United States
Securities and Exchange Commission
Washington, D.C. 20549
Form N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-07510
ACM MUNICIPAL SECURITIES INCOME FUND, INC.
(Exact name of registrant as specified in charter)
1345 Avenue of the Americas, New York, New York 10105
(Address of principal
executive offices) (Zip code)
Mark R. Manley
AllianceBernstein L.P.
1345 Avenue of the Americas
New York, New York 10105
(Name and address of agent
for service)
Registrant's telephone number, including area code: (800) 221-5672
Date of fiscal year end: October 31, 2007
Date of reporting period: April 30, 2007
ITEM 1. REPORTS TO STOCKHOLDERS.
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SEMI-ANNUAL REPORT
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ACM Municipal Securities Income Fund
Semi-Annual Report
April 30, 2007
[LOGO]
AllianceBernstein
Investments
Investment Products Offered
o Are Not FDIC Insured
o May Lose Value
o Are Not Bank Guaranteed
You may obtain a description of the Fund's proxy voting policies and
procedures, and information regarding how the Fund voted proxies relating to
portfolio securities during the most recent 12-month period ended June 30,
without charge. Simply visit AllianceBernstein's web site at
www.alliancebernstein.com, or go to the Securities and Exchange Commission's
(the "Commission") web site at www.sec.gov, or call AllianceBernstein(R) at
(800) 227-4618.
The Fund files its complete schedule of portfolio holdings with the Commission
for the first and third quarters of each fiscal year on Form N-Q. The Fund's
Forms N-Q are available on the Commission's web site at www.sec.gov. The Fund's
Forms N-Q may also be reviewed and copied at the Commission's Public Reference
Room in Washington, DC; information on the operation of the Public Reference
Room may be obtained by calling (800) SEC-0330.
AllianceBernstein Investments, Inc. is an affiliate of AllianceBernstein L.P.,
the manager of the AllianceBernstein funds, and is a member of the NASD.
AllianceBernstein(R) and the AB Logo are registered trademarks and service
marks used by permission of the owner, AllianceBernstein L.P.
June 15, 2007
Semi-Annual Report
This report provides management's discussion of fund performance for ACM
Municipal Securities Income Fund (the "Fund") for the semi-annual reporting
period ended April 30, 2007. The Fund is a closed-end fund. As of the close of
business on May 18, 2007, the acquisition of the assets and the assumption of
the liabilities of ACM Municipal Securities Income Fund by AllianceBernstein
National Municipal Income Fund, Inc., took place, pursuant to a plan of
reorganization approved by the shareholders of ACM Municipal Securities Income
Fund. AllianceBernstein National Municipal Income Fund is a closed-end fund
that trades under the New York Stock Exchange symbol "AFB".
Investment Objective and Policies
This closed-end fund seeks high current income exempt from regular federal
income tax. The Fund will invest a substantial portion of its assets in
investment-grade municipal securities, with up to 20% of the Fund's total
assets invested in unrated municipal securities of equivalent credit quality
as determined by the Fund's adviser. The Fund is designed for investors who are
not subject to the federal Alternative Minimum Tax ("AMT"), as all or a
significant portion of the Fund's dividends may be subject to such tax. The
Fund expects that it will invest a significant portion of its assets in
municipal securities, the interest on which is subject to such tax. For more
information regarding the Fund's risks, please see "A Word About Risk" on page
3 and "Note G--Risks Involved in Investing in the Fund" of the Notes to
Financial Statements on page 25.
Investment Results
The table on page 4 provides performance data for the Fund and its benchmark,
the Lehman Brothers (LB) Municipal Index, for the six- and 12-month periods
ended April 30, 2007.
The Fund underperformed its benchmark during the six-month reporting period
ended April 30, 2007, and outperformed the benchmark during the 12-month period
ended April 30, 2007. The Fund's relative underperformance during the six-month
period under review was largely the result of the Fund's relative weight in the
industrial revenue bond and transportation sectors. Security selection in the
industrial revenue bond sector also detracted from the Fund's performance.
Security selection in the hospital sector benefited the Fund's performance.
In general, the Fund's leveraged structure did not aid performance relative to
the benchmark over the six-month reporting period as both short- and long-term
rates rose. Over the 12-month period, however, long-term rates declined and
short-term rates were nearly unchanged, and as a result the Fund's leveraged
structure benefited relative performance.
Market Review and Investment Strategy
Short-term rates rising more than long-term rates and a continued strong bid
for lower-quality bonds drove municipal bond returns over the six-month
reporting period. Consistent with the pattern in the U.S. Treasury market, in
general, the shorter the municipal bond's maturity, the more its yield
increased over the past six months. Yields
ACM Municipal Securities Income Fund o 1
for bonds maturing within 20 years rose by up to 0.15%; those maturing in 30
years rose only 0.03%.
The difference between long-term and short-term municipal bonds is near the
lowest that it has been over the past 30 years. The average of this difference
has been 230 basis points since the early 1970s and is a mere 43 basis points
today. Issuers responded to low long-term interest rates by selling a record
$104 billion in bonds during the first quarter of 2007--49% more than the same
period in 2006.
Investors' demand for income continued to be a significant influence in the
municipal market. High-yield municipal funds accounted for about 40% of the
money invested in municipal mutual funds. Speculative-grade bonds were the
best-performing sector as demand drove prices up, causing the LB Municipal High
Yield Index to return 3.41%-over twice the 1.59% return of the LB Municipal
Index which represents only the investment-grade portion of the municipal
market.
One result of the continued strong performance of lower-rated bonds is that the
extra yield for assuming credit risk is very small by historical standards. For
example, the difference in yield between intermediate BBB-rated and AAA-rated
insured municipal bonds stood at only 0.23% at quarter-end. A widening of just
0.05% would negate the income benefit of owning lower-rated bonds over a
12-month period.
The low levels of compensation for assuming credit risk or interest rate risk
have been engendered, at least in part, by benign economic and inflation
outlooks, as well as by the strongest municipal balance sheets in a very long
time. It is impossible to know when investors will become more risk averse, or
what the catalyst will be. However, with so little reward for taking risk, the
Fund's Municipal Bond Investment Team found the best values in high-quality
bonds and has focused new purchases on bonds maturing in 10-15 years rather
than longer maturities which provide only marginally more income.
2 o ACM Municipal Securities Income Fund
HISTORICAL PERFORMANCE
An Important Note About the Value of Historical Performance
The performance on the following page represents past performance and does not
guarantee future results. Current performance may be lower or higher than the
performance information shown. All fees and expenses related to the operation
of the Fund have been deducted. Performance assumes reinvestment of
distributions and does not account for taxes.
ACM Municipal Securities Income Fund Shareholder Information
Weekly comparative net asset value (NAV) and market price information about the
Fund is published each Monday in The Wall Street Journal, each Sunday in The
New York Times and each Saturday in Barron's and other newspapers in a table
called "Closed-End Bond Funds." For additional shareholder information
regarding this Fund, please see page 43.
Benchmark Disclosure
The unmanaged Lehman Brothers (LB) Municipal Index does not reflect fees and
expenses associated with the active management of a fund portfolio. The Index
is a total return performance benchmark for the long-term, investment grade,
tax-exempt bond market. An investor cannot invest directly in an index, and its
results are not indicative of the performance for any specific investment,
including the Fund.
A Word About Risk
Among the risks of investing in the Fund are changes in the general level of
interest rates or bond credit quality ratings. Changes in interest rates have a
greater effect on bonds with longer maturities than on those with shorter
maturities. Please note, as interest rates rise, existing bond prices fall and
can cause the value of your investment in the Fund to decline. While the Fund
invests principally in bonds and other fixed-income securities, in order to
achieve its investment objectives, the Fund may at times use certain types of
investment derivatives, such as options, futures, forwards and swaps. These
instruments involve risks different from, and in certain cases, greater than,
the risks presented by more traditional investments. At the discretion of the
Fund's Adviser, the Fund may invest up to 20% of its total assets in securities
that are not rated and up to 10% in securities that are not readily marketable.
Leverage Risk - The Fund may use certain investment techniques that have
increased risks. For example, the issuance of the Fund's preferred stock
results in leveraging of the Common Stock, an investment technique usually
considered speculative. The Fund utilizes leveraging to seek to enhance the
yield and net asset value of its Common Stock. However, these objectives cannot
be achieved in all interest rate environments. Leverage creates certain risks
for holders of Common Stock, including higher volatility of both the net asset
value and market value of the Common Stock, and fluctuations in the dividend
rates on the Preferred Stock will affect the return to holders of Common Stock.
To leverage, the Fund issues Preferred Stock, which pays dividends at
prevailing short-term interest rates, and invests the proceeds in long-term
municipal bonds. If the Fund were fully invested in longer-term securities and
if short-term interest rates were to increase, then the amount of dividends
paid on the preferred shares would increase and both net investment income
available for distribution to the holders of Common Stock and the net asset
value of the Common Stock would decline. At the same time, the market value of
the Fund's Common Stock (that is, its price as listed on the New York Stock
Exchange) may, as a result, decline. Furthermore, if long-term interest rates
rise, the Common Stock's net asset value will reflect the full decline in the
price of the portfolio's investments, since the value of the Fund's Preferred
Stock does not fluctuate. In addition to the decline in net asset value, the
market value of the Fund's Common Stock may also decline.
(Historical Performance continued on next page)
ACM Municipal Securities Income Fund o 3
HISTORICAL PERFORMANCE
(continued from previous page)
THE FUND VS. ITS BENCHMARK Returns
PERIODS ENDED APRIL 30, 2007 6 Months 12 Months
ACM Municipal Securities Income Fund (NAV) 1.17% 7.33%
LB Municipal Index 1.59% 5.78%
The Fund's Market Price per share on April 30, 2007 was $10.96. The Fund's
Net Asset Value Price per share on April 30, 2007 was $11.28. For additional
Financial Highlights, please see page 31.
See Historical Performance and Benchmark disclosures on previous page.
4 o ACM Municipal Securities Income Fund
PORTFOLIO SUMMARY
April 30, 2007 (unaudited)
PORTFOLIO STATISTICS
Net Assets ($mil): $125.8
QUALITY RATING DISTRIBUTION*
[ ] 56.0% AAA [PIE CHART OMITTED]
[ ] 20.2% AA
[ ] 10.8% A
[ ] 11.0% BBB
[ ] 2.0% BB
* All data are as of April 30, 2007. The Fund's quality rating distribution
is expressed as a percentage of the Fund's total investments rated in
particular ratings categories by Standard & Poor's Rating Services and Moody's
Investors Service. The distributions may vary over time. If ratings are not
available, the Fund's Adviser will assign ratings that are considered to be of
equivalent quality to such ratings.
ACM Municipal Securities Income Fund o 5
PORTFOLIO OF INVESTMENTS
April 30, 2007 (unaudited)
Principal
Amount
(000) U.S. $ Value
-------------------------------------------------------------------------
MUNICIPAL OBLIGATIONS-169.1%
Long-Term Municipal Bonds-169.1%
Alabama-5.8%
Jefferson Cnty Ltd Oblig Sch Warrants
Ser 04A
5.25%, 1/01/18-1/01/23 $ 1,825 $ 1,948,490
Jefferson Cnty Swr Rev
(Capital Improvement Warrants)
FGIC Ser 02 (Prerefunded)
5.00%, 2/01/41 1,535 1,626,993
Jefferson Cnty Wtr & Swr Rev
FGIC Ser 02B (Prerefunded)
5.00%, 2/01/41 2,465 2,615,143
Montgomery Spl Care Facs Fin Auth
(Baptist Health)
Ser 04C (Prerefunded)
5.25%, 11/15/29 1,000 1,092,830
------------
7,283,456
Alaska-8.5%
Alaska Intl Arpt Rev
MBIA Ser 03B
5.00%, 10/01/26 1,000 1,045,660
Alaska Muni Bond Bank Auth
MBIA Ser 03E (Prerefunded)
5.25%, 12/01/26 3,000 3,213,120
MBIA Ser 04G
5.00%, 2/15/22 1,585 1,669,591
Anchorage Waste Wtr Rev
MBIA Ser 04
5.125%, 5/01/29 2,300 2,437,793
Four Dam Pool Alaska
Ser 04
5.25%, 7/01/25 2,195 2,297,419
------------
10,663,583
Arizona-2.3%
Arizona Cap Facs Fin Corp Student Hsg Rev
(Arizona St Univ Proj)
Ser 00
6.25%, 9/01/32 1,550 1,610,992
Phoenix Civic Impt Corp Waste Wtr Sys Rev
MBIA Ser 04
5.00%, 7/01/23 1,250 1,323,113
------------
2,934,105
California-14.2%
Burbank Redev Agy
FGIC Ser 03
5.625%, 12/01/28 2,700 2,987,631
6 o ACM Municipal Securities Income Fund
Principal
Amount
(000) U.S. $ Value
-------------------------------------------------------------------------
California GO
5.00%, 2/01/32 $ 2,450 $ 2,545,599
Ser 04
5.00%, 2/01/33 1,100 1,142,922
California State Dept of Wtr Res Pwr Sup Rev
(Prerefunded)
Ser 02A
5.375%, 5/01/22 2,000 2,175,780
Golden St Tobacco Securitization Corp.
RADIAN Ser 03 (Prerefunded)
5.50%, 6/01/43 2,250 2,463,435
XLCA Ser 03B (Prerefunded)
5.50%, 6/01/33 3,000 3,284,580
Pomona COP
AMBAC Ser 03
5.50%, 6/01/34 3,000 3,304,590
------------
17,904,537
Colorado-4.5%
Colorado Hlth Facs Auth
(Evangelical Lutheran)
5.25%, 6/01/19 700 747,348
Colorado Hlth Facs Auth
(Parkview Med Ctr)
Ser 04
5.00%, 9/01/25 760 777,313
Colorado Toll Rev
(Hwy E-470)
Ser 00 (Prerefunded)
Zero Coupon, 9/01/35 10,000 1,338,600
Northwest Metro Dist No. 3 GO
6.125%, 12/01/25 500 530,405
Park Creek Metro Dist Rev Ltd
(Ref-Sr-Ltd Tax Ppty Tax)
Ser 05
5.25%, 12/01/25 1,160 1,213,650
Todd Creek Farms Metro Dist No 1
6.125%, 12/01/22 580 593,873
Todd Creek Farms Metro Dist No 1 Wtr Rev
(Ref & Impt)
Ser 04
6.125%, 12/01/19 400 421,348
------------
5,622,537
Florida-17.7%
Florida Hsg Fin Corp Rev MFHR
(Westlake Apts) AMT
FSA Ser 02-D1
5.40%, 3/01/42(a) 8,780 9,007,753
ACM Municipal Securities Income Fund o 7
Principal
Amount
(000) U.S. $ Value
-------------------------------------------------------------------------
Lee Cnty Hlth Facs Auth Rev
(Shell Point)
Ser 99A (Prerefunded)
5.50%, 11/15/29 $ 3,670 $ 3,851,738
Miami Beach Hlth Facs Auth Hosp Rev
(Mount Sinai Med Ctr)
Ser 04
6.75%, 11/15/24(b) 2,000 2,274,300
Miami-Dade Cnty Spl Oblig
MBIA Ser 04B
5.00%, 4/01/24 4,000 4,202,320
Orange Cnty Hospital Rev
(Orlando Regional)
Ser 02 (Prerefunded)
5.75%, 12/01/32 1,400 1,543,402
UCF Assn Inc.
FGIC Ser 04A
5.125%, 10/01/24 1,325 1,402,314
------------
22,281,827
Hawaii-2.1%
Hawaii State Dept of Budget & Fin Spl
Purp Rev
(Elec Co & Subsidiary Prog)
XLCA Ser 03B
5.00%, 12/01/22 2,500 2,587,750
Illinois-10.9%
Chicago Arpt Rev
(O'Hare Int'l Arpt)
XLCA Ser 03B-1
5.25%, 1/01/34 3,100 3,287,240
Chicago GO
FSA Ser 04A
5.00%, 1/01/25 2,165 2,269,743
Chicago Hsg Agy SFMR
(Mortgage Rev) AMT
GNMA/ FNMA Ser 02B
6.00%, 10/01/33 545 559,257
Chicago Park Dist GO
(Ltd Tax)
AMBAC Ser 04A
5.00%, 1/01/25 2,585 2,734,542
Cook Cnty Sch Dist
FSA Ser 04
5.00%, 12/01/20(c) 1,000 1,031,880
Illinois Fin Auth
(Loyola Univ Chicago)
XLCA Ser 04A
5.00%, 7/01/24 1,495 1,568,225
8 o ACM Municipal Securities Income Fund
Principal
Amount
(000) U.S. $ Value
-------------------------------------------------------------------------
Illinois Fin Auth Rev
(Illinois Inst of Technology)
Ser 06A
5.00%, 4/01/31 $ 365 $ 371,818
Met Pier & Expo Auth
(McCormick Place)
MBIA Ser 02A
5.25%, 6/15/42 1,750 1,851,185
------------
13,673,890
Indiana-2.5%
Hendricks Cnty Bldg Facs Corp.
Ser 04
5.50%, 7/15/21 1,045 1,140,262
Indiana Bd Bk Rev
FSA Ser 04B
5.00%, 2/01/21 1,100 1,159,081
Indiana St Dev Fin Auth Rev
(Exempt Facs Inland Steel)
Ser 97
5.75%, 10/01/11 865 884,411
------------
3,183,754
Iowa-0.1%
Coralville Urban Rev
Series 07C
5.00%, 6/01/18(d) 100 103,930
Louisiana-2.4%
Ernest N Morial-New Orleans
(Exhibit Hall Auth Spl Tax)
AMBAC Ser A
5.25%, 7/15/16-7/15/17 1,185 1,272,035
New Orleans GO MBIA
5.25%, 12/01/20 1,000 1,080,170
New Orleans Ltd. Tax MBIA
5.00%, 3/01/18 660 701,666
------------
3,053,871
Massachusetts-10.2%
Massachusetts GO
(Prerefunded)
Ser 02C
5.25%, 11/01/30 5,000 5,369,300
Massachusetts Hlth & Ed Fac Hosp Rev
(New England Med Ctr)
MBIA Ser 94
7.375%, 7/01/18(e)(f) 5,000 5,013,800
Massachusetts Hsg Fin Agy
(Rental Rev)
AMBAC Ser 95E
6.00%, 7/01/41 1,740 1,838,623
ACM Municipal Securities Income Fund o 9
Principal
Amount
(000) U.S. $ Value
-------------------------------------------------------------------------
Massachusetts Hsg Fin Agy MFHR
(Rental Rev) AMT
MBIA Ser 00H
6.65%, 7/01/41 $ 540 $ 572,962
------------
12,794,685
Michigan-5.2%
Kent Hosp Fin Auth
(Metropolitan Hospital Proj)
Ser 05A
5.75%, 7/01/25 310 332,047
Michigan Hosp Fin Auth
(Trinity Health)
Ser 00A
6.00%, 12/01/27 3,000 3,234,510
Saginaw Hosp Fin Auth
(Covenant Med Ctr)
Ser 00F
6.50%, 7/01/30 2,775 3,014,594
------------
6,581,151
Minnesota-1.4%
Shakopee Health Care Facs
(St Francis Regl Med Center)
Ser 04
5.10%, 9/01/25 1,200 1,248,240
St. Paul Hsg & Redev Auth Hosp Rev
(Healtheast Proj)
Ser 05
6.00%, 11/15/25 500 554,020
------------
1,802,260
Mississippi-4.1%
Adams Cnty Poll Ctl Rev
(International Paper Co) AMT
Ser 99
6.25%, 9/01/23 1,000 1,057,130
Gulfport Hosp Fac Rev
(Mem Hosp at Gulfport Proj)
Ser 01A
5.75%, 7/01/31 4,000 4,127,800
------------
5,184,930
Missouri-0.2%
Riverside MO IDA
(Riverside Horizons Proj)
Series 07A
5.00%, 5/01/27(d) 180 186,593
10 o ACM Municipal Securities Income Fund
Principal
Amount
(000) U.S. $ Value
-------------------------------------------------------------------------
Nevada-1.7%
Carson City Hosp Rev
(Carson-Tahoe Hosp Proj)
RADIAN Ser 03A
5.00%, 9/01/23 $ 2,100 $ 2,154,810
New Hampshire-0.7%
New Hampshire Health & Ed Facs
(Covenant Health)
Ser 04
5.375%, 7/01/24 820 866,543
New Jersey-5.2%
Morris-Union Jointure Commn COP
RADIAN Ser 04
5.00%, 5/01/24 2,000 2,085,620
New Jersey St Edl Facs Auth Rev
AMBAC Ser 02A (Prerefunded)
5.25%, 9/01/21 4,200 4,511,976
------------
6,597,596
New Mexico-4.9%
Dona Ana Cnty Tax Rev
AMBAC Ser 03
5.25%, 5/01/25 500 531,105
Univ of New Mexico
FSA Ser 04
5.00%, 1/01/24-7/01/24 5,430 5,668,649
------------
6,199,754
New York-3.5%
Erie Cnty IDA Sch Fac Rev
(Buffalo Sch Dist Proj) FSA
5.75%, 5/01/24 810 898,347
New York City GO
Ser 04I
5.00%, 8/01/21 3,300 3,471,633
------------
4,369,980
North Carolina-3.9%
Charlotte NC Arpt Rev
MBIA Ser 04A
5.25%, 7/01/24 1,000 1,076,470
North Carolina Eastern Municipal Pwr Agy
Pwr Sys Rev
AMBAC Ser 05A
5.25%, 1/01/20 3,500 3,817,415
------------
4,893,885
North Dakota-1.8%
North Dakota Hsg Fin Agy SFMR
(Mortgage Rev) AMT
Ser 98E
5.25%, 1/01/30 1,760 1,774,661
ACM Municipal Securities Income Fund o 11
Principal
Amount
(000) U.S. $ Value
-------------------------------------------------------------------------
Ward Cnty ND Health Care Fac
(Trinity Health)
5.125%, 7/01/18 $ 500 $ 523,220
------------
2,297,881
Ohio-5.4%
Cuyahoga Cnty Hosp Facs Rev
(University Hosp Hlth)
Ser 00
7.50%, 1/01/30 2,400 2,644,032
Fairfield Cnty Hosp Rev
(Fairfield Med Ctr Proj)
RADIAN Ser 03
5.00%, 6/15/23 1,255 1,288,521
Ohio Hsg Fin Agy MFHR
(Mortgage Rev) AMT
GNMA Ser 97
6.15%, 3/01/29 2,295 2,342,484
Port Auth of Columbiana Cnty SWR
(Apex Environmental LLC) AMT
Ser 04A
7.125%, 8/01/25 500 509,520
------------
6,784,557
Oregon-1.2%
Forest Grove Rev
(Ref & Campus Impt Pacific Proj A)
RADIAN Ser 05A
5.00%, 5/01/28 1,420 1,478,845
Pennsylvania-4.4%
Pennsylvania Eco Dev Auth
(30th St Station ) AMT
ACA Ser 02
5.875%, 6/01/33 2,050 2,210,289
Philadelphia Gas Wks Rev
ASSURED GTY Ser 04A-1
5.25%, 9/01/19-8/01/21 3,045 3,258,665
------------
5,468,954
Puerto Rico-1.8%
Puerto Rico Comwlth GO
(Pub Impt)
5.25%, 7/01/23 575 617,320
Ser 01A
5.50%, 7/01/19 500 560,360
Ser 03A
5.25%, 7/01/23 500 529,045
Puerto Rico Comwlth Govt Dev Bank
(Sr Notes)
Ser 06B
5.00%, 12/01/15 500 533,370
------------
2,240,095
12 o ACM Municipal Securities Income Fund
Principal
Amount
(000) U.S. $ Value
-------------------------------------------------------------------------
Rhode Island-2.3%
Rhode Island Hlth & Ed Bldg Corp Rev
(Times2 Academy)
Ser 04
5.00%, 12/15/24 $ 1,745 $ 1,793,860
Rhode Island Hlth & Edl Bldg Corp Rev
(Univ of Rhode Island)
AMBAC Ser 04A
5.50%, 9/15/24 1,000 1,099,530
------------
2,893,390
South Carolina-4.2%
Charleston Cnty Sch Dist
5.25%, 12/01/30 2,000 2,133,560
Dorchester Cnty Sch Dist No 2
ASSURED GTY
5.00%, 12/01/29 800 841,632
Newberry Investing In Childrens Ed
(Newberry Cnty Sch Dist Proj)
ASSURED GTY Ser 05
5.00%, 12/01/27 1,560 1,631,900
Ser 05
5.00%, 12/01/30 165 168,924
Scago Edl Facs Corp For Sch
RADIAN
5.00%, 12/01/21 500 523,620
------------
5,299,636
Tennessee-8.8%
Johnson City Hlth & Ed Facs Hosp Rev
(First Mtg-MTN Sts Hlth)
Ser 06A
5.50%, 7/01/31 640 683,117
Sullivan Cnty Tenn Health Edl
(Wellmont Health Sys Proj)
5.25%, 9/01/26 725 755,899
Tenn Ed Loan Rev
(Educational Funding of South) AMT
Ser 97A
6.20%, 12/01/21 9,600 9,619,872
------------
11,058,888
Texas-19.8%
Bexar Cnty Hlth Fac Dev Corp Rev
5.00%, 7/01/27 155 157,959
Dallas Arpt Rev
(Fort Worth Intl Arpt) AMT
MBIA Ser 03A
5.25%, 11/01/25 2,000 2,098,580
Frisco TX GO FGIC
5.00%, 2/15/23 3,220 3,419,543
Garza Cnty Pub Fac Corp
5.50%, 10/01/19 255 274,923
ACM Municipal Securities Income Fund o 13
Principal
Amount
(000) U.S. $ Value
-------------------------------------------------------------------------
Harris Cnty
(Flood Ctl)
Ser 03B
5.00%, 10/01/23 $ 1,400 $ 1,466,332
Harris Cnty Toll Road Rev
FSA Ser 02
5.125%, 8/15/32 5,000 5,238,500
Hidalgo Cnty Hlth Svcs
(Mission Hosp Inc Proj)
Ser 05
5.00%, 8/15/14-8/15/19 325 331,851
Lewisville Combination Contract
(Spl Assmt Cap Impt Dist No 2)
ACA Ser 05
6.00%, 10/01/25 550 610,467
Lower Colorado River Auth Tx
(Prerefunded)
AMBAC Series 03
5.25%, 5/15/25 125 135,179
Lower Colorado River Auth MBIA Series 02A
(Prerefunded)
5.00%, 5/15/31 10 10,680
(Unrefunded)
MBIA Series 02A
5.00%, 5/15/31 1,490 1,552,923
Lower Colorado River Authority
(Unrefunded)
AMBAC Series 03
5.25%, 5/15/25 1,675 1,786,220
Matagorda Cnty Rev
(Centerpoint Energy Houston Electric LLC)
Ser 04
5.60%, 3/01/27 1,000 1,059,170
Mc Allen Wtr & Swr Rev
FSA
5.25%, 2/01/21-2/01/22 3,215 3,465,745
Richardson Hosp Auth Rev
(Richardson Regional Med Ctr)
FSA Ser 04
5.875%, 12/01/24 1,155 1,247,920
Ser 04
6.00%, 12/01/19 915 997,249
Seguin Hgr Ed Auth
(Texas Lutheran Univ Project)
Ser 04
5.25%, 9/01/28 1,000 1,026,830
------------
24,880,071
Utah-2.1%
Davis Cnty Sales Tax Rev
AMBAC Ser 03B
5.25%, 10/01/23 1,005 1,072,044
14 o ACM Municipal Securities Income Fund
Principal
Amount
(000) U.S. $ Value
-------------------------------------------------------------------------
Salt Lake City Wtr Rev
AMBAC Ser 04
5.00%, 7/01/23 $ 1,500 $ 1,577,265
------------
2,649,309
Washington-1.2%
Seattle Hsg Auth Rev MFHR
(Wisteria Ct Proj)
GNMA Ser 03
5.20%, 10/20/28 1,475 1,545,918
Wisconsin-4.1%
Wisconsin GO
Ser 03
5.00%, 11/01/26 3,700 3,817,882
Wisconsin Hlth & Ed Fac Auth Rev
(Bell Tower Residence Proj)
Ser 05
5.00%, 7/01/20 1,300 1,352,013
------------
5,169,895
Total Investments-169.1%
(cost $204,874,889) 212,692,866
Other assets less liabilities-2.5% 3,068,082
Preferred Stock at redemption value-(71.6)% (90,000,000)
Net Assets Applicable to Common
Shareholders-100.0%(g) $125,760,948
============
INTEREST RATE SWAP TRANSACTIONS (see Note D)
Rate Type
====================
Payments Payments
Notional made received Unrealized
Swap Amount Termination by the by the Appreciation/
Counterparty (000) Date Portfolio Portfolio (Depreciation)
===========================================================================
CitiGroup, Inc. $ 2,700 11/10/26 3.884% BMA $ 6,850
JPMorgan Chase 7,500 11/10/11 BMA 3.482% 16,134
Merrill Lynch 290 2/12/12 BMA 3.548% 1,358
(a) Position, or a portion thereof, has been segregated to collateralize
interest rate swaps.
(b) Private Placement.
(c) Indicates a security that has a zero coupon that remains in effect until
a predetermined date at which time the stated coupon rate becomes effective
until final maturity.
(d) When-Issued security.
(e) Position, or a portion thereof, has been segregated to collateralize when
issued securities.
(f) Inverse Floater Security-Security with variable or floating interest rate
that moves in the opposite direction of short-term interest rates.
(g) Portfolio percentages are calculated based on net assets applicable to
common shareholders.
ACM Municipal Securities Income Fund o 15
Glossary:
ACA - American Capital Access Financial Guaranty Corporation
AMBAC - American Bond Assurance Corporation
AMT - Alternative Minimum Tax (subject to)
ASSURED GTY - Assured Guaranty
BMA - Bond Market Association
COP - Certificate of Participation
FGIC - Financial Guaranty Insurance Company
FNMA - Federal National Mortgage Association
FSA - Financial Security Assurance Inc.
GNMA - Government National Mortgage Association
GO - General Obligation
IDA - Industrial Development Authority/Agency
MBIA - Municipal Bond Investors Assurance
MFHR - Multi-Family Housing Revenue
MTN - Medium Term Note
RADIAN - Radian Group, Inc.
SFMR - Single Family Mortgage Revenue
SWR - Solid Waste Revenue
XLCA - XL Capital Assurance Inc.
See notes to financial statements.
16 o ACM Municipal Securities Income Fund
STATEMENT OF ASSETS & LIABILITIES
April 30, 2007 (unaudited)
Assets
Investments in securities, at value (cost $204,874,889) $ 212,692,866
Interest receivable 3,498,857
Unrealized appreciation of swap contracts 24,342
Prepaid expenses 10,923
Total assets 216,226,988
--------------
Liabilities
Due to custodian 6,301
Payable for investment securities purchased 289,664
Advisory fee payable 85,617
Accrued expenses and other liabilities 41,075
Dividend payable--preferred shares 34,227
Administrative fee payable 9,156
Total liabilities 466,040
--------------
Preferred Stock, at redemption value
$.01 par value per share; 3,600 shares
Auction Preferred Stock authorized,
issued and outstanding at $25,000
per share liquidation preference 90,000,000
Net Assets Applicable to Common Shareholders $ 125,760,948
==============
Composition of Net Assets Applicable to
Common Shareholders
Common Stock, $.01 par value per share;
99,996,400 shares authorized,
11,145,261 shares issued and outstanding $ 111,453
Additional paid-in capital 140,181,561
Distributions in excess of net investment income (225,850)
Accumulated net realized loss on investment transactions (22,148,535)
Net unrealized appreciation of investments 7,842,319
--------------
Net Assets Applicable to Common Shareholders $ 125,760,948
==============
Net Asset Value Applicable to Common Shareholders
(based on 11,145,261 common shares outstanding) $ 11.28
==============
See notes to financial statements.
ACM Municipal Securities Income Fund o 17
STATEMENT OF OPERATIONS
Six Months Ended April 30, 2007 (unaudited)
Investment Income
Interest $ 5,289,564
Expenses
Advisory fee $ 537,181
Administrative 161,154
Auction Preferred Stock--auction
agent's fees 111,701
Custodian 53,532
Audit 37,598
Legal 33,340
Printing 22,676
Directors' fees and expenses 17,000
Registration fees 11,765
Transfer agency 3,267
Miscellaneous 18,310
------------
Total expenses 1,007,524
Less: Administration fee reimbursement
(see Note B) (107,436)
------------
Net expenses 900,088
------------
Net investment income 4,389,476
------------
Realized and Unrealized Gain (Loss)
on Investments
Net realized gain (loss) on:
Investment transactions 71,527
Swap contracts (4,753)
Net change in unrealized
appreciation/depreciation of:
Investments (1,474,979)
Swap contracts 24,342
------------
Net loss on investment transactions (1,383,863)
------------
Dividends to Auctioned Preferred
Shareholders from
Net investment income (1,586,021)
------------
Net Increase in Net Assets Applicable
to Common Shareholders Resulting
from Operations $ 1,419,592
============
See notes to financial statements.
18 o ACM Municipal Securities Income Fund
STATEMENT OF CHANGES IN NET ASSETS
APPLICABLE TO COMMON SHAREHOLDERS
Six Months Ended Year Ended
April 30, 2007 October 31,
(unaudited) 2006
================ ================
Increase (Decrease) in Net Assets
Applicable to Common Shareholders
Resulting from Operations
Net investment income $ 4,389,476 $ 9,142,471
Net realized gain on investment
transactions 66,774 421,027
Net change in unrealized
appreciation/depreciation
of investments (1,450,637) 2,911,954
Dividends to Auction Preferred
Shareholders from
Net investment income (1,586,021) (2,924,685)
---------------- ----------------
Net increase in net assets
applicable to common shareholders
resulting from operations 1,419,592 9,550,767
Dividends to Common
Shareholders from
Net investment income (3,009,005) (6,714,555)
---------------- ----------------
Total increase (decrease) (1,589,413) 2,836,212
Net Assets Applicable to Common
Shareholders
Beginning of period 127,350,361 124,514,149
---------------- ----------------
End of period (including distributions in
excess of net investment income of
($225,850) and ($20,300),
respectively) $ 125,760,948 $ 127,350,361
================ ================
See notes to financial statements.
ACM Municipal Securities Income Fund o 19
NOTES TO FINANCIAL STATEMENTS
April 30, 2007 (unaudited)
NOTE A
Significant Accounting Policies
ACM Municipal Securities Income Fund, Inc. (the "Fund") was incorporated in the
state of Maryland on February 11, 1993 and is registered under the Investment
Company Act of 1940 as a diversified, closed-end management investment company.
The financial statements have been prepared in conformity with U.S. generally
accepted accounting principles, which require management to make certain
estimates and assumptions that affect the reported amounts of assets and
liabilities in the financial statements and amounts of income and expenses
during the reporting period. Actual results could differ from those estimates.
The following is a summary of significant accounting policies followed by the
Fund.
1. Security Valuation
Portfolio securities are valued at their current market value determined on the
basis of market quotations or, if market quotations are not readily available
or are deemed unreliable, at "fair value" as determined in accordance with
procedures established by and under the general supervision of the Fund's Board
of Directors.
In general, the market value of securities which are readily available and
deemed reliable are determined as follows. Securities listed on a national
securities exchange (other than securities listed on the NASDAQ Stock Market,
Inc. ("NASDAQ")) or on a foreign securities exchange are valued at the last
sale price at the close of the exchange or foreign securities exchange. If
there has been no sale on such day, the securities are valued at the mean of
the closing bid and asked prices on such day. Securities listed on more than
one exchange are valued by reference to the principal exchange on which the
securities are traded; securities listed only on NASDAQ are valued in
accordance with the NASDAQ Official Closing Price; listed put or call options
are valued at the last sale price. If there has been no sale on that day, such
securities will be valued at the closing bid prices on that day; open futures
contracts and options thereon are valued using the closing settlement price or,
in the absence of such a price, the most recent quoted bid price. If there are
no quotations available for the day of valuation, the last available closing
settlement price is used; securities traded in the over-the-counter market,
(OTC) are valued at the mean of the current bid and asked prices as reported by
the National Quotation Bureau or other comparable sources; U.S. Government
securities and other debt instruments having 60 days or less remaining until
maturity are valued at amortized cost if their original maturity was 60 days or
less; or by amortizing their fair value as of the 61st day prior to maturity if
their original term to maturity exceeded 60 days; fixed-income securities,
including mortgage backed and asset backed securities, may be valued on the
basis of prices provided by a pricing service or at a price obtained from one
or more of the major broker/dealers. In cases where broker/dealer quotes are
obtained, AllianceBernstein L.P. (prior to February 24, 2006 known as Alliance
Capital Management L.P.), (the "Adviser") may establish procedures
20 o ACM Municipal Securities Income Fund
whereby changes in market yields or spreads are used to adjust, on a daily
basis, a recently obtained quoted price on a security; and OTC and other
derivatives are valued on the basis of a quoted bid price or spread from a
major broker/dealer in such security.
Securities for which market quotations are not readily available (including
restricted securities) or are deemed unreliable are valued at fair value.
Factors considered in making this determination may include, but are not
limited to, information obtained by contacting the issuer, analysts, analysis
of the issuer's financial statements or other available documents. In addition,
the Fund may use fair value pricing for securities primarily traded in non-U.S.
markets because most foreign markets close well before the Fund values its
securities at 4:00 p.m., Eastern Time. The earlier close of these foreign
markets gives rise to the possibility that significant events, including broad
market moves, may have occurred in the interim and may materially affect the
value of those securities.
2. Taxes
It is the Fund's policy to meet the requirements of the Internal Revenue Code
applicable to regulated investment companies and to distribute substantially
all of its investment company taxable income and net realized gains, if any, to
shareholders. Therefore, no provisions for federal income or excise taxes are
required.
3. Investment Income and Investment Transactions
Interest income is accrued daily. Investment transactions are accounted for on
the trade date securities are purchased or sold. Investment gains and losses
are determined on the identified cost basis. The Fund amortizes premiums and
accretes original issue discounts and market discounts as adjustments to
interest income.
4. Dividends and Distributions
Dividends and distributions to shareholders are recorded on the ex-dividend
date. Income and capital gains distributions are determined in accordance with
federal tax regulations and may differ from those determined in accordance with
U.S. generally accepted accounting principles. To the extent these differences
are permanent, such amounts are reclassified within the capital accounts based
on their federal tax basis treatment; temporary differences do not require such
reclassification.
NOTE B
Advisory, Administrative Fees and Other Transactions with Affiliates
Under the terms of an investment advisory agreement, the Fund pays the Adviser
an advisory fee at an annual rate of .50 of 1% of the average weekly net assets
of the Fund. Such fee is accrued daily and paid monthly.
ACM Municipal Securities Income Fund o 21
Under the terms of a Shareholder Inquiry Agency Agreement with
AllianceBernstein Investor Services, Inc. (prior to February 24, 2006 known as
Alliance Global Investor Services, Inc.) ("ABIS"), an affiliate of the Adviser,
the Fund reimburses ABIS for costs relating to servicing phone inquiries
for the Fund. During the six months ended April 30, 2007, there was no
reimbursement paid to ABIS.
Under the terms of an Administration Agreement, the Fund is required to pay
AllianceBernstein L.P. (the "Administrator") an administration fee at an annual
rate of .15 of 1% of the average weekly net assets of the Fund. Such fee is
accrued daily and paid monthly. Effective February 11, 2005, the Administrator
has voluntarily agreed to reimburse the Fund for administrative expenses at an
annual rate of .10 of 1% of the average weekly net assets of the Fund. For the
six months ended April 30, 2007, the amount of such reimbursement was $107,436.
The Administrator has engaged Prudential Investments LLC
(the "Sub-Administrator"), an indirect, wholly-owned subsidiary of Prudential
Financial, Inc., to act as sub-administrator. The Administrator, out of its own
assets, will pay the Sub-Administrator a monthly fee equal to an annual rate of
..10 of 1% of the Fund's average weekly net assets. The Sub-Administrator
prepares financial and regulatory reports for the Fund and provides other
clerical services.
NOTE C
Investment Transactions
Purchases and sales of investment securities (excluding short-term investments)
for the six months ended April 30, 2007, were as follows:
Purchases Sales
=========== ===========
Investment securities (excluding
U.S. government securities) $ 1,680,414 $ 3,254,889
U.S. government securities -0- -0-
The cost of investments for federal income tax purposes, was substantially the
same as the cost for financial reporting purposes. Gross unrealized
appreciation and unrealized depreciation are as follows:
Gross unrealized appreciation $ 9,038,008
Gross unrealized depreciation (1,220,031)
-----------
Net unrealized appreciation $ 7,817,977
===========
1. Swap Agreements
The Fund may enter into swaps to hedge its exposure to interest rates and
credit risk and for investment purposes. A swap is an agreement that obligates
two parties to exchange a series of cash flows at specified intervals based
upon or calculated by reference to changes in specified prices or rates for a
specific amount
22 o ACM Municipal Securities Income Fund
of an underlying asset. The payment flows are usually netted against each
other, with the difference being paid by one party to the other.
Risks may arise as a result of the failure of the counterparty to the swap
contract to comply with the terms of the swap contract. The loss incurred by
the failure of the counterparty is generally limited to the net interest
payment to be received by the Fund, and/or the termination value at the end of
the contract. Therefore, the Fund considers the creditworthiness of each
counterparty to a swap contract in evaluating potential credit risk.
Additionally, risks may arise from unanticipated movements in interest rates or
in the value of the underlying securities.
As of November 1, 2003, the Fund has adopted the method of accounting for
interim payments on swap contracts in accordance with Financial Accounting
Standards Board Statement No. 133. The Fund accrues for the interim payments on
swap contracts on a daily basis, with the net amount recorded within unrealized
appreciation/depreciation of swap contracts on the statement of assets and
liabilities. Once the interim payments are settled in cash, the net amount is
recorded as realized gain/loss on swaps, in addition to realized gain/loss
recorded upon the termination of swap contracts on the statement of operations.
Prior to November 1, 2003, these interim payments were reflected within
interest income/expense in the statement of operations. Fluctuations in the
value of swap contracts are recorded as a component of net change in unrealized
appreciation/depreciation of investments.
2. Financial Futures Contracts
The Fund may buy or sell financial futures contracts for the purpose of hedging
the portfolio against adverse effects of anticipated movements in the market.
The Fund bears the market risk that arises from changes in the value of these
financial instruments and the imperfect correlation between movements in the
price of the futures contracts and movements in the price of the securities
hedged or used for cover.
At the time the Fund enters into a futures contract, the Fund deposits and
maintains as collateral an initial margin with the broker, as required by the
exchange on which the transaction is effected. Pursuant to the contract, the
Fund agrees to receive from or pay to the broker an amount of cash equal to the
daily fluctuation in the value of the contract. Such receipts or payments are
known as variation margin and are recorded by the Fund as unrealized gains or
losses. Risks may arise from the potential inability of the counterparty to
meet the terms of the contract. When the contract is closed, the Fund records a
realized gain or loss equal to the difference between the value of the contract
at the time it was opened and the time it was closed.
ACM Municipal Securities Income Fund o 23
NOTE D
Distributions To Common Shareholders
The tax character of distributions paid to common shareholders during the
fiscal years ended October 31, 2006 and October 31, 2005 were as follows:
2006 2005
=============== ==============
Distributions paid from:
Ordinary income $ 341,789 $ 262,628
Tax-exempt income 6,372,766 7,610,983
--------------- --------------
Total distributions paid $ 6,714,555 $ 7,873,611
=============== ==============
As of October 31, 2006, the components of accumulated earnings/(deficit)
applicable to common shareholders on a tax basis were as follows:
Accumulated capital and other losses $ (22,077,895)(a)
Unrealized appreciation/(depreciation) 9,155,542(b)
--------------
Total accumulated earnings/(deficit) $ (12,922,353)(c)
==============
(a) On October 31, 2006, the Fund had a net capital loss carryforward of
$22,077,895 of which $4,722,588 expires in the year 2007, $10,294,946 expires
in the year 2008, $1,971,343 expires in the year 2010, and $5,089,018 expires
in the year 2011. To the extent future capital gains are offset by capital loss
carryforward, such gains will not be distributed. During the fiscal year
October 31, 2006, the Fund utilized capital loss carryforwards of $462,472.
(b) The difference between book-basis and tax-basis unrealized
appreciation/(depreciation) is attributable primarily to the tax deferral of
losses on wash sales.
(c) The difference between book-basis and tax-basis components of accumulated
earnings/(deficits) is attributable primarily to dividends payable.
During the prior fiscal year, permanent differences, primarily due to
distributions in excess of net investment income, resulted in a net decrease in
distributions in excess of net investment income and a decrease in additional
paid in capital. This reclassification had no effect on net assets.
NOTE E
Common Stock
There are 99,996,400 shares of $0.01 par value common stock authorized. There
are 11,145,261 shares of common stock outstanding at April 30, 2007. During the
six months ended April 30, 2007 and the year ended October 31, 2006, the Fund
did not issue any shares in connection with the Fund's dividend reinvestment
plan.
NOTE F
Preferred Stock
The Fund has issued and outstanding 3,600 shares of Auction Preferred Stock,
consisting of 1,200 shares each of Series A, Series B and Series C. The
preferred shares have a liquidation value of $25,000 per share plus
accumulated, unpaid dividends.
24 o ACM Municipal Securities Income Fund
The dividend rate on Series A is 3.85%, effective through May 1, 2007. The
dividend rate on Series B is 3.80%, effective through May 6, 2007. The dividend
rate on Series C is 3.88%, effective through May 2, 2007.
At certain times, the Preferred Shares are redeemable by the Fund, in whole or
in part, at $25,000 per share plus accumulated, unpaid dividends.
Although the Fund will not ordinarily redeem the Preferred Shares, it may be
required to redeem shares if, for example, the Fund does not meet an asset
coverage ratio required by law or to correct a failure to meet a rating agency
guideline in a timely manner. The Fund voluntarily may redeem the Preferred
Shares in certain circumstances.
The Preferred Shareholders, voting as a separate class, have the right to elect
at least two Directors at all times and to elect a majority of the Directors in
the event two years' dividends on the Preferred Shares are unpaid. In each
case, the remaining Directors will be elected by the Common Shareholders and
Preferred Shareholders voting together as a single class. The Preferred
Shareholders will vote as a separate class on certain other matters as required
under the Fund's Charter, the Investment Company Act of 1940 and Maryland law.
NOTE G
Risks Involved in Investing in the Fund
Interest Rate Risk and Credit Risk--Interest rate risk is the risk that changes
in interest rates will affect the value of the Fund's investments in
fixed-income debt securities such as bonds or notes. Increases in interest
rates may cause the value of the Fund's investments to decline. Credit risk is
the risk that the issuer or guarantor of a debt security, or the counterparty
to a derivative contract, will be unable or unwilling to make timely principal
and/or interest payments, or to otherwise honor its obligations. The degree of
risk for a particular security may be reflected in its credit risk rating.
Credit risk is greater for medium quality and lower-rated securities.
Lower-rated debt securities and similar unrated securities (commonly known as
"junk bonds") have speculative elements or are predominantly speculative risks.
Leverage Risk--The Fund may use certain investment techniques that have
increase risks. For example, the issuance of the Fund's preferred stock results
in leveraging of the Common Stock, an investment technique usually considered
speculative. The Fund utilizes leveraging to seek to enhance the yield and net
asset value of its Common Stock. However, these objectives cannot be achieved
in all interest rate environments. Leverage creates certain risks for holders
of Common Stock, including higher volatility of both the net asset value and
market value of the Common Stock and fluctuations in the dividend rates on the
Preferred Stock will affect the return to holders of Common Stock. To leverage,
the Fund issues Preferred Stock, which pays dividends at prevailing short-term
ACM Municipal Securities Income Fund o 25
interest rates, and invests the proceeds in long-term municipal bonds. If the
Fund were fully invested in longer-term securities and if short-term interest
rates were to increase, then the amount of dividends paid on the preferred
shares would increase and both net investment income available for distribution
to the holders of Common Stock and the net asset value of the Common Stock
would decline. At the same time, the market value of the Fund's Common Stock
(that is, its price as listed on the New York Stock Exchange) may, as a result,
decline. Furthermore, if long-term interest rates rise, the Common Stock's net
asset value will reflect the full decline in the price of the portfolio's
investments, since the value of the Fund's Preferred Stock does not fluctuate.
In addition to the decline in net asset value, the market value of the Fund's
Common Stock may also decline.
Indemnification Risk--In the ordinary course of business, the Fund enters into
contracts that contain a variety of indemnifications. The Fund's maximum
exposure under these arrangements is unknown. However, the Fund has not had
prior claims or losses pursuant to these indemnification provisions and expects
the risk of loss thereunder to be remote.
NOTE H
Legal Proceedings
As has been previously reported, the staff of the U.S. Securities and Exchange
Commission ("SEC") and the Office of the New York Attorney General ("NYAG")
have been investigating practices in the mutual fund industry identified as
"market timing" and "late trading" of mutual fund shares. Certain other
regulatory authorities have also been conducting investigations into these
practices within the industry and have requested that the Adviser provide
information to them. The Adviser has been cooperating and will continue to
cooperate with all of these authorities. The shares of the Fund are not
redeemable by the Fund, but are traded on an exchange at prices established by
the market. Accordingly, the Fund and its shareholders are not subject to the
market timing and late trading practices that are the subject of the
investigations mentioned above or the lawsuits described below. Please see
below for a description of the agreements reached by the Adviser and the SEC
and NYAG in connection with the investigations mentioned above.
Numerous lawsuits have been filed against the Adviser and certain other
defendants in which plaintiffs make claims purportedly based on or related to
the same practices that are the subject of the SEC and NYAG investigations
referred to above. Some of these lawsuits name the Fund as a party. The
lawsuits are now pending in the United States District Court for the District
of Maryland pursuant to a ruling by the Judicial Panel on Multidistrict
Litigation transferring and centralizing all of the mutual funds involving
market and late trading in the District of Maryland (the "Mutual Fund MDL").
Management of the Adviser believes that these private lawsuits are not likely
to have a material adverse effect on the results of operations or financial
condition of the Fund.
26 o ACM Municipal Securities Income Fund
On December 18, 2003, the Adviser confirmed that it had reached terms with the
SEC and the NYAG for the resolution of regulatory claims relating to the
practice of "market timing" mutual fund shares in some of the AllianceBernstein
Mutual Funds. The agreement with the SEC is reflected in an Order of the
Commission ("SEC Order"). The agreement with the NYAG is memorialized in an
Assurance of Discontinuation dated September 1, 2004 ("NYAG Order"). Among the
key provisions of these agreements are the following:
(i) The Adviser agreed to establish a $250 million fund (the
"Reimbursement Fund") to compensate mutual fund shareholders for the adverse
effects of market timing attributable to market timing relationships described
in the SEC Order. According to the SEC Order, the Reimbursement Fund is to be
paid, in order of priority, to fund investors based on (i) their aliquot share
of losses suffered by the fund due to market timing, and (ii) a proportionate
share of advisory fees paid by such fund during the period of such market
timing;
(ii) The Adviser agreed to reduce the advisory fees it receives from
some of the AllianceBernstein long-term, open-end retail funds, commencing
January 1, 2004, for a period of at least five years; and
(iii) The Adviser agreed to implement changes to its governance and
compliance procedures. Additionally, the SEC Order contemplates that the
Adviser's registered investment company clients, including the Fund, will
introduce governance and compliance changes.
The shares of the Fund are not redeemable by the Fund, but are traded on an
exchange at prices established by the market. Accordingly, the Fund and its
shareholders are not subject to the market timing practices described in the
SEC Order and are not expected to participate in the Reimbursement Fund. Since
the Fund is a closed-end fund, it does not have its advisory fee reduced
pursuant to the terms of the agreements mentioned above.
On February 10, 2004, the Adviser received (i) a subpoena duces tecum from the
Office of the Attorney General of the State of West Virginia and (ii) a request
for information from West Virginia's Office of the State Auditor, Securities
Commission (the "West Virginia Securities Commissioner") (together, the
"Information Requests"). Both Information Requests require the Adviser to
produce documents concerning, among other things, any market timing or late
trading in the Adviser's sponsored mutual funds. The Adviser responded to the
Information Requests and has been cooperating fully with the investigation.
ACM Municipal Securities Income Fund o 27
On April 11, 2005, a complaint entitled The Attorney General of the State of
West Virginia v. AIM Advisors, Inc., et al. ("WVAG Complaint") was filed
against the Adviser, Alliance Capital Management Holding L.P. ("Alliance
Holding"), and various other defendants not affiliated with the Adviser. The
WVAG Complaint was filed in the Circuit Court of Marshall County, West Virginia
by the Attorney General of the State of West Virginia. The WVAG Complaint makes
factual allegations generally similar to those in certain of the complaints
related to the lawsuits discussed above. On October 19, 2005, the WVAG
Complaint was transferred to the Mutual Fund MDL.
On August 30, 2005, the deputy commissioner of securities of the West Virginia
Securities Commissioner signed a Summary Order to Cease and Desist, and Notice
of Right to Hearing addressed to the Adviser and Alliance Holding. The Summary
Order claims that the Adviser and Alliance Holding violated the West Virginia
Uniform Securities Act, and makes factual allegations generally similar to
those in the SEC Order and the NYAG Order. On January 25, 2006, the Adviser and
Alliance Holding moved to vacate the Summary Order. In early September 2006,
the court denied this motion, and the Supreme Court of Appeals in West Virginia
denied the defendants' petition for appeal. On September 22, 2006, the Adviser
and Alliance Holding filed an answer and moved to dismiss the Summary Order
with the West Virginia Securities Commissioner.
On June 22, 2004, a purported class action complaint entitled Aucoin, et al. v.
Alliance Capital Management L.P., et al. ("Aucoin Complaint") was filed against
the Adviser, Alliance Capital Management Holding L.P., Alliance Capital
Management Corporation, AXA Financial, Inc., AllianceBernstein Investment
Research & Management, Inc., certain current and former directors of the
AllianceBernstein Mutual Funds, and unnamed Doe defendants. The Aucoin
Complaint names certain of the AllianceBernstein mutual funds as nominal
defendants. The Fund was not named as a defendant in the Aucoin Complaint. The
Aucoin Complaint was filed in the United States District Court for the Southern
District of New York by alleged shareholders of an AllianceBernstein mutual
fund. The Aucoin Complaint alleges, among other things, (i) that certain of the
defendants improperly authorized the payment of excessive commissions and other
fees from fund assets to broker-dealers in exchange for preferential marketing
services, (ii) that certain of the defendants misrepresented and omitted from
registration statements and other reports material facts concerning such
payments, and (iii) that certain defendants caused such conduct as control
persons of other defendants. The Aucoin Complaint asserts claims for violation
of Sections 34(b), 36(b) and 48(a) of the Investment Company Act, Sections 206
and 215 of the Advisers Act, breach of common law fiduciary duties, and aiding
and abetting breaches of common law fiduciary duties. Plaintiffs seek an
unspecified amount of compensatory damages and punitive damages, rescission
28 o ACM Municipal Securities Income Fund
of their contracts with the Adviser, including recovery of all fees paid to the
Adviser pursuant to such contracts, an accounting of all fund-related fees,
commissions and soft dollar payments, and restitution of all unlawfully or
discriminatorily obtained fees and expenses.
Since June 22, 2004, nine additional lawsuits making factual allegations
substantially similar to those in the Aucoin Complaint were filed against the
Adviser and certain other defendants. All nine of the lawsuits (i) were brought
as class actions filed in the United States District Court for the Southern
District of New York, (ii) assert claims substantially identical to the Aucoin
Complaint, and (iii) are brought on behalf of shareholders of the Funds.
On February 2, 2005, plaintiffs filed a consolidated amended class action
complaint ("Aucoin Consolidated Amended Complaint") that asserts claims
substantially similar to the Aucoin Complaint and the nine additional lawsuits
referenced above. On October 19, 2005, the District Court dismissed each of the
claims set forth in the Aucoin Consolidated Amended Complaint, except for
plaintiffs' claim under Section 36(b) of the Investment Company Act. On January
11, 2006, the District Court granted defendants' motion for reconsideration and
dismissed the remaining Section 36(b) claim. On May 31, 2006 the District Court
denied plaintiffs' motion for leave to file an amended complaint. On July 5,
2006, plaintiffs filed a notice of appeal which was subsequently withdrawn
subject to plaintiffs' right to reinstate it at a later date.
The Adviser believes that these matters are not likely to have a material
adverse effect on the Fund or the Adviser's ability to perform advisory
services relating to the Fund.
NOTE I
Recent Accounting Pronouncements
On July 13, 2006, the Financial Accounting Standards Board ("FASB") released
FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" ("FIN
48"). FIN 48 provides guidance for how uncertain tax positions should be
recognized, measured, presented and disclosed in the financial statements. FIN
48 requires the evaluation of tax positions taken or expected to be taken in
the course of preparing the Fund's tax returns to determine whether the tax
positions are "more-likely-than-not" of being sustained by the applicable tax
authority. Tax positions not deemed to meet the more-likely-than-not threshold
would be recorded in the current period. Adoption of FIN 48 is required for
fiscal years beginning after December 15, 2006 and is to be applied to all open
tax years as of the effective date. On December 22, 2006, the Securities and
Exchange Commission notified the industry that the implementation of FIN48 by
registered investment companies could be delayed until the last business day
ACM Municipal Securities Income Fund o 29
of the first required financial statement. For fiscal years beginning after
December 15, 2006.At this time, management is evaluating the implications of
FIN 48 and its impact in the financial statements has not yet been determined.
On September 20, 2006, the FASB released Statement of Financial Accounting
Standards No. 157 "Fair Value Measurements" ("FAS 157"). FAS 157 establishes an
authoritative definition of fair value, sets out a framework for measuring fair
value, and requires additional disclosures about fair-value measurements. The
application of FAS 157 is required for fiscal years beginning after November
15, 2007 and interim periods within those fiscal years. At this time,
management is evaluating the implications of FAS 157 and its impact on the
financial statements has not yet been determined.
NOTE J
Subsequent Events
On May 18, 2007, the Alliance National Municipal Fund (the "Fund") acquired all
of the net assets of the ACM Municipal Securities Income Fund, pursuant to a
plan of reorganization approved by the shareholders of ACM Municipal Securities
Income Fund. On May 18, 2007, the acquisition was accomplished by a tax-free
exchange of 8,132,697 common shares and 3,600 shares of Auction Preferred stock
of the Fund for 11,145,261 common shares and 3,600 shares of Auction Preferred
stock of ACM Municipal Securities Income Fund. The aggregate net assets
applicable to common shareholders of the Fund and ACM Municipal Securities
Income Fund immediately before the acquisition were $313,569,265 and
$124,260,444 (including $6,907,265 of net unrealized appreciation of
investments). Immediately after the acquisition, the combined net assets
applicable to common and preferred shareholders of the Fund amounted to
$722,829,709.
30 o ACM Municipal Securities Income Fund
FINANCIAL HIGHLIGHTS
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Six Months
Ended
April 30, Year Ended October 31,
2007 -------------------------------------------------------
(unaudited) 2006 2005 2004(a) 2003 2002
---------------------------------------------------------------------------
Net asset value,
beginning
of period $ 11.43 $ 11.17 $ 11.38 $ 11.05 $ 10.85 $ 12.10
Income From
Investment
Operations
Net investment
Income .39 .82 .84 .88 .97 1.08
Net realized and
unrealized gain
(loss) on
investment
transactions (.13) .30 (.17) .41 .12 (1.32)
Dividends to
preferred
shareholders
from net
investment
income
(common stock
equivalent basis) (.14) (.26) (.17) (.09) (.09) (.14)
Net increase
(decrease) in
net asset value
from operations .12 .86 .50 1.20 1.00 (.38)
Less: Dividends
to Common
Shareholders
Dividends from net
investment income (.27) (.60) (.71) (.87) (.80) (.87)
Net asset value,
end of period $ 11.28 $ 11.43 $ 11.17 $ 11.38 $ 11.05 $ 10.85
Market price,
end of period $ 10.96 $ 10.64 $ 10.41 $ 12.09 $ 11.62 $ 11.50
Premium (Discount) (2.84)% (6.91)% (6.80)% 6.24% 5.16% 5.99%
Total Return
Total investment
return based
on:(b)
Market price 5.60% 8.18% (8.09)% 12.34% 8.53% (2.44)%
Net asset value 1.17% 8.31% 4.77% 11.20% 9.39% (3.35)%
Ratios/Supplemental
Data
Net assets,
applicable
to common
shareholders,
end of period
(000's omitted) $125,761 $127,350 $124,514 $126,739 $122,322 $119,323
Preferred stock, at
redemption value
($25,000 per
share liquidation
preference)
(000's omitted) $90,000 $90,000 $90,000 $90,000 $90,000 $90,000
Ratios to average
net assets
applicable
to common
shareholders of:
Expenses(c) 1.43%(d)(e) 1.46%(d) 1.49%(d) 1.65% 1.71% 1.65%
Net investment
income, before
preferred stock
dividends(c) 6.99%(d)(e) 7.34%(d) 7.39%(d) 7.87% 8.78% 9.32%
Preferred stock
dividends 2.53%(e) 2.35% 1.50% .79% .84% 1.19%
Net investment
income, net of
preferred stock
dividends 4.46%(d)(e) 4.99%(d) 5.89%(d) 7.08% 7.94% 8.13%
Portfolio turnover
rate 1% 17% 13% 36% 32% 24%
Asset coverage
ratio 240% 242% 238% 241% 236% 233%
See footnote summary on page 32.
ACM Municipal Securities Income Fund o 31
(a) As of November 1, 2003, the Fund has adopted the method of accounting for
interim payments on swap contracts in accordance with Financial Accounting
Standards Board Statement No. 133. These interim payments are reflected within
net realized and unrealized gain (loss) on swap contracts, however, prior to
November 1, 2003, these interim payments were reflected within interest
income/expense on the statement of operations. For the year ended October 31,
2004, the effect of this change to the net investment income and the net
realized and unrealized gain (loss) on investment transactions was less than
$0.01 per share and the ratio of net investment income to average net assets
was less than .01%.
(b) Total investment return is calculated assuming a purchase of common stock
on the opening of the first day and a sale on the closing of the last day of
each period reported. Dividends and distributions, if any, are assumed for
purposes of this calculation, to be reinvested at prices obtained under the
Fund's dividend reinvestment plan. Generally, total investment return based on
net asset value will be higher than total investment return based on market
value in periods where there is an increase in the discount or a decrease in
the premium of the market value to net asset value from the beginning to the
end of such periods. Conversely, total investment return based on net asset
value will be lower than total investment return based on market value in
periods where there is a decrease in the discount or an increase in the premium
of the market value to the net asset value from the beginning to the end of the
period. Total investment returns for periods of less than one full year are not
annualized.
(c) These expense and net investment income ratios do not reflect the effect
of dividend payments to preferred shareholders.
(d) Net of fee waiver. If the Administrator had not waived expenses, the
ratios to average net assets applicable to common shareholders for expenses,
net investment income before preferred stock dividends and net investment
income net of preferred stock dividends would have been 1.60%, 6.82% and 4.29%,
respectively, for the six months ended April 30, 2007, 1.63%, 7.16% and 4.82%,
respectively, for the year ended October 31, 2006 and 1.61%, 7.26% and 5.76%,
respectively, for the year ended October 31, 2005.
32 o ACM Municipal Securities Income Fund
SUPPLEMENTAL PROXY INFORMATION
(unaudited)
The Special Meeting of Stockholders of ACM Municipal Securities Income Fund,
Inc. ("the Fund") was held on February 22, 2007 and adjourned until March 15,
2007 and April 13, 2007. A description of the proposal and number of shares
voted at the meeting are as follows:
Proposal Voted For Against Abstain
===============================================================================
Common Stock:
Acquisition by Alliance National Municipal 5,802,291 283,872 261,730
Income Fund, Inc. of all the assets and
the assumption of all of the liabilities of
the Fund in exchange for shares of
Alliance National Municipal Income Fund,
Inc.'s common stock and preferred stock
to the holders of, respectively, the Fund's
common stock and preferred stock.
Preferred Stock:
Acquisition by Alliance National Municipal 1,496 60 314
Income Fund, Inc. of all the assets and
the assumption of all of the liabilities of
the Fund in exchange for shares of
Alliance National Municipal Income Fund,
Inc.'s common stock and preferred stock
to the holders of, respectively, the Fund's
common stock and preferred stock.
ACM Municipal Securities Income Fund o 33
BOARD OF DIRECTORS
William H. Foulk, Jr.(1), Chairman
Marc O. Mayer, President
David H. Dievler(1)
John H. Dobkin(1)
Michael J.Downey(1)
D. James Guzy(1)
Nancy P. Jacklin(1)
Marshall C. Turner, Jr.(1)
Earl D. Weiner(1)
OFFICERS
Philip L. Kirstein, Senior Vice President and Independent Compliance Officer
Robert B. (Guy) Davidson, III(2), Senior Vice President
Douglas J. Peebles, Senior Vice President
Jeffrey S. Phlegar, Senior Vice President
Michael G. Brooks(2), Vice President
Fred S. Cohen(2), Vice President
Terrance T. Hults(2), Vice President
Emilie D. Wrapp, Secretary
Joseph J. Mantineo, Treasurer and Chief Financial Officer
Thomas R. Manley, Controller
Administrator
AllianceBernstein L.P.
1345 Avenue of the Americas
New York, NY 10105
Sub-Administrator
Prudential Investments LLC
Gateway Center Three
100 MulberryStreet
Newark, NJ 07102-4077
Common Stock: Dividend Paying Agent, Transfer Agent and Registrar
Computershare Trust Company, N.A.
P.O. Box 43010
Providence, RI 02940-3010
Legal Counsel
Seward & Kissel LLP
One Battery Park Plaza
New York, NY 10004
Preferred Stock: Dividend Paying Agent, Transfer Agent and Registrar
The Bank of New York
385 Rifle Camp Road
West Paterson, NJ07424
Independent Registered Public Accounting Firm
Ernst & Young LLP
5 Times Square
New York, NY 10036
Custodian
The Bank of New York
One Wall Street
New York, NY 10286
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940 that the Fund may purchase at market prices from time to
time shares of its Common Stock in the open market.
This report, including the financial statements therein, is transmitted to the
shareholders of ACM Municipal Securities Income Fund for their information.This
is not a prospectus, circular or representation intended for use in the
purchase of shares of the Fund or any securities mentioned in the report.
Annual Certifications--As required, on April 20, 2006, the Fund submitted to
the New York Stock Exchange ("NYSE") the annual certification of the Fund's
Chief Executive Officer certifying that he is not aware of any violation of
the NYSE's Corporate Governance listing standards.The Fund also has included
the certifications of the Fund's Chief Executive Officer and Chief Financial
Officer required by Section 302 of the Sarbanes-Oxley Act of 2002 as exhibits
to the Fund's Form N-CSR filed with the Securities and Exchange Commission for
the annual period.
(1) Member of the Audit Committee, the Governance and Nominating Committee
and the Independent Directors Committee.
(2) The day-to-day management of and investment decisions for the Fund are
made by the Municipal Bond Investment Team. The investment professionals with
the most significant responsibility for the day-to-day management of the Fund's
portfolio are Michael G. Brooks, Fred S. Cohen, Robert B. (Guy) Davidson III
and Terrance T. Hults.
34 o ACM Municipal Securities Income Fund
Information Regarding the Review and Approval of the Fund's Advisory and
Administration Agreements
The Fund's disinterested directors (the "directors") unanimously approved the
continuance of the Advisory Agreement between the Fund and the Adviser and the
continuance of the Administration Agreement between the Adviser (in such
capacity, the "Administrator") and the Fund at a meeting held on October
31-November 2, 2006.
In preparation for the meeting, the directors had requested from the Adviser
and received and evaluated extensive materials, including performance and
expense information for other investment companies with similar investment
objectives as the Fund derived from data compiled by Lipper Inc. ("Lipper"),
which is not affiliated with the Adviser. Prior to voting, the directors
reviewed the proposed continuance of the Advisory Agreement and Administration
Agreement with management and with experienced counsel who are independent of
the Adviser and received a memorandum from such counsel discussing the legal
standards for their consideration of the proposed continuances. The directors
also discussed the proposed continuances in three private sessions at which
only the directors, their independent counsel and the Fund's Independent
Compliance Officer were present. In reaching their determinations relating to
continuance of the Advisory Agreement and the Administration Agreement, the
directors considered all factors they believed relevant, including the
following:
1. information comparing the performance of the Fund to other investment
companies with similar investment objectives and to an index;
2. the nature, extent and quality of investment, compliance,
administrative and other services rendered by the Adviser;
3. payments received by the Adviser from all sources in respect of the
Fund and all investment companies in the AllianceBernstein Funds complex;
4. the costs borne by, and profitability of, the Adviser and its
affiliates in providing services to the Fund and to all investment companies in
the AllianceBernstein Funds complex;
5. comparative fee and expense data for the Fund and other investment
companies with similar investment objectives;
6. the extent to which economies of scale would be realized to the
extent the Fund grows and whether fee levels reflect any economies of scale for
the benefit of investors;
ACM Municipal Securities Income Fund o 35
7. the Adviser's policies and practices regarding allocation of
portfolio transactions of the Fund;
8. portfolio turnover rates for the Fund compared to other investment
companies with similar investment objectives;
9. fall-out benefits that the Adviser and its affiliates receive from
their relationships with the Fund;
10. the Adviser's representation that there are no institutional products
managed by the Adviser which have a substantially similar investment style as
the Fund;
11. the professional experience and qualifications of the Fund's
portfolio management team and other senior personnel of the Adviser;
12. the terms of the Advisory Agreement; and
13. the terms of the Administration Agreement, and the proposed
continuance of the waiver by the Administrator of 10 basis points of its fee
which had been in effect since February 11, 2005 for an additional one-year
period, as discussed below.
The directors also considered their knowledge of the nature and quality of the
services provided by the Adviser to the Fund gained from their experience as
directors or trustees of most of the registered investment companies advised by
the Adviser, their overall confidence in the Adviser's integrity and competence
they have gained from that experience and the Adviser's responsiveness to
concerns raised by them in the past, including the Adviser's willingness to
consider and implement organizational and operational changes designed to
improve investment results and the services provided to the AllianceBernstein
Funds.
In their deliberations, the directors did not identify any particular
information that was all-important or controlling, and different directors may
have attributed different weights to the various factors. The directors
determined that the overall arrangements (i) between the Fund and the Adviser,
as provided in the Advisory Agreement, and (ii) between the Fund and the
Administrator, as provided in the Administration Agreement and taking into
account the proposed continuance of the 10 basis point fee waiver referred to
in No. 13 above, were fair and reasonable in light of the services performed,
expenses incurred and such other matters as the directors considered relevant
in the exercise of their business judgment.
36 o ACM Municipal Securities Income Fund
The material factors and conclusions that formed the basis for the directors
reaching their determinations to approve the continuance of the Advisory
Agreement and Administration Agreement (including their determinations that
the Adviser should continue to be the investment adviser for the Fund, that
the Administrator should continue to be the administrator for the Fund, and
that the fees payable to the Adviser pursuant to the Advisory Agreement and
to the Administrator pursuant to the Administration Agreement (taking into
account the proposed continuance of the Administrator's 10 basis point fee
waiver) are appropriate) were separately discussed by the directors.
Nature, extent and quality of services provided by the Adviser
The directors noted that, under the Advisory Agreement, the Adviser, subject
to the control of the directors, administers the Fund's business and other
affairs. The Adviser manages the investment of the assets of the Fund,
including making purchases and sales of portfolio securities consistent with
the Fund's investment objective and policies. The Adviser also provides the
Fund with such office space, administrative and other services (exclusive of,
and in addition to, any such services provided by any others retained by the
Fund) and executive and other personnel as are necessary for the Fund's
operations. The Adviser pays all of the compensation of directors of the Fund
who are affiliated persons of the Adviser and of the officers of the Fund.
The directors noted that the Advisory Agreement for the Fund does not contain a
reimbursement provision for the cost of certain administrative and other
services provided by the Adviser. The directors noted that the Fund has a
separate Administration Agreement and pays separate administration fees to the
Administrator. The directors noted that under the Administration Agreement, the
Administrator, subject to the supervision of the directors, renders certain
administrative services to the Fund, including specified duties with respect
to, among other things, the preparation of reports required to be sent to
shareholders, the preparation of reports required to be filed with the
Securities and Exchange Commission on Form N-SAR, arranging for the
dissemination to shareholders of proxy materials, negotiating the terms and
conditions under which custodian and dividend disbursing services will be
provided and the related fees, the calculation of net asset value of the Fund,
determining the amounts available for distribution as dividends and
distributions to shareholders, assisting independent accountants of the Fund
with the filing of tax returns, assisting the Adviser in monitoring compliance
of the Fund's operations with the Investment Company Act of 1940, and providing
accounting and bookkeeping services. The directors noted that the
Administration Agreement provides that the Administrator may subcontract with
Prudential Investments LLC ("Prudential") for the provision of all or any part
of the services to be provided
ACM Municipal Securities Income Fund o 37
by it thereunder, and that Prudential has been retained at the Administrator's
expense as the Fund's Sub-Administrator since it commenced operations. The
directors noted that the Sub-Administration Agreement between the Administrator
and Prudential provides that Prudential, subject to the supervision of the
Administrator, renders certain specified administrative services delegated to
Prudential by the Administrator and renders certain other administrative
services to the extent requested by the Administrator. All of the
administrative services performed by Prudential are services that the
Administrator is required to provide to the Fund pursuant to the Administration
Agreement.
The directors considered the scope and quality of services provided by the
Adviser under the Advisory Agreement and by the Administrator under the
Administration Agreement and noted that the scope of services provided by
advisers and administrators of funds had expanded over time as a result of
regulatory and other developments. The directors noted, for example, that the
Adviser (including in its capacity as Administrator) is responsible for
maintaining and monitoring its own and, to varying degrees, the Fund's
compliance programs, and that these compliance programs have recently been
refined and enhanced. The directors considered the quality of the in-house
investment research capabilities of the Adviser and the other resources it has
dedicated to performing services for the Fund. The quality of administrative
and other services, including the Adviser's role in coordinating the activities
of the Fund's other service providers, also were considered. The directors also
considered the Adviser's response to recent regulatory compliance issues
affecting a number of the investment companies in the AllianceBernstein Funds
complex. The directors concluded that, overall, they were satisfied with the
nature, extent and quality of services provided to the Fund under the Advisory
Agreement and the Administration Agreement.
Costs of Services Provided and Profitability to the Adviser
The directors reviewed a schedule of the revenues and expenses indicating the
profitability of the Fund to the Adviser (including in its capacity as
Administrator) for calendar years 2004 and 2005 that had been prepared with an
updated expense allocation methodology arrived at in consultation with an
independent consultant. The directors noted that the updated expense allocation
methodology differed in various respects from the methodology used in prior
years. The directors reviewed the assumptions and methods of allocation used by
the Adviser in preparing fund-specific profitability data, and noted the
Adviser's representation to them that it believed that the methods of
allocation used in preparing the profitability information were reasonable and
appropriate and that the Adviser had previously discussed with the directors
that there is no generally accepted allocation methodology for information of
this type.
38 o ACM Municipal Securities Income Fund
The directors recognized that it is difficult to make comparisons of
profitability from fund advisory and administration contracts because
comparative information is not generally publicly available and is affected by
numerous factors, including the structure of the particular adviser, the types
of funds it manages, its business mix, numerous assumptions regarding
allocations and the adviser's capital structure and cost of capital. In
considering profitability information, the directors considered the effect of
fall-out benefits on the Adviser's expenses. The directors focused on the
profitability of the Adviser's relationship with the Fund before taxes. The
directors recognized that the Adviser should generally be entitled to earn a
reasonable level of profits for the services it provides to the Fund and, based
on their review, concluded that they were satisfied that the Adviser's level of
profitability from its relationship with the Fund was not excessive.
Fall-Out Benefits
The directors considered that the Adviser benefits from soft dollar
arrangements whereby it receives brokerage and research services from many of
the brokers and dealers that execute purchases and sales of securities on
behalf of its clients on an agency basis. The directors noted that since the
Fund does not engage in brokerage transactions, the Adviser does not receive
soft dollar benefits in respect of portfolio transactions of the Fund. The
directors also noted that a subsidiary of the Adviser provides certain
shareholder services to the Fund and receives compensation from the Fund for
such services.
The directors recognized that the Adviser's profitability would be somewhat
lower if the Adviser's subsidiary did not receive the benefits described above.
The directors understood that the Adviser also might derive reputational and
other benefits from its association with the Fund.
Investment Results
In addition to the information reviewed by the directors in connection with the
meeting, the directors receive detailed comparative performance information for
the Fund at each regular Board meeting during the year. At the meeting, the
directors reviewed information prepared by the Adviser showing performance of
the Fund as compared to other funds in the Lipper General Municipal Debt Funds
(Leveraged) Average (the "Lipper Average") for periods ended June 30, 2006 over
the year to date ("YTD"), 1-, 3-, 5- and 10-year and since inception periods
(April 1993 inception) and for each of the last ten calendar years, and as
compared to the Lehman Brothers Municipal Bond Index (the "Index") for periods
ended June 30, 2006 over the YTD, 1-, 3-, 5- and 10-year and since inception
periods. The directors noted that in the Lipper Average comparison (56 funds in
the YTD period, including the Fund), the Fund's performance was significantly
below the Lipper median in the YTD, 1-, 5- and 10-year and since inception
periods, and materially above the Lipper median in the 3-year period,
ACM Municipal Securities Income Fund o 39
and that the Fund's calendar year performance was significantly above the
Lipper median in 2005, 2004, 2003, 2001, 1997 and 1996 and significantly below
the Lipper median in 2002, 2000, 1999 and 1998. The directors further noted
that the Fund underperformed the Index (which is not leveraged) in the YTD,
1-year and since inception periods and outperformed the Index in the 3-, 5- and
10-year periods. Based on their review, the directors concluded that the Fund's
relative performance over time was satisfactory.
Advisory Fees and Other Expenses
The directors considered the latest fiscal period actual combined advisory and
administrative fee rate paid by the Fund to the Adviser and the Administrator
and information prepared by Lipper concerning the fee rates paid by other funds
where there is no separate administrator in the same Lipper category as the
Fund. The directors noted that under the Fund's Sub-Administration Agreement,
the Administrator pays the sub-administrator's fee out of the Administrator's
own assets. The directors also took into account their general knowledge of
advisory fees paid by open-end and closed-end funds that invest in fixed-income
municipal securities. The directors recognized that it is difficult to make
comparisons of advisory fees because there are variations in the services that
are included in the fees paid by other funds.
The directors noted that in connection with the settlement of the market timing
matter with the New York Attorney General in December 2003, the Adviser agreed
to material reductions (averaging 20%) in the fee schedules of most of the
open-end funds sponsored by the Adviser and that such open-end funds had
benefited from such reductions since 2004.
The Adviser informed the directors that there are no institutional products
managed by it that have a substantially similar investment style as the Fund.
The directors reviewed information in the Adviser's Form ADV and noted that it
charges institutional clients lower fees for advising comparably sized accounts
using strategies that differ from those of the Fund but which involved
investments in securities of the same type that the Fund invests in (i.e.,
fixed income municipal securities).
The Adviser reviewed with the directors the significant differences in the
scope of services it provides to institutional clients and to the Fund. For
example, the Advisory Agreement requires the Adviser to provide, in addition to
investment advice, office facilities and officers (including officers to
provide required certifications). The Adviser also coordinates the provision of
services to the Fund by non-affiliated service providers and is responsible for
the compensation of the Fund's Independent Compliance Officer and certain
related expenses. The provision of these non-advisory services involves costs
and exposure to liability. The
40 o ACM Municipal Securities Income Fund
Adviser explained that many of these services normally are not provided to
non-investment company clients and that fees charged to the Fund reflect the
costs and risks of the additional obligations. In light of these facts, the
directors did not place significant weight on these fee comparisons.
The directors noted that at their February 7-10, 2005 meeting, the directors
had considered and approved effective February 11, 2005, the Administrator's
proposal to waive 10 basis points of its fee for a one year period in order
to reduce the fee rate under the Administration Agreement for such period
from 0.15% to 0.5%, and that at their December 14, 2005 meeting the directors
had considered and approved the Administrator's proposal to continue the 10
basis point administration fee waiver. The directors noted that since the
Administrator currently pays Prudential .10% for its services in respect of
the Fund, the Administrator's fee for the Fund would be less than Prudential's
for the one-year period.
The directors also considered the total expense ratio of the Fund in comparison
to the fees and expenses of funds within two comparison groups created by
Lipper: an Expense Group and an Expense Universe. Lipper described an
Expense Group as a representative sample of comparable funds and an Expense
Universe as a broader group, consisting of all funds in the Fund's investment
classification/objective with a similar load type as the Fund. The expense
ratio of the Fund was based on the Fund's latest fiscal year expense ratio. The
Lipper information included pro forma expense ratios provided by the Adviser
assuming the administration fee waiver approved at the February 2005 meeting
had been in effect throughout fiscal 2005. All references to expense ratio are
to the pro forma expense ratio. The directors recognized that the expense ratio
information for the Fund potentially reflected on the Adviser's provision of
services, as the Adviser is responsible for coordinating services provided to
the Fund by others. The directors noted that it was likely that the expense
ratios of some funds in the Fund's Lipper category also were lowered by waivers
or reimbursements by those funds' investment advisers, which in some cases were
voluntary and perhaps temporary.
The information reviewed by the directors showed that the Fund's latest fiscal
year pro forma total actual management fees of 94 basis points (combined
advisory and administration fees paid under the Advisory and Administration
Agreements assuming the 10 basis point fee waiver by the Administrator
effective February 15, 2005 had been in effect throughout fiscal 2005) was
slightly higher than the Expense Group median and materially higher than the
Expense Universe median. The directors noted that Lipper calculates the fee
rate based on the Fund's net assets attributable to common stockholders,
whereas the Fund's advisory and administration contracts provide that fees are
computed based on adjusted total assets (i.e., the average weekly value of the
Fund's total assets,
ACM Municipal Securities Income Fund o 41
including assets attributable to any preferred stock that may be outstanding,
less accrued liabilities of the Fund). The directors also noted that the Fund's
pro forma total expense ratio was somewhat higher than the Expense Group median
and significantly higher than the Expense Universe median. The directors noted
that the Fund's expense ratio was in part due to the Fund's relatively small
size (less than $215 million as of June 30, 2006). The directors concluded that
the Fund's expense ratio was acceptable.
Economies of Scale
The directors considered that the Fund is a closed-end Fund and that it was not
expected to have meaningful asset growth as a result. In such circumstances,
the directors did not view the potential for realization of economies of scale
as the Fund's assets grow to be a material factor in their deliberations. The
directors noted that if the Fund's net assets were to increase materially as a
result of, e.g., an acquisition or rights offering, they would review whether
potential economies of scale would be realized. They noted, however, that such
an increase was very unlikely since the assets and liabilities of the Fund were
expected to be acquired in the near term by a larger fund with a lower expense
ratio, subject to approval by the stockholders of the Fund and the other fund.
42 o ACM Municipal Securities Income Fund
SUMMARY OF GENERAL INFORMATION
Shareholder Information
Daily market prices for the Fund's shares are published in the New York Stock
Exchange Composite Transaction section of The Wall Street Journal under the
abbreviation "ACM MuniSec." The Fund's NYSE trading symbol is "AMU." Weekly
comparative net asset value (NAV) and market price information about the Fund
is published each Monday in The Wall Street Journal, each Sunday in The New
York Times and each Saturday in Barron's and other newspapers in a table called
"Closed-End Bond Funds."
Dividend Reinvestment Plan
A Dividend Reinvestment Plan provides automatic reinvestment of dividends and
capital gains in additional Fund shares.
For questions concerning shareholder account information, or if you would like
a brochure describing the Dividend Reinvestment Plan, please call Computershare
Trust Company, N.A. at (800) 219-4218.
ACM Municipal Securities Income Fund o 43
THIS PAGE IS NOT PART OF THE SHAREHOLDER REPORT OR THE
FINANCIAL STATEMENTS
ALLIANCEBERNSTEIN FAMILY OF FUNDS
--------------------------------------------------
Wealth Strategies Funds
--------------------------------------------------
Balanced Wealth Strategy
Wealth Appreciation Strategy
Wealth Preservation Strategy
Tax-Managed Balanced Wealth Strategy
Tax-Managed Wealth Appreciation Strategy
Tax-Managed Wealth Preservation Strategy
--------------------------------------------------
Blended Style Funds
--------------------------------------------------
U.S. Large Cap Portfolio
International Portfolio
Tax-Managed International Portfolio
--------------------------------------------------
Growth Funds
--------------------------------------------------
Domestic
Growth Fund
Mid-Cap Growth Fund
Large Cap Growth Fund
Small Cap Growth Portfolio
Global & International
Global Health Care Fund
Global Research Growth Fund
Global Technology Fund
Greater China '97 Fund
International Growth Fund
International Research Growth Fund
--------------------------------------------------
Value Funds
--------------------------------------------------
Domestic
Balanced Shares
Focused Growth & Income Fund
Growth & Income Fund
Small/Mid CapValue Fund
Utility Income Fund
Value Fund
Global & International
Global Real Estate Investment Fund*
Global Value Fund
International Value Fund
--------------------------------------------------
Taxable Bond Funds
--------------------------------------------------
Global Government Income Trust
Corporate Bond Portfolio
Emerging Market Debt Fund
Global Strategic Income Trust
High Yield Fund
Intermediate Bond Portfolio
Short Duration Portfolio
U.S. Government Portfolio
--------------------------------------------------
Municipal Bond Funds
--------------------------------------------------
National Michigan
Insured National Minnesota
Arizona New Jersey
California New York
Insured California Ohio
Florida Pennsylvania
Massachusetts Virginia
--------------------------------------------------
Intermediate Municipal Bond Funds
--------------------------------------------------
Intermediate California
Intermediate Diversified
Intermediate New York
--------------------------------------------------
Closed-End Funds
--------------------------------------------------
All-Market Advantage Fund
AllianceBernstein Global High Income Fund*
AllianceBernstein Income Fund*
AllianceBernstein National Municipal
Income Fund*
ACM Managed Dollar Income Fund
ACM Managed Income Fund
California Municipal Income Fund
New York Municipal Income Fund
The Spain Fund
--------------------------------------------------
Retirement Strategies Funds
--------------------------------------------------
2000 Retirement Strategy
2005 Retirement Strategy
2010 Retirement Strategy
2015 Retirement Strategy
2020 Retirement Strategy
2025 Retirement Strategy
2030 Retirement Strategy
2035 Retirement Strategy
2040 Retirement Strategy
2045 Retirement Strategy
We also offer Exchange Reserves,** which serves as the money market fund
exchange vehicle for the AllianceBernstein mutual funds.
You should consider the investment objectives, risks, charges and expenses of
any AllianceBernstein fund/portfolio carefully before investing. For free
copies of our prospectuses, which contain this and other information, visit us
online at www.alliancebernstein.com or contact your financial advisor. Please
read the prospectus carefully before investing.
* Prior to January 26, 2007, AllianceBernstein Global High Income Fund was
named Alliance World Dollar Government Fund II and AllianceBernstein Income
Fund was named ACM Income Fund. Prior to March 1, 2007, Global Real Estate
Investment Fund was named Real Estate Investment Fund. Prior to May 18, 2007,
AllianceBernstein National Municipal Income Fund was named National Municipal
Income Fund.
** An investment in the Fund is not a deposit in a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. Although the Fund seeks to preserve the value of your investment at
$1.00 per share, it is possible to lose money by investing in the Fund.
44 o ACM Municipal Securities Income Fund
Privacy Notice (This information is not part of the Shareholder Report.)
AllianceBernstein L.P., the AllianceBernstein Family of Funds and
AllianceBernstein Investments, Inc. (collectively, "AllianceBernstein" or "we")
understand the importance of maintaining the confidentiality of our clients'
nonpublic personal information. Nonpublic personal information is personally
identifiable financial information about our clients who are natural persons.
To provide financial products and services to our clients, we may collect
information about clients from sources, including: (1) account documentation,
including applications or other forms, which may contain information such as a
client's name, address, phone number, social security number, assets, income,
and other household information, (2) clients' transactions with us and others,
such as account balances and transactions history, and (3) information from
visitors to our websites provided through online forms, site visitorship data,
and online information collecting devices known as "cookies."
It is our policy not to disclose nonpublic personal information about our
clients (or former clients) except to our affiliates, or to others as permitted
or required by law. From time to time, AllianceBernstein may disclose nonpublic
personal information that we collect about our clients (or former clients), as
described above, to non-affiliated third parties, including those that perform
processing or servicing functions and those that provide marketing services for
us or on our behalf under a joint marketing agreement that requires the third
party provider to adhere to AllianceBernstein's privacy policy. We have
policies and procedures to safeguard nonpublic personal information about our
clients (and former clients) that include restricting access to such nonpublic
personal information and maintaining physical, electronic and procedural
safeguards, that comply with applicable standards, to safeguard such nonpublic
personal information.
ACM MUNICIPAL SECURITIES INCOME FUND
1345 Avenue of the Americas
New York, NY 10105
800.221.5672
[LOGO]
AllianceBernstein
Investments
ACMVII-0152-0407
ITEM 2. CODE OF ETHICS.
Not applicable when filing a semi-annual report to shareholders.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable when filing a semi-annual report to shareholders.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable when filing a semi-annual report to shareholders.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable when filing a semi-annual report to shareholders.
ITEM 6. SCHEDULE OF INVESTMENTS.
Please see Schedule of Investments contained in the Report to Shareholders
included under Item 1 of this Form N-CSR.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable when filing a semi-annual report to shareholders.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable when filing a semi-annual report to shareholders.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
There have been no purchases of equity securities by the Fund or by affiliated
parties for the reporting period.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which shareholders may
recommend nominees to the Fund's Board of Directors since the Fund last
provided disclosure in response to this item.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive officer and principal financial
officer have concluded that the registrant's disclosure controls and procedures
(as defined in Rule 30a-2(c) under the Investment Company Act of 1940, as
amended) are effective at the reasonable assurance level based on their
evaluation of these controls and procedures as of a date within 90 days of the
filing date of this document.
(b) There were no changes in the registrant's internal controls over financial
reporting that occurred during the second fiscal quarter of the period that has
materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
ITEM 12. EXHIBITS.
The following exhibits are attached to this Form N-CSR:
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
12 (b) (1) Certification of Principal Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
12 (b) (2) Certification of Principal Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
12 (c) Certification of Principal Executive Officer and
Principal Financial Officer Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant): ACM Municipal Securities Income Fund, Inc.
By: /s/ Marc O. Mayer
-----------------
Marc O. Mayer
President
Date: June 29, 2007
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ Marc O. Mayer
-------------------
Marc O. Mayer
President
Date: June 29, 2007
By: Joseph J. Mantineo
-------------------
Joseph J. Mantineo
Treasurer and Chief Financial Officer
Date: June 29, 2007