SEC Division of Investment Management staff letter: ACM Institutional Reserves, Inc.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON. D.C. 20549

,IVISION OF

INVESTMENT MANAGEMENT
July 14, 1995
ACT X(!it- l(J

SEON I 7 (tL T :
RULE
Mr. Bruce Senzel
PULIC /
Seward & Kissel A V AILABILITY '7 (Vi Cf S One Battery Park Plaza New York, NY 10004 Re: ACM Institutional Reserves. Inc. - Tax Free Portfolio .

Dear Mr. Senzel:
Your letter of July 13, 1995 requests our assurace that we would not recommend that the Commission tae any enforcement action under sections 17(a) and 17(d) of the Investment Company Act of 1940 ("1940 Act") and the rules thereunder if ACM Institutional Reserves, Inc. - Tax Free Portfolio ("Fund") and Alance Capital Management, L.P., the investment adviser to the Fund ("Alance") effect the transaction summared below and more fully described in the letter. The Fund is a money market fund that seeks to maintain a stable net asset value per share of $1.00 and uses the amortized cost method of valuation as permitted by rule 2a-7 under the 1940 Act. The Fund holds ta and revenue anticipation notes issued by Orage County, California that mature on July 19, 1995 ("Securities")! in the pricipal amount of $500,000 (approximately 1.11 % of the Fund's net assets). The Securities pay interest at a rate of 4.5 % per year, and all interest due on the Securities is payable on July 19, 1995. As a result of the Orange County bankptcy filg on December 6, 1994, the Fund was unable to obtain reliable market quotes for the Securities then held, and it determined the fair values of those Securities to be less than their amortized cost values. In December 1994, The Chase Manhatt Ban, N.A. ("Chase"), upon the application of Alance, issued a letter of credit on behal of the Fund ("LOC") in order to avoid any potential losses to shareholders of the Fund. on the Securities then held by reason of the nonpayment by Orange County of pricipal and interest thereon at maturity ("LOC 2 The LOC Arngement provided for the full payment of pricipal and Arngement"). interest when due on the Securities then held by the Fund if Orage County faied to make In your letter of July 13, 1995, you represented that the principal amount of the Securities held by the Fund in December 1994 was $1,000,000. Since that time, you state that the Fund has sold Securities having a principal amount of $500,000. In Allance's letter of December 8, 1994, it represented that Chase had the highest ratings on its short-term debt obligations from the "Requisite NRSROs" (as this term is defined in paragraph (a)(13) of rule 2a-7 under the 1940 Act).

Mr. Bruce Senzel

these payments on July 19, 1995 (the final maturity date of the Securities). Under the LOC Arngement, Alance agree to reimburse Chase for any amounts drawn by the Fund pursuant to the LOC. The LOC Argement was entered into after the staf of the Division of Investment Management inormed the Fund and Alance that it would not recommend enforcement action to the Commission if the LOC Argement was effected. The Fund continues to hold Securities as indicated above and values them based on the LOC Argement. Orage County, in al lieliood, wil not make the scheduled pricipal payment due

on the Securities on July 19, 1995. Rather, Orage County has proposed, the Banptcy Court has approved, and holders of certin short-term notes issued by Orage County have agreed to, a mandatory amendment of the Securities ("Amendment") that wil, among other thigs, extend the maturity date of the Securities to June 30, 1996 ("Amended Securities"). The Amendment provides that al interest accrued and payable on the Securities wil be paid on July 19, 1995 (the maturity date of the Securities). Alliance has offered to purchase the Securities now held by the Fund from the Fund on July 19, 1995 at an amount equal to their pricipal values ($500,000). If Orage County fails to make interest payments on the Securities pursuant to the Amendment, Alance has offered to purchase the Securities from the Fund at their amortized cost values (the pricipal

values of the Securities plus al accrued but unpaid interest) ("Purchase Offer"). On the basis of the facts and representations in your letter, and a telephone conference on July 14, 1995 with Maiorie Riegel of the staf, we wil not recommend and the rules thereunder if the Purchase Offer is effected. You should note that any different facts or representations might require a different conclusion. Moreover, this response expresses the Division's position on enforcement action only and does not express any legal conclusions on the issues presented. enforcement action under sections 17(a) and 17(d) of the 1940 Act

Sincerely,
Robert E. Plaze

¡;'2~
Assistat Director

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JO""TI'AN BEIOGliR

THOMAS G. ....eDONALIl
HARK A. BRODY investment Company Act
PAUL H. GOTTLIEB
JOHN". CLEA'l of 1940 /17 (a) and 17 (d) Mle,t.,AE.L.J. ticNAMAII KAL.TAN O~ JO"N r. lllC:NeY PATRICIA A. POc:~l.ieo

-AO"iTTl:1) I~ D.C. ONLY
Mr. Robert E. P laze
Assistant Director

Office of Disclosure and Investment

Adviser Regulation

U. S. Securities and Exchange Commission

450 5th Street, N.W.

Mail Stop 10-6

washington, D.C. 20549

ACM Institutional Reserves. Inc. - Tax Free Portfolio

Dear Mr. Plaze:
This letter is submitted on behalf of ACM Institutional

Reserves, Inc. - Tax Free Portfolio (the IIFund") and Alliance

Capital Management L.P., the investment adviser of the Fund

("Aiiiance"), to seek assurance from the staff of the Division of

Investment Management (the "Division") of the U. S. Securities and

Exchange Commission (the "Commission") that the Division would not

recommend any enforcement action to the Commission with reference

to Section 17 (a) or Section i 7 (d) of the Investment Company Act of

1940, as amended (the "1940 Act"), or the rules thereunder, if the

Fund and Alliance enter into the transaction described below.

The Fund is a "money market fund" registered with the

Commission under the 1940 Act as an open-end management investment

company which seeks to maintain a stable net asset value per share

of $1.00 and uses the amortized cost method of valuation in valuing

its portfolio securities. On the date hereof, the Fund owns the

following securities (the IISecurities") having a maturity date of

July 19, 1995:

..." ~ "'0 in'" ii n

Mr. Robert E. P laze 2 July 13, 1995
County of Orange, California, 1994-95 Tax and

Revenue Anticipation Notes, Series A, having

a principal amount of $500,000.

The Securities, including interest accrued thereon, represented

approximately 1.11% of the net assets of the Fund based on asset

valuations as of the close of business on July 12, 1995.

By letter dated December 8, 1994 to you, relief was

requested from the Division regarding the proposed issuance to the

Fund by The Chase Manhattan Bank, N .A. ("Chase") of an irrevocable

standby letter of credit for the benefit of the Fund providing for

the payment in full to the Fund of principal and interest at

maturity of the Securities. T£e relief requested was granted by

telephone on December 8, 1994. By letter to you dated

December 12, 1994, Alliance confirmed that the letter of credit was

issued. Alliance paid for the letter of credit and is obligated to

pay to Chase any amounts paid by Chase thereunder. A copy of each

of the December 8 and 12 letters accompanies this letter.

Alliance has offered to purchase the Securities on

July 19, 1995 directly from the Fund for cash at the then value of

the Securities reflected on the books of the Fund as determined

using the amortized cost method of valuation, i. e., at the

principal amount of the Securities plus accrued intere~t not paid

by the County of Orange when due on that date, if any. Same-day

1. When the letter of credit was issued, the principal amount of

the Securities held by the Fund was $1,000,000. Since that

time, the Fund has sold Securities having a principal amount of

$500,000.
2. As we understand the staff is aware, the principal of the

Securities is not to be repaid at maturity on July 19, 1995 and

the County of Orange, issuer of the Securities, presented a

Modification and Extension Agreement (the "Agreement") to

owners of certain County obligations, including the Securities,

pursuant to which such owners could irrevocably elect by

July 7, 1995 to an extension of the original maturity date of

the Securities upon the effectiveness of which (which is

subject to certain conditions) the Securities would become

Extension Obligations (as defined in the Agreement). We

understand that the staff is familiar with this Agreement. At

a special .meeting of the Trustees of the Fund held on July 5,

1995, Alliance informed the Trustees that Alliance had

determined that it would be advisable for the Fund to make the

election with respect to all of the Securities. The Trustees

concurred in Alliance's conclusion, which was implemented

promptly thereafter. We understand that timely elections were

(Footnote continued)

Mr. Robert E. P laze 3 July 13, 1995 funds in the principal amount will be deposited in the Fund's

account on July 19. If the County does not pay the full amount of

accrued interest on July 19, Alliance will pay the amount of unpaid

accrued interest to the Fund's account in same-day funds on

July 20, the day on which the Fund would have received same-day

funds from the County's disbursing agent if the County had timely

paid such interest or if the Fund had drawn on the Chase letter of

credit. Thus, the purchase price to be paid by Alliance will be

the same amount the Fund would otherwise have received under the

letter of credit or from the County had there been no default in

the payment of principal or interest, and the timing of the Fund's

receipt of the amount involved in same-day funds will be the same.

As the Fund's investment adviser, Alliance is an

"affiliated person" of the Fund under Section 2 (a) (3) of the 1940

Act . Given that status and the nature and background of the

proposed purchase, the purchase of the Securities by Alliance would

fall within Section 17 (a) of the 1940 Act, which makes it unlawful

for any affiliated person of a registered investment company to

knowingly purchase any security from the investment company, and

might be considered as falling within Section 17 (d) of the 1940

Act, which makes it unlawful for an affiliated person of a

registered investment company to effect any transaction in which

such registered investment company is a joint and several

participant with such person.

The purchase of the Securities by Alliance at their

current amortized cost value (the principal amount of the

Securities plus accrued but unpaid interest) would avoid portfolio

shareholder loss on the Securities. To attain a corresponding

objective, the Fund and Alliance understand that no action relief

covering corresponding purchases shortly after the County's

bankruptcy filing last December was in fact granted to a number of

other money market funds and their advisers soon after the County

filed for bankruptcy last year. The Fund and Alliance do not

believe the relief now requested with respect to Alliance's

acquiring the Securities to be substantively distinguishable from

the corresponding situation of those other funds and advisers. The

Fund and Alliance do not believe there is any meaningful difference

to the Fund between a purchase occurring as proposed as contrasted

wi th a purchase which might have been made last December.

(Footnote continued)

made with respect to a sufficient percentage of the obligations

covered by the Agreement for the Agreement to become effective

and binding on all holders of such obligations.

Mr. Robert E. P laze 4 July 13, 1995
I f the staff is unable to agree with this request for

relief, an opportunity is requested to discuss the subject with the

staff prior to the issuance of the staff's written response.

In accordance with Release No. 33-6269 (December 5,

1980), seven additional copies of this letter are enclosed. Please

direct any questions or requests for further information concerning

the foregoing to the undersigned ((212) 574-1267) or Edmund P.

Bergan, Jr. of the Fund ((212) 969-2108).

Very truly yours,

BDS : bac
Enclosures ~~).l~
00250215.AB6

Allian Fl.nd

Disibutors. Inc.
1345 Avnue Of the Amrica
NewYOfk, NY 10105

(212) 969-2156
Gerg O. Marinez
Vic Ptent and

Aste General Counl

1I~Capita. . ..
December 8, .:1994
VIA FACS'IMI~E

Robert E. Plaze

Assistant Director

Office of Disclosure and Znvestment

. Adviser Regulation

Division of 'Investment Management

u.s. Securities and Exchange Commission

450 Fifth street, N.W.
Mail stop J.0-6
Washington, D.C. 20549

Re: Alliance Municipal Trust - General Portfolio

ACM '~nsti tutional Reserves, 'Inc. - Tax Free portfolio Dear r-i. Plaza:

We are writing on behalf of Alliance capital Management L.P.

("Affiliate"), an affiliated per$on Of. Allianoe Municipal Trust-

General Portfolio ("AM-General") ana ACM 'Institutional Reserves,

Inc.-Tax Free Portfolio ("A1:R-Tax FreeU) (jointly, "Funds"). We

seek assurance from the staff of ebe Division of Investment

Management (liD! vision") that it will. not recommend enforcement

action to the Commission under Section 17 (d) of the 'Investment

Company Act of 1940 (111940 Act"), or the rules thereunder if the

Funds and the Affiliate enter into the arrangement described

below.
Each Fund is reqistered with the commission under the 1940

Act as an open-end management investment company. The Funds,

each a money market fund, seek to maintain a stable net asset

value per share of $1.00, and use the amortized cost method of

valuation in valuing portfolio securities. As of December. 7,

1994, -AMT-General had approximately 2.27% of its net assets and

AIR-Tax Free had approximately 2.6% of its net assets in the

below-referenced securities ("securities"). The Securities are:

1. County of orange, California; 1994-95 Tax and Revenue

AntiCipation Notes, Series A (COSIP No. 684201EK8);

2. Based on Decemer 7, 1994 market values, the Funds held tha
   following amounts of the saeurities:
   AM-General - $27,550,000
   AIR-Tax Free - 6950,000; and

3. Final Maturity - July 19, 1995.

As a result of orange. County filing for bauptcy, the

Funds may not ~e ablê to obtain reliaÐle mark~t quot~s for the securities~ On Decemr 8, 1994, the Affiliate applied for two irrevocable standby letters of credit to be issued DY Chase

Manhattan Bank ("Chase") t a. national bank with a short-term

rating of A-i/p-1, for the benefit of each Fund providing for the

full payment of principal and interest at maturity of the

securities to each FUd to avoid any potential portfolio

shareholder loss on the Securities. The Affiliate will pay to

Chase any amounts paid by Chase under the letters of oradi t.

Each Fud i S Board has been advised of this proposed arrangement. . .-"

The Affiliate is an "affiliated person" under Section 2 (a) (3) of the 1940 Act because it is the investment adviser of each Fund. ~he proposed arrangement may fall within Seotion

17 Cd) of the 1940 Act, which makes it unlawful for any affiliated

person of a registered investment company or an affiliated person

of such person to effect any transaction in which such registered

company is a joint or a joint and several participant with such

person.
The Funds and the Affiliate believe that it would be in the

best interests of each Fund's shareholders if the irrevocable

standby letters of credit are issued and the Affiliate is

Obligated to pay to Chase ~ny amounts paid by' it to the Funds.

On behalf of the Funds and the Affiiiate, we hereby request that

the Division staff give its assurance that it wiii not recommend

that the commission take enforcement action against ~he Funds or

the Affiliate under Section i 7 (d) if the Affiliate acts in such capacity. If you have any questions or other communications concerning

this matter, please call the undersigned at (2i2) 969-2156" or Ms.

Emilie Wrapp at (212) 969-2154 (facsimile (212) 969-2290).

~o~~

Allice Fud
Diiburs. Inc.
1345 ..ue of th America

Ne YOl NY 10105

(2121969-2156
A-..4ceCapita Gøo O. Marnez . .
VI Prnt and

Asia~ General Counl

Decemer 12, 1994

VIA 'FAOSnaLE
Robert E. Plaze

Assistant Director

Office of Disclosure and Investment

Adviser Regulation

u.s. securities and Exchange Commission

450 Firth street, N.W.

Washington, CC 20549

Re: Alliance Muicipal Trust-General Portfolio

ACM Institutional Reserves, Inc. -Tax Free port-folio Dear Hr. Plaze:

This letter will eonf 1rm to the staff that Alliance Capital

Management L.P., an affiliated person. of tha above-referenced

money market funds, received on oeoémer 9, 1994 two letters of

credit for the benefit of each of the above-referenced funds as

described in our le~~er to the staff dated Deoember 8, 1994

requesting no-aotion assuranoes. Each .
Fud 's board was advised

of this transaction.

If you have any further questions or comments regarding

this matter, please feel free to contact me at the telephone

number set forth above or Ms. Emi11e wrapp at (202) 969-2154.

Sincereiy, t~l)
GOM/ j nd