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
AllianceBernstein 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, 2006
Date of reporting period: April 30, 2006
ITEM 1. REPORTS TO STOCKHOLDERS.
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SEMI-ANNUAL REPORT
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Alliance National Municipal Income Fund
Semi-Annual Report
April 30, 2006
[LOGO]
ALLIANCEBERNSTEIN
INVESTMENTS
Investment Products Offered
o Are Not FDIC Insured
o May Lose Value
o Are Not Bank Guaranteed
The Fund's Board of Directors approved amended and restated by-laws for the
Fund effective April 1, 2006. The by-laws are an exhibit to the Fund's most
recently filed report on Form N-SAR, which is on file with the SEC and may be
accessed via the SEC's website which is at www.sec.gov. A copy is also
available upon written request to the Secretary of the Fund.
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-month period ended June 30,
without charge. Simply visit AllianceBernstein'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(R) 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 Investments, Inc. is an affiliate of AllianceBernstein L.P.,
the manager of the funds, and is a member of the NASD.
AllianceBernstein(R) and the AB Logo are registered trademarks and service
marks used by permission of the owner, AllianceBernstein L.P.
June 15, 2006
Semi-Annual Report
This report provides management's discussion of fund performance for Alliance
National Municipal Income Fund (the "Fund") for the semi-annual reporting
period ended April 30, 2006. The Fund is a closed-end fund that trades under
the New York Stock Exchange symbol "AFB".
Investment Objective and Policies
The Fund is a closed-end management investment company that seeks to provide
high current income exempt from regular federal income tax by investing
substantially all of its net assets in municipal securities that pay interest
that is exempt from federal income tax. The Fund will normally invest at least
80% of its net assets in municipal securities paying interest that is exempt
from regular federal income tax. The Fund also normally will invest at least
75% of its assets in investment-grade municipal securities or unrated municipal
securities considered to be of comparable quality. The Fund may invest up to
25% of its net assets in municipal bonds rated below investment grade and
unrated municipal bonds considered to be of comparable quality as determined by
the Fund's investment adviser. The Fund intends to invest primarily in
municipal securities that pay interest that is not subject to the federal
Alternative Minimum Tax ("AMT"), but may invest without limit in municipal
securities paying interest that is subject to the federal AMT. 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 26.
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 April 30, 2006.
The Fund outperformed its benchmark, the LB Municipal Index, during both the
six- and 12-month periods ended April 30, 2006. The Fund's stronger relative
performance during the six-month period under review was largely the result of
security selection in the insured, pre-refunded and special tax sectors. In
addition, the Fund's leveraged structure aided its performance.
Market Review and Investment Strategy
From April 2005 through the end of April 2006, the U.S. Federal Reserve (the
"Fed") raised the target for the Federal funds rate from 2.75% to 4.75%; 0.75%
of that increase was since October 2005. In response to the Fed's actions, the
yields for most maturities of domestic bonds increased. Municipal bond yields
increased less than U.S. Treasury bond yields. For example, during the
six-month reporting period, 10-year municipal yields increased 0.16% and
30-year municipal yields actually declined 0.06%. Over the same time period,
10-year and 30-year U.S. Treasury bond yields rose 0.50% and 0.46%,
respectively. The outperformance for municipal bonds largely resulted from
relatively light supply--the amount of bonds issued in the first quarter of
2006 was down 29% from the first quarter of 2005. Municipal bond prices have
also
ALLIANCE NATIONAL MUNICIPAL INCOME FUND o 1
been supported by ongoing demand from a diverse set of investors including
traditional buyers such as U.S. individuals, as well as relatively newer
municipal market participants, such as hedge funds and other institutional
leveraged investors. The municipal market showed similar relative performance
over the 12-month period as over the six-month period ended April 30, 2006. For
the 12-month period, despite 10-year U.S. Treasury yields increasing 0.85% and
30-year U.S. Treasury yields increasing 0.66%, 10-year and 30-year municipal
yields rose 0.51% and 0.16%, respectively.
The market for lower-credit quality, or high yield, municipal bonds continues
to post even stronger returns than the general municipal market. The LB High
Yield Municipal Index returned 5.23% and 7.46% over the six- and 12-month
periods ended April 30, 2006, respectively. This compares to 1.56% and 2.16%
for the same periods for the LB Municipal Bond Index, which represents the
overall general market for investment-grade municipal bonds. The strong
performance for lower-credit quality municipal bonds was in part due to the
relatively favorable credit environment, but of more importance, due to the
continued, very strong demand for higher-yielding bonds. According to AMG Data,
a provider of mutual fund money flow and holdings data, new money into high
yield municipal bond mutual funds accounted for approximately 40% of the flow
in municipal bond mutual funds during the first quarter of 2006. By comparison,
high yield bonds currently represent about 4% of the outstanding supply of
municipal bonds.
During the past year, the Municipal Bond Investment Team's (the "team's")
strategy has remained consistent. Given that interest rates are still
relatively low compared to the level of inflation, the team continues to
maintain less interest rate exposure in the Fund relative to that of the Fund's
benchmark. Also, because high yield municipals have displayed such strong
performance, the team has reduced the Fund's exposure to such holdings, and
further diversified the Fund's remaining holdings. Recently, as market
conditions allow, the team has also been selling longer-maturity holdings and
replacing them with bonds with shorter maturities. In the team's view, these
shorter-maturity holdings should outperform longer-maturity bonds if rates rise
and the difference between long and short yields increases.
2 o ALLIANCE NATIONAL MUNICIPAL INCOME FUND
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 42.
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. An investor cannot invest directly in an index,
and its 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. Please note, as interest rates rise, existing bond prices
fall and can cause the value of your investment in the Fund to decline. 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)
ALLIANCE NATIONAL MUNICIPAL INCOME FUND o 3
HISTORICAL PERFORMANCE
(continued from previous page)
Returns
THE FUND VS. ITS BENCHMARK ---------------------------
PERIODS ENDED APRIL 30, 2006 6 Months 12 Months
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Alliance National Municipal Income Fund (NAV) 2.74% 4.09%
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LB Municipal Index 1.56% 2.16%
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The Fund's Market Price per share on April 30, 2006 was $16.00. The Fund's
Net Asset Value Price per share on April 30, 2006 was $15.29. For
additional Financial Highlights, please see page 30.
See Historical Performance and Benchmark disclosures on previous page.
4 o ALLIANCE NATIONAL MUNICIPAL INCOME FUND
PORTFOLIO SUMMARY
April 30, 2006 (unaudited)
PORTFOLIO STATISTICS
Net Assets ($mil): $313.3
[PIE CHART OMITTED]
QUALITY RATING DISTRIBUTION*
[ ] 64.6% AAA
[ ] 12.5% AA
[ ] 9.6% A
[ ] 8.5% BBB
[ ] 4.6% BB
[ ] 0.2% B
* All data are as of April 30, 2006. The Fund's quality rating distribution
is expressed as a percentage of the Fund's total investments rated in
particular ratings categories by Standard & Poor's Rating Services and Moody's
Investors Service. The distributions may vary over time. If ratings are not
available, the Fund's Adviser will assign ratings that are considered to be of
equivalent quality to such ratings.
ALLIANCE NATIONAL MUNICIPAL INCOME FUND o 5
PORTFOLIO OF INVESTMENTS
April 30, 2006 (unaudited)
Principal
Amount
(000) U.S. $ Value
------------------------------------------------------------------------
MUNICIPAL BONDS-159.6%
Long-Term Municipal Bonds-159.1%
Alabama-7.5%
Huntsville Hlth Care Auth
(Huntsville Hosp Sys) Ser 02B
5.75%, 6/01/32 $ 6,000 $ 6,349,440
Jefferson Cnty
Ltd Oblig Sch Warrants Ser 04A
5.25%, 1/01/23 1,275 1,325,413
Jefferson Cnty Swr Rev
FGIC Ser 99A
5.375%, 2/01/36 7,405 7,798,354
Marshall Cnty Hlth Care Auth
(Marshall Cnty Med Ctr) Ser 02A
5.75%, 1/01/32 2,500 2,587,750
(Marshall Cnty Med Ctr) Ser 02D
5.75%, 1/01/32 3,000 3,107,010
Montgomery Spl Care Facs Fin Auth Rev
(Baptist Health) Ser 04C
5.125%, 11/15/24 1,500 1,517,025
5.25%, 11/15/29 810 877,100
------------
23,562,092
Alaska-1.8%
Alaska Intl Arpt Rev
MBIA Ser 03B
5.00%, 10/01/26 1,000 1,029,900
Alaska Mun Bd Bk Auth
MBIA Ser 04G
5.00%, 2/15/24 1,345 1,387,771
Anchorage Waste Wtr Rev
MBIA Ser 04
5.125%, 5/01/29 750 779,137
Four Dam Pool Elec Rev
Ser 04
5.00%, 7/01/24 1,035 1,050,867
5.25%, 7/01/26 1,385 1,414,390
------------
5,662,065
Arkansas-1.4%
Arkansas Dev Fin Auth SFMR
(Mtg Rev) GNMA Ser 02A
5.30%, 7/01/34 4,430 4,485,995
6 o ALLIANCE NATIONAL MUNICIPAL INCOME FUND
Principal
Amount
(000) U.S. $ Value
------------------------------------------------------------------------
California-8.3%
California GO
Ser 02
5.25%, 4/01/30 $ 1,000 $ 1,037,980
Ser 04
5.25%, 4/01/29 2,000 2,086,660
Chula Vista IDR
(San Diego Gas) Ser 96A
5.30%, 7/01/21 4,000 4,200,320
Coachella Valley Uni Sch Dist
MBIA Ser 03
5.00%, 9/01/31 1,000 1,024,580
Hartnell Comm College
MBIA Ser 03A
5.00%, 8/01/27 1,155 1,236,705
La Quinta Fin Auth Loc Agy Rev
AMBAC Ser 04A
5.25%, 9/01/24 2,000 2,120,200
Los Angeles Cmnty Redev Agy
Ser 04L
5.00%, 3/01/18 1,715 1,696,786
Los Angeles Regl Arpts
(Laxfuel Corp) AMBAC Ser 01 AMT
5.50%, 1/01/32 9,500 9,868,505
San Rafael Elem Sch Dist
FSA Ser 03A
5.00%, 8/01/28 2,820 2,877,359
------------
26,149,095
Colorado-4.4%
Avon Hsg Auth MFHR
(Buffalo Ridge II Proj) GNMA Ser 02A AMT
5.70%, 10/20/43 4,950 5,081,571
Colorado Ed & Cult Facs Auth Rev
(Knowledge Quest Charter Sch) Ser 05
6.50%, 5/01/36 500 500,665
Colorado Hlth Facs Auth Rev
(Parkview Med Ctr) Ser 04
5.00%, 9/01/25 1,800 1,806,444
Denver City & Cnty MFHR
(Clyburn Stapleton Proj) GNMA Ser 02 AMT
5.50%, 12/20/43 2,155 2,181,657
Northwest Metro Dist No 3
(Ltd Tax) Ser 05
6.125%, 12/01/25 500 521,370
Park Creek Metro Dist Rev
(Ref-Sr-Ltd Tax Ppty Tax) Ser 05
5.25%, 12/01/25 1,840 1,870,526
5.50%, 12/01/30 890 911,520
ALLIANCE NATIONAL MUNICIPAL INCOME FUND o 7
Principal
Amount
(000) U.S. $ Value
------------------------------------------------------------------------
Todd Creek Farms Metro Dist No 1 Wtr Rev
(Ref & Impt) Ser 04
6.125%, 12/01/19 $ 780 $ 778,417
------------
13,652,170
District Of Columbia-1.2%
District of Columbia Spl Tax Rev
(Gallery Place Proj) Ser 02 FSA
5.40%, 7/01/31 3,500 3,673,390
Florida-23.5%
Beacon Tradeport CDD
Ser 02B
7.25%, 5/01/33 5,550 5,890,160
Brevard Cnty HFA SFMR
(Mtg Rev) GNMA Ser 02C AMT
5.40%, 3/01/33 945 952,305
Collier Cnty CFD
(Fiddler's Creek) Ser 02A
6.875%, 5/01/33 2,950 3,080,272
(Fiddler's Creek) Ser 02B
6.625%, 5/01/33 2,215 2,284,662
Dade Cnty Arpt Rev
(Miami Int'l Arpt) FGIC Ser 02 AMT
5.375%, 10/01/32 6,040 6,280,090
Florida Ed & Athletic Fac
(FSU Finl Assist) AMBAC Ser 02
5.00%, 10/01/31 5,000 5,140,500
Florida Hsg Fin Corp MFHR
(Westminster Apts) FSA Ser 02E-1 AMT
5.40%, 4/01/42 3,000 3,052,950
Hamal CDD
(Hamal) Ser 01
6.75%, 5/01/31 2,460 2,577,096
Jacksonville Wtr & Swr Sys Rev
(Jacksonville Elec) MBIA Ser 02A
5.50%, 10/01/41(a) 20,000 20,308,200
Lee Cnty Arpt Rev
(Southwest FL Intl) FSA Ser 00A AMT
5.75%, 10/01/22-10/01/25 9,500 10,130,835
Lee Cnty CDD
(Miromar Lakes) Ser 00A
7.25%, 5/01/12 1,490 1,559,821
Lee Cnty IDA Hlth Fac
(Shell Point Village) Ser 99A
5.50%, 11/15/29 2,500 2,522,525
Lee Cnty Trans Fac
(Sanibel Brdgs & Causway) CIFG Ser 05B
5.00%, 10/01/30 1,700 1,764,566
Miami Beach Hlth Facs Hosp Rev
(Mount Sinai Med Ctr) Ser 04
6.75%, 11/15/24 2,000 2,218,060
8 o ALLIANCE NATIONAL MUNICIPAL INCOME FUND
Principal
Amount
(000) U.S. $ Value
------------------------------------------------------------------------
Midtown Miami CDD
Ser 04A
6.00%, 5/01/24 $ 2,500 $ 2,650,075
Orange Cnty Hlth Facs Hosp Rev
(Orlando Regional) Ser 02
5.75%, 12/01/32 1,400 1,547,238
Pinellas Cnty HFA SFMR
(Mtg Rev) GNMA/FNMA Ser 02A AMT
5.40%, 3/01/32 830 837,777
Village CDD
Ser 03A
6.00%, 5/01/22 875 908,836
------------
73,705,968
Georgia-2.3%
Cartersville Dev Auth
(Anheuser Busch Proj) Ser 02 AMT
5.95%, 2/01/32 2,510 2,708,039
Georgia HFA SFMR
(Mtg Rev) Ser 02A-2 AMT
5.60%, 12/01/32 4,510 4,586,129
------------
7,294,168
Hawaii-0.6%
Hawaii St Elec Rev
XLCA Ser 03B AMT
5.00%, 12/01/22 2,000 2,034,980
Illinois-20.2%
Bolingbrook GO
FGIC Ser 02A
5.375%, 1/01/38 5,000 5,218,700
Chicago Arpt Rev
(O'Hare Int'l Arpt) MBIA Ser 02A AMT
5.375%, 1/01/32 15,000 15,482,100
(O'Hare Int'l Arpt) XLCA Ser 03B-1
5.25%, 1/01/34 1,760 1,834,202
Chicago GO
FGIC Ser 00C Prerefunded
5.50%, 1/01/40 9,135 9,841,684
FGIC Ser 00C Unrefunded
5.50%, 1/01/40 5,450 5,739,940
Chicago Parking Rev
(Lakefront Millennium) MBIA Ser 98
5.125%, 1/01/28 8,600 8,830,480
Chicago Sales Tax Rev
FGIC Ser 98
5.25%, 1/01/28 5,710 5,905,510
Cook Cnty Sch Dist
FSA Ser 04
4.60%, 12/01/20(b) 1,000 944,620
ALLIANCE NATIONAL MUNICIPAL INCOME FUND o 9
Principal
Amount
(000) U.S. $ Value
------------------------------------------------------------------------
Gilberts Special Service Area No 15 Spl Tax
(Gilberts Town Ctr Proj) Ser 05
6.00%, 3/01/28 $ 2,766 $ 2,745,476
Illinois Fin Auth Rev
(Inst of Technology) Ser 06A
5.00%, 4/01/31 885 890,460
Manhattan
No. 04-1 (Brookstone Springs Proj) Ser 05
5.875%, 3/01/28 1,875 1,888,838
Met Pier & Expo Auth
(McCormick Place) MBIA Ser 02A
5.25%, 6/15/42 3,750 3,917,137
------------
63,239,147
Indiana-5.2%
Hendricks Cnty Ind Bldg Facs Corp
(First Mtg) Ser 04
5.50%, 7/15/22 1,105 1,196,825
Indiana HFA SFMR
(Mtg Rev) GNMA/FNMA Ser 02 AMT
5.55%, 7/01/32 2,250 2,285,820
Indiana St Dev Fin Auth Rev
(Exempt Facs Inland Steel) Ser 97
5.75%, 10/01/11 2,060 2,097,863
Indianapolis Pub Improv Bd
MBIA Ser 02A
5.25%, 7/01/33 10,000 10,772,200
------------
16,352,708
Iowa-0.2%
Iowa Fin Auth SFMR
(Mtg Rev) GNMA/FNMA Ser 02A AMT
5.40%, 7/01/32 595 599,748
Louisiana-1.5%
Calcasieu Parish SFMR
(Mtg Rev) GNMA/FNMA Ser 02A
6.05%, 4/01/33 410 424,547
Louisiana HFA SFMR
(Mtg Rev) GNMA Ser 02C AMT
5.60%, 6/01/33 1,580 1,603,605
New Orleans GO
MBIA Ser 05
5.00%, 12/01/29 2,700 2,738,907
------------
4,767,059
Massachusetts-3.1%
Massachusetts GO
Ser 02C Prerefunded
5.25%, 11/01/30 1,780 1,914,586
Ser 02C Unrefunded
5.25%, 11/01/30 3,220 3,463,464
10 o ALLIANCE NATIONAL MUNICIPAL INCOME FUND
Principal
Amount
(000) U.S. $ Value
------------------------------------------------------------------------
Massachusetts Hlth & Ed Fac Hosp Rev
(Berkshire Hlth Sys) Asset Gty RADIAN
Ser 01E
5.70%, 10/01/25 $ 2,000 $ 2,155,720
(Cape Cod Hlth Care) Asset Gty RADIAN
Ser 01C
5.25%, 11/15/31 2,100 2,185,449
------------
9,719,219
Michigan-5.0%
Detroit Dev Fin Auth
(Daimler Chrysler Plant) Ser 98A
5.50%, 5/01/21 1,615 1,503,097
Kent Hosp Fin Auth
(Met Hosp Proj) Ser 05A
5.75%, 7/01/25 770 811,395
Michigan State Hosp Fin Auth
(Marquette Gen Hosp Oblig Grp) Ser 05A
5.00%, 5/15/26 1,215 1,205,863
Michigan Strategic
(Detroit Edison Co Proj) XLCA Ser 02 AMT
5.45%, 12/15/32 5,000 5,251,450
Plymouth Ed Ctr Charter Sch Pub Sch Academy
Rev Ref
Ser 05
5.125%, 11/01/23 2,140 2,092,278
Saginaw Hosp Fin Auth Hosp Rev
(Covenant Med Ctr) Ser 00F
6.50%, 7/01/30 4,410 4,816,205
------------
15,680,288
Minnesota-0.2%
St Paul Hsg & Redev Auth Hosp Rev
(Hlth East Proj) Ser 05
6.00%, 11/15/25 500 538,650
Missouri-0.5%
Missouri SFMR
(Mtg Rev) GNMA/FNMA Ser 02A-1 AMT
5.58%, 9/01/32 1,530 1,559,147
Nevada-15.5%
Carson City Hosp Rev
(Carson-Tahoe Hosp Proj) RADIAN Ser 03A
5.00%, 9/01/23 2,600 2,631,642
Clark Cnty Arpt Rev
FGIC Ser 01B
5.25%, 7/01/34 11,920 12,762,863
Nevada Dept Bus & Ind
(Las Vegas Monorail Proj) AMBAC Ser 00
5.625%, 1/01/32 11,720 12,560,559
ALLIANCE NATIONAL MUNICIPAL INCOME FUND o 11
Principal
Amount
(000) U.S. $ Value
------------------------------------------------------------------------
Reno Cap Improvement Rev
Unrefunded FGIC Ser 02
5.375%, 6/01/32 $ 2,790 $ 2,954,526
FGIC Ser 02
5.375%, 6/01/32 4,710 5,101,118
Truckee Meadows Wtr Auth
FSA Ser 01A
5.25%, 7/01/34 12,000 12,415,200
------------
48,425,908
New Hampshire-1.4%
New Hampshire Hlth & Ed Fac Hosp Rev
(Covenant Med Ctr) Ser 02
6.125%, 7/01/31 4,200 4,511,262
New Jersey-1.9%
Morris Union Jointure Commn COP
RADIAN Ser 04
5.00%, 5/01/24 5,185 5,313,329
New Jersey Eco Dev Auth Rev
(Sch Facs Constr) Ser 05O
5.25%, 3/01/25 500 525,180
------------
5,838,509
New York-2.1%
Erie Cnty IDA
(City of Buffalo Proj) FSA Ser 04
5.75%, 5/01/23 4,100 4,563,095
New York City GO
Ser 04G
5.00%, 12/01/23 1,600 1,648,320
New York State HFA
(Eco Dev & Hsg) FGIC Ser 05A
5.00%, 9/15/25 300 313,083
------------
6,524,498
North Carolina-0.6%
Charlotte Arpt Rev
MBIA Ser 04A
5.25%, 7/01/24 1,895 2,006,995
North Dakota-0.6%
North Dakota HFA SFMR
(Mtg Rev) Ser 02A AMT
5.65%, 1/01/34 1,705 1,732,894
Ohio-3.4%
Cuyahoga Cnty
(Port Auth Rev) Ser 01
7.35%, 12/01/31 5,000 5,213,950
Fairfield Cnty Hosp Rev
(Fairfield Med Ctr Proj) RADIAN Ser 03
5.00%, 6/15/22-6/15/24 3,955 4,021,998
12 o ALLIANCE NATIONAL MUNICIPAL INCOME FUND
Principal
Amount
(000) U.S. $ Value
------------------------------------------------------------------------
Port Auth of Columbiana Cnty SWR
(Apex Environmental Llc) Ser 04A AMT
7.125%, 8/01/25 $ 1,340 $ 1,330,888
------------
10,566,836
Oregon-1.1%
Forest Grove Rev
(Ref & Campus Impt Pacific Proj A) RADIAN
Ser 05A
5.00%, 5/01/28 3,340 3,405,431
Pennsylvania-3.6%
Montgomery Cnty IDA Rev
(Whitemarsh Con Care Proj) Ser 05
6.00%, 2/01/21 875 922,040
Pennsylvania Parking Fac
(30th St Station Garage Proj) ACA Ser 02A
AMT
5.875%, 6/01/33 2,050 2,144,361
Pennsylvania Trpk Transp Rev
AMBAC Ser 01
5.00%, 7/15/41 2,000 2,130,560
Philadelphia Auth IDR
(Leadership Learning Partners) Ser 05A
5.25%, 7/01/24 1,150 1,104,058
Philadelphia Hosp Rev
(Temple Univ Hosp) Ser 93A
6.625%, 11/15/23 3,000 3,005,010
Pittsburgh Pub Parking Auth
FGIC Ser 05A
5.00%, 12/01/25 2,000 2,059,780
------------
11,365,809
Rhode Island-1.3%
Rhode Island Hlth & Ed Bldg Corp
(Times2 Academy) Ser 04
5.00%, 12/15/24 4,100 4,119,721
South Carolina-1.7%
Dorchester Cnty Sch Dist No 2
Ser 06
5.00%, 12/01/29 800 820,464
Newberry Investing in Childrens Ed
(Newberry Cnty Sch Dist Proj) Ser 05
5.00%, 12/01/27-12/01/30 4,275 4,354,236
------------
5,174,700
Tennessee-0.5%
Johnson City Hlth & Ed Facs Hosp Rev
(First Mtg-MTN Sts Hlth) Ser 06A
5.50%, 7/01/31 1,500 1,554,240
ALLIANCE NATIONAL MUNICIPAL INCOME FUND o 13
Principal
Amount
(000) U.S. $ Value
------------------------------------------------------------------------
Texas-23.0%
Bexar Cnty Hsg Fin Corp MFHR
(Doral Club & Sutton House Apts) MBIA
Ser 01A
5.55%, 10/01/36 $ 14,995 $ 15,480,988
Brownwood ISD
(Schl Bldg) FGIC Ser 05
5.25%, 2/15/22-2/15/24 3,510 3,738,072
Dallas-Fort Worth Arpt Rev
(Int'l Arpt) FGIC Ser 01 AMT
5.50%, 11/01/35 6,500 6,739,655
Garza Cnty Pub Fac Corp
Ser 05
5.50%, 10/01/19 610 626,287
Gulf Coast Waste Disp Auth
(Anheuser-Busch Proj) Ser 02 AMT
5.90%, 4/01/36 9,000 9,527,580
Harris Cnty
(Flood Ctl) Ser 03B
5.00%, 10/01/23 2,600 2,677,740
Harris Cnty Toll Road Rev
FSA Ser 02
5.125%, 8/15/32 2,500 2,583,150
Hidalgo Cnty Hlth Svcs
(Mission Hosp Inc Proj) Ser 05
5.00%, 8/15/14-8/15/19 765 768,150
Houston
(Northeast Wtr Purification Proj) FGIC Ser 02
5.125%, 3/01/32 7,000 7,181,930
Lewisville Combination Contract
(Spl Assmt Cap Impt Dist No 2) ACA Ser 05
6.00%, 10/01/25 550 595,150
Matagorda Cnty Util Rev
(Centerpoint Energy Proj) Ser 04
5.60%, 3/01/27 1,000 1,029,740
Richardson Hosp Auth Rev
(Richardson Regional) Ser 04
5.875%, 12/01/24 2,310 2,415,336
6.00%, 12/01/19 1,830 1,964,450
San Antonio Arpt Rev
FGIC Ser 02A AMT
5.25%, 7/01/27 5,250 5,408,235
Seguin High Ed Fac Rev
(Texas Lutheran University Proj) Ser 04
5.25%, 9/01/33 1,250 1,248,100
Texas GO
Ser 02A AMT
5.50%, 8/01/41 9,470 9,937,818
------------
71,922,381
14 o ALLIANCE NATIONAL MUNICIPAL INCOME FUND
Principal
Amount
(000) U.S. $ Value
------------------------------------------------------------------------
Utah-0.8%
Davis Cnty Sales Tax Rev
AMBAC Ser 03B
5.25%, 10/01/23 $ 1,000 $ 1,054,860
Utah Hsg Corp MFHR
(Bluffs Apts Proj) GNMA Ser 02A AMT
5.60%, 7/20/30 1,480 1,538,090
------------
2,592,950
Virginia-3.2%
Fauquier Cnty IDA Hosp Rev
(Fauquier Hospital) Asset Gty Ser 02
5.25%, 10/01/31 8,500 8,785,515
Pocahontas Pkwy Assoc Toll Rd Rev
(Cap Appreciation) Sr Ser 98B
Zero Coupon, 8/15/15 2,250 1,355,872
------------
10,141,387
Washington-4.2%
King Cnty Swr Rev
FSA Ser 02A
5.25%, 1/01/32 3,000 3,108,120
Twenty-Fifth Ave Pptys
(University of WA) MBIA Ser 02
5.25%, 6/01/33 9,750 10,108,507
-------------
13,216,627
Wisconsin-7.3%
Wisconsin Hlth & Ed Fac Auth Rev
(Bell Tower Residence Proj) Ser 05
5.00%, 7/01/20-7/01/25 1,485 1,491,744
Wisconsin Hlth & Ed Fac Hosp Rev
(Ministry Hlth Care) MBIA Ser 02A
5.25%, 2/15/32 13,615 14,148,844
Wisconsin Hsg Auth SFMR
(Mtg Rev) MBIA Ser 02A AMT
5.60%, 5/01/33 4,885 5,076,150
(Mtg Rev) Ser 02A AMT
5.50%, 9/01/32 2,090 2,116,229
------------
22,832,967
Total Long-Term Municipal Bonds
(cost $477,070,958) 498,609,004
Short-Term Municipal Notes(c)-0.5%
Alaska-0.2%
Valdez Alaska Marine Term Rev
(BP Pipe Lines Proj) Ser 03B
3.81%, 7/01/37 500 500,000
Nevada-0.3%
Clark Cnty Nev Sch Dist
Ser 01A
3.78%, 6/15/21 1,000 1,000,000
ALLIANCE NATIONAL MUNICIPAL INCOME FUND o 15
U.S. $ Value
------------------------------------------------------------------------
Total Short-Term Municipal Notes
(cost $1,500,000) $ 1,500,000
------------
Total Investments-159.6%
(cost $478,570,958) 500,109,004
Other assets less liabilities-2.6% 8,162,950
Preferred stock, at redemption value-(62.2)% (195,000,000)
------------
Net Assets Applicable to Common
Shareholders-100%(d) $313,271,954
============
INTEREST RATE SWAP TRANSACTIONS (see Note C)
Rate Type
--------------------
Payments Payments
Notional made by received
Swap Amount Termination the by the Unrealized
Counterparty (000) Date Portfolio Portfolio Appreciation
============================================================================
Merrill Lynch $ 9,000 11/01/19 3.896% BMA* $ 250,389
Merrill Lynch+ 3,000 7/30/26 4.090% BMA* 104,265
Merrill Lynch++ 6,500 8/09/26 4.063% BMA* 251,199
* BMA (Bond Market Association)
+ Represents a forward interest rate swap whose effective date for the
exchange of cash flows is July 30, 2006.
++ Represents a forward interest rate swap whose effective date for the
exchange of cash flows is August 9, 2006.
(a) Represents entire or partial position segregated as collateral for
interest rate swaps.
(b) 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.
(c) Variable Rate Demand Notes (VRDN) are instruments whose interest rates
change on a specific date (such as coupon date or interest payment date)
or whose interest rates vary with changes in a designated base rate (such
as prime interest rate). This instrument is payable on demand and is
secured by letters of credit or other credit support agreements from
major banks.
(d) Portfolio percentages are calculated based on net assets applicable to
common shareholders.
16 o ALLIANCE NATIONAL MUNICIPAL INCOME FUND
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 - Community Facilities District
CIFG - CIFG Assurance North America, Inc.
COP - Certificate of Participation
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
ISD - Independent School District
MBIA - Municipal Bond Investors Assurance
MFHR - Multi-Family Housing Revenue
RADIAN - Radian Group, Inc.
SFMR - Single-Familty Mortgage Revenue
SWR - Solid Waste Revenue
XLCA - XL Capital Assurance
See notes to financial statements.
ALLIANCE NATIONAL MUNICIPAL INCOME FUND o 17
STATEMENT OF ASSETS & LIABILITIES
April 30, 2006 (unaudited)
Assets
Investments in securities, at value (cost $478,570,958) $ 500,109,004
Interest receivable 7,750,368
Unrealized appreciation of swap agreements 605,853
Receivable for investment securities sold 160,372
Receivable for capital stock sold 62,559
-------------
Total assets 508,688,156
-------------
Liabilities
Due to custodian 24,134
Advisory fee payable 167,164
Dividends payable--preferred shares 87,031
Printing fee payable 44,753
Audit fee payable 37,993
Legal fee payable 28,071
Transfer Agent fee payable 7,656
Dividends payable--common shares 1,218
Accrued expenses and other liabilities 18,182
-------------
Total liabilities 416,202
-------------
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 $ 313,271,954
=============
Composition of Net Assets Applicable to
Common Shareholders
Common stock, $.001 par value per share;
1,999,992,200 shares authorized,
20,491,401 shares issued and outstanding $ 20,491
Additional paid-in capital 290,583,514
Undistributed net investment income 2,075,787
Accumulated net realized loss on investment transactions (1,551,737)
Net unrealized appreciation of investments 22,143,899
-------------
Net Assets Applicable to Common Shareholders $ 313,271,954
=============
Net Asset Value Applicable to Common Shareholders
(based on 20,491,401 common shares outstanding) $15.29
======
See notes to financial statements.
18 o ALLIANCE NATIONAL MUNICIPAL INCOME FUND
STATEMENT OF OPERATIONS
Six Months Ended April 30, 2006 (unaudited)
Investment Income
Interest $ 13,048,952
Expenses
Advisory fee $ 1,647,073
Auction Preferred Stock-auction
agent's fees 243,970
Custodian 100,166
Legal 37,617
Audit 33,765
Printing 20,494
Directors' fees and expenses 17,794
Registration fees 11,765
Transfer agency 8,460
Miscellaneous 44,531
------------
Total expenses 2,165,635
Less: expenses waived by the Adviser
(see Note B) (633,490)
------------
Net expenses 1,532,145
------------
Net investment income 11,516,807
------------
Realized and Unrealized Gain (Loss)
on Investment Transactions
Net realized gain (loss) on:
Investment transactions (149,934)
Futures 370,705
Swaps 75,920
Net change in unrealized
appreciation/depreciation of:
Investments (464,502)
Futures (394,085)
Swaps 422,286
------------
Net loss on investment transactions (139,610)
------------
Dividends to Auction Preferred
Shareholders from
Net investment income (2,989,993)
------------
Net Increase in Net Assets Applicable
to Common Shareholders Resulting
from Operations $ 8,387,204
============
See notes to financial statements.
ALLIANCE NATIONAL MUNICIPAL INCOME FUND o 19
STATEMENT OF CHANGES IN NET ASSETS
APPLICABLE TO COMMON SHAREHOLDERS
Six Months Ended Year Ended
April 30, 2006 October 31,
(unaudited) 2005
---------------- ----------------
Increase (Decrease) in Net Assets
Applicable to Common Shareholders
Resulting from Operations
Net investment income $ 11,516,807 $ 23,232,949
Net realized gain on investment
transactions 296,691 1,561,795
Net change in unrealized
appreciation/depreciation
of investments (436,301) (2,715,958)
Dividends to Auction Preferred
Shareholders from
Net investment income (2,989,993) (4,071,990)
------------- -------------
Net increase in net assets applicable
to Common Shareholders resulting
from operations 8,387,204 18,006,796
Dividends to Common
Shareholders from
Net investment income (10,136,700) (20,389,780)
Common Stock Transactions
Reinvestment of dividends resulting in the
issuance of Common Stock 305,319 -0-
------------- -------------
Total decrease (1,444,177) (2,382,984)
Net Assets Applicable to
Common Shareholders
Beginning of period 314,716,131 317,099,115
------------- -------------
End of period (including undistributed
net investment income of $2,075,787
and $3,685,673, respectively) $ 313,271,954 $ 314,716,131
============= =============
See notes to financial statements.
20 o ALLIANCE NATIONAL MUNICIPAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS
April 30, 2006 (unaudited)
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 financial statements have been prepared in conformity
with U.S. generally accepted accounting principles which requires management to
make certain estimates and assumptions that affect the reported amounts of
assets and liabilities in the financial statements and amounts of income and
expenses during the reporting period. Actual results could differ from those
estimates. 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
ALLIANCE NATIONAL MUNICIPAL INCOME FUND o 21
broker/dealer quotes are obtained, AllianceBernstein L.P. (prior to February
24, 2006 known as Alliance Capital Management L.P.) (the "Adviser") may
establish procedures whereby changes in market yields or spreads are used to
adjust, on a daily basis, a recently obtained quoted price on a security; and
OTC and other derivatives are valued on the basis of a quoted bid price or
spread from a major broker/dealer in such security.
Securities for which market quotations are not readily available (including
restricted securities) or are deemed unreliable are valued at fair value.
Factors considered in making this determination may include, but are not
limited to, information obtained by contacting the issuer, analysts, analysis
of the issuer's financial statements or other available documents. 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
22 o ALLIANCE NATIONAL MUNICIPAL INCOME FUND
and paid monthly. The Adviser has voluntarily agreed to waive a portion of its
fees or reimburse the Fund for expenses in the amount of 0.25% of the Fund's
average daily net assets applicable to common and preferred shareholders for
the first 5 full years of the Fund's operations, 0.20% of the Fund's average
daily net assets applicable to common and preferred shareholders in year 6,
0.15% in year 7, 0.10% in year 8, and 0.05% in year 9. For the six months ended
April 30, 2006, which is year 5 of operations, the amount of such fees waived
was $633,490.
Under the terms of a Shareholder Inquiry Agency Agreement with
AllianceBernstein Investor Services, Inc. (prior to February 24, 2006 known as
Alliance Global Investor Services, Inc.) ("ABIS"), an affiliate of the Adviser,
the Fund reimburses ABIS for costs relating to servicing phone inquiries for
the Fund.During the six months ended April 30, 2006, there was no reimbursement
paid to ABIS.
NOTE C
Investment Transactions
Purchases and sales of investment securities (excluding short-term investments)
for the six months ended April 30, 2006, were as follows:
Purchases Sales
------------ ------------
Investment securities (excluding
U.S. government securities) $ 23,672,686 $ 23,201,365
U.S. government securities -0- -0-
The cost of investments for federal income tax purposes was substantially the
same as the cost for financial reporting purposes. Accordingly, gross
unrealized appreciation and unrealized depreciation (excluding swap
transactions) are as follows:
Gross unrealized appreciation $ 22,072,225
Gross unrealized depreciation (534,179)
------------
Net unrealized appreciation $ 21,538,046
============
1. Swap Agreements
The Fund 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
ALLIANCE NATIONAL MUNICIPAL INCOME FUND o 23
by the Fund, and/or the termination value at the end of the contract.
Therefore, the Fund 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.
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 with the broker, 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
There are 20,491,401 shares of common stock outstanding at April 30, 2006.
During the six months ended April 30, 2006, the Fund issued 19,734 shares in
connection with the Fund's dividend reinvestment plan. During the year ended
October 31, 2005, the Fund did not issue any shares in connection with the
Fund's reinvestment plan.
24 o ALLIANCE NATIONAL MUNICIPAL INCOME FUND
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 M, T, W and TH. The dividend rate on the Series M is 3.60% effective
through May 1, 2006. The dividend rate on the Series T is 3.60% effective
through May 2, 2006. The dividend rate on the Series W is 3.60% effective
through May 3, 2006. The dividend rate on the Series TH is 3.72% effective
through May 4, 2006.
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 to be paid for the year ending October 31,
2006 will be determined at the end of the current fiscal year. The tax
character of distributions paid to common shareholders during the fiscal years
ended October 31, 2005 and October 31, 2004 were as follows:
2005 2004
============ ============
Distributions paid from:
Ordinary income $ 42,667 $ 75,220
Tax exempt income 20,347,113 20,243,067
------------ ------------
Total distributions paid $ 20,389,780 $ 20,318,287
============ ============
ALLIANCE NATIONAL MUNICIPAL INCOME FUND o 25
As of October 31, 2005, the components of accumulated earnings/(deficit)
applicable to common shareholders on a tax basis were as follows:
Undistributed tax exempt income $ 3,739,296
Accumulated capital and other losses (1,454,343)(a)
Unrealized appreciation/(depreciation) 22,209,130(b)
------------
Total accumulated earnings/(deficit) $ 24,494,083(c)
------------
(a) On October 31, 2005, the Fund had a net capital loss carryforward of
$1,454,343 of which $1,444,137 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. During the fiscal year ended
October 31, 2005, the Fund utilized capital loss carryforwards of $2,385,306.
(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.
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
26 o ALLIANCE NATIONAL MUNICIPAL INCOME FUND
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 pursuant to a ruling by the Judicial Panel on Multidistrict
Litigation transferring and centralizing all of the mutual funds involving
market and late trading in the District of Maryland (the "Mutual Fund MDL").
Management of the Adviser believes that these private lawsuits are not likely
to have a material adverse effect on the results of operations or financial
condition of 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 Discontinuation dated September 1, 2004 ("NYAGOrder"). 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.
ALLIANCE NATIONAL MUNICIPAL INCOME FUND o 27
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.
On February 10, 2004, the Adviser received (i) a subpoena duces tecum from the
Office of the Attorney General of the State of West Virginia and (ii) a request
for information from West Virginia's Office of the State Auditor, Securities
Commission (the "West Virginia Securities Commissioner") (together, the
"Information Requests"). Both Information Requests require the Adviser to
produce documents concerning, among other things, any market timing or late
trading in the Adviser's sponsored mutual funds. The Adviser responded to the
Information Requests and has been cooperating fully with the investigation.
On April 11, 2005, a complaint entitled The Attorney General of the State of
West Virginia v. AIM Advisors, Inc., et al. ("WVAG Complaint") was filed
against the Adviser, Alliance Capital Management Holding L.P. ("Alliance
Holding"), and various other defendants not affiliated with the Adviser. The
WVAG Complaint was filed in the Circuit Court of Marshall County, West Virginia
by the Attorney General of the State of West Virginia. The WVAG Complaint makes
factual allegations generally similar to those in certain of the complaints
related to the lawsuits discussed above. On October 19, 2005, the WVAG
Complaint was transferred to the Mutual Fund MDL.
On August 30, 2005, the deputy commissioner of securities of the West Virginia
Securities Commissioner signed a Summary Order to Cease and Desist, and Notice
of Right to Hearing addressed to the Adviser and Alliance Holding. The Summary
Order claims that the Adviser and Alliance Holding violated the West Virginia
Uniform Securities Act, and makes factual allegations generally similar to
those in the SEC Order and the NYAG Order. On January 26, 2006, the Adviser,
Alliance Holding, and various unaffiliated defendants filed a Petition for Writ
of Prohibition and Order Suspending Proceedings in West Virginia state court
seeking to vacate the Summary Order and for other relief. On April 12, 2006,
respondents' petition was denied. On May 4, 2006, respondents appealed the
court's determination.
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
28 o ALLIANCE NATIONAL MUNICIPAL INCOME FUND
defendants. The Fund was not named as a defendant in the Aucoin Complaint. The
Aucoin Complaint was filed in the United States District Court for the Southern
District of New York by alleged shareholders of an AllianceBernstein mutual
fund. The Aucoin Complaint alleges, among other things, (i) that certain of the
defendants improperly authorized the payment of excessive commissions and other
fees from fund assets to broker-dealers in exchange for preferential marketing
services, (ii) that certain of the defendants misrepresented and omitted from
registration statements and other reports material facts concerning such
payments, and (iii) that certain defendants caused such conduct as control
persons of other defendants. The Aucoin Complaint asserts claims for violation
of Sections 34(b), 36(b) and 48(a) of the Investment Company Act, Sections 206
and 215 of the Advisers Act, breach of common law fiduciary duties, and aiding
and abetting breaches of common law fiduciary duties. Plaintiffs seek an
unspecified amount of compensatory damages and punitive damages, rescission of
their contracts with the Adviser, including recovery of all fees paid to the
Adviser pursuant to such contracts, an accounting of all fund-related fees,
commissions and soft dollar payments, and restitution of all unlawfully or
discriminatorily obtained fees and expenses.
Since June 22, 2004, nine additional lawsuits making factual allegations
substantially similar to those in the Aucoin Complaint were filed against the
Adviser and certain other defendants. All nine of the lawsuits (i) were brought
as class actions filed in the United States District Court for the Southern
District of New York, (ii) assert claims substantially identical to the Aucoin
Complaint, and (iii) are brought on behalf of shareholders of the Funds.
On February 2, 2005, plaintiffs filed a consolidated amended class action
complaint ("Aucoin Consolidated Amended Complaint") that asserts claims
substantially similar to the Aucoin Complaint and the nine additional lawsuits
referenced above. On October 19, 2005, the District Court dismissed each of the
claims set forth in the Aucoin Consolidated Amended Complaint, except for
plaintiffs' claim under Section 36(b) of the Investment Company Act. On January
11, 2006, the District Court granted defendants' motion for reconsideration and
dismissed the remaining Section 36(b) claim. On May 31, 2006 the District Court
denied plaintiffs' motion for leave to file an amended complaint.
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.
ALLIANCE NATIONAL MUNICIPAL INCOME FUND o 29
FINANCIAL HIGHLIGHTS
Selected Data For A Share Of Common Stock Outstanding Throughout Each Period
Six Months
Ended January 28,
April 30, Year Ended October 31, 2002(b) to
2006 --------------------------------- October 31,
(unaudited) 2005 2004(a) 2003 2002
=============================================================
Net asset value,
beginning of period $ 15.37 $ 15.49 $ 15.02 $ 14.81 $ 14.33
-------------------------------------------------------------
Income from Investment
Operations
Net investment income(c)(d) .56 1.13 1.16 1.19 .74
Net realized and unrealized
gain (loss) on investment
transactions .01 (.05) .42 .03 .60
Dividends to preferred
shareholders from net
investment income (common
stock equivalent basis) (.15) (.20) (.12) (.13) (.08)
-------------------------------------------------------------
Net increase in net asset value
from operations .42 .88 1.46 1.09 1.26
-------------------------------------------------------------
Less: Dividends to common
shareholders from
Net investment income (.50) (1.00) (.99) (.87) (.64)
Common stock offering costs -0- -0- -0- -0- (.03)
Preferred stock offering costs
and sales load -0- -0- -0- (.01) (.11)
-------------------------------------------------------------
Net asset value, end of period $ 15.29 $ 15.37 $ 15.49 $ 15.02 $ 14.81
=============================================================
Market value, end of period $ 16.00 $ 14.78 $ 14.18 $ 13.71 $ 13.48
=============================================================
Premium (Discount) 4.64% (3.84)% (8.46)% (8.72)% (8.98)%
Total Return
Total investment return
based on:(e)
Market value 11.80% 11.57% 11.01% 8.36% (5.92)%
Net asset value 2.74% 6.21% 10.69% 8.05% 8.14%
Ratios/Supplemental Data:
Net assets applicable to common
shareholders, end of period
(000's omitted) $313,272 $314,716 $317,099 $307,560 $303,258
Preferred Stock, at redemption
value ($25,000 per share
liquidation preference)
(000's omitted) $195,000 $195,000 $195,000 $195,000 $195,000
Ratio to average net assets
applicable to common
shareholders of:
Expenses, net of
fee waivers(f) .98%(g) .97% .97% .95% .95%(g)
Expenses, before
fee waivers(f) 1.38%(g) 1.37% 1.38% 1.36% 1.33%(g)
Net investment income, before
preferred stock dividends(d)(f) 7.35%(g) 7.29% 7.63% 7.88% 6.73%(g)
Preferred stock dividends 1.91%(g) 1.28% .80% .89% .76%(g)
Net investment income, net of
preferred stock dividends(d) 5.44%(g) 6.01% 6.84% 6.99% 5.97%(g)
Portfolio turnover rate 5% 18% 14% 11% 13%
Asset coverage ratio 261% 261% 263% 258% 255%
See footnote summary on page 31.
30 o ALLIANCE NATIONAL MUNICIPAL INCOME FUND
(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.
ALLIANCE NATIONAL MUNICIPAL INCOME FUND o 31
The Annual Meeting of Stockholders of Alliance National Municipal Income Fund,
common stock, was held on March 29, 2006. The results of this tabulation are as
follows:
Authority
Voted For Withheld
---------------------------------------------
1. Election of Directors Class Two Nominee
(term expires 2008):
D. James Guzy 18,959,129 320,264
Class Three Nominees
(terms expire 2008):
Marc O. Mayer 18,970,535 308,858
Marshall C. Turner Jr. 18,975,299 304,094
The Annual Meeting of Stockholders of Alliance National Municipal Income Fund,
preferred stock, was held on March 29, 2006. The results of this tabulation are
as follows:
Authority
Voted For Withheld
---------------------------------------------
1. Election of Directors Class One Nominees
(terms expire 2007):
John H. Dobkin 7,251 573
Michael J. Downey 7,251 573
Class Two Nominee
(term expires 200)
D. James Guzy 7,251 573
Class Three Nominees
(terms expire 2008):
Marc O. Mayer 7,251 573
Marshall C. Turner Jr. 7,251 573
32 o ALLIANCE NATIONAL MUNICIPAL INCOME FUND
BOARD OF DIRECTORS
William H. Foulk, Jr.(1), Chairman
Marc O. Mayer, President
David H. Dievler(1)
John H. Dobkin(1)
Michael J. Downey(1)
D. James Guzy(1)
Nancy P. Jacklin(1)
Marshall C. Turner, Jr.(1)
OFFICERS
Robert B. Davidson, III, Senior Vice President
Philip L.Kirstein, Senior Vice President and Independent Compliance Officer
Douglas J. Peebles, Senior Vice President
Jeffrey S. Phlegar, Senior Vice President
Michael G. Brooks, Vice President
Fred S. Cohen, Vice President
Terrance T. Hults, Vice President
Emilie D. Wrapp, Secretary
Mark D. Gersten, Treasurer and Chief Financial Officer
Thomas R. Manley, Controller
Custodian
State Street Bank & Trust Company
One Lincoln Street
Boston, MA 02111
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
Computershare Trust Company, N.A.
P.O. Box 43011
Providence, RI 02940-3011
(1) Member of the Audit Committee, the Governance and Nominating Committee,
and the Independent Directors Committee.
(2) The day-to-day management of and investment decisions for the Fund are
made by the Municipal Bond Investment Team. The investment professionals with
the most significant responsibility for the day-to-day management of the Fund's
portfolio are: Michael G. Brooks, Fred S. Cohen, Robert B. Davidson III and
Terrance T. Hults.
Notice is hereby given in accordance with Section 23(c) of the Investment
CompanyAct 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.
Annual Certifications--As required, on April 20, 2006, the Fund submitted to
the New York Stock Exchange ("NYSE") the annual certification of the Fund's
Chief Executive Officer certifying that he is not aware of any violation of the
NYSE's Corporate Governance listing standards. The Fund also has included the
certifications of the Fund's Chief Executive Officer and Chief Financial
Officer required by Section 302 of the Sarbanes-Oxley Act of 2002 as exhibits
to the Fund's Form N-CSR filed with the Securities and Exchange Commission for
the annual period.
ALLIANCE NATIONAL MUNICIPAL INCOME FUND o 33
Information Regarding the Review and Approval of the Fund's Advisory Agreement
The Fund's disinterested directors (the "directors") unanimously approved the
continuance of the Advisory Agreement between the Fund and the Adviser at a
meeting held on December 14, 2005.
In preparation for the meeting, the directors had requested from the Adviser
and received and evaluated extensive materials, including performance and
expense information for other investment companies with similar investment
objectives as the Fund derived from data compiled by Lipper Inc. ("Lipper"),
which is not affiliated with the Adviser. Prior to voting, the directors
reviewed the proposed continuance of the Advisory Agreement with management and
with experienced counsel who are independent of the Adviser and received a
memorandum from such counsel discussing the legal standards for their
consideration of the proposed continuance. The directors also discussed the
proposed continuance in four private sessions at which only the directors,
their independent counsel and the Fund's Independent Compliance Officer were
present. In reaching their determinations relating to continuance of the
Advisory Agreement, the directors considered all factors they believed
relevant, including the following:
1. information comparing the performance of the Fund to other investment
companies with similar investment objectives and to an index;
2. the nature, extent and quality of investment, compliance,
administrative and other services rendered by the Adviser;
3. payments received by the Adviser from all sources in respect of the
Fund and all investment companies in the AllianceBernstein Funds complex;
4. the costs borne by, and profitability of, the Adviser and its
affiliates in providing services to the Fund and to all investment companies in
the AllianceBernstein Funds complex;
5. comparative fee and expense data for the Fund and other investment
companies with similar investment objectives;
6. the extent to which economies of scale would be realized to the
extent the Fund grows and whether fee levels reflect any economies of scale for
the benefit of investors;
7. the Adviser's policies and practices regarding allocation of
portfolio transactions of the Fund, including the extent to which the Adviser
benefits from soft dollar arrangements;
34 o ALLIANCE NATIONAL MUNICIPAL INCOME FUND
8. portfolio turnover rates for the Fund compared to other investment
companies with similar investment objectives;
9. fall-out benefits that the Adviser and its affiliates receive from
their relationships with the Fund;
10. the Adviser's representation that there are no institutional products
managed by the Adviser which have a substantially similar investment style as
the Fund;
11. the professional experience and qualifications of the Fund's
portfolio management team and other senior personnel of the Adviser; and
12. the terms of the Advisory Agreement.
The directors also considered their knowledge of the nature and quality of the
services provided by the Adviser to the Fund gained from their experience as
directors or trustees of most of the registered investment companies advised by
the Adviser, their overall confidence in the Adviser's integrity and competence
they have gained from that experience and the Adviser's responsiveness to
concerns raised by them in the past, including the Adviser's willingness to
consider and implement organizational and operational changes designed to
improve investment results and the services provided to the AllianceBernstein
Funds.
In their deliberations, the directors did not identify any particular
information that was all-important or controlling, and the directors attributed
different weights to the various factors.
The directors determined that the overall arrangements between the Fund and the
Adviser, as provided in the Advisory Agreement, were fair and reasonable in
light of the services performed, expenses incurred and such other matters as
the directors considered relevant in the exercise of their business judgment.
The material factors and conclusions that formed the basis for the directors
reaching their determinations to approve the continuance of the Advisory
Agreement, including their determinations that the Adviser should continue to
be the investment adviser for the Fund and that the fees payable to the Adviser
pursuant to the Advisory Agreement are appropriate, were separately discussed
by the directors.
Nature, extent and quality of services provided by the Adviser
The directors noted that, under the Advisory Agreement, the Adviser, subject to
the oversight of the directors, administers the Fund's business and other
affairs. The Adviser manages the investment of the assets of the Fund,
including making purchases and sales of portfolio securities consistent with
the Fund's investment
ALLIANCE NATIONAL MUNICIPAL INCOME FUND o 35
objective and policies. The Adviser also provides the Fund with such office
space, administrative and other services (exclusive of, and in addition to, any
such services provided by any others retained by the Fund) and executive and
other personnel as are necessary for the Fund's operations. The Adviser pays
all of the compensation of directors of the Fund who are affiliated persons of
the Adviser and of the officers of the Fund.
The directors also considered that a provision in the Advisory Agreement for
the Fund provides that the Fund will reimburse the Adviser for the cost of
certain clerical, accounting, administrative and other services provided at the
Fund's request by employees of the Adviser or its affiliates. The directors
noted that no reimbursements had been made to date by the Fund to the Adviser
as no requests for such reimbursements had been made. Requests for these "at no
more than cost" reimbursements are approved by the directors on a quarterly
basis for most of the open-end AllianceBernstein funds and result in a higher
rate of total compensation from the funds to the Adviser than the stated fee
rates in the funds' advisory agreements.
The directors considered the scope and quality of services provided by the
Adviser under the Advisory Agreement and noted that the scope of services
provided by advisers had expanded over time as a result of regulatory and other
developments. The directors noted, for example, that the Adviser is responsible
for maintaining and monitoring its own and, to varying degrees, the Fund's
compliance programs, and that these compliance programs have recently been
refined and enhanced in light of new regulatory requirements. The directors
considered the quality of the in-house investment research capabilities of the
Adviser and the other resources it has dedicated to performing services for the
Fund. The quality of administrative and other services, including the Adviser's
role in coordinating the activities of the Fund's other service providers, also
were considered. The directors also considered the Adviser's response to recent
regulatory compliance issues affecting a number of the investment companies in
the AllianceBernstein Funds complex. The directors concluded that, overall,
they were satisfied with the nature, extent and quality of services provided to
the Fund under the Advisory Agreement.
Costs of Services Provided and Profitability to the Adviser
The directors reviewed a schedule of the revenues, expenses and related notes
indicating the profitability of the Fund to the Adviser for calendar years 2003
and 2004. The directors also reviewed information in respect of 2004 that had
been prepared with an updated expense allocation methodology. The directors
noted that the updated expense allocation methodology would be used to prepare
profitability information for 2005, and that it differed in various respects
from the methodology used in prior years. The directors reviewed the
assumptions and methods of allocation used by the Adviser in preparing
fund-specific profitability data, and noted the Adviser's representation to
them that it believed that the
36 o Alliance National Municipal Income Fund
methods of allocation used in preparing the profitability information were
reasonable and appropriate and that the Adviser had previously discussed with
the directors that there is no generally accepted allocation methodology for
information of this type.
The directors recognized that it is difficult to make comparisons of
profitability from fund advisory contracts because comparative information is
not generally publicly available and is affected by numerous factors, including
the structure of the particular adviser, the types of funds it manages, its
business mix, numerous assumptions regarding allocations and the adviser's
capital structure and cost of capital. In considering profitability
information, the directors considered the effect of fall-out benefits on the
Adviser's expenses. The directors focused on the profitability of the Adviser's
relationship with the Fund before taxes. The directors recognized that the
Adviser should generally be entitled to earn a reasonable level of profits for
the services it provides to the Fund and, based on their review, concluded that
they were satisfied that the Adviser's level of profitability from its
relationship with the Fund was not excessive.
Fall-Out Benefits
The directors considered that the Adviser benefits from soft dollar
arrangements whereby it receives brokerage and research services from many of
the brokers and dealers that execute purchases and sales of securities on
behalf of its clients on an agency basis. The directors noted that since the
Fund does not engage in brokerage transactions, the Adviser does not receive
soft dollar benefits in respect of portfolio transactions of the Fund. The
directors also noted that a subsidiary of the Adviser provides certain
shareholder services to the Fund and receives compensation from the Fund for
such services.
The directors recognized that the Adviser's profitability would be somewhat
lower if the Adviser's subsidiary did not receive the benefits described above.
The directors understood that the Adviser also might derive reputational and
other benefits from its association with the Fund.
Investment Results
In addition to the information reviewed by the directors in connection with the
meeting, the directors receive detailed comparative performance information for
the Fund at each regular Board meeting during the year. At the meeting, the
directors reviewed information prepared by Lipper showing performance of the
Fund as compared to a group of 15 funds in its Lipper category selected by
Lipper (the "Performance Group") for periods ended September 30, 2005 over the
1- and 3-year periods. Performance information for a larger universe of funds
in its Lipper category selected by Lipper was not provided by Lipper in light
of the relatively small size of the Fund's Lipper category. The directors also
reviewed information prepared by the Adviser showing performance of the Fund as
compared to the Lehman Brothers Municipal Bond Index (the "Index") for
ALLIANCE NATIONAL MUNICIPAL INCOME FUND o 37
periods ended September 30, 2005 over the year to date ("YTD"), 1- and 3-year
and since inception periods (January 2002 inception). The directors noted that
in the Performance Group comparison the Fund was in the 2nd quintile in the
1-year period and in the 3rd quintile in the 3-year period. The directors
further noted that the Fund significantly outperformed the Index in all periods
reviewed. The directors noted that the Fund utilizes leverage whereas the Index
is not leveraged. Based on their review, the directors concluded that the
Fund's relative performance over time was satisfactory.
Advisory Fees and Other Expenses
The directors considered the latest fiscal period actual advisory fees paid by
the Fund to the Adviser and information prepared by Lipper concerning fee rates
paid by other funds in the same Lipper category as the Fund. The directors also
took into account their general knowledge of advisory fees paid by open-end and
closed-end funds that invest in fixed-income municipal securities. The
directors recognized that it is difficult to make comparisons of advisory fees
because there are variations in the services that are included in the fees paid
by other funds.
The directors noted that in connection with the settlement of the market timing
matter with the New York Attorney General, the Adviser agreed to material
reductions (averaging 20%) in the fee schedules of most of the open-end funds
sponsored by the Adviser (other than money market funds). As a result of that
settlement, the Adviser's fees (i) for managing open-end high income funds are
..50% of the first $2.5 billion of average daily net assets, .45% for average
daily net assets over that level to $5 billion, and .40% for average daily net
assets over $5 billion; and (ii) for managing open-end low risk income funds
are .45% of the first $2.5 billion of average daily net assets, .40% for
average daily net assets over that level to $5 billion, and .35% for average
daily net assets over $5 billion. The directors noted that each of these fee
schedules, if applied to the Fund, would result in a lower fee rate than that
paid by the Fund pursuant to the Advisory Agreement.
The Adviser informed the directors that there are no institutional products
offered by it that have a substantially similar investment style as the Fund.
The directors reviewed information in the Adviser's Form ADV and noted that it
charges institutional clients lower fees for advising comparably sized accounts
using strategies that differ from those of the Fund but which involve
investments in securities of the same type that the Fund invests in (i.e.,
fixed income municipal). They had previously received an oral presentation from
the Adviser that supplemented the information in the Form ADV.
The Adviser reviewed with the directors the significant differences in the
scope of services it provides to institutional clients and to the Fund. For
example, the Advisory Agreement requires the Adviser to provide, in addition to
investment
38 o ALLIANCE NATIONAL MUNICIPAL INCOME FUND
advice, office facilities and officers (including officers to provide required
certifications). The Adviser also coordinates the provision of services to the
Fund by non-affiliated service providers and is responsible for the
compensation of the Fund's Independent Compliance Officer and certain related
expenses. The provision of these non-advisory services involves costs and
exposure to liability. The Adviser explained that many of these services
normally are not provided to non-investment company clients and that fees
charged to the Fund reflect the costs and risks of the additional obligations.
In light of these facts, the directors did not place significant weight on
these fee comparisons.
The directors noted that at their December 14-16, 2004 meetings, the directors
had requested a reduction in the advisory fees of the Fund to the levels in
accordance with the fee schedules for open-end funds and deferred renewal of
the Fund's Advisory Agreement pending receipt and consideration of their
request by the Adviser. At their February 7-10, 2005 meeting, the directors
considered the adviser's position that no fee adjustments were warranted.
The directors also considered the total expense ratio of the Fund in comparison
to the fees and expenses of funds within two comparison groups created by
Lipper: an Expense Group and an Expense Universe. Lipper described an Expense
Group as a representative sample of comparable funds and an Expense Universe as
a broader group, consisting of all funds in the Fund's investment
classification/ objective with a similar load type as the Fund. The expense
ratio of the Fund was based on the Fund's latest fiscal year expense ratio. The
directors recognized that the expense ratio information for the Fund
potentially reflected on the Adviser's provision of services, as the Adviser is
responsible for coordinating services provided to the Fund by others. The
directors noted that it was likely that the expense ratios of some funds in the
Fund's Lipper category were lowered by waivers or reimbursements by those
funds' investment advisers, which in some cases were voluntary and perhaps
temporary.
The information reviewed by the directors showed that the Fund's latest fiscal
period actual advisory fees of 65.0 basis points was significantly lower than
the medians for the Expense Group and Expense Universe. The directors noted
that Lipper calculates the fee rate based on the Fund's net assets attributable
to common stockholders, whereas the Fund's Advisory Agreement provides that
fees are computed based on average daily net assets (i.e., including assets
supported by the Fund's preferred stock). The directors also noted that the
Fund's fee rate reflects a fee waiver arrangement that provides for the waiver
amount to be gradually reduced over four years commencing after the fifth full
year of operations of the Fund, and that the Fund commenced operations in
January 2002. The directors further noted that the Fund's expense ratio was
significantly lower than the Expense Group median and materially lower than the
Expense Universe median. The directors concluded that the Fund's expense ratio
was satisfactory.
ALLIANCE NATIONAL MUNICIPAL INCOME FUND o 39
Economies of Scale
The directors considered that the Fund is a closed-end fund and that it was not
expected to have meaningful asset growth as a result. In such circumstances,
the directors did not view the potential for realization of economies of scale
as the Fund's assets grow to be a material factor in their deliberations. The
directors noted that if the Fund's net assets were to increase materially as a
result of, e.g., an acquisition or rights offering, they would review whether
potential economies of scale would be realized.
40 o ALLIANCE NATIONAL MUNICIPAL INCOME FUND
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 Portfolio
Global & International
Global Health Care Fund
Global Research Growth Fund
Global Technology Fund
Greater China '97 Fund
International Growth Fund*
International Research Growth Fund*
--------------------------------------------
Value Funds
--------------------------------------------
Domestic
Balanced Shares
Focused Growth & Income Fund
Growth & Income Fund
Real Estate Investment Fund
Small/Mid-Cap Value Fund
Utility Income Fund
Value Fund
Global & International
Global Value Fund
International Value Fund
--------------------------------------------
Taxable Bond Funds
--------------------------------------------
Global Government Income Trust*
Corporate Bond Portfolio
Emerging Market Debt Fund
Global Strategic Income Trust
High Yield Fund
Multi-Market Strategy Trust
Intermediate Bond Portfolio*
Short Duration Portfolio
U.S. Government Portfolio
--------------------------------------------
Municipal Bond Funds
--------------------------------------------
National Michigan
Insured National Minnesota
Arizona New Jersey
California New York
Insured California Ohio
Florida Pennsylvania
Massachusetts 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
--------------------------------------------
Retirement Strategies Funds
--------------------------------------------
2000 Retirement Strategy
2005 Retirement Strategy
2010 Retirement Strategy
2015 Retirement Strategy
2020 Retirement Strategy
2025 Retirement Strategy
2030 Retirement Strategy
2035 Retirement Strategy
2040 Retirement Strategy
2045 Retirement Strategy
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.
* On July 8, 2005, New Europe Fund merged into International Research Growth
Fund. Prior to February 1, 2006, Global Government Income Trust was named
Americas Government Income Trust and Intermediate Bond Portfolio was named
Quality Bond Portfolio.
** 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.
ALLIANCE NATIONAL MUNICIPAL INCOME FUND o 41
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 NYSEtrading 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.
42 o ALLIANCE NATIONAL MUNICIPAL INCOME FUND
NOTES
ALLIANCE NATIONAL MUNICIPAL INCOME FUND o 43
NOTES
44 o ALLIANCE NATIONAL MUNICIPAL INCOME FUND
ALLIANCE NATIONAL MUNICIPAL INCOME FUND
1345 Avenue of the Americas
New York, NY 10105
(800) 221-5672
[LOGO]
ALLIANCEBERNSTEIN
INVESTMENTS
ANMIF-0152-0406
ITEM 2. CODE OF ETHICS.
Not applicable when filing a semi-annual report to shareholders.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable when filing a semi-annual report to shareholders.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable when filing a semi-annual report to shareholders.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable when filing a semi-annual report to shareholders.
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.
Not applicable when filing a semi-annual report to shareholders.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable when filing a semi-annual report to shareholders.
ITEM 9. 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 10. 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 this item.
ITEM 11. 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 changes in the registrant's internal controls over
financial reporting that occurred during the second fiscal quarter of the
period that has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial reporting.
ITEM 12. EXHIBITS.
The following exhibits are attached to this Form N-CSR:
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ---------------------------------------------------------
12 (b) (1) Certification of Principal Executive Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
12 (b) (2) Certification of Principal Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
12 (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: June 28, 2006
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: June 28, 2006
By: /s/ Mark D. Gersten
---------------
Mark D. Gersten
Treasurer and Chief Financial Officer
Date: June 28, 2006