N-14 8C as filed with the Securities and Exchange Commission on
November 22, 2006
Securities Act File No. 333-[______]
Investment Company Act File No. 811-10573
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------------------------------------------------------------
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. [__]
Post-Effective Amendment No. [__]
(Check appropriate box or boxes)
--------------------------------------------------------------------------------
Alliance National Municipal Income Fund, Inc.
(Exact Name of Registrant as Specified in Charter)
(800) 221-5672
(Area Code and Telephone Number)
1345 Avenue of the Americas, New York, New York 10105
(Address of Principal Executive Office) (Zip Code)
--------------------------------------------------------------------------------
EMILIE D.WRAPP
AllianceBernstein L.P.
1345 Avenue of the Americas
New York, New York 10105
(Name and Address of Agent for Service)
Copies of communications
to: Kathleen K. Clarke
Seward & Kissel LLP
1200 G Street, N.W.
Washington, D.C. 20005
--------------------------------------------------------------------------------
Approximate Date Of Proposed Public Offering:
As soon as practicable after the Registration Statement
becomes effective under the Securities Act of 1933.
--------------------------------------------------------------------------------
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933:
Proposed Proposed
Title of Maximum Maximum Amount
Securities Amount Offering Aggregate of
Being Being Price per Offering Registration
Registered Registered(1) Unit Price Fee(2)
Common Shares, 11,145,261 $15.15(1) $168,850,704(1) $18,067
Series
($.001 par value)
Preferred 1,200 $25,000 $30,000,000 $3,210
Shares,
Series M
($.001 par value)
Preferred 1,200 $25,000 $30,000,000 $3,210
Shares,
Series W
($.001 par value)
Preferred 1,200 $25,000 $30,000,000 $3,210
Shares,
Series TH
($.001 par value)
1. Estimated solely for the purpose of calculating the filing fee in
accordance with Rule 457(f) under the Securities Act of 1933, as amended.
2. Paid by wire transfer to the SEC's account at Mellon Bank in Pittsburgh,
Pennsylvania in payment of the required registration fee due in connection
with this registration statement.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended, or until the Registration Statement shall
become effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
ALLIANCE NATIONAL MUNICIPAL INCOME FUND, INC.
CONTENTS OF FORM N-14 REGISTRATION STATEMENT
This Registration Statement contains the following papers and documents:
o Cover Sheet
o Contents of Registration Statement
o Form N-14 Cross Reference Sheet
o Letter to Stockholders
o Notice of Special Meetings of Stockholders
o Part A - Proxy Statement/Prospectus
o Part B - Statement of Additional Information
o - Other Information
o Signatures
o Exhibits
CROSS REFERENCE SHEET
ITEM NO. PROXY/PROSPECTUS
PART A
1. Beginning of Registration Statement Cover Page/Questions & Answers
and Outside Front Cover Page of
Prospectus
2. Beginning of Outside Back Cover Questions & Answers
Page of Prospectus
3. Fee Table, Synopsis Information Summary, Appendix A
and Risk Factors
4. Information about the Transaction Letter to Stockholders,
Questions and Answers, Summary,
Information About the Proposed
Transaction
5. Information about the Registrant Letter to Stockholders,
Questions and Answers, Summary,
Information About the Funds
6. Information about the Company Letter to Stockholders,
Being Acquired Questions and Answers, Summary,
Information About the Funds
7. Voting Information Voting Information
8. Interest of Certain Persons and Experts Experts
9. Additional Information Required Not Applicable
for Reoffering by Persons
Deemed to be Underwriters
PART B
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. Additional Information About SAI
the Registrant
13. Additional Information about SAI
the Company being Acquired
14. Financial Statements Incorporated by Reference into
the SAI
15-17. Information required to be
included in Part C is set forth
under the appropriate item, so
numbered, in Part C of this
Registration Statement
[LOGO]
ACM MUNICIPAL SECURITIES INCOME FUND, INC.
1345 Avenue of the Americas
New York, New York 10105
[________________], 2006
Dear Stockholders:
The Board of Directors (the "Directors") of ACM Municipal Securities Income
Fund, Inc. ("ACM Municipal Securities") is pleased to invite you to a Special
Meeting of Stockholders of ACM Municipal Securities (the "Meeting") to be held
on Thursday, February 22, 2007. At this Meeting, we are asking you to approve
the acquisition of the assets and the assumption of the liabilities of ACM
Municipal Securities by Alliance National Municipal Income Fund, Inc. ("Alliance
National Municipal") and the dissolution of ACM Municipal Securities. The
proposed acquisition is described in more detail in the attached
Prospectus/Proxy Statement.
Alliance National Municipal is larger and has somewhat broader investment
policies than ACM Municipal Securities. We anticipate that the proposed
acquisition will result in benefits to the stockholders of ACM Municipal
Securities as are more fully discussed in the Prospectus/Proxy Statement.
The Directors of ACM Municipal Securities have given careful consideration
to the proposed acquisition and have concluded that the acquisition is in the
best interests of ACM Municipal Securities and its stockholders. The Directors
of ACM Municipal Securities unanimously recommend that you vote "for" the
proposed acquisition of ACM Municipal Securities by Alliance National Municipal.
If the acquisition of ACM Municipal Securities by Alliance National
Municipal is approved, (i) each holder of ACM Municipal Securities common stock
will receive shares of Alliance National Municipal common stock having an
aggregate net asset value ("NAV") equal to the aggregate NAV of the
stockholder's shares in ACM Municipal Securities and (ii) each holder of a class
of ACM Municipal Securities preferred stock will receive shares of a similar
class of Alliance National Municipal preferred stock having the same aggregate
liquidation preference and value. ACM Municipal Securities would then cease
operations. You will not be assessed any sales charges or other stockholder fees
in connection with the proposed acquisition.
We welcome your attendance at the Meeting. If you are unable to attend, we
encourage you to authorize proxies to cast your votes. The Altman Group, Inc.
(the "Proxy Solicitor"), a proxy solicitation firm, has been selected to assist
in the proxy solicitation process. If we have not received your proxy as the
date of the Meeting approaches, you may receive a telephone call from the Proxy
Solicitor to remind you to submit your proxy. No matter how many shares you own,
your vote is important.
Sincerely,
Marc O. Mayer
President
[LOGO]
ACM MUNICIPAL SECURITIES INCOME FUND, INC.
1345 Avenue of the Americas
New York, New York 10105
Toll Free (800) 221-5672
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
SCHEDULED FOR FEBRUARY 22, 2007
To the stockholders of ACM Municipal Securities Income Fund, Inc. ("ACM
Municipal Securities"), a Maryland corporation:
Notice is hereby given that a Special Meeting of the Stockholders of ACM
Municipal Securities (the "Meeting") will be held at 1345 Avenue of the
Americas, 41st Floor, New York, New York 10105 on February 22, 2007, at 11:00
a.m., Eastern Time, to consider and vote on the following Proposal, which is
more fully described in the accompanying Prospectus/Proxy Statement dated
[_______], 2006:
1. To approve an Agreement and Plan of Acquisition and Liquidation (the
"Plan") among ACM Municipal Securities, Alliance National Municipal
Income Fund, Inc. ("Alliance National Municipal"), a Maryland
corporation, and AllianceBernstein L.P., providing for the acquisition
by Alliance National Municipal of all of the assets and assumption of
all of the liabilities of ACM Municipal Securities in exchange for
shares of Alliance National Municipal common stock and preferred stock
to the holders of, respectively, ACM Municipal Securities common stock
and preferred stock. A vote in favor of this Proposal by the
stockholders of ACM Municipal Securities also will constitute a vote
in favor of the dissolution of ACM Municipal Securities and
termination of its registration under the Investment Company Act of
1940, as amended.
2. To transact any other business that may properly come before the
Meeting and any adjournments or postponements thereof.
Any stockholder of record at the close of business on December 15, 2006 is
entitled to notice of, and to vote at, the Meeting and any adjournments or
postponements thereof. Proxies are being solicited on behalf of the Board of
Directors. Each stockholder who does not expect to attend the Meeting in person
is requested to complete, date, sign and promptly return the enclosed proxy
card, or authorizing proxies to vote by submitting voting instructions by
telephone as described on the enclosed proxy card.
By Order of the Board of Directors,
Marc O. Mayer
President
New York, New York
[________], 2006
YOUR VOTE IS IMPORTANT
Please indicate your voting instructions on the enclosed proxy card, sign and
date it, and return it in the envelope provided, which needs no postage if
mailed in the United States. Your vote is very important no matter how many
shares you own. In order to save any additional costs of further proxy
solicitation and to allow the Meeting to be held as scheduled, please complete,
date, sign and return your proxy card promptly.
AllianceBernstein(R) and the AB Logo are registered trademarks and service marks
used by permission of the owner, AllianceBernstein L.P.
PROSPECTUS/PROXY STATEMENT
Acquisition of the Assets and Assumption of the Liabilities of
ACM MUNICIPAL SECURITIES INCOME FUND, INC.
By, and in Exchange for Shares of,
ALLIANCE NATIONAL MUNICIPAL INCOME FUND, INC.
[________________], 2006
TABLE OF CONTENTS
Questions and Answers...........................................................
Proposal - Approval of an Agreement and Plan of Acquisition and Liquidation
among Alliance National Municipal, ACM Municipal Securities and
AllianceBernstein L.P.
Summary.........................................................................
Comparison of Current Investment Advisory Fees.............................
Comparison of Total Expenses...............................................
Comparison of Investment Objectives and Policies...........................
Principal Risks............................................................
Federal Income Tax Consequences............................................
Comparison of Stockholder Services.........................................
Service Providers..........................................................
Comparison of Business Structures..........................................
Information about the Proposed Transaction......................................
Introduction...............................................................
Description of the Plan....................................................
Reasons for the Acquisition................................................
Description of Securities to be Issued.....................................
Dividends and Other Distributions..........................................
Surrender and Exchange of ACM Municipal Securities Stock Certificates......
Federal Income Tax Consequences............................................
Capitalization Information.................................................
Trading History and Share Price Data.......................................
Information about the Funds.....................................................
Management of the Funds....................................................
Advisory Agreement and Fees................................................
Administrator..............................................................
Other Service Providers....................................................
Voting Information..............................................................
Legal Matters
Experts
Financial Highlights............................................................
Appendix A - Fee Table..........................................................
Appendix B - Comparison of Investment Objectives and Policies...................
Appendix C - Description of Principal Risks of the Funds........................
Appendix D - Other Information..................................................
Appendix E - Form of Agreement and Plan of Acquisition and Liquidation
Relating to the Acquisition of all of the Assets and
Liabilities of ACM Municipal Securities Income Fund, Inc...........
Appendix F - Existing and Pro Forma Capitalization..............................
Appendix G - Trading History and Share Price Data...............................
Appendix H - Legal Proceedings..................................................
Appendix I - Share Ownership Information........................................
Appendix J - Financial Highlights Table.........................................
Appendix K Portfolio Composition..............................................
QUESTIONS AND ANSWERS
The following questions and answers provide an overview of key features of the
proposed acquisition and the information contained in this Prospectus/Proxy
Statement. Please review the full Prospectus/Proxy Statement before casting your
vote.
1. What is this document and why did we send it to you?
This is a combined Prospectus/Proxy Statement that provides you with
information about the acquisition (the "Acquisition") of the assets and
assumption of the liabilities of ACM Municipal Securities Income Fund, Inc.
("ACM Municipal Securities") by Alliance National Municipal Income Fund, Inc.
("Alliance National Municipal") and the subsequent dissolution of ACM Municipal
Securities (ACM Municipal Securities and Alliance National Municipal are each a
"Fund" and collectively, the "Funds"). This document also solicits your vote on
the Acquisition by requesting that you approve the Agreement and Plan of
Acquisition and Liquidation dated as of November 20, 2006 (the "Plan"), among
ACM Municipal Securities, Alliance National Municipal and AllianceBernstein L.P.
(the "Adviser").
On November 20, 2006, the Directors approved and declared advisable the
Acquisition of ACM Municipal Securities by Alliance National Municipal and the
subsequent dissolution of ACM Municipal Securities and directed that the
Acquisition and dissolution be submitted to stockholders of ACM Municipal
Securities for approval at a Special Meeting of Stockholders to be held on
February 22, 2007, at 11:00 a.m., Eastern Time (the "Meeting"). You are
receiving this Prospectus/Proxy Statement because you own shares of ACM
Municipal Securities. Each stockholder of record of ACM Municipal Securities as
of the close of business on the record date has the right under applicable legal
and regulatory requirements to vote on the Acquisition and dissolution. The
Acquisition will not occur unless it is approved by ACM Municipal Securities
stockholders. This Prospectus/Proxy Statement contains the information you
should know before voting on the proposed Acquisition.
The Board of Directors of Alliance National Municipal also approved holding
a special meeting of the stockholders of their Fund to seek stockholder approval
of the issuance of shares of Alliance National Municipal common stock to be
issued in connection with the Acquisition. The vote is required under rules of
the New York Stock Exchange ("NYSE") and will be solicited by a separate proxy
statement. If the stockholders of Alliance National Municipal do not approve the
issuance of shares of Alliance National Municipal common stock, the Acquisition
will not occur even if ACM Municipal Securities stockholders approve the
Acquisition.
You may contact a Fund at 1-800-221-5672 or write to a Fund at 1345 Avenue
of the Americas, New York, NY 10105.
2. Who is eligible to vote on the Acquisition?
Stockholders of record at the close of business on December 15, 2006 (the
"Record Date") are entitled to notice of and to vote at the Meeting or any
adjournment or postponement of the Meeting. If you owned common or preferred
stock of ACM Municipal Securities on the Record Date, you have the right to vote
even if you later sold your shares.
Each share of common and preferred stock is entitled to one vote. Common
and preferred stockholders will vote together on the Acquisition. A separate
vote of the preferred stockholders voting as a class is also required to approve
the Acquisition. Shares represented by properly executed proxies, unless revoked
before or at the Meeting will be voted according to stockholders' instructions.
If you sign and return a proxy card but do not fill in a vote, your shares will
be voted "FOR" the Acquisition. If any other business properly comes before the
Meeting, your shares will be voted at the discretion of the persons named as
proxies.
3. How will the Acquisition work?
The Plan provides for: (i) the transfer of all of the assets of ACM
Municipal Securities to Alliance National Municipal, (ii) the assumption by
Alliance National Municipal of all of the liabilities of ACM Municipal
Securities, (iii) the liquidating distribution to ACM Municipal Securities
common stockholders of shares of Alliance National Municipal common stock equal
in aggregate net asset value ("NAV") to their former ACM Municipal Securities
shares of common stock and to preferred stockholders a similar class of Alliance
National Municipal preferred stock having the same aggregate liquidation
preference and value, and (iv) the dissolution of ACM Municipal Securities.
As a result of the Acquisition, stockholders of ACM Municipal Securities
will no longer hold shares of ACM Municipal Securities, and instead, will become
stockholders of Alliance National Municipal having, with respect to common
stockholders, the same aggregate NAV as the shares of ACM Municipal Securities
common stock that they held immediately before the Acquisition and, with respect
to the preferred stockholders, the same aggregate liquidation preference and
value they held immediately before the Acquisition. Please note that ACM
Municipal Securities common stockholders who do not participate in ACM Municipal
Securities' Dividend Reinvestment and Cash Purchase Plan will receive cash in
lieu of fractional shares.
You will not be assessed any sales charges or other stockholder fees in
connection with the proposed Acquisition. The Acquisition will not occur unless
the stockholders of ACM Municipal Securities approve the Acquisition and
stockholders of Alliance National Municipal approve the issuance of shares of
Alliance National Municipal to be issued in connection with the Acquisition.
4. Why is the Acquisition being proposed?
Based on the recommendation of the Adviser, the Board of Directors of ACM
Municipal Securities (the "Board") concluded that participation by ACM Municipal
Securities in the proposed Acquisition is in the best interests of ACM Municipal
Securities and its stockholders. The Board also concluded that the proposed
Acquisition would not dilute stockholders' interests. In reaching this
conclusion, the Board considered, among other things, the Funds' investment
objectives and investment policies, the expense benefits for ACM Municipal
Securities common stockholders expected to result from the Acquisition, the
investment performance and trading history of the Funds' common stock, the costs
of the Acquisition, and the tax-free nature of the Acquisition. It is not
anticipated that the Acquisition will directly benefit ACM Municipal Securities
preferred stockholders; however, the Acquisition will not adversely affect the
preferred stockholders of ACM Municipal Securities.
5. When will the Acquisition Take Place?
If the stockholders of ACM Municipal Securities approve the Acquisition,
then the Acquisition is expected to occur in mid-2007.
6. Where May I Find Additional Information Regarding the Funds?
Additional information about the Funds is available in the Statement of
Additional Information ("SAI") dated [________], 2006 that has been filed with
the Securities and Exchange Commission ("SEC") in connection with this
Prospectus/Proxy Statement. The SAI and each Fund's Annual Report to
Stockholders, which contain audited financial statements for the Funds' fiscal
years, are incorporated by reference into this Prospectus/Proxy Statement. In
addition, the Semi-Annual Reports for Alliance National Municipal and ACM
Municipal Securities for the six months ended April 30, 2006 are also
incorporated by reference into this Prospectus/Proxy Statement. To request a
copy of any of these documents, please call AllianceBernstein Investments, Inc.
at (800) 227-4618.
All of this information is filed with the SEC. You may view or obtain these
documents from the SEC:
In person: at the SEC's Public Reference Room in Washington, D.C.
By phone: 1-202-551-8090 (for information on the operations of
the Public Reference Room only)
By mail: Public Reference Section, Securities and Exchange
Commission, Washington, DC 20549-0102 (duplicating fee
required)
By electronic mail: publicinfo@sec.gov (duplicating fee required)
On the Internet: www.sec.gov.
The shares of common stock of the Funds are listed and publicly traded on
the New York Stock Exchange ("NYSE") under the following symbols: Alliance
National Municipal - "AFB" and ACM Municipal Securities - "AMU". Reports, proxy
statements and other information concerning the Funds may be inspected at the
offices of the NYSE. Additional copies of the annual and semi-annual reports, as
well as the Prospectus/Proxy Statement and SAI, are available upon request
without charge by writing to or calling the address and telephone number listed
below.
By mail: AllianceBernstein Investor Services, Inc.
P.O. Box 786003
San Antonio, TX 78278-6003
By phone: For Information: (800) 221-5672
For Literature: (800) 227-4618
Other Important Things to Note:
o You may lose money by investing in the Fund.
o The SEC has not approved or disapproved these securities or passed
upon the adequacy of this Prospectus/Proxy Statement. Any
representation to the contrary is a criminal offense.
PROPOSAL:
APPROVAL OF AN AGREEMENT AND PLAN OF
ACQUISITION AND LIQUIDATION
AMONG ALLIANCE NATIONAL MUNICIPAL,
ACM MUNICIPAL SECURITIES AND THE ADVISER
I. Introduction
On November 20, 2006, the Board of Directors of ACM Municipal Securities
declared advisable and voted to approve the Plan and the transactions
contemplated thereby, subject to the approval of ACM Municipal Securities
stockholders. The Plan provides for: (i) the transfer of all of the assets of
ACM Municipal Securities to Alliance National Municipal, (ii) and the assumption
by Alliance National Municipal of all of the liabilities of ACM Municipal
Securities, (iii) the liquidating distribution to ACM Municipal Securities
common stockholders of shares of Alliance National Municipal common stock equal
in aggregate NAV to their former ACM Municipal Securities shares of common stock
and to preferred stockholders a similar class of Alliance National Municipal
preferred stock having the same aggregate liquidation preference and value, and
(iv) the dissolution of ACM Municipal Securities.
Each holder of ACM Municipal Securities common stock will receive the
number of full shares of Alliance National Municipal common stock, plus
fractional shares for stockholders that participate in a Dividend Reinvestment
and Cash Purchase Plan ("DRIP") and cash in lieu of any fractional shares for
non-DRIP participating stockholders, having an aggregate NAV that is equal to
the aggregate NAV of the stockholder's shares of ACM Municipal Securities common
stock. Holders of ACM Municipal Securities common stock will recognize no gain
or loss, except with respect to any cash received in lieu of fractional Alliance
National Municipal shares by non-DRIP stockholders. If approved by stockholders
of ACM Municipal Securities, the Acquisition is expected to occur in mid-2007.
Each holder of ACM Municipal Securities Preferred Shares Series A,
Preferred Shares Series B, and Preferred Shares C will receive respectively,
Alliance National Municipal Preferred Shares Series W, Preferred Series M and
Preferred Shares Series TH having, in each case, an aggregate liquidation
preference and value equal to the aggregate liquidation preference and value
attributable to the respective class of ACM Municipal Securities preferred
stock.
An exchange of ACM Municipal Securities common stock for Alliance National
Municipal common stock at NAV may result in ACM Municipal Securities
stockholders' receiving Alliance National Municipal shares with an aggregate
market value on the date of exchange that is higher or lower than the market
value of their shares immediately prior to the exchange. The reason for this
difference is that the market price for shares of the Funds in relation to their
NAVs may be different, i.e., a Fund's shares may trade at different discounts or
premiums to its NAV.
The stockholders of ACM Municipal Securities must approve the Acquisition
for it to occur. The holders of ACM Municipal Securities common stock and the
holders of ACM Municipal Securities preferred stock will vote together on the
Acquisition. In addition, holders of ACM Municipal Securities preferred stock
will vote separately as a class on the Acquisition. Approval of the Acquisition
requires: (i) the affirmative vote by ACM Municipal Securities common stock and
preferred stockholders entitled to cast a majority of the votes entitled to be
cast on the matter, voting together as a single class and (ii) with respect to
ACM Municipal Securities preferred stockholders, voting as a separate class, the
affirmative vote of the holders of a "majority of the outstanding voting
securities" as defined in the Investment Company Act of 1940 Act (the "1940
Act"), which means the lesser of (i) 67% or more of such shares present or
represented by proxy, if the holders of more than 50% of the outstanding
preferred stock are present or represented by proxy, or (ii) more than 50% of
the outstanding shares of preferred stock of ACM Municipal Securities. Although
stockholders of Alliance National Municipal are not being asked to approve the
Acquisition, they will be asked at a separate stockholder meeting to approve the
issuance of shares of common stock of Alliance National Municipal in connection
with the Acquisition. If stockholders of Alliance National Municipal do not
approve the issuance of the shares of its common stock in connection with the
Acquisition, the Acquisition will not occur even if ACM Municipal Securities
common and preferred stockholders approve the Acquisition.
A quorum for the transaction of business by common stockholders and
preferred stockholders of ACM Municipal Securities will consist of the presence
in person or by proxy of the holders of a majority of the shares of the Fund
entitled to vote at the Meeting. In addition, with respect to the separate vote
by preferred stockholders, a quorum will consist of the presence in person or by
proxy of the holders of a majority of the shares of the preferred stock entitled
to vote at the Meeting.
The Board of Directors of ACM Municipal Securities concluded that ACM
Municipal Securities' participation in the proposed Acquisition is in the best
interests of ACM Municipal Securities and its stockholders. The Board also
concluded that the proposed Acquisition would not dilute stockholders'
interests. In reaching this conclusion, the Board considered, among other
things, the Funds' investment objectives and investment policies, the investment
performance and trading history of the Funds' common stock, the expense benefits
for ACM Municipal Securities common stockholders expected to result from the
Acquisition, the cost thereof, and the tax-free nature of the Acquisition. It is
not anticipated that the Acquisition will directly benefit ACM Municipal
Securities preferred stockholders; however, the Acquisition will not adversely
affect the preferred stockholders of ACM Municipal Securities. For a more
complete discussion of the factors considered by the Board in approving the
Acquisition, see "Reasons for the Acquisition" in Information About the Proposed
Transaction.
SUMMARY
The following summary highlights differences between the Funds. This
summary is not complete and does not contain all of the information that you
should consider before voting on the Acquisition. For more complete information,
please read this entire document. Note that certain information is presented as
of April 30, 2006. At the November 20, 2006, Special Board Meeting of the Board
of Directors of ACM Municipal Securities referred to below (the "November 20
Meeting"), the Adviser represented to the Board that, if the information was
updated, it would not differ in any material respect.
Comparison of Investment Advisory Fees
The current management fees of the Funds are shown in the table below. As
indicated in the table, we expect that the Combined Fund would have a lower
management fee after the Acquisition than the current management fee of ACM
Municipal Securities.
------------------------------------------------------------------
Management Fee
------------------------------------------------------------------
ACM Municipal Securities 0.50%
------------------------------------------------------------------
Alliance National Municipal 0.40%*
------------------------------------------------------------------
Combined Fund 0.40%* (pro forma)
------------------------------------------------------------------
----------
* After advisory fee waiver.
Alliance National Municipal's contractual management fee is 0.65% of its
average daily net assets (as discussed below) but the Adviser has voluntarily
agreed to waive a portion of Alliance National Municipal's management fee or
reimburse the Fund for expenses in the amount of 0.25% of the Fund's average
daily net assets until January 28, 2007 with the waiver decreasing by 0.05% for
each one year period commencing January 28 thereafter with the full fee being
payable commencing January 28, 2010 and beyond. However, on November 20, 2006,
the Adviser agreed, at the request of the Directors, to place a cap on the
amounts payable under the Advisory Agreement of 0.55% of Alliance National
Municipal's average daily net assets. The Adviser has also agreed to request
that the Board approve a new investment advisory contract between the Adviser
and Alliance National Municipal that would make the maximum fee of 0.55%
permanent. Even if the management fee increases to its maximum amount, ACM
Municipal Securities stockholders would benefit, as discussed below, from
overall decreased expenses as a result of the Acquisition.
Comparison of Total Expenses Ratios
ACM Municipal Securities, which is approximately one-half the size of
Alliance National Municipal, has higher total operating expenses than Alliance
National Municipal (before and after waiver). The Acquisition would, as shown
below, result in a sizeable reduction in operating expenses for ACM Municipal
Securities. ACM Municipal Securities has a 0.15% administration fee (of which
the Adviser in its capacity as the Fund's Administrator is currently waiving
0.10%). Alliance National Municipal does not have a separate administration fee.
Total expenses on a net and gross basis (shown as a percentage of net
assets including preferred stock) for the period November 1, 2005 through April
30, 2006, annualized for the Funds were:
----------------------------------------------------------------------
Total Annual Total Annual
Expense Ratio Expense Ratio
After Waiver Before Waiver
----------------------------------------------------------------------
ACM Municipal Securities 0.84% 0.94%
----------------------------------------------------------------------
Alliance National Municipal 0.60% 0.85%
----------------------------------------------------------------------
Combined Fund 0.59% (pro forma) 0.84% (pro forma)
----------------------------------------------------------------------
As the table indicates, after giving effect to waivers, the estimated
expenses after the Acquisition are 0.25% lower than ACM Municipal Securities'
current expenses. In addition, as the table indicates, ACM Municipal Securities
stockholders would benefit even if the maximum management fee (before the new
capped fees) of Alliance National Municipal was applicable.
Giving effect to the new advisory fee cap of 0.55%, the gross expense ratio
would be:
----------------------------------------------------------------------
Gross
Expense Ratio
----------------------------------------------------------------------
ACM Municipal Securities 0.94%
----------------------------------------------------------------------
Alliance National Municipal 0.75%
----------------------------------------------------------------------
Combined Fund 0.74% (pro forma)
----------------------------------------------------------------------
As indicated in the table, ACM Municipal Securities stockholders would
benefit even if the maximum fee of 0.55% were applicable, because the total
gross expense ratio on a pro forma basis would be 0.74%, a reduction of 0.20%.
If the Fund's expenses were based on a percentage of net assets (excluding
preferred stock) attributable to each Fund's common stock, total expenses on a
net and gross basis for the period November 1, 2005 through April 30, 2006,
annualized for the Funds were:
--------------------------------------------------------------------
Net Gross
Expense Ratio Expense Ratio
--------------------------------------------------------------------
ACM Municipal Securities 1.43% 1.53%
--------------------------------------------------------------------
Alliance National Municipal 0.98% 1.23%
--------------------------------------------------------------------
Combined Fund 0.95% (pro forma) 1.20% (pro forma)
--------------------------------------------------------------------
Giving effect to the new advisory fee cap of 0.55%, the gross expense ratio
would be:
--------------------------------------------------------------------
Gross
Expense Ratio
--------------------------------------------------------------------
ACM Municipal Securities 1.61%
--------------------------------------------------------------------
Alliance National Municipal 1.22%
--------------------------------------------------------------------
Combined Fund 1.21% (pro forma)
--------------------------------------------------------------------
The large difference between the expense ratios of ACM Municipal Securities
and Alliance National Municipal is due to the effect of spreading the expenses
over a larger asset base for Alliance National Municipal and the Combined Fund.
The Fee Table, attached hereto as Appendix A, describes the fees and
expenses of each Fund as of March 31, 2006, and includes pro forma expenses for
the Combined Fund assuming the Acquisition is approved by ACM Municipal
Securities stockholders.
Comparison of Investment Objectives and Policies
Alliance National Municipal is a fund of significantly larger size and
scale that employs investment strategies similar to ACM Municipal Securities
although Alliance National Municipal has greater investment flexibility than ACM
Municipal Securities. Both Funds primarily invest in municipal securities exempt
from regular federal income tax. The following table shows the Funds' investment
objectives and certain principal investment strategies.
--------------------------------------------------------------------------------
ACM Municipal Securities Alliance National Municipal
--------------------------------------------------------------------------------
Investment To seek to provide high current To seek to provide high current
Objective income exempt from regular income exempt from regular
federal income tax. federal income tax.
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Principal ACM Municipal Securities will Alliance National Municipal
Investment invest at least 80%, and invests at least 80%, and
Strategies normally substantially all, of normally substantially all, of
its assets in municipal its assets in municipal bonds
securities. ACM Municipal paying interest that is exempt
Securities also will invest at from regular federal income
least 65%, and normally tax. Alliance National
substantially all, of its Municipal will also normally
assets in investment grade invest at least 75% of its net
municipal securities. assets in investment grade
municipal bonds and may invest
up to 25% of its net assets in
municipal bonds rated below
investment grade.
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As the table above shows, the Funds have similar investment strategies of
investing primarily in investment grade municipal securities. Although Alliance
National Municipal has greater flexibility to invest in municipal bonds rated
below investment grade, the constraints imposed by the ratings agencies in order
for Alliance National Municipal to maintain the rating on its preferred stock
significantly limit the extent to which the Fund can use this flexibility.
When ACM Municipal Securities was first offered, most investors were not
subject to the alternative minimum tax ("AMT"). Over time, however, an
increasing percentage of investors have become subject to the AMT. In response
to that trend, ACM Municipal Securities has decreased the percentage of its
portfolio that is invested in bonds that pay interest that is subject to the AMT
and currently, approximately 16% of ACM Municipal Securities' assets are
invested in bonds that pay interest that is subject to the AMT. Alliance
National Municipal is a more recently organized Fund that primarily invests in
bonds that pay interest that is not subject to the AMT. However, the Fund may
invest without limit in bonds that pay interest that is subject to the AMT.
Currently, Alliance National Municipal invests approximately 23% of its assets
in bonds that pay interest that is subject to the AMT. A more detailed
comparison of the Funds' existing investment strategies and policies is provided
in Appendix B. You can find additional information on the Funds in the SAI.
Both of the Funds use similar preferred stock for leverage. The Adviser
recommended and the Board approved that the Combined Fund maintain the current
level of leverage through the continued use of preferred stock and that the
classes of ACM Municipal Securities preferred stock be exchanged for preferred
stock of Alliance National Municipal having the same aggregate liquidation
preference and value. Specifically, ACM Municipal Securities Preferred Shares
Series A would be exchanged for Alliance National Preferred Shares Series W; ACM
Municipal Securities Preferred Shares Series B would be exchanged for Alliance
National Preferred Shares Series M; and ACM Municipal Securities Preferred
Shares Series C would be exchanged for Alliance National Preferred Shares Series
TH. A discussion of the Funds' preferred stock is provided in Appendix D.
Principal Risks
Each Fund is subject to market risk, interest rate risk, credit risk,
leverage risk, and municipal bond market risk. A description of each of these
and other risks is provided in Appendix C.
Federal Income Tax Consequences
No gain or loss will be recognized by the ACM Municipal Securities
stockholders except with respect to cash received in lieu of fractional shares
of Alliance National Municipal by non-DRIP stockholders, as a result of the
Acquisition. The aggregate tax basis of the shares of Alliance National
Municipal received by a stockholder of ACM Municipal Securities (including any
fractional shares to which the stockholder may be entitled) will be the same as
the aggregate tax basis of the stockholder's shares of ACM Municipal Securities.
The holding period of the shares of Alliance National Municipal common stock and
preferred stock received by a stockholder of ACM Municipal Securities (including
any fractional shares to which the stockholder may be entitled) will include the
holding period of the shares of ACM Municipal Securities common stock or
preferred stock held by the stockholder, provided that such shares are held as
capital assets by the stockholder of ACM Municipal Securities at the time of the
Acquisition. The holding period and tax basis of each asset of ACM Municipal
Securities in the hands of Alliance National Municipal as a result of the
Acquisition will be the same as the holding period and tax basis of each such
asset in the hands of ACM Municipal Securities prior to the Acquisition. Any
gain or loss realized by a common stockholder of ACM Municipal Securities upon
receipt of cash in lieu of fractional shares of common stock of Alliance
National Municipal by non-DRIP stockholders will be recognized by the
stockholder and measured by the difference between the amount of cash received
and the basis of the fractional share and, provided that the ACM Municipal
Securities shares surrendered constitute capital assets in the hands of the
stockholder, will be capital gain or loss. This tax information is based on the
advice of Seward & Kissel LLP, counsel to the Fund. It is a condition to the
closing of the Acquisition that such advice be confirmed in a written opinion of
counsel. An opinion of counsel is not binding on the Internal Revenue Service.
ACM Municipal Securities has capital loss carryforwards of approximately
$22.5 million, or $2.02 per share, while Alliance National Municipal has capital
loss carryforwards of approximately $1.5 million or $0.07 per share. After the
Acquisition, the Combined Fund's capital loss carryforwards will be
approximately $24 million, or $0.84 per share. As a result, the amount of loss
carryforwards available to ACM Municipal Securities' stockholders will be
reduced significantly. In addition, the acquisition of ACM Municipal Securities
is likely to trigger the loss limitation provisions of Internal Revenue Code
Section 382, which would subject the use of the loss carryforwards to an annual
limitation for taxable years after the Acquisition. This could accelerate
potential distributions of net realized capital gains to the Combined Fund's
stockholders. However, it is unclear whether the Combined Fund would be able to
use all of its capital loss carryforwards before they expire.
Service Providers
The Funds have the same service providers, which will continue in their
capacity after the Acquisition, with one exception. State Street Bank and Trust
Company serves as the custodian for Alliance National Municipal, and will serve
in that capacity after the Acquisition in lieu of ACM Government Opportunity's
current custodian, The Bank of New York.
Comparison of Stockholder Services
The stockholder services of each Fund are generally the same. The DRIP,
which is available to the Funds' stockholders, provides automatic reinvestment
of dividends and capital gain distributions in additional shares of a Fund's
common stock. The DRIP also allows stockholders to make optional cash
investments in shares of a Fund's common stock through a plan agent. Assuming
the Acquisition is approved, the DRIP stockholders of ACM Municipal Securities
will automatically be enrolled in the DRIP for Alliance National Municipal. A
more detailed discussion of the DRIP and other stockholder services and
procedures is provided in Appendix D.
Comparison of Business Structures
Each Fund is organized as a Maryland corporation and is governed by its
Charter, Bylaws and Maryland law. Generally, there are no significant
differences between the Funds in terms of their respective corporate
organizational structure. For more information on the comparison of the business
structure of the Funds, see Appendix D.
INFORMATION ABOUT THE PROPOSED TRANSACTION
Introduction
This Prospectus/Proxy Statement is provided to you to solicit your proxy
for exercise at the Meeting to approve the acquisition of the assets and
assumption of the liabilities of ACM Municipal Securities by Alliance National
Municipal and the liquidation and subsequent dissolution of ACM Municipal
Securities. The Meeting will be held at the offices of the Funds, 1345 Avenue of
the Americas, 41st Floor, New York, New York 10105 at 11:00 a.m., Eastern Time,
on February 22, 2007. This Prospectus/Proxy Statement, the accompanying Notice
of a Special Meeting of Stockholders and the enclosed proxy card are being
mailed to stockholders of ACM Municipal Securities on or about [_________],
2006.
Description of the Plan
As provided in the Plan, Alliance National Municipal will acquire all the
assets and assume all the liabilities of ACM Municipal Securities at the
effective time of the Acquisition (the "Effective Time"). In return, Alliance
National Municipal will issue, and ACM Municipal Securities will distribute to
its holders of common stock, a number of full and fractional shares of Alliance
National Municipal common stock (and cash in lieu of fractional shares for
non-DRIP stockholders), determined by dividing the net value of all the assets
of ACM Municipal Securities (i.e., cash or other assets (including interest
accrued but not yet received) minus all liabilities (including accrued expenses)
and the aggregate liquidation value of the outstanding preferred stock of ACM
Municipal Securities) by the NAV of one share of common stock of Alliance
National Municipal. For this purpose, the Plan provides the times for and
methods of determining the net value of the assets of each Fund. The Plan
provides that stockholders of ACM Municipal Securities common stock will be
credited with shares of Alliance National Municipal (or cash in lieu of
fractional shares for non-DRIP stockholders) corresponding to the aggregate NAV
of the ACM Municipal Securities' shares of common stock that the stockholder
holds of record at the Effective Time. The shares of Alliance National Municipal
Preferred Shares Series M, Preferred Shares Series W and Preferred Shares Series
TH that Alliance National Municipal issues to holders of ACM Municipal
Securities Preferred Shares Series A, Preferred Shares Series B, and Preferred
Shares Series C will have an aggregate liquidation preference and value equal to
the aggregate liquidation preference and value of the outstanding ACM Municipal
Securities preferred stock.
Prior to the transfer of the assets and liabilities of ACM Municipal
Securities to Alliance National Municipal, Alliance National Municipal will file
Articles of Amendment and/or Articles Supplementary to the Fund's Charter
authorizing the issuance of additional shares of Preferred Shares Series M,
Preferred Shares Series W and Preferred Shares Series TH with the State
Department of Assessments and Taxation of Maryland (the "Maryland Department").
Following the distribution of shares of Alliance National Municipal in full
liquidation of ACM Municipal Securities, ACM Municipal Securities will wind up
its affairs, and liquidate and dissolve as soon as is reasonably practicable
after the Acquisition. In the event the Acquisition does not receive the
required stockholder approval, ACM Municipal Securities will continue its
operations and its Directors will consider what future action, if any, is
appropriate.
The projected expenses of the Acquisition, largely those for legal,
accounting, printing and proxy solicitation expenses, are estimated to total
approximately $372,000 of which $234,000 will be borne by ACM Municipal
Securities and $138,000 will be borne by Alliance National Municipal.
The Acquisition is expected to occur in the second quarter of 2007. The
Acquisition is conditioned upon approval of the Plan by ACM Municipal Securities
stockholders, the approval of Alliance National Municipal stockholders of the
issuance of shares of Alliance National Municipal common stock in connection
with the Acquisition, and ACM Municipal Securities satisfying the terms of the
Plan. Under applicable legal and regulatory requirements, none of the holders of
ACM Municipal Securities' common stock will be entitled to exercise objecting
stockholders' appraisal rights, i.e., to demand the fair value of their shares
in connection with the Acquisition. Therefore, stockholders will be bound by the
terms of the Acquisition under the Plan. However, any holder of ACM Municipal
Securities common stock may sell shares of common stock on the NYSE prior to the
Acquisition. The shares of ACM Municipal Securities common stock may cease
trading on the NYSE beginning several days prior to the date of the Acquisition.
Any cessation of trading will be accomplished in compliance with NYSE rules,
including issuance of a press release.
After the Acquisition, shares of ACM Municipal Securities common stock will
be removed from listing on the NYSE. In addition, shares of ACM Municipal
Securities common stock will be withdrawn from registration under the Securities
Exchange Act of 1934 and ACM Municipal Securities will deregister as an
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act") and will dissolve under Maryland law.
Since the preferred stock of ACM Municipal Securities are not traded
publicly on a national securities exchange, holders of such shares are entitled
to appraisal rights upon the consummation of the Acquisition. The preservation
and exercise of appraisal rights are conditioned on strict adherence to the
applicable provisions of the Maryland General Corporation Law, or MGCL. Each
holder of preferred stock desiring to exercise appraisal rights should refer to
Title 3, Subtitle 2, of the MGCL for a complete statement of their rights and
the steps which must be followed in connection with the exercise of those
rights. The following summary of the rights of objecting stockholders does not
purport to be a complete statement of the procedures to be followed by preferred
stockholders of ACM Municipal Securities desiring to exercise appraisal rights,
a holder of preferred stock of ACM Municipal Securities desiring to receive
payment of the fair value of his or her stock (an "objecting stockholder") (i)
must file with ACM Municipal Securities a written objection to the Acquisition
at or before the Meeting for ACM Municipal Securities, (ii) must not vote in
favor of the Plan (although a vote against the Plan is not required), and (iii)
must make written demand on Alliance National Municipal for payment of his or
her stock, stating the number and class of shares for which he or she demands
payment, within 20 days after the Maryland Department accepts for filing the
Articles of Transfer with respect to the Acquisition (Alliance National
Municipal is required promptly to give written notice to all objecting
stockholders of the date that the Articles of Transfer are accepted for record).
A vote against the Plan will not be sufficient to satisfy the requirement of a
written demand described in (iii). An objecting stockholder who fails to adhere
to this procedure will be bound by the terms of the Plan. An objecting
stockholder ceases to have any rights of a stockholder except the right to
receive fair value for his or her shares and has no right to receive any
dividends or distribution payable to such holders on a record date after the
close of business on the date on which fair value is to be determined, which,
for these purposes, will be the date of the Meeting for ACM Municipal
Securities. A demand for payment of fair market value may not be withdrawn,
except upon the consent of Alliance National Municipal. Within 50 days after the
Articles of Transfer have been accepted for filing, an objecting stockholder who
has not received payment for his or her shares may petition a court located in
Baltimore, Maryland for an appraisal to determine the fair market value of his
or her stock.
Completion of the Acquisition is subject to certain conditions set forth in
the Plan, some of which may be waived by a party to the Plan. The Plan may be
amended in any mutually agreed manner, except that no amendment may be made
subsequent to the Meeting that materially alters the obligations of either
party. The parties to the Plan may terminate the Plan by mutual consent and
either party has the right to unilaterally terminate the Plan under certain
circumstances. Among other circumstances, either party may at any time terminate
the Plan unilaterally upon a determination by the party's Board of Directors
that proceeding with the Plan is not in the best interests of the Fund or its
stockholders.
A copy of a form of the Plan is attached as Appendix E.
Reasons for the Acquisition
---------------------------
At the November 20 Meeting, the Adviser recommended that the Board of
Directors approve and recommend to the Fund's stockholders for their approval
the proposed Plan and the Acquisition. The Directors considered the factors
discussed below from the point of view of the interests of the Fund and its
stockholders. After careful consideration, the Board of Directors (including all
of the Directors who are not "interested persons" of the Fund, the Adviser or
its affiliates) determined that the Acquisition would be in the best interests
of the Fund's stockholders and that the interests of existing stockholders of
the Fund would not be diluted as a result of the Acquisition. The Directors
unanimously approved the Plan and the Acquisition and the Directors of ACM
Municipal Securities recommended that the stockholders of ACM Municipal
Securities vote in favor of the Acquisition by approving the Plan.
The Adviser presented the following information and reasons in favor of the
Acquisition:
o ACM Municipal Securities, which was launched in 1993, raised $194.7
million (including $90 million from preferred stock) in its initial
public offerings. As of April 30, 2006, ACM Municipal Securities'
total assets were $213 million, which includes the $90 million
attributable to preferred stock. Alliance National Municipal, which
was launched in 2002, raised $486 million (including $195 million from
preferred stock) in its initial public offerings. As of April 30,
2006, Alliance National Municipal's total assets were $508 million,
which includes the $195 million attributable to preferred stock.
o The Adviser discussed with the Board that it believes that the
Acquisition of ACM Municipal Securities, which is a smaller fund with
higher operating expenses, by its larger counterpart, Alliance
National Municipal, would benefit ACM Municipal Securities and its
stockholders. Currently, Alliance National Municipal and ACM Municipal
Securities have essentially the same investment strategies of
investing in investment grade municipal securities, although, as
discussed herein, Alliance National Municipal has greater investment
flexibility than ACM Municipal Securities.
o The Adviser also discussed that ACM Municipal Securities is ten years
older than Alliance National Municipal so that the period during which
their performance can be compared is relatively short. While the
three-year returns for the Funds based on net asset value through
September 30, 2006 are similar, 7.66% and 7.99%, respectively,
Alliance National Municipal outperformed ACM Municipal Securities in
the past year with returns of 6.34% versus 5.93% for ACM Municipal
Securities. ACM Municipal Securities performed modestly better in 2003
and 2004, while Alliance National Municipal outperformed ACM Municipal
Securities in 2005 and through September 30 in 2006. As the Adviser
explained, the differences in performance for these Funds, which
pursue essentially the same strategy, are primarily due to the effect
of the timing of their offerings on the composition of each Fund's
portfolio. ACM Municipal Securities, being ten years older, had
established positions in longer duration securities and higher credit
spread securities in 2002, when Alliance National Municipal was
launched. Market conditions in 2003 provided ACM Municipal Securities
with the opportunity to take advantage of a stronger market and
advantageously reduce its position in higher credit spread securities.
The Funds' credit profiles are now substantially the same and Alliance
National Municipal's recent outperformance benefited from its lower
expenses and shorter duration.
At the November 20 Meeting, the Directors (with the advice and assistance
of independent counsel) also considered, among other things:
o potential stockholder benefits including (i) that the total expenses
of Alliance National Municipal on a pro forma basis after the
Acquisition would be significantly lower than the current expenses of
ACM Municipal Securities and (ii) the potential for ACM Municipal
Securities' stockholders to benefit from increased earnings of
Alliance National Municipal after the Acquisition due to the higher
earnings of Alliance National Municipal;
o the current asset levels of ACM Municipal Securities and the combined
pro forma asset levels of Alliance National Municipal;
o the distribution and trading history of the two Funds, including that
Alliance National Municipal's dividend has consistently exceeded that
of ACM Municipal Securities, and that the trading price of Alliance
National Municipal's common stock compared to its net asset value is
currently somewhat more favorable than that of ACM Municipal
Securities (trading price information for the two Funds in provided in
Appendix G);
o the advisory and administration fee arrangements of the two Funds,
including that, Alliance National Municipal's advisory fee rate is
currently lower than that of ACM Municipal Securities, and is
currently, after waiver, 0.40%, but will increase by 0.05% per year
commencing January 2007 to a maximum of 0.65% in 2010 and beyond but
that the cap on the advisory fee recently agreed to by the Adviser
upon the request of the Board will result in a maximum fee of 0.55%,
and that the Adviser has agreed to seek approval of a new investment
advisory contract by the Directors that would make the maximum fee
rate of 0.55% contractual;
o the amount and type of preferred stock used as leverage by the two
Funds;
o the investment objectives and principal investment strategies of the
Funds; and
o the portfolio management team of Alliance National Municipal, which is
the same as the portfolio management team of ACM Municipal Securities,
would continue to manage Alliance National Municipal after the
Acquisition.
The Directors also considered, among other things:
o the historical and pro forma tax attributes of ACM Municipal
Securities, including that ACM Municipal Securities has realized
capital gains and sizable capital loss carryforwards and that Alliance
National Municipal has a lower amount of capital loss carryforwards,
which will significantly reduce the amount of loss carryforwards
available to ACM Municipal Securities' stockholders after the
Acquisition and trigger the loss limitations provisions of the
Internal Revenue Code, although it is uncertain whether the Combined
Fund would be able to use these capital loss carryforwards before they
expire;
o the form of the Plan and the terms and conditions of the Acquisition;
o the effect of the Acquisition on the advisory fees of the Funds;
o whether the Acquisition would result in the dilution of stockholders'
interests;
o the number of stockholder accounts and average account sizes of the
Funds;
o changes in service providers that would result from the Acquisition;
o the benefits of the Acquisition to persons other than ACM Municipal
Securities and its stockholders, including the Adviser in particular,
which would benefit from the elimination of monitoring and
administering ACM Municipal Securities a relatively small fund, that
is substantially duplicative of its larger counterpart, Alliance
National Municipal;
o that Alliance National Municipal will assume all the liabilities of
ACM Municipal Securities;
o the expected federal income tax consequences of the Acquisition;
o whether the Acquisition would be preferable to acquisition by
potential acquirers other than Alliance National Municipal including
funds that are not sponsored by the Adviser;
o that the costs of the Acquisition will be borne by ACM Municipal
Securities and Alliance National Municipal;
o the tender offer/repurchase policies of the two Funds, which differ
somewhat; and
o that the Adviser has agreed to indemnify Alliance National Municipal
for a three-year period against any undisclosed or other liability of
ACM Municipal Securities and to reimburse Alliance National Municipal
for any costs in connection with investigating any such liability, and
to continue certain insurance coverage for ACM Municipal Securities
for a six year period.
Also at the November 20 Meeting, the Board of Directors of Alliance
National Municipal (comprised of the same persons as the Board of ACM Municipal
Securities) approved the proposed Plan. No vote of stockholders of Alliance
National Municipal is required in to approve the Acquisition, although, under
NYSE rules, Alliance National Municipal Securities stockholders must approve the
issuance of common stock of such Fund in connection with the Acquisition.
Description of Securities to be Issued
Under the Plan, Alliance National Municipal will issue shares of common
stock for distribution to ACM Municipal Securities. Under its Charter and
Bylaws, Alliance National Municipal may issue up to 1,999,992,200 shares of
common stock, par value $.001 per share. For information regarding the rights
and privileges associated with the Fund's common stock, see Appendix D, "Other
Information".
Under the Plan, Alliance National Municipal will also issue additional
shares of Preferred Shares Series M, Preferred Shares Series W, and Preferred
Shares Series TH. Each such preferred stock has a par value of $.001 per share,
and a liquidation preference of $25,000 per share plus an amount equal to
accumulated buy unpaid dividends (whether or not earned or declared). Generally,
unless there is a special dividend payment period, auctions for Preferred Series
W and Preferred Series TH are held on Wednesday and Thursday, respectively, and
dividends are paid on Thursday and Friday, respectively.
Preferred stockholders will be entitled to receive dividends that may vary
for successive dividend periods. Dividend rates that are payable are subject to
a maximum rate ceiling that takes into consideration a number of factors, which
include the credit rating assigned to the preferred stock and the duration of
the dividend period. As a general matter, a dividend period can be as little as
7 days or as much as 1,820 days. Generally, a rate period between 7 and 1,820
days may be any number evenly divided by 7. Special rate periods are designated
as any periods greater than 7 days for which, among other things, (i) proper
notice as specified in the Fund's charter has been given to the auction agent
and the holders of the preferred stock and (ii) certain asset maintenance
information required by Moody's and S&P have been set forth in a report. For
additional information regarding the rights and privileges associated with
Alliance National Municipal's preferred stock, see Appendix D, "Other
Information".
Dividends and Other Distributions
On or before the Closing Date, as defined in the Plan, ACM Municipal
Securities will, if necessary, declare and pay as a distribution substantially
all of its undistributed net investment income, net short-term capital gain, net
long-term capital gain and net gains from foreign currency transactions as
applicable to maintain its treatment as a regulated investment company.
Surrender and Exchange of ACM Municipal Securities Stock Certificates
After the Plan's Effective Time, each holder of a certificate (or
certificates) formerly representing shares of ACM Municipal Securities common
stock will be entitled to receive, upon surrender of the certificate, a
certificate representing the number of Alliance National Municipal shares of
common stock distributable as a result of the Acquisition. Promptly after the
Plan's Effective Time, Equiserve Trust Company, N.A. will mail to ACM Municipal
Securities' certificate holders instructions and a letter of transmittal for use
in surrendering the certificates. Please do not send share certificates at this
time. Although the certificates will be deemed for all purposes to evidence
ownership of the equivalent number of Alliance National Municipal shares of
common stock, no dividends will be paid to holders of certificates of ACM
Municipal Securities common stock until the holder surrenders the certificates
in accordance with the instructions and letter of transmittal. Any dividends on
Alliance National Municipal shares payable after the Effective Time, will be
paid to the certificate holder, without interest, when that holder surrenders an
ACM Municipal Securities share certificate for exchange.
Each ACM Municipal Securities common stockholder will receive the number of
full shares of Alliance National Municipal, plus fractional shares for
stockholders that participate in ACM Municipal Securities' DRIP and cash in lieu
of any fractional shares for non-DRIP stockholders, having an aggregate NAV
that, on the effective date of the Acquisition, is equal to the aggregate NAV of
the stockholder's shares of the ACM Municipal Securities. Holders of ACM
Municipal Securities preferred stock will receive preferred stock of Alliance
National Municipal that have an aggregate liquidation preference and value equal
to the aggregate liquidation preference and value of the outstanding ACM
Municipal Securities preferred stock. Stockholders of ACM Municipal Securities
will recognize no gain or loss, except with respect to any cash received in lieu
of fractional Alliance National Municipal shares by non-DRIP stockholders.
Federal Income Tax Consequences
Subject to certain stated assumptions contained therein, the Funds will
receive an opinion of Seward & Kissel LLP, its counsel, substantially to the
following effect: (i) the Acquisition will constitute a "reorganization" within
the meaning of section 368(a) of the Code and that the Funds will each be "a
party to a reorganization" within the meaning of section 368(b) of the Code;
(ii) a stockholder of ACM Municipal Securities will recognize no gain or loss on
the exchange of the stockholder's shares of ACM Municipal Securities solely for
shares of Alliance National Municipal, except with respect to cash received in
lieu of a fractional share of Alliance National Municipal by non-DRIP
stockholders in connection with the Acquisition; (iii) neither ACM Municipal
Securities nor Alliance National Municipal will recognize any gain or loss upon
the transfer of all of the assets of ACM Municipal Securities to Alliance
National Municipal in exchange for shares of Alliance National Municipal (plus
cash in lieu of certain fractional shares by non-DRIP stockholders) and the
assumption by Alliance National Municipal of the liabilities of ACM Municipal
Securities pursuant to the Plan or upon the distribution of shares of Alliance
National Municipal to stockholders of ACM Municipal Securities (and cash to
non-DRIP stockholders for their fractional shares) in exchange for shares of ACM
Municipal Securities; (iv) the holding period and tax basis of the assets of ACM
Municipal Securities acquired by Alliance National Municipal will be the same as
the holding period and tax basis that ACM Municipal Securities had in such
assets immediately prior to the Acquisition; (v) the aggregate tax basis of
shares of Alliance National Municipal received in connection with the
Acquisition by each stockholder of ACM Municipal Securities (including any
fractional share to which the stockholder may be entitled) will be the same as
the aggregate tax basis of the shares of the ACM Municipal Securities
surrendered in exchange therefor; (vi) the holding period of shares of Alliance
National Municipal received in connection with the Acquisition by each
stockholder of ACM Municipal Securities (including any fractional share to which
the stockholder may be entitled) will include the holding period of the shares
of ACM Municipal Securities surrendered in exchange therefor, provided that such
ACM Municipal Securities shares constitute capital assets in the hands of the
stockholder as of the Closing Date; (vii) Alliance National Municipal will
succeed to the capital loss carryovers of ACM Municipal Securities, if any,
under section 381 of the Code, but the use by Alliance National Municipal of any
such capital loss carryovers (and of capital loss carryovers of Alliance
National Municipal) may be subject to limitation under section 383 of the Code;
and (viii) any gain or loss realized by a non-DRIP stockholder of ACM Municipal
Securities upon the receipt of cash for a fractional share of Alliance National
Municipal common stock to which the stockholder is entitled will be recognized
to the common stockholder and measured by the difference between the amount of
cash received and the basis of the fractional share and, provided that the ACM
Municipal Securities shares surrendered constitute capital assets in the hands
of the stockholder, will be capital gain or loss. This opinion of counsel will
not be binding on the Internal Revenue Service or a court and there is no
assurance that the Internal Revenue Service or a court will not take a view
contrary to those expressed in the opinion.
Stockholders of ACM Municipal Securities are encouraged to consult their
tax advisers regarding the effect, if any, of the Acquisition in light of their
individual circumstances. Because the foregoing discussion only relates to the
federal income tax consequences of the Acquisition, those stockholders are also
encouraged to consult their tax advisers as to state and local tax consequences,
if any, of the Acquisition.
Capitalization Information
For information on the existing and pro forma capitalization of the Funds,
see Appendix F.
Trading History and Share Price Data
For information on the trading history and share price data for the Funds,
see Appendix G.
INFORMATION ABOUT THE FUNDS
Alliance National Municipal and ACM Municipal Securities are each a diversified,
closed-end management investment companies registered under the 1940 Act and
organized as a Maryland corporation in 2001, and 1993, respectively.
Management of the Funds
The Board of Directors of each Fund, which is comprised of the same
persons, directs the management of the business and affairs of the Fund. Each
Board of Directors approves all significant agreements between the respective
Fund and persons or companies furnishing services to it, including a Fund's
agreements with the Adviser and the Fund's administrator, custodian and transfer
and dividend disbursing agent. The Board of ACM Municipal Securities approves
its agreement with its administrator, while Alliance National Municipal does not
have a separate administrator. The day-to-day operations of a Fund are delegated
to its officers and the Fund's Adviser, subject to the Fund's investment
objective and policies and to general supervision by the Fund's Board of
Directors. Subsequent to the consummation of the Acquisition, the directors and
officers of Alliance National Municipal will continue to serve as the directors
and officers of Alliance National Municipal after the Acquisition. The portfolio
managers jointly and primarily for the management of Alliance National Municipal
and ACM Municipal Securities are the same, they are: Michael G. Brooks, Fred S.
Cohen, Robert B. Davidson III, and Terrance T. Hults. Mr. Brooks is a Vice
President with the Adviser, with which he has been associated since prior to
2001. Subsequent to the consummation of the Acquisition, Messrs. Brooks, Cohen,
Davidson, and Terrance T. Hults will continue to be jointly and primarily
responsible for the day-to-day management of Alliance National Municipal.
The SAI provides additional information about the portfolio managers'
compensation, other accounts managed by the portfolio managers, and the
portfolio managers' ownership of securities in Alliance National Municipal.
Advisory Agreement and Fees
Each Fund's investment adviser is AllianceBernstein L.P. (the "Adviser"),
1345 Avenue of the Americas, New York, New York 10105. The Adviser is a leading
international investment adviser managing client accounts with assets as of
September 30, 2006 totaling more than $659 billion (of which more than $82
billion represented the assets of investment companies). As of September 30,
2006, the Adviser managed retirement assets for many of the largest public and
private employee benefit plans (including 41 of the nations' FORTUNE 100
companies), for public employee retirement funds in 37 states, for investment
companies, and for foundations, endowments, banks and insurance companies
worldwide. The 44 registered investment companies managed by the Adviser,
comprising 125 separate investment portfolios, currently have approximately 4.0
million stockholder accounts.
Under each Fund's advisory agreement with the Adviser (the "Advisory
Agreement"), the Adviser provides office space, investment advisory services,
and order placement facilities for the Fund and pays all compensation of
directors and officers of the Fund who are affiliated persons of the Adviser.
Under the Advisory Agreement of ACM Municipal Securities, the Fund pays the
Adviser, an investment advisory fee of 0.50 % of the average weekly net assets
of the Fund. Under the Advisory Agreement of Alliance National Municipal, the
Fund pays the Adviser, an investment advisory fee of 0.65 % of the Fund's
average daily net assets. Alliance National Municipal's advisory fee is
effectively reduced as a result of the Adviser's voluntary agreement to waive a
portion of its fees or reimburse the Fund for expenses in the amount of 0.25% of
the Fund's average daily net assets applicable to common and preferred
stockholders for the first 5 full years of the Fund's operations, 0.20% of the
Fund's average daily net assets applicable to common and preferred stockholders
in year 6, 0.15% in year 7, 0.10% in year 8, and 0.05% in year 9. The Adviser
has agreed to waive the advisory fee increase in the years 8 and 9 and cap the
advisory fee at 0.55%. The Adviser has also agreed to seek approval by the Board
of Directors of a new advisory contract that would have a maximum advisory fee
of 0.55%. For the fiscal year ended October 31, 2005, the amount of such fees
waived was $1,284,310. The advisory fee for each Fund is accrued daily and paid
monthly.
The Advisory Agreements by their terms continue in effect from year to year
if such continuance is specifically approved, at least annually, by a majority
vote of the directors of a Fund who neither are interested persons of the Fund
nor have any direct or indirect financial interest in the Advisory Agreement,
cast in person at a meeting called for the purpose of voting on such approval. A
discussion regarding the basis for a Board of Directors approving the investment
advisory contracts of ACM Municipal Securities and Alliance National Municipal
is available in each Fund's Semi-Annual Report to Stockholders for the fiscal
periods ended April 30, 2006.
The Adviser is the subject of certain legal proceedings relating to market
timing in certain open-end funds advised by the Adviser. A discussion of those
proceedings is presented in Appendix H.
Administrator
The Adviser serves as administrator for the Funds and in that capacity
performs certain administrative services. The Adviser provides administration
services to Alliance National Municipal under that Fund's Advisory Agreement and
such agreement provides that the Fund will reimburse the Adviser for the cost of
providing certain administrative services. However, the Adviser has informed the
Board that it has no present intention of submitting reimbursement requests to
the Board pursuant to such provision and will not seek reimbursement in the
future without first obtaining the Board's approval. Under an administrative
agreement, the Adviser performs administrative services for ACM Municipal
Securities.
ACM Municipal Securities pays a fee at an annual rate of 0.15% of the
average weekly net assets of the Fund. Such fee is accrued daily and paid
monthly. Currently, the Adviser has voluntarily agreed to waive administrative
expenses of the Fund at an annual rate of 0.10 of 1% of the average weekly net
assets of the Fund. The Adviser has engaged Prudential Investments LLC, an
indirect, wholly-owned subsidiary of Prudential Financial, Inc., to act as
sub-administrator. The Adviser, out of its own assets, pays the
Sub-Administrator a monthly fee equal to an annual rate of 0.10 of 1% of the
Fund's average weekly net assets. The Sub-Administrator prepares financial and
regulatory reports for the Fund and provides other clerical services.
Other Service Providers
The Acquisition will result in one change to ACM Municipal Securities'
service providers as described below. AllianceBernstein Investor Services, Inc.
("ABIS"), an affiliate of the Adviser, provides certain stockholder services for
the Funds. The Funds compensate ABIS for these services. The Bank of New York,
One Wall Street, New York, NY 10286 serves as the custodian for ACM Municipal
Securities. State Street Bank and Trust Company, 225 Franklin Street, Boston, MA
02110 serves as the custodian for Alliance National Municipal. The Bank of New
York serves as the transfer agent for the preferred stock of the Funds.
Equiserve Trust Company, N.A., P.O. Box 43011, Providence, RI 02940-3011, serves
as the transfer agent for the common stock of the Funds. After the Acquisition,
State Street Bank and Trust Company will serve as the custodian for Alliance
National Municipal. Ernst & Young LLP serves as the Funds' independent
registered public accounting firm.
VOTING INFORMATION
The Board of Directors of ACM Municipal Securities has fixed the close of
business on December 15, 2006 as the Record Date for the determination of
stockholders entitled to notice of, and to vote at, the Meeting and at any
adjournments or postponements thereof. Appendix I to this Prospectus/Proxy
Statement lists the total number of shares of ACM Municipal Securities
outstanding as of November 15, 2006. It also identifies holders of more than
five percent of shares of each Fund, and contains information about the
executive officers and Directors of each Fund and their shareholdings in each
Fund.
Those stockholders who hold shares directly and not through a broker or
nominee (that is, a stockholder of record) may authorize their proxies to cast
their votes by completing a proxy card and returning it by mail in the enclosed
postage-paid envelope or by telephoning toll free [___________]. Owners of
shares held through a broker or nominee (who is the stockholder of record for
those shares) should follow the directions provided to the stockholder by the
broker or nominee to submit voting instructions. Instructions to be followed by
a stockholder of record to authorize a proxy via telephone, including use of the
Control Number on the stockholder's proxy card, are designed to verify
stockholder identities, to allow stockholders to give voting instructions and to
confirm that stockholder instructions have been recorded properly. Stockholders
who authorize proxies by telephone should not also return a proxy card. A
stockholder of record may revoke that stockholder's proxy at any time prior to
exercise thereof by giving written notice to the Secretary of ACM Municipal
Securities at 1345 Avenue of the Americas, New York, New York 10105, by
authorizing a later-dated proxy (either by signing and mailing another proxy
card or, by telephone as indicated above), or by personally voting at the
Meeting.
Properly executed proxies may be returned with instructions to abstain from
voting or to withhold authority to vote (an "abstention") or represent a broker
"non-vote" (which is a proxy from a broker or nominee indicating that the broker
or nominee has not received instructions from the beneficial owner or other
person entitled to vote shares on a particular matter with respect to which the
broker or nominee does not have the discretionary power to vote). Approval of
the Proposal requires: (i) the affirmative vote by ACM Municipal Securities
common stock and preferred stock holders entitled to cast a majority of the
votes entitled to be cast on the matter, voting together as a single class, (ii)
with respect to ACM Municipal Securities preferred stock holders, voting as a
separate class, the affirmative vote of the holders of a "majority of the
outstanding voting securities" of such shares as defined in the 1940 Act, which
means the lesser of (i) 67% or more of such shares present or represented by
proxy, if the holders of more than 50% of the outstanding preferred stock are
present or represented by proxy, or (ii) more than 50% of the outstanding
preferred stock of ACM Municipal Securities. Abstentions and broker non-votes
will be considered present for purposes of determining the existence of a quorum
for the transaction of business but will have the effect of a vote against the
Proposal.
If any proposal, other than the Proposal, properly comes before the
Meeting, the shares represented by proxies will be voted on all such proposals
in the discretion of the person or persons voting the proxies. ACM Municipal
Securities has not received notice of, and is not otherwise aware of, any other
matter to be presented at the Meeting.
A quorum for the transaction of business by common stockholders and
preferred stockholders of ACM Municipal Securities will consist of the presence
in person or by proxy of the holders of a majority of the shares of the Fund
entitled to vote at the Meeting. In addition, with respect to the separate vote
by preferred stockholders, a quorum will consist of the presence in person or by
proxy of the holders of a majority of the shares of the preferred stock entitled
to vote at the Meeting. In the event that a quorum is not represented at the
Meeting or, even if a quorum is so present, in the event that sufficient votes
in favor of the position recommended by the Board of Directors on the Proposal
are not timely received, the Chairman of the Board may authorize, or the persons
named as proxies may propose and vote for one or more adjournments of the
Meeting with no other notice than announcement at the Meeting, in order to
permit further solicitation of proxies. Shares represented by proxies indicating
a vote against the Proposal will be voted against adjournment.
ACM Municipal Securities has engaged The Altman Group, Inc. (the "Proxy
Solicitor"), 60 East 42nd Street, Suite 405, New York, New York 10165 to assist
in soliciting proxies for the Meetings. The Proxy Solicitor will receive a fee
of $[________] from the Fund for its solicitation services, plus reimbursement
of out-of-pocket expenses.
LEGAL MATTERS
The validity of the shares offered hereby will be passed upon for the Funds
by Seward & Kissel LLP. Seward & Kissel LLP will rely upon the opinion of
Venable LLP for certain matters relating to Maryland law.
EXPERTS
The audited financial information in the Prospectus/Proxy Statement and the
SAI have been included in reliance on the report of Ernst & Young LLP, 5 Times
Square, New York, NY 10036, the independent registered public accounting firm
for the Funds, given on its authority as experts in auditing and accounting.
FINANCIAL HIGHLIGHTS
Financial highlights information for the Funds is available at Appendix J.
THE DIRECTORS OF ACM MUNICIPAL SECURITIES RECOMMEND THAT
YOU VOTE FOR THE ACQUISITION OF THE ASSETS AND LIABILITIES
OF ACM MUNICIPAL SECURITIES BY ALLIANCE NATIONAL MUNICIPAL
AND THE DISSOLUTION OF ACM MUNICIPAL SECURITIES.
APPENDIX A
FEE TABLE
The purpose of the tables below is to assist an investor in understanding the
various costs and expenses that a stockholder bears directly and indirectly from
an investment in the Funds. The tables allow you to compare the sales charges,
expenses of each Fund and the estimates for the combined Fund in its first year
following the Acquisition (shown as a percentage of net assets, including
preferred stock).
------------------------------------------------------------------
Alliance
Alliance ACM National
National Municipal Municipal
Municipal Securities Pro Forma*
------------------------------------------------------------------
Stockholder Transaction
Expenses
------------------------------------------------------------------
Sales Load (as a
percentage of
offering price) None None None
------------------------------------------------------------------
Dividend
Reinvestment
Plan Fees (a) None None None
------------------------------------------------------------------
------------------------------------------------------------------
Annual Expenses (as a
percentage of net assets
attributable to common
shares)
------------------------------------------------------------------
Management .65% .50% .55%
Fees
------------------------------------------------------------------
Other .20% .44% .19%(b)
Expenses
------------------------------------------------------------------
Total Annual Expenses .85% .94% .74%
------------------------------------------------------------------
Waiver and/or
Expense
Reimbursement (.25)%(c) (.10)%(d) (.15)%(c)
------------------------------------------------------------------
Net Annual Expenses
Reflecting Waiver .60% .84% .59%
------------------------------------------------------------------
----------
* The Adviser has agreed to place a cap on the advisory fee rate of 0.55%.
The pro forma expenses give effect to the new cap on the advisory fee rate.
(a) There are no charges with respect to shares issued directly by a Fund to
satisfy the dividend reinvestment requirements. However, each participant
will pay a pro-rata share of brokerage commissions incurred with respect to
a Fund's dividend reinvestment plan agent's open market purchases of
shares. In each case, the cost per share of shares purchased for each
stockholder's account will be the average cost, including brokerage
commissions, of any shares purchased in the open market plus the cost of
any shares issued by a Fund.
(b) Based on estimated expenses.
(c) The Adviser has voluntarily agreed to waive a portion of its fees or
reimburse the Fund for expenses in the amount of 0.25% of the Fund's
average daily net assets applicable to common and preferred stockholders
for the first 5 full years of the Fund's operations (the Fund is in its 5th
year of operation), 0.20% of the Fund's average daily net assets applicable
to common and preferred stockholders in year 6, 0.15% in year 7, 0.10% in
year 8, and 0.05% in year 9. As noted above, the Adviser has agreed to
place a cap on the advisory fee rate of 0.55% and to seek approval of the
Board of a new investment advisory contract with a maximum fee rate of
0.55%. For the year ended October 31, 2005, the amount of such fees waived
was $1,284,310.
(d) Administrative fee waiver.
EXAMPLE
You would pay the following on a $1,000 investment assuming a 5% annual return.
The Example assumes the reinvestment of all dividends and distributions at net
asset value and reflects all recurring and nonrecurring fees.
---------------------------------------------------------
Alliance
Alliance ACM National
National Municipal Municipal
Municipal Securities Pro Forma**
---------------------------------------------------------
---------------------------------------------------------
After 1 Year $9 $10 $8
---------------------------------------------------------
After 3 Years $27 $30 $24
---------------------------------------------------------
After 5 Years $47 $51 $41
---------------------------------------------------------
After 10 Years $105 $114 $92
---------------------------------------------------------
----------
** The Adviser has agreed to place a cap on the advisory fee rate of 0.55%.
The pro forma expenses give effect to the new cap on the advisory fee rate.
The projected post-Acquisition pro forma Annual Fund Expenses and Example
presented above are based upon numerous material assumptions, including that (1)
the current contractual agreements will remain in place and (2) certain fixed
costs involved in operating the ACM Municipal Securities are eliminated.
Although these projections represent good faith estimates, there can be no
assurance that any particular level of expenses or expense savings will be
achieved, because expenses depend on a variety of factors, including the future
level of fund assets, many of which are beyond the control of Alliance National
Municipal or the Adviser. Consequently, the Example should not be considered a
representation of future expenses. Actual expenses may be greater or less than
those shown.
APPENDIX B
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES(1)
----------
(1) Policies with the notation "F" denote fundamental policies, which mean they
may not be changed without a stockholder vote.
----------------------------------------------------------------------------------------------------------------------
ACM Municipal Securities Alliance National Municipal Principal Differences
----------------------------------------------------------------------------------------------------------------------
Investment The Fund's investment objective is Same. (F) None.
Objective to seek to provide high current
income exempt from regular federal
income tax. (F)
----------------------------------------------------------------------------------------------------------------------
Investment Policies(1)
----------------------------------------------------------------------------------------------------------------------
Status The Fund is a diversified closed-end Same. None.
management investment company.
----------------------------------------------------------------------------------------------------------------------
80% Policy Under normal market conditions, the Under normal conditions, the None.
Fund will invest at least 80% of its Fund will invest at least 80%,
total assets in municipal and normally substantially
securities. (F) all, of its net assets in
municipal bonds paying
interest that is exempt from
regular federal income tax.(F)
----------------------------------------------------------------------------------------------------------------------
Municipal The Fund will invest substantially Under normal circumstances, Both Funds invest
Bonds all its assets in debt obligations the Fund will invest primarily in investment
issued by states, cities and local substantially all of its net grade municipal bonds.
authorities, territories and assets in municipal bonds that However, Alliance
possessions of the United States and pay interest that, in the National Municipal may
the District of Columbia, and their opinion of the bond counsel to invest a significant
political subdivisions, duly the issuer, is exempt from amount of its assets
constituted authorities and regular federal income tax. (up to 25% of its net
corporations the interest on which assets) in municipal
obligations, in the opinion of the The Fund will normally invest bonds rated below
bond counsel to the issuer, is at least 75% of its net assets investment grade.
exempt from federal, and in some in investment grade municipal
instances, applicable state and bonds or unrated municipal
city, income tax. bonds considered to be of
comparable quality as
Under normal market conditions, determined by the Fund's
substantially all of the Fund's investment adviser.
assets will be invested in
investment grade municipal The Fund may invest up to 25%
securities (i.e., rated AAA, AA, A of its net assets in municipal
or BBB by S&P or Aaa, Aa, A or Baa bonds rated below investment
by Moody's or rated of equivalent grade and unrated municipal
credit quality by any other bonds considered to be of
nationally recognized statistical comparable quality as
rating organization). determined by the Fund's
investment adviser.
The Fund may invest up to 20% of its The Fund may purchase municipal
total assets in unrated municipal bonds that are subject to credit
securities that are determined to be enhancements such as insurance,
of equivalent credit quality by the bank credit agreements, or
Adviser. escrow accounts.
Under normal market conditions, the
Fund will invest at least 65% of its
total assets in municipal securities
considered high grade at the time of
purchase (i.e., rated at least A by
S&P or Moody's or rated of equivalent
credit quality by any other
nationally recognized statistical
rating organization).
Under normal market conditions, the
Fund will invest at least 65% of its
total assets in income-producing
securities (excluding zero coupon
securities).
----------------------------------------------------------------------------------------------------------------------
Investments in The Fund expects that it will invest While the Fund intends to When ACM Municipal
AMT-Subject a significant portion of its assets invest primarily in municipal Securities was first
Municipal in municipal securities the interest bonds that pay interest that offered most investors
Securities on which is exempt from regular is not subject to the AMT, it were not subject to
federal income tax but which will be may invest without limit in AMT. Over time,
subject to the federal alternative municipal bonds that pay however, an increasing
minimum tax. The Fund has not interest that is subject to percentage of investors
established any limit on the the AMT. have become subject
percentage of its portfolio that may AMT. In response to
be invested in municipal securities that trend, ACM
the interest on which is subject to Municipal Securities
the alternative minimum tax has decreased the
provisions of federal income tax percentage of its
law, and a substantial portion of portfolio that is
the income produced by the Fund may invested in bonds that
be includable in the calculation of pay interest that is
alternative minimum taxable income. subject to the AMT and
currently approximately
16% of ACM Municipal
Securities' assets are
invested in bonds that pay
interest subject to the
AMT.
Alliance National
Municipal is a more
recently organized Fund
that primarily invests in
bonds that pay interest
that is not subject to the
AMT. However, the Fund may
invest without limit in
bonds that pay interest
that is subject to the
AMT.
Currently, Alliance
National Municipal invests
approximately 23% of its
assets in bonds that pay
interest subject to the
AMT.
----------------------------------------------------------------------------------------------------------------------
Other Although the Fund intends to invest The Fund may invest in The Funds generally may
Municipal a substantial portion of its assets municipal notes, which may be invest in the same
Securities in longer term municipal securities, either general obligation or types of "other
municipal securities in which the revenue securities and which municipal securities";
Fund may invest include municipal generally have original however, ACM Municipal
notes, which may be either "general maturities not exceeding one Securities is subject
obligation" or "revenue" securities, year. to two percentage
are intended to fulfill short-term limitations that are
capital needs and generally have not applicable to
original maturities not exceeding Municipal notes in which the Alliance National
one year. Fund may invest include demand Municipal: (i) the 5%
notes, which are tax-exempt limitation regarding
Municipal notes in which the Fund obligations that have stated municipal lease
may invest include demand notes, maturities in excess of one obligations and (ii)
which are tax-exempt obligations year, but permit the holder to the 10% limitation
that have stated maturities in sell back the security (at applicable to custodial
excess of one year, but permit the par) to the issuer within one receipts.
holder to sell back the security (at to seven day's notice.
par) to the issuer within 1 to 7
days notice. Other short-term obligations
constituting municipal notes
Other short-term obligations include tax anticipation
constituting municipal notes include notes, revenue anticipation
tax anticipation notes, revenue notes, bond anticipation notes
anticipation notes and bond and tax-exempt commercial paper.
anticipation notes, and tax-exempt
commercial paper. The Fund may invest in
municipal bonds that represent
The Fund will not invest more than 5% municipal lease obligations.
of its total investment assets in
municipal lease obligations that
contain "non-appropriation" clauses.
The Fund 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."
The Fund may invest up to 10% of its
total assets in custodial receipts or
certificates underwritten by
securities dealers or banks that
evidence ownership of future interest
payments, principal payments or both
on certain municipal securities.
The Fund may invest in municipal
securities, the interest rate on
which has been divided into two
different and variable components,
which together result in a fixed
interest rate.
----------------------------------------------------------------------------------------------------------------------
Other The Fund may invest up to 10% While it has no
Investment of its net assets in specific policy on
Companies securities of other open- or investments in other
closed-end investment investment companies,
companies that invest ACM Municipal
primarily in municipal bonds Securities would be
of the types in which the Fund able to invest in other
may invest directly. investment companies
subject to the
limitations in Sections
12(d)(1)(A) and (B) of
the 1940 Act. Alliance
National Municipal is
currently limited to
investing 10% of its
assets on other
investment companies
that invest in municipal
bonds.
----------------------------------------------------------------------------------------------------------------------
Options The Fund will not write put and call In order to achieve its ACM Municipal
options except in accordance with investment objective, the Fund Securities has more
its investment objective and may at times use certain types specific policies on
policies. (F) of investment derivatives, the use of options.
such as options, futures,
forwards and swaps.
The Fund intends 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 United
States exchanges. There are no
specific limitations on the Fund's
writing and purchasing of options.
The Fund may purchase or write
options on securities of the types in
which it is permitted to invest in
privately negotiated transactions.
The Fund will effect such
transactions only with investment
dealers and other financial
institutions deemed creditworthy by
the Adviser.
----------------------------------------------------------------------------------------------------------------------
Illiquid The Fund may invest in Both Funds may invest
Securities illiquid securities, in illiquid securities.
including, among others, (a)
direct placements or other
securities which are subject
to legal or contractual
restrictions on resale or for
which there is no readily
available market, (b) options
purchased by the Fund
over-the-counter and the cover
for options written by the
Fund over-the-counter, and (c)
repurchase agreements not
terminable within seven days.
Securities that have legal or
contractual restrictions on
resale but have a readily
available market are not
deemed illiquid for purposes
of this limitation.
----------------------------------------------------------------------------------------------------------------------
Futures The Fund may enter into contracts While the Fund does not intend As a practical matter,
Contracts and for the purchase or sale for future to do so, it may buy and sell both Funds may invest
Options on delivery or municipal securities or futures contracts on municipal in futures contracts
Futures U.S. Government securities, or securities or U.S. Government but Alliance National
Contracts contracts based on financial indices securities and contracts based Municipal may not
including any index of municipal on interest rates or financial invest in options on
General securities or U.S. Government indices, including any index futures contracts.
securities ("futures contracts") and of municipal bonds or U.S.
may purchase and write put and call Government securities. ACM Municipal
options to buy or sell futures Securities' investments
contracts ("options on futures in futures contracts
contracts"). Options on futures are subject to the 5%
contracts to be written or purchased and 50% restrictions,
by the Fund will be traded on U.S. which were previously
exchanges or over-the-counter. requirements of the
Commodity Futures
The Board has adopted the Trading Commission for
requirement that futures contracts investment companies
and options on futures contracts that invested in
only be used as a hedge and not for futures contracts.
speculation. In addition, the Board Alliance National
has adopted two percentage Municipal investments
restrictions on the use of futures in futures contracts
contracts. The first restriction is are not subject to this
that the Fund will not enter into limitation.
any futures contracts or options on
futures contracts if immediately
thereafter the aggregate amount of
initial margin deposits on all the
futures contracts of the Fund and
premiums paid on options on futures
contracts would exceed 5% of the
market value of the total assets of
the Fund. The second restriction is
that the aggregate market value of
the futures contracts purchased by
the Fund not exceed 50% of the
market value of the total assets of
the Fund.
----------------------------------------------------------------------------------------------------------------------
Futures The Fund will not purchase or sell The Fund will not purchase or None.
Contracts and commodities or commodity contracts sell commodities or
Options on (except forward contracts or commodities contracts. (F)
Futures contracts for the future acquisition
Contracts or delivery of debt securities and This restriction shall not
related options, futures contracts prohibit the Fund from
Specific and options on futures contracts and purchasing, selling or
other similar contracts.) (F) entering into futures
contracts, options on futures
contracts, forward contracts,
or any interest rate,
securities related or other
hedging instruments, including
swap agreements and other
derivative instruments,
subject to compliance with any
applicable provisions of the
federal securities or
commodities laws.
----------------------------------------------------------------------------------------------------------------------
Future The Fund may, following written Same. None.
Developments notice to stockholders, take
advantage of other investment
practices which are not presently
contemplated for use by the Fund or
which are not currently available but
which may be developed, to the extent
that such investment practices are
consistent with the Fund's investment
objective and legally permissible for
the Fund.
----------------------------------------------------------------------------------------------------------------------
Swaps, The Fund may enter into interest While the Fund does not intend None.
Caps and rate swaps and may purchase or sell to do so, it may enter into
Floors interest rate caps and floors. The interest rate swap, cap, or
Fund expects to enter into these floor transactions primarily
transactions primarily to preserve a for hedging purposes, which
return or spread on a particular may include preserving a
investment or portion of its return or spread on a
portfolio. The Fund may also enter particular investment or
into these transactions to protect portion of its portfolio or
against any increase in the price of protecting against an increase
securities the Fund anticipates in the price of securities the
purchasing at a later date. The Fund anticipates purchasing at
Fund does not intend to use these a later date. The Fund does
transactions in a speculative manner. not intend to use these
transactions in a speculative
There is no limit on the amount of manner.
interest rate swap transactions that
may be entered into by the Fund.
The Fund may purchase and sell caps
and floors without limitation,
subject to a segregated account
requirement.
----------------------------------------------------------------------------------------------------------------------
Repurchase The Fund may enter into "repurchase While the Fund does not intend None.
Agreements agreements" pertaining to U.S. to do so, it may seek
Government Securities with member additional income by investing
banks of the Federal Reserve System in repurchase agreements
or "primary dealers" in such pertaining only to U.S.
securities. Government securities. The
Fund may enter into repurchase
agreements with member banks
of the Federal Reserve System
or "primarily dealers."
----------------------------------------------------------------------------------------------------------------------
Variable and The Fund may invest in None.
Floating Rate variable rate demand notes and
Instruments 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 pre-determined level
or cap.
----------------------------------------------------------------------------------------------------------------------
When-Issued, The Fund may enter into forward The Fund may purchase or sell ACM Municipal
Delayed commitments for the purchase or sale municipal bonds on a forward Securities is subject
Delivery and of securities. Such transactions commitment basis, including to 30% limitation,
Forward may include purchases on a purchases on a "when-issued" whereas, Alliance
Commitment "when-issued" basis or purchases or basis or purchases or sales on National Municipal is
Transactions sales on a "delayed delivery" a "delayed delivery" basis. subject to a 10%
basis. No forward commitments will No forward commitments will be limitation with respect
be made by the Fund if, as a result, made by the Fund if, as a to forward commitments.
the Fund's aggregate commitments result, the Fund's aggregate
under such transactions would be forward commitments under such
more than 30% of the then current transactions would be more
value of the Fund's total assets. than 10% of its total assets.
----------------------------------------------------------------------------------------------------------------------
Zero Coupon The Portfolio may invest in zero Same. None.
Securities coupon bonds.
----------------------------------------------------------------------------------------------------------------------
Margin The Fund will not purchase As a practical matter,
securities on margin, except for there is no difference
such short-term credits as may be between the Funds'
necessary for the clearance of ability to purchase
transactions. (F) securities on margin.
----------------------------------------------------------------------------------------------------------------------
Diversification The Fund will not, with respect to The Fund is diversified. Both Funds are
75% of its total assets, invest more diversified.
than 5% of the value of its total
assets in the outstanding securities
of any one issuer or own more than
10% of the outstanding voting
securities of any one issuer, in
each case other than securities
issued or guaranteed by the U.S.
Government or any agency or
instrumentality thereof or other
investment companies. (F)
----------------------------------------------------------------------------------------------------------------------
Industry The Fund will not invest 25% or more The Fund will not concentrate None.
Concentration of the value of its total assets in its investments in a
any one industry provided that such particular industry, as that
limitation shall not be applicable term is used in the 1940 Act
to municipal securities other than and as interpreted, modified,
those municipal securities backed or otherwise permitted by
only by assets and revenues of regulatory authority having
non-governmental users. (F) jurisdiction, from time to
time. (F)
The Fund's industry
concentration policy does not
preclude it from focusing
investments in issuers in a
group of related industries
(such as different types of
utilities).
----------------------------------------------------------------------------------------------------------------------
Lending The Fund may not make loans except Same. (F) None.
through (i) the purchase of debt
obligations in accordance with its
investment objectives and policies;
or (ii) the use of repurchase
agreements. (F)
----------------------------------------------------------------------------------------------------------------------
Borrowing The Fund will not borrow money or The Fund will not borrow money None.
issue senior securities, except the or issue any senior security,
Fund may, in accordance with except in accordance with
provisions of the 1940 Act, (a) provisions of the 1940 Act and
borrow from a bank or other entity specifically the Fund may (a)
in a privately arranged transaction borrow from a bank or other
and issue commercial paper, bonds, entity in a privately arranged
debentures or notes, in series or transaction and issue
otherwise, with such interest rates, commercial paper, bonds,
conversion rights and other terms debentures or notes, in series
and provisions as are determined by or otherwise, with such
the Fund's Board of Directors, if interest rates, conversion
after such borrowing or issuance rights and other terms and
there is asset coverage of at least provisions as are determined
300% as defined in the 1940 Act; (b) by the Fund's Board of
issue Preferred Shares with such Directors, if after such
preferences, conversion and other borrowing or issuance there is
rights, voting powers, restrictions, asset coverage of at least
limitations as to dividends and 300% as defined in the 1940
other distributions, qualifications, Act; and (b) issue Preferred
and terms and conditions of Shares with such preferences,
redemption as are determined by the conversion and other rights,
Fund's Board of Directors, if after voting powers, restrictions,
such issuance there is asset limitations as to dividends
coverage of at least 200% as defined and other distributions,
in the 1940 Act; and (c) borrow for qualifications, and terms and
temporary purposes in an amount not conditions of redemption as
exceeding 5% of the value of the are determined by the Fund's
total assets of the Fund. (F) Board of Directors, if after
such issuance there is asset
coverage of at least 200% as
defined in the 1940 Act. (F)
----------------------------------------------------------------------------------------------------------------------
Short Sales The Fund may not make short sales of Alliance National
securities or maintain a short Municipal does not
position unless at all times when a engage in short sales.
short position is open it owns an ACM Municipal
equal amount of such securities or Securities may engage
securities convertible into or in short sales against
exchangeable for, without payment of the box subject to the
any further consideration, 10% limitation.
securities of the same issue as, and
equal in amount to, the securities
sold short ("short sales against the
box") and unless not more than 10%
of the Fund's net assets is held as
collateral for short sales at any
one time (it being the Fund's
present intention to make such sales
only for the purpose of deferring
realization of gain or loss for
federal income tax purposes). (F).
----------------------------------------------------------------------------------------------------------------------
Mineral The Fund will not invest in The Fund will not purchase or None.
Exploration interests in oil, gas or other sell oil, gas or mineral
mineral exploration or development programs. (F)
programs, except that it may
purchase and sell securities of
companies that deal in oil, gas or
other mineral exploration or
development programs. (F)
----------------------------------------------------------------------------------------------------------------------
Real Estate The Fund will not purchase or sell The Fund will not purchase or None.
real estate, except that it may sell real estate, although it
purchase and sell securities of may purchase securities
companies which deal in real estate (including municipal bonds)
or interests therein. (F) secured by real estate or
interests therein, or
securities issued by companies
which invest in real estate,
or interests therein. (F)
----------------------------------------------------------------------------------------------------------------------
Pledging of The Fund will not pledge, Same. (F) None.
Assets hypothecate, mortgage or otherwise
encumber its assets, except (i) to
secure permitted borrowings, (ii) in
connection with initial and
variation margin deposits relating
to futures contracts and (iii) any
segregated accounts established in
accordance with its investment
objective and policies. (F)
----------------------------------------------------------------------------------------------------------------------
Underwriting The Fund will not act as an The Fund will not act as an None.
underwriter of securities, except underwriter of securities of
that the Fund may acquire restricted other issuers, except to the
securities under circumstances in extent that in connection with
which, if such securities were sold, the disposition of portfolio
the Fund might be deemed to be an securities, it may be deemed
underwriter within the meaning of to be an underwriter under the
the Securities Act of 1933, as federal securities laws. (F)
amended. (F)
----------------------------------------------------------------------------------------------------------------------
APPENDIX C
DESCRIPTION OF PRINCIPAL RISKS OF THE FUNDS
Among the principal risks of investing in a Fund are market risk, interest rate
risk, credit risk, leveraging risk, derivatives risk, liquidity risk and
management risk. Each of these risks and other risks are more fully described
below. Each Fund could become subject to additional risks because the types of
investments made by each Fund can change over time.
--------------------------------------------------------------------------------
Market Risk and This is the risk that the value of a Fund's investments
Net Asset Value will fluctuate as municipal bond markets fluctuate and
of Shares that prices overall will decline over shorter or
longer-term periods. Shares of common stock of
closed-end investment companies, such as the Funds,
frequently trade at a discount to their NAVs. Whether an
investor will realize gains or losses upon the sale of
shares of a Fund does not depend directly upon changes
in the Fund's NAV, but rather upon whether the market
price of the shares at the time of sale is above or
below the investor's purchase price for the shares. The
market price of the shares of each Fund is determined by
such factors as relative demand for and supply of the
shares in the market, general market and economic
conditions, changes in the Fund's NAV and other factors
beyond the control of the Fund. This market risk is
separate and distinct from the risk that each Fund's NAV
may decrease.
--------------------------------------------------------------------------------
Interest Rate Risk This is the risk that changes in interest rates will
affect the yield and value of a Fund's investments in
municipal bonds. When interest rates rise, the value of
a Fund's investments tends to fall and this decrease in
value may not be offset by higher interest income from
new investments. Interest rate risk is generally greater
for investment companies like the Funds that invest in
municipal bonds with longer maturities or durations. The
value of these securities is affected more by changes in
interest rates because when interest rates rise, the
maturities of these types of securities tend to lengthen
and the value of the securities decreases more
significantly, which, in turn reduces the asset coverage
on the Funds' preferred stock. In addition, these types
of securities are subject to prepayment when interest
rates fall, which generally results in lower returns
because a Fund must reinvest its assets in municipal
bonds with lower interest rates.
--------------------------------------------------------------------------------
Credit Risk This is the risk that the issuer or the guarantor of a
municipal bond, or the counterparty to a derivatives or
other contract, will be unable or unwilling to make
timely payments of interest or principal or to otherwise
honor its obligations. The issuer or guarantor may
default causing a loss of the full principal amount of a
security and any accrued interest. The degree of risk
for a particular security may be reflected in its credit
rating. Investments in municipal bonds with lower
ratings tend to have a higher probability that an issuer
will default or fail to meet its payment obligations.
Because Alliance National Municipal may invest up to 25%
(measured at the time of investment) of its net assets
in municipal bonds that are rated below investment grade
or, if unrated, determined to be of comparable quality
by the Adviser, Alliance National Municipal is more
susceptible to credit risk. The prices of these lower
grade municipal bonds are more sensitive to negative
developments, such as a decline in the issuer's revenues
or a general economic downturn, than are the prices of
higher-grade municipal bonds.
Municipal bonds of below investment grade quality
(commonly referred to as "junk bonds") are predominantly
speculative with respect to the issuer's capacity to pay
interest and repay principal when due and therefore
involve a greater risk of default. Municipal bonds in
the lowest investment grade category may also be
considered to possess some speculative characteristics
by certain rating agencies. Any default by an issuer of
a municipal bond could have a negative impact on a
Fund's ability to pay dividends on its preferred stock
and could result in the redemption of some or all of the
preferred stock.
--------------------------------------------------------------------------------
Leverage Risk The Funds use financial leverage for investment
purposes. When a Fund borrows money or otherwise
leverages its portfolio, it may be more volatile because
leverage tends to exaggerate the effect of any increase
or decrease in the value of the portfolio's investments.
Leverage risk includes the risk associated with the
issuance of preferred stock to leverage the a Fund's
common stock. If the dividend rate on the preferred
stock exceeds the net rate of return on a Fund's
portfolio, the leverage will result in a lower NAV than
if the Fund were not leveraged, and the Fund's ability
to pay dividends and to meet its asset coverage tests
would be reduced.
Investment by the Fund in derivative instruments may
amplify the effects of leverage.
Because the management fees received by the Adviser are
based on the total net assets of a Fund (including
assets acquired with the proceeds of preferred stock),
the Adviser has a financial incentive for a Fund to use
leverage and issue preferred stock.
--------------------------------------------------------------------------------
Derivatives Risk The Funds may use derivatives. These investment
strategies may be riskier than other investment
strategies and may result in greater volatility for a
Fund, particularly during periods of market declines.
--------------------------------------------------------------------------------
Liquidity Risk Liquidity risk exists when particular investments are
difficult to purchase or sell, possibly preventing a
Fund from selling out of these illiquid securities at an
advantageous price. Derivatives and securities involving
substantial market and credit risk tend to involve
greater liquidity risk.
--------------------------------------------------------------------------------
Management Risk Each Fund is subject to management risk because it is an
actively managed investment portfolio. The Adviser will
apply its investment techniques and risk analyses in
making investment decisions for each Fund, but there can
be no guarantee that its decisions will produce the
desired results.
--------------------------------------------------------------------------------
Municipal Bond This is the risk that special factors, such as
Market Risk legislative changes and local and business developments,
may adversely affect the yield or value of a Fund's
investments in municipal bonds or other municipal
securities. The amount of public information available
about municipal bonds is generally less than that for
corporate equities or bonds and the investment
performance of a Fund may therefore be more dependent on
the analytical abilities of the Adviser than would be a
stock fund or taxable bond fund. The secondary market
for municipal bonds, particularly below investment grade
municipal bonds in which the Fund may invest, also tends
to be less developed and less liquid than many other
securities markets, which may adversely affect a Fund's
ability to sell its municipal bonds at attractive
prices.
--------------------------------------------------------------------------------
Auction Risk You may not be able to sell the preferred stock at an
auction if the auction fails; that is, if there are more
preferred stock offered for sale than there are buyers
for those shares. As a result, your investment in
preferred stock may be illiquid. Neither the
participating broker-dealers nor a Fund are obligated to
purchase preferred stock in an auction or otherwise, nor
is the Fund required to redeem the preferred stock in
the event of a failed auction.
--------------------------------------------------------------------------------
Ratings and Asset A rating agency could downgrade the preferred stock,
Coverage Risk which could affect their liquidity and value. In
addition, a Fund may be forced to redeem preferred stock
to meet regulatory or rating agency requirements. The
Fund may also voluntarily redeem preferred stockunder
certain circumstances.
--------------------------------------------------------------------------------
Secondary Market Risk You could receive less than the price you paid for your
preferred stock if you sell them outside of an auction,
especially when market interest rates are rising.
Although participating broker-dealers may maintain a
secondary trading market in the preferred stock outside
of auctions, they are not obligated to do so, and no
secondary market may develop or exist at any time for
the preferred stock.
--------------------------------------------------------------------------------
APPENDIX D
OTHER INFORMATION
The following information provides only a summary of the key features of
the organizational structure, governing documents, and stockholder services of
the Funds.
Each Fund is organized as a Maryland corporation. The Bylaw provisions that
govern each of the Funds are the same. Unless noted below, there are no
significant differences among the Funds in terms of their respective corporate
organizational structures.
Shares of Common Stock of the Funds
-----------------------------------
Alliance National Municipal is authorized to issue 1,999,992,200 shares of
common stock, $.001 par value per share. ACM Municipal Securities is authorized
to issue 99,996,400 shares of common stock, $.01 par value per share. The
charter of Alliance National Municipal provides that the Board of Directors,
without any action by the stockholders of the Fund, may amend the charter from
time to time to increase or decrease the aggregate number of shares of stock or
the number of shares of stock of any class or series that the Fund has authority
to issue. There are no subscription/preemptive or exchange rights under the
charters. Each share of a Fund's common stock has equal voting, dividend,
distribution and liquidation rights subject to the preferential rights of a
Fund's preferred stock. At any time when a Fund's preferred stock are
outstanding, common stockholders will not be entitled to receive any
distributions from a Fund unless all accrued dividends on preferred stock have
been paid, and unless asset coverage (as defined in the 1940 Act) with respect
to the preferred stock would be at least 200% after giving effect to such
distributions. Shares of common stock when issued are duly authorized, fully
paid and nonassessable. Under the rules of the NYSE applicable to listed
companies, each Fund is required to hold an annual meeting of stockholders each
year.
Holders of the common stock of each Fund are entitled to one vote per
share. All voting rights for the election of directors are non-cumulative, which
means that the holders of more than 50% of the shares of a Fund's stock can
elect 100% of the directors then nominated for election if they choose to do so
and, in such event, the holders of the remaining shares of stock will not be
able to elect any directors.
Each Fund intends to distribute monthly its net investment income to
holders of their common stock. Monthly distributions to common stockholders will
consist of net investment income remaining after the payment of dividends on
outstanding preferred stock. Net capital gains, if any, will be distributed at
least annually to common stockholders to the extent such net capital gains are
not necessary to satisfy the dividend, redemption or liquidation preferences of
any preferred stock. For tax purposes, a Fund will be required, assuming
issuance of preferred stock, to allocate net capital gain and other taxable
income, if any, between common stock and preferred stock in proportion to total
dividends paid to each class for the year in which such net capital gain or
other taxable income is realized. While any preferred stock are outstanding, a
Fund may not declare any cash dividend or other distribution on its common
stock, unless, at the time of such declaration, (a) all accrued preferred stock
dividends have been paid and (b) the NAV of the Fund's portfolio (determined
after deducting the amount of such dividend or other distribution) is at least
200% of the liquidation value of the outstanding preferred stock (expected to
equal the original purchase price per share plus any accrued and unpaid
dividends thereon). This limitation on a Fund's ability to make distributions on
its common stock could under certain circumstances impair the ability of the
Fund to maintain its qualification for taxation as a regulated investment
company.
Description of Preferred Stock
------------------------------
Alliance National Municipal has authorized, issued and outstanding 7,800
shares of Auction Preferred Stock as follows: 1,950 Series M Preferred Shares,
1,950 Series T Preferred Stock, 1,950 Series W Preferred Shares and 1,950 Series
TH Preferred Shares. The preferred shares have a liquidation value of $25,000
per share plus accumulated unpaid dividends. Alliance National Municipal's
preferred stock will pay dividends based on a rate set at Auctions, normally
held weekly, except in the case of special rate periods. For Series M Preferred
Shares, Series T Preferred Shares, Series W Preferred Shares and Series TH
Preferred Shares auctions are held respectively, on Mondays, Tuesdays,
Wednesdays and Thursdays. Dividends are payable, when, as and if authorized by
the Board and declared by the Fund: on Series M Preferred Shares on Tuesdays; on
Series T Preferred Shares on Wednesdays; on Series W Preferred Shares on
Thursdays and on Series TH Preferred Shares on Fridays.
ACM Municipal Securities has authorized, issued and oustanding 3,600 shares
of Auction Preferred Stock as follows: 1,200 Series A Preferred Shares, 1,200
Series B Preferred Shares and 1,200 Series C Preferred Shares. The preferred
shares have a liquidation value of $25,000 per share plus accumulated unpaid
dividends. ACM Municipal Securities' preferred stock will pay dividends based on
a rate set at Auctions, normally held weekly, except in the case of special rate
periods. For Series A Preferred Shares, Series B Preferred Shares, and Series C
Preferred Shares auctions are held, respectively, on Wednesdays, Mondays, and
Thursdays. Dividends are payable, when, as and if authorized by the Board and
declared by the Fund: on Series A Preferred Shares on Thursdays; on Series B
Preferred Shares on Tuesdays; and on Series C Preferred Shares on Mondays.
If dividends are payable on a day that is not a business day then such
dividends will be paid on such shares on the first business day that falls after
that day.
Each series of preferred stock of a Fund will rank on parity with any other
series of preferred stock of that Fund as to the payment of dividends and the
distribution of assets upon liquidation. Preferred shares are, when issued,
fully paid and non-assessable and have no preemptive or conversion rights or
rights to cumulative voting. The preferred stock of each series of each Fund has
a liquidation value of $25,000 per share plus accumulated, unpaid dividends.
Except as otherwise provided in a Fund's charter or as otherwise required
by law, preferred stockholders will have equal voting rights with common
stockholders (one vote per share) and will vote together with common
stockholders and any other preferred stockholders as a single class. A Fund's
charter sets forth matters on which a Fund's preferred stockholders will vote
separately as a single class.
In connection with the election of a Fund's Directors, holders of
outstanding preferred stock, voting as a separate class, are entitled to elect
two of the Fund's Directors, and the remaining Directors are elected by common
stockholders and preferred stockholders, voting together as a single class. The
Funds' charters sets forth circumstances relating to outstanding and unpaid
dividends due to preferred stockholders that would entitle such stockholders to
elect members to the Board that would result in such stockholders having elected
a majority of the Directors to the Board.
(i) Redemptions
The redemption provisions pertaining to the preferred stock of each Fund
are similar. It is anticipated that preferred stock of each Fund will generally
be redeemable at the option of the applicable Fund at a price equal to the
liquidation preference of each ($25,000 per share), plus accumulated but unpaid
dividends (whether or not earned or declared) to the date of redemption plus, in
certain circumstances, a redemption premium. Preferred shares of each Fund are
also subject to mandatory redemption at a price equal to their liquidation
preference plus accumulated but unpaid dividends (whether or not earned or
declared) to the date of redemption upon the occurrence of certain specified
events, such as the failure of a Fund to maintain asset coverage requirements
for its preferred stock specified by Moody's and S&P in connection with their
issuance of ratings on their preferred stock.
(ii) Liquidation
Subject to the rights of holders of any series or class or classes of
shares ranking on parity with a Fund's preferred stock with respect to the
distribution of assets upon liquidation of a Fund, upon liquidation of a Fund,
whether voluntary or involuntary, the holders of preferred stock then
outstanding will be entitled to receive and to be paid out of the assets of the
Fund available for distribution to its stockholders, before any payment or
distribution shall be made on the common stock or on any other class of stock of
the Fund ranking junior to the preferred stock, an amount equal to the
liquidation preference with respect to such shares, plus an amount equal to all
dividends thereon (whether or not earned or declared) accumulated but unpaid to
(but not including) the date of final distribution in same-day funds, together
with any applicable gross-up payments (i.e., to account for certain federal
income tax liability consequences) in connection with the liquidation of the
Fund. After the payment to the holders of preferred stock of the full
preferential amounts provided for as described herein, the holders of preferred
stock shall have no right or claim to any of the remaining assets of a Fund.
Neither the sale of all or substantially all the property or business of
the Fund, nor the merger or consolidation of a Fund into or with any other
corporation nor the merger or consolidation of any other corporation into or
with a Fund, shall be a liquidation, whether voluntary or involuntary, for the
purposes of the foregoing paragraph.
The terms of the Series M, Series T, Series W and Series TH Preferred
Shares of Alliance National Municipal provide that, in determining whether a
distribution (other than upon voluntary or involuntary dissolution) by dividend,
redemption or other acquisition of shares of stock of the Fund or otherwise is
permitted under the MGCL, amounts that would be needed, if the Fund were to be
dissolved at the time of the distribution, to satisfy the preferential rights
upon dissolution of the holders of such series of Preferred Shares will not be
added to the Fund's total liabilities.
(iii) Ratings
The preferred stock of each Fund has been assigned a rating of "AAA" from
S&P and "Aaa" from Moody's. Each Fund intends that, so long as its preferred
shares are outstanding, the composition of its portfolio will reflect guidelines
established by S&P and Moody's in connection with each Fund's receipt of a
rating for such shares of at least "AAA" from S&P and "Aaa" from Moody's. S&P
and Moody's, which are nationally recognized statistical rating organizations,
issue ratings for various securities reflecting the perceived creditworthiness
of such securities. The guidelines for rating such preferred stock have been
developed by S&P and Moody's and are designed to ensure that assets underlying
outstanding debt or preferred stock will be varied sufficiently and will be of
sufficient quality and amount to justify investment grade ratings. The
guidelines do not have the force of law but have been adopted by each Fund in
order to satisfy current requirements necessary for S&P and Moody's to issue the
above-described ratings for preferred stock, which ratings generally are relied
upon by institutional investors in purchasing such securities. The guidelines
provide a set of tests for portfolio composition and asset coverage that
supplement (and in some cases are more restrictive than) the applicable
requirements under the 1940 Act.
Each Fund may, but is not required to, adopt any modifications to these
guidelines that hereafter may be established by S&P or Moody's. Failure to adopt
any such modifications, however, may result in a change in the ratings described
above or a withdrawal of the ratings altogether. In addition, any rating agency
providing a rating for a Fund's preferred stock, at any time, may change or
withdraw any such rating. As set forth in each Fund's Articles Supplementary,
each Fund, without stockholder approval, may modify certain definitions or
restrictions that have been adopted by the Fund pursuant to the rating agency
guidelines, provided the Board of a Fund has obtained written confirmation from
S&P and Moody's that any such change would not impair the ratings then assigned
by S&P and Moody's to the preferred stock.
Board of Directors
------------------
Each Fund has a Board of Directors that is divided into three classes of
Directors. The terms of the Directors in a class are staggered so that for a
given year only one class of Directors will be up for election by a Fund's
stockholders. The Funds believe that classification of the Board of Directors
will help to ensure the continuity and stability of a Fund's business strategies
and policies as determined by the Board of Directors.
The classified board provision could have the effect of making the
replacement of incumbent Directors more time-consuming and difficult. At least
two annual meetings of stockholders, instead of one, will generally be required
to effect a change in a majority of the Board of Directors. Thus, the classified
board provision could increase the likelihood that incumbent Directors will
retain their positions. The staggered terms of Directors may delay, defer, or
prevent a tender offer or an attempt to change control of a Fund, although the
tender offer or change in control might be in the best interest of the
stockholders.
The procedures available to a Fund's stockholders for calling stockholders'
meetings for the removal of directors are the same. Under Maryland law and the
Funds' charters, a director may be removed only with cause at a meeting duly
called and at which a quorum is present by the affirmative vote of seventy-five
percent of all the votes entitled to be cast.
Stockholder Meetings
--------------------
The Bylaws of the Funds provide that special meetings of stockholders for
any purpose shall be called by a Fund's Secretary upon the written request of
holders of shares entitled to cast not less than a majority of the votes
entitled to be cast at a meeting. Special Meetings may also be called by the
Board of Directors and certain officers.
Except as otherwise required by law or a Fund's charter, the presence in
person or by proxy of the holders entitled to cast a majority of the votes
entitled to be cast constitutes a quorum at any meeting of stockholders of a
Fund. Pursuant to each Fund's charter, except in instances involving
extraordinary corporate action, such as a merger, amendments to its Charter or
removal of a director, generally, the vote of a majority of the aggregate number
of votes entitled to be cast on a matter is required in order to take or
authorize any such action for which approval of the stockholders is required.
The Bylaws of each Fund provides that each director shall be elected by the
affirmative vote of the holders of a majority of the votes entitled to be cast;
for other matters, when a quorum is present, the affirmative vote of a majority
of the votes cast shall decide any question brought before such meeting unless a
statute or charter requires a higher voting margin.
Dividend Reinvestment Plans
---------------------------
Stockholders of ACM Municipal Securities whose common shares are registered
in their own names will automatically be enrolled as participants in that Fund's
Dividend Reinvestment and Cash Purchase Plan (the "DRIP"), under which dividends
and capital gain distributions to stockholders will be paid or reinvested in
additional shares of the Fund (the "Dividend Shares"). Procedures are available
to stockholders who do not wish to participate in the DRIP. Stockholders of
Alliance National Municipal whose common shares are registered in their own
names may elect to participate in that Fund's DRIP. Equiserve Trust Company NA
("Agent") acts as agent to stockholders under the Plan. Stockholders whose
shares are held in the name of a broker or nominee should contact such broker or
nominee to determine whether or how they may participate in the DRIP. Assuming
the Acquisition is approved, the DRIP stockholders of ACM Municipal Securities
will automatically be enrolled in the DRIP for Alliance National Municipal.
If the Board declares an income distribution or determines to make a
capital gain distribution payable either in shares or in cash, as holders of
a Fund's common stock may have elected, non-participants in the DRIP will
receive cash and participants in the Plan will receive the equivalent in shares
of common stock of the Fund valued as follows:
(i) If the shares of common stock are trading at NAV or at a premium
above net asset value at the time of valuation, the Fund will issue
new shares at the greater of net asset value or 95% of the then
current market price.
(ii) If the shares of common stock are trading at a discount from NAV
at the time of valuation, the Agent will receive the dividend or
distribution in cash and apply it to the purchase of the Fund's shares
of common stock in the open market on the NYSE or elsewhere, for the
participants' accounts. Such purchases will be made on or shortly
after the payment date for such dividend or distribution and in no
event more than 30 days after such date except where temporary
curtailment or suspension of purchase is necessary to comply with
Federal securities laws. If, before the Agent has completed its
purchases, the market price exceeds the NAV of a share of common
stock, the average purchase price per share paid by Agent may exceed
the NAV of the Fund's shares of common stock, resulting in the
acquisition of fewer shares than if the dividend or distribution had
been paid in shares issued by the Fund.
The Agent will maintain all stockholders' accounts in the DRIP and furnish
written confirmation of all transactions in the account, including information
needed by stockholders for tax records. Shares in the account of each DRIP
participant will be held by the Agent in non-certificate form in the name of the
participant, and each stockholder's proxy will include those shares purchased or
received pursuant to the Plan.
There will be no charges with respect to shares issued directly by a Fund
to satisfy the dividend reinvestment requirements. However, each participant
will pay a pro rata share of brokerage commissions incurred with respect to the
Agent's open market purchases of shares. In each case, the cost per share of
shares purchased for each stockholder's account will be the average cost,
including brokerage commissions, of any shares purchased in the open market plus
the cost of any shares issued by a Fund.
The automatic reinvestment of dividends and distributions will not relieve
participants of any income taxes that may be payable (or required to be
withheld) on dividends and distributions.
Experience under a DRIP may indicate that changes are desirable.
Accordingly, a Fund reserves the right to amend or terminate the DRIP as applied
to any voluntary cash payments made and any dividend or distribution paid
subsequent to written notice of the change sent to participants in the Plan at
least 90 days before the record date for such dividend or distribution. The Plan
may also be amended or terminated by the Agent on at least 90 days' written
notice to participants in the Plan.
All correspondence concerning the DRIPs for the Funds should be directed to
Equiserve Trust Company N.A., P.O. Box 43011, Providence, RI 02940-3011.
Tender Offer/Share Repurchase Policies
--------------------------------------
In recognition that their shares may trade at a discount, both Funds have
voluntary share repurchase and tender offer policies. The policies differ
somewhat. ACM Municipal Securities' policy states that "the Board has determined
that it would be in the best interests" of stockholders for the Fund to take
action to attempt to reduce or eliminate a discount. Alliance National
Municipal's policy states that the Fund "may consider" a share repurchase or
tender offer if the Fund's shares trade at a substantial discount for an
extended period of time. In addition, ACM Municipal Securities' policy provides
that the Fund may "from time to time" take action either to repurchase shares or
make a tender offer, while Alliance National Municipal's policy states that the
Fund has "no present intention" to repurchase shares. After the Acquisition,
Alliance National Municipal will retain its current voluntary tender offer/share
repurchase policy.
Possible Future Conversion to Open-End Investment Company
---------------------------------------------------------
A Fund's Board of Directors may also from time to time consider submitting
for a stockholder vote a proposal to convert the Fund to an open-end investment
company in an attempt to reduce or eliminate the significant market discounts
from NAV. A Fund's charter requires the affirmative vote or consent of holders
of at least seventy-five percent (75%) of each class of the Fund's shares
entitled to vote on the matter to authorize a conversion of the Fund from a
closed-end to an open- end investment company. This seventy-five percent (75%)
stockholder approval requirement is higher than is required under the 1940 Act.
If a Fund converted to an open-end company, it would be required to redeem
all preferred stock then outstanding (requiring in turn that it liquidate a
portion of its investment portfolio), and the Fund's common shares likely would
no longer be listed on the NYSE. Stockholders of an open-end investment company
may require the company to redeem their shares on any business day (except in
certain circumstances as authorized by or under the 1940 Act) at their net asset
value, less such redemption charge, if any, as might be in effect at the time of
redemption. In order to avoid maintaining large cash positions or liquidating
favorable investments to meet redemptions, open-end companies typically engage
in a continuous offering of their shares. Open-end companies are thus subject to
periodic asset in-flows and out-flows that can complicate portfolio management.
The repurchase by the Fund of its shares at prices below NAV will result in
an increase in the NAV of those shares that remain outstanding. However, there
can be no assurance that share repurchases or tender offers at or below NAV will
result in a Fund's shares trading at a price equal to their NAV. Nevertheless,
the fact that a Fund's shares may be the subject of repurchase or tender offers
at NAV from time to time, or that the Fund may be converted to an open-end
company, may reduce any spread between market price and NAV that might otherwise
exist.
In addition, a purchase by a Fund of its shares would decrease the Fund's
total assets, which would likely have the effect of increasing the Fund's
expense ratio and may also require the redemption of a portion of any
outstanding preferred stock in order to maintain coverage ratios. Any purchase
by a Fund of its common shares at a time when preferred shares are outstanding
will increase the leverage applicable to the outstanding common shares then
remaining.
Certain Anti-Takeover Provisions of the Funds' Charters and Bylaws
------------------------------------------------------------------
The Funds presently have provisions in their Charters and Bylaws (together,
the "Charter Documents") that are intended to limit (i) the ability of other
entities or persons to acquire control of a Fund, (ii) a Fund's freedom to
engage in certain transactions, or (iii) the ability of a Fund's directors or
stockholders to amend the Charter Documents or effect changes in the Fund's
management. These provisions of the Charter Documents may be regarded as
"anti-takeover" provisions.
The Board of Directors of each Fund is divided into three classes, each
having a term of three years. At each annual meeting of stockholders, the term
of one class of directors expires. Accordingly, only those directors in one
class may be changed in any one year, and it would require two years to change a
majority of the Board of Directors (although under Maryland law procedures are
available for the removal of directors even if they are not then standing for
reelections and under SEC regulations procedures are available for including
stockholder proposals in management's annual proxy statement). Such a system of
electing directors may have the effect of maintaining the continuity of
management and, thus, make it more difficult for a Fund's stockholders to change
the majority of directors. Generally, under a Fund's Charter, the affirmative
vote of the stockholders entitled to cast a majority of the votes entitled to be
cast is required for the consolidation of the Fund with another corporation, a
merger of the Fund with or into another corporation (except for certain mergers
in which the Fund is the successor), a statutory share exchange in which the
Fund is not the successor, a sale or transfer of all or substantially all of the
Fund's assets, the dissolution of the Fund and most amendments to the Fund's
Charter. In addition, the affirmative vote of 75% (which is higher than that
required under Maryland law or the 1940 Act) of the outstanding shares of common
stock of a Fund is required generally to authorize any of the following
transactions or to amend the provisions of the Charter relating to such
transactions:
(i) merger, consolidation or statutory share exchange of the Fund with or
into any other corporation;
(ii) issuance of any securities of the Fund to any person or entity for
cash;
(iii) sale, lease or exchange of all or any substantial part of the assets
of the Fund to any entity or person (except assets having an aggregate
fair market value of less than $1,000,000); or
(iv) sale, lease or exchange to the Fund, in exchange for securities of the
Fund, of any assets of any entity or person (except assets having an
aggregate fair market value of less than $1,000,000);
if such corporation, person or entity is directly, or indirectly through
affiliates, the beneficial owner of more than 5% of the outstanding shares of
the Fund (a "principal stockholder"). However, such vote would not be required
where, under certain conditions, the Board of Directors approves the
transaction, although in certain cases involving merger, consolidation or
statutory share exchange or sale of all or substantially all of a Fund's assets
the affirmative vote of a majority of the outstanding shares of the Fund would
nevertheless be required.
The provisions of the Charter Documents described above and a Fund's right
to repurchase or make a tender offer for its common stock could have the effect
of depriving the owners of shares of opportunities to sell their shares at a
premium over prevailing market prices, by discouraging a third party from
seeking to obtain control of the Fund in a tender offer or similar transaction.
The overall effect of these provisions is to render more difficult the
accomplishment of a merger or the assumption of control by a principal
stockholder. However, they provide the advantage of potentially requiring
persons seeking control of the Fund to negotiate with its management regarding
the price to be paid and facilitating the continuity of the Fund's management
and investment objective and policies. The Board of Directors of each Fund has
considered the foregoing anti-takeover provisions and concluded that they are in
the best interests of the Fund and its stockholders.
Limitation of Liability of Directors and Officers; Indemnification
------------------------------------------------------------------
The charter of each Fund provides that, to the fullest extent that
limitations on the liability of directors and officers are permitted by Maryland
law, no director or officer of the Fund shall have any liability to the Fund or
its stockholders for money damages. The Charter and Bylaws of each of the Funds
provide that each Fund shall indemnify its officers and directors, as
applicable, to the full extent permitted by Maryland law. This indemnification
does not protect any such person against any liability to a Fund or any
stockholder thereof to which such person would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the satisfaction of such person's office.
Purchase and Sale Information
-----------------------------
Purchase and sale procedures for the Funds' common stock are substantially
similar. Investors typically purchase and sell shares of the Funds through a
registered broker-dealer on the NYSE, thereby incurring a brokerage commission
set by the broker-dealer. Alternatively, investors may purchase or sell shares
of the Funds through privately negotiated transactions with existing
stockholders.
The purchase and sale procedures with respect to the Funds' preferred stock
are substantially similar. The preferred stock are not listed on an exchange but
may be bought and sold at an auction that is normally held weekly by submitting
orders to a participating broker-dealer. In addition to the auctions,
participating broker-dealers may maintain a secondary trading market in
preferred stock outside of the auctions, but may discontinue this activity at
any time.
APPENDIX E
FORM OF AGREEMENT AND PLAN OF ACQUISITION AND LIQUIDATION
RELATING TO THE ACQUISITION OF ALL OF THE ASSETS AND LIABILITIES
OF ACM MUNICIPAL SECURITIES INCOME FUND, INC
This Agreement and Plan of Acquisition and Liquidation (the "Plan") is made
as of this [__] day of [________], 2007, by and among Alliance National
Municipal Income Fund, Inc. (the "Acquiring Fund"), a Maryland corporation, ACM
Municipal Securities Income Fund, Inc. (the "Acquired Fund"), a Maryland
corporation, and AllianceBernstein L.P. (the "Adviser").
WHEREAS, the Acquiring Fund and the Acquired Fund are closed-end management
investment companies registered with the Securities and Exchange Commission (the
"SEC") under the Investment Company Act of 1940, as amended (the "1940 Act") and
the Securities Exchange Act of 1934, as amended (the "1934 Act") and shares of
common stock of each Fund are currently purchased and sold on the New York Stock
Exchange (the "NYSE");
WHEREAS, the Acquiring Fund has issued and outstanding shares of preferred
stock that include Series M Preferred Shares, Series W Preferred Shares and
Series TH Preferred Shares and the Acquiring Fund has issued and outstanding
shares of preferred stock that consist of Series A Preferred Shares, Series B
Preferred Shares and Series C Preferred Shares;
WHEREAS, the parties desire that the Acquiring Fund acquire the assets and
assume the liabilities of the Acquired Fund in exchange for shares of common
stock of the Acquiring Fund with equal net asset value to the Acquired Fund's
common stock and in exchange for shares of preferred stock of the Acquiring Fund
with an aggregate liquidation preference and value equal to the outstanding
Acquired Fund's preferred stock and the distribution of such shares of the
Acquiring Fund to the stockholders of the Acquired Fund (the "Acquisition") and
that the Acquired Fund thereafter dissolve;
WHEREAS, the parties intend that the Acquisition qualify as a
"reorganization" within the meaning of section 368(a) of the United States
Internal Revenue Code of 1986, as amended (the "Code"), and any successor
provisions, and that with respect to the Acquisition, the Acquiring Fund and the
Acquired Fund will each be a "party to a reorganization" within the meaning of
section 368(b) of the Code;
Now, therefore, the Acquiring Fund and the Acquired Fund agree as follows:
1. Definitions
In addition to the terms elsewhere defined herein, each of the
following terms shall have the meaning indicated for that term as
follows:
1933 Act............................. Securities Act of 1933, as amended.
Acquiring Fund Common Stock Share.... A share of common stock of the Acquiring
Fund.
Acquiring Fund Preferred Shares...... Series M Preferred Shares, Series W
Preferred Shares and Series TH Preferred
Shares of the Acquiring Fund.
Assets............................... All assets of any kind and all interests,
rights, privileges and powers of or
attributable to the Acquired Fund or its
shares, as appropriate, whether or not
determinable at the appropriate Effective
Time and wherever located, including,
without limitation, all cash, cash
equivalents, securities, claims (whether
absolute or contingent, known or unknown,
accrued or unaccrued or conditional or
unmatured), contract rights and
receivables (including dividend and
interest receivables) owned by the
Acquired Fund or attributable to its
shares and any deferred or prepaid
expense, other than unamortized
organizational expenses, shown as an
asset on the Acquired Fund's books.
Closing Date......................... Shall be on such date following the date
that stockholders of the Acquired Fund
approve the Plan, as the parties may
agree [provided that the Closing Date
shall not be a date on which a
remarketing of the preferred shares of
the Acquired Fund would ordinarily
occur].
Effective Time....................... 5:00 p.m. Eastern Time on the Closing
Date, or such other time as the parties
may agree to in writing.
Financial Statements................. The audited financial statements of the
relevant Fund for its most recently
completed fiscal year and, if applicable,
the unaudited financial statements of
that Fund for its most recently completed
semi-annual period.
Fund................................. The Acquiring Fund and/or the Acquired
Fund, as the case may be.
Liabilities.......................... All liabilities, expenses and obligations
of any kind whatsoever of the Acquired
Fund, whether known or unknown, accrued
or unaccrued, absolute or contingent or
conditional or unmatured, except that
expenses of the Acquisition, if any,
contemplated hereby to be paid by the
Acquired Fund pursuant to Section 25 of
this Plan, which shall not be assumed or
paid by the Acquiring Fund and shall not
fall within the definition of Liabilities
for purposes of this Plan.
N-14 Registration Statement.......... The Registration Statement of the
Acquiring Fund on Form N-14 under the
1940 Act that will register the Acquiring
Fund Common Stock Shares and Acquiring
Fund Preferred Shares to be issued in the
Acquisition and will include the proxy
materials necessary for the stockholders
of the Acquired Fund to approve the
Acquisition.
Valuation Time....................... The close of regular session trading on
the NYSE on the Closing Date, when for
purposes of the Plan, the Acquiring Fund
determines its net asset value per
Acquiring Fund Common Stock Share and the
Acquired Fund determines the net value of
the Assets.
NAV with respect to common stock..... A Fund's net asset value is calculated by
valuing and totaling assets and then
subtracting liabilities and the value of
the liquidation preference applicable to
a Fund's preferred shares and then
dividing the balance by the number of
shares of common stock that are
outstanding.
2. Regulatory Filings
The Acquiring Fund shall promptly prepare and file the N-14
Registration Statement with the SEC, and the Acquiring Fund and the
Acquired Fund also shall make any other required or appropriate filings
with respect to the actions contemplated hereby.
3. Stockholder Action
As soon as practicable after the effective date of the N-14
Registration Statement, the Acquired Fund shall hold a stockholders meeting
to consider and approve the Acquisition and this Plan and such other
matters as the Board of Directors may determine. Such approval by the
stockholders of the Acquired Fund shall, to the extent necessary to permit
the consummation of the transactions contemplated herein without violating
any investment objective, policy or restriction of the Acquired Fund, be
deemed to constitute approval by the stockholders of a temporary amendment
of any investment objective, policy or restriction that would otherwise be
inconsistent with or violated upon the consummation of such transactions
solely for the purpose of consummating such transactions.
4. Transfer of the Acquired Fund's Assets.
The Acquiring Fund and the Acquired Fund shall take the following
steps with respect to the Acquisition, as applicable:
(a) On or prior to the Closing Date, the Acquired Fund shall pay
or provide for the payment of all of the Liabilities,
expenses, costs and charges of or attributable to the
Acquired Fund that are known to the Acquired Fund and that
are due and payable prior to or as of the Closing Date.
(b) Prior to the Effective Time, except to the extent prohibited
by Rule 19b-1 under the 1940 Act, the Acquired Fund will
declare to Acquired Fund stockholders of record a dividend
or dividends which, together with all previous such
dividends, shall have the effect of distributing (a) all the
excess of (i) Acquired Fund's investment income excludable
from gross income under section 103(a) of the Code over (ii)
Acquired Fund's deductions disallowed under section 265 and
171(a)(2) of the Code, (b) all of Acquired Fund's investment
company taxable income (as defined in Code section 852),
(computed in each case without regard to any deduction for
dividends paid), and (c) all of Acquired Fund's net realized
capital gain (as defined in Code section 1222), if any
(after reduction for any capital loss carryover), in each
case for both the taxable year ending on [__________], and
the short taxable year beginning on [__________], and ending
on the Closing Date. Such dividends will be made to ensure
continued qualification of the Acquired Fund as a "regulated
investment company" for tax purposes and to eliminate
fund-level tax.
(c) At the Effective Time, pursuant to Articles of Transfer
accepted for record by the State Department of Assessments
and Taxation of Maryland (the "SDAT"), the Acquired Fund
shall assign, transfer, deliver and convey the Assets to the
Acquiring Fund, subject to the Liabilities. The Acquiring
Fund shall then accept the Assets and assume the Liabilities
such that at and after the Effective Time (i) the Assets at
or after the Effective Time shall become and be assets of
the Acquiring Fund, and (ii) the Liabilities at the
Effective Time shall attach to the Acquiring Fund, and shall
be enforceable against the Acquiring Fund to the same extent
as if initially incurred by the Acquiring Fund.
(d) Dividends on the preferred shares of the Acquired Fund shall
accumulate to and include the Closing Date and then cease to
accumulate. At or prior to the Closing, the Acquired Fund
will declare all accumulated but unpaid dividends on the
preferred shares of the Acquired Fund up to and including
the Closing Date, such dividends to be paid to holders
thereof on the applicable dividend payment date
corresponding to a particular series of preferred shares of
the Acquired Fund.
(e) Within a reasonable time prior to the Closing Date, the
Acquired Fund shall provide, if requested, a list of the
Assets to the Acquiring Fund. The Acquired Fund may sell any
asset on such list prior to the Effective Time. After the
Acquired Fund provides such list, the Acquired Fund will not
acquire any additional securities or permit to exist any
encumbrances, rights, restrictions or claims not reflected
on such list, without the approval of the Acquiring Fund.
Within a reasonable time after receipt of the list and prior
to the Closing Date, the Acquiring Fund will advise the
Acquired Fund in writing of any investments shown on the
list that the Acquiring Fund has determined to be
inconsistent with its investment objective, policies and
restrictions. The Acquired Fund will dispose of any such
securities prior to the Closing Date to the extent
practicable and consistent with applicable legal
requirements, including the Acquired Fund's investment
objectives, policies and restrictions. In addition, if the
Acquiring Fund determines that, as a result of the
Acquisition, the Acquiring Fund would own an aggregate
amount of an investment that would exceed a percentage
limitation applicable to the Acquiring Fund, the Acquiring
Fund will advise the Acquired Fund in writing of any such
limitation and the Acquired Fund shall dispose of a
sufficient amount of such investment as may be necessary to
avoid the limitation as of the Effective Time, to the extent
practicable and consistent with applicable legal
requirements, including the Acquired Fund's investment
objectives, policies and restrictions.
(f) The Acquired Fund shall assign, transfer, deliver and convey
the Assets to the Acquiring Fund at the Effective Time on
the following basis:
(1) The value of the Assets less the Liabilities, both
determined as of the Valuation Time, shall be divided
by the then NAV of one Acquiring Fund Common Stock
Share, and, in exchange for the transfer of the Assets,
the Acquiring Fund shall simultaneously issue and
deliver to the Acquired Fund the number of full
Acquiring Fund Common Stock Shares so determined that
are allocable to all shares held by or for those
stockholders of the Acquired Fund on a stockholder by
stockholder basis plus fractional Acquiring Fund Common
Stock Shares, rounded to the second decimal place or
such other decimal place as the parties may agree to in
writing, allocable to those stockholders of the
Acquired Fund that at the Effective Time participate in
the Acquired Fund's Dividend Reinvestment Plan ("DRIP
Stockholders"), regardless of whether the shares of the
Acquired Fund with respect to which such fractional
Acquiring Fund Common Stock Shares are to be issued and
delivered are held by or for the DRIP Stockholders
directly or in the Acquired Fund's Dividend
Reinvestment Plan. The Acquiring Fund shall at the same
time deliver to the Acquired Fund cash in lieu of any
fractional Acquiring Fund Common Stock Shares allocable
to those stockholders of the Acquired Fund that are not
DRIP Stockholders;
(2) [_____] Series M Preferred Shares, [____] Series W
Preferred Shares and [_____] Series TH Preferred Shares
shall be issued in exchange for [____] Series B
Preferred Shares, Series A Preferred Shares, and Series
C Preferred Shares of the Acquired Fund, so that a
preferred stockholder, respectively, of the Acquired
Fund shall receive such Acquiring Fund Preferred Shares
that have an aggregate liquidation preference and value
equal to the preferred shares previously held by the
stockholder of the Acquired Fund. [The liquidation
preference of the preferred shares of the Acquired Fund
and the Acquiring Fund Preferred Shares is
$____________ per share.]
(3) The NAV of the Acquiring Fund Common Stock Shares to be
delivered to the Acquired Fund shall be determined as
of the Valuation Time in accordance with the Acquiring
Fund's then applicable valuation procedures, and the
net value of the Assets to be conveyed to the Acquiring
Fund shall be determined as of the Valuation Time in
accordance with the then applicable valuation
procedures of the Acquired Fund; and
(4) The portfolio securities of the Acquired Fund shall be
made available by the Acquired Fund to
____________________, as custodian for the Acquiring
Fund (the "Custodian"), for examination no later than
five business days preceding the Valuation Time. On the
Closing Date, such portfolio securities and all the
Acquired Fund's cash shall be delivered by the Acquired
Fund to the Custodian for the account of the Acquiring
Fund, such portfolio securities to be duly endorsed in
proper form for transfer in such manner and condition
as to constitute good delivery thereof in accordance
with the custom of brokers or, in the case of portfolio
securities held in the U.S. Treasury Department's
book-entry system or by The Depository Trust Company,
Participants Trust Company or other third party
depositories, by transfer to the account of the
Custodian in accordance with Rule 17f-4, Rule 17f-5 or
Rule 17f-7, as the case may be, under the 1940 Act and
accompanied by all necessary federal and state stock
transfer stamps or a check for the appropriate purchase
price thereof. The cash delivered shall be in the form
of currency or certified or official bank checks,
payable to the order of ____________, the Custodian, or
shall be wired to an account pursuant to instructions
provided by the Acquiring Fund.
(g) Promptly after the Closing Date, the Acquired Fund will
deliver to the Acquiring Fund a Statement of Assets and
Liabilities of the Acquired Fund as of the Closing Date.
5. Liquidation and Dissolution of the Acquired Fund, Registration of
Acquiring Fund Common Stock Shares and Acquiring Fund Preferred Shares
and Access to Records.
The Acquired Fund and the Acquiring Fund also shall take the following
steps, as applicable:
(a) At or as soon as reasonably practical after the Effective
Time, the Acquired Fund shall (i) liquidate by transferring
pro rata to its common stock holders of record, the
Acquiring Fund Common Stock Shares and cash it receives
pursuant to Section 4(f)(1) of this Plan and by transferring
to its preferred stock holders of record, the Acquiring Fund
Preferred Shares it receives pursuant to Section 4(f)(2) of
this Plan and (ii) dissolve. The Acquiring Fund shall record
on its books the ownership by the Acquired Fund's
stockholders of the Acquiring Fund Common Stock Shares and
Acquiring Fund Preferred Shares so transferred to such
stockholders, and the Acquired Fund shall simultaneously
cancel on its books all of the issued and outstanding shares
of the Acquired Fund. The Acquiring Fund shall not issue
certificates representing Acquiring Fund Common Stock Shares
to replace certificates representing Acquired Fund shares
unless the Acquired Fund share certificates are first
surrendered to the Acquiring Fund.
Following distribution by the Acquired Fund to its
stockholders of all the Acquiring Fund Common Stock Shares
and Acquiring Fund Preferred Shares delivered to the
Acquired Fund, the Acquired Fund shall wind up its affairs
and shall take all steps as are necessary and proper to
dissolve as soon as is reasonably possible after the
Effective Time, including filing of Articles of Dissolution
with SDAT.
(b) At and after the Closing Date, the Acquired Fund shall
provide the Acquiring Fund and its transfer agent with
immediate access to: (i) all records containing the names,
addresses and taxpayer identification numbers of all of the
Acquired Fund's stockholders and the number and percentage
ownership of the outstanding shares of the Acquired Fund
owned by stockholders as of the Effective Time, and (ii) all
original documentation (including all applicable Internal
Revenue Service forms, certificates, certifications and
correspondence) relating to the Acquired Fund stockholders'
taxpayer identification numbers and their liability for or
exemption from back-up withholding. The Acquired Fund shall
preserve and maintain, or shall direct its service providers
to preserve and maintain, records with respect to the
Acquired Fund as required by Section 31 of, and Rules 31a-1
and 31a-2 under, the 1940 Act.
6. Certain Representations and Warranties of the Acquired Fund.
The Acquired Fund represents and warrants to the Acquiring Fund as
follows:
(a) The Acquired Fund is a corporation duly incorporated,
validly existing and in good standing under the laws of the
State of Maryland. The Acquired Fund is registered with the
SEC as a closed-end management investment company under the
1940 Act and is duly registered with the SEC under the 1934
Act, and such registrations will be in full force and effect
as of the Effective Time.
(b) The Acquired Fund has the power and all necessary federal,
state and local qualifications and authorizations to own all
of the Assets, to carry on its business, to enter into this
Plan and to consummate the transactions contemplated herein.
(c) The Board of Directors of the Acquired Fund has duly
authorized the execution and delivery of this Plan and the
transactions contemplated herein. Duly authorized officers
of the Acquired Fund have executed and delivered the Plan.
The Plan represents a valid and binding contract,
enforceable in accordance with its terms, subject as to
enforcement to bankruptcy, insolvency, reorganization,
arrangement, moratorium, and other similar laws of general
applicability relating to or affecting creditors' rights and
to general equity principles. The execution and delivery of
this Plan does not, and, subject to the approval of
stockholders referred to in Section 3 hereof, the
consummation of the transactions contemplated by this Plan
will not, violate the Acquired Fund's Charter (the "Acquired
Fund Charter"), its Bylaws (the "Acquired Fund Bylaws") or
any material agreement to which the Acquired Fund is
subject. Except for the approval of its stockholders, the
Acquired Fund does not need to take any other action to
authorize its officers to effectuate this Plan and the
transactions contemplated herein.
(d) The Acquired Fund has qualified as a regulated investment
company under Part I of Subchapter M of Subtitle A, Chapter
1, of the Code, in respect of each taxable year since the
commencement of its operations and intends to continue to
qualify as a regulated investment company for its taxable
year ending upon its liquidation.
(e) The information pertaining to the Acquired Fund included
within the N-14 Registration Statement when filed with the
SEC, when Part A of the N-14 Registration Statement is
distributed to stockholders, at the time of the stockholders
meeting of the Acquired Fund for approval of the Acquisition
and at the Effective Time shall (i) comply in all material
respects with the applicable provisions of the 1933 Act, the
1934 Act and the 1940 Act, and the rules and regulations
thereunder and applicable state securities laws, and (ii)
not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or
necessary to make the statements made therein not
misleading.
(f) The Acquired Fund has duly authorized and validly issued all
of its issued and outstanding shares of common stock, and
all such shares are fully paid and non-assessable and were
offered for sale and sold in conformity with the
registration requirements of all applicable federal and
state securities laws. There are no outstanding options,
warrants or other rights to subscribe for or purchase any of
the shares of the Acquired Fund, nor are there any
securities convertible into shares of the Acquired Fund.
(g) The authorized capital of the Acquired Fund consists of
[_________] shares of common stock with a par value of
[____] per share and [______] shares of Series A Preferred
Shares, [______] shares of Series B Preferred Shares, and
[______] shares of Series C Preferred Shares, with a par
value of [______]. All issued and outstanding preferred
shares of the Acquired Fund are fully paid and
non-assessable and were offered for sale and sold in
conformity with the registration requirements of all
applicable federal and state securities laws
(h) The Acquired Fund shall operate its business in the ordinary
course between the date hereof and the Effective Time. Such
ordinary course of business will include the declaration and
payment of customary dividends and distributions and any
other dividends and distributions referred to in Section
4(b) and Section 4(d) hereof.
(i) At the Effective Time, the Acquired Fund will have good and
marketable title to the Assets and full right, power and
authority to assign, transfer, deliver and convey the
Assets.
(j) The Financial Statements of the Acquired Fund, a copy of
which has been previously delivered to the Acquiring Fund,
fairly present the financial position of the Acquired Fund
as of the Acquired Fund's most recent fiscal year-end and
the results of the Acquired Fund's operations and changes in
the Acquired Fund's net assets for the periods indicated.
(k) To the knowledge of the Acquired Fund, the Acquired Fund has
no liabilities, whether or not determined or determinable,
other than the Liabilities disclosed or provided for in its
Financial Statements or Liabilities incurred in the ordinary
course of business subsequent to the date of the most recent
Financial Statement referencing Liabilities.
(l) To the knowledge of the Acquired Fund, except as has been
disclosed in writing to the Acquiring Fund, no claims,
actions, suits, investigations or proceedings of any type
are pending or threatened against the Acquired Fund or any
of its properties or assets or any person whom the Acquired
Fund may be obligated to indemnify in connection with such
litigation, proceeding or investigation. Subject to the
foregoing, there are no facts that the Acquired Fund has
reason to believe are likely to form the basis for the
institution of any such claim, action, suit, investigation
or proceeding against the Acquired Fund. The Acquired Fund
is not a party to nor subject to the provisions of any
order, decree or judgment of any court or governmental body
that adversely affects, or is reasonably likely to adversely
affect, its financial condition, results of operations, or
the Assets or its ability to consummate the transactions
contemplated by the Plan.
(m) Except for agreements entered into or granted in the
ordinary course of its business, in each case under which no
material default exists, and this Plan, the Acquired Fund is
not a party to or subject to any material contract or other
commitments, which if terminated, may result in material
liability to the Acquired Fund or under which (whether or
not terminated) any material payment for periods subsequent
to the Closing Date will be due from the Acquired Fund.
(n) The Acquired Fund has filed its federal income tax returns,
copies of which have been previously made available to the
Acquiring Fund, for all taxable years for which such returns
are due and has paid all taxes payable pursuant to such
returns. All of the Acquired Fund's tax liabilities will
have been adequately provided for on its books. No such
return is currently under audit and no unpaid assessment has
been asserted with respect to such returns. To the best of
the Acquired Fund's knowledge, it will not have any tax
deficiency or liability asserted against it or question with
respect thereto raised, and it will not be under audit by
the Internal Revenue Service or by any state or local tax
authority for taxes in excess of those already paid. The
Acquired Fund will timely file its federal income tax return
for each subsequent taxable year including its current
taxable year.
(o) For federal income tax purposes, the Acquired Fund qualifies
as a "regulated investment company," and the provisions of
section 851 through 855 of the Code apply to the Acquired
Fund for the remainder of its current taxable year beginning
[__________], and will continue to apply through the Closing
Date.
(p) Since the date of the Financial Statements of the Acquired
Fund, there has been no material adverse change in its
financial condition, results of operations, business, or
Assets. For this purpose, negative investment performance
shall not be considered a material adverse change.
(q) The Acquired Fund's investment operations from inception to
the date hereof have been in compliance in all material
respects with the investment policies and investment
restrictions set forth in its prospectus or prospectuses and
statement or statements of additional information as in
effect from time to time, except as previously disclosed in
writing to the Acquiring Fund.
(r) The Acquiring Fund Common Stock Shares to be issued to the
Acquired Fund pursuant to paragraph 4(f)(1) and the
Acquiring Fund Preferred Shares to be issued to the Acquired
Fund pursuant to paragraph 4(f)(2) will not be acquired for
the purpose of making any distribution thereof other than to
the Acquired Fund Stockholders as provided in paragraph
4(f)(1) and paragraph 4(f)(2).
(s) The Acquired Fund, or its agents, (i) holds a valid Form
W-8Ben, Certificate of Foreign Status of Beneficial Owner
for United States Withholding (or other appropriate series
of Form W-8, as the case may be) or Form W-9, Request for
Taxpayer Identification Number and Certification, for each
Acquired Fund stockholder of record, which Form W-8 or Form
W-9 can be associated with reportable payments made by the
Acquired Fund to such stockholder, and/or (ii) has otherwise
timely instituted the appropriate backup withholding
procedures with respect to such stockholder as provided by
Section 3406 of the Code and the regulations thereunder.
7. Certain Representations and Warranties of Acquiring Fund.
The Acquiring Fund represents and warrants to the Acquired Fund as
follows:
(a) The Acquiring Fund is a corporation duly incorporated,
existing and in good standing under the laws of the State of
Maryland. The Acquiring Fund is registered with the SEC as a
closed-end management investment company under the 1940 Act
and is duly registered with the SEC under the 1934 Act, and
such registrations will be in full force and effect as of
the Effective Time.
(b) The Acquiring Fund shall operate its business in the
ordinary course between the date hereof and the Effective
Time. Such ordinary course of business will include the
declaration and payment of customary dividends and
distributions and any other dividends and distributions
referred to in Section 4(b) hereof.
(c) The Acquiring Fund has the power and all necessary federal,
state and local qualifications and authorizations to own all
of its assets, to carry on its business, to enter into this
Plan and to consummate the transactions contemplated herein.
(d) The Board of Directors of the Acquiring Fund has duly
authorized execution and delivery of this Plan and the
transactions contemplated herein. Duly authorized officers
of the Acquiring Fund have executed and delivered the Plan.
The Plan represents a valid and binding contract,
enforceable in accordance with its terms, subject as to
enforcement to bankruptcy, insolvency, reorganization,
arrangement, moratorium and other similar laws of general
applicability relating to or affecting creditors' rights and
to general equity principles. The execution and delivery of
this Plan does not, and the consummation of the transactions
contemplated by this Plan will not violate the Charter of
the Acquiring Fund (the "Acquiring Fund Charter"), its
Bylaws (the "Acquiring Fund Bylaws") or any material
agreement to which the Acquiring Fund is subject. Except for
the approval of its Board, the Acquiring Fund does not need
to take any other action to authorize its officers to
effectuate the Plan and the transactions contemplated
herein.
(e) The Acquiring Fund has qualified as a regulated investment
company under Part I of Subchapter M of Subtitle A, Chapter
1, of the Code, in respect of each taxable year since the
commencement of its operations and qualifies and intends to
continue to qualify as a regulated investment company for
its current taxable year.
(f) The N-14 Registration Statement, when filed with the SEC,
when Part A of the N-14 Registration Statement is
distributed to stockholders, at the time of the stockholder
meeting of the Acquired Fund for approval of the Acquisition
and at the Effective Time, insofar as it relates to the
Acquiring Fund shall (i) comply in all material respects
with the applicable provisions of the 1933 Act, the 1934 Act
and the 1940 Act, and the rules and regulations thereunder
and applicable state securities laws and (ii) not contain
any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to
make the statements made therein, in light of the
circumstances under which they were made, not misleading.
(g) The Acquiring Fund has duly authorized and validly issued
all issued and outstanding Acquiring Fund Common Stock
Shares, and all such shares are fully paid and
non-assessable and were offered for sale and sold in
conformity with the registration requirements of all
applicable federal and state securities laws. The Acquiring
Fund has duly authorized the Acquiring Fund Common Stock
Shares referred to in Section 4(f) hereof to be issued and
delivered to the Acquired Fund as of the Effective Time.
When issued and delivered, such Acquiring Fund Common Stock
Shares shall be validly issued, fully paid and
non-assessable, and no stockholder of the Acquiring Fund
shall have any preemptive right of subscription or purchase
in respect of any such share. There are no outstanding
options, warrants or other rights to subscribe for or
purchase any Acquiring Fund Common Stock Shares, nor are
there any securities convertible into Acquiring Fund Common
Stock Shares.
(h) The authorized capital of the Acquired Fund consists of
[_________] shares of common stock with a par value of
[____] per share includes [______] shares of Series M
Preferred Shares, [______] shares of Series W Preferred
Shares, and [______] shares of Series TH Preferred Shares,
with a par value of [______]. All issued and outstanding
preferred shares of the Acquiring Fund are fully paid and
non-assessable and were offered for sale and sold in
conformity with the registration requirements of all
applicable federal and state securities laws. The Acquiring
Fund has duly authorized the Acquiring Fund Preferred Shares
referred to in Section 4(f) hereof to be issued and
delivered to the Acquired Fund as of the Effective Time.
When issued and delivered, such Acquiring Fund Preferred
Shares shall be validly issued, fully paid and
non-assessable, and no stockholder of the Acquiring Fund
shall have any preemptive right of subscription or purchase
in respect of any such share.
(i) To the knowledge of the Acquiring Fund, except as has been
disclosed in writing to the Acquiring Fund, no claims,
actions, suits, investigations or proceedings of any type
are pending or threatened against the Acquiring Fund or any
of its properties or assets or any person whom the Acquiring
Fund may be obligated to indemnify in connection with such
litigation, proceeding or investigation. Subject to the
foregoing, there are no facts that the Acquiring Fund
currently has reason to believe are likely to form the basis
for the institution of any such claim, action, suit,
investigation or proceeding against the Acquiring Fund. The
Acquiring Fund is not a party to or subject to the
provisions of any order, decree or judgment of any court or
governmental body that adversely affects, or is reasonably
likely to adversely affect its financial condition, results
of operations, its assets or its ability to consummate the
transactions contemplated by this Plan.
(j) Except for agreements entered into or granted in the
ordinary course of its business, in each case under which no
material default exists, the Acquiring Fund is not a party
to or subject to any material contract, debt instrument,
employee benefit plan, lease, franchise, license or permit
of any kind or nature whatsoever.
(k) The Acquiring Fund has filed its federal income tax returns,
copies of which have been previously made available to the
Acquired Fund, for all taxable years for which such returns
are due and has paid all taxes payable pursuant to such
returns. All of the Acquiring Fund's tax liabilities will
have been adequately provided for on its books. No such
return is currently under audit and no unpaid assessment has
been asserted with respect to such returns. To the best of
the Acquiring Fund's knowledge, it will not have any tax
deficiency or liability asserted against it or question with
respect thereto raised, and it will not be under audit by
the Internal Revenue Service or by any state or local tax
authority for taxes in excess of those already paid. The
Acquiring Fund will timely file its federal income tax
return for each subsequent taxable year including its
current taxable year.
(l) For federal income tax purposes, the Acquiring Fund
qualifies as a "regulated investment company," and the
provisions of section 851 through 855 of the Code apply to
the Acquiring Fund for the remainder of its current taxable
year beginning [__________], and will continue to apply
through the Closing Date.
(m) The Financial Statements of the Acquiring Fund, a copy of
which has been previously delivered to the Acquired Fund,
fairly present the financial position of the Acquiring
Fund's most recent fiscal year-end and the results of the
Acquiring Fund's operations and changes in the Acquiring
Fund's net assets for the period indicated.
(n) Since the date of the Financial Statements of the Acquiring
Fund, there has been no material adverse change in its
financial condition, results of operations, business or
assets. Negative investment performance shall not be
considered a material adverse change.
(o) The Acquiring Fund's investment operations from inception to
the date hereof have been in compliance in all material
respects with the investment policies and investment
restrictions set forth in its prospectus or prospectuses and
statement or statements of additional information as in
effect from time to time, except as previously disclosed in
writing to the Acquired Fund.
(p) The Acquiring Fund will use all reasonable efforts to obtain
the approvals and authorizations required by the 1933 Act,
the 1940 Act and such other state securities laws as it may
deem appropriate in order to continue its operations after
the Closing Date.
8. Conditions to the Obligations of the Acquiring Fund and the Acquired
Fund.
The obligations of the Acquiring Fund and the Acquired Fund with
respect to the Acquisition shall be subject to the following conditions
precedent:
(a) The stockholders of the Acquired Fund shall have approved
the Acquisition in the manner required by the Acquired Fund
Charter or the Acquired Fund Bylaws and applicable law. If
stockholders of the Acquired Fund fail to approve the
Acquisition as required, that failure shall release the
Funds of their obligations under this Plan.
(b) Prior to the transfer of the assets and liabilities of the
Acquired Fund to the Acquiring Fund, the Acquiring Fund will
file Articles of Amendment and/or Articles Supplementary to
the Acquiring Fund Charter to create additional shares of
Preferred Shares Series M, Preferred Shares Series W, and
Preferred Shares Series TH with the SDAT
(b) The Acquiring Fund and the Acquired Fund shall have
delivered to the other party a certificate dated as of the
Closing Date and executed in its name by its Secretary or an
Assistant Secretary, in a form reasonably satisfactory to
the receiving party, stating that the representations and
warranties of the Acquiring Fund or the Acquired Fund, as
applicable, in this Plan that apply to the Acquisition are
true and correct in all material respects at and as of the
Valuation Time.
(c) The Acquiring Fund and the Acquired Fund shall have
performed and complied in all material respects with each of
its representations and warranties required by this Plan to
be performed or complied with by it prior to or at the
Valuation Time and the Effective Time.
(d) There has been no material adverse change in the financial
condition, results of operations, business, properties or
assets of the Acquiring Fund or the Acquired Fund since the
date of the most recent Financial Statements. Negative
investment performance shall not be considered a material
adverse change.
(e) The Acquiring Fund and the Acquired Fund shall have received
an opinion of Seward & Kissel LLP reasonably satisfactory to
each of them, substantially to the effect that for federal
income tax purposes:
(1) the Acquisition will constitute a "reorganization"
within the meaning of section 368(a) of the Code and
that the Acquiring Fund and the Acquired Fund will each
be "a party to a reorganization" within the meaning of
section 368(b) of the Code;
(2) a stockholder of the Acquired Fund will recognize no
gain or loss on the exchange of the stockholder's
shares of the Acquired Fund for Acquiring Fund Common
Stock Shares and Acquiring Fund Preferred Shares,
except with respect to cash received in lieu of a
fractional share of the Acquiring Fund in connection
with the Acquisition;
(3) neither the Acquired Fund nor the Acquiring Fund will
recognize any gain or loss upon the transfer of all of
the Assets to the Acquiring Fund in exchange for
Acquiring Fund Common Stock Shares (plus cash in lieu
of fractional shares) and Acquiring Fund Preferred
Shares and the assumption by Acquiring Fund of the
Liabilities pursuant to this Plan or upon the
distribution of Acquiring Fund Common Stock Shares and
cash and Acquiring Fund Preferred Shares to
stockholders of the Acquired Fund in exchange for their
respective shares of the Acquired Fund;
(4) the holding period and tax basis of the Assets acquired
by the Acquiring Fund will be the same as the holding
period and tax basis that the Acquired Fund had in such
Assets immediately prior to the Acquisition;
(5) the aggregate tax basis of the Acquiring Fund Common
Stock Shares and Acquiring Fund Preferred Shares
received in connection with the Acquisition by each
stockholder of the Acquired Fund (including any
fractional share to which the stockholder may be
entitled) will be the same as the aggregate tax basis
of the shares of the Acquired Fund surrendered in
exchange therefor;
(6) the holding period of the Acquiring Fund Common Stock
Shares and Acquiring Fund Preferred Shares received in
connection with the Acquisition by each stockholder of
the Acquired Fund (including any fractional share to
which the stockholder may be entitled) will include the
holding period of the shares of the Acquired Fund
surrendered in exchange therefor, provided that such
Acquired Fund shares constitute capital assets in the
hands of the stockholder as of the Closing Date;
(7) The Acquiring Fund will succeed to the capital loss
carryovers of the Acquired Fund, if any, under section
381 of the Code, but the use by the Acquiring Fund of
any such capital loss carryovers (and of capital loss
carryovers of the Acquiring Fund) may be subject to
limitation under section 383 of the Code; and
(8) any gain or loss realized by a stockholder of the
Acquired Fund upon the sale of a fractional share of
the Acquiring Fund to which the stockholder is entitled
will be recognized to the stockholder and measured by
the difference between the amount of cash received and
the basis of the fractional share and, provided that
the Acquired Fund shares surrendered constitute capital
assets in the hands of the stockholder, will be a
capital gain or loss.
The opinion will be based on certain factual certifications made by officers of
the Funds and will also be based on customary assumptions and subject to certain
qualifications. The opinion is not a guarantee that the tax consequences of the
Acquisition will be as described above.
Notwithstanding this subparagraph (e), Seward & Kissel LLP will express no view
with respect to the effect of the Acquisition on any transferred asset as to
which any unrealized gain or loss is required to be recognized at the end of a
taxable year (or on the termination or transfer thereof) under federal income
tax principles. Each Fund shall agree to make and provide additional
representations to Seward & Kissel LLP with respect to the Funds that are
reasonably necessary to enable Seward & Kissel LLP to deliver the tax opinion.
Notwithstanding anything in this Plan to the contrary, neither Fund may waive in
any material respect the conditions set forth under this subparagraph (e).
(f) The N-14 Registration Statement shall have become effective
under the 1933 Act as to the Acquiring Fund Common Stock
Shares and Acquiring Fund Preferred Shares, and the SEC
shall not have instituted and to the knowledge of the
Acquiring Fund is not contemplating instituting, any stop
order suspending the effectiveness of the N-14 Registration
Statement.
(g) No action, suit or other proceeding shall be threatened or
pending before any court or governmental agency in which it
is sought to restrain or prohibit, or obtain damages or
other relief in connection with, the Acquisition.
(h) The SEC shall not have issued any unfavorable advisory
report under Section 25(b) of the 1940 Act nor instituted
any proceeding seeking to enjoin consummation of the
Acquisition under Section 25(c) of the 1940 Act.
(i) Neither party shall have terminated this Plan with respect
to the Acquisition pursuant to Section 13 of this Plan.
(j) The NYSE shall have approved, upon official notice of
issuance, the listing of the Acquiring Fund Common Stock
Shares to be issued and delivered to the Acquired Fund
pursuant hereto.
9. Conditions to the Obligations of the Acquired Fund.
The obligations of the Acquired Fund with respect to the Acquisition
shall be subject to the following conditions precedent:
(a) The Acquired Fund shall have received an opinion of Seward &
Kissel LLP, counsel to the Acquiring Fund, in form and
substance reasonably satisfactory to the Acquired Fund and
dated as of the Closing Date, substantially to the effect
that:
(1) The Acquiring Fund is a corporation duly incorporated,
existing and in good standing under the laws of the
State of Maryland and is a closed-end, management
investment company registered under the 1940 Act and
duly registered under the 1934 Act;
(2) This Plan has been duly authorized, executed and, so
far is known to such counsel, delivered by the
Acquiring Fund and, assuming the N-14 Registration
Statement referred to in Section 2 of this Plan does
not contain any material misstatements or omissions,
and assuming due authorization, execution and delivery
of this Plan by the Acquired Fund, represents a legal,
valid and binding contract, enforceable in accordance
with its terms, subject to the effect of bankruptcy,
insolvency, moratorium, fraudulent conveyance and
transfer and similar laws relating to or affecting
creditors' rights generally and court decisions with
respect thereto, and further subject to the application
of equitable principles in any proceeding, whether at
law or in equity or with respect to the enforcement of
provisions of the Plan and the effect of judicial
decisions which have held that certain provisions are
unenforceable when their enforcement would violate an
implied covenant of good faith and fair dealing or
would be commercially unreasonable or when default
under the Plan is not material;
(3) The Acquiring Fund Common Stock Shares and Acquiring
Fund Preferred Shares to be delivered as provided for
by this Plan are duly authorized and, when issued in
accordance with this Plan and the resolutions of the
Board of Directors authorizing the issuance thereof,
will be validly issued, fully paid and non-assessable;
(4) The execution and delivery of this Plan did not, and
the consummation of the Acquisition will not, violate
the Acquiring Fund Charter or the Acquiring Fund Bylaws
or any agreement of the Acquiring Fund known to such
counsel, after reasonable inquiry; and
(5) To the knowledge of such counsel, no consent, approval,
authorization or order of any federal or state court or
administrative or regulatory agency, other than the
acceptance of record of Articles of Transfer by the
SDAT, is required for the Acquiring Fund to enter into
this Plan or carry out its terms, except those that
have been obtained under the 1933 Act, the 1934 Act,
the 1940 Act and the rules and regulations under those
Acts or that may be required under state securities
laws or subsequent to the Effective Time or when the
failure to obtain the consent, approval, authorization
or order would not have a material adverse effect on
the operation of the Acquiring Fund.
In rendering such opinion, Seward & Kissel LLP may (i) rely on the opinion of
Venable LLP as to matters of Maryland law to the extent set forth in such
opinion, (ii) make assumptions regarding the authenticity, genuineness and/or
conformity of documents and copies thereof without independent verification
thereof, (iii) limit such opinion to applicable federal and state law, (iv)
define the word "knowledge" and related terms to mean the knowledge of attorneys
then with such firm who have devoted substantive attention to matters directly
related to this Plan and (v) rely on certificates of officers or directors of
the Acquiring Fund as to factual matters.
(b) The Acquired Fund shall have received a letter from the
Adviser with respect to insurance matters in form and
substance satisfactory to the Acquired Fund.
10. Conditions to the Obligations of the Acquiring Fund.
The obligations of the Acquiring Fund with respect to the Acquisition
shall be subject to the following conditions precedent:
(a) The Acquiring Fund shall have received an opinion of Seward
& Kissel LLP, counsel to the Acquired Fund, in form and
substance reasonably satisfactory to the Acquiring Fund and
dated as of the Closing Date, substantially to the effect
that:
(1) The Acquired Fund is a corporation duly incorporated,
existing and in good standing under the laws of the
State of Maryland and is a closed-end management
investment company registered under the 1940 act and
duly registered under the 1934 Act;
(2) This Plan has been duly authorized, executed and
delivered by the Acquired Fund and, assuming the N-14
Registration Statement referred to in Section 2 of this
Plan does not contain any material misstatements or
omissions, and assuming due authorization, execution
and delivery of this Plan by the Acquiring Fund,
represents a legal, valid and binding contract,
enforceable in accordance with its terms, subject to
the effect of bankruptcy, insolvency, moratorium,
fraudulent conveyance and transfer and similar laws
relating to or affecting creditors' rights generally
and court decisions with respect thereto, and further
subject to the application of equitable principles in
any proceeding, whether at law or in equity or with
respect to the enforcement of provisions of the Plan
and the effect of judicial decisions which have held
that certain provisions are unenforceable when their
enforcement would violate an implied covenant of good
faith and fair dealing or would be commercially
unreasonable or when default under the Plan is not
material;
(3) The execution and delivery of this Plan did not, and
the consummation of the Acquisition will not, violate
the Acquired Fund Charter or the Acquired Fund Bylaws
or any agreement of the Acquired Fund known to such
counsel, after reasonable inquiry; and
(4) To the knowledge of such counsel, no consent, approval,
authorization or order of any federal or state court or
administrative or regulatory agency, other than the
acceptance of record of Articles of Transfer by the
SDAT, is required for the Acquired Fund to enter into
the Plan or carry out its terms, except those that have
been obtained under the 1933 Act, the 1934 Act, the
1940 Act and the rules and regulations under those Acts
or that may be required under state securities laws or
subsequent to the Effective Time or when the failure to
obtain the consent, approval, authorization or order
would not have a material adverse effect on the
operation of the Acquired Fund.
In rendering such opinion, Seward & Kissel LLP may (i) rely on the opinion of
Venable LLP as to matters of Maryland law to the extent set forth in such
opinion, (ii) make assumptions regarding the authenticity, genuineness and/or
conformity of documents and copies thereof without independent verification
thereof, (iii) limit such opinion to applicable federal and state law, (iv)
define the word "knowledge" and related terms to mean the knowledge of attorneys
then with such firm who have devoted substantive attention to matters directly
related to this Plan and (v) rely on certificates of officers or directors of
the Acquired Fund as to factual matters.
(b) The Acquiring Fund shall have received a letter from the
Adviser agreeing to indemnify the Acquiring Fund in respect
of certain liabilities of the Acquired Fund in form and
substance satisfactory to the Acquiring Fund.
(c) The Acquiring Fund shall have obtained written confirmation
from both Moody's Investors Services, Inc. ("Moody's") and
Standard & Poor's (S&P"), that (i) consummation of the
transactions contemplated by this Plan will not impair the
ratings assigned by such rating agencies to the existing
Class M Series Preferred Shares, Class W Series Preferred
Shares and Class TH Series Preferred Shares, (ii) the
Acquiring Fund Preferred Shares to be issued in connection
with this Plan will be rated [______] by Moody's and
[_______] by S&P.
11. Closing
(a) The Closing shall be held at the offices of the Funds, 1345
Avenue of the Americas, New York, New York 10105, or at such
other time place as the parties may agree.
(b) In the event that at the Valuation Time (a) the NYSE shall
be closed to trading or trading thereon shall be restricted,
or (b) trading or the reporting of trading on said Exchange
or elsewhere shall be disrupted so that accurate appraisal
of the value of the net assets of the Acquired Fund or the
Acquiring Fund is impracticable, the Closing Date shall be
postponed until the first business day after the day when
trading shall have been fully resumed and reporting shall
have been restored; provided that if trading shall not be
fully resumed and reporting restored within three business
days of the Valuation Time, this Plan may be terminated by
either the Acquired Fund or the Acquiring Fund upon the
giving of written notice to the other party.
(c) The Acquiring Fund will provide to the Acquired Fund
evidence satisfactory to the Acquired Fund that the
Acquiring Fund Common Stock Shares and the Acquiring Fund
Preferred Shares issuable pursuant to the Acquisition have
been credited to the Acquired Fund's account on the books of
the Acquiring Fund. After the Closing Date, the Acquiring
Fund will provide to the Acquired Fund evidence satisfactory
to the Acquired Fund that such Shares have been credited pro
rata to open accounts in the names of the Acquired Fund
Stockholders.
(d) At the Closing each party shall deliver to the other such
bills of sale, instruments of assumption of liabilities,
checks, assignments, stock certificates, receipts or other
documents as such other party or its counsel may reasonably
request in connection with the transfer of assets,
assumption of liabilities and liquidation contemplated by
the Plan.
12. Survival of Representations and Warranties.
No representations, warranties or covenants in or pursuant to this
Plan (including certificates of officers) hereto shall survive the
completion of the transactions contemplated herein.
13. Termination of Plan.
A majority of either Fund's Board of Directors may terminate this Plan
with respect to that Fund at any time before the applicable Effective Time
if: (i) the Fund's conditions precedent set forth in Sections 8, 9 or 10 as
appropriate, are not satisfied; or (ii) the Board of Directors determines
that the consummation of the Acquisition is not in the best interests of
the Fund or its stockholders and gives notice of such termination to the
other party.
14. Governing Law.
This Plan and the transactions contemplated hereby shall be governed,
construed and enforced in accordance with the laws of the State of New
York, except to the extent preempted by federal law, without regard to
conflicts of law principles.
15. Brokerage Fees.
Each party represents and warrants that there are no brokers or
finders entitled to receive any payments in connection with the
transactions provided for in the Plan.
16. Amendments.
The parties may, by agreement in writing authorized by their
respective Board of Directors, amend this Plan at any time before or after
the stockholders of the Acquired Fund approve the Acquisition. However,
after stockholders of the Acquired Fund approve the Acquisition, the
parties may not amend this Plan in a manner that materially alters the
obligations of the other party. This Section shall not preclude the parties
from changing the Closing Date or the Effective Time by mutual agreement.
17. Waivers.
At any time prior to the Closing Date, either party may by written
instrument signed by it (i) waive the effect of any inaccuracies in the
representations and warranties made to it contained herein and (ii) waive
compliance with any of the agreements, covenants or conditions made for its
benefit contained herein. Any waiver shall apply only to the particular
inaccuracy or requirement for compliance waived, and not any other or
future inaccuracy or lack of compliance.
18. Indemnification of Directors.
The Acquiring Fund agrees that all rights to indemnification and all
limitations of liability existing in favor of the Acquired Fund's current
and former Directors and officers, acting in their capacities as such,
under the Acquired Fund Charter and Acquired Fund Bylaws as in effect as of
the date of this Plan shall survive the Acquisition as obligations of the
Acquiring Fund and shall continue in full force and effect, without any
amendment thereto, and shall constitute rights which may be asserted
against the Acquiring Fund, its successors or assigns.
19. Other Matters.
Pursuant to Rule 145 under the 1933 Act, and in connection with the
issuance of any shares to any person who at the time of the Acquisition is,
to the Acquiring Fund's knowledge, an affiliate of a party to the
Acquisition pursuant to Rule 145(c), the Acquiring Fund will cause to be
affixed upon the certificate(s) issued to such person (if any) a legend as
follows:
THESE SHARES ARE SUBJECT TO RESTRICTIONS ON
TRANSFER UNDER THE SECURITIES ACT OF 1933 AND MAY
NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT TO
ACQUIRING FUND (OR ITS STATUTORY SUCCESSOR) UNLESS
(I) A REGISTRATION STATEMENT WITH RESPECT TO SUCH
SHARES IS EFFECTIVE UNDER THE SECURITIES ACT OF
1933 OR (II) IN THE OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE FUND, SUCH REGISTRATION IS NOT
REQUIRED.
20. Cooperation and Further Assurances.
Each party will cooperate with the other in fulfilling its obligations
under this Plan and will provide such information and documentation as is
reasonably requested by the other in carrying out the Plan's terms. Each
party will provide such further assurances concerning the performance of
its obligations hereunder and execute all documents for or in connection
with the consummation of the Acquisition as, with respect to such
assurances or documents, the other shall deem necessary or appropriate.
21. Updating of N-14 Registration Statement.
If at any time prior to the Effective Time, a party becomes aware of
any untrue statement of a material fact or omission to state a material
fact required to be stated therein or necessary to make the statements made
not misleading in the N-14 Registration Statement, the party discovering
the item shall notify the other party and the parties shall cooperate in
promptly preparing, filing and clearing with the SEC and, if appropriate,
distributing to stockholders appropriate disclosure with respect to the
item.
22. Limitation on Liabilities.
The obligations of the Acquired Fund and the Acquiring Fund shall not
bind any of the directors, stockholders, nominees, officers, agents,
employees or agents of the Acquired Fund or the Acquiring Fund personally,
but shall bind only the Acquired Fund or Acquiring Fund, as appropriate.
The execution and delivery of this Plan by an officer of either party shall
not be deemed to have been made by the officer individually or to impose
any liability on the officer personally, but shall bind only the Acquired
Fund or the Acquiring Fund, as appropriate.
23. Termination of the Acquired Fund.
If the parties complete the Acquisition, the Acquired Fund shall
terminate its registration under the 1940 Act, the 1933 Act, and the 1934
Act and will liquidate and dissolve.
24. Notices.
Any notice, report, statement, certificate or demand required or
permitted by any provision of the Plan shall be in writing and shall be
given in person or by telecopy, certified mail or overnight express courier
to:
For the Acquired Fund:
[Acquired Fund]
1345 Avenue of the Americas
New York, New York 10105
Attention: Secretary
For the Acquiring Fund:
[Acquiring Fund]
1345 Avenue of the Americas
New York, New York 10105
Attention: Secretary
25. Expenses.
The estimated Acquisition expenses of approximately $372,000 shall be
paid by the Funds, such that the Acquiring Fund will bear $138,000 and the
Acquired Fund will bear $234,000 of the cost.
26. General.
This Plan supersedes all prior agreements between the parties with
respect to the subject matter hereof and may be amended only in writing
signed by both parties. The headings contained in this Plan are for
reference only and shall not affect in any way the meaning or
interpretation of this Plan. Whenever the context so requires, the use in
the Plan of the singular will be deemed to include the plural and vice
versa. Nothing in this Plan, expressed or implied, confers upon any other
person any rights or remedies under or by reason of this Plan. Neither
party may assign or transfer any right or obligation under this Plan
without the written consent of the other party.
In Witness Whereof, the parties hereto have executed this Plan as of the
day and year first above written.
[Acquired Fund]
Attest:
By:
------------------------------------- ----------------------------------
Name: Name:
Title: Title:
[Acquiring Fund]
Attest:
By:
------------------------------------- ----------------------------------
Name: Name:
Title: Title:
Alliance Bernstein L.P.
By: AllianceBernstein
Corporation, its General Partner
By:
---------------------------
Name:
----------------------
Title:
-----------------------
APPENDIX F
EXISTING AND PRO FORMA CAPITALIZATION
The following tables set forth (i) the capitalization of the Funds and (ii)
the pro forma capitalization of Alliance National Municipal as adjusted giving
effect to the proposed acquisition of assets at net asset value as of April 30,
2006:
--------------------------------------------------------------------------------
Alliance
Alliance National
ACM Municipal National Municipal
Securities Municipal Adjustments (Pro Forma)
--------------------------------------------------------------------------------
Total Net Assets 123,343,623 313,271,954 N/A 436,615,577
--------------------------------------------------------------------------------
Shares Outstanding
--------------------------------------------------------------------------------
Common Stock 11,145,261 20,491,401 (3,076,063) 28,560,599
--------------------------------------------------------------------------------
Series A 1,200 N/A (1,200) 0
--------------------------------------------------------------------------------
Series B 1,200 N/A (1,200) 0
--------------------------------------------------------------------------------
Series C 1,200 N/A (1,200) 0
--------------------------------------------------------------------------------
Series M N/A 1,950 1,200 3,150
--------------------------------------------------------------------------------
Series T N/A 1,950 N/A 1,950
--------------------------------------------------------------------------------
Series W N/A 1,950 1,200 3,150
--------------------------------------------------------------------------------
Series TH N/A 1,950 1,200 3,150
--------------------------------------------------------------------------------
NAV Per Share
Applicable to
Common
Stockholders $11.07 $15.29 -- $15.29
--------------------------------------------------------------------------------
APPENDIX G
TRADING HISTORY AND SHARE PRICE DATA
Shares of each Fund are traded on the NYSE under the following symbols:
Alliance National Municipal - "AFB" and ACM Municipal Securities - "AMU". Shares
of closed-end management companies frequently trade at discounts from their
NAVs, and the Funds' shares have also traded at a discount in recent times.
Alliance National Municipal has traded at a premium from 02/15/2006 to
10/24/2006. Alliance National Municipal has since traded at a discount ranging
from (3.71) % to (0.19) %. From 05/17/2000 to 11/23/2004, ACM Municipal
Securities traded at a premium. ACM Municipal Securities has since traded at a
discount ranging from (10.27) % to (0.53) %. The following tables set forth for
each Fund's fiscal quarter within the two most recent fiscal years and each
Fund's fiscal quarter since the beginning of the current fiscal year: (a) the
per share high and low sales prices as reported by the NYSE; (b) the NAV per
share, based on the Fund's computation as of 4:00 p.m. on the last NYSE business
day for the week corresponding to the dates on which the respective high and low
prices were recorded; and (c) the discount or premium to NAV represented by the
high and low sales prices shown. The range of NAVs and of premiums and discounts
for the shares during the periods shown may be broader than is shown in this
table. On November 17, 2006, the closing price per share was $15.28, and $10.63,
the NAV per share was $15.58 and $11.43, and the discount to NAV was (1.93)% for
Alliance National Municipal and (7.00)% for ACM Municipal Securities.
FYE: 10/31
--------------------------------------------------------------------------------
Alliance (Discount) or
National Corresponding Premium to
Municipal Sales Price Net Asset Value Net Asset Value
--------------------------------------------------------------------------------
Quarter
Ended High Low High Low High Low
--------------------------------------------------------------------------------
01/31/04 $ 14.60 $ 13.51 $ 15.60 $ 14.92 (6.41)% (9.45)%
--------------------------------------------------------------------------------
04/30/04 $ 14.86 $ 13.34 $ 16.04 $ 14.91 (7.36)% (10.53)%
--------------------------------------------------------------------------------
07/31/04 $ 13.56 $ 12.62 $ 14.95 $ 14.61 (9.30)% (13.62)%
--------------------------------------------------------------------------------
10/31/04 $ 14.24 $ 13.56 $ 15.46 $ 14.95 (7.89)% (9.30)%
--------------------------------------------------------------------------------
01/31/05 $ 14.37 $ 13.67 $ 15.74 $ 15.10 (8.70)% (9.47)%
--------------------------------------------------------------------------------
04/30/05 $ 14.58 $ 14.01 $ 15.79 $ 15.33 (7.66)% (8.61)%
--------------------------------------------------------------------------------
07/31/05 $ 15.17 $ 14.30 $ 15.68 $ 15.51 (3.25)% (7.80)%
--------------------------------------------------------------------------------
10/31/04 $ 15.69 $ 14.66 $ 15.67 $ 15.41 0.13% (4.87)%
--------------------------------------------------------------------------------
01/31/06 $ 15.94 $ 14.63 $ 15.59 $ 15.23 2.25% (3.94)%
--------------------------------------------------------------------------------
04/30/06 $ 16.17 $ 15.41 $ 15.47 $ 15.49 4.52% (0.52)%
--------------------------------------------------------------------------------
07/31/06 $ 16.06 $ 15.12 $ 15.38 $ 15.14 4.42% (0.13)%
--------------------------------------------------------------------------------
10/31/06 $ 17.02 $ 15.09 $ 15.54 $ 15.58 9.52% (3.15)%
--------------------------------------------------------------------------------
01/31/04 $ 12.45 $ 11.47 $ 11.46 $ 10.98 8.64% 4.46%
--------------------------------------------------------------------------------
04/30/04 $ 12.70 $ 11.39 $ 11.42 $ 11.02 11.21% 3.36%
--------------------------------------------------------------------------------
07/31/04 $ 11.64 $ 10.60 $ 10.98 $ 10.69 6.01% (0.84)%
--------------------------------------------------------------------------------
10/31/04 $ 12.47 $ 11.64 $ 11.26 $ 10.98 10.75% 6.01%
--------------------------------------------------------------------------------
01/31/05 $ 12.10 $ 10.34 $ 11.21 $ 11.33 7.94% (8.74)%
--------------------------------------------------------------------------------
04/30/05 $ 10.96 $ 10.05 $ 11.69 $ 11.20 (6.24)% (10.27)%
--------------------------------------------------------------------------------
07/31/05 $ 11.07 $ 10.21 $ 11.45 $ 11.35 (3.32)% (10.04)%
--------------------------------------------------------------------------------
10/31/04 $ 11.35 $ 10.18 $ 11.41 $ 11.25 (0.53)% (9.51)%
--------------------------------------------------------------------------------
01/31/06 $ 10.83 $ 10.06 $ 11.30 $ 11.21 (4.16)% (10.26)%
--------------------------------------------------------------------------------
04/30/06 $ 11.10 $ 10.29 $ 11.26 $ 11.07 (1.42)% (7.05)%
--------------------------------------------------------------------------------
07/31/06 $ 10.79 $ 9.97 $ 11.00 $ 10.92 (1.91)% (8.70)%
--------------------------------------------------------------------------------
10/31/06 $ 10.96 $ 10.32 $ 11.37 $ 11.14 (3.61)% (7.36)%
--------------------------------------------------------------------------------
APPENDIX H
Legal Proceedings
The staff of the U.S. Securities and Exchange Commission ("SEC") and the
Office of the New York Attorney General ("NYAG") have been investigating
practices in the mutual fund industry identified as "market timing" and "late
trading" of mutual fund shares. Certain other regulatory authorities have also
been conducting investigations into these practices within the industry and have
requested that the Adviser provide information to them. The Adviser has been
cooperating and will continue to cooperate with all of these authorities.
Excluding the occurrences of tender offers or stock repurchases, the shares
of a Fund are not redeemable by a Fund, but are traded on an exchange at prices
established by the market. Accordingly, the Fund and its stockholders are not
subject to the market timing and late trading practices that are the subject of
the investigations mentioned above or the lawsuits described below. Please see
below for a description of the agreements reached by the Adviser and the SEC and
NYAG in connection with the investigations mentioned above.
Numerous lawsuits have been filed against the Adviser and certain other
defendants in which plaintiffs make claims purportedly based on or related to
the same practices that are the subject of the SEC and NYAG investigations
referred to above. Some of these lawsuits name one or more of the Funds as a
party. The lawsuits are now pending in the United States District Court for the
District of Maryland pursuant to a ruling by the Judicial Panel on
Multidistrict Litigation transferring and centralizing all of the mutual funds
involving market and late trading in the District of Maryland (the "Mutual Fund
MDL"). Management of the Adviser believes that these private lawsuits are not
likely to have a material adverse effect on the results of operations or
financial condition of a Fund.
On December 18, 2003, the Adviser confirmed that it had reached terms with
the SEC and the NYAG for the resolution of regulatory claims relating to the
practice of "market timing" mutual fund shares in some of the AllianceBernstein
Mutual Funds. The agreement with the SEC is reflected in an Order of the
Commission ("SEC Order"). The agreement with the NYAG is memorialized in an
Assurance of Discontinuation dated September 1, 2004 ("NYAG Order"). Among the
key provisions of these agreements are the following:
(i) The Adviser agreed to establish a $250 million fund (the
"Reimbursement Fund") to compensate mutual fund stockholders for the
adverse effects of market timing attributable to market timing
relationships described in the SEC Order. According to the SEC Order,
the Reimbursement Fund is to be paid, in order of priority, to fund
investors based on (i) their aliquot share of losses suffered by the
fund due to market timing, and (ii) a proportionate share of advisory
fees paid by such fund during the period of such market timing;
(ii) The Adviser agreed to reduce the advisory fees it receives from some
of the AllianceBernstein long-term, open-end retail funds, commencing
January 1, 2004, for a period of at least five years; and
(iii) The Adviser agreed to implement changes to its governance and
compliance procedures. Additionally, the SEC Order contemplates that
the Adviser's registered investment company clients, including the
Fund, will introduce governance and compliance changes.
The shares of a Fund are not redeemable by a Fund, but are traded on an
exchange at prices established by the market. Accordingly, a Fund and its
stockholders are not subject to the market timing practices described in the SEC
Order and are not expected to participate in the Reimbursement Fund. Since the
Funds are closed-end funds, they will not have their advisory fee reduced
pursuant to the terms of the agreements mentioned above.
On February 10, 2004, the Adviser received (i) a subpoena duces tecum from
the Office of the Attorney General of the State of West Virginia and (ii) a
request for information from West Virginia's Office of the State Auditor,
Securities Commission (the "West Virginia Securities Commission") (together, the
"Information Requests"). Both Information Requests require the Adviser to
produce documents concerning, among other things, any market timing or late
trading in the Adviser's sponsored mutual funds. The Adviser responded to the
Information Requests and has been cooperating fully with the investigation.
On April 11, 2005, a complaint entitled The Attorney General of the State
of West Virginia v. AIM Advisors, Inc., et al. ("WVAG Complaint") was filed
against the Adviser, Alliance Capital Management Holding L.P. ("Alliance
Holding"), and various other defendants not affiliated with the Adviser. The
WVAG Complaint was filed in the Circuit Court of Marshall County, West Virginia
by the Attorney General of the State of West Virginia. The WVAG Complaint makes
factual allegations generally similar to those in certain of the complaints
related to the lawsuits discussed above. On May 31, 2005, defendants removed the
WVAG Complaint to the United States District Court for the Northern District of
West Virginia. On July 12, 2005, plaintiff moved to remand. On October 19, 2005,
the WVAG Complaint was transferred to the Mutual fund MDL.
On August 30, 2005, the deputy commissioner of securities of the West
Virginia Securities Commission signed a "Summary Order to Cease and Desist, and
Notice of Right to Hearing" addressed to the Adviser and Alliance Holding. The
Summary Order claims that the Adviser and Alliance Holding violated the West
Virginia Uniform Securities Act, and makes factual allegations generally similar
to those in the SEC Order and the NYAG Order. On January 26, 2006, the Adviser,
Alliance Holding, and various unaffiliated defendants filed a Petition for Writ
of Prohibition and Order Suspending Proceedings in West Virginia state court
seeking to vacate the Summary Order and for other relief. The Adviser intends to
vigorously defend against the allegations in the WVAG Complaint.
On June 22, 2004, a purported class action complaint entitled Aucoin, et
al. v. Alliance Capital Management L.P., et al. ("Aucoin Complaint") was filed
against the Adviser, Alliance Capital Management Holding L.P., Alliance Capital
Management Corporation, AXA Financial, Inc., AllianceBernstein Investment
Research & Management, Inc., certain current and former directors of the
AllianceBernstein Mutual Funds, and unnamed Doe defendants. The Aucoin Complaint
names certain of the AllianceBernstein mutual funds as nominal defendants. The
Funds were not named as defendants in the Aucoin Complaint. The Aucoin Complaint
was filed in the United States District Court for the Southern District of New
York by an alleged stockholder of an AllianceBernstein mutual fund. The Aucoin
Complaint alleges, among other things, (i) that certain of the defendants
improperly authorized the payment of excessive commissions and other fees from
fund assets to broker-dealers in exchange for preferential marketing services,
(ii) that certain of the defendants misrepresented and omitted from registration
statements and other reports material facts concerning such payments, and (iii)
that certain defendants caused such conduct as control persons of other
defendants. The Aucoin Complaint asserts claims for violation of Sections 34(b),
36(b) and 48(a) of the Investment Company Act, Sections 206 and 215 of the
Advisers Act, breach of common law fiduciary duties, and aiding and abetting
breaches of common law fiduciary duties. Plaintiffs seek an unspecified amount
of compensatory damages and punitive damages, rescission of their contracts with
the Adviser, including recovery of all fees paid to the Adviser pursuant to such
contracts, an accounting of all fund-related fees, commissions and soft dollar
payments, and restitution of all unlawfully or discriminatorily obtained fees
and expenses.
Since June 22, 2004, nine additional lawsuits making factual allegations
substantially similar to those in the Aucoin Complaint were filed against the
Adviser and certain other defendants. All nine of the lawsuits (i) were brought
as class actions filed in the United States District Court for the Southern
District of New York, (ii) assert claims substantially identical to the Aucoin
Complaint, and (iii) are brought on behalf of stockholders of the Funds.
On February 2, 2005, plaintiffs filed a consolidated amended class action
complaint ("Aucoin Consolidated Amended Complaint") that asserts claims
substantially similar to the Aucoin Complaint and the nine additional lawsuits
referenced above. On October 19, 2005, the District Court dismissed each of the
claims set forth in the Aucoin Consolidated Amended Complaint, except for
plaintiff's claim under Section 36(b) of the Investment Company Act. On January
11, 2006, the District Court granted defendants' motion for reconsideration and
dismissed the remaining Section 36(b) claim. Plaintiffs have moved for leave to
amend their consolidated complaint.
On October 19, 2005, the District Court granted in part, and denied in
part, defendants' motion to dismiss the Aucoin Complaint and as a result the
only claim remaining is plaintiffs' Section 36(b).
On August 7, 2006, the Mutual Fund MDL signed an Order staying the actions
(including discovery) against the Alliance defendants pending settlement.
The Adviser believes that these matters are not likely to have a material
adverse effect on the Funds or the Adviser's ability to perform advisory
services relating to the Funds.
APPENDIX I
SHARE OWNERSHIP INFORMATION
Outstanding Shares
As of November 15, 2006 each Fund had the following number of shares
outstanding.
-----------------------------------------------------------------
Fund Amount Outstanding
-----------------------------------------------------------------
-----------------------------------------------------------------
Alliance National Municipal
-----------------------------------------------------------------
Common Stock 20,518,836
-----------------------------------------------------------------
Preferred Series M 1,950
-----------------------------------------------------------------
Preferred Series Series T 1,950
-----------------------------------------------------------------
Preferred Series Series W 1,950
-----------------------------------------------------------------
Preferred Series Series TH 1,950
-----------------------------------------------------------------
-----------------------------------------------------------------
ACM Municipal Securities
-----------------------------------------------------------------
Common Stock 11,145,261
-----------------------------------------------------------------
Preferred Series Series A 1,200
-----------------------------------------------------------------
Preferred Series Series B 1,200
-----------------------------------------------------------------
Preferred Series Series C 1,200
-----------------------------------------------------------------
Share Ownership
As of November 15, 2006, the directors and officers of each Fund as a group
beneficially owned less than 1% of the outstanding shares of common stock of
that Fund and, to the knowledge of each Fund, the following persons owned either
of record or beneficially, 5% or more of the outstanding shares of the Fund.
-----------------------------------------------------------------------------------------
Number of Percentage of
Fund Name and Address of Outstanding Outstanding
Stockholder Shares Owned Shares Owned
-----------------------------------------------------------------------------------------
ACM Municipal Securities N/A N/A N/A
-----------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------
Alliance National Municipal First Trust Portfolios L.P./ 1,222,189 6.0%
First Trust Advisors L.P./
The Charger Corporation
1001 Warrenville Road
Lisle, Illinois 60532
-----------------------------------------------------------------------------------------
The following table shows the percentage of Alliance National Municipal's
shares on a pro forma basis after the Acquisition to be owned by the above
listed stockholders, if the Acquisition had been consummated as of November 15,
2006.
-------------------------------------------------------------------
Name and Address of Stockholder Percentage of Outstanding Shares
of Alliance National Municipal on
a pro forma basis
-------------------------------------------------------------------
First Trust Portfolios L.P./
First Trust Advisors L.P./ 4.3%
The Charger Corporation
1001 Warrenville Road
Lisle, Illinois 60532
-------------------------------------------------------------------
APPENDIX J
FINANCIAL HIGHLIGHTS TABLE
The financial highlights table is intended to help you understand a Fund's
financial performance for the past 5 years (or since inception of the Fund).
Certain information reflects financial results for a single share of a Fund. The
total returns in the table represent the rate that an investor would have earned
(or lost) on an investment in a Fund (assuming reinvestment of all dividends and
distributions). This information (as noted below) has been audited by Ernst &
Young LLP, the independent registered public accounting firm for a Fund, whose
reports, along with the Fund's financial statements, are included in the Fund's
annual report, which is available upon request.
Alliance National Municipal Income Fund
---------------------------------------
Year Ended October 31,
--------------------------------------------------------------------------
Six Months
Ended January 28,
April 30, 2002(b) to
2006 October 31,
(unaudited) 2005 2004(a) 2003 2002
----------- -------- -------- -------- -----------
Net asset value, beginning of period .... $15.37 $15.49 $15.02 $14.81 $14.33
--------------------------------------------------------------------------
Income From Investment Operations
Net investment income (c)(d) ............ .56 1.13 1.16 1.19 .74
Net realized and unrealized gain (loss)
on investment transactions .......... .01 (.05) .42 .03 .60
Dividends to preferred shareholders from
net investment income (common stock
equivalent basis) ................... (.15) (.20) (.12) (.13) (.08)
--------------------------------------------------------------------------
Net increase in net asset value from
operations .......................... .42 .88 1.46 1.09 1.26
--------------------------------------------------------------------------
Less: Dividends to common shareholders
from
Net investment income ................... (.50) (1.00) (.99) (.87) (.64)
Common stock offering costs ............. -0- -0- -0- -0- (.03)
Preferred stock offering costs and sales
load ................................ -0- -0- -0- (.01) (.11)
--------------------------------------------------------------------------
Net asset value, end of period .......... $15.29 $15.37 $15.49 $15.02 $14.81
--------------------------------------------------------------------------
Market value, end of period ............. $16.00 $14.78 $14.18 $13.71 $13.48
Premium/(Discount) ...................... 4.64% (3.84)% (8.46)% (8.72)% (8.98)%
Total Return
Total investment return based on: (e)
Market value ........................ 11.80% 11.57% 11.01% 8.36% (5.92)%
Net asset value ..................... 2.74% 6.21% 10.69% 8.05% 8.14%
Ratios/Supplemental Data
Net assets applicable to common
shareholders, end of period (000's
omitted) ............................ $313,272 $314,716 $317,099 $307,560 $303,258
Preferred Stock, at redemption value
($25,000 per share liquidation
preference) (000's omitted) ......... $195,000 $195,000 $195,000 $195,000 $195,000
Ratio to average net assets applicable to
common shareholders of:
Expenses, net of fee waivers (f) .... .98%(g) .97% .97% .95% .95%(g)
Expenses, before fee waivers (f) .... 1.38%(g) 1.37% 1.38% 1.36% 1.33%(g)
Net investment income before preferred
stock dividends (d)(f) .............. 7.35%(g) 7.29% 7.63% 7.88% 6.73%(g)
Preferred stock dividends ............... 1.91%(g) 1.28% .80% .89% .76%(g)
Net investment income, net preferred ....
stock dividends (d) ................. 5.44%(g) 6.01% 6.84% 6.99% 5.97%(g)
Portfolio turnover rate ................. 5% 18% 14% 11% 13%
Asset coverage ratio .................... 261% 261% 263% 258% 255%
----------
(a) As of November 1, 2003, the Fund has adopted the method of accounting for
interim payments on swap contracts in accordance with Financial Accounting
Standards Board Statement No. 133. These interim payments are reflected
within net realized and unrealized gain (loss) on swap contracts, however,
prior to November 1, 2003, these interim payments were reflected within
interest income/expense on the statement of operations. For the year ended
October 31, 2004, the effect of this change to the net investment income
and the net realized and unrealized gain (loss) on investment transactions
was less than $0.01 per share and the ratio of net investment income to
average net assets was .00%.
(b) Commencement of operations. Net asset value immediately after the closing
of the first public offering was $14.30.
(c) Based on average shares outstanding.
(d) Net of fees waived by the Adviser.
(e) Total investment return is calculated assuming a purchase of common stock
on the opening of the first day and a sale on the closing of the last day
of the period reported. Dividends and distributions, if any, are assumed
for purposes of this calculation, to be reinvested at prices obtained under
the Fund's dividend reinvestment plan. Generally, total investment return
based on net asset value will be higher than total investment return based
on market value in periods where there is an increase in the discount or a
decrease in the premium of the market value to net asset value from the
beginning to the end of such periods. Conversely, total investment return
based on net asset value will be lower than total investment return based
on market value in periods where there is a decrease in the discount or an
increase in the premium of the market value to the net asset value from the
beginning to the end of the period. Total investment return calculated for
a period of less than one year is not annualized.
(f) These expense and net investment income ratios do not reflect the effect of
dividend payments to preferred shareholders.
(g) Annualized.
ACM Municipal Securities Income Fund
------------------------------------
Year Ended October 31,
---------------------------------------------------------------------------------
Six Months
Ended
April 30,
2006
(unaudited) 2005 2004(a) 2003 2002 2001
---------------------------------------------------------------------------------
Net asset value, beginning of period ...... $11.17 $11.38 $11.05 $10.85 $12.10 $11.71
---------------------------------------------------------------------------------
Income From Investment Operations
Net investment income ..................... 41 .84 .88 .97 1.08 1.15
Net realized and unrealized gain (loss) on
investment transactions ............... (.07) (.17) .41 .12 (1.32) .45
Dividends to preferred shareholders from
net investment income (common stock
equivalent basis) ..................... (.12) (.17) (.09) (.09) (.14) (.27)
---------------------------------------------------------------------------------
Net increase (decrease) in net asset value
from operations ....................... 22 .50 1.20 1.00 (.38) 1.33
---------------------------------------------------------------------------------
Less: Dividends and Distributions to Common
Shareholders
Dividends from net investment income ...... (.32) (.71) (.87) (.80) (.87) (.88)
Distributions in excess of net investment
income ................................ -0- -0- -0- -0- -0- (.06)
Total dividends and distributions to common
shareholders .......................... (.32) (.71) (.87) (.80) (.87) (.94)
---------------------------------------------------------------------------------
Net asset value, end of period ............ $11.07 $11.17 $11.38 $11.05 $10.85 $12.10
---------------------------------------------------------------------------------
Market price, end of period ............... $10.71 $10.41 $12.09 $11.62 $11.50 $12.70
Premium/(Discount) ........................ (3.25%) (6.80)% 6.24% 5.16% 5.99% 4.96%
Total Investment Return
Total investment return based on: (b)
Market price .......................... 5.98% (8.09)% 12.34% 8.53% (2.44)% 9.14%
Net asset value ....................... 2.09% 4.77% 11.20% 9.39% (3.35)% 11.59%
Ratios/Supplemental Data
Net assets, applicable to common
shareholders, end of period (000's
omitted) .............................. $123,344 $124,514 $126,739 $122,322 $119,323 $132,201
Preferred stock, at redemption value
($25,000 per share liquidation
preference) (000's omitted) ........... $90,000 $90,000 $90,000 $90,000 $90,000 $90,000
Ratios to average net assets applicable to
common shareholders of:
Expenses(c) ........................... 1.43%(d)(e) 1.49% 1.65% 1.71% 1.65% 1.53%
Net investment income, before preferred
stock dividends (c) ................... 7.36%(d)(e) 7.39% 7.87% 8.78% 9.32% 9.60%
Preferred stock dividends ............. 2.15%(e) 1.50% .79% .84% 1.19% 2.26%
Net investment income, net of
preferred stock dividends ............. 5.20%(d)(e) 5.89% 7.08% 7.94% 8.13% 7.34%
Portfolio turnover rate ................... 13% 13% 36% 32% 24% 82%
Asset coverage ratio ...................... 237% 238% 241% 236% 233% 247%
----------
(a) As of November 1, 2003, the Fund has adopted the method of accounting for
interim payments on swap contracts in accordance with Financial Accounting
Standards Board Statement No. 133. These interim payments are reflected
within net realized and unrealized gain (loss) on swap contracts, however,
prior to November 1, 2003, these interim payments were reflected within
interest income/expense on the statement of operations. For the year ended
October 31, 2004, the effect of this change to the net investment income
and the net realized and unrealized gain (loss) on investment transactions
was less than $0.01 per share and the ratio of net investment income to
average net assets was less than .01%.
(b) Total investment return is calculated assuming a purchase of common stock
on the opening of the first day and a sale on the closing of the last day
of each period reported. Dividends and distributions, if any, are assumed
for purposes of this calculation, to be reinvested at prices obtained under
the Fund's dividend reinvestment plan. Generally, total investment return
based on net asset value will be higher than total investment return based
on market value in periods where there is an increase in the discount or a
decrease in the premium of the market value to net asset value from the
beginning to the end of such periods. Conversely, total investment return
based on net asset value will be lower than total investment return based
on market value in periods where there is a decrease in the discount or an
increase in the premium of the market value to the net asset value from the
beginning to the end of the period. Total investment returns for periods of
less than one full year are not annualized.
(c) These expense and net investment income ratios do not reflect the effect of
dividend payments to preferred shareholders.
(d) Net of fee waiver. If the Administrator had not waived expenses, the ratios
to average net assets applicable to common shareholders for expenses, net
investment income before preferred stock dividends and net investment
income net of preferred stock dividends would have been 1.61%, 7.19% and
5.03%, respectively, for the six months ended April 30, 2006.
(e) Annualized.
APPENDIX K
PORTFOLIO COMPOSITION
The following sets forth certain information with respect to the composition of
a Fund's investment portfolio as of April 30, 2006.
Alliance National Municipal
---------------------------
----------------------------------------------------
Moody's/S&P Credit Rating* Percent
----------------------------------------------------
AAA 64.6%
----------------------------------------------------
AA 12.5%
----------------------------------------------------
A 9.6%
----------------------------------------------------
BBB 8.5%
----------------------------------------------------
BB 4.6%
----------------------------------------------------
B 0.2%
----------------------------------------------------
ACM Municipal Securities
------------------------
----------------------------------------------------
Moody's/S&P Credit Rating* Percent
----------------------------------------------------
AAA 58.6%
----------------------------------------------------
AA 18.7%
----------------------------------------------------
A 11.6%
----------------------------------------------------
BBB 9.1
----------------------------------------------------
BB 2.0%
----------------------------------------------------
* All data are as of April 30, 2006. A Fund's quality rating distribution
is expressed as a percentage of the Fund's total investments rated in particular
ratings categories by Standard & Poor's Rating Services and Moody's Investors
Service. The distributions may vary over time. If ratings are not available, the
Adviser will assign ratings that are considered to be of equivalent quality to
such ratings.
FORM OF PROXY CARD
Vote by Touch-Tone Phone or by Mail!!
CALL: To vote by phone call toll-free 1-800-[___]-[____] and
Follow the recorded instructions.
MAIL: Return the signed proxy card in the enclosed envelope.
PROXY IN CONNECTION WITH THE SPECIAL MEETING OF
STOCKHOLDERS TO BE HELD FEBRUARY 22, 2007
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD
OF DIRECTORS OF THE FUND
ACM Municipal Securities, Inc.
COMMON SHARES
PREFERRED SHARES
The undersigned hereby appoints Christina Morse and Carol Rappa, or either of
them, as proxies for the undersigned, each with full power of substitution, to
attend the Meeting of Stockholders (the "Meeting") of ACM Municipal Securities,
Inc. (the "Fund"), to be held at 11:00 a.m., Eastern Time, on Thursday, February
22, 2007 at the offices of the Fund at 1345 Avenue of the Americas, 41st Floor,
New York, New York 10105, and at any postponement or adjournment thereof, to
cast on behalf of the undersigned all votes that the undersigned is entitled to
cast at the Meeting and otherwise to represent the undersigned at the Meeting
with all powers possessed by the undersigned if personally present at the
Meeting. The undersigned hereby acknowledges receipt of the Notice of Meeting
and accompanying Prospectus/Proxy Statement, revokes any proxy previously given
with respect to the Meeting and instructs said proxies to vote said shares as
indicated on the reverse side of this proxy card.
IF THIS PROXY CARD IS PROPERLY EXECUTED, THE VOTES ENTITLED TO BE CAST BY THE
UNDERSIGNED WILL BE CAST AS SPECIFIED. IF THIS PROXY CARD IS PROPERLY EXECUTED
BUT NO SPECIFICATION IS MADE FOR THE PROPOSAL, THE VOTES ENTITLED TO BE CAST BY
THE UNDERSIGNED WILL BE CAST "FOR" THE PROPOSAL AS DESCRIBED IN THE
PROSPECTUS/PROXY STATEMENT. ADDITIONALLY, THE VOTES ENTITLED TO BE CAST BY THE
UNDERSIGNED WILL BE CAST IN THE DISCRETION OF THE PROXYHOLDER ON ANY OTHER
MATTER THAT MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT THEREOF.
PLEASE VOTE, DATE AND SIGN ON THE REVERSE SIDE AND RETURN THIS PROXY CARD
PROMPTLY IN THE ENCLOSED ENVELOPE.
[x] Please mark votes as in this example
--------------------------------------------------------------------------------
THE PROPOSAL Acquisition by Alliance National Municipal Income Fund, Inc. of all
of the assets and the assumption of all of the liabilities of the Fund in
exchange for shares of Alliance National Municipal Income Fund, Inc.'s common
stock and preferred stock, to the holders of, respectively, the Fund's common
stock and preferred stock.
FOR AGAINST ABSTAIN
[_] [_] [_]
To vote and otherwise represent the undersigned on any other matter that may
properly come before the meeting, any postponement or adjournment thereof,
including any matter incidental to the conduct of the Meeting, in the discretion
of the Proxy holder(s).
Please check here if you plan to attend the Meeting.
[_] I WILL ATTEND THE MEETING.
Please be sure to sign your name(s) exactly as it appears on this Proxy Card.
Signature(s) of Stockholder(s)
Date: __________________________, 2007
------------------------------------------
Signature(s) of Stockholder(s)
Date: __________________________, 2007
IMPORTANT: Please sign legibly and exactly as the name appears on this Proxy
Card. Joint owners must EACH sign the Proxy Card. When signing as executor,
administrator, attorney, trustee or guardian, or as custodian for a minor,
please give the FULL title of such. If a corporation, please give the FULL
corporate name and indicate the signer's office. If a partner, please sign in
the partnership name.
***PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE***
FORM OF PROXY CARD
Vote by Touch-Tone Phone or by Mail!!
CALL: To vote by phone call toll-free 1-800-[___]-[____] and
Follow the recorded instructions.
MAIL: Return the signed proxy card in the enclosed envelope.
PROXY IN CONNECTION WITH THE SPECIAL MEETING OF
STOCKHOLDERS TO BE HELD FEBRUARY 22, 2007
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD
OF DIRECTORS OF THE FUND
ACM Municipal Securities, Inc.
PREFERRED SHARES
The undersigned hereby appoints Christina Morse and Carol Rappa, or either of
them, as proxies for the undersigned, each with full power of substitution, to
attend the Meeting of Stockholders (the "Meeting") of ACM Municipal Securities,
Inc. (the "Fund"), to be held at 11:00 a.m., Eastern Time, on Thursday, February
22, 2007 at the offices of the Fund at 1345 Avenue of the Americas, 41st Floor,
New York, New York 10105, and at any postponement or adjournment thereof, to
cast on behalf of the undersigned all votes that the undersigned is entitled to
cast at the Meeting and otherwise to represent the undersigned at the Meeting
with all powers possessed by the undersigned if personally present at the
Meeting. The undersigned hereby acknowledges receipt of the Notice of Meeting
and accompanying Prospectus/Proxy Statement, revokes any proxy previously given
with respect to the Meeting and instructs said proxies to vote said shares as
indicated on the reverse side of this proxy card.
IF THIS PROXY CARD IS PROPERLY EXECUTED, THE VOTES ENTITLED TO BE CAST BY THE
UNDERSIGNED WILL BE CAST AS SPECIFIED. IF THIS PROXY CARD IS PROPERLY EXECUTED
BUT NO SPECIFICATION IS MADE FOR THE PROPOSAL, THE VOTES ENTITLED TO BE CAST BY
THE UNDERSIGNED WILL BE CAST "FOR" THE PROPOSAL AS DESCRIBED IN THE
PROSPECTUS/PROXY STATEMENT. ADDITIONALLY, THE VOTES ENTITLED TO BE CAST BY THE
UNDERSIGNED WILL BE CAST IN THE DISCRETION OF THE PROXYHOLDER ON ANY OTHER
MATTER THAT MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT THEREOF.
PLEASE VOTE, DATE AND SIGN ON THE REVERSE SIDE AND RETURN THIS PROXY CARD
PROMPTLY IN THE ENCLOSED ENVELOPE.
[x] Please mark votes as in this example
--------------------------------------------------------------------------------
THE PROPOSAL Acquisition by Alliance National Municipal Income Fund, Inc. of all
of the assets and the assumption of all of the liabilities of the Fund in
exchange for shares of Alliance National Municipal Income Fund, Inc.'s common
stock and preferred stock, to the holders of, respectively, the Fund's common
stock and preferred stock.
FOR AGAINST ABSTAIN
[_] [_] [_]
To vote and otherwise represent the undersigned on any other matter that may
properly come before the meeting, any postponement or adjournment thereof,
including any matter incidental to the conduct of the Meeting, in the discretion
of the Proxy holder(s).
Please check here if you plan to attend the Meeting.
[_] I WILL ATTEND THE MEETING.
Please be sure to sign your name(s) exactly as it appears on this Proxy Card.
Signature(s) of Stockholder(s)
Date: __________________________, 2007
------------------------------------------
Signature(s) of Stockholder(s)
Date: __________________________, 2007
IMPORTANT: Please sign legibly and exactly as the name appears on this Proxy
Card. Joint owners must EACH sign the Proxy Card. When signing as executor,
administrator, attorney, trustee or guardian, or as custodian for a minor,
please give the FULL title of such. If a corporation, please give the FULL
corporate name and indicate the signer's office. If a partner, please sign in
the partnership name.
***PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE***
ALLIANCE NATIONAL MUNICIPAL INCOME FUND, INC.
1345 Avenue of the Americas
New York, New York
Toll Free (800) 221-5672
--------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
[________], 2006
This Statement of Additional Information relates specifically to the
proposed Acquisition (as defined in the Prospectus/Proxy Statement) in which
Alliance National Municipal Income Fund, Inc. ("Alliance National Municipal")
would acquire all of the assets and assume all of the liabilities of ACM
Municipal Securities Income Fund, Inc., ("ACM Municipal Securities") in exchange
for shares of common stock and preferred stock of Alliance National Municipal
and cash in lieu of fractional shares for common stockholders who participate in
the ACM Municipal Securities' Dividend Reinvestment and Cash Purchase Plan
(Alliance National Municipal and ACM Municipal Securities are each a "Fund" and
collectively, the "Funds".)
AllianceBernstein, L.P. (the "Adviser") serves as investment adviser to the
Funds. This Statement of Additional Information is not a prospectus, but should
be read in conjunction with the Prospectus/Proxy Statement for the Funds dated
[________], 2006. This Statement of Additional Information does not include all
information that a prospective investor should consider before purchasing shares
of Alliance National Municipal, and investors should obtain and read the
Prospectus/Proxy Statement prior to purchasing shares. A copy of the
Prospectus/Proxy Statement may be obtained without charge, by calling
1-800-221-5672. This Statement of Additional Information incorporates by
reference the entire Prospectus/Proxy Statement.
--------------------------------------------------------------------------------
TABLE OF CONTENTS
Page
Investment Objectives and Policies
Investment Restrictions
Risk Factors
Management of the Funds
Valuation of Portfolio Securities
Dividend Reinvestment and Cash Purchase Plan
Description of Common and Preferred Stock
Portfolio Transactions
Distributions
Taxation
Legal Matters
Experts
Financial Statements
Appendix A A-1
The following supplements the information contained in the Prospectus/Proxy
Statement concerning the Funds. Alliance National Municipal and ACM Municipal
Securities are each diversified closed-end investment companies registered under
the Investment Company Act of 1940, as amended (the "1940 Act").
INVESTMENT OBJECTIVES AND POLICIES
GENERAL. The investment objective of both Alliance National Municipal and
ACM Municipal Securities is to seek to provide high current income exempt from
regular federal income tax. In seeking to achieve its investment objective,
Alliance National Municipal invests, under normal market conditions, at least
80%, and normally substantially all, of its net assets in municipal bonds (as
defined below) paying interest that is exempt from regular federal income tax.
ACM Municipal Securities invests, under normal market conditions, at least 80%
of its total assets in municipal securities. Alliance National Municipal will
normally invest at least 75% of its net assets and ACM Municipal Securities will
invest substantially all of its assets in investment-grade municipal bonds (and,
in the case of Alliance National Municipal, also unrated municipal bonds
considered to be of comparable quality by the Adviser). ACM Municipal Securities
may invest up to 20% of its total assets in unrated municipal securities that
are determined to be of equivalent credit quality by the Adviser. Alliance
National Municipal may invest up to 25% of its net assets in municipal bonds
rated below investment grade and unrated municipal bonds considered to be of
comparable quality by the Adviser. The Funds may also invest in municipal notes
(as defined below) and may buy and sell futures contracts on municipal
securities or U.S. Government Securities (as defined below). The Funds are
designed primarily for long term investment and investors should not consider
any Fund to be a short-term trading vehicle. As with all investment companies,
there can be no assurance that a Fund's objective will be achieved.
Alliance National Municipal has adopted a fundamental policy that it will
invest at least 80% of its net assets in municipal bonds. ACM Municipal
Securities has a fundamental policy that it will invest at least 80% of its
total assets in municipal securities. Each Fund's investment objective and
fundamental policy (and its investment restrictions set forth below under
"Investment Restrictions") may be changed only with the approval of the holders
of a "majority of the Fund's outstanding voting securities," (whether voting
together as a single series or voting as a separate series) which means the
lesser of (i) 67% of the shares of the Fund represented at a meeting at which
more than 50% of the outstanding shares are present in person or represented by
proxy, or (ii) more than 50% of the outstanding shares. Each Fund's other
investment policies described below, except as set forth under "Investment
Restrictions," are not fundamental and may be changed by the Fund without
stockholder approval, but the Fund will not change its investment policies
without contemporaneous notice to its stockholders.
MUNICIPAL BONDS. Municipal bonds are typically classified as either general
obligation or revenue (or special tax) bonds and are typically issued to finance
public projects (such as roads or public buildings), to pay general operating
expenses, or to refinance outstanding debt. Municipal bonds may also be issued
for private activities, such as housing, medical and educational facility
construction, or for privately owned industrial development and pollution
control projects. General obligation bonds are backed by the full faith and
credit, or taxing authority, of the issuer and may be repaid from any revenue
source; revenue bonds may be repaid only from the revenues of a specific
facility or source. The Funds also may purchase municipal bonds that represent
lease obligations. (However, ACM Municipal Securities will not invest more than
5% of its assets in municipal lease obligations that contain non-appropriation
clauses.) These carry special risks because the issuer of the bonds may not be
obligated to appropriate money annually to make payments under the lease. In
order to reduce this risk, a Fund will only purchase municipal bonds
representing lease obligations when the Adviser believes the issuer has a strong
incentive to continue making appropriations until maturity.
The yields on municipal bonds depend on a variety of factors, including
prevailing interest rates and the condition of the general money market and the
municipal bond market, the size of a particular offering, the maturity of the
obligation and the rating of the issue. The market value of municipal bonds will
vary with changes in interest rate levels and as a result of changing
evaluations of the ability of their issuers to meet interest and principal
payments.
Alliance National Municipal will invest primarily in municipal bonds with
long-term maturities in order to maintain a weighted average maturity of 15-30
years, but the weighted average maturity of obligations held by the Fund may be
shortened, depending on market conditions. ACM Municipal Securities expects that
the dollar-weighted average maturity of its investments will be approximately
15-20 years.
MUNICIPAL SECURITIES. Municipal Securities are issued to obtain funds for
various public purposes, including the construction and maintenance of such
public facilities as airports, bridges, highways, housing, hospitals, mass
transportation, schools, streets and water and sewer works. Other public
purposes for which Municipal Securities may be issued include the refinancing of
outstanding obligations and the obtaining of funds for general operating
expenses and for loans to other public institutions and facilities. In addition,
certain industrial development, private activity and pollution control bonds may
be considered to be Municipal Securities if the interest paid thereon qualifies
as exempt from regular federal income tax. Both Funds intend to invest primarily
in municipal bonds that pay interest that is not subject to the alternative
minimum tax ("AMT"), but may invest without limit in municipal bonds that pay
interest that is subject to the AMT.
Municipal Securities 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 full 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 or
other unrestricted revenues of the issuer. Private activity, industrial
development and pollution control 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 revenue bonds
depends solely on the ability of the user of the facilities financed by the
bonds to meet its financial obligations and the pledge, if any, of real and
personal property so financed as security for such payment. There are, of
course, variations in the security of Municipal Securities, both within a
particular classification and between classifications, depending on numerous
factors.
Also included within the general category of Municipal Securities are
certain lease obligations or installment purchase contract obligations and
participations therein (hereinafter collectively called "Municipal Lease
Obligations") of municipal authorities or entities. Although Municipal Lease
Obligations do not constitute general obligations of the municipality for which
the municipality's taxing power is pledged, a Municipal Lease Obligation is
ordinarily backed by the municipality's covenant to budget for, appropriate and
make the payments due under the lease obligation. Interest on Municipal Lease
Obligations is tax-exempt to the same extent as if the municipality had issued
debt obligations to finance the underlying project or purchase. However, certain
Municipal Lease Obligations contain "non-appropriation" clauses which provide
that the municipality has no obligation to make lease or installment purchase
payments in future years unless money is appropriated for such purpose on a
yearly basis. Although "non-appropriation" lease obligations are generally
secured by the leased property, disposition of the property in the event of
foreclosure might prove difficult. In addition, the tax treatment of such
obligations in the event of non-appropriation is unclear. ACM Municipal
Securities will seek to minimize these risks by not investing more that 5% of
its total investment assets in Municipal Lease Obligations that contain
"non-appropriation" clauses.
The Funds may invest a portion of their 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. This use of a designated factor in the
calculation of additional interest effectively multiplies the underlying
principal amount of these Municipal Securities, and will enable a Fund to
purchase a sufficient amount of these securities so that the "notional
principal" on which any additional interest is calculated is equal to at least
100% of the liquidation preference of any preferred stock that a Fund may issue.
The Adviser believes that during periods of sharp increases in short-term
interest rates, the total coupon rate payable on these Municipal Securities
frequently would exceed prevailing short-term interest rates. 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.
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, in order to minimize
fluctuation in the principal value of the securities. 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 (e.g., bank
prime lending rate) changes.
Other Municipal Securities are 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.
Zero coupon Municipal Securities may be created by investment banks under
proprietary programs in which they strip the interest component from the
principal component and sell both separately in the form of custodial receipts
or certificates underwritten by securities dealers or banks that evidence
ownership of future interest payments, principal payments, or both on certain
Municipal Securities. ACM Municipal Securities may invest up to 10% of its total
assets in such custodial receipts or certificates underwritten by securities
dealers or banks. The underwriter of these certificates or receipts typically
purchases Municipal Securities and deposits the obligations in an irrevocable
trust or custodial account with a custodian bank, which then issues receipts or
certificates that evidence ownership of the periodic unmatured coupon payments
and the final principal payment on the obligations. Custodial receipts
evidencing specific coupon or principal payments have the same general
attributes as zero coupon Municipal Securities described above. Although under
the terms of a custodial receipt, ACM Municipal Securities typically would be
authorized to assert its rights directly against the issuer of the underlying
obligations, ACM Municipal Securities could be required to assert through the
custodian bank those rights as may exist against the underlying issuer. Thus, in
the event the underlying issuer fails to pay principal and/or interest when due,
ACM Municipal Securities may be subject to delays, expenses, and risks that are
greater than those that would have been involved if ACM Municipal Securities had
purchased a direct obligation of the issuer. In addition, in the event that the
trust or custodial account in which the underlying security has been deposited
is determined to be an association taxable as a corporation, instead of a
non-taxable entity, the yield on the underlying security would be reduced in
recognition of any taxes paid.
ACM Municipal Securities 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
Security and the auction rate paid on the Auction Component. ACM Municipal
Securities may purchase both Auction and Residual Components. If ACM Municipal
Securities issues shares of preferred stock, the Fund will limit its investment
in Residual Components to no more than 10% of its total assets.
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 as the Auction Component's rate increases and
increase as the Auction Component's rate decreases. Moreover, the extent of the
increases and decreases in market value of Residual Components may be larger
than comparable changes in the market value of an equal principal amount of a
fixed rate Municipal Security having similar credit quality, redemption
provisions, and maturity.
Although the Funds intend to invest a substantial portion of their assets
in longer term Municipal Securities, Municipal Securities in which the Funds may
invest include municipal notes, which may be either "general obligation" or
"revenue" securities, are intended to fulfill short-term capital needs and
generally have original maturities not exceeding one year.
Municipal notes in which the Funds may invest include demand notes, which
are tax-exempt obligations that have stated maturities in excess of one year,
but permit the holder to sell back the security (at par) to the issuer within 1
to 7 days notice. The payment of principal and interest by the issuer of these
obligations will ordinarily be guaranteed by letters of credit offered by banks.
The interest rate on a demand note may be based upon a known lending rate, such
as a bank's prime rate, and may be adjusted when such rate changes, or the
interest rate on a demand note may be a market rate that is adjusted at
specified intervals.
Other short-term obligations constituting municipal notes include tax
anticipation notes, revenue anticipation notes, and bond anticipation notes, and
tax-exempt commercial paper.
Tax anticipation notes are issued to finance working capital needs of
municipalities. Generally, they are issued in anticipation of various seasonal
tax revenues, such as 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.
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. Municipal Securities with longer maturities tend to produce higher yields
and are generally subject to greater price movements than obligations with
shorter maturities. 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. The achievement of a Fund's
investment objectives depends in part on the continuing ability of the issuers
of Municipal Securities in which a Fund invests to meet their obligations for
the payment of principal and interest when due. Municipal Securities
historically have not been subject to registration with the Securities and
Exchange Commission, although, from time to time, there have been proposals that
would require registration in the future.
Obligations of issuers of Municipal Securities are subject to the
provisions of bankruptcy, insolvency, and other laws affecting the rights and
remedies of creditors, such as the Federal Bankruptcy Code. In addition, the
obligations of such issuers may become subject to laws enacted in the future by
Congress, state legislatures, or referenda extending the time for payment of
principal and/or interest, or imposing other constraints upon enforcement of
such obligations or upon the ability of municipalities to levy taxes. There is
also the possibility that, as a result of litigation or other conditions, the
ability of any issuer to pay, when due, the principal or the interest on its
municipal bonds may be materially affected. See "Risk Factors and Special
Considerations."
U.S. GOVERNMENT SECURITIES. Securities issued or guaranteed by the United
States Government, its agencies or instrumentalities include: (i) U.S. Treasury
obligations, which differ only in their interest rates, maturities and times of
issuance, U.S. Treasury bills (maturity of one year or less), U.S. Treasury
notes (maturities of one to 10 years), and U.S. Treasury bonds (generally
maturities of greater than 10 years), all of which are backed by the full faith
and credit of the United States, and (ii) obligations issued or guaranteed by
U.S. Government agencies or instrumentalities, including government guaranteed
mortgage-related securities, some of which are backed by the full faith and
credit of the U.S. Treasury (e.g., direct pass-through certificates of the
Government National Mortgage Association), some of which are supported by the
right of the issuer to borrow from the U.S. Government (e.g., obligations of
Federal Home Loan Banks), and some of which are backed only by the credit of the
issuer itself (e.g., obligations of the Student Loan Marketing Association).
General. U.S. Government Securities do not generally involve the credit
risks associated with other types of interest-bearing securities although, as a
result, the yields available from U.S Government Securities are generally lower
than the yields available from other interest-bearing securities. Like other
fixed-income securities, however, the values of U.S. Government Securities
change as interest rates fluctuate. When interest rates decline, the values of
U.S. Government Securities can be expected to increase and when interest rates
rise, the values of U.S. Government Securities can be expected to decrease.
Government Guaranteed Mortgage-Related Securities--General. Mortgages
backing the securities purchased by a Fund include, among others, conventional
thirty-year fixed rate mortgages, graduated payment mortgages, fifteen-year
mortgages and adjustable rate mortgages. All of these mortgages can be used to
create pass-through securities. A pass-through security is formed when mortgages
are pooled together and undivided interests in the pool or pools are sold. The
cash flow from the mortgages is passed through to the holders of the securities
in the form of periodic payments of interest, principal and prepayments (net of
a service fee). Prepayments occur when the holder of an individual mortgage
prepays the remaining principal before the mortgages scheduled maturity date. As
a result of the pass-through of prepayments of principal on the underlying
securities, mortgage-backed securities are often subject to more rapid
prepayment of principal than their stated maturity would indicate. Because the
prepayment characteristics of the underlying mortgages vary, it is not possible
to predict accurately the realized yield or average life of a particular issue
of pass-through certificates. Prepayment rates are important because of their
effect on the yield and price of the securities. Accelerated prepayments
adversely impact the yields for pass-through securities purchased at a premium
(i.e., a price in excess of principal amount) and may involve additional risk of
loss of principal because the premium may not have been fully amortized at the
time the obligation is repaid. The opposite is true for pass-through securities
purchased at a discount. A Fund may purchase mortgage-related securities at a
premium or at a discount. Principal and interest payments on the
mortgage-related securities are government guaranteed to the extent described
below. Such guarantees do not extend to the value or yield of the
mortgage-related securities themselves or of a Fund's shares of common stock.
GNMA Certificates. Certificates of the Government National Mortgage
Association ("GNMA Certificates") are mortgage-backed securities, which evidence
an undivided interest in a pool or pools of mortgages. GNMA Certificates that a
Fund purchases are the "modified pass-through" type, which entitle the holder to
receive timely payment of all interest and principal payments due on the
mortgage pool, net of fees paid to the "issuer" and GNMA, regardless of whether
or not the mortgagor actually makes the payment.
The National Housing Act authorizes GNMA to guarantee the timely payment of
principal and interest in securities backed by a pool of mortgages insured by
the Federal Housing Administration ("FHA") or guaranteed by the Veterans
Administration ("VA"). The GNMA guarantee is backed by the full faith and credit
of the United States. The GNMA is also empowered to borrow without limitation
from the U.S. Treasury, if necessary, to make any payments required under its
guarantee.
The average life of a GNMA Certificate is likely to be substantially
shorter than the original maturity of the mortgages underlying the securities.
Prepayments of principal by mortgagors and mortgage foreclosures will usually
result in the return of the greater part of principal investment long before the
maturity of the mortgages in the pool. Foreclosures impose no risk to principal
investment because of the GNMA guarantee, except to the extent that a Fund has
purchased the certificates above par in the secondary market.
FHLMC Securities. The Federal Home Loan Mortgage Corporation ("FHLMC") was
created in 1970 through the enactment of Title III of the Emergency Home Finance
Act of 1970. Its purpose is to promote development of a nationwide secondary
market in conventional residential mortgages.
The FHLMC issues two types of mortgage pass-through securities ("FHLMC
Certificates"), mortgage participation certificates ("PCs") and guaranteed
mortgage certificates ("GMCs"). PCs resemble GNMA Certificates in that each PC
represents a pro rata share of all interest and principal payments made and owed
on the underlying pool. The FHMLC guarantees timely monthly payment of interest
on PCs and the ultimate payment of principal.
GMCs also represent a pro rata interest in a pool of mortgages. However,
these instruments pay interest semi-annually and return principal once a year in
guaranteed minimum payments. The expected average life of these securities is
approximately ten years. The FHLMC guarantee is not backed by the full faith and
credit of the United States.
FNMA Securities. The Federal National Mortgage Association ("FNMA") was
established in 1938 to create a secondary market in mortgages insured by the
FHA.
FNMA issues guaranteed mortgage pass-through certificates ("FNMA
Certificates"). FNMA Certificates resemble GNMA Certificates in that each FNMA
Certificate represents a pro rata share of all interest and principal payments
made and owed on the underlying pool. FNMA guarantees timely payment of interest
and principal on FNMA Certificates. The FNMA guarantee is not backed by the full
faith and credit of the United States.
OTHER SECURITIES. While the principal investment strategies of Alliance
National Municipal and ACM Municipal Securities emphasize investment in
municipal securities, a Fund may, where consistent with its investment
objective, invest in securities other than Municipal Securities, including (i)
futures contracts and options on futures contracts on Municipal Securities or
U.S. Government Securities; and (ii) repurchase agreements pertaining to U.S.
Government Securities.
Alliance National Municipal may invest up to 10% of its net assets in
securities of other open- or closed-end investment companies that invest
primarily in municipal bonds of the types in which the Fund may invest directly.
ACM Municipal Securities may invest in high-quality municipal notes rated
SP-2 or higher by Standard & Poor's ("S&P") or MIG 2 (or VMIG 2) or higher by
Moody's Investor Service ("Moody's) or rated of equivalent credit quality by any
other nationally recognized statistical rating organization ("NRSRO"), or in
taxable cash equivalents, including: (i) U.S. Government Securities, (ii)
certificates of deposit, banker's acceptances, and interest-bearing savings
deposits of banks having total assets of more than $1 billion and which are
members of the Federal Deposit Insurance Corporation, (iii) commercial paper of
prime quality rated A-1 or higher by S&P, Prime-1 or higher by Moody's, or rated
of equivalent credit quality by any other NRSRO or, if not rated, issued by
companies that have an outstanding debt rated AA or higher by S&P or Aa or
higher by Moody's or rated of equivalent credit quality by any other NRSRO, and
(iv) repurchase agreements pertaining to U.S. Government Securities. ACM
Municipal Securities will not be required to dispose of a Municipal Security
that is downgraded below BBB or Baa, or, if unrated, determined by the Adviser
to have undergone similar credit quality deterioration, subsequent to purchase
by the Fund, although the Adviser will monitor the creditworthiness of such
securities and dispose of them as it deems appropriate. ACM Municipal Securities
expects that no more than 5%, if any, of its total assets will consist of
Municipal Securities whose ratings have been downgraded below BBB or Baa or, if
unrated, determined by the Adviser to have undergone similar credit quality
deterioration. See Appendix A for a general description of S&P's and Moody's
securities ratings.
ACM Municipal Securities has not established any limit on the percentage of
its portfolio that may be invested in Municipal Securities the interest on which
is subject to the alternative minimum tax provisions of federal income tax law
("AMT Municipal Securities"), and a substantial portion of the income produced
by ACM Municipal Securities may be includable in the calculation of alternative
minimum taxable income. Shares of ACM Municipal Securities' common stock,
therefore, generally will not be a suitable investment for investors who are
subject to the federal alternative minimum tax. The suitability of shares of ACM
Municipal Securities' common stock for investors will depend upon a comparison
of the after-tax yield likely to be provided from the Fund with that from
comparable tax-exempt investment not subject to the federal alternative minimum
tax, and from comparable fully taxable investments, in light of each such
investor's tax position. Special considerations apply to corporate investors.
See "Taxation - Alternative Minimum Tax."
The Funds may utilize certain futures, options, interest rate swaps, and
related transactions for hedging purposes. To the extent a Fund generates
taxable income by utilizing such hedging practices or investing in taxable
securities, a Fund's ability to achieve its investment objective of providing
high current income exempt from regular federal income tax may be limited.
INVESTMENT PRACTICES
Options on U.S. Government Securities. In an effort to increase current
income and to reduce fluctuations in net asset value ("NAV"), ACM Municipal
Securities intends to write covered put and call options and purchase put and
call options on Municipal Securities and U.S. Government Securities of the types
in which it is permitted to invest that are traded on U.S. exchanges. ACM
Municipal Securities also intends to write call options for cross-hedging
purposes. There are no specific limitations on the Funds' writing and purchasing
of options.
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 Fund is "covered" if a Fund
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 a Fund holds a call on the same
security in the same principal amount as the call written and the exercise price
of the call held (a) is equal to or less than the exercise price of the call or
(b) is greater than the exercise price of the call written and the difference is
maintained by a Fund in cash and liquid high-grade debt securities in a
segregated account with its Custodian. A put option written by a Fund is
"covered" if a Fund maintains cash not available for investment or liquid
high-grade debt securities with a value equal to the exercise price in a
segregated amount with its Custodian, or else holds a put on the same security
in the same principal amount as the put written and 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 reflects, 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.
A call option is written for cross-hedging purposes if a Fund does not own
the underlying security but seeks to provide a hedge against a decline in value
in another security which a Fund owns or has the right to acquire. In such
circumstances, a Fund collateralizes the option by maintaining in a segregated
account with its Custodian cash or liquid U.S. Government Securities in an
amount not less than the market value of the underlying security, marked to
market daily. A Fund 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 Fund 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, a Fund 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 Fund were permitted to expire without being sold or exercised,
the Fund would lose the premium.
If a put option written by a Fund were exercised, a Fund would be obligated
to purchase the underlying security at the exercise price. If a call option
written by a Fund were exercised, a Fund 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 a Fund 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 or 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 a Fund at a lower price than its
current market value. These risks could be reduced by entering into a closing
transaction. A Fund retains the premium received from writing a put or call
option whether or not the option is exercised.
A Fund may purchase or write options on securities of the types in which it
is permitted to invest in privately negotiated transactions. A Fund 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 by a Fund in
negotiated transactions are illiquid and it may not be possible for a Fund to
effect a closing transaction at a time when the Adviser believes it would be
advantageous to do so. See "Risk Factors and Special Considerations - General
Risks of Investing in the Funds - Securities Not Readily Marketable."
Zero Coupon Treasury Securities. The Funds may invest in Zero Coupon
Treasury securities. Currently the only U.S. Treasury security issued without
coupons is the Treasury bill. Although the U.S. Treasury does not itself issue
Treasury notes and bonds without coupons, under the U.S. Treasury STRIPS program
interest and principal payments on certain long term Treasury securities may be
maintained separately in the Federal Reserve book entry system and may be
separately traded and owned. In addition, in the last few years a number of
banks and brokerage firms have separated ("stripped") the principal portions
("corpus") from the coupon portions of U.S. Treasury bonds and notes and hold
them separately in the form of receipts or certificates representing undivided
interests in these instruments (which instruments are generally held by a bank
in a custodial or trust account). The staff of the Securities and Exchange
Commission ("SEC") has indicated, that, in its view these receipts or
certificates should be considered as securities issued by the bank or brokerage
firm involved and, therefore, should not be included in a Fund's categorization
of U.S. Government Securities. The Funds disagree with the staff's
interpretation but have undertaken that they will not invest in such securities
until final resolution of the issue. However, if such securities are deemed to
be U.S. Government Securities, a Fund will not be subject to any limitations on
their purchase.
Zero Coupon Treasury securities do not entitle the holder to any periodic
payments of interest prior to maturity. Accordingly, such securities usually
trade at a deep discount from their face or par value and will be subject to
greater fluctuations of market value in response to changing interest rates than
debt obligations of comparable maturity which make current distributions of
interest. Current federal tax law requires that a holder (such as a Fund) of a
zero coupon security accrue a portion of the discount at which the security was
purchased as income each year even though a Fund receives no interest payment in
cash on the security during the year.
Zero Coupon Bonds. Zero Coupons Bonds 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 securities.
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. Even though the Funds do not receive any
interest on zero coupon bonds during their life, they nonetheless accrue income
with respect to such bonds and thus may have to dispose of portfolio securities
under disadvantageous circumstances in order to obtain cash needed to pay
dividends in amounts necessary to avoid unfavorable tax consequences. Zero
coupon bonds 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.
Futures Contracts and Options on Futures Contracts. Both Alliance National
Municipal and ACM Municipal Securities 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 ("futures contracts") and ACM
Municipal Securities 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 to be
written or purchased by ACM Municipal Securities will be traded on U.S.
exchanges or over-the-counter. These investment techniques are used only to
hedge against anticipated future changes in market conditions and interest rates
that otherwise might either adversely affect the value of a Fund's portfolio
securities or adversely affect the prices of securities which a Fund intends to
purchase at a later date.
ACM Municipal Securities has adopted the requirement that futures contracts
and options on futures contracts may only be used as a hedge and may not be used
for speculation. In addition to this requirement, the ACM Municipal Securities
Board has also adopted two percentage restrictions on the use of futures
contracts that reflect previous requirements of the Commodity Futures Trading
Commission. The first restriction is that the Fund will not enter into any
futures contracts or options on futures contracts if immediately thereafter the
aggregate amount of initial margin deposits on all the futures contracts of the
Fund and premiums paid on options on futures contracts would exceed 5% of the
market value of the total assets of the Fund. The second restriction is that the
aggregate market value of the futures contracts purchased by the Fund not exceed
50% of the market value of the total assets of the Fund. Neither of these
restrictions will be changed by the Board without considering the policies and
concerns of the various applicable federal and state regulatory agencies.
Interest Rate Transactions (Swaps, Caps, and Floors). While Alliance
National Municipal does not currently intend to do so, both Funds 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 Funds anticipate purchasing at a later date. The Funds do not
intend to use these transactions in a speculative manner. Interest rate swaps
involve the exchange by a Fund with another party of their respective
commitments to pay or receive interest, e.g., an exchange of floating rate
payments for fixed rate payments. The purchase of an interest rate cap entitles
the purchaser, to the extent that a specified index exceeds a predetermined
interest rate, to receive payments of interest on a contractually-based
principal amount from the party selling such interest rate cap. The purchase of
an interest rate floor entitles the purchaser, to the extent that a 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.
The Funds may enter into interest swaps, caps, and floors on either an
asset-based or liability-based basis, depending upon whether it is hedging its
assets or its liabilities, and will usually enter into interest rate swaps on a
net basis, i.e., the two payment streams are netted out, with a Fund 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 Fund's obligations over its entitlements with
respect to each interest rate swap will be accrued on a daily basis and an
amount of cash or high-quality liquid fixed income securities having an
aggregate NAV at least equal to the accrued excess will be maintained in a
segregated account by a Fund's Custodian. If a Fund enters into an interest rate
swap other than on a net basis, the Fund would maintain a segregated account in
the full amount accrued on a daily basis of the Fund's obligations with respect
to the swap. A Fund will not enter into any interest rate swap, cap, or floor
transaction unless the unsecured senior debt or the claims-paying ability of the
other party thereto is rated in the highest rating category of at least one
nationally recognized ratings organization at the time of entering into the
transaction. The Adviser will monitor the creditworthiness of counterparties on
an ongoing basis. If there is a default by the other party to such a
transaction, a Fund will have contractual remedies pursuant to the agreements
related to the transaction. The swap market has grown substantially in recent
years with a large number of banks and investment banking firms acting both as
principals and as agents utilizing standardized swap documentation. The Adviser
has determined that, as a result, the swap market has become relatively liquid.
Caps and floors are more recent innovations for which standardized documentation
has not yet been developed and, accordingly, are less liquid than swaps. To the
extent a Fund sells (i.e., writes) caps and floors it will maintain in a
segregated account cash, or high-quality liquid debt securities having an
aggregate NAV at least equal to the full amount, accrued on a daily basis, of a
Fund's obligations with respect to any caps or floors. The use of interest rate
swaps is a highly specialized activity that involves investment techniques and
risks different from those associated with ordinary portfolio securities
transactions. If the Adviser is incorrect in its forecasts of market values,
interest rates and other applicable factors, the investment performance of a
Fund would diminish compared with what it would have been if these investment
techniques were not used. Moreover, even if the Adviser is correct in its
forecasts, there is a risk that the swap position may correlate imperfectly with
the price of the asset or liability being hedged.
There is no limit on the amount of interest rate swap transactions into
which a Fund may enter. 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 a Fund is contractually obligated to make. If the other party
to an interest rate swap defaults, a Fund's risk of loss consists of the net
amount of interest payments that a Fund is contractually entitled to receive. A
Fund may purchase and sell (i.e., write) caps and floors without limitation,
subject to the segregated account requirement described above.
Derivatives. The Funds may use derivatives. 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. Generally, there are four types of derivative instruments - options,
futures, forwards, and swaps - from which virtually any type of derivative
transaction can be created. While Alliance National Municipal does not currently
intend to utilize any of these types of derivative instruments, it reserves the
flexibility to use these techniques under appropriate circumstances. Derivatives
can be used to earn income or protect against risk, or both. The Funds may use
derivatives to earn income and enhance returns, to hedge or adjust the risk
profile of its investment portfolio, or to obtain exposure to otherwise
inaccessible markets. The Funds will generally use derivatives primarily as
direct investments in order to enhance yields. Each of these uses entails
greater risk than if derivatives were used solely for hedging purposes. The
successful use of derivatives depends upon the Adviser's ability to assess the
risk that a derivative adds to a Fund's portfolio and to forecast price and
interest rate movements correctly. Since many derivatives may 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.
Lending of Portfolio Securities. The Funds may not make loans except
through: (i) the purchase of debt obligations in accordance with their
investment objectives and policies, or (ii) the use of repurchase agreements.
Forward Commitments. ACM Municipal Securities may enter into forward
commitments for the purchase or sale of securities. Alliance National Municipal
may purchase or sell municipal bonds on a forward commitment basis. Such
transactions may include 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 of a
proposed financing by appropriate municipal authorities (i.e., a "when, as, and
if issued" trade).
When forward commitment 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. Securities
purchased or sold under a forward commitment are subject to market fluctuation,
and no interest accrues to the purchaser prior to the settlement date. At the
time a Fund enters into a forward commitment, it will record the transaction and
thereafter reflect the value of the security purchased or, if sold, the proceeds
to be received, in determining the NAV of its shares. Any unrealized
appreciation or depreciation reflected in such valuation of a "when, as, and if
issued" security would be cancelled in the event that the required condition did
not occur and the trade was cancelled.
The use of forward commitments enables a Fund to protect against
anticipated changes in interest rates and prices. For instance, in periods of
rising interest rate and falling bond prices, a Fund might sell securities in
its portfolio on a forward commitment basis to limit its exposure to falling
prices. In periods of falling interest rates and rising bond prices, a Fund
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. However, if the Adviser were to
forecast incorrectly the direction of interest rate movements, a Fund might be
required to complete such when-issued of forward transactions at prices inferior
to then current market values. No forward commitments will be made by ACM
Municipal Securities if, as a result, ACM Municipal Securities' aggregate
commitments under such transactions would be more than 30% of the then current
value of ACM Municipal Securities' total assets. No forward commitments will be
made by Alliance National Municipal if, as a result, Alliance National
Municipal's aggregate commitments under such transactions would be more than 10%
of Alliance National Municipal's total assets.
The Funds' right to receive or deliver a security under a forward
commitment may be sold prior to the settlement date, but each Fund enters into
forward commitments only with the intention of actually receiving or delivering
the securities, as the case may be. To facilitate such transactions, each Fund's
Custodian will maintain, in a segregated account of each Fund, cash or liquid
high-grade debt securities having value equal to, or greater than, any
commitments to purchase securities on a forward commitment basis and, with
respect to forward commitments to sell portfolio securities of a Fund, the
portfolio securities themselves. If a Fund, however, chooses to dispose of the
right to receive or deliver a security subject to a forward commitment prior to
the settlement date of the transaction, it may incur a gain or loss. In the
event the other party to a forward commitment transaction were to default, a
Fund might lose the opportunity to invest money at favorable rates or to dispose
of securities at favorable prices.
General Information Regarding Futures, Options and Forward Contracts. The
successful use of the foregoing investment practices draws upon the Adviser's
special skill and experience with respect to such instruments and usually
depends on the Adviser's ability to forecast interest and exchange rate
movements correctly. Should interest or exchange rates move in an unexpected
manner, a Fund may not achieve the anticipated benefits of the use of these
techniques 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 prices 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 Fund's ability to dispose of its positions in futures contracts, options
and forward contracts will depend on the availability of liquid markets in such
instruments. It is impossible to predict the amount of trading interest that may
exist in various types of futures contracts, options and forward contracts. If a
secondary market does not exist with respect to an option purchased or written
by a Fund over-the-counter, it might not be possible to effect a closing
transaction in the option (i.e., dispose of the option) with the result that (i)
an option purchased by a Fund would have to be exercised in order for a Fund to
realize any profit and (ii) a Fund may not be able to sell portfolio securities
covering an option written by a Fund until the option expires or it delivers the
underlying security or futures contract upon exercise. Therefore, no assurance
can be given that a Fund will be able to utilize these instruments at all or
utilize them effectively for the purposes set forth above. Furthermore, a Fund's
ability to engage in options and futures transactions may be limited by tax
considerations. See "Taxation - U.S. Federal Income Taxation of a Fund."
Repurchase Agreements. While Alliance National Municipal does not intend to
do so, both Funds may enter into repurchase agreements pertaining to U.S.
Government Securities with member banks of the Federal Reserve System or
"primary dealers" (as designated by the Federal Reserve Bank of New York) in
such securities. Currently, ACM Municipal Securities plans to enter into
repurchase agreements only with its Custodian and such primary dealers. A
repurchase agreement arises when a buyer such as a Fund 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 interest rate which is effective for
the period of time the buyer's money is invested in the security and which is
related to the current market rate rather than the coupon rate on the purchased
security. Such agreements permit a Fund to keep all of its assets at work while
retaining "overnight" flexibility in pursuit of investments of a longer-term
nature. A Fund requires continual maintenance by its Custodian for its account
in the Federal Reserve/Treasury Book Entry System of collateral in an amount
equal to, or in excess of, the resale price. If a vendor defaults on its
repurchase obligation, a Fund would 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 Fund might be delayed in, or prevented
from, selling the collateral for a Fund's benefit. Each Fund's Board of
Directors ("Board") has established procedures, which are periodically reviewed
by the Board, pursuant to which the Adviser monitors the creditworthiness of the
dealers with which a Fund enters into repurchase agreement transactions.
Reverse Repurchase Agreements. Reverse repurchase agreements involve sales
by a Fund of portfolio assets concurrent with an agreement by a Fund to
repurchase the same assets at a later date at a fixed price. During the reverse
repurchase agreement period, a Fund continues to receive principal and interest
payments on these securities. Generally, the effect of such a transaction is
that a Fund can recover all or most of the cash invested in the portfolio
securities involved during the term of the reverse repurchase agreement, while
it will be able to keep the interest income associated with those portfolio
securities. Such transactions are advantageous only if the interest cost to a
Fund of the reverse repurchase transaction is less than the cost of otherwise
obtaining the cash.
Reverse repurchase agreements involve the risk that the market value of the
securities a Fund is obligated to repurchase under the agreement may decline
below the repurchase price. In the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, a Fund's use of
the proceeds of the agreement may be restricted pending a determination by the
other party, or its trustee or receiver, whether to enforce a Fund's obligation
to repurchase the securities.
Short Sales. ACM Municipal Securities may make short sales of securities or
maintain a short position only for the purpose of deferring realization of gain
or loss for U.S. federal income tax purposes, provided that at all times when a
short position is open the Fund owns an equal amount of such securities of the
same issue as, and equal in amount to, the securities sold short. In addition,
ACM Municipal Securities may not make a short sale if more than 10% of the
Fund's net assets (taken at market value) are held as collateral for short sales
at any one time. If the price of the security sold short increases between the
time of the short sale and the time ACM Municipal Securities replaces the
borrowed security, the Fund will incur a loss; conversely, if the price
declines, the Fund will realize a capital gain. Although ACM Municipal
Securities gain is limited to the price at which it sold the security short, its
potential loss is unlimited. Certain special federal income tax considerations
may apply to short sales entered into by ACM Municipal Securities. See "Taxation
- Tax Straddles."
Variable and Floating Rate Instruments. Fixed-income 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.
The Funds may invest in variable rate demand notes, which are instruments
whose interest rates change on a specific date (such as coupon date or interest
payment date) or whose interest rates vary with changes in a designated base
rate (such as prime interest rate). This instrument is payable on demand and is
secured by letters of credit or other credit support agreements from major
banks.
The Funds 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.
Illiquid Securities. The Funds may invest in illiquid securities, which
include, among others, (i) direct placements or other securities that are
subject to legal or contractual restrictions on resale or for which there is no
readily available market (e.g., trading in the security is suspended or, in the
case of unlisted securities, market makers do not exist or will not entertain
bids or offers), (ii) options purchased by a Fund over-the-counter and the cover
for options written by a Fund over-the-counter, and (iii) repurchase agreements
not terminable within seven days. Securities that have legal or contractual
restrictions on resale but have a readily available market are not deemed
illiquid for purposes of this limitation.
Illiquid securities generally include securities subject to contractual or
legal restrictions on resale because they have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), securities that are
otherwise not readily marketable, and repurchase agreements having a maturity of
longer than seven days. Securities that have not been registered under the
Securities Act are referred to as private placements or restricted securities
and are purchased directly from the issuer or in the secondary market.
Rule 144A under the Securities Act permits a broader institutional trading
market for securities otherwise subject to restriction on resale to the general
public. Rule 144A establishes a "safe harbor" from the registration requirements
of the Securities Act for resales of certain securities to qualified
institutional buyers. An insufficient number of qualified institutional buyers
interested in purchasing certain restricted securities held by a Fund, however,
could affect adversely the marketability of such Fund securities. The Adviser,
acting under the supervision of the Board, will monitor the liquidity of
restricted securities in a Fund that are eligible for resale pursuant to Rule
144A. In reaching liquidity decisions, the Adviser will consider, among others,
the following factors: (1) the frequency of trades and quotes for the security;
(2) the number of dealers issuing quotations to purchase or sell the security;
(3) the number of other potential purchasers of the security; (4) the number of
dealers undertaking to make a market in the security; (5) the nature of the
security (including its unregistered nature) and the nature of the marketplace
for the security (e.g., the time needed to dispose of the security, the method
of soliciting offers, and the mechanics of the transfer); and (6) any applicable
Commission interpretation or position with respect to such type of securities.
Future Developments. The Funds may, following written notice to their
stockholders, take advantage of other investment practices which are not at
present contemplated for use by the Funds or which currently are not available
but which may be developed, to the extent such investment practices are both
consistent with a Fund's investment objectives and legally permissible for a
Fund. Such investment practices, if they arise, may involve risks that exceed
those involved in the activities described above.
INVESTMENT RESTRICTIONS
Each Fund has adopted the following investment restrictions, which may not
be changed without the approval of the holders of a majority of that Fund's
outstanding voting securities as defined above. The percentage limitations set
forth below, as well as those described in the Prospectus/Proxy Statement and
elsewhere in this Statement of Additional Information, apply only at the time an
investment is made or other relevant action is taken by a Fund.
Each Fund will not:
1. Make loans except through (a) the purchase of debt obligations in
accordance with its investment objective and policies; or (b) the use
of repurchase agreements.
2. Pledge, hypothecate, mortgage or otherwise encumber its assets, except
(i) to secure permitted borrowings, (ii) in connection with initial
and variation margin deposits relating to futures contracts, and (iii)
any segregated accounts established in accordance with its investment
objective and policies.
Alliance National Municipal will not:
1. Concentrate its investments in a particular industry, as that term is
used in the 1940 Act and as interpreted, modified, or otherwise
permitted by regulatory authority having jurisdiction, from time to
time. (The Fund's industry concentration policy does not preclude it
from focusing investments in issuers in a group of related industries,
such as different types of utilities.)
2. Purchase or sell real estate, although it may purchase securities
(including municipal bonds) secured by real estate or interests
therein, or securities issued by companies which invest in real
estate, or interests therein.
3. Purchase or sell commodities or commodities contracts or oil, gas or
mineral programs. This restriction shall not prohibit the Fund,
subject to restrictions described in the Prospectus and elsewhere in
this SAI, from purchasing, selling or entering into futures contracts,
options on futures contracts, forward contracts, or any interest rate,
securities-related or other hedging instruments, including swap
agreements and other derivative instruments, subject to compliance
with any applicable provisions of the federal securities or
commodities laws.
4. Borrow money or issue any senior security, except in accordance with
provisions of the 1940 Act, and specifically, the Fund may (a) borrow
from a bank or other entity in a privately arranged transaction and
issue commercial paper, bonds, debentures or notes, in series or
otherwise, with such interest rates, conversion rights and other terms
and provisions as are determined by the Fund's Board of Directors, if
after such borrowing or issuance there is asset coverage of at least
300% as defined in the 1940 Act; and (b) issue preferred shares with
such preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends and other distributions,
qualifications, and terms and conditions of redemption as are
determined by the Fund's Board of Directors, if after such issuance
there is asset coverage of at least 200% as defined in the 1940 Act.
5. Act as an underwriter of securities of other issuers, except to the
extent that in connection with the disposition of portfolio
securities, it may be deemed to be an underwriter under the federal
securities laws.
ACM Municipal Securities will not:
1. Invest 25% or more of its total assets in any one industry, provided
that such limitation shall not be applicable to municipal securities
other than those municipal securities backed only by assets and
revenues of non-governmental users.
2. With respect to 75% of its total assets, invest more than 5% of the
value of its total assets (taken at market value at time of purchase)
in the outstanding securities of any one issuer or own more than 10%
of the outstanding voting securities of any one issuer, in each case
other than securities issued or guaranteed by the U.S. Government or
any agency or instrumentality thereof or other investment companies.
3. Borrow money or issue senior securities, except the Fund may, in
accordance with provisions of the 1940 Act, (a) borrow from a bank or
other entity in a privately arranged transaction and issue commercial
paper, bonds, debentures or notes, in series or otherwise, with such
interest rates, conversion rights and other terms and provisions as
are determined by the Fund's Board of Directors, if after such
borrowing or issuance there is asset coverage of at least 300% as
defined in the 1940 Act; (b) issue preferred stock with such
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions
of redemption as are determined by the Fund's Board of Directors, if
after such issuance there is asset coverage of at least 200% as
defined in the 1940 Act; and (c) borrow for temporary purposes in an
amount not exceeding 5% of the value of the total assets of the Fund.
4. Invest in companies for the purpose of exercising control.
5. Make short sales of securities or maintain a short position, unless at
all times when a short position is open it owns an equal amount of
such securities or securities convertible into or exchangeable for,
without payment of any further consideration, securities of the same
issue as, and equal in amount to, the securities sold short ("short
sales against the box"), and unless not more than 10% of the Fund's
net assets (taken at market value) is held as collateral for such
sales at any one time (it is the Fund's present intention to make such
sales only for the purpose of deferring realization of gain or loss
for federal income tax purposes).
6. (i) Purchase or sell real estate, except that it may purchase and sell
securities of companies which deal in real estate or interests
therein, (ii) purchase or sell commodities or commodity contracts
(except forward contracts or contracts for the future acquisition or
delivery of debt securities and related options, futures contracts and
options on futures contracts and other similar contracts), (iii) write
put and call options except in accordance with its investment
objective and policies, (iv) invest in interests in oil, gas or other
mineral exploration or development programs, except that it may
purchase and sell securities of companies that deal in oil, gas or
other mineral exploration or development programs, (v) purchase
securities on margin, except for such short-term credits as may be
necessary for the clearance of transactions or (vi) act as an
underwriter of securities, except that the Fund may acquire restricted
securities under circumstances in which, if such securities were sold,
the Fund might be deemed to be an underwriter within the meaning of
the Securities Act of 1933, as amended.
RISK FACTORS AND SPECIAL CONSIDERATIONS
Risk is inherent in all investing. Investing in any investment company
security involves risks, including the risks that you may receive little or no
return on your investment or even that you may lose all or part of your
investment. Therefore, you should consider carefully the following risks before
investing in the shares of Alliance National Municipal.
GENERAL RISKS OF INVESTING IN THE FUNDS
General. The NAV of shares of a Fund varies as the aggregate value of a
Fund's portfolio securities increases or decreases. A Fund's NAV changes as the
general levels of interest rates fluctuate. When interest rates decline, the
value of a portfolio invested in fixed-income securities can be expected to
rise. Conversely, when interest rates rise, the value of a portfolio invested in
fixed-income securities can be expected to decline. If the Adviser's expectation
of changes in interest rates or its evaluation of the normal yield relationships
in the fixed-income markets proves to be incorrect, a Fund's income, NAV and
potential capital gain may be decreased or its potential capital loss may be
increased.
ACM Municipal Securities expects that the dollar-weighted average maturity
of its investments will be approximately 15 to 20 years. Alliance National
Municipal expects that the dollar-weighted average maturity of its investments
will be approximately 15-30 years. In general, the longer the maturity of a
security, the higher the rate of interest it pays. However, a longer average
maturity is generally associated with a higher level of volatility in the market
value of a security. The average maturity of the Funds' portfolios will vary
depending on anticipated market conditions.
Although changes in the value of a Fund's portfolio securities subsequent
to their acquisition are reflected in a Fund's NAV, such changes will not affect
the income received by a Fund from such securities. The dividends paid by a Fund
increase or decrease in relation to the income received by a Fund from its
investments, which is reduced by a Fund's expenses before being distributed to a
Fund's stockholders.
A Fund's use of options, futures contracts, options on futures contracts,
interest rate transactions, and forward commitment contracts may result in the
loss of principal under certain market conditions.
For these reasons, an investment in shares of a Fund should not constitute
a complete investment program and may not be appropriate for investors who
cannot assume the greater risk of capital depreciation inherent in seeking
higher income.
Interest Rate Risk. Interest rate risk is the risk that changes in interest
rates will adversely affect the yield or value of a Fund's investments in
municipal bonds. When interest rates rise, the value of a Fund's investment
tends to fall, and this decrease in value may not be offset by higher interest
income from new investments. Interest rate risk is generally greater for
investment companies like the Funds that invest in municipal bonds with longer
maturities or durations. The value of these securities is affected more by
changes in interest rates because when interest rates rise, the maturities of
these types of securities tend to lengthen and the value of the securities
decreases more significantly, which, in turn reduces the asset coverage on the
Funds' preferred shares. In addition, these types of securities are subject to
prepayment when interest rates fall, which generally results in lower returns
because a Fund must reinvest its assets in municipal bonds with lower interest
rates. A Fund may utilize certain strategies for the purpose of reducing the
interest rate sensitivity of the portfolio and decreasing the Fund's exposure to
interest rate risk, although there is no assurance that it will do so or that
such strategies will be successful.
Credit Risk. Credit risk is the risk that the issuer or guarantor of a
municipal bond or the guarantor to a derivatives or other contract, will be
unable or unwilling to make timely payments of interest or principal or to
otherwise honor its obligations. The issuer or guarantor may default causing a
loss of the full principal amount of a security and any accrued interest. The
degree of risk for a particular security may be reflected in its credit rating.
Investments in municipal bonds with lower ratings tend to have a higher
probability that an issuer will default or fail to meet its payment obligations.
Because Alliance National Municipal may invest up to 25% (measured at the
time of investment) of its net assets in municipal bonds that are rated below
investment grade or, if unrated, determined to be of comparable quality by the
Adviser, Alliance National Municipal is more susceptible to credit risk. The
prices of these lower-grade municipal bonds are more sensitive to negative
developments, such as a decline in the issuer's revenues or a general economic
turndown, than are the prices of higher-grade securities.
Municipal bonds of below investment grade quality (commonly referred to as
"junk bonds") are predominately speculative with respect to the issuer's
capacity to pay interest and repay principal when due, and therefore involve a
greater risk of default. Municipal bonds in the lowest investment grade category
may also be considered to possess some speculative characteristics by certain
rating agencies. Any default by an issuer of a municipal bond could have a
negative effect on a Fund's ability to pay dividends on its preferred shares and
could result in the redemption of some or all of the preferred stock.
Effects of Leverage. The Funds use financial leverage for investment
purposes. When a Fund borrows money or otherwise leverages its portfolio, it may
be more volatile because leverage tends to exaggerate the effect of any increase
or decrease in the value of the portfolio's investments. Leverage risk includes
the risk associated with the issuance of preferred shares to leverage a Fund's
common stock. Long-term municipal bond rates of return are typically, although
not always, higher than short-term municipal bond rates of return. If the
dividend rate on the preferred stock exceeds the net rate of return on a Fund's
portfolio, the leverage will result in a lower NAV than if a Fund were not
leveraged, and a Fund's ability to pay dividends and meet its asset coverage
tests would be reduced.
Investment by the Funds in derivative instruments may amplify the effects
of leverage.
Because the management fees received by the Adviser are based on the total
net assets of a Fund (including assets acquired with the proceeds of preferred
stock), the Adviser has a financial incentive for a Fund to use leverage and
issue preferred stock.
Derivatives Risk. The Funds may use derivatives to achieve their investment
objectives. In addition to the credit risk of the counterparty to a derivatives
transaction, derivatives involve the risk of difficulties in pricing and
valuation and the risks that changes in value of a derivative may not correlate
perfectly with relevant underlying assets, rates, or indexes.
Market Risk and Net Asset Value of Shares. This is the risk that the value
of a Fund's investments will fluctuate as municipal bond markets fluctuate and
that prices overall will decline over shorter or longer-term periods. Shares of
common stock of closed-end investment companies, such as the Funds, frequently
trade at a discount to their NAVs. Whether an investor will realize gains or
losses upon the sale of shares of a Fund does not depend directly upon changes
in a Fund's NAV, buy rather upon whether the market price of the shares at the
time of sale is above or below the investor's purchase price for the shares. The
market price of the shares of each Fund is determined by such factors as
relative demand for and supply of the shares in the market, general market and
economic conditions, changes in a Fund's NAV and other factors beyond the
control of a Fund. This market risk is separate and distinct from the risk that
each Fund's NAV may decrease.
Municipal Bond Market Risk. This is the risk that special factors, such as
legislative changes and local and business developments, may adversely affect
the yield or value of a Fund's investments in municipal bonds or other municipal
securities. The amount of public information available about municipal bonds is
generally less than that for corporate equities or bonds, and the investment
performance for a Fund may therefore be more dependent on the analytical
abilities of the Adviser than would be the case for a stock fund or taxable bond
fund. The secondary market for municipal bonds, particularly below investment
grade municipal bonds in which the Funds may invest, also tends to be less
developed and less liquid than many other securities markets, which may
adversely affect a Fund's ability to sell its municipal bonds at attractive
prices.
Reinvestment Risk. Reinvestment risk is the risk that income from the
Funds' municipal bond portfolio will decline if and when the Funds invest the
proceeds from matured, traded, or called municipal bonds at market interest
rates that are below the portfolio's current earnings rate. A decline in income
could affect the Funds' NAV or reduce asset coverage on the preferred stock.
Inflation Risk. Inflation risk is the risk that the value of assets or
income from an investment will be worth less in the future as inflation
decreases the value of money. As inflation increases, the real value of the
preferred stock or the income from that investment will be less in the future.
During any periods of rising inflation, however, preferred stock dividend rates
are expected, through the auction process, to increase, tending to reduce this
risk.
Securities Ratings Risk. In the case of securities rated BBB by S&P or Baa
by Moody's, 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 Baa are considered by Moody's to have speculative
characteristics. The ratings of fixed-income securities by S&P and Moody's 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 credit rating. See
Appendix A herein for a description of such ratings.
ACM Municipal Securities may invest up to 20% of its total assets in
securities that are not rated. Non-rated securities will also be considered for
investment by ACM Municipal Securities when the Adviser believes that the
financial condition of the issuers of such securities, or the protection
afforded by the terms of the securities themselves, limits the risk to the Fund
to a degree comparable to that of rated securities that are consistent with the
Fund's objective and policies.
Securities Not Readily Marketable. Both Funds may invest in securities that
are not readily marketable. (ACM Municipal Securities may invest up to 10% of
its total assets in securities that are not readily marketable.) These
securities include, among others, securities for which there is no readily
available market (e.g., trading in the security is suspended, or, in the case of
unlisted securities, market makers do not exist or will not entertain bids or
offers), options purchased by a Fund over-the-counter and the cover for options
written by a Fund over-the-counter, and repurchase agreements not terminable
within seven days. Because of the absence of a trading market for these
investments, a Fund may not be able to realize their value upon sale.
Portfolio Management and Other Considerations. In the event of an increase
in yields on short-term securities or other changes in market conditions, to the
extent that a Fund's leveraged capital structure could adversely affect the
holders of the common stock (as noted above), or in anticipation of such
increase or changes, a Fund may attempt to shorten the average maturity of its
investment portfolios, which would tend to offset partially the negative effect
of such structure on the holders of the common stock. A Fund also may attempt to
reduce the degree to which their capital structure is leveraged by redeeming or
otherwise purchasing the preferred stock. Purchases of preferred stock, whether
on the open market or in negotiated transactions, are subject to limitations
under the 1940 Act. If market conditions subsequently change, a Fund may sell
previously unissued shares of preferred stock or shares of preferred stock that
a Fund previously issued but later repurchased. However, such sales could be
made only pursuant to an effective registration statement under the Securities
Act, or pursuant to an exemption from registration.
Under the 1940 Act, a Fund is not permitted to issue shares of preferred
stock unless immediately after such issuance the asset coverage of a Fund's
portfolio is at least 200% of the liquidation value of the outstanding preferred
stock (expected to equal original purchase price per share plus any accrued and
unpaid dividends). In addition, a Fund is not permitted to declare any cash
dividend or other distributions on their common stock unless, at the time of
such declaration, the NAV of a Fund's portfolio (determined after deducting the
amount of such dividend or other distribution) is at least 200% of such
liquidation value.
Borrowing. The Funds reserve the right to borrow money, or issue debt
securities, to the extent permitted under the 1940 Act. At present, the Funds
have no intention of borrowing money or issuing senior securities except that
the Funds intend to offer shares of preferred stock as described above. The
Funds may also borrow to finance repurchases of or tenders for their shares when
they deem it desirable in order to avoid the untimely disposition of portfolio
securities.
The 1940 Act requires a Fund to maintain "asset coverage" of not less than
300% of its "senior securities representing indebtedness," as those terms are
defined and used in the 1940 Act. In addition, under the 1940 Act, a Fund may
not make any cash distributions to stockholders if, after the distribution,
there would be less than 300% asset coverage of a senior security representing
indebtedness for borrowings (excluding for this purpose certain evidences of
indebtedness made by a bank or other entity and privately arranged, and not
intended to be publicly distributed). This limitation on a Fund's ability to
make distributions could under certain circumstances impair a Fund's ability to
maintain its qualification for taxation as a registered investment company.
ACM Municipal Securities may also borrow for temporary purposes in an
amount not exceeding 5% of the value of the total assets of the Fund. Such
borrowings are not subject to the asset coverage restrictions set forth in the
preceding paragraph.
Any investment gains made with the proceeds obtained from borrowings in
excess or interest paid on the borrowings will cause the net income per share or
the NAV per share of a Fund's common stock to be greater than would otherwise be
the case. On the other hand, if the investment performance of the additional
securities purchased fails to cover their cost (including any interest paid on
the money borrowed) to a Fund, then the net income per share or NAV per share of
a Fund's common stock will be less than would otherwise be the case. This is the
speculative factor known as "leverage."
Repurchase of Shares. In recognition of the possibility that a Fund's
shares might trade at a discount to NAV, each Fund's Board has determined that
it would be in the interest of stockholders of a Fund to attempt to reduce or
eliminate any market value discount should it exist for an extended period of
time. To that end, each Fund's Board will from time to time contemplate a share
repurchase or tender offer for its own shares at NAV. The Funds are closed-end
investment companies and as such, their stockholders will not have the right to
cause a Fund to redeem their shares. Instead, the Funds' common stock will trade
in the open market at prices that will be a function of several factors,
including dividend levels (which are in turn affected by expenses), NAV,
quality, average maturity and call protection of its portfolio securities,
price, dividend stability, relative demand for and supply of such shares in the
market, general market and economic conditions and other factors. Shares of a
closed-end investment company may frequently trade at prices lower than NAV.
Each Fund's Board of Directors will regularly monitor the relationship between
the market price and NAV of the common stock. If the common stock were to trade
at a substantial discount to NAV for an extended period of time, a Fund may
consider the repurchase by a Fund of its common stock or the making of a tender
offer for such shares. The Funds have no present intention to repurchase their
common stock.
Notwithstanding the foregoing, at any time when preferred stock is
outstanding, a Fund may not purchase, redeem or otherwise acquire any of its
common stock unless (1) all accrued preferred stock dividends have been paid and
(2) at the time of such purchase, redemption or acquisition, the NAV of a Fund's
portfolio (determined after deducting the acquisition price of the common stock)
is at least 200% of the liquidation value of the outstanding preferred stock
(expected to equal the original purchase price per share plus any accrued and
unpaid dividends thereon).
Subject to a Fund's fundamental policy with respect to borrowings, a Fund
may incur debt to finance repurchases and/or tender offers. Interest on any such
borrowing will reduce a Fund's net income.
The repurchase by a Fund of its shares at prices below NAV will result in
an increase in the NAV of those shares that remain outstanding. However, there
can be no assurance that share repurchases or tender offers at or below NAV will
result in a Fund's shares trading at a price equal to its NAV. Nevertheless, the
fact that a Fund's shares may be the subject of repurchase or tender offers at
NAV from time to time, or that a Fund may be converted to an open-end company,
may reduce any spread between market price and NAV that might otherwise exist.
In addition, a purchase by a Fund of its shares would decrease a Fund's
total assets, which would likely have the effect of increasing a Fund's expense
ratio and may also require the redemption of a portion of any outstanding
preferred stock in order to maintain coverage ratios. Any purchase by a Fund of
its common stock at a time when preferred stock is outstanding will increase the
leverage applicable to the outstanding common stock then remaining.
Before deciding whether to take any action if a Fund's common stock trade
substantially below NAV, the Board of Directors would consider all factors that
it deemed relevant. Such factors may include the extent and duration of the
discount, the liquidity of a Fund's portfolio, the relationship of the market
price of the common stock to NAV, the extent to which a Fund's capital structure
is leveraged and the possibility of re-leveraging the spread, if any, between
the yields on securities in a Fund's portfolio and interest and dividend charges
on preferred stock issued by a Fund, the effect of any action that might be
taken on a Fund or its stockholders and general market and economic
considerations. Based on these considerations, even if a Fund's shares should
trade at a substantial discount for a significant period of time, the Board of
Directors may determine that no action should be taken.
There can be no assurance that repurchases and/or tender offers will result
in a Fund's shares trading at a price equal to their NAV. Each Fund anticipates
that the market price of its shares will from time to time vary from NAV. The
market price of a Fund's shares will, among other things, be affected by the
relative demand for and supply of such shares in the market, a Fund's investment
performance, a Fund's dividends and yield and investor perception of a Fund's
overall attractiveness as an investment as compared with other investment
alternatives. Nevertheless, the fact that a Fund's shares may be the subject of
tender offers at NAV from time to time may reduce the spread that might
otherwise exist between market price and NAV. In the opinion of the Adviser,
sellers may be less inclined to accept a significant discount if they have a
reasonable expectation of being able to recover NAV in conjunction with a
possible tender offer.
Although each Fund's Board believes that share repurchases and tender
offers might, in certain circumstances have a favorable effect an the market
price of a Fund's shares, it should be recognized that the acquisition of shares
by a Fund would decrease the total assets of a Fund and therefore have the
effect of increasing a Fund's expense ratio. Because of the nature of a Fund's
investment objective, policies and portfolio, each Fund's Adviser does not
anticipate that repurchases and tenders should have an adverse effect on a
Fund's investment performance and does not anticipate any material difficulty in
disposing of portfolio securities in order to consummate stock repurchases and
tenders.
Possible Future Conversion to Open-End Investment Company. A Fund's Board
of Directors may also from time to time consider submitting for stockholder vote
a proposal to convert a Fund to an open-end investment company in an attempt to
reduce or eliminate the significant market discounts from NAV. Each Fund's
Charter requires the affirmative vote or consent of holders of at least
seventy-five percent (75%) of each class of a Fund's shares entitled to vote on
the matter to authorize a conversion of a Fund from a closed-end to an open-end
investment company. This seventy-five percent (75%) stockholder approval
requirement is higher than is required under the 1940 Act.
If a Fund converted to an open-end company, it would be required to redeem
all preferred stock then outstanding (requiring in turn that it liquidate a
portion of its investment portfolio), and a Fund's common stock likely would no
longer be listed on the NYSE. Stockholders of an open-end investment company may
require the company to redeem their shares on any business day (except in
certain circumstances as authorized by or under the 1940 Act) at their NAV, less
such redemption charge, if any, as might be in effect at the time of redemption.
In order to avoid maintaining large cash positions or liquidating favorable
investments to meet redemptions, open-end companies typically engage in a
continuous offering of their shares. Open-end companies are thus subject to
periodic asset in-flows and out-flows that can complicate portfolio management.
The repurchase by a Fund of its shares would result in an increase in the
NAV of those shares that remain outstanding. However, there can be no assurance
that share repurchases or tender offers at or below NAV will result in a Fund's
shares trading at a price equal to its NAV. Nevertheless, the fact that a Fund's
shares may be the subject of repurchase or tender offers at NAV from time to
time, or that a Fund may be converted to an open-end company, may reduce any
spread between market price and NAV that might otherwise exist.
In addition, a purchase by a Fund of its shares would decrease the Fund's
total assets, which would likely have the effect of increasing the Fund's
expense ratio and may also require the redemption of a portion of any
outstanding preferred stock in order to maintain coverage ratios. Any purchase
by a Fund of its common stock at a time when preferred stock is outstanding will
increase the leverage applicable to the outstanding common stock remaining.
RISKS OF INVESTING IN PREFERRED STOCK
Auction Risk. You may not be able to sell the preferred stock at an auction
if the auction fails; that is, if there is more preferred stock offered for sale
than there are buyers for those shares. Also, if you place hold orders (orders
to retain preferred stock) at an auction only at a specified rate, and that bid
rate exceeds the rate set at the auction, you will not retain your preferred
stock. Finally, if you buy shares or elect to retain shares without specifying a
rate below which you would not wish to continue to hold those shares, and the
auction sets a below-market rate, you may receive a lower rate of return on your
shares than the market rate. As a result, your investment in preferred stock may
be illiquid. Neither the participating broker-dealers nor a Fund are obligated
to purchase preferred stock in an auction or otherwise, nor is a Fund required
to redeem the preferred stock in the event of a failed auction.
Secondary Market Risk. The preferred stock may be illiquid because you may
not be able to sell any or all of your shares if you try to sell the preferred
stock between Auctions. Also, you may not be able to sell them for $25,000 per
share or $25,000 per share plus accumulated dividends. If a Fund has designated
a Special Rate Period, changes in interest rates could affect the price you
would receive if you sold your shares in the secondary market. Broker-Dealers
that maintain a secondary trading market for the preferred stock are not
required to maintain this market, and a Fund is not required to redeem shares if
either an Auction or an attempted secondary market sale fails because of a lack
of buyers. The preferred stock is not registered on a stock exchange or the
NASDAQ stock market. If you sell the preferred stock to a Broker-Dealer between
Auctions, you may receive less than the price you paid for them, especially if
market interest rates have risen since the last Auction. Accrued preferred stock
dividends, however, should at least partially compensate for any increased
market interest rates.
Ratings and Asset Coverage Risk. While Moody's and S&P assign ratings of
Aaa or AAA to the preferred stock, the ratings do not eliminate or necessarily
mitigate the risks of investing in the preferred stock. A rating agency could
downgrade the preferred stock, which may make your shares less liquid at an
Auction or in the secondary market, though probably with higher resulting
dividend rates. If a rating agency downgrades the preferred stock, a Fund will
alter its portfolio or redeem the preferred stock. A Fund may voluntarily redeem
the preferred stock under certain circumstances.
MANAGEMENT OF THE FUNDS
Directors and Officers
The Directors and principal officers of a Fund and their principal
occupations during the past five years are set forth below. Unless otherwise
specified, the address of each such person is 1345 Avenue of the Americas, New
York, NY 10105. Each Director and officer is affiliated as such with one or more
of the other registered investment companies sponsored by the Adviser.
Directors
---------
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Fund
Name, Address and First Year Principal Occupation During the Past Five
Age Elected Office Years and Other Affiliations
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Marc O. Mayer* 2003 President Executive Vice President of the Adviser since
1345 Avenue of the Americas 2001, and Executive Managing Director of
New York, New York 10105 AllianceBernstein Investments, Inc. ("ABI")
49 since 2003; prior thereto, he was head of
AllianceBernstein Institutional Investments,
a unit of the Adviser from 2001-2003; prior
thereto, Chief Executive Officer of Sanford
C. Bernstein & Co., LLC (institutional
research and brokerage arm of Bernstein & Co.
LLC ("SCB & Co.")) and its predecessor since
prior to 2001. He is a Director of SCB
Partners, Inc. and SCB, Inc.
----------------------------------------------------------------------------------------------------------
William H. Foulk, Jr.,+,** 1998 Chairman Investment Adviser and an independent
P.O. Box 5060 ACM Municipal Director consultant. He was formerly Senior Manager of
Greenwich, CT Securities Barrett Associates, Inc., a registered
06831-0505 investment adviser, with which he had been
74 2001 associated since prior to 2001. He was
Alliance formerly Deputy Comptroller and Chief
National Investment Officer of the State of New York
Municipal and, prior thereto, Chief Investment Officer
of the New York Bank for Savings.
----------------------------------------------------------------------------------------------------------
David H. Dievler,+ 1993 Director Independent Consultant. Until December 1994,
P.O. Box 167 ACM Municipal he was Senior Vice President of
Spring Lake, NJ 07762 Securities AllianceBernstein Corporation ("AB Corp")
77 (formerly, Alliance Capital Management
2001 Corporation) responsible for mutual fund
Alliance administration. Prior to joining AB Corp. in
National 1984, he was Chief Financial Officer of
Municipal Eberstadt Asset Management since 1968. Prior
to that, he was a Senior Manager at Price
Waterhouse & Co. Member of American Institute
of Certified Public Accountants since 1953.
----------------------------------------------------------------------------------------------------------
John H. Dobkin,+ 1998 Director Consultant. Formerly President of Save
P.O. Box 12 ACM Municipal Venice, Inc. (preservation organization) from
Annandale, NY 12504 Securities 2001-2002, Senior Advisor from June 1999-June
64 2000 and President of Historic Hudson Valley
2001 (historic preservation) from December
Alliance National 1989-May 1999. Previously, Director of the
Municipal National Academy of Design and during
1988-1992, Director and Chairman of the Audit
Committee of AB Corp. (formerly, Alliance
Capital Management Corporation).
----------------------------------------------------------------------------------------------------------
Michael J. Downey,+ 2005 Director Consultant since January 2004. Formerly
c/o AllianceBernstein L.P. managing partner of Lexington Capital, LLC
Attention: Philip L. Kirstein (investment advisory firm) from December 1997
1345 Avenue of the Americas until December 2003. Prior thereto, Chairman
New York, NY 10105 and CEO of Prudential Mutual Fund Management
62 from 1987 to 1993. Director of Asia Pacific
Fund, Inc. and The Merger Fund.
----------------------------------------------------------------------------------------------------------
D. James Guzy,+ 2005 Director Chairman of the Board of PLX Technology
P.O. Box 128 (semi-conductors) and of SRC Computers Inc.,
Glenbrook, NV 89413 with which he has been associated since prior
70 to 2001. He is also President of the Arbor
Company (private family investments). He is a
director of Intel Corporation
(semi-conductors), Cirrus Logic Corporation
(semi-conductors), and the Davis Selected
Advisors Group of Mutual Funds.
----------------------------------------------------------------------------------------------------------
Nancy P. Jacklin, + 2006 Director Formerly U.S. Executive Director of the
4046 Chancery Court, NW International Monetary Fund (December
Washington, DC 20007 2002-May 2006); partner, Clifford Chance
58 (1992-2002); Senior Counsel, International
Banking and Finance, and Associate General
Counsel, Citicorp (1985-1992); Assistant
General Counsel (International), Federal
Reserve Board of Governors (1982-1985); and
Attorney Advisor, U.S. Department of the
Treasury (1973-1982). Member of the Bar of
the District of Columbia and of New York;
member of the Council on Foreign Relations.
----------------------------------------------------------------------------------------------------------
Marshall C. Turner, Jr.,+ 2005 Director Principal of Turner Venture Associates
220 Montgomery Street (venture capital and consulting) since before
Penthouse 10 2001. From 2003 until May 31, 2006, he was
San Francisco, CA CEO of Toppan Photomasks, Inc., Austin, Texas
94104-3402 (Semi-conductor manufacturing services). He
65 is a director of the George Lucas Educational
Foundation, and National Datacast, Inc.
----------------------------------------------------------------------------------------------------------
----------
* "Interested person" as defined in the Investment Company Act of 1940, as
amended, of each Fund because of an affiliation with each Fund's investment
adviser, AllianceBernstein L.P.
+ Member of the Audit Committee, the Governance and Nominating Committee and
the Independent Directors Committee.
** Member of the Fair Value Pricing Committee.
During a Fund's fiscal year ended in 2005, the Board of Alliance National
Municipal met ten times and the Board of ACM Municipal Securities met ten times.
The Funds do not have a policy that requires a Director to attend annual
meetings of stockholders.
Each Fund's Board has four standing committees: an Audit Committee, a
Governance and Nominating Committee, an Independent Directors Committee, and a
Fair Value Pricing Committee. The members of the Committees are identified above
in the table listing the Directors. The function of the Audit Committee of each
Fund is to assist the Board in its oversight of a Fund's financial reporting
process. The members of the Audit Committee are "independent" as required by
applicable listing standards of the New York Stock Exchange. During a Fund's
fiscal year ended in 2005, the Audit Committee of each of Alliance National
Municipal met eight times and of ACM Municipal Securities met eight times.
During a Fund's fiscal year ended in 2005, the Governance and Nominating
Committee of Alliance National Municipal met seven times and of ACM Municipal
Securities met seven times.
Each Fund's Board of Directors has adopted a charter for its Governance and
Nominating Committee, a copy of which may be found on the Adviser's website,
http://www.alliancebernstein.com (click on Investor Solutions/Mutual
Funds/Closed-End). Pursuant to the charter of the Governance and Nominating
Committee, the Governance and Nominating Committee assists each Board in
carrying out its responsibilities with respect to governance of a Fund and
identifies, evaluates and selects and nominates candidates for that Board. The
Committee also may set standards or qualifications for Directors. The Committee
may consider candidates as Directors submitted by a Fund's current Board
members, officers, investment adviser, stockholders and other appropriate
sources.
The Governance and Nominating Committee will consider candidates submitted
by a stockholder or group of stockholders who have owned at least 5% of a Fund's
outstanding common stock for at least two years at the time of submission and
who timely provide specified information about the candidates and the nominating
stockholder or group. To be timely for consideration by the Committee, the
submission, including all required information, must be submitted in writing to
the attention of the Secretary at the principal executive offices of a Fund not
less than 120 days before the date of the proxy statement for the previous
year's annual meeting of stockholders. The Committee will consider only one
candidate submitted by such a stockholder or group for nomination for election
at an annual meeting of stockholders. The Committee will not consider
self-nominated candidates.
The Governance and Nominating Committee will consider and evaluate
candidates submitted by stockholders on the basis of the same criteria as those
used to consider and evaluate candidates submitted from other sources. These
criteria include the candidate's relevant knowledge, experience, and expertise,
the candidate's ability to carry out his or her duties in the best interests of
a Fund and the candidate's ability to qualify as a disinterested Director.
The function of each Fund's Fair Value Pricing Committee is to consider, in
advance if possible, any fair valuation decision of the Adviser's Valuation
Committee relating to a security held by a Fund made under unique or highly
unusual circumstances not previously addressed by the Valuation Committee that
would result in a change in a Fund's NAV by more than $0.01 per share. The Fair
Value Pricing Committee did not meet during a Fund's most recently completed
fiscal year.
The function of each Fund's Independent Directors Committee is to consider
and take action on matters that the Board or Committee believes should be
addressed in executive session of the disinterested Directors, such as review
and approval of the Advisory Agreements. During a Fund's fiscal year ended in
2005, the Independent Directors Committee of Alliance National Municipal met ten
times and of ACM Municipal Securities met ten times.
Officers
--------
-------------------------------------------------------------------------------------------
Name, Address and Office Principal Occupation During the Past
Age Five Years and Other Affiliations
-------------------------------------------------------------------------------------------
Marc O. Mayer President and Chief See biography above.
49 Executive Officer
-------------------------------------------------------------------------------------------
Philip L. Kirstein Senior Vice President Senior Vice President and Independent
61 and Independent Compliance Officer of the
Compliance Officer AllianceBernstein Funds, with which he
has been associated since October 2004.
Prior thereto, he was Of Counsel to
Kirkpatrick & Lockhart, LLP from October
2003 to October 2004, and General
Counsel of Merrill Lynch Investment
Managers, L.P. since prior to 2001 until
March 2003.
-------------------------------------------------------------------------------------------
Robert B. Davidson, III Senior Vice President Senior Vice President of the Adviser**,
45 with which he has been associated since
prior to 2001.
-------------------------------------------------------------------------------------------
Jeffrey S. Phlegar Senior Vice President Executive Vice President of the Adviser**,
40 with which he has been associated since
prior to 2001.
-------------------------------------------------------------------------------------------
Michael G. Brooks Vice President Senior Vice President of the Adviser**,
58 with which has been associated since
prior to 2001.
-------------------------------------------------------------------------------------------
Douglas J. Peebles Vice President Executive Vice President of the Adviser**,
41 with which he has been associated since
prior to 2001.
-------------------------------------------------------------------------------------------
Fred S. Cohen Vice President Senior Vice President of the Adviser**,
48 with which has been associated since
prior to 2001.
-------------------------------------------------------------------------------------------
Terrance T. Hults Vice President Senior Vice President of the Adviser**,
40 with which has been associated since
prior to 2001.
-------------------------------------------------------------------------------------------
Emilie D. Wrapp Secretary Senior Vice President, Assistant General
51 Counsel and Assistant Secretary of
AllianceBernstein Investments Inc.**,
with which she has been associated since
prior to 2001.
-------------------------------------------------------------------------------------------
Joseph J. Mantineo Treasurer and Chief Senior Vice President of
47 Financial Officer AllianceBernstein Investor Services,
Inc. ("ABIS") **, with which he has been
associated since prior to 2001.
-------------------------------------------------------------------------------------------
Vincent S. Noto Controller Vice President of ABIS**, with which he
41 has been associated since prior to 2001.
-------------------------------------------------------------------------------------------
----------
* "Interested person" as defined in the 1940 Act, of each Fund because of an
affiliation with each Fund's investment adviser, AllianceBernstein L.P.
** The Adviser, AllianceBernstein Investments Inc., and ABIS are affiliates of
each Fund.
A Fund does not pay any fees to, or reimburse expenses of, any Director
during a time when such Director is considered an "interested person" of the
Fund, as defined by the 1940 Act. The aggregate compensation paid by each Fund
to each of its Directors during its respective fiscal year ended in 2005, the
aggregate compensation paid to each of the Directors during calendar year 2005
by all of the investment companies in the AllianceBernstein Fund Complex, and
the total number of investment companies (and separate investment portfolios
within those companies) in the AllianceBernstein Fund Complex with respect to
which each of the Directors serves as a director or trustee, are set forth
below. Neither the Funds, nor any other investment company in the
AllianceBernstein Fund Complex, provides compensation in the form of pension or
retirement benefits to any of its directors or trustees.
--------------------------------------------------------------------------------------------------------------
Total Number of
Investment Total Number of
Total Companies in the Investment
Compensation AllianceBernstein Portfolios within the
Aggregate from the Fund Complex, AllianceBernstein
Compensation AllianceBernstein Including the Fund Complex,
from Each Fund Complex, Funds, as to which Including the Funds,
Fund During Including the the Director is a as to which the
its Fiscal Year Funds, During Director or a Director is a
Name of Director Ended in 2005 Calendar Year 2005 Trustee Director or a Trustee
--------------------------------------------------------------------------------------------------------------
Marc O. Mayer $0 $0 41 111
--------------------------------------------------------------------------------------------------------------
William H. Foulk, Jr. $8,551 $487,625 43 113
ACM Municipal
Securities
$8,301
Alliance National
Municipal
--------------------------------------------------------------------------------------------------------------
David H. Dievler $5,113 $269,125 42 112
ACM Municipal
Securities
$4,863
Alliance National
Municipal
--------------------------------------------------------------------------------------------------------------
John H. Dobkin $5,126 $263,125 41 111
ACM Municipal
Securities
$5,126
Alliance National
Municipal
--------------------------------------------------------------------------------------------------------------
Michael J. Downey $3,329 $24,625 41 111
ACM Municipal
Securities
$3,329
Alliance National
Municipal
--------------------------------------------------------------------------------------------------------------
D. James Guzy* $0 $32,000 41 111
--------------------------------------------------------------------------------------------------------------
Nancy P. Jacklin* $0 $0 41 111
--------------------------------------------------------------------------------------------------------------
Marshall C. Turner, Jr.* $0 $28,500 41 111
--------------------------------------------------------------------------------------------------------------
----------
* Messrs. Guzy and Turner did not become Directors for the Funds until
December 15, 2005 and were directors for only one fund in the Alliance
Bernstein Fund complex prior to November 15, 2005. Ms. Jacklin did not
become a Director for the Funds until June 14, 2006.
As of October 31, 2006, each of the Directors of each Fund owned less than
1% of the shares of such Fund and the Directors and officers of each Fund as a
group owned less than 1% of the shares of each such Fund. During each Fund's
most recently completed fiscal year, none of the Funds' Directors engaged in a
purchase or sale of the securities of the Adviser or any of its parents or
subsidiaries in an amount exceeding 1% of the relevant class of securities.
The dollar range of the Funds' securities owned by each Director and the
aggregate dollar range of securities owned in the AllianceBernstein Fund Complex
are set forth below.
Aggregate Dollar
Range of Equity
Securities in the
Funds in the
AllianceBernstein
Dollar Range of Equity Securities Fund Complex as of
Name of Director in a Fund as of October 31, 2006 October 31, 2006
--------------------------------------------------------------------------------
Marc O. Mayer None over $100,000
Alliance National Municipal
None
ACM Municipal Securities
--------------------------------------------------------------------------------
William H. Foulk, Jr. None over $100,000
Alliance National Municipal
$1 - $10,000
ACM Municipal Securities
--------------------------------------------------------------------------------
David H. Dievler None over $100,000
Alliance National Municipal
None
ACM Municipal Securities
--------------------------------------------------------------------------------
John H. Dobkin None over $100,000
Alliance National Municipal
None
ACM Municipal Securities
--------------------------------------------------------------------------------
Michael J. Downey None over $100,000
Alliance National Municipal
None
ACM Municipal Securities
--------------------------------------------------------------------------------
D. James Guzy* None $50,000 - $100,000
Alliance National Municipal
None
ACM Municipal Securities
--------------------------------------------------------------------------------
Nancy P. Jacklin* None $0
Alliance National Municipal
None
ACM Municipal Securities
--------------------------------------------------------------------------------
Marshall C. Turner, Jr.* None over $100,000
Alliance National Municipal
None
ACM Municipal Securities
--------------------------------------------------------------------------------
----------
* Messrs. Guzy and Turner did not become Directors for the Funds until
December 15, 2005 and were directors for only one fund in the
AllianceBernstein Fund Complex prior to November 15, 2005. Ms. Jacklin did
not become a Director for the Funds until June 14, 2006.
Each Fund, the Adviser and each Fund's principal underwriter have adopted a
Code of Ethics under Rule 17j-1 of the 1940 Act. These Codes do permit personnel
subject to the Codes to invest in securities, including securities that may be
purchased or held by a Fund. These Codes may be reviewed and copied at the SEC's
Public Reference Room in Washington, DC. For information on the operation of the
Public Reference Room call the SEC at 1-202-551-8090. In addition, these Codes
are available on the SEC's Internet site at http://www.sec.gov or upon request
(for a duplicating fee) at the following E-mail address: publicinfo@sec.gov or
by writing the SEC's Public Reference Section, Washington, DC 20549-0102.
Adviser
The Funds' investment adviser, AllianceBernstein L.P. (the "Adviser"), 1345
Avenue of the Americas, New York, NY 10105, is a leading international
investment adviser managing client accounts with assets as of September 30, 2006
totaling more than $659 billion (of which more than $82 billion represented the
assets of investment companies). As of September 30, 2006, the Adviser managed
retirement assets for many of the largest public and private employee benefit
plans (including 41 of the nations' FORTUNE 100 companies), for public employee
retirement funds in 37 states, for investment companies, and for foundations,
endowments, banks and insurance companies worldwide. The 44 registered
investment companies managed by the Adviser, comprising 125 separate investment
portfolios, currently have approximately 4.0 million stockholder accounts.
The Adviser is a registered investment adviser under the Investment
Advisers Act of 1940, as amended. As of June 30, 2006, AllianceBernstein
Holding, L.P. ("Holding"), a Delaware limited partnership, owned approximately
32.7% of the issued and outstanding units of limited partnership interest in the
Adviser ("AllianceBernstein Units"). Units representing assignments of
beneficial ownership of limited partnership interests in Holding ("Holding
Units") trade publicly on the Exchange under the ticker symbol "AB".
AllianceBernstein Units do not trade publicly and are subject to significant
restrictions on transfer. AllianceBernstein Corporation ("AB Corp.") is the
general partner of both the Adviser and Holding. AB Corp. owns 100,000 general
partnership units in Holding and a 1% general partnership interest in the
Adviser. AB Corp. is an indirect wholly-owned subsidiary of AXA Financial, Inc.
("AXA Financial"), a Delaware corporation.
As of June 30, 2006, AXA, AXA Financial, AXA Equitable Life Insurance
Company ("AXA Equitable") and certain subsidiaries of AXA Equitable beneficially
owned approximately 59.6% of the issued and outstanding AllianceBernstein Units
and approximately 1.7% of the issued and outstanding Holding Units that,
including the general partnership interests in the Adviser and Holding,
represent an economic interest of approximately 60.6% in the Adviser. As of June
30, 2006, SCB Partners, Inc., a wholly-owned subsidiary of SCB, Inc.,
beneficially owned approximately 6.3% of the issued and outstanding
AllianceBernstein Units.
AXA, a French company, is the holding company for an international group of
companies and a worldwide leader in financial protection and wealth management.
AXA operates primarily in Western Europe, North America and the Asia/Pacific
region and, to a lesser extent, in other regions, including the Middle East,
Africa and South America. AXA has five operating business segments: life and
savings, property and casualty insurance, international insurance (including
reinsurance), asset management and other financial services. AXA Financial is a
wholly-owned subsidiary of AXA. AXA Equitable is an indirect wholly-owned
subsidiary of AXA Financial.
Based on information provided by AXA, as of December 31, 2005,
approximately 14.30% of the issued ordinary shares (representing 23.19% of the
voting power) of AXA were owned directly and indirectly by three French mutual
insurance companies.
The Advisory Agreements for Alliance National Municipal, and ACM Municipal
Securities were each approved on December 14, 2005. Each Fund's Advisory
Agreement was approved by the vote, cast in person, of the Fund's Directors
including the Directors 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 and held for that purpose.
Under each Fund's advisory agreement with its Adviser (the "Advisory
Agreement") the Adviser provides office space, investment advisory services, and
order placement facilities for the Fund and pays all compensation of Directors
and officers of the Fund who are affiliated persons of the Adviser. The Adviser
or its affiliates also furnish a Fund, without charge, with management
supervision and assistance and office facilities, and provide persons
satisfactory to a Fund's Board to serve as the Fund's officers. Each Fund has,
under the Advisory Agreement, assumed obligation to pay for all other expenses.
As to the obtaining of services other than those specifically provided to a Fund
by the Adviser, the Fund may employ its own personnel. For such services, a Fund
may also utilize personnel employed by the Adviser or its affiliates and, in
such event, the services will be provided to a Fund at cost and the payments
therefore must be specifically approved by a Fund's Board.
Under their Advisory Agreements, the Funds pay the Adviser the following
management fees:
Alliance National Municipal's contractual management fee is 0.65% of its
net assets but the Adviser has voluntarily agreed to waive a portion of Alliance
National Municipal's management fee or reimburse the Fund for expenses in the
amount of 0.25% of the Fund's average daily net assets until January 28, 2007
with the waiver decreasing by 0.05% for each one year period commencing January
28 thereafter with the full fee being payable commencing January 28, 2010 and
beyond. In addition, on November 20, 2006, the Adviser agreed, at the request of
the Directors, to place a cap on the amounts payable under the Advisory
Agreement of 0.55% of Alliance National Municipal's average daily net assets.
The Adviser has also agreed to request that the Board approve a new investment
advisory contract between the Adviser and Alliance National Municipal that would
make the maximum fee of 0.55% permanent.
ACM Municipal Securities: the Fund pays the Adviser an advisory fee at an
annual rate of .50 of 1% of the average weekly net assets of the Fund (i.e., the
average weekly value of the Fund's total assets, including assets attributable
to any preferred stock that may be outstanding, less the accrued liabilities of
the Fund). Such fee is accrued daily and paid monthly. The liquidation value of
any outstanding shares of preferred stock is not considered a liability of a
Fund for purposes of determining the average weekly net assets of the Fund.
For the fiscal years ended October 31, 2005, 2004 and 2003, Alliance
National Municipal paid advisory fees to the Adviser that, in the aggregate,
amounted to $3,339,205, $3,294,746, and $3,268,527, respectively. For the fiscal
year ended October 31, 2005, 2004 and 2003, ACM Municipal Securities paid
advisory fees to the Adviser that, in the aggregate, amounted to $1,085,441,
$1,069,790, and $1,058,130, respectively.
For purposes of the calculation of the fee payable to the Adviser, average
weekly net assets are determined on the basis of the average net assets of a
Fund for each weekly period (ending on Fridays) ending during the month. The net
assets for each weekly period are determined by averaging the net assets on
Friday of such weekly period with the net assets on Friday of the immediately
preceding weekly period. When a Friday is not a Fund business day, the
calculation will be based on the net assets of a Fund on the Fund business day
immediately preceding such Friday. This advisory fee may be greater than that
paid by most funds. In addition to payments to the Adviser under the Advisory
Agreement, a Fund pays certain other costs.
As to the obtaining of services other than those specifically provided to a
Fund by the Adviser, a Fund may employ its own personnel. For such services, it
also may utilize personnel employed by the Adviser or by other subsidiaries of
Equitable. In such event, the services will be provided to a Fund at cost and
the payments specifically approved by a Fund's Board.
Each Fund's Advisory Agreement is terminable with respect to that Fund
without penalty on 60 days' written notice by a vote of a majority of the
outstanding voting securities of such Fund or by a vote of a majority of a
Fund's Directors, or by the Adviser on 60 days' written notice, and will
automatically terminate in the event of its assignment. Each Fund's 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.
The Advisory Agreements for the Funds continue in effect from year to year,
provided that such continuance is specifically approved at least annually by a
vote of a majority of a Fund's outstanding voting securities or by a Fund's
Board, including in either case approval by a majority of the Directors who are
not parties to the Advisory Agreement or interested persons of such parties as
defined by the 1940 Act. Most recently, continuance of the Advisory Agreements
of the Funds was approved by the Board, including a majority of the Directors
who are not parties to the Advisory Agreements or interested persons of any such
party, at Meetings held on December 14, 2005.
Portfolio Managers
The dollar ranges of Alliance National Municipal's equity securities owned
directly or beneficially by the Fund's portfolio managers as of October 31, 2006
are set forth below.
DOLLAR RANGE OF EQUITY SECURITIES IN ALLIANCE NATIONAL MUNICIPAL
-------------------------------------------------------------
Michael G. Brooks None
-------------------------------------------------------------
Fred S. Cohen None
-------------------------------------------------------------
Robert B. Davidson III None
-------------------------------------------------------------
Terrance T. Hults None
-------------------------------------------------------------
Alliance National Municipal
---------------------------
The following tables provide information regarding registered investment
companies other than the Fund, other pooled investment vehicles and other
accounts over which the Fund's portfolio managers also have day-to-day
management responsibilities. The tables provide the numbers of such accounts,
the total assets in such accounts and the number of accounts and total assets
whose fees are based on performance. The information is provided as of the
Fund's fiscal year ended October 31, 2006.
REGISTERED INVESTMENT COMPANIES
(excluding Alliance National Municipal)
--------------------------------------------------------------------------------
Total
Number of Assets of
Total Total Registered Registered
Number of Assets of Investment Investment
Registered Registered Companies Companies
Investment Investment Managed with Managed with
Companies Companies Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
--------------------------------------------------------------------------------
Michael G. Brooks 29 $15,863,000,000 None None
--------------------------------------------------------------------------------
Fred S. Cohen 29 $15,863,000,000 None None
--------------------------------------------------------------------------------
Robert B. Davidson III 29 $15,863,000,000 None None
--------------------------------------------------------------------------------
Terrance T. Hults 29 $15,863,000,000 None None
--------------------------------------------------------------------------------
POOLED INVESTMENT VEHICLES
--------------------------------------------------------------------------------
Total
Number of Assets of
Total Total Pooled Pooled
Number of Assets of Investment Investment
Pooled Pooled Vehicles Vehicles
Investment Investment Managed with Managed with
Vehicles Vehicles Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
--------------------------------------------------------------------------------
Michael G. Brooks None None None None
--------------------------------------------------------------------------------
Fred S. Cohen None None None None
--------------------------------------------------------------------------------
Robert B. Davidson III None None None None
--------------------------------------------------------------------------------
Terrance T. Hults None None None None
--------------------------------------------------------------------------------
OTHER ACCOUNTS
--------------------------------------------------------------------------------
Number of Total
Total Total Other Assets of
Number of Assets of Accounts Other
Other Other Managed with Accounts with
Accounts Accounts Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
--------------------------------------------------------------------------------
Michael G. Brooks 1,398 $10,110,000,000 2 67,000,000
--------------------------------------------------------------------------------
Fred S. Cohen 1,398 $10,110,000,000 2 67,000,000
--------------------------------------------------------------------------------
Robert B. Davidson III 1,398 $10,110,000,000 2 67,000,000
--------------------------------------------------------------------------------
Terrance T. Hults 1,398 $10,110,000,000 2 67,000,000
--------------------------------------------------------------------------------
Investment Professional Conflict of Interest Disclosure
-------------------------------------------------------
As an investment adviser and fiduciary, the Adviser owes its clients and
stockholders an undivided duty of loyalty. We recognize that conflicts of
interest are inherent in our business and accordingly have developed policies
and procedures (including oversight monitoring) reasonably designed to detect,
manage and mitigate the effects of actual or potential conflicts of interest in
the area of employee personal trading, managing multiple accounts for multiple
clients, including AllianceBernstein Mutual Funds, and allocating investment
opportunities. Investment professionals, including portfolio managers and
research analysts, are subject to the above-mentioned policies and oversight
monitoring to ensure that all clients are treated equitably. We place the
interests of our clients first and expect all of our employees to meet their
fiduciary duties.
Employee Personal Trading. The Adviser has adopted a Code of Business
Conduct and Ethics that is designed to detect and prevent conflicts of interest
when investment professionals and other personnel of the Adviser own, buy or
sell securities which may be owned by, or bought or sold for, clients. Personal
securities transactions by an employee may raise a potential conflict of
interest when an employee owns or trades in a security that is owned or
considered for purchase or sale by a client, or recommended for purchase or sale
by an employee to a client. Subject to the reporting requirements and other
limitations of its Code of Business Conduct and Ethics, the Adviser permits its
employees to engage in personal securities transactions, and also allows them to
acquire investments in the AllianceBernstein Mutual Funds through direct
purchase, 401K/profit sharing plan investment and/or notionally in connection
with deferred incentive compensation awards. The Adviser's Code of Ethics and
Business Conduct requires disclosure of all personal accounts and maintenance of
brokerage accounts with designated broker-dealers approved by the Adviser. The
Code also requires pre-clearance of all securities transactions and imposes a
one-year holding period for securities purchased by employees to discourage
short-term trading.
Managing Multiple Accounts for Multiple Clients. The Adviser has compliance
policies and oversight monitoring in place to address conflicts of interest
relating to the management of multiple accounts for multiple clients. Conflicts
of interest may arise when an investment professional has responsibilities for
the investments of more than one account because the investment professional may
be unable to devote equal time and attention to each account. The investment
professional or investment professional teams for each client may have
responsibilities for managing all or a portion of the investments of multiple
accounts with a common investment strategy, including other registered
investment companies, unregistered investment vehicles, such as hedge funds,
pension plans, separate accounts, collective trusts and charitable foundations.
Among other things, the Adviser's policies and procedures provide for the prompt
dissemination to investment professionals of initial or changed investment
recommendations by analysts so that investment professionals are better able to
develop investment strategies for all accounts they manage. In addition,
investment decisions by investment professionals are reviewed for the purpose of
maintaining uniformity among similar accounts and ensuring that accounts are
treated equitably. No investment professional that manages client accounts
carrying performance fees is compensated directly or specifically for the
performance of those accounts. Investment professional compensation reflects a
broad contribution in multiple dimensions to long-term investment success for
our clients and is not tied specifically to the performance of any particular
client's account, nor is it directly tied to the level or change in level of
assets under management.
Allocating Investment Opportunities. The Adviser has policies and
procedures intended to address conflicts of interest relating to the allocation
of investment opportunities. These policies and procedures are designed to
ensure that information relevant to investment decisions is disseminated
promptly within its portfolio management teams and investment opportunities are
allocated equitably among different clients. The investment professionals at the
Adviser routinely are required to select and allocate investment opportunities
among accounts. Portfolio holdings, position sizes, and industry and sector
exposures tend to be similar across similar accounts, which minimizes the
potential for conflicts of interest relating to the allocation of investment
opportunities. Nevertheless, investment opportunities may be allocated
differently among accounts due to the particular characteristics of an account,
such as size of the account, cash position, tax status, risk tolerance and
investment restrictions or for other reasons.
The Adviser's procedures are also designed to prevent potential conflicts
of interest that may arise when the Adviser has a particular financial
incentive, such as a performance-based management fee, relating to an account.
An investment professional may perceive that he or she has an incentive to
devote more time to developing and analyzing investment strategies and
opportunities or allocating securities preferentially to accounts for which the
Adviser could share in investment gains.
To address these conflicts of interest, the Adviser's policies and
procedures require, among other things, the prompt dissemination to investment
professionals of any initial or changed investment recommendations by analysts;
the aggregation of orders to facilitate best execution for all accounts; price
averaging for all aggregated orders; objective allocation for limited investment
opportunities (e.g., on a rotational basis) to ensure fair and equitable
allocation among accounts; and limitations on short sales of securities. These
procedures also require documentation and review of justifications for any
decisions to make investments only for select accounts or in a manner
disproportionate to the size of the account.
Portfolio Manager Compensation
The Adviser's compensation program for investment professionals is designed
to be competitive and effective in order to attract and retain the highest
caliber employees. The compensation program for investment professionals is
designed to reflect their ability to generate long-term investment success for
our clients, including stockholders of the AllianceBernstein Mutual Funds.
Investment professionals do not receive any direct compensation based upon the
investment returns of any individual client account, nor is compensation tied
directly to the level or change in level of assets under management. Investment
professionals' annual compensation is comprised of the following:
(i) Fixed base salary: This is generally the smallest portion of
compensation. The base salary is a relatively low, fixed salary within a similar
range for all investment professionals. The base salary is determined at the
outset of employment based on level of experience, does not change significantly
from year-to-year and hence, is not particularly sensitive to performance.
(ii) Discretionary incentive compensation in the form of an annual cash
bonus: The Adviser's overall profitability determines the total amount of
incentive compensation available to investment professionals. This portion of
compensation is determined subjectively based on qualitative and quantitative
factors. In evaluating this component of an investment professional's
compensation, the Adviser considers the contribution to his/her team or
discipline as it relates to that team's overall contribution to the long-term
investment success, business results and strategy of the Adviser. Quantitative
factors considered include, among other things, relative investment performance
(e.g., by comparison to competitor or peer group funds or similar styles of
investments, and appropriate, broad-based or specific market indices), and
consistency of performance. There are no specific formulas used to determine
this part of an investment professional's compensation and the compensation is
not tied to any pre-determined or specified level of performance. The Adviser
also considers qualitative factors such as the complexity and risk of investment
strategies involved in the style or type of assets managed by the investment
professional; success of marketing/business development efforts and client
servicing; seniority/length of service with the firm; management and supervisory
responsibilities; and fulfillment of the Adviser's leadership criteria.
(iii) Discretionary incentive compensation in the form of awards under the
Adviser's Partners Compensation Plan ("deferred awards"): the Adviser's overall
profitability determines the total amount of deferred awards available to
investment professionals. The deferred awards are allocated among investment
professionals based on criteria similar to those used to determine the annual
cash bonus. There is no fixed formula for determining these amounts. Deferred
awards, for which there are various investment options, vest over a four-year
period and are generally forfeited if the employee resigns or the Adviser
terminates his/her employment. Investment options under the deferred awards plan
include many of the same AllianceBernstein Mutual Funds offered to mutual fund
investors, thereby creating a close alignment between the financial interests of
the investment professionals and those of the Adviser's clients and mutual fund
stockholders with respect to the performance of those mutual funds. The Adviser
also permits deferred award recipients to allocate up to 50% of their award to
investments in the Adviser's publicly traded equity securities.(1)
----------
(1) Prior to 2002, investment professional compensation also included
discretionary long-term incentive in the form of restricted grants of
Alliance Capital's Master Limited Partnership Units.
(iv) Contributions under the Adviser's Profit Sharing/401(k) Plan: The
contributions are based on the Adviser's overall profitability. The amount and
allocation of the contributions are determined at the sole discretion of
Adviser.
The Adviser may act as an investment adviser to other persons, firms or
corporations, including investment companies, and is investment adviser to the
following registered investment companies: AllianceBernstein Balanced Shares,
Inc., AllianceBernstein Blended Style Series, Inc., AllianceBernstein Bond Fund,
Inc., AllianceBernstein Cap Fund, Inc., AllianceBernstein Corporate Shares,
AllianceBernstein Emerging Market Debt Fund, Inc., AllianceBernstein Exchange
Reserves, AllianceBernstein Fixed-Income Shares, Inc., AllianceBernstein Focused
Growth & Income Fund, Inc., AllianceBernstein Global Government Income Trust,
Inc., AllianceBernstein Global Health Care Fund, Inc., AllianceBernstein Global
Research Growth Fund, Inc., AllianceBernstein Global Strategic Income Trust,
Inc., AllianceBernstein Greater China `97 Fund, Inc., AllianceBernstein Growth
and Income Fund, Inc., AllianceBernstein High Yield Fund, Inc.,
AllianceBernstein Institutional Funds, Inc., AllianceBernstein International
Growth Fund, Inc., AllianceBernstein International Research Growth Fund, Inc.,
AllianceBernstein Large Cap Growth Fund, Inc., AllianceBernstein Mid-Cap Growth
Fund, Inc., AllianceBernstein Municipal Income Fund, Inc., AllianceBernstein
Municipal Income Fund II, AllianceBernstein Real Estate Investment Fund, Inc.,
AllianceBernstein Trust, AllianceBernstein Utility Income Fund, Inc.,
AllianceBernstein Variable Products Series Fund, Inc., Sanford C. Bernstein
Fund, Inc., Sanford C. Bernstein Fund II, Inc., The AllianceBernstein Pooling
Portfolios and The AllianceBernstein Portfolios, all registered open-end
investment companies; and to ACM Government Opportunity Fund, Inc., ACM Income
Fund, Inc., ACM Managed Dollar Income Fund, Inc., ACM Managed Income Fund, Inc.,
ACM Municipal Securities Income Fund, Inc., Alliance All-Market Advantage Fund,
Inc., Alliance California Municipal Income Fund, Inc., Alliance National
Municipal Income Fund, Inc., Alliance New York Municipal Income Fund, Inc.,
Alliance World Dollar Government Fund, Inc., Alliance World Dollar Government
Fund II, Inc. and The Spain Fund, Inc., all registered closed-end investment
companies.
Administrator
The Adviser serves as administrator for the Funds and in that capacity
performs standard administrative services. The Adviser provides administrative
services to Alliance National Municipal under that Fund's Advisory Agreement and
performs administrative services for ACM Municipal Securities under an
Administration Agreement. The Administrator has engaged Prudential Mutual Fund
Management, Inc. (the "Sub-Administrator"), an indirect, wholly-owned subsidiary
of Prudential Financial, Inc., to act as sub-administrator. The
Sub-Administrator prepares financial and regulatory reports for the Funds and
provides other clerical services.
Under the Administration Agreement, ACM Municipal Securities pays the fees
set forth below:
ACM Municipal Securities: The Fund pays an administrative fee at an annual
rate of .15% of 1% of the Fund's average weekly net assets (determined in the
same manner as described above with respect to the Advisory Agreement).
Effective February 11, 2005, the Administrator has voluntarily agreed to
reimburse the Fund for administrative expenses at an annual rate of .10 of 1% of
the average weekly net assets of the Fund. For the services rendered to the
Administrator or the Fund and related expenses borne by the Sub-Administrator,
the Administrator from its own assets will pay the Sub-Administrator a monthly
fee at an annual rate of .10 of 1% of the average weekly net assets of the Fund
(determined in the same manner as described above with respect to the Advisory
Agreement). The fee paid by the Administrator to the Sub-Administrator will not
increase the expenses of the Fund. The Administration Agreement and the
Sub-Administration Agreement have been approved by the Fund's Board of
Directors.
For the fiscal years ended October 31, 2005, 2004 and 2003, ACM Municipal
Securities paid administrative fees to the Adviser that, in the aggregate,
amounted to $325,633, $320,937, and $317,439, respectively, of which $156,635
was waived in 2005.
Stockholder Servicing
AllianceBernstein Investor Services, Inc. ("ABIS"), an affiliate of the
Adviser, provides stockholder services for the Funds. The Funds reimburse ABIS
for these services. For these services and for the fiscal years ended October
31, 2005; October 31, 2004; and October 31, 2003, there was no reimbursement by
either Fund to ABIS.
Custodian
Alliance National Municipal's securities and cash are held under a
Custodian Agreement by State Street Bank and Trust Company ("State Street"), One
Lincoln Street, Boston, MA 02111. ACM Municipal Securities' securities and cash
are held under a Custodian Agreement by The Bank of New York ("BONY"), One Wall
Street, New York, NY 10286. The Funds' assets are held under bank custodianship
in compliance with the 1940 Act.
For these services and for the fiscal years ended October 31, 2005, October
31, 2004, and October 31, 2003, Alliance National Municipal paid BONY: $182,816,
$165,853, and $145,532, respectively. For these services and for the fiscal
years ended October 31, 2005, October 31, 2004, and October 31, 2003, ACM
Municipal Securities paid BONY: $102,673, $125,113, and $97,489, respectively.
Dividend Paying Agent, Transfer Agent and Registrar
BONY serves as the dividend paying agent, transfer agent and registrar for
ACM Municipal Securities. Computershare Trust Company, N.A., P.O. Box 43011,
Providence, RI 02940-3011 will act as the dividend paying agent, transfer agent
and registrar for the common stock of each Fund. BONY is the Auction agent with
respect to each Fund's preferred stock and acts as transfer agent, registrar,
dividend disbursing agent, and redemption agent for such shares.
VALUATION OF PORTFOLIO SECURITIES
Each Fund calculates and makes available for weekly publication the NAV of
its shares of common stock. The NAV per share of a Fund's common stock is
determined as of the close of trading on the NYSE each Friday or, when Friday is
not a Fund business day, on the immediately preceding Fund business day, by
adding the market value of all securities in a Fund's portfolio and other
assets, subtracting liabilities incurred or accrued, subtracting the aggregate
liquidation value of the outstanding shares of preferred stock, and dividing by
the total number of a Fund's shares of common stock then outstanding.
In accordance with applicable rules under the 1940 Act, portfolio
securities are valued at current market value or at fair value as determined in
good faith by the Board of Directors. The Board of Directors has delegated to
the Adviser certain of the Board'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 security. Where a bid and asked price can be obtained
from only one such dealer, such security is valued at the mean of the bid and
asked price obtained from such dealer unless it is determined that such price
does not represent current market value, in which case the security shall be
valued in good faith at fair value by, or pursuant to procedures established by,
the Board of Directors. Securities for which no bid and asked price quotations
are readily available are valued in good faith at fair value by, or in
accordance with procedures established by, the Board of Directors. Readily
marketable securities not listed on the Exchange are valued in like manner.
Portfolio securities traded on the Exchange and on one or more other national
securities exchange, and portfolio securities not traded on the Exchange but
traded on one or more other national securities exchange are valued in
accordance with these procedures by reference to the principal exchange on which
the securities are traded.
Readily marketable securities traded only in the over-the-counter market
and debt securities listed on a U.S. national securities exchange whose primary
market is believed to be over-the-counter, are valued at the mean of the bid and
asked prices at the close of the Exchange on such day as obtained from two or
more dealers regularly making a market in such security. Where a bid and asked
price can be obtained from only one such dealer, such security is valued at the
mean of the bid and asked price obtained from such dealer unless it is
determined that such price does not represent current market value, in which
case the security shall be valued in good faith at fair value by, or in
accordance with procedures established by, the Board of Directors.
Listed put and call options purchased by a Fund are valued at the last sale
price. If there has been no sale on that day, such securities will be valued at
the closing bid prices on that day.
Open futures contracts and options thereon will be valued using the closing
settlement price or, in the absence of such a price, the most recent quoted bid
price. If there are no quotations available for the day of valuations, the last
available closing settlement price will be used.
U.S. Government Securities and other debt instruments having 60 days or
less remaining until maturity are valued at amortized cost if their original
maturity was 60 days or less, or by amortizing their fair value as of the 61st
day prior to maturity if their original term to maturity exceeded 60 days
(unless in either case the Board of Directors determines that this method does
not represent fair value).
Fixed-income securities may be valued on the basis of prices provided by a
pricing service when such prices are believed to reflect the fair market value
of such securities. The prices provided by a pricing service take into account
may factors, including institutional size trading in similar groups of
securities and any developments related to specific securities. Mortgage backed
and asset backed securities may be valued at prices obtained from a bond pricing
service or at a price obtained from one or more of the major broker/dealers in
such securities. In cases where broker/dealers quotes are obtained, the Adviser
may establish procedures whereby changes in market yields or spreads are used to
adjust, on a daily basis, a recently obtained quoted bid price on a security.
All other assets of a Fund are valued in good faith at fair value by, or in
accordance with procedures established by, the Board of Directors.
The Board of Directors may suspend the determination of a Fund's NAV
subject to the rules of the SEC 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 whereby it is not reasonably
practicable for a Fund to dispose of securities owned by it or to determine
fairly the value of its net assets.
DIVIDEND REINVESTMENT PLAN
Stockholders of ACM Municipal Securities whose common stock is registered
in their own names will automatically be enrolled as participants in that Fund's
Dividend Reinvestment and Cash Purchase Plan (the "DRIP"), under which dividends
and capital gain distributions to stockholders will be paid or reinvested in
additional shares of the Fund (the "Dividend Shares"). Procedures are available
to stockholders who do not wish to participate in the DRIP. Stockholders of
Alliance National Municipal whose common stock is registered in their own names
may elect to participate in that Fund's DRIP. Computershare Trust Company NA
("Agent") acts as agent to stockholders under the Plan. Stockholders whose
shares are held in the name of a broker or nominee should contact such broker or
nominee to determine whether or how they may participate in the DRIP. Assuming
the Acquisition is approved, the DRIP stockholders of ACM Municipal Securities
will automatically be enrolled in the DRIP for Alliance National Municipal.
If the Board declares an income distribution or determines to make a
capital gains distribution payable either in shares or in cash, as holders of
the shares of common stock may have elected, non-participants in the DRIP will
receive cash and participants in the DRIP will receive the equivalent in shares
of common stock of a Fund valued as follows:
(i) If the shares of common stock are trading at NAV or at a premium
above NAV at the time of valuation, the Fund will issue new
shares at the greater of NAV or 95% of the then current market
price.
(ii) If the shares of common stock are trading at a discount from NAV
at the time of valuation, the Agent will receive the dividend or
distribution in cash and apply it to the purchase of the Fund's
shares of common stock in the open market on the NYSE or
elsewhere, for the participants' accounts. Such purchase will be
made on or shortly after the payment date for such dividend or
distribution and in no event more than 30 days after such date
except where temporary curtailment or suspension of purchase is
necessary to comply with Federal securities laws. If, before the
Agent has completed its purchases, the market price exceeds the
NAV of a share of common stock, the average purchase price per
share paid by the Agent may exceed the NAV of the Fund's shares
of common stock, resulting in the acquisition of fewer shares
than if the dividend or distribution had been in shares issued by
the Fund.
The Agent will maintain all stockholder's accounts in the DRIP and furnish
written confirmation of all transactions in the account, including information
needed by stockholders for tax records. Shares in the account of each DRIP
participant will be held by the Agent in non-certificate form in the name of the
participant, and each stockholder's proxy will include those shares purchased or
received pursuant to the DRIP.
There will be no charges with respect to shares issued directly by a Fund
to satisfy the dividend reinvestment requirements. However, each participant
will pay a pro rata share of brokerage commissions incurred with respect to the
Agent's open market purchases of shares. In each case, the cost per share of
shares purchased for each stockholder's account will be the average cost,
including brokerage commissions, of any share purchased in the open market plus
the cost of any shares issued by a Fund.
The automatic reinvestment of dividends and distributions will not relieve
participants of any income taxes that may be payable (or required to be
withheld) on dividends and distributions.
Experience under the DRIP may indicate that changes are desirable.
Accordingly, a Fund reserves the right to amend or terminate the DRIP as applied
to any voluntary cash payments made and any dividend or distribution paid
subsequent to written notice of the change sent to participants at least 90 days
before the record date for such dividend or distribution. The DRIP may also be
amended or terminated by the Agent on at least 90 days' written notice to
participants in the DRIP. All correspondence concerning the DRIP should be
directed Computershare Trust Company N.A., P.O. Box 43011, Providence, RI
02940-3011.
DESCRIPTION OF COMMON AND PREFERRED STOCK
Shares of Common Stock of the Funds
Alliance National Municipal is authorized to issue 1,999,992,200 shares of
common stock at $.001 par value. ACM Municipal Securities is authorized to issue
99,996,400 shares of common stock at $.01 par value. There are no
subscription/preemptive or exchange rights under the charters. Each share of a
Fund's common stock has equal voting, dividend, distribution and liquidation
rights subject to the preferential rights of a Fund's preferred stock. At any
time when a Fund's preferred stock are outstanding, common stockholders will not
be entitled to receive any distributions from a Fund unless all accrued
dividends on preferred stock have been paid, and unless asset coverage (as
defined in the 1940 Act) with respect to the preferred stock would be at least
200% after giving effect to such distributions. Shares of common stock when
issued are duly authorized, fully paid and nonassessable. Under the rules of the
NYSE applicable to listed companies, each Fund is required to hold an annual
meeting of stockholders each year.
Holders of common stock are entitled to one vote per share. All voting
rights for the election of directors are non-cumulative, which means that the
holders of more than 50% of the shares of common stock of a Fund can elect 100%
of the directors then nominated for election if they choose to do so and, in
such event, the holders of the remaining shares of common stock will not be able
to elect any directors.
Each Fund intends to distribute monthly its net investment income to
holders of its common stock. Monthly distributions to common stockholders will
consist of net investment income remaining after the payment of dividends on
outstanding preferred stock. Net capital gains, if any, will be distributed at
least annually to common stockholders to the extent such net capital gains are
not necessary to satisfy the dividend, redemption or liquidation preferences of
any preferred stock. For tax purposes, a Fund will be required, assuming
issuance of preferred stock, to allocate net capital gain and other taxable
income, if any, between common stock and preferred stock in proportion to total
dividends paid to each class for the year in which such net capital gain or
other taxable income is realized. While any preferred stock is outstanding, a
Fund may not declare any cash dividend or other distribution on its common
stock, unless, at the time of such declaration, (a) all accrued preferred stock
dividends have been paid and (b) the NAV of the Fund's portfolio (determined
after deducting the amount of such dividend or other distribution) is at least
200% of the liquidation value of the outstanding preferred stock (expected to
equal the original purchase price per share plus any accrued and unpaid
dividends thereon). This limitation on a Fund's ability to make distributions on
its common stock could under certain circumstances impair the ability of the
Fund to maintain its qualification for taxation as a regulated investment
company.
Shares of Preferred Stock of the Funds
Alliance National Municipal has authorized, issued and outstanding 7,800
shares of Auction Preferred Stock as follows: 1,950 Series M Preferred Shares,
1,950 Series T Preferred Shares, 1,950 Series W Preferred Shares and 1,950
Series TH Preferred Shares. The preferred shares have a liquidation value of
$25,000 per share plus accumulated unpaid dividends. Alliance National
Municipal's preferred stock will pay dividends based on a rate set at Auctions,
normally held weekly, except in the case of special rate periods. For Series M
Preferred Shares, Series T Preferred Shares, Series W Preferred Shares and
Series TH Preferred Shares auctions are held respectively, on Mondays, Tuesdays,
Wednesdays and Thursdays. Dividends are payable, when, as and if authorized by
the Board and declared by the Fund: on Series M Preferred Shares on Tuesdays; on
Series T Preferred Shares on Wednesdays; on Series W Preferred Shares on
Thursdays and on Series TH Preferred Shares on Fridays.
ACM Municipal Securities has authorized, issued and outstanding 3,600
shares of Auction Preferred Stock as follows: 1,200 Series A Preferred Shares,
1,200 Series B Preferred Shares and 1,200 Series C Preferred Shares. The
preferred shares have a liquidation value of $25,000 per share plus accumulated
unpaid dividends. ACM Municipal Securities' preferred shares will pay dividends
based on a rate set at Auctions, normally held weekly, except in the case of
special rate periods. For Series A Preferred Shares, Series B Preferred Shares,
and Series C Preferred Shares auctions are held, respectively, on Wednesdays,
Mondays, and Thursdays. Dividends are payable, when, as and if authorized by the
Board and declared by the Fund: on Series A Preferred Shares on Thursdays; on
Series B Preferred Shares on Tuesdays; and on Series C Preferred Shares on
Fridays.
If dividends are payable on a day that is not a business day then such
dividends will be paid on such shares on the first business day that falls after
that day.
Each series of preferred stock of a Fund will rank on parity with any other
series of preferred stock of that Fund as to the payment of dividends and the
distribution of assets upon liquidation. Preferred stock is, when issued, fully
paid and, subject to matters discussed in a Fund's Articles of Supplementary,
non-assessable and have no preemptive or conversion rights or rights to
cumulative voting.
Except as otherwise provided in a Fund's Charter or as otherwise required
by law, preferred stockholders will have equal voting rights with common
stockholders (one vote per share) and will vote together with common
stockholders and any other preferred stockholders as a single class. The Firm's
charter sets forth matters on which a Fund's preferred stockholders will vote
separately as a single class.
In connection with the election of a Fund's Directors, holders of
outstanding preferred stock, voting as a separate class, are entitled to elect
two of a Fund's Directors, and the remaining Directors are elected by common
stockholders and preferred stockholders, voting together as a single class. The
Funds' Charters sets forth circumstances relating to outstanding and unpaid
dividends due to preferred stockholders that would entitle such stockholders to
elect members to the Board that would result in such stockholders having elected
a majority of the Directors to the Board.
(i) Redemptions
The redemption provisions pertaining to the preferred stock of each Fund
are similar. It is anticipated that preferred stock of each Fund will generally
be redeemable at the option of the applicable Fund at a price equal to the
liquidation preference of each ($25,000 per share), plus accumulated but unpaid
dividends (whether or not earned or declared) to the date of redemption plus, in
certain circumstances, a redemption premium. Preferred stock of each Fund is
also subject to mandatory redemption at a price equal to their liquidation
preference plus accumulated but unpaid dividends (whether or not earned or
declared) to the date of redemption upon the occurrence of certain specified
events, such as the failure of a Fund to maintain asset coverage requirements
for its preferred stock specified by Moody's and S&P in connection with their
issuance of ratings on their preferred stock.
(ii) Liquidation
Subject to the rights of holders of any series or class or classes of
shares ranking on parity with a Fund's preferred stock with respect to the
distribution of assets upon liquidation of a Fund, upon liquidation of a Fund,
whether voluntary or involuntary, the holders of preferred stock then
outstanding will be entitled to receive and be paid out of the assets of a Fund
available for distribution to its stockholders, before any payment or
distribution shall be made on the common stock or on any other class of stock of
a Fund ranking junior to the preferred stock, an amount equal to the liquidation
preference with respect to such shares, plus an amount equal to all dividends
thereon (whether or not earned or declared) accumulated but unpaid to (but not
including) the date of final distribution in same-day funds, together with any
applicable gross-up payments (i.e., to account for certain federal income tax
liability consequences) in connection with the liquidation of a Fund. After the
payment to the holders of preferred stock of the full preferential amounts
provided for as described herein, the holders of preferred stock shall have no
right or claim to any of the remaining assets of a Fund.
Neither the sale of all or substantially all the property or business of a
Fund, nor the merger or consolidation of a Fund into or with any other
corporation nor the merger or consolidation of any other corporation into or
with a Fund, shall be a liquidation, whether voluntary or involuntary, for the
purposes of the foregoing paragraph.
(iii) Ratings
The preferred stock of each Fund has been assigned a rating of "AAA" from
S&P and "Aaa" from Moody's. Each Fund intends that, so long as its preferred
stock are outstanding, the composition of its portfolio will reflect guidelines
established by S&P and Moody's in connection with each Fund's receipt of a
rating for such shares of at least "AAA" from S&P and "Aaa" from Moody's. S&P
and Moody's, which are nationally recognized statistical rating organizations,
issue ratings for various securities reflecting the perceived creditworthiness
of such securities. The guidelines for rating such preferred stock have been
developed by S&P and Moody's and are designed to ensure that assets underlying
outstanding debt or preferred stock will be varied sufficiently and will be of
sufficient quality and amount to justify investment grade ratings. The
guidelines do not have the force of law but have been adopted by each Fund in
order to satisfy current requirements necessary for S&P and Moody's to issue the
above-described ratings for preferred stock, which ratings generally are relied
upon by institutional investors in purchasing such securities. The guidelines
provide a set of tests for portfolio composition and asset coverage that
supplement (and in some cases are more restrictive than) the applicable
requirements under the 1940 Act.
Each Fund may, but is not required to, adopt any modifications to these
guidelines that hereafter may be established by S&P or Moody's. Failure to adopt
any such modifications, however, may result in a change in the ratings described
above or a withdrawal of the ratings altogether. In addition, any rating agency
providing a rating for a Fund's preferred stock, may, at any time, change or
withdraw any such rating. As set forth in the Articles of Supplementary, each
Fund, without stockholder approval, may modify certain definitions or
restrictions that have been adopted by a Fund pursuant to the rating agency
guidelines, provided the Board of a Fund has obtained written confirmation from
S&P and Moody's that any such change would not impair the ratings then assigned
by S&P and Moody's to the preferred stock.
Each Fund is required under the 1940 Act and Moody's and S&P guidelines to
maintain assets having in the aggregate a Discounted Value at least equal to the
preferred stock Basic Maintenance Amount. Moody's and S&P have each established
separate guidelines for determining Discounted Value. To the extent any
particular portfolio holding does not satisfy the applicable rating agency's
guidelines, all or a portion of such holding's value will not be included in the
calculation of Discounted Value (as defined by such rating agency). The Moody's
and S&P guidelines do not impose any limitations on the percentage of a Fund's
assets that may be invested in holdings not eligible for inclusion in the
calculation of the Discounted Value of a Fund's portfolio. The amount of such
assets included in the portfolio at any time may vary depending upon the rating,
diversification and other characteristics of the eligible assets included in the
portfolio, although it is not anticipated that in the normal course of business
the value of such assets would exceed 20% of each Fund's total assets. The
preferred stock Basic Maintenance Amount includes, among other things, the sum
of (a) the aggregate liquidation preference of preferred stock then outstanding
and (b) certain accrued and projected payment obligations of a Fund.
Each Fund is also required under the 1940 Act and rating agency guidelines
to maintain, with respect to preferred stock, as of the last Business Day of
each month in which any such shares are outstanding, asset coverage of at least
200% with respect to senior securities that are shares, including preferred
stock (or such other asset coverage as may in the future be specified in or
under the 1940 Act as the minimum asset coverage for senior securities that are
shares of a closed-end investment company as a condition of declaring dividends
on its common stock or 1940 Act preferred stock asset coverage).
In the event each Fund does not timely cure a failure to maintain (a) a
Discounted Value of its portfolio equal to the preferred shares basic
maintenance amount or (b) the 1940 Act preferred stock asset coverage, in each
case in accordance with the requirements of the rating agency or agencies then
rating the preferred stock, a Fund will be required to redeem preferred stock as
described under "Redemption--Mandatory Redemption" above.
Each Fund may, but is not required to, adopt any modifications to the
guidelines that may hereafter be established by Moody's or S&P. Failure to adopt
any such modifications, however, may result in a change in the ratings described
above or a withdrawal of ratings altogether. In addition, any rating agency
providing a rating for the preferred stock may, at any time, change or withdraw
any such rating. The Board may in its sole discretion modify the definitions and
related provisions that have been adopted by each Fund pursuant to the rating
agency guidelines if necessary or appropriate with respect to the preferred
stock if each Fund receives written confirmation from Moody's or S&P, or both,
as appropriate, that any such modification would not impair the ratings then
assigned by Moody's and S&P to the preferred stock.
As recently described by Moody's and S&P, a preferred stock rating is an
assessment of the capacity and willingness of an issuer to pay preferred stock
obligations. The ratings on the preferred stock are not recommendations to
purchase, hold or sell those shares, inasmuch as the ratings do not comment as
to market price or suitability for a particular investor. The rating agency
guidelines described above also do not address the likelihood that an owner of
preferred stock will be able to sell such shares in an Auction or otherwise. The
ratings are based on current information furnished to Moody's and S&P by a Fund
and the Adviser and information obtained from other sources. The ratings may be
changed, suspended or withdrawn as a result of changes in, or the unavailability
of, such information. The common stock has not been rated by an NRSRO.
A rating agency's guidelines will apply to the preferred stock only so long
as such rating agency is rating such shares. Each Fund will pay certain fees to
Moody's or S&P, or both, for rating the preferred stock.
Board of Directors
------------------
Each Fund has a Board of Directors that is divided into three classes of
Directors. The terms of the Directors in a class are staggered so that for a
given year only one class of Directors will be up for election by a Fund's
stockholders. The Funds believe that classification of the Board of Directors
will help to assure the continuity and stability of a Fund's business strategies
and policies as determined by the Board of Directors.
The classified board provision could have the effect of making the
replacement of incumbent Directors more time-consuming and difficult. At least
two annual meetings of stockholders, instead of one, will generally be required
to effect a change in a majority of the Board of Directors. Thus, the classified
board provision could increase the likelihood that incumbent Directors will
retain their positions. The staggered terms of Directors may delay, defer, or
prevent a tender offer or an attempt to change control of a Fund, although the
tender offer or change in control might be in the best interest of the
stockholders.
The procedures available to a Fund's stockholders for calling stockholders'
meetings for the removal of directors are the same. Under Maryland law and the
Funds' charters, a director may be removed only with cause at a meeting duly
called and at which a quorum is present by the affirmative vote of seventy-five
percent of all the votes entitled to be cast.
Stockholder Meetings
--------------------
Special meetings of stockholders for any purpose may be called by a Fund's
Secretary upon the written request of holders of shares entitled to cast not
less than a majority of the votes entitled to be cast at a meeting.
Except as otherwise required by law or a Fund's charter, the presence in
person or by proxy of the holders of a majority of the shares entitled to be
cast constitutes a quorum at any meeting of stockholders of a Fund. Pursuant to
each Fund's charter, except in instances involving extraordinary corporate
action, such as in a merger, making amendments to its Charter or removal of a
director, generally, the vote of a majority of the aggregate number of votes
entitled to be cast on a matter is required in order to take or authorize any
such action for which approval of the stockholders is sought. The By-Laws of
each Fund provides that each director shall be elected by the affirmative vote
of the holders of a majority of the votes entitled to be cast; for other
matters, when a quorum is present, the affirmative vote of a majority of the
votes cast shall decide any question brought before such meeting unless a
statute or charter requires a higher voting margin.
The Auction
-----------
General. The Articles provide that, except as otherwise described herein,
the Applicable Rate for the shares of each series of preferred stock, for each
Rate Period of shares of such series after the Initial Rate Period thereof,
shall be equal to the rate per annum that the Auction Agent advises has resulted
on the Business Day preceding the first day of such Subsequent Rate Period (an
"Auction Date") from implementation of the auction procedures (the "Auction
Procedures"), in which persons determine to hold or offer to sell or, based on
dividend rates bid by them, offer to purchase or sell shares of such series.
Each periodic implementation of the Auction Procedures is referred to herein as
an Auction. See the Articles for a more complete description of the Auction
process.
Auction Agency Agreement. Each Fund has entered into an Auction Agency
Agreement with the Auction Agent that provides, among other things, that the
Auction Agent will follow the Auction Procedures for purposes of determining the
Applicable Rate for each series of preferred stock so long as the Applicable
Rate for shares of such series is to be based on the results of an Auction. Each
Fund will pay the Auction Agent compensation for its services under the Auction
Agency Agreement.
The Auction Agent may terminate the Auction Agency Agreement upon notice to
a Fund on a date no earlier than 45 days after such notice, except that if the
Auction Agent has not received amounts due to it under the terms of the Auction
Agency Agreement, the Auction Agent may terminate on a date 30 days after
delivering to a Fund notice of its failure to receive such amounts. If the
Auction Agent should resign, a Fund will use its best efforts to enter into an
agreement with a successor Auction Agent containing substantially the same terms
and conditions as the Auction Agency Agreement. A Fund may remove the Auction
Agent provided that prior to such removal a Fund shall have entered into such an
agreement with a successor Auction Agent.
Broker-Dealer Agreements. Each Auction requires the participation of one or
more Broker-Dealers. The Auction Agent has entered into agreements
(collectively, the "Broker-Dealer Agreements") with several Broker-Dealers
selected by a Fund, which provide for the participation of those Broker-Dealers
in Auctions for preferred stock.
The Auction Agent after each Auction for preferred stock will pay from
funds provided by each Fund a service charge to each Broker-Dealer on the basis
of the purchase price of the preferred stock placed by the Broker-Dealer at the
Auction. The service charge will be paid at the annual rate of .25% in the case
of any Minimum Rate Period or a Rate Period of less than one year, or a
percentage agreed to by a Fund and the Broker-Dealers in the case of any Auction
for a Rate Period of one year or longer. For the purposes of the preceding
sentence, preferred stock will be placed by a Broker-Dealer if such shares were
(a) the subject of Hold Orders deemed to have been submitted to the Auction
Agent by the Broker-Dealer and were acquired by such Broker-Dealer for its own
account or were acquired by such Broker-Dealer for its customers who are
Beneficial Owners or (b) the subject of an Order submitted by such Broker-Dealer
that is (i) a Submitted Bid of an Existing Holder that resulted in such Existing
Holder continuing to hold such shares as a result of the Auction or (ii) a
Submitted Bid of a Potential Holder that resulted in such Potential Holder
purchasing such shares as a result of the Auction or (iii) a valid Hold Order.
Each Fund may request the Auction Agent to terminate one or more
Broker-Dealer Agreements at any time, provided that at least one Broker-Dealer
Agreement is in effect after such termination.
Auction Procedures
------------------
Prior to the Submission Deadline on each Auction Date for a series of
Preferred Shares, each customer of a Broker-Dealer who is listed on the records
of that Broker-Dealer (or, if applicable, the Auction Agent) as holder of shares
of the series, or a Beneficial Owner, may submit Orders with respect to shares
of such series to that Broker-Dealer as follows:
o Hold Order--indicating its desire to hold shares of the series without
regard to the Applicable Rate for shares of the series for the next
Rate Period thereof.
o Bid--indicating its desire to sell shares of the series at $25,000 per
share if the Applicable Rate for the shares for the next Rate Period
thereof is less than the rate specified in such Bid (also known as a
hold-at-a-rate order).
o Sell Order--indicating its desire to sell shares of the series at
$25,000 per share without regard to the Applicable Rate for shares of
such series for the next Rate Period thereof.
A Beneficial Owner may submit different types of Orders to its
Broker-Dealer with respect to a series of preferred stock then held by such
Beneficial Owner. A Beneficial Owner of shares of such series that submits a Bid
with respect to shares of such series to its Broker-Dealer having a rate higher
than the Maximum Rate for shares of such series on the Auction Date therefore
will be treated as having submitted a Sell Order with respect to such shares to
its Broker-Dealer. A Beneficial Owner of shares of such series that fails to
submit an Order with respect to such shares to its Broker-Dealer will be deemed
to have submitted a Hold Order with respect to such shares of such series to its
Broker-Dealer; provided, however, that if a Beneficial Owner of shares of such
series fails to submit an Order with respect to shares of such series to its
Broker-Dealer for an Auction relating to a Rate Period of more than 28 Rate
Period Days, such Beneficial Owner will be deemed to have submitted a Sell Order
with respect to such shares to its Broker-Dealer. A Sell Order shall constitute
an irrevocable offer to sell the preferred stock subject thereto. A Beneficial
Owner that offers to become the Beneficial Owner of additional preferred stock
is, for purposes of such offer, a Potential Beneficial Owner as discussed below.
A customer of a Broker-Dealer that is not a Beneficial Owner of a series of
preferred stock but that wishes to purchase shares of such series, or that is a
Beneficial Owner of shares of such series that wishes to purchase additional
shares of such series (in each case, a "Potential Beneficial Owner"), may submit
Bids to its Broker-Dealer in which it offers to purchase shares of such series
at $25,000 per share if the Applicable Rate for shares of such series for the
next Rate Period thereof is not less than the rate specified in such Bid. A Bid
placed by a Potential Benefit Owner of shares of such series specifying a rate
higher than the Maximum Rate for shares of such series on the Auction Date
therefore will not be accepted.
The Broker-Dealers in turn will submit the Orders of their respective
customers who are Beneficial Owners and Potential Beneficial Owners to the
Auction Agent, designating themselves (unless otherwise permitted by a Fund) as
Existing Holders in respect of shares subject to Orders submitted or deemed
submitted to them by Beneficial Owners and as Potential Holders in respect of
shares subject to Orders submitted to them by Potential Beneficial Owners.
However, neither a Fund nor the Auction Agent will be responsible for a
Broker-Dealer's failure to comply with the foregoing. Any Order placed with the
Auction Agent by a Broker-Dealer as or on behalf of an Existing Holder or a
Potential Holder will be treated in the same manner as an Order placed with a
Broker-Dealer by a Beneficial Owner or Potential Beneficial Owner. Similarly,
any failure by a Broker-Dealer to submit to the Auction Agent an Order in
respect of any preferred stock held by it or customers who are Beneficial Owners
will be treated in the same manner as a Beneficial Owner's failure to submit to
its Broker-Dealer an Order in respect of preferred stock held by it. A
Broker-Dealer may also submit Orders to the Auction Agent for its own account as
an Existing Holder or Potential Holder, provided it is not an affiliate of a
Fund.
If Sufficient Clearing Bids for a series of preferred stock exist (that is,
the number of shares of such series subject to Bids submitted or deemed
submitted to the Auction Agent by Broker-Dealers as or on behalf of Potential
Holders with rates equal to or lower than the Maximum Rate for shares of such
series is at least equal to the number of shares of such series subject to Sell
Orders submitted or deemed submitted to the Auction Agent by Broker-Dealers as
or on behalf of Existing Holders), the Applicable Rate for shares of such series
for the next succeeding Rate Period thereof will be the lowest rate specified in
the Submitted Bids which, taking into account such rate and all lower rates bid
by Broker-Dealers as or on behalf of Existing Holders and Potential Holders,
would result in Existing Holders and Potential Holders owning the shares of such
series available for purchase in the Auction. If Sufficient Clearing Bids for a
series of preferred stock do not exist, the Applicable Rate for shares of such
series for the next succeeding Rate Period thereof will be the Maximum Rate for
shares of such series on the Auction Date therefor. In such event, Beneficial
Owners of shares of such series that have submitted or are deemed to have
submitted Sell Orders may not be able to sell in such Auction all shares of such
series subject to such Sell Orders. If Broker-Dealers submit or are deemed to
have submitted to the Auction Agent Hold Orders with respect to all Existing
Holders of a series of preferred stock, the Applicable Rate for shares of such
series for the next succeeding Rate Period thereof will be the All Hold Order
Rate.
The Auction Procedures include a pro rata allocation of shares for purchase
and sale, which may result in an Existing Holder continuing to hold or selling,
or a Potential Holder purchasing, a number of a series of preferred stock that
is fewer than the number of shares of such series specified in its Order. To the
extent the allocation procedures have that result, Broker-Dealers that have
designated themselves as Existing Holders or Potential Holders in respect of
customer Orders will be required to make appropriate pro rata allocations among
their respective customers.
Settlement of purchases and sales will be made on the next Business Day
(also a Dividend Payment Date) after the Auction Date through the Securities
Depository. Purchasers will make payment through their Agent Members in the
same-day funds to the Securities Depository against delivery to their respective
Agent Members. The Securities Depository will make payment to the sellers' Agent
Members in accordance with the Securities Depository's normal procedures, which
now provide for payment against delivery by their Agent Members in same-day
funds.
The Auction for Series M Preferred Shares will normally be held every
Monday, and each Subsequent Rate Period of shares of such series will normally
begin on the following Tuesday. The Auction for Series T Preferred Shares will
normally be held every Tuesday, and each Subsequent Rate Period of shares of
such series will normally begin on the following Wednesday. The Auction for
Series W Preferred Shares will normally be held every Wednesday, and each
Subsequent Rate Period of shares of such series will normally begin on the
following Thursday. The Auction for Series TH Preferred Shares will normally be
held every Thursday, and each Subsequent Rate Period of shares of such series
will normally begin on the following Friday.
Whenever a Fund intends to include any net capital gain or other income
taxable for regular federal income tax purposes in any dividend on preferred
stock, a Fund shall, in the case of Minimum Rate Periods or Special Rate Periods
of 28 Rate Period Days or fewer, and may, in the case of any other Special Rate
Period, notify the Auction Agent of the amount to be so included not later than
the Dividend Payment Date next preceding the Auction Date on which the
Applicable Rate for such dividend is to be established. Whenever the Auction
Agent receives such notice from a Fund, it will be required in turn to notify
each Broker-Dealer, who, on or prior to such Auction Date, in accordance with
its Broker-Dealer Agreement, will be required to notify its customers who are
Beneficial Owners and Potential Beneficial Owners believed by it to be
interested in submitting an Order in the Auction to be held on such Auction
Date.
Secondary Trading Market and Transfer of Preferred Stock
--------------------------------------------------------
The Broker-Dealers are expected to maintain a secondary trading market in
preferred stock outside of Auctions, but are not obligated to do so, and may
discontinue such activity at any time. There can be no assurance that such
secondary trading market in preferred stock will provide owners with liquidity
of investment. The preferred stock is not registered on any stock exchange or on
the NASDAQ Stock Market. Investors who purchase shares in an Auction for a
Special Rate Period should note that because the dividend rate on such shares
will be fixed for the length of such Rate Period, the value of the shares may
fluctuate in response to changes in interest rates, and may be more or less than
their original cost if sold on the open market in advance of the next Auction
therefor, depending upon market conditions.
A Beneficial Owner or an Existing Holder may sell, transfer or otherwise
dispose of preferred stock only in whole shares and only (1) pursuant to a Bid
or Sell Order placed with the Auction Agent in accordance with the Auction
Procedures, (2) to a Broker-Dealer or (3) to such other persons as may be
permitted by a Fund; provided, however, that (a) a sale, transfer or other
disposition of preferred stock from a customer of a Broker-Dealer who is listed
on the records of that Broker-Dealer as the holder of such shares to that
Broker-Dealer or another customer of that Broker-Dealer shall not be deemed to
be a sale, transfer or other disposition for purposes of the foregoing if such
Broker-Dealer remains the Existing Holder of the shares so sold, transferred or
disposed of immediately after such sale, transfer or disposition and (b) in the
case of all transfers other than pursuant to Auctions, the Broker-Dealer (or
other person, if permitted by a Fund) to whom such transfer is made shall advise
the Auction Agent of such transfer.
Certain Anti-Takeover Provisions of the Funds' Charters and By-Laws
The Funds presently have provisions in their Charters and By-Laws
(together, the "Charter Documents") that are intended to limit (i) the ability
of other entities or persons to acquired control of a Fund, (ii) a Fund's
freedom to engage in certain transactions, or (iii) the ability of a Fund's
Directors or stockholders to amend the Charter Documents or effect changes in a
Fund's management. These provisions of the Charter Documents may be regarded as
"anti-takeover" provisions.
The Board of Directors of each Fund is divided into three classes, each
having a term of three years. At each annual meeting of stockholders, the term
of one class of Directors expires. Accordingly, only those Directors in one
class maybe changed in any one year, and it would require two years to change a
majority of the Board of Directors (although under Maryland law procedures are
available for the removal of Directors even if they are not then standing for
reelections and under SEC regulations procedures are available for including
stockholders proposals in management's annual proxy statement). Such a system of
electing Directors may have the effect of maintaining the continuity of
management and, thus, make it more difficult for a Fund's stockholders to change
the majority of Directors. Generally under a Fund's Charter, the affirmative
vote of the holders of a majority of the votes entitled to be cast is required
for the consolidation of the Fund with another corporation, a merger of the Fund
with or into another corporation (except for certain mergers in which the Fund
is the successor), a statutory share exchange in which the Fund is not the
successor, a sale or transfer of all or substantially all of the Fund's assets,
the dissolution of the Fund and amendment to the Fund's Charter. In addition,
the affirmative vote of 75% (which is higher than that required under Maryland
law or the 1940 Act) of the outstanding shares of common stock of a Fund is
required generally to authorize any of the following transactions or to amend
the provisions of the Charter relating to such transactions:
(i) merger, consolidation or statutory share exchange of the Fund
with or into any other corporation;
(ii) issuance of any securities of the Fund to any person or entity
for cash;
(iii) sale, lease, or exchange of all or any substantial part of the
assets of the Fund to any entity or person (except assets having
an aggregate fair market value of less than $1,000,000); or
(iv) sale, lease, or exchange to the Fund, in exchange for securities
of the Fund, of any assets of any entity or person (except assets
having an aggregate fair market value of less than $1,000,000);
if such corporation, person or entity is directly, or indirectly through
affiliates, the beneficial owner of more than 5% of the outstanding shares of
the Fund (a "principal stockholder"). However, such vote would not be required
where, under certain conditions, the Board of Directors approves the
transaction, although in certain cases involving merger, consolidation or
statutory share exchange, or sale of all or substantially all of a Fund's
assets, the affirmative vote of a majority of the outstanding shares of the Fund
would nevertheless be required.
The provisions of the Charter Documents described above and a Fund's right
to repurchase or make a tender offer for its common stock could have the effect
of depriving the owners of shares of opportunities to sell their shares at a
premium over prevailing market prices, by discouraging a third party from
seeking to obtain control of a Fund in a tender offer or similar transaction.
The overall effect of these provisions is to render more difficult the
accomplishment of a merger or the assumption of control by a principal
stockholder. However, they provide the advantage of potentially requiring
persons seeking control of a Fund to negotiate with its management regarding the
price to be paid and facilitating the continuity of a Fund's management and
investment objective and policies. The Board of Directors of each Fund has
considered the foregoing anti-takeover provisions and concluded that they are in
the best interests of a Fund and its stockholders.
PORTFOLIO TRANSACTIONS
Subject to the general supervision of a Fund's Board, the Adviser is
responsible for the investment decisions and the placing of orders for portfolio
transactions for a Fund. A Fund's portfolio transactions occur primarily with
issuers, underwriters or major dealers acting as principals. Such transactions
are normally on a net basis, which does not involve payment of brokerage
commissions. The cost of securities purchased from an underwriter usually
includes a commission paid by the issuer to the underwriters; transactions with
dealers normally reflect the spread between bid and asked prices. Premiums are
paid with respect to options purchased by a Fund and brokerage commissions are
payable with respect to transactions in exchange-traded futures contracts.
A Fund has no obligation to enter into transactions in portfolio securities
with any dealer, issuer, underwriter or other entity. In placing orders, it is
the policy of each Fund to obtain the best price and execution for its
transactions. Where best price and execution may be obtained from more than one
dealer, the Adviser may, in its discretion, purchase and sell securities through
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 a Fund. The supplemental information received from a dealer is
in addition to the services required to be performed by the Adviser under the
Advisory Agreement, and the expenses of the Adviser will not necessarily be
reduced as a result of the receipt of such information. Consistent with the
Rules of Fair Practice of the National Association of Securities Dealers, Inc.,
and subject to seeking best price and execution, a Fund may consider sales of
shares of a Fund as a factor in the selection of dealers to enter into portfolio
transactions with a Fund.
The Funds may deal in some instances in securities that are not listed on a
national stock exchange but are traded in the over-the-counter market. The Funds
may also purchase listed securities through the third market, i.e., from a
dealer that is not a member of the exchange on which a security is listed. Where
transactions are executed in the over-the-counter market or third market, the
Funds will seek to deal with the primary market makers, but when necessary in
order to obtain the best price and execution, it will utilize the services of
others. In all cases, the Funds will attempt to negotiate best execution.
Brokerage Allocation and Other Practices
Neither a Fund nor the Adviser has entered into agreements or
understandings with any brokers or dealers regarding the placement of securities
transactions because of research or statistical services they provide. To the
extent that such persons or firms supply investment information to the Adviser
for use in rendering investment advice to a Fund, such information may be
supplied at no cost to the Adviser and, therefore, may have the effect of
reducing the expenses of the Adviser in rendering advice to a Fund. While it is
impossible to place an actual dollar value on such investment information, its
receipt by the Adviser probably does not reduce the overall expenses of the
Adviser to any material extent.
The investment information provided to the Adviser is of the types
described in Section 28(e)(3) of the Securities Exchange Act of 1934 and is
designed to augment the Adviser's own internal research and investment strategy
capabilities. Research and statistical services furnished by brokers through
whom a Fund effects securities transactions are used by the Adviser in carrying
out its investment management responsibilities with respect to all its client
accounts but not all such services may be utilized by the Adviser in connection
with a Fund. A Fund will deal in some instances in equity securities, which are
not listed on a national stock exchange but are traded in the over-the-counter
market. Where transactions are executed in the over-the-counter market, a Fund
will seek to deal with the primary market makers, but when necessary in order to
obtain the best price and execution, it will utilize the services of others. In
all cases, a Fund will attempt to negotiate best execution.
A Fund may from time to time place orders for the purchase or sale of
securities (including listed call options) with SCB & Co., an affiliate of the
Adviser. With respect to orders placed with SCB & Co. for execution on a
national securities exchange, commissions received must conform to Section
17(e)(2)(A) of the 1940 Act and Rule 17e-1 thereunder, which permit an
affiliated person of a registered investment company (such as a Fund), or any
affiliated person of such person, to receive a brokerage commission from such
registered investment company provided that such commission is reasonable and
fair compared to the commissions received by other brokers in connection with
comparable transactions involving similar securities during a comparable period
of time.
The following table shows the brokerage commission paid on investment
transactions for the last three fiscal years:
--------------------------------------------------------------------------------
Fund Brokerage Commission Paid ($)
--------------------------------------------------------------------------------
Alliance National Municipal
(Fiscal Year End - October 31)
--------------------------------------------------------------------------------
2005 $0
--------------------------------------------------------------------------------
2004 $0
--------------------------------------------------------------------------------
2003 $0
--------------------------------------------------------------------------------
ACM Municipal Securities
(Fiscal Year End - October 31)
--------------------------------------------------------------------------------
2005 $0
--------------------------------------------------------------------------------
2004 $0
--------------------------------------------------------------------------------
2003 $0
--------------------------------------------------------------------------------
DISTRIBUTIONS
Each Fund intends to distribute monthly its net investment income. Net
capital gains, if any, will normally be distributed at least annually to holders
of common stock to the extent such net capital gains are not necessary to
satisfy the dividend, redemption, or liquidation preferences of any preferred
stock. For tax purposes, the Funds are currently required to allocate net
capital gains and other taxable income, if any, between shares of common stock
and shares of preferred stock in proportion to total distributions paid to each
class for the year in which such net capital gains or other taxable income is
realized. See "Taxation - United States Federal Income Taxes - Distributions."
While any shares of preferred stock are outstanding, the Funds may not declare
any cash dividend or other distribution on their common stock, unless at the
time of such declaration, (a) all accrued preferred stock dividends have been
paid and (b) the NAV of the Funds' portfolios (determined after deducting the
amount of such dividend or other distribution) is at least 200% of the
liquidation value of the outstanding preferred stock (expected to equal the
original purchase price per share plus any accrued and unpaid dividends
thereon). This limitation on the Funds' ability to make distributions on their
common stock could under certain circumstances impair the ability of the Funds
to maintain their qualifications for taxation as regulated investment companies.
See "Taxation - United States Federal Income Taxes - Distributions."
TAXATION
Taxation of the Funds. The Funds intend to qualify each year as regulated
investment companies under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). In order to qualify for the special tax treatment accorded
regulated investment companies and their stockholders, the Funds must, among
other things:
(a) derive at least 90% of their gross income from dividends, interest,
payments with respect to certain securities loans, gains from the sale of
stock, securities or foreign currencies, other income (including but not
limited to gains from options, futures, or forward contracts) derived with
respect to their business of investing in such stock, securities, or
currencies or net income from certain publicly traded partnerships;
(b) distribute with respect to each taxable year at least 90% of the sum of
their taxable net investment income (which includes the excess, if any, of
net short-term capital gains over net long-term capital losses) and their
net tax-exempt income for such year; and
(c) diversify their holdings so that, at the end of each quarter of a
Fund's taxable year, (i) at least 50% of the market value of a Fund's
assets is represented by cash and cash items, U.S. Government securities,
securities of other regulated investment companies, and other securities
limited in respect of any one issuer to a value not greater than 5% of the
value of a Fund's total assets and not more than 10% of the outstanding
voting securities of such issuer, (ii) not more than 25% of the value of a
Fund's assets is invested in the securities (other than those of the U.S.
Government or other regulated investment companies) of any one issuer or of
two or more issuers that a Fund controls and which are engaged in the same,
similar, or related trades or businesses and (iii) not more than 25% of the
value of a Fund's assets is invested in securities of one or more
"qualified publicly traded partnerships".
If a Fund qualifies as a regulated investment company that is accorded
special tax treatment, that Fund will not be subject to federal income tax on
income distributed in a timely manner to its stockholders in the form of
dividends (including capital gain dividends).
If a Fund failed to qualify as a regulated investment company accorded
special tax treatment in any taxable year, that Fund would be subject to tax on
its taxable income at corporate rates, and all distributions from earnings and
profits, including any distributions of net tax-exempt income and net long-term
capital gains, would be taxable to stockholders as ordinary income or "qualified
dividend income" taxable at a maximum rate of 15% to U.S. non-corporate
stockholders (through 2010) provided certain requirements are satisfied. Such
distributions generally would be eligible for the dividends received deduction
in the case of corporate stockholders. In addition, a Fund could be required to
recognize unrealized gains, pay substantial taxes and interest and make
substantial distributions before requalifying as a regulated investment company
that is accorded special tax treatment.
Each Fund may retain for investment its net capital gain. However, if a
Fund retains any net capital gain or any net investment income, it will be
subject to tax at regular corporate rates on the amount retained. Each Fund
intends to distribute at least annually to its stockholders all or substantially
all of its net tax-exempt interest and any net investment income and net capital
gain.
If a Fund fails to distribute in a calendar year at least an amount equal
to the sum of 98% of its ordinary income for such year and 98% of its capital
gain net income for the one-year period ending October 31 of such calendar year,
plus any undistributed ordinary income and capital gain net income from previous
years, that Fund will be subject to a 4% excise tax on the undistributed
amounts. For this purpose, any income or gain retained by a Fund that is subject
to corporate tax will be considered to have been distributed by year end. A
dividend paid to stockholders in January of a year generally is deemed to have
been paid by a Fund on December 31 of the preceding year, if the dividend was
declared and payable to stockholders of record on a date in October, November or
December of that preceding year. Each Fund intends generally to make
distributions sufficient to avoid imposition of the 4% excise tax.
If at any time when preferred stock is outstanding a Fund does not meet
applicable asset coverage requirements, it will be required to suspend
distributions to common stockholders until the requisite asset coverage is
restored. Any such suspension may cause a Fund to pay the 4% federal excise tax
and may, in certain circumstances, prevent a Fund from qualifying for treatment
as a regulated investment company. Each Fund may redeem preferred stock in an
effort to comply with the distribution requirement applicable to regulated
investment companies and to avoid income and excise taxes. There can be no
assurance, however, that any such action would achieve such objectives.
Fund Distributions. Distributions from the Funds (other than
exempt-interest dividends, as discussed below) will be taxable to stockholders
as ordinary income to the extent derived from net investment income (which
includes any net short-term capital gains). Distributions of net capital gain
(that is, the excess of net gains from the sale of capital assets held more than
one year over net losses from the sale of capital assets held for not more than
one year) will be taxable to stockholders as long-term capital gain, regardless
of how long a stockholder has held the shares in a Fund. The Funds'
distributions will not qualify for the dividends received deduction for
corporate stockholders. It is not expected that any portion of the Funds'
distributors will be treated as "qualified dividend income" taxable at a maximum
rate of 15% to U.S. non-corporate stockholders (through 2010).
Alternative Minimum Tax. Current federal income tax law imposes an AMT with
respect to both corporations and individuals. Interest on tax-exempt Municipal
Securities issued after August 7, 1986 that are "specified private activity
bonds," and the proportionate share of any exempt-interest dividend paid by a
regulated investment company, such as the Funds, which receive interest from
such specified private activity bonds, will be treated as an item of tax
preference for purposes of the AMT, though for regular Federal income tax
purposes such interest will remain fully tax-exempt. The Funds will annually
notify stockholders of the portion of exempt-interest dividends paid by the
Funds that will be treated as an item of tax preference for purposes of the AMT.
In addition, interest on all tax-exempt Municipal Securities, and therefore all
distributions by the Funds that would otherwise be tax-exempt, will be included
in the "adjusted current earnings" of corporations for AMT purposes.
The interest on AMT Municipal Securities, in which the Funds will invest a
substantial portion of their assets, is not tax-exempt for federal income tax
purposes when received by persons who are "substantial users" of the facilities
financed by such bonds or by "related persons" of such substantial users.
Consequently, the Funds may not be appropriate investments for persons who are
considered either a substantial user or a related person under the applicable
rules, and prospective investors should consult their tax advisers on whether
they would constitute substantial users or related persons of facilities
financed by AMT Municipal Securities before purchasing shares of the Funds.
Exempt-interest dividends. The Funds will be qualified to pay
exempt-interest dividends to their stockholders only if, at the close of each
quarter of each Fund's taxable year, at least 50% of the total value of that
Fund's assets consists of obligations the interest on which is exempt from
federal income tax under Code Section 103(a). Distributions from each Fund will
constitute exempt-interest dividends to the extent of that Fund's tax-exempt
interest income (net of expenses and amortized bond premium). Distributions that
the Funds properly designate as exempt-interest dividends are treated as
interest excludable from stockholders' gross income for federal income tax
purposes, although such distributions are required to be reported on the
stockholders' federal income tax returns and may be taxable for state and local
purposes. Because the Funds intend to qualify to pay exempt-interest dividends,
the Funds may be limited in their ability to enter into taxable transactions
involving forward commitments, repurchase agreements, financial futures and
options contracts on financial futures, tax-exempt bond indices and other
assets.
The Funds designate distributions made to the share classes as consisting
of a portion of each type of income distributed by the Funds. The portion of
each type of income deemed received by each class of stockholders is equal to
the portion of total Fund dividends received by such class for that taxable
year. Thus, the Funds will designate dividends paid as exempt-interest dividends
in a manner that allocates such dividends between the Preferred and common
stockholders in proportion to the total dividends paid to each class during or
with respect to the taxable year, or otherwise as required by applicable law.
Long-term capital gain distributions and other income subject to regular federal
income tax will similarly be allocated between the two (or more) classes.
Dividend and capital gains distributions will be taxable as described above
whether received in cash or in shares. A stockholder whose distributions are
reinvested in shares will be treated as having received a dividend equal to the
fair market value of the new shares issued to the stockholder, or the amount of
cash allocated to the stockholder for the purchase of shares on its behalf.
Part or all of the interest on indebtedness, if any, incurred or continued
by a stockholder to purchase or carry shares of the Funds paying exempt-interest
dividends is not deductible. Under rules used by the Internal Revenue Service
(the "Service") to determine when borrowed funds are considered used for the
purpose of purchasing or carrying particular assets, the purchase of shares may
be considered to have been made with borrowed funds even though such funds are
not directly traceable to the purchase of shares.
The Funds may invest in tax-exempt municipal securities subject to the AMT.
Under current federal income tax law, (i) 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
AMT imposed on individuals and corporations although for regular federal income
tax purposes such interest will remain fully tax-exempt, and (ii) interest on
all tax-exempt obligations and all exempt-interest dividends will be included in
"adjusted current earnings" of corporations for AMT purposes.
In general, exempt-interest dividends, if any, attributable to interest
received on certain private activity obligations and certain industrial
development bonds will not be tax-exempt to any stockholders who are
"substantial users," within the meaning of Section 147(a) of the Code, of the
facilities financed by such obligations or bonds or who are "related persons" of
such substantial users.
Each Fund will inform investors within 60 days of that Fund's taxable
year-end of the percentage of its income distributions designated as tax-exempt.
The percentage is applied uniformly to all distributions made during the year.
The percentage of income designated as tax-exempt for any particular
distribution may be substantially different from the percentage of each Fund's
income that was tax-exempt during the period covered by the distribution.
The Funds will allocate distributions to stockholders that are treated as
tax-exempt interest and as long-term capital gain and ordinary income, if any,
among the common stock and preferred stock in proportion to total dividends paid
to each class for the year.
Hedging Transactions. If the Funds engage in hedging transactions,
including hedging transactions in options, futures contracts, and straddles, or
other similar transactions, it will be subject to special tax rules (including
constructive sale, mark-to-market, straddle, wash sale, and short sale rules),
the effect of which may be to accelerate income to the Funds, defer losses to
the Funds, cause adjustments in the holding periods of the Funds' securities,
affect whether gains and losses realized by the Funds are ordinary or capital,
convert long-term capital gains into short-term capital gains or convert
short-term capital losses into long-term capital losses. These rules could
therefore affect the amount, timing and character of distributions to
stockholders. Income earned as a result of the Funds' hedging activities will
not be eligible to be treated as exempt-interest dividends when distributed to
stockholders. The Funds will endeavor to make any available elections and
entries in its books and records pertaining to such transactions in a manner
believed to be in the best interests of the Funds and their stockholders.
Return of Capital Distributions. If a Fund makes a distribution to you in
excess of its current and accumulated earnings and profits in any taxable year,
the excess distribution will be treated as a return of capital to the extent of
your tax basis in your shares, and thereafter as capital gain. A return of
capital is not taxable, but it reduces your tax basis in your shares, thus
reducing any loss or increasing any gain on a subsequent taxable disposition by
you of your shares.
Dividends and distributions on the Funds' shares are generally subject to
federal income tax as described herein, even though such dividends and
distributions may economically represent a return of a particular stockholder's
investment. Such distributions are likely to occur in respect of shares
purchased at a time when the Funds' NAV reflects gains that are either
unrealized, or realized but not distributed. Such realized gains may be required
to be distributed even when the Funds' NAV also reflects unrealized losses.
Distributions are taxable to a stockholder even if they are paid from income or
gains earned by the Fund prior to the stockholder's investment (and thus
included in the price paid by the stockholder).
Securities Issued or Purchased at a Discount. The Funds' investment in
securities issued at a more than de minimis discount, and certain other
obligations, will (and investments in securities purchased at a discount may)
require the Funds to accrue and distribute income not yet received. In order to
generate sufficient cash to make the requisite distributions, the Funds may be
required to sell securities in its portfolio that it otherwise would have
continued to hold.
Sale or Redemption of Shares. The sale, exchange or redemption of Fund
shares will give rise to gain or loss in an amount equal to the difference
between the proceeds of the sale, exchange or redemption and the stockholder's
adjusted tax basis in the shares. Any gain or loss realized upon a taxable
disposition of shares held as a capital asset will be treated as long-term
capital gain or loss if the shares have been held for more than 12 months.
Otherwise, the gain or loss on the taxable disposition of Fund shares held as a
capital asset will be treated as short-term capital gain or loss. However, if a
stockholder sells shares at a loss within six months of purchase, any loss will
be disallowed for federal income tax purposes to the extent of any
exempt-interest dividends received on such shares. In addition, any loss
realized upon a taxable disposition of shares held for six months or less but
not disallowed as provided in the preceding sentence will be treated as
long-term, rather than short-term, to the extent of any long-term capital gain
distributions received by the stockholder with respect to the shares. All or a
portion of any loss realized upon a taxable disposition of Fund shares will be
disallowed if other substantially identical shares of a Fund are purchased
within 30 days before or after the disposition. In such a case, the basis of the
newly purchased shares will be adjusted to reflect the disallowed loss.
If a Fund redeems some but not all of the preferred stock held by a
preferred stockholder and such stockholder is treated as having received a
taxable dividend upon such redemption, there is a remote risk that non-redeeming
preferred stockholders will be treated as having received taxable distributions
from that Fund.
Backup Withholding. The Funds generally are required to withhold and remit
to the U.S. Treasury a percentage of the taxable dividends and other
distributions paid to any non- corporate stockholder who fails to properly
furnish a Fund with a correct taxpayer identification number (TIN), who has
under-reported dividend or interest income, or who fails to certify to the Funds
that he or she is not subject to such withholding. Backup withholding is not an
additional tax; rather any amounts withheld may be credited against the
stockholder's U.S. federal income tax liability.
General. The federal income tax discussion set forth above is for general
information only. Prospective investors should consult their tax advisers
regarding the specific federal tax consequences of purchasing, holding, and
disposing of shares of the Funds, as well as the effects of state, local and
foreign tax law and any proposed tax law changes.
UNITED STATES FEDERAL INCOME TAXATION OF A FUND
The following discussion relates to certain significant United States
federal income tax consequences to a Fund with respect to the determination of
its "investment company taxable income" each year. This discussion assumes that
a Fund will be taxed as a regulated investment company for each of its taxable
years.
Currency Fluctuations - "Section 988" Gains or Losses. Under the Code,
gains or losses attributable to fluctuations in exchange rates which occur
between the time a Fund accrues interest or other receivables or accrues
expenses or other liabilities denominated in a foreign currency and the time a
Fund actually collects such receivables or pays such liabilities are treated as
ordinary income or ordinary loss. Similarly, gains or losses from the
disposition of foreign currencies, from the disposition of debt securities
denominated in a foreign currency, or from the disposition of a forward contract
denominated in a foreign currency which are attributable to fluctuations in the
value of the foreign currency between the date of acquisition of the asset and
the date of disposition also are treated as ordinary income or loss. These gains
or losses, referred to under the Code as "section 988" gains or losses, increase
or decrease the amount of a Fund's investment company taxable income available
to be distributed to its stockholders as ordinary income, rather than increasing
or decreasing the amount of a Fund's net capital gain. Because section 988
losses reduce the amount of ordinary dividends a Fund will be allowed to
distribute for a taxable year, such section 988 losses may result in all or a
portion of prior dividend distributions for such year being recharacterized as a
non-taxable return of capital to stockholders, rather than as an ordinary
dividend, reducing each stockholder's basis in his Fund shares. To the extent
that such distributions exceed such stockholder's basis, each will be treated as
a gain from the sale of shares.
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 Fund 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 Fund on section 1256 contracts will be considered 60%
long-term and 40% short-term capital gain or loss. A Fund 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 put and call options, gain or loss
realized by a Fund upon the lapse or sale of such options held by the Fund will
be either long-term or short-term capital gain or loss depending upon the Fund'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 Fund will be
treated as short-term capital gain or loss. In general, if a Fund exercises an
option, or if an option that the Fund 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, forward contract, or other
position entered into or held by a Fund in conjunction with any other position
held by the Fund 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 Fund'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 the Fund has unrealized gains with respect to the other
position in such straddle; (ii) the Fund's holding period in straddle positions
be suspended while the straddle exists (possibly resulting in gain being treated
as short-term capital gain rather than long-term capital gain); (iii) losses
recognized with respect to certain straddle positions which are part of a mixed
straddle and which are non-section 1256 positions be treated as 60% long-term
and 40% short-term capital loss; (iv) losses recognized with respect to certain
straddle positions which would otherwise constitute short-term capital losses be
treated as long-term capital losses; and (v) the deduction of interest and
carrying charges attributable to certain straddle positions may be deferred. The
Treasury Department is authorized to issue regulations providing for the proper
treatment of a mixed straddle where at least one position is capital. No such
regulations have yet been issued. Various elections are available to a Fund
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 Fund all of the offsetting positions of which consist
of section 1256 contracts.
Zero Coupon Treasury Securities. Under current federal tax law, a Fund will
receive net investment income in the form of interest by virtue of holding
Treasury bills, notes and bonds, and will recognize interest attributable to it
under the original issue discount rules of the Code from holding zero coupon
Treasury securities. Current federal tax law requires that a holder (such as a
Fund) of a zero coupon security accrue a portion of the discount at which the
security was purchased as income each year even though a Fund receives no
interest payment in cash on the security during the year. Accordingly, a Fund
may be required to pay out as an income distribution each year an amount which
is greater than the total amount of cash interest the Fund actually received.
Such distributions will be made from the cash assets of a Fund or by liquidation
of portfolio securities, if necessary. A Fund may realize a gain or loss from
such sales. In the event a Fund realize net capital gains from such
transactions, its stockholders may receive a larger capital gain distribution,
if any, than they would have received in the absence of such transactions.
Government Guaranteed Mortgage Pass-Through Securities. Mortgage
pass-through securities such as GNMA Certificates, FNMA Certificates, and FHLMC
Certificates generally are taxable as trusts for Federal income tax purposes,
with the certificate holders treated as the owners of the trust involved. As a
result, payments of interest, principal and prepayments made on the underlying
mortgage pool are taxed directly to certificate holders such as a Fund. Payments
of interest, principal and prepayments made on the underlying mortgage pool will
therefore generally maintain their character when received by a Fund.
LEGAL MATTERS
Certain legal matters concerning the Funds and their participation in the
Acquisition, the issuance of Alliance National Municipal shares in connection
with the Acquisition and the tax consequences of the Acquisition will be passed
upon by Seward & Kissel LLP, One Battery Park Plaza, New York, NY 10004, counsel
to the Funds.
EXPERTS
The audited financial information in the Prospectus/Proxy Statement and the
SAI has been included in reliance on the report of Ernst & Young LLP,
independent registered public accountants, Five Times Square, New York, NY
10036, given on its authority as experts in auditing and accounting.
--------------------------------------------------------------------------------
FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
(a) The Financial Statements required under Item 14(a) of Form N-14 are
incorporated by reference herein from the:
1. ACM Municipal Securities Income Fund, Inc. Annual Report for the period ended
October 31, 2005, filed with the SEC on January 9, 2006 (File No. 811-07510).
2. ACM Municipal Securities Income Fund, Inc., Semi-Annual Report for the period
ended April 30, 2006, filed with the SEC on July 10, 2006 (File No. 811-07510).
3. Alliance National Municipal Income Fund, Inc. Annual Report for the period
ended October 31, 2005 filed with the SEC on January 9, 2006 (File No.
811-10573).
4. Alliance National Municipal Income Fund, Inc. Semi-Annual Report for the
period ended April 30, 2006 filed with the SEC on July 10, 2006 (File No.
811-10573).
(b) Pro Forma Financial Information:
The following represents the pro forma financial information:
PRO FORMA ALLIANCE
NATIONAL MUNICIPAL INCOME FUND,
FINANCIAL STATEMENTS
ALLIANCE NATIONAL MUNICIPAL INCOME FUND
ACM MUNICIPAL SECURITIES INCOME FUND
April 30, 2006
(unaudited)
PORTFOLIO OF INVESTMENTS
PRO FORMA ALLIANCE
NATIONAL MUNICIPAL INCOME FUND Alliance National Municipal Income Fund
April 30, 2006 (unaudited) ACM Municipal Securities Income Fund
Pro Forma
Alliance
National
Municipal Alliance ACM Pro Forma
Income Fund National Municipal Alliance National
Principal Municipal Securities Municipal Income
Amount Income Fund Income Fund Fund
(000) (U.S.$ Value) (U.S.$ Value) (U.S.$ Value)
-----------------------------------------------------------------------------------------------------
Long-Term Municipal Bonds --162.2%
Alabama -- 7.1%
Huntsville Hlth Care Auth
(Huntsville Hosp Sys) Ser 02B
5.75%, 6/01/32 $ 6,000 $ 6,349,440 $ -0- 6,349,440
Jefferson Cnty Ltd Obligation
Sch Warrants Ser 04A
5.25%, 1/01/18 1,300 -0- 1,357,369 1,357,369
5.25%, 1/01/23 1,800 1,325,413 545,758 1,871,171
Jefferson Cnty Swr Rev
FGIC Ser 99A
5.38%, 2/01/36 7,405 7,798,354 -0- 7,798,354
Jefferson Cnty Wtr and Swr Rev
FGIC Ser 02B Prerefunded
5.00%, 2/01/41 1,535 -0- 1,625,949 1,625,949
FGIC Ser 02B Unrefunded
5.00%, 2/01/41 2,465 -0- 2,618,052 2,618,052
Marshall Cnty Hlth Care Auth
(Marshall Cnty Med
Ctr) Ser 02A
5.75%, 1/01/32 2,500 2,587,750 -0- 2,587,750
(Marshall Cnty Med
Ctr) Ser 02D
5.75%, 1/01/32 3,000 3,107,010 -0- 3,107,010
Montgomery Spl Care Facs Fin Auth Rev
(Baptist Health) Ser 04C
5.13%, 11/15/24 1,500 1,517,025 -0- 1,517,025
5.25%, 11/15/29 1,810 877,100 1,082,840 1,959,940
---------- ---------- ----------
23,562,092 7,229,968 30,792,060
---------- ---------- ----------
Alaska -- 3.7%
Alaska Intl Arpt Rev
MBIA Ser 03B
5.00%, 10/01/26 2,000 1,029,900 1,029,900 2,059,800
Alaska Muni Bd Bank Auth
MBIA Ser 03E
5.25%, 12/01/26 3,000 -0- 3,168,630 3,168,630
MBIA Ser 04G
5.00%, 2/15/22 1,585 -0- 1,639,603 1,639,603
5.00%, 2/15/24 1,345 1,387,771 -0- 1,387,771
Anchorage Waste Wtr Rev
MBIA Ser 04
5.13%, 5/01/29 3,050 779,137 2,389,355 3,168,492
Four Dam Pool Elec Rev
Ser 04
5.00%, 7/01/24 1,035 1,050,867 -0- 1,050,867
5.25%, 7/01/25 2,195 -0- 2,253,453 2,253,453
5.25%, 7/01/26 1,385 1,414,390 -0- 1,414,390
---------- ---------- -----------
5,662,065 10,480,941 16,143,006
---------- ---------- -----------
Arizona -- 0.7%
Arizona Cap Facs Fin Corp
(Arizona St Univ Proj)
6.25%, 9/01/32 1,550 -0- 1,593,276 1,593,276
Phoenix Civic Impt Corp
Wastewater Sys Rev
(JR Lien)
MBIA Ser 04
5.00%, 7/01/23 1,250 -0- 1,298,275 1,298,275
----------- --------- ----------
-0- 2,891,551 2,891,551
----------- --------- ----------
Arkansas -- 1.0%
Arkansas Dev Fin Auth SFMR
(Mtg Rev) GNMA Ser 02A
5.30%, 7/01/34 4,430 4,485,995 -0- 4,485,995
----------- --------- ----------
California -- 10.0%
Burbank Redev Agy
FGIC Ser 03
5.625%, 12/01/28 2,700 -0- 2,952,909 2,952,909
California Dept of Wtr
Ser 02A
5.375%, 5/01/22 2,000 -0- 2,185,660 2,185,660
California GO
Ser 02
5.25%, 4/01/30 1,000 1,037,980 -0- 1,037,980
Ser 03
5.00%, 2/01/32 2,450 -0- 2,488,808 2,488,808
5.00%, 2/01/33 1,100 -0- 1,117,281 1,117,281
Ser 04
5.25%, 4/01/29 2,000 2,086,660 -0- 2,086,660
Chula Vista IDR
(San Diego Gas) Ser 96A
5.30%, 7/01/21 4,000 4,200,320 -0- 4,200,320
Coachella Valley Uni Sch Dist
MBIA Ser 03
5.00%, 9/01/31 1,000 1,024,580 -0- 1,024,580
Golden St
Tobacco Settlement XLCA
Ser 03B
5.50%, 6/01/33 3,000 -0- 3,276,840 3,276,840
Tobacco Settlement
RADIAN Ser 03B
5.50%, 6/01/43 2,250 -0- 2,457,630 2,457,630
Hartnell Comm College
MBIA Ser 03A
5.00%, 8/01/27 1,155 1,236,705 -0- 1,236,705
La Quinta Fin Auth Loc Agy Rev
AMBAC Ser 04A
5.25%, 9/01/24 2,000 2,120,200 -0- 2,120,200
Los Angeles Cmnty Redev Agy
Ser 04L
5.00%, 3/01/18 1,715 1,696,786 -0- 1,696,786
Los Angeles Regl Arpts
(Laxfuel Corp) AMBAC Ser 01 AMT
5.50%, 1/01/32 9,500 9,868,505 -0- 9,868,505
Pomona Lease Rev
AMBAC Ser 03
5.50%, 6/01/34 3,000 -0- 3,245,880 3,245,880
San Rafael Elem Sch Dist
FSA Ser 03A
5.50%, 8/01/28 2,820 2,877,359 -0- 2,877,359
---------- ----------- ----------- -----------
26,149,095 17,725,008 43,874,103
---------- ---------- -----------
Colorado - 4.1%
Avon Hsg Auth MFHR
(Buffalo Ridge II Proj) GNMA
Ser 02A AMT
5.70%, 10/20/43 4,950 5,081,571 -0- 5,081,571
Colorado Ed & Cultural Facs Auth Rev
(Knowledge Quest Charter Sch)
Ser 05
6.50%, 5/01/36 500 500,665 -0- 500,665
Colorado Hlth Facs Auth Rev
(Parkview Med Ctr) Ser 04
5.00%, 9/01/25 2,560 1,806,444 762,721 2,569,165
Colorado Toll Rev
(Hwy E-470) Ser 00
Zero Coupon, 9/01/35 10,000 -0- 1,278,700 1,278,700
Denver City & Cnty MFHR
(Clyburn Stapleton Proj) GNMA
Ser 02 AMT
5.50%, 12/20/43 2,155 2,181,657 -0- 2,181,657
Northwest Metro Dist No 3
(Ltd Tax) Ser 05
6.13%, 12/01/25 1,000 521,370 521,370 1,042,740
Park Creek Metro Dist Rev
(Ref-Sr-Ltd Tax Ppty Tax) Ser 05
5.25%, 12/01/25 3,000 1,870,526 1,179,244 3,049,770
5.50%, 12/01/30 890 911,520 -0- 911,520
Todd Creek Farms Metro Dist No 1 Wtr
Rev
(Ref & Impt) Ser 04
6.13%, 12/01/19 1,180 778,417 399,188 1,177,605
---------- ----------- ----------
13,652,170 4,141,223 17,793,393
---------- ---------- -----------
District of Columbia -- 0.8%
District of Columbia Spl Tax Rev
(Gallery Place Proj) Ser 02 FSA
5.40%, 7/01/31 3,500 3,673,390 -0- 3,673,390
---------- ---------- -----------
Florida -- 0.0%
Beacon Tradeport CDD
Ser 02B
7.25%, 5/01/33 5,550 5,890,160 -0- 5,890,160
Brevard Cnty HFA SFMR
(Mtg Rev) GNMA Ser 02C AMT
5.40%, 3/01/33 945 952,305 -0- 952,305
Collier Cnty CFD
(Fiddler's Creek) Ser 02A
6.88%, 5/01/33 2,950 3,080,272 -0- 3,080,272
(Fiddler's Creek) Ser 02B
6.63%, 5/01/33 2,215 2,284,662 -0- 2,284,662
Dade Cnty Arpt Rev
(Miami Int'l Arpt) FGIC Ser 02
AMT
5.38%, 10/01/32 6,040 6,280,090 -0- 6,280,090
Florida Ed & Athletic Fac
(FSU Finl Assist) AMBAC Ser 02
(Westlake Apts) FSA Ser 02-D1
AMT
5.40%, 3/01/42 8,780 -0- 8,897,476 8,897,476
(Westminster Apts) FSA Ser
02E-1 AMT
5.40%, 4/01/42 3,000 3,052,950 -0- 3,052,950
Hamal CDD
(Hamal) Ser 01
6.75%, 5/01/31 2,460 2,577,096 -0- 2,577,096
Jacksonville Wtr & Swr Sys Rev
(Jacksonville Elec) MBIA Ser
02A
5.50%, 10/01/41 (a) 20,000 20,308,200 -0- 20,308,200
Lee Cnty Arpt Rev
(Southwest FL Intl) FSA Ser
00A AMT
5.75%, 10/01/22-10/01/25 9,500 10,130,835 -0- 10,130,835
Lee Cnty CDD
(Miromar Lakes) Ser 00A
7.25%, 5/01/12 1,490 1,559,821 -0- 1,559,821
Lee Cnty IDA Hlth Fac
(Shell Point Village) Ser 99A
5.50%, 11/15/29 6,170 2,522,525 3,703,067 6,225,592
Lee Cnty Transn Fac
(Sanibel Brdgs & Causway) CIFG
Ser 05B
5.00%, 10/01/30 1,700 1,764,566 -0- 1,764,566
Miami Beach Hlth Facs Hosp Rev
(Mount Sinai Med Ctr) Ser 04
6.75%, 11/15/24 (b) 4,000 2,218,060 2,218,060 4,436,120
Miami-Dade Cnty Spl Oblig
MBIA Ser 04B
5.00%, 4/01/24 4,000 -0- 4,147,920 4,147,920
Midtown Miami CDD
Ser 04A
6.00%, 5/01/24 2,500 2,650,075 -0- 2,650,075
Orange Cnty Hlth Facs Hosp Rev
(Orlando Regional) Ser 02
5.75%, 12/01/32 2,800 1,547,238 1,547,238 3,094,476
Ready Creek Fla Impt Dist Fla Utils
Rev AMBAC
5.00%, 10/01/25 2,845 -0- 2,950,834 2,950,834
Pinellas Cnty HFA SFMR
(Mtg Rev) GNMA/FNMA Ser 02A AMT
5.40%, 3/01/32 830 837,777 -0- 837,777
UCF Assn Ctfs
FGIC Ser 04A
5.125%, 10/01/24 1,325 -0- 1,389,978 1,389,978
Village CDD
Ser 03A
6.00%, 5/01/22 875 908,836 -0- 908,836
--------- ----------- ------------
73,705,968 24,854,573 98,560,541
----------- ----------- ------------
Georgia -- 1.7%
Cartersville Dev Auth
(Anheuser Busch Proj) Ser 02
AMT
5.95%, 2/01/32 2,510 2,708,039 -0- 2,708,039
Georgia HFA SFMR
(Mtg Rev) Ser 02A-2 AMT
5.60%, 12/01/32 4,510 4,586,129 -0- 4,586,129
----------- ----------- ------------
7,294,168 -0- 7,294,168
----------- ----------- ------------
Hawaii -- 1.0%
Hawaii St Elec Rev
XLCA Ser 03B AMT
5.00%, 12/01/22 4,500 2,034,980 2,543,725 4,578,705
----------- ----------- ------------
Illinois -- 17.6%
Bolingbrook GO
FGIC Ser 02A
5.38%, 1/01/38 5,000 5,218,700 -0- 5,218,700
Chicago Arpt Rev
(O'Hare Int'l Arpt) MBIA Ser
02A AMT
5.38%, 1/01/32 15,000 15,482,100 -0- 15,482,100
(O'Hare Int'l Arpt) XLCA Ser
03B-1
5.25%, 1/01/34 4,860 1,834,202 3,230,696 5,064,898
Chicago GO
FGIC Ser 00C
Prerefunded
5.50%, 1/01/40 9,135 9,841,684 -0- 9,841,684
FGIC Ser 00C Unrefunded
5.50%, 1/01/40 5,450 5,739,940 -0- 5,739,940
FSA Ser 04A
5.00%, 1/01/25 2,165 -0- 2,232,938 2,232,938
Chicago Hsg Agy SFMR
(Mortgage Rev) GNMA/FNMA
Ser 02B AMT
6.00%, 10/01/33 605 -0- 619,260 619,260
Chicago Park Dist
GO
(Ltd Tax) AMBAC Ser 04A
5.00%, 1/01/25 2,585 -0- 2,670,538 2,670,538
Chicago Parking Rev
(Lakefront Millennium)
MBIA Ser 98
5.13%, 1/01/28 8,600 8,830,480 -0- 8,830,480
Chicago Sales Tax Rev
FGIC Ser 98
5.25%, 1/01/28 5,710 5,905,510 -0- 5,905,510
Cook Cnty Sch Dist
FSA Ser 04
4.60%, 12/01/20 (c) 2,000 944,620 944,620 1,889,240
Gilberts Special Service
Area No 15 Spl Tax
(Gilberts Town Ctr Proj)
Ser 05
6.00%, 3/01/28 2,766 2,745,476 -0- 2,745,476
Illinois Fin Auth
(Inst of Technology Rev)
Ser 06A
5.00%, 4/01/31 1,250 890,460 367,252 1,257,712
(Loyola Univ Chicago) XLCA
Ser 04A
5.00%, 7/01/24 1,495 -0- 1,541,375 1,541,375
Manhattan
No 04-1 (Brookstone
Springs Proj) Ser 05
5.88%, 3/01/28 1,875 1,888,838 -0- 1,888,838
Met Pier & Expo Auth
(McCormick Place) MBIA Ser
02A
5.25%, 6/15/42 5,500 3,917,137 1,827,998 5,745,135
--------- ----------- -----------
63,239,147 13,434,677 76,673,824
--------- ----------- -----------
Indiana -- 4.5%
Hendricks Cnty Bldg Facs
GO
Ser 04
5.50%, 7/15/21 1,045 -0- 1,130,053 1,130,053
Hendricks Cnty Ind Bldg Facs
Corp
(First Mtg) Ser
04
5.50%, 7/15/22 1,105 1,196,825 -0- 1,196,825
Indiana Bd Bk Rev
FSA Ser 04B
5.00%, 2/01/21 1,100 -0- 1,139,193 1,139,193
Indiana HFA SFMR
(Mtg Rev) GNMA/FNMA Ser 02 AMT
5.55%, 7/01/32 2,250 2,285,820 -0- 2,285,820
Indiana St Dev Fin Auth Rev
(Exempt Facs Inland Steel)
Ser 97
5.75%, 10/01/11 2,925 2,097,863 880,899 2,978,762
Indianapolis Pub Improv Bd
MBIA Ser 02A
5.25%, 7/01/33 10,000 10,772,200 -0- 10,772,200
----------- ----------- -----------
16,352,708 3,150,145 19,502,853
---------- ----------- -----------
Iowa -- 0.1%
Iowa Fin Auth SFMR
(Mtg Rev) GNMA/FNMA Ser 02A
AMT
5.40%, 7/01/32 595 599,748 -0- 599,748
--------- ----------- -----------
Louisiana -- 1.3%
Calcasieu Parish SFMR
(Mtg Rev) GNMA/FNMA Ser 02A
6.05%, 4/01/33 410 424,547 -0- 424,547
Louisiana HFA SFMR
(Mtg Rev) GNMA Ser 02C AMT
5.60%, 6/01/33 1,580 1,603,605 -0- 1,603,605
New Orleans
GO MBIA
5.25%, 12/01/20 1,000 -0- 1,043,560 1,043,560
MBIA Ser 05
5.00%, 12/01/29 2,700 2,738,907 -0- 2,738,907
---------- --------- ----------
4,767,059 1,043,560 5,810,619
--------- --------- -----------
Massachusetts -- 5.2%
Massachusetts Hsg Fin Agy MFHR
(Rental Rev) AMBAC Ser 00A AMT
6.00%, 7/01/41 1,740 -0- 1,837,440 1,837,440
(Rental Rev) MBIA Ser 00H AMT
6.65%, 7/01/41 545 -0- 580,632 580,632
Massachusetts GO
Ser 02C Prerefunded
5.25%, 11/01/30 5,090 1,914,586 3,560,269 5,474,855
Ser 02C Unrefunded
5.25%, 11/01/30 4,910 3,463,464 1,817,781 5,281,245
Massachusetts Hlth & Ed Fac Hosp Rev
(Berkshire Hlth Sys) Asset Gty
RADIAN Ser 01E
5.70%, 10/01/25 2,000 2,155,720 -0- 2,155,720
(Cape Cod Hlth Care) Asset Gty
RADIAN Ser 01C
5.25%, 11/15/31 2,100 2,185,449 -0- 2,185,449
(New England Med Ctr) MBIA Ser
94
7.09%, 7/01/18 (d) 5,000 -0- 5,024,400 5,024,400
--------- --------- ----------
9,719,219 12,820,522 22,539,741
--------- ---------- ----------
Michigan -- 5.1%
Detroit Dev Fin Auth
(Daimler/Chrysler Plant) Ser
98A
5.50%, 5/01/21 1,615 1,503,097 -0- 1,503,097
Kent Hosp Fin Auth
(Metro Hosp Proj) Ser 05A
5.75%, 7/01/25 1,080 811,395 326,666 1,138,061
Michigan St Hosp Rev
(Trinity Hlth) Ser 00A
6.00%, 12/01/27 3,000 -0- 3,246,150 3,246,150
Michigan State Hosp Fin Auth
(Marquette Gen Hosp Oblig
Group) Ser 05A
5.00%, 5/15/26 1,215 1,205,863 -0- 1,205,863
Michigan Strategic
(Detroit Edison Co Proj) XLCA
Ser 02 AMT
5.45%, 12/15/32 5,000 5,251,450 -0- 5,251,450
Plymouth Ed Ctr Charter Sch Pub Sch
Academy Rev Ref
Ser 05
5.13%, 11/01/23 2,140 2,092,278 -0- 2,092,278
Saginaw Hosp Fin Auth Rev
(Covenant Med Ctr) Ser 00F
6.50%, 7/01/30 7,185 4,816,205 3,030,605 7,846,810
--------- ---------- ----------
15,680,288 6,603,421 22,283,709
--------- ---------- ----------
Minnesota -- 0.5%
Shakopee Hlth Care Fac Rev
(St Francis Regl Med Ctr) Ser
04
5.10%, 9/01/25 1,200 -0- 1,222,740 1,222,740
St Paul Hsg & Redev Auth Hosp Rev
(Hlth East Proj) Ser 05
6.00%, 11/15/25 1,000 538,650 538,650 1,077,300
--------- --------- ----------
538,650 1,761,390 2,300,040
--------- ---------- ----------
Missouri -- 0.4%
Missouri SFMR
(Mtg Rev) GNMA/FNMA Ser 02A-1
AMT
5.58%, 9/01/32 1,530 1,559,147 -0- 1,559,147
--------- --------- ----------
Mississippi -- 1.2%
Adams Cnty Poll Ctl Rev
(International Paper Co) Ser
99 AMT
6.25%, 9/01/23 1,000 -0- 1,059,830 1,059,830
Gulfport Hosp Fac Rev
(Mem Hosp at Gulfport Proj)
Ser 01A
5.75%, 7/01/31 4,000 -0- 4,080,040 4,080,040
--------- ---------- -----------
-0- 5,139,870 5,139,870
--------- ----------- -----------
Nevada -- 11.6%
Carson City Hosp Rev
(Carson-Tahoe Hosp Proj)
RADIAN Ser 03A
5.00%, 9/01/23 4,700 2,631,642 2,125,557 4,757,199
Clark Cnty Arpt Rev
FGIC Ser 01B
5.25%, 7/01/34 11,920 12,762,863 -0- 12,762,863
Nevada Dept Bus & Ind
(Las Vegas Monorail Proj)
AMBAC Ser 00
5.63%, 1/01/32 11,720 12,560,559 -0- 12,560,559
Reno Cap Improvement Rev
FGIC Ser 02 Prerefunded
5.38%, 06/01/32 4,710 5,101,118 -0- 5,101,118
FGIC Ser 02 Unrefunded
5.38%, 6/01/32 2,790 2,954,526 -0- 2,954,526
Truckee Meadows Wtr Auth
FSA Ser 01A
5.25%, 7/01/34 12,000 12,415,200 -0- 12,415,200
-------- --------- ----------
48,425,908 2,125,557 50,551,465
--------- ----------- ----------
New Hampshire -- 1.0%
New Hampshire Hlth & Ed Fac Hosp Rev
(Covenant Med Ctr) Ser 02
6.13%, 7/01/31 4,200 4,511,262 -0- 4,511,262
--------- ----------- ----------
New Jersey -- 3.5%
Morris-Union Jointure Commn COP
RADIAN Ser 04
5.00%, 5/01/24 7,185 5,313,329 2,049,500 7,362,829
New Jersey Eco Dev Auth Rev
(Sch Facs Constr) Ser 05O
5.25%, 3/01/25 500 525,180 -0- 525,180
New Jersey St Edl Fac Auth Rev
(Higher Ed Cap Impt) AMBAC
Ser A
5.25%, 9/01/21 6,800 -0- 7,204,396 7,204,396
--------- ---------- ----------
5,838,509 9,253,896 15,092,405
--------- ---------- ----------
New Mexico -- 1.4%
Dona Ana Cnty Tax Rev
AMBAC Ser 03
5.25%, 5/01/25 500 -0- 526,270 526,270
University of New Mexico
FSA FHA Ser 04
5.00%, 1/01/24 2,235 -0- 2,301,245 2,301,245
5.00%, 7/01/24 3,195 -0- 3,289,700 3,289,700
--------- --------- -----------
-0- 6,117,215 6,117,215
--------- --------- -----------
New York -- 2.8%
Erie Cnty IDA
(City of Buffalo Proj)
FSA Ser 04
5.75%, 5/01/23 5,050 4,563,095 1,057,302 5,620,397
5.75%, 5/01/24 810 -0- 902,073 902,073
New York City GO
Ser 04G
5.00%, 12/01/23 1,600 1,648,320 -0- 1,648,320
Ser 04I
5.00%, 8/01/21 3,300 -0- 3,405,501 3,405,501
New York City Indl Dev Agy
Rev
(British Airways) Ser
98 AMT
5.25%, 12/01/32 500 -0- 453,830 453,830
New York State HFA
(Eco Dev & Hsg) Ser 05A
5.00%, 9/15/25 300 313,083 -0- 313,083
---------- ------------ -----------
6,524,498 5,818,706 12,343,204
--------- ------------ -----------
North Carolina -- 1.6%
Charlotte Arpt Rev
MBIA Ser 04A
5.25%, 7/01/24 2,895 2,006,995 1,059,100 3,066,095
North Carolina Eastern Muni
Power Agy
(Power Sys Rev) AMBAC
Ser 05A
5.25%, 1/01/20 3,500 -0- 3,729,040 3,729,040
--------- ------------ -----------
2,006,995 4,788,140 6,795,135
--------- ------------ -----------
North Dakota -- 0.9%
North Dakota HFA SFMR
(Mtg Rev) Ser 02A AMT
5.65%, 1/01/34 1,705 1,732,894 -0- 1,732,894
(Mtg Rev) Ser 98E AMT
5.25%, 1/01/30 2,085 -0- 2,111,584 2,111,584
--------- ---------- -----------
1,732,894 2,111,584 3,844,478
--------- ---------- -----------
Ohio -- 4.1%
Cuyahoga Cnty
(Port Auth Rev) Ser 01
7.35%, 12/01/31 5,000 5,213,950 -0- 5,213,950
Cuyahoga Cnty Hosp Fac Rev
(University Hosp Hlth)
Ser 00
7.50%, 1/01/30 2,400 -0- 2,640,312 2,640,312
Fairfield Cnty Hosp Rev
(Fairfield Med Ctr
Proj) RADIAN Ser 03
5.00%, 6/15/22-6/15/24 5,210 4,021,998 1,275,419 5,297,417
Ohio Hsg Fin Agy MFHR
(Mortgage Rev) GNMA Ser 97 AMT
6.15%, 3/01/29 2,850 -0- 2,901,813 2,901,813
Port Auth of Columbiana Cnty SWR
(Apex Environmental Llc) Ser
04A AMT
7.13%, 8/01/25 1,840 1,330,888 496,600 1,827,488
--------- ----------- -----------
10,566,836 7,314,144 17,880,980
--------- ----------- -----------
Oregon -- 1.1%
Forest Grove Rev
(Ref & Campus Impt Pacific Proj A)
RADIAN Ser 05A
5.00%, 5/01/28 4,760 3,405,431 1,447,818 4,853,249
--------- ----------- -----------
Pennsylvania -- 3.8%
Montgomery Cnty IDA Rev
(Whitemarsh Con Care Proj) Ser 05
6.00%, 2/01/21 875 922,040 -0- 922,040
Pennsylvania Parking Fac
(30th St Station Garage Proj)
ACA Ser 02A AMT
5.88%, 6/01/33 4,100 2,144,361 2,144,361 4,288,722
Pennsylvania Trpk Transp Rev
AMBAC Ser 01
5.00%, 7/15/41 2,000 2,130,560 -0- 2,130,560
Philadelphia Auth IDR
(Leadership Learning Partners)
Ser 05A
5.25%, 7/01/24 1,150 1,104,058 -0- 1,104,058
Philadelphia Gas Wks Rev
AGC Ser 04
5.25%, 9/01/19 2,045 -0- 2,163,509 2,163,509
5.25%, 8/01/21 1,000 -0- 1,059,590 1,059,590
Philadelphia Hosp Rev
(Temple Univ Hosp) Ser
93A
6.63%, 11/15/23 3,000 3,005,010 -0- 3,005,010
Pittsburgh Pub Parking Auth
FGIC, Ser 05A
5.00%, 12/01/25 2,000 2,059,780 -0- 2,059,780
----------- ----------- ----------
11,365,809 5,367,460 16,733,269
----------- ----------- ----------
Rhode Island -- 1.6%
Rhode Island Hlth & Ed Bldg
Corp
(Times2 Academy) Ser 04
5.00%, 12/15/24 5,845 4,119,721 1,753,393 5,873,114
Rhode Island Hlth & Edl Bldg Corp
Rev
(Univ of Rhode Island) AMBAC
Ser 04A
5.50%, 09/15/24 1,000 -0- 1,083,520 1,083,520
--------- ----------- -----------
4,119,721 2,836,913 6,956,634
--------- ---------- -----------
South Carolina -- 2.3%
Charleston Cnty Sch Dist
5.25%, 12/01/30 2,000 -0- 2,080,840 2,080,840
Dorchester Cnty Sch Dist No 2
Ser 06
5.00%, 12/01/29 1,600 820,464 820,464 1,640,928
Newberry Investing In Childrens Ed
(Newberry Cnty Sch Dist Proj)
Ser 05
5.00%, 12/01/27-12/01/30 6,000 4,354,236 1,756,671 6,110,907
---------- ----------- ----------
5,174,700 4,657,975 9,832,675
---------- ----------- ----------
Tennessee -- 2.7%
Johnson City Hlth & Ed Fac Hosp Rev
(First Mtg-MTN Sts Hlth) Ser
06A
5.50%, 7/01/31 2,140 1,554,240 663,142 2,217,382
Tenn Ed Loan Rev
(Educational Funding of South)
Ser 97B AMT
6.20%, 12/01/21 9,600 -0- 9,716,928 9,716,928
---------- ---------- ----------
1,554,240 10,380,070 11,934,310
---------- ---------- ----------
Texas -- 22.0%
Bexar Cnty Hsg Fin Corp MFHR
(Doral Club & Sutton House
Apts) MBIA Ser 01A
5.55%, 10/01/36 14,995 15,480,988 -0- 15,480,988
Brownwood ISD
(Sch Bldg) FGIC Ser 05
5.25%, 2/15/22-2/15/24 3,510 3,738,072 -0- 3,738,072
Dallas TX Arpt Rev
(Fort Worth Intl Arpt)
MBIA
Ser 03A AMT
5.25%, 11/01/25 2,000 -0- 2,066,260 2,066,260
Dallas-Fort Worth Arpt Rev
(Int'l Arpt) FGIC Ser 01
AMT
5.50%, 11/01/35 6,500 6,739,655 -0- 6,739,655
Garza Cnty Pub Fac Corp
Ser 05
5.50%, 10/01/19 865 626,287 261,808 888,095
Gulf Coast Waste Disp Auth
(Anheuser-Busch Proj) Ser 02
AMT
5.90%, 4/01/36 9,000 9,527,580 -0- 9,527,580
Harris Cnty
(Flood Ctl) Ser 03B
5.00%, 10/01/23 4,000 2,677,740 1,441,860 4,119,600
Harris Cnty Toll Road Rev
FSA Ser 02
5.13%, 8/15/32 7,500 2,583,150 5,166,300 7,749,450
Hidalgo Cnty Hlth
Svcs
(Mission Hosp Inc Proj) Ser 05
5.00%, 8/15/14-8/15/19 1,090 768,150 326,366 1,094,516
Houston
(Northeast Wtr Purification
Proj) FGIC Ser 02
5.13%, 3/01/32 7,000 7,181,930 -0- 7,181,930
Lewisville Combination
Contract
(Spl Assmt Cap Impt Dist No 2)
ACA Ser 05
6.00%, 10/01/25 1,100 595,150 595,150 1,190,300
Lower Colorado Riv Auth
AMBAC Ser 03
5.25%, 5/15/25 1,800 -0- 1,885,013 1,885,013
MBIA Ser 02
5.00%, 5/15/31 1,500 -0- 1,537,485 1,537,485
Matagorda Cnty Util Rev
(Centerpoint Energy Proj) Ser
04
5.60%, 3/01/27 2,000 1,029,740 1,029,740 2,059,480
MC Allen Wtr & Swr Rev
5.25%, 2/01/21 1,605 -0- 1,707,832 1,707,832
5.25%, 2/01/22 1,610 -0- 1,710,738 1,710,738
Richardson Hosp Auth Rev
(Richardson Regional) Ser 04
6.00%, 12/01/19 2,745 1,964,450 982,225 2,946,675
5.875%, 12/01/24 3,465 2,415,336 1,207,668 3,623,004
San Antonio Arpt Rev
FGIC Ser 02A AMT
5.25%, 7/01/27 5,250 5,408,235 -0- 5,408,235
Seguin High Ed Fac Rev
(Texas Lutheran Univ Proj) Ser 04
5.25%, 9/01/28 1,000 -0- 1,003,270 1,003,270
5.25%, 9/01/33 1,250 1,248,100 -0- 1,248,100
Texas GO
Ser 02A AMT
5.50%, 8/01/41 9,470 9,937,818 -0- 9,937,818
Texas Tech Univ Revs AMBAC
5.00%, 2/15/28 3,300 -0- 3,421,275 3,421,275
---------
---------- ------------
71,922,381 24,342,990 96,265,371
--------- ---------- ------------
Utah -- 1.2%
Davis Cnty Sales Tax Rev
AMBAC Ser 03B
5.25%, 10/01/23 2,005 1,054,860 1,060,134 2,114,994
Salt Lake City Wtr
Rev
AMBAC Ser 04
5.00%, 7/01/23 1,500 -0- 1,556,895 1,556,895
Utah Hsg Corp MFHR
(Bluffs Apts Proj) GNMA
Ser 02A AMT
5.60%, 7/20/30 1,480 1,538,090 -0- 1,538,090
----------- ---------- -----------
2,592,950 2,617,029 5,209,979
---------- ----------- -----------
Virginia -- 2.3%
Fauquier Cnty IDA Hosp Rev
(Fauquier Hospital) Asset Gty
Ser 02
5.25%, 10/01/31 8,500 8,785,515 -0- 8,785,515
Pocahontas Pkwy Assoc Toll Rd Rev
(Cap Appreciation) Sr Ser 98B
Zero Coupon, 8/15/15 2,250 1,355,872 -0- 1,355,872
----------- ---------- -----------
10,141,387 -0- 10,141,387
---------- ---------- -----------
Washington -- 3.4%
King Cnty Swr Rev
FSA Ser 02A
5.25%, 1/01/32 3,000 3,108,120 -0- 3,108,120
Seattle Hsg Auth Rev MFHR
(Wisteria Ct Proj) GNMA Ser 03
5.20%, 10/20/28 1,475 -0- 1,511,536 1,511,536
Twenty-Fifth Ave Pptys
(University of WA) MBIA Ser 02
5.25%, 6/01/33 9,750 10,108,507 -0- 10,108,507
---------- ---------- -----------
13,216,627 1,511,536 14,728,163
---------- ----------- -----------
Wisconsin -- 6.4%
Wisconsin GO Ser 03
5.00%, 11/01/26 3,700 -0- 3,770,818 3,770,818
Wisconsin Hlth & Ed Fac Auth Rev
(Bell Tower Residence Proj)
Ser 05
5.00%, 7/01/20-7/01/25 2,785 1,491,744 1,324,804 2,816,548
Wisconsin Hlth & Ed Fac Hosp Rev
(Ministry Hlth Care) MBIA Ser
02A
5.25%, 2/15/32 13,615 14,148,844 -0- 14,148,844
Wisconsin Hsg Auth SFMR
(Mtg Rev) MBIA Ser 02A AMT
5.60%, 5/01/33 4,885 5,076,150 -0- 5,076,150
(Mtg Rev) Ser 02A AMT
5.50%, 9/01/32 2,090 2,116,229 -0- 2,116,229
---------- ----------- -----------
22,832,967 5,095,622 27,928,589
---------- ----------- -----------
Total Long-Term Municipal Bonds 498,609,004 209,607,229 708,216,233
---------- ----------- -----------
(cost $681,640,637)
Short-Term Municipal Notes (e)-- 0.3%
Alaska -- 0.1%
Valdez Alaska Marine Term Rev
(BP Pipelines Proj) Ser 03B
3.81%, 7/01/37 500 500,000 -0- 500,000
----------- ------------ -------------
Nevada -- 0.2%
Clark Cnty Nev Sch Dist
Ser 01A
3.78%, 6/15/21 1,000 1,000,000 -0- 1,000,000
----------- ----------- -------------
Total Short-Term Municipal Notes 1,500,000 -0- 1,500,000
----------- ------------ -------------
(cost $1,500,000)
Total Investments -- 162.5% 500,109,004 209,607,229 709,716,233
(cost $683,140,637)
Other assets less
liabilities -- 2.7% 8,162,950 3,736,394 11,899,344
Preferred Stock, at redemption
value -- (65.2%) (195,000,000) (90,000,000) (285,000,000)
----------- ------------ -------------
Net Assets Applicable to
Common Shareholders -- 100%(f) 313,271,954 123,343,623 436,615,577
----------- ------------ -------------
INTEREST RATE SWAP TRANSACTIONS
Rate Type
--------------------------------
Payments Payments
Notional made by received
Swap Amount Termination the by the Unrealized
Counterparty (000) Date Portfolio Portfolio Appreciation
------------------------------------------------------------------------------------------------------------------
Merrill Lynch $ 9,000 11/01/19 3.896% BMA* $ 250,389
Merrill Lynch+ 3,000 7/30/26 4.090% BMA* 104,265
Merrill Lynch++ 6,500 8/09/26 4.063% BMA* 251,199
* BMA (Bond Market Association)
+ Represents a forward interest rate swap whose effective date for the
exchange of cash flows is July 30, 2006.
++ Represents a forward interest rate swap whose effective date for the
exchange of cash flows is August 9, 2006.
(a) Represents entire or partial position as collateral for interest rate
swaps.
(b) Private placement.
(c) Indicates a security that has a zero coupon that remains in effect until a
predetermined date at which time the stated coupon rate becomes effective
until final maturity.
(d) Inverse Floater Security - Security with variable interest rate that moves
in the opposite direction of short-term interest rates.
(e) Variable Rate Demand Notes (VRDN) are instruments whose interest rates
change on a specific date (such as coupon date or interest payment date) or
whose interest rates vary with changes in a designated base rate (such as
the prime interest rate). This instrument is payable on demand and is
secured by letters of credit or other credit support agreements from major
banks.
(f) Portfolio percentages are calculated based on net assets applicable to
common shareholders.
Glossary of Terms:
ACA -American Capital Access Financial Guaranty Corporation
AGC -American Guaranty Corporation
AMBAC -American Municipal Bond Assurance Corporation
AMT -Alternative Minimum Tax- (subject to)
CDD -Community Development District
CFD -Communities Facilities District
CIFG -CIFG Assurance North America, Inc.
COP -Certificate of Participation
FGIC -Financial Guaranty Insurance Company
FHA -Federal Housing Administration
FNMA -Federal National Mortgage Association
FSA -Financial Security Assurance, Inc.
GNMA -Government National Mortgage Association
GO -General Obligation
HFA -Housing Finance Authority
IDA -Industrial Development Authority
IDR -Industrial Development Revenue
ISD -Independent School District
MBIA -Municipal Bond Investors Assurance
MFHR -Multi-Family Housing Revenue
RADIAN -Radian Group, Inc.
SFMR -Single-Family Mortgage Revenue
SWR -Solid Waste Revenue
XLCA -XL Capital Assurance
See notes to Pro Forma Alliance National Municipal Income Fund financial
statements.
STATEMENT OF ASSETS AND LIABILITIES
PRO FORMA ALLIANCE
NATIONAL MUNICIPAL INCOME FUND Alliance National Municipal Income Fund
April 30, 2006 (unaudited) ACM Municipal Securities Income Fund
Pro Forma
Alliance Alliance
National ACM Municipal National
Municipal Securities Municipal
Income Fund Income Fund Adjustments Income Fund
--------------------------------------------------------------------------------------------------------------
ASSETS
Investments in securities, at
value (cost $683,140,637) $ 500,109,004 $ 209,607,229 $ -0- $ 709,716,233
Cash -0- 397,908 -0- 397,908
Interest receivable 7,750,368 3,538,483 -0- 11,288,851
Unrealized appreciation of
swap agreements 605,853 -0- -0- 605,853
Receivable for investments
securities sold 160,372 -0- -0- 160,372
Receivable for capital stock
sold 62,559 -0- -0- 62,559
Prepaid expenses -0- 33,989 (33,989) -0-
------------- ------------- ---------- -----------
Total assets 508,688,156 213,577,609 (33,989) 722,231,776
------------- -------------- ---------- -----------
LIABILITIES
Due to custodian 24,134 -0- -0- 24,134
Advisory fee payable 167,164 81,880 -0- 249,044
Dividends payable - preferred
shares 87,031 24,576 -0- 111,607
Administrative fee payable -0- 37,522 -0- 37,522
Transfer Agent fee payable 7,656 -0- -0- 7,656
Dividends payable - common
shares 1,218 -0- -0- 1,218
Audit fee payable 37,993 27,100 -0- 65,093
Legal fees payable 28,071 23,775 -0- 51,846
Printing fees payable 44,753 18,545 -0- 63,298
Accrued expenses and other
liabilities 18,182 20,588 -0- 38,770
------------ ------------- ---------- -----------
Total liabilities 416,202 233,986 -0- 650,188
------------- -------------- --------- -----------
PREFERRED STOCK,
AT REDEMPTION VALUE 195,000,000 (a) 90,000,000 (b) -0- 285,000,000
------------- -------------- --------- -----------
NET ASSETS (c) 313,271,954 123,343,623 $ -0- $ 436,581,588
============= ============== ========= ===========
Net assets $ 313,271,954 $ 123,343,623 436,581,588
============ ============== ===========
Shares of capital stock
outstanding 20,491,401 11,145,261 (3,076,063) 28,560,599
============= ============== =========== ===========
Net asset value applicable to
common shareholders $ 15.29 $ 11.07 $ 15.29
============= ============== ===========
----------
(a) Based on $.001 par value per share; 7,800 shares Auction Preferred Stock
authorized, issued and outstanding at $25,000 per share liquidation
preference.
(b) Based on $.01 par value per share; 3,600 shares Auction Preferred Stock
authorized, issued and outstanding at $25,000 per share liquidation
preference.
(c) Applicable to common shareholders only.
See notes to Pro Forma Alliance National Municipal Income Fund financial
statements.
STATEMENT OF ASSETS AND LIABILITIES
PRO FORMA ALLIANCE
NATIONAL MUNICIPAL INCOME FUND Alliance National Municipal Income Fund
April 30, 2006 (unaudited) ACM Municipal Securities Income Fund
Pro Forma
Alliance Alliance
National ACM Municipal National
Municipal Securities Municipal
Income Fund Income Fund Adjustments Income Fund
--------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Interest $ 26,154,011 $ 11,085,311 -0- $ 37,239,322
------------ ------------ --------- -----------
EXPENSES
Advisory fee 3,326,988 1,078,992 313,548 4,719,528 (a)
Transfer agency 21,572 25,549 (11,081) 36,040 (b)
Custodian 198,734 90,874 (49,788) 239,820 (b)
Audit & Legal 182,642 148,492 (183,134) 148,000 (b)
Administrative -0- 323,698 (323,698) -0- (b)
Printing 36,818 23,170 1,012 61,000 (b)
Registration fees 23,772 23,780 (21,202) 26,350 (b)
Directors' fees and expenses 35,759 40,491 (39,250) 37,000 (b)
Auction agent fees 490,744 224,636 1,856 717,236 (b)
Miscellaneous 81,960 39,447 (26,407) 95,000 (b)
------------ ------------ --------- --------
Total expenses 4,398,989 2,019,129 (338,144) 6,079,974
Less: expenses waived and
reimbursed by
the Adviser and
Administrator (see Note C) (1,279,612) (215,797) (319,794) (1,815,203)
------------ ------------ ---------
Net expenses 3,119,377 1,803,332 (657,938) 4,264,771
------------ ------------ --------- -----------
Net investment income 23,034,634 9,281,979 657,938 32,974,551
------------ ------------ --------- -----------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENT TRANSACTIONS
Net realized gain (loss) on:
Investment transactions 203,455 840,808 -0- 1,044,263
Futures contracts 193,597 (17,077) -0- 176,520
Swap contracts 25,007 17,162 -0- 42,169
Net change in unrealized
appreciation/depreciation of:
Investments (6,644,778) (4,831,331) -0- (11,476,109)
Futures contracts 131,211 -0- -0- 131,211
Swap contracts 740,480 (14,972) -0- 725,508
------------ ------------ --------- ------------
Net loss on investment
transactions (5,351,028) (4,005,410) -0- (9,356,438)
------------ ------------ --------- ------------
NET INCREASE IN NET ASSETS
APPLICABLE TO COMMON SHAREHOLDERS
RESULTING FROM OPERATIONS $ 17,683,606 $ 5,276,569 $ 657,938 $ 23,618,113
============ ============ ========= ============
----------
(a) Advisory fee based on annual rate of .65% of the total combined average
daily net assets.
(b) Expenses are based on one Fund.
See notes to Pro Forma Alliance National Municipal Income Fund financial
statements
NOTES TO FINANCIAL STATEMENTS
PRO FORMA ALLIANCE
NATIONAL MUNICIPAL INCOME FUND
Alliance National Municipal Income Fund
April 30, 2006 (unaudited) ACM Municipal Securities Income Fund
--------------------------------------------------------------------------------
NOTE A: General
The Pro Forma Alliance National Municipal Income Fund Financial Statements give
effect to the proposed acquisition (the "Acquisition") of the assets and
liabilities of ACM Municipal Securities Income Fund, Inc. (the "Acquired Fund")
by Alliance National Municipal Income Fund, Inc. (the "Fund" or "Acquiring
Fund") pursuant to Agreements and Plans of Reorganization. The Acquisition would
be accomplished by a tax-free exchange of the assets and liabilities of ACM
Municipal Securities Income Fund for shares of the Fund.
The Fund commenced operations on January 28, 2002. The Fund's unaudited Pro
Forma Portfolio of Investments, Statement of Assets and Liabilities and
Statement of Operations are prepared as though the Acquisition was effective for
the period May 1, 2005 - April 30, 2006. You should read them in conjunction
with the Fund's historical financial statements, which are included in the
Fund's Statement of Additional Information. The Fund's Pro Forma Statement of
Operations reflects the assumption that certain expense would be lower for the
combined Fund as a result of the Acquisition. The estimated Acquisition expenses
of approximately $372,000 shall be paid by the Funds, such that the Fund will
bear $138,000 and the Acquired Fund will bear $234,000 of the cost. Acquisition
expenses include the costs of proxy solicitation, except that the Acquired Fund
will bear its own costs associated with the disposition of any assets or
liabilities not being transferred to the Fund in connection with the
Acquisition.
NOTE B: Significant Accounting Policies
The Fund's Pro Forma financial statements have been prepared in conformity with
U.S. generally accepted accounting principles, which require management to make
certain estimates and assumptions that affect the reported amounts of assets and
liabilities in the financial statements and amounts of income and expenses
during the reporting period. Actual results could differ from those estimates.
1. Security Valuation
Portfolio securities are valued at their current market value determined on the
basis of market quotations or, if market quotations are not readily available or
are deemed unreliable, at "fair value" as determined in accordance with
procedures established by and under the general supervision of the Fund's Board
of Directors.
In general, the market value of securities which are readily available and
deemed reliable are determined as follows: Securities listed on a national
securities exchange or on a foreign securities exchange are valued at the last
sale price at the close of the exchange or foreign securities exchange. If there
has been no sale on such day, the securities are valued at the mean of the
closing bid and asked prices on such day. Securities listed on more than one
exchange are valued by reference to the principal exchange on which the
securities are traded; securities not listed on an exchange but traded on The
NASDAQ Stock Market, Inc. ("NASDAQ") are valued in accordance with the NASDAQ
Official Closing Price; listed put or call options 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
are 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 valuation, the last available closing settlement price is used;
securities traded in the over-the-counter market, ("OTC") (but excluding
securities traded on NASDAQ) are valued at the mean of the current bid and asked
prices as reported by the National Quotation Bureau or other comparable sources;
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; fixed-income
securities, including mortgage backed and asset backed securities, may be valued
on the basis of prices provided by a pricing service or at a price obtained from
one or more of the major broker/dealers. In cases where broker/dealer quotes are
obtained, AllianceBernstein L.P., may establish procedures whereby changes in
market yields or spreads are used to adjust, on a daily basis, a recently
obtained quoted price on a security; and OTC and other derivatives are valued on
the basis of a quoted bid price or spread from a major broker/dealer in such
security.
Securities for which market quotations are not readily available (including
restricted securities) or are deemed unreliable are valued at fair value.
Factors considered in making this determination may include, but are not limited
to, information obtained by contacting the issuer, analysts, analysis of the
issuer's financial statements or other available documents.
2. Taxes
It is the Fund's policy 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 any, to
shareholders. Therefore, no provisions for federal income or excise taxes are
required.
3. Investment Income and Investment Transactions
Interest income is accrued daily. Investment transactions are accounted for on
the trade date securities are purchased or sold. Investment gains and losses are
determined on the identified cost basis. The Fund amortizes premiums and
accretes original issue discount and market discount as adjustments to interest
income.
4. Dividends and Distributions
Dividends and distributions to shareholders, if any, are recorded on the
ex-dividend date. Income dividends and capital gains distributions are
determined in accordance with federal tax regulations and may differ from those
determined in accordance with U.S. generally accepted accounting principles. To
the extent these differences are permanent, such amounts are reclassified within
the capital accounts based on their federal tax basis treatment; temporary
differences do not require such reclassification.
NOTE C: Advisory Fee and other Transactions with Affiliates
Under the terms of the investment advisory agreement, the Fund pays the Adviser
an advisory fee at an annual rate of .65% of 1% of the Fund's average daily net
assets applicable to common and preferred shareholders. Such fee is accrued
daily and paid monthly. The Adviser has voluntarily agreed to waive a portion of
its fees or reimburse the Fund for expenses in the amount of 0.25% of the Fund's
average daily net assets applicable to common and preferred shareholders for the
first 5 full years of the Fund's operations, 0.20% of the Fund's average daily
net assets applicable to common and preferred shareholders in year 6, 0.15% in
year 7, 0.10% in year 8 and 0.05% in year 9. For the twelve months ended April
30, 2006, such reimbursement waivers amounted to $1,815,203.
Under the terms of a Shareholder Inquiry Agency Agreement with AllianceBernstein
Investor Services, Inc. (prior to February 24, 2006 known as Alliance Global
Investor Services, Inc.) ("ABIS"), an affiliate of the Adviser, the Fund
reimburses ABIS for costs relating to servicing phone inquiries for the Fund.
During the twelve months ended April 30, 2006, there was no reimbursement paid
to ABIS.
NOTE D: Capital Shares
The pro-forma combining net assets value per share assumes the issuance of
Acquiring Fund shares to Acquired Fund shareholders in connection with the
proposed merger. The number of shares assumed to be issued is equal to the net
asset value per share of the Acquired Fund divided by the net asset value per
share of the Acquiring Fund as of April 30, 2006. The pro-forma number of shares
outstanding for the combined entity consists of the following at April 30, 2006:
Additional Shares Total Shares
Shares of Acquiring Assumed Issued Outstanding
Fund Pre-Combination with Merger Post-Combination
-------------------- ----------- ----------------
20,491,401 8,069,198 28,560,599
APPENDIX A
--------------------------------------------------------------------------------
U.S. MUNICIPAL AND TAX-EXEMPT RATINGS
--------------------------------------------------------------------------------
Moody's Investors Service, Inc.
-------------------------------
Aaa Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk
and are generally referred to as "gilt edge." Interest
payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various
protective elements are likely to change, such changes as
can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group they comprise
what are generally known as high grade bonds. They are rated
lower than the best bonds because margins of protection may
not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks
appear somewhat larger than the Aaa securities.
A Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade
obligations. Factors giving security to principal and
interest are considered adequate but elements may be present
which suggest a susceptibility to impairment some time in
the future.
Baa Bonds which are rated Baa are considered as medium-grade
obligations, i.e., they are neither highly protected nor
poorly secured. Interest payments and principal security
appear adequate for the present but certain protective
elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well-assured.
Often the protection of interest and principal payments may
be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of
the desirable investment. Assurance of interest and
principal payments or of maintenance of other terms of the
contract over any long period of time may be small.
Caa Bonds which are rated Caa are of poor standing. Such issues
may be in default or there may be present elements of danger
with respect to principal or interest.
Ca Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in
default or have other marked shortcomings.
C Bonds which are rated C are the lowest rated class of bonds
and issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.
Absence of Rating When no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to
the quality of the issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies that are
unrated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not published
in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available
reasonable up-to-date data to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.
Note Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through Caa 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
in the lower end of its generic rating category.
Standards & Poor's Ratings Services
-----------------------------------
AAA Debt rated AAA has the highest rating assigned by S&P.
Capacity to pay interest and repay principal is
extremely strong.
AA Debt rated AA has a very strong capacity to pay
interest and repay principal and differs from the
highest rated issues only in small degree.
A 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 debt in
higher rated categories.
BBB Debt rated BBB normally exhibits adequate protection
parameters. However, adverse economic conditions or
changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal
for debt in this category than in higher rated
categories.
BB, B, CCC, CC, C Debt rated BB, B, CCC, CC or C is regarded as having
significant speculative characteristics. BB indicates
the lowest degree of speculation and C the highest.
While such debt will likely have some quality and
protective characteristics, these are outweighed by
large uncertainties or major exposures to adverse
conditions.
BB Debt rated BB is less vulnerable to nonpayment than
other speculative debt. However, it faces major ongoing
uncertainties or exposure to adverse business,
financial or economic conditions which could lead to an
inadequate capacity to pay interest and repay
principal.
B Debt rated B is more vulnerable to nonpayment than debt
rated BB, but there is capacity to pay interest and
repay principal. Adverse business, financial or
economic conditions will likely impair the capacity or
willingness to pay principal or repay interest.
CCC Debt rated CCC is currently vulnerable to nonpayment,
and is dependent upon favorable business, financial and
economic conditions to pay interest and repay
principal. In the event of adverse business, financial
or economic conditions, there is not likely to be
capacity to pay interest or repay principal.
CC Debt rated CC is currently highly vulnerable to
nonpayment.
C The C rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action
has been taken, but payments are being continued.
D The D rating, unlike other ratings, is not prospective;
rather, it is used only where a default has actually
occurred.
Plus (+) or Minus (-) The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative
standing within the major rating categories.
NR Not rated.
Fitch Ratings
-------------
AAA Bonds considered to be investment grade and of the
highest credit quality. The obligor has an
exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by
reasonably foreseeable events.
AA Bonds considered to be investment grade and of very
high credit quality. The obligor's ability to pay
interest and repay principal is very strong, although
not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not
significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is
generally rated F- 1+.
A Bonds considered to be investment grade and of high
credit quality. The obligor's ability to pay interest
and repay principal is considered to be strong, but may
be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher
ratings.
BBB Bonds considered to be investment grade and of
satisfactory credit quality. The obligor's ability to
pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse
impact on these bonds, and therefore impair timely
payment. The likelihood that the ratings of these bonds
will fall below investment grade is higher than for
bonds with higher ratings.
BB Bonds are considered speculative. The obligor's ability
to pay interest and repay principal may be affected
over time by adverse economic changes. However,
business and financial alternatives can be identified
which could assist the obligor in satisfying its debt
service requirements.
B Bonds are considered highly speculative. While bonds in
this class are currently meeting debt service
requirements, the probability of continued timely
payment of principal and interest reflects the
obligor's limited margin of safety and the need for
reasonable business and economic activity throughout
the life of the issue.
CCC Bonds have certain identifiable characteristics which,
if not remedied, may lead to default. The ability to
meet obligations requires an advantageous business and
economic environment.
CC Bonds are minimally protected. Default in payment of
interest and/or principal seems probable over time.
C Bonds are in imminent default in payment of interest or
principal.
DDD, DD, D Bonds are in default on interest and/or principal
payments. Such bonds are extremely speculative and
should be valued on the basis of their ultimate
recovery value in liquidation or reorganization of the
obligor. DDD represents the highest potential for
recovery on these bonds, and D represents the lowest
potential for recovery.
Plus (+) Minus (-) Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the
rating category. Plus and minus signs, however, are not
used in the AAA, DDD, DD or D categories.
NR Indicates that Fitch does not rate the specific issue.
PART C
OTHER INFORMATION
Item 15 Indemnification
It is the Registrant's policy to indemnify its directors and officers, employees
and other agents to the maximum extent permitted by Section 2-418 of the General
Corporation Law of the State of Maryland and as set forth in Article EIGHTH of
Registrant's Amended Articles of Incorporation filed as Exhibit (1) in response
to Item 16, Article IX of the Registrant's Bylaws filed as Exhibit (2) in
response to Item 16 and Section 8 of the Underwriting Agreement filed as Exhibit
(13)(e) in response to Item 16. The Adviser's liability for any loss suffered by
the Registrant or its stockholders is set forth in Section 4 of the Investment
Management Agreement filed as Exhibit (6) in response to Item 16, all as set
forth below.
SECTION 2-418 OF THE MARYLAND GENERAL CORPORATION LAW
READS AS FOLLOWS:
"2-418 INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS.--
(a) In this section the following words have the meaning indicated.
(1) "Director" means any person who is or was a director of a
corporation and any person who, while a director of a
corporation, is or was serving at the request of the corporation
as a director, officer, partner, trustee, employee, or agent of
another foreign or domestic corporation, partnership, joint
venture, trust, other enterprise, or employee benefit plan.
(2) "Corporation" includes any domestic or foreign predecessor
entity of a corporation in a merger, consolidation, or other
transaction in which the predecessor's existence ceased upon
consummation of the transaction.
(3) "Expenses" include attorney's fees.
(4) "Official capacity" means the following:
(i) When used with respect to a director, the office of
director in the corporation; and
(ii) When used with respect to a person other than a
director as contemplated in subsection (j), the elective or
appointive office in the corporation held by the officer, or
the employment or agency relationship undertaken by the
employee or agent in behalf of the corporation.
(iii) "Official capacity" does not include service for any
other foreign or domestic corporation or any partnership,
joint venture, trust, other enterprise, or employee benefit
plan.
(5) "Party" includes a person who was, is, or is threatened to be
made a named defendant or respondent in a proceeding.
(6) "Proceeding" means any threatened, pending or completed
action, suit or proceeding, whether civil, criminal,
administrative, or investigative.
(b)(1) A corporation may indemnify any director made a party to any
proceeding by reason of service in that capacity unless it is
established that:
(i) The act or omission of the director was material to the
matter giving rise to the proceeding; and
1. Was committed in bad faith; or
2. Was the result of active and deliberate
dishonesty; or
(ii) The director actually received an improper personal
benefit in money, property, or services; or
(iii) In the case of any criminal proceeding, the director
had reasonable cause to believe that the act or omission was
unlawful.
(2) (i) Indemnification may be against judgments, penalties,
fines, settlements, and reasonable expenses actually
incurred by the director in connection with the proceeding.
(ii) However, if the proceeding was one by or in the right
of the corporation, indemnification may not be made in
respect of any proceeding in which the director shall have
been adjudged to be liable to the corporation.
(3) (i) The termination of any proceeding by judgment, order or
settlement does not create a presumption that the director
did not meet the requisite standard of conduct set forth in
this subsection.
(ii) The termination of any proceeding by conviction, or a
plea of nolo contendere or its equivalent, or an entry of an
order of probation prior to judgment, creates a rebuttable
presumption that the director did not meet that standard of
conduct.
(4) A corporation may not indemnify a director or advance
expenses under this section for a proceeding brought by that
director against the corporation, except:
(i) For a proceeding brought to enforce indemnification
under this section; or
(ii) If the charter or bylaws of the corporation, a
resolution of the board of directors of the corporation, or
an agreement approved by the board of directors of the
corporation to which the corporation is a party expressly
provide otherwise.
(c) A director may not be indemnified under subsection (b) of this
section in respect of any proceeding charging improper personal
benefit to the director, whether or not involving action in the
director's official capacity, in which the director was adjudged to be
liable on the basis that personal benefit was improperly received.
(d) Unless limited by the charter:
(1) A director who has been successful, on the merits or
otherwise, in the defense of any proceeding referred to in
subsection (b) of this section shall be indemnified against
reasonable expenses incurred by the director in connection
with the proceeding.
(2) A court of appropriate jurisdiction upon application of a
director and such notice as the court shall require, may
order indemnification in the following circumstances:
(i) If it determines a director is entitled to reimbursement
under paragraph (1) of this subsection, the court shall
order indemnification, in which case the director shall be
entitled to recover the expenses of securing such
reimbursement; or
(ii) If it determines that the director is fairly and
reasonably entitled to indemnification in view of all the
relevant circumstances, whether or not the director has met
the standards of conduct set forth in subsection (b) of this
section or has been adjudged liable under the circumstances
described in subsection (c) of this section, the court may
order such indemnification as the court shall deem proper.
However, indemnification with respect to any proceeding by
or in the right of the corporation or in which liability
shall have been adjudged in the circumstances described in
subsection (c) shall be limited to expenses.
(3) A court of appropriate jurisdiction may be the same court in
which the proceeding involving the director's liability took
place.
(e)(1) Indemnification under subsection (b) of this section may not be
made by the corporation unless authorized for a specific proceeding
after a determination has been made that indemnification of the
director is permissible in the circumstances because the director has
met the standard of conduct set forth in subsection (b) of this
section.
(2) Such determination shall be made:
(i) By the board of directors by a majority vote of a quorum
consisting of directors not, at the time, parties to the
proceeding, or, if such a quorum cannot be obtained, then by
a majority vote of a committee of the board consisting
solely of two or more directors not, at the time, parties to
such proceeding and who were duly designated to act in the
matter by a majority vote of the full board in which the
designated directors who are parties may participate;
(ii) By special legal counsel selected by the board or a
committee of the board by vote as set forth in subparagraph
(i) of this paragraph, or, if the requisite quorum of the
full board cannot be obtained therefor and the committee
cannot be established, by a majority vote of the full board
in which directors who are parties may participate; or
(iii) By the stockholders.
(3) Authorization of indemnification and determination as to
reasonableness of expenses shall be made in the same manner
as the determination that indemnification is permissible.
However, if the determination that indemnification is
permissible is made by special legal counsel, authorization
of indemnification and determination as to reasonableness of
expenses shall be made in the manner specified in
subparagraph (ii) of paragraph (2) of this subsection for
selection of such counsel.
(4) Shares held by directors who are parties to the proceeding
may not be voted on the subject matter under this
subsection.
(f)(1) Reasonable expenses incurred by a director who is a party to a
proceeding may be paid or reimbursed by the corporation in advance of
the final disposition of the proceeding, upon receipt by the
corporation of:
(i) A written affirmation by the director of the director's
good faith belief that the standard of conduct necessary for
indemnification by the corporation as authorized in this
section has been met; and
(ii) A written undertaking by or on behalf of the director
to repay the amount if it shall ultimately be determined
that the standard of conduct has not been met.
(2) The undertaking required by subparagraph (ii) of paragraph
(1) of this subsection shall be an unlimited general
obligation of the director but need not be secured and may
be accepted without reference to financial ability to make
the repayment.
(3) Payments under this subsection shall be made as provided by
the charter, bylaws, or contract or as specified in
subsection (e) of this section.
(g) The indemnification and advancement of expenses provided or
authorized by this section may not be deemed exclusive of any other
rights, by indemnification or otherwise, to which a director may be
entitled under the charter, the bylaws, a resolution of stockholders
or directors, an agreement or otherwise, both as to action in an
official capacity and as to action in another capacity while holding
such office.
(h) This section does not limit the corporation's power to pay or
reimburse expenses incurred by a director in connection with an
appearance as a witness in a proceeding at a time when the director
has not been made a named defendant or respondent in the proceeding.
(i) For purposes of this section:
(1) The corporation shall be deemed to have requested a director
to serve an employee benefit plan where the performance of
the director's duties to the corporation also imposes duties
on, or otherwise involves services by, the director to the
plan or participants or beneficiaries of the plan:
(2) Excise taxes assessed on a director with respect to an
employee benefit plan pursuant to applicable law shall be
deemed fines; and
(3) Action taken or omitted by the director with respect to an
employee benefit plan in the performance of the director's
duties for a purpose reasonably believed by the director to
be in the interest of the participants and beneficiaries of
the plan shall be deemed to be for a purpose which is not
opposed to the best interests of the corporation.
(j) Unless limited by the charter:
(1) An officer of the corporation shall be indemnified as and to
the extent provided in subsection (d) of this section for a
director and shall be entitled, to the same extent as a
director, to seek indemnification pursuant to the provisions
of subsection (d);
(2) A corporation may indemnify and advance expenses to an
officer, employee, or agent of the corporation to the same
extent that it may indemnify directors under this section;
and
(3) A corporation, in addition, may indemnify and advance
expenses to an officer, employee, or agent who is not a
director to such further extent, consistent with law, as may
be provided by its charter, bylaws, general or specific
action of its board of directors or contract.
(k)(1) A corporation may purchase and maintain insurance on behalf of
any person who is or was a director, officer, employee, or agent of
the corporation, or who, while a director, officer, employee, or agent
of the corporation, is or was serving at the request, of the
corporation as a director, officer, partner, trustee, employee, or
agent of another foreign or domestic corporation, partnership, joint
venture, trust, other enterprise, or employee benefit plan against any
liability asserted against and incurred by such person in any such
capacity or arising out of such person's position, whether or not the
corporation would have the power to indemnify against liability under
the provisions of this section.
(2) A corporation may provide similar protection, including a
trust fund, letter of credit, or surety bond, not
inconsistent with this section.
(3) The insurance or similar protection may be provided by a
subsidiary or an affiliate of the corporation.
(1) Any indemnification of, or advance of expenses to, a director in accordance
with this section, if arising out of a proceeding by or in the right of the
corporation, shall be reported in writing to the stockholders with the notice of
the next stockholders' meeting or prior to the meeting."
ARTICLE EIGHTH OF THE REGISTRANT'S ARTICLES OF INCORPORATION READS AS
FOLLOWS:
"(1) To the fullest extent that limitations on the liability of
directors and officers are permitted by the Maryland General
Corporation Law, no director or officer of the Corporation shall have
any liability to the Corporation or its stockholders for money
damages. This limitation on liability applies to events occurring at
the time a person serves as a director or officer of the Corporation
whether or not such person is a director or officer at the time of any
proceeding in which liability is asserted.
(2) The Corporation shall indemnify and advance expenses to its
currently acting and its former directors to the fullest extent
that indemnification of directors is permitted by the Maryland
General Corporation Law. The Corporation shall indemnify and
advance expenses to its officers to the same extent as its
directors and to such further extent as is consistent with law.
The Board of Directors may by Bylaw, resolution or agreement make
further provisions for indemnification of directors, officers,
employees and agents to the fullest extent permitted by the
Maryland General Corporation Law.
(3) No provision of this Article EIGHTH shall be effective to
protect or purport to protect any director or officer of the
Corporation against any liability to the Corporation or its
security holders to which he would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct to his office.
(4) References to the Maryland General Corporation Law in this
Article EIGHTH are to that law as from time to time amended. No
amendment to the Charter of the Corporation shall affect any
right of any person under this Article EIGHTH based on any event,
omission or proceeding prior to the amendment."
ARTICLE IX OF THE REGISTRANT'S BY-LAWS READS AS FOLLOWS:
"To the maximum extent permitted by Maryland law in effect from time
to time, the Corporation shall indemnify and, without requiring a
preliminary determination of the ultimate entitlement to
indemnification, shall pay or reimburse reasonable expenses in advance
of final disposition of a proceeding to (a) any individual who is a
present or former director or officer of the Corporation and who is
made or threatened to be made a party to the proceeding by reason of
his or her service in any such capacity or (b) any individual who,
while a director or officer of the Corporation and at the request of
the Corporation, serves or has served as a director, officer, partner
or trustee of another corporation, real estate investment trust,
partnership, joint venture, trust, employee benefit plan or other
enterprise and who is made or threatened to be made a party to the
proceeding by reason of his or her service in any such capacity. The
Corporation may, with the approval of its Board of Directors or any
duly authorized committee thereof, provide such indemnification and
advance for expenses to a person who served a predecessor of the
Corporation in any of the capacities described in (a) or (b) above and
to any employee or agent of the Corporation or a predecessor of the
Corporation. The termination of any claim, action, suit or other
proceeding involving any person, by judgment, settlement (whether with
or without court approval) or conviction or upon a plea of guilty or
nolo contendere, or its equivalent, shall not create a presumption
that such person did not meet the standards of conduct required for
indemnification or payment of expenses to be required or permitted
under Maryland law, these Bylaws or the Charter. Any indemnification
or advance of expenses made pursuant to this Article shall be subject
to applicable requirements of the 1940 Act. The indemnification and
payment of expenses provided in these Bylaws shall not be deemed
exclusive of or limit in any way other rights to which any person
seeking indemnification or payment of expenses may be or may become
entitled under any bylaw, regulation, insurance, agreement or
otherwise. Neither the amendment nor repeal of this Article, nor the
adoption or amendment of any other provision of the Bylaws or Charter
inconsistent with this Article, shall apply to or affect in any
respect the applicability of the preceding paragraph with respect to
any act or failure to act which occurred prior to such amendment,
repeal or adoption."
SECTION 8 OF THE REGISTRANT'S UNDERWRITING AGREEMENT READS AS FOLLOWS:
The Underwriting Agreement between the Registrant, AllianceBernstein
L.P. (formerly known as Alliance Capital Management L.P.) (the
"Manager") and Salomon Smith Barney Inc. (the "Underwriter") provides
that:
"the Registrant and the Manager will, jointly and severally, agree to
indemnify and hold harmless the Underwriter and each person, if any,
who controls the Underwriter within the meaning of Section 15 of the
Securities Act of 1933 or Section 20 of the Securities Exchange Act of
1934, from and against any and all losses, claims, damages,
liabilities and expenses, joint or several (including reasonable costs
of investigation) arising out of or based upon any untrue statement or
alleged untrue statement of a material fact contained in the
Registration Statement, the Prospectus, any Prepricing Prospectus, any
sales material (or any amendment or supplement to any of the
foregoing) or arising out of or based upon any omission or alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein (in the case of a
prospectus, in light of the circumstances under which they were made)
not misleading, except insofar as such losses, claims, damages,
liabilities or expenses arise out of or are based upon any untrue
statement or omission or alleged untrue statement or omission which
has been made therein or omitted therefrom in reliance upon and in
conformity with the information relating to such Underwriter furnished
in writing to the Fund by or on behalf of the Underwriter expressly
for use in connection therewith; provided, however, that the foregoing
indemnity with respect to the Registration Statement, the Prospectus
or any Prepricing Prospectuses (or any amendment or supplement to any
of the foregoing) shall not inure to the benefit of any Underwriter
from whom the person asserting any loss, claim, damage, liability or
expense purchased Shares, if it is shown that a copy of the
Prospectus, as then amended or supplemented, which would have cured
any defect giving rise to such loss, claim, damage, liability or
expense was not sent or delivered to such person by or on behalf of
such Underwriter, if required by law to be so delivered, at or prior
to the confirmation of the sale of such Shares to such person and such
Prospectus, amendments and supplements had been provided by the
Registrant to the Underwriter in the requisite quantity and on a
timely basis to permit proper delivery. The foregoing indemnity
agreement shall be in addition to any liability which the Registrant
or the Manager may otherwise have."
SECTION 4 OF THE REGISTRANT'S INVESTMENT MANAGEMENT AGREEMENT
READS AS FOLLOWS:
"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."
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
In accordance with Release No. IC-11330 (September 2, 1980), the Registrant will
indemnify its directors, 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 directors
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 directors"), or (b) an independent legal counsel in a
written opinion. The Registrant will advance attorneys fees or other expenses
incurred by its directors, 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 directors 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 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 AllianceBernstein 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 16 Exhibits
(1)(a) Articles of Incorporation of the Registrant (1)
(1)(b) Articles of Amendment to the Articles of Incorporation dated
November 29, 2001(2)
(1)(c) Certificate of Correction to the Articles of
Incorporation dated January 8, 2002(3)
(1)(d) Articles Supplementary dated March 22, 2002(4)
(1)(e) Certificate of Correction dated March 26, 2002(5)
(1)(f) Articles Supplementary dated June 14, 2006(5)
(2) Amended and Restated Bylaws(6)
(3) Not applicable
(4) Plan of Acquisition and Liquidation(7)
(5) Not applicable
(6)(a) Investment Management Agreement between the Registrant and
AllianceBernstein L.P. (formerly Alliance Capital
Management L.P.) (3)
(7) Underwriting Agreement(8)
(8) Not applicable
(9) Custodian Agreement between the Registrant and State Street
Bank and Trust Company (3)
(10) Not applicable
(11) Opinion of Seward & Kissel LLP as to the legality of the
securities being registered (6)
(12) Opinion of Seward & Kissel LLP as to tax consequences (9)
(13)(a) Transfer Agency Agreement between the Registrant and
Computershare Trust Company, N.A. (formerly known as
EquiServe Trust Company) (3)
(13)(b) Shareholder Inquiry Agency Agreement with AllianceBernstein
Investor Services, Inc., (formerly, Alliance Fund Services,
Inc.) (3)
(13)(c) Form of Auction Agency Agreement between the Registrant and
The Bank of New York(8) (13)(d) Dividend Reinvestment and
Cash Purchase Plan (3)
(13)(e) Form of Underwriting Agreement(8)
(13)(f) Form of Broker Dealer Agreement as to Registrant's
Preferred Shares(8)
(13)(g) Form of The Depository Trust Company Representations Letter
as to the Registrant's Preferred Shares(8)
(13)(h) Investment Representation Letter(3)
(14) Consent of Ernst & Young LLP, independent auditors for ACM
Municipal Securities Income Fund, Inc. and the Registrant (5)
(15) Not applicable
(16) Powers of Attorney (5)
1. Incorporated by reference from the Registrant's Registration Statement on
Form N-2 for the issuance of Common Shares (File Nos. 333-82894 and
811-10573) filed with the SEC on November 9, 2001.
2. Incorporated by reference from the Registrant's Registration Statement on
Form N-2/A for the issuance of Common Shares (File Nos. 333-73130 and
811-10573) filed with the SEC on December 21, 2001.
3. Incorporated by reference from the Registrant's Registration Statement on
Form N-2/A for the issuance of Common Shares (File Nos. 333-73130 and
811-10573) filed with the SEC on January 25, 2002.
4. Incorporated by reference from the Registrant's Registration Statement on
Form N-2 (File Nos. 333-73130 and 811- 10573) filed on February 15, 2002
and as updated by the Registrant's 497 filing filed with the SEC on March
26, 2002.
5. Filed herewith.
6. Incorporated by reference to Exhibit 77Q1 from Registrant's Form N-SAR-A
filing (File No. 811- 10573) filed with the SEC on June 29, 2006.
7. Filed herewith as Appendix E to Part A.
8. Incorporated by reference from the Registrant's Registration Statement on
Form N-2/A (File Nos. 333-73130 and 811-10573) filed with the SEC on March
22, 2002.
9. To be filed by means of a Post-Effective Amendment hereto.
Item 17. Undertakings.
(1) The undersigned Registrant agrees that prior to any public reoffering of the
securities registered through the use of a prospectus which is a part of this
Registration Statement by any person or party who is deemed to be an underwriter
within the meaning of Rule 145(c) under the Securities Act of 1933 (17 CFR
230.145c), the reoffering prospectus will contain the information called for by
the applicable registration form for reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items of
the applicable form.
(2) The undersigned Registrant agrees that every prospectus that is filed under
paragraph (1) above will be filed as a part of an amendment to the Registration
Statement and will not be used until the amendment is effective, and that, in
determining any liability under the 1933 Act, each post-effective amendment
shall be deemed to be a new registration statement for the securities offered
therein, and the offering of the securities at that time shall be deemed to be
the initial bona fide offering of them.
(3) The undersigned Registrant agrees to file a copy of each tax opinion
required to be filed as an exhibit to the Registration Statement by Item 16 (12)
of Form N-14 under the Securities Act of 1933, as amended, by means of a
post-effective amendment to the Registration Statement.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the Registrant has duly caused this Registration Statement on Form N-14
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of New York, on the 22nd day of November, 2006.
ALLIANCE NATIONAL MUNICIPAL INCOME FUND, INC.
By: Marc O. Mayer*
-----------------------------
Marc O. Mayer
President
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed below by the following
persons in the capacities and on the date indicated.
Signature Title Date
--------------------------------------------------------------------------------
1. Principal Executive Officer:
Marc O. Mayer* President and Chief November 22, 2006
Executive Officer
2. Principal Financial and
Accounting Officer:
/s/ Joseph J. Mantineo Treasurer and November 22, 2006
---------------------- Chief Financial
Joseph J. Mantineo Officer
3. All Directors
------------------
David H. Dievler*
John H. Dobkin*
Michael J. Downey*
William H. Foulk, Jr.*
D. James Guzy*
Nancy P. Jacklin*
Marc O. Mayer*
Marshall C. Turner, Jr.*
*By:/s/ Andrew L. Gangolf November 22, 2006
Andrew L. Gangolf
---------------------
(Attorney-in-fact)
Index to Exhibits
-------------------
Exhibit No. Description of Exhibits
----------- ----------------------------
(1)(e) Certificate of Correction dated March 26, 2002
(1)(f) Articles Supplementary dated June 14, 2006
(11) Opinion of Seward & Kissel LLP
(14) Consent of Ernst & Young LLP
(16) Powers of Attorney - David H. Dievler,
John H. Dobkin, Michael J. Downey,
William H. Foulk, Jr., D. James Guzy,
Nancy P. Jacklin, Marc O. Mayer and
Marshall C. Turner, Jr.
SK 00250 0209 708996