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
ALLIANCEBERNSTEIN 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, 2007
Date of reporting period: April 30, 2007
ITEM 1. REPORTS TO STOCKHOLDERS.
Alliance National Municipal Income Fund
Semi-Annual Report
April 30, 2007
[LOGO]
ALLIANCEBERNSTEIN
INVESTMENTS
Investment Products Offered
o Are Not FDIC Insured
o May Lose Value
o Are Not Bank Guaranteed
You may obtain a description of the Fund's proxy voting policies and
procedures, and information regarding how the Fund voted proxies relating to
portfolio securities during the most recent 12-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 AllianceBernstein 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, 2007
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, 2007. The Fund is a closed-end fund that trades under
the New York Stock Exchange symbol "AFB". Effective May 18, 2007, Alliance
National Municipal Income Fund changed its name to AllianceBernstein National
Municipal Income Fund. The Board of Directors approved the name change at the
recommendation of AllianceBernstein L.P., the Fund's investment
adviser, to brand the Fund with the same AllianceBernstein name used for other
funds in the AllianceBernstein family of funds. As of the close of business
on May 18, 2007, the Fund acquired all of the net assets and assumed the
liabilities of ACM Municipal Securities Income Fund, pursuant to a plan of
reorganization approved by the shareholders of ACM Municipal Securities Income
Fund.
Investment Objective and Policies
This closed-end fund 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 28.
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, 2007.
The Fund underperformed its benchmark during the six-month reporting period
ended April 30, 2007, and outperformed the benchmark during the 12-month period
ended April 30, 2007. The Fund's relative underperformance during the six-month
period under review was largely the result of security selection in the
pre-refunded and industrial revenue bond sectors. Security selection in the
hospital and special tax sectors was beneficial to performance.
In general, the Fund's leveraged structure did not aid performance relative to
the benchmark over the six-month reporting period as both short- and long-term
rates rose. Over the 12-month
ALLIANCE NATIONAL MUNICIPAL INCOME FUND o 1
period, however, long-term rates declined and short-term rates were nearly
unchanged and, as a result, the Fund's leveraged structure benefited relative
performance.
Market Review and Investment Strategy
Short-term rates rising more than long-term rates and a continued strong bid
for lower-quality bonds drove municipal bond returns over the six-month
reporting period. Consistent with the pattern in the U.S. Treasury market, in
general, the shorter the municipal bond's maturity, the more its yield
increased over the past six months. Yields for bonds maturing within 20 years
rose by up to 0.15%; those maturing in 30 years rose only 0.03%.
The difference between long-term and short-term municipal bonds is near the
lowest that it has been over the past 30 years. The average of this difference
has been 230 basis points since the early 1970s and is a mere 43 basis points
today. Issuers responded to low long-term interest rates by selling a record
$104 billion in bonds during the first quarter of 2007--49% more than the same
period in 2006.
Investors' demand for income continued to be a significant influence in the
municipal market. High-yield municipal funds accounted for about 40% of the
money invested in municipal mutual funds. Speculative-grade bonds were the
best-performing sector as demand drove prices up, causing the LB Municipal High
Yield Index to return 3.41%--over twice the 1.59% return of the LB Municipal
Index which represents only the investment-grade portion of the municipal
market.
One result of the continued strong performance of lower-rated bonds is that the
extra yield for assuming credit risk is very small by historical standards. For
example, the difference in yield between intermediate BBB-rated and AAA-rated
insured municipal bonds stood at only 0.23% at quarter-end. A widening of just
0.05% would negate the income benefit of owning lower-rated bonds over a
12-month period.
The low levels of compensation for assuming credit risk or interest rate risk
have been engendered, at least in part, by benign economic and inflation
outlooks, as well as by the strongest municipal balance sheets in a very long
time. It is impossible to know when investors will become more risk averse, or
what the catalyst will be. However, with so little reward for taking risk, the
Fund's Municipal Bond Investment Team found the best values in high-quality
bonds and has focused new purchases on bonds maturing in 10-15 years rather
than longer maturities which provide only marginally more income.
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. 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
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 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 (i.e., "junk bonds").
These securities involve greater volatility and risk than higher-quality
fixed-income securities.
Leverage Risk - The Fund may use certain investment techniques that have
increased risks. For example, the issuance of the Fund's preferred stock
results in leveraging of the Common Stock, an investment technique usually
considered speculative. The Fund utilizes leveraging to seek to enhance the
yield and net asset value of its Common Stock. However, these objectives cannot
be achieved in all interest rate environments. 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.
To leverage, the Fund issues Preferred Stock, which pays dividends at
prevailing short-term interest rates, and invests the proceeds in long-term
municipal bonds. 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)
THE FUND VS. ITS BENCHMARK Returns
PERIODS ENDED APRIL 30, 2007 6 Months 12 Months
Alliance National Municipal Income
Fund (NAV) 1.49% 6.78%
LB Municipal Index 1.59% 5.78%
The Fund's Market Price per share on April 30, 2007 was $15.48. The Fund's Net
Asset Value Price per share on April 30, 2007 was $15.41. For additional
Financial Highlights, please see page 34.
See Historical Performance and Benchmark disclosures on previous page.
4 o ALLIANCE NATIONAL MUNICIPAL INCOME FUND
PORTFOLIO SUMMARY
April 30, 2007 (unaudited)
PORTFOLIO STATISTICS
Net Assets ($mil): $316.2
QUALITY RATING DISTRIBUTION*
[ ] 61.6% AAA [PIE CHART OMITTED]
[ ] 12.6% AA
[ ] 9.8% A
[ ] 10.3% BBB
[ ] 5.5% BB
[ ] 0.2% B
* All data are as of April 30, 2007. 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, 2007 (unaudited)
Principal
Amount
(000) U.S. $ Value
-------------------------------------------------------------------------------
MUNICIPAL OBLIGATIONS-160.1%
Long-Term Municipal Bonds-160.1%
Alabama-6.1%
Huntsville Hlth Care Auth
(Huntsville Hosp Sys)
Ser 02B (Prerefunded)
5.75%, 6/01/32 $ 6,000 $ 6,590,880
Jefferson Cnty Ltd Oblig Sch Warrants
Ser 04A
5.25%, 1/01/23 1,275 1,352,010
Jefferson Cnty Swr Rev
FGIC Ser 99A (Prerefunded)
5.375%, 2/01/36 2,905 3,015,042
Marshall Cnty Hlth Care Auth
(Marshall Cnty Med Ctr)
Ser 02A
5.75%, 1/01/32 2,500 2,634,050
Ser 02D
5.75%, 1/01/32 3,000 3,154,440
Montgomery Spl Care Facs Fin Auth
(Baptist Health)
Ser 04C
5.125%, 11/15/24 (Prerefunded) 1,500 1,549,635
5.25%, 11/15/29 810 885,192
------------
19,181,249
Alaska-1.8%
Alaska Intl Arpt Rev
MBIA Ser 03B
5.00%, 10/01/26 1,000 1,045,660
Alaska Mun Bd Bk Auth
MBIA Ser 04G
5.00%, 2/15/24(a) 1,345 1,412,721
Anchorage Waste Wtr Rev
MBIA Ser 04
5.125%, 5/01/29 750 794,932
Four Dam Pool Elec Rev
Ser 04
5.00%, 7/01/24 1,035 1,072,736
5.25%, 7/01/26 1,385 1,441,882
------------
5,767,931
Arkansas-1.2%
Arkansas Dev Fin Auth SFMR
(Mtg Rev)
GNMA/ FNMA Ser 02A
5.30%, 7/01/34 3,790 3,885,698
6 o ALLIANCE NATIONAL MUNICIPAL INCOME FUND
Portfolio of Investments
Principal
Amount
(000) U.S. $ Value
-------------------------------------------------------------------------------
California-8.4%
California GO
Ser 02
5.25%, 4/01/30 $ 1,000 $ 1,057,030
Ser 04
5.25%, 4/01/29 2,000 2,155,840
Chula Vista IDR
(San Diego Gas)
Ser 96A
5.30%, 7/01/21 4,000 4,275,600
Coachella Valley Uni Sch Dist
MBIA Ser 03
5.00%, 9/01/31 1,000 1,043,430
Hartnell Comm College
MBIA Ser 03Af (Prerefunded)
5.00%, 8/01/27 1,155 1,243,311
La Quinta Fin Auth Loc Agy
AMBAC Ser 04A
5.25%, 9/01/24 2,000 2,152,060
Los Angeles Cmty Redev Agy
Ser 04L
5.00%, 3/01/18 1,715 1,744,344
Los Angeles Regl Arpts
(Laxfuel Corp) AMT
AMBAC Ser 01
5.50%, 1/01/32 9,500 9,947,640
San Rafael Elem Sch Dist
FSA Ser 03A
5.00%, 8/01/28 2,820 2,934,464
------------
26,553,719
Colorado-5.4%
Avon Hsg Auth MFHR
(Buffalo Ridge II Proj) AMT
GNMA Ser 02A
5.70%, 10/20/43 4,950 5,144,931
Colorado Ed & Cult Facs Auth
(Knowledge Quest Charter Sch)
Ser 05
6.50%, 5/01/36 500 517,290
Colorado Hlth Facs Auth
(Evangelical Lutheran Proj)
5.25%, 6/01/23 1,725 1,825,757
Colorado Hlth Facs Auth
(Parkview Med Ctr)
Ser 04
5.00%, 9/01/25 1,800 1,841,004
ALLIANCE NATIONAL MUNICIPAL INCOME FUND o 7
Principal
Amount
(000) U.S. $ Value
-------------------------------------------------------------------------------
Denver City & Cnty MFHR
(Clyburn Stapleton Proj) AMT
GNMA Ser 02
5.50%, 12/20/43 $ 2,155 $ 2,210,922
Northwest Metro Dist No. 3 GO
6.125%, 12/01/25 500 530,405
Park Creek Metro Dist Rev Ltd
(Ref-Sr-Ltd Tax Ppty Tax)
Ser 05
5.25%, 12/01/25 1,840 1,925,100
5.50%, 12/01/30 890 936,404
Todd Creek Farms Metro Dist No 1
6.125%, 12/01/22 1,390 1,423,249
Todd Creek Farms Metro Dist No 1 Wtr Rev
(Ref & Impt)
Ser 04
6.125%, 12/01/19 780 821,629
------------
17,176,691
District Of Columbia-4.0%
District of Columbia Spl Tax Rev
(Gallery Place Proj)
FSA Ser 02
5.40%, 7/01/31 3,500 3,714,515
District of Columbia Conv Ctr
AMBAC
5.00%, 10/01/26 8,500 8,976,425
------------
12,690,940
Florida-16.4%
Beacon Tradeport CDD
Ser 02B
7.25%, 5/01/33 5,550 5,945,437
Brevard Cnty HFA SFMR
(Mtg Rev) AMT
GNMA Ser 02C
5.40%, 3/01/33 760 773,992
Collier Cnty CFD
(Fiddler's Creek)
Ser 02A
6.875%, 5/01/33 2,950 3,114,109
Ser 02B
6.625%, 5/01/33 2,215 2,315,340
Dade Cnty Arpt Rev
(Miami Int'l Arpt) AMT
FGIC Ser 02
5.375%, 10/01/32 6,040 6,335,416
Florida Ed & Athletic Fac
(FSU Finl Assist)
AMBAC Ser 02
5.00%, 10/01/31 5,000 5,199,000
8 o ALLIANCE NATIONAL MUNICIPAL INCOME FUND
Portfolio of Investments
Principal
Amount
(000) U.S. $ Value
-------------------------------------------------------------------------------
Florida Hsg Fin Corp MFHR
(Westminster Apts) AMT
FSA Ser 02E-1
5.40%, 4/01/42 $ 3,000 $ 3,089,670
Hamal CDD
(Hamal)
Ser 01 (Prerefunded)
6.75%, 5/01/31 2,460 2,753,601
Lee Cnty Arpt Rev
(Southwest Fl Intl) AMT
FSA Ser 00A
5.75%, 10/01/22-10/01/25 9,500 10,080,065
Lee Cnty Hlth Facs Auth Rev
(Shell Point)
Ser 99A (Prerefunded)
5.50%, 11/15/29 2,500 2,623,800
Miami Beach Hlth Facs Auth Hosp Rev
(Mount Sinai Med Ctr)
Ser 04
6.75%, 11/15/24 2,000 2,274,300
Midtown Miami CDD
Ser 04A
6.00%, 5/01/24 2,500 2,701,050
Miromar Lakes CDD
Ser 00A
7.25%, 5/01/12 1,335 1,399,828
Orange Cnty Hospital Rev
(Orlando Regional)
Ser 02 (Prerefunded)
5.75%, 12/01/32 1,400 1,543,402
Pinellas Cnty HFA SFMR
(Mtg Rev) AMT
GNMA/ FNMA Ser 02A
5.40%, 3/01/32 770 787,648
Village CDD
Ser 03A
6.00%, 5/01/22 815 873,476
------------
51,810,134
Georgia-2.2%
Cartersville Dev Auth AMT
(Anheuser Busch Proj)
Ser 02
5.95%, 2/01/32 2,510 2,699,229
Georgia HFA SFMR
(Mtg Rev) AMT
Ser 02A-02
5.60%, 12/01/32 4,235 4,353,326
------------
7,052,555
ALLIANCE NATIONAL MUNICIPAL INCOME FUND o 9
Principal
Amount
(000) U.S. $ Value
-------------------------------------------------------------------------------
Hawaii-0.7%
Hawaii State Dept of Budget & Fin Spl
Purp Rev
(Elec Co & Subsidiary Prog)
XLCA Ser 03B
5.00%, 12/01/22 $ 2,000 $ 2,070,200
Illinois-21.4%
Bolingbrook Go
FGIC Ser 02A (Prerefunded)
5.375%, 1/01/38 5,000 5,353,100
Chicago Arpt Rev
(O'Hare Int'l Arpt)
XLCA Ser 03B-1
5.25%, 1/01/34 1,760 1,866,304
Chicago Arpt Rev
(O'Hare Int'l Arpt) AMT
MBIA
5.375%, 1/01/32 15,000 15,628,650
Chicago GO (Prerefunded)
FGIC Ser 00C
5.50%, 1/01/40 9,135 9,707,764
Chicago GO Unrefunded
FGIC Ser 00C
5.50%, 1/01/40 5,450 5,741,575
Chicago Il Increment Allocation
7.46%, 2/15/26 1,900 2,032,582
Chicago Parking Rev
(Lakefront Millenium)
MBIA Ser 98 (Prerefunded)
5.125%, 1/01/28(b) 8,600 8,961,372
Chicago Sales Tax Rev
FGIC Ser 98
5.25%, 1/01/28 5,710 5,906,196
Cook Cnty Sch Dist
FSA Ser 04
5.00%, 12/01/20(c) 1,000 1,031,880
Gilberts Special Service Area No 15 Spl Tax
(Gilberts Town Ctr Proj)
Ser 03
6.00%, 3/01/28 2,766 2,828,982
Hampshire Il Spl Svc Area 14
5.80%, 3/01/26 1,845 1,884,926
Illinois Fin Auth Rev
(Illinois Inst of Technology)
Ser 06A
5.00%, 4/01/31 885 901,532
Met Pier & Expo Auth
(McCormick Place)
MBIA Ser 02A
5.25%, 6/15/42 3,750 3,966,825
10 o ALLIANCE NATIONAL MUNICIPAL INCOME FUND
Portfolio of Investments
Principal
Amount
(000) U.S. $ Value
-------------------------------------------------------------------------------
Village of Manhattan
(No 04-1 Brookstone Springs Proj)
Ser 05
5.875%, 3/01/28 $ 1,875 $ 1,941,731
-------------
67,753,419
Indiana-5.1%
Hendricks Cnty Ind Bldg Facs Corp
(First Mtg)
Ser 04
5.50%, 7/15/22 1,105 1,204,085
Indiana HFA SFMR
(Mtg Rev) AMT
GNMA/ FNMA Ser 02
5.55%, 7/01/32 2,030 2,086,800
Indiana Dev Fin Auth
(Exempt Facs Inland Steel)
Ser 97
5.75%, 10/01/11 2,060 2,106,226
Indianapolis Pub Impt Bd
MBIA Ser 2A (Prerefunded)
5.25%, 7/01/33 10,000 10,716,800
-------------
16,113,911
Iowa-0.2%
Coralville Urban Rev Tax Incr
5.00%, 6/01/18(d) 160 166,288
Iowa Fin Auth SFMR
(Mtg Rev) AMT
GNMA/ FNMA Ser 02
5.40%, 7/01/32 430 438,462
------------
604,750
Louisiana-2.9%
Calcasieu Parish SFMR
(Mtg Rev)
GNMA/ FNMA Ser 02A
6.05%, 4/01/33(e) 350 371,679
Ernest N Morial-New Orleans
(Exhibit Hall Auth Spl Tax)
AMBAC Ser A
5.25%, 7/15/16-7/15/17 2,835 3,043,221
Louisiana HFA SFMR
(Mtg Rev) Amt
GNMA/ FNMA Ser 02C
5.60%, 6/01/33(e) 1,290 1,300,746
New Orleans GO
MBIA Ser 05
5.00%, 12/01/29 2,700 2,834,298
New Orleans Ltd. Tax
MBIA
5.00%, 3/01/18 1,625 1,727,586
------------
9,277,530
ALLIANCE NATIONAL MUNICIPAL INCOME FUND o 11
Principal
Amount
(000) U.S. $ Value
-------------------------------------------------------------------------------
Massachusetts-3.1%
Massachusetts GO
(Prerefunded)
Ser 02C
5.25%, 11/01/30 $ 5,000 $ 5,369,300
Massachusetts Hlth & Ed Fac Hosp Rev
(Berkshire Hlth Sys)
RADIAN Ser 01E
5.70%, 10/01/25 2,000 2,157,180
Massachusetts Hlth & Ed Fac Hosp Rev
(Cape Cod Healthcare)
RADIAN Ser 01C
5.25%, 11/15/31 2,100 2,207,520
------------
9,734,000
Michigan-6.8%
Detroit Mi Swr Disp
MBIA
5.25%, 7/01/22 5,000 5,460,600
Detroit Tax Increment
(Diamler/Chrysler Assembly Plant)
Ser 98A
5.50%, 5/01/21 1,615 1,623,253
Kent Hosp Fin Auth
(Metropolitan Hospital Proj)
Ser 05A
5.75%, 7/01/25 770 824,762
Michigan State Hosp Fin Auth
(Marquette Gen Hosp Oblig Grp)
Ser 05A
5.00%, 5/15/26 1,215 1,239,130
Michigan Strategic Fund
(Detroit Edison) AMT
XLCA Ser 02C
5.45%, 12/15/32 5,000 5,317,300
Plymouth Ed Ctr Charter Sch Pub Sch
Academy Rev Ref
Ser 05
5.125%, 11/01/23 2,140 2,154,445
Saginaw Hosp Fin Auth
(Covenant Med Ctr)
Ser 00F
6.50%, 7/01/30 4,410 4,790,759
------------
21,410,249
Minnesota-0.2%
St. Paul Hsg & Redev Auth Hosp Rev
(Healtheast Proj)
Ser 05
6.00%, 11/15/25 500 554,020
12 o ALLIANCE NATIONAL MUNICIPAL INCOME FUND
Principal
Amount
(000) U.S. $ Value
-------------------------------------------------------------------------------
Missouri-0.6%
Missouri SFMR
(Mortgage Rev) AMT
GNMA/ FNMA Ser 02A-1
5.58%, 9/01/32(e) $ 1,275 $ 1,279,233
Riverside IDA
(Riverside Horizons Proj)
ACA
5.00%, 5/01/27 420 435,385
------------
1,714,618
Nevada-15.3%
Carson City Hosp Rev
(Carson-Tahoe Hosp Proj)
RADIAN Ser 03A
5.00%, 9/01/23 2,600 2,667,860
Clark Cnty Arpt Rev
FGIC Ser 01B (Prerefunded)
5.25%, 7/01/34 11,920 12,625,902
Nevada Dept Bus & Ind
(Las Vegas Monorail Proj)
AMBAC Ser 00
5.625%, 1/01/32 11,720 12,415,699
Reno Cap Improvement Rev
FGIC Ser 02 (Prerefunded)
5.375%, 6/01/32 4,710 5,069,750
Reno Cap Improvement Rev Unrefunded
FGIC Ser 02
5.375%, 6/01/32 2,790 2,963,315
Truckee Meadows Wtr Auth
FSA Ser 01A (Prerefunded)
5.25%, 7/01/34 12,000 12,710,640
------------
48,453,166
New Hampshire-1.4%
New Hampshire Hlth & Ed Fac Hosp Rev
(Covenant Med Ctr)
Ser 02
6.125%, 7/01/31 4,200 4,543,686
New Jersey-1.9%
Morris-Union Jointure Commn COP
RADIAN Ser 04
5.00%, 5/01/24 5,185 5,406,970
New Jersey Eco Dev Auth Rev
(Sch Facs Constr)
Ser 05
5.25%, 3/01/25 500 536,410
------------
5,943,380
ALLIANCE NATIONAL MUNICIPAL INCOME FUND o 13
Principal
Amount
(000) U.S. $ Value
-------------------------------------------------------------------------------
New York-0.6%
New York City GO
Ser 04G
5.00%, 12/01/23 $ 1,600 $ 1,681,232
New York State HFA
(Eco Dev & Hsg)
FGIC Ser 05A
5.00%, 9/15/25 300 317,157
------------
1,998,389
North Carolina-0.7%
Charlotte NC Arpt Rev
MBIA Ser 04A
5.25%, 7/01/24 1,895 2,039,911
North Dakota-0.9%
North Dakota HFA SFMR
(Mtg Rev) AMT
Ser 02
5.65%, 1/01/34 1,255 1,290,554
Ward Cnty ND Health Care Fac
(Trinity Health)
5.125%, 7/01/20 1,575 1,636,157
------------
2,926,711
Ohio-3.4%
Cleveland Cuyahoga Port Auth
Ser 01
7.35%, 12/01/31 5,000 5,378,100
Fairfield Cnty Hosp Rev
(Fairfield Med Ctr Proj)
RADIAN Ser 03
5.00%, 6/15/22-6/15/24 3,955 4,063,669
Port Auth of Columbiana Cnty Swr
(Apex Environmental LLC) AMT
Ser 04A
7.125%, 8/01/25 1,340 1,365,514
------------
10,807,283
Oregon-1.1%
Forest Grove Rev
(Ref & Campus Impt Pacific Proj A)
RADIAN Ser 05A
5.00%, 5/01/28 3,340 3,478,410
Pennsylvania-3.2%
Alleghany Cnty IDA
5.00%, 9/01/21 500 509,715
Montgomery Cnty IDA
(Whitemarsh Continuing Care Ret
Comm)
6.00%, 2/01/21 875 928,349
14 o ALLIANCE NATIONAL MUNICIPAL INCOME FUND
Principal
Amount
(000) U.S. $ Value
-------------------------------------------------------------------------------
Pennsylvania Eco Dev Auth
(30th St Station ) AMT
ACA Ser 02
5.875%, 6/01/33 $ 2,050 $ 2,210,289
Pennsylvania Trpk Transp Rev
AMBAC Ser 01 (Prerefunded)
5.00%, 7/15/41 2,000 2,117,320
Philadelphia Auth IDR
(Leadership Learning Partners)
Ser 05A
5.25%, 7/01/24 1,150 1,158,579
Philadelphia Hosp Rev
(Temple Univ Hosp)
Ser 93A
6.625%, 11/15/23 3,000 3,007,110
------------
9,931,362
Puerto Rico-1.3%
Puerto Rico Comwlth GO
(Pub Impt)
5.25%, 7/01/23 2,050 2,200,880
Ser 01A
5.50%, 7/01/19 1,205 1,350,468
Puerto Rico Comwlth Govt Dev Bank
(Sr Notes)
Ser 06B
5.00%, 12/01/15 500 533,370
------------
4,084,718
Rhode Island-1.3%
Rhode Island Hlth & Ed Bldg Corp Rev
(Times2 Academy)
Ser 04
5.00%, 12/15/24 4,100 4,214,800
South Carolina-1.9%
Dorchester Cnty Sch Dist No 2
ASSURED GTY
5.00%, 12/01/29 800 841,632
Newberry Investing In Childrens Ed
(Newberry Cnty Sch Dist Proj)
ASSURED GTY Ser 05
5.00%, 12/01/27 3,890 4,069,290
Ser 05
5.00%, 12/01/30 385 394,155
Scago Edl Facs Corp For Sch
RADIAN
5.00%, 12/01/21 500 523,620
------------
5,828,697
ALLIANCE NATIONAL MUNICIPAL INCOME FUND o 15
Principal
Amount
(000) U.S. $ Value
-------------------------------------------------------------------------------
Tennessee-1.1%
Johnson City Hlth & Ed Facs Hosp Rev
(First Mtg-MTN Sts Hlth)
Ser 06A
5.50%, 7/01/31 $ 1,500 $ 1,601,055
Sullivan Cnty Health Edl
5.00%, 9/01/22 1,760 1,814,138
------------
3,415,193
Texas-24.1%
Bexar Cnty Hlth Fac Dev Corp Rev
5.00%, 7/01/27 370 377,063
Bexar Cnty Hsg Fin Corp MFHR
(Doral Club & Sutton House Apts)
MBIA Ser 01A
5.55%, 10/01/36 14,815 15,529,527
Burelson ISD GO
5.00%, 8/01/24-8/01/27 6,210 6,618,255
Dallas-Fort Worth Arpt Rev
(Int'l Arpt)
FGIC Ser 01
5.50%, 11/01/35 6,500 6,812,975
Garza Cnty Pub Fac Corp
5.50%, 10/01/19 610 657,659
Gulf Coast Waste Disp Auth
(Anheuser-Busch Proj) AMT
Ser 02
5.90%, 4/01/36 9,000 9,626,940
Harris Cnty
(Flood Ctl)
Ser 03B
5.00%, 10/01/23 2,600 2,723,188
Harris Cnty Toll Road Rev
FSA Ser 02
5.125%, 8/15/32 2,500 2,619,250
Hidalgo Cnty Hlth Svcs
(Mission Hosp Inc Proj)
Ser 05
5.00%, 8/15/14-8/15/19 765 781,097
Houston
(Northeast Wtr Purification Proj)
FGIC Ser 02
5.125%, 3/01/32 7,000 7,273,700
Lewisville Combination Contract
(Spl Assmt Cap Impt Dist No 2)
ACA Ser 05
6.00%, 10/01/25 550 610,467
Matagorda Cnty Rev
(Centerpoint Energy Houston Electric
LLC)
Ser 04
5.60%, 3/01/27 1,000 1,059,170
16 o ALLIANCE NATIONAL MUNICIPAL INCOME FUND
Principal
Amount
(000) U.S. $ Value
-------------------------------------------------------------------------------
Richardson Hosp Auth Rev
(Richardson Regional Med Ctr)
FSA Ser 04
5.875%, 12/01/24 $ 2,310 $ 2,495,839
Ser 04
6.00%, 12/01/19 1,830 1,994,499
San Antonio Arpt Rev AMT
FGIC Ser 02A
5.25%, 7/01/27 5,250 5,468,453
Seguin High Ed Fac Rev
(Texas Lutheran University Proj)
Ser 04
5.25%, 9/01/33 1,250 1,280,438
Texas GO AMT
Ser 02A
5.50%, 8/01/41 9,470 10,075,512
------------
76,004,032
Utah-0.8%
Davis Cnty Sales Tax Rev
AMBAC Ser 03B
5.25%, 10/01/23 1,000 1,066,710
Utah Hsg Corp MFHR
(Bluffs Apts Proj) AMT
GNMA Ser 02A
5.60%, 7/20/30 1,480 1,556,886
------------
2,623,596
Virginia-3.3%
Fauquier Cnty IDA Hosp Rev
(Fauquier Hospital) Asset Gty
RADIAN Ser 02
5.25%, 10/01/31 8,500 8,968,860
Pocahontas Pkwy Assoc Toll Rd Rev
(Cap Appreciation) Sr
Ser 98B
Zero Coupon, 8/15/15 2,250 1,476,810
------------
10,445,670
Washington-4.2%
King Cnty Swr Rev
FSA Ser 02A
5.25%, 1/01/32 3,000 3,137,100
Twenty-Fifth Ave Pptys
(University of Washington)
MBIA Ser 02
5.25%, 6/01/33 9,750 10,236,135
------------
13,373,235
ALLIANCE NATIONAL MUNICIPAL INCOME FUND o 17
Principal
Amount
(000) U.S. $ Value
-------------------------------------------------------------------------------
Wisconsin-7.1%
Wisconsin Hlth & Ed Fac Auth Rev
(Bell Tower Residence Proj)
Ser 05
5.00%, 7/01/20-7/01/25 $ 1,485 $ 1,527,885
Wisconsin Hlth & Ed Fac Hosp Rev
(Ministry Hlth Care)
MBIA Ser 02A
5.25%, 2/15/32 13,615 14,351,572
Wisconsin Hsg Auth SFMR
(Mtg Rev) AMT
MBIA
5.60%, 5/01/33 4,885 5,087,483
Ser 02A
5.50%, 9/01/32 1,590 1,595,326
------------
22,562,266
Total Investments-160.1%
(cost $479,435,957) 506,026,119
Other assets less liabilities-1.6% 5,154,130
Preferred Stock at redemption value-(61.7)% (195,000,000)
------------
Net Assets Applicable to
Common Shareholders-100.0%(f) $ 316,180,249
------------
INTEREST RATE SWAP TRANSACTIONS (see Note D)
Rate Type
-----------------------------
Notional Payments Payments Unrealized
Swap Amount Termination made by received by Appreciation/
Counterparty (000) Date the Portfolio the Portfolio (Depreciation)
-------------------------------------------------------------------------------------
Citigroup $6,500 11/10/26 3.884% BMA $ 15,236
JPMorgan Chase 18,100 11/10/11 BMA 3.482% 42,082
Merrill Lynch 700 2/12/12 3.548% BMA 3,276
Merrill Lynch 3,000 7/30/26 4.090% BMA (68,286)
Merrill Lynch 6,500 8/09/26 4.063% BMA (130,555)
Merrill Lynch 7,100 11/15/26 4.378% BMA (416,963)
(a) Position, or a portion thereof, has been segregated to collateralize
interest rate swaps.
(b) Position, or a portion thereof, has been segregated to collateralize when
issued securities.
(c) Indicates a security that has a zero coupon that remains in effect until a
predetermined date at which time the stated coupon rate becomes effective until
final maturity.
(d) When-Issued security.
(e) Variable rate coupon, rate shown as of April 30, 2007.
(f) Portfolio percentages are calculated based on net assets applicable to
common shareholders.
18 o ALLIANCE NATIONAL MUNICIPAL INCOME FUND
Portfolio of Investments
Glossary:
ACA - American Capital Access Financial Guaranty Corporation
AMBAC - American Bond Assurance Corporation
AMT - Alternative Minimum Tax (subject to)
ASSURED GTY - Assured Guaranty
BMA - Bond Market Association
CDD - Community Development District
CFD - Community Facilities District
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/Agency
IDR - Industrial Development Revenue
MBIA - Municipal Bond Investors Assurance
MFHR - Multi-Family Housing Revenue
MTN - Medium Term Note
RADIAN - Radian Group, Inc.
SFMR - Single Family Mortgage Revenue
SWR - Solid Waste Revenue
XLCA - XL Capital Assurance Inc.
See notes to financial statements.
ALLIANCE NATIONAL MUNICIPAL INCOME FUND o 19
STATEMENT OF ASSETS & LIABILITIES
April 30, 2007 (unaudited)
Assets
Investments in securities, at value (cost $479,435,957) $ 506,026,119
Interest receivable 7,844,762
Unrealized appreciation of swap contracts 60,594
--------------
Total assets 513,931,475
--------------
Liabilities
Due to custodian 1,203,335
Unrealized depreciation of swap contracts 615,804
Payable for investment securities purchased 600,269
Advisory fee payable 188,789
Dividends payable-preferred shares 113,423
Accrued expenses and other liabilities 29,606
--------------
Total liabilities 2,751,226
--------------
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 $ 316,180,249
===============
Composition of Net Assets Applicable to
Common Shareholders
Common stock, $.001 par value per share;
1,999,992,200 shares authorized,
20,520,824 shares issued and outstanding $ 20,521
Additional paid-in capital 291,039,321
Distributions in excess of net investment income (136,512)
Accumulated net realized loss on investment transactions (778,033)
Net unrealized appreciation of investments 26,034,952
--------------
Net Assets Applicable to Common Shareholders $ 316,180,249
==============
Net Asset Value Applicable to Common Shareholders
(based on 20,520,824 common shares outstanding) $15.41
======
See notes to financial statements.
20 o ALLIANCE NATIONAL MUNICIPAL INCOME FUND
STATEMENT OF OPERATIONS
Six Months Ended April 30, 2007 (unaudited)
Investment Income
Interest $ 13,033,094
Expenses
Advisory fee $ 1,544,989
Auction Preferred Stock-auction
agent's fees 243,970
Custodian 97,610
Audit 37,147
Legal 30,584
Printing 24,549
Registration fees 17,989
Directors' fees and expenses 17,000
Transfer agency 1,919
Miscellaneous 24,607
----------
Total expenses 2,040,364
Less: expenses waived by the Adviser
(see Note B) (462,570)
----------
Net expenses 1,577,794
----------
Net investment income 11,455,300
----------
Realized and Unrealized Gain (Loss)
on Investment Transactions
Net realized gain (loss) on:
Investment transactions 389,507
Swap contracts (50,752)
Net change in unrealized
appreciation/depreciation of:
Investments (3,960,036)
Swap contracts 161,693
----------
Net loss on investment transactions (3,459,588)
----------
Dividends to Auction Preferred
Shareholders from
Net investment income (3,490,514)
----------
Net Increase in Net Assets Applicable
to Common Shareholders Resulting
from Operations $ 4,505,198
============
See notes to financial statements.
ALLIANCE NATIONAL MUNICIPAL INCOME FUND o 21
STATEMENT OF CHANGES IN NET ASSETS
APPLICABLE TO COMMON SHAREHOLDERS
Six Months
Ended Year Ended
April 30, 2007 October 31,
(unaudited) 2006
============== ==============
Increase (Decrease) in Net Assets
Applicable to Common Shareholders
Resulting from Operations
Net investment income $ 11,455,300 $ 23,242,870
Net realized gain on investment
transactions 338,755 695,847
Net change in unrealized
appreciation/depreciation
of investments (3,798,343) 7,253,095
Dividends to Auction Preferred
Shareholders from
Net investment income (3,490,514) (6,461,943)
-------------- --------------
Net increase in net assets applicable
to Common Shareholders resulting
from operations 4,505,198 24,729,869
Dividends to Common
Shareholders from
Net investment income (8,124,329) (20,407,776)
Common Stock Transactions
Reinvestment of dividends resulting in
the issuance of Common Stock 92,993 668,163
-------------- --------------
Total increase (decrease) (3,526,138) 4,990,256
Net Assets Applicable to
Common Shareholders
Beginning of period 319,706,387 314,716,131
-------------- --------------
End of period (including
undistributed/(distributions
in excess of) net investment
income of $136,512 and
$23,031, respectively) $ 316,180,249 $ 319,706,387
============== ==============
See notes to financial statements.
22 o ALLIANCE NATIONAL MUNICIPAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS
April 30, 2007 (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 (other than securities listed on the NASDAQ Stock Market,
Inc. ("NASDAQ")) 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 listed only on 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") are valued at the mean of the current bid and asked prices as reported
by the National Quotation Bureau or other comparable sources; U.S. government
securities and other debt instruments having 60 days or less remaining until
maturity are valued at amortized cost if their original maturity was 60 days or
less; or by amortizing their fair value as of the 61st day prior to maturity if
their original term to maturity exceeded 60 days; fixed-income securities,
including mortgage backed and asset backed securities, may be valued on the
basis of prices provided by a pricing service or at a price obtained from one
or more of the major broker/dealers. In cases where broker/dealer quotes are
obtained, AllianceBernstein L.P. (the "Adviser") may establish proce-
ALLIANCE NATIONAL MUNICIPAL INCOME FUND o 23
dures 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, prior to February 12,
2007, the Fund paid 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. As of February 12, 2007, the Fund pays the Adviser an advisory
fee at an annual rate of .55% of the Fund's average daily net assets applicable
to common and preferred stockholders. Such fee is accrued daily and paid
monthly.
24 o ALLIANCE NATIONAL MUNICIPAL INCOME FUND
Notes to Financial Statements
The Adviser has voluntarily agreed to waive a portion of its fees or reimburse
the Fund for expenses in the amount of .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, .20% for the period January 28, 2007 until
February 12, 2007, .10% for year 6 (such waiver commencing February 12 of year
6) and .05% for year 7. The Fund commenced operations on January 28, 2002. For
the six months ended April 30, 2007 the amount of such fees waived was $462,570.
Under the terms of a Shareholder Inquiry Agency Agreement with
AllianceBernstein 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, 2007, 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, 2007, were as follows:
Purchases Sales
============= =============
Investment securities (excluding
U.S. government securities) $ 24,814,666 $ 27,199,133
U.S. government securities -0- -0-
The cost of investments for federal income tax purposes, was substantially the
same as the cost for financial repotings purposes. Accordingly, gross
unrealized appreciation and unrealized depreciation (excluding swap
transactions) are as follows:
Gross unrealized appreciation $ 26,697,383
Gross unrealized depreciation (107,221)
-------------
Net unrealized appreciation $ 26,590,162
=============
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 by the Fund, and/or the termination value at the end of
the contract. Therefore,
ALLIANCE NATIONAL MUNICIPAL INCOME FUND o 25
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 20,520,824 shares of common stock outstanding at April 30, 2007.
During the six months ended April 30, 2007, the Fund issued 6,023 shares in
connection with the Fund's dividend reinvestment plan. During the year ended
October 31, 2006, the Fund issued 43,134 shares in connection with the Fund's
reinvestment plan.
26 o ALLIANCE NATIONAL MUNICIPAL INCOME FUND
Notes to Financial Statements
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 3.94%
effective through May 7, 2007. The dividend rate on the Series T is 3.85%
effective through May 1, 2007. The dividend rate on the Series W is
3.88% effective through May 2, 2007. The dividend rate on the Series TH is
3.92% effective through May 3, 2007.
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 ended October 31,
2007 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, 2006 and October 31, 2005 were as follows:
2006 2005
============= =============
Distributions paid from:
Ordinary income $ 33,460 $ 42,667
Tax exempt income 20,374,316 20,347,113
------------- -------------
Total distributions paid $ 20,407,776 $ 20,389,780
============= =============
ALLIANCE NATIONAL MUNICIPAL INCOME FUND o 27
As of October 31, 2006, the components of accumulated earnings/(deficit)
applicable to common shareholders on a tax basis were as follows:
Undistributed tax exempt income $ 101,375
Accumulated capital and other losses (1,116,788)(a)
Unrealized appreciation/(depreciation) 29,844,434(b)
---------------
Total accumulated earnings/(deficit) $ 28,829,021(c)
---------------
(a) On October 31, 2006, the Fund had a net capital loss carryforward of
$1,116,788 of which $1,106,582 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, 2006, the Fund utilized capital loss carryforwards of $337,555.
(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.
(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.
Leverage Risk--The Fund may use certain investment techniques that have
increased risks. For example, the issuance of the Fund's preferred stock
results in leveraging of the Common Stock, an investment technique usually
considered speculative. The Fund utilizes leveraging to seek to enhance the
yield and net asset value of its Common Stock. However, these objectives cannot
be achieved in all interest rate environments. 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.
To leverage, the Fund issues Preferred Stock, which pays dividends at
prevailing short-term interest rates, and invests the proceeds in long-term
municipal bonds. 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
28 o ALLIANCE NATIONAL MUNICIPAL INCOME FUND
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.
Indemnification Risk--In the ordinary course of business, the Fund enters into
contracts that contain a variety of indemnifications. The Fund's maximum
exposure under these arrangements is unknown. However, the Fund has not had
prior claims or losses pursuant to these indemnification provisions and expects
the risk of loss thereunder to be remote.
NOTE H
Legal Proceedings
As has been previously reported, the staff of the U.S. Securities and Exchange
Commission ("SEC") and the Office of the New York Attorney General ("NYAG")
have been investigating practices in the mutual fund industry identified as
"market timing" and "late trading" of mutual fund shares. Certain other
regulatory authorities have also been conducting investigations into these
practices within the industry and have requested that the Adviser provide
information to them. The Adviser has been cooperating and will continue to
cooperate with all of these authorities. The shares of the Fund are not
redeemable by the Fund, but are traded on an exchange at prices established by
the market. Accordingly, the Fund and its shareholders are not subject to the
market timing and late trading practices that are the subject of the
investigations mentioned above or the lawsuits described below. Please see
below for a description of the agreements reached by the Adviser and the SEC
and NYAG in connection with the investigations mentioned above.
Numerous lawsuits have been filed against the Adviser and certain other
defendants in which plaintiffs make claims purportedly based on or related to
the same practices that are the subject of the SEC and NYAG investigations
referred to above. Some of these lawsuits name the Fund as a party. The
lawsuits are now pending in the United States District Court for the District
of Maryland 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
ALLIANCE NATIONAL MUNICIPAL INCOME FUND o 29
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.
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 did 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.
30 o ALLIANCE NATIONAL MUNICIPAL INCOME FUND
Notes to Financial Statements
On August 30, 2005, 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 25, 2006, the Adviser and Alliance Holding moved to vacate
the Summary Order. In early Setember 2006, the court denied this motion, and
the Supreme Court of Appeals in West Virginia denied the defendants' petition
for appeal. On September 22, 2006, the Adviser and Alliance Holding filed an
answer and moved to dismiss the Summary Order with the West Virginia Securities
Commissioner.
On June 22, 2004, a purported class action complaint entitled Aucoin, et al. v.
Alliance Capital Management L.P., et al. ("Aucoin Complaint") was filed against
the Adviser, Alliance Capital Management Holding L.P., Alliance Capital
Management Corporation, AXA Financial, Inc., AllianceBernstein Investment
Research & Management, Inc., certain current and former directors of the
AllianceBernstein Mutual Funds, and unnamed Doe defendants. The Aucoin
Complaint names certain of the AllianceBernstein mutual funds as nominal
defendants. The 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.
ALLIANCE NATIONAL MUNICIPAL INCOME FUND o 31
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. On July 5,
2006, plaintiffs filed a notice of appeal which was subsequently withdrawn
subject to plaintiffs' right to reinstate it at a later date.
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.
NOTE I
Recent Accounting Pronouncements
On July 13, 2006, the Financial Accounting Standards Board ("FASB") released
FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" ("FIN
48"). FIN 48 provides guidance for how uncertain tax positions should be
recognized, measured, presented and disclosed in the financial statements. FIN
48 requires the evaluation of tax positions taken or expected to be taken in
the course of preparing a fund's tax returns to determine whether the tax
positions are "more-likely-than-not" of being sustained by the applicable tax
authority. Tax positions not deemed to meet the more-likely-than-not threshold
would be recorded in the current period. Adoption of FIN 48 is required for
fiscal years beginning after December 15, 2006 and is to be applied to all open
tax years as of the effective date. On December 22, 2006, the Securities and
Exchange Commission notified the industry that the implementation of FIN 48 by
registered investment companies could be delayed until the last business day of
the first required financial statement reporting period for fiscal years
beginning after December 15, 2006. At this time, management is evaluating the
implications of FIN 48 and its impact on the financial statements has not yet
been determined.
On September 20, 2006, the FASB released Statement of Financial Accounting
Standards No. 157 "Fair Value Measurements" ("FAS 157"). FAS 157 establishes an
authoritative definition of fair value, sets out a framework for measuring fair
value, and requires additional disclosures about fair-value measurements. The
application of FAS 157 is required for fiscal years beginning after November
15, 2007 and interim periods within those fiscal years. At this time,
management is evaluating the implications of FAS 157 and its impact on the
financial statements has not yet been determined.
32 o ALLIANCE NATIONAL MUNICIPAL INCOME FUND
Notes to Financial Statements
NOTE J
Subsequent Events
On May 18, 2007, the Alliance National Municipal Fund (the "Fund") acquired all
of the net assets of the ACM Municipal Securities Income Fund, pursuant to a
plan of reorganization approved by the shareholders of ACM Municipal Securities
Income Fund. On May 18, 2007, the acquisition was accomplished by a tax-free
exchange of 8,132,697 common shares and 3,600 shares of Auction Preferred stock
of the Fund for 11,145,261 common shares and 3,600 shares of Auction Preferred
stock of ACM Municipal Income Securities Fund. The aggregate net assets
applicable to common shareholders of the Fund and ACM Municipal Income Fund
immediately before the acquisition were $313,569,265 and $124,260,444
(including $6,907,265 of net unrealized appreciation of investments).
Immediately after the acquisition, the combined net assets applicable to common
and preferred shareholders of the Fund amounted to $722,829,709.
On May 18, 2007, the Fund changed its name to AllianceBernstein National
Municipal Income Fund, Inc.
ALLIANCE NATIONAL MUNICIPAL INCOME FUND o 33
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
2007 ----------------------------------------------------------- October 31,
(unaudited) 2006 2005 2004(a) 2003 2002
-----------------------------------------------------------------------------------------
Net asset value,
beginning of period $15.58 $15.37 $15.49 $15.02 $14.81 $14.33
Income from Investment
Operations
Net investment income(c)(d) .56 1.13 1.13 1.16 1.19 .74
Net realized and unrealized
gain (loss) on investment
transactions (.16) .40 (.05) .42 .03 .60
Dividends to preferred shareholders
from net investment income
(common stock equivalent
basis) (.17) (.32) (.20) (.12) (.13) (.08)
Net increase in net asset value
from operations .23 1.21 .88 1.46 1.09 1.26
Less: Dividends to common
shareholders from
Net investment income (.40) (1.00) (1.00) (.99) (.87) (.64)
Common stock offering costs -0- -0- -0- -0- -0- (.03)
Preferred stock offering costs
and sales load -0- -0- -0- -0- (.01) (.11)
Net asset value, end of period $15.41 $15.58 $15.37 $15.49 $15.02 $14.81
Market value, end of period $15.48 $15.09 $14.78 $14.18 $13.71 $13.48
Premium/(Discount) .45% (3.15)% (3.84)% (8.46)% (8.72)% (8.98)%
Total Return
Total investment return based on:(e)
Market value 5.26% 8.88% 11.57% 11.01% 8.36% (5.92)%
Net asset value 1.49% 8.10% 6.21% 10.69% 8.05% 8.14%
Ratios/Supplemental Data:
Net assets applicable to common
shareholders, end of period
(000's omitted) $316,180 $319,706 $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 $195,000
Ratio to average net assets
applicable to common
shareholders of:
Expenses, net of
fee waivers(f) 1.00%(g) .96% .97% .97% .95% .95%(g)
Expenses, before
fee waivers(f) 1.29%(g) 1.36% 1.37% 1.38% 1.36% 1.33%(g)
Net investment income, before
preferred stock dividends(d)(f) 7.27%(g) 7.38% 7.29% 7.63% 7.88% 6.73%(g)
Preferred stock dividends 2.21%(g) 2.05% 1.28% .80% .89% .76%(g)
Net investment income, net of
preferred stock dividends(d) 5.06%(g) 5.33% 6.01% 6.84% 6.99% 5.97%(g)
Portfolio turnover rate 5% 7% 18% 14% 11% 13%
Asset coverage ratio 262% 264% 261% 263% 258% 255%
See footnote summary on page 35.
34 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 35
SUPPLEMENTAL PROXY INFORMATION
(unaudited)
The Special Meeting of Stockholders of AllianceBernstein National Municipal
Income Fund, Inc. ("the Fund") was held on February 22, 2007. A description of
the proposal and number of shares voted at the meeting are as follows:
Voted For Against Abstain
------------------------------------------------
Issuance of the shares of 9,639,877 466,945 470,608
the Fund's common stock
in connection with the
proposed acquisition of all
the assets and assumption of
all the liabilities of ACM
Municipal Securities
Income Fund, Inc. by the
Fund.
36 o ALLIANCE NATIONAL MUNICIPAL INCOME FUND
BOARD OF DIRECTORS
Board of Directors
William H. Foulk, Jr.(1), Chairman
Marc O. Mayer, President and Chief Executive Officer
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)
Earl D. Weiner(1)
OFFICERS(2)
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
Joseph J. Mantineo, 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
101 Barclay Street - 7W
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 43010
Providence, RI 02940-3010
(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 37
Information Regarding the Review and Approval of the Fund's Advisory Agreement
The disinterested directors (the "directors") of Alliance National Municipal
Income Fund, Inc. (the "Fund") unanimously approved the continuance of the
Advisory Agreement (amended to reduce the contractual fee rate by 10 basis
points as discussed under "Advisory Fee and Other Expenses" below) with the
Adviser at a meeting held on February 7-8, 2007.
Prior to approval of the continuance of the Advisory Agreement, the directors
requested and received and evaluated extensive materials from the Adviser. They
reviewed the proposed continuance of the Advisory Agreement with the Adviser
and with experienced counsel who are independent of the Adviser who advised on
the relevant legal standards. The directors also discussed the proposed
continuance in five private sessions with counsel and the Fund's Independent
Compliance Officer.
The directors 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, the Adviser's initiative in identifying
and raising potential issues with the directors and its responsiveness,
frankness and attention to concerns raised by the directors 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. The directors noted that they have
four regular meetings each year, at each of which they receive presentations
from the Adviser on the investment results of the Fund and review extensive
materials and information presented by the Adviser.
The directors also considered all other factors they believed relevant,
including the specific matters discussed below. In their deliberations, the
directors did not identify any particular information that was all-important or
controlling, and different directors may have attributed different weights to
the various factors. The directors determined that the selection of the Adviser
to manage the Fund and the overall arrangements between the Fund and the
Adviser, as provided in the Advisory Agreement, including the advisory fee
reduction approved at the meeting, 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' determinations
included the following:
Nature, Extent and Quality of Services Provided
The directors considered the scope and quality of services provided by the
Adviser under the Advisory Agreement, including the quality of the investment
research capabilities of the Adviser and the other resources it has dedicated
to
38 o ALLIANCE NATIONAL MUNICIPAL INCOME FUND
performing services for the Fund. They also noted the professional experience
and qualifications of the Fund's portfolio management team and other senior
personnel of the Adviser. 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 the Adviser has not requested such
reimbursements from the Fund. Requests for these "at no more than cost"
reimbursements are approved by the directors on a quarterly basis and (to the
extent requested and paid) result in a higher rate of total compensation from
the Fund to the Adviser than the fee rate stated in the Advisory Agreement. 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 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
The directors reviewed a schedule of the revenues and expenses indicating the
profitability of the Fund to the Adviser for calendar years 2004 and 2005 that
had been prepared with an updated expense allocation methodology arrived at in
consultation with an independent consultant. The directors noted that the
updated expense allocation methodology 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. 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. 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 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 without these benefits. The directors understood that the
Adviser also might derive reputational and other benefits from its association
with the Fund.
ALLIANCE NATIONAL MUNICIPAL INCOME FUND o 39
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 the Adviser showing performance of
the Fund as compared to other funds in the Lipper General Municipal Debt Funds
Average (Leveraged) (the "Lipper Average") for periods ended June 30, 2006 over
the year to date ("YTD"), 1- and 3-year and since inception periods (January
2002 inception) and for each of the last three calendar years, and as compared
to the Lehman Brothers Municipal Bond Index (the "Index") for periods ended
June 30, 2006 over the YTD, 1- and 3-year and since inception periods. The
directors noted that in the Lipper Average comparison, the Fund's performance
was above the Lipper medians in all periods reviewed. The directors further
noted that the Fund 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 in December 2003, the Adviser agreed
to material reductions (averaging 20%) in the fee schedules of most of the
open-end funds sponsored by the Adviser and that such open-end funds had
benefited from such fee reductions since 2004.
The Adviser informed the directors that there are no institutional products
managed 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 involved
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 significantly greater scope of the services it
provides the Fund relative to institutional clients. In light of this
information, the directors did not place significant weight on these fee
comparisons.
40 o ALLIANCE NATIONAL MUNICIPAL INCOME FUND
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. The expense ratio of the Fund was based on the Fund's
latest fiscal year expense ratio and reflected fee waivers and/or expense
reimbursements as contemplated in the prospectus for the Fund's initial public
offering. 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
year actual advisory fees of 64.5 basis points was significantly lower than the
Expense Group and Expense Universe medians. 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 noted that the Adviser, in response to a request from the
directors, had agreed in November 2006 to a reduction to the Fund's contractual
advisory fee rate from .65% to .55% such that when the waivers have been fully
phased out the fee rate payable by the Fund will be 10 basis points less than
it otherwise would have been. Finally, the directors noted that the Fund's
total expense ratio was lower than the Expense Group and Expense Universe
medians. The directors concluded that the Fund's expense ratio was satisfactory.
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. They further noted that the
Fund's pending acquisition subject to stockholder approvals, of all of the
assets and liabilities of ACM Municipal Income Fund, Inc., was one of the
reasons they have requested a reduction in the Fund's contractual fee rate.
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
THIS PAGE IS NOT PART OF THE SHAREHOLDER REPORT OR THE FINANCIAL STATEMENTS
ALLIANCEBERNSTEIN FAMILY OF FUNDS
AllianceBernstein Family of Funds
-----------------------------------------
Wealth Strategies Funds
-----------------------------------------
Balanced Wealth Strategy
Wealth Appreciation Strategy
Wealth Preservation Strategy
Tax-Managed Balanced Wealth Strategy
Tax-Managed Wealth Appreciation Strategy
Tax-Managed Wealth Preservation Strategy
-----------------------------------------
Blended Style Funds
-----------------------------------------
U.S. Large Cap Portfolio
International Portfolio
Tax-Managed International Portfolio
-----------------------------------------
Growth Funds
-----------------------------------------
Domestic
Growth Fund
Mid-Cap Growth Fund
Large Cap Growth Fund
Small Cap Growth 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
Small/Mid Cap Value Fund
Utility Income Fund
Value Fund
Global & International
Global Real Estate Investment Fund*
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
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
AllianceBernstein Global High Income Fund*
AllianceBernstein Income Fund*
AllianceBernstein National Municipal Income Fund*
ACM Managed Dollar Income Fund
ACM Managed Income Fund
California Municipal Income Fund
New York Municipal Income Fund
The Spain Fund
-----------------------------------------
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.
You should consider the investment objectives, risks, charges and expenses of
any AllianceBernstein fund/portfolio carefully before investing. For free
copies of our prospectuses, which contain this and other information, visit us
online at www.alliancebernstein.com or contact your financial advisor. Please
read the prospectus carefully before investing.
* Prior to January 26, 2007, AllianceBernstein Global High Income Fund was
named Alliance World Dollar Government Fund II and AllianceBernstein Income
Fund was named ACM Income Fund. Prior to March 1, 2007, Global Real Estate
Investment Fund was named Real Estate Investment Fund. Prior to May 18, 2007,
AllianceBernstein National Municipal Income Fund was named National Municipal
Income Fund.
** An investment in the Fund is not a deposit in a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. Although the Fund seeks to preserve the value of your investment at
$1.00 per share, it is possible to lose money by investing in the Fund.
ALLIANCE NATIONAL MUNICIPAL INCOME FUND o 43
NOTES
44 o ALLIANCE NATIONAL MUNICIPAL INCOME FUND
Privacy Notice (This information is not part of the Shareholder Report.)
AllianceBernstein L.P., the AllianceBernstein Family of Funds and
AllianceBernstein Investments, Inc. (collectively, "AllianceBernstein" or "we")
understand the importance of maintaining the confidentiality of our clients'
nonpublic personal information. Nonpublic personal information is personally
identifiable financial information about our clients who are natural persons.
To provide financial products and services to our clients, we may collect
information about clients from sources, including: (1) account documentation,
including applications or other forms, which may contain information such as a
client's name, address, phone number, social security number, assets, income,
and other household information, (2) clients' transactions with us and others,
such as account balances and transactions history, and (3) information from
visitors to our websites provided through online forms, site visitorship data,
and online information collecting devices known as "cookies."
It is our policy not to disclose nonpublic personal information about our
clients (or former clients) except to our affiliates, or to others as permitted
or required by law. From time to time, AllianceBernstein may disclose nonpublic
personal information that we collect about our clients (or former clients), as
described above, to non-affiliated third parties, including those that perform
processing or servicing functions and those that provide marketing services for
us or on our behalf under a joint marketing agreement that requires the third
party provider to adhere to AllianceBernstein's privacy policy. We have
policies and procedures to safeguard nonpublic personal information about our
clients (and former clients) that include restricting access to such nonpublic
personal information and maintaining physical, electronic and procedural
safeguards, that comply with applicable standards, to safeguard such nonpublic
personal information.
ALLIANCE NATIONAL MUNICIPAL INCOME FUND
1345 Avenue of the Americas
New York, NY 10105
800.221.5672
[LOGO]
ALLIANCEBERNSTEIN
INVESTMENTS
ANMIF-0152-0407
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): AllianceBernstein National Municipal Income Fund, Inc.
By: /s/ Marc O. Mayer
-----------------
Marc O. Mayer
President
Date: June 29, 2007
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 29, 2007
By: /s/ Joseph J. Mantineo
----------------------
Joseph J. Mantineo
Treasurer and Chief Financial Officer
Date: June 29, 2007