<PAGE>
<PAGE>
LETTER TO SHAREHOLDERS ACM GOVERNMENT INCOME FUND, INC.
- --------------------------------------------------------------------------------
January 24, 1995
Dear Shareholder:
Since we last reported to you in June, the Federal Reserve has continued
tightening monetary policy, placing further downward pressure on domestic and
international bond prices. Despite higher interest rates, mortgage-backed
securities performed relatively well over the six-month period, outperforming
U.S. Treasurys and Agencies on an aggregate basis. Seeking diversification
through international investment, your Fund invested 30% of its total assets
in foreign debt securities. This strategy was successful in 1993, as the Fund
benefited from selective investment in emerging market and other foreign
debt. Unfortunately, in 1994, emerging market debt suffered widespread
selling in the wake of Mexico's economic crisis. The six- and twelve-month
performance of your Fund was adversely affected by both the rise in interest
rates and investor uncertainty over emerging markets.
INVESTMENT RESULTS
For the twelve months ended December 31, 1994, ACM Government Income Fund had
a total return of -15.48% based on the net asset value. Over the same period,
the Fund paid dividends totaling $1.004 per share. The Fund's total return
for the six months since we last reported was +0.10% based on the net asset
value.
Despite the recent net asset value declines, ACM Government Income Fund has,
since its inception in August of 1987, achieved an annualized total return of
+8.66% based on the net asset value.
THE U.S. ECONOMIC AND INTEREST RATE ENVIRONMENT
The U.S. economy continued its impressive expansion in the second half of
1994 with growth estimated at an annual rate of 4.2%. This strong economic
growth pushed the unemployment rate down to 5.4% and boosted the
manufacturing capacity utilization rate to 85%, considered to be its
full-capacity threshold. While broad price indices such as the Consumer Price
Index (CPI) and Producer Price Index (PPI) have shown few signs of
acceleration, commodity prices and core intermediate goods in the PPI, both
indicators of inflationary pressure, have risen sharply over the past 12
months. Concerns over inflation and the unabated growth of the U.S. economy
prompted the Federal Reserve to raise short-term interest rates in August and
again in November. Since June, two-year U.S. Treasurys have risen from 6.18%
to 7.70% and 30-year U.S. Treasurys have risen from 7.61% to 7.88%.
INVESTMENT OUTLOOK
We expect the Federal Reserve to maintain its focus on growth and continue
raising interest rates until GDP growth is reduced to a non-inflationary
level, generally estimated to be 2.5% or less on an annual basis. Any easing
of fiscal policy by the new political leadership in Congress will increase
the need for monetary tightening. Anticipation of further interest rate
increases should put upward pressure on short-term rates. Long-term rates
should remain at current levels (around 8%), provided the Federal Reserve
maintains its aggressive anti-inflation stance and inflation does not surge
ahead unexpectedly. As
1
<PAGE>
ACM GOVERNMENT INCOME FUND, INC.
- --------------------------------------------------------------------------------
higher interest rates work their way through the economy, growth will moderate
from the brisk pace of 1994. Prices at the early stages of the production cycle
have increased, and it is likely that overall inflation indices will undergo
some cyclical pressures in 1995. However, we expect domestic inflation to peak
at 4% or less, which implies that long-term government bonds offer attractive
real returns at current prices. Lower interest rate volatility should continue
to benefit mortgage assets in 1995.
Despite recent events in Mexico, we believe the long-term outlook for
emerging market and other foreign debt remains positive. Overall economic
fundamentals are strong in most emerging market countries, and the long-term
impact of the North American Free Trade Agreement and the General Agreement
on Tariffs and Trade should continue to bolster economic activity in the
years ahead. It is our view that emerging market debt is currently oversold,
and that prices should improve as the Mexican crisis stabilizes and investors
focus anew on economic fundamentals.
We appreciate your investment in ACM Government Income Fund and look forward
to reporting improved performance in the coming months.
Sincerely,
/s/ John D. Carifa
John D. Carifa
Chairman
/s/ Wayne D. Lyski
Wayne D. Lyski
President
2
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1994 ACM GOVERNMENT INCOME FUND, INC.
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT
(000) U.S. $ VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT AND AGENCY
OBLIGATIONS--89.8%
U.S. TREASURY
SECURITIES--49.6%
U.S. Treasury Bonds
Zero coupon, 2/15/15................. US$ 120,940 $ 24,553,239
Zero coupon, 8/15/20................. 77,400 10,351,476
Zero coupon, 11/15/21................ 98,300 12,247,197
7.50%, 11/15/24...................... 18,000 17,218,080
11.875%, 11/15/03.................... 15,800 19,759,796
12.375%, 5/15/04..................... 41,700 53,916,849
U.S. Treasury Notes
5.875%, 5/15/95 (a).................. 18,500 18,459,485
7.75%, 11/30/99...................... 16,500 16,438,125
8.875%, 2/15/99...................... 12,000 12,420,000
9.25%, 8/15/98....................... 49,700 51,858,968
------------
Total U.S. Treasury Securities
(cost $245,080,769).................. 237,223,215
------------
MORTGAGE-RELATED
SECURITIES--32.2%
Federal Home Loan Bank
15.00%, 9/01/95...................... 16,200 16,989,750
15.00%, 9/07/95...................... 16,300 17,115,000
Federal National Mortgage
Association
Zero coupon, 10/09/19................ 169,600 22,684,000
FNMA / GNMA
Series G94-7 Class S
Inverse PAC (I/O)
20.00%, 12/17/19..................... 1,917 1,318,894
Government National
Mortgage Association
7.00%, 12/15/23...................... 65,083 58,412,419
7.00%, 1/15/24....................... 24,018 21,556,472
7.50%, 12/15/23...................... 7,554 7,009,118
8.00%, 3/15/24....................... 9,660 9,234,138
------------
Total Mortgage-Related Securities
(cost $168,308,942).................. 154,319,791
------------
FEDERAL AGENCY
SECURITIES--8.0%
Small Business Administration
Loan Pools (I/O)
8.90%, 2/15/19 (b)................... US$ 20,268 18,347,264
Student Loan Marketing
Association
15.00%, 9/13/95...................... 18,750 19,682,373
------------
Total Federal Agency Securities
(cost $40,730,703)................... 38,029,637
------------
Total U.S. Government and
Agency Obligations
(cost $454,120,414).................. 429,572,643
------------
SOVEREIGN DEBT
OBLIGATIONS--25.4%
COLLATERALIZED BRADY
BONDS*--8.3%
Ecuador--1.3%
Republic of Ecuador
Discount Bonds FRN
12/31/24 (c)
(cost $6,600,000).................... 11,000 5,967,500
------------
NIGERIA--6.1%
Central Bank of Nigeria
Euro Par Bonds VRN
5.50%, 11/15/20 (d)
(cost $30,467,407)................... 74,250 29,096,719
------------
POLAND--0.9%
Republic of Poland FRN
6.1825%, 10/27/14 (d)
(cost $4,807,504).................... 10,000 4,462,500
------------
Total Collateralized
Brady Bonds
(cost $41,874,911)................... 39,526,719
------------
LOAN ASSIGNMENTS--3.5%
ALGERIA--0.7%
Algeria Refinanced Trust
Loan Assignment
7.4375%, 12/21/96
(cost $8,013,279).................... FRF 54,857 3,492,123
------------
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS (CONT.) ACM GOVERNMENT INCOME FUND, INC.
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT
(000) U.S. $ VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
ECUADOR--1.0%
Republic of Ecuador
Consolidated Loan Assignment (e)
(cost $5,575,000).................... US$ 10,000 $ 4,600,000
------------
RUSSIA--1.8%
Vneshekonombank
Loan Assignment (e).................. DEM 35,500 6,600,269
Loan Assignment (e).................. US$ 7,500 2,085,937
------------
Total Russian Loan Assignments
(cost $12,594,480)................... 8,686,206
------------
Total Loan Assignments
(cost $26,182,759)................... 16,778,329
------------
OTHER SOVEREIGN
DEBT OBLIGATIONS--13.6%
BRAZIL--8.5%
Republic of Brazil C-Bonds
8.00%, 4/15/14 (g)
(cost $40,332,294)................... 84,788 40,803,984
------------
BULGARIA--5.1%
Republic of Bulgaria
PDI/IAB, FRN
6.0625%, 7/28/11 (d)
(cost $25,031,733)................... 57,150 24,217,133
------------
Total Other Sovereign
Debt Obligations
(cost $65,364,027)................... 65,021,117
------------
Total Sovereign
Debt Obligations
(cost $133,421,697).................. 121,326,165
------------
FOREIGN SECURITIES--4.6%
ARGENTINA--4.6%
Bonos de Consolidacion de
Daudas Provisionales FRN
3.50%, 4/01/01 (d)................... ARP 10,198 4,329,828
Bonos de Consolidacion FRN
3.50%, 4/01/07 (d)................... ARP 65,515 17,538,967
------------
Total Foreign Securities
(cost $32,022,216)................... 21,868,795
------------
DEBT OBLIGATION--1.0%
Tribasa Toll Road Trust 1
10.50%, 12/01/11 (f)
(cost $6,176,052).................... US$ 6,300 5,040,000
------------
CERTIFICATE OF
DEPOSIT--2.7%
Morgan Guaranty Trust Co.
Linked to Peru (non-Citi)
Loan Assignment
9.00%, 5/30/95 (h)
(cost $13,398,125)................... 13,398 13,044,415
------------
CALL OPTIONS
PURCHASED--0.1%
Argentinian Floating Rate Bonds
6.50%, 3/31/05
expiring April '95
@ $72.50............................. 31,000 170,500
Mexican Par Bonds
6.25%, 12/31/19
expiring April '95
@ $63.3125........................... 73,000 212,065
Philippines Par Bonds
5.75%, 12/1/17
expiring May '95
@ $63.75............................. 14,500 171,100
------------
Total Call Options Purchased
(cost $2,201,125).................... 553,665
------------
TOTAL INVESTMENTS--123.6%
(cost $641,339,629).................. 591,405,683
------------
PUT OPTIONS
WRITTEN--(1.6%)
Argentinian Floating Rate Bonds
6.50%, 3/31/05
expiring April '95
@ $68.50............................. 31,000 (1,956,100)
Mexican Par Bonds
6.25%, 12/31/19
expiring April '95
@ $60.3125........................... 73,000 (5,520,917)
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
ACM GOVERNMENT INCOME FUND, INC.
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT
(000) U.S. $ VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
Philippines Par Bonds
5.75%, 12/1/17
expiring May '95
@ $57.75............................. US$ 14,500 $ (91,350)
-----------
Total Put Options Written
(premiums received $1,602,250)....... (7,568,367)
-----------
TOTAL INVESTMENTS,
NET OF OUTSTANDING PUT
OPTIONS WRITTEN--122.0%
(cost $639,737,379).................. $ 583,837,316
Other assets less liabilities--(22.0%). (105,326,157)
-------------
NET ASSETS--100%....................... $ 478,511,159
=============
</TABLE>
- --------------------------------------------------------------------------------
* Sovereign debt obligations issued as part of debt restructurings that are
collateralized in full as to principal due at maturity by U.S. Treasury
zero coupon obligations which have the same maturity as the Brady Bond.
(a) Security, or portion thereof, has been segregated to collateralize
a forward exchange currency contract.
(b) Illiquid security. Security, having a cost of $20,268,453 was acquired on
June 14, 1994 and represents 3.8% of net assets at December 31, 1994.
(c) Security is a "when if" issue.
(d) Stated interest rate in effect at December 31, 1994.
(e) Non-income producing security.
(f) Security exempt from registration under Rule 144A of the Securities
Act of 1933. This security may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At December 31,
1994, this security amounted to $5,040,000 or 1.1% of net assets.
(g) Coupon consists of 4.00% cash payment and 4.00% paid-in-kind.
(h) The redemption value of this security is linked to the change in the bid
price of the referenced emerging market debt.
Glossary of Terms:
FRN--Floating Rate Notes.
FNMA--Federal National Mortgage Association.
GNMA--Government National Mortgage Association.
IAB--Interest Arrears Bonds.
I/O--Interest Only. Interest accrued based on yield to maturity.
PAC--Planned Amortization Class.
PDI--Past Due Interest.
VRN--Variable Rate Notes.
See notes to the financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1994 ACM GOVERNMENT INCOME FUND, INC.
- -----------------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS
Investments in securities, at value (cost $641,339,629).......................................... $591,405,683
Cash............................................................................................. 6,299,664
Interest receivable.............................................................................. 12,380,095
Receivable for investment securities sold........................................................ 12,353,286
------------
Total assets..................................................................................... 622,438,728
------------
LIABILITIES
Outstanding put options written (premiums received $1,602,250)................................... 7,568,367
Payable for investment securities purchased...................................................... 90,032,391
Loan payable..................................................................................... 45,000,000
Advisory fee payable............................................................................. 400,494
Net unrealized depreciation on forward exchange currency contracts............................... 367,566
Administrative fee payable....................................................................... 145,187
Loan interest payable............................................................................ 133,707
Accrued expenses and other liabilities........................................................... 279,857
------------
Total liabilities................................................................................ 143,927,569
------------
NET ASSETS (equivalent to $8.45 per share, based on 56,617,048 shares oustanding)................... $478,511,159
============
COMPOSITION OF NET ASSETS
Capital stock, at par............................................................................ $ 566,170
Additional paid-in capital ...................................................................... 607,438,586
Accumulated net realized loss.................................................................... (73,240,691)
Net unrealized depreciation of investments, options and foreign currency denominated assets
and liabilities................................................................................. (56,252,906)
------------
$478,511,159
============
NET ASSET VALUE PER SHARE........................................................................... $8.45
=====
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994 ACM GOVERNMENT INCOME FUND, INC.
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
Interest.................................................................. $59,680,683
EXPENSES
Advisory fee.............................................................. $4,479,613
Administrative fee........................................................ 939,615
Transfer agency........................................................... 279,027
Custodian................................................................. 210,618
Reports and notices to shareholders....................................... 169,235
Audit and legal........................................................... 84,585
Directors' fees........................................................... 29,999
Miscellaneous............................................................. 120,415
----------
Total expenses before interest............................................ 6,313,107
Interest expense.......................................................... 2,221,719
----------
Total expenses............................................................ 8,534,826
-------------
Net investment income..................................................... 51,145,857
-------------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS AND
FOREIGN CURRENCY TRANSACTIONS
Net realized loss on investment transactions.............................. (69,931,457)
Net realized loss on option transactions.................................. (1,922,750)
Net realized loss on foreign currency transactions........................ (8,601,905)
Net change in unrealized appreciation of:
Investments and options.............................................. (53,072,076)
Foreign currency denominated assets and liabilities.................. (7,566,077)
-------------
Net loss on investments and foreign currency transactions................. (141,094,265)
-------------
NET DECREASE IN NET ASSETS FROM OPERATIONS................................... $ (89,948,408)
=============
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, 1994 DECEMBER 31, 1993
----------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income...................................................... $ 51,145,857 $ 57,817,148
Net realized gain (loss) on investments, options and foreign currency
transactions.............................................................. (80,456,112) 54,948,326
Net change in unrealized appreciation (depreciation) of investments,
options and foreign currency denominated assets and liabilities......... (60,638,153) 9,064,758
------------ ------------
Net increase (decrease) in net assets from operations...................... (89,948,408) 121,830,232
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income....................................... (43,243,380) (59,165,216)
Distributions from net realized gains...................................... -0- (29,313,993)
Distributions in excess of net realized gains.............................. -0- (247,057)
Tax return of capital distribution......................................... (13,276,559) -0-
COMMON STOCK TRANSACTIONS
Reinvestment of dividends resulting in issuance of common stock............ 8,898,161 3,180,117
Proceeds from sale of shares of common stock in rights offering............ -0- 71,244,719
Offering costs charged to additional paid-in capital....................... -0- (605,000)
------------ ------------
Total increase (decrease).................................................. (137,570,186) 106,923,802
NET ASSETS
Beginning of year.......................................................... 616,081,345 509,157,543
------------ ------------
End of year (including undistributed net investment income of 1,290,951
at December 31, 1993)................................................... $478,511,159 $616,081,345
============ ============
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1994 ACM GOVERNMENT INCOME FUND, INC.
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN CASH FROM
OPERATING ACTIVITIES:
Interest received................................................. $ 49,539,666
Interest expense paid............................................. (2,155,261)
Operating expenses paid........................................... (6,318,692)
---------------
Net increase in cash from operating activities.................... $ 41,065,713
INVESTING ACTIVITIES:
Purchase of long-term portfolio investments....................... (2,059,359,917)
Proceeds from disposition of long-term portfolio investments...... 2,095,329,071
Proceeds of short-term portfolio investments, net................. 17,809,875
---------------
Net increase in cash from investing activities.................... 53,779,029
FINANCING ACTIVITIES*:
Cash dividends and distributions paid............................. (88,547,101)
------------
Net increase in cash.............................................. 6,297,641
Cash at beginning of year......................................... 2,023
------------
Cash at end of year............................................... $ 6,299,664
============
- ----------------------------------------------------------------------------------------------------------------------
RECONCILATION OF NET DECREASE IN NET ASSETS
FROM OPERATIONS TO NET INCREASE IN CASH
FROM OPERATING ACTIVITIES:
Net decrease in net assets resulting from operations.............. $(89,948,408)
ADJUSTMENTS:
Increase in interest receivable................................... $ (494,196)
Accretion of bond discount........................................ (9,646,821)
Increase in accrued expenses...................................... 60,873
Net loss on investments........................................... 141,094,265
---------------
Total adjustments................................................. 131,014,121
------------
NET INCREASE IN CASH FROM OPERATING ACTIVITIES....................... $ 41,065,713
============
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
* Non-cash financing activities not included herein consist of reinvestment
of dividends and distributions.
See notes to financial statements.
8
<PAGE>
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 ACM GOVERNMENT INCOME FUND, INC.
- --------------------------------------------------------------------------------
NOTE A: SIGNIFICANT ACCOUNTING POLICIES
ACM Government Income Fund, Inc., (the "Fund") is registered under the
Investment Company Act of 1940 as a non-diversified, closed-end management
investment company. The following is a summary of significant accounting
policies followed by the Fund.
1. SECURITY VALUATION
Portfolio securities traded on a national securities exchange are valued at
the last sale price on such exchange on the day of valuation or, if there was
no sale on such day, the last bid price quoted on such day. Listed securities
not traded and securities traded in the over-the-counter market, including
listed debt securities whose primary market is believed to be
over-the-counter are valued at the mean between the most recently quoted bid
and asked prices provided by the principal market makers. Options are valued
at market value or fair value using methods determined by the Board of
Directors. Securities for which market quotations are not readily available
and restricted securities which are subject to limitations as to their resale
are valued in good faith at fair value using methods determined by the Board
of Directors. Readily marketable fixed-income securities are valued on the
basis of prices provided by a pricing service when such prices are believed
by the Adviser to reflect the fair value of such securities. Securities which
mature in 60 days or less are valued at amortized cost, which approximates
market value, unless this method does not represent fair value.
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 applicable, to
shareholders. Therefore, no provisions for federal income or excise taxes are
required.
3. INVESTMENT INCOME AND SECURITY TRANSACTIONS
Interest income is accrued daily. Dividend income is recorded on the ex-dividend
date. Security transactions are accounted for on the date the securities are
purchased or sold. Security gains and losses are determined on the identified
cost basis. The Fund accretes discounts as adjustments to interest income.
4. CURRENCY TRANSLATION
Assets and liabilities denominated in foreign currencies and commitments under
forward exchange currency contracts are translated into U.S. dollars at the mean
of the quoted bid and asked prices of such currencies against the U.S. dollar.
Purchases and sales of portfolio securities are translated into U.S. dollars at
the rates of exchange prevailing when such securities were acquired or sold.
Income and expenses are translated into U.S. dollars at rates of exchange
prevailing when accrued. Net realized loss on foreign currency transactions of
$8,601,905 represent foreign exchange gains and losses from sales and maturities
of foreign securities, holding of foreign currencies, options on foreign
securities and currencies, closed forward exchange currency contracts, exchange
gains and losses realized between the trade and settlement dates on foreign
security transactions, and the difference between the amounts of interest and
foreign withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net currency gains and
losses from valuing foreign currency denominated assets and liabilities at year
end exchange rates are reflected as a component of net unrealized depreciation
of investments, options and foreign currency denominated assets and liabilities.
5. DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions to shareholders are recorded on the ex-dividend
date. Income dividends and capital gain distributions are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. As a result of a tax return of capital distribution, a
reclassification was made to decrease additional paid in capital by $13,276,559.
Additionally, due to permanent book-to-tax differences in the treatment of
foreign currency transactions, $9,193,427 currency loss was reclassified from
accumulated realized loss to undistributed net investment income.
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONT.) ACM GOVERNMENT INCOME FUND, INC.
- --------------------------------------------------------------------------------
NOTE B: ADVISORY AND ADMINISTRATIVE FEES
Under the terms of an Investment Advisory Agreement, the Fund pays its
Adviser, Alliance Capital Management L.P., (the "Adviser"), a monthly
advisory fee in an amount equal to the sum of the annualized rate of .30 of
1% of the Fund's average weekly net assets up to $250 million, .25 of 1% of
the Fund's average weekly net assets in excess of $250 million, and 5.25% of
the daily gross income (i.e., income other than gains from the sale of
securities or foreign currency transactions or gains realized from options
and futures contracts less interest on money borrowed by the Fund) accrued by
the Fund during the month. However, such monthly advisory fee shall not
exceed in the aggregate 1/12th of 1% of the Fund's average weekly net assets
during the month (approximately 1% on an annual basis).
Under the terms of an Administrative Agreement, the Fund pays its
Administrator, Mitchell Hutchins Asset Management Inc., a monthly fee equal
to the annualized rate of .20 of 1% of the Fund's average weekly net assets
up to $100 million, .18 of 1% of the Fund's next $200 million of average
weekly net assets, and .16 of 1% of the Fund's average weekly net assets in
excess of $300 million. The Administrator prepares financial and regulatory
reports for the Fund and provides other clerical services.
- --------------------------------------------------------------------------------
NOTE C: INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term investments)
aggregated $1,977,984,416 and $2,069,346,723, respectively, for the year ended
December 31, 1994.
At December 31, 1994, the cost of securities for federal income tax purposes was
$655,277,017. Accordingly, gross unrealized appreciation of investments was
$706,792 and gross unrealized depreciation of investments was $64,578,126,
resulting in net unrealized depreciation of $63,871,334 (excluding foreign
currency transactions).
At December 31, 1994, the Fund had a capital loss carryforward of approximately
$36,400,000 which expires in the year 2002. Capital and foreign currency losses
incurred after October 31 within the taxable year are deemed to arise on the
first business day of the Fund's next taxable year. In accordance with the
Internal Revenue Code, the Fund incurred and will elect to defer net foreign
currency and capital losses of approximately $23,271,000 until fiscal 1995.
1. FORWARD EXCHANGE CURRENCY CONTRACTS
The Fund enters into forward exchange currency contracts in order to hedge its
exposure to changes in foreign currency exchange rates on its foreign portfolio
holdings and to hedge certain firm purchase and sale commitments denominated in
foreign currencies. A forward exchange currency contract is a commitment to
purchase or sell a foreign currency at a future date at a negotiated forward
rate. The gain or loss arising from the difference between the original contract
and the closing of such contract is included in net realized gain or loss on
foreign currency transactions.
Fluctuation in the value of forward exchange currency contracts are recorded for
financial reporting purposes as unrealized gains or losses by the Fund.
The Fund's custodian will place and maintain cash not available for investment
or U.S. Government securities in a separate account of the Fund having a value
equal to the aggregate amount of the Fund's commitments under forward exchange
currency contracts entered into with respect to position hedges.
Risks may arise from the potential inability of a counterparty to meet the
terms of a contract and from unanticipated movements in the value of foreign
currencies relative to the U.S. dollar.
At December 31, 1994, the Fund had an outstanding forward exchange currency
contract to sell 32,600,000 German Deutsche Marks maturing on March 6, 1995,
with a value at origination of $20,710,247. The market value of the forward
exchange currency contract at December 31, 1994 was $21,077,813, resulting in
unrealized depreciation of $367,566.
10
<PAGE>
ACM GOVERNMENT INCOME FUND, INC.
- --------------------------------------------------------------------------------
2. OPTIONS TRANSACTIONS
For hedging purposes, the Fund purchases and writes (sells) put and call
options on U.S. and foreign government securities and foreign currencies that
are traded on U.S. and foreign securities exchanges and over-the-counter
markets.
The risk associated with purchasing an option is that the Fund pays a premium
whether or not the option is exercised. Additionally, the Fund bears the risk
of loss of premium and change in market value should the counterparty not
perform under the contract. Put and call options purchased are accounted for
in the same manner as portfolio securities. The cost of securities acquired
through the exercise of call options is increased by premiums paid. The
proceeds from securities sold through the exercise of put options are
decreased by the premiums paid.
When the Fund writes an option, the premium received by the Fund is recorded
as a liability and is subsequently adjusted to the current market value of
the option written. Premiums received from writing options which expire
unexercised are recorded by the Fund on the expiration date as realized gains
from option transactions. The difference between the premium and the amount
paid on effecting a closing purchase transaction, including brokerage
commissions, is also treated as a realized gain, or if the premium is less
than the amount paid for the closing purchase transaction, as a realized
loss. If a call option is exercised, the premium is added to the proceeds
from the sale of the underlying security or currency in determining whether
the Fund has realized a gain or loss. If a put option is exercised, the
premium reduces the cost basis of the security or currency purchased by the
Fund. In writing an option, the Fund bears the market risk of an unfavorable
change in the price of the security or currency underlying the written
option. Exercise of an option written by the Fund could result in the Fund
selling or buying a security or currency at a price different from the
current market value.
Transactions in options written for the year ended December 31, 1994, were as
follows:
<TABLE>
<CAPTION>
NUMBER OF
CONTRACTS PREMIUMS
--------- --------
<S> <C> <C>
Options outstanding at
beginning of year........ -0- -0-
Options written.............. 4 1,827,250
Options terminated in closing
purchase transactions.... (1) (225,000)
----- ------------
Options outstanding at
end of year.............. 3 $ 1,602,250
===== ============
</TABLE>
- --------------------------------------------------------------------------------
NOTE D: CAPITAL STOCK
There are 300,000,000 shares of $0.01 par value common stock authorized. Of the
56,617,048 shares outstanding at December 31, 1994, the Adviser owned 9,000
shares. Transactions in shares of common stock were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1994 DECEMBER 31, 1993
----------------- -----------------
<S> <C> <C>
Shares reinvested...................................... 841,480 282,761
Shares issued in connection with rights offering....... -0- 7,036,168
------- ---------
Net increase in shares outstanding..................... 841,480 7,318,929
======= =========
</TABLE>
- -------------------------------------------------------------------------------
NOTE E: BANK BORROWING
The Fund entered into a Revolving Credit Agreement with Morgan Guaranty Trust
Company of New York ("Morgan Guaranty") on January 20, 1988. The maximum credit
available is $45,000,000, and such amount was outstanding for the entire year
ended December 31, 1994.
The renewable credit facility, of which $20,000,000 will mature on June 13, 1995
and $25,000,000 will mature on June 21, 1995, requires no collateralization.
Interest payments on current borrowings are based on the London Interbank
Offered Rate plus a premium. The weighted average interest rate for the year
ended December 31, 1994 was 4.93%. The Fund is also obligated to pay Morgan
Guaranty a commitment fee computed at the rate of .25 of 1% per annum on the
average daily unused portion of the revolving credit.
11
<PAGE>
<TABLE>
<CAPTION>
NOTES TO FINANCIAL STATEMENTS (CONT.) ACM GOVERNMENT INCOME FUND, INC.
- --------------------------------------------------------------------------------------------------------------------------
NOTE F: QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
NET REALIZED
AND UNREALIZED
GAIN (LOSS) NET INCREASE
ON INVESTMENTS (DECREASE)
AND FOREIGN IN NET ASSETS
NET INVESTMENT CURRENCY RESULTING FROM MARKET PRICE
INCOME TRANSACTIONS OPERATIONS ON NYSE
--------------- ------------------ ---------------- ----------------
TOTAL PER TOTAL PER TOTAL PER
QUARTER ENDED (000) SHARE (000) SHARE (000) SHARE HIGH LOW
- ------------- ------- ----- --------- ------- -------- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
December 31, 1994....... $13,147 $ .23 $ (43,029) $ (.76) $(29,882) $ (.53) $ 9.750 $ 9.000
September 30, 1994...... 13,165 .23 12,471 .22 25,636 .45 $11.125 $ 9.625
June 30, 1994........... 11,499 .21 (35,478) (.63) (23,979) (.42) $11.375 $10.125
March 31, 1994.......... 13,335 .24 (75,058) (1.34) (61,723) (1.10) $12.500 $10.375
------- ----- --------- ------ -------- ------
$51,146 $ .91 $(141,094) $(2.51) $(89,948) $(1.60)
======= ===== ========= ====== ======== ======
December 31, 1993....... $18,239 $ .33 $ 8,488 $ .15 $ 26,727 $ .48 $12.625 $11.250
September 30, 1993...... 13,100 .27 20,054 .44 33,154 .71 $12.000 $10.875
June 30, 1993........... 13,167 .27 17,217 .35 30,384 .62 $11.750 $11.000
March 31, 1993.......... 13,311 .27 18,254 .38 31,565 .65 $11.375 $10.750
------- ----- --------- ------ -------- -----
$57,817 $1.14 $ 64,013 $1.32 $121,830 $ 2.46
======= ===== ========= ====== ======== ======
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS ACM GOVERNMENT INCOME FUND, INC.
- ---------------------------------------------------------------------------------------------------------------------
SELECTED DATA FOR A SHARE OF COMMON STOCK OUTSTANDING THROUGHOUT EACH YEAR
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1994 1993 1992 1991 1990
-------- -------- --------- -------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year........................ $11.05 $10.51 $10.59 $ 10.15 $ 10.66
------ ------ ------ ------- -------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------
Net investment income..................................... .91 1.14 .99 1.18 1.23
Net realized and unrealized gain (loss) on investments,
options, and foreign currency transactions.............. (2.51) 1.32 (.08) .51 (.42)
------ ------ ------ ------- -------
Net increase (decrease) in net asset value from operations (1.60) 2.46 .91 1.69 .81
------ ------ ------ ------- -------
LESS: DIVIDENDS AND DISTRIBUTIONS
- ---------------------------------
Dividends from net investment income...................... (.76) (1.15) (.99) (1.25) (1.32)
Distributions from net realized gains..................... -0- (.53) -0- -0- -0-
Tax return of capital distribution........................ (.24) -0- -0- -0- -0-
------ ------ ------ ------- -------
Total dividends and distributions ........................ (1.00) (1.68) (.99) (1.25) (1.32)
------ ------ ------ ------- -------
CAPITAL SHARE TRANSACTIONS
- --------------------------
Dilutive effect of rights offering........................ -0- (.23) -0- -0- -0-
Offering costs charged to additional paid-in capital...... -0- (.01) -0- -0- -0-
------ ------ ------ ------- -------
Total capital share transactions.......................... -0- (.24) -0- -0- -0-
------ ------ ------ ------- -------
Net asset value, end of year.............................. $ 8.45 $11.05 $10.51 $ 10.59 $ 10.15
====== ====== ====== ======= =======
Market value, end of year................................. $9.125 $12.25 $11.00 $11.125 $10.625
====== ====== ====== ======= =======
TOTAL RETURN
- ------------
Total investment return based on: (a)
Market value............................................ (17.67)% 28.89% 8.59% 17.84% 11.29%
====== ====== ====== ======= =======
Net asset value......................................... (15.48)% 21.47% 8.97% 17.42% 8.46%
====== ====== ====== ======= =======
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net assets, end of year (000's omitted)................... $478,511 $616,081 $ 509,158 $509,206 $483,006
Ratio of expenses to average net assets................... 1.60% 1.48% 1.57% 1.93% 2.21%
Ratio of expenses to average net assets excluding interest
expense................................................. 1.18% 1.17% 1.16% 1.30% 1.37%
Ratio of net investment income to average net assets...... 9.56% 10.06% 9.44% 11.66% 12.16%
Portfolio turnover rate................................... 298% 424% 521% 516% 348%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Total investment return is calculated assuming a purchase of common stock
on the opening of the first day and a sale on the closing of the last day
of each year 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 years where there is an increase in the discount or a
decrease in the premium of the market value to the net asset value from the
beginning to the end of such years. Conversely, total investment return
based on net asset value will be lower than total investment return based
on market value in years 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 such years.
13
<PAGE>
REPORT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS ACM GOVERNMENT INCOME FUND, INC.
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors
ACM Government Income Fund, Inc.
We have audited the accompanying statement of assets and liabilities of ACM
Government Income Fund, Inc., including the portfolio of investments, as of
December 31, 1994, and the related statements of operations and cash flows for
the year then ended, the statement of changes in net assets 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1994, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of ACM
Government Income Fund, Inc. at December 31, 1994, the results of its operations
and its cash flows for the year then ended, the changes in its net assets for
each of the two years in the period then ended, and the financial highlights for
each of the indicated periods, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
New York, New York
February 17, 1995
14
<PAGE>
ADDITIONAL INFORMATION ACM GOVERNMENT INCOME FUND, INC.
- --------------------------------------------------------------------------------
Shareholders whose shares are registered in their own names may elect to be
participants in the Dividend Reinvestment and Cash Purchase Plan (the "Plan"),
pursuant to which dividends and capital gain distributions to shareholders will
be paid in cash or reinvested in additional shares of the Fund (the "Dividend
Shares"). State Street Bank and Trust Company (the "Agent") will act as agent
for participants in the Plan. Shareholders whose shares are held in the name of
a broker or nominee should contact such broker or nominee to determine whether
or how they may participate in the Plan.
A shareholder who has elected to participate in the Plan may withdraw from the
Plan at anytime. There will be no penalty for withdrawal from the Plan and
shareholders who have previously withdrawn from the Plan may rejoin it at any
time. Changes in elections must be in writing and should include the
shareholder's name and address as they appear on the share certificate. An
election to withdraw from the Plan will, until such election is changed, be
deemed to be an election by the shareholder to take all subsequent distributions
in cash. An election will only be effective for a distribution declared and
having a record date of at least ten days after the date on which the election
is received.
Commencing not more than five business days before the dividend payment date,
purchases of the Fund's shares may be made by the Agent, on behalf of the
participants in the Plan, from time to time to satisfy dividend reinvestments
under the Plan. Such purchases by the Agent on or before the dividend payment
date may be made on the New York Stock Exchange (the "Exchange") or elsewhere at
any time when the price plus estimated commissions of the Fund's Common Stock on
the Exchange is lower than the Fund's most recently calculated net asset value
per share.
If the Agent determines on the dividend payment date that the shares purchased
as of such date are insufficient to satisfy the dividend reinvestment
requirements, the Agent, on behalf of the participants in the Plan, will obtain
the necessary additional shares as follows. To the extent that outstanding
shares are not available at a cost of less than net asset value per share, the
Agent, on behalf of the participants in the Plan, will accept payment of the
dividend, or the remaining portion thereof, in authorized but unissued shares of
the Fund on the dividend payment date. Such shares will be issued at a price per
share equal to the higher of (1) the net asset value per share on the payment
date, or (2) 95% of the closing market price per share on the payment date. If
the closing sale or offer price, plus estimated commissions, of the Common Stock
on the Exchange on the payment date is less than the Fund's net asset value per
share on such day, then the Agent will purchase additional outstanding shares on
the Exchange or elsewhere. If before the Agent has completed such purchases, the
market price plus commissions exceeds the net asset value of the Fund's shares,
the average per share purchase price paid by the Agent may exceed the net asset
value of the Fund's shares, resulting in the acquisition of fewer shares than if
shares had been 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-certificated 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 brokerage 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. In each case, the cost
per share of shares purchased for each shareholder's account will be the average
cost, including brokerage commissions, of any shares purchased in the open
market plus the cost of any shares issued by the Fund.
15
<PAGE>
ADDITIONAL INFORMATION (CONTINUED) ACM GOVERNMENT INCOME FUND, INC.
- --------------------------------------------------------------------------------
Shareholders participating in the Plan may receive benefits not available to
shareholders not participating in the Plan.
If the market price plus commissions of the Fund's shares is above the net asset
value, participants in the Plan will receive shares of the Fund at a discount of
up to 5% from the current market value. However, if the market price plus
commission is below the net asset value, participants will receive distributions
in shares with a net asset value greater than the value of any cash distribution
they would have received in their shares. There may be insufficient shares
available in the market to make distributions in shares at prices below net
asset value. Also, since the Fund does not redeem its shares, the price on
resale may be more or less than the net asset value.
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.
In the case of foreign participants whose dividends are subject to U.S. income
tax withholding and in the case of any participants subject to 31% federal
backup withholding, the Agent will reinvest dividends after deduction of the
amount required to be withheld.
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. There is no service charge to participants in the
Plan; however, the Fund reserves the right to amend the Plan and include a
service charge payable to the Agent by the participants. All correspondence
concerning the Plan should be directed to the Agent at State Street Bank and
Trust Company, P.O. Box 366, Boston, Massachusetts 02101.
Since 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 in the
Fund's charter or by-laws that would delay or prevent a change of control of the
Fund, (iii) no material changes in the principal risk factors associated with
investment in the Fund, and (iv) no change in the person primarily responsible
for the day-to-day management of the Fund's portfolio, who is Wayne D. Lyski,
the President of the Fund.
16
<PAGE>
ACM GOVERNMENT INCOME FUND, INC.
- --------------------------------------------------------------------------------
BOARD OF DIRECTORS
JOHN D. CARIFA, Chairman
RUTH BLOCK
DAVID H. DIEVLER
JAMES R. GREENE
DR. JAMES M. HESTER
HON. JAMES D. HODGSON
CLIFFORD L. MICHEL
ROBERT C. WHITE
OFFICERS
WAYNE D. LYSKI, President
PAUL J. DENOON, Vice President
SUSAN PETERSON, Vice President
EDMUND P. BERGAN, JR., Secretary
MARK D. GERSTEN, Treasurer & Chief Financial Officer
JOSEPH J. MANTINEO, Controller
ADMINISTRATOR
MITCHELL HUTCHINS ASSET MANAGEMENT INC.
1285 Avenue of the Americas
New York, NY 10019
CUSTODIAN, DIVIDEND PAYING AGENT,
TRANSFER AGENT AND REGISTRAR
STATE STREET BANK AND TRUST COMPANY
225 Franklin Street
Boston, MA 02110
INDEPENDENT AUDITORS
ERNST & YOUNG LLP
787 Seventh Avenue
New York, NY 10019
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940 that the Fund may purchase from time to time at market
prices shares of its Common Stock in the open market.
This report, including the financial statements herein, is transmitted to the
shareholders of ACM Government Income Fund, Inc. 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 this report.
17
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
ACM
- --------------------------------------------------------------------------------
Government
- --------------------------------------------------------------------------------
Income Fund
- --------------------------------------------------------------------------------
Annual Report
December 31, 1994
Alliance(R)
Mutual funds without the Mystery(SM)
ACM GOVERNMENT INCOME FUND, INC.
Summary of General Information
THE FUND
ACM Government Income Fund, Inc. is a closed-end investment company whose shares
trade on the New York Stock Exchange. The Fund seeks to provide high current
income consistent with preservation of capital. The Fund invests principally in
U.S. Government obligations. The Fund may also invest up to 35% of its assets in
other fixed-income securities, including those issued by stable foreign
governments. Additionally, the Fund may utilize other investment techniques,
including options and futures. The investment adviser of the Fund is Alliance
Capital Management L.P.
SHAREHOLDER INFORMATION
Daily market prices for the Fund's shares are published in the New York Stock
Exchange Composite Transaction Section of Newspapers under the designation
"ACMIn". The Fund's NYSE trading symbol is "ACG". Weekly comparative net asset
value (NAV) and market price information about the Fund is published each Monday
in The Wall Street Journal and 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 is available to shareholders in the Fund, which
provides automatic reinvestment of dividends and capital gain distributions in
additional Fund shares. The Plan also allows you to make optional cash
investments in Fund shares through the Plan Agent. A brochure describing the
Plan is available from the Plan Agent, State Street Bank and Trust Company, by
calling 1-800-219-4218.
If you wish to participate in the Plan and your shares are held in your name,
simply complete and mail the enrollment form in the brochure. If your shares are
held in the name of your brokerage firm, bank or other nominee, you should ask
them whether or how you can participate in the Plan.
ACM GOVERNMENT INCOME FUND, INC.
1345 Avenue of the Americas
New York, New York 10105
AllianceCapital [LOGO APPEARS HERE]
(R) These registered service marks used under license from the owner, Alliance
Capital Management L.P.
INCAR
