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, 2006
Date of reporting period: April 30, 2006
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, 2006
[LOGO]
ALLIANCEBERNSTEIN
INVESTMENTS
SEMI-ANNUAL REPORT
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 funds, and is a member of the NASD.
AllianceBernstein(R) and the AB Logo are registered trademarks and service
marks used by permission of the owner, AllianceBernstein L.P.
June 15, 2006
Semi-Annual Report
This report provides management's discussion of fund performance for ACM
Municipal Securities Income Fund (the "Fund") for the semi-annual reporting
period ended April 30, 2006. The Fund is a closed-end fund that trades under
the New York Stock Exchange symbol "AMU".
Investment Objective and Policies
The Fund is a closed-end management investment company that 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 23.
Investment Results
The table on page 4 provides performance data for the Fund and its benchmark,
the Lehman Brothers (LB) Municipal Index, for the six- and 12-month periods
ended April 30, 2006.
The Fund outperformed its benchmark during both the six- and 12-month periods
ended April 30, 2006. The Fund's stronger relative performance during the
six-month period under review was largely the result of security selection in
the insured and pre-refunded sectors. In addition, the Fund's leveraged
structure aided its performance.
Market Review and Investment Strategy
From April 2005 through the end of April 2006, the U.S. Federal Reserve (the
"Fed") raised the target for the Federal funds rate from 2.75% to 4.75%; 0.75%
of that increase was since October 2005. In response to the Fed's action, the
yields for most maturities of domestic bonds increased. Municipal bond yields
increased less than U.S. Treasury bond yields. For example, during the
six-month reporting period, 10-year municipal yields increased 0.16% and
30-year municipal yields actually declined 0.06%. Over the same time period,
10-year and 30-year U.S. Treasury bond yields rose 0.50% and 0.46%,
respectively. The outperformance for municipal bonds largely resulted from
relatively light supply- the amount of bonds issued in the first quarter of
2006 was down 29% from the first quarter of 2005. Municipal bond prices have
also been supported by ongoing demand from a diverse set of investors including
traditional buyers such as U.S. individuals, as well as relatively newer
municipal market participants, such as hedge funds and other institutional
leveraged investors. The municipal market showed similar rela
ACM MUNICIPAL SECURITIES INCOME FUND o 1
tive performance over the 12-month period as over the six-month period ended
April 30, 2006. For the 12-month period, despite 10-year U.S. Treasury yields
increasing 0.85% and 30-year U.S. Treasury yields increasing 0.66%, 10-year and
30-year municipal yields rose 0.51% and 0.16%, respectively.
The market for lower-credit quality, or high yield, municipal bonds continues
to post even stronger returns than the general municipal market. The LB High
Yield Municipal Index returned 5.23% and 7.46% over the six- and 12-month
periods ended April 30, 2006, respectively. This compares to 1.56% and 2.16%
for the same periods for the LB Municipal Bond Index, which represents the
overall general market for investment-grade municipal bonds. The strong
performance for lower-credit quality municipal bonds was in part due to the
relatively favorable credit environment, but of more importance, due to the
continued, very strong demand for higher-yielding bonds. According to AMG Data,
a provider of mutual fund money flow and holdings data, new money into high
yield municipal bond mutual funds accounted for approximately 40% of the flow
in municipal bond mutual funds during the first quarter of 2006. By comparison,
high yield bonds currently represent about 4% of the outstanding supply of
municipal bonds.
During the past year, the Municipal Bond Investment Team's (the "team's")
strategy has remained consistent. Given that interest rates are still
relatively low compared to the level of inflation, the team continues to
maintain less interest rate exposure in the Fund relative to that of the Fund's
benchmark. Also, because high yield municipals have displayed such strong
performance, the team has reduced the Fund's exposure to such holdings and
further diversified the Fund's remaining holdings. Recently, as market
conditions allow, the team has also been selling longer-maturity holdings and
replacing them with bonds with shorter maturities. In the team's view, these
shorter-maturity holdings should outperform longer-maturity bonds if rates rise
and the difference between long and short yields increases.
2 o 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. Returns are annualized for periods longer than
one year. All fees and expenses related to the operation of the Fund have been
deducted. Performance assumes reinvestment of distributions and does not
account for taxes.
ACM Municipal Securities Income Fund Shareholder Information
Daily market prices for the Fund's shares are published in the New York Stock
Exchange Composite Transaction section of The Wall Street Journal under the
abbreviation "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." For additional shareholder information regarding this
Fund, please see page 40.
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.
The issuance of the Fund's preferred stock results in leveraging of the Common
Stock, an investment technique usually considered speculative. Leverage creates
certain risks for holders of Common Stock, including higher volatility of both
the net asset value and market value of the Common Stock, and fluctuations in
the dividend rates on the preferred stock will affect the return to holders of
Common Stock. If the Fund were fully invested in longer-term securities and if
short-term interest rates were to increase, then the amount of dividends paid
on the preferred shares would increase and both net investment income available
for distribution to the holders of Common Stock and the net asset value of the
Common Stock would decline. At the same time, the market value of the Fund's
Common Stock (that is, its price as listed on the New York Stock Exchange) may,
as a result, decline. Furthermore, if long-term interest rates rise, the Common
Stock's net asset value will reflect the full decline in the price of the
portfolio's investments, since the value of the Fund's Preferred Stock does not
fluctuate. In addition to the decline in net asset value, the market value of
the Fund's Common Stock may also decline.
(Historical Performance continued on next page)
ACM MUNICIPAL SECURITIES INCOME FUND o 3
HISTORICAL PERFORMANCE
(continued from previous page)
Returns
THE FUND VS. ITS BENCHMARK -------------------------------
PERIODS ENDED APRIL 30, 2006 6 Months 12 Months
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ACM Municipal Securities Income Fund (NAV) 2.09% 2.54%
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LB Municipal Index 1.56% 2.16%
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The Fund's Market Price per share on April 30, 2006 was $10.71. The Fund's
Net Asset Value Price per share on April 30, 2006 was $11.07. For additional
Financial Highlights, please see page 27.
See Historical Performance and Benchmark disclosures on previous page.
4 o ACM MUNICIPAL SECURITIES INCOME FUND
PORTFOLIO SUMMARY
April 30, 2006 (unaudited)
PORTFOLIO STATISTICS
Net Assets ($mil): $123.3
QUALITY RATING DISTRIBUTION*
[ ] 58.6% AAA [PIE CHART OMITTED]
[ ] 18.7% AA
[ ] 11.6% A
[ ] 9.1% BBB
[ ] 2.0% BB
* All data are as of April 30, 2006. The Fund's quality rating distribution is
expressed as a percentage of the Fund's total investments rated in particular
ratings categories by Standard & Poor's Rating Services and Moody's Investors
Service. The distributions may vary over time. If ratings are not available,
the Fund's Adviser will assign ratings that are considered to be of equivalent
quality to such ratings.
ACM MUNICIPAL SECURITIES INCOME FUND o 5
PORTFOLIO OF INVESTMENTS
April 30, 2006 (unaudited)
Principal
Amount
(000) U.S. $ Value
-------------------------------------------------------------------------------
Long-Term Municipal Bonds-170.0%
Alabama-5.9%
Jefferson Cnty Wtr and Swr Rev
FGIC Ser 02B
Prerefunded 8/01/12 @ 100
5.00%, 2/01/41 $ 1,535 $1,625,949
Jefferson Cnty Wtr and Swr Rev
FGIC Ser 02B
5.00%, 2/01/41 2,465 2,618,052
Jefferson Cnty Ltd Obligation
Sch Warrants Ser 04A
5.25%, 1/01/18 1,300 1,357,369
5.25%, 1/01/23 525 545,758
Montgomery Spl Care Fac Fin Auth
(Baptist Med Ctr) Ser 04C
5.25%, 11/15/29 1,000 1,082,840
-------------
7,229,968
Alaska-8.5%
Alaska International Airport
MBIA Ser 03B
5.00%, 10/01/26 1,000 1,029,900
Alaska Muni Bond Bank Auth
MBIA Ser 03E
5.25%, 12/01/26 3,000 3,168,630
Alaska Muni Bond Bank Auth
MBIA Ser 04G
5.00%, 2/15/22 1,585 1,639,603
Anchorage Alaska
Wastewater Rev MBIA
5.125%, 5/01/29 2,300 2,389,355
Four Dam Pool Alaska
Ser 04
5.25%, 7/01/25 2,195 2,253,453
-------------
10,480,941
Arizona-2.3%
Arizona Cap Facs Fin Corp
(Arizona St Univ Proj)
6.25%, 9/01/32 1,550 1,593,276
Phoenix Civic Impt Corp
Wastewater Sys Rev (JR Lien)
MBIA Ser 04
5.00%, 7/01/23 1,250 1,298,275
-------------
2,891,551
6 o ACM MUNICIPAL SECURITIES INCOME FUND
Principal
Amount
(000) U.S. $ Value
-------------------------------------------------------------------------------
California-14.4%
Burbank Redev Agy
FGIC Ser 03
5.625%, 12/01/28 $ 2,700 $2,952,909
California Dept of Wtr
Ser 02A
5.375%, 5/01/22 2,000 2,185,660
California St
GO Ser 03
5.00%, 2/01/32 2,450 2,488,808
5.00%, 2/01/33 1,100 1,117,281
Golden St
Tobacco Settlement XLCA Ser 03B
5.50%, 6/01/33 3,000 3,276,840
Golden St
Tobacco Settlement RADIAN Ser 03B
5.50%, 6/01/43 2,250 2,457,630
Pomona Lease Rev
AMBAC Ser 03
5.50%, 6/01/34 3,000 3,245,880
-------------
17,725,008
Colorado-3.4%
Colorado Toll Rev
(Hwy E-470) Ser 00
Zero coupon, 9/01/35 10,000 1,278,700
Colorado Hlth Facs Auth Rev
(Parkview Med Ctr) Ser 04
5.00%, 9/01/25 760 762,721
Northwest Colorado Metro Dist No 3
GO Ltd Tax
6.125%, 12/01/25 500 521,370
Park Creek Metro Dist Rev
Ltd Senior Lien Property Tax
5.25%, 12/01/25 1,160 1,179,244
Todd Creek Farms Metro Dist No 1
Wtr and Wastewater Rev Ser 04
6.125%, 12/01/19 400 399,188
-------------
4,141,223
Florida-20.2%
Florida Hsg Fin Corp Rev MFHR
(Westlake Apts) FSA Ser 02-D1 AMT
5.40%, 3/01/42 8,780 8,897,476
Lee Cnty Hlth Care Fac Rev
(Shell Point Village Proj) Ser 99A
5.50%, 11/15/29 3,670 3,703,067
ACM MUNICIPAL SECURITIES INCOME FUND o 7
Principal
Amount
(000) U.S. $ Value
-------------------------------------------------------------------------------
Miami Beach Hlth Fac Rev
(Mount Sinai Med Ctr)
6.75%, 11/15/24(a) $ 2,000 $2,218,060
Miami-Dade Cnty Spl Oblig
MBIA Ser 04B
5.00%, 4/01/24 4,000 4,147,920
Orange Cnty Hlth Fac Auth Rev
(Orlando Regl Healthcare) Ser 02
5.75%, 12/01/32 1,400 1,547,238
Reedy Creek Fla Impt Dist Fla Utils Rev AMBAC
5.00%, 10/01/25 2,845 2,950,834
UCF Assn Ctfs
FGIC Ser 04A
5.125%, 10/01/24 1,325 1,389,978
-------------
24,854,573
Hawaii-2.0%
Hawaii Elec Rev
XLCA Ser 03B AMT
5.00%, 12/01/22 2,500 2,543,725
-------------
Illinois-10.9%
Chicago
GO FSA Ser 04A
5.00%, 1/01/25 2,165 2,232,938
Chicago Arpt Rev
(O'Hare Intl Arpt) XLCA Ser B-1
5.25%, 1/01/34 3,100 3,230,696
Chicago Hsg Agy SFMR
(Mortgage Rev) GNMA/FNMA
Ser 02B AMT
6.00%, 10/01/33 605 619,260
Chicago Park Dist
GO (Ltd Tax) AMBAC Ser 04A
5.00%, 1/01/25 2,585 2,670,538
Cook Cnty Sch Dist
FSA Ser 04
4.60%, 12/01/20(b) 1,000 944,620
Illinois Fin Auth
(Loyola Univ Chicago) XLCA Ser 04A
5.00%, 7/01/24 1,495 1,541,375
Illinois Fin Auth Rev
(Illinois Inst of Technology) Ser 06A
5.00%, 4/01/31 365 367,252
Metropolitan Pier & Exposition Rev
(McCormick Pl) MBIA Ser 02A
5.25%, 6/15/42 1,750 1,827,998
-------------
13,434,677
8 o ACM MUNICIPAL SECURITIES INCOME FUND
Principal
Amount
(000) U.S. $ Value
-------------------------------------------------------------------------------
Indiana-2.6%
Hendricks Cnty Bldg Facs
GO Ser 04
5.50%, 7/15/21 $ 1,045 $1,130,053
Indiana Bd Bk Rev
FSA Ser 04B
5.00%, 2/01/21 1,100 1,139,193
Indiana St Dev Fin Auth Rev
(Inland Steel Co) Exempt Facs
5.75%, 10/01/11 865 880,899
-------------
3,150,145
Louisiana-0.8%
New Orleans
GO MBIA
5.25%, 12/01/20 1,000 1,043,560
-------------
Massachusetts-10.4%
Mass GO Ser 02
Prerefunded 11/01/12 @ 100
5.25%, 11/01/30 3,310 3,560,269
Mass GO Ser 02
5.25%, 11/01/30 1,690 1,817,781
Mass Hlth & Ed Fac Hosp Rev
(New England Med Ctr) MBIA Ser 94
7.09%, 7/01/18(c) 5,000 5,024,400
Mass Hsg Fin Agy MFHR
(Rental Rev) AMBAC Ser 00A AMT
6.00%, 7/01/41 1,740 1,837,440
Mass Hsg Fin Agy MFHR
(Rental Rev) MBIA Ser 00H AMT
6.65%, 7/01/41 545 580,632
-------------
12,820,522
Michigan-5.4%
Kent Hosp Fin Auth
5.75%, 7/01/25 310 326,666
Michigan St Hosp Rev
(Trinity Hlth) Ser 00A
6.00%, 12/01/27 3,000 3,246,150
Saginaw Hosp Fac Rev
(Covenant Med Ctr) Ser 00F
6.50%, 7/01/30 2,775 3,030,605
-------------
6,603,421
Minnesota-1.4%
Shakopee Health Care Facs Rev
(St Francis Regl Med Ctr) Ser 04
5.10%, 9/01/25 1,200 1,222,740
St. Paul Hsg & Redev Auth Hosp Rev
Hlth Hosp Nursinghome Impr
6.00%, 11/15/25 500 538,650
-------------
1,761,390
ACM MUNICIPAL SECURITIES INCOME FUND o 9
Principal
Amount
(000) U.S. $ Value
-------------------------------------------------------------------------------
Mississippi-4.2%
Adams Cnty Poll Ctl Rev
(International Paper Co) Ser 99 AMT
6.25%, 9/01/23 $ 1,000 $1,059,830
Gulfport Hosp Fac Rev
(Mem Hosp at Gulfport Proj) Ser 01A
5.75%, 7/01/31 4,000 4,080,040
-------------
5,139,870
Nevada-1.7%
Carson City Hosp Rev
(Carson-Tahoe Hosp Proj)
RADIAN Ser 03A
5.00%, 9/01/23 2,100 2,125,557
-------------
New Jersey-7.5%
Morris-Union Jointure Commission
Ctfs of Participation Ser 04 RADIAN
5.00%, 5/01/24 2,000 2,049,500
New Jersey St Edl Fac Auth Rev
Higher Ed Cap Impt-Ser A AMBAC
5.25%, 9/01/21 6,800 7,204,396
-------------
9,253,896
New Mexico-5.0%
Dona Ana Cnty Tax Rev
AMBAC Ser 03
5.25%, 5/01/25 500 526,270
University of New Mexico
FSA FHA Ser 04
5.00%, 1/01/24 2,235 2,301,245
5.00%, 7/01/24 3,195 3,289,700
-------------
6,117,215
New York-4.7%
Erie Cnty Indl Dev Agy Sch Fac Rev
(Buffalo Sch Dist Proj) Ser 04 FSA
5.75%, 5/01/23 950 1,057,302
5.75%, 5/01/24 810 902,073
New York City
GO Ser 04I
5.00%, 8/01/21 3,300 3,405,501
New York City Indl Dev Agy Rev
(British Airways) Ser 98 AMT
5.25%, 12/01/32 500 453,830
-------------
5,818,706
10 o ACM MUNICIPAL SECURITIES INCOME FUND
Principal
Amount
(000) U.S. $ Value
-------------------------------------------------------------------------------
North Carolina-3.9%
Charlotte Arpt Rev
MBIA Ser 04
5.25%, 7/01/24 $ 1,000 $1,059,100
North Carolina Eastern Muni Power Agy
(Power Sys Rev) AMBAC Ser 05A
5.25%, 1/01/20 3,500 3,729,040
-------------
4,788,140
North Dakota-1.7%
North Dakota Hsg Fin Agy SFMR
(Mortgage Rev) Ser 98E AMT
5.25%, 1/01/30 2,085 2,111,584
-------------
Ohio-5.9%
Cuyahoga Cnty Hosp Fac Rev
(University Hosp Hlth) Ser 00
7.50%, 1/01/30 2,400 2,640,312
Fairfield Cnty Hosp Fac Rev
(Fairfield Med Ctr Proj) RADIAN Ser 03
5.00%, 6/15/23 1,255 1,275,419
Ohio Hsg Fin Agy MFHR
(Mortgage Rev) GNMA Ser 97 AMT
6.15%, 3/01/29 2,850 2,901,813
Port Auth Columbiana Cnty Solid Waste Fac Rev
(Apex Environmental LLC) Ser 04A AMT
7.125%, 8/01/25 500 496,600
-------------
7,314,144
Oregon-1.2%
Forest Grove
Campus Impr (Pacific Proj)
RADIAN Ser A
5.00%, 5/01/28 1,420 1,447,818
Pennsylvania-4.4%
Pennsylvania Parking Facs Rev
(30th St Station) ACA Ser 02 AMT
5.875%, 6/01/33 2,050 2,144,362
Philadelphia Gas Wks Rev
AGC Ser 04
5.25%, 9/01/19 2,045 2,163,508
5.25%, 8/01/21 1,000 1,059,590
-------------
5,367,460
Rhode Island-2.3%
Rhode Island Hlth & Edl Bldg Corp Rev
(Times2 Academy) LOC-Citizens Bank Ser 04
5.00%, 12/15/24 1,745 1,753,393
Rhode Island Hlth & Edl Bldg Corp Rev
(Univ of Rhode Island) AMBAC Ser 04A
5.50%, 9/15/24 1,000 1,083,520
-------------
2,836,913
ACM MUNICIPAL SECURITIES INCOME FUND o 11
Principal
Amount
(000) U.S. $ Value
-------------------------------------------------------------------------------
South Carolina-3.8%
Charleston Cnty Sch Dist
5.25%, 12/01/30 $ 2,000 $2,080,840
Dorchester Cnty Sch Dist
Assured Guaranty
5.00%, 12/01/29 800 820,464
Newberry Cnty Sch Dist Proj
5.00%, 12/01/27 1,560 1,593,290
5.00%, 12/01/30 165 163,381
-------------
4,657,975
Tennessee-8.4%
Johnson City Tenn Hlth & Edl Facs Brd Hosp Rev
(Mountain States Health Alliance) Ser 06A
5.50%, 7/01/31 640 663,142
Tenn Ed Loan Rev
(Educational Funding of South)
Ser 97B AMT
6.20%, 12/01/21 9,600 9,716,928
-------------
10,380,070
Texas-19.7%
Dallas Arpt Rev
(Fort Worth Intl Arpt) MBIA
Ser 03A AMT
5.25%, 11/01/25 2,000 2,066,260
Garza Cnty
Pub Fac Corp Proj Rev
5.50%, 10/01/19 255 261,808
Harris Cnty
Ser 03
5.00%, 10/01/23 1,400 1,441,860
Harris Cnty Toll Rev
FSA Ser 02
5.125%, 8/15/32 5,000 5,166,300
Hidalgo Cnty Hlth Svcs
(Mission Hosp Inc Proj) Ser 05
5.00%, 8/15/14 80 80,610
5.00%, 8/15/15 185 185,934
5.00%, 8/15/19 60 59,822
Lewisville TX Combination Contract Rev Spl
Assessment
(Castle Hills Pub Impr Proj) ACA
6.00%, 10/01/25 550 595,149
Lower Colorado Riv Auth
AMBAC Ser 03
5.25%, 5/15/25 1,800 1,885,014
Lower Colorado Riv Auth
MBIA Ser 02
5.00%, 5/15/31 1,500 1,537,485
12 o ACM MUNICIPAL SECURITIES INCOME FUND
Principal
Amount
(000) U.S. $ Value
-------------------------------------------------------------------------------
Matagorda Cnty Rev
(Centerpoint Energy Houston Electric LLC)
Ser 04
5.60%, 3/01/27 $ 1,000 $1,029,740
MC Allen Wtr & Swr Rev
5.25%, 2/01/21 1,605 1,707,832
5.25%, 2/01/22 1,610 1,710,738
Richardson Hosp Auth Rev
(Richardson Med Ctr) Ser 04
6.00%, 12/01/19. 915 982,225
5.875%, 12/01/24 1,155 1,207,668
Seguin Ed Fac Rev
(Texas Lutheran Univ) Ser 04
5.25%, 9/01/28 1,000 1,003,270
Texas Tech Univ Revs AMBAC
5.00%, 2/15/28 3,300 3,421,275
-------------
24,342,990
Utah-2.1%
Davis Cnty Sales Tax Rev
AMBAC Ser 03B
5.25%, 10/01/23 1,005 1,060,134
Salt Lake City Wtr Rev
AMBAC Ser 04
5.00%, 7/01/23. 1,500 1,556,895
-------------
2,617,029
Washington-1.2%
Seattle Hsg Auth Rev MFHR
(Wisteria Ct Proj) GNMA Ser 03
5.20%, 10/20/28 1,475 1,511,536
-------------
Wisconsin-4.1%
Wisconsin GO Ser 03
5.00%, 11/01/26. 3,700 3,770,818
Wisconsin Hlth & Edl Fac Auth Rev
(Bell Tower Residence Proj) Ser 05
LOC-Allied Irish Bank PLC
5.00%, 7/01/20 1,300 1,324,804
-------------
5,095,622
Total Investments-170.0%
(cost $204,569,679) 209,607,229
Other assets less liabilities-3.0% 3,736,394
Preferred Stock, at redemption value-(73.0)% (90,000,000)
Net Assets Applicable to Common
Shareholders-100%(d) $123,343,623
ACM MUNICIPAL SECURITIES INCOME FUND o 13
(a) Private placement.
(b) Initial coupon is presented. Coupon after 12/01/07 will be 5.00%.
(c) Inverse Floater-Security with variable interest rate that moves in the
opposite direction of short-term interest rates.
(d) Portfolio percentages are calculated based on net assets applicable to
common shareholders.
Glossary of Terms:
ACA - American Capital Access (Financial Guaranty Corporation)
AGC - American Guaranty Corporation
AMBAC - American Municipal Bond Assurance Corporation
AMT - Alternative Minimum Tax
FGIC - Financial Guaranty Insurance Company
FHA - Federal Housing Administration
FNMA - Federal National Mortgage Association
FSA - Financial Security Assurance, Inc.
GNMA - Government National Mortgage Association
GO - General Obligation
LOC - Letter of Credit
MBIA - Municipal Bond Investors Assurance Corporation
MFHR - Multi-Family Housing Revenue
RADIAN - Radian Group, Inc.
SFMR - Single Family Mortgage Revenue
XLCA - XL Capital Assurance, Inc.
See notes to financial statements.
14 o ACM MUNICIPAL SECURITIES INCOME FUND
STATEMENT OF ASSETS & LIABILITIES
April 30, 2006 (unaudited)
Assets
Investments in securities, at value (cost $204,569,679) $209,607,229
Cash 397,908
Interest receivable 3,538,483
Prepaid expenses 33,989
-------------
Total assets 213,577,609
Liabilities
Advisory fee payable 81,880
Administrative fee payable 37,522
Audit fee payable 27,100
Dividend payable--preferred shares 24,576
Legal fees payable 23,775
Printing fees payable 18,545
Custodian fees payable 16,437
Accrued expenses and other liabilities 4,151
-------------
Total liabilities 233,986
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 $123,343,623
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 140,672,224
Distributions in excess of net investment income (359,097)
Accumulated net realized loss on investment transactions (22,118,507)
Net unrealized appreciation of investments 5,037,550
-------------
Net Assets Applicable to Common Shareholders $123,343,623
Net Asset Value Applicable to Common Shareholders
(based on 11,145,261 common shares outstanding) $11.07
-------------
See notes to financial statements.
ACM MUNICIPAL SECURITIES INCOME FUND o 15
STATEMENT OF OPERATIONS
Six Months Ended April 30, 2006 (unaudited)
Investment Income
Interest $5,453,608
Expenses
Advisory fee $533,305
Administrative fee 159,991
Auction Preferred Stock--auction
agent's fees 111,701
Custodian 50,627
Audit 37,384
Legal 31,973
Directors' fees and expenses 19,392
Printing 17,444
Registration fees 11,894
Transfer agency 9,412
Miscellaneous 13,256
-------------
Total expenses 996,379
Less: Administration fee reimbursement
(see Note B) (106,661)
-------------
Net expenses 889,718
-------------
Net investment income 4,563,890
-------------
Realized and Unrealized Gain (Loss)
on Investments
Net realized gain (loss) on:
Investment transactions 534,906
Futures transactions (17,077)
Net change in unrealized
appreciation/depreciation of:
Investments (1,384,897)
Futures 41,445
-------------
Net loss on investments (825,623)
-------------
Dividends to Auctioned Preferred
Shareholders from
Net investment income (1,336,173)
-------------
Net Increase in Net Assets Applicable
to Common Shareholders Resulting
from Operations $2,402,094
-------------
See notes to financial statements.
16 o ACM MUNICIPAL SECURITIES INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
APPLICABLE TO COMMON SHAREHOLDERS
Six Months Ended Year Ended
April 30, 2006 October 31,
(Unaudited) 2005
----------------- -------------
Increase (Decrease) in Net Assets
Applicable to Common Shareholders
Resulting from Operations
Net investment income $4,563,890 $9,387,397
Net realized gain on investment
transactions 517,829 1,027,530
Net change in unrealized
appreciation/depreciation
of investments (1,343,452) (2,915,211)
Dividends to Auction Preferred
Shareholders from
Net investment income (1,336,173) (1,905,523)
------------- -------------
Net increase in net assets
applicable to common shareholders
resulting from operations 2,402,094 5,594,193
Dividends to Common
Shareholders from
Net investment income (3,572,620) (7,873,611)
Common Stock Transactions
Reinvestment of dividends resulting in the
issuance of common stock -0- 55,061
------------- -------------
Total decrease (1,170,526) (2,224,357)
Net Assets Applicable to Common
Shareholders
Beginning of period 124,514,149 126,738,506
------------- -------------
End of period (including distributions in
excess of net investment income of
($359,097) and ($14,194),
respectively) $123,343,623 $124,514,149
------------- -------------
See notes to financial statements.
ACM MUNICIPAL SECURITIES INCOME FUND o 17
NOTES TO FINANCIAL STATEMENTS
April 30, 2006 (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 or on a foreign securities exchange are valued at the last
sale price at the close of the exchange or foreign securities exchange. If
there has been no sale on such day, the securities are valued at the mean of
the closing bid and asked prices on such day. Securities listed on more than
one exchange are valued by reference to the principal exchange on which the
securities are traded; securities not listed on an exchange but traded on The
NASDAQ Stock Market, Inc. ("NASDAQ") are valued in accordance with the NASDAQ
Official Closing Price; listed put or call options are valued at the last sale
price. If there has been no sale on that day, such securities will be valued at
the closing bid prices on that day; open futures contracts and options thereon
are valued using the closing settlement price or, in the absence of such a
price, the most recent quoted bid price. If there are no quotations available
for the day of valuation, the last available closing settlement price is used;
securities traded in the over-the-counter market, (OTC) (but excluding
securities traded on NASDAQ) are valued at the mean of the current bid and
asked prices as reported by the National Quotation Bureau or other comparable
sources; U.S. Government securities and other debt instruments having 60 days
or less remaining until maturity are valued at amortized cost if their original
maturity was 60 days or less; or by amortizing their fair value as of the 61st
day prior to maturity if their original term to maturity exceeded 60 days;
fixed-income securities, including mortgage backed and asset backed securities,
may be valued on the basis of prices provided by a pricing service or at a
price obtained from one or more of the major broker/dealers. In cases where
broker/dealer quotes are obtained, AllianceBernstein L.P. (prior to February
24, 2006 known
18 o ACM MUNICIPAL SECURITIES INCOME FUND
as Alliance Capital Management L.P.), (the "Adviser") may establish procedures
whereby changes in market yields or spreads are used to adjust, on a daily
basis, a recently obtained quoted price on a security; and OTC and other
derivatives are valued on the basis of a quoted bid price or spread from a
major broker/dealer in such security.
Securities for which market quotations are not readily available (including
restricted securities) or are deemed unreliable are valued at fair value.
Factors considered in making this determination may include, but are not
limited to, information obtained by contacting the issuer, analysts, analysis
of the issuer's financial statements or other available documents. In addition,
the Fund may use fair value pricing for securities primarily traded in non-U.S.
markets because, most foreign markets close well before the Fund values its
securities at 4:00 p.m., Eastern Time. The earlier close of these foreign
markets gives rise to the possibility that significant events, including broad
market moves, may have occurred in the interim and may materially affect the
value of those securities.
2. Taxes
It is the Fund's policy to meet the requirements of the Internal Revenue Code
applicable to regulated investment companies and to distribute 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 19
Under the terms of a Shareholder Inquiry Agency Agreement with
AllianceBernstein Investor Services, Inc. (prior to February 24, 2006 known as
Alliance Global Investor Services, Inc.) ("ABIS"), an affiliate of the Adviser,
the Fund reimburses ABIS for costs relating to servicing phone inquiries for
the Fund. During the six months ended April 30, 2006, there was no
reimbursement paid to ABIS.
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, 2006, the amount of such reimbursement was $106,661.
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, 2006, were as follows:
Purchases Sales
----------------- -------------
Investment securities (excluding
U.S. government securities) $33,197,766 $27,810,741
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 $6,543,349
Gross unrealized depreciation (1,505,799)
-------------
Net unrealized appreciation $5,037,550
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 of an underlying asset. The payment flows are usually netted
against each other, with the difference being paid by one party to the other.
20 o ACM MUNICIPAL SECURITIES INCOME FUND
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.
NOTE D
Distributions To Common Shareholders
The tax character of distributions to be paid for the year ending October 31,
2006 will be determined at the end of the current fiscal year. The tax
character of
ACM MUNICIPAL SECURITIES INCOME FUND o 21
distributions paid to common shareholders during the fiscal years ended October
31, 2005 and October 31, 2004 were as follows:
2005 2004
-------------- -------------
Distributions paid from:
Ordinary income $262,628 $65,384
Tax-exempt income 7,610,983 9,595,248
-------------- -------------
Total distributions paid $7,873,611 $9,660,632
-------------- -------------
As of October 31, 2005, the components of accumulated earnings/(deficit)
applicable to common shareholders on a tax basis were as follows:
Accumulated capital and other losses $(22,540,367)(a)
Unrealized appreciation/(depreciation) 6,285,033(b)
-------------
Total accumulated earnings/(deficit) $(16,255,334)(c)
(a) On October 31, 2005, the Fund had a net capital loss carryforward of
$22,540,367 of which $5,185,060 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, 2005, the Fund utilized capital loss carryforwards of $925,088.
(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 the tax
treatment of swap income and distributions in excess of net investment income,
resulted in a net decrease in distributions in excess of net investment income,
an increase in accumulated net realized loss on investment transactions, 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, 2006. During the
six months ended April 30, 2006, the Fund did not issue any shares in
connection with the Fund's dividend reinvestment plan. During the year ended
October 31, 2005, the Fund issued 4,791 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
22 o ACM MUNICIPAL SECURITIES INCOME FUND
shares have a liquidation value of $25,000 per share plus accumulated, unpaid
dividends.
The dividend rate on Series A is 3.80%, effective through May 4, 2006. The
dividend rate on Series B is 3.70%, effective through May 2, 2006. The dividend
rate on Series C is 3.85%, effective through May 5, 2006.
At certain times, the Preferred Shares are redeemable by the Fund, in whole or
in part, at $25,000 per share plus accumulated, unpaid dividends.
Although the Fund will not ordinarily redeem the Preferred Shares, it may be
required to redeem shares if, for example, the Fund does not meet an asset
coverage ratio required by law or to correct a failure to meet a rating agency
guideline in a timely manner. The Fund voluntarily may redeem the Preferred
Shares in certain circumstances.
The Preferred Shareholders, voting as a separate class, have the right to elect
at least two Directors at all times and to elect a majority of the Directors in
the event two years' dividends on the Preferred Shares are unpaid. In each
case, the remaining Directors will be elected by the Common Shareholders and
Preferred Shareholders voting together as a single class. The Preferred
Shareholders will vote as a separate class on certain other matters as required
under the Fund's Charter, the Investment Company Act of 1940 and Maryland law.
NOTE G
Risks Involved in Investing in the Fund
Interest Rate Risk and Credit Risk--Interest rate risk is the risk that changes
in interest rates will affect the value of the Fund's investments in
fixed-income debt securities such as bonds or notes. Increases in interest
rates may cause the value of the Fund's investments to decline. Credit risk is
the risk that the issuer or guarantor of a debt security, or the counterparty
to a derivative contract, will be unable or unwilling to make timely principal
and/or interest payments, or to otherwise honor its obligations. The degree of
risk for a particular security may be reflected in its credit risk rating.
Credit risk is greater for medium quality and lower-rated securities.
Lower-rated debt securities and similar unrated securities (commonly known as
"junk bonds") have speculative elements or are predominantly speculative risks.
Indemnification Risk--In the ordinary course of business, the Fund enters into
contracts that contain a variety of indemnifications. The Fund's maximum
exposure under these arrangements is unknown. However, the Fund has not had
prior claims or losses pursuant to these indemnification provisions and expects
the risk of loss thereunder to be remote.
ACM MUNICIPAL SECURITIES INCOME FUND o 23
NOTE H
Legal Proceedings
As has been previously reported, the staff of the U.S. Securities and Exchange
Commission ("SEC") and the Office of the New York Attorney General ("NYAG")
have been investigating practices in the mutual fund industry identified as
"market timing" and "late trading" of mutual fund shares. Certain other
regulatory authorities have also been conducting investigations into these
practices within the industry and have requested that the Adviser provide
information to them. The Adviser has been cooperating and will continue to
cooperate with all of these authorities. The shares of the Fund are not
redeemable by the Fund, but are traded on an exchange at prices established by
the market. Accordingly, the Fund and its shareholders are not subject to the
market timing and late trading practices that are the subject of the
investigations mentioned above or the lawsuits described below. Please see
below for a description of the agreements reached by the Adviser and the SEC
and NYAG in connection with the investigations mentioned above.
Numerous lawsuits have been filed against the Adviser and certain other
defendants in which plaintiffs make claims purportedly based on or related to
the same practices that are the subject of the SEC and NYAG investigations
referred to above. Some of these lawsuits name the Fund as a party. The
lawsuits are now pending in the United States District Court for the District
of Maryland pursuant to a ruling by the Judicial Panel on Multidistrict
Litigation transferring and centralizing all of the mutual funds involving
market and late trading in the District of Maryland (the "Mutual Fund MDL").
Management of the Adviser believes that these private lawsuits are not likely
to have a material adverse effect on the results of operations or financial
condition of the Fund.
On December 18, 2003, the Adviser confirmed that it had reached terms with the
SEC and the NYAG for the resolution of regulatory claims relating to the
practice of "market timing" mutual fund shares in some of the AllianceBernstein
Mutual Funds. The agreement with the SEC is reflected in an Order of the
Commission ("SEC Order"). The agreement with the NYAG is memorialized in 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;
24 o ACM MUNICIPAL SECURITIES INCOME FUND
(ii) The Adviser agreed to reduce the advisory fees it receives from some of
the AllianceBernstein long-term, open-end retail funds, commencing January 1,
2004, for a period of at least five years; and
(iii) The Adviser agreed to implement changes to its governance and
compliance procedures. Additionally, the SEC Order contemplates that the
Adviser's registered investment company clients, including the Fund, will
introduce governance and compliance changes.
The shares of the Fund are not redeemable by the Fund, but are traded on an
exchange at prices established by the market. Accordingly, the Fund and its
shareholders are not subject to the market timing practices described in the
SEC Order and are not expected to participate in the Reimbursement Fund. Since
the Fund is a closed-end fund, it will not have its advisory fee reduced
pursuant to the terms of the agreements mentioned above.
On February 10, 2004, the Adviser received (i) a subpoena duces tecum from the
Office of the Attorney General of the State of West Virginia and (ii) a request
for information from West Virginia's Office of the State Auditor, Securities
Commission (the "West Virginia Securities Commissioner") (together, the
"Information Requests"). Both Information Requests require the Adviser to
produce documents concerning, among other things, any market timing or late
trading in the Adviser's sponsored mutual funds. The Adviser responded to the
Information Requests and has been cooperating fully with the investigation.
On April 11, 2005, a complaint entitled The Attorney General of the State of
West Virginia v. AIM Advisors, Inc., et al. ("WVAG Complaint") was filed
against the Adviser, Alliance Capital Management Holding L.P. ("Alliance
Holding"), and various other defendants not affiliated with the Adviser. The
WVAG Complaint was filed in the Circuit Court of Marshall County, West Virginia
by the Attorney General of the State of West Virginia. The WVAG Complaint makes
factual allegations generally similar to those in certain of the complaints
related to the lawsuits discussed above. On October 19, 2005, the WVAG
Complaint was transferred to the Mutual Fund MDL.
On August 30, 2005, the deputy commissioner of securities of the West Virginia
Securities Commissioner signed a Summary Order to Cease and Desist, and Notice
of Right to Hearing addressed to the Adviser and Alliance Holding. The Summary
Order claims that the Adviser and Alliance Holding violated the West Virginia
Uniform Securities Act, and makes factual allegations generally similar to
those in the SEC Order and the NYAG Order. On January 26, 2006, the Adviser,
Alliance Holding, and various unaffiliated defendants filed a Petition for Writ
of Prohibition and Order Suspending Proceedings in West Virginia state court
seeking to vacate the Summary Order and for other relief. On April 12, 2006,
respondents' petition was denied. On May 4, 2006, respondents appealed the
court's determination.
ACM MUNICIPAL SECURITIES INCOME FUND o 25
On June 22, 2004, a purported class action complaint entitled Aucoin, et al. v.
Alliance Capital Management L.P., et al. ("Aucoin Complaint") was filed against
the Adviser, Alliance Capital Management Holding L.P., Alliance Capital
Management Corporation, AXA Financial, Inc., AllianceBernstein Investment
Research & Management, Inc., certain current and former directors of the
AllianceBernstein Mutual Funds, and unnamed Doe defendants. The Aucoin
Complaint names certain of the AllianceBernstein mutual funds as nominal
defendants. The Fund was not named as a defendant in the Aucoin Complaint. The
Aucoin Complaint was filed in the United States District Court for the Southern
District of New York by alleged shareholders of an AllianceBernstein mutual
fund. The Aucoin Complaint alleges, among other things, (i) that certain of the
defendants improperly authorized the payment of excessive commissions and other
fees from fund assets to broker-dealers in exchange for preferential marketing
services, (ii) that certain of the defendants misrepresented and omitted from
registration statements and other reports material facts concerning such
payments, and (iii) that certain defendants caused such conduct as control
persons of other defendants. The Aucoin Complaint asserts claims for violation
of Sections 34(b), 36(b) and 48(a) of the Investment Company Act, Sections 206
and 215 of the Advisers Act, breach of common law fiduciary duties, and aiding
and abetting breaches of common law fiduciary duties. Plaintiffs seek an
unspecified amount of compensatory damages and punitive damages, rescission of
their contracts with the Adviser, including recovery of all fees paid to the
Adviser pursuant to such contracts, an accounting of all fund-related fees,
commissions and soft dollar payments, and restitution of all unlawfully or
discriminatorily obtained fees and expenses.
Since June 22, 2004, nine additional lawsuits making factual allegations
substantially similar to those in the Aucoin Complaint were filed against the
Adviser and certain other defendants. All nine of the lawsuits (i) were brought
as class actions filed in the United States District Court for the Southern
District of New York, (ii) assert claims substantially identical to the Aucoin
Complaint, and (iii) are brought on behalf of shareholders of the Funds.
On February 2, 2005, plaintiffs filed a consolidated amended class action
complaint ("Aucoin Consolidated Amended Complaint") that asserts claims
substantially similar to the Aucoin Complaint and the nine additional lawsuits
referenced above. On October 19, 2005, the District Court dismissed each of the
claims set forth in the Aucoin Consolidated Amended Complaint, except for
plaintiffs' claim under Section 36(b) of the Investment Company Act. On January
11, 2006, the District Court granted defendants' motion for reconsideration and
dismissed the remaining Section 36(b) claim. On May 31, 2006 the District Court
denied plaintiffs' motion for leave to file an amended complaint.
The Adviser believes that these matters are not likely to have a material
adverse effect on the Fund or the Adviser's ability to perform advisory
services relating to the Fund.
26 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,
2006 -------------------------------------------------------------
(unaudited) 2005 2004(a) 2003 2002 2001
----------- --------- --------- --------- --------- ---------
Net asset value, beginning
of period $11.17 $11.38 $11.05 $10.85 $12.10 $11.71
Income From Investment
Operations
Net investment income .41 .84 .88 .97 1.08 1.15
Net realized and unrealized
gain (loss) on investment
transactions (.07) (.17) .41 .12 (1.32) .45
Dividends to preferred
shareholders from net
investment income (common
stock equivalent basis) (.12) (.17) (.09) (.09) (.14) (.27)
Net increase (decrease) in net
asset value from operations .22 .50 1.20 1.00 (.38) 1.33
Less: Dividends and
Distributions to
Common Shareholders
Dividends from net investment
income (.32) (.71) (.87) (.80) (.87) (.88)
Distributions in excess of net
investment income -0- -0- -0- -0- -0- (.06)
Total dividends and distributions
to common shareholders (.32) (.71) (.87) (.80) (.87) (.94)
Net asset value, end of period $11.07 $11.17 $11.38 $11.05 $10.85 $12.10
Market price, end of period $10.71 $10.41 $12.09 $11.62 $11.50 $12.70
Premium (Discount) (3.25)% (6.80)% 6.24% 5.16% 5.99% 4.96%
Total Return
Total investment return based on:(b)
Market price 5.98% (8.09)% 12.34% 8.53% (2.44)% 9.14%
Net asset value 2.09% 4.77% 11.20% 9.39% (3.35)% 11.59%
Ratios/Supplemental Data
Net assets, applicable to
common shareholders, end
of period (000's omitted) $123,344 $124,514 $126,739 $122,322 $119,323 $132,201
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) 1.49% 1.65% 1.71% 1.65% 1.53%
Net investment income, before
preferred stock dividends(c) 7.36%(d)(e) 7.39% 7.87% 8.78% 9.32% 9.60%
Preferred stock dividends 2.15%(e) 1.50% .79% .84% 1.19% 2.26%
Net investment income, net of
preferred stock dividends 5.20%(d)(e) 5.89% 7.08% 7.94% 8.13% 7.34%
Portfolio turnover rate 13% 13% 36% 32% 24% 82%
Asset coverage ratio 237% 238% 241% 236% 233% 247%
See footnote summary on page 28.
ACM MUNICIPAL SECURITIES INCOME FUND o 27
(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 1.61%, 7.19% and 5.03%,
respectively, for the six months ended April 30, 2006.
(e) Annualized
28 o ACM MUNICIPAL SECURITIES INCOME FUND
SUPPLEMENTAL PROXY INFORMATION
(unaudited)
The Annual Meeting of Stockholders of ACM Municipal Securities Income Fund,
Inc. ("the Fund") was held on March 29, 2006. A description of each proposal
and number of shares voted at the meeting are as follows:
Voted Authority
For Withheld
------------------------------------------------------------------------------
To elect three Directors of the Fund's
common stockholders for a term of
two or three years and until his or her
successor is duly elected and qualifies.
Class Two (term expires 2008)
D. James Guzy 10,080,890 252,184
Class Three (terms expire 2009)
Marc O. Mayer 10,065,813 267,262
Marshall C. Turner, Jr. 10,083,406 249,668
Voted Authority
For Withheld
------------------------------------------------------------------------------
To elect five Directors of the Fund's
preferred stockholders for a term of
one or two years and until his or her
successor is duly elected and qualifies.
Class One (terms expire 2007)
John H. Dobkin 3,175 425
Michael J. Downey 3,175 425
Class Two (term expires 2008)
D. James Guzy 3,175 425
Class Three (terms expire 2008)
Marc O. Mayer 3,175 425
Marshall C. Turner, Jr 3,175 425
ACM MUNICIPAL SECURITIES INCOME FUND o 29
BOARD OF DIRECTORS
William H. Foulk, Jr.(1), Chairman
Marc O. Mayer, President
David H. Dievler(1)
John H. Dobkin(1)
Michael J. Downey(1)
D. James Guzy(1)
Nancy P. Jacklin(1)
Marshall C. Turner, Jr.(1)
OFFICERS
Philip L. Kirstein, Senior Vice President and Independent Compliance Officer
Robert B. 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
Mark D. Gersten, 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 Mulberry Street
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, NJ 07424
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
CompanyAct of 1940 that the Fund may purchase at market prices from time to
time shares of its Common Stock in the open market.
This report, including the financial statements therein, is transmitted to the
shareholders of 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 YorkStock 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. Davidson III and
Terrance T. Hults.
30 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 December 14,
2005.
In preparation for the meeting, the directors had requested from the Adviser
and received and evaluated extensive materials, including performance and
expense information for other investment companies with similar investment
objectives as the Fund derived from data compiled by Lipper Inc. ("Lipper"),
which is not affiliated with the Adviser. Prior to voting, the directors
reviewed the proposed continuance of the Advisory Agreement 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 four private sessions at which only
the directors, their independent counsel and the Fund's Independent Compliance
Officer were present. In reaching their determinations relating to continuance
of the Advisory Agreement 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 31
7. the Adviser's policies and practices regarding allocation of portfolio
transactions of the Fund, including the extent to which the Adviser benefits
from soft dollar arrangements;
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 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 the directors 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.
32 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 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
ACM MUNICIPAL SECURITIES INCOME FUND o 33
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 in light of new regulatory requirements. The directors
considered the quality of the in-house investment research capabilities of the
Adviser and the other resources it has dedicated to performing services for the
Fund. The quality of administrative and other services, including the Adviser's
role in coordinating the activities of the Fund's other service providers, also
were considered. The directors also considered the Adviser's response to recent
regulatory compliance issues affecting a number of the investment companies in
the AllianceBernstein Funds complex. The directors concluded that, overall,
they were satisfied with the nature, extent and quality of services provided to
the Fund under the Advisory Agreement and the Administration Agreement.
Costs of Services Provided and Profitability to the Adviser
The directors reviewed a schedule of the revenues, expenses and related notes
indicating the profitability of the Fund to the Adviser (including in its
capacity as Administrator) for calendar years 2003 and 2004. The directors also
reviewed information in respect of 2004 that had been prepared with an updated
expense allocation methodology. The directors noted that the updated expense
allocation methodology would be used to prepare profitability information for
2005, and that it differed in various respects from the methodology used in
prior years. The directors reviewed the assumptions and methods of allocation
used by the Adviser in preparing fund-specific profitability data, and noted
the Adviser's representation to them that it believed that the methods of
allocation used in preparing the profitability information were reasonable and
appropriate and that the Adviser had previously discussed with the directors
that there is no generally accepted allocation methodology for information of
this type.
The directors recognized that it is difficult to make comparisons of
profitability from fund advisory 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
34 o ACM MUNICIPAL SECURITIES INCOME FUND
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 from a report prepared by Lipper showing
performance of the Fund as compared to a group of 15 to 12 funds (depending on
the year) in its Lipper category selected by Lipper (the "Performance Group")
for periods ended September 30, 2005 over the 1-, 3-, 5- and 10-year periods.
Performance information for a larger universe of funds in its Lipper category
selected by Lipper was not provided by Lipper in light of the limited number of
funds in the Fund's Lipper category. The directors also reviewed information
prepared by the Adviser showing performance of the Fund as compared to the
Lehman Brothers Municipal Bond Index (the "Index") for periods ended September
30, 2005 over the year to date ("YTD"), 1-, 3-, 5- and 10-year and since
inception periods (April 1993 inception). The directors noted that in the
Performance Group comparison the Fund was in the 2nd quintile in the 1- and
3-year periods, 5th quintile in the 5-year period and 3rd quintile in the
10-year period. The directors further noted that the Fund significantly
outperformed the Index in the YTD, 1- and 3-year periods, materially
outperformed the Index in the 5-year period, somewhat outperformed the Index in
the 10-year period and somewhat underperformed the Index in the since inception
period. The directors
ACM MUNICIPAL SECURITIES INCOME FUND o 35
noted that the Fund utilizes leverage whereas the Index is unleveraged. 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, the Adviser agreed to material
reductions (averaging 20%) in the fee schedules of most of the open-end funds
sponsored by the Adviser (other than money market funds). As a result of that
settlement, the Adviser's fees (i) for managing open-end high income funds are
..50% of the first $2.5 billion of average daily net assets, .45% for average
daily net assets over that level to $5 billion, and .40% for average daily net
assets over $5 billion; and (ii) for managing open-end low risk income funds
are .45% of the first $2.5 billion of average daily net assets, .40% for
average daily net assets over that level to $5 billion, and .35% for average
daily net assets over $5 billion. The directors noted that each of these fee
schedules, if applied to the Fund, would result in a lower rate than that paid
by the Fund pursuant to the Advisory Agreement.
The directors reviewed information in the Adviser's Form ADV and noted that it
charges institutional clients lower fees for advising comparably sized accounts
using strategies that differ from those of the Fund but which involve
investments in securities of the same type that the Fund invests in (i.e.,
fixed income municipal securities). They had previously received an oral
presentation from the Adviser that supplemented the information in the Form ADV.
The Adviser reviewed with the directors the significant differences in the
scope of services it provides to institutional clients and to the Fund. For
example, the Advisory Agreement requires the Adviser to provide, in addition to
investment 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 pro-
36 o ACM MUNICIPAL SECURITIES INCOME FUND
vision of these non-advisory services involves costs and exposure to liability.
The Adviser explained that many of these services normally are not provided to
non-investment company clients and that fees charged to the Fund reflect the
costs and risks of the additional obligations. In light of these facts, the
directors did not place significant weight on these fee comparisons.
The directors noted that at their December 14-16, 2004 meetings, the directors
had requested a reduction in the advisory fees of the Fund to the levels in
accordance with the fee schedules for open-end funds managed by the Adviser and
deferred renewal of the Fund's Advisory Agreement and Administration Agreement
pending receipt and consideration of their request by the Adviser. At the
February 7-10, 2005 meeting, the directors considered and approved 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%. 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.
At their December 14, 2005 meeting, the directors considered the
Administrator's proposal to continue the administration fee waiver noted in the
above paragraph for another one-year period. The directors also noted that if
the Administration Agreement were amended to replace the annual rate of .15%
with a "reimbursement at cost" arrangement, the Adviser estimated that the fee
payable under such arrangement would be higher than the fee resulting from the
current rate of 0.05% (the contractual rate of 0.15% less the 0.10% fee
waiver). The directors noted that the Administrator continues to pay Prudential
..10% for the services in respect of the Fund from the Administrator's own
assets and that the Administrator planned to terminate the Sub-Administration
Agreement with Prudential. The directors further noted that the Adviser's costs
in respect of the Fund would be reduced by the Adviser's termination of the
Sub-Administration Agreement pursuant to which it pays Prudential a
sub-administration fee equal to .10% of the Fund's average weekly net assets.
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 2004. All references to expense ratio are
to the pro forma expense ratio. The directors recognized that the expense ratio
information
ACM MUNICIPAL SECURITIES INCOME FUND o 37
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 pro forma
latest fiscal period actual management fees of 94.9 basis points (combined
advisory and administration fees paid under the Advisory and Administration
Agreements), which reflected a 10 basis point fee waiver by the Administrator,
were the same as the Expense Group median and somewhat 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, 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 expense ratio was materially higher than the Expense
Group median and significantly higher than the Expense Universe median. The
Adviser explained that the Fund's expense ratio was in part due to the Fund's
relatively small size (approximately $217 million). 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.
38 o ACM MUNICIPAL SECURITIES INCOME FUND
ALLIANCEBERNSTEIN FAMILY OF FUNDS
--------------------------------------------
Wealth Strategies Funds
--------------------------------------------
Balanced Wealth Strategy
Wealth Appreciation Strategy
Wealth Preservation Strategy
Tax-Managed Balanced Wealth Strategy
Tax-Managed Wealth Appreciation Strategy
Tax-Managed Wealth Preservation Strategy
--------------------------------------------
Blended Style Funds
--------------------------------------------
U.S. Large Cap Portfolio
International Portfolio
Tax-Managed International Portfolio
--------------------------------------------
Growth Funds
--------------------------------------------
Domestic
Growth Fund
Mid-Cap Growth Fund
Large Cap Growth Fund
Small Cap Growth Portfolio
Global & International
Global Health Care Fund
Global Research Growth Fund
Global Technology Fund
Greater China '97 Fund
International Growth Fund
International Research Growth Fund*
--------------------------------------------
Value Funds
--------------------------------------------
Domestic
Balanced Shares
Focused Growth & Income Fund
Growth & Income Fund
Real Estate Investment Fund
Small/Mid-Cap Value Fund
Utility Income Fund
Value Fund
Global & International
Global Value Fund
International Value Fund
--------------------------------------------
Taxable Bond Funds
--------------------------------------------
Global Government Income Trust*
Corporate Bond Portfolio
Emerging Market Debt Fund
Global Strategic Income Trust
High Yield Fund
Multi-Market Strategy Trust
Intermediate Bond Portfolio*
Short Duration Portfolio
U.S. Government Portfolio
--------------------------------------------
Municipal Bond Funds
--------------------------------------------
National Michigan
Insured National Minnesota
Arizona New Jersey
California New York
Insured California Ohio
Florida Pennsylvania
Massachusetts Virginia
--------------------------------------------
Intermediate Municipal Bond Funds
--------------------------------------------
Intermediate California
Intermediate Diversified
Intermediate New York
--------------------------------------------
Closed-End Funds
--------------------------------------------
All-Market Advantage Fund
ACM Income Fund
ACM Government Opportunity Fund
ACM Managed Dollar Income Fund
ACM Managed Income Fund
ACM Municipal Securities Income Fund
California Municipal Income Fund
National Municipal Income Fund
New York Municipal Income Fund
The Spain Fund
World Dollar Government Fund
World Dollar Government Fund II
--------------------------------------------
Retirement Strategies Funds
--------------------------------------------
2000 Retirement Strategy
2005 Retirement Strategy
2010 Retirement Strategy
2015 Retirement Strategy
2020 Retirement Strategy
2025 Retirement Strategy
2030 Retirement Strategy
2035 Retirement Strategy
2040 Retirement Strategy
2045 Retirement Strategy
We also offer Exchange Reserves,** which serves as the money market fund
exchange vehicle for the AllianceBernstein mutual funds.
For more complete information on any AllianceBernstein mutual fund, including
investment objectives and policies, sales charges, expenses, risks and other
matters of importance to prospective investors, visit our website at
www.alliancebernstein.com or call us at (800) 227-4618 for a current
prospectus. You should read the prospectus carefully before you invest.
* On July 8, 2005, New Europe Fund merged into International Research Growth
Fund. Prior to February 1, 2006, Global Government Income Trust was named
Americas Government Income Trust and Intermediate Bond Portfolio was named
Quality Bond Portfolio.
** An investment in the Fund is not a deposit in a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. Although the Fund seeks to preserve the value of your investment at
$1.00 per share, it is possible to lose money by investing in the Fund.
ACM MUNICIPAL SECURITIES INCOME FUND o 39
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 NYSEtrading 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.
40 o ACM MUNICIPAL SECURITIES INCOME FUND
Privacy Notice
Alliance, the AllianceBernstein Family of Funds and AllianceBernstein
Investment Research and Management, Inc. (collectively, "Alliance" or "we")
understand the importance of maintaining the confidentiality of our customers'
nonpublic personal information. In order to provide financial products and
services to our customers efficiently and accurately, we may collect nonpublic
personal information about our customers from the following sources: (1)
information we receive from account documentation, including applications or
other forms (which may include information such as a customer's name, address,
social security number, assets and income) and (2) information about our
customers' transactions with us, our affiliates and others (including
information such as a customer's account balances and account activity).
It is our policy not to disclose nonpublic personal information about our
customers (or former customers) except to our affiliates, or to others as
permitted or required by law. From time to time, Alliance may disclose
nonpublic personal information that we collect about our customers (or former
customers), as described above, to non-affiliated third party providers,
including those that perform processing or servicing functions and those that
provide marketing services for us or on our behalf pursuant to a joint
marketing agreement that requires the third party provider to adhere to
Alliance's privacy policy. We have policies and procedures to safeguard
nonpublic personal information about our customers (or former customers) which
include: (1) restricting access to such nonpublic personal information and (2)
maintaining physical, electronic and procedural safeguards that comply with
federal 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-0152-0406
ITEM 2. CODE OF ETHICS.
Not applicable when filing a semi-annual report to shareholders.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable when filing a semi-annual report to shareholders.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable when filing a semi-annual report to shareholders.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable when filing a semi-annual report to shareholders.
ITEM 6. SCHEDULE OF INVESTMENTS.
Please see Schedule of Investments contained in the Report to Shareholders
included under Item 1 of this Form N-CSR.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable when filing a semi-annual report to shareholders.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable when filing a semi-annual report to shareholders.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
There have been no purchases of equity securities by the Fund or by affiliated
parties for the reporting period.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which shareholders
may recommend nominees to the Fund's Board of Directors since the Fund last
provided disclosure in response to this item.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive officer and principal financial
officer have concluded that the registrant's disclosure controls and procedures
(as defined in Rule 30a-2(c) under the Investment Company Act of 1940, as
amended) are effective at the reasonable assurance level based on their
evaluation of these controls and procedures as of a date within 90 days of the
filing date of this document.
(b) There were no changes in the registrant's internal controls over financial
reporting that occurred during the second fiscal quarter of the period that has
materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
ITEM 12. EXHIBITS.
The following exhibits are attached to this Form N-CSR:
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
12 (b) (1) Certification of Principal Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
12 (b) (2) Certification of Principal Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
12 (c) Certification of Principal Executive Officer and
Principal Financial Officer Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant): ACM Municipal Securities Income Fund, Inc.
By: /s/ Marc O. Mayer
-----------------
Marc O. Mayer
President
Date: June 28, 2006
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ Marc O. Mayer
-----------------
Marc O. Mayer
President
Date: June 28, 2006
By: /s/ Mark D. Gersten
-------------------
Mark D. Gersten
Treasurer and Chief Financial Officer
Date: June 28, 2006