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: 811-10575
Alliance California Municipal Income Fund, Inc.
(Exact name of registrant as specified in charter)
1345 Avenue of the Americas, New York, New York 10105
(Address of principal executive offices) (Zip code)
Mark R. Manley
Alliance Capital Management, 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, 2003
Date of reporting period: October 31, 2003
ITEM 1. REPORTS TO STOCKHOLDERS.
[LOGO] ALLIANCEBERNSTEIN (SM)
Investment Research and Management
Alliance California Municipal Income Fund
Closed End
Annual Report--October 31, 2003
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, without charge, upon request by visiting Alliance Capital's web
site at www.investor.alliancecapital.com or on the Securities and Exchange
Commission's web site at http://www.sec.gov, or by calling Alliance Capital at
(800) 227-4618.
AllianceBernstein Investment Research and Management, Inc., the principal
underwriter of the AllianceBernstein mutual funds and an affiliate of Alliance
Capital Management L.P., the manager of the funds, is a member of the NASD.
December 15, 2003
Annual Report
This report provides management's discussion of fund performance for Alliance
California Municipal Income Fund's (the "Fund") annual reporting period ended
October 31, 2003.
Investment Objective and Policies
The Fund is a closed-end management investment company designed for investors
who seek high current income exempt from regular federal income tax and
California income tax. Under normal conditions, the Fund will invest at least
80%, and normally substantially all, of its assets in municipal securities
paying interest that is exempt from regular federal and California income tax.
In addition, the Fund normally invests at least 75% of its assets in investment
grade municipal securities.
Investment Results
The following table provides performance data for the Fund and its benchmark,
the Lehman Brothers Municipal Bond Index, for the six- and 12-month periods
ended October 31, 2003. For comparison, returns for the Lipper California
Municipal Debt Funds Average (the "Lipper Average") are also included. The
funds that comprise the Lipper Average have generally similar investment
objectives to the Fund, although investment policies and sales and management
fees for the various funds may differ.
INVESTMENT RESULTS*
Periods Ended October 31, 2003
Returns
6 Months 12 Months
-------- ---------
Alliance
California
Municipal
Income Fund
(NAV) 2.11% 4.70%
Lehman
Brothers
Municipal
Bond Index 1.47% 5.11%
Lipper
California
Municipal
Debt Funds
Average 1.08% 5.40%
The Fund's Market Price Per Share on October 31, 2003 was $13.18. For
additional Financial Highlights, please see pages 18-19.
* The Fund's investment results are for the periods shown and are based on the
Fund's net asset value (NAV) as of October 31, 2003. All fees and expenses
related to the operation of the Fund have been deducted. Returns for the Fund
include the reinvestment of any distributions paid during each period. Past
performance is no guarantee of future results. The unmanaged Lehman Brothers
Municipal Bond Index does not reflect fees and expenses associated with the
active management of a mutual fund portfolio. The Index is a broad based total
return performance benchmark for the long-term investment grade, tax-exempt
bond market. The Lipper California Municipal Debt Funds Average is comprised of
closed-end funds with generally similar investment objectives to the Fund,
although some may have different investment policies and sales and management
fees. The Lipper Average included 30 funds for both the six-month and 12-month
periods ended October 31, 2003. An investor cannot invest directly in an index
or an average, and its results are not indicative of any specific investment,
including Alliance California Municipal Income Fund.
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ALLIANCE CALIFORNIA MUNICIPAL INCOME FUND o 1
Investment Results
For the six months ended October 31, 2003, the municipal bond market posted
positive returns despite municipal rates rising by 0.21%. Over that period, the
Fund outperformed its benchmark, the Lehman Brothers Municipal Bond Index. The
better relative performance reflected strong returns in both health care
related securities and municipal bonds secured by payments from the master
settlement agreement (MSA bonds) reached with tobacco manufacturers. These
sectors outperformed the overall market. In addition, the Fund's leveraged
structure benefited its performance, primarily because of historically low
borrowing costs. Over the six-month period, the Fund also outperformed its
Lipper peer group as represented by the Lipper Average.
For the 12 months ended October 31, 2003, the municipal market generated
positive total returns as interest rates declined for bonds of nearly every
maturity. During this time frame, the Fund underperformed its benchmark. This
underperformance reflected both the weaker performance of the California
municipal bond market in general as well as other factors that impacted the
Fund specifically. The relative weakness of the California municipal market is
illustrated by the 0.63% trailing performance of the Lehman Brothers California
Municipal Bond Index versus the Lehman Brothers Municipal Bond Index (overall
market) over the past 12 months. The lagging performance of the Fund largely
resulted from price declines on selected issuers during the first six months of
the fiscal year. Specifically, health care related and MSA bonds underperformed
the general market. In addition, performance was hurt by the Fund's overweight
position in California general obligation bonds, which underperformed the
market over the past 12 months. The higher income resulting from the Fund's
leveraged structure somewhat offset the negative impact of the price declines
in the Fund's holdings. The Fund also underperformed its Lipper peer group as
represented by the Lipper Average.
Market Review
Since April, municipal bond yields have been volatile, in part due to increased
volatility of most fixed income markets. This volatility is shown by the large
difference in yield from the high to low points of the market. For example, the
difference from peak to trough for bonds with maturities of 30 years was 89
basis points, (0.89%). In addition, the rate movement varied significantly by
maturity. Yields for short-term bonds declined by 4 basis points resulting in
relative outperformance for short-term bonds since the decline in yield caused
their prices to rise. Conversely, long-term bond yields rose by 21 basis points
which caused their prices to fall. The relative outperformance of short-term
bonds caused the yield difference between long and short bonds, known as the
slope of the yield curve, to increase by 25 basis points. Short-term bonds also
posted strong performance compared to taxable fixed income. For example, the
ratio (the municipal yield divided by Treasury yield) of five-year municipal
bond yields to five-year Treasury bond yields declined from 86% to 73%. A
declining
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2 o ALLIANCE CALIFORNIA MUNICIPAL INCOME FUND
ratio indicates that municipal bonds are outperforming Treasury bonds. In
comparison, the yield ratio for long-term bonds declined only slightly from 96%
to 95%.
Several sectors of the municipal market experienced significant changes in
relative value over the past six months. In the industrial development sector,
municipal bonds backed by airlines recovered strongly as flight activity
increased and investors discounted concerns regarding the airlines' financial
condition. As mentioned above, MSA bonds also showed improvement in price
compared to most other municipal bonds. This resulted, in part, from declining
issuance reducing supply pressure. In addition, a number of court rulings
favoring the tobacco industry improved the outlook for the sector.
Among the more traditional issuers in the municipal market, state and local
governments have just weathered some of the most difficult financial conditions
in over a decade. According to the Center on Budget and Policy Priorities, the
combined budget deficit of state governments this year was in excess of $70
billion dollars; as required by state law in most cases, all of these budget
gaps were closed. The State of California, alone, accounted for approximately
$26 billion of the cumulative deficit. The crises faced by state and local
issuers, and the market's reactions, have increased the volatility of general
obligation bonds and have in some cases provided opportunities to acquire
general obligation bonds at cheaper prices than previously available.
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ALLIANCE CALIFORNIA MUNICIPAL INCOME FUND o 3
PERFORMANCE UPDATE
ALLIANCE CALIFORNIA MUNICIPAL INCOME FUND (NAV)
GROWTH OF A $10,000 INVESTMENT
1/29/02*--10/31/03
Alliance California Municipal Income Fund (NAV): $11,198
Lehman Brothers Municipal Bond Index: $11,146
[THE FOLLOWING TABLE WAS DEPICTED AS A MOUNTAIN CHART IN THE PRINTED MATERIAL.]
AllianceBernstein California Lehman Brothers
Municipal Income Fund (NAV) Municipal Bond Index
- -------------------------------------------------------------------------------
1/29/02* $10,000 $10,000
10/31/02 10,692 $10,605
10/31/03 $11,198 $11,146
This chart illustrates the total value of an assumed $10,000 investment in
Alliance California Municipal Income Fund at net asset value (NAV) (from
1/29/02* to 10/31/03) as compared to the performance of a broad-based index.
The chart assumes the reinvestment of dividends and capital gains. Past
performance is not indicative of future results, and is not representative of
future gain or loss in capital value or dividend income.
The unmanaged Lehman Brothers Municipal Bond Index does not reflect fees and
expenses associated with the active management of a mutual fund portfolio. The
Index is a broad based 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 any specific investment,
including Alliance California Municipal Income Fund.
* Fund and benchmark data is from the Fund's inception date of 1/29/02.
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4 o ALLIANCE CALIFORNIA MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS
October 31, 2003
Standard Principal
& Poor's Amount
Ratings+ (000) Value
- -------------------------------------------------------------------------------
MUNICIPAL BONDS - 163.1%
Long-Term Municipal Bonds-163.1%
Arizona-3.2%
Arizona Hlth Fac Hosp Rev
(Phoenix Childrens Hosp) Ser 02A
6.00%, 2/15/32(a) Ba2 $ 5,000 $3,894,400
California-149.5%
Assoc Bay Area Gov MFHR
(Bijou Woods Apts) FNMA
Ser 01A AMT
5.30%, 12/01/31(a) Aaa 2,735 2,758,412
Bellflower Redev Agy MFHR
(Bellflower Terrace) FNMA
Ser 02A AMT
5.50%, 6/01/35 AAA 3,000 3,101,970
Beverly Hills CA CFD
(Business Triangle) AMBAC
5.00%, 9/01/28 AAA 1,500 1,512,645
California CFD
(YMCA Metro LA Proj) AMBAC
Ser 01
5.25%, 2/01/32 AAA 6,295 6,506,134
California Cnty Tobacco Sec Agy
Fresno Cnty Ser 02
6.125%, 6/01/38 BBB 2,000 1,672,520
California Ed Facs
(Univ of The Pacific) Ser 02
5.375%, 11/01/32(a) A2 4,035 4,122,963
California GO
Ser 02
5.25%, 2/01/30 BBB 5,000 4,929,500
5.25%, 4/01/30 BBB 10,000 9,858,900
California GO
Ser 03
5.25%, 2/01/24 BBB 2,000 1,997,360
California GO
Veterans Housing FSA Ser 01
5.60%, 12/01/32 AAA 1,205 1,226,871
California GO
Veterans Housing MBIA
Ser 01BZ AMT
5.375%, 12/01/24 AAA 4,000 4,022,320
California Hlth Fac
(Sutter Health) Ser 00A
6.25%, 8/15/35 A+ 5,000 5,364,050
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ALLIANCE CALIFORNIA MUNICIPAL INCOME FUND o 5
Standard Principal
& Poor's Amount
Ratings+ (000) Value
- -------------------------------------------------------------------------------
California Hlth Fac Hosp Rev
(Lucile Salter Packard Hosp)
AMBAC Ser 03C
5.00%, 8/15/22 AAA $ 3,295 $3,368,940
California State Dept of Wtr
Ser 02A
5.375%, 5/01/22 BBB+ 4,000 4,078,880
California Statewide Ed Fac
(Bentley School) Ser 01
6.75%, 7/01/32 NR 8,500 8,595,030
California Statewide Hosp Rev
(Kaiser Permanente) Ser 02
5.50%, 11/01/32 A 4,000 4,070,880
Chula Vista PCR
(San Diego Gas & Elec)
Ser 92A AMT
6.40%, 12/01/27 A+ 5,000 5,054,950
Cucamonga Sch Dist
Ser 02
5.125%, 6/01/23 A- 820 789,094
Fontana Pub Fin Auth
(No Fontana Redev Proj) Ser 03A
5.50%, 9/01/32 AAA 4,800 5,044,992
Golden State
Tobacco Settlement Bonds
Ser 03A-1
6.75%, 6/01/39 BBB 2,700 2,449,467
Golden State
Tobacco Settlement Bonds
XLCA Ser 03B
5.50%, 6/01/33 AAA 5,000 5,195,850
Los Angeles Cnty Metro Tran Auth
FGIC Ser 00A
5.25%, 7/01/30 AAA 4,700 4,846,029
Los Angeles Dept of Wtr & Pwr
Elec Rev FGIC Ser 01A
5.125%, 7/01/41 AAA 10,000 10,122,400
Los Angeles Spec Tax
(Grand Central Square) AMBAC
Ser 02 AMT
5.375%, 12/01/26 AAA 6,635 6,645,218
Los Angeles Uni Sch Dist
MBIA Ser 02E
5.125%, 1/01/27 AAA 10,000 10,255,800
Murrieta Valley Uni Sch Dist CFD
(Rancho Mira Mosa) Ser 02
6.30%, 9/01/24 NR 1,625 1,648,822
6.375%, 9/01/32 NR 4,505 4,585,189
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6 o ALLIANCE CALIFORNIA MUNICIPAL INCOME FUND
Standard Principal
& Poor's Amount
Ratings+ (000) Value
- -------------------------------------------------------------------------------
Murrieta Valley Uni Sch Dist CFD
Ser 02 ETM
6.375%, 9/01/32 NR $ 1,000 $1,017,800
Murrieta Valley Uni Sch Dist CFD
Ser 02A
6.375%, 9/01/32 NR 1,500 1,526,700
Napa MFHR
(Vintage at Napa Apts) FNMA
Ser 01A AMT
5.20%, 6/15/34(a) Aaa 4,500 4,598,550
Orange Cnty
(San Joaquin Hills Transp)
MBIA Ser 97
5.25%, 1/15/30 AAA 5,000 5,111,200
Palo Alto Assess Dist
(University Ave Area Off
Street Parking)
Ser 02A
5.875%, 9/02/30 BBB 8,985 9,167,575
Pomona
AMBAC Ser 03
5.50%, 6/01/34 AAA 1,640 1,718,917
Port of Oakland
FGIC Series 02L AMT
5.375%, 11/01/27 AAA 5,000 5,123,500
Rancho Santa Fe CFD #1
(Santa Fe Vly) Ser 00
6.70%, 9/01/30 NR 2,630 2,752,479
Salinas Valley Sld Waste
(Transfer Station) AMBAC
Ser 02 AMT
5.25%, 8/01/31 AAA 3,930 3,992,998
San Francisco City & Cnty Arpt Rev
(Int'l Arpt) FGIC Ser 03
5.125%, 5/01/19 AAA 1,000 1,058,920
San Francisco City & Cnty Arpt Rev
(Int'l Arpt) MBIA Ser 02-28A AMT
5.125%, 5/01/32 AAA 2,500 2,516,225
San Francisco City & Cnty Lease Rev
(San Bruno Jail #3) AMBAC Ser 00
5.25%, 10/01/33 AAA 5,000 5,136,600
Sequoia Uni Sch Dist GO
FSA Ser 02
5.125%, 7/01/31(a) Aaa 3,270 3,333,405
Stanislaus Cnty
Tobacco Settlement Bonds
Ser 02A
5.875%, 6/01/43(a) Baa2 2,500 1,987,575
Temecula Redev Agy
MBIA Ser 02
5.25%, 8/01/36 AAA 6,270 6,419,477
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ALLIANCE CALIFORNIA MUNICIPAL INCOME FUND o 7
Standard Principal
& Poor's Amount
Ratings+ (000) Value
- -------------------------------------------------------------------------------
Yorba Linda
(Black Gold Golf Course Proj Rev)
Ser 00
7.50%, 10/01/30 NR $ 4,500 $4,806,495
-----------
184,093,602
Puerto Rico-10.4%
Puerto Rico Elec Pwr Auth Rev
XLCA Ser 02-2
5.25%, 7/01/31 AAA 6,000 6,239,220
Puerto Rico Hwy & Trans Auth
Ser 02D
5.375%, 7/01/36 A 6,450 6,585,966
-----------
12,825,186
Total Investments-163.1%
(cost $198,460,023) 200,813,188
Other assets less liabilities-2.7% 3,340,651
Preferred Stock, at redemption
value-(65.8%) (81,000,000)
Net Assets Applicable to Common
Shareholders-100%(b) $123,153,839
+ Unaudited
(a) Moody's or Fitch Rating, unaudited.
(b) Portfolio percentages are calculated based on net assets applicable to
common shareholders.
Glossary of Terms:
AMBAC American Municipal Bond Assurance Corporation
AMT Alternative Minimum Tax - (subject to)
CFD Community Facilities District
ETM Escrow to Maturity
FGIC Financial Guaranty Insurance Company
FNMA Federal National Mortgage Association
FSA Financial Security Assurance, Inc.
GO General Obligation
MBIA Municipal Bond Investors Assurance
MFHR Multi-Family Housing Revenue
NR Rating not applied for (comparable in quality to those the fund is
permitted to invest in)
PCR Pollution Control Revenue
XLCA XL Capital Assurance
See notes to financial statements.
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8 o ALLIANCE CALIFORNIA MUNICIPAL INCOME FUND
STATEMENT OF ASSETS & LIABILITIES
October 31, 2003
Statement of Assets & Liabilities
Assets
Investments in securities, at value (cost $198,460,023) $200,813,188
Cash 208,901
Interest receivable 3,209,874
Prepaid expenses 180,697
Total assets 204,412,660
Liabilities
Advisory fee payable 60,369
Dividends payable-preferred shares 60,282
Accrued expenses and other liabilities 138,170
Total liabilities 258,821
Preferred Stock, at redemption value
$.001 par value per share; 3,240 shares Auction
Preferred Stock authorized, issued and outstanding
at $25,000 per share liquidation preference 81,000,000
Net Assets Applicable to Common Shareholders $123,153,839
Composition of Net Assets Applicable to
Common Shareholders
Common stock, $.001 par value per share;
1,999,996,760 shares authorized, 8,519,002 shares
issued and outstanding $8,519
Additional paid-in capital 120,705,531
Undistributed net investment income 1,917,142
Accumulated net realized loss on investment transactions (1,830,518)
Net unrealized appreciation of investments 2,353,165
Net Assets Applicable to Common Shareholders $123,153,839
Net Asset Value Applicable to
Common Shareholders
(based on 8,519,002 common shares outstanding) $14.46
See notes to financial statements.
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ALLIANCE CALIFORNIA MUNICIPAL INCOME FUND o 9
STATEMENT OF OPERATIONS
Year Ended October 31, 2003
Investment Income
Interest $11,077,502
Expenses
Advisory fee $1,333,874
Auction Preferred Stock-auction
agent's fees 203,353
Audit and legal 121,926
Custodian 94,915
Printing 37,161
Directors' fees and expenses 32,000
Registration fees 26,176
Transfer agency 16,477
Miscellaneous 40,162
Total expenses 1,906,044
Less: expenses waived by the Adviser
(see Note B) (615,634)
Net expenses 1,290,410
Net investment income 9,787,092
Realized and Unrealized Loss
on Investment Transactions
Net realized loss on investment
transactions (1,382,341)
Net change in unrealized
appreciation/depreciation
of investments (2,072,340)
Net loss on investment transactions (3,454,681)
Dividends to Auction Preferred
Shareholders from
Net investment income (1,055,490)
Net Increase in Net Assets Applicable
to Common Shareholders Resulting
from Operations $5,276,921
See notes to financial statements.
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10 o ALLIANCE CALIFORNIA MUNICIPAL INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
APPLICABLE TO COMMON SHAREHOLDERS
January 29,
Year Ended 2002(a) to
October 31, October 31,
2003 2002
- -------------------------------------------------------------------------------
Increase (Decrease) in Net Assets
Applicable to Common Shareholders
Resulting from Operations
Net investment income $9,787,092 $6,151,337
Net realized loss on investment
transactions (1,382,341) (448,177)
Net change in unrealized
appreciation/depreciation
of investments (2,072,340) 4,425,505
Dividends to Auction Preferred
Shareholders from
Net investment income (1,055,490) (664,758)
Net increase in net assets applicable
to Common Shareholders resulting
from operations 5,276,921 9,463,907
Dividends to Common
Shareholders from
Net investment income (7,121,845) (5,179,194)
Common Stock Transactions
Net proceeds from the issuance of
Common Stock -0- 121,645,750
Preferred offering costs and sales load (55,638) (1,008,712)
Reinvestment of dividends resulting in
the issuance of Common Stock -0- 32,645
Total increase (decrease) (1,900,562) 124,954,396
Net Assets Applicable to
Common Shareholders
Beginning of period 125,054,401 100,005
End of period (including undistributed
net investment income of $1,917,142
and $307,385, respectively) $123,153,839 $125,054,401
(a) Commencement of Operations
See notes to financial statements.
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ALLIANCE CALIFORNIA MUNICIPAL INCOME FUND o 11
NOTES TO FINANCIAL STATEMENTS
October 31, 2003
NOTE A
Significant Accounting Policies
Alliance California Municipal Income Fund, Inc. (the "Fund"), was incorporated
in the state of Maryland on November 9, 2001 and is registered under the
Investment Company Act of 1940 as a non-diversified, closed-end management
investment company. Prior to the commencement of operations on January 29,
2002, the Fund had no operations other than the sale to Alliance Capital
Management L.P. (the "Adviser") of 6,667 shares in the amount of $100,005 on
January 23, 2002. The preparation of financial statements in accordance with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts
and disclosures in the financial statements. Actual results could differ from
those estimates. The following is a summary of significant accounting policies
followed by the Fund.
1. Security Valuation
In accordance with Pricing Policies adopted by the Board of Directors of the
Fund (the "Pricing Policies") and applicable law, portfolio securities are
valued at current market value or at fair value. The Board of Directors has
delegated to the Adviser, subject to the Board's continuing oversight, certain
responsibilities with respect to the implementation of the Pricing Policies.
Pursuant to the Pricing Policies, securities for which market quotations are
readily available are valued at their current market value. In general, the
market value of these securities is 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. If no bid or asked prices are quoted on such day, then the security is
valued in good faith at fair value in accordance with the Pricing Policies.
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 valuations, the last available
closing settlement price is used; securities traded in the over-the-counter
market, (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
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12 o ALLIANCE CALIFORNIA MUNICIPAL INCOME FUND
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, the
Pricing Policies provide that 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 are valued at fair value in accordance with the Pricing Policies.
2. Taxes
It is the Fund's policy to meet the requirements of the Internal Revenue Code
applicable to regulated investment companies and to distribute all of its
investment company taxable income and net realized gains, if any, to
shareholders. Therefore, no provisions for federal income or excise taxes are
required.
3. Organization Expenses and Offering Costs
Offering costs of $255,500 ($0.03 per common share) were charged to paid-in
capital of the Fund at the completion of the initial offering of common shares
on January 29, 2002. The Adviser agreed to pay the amount by which the
aggregate of all the Fund's organization expenses and all offering costs
(other than sales load) exceeded $0.03 per common share.
Additionally, offering costs and sales load of $198,712 and $810,000,
respectively, and offering costs of $55,638 were charged to paid-in capital of
the Fund in connection with the offering of preferred shares during the period
ended October 31, 2002 and the year ended October 31, 2003, respectively.
4. Investment Income and Investment Transactions
Interest income is accrued daily. Investment transactions are accounted for on
the date the securities are purchased or sold. Investment gains and losses are
determined on the identified cost basis. The Fund amortizes premiums and
accretes original issue discounts and market discounts as adjustments to
interest income.
5. Dividends and Distributions
Dividends and distributions to shareholders are recorded on the ex-dividend
date. Income dividends and capital gains distributions are determined in
accordance with federal tax regulations and may differ from those determined in
accordance with accounting principles generally accepted in the United States.
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. For the fiscal year
ended October 31, 2003 there were no permanent differences.
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ALLIANCE CALIFORNIA MUNICIPAL INCOME FUND o 13
NOTE B
Advisory 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 .65 of 1% of the Fund's average daily net
assets applicable to common and preferred shareholders. Such fee is accrued
daily and paid monthly. The Adviser has agreed to waive a portion of its fees
or reimburse the Fund for expenses in the amount of 0.30% of the Fund's average
daily net assets applicable to common and preferred shareholders for the first
5 full years of the Fund's operations, 0.25% of the Fund's average daily net
assets applicable to common and preferred shareholders in year 6, 0.20% in year
7, 0.15% in year 8, 0.10% in year 9, and 0.05% in year 10. For the year ended
October 31, 2003, the amount of such fees waived was $615,634.
Under the terms of a Shareholder Inquiry Agency Agreement with Alliance Global
Investor Services, Inc. (AGIS), an affiliate of the Adviser, the Fund
reimburses AGIS for costs relating to servicing phone inquiries for the Fund.
During the year ended October 31, 2003, there was no reimbursement paid to AGIS.
NOTE C
Investment Transactions
Purchases and sales of investment securities (excluding short-term investments)
for the year ended October 31, 2003, were as follows:
Purchases Sales
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Investment securities (excluding
U.S. government securities) $36,372,539 $35,647,784
U.S. government securities -0- -0-
The cost of investments for federal income tax purposes, gross unrealized
appreciation and unrealized depreciation are as follows:
Cost $198,460,023
Gross unrealized appreciation $4,508,773
Gross unrealized depreciation (2,155,608)
Net unrealized appreciation $2,353,165
NOTE D
Common Stock
The Fund has 1,999,996,760 shares of $.001 par value common stock authorized.
There are 8,519,002 shares of common stock outstanding at October 31, 2003, of
which the Adviser owns 6,667 shares. In addition to the shares issued to the
Adviser, an initial public offering of the Fund's shares resulted in the
issuance of 7,800,000 shares during the period ended October 31, 2002. Also,
the Fund issued an additional 710,000 shares in connection with the exercise by
the underwriters of the over-allotment option during the period ended October
31, 2002. During the period ended October 31, 2002, the Fund issued 2,335
shares in connection with the Fund's dividend reinvestment plan.
- -------------------------------------------------------------------------------
14 o ALLIANCE CALIFORNIA MUNICIPAL INCOME FUND
NOTE E
Preferred Stock
The Fund has authorized, issued and outstanding 3,240 shares of Auction
Preferred Stock, consisting of 1,620 shares each of Series M and Series T. The
preferred shares have a liquidation value of $25,000 per share plus
accumulated, unpaid dividends. The dividend rate on the Auction Preferred Stock
may change generally every 7 days as set by the auction agent for Series M. The
dividend rate on the Series M is .85% effective through November 3, 2003. The
dividend rate on Series T is 1.62% effective through August 2, 2005.
At certain times, the Preferred Shares are redeemable by the Fund, in whole or
in part, at $25,000 per share plus accumulated, unpaid dividends.
Although the Fund will not ordinarily redeem the Preferred Shares, it may be
required to redeem shares if, for example, the Fund does not meet an asset
coverage ratio required by law or to correct a failure to meet a rating agency
guideline in a timely manner. The Fund voluntarily may redeem the Preferred
Shares in certain circumstances.
The Preferred Shareholders, voting as a separate class, have the right to elect
at least two Directors at all times and to elect a majority of the Directors in
the event two years' dividends on the Preferred Shares are unpaid. In each
case, the remaining Directors will be elected by the Common Shareholders and
Preferred Shareholders voting together as a single class. The Preferred
Shareholders will vote as a separate class on certain other matters as required
under the Fund's Charter, the Investment Company Act of 1940 and Maryland law.
NOTE F
Distributions To Common Shareholders
The tax character of distributions paid to common shareholders during the
fiscal periods ended October 31, 2003 and October 31, 2002 were as follows:
2003 2002
- -------------------------------------------------------------------------------
Distributions paid from:
Ordinary income $8,867 $5,012
Tax exempt income 7,112,978 4,526,738
Total distributions paid $7,121,845 $4,531,750(a)
As of October 31, 2003, the components of accumulated earnings/(deficit)
applicable to common shareholders on a tax basis were as follows:
Undistributed tax exempt income $1,977,424
Accumulated capital and other losses (1,830,518)(b)
Unrealized appreciation/(depreciation) 2,353,165
Total accumulated earnings/(deficit) $2,500,071
(a) Total distributions paid differ from the statement of changes in net assets
applicable to common shareholders because for tax purposes dividends are
recognized when actually paid.
- -------------------------------------------------------------------------------
ALLIANCE CALIFORNIA MUNICIPAL INCOME FUND o 15
(b) On October 31, 2003, the Fund had a net capital loss carryforward of
$1,830,518 of which $448,177 expires in the year 2010 and $1,382,341 expires in
the year 2011. To the extent future capital gains are offset by capital loss
carryforward, such gains will not be distributed.
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.
Concentration of Credit Risk--The Fund invests primarily in securities issued
by the State of California and its various political subdivisions, and the
performance of the Fund is closely tied to economic conditions within the
State and the financial condition of the State and its agencies and
municipalities.
NOTE H
Legal Proceedings
As has been previously reported in the press, 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 Alliance Capital
Management L.P. ("Alliance Capital"), the Fund's Adviser, provide information
to them. Alliance Capital 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 "Subsequent Events" below for
a description of the agreements reached by Alliance Capital and the SEC and
NYAG in connection with the investigations mentioned above.
In addition, more than thirty private lawsuits have been filed against Alliance
Capital 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
- -------------------------------------------------------------------------------
16 o ALLIANCE CALIFORNIA MUNICIPAL INCOME FUND
NYAG investigations referred to above. Some of these lawsuits name the Fund as
a party. Management of the Fund's 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.
Note I
Subsequent Events
On December 18, 2003, Alliance Capital, the Fund's 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
subject to final, definitive documentation. Among the key provisions of these
agreements are the following:
(i) Alliance Capital agreed to establish a $250 million fund (the
"Reimbursement Fund") to compensate mutual fund shareholders for the adverse
effects of market timing attributable to the market timing relationships
described in the SEC Order (i.e., relationships Alliance Capital maintained
with some investors who were permitted to engage in market timing trades in
some of the AllianceBernstein Mutual Funds in return for or in connection with
making investments (which were not actively traded) in other Alliance Capital
products, including hedge funds and mutual funds, for which Alliance Capital
receives advisory fees). According to the SEC Order, the Reimbursement Fund is
to be paid, in order of priority, to fund investors based on (i) their aliquot
share of losses suffered by the fund due to market timing, and (ii) a
proportionate share of advisory fees paid by such fund during the period of
such market timing;
(ii) Alliance Capital 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) Alliance Capital agreed to implement changes to its governance and
compliance procedures. Additionally, the SEC Order contemplates that Alliance
Capital'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.
- -------------------------------------------------------------------------------
ALLIANCE CALIFORNIA MUNICIPAL INCOME FUND o 17
FINANCIAL HIGHLIGHTS
Selected Data For A Share Of Common Stock Outstanding Throughout Each Period
January 29,
Year Ended 2002(a) to
October 31, October 31,
2003 2002
- ----------------------------------------------------------------------------------------------------
Net asset value, beginning of period $14.68 $14.33
Income from Investment Operations
Net investment income(b)(c) 1.15 .73
Net realized and unrealized gain (loss) on investment
transactions (.40) .46
Dividends to preferred shareholders from net investment income
(common stock equivalent basis) (.12) (.08)
Net increase in net asset value from operations .63 1.11
Less: Dividends to common shareholders from
Net investment income (.84) (.61)
Common stock offering costs -0- (.03)
Preferred stock offering costs and sales load (.01) (.12)
Net asset value, end of period $14.46 $14.68
Market value, end of period $13.18 $13.78
Discount (8.85)% (6.13)%
Total Return
Total investment return based on:(d)
Market value 1.67% (4.08)%
Net asset value 4.70% 6.93%
Ratios/Supplemental Data:
Net assets applicable to common shareholders, end of period
(000's omitted) $123,154 $125,054
Preferred Stock, at redemption value ($25,000 per share
liquidation preference) (000's omitted) $81,000 $81,000
Ratio to average net assets applicable to common
shareholders of:
Expenses, net of fee waivers(e) 1.04% 1.07%(f)
Expenses, before fee waivers(e) 1.53% 1.53%(f)
Net investment income, before preferred stock dividends(c)(e) 7.88% 6.69%(f)
Preferred stock dividends .85% .72%(f)
Net investment income, net of preferred stock dividends(c) 7.03% 5.97%(f)
Portfolio turnover rate 18% 20%
Asset coverage ratio 252% 254%
See footnote summary on page 19.
- -------------------------------------------------------------------------------
18 o ALLIANCE CALIFORNIA MUNICIPAL INCOME FUND
(a)Commencement of operations. Net asset value immediately after the closing of
the first public offering was $14.30.
(b) Based on average shares outstanding.
(c) Net of fees waived by the Adviser.
(d) Total investment return is calculated assuming a purchase of common stock
on the opening of the first day and a sale on the closing of the last day of
the period reported. Dividends and distributions, if any, are assumed for
purposes of this calculation, to be reinvested at prices obtained under the
Fund's dividend reinvestment plan. Generally, total investment return based on
net asset value will be higher than total investment return based on market
value in periods where there is an increase in the discount or a decrease in
the premium of the market value to net asset value from the beginning to the
end of such periods. Conversely, total investment return based on net asset
value will be lower than total investment return based on market value in
periods where there is a decrease in the discount or an increase in the premium
of the market value to the net asset value from the beginning to the end of the
period. Total investment return calculated for a period of less than one year
is not annualized.
(e)These expense and net investment income ratios do not reflect the effect of
dividend payments to preferred shareholders.
(f)Annualized.
- -------------------------------------------------------------------------------
ALLIANCE CALIFORNIA MUNICIPAL INCOME FUND o 19
REPORT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS
To the Shareholders and Board of Directors of Alliance California Municipal
Income Fund, Inc.
We have audited the accompanying statement of assets and liabilities of
Alliance California Municipal Income Fund, Inc. (the "Fund"), including the
portfolio of investments, as of October 31, 2003, and the related statement of
operations for the year then ended, the statement of changes in net assets
applicable to common shareholders and the financial highlights for the year
then ended and for the period from January 29, 2002 (commencement of
operations) to October 31, 2002. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
and financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of October 31, 2003, by correspondence with
the custodian. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Alliance California Municipal Income Fund, Inc. at October 31, 2003, the
results of its operations for the year then ended, the changes in its net
assets applicable to common shareholders and the financial highlights for the
year then ended and for the period from January 29, 2002 (commencement of
operations) to October 31, 2002, in conformity with accounting principles
generally accepted in the United States.
/s/ Ernst & Young LLP
New York, New York
December 12, 2003,
except for Note I,
as to which the date is
December 23, 2003
FEDERAL TAX INFORMATION (unaudited)
In accordance with Federal tax law, the Fund's designation of "exempt-interest
dividends" paid during the fiscal year ended October 31, 2003 was $8,167,154.
As required by Federal tax law rules, shareholders will receive notification of
their portion of the Fund's taxable ordinary dividends (if any) and capital
gain distributions (if any) paid for the 2003 calendar year on Form 1099-DIV
which will be mailed by January 31, 2004.
- -------------------------------------------------------------------------------
20 o ALLIANCE CALIFORNIA MUNICIPAL INCOME FUND
ADDITIONAL INFORMATION
(unaudited)
Shareholders whose shares are registered in their own names can elect to
participate in the Dividend Reinvestment Plan (the "Plan"), pursuant to which
dividends and capital gain distributions to shareholders will be paid in or
reinvested in additional shares of the Fund (the "Dividend Shares"). Equiserve
Trust Company N.A. (the "Agent") will act as agent for participants under the
Plan. Shareholders whose shares are held in the name of broker or nominee
should contact such broker or nominee to determine whether or how they may
participate in the Plan.
If the Board declares an income distribution or determines to make a capital
gain distribution payable either in shares or in cash, non-participants in the
Plan will receive cash and participants in the Plan will receive the equivalent
in shares of Common Stock of the Fund valued as follows:
(i) If the shares of Common Stock are trading at net asset value or at a
premium above net asset value at the time of valuation, the Fund will issue
new shares at the greater of net asset value or 95% of the then current market
price.
(ii) If the shares of Common Stock are trading at a discount from net asset
value at the time of valuation, the Plan Agent will receive the dividend or
distribution in cash and apply it to the purchase of the Fund's shares of
Common Stock in the open market on the New York Stock Exchange or elsewhere,
for the participants' accounts. Such purchases will be made on or shortly
after the payment date for such dividend or distribution and in no event more
than 30 days after such date except where temporary curtailment or suspension
of purchase is necessary to comply with Federal securities laws. If, before the
Plan agent has completed its purchases, the market price exceeds the net asset
value of a share of Common Stock, the average purchase price per share paid by
the Plan agent may exceed the net asset value of the Fund's shares of Common
Stock, resulting in the acquisition of fewer shares than if the dividend or
distribution had been paid in shares issued by the Fund.
The Agent will maintain all shareholders' accounts in the Plan and furnish
written confirmation of all transactions in the account, including information
needed by shareholders for tax records. Shares in the account of each Plan
participant will be held by the Agent in non-certificate form in the name of
the participant, and each shareholder's proxy will include those shares
purchased or received pursuant to the Plan.
There will be no charges with respect to shares issued directly by the Fund to
satisfy the dividend reinvestment requirements. However, each participant will
pay a pro rata share of brokerage commissions incurred with respect to the
Agent's open market purchases of shares.
The automatic reinvestment of dividends and distributions will not relieve
participants of any income taxes that may be payable (or required to be
withheld) on dividends and distributions.
- -------------------------------------------------------------------------------
ALLIANCE CALIFORNIA MUNICIPAL INCOME FUND o 21
Experience under the Plan may indicate that changes are desirable. Accordingly,
the Fund reserves the right to amend or terminate the Plan as applied to any
voluntary cash payments made and any dividend or distribution paid subsequent
to written notice of the change sent to participants in the Plan at least 90
days before the record date for such dividend or distribution. The Plan may
also be amended or terminated by the Agent on at least 90 days' written notice
to participants in the Plan. All correspondence concerning the Plan should be
directed to the Agent at Equiserve Trust Company N.A. c/o Alliance California
Municipal Income Fund, P.O. Box 43011, Providence, RI 02940-3011.
Since the filing of the most recent amendment to the Fund's registration
statement with the Securities and Exchange Commission, there have been (i) no
material changes in the Fund's investment objectives or policies, (ii) no
changes to the Fund's charter or by-laws that would delay or prevent a change
of control of the Fund, (iii) no material changes in the principal risk factors
associated with investment in the Fund, and (iv) no change to the persons
primarily responsible for the day-to-day management of the Fund's portfolio,
who are, David Dowden, and Terrance Hults, each of whom is a Vice President of
the Fund.
- -------------------------------------------------------------------------------
22 o ALLIANCE CALIFORNIA MUNICIPAL INCOME FUND
BOARD OF DIRECTORS
William H. Foulk, Jr.(1), Chairman
Marc O. Mayer, President
Ruth Block(1)
David H. Dievler(1)
John H. Dobkin(1)
Dr. James M. Hester(1)
Clifford L. Michel(1)
Donald J. Robinson(1)
OFFICERS
Kathleen A. Corbet, Senior Vice President
Robert B. Davidson, III, Senior Vice President
David M. Dowden(2), Vice President
Terrance T. Hults(2), Vice President
Mark R. Manley, Secretary
Mark D. Gersten, Treasurer & Chief Financial Officer
Thomas R. Manley, Controller
Custodian
State Street Bank & Trust Company
225 Franklin Street
Boston, MA 02110
Legal Counsel
Seward & Kissel LLP
One Battery Park Plaza
New York, NY 10004
Independent Auditors
Ernst & Young LLP
5 Times Square
New York, NY 10036
Transfer Agent, Dividend Paying
Agent and Registrar
Equiserve Trust Company, N.A.
P.O. Box 43011
Providence, RI 02940-3011
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940 that the Fund may purchase at market prices from time to
time shares of its Common Stock in the open market.
This report, including the financial statements therein, is transmitted to the
shareholders of Alliance California Municipal Income Fund for their
information. This is not a prospectus, circular or representation intended for
use in the purchase of shares of the Fund or any securities mentioned in the
report.
(1) Member of the Audit Committee.
(2) Messrs. Dowden and Hults are the persons primarily responsible for the
day-to-day management of the Fund's investment portfolio.
- -------------------------------------------------------------------------------
ALLIANCE CALIFORNIA MUNICIPAL INCOME FUND o 23
MANAGEMENT OF THE FUND
Board of Directors Information
The business and affairs of the Fund are managed under the direction of the
Board of Directors. Certain information concerning the Fund's Directors is set
forth below.
PORTFOLIOS
IN FUND OTHER
NAME, AGE OF DIRECTOR, PRINCIPAL COMPLEX DIRECTORSHIPS
ADDRESS OCCUPATION(S) OVERSEEN BY HELD BY
(YEARS OF SERVICE) DURING PAST 5 YEARS DIRECTOR DIRECTOR
- -------------------------------------------------------------------------------------------------------
DISINTERESTED DIRECTORS
William H. Foulk, Jr.,#+, 71 Investment adviser and an 113 None
2 Sound View Drive independent consultant. He was
Suite 100 formerly Senior Manager of Barrett
Greenwich, CT 06830 Associates, Inc., a registered
(2) investment adviser, with which he
Chairman of the Board had been associated since prior
to 1998. He was formerly Deputy
Comptroller and Chief Investment
Officer of the State of New York
and, prior thereto, Chief
Investment Officer of the New York
Bank for Savings.
Ruth Block,#+, 73 Formerly Executive Vice President 96 None
500 SE Mizner Blvd., and Chief Insurance Officer of The
Boca Raton, FL 33432 Equitable Life Assurance Society
(2) of the United States; Chairman
and Chief Executive Officer of Evlico;
Director of Avon, BP (oil and gas),
Ecolab Incorporated (specialty
chemicals), Tandem Financial Group
and Donaldson, Lufkin & Jenrette
Securities Corporation; former
Governor at Large National Association
of Securities Dealers, Inc.
David H. Dievler,#+, 74 Independent consultant. Until 100 None
P.O. Box 167 December 1994 he was Senior
Spring Lake, NJ 07762 Vice President of Alliance Capital
(2) Management Corporation ("ACMC")
responsible for mutual fund
administration. Prior to joining ACMC
in 1984 he was Chief Financial Officer
of Eberstadt Asset Management since 1968.
Prior to that he was a Senior Manager
at Price Waterhouse & Co. Member of
American Institute of Certified Public
Accountants since 1953.
- -------------------------------------------------------------------------------
24 o ALLIANCE CALIFORNIA MUNICIPAL INCOME FUND
PORTFOLIOS
IN FUND OTHER
NAME, AGE OF DIRECTOR, PRINCIPAL COMPLEX DIRECTORSHIPS
ADDRESS OCCUPATION(S) OVERSEEN BY HELD BY
(YEARS OF SERVICE) DURING PAST 5 YEARS DIRECTOR DIRECTOR
- -------------------------------------------------------------------------------------------------------
DISINTERESTED DIRECTORS
(continued)
John H. Dobkin,#+, 61 Consultant. Formerly President of 98 None
P.O. Box 12 Save Venice, Inc. (preservation
Annandale, NY 12504 organization) from 2001-2002,
(2) a Senior Advisor from June 1999
-June 2000 and President of Historic
Hudson Valley (historic preservation)
from December 1989-May 1999. Previously,
Director of the National Academy of
Design and during 1988-1992, he was
Director and Chairman of the Audit
Committee of ACMC.
Dr. James M. Hester, #+,79 President of the Harry Frank 11 None
25 Cleveland Lane Guggenheim Foundation, with
Princeton, NJ 08540 which he has been associated
(2 ) since prior to 1998. He was
formerly President of New York
University and the New York Botanical
Garden, formerly Rector of the United
Nations University and Vice Chairman
of the Board of the Federal Reserve
Bank of New York.
Clifford L. Michel,#+, 64 Senior Counsel of the law firm of 97 Placer
15 St. Bernard's Road Cahill Gordon & Reindel since Dome, Inc.
Gladstone, NJ 07934 February 2001 and a partner of
(2) that firm for more than twenty-five
years prior thereto. He is President
and Chief Executive Officer of Wenonah
Development Company (investments) and a
Director of Placer Dome, Inc. (mining).
Donald J. Robinson,#+ 69 Senior Counsel to the law firm of 96 None
98 Hell's Peak Road Orrick, Herrington & Sutcliffe LLP
Weston, VT 05161 since prior to 1998. Formerly a
(2) senior partner and a member of
the Executive Committee of that firm.
He was also a member and Chairman of
the Municipal Securities Rulemaking
Board and Trustee of the Museum of
the City of New York.
- -------------------------------------------------------------------------------
ALLIANCE CALIFORNIA MUNICIPAL INCOME FUND o 25
PORTFOLIOS
IN FUND OTHER
NAME, AGE OF DIRECTOR, PRINCIPAL COMPLEX DIRECTORSHIPS
ADDRESS OCCUPATION(S) OVERSEEN BY HELD BY
(YEARS OF SERVICE) DURING PAST 5 YEARS DIRECTOR DIRECTOR
- -------------------------------------------------------------------------------------------------------
INTERESTED DIRECTOR
Marc O. Mayer, ++, 46 Executive Vice President of ACMC 68 None
1345 Avenue of the since 2001; prior thereto, Chief
Americas Executive Officer of Sanford C.
New York, NY 10105 Bernstein & Co., LLC and its
(3 months) predecessor since prior to 1998.
# Member of the Audit Committee.
+ Member of the Nominating Committee.
++ Mr. Mayer is an "interested director", as defined in the 1940 Act, due to
his position as Executive Vice President of ACMC.
- -------------------------------------------------------------------------------
26 o ALLIANCE CALIFORNIA MUNICIPAL INCOME FUND
Officer Information
Certain information concerning the Fund's Officers is listed below.
NAME, POSITION(S) PRINCIPAL OCCUPATION
ADDRESS* AND AGE HELD WITH FUND DURING PAST 5 YEARS
- ---------------------------------------------------------------------------------------------
Kathleen A. Corbet, 43 Senior Vice President Executive Vice President of Alliance
Capital Management Corporation
("ACMC"),** with which she has been
associated since prior to 1998.
Robert B. Davidson, III Senior Vice President Senior Vice President of ACMC,** with
42 which he has been associated since prior
to 1998.
David M. Dowden, 38 Vice President Senior Vice President of ACMC,**
with which he has been associated since
prior to 1998.
Terrance T. Hults, 37 Vice President Vice President of ACMC,** with which he
has been associated since prior to 1998.
Mark R. Manley, 41 Secretary Senior Vice President and Acting General
Counsel of ACMC,** with which he has been
associated since prior to 1998.
Mark D. Gersten, 53 Treasurer and Chief Senior Vice President of AGIS,** and
Financial Officer a Vice President of AllianceBernstein
Investment Research and Management, Inc.
("ABIRM"),** with which he has been
associated since prior to 1998.
Thomas R. Manley, 52 Controller Vice President of ACMC, ** with which
he has been associated since prior to 1998.
* The address for each of the Fund's Officers is 1345 Avenue of the Americas,
New York, NY 10105.
** ACMC, AGIS and ABIRM are affiliates of the Fund.
- -------------------------------------------------------------------------------
ALLIANCE CALIFORNIA MUNICIPAL INCOME FUND o 27
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 Series
U.S. Large Cap Portfolio
Growth Funds
Domestic
Growth Fund
Health Care Fund
Mid-Cap Growth Fund
Premier Growth Fund
Small Cap Growth Fund+
Technology Fund
Global & International
All-Asia Investment Fund
Global Small Cap Fund
Greater China '97 Fund
International Premier Growth Fund
New Europe Fund
Worldwide Privatization Fund
Select Investor Series
Biotechnology Portfolio
Premier Portfolio
Technology Portfolio
Value Funds
Domestic
Balanced Shares
Disciplined Value Fund
Growth & Income Fund
Real Estate Investment Fund
Small Cap Value Fund
Utility Income Fund
Value Fund
Global & International
Global Value Fund
International Value Fund
Taxable Bond Funds
Americas Government Income Trust
Corporate Bond Portfolio
Emerging Market Debt Fund
Global Strategic Income Trust
High Yield Fund
Multi-Market Strategy Trust
Quality Bond Portfolio
Short Duration Portfolio
U.S. Government Portfolio
Municipal Bond Funds
National
Insured National
Arizona
California
Insured California
Florida
Massachusetts
Michigan
Minnesota
New Jersey
New York
Ohio
Pennsylvania
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
We also offer Exchange Reserves,++ which serves as the money market fund
exchange vehicle for the AllianceBernstein mutual funds.
For more complete information on any AllianceBernstein mutual fund, including
investment objectives and policies, sales charges, expenses, risks and other
matters of importance to prospective investors, visit our web site at
www.alliancebernstein.com or call us at (800) 227-4618 for a current
prospectus. Please read the prospectus carefully before you invest or send
money.
* Formerly Growth Investors Fund.
** Formerly Conservative Investors Fund.
+ Quasar Fund changed its name to Small Cap Growth Fund on 11/3/03.
++ 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.
- -------------------------------------------------------------------------------
28 o ALLIANCE CALIFORNIA MUNICIPAL INCOME FUND
SUMMARY OF GENERAL INFORMATION
Shareholder Information
Daily market prices for the Fund's shares are published in the New York Stock
Exchange Composite Transaction Section of newspapers each day, under the
designation "ACMMSI." The Fund's NYSE trading symbol is "AKP." Weekly
comparative net asset value (NAV) and market price information about the Fund
is published each Monday in The Wall Street Journal, each Sunday in The New
York Times and each Saturday in Barron's and other newspapers in a table called
"Closed-End Bond Funds."
Dividend Reinvestment Plan
A Dividend Reinvestment Plan provides automatic reinvestment of dividends and
capital gains in additional Fund shares.
For questions concerning shareholder account information, or if you would like
a brochure describing the Dividend Reinvestment Plan, please call Equiserve
Trust Company at (800) 219-4218.
- -------------------------------------------------------------------------------
ALLIANCE CALIFORNIA MUNICIPAL INCOME FUND o 29
ALLIANCE CALIFORNIA MUNICIPAL INCOME FUND
1345 Avenue of the Americas
New York, NY 10105
(800) 221-5672
[LOGO] ALLIANCEBERNSTEIN (SM)
Investment Research and Management
(SM) This service mark used under license from
the owner, Alliance Capital Management L.P.
CAMAR1003
ITEM 2. CODE OF ETHICS.
(a) The registrant has adopted a code of ethics that applies to its principal
executive officer, principal financial officer and principal accounting
officer. A copy of the registrant's code of ethics is filed herewith as
Exhibit 10(a)(1).
(b) During the period covered by this report, no amendments were made to the
provisions of the code of ethics adopted in 2(a) above.
(c) During the period covered by this report, no implicit or explicit waivers
to the provisions of the code of ethics adopted in 2(a) above were granted.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The registrant's Board of Directors has determined that independent directors
David H. Dievler and William H. Foulk, Jr. qualify as audit committee financial
experts.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Form N-CSR disclosure requirement not yet effective with respect to the
registrant.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Form N-CSR disclosure requirement not yet effective with respect to the
registrant.
ITEM 6. [RESERVED]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
The registrant has adopted the following proxy voting policies and procedures
of its investment adviser, Alliance Capital Management L.P.
July 2003
ALLIANCE CAPITAL MANAGEMENT L.P.
Statement of Policies and Procedures for
Voting Proxies on Behalf of Discretionary Client Accounts
Introduction
As a registered investment adviser, Alliance Capital Management L.P. ("Alliance
Capital", "we" or "us") has a fiduciary duty to act solely in the best
interests of our clients. As part of this duty, we recognize that we must vote
client securities in a timely manner and make voting decisions that are in the
best interests of our clients.
This statement is intended to comply with Rule 206(4)-6 of the Investment
Advisers Act of 1940. It sets forth our policies and procedures for voting
proxies for our discretionary investment advisory clients, including investment
companies registered under the Investment Company Act of 1940. This statement
is applicable to Alliance Capital's growth and value investment groups
investing on behalf of clients in both US and global securities.
PROXY POLICIES
This statement is designed to be responsive to the wide range of subjects that
can have a significant effect on the investment value of the securities held in
our clients' accounts. These policies are not exhaustive due to the variety of
proxy voting issues that we may be required to consider. Alliance Capital
reserves the right to depart from these guidelines in order to avoid voting
decisions that we believe may be contrary to our clients' best interests. In
reviewing proxy issues, we will apply the following general policies:
Elections of Directors: Unless there is a proxy fight for seats on the Board
or we determine that there are other compelling reasons for withholding votes
for directors, we will vote in favor of the management proposed slate of
directors. That said, we believe that directors have a duty to respond to
shareholder actions that have received significant shareholder support. We may
withhold votes for directors that fail to act on key issues such as failure to
implement proposals to declassify boards, failure to implement a majority vote
requirement, failure to submit a rights plan to a shareholder vote and failure
to act on tender offers where a majority of shareholders have tendered their
shares. In addition, we will withhold votes for directors who fail to attend
at least seventy-five percent of board meetings within a given year without a
reasonable excuse. Finally, we may withhold votes for directors of non-U.S.
issuers where there is insufficient information about the nominees disclosed in
the proxy statement.
Appointment of Auditors: Alliance Capital believes that the company remains in
the best position to choose the auditors and will generally support
management's recommendation. However, we recognize that there may be inherent
conflicts when a company's independent auditor performs substantial non-audit
related services for the company. Therefore, we may vote against the
appointment of auditors if the fees for non-audit related services are
disproportionate to the total audit fees paid by the company or there are other
reasons to question the independence of the company's auditors.
Changes in Capital Structure: Changes in a company's charter, articles of
incorporation or by-laws are often technical and administrative in nature.
Absent a compelling reason to the contrary, Alliance Capital will cast its
votes in accordance with the company's management on such proposals. However,
we will review and analyze on a case-by-case basis any non-routine proposals
that are likely to affect the structure and operation of the company or have a
material economic effect on the company. For example, we will generally
support proposals to increase authorized common stock when it is necessary to
implement a stock split, aid in a restructuring or acquisition or provide a
sufficient number of shares for an employee savings plan, stock option or
executive compensation plan. However, a satisfactory explanation of a
company's intentions must be disclosed in the proxy statement for proposals
requesting an increase of greater than one hundred percent of the shares
outstanding. We will oppose increases in authorized common stock where there
is evidence that the shares will be used to implement a poison pill or another
form of anti-takeover device, or if the issuance of new shares could
excessively dilute the value of the outstanding shares upon issuance.
Corporate Restructurings, Mergers and Acquisitions: Alliance Capital believes
proxy votes dealing with corporate reorganizations are an extension of the
investment decision. Accordingly, we will analyze such proposals on a
case-by-case basis, weighing heavily the views of the research analysts that
cover the company and the investment professionals managing the portfolios in
which the stock is held.
Proposals Affecting Shareholder Rights: Alliance Capital believes that certain
fundamental rights of shareholders must be protected. We will generally vote
in favor of proposals that give shareholders a greater voice in the affairs of
the company and oppose any measure that seeks to limit those rights. However,
when analyzing such proposals we will weigh the financial impact of the
proposal against the impairment of shareholder rights.
Corporate Governance: Alliance Capital recognizes the importance of good
corporate governance in ensuring that management and the board of directors
fulfill their obligations to the shareholders. We favor proposals promoting
transparency and accountability within a company. For example, we will vote
for proposals providing for equal access to proxies, a majority of independent
directors on key committees, and separating the positions of chairman and chief
executive officer.
Anti-Takeover Measures: Alliance Capital believes that measures that impede
takeovers or entrench management not only infringe on the rights of
shareholders but may also have a detrimental effect on the value of the
company. We will generally oppose proposals, regardless of whether they are
advanced by management or shareholders, the purpose or effect of which is to
entrench management or dilute shareholder ownership. Conversely, we support
proposals that would restrict or otherwise eliminate anti-takeover measures
that have already been adopted by corporate issuers. For example, we will
support shareholder proposals that seek to require the company to submit a
shareholder rights plan to a shareholder vote. We will evaluate, on a
case-by-case basis, proposals to completely redeem or eliminate such plans.
Furthermore, we will generally oppose proposals put forward by management
(including blank check preferred stock, classified boards and supermajority
vote requirements) that appear to be intended as management entrenchment
mechanisms.
Executive Compensation: Alliance Capital believes that company management and
the compensation committee of the board of directors should, within reason, be
given latitude to determine the types and mix of compensation and benefit
awards offered. Whether proposed by a shareholder or management, we will
review proposals relating to executive compensation plans on a case-by-case
basis to ensure that the long-term interests of management and shareholders are
properly aligned. We will analyze the proposed plans to ensure that
shareholder equity will not be excessively diluted, the option exercise price
is not below market price on the date of grant and an acceptable number of
employees are eligible to participate in such programs. We will generally
oppose plans that permit repricing of underwater stock options without
shareholder approval. Other factors such as the company's performance and
industry practice will generally be factored into our analysis. We will
support proposals to submit severance packages triggered by a change in control
to a shareholder vote and proposals that seek additional disclosure of
executive compensation. Finally, we will support shareholder proposals
requiring companies to expense stock options because we view them as a large
corporate expense.
Social and Corporate Responsibility: Alliance Capital will review and analyze
on a case-by-case basis proposals relating to social, political and
environmental issues to determine whether they will have a financial impact on
shareholder value. We will vote against proposals that are unduly burdensome
or result in unnecessary and excessive costs to the company. We may abstain
from voting on social proposals that do not have a readily determinable
financial impact on shareholder value.
Proxy Voting Procedures
Proxy Voting Committees
Our growth and value investment groups have formed separate proxy voting
committees to establish general proxy policies for Alliance Capital and
consider specific proxy voting matters as necessary. These committees
periodically review new types of corporate governance issues, evaluate
proposals not covered by these policies and recommend how we should generally
vote on such issues. In addition, the committees, in conjunction with the
analyst that covers the company, contact management and interested shareholder
groups as necessary to discuss proxy issues. Members of the committees include
senior investment personnel and representatives of the Corporate Legal
Department. The committees may also evaluate proxies where we face a potential
conflict of interest (as discussed below). Finally, the committees monitor
adherence to guidelines, industry trends and review the policies contained in
this statement from time to time.
Conflicts of Interest
Alliance Capital recognizes that there may be a potential conflict of interest
when we vote a proxy solicited by an issuer whose retirement plan we manage,
whose retirement plan we administer, or with whom we have another business or
personal relationship that may affect how we vote on the issuer's proxy. We
believe that centralized management of proxy voting, oversight by the proxy
voting committees and adherence to these policies ensures that proxies are
voted with only our clients' best interests in mind. That said, we have
implemented additional procedures to ensure that our votes are not the product
of a conflict of interests, including: (i) requiring anyone involved in the
decision making process to disclose to the chairman of the appropriate proxy
committee any potential conflict that they are aware of and any contact that
they have had with any interested party regarding a proxy vote; (ii)
prohibiting employees involved in the decision making process or vote
administration from revealing how we intend to vote on a proposal in order to
reduce any attempted influence from interested parties; and (iii) where a
material conflict of interests exists, reviewing our proposed vote by applying
a series of objective tests and, where necessary, considering the views of a
third party research service to ensure that our voting decision is consistent
with our clients' best interests. For example, if our proposed vote is
consistent with our stated proxy voting policy, no further review is necessary.
If our proposed vote is contrary to our stated proxy voting policy but is also
contrary to management's recommendation, no further review is necessary. If
our proposed vote is contrary to our stated proxy voting policy or is not
covered by our policy, is consistent with management's recommendation, and is
also consistent with the views of an independent source, no further review is
necessary. If our proposed vote is contrary to our stated proxy voting policy
or is not covered by our policy, is consistent with management's recommendation
and is contrary to the views of an independent source, the proposal is reviewed
by the appropriate proxy committee for final determination.
Proxies of Certain Non-US Issuers
Proxy voting in certain countries requires "share blocking." Shareholders
wishing to vote their proxies must deposit their shares shortly before the date
of the meeting (usually one-week) with a designated depositary. During this
blocking period, shares that will be voted at the meeting cannot be sold until
the meeting has taken place and the shares are returned to the clients'
custodian banks. Alliance Capital may determine that the value of exercising
the vote does not outweigh the detriment of not being able to transact in the
shares during this period. Accordingly, if share blocking is required we may
abstain from voting those shares. In such a situation we would have determined
that the cost of voting exceeds the expected benefit to the client.
Proxy Voting Records
Clients may obtain information about how we voted proxies on their behalf by
contacting their Alliance Capital administrative representative.
Alternatively, clients may make a written request for proxy voting information
to: Mark R. Manley, Senior Vice President & Assistant General Counsel,
Alliance Capital Management L.P., 1345 Avenue of the Americas, New York, NY
10105.
ITEM 8. [RESERVED]
ITEM 9. 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 significant changes in the registrant's internal controls
that could significantly affect these controls subsequent to the date of their
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
ITEM 10. EXHIBITS.
The following exhibits are attached to this Form N-CSR:
EXHIBIT NO. DESCRIPTION OF EXHIBIT
10 (a) (1) Code of ethics that is subject to the disclosure of Item 2 hereof
10 (b) (1) Certification of Principal Executive Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
10 (b) (2) Certification of Principal Financial Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
10 (c) Certification of Principal Executive Officer and Principal
Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant): Alliance California Municipal Income Fund, Inc.
By: /s/ Marc O. Mayer
Marc O. Mayer
President
Date: December 30, 2003
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: December 30, 2003
By: /s/ Mark D. Gersten
Mark D. Gersten
Treasurer and Chief Financial Officer
Date: December 30, 2003