,494,719
Massachusetts 22,065,936 636,420 -0- 636,420
Michigan 15,372,276 522,127 -0- 522,127
Minnesota 18,806,526 974,010 -0- 974,010
New Jersey 69,538,092 4,099,921 -0- 4,099,921
Ohio 44,732,641 2,603,896 -0- 2,603,896
Pennsylvania 65,177,919 3,953,698 -0- 3,953,698
Virginia 9,264,442 220,107 -0- 220,107
29
NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCE MUNICIPAL INCOME FUND II
_______________________________________________________________________________
For Federal income tax purposes at September 30, 1997, the Fund had capital
loss carryforwards for the following Portfolios: $3,802,409 expiring in 2003,
and $349,704 expiring in 2004, for New Jersey Portfolio; $5,161,244 expiring in
2003, for Florida Portfolio; $2,755,099 expiring in 2003, and $332,000 expiring
in 2004, for Ohio Portfolio; $1,859,245 expiring in 2002, for Pennsylvania
Portfolio; and $924,729 expiring in 2003, and $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.
NOTE E: 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
SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30,
ARIZONA PORTFOLIO 1997 1996 1997 1996
- ----------------- ------------- ----------- -------------- -------------
CLASS A
Shares sold 466,115 245,077 $ 4,910,624 $ 2,497,924
Shares issued in
reinvestment of
dividends and
distributions 9,889 7,348 104,166 75,448
Shares converted
from Class B 5,552 8,585 58,577 85,589
Shares redeemed (52,682) (65,056) (550,222) (660,264)
Net increase 428,874 195,954 $ 4,523,145 $ 1,998,697
CLASS B
Shares sold 234,439 222,576 $ 2,473,657 $ 2,277,718
Shares issued in
reinvestment of
dividends and
distributions 13,442 9,322 141,339 95,597
Shares converted
to Class A (5,552) (8,585) (58,577) (85,589)
Shares redeemed (139,836) (27,452) (1,453,909) (280,976)
Net increase 102,493 195,861 $ 1,102,510 $ 2,006,750
CLASS C
Shares sold 115,373 44,293 $ 1,209,064 $ 451,216
Shares issued in
reinvestment of
dividends and
distributions 3,226 2,349 33,997 24,160
Shares redeemed (22,676) (24,564) (237,839) (247,584)
Net increase 95,923 22,078 $ 1,005,222 $ 227,792
30
ALLIANCE MUNICIPAL INCOME FUND II
_______________________________________________________________________________
SHARES AMOUNT
--------------------------- ------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30,
FLORIDA PORTFOLIO 1997 1996 1997 1996
- ----------------- ------------- ----------- -------------- -------------
CLASS A
Shares sold 401,472 519,985 $ 3,966,237 $ 5,045,697
Shares issued in
reinvestment of
dividends and
distributions 32,217 29,497 318,408 286,857
Shares converted
from Class B 51,926 22,916 510,238 219,737
Shares redeemed (228,010) (351,639) (2,248,140) (3,406,503)
Net increase 257,605 220,759 $ 2,546,743 $ 2,145,788
CLASS B
Shares sold 744,931 649,530 $ 7,338,616 $ 6,337,001
Shares issued in
reinvestment of
dividends and
distributions 50,066 44,597 495,099 434,054
Shares converted
to Class A (51,926) (22,916) (510,238) (219,737)
Shares redeemed (579,406) (544,509) (5,720,727) (5,277,524)
Net increase 163,665 126,702 $ 1,602,750 $ 1,273,794
CLASS C
Shares sold 676,267 594,748 $ 6,658,690 $ 5,803,084
Shares issued in
reinvestment of
dividends and
distributions 62,835 85,081 621,766 834,227
Shares redeemed (1,296,118) (800,351) (12,661,785) (7,816,531)
Net decrease (557,016) (120,522) $(5,381,329) $(1,179,220)
SHARES AMOUNT
--------------------------- ------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
MASSACHUSETTS SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30,
PORTFOLI 1997 1996 1997 1996
- --------------- ------------- ----------- -------------- -------------
CLASS A
Shares sold 705,271 172,711 $ 7,737,977 $ 1,833,733
Shares issued in
reinvestment of
dividends and
distributions 16,441 4,244 178,373 45,329
Shares converted
from Class B 36 -0- 397 -0-
Shares redeemed (172,200) (8,362) (1,883,762) (89,000)
Net increase 549,548 168,593 $ 6,032,985 $ 1,790,062
CLASS B
Shares sold 336,620 191,547 $ 3,677,110 $ 2,024,593
Shares issued in
reinvestment of
dividends and
distributions 14,320 5,666 155,377 60,463
Shares converted
to Class A (36) -0- (397) -0-
Shares redeemed (44,532) (24,584) (485,344) (264,300)
Net increase 306,372 172,629 $ 3,346,746 $ 1,820,756
CLASS C
Shares sold 386,133 371,867 $ 4,233,533 $ 3,967,597
Shares issued in
reinvestment of
dividends and
distributions 28,580 18,527 309,824 197,520
Shares redeemed (132,699) (217,586) (1,439,761) (2,303,514)
Net increase 282,014 172,808 $ 3,103,596 $ 1,861,603
31
NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCE MUNICIPAL INCOME FUND II
_______________________________________________________________________________
SHARES AMOUNT
-------------------------- ------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30,
MICHIGAN PORTFOLIO 1997 1996 1997 1996
- ------------------ ----------- ----------- -------------- -------------
CLASS A
Shares sold 160,589 101,489 $ 1,659,299 $ 1,014,340
Shares issued in
reinvestment of
dividends and
distributions 19,006 25,151 193,980 255,525
Shares converted
from Class B 28 8,229 286 81,522
Shares redeemed (230,129) (40,577) (2,348,441) (412,901)
Net increase(decrease) (50,506) 94,292 $ (494,876) $ 938,486
CLASS B
Shares sold 185,283 159,283 $ 1,897,940 $ 1,598,649
Shares issued in
reinvestment of
dividends and
distributions 13,545 9,868 138,387 100,283
Shares converted
to Class A (28) (8,229) (286) (81,522)
Shares redeemed (46,187) (49,958) (470,069) (499,250)
Net increase 152,613 110,964 $ 1,565,972 $ 1,118,160
CLASS C
Shares sold 176,811 250,006 $ 1,814,237 $ 2,504,024
Shares issued in
reinvestment of
dividends and
distributions 22,260 16,967 227,355 171,824
Shares redeemed (104,698) (163,569) (1,074,731) (1,643,073)
Net increase 94,373 103,404 $ 966,861 $ 1,032,775
SHARES AMOUNT
--------------------------- ------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30,
MINNESOTA PORTFOLIO 1997 1996 1997 1996
- ------------------- ----------- ----------- -------------- -------------
CLASS A
Shares sold 105,934 92,916 $ 1,027,028 $ 881,265
Shares issued in
reinvestment of
dividends and
distributions 12,865 12,846 125,087 122,393
Shares converted
from Class B 11,080 387 107,249 3,685
Shares redeemed (47,164) (30,018) (460,217) (284,383)
Net increase 82,715 76,131 $ 799,147 $ 722,960
CLASS B
Shares sold 167,360 222,829 $ 1,631,577 $ 2,141,082
Shares issued in
reinvestment of
dividends and
distributions 26,821 28,415 260,796 270,706
Shares converted
to Class A (11,080) (387) (107,249) (3,685)
Shares redeemed (194,610) (154,177) (1,893,478) (1,473,158)
Net increase (decrease) (11,509) 96,680 $ (108,354) $ 934,945
CLASS C
Shares sold 167,292 123,688 $ 1,624,602 $ 1,186,392
Shares issued in
reinvestment of
dividends and
distributions 27,887 30,164 271,274 287,651
Shares redeemed (141,329) (238,952) (1,373,367) (2,271,861)
Net increase (decrease) 53,850 (85,100) $ 522,509 $ (797,818)
32
ALLIANCE MUNICIPAL INCOME FUND II
_______________________________________________________________________________
SHARES AMOUNT
-------------------------- ------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30,
NEW JERSEY PORTFOLIO 1997 1996 1997 1996
- -------------------- ------------ ----------- -------------- -------------
CLASS A
Shares sold 469,608 625,486 $ 4,670,579 $ 6,081,158
Shares issued in
reinvestment of
dividends and
distributions 43,821 52,967 434,332 512,440
Shares converted
from Class B 25,334 10,942 250,480 110,519
Shares redeemed (530,123) (295,089) (5,236,167) (2,850,599)
Net increase 8,640 394,306 $ 119,224 $ 3,853,518
CLASS B
Shares sold 612,170 1,079,052 $ 6,103,109 $10,515,892
Shares issued in
reinvestment of
dividends and
distributions 106,709 109,643 1,057,759 1,062,642
Shares converted
to Class A (25,331) (10,942) (250,480) (110,519)
Shares redeemed (943,180) (749,409) (9,338,864) (7,256,786)
Net increase(decrease) (249,632) 428,344 $(2,428,476) $ 4,211,229
CLASS C
Shares sold 374,853 633,743 $ 3,722,963 $ 6,162,975
Shares issued in
reinvestment of
dividends and
distributions 67,711 78,732 671,448 763,028
Shares redeemed (657,468) (591,207) (6,516,928) (5,695,937)
Net increase(decrease) (214,904) 121,268 $(2,122,517) $ 1,230,066
SHARES AMOUNT
-------------------------- ------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30,
OHIO PORTFOLIO 1997 1996 1997 1996
- -------------- ------------ ----------- -------------- -------------
CLASS A
Shares sold 278,619 254,120 $ 2,767,243 $ 2,463,924
Shares issued in
reinvestment of
dividends and
distributions 20,667 20,355 203,289 195,466
Shares converted
from Class B 13,783 6,776 138,710 64,703
Shares redeemed (195,949) (88,508) (1,909,329) (851,889)
Net increase 117,120 192,743 $ 1,199,913 $ 1,872,204
CLASS B
Shares sold 491,863 708,116 $ 4,851,011 $ 6,793,206
Shares issued in
reinvestment of
dividends and
distributions (85,785) 84,542 844,851 813,053
Shares converted
to Class A (13,783) (6,776) (138,710) (64,703)
Shares redeemed (561,173) (437,800) (5,501,504) (4,210,177)
Net increase 2,692 348,082 $ 55,648 $ 3,331,379
CLASS C
Shares sold 173,363 306,053 $ 1,711,532 $ 2,943,537
Shares issued in
reinvestment of
dividends and
distributions 51,701 58,817 509,274 566,008
Shares redeemed (551,175) (553,963) (5,376,920) (5,331,297)
Net decrease (326,111) (189,093) $(3,156,114) $(1,821,752)
33
NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCE MUNICIPAL INCOME FUND II
_______________________________________________________________________________
SHARES AMOUNT
--------------------------- ------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
PENNSYLVANIA SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30,
PORTFOLIO 1997 1996 1997 1996
- -------------- ------------- ----------- -------------- -------------
CLASS A
Shares sold 467,692 1,374,963 $ 4,681,081 $13,527,078
Shares issued in
reinvestment of
dividends and
distributions 84,710 22,540 852,355 220,725
Shares converted
from Class B 63,903 48,579 646,415 472,346
Shares redeemed (344,028) (208,292) (3,466,776) (2,034,747)
Net increase 272,277 1,237,790 $ 2,713,075 $12,185,402
CLASS B
Shares sold 577,688 533,742 $ 5,820,098 $ 5,244,693
Shares issued in
reinvestment of
dividends and
distributions 80,944 81,750 814,188 800,878
Shares converted
to Class A (63,903) (48,579) (646,415) (472,346)
Shares redeemed (771,304) (440,056) (7,750,943) (4,312,987)
Net increase(decrease) (176,575) 126,857 $(1,763,072) $ 1,260,238
CLASS C
Shares sold 288,667 325,151 $ 2,906,593 $ 3,213,975
Shares issued in
reinvestment of
dividends and
distributions 44,989 45,719 452,736 448,507
Shares redeemed (254,416) (511,735) (2,549,432) (5,019,063)
Net increase(decrease) 79,240 (140,865) $ 809,897 $(1,356,581)
SHARES AMOUNT
-------------------------- ------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30,
VIRGINIA PORTFOLIO 1997 1996 1997 1996
- ------------------ ------------ ----------- -------------- -------------
CLASS A
Shares sold 106,838 71,182 $ 1,119,910 $ 740,685
Shares issued in
reinvestment of
dividends and
distributions 12,492 8,689 131,306 90,991
Shares converted
from Class B -0- 103 -0- 1,094
Shares redeemed (27,670) (28,103) (291,141) (294,511)
Net increase 91,660 51,871 $ 960,075 $ 538,259
CLASS B
Shares sold 168,891 226,100 $ 1,787,325 $ 2,369,231
Shares issued in
reinvestment of
dividends and
distributions 19,801 7,632 208,051 79,869
Shares converted
to Class A -0- (103) -0- (1,094)
Shares redeemed (44,556) (33,245) (465,272) (345,773)
Net increase 144,136 200,384 $ 1,530,104 $ 2,102,233
CLASS C
Shares sold 54,662 59,047 $ 578,928 $ 615,683
Shares issued in
reinvestment of
dividends and
distributions 6,070 2,054 63,771 21,491
Shares redeemed (10,711) (12,272) (111,320) (129,249)
Net increase 50,021 48,829 $ 531,379 $ 507,925
34
FINANCIAL HIGHLIGHTS ALLIANCE MUNICIPAL INCOME FUND II
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD
ARIZONA PORTFOLIO
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------
JUNE 1,1994(a)
YEAR ENDED SEPTEMBER 30, TO
------------------------------------- SEPTEMBER 30,
1997 1996 1995 1994
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $10.32 $10.29 $ 9.77 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b) .57(c) .55(c) .56 .20
Net realized and unrealized gain (loss)
on investment transactions .48 .14 .53 (.23)
Net increase (decrease) in net asset
value from operations 1.05 .69 1.09 (.03)
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.57) (.55) (.56) (.20)
Distributions in excess of net
investment income -0- (.03) (.01) -0-
Distributions from net realized gains (.02) (.08) -0- -0-
TOTAL DIVIDENDS AND DISTRIBUTIONS (.59) (.66) (.57) (.20)
Net asset value, end of period $10.78 $10.32 $10.29 $ 9.77
TOTAL RETURN
Total investment return based on
net asset value (d) 10.54% 6.84% 11.56% (.35)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $9,225 $4,409 $2,379 $930
Ratio to average net assets of:
Expenses, net of waivers/reimbursements .78% .78% .78% .78%(e)
Expenses, before waivers/reimbursements 2.71% 3.69% 4.88% 7.71%(e)
Net investment income, net of waivers
/reimbursements 5.42% 5.33% 5.56% 5.82%(e)
Portfolio turnover rate 193% 244% 85% 81%
</TABLE>
<TABLE>
<CAPTION>
CLASS B
----------------------------------------------------
JUNE 1,1994(a)
YEAR ENDED SEPTEMBER 30, TO
------------------------------------- SEPTEMBER 30,
1997 1996 1995 1994
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $10.32 $10.29 $ 9.77 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b) .50(c) .47(c) .49 .18
Net realized and unrealized gain (loss)
on investment transactions .48 .14 .53 (.24)
Net increase (decrease) in net asset
value from operations .98 .61 1.02 (.06)
LESS: DIVIDENDS AND DISTRIBUTIONS
DIVIDENDS FROM NET INVESTMENT INCOME (.50) (.47) (.49) (.17)
Distributions in excess of net
investment income -0- (.03) (.01) -0-
Distributions from net realized gains (.02) (.08) -0- -0-
Total dividends and distributions (.52) (.58) (.50) (.17)
Net asset value, end of period $10.78 $10.32 $10.29 $ 9.77
TOTAL RETURN
Total investment return based on net
asset value (d) 9.80% 6.10% 10.78% (.58)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $6,531 $5,199 $3,166 $1,677
Ratio to average net assets of:
Expenses, net of waivers/reimbursements 1.48% 1.48% 1.48% 1.48%(e)
Expenses, before waivers/reimbursements 3.40% 4.40% 5.58% 8.41%(e)
Net investment income, net of waivers
/reimbursements 4.73% 4.62% 4.89% 5.13%(e)
Portfolio turnover rate 193% 244% 85% 81%
</TABLE>
See footnote summary on page 52.
35
FINANCIAL HIGHLIGHTS (CONTINUED) ALLIANCE MUNICIPAL INCOME FUND II
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD
ARIZONA PORTFOLIO
<TABLE>
<CAPTION>
CLASS C
----------------------------------------------------
JUNE 1,1994(a)
YEAR ENDED SEPTEMBER 30, TO
------------------------------------- SEPTEMBER 30,
1997 1996 1995 1994
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $10.32 $10.30 $ 9.77 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b) .50(c) .47(c) .49 .17
Net realized and unrealized gain (loss)
on investment transactions .48 .13 .54 (.23)
Net increase (decrease) in net asset
value from operations .98 .60 1.03 (.06)
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.50) (.47) (.49) (.17)
Distributions in excess of net
investment income -0- (.03) (.01) -0-
Distributions from net realized gains (.02) (.08) -0- -0-
Total dividends and distributions (.52) (.58) (.50) (.17)
Net asset value, end of period $10.78 $10.32 $10.30 $ 9.77
TOTAL RETURN
Total investment return based on net
asset value (d) 9.80% 6.00% 10.89% (.58)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $1,775 $710 $481 $485
Ratio to average net assets of:
Expenses, net of waivers/reimbursements 1.48% 1.48% 1.48% 1.48%(e)
Expenses, before waivers/reimbursements 3.39% 4.41% 5.58% 8.41%(e)
Net investment income, net of waivers
/reimbursements 4.70% 4.61% 4.90% 4.70%(e)
Portfolio turnover rate 193% 244% 85% 81%
</TABLE>
See footnote summary on page 52.
36
ALLIANCE MUNICIPAL INCOME FUND II
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD
FLORIDA PORTFOLIO
<TABLE>
<CAPTION>
CLASS A
-----------------------------------------------------------------
JUNE 25,1993(a)
YEAR ENDED SEPTEMBER 30, TO
-------------------------------------------------- SEPTEMBER 30,
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.73 $ 9.58 $ 8.89 $10.25 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b) .55(c) .54(c) .55 .55 .16
Net realized and unrealized gain (loss)
on investment transactions .41 .16 .69 (1.35) .25
Net increase (decrease) in net asset
value from operations .96 .70 1.24 (.80) .41
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.55) (.54) (.55) (.55) (.16)
Distributions in excess of net
investment income -0- (.01) -0- -0- -0-
Distributions from net realized gains -0- -0- -0- (.01) -0-
Total dividends and distributions (.55) (.55) (.55) (.56) (.16)
Net asset value, end of period $10.14 $ 9.73 $ 9.58 $ 8.89 $10.25
TOTAL RETURN
Total investment return based on
net asset value (d) 10.14% 7.45% 14.44% (8.03)% 4.10%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $17,516 $14,297 $11,956 $8,227 $4,145
Ratio to average net assets of:
Expenses, net of waivers/reimbursements .73% .73% .73% .38% -0-%(e)
Expenses, before waivers/reimbursements 1.35% 1.33% 1.33% 1.27% 1.30%(e)
Net investment income, net of waivers
/reimbursements 5.58% 5.52% 5.91% 5.70% 5.44%(e)
Portfolio turnover rate 204% 237% 146% 185% 82%
</TABLE>
<TABLE>
<CAPTION>
CLASS B
-----------------------------------------------------------------
JUNE 25,1993(a)
YEAR ENDED SEPTEMBER 30, TO
-------------------------------------------------- SEPTEMBER 30,
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.74 $ 9.58 $ 8.89 $10.25 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b) .48(c) .47(c) .47 .48 .14
Net realized and unrealized gain (loss)
on investment transactions .40 .17 .70 (1.35) .25
Net increase (decrease) in net asset
value from operations .88 .64 1.17 (.87) .39
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.48) (.47) (.47) (.48) (.14)
Distributions in excess of net
investment income -0- (.01) (.01) -0- -0-
Distributions from net realized gains -0- -0- -0- (.01) -0-
Total dividends and distributions (.48) (.48) (.48) (.49) (.14)
Net asset value, end of period $10.14 $ 9.74 $ 9.58 $ 8.89 $10.25
TOTAL RETURN
Total investment return based on net
asset value (d) 9.24% 6.78% 13.56% (8.72)% 3.91%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $24,820 $22,235 $20,660 $18,048 $9,588
Ratio to average net assets of:
Expenses, net of waivers/reimbursements 1.43% 1.43% 1.42% 1.08% .61%(e)
Expenses, before waivers/reimbursements 2.05% 2.03% 2.03% 1.98% 2.00%(e)
Net investment income, net of waivers
/reimbursements 4.87% 4.81% 5.22% 4.99% 4.74%(e)
Portfolio turnover rate 204% 237% 146% 185% 82%
</TABLE>
See footnote summary on page 52.
37
FINANCIAL HIGHLIGHTS (CONTINUED) ALLIANCE MUNICIPAL INCOME FUND II
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD
FLORIDA PORTFOLIO
<TABLE>
<CAPTION>
CLASS C
-----------------------------------------------------------------
JUNE 25,1993(a)
YEAR ENDED SEPTEMBER 30, TO
-------------------------------------------------- SEPTEMBER 30,
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $9.74 $9.58 $8.89 $10.25 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b) .49(c) .47(c) .47 .48 .14
Net realized and unrealized gain (loss)
on investment transactions .39 .17 .70 (1.35) .25
Net increase (decrease) in net asset
value from operations .88 .64 1.17 (.87) .39
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.48) (.47) (.47) (.48) (.14)
Distributions in excess of net
investment income -0- (.01) (.01) -0- -0-
Distributions from net realized gains -0- -0- -0- (.01) -0-
Total dividends and distributions (.48) (.48) (.48) (.49) (.14)
Net asset value, end of period $10.14 $9.74 $9.58 $8.89 $10.25
TOTAL RETURN
Total investment return based on
net asset value (d) 9.23% 6.78% 13.56% (8.72)% 3.91%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $25,722 $30,121 $30,787 $42,405 $28,249
Ratio to average net assets of:
Expenses, net of waivers/reimbursements 1.43% 1.43% 1.42% 1.08% .61%(e)
Expenses, before waivers/reimbursements 2.03% 2.02% 2.03% 1.97% 2.00%(e)
Net investment income, net of waivers
/reimbursements 4.89% 4.81% 5.27% 4.97% 4.74%(e)
Portfolio turnover rate 204% 237% 146% 185% 82%
</TABLE>
See footnote summary on page 52.
38
ALLIANCE MUNICIPAL INCOME FUND II
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD
MASSACHUSETTS PORTFOLIO
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------
MAR. 29,1994(a)
YEAR ENDED SEPTEMBER 30, TO
------------------------------------- SEPTEMBER 30,
1997 1996 1995 1994
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $10.85 $10.50 $10.12 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b) .58(c) .60(c) .58 .31
Net realized and unrealized gain on
investment transactions .57 .44 .41 .11
Net increase in net asset value
from operations 1.15 1.04 .99 .42
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.58) (.59) (.58) (.30)
Distributions in excess of net
investment income (.03) (.02) (.03) -0-
Distributions from net realized gains (.20) (.08) -0- -0-
Total dividends and distributions (.81) (.69) (.61) (.30)
Net asset value, end of period $11.19 $10.85 $10.50 $10.12
TOTAL RETURN
Total investment return based on net
asset value (d) 11.14% 10.25% 10.19% 4.14%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $9,461 $3,211 $1,337 $565
Ratio to average net assets of:
Expenses, net of waivers/reimbursements .72% .62% .60% .60%(e)
Expenses, before waivers/reimbursements 2.40% 3.15% 6.44% 13.20%(e)
Net investment income, net of waivers
/reimbursements 5.40% 5.62% 5.67% 5.98%(e)
Portfolio turnover rate 134% 246% 155% 146%
</TABLE>
<TABLE>
<CAPTION>
CLASS B
----------------------------------------------------
MAR. 29,1994(a)
YEAR ENDED SEPTEMBER 30, TO
------------------------------------- SEPTEMBER 30,
1997 1996 1995 1994
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $10.84 $10.49 $10.12 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b) .51(c) .52(c) .52 .27
Net realized and unrealized gain on
investment transactions .58 .45 .39 .11
Net increase in net asset value from
operations 1.09 .97 .91 .38
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.51) (.52) (.52) (.26)
Distributions in excess of net
investment income (.03) (.02) (.02) -0-
Distributions from net realized gains (.20) (.08) -0- -0-
Total dividends and distributions (.74) (.62) (.54) (.26)
Net asset value, end of period $11.19 $10.84 $10.49 $10.12
TOTAL RETURN
Total investment return based on net
asset value (d) 10.52% 9.52% 9.32% 3.78%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $7,230 $3,683 $1,754 $725
Ratio to average net assets of:
Expenses, net of waivers/reimbursements 1.42% 1.32% 1.30% 1.30%(e)
Expenses, before waivers/reimbursements 3.07% 3.85% 7.14% 13.90%(e)
Net investment income, net of waivers
/reimbursements 4.73% 4.93% 4.90% 5.13%(e)
Portfolio turnover rate 134% 246% 155% 146%
</TABLE>
See footnote summary on page 52.
39
FINANCIAL HIGHLIGHTS (CONTINUED) ALLIANCE MUNICIPAL INCOME FUND II
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD
MASSACHUSETTS PORTFOLIO
<TABLE>
<CAPTION>
CLASS C
----------------------------------------------------
MAR. 29,1994(a)
YEAR ENDED SEPTEMBER 30, TO
------------------------------------- SEPTEMBER 30,
1997 1996 1995 1994
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $10.84 $10.49 $10.12 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b) .51(c) .52(c) .52 .25
Net realized and unrealized gain on
investment transactions .58 .45 .39 .13
Net increase in net asset value from
operations 1.09 .97 .91 .38
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.51) (.52) (.52) (.26)
Distributions in excess of net
investment income (.03) (.02) (.02) -0-
Distributions from net realized gains (.20) (.08) -0- -0-
Total dividends and distributions (.74) (.62) (.54) (.26)
Net asset value, end of period $11.19 $10.84 $10.49 $10.12
TOTAL RETURN
Total investment return based on net
asset value (d) 10.52% 9.52% 9.32% 3.78%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $7,815 $4,514 $2,556 $774
Ratio to average net assets of:
Expenses, net of waivers/reimbursements 1.42% 1.31% 1.30% 1.30%(e)
Expenses, before waivers/reimbursements 3.09% 3.84% 7.14% 13.90%(e)
Net investment income, net of waivers
/reimbursements 4.75% 4.88% 4.85% 4.00%(e)
Portfolio turnover rate 134% 246% 155% 146%
</TABLE>
See footnote summary on page 52.
40
ALLIANCE MUNICIPAL INCOME FUND II
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD
MICHIGAN PORTFOLIO
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------
FEBRUARY 25,
YEAR ENDED SEPTEMBER 30, 1994(a) TO
------------------------------------- SEPTEMBER 30,
1997 1996 1995 1994
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $10.12 $10.10 $ 9.35 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b) .53(c) .52(c) .52 .33
Net realized and unrealized gain (loss)
on investment transactions .55 .22 .78 (.65)
Net increase (decrease) in net asset
value from operations 1.08 .74 1.30 (.32)
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.53) (.52) (.52) (.33)
Distributions in excess of net
investment income (.02) (.03) (.03) -0-
Distributions from net realized gains (.13) (.17) -0- -0-
Total dividends and distributions (.68) (.72) (.55) (.33)
Net asset value, end of period $10.52 $10.12 $10.10 $ 9.35
TOTAL RETURN
Total investment return based on net
asset value (d) 11.05% 7.54% 14.40% (3.24)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $5,836 $6,123 $5,158 $2,473
Ratio to average net assets of:
Expenses, net of waivers/reimbursements .96% .96% 1.36% .93%(e)
Expenses, before waivers/reimbursements 2.46% 2.77% 3.43% 3.97%(e)
Net investment income, net of waivers
/reimbursements 5.24% 5.21% 5.27% 5.83%(e)
Portfolio turnover rate 161% 242% 151% 222%
</TABLE>
<TABLE>
<CAPTION>
CLASS B
----------------------------------------------------
FEBRUARY 25,
YEAR ENDED SEPTEMBER 30, 1994(a) TO
------------------------------------- SEPTEMBER 30,
1997 1996 1995 1994
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $10.12 $10.10 $ 9.35 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b) .46(c) .45(c) .45 .29
Net realized and unrealized gain (loss)
on investment transactions .55 .22 .78 (.65)
Net increase (decrease) in net asset
value from operations 1.01 .67 1.23 (.36)
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.46) (.45) (.45) (.29)
Distributions in excess of net
investment income (.02) (.03) (.03) -0-
Distributions from net realized gains (.13) (.17) -0- -0-
Total dividends and distributions (.61) (.65) (.48) (.29)
Net asset value, end of period $10.52 $10.12 $10.10 $ 9.35
TOTAL RETURN
Total investment return based on net
asset value (d) 10.30% 6.80% 13.58% (3.65)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $5,300 $3,553 $2,424 $1,722
Ratio to average net assets of:
Expenses, net of waivers/reimbursements 1.66% 1.66% 2.06% 1.63%(e)
Expenses, before waivers/reimbursements 3.23% 3.48% 4.12% 4.67%(e)
Net investment income, net of waivers
/reimbursements 4.53% 4.51% 4.57% 4.93%(e)
Portfolio turnover rate 161% 242% 151% 222%
</TABLE>
See footnote summary on page 52.
41
FINANCIAL HIGHLIGHTS (CONTINUED) ALLIANCE MUNICIPAL INCOME FUND II
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD
MICHIGAN PORTFOLIO
<TABLE>
<CAPTION>
CLASS C
----------------------------------------------------
FEBRUARY 25,
YEAR ENDED SEPTEMBER 30, 1994(a) TO
------------------------------------- SEPTEMBER 30,
1997 1996 1995 1994
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $10.12 $10.10 $ 9.35 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b) .46(c) .45(c) .45 .29
Net realized and unrealized gain (loss)
on investment transactions .55 .22 .78 (.65)
Net increase (decrease) in net asset
value from operations 1.01 .67 1.23 (.36)
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.46) (.45) (.45) (.29)
Distributions in excess of net
investment income (.02) (.03) (.03) -0-
Distributions from net realized gains (.13) (.17) -0- -0-
Total dividends and distributions (.61) (.65) (.48) (.29)
Net asset value, end of period $10.52 $10.12 $10.10 $ 9.35
TOTAL RETURN
Total investment return based on net
asset value (d) 10.30% 6.80% 13.58% (3.65)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $5,089 $3,940 $2,886 $2,778
Ratio to average net assets of:
Expenses, net of waivers/reimbursements 1.66% 1.66% 2.06% 1.63%(e)
Expenses, before waivers/reimbursements 3.20% 3.48% 4.13% 4.67%(e)
Net investment income, net of waivers
/reimbursements 4.55% 4.50% 4.69% 4.92%(e)
Portfolio turnover rate 161% 242% 151% 222%
</TABLE>
See footnote summary on page 52.
42
ALLIANCE MUNICIPAL INCOME FUND II
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD
MINNESOTA PORTFOLIO
<TABLE>
<CAPTION>
CLASS A
-----------------------------------------------------------------
JUNE 25,1993(a)
YEAR ENDED SEPTEMBER 30, TO
-------------------------------------------------- SEPTEMBER 30,
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $9.58 $9.49 $9.19 $10.28 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b) .53(c) .53(c) .53 .55 .15
Net realized and unrealized gain (loss)
on investment transactions .39 .11 .32 (1.09) .28
Net increase (decrease) in net asset
value from operations .92 .64 .85 (.54) .43
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.53) (.53) (.53) (.55) (.15)
Distributions in excess of net
investment income -0- (.02) (.02) -0- -0-
Total dividends and distributions (.53) (.55) (.55) (.55) (.15)
Net asset value, end of period $9.97 $9.58 $9.49 $ 9.19 $10.28
TOTAL RETURN
Total investment return based on
net asset value (d) 9.93% 6.95% 9.63% (5.35)% 4.34%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $4,120 $3,165 $2,414 $2,125 $994
Ratio to average net assets of:
Expenses, net of waivers/reimbursements .75% .72% .71% .09% -0-%(e)
Expenses, before waivers/reimbursements 2.22% 2.19% 2.30% 2.12% 1.89%(E)
Net investment income, net of waivers
/reimbursements 5.44% 5.54% 5.71% 5.71% 5.20%(e)
Portfolio turnover rate 131% 195% 117% 143% 61%
</TABLE>
<TABLE>
<CAPTION>
CLASS B
-----------------------------------------------------------------
JUNE 25,1993(a)
YEAR ENDED SEPTEMBER 30, TO
-------------------------------------------------- SEPTEMBER 30,
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $9.58 $9.49 $9.18 $10.28 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b) .46(c) .46(c) .46 .48 .13
Net realized and unrealized gain (loss)
on investment transactions .39 .11 .33 (1.10) .28
Net increase (decrease) in net asset
value from operations .85 .57 .79 (.62) .41
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.46) (.46) (.46) (.48) (.13)
Distributions in excess of net
investment income -0- (.02) (.02) -0- -0-
Total dividends and distributions (.46) (.48) (.48) (.48) (.13)
Net asset value, end of period $9.97 $9.58 $9.49 $ 9.18 $10.28
TOTAL RETURN
Total investment return based on net
asset value (d) 9.13% 6.15% 8.90% (6.15)% 4.16%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $8,517 $8,291 $7,299 $6,150 $2,665
Ratio to average net assets of:
Expenses, net of waivers/reimbursements 1.46% 1.42% 1.42% .80% .43%(e)
Expenses, before waivers/reimbursements 2.91% 2.89% 3.02% 2.83% 2.59%(E)
Net investment income, net of waivers
/reimbursements 4.75% 4.82% 4.97% 5.00% 4.50%(e)
Portfolio turnover rate 131% 195% 117% 143% 61%
</TABLE>
See footnote summary on page 52.
43
FINANCIAL HIGHLIGHTS (CONTINUED) ALLIANCE MUNICIPAL INCOME FUND II
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD
MINNESOTA PORTFOLIO
<TABLE>
<CAPTION>
CLASS C
-----------------------------------------------------------------
JUNE 25,1993(a)
YEAR ENDED SEPTEMBER 30, TO
-------------------------------------------------- SEPTEMBER 30,
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $9.58 $9.50 $9.19 $10.27 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b) .46(c) .46(c) .46 .48 .13
Net realized and unrealized gain (loss)
on investment transactions .39 .10 .33 (1.08) .27
Net increase (decrease) in net asset
value from operations .85 .56 .79 (.60) .40
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.46) (.46) (.46) (.48) (.13)
Distributions in excess of net
investment income -0- (.02) (.02) -0- -0-
Total dividends and distributions (.46) (.48) (.48) (.48) (.13)
Net asset value, end of period $9.97 $9.58 $9.50 $ 9.19 $10.27
TOTAL RETURN
Total investment return based on
net asset value (d) 9.13% 6.03% 8.89% (5.95)% 4.06%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $7,358 $6,553 $7,305 $9,489 $6,697
Ratio to average net assets of:
Expenses, net of waivers/reimbursements 1.45% 1.41% 1.41% .79% .43%(e)
Expenses, before waivers/reimbursements 2.89% 2.88% 3.00% 2.82% 2.59%(e)
Net investment income, net of waivers
/reimbursements 4.76% 4.82% 5.05% 4.90% 4.50%(e)
Portfolio turnover rate 131% 195% 117% 143% 61%
</TABLE>
See footnote summary on page 52.
44
ALLIANCE MUNICIPAL INCOME FUND II
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD
NEW JERSEY PORTFOLIO
<TABLE>
<CAPTION>
CLASS A
-----------------------------------------------------------------
JUNE 25,1993(a)
YEAR ENDED SEPTEMBER 30, TO
-------------------------------------------------- SEPTEMBER 30,
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.72 $9.65 $9.07 $10.29 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b) .51(c) .51(c) .54 .55 .15
Net realized and unrealized gain (loss)
on investment transactions .44 .11 .59 (1.22) .29
Net increase (decrease) in net asset
value from operations .95 .62 1.13 (.67) .44
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.51) (.51) (.54) (.55) (.15)
Distributions in excess of net
investment income (.01) (.04) (.01) -0- -0-
Total dividends and distributions (.52) (.55) (.55) (.55) (.15)
Net asset value, end of period $10.15 $9.72 $9.65 $ 9.07 $10.29
TOTAL RETURN
Total investment return based on
net asset value (d) 10.01% 6.57% 12.91% (6.67)% 4.44%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $16,309 $15,520 $11,612 $9,257 $6,679
Ratio to average net assets of:
Expenses, net of waivers/reimbursements .82% .82% .82% .20% -0-%(e)
Expenses, before waivers/reimbursements 1.34% 1.35% 1.35% 1.33% 1.29%(e)
Net investment income, net of waivers
/reimbursements 5.16% 5.26% 5.73% 5.65% 5.37%(e)
Portfolio turnover rate 61% 132% 86% 171% 47%
</TABLE>
<TABLE>
<CAPTION>
CLASS B
-----------------------------------------------------------------
JUNE 25,1993(a)
YEAR ENDED SEPTEMBER 30, TO
-------------------------------------------------- SEPTEMBER 30,
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.72 $9.66 $9.07 $10.28 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b) .44(c) .44(c) .47 .48 .13
Net realized and unrealized gain (loss)
on investment transactions .45 .10 .60 (1.21) .28
Net increase (decrease) in net asset
value from operations .89 .54 1.07 (.73) .41
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.44) (.45) (.47) (.48) (.13)
Distributions in excess of net
investment income (.01) (.03) (.01) -0- -0-
Total dividends and distributions (.45) (.48) (.48) (.48) (.13)
Net asset value, end of period $10.16 $9.72 $9.66 $ 9.07 $10.28
TOTAL RETURN
Total investment return based on net
asset value (d) 9.32% 5.66% 12.15% (7.28)% 4.16%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $38,308 $39,099 $34,695 $30,459 $15,637
Ratio to average net assets of:
Expenses, net of waivers/reimbursements 1.53% 1.53% 1.53% .91% .63%(e)
Expenses, before waivers/reimbursements 2.04% 2.05% 2.06% 2.03% 1.99%(E)
Net investment income, net of waivers
/reimbursements 4.45% 4.56% 5.03% 4.96% 4.67%(e)
Portfolio turnover rate 61% 132% 86% 171% 47%
</TABLE>
See footnote summary on page 52.
45
FINANCIAL HIGHLIGHTS (CONTINUED) ALLIANCE MUNICIPAL INCOME FUND II
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD
NEW JERSEY PORTFOLIO
<TABLE>
<CAPTION>
CLASS C
-----------------------------------------------------------------
JUNE 25,1993(a)
YEAR ENDED SEPTEMBER 30, TO
-------------------------------------------------- SEPTEMBER 30,
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.72 $9.66 $9.07 $10.28 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b) .44(c) .44(c) .47 .48 .13
Net realized and unrealized gain (loss)
on investment transactions .45 .10 .60 (1.21) .28
Net increase (decrease) in net asset
value from operations .89 .54 1.07 (.73) .41
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.44) (.45) (.47) (.48) (.13)
Distributions in excess of net
investment income (.01) (.03) (.01) -0- -0-
Total dividends and distributions (.45) (.48) (.48) (.48) (.13)
Net asset value, end of period $10.16 $9.72 $9.66 $ 9.07 $10.28
TOTAL RETURN
Total investment return based on net
asset value (d) 9.32% 5.66% 12.14% (7.28)% 4.16%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $21,404 $22,579 $21,255 $26,472 $21,193
Ratio to average net assets of:
Expenses, net of waivers/reimbursements 1.52% 1.52% 1.52% .90% .63%(e)
Expenses, before waivers/reimbursements 2.03% 2.04% 2.06% 2.02% 1.99%(e)
Net investment income, net of waivers
/reimbursements 4.47% 4.56% 5.09% 4.93% 4.67%(e)
Portfolio turnover rate 61% 132% 86% 171% 47%
</TABLE>
See footnote summary on page 52.
46
ALLIANCE MUNICIPAL INCOME FUND II
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD
OHIO PORTFOLIO
<TABLE>
<CAPTION>
CLASS A
-----------------------------------------------------------------
JUNE 25,1993(a)
YEAR ENDED SEPTEMBER 30, TO
-------------------------------------------------- SEPTEMBER 30,
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.61 $9.53 $9.06 $10.26 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b) .54(c) .52(c) .54 .55 .15
Net realized and unrealized gain (loss)
on investment transactions .54 .11 .48 (1.19) .26
Net increase (decrease) in net asset
value from operations 1.08 .63 1.02 (.64) .41
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.53) (.53) (.54) (.55) (.15)
Distributions in excess of net
investment income -0- (.02) (.01) -0- -0-
Distributions from net realized gains -0- -0- -0- (.01) -0-
Total dividends and distributions (.53) (.55) (.55) (.56) (.15)
Net asset value, end of period $10.16 $9.61 $9.53 $ 9.06 $10.26
TOTAL RETURN
Total investment return based on
net asset value (d) 11.60% 6.72% 11.63% (6.44)% 4.15%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $7,596 $6,054 $4,170 $2,810 $1,050
Ratio to average net assets of:
Expenses, net of waivers/reimbursements .75% .75% .75% .04% -0-%(e)
Expenses, before waivers/reimbursements 1.52% 1.48% 1.51% 1.42% 1.32%(e)
Net investment income, net of waivers
/reimbursements 5.49% 5.47% 5.74% 5.67% 5.30%(e)
Portfolio turnover rate 104% 182% 108% 161% 55%
</TABLE>
<TABLE>
<CAPTION>
CLASS B
-----------------------------------------------------------------
JUNE 25,1993(a)
YEAR ENDED SEPTEMBER 30, TO
-------------------------------------------------- SEPTEMBER 30,
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.61 $9.54 $9.06 $10.26 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b) .48(c) .46(c) .47 .48 .13
Net realized and unrealized gain (loss)
on investment transactions .53 .09 .49 (1.19) .26
Net increase (decrease) in net asset
value from operations 1.01 .55 .96 (.71) .39
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.46) (.46) (.47) (.48) (.13)
Distributions in excess of net
investment income -0- (.02) (.01) -0- -0-
Distributions from net realized gains -0- -0- -0- (.01) -0-
Total dividends and distributions (.46) (.48) (.48) (.49) (.13)
Net asset value, end of period $10.16 $9.61 $9.54 $ 9.06 $10.26
TOTAL RETURN
Total investment return based on
net asset value (d) 10.80% 5.82% 10.88% (7.13)% 3.97%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $26,821 $25,334 $21,821 $20,267 $8,952
Ratio to average net assets of:
Expenses, net of waivers/reimbursements 1.46% 1.46% 1.46% .74% .17%(e)
Expenses, before waivers/reimpursements 2.22% 2.18% 2.21% 2.13% 2.02%(E)
Net investment income, net of waivers
/reimbursements 4.81% 4.77% 5.08% 4.95% 4.60%(e)
Portfolio turnover rate 104% 182% 108% 161% 55%
</TABLE>
See footnote summary on page 52.
47
FINANCIAL HIGHLIGHTS (CONTINUED) ALLIANCE MUNICIPAL INCOME FUND II
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD
OHIO PORTFOLIO
<TABLE>
<CAPTION>
CLASS C
-----------------------------------------------------------------
JUNE 25,1993(a)
YEAR ENDED SEPTEMBER 30, TO
-------------------------------------------------- SEPTEMBER 30,
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.61 $9.54 $9.06 $10.26 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b) .47(c) .46(c) .47 .48 .13
Net realized and unrealized gain (loss)
on investment transactions .54 .09 .49 (1.19) .26
Net increase (decrease) in net asset
value from operations 1.01 .55 .96 (.71) .39
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.46) (.46) (.47) (.48) (.13)
Distributions in excess of net
investment income -0- (.02) (.01) -0- -0-
Distributions from net realized gains -0- -0- -0- (.01) -0-
Total dividends and distributions (.46) (.48) (.48) (.49) (.13)
Net asset value, end of period $10.16 $9.61 $9.54 $ 9.06 $10.26
TOTAL RETURN
Total investment return based on
net asset value (d) 10.80% 5.82% 10.88% (7.13)% 3.97%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $14,878 $17,203 $18,874 $26,294 $19,894
Ratio to average net assets of:
Expenses, net of waivers/reimbursements 1.45% 1.45% 1.45% .74% .17%(e)
Expenses, before waivers/reimbursements 2.20% 2.16% 2.20% 2.12% 2.02%(e)
Net investment income, net of waivers
/reimbursements 4.81% 4.78% 5.14% 4.89% 4.60%(e)
Portfolio turnover rate 104% 182% 108% 161% 55%
</TABLE>
See footnote summary on page 52.
48
ALLIANCE MUNICIPAL INCOME FUND II
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD
PENNSYLVANIA PORTFOLIO
<TABLE>
<CAPTION>
CLASS A
-----------------------------------------------------------------
JUNE 25,1993(a)
YEAR ENDED SEPTEMBER 30, TO
-------------------------------------------------- SEPTEMBER 30,
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.85 $9.64 $9.18 $10.25 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b) .55(c) .49(c) .54 .56 .16
Net realized and unrealized gain (loss)
on investment transactions .49 .28 .48 (1.06) .25
Net increase (decrease) in net asset
value from operations 1.04 .77 1.02 (.50) .41
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.55) (.53) (.54) (.56) (.16)
Distributions in excess of net
investment income (.01) (.03) (.02) -0- -0-
Distributions from net realized gains -0- -0- -0- (.01) -0-
Total dividends and distributions (.56) (.56) (.56) (.57) (.16)
Net asset value, end of period $10.33 $9.85 $9.64 $ 9.18 $10.25
TOTAL RETURN
Total investment return based on net
asset value (d) 10.85% 8.17% 11.53% (5.02)% 4.12%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $24,948 $21,104 $8,721 $7,149 $4,170
Ratio to average net assets of:
Expenses, net of waivers/reimbursements .95% 1.00% 1.00% .45% -0-%(e)
Expenses, before waivers/reimbursements 1.40% 1.45% 1.47% 1.46% 1.31%(e)
Net investment income, net of waivers
/reimbursements 5.44% 5.40% 5.78% 5.73% 5.67%(e)
Portfolio turnover rate 85% 185% 114% 156% 75%
</TABLE>
<TABLE>
<CAPTION>
CLASS B
-----------------------------------------------------------------
JUNE 25,1993(a)
YEAR ENDED SEPTEMBER 30, TO
-------------------------------------------------- SEPTEMBER 30,
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.86 $9.65 $9.18 $10.25 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b) .47(c) .46(c) .47 .49 .14
Net realized and unrealized gain (loss)
on investment transactions .49 .24 .49 (1.06) .25
Net increase (decrease) in net asset
value from operations .96 .70 .96 (.57) .39
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.47) (.46) (.47) (.49) (.14)
Distributions in excess of net
investment income (.02) (.03) (.02) -0- -0-
Distributions from net realized gains -0- -0- -0- (.01) -0-
Total dividends and distributions (.49) (.49) (.49) (.50) (.14)
Net asset value, end of period $10.33 $9.86 $9.65 $ 9.18 $10.25
TOTAL RETURN
Total investment return based on net
asset value (d) 9.95% 7.38% 10.78% (5.72)% 3.94%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $30,078 $30,440 $28,559 $25,637 $12,173
Ratio to average net assets of:
Expenses, net of waivers/reimbursements 1.66% 1.71% 1.71% 1.16% .40%(e)
Expenses, before waivers/reimbursements 2.09% 2.15% 2.17% 2.16% 2.01%(e)
Net investment income, net of waivers
/reimbursements 4.72% 4.69% 5.09% 5.01% 4.97%(e)
Portfolio turnover rate 85% 185% 114% 156% 75%
</TABLE>
See footnote summary on page 52.
49
FINANCIAL HIGHLIGHTS (CONTINUED) ALLIANCE MUNICIPAL INCOME FUND II
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD
PENNSYLVANIA PORTFOLIO
<TABLE>
<CAPTION>
CLASS C
-----------------------------------------------------------------
JUNE 25,1993(a)
YEAR ENDED SEPTEMBER 30, TO
-------------------------------------------------- SEPTEMBER 30,
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.86 $9.65 $9.18 $10.24 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b) .47(c) .46(c) .47 .49 .14
Net realized and unrealized gain (loss)
on investment transactions .49 .24 .49 (1.05) .24
Net increase (decrease) in net asset
value from operations .96 .70 .96 (.56) .38
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.47) (.46) (.47) (.49) (.14)
Distributions in excess of net
investment income (.02) (.03) (.02) -0- -0-
Distributions from net realized gains -0- -0- -0- (.01) -0-
Total dividends and distributions (.49) (.49) (.49) (.50) (.14)
Net asset value, end of period $10.33 $9.86 $9.65 $ 9.18 $10.24
TOTAL RETURN
Total investment return based on net
asset value (d) 9.95% 7.37% 10.78% (5.63)% 3.84%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $15,486 $13,996 $15,052 $18,198 $13,541
Ratio to average net assets of:
Expenses, net of waivers/reimbursements 1.65% 1.70% 1.70% 1.15% .40%(e)
Expenses, before waivers/reimbursements 2.10% 2.14% 2.17% 2.15% 2.01%(e)
Net investment income, net of waivers
/reimbursements 4.73% 4.69% 5.09% 4.99% 4.97%(e)
Portfolio turnover rate 85% 185% 114% 156% 75%
</TABLE>
See footnote summary on page 52.
50
ALLIANCE MUNICIPAL INCOME FUND II
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD
VIRGINIA PORTFOLIO
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------
APR. 29, 1994(a)
YEAR ENDED SEPTEMBER 30, TO
------------------------------------- SEPTEMBER 30,
1997 1996 1995 1994
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $10.58 $10.29 $ 9.69 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b) .57(c) .57(c) .56 .24
Net realized and unrealized gain (loss)
on investment transactions .57 .37 .61 (.31)
Net increase (decrease) in net asset
value from operations 1.14 .94 1.17 (.07)
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.57) (.57) (.56) (.24)
Distributions in excess of net
investment income -0- -0- (.01) -0-
Distributions from net realized gains (.25) (.08) -0- -0-
Total dividends and distributions (.82) (.65) (.57) (.24)
Net asset value, end of period $10.90 $10.58 $10.29 $ 9.69
TOTAL RETURN
Total investment return based on net
asset value (d) 11.32% 9.39% 12.46% (.71)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $3,530 $2,455 $1,855 $1,249
Ratio to average net assets of:
Expenses, net of waivers/reimbursements .67% .67% .67% .57%(e)
Expenses, before waivers/reimbursements 3.57% 5.18% 8.96% 12.29%(e)
Net investment income, net of waivers
/reimbursements 5.39% 5.39% 5.59% 5.62%(e)
Portfolio turnover rate 258% 298% 128% 65%
</TABLE>
<TABLE>
<CAPTION>
CLASS B
----------------------------------------------------
APR. 29, 1994(a)
YEAR ENDED SEPTEMBER 30, TO
------------------------------------- SEPTEMBER 30,
1997 1996 1995 1994
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $10.57 $10.29 $ 9.69 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b) .50(c) .50(c) .49 .22
Net realized and unrealized gain (loss)
on investment transactions .58 .36 .61 (.32)
Net increase (decrease) in net asset
value from operations 1.08 .86 1.10 (.10)
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.50) (.50) (.49) (.21)
Distributions in excess of net
investment income -0- -0- (.01) -0-
Distributions from net realized gains (.25) (.08) -0- -0-
Total dividends and distributions (.75) (.58) (.50) (.21)
Net asset value, end of period $10.90 $10.57 $10.29 $ 9.69
TOTAL RETURN
Total investment return based on
net asset value (d) 10.70% 8.57% 11.67% (1.01)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $5,020 $3,345 $1,193 $224
Ratio to average net assets of:
Expenses, net of waivers/reimbursements 1.37% 1.37% 1.37% 1.27%(e)
Expenses, before waivers/reimbursements 4.29% 5.88% 9.66% 12.99%(e)
Net investment income, net of waivers
/reimbursements 4.68% 4.70% 4.80% 4.97%(e)
Portfolio turnover rate 258% 298% 128% 65%
</TABLE>
See footnote summary on page 52.
51
FINANCIAL HIGHLIGHTS (CONTINUED) ALLIANCE MUNICIPAL INCOME FUND II
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD
VIRGINIA PORTFOLIO
<TABLE>
<CAPTION>
CLASS C
----------------------------------------------------
APR. 29, 1994(a)
YEAR ENDED SEPTEMBER 30, TO
------------------------------------- SEPTEMBER 30,
1997 1996 1995 1994
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $10.57 $10.29 $ 9.70 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b) .50(c) .50(c) .49 .21
Net realized and unrealized gain (loss)
on investment transactions .58 .36 .60 (.30)
Net increase (decrease) in net asset
value from operations 1.08 .86 1.09 (.09)
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.50) (.50) (.49) (.21)
Distributions in excess of net
investment income -0- -0- (.01) -0-
Distributions from net realized gains (.25) (.08) -0- -0-
Total dividends and distributions (.75) (.58) (.50) (.21)
Net asset value, end of period $10.90 $10.57 $10.29 $ 9.70
TOTAL RETURN
Total investment return based on net
asset value (d) 10.70% 8.58% 11.56% (.91)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $1,207 $642 $122 $43
Ratio to average net assets of:
Expenses, net of waivers/reimbursements 1.37% 1.37% 1.37% 1.27%(e)
Expenses, before waivers/reimbursements 4.25% 5.88% 9.66% 12.99%(e)
Net investment income, net of waivers
/reimbursements 4.66% 4.73% 4.81% 4.67%(e)
Portfolio turnover rate 258% 298% 128% 65%
</TABLE>
(a) Commencement of operations.
(b) Net of fee waived and expenses reimbursed by the Adviser.
(c) Based on average shares.
(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.
52
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, 1997, and the related statements of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the periods
indicated therein. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
September 30, 1997, by correspondence
with the custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective portfolios constituting the Alliance Municipal Income Fund II
at September 30, 1997, the results of their operations for the year then ended,
the changes in their net assets for each of the two years in the period then
ended, and the financial highlights for each of the indicated periods, in
conformity with generally accepted accounting principles.
New York, New York
November 4, 1997
FEDERAL TAX INFORMATION (UNAUDITED)
_______________________________________________________________________________
In accordance with Federal tax law, the following table represents each
portfolio's designation of "exempt-interest dividends" and long-term capital
gain distributions paid during the fiscal year ended September 30, 1997.
As required by Federal tax law rules, shareholders will receive notification of
their portion of each portfolio's taxable ordinary dividends (if any) and
capital gain distributions (if any) paid for the 1997 calendar year on Form
1099-DIV which will be mailed by January 31, 1998.
EXEMPT-INTEREST LONG-TERM CAPITAL
PORTFOLIO DIVIDENDS GAIN DISTRIBUTIONS
- --------- --------------- ------------------
Arizona 703,532 26,988
Florida 3,303,035 --
Massachusetts 798,463 55,295
Michigan 754,791 103,126
Minnesota 923,515 --
New Jersey 3,446,602 --
Ohio 2,238,436 --
Pennsylvania 3,418,684 --
Virginia 391,354 46,947
53
<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 judgment, changing circumstances
warrant such action.
Fitch Certificate of Deposit ratings are assigned at the
request of the issuer to deposits with maturities of up to three
years. Ratings apply to uninsured principal and interest and
reflect only those credit characteristics inherent in
certificates of deposit. Such ratings should be considered only
in the context of ratings assigned to certificates of deposit and
not to ratings which may be assigned to non-deposit liabilities.
Ratings for CDs with maturities over 3 years will be assigned
bond rating symbols. For definitions refer to page 1 of the
Rating Register.
Fitch commercial paper ratings are grouped into four
categories, two of which are defined below:
Fitch-1 (Highest Grade) Commercial paper assigned
this rating is regarded as having the
strongest degree of assurance for timely
payment.
Fitch-2 (Very Good Grade) issues assigned this
rating reflect an assurance of timely
payment only slightly less in degree than
the strongest issues.
Fitch Investment Note Ratings
Fitch investment Note Ratings are grouped into four
categories with the indicated symbols. The ratings on notes with
maturities generally up to three years reflect Fitch's current
appraisal of the degree of assurance of timely payment, whatever
the source.
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.
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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.
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_________________________________________________________________
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
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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.
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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, 1997
- Florida Portfolio
- Minnesota Portfolio
- New Jersey Portfolio
- Ohio Portfolio
- Pennsylvania Portfolio
- Michigan Porfolio
- Massachusetts Portfolio
- Arizona Porfolio
- Virginia Portfolio
Statements of Assets and Liabilities - September 30,
1997.
Statements of Operations - for the year ended
September 30, 1997.
Statements of Changes in Net Assets - for the year
ended September 30, 1997 and September 30, 1996.
Notes to Financial Statements - September 30, 1997.
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) Agreement and Declaration of Trust of the
Registrant - filed herewith.
(2) By-laws of the Registrant - filed herewith.
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(5)(a) Advisory Agreement between the Registrant
and Alliance Capital Management L.P. -
filed herewith.
(5)(b) Amended Advisory Agreement to reflect the
Arizona Portfolio, Massachusetts Portfolio,
Michigan Portfolio and Virginia Portfolio -
filed herwith.
(6)(a) Distribution Services Agreement between
and 15 the Registrant and Alliance Fund
Distributors, Inc. - filed herewith.
(b) Amendment to Distribution Services
Agreement between the Registrant and
Alliance Fund Distributors, Inc. -
Incorporated by reference as Exhibit 6(d)
to Post-Effective Amendment No 9 to
Registrant's Registration Statement on Form
N-1A filed on February 1, 1997 (File Nos.
33-6051 and 811-07618).
(c) Selected Dealer Agreement between Alliance
Fund Distributors, Inc. and selected
dealers offering shares of Registrant -
filed herewith.
(d) Selected Agent Agreement between Alliance
Fund Distributors, Inc. and selected agents
making available shares of Registrant -
filed herewith.
(7) Not Applicable.
(8) Custodian Contract with The Bank of New
York as assigned to Registrant - filed
herewith.
(9) Transfer Agency Agreement between
Registrant and Alliance Fund Services, Inc
- filed herewith.
(10)(a) Opinion and Consent of Seward & Kissel -
filed herewith.
(b) Opinion and Consent of Sullivan &
Worchester - filed herewith.
(11) Consent of Independent Auditors - filed
herewith.
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(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.
(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).
(18)(a) Rule 18f-3 Plan - Incorporated by reference
as Exhibit 18 to Post-Effective Amendment
No 9 to Registrant's Registration Statement
on Form N-1A, filed on February 1, 1997
(File Nos. 33-60560 and 811-07618).
(b) Amended and Restated Rule 18f-3 Plan -
Incorporated by reference as Exhibit 18 to
Post-Effective Amendment No 9 to
Registrant's Registration Statement on Form
N-1A, filed on February 1, 1997 (File Nos.
33-60560 and 811-07618).
(27) Financial Data Schedule - filed herewith.
Other Exhibit:
Powers of Attorney of Ruth S. Block, John
D. Carifa, David H. Dievler, James M.
Hester, Clifford L. Michel , William H.
Foulk, Jr., Donald J. Robinson and John H.
Dobkin. - filed herewith.
ITEM 25. Persons Controlled by or under Common Control with
Registrant
None.
ITEM 26. Number of Holders of Securities
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Registrant had, as of January 16, 1998, record
holders of shares of beneficial interest as
follows:
Florida Portfolio -
- Class A............................... 375
- Class B............................... 569
- Class C............................... 182
Minnesota Portfolio -
- Class A .............................. 123
- Class B ............................... 352
- Class C ............................... 159
New Jersey Portfolio -
- Class A .............................. 376
- Class B .............................. 967
- Class C .............................. 272
Ohio Portfolio -
- Class A .............................. 175
- Class B .............................. 701
- Class C .............................. 180
Pennsylvania Portfolio -
- Class A .............................. 340
- Class B .............................. 851
- Class C .............................. 221
Michigan Portfolio -
- Class A .............................. 130
- Class B .............................. 174
- Class C .............................. 231
Massachusetts Portfolio -
- Class A .............................. 153
- Class B .............................. 177
- Class C .............................. 117
Arizona Portfolio -
- Class A .............................. 136
- Class B .............................. 178
- Class C .............................. 54
Virginia Portfolio -
- Class A .............................. 102
- Class B .............................. 159
- Class C .............................. 47
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
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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.
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
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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 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
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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 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
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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
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.
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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 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."
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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
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
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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 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-15
<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. Alliance Fund
Distributors, Inc. 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.
Alliance Global Dollar Government Fund, Inc.
Alliance Global Environment Fund, Inc.
Alliance Global Small Cap Fund, Inc.
C-16
<PAGE>
Alliance Global Strategic Income Trust, Inc.
Alliance Government Reserves
Alliance Growth and Income Fund, Inc.
Alliance Greater China '97 Fund, Inc.
Alliance High Yield Fund, Inc.
Alliance Income Builder Fund, Inc.
Alliance Institutional Funds, Inc.
Alliance Real Estate Investment Fund
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 POSITIONS AND
OFFICES WITH OFFICES WITH
NAME UNDERWRITER REGISTRANT
Michael J. Laughlin Chairman
Robert L. Errico President
Edmund P. Bergan, Jr. Senior Vice President, Secretary
General Counsel
and Secretary
Karen J. Bullot Senior Vice President
C-17
<PAGE>
James S. Comforti Senior Vice President
James L. Cronin Senior Vice President
Daniel J. Dart Senior Vice President
Richard A. Davies Senior Vice President
Managing Director
Byron M. Davis Senior Vice President
Anne S. Drennan Senior Vice President &
Treasurer
Mark J. Dunbar Senior Vice President
Bradley F. Hanson Senior Vice President
Geoffrey L. Hyde Senior Vice President
Robert H. Joseph, Jr. Senior Vice President and
Chief Financial Officer
Richard E. Khaleel Senior Vice President
Stephen R. Laut Senior Vice President
Daniel D. McGinley Senior Vice President
Ryne A. Nishimi Senior Vice President
Antonios G. Poleondakis Senior Vice President
Robert E. Powers Senior Vice President
Richard K. Saccullo 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
C-18
<PAGE>
Kenneth F. Barkoff Vice President
Casimir F. Bolanowski Vice President
Michael E. Brannan Vice President
Timothy W. Call Vice President
Kevin T. Cannon Vice President
John R. Carl Vice President
William W. Collins, Jr. Vice President
Leo H. Cook Vice President
Richard W. Dabney Vice President
John F. Dolan Vice President
John C. Endahl Vice President
Sohaila S. Farsheed Vice President
William C. Fisher Vice President
Gerard J. Friscia Vice President &
Controller
Andrew L. Gangolf Vice President and Assistant
Assistant General Secretary
Counsel
Mark D. Gersten Vice President Treasurer and
Chief Financial
Officer
Joseph W. Gibson Vice President
Charles M. Greenberg Vice President
Alan Halfenger Vice President
William B. Hanigan Vice President
Scott F. Heyer Vice President
Daniel M. Hazard Vice President
George R. Hrabovsky Vice President
C-19
<PAGE>
Valerie J. Hugo Vice President
Scott Hutton Vice President
Thomas K. Intoccia Vice President
Larry P. Johns Vice President
Richard D. Keppler Vice President
Gwenn M. Kessler Vice President
Donna M. Lamback Vice President
James M. Liptrot Vice President
James P. Luisi Vice President
Christopher J. MacDonald Vice President
Michael F. Mahoney Vice President
Shawn P. McClain Vice President
Maura A. McGrath Vice President
Thomas F. Monnerat Vice President
Joanna D. Murray Vice President
Jeanette M. Nardella Vice President
Nicole Nolan-Koester Vice President
John C. O'Connell Vice President
John J. O'Connor Vice President
James J. Posch Vice President
Domenick Pugliese Vice President and Assistant
General Counsel Secretary
Bruce W. Reitz Vice President
Dennis A. Sanford Vice President
Karen C. Satterberg Vice President
Robert C. Schultz Vice President
C-20
<PAGE>
Raymond S. Sclafani Vice President
Richard J. Sidell Vice President
Teris A. Sinclair Vice President
Andrew D. Strauss Vice President
Michael J. Tobin Vice President
Joseph T. Tocyloski Vice President
Martha D. Volcker Vice President
Patrick E. Walsh Vice President
William C. White Vice President
Emilie D. Wrapp Vice President and Assistant
Special Counsel Secretary
Michael W. Alexander Assistant Vice President
Richard J. Appaluccio Assistant Vice President
Charles M. Barrett Assistant Vice President
Robert F. Brendli Assistant Vice President
Maria L. Carreras Assistant Vice President
John P. Chase Assistant Vice President
Russell R. Corby Assistant Vice President
John W. Cronin Assistant Vice President
Terri J. Daly Assistant Vice President
Ralph A. DiMeglio Assistant Vice President
Faith C. Dunn Assistant Vice President
John E. English Assistant Vice President
Duff C. Ferguson Assistant Vice President
John Grambone Assistant Vice President
Brian S. Hanigan Assistant Vice President
C-21
<PAGE>
James J. Hill Assistant Vice President
Edward W. Kelly Assistant Vice President
Michael Laino Assistant Vice President
Nicholas J. Lapi Assistant Vice President
Kristine J. Luisi Assistant Vice President
Patrick Look Assistant Vice President
& Assistant Treasurer
Richard F. Meier Assistant Vice President
Richard J. Olszewski Assistant Vice President
Catherine N. Peterson Assistant Vice President
Carol H. Rappa Assistant Vice President
Clara Sierra Assistant Vice President
Gayle S. Stamer Assistant Vice President
Vincent T. Strangio Assistant Vice President
Wesley S. Williams Assistant Vice President
Christopher J. Zingaro Assistant Vice President
Mark R. Manley Assistant Secretary
ITEM 30. Location of Accounts and Records.
The majority of the accounts, books and other documents
required to be maintained by Section 31(a) of the Investment
Company Act of 1940 and the Rules thereunder are maintained as
follows: journals, ledgers, securities records and other original
records are maintained principally at the offices of Alliance
Fund Services, Inc., 500 Plaza Drive, Secaucus, New Jersey 07094,
and at the offices of State Street Bank and Trust Company, the
Registrant's Custodian, 225 Franklin Street, Boston,
Massachusetts 02110. All other records so required to be
maintained are maintained at the offices of Alliance Capital
Management L.P., 1345 Avenue of the Americas, New York, New York
10105.
ITEM 31. Management Services.
Not applicable.
C-22
<PAGE>
ITEM 32. Undertakings
The Registrant undertakes to furnish each person to whom
a prospectus is delivered with a copy of the Registrant's latest
report to shareholders, upon request and without charge.
The Registrant undertakes to provide assistance to
shareholders in communications concerning the removal of any
Trustee of the Fund in accordance with Section 16 of the
Investment Company Act of 1940.
C-23
<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 30th day of January, 1998.
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
Principal
Executive Officer
\S\John D. Carifa Chairman and January 30, 1998
John D. Carifa President
Principal Financial
and Accounting Officer
\S\Mark D. Gersten Treasurer and January 30, 1998
Mark D. Gersten Chief Financial
Officer
All of the Trustees
David H. Dievler
Ruth S. Block
John D. Carifa
John H. Dobkin
William H. Foulk, Jr.
James M. Hester
Clifford L. Michel
Donald J. Robinson
by \S\Edmund P. Bergan, Jr. January 30, 1998
(Attorney-in-fact)
C-24
<PAGE>
Edmund P. Bergan, Jr.
C-25
<PAGE>
Index to Exhibits
Page
(1) Agreement and Declaration of Trust
(2) By-Laws
(5)(a) Advisory Agreement
(5)(b) Amended Advisory Agreement
(6)(a) Distribution Services Agreement
(6)(c) Selected Dealer Agreement
(6)(d) Selected Agent Agreement
(8) Custodian Contract
(9) Transfer Agency Agreement
(10)(a) Opinion and Consent of Seward & Kissel
(11) Consent of Independant Auditors
(27) Financial Data Schedules
Other Exhibits: Powers of Attorney for Ms. Block and Messrs.
Carifa, Dievler, Hester, Michel, Foulk,
Robinson and Dobkin
C-26
00250151.BA0
<PAGE>
ALLIANCE MUNICIPAL INCOME FUND II
AGREEMENT AND DECLARATION OF TRUST
Dated: April 2, 1993
Principal Office:
c/o Alliance Capital Management
Corp.
1345 Avenue of the Americas
New York, New York 10105
Address of Initial Trustee and
Massachusetts Office:
Thomas E. Weesner, Esq.
Sullivan & Worcester
One Post Office Square
Boston, Massachusetts 02109
<PAGE>
ALLIANCE MUNICIPAL INCOME FUND II
AGREEMENT AND DECLARATION OF TRUST
Index
Page
RECITALS...................................................
ARTICLE 1. THE TRUST.................................... 1
Section 1.1. Name......................................... 2
Section 1.2. Location..................................... 2
Section 1.3. Nature of Trust.............................. 2
Section 1.4. Definitions.................................. 3
Section 1.5. Real Property to be Converted into
Personal Property.......................... 7
ARTICLE 2. PURPOSE OF THE TRUST......................... 8
ARTICLE 3. POWERS OF THE TRUSTEES....................... 8
Section 3.1 Powers in General............................ 8
(a) Investments............................. 9
(b) Disposition of Assets................... 10
(c) Ownership Powers........................ 10
(d) Form of Holding......................... 10
(e) Reorganization, etc..................... 10
(f) Voting Trusts, etc...................... 10
(g) Contracts, etc.......................... 11
(h) Guarantees, etc......................... 11
(i) Partnerships, etc....................... 11
(j) Insurance............................... 11
(k) Pensions, etc........................... 11
(l) Power of Collection and Litigation...... 12
(m) Issuance and Repurchase of Shares....... 12
(n) Offices................................. 12
(o) Expenses................................ 12
(p) Agents, etc............................. 12
(q) Accounts................................ 13
(r) Valuation............................... 13
(s) Indemnification......................... 13
(t) General................................. 13
i
<PAGE>
Section 3.2. Limitations as to the Pennsylvania
Portfolio.................................. 14
Section 3.3. Borrowings; Financings;
Issuance of Securities..................... 14
Section 3.4. Deposits..................................... 14
Section 3.5. Allocations.................................. 14
Section 3.6. Further Powers; Limitations.................. 15
ARTICLE 4. TRUSTEES AND OFFICERS........................ 15
Section 4.1. Number, Designation, Election,
Term, etc.................................. 15
(a) Initial Trustee......................... 15
(b) Number.................................. 15
(c) Election and Term....................... 16
(d) Resignation and Retirement.............. 16
(e) Removal................................. 16
(f) Vacancies............................... 16
(g) Acceptance of Trusts.................... 17
(h) Effect of Death, Resignation, etc....... 17
(i) Conveyance.............................. 17
(j) No Accounting........................... 17
Section 4.2. Trustees' Meetings; Participation
by Telephone, etc.......................... 18
Section 4.3. Committees; Delegation....................... 18
Section 4.4. Officers..................................... 18
Section 4.5. Compensation of Trustees
and Officers............................... 19
Section 4.6. Ownership of Shares and Securities
of the Trust............................... 19
Section 4.7. Right of Trustees and Officers
to Own Property and to Engage
in Business; Authority of Trustees
to Permit Others to Do Likewise............ 19
Section 4.8. Reliance on Experts.......................... 20
Section 4.9. Surety Bonds................................. 20
ii
<PAGE>
Section 4.10. Apparent Authority of
Trustees and Officers...................... 20
Section 4.11. Other Relationships Not
Prohibited................................. 20
Section 4.12. Payment of Trust Expenses.................... 21
Section 4.13. Ownership of the Trust Property.............. 21
ARTICLE 5. DELEGATION OF MANAGERIAL
RESPONSIBILITIES........................... 22
Section 5.1. Appointment; Action by
Less than All Trustees..................... 22
Section 5.2. Certain Contracts............................ 22
(a) Advisory................................ 23
(b) Administration.......................... 23
(c) Distribution............................ 23
(d) Custodian............................... 24
(e) Transfer and Dividend
Disbursing Agency....................... 24
(f) Shareholder Servicing................... 24
(g) Accounting.............................. 24
ARTICLE 6. PORTFOLIOS AND SHARES........................ 25
Section 6.1. Description of Portfolios and Shares......... 25
(a) Shares; Portfolios; Series and Classes
of Shares............................... 25
(b) Establishment, etc. of Portfolios;
Authorization of Shares................. 25
(c) Character of Separate Portfolios
and Shares Thereof...................... 26
(d) Consideration for Shares................ 26
Section 6.2. Establishment and Designation
of Certain Portfolios; General
Provisions for All Portfolios.............. 26
(a) Assets Belonging to Portfolios.......... 27
(b) Liabilities of Portfolios............... 27
(c) Dividends............................... 28
(d) Liquidation............................. 29
(e) Redemption by Shareholder............... 29
(f) Redemption at the Option of the Trust... 30
(g) Net Asset Value......................... 30
(h) Transfer................................ 31
(i) Equality................................ 31
iii
<PAGE>
(j) Rights of Fractional Shares............. 31
(k) Conversion Rights; Conversion of Class B
Shares of the Portfolios.............. 32
(l) Suspension of Automatic Conversion
of Class B Shares..................... 34
Section 6.3. Ownership of Shares.......................... 34
Section 6.4. Investments in the Trust..................... 35
Section 6.5. No Pre-emptive Rights........................ 35
Section 6.6. Status of Shares............................. 35
ARTICLE 7. SHAREHOLDERS' VOTING
POWERS AND MEETINGS.......................... 35
Section 7.1. Voting Powers................................ 35
Section 7.2. Number of Votes and Manner
of Voting; Proxies......................... 36
Section 7.3. Meetings..................................... 37
Section 7.4. Record Dates................................. 37
Section 7.5. Quorum and Required Vote..................... 37
Section 7.6. Action by Written Consent.................... 38
Section 7.7. Inspection of Records........................ 38
Section 7.8. Additional Provisions........................ 38
ARTICLE 8. LIMITATION OF LIABILITY;
INDEMNIFICATION............................ 38
Section 8.1. Trustees, Shareholders, etc. Not
Personally Liable; Notice.................. 38
Section 8.2. Trustees' Good Faith Action;
Expert Advice; No Bond
or Surety.................................. 39
Section 8.3. Indemnification of
Shareholders............................... 40
Section 8.4. Indemnification of Trustees,
Officers, etc.............................. 40
Section 8.5. Compromise Payment........................... 41
iv
<PAGE>
Section 8.6. Indemnification Not
Exclusive, etc............................. 41
Section 8.7. Liability of Third Persons
Dealing with Trustees...................... 42
ARTICLE 9. DURATION; REORGANIZATION;
AMENDMENTS................................. 42
Section 9.1. Duration and Termination
of Trust................................... 42
Section 9.2. Reorganization............................... 42
Section 9.3. Amendments; etc.............................. 43
Section 9.4. Filing of Copies of
Declaration and Amendments................. 44
ARTICLE 10. MISCELLANEOUS................................ 44
Section 10.1. Governing Law................................ 44
Section 10.2. Counterparts................................. 44
Section 10.3. Reliance by Third Parties.................... 44
Section 10.4. References; Headings......................... 45
Section 10.5. Use of the Name "Alliance"................... 45
SIGNATURES................................................. 45
ACKNOWLEDGMENTS............................................ 47
v
<PAGE>
AGREEMENT AND DECLARATION OF TRUST
OF
ALLIANCE MUNICIPAL INCOME FUND II
This AGREEMENT AND DECLARATION OF TRUST, made at Boston,
Massachusetts this 2nd day of April, 1993 by and between the
Settlor and the Trustee whose signature is set forth below (the
"Initial Trustee"),
W I T N E S S E T H T H A T:
WHEREAS, Bryan G. Tyson, an individual residing in South
Natick, Massachusetts (the "Settlor"), proposes to deliver to the
Initial Trustee the sum of one hundred dollars ($100.00) lawful
money of the United States of America in trust hereunder and to
authorize the Initial Trustee and all other Persons acting as
Trustees hereunder to employ such funds, and any other funds
coming into their hands or the hands of their successor or
successors as such Trustees, to carry on the business of an
investment company, and as such of buying, selling, investing in
or otherwise dealing in and with stocks, bonds, debentures,
warrants, options, futures contracts and other securities and
interests therein, or calls or puts with respect to any of the
same, or such other and further investment media and other
property as the Trustees may deem advisable, which are not
prohibited by law or the terms of this Declaration; and
WHEREAS, the Initial Trustee is willing to accept such
sum, together with any and all additions thereto and the income or
increments thereof, upon the terms, conditions and trusts
hereinafter set forth; and
WHEREAS, it is proposed that the assets held by the
Trustees be divided into separate portfolios, each with its own
separate investment assets, investment objectives, policies and
purposes, and that the beneficial interest in each such fund shall
be divided into transferable Shares of Beneficial Interest, a
separate Series of Shares for each fund, all in accordance with
the provisions hereinafter set forth; and
WHEREAS, it is desired that the trust established hereby
(the "Trust") be managed and operated as a trust with transferable
shares under the laws of Massachusetts, of the type commonly known
as and referred to as a Massachusetts business trust, in
accordance with the provisions hereinafter set forth,
NOW, THEREFORE, the Initial Trustee, for himself and his
successors as Trustees, hereby declares, and agrees with the
Settlor, for himself and for all Persons who shall hereafter
<PAGE>
become holders of Shares of Beneficial Interest of the Trust, of
any Series, that the Trustees will hold the sum delivered to them
upon the execution hereof, and all other and further cash,
securities and other property of every type and description which
they may in any way acquire in their capacity as such Trustees,
together with the income therefrom and the proceeds thereof, IN
TRUST NEVERTHELESS, to manage and dispose of the same for the
benefit of the holders from time to time of the Shares of
Beneficial Interest of the several Series being issued and to be
issued hereunder and in the manner and subject to the provisions
hereof, to wit:
ARTICLE 1
THE TRUST
SECTION 1.1. Name. The name of the Trust shall be
"ALLIANCE MUNICIPAL INCOME FUND II",
and so far as may be practicable the Trustees shall conduct the
Trust's activities, execute all documents and sue or be sued under
that name, which name (and the word "Trust" wherever used in this
Agreement and Declaration of Trust, except where the context
otherwise requires) shall refer to the Trustees in their capacity
as Trustees, and not individually or personally, and shall not
refer to the officers, agents or employees of the Trust or of such
Trustees, or to the holders of the Shares of Beneficial Interest
of the Trust, of any Series or Class. If the Trustees determine
that the use of such name is not practicable, legal or convenient
at any time or in any jurisdiction, or if the Trust is required to
discontinue the use of such name pursuant to Section 10.5 hereof,
then subject to that Section, the Trustees may use such other
designation, or they may adopt such other name for the Trust as
they deem proper, and the Trust may hold property and conduct its
activities under such designation or name.
SECTION 1.2. Location. The Trust shall have an office
in Boston, Massachusetts, unless changed by the Trustees to
another location in Massachusetts or elsewhere, but such office
need not be the sole or principal office of the Trust. The Trust
may have such other offices or places of business as the Trustees
may from time to time determine to be necessary or expedient.
SECTION 1.3. Nature of Trust. The Trust shall be a
trust with transferable shares under the laws of The Commonwealth
of Massachusetts, of the type referred to in Section 1 of Chapter
182 of the Massachusetts General Laws and commonly termed a
Massachusetts business trust. The Trust is not intended to be,
shall not be deemed to be, and shall not be treated as, a general
partnership, limited partnership, joint venture, corporation or
2
<PAGE>
joint stock company. The Shareholders shall be beneficiaries and
their relationship to the Trustees shall be solely in that
capacity in accordance with the rights conferred upon them
hereunder.
SECTION 1.4. Definitions. As used in this Agreement
and Declaration of Trust, the following terms shall have the
meanings set forth below unless the context thereof otherwise
requires:
"Accounting Agent" shall have the meaning designated in
Section 5.2(g) hereof.
"Administrator" shall have the meaning designated in
Section 5.2(b) hereof.
"Affiliated Person" shall have the meaning assigned to it
in the 1940 Act.
"By-Laws" shall mean the By-Laws of the Trust, as amended
from time to time.
"Certificate of Designation" shall have the meaning
designated in Section 6.1 hereof.
"Certificate of Termination" shall have the meaning
designated in Section 6.1 hereof.
"Class" or "Classes" shall mean, with respect to any
Series, any Shares of such Series in respect of which the Trustees
shall from time to time fix and determine any special provisions
relating to sales charges, any rights of redemption and the price,
terms and manner of redemption, special and relative rights as to
dividends and other distributions and on liquidation, sinking or
purchase fund provisions, conversion rights, and conditions under
which the Shareholders of such Class shall have separate voting
rights or no voting rights.
"Class A Shares" shall mean, with respect to Shares of
any Portfolio established and designated by the Declaration, that
class of such Shares which are subject to a sales charge or "load"
upon the purchase thereof but the proceeds of the redemption of
which are not subject to a contingent deferred sales charge
payable on such redemption.
"Class B Shares" shall mean, with respect to Shares of
any Portfolio established and designated by the Declaration, that
class the Shares of which are not subject to a sales charge or
"load" upon the purchase thereof but the proceeds of the
redemption of which may be reduced, to the extent determined by
the Trustees, by the amount of a contingent deferred sales charge
3
<PAGE>
payable on such redemption pursuant to subsection (e) of
Section 6.2 hereof.
"Class C Shares" shall mean, with respect to Shares of
any Portfolio established and designated by the Declaration, that
class the Shares of which are not subject to a sales charge or
"load" upon the purchase thereof.
"Commission" shall have the same meaning as in the 1940
Act.
"Contracting Party" shall have the meaning designated in
the preamble to Section 5.2 hereof.
"Conversion Date" shall have the meaning designated in
Section 6.2(k)(ii) hereof.
"Covered Person" shall have the meaning designated in
Section 8.4 hereof.
"Custodian" shall have the meaning designated in
Section 5.2(d) hereof.
"Declaration" and "Declaration of Trust" shall mean this
Agreement and Declaration of Trust and all amendments or
modifications thereof as from time to time in effect. References
in this Agreement and Declaration of Trust to "hereof", "herein"
and "hereunder" shall be deemed to refer to the Declaration of
Trust generally, and shall not be limited to the particular text,
Article or Section in which such words appear.
"Disabling Conduct" shall have the meaning designated in
Section 8.4 hereof.
"Distributor" shall have the meaning designated in
Section 5.2(c) hereof.
"Dividend Disbursing Agent" shall have the meaning
designated in Section 5.2(e) hereof.
"Eligible Investment Company" shall have the meaning
designated in paragraph (i) of Section 6.2(k) hereof.
"General Items" shall have the meaning defined in
Section 6.2(a) hereof.
"Initial Portfolio", and "Initial Portfolios" shall have
the meaning designated in the preamble to Section 6.2 hereof.
"Initial Trustee" shall have the meaning defined in the
preamble hereto.
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"Internal Revenue Code" shall mean the Internal Revenue
Code of 1986, as from time to time amended and in effect, or any
substituted statute dealing with the same general subject matter
as the Internal Revenue Code of 1986, as in effect on April 1,
1993, and in either case the rules and regulations thereunder, as
from time to time interpreted and applied by applicable case law
thereunder.
"Investment Adviser" shall have the meaning stated in
Section 5.2(a) hereof.
"Majority of the Trustees" shall mean a majority of the
Trustees in office at the time in question. At any time at which
there shall be only one (1) Trustee in office, such term shall
mean such Trustee.
"Majority Shareholder Vote," as used with respect to the
election of any Trustee at a meeting of Shareholders, shall mean
the vote for the election of such Trustee of a plurality of all
outstanding Shares of the Trust, without regard to Series or
Class, represented in person or by proxy at such meeting and
entitled to vote thereon, provided that a quorum (determined as
provided in Section 7.5 hereof) is present, and as used with
respect to any other action required or permitted to be taken by
Shareholders, shall mean the affirmative vote for such action of
the holders of that number of all outstanding Shares (or, where a
separate vote of Shares of any particular Series or Class is to be
taken, the affirmative vote of that number of the outstanding
Shares of that Series or Class) of the Trust which constitutes:
(i) a majority of all Shares (or of Shares of the particular
Series or Class) represented in person or by proxy and entitled to
vote on such action at the meeting of Shareholders at which such
action is to be taken, provided that a quorum (as determined as
provided in Section 7.5 hereof) is present; or (ii) if such vote
is to be given or such action is to be taken by written consent of
Shareholders, a majority of all Shares (or of Shares of the
particular Series or Class) issued and outstanding and entitled to
vote on such action; provided, that (iii) as used with respect to
any action requiring the affirmative vote of "a majority of the
outstanding voting securities", as the quoted phrase is defined in
the 1940 Act, of the Trust or of any Portfolio, "Majority
Shareholder Vote" means the vote for such action at a meeting of
Shareholders of the smallest majority of all outstanding Shares of
the Trust (or of Shares of the particular Series or Class)
entitled to vote on such action which satisfies such 1940 Act
voting requirement.
"1940 Act" shall mean the provisions of the Investment
Company Act of 1940 and the rules and regulations thereunder, both
as amended from time to time, and any order or orders thereunder
which may from time to time be applicable to the Trust.
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"Person" shall mean and include individuals, as well as
corporations, limited partnerships, general partnerships, joint
stock companies, joint ventures, associations, banks, trust
companies, land trusts, business trusts or other organizations
established under the laws of any jurisdiction, whether or not
considered to be legal entities, and governments and agencies and
political subdivisions thereof.
"Portfolio" or "Portfolios" shall mean one or more of the
separate components of the assets of the Trust which are now or
hereafter established and designated under or in accordance with
the provisions of Article 6 hereof.
"Portfolio Assets" shall have the meaning defined in
Section 6.2(a) hereof.
"Principal Underwriter" shall have the meaning designated
in Section 5.2(c) hereof.
"Prospectus," as used with respect to any Portfolio or
Series of Shares, shall mean the prospectus relating to such
Portfolio or Series which constitutes part of the currently
effective Registration Statement of the Trust under the Securities
Act of 1933, as such prospectus may be amended or supplemented
from time to time.
"Securities" shall mean any and all bills, notes, bonds,
debentures or other obligations or evidences of indebtedness,
certificates of deposit, bankers' acceptances, commercial paper,
repurchase agreements or other money market instruments; stocks,
shares or other equity ownership interests; and warrants, options
or other instruments representing rights to subscribe for,
purchase, receive or otherwise acquire or to sell, transfer,
assign or otherwise dispose of, and scrip, certificates, receipts
or other instruments evidencing any ownership rights or interests
in, any of the foregoing and "when issued" and "delayed delivery"
contracts for securities, issued, guaranteed or sponsored by any
governments, political subdivisions or governmental authorities,
agencies or instrumentalities, by any individuals, firms,
companies, corporations, syndicates, associations or trusts, or by
any other organizations or entities whatsoever, irrespective of
their forms or the names by which they may be described, whether
or not they be organized and operated for profit, and whether they
be domestic or foreign with respect to The Commonwealth of
Massachusetts or the United States of America.
"Securities of the Trust" shall mean any Securities
issued by the Trust.
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"Series" shall mean one or more of the series of Shares
authorized by the Trustees, each to represent the beneficial
interest in one of the Portfolios of the Trust.
"Settlor" shall have the meaning stated in the first
"Whereas" clause set forth above.
"Shareholder" shall mean as of any particular time any
Person shown of record at such time on the books of the Trust as a
holder of outstanding Shares of any Series or Class, and shall
include a pledgee into whose name any such Shares are transferred
in pledge.
"Shareholder Servicing Agent" shall have the meaning
designated in Section 5.2(f) hereof.
"Shares" shall mean the transferable units into which the
beneficial interest in the Trust and each Portfolio of the Trust
(as the context may require) shall be divided from time to time,
and includes fractions of Shares as well as whole Shares. All
references herein to "Shares" which are not accompanied by a
reference to any particular Series or Class shall be deemed to
apply to outstanding Shares without regard to Series or Class.
"Single Class Voting," as used with respect to any matter
to be acted upon at a meeting or by written consent of
Shareholders, shall mean a style of voting in which each holder of
one or more Shares shall be entitled to one vote on the matter in
question for each Share standing in his name on the records of the
Trust, irrespective of Series or Class, and all outstanding Shares
of all Series or Class vote as a single class.
"Statement of Additional Information," as used with
respect to any Series or Class of Shares, shall mean the statement
of additional information relating to such Series or Class, which
constitutes part of the currently effective Registration Statement
of the Trust under the Securities Act of 1933, as such statement
of additional information may be amended or supplemented from time
to time.
"Transfer Agent" shall have the meaning defined in
Section 5.2(e) hereof.
"Trust" shall have the meaning stated in the fourth
"Whereas" clause set forth above.
"Trust Property" shall mean, as of any particular time,
any and all property which shall have been transferred, conveyed
or paid to the Trust or the Trustees, and all interest, dividends,
income, earnings, profits and gains therefrom, and proceeds
thereof, including any proceeds derived from the sale, exchange or
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liquidation thereof, and any funds or payments derived from any
reinvestment of such proceeds in whatever form the same may be,
and which at such time is owned or held by, or for the account of,
the Trust or the Trustees, without regard to the Portfolio to
which such property is allocated.
"Trustees" shall mean, collectively, the Initial Trustee,
so long as he shall continue in office, and all other individuals
who at the time in question have been duly elected or appointed as
Trustees of the Trust in accordance with the provisions hereof and
who have qualified and are then in office. At any time at which
there shall be only one (1) Trustee in office, such term shall
mean such single Trustee.
SECTION 1.5. Real Property to be Converted into
Personal Property. Notwithstanding any other provision hereof,
any real property at any time forming part of the Trust Property
shall be held in trust for sale and conversion into personal
property at such time or times and in such manner and upon such
terms as the Trustees shall approve, but the Trustees shall have
power until the termination of this Trust to postpone such
conversion as long as they in their uncontrolled discretion shall
think fit, and for the purpose of determining the nature of the
interest of the Shareholders therein, all such real property shall
at all times be considered as personal property.
ARTICLE 2
PURPOSE OF THE TRUST
The purpose of the Trust shall be to engage in the
business of being an investment company, and as such of
subscribing for, purchasing or otherwise acquiring, holding for
investment or trading in, borrowing, lending and selling short,
selling, assigning, negotiating or exchanging and otherwise
disposing of, and turning to account, realizing upon and generally
dealing in and with, in any manner, (a) Securities of all kinds,
(b) precious metals and other minerals, contracts to purchase and
sell, and other interests of every nature and kind in, such metals
or minerals, and (c) rare coins and other numismatic items, and
all as the Trustees in their discretion shall determine to be
necessary, desirable or appropriate, and to exercise and perform
any and every act, thing or power necessary, suitable or desirable
for the accomplishment of such purpose, the attainment of any of
the objectives or the furtherance of any of the powers given
hereby which are lawful purposes, objects or powers of a trust
with transferable shares of the type commonly termed a
Massachusetts business trust; and to do every other act or acts or
thing or things incidental or appurtenant to or growing out of or
in connection with the aforesaid objectives, purposes or powers,
or any of them, which a trust of the type commonly termed a
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Massachusetts business trust is not now or hereafter prohibited
from doing, exercising or performing.
ARTICLE 3
POWERS OF THE TRUSTEES
SECTION 3.1. Powers in General. The Trustees shall
have, without other or further authorization, full, entire,
exclusive and absolute power, control and authority over, and
management of, the business of the Trust and over the Trust
Property, to the same extent as if the Trustees were the sole
owners of the business and property of the Trust in their own
right, and with such powers of delegation as may be permitted by
this Declaration, subject only to such limitations as may be
expressly imposed by this Declaration of Trust or by applicable
law. The enumeration of any specific power or authority herein
shall not be construed as limiting the aforesaid power or
authority or any specific power or authority. Without limiting
the foregoing, the Trustees may adopt By-Laws not inconsistent
with this Declaration of Trust providing for the conduct of the
business and affairs of the Trust and may amend and repeal them to
the extent that such By-Laws do not reserve that right to the
Shareholders; they may select, and from time to time change, the
fiscal year of the Trust; they may adopt and use a seal for the
Trust, provided, that unless otherwise required by the Trustees,
it shall not be necessary to place the seal upon, and its absence
shall not impair the validity of, any document, instrument or
other paper executed and delivered by or on behalf of the Trust;
they may from time to time in accordance with the provisions of
Section 6.1 hereof establish one or more Portfolios to which they
may allocate such of the Trust Property, subject to such
liabilities, as they shall deem appropriate, each such Portfolio
to be operated by the Trustees as a separate and distinct
investment medium and with separately defined investment
objectives and policies and distinct investment purposes, all as
established by the Trustees, or from time to time changed by them;
they may as they consider appropriate elect and remove officers
and appoint and terminate agents and consultants and hire and
terminate employees, any one or more of the foregoing of whom may
be a Trustee; they may appoint from their own number, and
terminate, any one or more committees consisting of one or more
Trustees, including without implied limitation an Executive
Committee, which may, when the Trustees are not in session and
subject to the 1940 Act, exercise some or all of the power and
authority of the Trustees as the Trustees may determine; in
accordance with Section 5.2 they may employ one or more Investment
Advisers, Administrators and Custodians and may authorize any
Custodian to employ subcustodians or agents and to deposit all or
any part of such assets in a system or systems for the central
handling of Securities, retain Transfer, Dividend Disbursing,
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Accounting or Shareholder Servicing Agents or any of the
foregoing, provide for the distribution of Shares by the Trust
through one or more Distributors, Principal Underwriters or
otherwise, set record dates or times for the determination of
Shareholders entitled to participate in, benefit from or act with
respect to various matters; and in general they may delegate to
any officer of the Trust, to any Committee of the Trustees and to
any employee, Investment Adviser, Administrator, Distributor,
Custodian, Transfer Agent, Dividend Disbursing Agent, or any other
agent or consultant of the Trust, such authority, powers,
functions and duties as they consider desirable or appropriate for
the conduct of the business and affairs of the Trust, including
without implied limitation the power and authority to act in the
name of the Trust and of the Trustees, to sign documents and to
act as attorney-in-fact for the Trustees. 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:
(a) Investments. Subject to the limitations of
Section 3.2 with respect to the Pennsylvania Portfolio
referred to in the preamble to Section 6.2 hereof, to
invest and reinvest cash and other property; to buy, for
cash or on margin, and otherwise acquire and hold,
Securities created or issued by any Persons, including
Securities maturing after the possible termination of the
Trust; to make payment therefor in any lawful manner in
exchange for any of the Trust Property; and to hold cash
or other property uninvested without in any event being
bound or limited by any present or future law or custom
in regard to investments by trustees;
(b) Disposition of Assets. Subject to the
limitations of Section 3.2 with respect to the
Pennsylvania Portfolio, to lend, sell, exchange,
mortgage, pledge, hypothecate, grant security interests
in, encumber, negotiate, convey, transfer or otherwise
dispose of, and to trade in, any and all of the Trust
Property, free and clear of all trusts, for cash or on
terms, with or without advertisement, and on such terms
as to payment, security or otherwise, all as they shall
deem necessary or expedient;
(c) Ownership Powers. To vote or give assent, or
exercise any and all other rights, powers and privileges
of ownership with respect to, and to perform any and all
duties and obligations as owners of, any Securities or
other property forming part of the Trust Property, the
same as any individual might do; to exercise powers and
rights of subscription or otherwise which in any manner
arise out of ownership of Securities, and to receive
powers of attorney from, and to execute and deliver
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proxies or powers of attorney to, such Person or Persons
as the Trustees shall deem proper, receiving from or
granting to such Person or Persons such power and
discretion with relation to Securities or other property
of the Trust, all as the Trustees shall deem proper;
(d) Form of Holding. To hold any Security or other
property in a form not indicating any trust, whether in
bearer, unregistered or other negotiable form, or in the
name of the Trustees or of the Trust, or of the Portfolio
to which such Securities or property belong, or in the
name of a Custodian, subcustodian or other nominee or
nominees, or otherwise, upon such terms, in such manner
or with such powers, as the Trustees may determine, and
with or without indicating any trust or the interest of
the Trustees therein;
(e) Reorganization, etc. To consent to or
participate in any plan for the reorganization,
consolidation or merger of any corporation or issuer, any
Security of which is or was held in the Trust or any
Portfolio; to consent to any contract, lease, mortgage,
purchase or sale of property by such corporation or
issuer, and to pay calls or subscriptions with respect to
any Security forming part of the Trust Property;
(f) Voting Trusts, etc. To join with other holders
of any Securities in acting through a committee,
depository, voting trustee or otherwise, and in that
connection to deposit any Security with, or transfer any
Security to, any such committee, depository or trustee,
and to delegate to them such power and authority with
relation to any Security (whether or not so deposited or
transferred) as the Trustees shall deem proper, and to
agree to pay, and to pay, such portion of the expenses
and compensation of such committee, depository or trustee
as the Trustees shall deem proper;
(g) Contracts, etc. To enter into, make and
perform all such obligations, contracts, agreements and
undertakings of every kind and description, with any
Person or Persons, as the Trustees shall in their
discretion deem expedient in the conduct of the business
of the Trust, for such terms as they shall see fit,
whether or not extending beyond the term of office of the
Trustees, or beyond the possible expiration of the Trust;
to amend, extend, release or cancel any such obligations,
contracts, agreements or understandings; and to execute,
acknowledge, deliver and record all written instruments
which they may deem necessary or expedient in the
exercise of their powers;
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(h) Guarantees, etc. To endorse or guarantee the
payment of any notes or other obligations of any Person;
to make contracts of guaranty or suretyship, or otherwise
assume liability for payment thereof; and to mortgage and
pledge the Trust Property or any part thereof to secure
any of or all such obligations;
(i) Partnerships, etc. To enter into joint
ventures, general or limited partnerships and any other
combinations or associations;
(j) Insurance. To purchase and pay for entirely
out of Trust Property such insurance as they may deem
necessary or appropriate for the conduct of the business,
including, without limitation, insurance policies
insuring the assets of the Trust and payment of
distributions and principal on its portfolio investments,
and insurance policies insuring the Shareholders,
Trustees, officers, employees, agents, consultants,
Investment Advisers, managers, Administrators,
Distributors, Principal Underwriters, or other
independent contractors, or any thereof (or any Person
connected therewith), of the Trust, individually, against
all claims and liabilities of every nature arising by
reason of holding, being or having held any such office
or position, or by reason of any action alleged to have
been taken or omitted by any such Person in any such
capacity, including any action taken or omitted that may
be determined to constitute negligence, whether or not
the Trust would have the power to indemnify such Person
against such liability;
(k) Pensions, etc. To pay pensions for faithful
service, as deemed appropriate by the Trustees, and to
adopt, establish and carry out pension, profit-sharing,
share bonus, share purchase, savings, thrift and other
retirement, incentive and benefit plans, trusts and
provisions, including the purchasing of life insurance
and annuity contracts as a means of providing such
retirement and other benefits, for any or all of the
Trustees, officers, employees and agents of the Trust;
(l) Power of Collection and Litigation. To
collect, sue for and receive all sums of money coming due
to the Trust, to employ counsel, and to commence, engage
in, prosecute, intervene in, join, defend, compound,
compromise, adjust or abandon, in the name of the Trust,
any and all actions, suits, proceedings, disputes,
claims, controversies, demands or other litigation or
legal proceedings relating to the Trust, the business of
the Trust, the Trust Property, or the Trustees, officers,
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employees, agents and other independent contractors of
the Trust, in their capacity as such, at law or in
equity, or before any other bodies or tribunals, and to
compromise, arbitrate or otherwise adjust any dispute to
which the Trust may be a party, whether or not any suit
is commenced or any claim shall have been made or
asserted;
(m) Issuance and Repurchase of Shares. To issue,
sell, repurchase, redeem, retire, cancel, acquire, hold,
resell, reissue, dispose of, transfer, and otherwise deal
in Shares of any Series, and, subject to Article 6
hereof, to apply to any such repurchase, redemption,
retirement, cancellation or acquisition of Shares of any
Series, any of the Portfolio Assets belonging to the
Portfolio to which such Series relates, whether
constituting capital or surplus or otherwise, to the full
extent now or hereafter permitted by applicable law;
provided, that any Shares belonging to the Trust shall
not be voted, directly or indirectly;
(n) Offices. To have one or more offices, and to
carry on all or any of the operations and business of the
Trust, in any of the States, Districts or Territories of
the United States, and in any and all foreign countries,
subject to the laws of such State, District, Territory or
country;
(o) Expenses. To incur and pay any and all such
expenses and charges as they may deem advisable
(including without limitation appropriate fees to
themselves as Trustees), and to pay all such sums of
money for which they may be held liable by way of
damages, penalty, fine or otherwise;
(p) Agents, etc. To retain and employ any and all
such servants, agents, employees, attorneys, brokers,
investment advisers, accountants, architects, engineers,
builders, escrow agents, depositories, consultants,
ancillary trustees, custodians, agents for collection,
insurers, banks and officers, as they think best for the
business of the Trust or any Portfolio, to supervise and
direct the acts of any of the same, and to fix and pay
their compensation and define their duties;
(q) Accounts. To determine, and from time to time
change, the method or form in which the accounts of the
Trust shall be kept;
(r) Valuation. Subject to the requirements of the
1940 Act, to determine from time to time the value of all
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or any part of the Trust Property and of any services,
Securities, property or other consideration to be
furnished to or acquired by the Trust, and from time to
time to revalue all or any part of the Trust Property in
accordance with such appraisals or other information as
is, in the Trustees' sole judgment, necessary and
satisfactory;
(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 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; and
(t) General. To do all such other acts and things
and to conduct, operate, carry on and engage in such
other lawful businesses or business activities as they
shall in their sole and absolute discretion consider to
be incidental to the business of the Trust or any
Portfolio as an investment company, and to exercise all
powers which they shall in their discretion consider
necessary, useful or appropriate to carry on the business
of the Trust or any Portfolio, to promote any of the
purposes for which the Trust is formed, whether or not
such things are specifically mentioned herein, in order
to protect or promote the interests of the Trust or any
Portfolio, or otherwise to carry out the provisions of
this Declaration.
SECTION 3.2. Limitations as to the Pennsylvania
Portfolio. Notwithstanding the provisions of paragraphs (a) and
(b) of Section 3.1, the Trustees shall have no power to vary the
investments of the Pennsylvania Portfolio except to:
(i) eliminate unsafe investments and investments not
consistent with the preservation of the capital or
the tax status of the investments of the
Pennsylvania Portfolio;
(ii) honor redemption orders, meet anticipated redemption
requirements, and negate gains from discount
purchases;
(iii) maintain a constant net asset value per share
pursuant to, and in compliance with, an order or
rule of the United States Securities and Exchange
Commission;
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(iv) reinvest the earnings from securities in like
securities; or
(v) defray normal administrative expenses.
The restrictions of the foregoing clauses (i) through (v) shall be
applicable to the investments of the Pennsylvania Portfolio, and
to the dispositions thereof, in addition to all other provisions
of this Declaration, which shall be fully applicable to the
Pennsylvania Portfolio:
SECTION 3.3. Borrowings; Financings; Issuance of
Securities. The Trustees shall have power to borrow or in any
other manner raise such sum or sums of money, and to incur such
other indebtedness for goods or services, or for or in connection
with the purchase or other acquisition of property, as they shall
deem advisable for the purposes of the Trust, in any manner and on
any terms, and to evidence the same by negotiable or non-
negotiable Securities which may mature at any time or times, even
beyond the possible date of termination of the Trust; to issue
Securities of any type for such cash, property, services or other
considerations, and at such time or times and upon such terms, as
they may deem advisable; and to reacquire any such Securities.
Any such Securities of the Trust may, at the discretion of the
Trustees, be made convertible into Shares of any Series, or may
evidence the right to purchase, subscribe for or otherwise acquire
Shares of any Series, at such times and on such terms as the
Trustees may prescribe.
SECTION 3.4. Deposits. Subject to the requirements of
the 1940 Act, the Trustees shall have power to deposit any moneys
or Securities included in the Trust Property with any one or more
banks, trust companies or other banking institutions, whether or
not such deposits will draw interest. Such deposits are to be
subject to withdrawal in such manner as the Trustees may
determine, and the Trustees shall have no responsibility for any
loss which may occur by reason of the failure of the bank, trust
company or other banking institution with which any such moneys or
Securities have been deposited, other than liability based on
their gross negligence or willful fault.
SECTION 3.5. Allocations. The Trustees shall have
power to determine whether moneys or other assets received by the
Trust shall be charged or credited to income or capital, or
allocated between income and capital, including the power to
amortize or fail to amortize any part or all of any premium or
discount, to treat any part or all of the profit resulting from
the maturity or sale of any asset, whether purchased at a premium
or at a discount, as income or capital, or to apportion the same
between income and capital, to apportion the sale price of any
asset between income and capital, and to determine in what manner
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any expenses or disbursements are to be borne as between income
and capital, whether or not in the absence of the power and
authority conferred by this Section 3.5 such assets would be
regarded as income or as capital or such expense or disbursement
would be charged to income or to capital; to treat any dividend or
other distribution on any investment as income or capital, or to
apportion the same between income and capital; to provide or fail
to provide reserves, including reserves for depreciation,
amortization or obsolescence in respect of any Trust Property in
such amounts and by such methods as they shall determine; to
allocate less than all of the consideration paid for Shares of any
Series to the shares of beneficial interest account of the
Portfolio to which such Shares relate and to allocate the balance
thereof to paid-in capital of that Portfolio, and to reallocate
such amounts from time to time; all as the Trustees may reasonably
deem proper.
SECTION 3.6. Further Powers; Limitations. The Trustees
shall have power to do all such other matters and things, and to
execute all such instruments, as they deem necessary, proper or
desirable in order to carry out, promote or advance the interests
of the Trust, although such matters or things are not herein
specifically mentioned. Any determination as to what is in the
interests of the Trust made by the Trustees in good faith shall be
conclusive. In construing the provisions of this Declaration of
Trust, the presumption shall be in favor of a grant of power to
the Trustees. The Trustees shall not be required to obtain any
court order to deal with the Trust Property. The Trustees may
limit their right to exercise any of their powers through express
restrictive provisions in the instruments evidencing or providing
the terms for any Securities of the Trust or in other contractual
instruments adopted on behalf of the Trust.
ARTICLE 4
TRUSTEES AND OFFICERS
SECTION 4.1. Number, Designation, Election, Term, etc.
(a) Initial Trustee. Upon his execution of this
Declaration of Trust or a counterpart hereof or some
other writing in which he accepts such Trusteeship and
agrees to the provisions hereof, the individual whose
signature is affixed hereto as Initial Trustee shall
become the Initial Trustee hereof.
(b) Number. The Trustees serving as such, whether
named above or hereafter becoming Trustees, may increase
(to not more than twenty (20)) or decrease the number of
Trustees to a number other than the number theretofore
determined by a written instrument signed by a Majority
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of the Trustees (or by an officer of the Trust pursuant
to the vote of a Majority of the Trustees). No decrease
in the number of Trustees shall have the effect of
removing any Trustee from office prior to the expiration
of his term, but the number of Trustees may be decreased
in conjunction with the removal of a Trustee pursuant to
subsection (e) of this Section 4.1.
(c) Election and Term. The Trustees shall be
elected by the Shareholders of the Trust at the first
meeting of Shareholders immediately prior to the initial
public offering of Shares of the Trust, and the term of
office of any Trustees in office before such election
shall terminate at the time of such election. Subject to
Section 16(a) of the 1940 Act and to the preceding
sentence of this subsection (c), the Trustees shall have
the power to set and alter the terms of office of the
Trustees, and at any time to lengthen or shorten their
own terms or make their terms of unlimited duration, to
elect their own successors and, pursuant to subsection
(f) of this Section 4.1, to appoint Trustees to fill
vacancies; provided, that Trustees shall be elected by a
Majority Shareholder Vote at any such time or times as
the Trustees shall determine that such action is required
under Section 16(a) of the 1940 Act or, if not so
required, that such action is advisable; and further
provided, that, after the initial election of Trustees by
the Shareholders, the term of office of any incumbent
Trustee shall continue until the termination of this
Trust or his earlier death, resignation, retirement,
bankruptcy, adjudicated incompetency or other incapacity
or removal, or if not so terminated, until the election
of such Trustee's successor in office has become
effective in accordance with this subsection (c).
(d) Resignation and Retirement. Any Trustee may
resign his trust or retire as a Trustee, by a written
instrument signed by him and delivered to the other
Trustees or to any officer of the Trust, and such
resignation or retirement shall take effect upon such
delivery or upon such later date as is specified in such
instrument.
(e) Removal. Any Trustee may be removed with or
without cause at any time: (i) by written instrument,
signed by at least two-thirds (2/3) of the number of
Trustees prior to such removal, specifying the date upon
which such removal shall become effective; or (ii) by
vote of Shareholders holding not less than two-thirds
(2/3) of the Shares of each Series then outstanding, cast
in person or by proxy at any meeting called for the
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purpose; or (iii) by a written declaration signed by
Shareholders holding at least two-thirds (2/3) of the
Shares of each Series then outstanding and filed with the
Trust's Custodian.
(f) Vacancies. Any vacancy or anticipated vacancy
resulting from any reason, including an increase in the
number of Trustees, may (but need not unless required by
the 1940 Act) be filled by a Majority of the Trustees,
subject to the provisions of Section 16(a) of the 1940
Act, through the appointment in writing of such other
individual as such remaining Trustees in their discretion
shall determine; provided, that if there shall be no
Trustees in office, such vacancy or vacancies shall be
filled by vote of the Shareholders. Any such appointment
or election shall be effective upon such individual's
written acceptance of his appointment as a Trustee and
his agreement to be bound by the provisions of this
Declaration of Trust, except that any such appointment in
anticipation of a vacancy to occur by reason of
retirement, resignation or increase in the number of
Trustees to be effective at a later date shall become
effective only at or after the effective date of said
retirement, resignation or increase in the number of
Trustees.
(g) Acceptance of Trusts. Any individual appointed
as a Trustee under subsection (f), and any individual
elected as a Trustee under subsection (c), of this
Section 4.1 who was not, immediately prior to such
election, acting as a Trustee, shall accept such
appointment or election in writing and agree in such
writing to be bound by the provisions hereof, and
whenever such individual shall have executed such writing
and any conditions to such appointment or election shall
have been satisfied, such individual shall become a
Trustee and the Trust Property shall vest in the new
Trustee, together with the continuing Trustees, without
any further act or conveyance.
(h) Effect of Death, Resignation, etc. No vacancy,
whether resulting from the death, resignation,
retirement, removal or incapacity of any Trustee, an
increase in the number of Trustees or otherwise, shall
operate to annul or terminate the Trust hereunder or to
revoke or terminate any existing agency or contract
created or entered into pursuant to the terms of this
Declaration of Trust. Until such vacancy is filled as
provided in this Section 4.1, the Trustees in office (if
any), regardless of their number, shall have all the
powers granted to the Trustees and shall discharge all
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the duties imposed upon the Trustees by this Declaration.
A written instrument certifying the existence of such
vacancy signed by a Majority of the Trustees shall be
conclusive evidence of the existence of such vacancy.
(i) Conveyance. In the event of the resignation or
removal of a Trustee or his otherwise ceasing to be a
Trustee, such former Trustee or his legal representative
shall, upon request of the continuing Trustees, execute
and deliver such documents as may be required for the
purpose of consummating or evidencing the conveyance to
the Trust or the remaining Trustees of any Trust Property
held in such former Trustee's name, but the execution and
delivery of such documents shall not be requisite to the
vesting of title to the Trust Property in the remaining
Trustees, as provided in subsection (g) of this
Section 4.1 and in Section 4.13 hereof.
(j) No Accounting. Except to the extent required
by the 1940 Act or under circumstances which would
justify his removal for cause, no Person ceasing to be a
Trustee (nor the estate of any such Person) shall be
required to make an accounting to the Shareholders or
remaining Trustees upon such cessation.
SECTION 4.2. Trustees' Meetings; Participation by
Telephone, etc. An annual meeting of Trustees shall be held not
later than the last day of the fourth month after the end of each
fiscal year of the Trust and special meetings may be held from
time to time, in each case, upon the call of such officers as may
be thereunto authorized by the By-Laws or vote of the Trustees, or
by any two (2) Trustees, or pursuant to a vote of the Trustees
adopted at a duly constituted meeting of the Trustees, and upon
such notice as shall be provided in the By-Laws. The Trustees may
act with or without a meeting, and a written consent to any
matter, signed by a Majority of the Trustees, shall be equivalent
to action duly taken at a meeting of the Trustees, duly called and
held. Except as otherwise provided by the 1940 Act or other
applicable law, or by this Declaration of Trust or the By-Laws,
any action to be taken by the Trustees may be taken by a majority
of the Trustees present at a meeting of Trustees (a quorum,
consisting of at least a Majority of the Trustees, being present),
within or without Massachusetts. If authorized by the By-Laws,
all or any one or more Trustees may participate in a meeting or
the Trustees or any Committee thereof by means of conference
telephone or similar means of communication by means of which all
Persons participating in the meeting can hear each other, and
participation in a meeting pursuant to such means of communication
shall constitute presence in person at such meeting. The minutes
of any meeting thus held shall be prepared in the same manner as a
meeting at which all participants were present in person.
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SECTION 4.3. Committees; Delegation. The Trustees
shall have power, consistent with their ultimate responsibility to
supervise the affairs of the Trust, to delegate from time to time
to an Executive Committee, and to one or more other Committees, or
to any single Trustee, the doing of such things and the execution
of such deeds or other instruments, either in the name of the
Trust or the names of the Trustees or as their attorney or
attorneys in fact, or otherwise as the Trustees may from time to
time deem expedient, and any agreement, deed, mortgage, lease or
other instrument or writing executed by the Trustee or Trustees or
other Person to whom such delegation was made shall be valid and
binding upon the Trustees and upon the Trust.
SECTION 4.4. Officers. The Trustees shall annually
elect such officers or agents, who shall have such powers, duties
and responsibilities as the Trustees may deem to be advisable, and
as they shall specify by resolution or in the By-Laws. Except as
may be provided in the By-Laws, any officer elected by the
Trustees may be removed at any time with or without cause. Any
two (2) or more offices may be held by the same individual.
SECTION 4.5. Compensation of Trustees and Officers.
The Trustees shall fix the compensation of all officers and
Trustees. Without limiting the generality of any of the
provisions hereof, the Trustees shall be entitled to receive
reasonable compensation for their general services as such, and to
fix the amount of such compensation, and to pay themselves or any
one or more of themselves such compensation for special services,
including legal, accounting, or other professional services, as
they in good faith may deem reasonable. No Trustee or officer
resigning and (except where a right to receive compensation for a
definite future period shall be expressly provided in a written
agreement with the Trust, duly approved by the Trustees) no
Trustee or officer removed shall have any right to any
compensation as such Trustee or officer for any period following
his resignation or removal, or any right to damages on account of
his removal, whether his compensation be by the month, by the year
or otherwise.
SECTION 4.6. Ownership of Shares and Securities of the
Trust. Any Trustee, and any officer, employee or agent of the
Trust, and any organization in which any such Person is
interested, may acquire, own, hold and dispose of Shares of any
Series or Class and other Securities of the Trust for his or its
individual account, and may exercise all rights of a holder of
such Shares or Securities to the same extent and in the same
manner as if such Person were not such a Trustee, officer,
employee or agent of the Trust; subject, in the case of Trustees
and officers, to the same limitations as directors or officers (as
the case may be) of a Massachusetts business corporation; and the
Trust may issue and sell or cause to be issued and sold and may
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purchase any such Shares or other Securities from any such Person
or any such organization, subject only to the general limitations,
restrictions or other provisions applicable to the sale or
purchase of Shares of such Series or other Securities of the Trust
generally.
SECTION 4.7. Right of Trustees and Officers to Own
Property and to Engage in Business; Authority of Trustees to
Permit Others to Do Likewise. The Trustees, in their capacity as
Trustees, and (unless otherwise specifically directed by vote of
the Trustees) the officers of the Trust in their capacity as such,
shall not be required to devote their entire time to the business
and affairs of the Trust. Except as otherwise specifically
provided by vote of the Trustees, or by agreement in any
particular case, any Trustee or officer of the Trust may acquire,
own, hold and dispose of, for his own individual account, any
property, and acquire, own, hold, carry on and dispose of, for his
own individual account, any business entity or business activity,
whether similar or dissimilar to any property or business entity
or business activity invested in or carried on by the Trust, and
without first offering the same as an investment opportunity to
the Trust, and may exercise all rights in respect thereof as if he
were not a Trustee or officer of the Trust. The Trustees shall
also have power, generally or in specific cases, to permit
employees or agents of the Trust to have the same rights (or
lesser rights) to acquire, hold, own and dispose of property and
businesses, to carry on businesses, and to accept investment
opportunities without offering them to the Trust, as the Trustees
have by virtue of this Section 4.7.
SECTION 4.8. Reliance on Experts. The Trustees and
officers may consult with counsel, engineers, brokers, appraisers,
auctioneers, accountants, investment bankers, securities analysts
or other Persons (any of which may be a firm in which one or more
of the Trustees or officers is or are members or otherwise
interested) whose profession gives authority to a statement made
by them on the subject in question, and who are reasonably deemed
by the Trustees or officers in question to be competent, and the
advice or opinion of such Persons shall be full and complete
personal protection to all of the Trustees and officers in respect
of any action taken or suffered by them in good faith and in
reliance on or in accordance with such advice or opinion. In
discharging their duties, Trustees and officers, when acting in
good faith, may rely upon financial statements of the Trust
represented to them to be correct by any officer of the Trust
having charge of its books of account, or stated in a written
report by an independent certified public accountant fairly to
present the financial position of the Trust. The Trustees and
officers may rely, and shall be personally protected in acting,
upon any instrument or other document believed by them to be
genuine.
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SECTION 4.9. Surety Bonds. No Trustee, officer,
employee or agent of the Trust shall, as such, be obligated to
give any bond or surety or other security for the performance of
any of his duties, unless required by applicable law or
regulation, or unless the Trustees shall otherwise determine in
any particular case.
SECTION 4.10. Apparent Authority of Trustees and
Officers. No purchaser, lender, transfer agent or other Person
dealing with the Trustees or any officer of the Trust shall be
bound to make any inquiry concerning the validity of any
transaction purporting to be made by the Trustees or by such
officer, or to make inquiry concerning or be liable for the
application of money or property paid, loaned or delivered to or
on the order of the Trustees or of such officer.
SECTION 4.11. Other Relationships Not Prohibited. The
fact that:
(i) any of the Shareholders, Trustees or officers
of the Trust is a shareholder, director, officer,
partner, trustee, employee, manager, adviser, principal
underwriter or distributor or agent of or for any
Contracting Party (as defined in Section 5.2 hereof), or
of or for any parent or affiliate of any Contracting
Party, or that the Contracting Party or any parent or
affiliate thereof is a Shareholder or has an interest in
the Trust or any Portfolio, or that
(ii) any Contracting Party may have a contract
providing for the rendering of any similar services to
one or more other corporations, trusts, associations,
partnerships, limited partnerships or other
organizations, or have other business or interests,
shall not affect the validity of any contract for the performance
and assumption of services, duties and responsibilities to, for or
of the Trust and/or the Trustees or disqualify any Shareholder,
Trustee or officer of the Trust from voting upon or executing the
same or create any liability or accountability to the Trust or to
the holders of Shares of any Series; provided, that, in the case
of any relationship or interest referred to in the preceding
clause (i) on the part of any Trustee or officer of the Trust,
either (x) the material facts as to such relationship or interest
have been disclosed to or are known by the Trustees not having any
such relationship or interest and the contract involved is
approved in good faith by a majority of such Trustees not having
any such relationship or interest (even though such unrelated or
disinterested Trustees are less than a quorum of all of the
Trustees), (y) the material facts as to such relationship or
interest and as to the contract have been disclosed to or are
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known by the Shareholders entitled to vote thereon and the
contract involved is specifically approved in good faith by vote
of the Shareholders, or (z) the specific contract involved is fair
to the Trust as of the time it is authorized, approved or ratified
by the Trustees or by the Shareholders.
SECTION 4.12. Payment of Trust Expenses. The Trustees
are authorized to pay or to cause to be paid out of the principal
or income of the Trust, or partly out of principal and partly out
of income, and according to any allocation to particular
Portfolios made by them pursuant to Section 6.2(b) hereof, all
expenses, fees, charges, taxes and liabilities incurred or arising
in connection with the business and affairs of the Trust or in
connection with the management thereof, including, but not limited
to, the Trustees' compensation and such expenses and charges for
the services of the Trust's officers, employees, Investment
Adviser, Administrator, Distributor, Principal Underwriter,
auditor, counsel, Custodian, Transfer Agent, Dividend Disbursing
Agent, Accounting Agent, Shareholder Servicing Agent, and such
other agents, consultants, and independent contractors and such
other expenses and charges as the Trustees may deem necessary or
proper to incur.
SECTION 4.13. Ownership of the Trust Property. Legal
title to all the Trust Property shall be vested in the Trustees as
joint tenants, except that the Trustees shall have power to cause
legal title to any Trust Property to be held by or in the name of
one or more of the Trustees, or in the name of the Trust, or of
any particular Portfolio, or in the name of any other Person as
nominee, on such terms as the Trustees may determine; provided,
that the interest of the Trust and of the respective Portfolio
therein is appropriately protected. The right, title and interest
of the Trustees in the Trust Property shall vest automatically in
each Person who may hereafter become a Trustee. Upon the
termination of the term of office of a Trustee as provided in
Section 4.1(c), (d) or (e) hereof, such Trustee shall
automatically cease to have any right, title or interest in any of
the Trust Property, and the right, title and interest of such
Trustee in the Trust Property shall vest automatically in the
remaining Trustees. Such vesting and cessation of title shall be
effective whether or not conveyancing documents have been executed
and delivered pursuant to Section 4.1(i) hereof.
ARTICLE 5
DELEGATION OF MANAGERIAL RESPONSIBILITIES
SECTION 5.1. Appointment; Action by Less than All
Trustees. The Trustees shall be responsible for the general
operating policy of the Trust and for the general supervision of
the business of the Trust conducted by officers, agents, employees
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or advisers of the Trust or by independent contractors, but the
Trustees shall not be required to conduct all the business of the
Trust in person, and, consistent with their ultimate
responsibility as stated herein, the Trustees may appoint, employ
or contract with one or more officers, employees and agents to
conduct, manage and/or supervise the operations of the Trust, and
may grant or delegate such authority to such officers, employees
and/or agents as the Trustees may, in their sole discretion, deem
to be necessary or desirable, without regard to whether such
authority is normally granted or delegated by trustees. With
respect to those matters of the operation and business of the
Trust which they shall elect to conduct themselves, except as
otherwise provided by this Declaration or the By-Laws, if any, the
Trustees may authorize any single Trustee or defined group of
Trustees, or any committee consisting of a number of Trustees less
than the whole number of Trustees then in office without
specification of the particular Trustees required to be included
therein, to act for and to bind the Trust, to the same extent as
the whole number of Trustees could do, either with respect to one
or more particular matters or classes of matters, or generally.
SECTION 5.2. Certain Contracts. Subject to compliance
with the provisions of the 1940 Act, but notwithstanding any
limitations of present and future law or custom in regard to
delegation of powers by trustees generally, the Trustees may, at
any time and from time to time in their discretion and without
limiting the generality of their powers and authority otherwise
set forth herein, enter into one or more contracts with any one or
more corporations, trusts, associations, partnerships, limited
partnerships or other types of organizations, or individuals
("Contracting Party"), to provide for the performance and
assumption of some or all of the following services, duties and
responsibilities to, for or on behalf of the Trust and/or any
Portfolio, and/or the Trustees, and to provide for the performance
and assumption of such other services, duties and responsibilities
in addition to those set forth below, as the Trustees may deem
appropriate:
(a) Advisory. One or more investment advisory or
management agreements, each with an investment manager or
adviser (each, an "Investment Adviser"), whereby the
Investment Adviser shall undertake to furnish the Trust
such management, investment advisory or supervisory,
administrative, accounting, legal, statistical and
research facilities and services, and such other
facilities and services, if any, as the Trustees shall
from time to time consider desirable, all upon such terms
and conditions as the Trustees may in their discretion
determine to be not inconsistent with this Declaration,
the applicable provisions of the 1940 Act or any
applicable provisions of the By-Laws. Any such advisory
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or management agreement and any amendment thereto shall
be subject to approval by a Majority Shareholder Vote at
a meeting of the Shareholders of the Trust.
Notwithstanding any provisions of this Declaration, the
Trustees may authorize the Investment Adviser (subject to
such general or specific instructions as the Trustees may
from time to time adopt) to effect purchases, sales,
loans or exchanges of portfolio securities of the Trust
on behalf of the Trustees or may authorize any officer or
employee of the Trust or any Trustee to effect such
purchases, sales, loans or exchanges pursuant to
recommendations of the Investment Adviser (and all
without further action by the Trustees). Any such
purchases, sales, loans and exchanges shall be deemed to
have been authorized by all of the Trustees. The
Trustees may, in their sole discretion, call a meeting of
Shareholders in order to submit to a vote of Shareholders
at such meeting the approval of continuance of any such
investment advisory or management agreement. If the
Shareholders of any Portfolio should fail to approve any
such investment advisory or management agreement, the
Investment Adviser may nonetheless serve as Investment
Adviser with respect to any other Portfolio whose
Shareholders shall have approved such contract.
(b) Administration. One or more agreements, each
with a provider of administrative and clerical services
whereby the other party shall, as agent for the Trustees,
but subject to the general supervision of the Trustees
and in conformity with any policies of the Trustees with
respect to the operations of the Trust and each
Portfolio, supervise all or any part of the operations of
the Trust and each Portfolio, and will provide all or any
part of the administrative and clerical personnel, office
space and office equipment and services appropriate for
the efficient administration and operations of the Trust
and each Portfolio (any such agent being herein referred
to as an "Administrator").
(c) Distribution. One or more agreements, each
with a broker or dealer in securities providing for the
sale of Shares of any one or more Series or Classes of
any Series to net the Trust not less than the net asset
value per Share (as described in Section 6.2(g) hereof)
and pursuant to which the Trust may appoint the other
party to such agreement as its principal underwriter or
sales agent for the distribution of such Shares. The
agreement shall contain such terms and conditions as the
Trustees may in their discretion determine to be not
inconsistent with this Declaration, the applicable
provisions of the 1940 Act and any applicable provisions
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of the By-Laws (any such underwriter or sales agent being
herein referred to as a "Principal Underwriter" or a
"Distributor", as the case may be).
(d) Custodian. One or more agreements, each with a
bank or trust company having an aggregate capital,
surplus and undivided profits (as shown in its last
published report) of at least two million dollars
($2,000,000) as custodian of the Securities and cash of
the Trust and of each Portfolio and of the accounting
records in connection therewith (any bank or trust
company so appointed being herein referred to as a
"Custodian").
(e) Transfer and Dividend Disbursing Agency. One
or more agreements, each with an agent to maintain
records of the ownership of outstanding Shares, and the
issuance and redemption and the transfer thereof (any
such agent being herein referred to as a "Transfer
Agent"), and to disburse any dividends declared by the
Trustees and in accordance with the policies of the
Trustees and/or the instructions of any particular
Shareholder to reinvest any such dividends (any such
agent being herein referred to as a "Dividend Disbursing
Agent").
(f) Shareholder Servicing. One or more agreements,
each with an agent to provide service with respect to the
relationship of the Trust and its Shareholders, records
with respect to Shareholders and their Shares, and
similar matters (any such agent being herein referred to
as a "Shareholder Servicing Agent").
(g) Accounting. One or more agreements, each with
an agent to handle all or any part of the accounting
responsibilities, whether with respect to the Trust's
properties, Shareholders or otherwise (any such agent
being herein referred to as an "Accounting Agent").
The same Person may be the Contracting Party for some or all of
the services, duties and responsibilities to, for and of the Trust
and/or the Trustees, and the contracts with respect thereto may
contain such terms interpretive of or in addition to the
delineation of the services, duties and responsibilities provided
for, including provisions that are not inconsistent with the 1940
Act relating to the standard of duty of and the rights to
indemnification of the Contracting Party and others, as the
Trustees may determine. Nothing herein shall preclude, prevent or
limit the Trust or a Contracting Party from entering into sub-
contractual arrangements relative to any of the matters referred
to in subsections (a) through (g) of this Section 5.2.
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ARTICLE 6
PORTFOLIOS AND SHARES
SECTION 6.1. Description of Portfolios and Shares.
(a) Shares; Portfolios; Series and Classes of Shares.
The beneficial interest in the Trust shall be divided into Shares
having a nominal or par value of one cent ($.01) per Share, of
which an unlimited number may be issued. The Trustees shall have
the power and authority, without any requirement of Shareholder
approval, from time to time to establish and designate one or more
separate, distinct and independent Portfolios, in addition to the
Portfolios established and designated by Section 6.2 hereof, into
which the assets of the Trust shall be divided, to authorize a
separate Series of Shares for each such additional Portfolio (each
of which Series shall represent interests only in the Portfolio
for which such Series was authorized), and to authorize two or
more separate Classes of Shares of any such Series, as they deem
necessary or desirable. The Trustees shall have the power to
classify or reclassify any unissued Shares of any Series, or any
Shares of any Series previously issued and reacquired by the Trust
(including in either case any Shares of the Portfolios established
and designated by Section 6.2 hereof) into any number of
additional Classes of such Series by from time to time setting or
changing in one or more respects provisions applicable to such
Class or Classes relating to sales charges, any rights of
redemption and the price, terms and manner of redemption, special
and relative rights as to dividends and other distributions and on
liquidation, sinking or purchase fund provisions and conversion
rights, and (subject to Article 7 hereof) the conditions under
which the Shareholders of the several Classes shall have separate
voting rights or no voting rights. Except as otherwise provided
as to a particular Portfolio herein or in the Certificate of
Designation therefor, the Trustees shall have all the rights and
powers, and be subject to all the duties and obligations, with
respect to each such Portfolio and the assets and affairs thereof
as they have under this Declaration with respect to the Trust and
the Trust Property in general.
(b) Establishment, etc. of Portfolios; Authorization of
Shares. In order to establish and designate any Portfolio in
addition to the Portfolios established and designated by
Section 6.2 hereof, and to authorize the Shares thereof, a
Majority of the Trustees (or an officer of the Trust pursuant to
the vote of a Majority of the Trustees) shall execute an
instrument setting forth such establishment and designation and
the relative rights and preferences of the Shares of the Series
representing interests in such Portfolio and the manner in which
the same may be amended (a "Certificate of Designation"), which
may provide that the number of Shares of such Series or any Class
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thereof which may be issued is unlimited, or may limit the number
issuable. At any time that there are outstanding no Shares of any
particular Series or Class previously established and designated,
including any Class of the Portfolios established and designated
by Section 6.2 hereof, and also, in the case of any Class of a
Series, of which there are outstanding no Shares of any other
Class of such Series which are convertible into Shares of the
particular Class, the Trustees may by an instrument executed by a
Majority of the Trustees (or by an officer of the Trust pursuant
to the vote of a Majority of the Trustees) terminate such Series
or Class and the establishment and designation thereof and the
authorization of its Shares (a "Certificate of Termination").
Each Certificate of Designation or Certificate of Termination and
any instrument amending a Certificate of Designation shall have
the status of an amendment to this Declaration of Trust, and shall
be filed and become effective as provided in Section 9.4 hereof.
(c) Character of Separate Portfolios and Shares Thereof.
Each Portfolio established hereunder shall be a separate component
of the assets of the Trust, and the holders of Shares of the
Series representing interests in that Portfolio shall be
considered Shareholders of such Portfolio, but such Shareholders
shall also be considered Shareholders of the Trust for purposes of
receiving reports and notices and, except as otherwise provided
herein or in the Certificate of Designation of a particular
Portfolio as to such Portfolio, or as required by the 1940 Act or
other applicable law, the right to vote, all without distinction
by Series.
(d) Consideration for Shares. The Trustees may issue
Shares of any Series for such consideration (which may include
property subject to, or acquired in connection with the assumption
of, liabilities) and on such terms as they may determine (or for
no consideration if pursuant to a Share dividend or split-up), all
without action or approval of the Shareholders. All Shares when
so issued on the terms determined by the Trustees shall be fully
paid and nonassessable (but may be subject to mandatory
contribution back to the Trust as provided in Section 6.2(g)
hereof).
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 are
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, an "Initial Portfolio"), the Shares
of each of which shall be divided into three separate Classes,
designated Class A, Class B and Class C, which shall represent
interests only in the respective Initial Portfolio. An unlimited
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number of Shares of each such Class may be issued. Subject to the
power of the Trustees to classify or reclassify any unissued
Shares of a Series pursuant to Section 6.1(a) above, the Shares of
the Initial Portfolios, 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:
(a) Assets Belonging to Portfolios. Any portion of
the Trust Property allocated to a particular Portfolio,
and all consideration received by the Trust for the issue
or sale of Shares of such Portfolio, together with all
assets in which such consideration is invested or
reinvested, all interest, dividends, income, earnings,
profits and gains therefrom, and proceeds thereof,
including any proceeds derived from the sale, exchange or
liquidation of such assets, and any funds or payments
derived from any reinvestment of such proceeds in
whatever form the same may be, shall be held by the
Trustees in trust for the benefit of the holders of
Shares of that Portfolio and shall irrevocably belong to
that Portfolio for all purposes, and shall be so recorded
upon the books of account of the Trust, and the
Shareholders of such Portfolio shall not have, and shall
be conclusively deemed to have waived, any claims to the
assets of any Portfolio of which they are not
Shareholders. Such consideration, assets, interest,
dividends, income, earnings, profits, gains and proceeds,
together with any General Items allocated to that
Portfolio as provided in the following sentence, are
herein referred to collectively as "Portfolio Assets" of
such Portfolio, and as assets "belonging to" that
Portfolio. If the Trust shall have or realize any
assets, interest, dividends, income, earnings, profits,
gains or proceeds which are not readily identifiable as
belonging to any particular Portfolio (collectively,
"General Items"), the Trustees shall allocate such
General Items to and among any one or more of the
Portfolios of the Trust in such manner and on such basis
as they, in their sole discretion, deem fair and
equitable; and any General Items so allocated to a
particular Portfolio shall belong to and be part of the
Portfolio Assets of that Portfolio. Each such allocation
by the Trustees shall be conclusive and binding upon the
Shareholders of all Portfolios for all purposes.
(b) Liabilities of Portfolios. The assets
belonging to each Portfolio shall be charged with the
liabilities incurred by or arising in respect of that
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Portfolio, and all expenses, costs, charges and reserves
attributable to that Portfolio, and any general
liabilities, expenses, costs, charges or reserves of the
Trust which are not readily identifiable as pertaining to
any particular Portfolio shall be allocated and charged
by the Trustees to and among any one or more of the
Portfolios of the Trust in such manner and on such basis
as the Trustees in their sole discretion deem fair and
equitable. The liabilities, expenses, costs, charges and
reserves so allocated and so charged to a particular
Portfolio are herein referred to as "liabilities of" that
Portfolio. Each allocation of liabilities, expenses,
costs, charges and reserves by the Trustees shall be
conclusive and binding upon the Shareholders of all
Portfolios for all purposes. The creditors of a
particular Portfolio may look only to the assets of that
Portfolio to satisfy such creditors' claims, and the
creditors of a particular Class of a Portfolio may look
only to the share of that Class in the assets of the
Portfolio of which it is a part to satisfy their claims.
(c) Dividends. Dividends and distributions on
Shares of a particular Portfolio may be paid with such
frequency as the Trustees may determine, which may be
daily or otherwise pursuant to a standing resolution or
resolutions adopted only once or with such frequency as
the Trustees may determine, to the holders of Shares of
that Portfolio, from such of the income, accrued or
realized, and capital gains, realized or unrealized, and
out of the assets belonging to such Portfolio, as the
Trustees may determine, after providing for actual and
accrued liabilities of that Portfolio. Dividends and
distributions on Shares of a Portfolio without separate
Classes of Shares shall be distributed pro rata to the
holders of Shares of that Portfolio in proportion to the
number of such Shares held by such holders at the date
and time of record established for the payment of such
dividends or distributions. Dividends and distributions
on the Shares of a Portfolio having separate Classes of
Shares shall be in such amount as may be declared from
time to time by the Trustees, and such dividends and
distributions may vary as between such Classes to reflect
differing allocations among such Classes of the
liabilities, expenses, costs, charges and reserves of
such Portfolio, and any resultant differences between the
net asset value of such several Classes, to such extent
and for such purposes as the Trustees may deem
appropriate, but dividends and distributions on the
Shares of a particular Class shall be distributed pro
rata to the Shareholders of that Class in proportion to
the number of such Shares held by such holders at the
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date and time of record established for the payment of
such dividends and distributions. Notwithstanding the
last two preceding sentences, the Trustees may determine,
in connection with any dividend or distribution program
or procedure, that no dividend or distribution shall be
payable on newly-purchased Shares as to which the
purchase order and/or payment have not been received by
the time or times established by the Trustees under such
program or procedure, or that dividends or distributions
shall be payable on Shares which have been tendered by
the holder thereof for redemption or repurchase, but the
redemption or repurchase proceeds of which have not yet
been paid to such Shareholder. Dividends and
distributions on the Shares of a Portfolio may be made in
cash or Shares of any Class of that Portfolio or a
combination thereof as determined by the Trustees, or
pursuant to any program that the Trustees may have in
effect at the time for the election by each Shareholder
of the mode of the making of such dividend or
distribution to that Shareholder. Any such dividend or
distribution paid in Shares will be paid at the net asset
value thereof as determined in accordance with subsection
(g) of this Section 6 2.
(d) Liquidation. In the event of the liquidation
or dissolution of the Trust, the Shareholders of each
Portfolio of which Shares are outstanding shall be
entitled to receive, when and as declared by the
Trustees, the excess of the Portfolio Assets over the
liabilities of such Portfolio. The assets so
distributable to the Shareholders of any Portfolio
without separate Classes of Shares shall be distributed
among such Shareholders in proportion to the number of
Shares of that Portfolio held by them and recorded on the
books of the Trust. The assets so distributable to the
Shareholders of any Portfolio having separate Classes of
Shares shall be allocated among such Classes in
proportion to the respective aggregate net asset value of
the outstanding Shares thereof, and shall be distributed
to the Shareholders of each such Class in proportion to
the number of Shares of that Class held by them and
recorded on the books of the Trust. The liquidation of
any Portfolio, or any Class of any Portfolio, may be
authorized by vote of a Majority of the Trustees, subject
to the affirmative vote of "a majority of the outstanding
voting securities" of that Portfolio or Class, as the
quoted phrase is defined in the 1940 Act, determined in
accordance with clause (iii) of the definition of
"Majority Shareholder Vote" in Section 1.4 hereof.
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(e) Redemption by Shareholder. Each holder of
Shares of a particular Series or Class shall have the
right at such times as may be permitted by the Trust, but
no less frequently than once each week, to require the
Trust to redeem all or any part of such Shares at a
redemption price equal to the net asset value per Share
of that Series or Class next determined in accordance
with subsection (g) of this Section 6.2 after the Shares
are properly tendered for redemption; provided, that the
Trustees may from time to time, in their discretion,
determine and impose a fee for such redemption, and the
proceeds of the redemption of Shares (including a
fractional Share) of any Series or Class shall be reduced
by the amount of any applicable contingent deferred sales
charge payable on such redemption pursuant to the terms
of the initial issuance of the Shares of such Series or
Class (to the extent consistent with the 1940 Act or
regulations or exemptions thereunder). The redemption
price of Shares redeemed under this subsection (e) shall
be paid in cash; provided, however, that if the Trustees
determine, which determination shall be conclusive, that
conditions exist with respect to any Portfolio, or one or
more Classes of any Portfolio, which make payment wholly
in cash unwise or undesirable, the Trust may make payment
wholly or partly in Securities or other assets belonging
to such Portfolio, or to the Portfolio of which such
Class or Classes are a part, at the value of such
Securities or assets used in such determination of net
asset value. Notwithstanding the foregoing, the Trust
may postpone payment of the redemption price and may
suspend the right of the holders of Shares of any Series
or Class to require the Trust to redeem Shares of that
Series or Class during any period or at any time when and
to the extent permissible under the 1940 Act.
(f) Redemption at the Option of the Trust. Each
Share of any Portfolio shall be subject to redemption at
the option of the Trust at the redemption price which
would be applicable if such Share were then being
redeemed by the Shareholder pursuant to subsection (e) of
this Section 6.2: (i) at any time, if the Trustees
determine in their sole discretion that failure to so
redeem may have materially adverse consequences to the
holders of the Shares of the Trust or of any Portfolio,
or (ii) upon such other conditions with respect to
maintenance of Shareholder accounts of a minimum amount
as may from time to time be determined by the Trustees
and set forth in the then-current Prospectus of such
Portfolio. Upon such redemption the holders of the
Shares so redeemed shall have no further right with
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respect thereto other than to receive payment of such
redemption price.
(g) Net Asset Value. Subject to the provisions of
the two sentences immediately following, the net asset
value per Share of any Portfolio without Classes, or of
any Class of a Portfolio having separate Classes of
Shares, at any time shall be the quotient obtained by
dividing the value of the net assets of such Portfolio or
the share of such Class in such assets, as the case may
be, at such time (being the current value of the assets
belonging to such Portfolio, or the share of such Class
therein, less the then-existing liabilities of such
Portfolio, or the share of such Class in such
liabilities) by the total number of Shares of that
Portfolio or Class then outstanding, all determined in
accordance with the methods and procedures, including
without limitation those with respect to rounding,
established by the Trustees from time to time. The
aggregate net asset value of the several Classes of a
Portfolio having separate Classes of Shares shall be
separately computed, and may vary from one another. The
Trustees shall establish procedures for the allocation of
investment income or capital gains and expenses and
liabilities of a Portfolio having separate Classes of
Shares among the several Classes of such Portfolio, in
order to reflect the varying net asset values of, and the
liabilities and expenses attributable to, such Classes.
The Trustees may determine to maintain the net asset
value per Share of any Portfolio at a designated constant
dollar amount and in connection therewith may adopt
procedures not inconsistent with the 1940 Act for the
continuing declaration of income attributable to that
Portfolio as dividends payable in additional Shares of
that Portfolio at the designated constant dollar amount
and for the handling of any losses attributable to that
Portfolio. Such procedures may provide that in the event
of any loss each Shareholder shall be deemed to have
contributed to the shares of beneficial interest account
of that Portfolio such Shareholder's pro rata portion of
the total number of Shares required to be canceled in
order to permit the net asset value per Share of that
Portfolio to be maintained, after reflecting such loss,
at the designated constant dollar amount. Each
Shareholder of the Trust shall be deemed to have
expressly agreed, by investing in any Portfolio with
respect to which the Trustees shall have adopted any such
procedure, to make the contribution referred to in the
preceding sentence in the event of any such loss.
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(h) Transfer. All Shares of the Trust shall be
transferable, but transfers of Shares of a particular
Portfolio will be recorded on the Share transfer records
of the Trust applicable to that Portfolio only at such
times as Shareholders shall have the right to require the
Trust to redeem Shares of that Portfolio and at such
other times as may be permitted by the Trustees.
(i) Equality. All Shares of each Portfolio without
Classes shall represent an equal proportionate interest
in the assets belonging to that Portfolio, subject to the
liabilities of that Portfolio, and each Share of any such
Portfolio shall be equal to each other Share thereof.
All Shares of each Class of Shares of any Portfolio
having separate Classes of Shares shall represent an
equal proportionate interest in the share of such Class
in the assets belonging to that Portfolio, subject to a
like share of the liabilities of such Portfolio, adjusted
for any liabilities specifically allocable to that Class,
and each Share of any such Class shall be equal to each
other Share thereof; but the interests represented by the
Shares of the different Classes of a Portfolio having
separate Classes of Shares shall reflect any distinctions
among the several Classes of such Portfolio existing
under this Section 6.2 or Section 7.1 hereof, or under
the Certificate of Designation for such Portfolio. The
Trustees may from time to time divide or combine the
Shares of any Portfolio, or any Class of any Portfolio,
into a greater or lesser number of Shares of that
Portfolio or Class without thereby changing the
proportionate beneficial interest in the assets belonging
to that Portfolio or in any way affecting the rights of
the holders of Shares of any other Portfolio or Class.
(j) Rights of Fractional Shares. Any fractional
Share of any Series or Class of Shares shall carry
proportionately all the rights and obligations of a whole
Share of that Series or Class, including rights and
obligations with respect to voting, receipt of dividends
and distributions, redemption of Shares, and liquidation
of the Trust or of the Portfolio or Class to which such
Shares pertain.
(k) Conversion Rights; Conversion of Class B Shares
of the Portfolios. (i) Subject to compliance with the
requirements of the 1940 Act, the Trustees shall have the
authority to provide (A) that holders of Shares of any
Portfolio shall have the right to convert said Shares
into Shares of any other investment company registered as
such under the 1940 Act and designated for that purpose
(an "Eligible Investment Company") in the Trust's
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prospectus for the Shares being converted, (B) that
holders of any Class of Shares of a Portfolio shall have
the right to convert such Shares into Shares of one or
more other Classes of such Portfolio, and (C) that Shares
of any Class of a Portfolio shall be automatically
converted into Shares of another Class of such Portfolio,
in each case in accordance with such requirements and
procedures as the Trustees may establish.
(ii) Without limitation of the foregoing, each
Class B Share of any Portfolio, other than Shares
purchased through the automatic reinvestment of dividends
or distributions with respect to the Class B Shares of
such Portfolio, shall be converted automatically, and
without any action or choice on the part of the holder
thereof, into Class A Shares of such Portfolio on the
Conversion Date thereof, established as provided in the
next succeeding sentence. The term "Conversion Date", as
to any Class B Share, shall mean either (i) the date that
is the first Trust business day in the month following
the month which includes the sixth anniversary of the
Original Purchase Date thereof, determined as provided in
the next succeeding sentence, or (ii) any such other date
as may be determined by the Trustees and set forth in the
Trust's prospectus with respect to the Class B Shares, as
the same may be amended from time to time; provided, that
any such other date determined by the Trustees is one
that will occur prior to both (A) the date determined as
provided in clause (i) of this sentence and (B) any other
date theretofore determined by the Trustees pursuant to
this clause (ii). The "Original Purchase Date" of a
Class B Share shall be the date on which such Share was
first subscribed and paid for by such holder; provided,
that if such Share was obtained by the holder through an
exchange of Shares of another Eligible Investment
Company, the Original Purchase Date shall be the Original
Purchase Date of the Class B Shares of such other
Eligible Investment Company, or if the Shares of such
other Eligible Investment Company were held as the result
of a series of exchanges, the Original Purchase Date of
the Class B Shares of the Eligible Investment Company to
which the holder originally subscribed. Class B Shares
of a Portfolio purchased through the automatic
reinvestment of a dividend or a distribution with respect
to the Class B Shares of such Portfolio shall be
segregated in a separate sub-account on the share records
of the Trust for each of the Shareholders of record
thereof. On any Conversion Date, a number of the Shares
held in the sub-account of the Shareholder of record of
the Share or Shares being converted, calculated in
accordance with the next following sentence, shall be
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converted automatically, and without any action or choice
on the part of the Shareholder, into Class A Shares of
such Portfolio. The number of shares in the
Shareholder's sub-account so converted shall bear the
same relation to the total number of Shares maintained in
the sub-account on the Conversion Date (immediately prior
to conversion) as the number of Shares of the Shareholder
converted on the Conversion Date pursuant to paragraph
(i) of this subsection (k) bears to the total number of
Class B Shares of such Portfolio held by the Shareholder
on the Conversion Date (immediately prior to conversion)
not purchased through the automatic reinvestment of
dividends or distributions with respect to the Class B
Shares of such Portfolio.
(iii) The number of Class A Shares of any
Portfolio into which a Class B Share of such Portfolio is
converted pursuant to paragraph (ii) of this subsection
(k) shall be the quotient (including for this purpose
fractions of a Share) obtained by dividing the net asset
value per Share of the Class B Shares by the net asset
value per Share of the Class A Shares, each determined as
of the close of business on the Conversion Date of such
Class B Shares.
(iv) Class B Shares of any Portfolio converted
into Class A Shares of such Portfolio will cease to
accrue dividends at the close of business on the
Conversion Date thereof, and will thenceforth no longer
be deemed outstanding, and the rights of the holders
thereof (except (A) the right to receive the number of
Class A Shares into which such Class B Shares have been
converted and (B) dividends declared on such Class B
Shares but not paid prior to the close of business on
such Conversion Date), and (C) the right to vote or to
give any consent in respect of Class B Shares so
converted that were held as of any record date occurring
before the Conversion Date and theretofore set with
respect to any meeting held or any written consent for
which the final date is set after the Conversion Date)
will cease, and such holder shall instead have all rights
of a holder of Class A Shares in respect of the Class A
Shares issuable upon such conversion, effective from and
after the close of business on such Conversion Date.
Certificates representing Class A Shares resulting from
the conversion need not be issued until certificates
representing Class B Shares converted, if issued, have
been received by the Trust or its agent, duly endorsed
for transfer.
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(v) The Trust will appropriately reflect the
conversion of Class B Shares of any Portfolio into
Class A Shares of such Portfolio on the first periodic
statements of account sent to Shareholders of record
affected which provide account information with respect
to a reporting period which includes the Conversion Date.
(vi) Without limiting the generality of the
foregoing, except as otherwise expressly provided by the
Trustees pursuant to paragraph (i) of this subsection
(k), neither the Class A Shares nor the Class C Shares of
any Portfolio shall be convertible into shares of any
other Class or Series.
(l) Suspension of Automatic Conversion of Class B
Shares. Notwithstanding the provisions of subsection (k) of this
Section 6.2, the automatic conversion of Class B Shares into
Class A Shares shall be subject to suspension, as follows:
(i) Such conversion shall be suspended at any time
that the Trustees determine (i) that there is not
available a reasonably satisfactory opinion of counsel to
the effect that, under the Internal Revenue Code (x) the
assessment of the higher distribution services fee and
transfer agency costs with respect to the Class B Shares
does not result in the Trust's dividends or distributions
constituting a "preferential dividend", and (y) the
conversion of the Class B Shares does not constitute a
taxable event, or (ii) any other condition to converstion
set forth in the Trust's prospectus for the Class B
Shares, as such prospectus may be amended from time to
time, is not satisfied; and
(ii) Such conversion may be suspended at any time
that the Trustees determine such suspension to be
appropriate in order to comply with, or satisfy the
requirements of, the 1940 Act, relating to voting by the
holders of the Class B Shares on any plan with respect to
the Class A Shares proposed pursuant to Rule 12b-1 under
the 1940 Act, and in connection with, or in lieu of, any
such suspension, the Trustees may provide holders of
Class B Shares with alternative conversion or exchange
rights into other Classes or Series of Shares of the
Trust in a manner consistent with the provision of the
1940 Act giving rise to the possible suspension of such
conversion right.
SECTION 6.3. Ownership of Shares. The ownership of
Shares shall be recorded on the books of the Trust or of a
Transfer Agent or similar agent for the Trust, which books shall
be maintained separately for the Shares of each Series that has
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been authorized. Certificates evidencing the ownership of Shares
need not be issued except as the Trustees may otherwise determine
from time to time, and the Trustees shall have power to call
outstanding Share certificates and to replace them with book
entries. The Trustees may make such rules as they consider
appropriate for the issuance of Share certificates, the use of
facsimile signatures, the transfer of Shares and similar matters.
The record books of the Trust as kept by the Trust or any Transfer
Agent or similar agent, as the case may be, shall be conclusive as
to who are the Shareholders and as to the number of Shares of each
Portfolio held from time to time by each such Shareholder.
The holders of Shares of each Portfolio shall upon demand
disclose to the Trustees in writing such information with respect
to their direct and indirect ownership of Shares of such Portfolio
as the Trustees deem necessary to comply with the provisions of
the Internal Revenue Code, or to comply with the requirements of
any other authority.
SECTION 6.4. Investments in the Trust. The Trustees
may accept investments in any Portfolio of the Trust from such
Persons and on such terms and for such consideration, not
inconsistent with the provisions of the 1940 Act, as they from
time to time authorize. The Trustees may authorize any
Distributor, Principal Underwriter, Custodian, Transfer Agent or
other Person to accept orders for the purchase of Shares that
conform to such authorized terms and to reject any purchase orders
for Shares, whether or not conforming to such authorized terms.
SECTION 6.5. No Pre-emptive Rights. No Shareholder, by
virtue of holding Shares of any Portfolio, shall have any pre-
emptive or other right to subscribe to any additional Shares of
that Portfolio, or to any shares of any other Portfolio, or any
other Securities issued by the Trust.
SECTION 6.6. Status of Shares. Every Shareholder, by
virtue of having become a Shareholder, shall be held to have
expressly assented and agreed to the terms hereof and to have
become a party hereto. Shares shall be deemed to be personal
property, giving only the rights provided herein. Ownership of
Shares shall not entitle the Shareholder to any title in or to the
whole or any part of the Trust Property or right to call for a
partition or division of the same or for an accounting, nor shall
the ownership of Shares constitute the Shareholders partners. The
death of a Shareholder during the continuance of the Trust shall
not operate to terminate the Trust or any Portfolio, nor entitle
the representative of any deceased Shareholder to an accounting or
to take any action in court or elsewhere against the Trust or the
Trustees, but only to the rights of said decedent under this
Declaration of Trust.
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ARTICLE 7
SHAREHOLDERS' VOTING POWERS AND MEETINGS
SECTION 7.1. Voting Powers. The Shareholders shall
have power to vote only (i) for the election or removal of
Trustees as provided in Sections 4.1(c) and (e) hereof, (ii) with
respect to the approval or termination in accordance with the 1940
Act of any contract with a Contracting Party as provided in
Section 5.2 hereof as to which Shareholder approval is required by
the 1940 Act, (iii) with respect to any termination or
reorganization of the Trust or any Portfolio to the extent and as
provided in Sections 9.1 and 9.2 hereof, (iv) with respect to any
amendment of this Declaration of Trust to the extent and as
provided in Section 9.3 hereof, (v) to the same extent as the
stockholders of a Massachusetts business corporation as to whether
or not a court action, proceeding or claim should or should not be
brought or maintained derivatively or as a class action on behalf
of the Trust or any Portfolio, or the Shareholders of any of them
(provided, however, that a Shareholder of a particular Portfolio
shall not in any event be entitled to maintain a derivative or
class action on behalf of any other Portfolio or the Shareholders
thereof), and (vi) with respect to such additional matters
relating to the Trust as may be required by the 1940 Act, this
Declaration of Trust, the By-Laws or any registration of the Trust
with the Commission (or any successor agency) or any State, or as
the Trustees may consider necessary or desirable. If and to the
extent that the Trustees shall determine that such action is
required by law or by this Declaration, they shall cause each
matter required or permitted to be voted upon at a meeting or by
written consent of Shareholders to be submitted to a separate vote
of the outstanding Shares of each Portfolio entitled to vote
thereon; provided, that (i) when expressly required by the 1940
Act or other law, actions of Shareholders shall be taken by Single
Class Voting of all outstanding Shares of each Series and Class
whose holders are entitled to vote thereon, and (ii) when the
Trustees determine that any matter to be submitted to a vote of
Shareholders affects only the rights or interests of Shareholders
of one or more but not all Portfolios or of one or more but not
all Classes of a single Portfolio (including without limitation
any distribution plan pursuant to Rule 12b-1 under the 1940 Act
applicable to any such Portfolio or Class), then only the
Shareholders of the Portfolios or Classes so affected shall be
entitled to vote thereon. Without limiting the generality of the
foregoing, and except as required by the 1940 Act or other law,
the Shareholders of each Class shall have exclusive voting rights
with respect to the provisions of any distribution plan adopted by
the Trustees pursuant to Rule 12b-1 under the 1940 Act (a "Plan")
applicable to such Class.
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SECTION 7.2. Number of Votes and Manner of Voting;
Proxies. On each matter submitted to a vote of the Shareholders,
each holder of Shares of any Series shall be entitled to a number
of votes equal to the number of Shares of such Series standing in
his name on the books of the Trust. There shall be no cumulative
voting in the election of Trustees. Shares may be voted in person
or by proxy. A proxy with respect to Shares held in the name of
two (2) or more Persons shall be valid if executed by any one of
them unless at or prior to exercise of the proxy the Trust
receives a specific written notice to the contrary from any one of
them. A proxy purporting to be executed by or on behalf of a
Shareholder shall be deemed valid unless challenged at or prior to
its exercise and the burden of proving invalidity shall rest on
the challenger. Until Shares are issued, the Trustees may
exercise all rights of Shareholders and may take any action
required by law, this Declaration of Trust or the By-Laws to be
taken by Shareholders.
SECTION 7.3. Meetings. Meetings of Shareholders may be
called by the Trustees from time to time for the purpose of taking
action upon any matter requiring the vote or authority of the
Shareholders as herein provided, or upon any other matter deemed
by the Trustees to be necessary or desirable. Written notice of
any meeting of Shareholders shall be given or caused to be given
by the Trustees by mailing such notice at least seven (7) days
before such meeting, postage prepaid, stating the time, place and
purpose of the meeting, to each Shareholder at the Shareholder's
address as it appears on the records of the Trust. The Trustees
shall promptly call and give notice of a meeting of Shareholders
for the purpose of voting upon removal of any Trustee of the Trust
when requested to do so in writing by Shareholders holding not
less than ten percent (10%) of the Shares then outstanding. If
the Trustees shall fail to call or give notice of any meeting of
Shareholders for a period of thirty (30) days after written
application by Shareholders holding at least ten percent (10%) of
the Shares then outstanding requesting that a meeting be called
for any other purpose requiring action by the Shareholders as
provided herein or in the By-Laws, then Shareholders holding at
least ten percent (10%) of the Shares then outstanding may call
and give notice of such meeting, and thereupon the meeting shall
be held in the manner provided for herein in case of call thereof
by the Trustees.
SECTION 7.4. Record Dates. For the purpose of
determining the Shareholders who are entitled to vote or act at
any meeting or any adjournment thereof, or who are entitled to
participate in any dividend or distribution, or for the purpose of
any other action, the Trustees may from time to time close the
transfer books for such period, not exceeding thirty (30) days
(except at or in connection with the termination of the Trust), as
the Trustees may determine; or without closing the transfer books
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the Trustees may fix a date and time not more than sixty (60) days
prior to the date of any meeting of Shareholders or other action
as the date and time of record for the determination of
Shareholders entitled to vote at such meeting or any adjournment
thereof or to be treated as Shareholders of record for purposes of
such other action, and any Shareholder who was a Shareholder at
the date and time so fixed shall be entitled to vote at such
meeting or any adjournment thereof or to be treated as a
Shareholder of record for purposes of such other action, even
though he has since that date and time disposed of his Shares, and
no Shareholder becoming such after that date and time shall be so
entitled to vote at such meeting or any adjournment thereof or to
be treated as a Shareholder of record for purposes of such other
action.
SECTION 7.5. Quorum and Required Vote. A majority of
the Shares entitled to vote on a matter shall be a quorum for the
transaction of business with respect to such matter at a
Shareholders' meeting, but any lesser number shall be sufficient
for adjournments. Any adjourned session or sessions may be held
within a reasonable time after the date set for the original
meeting without the necessity of further notice. A Majority
Shareholder Vote at a meeting of which a quorum is present shall
decide any question, except when a different vote is required or
permitted by any provision of the 1940 Act or other applicable law
or by this Declaration of Trust or the By-Laws, or when the
Trustees shall in their discretion require a larger vote or the
vote of a majority or larger fraction of the Shares of one or more
particular Series or Classes.
SECTION 7.6. Action by Written Consent. Subject to the
provisions of the 1940 Act and other applicable law, any action
taken by Shareholders may be taken without a meeting if a majority
of Shareholders entitled to vote on the matter (or such larger
proportion thereof or of the Shares of any particular Series as
shall be required by the 1940 Act or by any express provision of
this Declaration of Trust or the By-Laws or as shall be permitted
by the Trustees) consent to the action in writing and if the
writings in which such consent is given are filed with the records
of the meetings of Shareholders, to the same extent and for the
same period as proxies given in connection with a Shareholders'
meeting. Such consent shall be treated for all purposes as a vote
taken at a meeting of Shareholders.
SECTION 7.7. Inspection of Records. The records of the
Trust shall be open to inspection by Shareholders to the same
extent as is permitted stockholders of a Massachusetts business
corporation under the Massachusetts Business Corporation Law.
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SECTION 7.8. Additional Provisions. The By-Laws may
include further provisions for Shareholders' votes and meetings
and related matters not inconsistent with the provisions hereof.
ARTICLE 8
LIMITATION OF LIABILITY; INDEMNIFICATION
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
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.
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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 judgment 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 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
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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 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
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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 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.
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ARTICLE 9
DURATION; REORGANIZATION; AMENDMENTS
SECTION 9.1. Duration and Termination of Trust. Unless
terminated as provided herein, the Trust shall continue without
limitation of time and, without limiting the generality of the
foregoing, no change, alteration or modification with respect to
any Portfolio or Series of Shares shall operate to terminate the
Trust. The Trust may be terminated at any time by a Majority of
the Trustees, subject to the favorable vote of the holders of not
less than a majority of the Shares outstanding and entitled to
vote of each Portfolio of the Trust, or by an instrument or
instruments in writing without a meeting, consented to by the
holders of not less than a majority of such Shares, or by such
greater or different vote of Shareholders of any Series as may be
established by the Certificate of Designation by which such Series
was authorized. Upon termination, after paying or otherwise
providing for all charges, taxes, expenses and liabilities,
whether due or accrued or anticipated as may be determined by the
Trustees, the Trust shall in accordance with such procedures as
the Trustees consider appropriate reduce the remaining assets to
distributable form in cash, Securities or other property, or any
combination thereof, and distribute the proceeds to the
Shareholders, in conformity with the provisions of Section 6.2(d)
hereof.
SECTION 9.2. Reorganization. The Trustees may sell,
convey and transfer all or substantially all of the assets of the
Trust, or the assets belonging to any one or more Portfolios, to
another trust, partnership, association or corporation organized
under the laws of any state of the United States, or may transfer
such assets to another Portfolio of the Trust, in exchange for
cash, Shares or other Securities (including, in the case of a
transfer to another Portfolio of the Trust, Shares of such other
Portfolio), or to the extent permitted by law then in effect may
merge or consolidate the Trust or any Portfolio with any other
Trust or any corporation, partnership, or association organized
under the laws of any state of the United States, all upon such
terms and conditions and for such consideration when and as
authorized by vote or written consent of a Majority of the
Trustees and approved by the affirmative vote of the holders of
not less than a majority of the Shares outstanding and entitled to
vote of each Portfolio whose assets are affected by such
transaction, or by an instrument or instruments in writing without
a meeting, consented to by the holders of not less than a majority
of such Shares, and/or by such other vote of any Series as may be
established by the Certificate of Designation with respect to such
Series. Following such transfer, the Trustees shall distribute
the cash, Shares or other Securities or other consideration
received in such transaction (giving due effect to the assets
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belonging to and indebtedness of, and any other differences among,
the various Portfolios of which the assets have so been
transferred) among the Shareholders of the Portfolio of which the
assets have been so transferred; and if all of the assets of the
Trust have been so transferred, the Trust shall be terminated.
Nothing in this Section 9.2 shall be construed as requiring
approval of Shareholders for the Trustees to organize or assist in
organizing one or more corporations, trusts, partnerships,
associations or other organizations, and to sell, convey or
transfer less than substantially all of the Trust Property or the
assets belonging to any Portfolio to such organizations or
entities.
SECTION 9.3. Amendments; etc. All rights granted to
the Shareholders under this Declaration of Trust are granted
subject to the reservation of the right to amend this Declaration
of Trust as herein provided, except that no amendment shall repeal
the limitations on personal liability of any Shareholder or
Trustee or the prohibition of assessment upon the Shareholders
(otherwise than as permitted under Section 6.2(9)) without the
express consent of each Shareholder or Trustee involved. Subject
to the foregoing, the provisions of this Declaration of Trust
(whether or not related to the rights of Shareholders) may be
amended at any time, so long as such amendment does not adversely
affect the rights of any Shareholder with respect to which such
amendment is or purports to be applicable and so long as such
amendment is not in contravention of applicable law, including the
1940 Act, by an instrument in writing signed by a Majority of the
Trustees (or by an officer of the Trust pursuant to the vote of a
Majority of the Trustees). Any amendment to this Declaration of
Trust that adversely affects the rights of all Shareholders may be
adopted at any time by an instrument in writing signed by a
Majority of the Trustees (or by an officer of the Trust pursuant
to a vote of a Majority of the Trustees) when authorized to do so
by the vote in accordance with Section 7.1 hereof of Shareholders
holding a majority of all the Shares outstanding and entitled to
vote, without regard to Series, or if said amendment adversely
affects the rights of the Shareholders of less than all of the
Portfolios or of less than all of the Classes of Shares of any
Portfolio, by the vote of the holders of a majority of all the
Shares entitled to vote of each Portfolio or of each Class, as the
case may be, so affected. Subject to the foregoing, any such
amendment shall be effective when the terms thereof have been duly
adopted, as aforesaid. A certificate (which may be a part of such
instrument) to the effect that such amendment has been duly
adopted, and setting forth the circumstances thereof, shall be
executed and acknowledged by a Trustee or officer of the Trust and
filed as provided in Section 9.4 hereof (but such filing shall not
be a prerequisite to the effectiveness of such amendment).
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SECTION 9.4. Filing of Copies of Declaration and
Amendments. The original or a copy of this Declaration and of
each amendment hereto (including each Certificate of Designation
and Certificate of Termination), shall be kept at the office of
the Trust where it may be inspected by any Shareholder, and one
copy of each such instrument shall be filed with the Secretary of
The Commonwealth of Massachusetts, as well as with any other
governmental office where such filing may from time to time be
required by the laws of Massachusetts (but such filing shall not
be a prerequisite to the effectiveness of this Declaration or any
such amendment). A restated Declaration, integrating into a
single instrument all of the provisions of this Declaration which
are then in effect and operative, may be executed from time to
time by a Majority of the Trustees and shall, upon filing with the
Secretary of The Commonwealth of Massachusetts, be conclusive
evidence of all amendments contained therein and may thereafter be
referred to in lieu of the original Declaration and the various
amendments thereto.
ARTICLE 10
MISCELLANEOUS
SECTION 10.1. Governing Law. This Declaration of Trust
is executed and delivered in The Commonwealth of Massachusetts and
with reference to the laws thereof, and the rights of all parties
and the construction and effect of every provision hereof shall be
subject to and construed according to the laws of said
Commonwealth.
SECTION 10.2. Counterparts. This Declaration of Trust
and any amendment thereto may be simultaneously executed in
several counterparts, each of which so executed shall be deemed to
be an original, and such counterparts, together, shall constitute
but one and the same instrument, which shall be sufficiently
evidenced by any such original counterpart.
SECTION 10.3. Reliance by Third Parties. Any
certificate executed by an individual who, according to the
records in the office of the Secretary of The Commonwealth of
Massachusetts appears to be a Trustee hereunder, certifying to:
(a) the number or identity of Trustees or Shareholders, (b) the
due authorization of the execution of any instrument or writing,
(c) the form of any vote passed as a meeting of Trustees or
Shareholders, (d) the fact that the number of Trustees or
Shareholders present at any meeting or executing any written
instrument satisfies the requirements of this Declaration of
Trust, (e) the form of any By-Law adopted, or the identity of any
officers elected, by the Trustees, or (f) the existence or non-
existence of any fact or facts which in any manner relate to the
affairs of the Trust, shall be conclusive evidence as to the
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matters so certified in favor of any Person dealing with the
Trustees, or any of them, and the successors of such Person.
SECTION 10.4. References; Headings. The masculine
gender shall include the feminine and neuter genders. Headings
are placed herein for convenience of reference only and shall not
be taken as a part of this Declaration or control or affect the
meaning, construction or effect hereof.
SECTION 10.5. Use of the Name "Alliance". Alliance
Capital Management L.P. ("ACM") has consented to the use by the
Trust of the identifying name "Alliance" which is a property right
of ACM. The Trust will only use the name "Alliance" as a
component of its name and for no other purpose, and will not
purport to grant to any third party the right to use the name
"Alliance" for any purpose. ACM or any entity affiliated with ACM
may use or grant to others the right to use the name "Alliance",
as all or a portion of a corporate or business name or for any
commercial purpose, including a grant of such right to any other
investment company. At the request of ACM, the Trust will take
such action as may be required to provide its consent to the use
of such name by ACM, or any entity affiliated with ACM, or by any
Person to whom ACM or an entity affiliated with ACM shall have
granted the right to the use of the name "Alliance". Upon the
termination of any investment advisory or management agreement
into which ACM and the Trust may enter, the Trust shall, upon
request by ACM, cease to use the name "Alliance" as a component of
its name, and shall not use such name or initials as a part of its
name or for any other commercial purpose, and shall cause its
officers and Trustees to take any and all actions which ACM may
request to effect the foregoing and to reconvey to ACM or such
affiliate any and all rights to such name.
IN WITNESS WHEREOF, the undersigned has hereunto set his
hand and seal, for himself and his assigns, and has thereby
accepted the Trusteeship as the Initial Trustee of Alliance
Municipal Income Fund II hereby granted and agreed to the
provisions hereof, all as of the day and year first above written.
/s/ Thomas E. Weesner
_________________________
Thomas E. Weesner
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The undersigned Settlor of Alliance Municipal Income Fund
II, hereby accepts, approves and authorizes the foregoing
Agreement and Declaration of Trust of Alliance Municipal Income
Fund II.
Dated: April 2, 1993
/s/ Bryan G. Tyson
__________________________
Bryan G. Tyson
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ACKNOWLEDGMENTS
M A S S A C H U S E T T S
Suffolk, ss.: April 2, 1993
Then personally appeared the above named Thomas E.
Weesner and acknowledged the foregoing instrument to be his free
act and deed.
Before me,
/s/
___________________________
Notary Public
My commission expires: 1/7/94
M A S S A C H U S E T T S
Suffolk, ss.: April 2, 1993
Then personally appeared the above named Bryan G. Tyson
and acknowledged the foregoing instrument to be his free act and
deed.
Before me,
/s/
____________________________
Notary Public
My commission expires: 1/7/94
51
00250151.AW1
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ALLIANCE MUNICIPAL INCOME FUND II
____________________________________
By-Laws
____________________________________
<PAGE>
ALLIANCE MUNICIPAL INCOME FUND II
By-Laws
Index
Page No.
PREAMBLE............................................ 1
ARTICLE 1 - SHAREHOLDERS AND SHAREHOLDERS'
MEETINGS ............................. 1
Section 1.1. Meetings ......................... 1
Section 1.2. Presiding Officer; Secretary ..... 1
Section 1.3. Authority of Chairman of
Meeting to Interpret:
Declaration and By-Laws .......... 1
Section 1.4. Voting; Quorum ................... 2
Section 1.5. Inspectors ....................... 2
Section 1.6. Shareholders' Action in
Writing .......................... 2
ARTICLE 2 - TRUSTEES AND TRUSTEES' MEETINGS......... 2
Section 2.1. Number of Trustees ............... 2
Section 2.2. Regular Meetings of Trustees ..... 2
Section 2.3. Special Meetings of Trustees ..... 3
Section 2.4. Notice of Meetings ................ 3
Section 2.5. Quorum; Presiding Officer ........ 3
Section 2.6. Participation by Telephone........ 3
Section 2.7. Location of Meetings.............. 3
Section 2.8. Votes ............................ 4
Section 2.9. Rulings of Chairman ............... 4
Section 2.10. Trustees' Action in Writing ...... 4
Section 2.11. Resignations...................... 4
<PAGE>
ARTICLE 3 - OFFICERS ............................... 4
Section 3.1. Officers of the Trust ............ 4
Section 3.2. Time and Terms of Election ....... 4
Section 3.3. Resignation and Removal .......... 4
Section 3.4. Fidelity Bond .................... 5
Section 3.5. Chairman of the Trustees ......... 5
Section 3.6. Vice Chairmen .................... 5
Section 3.7. President ........................ 5
Section 3.8. Vice Presidents .................. 5
Section 3.9. Treasurer and Assistant
Treasurers ....................... 5
Section 3.10. Controller and Assistant
Controllers ...................... 6
Section 3.11. Secretary and Assistant
Secretaries ...................... 6
Section 3.12. Substitutions .................... 7
Section 3.13. Execution of Deeds, etc .......... 7
Section 3.14. Power to Vote Securities ......... 7
ARTICLE 4 - COMMITTEES ............................. 7
Section 4.1. Power of Trustees to
Designate Committees ............. 7
Section 4.2. Rules for Conduct of
Committee Affairs................. 7
Section 4.3. Trustees May Alter, Abolish,
etc., Committees ................. 8
Section 4.4. Minutes; Review by Trustees ...... 8
ARTICLE 5 - SEAL.................................... 8
ARTICLE 6 - SHARES.................................. 8
Section 6.1. Issuance of Shares................ 8
<PAGE>
Section 6.2. Uncertificated Shares............. 8
Section 6.3. Share Certificates ............... 9
Section 6.4. Lost, Stolen, etc.,
Certificates...................... 9
Section 6.5. Record Transfer of Pledged
Shares ........................... 9
ARTICLE 7 - CUSTODIAN .............................. 10
ARTICLE 8 - AMENDMENTS ............................. 10
Section 8.1. By-Laws Subject to Amendment ..... 10
Section 8.2. Notice of Proposal to Amend
By-Laws Required.................. 10
<PAGE>
ALLIANCE MUNICIPAL INCOME FUND II
BY-LAWS
These Articles are the By-Laws of Alliance Municipal
Income Fund II, a trust with transfer-able shares established
under the laws of The Commonwealth of Massachusetts (the
"Trust"), pursuant to an Agreement and Declaration of Trust of
the Trust (the "Declaration") made the second day of April 1993,
and filed in the office of the Secretary of the Commonwealth.
These By-Laws have been adopted by the Trustees pursuant to the
authority granted by Section 3.1 of the Declaration.
All words and terms capitalized in these By-Laws, unless
otherwise defined herein, shall have the same meanings as they
have in the Declaration.
ARTICLE 1
SHAREHOLDERS AND SHAREHOLDERS' MEETINGS
SECTION 1.1. Meetings. A meeting of the Shareholders
of the Trust shall be held whenever called by the Trustees and
whenever election of a Trustee or Trustees by Shareholders is
required by the provisions of the 1940 Act. Meetings of
Shareholders shall also be called by the Trustees when requested
in writing by Shareholders holding at least ten percent (10%) of
the Shares then outstanding for the purpose of voting upon
removal of any Trustee, or if the Trustees shall fail to call or
give notice of any such meeting of Shareholders for a period of
thirty (30) days after such application, then Shareholders
holding at least ten percent (10%) of the Shares then outstanding
may call and give notice of such meeting. Notice of
Shareholders' meetings shall be given as provided in the
Declaration.
SECTION 1.2. Presiding Officer; Secretary. The
Chairman of the Trustees, or in his absence the Vice Chairman or
Chairmen, if any, in the order of their seniority or as the
Trustees shall otherwise determine, and in the absence of the
Chairman and all Vice Chairmen, if any, the President, shall
preside at each Shareholders' meeting as chairman of the meeting,
or in the absence of the Chairman, all Vice Chairmen and the
President, the Trustees present at the meeting shall elect one of
their number as chairman of the meeting. Unless otherwise
provided for by the Trustees, the Secretary of the Trust shall be
the secretary of all meetings of Shareholders and shall record
the minutes thereof.
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SECTION 1.3. Authority of Chairman of Meeting to
Interpret Declaration and By-Laws. At any Shareholders' meeting
the chairman of the meeting shall be empowered to determine the
construction or interpretation of the Declaration or these By-
Laws, or any part thereof or hereof, and his ruling shall be
final.
SECTION 1.4. Voting; Quorum. At each meeting of
Shareholders, except as otherwise provided by the Declaration,
every holder of record of Shares entitled to vote shall be
entitled to a number of votes equal to the number of Shares
standing in his name on the Share register of the Trust.
Shareholders may vote by proxy and the form of any such proxy may
be prescribed from time to time by the Trustees. A quorum shall
exist if the holders of a majority of the outstanding Shares of
the Trust entitled to vote without regard to Series are present
in person or by proxy, but any lesser number shall be sufficient
for adjournments. At all meetings of the Shareholders, votes
shall be taken by ballot for all matters which may be binding
upon the Trustees pursuant to Section 7.1 of the Declaration. On
other matters, votes of Shareholders need not be taken by ballot
unless otherwise provided for by the Declaration or by vote of
the Trustees, or as required by the 1940 Act, but the chairman of
the meeting may in his discretion authorize any matter to be
voted upon by ballot.
SECTION 1.5. Inspectors. At any meeting of
Shareholders, the chairman of the meeting may appoint one or more
Inspectors of Election or Balloting to supervise the voting at
such meeting or any adjournment thereof. If Inspectors are not
so appointed, the chairman of the meeting may, and on the request
of any Shareholder present or represented and entitled to vote
shall, appoint one or more Inspectors for such purpose. Each
Inspector, before entering upon the discharge of his duties,
shall take and sign an oath faithfully to execute the duties of
Inspector of Election or Balloting, as the case may be, at such
meeting with strict impartiality and according to the best of his
ability. If appointed, Inspectors shall take charge of the polls
and, when the vote is completed, shall make a certificate of the
result of the vote taken and of such other facts as may be
required by law.
SECTION 1.6. Shareholders' Action in Writing. Nothing
in this Article I shall limit the power of the Shareholders to
take any action by means of written instruments without a
meeting, as permitted by Section 7.6 of the Declaration.
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ARTICLE 2
TRUSTEES AND TRUSTEES' MEETINGS
SECTION 2.1. Number of Trustees. There shall initially
be one (1) Trustee, and the number of Trustees shall thereafter
be such number, authorized by the Declaration, as from time to
time shall be fixed by a vote adopted by a Majority of the
Trustees.
SECTION 2.2. Regular Meetings of Trustees. Regular
meetings of the Trustees may be held without call or notice at
such places and at such times as the Trustees may from time to
time determine; provided, that notice of such determination, and
of the time, place and purposes of the first regular meeting
thereafter, shall be given to each absent Trustee in accordance
with Section 2.4 hereof.
SECTION 2.3. Special Meetings of Trustees. Special
meetings of the Trustees may be held at any time and at any place
when called by the Chairman of the Trustees, any Vice Chairman,
the President or the Treasurer or by two (2) or more Trustees, or
if there shall be fewer than three (3) Trustees, by any Trustee;
provided, that notice of the time, place and purposes thereof is
given to each Trustee in accordance with Section 2.4 hereof by
the Secretary or an Assistant Secretary or by the officer or the
Trustees calling the meeting.
SECTION 2.4. Notice of Meetings. Notice of any regular
or special meeting of the Trustees shall be sufficient if given
in writing to each Trustee, and if sent by mail at least five (5)
days, or by telegram or recognized overnight courier service at
least twenty-four (24) hours, before the meeting, addressed to
his usual or last known business or residence address, or if
delivered to him in person at least twenty-four (24) hours before
the meeting. Notice of a special meeting need not be given to any
Trustee who was present at an earlier meeting, not more than
thirty-one (31) days prior to the subsequent meeting, at which
the subsequent meeting was called. Notice of a meeting may be
waived by any Trustee by written waiver of notice, executed by
him before or after the meeting, and such waiver shall be filed
with the records of the meeting Attendance by a Trustee at a
meeting shall constitute a waiver of notice, except where a
Trustee attends a meeting for the purpose of protesting prior
thereto or at its commencement the lack of notice.
SECTION 2.5. Quorum; Presiding Officer. At any meeting
of the Trustees, a Majority of the Trustees shall constitute a
quorum. Any meeting may be adjourned from time to time by a
majority of the votes cast upon the question, whether or not a
quorum is present, and the meeting may be held as adjourned
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without further notice. Unless the Trustees shall otherwise
elect, generally or in a particular case, the Chairman of the
Trustees, or in his absence the Vice Chairman or Vice Chairmen,
if any, in the order of their seniority or as the Trustees shall
otherwise determine, or in the absence of the Chairman and all
Vice Chairmen, if any, the President, shall preside at each
meeting of the Trustees as chairman of the meeting.
SECTION 2.6. Participation by Telephone. One or more
of the Trustees may participate in a meeting thereof or of any
Committee of the Trustees by means of a conference telephone or
similar communications equipment allowing all persons
participating in the meeting to hear each other at the same time.
Participation by such means shall constitute presence in person
at a meeting.
SECTION 2.7. Location of Meetings. Trustees' meetings
may be held at any place, within or without Massachusetts.
SECTION 2.8. Votes. Voting at Trustees' meetings may
be conducted orally, by show of hands or, if requested by any
Trustee, by written ballot. The results of all voting shall be
recorded by the Secretary in the minute book.
SECTION 2.9. Rulings of Chairman. All other rules of
conduct adopted and used at any Trustees' meeting shall be
determined by the chairman of such meeting, whose ruling on all
procedural matters shall be final.
SECTION 2.10. Trustees' Action in Writing. Nothing in
this Article II shall limit the power of the Trustees to take
action by means of a written instrument without a meeting, as
provided in Section 4.2 of the Declaration.
SECTION 2.11. Resignations. Any Trustee may resign at
any time by written instrument signed by him and delivered to the
Chairman, the President or the Secretary or to a meeting of the
Trustees. Such resignation shall be effective upon receipt
unless specified to be effective at some other time.
ARTICLE 3
OFFICERS
SECTION 3.1. Officers of the Trust. The officers of
the Trust shall consist of a Chairman of the Trustees, a
President, a Treasurer and a Secretary, and may include one or
more Vice Chairmen, Vice Presidents, Assistant Treasurers and
Assistant Secretaries, and such other officers as the Trustees
may designate. Any person may hold more than one office. Except
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for the Chairman and any Vice Chairmen, no officer need be a
Trustee.
SECTION 3.2. Time and Terms of Election. The Chairman,
the President, the Treasurer and the Secretary shall be elected
by the Trustees at their first meeting and thereafter at the
annual meeting of the Trustees, as provided in Section 4.2 of the
Declaration. Such officers shall hold office until the next
annual meeting of the Trustees and until their successors shall
have been duly elected and qualified, and may be removed at any
meeting by the affirmative vote of a Majority of the Trustees.
All other officers of the Trust may be elected or appointed at
any meeting of the Trustees. Such officers shall hold office for
any term, or indefinitely, as determined by the Trustees, and
shall be subject to removal, with or without cause, at any time
by the Trustees.
SECTION 3.3. Resignation and Removal. Any officer may
resign at any time by giving written notice to the Trustees.
Such resignation shall take effect at the time specified therein,
and, unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective. If the
office of any officer or agent becomes vacant by reason of death,
resignation, retirement, disqualification, removal from office or
otherwise, the Trustees may choose a successor, who shall hold
office for the unexpired term in respect of which such vacancy
occurred. Except to the extent expressly provided in a written
agreement with the Trust, no officer resigning or removed shall
have any right to any compensation for any period following such
resignation or removal, or any right to damage on account of such
removal.
SECTION 3.4. Fidelity Bond. The Trustees may, in their
discretion, direct any officer appointed by them to furnish at
the expense of the Trust a fidelity bond approved by the
Trustees, in such amount as the Trustees may prescribe.
SECTION 3.5. Chairman of the Trustees. Unless the
Trustees otherwise provide, the Chairman of the Trustees shall
preside at all meetings of the Shareholders and of the Trustees.
The Chairman, subject to the supervision of the Trustees, shall
have general charge and supervision of the business, property and
affairs of the Trust and such other powers and duties as the
Trustees may prescribe, and unless otherwise provided by law, the
Declaration, these By-Laws or specific Vote of the Trustees,
shall have and may exercise all of the powers given to the
Trustees by the Declaration and by these By-Laws.
SECTION 3.6. Vice Chairmen. If the Trustees shall
elect one or more Vice Chairmen, the Vice Chairman or if there
shall be more than one, such Vice Chairmen in the order of their
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seniority or as otherwise designated by the Trustees, shall
preside at meetings of the Shareholders and of the Trustees, and
shall exercise such other powers and duties of the Chairman as
the Trustees shall determine.
SECTION 3.7. President. The President shall be the
chief administrative officer of the Trust and, subject to the
supervision of the Chairman, shall have general charge of the
operations of the Trust and general supervision of the personnel
of the Trust, and such other powers and duties as the Trustees or
the Chairman shall prescribe. In the absence or disability of
the Chairman, the President shall exercise the powers and duties
of the Chairman, except to the extent that the Trustees shall
have delegated such powers and duties to the Vice Chairman or
Chairmen, and except that he shall not preside at meetings of the
Trustees if he is not himself a Trustee.
SECTION 3.8. Vice Presidents. In the absence or
disability of the President, the Vice President or, if there
shall be more than one, the Vice Presidents in the order of their
seniority or as otherwise designated by the Trustees, shall
exercise all of the powers and duties of the President. The Vice
Presidents shall have the power to execute bonds, notes,
mortgages and other contracts, agreements and instruments in the
name of the Trust, and shall do and perform such other duties as
the Trustees, the Chairman or the President shall direct.
SECTION 3.9. Treasurer and Assistant Treasurers. The
Treasurer shall be the chief financial officer of the Trust, and
shall have the custody of the Trust's funds and Securities, and
shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Trust and shall deposit
all moneys, and other valuable effects in the name and to the
credit of the Trust, in such depositories as may be designated by
the Trustees, taking proper vouchers for such disbursements,
shall have such other duties and powers as may be prescribed from
time to time by the Trustees or the Chairman, and shall render to
the Trustees, whenever they may require it, an account of all his
transactions as Treasurer and of the financial condition of the
Trust. If no Controller is elected, the Treasurer shall also
have the duties and powers of the Controller, as provided in
these By-Laws. Any Assistant Treasurer shall have such duties
and powers as shall be prescribed from time to time by the
Trustees or the Treasurer, and shall be responsible to and shall
report to the Treasurer. In the absence or disability of the
Treasurer, the Assistant Treasurer or, if there shall be more
than one, the Assistant Treasurers in the order of their
seniority or as otherwise designated by the Trustees or the
Chairman, shall have the powers and duties of the Treasurer.
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SECTION 3.10. Controller and Assistant Controllers. If
a Controller is elected, he shall be the chief accounting officer
of the Trust and shall be in charge of its books of account and
accounting records and of its accounting procedures, and shall
have such duties and powers as are commonly incident to the
office of a controller, and such other duties and powers as may
be prescribed from time to time by the Trustees. The Controller
shall be responsible to and shall report to the Trustees, but in
the ordinary conduct of the Trust's business, shall be under the
supervision of the Treasurer. Any Assistant Controller shall
have such duties and powers as shall be prescribed from time to
time by the Trustees or the Controller, and shall be responsible
to and shall report to the Controller. In the absence or
disability of the Controller, the Assistant Controller or, if
there shall be more than one, the Assistant Controllers in the
order of their seniority or as otherwise designated by the
Trustees or the Chairman, shall have the powers and duties of the
Controller.
SECTION 3.11. Secretary and Assistant Secretaries. The
Secretary shall, if and to the extent requested by the Trustees,
attend all meetings of the Trustees, any Committee of the
Trustees and/or the Shareholders and record all votes and the
minutes of proceedings in a book to be kept for that purpose,
shall give or cause to be given notice of all meetings of the
Trustees, any Committee of the Trustees, and of the Shareholders
and shall perform such other duties as may be prescribed by the
Trustees. The Secretary, or in his absence any Assistant
Secretary shall affix the Trust's seal to any instrument
requiring it, and when so affixed, it shall be attested by the
signature of the Secretary or an Assistant Secretary. The
Secretary, shall be the custodian of the Share records and all
other books, records and papers of the Trust (other than
financial) and shall see that all books, reports, statements,
certificates and other documents and records required by law are
properly kept and filed. In the absence or disability of the
Secretary, the Assistant Secretary or, if there shall be more
than one, the Assistant Secretaries in the order of their
seniority or as otherwise designated by the Trustees or the
Chairman, shall have the powers and duties of the Secretary.
SECTION 3.12. Substitutions. In case of the absence or
disability of any officer of the Trust, or for any other reason
that the Trustees may deem sufficient, the Trustees may delegate
for the time being the powers or duties, or any of them, of such
officer to any other officer, or to any Trustee.
SECTION 3.13. Execution of Deeds, etc. Except as the
Trustees may generally or in particular cases otherwise authorize
or direct, all deeds, leases, transfers, contracts, proposals,
bonds, notes, checks, drafts and other obligations made, accepted
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or endorsed by the Trust shall be signed or endorsed on behalf of
the Trust by the Chairman, the President, one of the Vice
Presidents or the Treasurer.
SECTION 3.14. Power to Vote Securities. Unless
otherwise ordered by the Trustees, the Treasurer and the
Secretary each shall have full power and authority on behalf of
the Trust to give proxies for and/or to attend and to act and to
vote at any meeting of stockholders of any corporation in which
the Trust may hold stock, and at any such meeting the Treasurer
or the Secretary, as the case may be, his proxy shall possess and
may exercise any and all rights and powers incident to the
ownership of such stock which, as the owner thereof, the Trust
might have possessed and exercised if present. The Trustees, by
resolution from time to time, or, in the absence thereof, either
the Treasurer or the Secretary, may confer like powers upon any
other person or persons as attorneys and proxies of the Trust.
ARTICLE 4
COMMITTEES
SECTION 4.1. Power of Trustees to Designate Committees.
The Trustees, by vote of a Majority of the Trustees, may elect
from their number an Executive Committee and any other Committees
and may delegate thereto some or all of their powers except those
which by law, by the Declaration or by these By-Laws may not be
delegated; provided, that the Executive Committee shall not be
empowered to elect the Chairman of the Trustees, the President,
the Treasurer or the Secretary, to amend the By-Laws, to exercise
the powers of the Trustees under this Section 4.1 or under
Section 4.3 hereof, or to perform any act for which the action of
a Majority of the Trustees is required by law, by the Declaration
or by these By-Laws. The members of any such Committee shall
serve at the pleasure of the Trustees.
SECTION 4.2. Rules for Conduct of Committee Affairs.
Except as otherwise provided by the Trustees, each Committee
elected or appointed pursuant to this Article IV may adopt such
standing rules and regulations for the conduct of its affairs as
it may deem desirable, subject to review and approval of such
rules and regulations by the Trustees at the next succeeding
meeting of the Trustees, but in the absence of any such action or
any contrary provisions by the Trustees, the business of each
Committee shall be conducted, so far as practicable, in the same
manner as provided herein and in the Declaration for the
Trustees.
SECTION 4.3. Trustees May Alter, Abolish, etc.,
Committees. The Trustees may at any time alter or abolish any
Committee, change the membership of any Committee, or revoke,
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rescind or modify any action of any Committee or the authority of
any Committee with respect to any matter or class of matters;
provided, that no such action shall impair the rights of any
third parties.
SECTION 4.4. Minutes; Review by Trustees. Any
Committee to which the Trustees delegate any of their powers or
duties shall keep records of its meetings and shall report its
actions to the Trustees.
ARTICLE 5
SEAL
If the Trustees shall adopt a seal for the Trust, the
seal shall consist of a flat-faced circular die with the word
"Massachusetts", together with the name of the Trust, the words
"Trust Seal", and the year of its organization cut or engraved
thereon, but, unless otherwise required by the Trustees, the seal
shall not be necessary to be placed on, and its absence shall not
impair the validity of, any document, instrument or other paper
executed and delivered by or on behalf of the Trust.
ARTICLE 6
SHARES
SECTION 6.1. Issuance of Shares. The Trustees may
issue Shares of any or all Series either in certificated or
uncertificated form, they may issue certificates to the holders
of Shares of a Series which was originally issued in
uncertificated form, and if they have issued Shares of any Series
in certificated form, they may at any time discontinue the
issuance of Share certificates for such Series and may, by
written notice to such Shareholders of such Series require the
surrender of their Share certificates to the Trust for
cancellation, which surrender and cancellation shall not affect
the ownership of Shares for such Series.
SECTION 6.2. Uncertificated Shares. For any Series of
Shares for which the Trustees issue Shares without certificates,
the Trust or the Transfer Agent may either issue receipts
therefor or may keep accounts upon the books of the Trust for the
record holders of such Shares, who shall in either case be
deemed, for all purposes hereunder, to be the holders of such
Shares as if they had received certificates therefor and shall be
held to have expressly assented and agreed to the terms hereof
and of the Declaration.
SECTION 6.3. Share Certificates. For any Series of
Shares for which the Trustees shall issue Share certificates,
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each Shareholder of such Series shall be entitled to a
certificate stating the number of Shares owned by him in such
form as shall be prescribed from time to time by the Trustees.
Such certificate shall be signed by the Chairman or a Vice
Chairman, or the President or a Vice-President, and by the
Treasurer or an Assistant Treasurer or the Secretary or an
Assistant Secretary of the Trust. Such signatures may be
facsimiles if the certificate is countersigned by a Transfer
Agent, or by a Registrar, other than a Trustee, officer or
employee of the Trust. In case any officer who has signed or
whose facsimile signature has been placed on such certificate
shall cease to be such officer before such certificate is issued,
it may be issued by the Trust with the same effect as if he were
such officer at the time of its issue.
SECTION 6.4. Lost, Stolen, etc., Certificates. If any
certificate for certificated Shares shall be lost, stolen,
destroyed or mutilated, the Trustees may authorize the issuance
of a new certificate of the same tenor and for the same number of
Shares in lieu thereof. The Trustees shall require the surrender
of any mutilated certificate in respect of which a new
certificate is issued, and may, in their discretion, before the
issuance of a new certificate, require the owner of a lost,
stolen or destroyed certificate, or the owner's legal
representative, to make an affidavit or affirmation setting forth
such facts as to the loss, theft or destruction as they deem
necessary, and to give the Trust a bond in such reasonable sum as
the Trustees direct, in order to indemnify the Trust.
SECTION 6.5. Record Transfer of Pledged Shares. A
pledgee of Shares pledged as collateral security shall be
entitled to a new certificate in his name as pledgee, in the case
of certificated Shares, or to be registered as the holder in
pledge of such Shares in the case of uncertificated Shares;
provided, that the instrument of pledge substantially describes
the debt or duty that is intended to be secured thereby. Any
such new certificate shall express on its face that it is held as
collateral security, and the name of the pledgor shall be stated
thereon, and any such registration of uncertificated Shares shall
be in a form which indicates that the registered holder holds
such Shares in pledge. After such issue or registration, and
unless and until such pledge is released, such pledgee and his
successors and assigns shall alone be entitled to the rights of a
Shareholder, and entitled to vote such Shares.
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ARTICLE 7
CUSTODIAN
The Trust shall at all times employ a bank or trust
company having a capital, surplus and undivided profits of at
least Two Million Dollars ($2,000,000) as Custodian of the
capital assets of the Trust, pursuant to an agreement as
contemplated by Section 5.2(d) of the Declaration. The Custodian
shall be compensated for its services by the Trust upon such
basis as shall be provided in such agreement.
ARTICLE 8
AMENDMENTS
SECTION 8.1. By-Laws Subject to Amendment. These By-
Laws may be altered, amended or repealed, in whole or in part, at
any time by vote of the holders of a majority of the Shares (or
whenever there shall be more than one Series of Shares, of the
holders of a majority of the Shares of each Series) issued,
outstanding and entitled to vote. The Trustees, by vote of a
Majority of the Trustees, may alter, amend or repeal these By-
Laws, in whole or in part, including By-Laws adopted by the
Shareholders, except with respect to any provision hereof which
by law, the Declaration or these By-Laws requires action by the
Shareholders. By-Laws adopted by the Trustees may be altered,
amended or repealed by the Shareholders.
SECTION 8.2. Notice of Proposal to Amend By-Laws
Required. No proposal to amend or repeal these By-Laws or to
adopt new By-Laws shall be acted upon at a meeting unless either
(i) such proposal is stated in the notice or in the waiver of
notice, as the case may be, of the meeting of the Trustees or
Shareholders at which such action is taken, or (ii) all of the
Trustees or Shareholders, as the case may be, are present at such
meeting and all agree to consider such proposal without
protesting the lack of notice.
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00250151.AZ3
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ADVISORY AGREEMENT
ALLIANCE MUNICIPAL INCOME FUND II
1345 Avenue Of The Americas
New York, New York 10105
May 21, 1993
Alliance Capital Management L.P.
1345 Avenue of the Americas
New York, New York 10105
Dear Sirs:
We, the undersigned Alliance Municipal Income Fund II
herewith confirm our agreement with you as follows:
1. We are an open-end, non-diversified management
investment company registered under the Investment Company Act of
1940, as amended (the "Act"). We are currently authorized to
issue five classes of shares and our Trustees are authorized to
reclassify and issue any unissued shares to any number of
additional classes or series (portfolios) each having its own
investment objective, policies and restrictions, all as more
fully described in the prospectus and the statement of additional
information constituting parts of the Registration Statement
filed on our behalf under the Securities Act of 1933, as amended,
and the Act. We propose to engage in the business of investing
and reinvesting the assets of each of our portfolios in
securities ("the portfolio assets") of the type and in accordance
with the limitations specified in our Agreement and Declaration
of Trust, By-Laws, Registration Statement filed with the
<PAGE>
Securities and Exchange Commission under the Securities Act of
1933 and the Act, and any representations made in our prospectus
and statement of additional information, all in such manner and
to such extent as may from time to time be authorized by our
Trustees. We enclose copies of the documents listed above and
will from time to time furnish you with any amendments thereof.
2. (a) We hereby employ you to manage the investment
and reinvestment of the portfolio assets as above specified and,
without limiting the generality of the foregoing, to provide
management and other services specified below.
(b) You will make decisions with respect to all
purchases and sales of the portfolio assets. To carry out such
decisions, you are hereby authorized, as our agent and attorney-
in-fact, for our account and at our risk and in our name, to
place orders for the investment and reinvestment of the portfolio
assets. In all purchases, sales and other transactions in the
portfolio assets you are authorized to exercise full discretion
and act for us in the same manner and with the same force and
effect as we might or could do with respect to such purchases,
sales or other transactions, as well as with respect to all other
things necessary or incidental to the furtherance or conduct of
such purchases, sales or other transactions.
(c) You will report to our Trustees at each
meeting thereof all changes in the portfolio assets since the
prior report, and will also keep us in touch with important
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developments affecting the portfolio assets and on your own
initiative will furnish us from time to time with such
information as you may believe appropriate for this purpose,
whether concerning the individual issuers whose securities are
included in the portfolio assets, the industries in which they
engage, or the conditions prevailing in the economy generally.
You will also furnish us with such statistical and analytical
information with respect to the portfolio assets as you may
believe appropriate or as we reasonably may request. In making
such purchases and sales of the portfolio assets, you will bear
in mind the policies set from time to time by our Trustees as
well as the limitations imposed by our Agreement and Declaration
of Trust and in our Registration Statement under the Act and the
Securities Act of 1933, the limitations in the Act and of the
Internal Revenue Code of 1986, as amended, in respect of
regulated investment companies and the investment objective,
policies and restrictions applicable to each of our portfolios.
(d) It is understood that you will from time to
time employ or associate with yourselves such persons as you
believe to be particularly fitted to assist you in the execution
of your duties hereunder, the cost of performance of such duties
to be borne and paid by you. No obligation may be incurred on
our behalf in any such respect. During the continuance of this
agreement and at our request you will provide to us persons
satisfactory to our Trustees to serve as our officers. You or
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your affiliates will also provide persons, who may be our
officers, to render such clerical, accounting and other services
to us as we may from time to time request of you. Such personnel
may be employees of you or your affiliates. We will pay to you
or your affiliates the cost of such personnel for rendering such
services to us, provided that all time devoted to the investment
or reinvestment of the portfolio assets shall be for your
account. Nothing contained herein shall be construed to restrict
our right to hire our own employees or to contract for services
to be performed by third parties. Furthermore, you or your
affiliates shall furnish us without charge with such management
supervision and assistance and such office facilities as you may
believe appropriate or as we may reasonably request subject to
the requirements of any regulatory authority to which you may be
subject. You or your affiliates shall also be responsible for
the payment of any expenses incurred in promoting the sale of our
shares (other than the portion of the promotional expenses to be
borne by us in accordance with an effective plan pursuant to Rule
12b-1 under the Act and the costs of printing our prospectuses
and other reports to shareholders and fees related to
registration with the Securities and Exchange Commission and with
state regulatory authorities).
3. It is further agreed that you shall be responsible
for the portion of the net expenses of each of our portfolios
(except interest, taxes, brokerage, fees paid in accordance with
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an effective plan pursuant to Rule 12b-1 under the Act,
expenditures which are capitalized in accordance with generally
accepted accounting principles and extraordinary expenses, all to
the extent permitted by applicable state law and regulation)
incurred by us during each of our fiscal years or portion thereof
that this agreement is in effect between us which, as to a
portfolio, in any such year exceeds the limits applicable to such
portfolio under the laws or regulations of any state in which our
shares are qualified for sale (reduced pro rata for any portion
of less than a year). We hereby confirm that, subject to the
foregoing, we shall be responsible and hereby assume the
obligation for payment of all our other expenses, including:
(a) payment of the fee payable to you under paragraph 5 hereof;
(b) custody, transfer and dividend disbursing expenses; (c) fees
of trustees who are not your affiliated persons; (d) legal and
auditing expenses; (e) clerical, accounting and other office
costs; (f) the cost of personnel providing services to us, as
provided in subparagraph (d) of paragraph 2 above; (g) costs of
printing our prospectuses and shareholder reports; (h) cost of
maintenance of our existence as a trust; (i) interest charges,
taxes, brokerage fees and commissions; (j) costs of stationery
and supplies; (k) expenses and fees related to registration and
filing with the Securities and Exchange Commission and with state
regulatory authorities; and (l) such promotional expenses as may
be contemplated by an effective plan pursuant to Rule 12b-1 under
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the Act provided, however, that our payment of such promotional
expenses shall be in the amounts, and in accordance with the
procedures, set forth in such plan.
4. We shall expect of you, and you will give us the
benefit of, your best judgment and efforts in rendering these
services to us, and we agree as an inducement to your undertaking
these services that you shall not be liable hereunder for any
mistake of judgment or in any event whatsoever, except for lack
of good faith, provided that nothing herein shall be deemed to
protect, or purport to protect, you against any liability to us
or to our security holders to which you would otherwise be
subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of your duties hereunder, or by
reason of your reckless disregard of your obligations and duties
hereunder.
5. In consideration of the foregoing each portfolio
will pay you a monthly fee at an annualized rate of .625 of 1% of
the average daily net assets of such portfolio. Such fee shall
be payable in arrears on the last day of each calendar month for
services performed hereunder during such month. If our initial
Registration Statement is declared effective by the Securities
and Exchange Commission after the beginning of a month or this
agreement terminates prior to the end of a month, such fee shall
be prorated according to the proportion which such portion of the
month bears to the full month.
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6. This agreement shall become effective on the date
on which our pending Registration Statement on Form N-1A relating
to our shares becomes effective and shall remain in effect with
respect to each portfolio until September 30, 1994 and may be
continued for successive twelve-month periods (computed from each
October 1 thereafter) with respect to each portfolio provided
that such continuance is specifically approved at least annually
by the Trustees or by the vote of a majority of the outstanding
voting securities of such portfolio (as defined in the Act), and,
in either case, by a majority of the Trustees who are not parties
to this agreement or interested persons, as defined in the Act,
of any party to this agreement (other than as Trustees of the
trust), provided further, however, that if the continuation of
this agreement is not approved as to a portfolio, you may
continue to render to such portfolio the services described
herein in the manner and to the extent permitted by the Act and
the rules and regulations thereunder. Upon the effectiveness of
this agreement, it shall supersede all previous agreements
between us covering the subject matter hereof. This agreement
may be terminated with respect to any portfolio at any time,
without the payment of any penalty, by vote of a majority of the
outstanding voting securities (as so defined) of such portfolio,
or by a vote of the Trustees on 60 days' written notice to you,
or by you with respect to any portfolio on 60 days' written
notice to us.
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7. This agreement may not be transferred, assigned,
sold or in any manner hypothecated or pledged by you and this
agreement shall terminate automatically in the event of any such
transfer, assignment, sale, hypothecation or pledge by you. The
terms "transfer", "assignment" and "sale" as used in this
paragraph shall have the meanings ascribed thereto by governing
law and any interpretation thereof contained in rules or
regulations promulgated by the Securities and Exchange Commission
thereunder.
8. (a) Except to the extent necessary to perform your
obligations hereunder, nothing herein shall be deemed to limit or
restrict your right, or the right of any of your employees, or
any of the officers or directors of Alliance Capital Management
Corporation, your general partner, who may also be a Trustee,
officer or employee of ours, or persons otherwise affiliated with
us (within the meaning of the Act) to engage in any other
business or to devote time and attention to the management or
other aspects of any other business, whether of a similar or
dissimilar nature, or to render services of any kind to any other
trust, corporation, firm, individual or association.
(b) You will notify us of any change in the
general partners of your partnership within a reasonable time
after such change.
9. If you cease to act as our investment adviser, or,
in any event, if you so request in writing, we agree to take all
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necessary action to change our name to a name not including the
term "Alliance." You may from time to time make available
without charge to us for our use such marks or symbols owned by
you, including marks or symbols containing the term "Alliance" or
any variation thereof, as you may consider appropriate. Any such
marks or symbols so made available will remain your property and
you shall have the right, upon notice in writing, to require us
to cease the use of such mark or symbol at any time.
10. This Agreement shall be construed in accordance
with the laws of the State of New York, provided, however, that
nothing herein shall be construed as being inconsistent with the
Act.
11. Notice is hereby given that this agreement is
entered into on our behalf by an officer of our Trust in his
capacity as an officer and not individually and that the
obligations of or arising out of this agreement are not binding
upon any of our Trustees, officers, shareholders, employees or
agents individually but are binding only upon the assets and
property of our Trust.
9
<PAGE>
If the foregoing is in accordance with your
understanding, will you kindly so indicate by signing and
returning to us the enclosed copy hereof.
Very truly yours,
ALLIANCE MUNICIPAL INCOME FUND II
By /s/ David H. Dievler
__________________________
David H. Dievler
President
Agreed to and accepted
as of the date first set forth above
ALLIANCE CAPITAL MANAGEMENT L.P.
By ALLIANCE CAPITAL MANAGEMENT
CORPORATION, its general
partner
By /s/ John D. Carifa
_______________________________
John D. Carifa
President
10
00250151.AD1
<PAGE>
ADVISORY AGREEMENT
ALLIANCE MUNICIPAL INCOME FUND II
1345 Avenue Of The Americas
New York, New York 10105
May 21, 1993
As amended as of December 31, 1993
Alliance Capital Management L.P.
1345 Avenue of the Americas
New York, New York 10105
Dear Sirs:
We, the undersigned Alliance Municipal Income Fund II
herewith confirm our agreement with you as follows:
1. We are an open-end, non-diversified management
investment company registered under the Investment Company Act of
1940, as amended (the "Act"). We are currently authorized to
issue separate classes of shares and our Trustees are authorized
to reclassify and issue any unissued shares to any number of
additional classes or series (portfolios) each having its own
investment objective, policies and restrictions, all as more
fully described in the prospectus and the statement of additional
information constituting parts of the Registration Statement
filed on our behalf under the Securities Act of 1933, as amended,
and the Act. We are engaged in the business of investing and
reinvesting the assets of each of our portfolios in securities
("the portfolio assets") of the type and in accordance with the
limitations specified in our Agreement and Declaration of Trust,
By-Laws, Registration Statement filed with the Securities and
<PAGE>
Exchange Commission under the Securities Act of 1933 and the Act,
and any representations made in our prospectus and statement of
additional information, all in such manner and to such extent as
may from time to time be authorized by our Trustees. We enclose
copies of the documents listed above and will from time to time
furnish you with any amendments thereof.
2. (a) We hereby employ you to manage the investment
and reinvestment of the portfolio assets as above specified and,
without limiting the generality of the foregoing, to provide
management and other services specified below.
(b) You will make decisions with respect to all
purchases and sales of the portfolio assets. To carry out such
decisions, you are hereby authorized, as our agent and attorney-
in-fact, for our account and at our risk and in our name, to
place orders for the investment and reinvestment of the portfolio
assets. In all purchases, sales and other transactions in the
portfolio assets you are authorized to exercise full discretion
and act for us in the same manner and with the same force and
effect as we might or could do with respect to such purchases,
sales or other transactions, as well as with respect to all other
things necessary or incidental to the furtherance or conduct of
such purchases, sales or other transactions.
(c) You will report to our Trustees at each
meeting thereof all changes in the portfolio assets since the
prior report, and will also keep us in touch with important
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<PAGE>
developments affecting the portfolio assets and on your own
initiative will furnish us from time to time with such
information as you may believe appropriate for this purpose,
whether concerning the individual issuers whose securities are
included in the portfolio assets, the industries in which they
engage, or the conditions prevailing in the economy generally.
You will also furnish us with such statistical and analytical
information with respect to the portfolio assets as you may
believe appropriate or as we reasonably may request. In making
such purchases and sales of the portfolio assets, you will bear
in mind the policies set from time to time by our Trustees as
well as the limitations imposed by our Agreement and Declaration
of Trust and in our Registration Statement under the Act and the
Securities Act of 1933, the limitations in the Act and of the
Internal Revenue Code of 1986, as amended, in respect of
regulated investment companies and the investment objective,
policies and restrictions applicable to each of our portfolios.
(d) It is understood that you will from time to
time employ or associate with yourselves such persons as you
believe to be particularly fitted to assist you in the execution
of your duties hereunder, the cost of performance of such duties
to be borne and paid by you. No obligation may be incurred on
our behalf in any such respect. During the continuance of this
agreement and at our request you will provide to us persons
satisfactory to our Trustees to serve as our officers. You or
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<PAGE>
your affiliates will also provide persons, who may be our
officers, to render such clerical, accounting and other services
to us as we may from time to time request of you. Such personnel
may be employees of you or your affiliates. We will pay to you
or your affiliates the cost of such personnel for rendering such
services to us, provided that all time devoted to the investment
or reinvestment of the portfolio assets shall be for your
account. Nothing contained herein shall be construed to restrict
our right to hire our own employees or to contract for services
to be performed by third parties. Furthermore, you or your
affiliates shall furnish us without charge with such management
supervision and assistance and such office facilities as you may
believe appropriate or as we may reasonably request subject to
the requirements of any regulatory authority to which you may be
subject. You or your affiliates shall also be responsible for
the payment of any expenses incurred in promoting the sale of our
shares (other than the portion of the promotional expenses to be
borne by us in accordance with an effective plan pursuant to Rule
12b-1 under the Act and the costs of printing our prospectuses
and other reports to shareholders and fees related to
registration with the Securities and Exchange Commission and with
state regulatory authorities).
3. It is further agreed that you shall be responsible
for the portion of the net expenses of each of our portfolios
(except interest, taxes, brokerage, fees paid in accordance with
4
<PAGE>
an effective plan pursuant to Rule 12b-1 under the Act,
expenditures which are capitalized in accordance with generally
accepted accounting principles and extraordinary expenses, all to
the extent permitted by applicable state law and regulation)
incurred by us during each of our fiscal years or portion thereof
that this agreement is in effect between us which, as to a
portfolio, in any such year exceeds the limits applicable to such
portfolio under the laws or regulations of any state in which our
shares are qualified for sale (reduced pro rata for any portion
of less than a year). We hereby confirm that, subject to the
foregoing, we shall be responsible and hereby assume the
obligation for payment of all our other expenses, including:
(a) payment of the fee payable to you under paragraph 5 hereof;
(b) custody, transfer and dividend disbursing expenses; (c) fees
of trustees who are not your affiliated persons; (d) legal and
auditing expenses; (e) clerical, accounting and other office
costs; (f) the cost of personnel providing services to us, as
provided in subparagraph (d) of paragraph 2 above; (g) costs of
printing our prospectuses and shareholder reports; (h) cost of
maintenance of our existence as a trust; (i) interest charges,
taxes, brokerage fees and commissions; (j) costs of stationery
and supplies; (k) expenses and fees related to registration and
filing with the Securities and Exchange Commission and with state
regulatory authorities; and (l) such promotional expenses as may
be contemplated by an effective plan pursuant to Rule 12b-1 under
5
<PAGE>
the Act provided, however, that our payment of such promotional
expenses shall be in the amounts, and in accordance with the
procedures, set forth in such plan.
4. We shall expect of you, and you will give us the
benefit of, your best judgment and efforts in rendering these
services to us, and we agree as an inducement to your undertaking
these services that you shall not be liable hereunder for any
mistake of judgment or in any event whatsoever, except for lack
of good faith, provided that nothing herein shall be deemed to
protect, or purport to protect, you against any liability to us
or to our security holders to which you would otherwise be
subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of your duties hereunder, or by
reason of your reckless disregard of your obligations and duties
hereunder.
5. In consideration of the foregoing each portfolio
will pay you a monthly fee at an annualized rate of .625 of 1% of
the average daily net assets of such portfolio. Such fee shall
be payable in arrears on the last day of each calendar month for
services performed hereunder during such month.
6. This agreement shall become effective on the date
hereof and shall remain in effect with respect to each portfolio
until September 30, 1994 and may be continued for successive
twelve-month periods (computed from each October 1 thereafter)
with respect to each portfolio provided that such continuance is
6
<PAGE>
specifically approved at least annually by the Trustees or by the
vote of a majority of the outstanding voting securities of such
portfolio (as defined in the Act), and, in either case, by a
majority of the Trustees who are not parties to this agreement or
interested persons, as defined in the Act, of any party to this
agreement (other than as Trustees of the trust), provided
further, however, that if the continuation of this agreement is
not approved as to a portfolio, you may continue to render to
such portfolio the services described herein in the manner and to
the extent permitted by the Act and the rules and regulations
thereunder. Upon the effectiveness of this agreement, it shall
supersede all previous agreements between us covering the subject
matter hereof. This agreement may be terminated with respect to
any portfolio at any time, without the payment of any penalty, by
vote of a majority of the outstanding voting securities (as so
defined) of such portfolio, or by a vote of the Trustees on 60
days' written notice to you, or by you with respect to any
portfolio on 60 days' written notice to us.
7. This agreement may not be transferred, assigned,
sold or in any manner hypothecated or pledged by you and this
agreement shall terminate automatically in the event of any such
transfer, assignment, sale, hypothecation or pledge by you. The
terms "transfer", "assignment" and "sale" as used in this
paragraph shall have the meanings ascribed thereto by governing
law and any interpretation thereof contained in rules or
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<PAGE>
regulations promulgated by the Securities and Exchange commission
thereunder.
8. (a) Except to the extent necessary to perform your
obligations hereunder, nothing herein shall be deemed to limit or
restrict your right, or the right of any of your employees, or
any of the officers or directors of Alliance Capital Management
Corporation, your general partner, who may also be a Trustee,
officer or employee of ours, or persons otherwise affiliated with
us (within the meaning of the Act) to engage in any other
business or to devote time and attention to the management or
other aspects of any other business, whether of a similar or
dissimilar nature, or to render services of any kind to any other
trust, corporation, firm, individual or association.
(b) You will notify us of any change in the
general partners of your partnership within a reasonable time
after such change.
9. If you cease to act as our investment adviser, or,
in any event, if you so request in writing, we agree to take all
necessary action to change our name to a name not including the
term "Alliance." You may from time to time make available
without charge to us for our use such marks or symbols owned by
you, including marks or symbols containing the term "Alliance" or
any variation thereof, as you may consider appropriate. Any such
marks or symbols so made available will remain your property and
8
<PAGE>
you shall have the right, upon notice in writing, to require us
to cease the use of such mark or symbol at any time.
10. This Agreement shall be construed in accordance
with the laws of the State of New York, provided, however, that
nothing herein shall be construed as being inconsistent with the
Act.
11. Notice is hereby given that this agreement is
entered into on our behalf by an officer of our Trust in his
capacity as an officer and not individually and that the
obligations of or arising out of this agreement are not binding
upon any of our Trustees, officers, shareholders, employees or
agents individually but are binding only upon the assets and
property of our Trust.
9
<PAGE>
If the foregoing is in accordance with your
understanding, will you kindly so indicate by signing and
returning to us the enclosed copy hereof.
Very truly yours,
ALLIANCE MUNICIPAL INCOME FUND II
By /s/ David H. Dievler
______________________________
David H. Dievler
President
Agreed to and accepted:
May 21, 1993 as
amended as of December 31, 1993
ALLIANCE CAPITAL MANAGEMENT L.P.
By ALLIANCE CAPITAL MANAGEMENT
CORPORATION, its general
partner
By /s/ John D. Carifa
____________________________
John D. Carifa
President
10
00250151.AW4
<PAGE>
DISTRIBUTION SERVICES AGREEMENT
AGREEMENT made as of May 21, 1993 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 is registered under the Investment
Company Act of 1940, as amended (the "Investment Company Act"),
as a diversified, open-end management investment company and it
is in the interest of the Fund to offer its shares for sale
continuously;
WHEREAS, the Underwriter is a securities firm engaged in
the business of selling shares of investment companies either
directly to purchasers or through other securities dealers;
WHEREAS, the Fund and the Underwriter wish to enter into
an agreement with each other with respect to the continuous
offering of the Fund's shares in order to promote the growth of
the Fund and facilitate the distribution of its shares;
NOW, THEREFORE, the parties agree as follows:
SECTION 1. Appointment of the Underwriter. The Fund
hereby appoints the Underwriter as the principal underwriter and
distributor of the Fund to sell to the public its Class A shares
of beneficial interest (the "Class A shares"), Class B shares of
beneficial interest (the "Class B shares") and Class C shares of
beneficial interest (the "Class C shares") (the Class A shares,
Class B shares and Class C shares being 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 herein set forth.
SECTION 2. Exclusive Nature of Duties. The Underwriter
shall be the exclusive representative of the Fund to act as
principal underwriter and distributor except that the rights
given under this Agreement to the Underwriter shall not apply to
shares issued in connection with (a) the merger or consolidation
of any other investment company with the Fund, (b) the Fund's
acquisition by purchase or otherwise of all or substantially all
of the assets or stock of any other investment company or (c) the
reinvestment in shares by the Fund's shareholders of dividends or
other distributions.
<PAGE>
SECTION 3. Purchase of Shares from the Fund.
(a) The Underwriter shall have the right to buy from
the Fund the shares needed to fill unconditional orders for
shares of the Fund placed with the Underwriter by investors or
securities dealers, depository institutions or other financial
intermediaries acting as agent for their customers. The price
which the Underwriter shall pay for the shares so purchased from
the Fund shall be the net asset value, determined as set forth in
Section 3(d) hereof, used in determining the public offering
price on which such orders are based.
(b) The shares are to be resold by the Underwriter to
investors at a public offering price, as set forth in
Section 3(c) hereof, or to securities dealers, depository
institutions or other financial intermediaries acting as agent
for their customers having agreements with the Underwriter upon
the terms and conditions set forth in Section 8 hereof.
(c) The public offering price of the shares, i.e., the
price per share at which the Underwriter or selected dealers or
selected agents (each as defined in Section 8(a) below) may sell
shares to the public, shall be the public offering price
determined in accordance with the then current Prospectus and
Statement of Additional Information of the Fund (the "Prospectus"
and "Statement of Additional Information," respectively) under
the Securities Act of 1933, as amended (the "Securities Act"),
relating to such shares, but not to exceed the net asset value at
which the Underwriter is to purchase such shares, plus, in the
case of Class A shares, a front-end sales charge equal to a
specified percentage or percentages of the public offering price
of the Class A shares as set forth in the Prospectus. Class A
shares may be sold without such a sales charge to certain classes
of persons as from time to time set forth in the Prospectus and
Statement of Additional Information. All payments to the Fund
hereunder shall be made in the manner set forth in Section 3(f)
hereof.
(d) The net asset value of shares of the Fund shall be
determined by the Fund, or any agent of the Fund, as of the close
of regular trading on the New York Stock Exchange on each Fund
business day in accordance with the method set forth in the
Prospectus and Statement of Additional Information and guidelines
established by the Trustees of the Fund.
(e) The Fund reserves the right to suspend the offering
of its shares at any time in the absolute discretion of its
Trustees.
(f) The Fund, or any agent of the Fund designated in
writing to the Underwriter by the Fund, shall be promptly advised
2
<PAGE>
by the Underwriter of all purchase orders for shares received by
the Underwriter. Any order may be rejected by the Fund;
provided, however, that the Fund will not arbitrarily or without
reasonable cause refuse to accept or confirm orders for the
purchase of shares. The Fund (or its agent) will confirm orders
upon their receipt, will make appropriate book entries and upon
receipt by the Fund (or its agent) of payment thereof, will
deliver deposit receipts or certificates for such shares pursuant
to the instructions of the Underwriter. Payment shall be made to
the Fund in New York Clearing House funds. The Underwriter
agrees to cause such payment and such instructions to be
delivered promptly to the Fund (or its agent).
SECTION 4. Repurchase or Redemption of
Shares by the Fund.
(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
Agreement and 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, in the case of Class B shares, a deferred sales
charge equal to a specified percentage or percentages of the net
asset value of the Class B shares or their cost, whichever is
less. Class B shares that have been outstanding for a specified
period of time may be redeemed without payment of a deferred
sales charge as from time to time set forth in the Prospectus.
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 Underwriter
will not affect the 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 purchase by
an investor and his tendering for redemption or repurchase.
The Fund (or its agent) shall pay the total amount of
the redemption price and, except as may be otherwise required by
the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. (the "NASD") and any interpretations
thereof ("NASD rules and interpretations"), the deferred sales
charges, if any, as defined in the above paragraph, pursuant to
the instructions of the Underwriter in New York Clearing House
funds on or before the seventh business day subsequent to its
having received the notice of redemption in proper form.
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<PAGE>
(b) Redemption of shares or payment may be suspended at
times when the New York Stock Exchange is closed, when trading
thereon is closed, when trading thereon is restricted, when an
emergency exists as a result of which disposal by the Fund or
securities owned by it is not reasonably practicable or it is not
reasonably practicable for the Fund fairly to determine the value
of its net assets, or during any other period when the Securities
and Exchange Commission, by order, so permits.
SECTION 5. Plan of Distribution.
(a) It is understood that Sections 5, 12, and 16 hereof
together constitute a plan of distribution (the "Plan") within
the meaning of Rule 12b-1 adopted by the Securities and Exchange
Commission under the Investment Company Act ("Rule 12b-1").
(b) Except as may be required by NASD rules and
interpretations, the Fund will pay to the Underwriter each month
a distribution services fee with respect to each portfolio of the
Fund ("Portfolio") that will not exceed, on an annualized basis,
.30% of the aggregate average daily net assets of the Fund
attributable to the Class A shares, 1.00% of the aggregate
average daily net assets of the Fund attributable to the Class B
shares and 1.00% of the aggregate average daily net assets of the
Fund attributable to the Class C shares. With respect to each
Portfolio, the distribution services fee will be used in its
entirety by the Underwriter to make payments (i) to compensate
broker-dealers or other persons for providing distribution
assistance, (ii) to otherwise promote the sale of shares of each
Portfolio, including payment for the preparation, printing and
distribution of prospectuses and sales literature or other
promotional activities, and (iii) to compensate broker-dealers,
depository institutions and other financial intermediaries for
providing administrative, accounting and other services with
respect to each Portfolio's shareholders. A portion of the
distribution services fee that will not exceed, on an annualized
basis, .25% of the aggregate average daily net assets of the Fund
attributable to each of the Class A shares, Class B shares and
Class C shares will constitute a service fee that will be used by
the Underwriter for personal service and/or the maintenance of
shareholder accounts within the meaning of NASD rules and
interpretations.
(c) Alliance Capital Management L.P., the Fund's
investment adviser (the "Adviser"), may make payments from time
to time from its own resources for the purposes described in
Section 5(b) hereof.
(d) Payments to broker-dealers, depository institutions
and other financial intermediaries for the purposes set forth in
Section 5(b) are subject to the terms and conditions of the
4
<PAGE>
written agreements between the Underwriter and each broker-
dealer, depository institution or other financial intermediary.
Such agreements will be in a form satisfactory to the Trustees of
the Fund.
(e) The Treasurer of the Fund will prepare and furnish
to the Fund's Trustees, and the Trustees will review, at least
quarterly, a written report complying with the requirements of
Rule 12b-1 setting forth all amounts expended hereunder and the
purposes for which such expenditures were made.
(f) The Fund is not obligated to pay any distribution
expense in excess of the distribution services fee described
above in Section 5(b) hereof. Any expenses of distribution of
the Fund's Class A shares accrued by the Underwriter in one
fiscal year of the Fund may not be paid from distribution
services fees received from the Fund in respect of Class A shares
in another fiscal year. Any expenses of distribution of the
Fund's Class B shares or Class C shares accrued by the
Underwriter in one fiscal year of the Fund may be carried forward
and paid from distribution services fees received from the Fund
in respect of such class of shares in another fiscal year. No
portion of the distribution services fees received from the Fund
in respect of Class A shares may be used to pay any interest
expense, carrying charges or other financing costs or allocation
of overhead of the Underwriter. The distribution services fees
received from the Fund in respect of Class B shares and Class C
shares may be used to pay interest expenses, carrying charges and
other financing costs or allocation of overhead of the
Underwriter to the extent permitted by Securities and Exchange
Commission rules, regulations or Securities and Exchange
Commission staff no-action or interpretative positions in effect
from time to time. In the event this Agreement is terminated by
either party or is not continued with respect to a class as
provided in Section 12 below: (i) no distribution services fees
(other than current amounts accrued but not yet paid) will be
owed by the Fund to the Underwriter with respect to that class,
and (ii) the Fund will not be obligated to pay the Underwriter
for any amounts expended hereunder not previously reimbursed by
the Fund from distribution services fees in respect of shares of
such class or recovered through deferred sales charges described
in Section 4(a) above. The distribution services fee of a
particular class may not be used to subsidize the sale of shares
of any other class.
SECTION 6. Duties of the Fund.
(a) The Fund shall furnish to the Underwriter copies of
all information, financial statements and other papers that the
Underwriter may reasonably request for use in connection with the
distribution of shares of the Fund, and this shall include one
5
<PAGE>
certified copy, upon request by the Underwriter, of all financial
statements prepared for the Fund by independent public
accountants. The Fund shall make available to the Underwriter
such number of copies of the Prospectus as the Underwriter shall
reasonably request.
(b) The Fund shall take, from time to time, but subject
to the necessary approval of its shareholders, all necessary
action to fix the number of authorized shares and such steps as
may be necessary to register the same under the Securities Act,
to the end that there will be available for sale such number of
shares as the Underwriter reasonably may be expected to sell.
(c) The Fund shall use its best efforts to qualify and
maintain the qualification of an appropriate number of its shares
under the securities laws of such states as the Underwriter and
the Fund may approve. Any such qualification may be withheld,
terminated or withdrawn by the Fund at any time in its
discretion. As provided in Section 9(b) hereof, the expense of
qualification and maintenance of qualification shall be borne by
the Fund. The Underwriter shall furnish such information and
other material relating to its affairs and activities as may be
required by the Fund in connection with such qualification.
(d) The Fund will furnish, in reasonable quantities
upon request by the Underwriter, copies of annual and interim
reports of the Fund.
SECTION 7. Duties of the Underwriter.
(a) The Underwriter shall devote reasonable time and
effort to effect sales of shares of the Fund, but shall not be
obligated to sell any specific number of shares. The services of
the Underwriter to the Fund hereunder are not to be deemed
exclusive and nothing in this Agreement shall prevent the
Underwriter from entering into like arrangements with other
investment companies so long as the performance of its
obligations hereunder is not impaired thereby.
(b) In selling shares of the Fund, the Underwriter
shall use its best efforts in all material respects duly to
conform with the requirements of all federal and state laws
relating to the sale of such securities. Neither the
Underwriter, any selected dealer, any selected agent nor any
other person is authorized by the Fund to give any information or
to make any representations, other than those contained in the
Fund's Registration Statement (the "Registration Statement"), as
amended from time to time, under the Securities Act and the
Investment Company Act or the Prospectus and Statement of
Additional Information or any sales literature specifically
approved in writing by the Fund.
6
<PAGE>
(c) The Underwriter shall adopt and follow procedures,
as approved by the officers of the Fund, for the confirmation of
sales to investors and selected dealers, the collection of
amounts payable by investors and selected dealers on such sales,
and the cancellation of unsettled transactions, as may be
necessary to comply with the requirements of the NASD, as such
requirements may from time to time exist.
SECTION 8. Selected Dealer and Agent Agreements.
(a) The Underwriter shall have the right to enter into
selected dealer agreements with securities dealers of its choice
("selected dealers") and selected agent agreements with
depository institutions and other financial intermediaries of its
choice ("selected agents") for the sale of shares and fix therein
the portion of the sales charge that may be allocated to the
selected dealers and selected agents; provided, that the Fund
shall approve the forms of agreements with selected dealers and
selected agents and the selected dealer and selected agent
compensation set forth therein and shall evidence such approval
by filing said forms and amendments thereto as exhibits to its
then currently effective Registration Statement. Shares sold to
selected dealers or through selected agents shall be for resale
by such selected dealers and selected agents only at the public
offering price set forth in the Prospectus and Statement of
Additional Information.
(b) Within the United States, the Underwriter shall
offer and sell shares only to such selected dealers as are
members in good standing of the NASD.
SECTION 9. Payment of Expenses.
(a) The Fund shall bear all costs and expenses of the
Fund, including fees and disbursements of its counsel and
auditors, in connection with the preparation and filing of its
Registration Statement and Prospectus and Statement of Additional
Information, and all amendments and supplements thereto, and
preparing and mailing annual and interim reports and proxy
materials to shareholders (including but not limited to the
expense of setting in type any such registration statements,
prospectuses, annual or interim reports or proxy materials).
(b) The Fund shall bear the cost of expenses of
qualification of shares for sale, and, if necessary or advisable
in connection therewith, of qualifying the Fund as an issuer or
as a broker or dealer, in such states of the United States or
other jurisdiction as shall be selected by the Fund and the
Underwriter pursuant to Section 6(c) hereof and the cost and
expenses payable to each such state for continuing qualification
7
<PAGE>
therein until the Fund decides to discontinue such qualification
pursuant to Section 6(c) hereof.
SECTION 10. Indemnification.
(a) The Fund agrees to indemnify, defend and hold the
Underwriter, and any person who controls the Underwriter within
the meaning of Section 15 of the Securities Act, free and
harmless from and against any and all claims, demands,
liabilities and expenses (including the cost of investigating or
defending such claims, demands or liabilities and any counsel
fees incurred in connection therewith) which the Underwriter or
any such controlling person may incur, under the Securities Act,
or under common law or otherwise, arising out of or based upon
any alleged untrue statement of a material fact contained in the
Fund's Registration Statement, Prospectus or Statement of
Additional Information in effect from time to time under the
Securities Act or arising out of or based upon any alleged
omission to state a material fact required to be stated in any
one thereof or necessary to make the statements in any one
thereof not misleading; provided, however, that in no event shall
anything herein contained be so construed as to protect the
Underwriter against any liability to the Fund or its security
holders to which the Underwriter would otherwise be subject by
reason of willful misfeasance, bad faith or gross negligence in
the performance of its duties, or by reason of the Underwriter's
reckless disregard of its obligations and duties under this
Agreement. The Fund's agreement to indemnify the Underwriter and
any such controlling person as aforesaid is expressly conditioned
upon the Fund's being notified of the commencement of any action
brought against the Underwriter or any such controlling person,
such notification to be given by letter or by telegram addressed
to the Fund at its principal office in New York, New York, and
sent to the Fund by the person against whom such action is
brought within ten days after the summons or other first legal
process shall have been served. The failure to so notify the
Fund of the commencement of any such action shall not relieve the
Fund from any liability which it may have to the person against
whom such action is brought by reason of any such alleged untrue
statement or omission otherwise than on account of the indemnity
agreement contained in this Section 10. The Fund will be
entitled to assume the defense of any suit brought to enforce any
such claim, and to retain counsel of good standing chosen by the
Fund and approved by the Underwriter. In the event the Fund does
not elect to assume the defense of any such suit and retain
counsel of good standing approved by the Underwriter, the
defendant or defendants in such suit shall bear the fees and
expenses of any additional counsel retained by any of them; but
in case the Fund does not elect to assume the defense of any such
suit, or in case the Underwriter does not approve of counsel
chosen by the Fund, the Fund will reimburse the Underwriter or
8
<PAGE>
the controlling person or persons named as defendant or
defendants in such suit, for the fees and expenses of any counsel
retained by the Underwriter or such persons. The indemnification
agreement contained in this Section 10 shall remain operative and
in full force and effect regardless of any investigation made by
or on behalf of the Underwriter or any controlling person and
shall survive the sale of any of the Fund's shares made pursuant
to subscriptions obtained by the Underwriter. This agreement of
indemnity will inure exclusively to the benefit of the
Underwriter, to the benefit of its successors and assigns, and to
the benefit of any controlling persons and their successors and
assigns. The Fund agrees promptly to notify the Underwriter of
the commencement of any litigation or proceeding against the Fund
in connection with the issue and sale of any of its shares.
(b) The Underwriter agrees to indemnify, defend and
hold the Fund, its several officers and trustees, and any person
who controls the Fund within the meaning of Section 15 of the
Securities Act, free and harmless from and against any and all
claims, demands, liabilities, and expenses (including the cost of
investigating or defending such claims, demands or liabilities
and any counsel fees incurred in connection therewith) which the
Fund, its officers or trustees, or any such controlling person
may incur under the Securities Act or under common law or
otherwise, but only to the extent that such liability, or expense
incurred by the Fund, its officers, trustees or such controlling
person resulting from such claims or demands shall arise out of
or be based upon any alleged untrue statement of a material fact
contained in information furnished in writing by the Underwriter
to the Fund for use in its Registration Statement, Prospectus or
Statement of Additional Information in effect from time to time
under the Securities Act, or shall arise out of or be based upon
any alleged omission to state a material fact in connection with
such information required to be stated in the Registration
Statement, Prospectus or Statement of Additional Information or
necessary to make such information not misleading. The
Underwriter's agreement to indemnify the Fund, its officers and
trustees, and any such controlling person as aforesaid is
expressly conditioned upon the Underwriter being notified of the
commencement of any action brought against the Fund, its officers
or trustees or any such controlling person, such notification to
be given by letter or telegram addressed to the Underwriter at
its principal office in New York, and sent to the Underwriter by
the person against whom such action is brought, within ten days
after the summons or other first legal process shall have been
served. The Underwriter shall have a right to control the
defense of such action, with counsel of its own choosing,
satisfactory to the Fund, if such action is based solely upon
such alleged misstatement or omission on its part, and in any
other event the Underwriter and the Fund, and their officers and
trustees or such controlling person, shall each have the right to
9
<PAGE>
participate in the defense or preparation of the defense of any
such action. The failure so to notify the Underwriter of the
commencement of any such action shall not relieve the Underwriter
from any liability which it may have to the Fund, to its officers
and trustees, or to such controlling person by reason of any such
untrue statement or omission on the part of the Underwriter
otherwise than on account of the indemnity agreement contained in
this Section 10.
SECTION 11. Notification by the Fund.
The Fund agrees to advise the Underwriter immediately:
(a) of any request by the Securities and
Exchange Commission for amendments to the Fund's
Registration Statement, Prospectus or Statement of
Additional Information or for additional
information,
(b) in the event of the issuance by the
Securities and Exchange Commission of any stop
order suspending the effectiveness of the Fund's
Registration Statement, Prospectus or Statement of
Additional Information or the initiation of any
proceeding for that purpose,
(c) of the happening of any material event
which makes untrue any statement made in the Fund's
Registration Statement, Prospectus or Statement of
Additional Information or which requires the making
of a change in any one thereof in order to make the
statements therein not misleading, and
(d) of all actions of the Securities and
Exchange Commission with respect to any amendments
to the Fund's Registration Statement, Prospectus or
Statement of Additional Information which may from
time to time be filed with the Securities and
Exchange Commission under the Securities Act.
SECTION 12. Term of Agreement.
(a) This Agreement shall become effective on the
date hereof and shall continue in effect until September 30,
1993, and thereafter for successive twelve-month periods
(computed from each October 1) with respect to each class;
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 Investment Company Act) of
that class, and, in either case, by a majority of the
10
<PAGE>
Trustees of the Fund who are not parties to this Agreement
or interested persons, as defined in the Investment Company
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 Plan or any agreement related thereto;
provided further, however, that if the continuation of this
Agreement is not approved as to a class or a Portfolio, the
Underwriter may continue to render to such class or
Portfolio the services described herein in the manner and to
the extent permitted by the Act and the rules and
regulations thereunder. Upon effectiveness of this
Agreement, it shall supersede all previous agreements
between the parties hereto covering the subject matter
hereof. This Agreement may be terminated (i) by the Fund
with respect to any class or Portfolio at any time, without
the payment of any penalty, by the vote of a majority of the
outstanding voting securities (as so defined) of such class
or Portfolio, or by a vote of a majority of the Trustees of
the Fund who are not interested persons, as defined in the
Investment Company Act, of the Fund (other than as trustees
of the Fund) and have no direct and indirect financial
interest in the operation of the Plan or any agreement
related thereto, in any such event on sixty days' written
notice to the Underwriter; provided, however, that no such
notice shall be required if such termination is stated by
the Fund to relate only to Sections 5 and 16 hereof (in
which event Sections 5 and 16 shall be deemed to have been
severed herefrom and all other provisions of this Agreement
shall continue in full force and effect), or (ii) by the
Underwriter with respect to any Portfolio on sixty days'
written notice to the Fund.
(b) This Agreement may be amended at any time with
the approval of the Trustees of the Fund, provided that
(i) any material amendments of the terms hereof will become
effective only upon approval as provided in the first
proviso of the first sentence of Section 12(a) hereof, and
(ii) any amendment to increase materially the amount to be
expended for distribution services fees pursuant to Section
5(b) hereof will be effective only upon the additional
approval by a vote of a majority of the outstanding voting
securities as defined in the Investment Company Act of the
class or Portfolio affected.
SECTION 13. No Assignment. This Agreement may not
be transferred, assigned, sold or in any manner hypothecated
or pledged by either party hereto and this Agreement shall
terminate automatically in the event of any such transfer,
assignment, sale, hypothecation or pledge. The terms
"transfer", "assignment", and "sale" as used in this
paragraph shall have the meanings ascribed thereto by
11
<PAGE>
governing law and any interpretation thereof contained in
rules or regulations promulgated by the Securities and
Exchange Commission thereunder.
SECTION 14. Notices. Any notice required or
permitted to be given hereunder by either party to the other
shall be deemed sufficiently given if sent by registered
mail, postage prepaid, addressed by the party giving such
notice to the other party at the last address furnished by
such other party to the party given notice, and unless and
until changed pursuant to the foregoing provisions hereof
addressed to the Fund or the Underwriter.
SECTION 15. Governing Law. The provisions of this
Agreement shall be, to the extent applicable, construed and
interpreted in accordance with the laws of the State of New
York.
SECTION 16. Disinterested Trustees of the Fund.
While the Agreement is in effect, the selection and
nomination of the Trustees who are not "interested persons"
of the Fund (as defined in the Investment Company Act) will
be committed to the discretion of such disinterested
Trustees.
SECTION 17. Liability of Trustees, etc. Notice is
hereby given that this agreement is entered into on behalf
of the Fund by an officer of the Fund in his capacity as an
officer and not individually and that the obligations of or
arising out of this agreement are not binding upon any of
the Trustees, officers, shareholders, employees or agents of
the Fund individually but are binding only upon the assets
and property of the Fund.
IN WITNESS WHEREOF, the parties hereto have
executed this Agreement.
ALLIANCE MUNICIPAL INCOME FUND II
By /s/ David H. Dievler
________________________
David H. Dievler
President
ALLIANCE FUND DISTRIBUTORS, INC.
By /s/ Robert L. Errico
________________________
12
<PAGE>
Robert L. Errico
President
Accepted as to
Sections 5, 12 and 16
as of May 21, 1993:
ALLIANCE CAPITAL MANAGEMENT L.P.
By Alliance Capital Management Corporation,
General Partner
By /s/ John D. Carifa
________________________
John D. Carifa
President
13
00250151.AC9
<PAGE>
(LOGO) ALLIANCE FUND DISTRIBUTORS, INC.
1345 AVENUE OF THE AMERICAS
NEW YORK, N.Y. 10105
(800) 221-5672
, 1997
Selected Dealer Agreement
For Broker/Dealers (other than Bank Subsidiaries)
Dear Sirs:
As the principal underwriter of shares of certain
registered investment companies presently or hereafter managed by
Alliance Capital Management LP, shares of which companies are
distributed by us pursuant to our Distribution Services Agreements
with such companies (the "Funds"), we invite you to participate as
principal in the distribution of shares of any and all of the
Funds upon the following terms and conditions:
1. You are to offer and sell such shares only at the
public offering prices which shall be currently in effect, in
accordance with the terms of the then current prospectuses and
statements of additional information of the Funds. You agree to
act only as principal in such transactions and shall not have
authority to act as agent for the Funds, for us, or for any other
dealer in any respect. All orders are subject to acceptance by us
and become effective only upon confirmation by us.
2. On each purchase of shares by you from us, the total
sales charges and discount to selected dealer, if any, shall be as
stated in each Fund's then current prospectus.
Such sales charges and discount to selected dealers are
subject to reductions under a variety of circumstances as
described in each Fund's then current prospectus and statement of
additional information. To obtain these reductions, we must be
notified when the sale takes place which would qualify for the
reduced charge.
There is no sales charge or discount to selected dealers
on the reinvestment of dividends.
3. As a selected dealer, you are hereby authorized
(i) to place orders directly with the Funds for their shares to be
resold by us to you subject to the applicable terms and conditions
governing the placement of orders by us set forth in the
Distribution Services Agreement between each fund and us and
<PAGE>
subject to the applicable compensation provisions set forth in
each Fund's then current prospectus and statement of additional
information and (ii) to tender shares directly to the Funds or
their agent for redemption subjected to the applicable terms and
conditions set forth in the Distribution Services Agreement.
4. Repurchases of shares will be made at the net asset
value of such shares in accordance with the then current
prospectuses and statements of additional information of the
Funds.
5. You represent that you are a member of the National
Association of Securities Dealers, Inc. and that you agree to
abide by the Rules of Fair Practice of such Association.
6. This Agreement is in all respects subject to Rule 26
of the Rules of Fair Practice of the National Association of
Securities Dealer, Inc. which shall control any provision to the
contrary in this Agreement.
7. You agree:
(a) To purchase shares only from us or only from
your customers.
(b) To purchase shares from us only for the purpose
of covering purchase orders already received or
for your own bona fide investment.
(c) That you will not purchase any shares from your
customers at prices lower than the redemption
or repurchase prices then quoted by the Fund.
You shall, however, be permitted to sell shares
for the account of their record owners to the
Funds at the repurchase prices currently
established for such shares and may charge to
owner a fair commission for handling the
transaction.
(d) That you will not withhold placing customers'
orders for shares so as to profit yourself as a
result of such withholding.
(e) That if any shares confirmed to you hereunder
are redeemed or repurchased by any of the Funds
within seven business days after such
confirmation of your original order, you shall
forth with refund to us the full discount
allowed to you on such sales. We shall notify
you of such redemption or repurchase within ten
days from the date of delivery of the request
2
<PAGE>
therefor or certificates to us or such fund.
Termination or cancellation of this Agreement
shall not relieve you or us from the
requirements of this subparagraph.
8. We shall not accept from you conditional orders for
shares. Delivery of certificates for shares purchased shall be
made by the Funds only against receipt of the purchase price,
subject to deduction for the discount reallowed to you and our
portion of the sales charge on such sales. If payment for the
shares purchased is not received within the time customary for
such payments, the sale may be cancelled forthwith without any
responsibility or liability on our part or on the part of the
Funds (in which case we may hold you responsible for any loss,
including loss of profit, suffered by the Funds resulting from
your failure to make payment as aforesaid), or, at our option, we
may sell the shares ordered back to the Funds (in which case we
may hold you responsible for any loss, including loss of profit
suffered by us resulting from your failure to make payments as
aforesaid).
9. You will not offer or sell any of the shares except
under circumstances that will result in compliance with the
applicable Federal and State securities laws and in connection
with sales and offers to sell shares you will furnish to each
person to whom any such sale or offer is made a copy of the
applicable then current prospectus. We shall be under no
liability to you except for lack of good faith and for obligations
expressly assumed by us herein. Nothing herein contained however,
shall be deemed to be a condition, stipulation or provision
binding any persons acquiring any security to waive compliance
with any provision of the Securities Act of 1933, or of the Rules
and Regulations of the Securities and Exchanges Commission, or to
relieve the parties hereto from any liability arising under the
Securities Act of 1933.
10. From time to time during the term of this Agreement
we may make payments to you pursuant to one or more of the
distribution plans adopted by certain of the Funds pursuant to
Rule 12b-1 under the Investment Company Act of 1940 (the "Act") in
consideration, with respect to each such Fund, of your furnishing
distribution services hereunder and providing administrative,
accounting and other services, including personal service and/or
the maintenance of shareholder accounts. We have no obligation to
make any such payments and you waive any such payment until we
receive monies therefor from the Fund. Any such payments made
pursuant to this Section 10 shall be subject to the following
terms and conditions:
(a) Any such payments shall be in such amounts as
we may from time to time advise you in writing
3
<PAGE>
but in any event not in excess of the amounts
permitted by the plan in effect with respect to
each particular Fund. Any such payments shall
be in addition to the selling concession, if
any, allowed to you pursuant to this Agreement.
Such payments shall include a service fee in
the amount of .25 of 1% per annum of the
average daily net assets of certain Funds
attributable to you clients. Any such service
fee shall be paid to you solely for personal
service and/or the maintenance of shareholder
accounts.
(b) The provisions of this Section 10 relate to the
plan adopted by a particular Fund pursuant to
Rule 12b-1. In accordance with Rule 12b-1, any
person authorized to direct the disposition of
monies paid or payable by a Fund pursuant to
this Section 10 shall provide the Fund's Board
of Directors, and the Directors shall review,
at least quarterly, a written report of the
amounts so expended and the purposes for which
such expenditures were made.
(c) The provisions of this Section 10 applicable to
each Fund shall remain in effect for not more
than a year and thereafter for successive
annual periods only so long as such continuance
is specifically approved at least annually in
conformity with Rule 12b-1 and the Act. The
provisions of this Section 10 shall
automatically terminate with respect to a
particular Plan in the event of the assignment
(as defined by the Act) of this Agreement, in
the event such Plan terminates or is not
continued or in the event this Agreement
terminates or ceases to remain in effect. In
addition, the provisions of this Section 10 may
be terminated any any time, without penalty, by
either party with respect to any particular
Plan on not more than 60 days' nor less than 30
days' written notice delivered or mailed by
registered mail, postage prepaid, to the other
party.
11. No person is authorized to make any representations
concerning shares of the Funds except hose contained in the
current prospectus, statement of additional information, and
printed information issued by each Fund or by us as information
supplemental to each prospectus. We shall supple prospectuses and
statements of additional information, reasonable quantities of
4
<PAGE>
reports to shareholders, supplemental sales literature, sales
bulletins, and additional information as issued. You agree to
distribute prospectuses and reports to shareholders of the Funds
to your customers in compliance with the applicable requirements,
except to the extent that we expressly undertake to do so on your
behalf. You agree not to use other advertising or sales material
relating to the Funds, unless approved in writing by us in advance
of such use. Any printed information furnished by us other than
the then current prospectus and statement of additional
information for each Fund, periodic reports and proxy solicitation
materials are our sole responsibility and not the responsibility
of the Funds, and you agree that the Funds shall have no liability
or responsibility to you in these respects unless expressly assume
in connection therewith.
12. In connection with your distribution of shares of a
Fund, you shall conform to such written compliance standards as we
have provided you in the past or may from time to time provide to
you in the future.
13. We, our affiliates and the Funds shall not be liable
for any loss, expense, damages, costs or other claim arising out
of any redemption or exchange pursuant to telephone instructions
from any person or our refusal to execute such instructions for
any reason.
14. Either party to this Agreement may cancel this
Agreement by giving written notice to the other. Such notice
shall be deemed to have been given on the date on which it was
either delivered personally to the other party or any officer or
member thereof, or was mailed postpaid or delivered to a telegraph
office for transmission to the other party at his or its address
as shown below. This Agreement may be amended by us at any time
and your placing of an order after the effective date of any such
amendment shall constitute your acceptance thereof.
5
<PAGE>
15. This Agreement shall be construed in accordance with
the laws of the State of New York and shall be binding upon both
parties thereto when signed by us and accepted by you in the space
provided below.
Very truly yours
ALLIANCE FUND DISTRIBUTORS, INC.
By:________________________________
(Authorized Signature)
Firm Name_______________________________________________________
Address_________________________________________________________
City____________________________ State_________ Zip Code________
ACCEPTED BY (signature)__________________ Title_________________
Name(printed)____________________________ Title_________________
Date____________________________ 199_____ Phone #_______________
Please return two signed copies of this Agreement
(one of which will be signed above by us
and thereafter returned to you)
in the accompanying return envelope to:
Alliance Fund Distributors, Inc.
1345 Avenue of the Americas, 38th Floor
New York, NY 10105
6
00250151.AV9
<PAGE>
(LOGO) ALLIANCE FUND DISTRIBUTORS, INC.
1345 AVENUE OF THE AMERICAS
NEW YORK, N.Y. 10105
(800) 221-5672
, 1997
Selected Agent Agreement
For Depository Institutions and Their Subsidiaries
Dear Sirs:
As the principal underwriter of shares of certain
registered investment companies presently or hereafter managed by
Alliance Capital Management L.P., shares of which companies are
distributed by us pursuant to our Distribution Services Agreements
with such companies (the "Funds"), we invite you, acting as agent
for your customers, to make available to your customers shares of
any or all of the funds upon the following terms and conditions:
1. The customers in question will be for all purposes
your customers. We all execute transactions in shares of the
Funds for each of your customers only upon your authorization, if
being understood in all causes that (a) you are acting as the
agent for the customer; (b) each transaction is initiated solely
upon the order of the customer; (c) each transaction is for the
account of the customer and not for your account; (d) the
transactions are without recourse against you by the customer;
(e) except as we otherwise agree, each transaction is reflected on
a fully disclosed basis; (f) as between you and the customer, the
customer will have full beneficial ownership of the shares;
(g) you shall provide no investment advice and exercise no
investment discretion regarding the purchase, sale, or redemption
of the shares; and (h) you shall make appropriate disclosure to
your customer that any Fund's shares are not endorsed by you, do
not constitute your obligation and are not entitled to federal
deposit insurance.
2. You are to sell shares of the Funds only at the
public offering prices which shall be currently in effect, in
accordance with the terms of the then current prospectuses and
statements of additional information of the Funds. You agree to
act only as agent for your customers in such transactions and
shall not have authority to act as agent for the Funds or for us
in any respect. All orders are subject to acceptance by us and
become effective only upon confirmation by us.
<PAGE>
3. On each purchase of shares of a Fund authorized by
you, the total sales charge and commission, if any, shall be as
stated in the Fund's then current prospectus. Such sales charges
and commissions are subject to reductions under a variety of
circumstances as described in each Fund's then current prospectus
and statement of additional information. To obtain such a
reduction, you must provide us with such information as we may
request to establish that a particular transaction qualifies for
the reduction. There is no sales charge or commission to selected
agents on the reinvestment of dividends.
4. As a selected agent, you are hereby authorized
(i) to place orders directly with the Funds for their shares to be
resold by us through you subject to the applicable terms and
conditions governing the placement of orders by us set forth in
the Distribution Services Agreement between each Fund and us and
subject to the applicable compensation provisions set forth in
each Fund's then current prospectus and statement of additional
information, and (ii) to tender shares directly to the Funds or
their agent for redemption or repurchase subject to the applicable
terms and conditions set forth in the Distribution Services
Agreement.
5. Redemptions and repurchases of shares will be made
at the net asset value of such shares in accordance with the then
current prospectuses and statements of additional information of
the Funds.
6. You represent that you are either:
(a) a bank as defined in Section 3(o)(6) of the
Securities Exchange Act of 1934, as amended
(the "1934 Act"), duly authorized to engage in
the transactions to be performed hereunder and
not required to register as a broker-dealer
pursuant to the 1934 Act; or
(b) a bank (as so defined) or an affiliate of a
bank, in either case registered as a
broker-dealer pursuant to the 1934 Act and a
member of the National Association of
Securities Dealers, Inc., and that you agree to
abide by the rules and regulations of the
National Association of Securities Dealers,
Inc., and that you agree to abide by the rules
and regulations of the National Association of
Securities Dealers, Inc.
2
<PAGE>
7. You Agree:
(a) to order shares of the Funds only from us and
to act as agent only for your customers;
(b) to order shares from us only for the purpose of
covering purchase orders already received;
(c) that you will not purchase any shares from your
customers at prices lower than the redemption
or repurchase prices then quoted by the Funds,
provided, however, that you shall be permitted
to sell shares for the accounts of their record
owners to the Funds at the repurchase prices
currently established for such shares and may
charge the owner a fair commission for handling
the transaction; repurchase prices currently
established for such shares and may charge the
owner a fair commission for handling the
transaction;
(d) that you will not withhold placing customers'
orders for shares so as to profit yourself as a
result of such withholding; and
(e) that if any shares confirmed through you
hereunder are redeemed or repurchased by any of
the Funds within seven business days after such
confirmation of your original order, you shall
forthwith refund to us the full commission
reallowed to you on such sales. We shall
notify you of such redemption or repurchase
within ten days from the date of delivery of
the request therefor or certificates to us or
such Fund. Termination or cancellation of this
Agreement shall not relieve you or us from the
requirements of this subparagraph.
8. We shall not accept from you any conditional orders
for shares. Delivery of certificates for shares purchased shall
be made by the Funds only against receipt of the purchase price,
subject to deduction for the commission reallowed to you and our
portion of the sales charge on such sale. If payment for the
shares purchased is not received within the time customary for
such payments, the sale may be cancelled forthwith without any
responsibility or liability on our part or on the part of the
Funds (in which case you will be responsible for any loss,
including loss of profit, suffered by the Funds resulting from
your failure to make payment as aforesaid).
3
<PAGE>
9. You will not accept orders for shares of any of the
Funds except under circumstances that will result in compliance
with the applicable Federal and State securities laws and banking
laws, and in connection with sale of shares to your customers you
will furnish, unless we agree otherwise, to each customer who has
ordered shares a copy of the applicable then current prospectus.
We shall be under no liability to you except for lack of good
faith and for obligations expressly assumed by us herein. Nothing
herein contained, however, shall be deemed to be a condition,
stipulation or provision binding any persons acquiring any
security to waive compliance with any provision of the Securities
Act of 1933 or of the rules and regulations of the Securities and
Exchange Commission, or to relieve the parties hereto from any
liability arising under the Securities Act of 1933.
10. From time to time during the term of this Agreement
we may make payments to you pursuant to one or more of the
distribution plans adopted by certain of the Funds pursuant to
Rule 12b-1 under the Investment Company Act of 1940 (the "Act"),
to compensate you with respect to the shareholder accounts of your
customers in such Funds for providing administrative, accounting
and other services, including personal service and/or the
maintenance of such accounts. We have no obligation to make any
such payments and you waive any such payment until we receive
monies therefor from the Fund. Any such payments made pursuant to
this Section 10 shall be subject to the following terms and
conditions.
(a) Any such payments shall be in such amounts as
we may from time to time advise you in writing
but in any event not in excess of the amounts
permitted by the plan in effect with respect to
each particular Fund. Such payments shall
include a service fee in the amount of .25% of
1% per annum of the average daily net assets of
certain Funds attributable to your clients.
Any such service fee shall be paid to you
solely for personal service and/or the
maintenance of shareholder accounts.
(b) The provisions of this Section 10 relate to the
plan adopted by a particular Fund pursuant to
Rule 12b-1. In accordance with Rule 12b-1, any
person authorized to direct the disposition of
monies paid or payable by a Fund pursuant to
this Section 10 shall provide the Fund's Board
of Directors, and the Directors shall review,
at least quarterly, a written report of the
amounts so expended and the purposes for which
such expenditures were made.
4
<PAGE>
(c) The provisions of this Section 10 applicable to
each fund remain in effect for not more than a
year and thereafter for successive annual
periods only so long as such continuance is
specifically approved at least annually in
conformity with Rule 12~1 and the Act. The
provisions of this Section 10 shall
automatically terminate with respect to a
particular Plan in the event of the assignment
(as defined by the Act) of this Agreement, in
the event such Plan terminates or in the event
this Agreement terminates or ceases to remain
in effect. In addition, the provisions of this
Section 10 may be terminated at any time,
without penalty, by either party with respect
to any particular Plan on not more than 60
days' nor less than 30 days' written notice
delivered or mailed by registered mail, postage
prepaid, to the other party.
11. No person is authorized to make any representation
concerning shares of the Fund except those contained in the
current prospectus, statement of additional information, and
printed information issued by each Fund or by us as information
supplemental to each prospectus. We shall supply prospectuses and
statements of additional information, reasonable quantities of
reports to shareholders, supplemental sales literature, sales
bulletins, and additional information as issued. You agree to
distribute prospectuses and reports to shareholders of the Funds
to your customers in compliance with applicable requirements,
except to the extent that we expressly undertake to do so on your
behalf. You agree to use other advertising or sales material
relating to the Funds except in compliance with all laws and
regulations applicable to you and unless approved in writing by us
in advance of such use. Any printed information furnished by us
other than the current prospectus and statement of additional
information for each Fund, periodic reports and proxy solicitation
material are our sole responsibility and not the responsibility of
the Funds, and you agree that the Funds shall have no liability or
responsibility to you in these respects unless expressly assumed
in connection therewith.
12. In connection with your making shares of a Fund
available to your customers, you shall conform to such written
compliance standards as we have provided you in the past or may
from time to time provide to you in the future.
13. We, our affiliates and the Funds shall not be liable
for any loss, expense, damages, costs or other claim arising out
of any redemption or exchange pursuant to telephone instruction
5
<PAGE>
from any person or our refusal to execute such instruction for any
reason.
14. Either party to this Agreement may cancel this
Agreement by giving written notice to the other. Such notice
shall be deemed to have been given as of the date on which it was
either delivered personally to the other party or any officer or
member thereof, or was mailed postpaid or delivered to a telegraph
office for transmission to the other party at his or its address
as show below. This Agreement may be amended by us at any time
and your placing of an order after the effective date of any such
amendment shall constitute your acceptance thereof. If you are a
bank or an affiliate of a bank, this agreement will automatically
terminate if you cease to be, or the bank of which you are an
affiliate ceases to be, a bank as defined in the 1934 Act.
15. The Agreement shall be construed in accordance with
the laws of the State of New York and shall be binding upon both
parties hereto when signed by us and accepted by you in the space
provided below.
Very truly yours,
ALLIANCE FUND DISTRIBUTORS, INC.
By:_________________________________
(Authorized Signature)
Bank or Firm Name_______________________________________________
Address_________________________________________________________
City____________________________ State_________ Zip Code________
ACCEPTED BY (signature)
Name (print)____________________________ Title__________________
Date____________________________199_____ Phone #________________
Please return two signed copies of this Agreement
(one of which will be signed by us and
thereafter returned to you) in the
accompanying return envelope to:
Alliance Fund Distributors, Inc.
1345 Avenue of the Americas, 38th Floor
New York, NY 10105
6
00250151.AV8
<PAGE>
CUSTODY AGREEMENT
Agreement made as of this 3rd day of October, 1994,
between ALLIANCE MUNICIPAL INCOME FUND II, a Massachusetts
business trust organized and existing under the laws of the
Commonwealth of Massachusetts, having its principal office and
place of business at 1345 Avenue of the Americas, New York,
New York 10105 (hereinafter called the "Fund"), and THE BANK OF
NEW YORK, a New York corporation authorized to do a banking
business, having its principal office and place of business at
48 Wall Street, New York, New York 10286 (hereinafter called the
"Custodian").
W I T N E S S E T H :
that for and in consideration of the mutual promises hereinafter
set forth, the Fund and the Custodian agree as follows:
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the following words and
phrases, unless the context otherwise requires, shall have the
following meanings:
1. "Book-Entry System" shall mean the Federal
Reserve/Treasury book-entry system for United States and federal
agency securities, its successor or successors and its nominee or
nominees.
2. "Call Option" shall mean an exchange traded option
with respect to Securities other than Stock Index Options,
Futures Contracts, and Futures Contract Options entitling the
holder, upon timely exercise and payment of the exercise price,
as specified therein, to purchase from the writer thereof the
specified underlying Securities.
3. "Certificate" shall mean any notice, instruction,
or other instrument in writing, authorized or required by this
Agreement to be given to the Custodian which is actually received
by the Custodian and signed on behalf of the Fund by any two
Officers, and the term Certificate shall also include
instructions by the fund to the Custodian communicated by a
Terminal Link.
4. "Clearing Member" shall mean a registered broker-
dealer which is a clearing member under the rules of O.C.C. and a
member of a national securities exchange qualified to act as a
custodian for an investment company, or any broker-dealer
<PAGE>
reasonably believed by the Custodian to be such a clearing
member.
5. "Collateral Account" shall mean a segregated
account so denominated which is specifically allocated to a
Series and pledged to the Custodian as security for, and in
consideration of, the Custodian's issuance of (a) any Put Option
guarantee letter or similar document described in paragraph 8 of
Article V herein, or (b) any receipt described in Article V or
VIII herein.
6. "Covered Call Option" shall mean an exchange traded
option entitling the holder, upon timely exercise and payment of
the exercise price, as specified therein, to purchase from the
writer thereof the specified underlying Securities (excluding
Futures Contracts) which are owned by the writer thereof and
subject to appropriate restrictions.
7. "Depository" shall mean The Depository Trust
Company ("DTC"), a clearing agency registered with the Securities
and Exchange Commission, its successor or successors and its
nominee or nominees. The term "Depository" shall further mean
and include any other person authorized to act as a depository
under the Investment Company Act of 1940, its successor or
successors and its nominee or nominees, specifically identified
in a certified copy of a resolution of the Fund's Board of
Trustees specifically approving deposits therein by the
Custodian.
8. "Financial Futures Contract" shall mean the firm
commitment to buy or sell fixed income securities including,
without limitation, U.S. Treasury Bills, U.S. Treasury Notes,
U.S. Treasury Bonds, domestic bank certificates of deposit, and
Eurodollar certificates of deposit, during a specified month at
an agreed upon price.
9. "Futures Contract" shall mean a Financial Futures
Contract and/or Stock Index Futures Contracts.
10. "Futures Contract Option" shall mean an option with
respect to a Futures Contract.
11. "Margin Account" shall mean a segregated account in
the name of a broker, dealer, futures commission merchant, or a
Clearing Member, or in the name of the Fund for the benefit of a
broker, dealer, futures commission merchant, or Clearing Member,
or otherwise, in accordance with an agreement between the Fund,
the Custodian and a broker, dealer, futures commission merchant
or a Clearing Member (a "Margin Account Agreement"), separate and
distinct from the custody account, in which certain Securities
and/or money of the Fund shall be deposited and withdrawn from
2
<PAGE>
time to time in connection with such transactions as the Fund may
from time to time determine. Securities held in the Book-Entry
System or the Depository shall be deemed to have been deposited
in, or withdrawn from, a Margin Account upon the Custodian's
effecting an appropriate entry in its books and records.
12. "Money Market Security" shall be deemed to include,
without limitation, certain Reverse Repurchase Agreements, debt
obligations issued or guaranteed as to interest and principal by
the government of the United States or agencies or
instrumentalities thereof, any tax, bond or revenue anticipation
note issued by any state or municipal government or public
authority, commercial paper, certificates of deposit and bankers'
acceptances, repurchase agreements with respect to the same and
bank time deposits, where the purchase and sale of such
securities normally requires settlement in federal funds on the
same day as such purchase or sale.
13. "O.C.C." shall mean the Options Clearing
Corporation, a clearing agency registered under Section 17A of
the Securities Exchange Act of 1934, its successor or successors,
and its nominee or nominees.
14. "Officers" shall be deemed to include the
President, any Vice President, the Secretary, the Clerk, the
Treasurer, the Controller, any Assistant Secretary, any Assistant
Clerk, any Assistant Treasurer, and any other person or persons,
whether or not any such other person is an officer of the Fund,
duly authorized by the Board of Trustees of the Fund to execute
any Certificate, instruction, notice or other instrument on
behalf of the Fund and listed in the Certificate annexed hereto
as Appendix B or such other Certificate as may be received by the
Custodian from time to time.
15. "Option" shall mean a Call Option, Covered Call
Option, Stock Index Option and/or a Put Option.
16. "Oral Instructions" shall mean verbal instructions
actually received by the Custodian from an Authorized Person or
from a person reasonably believed by the Custodian to be an
Authorized Person.
17. "Put Option" shall mean an exchange traded option
with respect to Securities other than Stock Index Options,
Futures Contracts, and Futures Contract Options entitling the
holder, upon timely exercise and tender of the specified
underlying Securities, to sell such Securities to the writer
thereof for the exercise price.
18. "Reverse Repurchase Agreement" shall mean an
agreement pursuant to which the Fund sells Securities and agrees
3
<PAGE>
to repurchase such Securities at a described or specified date
and price.
19. "Security" shall be deemed to include, without
limitation, Money Market Securities, Call Options, Put Options,
Stock Index Options, Stock Index Futures Contracts, Stock Index
Futures Contract Options, Financial Futures Contracts, Financial
Futures Contract Options, Reverse Repurchase Agreements, common
stocks and other securities having characteristics similar to
common stocks, preferred stocks, debt obligations issued by state
or municipal governments and by public authorities, (including,
without limitation, general obligation bonds, revenue bonds,
industrial bonds and industrial development bonds), bonds,
debentures, notes, mortgages or other obligations, and any
certificates, receipts, warrants or other instruments
representing rights to receive, purchase, sell or subscribe for
the same, or evidencing or representing any other rights or
interest therein, or any property or assets.
20. "Senior Security Account" shall mean an account
maintained and specifically allocated to a Series under the terms
of this Agreement as a segregated account, by recordation or
otherwise, within the custody account in which certain Securities
and/or other assets of the Fund specifically allocated to such
Series shall be deposited and withdrawn from time to time in
accordance with Certificates received by the Custodian in
connection with such transactions as the Fund may from time to
time determine.
21. "Series" shall mean the various portfolios, if any,
of the Fund as described from time to time in the current and
effective prospectus for the Fund.
22. "Shares" shall mean the shares of beneficial
interest of the Fund, each of which is, in the case of a Fund
having Series, allocated to a particular Series.
23. "Stock Index Futures Contract" shall mean a
bilateral agreement pursuant to which the parties agree to take
or make delivery of an amount of cash equal to a specified dollar
amount times the difference between the value of a particular
stock index at the close of the last business day of the contract
and the price at which the futures contract is originally struck.
24. "Stock Index Option" shall mean an exchange traded
option entitling the holder, upon timely exercise, to receive an
amount of cash determined by reference to the difference between
the exercise price and the value of the index on the date of
exercise.
4
<PAGE>
25. "Terminal Link" shall mean an electronic data
transmission link between the Fund and the Custodian requiring in
connection with each use of the Terminal Link by or on behalf of
the Fund use of an authorization code provided by the Custodian
and at least two access codes established by the Fund.
ARTICLE II
APPOINTMENT OF CUSTODIAN
1. The Fund hereby constitutes and appoints the
Custodian as custodian of the Securities and moneys at any time
owned by the Fund during the period of this Agreement.
2. The Custodian hereby accepts appointment as such
custodian and agrees to perform the duties thereof as hereinafter
set forth.
ARTICLE III
CUSTODY OF CASH AND SECURITIES
1. Except as otherwise provided in paragraph 7 of this
Article and in Article VIII, the Fund will deliver or cause to be
delivered to the Custodian all Securities and all moneys owned by
it, at any time during the period of this Agreement, and shall
specify with respect to such Securities and money the Series to
which the same are specifically allocated. The Custodian shall
segregate, keep and maintain the assets of the Series separate
and apart. The Custodian will not be responsible for any
Securities and moneys not actually received by it. The Custodian
will be entitled to reverse any credits made on the Fund's behalf
where such credits have been previously made and moneys are not
finally collected. The Fund shall deliver to the Custodian a
certified resolution of the Board of Trustees of the Fund,
substantially in the form of Exhibit A hereto, approving,
authorizing and instructing the Custodian on a continuous and on-
going basis to deposit in the Book-Entry System all Securities
eligible for deposit therein, regardless of the Series to which
the same are specifically allocated and to utilize the Book-Entry
System to the extent possible in connection with its performance
hereunder, including, without limitation, in connection with
settlements of purchases and sales of Securities, loans of
Securities and deliveries and returns of Securities collateral.
Prior to a deposit of Securities specifically allocated to a
Series in the Depository, the Fund shall deliver to the Custodian
a certified resolution of the Board of Trustees of the Fund,
substantially in the form of Exhibit B hereto, approving,
authorizing and instructing the Custodian on a continuous and
ongoing basis until instructed to the contrary by a Certificate
actually received by the Custodian to deposit in the Depository
5
<PAGE>
all Securities specifically allocated to such Series eligible for
deposit therein, and to utilize the Depository to the extent
possible with respect to such Securities in connection with its
performance hereunder, including, without limitation, in
connection with settlements of purchases and sales of Securities,
loans of Securities, and deliveries and returns of Securities
collateral. Securities and moneys deposited in either the Book-
Entry System or the Depository will be represented in accounts
which include only assets held by the Custodian for customers,
including, but not limited to, accounts in which the Custodian
acts in a fiduciary or representative capacity and will be
specifically allocated on the Custodian's books to the separate
account for the applicable Series. Prior to the Custodian's
accepting, utilizing and acting with respect to Clearing Member
confirmations for Options and transactions in Options for a
Series as provided in this Agreement, the Custodian shall have
received a certified resolution of the Fund's Board of Trustees,
substantially in the form of Exhibit C hereto, approving,
authorizing and instructing the Custodian on a continuous and on-
going basis, until instructed to the contrary by a Certificate
actually received by the Custodian, to accept, utilize and act in
accordance with such confirmations as provided in this Agreement
with respect to such Series.
2. The Custodian shall establish and maintain separate
accounts, in the name of each Series, and shall credit to the
separate account for each Series all moneys received by it for
the account of the Fund with respect to such Series. Money
credited to a separate account for a Series shall be disbursed by
the Custodian only:
(a) As hereinafter provided;
(b) Pursuant to Certificates setting forth the
name and address of the person to whom the payment is to be made,
the Series account from which payment is to be made and the
purpose for which payment is to be made; or
(c) In payment of the fees and in reimbursement of
the expenses and liabilities of the Custodian attributable to
such Series.
3. Promptly after the close of business on each day,
the Custodian shall furnish the Fund with confirmations and a
summary, on a per Series basis, of all transfers to or from the
account of the Fund for a Series, either hereunder or with any
co-custodian or sub-custodian appointed in accordance with this
Agreement during said day. Where Securities are transferred to
the account of the Fund for a Series, the Custodian shall also by
book-entry or otherwise identify as belonging to such Series a
quantity of Securities in a fungible bulk of Securities
6
<PAGE>
registered in the name of the Custodian (or its nominee) or shown
on the Custodian's account on the books of the Book-Entry System
or the Depository. At least monthly and from time to time, the
Custodian shall furnish the Fund with a detailed statement, on a
per Series basis, of the Securities and moneys held by the
Custodian for the Fund.
4. Except as otherwise provided in paragraph 7 of this
Article and in Article VIII, all Securities held by the Custodian
hereunder, which are issued or issuable only in bearer form,
except such Securities as are held in the Book-Entry System,
shall be held by the Custodian in that form; all other Securities
held hereunder may be registered in the name of the Fund, in the
name of any duly appointed registered nominee of the Custodian as
the Custodian may from time to time determine, or in the name of
the Book-Entry System or the Depository or their successor or
successors, or their nominee or nominees. The Fund agrees to
furnish to the Custodian appropriate instruments to enable the
Custodian to hold or deliver in proper form for transfer, or to
register in the name of its registered nominee or in the name of
the Book-Entry System or the Depository any Securities which it
may hold hereunder and which may from time to time be registered
in the name of the Fund. The Custodian shall hold all such
Securities specifically allocated to a Series which are not held
in the Book-Entry System or in the Depository in a separate
account in the name of such Series physically segregated at all
times from those of any other person or persons.
5. Except as otherwise provided in this Agreement and
unless otherwise instructed to the contrary by a Certificate, the
Custodian by itself, or through the use of the Book-Entry System
or the Depository with respect to Securities held hereunder and
therein deposited, shall with respect to all Securities held for
the Fund hereunder in accordance with preceding paragraph 4:
(a) Collect all income due or payable;
(b) Present for payment and collect the amount
payable upon such Securities which are called, but only if either
(i) the Custodian receives a written notice of such call, or
(ii) notice of such call appears in one or more of the
publications listed in Appendix C annexed hereto, which may be
amended at any time by the Custodian without the prior
notification or consent of the Fund;
(c) Present for payment and collect the amount
payable upon all Securities which mature;
(d) Surrender Securities in temporary form for
definitive Securities;
7
<PAGE>
(e) Execute, as custodian, any necessary
declarations or certificates of ownership under the Federal
Income Tax Laws or the laws or regulations of any other taxing
authority now or hereafter in effect; and
(f) Hold directly, or through the Book-Entry
System or the Depository with respect to Securities therein
deposited, for the account of a Series, all rights and similar
securities issued with respect to any Securities held by the
Custodian for such Series hereunder.
6. Upon receipt of a Certificate and not otherwise,
the Custodian, directly or through the use of the Book-Entry
System or the Depository, shall:
(a) Execute and deliver to such persons as may be
designated in such Certificate proxies, consents, authorizations,
and any other instruments whereby the authority of the Fund as
owner of any Securities held by the Custodian hereunder for the
Series specified in such Certificate may be exercised;
(b) Deliver any Securities held by the Custodian
hereunder for the Series specified in such Certificate in
exchange for other Securities or cash issued or paid in
connection with the liquidation, reorganization, refinancing,
merger, consolidation or recapitalization of any corporation, or
the exercise of any conversion privilege and receive and hold
hereunder specifically allocated to such Series any cash or other
Securities received in exchange;
(c) Deliver any Securities held by the Custodian
hereunder for the Series specified in such Certificate to any
protective committee, reorganization committee or other person in
connection with the reorganization, refinancing, merger,
consolidation, recapitalization or sale of assets of any
corporation, and receive and hold hereunder specifically
allocated to such Series such certificates of deposit, interim
receipts or other instruments or documents as may be issued to it
to evidence such delivery;
(d) Make such transfers or exchanges of the assets
of the Series specified in such Certificate, and take such other
steps as shall be stated in such Certificate to be for the
purpose of effectuating any duly authorized plan of liquidation,
reorganization, merger, consolidation or recapitalization of the
Fund; and
(e) Present for payment and collect the amount
payable upon Securities not described in preceding paragraph 5(b)
of this Article which may be called as specified in the
Certificate.
8
<PAGE>
7. Notwithstanding any provision elsewhere contained
herein, the Custodian shall not be required to obtain possession
of any instrument or certificate representing any Futures
Contract, any Option, or any Futures Contract Option until after
it shall have determined, or shall have received a Certificate
from the Fund stating, that any such instruments or certificates
are available. The Fund shall deliver to the Custodian such a
Certificate no later than the business day preceding the
availability of any such instrument or certificate. Prior to
such availability, the Custodian shall comply with Section 17(f)
of the Investment Company Act of 1940, as amended, in connection
with the purchase, sale, settlement, closing out or writing of
Futures Contracts, Options, or Futures Contract Options by making
payments or deliveries specified in Certificates received by the
Custodian in connection with any such purchase, sale, writing,
settlement or closing out upon its receipt from a broker, dealer,
or futures commission merchant of a statement or confirmation
reasonably believed by the Custodian to be in the form
customarily used by brokers, dealers, or future commission
merchants with respect to such Futures Contracts, Options, or
Futures Contract Options, as the case may be, confirming that
such Security is held by such broker, dealer or futures
commission merchant, in book-entry form or otherwise, in the name
of the Custodian (or any nominee of the Custodian) as custodian
for the Fund, provided, however, that notwithstanding the
foregoing, payments to or deliveries from the Margin Account and
payments with respect to Securities to which a Margin Account
relates, shall be made in accordance with the terms and
conditions of the Margin Account Agreement. Whenever any such
instruments or certificates are available, the Custodian shall,
notwithstanding any provision in this Agreement to the contrary,
make payment for any Futures Contract, Option, or Futures
Contract Option for which such instruments or such certificates
are available only against the delivery to the Custodian of such
instrument or such certificate, and deliver any Futures Contract,
Option or Futures Contract Option for which such instruments or
such certificates are available only against receipt by the
Custodian of payment therefor. Any such instrument or
certificate delivered to the Custodian shall be held by the
Custodian hereunder in accordance with, and subject to, the
provisions of this Agreement.
ARTICLE IV
PURCHASE AND SALE OF INVESTMENTS OF THE FUND
OTHER THAN OPTIONS, FUTURES CONTRACTS AND
FUTURES CONTRACT OPTIONS
1. Promptly after each purchase of Securities by the
Fund, other than a purchase of an Option, a Futures Contract, or
a Futures Contract Option, the Fund shall deliver to the
9
<PAGE>
Custodian (i) with respect to each purchase of Securities which
are not Money Market Securities, a Certificate, and (ii) with
respect to each purchase of Money Market Securities, a
Certificate or Oral Instructions, specifying with respect to each
such purchase: (a) the Series to which such Securities are to be
specifically allocated; (b) the name of the issuer and the title
of the Securities; (c) the number of shares or the principal
amount purchased and accrued interest, if any; (d) the date of
purchase and settlement; (e) the purchase price per unit; (f) the
total amount payable upon such purchase; (g) the name of the
person from whom or the broker through whom the purchase was
made, and the name of the clearing broker, if any; and (h) the
name of the broker to whom payment is to be made. The Custodian
shall, upon receipt of Securities purchased by or for the Fund,
pay to the broker specified in the Certificate out of the moneys
held for the account of such Series the total amount payable upon
such purchase, provided that the same conforms to the total
amount payable as set forth in such Certificate or Oral
Instructions.
2. Promptly after each sale of Securities by the Fund,
other than a sale of any Option, Futures Contract, Futures
Contract Option, or any Reverse Repurchase Agreement, the Fund
shall deliver to the Custodian (i) with respect to each sale of
Securities which are not Money Market Securities, a Certificate,
and (ii) with respect to each sale of Money Market Securities, a
Certificate or Oral Instructions, specifying with respect to each
such sale: (a) the Series to which such Securities were
specifically allocated; (b) the name of the issuer and the title
of the Security; (c) the number of shares or principal amount
sold, and accrued interest, if any; (d) the date of sale; (e) the
sale price per unit; (f) the total amount payable to the Fund
upon such sale; (g) the name of the broker through whom or the
person to whom the sale was made, and the name of the clearing
broker, if any; and (h) the name of the broker to whom the
Securities are to be delivered. The Custodian shall deliver the
Securities specifically allocated to such Series to the broker
specified in the Certificate against payment upon receipt of the
total amount payable to the Fund upon such sale, provided that
the same conforms to the total amount payable as set forth in
such Certificate or Oral Instructions.
ARTICLE V
OPTIONS
1. Promptly after the purchase of any Option by the
Fund, the Fund shall deliver to the Custodian a Certificate
specifying with respect to each Option purchased: (a) the Series
to which such option is specifically allocated; (b) the type of
Option (put or call); (c) the name of the issuer and the title
10
<PAGE>
and number of shares subject to such Option or, in the case of a
Stock Index Option, the stock index to which such Option relates
and the number of Stock Index Options purchased; (d) the
expiration date; (e) the exercise price; (f) the dates of
purchase and settlement; (g) the total amount payable by the Fund
in connection with such purchase; (h) the name of the Clearing
Member through whom such Option was purchased; and (i) the name
of the broker to whom payment is to be made. The Custodian shall
pay, upon receipt of a Clearing Member's statement confirming the
purchase of such Option held by such Clearing Member for the
account of the Custodian (or any duly appointed and registered
nominee of the Custodian) as custodian for the Fund, out of
moneys held for the account of the Series to which such Option is
to be specifically allocated, the total amount payable upon such
purchase to the Clearing Member through whom the purchase was
made, provided that the same conforms to the total amount payable
as set forth in such Certificate.
2. Promptly after the sale of any Option purchased by
the Fund pursuant to paragraph 1 hereof, the Fund shall deliver
to the Custodian a Certificate specifying with respect to each
such sale: (a) the Series to which such Option was specifically
allocated; (b) the type of option (put or call); (c) the name of
the issuer and the title and number of shares subject to such
Option or, in the case of a Stock Index Option, the stock index
to which such option relates and the number of Stock Index
Options sold; (d) the date of sale; (e) the sale price; (f) the
date of settlement; (g) the total amount payable to the Fund upon
such sale; and (h) the name of the Clearing Member through whom
the sale was made. The Custodian shall consent to the delivery
of the Option sold by the Clearing Member which previously
supplied the confirmation described in preceding paragraph 1 of
this Article with respect to such Option against payment to the
Custodian of the total amount payable to the Fund, provided that
the same conforms to the total amount payable as set forth in
such Certificate.
3. Promptly after the exercise by the Fund of any Call
Option purchased by the Fund pursuant to paragraph 1 hereof, the
Fund shall deliver to the Custodian a Certificate specifying with
respect to such Call Option: (a) the Series to which such Call
Option was specifically allocated; (b) the name of the issuer and
the title and number of shares subject to the Call Option;
(c) the expiration date; (d) the date of exercise and settlement;
(e) the exercise price per share; (f) the total amount to be paid
by the Fund upon such exercise; and (g) the name of the Clearing
Member through whom such Call Option was exercised. The
Custodian shall, upon receipt of the Securities underlying the
Call Option which was exercised, pay out of the moneys held for
the account of the Series to which such Call Option was
specifically allocated the total amount payable to the Clearing
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<PAGE>
Member through whom the Call Option was exercised, provided that
the same conforms to the total amount payable as set forth in
such Certificate.
4. Promptly after the exercise by the Fund of any Put
Option purchased by the Fund pursuant to paragraph 1 hereof, the
Fund shall deliver to the Custodian a Certificate specifying with
respect to such Put Option: (a) the Series to which such Put
Option was specifically allocated; (b) the name of the issuer and
the title and number of shares subject to the Put Option; (c) the
expiration date; (d) the date of exercise and settlement; (e) the
exercise price per share; (f) the total amount to be paid to the
Fund upon such exercise; and (g) the name of the Clearing Member
through whom such Put Option was exercised. The Custodian shall,
upon receipt of the amount payable upon the exercise of the Put
Option, deliver or direct the Depository to deliver the
Securities specifically allocated to such Series, provided the
same conforms to the amount payable to the Fund as set forth in
such Certificate.
5. Promptly after the exercise by the Fund of any
Stock Index Option purchased by the Fund pursuant to paragraph 1
hereof, the Fund shall deliver to the Custodian a Certificate
specifying with respect to such Stock Index Option: (a) the
Series to which such Stock Index Option was specifically
allocated; (b) the type of Stock Index Option (put or call);
(c) the number of Options being exercised; (d) the stock index to
which such Option relates; (e) the expiration date; (f) the
exercise price; (g) the total amount to be received by the Fund
in connection with such exercise; and (h) the Clearing Member
from whom such payment is to be received.
6. Whenever the Fund writes a Covered Call Option, the
Fund shall promptly deliver to the Custodian a Certificate
specifying with respect to such Covered Call Option: (a) the
Series for which such Covered Call Option was written; (b) the
name of the issuer and the title and number of shares for which
the Covered Call Option was written and which underlie the same;
(c) the expiration date; (d) the exercise price; (e) the premium
to be received by the Fund; (f) the date such Covered Call Option
was written; and (g) the name of the Clearing Member through whom
the premium is to be received. The Custodian shall deliver or
cause to be delivered, in exchange for receipt of the premium
specified in the Certificate with respect to such Covered Call
Option, such receipts as are required in accordance with the
customs prevailing among Clearing Members dealing in Covered Call
Options and shall impose, or direct the Depository to impose,
upon the underlying Securities specified in the Certificate
specifically allocated to such Series such restrictions as may be
required by such receipts. Notwithstanding the foregoing, the
Custodian has the right, upon prior written notification to the
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<PAGE>
Fund, at any time to refuse to issue any receipts for Securities
in the possession of the Custodian and not deposited with the
Depository underlying a Covered Call Option.
7. Whenever a Covered Call Option written by the Fund
and described in the preceding paragraph of this Article is
exercised, the Fund shall promptly deliver to the Custodian a
Certificate instructing the Custodian to deliver, or to direct
the Depository to deliver, the Securities subject to such Covered
Call Option and specifying: (a) the Series for which such Covered
Call Option was written; (b) the name of the issuer and the title
and number of shares subject to the Covered Call Option; (c) the
Clearing Member to whom the underlying Securities are to be
delivered; and (d) the total amount payable to the Fund upon such
delivery. Upon the return and/or cancellation of any receipts
delivered pursuant to paragraph 6 of this Article, the Custodian
shall deliver, or direct the Depository to deliver, the
underlying Securities as specified in the Certificate against
payment of the amount to be received as set forth in such
Certificate.
8. Whenever the Fund writes a Put Option, the Fund shall
promptly deliver to the Custodian a Certificate specifying with
respect to such Put Option: (a) the Series for which such Put
Option was written; (b) the name of the issuer and the title and
number of shares for which the Put Option is written and which
underlie the same; (c) the expiration date; (d) the exercise
price; (e) the premium to be received by the Fund; (f) the date
such Put Option is written; (g) the name of the Clearing Member
through whom the premium is to be received and to whom a Put
Option guarantee letter is to be delivered; (h) the amount of
cash, and/or the amount and kind of Securities, if any,
specifically allocated to such Series to be deposited in the
Senior Security Account for such Series; and (i) the amount of
cash and/or the amount and kind of Securities specifically
allocated to such Series to be deposited into the Collateral
Account for such Series. The Custodian shall, after making the
deposits into the Collateral Account specified in the
Certificate, issue a Put Option guarantee letter substantially in
the form utilized by the Custodian on the date hereof, and
deliver the same to the Clearing Member specified in the
Certificate against receipt of the premium specified in said
Certificate. Notwithstanding the foregoing, the Custodian shall
be under no obligation to issue any Put Option guarantee letter
or similar document if it is unable to make any of the
representations contained therein.
9. Whenever a Put Option written by the Fund and
described in the preceding paragraph is exercised, the Fund shall
promptly deliver to the Custodian a Certificate specifying:
(a) the Series to which such Put Option was written; (b) the name
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<PAGE>
of the issuer and title and number of shares subject to the Put
Option; (c) the Clearing Member from whom the underlying
Securities are to be received; (d) the total amount payable by
the Fund upon such delivery; (e) the amount of cash and/or the
amount and kind of Securities specifically allocated to such
Series to be withdrawn from the Collateral Account for such
Series and (f) the amount of cash and/or the amount and kind of
Securities, specifically allocated to such Series, if any, to be
withdrawn from the Senior Security Account. Upon the return
and/or cancellation of any Put Option guarantee letter or similar
document issued by the Custodian in connection with such Put
Option, the Custodian shall pay out of the moneys held for the
account of the Series to which such Put Option was specifically
allocated the total amount payable to the Clearing Member
specified in the Certificate as set forth in such Certificate
against delivery of such Securities, and shall make the
withdrawals specified in such Certificate.
10. Whenever the Fund writes a Stock Index Option, the
Fund shall promptly deliver to the Custodian a Certificate
specifying with respect to such Stock Index Option: (a) the
Series for which such Stock Index Option was written; (b) whether
such Stock Index Option is a put or a call; (c) the number of
options written; (d) the stock index to which such Option
relates; (e) the expiration date; (f) the exercise price; (g) the
Clearing Member through whom such Option was written; (h) the
premium to be received by the Fund; (i) the amount of cash and/or
the amount and kind of Securities, if any, specifically allocated
to such Series to be deposited in the Senior Security Account for
such Series; (j) the amount of cash and/or the amount and kind of
Securities, if any, specifically allocated to such Series to be
deposited in the Collateral Account for such Series; and (k) the
amount of cash and/or the amount and kind of Securities, if any,
specifically allocated to such Series to be deposited in a Margin
Account, and the name in which such account is to be or has been
established. The Custodian shall, upon receipt of the premium
specified in the Certificate, make the deposits, if any, into the
Senior Security Account specified in the Certificate, and either
(1) deliver such receipts, if any, which the Custodian has
specifically agreed to issue, which are in accordance with the
customs prevailing among Clearing Members in Stock Index Options
and make the deposits into the Collateral Account specified in
the Certificate, or (2) make the deposits into the Margin Account
specified in the Certificate.
11. Whenever a Stock Index Option written by the Fund
and described in the preceding paragraph of this Article is
exercised, the Fund shall promptly deliver to the Custodian a
Certificate specifying with respect to such Stock Index Option:
(a) the Series for which such Stock Index Option was written;
(b) such information as may be necessary to identify the Stock
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<PAGE>
Index Option being exercised; (c) the Clearing Member through
whom such Stock Index Option is being exercised; (d) the total
amount payable upon such exercise, and whether such amount is to
be paid by or to the Fund; (e) the amount of cash and/or amount
and kind of Securities, if any, to be withdrawn from the Margin
Account; and (f) the amount of cash and/or amount and kind of
Securities, if any, to be withdrawn from the Senior Security
Account for such Series; and the amount of cash and/or the amount
and kind of Securities, if any, to be withdrawn from the
Collateral Account for such Series. Upon the return and/or
cancellation of the receipt, if any, delivered pursuant to the
preceding paragraph of this Article, the Custodian shall pay out
of the moneys held for the account of the Series to which such
Stock Index Option was specifically allocated to the Clearing
Member specified in the Certificate the total amount payable, if
any, as specified therein.
12. Whenever the Fund purchases any Option identical to
a previously written Option described in paragraphs, 6, 8 or 10
of this Article in a transaction expressly designated as a
"Closing Purchase Transaction" in order to liquidate its position
as a writer of an Option, the Fund shall promptly deliver to the
Custodian a Certificate specifying with respect to the Option
being purchased: (a) that the transaction is a Closing Purchase
Transaction; (b) the Series for which the Option was written;
(c) the name of the issuer and the title and number of shares
subject to the Option, or, in the case of a Stock Index Option,
the stock index to which such Option relates and the number of
Options held; (d) the exercise price; (e) the premium to be paid
by the Fund; (f) the expiration date; (g) the type of Option (put
or call); (h) the date of such purchase; (i) the name of the
Clearing Member to whom the premium is to be paid; and (j) the
amount of cash and/or the amount and kind of Securities, if any,
to be withdrawn from the Collateral Account, a specified Margin
Account, or the Senior Security Account for such Series. Upon
the Custodian's payment of the premium and the return and/or
cancellation of any receipt issued pursuant to paragraphs 6, 8 or
10 of this Article with respect to the Option being liquidated
through the Closing Purchase Transaction, the Custodian shall
remove, or direct the Depository to remove, the previously
imposed restrictions on the Securities underlying the Call
Option.
13. Upon the expiration, exercise or consummation of a
Closing Purchase Transaction with respect to any Option purchased
or written by the Fund and described in this Article, the
Custodian shall delete such Option from the statements delivered
to the Fund pursuant to paragraph 3 Article III herein, and upon
the return and/or cancellation of any receipts issued by the
Custodian, shall make such withdrawals from the Collateral
Account, and the Margin Account and/or the Senior Security
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<PAGE>
Account as may be specified in a Certificate received in
connection with such expiration, exercise, or consummation.
ARTICLE VI
FUTURES CONTRACTS
1. Whenever the Fund shall enter into a Futures
Contract, the Fund shall deliver to the Custodian a Certificate
specifying with respect to such Futures Contract, (or with
respect to any number of identical Futures Contract(s)): (a) the
Series for which the Futures Contract is being entered; (b) the
category of Futures Contract (the name of the underlying stock
index or financial instrument); (c) the number of identical
Futures Contracts entered into; (d) the delivery or settlement
date of the Futures Contract(s); (e) the date the Futures
Contract(s) was (were) entered into and the maturity date;
(f) whether the Fund is buying (going long) or selling (going
short) on such Futures Contract(s); (g) the amount of cash and/or
the amount and kind of Securities, if any, to be deposited in the
Senior Security Account for such Series; (h) the name of the
broker, dealer, or futures commission merchant through whom the
Futures Contract was entered into; and (i) the amount of fee or
commission, if any, to be paid and the name of the broker,
dealer, or futures commission merchant to whom such amount is to
be paid. The Custodian shall make the deposits, if any, to the
Margin Account in accordance with the terms and conditions of the
Margin Account Agreement. The Custodian shall make payment out
of the moneys specifically allocated to such Series of the fee or
commission, if any, specified in the Certificate and deposit in
the Senior Security Account for such Series the amount of cash
and/or the amount and kind of Securities specified in said
Certificate.
2. (a) Any variation margin payment or similar
payment required to be made by the Fund to a broker, dealer, or
futures commission merchant with respect to an outstanding
Futures Contract, shall be made by the Custodian in accordance
with the terms and conditions of the Margin Account Agreement.
(b) Any variation margin payment or similar
payment from a broker, dealer, or futures commission merchant to
the Fund with respect to an outstanding Futures Contract, shall
be received and dealt with by the Custodian in accordance with
the terms and conditions of the Margin Account Agreement.
3. Whenever a Futures Contract held by the Custodian
hereunder is retained by the Fund until delivery or settlement is
made on such Futures Contract, the Fund shall deliver to the
Custodian a Certificate specifying: (a) the Futures Contract and
the Series to which the same relates; (b) with respect to a Stock
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<PAGE>
Index Futures Contract, the total cash settlement amount to be
paid or received, and with respect to a Financial Futures
Contract, the Securities and/or amount of cash to be delivered or
received; (c) the broker, dealer, or futures commission merchant
to or from whom payment or delivery is to be made or received;
and (d) the amount of cash and/or Securities to be withdrawn from
the Senior Security Account for such Series. The Custodian shall
make the payment or delivery specified in the Certificate, and
delete such Futures Contract from the statements delivered to the
Fund pursuant to paragraph 3 of Article III herein.
4. Whenever the Fund shall enter into a Futures
Contract to offset a Futures Contract held by the Custodian
hereunder, the Fund shall deliver to the Custodian a Certificate
specifying: (a) the items of information required in a
Certificate described in paragraph 1 of this Article, and (b) the
Futures Contract being offset. The Custodian shall make payment
out of the money specifically allocated to such Series of the fee
or commission, if any, specified in the Certificate and delete
the Futures Contract being offset from the statements delivered
to the Fund pursuant to paragraph 3 of Article III herein, and
make such withdrawals from the Senior Security Account for such
Series as may be specified in such Certificate. The withdrawals,
if any, to be made from the Margin Account shall be made by the
Custodian in accordance with the terms and conditions of the
Margin Account Agreement.
ARTICLE VII
FUTURES CONTRACT OPTIONS
1. Promptly after the purchase of any Futures Contract
Option by the Fund, the Fund shall promptly deliver to the
Custodian a Certificate specifying with respect to such Futures
Contract Option: (a) the Series to which such Option is
specifically allocated; (b) the type of Futures Contract Option
(put or call); (c) the type of Futures Contract and such other
information as may be necessary to identify the Futures Contract
underlying the Futures Contract Option purchased; (d) the
expiration date; (e) the exercise price; (f) the dates of
purchase and settlement; (g) the amount of premium to be paid by
the Fund upon such purchase; (h) the name of the broker or
futures commission merchant through whom such option was
purchased; and (i) the name of the broker, or futures commission
merchant, to whom payment is to be made. The Custodian shall pay
out of the moneys specifically allocated to such Series, the
total amount to be paid upon such purchase to the broker or
futures commissions merchant through whom the purchase was made,
provided that the same conforms to the amount set forth in such
Certificate.
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<PAGE>
2. Promptly after the sale of any Futures Contract
Option purchased by the Fund pursuant to paragraph 1 hereof, the
Fund shall promptly deliver to the Custodian a Certificate
specifying with respect to each such sale: (a) Series to which
such Futures Contract Option was specifically allocated; (b) the
type of Future Contract Option (put or call); (c) the type of
Futures Contract and such other information as may be necessary
to identify the Futures Contract underlying the Futures Contract
Option; (d) the date of sale; (e) the sale price; (f) the date of
settlement; (g) the total amount payable to the Fund upon such
sale; and (h) the name of the broker of futures commission
merchant through whom the sale was made. The Custodian shall
consent to the cancellation of the Futures Contract Option being
closed against payment to the Custodian of the total amount
payable to the Fund, provided the same conforms to the total
amount payable as set forth in such Certificate.
3. Whenever a Futures Contract Option purchased by the
Fund pursuant to paragraph 1 is exercised by the Fund, the Fund
shall promptly deliver to the Custodian a Certificate specifying:
(a) the Series to which such Futures Contract Option was
specifically allocated; (b) the particular Futures Contract
Option (put or call) being exercised; (c) the type of Futures
Contract underlying the Futures Contract Option; (d) the date of
exercise; (e) the name of the broker or futures commission
merchant through whom the Futures Contract Option is exercised;
(f) the net total amount, if any, payable by the Fund; (g) the
amount, if any, to be received by the Fund; and (h) the amount of
cash and/or the amount and kind of Securities to be deposited in
the Senior Security Account for such Series. The Custodian shall
make, out of the moneys and Securities specifically allocated to
such Series, the payments, if any, and the deposits, if any, into
the Senior Security Account as specified in the Certificate. The
deposits, if any, to be made to the Margin Account shall be made
by the Custodian in accordance with the terms and conditions of
the Margin Account Agreement.
4. Whenever the Fund writes a Futures Contract Option,
the Fund shall promptly deliver to the Custodian a Certificate
specifying with respect to such Futures Contract Option: (a) the
Series for which such Futures Contract Option was written; (b)
the type of Futures Contract Option (put or call); (c) the type
of Futures Contract and such other information as may be
necessary to identify the Futures Contract underlying the Futures
Contract Option; (d) the expiration date; (e) the exercise price;
(f) the premium to be received by the Fund; (g) the name of the
broker or futures commission merchant through whom the premium is
to be received; and (h) the amount of cash and/or the amount and
kind of Securities, if any, to be deposited in the Senior
Security Account for such Series. The Custodian shall, upon
receipt of the premium specified in the Certificate, make out of
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<PAGE>
the moneys and Securities specifically allocated to such Series
the deposits into the Senior Security Account, if any, as
specified in the Certificate. The deposits, if any, to be made
to the Margin Account shall be made by the Custodian in
accordance with the terms and conditions of the Margin Account
Agreement.
5. Whenever a Futures Contract Option written by the
Fund which is a call is exercised, the Fund shall promptly
deliver to the Custodian a Certificate specifying: (a) the Series
to which such Futures Contract Option was specifically allocated;
(b) the particular Futures Contract Option exercised; (c) the
type of Futures Contract underlying the Futures Contract Option;
(d) the name of the broker or futures commission merchant through
whom such Futures Contract Option was exercised; (e) the net
total amount, if any, payable to the Fund upon such exercise; (f)
the net total amount, if any, payable by the Fund upon such
exercise; and (g) the amount of cash and/or the amount and kind
of Securities to be deposited in the Senior Security Account for
such Series. The Custodian shall, upon its receipt of the net
total amount payable to the Fund, if any, specified in such
Certificate make the payments, if any, and the deposits, if any,
into the Senior Security Account as specified in the Certificate.
The deposits, if any, to be made to the Margin Account shall be
made by the Custodian in accordance with the terms and conditions
of the Margin Account Agreement.
6. Whenever a Futures Contract Option which is written
by the Fund and which is a put is exercised, the Fund shall
promptly deliver to the Custodian a Certificate specifying: (a)
the Series to which such option was specifically allocated; (b)
the particular Futures Contract Option exercised; (c) the type of
Futures Contract underlying such Futures Contract Option; (d) the
name of the broker or futures commission merchant through whom
such Futures Contract Option is exercised; (e) the net total
amount, if any, payable to the Fund upon such exercise; (f) the
net total amount, if any, payable by the Fund upon such exercise;
and (g) the amount and kind of Securities and/or cash to be
withdrawn from or deposited in, the Senior Security Account for
such Series, if any. The Custodian shall, upon its receipt of
the net total amount payable to the Fund, if any, specified in
the Certificate, make out of the moneys and Securities
specifically allocated to such Series, the payments, if any, and
the deposits, if any, into the Senior Security Account as
specified in the Certificate. The deposits to and/or withdrawals
from the Margin Account, if any, shall be made by the Custodian
in accordance with the terms and conditions of the Margin Account
Agreement.
7. Whenever the Fund purchases any Futures Contract
Option identical to a previously written Futures Contract Option
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<PAGE>
described in this Article in order to liquidate its position as a
writer of such Futures Contract Option, the Fund shall promptly
deliver to the Custodian a Certificate specifying with respect to
the Futures Contract Option being purchased: (a) the Series to
which such option is specifically allocated; (b) that the
transaction is a closing transaction; (c) the type of Future
Contract and such other information as may be necessary to
identify the Futures Contract underlying the Futures Option
Contract; (d) the exercise price; (e) the premium to be paid by
the Fund; (f) the expiration date; (g) the name of the broker or
futures commission merchant to whom the premium is to be paid;
and (h) the amount of cash and/or the amount and kind of
Securities, if any, to be withdrawn from the Senior Security
Account for such Series. The Custodian shall effect the
withdrawals from the Senior Security Account specified in the
Certificate. The withdrawals, if any, to be made from the Margin
Account shall be made by the Custodian in accordance with the
terms and conditions of the Margin Account Agreement.
8. Upon the expiration, exercise, or consummation of a
closing transaction with respect to, any Futures Contract Option
written or purchased by the Fund and described in this Article,
the Custodian shall (a) delete such Futures Contract Option from
the statements delivered to the Fund pursuant to paragraph 3 of
Article III herein and, (b) make such withdrawals from and/or in
the case of an exercise such deposits into the Senior Security
Account as may be specified in a Certificate. The deposits to
and/or withdrawals from the Margin Account, if any, shall be made
by the Custodian in accordance with the terms and conditions of
the Margin Account Agreement.
9. Futures Contracts acquired by the Fund through the
exercise of a Futures Contract Option described in this Article
shall be subject to Article VI hereof.
ARTICLE VIII
SHORT SALES
1. Promptly after any short sales by any Series of the
Fund, the Fund shall promptly deliver to the Custodian a
Certificate specifying: (a) the Series for which such short sale
was made; (b) the name of the issuer and the title of the
Security; (c) the number of shares or principal amount sold, and
accrued interest or dividends, if any; (d) the dates of the sale
and settlement; (e) the sale price per unit; (f) the total amount
credited to the Fund upon such sale, if any, (g) the amount of
cash and/or the amount and kind of Securities, if any, which are
to be deposited in a Margin Account and the name in which such
Margin Account has been or is to be established; (h) the amount
of cash and/or the amount and kind of Securities, if any, to be
20
<PAGE>
deposited in a Senior Security Account, and (i) the name of the
broker through whom such short sale was made. The Custodian
shall upon its receipt of a statement from such broker confirming
such sale and that the total amount credited to the Fund upon
such sale, if any, as specified in the Certificate is held by
such broker for the account of the Custodian (or any nominee of
the Custodian) as custodian of the Fund, issue a receipt or make
the deposits into the Margin Account and the Senior Security
Account specified in the Certificate.
2. In connection with the closing-out of any short
sale, the Fund shall promptly deliver to the Custodian a
Certificate specifying with respect to each such closing out:
(a) the Series for which such transaction is being made; (b) the
name of the issuer and the title of the Security; (c) the number
of shares or the principal amount, and accrued interest or
dividends, if any, required to effect such closing-out to be
delivered to the broker; (d) the dates of closing-out and
settlement; (e) the purchase price per unit; (f) the net total
amount payable to the Fund upon such closing-out; (g) the net
total amount payable to the broker upon such closing-out; (h)
the amount of cash and the amount and kind of Securities to be
withdrawn, if any, from the Margin Account; (i) the amount of,
cash and/or the amount and kind of Securities, if any, to be
withdrawn from the Senior Security Account; and (j) the name of
the broker through whom the Fund is effecting such closing-out.
The Custodian shall, upon receipt of the net total amount payable
to the Fund upon such closing-out, and the return and/or
cancellation of the receipts, if any, issued by the Custodian
with respect to the short sale being closed-out, pay out of the
moneys held for the account of the Fund to the broker the net
total amount payable to the broker, and make the withdrawals from
the Margin Account and the Senior Security Account, as the same
are specified in the Certificate.
ARTICLE IX
REVERSE REPURCHASE AGREEMENTS
1. Promptly after the Fund enters a Reverse Repurchase
Agreement with respect to Securities and money held by the
Custodian hereunder, the Fund shall deliver to the Custodian a
Certificate, or in the event such Reverse Repurchase Agreement is
a Money Market Security, a Certificate or Oral Instructions
specifying: (a) the Series for which the Reverse Repurchase
Agreement is entered; (b) the total amount payable to the Fund in
connection with such Reverse Repurchase Agreement and
specifically allocated to such Series; (c) the broker or dealer
through or with whom the Reverse Repurchase Agreement is entered;
(d) the amount and kind of Securities to be delivered by the Fund
to such broker or dealer; (e) the date of such Reverse Repurchase
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<PAGE>
Agreement; and (f) the amount of cash and/or the amount and kind
of Securities, if any, specifically allocated to such Series to
be deposited in a Senior Security Account for such Series in
connection with such Reverse Repurchase Agreement. The Custodian
shall, upon receipt of the total amount payable to the Fund
specified in the Certificate, Oral Instructions, or Written
Instructions make the delivery to the broker or dealer, and the
deposits, if any, to the Senior Security Account, specified in
such Certificate or Oral Instructions.
2. Upon the termination of a Reverse Repurchase
Agreement described in preceding paragraph 1 of this Article, the
Fund shall promptly deliver a Certificate or, in the event such
Reverse Repurchase Agreement is a Money Market Security, a
Certificate or Oral Instructions to the Custodian specifying:
(a) the Reverse Repurchase Agreement being terminated and the
Series for which same was entered; (b) the total amount payable
by the Fund in connection with such termination; (c) the amount
and kind of Securities to be received by the Fund and
specifically allocated to such Series in connection with such
termination; (d) the date of termination; (e) the name of the
broker or dealer with or through whom the Reverse Repurchase
Agreement is to be terminated; and (f) the amount of cash and/or
the amount and kind of Securities to be withdrawn from the Senior
Securities Account for such Series. The Custodian shall, upon
receipt of the amount and kind of Securities to be received by
the Fund specified in the Certificate or Oral Instructions, make
the payment to the broker or dealer, and the withdrawals, if any,
from the Senior Security Account, specified in such Certificate
or Oral Instructions.
ARTICLE X
LOAN OF PORTFOLIO SECURITIES OF THE FUND
1. Promptly after each loan of portfolio Securities
specifically allocated to a Series held by the Custodian
hereunder, the Fund shall deliver or cause to be delivered to the
Custodian a Certificate specifying with respect to each such
loan: (a) the Series to which the loaned Securities are
specifically allocated; (b) the name of the issuer and the title
of the Securities, (c) the number of shares or the principal
amount loaned, (d) the date of loan and delivery, (e) the total
amount to be delivered to the Custodian against the loan of the
Securities, including the amount of cash collateral and the
premium, if any, separately identified, and (f) the name of the
broker, dealer, or financial institution to which the loan was
made. The Custodian shall deliver the Securities thus designated
to the broker, dealer or financial institution to which the loan
was made upon receipt of the total amount designated as to be
delivered against the loan of Securities. The Custodian may
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<PAGE>
accept payment in connection with a delivery otherwise than
through the Book-Entry System or Depository only in the form of a
certified or bank cashier's check payable to the order of the
Fund or the Custodian drawn on New York Clearing House funds and
may deliver Securities in accordance with the customs prevailing
among dealers in securities.
2. Promptly after each termination of the loan of
Securities by the Fund, the Fund shall deliver or cause to be
delivered to the Custodian a Certificate specifying with respect
to each such loan termination and return of Securities: (a) the
Series to which the loaned Securities are specifically allocated;
(b) the name of the issuer and the title of the Securities to be
returned, (c) the number of shares or the principal amount to be
returned, (d) the date of termination, (e) the total amount to be
delivered by the Custodian (including the cash collateral for
such Securities minus any offsetting credits as described in said
Certificate), and (f) the name of the broker, dealer, or
financial institution from which the Securities will be returned.
The Custodian shall receive all Securities returned from the
broker, dealer, or financial institution to which such Securities
were loaned and upon receipt thereof shall pay, out of the moneys
held for the account of the Fund, the total amount payable upon
such return of Securities as set forth in the Certificate.
ARTICLE XI
CONCERNING MARGIN ACCOUNTS, SENIOR SECURITY
ACCOUNTS, AND COLLATERAL ACCOUNTS
1. The Custodian shall, from time to time, make such
deposits to, or withdrawals from, a Senior Security Account as
specified in a Certificate received by the Custodian. Such
Certificate shall specify the Series for which such deposit or
withdrawal is to be made and the amount of cash and/or the amount
and kind of Securities specifically allocated to such Series to
be deposited in, or withdrawn from, such Senior Security Account
for such Series. In the event that the Fund fails to specify in
a Certificate the Series, the name of the issuer, the title and
the number of shares or the principal amount of any particular
Securities to be deposited by the Custodian into, or withdrawn
from, a Senior Securities Account, the Custodian shall be under
no obligation to make any such deposit or withdrawal and shall so
notify the Fund.
2. The Custodian shall make deliveries or payments
from a Margin Account to the broker, dealer, futures commission
merchant or Clearing Member in whose name, or for whose benefit,
the account was established as specified in the Margin Account
Agreement.
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3. Amounts received by the Custodian as payments or
distributions with respect to Securities deposited in any Margin
Account shall be dealt with in accordance with the terms and
conditions of the Margin Account Agreement.
4. Custodian shall have a continuing lien and security
interest in and to any property at any time held by the Custodian
in any Collateral Account described herein. In accordance with
applicable law the Custodian may enforce its lien and realize on
any such property whenever the Custodian has made payment or
delivery pursuant to any Put Option guarantee letter or similar
document or any receipt issued hereunder by the Custodian. In
the event the Custodian should realize on any such property net
proceeds which are less than the Custodian's obligations under
any Put Option guarantee letter or similar document or any
receipt, such deficiency shall be a debt owed the Custodian by
the Fund within the scope of Article XIV herein.
5. On each business day the Custodian shall furnish
the Fund with a statement with respect to each Margin Account in
which money or Securities are held specifying as of the close of
business on the previous business day: (a) the name of the Margin
Account; (b) the amount and kind of Securities held therein; and
(c) the amount of money held therein. The Custodian shall make
available upon request to any broker, dealer, or futures
commission merchant specified in the name of a Margin Account a
copy of the statement furnished the Fund with respect to such
Margin Account.
6. Promptly after the close of business on each
business day in which cash and/or Securities are maintained in a
Collateral Account for any Series, the Custodian shall furnish
the Fund with a statement with respect to such Collateral Account
specifying the amount of cash and/or the amount and kind of
Securities held therein. No later than the close of business
next succeeding the delivery to the Fund of such statement, the
Fund shall furnish to the Custodian a Certificate or Written
Instructions specifying the then market value of the Securities
described in such statement. In the event such then market value
is indicated to be less than the Custodian's obligation with
respect to any outstanding Put Option guarantee letter or similar
document, the Fund shall promptly specify in a Certificate the
additional cash and/or Securities to be deposited in such
Collateral Account to eliminate such deficiency.
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ARTICLE XII
PAYMENT OF DIVIDENDS OR DISTRIBUTIONS
1. The Fund shall furnish to the Custodian a copy of
the resolution of the Board of Trustees of the Fund, certified by
the Secretary, the Clerk, any Assistant Secretary or any
Assistant Clerk, either (i) setting forth with respect to the
Series specified therein the date of the declaration of a
dividend or distribution, the date of payment thereof, the record
date as of which shareholders entitled to payment shall be
determined, the amount payable per Share of such Series to the
shareholders of record as of that date and the total amount
payable to the Dividend Agent and any sub-dividend agent or co-
dividend agent of the Fund on the payment date, or (ii)
authorizing with respect to the Series specified therein the
declaration of dividends and distributions on a daily basis and
authorizing the Custodian to rely on Oral Instructions or a
Certificate setting forth the date of the declaration of such
dividend or distribution, the date of payment thereof, the record
date as of which shareholders entitled to payment shall be
determined, the amount payable per Share of such Series to the
shareholders of record as of that date and the total amount
payable to the Dividend Agent on the payment date.
2. Upon the payment date specified in such resolution,
Oral Instructions or Certificate, as the case may be, the
Custodian shall pay out of the moneys held for the account of
each Series the total amount payable to the Dividend Agent and
any sub-dividend agent or co-dividend agent of the Fund with
respect to such Series.
ARTICLE XIII
SALE AND REDEMPTION OF SHARES
1. Whenever the Fund shall sell any Shares, it shall
deliver to the Custodian a Certificate duly specifying:
(a) The Series, the number of Shares sold, trade
date, and price; and
(b) The amount of money to be received by the
Custodian for the sale of such Shares and specifically allocated
to the separate account in the name of such Series.
2. Upon receipt of such money from the Transfer Agent,
the Custodian shall credit such money to the separate account in
the name of the Series for which such money was received.
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3. Upon issuance of any Shares of any Series described
in the foregoing provisions of this Article, the Custodian shall
pay, out of the money held for the account of such Series, all
original issue or other taxes required to be paid by the Fund in
connection with such issuance upon the receipt of a Certificate
specifying the amount to be paid.
4. Whenever the Fund desires the Custodian to make
payment out of the money held by the Custodian hereunder in
connection with a redemption of any Shares, it shall furnish to
the Custodian:
(a) A resolution by the Board of Directors of the
Fund directing the Transfer Agent to redeem the Shares; and
(b) A Certificate specifying the number and Series
of Shares redeemed; and
(c) The amount to be paid for such Shares.
5. Upon receipt from the Transfer Agent of an advice
setting forth the Series and number of Shares received by the
Transfer Agent for redemption and that such Shares are in good
form for redemption, the Custodian shall make payment to the
Transfer Agent out of the moneys held in the separate account in
the name of the Series the total amount specified in the
Certificate issued pursuant to the foregoing paragraph 4 of this
Article.
ARTICLE XIV
OVERDRAFTS OR INDEBTEDNESS
1. If the Custodian, should in its sole discretion
advance funds on behalf of any Series which results in an
overdraft because the moneys held by the Custodian in the
separate account for such Series shall be insufficient to pay the
total amount payable upon a purchase of Securities specifically
allocated to such Series, as set forth in a Certificate or Oral
Instructions, or which results in an overdraft in the separate
account of such Series for some other reason, or if the Fund is
for any other reason indebted to the Custodian with respect to a
Series, including any indebtedness to The Bank of New York under
the Fund's Cash Management and Related Services Agreement,
(except a borrowing for investment or for temporary or emergency
purposes using Securities as collateral pursuant to a separate
agreement and subject to the provisions of paragraph 2 of this
Article), such overdraft or indebtedness shall be deemed to be a
loan made by the Custodian to the Fund for such Series payable on
demand and shall bear interest from the date incurred at a rate
per annum (based on a 360-day year for the actual number of days
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involved) equal to 1/2% over Custodian's prime commercial lending
rate in effect from time to time, such rate to be adjusted on the
effective date of any change in such prime commercial lending
rate but in no event to be less than 6% per annum. In addition,
the Fund hereby agrees that the Custodian shall have a continuing
lien and security interest in and to any property specifically
allocated to such Series at any time held by it for the benefit
of such Series or in which the Fund may have an interest which is
then in the Custodian's possession or control or in possession or
control of any third party acting in the Custodian's behalf. The
Fund authorizes the Custodian, in its sole discretion, at any
time to charge any such overdraft or indebtedness together with
interest due thereon against any balance of account standing to
such Series credit on the Custodian's books. In addition, the
Fund hereby covenants that on each Business Day on which either
it intends to enter a Reverse Repurchase Agreement and/or
otherwise borrow from a third party, or which next succeeds a
Business Day on which at the close of business the Fund had
outstanding a Reverse Repurchase Agreement or such a borrowing,
it shall prior to 9 a.m., New York City time, advise the
Custodian, in writing, of each such borrowing, shall specify the
Series to which the same relates, and shall not incur any
indebtedness not so specified other than from the Custodian.
2. The Fund will cause to be delivered to the
Custodian by any bank (including, if the borrowing is pursuant to
a separate agreement, the Custodian) from which it borrows money
for investment or for temporary or emergency purposes using
Securities held by the Custodian hereunder as collateral for such
borrowings, a notice or undertaking in the form currently
employed by any such bank setting forth the amount which such
bank will loan to the Fund against delivery of a stated amount of
collateral. The Fund shall promptly deliver to the Custodian a
Certificate specifying with respect to each such borrowing:
(a) the Series to which such borrowing relates; (b) the name of
the bank, (c) the amount and terms of the borrowing, which may be
set forth by incorporating by reference an attached promissory
note, duly endorsed by the Fund, or other loan agreement, (d) the
time and date, if known, on which the loan is to be entered into,
(e) the date on which the loan becomes due and payable, (f) the
total amount payable to the Fund on the borrowing date, (g) the
market value of Securities to be delivered as collateral for such
loan, including the name of the issuer, the title and the number
of shares or the principal amount of any particular Securities,
and (h) a statement specifying whether such loan is for
investment purposes or for temporary or emergency purposes and
that such loan is in conformance with the Investment Company Act
of 1940 and the Fund's prospectus. The Custodian shall deliver
on the borrowing date specified in a Certificate the specified
collateral and the executed promissory note, if any, against
delivery by the lending bank of the total amount of the loan
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payable, provided that the same conforms to the total amount
payable as set forth in the Certificate. The Custodian may, at
the option of the lending bank, keep such collateral in its
possession, but such collateral shall be subject to all rights
therein given the lending bank by virtue of any promissory note
or loan agreement. The Custodian shall deliver such Securities
as additional collateral as may be specified in a Certificate to
collateralize further any transaction described in this
paragraph. The Fund shall cause all Securities released from
collateral status to be returned directly to the Custodian, and
the Custodian shall receive from time to time such return of
collateral as may be tendered to it. In the event that the Fund
fails to specify in a Certificate the Series, the name of the
issuer, the title and number of shares or the principal amount of
any particular Securities to be delivered as collateral by the
Custodian, the Custodian shall not be under any obligation to
deliver any Securities.
ARTICLE XV
TERMINAL LINK
1. At no time and under no circumstances shall the
Fund be obligated to have or utilize the Terminal Link, and the
provisions of this Article shall apply if, but only if, the Fund
in its sole and absolute discretion elects to utilize the
Terminal Link to transmit Certificates to the Custodian.
2. The Terminal Link shall be utilized by the Fund
only for the purpose of the Fund providing Certificates to the
Custodian with respect to transactions involving Securities or
for the transfer of money to be applied to the payment of
dividends, distributions or redemptions of Fund Shares, and shall
be utilized by the Custodian only for the purpose of providing
notices to the Fund. Such use shall commence only after the Fund
shall have delivered to the Custodian a Certificate substantially
in the form of Exhibit D and shall have established access codes.
Each use of the Terminal Link by the Fund shall constitute a
representation and warranty that the Terminal Link is being used
only for the purposes permitted hereby, that at least two
Officers have each utilized an access code, that such safekeeping
procedures have been established by the Fund, and that such use
does not contravene the Investment Company Act of 1940, as
amended, or the rules or regulations thereunder.
3. The Fund shall obtain and maintain at its own cost
and expense all equipment and services, including, but not
limited to communications services, necessary for it to utilize
the Terminal Link, and the Custodian shall not be responsible for
the reliability or availability of any such equipment or
services.
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4. The Fund acknowledges that any data bases made
available as part of, or through the Terminal Link and any
proprietary data, software, processes, information and
documentation (other than any such which are or become part of
the public domain or are legally required to be made available to
the public) (collectively, the "Information"), are the exclusive
and confidential property of the Custodian. The Fund shall, and
shall cause others to which it discloses the Information, to keep
the Information confidential by using the same care and
discretion it uses with respect to its own confidential property
and trade secrets, and shall neither make nor permit any
disclosure without the express prior written consent of the
Custodian.
5. Upon termination of this Agreement for any reason,
the Fund shall return to the Custodian any and all copies of the
Information which are in the Fund's possession or under its
control, or which the Fund distributed to third parties. The
provisions of this Article shall not affect the copyright status
of any of the Information which may be copyrighted and shall
apply to all Information whether or not copyrighted.
6. The Custodian reserves the right to modify the
Terminal Link from time to time without notice to the Fund except
that the Custodian shall give the Fund notice not less than 75
days in advance of any modification which would materially
adversely affect the Fund's operation, and the Fund agrees that
the Fund shall not modify or attempt to modify the Terminal Link
without the Custodian's prior written consent. The Fund
acknowledges that any software or procedures provided the Fund as
part of the Terminal Link are the property of the Custodian and,
accordingly, the Fund agrees that any modifications to the
Terminal Link, whether by the Fund, or by the Custodian and
whether with or without the Custodian's consent, shall become the
property of the Custodian.
7. Neither the Custodian nor any manufacturers and
suppliers it utilizes or the Fund utilizes in connection with the
Terminal Link makes any warranties or representations, express or
implied, in fact or in law, including but not limited to
warranties of merchantability and fitness for a particular
purpose.
8. The Fund will cause its Officers and employees to
treat the authorization codes and the access codes applicable to
Terminal Link with extreme care, and irrevocably authorizes the
Custodian to act in accordance with and rely on Certificates
received by it through the Terminal Link. The Fund acknowledges
that it is its responsibility to assure that only its officers
use the Terminal Link on its behalf, and that a Custodian shall
not be responsible nor liable for use of the Terminal Link on the
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Fund's behalf by persons other than such persons or Officers, or
by only a single Officer, nor for any alteration, omission, or
failure to promptly forward.
9(a). Except as otherwise specifically provided in
Section 9(b) of this Article, the Custodian shall have no
liability for any losses, damages, injuries, claims, costs or
expenses arising out of or in connection with any failure,
malfunction or other problem relating to the Terminal Link except
for money damages suffered as the direct result of the negligence
of the Custodian in an amount not exceeding for any incident
$25,000 provided, however, that the Custodian shall have no
liability under this Section 9 if the Fund fails to comply with
the provisions of Section 11.
9(b). The Custodian's liability for its negligence in
executing or failing to execute in accordance with a Certificate
received through Terminal Link shall be only with respect to a
transfer of funds which is not made in accordance with such
Certificate after such Certificate shall have been duly
acknowledged by the Custodian, and shall be contingent upon the
Fund complying with the provisions of Section 12 of this Article,
and shall be limited to (i) restoration of the principal amount
mistransferred, if and to the extent that the Custodian would be
required to make such restoration under applicable law, and
(ii) the lesser of (A) a Fund's actual pecuniary loss incurred by
reason of its loss of use of the mistransferred funds or the
funds which were not transferred, as the case may be, or
(B) compensation for the loss of the use of the mistransferred
funds or the funds which were not transferred, as the case may
be, at a rate per annum equal to the average federal funds rate
as computed from the Federal Reserve Bank of New York's daily
determination of the effective rate for federal funds, for the
period during which a Fund has lost use of such funds. In no
event shall the Custodian have any liability for failing to
execute in accordance with a Certificate a transfer of funds
where the Certificate is received by the Custodian through
Terminal Link other than through the applicable transfer module
for the particular instructions contained in such Certificate.
10. Without limiting the generality of the foregoing,
in no event shall the Custodian or any manufacturer or supplier
or its computer equipment, software or services relating to the
Terminal Link be responsible for any special, indirect,
incidental or consequential damages which the Fund may incur or
experience by reason of its use of the Terminal Link even if the
Custodian or any manufacturer or supplier has been advised of the
possibility of such damages, nor with respect to the use of the
Terminal Link shall the Custodian or any such manufacturer or
supplier be liable for acts of God, or with respect to the
following to the extent beyond such person's reasonable control:
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machine or computer breakdown or malfunction, interruption or
malfunction of communication facilities, labor difficulties or
any other similar or dissimilar cause.
11. The Fund shall notify the Custodian of any errors,
omissions or interruptions in, or delay or unavailability of, the
Terminal Link as promptly as practicable, and in any event within
24 hours after the earliest of (i) discovery thereof, (ii) the
Business Day on which discovery should have occurred through the
exercise of reasonable care and (iii) in the case of any error,
the date of actual receipt of the earliest notice which reflects
such error, it being agreed that discovery and receipt of notice
may only occur on a business day. The Custodian shall promptly
advise the Fund whenever the Custodian learns of any errors,
omissions or interruption in, or delay or unavailability of, the
Terminal Link.
12. The Custodian shall verify to the Fund, by use of
the Terminal Link, receipt of each Certificate the Custodian
receives through the Terminal Link, and in the absence of such
verification the Custodian shall not be liable for any failure to
act in accordance with such Certificate and the Fund may not
claim that such Certificate was received by the Custodian. Such
verification, which may occur after the Custodian has acted upon
such Certificate, shall be accomplished on the same day on which
such Certificate is received.
ARTICLE XVI
DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY
OF ANY SERIES HELD OUTSIDE OF THE UNITED STATES
1. The Custodian is authorized and instructed to
employ, as sub-custodian for each Series' Foreign Securities (as
such term is defined in paragraph (c)(1) of Rule 17f-5 under the
Investment Company Act of 1940, as amended) and other assets, the
foreign banking institutions and foreign securities depositories
and clearing agencies designated on Schedule I hereto ("Foreign
Sub-Custodians") to carry out their respective responsibilities
in accordance with the terms of the sub-custodian agreement
between each such Foreign Sub-Custodian and the Custodian, copies
of which have been previously delivered to the Fund and receipt
of which is hereby acknowledged (each such agreement, a "Foreign
Sub-Custodian Agreement"). The Custodian shall be liable for the
acts and omissions of each Foreign Sub-Custodian constituting
negligence or willful misconduct in the conduct of its
responsibilities under the terms of the Foreign Sub-Custodian
Agreement. Upon receipt of a Certificate, together with a
certified resolution substantially in the form attached as
Exhibit E of the Fund's Board of Directors, the Fund may
designate any additional foreign sub-custodian with which the
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Custodian has an agreement for such entity to act as the
Custodian's agent, as its sub-custodian and any such additional
foreign subcustodian shall be deemed added to Schedule I. Upon
receipt of a Certificate from the Fund, the Custodian shall cease
the employment of any one or more Foreign Sub-Custodians for
maintaining custody of the Fund's assets and such Foreign Sub-
Custodian shall be deemed deleted from Schedule I.
2. Each Foreign Sub-Custodian Agreement shall be
substantially in the form previously delivered to the Fund and
will not be amended in a way that materially adversely affects
the Fund without the Fund's prior written consent.
3. The Custodian shall identify on its books as
belonging to each Series of the Fund the Foreign Securities of
such Series held by each Foreign Sub-Custodian. At the election
of the Fund, it shall be entitled to be subrogated to the rights
of the Custodian with respect to any claims by the Fund or any
Series against a Foreign Sub-Custodian as a consequence of any
loss, damage, cost, expense, liability or claim sustained or
incurred by the Fund or any Series if and to the extent that the
Fund or such Series has not been made whole for any such loss,
damage, cost, expense, liability or claim.
4. Upon request of the Fund, the Custodian will,
consistent with the terms of the applicable Foreign Sub-Custodian
Agreement, use reasonable efforts to arrange for the independent
accountants of the Fund to be afforded access to the books and
records of any Foreign Sub-Custodian insofar as such books and
records relate to the performance of such Foreign Sub-Custodian
under its agreement with the Custodian on behalf of the Fund.
5. The Custodian will supply to the Fund from time to
time, as mutually agreed upon, statements in respect of the
securities and other assets of each Series held by Foreign Sub-
Custodians, including but not limited to, an identification of
entities having possession of each Series' Foreign Securities and
other assets, and advices or notifications of any transfers of
Foreign Securities to or from each custodial account maintained
by a Foreign Sub-Custodian for the Custodian on behalf of the
Series.
6. The Custodian shall furnish annually to the Fund,
as mutually agreed upon, information concerning the Foreign Sub-
Custodians employed by the Custodian. Such information shall be
similar in kind and scope to that furnished to the Fund in
connection with the Fund's initial approval of such Foreign Sub-
Custodians and, in any event, shall include information
pertaining to (i) the Foreign Custodians' financial strength,
general reputation and standing in the countries in which they
are located and their ability to provide the custodial services
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required, and (ii) whether the Foreign Sub-Custodians would
provide a level of safeguards for safekeeping and custody of
securities not materially different form those prevailing in the
United States. The Custodian shall monitor the general operating
performance of each Foreign Sub-Custodian, and at least annually
obtain and review the annual financial report published by such
Foreign Sub-Custodian to determine that it meets the financial
criteria of an "Eligible Foreign Custodian" under Rule
17f-5(c)(2)(i) or (ii). The Custodian will promptly inform the
Fund in the event that the Custodian learns that a Foreign Sub-
Custodian no longer satisfies the financial criteria of an
"Eligible Foreign Custodian" under such Rule. The Custodian
agrees that it will use reasonable care in monitoring compliance
by each Foreign Sub-Custodian with the terms of the relevant
Foreign Sub-Custodian Agreement and that if it learns of any
breach of such Foreign Sub-Custodian Agreement believed by the
Custodian to have a material adverse effect on the Fund or any
Series it will promptly notify the Fund of such breach. The
Custodian also agrees to use reasonable and diligent efforts to
enforce its rights under the relevant Foreign Sub-Custodian
Agreement.
7. The Custodian shall transmit promptly to the Fund
all notices, reports or other written information received
pertaining to the Fund's Foreign Securities, including without
limitation, notices of corporate action, proxies and proxy
solicitation materials.
8. Notwithstanding any provision of this Agreement to
the contrary, settlement and payment for securities received for
the account of any Series and delivery of securities maintained
for the account of such Series may be effected in accordance with
the customary or established securities trading or securities
processing practices and procedures in the jurisdiction or market
in which the transaction occurs, including, without limitation,
delivery of securities to the purchaser thereof or to a dealer
therefor (or an agent for such purchaser or dealer) against a
receipt with the expectation of receiving later payment for such
securities from such purchaser or dealer.
ARTICLE XVII
CONCERNING THE CUSTODIAN
1. Except as hereinafter provided, or as provided in
Article XVI neither the Custodian nor its nominee shall be liable
for any loss or damage, including counsel fees, resulting from
its action or omission to act or otherwise, either hereunder or
under any Margin Account Agreement, except for any such loss or
damage arising out of its own negligence or willful misconduct.
In no event shall the Custodian be liable to the Fund or any
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third party for special, indirect or consequential damages or
lost profits or loss of business, arising under or in connection
with this Agreement, even if previously informed of the
possibility of such damages and regardless of the form of action.
The Custodian may, with respect to questions of law arising
hereunder or under any Margin Account Agreement, apply for and
obtain the advice and opinion of counsel to the Fund or of its
own counsel, at the expense of the Fund, and shall be fully
protected with respect to anything done or omitted by it in good
faith in conformity with such advice or opinion. The Custodian
shall be liable to the Fund for any loss or damage resulting from
the use of the Book-Entry System or any Depository arising by
reason of any negligence or willful misconduct on the part of the
Custodian or any of its employees or agents.
2. Without limiting the generality of the foregoing,
the Custodian shall be under no obligation to inquire into, and
shall not be liable for:
(a) The validity of the issue of any Securities
purchased, sold, or written by or for the Fund, the legality of
the purchase, sale or writing thereof, or the propriety of the
amount paid or received therefor;
(b) The legality of the sale or redemption of any
Shares, or the propriety of the amount to be received or paid
therefor;
(c) The legality of the declaration or payment of
any dividend by the Fund;
(d) The legality of any borrowing by the Fund
using Securities as collateral;
(e) The legality of any loan of portfolio
Securities, nor shall the Custodian be under any duty or
obligation to see to it that any cash collateral delivered to it
by a broker, dealer, or financial institution or held by it at
any time as a result of such loan of portfolio Securities of the
Fund is adequate collateral for the Fund against any loss it
might sustain as a result of such loan. The Custodian
specifically, but not by way of limitation, shall not be under
any duty or obligation periodically to check or notify the Fund
that the amount of such cash collateral held by it for the Fund
is sufficient collateral for the Fund, but such duty or
obligation shall be the sole responsibility of the Fund. In
addition, the Custodian shall be under no duty or obligation to
see that any broker, dealer or financial institution to which
portfolio Securities of the Fund are lent pursuant to Article XIV
of this Agreement makes payment to it of any dividends or
interest which are payable to or for the account of the Fund
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during the period of such loan or at the termination of such
loan, provided, however, that the Custodian shall promptly notify
the Fund in the event that such interest are not paid and
received when due; or
(f) The sufficiency or value of any amounts of
money and/or Securities held in any Margin Account, Senior
Security Account or Collateral Account in connection with
transactions by the Fund. In addition, the Custodian shall be
under no duty or obligation to see that any broker, dealer,
futures commission merchant or Clearing Member makes payment to
the Fund of any variation margin payment or similar payment which
the Fund may be entitled to receive from such broker, dealer,
futures commission merchant or Clearing Member, to see that any
payment received by the Custodian from any broker, dealer,
futures commission merchant or Clearing Member is the amount the
Fund is entitled to receive, or to notify the Fund of the
Custodian's receipt or non-receipt of any such payment.
3. The Custodian shall not be liable for, or
considered to be the Custodian of, any money, whether or not
represented by any check, draft, or other instrument for the
payment of money, received by it on behalf of the Fund until the
Custodian actually receives and collects such money directly or
by the final crediting of the account representing the Fund's
interest at the Book-Entry System or the Depository.
4. The Custodian shall have no responsibility and
shall not be liable for ascertaining or acting upon any calls,
conversions, exchange offers, tenders, interest rate changes or
similar matters relating to Securities held in the Depository,
unless the Custodian shall have actually received timely notice
from the Depository. In no event shall the Custodian have any
responsibility or liability for the failure of the Depository to
collect, or for the late collection or late crediting by the
Depository of any amount payable upon Securities deposited in the
Depository which may mature or be redeemed, retired, called or
otherwise become payable. However, upon receipt of a Certificate
from the Fund of an overdue amount on Securities held in the
Depository the Custodian shall make a claim against the
Depository on behalf of the Fund, except that the Custodian shall
not be under any obligation to appear in, prosecute or defend any
action suit or proceeding in respect to any Securities held by
the Depository which in its opinion may involve it in expense or
liability, unless indemnity satisfactory to it against all
expense and liability be furnished as often as may be required.
5. The Custodian shall not be under any duty or
obligation to take action to effect collection of any amount due
to the Fund from the Transfer Agent of the Fund nor to take any
action to effect payment or distribution by the Transfer Agent of
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the Fund of any amount paid by the Custodian to the Transfer
Agent of the Fund in accordance with this Agreement.
6. The Custodian shall not be under any duty or
obligation to take action to effect collection of any amount if
the Securities upon which such amount is payable are in default,
or if payment is refused after due demand or presentation, unless
and until (i) it shall be directed to take such action by a
Certificate and (ii) it shall be assured to its satisfaction of
reimbursement of its costs and expenses in connection with any
such action.
7. The Custodian may in addition to the employment of
Foreign Sub-Custodians pursuant to Article XVI appoint one or
more banking institutions as Depository or Depositories, as Sub-
Custodian or Sub-Custodians, or as Co-Custodian or Co-Custodians
including, but not limited to, banking institutions located in
foreign countries, of Securities and moneys at any time owned by
the Fund, upon such terms and conditions as may be approved in a
Certificate or contained in an agreement executed by the
Custodian, the Fund and the appointed institution.
8. The Custodian shall not be under any duty or
obligation (a) to ascertain whether any Securities at any time
delivered to, or held by it or by any Foreign Sub-Custodian, for
the account of the Fund and specifically allocated to a Series
are such as properly may be held by the Fund or such Series under
the provisions of its then current prospectus, or (b) to
ascertain whether any transactions by the Fund, whether or not
involving the Custodian, are such transactions as may properly be
engaged in by the Fund.
9. The Custodian shall be entitled to receive and the
Fund agrees to pay to the Custodian all out-of-pocket expenses
and such compensation as may be agreed upon from time to time
between the Custodian and the Fund. The Custodian may charge
such compensation and any expenses with respect to a Series
incurred by the Custodian in the performance of its duties
pursuant to such agreement against any money specifically
allocated to such Series. Unless and until the Fund instructs
the Custodian by a Certificate to apportion any loss, damage,
liability or expense among the Series in a specified manner, the
Custodian shall also be entitled to charge against any money held
by it for the account of a Series such Series' pro rata share
(based on such Series net asset value at the time of the charge
to the aggregate net asset value of all Series at that time) of
the amount of any loss, damage, liability or expense, including
counsel fees, for which it shall be entitled to reimbursement
under the provisions of this Agreement. The expenses for which
the Custodian shall be entitled to reimbursement hereunder shall
include, but are not limited to, the expenses of sub-custodians
36
<PAGE>
and foreign branches of the Custodian incurred in settling
outside of New York City transactions involving the purchase and
sale of Securities of the Fund.
10. The Custodian shall be entitled to rely upon any
Certificate, notice or other instrument in writing received by
the Custodian and reasonably believed by the Custodian to be a
Certificate. The Custodian shall be entitled to rely upon any
Oral Instructions actually received by the Custodian hereinabove
provided for. The Fund agrees to forward to the Custodian a
Certificate or facsimile thereof confirming such Oral
Instructions in such manner so that such Certificate or facsimile
thereof is received by the Custodian, whether by hand delivery,
telecopier or other similar device, or otherwise, by the close of
business of the same day that such Oral Instructions are given to
the Custodian. The Fund agrees that the fact that such
confirming instructions are not received by the Custodian shall
in no way affect the validity of the transactions or
enforceability of the transactions hereby authorized by the Fund.
The Fund agrees that the Custodian shall incur no liability to
the Fund in acting upon Oral Instructions given to the Custodian
hereunder concerning such transactions provided such instructions
reasonably appear to have been received from an Officer.
11. The Custodian shall be entitled to rely upon any
instrument, instruction or notice received by the Custodian and
reasonably believed by the Custodian to be given in accordance
with the terms and conditions of any Margin Account Agreement.
Without limiting the generality of the foregoing, the Custodian
shall be under no duty to inquire into, and shall not be liable
for, the accuracy of any statements or representations contained
in any such instrument or other notice including, without
limitation, any specification of any amount to be paid to a
broker, dealer, futures commission merchant or Clearing Member.
12. The books and records pertaining to the Fund which
are in the possession of the Custodian shall be the property of
the Fund. Such books and records shall be prepared and
maintained as required by the Investment Company Act of 1940, as
amended, and other applicable securities laws and rules and
regulations. The Fund, or the Fund's authorized representatives,
shall have access to such books and records during the
Custodian's normal business hours. Upon the reasonable request
of the Fund, copies of any such books and records shall be
provided by the Custodian to the Fund or the Fund's authorized
representative, and the Fund shall reimburse the Custodian its
expenses of providing such copies. Upon reasonable request of
the Fund, the Custodian shall provide in hard copy or on micro-
film, whichever the Custodian elects, any records included in any
such delivery which are maintained by the Custodian on a computer
disc, or are similarly maintained, and the Fund shall reimburse
37
<PAGE>
the Custodian for its expenses of providing such hard copy or
micro-film.
13. The Custodian shall provide the Fund with any
report obtained by the Custodian on the system of internal
accounting control of the Book-Entry System, the Depository or
O.C.C., and with such reports on its own systems of internal
accounting control as the Fund may reasonably request from time
to time.
14. The Fund agrees to indemnify the Custodian against
and save the Custodian harmless from all liability, claims,
losses and demands whatsoever, including attorney's fees,
howsoever arising or incurred because of or in connection with
this Agreement, including the Custodian's payment or non-payment
of checks pursuant to paragraph 6 of Article XIII as part of any
check redemption privilege program of the Fund, except for any
such liability, claim, loss and demand arising out of the
Custodian's own negligence or willful misconduct.
15. Subject to the foregoing provisions of this
Agreement, including, without limitation, those contained in
Article XVI the Custodian may deliver and receive Securities, and
receipts with respect to such Securities, and arrange for
payments to be made and received by the Custodian in accordance
with the customs prevailing from time to time among brokers or
dealers in such Securities. When the Custodian is instructed to
deliver Securities against payment, delivery of such Securities
and receipt of payment therefor may not be completed
simultaneously. The Fund assumes all responsibility and liability
for all credit risks involved in connection with the Custodian's
delivery of Securities pursuant to instructions of the Fund,
which responsibility and liability shall continue until final
payment in full has been received by the Custodian.
16. The Custodian shall have no duties or
responsibilities whatsoever except such duties and
responsibilities as are specifically set forth in this Agreement,
and no covenant or obligation shall be implied in this Agreement
against the Custodian.
ARTICLE XVIII
TERMINATION
1. Either of the parties hereto may terminate this
Agreement by giving to the other party a notice in writing
specifying the date of such termination, which shall be not less
than ninety (90) days after the date of giving of such notice.
In the event such notice is given by the Fund, it shall be
accompanied by a copy of a resolution of the Board of Trustees of
38
<PAGE>
the Fund, certified by the Secretary, the Clerk, any Assistant
Secretary or any Assistant Clerk, electing to terminate this
Agreement and designating a successor custodian or custodians,
each of Which shall be a bank or trust company having not less
than $2,000,000 aggregate capital, surplus and undivided profits.
In the event such notice is given by the Custodian, the Fund
shall, on or before the termination date, deliver to the
Custodian a copy of a resolution of the Board of Trustees of the
Fund, certified by the Secretary, the Clerk, any Assistant
Secretary or any Assistant Clerk, designating a successor
custodian or custodians. In the absence of such designation by
the Fund, the Custodian may designate a successor custodian which
shall be a bank or trust company having not less than $2,000,000
aggregate capital, surplus and undivided profits. Upon the date
set forth in such notice this Agreement shall terminate, and the
Custodian shall upon receipt of a notice of acceptance by the
successor custodian on that date deliver directly to the
successor custodian all Securities and moneys then owned by the
Fund and held by it as Custodian, after deducting all fees,
expenses and other amounts for the payment or reimbursement of
which it shall then be entitled.
2. If a successor custodian is not designated by the
Fund or the Custodian in accordance with the preceding paragraph,
the Fund shall upon the date specified in the notice of
termination of this Agreement and upon the delivery by the
Custodian of all Securities (other than Securities held in the
Book-Entry System which cannot be delivered to the Fund) and
moneys then owned by the Fund be deemed to be its own custodian
and the Custodian shall thereby be relieved of all duties and
responsibilities pursuant to this Agreement, other than the duty
with respect to Securities held in the Book Entry System which
cannot be delivered to the Fund to hold such Securities hereunder
in accordance with this Agreement.
ARTICLE XIX
MISCELLANEOUS
1. Annexed hereto as Appendix A is a Certificate
signed by two of the present Officers of the Fund under its seal,
setting forth the names and the signatures of the present
Authorized Persons. The Fund agrees to furnish to the Custodian
a new Certificate in similar form in the event that any such
present Authorized Person ceases to be an Authorized Person or in
the event that other or additional Authorized Persons are elected
or appointed. Until such new Certificate shall be received, the
Custodian shall be fully protected in acting under the provisions
of this Agreement upon Oral Instructions or signatures of the
present Authorized Persons as set forth in the last delivered
Certificate.
39
<PAGE>
2. Annexed hereto as Appendix B is a Certificate
signed by two of the present Officers of the Fund under its seal,
setting forth the names and the signatures of the present
officers of the Fund. The Fund agrees to furnish to the
Custodian a new Certificate in similar form in the event any such
present Officer ceases to be an Officer of the Fund, or in the
event that other or additional Officers are elected or appointed.
Until such new Certificate shall be received, the Custodian shall
be fully, protected in acting under the provisions of this
Agreement upon the signatures of the Officers as set forth in the
last delivered Certificate.
3. Any notice or other instrument in writing,
authorized or required by this Agreement to be given to the
Custodian, shall be sufficiently given if addressed to the
Custodian and mailed or delivered to it at its offices at 90
Washington Street, New York, New York 10286, or at such other
place as the Custodian may from time to time designate in
writing.
4. Any notice or other instrument in writing,
authorized or required by this Agreement to be given to the Fund
shall be sufficiently given if addressed to the Fund and mailed
or delivered to it at its office at the address for the Fund
first above written, or at such other place as the Fund may from
time to time designate in writing.
5. This Agreement may not be amended or modified in
any manner except by a written agreement executed by both parties
with the same formality as this Agreement and approved by a
resolution of the Board of Trustees of the Fund.
6. This Agreement shall extend to and shall be binding
upon the parties hereto, and their respective successors and
assigns; provided, however, that this Agreement shall not be
assignable by the Fund without the written consent of the
Custodian, or by the Custodian without the written consent of the
Fund, authorized or approved by a resolution of the Fund's Board
of Trustees.
7. This Agreement shall be construed in accordance
with the laws of the State of New York without giving effect to
conflict of laws principles thereof. Each party hereby consents
to the jurisdiction of a state or federal court situated in New
York City, New York in connection with any dispute arising
hereunder and hereby waives its right to trial by jury.
8. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original,
but such counterparts shall, together, constitute only one
instrument.
40
<PAGE>
9. A copy of the Declaration of Trust of the Fund is
on file with the Secretary of The Commonwealth of Massachusetts,
and notice is hereby given that this instrument is executed on
behalf of the Board of Trustees of the Fund as Trustees and not
individually and that the obligations of this instrument are not
binding upon any of the Trustees or shareholders individually but
are binding only upon the assets and property of the Fund;
provided, however, that the Declaration of Trust of the Fund
provides that the assets of a particular Series of the Fund shall
under no circumstances be charged with liabilities attributable
to any other Series of the Fund and that all persons extending
credit to, or contracting with or having any claim against a
particular Series of the Fund shall look only to the assets of
that particular Series for payment of such credit, contract or
claim.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective Officers, thereunto
duly authorized and their respective seals to be hereunto
affixed, as of the day and year first above written.
ALLIANCE MUNICIPAL INCOME FUND II
(SEAL] By: /s/ Edmund P. Bergan, Jr.
_______________________________
Attest:
/s/ George O. Martinez
_______________________
THE BANK OF NEW YORK
[SEAL] By: /s/ Jorge E. Ramos
_______________________________
Attest:
/s/ Michael A. Cecero
_______________________
41
00250151.AW5
<PAGE>
Exhibit 9
ALLIANCE FUND SERVICES, INC.
TRANSFER AGENCY AGREEMENT
AGREEMENT, dated as of May 21, 1993, between Alliance
Municipal Income Fund, II., a Massachusetts business trust and an
open-end investment company registered with the Securities and
Exchange Commission (the "SEC") under the Investment Company Act
of 1940 (the "Investment Company Act"), having its principal
place of business at 1345 Avenue of Americas, New York, New York
10105 (the "Fund"), and ALLIANCE FUND SERVICES, INC., a Delaware
corporation registered with the SEC as a transfer agent under the
Securities Exchange Act of 1934, having its principal place of
business at 500 Plaza Drive, Secaucus, New Jersey 07094 ("Fund
Services"), provides as follows:
WHEREAS, Fund Services has agreed to act as transfer
agent to the Fund for the purpose of recording the transfer,
issuance and redemption of shares of each series of the common
stock or shares of beneficial interest, as applicable, of the
Fund ("Shares" or "Shares of a Series"), transferring the Shares,
disbursing dividends and other distributions to shareholders of
the Fund, and performing such other services as may be agreed to
pursuant hereto;
NOW THEREFORE, for and in consideration of the mutual
covenants and agreements contained herein, the parties do hereby
agree as follows:
<PAGE>
SECTION 1. The Fund hereby appoints Fund Services as
its transfer agent, dividend disbursing agent and shareholder
servicing agent for the Shares, and Fund Services agrees to act
in such capacities upon the terms set forth in this Agreement.
Capitalized terms used in this Agreement and not otherwise
defined shall have the meanings assigned to them in SECTION 30.
SECTION 2.
(a) The Fund shall provide Fund Services with copies of
the following documents:
(1) Specimens of all forms of certificates for Shares;
(2) Specimens of all account application forms and
other documents relating to Shareholders' accounts;
(3) Copies of each Prospectus;
(4) Specimens of all documents relating to withdrawal
plans instituted by the Fund, as described in SECTION 16; and
(5) Specimens of all amendments to any of the foregoing
documents.
(b) The Fund shall furnish to Fund Services a supply of
blank Share Certificates for the Shares and, from time to time,
will renew such supply upon Fund Services' request. Blank Share
Certificates shall be signed manually or by facsimile signatures
of officers of the Fund authorized to sign by law or pursuant to
the by-laws of the Fund and, if required by Fund Services, shall
bear the Fund's seal or a facsimile thereof.
2
<PAGE>
SECTION 3. Fund Services shall make original issues of
Shares in accordance with SECTIONS 13 and 14 and the Prospectus
upon receipt of (i) Written Instructions requesting the issuance,
(ii) a certified copy of a resolution of the Fund's Board of
Directors authorizing the issuance, (iii) necessary funds for the
payment of any original issue tax applicable to such Shares, and
(iv) an opinion of the Fund's counsel as to the legality and
validity of the issuance, which opinion may provide that it is
contingent upon the filing by the Fund of an appropriate notice
with the SEC, as required by Rule 24f-2 of the Investment Company
Act, as amended from time to time.
SECTION 4. Transfers of Shares shall be registered and,
subject to the provisions of SECTION 10 in the case of Shares
evidenced by Share Certificates, new Share Certificates shall be
issued by Fund Services upon surrender of outstanding Share
Certificates in the form deemed by Fund Services to be properly
endorsed for transfer, which form shall include (i) all necessary
endorsers' signatures guaranteed by a member firm of a national
securities exchange or a domestic commercial bank or through
other procedures mutually agreed to between the Fund and Fund
Services, (ii) such assurances as Fund Services may deem
necessary to evidence the genuineness and effectiveness of each
endorsement and (iii) satisfactory evidence of compliance with
all applicable laws relating to the payment or collection of
taxes.
3
<PAGE>
SECTION 5. Fund Services shall forward Share
Certificates in "non-negotiable" form by first-class or
registered mail, or by whatever means Fund Services deems equally
reliable and expeditious. While in transit to the addressee, all
deliveries of Share Certificates shall be insured by Fund
Services as it deems appropriate. Fund Services shall not mail
Share Certificates in "negotiable" form, unless requested in
writing by the Fund and fully indemnified by the Fund to Fund
Services' satisfaction.
SECTION 6. In registering transfers of Shares, Fund
Services may rely upon the Uniform Commercial Code as in effect
from time to time in the State in which the Fund is incorporated
or organized or, if appropriate, in the State of New Jersey;
provided, that Fund Services may rely in addition or
alternatively on any other statutes in effect in the State of New
Jersey or in the state under the laws of which the Fund is
incorporated or organized that, in the opinion of Fund Services'
counsel, protect Fund Services and the Fund from liability
arising from (i) not requiring complete documentation in
connection with an issuance or transfer, (ii) registering a
transfer without an adverse claim inquiry, (iii) delaying
registration for purposes of an adverse claim inquiry or (iv)
refusing registration in connection with an adverse claim.
SECTION 7. Fund Services may issue new Share
Certificates in place of those lost, destroyed or stolen, upon
4
<PAGE>
receiving indemnity satisfactory to Fund Services; and may issue
new Share Certificates in exchange for, and upon surrender of,
mutilated Share Certificates as Fund Services deems appropriate.
SECTION 8. Unless otherwise directed by the Fund, Fund
Services may issue or register Share Certificates reflecting the
signature, or facsimile thereof, of an officer who has died,
resigned or been removed by the Fund. The Fund shall file
promptly with Fund Services' approval, adoption or ratification
of such action as may be required by law or by Fund Services.
SECTION 9. Fund Services shall maintain customary stock
registry records for Shares of each Series noting the issuance,
transfer or redemption of Shares and the issuance and transfer of
Share Certificates. Fund Services may also maintain for Shares
of each Series an account entitled "Unissued Certificate
Account," in which Fund Services will record the Shares, and
fractions thereof, issued and outstanding from time to time for
which issuance of Share Certificates has not been requested.
Fund Services is authorized to keep records for Shares of each
Series containing the names and addresses of record of
Shareholders, and the number of Shares, and fractions thereof,
from time to time owned by them for which no Share Certificates
are outstanding. Each Shareholder will be assigned a single
account number for Shares of each Series, even though Shares for
which Certificates have been issued will be accounted for
separately.
5
<PAGE>
SECTION 10. Fund Services shall issue Share
Certificates for Shares only upon receipt of a written request
from a Shareholder and as authorized by the Fund. If Shares are
purchased or transferred without a request for the issuance of a
Share Certificate, Fund Services shall merely note on its stock
registry records the issuance or transfer of the Shares and
fractions thereof and credit or debit, as appropriate, the
Unissued Certificate Account and the respective Shareholders'
accounts with the Shares. Whenever Shares, and fractions
thereof, owned by Shareholders are surrendered for redemption,
Fund Services may process the transactions by making appropriate
entries in the stock transfer records, and debiting the Unissued
Certificate Account and the record of issued Shares outstanding;
it shall be unnecessary for Fund Services to reissue Share
Certificates in the name of the Fund.
SECTION 11. Fund Services shall also perform the usual
duties and function required of a stock transfer agent for a
corporation, including but not limited to (i) issuing Share
Certificates as treasury Shares, as directed by Written
Instructions, and (ii) transferring Share Certificates from one
Shareholder to another in the usual manner. Fund Services may
rely conclusively and act without further investigation upon any
list, instruction, certification, authorization, Share
Certificate or other instrument or paper reasonably believed by
it in good faith to be genuine and unaltered, and to have been
6
<PAGE>
signed, countersigned or executed or authorized by a duly-
authorized person or persons, or by the Fund, or upon the advice
of counsel for the Fund or for Fund Services. Fund Services may
record any transfer of Share Certificates which it reasonably
believes in good faith to have been duly authorized, or may
refuse to record any transfer of Share Certificates if, in good
faith, it reasonably deems such refusal necessary in order to
avoid any liability on the part of either the Fund or Fund
Services.
SECTION 12. Fund Services shall notify the Fund of any
request or demand for the inspection of the Fund's share records.
Fund Services shall abide by the Fund's instructions for granting
or denying the inspection; provided, however, Fund Services may
grant the inspection without such instructions if it is advised
by its counsel that failure to do so will result in liability to
Fund Services.
SECTION 13. Fund Services shall observe the following
procedures in handling funds received:
(a) Upon receipt at the office designated by the Fund
of any check or other order drawn or endorsed to the Fund or
otherwise identified as being for the account of the Fund, and,
in the case of a new account, accompanied by a new account
application or sufficient information to establish an account as
provided in the Prospectus, Fund Services shall stamp the
transmittal document accompanying such check or other order with
7
<PAGE>
the name of the Fund and the time and date of receipt and shall
forthwith deposit the proceeds thereof in the custodial account
of the Fund.
(b) In the event that any check or other order for the
purchase of Shares is returned unpaid for any reason, Fund
Services shall, in the absence of other instructions from the
Fund, advise the Fund of the returned check and prepare such
documents and information as may be necessary to cancel promptly
any Shares purchased on the basis of such returned check and any
accumulated income dividends and capital gains distributions paid
on such Shares.
(c) As soon as possible after 4:00 p.m., Eastern time
or at such other times as the Fund may specify in Written or Oral
Instructions for any Series (the "Valuation Time") on each
Business Day Fund Services shall obtain from the Fund's Adviser a
quotation (on which it may conclusively rely) of the net asset
value, determined as of the Valuation Time on that day. On each
Business Day Fund Services shall use the net asset value(s)
determined by the Fund's Adviser to compute the number of Shares
and fractional Shares to be purchased and the aggregate purchase
proceeds to be deposited with the Custodian. As necessary but no
more frequently than daily (unless a more frequent basis is
agreed to by Fund Services), Fund Services shall place a purchase
order with the Custodian for the proper number of Shares and
fractional Shares to be purchased and promptly thereafter shall
8
<PAGE>
send written confirmation of such purchase to the Custodian and
the Fund.
SECTION 14. Having made the calculations required by
SECTION 13, Fund Services shall thereupon pay the Custodian the
aggregate net asset value of the Shares purchased. The aggregate
number of Shares and fractional Shares purchased shall then be
issued daily and credited by Fund Services to the Unissued
Certificate Account. Fund Services shall also credit each
Shareholder's separate account with the number of Shares
purchased by such Shareholder. Fund Services shall mail written
confirmation of the purchase to each Shareholder or the
Shareholder's representative and to the Fund if requested. Each
confirmation shall indicate the prior Share balance, the new
Share balance, the Shares for which Stock Certificates are
outstanding (if any), the amount invested and the price paid for
the newly-purchased Shares.
SECTION 15. Prior to the Valuation Time on each
Business Day, as specified in accordance with SECTION 13, Fund
Services shall process all requests to redeem Shares and, with
respect to each Series, shall advise the Custodian of (i) the
total number of Shares available for redemption and (ii) the
number of Shares and fractional Shares requested to be redeemed.
Upon confirmation of the net asset value by the Fund's Adviser,
Fund Services shall notify the Fund and the Custodian of the
redemption, apply the redemption proceeds in accordance with
9
<PAGE>
SECTION 16 and the Prospectus, record the redemption in the stock
registry books, and debit the redeemed Shares from the Unissued
Certificates Account and the individual account of the
Shareholder.
In lieu of carrying out the redemption procedures
described in the preceding paragraph, Fund Services may, at the
request of the Fund, sell Shares to the Fund as repurchases from
Shareholders, provided that the sale price is not less than the
applicable redemption price. The redemption procedures shall
then be appropriately modified.
SECTION 16. Fund Services will carry out the following
procedures with respect to Share redemptions:
(a) As to each request received by the Fund from or on
behalf of a Shareholder for the redemption of Shares, and unless
the right of redemption has been suspended as contemplated by the
Prospectus, Fund Services shall, within seven days after receipt
of such redemption request, either (i) mail a check in the amount
of the proceeds of such redemption to the person designated by
the Shareholder or other person to receive such proceeds or, (ii)
in the event redemption proceeds are to be wired through the
Federal Reserve Wire System or by bank wire pursuant to
procedures described in the Prospectus, cause such proceeds to be
wired in Federal funds to the bank or trust company account
designated by the Shareholder to receive such proceeds. Funds
Services shall also prepare and send a confirmation of such
10
<PAGE>
redemption to the Shareholder. Redemptions in kind shall be made
only in accordance with such Written Instructions as Fund
Services may receive from the Fund. The requirements as to
instruments of transfer and other documentation, the
determination of the appropriate redemption price and the time of
payment shall be as provided in the Prospectus, subject to such
additional requirements consistent therewith as may be
established by mutual agreement between the Fund and Fund
Services. In the case of a request for redemption that does not
comply in all respects with the requirements for redemption, Fund
Services shall promptly so notify the Shareholder and shall
effect such redemption at the price in effect at the time of
receipt of documents complying with such requirements. Fund
Services shall notify the Fund's Custodian and the Fund on each
Business Day of the amount of cash required to meet payments made
pursuant to the provisions of this paragraph and thereupon the
Fund shall instruct the Custodian to make available to Fund
Services in timely fashion sufficient funds therefor.
(b) Procedures and standards for effecting and
accepting redemption orders from Shareholders by telephone or by
such check writing service as the Fund may institute may be
established by mutual agreement between Fund Services and the
Fund consistent with the Prospectus.
(c) For purposes of redemption of Shares that have been
purchased by check within fifteen (15) days prior to receipt of
11
<PAGE>
the redemption request, the Fund shall provide Fund Services with
Written Instructions concerning the time within which such
requests may be honored.
(d) Fund Services shall process withdrawal orders duly
executed by Shareholders in accordance with the terms of any
withdrawal plan instituted by the Fund and described in the
Prospectus. Payments upon such withdrawal orders and redemptions
of Shares held in withdrawal plan accounts in connection with
such payments shall be made at such times as the Fund may
determine in accordance with the Prospectus.
(e) The authority of Fund Services to perform its
responsibilities under SECTIONS 15 and 16 with respect to the
Shares of any Series shall be suspended if Fund Services receives
notice of the suspension of the determination of the net asset
value of the Series.
SECTION 17. Upon the declaration of each dividend and
each capital gains distribution by the Fund's Board of Directors,
the Fund shall notify Fund Services of the date of such
declaration, the amount payable per Share, the record date for
determining the Shareholders entitled to payment, the payment and
the reinvestment date price.
SECTION 18. Upon being advised by the Fund of the
declaration of any income dividend or capital gains distribution
on account of its Shares, Fund Services shall compute and prepare
for the Fund records crediting such distributions to
12
<PAGE>
Shareholders. Fund Services shall, on or before the payment date
of any dividend or distribution, notify the Fund and the
Custodian of the estimated amount required to pay any portion of
a dividend or distribution which is payable in cash, and
thereupon the Fund shall, on or before the payment date of such
dividend or distribution, instruct the Custodian to make
available to Fund Services sufficient funds for the payment of
such cash amount. Fund Services will, on the designated payment
date, reinvest all dividends in additional shares and promptly
mail to each Shareholder at his address of record a statement
showing the number of full and fractional Shares (rounded to
three decimal places) then owned by the Shareholder and the net
asset value of such Shares; provided, however, that if a
Shareholder elects to receive dividends in cash, Fund Services
shall prepare a check in the appropriate amount and mail it to
the Shareholder at his address of record within five (5) business
days after the designated payment date, or transmit the
appropriate amount in Federal funds in accordance with the
Shareholder's agreement with the Fund.
SECTION 19. Fund Services shall prepare and maintain
for the Fund records showing for each Shareholder's account the
following:
A. The name, address and tax identification number of
the Shareholder;
13
<PAGE>
B. The number of Shares of each Series held by the
Shareholder;
C. Historical information including dividends paid and
date and price for all transactions;
D. Any stop or restraining order placed against such
account;
E. Information with respect to the withholding of any
portion of income dividends or capital gains distributions as are
required to be withheld under applicable law;
F. Any dividend or distribution reinvestment election,
withdrawal plan application, and correspondence relating to the
current maintenance of the account;
G. The certificate numbers and denominations of any
Share Certificates issued to the Shareholder; and
H. Any additional information required by Fund
Services to perform the services contemplated by this Agreement.
Fund Services agrees to make available upon request by
the Fund or the Fund's Adviser and to preserve for the periods
prescribed in Rule 31a-2 of the Investment Company Act any
records related to services provided under this Agreement and
required to be maintained by Rule 31a-1 of that Act, including:
(i) Copies of the daily transaction register for each
Business Day of the Fund;
(ii) Copies of all dividend, distribution and
reinvestment blotters;
14
<PAGE>
(iii) Schedules of the quantities of Shares of each
Series distributed in each state for purposes of any state's laws
or regulations as specified in Oral or Written Instructions given
to Fund Services from time to time by the Fund or its agents; and
(iv) Such other information, including Shareholder
lists, and statistical information as may be agreed upon from
time to time by the Fund and Fund Services.
SECTION 20. Fund Services shall maintain those records
necessary to enable the Fund to file, in a timely manner, form N-
SAR (Semi-Annual Report) or any successor report required by the
Investment Company Act or rules and regulations thereunder.
SECTION 21. Fund Services shall cooperate with the
Fund's independent public accountants and shall take reasonable
action to make all necessary information available to such
accountants for the performance of their duties.
SECTION 22. In addition to the services described
above, Fund Services will perform other services for the Fund as
may be mutually agreed upon in writing from time to time, which
may include preparing and filing Federal tax forms with the
Internal Revenue Service, and, subject to supervisory oversight
by the Fund's Adviser, mailing Federal tax information to
Shareholders, mailing semi-annual Shareholder reports, preparing
the annual list of Shareholders, mailing notices of Shareholders'
meetings, proxies and proxy statements and tabulating proxies.
Fund Services shall answer the inquiries of certain Shareholders
15
<PAGE>
related to their share accounts and other correspondence
requiring an answer from the Fund. Fund Services shall maintain
dated copies of written communications from Shareholders, and
replies thereto.
SECTION 23. Nothing contained in this Agreement is
intended to or shall require Fund Services, in any capacity
hereunder, to perform any functions or duties on any day other
than a Business Day. Functions or duties normally scheduled to
be performed on any day which is not a Business Day shall be
performed on, and as of, the next Business Day, unless otherwise
required by law.
SECTION 24. For the services rendered by Fund Services
as described above, the Fund shall pay to Fund Services an
annualized fee at a rate to be mutually agreed upon from time to
time. Such fee shall be prorated for the months in which this
Agreement becomes effective or is terminated. In addition, the
Fund shall pay, or Fund Services shall be reimbursed for, all
out-of-pocket expenses incurred in the performance of this
Agreement, including but not limited to the cost of stationery,
forms, supplies, blank checks, stock certificates, proxies and
proxy solicitation and tabulation costs, all forms and statements
used by Fund Services in communicating with Shareholders of the
Fund or especially prepared for use in connection with its
services hereunder, specific software enhancements as requested
by the Fund, costs associated with maintaining withholding
16
<PAGE>
accounts (including non-resident alien, Federal government and
state), postage, telephone, telegraph (or similar electronic
media) used in communicating with Shareholders or their
representatives, outside mailing services, microfiche/microfilm,
freight charges and off-site record storage. It is agreed in
this regard that Fund Services, prior to ordering any form in
such supply as it estimates will be adequate for more than two
years' use, shall obtain the written consent of the Fund. All
forms for which Fund Services has received reimbursement from the
Fund shall be the property of the Fund.
SECTION 25. Fund Services shall not be liable for any
taxes, assessments or governmental charges that may be levied or
assessed on any basis whatsoever in connection with the Fund or
any Shareholder, excluding taxes assessed against Fund Services
for compensation received by it hereunder.
SECTION 26.
(a) Fund Services shall at all times act in good faith
and with reasonable care in performing the services to be
provided by it under this Agreement, but shall not be liable for
any loss or damage unless such loss or damage is caused by the
negligence, bad faith or willful misconduct of Fund Services or
its employees or agents.
(b) The Fund shall indemnify and hold Fund Services
harmless from all loss, cost, damage and expense, including
reasonable expenses for counsel, incurred by it resulting from
17
<PAGE>
any claim, demand, action or suit in connection with the
performance of its duties hereunder, or as a result of acting
upon any instruction reasonably believed by it to have been
properly given by a duly authorized officer of the Fund, or upon
any information, data, records or documents provided to Fund
Services or its agents by computer tape, telex, CRT data entry or
other similar means authorized by the Fund; provided that this
indemnification shall not apply to actions or omissions of Fund
Services in cases of its own bad faith, willful misconduct or
negligence, and provided further that if in any case the Fund may
be asked to indemnify or hold Fund Services harmless pursuant to
this Section, the Fund shall have been fully and promptly advised
by Fund Services of all material facts concerning the situation
in question. The Fund shall have the option to defend Fund
Services against any claim which may be the subject of this
indemnification, and in the event that the Fund so elects it will
so notify Fund Services, and thereupon the Fund shall retain
competent counsel to undertake defense of the claim, and Fund
Services shall in such situations incur no further legal or other
expenses for which it may seek indemnification under this
paragraph. Fund Services shall in no case confess any claim or
make any compromise in any case in which the Fund may be asked to
indemnify Fund Services except with the Fund's prior written
consent.
Without limiting the foregoing:
18
<PAGE>
(i) Fund Services may rely upon the advice of the Fund
or counsel to the Fund or Fund Services, and upon statements of
accountants, brokers and other persons believed by Fund Services
in good faith to be expert in the matters upon which they are
consulted. Fund Services shall not be liable for any action
taken in good faith reliance upon such advice or statements;
(ii) Fund Services shall not be liable for any action
reasonably taken in good faith reliance upon any Written
Instructions or certified copy of any resolution of the Fund's
Board of Directors, including a Written Instruction authorizing
Fund Services to make payment upon redemption of Shares without a
signature guarantee; provided, however, that upon receipt of a
Written Instruction countermanding a prior Instruction that has
not been fully executed by Fund Services, Fund Services shall
verify the content of the second Instruction and honor it, to the
extent possible. Fund Services may rely upon the genuineness of
any such document, or copy thereof, reasonably believed by Fund
Services in good faith to have been validly executed;
(iii) Fund Services may rely, and shall be protected by
the Fund in acting, upon any signature, instruction, request,
letter of transmittal, certificate, opinion of counsel,
statement, instrument, report, notice, consent, order, or other
paper or document reasonably believed by it in good faith to be
genuine and to have been signed or presented by the purchaser,
the Fund or other proper party or parties; and
19
<PAGE>
(d) Fund Services may, with the consent of the Fund,
subcontract the performance of any portion of any service to be
provided hereunder, including with respect to any Shareholder or
group of Shareholders, to any agent of Fund Services and may
reimburse the agent for the services it performs at such rates as
Fund Services may determine; provided that no such reimbursement
will increase the amount payable by the Fund pursuant to this
Agreement; and provided further, that Fund Services shall remain
ultimately responsible as transfer agent to the Fund.
SECTION 27. The Fund shall deliver or cause
to be delivered over to Fund Services (i) an accurate list of
Shareholders, showing each Shareholder's address of record,
number of Shares of each Series owned and whether such Shares are
represented by outstanding Share Certificates or by non-
certificated Share accounts and (ii) all Shareholder records,
files, and other materials necessary or appropriate for proper
performance of the functions assumed by the under this Agreement
(collectively referred to as the "Materials"). The Fund shall
indemnify Fund Services and hold it harmless from any and all
expenses, damages, claims, suits, liabilities, actions, demands
and losses arising out of or in connection with any error,
omission, inaccuracy or other deficiency of such Materials, or
out of the failure of the Fund to provide any portion of the
Materials or to provide any information in the Fund's possession
needed by Fund Services to knowledgeably perform its functions;
20
<PAGE>
provided the Fund shall have no obligation to indemnify Fund
Services or hold it harmless with respect to any expenses,
damages, claims, suits, liabilities, actions, demands or losses
caused directly or indirectly by acts or omissions of Fund
Services or the Fund's Adviser.
SECTION 28. This Agreement may be amended from time to
time by a written supplemental agreement executed by the Fund and
Fund Services and without notice to or approval of the
Shareholders; provided this Agreement may not be amended in any
manner which would substantially increase the Fund's obligations
hereunder unless the amendment is first approved by the Fund's
Board of Directors, including a majority of the Directors who are
not a party to this Agreement or interested persons of any such
party, at a meeting called for such purpose, and thereafter is
approved by the Fund's Shareholders if such approval is required
under the Investment Company Act or the rules and regulations
thereunder. The parties hereto may adopt procedures as may be
appropriate or practical under the circumstances, and Fund
Services may conclusively rely on the determination of the Fund
that any procedure that has been approved by the Fund does not
conflict with or violate any requirement of its Articles of
Incorporation or Declaration of Trust, By-Laws or Prospectus, or
any rule, regulation or requirement of any regulatory body.
SECTION 29. The Fund shall file with Fund Services a
certified copy of each operative resolution of its Board of
21
<PAGE>
Directors authorizing the execution of Written Instructions or
the transmittal of Oral Instructions and setting forth authentic
signatures of all signatories authorized to sign on behalf of the
Fund and specifying the person or persons authorized to give Oral
Instructions on behalf of the Fund. Such resolution shall
constitute conclusive evidence of the authority of the person or
persons designated therein to act and shall be considered in full
force and effect, with Fund Services fully protected in acting in
reliance therein, until Fund Services receives a certified copy
of a replacement resolution adding or deleting a person or
persons authorized to give Written or Oral Instructions. If the
officer certifying the resolution is authorized to give Oral
Instructions, the certification shall also be signed by a second
officer of the Fund.
SECTION 30. The terms, as defined in this Section,
whenever used in this Agreement or in any amendment or supplement
hereto, shall have the meanings specified below, insofar as the
context will allow.
(a) Business Day: Any day on which the Fund is open
for business as described in the Prospectus.
(b) Custodian: The term Custodian shall mean the
Fund's current custodian or any successor custodian acting as
such for the Fund.
22
<PAGE>
(c) Fund's Adviser: The term Fund's Adviser shall mean
Alliance Capital Management L.P. or any successor thereto who
acts as the investment adviser or manager of the Fund.
(d) Oral Instructions: The term Oral Instructions
shall mean an authorization, instruction, approval, item or set
of data, or information of any kind transmitted to Fund Services
in person or by telephone, vocal telegram or other electronic
means, by a person or persons reasonably believed in good faith
by Fund Services to be a person or persons authorized by a
resolution of the Board of Directors of the Fund to give Oral
Instructions on behalf of the Fund. Each Oral Instruction shall
specify whether it is applicable to the entire Fund or a specific
Series of the Fund.
(e) Prospectus: The term Prospectus shall mean a
prospectus and related statement of additional information
forming part of a currently effective registration statement
under the Investment Company Act and, as used with the respect to
Shares or Shares of a Series, shall mean the prospectuses and
related statements of additional information covering the Shares
or Shares of the Series.
(f) Securities: The term Securities shall mean bonds,
debentures, notes, stocks, shares, evidences of indebtedness, and
other securities and investments from time to time owned by the
Fund.
23
<PAGE>
(g) Series: The term Series shall mean any series of
Shares of the common stock of the Fund that the Fund may
establish from time to time.
(h) Share Certificates: The term Share Certificates
shall mean the stock certificates for the Shares.
(i) Shareholders: The term Shareholders shall mean the
registered owners from time to time of the Shares, as reflected
on the stock registry records of the Fund.
(j) Written Instructions: The term Written
Instructions shall mean an authorization, instruction, approval,
item or set of data, or information of any kind transmitted to
Fund Services in original writing containing original signatures,
or a copy of such document transmitted by telecopy, including
transmission of such signature, or other mechanical or
documentary means, at the request of a person or persons
reasonably believed in good faith by Fund Services to be a person
or persons authorized by a resolution of the Board of Directors
of the Fund to give Written Instruction shall specify whether it
is applicable to the entire Fund or a specific Series of the
Fund.
SECTION 31. Fund Services shall not be liable for the
loss of all or part of any record maintained or preserved by it
pursuant to this Agreement or for any delays or errors occurring
by reason of circumstances beyond its control, including but not
limited to acts of civil or military authorities, national
24
<PAGE>
emergencies, fire, flood or catastrophe, acts of God,
insurrection, war, riot, or failure of transportation,
communication or power supply, except to the extent that Fund
Services shall have failed to use its best efforts to minimize
the likelihood of occurrence of such circumstances or to mitigate
any loss or damage to the Fund caused by such circumstances.
SECTION 32. The Fund may give Fund Services sixty (60)
days and Fund Services may give the Fund (90) days written notice
of the termination of this Agreement, such termination to take
effect at the time specified in the notice. Upon notice of
termination, the Fund shall use its best efforts to obtain a
successor transfer agent. If a successor transfer agent is not
appointed within ninety (90) days after the date of the notice of
termination, the Board of Directors of the Fund shall, by
resolution, designate the Fund as its own transfer agent. Upon
receipt of written notice from the Fund of the appointment of the
successor transfer agent and upon receipt of Oral or Written
Instructions Fund Services shall, upon request of the Fund and
the successor transfer agent and upon payment of Fund Services
reasonable charges and disbursements, promptly transfer to the
successor transfer agent the original or copies of all books and
records maintained by Fund Services hereunder and cooperate with,
and provide reasonable assistance to, the successor transfer
agent in the establishment of the books and records necessary to
carry out its responsibilities hereunder.
25
<PAGE>
SECTION 33. Any notice or other communication required
by or permitted to be given in connection with this Agreement
shall be in writing, and shall be delivered in person or sent by
first-class mail, postage prepaid, to the respective parties.
Notice to the Fund shall be given as follows until
further notice:
Alliance Mortgage Strategy Trust, Inc.
1345 Avenue of the Americas
New York, New York 10105
Attention: Secretary
Notice to Fund Services shall be given as follows until
further notice:
Alliance Fund Services, Inc.
500 Plaza Drive
Secaucus, New Jersey 07094
SECTION 34. The Fund represents and warrants to Fund
Services that the execution and delivery of this Agreement by the
undersigned officer of the Fund has been duly and validly
authorized by resolution of the Fund's Board of Directors. Fund
Services represents and warrants to the Fund that the execution
and delivery of this Agreement by the undersigned officer of Fund
Services has also been duly and validly authorized.
SECTION 35. This Agreement may be executed in more than
one counterpart, each of which shall be deemed to be an original,
and shall become effective on the last date of signature below
unless otherwise agreed by the parties. Unless sooner terminated
pursuant to SECTION 32, this Agreement will continue until
November 30, 1992 and will continue in effect thereafter for
26
<PAGE>
successive 12 month periods only if such continuance is
specifically approved at least annually by the Board of Directors
or by a vote of the stockholders of the Fund and in either case
by a majority of the Directors who are not parties to this
Agreement or interested persons of any such party, at a meeting
called for the purpose of voting on this Agreement.
SECTION 36. This Agreement shall extend to and shall
bind the parties hereto and their respective successors and
assigns; provided, however, that this Agreement shall not be
assignable by the Fund without the written consent of Fund
Services or by Fund Services without the written consent of the
Fund, authorized or approved by a resolution of the Fund's Board
of Directors. Notwithstanding the foregoing, either party may
assign this Agreement without the consent of the other party so
long as the assignee is an affiliate, parent or subsidiary of the
assigning party and is qualified to act under the Investment
Company Act, as amended from time to time.
SECTION 38. This Agreement shall be governed by the
laws of the State of New Jersey.
27
<PAGE>
WITNESS the following signatures:
ALLIANCE MUNICIPAL INCOME FUND, II
BY: /s/David H. Dievler
________________________
David H. Dievler
TITLE: Chairman
ALLIANCE FUND SERVICES, INC.
BY: /s/George Hrabovsky
________________________
George Hrabovsky
TITLE:President
28
00250151.AW0
<PAGE>
May 21, 1993
Alliance Municipal Income Fund II
1345 Avenue of the Americas
New York, New York 10105
Dear Sirs:
We have acted as counsel for Alliance Municipal Income
Fund II, a Massachusetts business trust with transferable shares
(the "Trust"), in connection with the organization of the Trust,
the registration of the Trust under the Investment Company Act of
1940 and the registration under the Securities Act of 1933 of an
indefinite number of shares of beneficial interest, par value
$.01 per share, of the Trust of the various series authorized.
As counsel for the Trust, we have participated in the
preparation of the Registration Statement on Form N-1A (the
"Registration Statement") and the Prospectuses contained therein
(the "Prospectuses") relating to such shares and have examined
and relied upon such records of the Trust and such other
documents, including certificates as to factual matters, as we
have deemed to be necessary to render the opinion expressed
herein.
Based on such examination, we are of the opinion that:
1. The Trust has been duly organized and is
validly existing as a trust with transferable shares of
the type commonly called a Massachusetts business trust.
2. The Trust is authorized to issue an unlimited
number of shares. The shares to be offered for sale by
the Prospectuses (the "Registered Shares") have been
duly and validly authorized by all requisite action of
the Trustees of the Trust, and no action of the
shareholders of the Trust is required in such
connection.
3. When the Registered Shares have been duly
sold, issued and paid for as contemplated by the
Prospectuses, they will be validly and legally issued,
fully paid and non-assessable by the Trust.
With respect to the opinion stated in paragraph 3
above, we wish to point out that the shareholders of a
Massachusetts business trust may under some circumstances be
subject to assessment at the instance of creditors to pay
<PAGE>
the obligations of such trust in the event that its assets
are insufficient for the purpose.
As to matters of Massachusetts law contained in the
foregoing opinion we have relied on the opinion of Sullivan
& Worcester of Boston, Massachusetts, dated May 21, 1993.
We hereby consent to the filing of this opinion
with the Securities and Exchange Commission as an exhibit to
the Registration Statement and to the reference to our firm
under the caption "General Information--Counsel" in the
Statement of Additional Information included therein.
Very truly yours,
/s/ Seward & Kissel
2
00250151.AG9
<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 4, 1997, in this Registration Statement (Form N-1A
33-60560) of Alliance Municipal Income Fund II.
/s/ ERNST & YOUNG LLP
New York, New York
January 30, 1998
00250151.BA1
<PAGE>
[ARTICLE] 6
[CIK] 0000899774
[NAME] ALLIANCE MUNICIPAL INCOME FUND, II
[SERIES]
[NUMBER] 011
[NAME] FLORIDA PORTFOLIO CLASS A
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] SEP-30-1997
[PERIOD-END] SEP-30-1997
[INVESTMENTS-AT-COST] 72,507,978
[INVESTMENTS-AT-VALUE] 75,002,697
[RECEIVABLES] 1,829,648
[ASSETS-OTHER] 10,679
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 76,843,024
[PAYABLE-FOR-SECURITIES] 8,550,000
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 234,947
[TOTAL-LIABILITIES] 8,784,947
[SENIOR-EQUITY] 67,097
[PAID-IN-CAPITAL-COMMON] 70,749,224
[SHARES-COMMON-STOCK] 1,726,861
[SHARES-COMMON-PRIOR] 1,469,256
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] (91,719)
[ACCUMULATED-NET-GAINS] (5,161,244)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 2,494,719
[NET-ASSETS] 17,515,926
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 4,180,751
[OTHER-INCOME] 0
[EXPENSES-NET] 840,120
[NET-INVESTMENT-INCOME] 3,340,631
[REALIZED-GAINS-CURRENT] 1,247,758
[APPREC-INCREASE-CURRENT] 1,354,893
[NET-CHANGE-FROM-OPS] 5,943,282
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (847,240)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 453,398
[NUMBER-OF-SHARES-REDEEMED] (228,010)
[SHARES-REINVESTED] 32,217
[NET-CHANGE-IN-ASSETS] 1,405,268
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] (6,412,674)
[OVERDISTRIB-NII-PRIOR] (92,663)
[OVERDIST-NET-GAINS-PRIOR] 0
<PAGE>
[GROSS-ADVISORY-FEES] 413,941
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 1,245,419
[AVERAGE-NET-ASSETS] 15,282,514
[PER-SHARE-NAV-BEGIN] 9.73
[PER-SHARE-NII] .55
[PER-SHARE-GAIN-APPREC] .41
[PER-SHARE-DIVIDEND] (.55)
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 10.14
[EXPENSE-RATIO] .73
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
00250151.AW9
<PAGE>
[ARTICLE] 6
[CIK] 0000899774
[NAME] ALLIANCE MUNICIPAL INCOME FUND, II
[SERIES]
[NUMBER] 012
[NAME] FLORIDA PORTFOLIO CLASS B
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] SEP-30-1997
[PERIOD-END] SEP-30-1997
[INVESTMENTS-AT-COST] 72,507,978
[INVESTMENTS-AT-VALUE] 75,002,697
[RECEIVABLES] 1,829,648
[ASSETS-OTHER] 10,679
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 76,843,024
[PAYABLE-FOR-SECURITIES] 8,550,000
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 234,947
[TOTAL-LIABILITIES] 8,784,947
[SENIOR-EQUITY] 67,097
[PAID-IN-CAPITAL-COMMON] 70,749,224
[SHARES-COMMON-STOCK] 2,447,015
[SHARES-COMMON-PRIOR] 2,283,350
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] (91,719)
[ACCUMULATED-NET-GAINS] (5,161,244)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 2,494,719
[NET-ASSETS] 24,820,437
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 4,180,751
[OTHER-INCOME] 0
[EXPENSES-NET] 840,120
[NET-INVESTMENT-INCOME] 3,340,631
[REALIZED-GAINS-CURRENT] 1,247,758
[APPREC-INCREASE-CURRENT] 1,354,893
[NET-CHANGE-FROM-OPS] 5,943,282
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (1,112,789)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 744,931
[NUMBER-OF-SHARES-REDEEMED] (631,332)
[SHARES-REINVESTED] 50,066
[NET-CHANGE-IN-ASSETS] 1,405,268
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] (6,412,674)
[OVERDISTRIB-NII-PRIOR] (92,663)
[OVERDIST-NET-GAINS-PRIOR] 0
<PAGE>
[GROSS-ADVISORY-FEES] 413,941
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 1,245,419
[AVERAGE-NET-ASSETS] 23,090,907
[PER-SHARE-NAV-BEGIN] 9.74
[PER-SHARE-NII] .48
[PER-SHARE-GAIN-APPREC] .40
[PER-SHARE-DIVIDEND] (.48)
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 10.14
[EXPENSE-RATIO] 1.43
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
00250151.AX0
<PAGE>
[ARTICLE] 6
[CIK] 0000899774
[NAME] ALLIANCE MUNICIPAL INCOME FUND, II
[SERIES]
[NUMBER] 013
[NAME] FLORIDA PORTFOLIO CLASS C
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] SEP-30-1997
[PERIOD-END] SEP-30-1997
[INVESTMENTS-AT-COST] 72,507,978
[INVESTMENTS-AT-VALUE] 75,002,697
[RECEIVABLES] 1,829,648
[ASSETS-OTHER] 10,679
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 76,843,024
[PAYABLE-FOR-SECURITIES] 8,550,000
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 234,947
[TOTAL-LIABILITIES] 8,784,947
[SENIOR-EQUITY] 67,097
[PAID-IN-CAPITAL-COMMON] 70,749,224
[SHARES-COMMON-STOCK] 2,535,869
[SHARES-COMMON-PRIOR] 3,092,885
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] (91,719)
[ACCUMULATED-NET-GAINS] (5,161,244)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 2,494,719
[NET-ASSETS] 25,721,714
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 4,180,751
[OTHER-INCOME] 0
[EXPENSES-NET] 840,120
[NET-INVESTMENT-INCOME] 3,340,631
[REALIZED-GAINS-CURRENT] 1,247,758
[APPREC-INCREASE-CURRENT] 1,354,893
[NET-CHANGE-FROM-OPS] 5,943,282
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (1,346,149)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 676,267
[NUMBER-OF-SHARES-REDEEMED] (1,296,118)
[SHARES-REINVESTED] 62,835
[NET-CHANGE-IN-ASSETS] 1,405,268
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] (6,412,674)
[OVERDISTRIB-NII-PRIOR] (92,663)
[OVERDIST-NET-GAINS-PRIOR] 0
<PAGE>
[GROSS-ADVISORY-FEES] 413,941
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 1,245,419
[AVERAGE-NET-ASSETS] 27,857,167
[PER-SHARE-NAV-BEGIN] 9.74
[PER-SHARE-NII] .49
[PER-SHARE-GAIN-APPREC] .39
[PER-SHARE-DIVIDEND] (.48)
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 10.14
[EXPENSE-RATIO] 1.43
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
00250151.AX1
<PAGE>
[ARTICLE] 6
[CIK] 0000899774
[NAME] ALLIANCE MUNICIPAL INCOME FUND, II
[SERIES]
[NUMBER] 021
[NAME] MINNESOTA PORTFOLIO CLASS A
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] SEP-30-1997
[PERIOD-END] SEP-30-1997
[INVESTMENTS-AT-COST] 18,806,347
[INVESTMENTS-AT-VALUE] 19,780,536
[RECEIVABLES] 472,518
[ASSETS-OTHER] 10,072
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 20,263,126
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 268,328
[TOTAL-LIABILITIES] 268,328
[SENIOR-EQUITY] 20,049
[PAID-IN-CAPITAL-COMMON] 20,444,992
[SHARES-COMMON-STOCK] 413,115
[SHARES-COMMON-PRIOR] 330,400
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] (26,544)
[ACCUMULATED-NET-GAINS] (1,417,888)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 974,189
[NET-ASSETS] 4,119,747
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 1,171,979
[OTHER-INCOME] 0
[EXPENSES-NET] 248,819
[NET-INVESTMENT-INCOME] 923,160
[REALIZED-GAINS-CURRENT] 275,164
[APPREC-INCREASE-CURRENT] 499,706
[NET-CHANGE-FROM-OPS] 1,698,030
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (199,592)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] (1,867)
[NUMBER-OF-SHARES-SOLD] 117,014
[NUMBER-OF-SHARES-REDEEMED] (47,164)
[SHARES-REINVESTED] 12,865
[NET-CHANGE-IN-ASSETS] 1,985,808
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] (1,692,547)
[OVERDISTRIB-NII-PRIOR] (24,987)
[OVERDIST-NET-GAINS-PRIOR] 0
<PAGE>
[GROSS-ADVISORY-FEES] 117,961
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 522,418
[AVERAGE-NET-ASSETS] 3,665,858
[PER-SHARE-NAV-BEGIN] 9.58
[PER-SHARE-NII] .53
[PER-SHARE-GAIN-APPREC] .39
[PER-SHARE-DIVIDEND] (.53)
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 9.97
[EXPENSE-RATIO] .75
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
00250151.AX8
<PAGE>
[ARTICLE] 6
[CIK] 0000899774
[NAME] ALLIANCE MUNICIPAL INCOME FUND, II
[SERIES]
[NUMBER] 022
[NAME] MINNESOTA PORTFOLIO CLASS B
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] SEP-30-1997
[PERIOD-END] SEP-30-1997
[INVESTMENTS-AT-COST] 18,806,347
[INVESTMENTS-AT-VALUE] 19,780,536
[RECEIVABLES] 472,518
[ASSETS-OTHER] 10,072
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 20,263,126
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 268,328
[TOTAL-LIABILITIES] 268,328
[SENIOR-EQUITY] 20,049
[PAID-IN-CAPITAL-COMMON] 20,444,992
[SHARES-COMMON-STOCK] 853,980
[SHARES-COMMON-PRIOR] 865,489
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] (26,544)
[ACCUMULATED-NET-GAINS] (1,417,888)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 974,189
[NET-ASSETS] 8,516,932
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 1,171,979
[OTHER-INCOME] 0
[EXPENSES-NET] 248,819
[NET-INVESTMENT-INCOME] 923,160
[REALIZED-GAINS-CURRENT] 275,164
[APPREC-INCREASE-CURRENT] 499,706
[NET-CHANGE-FROM-OPS] 1,698,030
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (384,953)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] (555)
[NUMBER-OF-SHARES-SOLD] 167,360
[NUMBER-OF-SHARES-REDEEMED] (205,690)
[SHARES-REINVESTED] 26,821
[NET-CHANGE-IN-ASSETS] 1,985,808
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] (1,692,547)
[OVERDISTRIB-NII-PRIOR] (24,987)
[OVERDIST-NET-GAINS-PRIOR] 0
<PAGE>
[GROSS-ADVISORY-FEES] 117,961
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 522,418
[AVERAGE-NET-ASSETS] 8,101,045
[PER-SHARE-NAV-BEGIN] 9.58
[PER-SHARE-NII] .46
[PER-SHARE-GAIN-APPREC] .39
[PER-SHARE-DIVIDEND] (.46)
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 9.97
[EXPENSE-RATIO] 1.46
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
00250151.AX9
<PAGE>
[ARTICLE] 6
[CIK] 0000899774
[NAME] ALLIANCE MUNICIPAL INCOME FUND, II
[SERIES]
[NUMBER] 023
[NAME] MINNESOTA PORTFOLIO CLASS C
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] SEP-30-1997
[PERIOD-END] SEP-30-1997
[INVESTMENTS-AT-COST] 18,806,347
[INVESTMENTS-AT-VALUE] 19,780,536
[RECEIVABLES] 472,518
[ASSETS-OTHER] 10,072
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 20,263,126
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 268,328
[TOTAL-LIABILITIES] 268,328
[SENIOR-EQUITY] 20,049
[PAID-IN-CAPITAL-COMMON] 20,444,992
[SHARES-COMMON-STOCK] 737,839
[SHARES-COMMON-PRIOR] 683,989
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] (26,544)
[ACCUMULATED-NET-GAINS] (1,417,888)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 974,189
[NET-ASSETS] 7,358,119
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 4,119,747
[OTHER-INCOME] 0
[EXPENSES-NET] 248,819
[NET-INVESTMENT-INCOME] 923,160
[REALIZED-GAINS-CURRENT] 275,164
[APPREC-INCREASE-CURRENT] 499,706
[NET-CHANGE-FROM-OPS] 1,698,030
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (338,557)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 167,292
[NUMBER-OF-SHARES-REDEEMED] (141,329)
[SHARES-REINVESTED] 27,887
[NET-CHANGE-IN-ASSETS] 1,985,808
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] (1,692,547)
[OVERDISTRIB-NII-PRIOR] (24,987)
[OVERDIST-NET-GAINS-PRIOR] 0
<PAGE>
[GROSS-ADVISORY-FEES] 117,961
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 522,418
[AVERAGE-NET-ASSETS] 7,106,889
[PER-SHARE-NAV-BEGIN] 9.58
[PER-SHARE-NII] .46
[PER-SHARE-GAIN-APPREC] .39
[PER-SHARE-DIVIDEND] (.46)
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 9.97
[EXPENSE-RATIO] 1.45
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
00250151.AY0
<PAGE>
[ARTICLE] 6
[CIK] 0000899774
[NAME] ALLIANCE MUNICIPAL INCOME FUND, II
[SERIES]
[NUMBER] 031
[NAME] NEW JERSEY PORTFOLIO CLASS A
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] SEP-30-1997
[PERIOD-END] SEP-30-1997
[INVESTMENTS-AT-COST] 69,538,092
[INVESTMENTS-AT-VALUE] 73,638,013
[RECEIVABLES] 2,727,952
[ASSETS-OTHER] 10,072
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 76,376,037
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 354,977
[TOTAL-LIABILITIES] 354,977
[SENIOR-EQUITY] 74,857
[PAID-IN-CAPITAL-COMMON] 76,094,278
[SHARES-COMMON-STOCK] 1,606,058
[SHARES-COMMON-PRIOR] 1,597,418
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] (95,883)
[ACCUMULATED-NET-GAINS] (4,152,113)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 4,099,921
[NET-ASSETS] 16,309,352
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 4,442,574
[OTHER-INCOME] 0
[EXPENSES-NET] 1,031,264
[NET-INVESTMENT-INCOME] 3,411,310
[REALIZED-GAINS-CURRENT] 1,486,965
[APPREC-INCREASE-CURRENT] 1,808,118
[NET-CHANGE-FROM-OPS] 6,706,393
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (748,666)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] (10,862)
[NUMBER-OF-SHARES-SOLD] 494,942
[NUMBER-OF-SHARES-REDEEMED] (530,123)
[SHARES-REINVESTED] 43,821
[NET-CHANGE-IN-ASSETS] (1,176,839)
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] (5,629,261)
[OVERDISTRIB-NII-PRIOR] (101,587)
[OVERDIST-NET-GAINS-PRIOR] 0
<PAGE>
[GROSS-ADVISORY-FEES] 464,240
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 1,409,806
[AVERAGE-NET-ASSETS] 14,507,712
[PER-SHARE-NAV-BEGIN] 9.72
[PER-SHARE-NII] .51
[PER-SHARE-GAIN-APPREC] .44
[PER-SHARE-DIVIDEND] (.51)
[PER-SHARE-DISTRIBUTIONS] (.01)
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 10.15
[EXPENSE-RATIO] .82
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
00250151.AY1
<PAGE>
[ARTICLE] 6
[CIK] 0000899774
[NAME] ALLIANCE MUNICIPAL INCOME FUND, II
[SERIES]
[NUMBER] 032
[NAME] NEW JERSEY PORTFOLIO CLASS B
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] SEP-30-1997
[PERIOD-END] SEP-30-1997
[INVESTMENTS-AT-COST] 69,538,092
[INVESTMENTS-AT-VALUE] 73,638,013
[RECEIVABLES] 2,727,952
[ASSETS-OTHER] 10,072
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 76,376,037
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 354,977
[TOTAL-LIABILITIES] 354,977
[SENIOR-EQUITY] 74,857
[PAID-IN-CAPITAL-COMMON] 76,094,278
[SHARES-COMMON-STOCK] 3,772,191
[SHARES-COMMON-PRIOR] 4,021,823
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] (95,883)
[ACCUMULATED-NET-GAINS] (4,152,113)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 4,099,921
[NET-ASSETS] 38,307,684
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 4,442,574
[OTHER-INCOME] 0
[EXPENSES-NET] 1,031,264
[NET-INVESTMENT-INCOME] 3,411,310
[REALIZED-GAINS-CURRENT] 1,486,965
[APPREC-INCREASE-CURRENT] 1,808,118
[NET-CHANGE-FROM-OPS] 6,706,393
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (1,683,216)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] (20,887)
[NUMBER-OF-SHARES-SOLD] 612,170
[NUMBER-OF-SHARES-REDEEMED] (968,511)
[SHARES-REINVESTED] 106,709
[NET-CHANGE-IN-ASSETS] (1,176,839)
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] (5,629,261)
[OVERDISTRIB-NII-PRIOR] (101,587)
[OVERDIST-NET-GAINS-PRIOR] 0
<PAGE>
[GROSS-ADVISORY-FEES] 464,240
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 1,409,806
[AVERAGE-NET-ASSETS] 37,857,211
[PER-SHARE-NAV-BEGIN] 9.72
[PER-SHARE-NII] .44
[PER-SHARE-GAIN-APPREC] .45
[PER-SHARE-DIVIDEND] (.44)
[PER-SHARE-DISTRIBUTIONS] (.01)
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 10.16
[EXPENSE-RATIO] 1.53
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
00250151.AY2
<PAGE>
[ARTICLE] 6
[CIK] 0000899774
[NAME] ALLIANCE MUNICIPAL INCOME FUND, II
[SERIES]
[NUMBER] 033
[NAME] NEW JERSEY PORTFOLIO CLASS C
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] SEP-30-1997
[PERIOD-END] SEP-30-1997
[INVESTMENTS-AT-COST] 69,538,092
[INVESTMENTS-AT-VALUE] 73,638,013
[RECEIVABLES] 2,727,952
[ASSETS-OTHER] 10,072
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 76,376,037
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 354,977
[TOTAL-LIABILITIES] 354,977
[SENIOR-EQUITY] 74,857
[PAID-IN-CAPITAL-COMMON] 76,094,278
[SHARES-COMMON-STOCK] 2,107,406
[SHARES-COMMON-PRIOR] 2,322,310
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] (95,883)
[ACCUMULATED-NET-GAINS] (4,152,113)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 4,099,921
[NET-ASSETS] 21,404,024
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 4,442,574
[OTHER-INCOME] 0
[EXPENSES-NET] 1,031,264
[NET-INVESTMENT-INCOME] 3,411,310
[REALIZED-GAINS-CURRENT] 1,486,965
[APPREC-INCREASE-CURRENT] 1,808,118
[NET-CHANGE-FROM-OPS] 6,706,393
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (979,428)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] (8,404)
[NUMBER-OF-SHARES-SOLD] 374,853
[NUMBER-OF-SHARES-REDEEMED] (657,468)
[SHARES-REINVESTED] 67,711
[NET-CHANGE-IN-ASSETS] (1,176,839)
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] (5,629,261)
[OVERDISTRIB-NII-PRIOR] (101,587)
[OVERDIST-NET-GAINS-PRIOR] 0
<PAGE>
[GROSS-ADVISORY-FEES] 464,240
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 1,409,806
[AVERAGE-NET-ASSETS] 21,913,532
[PER-SHARE-NAV-BEGIN] 9.72
[PER-SHARE-NII] .44
[PER-SHARE-GAIN-APPREC] .45
[PER-SHARE-DIVIDEND] (.44)
[PER-SHARE-DISTRIBUTIONS] (.01)
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 10.16
[EXPENSE-RATIO] 1.52
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
00250151.AY3
<PAGE>
[ARTICLE] 6
[CIK] 0000899774
[NAME] ALLIANCE MUNICIPAL INCOME FUND, II
[SERIES]
[NUMBER] 041
[NAME] OHIO PORTFOLIO CLASS A
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] SEP-30-1997
[PERIOD-END] SEP-30-1997
[INVESTMENTS-AT-COST] 44,732,641
[INVESTMENTS-AT-VALUE] 47,336,537
[RECEIVABLES] 2,258,405
[ASSETS-OTHER] 10,535
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 49,605,477
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 310,458
[TOTAL-LIABILITIES] 310,458
[SENIOR-EQUITY] 48,496
[PAID-IN-CAPITAL-COMMON] 49,793,182
[SHARES-COMMON-STOCK] 747,254
[SHARES-COMMON-PRIOR] 630,134
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] (63,456)
[ACCUMULATED-NET-GAINS] (3,087,099)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 2,603,896
[NET-ASSETS] 7,595,710
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 2,914,876
[OTHER-INCOME] 0
[EXPENSES-NET] 632,598
[NET-INVESTMENT-INCOME] 2,282,278
[REALIZED-GAINS-CURRENT] 971,673
[APPREC-INCREASE-CURRENT] 1,589,495
[NET-CHANGE-FROM-OPS] 4,843,446
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (345,718)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 292,402
[NUMBER-OF-SHARES-REDEEMED] (195,949)
[SHARES-REINVESTED] 20,667
[NET-CHANGE-IN-ASSETS] 704,457
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] (4,074,170)
[OVERDISTRIB-NII-PRIOR] (65,846)
[OVERDIST-NET-GAINS-PRIOR] 0
<PAGE>
[GROSS-ADVISORY-FEES] 290,778
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 985,549
[AVERAGE-NET-ASSETS] 6,361,658
[PER-SHARE-NAV-BEGIN] 9.61
[PER-SHARE-NII] .54
[PER-SHARE-GAIN-APPREC] .54
[PER-SHARE-DIVIDEND] (.53)
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 10.16
[EXPENSE-RATIO] .75
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
00250151.AY4
<PAGE>
[ARTICLE] 6
[CIK] 0000899774
[NAME] ALLIANCE MUNICIPAL INCOME FUND, II
[SERIES]
[NUMBER] 042
[NAME] OHIO PORTFOLIO CLASS B
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] SEP-30-1997
[PERIOD-END] SEP-30-1997
[INVESTMENTS-AT-COST] 44,732,641
[INVESTMENTS-AT-VALUE] 47,336,537
[RECEIVABLES] 2,258,405
[ASSETS-OTHER] 10,535
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 49,605,477
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 310,458
[TOTAL-LIABILITIES] 310,458
[SENIOR-EQUITY] 48,496
[PAID-IN-CAPITAL-COMMON] 49,793,182
[SHARES-COMMON-STOCK] 2,638,614
[SHARES-COMMON-PRIOR] 2,635,922
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] (63,456)
[ACCUMULATED-NET-GAINS] (3,087,099)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 2,603,896
[NET-ASSETS] 26,821,226
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 2,914,876
[OTHER-INCOME] 0
[EXPENSES-NET] 632,598
[NET-INVESTMENT-INCOME] 2,282,278
[REALIZED-GAINS-CURRENT] 971,673
[APPREC-INCREASE-CURRENT] 1,589,495
[NET-CHANGE-FROM-OPS] 4,843,446
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (1,189,291)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 491,863
[NUMBER-OF-SHARES-REDEEMED] (574,956)
[SHARES-REINVESTED] 85,785
[NET-CHANGE-IN-ASSETS] 704,457
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] (4,074,170)
[OVERDISTRIB-NII-PRIOR] (65,846)
[OVERDIST-NET-GAINS-PRIOR] 0
<PAGE>
[GROSS-ADVISORY-FEES] 290,778
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 985,549
[AVERAGE-NET-ASSETS] 25,244,475
[PER-SHARE-NAV-BEGIN] 9.61
[PER-SHARE-NII] .48
[PER-SHARE-GAIN-APPREC] .53
[PER-SHARE-DIVIDEND] (.46)
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 10.16
[EXPENSE-RATIO] 1.46
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
00250151.AY5
<PAGE>
[ARTICLE] 6
[CIK] 0000899774
[NAME] ALLIANCE MUNICIPAL INCOME FUND, II
[SERIES]
[NUMBER] 043
[NAME] OHIO PORTFOLIO CLASS C
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] SEP-30-1997
[PERIOD-END] SEP-30-1997
[INVESTMENTS-AT-COST] 44,732,641
[INVESTMENTS-AT-VALUE] 47,336,537
[RECEIVABLES] 2,258,405
[ASSETS-OTHER] 10,535
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 49,605,477
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 310,458
[TOTAL-LIABILITIES] 310,458
[SENIOR-EQUITY] 48,496
[PAID-IN-CAPITAL-COMMON] 49,793,182
[SHARES-COMMON-STOCK] 1,463,689
[SHARES-COMMON-PRIOR] 1,789,800
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] (63,456)
[ACCUMULATED-NET-GAINS] (3,087,099)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 2,603,896
[NET-ASSETS] 14,878,083
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 2,914,876
[OTHER-INCOME] 0
[EXPENSES-NET] 632,598
[NET-INVESTMENT-INCOME] 2,282,278
[REALIZED-GAINS-CURRENT] 971,673
[APPREC-INCREASE-CURRENT] 1,589,495
[NET-CHANGE-FROM-OPS] 4,843,446
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (703,427)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 173,363
[NUMBER-OF-SHARES-REDEEMED] (551,175)
[SHARES-REINVESTED] 51,701
[NET-CHANGE-IN-ASSETS] 704,457
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] (4,074,170)
[OVERDISTRIB-NII-PRIOR] (65,846)
[OVERDIST-NET-GAINS-PRIOR] 0
<PAGE>
[GROSS-ADVISORY-FEES] 290,778
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 985,549
[AVERAGE-NET-ASSETS] 14,918,371
[PER-SHARE-NAV-BEGIN] 9.61
[PER-SHARE-NII] .47
[PER-SHARE-GAIN-APPREC] .54
[PER-SHARE-DIVIDEND] (.46)
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 10.16
[EXPENSE-RATIO] 1.45
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
00250151.AY6
<PAGE>
[ARTICLE] 6
[CIK] 0000899774
[NAME] ALLIANCE MUNICIPAL INCOME FUND, II
[SERIES]
[NUMBER] 051
[NAME] PENNSYLVANIA PORTFOLIO CLASS A
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] SEP-30-1997
[PERIOD-END] SEP-30-1997
[INVESTMENTS-AT-COST] 65,162,965
[INVESTMENTS-AT-VALUE] 69,131,617
[RECEIVABLES] 1,705,240
[ASSETS-OTHER] 13,682
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 70,850,539
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 338,409
[TOTAL-LIABILITIES] 338,409
[SENIOR-EQUITY] 68,239
[PAID-IN-CAPITAL-COMMON] 68,446,219
[SHARES-COMMON-STOCK] 2,414,386
[SHARES-COMMON-PRIOR] 2,142,109
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] (96,781)
[ACCUMULATED-NET-GAINS] (1,874,199)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 3,968,652
[NET-ASSETS] 24,948,296
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 4,304,648
[OTHER-INCOME] 0
[EXPENSES-NET] 953,258
[NET-INVESTMENT-INCOME] 3,351,390
[REALIZED-GAINS-CURRENT] 934,665
[APPREC-INCREASE-CURRENT] 2,363,863
[NET-CHANGE-FROM-OPS] 6,649,918
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (1,258,375)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] (30,406)
[NUMBER-OF-SHARES-SOLD] 531,595
[NUMBER-OF-SHARES-REDEEMED] (344,028)
[SHARES-REINVESTED] 84,710
[NET-CHANGE-IN-ASSETS] 4,972,332
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] (2,817,885)
[OVERDISTRIB-NII-PRIOR] (78,234)
[OVERDIST-NET-GAINS-PRIOR] 0
<PAGE>
[GROSS-ADVISORY-FEES] 421,262
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 1,250,955
[AVERAGE-NET-ASSETS] 23,126,058
[PER-SHARE-NAV-BEGIN] 9.85
[PER-SHARE-NII] .55
[PER-SHARE-GAIN-APPREC] .49
[PER-SHARE-DIVIDEND] (.55)
[PER-SHARE-DISTRIBUTIONS] (.01)
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 10.33
[EXPENSE-RATIO] .95
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
00250151.AY7
<PAGE>
[ARTICLE] 6
[CIK] 0000899774
[NAME] ALLIANCE MUNICIPAL INCOME FUND, II
[SERIES]
[NUMBER] 052
[NAME] PENNSYLVANIA PORTFOLIO CLASS B
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] SEP-30-1997
[PERIOD-END] SEP-30-1997
[INVESTMENTS-AT-COST] 65,162,965
[INVESTMENTS-AT-VALUE] 69,131,617
[RECEIVABLES] 1,705,240
[ASSETS-OTHER] 13,682
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 70,850,539
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 338,409
[TOTAL-LIABILITIES] 338,409
[SENIOR-EQUITY] 68,239
[PAID-IN-CAPITAL-COMMON] 68,446,219
[SHARES-COMMON-STOCK] 2,910,826
[SHARES-COMMON-PRIOR] 3,087,401
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] (96,781)
[ACCUMULATED-NET-GAINS] (1,874,199)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 3,968,652
[NET-ASSETS] 30,078,121
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 4,304,648
[OTHER-INCOME] 0
[EXPENSES-NET] 953,258
[NET-INVESTMENT-INCOME] 3,351,390
[REALIZED-GAINS-CURRENT] 934,665
[APPREC-INCREASE-CURRENT] 2,363,863
[NET-CHANGE-FROM-OPS] 6,649,918
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (1,421,685)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] (39,276)
[NUMBER-OF-SHARES-SOLD] 577,688
[NUMBER-OF-SHARES-REDEEMED] (835,207)
[SHARES-REINVESTED] 80,944
[NET-CHANGE-IN-ASSETS] 4,972,332
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] (2,817,885)
[OVERDISTRIB-NII-PRIOR] (78,234)
[OVERDIST-NET-GAINS-PRIOR] 0
<PAGE>
[GROSS-ADVISORY-FEES] 421,262
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 1,250,955
[AVERAGE-NET-ASSETS] 30,089,647
[PER-SHARE-NAV-BEGIN] 9.86
[PER-SHARE-NII] .47
[PER-SHARE-GAIN-APPREC] .49
[PER-SHARE-DIVIDEND] (.47)
[PER-SHARE-DISTRIBUTIONS] (.02)
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 10.33
[EXPENSE-RATIO] 1.66
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
00250151.AY8
<PAGE>
[ARTICLE] 6
[CIK] 0000899774
[NAME] ALLIANCE MUNICIPAL INCOME FUND, II
[SERIES]
[NUMBER] 053
[NAME] PENNSYLVANIA PORTFOLIO CLASS C
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] SEP-30-1997
[PERIOD-END] SEP-30-1997
[INVESTMENTS-AT-COST] 65,162,965
[INVESTMENTS-AT-VALUE] 69,131,617
[RECEIVABLES] 1,705,240
[ASSETS-OTHER] 13,682
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 70,850,539
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 338,409
[TOTAL-LIABILITIES] 338,409
[SENIOR-EQUITY] 68,239
[PAID-IN-CAPITAL-COMMON] 68,446,219
[SHARES-COMMON-STOCK] 1,498,634
[SHARES-COMMON-PRIOR] 1,419,394
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] (96,781)
[ACCUMULATED-NET-GAINS] (1,874,199)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 3,968,652
[NET-ASSETS] 15,485,713
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 4,304,648
[OTHER-INCOME] 0
[EXPENSES-NET] 953,258
[NET-INVESTMENT-INCOME] 3,351,390
[REALIZED-GAINS-CURRENT] 934,665
[APPREC-INCREASE-CURRENT] 2,363,863
[NET-CHANGE-FROM-OPS] 6,649,918
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (671,330)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] (16,414)
[NUMBER-OF-SHARES-SOLD] 288,667
[NUMBER-OF-SHARES-REDEEMED] (254,416)
[SHARES-REINVESTED] 44,989
[NET-CHANGE-IN-ASSETS] 4,972,332
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] (2,817,885)
[OVERDISTRIB-NII-PRIOR] (78,234)
[OVERDIST-NET-GAINS-PRIOR] 0
<PAGE>
[GROSS-ADVISORY-FEES] 421,262
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 1,250,955
[AVERAGE-NET-ASSETS] 14,186,244
[PER-SHARE-NAV-BEGIN] 9.86
[PER-SHARE-NII] .47
[PER-SHARE-GAIN-APPREC] .49
[PER-SHARE-DIVIDEND] (.47)
[PER-SHARE-DISTRIBUTIONS] (.02)
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 10.33
[EXPENSE-RATIO] 1.65
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
00250151.AY9
<PAGE>
[ARTICLE] 6
[CIK] 0000899774
[NAME] ALLIANCE MUNICIPAL INCOME FUND, II
[SERIES]
[NUMBER] 061
[NAME] MICHIGAN PORTFOLIO CLASS A
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] SEP-30-1997
[PERIOD-END] SEP-30-1997
[INVESTMENTS-AT-COST] 15,369,055
[INVESTMENTS-AT-VALUE] 15,894,403
[RECEIVABLES] 521,173
[ASSETS-OTHER] 7,966
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 16,423,542
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 198,535
[TOTAL-LIABILITIES] 198,535
[SENIOR-EQUITY] 15,419
[PAID-IN-CAPITAL-COMMON] 15,256,515
[SHARES-COMMON-STOCK] 554,541
[SHARES-COMMON-PRIOR] 605,047
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] (21,367)
[ACCUMULATED-NET-GAINS] 449,092
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 525,348
[NET-ASSETS] 5,836,154
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 906,099
[OTHER-INCOME] 0
[EXPENSES-NET] 201,599
[NET-INVESTMENT-INCOME] 704,500
[REALIZED-GAINS-CURRENT] 539,839
[APPREC-INCREASE-CURRENT] 227,908
[NET-CHANGE-FROM-OPS] 1,472,247
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (307,066)
[DISTRIBUTIONS-OF-GAINS] (73,030)
[DISTRIBUTIONS-OTHER] (9,747)
[NUMBER-OF-SHARES-SOLD] 160,617
[NUMBER-OF-SHARES-REDEEMED] (230,129)
[SHARES-REINVESTED] 19,006
[NET-CHANGE-IN-ASSETS] 2,608,749
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 129,029
[OVERDISTRIB-NII-PRIOR] (18,985)
[OVERDIST-NET-GAINS-PRIOR] 0
<PAGE>
[GROSS-ADVISORY-FEES] 91,349
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 425,790
[AVERAGE-NET-ASSETS] 5,862,284
[PER-SHARE-NAV-BEGIN] 10.12
[PER-SHARE-NII] .53
[PER-SHARE-GAIN-APPREC] .55
[PER-SHARE-DIVIDEND] (.53)
[PER-SHARE-DISTRIBUTIONS] (.15)
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 10.52
[EXPENSE-RATIO] .96
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
00250151.AX5
<PAGE>
[ARTICLE] 6
[CIK] 0000899774
[NAME] ALLIANCE MUNICIPAL INCOME FUND, II
[SERIES]
[NUMBER] 063
[NAME] MICHIGAN PORTFOLIO CLASS C
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] SEP-30-1997
[PERIOD-END] SEP-30-1997
[INVESTMENTS-AT-COST] 15,369,055
[INVESTMENTS-AT-VALUE] 15,894,403
[RECEIVABLES] 521,173
[ASSETS-OTHER] 7,966
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 16,423,542
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 198,535
[TOTAL-LIABILITIES] 198,535
[SENIOR-EQUITY] 15,419
[PAID-IN-CAPITAL-COMMON] 15,256,515
[SHARES-COMMON-STOCK] 483,598
[SHARES-COMMON-PRIOR] 389,225
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] (21,367)
[ACCUMULATED-NET-GAINS] 449,092
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 525,348
[NET-ASSETS] 5,088,508
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 906,099
[OTHER-INCOME] 0
[EXPENSES-NET] 201,599
[NET-INVESTMENT-INCOME] 704,500
[REALIZED-GAINS-CURRENT] 539,839
[APPREC-INCREASE-CURRENT] 227,908
[NET-CHANGE-FROM-OPS] 1,472,247
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (204,523)
[DISTRIBUTIONS-OF-GAINS] (52,615)
[DISTRIBUTIONS-OTHER] (7,811)
[NUMBER-OF-SHARES-SOLD] 176,811
[NUMBER-OF-SHARES-REDEEMED] (104,698)
[SHARES-REINVESTED] 22,260
[NET-CHANGE-IN-ASSETS] 2,608,749
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 129,029
[OVERDISTRIB-NII-PRIOR] (18,985)
[OVERDIST-NET-GAINS-PRIOR] 0
<PAGE>
[GROSS-ADVISORY-FEES] 91,349
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 425,790
[AVERAGE-NET-ASSETS] 4,498,388
[PER-SHARE-NAV-BEGIN] 10.12
[PER-SHARE-NII] .46
[PER-SHARE-GAIN-APPREC] .55
[PER-SHARE-DIVIDEND] (.46)
[PER-SHARE-DISTRIBUTIONS] (.15)
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 10.52
[EXPENSE-RATIO] 1.66
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
00250151.AX7
<PAGE>
[ARTICLE] 6
[CIK] 0000899774
[NAME] ALLIANCE MUNICIPAL INCOME FUND, II
[SERIES]
[NUMBER] 063
[NAME] MICHIGAN PORTFOLIO CLASS C
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] SEP-30-1997
[PERIOD-END] SEP-30-1997
[INVESTMENTS-AT-COST] 15,369,055
[INVESTMENTS-AT-VALUE] 15,894,403
[RECEIVABLES] 521,173
[ASSETS-OTHER] 7,966
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 16,423,542
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 198,535
[TOTAL-LIABILITIES] 198,535
[SENIOR-EQUITY] 15,419
[PAID-IN-CAPITAL-COMMON] 15,256,515
[SHARES-COMMON-STOCK] 483,598
[SHARES-COMMON-PRIOR] 389,225
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] (21,367)
[ACCUMULATED-NET-GAINS] 449,092
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 525,348
[NET-ASSETS] 5,088,508
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 906,099
[OTHER-INCOME] 0
[EXPENSES-NET] 201,599
[NET-INVESTMENT-INCOME] 704,500
[REALIZED-GAINS-CURRENT] 539,839
[APPREC-INCREASE-CURRENT] 227,908
[NET-CHANGE-FROM-OPS] 1,472,247
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (204,523)
[DISTRIBUTIONS-OF-GAINS] (52,615)
[DISTRIBUTIONS-OTHER] (7,811)
[NUMBER-OF-SHARES-SOLD] 176,811
[NUMBER-OF-SHARES-REDEEMED] (104,698)
[SHARES-REINVESTED] 22,260
[NET-CHANGE-IN-ASSETS] 2,608,749
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 129,029
[OVERDISTRIB-NII-PRIOR] (18,985)
[OVERDIST-NET-GAINS-PRIOR] 0
<PAGE>
[GROSS-ADVISORY-FEES] 91,349
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 425,790
[AVERAGE-NET-ASSETS] 4,498,388
[PER-SHARE-NAV-BEGIN] 10.12
[PER-SHARE-NII] .46
[PER-SHARE-GAIN-APPREC] .55
[PER-SHARE-DIVIDEND] (.46)
[PER-SHARE-DISTRIBUTIONS] (.15)
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 10.52
[EXPENSE-RATIO] 1.66
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
00250151.AX7
<PAGE>
[ARTICLE] 6
[CIK] 0000899774
[NAME] ALLIANCE MUNICIPAL INCOME FUND, II
[SERIES]
[NUMBER] 071
[NAME] MASSACHUSETTS PORTFOLIO CLASS A
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] SEP-30-1997
[PERIOD-END] SEP-30-1997
[INVESTMENTS-AT-COST] 22,064,371
[INVESTMENTS-AT-VALUE] 22,702,356
[RECEIVABLES] 2,145,778
[ASSETS-OTHER] 10,624
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 24,858,758
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 352,875
[TOTAL-LIABILITIES] 352,875
[SENIOR-EQUITY] 21,900
[PAID-IN-CAPITAL-COMMON] 23,436,817
[SHARES-COMMON-STOCK] 845,524
[SHARES-COMMON-PRIOR] 295,976
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] (34,111)
[ACCUMULATED-NET-GAINS] 443,292
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 637,985
[NET-ASSETS] 9,461,448
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 954,449
[OTHER-INCOME] 0
[EXPENSES-NET] 183,039
[NET-INVESTMENT-INCOME] 771,410
[REALIZED-GAINS-CURRENT] 489,674
[APPREC-INCREASE-CURRENT] 391,030
[NET-CHANGE-FROM-OPS] 1,652,114
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (288,776)
[DISTRIBUTIONS-OF-GAINS] (77,311)
[DISTRIBUTIONS-OTHER] (9,236)
[NUMBER-OF-SHARES-SOLD] 705,307
[NUMBER-OF-SHARES-REDEEMED] (172,200)
[SHARES-REINVESTED] 16,441
[NET-CHANGE-IN-ASSETS] 13,097,845
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 208,885
[OVERDISTRIB-NII-PRIOR] (16,389)
[OVERDIST-NET-GAINS-PRIOR] 0
<PAGE>
[GROSS-ADVISORY-FEES] 97,045
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 442,127
[AVERAGE-NET-ASSETS] 5,349,471
[PER-SHARE-NAV-BEGIN] 10.85
[PER-SHARE-NII] .58
[PER-SHARE-GAIN-APPREC] .57
[PER-SHARE-DIVIDEND] (.58)
[PER-SHARE-DISTRIBUTIONS] (.23)
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 11.19
[EXPENSE-RATIO] .72
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
00250151.AX2
<PAGE>
[ARTICLE] 6
[CIK] 0000899774
[NAME] ALLIANCE MUNICIPAL INCOME FUND, II
[SERIES]
[NUMBER] 072
[NAME] MASSACHUSETTS PORTFOLIO CLASS B
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] SEP-30-1997
[PERIOD-END] SEP-30-1997
[INVESTMENTS-AT-COST] 22,064,371
[INVESTMENTS-AT-VALUE] 22,702,356
[RECEIVABLES] 2,145,778
[ASSETS-OTHER] 10,624
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 24,858,758
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 352,875
[TOTAL-LIABILITIES] 352,875
[SENIOR-EQUITY] 21,900
[PAID-IN-CAPITAL-COMMON] 23,436,817
[SHARES-COMMON-STOCK] 646,146
[SHARES-COMMON-PRIOR] 339,774
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] (34,111)
[ACCUMULATED-NET-GAINS] 443,292
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 637,985
[NET-ASSETS] 7,229,832
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 954,449
[OTHER-INCOME] 0
[EXPENSES-NET] 183,039
[NET-INVESTMENT-INCOME] 771,410
[REALIZED-GAINS-CURRENT] 489,674
[APPREC-INCREASE-CURRENT] 391,030
[NET-CHANGE-FROM-OPS] 1,652,114
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (229,220)
[DISTRIBUTIONS-OF-GAINS] (71,686)
[DISTRIBUTIONS-OTHER] (10,381)
[NUMBER-OF-SHARES-SOLD] 336,620
[NUMBER-OF-SHARES-REDEEMED] (44,568)
[SHARES-REINVESTED] 14,320
[NET-CHANGE-IN-ASSETS] 13,097,845
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 208,885
[OVERDISTRIB-NII-PRIOR] (16,389)
[OVERDIST-NET-GAINS-PRIOR] 0
<PAGE>
[GROSS-ADVISORY-FEES] 97,045
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 442,127
[AVERAGE-NET-ASSETS] 4,845,039
[PER-SHARE-NAV-BEGIN] 10.84
[PER-SHARE-NII] .51
[PER-SHARE-GAIN-APPREC] .58
[PER-SHARE-DIVIDEND] (.51)
[PER-SHARE-DISTRIBUTIONS] (.23)
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 11.19
[EXPENSE-RATIO] 1.42
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
00250151.AX3
<PAGE>
[ARTICLE] 6
[CIK] 0000899774
[NAME] ALLIANCE MUNICIPAL INCOME FUND, II
[SERIES]
[NUMBER] 073
[NAME] MASSACHUSETTS PORTFOLIO CLASS C
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] SEP-30-1997
[PERIOD-END] SEP-30-1997
[INVESTMENTS-AT-COST] 22,064,371
[INVESTMENTS-AT-VALUE] 22,702,356
[RECEIVABLES] 2,145,778
[ASSETS-OTHER] 10,624
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 24,858,758
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 352,875
[TOTAL-LIABILITIES] 352,875
[SENIOR-EQUITY] 21,900
[PAID-IN-CAPITAL-COMMON] 23,436,817
[SHARES-COMMON-STOCK] 698,396
[SHARES-COMMON-PRIOR] 416,382
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] (34,111)
[ACCUMULATED-NET-GAINS] 443,292
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 637,985
[NET-ASSETS] 7,814,603
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 954,449
[OTHER-INCOME] 0
[EXPENSES-NET] 183,039
[NET-INVESTMENT-INCOME] 771,410
[REALIZED-GAINS-CURRENT] 489,674
[APPREC-INCREASE-CURRENT] 391,030
[NET-CHANGE-FROM-OPS] 1,652,114
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (253,414)
[DISTRIBUTIONS-OF-GAINS] (86,735)
[DISTRIBUTIONS-OTHER] (10,837)
[NUMBER-OF-SHARES-SOLD] 386,133
[NUMBER-OF-SHARES-REDEEMED] (132,699)
[SHARES-REINVESTED] 28,580
[NET-CHANGE-IN-ASSETS] 13,097,845
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 208,885
[OVERDISTRIB-NII-PRIOR] (16,389)
[OVERDIST-NET-GAINS-PRIOR] 0
<PAGE>
[GROSS-ADVISORY-FEES] 97,045
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 442,127
[AVERAGE-NET-ASSETS] 5,332,646
[PER-SHARE-NAV-BEGIN] 10.84
[PER-SHARE-NII] .51
[PER-SHARE-GAIN-APPREC] .58
[PER-SHARE-DIVIDEND] (.51)
[PER-SHARE-DISTRIBUTIONS] (.23)
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 11.19
[EXPENSE-RATIO] 1.42
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
00250151.AX4
<PAGE>
[ARTICLE] 6
[CIK] 0000899774
[NAME] ALLIANCE MUNICIPAL INCOME FUND, II
[SERIES]
[NUMBER] 081
[NAME] ARIZONA PORTFOLIO CLASS A
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] SEP-30-1997
[PERIOD-END] SEP-30-1997
[INVESTMENTS-AT-COST] 17,444,283
[INVESTMENTS-AT-VALUE] 17,932,170
[RECEIVABLES] 806,950
[ASSETS-OTHER] 14,849
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 18,753,969
[PAYABLE-FOR-SECURITIES] 1,000,000
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 223,242
[TOTAL-LIABILITIES] 1,223,242
[SENIOR-EQUITY] 16,266
[PAID-IN-CAPITAL-COMMON] 16,707,137
[SHARES-COMMON-STOCK] 855,925
[SHARES-COMMON-PRIOR] 427,051
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] (24,233)
[ACCUMULATED-NET-GAINS] 343,670
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 487,887
[NET-ASSETS] 9,224,832
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 852,537
[OTHER-INCOME] 0
[EXPENSES-NET] 155,939
[NET-INVESTMENT-INCOME] 696,598
[REALIZED-GAINS-CURRENT] 377,624
[APPREC-INCREASE-CURRENT] 238,359
[NET-CHANGE-FROM-OPS] 1,312,581
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (367,913)
[DISTRIBUTIONS-OF-GAINS] (12,807)
[DISTRIBUTIONS-OTHER] (1,655)
[NUMBER-OF-SHARES-SOLD] 471,667
[NUMBER-OF-SHARES-REDEEMED] (52,682)
[SHARES-REINVESTED] 9,889
[NET-CHANGE-IN-ASSETS] 7,212,938
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 3,030
[OVERDISTRIB-NII-PRIOR] (14,548)
[OVERDIST-NET-GAINS-PRIOR] 0
<PAGE>
[GROSS-ADVISORY-FEES] 85,933
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 420,612
[AVERAGE-NET-ASSETS] 6,792,983
[PER-SHARE-NAV-BEGIN] 10.32
[PER-SHARE-NII] .57
[PER-SHARE-GAIN-APPREC] .48
[PER-SHARE-DIVIDEND] (.57)
[PER-SHARE-DISTRIBUTIONS] (.02)
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 10.78
[EXPENSE-RATIO] .78
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
00250151.AW6
<PAGE>
[ARTICLE] 6
[CIK] 0000899774
[NAME] ALLIANCE MUNICIPAL INCOME FUND, II
[SERIES]
[NUMBER] 082
[NAME] ARIZONA PORTFOLIO CLASS B
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] SEP-30-1997
[PERIOD-END] SEP-30-1997
[INVESTMENTS-AT-COST] 17,444,283
[INVESTMENTS-AT-VALUE] 17,932,170
[RECEIVABLES] 806,950
[ASSETS-OTHER] 14,849
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 18,753,969
[PAYABLE-FOR-SECURITIES] 1,000,000
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 223,242
[TOTAL-LIABILITIES] 1,223,242
[SENIOR-EQUITY] 16,266
[PAID-IN-CAPITAL-COMMON] 16,707,137
[SHARES-COMMON-STOCK] 606,006
[SHARES-COMMON-PRIOR] 503,313
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] (24,233)
[ACCUMULATED-NET-GAINS] 343,670
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 487,887
[NET-ASSETS] 6,530,863
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 852,537
[OTHER-INCOME] 0
[EXPENSES-NET] 155,939
[NET-INVESTMENT-INCOME] 696,598
[REALIZED-GAINS-CURRENT] 377,624
[APPREC-INCREASE-CURRENT] 238,359
[NET-CHANGE-FROM-OPS] 1,312,581
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (263,634)
[DISTRIBUTIONS-OF-GAINS] (11,580)
[DISTRIBUTIONS-OTHER] (3,731)
[NUMBER-OF-SHARES-SOLD] 234,439
[NUMBER-OF-SHARES-REDEEMED] (145,388)
[SHARES-REINVESTED] 13,442
[NET-CHANGE-IN-ASSETS] 7,212,938
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 3,030
[OVERDISTRIB-NII-PRIOR] (14,548)
[OVERDIST-NET-GAINS-PRIOR] 0
<PAGE>
[GROSS-ADVISORY-FEES] 85,933
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 420,612
[AVERAGE-NET-ASSETS] 5,573,522
[PER-SHARE-NAV-BEGIN] 10.32
[PER-SHARE-NII] .50
[PER-SHARE-GAIN-APPREC] .48
[PER-SHARE-DIVIDEND] (.50)
[PER-SHARE-DISTRIBUTIONS] (.02)
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 10.78
[EXPENSE-RATIO] 1.48
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
00250151.AW7
<PAGE>
[ARTICLE] 6
[CIK] 0000899774
[NAME] ALLIANCE MUNICIPAL INCOME FUND, II
[SERIES]
[NUMBER] 083
[NAME] ARIZONA PORTFOLIO CLASS C
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] SEP-30-1997
[PERIOD-END] SEP-30-1997
[INVESTMENTS-AT-COST] 17,444,283
[INVESTMENTS-AT-VALUE] 17,932,170
[RECEIVABLES] 806,950
[ASSETS-OTHER] 14,849
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 18,753,969
[PAYABLE-FOR-SECURITIES] 1,000,000
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 223,242
[TOTAL-LIABILITIES] 1,223,242
[SENIOR-EQUITY] 16,266
[PAID-IN-CAPITAL-COMMON] 16,707,137
[SHARES-COMMON-STOCK] 164,699
[SHARES-COMMON-PRIOR] 68,776
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] (24,233)
[ACCUMULATED-NET-GAINS] 343,670
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 487,887
[NET-ASSETS] 1,775,032
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 852,537
[OTHER-INCOME] 0
[EXPENSES-NET] 155,939
[NET-INVESTMENT-INCOME] 696,598
[REALIZED-GAINS-CURRENT] 377,624
[APPREC-INCREASE-CURRENT] 238,359
[NET-CHANGE-FROM-OPS] 1,312,581
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (65,051)
[DISTRIBUTIONS-OF-GAINS] (2,601)
[DISTRIBUTIONS-OTHER] (1,548)
[NUMBER-OF-SHARES-SOLD] 115,373
[NUMBER-OF-SHARES-REDEEMED] (22,676)
[SHARES-REINVESTED] 3,226
[NET-CHANGE-IN-ASSETS] 7,212,938
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 3,030
[OVERDISTRIB-NII-PRIOR] (14,548)
[OVERDIST-NET-GAINS-PRIOR] 0
<PAGE>
[GROSS-ADVISORY-FEES] 85,933
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 420,612
[AVERAGE-NET-ASSETS] 1,382,776
[PER-SHARE-NAV-BEGIN] 10.32
[PER-SHARE-NII] .50
[PER-SHARE-GAIN-APPREC] .48
[PER-SHARE-DIVIDEND] (.50)
[PER-SHARE-DISTRIBUTIONS] (.02)
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 10.78
[EXPENSE-RATIO] 1.48
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
00250151.AW8
<PAGE>
[ARTICLE] 6
[CIK] 0000899774
[NAME] ALLIANCE MUNICIPAL INCOME FUND, II
[SERIES]
[NUMBER] 091
[NAME] VIRGINIA PORTFOLIO CLASS A
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] SEP-30-1997
[PERIOD-END] SEP-30-1997
[INVESTMENTS-AT-COST] 9,264,442
[INVESTMENTS-AT-VALUE] 9,484,549
[RECEIVABLES] 341,634
[ASSETS-OTHER] 9,441
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 9,835,624
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 78,003
[TOTAL-LIABILITIES] 78,003
[SENIOR-EQUITY] 8950
[PAID-IN-CAPITAL-COMMON] 9,237,555
[SHARES-COMMON-STOCK] 323,796
[SHARES-COMMON-PRIOR] 232,136
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] (12,981)
[ACCUMULATED-NET-GAINS] 303,990
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 220,107
[NET-ASSETS] 3,530,325
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 476,768
[OTHER-INCOME] 0
[EXPENSES-NET] 87,736
[NET-INVESTMENT-INCOME] 389,032
[REALIZED-GAINS-CURRENT] 306,700
[APPREC-INCREASE-CURRENT] 157,573
[NET-CHANGE-FROM-OPS] 853,305
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (155,809)
[DISTRIBUTIONS-OF-GAINS] (59,025)
[DISTRIBUTIONS-OTHER] (12)
[NUMBER-OF-SHARES-SOLD] 106,838
[NUMBER-OF-SHARES-REDEEMED] (27,670)
[SHARES-REINVESTED] 12,492
[NET-CHANGE-IN-ASSETS] 3,315,840
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 164,959
[OVERDISTRIB-NII-PRIOR] (8,785)
[OVERDIST-NET-GAINS-PRIOR] 0
<PAGE>
[GROSS-ADVISORY-FEES] 49,263
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 316,931
[AVERAGE-NET-ASSETS] 2,892,988
[PER-SHARE-NAV-BEGIN] 10.58
[PER-SHARE-NII] .57
[PER-SHARE-GAIN-APPREC] .57
[PER-SHARE-DIVIDEND] (.57)
[PER-SHARE-DISTRIBUTIONS] (.25)
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 10.90
[EXPENSE-RATIO] .67
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
00250151.AZ0
<PAGE>
[ARTICLE] 6
[CIK] 0000899774
[NAME] ALLIANCE MUNICIPAL INCOME FUND, II
[SERIES]
[NUMBER] 092
[NAME] VIRGINIA PORTFOLIO CLASS B
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] SEP-30-1997
[PERIOD-END] SEP-30-1997
[INVESTMENTS-AT-COST] 9,264,442
[INVESTMENTS-AT-VALUE] 9,484,549
[RECEIVABLES] 341,634
[ASSETS-OTHER] 9,441
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 9,835,624
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 78,003
[TOTAL-LIABILITIES] 78,003
[SENIOR-EQUITY] 8950
[PAID-IN-CAPITAL-COMMON] 9,237,555
[SHARES-COMMON-STOCK] 460,437
[SHARES-COMMON-PRIOR] 316,301
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] (12,981)
[ACCUMULATED-NET-GAINS] 303,990
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 220,107
[NET-ASSETS] 5,020,095
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 476,768
[OTHER-INCOME] 0
[EXPENSES-NET] 87,736
[NET-INVESTMENT-INCOME] 389,032
[REALIZED-GAINS-CURRENT] 306,700
[APPREC-INCREASE-CURRENT] 157,573
[NET-CHANGE-FROM-OPS] 853,305
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (186,794)
[DISTRIBUTIONS-OF-GAINS] (85,912)
[DISTRIBUTIONS-OTHER] (1,795)
[NUMBER-OF-SHARES-SOLD] 168,891
[NUMBER-OF-SHARES-REDEEMED] (44,556)
[SHARES-REINVESTED] 19,801
[NET-CHANGE-IN-ASSETS] 3,315,840
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 164,959
[OVERDISTRIB-NII-PRIOR] (8,785)
[OVERDIST-NET-GAINS-PRIOR] 0
<PAGE>
[GROSS-ADVISORY-FEES] 49,263
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 316,931
[AVERAGE-NET-ASSETS] 3,993,316
[PER-SHARE-NAV-BEGIN] 10.57
[PER-SHARE-NII] .50
[PER-SHARE-GAIN-APPREC] .58
[PER-SHARE-DIVIDEND] (.50)
[PER-SHARE-DISTRIBUTIONS] (.25)
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 10.90
[EXPENSE-RATIO] 1.37
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
00250151.AZ1
<PAGE>
[ARTICLE] 6
[CIK] 0000899774
[NAME] ALLIANCE MUNICIPAL INCOME FUND, II
[SERIES]
[NUMBER] 093
[NAME] VIRGINIA PORTFOLIO CLASS C
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] SEP-30-1997
[PERIOD-END] SEP-30-1997
[INVESTMENTS-AT-COST] 9,264,442
[INVESTMENTS-AT-VALUE] 9,484,549
[RECEIVABLES] 341,634
[ASSETS-OTHER] 9,441
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 9,835,624
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 78,003
[TOTAL-LIABILITIES] 78,003
[SENIOR-EQUITY] 8950
[PAID-IN-CAPITAL-COMMON] 9,237,555
[SHARES-COMMON-STOCK] 110,727
[SHARES-COMMON-PRIOR] 60,706
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] (12,981)
[ACCUMULATED-NET-GAINS] 303,990
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 220,107
[NET-ASSETS] 1,207,201
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 476,768
[OTHER-INCOME] 0
[EXPENSES-NET] 87,736
[NET-INVESTMENT-INCOME] 389,032
[REALIZED-GAINS-CURRENT] 306,700
[APPREC-INCREASE-CURRENT] 157,573
[NET-CHANGE-FROM-OPS] 853,305
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (46,429)
[DISTRIBUTIONS-OF-GAINS] (22,732)
[DISTRIBUTIONS-OTHER] (515)
[NUMBER-OF-SHARES-SOLD] 54,662
[NUMBER-OF-SHARES-REDEEMED] (10,711)
[SHARES-REINVESTED] 6,070
[NET-CHANGE-IN-ASSETS] 3,315,840
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 164,959
[OVERDISTRIB-NII-PRIOR] (8,785)
[OVERDIST-NET-GAINS-PRIOR] 0
<PAGE>
[GROSS-ADVISORY-FEES] 49,263
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 316,931
[AVERAGE-NET-ASSETS] 995,736
[PER-SHARE-NAV-BEGIN] 10.57
[PER-SHARE-NII] .50
[PER-SHARE-GAIN-APPREC] .58
[PER-SHARE-DIVIDEND] (.50)
[PER-SHARE-DISTRIBUTIONS] (.25)
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 10.90
[EXPENSE-RATIO] 1.37
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
00250151.AZ2
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS 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., Domenick Pugliese, Andrew L. Gangolf and
Emilie D. Wrapp 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 respective
Registration Statements, and any amendments thereto, on Form
N-1A of ACM Institutional Reserves, Inc., AFD Exchange
Reserves, Alliance All-Asia 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
Environment Fund, Inc., Alliance Global Small Cap Fund,
Inc., Alliance Global Strategic Income Trust, Inc., Alliance
Government Reserves, Alliance Greater China 97 Fund, Inc.,
Alliance Growth and Income Fund, Inc., Alliance High Yield
Fund, Inc., Alliance 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, and The Hudson River Trust,
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 9, 1997
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS 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., Domenick Pugliese, Andrew L. Gangolf and
Emilie D. Wrapp 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 respective
Registration Statements, and any amendments thereto, on Form
N-1A of ACM Institutional Reserves, Inc., AFD Exchange
Reserves, Alliance All-Asia Fund, Inc., Alliance Balanced
Shares, Inc., Alliance Bond Fund, Inc., Alliance Developing
Markets Fund, Inc. Alliance Global Dollar Government Fund,
Inc., Alliance Global Environment Fund, Inc., Alliance
Global Small Cap Fund, Inc., Alliance Global Strategic
Income Trust, Inc., Alliance Greater China 97 Fund, Inc.,
Alliance Growth and Income Fund, Inc., Alliance High Yield
Fund, Inc., Alliance 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., Alliance Municipal Income Fund
II, 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
and The Alliance Fund, Inc. 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 9, 1997
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS 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., Domenick Pugliese, Andrew L. Gangolf and
Emilie D. Wrapp 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 respective
Registration Statements, and any amendments thereto, on Form
N-1A of ACM Institutional Reserves, Inc., AFD Exchange
Reserves, Alliance Balanced Shares, Inc., Alliance Bond
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 High Yield Fund, Inc., Alliance Income
Builder Fund, Inc., Alliance Limited Maturity Government
Fund, Inc., Alliance Mortgage Securities Income Fund, Inc.,
Alliance Multi-Market Strategy Trust, Inc., Alliance
Municipal Income Fund, Inc., Alliance Municipal Income Fund
II, 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 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. and The Alliance Portfolios, 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 Block
___________________________
Ruth Block
Dated: September 9, 1997
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS 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., Domenick Pugliese, Andrew L. Gangolf and Emilie D. Wrapp 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 respective Registration Statements, and any
amendments thereto, on Form N-1A of ACM Institutional Reserves,
Inc., AFD Exchange Reserves, Alliance All-Asia Fund, Inc.,
Alliance Balanced Shares, Inc., Alliance Bond Fund, Inc.,
Alliance Developing Markets Fund, Inc., Alliance Global Dollar
Government Fund, Inc., Alliance Global Environment Fund, Inc.,
Alliance Global Small Cap Fund, Inc., Alliance Global Strategic
Income Trust, Inc., Alliance Growth and Income Fund, Inc.,
Alliance High Yield Fund, Inc., Alliance Income Builder Fund,
Inc., Alliance International Fund, Alliance Limited Maturity
Government Fund, Inc., Alliance Mortgage Securites Incoem Fund,
Inc., Alliance Multi-Market Strategy Trust, Inc., Alliance
Municipal Income Fund, Inc., Alliance Municipal Income Fund II,
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 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., 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 H. Dobkin
___________________________
John H. Dobkin
Dated: September 9, 1997
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS 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., Domenick Pugliese, Andrew L. Gangolf and Emilie D. Wrapp 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 respective Registration Statements, and any
amendments thereto, on Form N-1A of ACM Institutional Reserves,
Inc., AFD Exchange Reserves, Alliance Balanced Shares, Inc.,
Alliance Bond Fund, Inc., Alliance Capital Reserves, Alliance
Global Dollar Government Fund, Inc., Alliance Global Small Cap
Fund, Inc., Alliance Global Strategic Income Trust, Inc.,
Alliance Government Reserves, Alliance Greater China 97 Fund,
Inc., Alliance Growth and Income Fund, Inc., Alliance High Yield
Fund, Inc., Alliance Income Builder Fund, Inc., Alliance Limited
Maturity Government Fund, Inc., Alliance Money Market Fund,
Alliance Mortgage Securities Income Fund, Inc., Alliance Multi-
Market Strategy Trust, Inc., Alliance Municipal Income Fund,
Inc., Alliance Municipal Income Fund II, Alliance Municipal
Trust, Alliance 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 and the Hudson River
Trust, 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/ William H. Foulk, Jr.
___________________________
William H. Foulk, Jr.
Dated: September 9, 1997
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS 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., Domenick Pugliese, Andrew L. Gangolf and
Emilie D. Wrapp 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 respective
Registration Statements, and any amendments thereto, on Form
N-1A of ACM Institutional Reserves, Inc., AFD Exchange
Reserves, Alliance Balanced Shares, Inc., Alliance Bond
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 High Yield Fund, Inc., Alliance Income
Builder Fund, Inc., Alliance Limited Maturity Government
Fund, Inc., Alliance Mortgage Securities Income Fund, Inc.,
Alliance Multi-Market Strategy Trust, Inc., Alliance
Municipal Income Fund, Inc., Alliance Municipal Income Fund
II, 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 Utility Income
Fund, Inc., Alliance Variable Products Series Fund, Inc.,
Alliance World Income Trust, Inc., Alliance Worldwide
Privatization Fund, Inc., Fiduciary Management Associates
and The Alliance Fund, Inc., 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/ Dr. James M. Hester
___________________________
Dr. James M. Hester
Dated: September 9, 1997
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS 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., Domenick Pugliese, Andrew L. Gangolf and
Emilie D. Wrapp 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 respective
Registration Statements, and any amendments thereto, on Form
N-1A of ACM Institutional Reserves, Inc., AFD Exchange
Reserves, Alliance Balanced Shares, Inc., Alliance Bond
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 High Yield Fund, Inc., Alliance Income
Builder Fund, Inc., Alliance Limited Maturity Government
Fund, Inc., Alliance Money Market Fund, Alliance Mortgage
Securities Income Fund, Inc., Alliance Multi-Market Strategy
Trust, Inc., Alliance Municipal Income Fund, Inc., Alliance
Municipal Income Fund II, Alliance 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
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. and The Hudson River
Trust, 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 9, 1997
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS 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., Domenick Pugliese, Andrew L. Gangolf and
Emilie D. Wrapp 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 respective
Registration Statements, and any amendments thereto, on Form
N-1A of ACM Institutional Reserves, Inc., AFD Exchange
Reserves, Alliance Balanced Shares, Inc., Alliance Bond
Fund, Inc., Alliance Capital Reserves, 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 High Yield Fund, Inc., Alliance Income
Builder Fund, Inc., Alliance Limited Maturity Government
Fund, Inc., 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 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 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 and The Hudson River Trust, 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 9, 1997
00250151.AZ7
