SEC Division of Investment Management staff letter: Alliance Municipal Trust

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON. D.C. 20549

DIVISION OF

INVESTMENT MANAGEMENT
July 14, 1995

ACT -r Cff-- L SEON Iii tt)

RULE Mr. Bruce Senzel
Seward & Kissel
One Battery Park Plaza
PUBLIC
AVAILABILITY 'ï / ftf/9J/
New York, NY 10004
Re: Alance Municipal Trust - Genera
Portolio
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 Alance Municipal Trust -General Portfolio ("Fund") and Alance Capita Management, L.P., the investment adviser to the Fund ("Aliance") effect the transaction summared below and more fully described in the letter. The Fund is a money market fund that seeks to mainta 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 tax and revenue anticipation notes issued by Orage County, Calorna that mature on July 19, 1995 ("Securities in the pricipal amount of ")1 $20,850,000 (approxiately 1.77% of the Fund's net assets). The Securities pay interest at a rate of 4.5 % per year, and al accrued interest on the Securities is due and payable on July 19, 1995. As a result of the Orage County bankptcy filing 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 Manhatta Bank, 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 Arngement").2 The LOC Arngement provided for the full payment of pricipal and interest when due on the Securities then held by the Fund if Orange County failed 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 $29,000,000. Since that time, you state that the Fund has sold Securities having a principal amount of $8,150,000. In Alliance'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)(l3) of rule 2a-7 under the 1940 Act).

Mr. Bruce Senzel

these payments on July 19, 1995 (the final maturity ilite of the Securities). Under the LOC Arangement, Alance agree to reimburse Chase for any amounts drawn by the Fund pursuant to the LOC. The LOC Argement was entered into afer the sta 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 al1ieliood, wil not make the scheduled pricipal payment due

on the Securities on
July 19, 1995. Rather, Orange County has proposed, the Bankptcy Court has approved, and holders of cert short-term notes issued by Orage County have agree 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). Alance 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 ($20,850,000). If Orage County fais 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 sta, we wil not recommend enforcement action under sections 17(a) and 17(d) of the 1940 Act and the rules thereunder if the Purchase Offer is effected. You should note that any different facts or representations might require a dierent conclusion. Moreover, this response expresses the Division's position on enforcement action only and does not express any legal conclusions on the issues presented. . Sincerely, 1?9~ Robert E. Plaze

Assistat Director

EUGENE P. SOUTHER SEWARD & KISSEL GEORGE C. SEWARD BLAISE G. A. PASORY SENIOR COUNSEL ALBERT A. WALSH ONE BATTERY PARK PLAZA ARRIAL S. COGAN LESTER KISSEL \RUCE O. SENZEL RICHARD H. VALENTINE õARLEN£ O. DANIELS NEW YORK, K.Y. 10004 EDWARD W. BEUCHERT JAMES H. HANCOCK ROBERT B. SIMON ANTHf"NY R. MANSf"ELO KEITH H. ELLIS. ANT...,Ny C. J. NULAND TELEPHONE: (212) 574-1200 ALBERTO L. CALAFElL M. WILLIAM MUNNO RICHARD H. METSCH PETER E. PRONT FACSIMILE: (2121480-8421 COUNSEL DALE C. CHRISTENSEN. JR. DAVID L. rOBES HADLEY S. ROE WRITER'S DIRECT DIAL NUMBER 1200 G STREET, N.W. RUSSELL C. PRINCE CRAIG T. HICKERNELL WASHINGTON. D.C. 20005

TELEPHONE: C2021 737-8833
.JANET R. ZIMMER
ROBERT A. WALDER FACSIMILE: (2021 737-5184

.JOHN E. TAVSS
WILLIAM F. KUNTZ. II
GARY.J. WOLFE REPRESENTATIVE OFFICE
~WRENCE RUTKOWSKI NADOR UTeA II
1051 BUDAPEST. HUNGARY
MARK .J. HYLAN D TELEPHONE: (361) 132-7115 PAU LT. CLARK- July 13, 1995 FACSIMILE: (361) 132~7g40 .JONATHAN BERGER RONALD L. COHEN THOMAS G. MACDONALD

MARK A. BRODY
PAUL M. GOTTLIEB
Investment Company Act
.JOHN .J. CLEARY
MICHAEL .J.MCNAMARA of 1940 /17 (a) and 17 (d) KAL Y AN OAS JOHN F. RIGNEY PATRICIA A. POGLINCO -ADMITTED IN c.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

Alliance Municipal Trust - General Portfolio

Dear Mr. P laze:
This letter is submitted on behalf of Alliance Municipal

Trust - General Portfolio (the "Fund") and Alliance Capital

Management L.P., the investment adviser of the Fund ("Alliance"),

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 17 (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 "Securities") having a maturity date of

July 19, 1995:

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 $20,850,000.

The Securities, including interest accrued thereon, represented

approximately 1.77% 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 $29,000,000. Since that

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

$8,150,000.
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 qn 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 Furid 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. Plaze 4 July 13, 1995
If the staff is unable t~ 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 respons~.

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 informat~on 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 7r~yC¡~
00250215. AA 7

AIliancetund
Disibutors. Inc.
1345 Avnue of th Amrica
New York, NY 10105
(212) 9S~21S6
Gerg O. Marinez WiceCapital . .. Vic Present and Asle General Counl December S, . 1994 VIA FACSIMILE

Robert E. Plaze

Assistant D~rector

Office of Disclosure and ~nvestment

. Adviser Regulation

Division of Investment Management

u.s. securities and Exchange Commission

450 Fifth street, N.W.

Mail stop :10-6

Washington, D.C. 20549

Re: Alliance ~unicipal Trust - General Portfolio

ACM 'Insti tutional Reserves, Xnc. - Tax Free portfolio Dear r-I. Plaza:

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

(lIAffiliatelt), an affiliated per$on o~ Allianoe Municipal. Trust-

General Portfolio (ltAM-GeneraPI) and ACM i:nst~tutional Reserves,

Inc.-Tax Free Portfolio ("AIR-Tax Freelf) (jointly, "FUds'I). We

seek assurance from the staff of the Division of Investment

Nanagement ("Division") that it will. not. recommend enforcement

action to the Commission under Section i 7 (d) of the ænvestment

Company Act of i940 (111.940 Actll), or the rules thereunder if the

Funds and the Affiliate enter into the arrangement described

. beloW.
Each Fund is registered with the commission under the 1940

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

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

value per share of si.oo, and use the amortized cost method of

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

1994, 'AMT-Generai 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:

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

Anticipation Notes, Series A (CUSIP No. 68420iEK8);

2. Based on Decemer 7, 1994 market values, the Funds held the

following amounts of the securities:

AM-General - $27,550 1000

AIR-Tax Free - $950, 000 ¡and

3. Final Maturity - July 19, 1995.

As a result of orange. County filinq for bauptcy t the Funds may not ~e able to obtain reliaÐle mark~t quotes for the Securities~ On Decemer 8, 1994, the Affiliate applied for two irrevocable standby letters of credit to be issued by Chase

Manhattan Bank CI.Chasen) i...a. national bank with a short-term

rating of A-l/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 ~rédi t.

Each Fud's Board has been _advised of this proposed arrangement. .- The Affiliate is an l'affì.liated person" under Section 2 (a) (3) of the 1940 Aot beoause it is the investment adviser of each Fund. The proposed arrangement may fall within Seotion

17 Cd) Qf the 1940 Act, which makes it unlawful for anyaf£iiiated

person of a registered investment oompany or an affiliated person

of such person to effeot any transaction in which such registered

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

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

best interests of each Fund's shareholders if the irrevooable

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 Affil-iate, we hereby request that

the Division staff give its assurance that it wiii not recommend

that the Commission take enforcement action against. the 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 (212) 969-2.156- or Ms. Emilie Wrapp at (212) 969-2154 (facsimile (212) 969-2290). . ß;lè? iftJ

A1riace Fud
Distibur$. Inc.
1345 Jlue of the America

. Ne Yor NY1010S

(2121 969-2156
. . AlnceCapita GéO O. Matnez
VI Prent and

Asiate General Counl
Dec~er 12, 1994

VIA 'FACSIMLE
Robert E. Plaze

Assistant Director

Offica of Disclosure and Investment

Adviser Regulation

u.s. Securities and Exchange Commission

450 Fifth street, N. W.

Washington, DC 20549

Re: Alliance Muicipal Trust-General Portfolio

ACM Institutional Reserves, I~c. -Tax Free port.folio

Dear Mr. Plaza:

This letter will confirm to th~ staff that Alliance Capital Management L.P., an affiliated person. of the above-referenced

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

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

described in ottletter to the staff dated Deoember 8, i994

requestihq no-aotion assurances. EaCh -Fud i S board was advised

of this transaction.

If you have any further questions or còmments regarding

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

number set forth above or Ms. Emilie wrapp at (202) 969-2i54.

Sinoereiy,
ß~~
GOMI j nd

. -'j