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
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: October 31, 2006
ITEM 1. REPORTS TO STOCKHOLDERS.
Alliance California Municipal
Income Fund
October 31, 2006
Annual Report
[LOGO]
ALLIANCEBERNSTEIN
INVESTMENTS
Investment Products Offered
o Are Not FDIC Insured
o May Lose Value
o Are Not Bank Guaranteed
You may obtain a description of the Fund's proxy voting policies and
procedures, and information regarding how the Fund voted proxies relating to
portfolio securities during the most recent 12-month period ended June 30,
without charge. Simply visit AllianceBernstein's web site at
www.alliancebernstein.com, or go to the Securities and Exchange Commission's
(the "Commission") web site at www.sec.gov, or call AllianceBernstein(R) at
(800) 227-4618.
The Fund files its complete schedule of portfolio holdings with the Commission
for the first and third quarters of each fiscal year on Form N-Q. The Fund's
Forms N-Q are available on the Commission's web site at www.sec.gov. The Fund's
Forms N-Q may also be reviewed and copied at the Commission's Public Reference
Room in Washington, DC; information on the operation of the Public Reference
Room may be obtained by calling (800) SEC-0330.
AllianceBernstein Investments, Inc. is an affiliate of AllianceBernstein L.P.,
the manager of the AllianceBernstein funds, and is a member of the NASD.
AllianceBernstein(R) and the AB Logo are registered trademarks and service
marks used by permission of the owner, AllianceBernstein L.P.
December 12, 2006
Annual Report
This report provides management's discussion of fund performance for Alliance
California Municipal Income Fund (the "Fund") for the annual reporting period
ended October 31, 2006. The Fund is a closed-end fund that trades under the New
York Stock Exchange symbol "AKP".
Investment Objective and Policies
The Fund is a closed-end management investment company that seeks to provide
high current income exempt from regular federal and California income tax by
investing substantially all of its net assets in municipal securities that are
exempt from regular federal and California income tax. The Fund will normally
invest at least 80%, and normally substantially all, of its net 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 net assets in investment-grade municipal securities or unrated municipal
securities considered to be of comparable quality. The Fund may invest up to
25% of its net assets in municipal securities rated below investment-grade and
unrated municipal securities considered to be of comparable quality. The Fund
intends to invest primarily in municipal securities that pay interest that is
not subject to the federal Alternative Minimum Tax ("AMT"), but may invest
without limit in municipal securities paying interest that is subject to the
federal AMT. For more information regarding the Fund's risks, please see "A
Word About Risk" on page 3 and "Note G--Risks Involved in Investing in the
Fund" of the Notes to Financial Statements on page 20.
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 October 31, 2006.
The Fund outperformed its benchmark during both the six- and 12-month reporting
periods ended October 31, 2006. The Fund's stronger relative performance during
the 12-month period under review was largely the result of security selection
in the pre-refunded, special tax, insured and general obligation sectors. In
addition, the Fund's leveraged structure slightly aided its performance.
Market Review and Investment Strategy
The U.S. Federal Reserve (the "Fed") raised the target for the Fed funds rate
six times over the past 12 months and thereby increased it by 1.50% to the
current level of 5.25%. This caused short-term municipal rates to rise. For
instance, since October 31, 2005, one-year municipal bond yields have risen
0.48%. Over the same time period, 20-year municipal bond yields declined by
0.41%. As a result of this rate movement, the difference between municipal
short-and long-term rates is less than it has been in 30 years. In other words,
the municipal yield curve is flatter than it has been in 30 years. U.S.
Treasury bond yields rose more than comparable maturity municipal bond yields,
as one-year U.S. Treasury rates rose 0.77% and 20-year U.S. Treasury yields
rose by 0.19%. As a result of the relative movement, the municipal market
outperformed the U.S. Treasury
ALLIANCE CALIFORNIA MUNICIPAL INCOME FUND o 1
market; the LB Municipal Index return for the 12-month period was 5.75% versus
4.43% for the LB U.S. Treasury Index. Most of the return for the municipal
market was due to its return of 4.05% during the past four months after the Fed
signaled that it had stopped raising short-term rates.
Over the 12-month reporting period, municipal bonds issued by lower-credit
quality borrowers continued to outperform bonds issued by high-grade borrowers.
The LB Municipal Non-Investment Grade (High Yield) Index returned 11.87% versus
the 5.75% return for the LB Municipal Index, which represents the overall
investment-grade market. The result of this outperformance has been that the
incremental yield, or credit spread, investors earn by owning lower-rated bonds
is extremely low by historic standards. The performance of the high yield
municipal market has benefited from the strong demand from individual
investors. Investor flows into high yield municipal bond funds continue to
represent about 40% of all municipal bond flows. Despite the fact that the high
yield municipal market only represents about 4% of the overall municipal
market, the assets in high yield municipal funds now represent over 20% of the
assets in all municipal funds.
With the municipal yield curve flat, and credit spreads low, investors
generally are being rewarded less than the market has historically offered for
taking risk. Accordingly, the Fund's Municipal Bond Investment Team (the
"team") has sought opportunities to raise the overall credit quality of the
Fund and to diversify the Fund's exposure to individual issuers. In addition,
where possible, the team has focused new purchases on bonds maturing in 10-15
years, rather than longer maturity bonds. Both of these strategies should be
beneficial to the Fund's performance if the market returns to more typical
relationships.
2 o ALLIANCE CALIFORNIA MUNICIPAL INCOME FUND
Historical Performance
An Important Note About the Value of Historical Performance
The performance on the following page represents past performance and does not
guarantee future results. Current performance may be lower or higher than the
performance information shown. All fees and expenses related to the operation
of the Fund have been deducted. Performance assumes reinvestment of
distributions and does not account for taxes.
Alliance California Municipal Income Fund Shareholder Information
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." For
additional shareholder information regarding this Fund, please see page 37.
Benchmark Disclosure
The unmanaged Lehman Brothers (LB) Municipal Index does not reflect fees and
expenses associated with the active management of a fund portfolio. The Index
is a total return performance benchmark for the long-term, investment grade,
tax-exempt bond market. An investor cannot invest directly in an index, and its
results are not indicative of the performance for any specific investment,
including the Fund.
A Word About Risk
Among the risks of investing in the Fund are changes in the general level of
interest rates or changes in bond credit quality ratings. Changes in interest
rates have a greater effect on bonds with longer maturities than on those with
shorter maturities. Please note, as interest rates rise, existing bond prices
fall and can cause the value of your investment in the Fund to decline. While
the Fund invests principally in bonds and other fixed-income securities, in
order to achieve its investment objectives, the Fund may at times use certain
types of investment derivatives, such as options, futures, forwards and swaps.
These instruments involve risks different from, and in certain cases, greater
than, the risks presented by more traditional investments. At the discretion of
the Fund's Adviser, the Fund may invest up to 25% of its net assets in
municipal bonds that are rated below investment grade (i.e., "junk bonds").
These securities involve greater volatility and risk than higher-quality
fixed-income securities. The Fund will invest substantially all of its net
assets in California Municipal Bonds and is therefore susceptible to political,
economic or regulatory factors specifically affecting California municipal bond
issuers.
Leverage Risk - The Fund may use certain investment techniques that have
increased risks. For example, the issuance of the Fund's preferred stock
results in leveraging of the Common Stock, an investment technique usually
considered speculative. The Fund utilizes leveraging to seek to enhance the
yield and net asset value of its Common Stock. However, these objectives cannot
be achieved in all interest rate environments. Leverage creates certain risks
for holders of Common Stock, including higher volatility of both the net asset
value and market value of the Common Stock, and fluctuations in the dividend
rates on the Preferred Stock will affect the return to holders of Common Stock.
To leverage, the Fund issues Preferred Stock, which pays dividends at
prevailing short-term interest rates, and invests the proceeds in long-term
municipal bonds. If the Fund were fully invested in longer-term securities and
if short-term interest rates were to increase, then the amount of dividends
paid on the preferred shares would increase and both net investment income
available for distribution to the holders of Common Stock and the net asset
value of the Common Stock would decline. At the same time, the market value of
the Fund's Common Stock (that is, its price as listed on the New York Stock
Exchange) may, as a result, decline. Furthermore, if long-term interest rates
rise, the Common Stock's net asset value will reflect the full decline in the
price of the portfolio's investments, since the value of the Fund's Preferred
Stock does not fluctuate. In addition to the decline in net asset value, the
market value of the Fund's Common Stock may also decline.
(Historical Performance continued on next page)
ALLIANCE CALIFORNIA MUNICIPAL INCOME FUND o 3
HISTORICAL PERFORMANCE
(continued from previous page)
THE FUND VS. ITS BENCHMARK Returns
PERIODS ENDED OCTOBER 31, 2006 6 Months 12 Months
--------------------
Alliance California Municipal Income Fund (NAV) 5.34% 7.85%
LB Municipal Index 4.12% 5.75%
The Fund's Market Price per share on October 31, 2006 was $14.88. The Fund's
Net Asset Value Price per share on October 31, 2006 was $15.31. For additional
Financial Highlights, please see page 26.
GROWTH OF A $10,000 INVESTMENT IN THE FUND
1/29/02* TO 10/31/06
Alliance California Municipal Income Fund (NAV): $14,441
LB Municipal Index: $12,816
[THE FOLLOWING DATA WAS REPRESENTED BY A MOUNTAIN CHART IN THE PRINTED MATERIAL]
Alliance California
Municipal Income Fund (NAV) LB Municipal Index
1/29/02* 10,000 10,000
10/31/02 10,696 10,605
10/31/03 11,199 11,147
10/31/04 12,601 11,819
10/31/05 13,391 12,119
10/31/06 14,441 12,816
* Since the Fund's inception on 1/29/02.
This chart illustrates the total value of an assumed $10,000 investment in
Alliance California Municipal Income Fund at net asset value (NAV) (from
1/29/02* to 10/31/06) as compared to the performance of the Fund's benchmark.
The chart assumes the reinvestment of dividends and capital gains distributions
at prices obtained pursuant to the Fund's dividend reinvestment plan.
See Historical Performance and Benchmark disclosures on previous page.
4 o ALLIANCE CALIFORNIA MUNICIPAL INCOME FUND
PORTFOLIO SUMMARY
October 31, 2006
PORTFOLIO STATISTICS
Net Assets ($mil): $130.7
QUALITY RATING DISTRIBUTION*
n 73.7% AAA
n 2.6% AA
n 11.0% A [PIE CHART OMITTED]
n 9.9% BBB
n 2.6% BB
n 0.2% B
* All data are as of October 31, 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.
ALLIANCE CALIFORNIA MUNICIPAL INCOME FUND o 5
PORTFOLIO OF INVESTMENTS
October 31, 2006
Principal
Amount
(000) U.S. $ Value
- -------------------------------------------------------------------------------
MUNICIPAL OBLIGATIONS-160.6%
Long-Term Municipal Bonds-160.6%
California-143.4%
Assoc Bay Area Gov MFHR
(Bijou Woods Apts) AMT
FNMA Ser 01A
5.30%, 12/01/31 $ 2,735 $2,830,998
Banning Util Auth Wtr & Enterprise Rev
Ref & Impt Proj)
FGIC Ser 05
5.25%, 11/01/30 1,850 2,035,777
Bellflower Redev Agy MFHR
(Bellflower Terrace) AMT
FNMA Ser 02A
5.50%, 6/01/35(a) 3,000 3,184,770
California CFD
(YMCA Metro LA Proj)
AMBAC Ser 01
5.25%, 2/01/32 6,295 6,717,772
California Dept of Wtr Res.
Ser 02A
5.375%, 5/01/22 4,000 4,413,440
California Ed Facs Auth
(Lutheran University)
Ser 04C
5.00%, 10/01/24 1,250 1,297,912
(Univ of the Pacific)
Ser 02
5.375%, 11/01/32 4,035 4,382,777
Ser 06
5.00%, 11/01/21 260 274,849
California GO
Ser 02
5.25%, 4/01/30 10,000 10,567,600
Ser 03
5.25%, 2/01/24 1,500 1,607,955
Ser 04
5.30%, 4/01/29 1,000 1,075,330
California GO Veterans Housing
FSA Ser 01
5.60%, 12/01/32 1,205 1,211,338
California GO Veterans Housing AMT
MBIA Ser 01BZ
5.375%, 12/01/24 4,000 4,082,560
6 o ALLIANCE CALIFORNIA MUNICIPAL INCOME FUND
Principal
Amount
(000) U.S. $ Value
- -------------------------------------------------------------------------------
California Health Fac Auth
(Cottage Hlth Sys)
MBIA Ser 03B
5.00%, 11/01/23 $ 2,770 $2,920,273
California Hlth Fac Fin
(Sutter Health)
Ser 00A
6.25%, 8/15/35 5,000 5,538,050
California Hlth Fac Fin Hosp Rev
(Lucile Salter Packard Hosp)
AMBAC Ser 03C
5.00%, 8/15/22 3,295 3,474,841
California Pub Wks Bd Lease Rev
(Dept of Hlth Svcs-Richmond Lab)
XLCA Ser 05B
5.00%, 11/01/30 3,500 3,689,175
California Statewide CDA Rev
(Daughters of Charity Health)
Ser 05A
5.25%, 7/01/24 775 824,840
(Bentley School)
Ser 01
6.75%, 7/01/32 2,500 2,716,875
(Kaiser Permanente)
Ser 02
5.50%, 11/01/32 4,000 4,257,800
Cucamonga Sch Dist COP
5.125%, 6/01/23 820 847,249
Fontana Pub Fin Auth
(No Fontana Redev Proj)
AMBAC Ser 03A
5.50%, 9/01/32(b) 4,800 5,176,752
Fontana Spec Tax
(Cmnty Facs Dist No 22-Sierra Hills)
Ser 04
5.85%, 9/01/25 2,000 2,150,820
Golden St Tobacco Settlement Bonds
XLCA Ser 03B
5.50%, 6/01/33 5,000 5,551,850
Huntington Park Pub Fin Auth Rev
FSA Ser 04A
5.25%, 9/01/17 1,000 1,129,700
La Quinta Fin Auth Loc Agy Rev
AMBAC Ser 04A
5.25%, 9/01/24 3,000 3,266,550
ALLIANCE CALIFORNIA MUNICIPAL INCOME FUND o 7
Principal
Amount
(000) U.S. $ Value
- -------------------------------------------------------------------------------
Loma Linda Hosp Rev
(Loma Linda Univ Med Ctr)
Ser 05A
5.00%, 12/01/23 $ 500 $520,335
Los Angeles Cmty Redev Agy
Ser 04L
5.00%, 3/01/18 1,000 1,020,580
Los Angeles Cnty MTA
FGIC Ser 00A
5.25%, 7/01/30 4,700 5,033,230
Los Angeles Dept of Wtr & Pwr Elec Rev
FGIC Ser 01A
5.125%, 7/01/41 10,000 10,404,500
Los Angeles Spec Tax
(Grand Central Square) AMT
AMBAC Ser 02
5.375%, 12/01/26 6,635 6,638,450
Los Angeles Uni Sch Dist
MBIA Ser 02E
5.125%, 1/01/27 10,000 10,848,900
Mount San Antonio Cmnty Coll
MBIA Ser 04B
5.25%, 8/01/24 1,510 1,683,484
Murrieta Valley Uni Sch Dist CFD
(Rancho Mira Mosa)
Ser 02
6.375%, 9/01/32 1,000 1,143,740
Murrieta Valley Uni Sch Dist CFD ETM
6.375%, 9/01/32 960 1,019,021
Napa MFHR
(Vintage at Napa Apts) AMT
FNMA Ser 01A
5.20%, 6/15/34 4,500 4,758,300
Ohlone Cmnty College Dist
FSA Ser 05B
5.00%, 8/01/24 1,150 1,232,329
Orange Cnty
(San Joaquin Hills Transp)
MBIA Ser 97
5.25%, 1/15/30 5,000 5,114,800
Palo Alto Assess Dist
(University Ave Area Off Street Parking)
Ser 02A
5.875%, 9/02/30 8,020 8,199,006
Perris Union High Sch Dist
FGIC Ser 05A
5.00%, 9/01/24 1,200 1,281,996
Pomona COP
AMBAC Ser 03
5.50%, 6/01/34 1,640 1,823,696
8 o ALLIANCE CALIFORNIA MUNICIPAL INCOME FUND
Principal
Amount
(000) U.S. $ Value
- -------------------------------------------------------------------------------
Port of Oakland AMT
FGIC Ser 02L
5.375%, 11/01/27 $ 5,000 $5,341,250
Riverside Cnty Pub Fin Auth Tax Alloc Rev
(Redev Proj) XLCA
5.00%, 10/01/23-10/01/24 2,860 3,019,018
Salinas Valley Sld Waste
(Transfer Station) AMT
AMBAC Ser 02
5.25%, 8/01/31 3,930 4,122,059
San Diego Uni Sch Dist
(Election of 1998) MBIA
5.00%, 7/01/23-7/01/24 2,000 2,153,050
San Francisco City & Cnty Arpt Rev
(Int'l Arpt)
FGIC Ser 03
5.125%, 5/01/19 1,000 1,076,810
(Int'l Arpt) AMT
MBIA Ser 02-28A
5.125%, 5/01/32 2,500 2,607,425
San Francisco City & Cnty Lease Rev
(San Bruno Jail #3)
AMBAC Ser 00
5.25%, 10/01/33 5,000 5,230,050
San Ramon Valley Unified School District
FSA
5.00%, 8/01/24 1,425 1,517,055
Sequoia Uni Sch Dist
FSA Ser 02
5.125%, 7/01/31 1,770 1,880,908
Temecula Redev Agy
MBIA Ser 02
5.25%, 8/01/36 6,270 6,540,174
Torrance COP
(Ref & Pub Impt Proj)
AMBAC Ser 04A
5.00%, 6/01/24 2,275 2,411,705
(Ref & Pub Impt Proj)
AMBAC Ser 05B
5.00%, 6/01/24 665 704,960
Yorba Linda Rec Rev
(Black Gold Golf Course Proj Rev)
Ser 00
7.50%, 10/01/30 4,500 4,837,725
187,392,409
ALLIANCE CALIFORNIA MUNICIPAL INCOME FUND o 9
Principal
Amount
(000) U.S. $ Value
- -------------------------------------------------------------------------------
Arizona-4.1%
Arizona Hlth Fac Auth Hosp Rev
(Phoenix Childrens Hosp)
Ser 02A
6.00%, 2/15/32 $ 5,000 $5,332,000
Colorado-0.4%
Murphy Creek Metro Dist No 3
(Ref & Impt)
Ser 06
6.00%, 12/01/26 500 534,480
Ohio-0.4%
Port Auth of Columbiana Cnty SWR
(Apex Environmental LLC) AMT
Ser 04A
7.125%, 8/01/25 500 509,225
Puerto Rico-12.3%
Puerto Rico Comwlth GO
(Pub Impt)
Ser 04A
5.25%, 7/01/19 900 970,479
Ser 01A
5.50%, 7/01/19 500 565,925
Ser 06A
5.25%, 7/01/22 500 543,795
Puerto Rico Comwlth Govt Dev Bank
(Sr Notes)
Ser 06B
5.00%, 12/01/15 500 537,735
Puerto Rico Elec Power Auth Rev
XLCA Ser 02-2
5.25%, 7/01/31 6,000 6,446,280
Puerto Rico Hwy & Trans Auth
Ser 02D
5.375%, 7/01/36 6,450 7,062,428
16,126,642
Total Investments-160.6%
(cost $197,854,186) 209,894,756
Other assets less liabilities-1.4% 1,772,022
Preferred Stock at redemption value-(62.0)% (81,000,000)
Net Assets Applicable to
Common Shareholders-100.0%(c) $130,666,778
10 o ALLIANCE CALIFORNIA MUNICIPAL INCOME FUND
INTEREST RATE SWAP TRANSACTIONS (see Note D)
Rate Type
---------------------
Payments Payments
Notional made by received Unrealized
Swap Amount Termination the by the Appreciation/
Counterparty (000) Date Portfolio Portfolio (Depreciation)
- -------------------------------------------------------------------------------
Merrill Lynch $ 2,300 10/21/16 BMA 4.129% $ 88,759
Merrill Lynch 3,000 8/09/26 4.063% BMA (79,081)
(a) Variable rate coupon, rate shown as of October 31, 2006.
(b) Position, or a portion thereof, has been segregated to collateralize
interest rate swaps.
(c) Portfolio percentages are calculated based on net assets applicable to
common shareholders
Glossary:
AMBAC - American Bond Assurance Corporation
AMT - Alternative Minimum Tax (subject to)
BMA - Bond Market Association
CDA - Community Development Administration
CFD - Community Facilities District
COP - Certificate of Participation
ETM - Escrow to Maturity
FGIC - Financial Guarantee 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
MTA - Metropolitan Transportation Authority
SWR - Solid Waste Revenue
XLCA - XL Capital Assurance Inc.
See notes to financial statements.
ALLIANCE CALIFORNIA MUNICIPAL INCOME FUND o 11
STATEMENT OF ASSETS & LIABILITIES
October 31, 2006
ASSETS
Investments in securities, at value (cost $197,854,186) $209,894,756
Interest receivable 3,197,474
Unrealized appreciation of swap agreements 88,759
Total assets 213,180,989
LIABILITIES
Due to custodian 1,278,400
Unrealized depreciation of swap agreements 79,081
Advisory fee payable 62,498
Dividends payable--preferred shares 29,290
Transfer Agent fee payable 143
Accrued expenses and other liabilities 64,799
Total liabilities 1,514,211
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 $130,666,778
COMPOSITION OF NET ASSETS APPLICABLE TO
COMMON SHAREHOLDERS
Common stock, $.001 par value per share;
1,999,996,760 shares authorized, 8,535,418 shares
issued and outstanding $8,535
Additional paid-in capital 120,725,454
Distributions in excess of net investment income (26,161)
Accumulated net realized loss on investment transactions (2,091,298)
Net unrealized appreciation of investments 12,050,248
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS $130,666,778
NET ASSET VALUE APPLICABLE TO COMMON SHAREHOLDERS
(based on 8,535,418 common shares outstanding) $15.31
See notes to financial statements.
12 o ALLIANCE CALIFORNIA MUNICIPAL INCOME FUND
STATEMENT OF OPERATIONS
Year Ended October 31, 2006
- -------------------------------------------------------------------------------
INVESTMENT INCOME
Interest $10,491,002
EXPENSES
Advisory fee $1,362,392
Auction Preferred Stock-auction
agent's fees 202,210
Custodian 117,117
Audit 77,575
Legal 43,341
Printing 34,912
Directors' fees and expenses 34,000
Registration fees 23,740
Transfer agency 1,004
Miscellaneous 20,970
Total expenses 1,917,261
Less: expenses waived by the Adviser
(see Note B) (628,796)
Net expenses 1,288,465
Net investment income 9,202,537
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENT TRANSACTIONS
Net realized gain (loss) on:
Investment transactions (23,592)
Futures 141,922
Swaps 13,350
Net change in unrealized
appreciation/depreciation of:
Investments 3,258,070
Futures (145,442)
Swaps (1,680)
Net gain on investment transactions 3,242,628
DIVIDENDS TO AUCTION PREFERRED
SHAREHOLDERS FROM
Net investment income (2,567,214)
NET INCREASE IN NET ASSETS APPLICABLE
TO COMMON SHAREHOLDERS RESULTING
FROM OPERATIONS $9,877,951
See notes to financial statements.
ALLIANCE CALIFORNIA MUNICIPAL INCOME FUND o 13
STATEMENT OF CHANGES IN NET ASSETS
APPLICABLE TO COMMON SHAREHOLDERS
Year Ended Year Ended
October 31, October 31,
2006 2005
- -------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
APPLICABLE TO COMMON SHAREHOLDERS
RESULTING FROM OPERATIONS
Net investment income $9,202,537 $9,074,520
Net realized gain on investment
transactions 131,680 87,808
Net change in unrealized
appreciation/depreciation
of investments 3,110,948 (42,859)
DIVIDENDS TO AUCTION PREFERRED
SHAREHOLDERS FROM
Net investment income (2,567,214) (1,553,950)
Net increase in net assets applicable
to Common Shareholders resulting
from operations 9,877,951 7,565,519
DIVIDENDS TO COMMON
SHAREHOLDERS FROM
Net investment income (8,185,390) (8,178,344)
COMMON STOCK TRANSACTIONS
Reinvestment of dividends resulting
in the issuance of Common Stock. 232,875 19,548
Total increase (decrease) 1,925,436 (593,277)
NET ASSETS APPLICABLE TO
COMMON SHAREHOLDERS
Beginning of period 128,741,342 129,334,619
End of period (including undistributed/
(distributions in excess of) net
investment income of ($26,161)
and $1,465,573, respectively) $130,666,778 $128,741,342
See notes to financial statements.
14 o ALLIANCE CALIFORNIA MUNICIPAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS
October 31, 2006
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 diversified, closed-end management
investment company. The financial statements have been prepared in conformity
with U.S. generally accepted accounting principles which requires management to
make certain estimates and assumptions that affect the reported amounts of
assets and liabilities in the financial statements and amounts of income and
expenses during the reporting period. Actual results could differ from those
estimates. The following is a summary of significant accounting policies
followed by the Fund.
1. Security Valuation
Portfolio securities are valued at their current market value determined on the
basis of market quotations or, if market quotations are not readily available
or are deemed unreliable, at "fair value" as determined in accordance with
procedures established by and under the general supervision of the Fund's Board
of Directors.
In general, the market value of securities which are readily available and
deemed reliable are determined as follows. Securities listed on a national
securities exchange (other than Securities listed on The NASDAQ Stock Market,
Inc. ("NASDAQ")) or on a foreign securities exchange are valued at the last
sale price at the close of the exchange or foreign securities exchange. If
there has been no sale on such day, the securities are valued at the mean of
the closing bid and asked prices on such day. Securities listed on more than
one exchange are valued by reference to the principal exchange on which the
securities are traded; securities listed only on NASDAQ are valued in
accordance with the NASDAQ Official Closing Price; listed put or call options
are valued at the last sale price. If there has been no sale on that day, such
securities will be valued at the closing bid prices on that day; open futures
contracts and options thereon are valued using the closing settlement price or,
in the absence of such a price, the most recent quoted bid price. If there are
no quotations available for the day of valuation, the last available closing
settlement price is used; securities traded in the over-the-counter market,
("OTC") are valued at the mean of the current bid and asked prices as reported
by the National Quotation Bureau or other comparable sources; U.S. government
securities and other debt instruments having 60 days or less remaining until
maturity are valued at amortized cost if their original maturity was 60 days or
less; or by amortizing their fair value as of the 61st day prior to maturity if
their original term to maturity exceeded 60 days; fixed-income securities,
including mortgage backed and asset backed securities, may be valued on the
basis of prices provided by a pricing service or at a price obtained from one
or more of the major broker/dealers. In cases where broker/dealer quotes are
obtained, AllianceBernstein L.P. (prior to February 24, 2006 known
ALLIANCE CALIFORNIA MUNICIPAL INCOME FUND o 15
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 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, if any, are recorded on the
ex-dividend date. Income dividends and capital gains distributions are
determined in accordance with federal tax regulations and may differ from those
determined in accordance with U.S. generally accepted accounting principles. To
the extent these differences are permanent, such amounts are reclassified
within the capital accounts based on their federal tax basis treatment;
temporary differences do not require such reclassification.
NOTE B
Advisory 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 voluntarily agreed to waive a portion
of its
16 o ALLIANCE CALIFORNIA MUNICIPAL INCOME FUND
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, 2006, which is year 5 of operations, the amount of
such fees waived was $628,796.
Under the terms of a Shareholder Inquiry Agency Agreement with
AllainceBernstein 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 year ended October 31, 2006, there was no reimbursement
paid to ABIS.
NOTE C
Investment Transactions
Purchases and sales of investment securities (excluding short-term investments)
for the year ended October 31, 2006 were as follows:
Purchases Sales
- -------------------------------------------------------------------------------
Investment securities (excluding
U.S.government securities) $5,737,106 $5,412,137
U.S. government securities -0- -0-
The cost of investments for federal income tax purposes, gross unrealized
appreciation and unrealized depreciation (excluding swap transactions) are as
follows:
Cost $197,854,186
Gross unrealized appreciation $12,044,797
Gross unrealized depreciation (4,227)
Net unrealized appreciation $12,040,570
1. Swap Agreements
The Fund may enter into swaps to hedge its exposure to interest rates and
credit risk or for investment purposes. A swap is an agreement that obligates
two parties to exchange a series of cash flows at specified intervals based
upon or calculated by reference to changes in specified prices or rates for a
specified amount of an underlying asset. The payment flows are usually netted
against each other, with the difference being paid by one party to the other.
Risks may arise as a result of the failure of the counterparty to the swap
contract to comply with the terms of the swap contract. The loss incurred by
the failure of a counterparty is generally limited to the net interim payment
to be received by the Fund, and/or the termination value at the end of the
contract. Therefore, the Fund considers the creditworthiness of each
counterparty to a swap contract
ALLIANCE CALIFORNIA MUNICIPAL INCOME FUND o 17
in evaluating potential credit risk. Additionally, risks may arise from
unanticipated movements in interest rates or in 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 the 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
CommonStock
There are 8,535,418 shares of common stock outstanding at October 31, 2006.
During the year ended October 31, 2006, the Fund issued 15,145 shares in
connection with the Fund's dividend reinvestment plan. During the year ended
October 31, 2005, the Fund issued 1,271 shares in connection with the Fund's
dividend reinvestment plan.
18 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 and
T. The dividend rate on the Series M is 3.30% effective through November 6,
2006. The dividend rate on Series T is 3.44% effective through November 7, 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 F
Distributions To Common Shareholders
The tax character of distributions paid to common shareholders during the
fiscal years ended October 31, 2006 and October 31, 2005 were as follows:
2006 2005
- -------------------------------------------------------------------------------
Distributions paid from:
Ordinary income $45,627 $29,627
Tax exempt income 8,139,763 8,148,717
Total distributions paid $8,185,390 $8,178,344
ALLIANCE CALIFORNIA MUNICIPAL INCOME FUND o 19
As of October 31, 2006, the components of accumulated earnings/(deficit)
applicable to common shareholders on a tax basis were as follows:
Accumulated capital and other losses $(2,091,298)(a)
Unrealized appreciation/(depreciation) 12,053,377(b)
Total accumulated earnings/(deficit) $ 9,962,079(c)
(a) On October 31, 2006, the Fund had a net capital loss carryforward of
$2,091,298 of which $1,306,226 expires in the year 2011, and $785,072 expires
in the year 2012. To the extent future capital gains are offset by capital loss
carryforward, such gains will not be distributed. During the fiscal year ended
October 31, 2006 the Fund utilized capital loss carryforwards of $160,389.
(b) The differences between book-basis and tax-basis unrealized
appreciation/(depreciation) are attributed primarily to the difference between
the book and tax treatment of swap income.
(c) The difference between book-basis and tax-basis components of accumulated
earnings/(deficit) is attributable primarily to dividends payable.
During the current fiscal year, permanent differences primarily due to the tax
treatment of swap income, distributions in excess, and a net operating loss,
resulted in a net decrease in distributions in excess of net investment income,
a net decrease in accumulated net realized loss on investment transactions, and
a corresponding net decrease to additional paid in capital. This
reclassification had no effect on net assets.
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.
Leverage Risk--The Fund may use certain investment techniques that have
increased risks. For example, the issuance of the Fund's preferred stock
results in leveraging of the Common Stock, an investment technique usually
considered
20 o ALLIANCE CALIFORNIA MUNICIPAL INCOME FUND
speculative. The Fund utilizes leveraging to seek to enhance the yield and net
asset value of its Common Stock. However, these objectives cannot be achieved
in all interest rate environments. Leverage creates certain risks for holders
of Common Stock, including higher volatility of both the net asset value and
market value of the Common Stock, and fluctuations in the dividend rates on the
Preferred Stock will affect the return to holders of Common Stock. To leverage,
the Fund issues Preferred Stock, which pays dividends at prevailing short-term
interest rates, and invests the proceeds in long-term municipal bonds. If the
Fund were fully invested in longer-term securities and if short-term interest
rates were to increase, then the amount of dividends paid on the preferred
shares would increase and both net investment income available for distribution
to the holders of Common Stock and the net asset value of the Common Stock
would decline. At the same time, the market value of the Fund's Common Stock
(that is, its price as listed on the New York Stock Exchange) may, as a result,
decline. Furthermore, if long-term interest rates rise, the Common Stock's net
asset value will reflect the full decline in the price of the portfolio's
investments, since the value of the Fund's Preferred Stock does not fluctuate.
In addition to the decline in net asset value, the market value of the Fund's
Common Stock may also decline.
Indemnification Risk--In the ordinary course of business, the Fund enters into
contracts that contain a variety of indemnifications. The Fund's maximum
exposure under these arrangements is unknown. However, the Fund has not had
prior claims or losses pursuant to these indemnification provisions and expects
the risk of loss thereunder to be remote.
NOTE H
Legal Proceedings
As has been previously reported, the staff of the U.S. Securities and Exchange
Commission ("SEC") and the Office of the New York Attorney General ("NYAG")
have been investigating practices in the mutual fund industry identified as
"market timing" and "late trading" of mutual fund shares. Certain other
regulatory authorities have also been conducting investigations into these
practices within the industry and have requested that the Adviser provide
information to them. The Adviser has been cooperating and will continue to
cooperate with all of these authorities. The shares of the Fund are not
redeemable by the Fund, but are traded on an exchange at prices established by
the market. Accordingly, the Fund and its shareholders are not subject to the
market timing and late trading practices that are the subject of the
investigations mentioned above or the lawsuits described below. Please see
below for a description of the agreements reached by the Adviser and the SEC
and NYAG in connection with the investigations mentioned above.
Numerous lawsuits have been filed against the Adviser and certain other
defendants in which plaintiffs make claims purportedly based on or related to
the same
ALLIANCE CALIFORNIA MUNICIPAL INCOME FUND o 21
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 ("NYAGOrder"). Among the
key provisions of these agreements are the following:
(i) The Adviser agreed to establish a $250 million fund (the "Reimbursement
Fund") to compensate mutual fund shareholders for the adverse effects of market
timing attributable to market timing relationships described in the SEC Order.
According to the SEC Order, the Reimbursement Fund is to be paid, in order of
priority, to fund investors based on (i) their aliquot share of losses suffered
by the fund due to market timing, and (ii) a proportionate share of advisory
fees paid by such fund during the period of such market timing;
(ii) The Adviser agreed to reduce the advisory fees it receives from some of
the AllianceBernstein long-term, open-end retail funds, commencing January 1,
2004, for a period of at least five years; and
(iii) The Adviser agreed to implement changes to its governance and
compliance procedures. Additionally, the SEC Order contemplates that the
Adviser's registered investment company clients, including the Fund, will
introduce governance and compliance changes.
The shares of the Fund are not redeemable by the Fund, but are traded on an
exchange at prices established by the market. Accordingly, the Fund and its
shareholders are not subject to the market timing practices described in the
SEC Order and are not expected to participate in the Reimbursement Fund. Since
the Fund is a closed-end fund, it 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
22 o ALLIANCE CALIFORNIA MUNICIPAL INCOME FUND
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 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. The court denied the writ and in September
2006 the Supreme Court of Appeals declined the defendants' petition for appeal.
On September 22, 2006, Alliance and Alliance Holding filed an answer and motion
to dismiss the Summary Order with the Securities Commissioner.
On June 22, 2004, a purported class action complaint entitled Aucoin, et al. v.
Alliance Capital Management L.P., et al. ("Aucoin Complaint") was filed against
the Adviser, Alliance Capital Management Holding L.P., Alliance Capital
Management Corporation, AXA Financial, Inc., AllianceBernstein Investment
Research & Management, Inc., certain current and former directors of the
AllianceBernstein Mutual Funds, and unnamed Doe defendants. The Aucoin
Complaint names certain of the AllianceBernstein mutual funds as nominal
defendants. The Fund was not named as a defendant in the Aucoin Complaint. The
Aucoin Complaint was filed in the United States District Court for the Southern
District of New York by alleged shareholders of an AllianceBernstein mutual
fund. The Aucoin Complaint alleges, among other things, (i) that certain of the
defendants improperly authorized the payment of excessive commissions and other
fees from fund assets to broker-dealers in exchange for preferential marketing
services, (ii) that certain of the defendants misrepresented and omitted from
registration statements and other reports material facts concerning such
payments, and (iii) that certain defendants caused such conduct as control
ALLIANCE CALIFORNIA MUNICIPAL INCOME FUND o 23
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. On July 5,
2006, plaintiffs filed a notice of appeal. On October 4, 2006 the appeal was
withdrawn by stipulation, with plaintiffs reserving the right to reinstate it
at a later date.
The Adviser believes that these matters are not likely to have a material
adverse effect on the Fund or the Adviser's ability to perform advisory
services relating to the Fund.
NOTE I
Recent Accounting Pronouncements
On July 13, 2006, the Financial Accounting Standards Board ("FASB") released
FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" ("FIN
48"). FIN 48 provides guidance for how uncertain tax positions should be
recognized, measured, presented and disclosed in the financial statements. FIN
48 requires the evaluation of tax positions taken or expected to be taken in
the course of preparing the Fund's tax returns to determine whether the tax
positions are "more-likely-than-not" of being sustained by the applicable tax
authority. Tax positions not deemed to meet the more-likely-than-not threshold
would be recorded in the current period. Adoption of FIN 48 is required for
24 o ALLIANCE CALIFORNIA MUNICIPAL INCOME FUND
fiscal years beginning after December 15, 2006 and is to be applied to all open
tax years as of the effective date. At this time, management is evaluating the
implications of FIN 48 and its impact on the financial statements has not yet
been determined.
On September 20, 2006, the FASB released Statement of Financial Accounting
Standards No. 157 "Fair Value Measurements" ("FAS 157"). FAS 157 establishes an
authoritative definition of fair value, sets out a framework for measuring fair
value, and requires additional disclosures about fair-value measurements. The
application of FAS 157 is required for fiscal years beginning after November
15, 2007 and interim periods within those fiscal years. At this time,
management is evaluating the implications of FAS 157 and its impact on the
financial statements has not yet been determined.
ALLIANCE CALIFORNIA MUNICIPAL INCOME FUND o 25
FINANCIAL HIGHLIGHTS
Selected Data For A Share Of Common Stock Outstanding Throughout Each Period
January 29,
Year Ended October 31, 2002(b) to
------------------------------------------------- October 31,
2006 2005 2004(a) 2003 2002
----------- ----------- ----------- ----------- -----------
Net asset value, beginning of period $15.11 $15.18 $14.46 $14.68 $14.33
Income from Investment
Operations
Net investment income(c)(d) 1.08 1.07 1.10 1.15 .73
Net realized and unrealized
gain (loss) on investment
transactions .38 (.00)(e) .70 (.40) .46
Dividends to preferred
shareholders from net
investment income (common
stock equivalent basis) (.30) (.18) (.13) (.12) (.08)
Net increase in net asset value
from operations 1.16 .89 1.67 .63 1.11
Less: Dividends to common
shareholders from
Net investment income (.96) (.96) (.95) (.84) (.61)
Common stock offering costs -0- -0- -0- -0- (.03)
Preferred stock offering costs
and sales load -0- -0- -0- (.01) (.12)
Net asset value, end of period $15.31 $15.11 $15.18 $14.46 $14.68
Market value, end of period $14.88 $14.90 $14.20 $13.18 $13.78
Discount (2.81)% (1.39)% (6.46)% (8.85)% (6.13)%
Total Return
Total investment return based on:(f)
Market value 6.30% 12.03% 15.48% 1.67% (4.08)%
Net asset value 7.85% 6.27% 12.52% 4.70% 6.93%
Ratios/Supplemental Data:
Net assets applicable to common
shareholders, end of period
(000's omitted) $130,667 $128,741 $129,335 $123,154 $125,054
Preferred Stock, at redemption
value ($25,000 per share
liquidation preference)
(000's omitted) $81,000 $81,000 $81,000 $81,000 $81,000
Ratio to average net assets
applicable to common
shareholders of:
Expenses, net of
fee waivers(g) 1.00% 1.05% 1.03% 1.04% 1.07%(h)
Expenses, before
fee waivers(g) 1.49% 1.54% 1.52% 1.53% 1.53%(h)
Net investment income, before
preferred stock dividends(d)(g) 7.16% 6.96% 7.45% 7.88% 6.69%(h)
Preferred stock dividends 2.00% 1.19% .85% .85% .72%(h)
Net investment income, net of
preferred stock dividends(g) 5.16% 5.77% 6.60% 7.03% 5.97%(h)
Portfolio turnover rate 3% 4% 15% 18% 20%
Asset coverage ratio 261% 259% 260% 252% 254%
See footnote summary on page 27.
26 o ALLIANCE CALIFORNIA MUNICIPAL INCOME FUND
Financial Highlights
(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 0.00%.
(b) Commencement of operations. Net asset value immediately after the closing
of the first public offering was $14.30.
(c) Based on average shares outstanding.
(d) Net of fees waived by the Adviser.
(e) Amount is less than $.005.
(f) 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.
(g) These expense and net investment income ratios do not reflect the effect
of dividend payments to preferred shareholders.
(h) Annualized.
ALLIANCE CALIFORNIA MUNICIPAL INCOME FUND o 27
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
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, 2006, and the related statement of
operations for the year then ended, the statement of changes in net assets
applicable to common shareholders for each of the two years in the period then
ended, and the financial highlights for each of the periods indicated therein.
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 the standards of the Public Company
Accounting Oversight Board (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. We were not engaged to perform an audit of the Fund's internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Fund's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights, assessing the accounting
principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. Our procedures included
confirmation of securities owned as of October 31, 2006 by correspondence with
the custodian and others, or by other appropriate auditing procedures where
replies from others were not received. 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, 2006, the
results of its operations for the year then ended, the changes in its net
assets applicable to common shareholders for each of the two years in the
period then ended, and the financial highlights for each of the periods
indicated therein, in conformity with U.S. generally accepted accounting
principles.
/s/ Ernst & Young LLP
New York, New York
December 19, 2006
28 o ALLIANCE CALIFORNIA MUNICIPAL INCOME FUND
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, 2006 was $10,692,667.
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 2006 calendar year on Form 1099-DIV
which will be mailed by January 31, 2007.
ALLIANCE CALIFORNIA MUNICIPAL INCOME FUND o 29
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.
30 o ALLIANCE CALIFORNIA MUNICIPAL INCOME FUND
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 Computershare Trust Company N.A. c/o Alliance
California Municipal Income Fund, P.O. Box 43010, Providence, RI 02940-3010.
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) Mr. David M. Dowden is no
longer one of the persons responsible for the day-to-day management of the
Fund's investment portfolio. Messrs. Michael G. Brooks, Fred S. Cohen, Robert
B. Davidson IIIand Terrance T. Hults are the persons primarily responsible for
the day-to-day management of the Fund's investment portfolio.
ALLIANCE CALIFORNIA MUNICIPAL INCOME FUND o 31
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(2)
Robert B. Davidson, III, Senior Vice President
Philip L. Kirstein, Senior Vice President and Independent Compliance Officer
Douglas J. Peebles, Senior Vice President
Jeffrey S. Phlegar, Senior Vice President
Michael G. Brooks, Vice President
Fred S. Cohen, Vice President
Terrance T. Hults, Vice President
Emilie D. Wrapp, Secretary
Joseph J. Mantineo, Treasurer and Chief Financial Officer
Thomas R. Manley, Controller
Custodian
State Street Bank & Trust Company
One Lincoln Street
Boston, MA 02111
Legal Counsel
Seward & Kissel LLP
One Battery Park Plaza
New York, NY 10004
Preferred Stock:
Dividend Paying Agent,
Transfer Agent and Registrar
The Bank of New York
101 Barclay Street - 7W
New York, NY 10286
Independent Registered
Public Accounting Firm
Ernst & Young LLP
5 Times Square
New York, NY 10036
Common Stock:
Dividend Paying Agent,
Transfer Agent and Registrar
Computershare Trust Company, N.A.
P.O. Box 43010
Providence, RI 02940-3011
(1) Member of the Audit Committee, the Governance and Nominating Committee,
and the Independent Directors Committee.
(2) The day-to-day management of and investment decisions for the Fund are
made by the Municipal Bond Investment Team. The investment professionals with
the most significant responsibility for the day-to-day management of the Fund's
portfolio are: Michael G. Brooks, Fred S. Cohen, Robert B. Davidson III and
Terrance T. Hults.
Notice is hereby given in accordance with Section 23(c) of the Investment
CompanyAct of 1940 that the Fund may purchase at market prices from time to
time shares of its Common Stock in the open market.
This report, including the financial statements therein, is transmitted to the
shareholders of Alliance 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.
Annual Certifications--As required, on April 20, 2006, the Fund submitted to
the New York Stock Exchange ("NYSE") the annual certification of the Fund's
Chief Executive Officer certifying that he is not aware of any violation of the
NYSE's Corporate Governance listing standards. The Fund also has included the
certifications of the Fund's Chief Executive Officer and Chief Financial
Officer required by Section 302 of the Sarbanes-Oxley Act of 2002 as exhibits
to the Fund's Form N-CSR filed with the Securities and Exchange Commission for
the annual period.
32 o ALLIANCE CALIFORNIA MUNICIPAL INCOME FUND
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.
<CAPTIION>
PORTFOLIOS
IN FUND OTHER
NAME, ADDRESS, PRINCIPAL COMPLEX DIRECTORSHIPS
AGE, OCCUPATION(S) OVERSEEN BY HELD BY
(YEAR ELECTED*) DURING PAST 5 YEARS DIRECTOR DIRECTOR
- -------------------------------------------------------------------------------------------------------
INTERESTED DIRECTOR
Marc O. Mayer, + Executive Vice President of the 111 SCBPartners,
1345 Avenue of the Adviser since 2001, and Executive Inc. and
Americas Managing Director of AllianceBernstein SCB,Inc.
New York, NY 10105 Investments, Inc. ("ABI") since 2003;
49 prior thereto, he was head of
(2003) AllianceBernstein Institutional
Investments, a unit of the Adviser
from 2001-2003. Prior thereto, Chief
Executive Officer of Sanford C.
Bernstein & Co., LLC (institutional
research and brokerage arm of
Bernstein & Co. LLC) ("SCB & Co.")
and its predecessor since prior to
2001.
DISINTERESTED DIRECTORS
William H. Foulk, Jr., # Investment adviser and an 113 None
P.O. Box 5060 independent consultant. He was
Greenwich, CT 06831 formerly Senior Manager of Barrett
Chairman of the Board Associates, Inc., a registered
74 investment adviser, with which he
(2001) had been associated since prior
to 2001. 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.
David H. Dievler, # Independent consultant. Until 112 None
P.O. Box 167 December 1994 he was Senior
Spring Lake, NJ 07762 Vice President of AllianceBernstein
77 Corporation ("ABCorp.") (formerly
(2001) Alliance Capital Management
Corporation) responsible for mutual
fund administration. Prior to joining
ABCorp. 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.
ALLIANCE CALIFORNIA MUNICIPAL INCOME FUND o 33
<CAPTIION>
PORTFOLIOS
IN FUND OTHER
NAME, ADDRESS, PRINCIPAL COMPLEX DIRECTORSHIPS
AGE, OCCUPATION(S) OVERSEEN BY HELD BY
(YEAR ELECTED*) DURING PAST 5 YEARS DIRECTOR DIRECTOR
- -------------------------------------------------------------------------------------------------------
DISINTERESTED DIRECTORS
(continued)
John H. Dobkin, # Consultant. Formerly President of 111 None
P.O. Box 12 Save Venice, Inc. (preservation
Annandale, NY 12504 organization) from 2001-2002,
64 Senior Advisor from June 1999
(2001) - 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,
Director and Chairman of the Audit
Committee of ABCorp. (formerly
Alliance Capital Management
Corporation).
Michael J. Downey, # Consultant since 2004. 111 Asia Pacific
c/o AllianceBernstein L.P. Formerly managing partner of Fund, Inc.
1345 Avenue of the Lexington Capital, LLC (investment and The
Americas advisory firm) from December 1997 Merger Fund
New York, NY 10105 until December 2003. Prior thereto,
Attn: Philip L. Kirstein Chairman and CEO of Prudential
62 Mutual Fund Management from
(2005) 1987 to 1993.
D. James Guzy, # Chairman of the Board of PLX 111 Intel
P.O. Box 128 Technology (semi-conductors) Corporation,
Glenbrook, NV 89413 and of SRC Computers Inc., with Cirrus Logic
70 which he has been associated since Corporation,
(2005) prior to 2001. He is also President and the
of the Arbor Company (private Davis
family investments). Selected
Advisors
Group of
Mutual Funds
Nancy P. Jacklin, # Formerly U.S. Executive Director 111 None
4046 Chancery Court, NW of the International Monetary Fund
Washington, DC 20007 (December 2002-May 2006); partner,
58 Clifford Chance (1992-2002); Senior
(2006) Counsel, International Banking and
Finance, and Associate General Counsel,
Citicorp (1985-1992); Assistant General
Counsel (International), Federal Reserve
Board of Governors (1982-1985); and
Attorney Advisor, U.S. Department of
the Treasury (1973-1982). Member of
the Bar of the District of Columbia and
of New York; member of the Council on
Foreign Relations.
34 o ALLIANCE CALIFORNIA MUNICIPAL INCOME FUND
Management of the Fund
<CAPTIION>
PORTFOLIOS
IN FUND OTHER
NAME, ADDRESS, PRINCIPAL COMPLEX DIRECTORSHIPS
AGE, OCCUPATION(S) OVERSEEN BY HELD BY
(YEAR ELECTED*) DURING PAST 5 YEARS DIRECTOR DIRECTOR
- -------------------------------------------------------------------------------------------------------
DISINTERESTED DIRECTORS
(continued)
Marshall C. Turner, Jr., # Principal of Turner Venture Associates 111 The George
220 Montgomery Street (venture capital and consulting) since Lucas
Penthouse 10 prior to 2001. From 2003 until May 31, Educational
San Francisco, CA 2006 he was CEO of Toppan Photomasks, Foundation
94104-3402 Inc. (semi-conductor manufacturing and
65 services) Austin, Texas. National
(2005) Datacast, Inc.
* There is no stated term of office for the Fund's Directors.
# Member of the Audit Committee, the Governance and Nominating Committee and
the Independent Directors Committee.
+ Mr. Mayer is an "interested person", as defined in the 1940 Act, due to his
position as Executive Vice President of the Adviser.
ALLIANCE CALIFORNIA MUNICIPAL INCOME FUND o 35
Officer Information
Certain information concerning the Fund's Officers is listed below.
NAME,
ADDRESS* AND POSITION(S) PRINCIPAL OCCUPATION
AGE HELD WITH FUND DURING PAST 5 YEARS
- -----------------------------------------------------------------------------------------------------
Marc O. Mayer President and Chief See biography above.
49 Executive Officer
Philip L. Kirstein Senior Vice President Senior Vice President and Independent
61 and Independent Compliance Officer of the Alliance-
Compliance Officer Bernstein Funds, with which he has been
associated since October 2004. Prior
thereto, he was Of Counsel to Kirkpatrick
& Lockhart, LLP from October 2003 to
October 2004, and General Counsel of
Merrill Lynch Investment Managers, L.P.
since prior to 2001 until March 2003.
Robert B. Davidson, III Senior Vice President Senior Vice President of the Adviser,**
45 with which he has been associated since
prior to 2001.
Douglas J. Peebles Senior Vice President Executive Vice President of the Adviser,**
41 with which he has been associated since
prior to 2001.
Jeffrey S. Phlegar Senior Vice President Executive Vice President of the Adviser,**
40 with which he has been associated since
prior to 2001.
Michael G. Brooks Vice President Senior Vice President and Senior
58 Portfolio Manager of the Adviser,**
with which he has been associated since
October 2001. Prior thereto, he was a
Vice President and a Senior Portfolio
Manager with Bernstein since prior
to 2001.
Fred S. Cohen Vice President Senior Vice President of the Adviser,**
48 with which he has been associated since
prior to 2001.
Terrance T. Hults Vice President Senior Vice President of the Adviser,**
40 with which he has been associated since
prior to 2001.
Emilie D. Wrapp Secretary Senior Vice President, Assistant
51 General Counsel and Assistant Secretary
of AllianceBernstein Investments, Inc.,**
with which she has been associated since
prior to 2001.
Joseph J. Mantineo Treasurer and Chief Senior Vice President of ABIS**, with
47 Financial Officer which he has been associated since
prior to 2001.
Thomas R. Manley Controller Vice President of the Adviser,** with
55 which he has been associated since
prior to 2001.
* The address for each of the Fund's Officers is 1345 Avenue of the
Americas, New York, NY 10105.
** The Adviser, AllianceBernstein Investments, Inc., ABIS and SCB & Co. are
affiliates of the Fund.
36 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 The Wall Street Journal under the
abbreviation "AllianceCal." The Fund's NYSEtrading 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 37
THIS PAGE IS NOT PART OF THE SHAREHOLDER REPORT OR THE FINANCIAL STATEMENTS
ALLIANCEBERNSTEIN FAMILY OF FUNDS
Wealth Strategies Funds
- -----------------------------------------
Balanced Wealth Strategy
Wealth Appreciation Strategy
Wealth Preservation Strategy
Tax-Managed Balanced Wealth Strategy
Tax-Managed Wealth Appreciation Strategy
Tax-Managed Wealth Preservation Strategy
- -----------------------------------------
Blended Style Funds
- -----------------------------------------
U.S. Large Cap Portfolio
International Portfolio
Tax-Managed International Portfolio
- -----------------------------------------
Growth Funds
- -----------------------------------------
Domestic
Growth Fund
Mid-Cap Growth Fund
Large Cap Growth Fund
Small Cap Growth Portfolio
Global & International
Global Health Care Fund
Global Research Growth Fund
Global Technology Fund
Greater China '97 Fund
International Growth Fund
International Research Growth Fund
- -----------------------------------------
Value Funds
- -----------------------------------------
Domestic
Balanced Shares
Focused Growth & Income Fund
Growth & Income Fund
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
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.
* 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.
38 o ALLIANCE CALIFORNIA MUNICIPAL INCOME FUND
NOTES
ALLIANCE CALIFORNIA MUNICIPAL INCOME FUND o 39
NOTES
40 o ALLIANCE CALIFORNIA MUNICIPAL INCOME FUND
Privacy Notice
AllianceBernstein, the AllianceBernstein Family of Funds and AllianceBernstein
Investments, Inc. (collectively, "AllianceBernstein" 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, AllianceBernstein 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
AllianceBernstein'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.
ALLIANCE CALIFORNIA MUNICIPAL INCOME FUND
1345 Avenue of the Americas
New York, NY 10105
(800) 221-5672
[LOGO]
ALLIANCEBERNSTEIN
INVESTMENTS
ACMIF-0151-1006
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 12(a)(1).
(b) During the period covered by this report, no material 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.
(a) - (c) The following table sets forth the aggregate fees billed by the
independent registered public accounting firm Ernst & Young LLP, for the Fund's
last two fiscal years for professional services rendered for: (i) the audit of
the Fund's annual financial statements included in the Fund's annual report to
stockholders; (ii) assurance and related services that are reasonably related
to the performance of the audit of the Fund's financial statements and are not
reported under (i), which include advice and education related to accounting
and auditing issues and quarterly press release review (for those Funds that
issue quarterly press releases), and preferred stock maintenance testing (for
those Funds that issue preferred stock); and (iii) tax compliance, tax advice
and tax return preparation.
Audit-Related
Audit Fees Fees Tax Fees
---------- ------------- --------
2005 $48,000 $9,180 $12,473
2006 $50,000 $15,750 $12,825
(d) Not applicable
(e) (1) Beginning with audit and non-audit service contracts entered into on or
after May 6, 2003, the Fund's Audit Committee policies and procedures require
the pre-approval of all audit and non-audit services provided to the Fund by
the Fund's independent registered public accounting firm. The Fund's Audit
Committee policies and procedures also require pre-approval of all audit and
non-audit services provided to the Adviser and Service Affiliates to the extent
that these services are directly related to the operations or financial
reporting of the Fund.
(e) (2) All of the amounts for Audit Fees, Audit-Related Fees and Tax Fees in
the table under Item 4 (a) - (c) are for services pre-approved by the Fund's
Audit Committee.
(f) Not applicable.
(g) The following table sets forth the aggregate non-audit services provided to
the Fund, the Fund's Adviser and entities that control, are controlled by or
under common control with the Adviser that provide ongoing services to the
Fund, which include conducting an annual internal control report pursuant to
Statement on Auditing Standards No. 70 ("Service Affiliates"):
Total Amount of
Foregoing Column
Pre-approved by the
All Fees for Audit Committee
Non-Audit Services (Portion Comprised of
Provided to the Audit Related Fees)
Portfolio, the Adviser (Portion Comprised of
and Service Affiliates Tax Fees)
---------------------- ---------------------
2005 $ 902,946 [$191,653]
($179,180)
($ 12,473)
2006 $1,040,619 [$162,246]
($149,421)
($ 12,825)
(h) The Audit Committee of the Fund has considered whether the provision of any
non-audit services not pre-approved by the Audit Committee provided by the
Fund's independent registered public accounting firm to the Adviser and Service
Affiliates is compatible with maintaining the auditor's independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
The registrant has a separately-designated standing audit committee established
in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934.
The audit committee members are as follows:
David H. Dievler William H. Foulk, Jr
John H. Dobkin D. James Guzy
Michael J. Downey Nancy P. Jacklin
Marshall C. Turner, Jr.
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.
Statement of Policies and Procedures for
Proxy Voting
October 2006
1. Introduction
As a registered investment adviser, AllianceBernstein L.P.
("AllianceBernstein", "we" or "us") has a fiduciary duty to act solely in the
best interests of our clients. We recognize that this duty requires us to vote
client securities in a timely manner and make voting decisions that are in the
best interests of our clients. Consistent with these obligations, we will
disclose our clients' voting records only to them and as required by mutual
fund vote disclosure regulations. In addition, the proxy committees may, after
careful consideration, choose to respond to surveys regarding past votes.
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
applies to AllianceBernstein's growth, value and blend investment groups
investing on behalf of clients in both US and non-US securities.
2. Proxy Policies
This statement is designed to be responsive to the wide range of proxy voting
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.
AllianceBernstein 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:
2.1 Corporate Governance
AllianceBernstein's proxy voting policies recognize 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. We will vote for proposals
providing for equal access to the proxy materials so that shareholders can
express their views on various proxy issues. We also support the appointment
of a majority of independent directors on key committees and separating the
positions of chairman and chief executive officer. Finally, because we believe
that good corporate governance requires shareholders to have a meaningful voice
in the affairs of the company, we will support shareholder proposals that
request that companies amend their by-laws to provide that director nominees be
elected by an affirmative vote of a majority of the votes cast.
2.2 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 (or vote
against in non-US markets) 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 or 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 abstain or vote against directors of
non-U.S. issuers where there is insufficient information about the nominees
disclosed in the proxy statement.
2.3 Appointment of Auditors
AllianceBernstein 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. The Sarbanes-Oxley Act of 2002 prohibited certain categories of
services by auditors to US issuers, making this issue less prevalent in the US.
Nevertheless, in reviewing a proposed auditor, we will consider the fees paid
for non-audit services relative to total fees as well as if there are other
reasons to question the independence of the auditors.
2.4 Changes in Legal and 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, AllianceBernstein 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. We will
support shareholder proposals that seek to eliminate dual class voting
structures.
2.5 Corporate Restructurings, Mergers and Acquisitions
AllianceBernstein 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 our research
analysts that cover the company and our investment professionals managing the
portfolios in which the stock is held.
2.6 Proposals Affecting Shareholder Rights
AllianceBernstein 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.
2.7 Anti-Takeover Measures
AllianceBernstein believes that measures that impede corporate transactions
such as 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 excessively or inappropriately dilute shareholder
ownership. Conversely, we support proposals that would restrict or otherwise
eliminate anti-takeover or anti-shareholder 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 the authorization of
blank check preferred stock, classified boards and supermajority vote
requirements) that appear to be anti-shareholder or intended as management
entrenchment mechanisms.
2.8 Executive Compensation
AllianceBernstein 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 to
company employees. 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. In general, we will analyze the proposed plan to ensure that
shareholder equity will not be excessively diluted taking into account shares
available for grant under the proposed plan as well as other existing plans.
We generally will oppose plans that have below market value grant or exercise
prices on the date of issuance or 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
generally will support shareholder proposals seeking additional disclosure of
executive and director compensation. This policy includes proposals that seek
to specify the measurement of performance based compensation. In addition, we
will support proposals requiring managements to submit severance packages that
exceed 2.99 times the sum of an executive officer's base salary plus bonus that
are triggered by a change in control to a shareholder vote. Finally, we will
support shareholder proposals requiring companies to expense stock options
because we view them as a large corporate expense that should be appropriately
accounted for.
2.9 Social and Corporate Responsibility
AllianceBernstein 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.
3. Proxy Voting Procedures
3.1 Proxy Voting Committees
Our growth and value investment groups have formed separate proxy voting
committees to establish general proxy policies for AllianceBernstein and
consider specific proxy voting matters as necessary. These committees
periodically review these policies and new types of corporate governance
issues, and decide how we should vote on proposals not covered by these
policies. When a proxy vote cannot be clearly decided by an application of our
stated policy, the proxy committee will evaluate the proposal. In addition,
the committees, in conjunction with the analyst that covers the company, may
contact corporate management and interested shareholder groups and others as
necessary to discuss proxy issues. Members of the committee include senior
investment personnel and representatives of the Legal and Compliance
Department. The committees may also evaluate proxies where we face a potential
conflict of interest (as discussed below). Finally, the committees monitor
adherence to these policies.
3.2 Conflicts of Interest
AllianceBernstein recognizes that there may be a potential conflict of interest
when we vote a proxy solicited by an issuer whose retirement plan we manage, or
we administer, who distributes AllianceBernstein sponsored mutual funds, or
with whom we or an employee has another business or personal relationship that
may affect how we vote on the issuer's proxy. Similarly, AllianceBernstein may
have a potential material conflict of interest when deciding how to vote on a
proposal sponsored or supported by a shareholder group that is a client. 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. Additionally, we have
implemented procedures to ensure that our votes are not the product of a
material conflict of interests, including: (i) on an annual basis, the proxy
committees will take reasonable steps to evaluate the nature of
AllianceBernstein's and our employees' material business and personal
relationships (and those of our affiliates) with any company whose equity
securities are held in client accounts and any client that has sponsored or has
material interest in a proposal upon which we will be eligible to vote; (ii)
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 (including personal relationships) and any contact that they have
had with any interested party regarding a proxy vote; (iii) 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 (iv) 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 third party research
services to ensure that our voting decision is consistent with our clients'
best interests.
Because under certain circumstances AllianceBernstein considers the
recommendation of third party research services, the proxy committees will take
reasonable steps to verify that any third party research service is in fact
independent based on all of the relevant facts and circumstances. This
includes reviewing the third party research service's conflict management
procedures and ascertaining, among other things, whether the third party
research service (i) has the capacity and competency to adequately analyze
proxy issues; and (ii) can make such recommendations in an impartial manner and
in the best interests of our clients.
3.3 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 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.
Absent compelling reasons to the contrary, AllianceBernstein believes that the
benefit to the client of exercising the vote does not outweigh the cost of
voting (i.e. not being able to sell the shares during this period).
Accordingly, if share blocking is required we generally abstain from voting
those shares.
In addition, voting proxies of issuers in non-US markets may give rise to a
number of administrative issues that may prevent AllianceBernstein from voting
such proxies. For example, AllianceBernstein may receive meeting notices
without enough time to fully consider the proxy or after the cut-off date for
voting. Other markets require AllianceBernstein to provide local agents with
power of attorney prior to implementing AllianceBernstein's voting
instructions. Although it is AllianceBernstein's policy to seek to vote all
proxies for securities held in client accounts for which we have proxy voting
authority, in the case of non-US issuers, we vote proxies on a best efforts
basis.
3.4 Loanned Securities
Many clients of AllianceBernstein have entered into securities lending
arrangements with agent lenders to generate additional revenue.
AllianceBernstein will not be able to vote securities that are on loan under
these types of arrangements. However, under rare circumstances, for voting
issues that may have a significant impact on the investment, we may request
that clients recall securities that are on loan if we determine that the
benefit of voting outweighs the costs and lost revenue to the client or fund
and the administrative burden of retrieving the securities.
3.5 Proxy Voting Records
You may obtain 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, go to the Securities and Exchange Commission's web
site at www.sec.gov or call AllianceBernstein at (800) 227-4618.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
The day-to-day management of, and investment decisions for, the Fund's
portfolio are made by the Municipal Bond Investment Team (the "Team"). While
all members of the Team work jointly to determine the majority of the
investment strategy including security selection for the Fund, Messrs. Michael
Brooks, Fred S. Cohen, R. B. Davidson III and Terrence T. Hults, members of the
Team, are primarily responsible for the day-to-day management of the Fund's
portfolio.
The following table sets forth when each person became involved in the
management of the Fund, and each person's principal occupation during the past
five years:
Employee; Year; Title Principal Occupation During the Past
Five (5) Years
Michael Brooks; since 2002- Senior Vice President of the Adviser with
Senior Vice President which he has been associated in a
substantially similar capacity since
prior to 2002.
Fred S. Cohen; since 2002- Senior Vice President of the Adviser, with
Senior Vice President which he has been associated in a
substantially similar capacity since prior
to 2002.
R. B. Davidson II; since 2002- Senior Vice President of the Adviser, with
Senior Vice President which he has been associated in a
substantially similar capacity since prior
to 2002.
Terrence T. Hults; since 2002- Senior Vice President of the Adviser, with
Senior Vice President which he has been associated in a
substantially similar capacity since prior
to 2002.
(a) (2) The following tables provide information regarding registered
investment companies other than the Fund, other pooled investment vehicles and
other accounts over which the Fund's portfolio managers also have day-to-day
management responsibilities. The tables provide the numbers of such accounts,
the total assets in such accounts and the number of accounts and total assets
whose fees are based on performance. The information is provided as of the
Fund's fiscal year ended October 31, 2006.
REGISTERED INVESTMENT COMPANIES
(excluding the Fund)
- ------------------------------------------------------------------------------
Number of Total Assets of
Registered Registered
Total Number Total Assets Investment Investment
of Registered of Registered Companies Companies
Investment Investment Managed with Managed with
Portfolio Companies Companies Performance- Performance-
Manager Managed Managed based Fees based Fees
- ------------------------------------------------------------------------------
Michael
Brooks 29 $16,166,000,000 None None
- ------------------------------------------------------------------------------
Fred S.
Cohen 29 $16,166,000,000 None None
- ------------------------------------------------------------------------------
R. B.
Davidson III 29 $16,166,000,000 None None
- ------------------------------------------------------------------------------
Terrence T.
Hults 29 $16,166,000,000 None None
- ------------------------------------------------------------------------------
POOLED INVESTMENT VEHICLES
- ------------------------------------------------------------------------------
Number of Total Assets
Pooled of Pooled
Total Number Total Assets Investment Investment
of Pooled of Pooled Vehicles Vehicles
Investment Investment Managed with Managed with
Portfolio Vehicles Vehicles Performance- Performance-
Manager Managed Managed based Fees based Fees
- ------------------------------------------------------------------------------
Michael
Brooks None None None None
- ------------------------------------------------------------------------------
Fred S.
Cohen None None None None
- ------------------------------------------------------------------------------
R. B.
Davidson III None None None None
- ------------------------------------------------------------------------------
Terrence T.
Hults None None None None
- ------------------------------------------------------------------------------
OTHER ACCOUNTS
- ------------------------------------------------------------------------------
Number Total
Total Total of Other Assets
Number Assets Accounts of Other
of Other of Other Managed with Accounts with
Portfolio Accounts Accounts Performance- Performance-
Manager Managed Managed based Fees based Fees
- ------------------------------------------------------------------------------
Michael
Brooks 1,398 $10,110,000,000 2 $67,000,000
- ------------------------------------------------------------------------------
Fred S.
Cohen 1,398 $10,110,000,000 2 $67,000,000
- ------------------------------------------------------------------------------
R. B.
Davidson III 1,398 $10,110,000,000 2 $67,000,000
- ------------------------------------------------------------------------------
Terrence T.
Hults 1,398 $10,110,000,000 2 $67,000,000
- ------------------------------------------------------------------------------
Investment Professional Conflict of Interest Disclosure
As an investment adviser and fiduciary, Alliance owes its clients and
shareholders an undivided duty of loyalty. We recognize that conflicts of
interest are inherent in our business and accordingly have developed policies
and procedures (including oversight monitoring) reasonably designed to detect,
manage and mitigate the effects of actual or potential conflicts of interest in
the area of employee personal trading, managing multiple accounts for multiple
clients, including AllianceBernstein Mutual Funds, and allocating investment
opportunities. Investment professionals, including portfolio managers and
research analysts, are subject to the above-mentioned policies and oversight
monitoring to ensure that all clients are treated equitably. We place the
interests of our clients first and expect all of our employees to meet their
fiduciary duties.
Employee Personal Trading. Alliance has adopted a Code of Business Conduct and
Ethics that is designed to detect and prevent conflicts of interest when
investment professionals and other personnel of Alliance own, buy or sell
securities which may be owned by, or bought or sold for, clients. Personal
securities transactions by an employee may raise a potential conflict of
interest when an employee owns or trades in a security that is owned or
considered for purchase or sale by a client, or recommended for purchase or
sale by an employee to a client. Subject to the reporting requirements and
other limitations of its Code of Business Conduct and Ethics, Alliance permits
its employees to engage in personal securities transactions, and also allows
them to acquire investments in the AllianceBernstein Mutual Funds through
direct purchase, 401K/profit sharing plan investment and/or notionally in
connection with deferred incentive compensation awards. Alliance's Code of
Ethics and Business Conduct requires disclosure of all personal accounts and
maintenance of brokerage accounts with designated broker-dealers approved by
Alliance. The Code also requires preclearance of all securities transactions
and imposes a one-year holding period for securities purchased by employees to
discourage short-term trading.
Managing Multiple Accounts for Multiple Clients. Alliance has compliance
policies and oversight monitoring in place to address conflicts of interest
relating to the management of multiple accounts for multiple clients.
Conflicts of interest may arise when an investment professional has
responsibilities for the investments of more than one account because the
investment professional may be unable to devote equal time and attention to
each account. The investment professional or investment professional teams for
each client may have responsibilities for managing all or a portion of the
investments of multiple accounts with a common investment strategy, including
other registered investment companies, unregistered investment vehicles, such
as hedge funds, pension plans, separate accounts, collective trusts and
charitable foundations. Among other things, Alliance's policies and procedures
provide for the prompt dissemination to investment professionals of initial or
changed investment recommendations by analysts so that investment professionals
are better able to develop investment strategies for all accounts they manage.
In addition, investment decisions by investment professionals are reviewed for
the purpose of maintaining uniformity among similar accounts and ensuring that
accounts are treated equitably. No investment professional that manages client
accounts carrying performance fees is compensated directly or specifically for
the performance of those accounts. Investment professional compensation
reflects a broad contribution in multiple dimensions to long-term investment
success for our clients and is not tied specifically to the performance of any
particular client's account, nor is it directly tied to the level or change in
level of assets under management.
Allocating Investment Opportunities. Alliance has policies and procedures
intended to address conflicts of interest relating to the allocation of
investment opportunities. These policies and procedures are designed to ensure
that information relevant to investment decisions is disseminated promptly
within its portfolio management teams and investment opportunities are
allocated equitably among different clients. The investment professionals at
Alliance routinely are required to select and allocate investment opportunities
among accounts. Portfolio holdings, position sizes, and industry and sector
exposures tend to be similar across similar accounts, which minimizes the
potential for conflicts of interest relating to the allocation of investment
opportunities. Nevertheless, investment opportunities may be allocated
differently among accounts due to the particular characteristics of an account,
such as size of the account, cash position, tax status, risk tolerance and
investment restrictions or for other reasons.
Alliance's procedures are also designed to prevent potential conflicts of
interest that may arise when Alliance has a particular financial incentive,
such as a performance-based management fee, relating to an account. An
investment professional may perceive that he or she has an incentive to devote
more time to developing and analyzing investment strategies and opportunities
or allocating securities preferentially to accounts for which Alliance could
share in investment gains.
To address these conflicts of interest, Alliance's policies and procedures
require, among other things, the prompt dissemination to investment
professionals of any initial or changed investment recommendations by analysts;
the aggregation of orders to facilitate best execution for all accounts; price
averaging for all aggregated orders; objective allocation for limited
investment opportunities (e.g., on a rotational basis) to ensure fair and
equitable allocation among accounts; and limitations on short sales of
securities. These procedures also require documentation and review of
justifications for any decisions to make investments only for select accounts
or in a manner disproportionate to the size of the account.
(a) (3) Portfolio Manager Compensation
Alliance's compensation program for investment professionals is designed to be
competitive and effective in order to attract and retain the highest caliber
employees. The compensation program for investment professionals is designed to
reflect their ability to generate long-term investment success for our clients,
including shareholders of the AllianceBernstein Mutual Funds. Investment
professionals do not receive any direct compensation based upon the investment
returns of any individual client account, nor is compensation tied directly to
the level or change in level of assets under management. Investment
professionals' annual compensation is comprised of the following:
(i) Fixed base salary: This is generally the smallest portion of compensation.
The base salary is a relatively low, fixed salary within a similar range for
all investment professionals. The base salary is determined at the outset of
employment based on level of experience, does not change significantly from
year-to-year and hence, is not particularly sensitive to performance.
(ii) Discretionary incentive compensation in the form of an annual cash bonus:
Alliance's overall profitability determines the total amount of incentive
compensation available to investment professionals. This portion of
compensation is determined subjectively based on qualitative and quantitative
factors. In evaluating this component of an investment professional's
compensation, Alliance considers the contribution to his/her team or discipline
as it relates to that team's overall contribution to the long-term investment
success, business results and strategy of Alliance. Quantitative factors
considered include, among other things, relative investment performance (e.g.,
by comparison to competitor or peer group funds or similar styles of
investments, and appropriate, broad-based or specific market indices), and
consistency of performance. There are no specific formulas used to determine
this part of an investment professional's compensation and the compensation is
not tied to any pre-determined or specified level of performance. Alliance
also considers qualitative factors such as the complexity and risk of
investment strategies involved in the style or type of assets managed by the
investment professional; success of marketing/business development efforts and
client servicing; seniority/length of service with the firm; management and
supervisory responsibilities; and fulfillment of Alliance's leadership criteria.
(iii) Discretionary incentive compensation in the form of awards under
Alliance's Partners Compensation Plan ("deferred awards"): Alliance's overall
profitability determines the total amount of deferred awards available to
investment professionals. The deferred awards are allocated among investment
professionals based on criteria similar to those used to determine the annual
cash bonus. There is no fixed formula for determining these amounts. Deferred
awards, for which there are various investment options, vest over a four-year
period and are generally forfeited if the employee resigns or Alliance
terminates his/her employment. Investment options under the deferred awards
plan include many of the same AllianceBernstein Mutual Funds offered to mutual
fund investors, thereby creating a close alignment between the financial
interests of the investment professionals and those of Alliance's clients and
mutual fund shareholders with respect to the performance of those mutual funds.
Alliance also permits deferred award recipients to allocate up to 50% of their
award to investments in Alliance's publicly traded equity securities.(1)
(iv) Contributions under Alliance's Profit Sharing/401(k) Plan: The
contributions are based on Alliance's overall profitability. The amount and
allocation of the contributions are determined at the sole discretion of
Alliance.
(a) (4) The dollar range of the Fund's equity securities owned directly or
beneficially by the Fund's portfolio managers as of the Fund's fiscal year
ended October 31, 2006 is set forth below:
DOLLAR RANGE OF EQUITY
SECURITIES IN THE FUND
- ---------------------------------------------------------
Michael Brooks None
Fred S. Cohen None
R. B. Davidson III None
Terrence T. Hults None
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 (a) (1) Code of Ethics that is subject to the disclosure of
Item 2 hereof
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): Alliance California Municipal Income Fund, Inc.
By: /s/ Marc O. Mayer
----------------------
Marc O. Mayer
President
Date: December 29, 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: December 29, 2006
By: /s/ Joseph J. Mantineo
----------------------
Joseph J. Mantineo
Treasurer and Chief Financial Officer
Date: December 29, 2006
(1) Prior to 2002, investment professional compensation also included
discretionary long-term incentive in the form of restricted grants of Alliance
Capital's Master Limited Partnership Units.