United States
Securities and Exchange Commission
Washington, D.C. 20549
Form N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-10573
ALLIANCE NATIONAL MUNICIPAL INCOME FUND, INC.
(Exact name of registrant as specified in charter)
1345 Avenue of the Americas, New York, New York 10105 (Address of
principal executive offices) (Zip code)
Mark R. Manley
Alliance Capital Management L.P.
1345 Avenue of the Americas
New York, New York 10105
(Name and address of agent for service)
Registrant's telephone number, including area code: (800) 221-5672
Date of fiscal year end: October 31, 2004
Date of reporting period: October 31, 2004
ITEM 1. REPORTS TO STOCKHOLDERS.
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Closed End
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AllianceBernstein [LOGO](SM)
Investment Research and Management
Alliance National Municipal Income Fund
Annual Report -- October 31, 2004
Investment Products Offered
---------------------------
o Are Not FDIC Insured
o May Lose Value
o Are Not Bank Guaranteed
---------------------------
You may obtain a description of the Fund's proxy voting policies and procedures,
and information regarding how the Fund voted proxies relating to portfolio
securities during the most recent 12-months period ended June 30, without
charge. Simply visit AllianceBernstein's upon request by visiting Alliance
Capital's web site at www.alliancebernstein.com or go to the Securities and
Exchange Commission's (the "Commission") web site at www.sec.gov, or call
AllianceBernstein at (800) 227-4618.
The Fund files its complete schedule of portfolio holdings with the Commission
for the first and third quarters of each fiscal year on Form N-Q. The Fund's
Forms N-Q are available on the Commission's web site at www.sec.gov. The Fund's
Forms N-Q may also be reviewed and copied at the Commission's Public Reference
Room in Washington, DC; information on the operation of the Public Reference
Room may be obtained by calling (800)-SEC-0330.
AllianceBernstein Investment Research and Management, Inc., is an affiliate of
Alliance Capital Management L.P., the manager of the funds, and is a member of
the NASD.
December 14, 2004
Annual Report
This report provides management's discussion of fund performance for Alliance
National Municipal Income Fund (the "Fund"), a closed-end fund that trades under
the New York Stock Exchange symbol "AFB", for the annual reporting period ended
October 31, 2004.
Investment Objective and Policies
The Fund is a closed-end management investment company designed for investors
who seek high current income exempt from regular federal income tax. Under
normal conditions, the Fund will invest at least 80%, and normally substantially
all, of its assets in municipal securities paying interest that is exempt from
regular federal income tax. In addition, the Fund normally invests at least 75%
of its assets in investment grade municipal securities. For more information
regarding the Fund's risks, please see "A Word About Risk" on page 3 and "Note
G-Risks Involved in Investing in the Fund" of the Notes to Financial Statements
on page 24.
Investment Results
The table on page 4 provides performance data for the Fund and its benchmark,
the Lehman Brothers (LB) Municipal Index, for the six- and 12-month periods
ended October 31, 2004. For comparison, returns for the Lipper General Municipal
Debt Funds (Leveraged) Average (the "Lipper Average") are also included. The
funds that comprise the Lipper Average have generally similar investment
objectives to the Fund, although some may have different investment policies and
sales and management fees.
The Fund outperformed its benchmark during both the six- and 12-month reporting
periods ended October 31, 2004. The Fund's stronger relative performance during
the 12-month period was largely the result of security selection in the insured,
special tax, general obligation and tobacco settlement sectors. The Fund's
relative exposure to the pre-refunded sector also contributed positively to the
Fund's performance. In addition, the Fund's leveraged structure benefited its
performance, primarily because of historically low borrowing costs. During the
12-month reporting period, the Fund also outperformed its peer group, as
represented by the Lipper Average.
Market Review and Investment Strategy
From October 31, 2003 to October 31, 2004, yields for long-term municipal bonds
declined and yields for short-term municipal bonds rose. For example, yields for
bonds maturing in 20 years declined by 0.37%; yields for 5-year bonds rose
0.21%. Institutional investors generated strong demand for bonds maturing in 20
years. Short maturity bond yields generally rose as investors anticipated a
stronger economy and likely tighter monetary policy by the U.S. Federal Reserve.
Over that time period, the long municipal bond market outperformed the taxable
bond market. For example, the LB Municipal Index gained 6.03% during the
12-month reporting period ended October 31, 2004 while the LB U.S. Aggregate
Index, representing taxable bonds, generated a return of 5.53% over the same
period. The Treasury bond component of the LB U.S. Aggregate Index posted an
even lower return of 4.97%. As of October 31,
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ALLIANCE NATIONAL MUNICIPAL INCOME FUND o 1
2004, 30-year municipal bonds were yielding approximately 96% of comparable
maturity Treasury bonds.
The low rate environment has resulted in continued strong demand for lower-rated
bonds that carry higher yields. Bonds in sectors with generally lower credit
profiles again led the market in performance; the industrial development and
hospital sub-sectors of the LB Municipal Index, for example, generated returns
of 10.47% and 8.52%, respectively. Several states, notably California, showed
improved credit fundamentals compared to the beginning of 2004 and, as a result,
their bonds outperformed the general market.
During the annual reporting period, the Fund's portfolio management team
employed a number of investment strategies which included reducing the Fund's
exposure to 30-year 5.0% coupon bonds and replacing the longer maturity bonds
with 20- to 25-year 5.0%-5.25% coupon bonds. The team also increased the term
structure diversification of the Fund's investment portfolio. In addition, the
team focused on buying premium coupon callable bonds versus discount coupon
bonds and non-callable bonds, and capitalized on the market's strong demand for
yield by selling lower-rated bonds.
In Memory
It is with sadness that we announce the passing of Clifford L. Michel, a member
of the Board of Directors of Alliance National Municipal Income Fund. Mr.
Michel served the interests of the Fund's shareholders for the last 3 years.
His hard work, dedication and contributions to the Fund will be greatly missed.
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2 o ALLIANCE NATIONAL MUNICIPAL INCOME FUND
Historical Performance
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HISTORICAL PERFORMANCE
An Important Note About the Value of Historical Performance
The performance on the following page represents past performance and does not
guarantee future results. Current performance may be lower or higher than the
performance information shown. Returns are annualized for periods longer than
one year. All fees and expenses related to the operation of the Fund have been
deducted. Performance assumes reinvestment of distributions and does not account
for taxes.
Alliance National Municipal Income Fund Shareholder Information
Daily market prices for the Fund's shares are published in the New York Stock
Exchange Composite Transaction section of The Wall Street Journal under the
abbreviation "AllianceNA." The Fund's NYSE trading symbol is "AFB". Weekly
comparative net asset value (NAV) and market price information about the Fund is
published each Monday in The Wall Street Journal, each Sunday in The New York
Times and each Saturday in Barron's and other newspapers in a table called
"Closed-End Bond Funds." For additional shareholder information regarding this
Fund, please see page 37.
Benchmark Disclosure
The unmanaged Lehman Brothers (LB) Municipal Index does not reflect fees and
expenses associated with the active management of a mutual fund portfolio. The
Index is a total return performance benchmark for the long-term, investment
grade, tax-exempt bond market. For the six- and 12-month periods ended October
31, 2004, the Lipper General Municipal Debt Funds (Leveraged) Average consisted
of 66 and 65 funds, respectively. These funds have generally similar investment
objectives to the Fund, although some may have different investment policies and
sales and management fees. An investor cannot invest directly in an index or
average, and their results are not indicative of the performance for any
specific investment, including the Fund.
A Word About Risk
Among the risks of investing in the Fund are changes in the general level of
interest rates or changes in bond credit quality ratings. Changes in interest
rates have a greater effect on bonds with longer maturities than on those with
shorter maturities. While the Fund invests principally in bonds and other
fixed-income securities, in order to achieve its investment objectives, the Fund
may at times use certain types of investment derivatives, such as options,
futures, forwards and swaps. These instruments involve risks different from, and
in certain cases, greater than, the risks presented by more traditional
investments. At the discretion of the Fund's Adviser, the Fund may invest up to
25% of its net assets in municipal bonds that are rated below investment grade
("junk bonds"). These securities involve greater volatility and risk than
higher-quality fixed-income securities.
The issuance of the Fund's preferred stock results in leveraging of the Common
Stock, an investment technique usually considered speculative. Leverage creates
certain risks for holders of Common Stock, including higher volatility of both
the net asset value and market value of the Common Stock, and fluctuations in
the dividend rates on the preferred stock will affect the return to holders of
Common Stock. If the Fund were fully invested in longer-term securities and if
short-term interest rates were to increase, then the amount of dividends paid on
the preferred shares would increase and both net investment income available for
distribution to the holders of Common Stock and the net asset value of the
Common Stock would decline. At the same time, the market value of the Fund's
Common Stock (that is, its price as listed on the New York Stock Exchange) may,
as a result, decline. Furthermore, if long-term interest rates rise, the Common
Stock's net asset value will reflect the full decline in the price of the
portfolio's investments, since the value of the Fund's Preferred Stock does not
fluctuate. In addition to the decline in net asset value, the market value of
the Fund's Common Stock may also decline.
(Historical Performance continued on next page)
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ALLIANCE NATIONAL MUNICIPAL INCOME FUND o 3
Historical Performance
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HISTORICAL PERFORMANCE
(continued from previous page)
Returns
THE FUND VS. ITS BENCHMARK -------------------------
PERIODS ENDED OCTOBER 31, 2004 6 Months 12 Months
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Alliance National Municipal Income Fund (NAV) 7.45% 10.69%
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LB Municipal Index 4.79% 6.03%
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Lipper General Municipal Debt Funds
(Leveraged) Average 6.58% 8.93%
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The Fund's Market Price per share on October 31, 2004 was $14.18. For additional
Financial Highlights, please see page 27.
GROWTH OF A $10,000 INVESTMENT IN THE FUND
1/28/02* TO 10/31/04
Alliance National Municipal Income Fund (NAV): $12,936
LB Municipal Index: $11,820
[THE FOLLOWING TABLE WAS DEPICTED BY A MOUNTAIN CHART IN THE PRINTED MATERIAL.]
Alliance National Municipal
Income Fund (NAV) LB Municipal Index
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1/28/02* $ 10,000 $ 10,000
10/31/02 $ 10,814 $ 10,606
10/31/03 $ 11,686 $ 11,148
10/31/04 $ 12,936 $ 11,820
* Since the Fund's inception on 1/28/02.
This chart illustrates the total value of an assumed $10,000 investment in
Alliance National Municipal Income Fund at net asset value (NAV) (from 1/28/02*
to 10/31/04) as compared to the performance of the Fund's benchmark. The chart
assumes the reinvestment of dividends and capital gains.
See Historical Performance and Benchmark disclosures on previous page.
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4 o ALLIANCE NATIONAL MUNICIPAL INCOME FUND
Portfolio Summary
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PORTFOLIO SUMMARY
October 31, 2004
PORTFOLIO STATISTICS
Net Assets of Common Shareholders ($mil): $317.1
Market Value of Investments ($mil): $504.2
BOND QUALITY RATING BREAKDOWN*
66.5% AAA
9.8% AA
13.5% A [PIE CHART OMITTED]
3.2% BBB
7.0% BB
* All data are as of October 31, 2004. The Fund's bond quality rating breakdown
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
Fund's Adviser will assign ratings that are considered to be of equivalent
quality to such ratings.
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ALLIANCE NATIONAL MUNICIPAL INCOME FUND o 5
Portfolio of Investments
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PORTFOLIO OF INVESTMENTS
October 31, 2004
Principal
Amount
(000) Value
-------------------------------------------------------------------------------
MUNICIPAL BONDS-159.0%
Long-Term Municipal Bonds-158.1%
Alabama-8.9%
Huntsville Hlth Care Auth
(Huntsville Hosp Sys) Ser 02B
5.75%, 6/01/32 $ 8,000 $ 8,444,000
Jefferson Cnty Swr Rev
FGIC Ser 99A
5.375%, 2/01/36 12,405 13,970,635
Marshall Cnty Hlth Care Auth
(Marshall Cnty Med Ctr) Ser 02A
5.75%, 1/01/32 2,500 2,585,500
Marshall Cnty Hlth Care Auth
(Marshall Cnty Med Ctr) Ser 02D
5.75%, 1/01/32 3,000 3,104,610
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28,104,745
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Alaska-1.5%
Alaska Intl Arpt Rev
MBIA Ser 03B
5.00%, 10/01/26 1,000 1,029,160
Alaska Mun Bd Bk Auth
MBIA Ser 04G
5.00%, 2/15/24 1,345 1,412,573
Four Dam Pool Elec Rev
Ser 04
5.00%, 7/01/24 1,035 1,051,891
5.25%, 7/01/26 1,385 1,412,645
-------------
4,906,269
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Arkansas-2.0%
Arkansas Dev Fin Auth SFMR
(Mtg Rev) GNMA Ser 02A
5.30%, 7/01/34 6,250 6,399,438
-------------
California-12.4%
California GO
Ser 02
5.25%, 4/01/30 1,000 1,037,860
Ser 03
5.00%, 2/01/32 3,250 3,294,005
5.25%, 11/01/20-2/01/24 5,000 5,391,675
Ser 04
5.00%, 2/01/33 3,200 3,257,472
5.25%, 4/01/29 2,000 2,095,820
Chula Vista IDR
(San Diego Gas) Ser 96A
5.30%, 7/01/21 4,000 4,223,160
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6 o ALLIANCE NATIONAL MUNICIPAL INCOME FUND
Portfolio of Investments
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Principal
Amount
(000) Value
-------------------------------------------------------------------------------
Coachella Valley Uni Sch Dist
MBIA Ser 03
5.00%, 9/01/31 $ 1,000 $ 1,026,710
Hartnell Comm College
MBIA Ser 03A
5.00%, 8/01/27 1,155 1,196,534
La Quinta Fin Auth Loc Agy Rev
AMBAC Ser 04A
5.25%, 9/01/24 2,000 2,163,380
Lincoln Special Tax
(CFD No 2003-1) Ser 04
5.95%, 9/01/28 1,000 1,012,640
Los Angeles Cmnty Redev Agy
Ser 04L
5.00%, 3/01/18 1,715 1,750,243
Los Angeles Regl Arpts
(Laxfuel Corp) AMBAC Ser 01 AMT
5.50%, 1/01/32 9,500 9,845,610
San Rafael Elem Sch Dist
FSA Ser 03A
5.00%, 8/01/28 2,820 2,896,478
-------------
39,191,587
-------------
Colorado-2.7%
Avon Hsg Auth MFHR
(Buffalo Ridge II Proj) GNMA Ser 02A AMT
5.70%, 10/20/43 4,950 5,148,841
Colorado Hlth Facs Auth Rev
(Parkview Med Ctr) Ser 04
5.00%, 9/01/25 1,125 1,124,314
Denver City & Cnty MFHR
(Clyburn Stapleton Proj) GNMA Ser 02 AMT
5.50%, 12/20/43 2,155 2,204,673
-------------
8,477,828
-------------
Connecticut-0.3%
Mohegan Tribe Indians Gaming Auth
Ser 03
5.125%, 1/01/23 1,000 1,018,090
-------------
District of Columbia-1.2%
District of Columbia Special Tax Rev
(Gallery Place Proj) Ser 02 FSA
5.40%, 7/01/31 3,500 3,692,990
-------------
Florida-25.2%
Beacon Tradeport Cmnty Dev Dist
Ser 02B
7.25%, 5/01/33 7,350 7,792,470
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ALLIANCE NATIONAL MUNICIPAL INCOME FUND o 7
Portfolio of Investments
-------------------------------------------------------------------------------
Principal
Amount
(000) Value
-------------------------------------------------------------------------------
Brevard Cnty HFA SFMR
(Mtg Rev) GNMA Ser 02C AMT
5.40%, 3/01/33 $ 2,040 $ 2,075,353
Collier Cnty CFD
(Fiddler's Creek) Ser 02A
6.875%, 5/01/33 3,015 3,161,197
Collier Cnty CFD
(Fiddler's Creek) Ser 02B
6.625%, 5/01/33 2,270 2,346,522
Dade Cnty Arpt Rev
(Miami Int'l Arpt) FGIC Ser 02 AMT
5.375%, 10/01/32 6,040 6,286,795
Florida Educ & Athletic Fac
(FSU Finl Assist) AMBAC Ser 02
5.00%, 10/01/31 5,000 5,138,300
Florida Hsg Fin Corp MFHR
(Westminster Apts) FSA Ser 02E-1 AMT
5.40%, 4/01/42 3,000 3,077,520
Hamal Cmnty Dev Dist
(Hamal) Ser 01
6.75%, 5/01/31 2,460 2,594,267
Jacksonville Wtr & Swr Sys Rev
(Jacksonville Elec) MBIA Ser 02A
5.50%, 10/01/41 (a)(b)(c) 20,000 21,429,000
Lee Cnty Arpt Rev
(Southwest FL Intl) FSA Ser 00A AMT
5.75%, 10/01/22-10/01/25 9,500 10,343,060
Lee Cnty Cmnty Dev Dist
(Miromar Lakes) Ser 00A
7.25%, 5/01/12 1,595 1,694,113
Lee Cnty IDA Hlth Fac
(Shell Point Village) Ser 99A
5.50%, 11/15/29 2,500 2,417,725
Miami Beach Hlth Facs Hosp Rev
(Mount Sinai Med Ctr) Ser 04
6.75%, 11/15/24 2,000 2,130,100
Midtown Miami CDD
Ser 04A
6.00%, 5/01/24 2,500 2,572,175
Orange Cnty Hlth Facs Hosp Rev
(Orlando Regional) Ser 02
5.75%, 12/01/32 1,400 1,493,142
Parkway Center CDD
Ser 04A
6.125%, 5/01/24 3,075 3,106,457
Pinellas Cnty HFA SFMR
(Mtg Rev) GNMA/FNMA Ser 02A AMT
5.40%, 3/01/32 1,165 1,188,195
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8 o ALLIANCE NATIONAL MUNICIPAL INCOME FUND
Portfolio of Investments
-------------------------------------------------------------------------------
Principal
Amount
(000) Value
-------------------------------------------------------------------------------
Village Cmnty Dev Dist
Ser 03A
6.00%, 5/01/22 $ 1,000 $ 1,031,850
-------------
79,878,241
-------------
Georgia-2.4%
Cartersville Dev Auth
(Anheuser Busch Proj) Ser 02 AMT
5.95%, 2/01/32 2,510 2,675,183
Georgia HFA SFMR
(Mtg Rev) Ser 02A-2 AMT
5.60%, 12/01/32 4,975 5,021,566
-------------
7,696,749
-------------
Hawaii-0.7%
Hawaii St Elec Rev
XLCA Ser 03B AMT
5.00%, 12/01/22 2,000 2,082,460
-------------
Illinois-18.6%
Bolingbrook GO
FGIC Ser 02A
5.375%, 1/01/38 5,000 5,274,400
Chicago Arpt Rev
(O'Hare Int'l Arpt) MBIA Ser 02A AMT
5.375%, 1/01/32 15,000 15,479,400
Chicago Arpt Rev
(O'Hare Int'l Arpt) XLCA Ser 03B-1
5.25%, 1/01/34 1,760 1,827,742
Chicago GO
FGIC Ser 00
5.50%, 1/01/40 14,585 15,665,894
Chicago GO
FSA Ser 04A
5.00%, 1/01/25 1,000 1,045,070
Chicago Parking Rev
(Lakefront Millennium) MBIA Ser 98
5.125%, 1/01/28 8,600 8,806,658
Chicago Sales Tax Rev
FGIC Ser 98
5.25%, 1/01/28 5,710 6,011,260
Cook Cnty Sch Dist
FSA Ser 04
4.60%, 12/01/20 (c) 1,000 909,550
Met Pier & Expo Auth
(McCormick Place) MBIA Ser 02A
5.25%, 6/15/42 3,750 3,903,375
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58,923,349
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ALLIANCE NATIONAL MUNICIPAL INCOME FUND o 9
Portfolio of Investments
-------------------------------------------------------------------------------
Principal
Amount
(000) Value
-------------------------------------------------------------------------------
Indiana-4.7%
Hendricks Cnty Ind Bldg Facs Corp
(First Mtg) Ser 04
5.50%, 7/15/22 $ 1,105 $ 1,223,710
Indiana HFA SFMR
(Mtg Rev) GNMA/FNMA Ser 02 AMT
5.55%, 7/01/32 3,265 3,355,930
Indianapolis Pub Improv Bond
MBIA Ser 02A
5.25%, 7/01/33 10,000 10,448,600
-------------
15,028,240
-------------
Iowa-0.4%
Iowa Fin Auth SFMR
(Mtg Rev) GNMA/FNMA Ser 02A AMT
5.40%, 7/01/32 1,185 1,206,117
-------------
Louisiana-1.0%
Calcasieu Parish SFMR
(Mtg Rev) GNMA/FNMA Ser 02A
6.05%, 4/01/33 410 427,068
Louisiana HFA SFMR
(Mtg Rev) GNMA Ser 02C AMT
5.60%, 6/01/33 2,705 2,773,626
-------------
3,200,694
-------------
Massachusetts-3.2%
Massachusetts GO
Ser 02C
5.25%, 11/01/30 1,780 2,010,154
Massachusetts GO
Ser 02C Prerefunded
5.25%, 11/01/30 3,220 3,636,346
Massachusetts Hlth & Ed Fac Hosp Rev
(Berkshire Hlth Sys) Asset Gty Ser 01E Radian
5.70%, 10/01/25 2,000 2,179,440
Massachusetts Hlth & Ed Fac Hosp Rev
(Cape Cod Healthcare)
Asset Gty Ser 01C Radian
5.25%, 11/15/31 2,100 2,180,976
-------------
10,006,916
-------------
Michigan-3.6%
Detroit Dev Fin Auth
(Daimler/Chrysler Plant) Ser 98A
5.50%, 5/01/21 1,665 1,389,975
Michigan Strategic
(Detroit Edison Co Proj) XLCA Ser 02 AMT
5.45%, 12/15/32 5,000 5,268,250
Saginaw Hosp Fin Auth Hosp Rev
(Covenant Med Ctr) Ser 00F
6.50%, 7/01/30 4,410 4,858,630
-------------
11,516,855
-------------
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10 o ALLIANCE NATIONAL MUNICIPAL INCOME FUND
Portfolio of Investments
-------------------------------------------------------------------------------
Principal
Amount
(000) Value
-------------------------------------------------------------------------------
Missouri-0.7%
Missouri SFMR
(Mtg Rev) GNMA/FNMA Ser 02A-1 AMT
5.58%, 9/01/32 $ 2,205 $ 2,270,224
-------------
Nevada-15.5%
Carson City Hosp Rev
(Carson-Tahoe Hosp Proj) Radian Ser 03A
5.00%, 9/01/23 2,600 2,673,242
Clark Cnty Arpt Rev
FGIC Ser 01B
5.25%, 7/01/34 11,920 12,344,590
Nevada Dept Bus & Ind
(Las Vegas Monorail Proj) AMBAC Ser 00
5.625%, 1/01/32 11,720 12,730,030
Reno Special Tax
(Retrac Transp Proj) AMBAC Ser 02
5.25%, 6/01/41 1,000 1,037,310
Reno Special Tax
FGIC Ser 02
5.375%, 6/01/32 7,500 7,942,350
Truckee Meadows Wtr Auth
FSA Ser 01A
5.25%, 7/01/34 12,000 12,525,360
-------------
49,252,882
-------------
New Hampshire-1.4%
New Hampshire Hlth & Ed Fac Hosp Rev
(Covenant Med Ctr) Ser 02
6.125%, 7/01/31 4,200 4,435,242
-------------
New York-2.9%
New York City GO
Ser 04I
5.00%, 8/01/21 8,850 9,327,281
-------------
North Carolina-0.6%
Charlotte Arpt Rev
MBIA Ser 04A
5.25%, 7/01/24 1,895 2,025,888
-------------
North Dakota-0.8%
North Dakota HFA SFMR
(Mtg Rev) Ser 02A AMT
5.65%, 1/01/34 2,375 2,442,331
-------------
Ohio-3.7%
Cleveland-Cuyahoga Cnty
Port Auth Rev Ser 01
7.35%, 12/01/31 5,000 5,247,150
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ALLIANCE NATIONAL MUNICIPAL INCOME FUND o 11
Portfolio of Investments
-------------------------------------------------------------------------------
Principal
Amount
(000) Value
-------------------------------------------------------------------------------
Fairfield Cnty Hosp Rev
(Fairfield Med Ctr Proj) Radian Ser 03
5.00%, 6/15/22-6/15/24 $ 3,955 $ 4,080,977
Ohio HFA SFMR
(Mtg Rev) GNMA Ser 00D AMT
6.05%, 3/01/31 2,260 2,365,429
-------------
11,693,556
-------------
Pennsylvania-3.1%
Pennsylvania Parking Fac
(30th St Station Garage Proj) ACA Ser 02A AMT
5.875%, 6/01/33 2,050 2,139,687
Pennsylvania Trpk Transp Rev
AMBAC Ser 01
5.00%, 7/15/41 2,000 2,048,420
Philadelphia Hosp Rev
(Temple Univ Hosp) Ser 93A
6.625%, 11/15/23 3,000 3,044,100
Washington Cnty
AMBAC Ser 99
6.15%, 12/01/29 2,300 2,446,671
-------------
9,678,878
-------------
South Carolina-0.2%
Richland Lexington Arpt Rev
(Columbia Met Arpt) FSA Ser 04 AMT
5.125%, 1/01/25 500 513,100
-------------
Texas-21.8%
Bexar Cnty Hsg Fin Corp MFHR
(Doral Club & Sutton House Apts)
MBIA Ser 01A
5.55%, 10/01/36 15,000 14,657,100
Dallas-Fort Worth Arpt Rev
(Int'l Arpt) FGIC Ser 01 AMT
5.50%, 11/01/35 10,000 10,459,700
Gulf Coast Waste Disp Auth
(Anheuser-Busch Proj) Ser 02 AMT
5.90%, 4/01/36 9,000 9,576,540
Harris Cnty
(Flood Ctl) Ser 03B
5.00%, 10/01/23 2,600 2,742,038
Harris Cnty Toll Road Rev
FSA Ser 02
5.125%, 8/15/32 2,500 2,585,075
Houston
(Northeast Wtr Purification Proj) FGIC Ser 02
5.125%, 3/01/32 7,000 7,226,030
Matagorda Cnty Util Rev
(Centerpoint Energy Proj) Ser 04
5.60%, 3/01/27 1,000 1,035,550
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12 o ALLIANCE NATIONAL MUNICIPAL INCOME FUND
Portfolio of Investments
-------------------------------------------------------------------------------
Principal
Amount
(000) Value
-------------------------------------------------------------------------------
Richardson Hosp Auth Rev
(Richardson Regional) Ser 04
5.875%, 12/01/24 $ 2,310 $ 2,391,635
6.00%, 12/01/19 1,830 1,976,510
San Antonio Arpt Rev
FGIC Ser 02A AMT
5.25%, 7/01/27 5,250 5,416,845
Seguin High Ed Fac Rev
(Texas Lutheran University Proj) Ser 04
5.25%, 9/01/33 1,250 1,213,975
Texas GO
Ser 02A AMT
5.50%, 8/01/41 9,470 9,931,947
-------------
69,212,945
-------------
Utah-0.8%
Davis Cnty Sales Tax Rev
AMBAC Ser 03B
5.25%, 10/01/23 1,000 1,080,450
Utah Hsg Corp MFHR
(Bluffs Apts Proj) GNMA Ser 02A AMT
5.60%, 7/20/30 1,480 1,555,687
-------------
2,636,137
-------------
Virginia-2.8%
Fauquier Cnty IDA Hosp Rev
(Fauquier Hospital) Asset Gty Ser 02
5.25%, 10/01/31 8,500 8,821,895
-------------
Washington-7.4%
King Cnty Swr Rev
FSA Ser 02A
5.25%, 1/01/32 3,000 3,126,900
Twenty-Fifth Ave Pptys
(University of WA) MBIA Ser 02
5.25%, 6/01/33 9,750 10,177,148
Washington
Tobacco Settlement Bonds Ser 02
6.625%, 6/01/32 1,000 964,960
Washington HFA SFMR
(Mtg Rev) GNMA/FNMA Ser 02A AMT
5.83%, 6/01/29 8,995 9,302,359
-------------
23,571,367
-------------
Wisconsin-7.6%
Wisconsin Hlth & Ed Fac Hosp Rev
(Ministry Hlth Care) MBIA Ser 02A
5.25%, 2/15/32 13,615 14,124,882
Wisconsin Hsg Auth SFMR
(Mtg Rev) MBIA Ser 02A AMT
5.60%, 5/01/33 4,885 5,157,046
-------------------------------------------------------------------------------
ALLIANCE NATIONAL MUNICIPAL INCOME FUND o 13
Portfolio of Investments
-------------------------------------------------------------------------------
Principal
Amount
(000) Value
-------------------------------------------------------------------------------
Wisconsin Hsg Auth SFMR
(Mtg Rev) Ser 02A AMT
5.50%, 9/01/32 $ 4,650 $ 4,681,666
-------------
23,963,594
-------------
Total Long-Term Municipal Bonds
(cost $475,489,499) 501,175,888
-------------
Short Term Municipal Note(d)-0.9%
South Carolina-0.9%
Florence Cnty Solid Waste Disp &
Wastewtr Treatment
(Roche Carolina Inc) Ser 97
1.81%, 4/01/27 3,000 3,000,000
-------------
Total Short Term Municipal Note
(cost $3,000,000) 3,000,000
-------------
Total Investments-159.0%
(cost $478,489,499) 504,175,888
Other assets less liabilities-2.5% 7,923,227
Preferred Stock, at redemption value-(61.5%) (195,000,000)
-------------
Net Assets Applicable to Common
Shareholders-100%(e) $ 317,099,115
=============
INTEREST RATE SWAP TRANSACTIONS (see Note C)
Rate Type
-------------------------------
Payments Payments
Notional made by received Unrealized
Swap Amount Termination the by the Appreciation/
Counterparty (000) Date Portfolio Portfolio (Depreciation)
------------------------------------------------------------------------------------------------
Goldman Sachs $ 26,700 02/03/06 76.48% of BMA* $ 1,747
1 Month LIBOR**
Merrill Lynch 26,700 02/03/06 BMA* 85.10% of 70,125
1 Month LIBOR**
Merrill Lynch+ 9,000 11/01/19 3.90 BMA* (22,626)
* BMA (Bond Market Association)
** LIBOR (London Interbank Offered Rate)
+ Represents a forward interest rate swap whose effective date for the exchange
of cash flow is May 1, 2005.
-------------------------------------------------------------------------------
14 o ALLIANCE NATIONAL MUNICIPAL INCOME FUND
Portfolio of Investments
-------------------------------------------------------------------------------
FINANCIAL FUTURES CONTRACTS SOLD (see Note C)
Value at
Number of Expiration Original October 31, Unrealized
Type Contracts Month Value 2004 (Depreciation)
------------------------------------------------------------------------------------------------
U.S. T-Note December
10 Yr Future 111 2004 $12,376,974 $12,605,437 $ (228,463)
Swap 10 Yr December
Future 89 2004 9,754,205 9,965,219 (211,014)
----------
$ (439,477)
==========
(a) Positions, or portions thereof, with a market value of $583,940 have been
segregated to collateralize margin requirements for open futures contracts.
(b) Represents entire or partial position as collateral for interest rate swaps.
(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) 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.
(e) Portfolio percentages are calculated based on net assets applicable to
common shareholders.
Glossary of Terms:
ACA - American Capital Access Financial Guaranty Corporation AMBAC - American
Municipal Bond Assurance Corporation AMT - Alternative Minimum Tax- (subject to)
CDD - Community Development District CFD - Communities Facilities District FGIC
- Financial Guaranty Insurance Company 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 MBIA - Municipal Bond Investors Assurance MFHR -
Multi-Family Housing Revenue SFMR - Single Family Mortgage Revenue XLCA - XL
Capital Assurance
See notes to financial statements.
-------------------------------------------------------------------------------
ALLIANCE NATIONAL MUNICIPAL INCOME FUND o 15
Statement of Assets & Liabilities
-------------------------------------------------------------------------------
STATEMENT OF ASSETS & LIABILITIES
October 31, 2004
ASSETS
Investments in securities, at value (cost $478,489,499) $ 504,175,888
Cash 138,318
Receivable for investment securities sold 385,884
Interest receivable 7,757,953
Prepaid expenses 137,042
Unrealized appreciation of swap agreements 71,872
-------------
Total assets 512,666,957
-------------
LIABILITIES
Advisory fee payable 172,669
Dividends payable--preferred shares 153,058
Payable for variation margin on futures contracts 86,125
Unrealized depreciation of swap agreements 22,626
Transfer Agent fee payable 5,911
Accrued expenses and other liabilities 127,453
-------------
Total liabilities 567,842
-------------
PREFERRED STOCK, AT REDEMPTION VALUE $.001 par value per share; 7,800 shares
Auction Preferred Stock authorized, issued and outstanding at $25,000 per
share liquidation
preference 195,000,000
-------------
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS $ 317,099,115
=============
COMPOSITION OF NET ASSETS APPLICABLE TO
COMMON SHAREHOLDERS
Common stock, $.001 par value per share;
1,999,992,200 shares authorized,
20,471,667 shares issued and outstanding $ 20,472
Additional paid-in capital 290,278,214
Undistributed net investment income 4,904,443
Accumulated net realized loss on investment transactions (3,400,172)
Net unrealized appreciation of investments 25,296,158
-------------
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS $ 317,099,115
=============
NET ASSET VALUE APPLICABLE TO COMMON SHAREHOLDERS
(based on 20,471,667 common shares outstanding) $15.49
======
See notes to financial statements.
-------------------------------------------------------------------------------
16 o ALLIANCE NATIONAL MUNICIPAL INCOME FUND
Statement of Operations
-------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
Year Ended October 31, 2004
INVESTMENT INCOME
Interest $ 26,821,758
EXPENSES
Advisory fee $ 3,294,746
Auction Preferred Stock-auction
agent's fees 494,715
Custodian 165,853
Audit and legal 111,036
Printing 78,136
Registration fees 23,770
Directors' fees and expenses 41,426
Transfer agency 27,534
Miscellaneous 53,506
------------
Total expenses 4,290,722
Less: expenses waived by the Adviser
(see Note B) (1,267,210)
------------
Net expenses 3,023,512
------------
Net investment income 23,798,246
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS Net realized gain
(loss) on:
Investment transactions 1,958,600
Futures (988,595)
Swaps (541,228)
Net change in unrealized appreciation/depreciation of:
Investments 8,500,791
Futures (439,477)
Swaps 49,246
------------
Net gain on investment transactions 8,539,337
------------
DIVIDENDS TO AUCTION PREFERRED
SHAREHOLDERS FROM
Net investment income (2,480,597)
------------
NET INCREASE IN NET ASSETS APPLICABLE
TO COMMON SHAREHOLDERS RESULTING
FROM OPERATIONS $ 29,856,986
============
See notes to financial statements.
-------------------------------------------------------------------------------
ALLIANCE NATIONAL MUNICIPAL INCOME FUND o 17
Statement of Changes in Net Assets
-------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
APPLICABLE TO COMMON SHAREHOLDERS
Year Ended Year Ended
October 31, October 31,
2004 2003
============= =============
INCREASE (DECREASE) IN NET ASSETS
APPLICABLE TO COMMON SHAREHOLDERS
RESULTING FROM OPERATIONS
Net investment income $ 23,798,246 $ 24,270,547
Net realized gain (loss) on investment
transactions 428,777 (2,630,045)
Net change in unrealized
appreciation/depreciation
of investments 8,110,560 3,420,258
DIVIDENDS TO AUCTION PREFERRED
SHAREHOLDERS FROM
Net investment income (2,480,597) (2,745,557)
------------- -------------
Net increase in net assets applicable
to Common Shareholders resulting
from operations 29,856,986 22,315,203
DIVIDENDS TO COMMON
SHAREHOLDERS FROM
Net investment income (20,318,287) (17,902,449)
Preferred offering costs and sales load -0- (110,084)
------------- -------------
Total increase 9,538,699 4,302,670
NET ASSETS APPLICABLE TO
COMMON SHAREHOLDERS
Beginning of period 307,560,416 303,257,746
------------- -------------
End of period (including undistributed
net investment income of $4,904,443
and $3,905,575, respectively) $ 317,099,115 $ 307,560,416
============= =============
See notes to financial statements.
-------------------------------------------------------------------------------
18 o ALLIANCE NATIONAL MUNICIPAL INCOME FUND
Notes to Financial Statements
-------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
October 31, 2004
NOTE A
Significant Accounting Policies
Alliance National Municipal Income Fund, Inc. (the "Fund"), was incorporated in
the state of Maryland on November 9, 2001 and is registered under the Investment
Company Act of 1940 as a diversified, closed-end management investment company.
The preparation of financial statements in accordance with U.S. generally
accepted accounting principles which requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates. The following is a
summary of significant accounting policies followed by the Fund.
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, Alliance Capital Management, L.P. (the "Adviser") may establish
procedures whereby changes in market yields or spreads are used to
-------------------------------------------------------------------------------
ALLIANCE NATIONAL MUNICIPAL INCOME FUND o 19
Notes to Financial Statements
-------------------------------------------------------------------------------
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. In addition, the
Fund may use fair value pricing for securities primarily traded in non-U.S.
markets because, most foreign markets close well before the Fund values its
securities at 4:00 p.m., Eastern Time. The earlier close of these foreign
markets gives rise to the possibility that significant events, including broad
market moves, may have occurred in the interim and may materially affect the
value of those securities.
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 the securities are purchased or sold. Investment gains and losses
are determined on the identified cost basis. The Fund amortizes premiums and
accretes original issue discounts and market discounts as adjustments to
interest income.
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 B
Advisory Fee and Other Transactions with Affiliates
Under the terms of an 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
-------------------------------------------------------------------------------
20 o ALLIANCE NATIONAL MUNICIPAL INCOME FUND
Notes to Financial Statements
-------------------------------------------------------------------------------
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 year ended October 31,
2004, the amount of such fees waived was $1,267,210.
Under the terms of a Shareholder Inquiry Agency Agreement with Alliance Global
Investor Services, Inc. (AGIS), an affiliate of the Adviser, the Fund reimburses
AGIS for costs relating to servicing phone inquiries for the Fund. During the
year ended October 31, 2004, there was no reimbursement paid to AGIS.
NOTE C
Investment Transactions
Purchases and sales of investment securities (excluding short-term investments)
for the year ended October 31, 2004, were as follows:
Purchases Sales
============= =============
Investment securities (excluding
U.S. government securities) $ 69,847,439 $ 67,730,845
U.S. government securities -0- -0-
The cost of investments for federal income tax purposes, gross unrealized
appreciation and unrealized depreciation (excluding swap and futures
transactions) are as follows:
Cost $ 478,489,499
=============
Gross unrealized appreciation $ 26,254,454
Gross unrealized depreciation (568,065)
-------------
Net unrealized appreciation $ 25,686,389
=============
1. Swap Agreements
The Portfolio may enter into swaps to hedge its exposure to interest rates and
credit risk or for investment purposes. A swap is an agreement that obligates
two parties to exchange a series of cash flows at specified intervals based upon
or calculated by reference to changes in specified prices or rates for a
specified amount of an underlying asset. The payment flows are usually netted
against each other, with the difference being paid by one party to the other.
Risks may arise as a result of the failure of the counterparty to the swap
contract to comply with the terms of the swap contract. The loss incurred by the
failure of a counterparty is generally limited to the net interim payment to be
received by the Portfolio, and/or the termination value at the end of the
contract. Therefore, the Portfolio considers the creditworthiness of each
counterparty to a swap contract in evaluating potential credit risk.
Additionally, risks may arise from unanticipated movements in interest rates or
in the value of the underlying securities.
-------------------------------------------------------------------------------
ALLIANCE NATIONAL MUNICIPAL INCOME FUND o 21
Notes to Financial Statements
-------------------------------------------------------------------------------
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. The Fund accrues for the interim payments on
swap contracts on a daily basis, with the net amount recorded within unrealized
appreciation/depreciation of swap contracts on the statement of assets and
liabilities. Once the interim payments are settled in cash, the net amount is
recorded as realized gain/loss on swaps, in addition to realized gain/loss
recorded upon the termination of swap contracts on the statement of operations.
Prior to November 1, 2003, these interim payments were reflected within interest
income/expense in the statement of operations. Fluctuations in the value of swap
contracts are recorded as a component of net change in unrealized
appreciation/depreciation of investments.
2. Financial Futures Contracts
The Fund may buy or sell financial futures contracts for the purpose of hedging
the portfolio against adverse effects of anticipated movements in the market.
The Fund bears the market risk that arises from changes in the value of these
financial instruments and the imperfect correlation between movements in the
price of the futures contracts and movements in the price of the securities
hedged or used for cover.
At the time the Fund enters into a futures contract, the Fund deposits and
maintains as collateral an initial margin as required by the exchange on which
the transaction is effected. Pursuant to the contract, the Fund agrees to
receive from or pay to the broker an amount of cash equal to the daily
fluctuation in the value of the contract. Such receipts or payments are known as
variation margin and are recorded by the Fund as unrealized gains or losses.
Risks may arise from the potential inability of the counterparty to meet the
terms of the contract. When the contract is closed, the Fund records a realized
gain or loss equal to the difference between the value of the contract at the
time it was opened and the time it was closed.
NOTE D
Common Stock
The Fund has 1,999,992,200 shares of $.001 par value common stock authorized.
There are 20,471,667 shares of common stock outstanding at October 31, 2004.
NOTE E
Preferred Stock
The Fund has authorized, issued and outstanding 7,800 shares of Auction
Preferred Stock, consisting of 1,950 shares each of Series M, Series T, Series W
and Series TH. The preferred shares have a liquidation value of $25,000 per
share plus accumulated, unpaid dividends. The dividend rate on the Auction
Preferred Stock may change generally every 7 days as set by the auction agent
for Series T and W. The dividend rate on the Series M is 1.58% effective through
November 8, 2004. The dividend rate on the Series T is 1.45% effective through
March 8, 2005. The dividend rate on the Series W is 1.57% effective through
November 3, 2004. The dividend rate on the Series TH is 1.70% effective through
August 4, 2005.
-------------------------------------------------------------------------------
22 o ALLIANCE NATIONAL MUNICIPAL INCOME FUND
Notes to Financial Statements
-------------------------------------------------------------------------------
At certain times, the Preferred Shares are redeemable by the Fund, in whole or
in part, at $25,000 per share plus accumulated, unpaid dividends.
Although the Fund will not ordinarily redeem the Preferred Shares, it may be
required to redeem shares if, for example, the Fund does not meet an asset
coverage ratio required by law or to correct a failure to meet a rating agency
guideline in a timely manner. The Fund voluntarily may redeem the Preferred
Shares in certain circumstances.
The Preferred Shareholders, voting as a separate class, have the right to elect
at least two Directors at all times and to elect a majority of the Directors in
the event two years' dividends on the Preferred Shares are unpaid. In each case,
the remaining Directors will be elected by the Common Shareholders and Preferred
Shareholders voting together as a single class. The Preferred Shareholders will
vote as a separate class on certain other matters as required under the Fund's
Charter, the Investment Company Act of 1940 and Maryland law.
NOTE F
Distributions To Common Shareholders
The tax character of distributions paid to common shareholders during the fiscal
years ended October 31, 2004 and October 31, 2003 were as follows:
2004 2003
============= =============
Distributions paid from:
Ordinary income $ 75,220 $ 56,946
Tax exempt income 20,243,067 17,845,503
------------- -------------
Total distributions paid $ 20,318,287 $ 17,902,449
============= =============
As of October 31, 2004, the components of accumulated earnings/(deficit)
applicable to common shareholders on a tax basis were as follows:
Undistributed tax exempt income $ 5,057,817
Accumulated capital and other losses (3,839,649)(a)
Unrealized appreciation/(depreciation) 25,735,319(b)
-------------
Total accumulated earnings/(deficit) $ 26,953,487(c)
=============
(a) On October 31, 2004, the Fund had a net capital loss carryforward of
$3,839,649, of which $1,199,398 expires in the year 2010, $2,630,045 expires in
the year 2011, and $10,206 expires in the year 2012. To the extent future
capital gains are offset by capital loss carryforward, such gains will not be
distributed.
(b) The differences between book-basis and tax-basis unrealized
appreciation/(depreciation) are attributed primarily to the difference between
the book and tax treatment of swap income and the realization for tax purposes
of gain/losses on certain derivative instruments.
(c) The difference between book-basis and tax-basis components of accumulated
earnings/(deficit) is attributable primarily to dividends payable.
During the current fiscal year, permanent differences, primarily due to the tax
treatment of swap income, resulted in a net increase of undistributed net
invest-
-------------------------------------------------------------------------------
ALLIANCE NATIONAL MUNICIPAL INCOME FUND o 23
Notes to Financial Statements
-------------------------------------------------------------------------------
ment income and a corresponding decrease in accumulated net realized loss on
investment transactions. This reclassification had no effect on net assets.
NOTE G
Risks Involved in Investing in the Fund
Interest Rate Risk and Credit Risk--Interest rate risk is the risk that changes
in interest rates will affect the value of the Fund's investments in
fixed-income debt securities such as bonds or notes. Increases in interest rates
may cause the value of the Fund's investments to decline. Credit risk is the
risk that the issuer or guarantor of a debt security, or the counterparty to a
derivative contract, will be unable or unwilling to make timely principal and/or
interest payments, or to otherwise honor its obligations. The degree of risk for
a particular security may be reflected in its credit risk rating. Credit risk is
greater for medium quality and lower-rated securities. Lower-rated debt
securities and similar unrated securities (commonly known as "junk bonds") have
speculative elements or are predominantly speculative risks.
Indemnification Risk--In the ordinary course of business, the Fund enters into
contracts that contain a variety of indemnifications. The Fund's maximum
exposure under these arrangements is unknown. However, the Fund has not had
prior claims or losses pursuant to these indemnification provisions and expects
the risk of loss thereunder to be remote.
NOTE H
Legal Proceedings
As has been previously reported, 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. The shares of the Fund are not redeemable by the Fund, but
are traded on an exchange at prices established by the market. Accordingly, the
Fund and its shareholders 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 the Fund as a party. The lawsuits
are now pending in the United States District Court for the District of Maryland
pur-
-------------------------------------------------------------------------------
24 o ALLIANCE NATIONAL MUNICIPAL INCOME FUND
Notes to Financial Statements
-------------------------------------------------------------------------------
suant 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. 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 the 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 Discontinuance 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 shareholders 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 the Fund are not redeemable by the Fund, but are traded on an
exchange at prices established by the market. Accordingly, the Fund and its
shareholders 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
Fund is a closed-end fund, it will not have its advisory fee reduced pursuant to
the terms of the agreements mentioned above.
The Adviser and approximately twelve other investment management firms were
publicly mentioned in connection with the settlement by the SEC of charges that
an unaffiliated broker/dealer violated federal securities laws relating to its
receipt of compensation for selling specific mutual funds and the disclosure of
such compensation. The SEC has indicated publicly that, among other things, it
is considering enforcement action in connection with mutual funds' disclosure of
such
-------------------------------------------------------------------------------
ALLIANCE NATIONAL MUNICIPAL INCOME FUND o 25
Notes to Financial Statements
-------------------------------------------------------------------------------
arrangements and in connection with the practice of considering mutual fund
sales in the direction of brokerage commissions from fund portfolio
transactions. The SEC has issued subpoenas to the Adviser in connection with
this matter and the Adviser has provided documents and other information to the
SEC and is cooperating fully with its investigation.
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
Aucoin Complaint was filed in the United States District Court for the Southern
District of New York by an alleged shareholder 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, numerous additional lawsuits making factual allegations
substantially similar to those in the Aucoin Complaint were filed against the
Adviser and certain other defendants, and others may be filed.
The Adviser believes that these matters are not likely to have a material
adverse effect on the Fund or the Adviser's ability to perform advisory services
relating to the Fund.
-------------------------------------------------------------------------------
26 o ALLIANCE NATIONAL MUNICIPAL INCOME FUND
Financial Highlights
-------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Selected Data For A Share Of Common Stock Outstanding Throughout Each Period
January 28,
Year Ended October 31, 2002(b) to
------------------------ October 31,
2004(a) 2003 2002
----------- ----------- -----------
Net asset value, beginning of period $15.02 $14.81 $14.33
INCOME FROM INVESTMENT OPERATIONS
Net investment income(c)(d) 1.16 1.19 .74
Net realized and unrealized gain on
investment transactions .42 .03 .60
Dividends to preferred shareholders
from net investment income (common
stock equivalent basis) (.12) (.13) (.08)
Net increase in net asset value
from operations 1.46 1.09 1.26
LESS: DIVIDENDS TO COMMON
SHAREHOLDERS FROM
Net investment income (.99) (.87) (.64)
Common stock offering costs -0- -0- (.03)
Preferred stock offering costs and
sales load -0- (.01) (.11)
Net asset value, end of period $15.49 $15.02 $14.81
Market price, end of period $14.18 $13.71 $13.48
Discount (8.46)% (8.72)% (8.98)%
TOTAL RETURN
Total investment return based on:(e)
Market price 11.01% 8.36% (5.92)%
Net asset value 10.69% 8.05% 8.14%
RATIOS/SUPPLEMENTAL DATA:
Net assets applicable to common
shareholders, end of period
(000's omitted). $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
Ratios to average net assets
applicable to common
shareholders of:
Expenses, net of fee waivers(f) .97% .95% .95%(g)
Expenses, before fee waivers(f) 1.38% 1.36% 1.33%(g)
Net investment income, before
preferred stock dividends(d)(f) 7.63% 7.88% 6.73%(g)
Preferred stock dividends .80% .89% .76%(g)
Net investment income, net of
preferred stock dividends(d) 6.84% 6.99% 5.97%(g)
Portfolio turnover rate 14% 11% 13%
Asset coverage ratio 263% 258% 255%
See footnote summary on page 28.
-------------------------------------------------------------------------------
ALLIANCE NATIONAL MUNICIPAL INCOME FUND o 27
Financial Highlights
-------------------------------------------------------------------------------
(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.
-------------------------------------------------------------------------------
28 o ALLIANCE NATIONAL MUNICIPAL INCOME FUND
Report of Independent Registered Public Accounting Firm
-------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
Alliance National Municipal Income Fund, Inc.
We have audited the accompanying statement of assets and liabilities of Alliance
National Municipal Income Fund, Inc. (the "Fund"), including the portfolio of
investments, as of October 31, 2004, and the related statement of operations for
the year then ended, the statement of changes in net assets applicable to common
shareholders for each of the two years in the period then ended and the
financial highlights for each of the periods indicated therein. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements and financial highlights. Our procedures
included confirmation of securities owned as of October 31, 2004, by
correspondence with the custodian and brokers. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Alliance National Municipal Income Fund, Inc. at October 31, 2004, the results
of its operations for the year then ended, the changes in its net assets
applicable to common shareholders for each of the two years in the period then
ended and the financial highlights for each of the periods indicated therein, in
conformity with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
New York, New York
December 15, 2004
FEDERAL TAX INFORMATION (unaudited)
In accordance with Federal tax law, the Fund's designation of "exempt-interest
dividends" paid during the fiscal year ended October 31, 2004 was $22,714,481.
As required by Federal tax law rules, shareholders will receive notification of
their portion of the Fund's taxable ordinary dividends (if any) and capital gain
distributions (if any) paid for the 2004 calendar year on Form 1099-DIV which
will be mailed by January 31, 2005.
-------------------------------------------------------------------------------
ALLIANCE NATIONAL MUNICIPAL INCOME FUND o 29
Additional Information
-------------------------------------------------------------------------------
ADDITIONAL INFORMATION
(unaudited)
Shareholders whose shares are registered in their own names can elect to
participate in the Dividend Reinvestment Plan (the "Plan"), pursuant to which
dividends and capital gain distributions to shareholders will be paid in or
reinvested in additional shares of the Fund (the "Dividend Shares"). Equiserve
Trust Company NA, (the "Agent") will act as agent for participants under the
Plan. Shareholders whose shares are held in the name of broker or nominee should
contact such broker or nominee to determine whether or how they may participate
in the Plan.
If the Board declares an income distribution or determines to make a capital
gain distribution payable either in shares or in cash, non-participants in the
Plan 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 net asset value 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 net asset
value at the time of valuation, the Plan 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 New York Stock Exchange 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 Plan agent has
completed its purchases, the market price exceeds the net asset value of a share
of Common Stock, the average purchase price per share paid by the Plan agent may
exceed the net asset value 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 shareholders' accounts in the Plan and furnish
written confirmation of all transactions in the account, including information
needed by shareholders for tax records. Shares in the account of each Plan
participant will be held by the Agent in non-certificate form in the name of the
participant, and each shareholder'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 the 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.
The automatic reinvestment of dividends and distributions will not relieve
participants of any income taxes that
-------------------------------------------------------------------------------
30 o ALLIANCE NATIONAL MUNICIPAL INCOME FUND
Additional Information
-------------------------------------------------------------------------------
may be payable (or required to be withheld) on dividends and distributions.
Experience under the Plan may indicate that changes are desirable. Accordingly,
the Fund reserves the right to amend or terminate the Plan 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 Plan should be
directed to the Agent at Equiserve Trust Company N.A. c/o Alliance National
Municipal Income fund, P.O. Box 43011, Providence, RI 02940-3011
Since the filing of the most recent amendment to the Fund's registration
statement with the Securities and Exchange Commission, there have been (i) no
material changes in the Fund's investment objectives or policies, (ii) no
changes to the Fund's charter or by-laws that would delay or prevent a change of
control of the Fund, (iii) no material changes in the principal risk factors
associated with investment in the Fund, and (iv) no change to the persons
primarily responsible for the day-to-day management of the Fund's portfolio, who
are David Dowden, and Terrance Hults, each of whom is a Vice President of the
Fund.
-------------------------------------------------------------------------------
ALLIANCE NATIONAL MUNICIPAL INCOME FUND o 31
Board of Directors
-------------------------------------------------------------------------------
BOARD OF DIRECTORS
William H. Foulk, Jr.(1), Chairman
Marc O. Mayer, President
Ruth Block(1)
David H. Dievler(1)
John H. Dobkin(1)
Dr. James M. Hester(1)
Donald J. Robinson(1)
OFFICERS
Robert B. Davidson, III, Senior Vice President
Philip L.Kirstein, Senior Vice President and Independent Compliance Officer
David M. Dowden(2), Vice President
Terrance T. Hults(2), Vice President
Mark R. Manley, Secretary
Mark D. Gersten, Treasurer and Chief Financial Officer
Thomas R. Manley, Controller
Custodian
State Street Bank & Trust Company
225 Franklin Street
Boston, MA 02110
Legal Counsel
Seward & Kissel LLP
One Battery Park Plaza
New York, NY 10004
Preferred Stock: Dividend Paying Agent, Transfer Agent and Registrar
The Bank of New York
100 Church Street
New York, NY 10286
Independent Registered Public Accounting Firm
Ernst & Young LLP
5 Times Square
New York, NY 10036
Common Stock: Dividend Paying Agent, Transfer Agent and Registrar
Equiserve Trust Company, N.A.
P.O. Box 43011
Providence, RI 02940-3011
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940 that the Fund may purchase at market prices from time to
time shares of its Common Stock in the open market.
This report, including the financial statements therein, is transmitted to the
shareholders of Alliance National Municipal Income Fund for their information.
This is not a prospectus, circular or representation intended for use in the
purchase of shares of the Fund or any securities mentioned in the report.
(1) Member of the Audit Committee and the Governance and Nominating Committee.
(2) Messrs. Dowden and Hults are the persons primarily responsible for the
day-to-day management of the Fund's investment portfolio.
-------------------------------------------------------------------------------
32 o ALLIANCE NATIONAL MUNICIPAL INCOME FUND
Management of the Fund
-------------------------------------------------------------------------------
MANAGEMENT OF THE FUND
Board of Directors Information
The business and affairs of the Fund are managed under the direction of the
Board of Directors. Certain information concerning the Fund's Directors is set
forth below.
PORTFOLIOS
IN FUND OTHER
NAME, PRINCIPAL COMPLEX DIRECTORSHIPS
ADDRESS, DATE OF BIRTH OCCUPATION(S) OVERSEEN BY HELD BY
(YEAR ELECTED*) DURING PAST 5 YEARS DIRECTOR DIRECTOR
-------------------------------------------------------------------------------------------------------------
INTERESTED DIRECTOR
Marc O. Mayer, ++ Executive Vice President of ACMC 68 None
1345 Avenue of the since 2001; prior thereto, Chief
Americas Executive Officer of Sanford C.
New York, NY 10105 Bernstein & Co., LLC and its
10/2/57 (2003) predecessor since prior to 1999.
DISINTERESTED DIRECTORS
William H. Foulk, Jr.,+ Investment adviser and an 116 None
2 Sound View Drive independent consultant. He was
Suite 100 formerly Senior Manager of Barrett
Greenwich, CT 06830 Associates, Inc., a registered
9/7/32 (2001) investment adviser, with which he
Chairman of the Board had been associated since prior to
1999. He was formerly Deputy Comptroller and
Chief Investment Officer of the State of New
York and, prior thereto, Chief Investment
Officer of the New York Bank for Savings.
Ruth Block,+** Formerly Executive Vice President 96 None
500 SE Mizner Blvd., and Chief Insurance Officer of The
Boca Raton, FL 33432 Equitable Life Assurance Society
11/7/30 (2001) of the United States; Chairman
and Chief Executive Officer of Evlico;
Director of Avon, BP (oil and gas), Ecolab
Incorporated (specialty chemicals), Tandem
Financial Group and Donaldson, Lufkin &
Jenrette Securities Corporation; former
Governor at Large National Association of
Securities Dealers, Inc.
David H. Dievler,+ Independent consultant. Until 100 None
P.O. Box 167 December 1994 he was Senior
Spring Lake, NJ 07762 Vice President of Alliance Capital
10/23/29 (2001) Management Corporation ("ACMC")
responsible for mutual fund admin- istration.
Prior to joining ACMC in 1984 he was Chief
Financial Officer of 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.
-------------------------------------------------------------------------------
ALLIANCE NATIONAL MUNICIPAL INCOME FUND o 33
Management of the Fund
-------------------------------------------------------------------------------
PORTFOLIOS
IN FUND OTHER
NAME, PRINCIPAL COMPLEX DIRECTORSHIPS
ADDRESS, DATE OF BIRTH OCCUPATION(S) OVERSEEN BY HELD BY
(YEAR ELECTED*) DURING PAST 5 YEARS DIRECTOR DIRECTOR
-------------------------------------------------------------------------------------------------------------
DISINTERESTED DIRECTORS
(continued)
John H. Dobkin,+ Consultant. Formerly President of 98 None
P.O. Box 12 Save Venice, Inc. (preservation
Annandale, NY 12504 organization) from 2001-2002,
2/19/42 (2001) a Senior Advisor from June 1999
-June 2000 and President of Historic Hudson
Valley (historic preservation) from December
1989-May 1999. Previously, Director of the
National Academy of Design and during
1988-1992, he was Director and Chairman of
the Audit Committee of ACMC.
Dr. James M. Hester, + Formerly President of the Harry 11 None
25 Cleveland Lane Frank Guggenheim Foundation,
Princeton, NJ 08540 New York University and the
4/19/24 (2001) New York Botanical Garden. Formerly
Rector of the United Nations
University and Vice Chairman of the
Board of the Federal Reserve Bank of
New York.
Donald J. Robinson,+ Senior Counsel to the law firm of 96 None
98 Hell's Peak Road Orrick, Herrington & Sutcliffe LLP
Weston, VT 05161 since prior to 1999. Formerly a
8/24/34 (2001) senior partner and a member of
the Executive Committee of that firm.
Formerly a member and Chairman of the
Municipal Securities Rulemaking Board and
Trustee of the Museum of the City of New
York.
* There is no stated term of office for the Fund's Directors.
+ Member of the Audit Committee and the Governance and Nominating Committee.
++ Mr. Mayer is an "interested person", as defined in the 1940 Act, due to his
position as Executive Vice President of ACMC.
** Ms. Block was an "interested person" as defined in the 1940 Act, until
October 21, 2004 by reason of her ownership of 116 American Depositary Shares of
AXA having a value of approximately $2,396. AXA is a controlling person of ACMC.
Ms. Block received shares of The Equitable Companies incorporated as part of the
demutualization of The Equitable Life Assurance Society of the United States,
which were subsequently converted through a corporate action into 116 American
Depositary Shares of AXA.
-------------------------------------------------------------------------------
34 o ALLIANCE NATIONAL MUNICIPAL INCOME FUND
Management of the Fund
-------------------------------------------------------------------------------
Officer Information
Certain information concerning the Fund's Officers is listed below.
NAME, ADDRESS* POSITION(S) PRINCIPAL OCCUPATION
AND DATE OF BIRTH HELD WITH FUND DURING PAST 5 YEARS
--------------------------------------------------------------------------------------------------------------
Marc O. Mayer President See biography above.
10/2/57
Robert B. Davidson, III Senior Vice President Senior Vice President of ACMC,** with
4/8/61 which he has been associated since
prior to 1999.
Philip L. Kirstein Senior Vice President Senior Vice President, Independent
5/29/1945 and Independent Compliance Officer-Mutual Funds of
Compliance Officer ACMC with which he had been
associated since October 2004. Prior
thereto, he was Of Counsel to
Kirkpatrick & Lockhart, LLP from
October 2003 to October 2004, and
General Counsel and First Vice
President of Merrill Lynch Investment
Managers, LLP since prior to 1999.
until March 2003.
David M. Dowden Vice President Senior Vice President of ACMC,** with
11/21/65 which he has been associated since
prior to 1999.
Terrance T. Hults Vice President Senior Vice President of ACMC,** with
5/17/66 which he has been associated since
prior to 1999.
Mark R. Manley Secretary Senior Vice President, Deputy General
10/23/62 Counsel and Chief Compliance Officer
of ACMC,** with which he has been
associated since prior to 1999.
Mark D. Gersten Treasurer and Chief Senior Vice President of Alliance Global
10/4/50 Financial Officer Investor Services, Inc. ("AGIS")** and
a Vice President of AllianceBernstein
Investment Research and Management,
Inc. ("ABIRM"),** with which he has
been associated since prior to 1999.
Thomas R. Manley Controller Vice President of ACMC,** with which
8/3/51 he has been associated since prior to
1999.
* The address for each of the Fund's officers is 1345 Avenue of the Americas,
New York, NY 10105.
** ACMC, AGIS and ABIRM are affiliates of the Fund.
-------------------------------------------------------------------------------
ALLIANCE NATIONAL MUNICIPAL INCOME FUND o 35
AllianceBernstein Family of Funds
-------------------------------------------------------------------------------
ALLIANCEBERNSTEIN FAMILY OF FUNDS
--------------------------------------------
Wealth Strategies Funds
--------------------------------------------
Balanced Wealth Strategy
Wealth Appreciation Strategy
Wealth Preservation Strategy
Tax-Managed Balanced Wealth Strategy
Tax-Managed Wealth Appreciation Strategy
Tax-Managed Wealth Preservation Strategy
--------------------------------------------
Blended Style Funds
--------------------------------------------
U.S. Large Cap Portfolio
International Portfolio
Tax-Managed International Portfolio
--------------------------------------------
Growth Funds
--------------------------------------------
Domestic
Growth Fund
Mid-Cap Growth Fund
Large Cap Growth Fund*
Small Cap Growth Fund
Global & International
All-Asia Investment Fund
Global Health Care Fund*
Global Research Growth Fund
Global Technology Fund*
Greater China '97 Fund
International Premier Growth Fund
New Europe Fund
Worldwide Privatization Fund
--------------------------------------------
Value Funds
--------------------------------------------
Domestic
Balanced Shares
Focused Growth & Income Fund*
Growth & Income Fund
Real Estate Investment Fund
Small Cap Value Fund**
Utility Income Fund
Value Fund
Global & International
Global Value Fund
International Value Fund
--------------------------------------------
Taxable Bond Funds
--------------------------------------------
Americas Government Income Trust
Corporate Bond Portfolio
Emerging Market Debt Fund
Global Strategic Income Trust
High Yield Fund
Multi-Market Strategy Trust
Quality Bond Portfolio
Short Duration Portfolio
U.S. Government Portfolio
--------------------------------------------
Municipal Bond Funds
--------------------------------------------
NationalInsured National
Arizona
California
Insured California
Florida
Massachusetts
Michigan
Minnesota
New Jersey
New York
Ohio
Pennsylvania
Virginia
--------------------------------------------
Intermediate Municipal Bond Funds
--------------------------------------------
Intermediate California
Intermediate Diversified
Intermediate New York
--------------------------------------------
Closed-End Funds
--------------------------------------------
All-Market Advantage Fund
ACM Income Fund
ACM Government Opportunity Fund
ACM Managed Dollar Income Fund
ACM Managed Income Fund
ACM Municipal Securities Income Fund
California Municipal Income Fund
National Municipal Income Fund
New York Municipal Income Fund
The Spain Fund
World Dollar Government Fund
World Dollar Government Fund II
We also offer Exchange Reserves,*** which serves as the money market fund
exchange vehicle for the AllianceBernstein mutual funds. For more complete
information on any AllianceBernstein mutual fund, including investment
objectives and policies, sales charges, expenses, risks and other matters of
importance to prospective investors, visit our web site at
www.alliancebernstein.com or call us at (800) 227-4618 for a current prospectus.
You should read the prospectus carefully before you invest.
* Prior to December 15, 2004, these Funds were named as follows: Global Health
Care Fund was Health Care Fund; Large Cap Growth Fund was Premier Growth Fund;
Global Technology Fund was Technology Fund; and Focused Growth & Income Fund was
Disciplined Value Fund.
** Effective February 1, 2005, Small Cap Value Fund will be renamed
Small/Mid-Cap Value Fund.
*** An investment in the Fund is not a deposit in a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. Although the Fund seeks to preserve the value of your investment at
$1.00 per share, it is possible to lose money by investing in the Fund.
-------------------------------------------------------------------------------
36 o ALLIANCE NATIONAL MUNICIPAL INCOME FUND
Summary of General Information
-------------------------------------------------------------------------------
SUMMARY OF GENERAL INFORMATION
Shareholder Information
Daily market prices for the Fund's shares are published in the New York Stock
Exchange Composite Transaction section of The Wall Street Journal under the
abbreviation "Alliance NA." The Fund's NYSE trading symbol is "AFB". Weekly
comparative net asset value (NAV) and market price information about the Fund is
published each Monday in The Wall Street Journal, each Sunday in The New York
Times and each Saturday in Barron's and other newspapers in a table called
"Closed-End Bond Funds."
Dividend Reinvestment Plan
A Dividend Reinvestment Plan provides automatic reinvestment of dividends and
capital gains in additional Fund shares.
For questions concerning shareholder account information, or if you would like a
brochure describing the Dividend Reinvestment Plan, please call Equiserve Trust
Company at (800) 219-4218.
-------------------------------------------------------------------------------
ALLIANCE NATIONAL MUNICIPAL INCOME FUND o 37
ALLIANCE NATIONAL MUNICIPAL INCOME FUND
1345 Avenue of the Americas
New York, NY 10105
(800) 221-5672
AllianceBernstein [LOGO](SM)
Investment Research and Management
(SM) This service mark used under license from the owner, Alliance Capital
Management L.P.
NMIAR1004
ITEM 2. CODE OF ETHICS.
(a) The registrant has adopted a code of ethics that applies to its principal
executive officer, principal financial officer and principal accounting officer.
A copy of the registrant's code of ethics is filed herewith as Exhibit 11(a)(1).
(b) During the period covered by this report, no material amendments were made
to the provisions of the code of ethics adopted in 2(a) above.
(c) During the period covered by this report, no implicit or explicit waivers to
the provisions of the code of ethics adopted in 2(a) above were granted.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The registrant's Board of Directors has determined that independent directors
David H. Dievler and William H. Foulk, Jr. qualify as audit committee financial
experts.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) - (c) The following table sets forth the aggregate fees billed by the
independent auditor Ernst & Young LLP, for the Fund's last two fiscal years for
professional services rendered for: (i) the audit of the Fund's annual financial
statements included in the Fund's annual report to stockholders; (ii) assurance
and related services that are reasonably related to the performance of the audit
of the Fund's financial statements and are not reported under (i), which include
advice and education on accounting and auditing issues and quarterly press
release review, and preferred stock maintenance testing (for those Funds that
issue preferred stock); and (iii) tax compliance, tax advice and tax return
preparation.
Audit-Related
Audit Fees Fees Tax Fees
--------------------------------------------
Alliance National Municipal Income Fund, 2003 $44,000 $23,144 $13,446
Inc.
2004 $47,000 $13,145 $19,020
(d) Not applicable.
(e) (1) Beginning with audit and non-audit service contracts entered into on or
after May 6, 2003, the Fund's Audit Committee policies and procedures require
the pre-approval of all audit and non-audit services provided to the Fund by the
Fund's independent auditors. The Fund's Audit Committee policies and procedures
also require pre-approval of all audit and non-audit services provided to the
Adviser and Service Affiliates to the extent that these services are directly
related to the operations or financial reporting of the Fund.
(e) (2) All of the amounts for Audit Fees, Audit-Related Fees and Tax Fees in
the table under Item 4 (a) - (c) are for services pre-approved by the Fund's
Audit Committee.
(f) Not applicable.
(g) The following table sets forth the aggregate non-audit services provided to
the Fund, the Fund's Adviser and entities that control, are controlled by or
under common control with the Adviser that provide ongoing services to the Fund,
which include conducting an annual internal control report pursuant to Statement
on Auditing Standards No. 70 ("Service Affiliates"):
:
Total Amount of
Foregoing Column
Pre-approved by the
Audit Committee
All Fees for (Portion Comprised of
Non-Audit Services Audit Related Fees)
Provided to the (Portion Comprised of
Portfolio, the Adviser Tax Fees)
and Service Affiliates
------------------------------------------------
Alliance National Municipal Income Fund, 2003 $ 731,855 $206,590
Inc. $193,144
$ 13,446
2004 $1,133,897 $182,165
$163,145
$ 19,020
(h) The Audit Committee of the Fund has considered whether the provision of any
non-audit services not pre-approved by the Audit Committee provided by the
Fund's independent auditor to the Adviser and Service Affiliates is compatible
with maintaining the auditor's independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
The registrant has a separately-designated standing audit committee established
in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934.
The audit committee members are as follows:
Ruth Block William H. Foulk, Jr.
David H. Dievler Dr. James M. Hester
John H. Dobkin Donald J. Robinson
ITEM 6. SCHEDULE OF INVESTMENTS.
Please see Schedule of Investments contained in the Report to Shareholders
included under Item 1 of this Form N-CSR.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
The registrant has adopted the following proxy voting policies and procedures of
its investment adviser, Alliance Capital Management L.P.
October 2004
ALLIANCE CAPITAL MANAGEMENT L.P.
Statement of Policies and Procedures for Proxy Voting
Introduction
As a registered investment adviser, Alliance Capital Management L.P. ("Alliance
Capital", "we" or "us") has a fiduciary duty to act solely in the best interests
of our clients. We recognize that this duty requires us to vote client
securities in a timely manner and make voting decisions that are in the best
interests of our clients. Consistent with these obligations, we will disclose
our clients' voting records only to them and as required by mutual fund vote
disclosure regulations. In addition, the proxy committees may, after careful
consideration, choose to respond to surveys regarding past votes.
This statement is intended to comply with Rule 206(4)-6 of the Investment
Advisers Act of 1940. It sets forth our policies and procedures for voting
proxies for our discretionary investment advisory clients, including investment
companies registered under the Investment Company Act of 1940. This statement
applies to Alliance Capital's growth and value investment groups investing on
behalf of clients in both US and non-US securities.
Proxy Policies
This statement is designed to be responsive to the wide range of proxy voting
subjects that can have a significant effect on the investment value of the
securities held in our clients' accounts. These policies are not exhaustive due
to the variety of proxy voting issues that we may be required to consider.
Alliance Capital reserves the right to depart from these guidelines in order to
avoid voting decisions that we believe may be contrary to our clients' best
interests. In reviewing proxy issues, we will apply the following general
policies:
Corporate Governance: Alliance Capital's proxy voting policies recognize the
importance of good corporate governance in ensuring that management and the
board of directors fulfill their obligations to the shareholders. We favor
proposals promoting transparency and accountability within a company. We will
vote for proposals providing for equal access to the proxy materials so that
shareholders can express their views on various proxy issues. We also support
the appointment of a majority of independent directors on key committees and
separating the positions of chairman and chief executive officer.
Elections of Directors: Unless there is a proxy fight for seats on the Board or
we determine that there are other compelling reasons for withholding votes for
directors, we will vote in favor of the management proposed slate of directors.
That said, we believe that directors have a duty to respond to shareholder
actions that have received significant shareholder support. We may withhold
votes for directors that fail to act on key issues such as failure to implement
proposals to declassify boards, failure to implement a majority vote
requirement, failure to submit a rights plan to a shareholder vote or failure to
act on tender offers where a majority of shareholders have tendered their
shares. In addition, we will withhold votes for directors who fail to attend at
least seventy-five percent of board meetings within a given year without a
reasonable excuse. Finally, we may withhold votes for directors of non-U.S.
issuers where there is insufficient information about the nominees disclosed in
the proxy statement.
Appointment of Auditors: Alliance Capital believes that the company remains in
the best position to choose the auditors and will generally support management's
recommendation. However, we recognize that there may be inherent conflicts when
a company's independent auditor performs substantial nonaudit related services
for the company. While we will recognize that there may be special circumstances
that could lead to high non-audit fees in some years, we would normally consider
non-audit fees in excess of 70% to be disproportionate. Therefore, we may vote
against the appointment of auditors if the fees for non-audit related services
exceed 70% of the total audit fees paid by the company or there are other
reasons to question the independence of the company's auditors.
Changes in Legal and Capital Structure: Changes in a company's charter, articles
of incorporation or by-laws are often technical and administrative in nature.
Absent a compelling reason to the contrary, Alliance Capital will cast its votes
in accordance with the company's management on such proposals. However, we will
review and analyze on a case-by-case basis any non-routine proposals that are
likely to affect the structure and operation of the company or have a material
economic effect on the company. For example, we will generally support proposals
to increase authorized common stock when it is necessary to implement a stock
split, aid in a restructuring or acquisition or provide a sufficient number of
shares for an employee savings plan, stock option or executive compensation
plan. However, a satisfactory explanation of a company's intentions must be
disclosed in the proxy statement for proposals requesting an increase of greater
than one hundred percent of the shares outstanding. We will oppose increases in
authorized common stock where there is evidence that the shares will be used to
implement a poison pill or another form of anti-takeover device, or if the
issuance of new shares could excessively dilute the value of the outstanding
shares upon issuance.
Corporate Restructurings, Mergers and Acquisitions: Alliance Capital believes
proxy votes dealing with corporate reorganizations are an extension of the
investment decision. Accordingly, we will analyze such proposals on a
case-by-case basis, weighing heavily the views of the research analysts that
cover the company and the investment professionals managing the portfolios in
which the stock is held.
Proposals Affecting Shareholder Rights: Alliance Capital believes that certain
fundamental rights of shareholders must be protected. We will generally vote in
favor of proposals that give shareholders a greater voice in the affairs of the
company and oppose any measure that seeks to limit those rights. However, when
analyzing such proposals we will weigh the financial impact of the proposal
against the impairment of shareholder rights.
Anti-Takeover Measures: Alliance Capital believes that measures that impede
takeovers or entrench management not only infringe on the rights of shareholders
but may also have a detrimental effect on the value of the company. We will
generally oppose proposals, regardless of whether they are advanced by
management or shareholders, the purpose or effect of which is to entrench
management or dilute shareholder ownership. Conversely, we support proposals
that would restrict or otherwise eliminate antitakeover measures that have
already been adopted by corporate issuers. For example, we will support
shareholder proposals that seek to require the company to submit a shareholder
rights plan to a shareholder vote. We will evaluate, on a case-by-case basis,
proposals to completely redeem or eliminate such plans. Furthermore, we will
generally oppose proposals put forward by management (including blank check
preferred stock, classified boards and supermajority vote requirements) that
appear to be intended as management entrenchment mechanisms.
Executive Compensation: Alliance Capital believes that company management and
the compensation committee of the board of directors should, within reason, be
given latitude to determine the types and mix of compensation and benefit awards
offered. Whether proposed by a shareholder or management, we will review
proposals relating to executive compensation plans on a case-by-case basis to
ensure that the long-term interests of management and shareholders are properly
aligned. We will analyze the proposed plans to ensure that shareholder equity
will not be excessively diluted, the option exercise price is not below market
price on the date of grant and an acceptable number of employees are eligible to
participate in such programs. We will generally oppose plans that permit
repricing of underwater stock options without shareholder approval. Other
factors such as the company's performance and industry practice will generally
be factored into our analysis. We will support proposals to submit severance
packages that do not exceed 2.99 times the sum of an executive officer's base
salary plus bonus that are triggered by a change in control to a shareholder
vote. Finally, we will support shareholder proposals requiring companies to
expense stock options because we view them as a large corporate expense.
Social and Corporate Responsibility: Alliance Capital will review and analyze on
a case-by-case basis proposals relating to social, political and environmental
issues to determine whether they will have a financial impact on shareholder
value. We will vote against proposals that are unduly burdensome or result in
unnecessary and excessive costs to the company. We may abstain from voting on
social proposals that do not have a readily determinable financial impact on
shareholder value.
Proxy Voting Procedures
Proxy Voting Committees
Our growth and value investment groups have formed separate proxy voting
committees to establish general proxy policies for Alliance Capital and consider
specific proxy voting matters as necessary. These committees periodically review
these policies and new types of corporate governance issues, and decide how we
should vote on proposals not covered by these policies. When a proxy vote cannot
be clearly decided by an application of our stated policy, the proxy committee
will evaluate the proposal. In addition, the committees, in conjunction with the
analyst that covers the company, may contact corporate management and interested
shareholder groups and others as necessary to discuss proxy issues. Members of
the committee include senior investment personnel and representatives of the
Legal and Compliance Department. The committees may also evaluate proxies where
we face a potential conflict of interest (as discussed below). Finally, the
committees monitor adherence to these policies.
Conflicts of Interest
Alliance Capital recognizes that there may be a potential conflict of interest
when we vote a proxysolicited by an issuer whose retirement plan we manage, or
we administer, who distributes Alliance Capital sponsored mutual funds, or with
whom we or an employee has another business or personal relationship that may
affect how we vote on the issuer's proxy. Similarly, Alliance may have a
potential material conflict of interest when deciding how to vote on a proposal
sponsored or supported by a shareholder group that is a client. We believe that
centralized management of proxy voting, oversight by the proxy voting committees
and adherence to these policies ensures that proxies are voted with only our
clients' best interests in mind. That said, we have implemented additional
procedures to ensure that our votes are not the product of a material conflict
of interests, including: (i) on an annual basis, the proxy committees will take
reasonable steps to evaluate the nature of Alliance Capital's and our employees'
material business and personal relationships (and those of our affiliates) with
any company whose equity securities are held in client accounts and any client
that has sponsored or has material interest in a proposal upon which we will be
eligible to vote; (ii) requiring anyone involved in the decision making process
to disclose to the chairman of the appropriate proxy committee any potential
conflict that they are aware of (including personal relationships) and any
contact that they have had with any interested party regarding a proxy vote;
(iii) prohibiting employees involved in the decision making process or vote
administration from revealing how we intend to vote on a proposal in order to
reduce any attempted influence from interested parties; and (iv) where a
material conflict of interests exists, reviewing our proposed vote by applying a
series of objective tests and, where necessary, considering the views of a third
party research service to ensure that our voting decision is consistent with our
clients' best interests. Because under certain circumstances Alliance Capital
considers the recommendation of third party research services, the proxy
committees will take reasonable steps to verify that any third party research
service is in fact independent based on all of the relevant facts and
circumstances. This includes reviewing the third party research service's
conflict management procedures and ascertaining, among other things, whether the
third party research service (i) has the capacity and competency to adequately
analyze proxy issues; and (ii) can make such recommendations in an impartial
manner and in the best interests of our clients.
Proxies of Certain Non-US Issuers
Proxy voting in certain countries requires "share blocking." Shareholders
wishing to vote their proxies must deposit their shares shortly before the date
of the meeting (usually one-week) with a designated depositary. During this
blocking period, shares that will be voted at the meeting cannot be sold until
the meeting has taken place and the shares are returned to the clients'
custodian banks. Alliance Capital may determine that the benefit to the client
of exercising the vote does not outweigh the cost of voting, which is not being
able to transact in the shares during this period. Accordingly, if share
blocking is required we may abstain from voting those shares.
In addition, voting proxies of issuers in non-US markets may give rise to a
number of administrative issues that may prevent Alliance Capital from voting
such proxies. For example, Alliance Capital may receive meeting notices without
enough time to fully consider the proxy or after the cut-off date for voting.
Other markets require Alliance Capital to provide local agents with power of
attorney prior to implementing Alliance Capital's voting instructions. Although
it is Alliance Capital's policy to seek to vote all proxies for securities held
in client accounts for which we have proxy voting authority, in the case of
non-US issuers, we vote proxies on a best efforts basis.
Proxy Voting Records
Clients may obtain information about how we voted proxies on their behalf by
contacting their Alliance Capital administrative representative. Alternatively,
clients may make a written request for proxy voting information to: Mark R.
Manley, Senior Vice President & Chief Compliance Officer, Alliance Capital
Management L.P., 1345 Avenue of the Americas, New York, NY 10105.
ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
There have been no purchases of equity securities by the Fund or by affiliated
parties for the reporting period.
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which shareholders may
recommend nominees to the Fund's Board of Directors since the Fund last provided
disclosure in response to the requirements of Item 7(d)(2)(ii)(G) of Schedule
14A in its proxy statement filed with the Commission on February 23, 2004.
ITEM 10. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive officer and principal financial officer
have concluded that the registrant's disclosure controls and procedures (as
defined in Rule 30a-2(c) under the Investment Company Act of 1940, as amended)
are effective at the reasonable assurance level based on their evaluation of
these controls and procedures as of a date within 90 days of the filing date of
this document.
(b) There were no significant changes in the registrant's internal controls that
could significantly affect these controls subsequent to the date of their
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
ITEM 11. EXHIBITS.
The following exhibits are attached to this Form N-CSR:
Exhibit No. DESCRIPTION OF EXHIBIT
11 (a) (1) Code of ethics that is subject to the disclosure of Item 2 hereof
11 (b) (1) Certification of Principal Executive Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
11 (b) (2) Certification of Principal Financial Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
11 (c) Certification of Principal Executive Officer and Principal
Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant): Alliance National Municipal Income Fund, Inc.
By: /s/ Marc O. Mayer
-------------------
Marc O. Mayer
President
Date: December 31, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ Marc O. Mayer
-------------------
Marc O. Mayer
President
Date: December 31, 2004
By: /s/ Mark D. Gersten
-------------------
Mark D. Gersten
Treasurer and Chief Financial Officer
Date: December 31, 2004