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<SEC-DOCUMENT>0000919574-01-501336.txt : 20020413
<SEC-HEADER>0000919574-01-501336.hdr.sgml : 20020413
ACCESSION NUMBER:		0000919574-01-501336
CONFORMED SUBMISSION TYPE:	N-2/A
PUBLIC DOCUMENT COUNT:		3
FILED AS OF DATE:		20011221

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			ALLIANCE NATIONAL MUNICIPAL INCOME FUND
		CENTRAL INDEX KEY:			0001162027
		STANDARD INDUSTRIAL CLASSIFICATION:	 []

	FILING VALUES:
		FORM TYPE:		N-2/A
		SEC ACT:		1933 Act
		SEC FILE NUMBER:	333-73130
		FILM NUMBER:		1821385

	BUSINESS ADDRESS:	
		STREET 1:		ALLIANCE CAPITAL MANAGEMENT LP
		STREET 2:		1345 AVE OF THE AMERICAS
		CITY:			NEW YORK
		STATE:			NY
		ZIP:			10105
		BUSINESS PHONE:		2129692124

	MAIL ADDRESS:	
		STREET 1:		ALLIANCE CAPITAL MANAGEMENT LP
		STREET 2:		1345 AVE OF THE AMERICAS
		CITY:			NEW YORK
		STATE:			NY
		ZIP:			10105

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			ALLIANCE NATIONAL MUNICIPAL INCOME FUND
		CENTRAL INDEX KEY:			0001162027
		STANDARD INDUSTRIAL CLASSIFICATION:	 []

	FILING VALUES:
		FORM TYPE:		N-2/A
		SEC ACT:		1940 Act
		SEC FILE NUMBER:	811-10573
		FILM NUMBER:		1821386

	BUSINESS ADDRESS:	
		STREET 1:		ALLIANCE CAPITAL MANAGEMENT LP
		STREET 2:		1345 AVE OF THE AMERICAS
		CITY:			NEW YORK
		STATE:			NY
		ZIP:			10105
		BUSINESS PHONE:		2129692124

	MAIL ADDRESS:	
		STREET 1:		ALLIANCE CAPITAL MANAGEMENT LP
		STREET 2:		1345 AVE OF THE AMERICAS
		CITY:			NEW YORK
		STATE:			NY
		ZIP:			10105
</SEC-HEADER>
<DOCUMENT>
<TYPE>N-2/A
<SEQUENCE>1
<FILENAME>national_n2a00250209ak1.txt
<TEXT>





<PAGE>



      AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
                      ON DECEMBER 21, 2001
                   1933 ACT FILE NO. 333-73130
                 1940 ACT FILE NO. 811-10573
   ___________________________________________________________

            U.S. SECURITIES AND EXCHANGE COMMISSION
                     WASHINGTON, D.C. 20549

                            FORM N-2
                (CHECK APPROPRIATE BOX OR BOXES)

  / /   REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
           /X/      PRE-EFFECTIVE AMENDMENT NO. 1
              / /      POST-EFFECTIVE AMENDMENT NO.

                             AND/OR

    / /   REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
                           ACT OF 1940
                  /X/      AMENDMENT NO. 1

        EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER:

          ALLIANCE NATIONAL MUNICIPAL INCOME FUND, INC.
             ADDRESS OF PRINCIPAL EXECUTIVE OFFICES
            (NUMBER, STREET, CITY, STATE, ZIP CODE):

                  1345 AVENUE OF THE AMERICAS
                    NEW YORK, NEW YORK 10105

      REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
                         (212) 969-1000

    NAME AND ADDRESS (NUMBER, STREET, CITY, STATE, ZIP CODE)
                     OF AGENT FOR SERVICE:

                     EDMUND P. BERGAN, JR.
           SENIOR VICE PRESIDENT AND GENERAL COUNSEL
                ALLIANCE CAPITAL MANAGEMENT L.P.
                  1345 AVENUE OF THE AMERICAS
                    NEW YORK, NEW YORK 10105

                         WITH COPIES TO:

                      PATRICIA A. POGLINCO
                       SEWARD & KISSEL LLP
                     ONE BATTERY PARK PLAZA
                    NEW YORK, NEW YORK 10004

                          SARAH COGAN
                   SIMPSON THACHER & BARTLETT
                      425 LEXINGTON AVENUE
                       NEW YORK, NY  10017




<PAGE>

         APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
       AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF
                  THIS REGISTRATION STATEMENT.

IF ANY SECURITIES BEING REGISTERED ON THIS FORM WILL BE OFFERED
ON A DELAYED OR CONTINUOUS BASIS IN RELIANCE ON RULE 415 UNDER
THE SECURITIES ACT OF 1933, OTHER THAN SECURITIES OFFERED IN
CONNECTION WITH A DIVIDEND REINVESTMENT PLAN, CHECK THE FOLLOWING
BOX.                                                         / /


CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933

                             Proposed     Maximum
Title of         Proposed    Maximum      Aggregate
Securities       Amount      Offering     Amount of
Being            Being       Price        Offering   Registration
Registered       Registered  Per Unit     Price (1)  Fee

Common Stock,
$.001 par value  1,000       $15.00       $15,000    $3.75 (2)


The registrant hereby amends this Registration Statement under
the Securities Act of 1933 on such date or dates as may be
necessary to delay its effective date until the registrant shall
file a furhter amendment which specifically states that this
Registration Statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act of 1933 or
until the Registration Statement shall become effective on such
date as the Commission, acting pursuant to Section 8(a), may
determine.



(1)   Estimated solely for the purpose of calculating the
      registration fee.

(2)   Previously paid pursuant to filing of the Registrant's
      Registration Statement on November 9, 2001.



<PAGE>
<PAGE>

The information in this Prospectus is not complete and may be changed. We may
not sell these securities until the registration statement relating to the
securities filed with the Securities and Exchange Commission is effective. This
Prospectus is not an offer to sell these securities and is not soliciting an
offer to buy these securities in any state where the offer or sale is not
permitted.

                SUBJECT TO COMPLETION, DATED DECEMBER 21, 2001
PROSPECTUS

                               4,000,000 Shares

                 Alliance National Municipal Income Fund, Inc.

                                 Common Shares

                               $15.00 per share

                                 -------------

   Investment Objective. The Fund is a newly organized, diversified, closed-end
management investment company. The Fund's investment objective is to seek to
provide high current income exempt from regular federal income tax. The Fund
cannot assure you that it will achieve its investment objective.

   Investment Policies. Under normal market conditions, the Fund will invest at
least 80%, and normally substantially all, of its net assets in municipal bonds
paying interest that is exempt from regular federal income tax. Normally, the
Fund will invest at least 75% of its net assets in investment grade municipal
bonds (i.e., rated Baa or BBB or higher) or unrated municipal bonds considered
to be of comparable quality as determined by the Fund's investment adviser. 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 bonds that pay interest that is not subject to
the alternative minimum income tax, but may invest without limit in municipal
bonds paying interest that is subject to the alternative minimum income tax.

   Preferred Shares. Within approximately one to three months after completion
of this offering of common shares, the Fund intends to offer preferred shares
representing approximately 40% of the Fund's capital immediately after the
issuance of such preferred shares. This issuance of preferred shares will
leverage your investment in the Fund's common shares. There can be no
assurance, however, that preferred shares representing such percentage of the
Fund's capital will be issued. The use of preferred shares to leverage the
Fund's common shares entails certain risks.

                                 -------------

   Before buying any common shares you should read the discussion of the
material risks of investing in the Fund in "Risks" beginning on page 17. These
risks are summarized in "Summary--Special Risk Considerations" beginning on
page 4.

   No Prior History. Because the Fund is newly organized, its common shares
have no history of public trading. Shares of closed-end investment companies
frequently trade at discounts from their net asset values. This risk may be
greater for investors expecting to sell their shares in a relatively short
period after completion of the public offering. The Fund has applied for
approval for listing of its common shares on the New York Stock Exchange. The
trading or "ticker" symbol of the common shares is expected to be "AFB."

   Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this Prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.

                                 -------------

<TABLE>
<CAPTION>
                                                    Per Share Total
                                                    --------- -----
            <S>                                     <C>       <C>
            Public Offering Price..................  $ 15.00    $
            Sales Load.............................  $ 0.675    $
            Proceeds to the Fund...................  $14.325    $
</TABLE>

   The Fund will pay organizational and offering expenses estimated at $
from the proceeds of the offering. Alliance Capital Management L.P., the Fund's
investment adviser, has agreed to pay the amount by which the aggregate of all
of the Fund's organizational expenses and all offering costs (other than the
sales load) exceeds $0.03 per share.

   The Underwriters expect to deliver the common shares to purchasers on or
about        , 2002.

                                 -------------

                             Salomon Smith Barney

A.G. Edwards & Sons, Inc.        Prudential Securities              UBS Warburg

Gruntal & Co., L.L.C.                                    Legg Mason Wood Walker
                                                              Incorporated
                          Wells Fargo Van Kasper, LLC

, 2002

<PAGE>

  (Continued from previous page)

   You should read this Prospectus, which contains important information about
the Fund, before deciding whether to invest and retain it for future reference.
A Statement of Additional Information, dated    , 2002, containing additional
information about the Fund, has been filed with the Securities and Exchange
Commission and is incorporated by reference in its entirety into this
Prospectus, which means that it is part of the Prospectus for legal purposes.
You can review the table of contents of the Statement of Additional Information
on page 32 of this Prospectus. You may request a free copy of the Statement of
Additional Information by calling (800) 227-4618 or by writing to the Fund, or
obtain a copy (and other information regarding the Fund) from the Securities
and Exchange Commission web site (http://www.sec.gov).

   The Fund's common shares do not represent a deposit or obligation of, and
are not guaranteed or endorsed by, any bank or other insured depository
institution, and are not federally insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board or any other government agency.

   The Underwriters named in this Prospectus may purchase up to     additional
common shares from the Fund within 45 days from the date of this Prospectus
under certain circumstances.

<PAGE>

   You should rely only on the information contained or incorporated by
reference in this Prospectus. The Fund has not, and the Underwriters have not,
authorized anyone to provide you with different information. If anyone provides
you with different or inconsistent information, you should not rely on it. The
Fund is not, and the Underwriters are not, making an offer of these securities
in any state where the offer is not permitted. You should not assume that the
information contained in this Prospectus is accurate as of any date other than
the date on the front of this Prospectus. The Fund's business, financial
condition, results of operations and prospects may have changed since that date.

                                 -------------

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                              Page
                                                              ----
<S>                                                           <C>
Prospectus Summary...........................................   1
Summary of Fund Expenses.....................................   7
The Fund.....................................................   9
Use of Proceeds..............................................   9
The Fund's Investments.......................................   9
Preferred Shares and Related Leverage........................  15
Risks........................................................  17
Management of the Fund.......................................  19
Net Asset Value..............................................  21
Dividends and Distributions..................................  21
Dividend Reinvestment Plan...................................  22
Description of Shares........................................  23
Repurchase of Common Shares; Conversion to Open-End Fund.....  27
Tax Matters..................................................  28
Underwriting.................................................  29
Custodian and Transfer Agent.................................  31
Legal Matters................................................  31
Table of Contents for the Statement of Additional Information  32
</TABLE>

                                 -------------

   Until    , 2002 (25 days after the date of this Prospectus), all dealers
that buy, sell or trade the common shares, whether or not participating in this
offering, may be required to deliver a prospectus. This is in addition to the
dealers' obligation to deliver a prospectus when acting as underwriters and
with respect to their unsold allotments or subscriptions.

<PAGE>

                              PROSPECTUS SUMMARY

   This is only a summary. You should review the more detailed information
contained in this Prospectus and the Statement of Additional Information
("SAI").

The Fund..............  Alliance National Municipal Income Fund, Inc. (the
                          "Fund") is a newly organized, diversified, closed-end
                          management investment company. The Fund's investment
                          objective is to seek to provide investors with high
                          current income exempt from regular federal income tax.

The Offering..........  The Fund is offering      shares of its common stock,
                          par value $.001 per share ("Common Shares"), at
                          $15.00 per share, through a group of underwriters
                          (the "Underwriters") led by Salomon Smith Barney
                          Inc., A.G. Edwards & Sons, Inc., Prudential
                          Securities Incorporated, UBS Warburg LLC, Gruntal &
                          Co., L.L.C., Legg Mason Wood Walker, Incorporated and
                          Wells Fargo Van Kasper, LLC. You must purchase at
                          least 100 shares. The Fund has given the Underwriters
                          an option to purchase up to      Common Shares to
                          cover orders in excess of      Common Shares. See
                          "Underwriting."

Investment Objective
  and Policies........  The Fund's investment objective is to seek to provide
                          high current income exempt from regular federal
                          income tax. Under normal conditions, the Fund will
                          seek to achieve its objective by investing
                          substantially all of its net assets in municipal
                          bonds that pay interest that, in the opinion of the
                          bond counsel to the issuer, is exempt from regular
                          federal income tax. As a matter of fundamental
                          policy, the Fund will normally invest at least 80% of
                          its net assets in municipal bonds paying interest
                          that is exempt from federal income tax. In addition,
                          the Fund will normally invest at least 75% of its net
                          assets in municipal bonds that, at the time of
                          investment, are of investment grade quality.
                          Investment grade quality municipal bonds are those
                          rated within the four highest grades (Baa or BBB or
                          better) by Moody's Investors Service, Inc.
                          ("Moody's"), Standard & Poor's Rating Service ("S&P")
                          or Fitch, Inc. ("Fitch"), or, if unrated, determined
                          to be of comparable quality by the Fund's investment
                          adviser, Alliance Capital Management L.P.
                          ("Alliance"). The Fund may invest up to 25% of its
                          net assets in municipal bonds that, at the time of
                          investment, are rated below investment grade by
                          Moody's, S&P or Fitch or, if unrated, determined to
                          be of comparable quality by Alliance. Municipal bonds
                          of below investment grade quality are regarded as
                          having predominantly speculative characteristics with
                          respect to the issuer's capacity to pay interest and
                          repay principal and are commonly referred to as "junk
                          bonds." Municipal bonds in the lowest investment
                          grade category may also be considered to possess some
                          speculative characteristics.

                        While the Fund intends to invest primarily in municipal
                          bonds that pay interest that is not subject to the
                          federal alternative minimum tax ("AMT"), it may
                          invest without limit in AMT-subject municipal bonds.
                          Investors who are subject to the AMT or would become
                          subject to the AMT by investing in Common Shares
                          should consult with their tax advisers before
                          purchasing Common Shares. See "Tax Matters."

                                      1

<PAGE>

                        The Fund may at times use certain types of investment
                          techniques in managing the Fund's portfolio, which
                          themselves may involve additional risks. The
                          techniques include investment derivatives, such as
                          futures contracts, options on futures contracts,
                          options, and interest rate swaps, caps and floors.

                        The Fund cannot assure you that it will attain its
                          investment objective. See " The Fund's Investments. "

Proposed Offering of
  Preferred Shares....  Subject to market conditions, approximately one to
                          three months after completion of this offering, the
                          Fund intends to offer shares of preferred stock
                          ("Preferred Shares") representing approximately 40%
                          of the Fund's capital after their issuance. The
                          issuance of Preferred Shares will leverage your
                          investment in Common Shares. The use of leverage
                          entails special risks. There is no assurance that the
                          Fund will issue Preferred Shares or that, if issued,
                          the Fund's leveraging strategy will be successful.
                          See "Risks--Leverage Risk." Although the timing and
                          terms of the Preferred Shares offering will be
                          determined by the Fund's Board of Directors, it is
                          anticipated that the Preferred Shares will pay
                          dividends that would be adjusted periodically and
                          that the dividend rate will be set by auction,
                          remarketing or other procedures and will be based on
                          prevailing short-term rates.

                        The Fund will invest the net proceeds that it obtains
                          from selling the Preferred Shares in accordance with
                          the Fund's investment objective and policies. The
                          Fund anticipates that its portfolio investments will
                          produce yields higher than short-term debt securities
                          and that the spread between the short-term rates paid
                          by the Fund to holders of Preferred Shares
                          ("Preferred Shareholders"), and the rates received by
                          the Fund from its investments at longer-term rates
                          (minus the expenses associated with the Preferred
                          Shares) will provide holders of Common Shares
                          ("Common Shareholders") with a potentially higher
                          yield than if no Preferred Shares were issued. The
                          Fund cannot assure you that the issuance of Preferred
                          Shares will result in a higher yield on your Common
                          Shares. You should note that the use of leverage
                          entails certain risks for Common Shareholders,
                          including higher volatility of both the net asset
                          value ("NAV") and market value of the Common Shares.
                          Fluctuations in the dividend rates on the Preferred
                          Shares may affect the return to Common Shareholders.
                          If the Fund were fully invested and if the spread
                          between the respective yields on the Fund's portfolio
                          investments and short-term debt securities were to
                          decrease, then net investment income available for
                          distribution to Common Shareholders would decline.
                          See "Preferred Shares and Related Leverage" and
                          "Description of Shares--Preferred Shares."

Special Tax
  Considerations......  Because under normal circumstances the Fund will invest
                          substantially all of its net assets in municipal
                          bonds that pay interest that is exempt from regular
                          federal income tax, distributions of the Fund's
                          interest income that you receive will ordinarily be
                          exempt from regular federal income taxes. However, a
                          portion of such distributions may

                                      2

<PAGE>

                          be subject to the AMT because the Fund may invest in
                          AMT-subject municipal bonds. Net capital gain and
                          other taxable income, if any, earned by the Fund will
                          be allocated proportionately to Common Shareholders
                          and Preferred Shareholders based on the percentage of
                          total dividends paid to each class for that year.
                          Distributions of any such net capital gain or other
                          taxable income will be taxable to shareholders. See
                          "Tax Matters."

Investment Adviser....  Alliance will be the Fund's investment adviser. Subject
                          to the supervision of the Board of Directors,
                          Alliance will provide investment advisory services
                          and order placement facilities for the Fund. Alliance
                          will receive an annual fee, payable monthly, in a
                          maximum amount equal to .65% of the Fund's average
                          daily net assets. Alliance is a leading global
                          investment management firm supervising client
                          accounts with assets as of November 30, 2001 totaling
                          approximately $458 billion. Alliance provides
                          diversified investment management and related
                          services globally to a broad range of clients
                          including: institutional investors such as corporate
                          and public employee pension funds, endowment funds,
                          domestic and foreign institutions, and governments
                          and affiliates; private clients, consisting of high
                          net worth individuals, trusts and estates, charitable
                          foundations, partnerships, private and family
                          corporations, and other entities; individual
                          investors by means of retail mutual funds sponsored
                          by Alliance; and institutional investors by means of
                          in-depth research, portfolio strategy, trading and
                          brokerage-related services. See "Management of the
                          Fund."

Distributions.........  The Fund intends to distribute monthly its net
                          investment income to Common Shareholders. It is
                          expected that the first monthly dividend on the
                          Fund's Common Shares will be declared approximately
                          45 days, and paid approximately 60 to 90 days, after
                          completion of this offering. From and after issuance
                          of the Preferred Shares, monthly distributions to
                          Common Shareholders will consist of net investment
                          income remaining after the payment of dividends on
                          outstanding Preferred Shares, if any. Net capital
                          gains, if any, will be distributed at least annually
                          to Common Shareholders to the extent such net capital
                          gains are not necessary to satisfy the dividend,
                          redemption or liquidation preferences of any
                          Preferred Shares. If the Fund is unable to maintain
                          adequate asset coverage with respect to its Preferred
                          Shares, its ability to make distributions on its
                          Common Shares will be limited, which may have adverse
                          tax consequences for the Fund and Common
                          Shareholders. See "Dividends and Distributions" and
                          "Tax Matters."

Dividend Reinvestment
  Plan................  Under the Fund's Dividend Reinvestment Plan (the
                          "Plan"), Common Shareholders may elect to have all of
                          their dividends and other distributions from the Fund
                          automatically invested in additional Common Shares.
                          Shareholders whose Common Shares are held in the name
                          of a broker or nominee should contact such broker or
                          nominee to determine whether and how they may elect
                          to participate in the Plan. Common Shares acquired
                          under the Plan may be either newly issued or acquired
                          in the secondary market, as provided in the Plan. See
                          "Dividend Reinvestment Plan."

                                      3

<PAGE>

Repurchase of Shares..  The Fund may, from time to time, repurchase or make a
                          tender offer for its Common Shares in an attempt to
                          reduce or eliminate significant market discounts from
                          NAV. There can be no assurance that such repurchases
                          and tender offers will take place or that, if made,
                          they will result in the Fund's Common Shares trading
                          at a price that is equal to their NAV or reduce or
                          eliminate any market value discount. See "Repurchase
                          of Common Shares; Conversion to Open-End Fund."

Listing...............  The Fund has applied for approval for listing of its
                          Common Shares on the New York Stock Exchange, Inc.
                          (the "Exchange"). The trading or "ticker" symbol of
                          the Common Shares is expected to be "AFB." See
                          "Description of Shares--Common Shares."

Custodian and Transfer
  Agent...............  State Street Bank & Trust Company will serve as
                          custodian of the Fund's assets. Equiserve Trust
                          Company, N.A. will serve as transfer agent,
                          dividend-paying agent and registrar. See "Custodian
                          and Transfer Agent."

Market Price of Shares  Shares of closed-end investment companies frequently
                          trade at prices lower than their NAV. Shares of
                          closed-end investment companies like the Fund that
                          invest predominantly in investment grade municipal
                          bonds have during some periods traded at prices
                          higher than NAV and during other periods traded at
                          prices lower than NAV. The Fund cannot assure you
                          that Common Shares will trade at a price higher than
                          NAV in the future. NAV will be reduced immediately
                          following the offering by the sales load and the
                          amount of organization and offering expenses paid by
                          the Fund. See "Use of Proceeds." In addition to NAV,
                          the market price of the Common Shares may be affected
                          by such factors relating to the Fund and its
                          portfolio holdings as market supply of and demand for
                          Common Shares, the Fund's investment performance,
                          dividend levels (which are in turn affected by
                          expenses), dividend stability, and portfolio credit
                          quality and liquidity. See "Preferred Shares and
                          Related Leverage," "Risks," "Description of Shares,"
                          and "Repurchase of Common Shares; Conversion to
                          Open-End Fund" in this Prospectus, and the SAI under
                          "Repurchase of Fund Shares; Conversion to Open-End
                          Fund." The Common Shares are designed primarily for
                          long-term investors and you should not view the Fund
                          as a vehicle for trading purposes.

Special Risk
  Considerations......  No Operating History. The Fund is a newly organized,
                          diversified, closed-end management investment company
                          with no history of operations.

                        Interest Rate Risk. This is the risk that changes in
                          interest rates will adversely affect the yield or
                          value of the Fund's investments in municipal bonds.
                          Generally, when market interest rates fall, municipal
                          bond prices rise, and vice versa. Increases in market
                          interest rates will cause the municipal bonds in the
                          Fund's portfolio to decline in value. The prices of
                          longer-term municipal bonds generally fluctuate more
                          than prices of shorter-term municipal bonds as
                          interest rates change. Because the Fund will invest
                          primarily in long-term municipal bonds, the Common
                          Share NAV and market price

                                      4

<PAGE>

                          per share will fluctuate more in response to changes
                          in market interest rates than if the Fund invested
                          primarily in shorter-term municipal bonds. The Fund's
                          use of leverage will tend to increase Common Share
                          interest rate risk for the reasons discussed below
                          under "--Leverage Risk."

                        Credit Risk. Credit risk is the risk that one or more
                          municipal bonds in the Fund's portfolio will decline
                          in price, or that its issuer will fail to pay
                          interest or principal when due, because the issuer of
                          the municipal bond experiences a decline in its
                          financial status. The Fund may invest up to 25%
                          (measured at the time of investment) of its net
                          assets in municipal bonds that are rated below
                          investment grade or, if unrated, determined to be of
                          comparable quality by Alliance. The prices of these
                          lower grade municipal bonds are more sensitive to
                          negative developments, such as a decline in the
                          issuer's revenues or a general economic downturn,
                          than are the prices of higher-grade municipal bonds.
                          Municipal bonds of below investment grade quality
                          (commonly referred to as "junk bonds") are
                          predominantly speculative with respect to the
                          issuer's capacity to pay interest and repay principal
                          when due and therefore involve a greater risk of
                          default. Municipal bonds in the lowest investment
                          grade category may also be considered to possess some
                          speculative characteristics by certain rating
                          agencies.

                        Leverage Risk. The use of leverage through the issuance
                          of Preferred Shares creates an opportunity for
                          increased Common Share net income, but also entails
                          special risks for Common Shareholders. There is no
                          assurance that the Fund's leveraging strategy will be
                          successful. It is anticipated that dividends on
                          Preferred Shares will be based on shorter-term
                          municipal bond rates of return (which would be
                          redetermined periodically), and that the Fund will
                          invest the net proceeds of the Preferred Shares
                          offering in long-term, typically fixed rate,
                          municipal bonds. So long as the Fund's municipal bond
                          portfolio provides a higher rate of return (net of
                          Fund expenses) than the Preferred Shares dividend
                          rate, as reset periodically, the leverage will allow
                          Common Shareholders to receive a higher current rate
                          of return than if the Fund were not leveraged. If,
                          however, short-term rates rise, the Preferred Shares
                          dividend rate could exceed the rate of return on
                          long-term municipal bonds and other investments held
                          by the Fund that were acquired during periods of
                          generally lower interest rates, reducing return to
                          Common Shareholders.

                          Investment by the Fund in derivative instruments may
                          amplify the effects of leverage and, during periods
                          of rising interest rates, may adversely affect the
                          Fund's income and distributions to Common
                          Shareholders. See "The Fund's Investments" for a
                          discussion of derivative instruments. Preferred
                          Shares are expected to pay cumulative dividends,
                          which may tend to increase leverage risk. The use of
                          leverage involves two major types of risks for Common
                          Shareholders:

                              .  The likelihood of greater volatility of NAV
                                 and market price of Common Shares, because
                                 changes in the value of the

                                      5

<PAGE>

                                 Fund's municipal bond portfolio (including
                                 municipal bonds bought with proceeds of the
                                 Preferred Shares offering) are borne entirely
                                 by the Common Shareholders; and

                              .  The risks either that Common Share income will
                                 fall if the Preferred Shares dividend rate
                                 rises, or that Common Share income will
                                 fluctuate because the Preferred Shares
                                 dividend rate varies.

                          Because the management fees received by Alliance are
                          based on the total net assets of the Fund (including
                          assets acquired with the proceeds of the Preferred
                          Shares), Alliance has a financial incentive for the
                          Fund to issue Preferred Shares, which may create a
                          conflict of interest between Alliance and the Common
                          Shareholders.

                        Municipal Bond Market Risk. This is the risk that
                          special factors, such as legislative changes and
                          local and business developments, may adversely affect
                          the yield or value of the Fund's investments in
                          municipal bonds or other municipal securities. The
                          amount of public information available about
                          municipal bonds is generally less than that for
                          corporate equities or bonds and the investment
                          performance of the Fund may therefore be more
                          dependent on the analytical abilities of Alliance
                          than would be a stock fund or taxable bond fund. The
                          secondary market for municipal bonds, particularly
                          below investment grade municipal bonds in which the
                          Fund may invest, also tends to be less well-developed
                          and less liquid than many other securities markets,
                          which may adversely affect the Fund's ability to sell
                          its municipal bonds at attractive prices.

                        Anti-Takeover Provisions. The Fund's Charter (the
                          "Charter") and Bylaws (together, the "Charter
                          Documents") include provisions that could limit (i)
                          the ability of other entities or persons to acquire
                          control of the Fund; (ii) the Fund's freedom to
                          engage in certain transactions; or (iii) the ability
                          of the shareholders to amend the Charter Documents,
                          effect changes in the Fund's management, or convert
                          the Fund to open-end status. See "Description of
                          Shares--Certain Provisions of the Charter Documents."
                          These provisions in the Charter Documents could have
                          the effect of depriving the Common Shareholders of
                          opportunities to sell their Common Shares at a
                          premium over the then current market price of the
                          Common Shares.

                                      6

<PAGE>

                           SUMMARY OF FUND EXPENSES

   The following table shows estimated Fund expenses as a percentage of net
assets attributable to Common Shares and assumes the issuance of Preferred
Shares in an amount equal to 40% of the Fund's capital (after their issuance).
Footnote 2 to the table shows these estimated expenses as a percentage of total
net assets (attributable to both Common Shares and Preferred Shares).

<TABLE>
<S>                                                                    <C>
   Shareholder Transaction Expenses
       Sales Load Paid by You (as a percentage of offering price).....   4.5%
       Dividend Reinvestment Plan Fees................................ None(1)
</TABLE>

<TABLE>
<CAPTION>
                                                    Percentage of Net Assets
                                                Attributable to Common Shares(2)
                                                --------------------------------
<S>                                             <C>
   Annual Expenses
   Management Fees.............................               1.11%
   Other Expenses..............................                .38%
                                                              ----
   Total Annual Expenses.......................               1.49%
   Fee and Expense Reimbursement (Years 1-5)...               (.43)%(3)
                                                              ----
   Total Net Annual Expenses (Years 1-5).......               1.06%(3)
                                                              ====
</TABLE>
- --------
(1) You will pay brokerage charges if you direct the Plan Agent as defined to
    sell your Common Shares held in a dividend reinvestment account.

(2) Stated as percentages of the Fund's estimated total net assets prior to the
    issuance of Preferred Shares. Assuming the issuance of Preferred Shares in
    an amount equal to 40% of the Fund's capital (after their issuance), the
    Fund's estimated expenses would be estimated to be as follows:

<TABLE>
<CAPTION>
                                           Percentage of
                                          Total Net Assets
                                          ----------------
<S>                                       <C>
Annual Expenses
Management Fees..........................        .65%
Other Expenses...........................        .23%
                                                ----
Total Annual Expenses....................        .88%
Fee and Expense Reimbursement (Years 1-5)       (.25)%(3)
                                                ----
Total Net Annual Expenses (Years 1-5)....        .63%(3)
                                                ====
</TABLE>

(3) Alliance has agreed to waive a portion of its fees or reimburse the Fund
    for expenses in the amount of .25% of average daily net assets for the
    first 5 full years of the Fund's operations, .20% of average daily net
    assets in year 6, .15% in year 7, .10% in year 8, and .05% in year 9.
    Without the reimbursement, "Total Annual Expenses" would be estimated to be
    1.49% of average daily net assets attributable to Common Shares and .88% of
    average daily net assets attributable to both Common and Preferred Shares.
    Alliance has agreed to pay (i) all organizational expenses and (ii)
    offering costs (other than sales load) that exceed $0.03 per Common Share
    (.20% of offering price) of the Fund.

   The purpose of the table above is to help you understand all fees and
expenses that you, as a Common Shareholder, would bear directly or indirectly.
The Other Expenses shown in the table and related footnotes are based on
estimated amounts for the Fund's first year of operations and assume that the
Fund issues approximately 16,666,666 Common Shares. See "Management of the
Fund" and "Dividend Reinvestment Plan."

   The following example illustrates the expenses (including the sales load of
$45), assuming the issuance of Preferred Shares, that you would pay on a $1,000
investment in Common Shares, assuming

                                      7

<PAGE>

(1) total net annual expenses of 1.06% of net assets attributable to Common
Shares in years 1 through 5, increasing to 1.49% in year 10 and (2) a 5% annual
return: (1)

<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
- ------ ------- ------- --------
<S>    <C>     <C>     <C>
 $55     $77    $101     $185
</TABLE>

   The example should not be considered a representation of future expenses or
the Fund's return. Actual expenses and return may be greater or less than that
shown.
- --------
(1) The example assumes that the estimated Other Expenses set forth in the
    Annual Expenses table are accurate, that fees and expenses increase as
    described in note 2 below and that all dividends and distributions are
    reinvested at NAV. Actual expenses may be greater or less than those
    assumed. Moreover, the Fund's actual rate of return may be greater or less
    than the hypothetical 5% annual return shown in the example. Assuming the
    issuance of Preferred Shares in an amount equal to 40% of the Fund's
    capital after their issuance and otherwise on the assumptions in the
    example, the expenses you would pay would be: 1 year $51; 3 years $64; 5
    years $79; and 10 years $130. Assumes reimbursement of fees and expenses of
    .20% of average daily net assets in year 6, .15% in year 7, .10 in year 8,
    and .05% in year 9. Alliance has not agreed to reimburse the Fund for any
    portion of its fees and expenses beyond January 31, 2011. See "Management
    of the Fund--The Adviser" in the SAI.

                                      8

<PAGE>

                                   THE FUND

   The Fund is a newly organized, diversified, closed-end management investment
company registered under the 1940 Act. The Fund was organized as a Maryland
corporation on November 9, 2001. The Fund has no operating history. The Fund's
principal office is located at 1345 Avenue of the Americas, New York, New York
10105, and its telephone number is (212) 969-1000.

                                USE OF PROCEEDS

   The net proceeds of the offering of Common Shares will be approximately $
 (or $     if the Underwriters exercise the over-allotment option in full)
after payment of a portion of the estimated organizational and offering costs
payable by the Fund. Alliance has agreed to pay the amount by which the
aggregate of all of the Fund's organizational expenses and all offering costs
(other than the sales load) exceeds $0.03 per Common Share. The Fund will
invest the net proceeds of the offering in accordance with the Fund's
investment objective and policies as stated below. The Fund presently
anticipates that it will be able to invest substantially all of the net
proceeds in municipal bonds that meet its investment objective and policies
within three months after the completion of the offering. Pending such
investment, the Fund anticipates that the proceeds of the offering will be
primarily invested in high-quality short-term tax-exempt money market
securities or in high-quality municipal bonds with relatively low volatility
(such as pre-refunded and intermediate term securities) although the Fund may
invest in short-term taxable investments to the extent that suitable tax-exempt
investments are not available.

                            THE FUND'S INVESTMENTS

Investment Objective and Policies

  Investment Objective.

   The Fund's investment objective is to seek to provide high current income
exempt from regular federal income tax.

  Investment Policies.

   Under normal conditions, the Fund will seek to achieve its objective by
investing substantially all of its net assets in municipal bonds that pay
interest that, in the opinion of the bond counsel to the issuer, is exempt from
regular federal income tax. As a matter of fundamental policy, the Fund will
normally invest at least 80% of its net assets in municipal bonds paying
interest that is exempt from regular federal income taxes. The Fund will
normally invest at least 75% of its net assets in municipal bonds that at the
time of investment are of investment grade quality. Investment grade quality
municipal bonds are those rated within the four highest grades (Baa or BBB or
better) by Moody's, S&P or Fitch, or, if unrated, determined to be of
comparable quality by Alliance. The Fund may invest up to 25% of its net assets
in municipal bonds that, at the time of investment, are rated below investment
grade by Moody's, S&P or Fitch or, if unrated, determined to be of comparable
quality by Alliance. Municipal bonds of below investment grade quality are
regarded as having predominantly speculative characteristics with respect to
the issuer's capacity to pay interest and repay principal, and are commonly
referred to as "junk bonds." Municipal bonds in the lowest investment grade
category may also be considered to possess some speculative characteristics.

   The Fund's credit quality policies apply only at the time a security is
purchased, and the Fund is not required to dispose of a security in the event
that a rating agency or Alliance subsequently downgrades

                                      9

<PAGE>

its assessment of the credit characteristics of a particular issue. In
determining whether to retain or sell such a security, Alliance may consider
such factors as its assessment of the credit quality of the issuer of the
security, the price at which the security could be sold and the rating, if any,
assigned to the security by other rating agencies. A general description of
Moody's, S&P's and Fitch's ratings of municipal bonds is set forth in Appendix
A to the SAI.

   While the Fund intends to invest primarily in municipal bonds that pay
interest that is not subject to the AMT, it may invest without limit in
municipal bonds that pay interest that is subject to the AMT. Investors who are
subject to the AMT or would become subject to the AMT by investing in Common
Shares should consult with their tax advisers before purchasing Common Shares.
Special AMT rules apply to corporate holders of Common Shares. In addition, any
capital gain dividends will be subject to capital gains taxes. See "Tax
Matters."

   The Fund may also invest in securities of other open- or closed-end
investment companies that invest primarily in municipal bonds of the types in
which the Fund may invest directly. As a shareholder in an investment company,
the Fund would bear its ratable share of the investment company's expenses in
addition to the Fund's own expenses. See "--Other Investment Companies" below.

   The Fund may purchase municipal bonds that are subject to credit
enhancements, such as insurance, bank credit agreements, or escrow accounts.
The credit quality of companies that provide such credit enhancements will
affect the value of those securities. Although the insurance feature reduces
certain financial risks, the premiums for insurance and the higher market price
paid for insured obligations may reduce the Fund's income. Insurance generally
will be obtained from insurers with a claims-paying ability rated A or higher
by Moody's, S&P or Fitch. The insurance feature does not guarantee the market
value of the insured obligations or the NAV of the Common Shares.

   For temporary or for defensive purposes, including the period during which
the net proceeds of this offering are being invested, the Fund may invest up to
100% of its net assets in short-term investments including high quality,
short-term securities that may be either tax-exempt or taxable. The Fund
intends to invest in taxable short-term investments only in the event that
suitable tax-exempt short-term investments are not available at reasonable
prices and yields. Investments in taxable short-term investments would result
in a portion of your dividends being subject to federal income taxes. For more
information, see "Tax Matters" in the SAI.

   The Fund's investment objective, its policy of investing at least 80% of its
net assets in municipal bonds, and its investment restrictions (see "Investment
Restrictions" in the SAI) are fundamental and cannot be changed without the
approval of a "majority of the outstanding" voting shares of the Fund. A
"majority of the outstanding" voting shares of the Fund (whether voting
together as a single class or voting as a separate class) means (i) 67% or more
of such shares present at a meeting, if the holders of more than 50% of those
shares are present or represented by proxy, or (ii) more than 50% of such
shares, whichever is less. Subsequent to the issuance of Preferred Shares, the
Fund's investment objective and fundamental policies may not be changed without
the approval of a majority of the outstanding Common Shares and Preferred
Shares voting together and a majority of the outstanding Preferred Shares
voting separately by class. See "Description of Shares--Preferred
Shares--Voting Rights" below for additional information with respect to the
voting rights of Preferred Shareholders. Unless stated otherwise, the Fund's
investment policies are not fundamental and thus can be changed without a
shareholder vote. When an investment policy or restriction has a percentage
limitation, such limitation is applied at the time of investment. Changes in
the market value of securities in the Fund's portfolio after they are purchased
by the Fund will not cause the Fund to be in violation of such limitations.

Municipal Bonds

   Municipal bonds are typically classified as either general obligation or
revenue (or special tax) bonds and are typically issued to finance public
projects (such as roads or public buildings), to pay

                                      10

<PAGE>

general operating expenses, or to refinance outstanding debt. Municipal bonds
may also be issued for private activities, such as housing, medical and
educational facility construction, or for privately owned industrial
development and pollution control projects. General obligation bonds are backed
by the full faith and credit, or taxing authority, of the issuer and may be
repaid from any revenue source; revenue bonds may be repaid only from the
revenues of a specific facility or source. The Fund also may purchase municipal
bonds that represent lease obligations. These carry special risks because the
issuer of the bonds may not be obligated to appropriate money annually to make
payments under the lease. In order to reduce this risk, the Fund will only
purchase municipal bonds representing lease obligations when Alliance believes
the issuer has a strong incentive to continue making appropriations until
maturity.

   The yields on municipal bonds depend on a variety of factors, including
prevailing interest rates and the condition of the general money market and the
municipal bond market, the size of a particular offering, the maturity of the
obligation and the rating of the issue. The market value of municipal bonds
will vary with changes in interest rate levels and as a result of changing
evaluations of the ability of their issuers to meet interest and principal
payments.

   The Fund will invest primarily in municipal bonds with long-term maturities
in order to maintain a weighted average maturity of 15-30 years, but the
weighted average maturity of obligations held by the Fund may be shortened,
depending on market conditions.

Other Municipal Securities

   The Fund intends to invest a substantial portion of its assets in
longer-term municipal bonds, but it may, although it does not currently intend
to do so, invest in municipal notes, which may be either general obligation or
revenue securities. These securities are intended to fulfill short-term capital
needs and generally have original maturities not exceeding one year.

   Municipal notes in which the Fund may invest include demand notes, which are
tax-exempt obligations that have stated maturities in excess of one year, but
permit the holder to sell back the security (at par) to the issuer within one
to seven days' notice. The payment of principal and interest by the issuer of
these obligations will ordinarily be guaranteed by letters of credit offered by
banks. The interest rate on a demand note may be based upon a known lending
rate, such as a bank's prime rate, and may be adjusted when such rate changes,
or the interest rate on a demand note may be a market rate that is adjusted at
specified intervals.

   Other short-term obligations constituting municipal notes include tax
anticipation notes, revenue anticipation notes, bond anticipation notes and
tax-exempt commercial paper. Tax anticipation notes are issued to finance
working capital needs of municipalities. Generally, they are issued in
anticipation of various seasonal tax revenues, such as income, sales, use and
business taxes. Revenue anticipation notes are issued in expectation of receipt
of other types of revenues. Bond anticipation notes are issued to provide
interim financing until long-term financing can be arranged. In most such
cases, long-term municipal bonds provide the money for the repayment of the
notes.

   Tax-exempt commercial paper is a short-term obligation with a stated
maturity of 365 days or less (however, issuers typically do not issue such
obligations with maturities longer than seven days). Such obligations are
issued by state and local municipalities to finance seasonal working capital
needs or as short-term financing in anticipation of longer-term financing.

Derivatives

   The Fund may use derivatives. Derivatives are financial contracts whose
value depends on, or is derived from, the value of an underlying asset,
reference rate, or index. These assets, rates and indices

                                      11

<PAGE>

may include bonds, stocks, mortgages, commodities, interest rates, bond indices
and stock indices. Generally, there are four types of derivative
instruments--options, futures, forwards and swaps--from which virtually any
type of derivative transaction can be created. While the Fund does not
currently intend to utilize any of these types of derivative instruments, it
reserves the flexibility to use these techniques under appropriate
circumstances. Derivatives can be used to earn income or protect against risk,
or both. The Fund may use derivatives to earn income and enhance returns, to
hedge or adjust the risk profile of its investment portfolio, or to obtain
exposure to otherwise inaccessible markets. The Fund will generally use
derivatives primarily as direct investments in order to enhance yields. Each of
these uses entails greater risk than if derivatives were used solely for
hedging purposes. The successful use of derivatives depends upon Alliance's
ability to assess the risk that a derivative adds to the Fund's portfolio and
to forecast price and interest rate movements correctly. Since many derivatives
may have a leverage component, adverse changes in the value or level of the
underlying asset, rate or index can result in a loss substantially greater than
the amount invested in the derivative.

   Futures Contracts and Options on Futures Contracts. While the Fund does not
currently intend to do so, it may buy and sell futures contracts on municipal
securities or U.S. Government securities and contracts based on interest rates
or financial indices, including any index of municipal bonds or U.S. Government
securities.

   Options on futures contracts are options that call for the delivery of
futures contracts upon exercise. Options on futures contracts written or
purchased, and futures contracts purchased and sold, by the Fund will be traded
on U.S. exchanges and will be used only for hedging purposes.

   Interest Rate Transactions (Swaps, Caps, and Floors). While the Fund does
not currently intend to do so, it may enter into interest rate swap, cap, or
floor transactions primarily for hedging purposes, which may include preserving
a return or spread on a particular investment or portion of its portfolio or
protecting against an increase in the price of securities the Fund anticipates
purchasing at a later date. The Fund does not intend to use these transactions
in a speculative manner.

   Interest rate swaps involve the exchange by the Fund with another party of
their respective commitments to pay or receive interest (e.g., an exchange of
floating rate payments for fixed rate payments) computed based on a
contractually-based principal (or "notional") amount. Interest rate swaps are
entered into on a net basis (i.e., the two payment streams are netted out, with
the Fund receiving or paying, as the case may be, only the net amount of the
two payments). Interest rate caps and floors are similar to options in that the
purchase of an interest rate cap or floor entitles the purchaser, to the extent
that a specified index exceeds (in the case of a cap) or falls below (in the
case of a floor) a predetermined interest rate, to receive payments of interest
on a notional amount from the party selling the interest rate cap or floor. The
Fund may enter into interest rate swaps, caps, and floors on either an
asset-based or liability-based basis, depending upon whether it is hedging its
assets or liabilities.

   The Fund will not enter into an interest rate swap, cap, or floor
transaction unless the unsecured senior debt or the claims-paying ability of
the other party thereto is then rated in the highest rating category of at
least one nationally recognized rating organization.

Other Investment Companies

   The Fund may invest up to 10% of its net assets in securities of other open-
or closed-end investment companies that invest primarily in municipal bonds of
the types in which the Fund may invest directly. The Fund generally expects to
invest in other investment companies either during periods when it has large
amounts of uninvested cash, such as the period shortly after the Fund receives

                                      12

<PAGE>

the proceeds of the offering of its Common Shares or Preferred Shares, during
periods when there is a shortage of attractive, high-yielding municipal bonds
available in the market, or when Alliance believes that share prices of other
investment companies offer attractive values. As a shareholder in an investment
company, the Fund will bear its ratable share of that investment company's
expenses and would remain subject to payment of the Fund's advisory and other
fees with respect to assets so invested. Common Shareholders would therefore be
subject to duplicative expenses to the extent that the Fund invests in other
investment companies. In addition, the securities of other investment companies
may be leveraged and subject to the same leverage risks described in this
Prospectus, thus effectively subjecting Common Shareholders to increased
leverage. As discussed under the section entitled "Risks," the NAV and market
value of leveraged shares will be more volatile and the yield to shareholders
will tend to fluctuate more than the yield generated by unleveraged shares.
Alliance will consider all relevant factors, including expenses and leverage
when evaluating the investment merits of an investment in another investment
company relative to available municipal bond investments.

Repurchase Agreements

   While the Fund does not currently intend to do so, it may seek additional
income by investing in repurchase agreements pertaining only to U.S. Government
securities. A repurchase agreement arises when a buyer purchases a security and
simultaneously agrees to resell it to the vendor at an agreed-upon future date,
normally a day or a few days later. The resale price is greater than the
purchase price, reflecting an agreed-upon interest rate for the period the
buyer's money is invested in the security. Such agreements permit the Fund to
keep all of its assets at work while retaining "overnight" flexibility in
pursuit of investments of a longer-term nature. The Fund will require continual
maintenance of collateral in an amount equal to, or in excess of, the resale
price. If a vendor defaults on its repurchase obligation, the Fund would suffer
a loss to the extent that the proceeds from the sale of the collateral were
less than the repurchase price. If a vendor goes bankrupt, the Fund might be
delayed in, or prevented from, selling the collateral for its benefit. There is
no percentage restriction on the Fund's ability to enter into repurchase
agreements. The Fund may enter into repurchase agreements with member banks of
the Federal Reserve System or "primary dealers" (as designated by the Federal
Reserve Bank of New York).

Variable and Floating Rate Instruments

   Fixed-income securities may have fixed, variable, or floating rates of
interest. Variable and floating rate securities pay interest at rates that are
adjusted periodically, according to a specified formula. A "variable" interest
rate adjusts at predetermined intervals (e.g., daily, weekly, or monthly),
while a "floating" interest rate adjusts whenever a specified benchmark rate
(such as the bank prime lending rate) changes.

   The Fund may invest in variable rate demand notes, which are instruments
whose interest rates change on a specific date (such as coupon date or interest
payment date) or whose interest rates vary with changes in a designated base
rate (such as prime interest rate). This instrument is payable on demand and is
secured by letters of credit or other credit support agreements from major
banks.

   The Fund may invest in fixed-income securities that pay interest at a coupon
rate equal to a base rate, plus additional interest for a certain period of
time if short-term interest rates rise above a predetermined level or "cap."
The amount of such an additional interest payment typically is calculated under
a formula based on a short-term interest rate index multiplied by a designated
factor.

When-Issued, Delayed Delivery and Forward Commitment Transactions

   The Fund may purchase or sell municipal bonds on a forward commitment basis.
Forward commitments are forward contracts for the purchase or sale of
securities, including purchases on a

                                      13

<PAGE>

"when-issued" basis or purchases or sales on a "delayed delivery" basis. In
some cases, a forward commitment may be conditioned upon the occurrence of a
subsequent event, such as approval and consummation of a merger, corporate
reorganization or debt restructuring or approval of a proposed financing by
appropriate authorities (i.e., a "when, as and if issued" trade).

   When forward commitments with respect to fixed-income securities are
negotiated, the price, which is generally expressed in yield terms, is fixed at
the time the commitment is made, but payment for and delivery of the securities
take place at a later date. Normally, the settlement date occurs within two
months after the transaction, but settlements beyond two months may be
negotiated. Securities purchased or sold under a forward commitment are subject
to market fluctuation, and no interest or dividends accrue to the purchaser
prior to the settlement date.

   The use of forward commitments may help the Fund protect against anticipated
changes in interest rates and prices. For instance, in periods of rising
interest rates and falling bond prices, the Fund might sell securities in its
portfolio on a forward commitment basis to limit its exposure to falling bond
prices. In periods of falling interest rates and rising bond prices, the Fund
might sell a security in its portfolio and purchase the same or a similar
security on a when-issued or forward commitment basis, thereby obtaining the
benefit of currently higher cash yields. No forward commitments will be made by
the Fund if, as a result, the Fund's aggregate forward commitments under such
transactions would be more than 10% of its total assets.

   The Fund's right to receive or deliver a security under a forward commitment
may be sold prior to the settlement date. The Fund will enter into forward
commitments, however, only with the intention of actually receiving securities
or delivering them, as the case may be. If the Fund, however, chooses to
dispose of the right to acquire a when-issued security prior to its acquisition
or dispose of its right to deliver or receive against a forward commitment, it
may realize a gain or incur a loss.

Zero Coupon Bonds

   Zero coupon bonds are debt securities that have been issued without interest
coupons or stripped of their unmatured interest coupons, and include receipts
or certificates representing interests in such securities. Such a security pays
no interest to its holder during its life. Its value to an investor consists of
the difference between its face value at the time of maturity and the price for
which it was acquired, which is generally an amount significantly less than its
face value. Even though the Fund does not receive any interest on zero coupon
bonds during their life, it nonetheless accrues income with respect to such
bonds and thus may have to dispose of portfolio securities under
disadvantageous circumstances in order to obtain cash needed to pay dividends
in amounts necessary to avoid unfavorable tax consequences. Zero coupon bonds
usually trade at a deep discount from their face or par value and are subject
to greater fluctuations in market value in response to changing interest rates
than debt obligations of comparable maturities and credit quality that make
current distributions of interest. On the other hand, because there are no
periodic interest payments to be reinvested prior to maturity, these securities
eliminate reinvestment risk and "lock in" a rate of return to maturity.

Future Developments

   The Fund may, following written notice to its shareholders, take advantage
of other investment practices which are not at present contemplated for use by
the Fund or which currently are not available but which may be developed, to
the extent such investment practices are both consistent with the Fund's
investment objective and legally permissible for the Fund. Such investment
practices, if they arise, may involve risks that exceed those involved in the
activities described above.

                                      14

<PAGE>

                     PREFERRED SHARES AND RELATED LEVERAGE

   Subject to market conditions, approximately one to three months after
completion of this offering, the Fund intends to offer Preferred Shares
representing approximately 40% of the Fund's capital after their issuance.
Preferred Shares would have complete priority over Common Shares upon
distribution of the Fund's assets. The issuance of Preferred Shares will
leverage your investment in Common Shares. The use of leverage entails special
risks. There is no assurance that the Fund will issue Preferred Shares or that,
if issued, the Fund's leveraging strategy will be successful. Although the
timing and other terms of the offering of the Preferred Shares will be
determined by the Fund's Board of Directors, it is anticipated that the
Preferred Shares will pay dividends that would be adjusted periodically and the
dividend rate will be set by auction, remarketing or other procedure and will
be based on prevailing short-term rates.

   The Fund will invest the net proceeds that it obtains from selling the
Preferred Shares in accordance with the Fund's investment objective and
policies. The Fund anticipates that the Fund's portfolio investments will
continue to produce yields higher than those on short-term debt securities and
that this spread, representing the difference between the short-term rates paid
by the Fund to Preferred Shareholders and the rates received by the Fund from
its investments at long-term rates (minus the expenses of the new Preferred
Shares), will provide Common Shareholders with a potentially higher yield than
if no Preferred Shares were issued. The Fund cannot assure you that the
issuance of Preferred Shares will result in a higher yield on your Common
Shares. You should note that the use of leverage entails certain risks for
Common Shareholders, including higher volatility of both NAV and market value
of the Common Shares.

   Changes in the value of the Fund's municipal bond portfolio (including
municipal bonds bought with the proceeds of the Preferred Shares offering) will
be borne entirely by the Common Shareholders. If there is a net decrease (or
increase) in the value of the Fund's investment portfolio, the leverage will
decrease (or increase) the NAV per Common Share to a greater extent than if the
Fund were not leveraged. During periods in which the Fund is using leverage,
the management fees paid to Alliance will be higher than if the Fund did not
use leverage because the fees paid will be calculated on the basis of the
Fund's total net assets, including the proceeds from the issuance of the
Preferred Shares.

   For tax purposes, the Fund will be required, assuming issuance of Preferred
Shares, to allocate net capital gain and other taxable income, if any, between
the Common Shares and Preferred Shares in proportion to total dividends paid to
each class for the year in which the net capital gain or other taxable income
is realized. If net capital gain or other taxable income is allocated to
Preferred Shares (instead of solely tax-exempt income), the Fund may have to
pay higher total dividends to Preferred Shareholders or make dividend payments
intended to compensate Preferred Shareholders for the unanticipated
characterization of a portion of their dividends as taxable ("Gross-up
Dividends"). This may reduce the advantage of the Fund's leveraged structure to
Common Shareholders.

   Under the 1940 Act, the Fund is not permitted to issue Preferred Shares
unless immediately after such issuance the value of the Fund's total net assets
is at least 200% of the liquidation value of the outstanding Preferred Shares
(i.e., such liquidation value may not exceed 50% of the Fund's total net
assets). In addition, the Fund is not permitted to declare any cash dividend or
other distribution on its Common Shares unless, at the time of such
declaration, the value of the Fund's total net assets is at least 200% of such
liquidation value. If Preferred Shares are issued, the Fund intends, to the
extent possible, to purchase or redeem Preferred Shares from time to time to
the extent necessary in order to maintain asset coverage of any Preferred
Shares of at least 200%. If the Fund has Preferred Shares outstanding, two of
the Fund's Directors will be elected by the Preferred Shareholders, voting

                                      15

<PAGE>

separately as a class. The remaining Directors of the Fund will be elected by
Common Shareholders and Preferred Shares voting together as a single class. In
the event the Fund failed to pay dividends on Preferred Shares for two years,
Preferred Shareholders would be entitled to elect a majority of the Board of
Directors of the Fund.

   The Fund is likely to be subject to certain restrictions imposed by
guidelines of one or more rating agencies that may issue ratings for Preferred
Shares issued by the Fund. These guidelines may impose asset coverage or
portfolio composition requirements that are more stringent than those imposed
on the Fund by the 1940 Act. It is not anticipated that these guidelines will
impede Alliance from managing the Fund's portfolio in accordance with the
Fund's investment objective and policies.

   The Fund may borrow money for repurchase of its shares or as a temporary
measure for extraordinary or emergency purposes, including the payment of
dividends and the settlement of securities transactions which otherwise might
require untimely dispositions of Fund securities.

   Assuming that the Preferred Shares will represent approximately 40% of the
Fund's capital and pay dividends at an annual average rate of 2.50%, the income
generated by the Fund's portfolio (net of expenses) would have to exceed 1.00%
in order to cover such dividend payments. Of course, these numbers are merely
estimates, used for illustration. Actual Preferred Share dividend rates will
vary frequently and may be significantly higher or lower than the rate
identified above.

   The following table is designed to illustrate the effect of leverage on
Common Share total return, assuming investment portfolio returns (consisting of
income and changes in the value of the municipal bonds held in the Fund's
portfolio) of -10%, -5%, 0%, 5%, and 10%. These assumed investment portfolio
returns are hypothetical figures and are not necessarily indicative of the
investment portfolio returns expected to be experienced by the Fund. The table
further assumes the issuance of Preferred Shares representing 40% of the Fund's
total capital, a 5.25% yield on the Fund's investment portfolio, net of
expenses, and the Fund's currently projected annual Preferred Share dividend
rate of 2.50%.

<TABLE>
<S>                       <C>      <C>      <C>     <C>   <C>
Assumed Portfolio Return. (10.00)%  (5.00)%  0.00%  5.00% 10.00%
Common Share Total Return (18.33)% (10.00)% (1.67)% 6.67% 15.00%
</TABLE>

   Common Share total return is composed of two elements -- the Common Share
dividends paid by the Fund (the amount of which is largely determined by the
net investment income of the Fund after paying dividends on Preferred Shares)
and gains or losses on the value of the securities the Fund owns. The table
assumes that the Fund is more likely to suffer capital losses than to enjoy
capital appreciation. For example, to assume a total return of 0%, the Fund
must assume that the tax-exempt interest it receives on its municipal bond
investments is entirely offset by losses in the value of those bonds.

   Unless and until Preferred Shares are issued, the Common Shares would only
be leveraged, if at all, through the use of derivatives and short-term
borrowing.

                                      16

<PAGE>

                                     RISKS

   The NAV of the Common Shares will fluctuate with and be affected by, among
other things, interest rate risk, credit risk, leverage risk and derivatives
risk. An investment in Common Shares will be subject to, among other things,
market discount risk, municipal bond market risk, and inflation risk. These and
other risks are more fully described below.

Newly Organized

   The Fund is a newly organized, diversified, closed-end management investment
company and has no operating history.

Interest Rate Risk

   Interest rate risk is the risk that changes in interest rates will adversely
affect the yield or value of the Fund's investments in municipal bonds.
Generally, when interest rates fall, bond prices rise, and vice versa.
Increases in market interest rates will cause the municipal bonds in the Fund's
portfolio to decline in value. The prices of long-term municipal bonds
generally fluctuate more than prices of shorter-term municipal bonds as
interest rates change. Because the Fund will invest primarily in long-term
municipal bonds, the Common Share NAV and market price per share will fluctuate
more in response to changes in market interest rates than if the Fund invested
primarily in shorter-term municipal bonds. The Fund's use of leverage, as
described below, will tend to increase Common Share interest rate risk. The
Fund may utilize certain strategies for the purpose of reducing the interest
rate sensitivity of the portfolio and decreasing the Fund's exposure to
interest rate risk, although there is no assurance that it will do so or that
such strategies will be successful.

Credit Risk

   Credit risk is the risk that one or more municipal bonds in the Fund's
portfolio will decline in price or that the issuer will fail to pay interest or
principal when due, because the issuer of the bond experiences a decline in its
financial status. In general, lower-rated municipal bonds carry a greater
degree of risk that the issuer will lose its ability to make interest and
principal payments, which could have a negative impact on the Fund's NAV or
dividends. The Fund may invest up to 25% of its net assets in municipal bonds
that are rated below investment grade by Moody's, S&P or Fitch or that are
unrated but determined to be of comparable quality by Alliance. The prices of
these lower-grade municipal bonds are more sensitive to negative developments,
such as a decline in the issuer's revenues or a general economic downturn, than
are the prices of higher-grade securities. Municipal bonds of below investment
grade quality (commonly referred to as "junk bonds") are predominately
speculative with respect to the issuer's capacity to pay interest and repay
principal when due, and therefore involve a greater risk of default. Municipal
bonds in the lowest investment grade category may also be considered to possess
some speculative characteristics by certain rating agencies.

Leverage Risk

   The use of leverage through the issuance of Preferred Shares creates an
opportunity for increased Common Share net income, but also involves special
risks for Common Shareholders. There is no assurance that the Fund's leveraging
strategy involving Preferred Shares will be successful. If the Preferred Shares
are issued, the NAV and market value of Common Shares will be more volatile,
and the yield to Common Shareholders will tend to fluctuate with changes in the
shorter-term dividend rates on the Preferred Shares. The Fund anticipates that
the Preferred Shares, at least initially, would likely pay cumulative dividends
at rates determined over relatively shorter-term periods by providing for the
periodic redetermination of the dividend rate through an auction or remarketing
procedure. See "Description of Shares--Preferred Shares." Long-term municipal
bond rates of return are typically,

                                      17

<PAGE>

although not always, higher than shorter-term municipal bond rates of return.
If the dividend rate on the Preferred Shares approaches the net rate of return
on the Fund's investment portfolio, the benefit of leverage to Common
Shareholders would be reduced. If the dividend rate on the Preferred Shares
exceeds the net rate of return on the Fund's portfolio, the leverage will
result in a lower rate of return to Common Shareholders than if the Fund were
not leveraged. Because the long-term municipal bonds in the Fund's portfolio
will typically pay fixed rates of interest while the dividend rate on the
Preferred Shares will be adjusted periodically, this could occur even when both
long-term and short-term municipal rates rise. In addition, the Fund will pay
(and Common Shareholders will bear) any costs and expenses relating to the
issuance and ongoing maintenance of the Preferred Shares. Furthermore, if the
Fund has net capital gain or other taxable income that is allocated to
Preferred Shares (instead of solely tax-exempt income), the Fund may have to
pay higher total dividends or Gross-up Dividends to Preferred Shareholders,
which may reduce the advantage of the Fund's leveraged structure to Common
Shareholders without reducing the associated risk. See "Preferred Shares and
Related Leverage." Accordingly, the Fund cannot assure you that the issuance of
Preferred Shares will result in a higher yield or return to Common Shareholders.

   Similarly, any decline in the value of the Fund's investments will be borne
entirely by Common Shareholders. Therefore, if the market value of the Fund's
portfolio declines, the leverage will result in a greater decrease in NAV to
Common Shareholders than if the Fund were not leveraged. Such greater NAV
decrease will also tend to cause a greater decline in the market price for the
Common Shares. The Fund might be in danger of failing to maintain the required
200% asset coverage or of losing its ratings on the Preferred Shares or, in an
extreme case, the Fund's current investment income might not be sufficient to
meet the dividend requirements on the Preferred Shares. In order to counteract
such an event, the Fund might need to liquidate investments in order to fund a
redemption of some or all of the Preferred Shares. Liquidation at times of low
municipal bond prices may result in capital loss and may reduce returns to
Common Shareholders.

   While the Fund may from time to time consider reducing leverage in response
to actual or anticipated changes in interest rates in an effort to mitigate the
increased volatility of current income and NAV associated with leverage, there
can be no assurance that the Fund will actually reduce leverage in the future
or that any reduction, if undertaken, will benefit the Common Shareholders.
Changes in the future direction of interest rates are very difficult to predict
accurately. If the Fund were to reduce leverage based on a prediction about
future changes to interest rates, and that prediction turned out to be
incorrect, the reduction in leverage would likely operate to reduce the income
and/or total returns to Common Shareholders relative to the circumstance where
the Fund had not reduced leverage. The Fund may decide that this risk outweighs
the likelihood of achieving the desired reduction to volatility in income and
share price if the prediction were to turn out to be correct, and determine not
to reduce leverage as described above.

   The Fund may also invest in derivative instruments, which may amplify the
effects of leverage and, during periods of rising short-term interest rates,
may adversely affect the Fund's NAV per share and income and distributions to
Common Shareholders. See "The Fund's Investments" and the SAI under "Investment
Objective and Policies--Derivative Investments."

Derivatives Risk

   The Fund may use derivatives to achieve its investment objective. In
addition to the credit risk of the counterparty to a derivatives transaction,
derivatives involve the risk of difficulties in pricing and valuation and the
risks that changes in value of a derivative may not correlate perfectly with
relevant underlying assets, rate or indexes.

Market Discount Risk

   Shares of closed-end management investment companies frequently trade at a
discount from their NAV. See "Repurchases of Common Shares; Conversion to
Open-End Fund."

                                      18

<PAGE>

Municipal Bond Market Risk

   This is the risk that special factors, such as legislative changes and local
and business developments, may adversely affect the yield or value of the
Fund's investments in municipal bonds or other municipal securities. The amount
of public information available about the municipal bonds in the Fund's
portfolio is generally less than that for corporate equities or bonds, and the
investment performance of the Fund may therefore be more dependent on the
analytical abilities of Alliance than would be the case for a stock fund or
taxable bond fund. The secondary market for municipal bonds, particularly the
below investment grade municipal bonds in which the Fund may invest, also tends
to be less well-developed and less liquid than many other securities markets,
which may adversely affect the Fund's ability to sell its municipal bonds at
attractive prices.

   The ability of municipal issuers to make timely payments of interest and
principal may be diminished during general economic downturns and as
governmental cost burdens are reallocated among federal, state and local
governments. In addition, laws enacted in the future by Congress or state
legislatures or referenda could extend the time for payment of principal and/or
interest, or impose other constraints on enforcement of such obligations, or on
the ability of municipal issuers to levy taxes. Issuers of municipal bonds
might seek protection under the bankruptcy laws. In the event of bankruptcy of
such an issuer, the Fund could experience delays in collecting principal and
interest and the Fund may not, in all circumstances, be able to collect all
principal and interest to which it is entitled. To enforce its rights in the
event of a default in the payment of interest or repayment of principal, or
both, the Fund may take possession of and manage any assets securing the
issuer's obligations on such securities, which may increase the Fund's
operating expenses. Any income derived from the Fund's ownership or operation
of such assets may not be tax-exempt.

Reinvestment Risk

   Reinvestment risk is the risk that income from the Fund's municipal bond
portfolio will decline if and when the Fund invests the proceeds from matured,
traded or called municipal bonds at market interest rates that are below the
portfolio's current earnings rate. A decline in income could affect the Common
Shares' market price or the Fund's overall returns.

Inflation Risk

   Inflation risk is the risk that the value of assets or income from an
investment will be worth less in the future as inflation decreases the value of
money. As inflation increases, the real value of the Common Shares and
distributions can decline. In addition, during any periods of rising inflation,
Preferred Share dividend rates would likely increase, which would tend to
further reduce returns to Common Shareholders.

                            MANAGEMENT OF THE FUND

Directors and Officers

   The Fund's business and affairs are managed under the direction of the
Fund's Board of Directors. There are currently eight Directors of the Fund, one
of whom is an "interested person" (as defined in the 1940 Act) and seven of
whom are not "interested persons." The names and business addresses of the
Directors and officers of the Fund and their principal occupations and other
affiliations during the past five years are set forth under "Management of the
Fund" in the SAI.

Investment Advisory Services

   Alliance, 1345 Avenue of the Americas, New York, New York 10105, will be the
Fund's investment adviser. Alliance is a leading global investment management
firm supervising client accounts with assets as of November 30, 2001 totaling
approximately $458 billion. Alliance provides diversified investment management
and related services globally to a broad range of clients including:
institutional

                                      19

<PAGE>

investors such as corporate and public employee pension funds, endowment funds,
domestic and foreign institutions, and governments and affiliates; private
clients, consisting of high net worth individuals, trusts and estates,
charitable foundations, partnerships, private and family corporations, and
other entities; individual investors by means of retail mutual funds sponsored
by Alliance; and institutional investors by means of in-depth research,
portfolio strategy, trading and brokerage-related services.

   Alliance will provide investment advisory services and order placement
facilities for the Fund. For these services, the Fund will pay Alliance a
monthly advisory fee at an annual rate of .65% of the Fund's average daily net
assets and will also reimburse Alliance for the cost of providing certain
administrative services. Alliance has voluntarily agreed to waive a portion of
its fees or reimburse the Fund for certain expenses as described in "Summary of
Fund Expenses" above. In addition, Alliance has agreed to pay all
organizational and offering costs that exceed $0.03 per Common Share.

   The employees of Alliance principally responsible for the Fund's investment
program will be Mr. David M. Dowden and Mr. Terrance T. Hults. Mr. Dowden is a
Vice President of Alliance Capital Management Corporation ("ACMC"), the general
partner of Alliance, with which he has been associated since 1994 serving in
the capacity of management of municipal securities investments. Mr. Hults is a
Vice President of ACMC with which he has been associated since 1995 serving in
the capacity of management of municipal securities investments.

   The Fund's SAI includes more detailed information about Alliance and other
Fund service providers.

Legal Proceedings

   On April 25, 2001, an amended class action complaint entitled Miller et al.
v. Mitchell Hutchins Asset Management, Inc. et al. (the "amended Miller
complaint"), was filed in federal district court in the Southern District of
Illinois against Alliance, Alliance Fund Distributors, Inc. ("AFD") and other
defendants alleging violations of the 1940 Act and breaches of common law
fiduciary duty.

   The allegations in the amended Miller complaint concern six mutual funds
with which Alliance has investment advisory agreements, including the Alliance
Premier Growth Fund, Alliance Health Care Fund, Alliance Growth Fund, Alliance
Quasar Fund, The Alliance Fund and Alliance Disciplined Value Fund. The
principal allegations of the amended complaint are that (i) certain advisory
agreements concerning these funds were negotiated, approved and executed in
violation of the 1940 Act, in particular because certain directors of these
funds should be deemed interested persons under the 1940 Act, (ii) the
distribution plans for these funds were negotiated, approved and executed in
violation of the 1940 Act, and (iii) the advisory fees and distribution fees
paid to Alliance and AFD, respectively, are excessive and, therefore,
constitute a breach of fiduciary duty.

   Alliance and AFD believe that the plaintiffs' allegations are without merit
and intend to vigorously defend against these allegations. At the present time,
management of Alliance and AFD are unable to estimate the impact, if any, that
the outcome of this action may have on Alliance's results of operations or
financial condition.

   On December 7, 2001 a complaint entitled Benak v. Alliance Capital
Management L.P. and Alliance Premier Growth Fund ("Benak Complaint") was filed
in federal district court in the District of New Jersey against Alliance and
Alliance Premier Growth Fund ("Premier Growth Fund") alleging violation of the
1940 Act. The principal allegations of the Benak Complaint are that Alliance
breached its duty of loyalty to Premier Growth Fund because one of the
directors of Alliance served as a director of Enron Corp. ("Enron") when
Premier Growth Fund purchased shares of Enron and, as a consequence thereof,
the investment advisory fees paid to Alliance by the Premier Growth Fund should
be returned as a means of recovering for Premier Growth Fund the losses
plaintiffs alleged were caused by the alleged breach of the duty of loyalty.
Plaintiffs seek recovery of fees paid by Premier Growth Fund

                                      20

<PAGE>

to Alliance during the twelve months preceding the lawsuit. Alliance believes
the plaintiffs' allegations are without merit and intends to vigorously defend
against these allegations. At the present time, management of Alliance is
unable to estimate the impact, if any, that the outcome of this action may have
on Alliance's results of operations or financial condition.

   The Fund is not a party to either litigation and does not own bonds or other
securities of Enron. While Alliance has no knowledge of additional litigation
involving issues concerning Enron similar to those alleged in the Benak
Complaint or any other litigation, it is unable to conclude whether or not
additional actions may be filed or, if filed, to evaluate the impact of these
actions on Alliance's results of operations or financial condition.

                                NET ASSET VALUE

   The Fund intends to calculate and make available daily the NAV of its Common
Shares. The NAV per Common Share will be determined as of the close of trading
on the Exchange each day the Exchange is open. To calculate NAV, the Fund's
assets are valued and totaled, liabilities and the aggregate liquidation value
of the outstanding Preferred Shares, if any, are subtracted, and the balance,
called net assets attributable to Common Shares, is divided by the total number
of the Fund's Common Shares then outstanding.

   For purposes of this computation, portfolio securities are valued at their
current market value determined on the basis of market quotations, or, if such
quotations are not readily available, at fair value as determined in good faith
by or under the direction of the Board of Directors of the Fund. However,
readily marketable fixed-income securities may be valued on the basis of prices
provided by a pricing service when such prices are believed by the Fund to
reflect the fair market value of such securities. The prices provided by a
pricing service take into account institutional size trading in similar groups
of securities and any developments related to specific securities. Short-term
investments having a maturity of 60 days or less will be generally valued at
amortized cost.

                          DIVIDENDS AND DISTRIBUTIONS

   The Fund intends to distribute all its net investment income. Dividends from
such net investment income will be declared and paid monthly to Common
Shareholders. The Fund expects that the first monthly dividend on its Common
Shares will be declared approximately 45 and paid approximately 60 to 90 days
after delivery of the shares offered hereby. From and after issuance of the
Preferred Shares, if any, monthly distributions of Common Shares will consist
of net investment income remaining after the payment of dividends on the
Preferred Shares. Net capital gains, if any, will be distributed at least
annually to Common Shareholders to the extent such net capital gains are not
necessary to satisfy the dividend, redemption or liquidation preferences of any
Preferred Shares. For tax purposes, the Fund will be required, assuming
issuance of Preferred Shares, to allocate net capital gain and other taxable
income, if any, between Common Shares and Preferred Shares in proportion to
total dividends paid to each class for the year in which such net capital gain
or other taxable income is realized. See "Tax Matters." While any Preferred
Shares are outstanding, the Fund may not declare any cash dividend or other
distribution on its Common Shares, unless, at the time of such declaration, (a)
all accrued Preferred Shares dividends have been paid and (b) the NAV of the
Fund's portfolio (determined after deducting the amount of such dividend or
other distribution) is at least 200% of the liquidation value of the
outstanding Preferred Shares (expected to equal the original purchase price per
share plus any accrued and unpaid dividends thereon). This limitation on the
Fund's ability to make distributions on its Common Shares could under certain
circumstances impair the ability of the Fund to maintain its qualification for
taxation as a regulated investment company. See "Tax Matters."

                                      21

<PAGE>

                          DIVIDEND REINVESTMENT PLAN

   Pursuant to the Plan, all Common Shareholders whose shares are registered in
their own names may elect to have all distributions reinvested automatically in
additional Common Shares by Equiserve Trust Co., N.A. (the "Plan Agent"), as
agent under the Plan. Otherwise, the shareholder will receive distributions as
cash. Generally, Common Shareholders whose shares are held in the name of a
broker or nominee may elect to automatically have distributions reinvested by
the broker or the nominee in additional shares under the Plan. Common
Shareholders whose Common Shares are held in the name of a broker or nominee
should contact such broker or nominee to determine whether and how they may
participate in the Plan.

   The Plan Agent will furnish you with written information relating to the
Plan. Included in such information will be procedures for electing to
participate in the Plan. Common Shareholders whose shares are held in the name
of a broker or nominee should contact the broker or nominee for details. All
distributions to Common Shareholders who elect not to participate in the Plan
will be paid by check mailed directly to the record holder by or under the
direction of the Plan Agent, as the dividend paying agent.

   If the Board authorizes an income distribution or determines to make a
capital gain distribution payable either in shares or in cash, as Common
Shareholders may have elected, non-participants in the Plan will receive cash
and participants in the Plan will receive the equivalent in Common Shares of
the Fund valued as follows:

      (i) if the Common Shares are trading at NAV or at a premium above NAV at
   the time of valuation, the Fund will issue new shares at the greater of NAV
   or 95% of the then current market price; or

      (ii) if the Common Shares are trading at a discount from NAV at the time
   of valuation, the Plan Agent will receive the dividend or distribution in
   cash and apply it to the purchase of the Fund's Common Shares in the open
   market, on the Exchange or elsewhere, for the participants' accounts. Such
   purchase will be made on or shortly after the payment date for such dividend
   or distribution and in no event more than 30 days after such date except
   where temporary curtailment or suspension of purchase is necessary to comply
   with federal securities laws. If the market price exceeds the NAV of a
   Common Share before the Plan Agent has completed its purchases, the average
   purchase price per share paid by the Plan Agent may exceed the NAV of the
   Fund's Common Shares, resulting in the acquisition of fewer shares than if
   the dividend or distribution had been in shares issued by the Fund.

   The Plan Agent maintains all shareholder accounts in the Plan and furnishes
written confirmations of all transactions in the account, including information
needed by shareholders for personal and tax records. Shares in the account of
each Plan participant will be held by the Plan Agent in the name of the
participant or, if applicable, a broker or nominee on behalf of a participant.
Each shareholder's proxy will include those shares purchased pursuant to the
Plan. Share certificates will not be issued in the name of individual Plan
participants.

   There is no direct charge to participants for reinvesting dividends and
capital gains distributions. The fees of the Plan Agent for handling the
reinvestment of dividends and capital gains distributions will be paid by the
Fund. There will be no brokerage charges with respect to Common Shares issued
directly by the Fund as a result of dividends or capital gains distributions
payable either in shares or in cash. However, each participant will bear a
pro-rata share of brokerage commissions incurred with respect to the Plan
Agent's open market purchases in connection with the reinvestment of dividends
or capital gains distributions paid in cash.

   The automatic reinvestment of income and capital gains distributions will
not relieve participants of any income tax that may be payable on such income
and capital gains distributions.

                                      22

<PAGE>

   Experience under the Plan may indicate that changes are desirable.
Accordingly, the Fund reserves the right to amend or terminate the Plan as
applied to any income or capital gains distributions paid subsequent to written
notice of the change sent to the Plan participant at least 90 days before the
date of such income or capital gain distribution. The Plan may also be amended
or terminated by the Plan Agent, with the Fund's prior consent, on at least 90
days' written notice to Plan participants. All correspondence concerning the
Plan should be directed by mail to the Plan Agent,    , at     or by telephone
at (800)      .

                             DESCRIPTION OF SHARES

Common Shares

   The Charter authorizes the issuance of up to 2,000,000,000 Common Shares,
$.001 par value per share. Upon completion of this offering,     Common Shares,
and no shares of Preferred Stock, will be issued and outstanding. However, it
is the intention of the Board of Directors, under a power contained in the
Charter, to classify and issue Preferred Shares with the voting powers,
restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption as described in "--Preferred Shares" below. The Board
of Directors, without any action by the shareholders of the Fund, may amend the
Charter from time to time to increase or decrease the aggregate number of
shares of stock or the number of shares of stock of any class or series that
the Fund has the authority to issue. Under Maryland law, the Fund's
shareholders generally are not liable for the Fund's debts or obligations.

   All Common Shares offered by this Prospectus will be duly authorized, fully
paid, and nonassessable. Common Shareholders are entitled to receive dividends
when authorized by the Board of Directors out of assets legally available for
the payment of dividends. They are also entitled to share ratably in the Fund's
assets legally available for distribution to the Fund's shareholders in the
event of the Fund's liquidation, dissolution or winding up, after payment of or
adequate provision for all of the Fund's known debts and liabilities. These
rights are subject to the preferential rights of any other class or series of
the Fund's stock. At any time when the Fund's Preferred Shares are outstanding,
Common Shareholders will not be entitled to receive any distributions from the
Fund unless all accrued dividends on Preferred Shares have been paid, and
unless asset coverage (as defined in the 1940 Act) with respect to Preferred
Shares would be at least 200% after giving effect to such distributions. See
"--Preferred Shares" below.

   Each outstanding Common Share entitles the holder to one vote on all matters
submitted to a vote of shareholders, including the election of directors.
Except as provided with respect to the Preferred Shares, the Common
Shareholders will possess the exclusive voting power. See "--Preferred Shares"
below. There is no cumulative voting in the election of directors, which means
that, subject to the rights of Preferred Shareholders to separately elect
directors, the holders of a majority of the outstanding shares entitled to vote
in the election of directors can elect all of the directors then standing for
election and the holders of the remaining shares will not be able to elect any
directors.

   Common Shareholders have no preference, conversion, exchange, sinking fund,
redemption or appraisal rights and have no preemptive rights to subscribe for
any of the Fund's securities. All Common Shares will have equal dividend,
liquidation and other rights.

Power to Issue Additional Shares of Stock

   The Fund may increase the outstanding shares of stock without shareholder
approval, unless shareholder approval is required by applicable law or the
rules of any stock exchange or automated quotation system on which the Fund's
securities may be listed or traded.

                                      23

<PAGE>

   The Fund has no present intention of offering additional Common Shares
except under the Plan. See "Dividend Reinvestment Plan." Other offerings of the
Fund's Common Shares, if made, will require approval of its Board of Directors.
Any additional offering will be subject to the requirement of the 1940 Act that
such shares may not be sold at a price below the then NAV, exclusive of sales
load, except in connection with an offering to existing Common Shareholders or
with the consent of the holders of a majority of the Fund's outstanding Common
Shares.

   As of the date of this Prospectus, Alliance owned of record and beneficially
100% of the outstanding Common Shares of the Fund, and thus, until the public
offering of the Fund's Common Shares is completed, will control the Fund.

Preferred Shares

   The Charter authorizes the Board of Directors to classify any unissued
shares of stock in one or more classes or series, including Preferred Shares,
and to reclassify any previously classified but unissued shares of any series,
as authorized by the Board of Directors. Under the 1940 Act, the Fund is
permitted to have outstanding more than one series of Preferred Shares so long
as no single series has a priority over another series as to the distribution
of assets of the Fund or the payment of dividends. Common Shareholders have no
pre-emptive right to purchase any Preferred Shares that might be issued. It is
anticipated the NAV per share of the Preferred Shares will equal its original
purchase price per share plus accrued dividends per share.

   The Fund expects to make an offering of Preferred Shares (representing
approximately 40% of the Fund's capital immediately after the Preferred Shares
are issued) within approximately one to three months after completion of the
offering of Common Shares, subject to market conditions and to the Board's
determination to authorize the issuance of such shares. Although the terms of
the Preferred Shares, including their dividend rate, liquidation preference and
redemption provisions, will be determined by the Board of Directors (subject to
applicable law and the Fund's Charter), the Fund believes that it is likely
that the initial class of Preferred Shares will be structured to carry a
relatively short-term dividend rate, by providing for the periodic adjustment
of the dividend rate, through an auction, remarketing or other procedure. The
Fund also believes that it is likely that the liquidation preference, voting
rights and redemption provisions of the Preferred Shares will be as stated
below.

   Liquidation Preference. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Fund, the Preferred Shareholders
will be entitled to receive a preferential liquidating distribution (expected
to equal the original purchase price per share plus accrued and unpaid
dividends, whether or not declared) before any distribution of assets is made
to Common Shareholders. After payment of the full amount of the liquidating
distribution to which they are entitled, the Preferred Shareholders will not be
entitled to any further participation in any distribution of assets by the
Fund. A consolidation or merger of the Fund with or into any corporation or
corporations or a sale of all or substantially all of the assets of the Fund
will not be deemed to be a liquidation, dissolution or winding up of the Fund.

   Voting Rights. Except as otherwise indicated under "The Fund's
Investments--Investment Objective and Policies" in this Prospectus and except
as otherwise required by applicable law, Preferred Shareholders will have equal
voting rights with Common Shareholders (one vote per share, unless otherwise
required by the 1940 Act), and will vote together with Common Shareholders as a
single class.

   In connection with the election of the Fund's Directors, Preferred
Shareholders, voting as a separate class, will be entitled to elect two of the
Fund's Directors, and the remaining Directors will be elected by Common
Shareholders and Preferred Shareholders, voting together as a single class. The
Fund's Bylaws provide that, so long as any Preferred Shares are outstanding,
the Fund will not have less

                                      24

<PAGE>

than six Directors. In the unlikely event that two full years of accrued
dividends are not paid on the Preferred Shares, the Preferred Shareholders,
voting as a separate class, will be entitled to elect a majority of the Board
of Directors of the Fund until all dividends in default have been paid or
declared and set apart for payment.

   Redemption, Purchase and Sale of Preferred Shares by the Fund. The terms of
the Preferred Shares are expected to provide that they are redeemable by the
Fund in whole or in part at the original purchase price per share plus accrued
dividends per share, that the Fund may tender for or purchase Preferred Shares
and that the Fund may subsequently resell any shares so tendered or purchased.
Any redemption or purchase of Preferred Shares by the Fund will reduce the
leverage applicable to Common Shares, while any resale of shares by the Fund
will increase such leverage. See "Preferred Shares and Related Leverage."

   The discussion above describes the Board of Directors' present intention
with respect to an offering of Preferred Shares. If the Board of Directors
determines to proceed with such an offering, the terms of the Preferred Shares
may be the same as, or different from, the terms described above subject to
applicable law and the Fund's Charter Documents. The Board of Directors,
without the approval of the Common Shareholders, may authorize an offering of
Preferred Shares or may determine not to authorize such an offering, and may
fix the terms of the Preferred Shares to be offered within the limits described
above.

Certain Provisions of the Charter Documents

   The Fund has provisions in its Charter Documents that could limit (i) the
ability of other entities or persons to acquire control of the Fund, (ii) the
Fund's freedom to engage in certain transactions, or (iii) the ability of the
Fund's shareholders to amend the Charter Documents, or effect changes in the
Fund's management, or convert the Fund to open-end status. These provisions in
the Charter Documents may be regarded as "anti-takeover" provisions. Pursuant
to the Charter, at the first annual meeting of shareholders after this public
offering, the Board of Directors will be divided into three classes of
Directors. The initial terms of the first, second and third classes will expire
in 2003, 2004 and 2005, respectively. Beginning in 2003, Directors of each
class will be chosen for three-year terms upon the expiration of their current
terms and each year one class of Directors will be elected by the Fund's
shareholders. The Fund believes that classification of the Board of Directors
will help to assure the continuity and stability of the Fund's business
strategies and policies as determined by the Board of Directors.

   The classified board provision could have the effect of making the
replacement of incumbent Directors more time-consuming and difficult. At least
two annual meetings of shareholders, instead of one, will generally be required
to effect a change in a majority of the Board of Directors. Thus, the
classified board provision could increase the likelihood that incumbent
Directors will retain their positions. The staggered terms of Directors may
delay, defer, or prevent a tender offer or an attempt to change control of the
Fund, although the tender offer or change in control might be in the best
interest of the shareholders.

Removal of Directors

   A Director may be removed only for cause and only by the affirmative vote of
at least 75% of the votes entitled to be cast in the election of such director.
This provision, when coupled with the provision in the Charter authorizing the
Board of Directors to fill vacant directorships, precludes shareholders from
removing incumbent Directors except for cause and by a substantial affirmative
vote.

                                      25

<PAGE>

Amendment to the Charter

   Certain provisions of the Charter, including its provisions on
classification of the Board of Directors and removal of Directors, may be
amended only by the affirmative vote of the holders of not less than 75% of all
of the votes entitled to be cast on the matter. Other provisions of the Charter
may be amended by the affirmative vote of a majority of the aggregate number of
votes entitled to be cast on the amendment. The required vote shall be in
addition to the vote of the holders of shares of the Fund otherwise required by
law or any agreement between the Fund and any national securities exchange.

Dissolution of the Company

   Subject to Board approval, the liquidation or dissolution of the Fund or an
amendment to the Charter to terminate the Fund must be approved by the
affirmative vote of the holders of not less than 75% of all of the votes
entitled to be cast on the matter. However, if a majority of the Continuing
Directors (as such term is defined below) approves the liquidation or
dissolution of the Fund, such action requires the affirmative vote of a
majority of the votes entitled to be cast on the matter.

Anti-takeover Effect of Certain Provisions of Maryland Law and of the Charter
and Bylaws

   The affirmative vote of 75% (which is higher than that required under
Maryland law or the 1940 Act) of the Fund's Common Shares, and, if issued,
Preferred Shares voting separately by class, will be required to authorize the
liquidation or dissolution of the Fund in the absence of approval of the
liquidation or dissolution by a majority of the Continuing Directors of the
Fund (defined for this purpose as those Directors who were either members of
the Board of Directors on the date of closing of the initial offering of Common
Shares or who subsequently become Directors and whose election or nomination is
approved by a majority of the Continuing Directors then on the Board). In
addition, the affirmative vote of 75% (which is higher than that required under
Maryland law or the 1940 Act) of the outstanding Common Shares, and, if issued,
Preferred Shares voting separately by class, is required generally to authorize
any of the following involving a corporation, person or entity that will be
directly, or indirectly through affiliates, the beneficial owner of more than
5% of the outstanding shares of the Fund (a "Principal Shareholder"), or to
amend the provisions of the Charter relating to such transactions:

      (i) merger, consolidation or statutory share exchange of the Fund with or
   into any Principal Shareholder;

      (ii) the issuance of any securities of the Fund to any Principal
   Shareholder for cash except upon (a) reinvestment of dividends pursuant to a
   dividend reinvestment plan of the Fund, (b) issuance of any securities of
   the Fund upon the exercise of any stock subscription rights distributed by
   the Fund, or (c) a public offering by the Fund registered under the
   Securities Act of 1933;

      (iii) the sale, lease or exchange of all or any substantial part of the
   assets of the Fund to any Principal Shareholder (except assets having an
   aggregate fair market value of less than $1,000,000, aggregating for the
   purpose of such computation all assets sold, leased or exchanged in any
   series of similar transactions within a twelve-month period); and

      (iv) the sale, lease or exchange to the Fund or any subsidiary thereof,
   in exchange for securities of the Fund, of any assets of an Principal
   Shareholders (except assets having an aggregate fair market value of less
   than $1,000,000 aggregating for the purposes of such computation all assets
   sold, leased or exchanged in any series of similar transaction within a
   twelve-month period).

   However, such vote would not be required when, under certain conditions, the
Continuing Directors approve the transactions described in (i)-(iv) above,
although in certain cases involving

                                      26

<PAGE>

merger, consolidation or statutory shares exchange or sale of all or
substantially all of the Fund's assets, the affirmative vote of a majority of
the Common Shares, and, if issued, Preferred Shares voting separately by class,
would nevertheless be required. The affirmative vote of 75% (which is higher
than that required under Maryland law or the 1940 Act) of the outstanding
Common Shares, and, if issued, and Preferred Shares voting separately by class,
is required to convert the Fund to an open-end investment company and to amend
the Fund's Charter to effect any such conversion. See "Repurchase of Common
Shares; Conversion to Open-End Fund."

   The provisions of the Charter Documents described above could have the
effect of depriving the Common Shareholders of opportunities to sell their
shares at a premium over prevailing market prices by discouraging a third party
from seeking to obtain control of the Fund in a tender offer or similar
transaction. See "Repurchase of Common Shares; Conversion to Open-End Fund."
The overall effect of these provisions is to render difficult the
accomplishment of a merger or the assumption of control by a Principal
Shareholder. The Board of Directors of the Fund has considered the foregoing
anti-takeover provisions and concluded that they are in the best interests of
the Fund and its shareholders.

           REPURCHASE OF COMMON SHARES; CONVERSION TO OPEN-END FUND

   Shares of closed-end investment companies frequently trade at a discount
from NAV. The Fund may, from time to time, repurchase or make a tender offer
for its Common Shares, or convert to an open-end investment company in an
attempt to reduce or eliminate significant market discounts from NAV. Subject
to the Fund's policy with respect to borrowings, the Fund may incur debt to
finance repurchases and tenders. The Fund will comply with the 1940 Act asset
coverage requirements if such borrowings are made. Interest on such borrowing
will reduce the Fund's net income.

   The Fund anticipates that the market price of its Common Shares will
generally vary from NAV. The market price of the Fund's Common Shares will,
among other things, be determined by the relative demand for and supply of such
shares in the market, the Fund's investment performance, the Fund's
distributions, and investor perception of the Fund's overall attractiveness as
an investment as compared with other investment alternatives. Nevertheless, the
fact that the Fund's Common Shares may be the subject of repurchases or tender
offers at NAV from time to time may reduce the spread between market price and
NAV that might otherwise exist. There can be no assurance that share
repurchases, tender offers, or conversion to an open-end investment company
will take place or that, if they occur, they will result in the Fund's Common
Shares trading at a price that is equal to their NAV or reduce or eliminate any
market value discount.

   It should be recognized that any acquisition of Common Shares by the Fund
would decrease the total assets of the Fund and therefore have the effect of
increasing the Fund's expense ratio and may also require the redemption of a
portion of any outstanding Preferred Shares in order to maintain coverage
ratios. Because of the nature of the Fund's investment objective, policies and
portfolio, the Fund does not anticipate that repurchases and tenders should
have an adverse effect on the Fund's investment performance and does not
anticipate any material difficulty in disposing of portfolio securities in
order to consummate Common Share repurchases or tenders.

   Common Shares that have been purchased by the Fund will be returned to the
status of authorized but unissued Commons Shares. The purchase of Common Shares
by the Fund will reduce the Fund's NAV.

   If the Fund converted to an open-end investment company, it would be
required to redeem all Preferred Shares then outstanding (requiring that it
liquidate a portion of its investment portfolio), and the Common Shares would
no longer be listed on the Exchange. In contrast to a closed-end investment
company, shareholders of an open-end investment company may require the company
to redeem their

                                      27

<PAGE>

shares at any time (except in certain circumstances as authorized by or under
the 1940 Act) at their NAV, less any redemption charge that is in effect at the
time of the redemption.

   Before deciding whether to take any action if the Common Shares trade below
NAV, the Board of Directors would consider all factors that they deem relevant.
Such factors may include the extent and duration of the discount, the liquidity
of the Fund's portfolio, the impact of any action that might be taken on the
Fund or its shareholders, and market considerations. Based on these
considerations, even if the Fund's Common Shares should trade at a discount,
the Board of Directors may determine that, in the interest of the Fund and its
shareholders, no action should be taken. See the SAI under "Repurchase of Fund
Shares; Conversion to Open-End Fund" for a further discussion of possible
action to reduce or eliminate a discount to NAV.

                                  TAX MATTERS

   The following federal income tax discussion is based on the advice of Seward
& Kissel LLP, counsel to the Fund, and reflects provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), existing Treasury regulations,
rulings published by the Internal Revenue Service (the "Service"), and other
applicable authority, all as of the date of this Prospectus. These authorities
are subject to change by legislative or administrative action, possibly on a
retroactive basis. The following discussion is only a summary of some of the
important tax considerations generally applicable to investments in the Fund.
For more detailed information regarding tax considerations, see the SAI. There
may be other tax considerations applicable to particular investors. In
addition, income earned through an investment in the Fund may be subject to
state and local taxes.

   The Fund intends to qualify each year for taxation as a regulated investment
company eligible for treatment under the provisions of Subchapter M of the
Code. If the Fund so qualifies and satisfies certain annual distribution
requirements, the Fund will not be subject to federal income or excise taxes on
income distributed in a timely manner to its shareholders in the form of
dividends or capital gain distributions. As noted above, the Fund intends to
distribute to its shareholders all of its net investment income (and net
capital gain, if any) for each taxable year.

   Because the Fund primarily invests in municipal obligations the interest on
which is exempt from federal income tax, distributions to you out of tax-exempt
interest income earned by the Fund will not be subject to federal income tax
(other than the AMT). Any exempt-interest dividends derived from interest on
municipal securities subject to the AMT may be a specific preference item for
purposes of the federal individual and corporate AMT.

   The Fund's distributions of net income (including any short-term capital
gains) that are not tax-exempt will be taxable to you as ordinary income.
Distributions of long-term capital gains generally will be taxable to you as
long-term capital gains regardless of how long you have held your Common
Shares. The Fund will allocate distributions to shareholders that are treated
as tax-exempt interest and as long-term capital gain and ordinary income, if
any, among the Common Shares and Preferred Shares in proportion to total
dividends paid to each class for the year.

   Distributions are taxable to you in the manner discussed above even if the
distributions are paid from income or gains earned by the Fund before you
bought shares (and thus were included in the price you paid for the shares).

   The sale or exchange of Fund shares is a taxable transaction for federal
income tax purposes.

   Each year shortly after December 31, the Fund will send you tax information
stating the amount and type of all its distributions for the year. Consult your
tax adviser about the federal, state and local tax consequences of an
investment in the Fund in your particular circumstances.

                                      28

<PAGE>

                                 UNDERWRITING

   Salomon Smith Barney Inc., A.G. Edwards & Sons, Inc., Prudential Securities
Incorporated, UBS Warburg LLC, Gruntal & Co., L.L.C., Legg Mason Wood Walker,
Incorporated and Wells Fargo Van Kasper, LLC are acting as representatives of
the Underwriters named below. Subject to the terms and conditions stated in the
Fund's underwriting agreement dated    , 2002, each Underwriter named below has
severally agreed to purchase, and the Fund has agreed to sell to such
Underwriter, the number of Common Shares set forth opposite the name of such
Underwriter.

<TABLE>
<CAPTION>
                                       Number of
Underwriters                         Common Shares
- ------------                         -------------
<S>                                  <C>
Salomon Smith Barney Inc............
A.G. Edwards & Sons, Inc............
Prudential Securities Incorporated..
UBS Warburg LLC.....................
Gruntal & Co., L.L.C................
Legg Mason Wood Walker, Incorporated
Wells Fargo Van Kasper, LLC.........
                                         -----
   Total............................
                                         -----
</TABLE>

   The underwriting agreement provides that the obligations of the Underwriters
to purchase the Common Shares included in this offering are subject to approval
of legal matters by counsel and to other conditions. The Underwriters are
obligated to purchase all the Common Shares (other than those covered by the
over-allotment option described below) if they purchase any of the Common
Shares.

   The Underwriters propose to offer some of the Common Shares directly to the
public at the public offering price set forth on the cover of this Prospectus
and some of the Common Shares to dealers at the public offering price less a
concession not to exceed $0.45 per Common Share. The sales load the Fund will
pay of $0.675 per Common Share is equal to 4.5% of the initial offering price.
The Underwriters may allow, and such dealers may reallow, a concession not to
exceed $0.10 per Common Share on sales to certain other dealers. If all of the
Common Shares are not sold at the initial offering price, the representatives
may change the public offering price and other selling terms. Investors must
pay for any Common Shares purchased on or before    , 2002. The representatives
have advised the Fund that the Underwriters do not intend to confirm any sales
to any accounts over which they exercise discretionary authority.

   The Fund has granted to the Underwriters an option, exercisable for 45 days
from the date of this Prospectus, to purchase up to      additional Common
Shares at the public offering price less the sales load. The Underwriters may
exercise such option solely for the purpose of covering over-allotments, if
any, in connection with this offering. To the extent such option is exercised,
each Underwriter will be obligated, subject to certain conditions, to purchase
a number of additional Common Shares approximately proportionate to such
Underwriter's initial purchase commitment.

   The Fund and Alliance have each agreed that, for a period of 180 days from
the date of this Prospectus, they will not, without the prior written consent
of Salomon Smith Barney Inc., on behalf of the Underwriters, dispose of or
hedge any Common Shares or any securities convertible into or exchangeable for
Common Shares. Salomon Smith Barney Inc. in its sole discretion may release any
of the securities subject to these agreements at any time without notice.

   Prior to the offering, there has been no public market for the Common
Shares. Consequently, the initial public offering price for the Common Shares
was determined by negotiation among the Fund, Alliance and the representatives.
There can be no assurance, however, that the price at which the

                                      29

<PAGE>

Common Shares will sell in the public market after this offering will not be
lower than the price at which they are sold by the Underwriters or that an
active trading market in the Common Shares will develop and continue after this
offering. As noted above, shares of closed-end funds, such as the Fund,
frequently trade at a discount to NAV. The Common Shares have been authorized
for listing on the New York Stock Exchange, subject to notice of issuance.

   The Fund and Alliance have each agreed to indemnify the several Underwriters
or contribute to losses arising out of certain liabilities, including
liabilities under the Securities Act of 1933, as amended. In addition, the Fund
has agreed to reimburse the Underwriters for certain expenses incurred by the
Underwriters in the offering.

   Alliance has agreed to pay the amount by which the aggregate of all the
Fund's organizational expenses and all offering costs (other than the sales
load) exceed $0.03 per share.

   In connection with the requirements for listing the Common Shares on the
Exchange, the Underwriters have undertaken to sell lots of 100 or more Common
Shares to a minimum of 2,000 beneficial owners in the United States. The
minimum investment requirement is 100 Common Shares.

   Certain Underwriters may make a market in the Common Shares after trading in
the Common Shares has commenced on the Exchange. No Underwriter is, however,
obligated to conduct market-making activities and any such activities may be
discontinued at any time without notice, at the sole discretion of the
Underwriter. No assurance can be given as to the liquidity of, or the trading
market for, the Common Shares as a result of any market-making activities
undertaken by any Underwriter. This Prospectus is to be used by any Underwriter
in connection with the offering and, during the period in which a prospectus
must be delivered, with offers and sales of the Common Shares in market-making
transactions in the over-the-counter market at negotiated prices related to
prevailing market price at the time of the sale.

   The Underwriters have advised the Fund that, pursuant to Regulation M under
the Securities Exchange Act of 1934, as amended, certain persons participating
in the offering may engage in transactions, including stabilizing bids,
covering transactions or the imposition of penalty bids, which may have the
effect of stabilizing or maintaining the market price of the Common Shares at a
level above that which might otherwise prevail in the open market. A
"stabilizing bid" is a bid for or the purchase of the Common Shares on behalf
of an Underwriter for the purpose of fixing or maintaining the price of the
Common Shares. A "covering transaction" is a bid for or purchase of the Common
Shares on behalf of an Underwriter to reduce a short position incurred by the
Underwriters in connection with the offering. A "penalty bid" is a contractual
arrangement whereby if, during a specified period after the issuance of the
Common Shares, the Underwriters purchase Common Shares in the open market for
the account of the underwriting syndicate and the Common Shares purchased can
be traced to a particular Underwriter or member of the selling group, the
underwriting syndicate may require the Underwriter or selling group member in
question to purchase the Common Shares in question at the cost price to the
syndicate or may recover from (or decline to pay to) the Underwriter or selling
group member in question any or all compensation (including, with respect to a
representative, the applicable syndicate management fee) applicable to the
Common Shares in question. As a result, an Underwriter or selling group member
and, in turn, brokers may lose the fees that they otherwise would have earned
from a sale of the Common Shares if their customer resells the Common Shares
while the penalty bid is in effect. The Underwriters are not required to engage
in any of these activities, and any such activities, if commenced, may be
discontinued at any time. These transactions may be effected on the Exchange or
otherwise.

   The Fund anticipates that from time to time the representatives of the
Underwriters and certain other Underwriters may act as brokers or dealers in
connection with the execution of the Fund's

                                      30

<PAGE>

portfolio transactions after they have ceased to be Underwriters and, subject
to certain restrictions, may act as brokers while they are Underwriters.

   Prior to the public offering of Common Shares, Alliance will purchase Common
Shares from the Fund in an amount satisfying the net worth requirements of
Section 14(a) of the 1940 Act.

   The principal business address of Salomon Smith Barney Inc. is 388 Greenwich
Street, New York, New York 10013.

                         CUSTODIAN AND TRANSFER AGENT

   The Fund's securities and cash will be held under a Custodian Agreement by
State Street Bank & Trust Company. The Fund's assets will be held under bank
custodianship in compliance with the 1940 Act. Equiserve Trust Company, N.A.
will act as the Fund's transfer agent, dividend-paying agent and registrar.

                                 LEGAL MATTERS

   Certain legal matters in connection with the Common Shares will be passed
upon for the Fund by Seward & Kissel LLP and for the Underwriters by Simpson
Thacher & Bartlett. Seward & Kissel LLP and Simpson Thacher & Bartlett will
rely upon the opinion of Ballard Spahr Andrews & Ingersoll, LLP for certain
matters of Maryland law.

                                      31

<PAGE>

         TABLE OF CONTENTS FOR THE STATEMENT OF ADDITIONAL INFORMATION


           Use of Proceeds........................................
           Investment Objective and Policies......................
           Investment Restrictions................................
           Management of the Fund.................................
           Valuation of Securities................................
           Portfolio Transactions.................................
           Distributions..........................................
           Description of Shares..................................
           Certain Provisions in the Charter......................
           Repurchase of Fund Shares; Conversion to Open-End Fund.
           Tax Matters............................................
           Performance Related and Comparative Information........
           Custodian, Transfer Agent and Dividend Disbursing Agent
           Independent Auditors...................................
           Counsel................................................
           Registration Statement.................................
           Report of Independent Auditors.........................
           Financial Statements...................................
              Appendix A - Bond Ratings...........................
              Appendix B - Futures Contracts and Related Options..







                                      32

<PAGE>

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

                               4,000,000 Shares

                 Alliance National Municipal Income Fund, Inc.

                                 Common Shares

                                   --------

                              P R O S P E C T U S

                                    , 2002

                                   --------

                             Salomon Smith Barney

                           A.G. Edwards & Sons, Inc.

                             Prudential Securities

                                  UBS Warburg

                             Gruntal & Co., L.L.C.

                            Legg Mason Wood Walker
                                 Incorporated

                          Wells Fargo Van Kasper, LLC

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------


<PAGE>


                   Subject to Completion
         Preliminary Statement of Additional Information
                     Dated December 21, 2001

The information in this statement of additional information is
not complete and may be changed.  We may not sell these
securities until the registration statement relating to the
securities filed with the Securities and Exchange Commission is
effective.  This statement of additional information is not an
offer to sell these securities and is not soliciting an offer to
buy these securities in any state where the offer or sale is not
permitted.

          ALLIANCE NATIONAL MUNICIPAL INCOME FUND, INC.
               STATEMENT OF ADDITIONAL INFORMATION
                       [__________], 2002

         Alliance National Municipal Income Fund, Inc., a
Maryland corporation (the "Fund"), is a newly organized,
diversified, closed-end management investment company.

      This Statement of Additional Information ("SAI")
relating to common shares of the Fund ("Common Shares"), par
value $.001 per share, is not a prospectus, but should be read in
conjunction with the Fund's Prospectus dated [_______], 2002 (the
"Prospectus").  This SAI does not include all information that a
prospective investor should consider before purchasing Common
Shares, and investors should obtain and read the Prospectus prior
to purchasing such shares.  A copy of the Prospectus may be
obtained without charge by calling (800) 227-4618.  You may also
obtain a copy of the Prospectus on the Securities and Exchange
Commission's ("SEC") web site http://www.sec.gov). Capitalized
terms used but not defined in this SAI have the meanings ascribed
to them in the Prospectus.

                        TABLE OF CONTENTS

USE OF PROCEEDS
INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT RESTRICTIONS
MANAGEMENT OF THE FUND
VALUATION OF SECURITIES
PORTFOLIO TRANSACTIONS
DISTRIBUTIONS
DESCRIPTION OF SHARES
CERTAIN PROVISIONS IN THE CHARTER
REPURCHASE OF FUND SHARES; CONVERSION TO OPEN-END FUND
TAX MATTERS



                                3





<PAGE>


PERFORMANCE RELATED AND COMPARATIVE INFORMATION
CUSTODIAN, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
INDEPENDENT AUDITORS
COUNSEL
REGISTRATION STATEMENT
REPORT OF INDEPENDENT AUDITORS
FINANCIAL STATEMENTS
APPENDIX A - Bond Ratings                                     A-1
APPENDIX B - Futures Contracts and Related Options            B-1

This Statement of Additional Information is dated [__________],
2002







































                                4





<PAGE>


                         USE OF PROCEEDS

         The net proceeds of the offering of Common Shares of the
Fund will be approximately $[________] (or $[_______] if the
Underwriters exercise the over-allotment option in full) after
payment of organization and offering costs.

         The Fund will pay organizational and offering expenses
estimated at $[______] from the proceeds of the offering.
Alliance Capital Management L.P. ("Alliance" or the "Adviser"),
the Fund's investment adviser, has agreed to pay the amount by
which the aggregate of all organizational expenses and offering
costs (other than the sales load) exceeds $0.03 per Common Share.
Pending investment in municipal bonds that meet the Fund's
investment objective and policies, the net proceeds of the
offering will be invested in high quality, short-term tax-exempt
money market securities or in high quality municipal bonds with
relatively low volatility (such as pre-refunded and intermediate-
term bonds), to the extent such securities are available.  If
necessary to invest fully the net proceeds of the offering
immediately, the Fund may also purchase, as temporary investments
or for defensive purposes, short-term tax-exempt or taxable
investments, the income on which is subject to regular federal
income tax, of the type described under "Investment Objective and
Policies -- Short-Term Investments/Temporary Defensive
Strategies."

                INVESTMENT OBJECTIVE AND POLICIES

         The investment objective and general investment policies
of the Fund are described in the Prospectus.  Additional
information concerning the characteristics of certain of the
Fund's investments is set forth below.

Municipal Bonds

      Municipal bonds share the attributes of debt/fixed
income securities in general, but are generally issued by states,
municipalities and other political subdivisions, agencies,
authorities and instrumentalities of states and multi-state
agencies or authorities.  Municipal bonds have two principal
classifications: general obligation bonds and revenue or special
obligation bonds .  General obligation bonds are secured by an
issuer's pledge of its faith, credit, and taxing power for the
payment of principal and interest.  They are payable from such
issuer's general revenues and not from any particular source.
Revenue or special obligation bonds are payable only from the
revenues derived from a particular facility or class of



                                5





<PAGE>


facilities or, in some cases, from the proceeds of a special
excise or other specific revenue source.  Tax-exempt private
activity bonds and industrial development bonds generally are
also revenue bonds and thus are not payable from the issuer's
general revenues.  The credit and quality of private activity
bonds and industrial development bonds are usually related to the
credit of the corporate user of the facilities.  Payment of
interest on and repayment of principal of such bonds is the
responsibility of the corporate user (and/or any guarantor).


      The Fund will primarily invest in municipal bonds with
long-term maturities in order to maintain a weighted average
maturity of 15-30 years, but the average weighted maturity of
obligations held by the Fund may be shortened, depending on
market conditions.  As a result, the Fund's portfolio at any
given time may include both long-term and intermediate-term
municipal bonds.  Moreover, during temporary or defensive periods
(e.g., times when Alliance believes that temporary imbalances of
supply and demand or other temporary dislocations in the tax-
exempt bond market adversely affect the price at which long-term
or intermediate-term municipal bonds are available), and in order
to keep the Fund's cash fully invested, including the period
during which the net proceeds of the offering are being invested,
the Fund may invest any percentage of its net assets in short-
term investments including high quality, short-term securities
that may be either tax-exempt or taxable. See "Short-Term
Investments/Temporary Defensive Strategies."

      Also included within the general category of municipal
bonds in which the Fund may invest are participations in lease
obligations or installment purchase contract obligations of
municipal authorities or entities ("Municipal Lease
Obligations").  Although a Municipal Lease Obligation does not
constitute a general obligation of the municipality for which the
municipality's taxing power is pledged, a Municipal Lease
Obligation is ordinarily backed by the municipality's covenant to
budget for, appropriate and make the payments due under the
Municipal Lease Obligation.  However, certain Municipal Lease
Obligations contain "non-appropriation" clauses which provide
that the municipality has no obligation to make lease or
installment purchase payments in future years unless money is
appropriated for such purpose on a yearly basis.  In the case of
a "non-appropriation" lease, the Fund's ability to recover under
the lease in the event of non-appropriation or default will be
limited solely to the repossession of the leased property,
without recourse to the general credit of the lessee, and
disposition or releasing of the property might prove difficult.



                                6





<PAGE>


There have been challenges to the legality of lease financing in
numerous states, and, from time to time, certain municipalities
have considered not appropriating money for lease payments.  In
deciding whether to purchase a Municipal Lease Obligation, the
Fund will consider all relevant factors including the financial
condition of the borrower, the merits of the project, the level
of public support for the project, and the legislative history of
lease financing in the state.  These securities may be less
readily marketable than other municipal bonds.  The Fund may also
purchase unrated lease obligations if determined by Alliance to
be of comparable quality to rated securities in which the Fund is
permitted to invest.

      Some longer-term municipal bonds give the investor the
right to "put" or sell the security at par (face value) within a
specified number of days following the investor's request-
- -usually one to seven days.  This demand feature enhances a
security's liquidity by shortening its effective maturity and
enables it to trade at a price equal to or very close to par.  If
a demand feature terminates prior to being exercised, the Fund
would hold the longer-term security, which could experience
substantially more volatility.

      The Fund may invest in municipal bonds with credit
enhancements such as letters of credit, municipal bond insurance
and Standby Bond Purchase Agreements ("SBPAs").  Letters of
credit are issued by a third party, usually a bank, to enhance
liquidity and ensure repayment of principal and any accrued
interest if the underlying municipal bond should default.
Municipal bond insurance, which is usually purchased by the bond
issuer from a private, nongovernmental insurance company,
provides an unconditional and irrevocable guarantee that the
insured bond's principal and interest will be paid when due.
Insurance does not guarantee the price of the bond or the share
price of the Fund.  The credit rating of an insured bond reflects
the credit rating of the insurer, based on its claims-paying
ability.  The obligation of a municipal bond insurance company to
pay a claim extends over the life of each insured bond.  Although
defaults on insured municipal bonds have been low to date and
municipal bond insurers have met their claims, there is no
assurance this will continue.  A higher-than-expected default
rate could strain the insurer's loss reserves and adversely
affect its ability to pay claims to bondholders.  The number of
municipal bond insurers is relatively small, and not all of them
have the highest rating.  An SBPA is a liquidity facility
provided to pay the purchase price of bonds that cannot be re-
marketed.  The obligation of the liquidity provider (usually a
bank) is only to advance funds to purchase tendered bonds that



                                7





<PAGE>


cannot be remarketed and does not cover principal or interest
under any other circumstances.  The liquidity provider's
obligations under the SBPA are usually subject to numerous
conditions, including the continued creditworthiness of the
underlying borrower.

      Unless otherwise indicated, all limitations applicable
to the Fund's investments (as stated above and elsewhere in this
SAI) apply only at the time a transaction is entered into.  Any
subsequent change in a rating assigned by any rating service to a
security (or, if unrated, determined by Alliance to be of
comparable quality), or change in the percentage of the Fund's
assets invested in certain securities or other instruments, or
change in the average maturity or duration of the Fund's
investment portfolio, resulting from market fluctuations or other
changes in the Fund's total assets, will not require the Fund to
dispose of a particular investment.  In determining whether to
sell such a security, Alliance may consider such factors as its
assessment of the credit quality of the issuer of the security,
the price at which the security could be sold and the rating, if
any, assigned to the security by other rating agencies.  In the
event that ratings services assign different ratings to the same
security, Alliance will determine which rating it believes best
reflects the security's quality and risk at that time, which may
be the higher of the several assigned ratings.

      Municipal bonds are subject to credit and market risk.
Generally, prices of higher quality issues tend to fluctuate less
with changes in market interest rates than prices of lower
quality issues and prices of longer maturity issues tend to
fluctuate more than prices of shorter maturity issues.

      The Fund may purchase and sell portfolio investments to
take advantage of changes or anticipated changes in yield
relationships, markets or economic conditions.  The Fund may also
sell municipal bonds due to changes in Alliance's evaluation of
the issuer.  The secondary market for municipal bonds typically
has been less liquid than that for taxable debt/fixed income
securities, and this may affect the Fund's ability to sell
particular municipal bonds at then-current market prices,
especially in periods when other investors are attempting to sell
the same securities.

      Prices and yields on municipal bonds are dependent on a
variety of factors, including general money-market conditions,
the financial condition of the issuer, general conditions of the
municipal bond market, the size of a particular offering, the
maturity of the obligation and the rating of the issue.  A number



                                8





<PAGE>


of these factors, including the ratings of particular issues, are
subject to change from time to time.  Information about the
financial condition of an issuer of municipal bonds may not be as
extensive as that which is made available by corporations whose
securities are publicly traded.

      Obligations of issuers of municipal bonds are subject to
the provisions of bankruptcy, insolvency, and other laws
affecting the rights and remedies of creditors, such as the
Federal Bankruptcy Code.  In addition, the obligations of such
issuers may become subject to laws enacted in the future by
Congress, state legislatures, or referenda extending the time for
payment of principal and/or interest, or imposing other
constraints upon enforcement of such obligations or upon the
ability of municipalities to levy taxes.  There is also the
possibility that, as a result of litigation or other conditions,
the ability of any issuer to pay, when due, the principal or the
interest on its municipal bonds may be materially affected.

Short-Term Investments/Temporary Defensive Strategies

      For temporary or for defensive purposes, including the
period during which the net proceeds of the offering are being
invested, the Fund may invest up to 100% of its net assets in
short-term investments including high quality, short-term
securities that may be either tax-exempt or taxable.  The Fund
intends to invest in taxable short-term investments only in the
event that suitable tax-exempt short-term investments are not
available at reasonable prices and yields. Tax-exempt short-term
investments include various obligations issued by state and local
governmental issuers, such as tax-exempt notes (bond anticipation
notes, tax anticipation notes and revenue anticipation notes or
other such municipal bonds maturing in three years or less from
the date of issuance) and municipal commercial paper.  The Fund
will invest only in taxable short-term investments that are U.S.
Government securities or securities rated within the highest
grade by Moody's Investors Service, Inc. ("Moody's"), Standard &
Poor's Ratings Service ("S&P") or Fitch, Inc. ("Fitch"), and
which mature within one year from the date of purchase or carry a
variable or floating rate of interest.  See Appendix A for a
general description of Moody's, S&P's and Fitch's ratings of
securities in such categories.  The Fund's taxable short-term
investments may include certificates of deposit issued by U.S.
banks with assets of at least $1 billion, or commercial paper or
corporate notes, bonds or debentures with a remaining maturity of
one year or less, or repurchase agreements.  To the extent the
Fund invests in taxable short-term investments, the Fund may not




                                9





<PAGE>


achieve its investment objective of providing current income
exempt from federal income tax.

Other Municipal Securities

         Municipal notes in which the Fund may invest include
demand notes, which are tax-exempt obligations that have stated
maturities in excess of one year, but permit the holder to sell
back the security (at par) to the issuer within one to seven days
notice.  The payment of principal and interest by the issuer of
these obligations will ordinarily be guaranteed by letters of
credit offered by banks. The interest rate on a demand note may
be based upon a known lending rate, such as a bank's prime rate,
and may be adjusted when such rate changes, or the interest rate
on a demand note may be a market rate that is adjusted at
specified intervals.

         Other short-term obligations constituting municipal
notes include tax anticipation notes, revenue anticipation notes,
bond anticipation notes and tax-exempt commercial paper.  Tax
anticipation notes are issued to finance working capital needs of
municipalities.  Generally, they are issued in anticipation of
various seasonal tax revenues, such as ad valorem, income, sales,
and use and business taxes.  Revenue anticipation notes are
issued in expectation of receipt of other types of revenues, such
as federal revenues available under the Federal Revenue Sharing
Programs.  Bond anticipation notes are issued to provide interim
financing until long-term financing can be arranged.  In most
such cases, the long-term bonds provide the money for the
repayment of the notes.

         Tax-Exempt Commercial Paper ("Municipal Paper") is a
short-term obligation with a stated maturity of 365 days or less
(however, issuers typically do not issue such obligations with
maturities longer than seven days).  Such obligations are issued
by state and local municipalities to finance seasonal working
capital needs or as short-term financing in anticipation of
longer-term financing.

      Certain municipal bonds may carry variable or floating
rates of interest whereby the rate of interest is not fixed but
varies with changes in specified market rates or indices, such as
a bank prime rate or a tax-exempt money market index.

         While the various types of notes described above as a
group represent the major portion of the tax-exempt note market,
other types of notes are available in the marketplace and the
Fund may invest in such other types of notes to the extent



                               10





<PAGE>


permitted under its investment objective, policies and
limitations.  Such notes may be issued for different purposes and
may be secured differently from those mentioned above.

High Yield Securities ("Junk Bonds")

      Bonds of below investment grade quality (Ba/BB or below)
are commonly referred to as "high yield securities" or "junk
bonds." Issuers of bonds rated below investment grade are
regarded as having current capacity to make principal and
interest payments but are subject to business, financial or
economic conditions that could adversely affect such payment
capacity.  Municipal bonds rated Baa or BBB are considered
"investment grade" securities, although such bonds may be
considered to possess some speculative characteristics.
Municipal bonds rated AAA in which the Fund may invest may have
been so rated on the basis of the existence of insurance
guaranteeing the timely payment, when due, of all principal and
interest.

         High yield securities are regarded as predominantly
speculative with respect to the issuer's continuing ability to
meet principal and interest payments and, therefore, carry
greater price volatility and principal and income risk, including
the possibility of issuer default and bankruptcy and increased
market price volatility.

      High yield securities may be more susceptible to real or
perceived adverse economic and competitive industry conditions
than investment grade securities.  A projection of an economic
downturn or of a period of rising interest rates, for example,
could cause a decline in high yield security prices because the
advent of a recession could lessen the ability of an issuer to
make principal and interest payments on its debt securities.  If
an issuer of high yield securities defaults, in addition to
risking payment of all or a portion of interest and principal,
the Fund may incur additional expenses to seek recovery.  Market
prices of high yield securities structured as zero-coupon bonds
are affected to a greater extent by interest rate changes, and
therefore tend to be more volatile than securities which pay
interest periodically and in cash.  Alliance seeks to reduce
these risks through diversification, credit analysis and
attention to current developments and trends in both the economy
and financial markets.

      The secondary market on which high yield securities are
traded may be less liquid than the market for higher-grade
securities.  Less liquidity in the secondary trading market could



                               11





<PAGE>


adversely affect the price at which the Fund could sell a high
yield security, and could adversely affect the daily net asset
value of the shares.  Adverse publicity and investor perceptions,
whether or not based on fundamental analysis, may decrease the
values and liquidity of high yield securities, especially in a
thinly traded market.  When secondary markets for high yield
securities are less liquid than the market for higher grade
securities, it may be more difficult to value the securities
because such valuation may require more research, and elements of
judgment may play a greater role in the valuation because there
is less reliable objective data available.  During periods of
thin trading in these markets, the spread between bid and asked
prices is likely to increase significantly and the Fund may have
greater difficulty selling its portfolio securities.  The Fund
will be more dependent on Alliance's research and analysis when
investing in high yield securities.  Alliance seeks to minimize
the risks of investing in all securities through diversification,
in-depth credit analysis and attention to current developments in
interest rates and market conditions.

      A general description of Moody's, S&P's and Fitch's
ratings of municipal bonds is set forth in Appendix A hereto.
The ratings of Moody's, S&P and Fitch represent their opinions as
to the quality of the municipal bonds they rate.  It should be
emphasized, however, that ratings are general and are not
absolute standards of quality.  Consequently, municipal bonds
with the same maturity, coupon and rating may have different
yields while obligations with the same maturity and coupon with
different ratings may have the same yield.  For these reasons,
the use of credit ratings as the sole method of evaluating high
yield securities can involve certain risks.  For example, credit
ratings evaluate the safety of principal and interest payments,
not the market value risk of high yield securities.  Also, credit
rating agencies may fail to change credit ratings in a timely
fashion to reflect events since the security was last rated.
Alliance does not rely solely on credit ratings when selecting
securities for the Fund and develops its own independent analysis
of issuer credit quality.

Variable and Floating Rate Securities

         Variable and floating rate securities provide for a
periodic adjustment in the interest rate paid on the obligations.
The terms of such obligations must provide that interest rates
are adjusted periodically based upon an interest rate adjustment
index as provided in the respective obligations.  The adjustment
intervals may be regular, and range from daily up to annually, or
may be event based, such as based on a change in the prime rate.



                               12





<PAGE>



Derivative Instruments

      The Fund may enter into interest rate and index futures
contracts and purchase and sell options on such futures contracts
("futures options") for hedging purposes or as part of its
overall investment strategies.  The Fund also may enter into swap
agreements with respect to interest rates and indexes of
securities.  While the Fund does not currently intend to utilize
any of these types of derivative instruments, it reserves the
flexibility to use these techniques under appropriate
circumstances and without limitation, except as described herein.
If other types of financial instruments, including other types of
options, futures contracts, or futures options are traded in the
future, the Fund may also determine to use those instruments.


      The value of some derivative instruments in which the
Fund may invest may be particularly sensitive to changes in
prevailing interest rates, and, like the other investments of the
Fund, the ability of the Fund to successfully utilize these
instruments may depend in part upon the ability of Alliance to
forecast interest rates and other economic factors correctly.  If
Alliance incorrectly forecasts such factors and has taken
positions in derivative instruments contrary to prevailing market
trends, the Fund could be exposed to the risk of loss.  The Fund
might not employ any of the strategies described below, and no
assurance can be given that any strategy used will succeed.  If
Alliance incorrectly forecasts interest rates, market values or
other economic factors in utilizing a derivatives strategy for
the Fund, the Fund might have been in a better position if it had
not entered into the transaction.  Also, suitable derivative
transactions may not be available in all circumstances.  The use
of these strategies involves certain special risks, including a
possible imperfect correlation, or even no correlation, between
price movements of derivative instruments and price movements of
related investments.  While some strategies involving derivative
instruments can reduce the risk of loss, they can also reduce the
opportunity for gain or even result in losses by offsetting
favorable price movements in related investments or otherwise,
due to the possible inability of the Fund to purchase or sell a
portfolio security at a time that otherwise would be favorable or
the possible need to sell a portfolio security at a
disadvantageous time because the Fund is required to maintain
asset coverage or offsetting positions in connection with
transactions in derivative instruments, and the possible
inability of the Fund to close out or to liquidate its
derivatives positions.  Income earned by the Fund from many



                               13





<PAGE>


derivative strategies will be treated as capital gain and, if not
offset by net realized capital loss, will be distributed to
shareholders in taxable distributions.

Futures Contracts and Options on Futures Contracts

      While the Fund does not currently intend to do so, it
may enter into contracts for the purchase or sale for future
delivery of municipal securities or obligations of the U.S.
Government securities or contracts based on financial indices,
including an index of municipal securities or U.S. Government
securities ("futures contracts") and may purchase and write put
and call options to buy or sell futures contracts ("options on
futures contracts").  A "sale" of a futures contract means the
acquisition of a contractual obligation to deliver the securities
called for by the contract at a specified price on a specified
date.  A "purchase" of a futures contract means the incurring of
a contractual obligation to acquire the securities called for by
the contract at a specified price on a specified date.  The
purchaser of a futures contract on an index agrees to take or
make delivery of an amount of cash equal to the difference
between a specified dollar multiple of the value of the index on
the expiration date of the contract ("current contract value")
and the price at which the contract was originally struck.  No
physical delivery of the fixed-income securities underlying the
index is made.  Options on futures contracts written or
purchased, and futures contracts purchased or sold, by the Fund
will be traded on U.S. exchanges.  These investment techniques
will be used only to hedge against anticipated future changes in
interest rates which otherwise might either adversely affect the
value of the securities held by the Fund or adversely affect the
prices of securities which a Fund intends to purchase at a later
date.

         The correlation between movements in the price of
futures contracts or options on futures contracts and movements
in the price of the securities hedged or used for cover will not
be perfect and could produce unanticipated losses.  If the value
of the index increases, the purchaser of the futures contract
thereon will be entitled to a cash payment.  Conversely, if the
value of the index declines, the seller of a futures contract
will be entitled to a cash payment.  In connection with its
purchase of index futures the Fund will deposit liquid assets
equal to the market value of the futures contract (less related
margin) in a segregated account with the Fund's custodian or a
futures margin account with a broker.  If Alliance were to
forecast incorrectly, the Fund might suffer a loss arising from
adverse changes in the current contract values of the bond



                               14





<PAGE>


futures or index futures which it had purchased or sold.  A
Fund's ability to hedge its positions through transactions in
index futures depends on the degree of correlation between
fluctuations in the index and the values of the securities which
the Fund owns or intends to purchase, or general interest rate
movements.

         For additional information on the use, risks and costs
of futures contracts and options on futures contracts, see
Appendix B.

Risks Associated with Futures and Futures Options.

      There are several risks associated with the use of
futures contracts and futures options as hedging techniques.  A
purchase or sale of a futures contract may result in losses in
excess of the amount invested in the futures contract.  There can
be no guarantee that there will be a correlation between price
movements in the hedging vehicle and in the Fund securities being
hedged.  In addition, there are significant differences between
the securities and futures markets that could result in an
imperfect correlation between the markets, causing a given hedge
not to achieve its objectives.  The degree of imperfection of
correlation depends on circumstances such as variations in
speculative market demand for futures and futures options on
securities, including technical influences in futures trading and
futures options, and differences between the financial
instruments being hedged and the instruments underlying the
standard contracts available for trading in such respects as
interest rate levels, maturities, and creditworthiness of
issuers.  A decision as to whether, when and how to hedge
involves the exercise of skill and judgment, and even a well-
conceived hedge may be unsuccessful to some degree because of
market behavior or unexpected interest rate trends.

      Futures contracts on U.S. Government securities
historically have reacted to an increase or decrease in interest
rates in a manner similar to that in which the underlying U.S.
Government securities reacted.  To the extent, however, that the
Fund enters into such futures contracts, the value of such
futures may not vary in direct proportion to the value of the
Fund's holdings of municipal bonds.  Thus, the anticipated spread
between the price of the futures contract and the hedged security
may be distorted due to differences in the nature of the markets.
The spread also may be distorted by differences in initial and
variation margin requirements, the liquidity of such markets and
the participation of speculators in such markets.




                               15





<PAGE>


         Futures exchanges may limit the amount of fluctuation
permitted in certain futures contract prices during a single
trading day.  The daily limit establishes the maximum amount that
the price of a futures contract may vary either up or down from
the previous day's settlement price at the end of the current
trading session.  Once the daily limit has been reached in a
futures contract subject to the limit, no more trades may be made
on that day at a price beyond that limit.  The daily limit
governs only price movements during a particular trading day and
therefore does not limit potential losses because the limit may
work to prevent the liquidation of unfavorable positions.  For
example, futures prices have occasionally moved to the daily
limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of positions and
subjecting some holders of futures contracts to substantial
losses.

         There can be no assurance that a liquid market will
exist at a time when the Fund seeks to close out a futures or a
futures option position, and the Fund would remain obligated to
meet margin requirements until the position is closed.  In
addition, many of the contracts discussed above are relatively
new instruments without a significant trading history.  As a
result, there can be no assurance that an active secondary market
will develop or continue to exist.

Interest Rate Transactions (Swaps, Caps, and Floors)

         While the Fund does not currently intend to do so, it
may enter into interest rate swaps and may purchase or sell
interest rate caps and floors.

      The Fund would enter into these transactions primarily
to preserve a return or spread on a particular investment or
portion of the Fund.  The Fund may also enter into these
transactions to protect against price increases of securities
Alliance anticipates purchasing for the Fund at a later date. The
Fund does not intend to use these transactions in a speculative
manner.  Interest rate swaps involve the exchange by the Fund
with another party of their respective commitments to pay or
receive interest, e.g., an exchange of floating rate payments for
fixed rate payments.  The purchase of an interest rate cap
entitles the purchaser, to the extent that a specified index
exceeds a predetermined interest rate, to receive payments of
interest on a contractually-based principal amount from the party
selling such interest rate cap.  The purchase of an interest rate
floor entitles the purchaser, to the extent that a specified
index falls below a predetermined interest rate, to receive



                               16





<PAGE>


payments of interest on a contractually-based principal amount
from the party selling such interest rate floor.

      Interest rate swaps, caps and floors may be entered into
on either an asset-based or liability-based basis, depending upon
whether they are hedging their assets or their liabilities, and
will usually enter into interest rate swaps on a net basis, i.e.,
the two payment streams are netted out, with the Fund receiving
or paying, as the case may be, only the net amount of the two
payments.  The net amount of the excess, if any, of the Fund's
obligations over its entitlements with respect to each interest
rate swap will be accrued daily, and an amount of liquid assets
having an aggregate net asset value at least equal to the accrued
excess will be maintained in a segregated account by the
custodian. If the Fund enters into an interest rate swap on other
than a net basis, the Fund will maintain in a segregated account
with the custodian the full amount, accrued daily, of the Fund's
obligations with respect to the swap. The Fund will not enter
into any interest rate swap, cap or floor unless the unsecured
senior debt or the claims paying ability of the other party
thereto is then rated in the highest rating category of at least
one nationally recognized rating organization.  Alliance will
monitor the creditworthiness of counterparties on an ongoing
basis. If there were a default by such a counterparty, the Fund
would have contractual remedies.  The swap market has grown
substantially in recent years, with a large number of banks and
investment banking firms acting both as principals and agents
utilizing standardized swap documentation.  Alliance has
determined that, as a result, the swap market has become
relatively liquid. Caps and floors are more recent innovations
for which standardized documentation has not yet been developed
and, accordingly they are less liquid than swaps.  To the extent
the Fund sells (i.e., writes) caps and floors it will maintain in
a segregated account with the custodian liquid assets equal to
the full amount, accrued daily, of the Fund's obligations with
respect to any caps or floors.

         The use of interest rate swaps is a highly specialized
activity which involves investment techniques and risks different
from those associated with ordinary Fund securities transactions.
If Alliance were incorrect in its forecasts of market values,
interest rates and other applicable factors, the investment
performance of the Fund would diminish compared with what they
would have been if these investment techniques were not used.
Moreover, even if Alliance is correct in its forecasts, there is
a risk that the swap position may correlate imperfectly with the
price of the asset or liability being hedged.




                               17





<PAGE>


      Interest rate swap transactions do not involve the
delivery of securities or other underlying assets of principal.
Accordingly, the risk of loss with respect to interest rate swaps
is limited to the net amount of interest payments that the Fund
is contractually obligated to make.  If the other party to an
interest rate swap defaults, the Fund's risk of loss consists of
the net amount of interest payments that the Fund contractually
is entitled to receive.  The Fund may purchase and sell (i.e.,
write) caps and floors without limitation, subject to the
segregated account requirement described above.

Repurchase Agreements

      While the Fund does not currently intend to do so, it
may seek additional income by investing in repurchase agreements
pertaining only to U.S. Government securities.  A repurchase
agreement arises when a buyer purchases a security and
simultaneously agrees to resell it to the vendor at an agreed-
upon future date, normally one day or a few days later.  The
resale price is greater than the purchase price, reflecting an
agreed-upon market rate which is effective for the period of time
the buyer's money is invested in the security and which is not
related to the coupon rate on the purchased security.  Such
agreements would permit the Fund to keep all of its assets at
work while retaining "overnight" flexibility in pursuit of
investments of a longer-term nature.  In addition, the Fund will
require continual maintenance of collateral held by the Fund's
custodian in an amount equal to, or in excess of, the market
value of the securities which are the subject of the agreement.
In the event that a vendor defaulted on its repurchase
obligation, the Fund would suffer a loss to the extent that the
proceeds from the sale of the collateral were less than the
repurchase price.  In the event of a vendor's bankruptcy, the
Fund might be delayed in, or prevented from, selling the
collateral for its benefit. Repurchase agreements may be entered
into with member banks of the Federal Reserve System including
the Fund's custodian or "primary dealers" (as designated by the
Federal Reserve Bank of New York) in U.S. Government securities.
The Fund's current practice would be to enter into repurchase
agreements only with such primary dealers.

Illiquid Securities

         The Fund may invest in illiquid securities. Illiquid
securities include, among others, (a) direct placements or other
securities which are subject to legal or contractual restrictions
on resale or for which there is no readily available market
(e.g., trading in the security is suspended or, in the case of



                               18





<PAGE>


unlisted securities, market makers do not exist or will not
entertain bids or offers), (b) options purchased by the Fund
over-the-counter and the cover for options written by the Fund
over-the-counter, and (c) repurchase agreements not terminable
within seven days.  Securities that have legal or contractual
restrictions on resale but have a readily available market are
not deemed illiquid for purposes of this limitation.

      Illiquid securities generally include securities subject
to contractual or legal restrictions on resale because they have
not been registered under the Securities Act of 1933, as amended
(the "Securities Act"), securities which are otherwise not
readily marketable and repurchase agreements having a maturity of
longer than seven days.  Securities which have not been
registered under the Securities Act are referred to as private
placements or restricted securities and are purchased directly
from the issuer or in the secondary market.

      Rule 144A under the Securities Act permits a broader
institutional trading market for securities otherwise subject to
restriction on resale to the general public.  Rule 144A
establishes a "safe harbor" from the registration requirements of
the Securities Act for resales of certain securities to qualified
institutional buyers.  An insufficient number of qualified
institutional buyers interested in purchasing certain restricted
securities held by the Fund, however, could affect adversely the
marketability of such Fund securities.

         Alliance, acting under the supervision of the Board of
Directors, will monitor the liquidity of restricted securities in
the Fund that are eligible for resale pursuant to Rule 144A.  In
reaching liquidity decisions, Alliance will consider, among
others, the following factors: (1) the frequency of trades and
quotes for the security; (2) the number of dealers issuing
quotations to purchase or sell the security; (3) the number of
other potential purchasers of the security; (4) the number of
dealers undertaking to make a market in the security; (5) the
nature of the security (including its unregistered nature) and
the nature of the marketplace for the security (e.g., the time
needed to dispose of the security, the method of soliciting
offers and the mechanics of the transfer); and (6) any applicable
Commission interpretation or position with respect to such type
of securities.








                               19





<PAGE>


Portfolio Trading and Turnover Rate

         Portfolio trading may be undertaken to accomplish the
investment objective of the Fund in relation to actual and
anticipated movements in interest rates.  In addition, a security
may be sold and another of comparable quality purchased at
approximately the same time to take advantage of what Alliance
believes to be a temporary price disparity between the two
securities.  Temporary price disparities between two comparable
securities may result from supply and demand imbalances where,
for example, a temporary oversupply of certain bonds may cause a
temporarily low price for such bonds, as compared with other
bonds of like quality and characteristics.  The Fund may also
engage to a limited extent in short-term trading consistent with
its investment objective.  Securities may be sold in anticipation
of a market decline (a rise in interest rates) or purchased in
anticipation of a market rise (a decline in interest rates) and
later sold, or to recognize a gain.

      A change in the securities held by the Fund is known as
"portfolio turnover." Alliance manages the Fund without regard
generally to restrictions on portfolio turnover.  The use of
certain derivative instruments with relatively short maturities
may tend to exaggerate the portfolio turnover rate for the Fund.
Trading in fixed income securities does not generally involve the
payment of brokerage commissions, but does involve indirect
transaction costs.  The use of futures contracts may involve the
payment of commissions to futures commission merchants.  Higher
portfolio turnover involves correspondingly greater expenses to
the Fund, including brokerage commissions or dealer mark-ups and
other transaction costs on the sale of securities and
reinvestments in other securities. Transactions in the Fund's
portfolio securities may result in realization of taxable capital
gains (including short-term capital gains which are generally
taxed to shareholders at ordinary income tax rates).  The trading
costs and tax effects associated with portfolio turnover may
adversely affect the Fund's performance.

Other Investment Companies

      The Fund may invest in other investment companies either
during periods when it has large amounts of uninvested cash, such
as the period shortly after the Fund receives the proceeds of the
offering of its Common Shares or the Fund's preferred shares
("Preferred Shares"), during periods when there is a shortage of
attractive, high-yielding municipal bonds available in the
market, or when Alliance believes share prices of other
investment companies offer attractive values.  The Fund may



                               20





<PAGE>


invest in investment companies that are advised by Alliance or
its affiliates to the extent permitted by applicable law and/or
pursuant to exemptive relief from the SEC.  As a stockholder in
an investment company, the Fund will bear its ratable share of
that investment company's expenses and would remain subject to
payment of the Fund's management fees with respect to assets so
invested.  Holders of Common Shares ("Common Shareholders") would
therefore be subject to duplicative expenses to the extent the
Fund invests in other investment companies.  Alliance will take
expenses into account when evaluating the investment merits of an
investment in an investment company relative to available
municipal bond investments.  In addition, the securities of other
investment companies may also be leveraged and will therefore be
subject to the same leverage risks described herein.  As
described in the Fund's Prospectus in the section entitled
"Risks," the net asset value and market value of leveraged shares
will be more volatile and the yield to shareholders will tend to
fluctuate more than the yield generated by unleveraged
shares.

When-Issued, Delayed Delivery and Forward Commitment Transactions

         The Fund may purchase or sell municipal bonds on a
"forward commitment" basis.  When such transactions are
negotiated, the price, which is generally expressed in yield
terms, is fixed at the time the commitment is made, but delivery
and payment for the securities take place at a later date.
Normally, the settlement date occurs within two months after the
transaction, but delayed settlements beyond two months may be
negotiated.  During the period between a commitment by the Fund
and settlement, no payment is made for the securities purchased
by the purchaser, and, thus, no interest accrues to the purchaser
from the transaction.  The use of forward commitments enables the
Fund to hedge against anticipated changes in interest rates and
prices.  For instance, in periods of rising interest rates and
falling bond prices, the Fund might sell municipal bonds which it
owned on a forward commitment basis to limit its exposure to
falling bond prices.  In periods of falling interest rates and
rising bond prices, the Fund might sell a municipal security held
by the Fund and purchase the same or a similar security on a
when-issued or forward commitment basis, thereby obtaining the
benefit of currently higher cash yields.  However, if Alliance
were to forecast incorrectly the direction of interest rate
movements, the Fund might be required to complete such when-
issued or forward transactions at prices less favorable than the
current market value.





                               21





<PAGE>


      When-issued municipal securities and forward commitments
may be sold prior to the settlement date, but the Fund enters
into when-issued and forward commitment transactions only with
the intention of actually receiving or delivering the municipal
securities, as the case may be.  To facilitate such transactions,
the Fund's custodian bank will maintain, in a separate account of
the Fund, liquid assets having value equal to, or greater than,
any commitments to purchase municipal securities on a when-issued
or forward commitment basis and, with respect to forward
commitments to sell portfolio securities of the Fund, the
portfolio securities themselves.  If the Fund, however, chooses
to dispose of the right to acquire a when-issued security prior
to its acquisition or dispose of its right to deliver or receive
against a forward commitment, it can incur a gain or loss.  When-
issued municipal securities may include bonds purchased on a
"when, as and if issued" basis under which the issuance of the
securities depends upon the occurrence of a subsequent event,
such as approval of a proposed financing by appropriate municipal
authorities.  Any significant commitment of Fund assets to the
purchase of securities on a "when, as and if issued" basis may
increase the volatility of the Fund's net asset value.  At the
time the Fund makes the commitment to purchase or sell a
municipal security on a when-issued or forward commitment basis,
it records the transaction and reflects the value of the security
purchased or, if a sale, the proceeds to be received, in
determining its net asset value.  No forward commitments will be
made by the Fund if, as a result, more than 10% of the value of
such Fund's total assets would be committed to such
transactions.

Zero Coupon Bonds

      The Fund may invest in zero coupon bonds, which are debt
obligations that do not entitle the holder to any periodic
payments prior to maturity and are issued and traded at a
discount from their face amounts.  The discount varies depending
on the time remaining until maturity, prevailing interest rates,
liquidity of the security and perceived credit quality of the
issuer.  Even though the Fund does not receive any interest on
zero coupon bonds during their life, the Fund accrues income with
respect to such bonds and thus may have to dispose of portfolio
securities under disadvantageous circumstances in order to obtain
cash needed to pay dividends in amounts necessary to avoid
unfavorable tax consequences.  The market prices of zero coupon
bonds are generally more volatile than the market prices of
securities that pay interest periodically and are likely to
respond to changes in interest rates to a greater degree than do




                               22





<PAGE>


securities having similar maturities and credit quality that do
pay periodic interest.

General

         The successful use of the foregoing investment
practices, all of which are highly specialized investment
activities, draws upon the Adviser's special skill and experience
with respect to such instruments and usually depends on the
Adviser's ability to forecast interest rate movements correctly.
Should interest rates move in an unexpected manner, the Fund may
not achieve the anticipated benefits of futures contracts,
options, interest rate transactions or forward commitment
contracts, or may realize losses and thus be in a worse position
than if such strategies had not been used.  Unlike many exchange-
traded futures contracts and options on futures contracts, there
are no daily price fluctuation limits with respect to forward
contracts, and adverse market movements could therefore continue
to an unlimited extent over a period of time.  In addition, the
correlation between movements in the price of such instruments
and movements in the price of the securities hedged or used for
cover may not be perfect and could produce unanticipated
losses.

      The Fund's ability to dispose of its position in futures
contracts, options, interest rate transactions and forward
commitment contracts will depend on the availability of liquid
markets in such instruments.  Markets for all these vehicles with
respect to municipal securities are relatively new and still
developing.  It is impossible to predict the amount of trading
interest that may exist in various types of futures contracts and
options on futures contracts.  No assurance can be given that the
Fund will be able to utilize these instruments effectively for
the purposes set forth above.  Furthermore, the Fund's ability to
engage in options and futures transactions may be limited by tax
considerations.

                     INVESTMENT RESTRICTIONS

Fundamental Investment Restrictions

      Unless specified to the contrary, the Fund cannot change
its investment objective or fundamental policies without the
approval of the holders of a "majority of the outstanding" voting
shares of the Fund and of the holders of a "majority of the
outstanding" Preferred Shares, subsequent to their issuance,
voting as a separate class. A "majority of the outstanding"
shares (whether voting together as a single class or voting as a



                               23





<PAGE>


separate class) means (i) 67% or more of such shares present at a
meeting, if the holders of more than 50% of those shares are
present or represented by proxy, or (ii) more than 50% of such
shares, whichever is less.

The Fund may not:

         (1)  Concentrate its investments in a particular
industry, as that term is used in the 1940 Act and as
interpreted, modified, or otherwise permitted by regulatory
authority having jurisdiction, from time to time.

         (2)  Purchase or sell real estate, although it may
purchase securities(including municipal bonds) secured by real
estate or interests therein, or securities issued by companies
which invest in real estate, or interests therein.

      (3)  Make loans except through (i) the purchase of debt
obligations in accordance with its investment objectives and
policies; or (ii) the use of repurchase agreements.

      (4)  Purchase or sell commodities or commodities
contracts or oil, gas or mineral programs.  This restriction
shall not prohibit the Fund, subject to restrictions described in
the Prospectus and elsewhere in this SAI, from purchasing,
selling or entering into futures contracts, options on futures
contracts, forward contracts, or any interest rate, securities-
related or other hedging instruments, including swap agreements
and other derivative instruments, subject to compliance with any
applicable provisions of the federal securities or commodities
laws.

      (5)  Borrow money or issue any senior security, except
in accordance with provisions of the 1940 Act and specifically
the Fund may (a) borrow from a bank or other entity in a
privately arranged transaction and issue commercial paper, bonds,
debentures or notes, in series or otherwise, with such interest
rates, conversion rights and other terms and provisions as are
determined by the Fund's Board of Directors, if after such
borrowing or issuance there is asset coverage of at least 300% as
defined in the 1940 Act; and (b) issue Preferred Shares with such
preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications, and
terms and conditions of redemption as are determined by the
Fund's Board of Directors, if after such issuance there is asset
coverage of at least 200% as defined in the 1940 Act.





                               24





<PAGE>


      (6)  Pledge, hypothecate, mortgage or otherwise encumber
its assets, except (i) to secure permitted borrowings, (ii) in
connection with initial and variation margin deposits relating to
futures contracts and (iii) any segregated accounts established
in accordance with its investment objective and policies.

      (7)  Act as an underwriter of securities of other
issuers, except to the extent that in connection with the
disposition of portfolio securities, it maybe deemed to be an
underwriter under the federal securities laws.

         The Fund's industry concentration policy does not
preclude it from focusing investments in issuers in a group of
related industries (such as different types of utilities).

                     MANAGEMENT OF THE FUND

Directors and Officers

      The business and affairs of the Fund are managed under
the direction of the Board of Directors.  The Directors and
officers of the Fund, their ages and their principal occupations
during the past five years are set forth below.  Each such
Director and officer is also a trustee, director or officer of
other registered investment companies sponsored by the Adviser.
Unless otherwise specified, the address of each such person is
1345 Avenue of the Americas, New York, New York 10105.

Directors

         JOHN D. CARIFA1 , 56, Chairman of the Board, is the
President, Chief Operating Officer and a Director of Alliance
Capital Management Corporation ("ACMC"), with which he has been
associated since prior to 1996.

      RUTH BLOCK, 70, was formerly an Executive Vice President
and the Chief Insurance Officer of The Equitable Life Assurance
Society of the United States; Chairman and Chief Executive
Officer of Evlico; a Director of Avon, Tandem Financial Group and
Donaldson, Lufkin & Jenrette Securities Corporation.  She is
currently a Director of Ecolab Incorporated (specialty chemicals)
and BP Amoco Corporation (oil and gas).  Her address is P.O. Box
4623, Stamford, Connecticut 06903.


____________________

1.  An "interested person" of the Fund as defined in the 1940
    Act.


                               25





<PAGE>


      DAVID H. DIEVLER, 72, is an independent consultant.
Until December 1994 he was Senior Vice President of ACMC
responsible for mutual fund administration.  Prior to joining
ACMC in 1984 he was Chief Financial Officer of Eberstadt Asset
Management since 1968.  Prior to that he was a Senior Manager at
Price Waterhouse & Co., member of American Institute of Certified
Public Accountants since 1953.  His address is P.O. Box 167,
Spring Lake, New Jersey 07762.

      JOHN H. DOBKIN, 59, is a consultant.  Currently
President of the Board of Save Venice, Inc. (preservation
organization).  Formerly, he was a Senior Adviser (June 1999 -
June 2000) and President (December 1989 - May 1999) of Historic
Hudson Valley (historic preservation).   Previously, he was
Director of the National Academy of Design.  During 1988-92, he
was a Director and Chairman of the Audit Committee of ACMC.  His
address is P.O. Box 12, Annandale, New York 12504.

      WILLIAM H. FOULK, JR., 69, is an Investment Adviser and
an independent consultant.  He was formerly Senior Manager of
Barrett Associates, Inc., a registered investment adviser, with
which he had been associated since prior to 1996.  He was
formerly Deputy Comptroller of the State of New York and, prior
thereto, Chief Investment Officer of the New York Bank for
Savings.  His address is Room 100, 2 Greenwich Plaza, Greenwich,
Connecticut 06830.

      DR. JAMES HESTER, 77, has been President of the Harry
Frank Guggenheim Foundation, with which he has been associated
since prior to 1996.  He was formerly President of New York
University and the New York Botanical Garden, Rector of the
United Nations University and Vice Chairman of the Board of the
Federal Reserve Bank of New York.  His address is 25 Cleveland
Lane, Princeton, New Jersey 08540.

      CLIFFORD L. MICHEL, 62, is Senior Counsel of the law
firm of Cahill Gordon & Reindel with which he has been associated
since prior to 1996.  He is President and Chief Executive Officer
of Wenonah Development Company (investments) and a Director of
Placer Dome, Inc. (mining).  His address is St. Bernard's Road,
Gladstone, New Jersey 07934.

      DONALD J. ROBINSON, 67, is Senior Counsel of the law
firm of Orrick, Herrington & Sutcliffe LLP since prior to 1996.
He was formerly a senior partner and a member of the Executive
Committee of that firm.  He was also a member of the Municipal
Securities Rulemaking Board and Trustee of the Museum of the City




                               26





<PAGE>


of New York.  His address is 98 Hell's Peak Road, Weston, Vermont
05161.

Officers

      JOHN D. CARIFA, Director, Chairman and President (see
biographical information above).

      DAVID M. DOWDEN, 35, Vice President.  Vice President of
ACMC, with which he has been associated since prior to 1997.

      TERRANCE T. HULTS, 34, Vice President.  Vice President
of ACMC, with which he has been associated since prior to
1997.

      EDMUND P. BERGAN, JR., 51, Secretary.  Senior Vice
President and the General Counsel of Alliance Fund Distributors,
Inc. ("AFD") and Alliance Global Investor Services, Inc.
("AGIS"), with which he has been associated since prior to
1997.

      MARK D. GERSTEN, 51, Treasurer and Chief Financial
Officer.  Senior Vice President of AGIS, with which he has been
associated since prior to 1997.

      THOMAS R. MANLEY, 50, Controller.  Vice President of
ACMC, with which he has been associated since prior to 1997.

      ANDREW L. GANGOLF, 47, Assistant Secretary.  Senior Vice
President and Assistant General Counsel of AFD, with which he has
been associated since prior to 1997.

      DOMENICK PUGLIESE, 40, Assistant Secretary.  Senior Vice
President and Assistant General Counsel of AFD, with which he has
been associated since prior to 1997.

      The Fund does not pay any fees to, or reimburse expenses
of, its Directors who are considered "interested persons" of the
Fund.  The aggregate compensation to be paid by the Fund to each
of the Directors during its fiscal period ended [___], 2001
(estimating future payments based upon existing arrangements),
the aggregate compensation paid to each of the Directors during
calendar year 2000 by all of the registered investment companies
to which Alliance provides investment advisory services
(collectively, the "Alliance Fund Complex") and the total number
of registered investment companies (and separate investment
portfolios within those companies) in the Alliance Fund Complex
with respect to which each of the Directors serves as a director



                               27





<PAGE>


or trustee, are set forth below.  Neither the Fund nor any other
fund in the Alliance Fund Complex provides compensation in the
form of pension or retirement benefits to any of its directors or
trustees.

                                              Total Number
                                              of Funds       Total Number
                                              in the         of Investment
                                              Alliance       Funds Within
                               Total          Fund Complex,  the Funds,
                               Compensation   Including the  Including
                               From the       Fund, as to    the Fund,
                               Alliance Fund  which the      as to which
                 Aggregate     Complex,       Director is a  the Director
                 Compensation  Including the  Director or    is a Director
Name of Director From the Fund Fund           Trustee        or Trustee
________________ _____________ ______________ _____________  _______________

John D. Carifa        $ -0-    $ -0-          [___]          [___]
Ruth Block            $[__]    $[__]          [___]          [___]
David H. Dievler      $[__]    $[__]          [___]          [___]
John H. Dobkin        $[__]    $[__]          [___]          [___]
William H. Foulk, Jr. $[__]    $[__]          [___]          [___]
Dr. James Hester      $[__]    $[__]          [___]          [___]
Clifford L. Michel    $[__]    $[__]          [___]          [___]
Donald J. Robinson    $[__]    $[__]          [___]          [___]

         As of [______________], 2001, the Directors and officers
of the Fund as a group owned less than 1% of the shares of the
Fund.

The Adviser

         Alliance, 1345 Avenue of the Americas, New York, New
York 10105, is the Fund's investment adviser.  The Adviser is a
leading global investment management firm supervising client
accounts with assets as of November 30, 2001 totaling
approximately $458 billion.  The Adviser provides diversified
investment management and related services globally to a broad
range of clients including: institutional investors such as
corporate and public employee pension funds, endowment funds,
domestic and foreign institutions and governments and affiliates;
private clients, consisting of high net worth individuals, trusts
and estates, charitable foundations, partnerships, private and
family corporations and other entities; individual investors by
means of retail mutual funds sponsored by the Adviser; and
institutional investors by means of in-depth research, portfolio
strategy, trading and brokerage-related services.



                               28





<PAGE>



      Alliance Capital Management Corporation is the general
partner of the Adviser and an indirect wholly-owned subsidiary of
AXA Financial, Inc. ("AXA Financial").  As of September 30, 2001,
AXA, its wholly-owned subsidiaries, AXA Financial and The
Equitable Life Assurance Society of the United States
("Equitable") and some subsidiaries of Equitable (other than the
Adviser and its subsidiaries) were the beneficial owners of
approximately 51.7% of the issued and outstanding units of the
Adviser and approximately 2.1% of the issued and outstanding
units of Alliance Capital Management Holding L.P. ("Alliance
Holding").  Alliance Holding is an entity the business of which
consists of holding units of the Adviser and engaging in related
activities.  As of September 30, 2001, SCB Partners Inc., a
wholly-owned subsidiary of SCB Inc., was the owner of
approximately 16.4% of the issued and outstanding units of the
Adviser.  The business and assets of SCB Inc., formerly known as
Sanford C. Bernstein, Inc., were acquired by the Adviser on
October 2, 2000.

      As of September 30, 2001, AXA and its subsidiaries owned
all of the issued and outstanding shares of the common stock of
AXA Financial.  AXA Financial owns all of the issued and
outstanding shares of Equitable.  For insurance regulatory
purposes all shares of common stock of AXA Financial beneficially
owned by AXA and its affiliates have been deposited into a voting
trust.

      AXA, a French company, is the holding company for an
international group of insurance and related financial services
companies.  AXA's insurance operations include activities in life
insurance, property and casualty insurance and reinsurance.  The
insurance operations are diverse geographically with activities
principally in Western Europe, North America, the Asia/Pacific
area, and, to a lesser extent, in Africa and South America.  AXA
is also engaged in asset management, real estate and other
financial services activities principally in the United States,
as well as in Western Europe and the Asia/Pacific area.

      Under the Advisory Agreement, Alliance furnishes advice
and recommendations with respect to the Fund's portfolio of
securities, order placement facilities and investments and
provides persons satisfactory to the Board of Directors to act as
officers and employees of the Fund.  Such officers and employees,
as well as certain Directors of the Fund may be employees of
Alliance or its affiliates.





                               29





<PAGE>


      Alliance is, under the Advisory Agreement, responsible
for certain expenses incurred by the Fund, including, for
example, office space and certain other equipment, investment
advisory and administrative services, and any expenses incurred
in promoting the sale of Fund shares (other than the costs of
printing Fund prospectuses and other reports to shareholders and
fees related to registration with the SEC and with state
regulatory authorities).

      The Fund has, under the Advisory Agreement, assumed the
obligation for payment of all of its other expenses.  As to the
obtaining of services other than those specifically provided to
the Fund by Alliance, the Fund may utilize personnel employed by
Alliance or by other subsidiaries of Equitable.  The Fund may
employ its own personnel or contract for services to be performed
by third parties.  In such event, the services will be provided
to the Fund at cost and the payments specifically approved by the
Fund's Board of Directors.

      Under the terms of the Advisory Agreement, the Fund pays
the Adviser a monthly advisory fee at an annual rate of .65% of
the Fund's average daily net assets.  Alliance has voluntarily
agreed to reimburse the Fund for fees and expenses in the amount
of .25% of average daily net assets for the first 5 full years of
the Fund's operations, .20% of average daily net assets in year
6, .15% in year 7, .10% in year 8 and .05% in year 9.

      The Adviser also provides administrative services to the
Fund.  These services include, among others, preparation and
dissemination of shareholder reports and proxy materials,
accounting and bookkeeping, calculation of net asset value,
monitoring compliance, and negotiating certain terms and
conditions of custodian and dividend disbursing services.

      The Advisory Agreement has been approved by the Fund's
Board of Directors and its initial shareholder.  The Advisory
Agreement by its terms continues in effect from year to year
after [______] if such continuance is specifically approved, at
least annually, by a majority vote of the Directors who neither
are interested persons of the Fund nor have any direct or
indirect financial interest in the Advisory Agreement, cast in
person at a meeting called for the purpose of voting on such
approval.

      The Advisory Agreement may be terminated without penalty
on 60 days' written notice by a vote of a majority of the
outstanding voting securities, by a vote of the majority of the
Directors or by Alliance on 60 days' written notice, and will



                               30





<PAGE>


automatically terminate in the event of assignment.  The Advisory
Agreement provides that Alliance shall not be liable under the
Advisory Agreement for any mistake of judgment, or in any event
whatsoever, except for lack of good faith, provided that Alliance
shall be liable to the Fund and security holders by reason of
willful misfeasance, bad faith or gross negligence or of reckless
disregard of its obligations and duties under the Advisory
Agreement.

      Certain other clients of Alliance may have investment
objectives and policies similar to those of the Fund.  Alliance
and any of its affiliates may, from time to time, make
recommendations which result in the purchase or sale of a
particular security by their other clients simultaneously with
the Fund.  If transactions on behalf of more than one client
during the same period increase the demand for securities being
purchased or the supply of securities being sold, there may be an
adverse effect on price or quantity. It is the policy of Alliance
and any of its affiliates to allocate advisory recommendations
and the placing of orders in a manner which is deemed equitable
by Alliance and any of its affiliates to the accounts involved,
including the Fund.  When two or more of the clients of Alliance
and any of its affiliates (including the Fund) are purchasing or
selling the same security on a given day from the same broker-
dealer, such transactions may be averaged as to price.

      The Adviser may act as an investment adviser to other
persons, firms or corporations, including investment companies,
and is the investment adviser to the following registered
investment companies:  AFD Exchange Reserves, Alliance All-Asia
Investment Fund, Inc., Alliance Balanced Shares, Inc., Alliance
Bond Fund, Inc., Alliance Capital Reserves,  Alliance Global
Dollar Government Fund, Inc., Alliance Global Small Cap Fund,
Inc., Alliance Global Strategic Income Trust, Inc., Alliance
Government Reserves, Alliance Greater China '97 Fund, Inc.,
Alliance Growth and Income Fund, Inc., Alliance Health Care Fund,
Inc., Alliance High Yield Fund, Inc., Alliance Institutional
Funds, Inc., Alliance Institutional Reserves, Inc., Alliance
International Fund, Alliance International Premier Growth Fund,
Inc., Alliance Money Market Fund, Alliance Multi-Market Strategy
Trust, Inc., Alliance Municipal Income Fund, Inc., Alliance
Municipal Income Fund II, Alliance Municipal Trust, Alliance New
Europe Fund, Inc., Alliance North American Government Income
Trust, Inc., Alliance Premier Growth Fund, Inc., Alliance Quasar
Fund, Inc., Alliance Select Investor Series, Inc., Alliance
Technology Fund, Inc., Alliance Variable Products Series Fund,
Inc., Alliance Worldwide Privatization Fund, Inc.,
AllianceBernstein Disciplined Value Fund, Inc., AllianceBernstein



                               31





<PAGE>


Real Estate Investment Fund, Inc., AllianceBernstein Utility
Income Fund, Inc., The Alliance Fund, Inc., The Alliance Funds,
The AllianceBernstein Trust, The Korean Investment Fund, Inc.,
Sanford C. Bernstein Fund, Inc. and EQ Advisors Trust, all
registered open-end investment companies; and to ACM Government
Opportunity Fund, Inc., ACM Income Fund, Inc., ACM Managed Dollar
Income Fund, Inc., ACM Managed Income Fund, Inc., ACM Municipal
Securities Income Fund, Inc., Alliance All-Market Advantage Fund,
Inc., Alliance World Dollar Government Fund, Inc., Alliance World
Dollar Government Fund II, Inc., The Austria Fund, Inc., The
Southern Africa Fund, Inc. and The Spain Fund, Inc., all
registered closed-end investment companies.

Codes of Ethics

         The Fund and Alliance have each adopted codes of ethics
pursuant to Rule 17j-1 of the 1940 Act.  These codes of ethics
permit personnel subject to the codes to invest in securities,
including securities that may be purchased or held by the Fund.
Text-only versions of the codes of ethics can be viewed on line
or downloaded from the EDGAR Database on the SEC's web site at
http://www.sec.gov.  You may also review and copy those documents
by visiting the SEC's Public Reference Room in Washington, D.C.
Information on the operation of the Public Reference Room may be
obtained by calling the SEC at 202-942-8090.  In addition, copies
of the codes of ethics may be obtained, after mailing the
appropriate duplicating fee, by writing to the SEC's Public
Reference Section, 450 5th Street, N.W., Washington, D.C. 20549-
0102 or by e-mail request at publicinfo@sec.gov.

                     VALUATION OF SECURITIES

      The Fund intends to calculate and make available daily
the net asset value of its Common Shares.  The net asset value
per Common Share will be determined as of the close of trading on
the New York Stock Exchange (the "Exchange") each day the
Exchange is open.  To calculate net asset value, the Fund's
assets are valued and totaled, liabilities and the aggregate
liquidation value of the outstanding Preferred Shares, if any,
are subtracted, and the balance, called net assets attributable
to Common Shares, is divided by the total number of the Fund's
Common Shares then outstanding.

      In accordance with applicable rules under the 1940 Act,
portfolio securities are valued at current market value or at
fair value as determined in good faith by the Board of Directors.
The Board of Directors has delegated to the Adviser certain of
the Board's duties with respect to the following procedures.



                               32





<PAGE>


Readily marketable securities listed on the Exchange are valued,
except as indicated below, at the last sale price reflected on
the consolidated tape at the close of the Exchange on the
business day as of which such value is being determined.  If
there has been no sale on such day, the securities are valued at
the quoted bid prices on such day.  If no bid prices are quoted
on such day, then the security is valued at the mean of the bid
and asked prices at the close of the Exchange on such day as
obtained from one or more dealers regularly making a market in
such security.  Where a bid and asked price can be obtained from
only one such dealer, such security is valued at the mean of the
bid and asked price obtained from such dealer unless it is
determined that such price does not represent current market
value, in which case the security shall be valued in good faith
at fair value by, or in accordance with procedures established
by, the Board of Directors.  Securities for which no bid and
asked price quotations are readily available are valued in good
faith at fair value by, or in accordance with procedures
established by, the Board of Directors.  Readily marketable
securities not listed on the Exchange but listed on other
national securities exchanges, and portfolio securities not
traded on the Exchange but traded on one or more other national
securities exchanges are valued in accordance with these
procedures by reference to the principal exchange on which the
securities are traded.

      Readily marketable securities traded only in the over-
the-counter market, and debt securities listed on a U.S. national
securities exchange whose primary market is believed to be over-
the-counter, are valued at the mean of the bid and asked prices
at the close of the Exchange on such day as obtained from two or
more dealers regularly making a market in such security.  Where a
bid and asked price can be obtained from only one such dealer,
such security is valued at the mean of the bid and asked price
obtained from such dealer unless it is determined that such price
does not represent current market value, in which case the
security shall be valued in good faith at fair value by, or in
accordance with procedures established by, the Board of
Directors.

      Listed put and call options purchased by the Fund are
valued at the last sale price.  If there has been no sale on that
day, such securities will be valued at the closing bid prices on
that day.

      Open futures contracts and options thereon will be
valued using the closing settlement price or, in the absence of
such a price, the most recent quoted bid price.  If there are no



                               33





<PAGE>


quotations available for the day of valuations, the last
available closing settlement price will be used.

      U.S. Government securities and other debt instruments
having 60 days or less remaining until maturity are valued at
amortized cost if their original maturity was 60 days or less, or
by amortizing their fair value as of the 61st day prior to
maturity if their original term to maturity exceeded 60 days
(unless in either case the Board of Directors determines that
this method does not represent fair value).

      Fixed-income securities may be valued on the basis of
prices provided by a pricing service when such prices are
believed to reflect the fair market value of such securities.
The prices provided by a pricing service take into account many
factors, including institutional size trading in similar groups-
of securities and any developments related to specific
securities.

      All other assets of the Fund are valued in good faith at
fair value by, or in accordance with procedures established by,
the Board of Directors.

                     PORTFOLIO TRANSACTIONS

      Subject to the general supervision of the Board of
Directors of the Fund, the Adviser is responsible for the
investment decisions and the placing of the orders for portfolio
transactions for the Fund.  The Fund's portfolio transactions
occur primarily with issuers, underwriters or major dealers
acting as principals.  Such transactions are normally on a net
basis which do not involve payment of brokerage commissions.  The
cost of securities purchased from an underwriter usually includes
a commission paid by the issuer to the underwriters; transactions
with dealers normally reflect the spread between bid and asked
prices.  Premiums are paid with respect to options purchased by
the Fund and brokerage commissions are payable with respect to
transactions in exchange-traded futures contracts.

      The Fund has no obligation to enter into transactions in
portfolio securities with any dealer, issuer, underwriter or
other entity.  In placing orders, it is the policy of the Fund to
obtain the best price and execution for its transactions.  Where
best price and execution may be obtained from more than one
dealer, the Adviser may, in its discretion, purchase and sell
securities through dealers who provide research, statistical and
other information to the Adviser.  Such services may be used by
the Adviser for all of its investment advisory accounts and,



                               34





<PAGE>


accordingly, not all such services may be used by the Adviser in
connection with the Fund.  The supplemental information received
from a dealer is in addition to the services required to be
performed by the Adviser under the Advisory Agreement, and the
expenses of the Adviser will not necessarily be reduced as a
result of the receipt of such information.  Consistent with the
Conduct Rules of the National Association of Securities Dealers,
Inc., and subject to seeking best price and execution, the Fund
may consider sales of its shares as a factor in the selection of
dealers to enter into portfolio transactions with the Fund.

         The Fund may deal in some instances in securities which
are not listed on a national stock exchange but are traded in the
over-the-counter market.  The Fund may also purchase listed
securities through the third market, i.e., from a dealer which is
not a member of the exchange on which a security is listed. Where
transactions are executed in the over-the-counter market or third
market, the Fund will seek to deal with the primary market
makers; but when necessary in order to obtain the best price and
execution, it will utilize the services of others.  In all cases,
the Fund will attempt to negotiate best execution.

      The Fund may from time to time place orders for the
purchase or sale of securities with Sanford C. Bernstein & Co.,
LLC ("SCB & Co."), an affiliate of Alliance.  In such instances,
the placement of orders  would be consistent with the Fund's
objective of obtaining best execution and would not be dependent
upon the fact that SCB & Co. is an affiliate of Alliance.  With
respect to orders placed by SCB & Co. for execution on a national
securities exchange, commissions received must conform to Section
17(e)(2)(A) of the 1940 Act and Rule 17e-1 thereunder, which
permit an affiliated person of a registered investment company
(such as the Fund), or any affiliated person of such person, to
receive a brokerage commission from such registered investment
company provided that such commission is reasonable and fair
compared to the commissions received by other brokers in
connection with comparable transactions involving similar
securities during a comparable period of time.

                          DISTRIBUTIONS

      The Fund intends to distribute all of its net investment
income, subject to the solvency requirements of Maryland law.  As
described in the Fund's Prospectus, initial distributions to
Common Shareholders are expected to be declared approximately 45
days, and paid approximately 60 to 90 days, from the completion
of the offering of the Common Shares, depending on market
conditions.  From and after issuance of the Preferred Shares,



                               35





<PAGE>


monthly distributions to Common Shareholders will consist of net
investment income remaining after the payment of dividends on
Preferred Shares.  Net capital gains, if any, will be distributed
at least annually to Common Shareholders to the extent such net
capital gains are not necessary to satisfy the dividend,
redemption or liquidation preferences of Preferred Shares.

      For tax purposes, the Fund is currently required to
allocate net capital gain and other taxable income, if any,
between Common Shares and any Preferred Shares in proportion to
total dividends paid to each class for the year in which such net
capital gain or other taxable income is realized.  For
information relating to the impact of the issuance of Preferred
Shares on the distributions made by the Fund to Common
Shareholders, see the Fund's Prospectus under "Preferred Shares
and Related Leverage."

         While any Preferred Shares are outstanding, the Fund may
not declare any cash dividend or other distribution on its Common
Shares unless at the time of such declaration (1) all accumulated
dividends on the Preferred Shares have been paid and (2) the net
asset value of the Fund's portfolio (determined after deducting
the amount of such dividend or other distribution) is at least
200% of the liquidation value of any outstanding Preferred
Shares.  This latter limitation on the Fund's ability to make
distributions on its Common Shares could cause the Fund to incur
income and excise tax and, under certain circumstances, impair
the ability of the Fund to maintain its qualification for
taxation as a regulated investment company.  See "Tax Matters."

                      DESCRIPTION OF SHARES

Common Shares

      The Fund's charter (the "Charter") authorizes the
issuance of up to 2,000,000,000 Common Shares, $.001 par value
per share.  Upon completion of this offering, [_______] Common
Shares, and no Preferred Shares, will be issued and outstanding.
However, it is the intention of the Board of Directors, under a
power contained in the Charter, to classify and issue Preferred
Shares with the voting powers, restrictions, limitations as to
dividends, qualifications and terms and conditions of redemption
as described in "-- Preferred Shares" below.  The Board of
Directors, without any action by the shareholders of the Fund,
may amend the Charter from time to time to increase or decrease
the aggregate number of shares of stock or the number of shares
of stock of any class or series that the Fund has the authority




                               36





<PAGE>


to issue.  Under Maryland law, the Fund's shareholders generally
are not liable for the Fund's debts or obligations.

      All Common Shares offered by the Prospectus will be duly
authorized, fully paid and nonassessable.  Common Shareholders
are entitled to receive dividends when authorized by the Board of
Directors out of assets legally available for the payment of
dividends.  They are also entitled to share ratably in the Fund's
assets legally available for distribution to the Fund's
shareholders in the event of the Fund's liquidation, dissolution
or winding up, after payment of or adequate provision for all of
the Fund's known debts and liabilities.  These rights are subject
to the preferential rights of any other class or series of the
Fund's stock.  At any time when the Fund's Preferred Shares are
outstanding, Common Shareholders will not be entitled to receive
any distributions from the Fund unless all accrued dividends on
Preferred Shares have been paid, and unless asset coverage (as
defined in the 1940 Act) with respect to Preferred Shares would
be at least 200% after giving effect to such distributions.  See
"-- Preferred Shares" below.

      Each outstanding Common Share entitles the holder to one
vote on all matters submitted to a vote of shareholders,
including the election of directors.  Except as provided with
respect to the Preferred Shares, the Common Shareholders will
possess the exclusive voting power.  See "-- Preferred Shares"
below.  There is no cumulative voting in the election of
directors, which means that, subject to the rights of holders of
Preferred Shares ("Preferred Shareholders") to separately elect
directors, the holders of a majority of the outstanding shares
entitled to vote in the election of directors can elect all of
the directors then standing for election, and the holders of the
remaining shares will not be able to elect any directors.

      Common Shareholders have no preference, conversion,
exchange, sinking fund, redemption or appraisal rights and have
no preemptive rights to subscribe for any of the Fund's
securities.  All Common Shares will have equal dividend,
liquidation and other rights.

      Under Maryland law, a Maryland corporation generally
cannot dissolve, amend its charter, merge, sell all or
substantially all of its assets, engage in a share exchange or
engage in similar transactions outside the ordinary course of
business, unless approved by the affirmative vote of shareholders
holding at least two-thirds of the shares entitled to vote on the
matter.  However, a Maryland corporation may provide in its
charter for approval of these matters by a lesser percentage, but



                               37





<PAGE>


not less than a majority of all of the votes entitled to be cast
on the matter.  The Fund's Charter provides for the approval of
such actions by the concurrence of a majority of the aggregate
number of votes entitled to be cast on the matter, subject to the
applicable requirements of the 1940 Act, or rules, regulations or
orders issued by the SEC under the 1940 Act, and pursuant to
certain exceptions in the Charter.

Power to Reclassify Shares of Stock

         The Charter authorizes the Board of Directors to
classify and reclassify any unissued shares into other classes or
series of stock.  Prior to issuance of shares of each class or
series, the Board is required by Maryland law and by the Charter
to set the terms, preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends or other
distributions, qualifications and terms or conditions of
redemption for each class or series.

Power to Issue Additional Shares of Stock

         The Fund believes that the power to increase the
authorized shares of stock, to issue additional shares of stock
and to classify or reclassify unissued shares of stock and
thereafter to issue the classified or reclassified shares
provides it with increased flexibility in structuring possible
future financings and acquisitions and in meeting other needs
that might arise.  These actions can be taken without shareholder
approval, unless shareholder approval is required by applicable
law or the rules of any stock exchange or automated quotation
system on which the Fund's securities may be listed or traded.


      The Fund has applied for approval for listing of its
Common Shares on the Exchange.  The Fund will hold annual
meetings of shareholders.

      Shares of closed-end investment companies may frequently
trade at prices lower than net asset value.  Shares of closed-end
investment companies like the Fund that invest predominantly in
investment grade municipal bonds have during some periods traded
at prices higher than net asset value and during other periods
traded at prices lower than net asset value.  There can be no
assurance that Common Shares or shares of other municipal funds
will trade at a price higher than net asset value in the future.
Net asset value will be reduced immediately following the
offering of Common Shares after payment of the sales load and
organization and offering expenses.  Net asset value generally



                               38





<PAGE>


increases when interest rates decline, and decreases when
interest rates rise, and these changes are likely to be greater
in the case of a fund having a leveraged capital structure.
Whether investors will realize gains or losses upon the sale of
Common Shares will not depend upon the Fund's net asset value but
will depend entirely upon whether the market price of the Common
Shares at the time of sale is above or below the original
purchase price for the shares.  Since the market price of the
Fund's Common Shares will be determined by factors beyond the
control of the Fund, the Fund cannot predict whether the Common
Shares will trade at, below, or above net asset value or at,
below or above the initial public offering price.  Accordingly,
the Common Shares are designed primarily for long-term investors,
and investors in the Common Shares should not view the Fund as a
vehicle for trading purposes.  See "Repurchase of Fund Shares;
Conversion to Open-End Fund" and the Fund's Prospectus under
"Preferred Shares and Related Leverage" and "The Fund's
Investments--Municipal Bonds."

Preferred Shares

      The Charter authorizes the Board of Directors to
classify any unissued shares of stock in one or more classes or
series, including Preferred Shares, and to reclassify any
previously classified but unissued shares of any series, as
authorized by the Board of Directors.  Preferred Shares may be
issued, in one or more classes or series with such par value and
preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications or
terms and conditions of redemption as determined by the Board of
Directors of the Fund, by action of the Board of Directors
without the approval of the Common Shareholders.

      The Fund expects to make an offering of Preferred Shares
(representing approximately 40% of the Fund's capital immediately
after the time the Preferred Shares are issued) within
approximately one to three months after completion of the
offering of Common Shares, subject to market conditions and to
the Board of Directors' continuing belief that leveraging the
Fund's capital structure through the issuance of Preferred Shares
is likely to achieve the benefits to the Common Shareholders
described in the Prospectus and this SAI.  Although the terms of
the Preferred Shares, including their dividend rate, voting
rights, liquidation preference and redemption provisions, will be
determined by the Board of Directors (subject to applicable law
and the Charter) if and when it authorizes a Preferred Shares
offering, the Fund expects that the initial series of Preferred
Shares would likely pay cumulative dividends at relatively



                               39





<PAGE>


shorter-term periods (such as 7 days) by providing for the
periodic adjustment of the dividend rate through an auction,
remarketing or other procedure.  The liquidation preference,
preference on distribution, voting rights and redemption
provisions of the Preferred Shares are expected to be as stated
below.

      Limited Issuance of Preferred Shares.  Under the 1940
Act, the Fund could issue Preferred Shares with an aggregate
liquidation value of up to one-half of the value of the Fund's
total net assets, measured immediately after issuance of the
Preferred Shares.  "Liquidation value" means the original
purchase price of the shares being liquidated plus any accrued
and unpaid dividends.  In addition, the Fund is not permitted to
declare any cash dividend or other distribution on its Common
Shares unless the liquidation value of the Preferred Shares is
less than one-half of the value of the Fund's total net assets
(determined after deducting the amount of such dividend or
distribution) immediately after the distribution.  If the Fund
sells all the Common Shares and Preferred Shares discussed in the
Prospectus, the liquidation value of the Preferred Shares is
expected to be approximately 40% of the value of the Fund's total
net assets.  The Fund intends to purchase or redeem Preferred
Shares, if necessary, to keep that fraction below one-half.

      Distribution Preference.  The Preferred Shares would
have complete priority over the Common Shares as to distribution
of assets.

      Liquidation Preference.  In the event of any voluntary
or involuntary liquidation, dissolution or winding up of the
affairs of the Fund, Preferred Shareholders will be entitled to
receive a preferential liquidating distribution (expected to
equal the original purchase price per share plus accumulated and
unpaid dividends thereon, whether or not earned or declared)
before any distribution of assets is made to Common Shareholders.
After payment of the full amount of the liquidating distribution
to which they are entitled, Preferred Shareholders will not be
entitled to any further participation in any distribution of
assets by the Fund.  A consolidation or merger of the Fund with
or into any trust or corporation or a sale of all or
substantially all of the assets of the Fund shall not be deemed
to be a liquidation, dissolution or winding up of the Fund.

      Voting Rights.  In connection with any issuance of
Preferred Shares, the Fund must comply with Section 18(i) of the
1940 Act which requires, among other things, that Preferred
Shares be voting shares.  Except as otherwise provided in the



                               40





<PAGE>


Charter or the Fund's By-Laws (together, the "Charter Documents")
or otherwise required by applicable law, Preferred Shareholders
will vote together with Common Shareholders as a single class.


      In connection with the election of the Fund's Directors,
Preferred Shareholders, voting as a separate class, will also be
entitled to elect two of the Fund's Directors.  The remaining
Directors would be elected by Common and Preferred Shareholders,
voting together as a single class.  In the unlikely event that
two full years of dividends are not paid on the Preferred Shares,
the holders of the outstanding Preferred Shares, voting as a
separate class, will be entitled to elect a majority of the
Fund's Directors until all dividends in default have been paid or
declared and set apart for payment.

      Unless a higher percentage is provided for under the
Charter Documents, the affirmative vote of the holders of a
majority of the outstanding Preferred Shares, voting as a
separate class, shall be required to approve any action requiring
a vote of security holders under Section 13(a) of the 1940 Act
including, among other things, changes in the Fund's investment
objective or fundamental policies.  The affirmative vote of 75%
(which is higher than that required under Maryland law or the
1940 Act) of the outstanding Common Shares and Preferred Shares
voting separately by class, is required to convert the Fund from
a closed-end to an open-end fund.  The class or series vote of
Preferred Shareholders described above shall in each case be in
addition to any separate vote of the requisite percentage of
Common Shares and Preferred Shares necessary to authorize the
action in question.

         The foregoing voting provisions will not apply with
respect to the Fund's Preferred Shares if, at or prior to the
time when a vote is required, such shares shall have been (1)
redeemed or (2) called for redemption and sufficient funds shall
have been deposited in trust to effect such redemption.

         Redemption, Purchase and Sale of Preferred Shares by the
Fund.  The terms of the Preferred Shares may provide that they
are redeemable at certain times, in whole or in part, at the
original purchase price per share plus accumulated dividends,
that the Fund may tender for or purchase Preferred Shares and
that the Fund may subsequently resell any shares so tendered for
or purchased.  Any redemption or purchase of Preferred Shares by
the Fund will reduce the leverage applicable to Common Shares,
while any resale of shares by the Fund will increase such
leverage.



                               41





<PAGE>



         The discussion above describes the Fund's Board of
Directors' present intention with respect to a possible offering
of Preferred Shares.  If the Board of Directors determines to
authorize such an offering, the terms of the Preferred Shares may
be the same as, or different from, the terms described above,
subject to applicable law and the Charter.

                CERTAIN PROVISIONS IN THE CHARTER

      Pursuant to the Charter, at the first annual meeting of
shareholders after this public offering, the Board of Directors
will be divided into three classes of Directors.  The initial
terms of the first, second and third classes will expire in 2003,
2004 and 2005, respectively.  Beginning in 2003, Directors of
each class will be chosen for three-year terms upon the
expiration of their current terms and each year one class of
Directors will be elected by the shareholders.  The Fund believes
that classification of the Board of Directors will help to assure
the continuity and stability of our business strategies and
policies as determined by the Board of Directors.

      The classified board provision could have the effect of
making the replacement of incumbent Directors more time-consuming
and difficult.  At least two annual meetings of shareholders,
instead of one, will generally be required to effect a change in
a majority of the Board of Directors.  Thus, the classified board
provision could increase the likelihood that incumbent Directors
will retain their positions.  The staggered terms of Directors
may delay, defer or prevent a tender offer or an attempt to
change control of the Fund, even though the tender offer or
change in control might be in the best interest of the
shareholders.

Removal of Directors

         A Director may be removed only for cause and only by the
affirmative vote of at least 75% of the votes entitled to be cast
in the election of such Director.  This provision, when coupled
with the provision in the Charter authorizing the Board of
Directors to fill vacant directorships, precludes shareholders
from removing incumbent Directors except for cause and by a
substantial affirmative vote.








                               42





<PAGE>


Amendment to the Charter

         Certain provisions of the Charter, including its
provisions on classification of the Board of Directors and
removal of Directors, may be amended only by the affirmative vote
of the holders of not less than 75% of all of the votes entitled
to be cast on the matter.  Other provisions of the Charter may be
amended by a majority of the aggregate number of votes entitled
to be cast on the amendment.  The required vote shall be in
addition to the vote of the holders of shares of the Fund
otherwise required by law or any agreement between the Fund and
any national securities exchange.

Dissolution of the Company

         Subject to Board approval, the liquidation or
dissolution of the Fund or an amendment to the Charter to
terminate the Fund must be approved by the affirmative vote of
the holders of not less than 75% of all of the votes entitled to
be cast on the matter.  However, if a majority of the Continuing
Directors (as such term is defined in the Charter) approves the
liquidation or dissolution of the Fund, such action requires the
affirmative vote of a majority of the votes entitled to be
cast.

Other Charter Provisions

         The affirmative vote of 75% (which is higher than that
required under Maryland law or the 1940 Act) of the Fund's
outstanding Common Shares and Preferred Shares, voting separately
by class, is required generally to authorize any of the following
involving a corporation, person or entity that is directly, or
indirectly through affiliates, the beneficial owner of more than
5% of the outstanding shares of the Fund (a "Principal
Shareholder"), or to amend the provisions of the Charter relating
to such transactions:

      (i)  merger, consolidation or statutory share exchange
of the Fund with or into any Principal Shareholder;

      (ii)  the issuance of any securities of the Fund to any
Principal Shareholder for cash except upon (1) reinvestment of
dividends pursuant to a dividend reinvestment plan of the Fund or
(2) issuance of any securities of the Fund upon the exercise of
any stock subscription rights distributed by the Fund or (3) a
public offering by the Fund registered under the Securities
Act;




                               43





<PAGE>


      (iii)  the sale, lease or exchange of all or any
substantial part of the assets of the Fund to any Principal
Shareholder (except assets having an aggregate fair market value
of less than $1,000,000, aggregating for the purpose of such
computation all assets sold, leased or exchanged in any series of
similar transactions within a twelve-month period); or

         (iv)  the sale, lease or exchange to the Fund or any
subsidiary thereof, in exchange for securities of the Fund, of
any assets of any Principal Shareholder (except assets having an
aggregate fair market value of less than $1,000,000, aggregating
for the purposes of such computation all assets sold, leased or
exchanged in any series of similar transactions within a twelve-
month period).

         As noted, the voting provisions described above could
have the effect of depriving Common Shareholders of an
opportunity to sell their Common Shares at a premium over
prevailing market prices by discouraging a third party from
seeking to obtain control of the Fund in a tender offer or
similar transaction.  In the view of the Fund's Board of
Directors, however, these provisions offer several possible
advantages, including: (1) requiring persons seeking control of
the Fund to negotiate with its management regarding the price to
be paid for the amount of Common Shares required to obtain
control; (2) promoting continuity and stability; and (3)
enhancing the Fund's ability to pursue long-term strategies that
are consistent with its investment objective and management
policies.  The Board of Directors has determined that the voting
requirements described above, which are generally greater than
the minimum requirements under the 1940 Act, are in the best
interests of the Fund's Common Shareholders generally.

         The foregoing is intended only as a summary and is
qualified in its entirety by reference to the full text of the
Charter Documents, which have been filed as exhibits to the
Fund's registration statement on file with the SEC.

Liability of Directors

      Maryland law permits a Maryland corporation to include
in its charter a provision limiting the liability of its
directors and officers to the corporation and its shareholders
for money damages except for liability resulting from (a) actual
receipt of an improper benefit or profit in money, property or
services or (b) active and deliberate dishonesty established by a
final judgment and which is material to the cause of action.  The
Charter contains such a provision which eliminates directors' and



                               44





<PAGE>


officers' liability to the maximum extent permitted by Maryland
law.  Nothing in the Charter, however, protects a Director
against any liability to which he would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his
office.

REPURCHASE OF FUND SHARES; CONVERSION TO OPEN-END FUND

      The Fund is a closed-end investment company and as such
its shareholders will not have the right to cause the Fund to
redeem their shares.  Instead, the Fund's Common Shares will
trade in the open market at a price that will be a function of
several factors, including dividend levels (which are in turn
affected by expenses), net asset value, call protection, price,
dividend stability, relative demand for and supply of such shares
in the market, general market and economic conditions and other
factors.  Shares of a closed-end investment company may
frequently trade at prices lower than net asset value.  The
Fund's Board of Directors regularly monitors the relationship
between the market price and net asset value of the Common
Shares.  If the Common Shares were to trade at a substantial
discount to net asset value for an extended period of time, the
Board of Directors may consider the repurchase of its Common
Shares or the making of a tender offer for such shares.  There
can be no assurance, however, that the Board of Directors will
decide to take or propose any of these actions, or that share
repurchases or tender offers, if undertaken, will reduce market
discount.  The Fund has no present intention to repurchase its
Common Shares and would do so only in the circumstances described
in this section.

      Notwithstanding the foregoing, at any time when
Preferred Shares are outstanding, the Fund may not purchase,
redeem or otherwise acquire any of its Common Shares unless (1)
all accrued Preferred Shares dividends have been paid and (2) at
the time of such purchase, redemption or acquisition, the net
asset value of the Fund's portfolio (determined after deducting
the acquisition price of the Common Shares) is at least 200% of
the liquidation value of the outstanding Preferred Shares
(expected to equal the original purchase price per share plus any
accrued and unpaid dividends thereon).

         Subject to its investment limitations, the Fund may
borrow to finance the repurchase of shares or to make a tender
offer.  Interest on any borrowings to finance share repurchase
transactions or the accumulation of cash by the Fund in
anticipation of share repurchases or tenders will reduce the



                               45





<PAGE>


Fund's net income.  Any share repurchase, tender offer or
borrowing that might be approved by the Board of Directors would
have to comply with the Securities Exchange Act of 1934, as
amended, and the 1940 Act and the rules and regulations
thereunder.

      The Fund's Board of Directors may also from time to time
consider submitting for a shareholder vote  a proposal to convert
the Fund to an open-end investment company.  In determining
whether to exercise its  discretion consistent with the 1940 Act
and Maryland law to submit this issue to Common Shareholders, the
Board of Directors would consider all factors then relevant,
including the relationship of the market price of the Common
Shares to net asset value, the extent to which the Fund's capital
structure is leveraged and the possibility of re-leveraging, the
spread, if any, between the yields on securities in the Fund's
portfolio and interest and dividend charges on Preferred Shares
issued by the Fund and general market and economic
conditions.

      The Charter requires the affirmative vote or consent of
holders of at least seventy-five percent (75%) of each class of
the Fund's shares entitled to vote on the matter to authorize a
conversion of the Fund from a closed-end to an open-end
investment company.  This seventy-five percent (75%) shareholder
approval requirement is higher than is required under the 1940
Act.

      If the Fund converted to an open-end company, it would
be required to redeem all Preferred Shares then outstanding
(requiring in turn that it liquidate a portion of its investment
portfolio), and the Fund's Common Shares likely would no longer
be listed on the  Exchange.  Shareholders of an open-end
investment company may require the company to redeem their shares
on any business day (except in certain circumstances as
authorized by or under the 1940 Act) at their net asset value,
less such redemption charge, if any, as might be in effect at the
time of redemption.  In order to avoid maintaining large cash
positions or liquidating favorable investments to meet
redemptions, open-end companies typically engage in a continuous
offering of their shares.  Open-end companies are thus subject to
periodic asset in-flows and out-flows that can complicate
portfolio management.

      The repurchase by the Fund of its shares at prices below
net asset value will result in an increase in the net asset value
of those shares that remain outstanding.  However, there can be
no assurance that share repurchases or tender offers at or below



                               46





<PAGE>


net asset value will result in the Fund's shares trading at a
price equal to their net asset value.  Nevertheless, the fact
that the Fund's shares may be the subject of repurchase or tender
offers at net asset value from time to time, or that the Fund may
be converted to an open-end company, may reduce any spread
between market price and net asset value that might otherwise
exist.

      In addition, a purchase by the Fund of its Common Shares
would decrease the Fund's total assets which would likely have
the effect of increasing the Fund's expense ratio and may also
require the redemption of a portion of any outstanding Preferred
Shares in order to maintain coverage ratios.  Any purchase by the
Fund of its Common Shares at a time when Preferred Shares are
outstanding will increase the leverage applicable to the
outstanding Common Shares then remaining.  See the Fund's
Prospectus under "Risks--Leverage Risk."

      Before deciding whether to take any action if the Fund's
Common Shares trade below net asset value, the Board of Directors
would consider all factors that they deem relevant.  Such factors
may include the extent and duration of the discount, the
liquidity of the Fund's portfolio, the impact of any action that
might be taken on the Fund or its shareholders and market
considerations.  Based on these considerations, even if the
Fund's shares should trade at a discount, the Board of Directors
may determine that, in the interest of the Fund and its
shareholders, no action should be taken.

                           TAX MATTERS

         Taxation of the Fund.  The Fund intends to qualify each
year as a regulated investment company under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code").  In order
to qualify for the special tax treatment accorded regulated
investment companies and their shareholders, the Fund must, among
other things:

      (a)  derive at least 90% of its gross income from
              dividends, interest, payments with respect to
              certain securities loans, gains from the sale of
              stock, securities or foreign currencies, or other
              income (including but not limited to gains from
              options, futures, or forward contracts) derived
              with respect to its business of investing in such
              stock, securities, or currencies;





                               47





<PAGE>


         (b)  distribute with respect to each taxable year at
              least 90% of the sum of its taxable net investment
              income (which includes the excess, if any, of net
              short-term capital gains over net long-term capital
              losses) and its net tax-exempt income for such
              year; and

      (c)  diversify its holdings so that, at the end of each
              fiscal quarter of the Fund's taxable year, (i) at
              least 50% of the market value of the Fund's assets
              is represented by cash and cash items, U.S.
              Government securities, securities of other
              regulated investment companies, and other
              securities limited in respect of any one issuer to
              a value not greater than 5% of the value of the
              Fund's total assets and not more than 10% of the
              outstanding voting securities of such issuer, and
              (ii) not more than 25% of the value of the Fund's
              assets is invested in the securities (other than
              those of the U.S. Government or other regulated
              investment companies) of any one issuer or of two
              or more issuers which the Fund controls and which
              are engaged in the same, similar, or related trades
              or businesses.

If the Fund qualifies as a regulated investment company that is
accorded special tax treatment, the Fund will not be subject to
federal income tax on income distributed in a timely manner to
its shareholders in the form of dividends (including capital gain
dividends).

      If the Fund failed to qualify as a regulated investment
company accorded special tax treatment in any taxable year, the
Fund would be subject to tax on its taxable income at corporate
rates, and all distributions from earnings and profits, including
any distributions of net tax-exempt income and net long-term
capital gains, would be taxable to shareholders as ordinary
income.  Such distributions generally would be eligible for the
dividends received deduction in the case of corporate
shareholders.  In addition, the Fund could be required to
recognize unrealized gains, pay substantial taxes and interest
and make substantial distributions before requalifying as a
regulated investment company that is accorded special tax
treatment.

      The Fund may retain for investment its net capital gain.
However, if the Fund retains any net capital gain or any net
investment income, it will be subject to tax at regular corporate



                               48





<PAGE>


rates on the amount retained. The Fund intends to distribute at
least annually to its shareholders all or substantially all of
its net tax-exempt interest and any net investment income and net
capital gain.

      If the Fund fails to distribute in a calendar year at
least an amount equal to the sum of 98% of its ordinary income
for such year and 98% of its capital gain net income for the one-
year period ending October 31 of such calendar year, plus any
undistributed ordinary income and capital gain net income from
previous years, the Fund will be subject to a 4% excise tax on
the undistributed amounts.  For this purpose, any income or gain
retained by the Fund that is subject to corporate tax will be
considered to have been distributed by year end.  A dividend paid
to shareholders in January of a year generally is deemed to have
been paid by the Fund on December 31 of the preceding year, if
the dividend was declared and payable to shareholders of record
on a date in October, November or December of that preceding
year.  The Fund intends generally to make distributions
sufficient to avoid imposition of the 4% excise tax.

         If at any time when Preferred Shares are outstanding the
Fund does not meet applicable asset coverage requirements, it
will be required to suspend distributions to Common Shareholders
until the requisite asset coverage is restored.  Any such
suspension may cause the Fund to pay the 4% federal excise tax
and may, in certain circumstances, prevent the Fund from
qualifying for treatment as a regulated investment company.  The
Fund may redeem Preferred Shares in an effort to comply with the
distribution requirement applicable to regulated investment
companies and to avoid income and excise taxes.  There can be no
assurance, however, that any such action would achieve such
objectives.

         Fund Distributions.  Distributions from the Fund (other
than exempt-interest dividends, as discussed below) will be
taxable to shareholders as ordinary income to the extent derived
from net investment income (which includes any net short-term
capital gains).  Distributions of net capital gain (that is, the
excess of net gains from the sale of capital assets held more
than one year over net losses from the sale of capital assets
held for not more than one year) will be taxable to shareholders
as long-term capital gain, regardless of how long a shareholder
has held the shares in the Fund.  The Fund's distributions will
not qualify for the dividends received deduction for corporate
shareholders.





                               49





<PAGE>


      Exempt-interest dividends.  The Fund will be qualified
to pay exempt-interest dividends to its shareholders only if, at
the close of each quarter of the Fund's taxable year, at least
50% of the total value of the Fund's assets consists of
obligations the interest on which is exempt from federal income
tax under Code Section 103(a).  Distributions from the Fund will
constitute exempt-interest dividends to the extent of the Fund's
tax-exempt interest income (net of expenses and amortized bond
premium).  Distributions that the Fund properly designates as
exempt-interest dividends are treated as interest excludable from
shareholders' gross income for federal income tax purposes,
although such distributions are required to be reported on the
shareholders' federal income tax returns and may be taxable for
state and local purposes.  Because the Fund intends to qualify to
pay exempt-interest dividends, the Fund may be limited in its
ability to enter into taxable transactions involving forward
commitments, repurchase agreements, financial futures and options
contracts on financial futures, tax-exempt bond indices and other
assets.

      The Fund designates distributions made to the share
classes as consisting of a portion of each type of income
distributed by the Fund.  The portion of each type of income
deemed received by each class of shareholders is equal to the
portion of total Fund dividends received by such class for that
taxable year.  Thus, the Fund will designate dividends paid as
exempt-interest dividends in a manner that allocates such
dividends between the Preferred and Common Shareholders in
proportion to the total dividends paid to each class during or
with respect to the taxable year, or otherwise as required by
applicable law.  Long-term capital gain distributions and other
income subject to regular federal income tax will similarly be
allocated between the two (or more) classes.

         Dividend and capital gains distributions will be taxable
as described above whether received in cash or in shares.  A
shareholder whose distributions are reinvested in shares will be
treated as having received a dividend equal to the fair market
value of the new shares issued to the shareholder, or the amount
of cash allocated to the shareholder for the purchase of shares
on its behalf.

         Part or all of the interest on indebtedness, if any,
incurred or continued by a shareholder to purchase or carry
shares of the Fund paying exempt-interest dividends is not
deductible. Under rules used by the Internal Revenue Service (the
"Service") to determine when borrowed funds are considered used
for the purpose of purchasing or carrying particular assets, the



                               50





<PAGE>


purchase of shares may be considered to have been made with
borrowed funds even though such funds are not directly traceable
to the purchase of shares.

      The Fund may invest in tax-exempt municipal securities
subject to the alternative minimum tax ("AMT").  Under current
federal income tax law, (i) interest on tax-exempt municipal
securities issued after August 7, 1986 which are "specified
private activity bonds" and the proportionate share of any
exempt-interest dividend paid by a regulated investment company
which receives interest from such specified private activity
bonds will be treated as an item of tax preference for purposes
of the AMT imposed on individuals and corporations although for
regular federal income tax purposes such interest will remain
fully tax-exempt, and (ii) interest on all tax-exempt obligations
and all exempt-interest dividends will be included in "adjusted
current earnings" of corporations for AMT purposes.

         In general, exempt-interest dividends, if any,
attributable to interest received on certain private activity
obligations and certain industrial development bonds will not be
tax-exempt to any shareholders who are "substantial users,"
within the meaning of Section 147(a) of the Code, of the
facilities financed by such obligations or bonds or who are
"related persons" of such substantial users.

      The Fund will inform investors within 60 days of the
Fund's taxable year-end of the percentage of its income
distributions designated as tax-exempt.  The percentage is
applied uniformly to all distributions made during the year.  The
percentage of income designated as tax-exempt for any particular
distribution may be substantially different from the percentage
of the Fund's income that was tax-exempt during the period
covered by the distribution.

      The Fund will allocate distributions to shareholders
that are treated as tax-exempt interest and as long-term capital
gain and ordinary income, if any, among the Common Shares and
Preferred Shares in proportion to total dividends paid to each
class for the year.

      Hedging Transactions.  If the Fund engages in hedging
transactions, including hedging transactions in options, futures
contracts, and straddles, or other similar transactions, it will
be subject to special tax rules (including constructive sale,
mark-to-market, straddle, wash sale, and short sale rules), the
effect of which may be to accelerate income to the Fund, defer
losses to the Fund, cause adjustments in the holding periods of



                               51





<PAGE>


the Fund's securities, affect whether gains and losses realized
by the Fund are ordinary or capital, convert long-term capital
gains into short-term capital gains or convert short-term capital
losses into long-term capital losses.  These rules could
therefore affect the amount, timing and character of
distributions to shareholders.  Income earned as a result of the
Fund's hedging activities will not be eligible to be treated as
exempt-interest dividends when distributed to shareholders.  The
Fund will endeavor to make any available elections and entries in
its books and records pertaining to such transactions in a manner
believed to be in the best interests of the Fund and its
shareholders.

         Return of Capital Distributions.  If the Fund makes a
distribution to you in excess of its current and accumulated
earnings and profits in any taxable year, the excess distribution
will be treated as a return of capital to the extent of your tax
basis in your shares, and thereafter as capital gain.  A return
of capital is not taxable, but it reduces your tax basis in your
shares, thus reducing any loss or increasing any gain on a
subsequent taxable disposition by you of your shares.

      Dividends and distributions on the Fund's shares are
generally subject to federal income tax as described herein ,
even though such dividends and distributions may economically
represent a return of a particular shareholder's investment.
Such distributions are likely to occur in respect of shares
purchased at a time when the Fund's net asset value reflects
gains that are either unrealized, or realized but not
distributed.  Such realized gains may be required to be
distributed even when the Fund's net asset value also reflects
unrealized losses.  Distributions are taxable to a shareholder
even if they are paid from income or gains earned by the Fund
prior to the shareholder's investment (and thus included in the
price paid by the shareholder).

      Securities Issued or Purchased at a Discount.  The
Fund's investment in securities issued at a more than de minimis
discount and certain other obligations will (and investments in
securities purchased at a discount may) require the Fund to
accrue and distribute income not yet received.  In order to
generate sufficient cash to make the requisite distributions, the
Fund may be required to sell securities in its portfolio that it
otherwise would have continued to hold.

      Sale or Redemption of Shares.  The sale, exchange or
redemption of Fund shares will give rise to gain or loss in an
amount equal to the difference between the proceeds of the sale,



                               52





<PAGE>


exchange or redemption and the shareholder's adjusted tax basis
in the shares.  Any gain or loss realized upon a taxable
disposition of shares held as a capital asset will be treated as
long-term capital gain or loss if the shares have been held for
more than 12 months.  Otherwise, the gain or loss on the taxable
disposition of Fund shares held as a capital asset will be
treated as short-term capital gain or loss.  However, if a
shareholder sells shares at a loss within six months of purchase,
any loss will be disallowed for federal income tax purposes to
the extent of any exempt-interest dividends received on such
shares.  In addition, any loss realized upon a taxable
disposition of shares held for six months or less but not
disallowed as provided in the preceding sentence will be treated
as long-term, rather than short-term, to the extent of any long-
term capital gain distributions received by the shareholder with
respect to the shares.  All or a portion of any loss realized
upon a taxable disposition of Fund shares will be disallowed if
other substantially identical shares of the Fund are purchased
within 30 days before or after the disposition.  In such a case,
the basis of the newly purchased shares will be adjusted to
reflect the disallowed loss.

      From time to time the Fund may make a tender offer for
its Common Shares.  It is expected that the terms of any such
offer will require a tendering shareholder to tender all Common
Shares and dispose of all Preferred Shares held, or considered
under certain attribution rules of the Code to be held, by such
shareholder.  Shareholders who tender all Common Shares and
dispose of all Preferred Shares held, or considered to be held,
by them will be treated as having sold their shares and generally
will realize a capital gain or loss.  If a shareholder tenders
fewer than all of its Common Shares, or retains a substantial
portion of its Preferred Shares, such shareholder may be treated
as having received a taxable dividend upon the tender of its
Common Shares.  In such a case, there is a remote risk that non-
tendering shareholders will be treated as having received taxable
distributions from the Fund.  Likewise, if the Fund redeems some
but not all of the Preferred Shares held by a Preferred
Shareholder and such shareholder is treated as having received a
taxable dividend upon such redemption, there is a remote risk
that Common Shareholders and non-redeeming Preferred Shareholders
will be treated as having received taxable distributions from the
Fund.  To the extent that the Fund recognizes net gains on the
liquidation of portfolio securities to meet such tenders of
Common Shares, the Fund will be required to make additional
distributions to its shareholders.





                               53





<PAGE>


      Backup Withholding.  The Fund generally is required to
withhold and remit to the U.S. Treasury a percentage of the
taxable dividends and other distributions paid to any non-
corporate shareholder who fails to properly furnish the Fund with
a correct taxpayer identification number (TIN), who has under-
reported dividend or interest income, or who fails to certify to
the Fund that he or she is not subject to such withholding.
Backup withholding is not an additional tax; any amounts withheld
may be credited against the shareholder's U.S. federal income tax
liability.

         General.  The federal income tax discussion set forth
above is for general information only.  Prospective investors
should consult their tax advisers regarding the specific federal
tax consequences of purchasing, holding, and disposing of shares
of the Fund, as well as the effects of state, local and foreign
tax law and any proposed tax law changes.

         PERFORMANCE RELATED AND COMPARATIVE INFORMATION

         The suitability of an investment in Common Shares will
depend upon a comparison of the after-tax yield likely to be
provided from the Fund with that from comparable tax-exempt
investments (including those not subject to the AMT), and from
comparable fully taxable investments, in light of each such
investor's tax position.

      The Fund may quote certain performance-related
information and may compare certain aspects of its portfolio and
structure to other substantially similar closed-end funds as
categorized by Lipper Inc. ("Lipper"), Morningstar Inc. or other
independent services.  Comparison of the Fund to an alternative
investment should be made with consideration of differences in
features and expected performance.  The Fund may obtain data from
sources or reporting services, such as Bloomberg Financial and
Lipper, that the Fund believes to be generally accurate.

      The Fund may employ advertising or sales literature that
provides information relating to hypothetical yields on municipal
securities in the form of charts such as the following:

After-Tax Yields

Assumed Hypothetical Taxable Yield     5.00%        5.50%   6.00%
National                               8.21%        9.03%   9.85%
California                             9.05%        9.96%  10.86%
New York                               9.19%        10.10% 11.02%




                               54





<PAGE>



      The Fund may disclose information concerning its
anticipated average maturity, which is 25 years, and average
ratings quality, which is AA.  These are expectations only and
will not necessarily be the Fund's actual average maturity or
ratings quality.

      The Fund may employ advertising or sales literature that
provides a line graph or other presentation demonstrating the
historical long-term after-tax growth of an initial $100,000
investment in various asset classes.  For example, the Fund may
use a line graph showing the after-tax values of an investment in
these securities in 2000 beginning with an initial investment of
$100,000 in 1980, including Municipal Bonds-$551,385, Treasury
Bonds-$397,582, Corporate Bonds-$365,479, and Treasury Bills-
$209,824.

         The Fund, in its advertisements, may refer to pending
legislation from time to time and the possible impact of such
legislation on investors, investment strategy and related
matters.  This would include any tax proposals and their effect
on marginal tax rates and tax-equivalent yields.  At any time in
the future, yields and total return may be higher or lower than
past yields and there can be no assurance that any historical
results will continue.

         Past performance is not indicative of future results.
At the time Common Shareholders sell their shares, they may be
worth more or less than their original investment.

     CUSTODIAN, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT

      State Street Bank & Trust Company serves as custodian
for assets of the Fund.  The custodian performs custodial and
fund accounting services.

      Equiserve Trust Company, N.A. serves as the Fund's
transfer agent, registrar, dividend disbursing agent and
shareholder servicing agent, as well as agent for the Fund's
dividend reinvestment plan.

                      INDEPENDENT AUDITORS

      Ernst & Young LLP, 787 Seventh Avenue, New York, New
York 10019 serves as independent auditors for the Fund.






                               55





<PAGE>


                             COUNSEL

      Seward & Kissel LLP, One Battery Park Plaza, New York,
New York, passes upon certain legal matters in connection with
shares offered by the Fund, and also acts as counsel to the Fund.
Seward & Kissel LLP will rely upon the opinion of Ballard Spahr
Andrews & Ingersoll, LLP for certain matters of Maryland law.

                     REGISTRATION STATEMENT

         A Registration Statement on Form N-2, including any
amendments thereto, relating to the shares of the Fund offered
hereby, has been filed by the Fund with the SEC, Washington, D.C.
The Fund's Prospectus and this SAI do not contain all of the
information set forth in the Registration Statement, including
any exhibits and schedules thereto.  For further information with
respect to the Fund and the shares offered or to be offered
hereby, reference is made to the Fund's Registration Statement.
Statements contained in the Fund's Prospectus and this SAI as to
the contents of any contract or other document referred to are
not necessarily complete and in each instance reference is made
to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference.  Copies of the
Registration Statement may be inspected without charge at the
SEC's principal office in Washington, D.C., and copies of all or
any part thereof may be obtained from the SEC upon the payment of
certain fees prescribed by the SEC.

               REPORT OF INDEPENDENT AUDITORS
                      FINANCIAL STATEMENTS
                   [To be added by amendment.]



















                               56





<PAGE>



                    APPENDIX A: BOND RATINGS

Standard & Poor's Bond Ratings

         A Standard & Poor's municipal bond rating is a current
assessment of the creditworthiness of an obligor with respect to
a specific obligation.  Debt rated "AAA" has the highest rating
assigned by Standard & Poor's.  Capacity to pay interest and
repay principal is extremely strong.  Debt rated "AA" has a very
strong capacity to pay interest and to repay principal and
differs from the highest rated issues only in small degree.  Debt
rated "A" has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
a debt of a higher rated category.  Debt rated "BBB" is regarded
as having an adequate capacity to pay interest and repay
principal.  Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest
and to repay principal for debt in this category than for higher
rated categories.

         Debt rated "BB," "B," "CCC" or "CC" is regarded, on
balance, as predominately speculative with respect to capacity to
pay interest and repay principal in accordance with the terms of
the obligation.  "BB" indicates the lowest degree of speculation
and "CC" the highest degree of speculation.  While such debt will
likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to
adverse conditions.  The rating "C" is reserved for income bonds
on which no interest is being paid.  Debt rated "D" is in default
and payments of interest and/or repayment of principal are in
arrears.

         The ratings from "AAA" to "B" may be modified by the
addition of a plus or minus sign to show relative standing within
the major rating categories.

Moody's Bond Ratings

      Excerpts from Moody's description of its municipal bond
ratings: Aaa - judged to be the best quality, carry the smallest
degree of investment risk; Aa - judged to be of high quality by
all standards; A - possess many favorable investment attributes
and are to be considered as higher upper grade obligations; Baa -
considered as medium grade obligations, i.e., they are neither
highly protected nor poorly secured and have speculative



                               A-1





<PAGE>


characteristics as well; Ba, B, Caa, Ca, C - protection of
interest and principal payments is questionable; Ba indicates
some speculative elements while Ca represents a high degree of
speculation and C represents the lowest rated class of bonds;
Caa, Ca and C bonds may be in default.  Moody's applies numerical
modifiers 1, 2 and 3 in each generic rating classification from
Aa to B in its corporate bond rating system.  The modifier 1
indicates that the security ranks in the higher end of its
generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the issue ranks at the
lower end of its generic rating category.

Short-Term Municipal Loans

         Moody's highest rating for short-term municipal loans is
MIG-1/VMIG-1.  Moody's states that short-term municipal
securities rated MIG-1/VMIG-1 are of the best quality, enjoying
strong protection from established cash flows of funds for their
servicing or from established and broad-based access to the
market for refinancing, or both.  Loans bearing the MIG-2/VMIG-2
designation are of high quality, with margins of protection ample
although not so large as in the MIG-l/VMIG-1 group.

         S&P's highest rating for short-term municipal loans is
SP-1.  S&P states that short-term municipal securities bearing
the SP-1 designation have very strong or strong capacity to pay
principal and interest.  Those issues rated SP-1 which are
determined to possess overwhelming safety characteristics will be
given a plus (+) designation.  Issues rated SP-2 have
satisfactory capacity to pay principal and interest.

Other Municipal Securities

         "Prime-1" is the highest rating assigned by Moody's for
other short-term municipal securities and commercial paper, and
A-1+" and "A-1" are the two highest ratings for commercial paper
assigned by S&P (S&P does not rate short-term tax-free
obligations).  Moody's uses the numbers 1, 2 and 3 to denote
relative strength within its highest classification of "Prime,"
while S&P uses the number 1+, 1, 2 and 3 to denote relative
strength within its highest classification of "A."  Issuers rated
"Prime" by Moody's have the following characteristics: their
short-term debt obligations carry the smallest degree of
investment risk, margins of support for current indebtedness are
large or stable with cash flow and asset protection well assured,
current liquidity provides ample coverage of near-term
liabilities and unused alternative financing arrangements are
generally available.  While protective elements may change over



                               A-2





<PAGE>


the intermediate or longer-term, such changes are most unlikely
to impair the fundamentally strong position of short-term
obligations.  Commercial paper issuers rated "A" by S&P have the
following characteristics: liquidity ratios are better than
industry average, long-term debt rating is A or better, the
issuer has access to at least two additional channels of
borrowing, and basic earnings and cash flow are in an upward
trend.  Typically, the issuer is a strong company in a well-
established industry and has superior management.

Fitch, Inc. International Long-Term Credit Ratings

Investment Grade

         AAA - Highest credit quality. 'AAA' ratings denote the
lowest expectation of credit risk. They are assigned only in case
of exceptionally strong capacity for timely payment of financial
commitments. This capacity is highly unlikely to be adversely
affected by foreseeable events.

         AA - Very high credit quality. 'AA' ratings denote a
very low expectation of credit risk. They indicate very strong
capacity for timely payment of financial commitments. This
capacity is not significantly vulnerable to foreseeable events.

         A - High credit quality. 'A' ratings denote a low
expectation of credit risk. The capacity for timely payment of
financial commitments is considered strong. This capacity may,
nevertheless, be more vulnerable to changes in circumstances or
in economic conditions than is the case for higher ratings.

         BBB - Good credit quality. 'BBB' ratings indicate that
there is currently a low expectation of credit risk. The capacity
for timely payment of financial commitments is considered
adequate, but adverse changes in circumstances and in economic
conditions are more likely to impair this capacity. This is the
lowest investment-grade category.

Speculative Grade

         BB - Speculative. 'BB' ratings indicate that there is a
possibility of credit risk developing, particularly as the result
of adverse economic change over time; however, business or
financial alternatives may be available to allow financial
commitments to be met. Securities rated in this category are not
investment grade.





                               A-3





<PAGE>


         B - Highly speculative. 'B' ratings indicate that
significant credit risk is present, but a limited margin of
safety remains. Financial commitments are currently being met;
however, capacity for continued payment is contingent upon a
sustained, favorable business and economic environment.

         CCC, CC, C - High default risk. Default is a real
possibility. Capacity for meeting financial commitments is solely
reliant upon sustained, favorable business or economic
developments. A 'CC' rating indicates that default of some kind
appears probable. 'C' ratings signal imminent default.

         DDD, DD, D - Default. The ratings of obligations in this
category are based on their prospects for achieving partial or
full recovery in a reorganization or liquidation of the obligor.
While expected recovery values are highly speculative and cannot
be estimated with any precision, the following serve as general
guidelines.  'DDD' obligations have the highest potential for
recovery, around 90% - 100% of outstanding amounts and accrued
interest.  'DD' indicates potential recoveries in the range of
50% - 90% and 'D' the lowest recovery potential, i.e., below 50%.

         Entities rated in this category have defaulted on some
or all of their obligations. Entities rated 'DDD' have the
highest prospect for resumption of performance or continued
operation with or without a formal reorganization process.
Entities rated 'DD' and 'D' are generally undergoing a formal
reorganization or liquidation process; those rated 'DD' are
likely to satisfy a higher portion of their outstanding
obligations, while entities rated 'D' have a poor prospect of
repaying all obligations.

Fitch, Inc. International Short-Term Credit Ratings

         F1 - Highest credit quality. Indicates the strongest
capacity for timely payment of financial commitments; may have an
added "+" to denote any exceptionally strong credit feature.

         F2 - Good credit quality. A satisfactory capacity for
timely payment of financial commitments, but the margin of safety
is not as great as in the case of the higher ratings.

         F3 - Fair credit quality. The capacity for timely
payment of financial commitments is adequate; however, near-term
adverse changes could result in a reduction to non-investment
grade.





                               A-4





<PAGE>


         B - Speculative. Minimal capacity for timely payment of
financial commitments, plus vulnerability to near-term adverse
changes in financial and economic conditions.

         C - High default risk. Default is a real possibility.
Capacity for meeting financial commitments is solely reliant upon
a sustained, favorable business and economic environment.

         D - Default. Denotes actual or imminent payment default.

Notes to Long-term and Short-term ratings:

"+" or "-" may be appended to a rating to denote relative status
within major rating categories. Such suffixes are not added to
the 'AAA' Long-term rating category, to categories below 'CCC',
or to Short-term ratings other than 'F1'.

'NR' indicates that Fitch does not rate the issuer or issue in
question.

'Withdrawn': A rating is withdrawn when Fitch deems the amount of
information available to be inadequate for rating purposes, or
when an obligation matures, is called, or refinanced.

Rating Watch: Ratings are placed on Rating Watch to notify
investors that there is a reasonable probability of a rating
change and the likely direction of such change.  These are
designated as "Positive", indicating a potential upgrade,
"Negative", for a potential downgrade, or "Evolving", if ratings
may be raised, lowered or maintained.  Rating Watch is typically
resolved over a relatively short period.

A Rating Outlook indicates the direction a rating is likely to
move over a one to two-year period. Outlooks may be positive,
stable or negative.  A positive or negative Rating Outlook does
not imply a rating change is inevitable.  Similarly, companies
whose outlooks are 'stable' could be upgraded or downgraded
before an outlook moves to positive or negative if circumstances
warrant such an action.  Occasionally, Fitch may be unable to
identify the fundamental trend. In these cases, the Rating
Outlook may be described as evolving.

Further Rating Distinctions

         While ratings provide an assessment of the obligor's
capacity to pay debt service, it should be noted that the
definition of obligor expands as layers of security are added. If
municipal securities are guaranteed by third parties then the



                               A-5





<PAGE>


"underlying" issuers as well as the "primary" issuer will be
evaluated during the rating process.  In some cases, depending on
the scope of the guaranty, such as bond insurance, bank letters
of credit or collateral, the credit enhancement will provide the
sole basis for the rating given.

Minimum Rating(s) Requirements

      For minimum rating(s) requirements for the Fund's
securities, please refer to "The Fund's Investments - Investment
Objectives and Policies" in the Prospectus.








































                               A-6





<PAGE>


        APPENDIX B: FUTURES CONTRACTS AND RELATED OPTIONS

Futures Contracts

         The Fund may enter into contracts for the purchase or
sale for future delivery of municipal securities or U.S.
Government Securities, or contracts based on financial indices
including any index of municipal securities or U.S. Government
Securities.  U.S. futures contracts have been designed by
exchanges which have been designated "contracts markets" by the
Commodity Futures Trading Commission ("CFTC"), and must be
executed through a futures commission merchant, or brokerage
firm, which is a member of the relevant contract market.  Futures
contracts trade on a number of exchange markets, and, through
their clearing corporations, the exchanges guarantee performance
of the contracts as between the clearing members of the exchange.

         At the same time a futures contract is purchased or
sold, the Fund must allocate cash or securities as a deposit
payment ("initial deposit").  It is expected that the initial
deposit would be approximately 1/2% to 5% of a contract's face
value. Daily thereafter, the futures contract is valued and the
payment of "variation margin" may be required, since each day the
Fund would provide or receive cash that reflects any decline or
increase in the contract's value.

         At the time of delivery of securities pursuant to such a
contract, adjustments are made to recognize differences in value
arising from the delivery of securities with a different interest
rate from that specified in the contract.  In some (but not many)
cases, securities called for by a futures contract may not have
been issued when the contract was written.

         Although futures contracts by their terms call for the
actual delivery or acquisition of securities, in most cases the
contractual obligation is fulfilled before the date of the
contract without having to make or take delivery of the
securities.  The offsetting of a contractual obligation is
accomplished by buying (or selling, as the case may be) on a
commodities exchange an identical futures contract calling for
delivery in the same month.  Such a transaction, which is
effected through a member of an exchange, cancels the obligation
to make or take delivery of the securities.  Since all
transactions in the futures market are made, offset or fulfilled
through a clearinghouse associated with the exchange on which the
contracts are traded, the Fund will incur brokerage fees when it
purchases or sells futures contracts.




                               B-1





<PAGE>


Interest Rate Futures

      The purpose of the acquisition or sale of a futures
contract, in the case of the Fund, which holds or intends to
acquire fixed-income securities, is to attempt to protect the
Fund from fluctuations in interest rates without actually buying
or selling fixed-income securities.  For example, if interest
rates were expected to increase, the Fund might enter into
futures contracts for the sale of debt securities.  Such a sale
would have much the same effect as selling an equivalent value of
the debt securities owned by the Fund.  If interest rates did
increase, the value of the debt securities in the Fund would
decline, but the value of the futures contracts to the Fund would
increase at approximately the same rate, thereby keeping the net
asset value of the Fund from declining as much as it otherwise
would have.  The Fund could accomplish similar results by selling
debt securities and investing in bonds with short maturities when
interest rates are expected to increase. However, since the
futures market is more liquid than the cash market, the use of
futures contracts as an investment technique allows the Fund to
maintain a defensive position without having to sell its
portfolio securities.

         Similarly, when it is expected that interest rates may
decline, futures contracts may be purchased to attempt to hedge
against anticipated purchases of debt securities at higher
prices.  Since the fluctuations in the value of futures contracts
should be similar to those of debt securities, a Fund could take
advantage of the anticipated rise in the value of debt securities
without actually buying them until the market had stabilized.  At
that time, the futures contracts could be liquidated and the Fund
could then buy debt securities on the cash market.  To the extent
the Fund enters into futures contracts for this purpose, the
assets in the segregated account maintained to cover the Fund's
obligations with respect to such futures contracts will consist
of cash, cash equivalents or high-quality liquid debt securities
from its portfolio in an amount equal to the difference between
the fluctuating market value of such futures contracts and the
aggregate value of the initial and variation margin payments made
by the Fund with respect to such futures contracts.

         The ordinary spreads between prices in the cash and
futures markets, due to differences in the nature of those
markets, are subject to distortions.  First, all participants in
the futures market are subject to initial deposit and variation
margin requirements.  Rather than meeting additional variation
margin requirements, investors may close futures contracts
through offsetting transactions which could distort the normal



                               B-2





<PAGE>


relationship between the cash and futures markets.  Second, the
liquidity of the futures market depends on participants entering
into offsetting transactions rather than making or taking
delivery.  To the extent participants decide to make or take
delivery, liquidity in the futures market could be reduced, thus
producing distortion.  Third, from the point of view of
speculators, the margin deposit requirements in the futures
market are less onerous than margin requirements in the
securities market.  Therefore, increased participation by
speculators in the futures market may cause temporary price
distortions.  Due to the possibility of distortion, a correct
forecast of general interest rate trends by the Adviser may still
not result in a successful transaction.

         In addition, futures contracts entail risks.  Although
the Fund believes that use of such contracts will benefit the
Fund, if the Adviser's investment judgment about the general
direction of interest rates is incorrect, the Fund's overall
performance would be poorer than if it had not entered into any
such contract.  For example, if the Fund has hedged against the
possibility of an increase in interest rates which would
adversely affect the price of debt securities held in its
portfolio and interest rates decrease instead, the Fund will lose
part or all of the benefit of the increased value of its debt
securities which it has hedged because it will have offsetting
losses in its futures positions.  In addition, in such
situations, if the Fund has insufficient cash, it may have to
sell debt securities from its portfolio to meet daily variation
margin requirements.  Such sales of bonds may be, but will not
necessarily be, at increased prices which reflect the rising
market.  The Fund may have to sell securities at a time when it
may be disadvantageous to do so.

Options on Futures Contracts

         The Fund intends to purchase and write options on
futures contracts for hedging purposes.  The Funds are not
commodity pools and all transactions in futures contracts and
options on futures contracts engaged in by the Funds must
constitute bona fide hedging or other permissible transactions in
accordance with the rules and regulations promulgated by the
CFTC.  The purchase of a call option on a futures contract is
similar in some respects to the purchase of a call option on an
individual security.  Depending on the pricing of the option
compared to either the price of the futures contract upon which
it is based or the price of the underlying debt securities, it
may or may not be less risky than ownership of the futures
contract or underlying debt securities.  As with the purchase of



                               B-3





<PAGE>


futures contracts, when the Fund is not fully invested it may
purchase a call option on a futures contract to hedge against a
market advance due to declining interest rates.

         The writing of a call option on a futures contract
constitutes a partial hedge against declining prices of the
security which is deliverable upon exercise of the futures
contract or securities comprising an index.  If the futures price
at expiration of the option is below the exercise price, the Fund
that has written a call will retain the full amount of the option
premium which provides a partial hedge against any decline that
may have occurred in its portfolio holdings.  The writing of a
put option on a futures contract constitutes a partial hedge
against increasing prices of the security which is deliverable
upon the exercise of futures contract or securities comprising an
index.  If the futures price at the expiration of the option is
higher than the exercise price, the Fund that has written a put
will retain the full amount of the option premium which provides
a partial hedge against any increase in the price of securities
which it intends to purchase.  If a put or call option the Fund
has written is exercised, the Fund will incur a loss which will
be reduced by the amount of the premium it receives.  Depending
on the degree of correlation between changes in the value of its
portfolio securities and changes in the value of its futures
positions, the Fund's losses from existing options on futures may
to some extent be reduced or increased by changes in the value of
portfolio securities.

         The purchase of a put option on a futures contract is
similar in some respects to the purchase of protective put
options on portfolio securities.  For example, the Fund may
purchase a put option on a futures contract to hedge its
portfolio against the risk of rising interest rates.

         The amount of risk the Fund assumes when it purchases an
option on a futures contract is the premium paid for the option
plus related transaction costs.  In addition to the correlation
risks discussed above, the purchase of an option also entails the
risk that changes in the value of the underlying futures contract
will not be fully reflected in the value of the option purchased.











                               B-4





<PAGE>


                             PART C

ITEM 24.  FINANCIAL STATEMENTS AND EXHIBITS

1.    FINANCIAL STATEMENTS

      Registrant has not conducted any business as of the date of
      this filing, other than in connection with its
      organization.  Financial Statements indicating that the
      Registrant has met the net worth requirements of
      Section 14(a) of the 1940 Act will be filed by amendment to
      this Registration Statement.

2.    EXHIBITS.

(a)   Amended Articles of Incorporation

(b)   By-Laws*

(c)   Not applicable.

(d)   Not applicable.

(e)   Dividend Reinvestment Plan*

(f)   Not applicable

(g)   Investment Advisory Agreement*

(h)   (1)    Dealer Manager Agreement*

      (2)    Soliciting Dealer Agreement*

(i)   Not applicable

(j)   Custodian Agreement*

(k)   (1)    Transfer Agency Agreement*

_____________

*     To be filed by amendment.









                               C-1





<PAGE>


      (2)    Shareholder Servicing Agreement*

      (3)    Shareholder Inquiry Agency Agreement*

      (4)    Information Agent Agreement*

(l)   (1)    Opinion and Consent of Seward & Kissel LLP*

      (2)    Opinion and Consent of Ballard Spahr Andrews &
             Ingersoll, LLP*

(m)   Not applicable

(n)   Consent of Independent Auditors*

(o)   Not applicable

(p)   Investment Representation Letter*

(q)   Not applicable

(r)   (1)    Code of Ethics for the Fund, incorporated by
             reference to Exhibit (p)(1) to Post-Effective
             Amendment No. 74 of the Registration Statement on
             Form N-1A of Alliance Bond Fund, Inc. (File Nos.
             2-48227 and 811-2383), filed with the Securities and
             Exchange Commission on October 6, 2000, which is
             substantially identical in all material respects
             except as to the party which is the Registrant.

      (2)    Code of Ethics for the Alliance Capital Management
             L.P. and Alliance Fund Distributors, Inc.
             incorporated by reference to Exhibit (p)(2) to Post-
             Effective Amendment No. 31 of the Registration
             Statement on Form N-1A of Alliance Variable Products
             Series Fund, Inc. (File Nos. 33-18647 and 811-5398),
             filed with the Securities and Exchange Commission on
             April 27, 2001.

Other Exhibits:

             Powers of Attorney for:  Ruth Block, John D. Carifa,
             David H. Dievler, John H. Dobkin, William H. Foulk,
             Jr., Dr. James Hester, Clifford L. Michel, and
             Donald J. Robinson.






                               C-2





<PAGE>


ITEM 25.  MARKETING ARRANGEMENTS

      See Dealer Manager Agreement as Exhibit (h)(1).*


_____________

*     To be filed by amendment.











































                               C-3





<PAGE>


ITEM 26.  OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

SEC Registration fees                                  $[______]*
New York Stock Exchange listing fees                   $[______]*
National Association of Securities Dealers, Inc. fees  $[______]*
Printing                                               $[______]*
Legal fees and expenses                                $[______]*
Dealer Manager expenses                                $[______]*
Auditing fees and expenses                             $[______]*
Subscription Agent fees and expenses                   $[______]*
Information Agent fees and expenses                    $[______]*
Miscellaneous                                          $[______]*

Total                                                  $[______]*

ITEM 27.  PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE
          REGISTRANT

                    Not applicable

ITEM 28.     NUMBER OF HOLDERS OF SECURITIES (as of December 21,
             2001)

TITLE OF CLASS                           NUMBER OF RECORD HOLDERS

Common Stock ($0.01 par value per share)           0

ITEM 29.  INDEMNIFICATION

      It is the Registrant's policy to indemnify its directors
and officers, employees and other agents to the maximum extent
permitted by Section 2-418 of the General Corporation Law of the
State of Maryland and as set forth in Article EIGHTH of
Registrant's Amended Articles of Incorporation filed as Exhibit
(a), Article IX of the Registrant's Bylaws filed as Exhibit (b)*
and Section 7 of the Dealer Manager Agreement filed as Exhibit
(h)(1).*  The Adviser's liability for any loss suffered by the
Registrant or its stockholders is set forth in Section 4 of the
Investment Advisory Agreement filed as Exhibit (g) to this
Registration Statement.*  The Administrator's liability for any
loss suffered by the Registrant or its stockholders is set forth
in Section 6 of the Administration Agreement filed as Exhibit
(k)(2).*


_____________

*        To be filed by amendment.



                               C-4





<PAGE>


         Insofar as indemnification for liabilities arising under
the Securities Act may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that,
in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.  In the event
that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid
by a director, officer or controlling person of the Registrant in
the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in
the Securities Act and will be governed by the final adjudication
of such issue.

         In accordance with Release No. IC-11330 (September 2,
1980), the Registrant will indemnify its directors, officers,
investment manager and principal underwriters only if (1) a final
decision on the merits was issued by the court or other body
before whom the proceeding was brought that the person to be
indemnified (the "indemnitee") was not liable by reason or
willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office
("disabling conduct") or (2) a reasonable determination is made,
based upon a review of the facts, that the indemnitee was not
liable by reason of disabling conduct, by (a) the vote of a
majority of a quorum of the directors who are neither "interested
persons" of the Registrant as defined in section 2(a)(19) of the
Investment Company Act of 1940 nor parties to the proceeding
("disinterested, non-party directors"), or (b) an independent
legal counsel in a written opinion.  The Registrant will advance
attorneys fees or other expenses incurred by its directors,
officers, investment adviser or principal underwriters in
defending a proceeding, upon the undertaking by or on behalf of
the indemnitee to repay the advance unless it is ultimately
determined that he is entitled to indemnification and, as a
condition to the advance, (1) the indemnitee shall provide a
security for his undertaking, (2) the Registrant shall be insured
against losses arising by reason of any lawful advances, or (3) a
majority of a quorum of disinterested, non-party directors of the
Registrant, or an independent legal counsel in a written opinion,
shall determine, based on a review of readily available facts (as
opposed to a full trial-type inquiry), that there is reason to



                               C-5





<PAGE>


believe that the indemnitee ultimately will be found entitled to
indemnification.

         The Registrant participates in a joint
trustees/directors and officers liability insurance policy issued
by the ICI Mutual Insurance Company.  Coverage under this policy
has been extended to directors, trustees and officers of the
investment companies managed by Alliance Capital Management L.P.
Under this policy, outside trustees and directors are covered up
to the limits specified for any claim against them for acts
committed in their capacities as trustee or director.  A pro rata
share of the premium for this coverage is charged to each
investment company and to the Adviser.

ITEM 30.  BUSINESS AND OTHER CONNECTIONS OF ALLIANCE

         The descriptions of Alliance Capital Management L.P.
under the caption "Management of the Fund-Investment Adviser" in
the Prospectus and in the Statement of Additional Information are
incorporated by reference herein.

         The information as to the directors and executive
officers of Alliance Capital Management Corporation, the general
partner of Alliance, set forth in Alliance Capital Management
L.P.'s Form ADV filed with the Securities and Exchange Commission
on April 21, 1988 (File No. 801-32361) and as amended through the
date hereof is incorporated by reference herein.

ITEM 31.  LOCATION OF ACCOUNTS AND RECORDS

         The accounts, books and other documents required to be
maintained by Section 31(a) of the Investment Company Act of 1940
and the Rules thereunder are maintained as follows: journals,
ledgers, securities records and other original records are
maintained principally at the offices of Alliance Capital
Management L.P., 500 Plaza Drive, Secaucus, New Jersey 07094, and
at the offices of [Name], the Registrant's Custodian, Transfer
Agent, Dividend-Disbursing Agent and Registrar, [Address]*.  All
other records so required to be maintained are maintained at the
offices of Alliance Capital Management L.P., 1345 Avenue of the
Americas, New York, New York 10105.


_____________
*        The name and address of the Registrant's Custodian,
Transfer Agent, Dividend-Disbursing Agent and Registrar will be
filed by amendment.




                               C-6





<PAGE>



ITEM 32.  MANAGEMENT SERVICES

         Not applicable.

ITEM 33.  UNDERTAKINGS

1.    Registrant undertakes to suspend offering of the shares
      covered hereby until it amends its Prospectus contained
      herein if subsequent to the effective date of this
      Registration Statement, its net asset value per share
      declines more than 10 percent from its net asset value per
      share as of the effective date of this Registration
      Statement or the net asset value increases to an amount
      greater than its net proceeds as stated in the prospectus.

2.    Not applicable.

3.    Not applicable.

4.    Not applicable.

5.    Not applicable.

6.    Registrant undertakes to send by first class mail or other
      means designed to ensure equally prompt delivery, within
      two business days of receipt of a written or oral request,
      any Statement of Additional Information.























                               C-7





<PAGE>


                           SIGNATURES

      Pursuant to the requirements of the Securities Act of
1933, as amended, and the Investment Company Act of 1940, as
amended, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City and State of New York, on
the 21st day of December, 2001.

                   Alliance National Municipal Income Fund, Inc.


                   By /s/ John D. Carifa
                      ------------------------------
                     John D. Carifa
                     Chairman and President

         Pursuant to the requirements of the Securities Act of
1933, as amended, this Registration Statement has been signed
below by the following persons in the capacities and on the date
indicated.

      Signature                        Title               Date
      ---------                        -----               ----

(1)   Principal Executive Officer      Chairman and        December 21, 2001
                                       President

      /s/ John D. Carifa
      --------------------------
      John D. Carifa


(2)  Principal Financial and           Treasurer and       December 21, 2001
      Accounting Officer:              Chief Financial
                                       Officer

      /s/ Mark D. Gersten
     --------------------------
      Mark D. Gersten











                               C-8





<PAGE>


(3)  All of the Directors:                                 December 21, 2001

      Ruth Block
      John D. Carifa
      David H. Dievler
      John H. Dobkin
      William H. Foulk, Jr.
      Dr. James Hester
      Clifford L. Michel
      Donald J. Robinson


By:   /s/ Edmund P. Bergan, Jr.
      --------------------------
      Edmund P. Bergan, Jr.
      (Attorney-in-Fact)



































                               C-9





<PAGE>


                          EXHIBIT INDEX

EXHIBIT                                SEQUENTIALLY NUMBERED PAGE

(a)  Amended Articles of Incorporation

     Other Exhibits - Powers of Attorney












































                              C-10
00250209.AK1

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.2A CHARTER
<SEQUENCE>3
<FILENAME>national_artic00250209ak4.txt
<TEXT>



<PAGE>

          ALLIANCE NATIONAL MUNICIPAL INCOME FUND, INC.

                AMENDED ARTICLES OF INCORPORATION



         FIRST:    (1)   The name of the incorporator is Kathleen
K. Clarke.

                   (2)   The incorporator's post office address
is 1200 G Street, N.W., Washington, DC 20005.

                   (3)   The incorporator is over eighteen years
of age.

                   (4)   The incorporator does hereby form the
corporation named herein under the general laws of the State of
Maryland.

         SECOND:   The name of the corporation (hereinafter
called the "Corporation") is Alliance National Municipal Income
Fund, Inc.

         THIRD:    The purpose for which the Corporation is
formed is to conduct and carry on the business of an investment
company registered under the Investment Company Act of 1940.  The
Corporation shall have all of the powers granted to corporations
by the Maryland General Corporation Law now or hereafter in
force.

         FOURTH:   The post office address of the principal
office of the Corporation within the State of Maryland is
300 Lombard Street, Baltimore, Maryland 21202, in care of The
Corporation Trust Incorporated.

         The resident agent of the Corporation in the State of
Maryland is The Corporation Trust Incorporated, 300 Lombard
Street, Baltimore, Maryland 21202.

         FIFTH:    The total number of shares of stock which the
Corporation shall have authority to issue is Two Billion
(2,000,000,000), par value $.001 per share, all of which
initially shall be Common Stock.  The aggregate par value of all
authorized shares of stock having par value is Two Million
Dollars ($2,000,000).  If shares of one class of stock are
classified or reclassified into shares of another class of stock
pursuant to Article SEVENTH, the number of authorized shares of
the former class shall be automatically decreased and the number
of shares of the latter class shall be automatically increased,
in each case by the number of shares so classified or
reclassified, so that the aggregate number of shares of stock of



<PAGE>

all classes that the Corporation has authority to issue shall not
be more than the total number of shares of stock set forth in the
first sentence of this paragraph.  All shares of stock of the
Corporation shall be subject to the charter of the Corporation
(the "Charter") and the Bylaws of the Corporation, including,
without limitation, the following provisions:

                   (1)   The Corporation may issue shares of
stock in fractional denominations to the same extent as its whole
shares, and shares in fractional denominations shall be shares of
stock having proportionately to the respective fractions
represented thereby all the rights of whole shares, including
without limitation, the right to vote, the right to receive
dividends and distributions, and the right to participate upon
liquidation of the Corporation, but excluding the right to
receive a stock certificate representing fractional shares.

                   (2)   No holder of any shares of stock of the
Corporation shall be entitled to any preemptive rights except
those that the Board of Directors may determine from time to
time.

                   (3)   All persons who shall acquire stock or
other securities of the Corporation shall acquire the same
subject to the provisions of the Charter and the Bylaws, each as
from time to time amended.

                   (4) The Board of Directors, without any action
by the stockholders of the Corporation, may amend the  Charter
from time to time to increase or decrease the aggregate number of
shares of stock or the number of shares of stock of any class or
series that the Corporation has authority to issue.

         SIXTH:    (1)   The Corporation initially shall have one
director.  The number of directors of the Corporation may be
changed only by the Board of Directors pursuant to the Bylaws of
the Corporation, but the number of directors shall never be less
than the number prescribed by the Maryland General Corporation
Law.  The term of office of a director in office at the time of
any decrease in the number of directors shall not be affected as
a result thereof.  The name of the initial director of the
Corporation is Edmund P. Bergan, Jr.

                   (2)   Beginning with the first annual meeting
of stockholders held after the initial public offering of the
shares of stock of the Corporation (the "Initial Annual Meeting")
the Board of Directors shall be divided into three classes.
Within the limits specified in Section (1) of this Article SIXTH
and the Bylaws of the Corporation, the number of directors in
each class shall be determined by resolution of the Board of
Directors.  The term of office of each director in the first


                                2



<PAGE>

class shall continue to the date of the annual meeting of
stockholders held one year after the Initial Annual Meeting and
until his successor is elected and qualifies.  The term of office
of each director in the second class shall continue to the date
of the annual meeting of stockholders held two years after the
Initial Annual Meeting and until his successor is elected and
qualifies.  The term of office of each director in the third
class shall continue to the date of the annual meeting of
stockholders held three years after the Initial Annual Meeting
and until his successor is elected and qualifies.  Upon
expiration of the term of office of each class as set forth
above, the number of directors in such class, as determined by
the Board of Directors, shall be elected for a term of three
years to succeed the directors whose terms of office expire.  The
number of directorships shall be apportioned among the classes so
as to maintain the classes as nearly equal in number as possible.

                   (3)  The Corporation elects, at such time as
such election becomes available under Section 3-802(b) of the
Maryland General Corporation Law, that, except as may be provided
by the Board of Directors in setting the terms of any class or
series of preferred stock of the Corporation, any and all
vacancies on the Board of Directors may be filled only by the
affirmative vote of a majority of the remaining directors in
office, even if the remaining directors do not constitute a
quorum, and any director elected to fill a vacancy shall serve
for the remainder of the full term of the directorship in which
such vacancy occurred.

                   (4)   A director may be removed only for cause
by the affirmative vote of seventy-five percent (75%) of the
votes entitled to be cast for the election of such director.

         SEVENTH:  The following provisions are inserted for the
purpose of defining, limiting and regulating the powers of the
Corporation, the Board of Directors and the stockholders.

                   (1)   The business and affairs of the
Corporation shall be managed under the direction of the Board of
Directors which shall have and may exercise all powers of the
Corporation except those powers which are by law, by the Charter
or by the Bylaws conferred upon or reserved to the stockholders.
In furtherance and not in limitation of the powers conferred by
law, the Board of Directors shall have power:

                         (a)  to make, alter and repeal the
         Bylaws of the Corporation;

                         (b)  to issue and sell, from time to
         time, shares of any class of the Corporation's stock in
         such amounts and on such terms and conditions, and for


                                3



<PAGE>

         such amount and kind of consideration, as the Board of
         Directors shall determine;

                         (c)  from time to time to determine the
         net asset value per share of the Corporation's stock or
         to establish methods to be used by the Corporation's
         officers, employees or agents for determining the net
         asset value per share of the Corporation's stock;

                         (d)  from time to time to determine to
         what extent and at what times and places and under what
         conditions and regulations the accounts, books and
         records of the Corporation, or any of them, shall be
         open to the inspection of the stockholders; and no
         stockholder shall have any right to inspect any account
         or book or document of the Corporation, except as
         conferred by the laws of the State of Maryland, unless
         and until authorized to do so by resolution of the Board
         of Directors; and

                         (e)  to classify or to reclassify, from
         time to time, any unissued shares of stock of the
         Corporation, whether now or hereafter authorized, by
         setting, changing or eliminating the preferences,
         conversion or other rights, voting powers, restrictions,
         limitations as to dividends and other distributions,
         qualifications or terms and conditions of or rights to
         require redemption of the stock and any of the terms of
         any class or series of stock set or changed pursuant to
         this paragraph (e) may be made dependent upon facts or
         events ascertainable outside the Charter (including
         determinations by the Board of Directors or other facts
         or events within the control of the Corporation) and may
         vary among holders thereof, provided that the manner in
         which such facts, events or variations shall operate
         upon the terms of such class or series of stock is
         clearly and expressly set forth in the articles
         supplementary relating to such class or series of stock
         filed with the State Department of Assessments and
         Taxation of Maryland.

                   (2)   Except as provided in Article SIXTH,
Sections (3), (4) and (6) of this Article SEVENTH and in Article
NINTH, notwithstanding any provision of the Maryland General
Corporation Law requiring a greater proportion than a majority of
the votes of the Corporation's stock entitled to be cast in order
to take or authorize any action, any such action may be taken or
authorized upon the concurrence of a majority of the aggregate
number of votes entitled to be cast thereon subject to any
applicable requirements of the Investment Company Act of 1940, as
in effect from time to time, or rules, regulations or orders


                                4



<PAGE>

thereunder promulgated by the Securities and Exchange Commission
or any successor thereto.

                   (3)   Notwithstanding any other provisions of
the Charter, the conversion of the Corporation from a closed-end
company to an open-end company and any amendment to the Charter
of the Corporation to effect any such conversion, shall require
the affirmative vote of seventy-five percent (75%) of the
outstanding shares of stock of the Corporation.  Such affirmative
vote shall be in addition to the vote of the holders of the
Common Stock of the Corporation otherwise required by law or any
agreement between the Corporation and any national securities
exchange.

                   (4)   (a)  Notwithstanding any other provision
of the Charter, and subject to the exceptions provided in
Paragraph (d) of this Section (4), the types of transactions
described in Paragraph (c) of this Section (4) shall require the
affirmative vote of seventy-five percent (75%) of the outstanding
shares of Common Stock of the Corporation when a Principal
Shareholder (as defined in Paragraph (b) of this Section (4)) is
a party to the transaction.  Such affirmative vote shall be in
addition to the vote of the holders of the stock of the
Corporation otherwise required by law or any agreement between
the Corporation and any national securities exchange.

                   (b)   The term "Principal Shareholder" shall
mean any corporation, person or other entity which is the
beneficial owner, directly or indirectly, of more than five
percent (5%) of the outstanding shares of stock of the
Corporation and shall include any affiliate or associate, as such
terms are defined in clause (B) below, of a Principal
Shareholder.  For the purposes of this Section (4), in addition
to the shares of stock which a corporation, person or other
entity beneficially owns directly, (i) any corporation, person or
other entity shall be deemed to be the beneficial owner of any
shares of stock of the Corporation (A) which it has the right to
acquire pursuant to any agreement or upon exercise of conversion
rights or warrants, or otherwise (but excluding stock options
granted by the Corporation) or (B) which are beneficially owned,
directly or indirectly (including shares deemed owned through
application of clause (A) above), by any other corporation,
person or entity with which it or its "affiliate" or "associate"
(as defined below) has any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or
disposing of stock of the Corporation, or which is its
"affiliate" or "associate" as those terms are defined in Rule
12b-2 of the General Rules and Regulations under the Securities
Exchange Act of 1934 as in effect from time to time, and (ii) the
outstanding shares of any class of stock of the Corporation shall
include shares deemed owned through application of clauses (A)


                                5



<PAGE>

and (B) above but shall not include any other shares which may be
issuable pursuant to any agreement, or upon exercise of
conversion rights or warrants, or otherwise.

                   (c)   This Section (4) shall apply to the
following transactions:

                              (i)    The merger, consolidation or
         statutory share exchange of the Corporation with or into
         any Principal Shareholder.

                              (ii)   The issuance of any
         securities of the Corporation to any Principal
         Shareholder for cash except upon (1) reinvestment of
         dividends pursuant to a dividend reinvestment plan of
         the Corporation or (2) issuance of any securities of the
         Corporation upon the exercise of any stock subscription
         rights distributed by the Corporation or (3) a public
         offering by the Corporation registered under the
         Securities Act of 1933.

                              (iii)  The sale, lease or exchange
         of all or any substantial part of the assets of the
         Corporation to any Principal Shareholder (except assets
         having an aggregate fair market value of less than
         $1,000,000, aggregating for the purpose of such
         computation all assets sold, leased or exchanged in any
         series of similar transactions within a twelve-month
         period).

                              (iv)   The sale, lease or exchange
         to the Corporation or any subsidiary thereof, in
         exchange for securities of the Corporation, of any
         assets of any Principal Shareholder (except assets
         having an aggregate fair market value of less than
         $1,000,000, aggregating for the purposes of such
         computation all assets sold, leased or exchanged in any
         series of similar transactions within a twelve-month
         period).

                   (d)   The provisions of this Section (4) shall
not be applicable to (i) any of the transactions described in
Paragraph (c) of this Section if the Continuing Directors of the
Corporation (as defined below) shall by resolution have approved
a memorandum of understanding with such Principal Shareholder
with respect to and substantially consistent with such
transaction, or (ii) any such transaction with any corporation of
which a majority of the outstanding shares of all classes of
stock normally entitled to vote in elections of directors is
owned of record or beneficially by the Corporation and its
subsidiaries.  A "Continuing Director" is a Director who (i) was


                                6



<PAGE>

a Director on the date of the closing of the initial public
offering of the Corporation's Common Stock or (ii) subsequently
became a Director and whose election, or nomination for election
by the Corporation's stockholders, was approved by a vote of a
majority of the Continuing Directors then on the Board of
Directors.

                   (e)   The Board of Directors shall have the
power and duty to determine for the purposes of this Section 4 on
the basis of information known to the Corporation, whether (i) a
corporation, person or entity beneficially owns more than five
percent (5%) of the outstanding shares of any class of stock of
the Corporation, (ii) a corporation, person or entity is an
"affiliate" or "associate" (as defined above) of another, (iii)
the assets being acquired or leased to or by the Corporation, or
any subsidiary thereof, constitute a substantial part of the
assets of the Corporation and have an aggregate fair market value
of less than $1,000,000, and (iv) the memorandum of understanding
referred to in Paragraph (d) hereof is substantially consistent
with the transaction covered thereby.  Any such determination
shall be conclusive and binding for all purposes of this Article.

                   (5)   Any determination made in good faith by
or pursuant to the direction of the Board of Directors, as to the
amount of the assets, debts, obligations, or liabilities of the
Corporation, as to the amount of any reserves or charges set up
and the propriety thereof, as to the time of or purpose for
creating such reserves or charges, as to the use, alteration or
cancellation of any reserves or charges (whether or not any debt,
obligation or liability for which such reserves or charges shall
have been created shall have been paid or discharged or shall be
then or thereafter required to be paid or discharged), as to the
value of or the method of valuing any investment owned or held by
the Corporation, as to the market value or fair value of any
investment or fair value of any other asset of the Corporation,
as to the number of shares of the Corporation outstanding, as to
the estimated expense to the Corporation in connection with
purchases of its shares, as to the ability to liquidate
investments in an orderly fashion, or as to any other matters
relating to the issue, sale, purchase or other acquisition or
disposition of investments or shares of the Corporation, shall be
final and conclusive and shall be binding upon the Corporation
and all holders of its shares, past, present and future, and
shares of the Corporation are issued and sold on the condition
and understanding that any and all such determinations shall be
binding as aforesaid.

                   (6)   The liquidation or dissolution of the
Corporation and any amendments to the Charter to terminate the
Corporations existence shall require the affirmative vote of
seventy-five percent (75%) of the outstanding shares of Common


                                7



<PAGE>

Stock of the Corporation, provided, however, that if a majority
of the Continuing Directors shall have approved the liquidation
or dissolution of the Corporation, such action shall require the
affirmative vote of a majority of the votes entitled to be cast.

         EIGHTH:   (1)   To the fullest extent that limitations
on the liability of directors and officers are permitted by the
Maryland General Corporation Law, no director or officer of the
Corporation shall have any liability to the Corporation or its
stockholders for money damages.  This limitation on liability
applies to events occurring at the time a person serves as a
director or officer of the Corporation whether or not such person
is a director or officer at the time of any proceeding in which
liability is asserted.

                   (2)   The Corporation shall indemnify and
advance expenses to its currently acting and its former directors
to the fullest extent that indemnification of directors is
permitted by the Maryland General Corporation Law.  The
Corporation shall indemnify and advance expenses to its officers
to the same extent as its directors and to such further extent as
is consistent with law.  The Board of Directors may by Bylaw,
resolution or agreement make further provisions for
indemnification of directors, officers, employees and agents to
the fullest extent permitted by the Maryland General Corporation
Law.

                   (3)   No provision of this Article EIGHTH
shall be effective to protect or purport to protect any director
or officer of the Corporation against any liability to the
Corporation or its security holders to which he would otherwise
be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the
conduct to his office.

                   (4)   References to the Maryland General
Corporation Law in this Article EIGHTH are to that law as from
time to time amended.  No amendment to the Charter of the
Corporation shall affect any right of any person under this
Article EIGHTH based on any event, omission or proceeding prior
to the amendment.

         NINTH:    (1)   The Corporation reserves the right to
amend, alter, change or repeal any provision contained in the
Charter in the manner now or hereafter prescribed by the laws of
the State of Maryland, including any amendment which alters the
contract rights, as expressly set forth in the Charter, of any
outstanding stock, and all rights conferred upon stockholders
herein are granted subject to this reservation.




                                8



<PAGE>

                   (2)   Notwithstanding Section (1) of this
Article NINTH or any other provisions of the Charter, no
amendment to the Charter shall amend, alter, change or repeal any
of the provisions of Article THIRD, Article SIXTH, Sections (3),
(4) and (6) of Article SEVENTH and this Article NINTH unless the
amendment effecting such amendment, alteration, change or repeal
shall receive the affirmative vote of seventy-five percent (75%)
of the outstanding shares of Common Stock of the Corporation.
Such affirmative vote shall be in addition to the vote of the
holders of the stock of the Corporation otherwise required by law
or any agreement between the Corporation and any national
securities exchange.

          [Remainder of page intentionally left blank]







































                                9



<PAGE>

         IN WITNESS WHEREOF, the undersigned, being the
incorporator of the Corporation, has adopted and signed these
Amended Articles of Incorporation for the purpose of forming the
corporation described herein pursuant to the Maryland General
Corporation Law and does hereby acknowledge that said adoption
and signing are her act.


                                       /s/Kathleen K. Clarke
                                       Kathleen K. Clarke


Dated:  November 29, 2001








































                               10
00250209.AK4

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99
<SEQUENCE>4
<FILENAME>national_powers00250209aj1.txt
<DESCRIPTION>POWERS OF ATTORNEY
<TEXT>



<PAGE>

                        POWER OF ATTORNEY

         KNOW ALL PERSONS BY THESE PRESENTS, that the person
whose signature appears below hereby revokes all prior powers
granted by the undersigned to the extent inconsistent herewith
and constitutes and appoints John D. Carifa, Edmund P. Bergan,
Jr., Domenick Pugliese and Andrew L. Gangolf and each of them, to
act severally as attorneys-in-fact and agents, with power of
substitution and resubstitution, for the undersigned in any and
all capacities, solely for the purpose of signing the respective
Registration Statements, and any amendments thereto, on Form N-2
of Alliance National Municipal Income Fund, Inc., and filing the
same, with exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that said attorneys-in-fact, or
their substitute or substitutes, may do or cause to be done by
virtue hereof.

                             /s/ John D. Carifa
                             _________________________
                                 John D. Carifa


Dated: December 10, 2001



<PAGE>

                        POWER OF ATTORNEY

         KNOW ALL PERSONS BY THESE PRESENTS, that the person
whose signature appears below hereby revokes all prior powers
granted by the undersigned to the extent inconsistent herewith
and constitutes and appoints John D. Carifa, Edmund P. Bergan,
Jr., Domenick Pugliese and Andrew L. Gangolf and each of them, to
act severally as attorneys-in-fact and agents, with power of
substitution and resubstitution, for the undersigned in any and
all capacities, solely for the purpose of signing the respective
Registration Statements, and any amendments thereto, on Form N-2
of Alliance National Municipal Income Fund, Inc., and filing the
same, with exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that said attorneys-in-fact, or
their substitute or substitutes, may do or cause to be done by
virtue hereof.


                             /s/ Ruth Block
                             _________________________
                                 Ruth Block


Dated: December 10, 2001



<PAGE>

                        POWER OF ATTORNEY

         KNOW ALL PERSONS BY THESE PRESENTS, that the person
whose signature appears below hereby revokes all prior powers
granted by the undersigned to the extent inconsistent herewith
and constitutes and appoints John D. Carifa, Edmund P. Bergan,
Jr., Domenick Pugliese and Andrew L. Gangolf and each of them, to
act severally as attorneys-in-fact and agents, with power of
substitution and resubstitution, for the undersigned in any and
all capacities, solely for the purpose of signing the respective
Registration Statements, and any amendments thereto, on Form N-2
of Alliance National Municipal Income Fund, Inc., and filing the
same, with exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that said attorneys-in-fact, or
their substitute or substitutes, may do or cause to be done by
virtue hereof.


                             /s/ David H. Dievler
                             _________________________
                                 David H. Dievler


Dated: December 10, 2001



<PAGE>

                        POWER OF ATTORNEY

         KNOW ALL PERSONS BY THESE PRESENTS, that the person
whose signature appears below hereby revokes all prior powers
granted by the undersigned to the extent inconsistent herewith
and constitutes and appoints John D. Carifa, Edmund P. Bergan,
Jr., Domenick Pugliese and Andrew L. Gangolf and each of them, to
act severally as attorneys-in-fact and agents, with power of
substitution and resubstitution, for the undersigned in any and
all capacities, solely for the purpose of signing the respective
Registration Statements, and any amendments thereto, on Form N-2
of Alliance National Municipal Income Fund, Inc., and filing the
same, with exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that said attorneys-in-fact, or
their substitute or substitutes, may do or cause to be done by
virtue hereof.


                             /s/ John H. Dobkin
                             _________________________
                                 John H. Dobkin


Dated: December 10, 2001



<PAGE>

                        POWER OF ATTORNEY

         KNOW ALL PERSONS BY THESE PRESENTS, that the person
whose signature appears below hereby revokes all prior powers
granted by the undersigned to the extent inconsistent herewith
and constitutes and appoints John D. Carifa, Edmund P. Bergan,
Jr., Domenick Pugliese and Andrew L. Gangolf and each of them, to
act severally as attorneys-in-fact and agents, with power of
substitution and resubstitution, for the undersigned in any and
all capacities, solely for the purpose of signing the respective
Registration Statements, and any amendments thereto, on Form N-2
of Alliance National Municipal Income Fund, Inc., and filing the
same, with exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that said attorneys-in-fact, or
their substitute or substitutes, may do or cause to be done by
virtue hereof.


                             /s/ William H. Foulk, Jr.
                             _________________________
                                 William H. Foulk, Jr.


Dated: December 10, 2001



<PAGE>

                        POWER OF ATTORNEY

         KNOW ALL PERSONS BY THESE PRESENTS, that the person
whose signature appears below hereby revokes all prior powers
granted by the undersigned to the extent inconsistent herewith
and constitutes and appoints John D. Carifa, Edmund P. Bergan,
Jr., Domenick Pugliese and Andrew L. Gangolf and each of them, to
act severally as attorneys-in-fact and agents, with power of
substitution and resubstitution, for the undersigned in any and
all capacities, solely for the purpose of signing the respective
Registration Statements, and any amendments thereto, on Form N-2
of Alliance National Municipal Income Fund, Inc., and filing the
same, with exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that said attorneys-in-fact, or
their substitute or substitutes, may do or cause to be done by
virtue hereof.


                             /s/ James M. Hester
                             _________________________
                                 James M. Hester


Dated: December 10, 2001



<PAGE>

                        POWER OF ATTORNEY

         KNOW ALL PERSONS BY THESE PRESENTS, that the person
whose signature appears below hereby revokes all prior powers
granted by the undersigned to the extent inconsistent herewith
and constitutes and appoints John D. Carifa, Edmund P. Bergan,
Jr., Domenick Pugliese and Andrew L. Gangolf and each of them, to
act severally as attorneys-in-fact and agents, with power of
substitution and resubstitution, for the undersigned in any and
all capacities, solely for the purpose of signing the respective
Registration Statements, and any amendments thereto, on Form N-2
of Alliance National Municipal Income Fund, Inc., and filing the
same, with exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that said attorneys-in-fact, or
their substitute or substitutes, may do or cause to be done by
virtue hereof.


                             /s/ Clifford L. Michel
                             _________________________
                                 Clifford L. Michel


Dated: December 10, 2001



<PAGE>

                        POWER OF ATTORNEY

         KNOW ALL PERSONS BY THESE PRESENTS, that the person
whose signature appears below hereby revokes all prior powers
granted by the undersigned to the extent inconsistent herewith
and constitutes and appoints John D. Carifa, Edmund P. Bergan,
Jr., Domenick Pugliese and Andrew L. Gangolf and each of them, to
act severally as attorneys-in-fact and agents, with power of
substitution and resubstitution, for the undersigned in any and
all capacities, solely for the purpose of signing the respective
Registration Statements, and any amendments thereto, on Form N-2
of Alliance National Municipal Income Fund, Inc., and filing the
same, with exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that said attorneys-in-fact, or
their substitute or substitutes, may do or cause to be done by
virtue hereof.


                             /s/ Donald J. Robinson
                             _________________________
                                 Donald J. Robinson


Dated: December 10, 2001




























00250209.AJ1

</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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