<PAGE>
Letter To Shareholders ACM Government Income Fund, Inc.
- --------------------------------------------------------------------------------
August 8, 1995
Dear Shareholder:
The U.S. bond market rebounded sharply over the past six months, staging an
impressive rally across nearly all fixed income sectors. The rally was sparked,
in large part, by evidence of a slowing U.S. economy, moderating inflationary
pressures and a shift in Federal Reserve monetary policy. Treasury securities
outperformed mortgage securities during this period, though both sectors of the
market gained. Outside the U.S., emerging market and other foreign debt prices
continued to decline in January and February. Over the past five months,
however, they have rebounded sharply in response to positive developments in
Mexico and Argentina.
INVESTMENT RESULTS
For the six months ended June 30, 1995, ACM Government Income Fund achieved a
total return of +13.45% on a net asset value basis, and over the last twelve
months, returned +12.16%. Since its initial public offering in August of 1987,
the Fund has provided shareholders with an average annual total return of +9.66%
on a net asset value basis.
A SOFT LANDING FOR THE U.S. ECONOMY?
The pronounced economic slowdown in the first six months of the year challenged
the notion of a "soft landing" for the U.S. economy. In the second quarter,
gross domestic product growth fell to 0.5%, reflecting declines in industrial
production and lower final sales growth. Economic growth will likely slow
further without a resurgence in consumer spending, which represents two-thirds
of the nation's economic activity. In the first four months of the year,
consumer expenditures remained weak. However, more recent personal income and
consumer confidence data suggest that higher consumer spending may lead to
stronger economic growth in the second half of the year. Concerns regarding
inflation have largely subsided with the decline in economic growth. Broad price
indices such as the consumer price index and producer price index have shown
only moderate acceleration and labor costs remain under control.
INVESTMENT OUTLOOK
After a tremendous rally in the first two quarters of the year, the outlook for
U.S. bond markets continues to be favorable. It is our view that the U.S.
economic expansion should moderate to an annual growth rate of 2.0% in the
second half of the year. Slower economic growth would be positive for inflation
and may allow for further cuts in interest rates. We believe that inflationary
pressures have crested and project that CPI inflation will peak near 3.5% in
1995. In tacit acknowledgment of the weakening U.S. economy, the Federal Reserve
cut interest rates 0.25% in early July.
If our forecast for modest inflation and lower interest rates proves correct,
the result should be an increase in U.S. bond prices. In this environment, we
would expect to maintain a greater percentage of the Fund's assets in Treasury
securities than mortgage securities. Treasury securities typically outperform
mortgage securities in a declining interest rate environment due to the
existence of prepayment risk in the mortgage market. Prepayment risk is the risk
that homeowners will refinance their mortgages, forcing mortgage investors to
reinvest the proceeds at lower interest rates.
The outlook for Mexico has recently improved as the government's economic
recovery plan is meeting its initial goals. As interest rates fall in Mexico, it
is our expectation that economic activity will recover. In Argentina, it is our
belief that President Menem will continue to effectively address the country's
economic concerns and maintain its commitment to the currency convertibility
system. While political and social factors are of concern in both countries, the
early achievements of both recovery plans are encouraging.
1
<PAGE>
ACM Government Income Fund, Inc.
- --------------------------------------------------------------------------------
ACM Government Income Fund continues to provide high current income and as
economic and market conditions change throughout the year, we believe that our
consistent investment approach will further benefit shareholders.
Thank you for your continued interest and investment in ACM Government Income
Fund. We look forward to reporting its progress to you at year end.
Sincerely,
/s/ John D. Carifa
John D. Carifa
Chairman
/s/ Wayne D. Lyski
Wayne D. Lyski
President
2
<PAGE>
Portfolio Of Investments
June 30, 1995 (unaudited) ACM Government Income Fund, Inc.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) U.S. $ Value
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. GOVERNMENT AND AGENCY
OBLIGATIONS--80.2%
U.S. TREASURY
SECURITIES--61.9%
U.S. Treasury Bonds
Zero coupon, 2/15/15.................. US$ 64,100 $ 16,730,741
Zero coupon, 11/15/21................. 98,300 16,330,579
7.125%, 2/15/23....................... 19,830 21,123,908
7.50%, 11/15/24....................... 37,000 40,937,170
11.875%, 11/15/03..................... 14,800 20,167,368
12.375%, 5/15/04...................... 28,700 40,489,386
14.00%, 11/15/11 (a).................. 41,030 65,865,869
U.S. Treasury Notes
7.50%, 2/15/05........................ 36,100 39,309,651
8.875%, 2/15/99....................... 12,000 13,125,000
9.25%, 8/15/98........................ 39,200 42,868,728
------------
Total U.S. Treasury
Securities
(cost $314,002,227)................... 316,948,400
------------
MORTGAGE-RELATED
SECURITIES--11.0%
Federal Home
Loan Bank
15.00%, 9/01/95....................... 16,200 16,432,146
15.00%, 9/07/95....................... 16,300 16,608,233
Federal National
Mortgage Association
Zero coupon, 10/09/19................. 131,360 23,233,643
------------
Total Mortgage--
Related Securities
(cost $59,163,241).................... 56,274,022
------------
FEDERAL AGENCY
SECURITIES--7.3%
Small Business
Administration
Loan Pools (I/O)
8.50%, 2/15/19 (b).................... 19,243 18,385,876
Student Loan Marketing
Association
15.00%, 9/13/95....................... 18,750 18,975,000
------------
Total Federal Agency
Securities
(cost $39,683,632).................... 37,360,876
------------
Total U.S. Government
and Agency Obligations
(cost $412,849,100)................... 410,583,298
------------
<CAPTION>
Principal
Amount
(000) U.S. $ Value
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
FOREIGN SECURITIES--13.8%
ARGENTINA--8.3%
Bonos de Consolidacion de
Daudus Provisionales
FRN 4.51%, 4/01/01.................... ARP 40,253 $ 18,839,975
Bonos de Consolidacion
FRN 4.51%, 4/01/07.................... 38,561 12,404,376
Bonos de Inversion FRN
25.9192%, 5/01/01..................... 11,169 11,367,427
------------
Total Argentinian
Securities
(cost $43,450,230).................... 42,611,778
------------
AUSTRALIA--5.5%
Commonwealth of Australia
6.75%, 11/15/06
(cost $29,663,613).................... AUD 48,000 28,144,648
------------
Total Foreign Securities
(cost $73,113,843).................... 70,756,426
------------
DEBT OBLIGATIONS--10.6%
Companhia Brasiliera
de Projetos
12.50%, 12/22/97...................... US$ 5,500 5,280,000
Merrill Lynch Trust
13.00%, 2/13/98....................... 9,900 11,088,000
Mesa Capital Corp
12.75%, 6/30/98....................... 4,000 3,620,000
New England Mutual
Life Insurance Co,
7.875%, 2/15/24 (c)................... 4,000 3,736,800
Repap New Brunswick Inc
9.875%, 7/15/00....................... 1,500 1,507,500
Telecommunications Inc
9.80%, 12/01/12....................... 6,700 7,367,052
Terex Corp
13.75%, 5/15/02 (c)................... 3,000 2,670,000
Time Warner
Entertainment Co
9.125%, 1/15/13....................... 7,000 7,275,030
Tribasa Toll Road
Trust 1
10.50%, 12/01/11 (c).................. 7,800 4,875,000
United Air Lines Inc
10.25%, 7/15/21....................... 6,000 6,816,420
------------
Total Debt Obligations
(cost $55,526,152).................... 54,235,802
------------
</TABLE>
3
<PAGE>
Portfolio Of Investments (continued) ACM Government Income Fund, Inc.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) U.S. $ Value
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
SOVEREIGN DEBT
OBLIGATIONS--9.2%
ALGERIA--0.9%
Algeria Refinanced Trust
Loan Assignment
7.025%, 12/21/96...................... FRF 78,476 $ 4,691,133
------------
BRAZIL--1.4%
Republic of Brazil
C--Bonds
8.00%, 4/15/14(d)..................... US$ 14,384 7,083,889
------------
BULGARIA--2.3%
Republic of Bulgaria
PDI/IAB, FRN
7.5625%, 7/28/11...................... 27,950 11,773,938
------------
NIGERIA--3.6%
Central Bank of Nigeria
Euro Par Bonds VRN
6.25%, 11/15/20....................... 41,250 18,227,344
------------
POLAND--1.0%
Republic of Poland
PDI/IAB
3.25%, 10/27/14....................... 8,750 5,250,000
------------
Total Sovereign
Debt Obligations
(cost $51,016,062).................... 47,026,304
------------
<CAPTION>
Principal
Amount
(000) U.S. $ Value
- -------------------------------------------------------------------------------
<S> <C> <C>
OTHER SOVEREIGN
DEBT RELATED--0.2%
Bayerische Landesbank
Spread Notes --
U.S. Treasury Bond
6.25%, 8/15/23
versus Brazil Par
Bonds 4.00%, 4/15/24(e)
9.125%, 9/28/95....................... 500 $ 370,800
9.125%, 10/13/95...................... 500 374,150
Morgan Guaranty
Trust Co. Linked to
US$ Restructured
Ivory Coast
9.00%, 12/19/95(f).................... 667 633,185
------------
Total Other Sovereign
Debt Related
(cost $956,362)....................... 1,378,135
------------
TIME DEPOSIT--0.6%
State Street Bank &
Trust Co., Grand
Cayman Islands
6.125%, 7/03/95
(cost $3,037,000)..................... 3,037 3,037,000
------------
</TABLE>
4
<PAGE>
ACM Government Income Fund, Inc.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Contracts
(000) U.S. $ Value
- -------------------------------------------------------------------------------
<S> <C> <C>
CALL OPTION PURCHASED--0.0%
Argentinian Floating
Rate Bonds
6.50%, 3/31/05
expiring September '95
@ $72.50 (cost $3,100)................ 310 $ 64,015
------------
TOTAL INVESTMENTS--114.6%
(cost $596,501,619)................... 587,080,980
------------
OUTSTANDING PUT
OPTION WRITTEN--(0.5%)
Argentinian Floating
Rate Bonds
6.50%, 3/31/05
expiring September '95
@ $68.50 (premium
received $3,041,100).................. 310 (2,499,034)
------------
<CAPTION>
U.S. $ Value
- -------------------------------------------------------------------------------
<S> <C>
TOTAL INVESTMENTS,
NET OF OUTSTANDING
OPTION WRITTEN--114.1% $584,581,946
Other assets less
liabilities--(14.1%).................. (72,377,494)
------------
NET ASSETS--100% $512,204,452
============
</TABLE>
- --------------------------------------------------------------------------------
(a) Security, or portion thereof, has been segregated to collateralize a forward
exchange currency contract.
(b) Illiquid security.Security, having a cost of $19,221,382 was acquired on
June 14, 1994 and represents 3.6% of net assets at June 30, 1995.
(c) Securities exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At June 30, 1995,
these securities amounted to $11,281,800 or 2.2% of net assets.
(d) Coupon consists of 4.00% cash payment and 4.00% paid-in kind.
(e) The redemption value of these securities is indexed to the spread between
the referenced treasury yield and the referenced emerging market debt yield.
(f) 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 Note. Stated interest rate in effect at June 30, 1995.
IAB -- Interest Arrears Bonds.
I/O -- Interest Only. Interest accrued based on yield to maturity.
PDI --Past Due Interest.
VRN -- Variable Rate Note. Stated interest rate in effect at June 30, 1995.
See notes to financial statements.
5
<PAGE>
Statement Of Assets And Liabilities
June 30, 1995 (unaudited) ACM Government Income Fund, Inc.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value (cost $596,501,619)......... $587,080,980
Cash............................................................ 16,351,132
Interest receivable............................................. 12,334,771
Receivable for investment securities sold....................... 10,424,971
Net unrealized appreciation of forward exchange currency
contract....................................................... 356,762
Prepaid expenses................................................ 51,191
------------
Total assets.................................................... 626,599,807
------------
LIABILITIES
Outstanding put option written (premium received $3,041,100).... 2,499,034
Payable for investment securities purchased..................... 61,798,450
Loan payable.................................................... 45,000,000
Dividend payable................................................ 4,268,887
Advisory fee payable............................................ 378,901
Loan interest payable........................................... 111,198
Administrative fee payable...................................... 75,544
Accrued expenses and other liabilities.......................... 263,341
------------
Total liabilities............................................... 114,395,355
------------
NET ASSETS (equivalent to $9.00 per share, based on 56,918,498
shares outstanding)............................................ $512,204,452
============
COMPOSITION OF NET ASSETS
Capital stock, at par........................................... $ 569,185
Additional paid-in capital...................................... 610,065,634
Dividends in excess of net investment income.................... (5,043,551)
Accumulated net realized loss................................... (84,955,229)
Net unrealized depreciation of investments, options and foreign
currency denominated assets and liabilities.................... (8,431,587)
------------
$512,204,452
============
NET ASSET VALUE PER SHARE........................................ $9.00
=====
</TABLE>
- --------------------------------------------------------------------------------
See notes to financial statements.
6
<PAGE>
Statement Of Operations
Six Months Ended June 30, 1995 (unaudited) ACM Government Income Fund, Inc.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest.............................................. $31,236,649
EXPENSES
Advisory fee.......................................... $2,137,397
Administrative fee.................................... 422,640
Transfer agency....................................... 143,450
Custodian............................................. 89,995
Reports and notices to shareholders................... 68,955
Audit and legal....................................... 36,865
Directors' fees....................................... 14,876
Miscellaneous......................................... 71,676
----------
Total expenses before interest........................ 2,985,854
Interest expense...................................... 1,647,405
----------
Total expenses........................................ 4,633,259
-----------
Net investment income................................. 26,603,390
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FOREIGN CURRENCY TRANSACTIONS
Net realized loss on investment transactions.......... (82,398)
Net realized loss on option transactions.............. (9,982,905)
Net realized loss on foreign currency
transactions......................................... (1,649,235)
Net change in unrealized depreciation of:
Investments and options.............................. 47,021,490
Foreign currency denominated assets and
liabilities......................................... 799,829
-----------
Net realized and unrealized gain on investments and
foreign currency transactions......................... 36,106,781
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS............. $62,710,171
===========
</TABLE>
Statement Of Changes In Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1995 December 31,
(unaudited) 1994
---------------- ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income.................................... $ 26,603,390 $ 51,145,857
Net realized loss on investments, options and foreign
currency transactions................................... (11,714,538) (80,456,112)
Net change in unrealized appreciation (depreciation)
of investments, options and foreign currency denominated
assets and liabilities.................................. 47,821,319 (60,638,153)
------------ ------------
Net increase (decrease) in net assets from operations.... 62,710,171 (89,948,408)
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income..................... (26,603,390) (43,243,380)
Dividends in excess of net investment income............ (5,043,551) -0-
Tax return of capital distribution....................... -0- (13,276,559)
COMMON STOCK TRANSACTIONS
Reinvestment of dividends resulting in issuance of
common stock............................................ 2,630,063 8,898,161
------------ ------------
Total increase (decrease)................................ 33,693,293 (137,570,186)
NET ASSETS
Beginning of year........................................ 478,511,159 616,081,345
------------ ------------
End of period............................................ $512,204,452 $478,511,159
============ ============
</TABLE>
- --------------------------------------------------------------------------------
See notes to financial statements.
7
<PAGE>
Statement Of Cash Flows
Six Months Ended June 30, 1995 (unaudited) ACM Government Income Fund, Inc.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INCREASE (DECREASE) IN CASH FROM
OPERATING ACTIVITIES:
Interest received......................................... $ 26,920,246
Interest expense paid..................................... (1,669,914)
Operating expenses paid................................... (3,144,797)
--------------
Net increase in cash from operating activities............ $ 22,105,535
INVESTING ACTIVITIES:
Purchase of long-term portfolio investments............... (1,062,363,595)
Proceeds from disposition of long-term portfolio
investments.............................................. 1,074,422,048
Proceeds from short-term portfolio investment--net........ 635,471
--------------
Net increase in cash from investing activities............ 12,693,924
FINANCING ACTIVITIES*:
Cash dividends paid....................................... (24,747,991)
------------
Net increase in cash...................................... 10,051,468
Cash at beginning of year................................. 6,299,664
------------
Cash at end of period..................................... $ 16,351,132
============
- ---------------------------------------------------------------------------------------------
RECONCILIATION OF NET INCREASE IN NET ASSETS
FROM OPERATIONS TO NET INCREASE IN CASH
FROM OPERATING ACTIVITIES:
Net increase in net assets resulting from operations...... $ 62,710,171
ADJUSTMENTS:
Decrease in interest receivable........................... $ 59,539
Accretion of bond discount................................ (4,375,942)
Decrease in accrued expenses.............................. (181,452)
Net gain on investments................................... (36,106,781)
--------------
Total adjustments......................................... (40,604,636)
------------
NET INCREASE IN CASH FROM OPERATING ACTIVITIES............. $ 22,105,535
============
</TABLE>
- --------------------------------------------------------------------------------
* Non-cash financing activities not included herein consist of reinvestment
of dividends.
See notes to financial statements.
8
<PAGE>
Notes To Financial Statements
June 30, 1995 (unaudited) 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 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. Divided income is recorded on the ex-dividend
date. Investment transactions are accounted for on the date the securities are
purchased or sold. Investment gains and losses are determined on the identified
cost basis. The Fund accretes discounts as adjustments 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
$1,649,235 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
period 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.
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 $1,034,113,718 and $1,069,893,563 respectively, for the six months
ended June 30, 1995.
At June 30, 1995, the cost of securities was $596,501,619. Accordingly, gross
unrealized appreciation of investments was $12,623,237 and gross unrealized
depreciation of investments was $22,043,876, resulting in net unrealized
depreciation of $9,420,639 (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 June 30, 1995, the Fund had an outstanding forward exchange currency contract
to sell 41,583,600 Australian Dollars maturing on August 14, 1995, with a value
at origination of $29,857,025. The market value of the forward exchange currency
contract at June 30, 1995 was $29,500,263, resulting in unrealized appreciation
of $356,762.
10
<PAGE>
ACM Government Income Fund, Inc.
- --------------------------------------------------------------------------------
2. Option 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 a realized gain 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 six months ended June 30, 1995, were as
follows:
<TABLE>
<CAPTION>
Number of
Contracts
(000) Premiums
--------- --------
<S> <C> <C>
Options outstanding at
beginning of period......................... 1,185 $1,602,250
Options written................................ 620 7,054,825
Options bought back............................ (1,185) (5,042,475)
Options terminated in
closing purchase
transactions................................ (310) (573,500)
------ ----------
Options outstanding at
end of period............................... 310 $3,041,100
====== ==========
</TABLE>
- --------------------------------------------------------------------------------
NOTE D: Capital Stock
There are 300,000,000 shares of $0.01 par value common stock authorized. Of the
56,918,498 shares outstanding at June 30, 1995, the Advisor owned 9000 shares.
During the six months ended June 30, 1995 and the year ended December 31, 1994,
the Fund issued 301,450 and 841,480 shares, respectively, in connection with the
Fund's dividend reinvestment plan.
- --------------------------------------------------------------------------------
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 six
months ended June 30, 1995.
The renewable credit facility, of which $20,000,000 matured on July 13, 1995 and
$25,000,000 matured on July 21, 1995 (each portion was subsequently renewed),
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 six
months ended June 30, 1995 was 7.38%.
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>
Notes To Financial Statements (cont.) ACM Government Income Fund, Inc.
- --------------------------------------------------------------------------------
NOTE F: Quarterly Results of Operations
<TABLE>
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>
June 30, 1995........... $13,456 $.24 $ 52,940 $ .93 $ 66,396 $ 1.17 $ 9.500 $ 6.125
March 31, 1995.......... 13,147 .23 (16,833) (.29) (3,686) (.06) $ 8.750 $ 6.125
------- ---- --------- ------ -------- ------
$26,603 $.47 $ 36,107 $ .64 $ 62,710 $ 1.11
======= ==== ========= ====== ======== ======
December 31, 1994....... $13,147 $.23 $ (43,029) $ (.76) $(29,882) $ (.53) $ 8.750 $ 9.000
September 30, 1994...... 13,165 .23 12,471 .22 25,636 .45 $11.128 $ 8.625
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)
======= ==== ========= ====== ======== ======
</TABLE>
12
<PAGE>
Financial Highlights ACM Government Income Fund, Inc.
- --------------------------------------------------------------------------------
Selected Data For a Share of Common Stock Outstanding Throughout Each Period
<TABLE>
<CAPTION>
Six Months
Ended Year Ended December 31,
June 30, 1995 -----------------------------------------------------------
(unaudited) 1994 1993 1992 1991 1990
------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period........... $ 8.45 $11.05 $10.51 $ 10.59 $ 10.15 $ 10.66
------ ------ ------ ------- ------- -------
Income From Investment Operations
- ---------------------------------
Net investment income.......................... .47 0.91 1.14 .99 1.18 1.23
Net realized and unrealized gain (loss) on
investments, options, and foreign currency
transactions................................ .64 (2.51) 1.32 (.08) .51 (.42)
------ ------ ------ ------- ------- -------
Net increase (decrease) in net asset
value from operations....................... 1.11 (1.60) 2.46 .91 1.69 .81
------ ------ ------ ------- ------- -------
Less: Dividends and Distributions
- ---------------------------------
Dividends from net investment income........... (.47) (.76) (1.15) (.99) (1.25) (1.32)
Dividends in excess of net investment income... (.09) -0- -0- -0- -0- -0-
Distributions from net realized gains.......... -0- -0- (.53) -0- -0- -0-
Tax return of capital distribution............. -0- (.24) -0- -0- -0- -0-
------ ------ ------ ------- ------- -------
Total dividends and distributions.............. (.56) (1.00) (1.68) (.99) (1.25) (1.32)
------ ------ ------ ------- ------- -------
Capital Share Transactions
- --------------------------
Dilutive effect of rights offering............. -0- -0- (.23) -0- -0- -0-
Offering costs charged to additional
paid-in capital............................. -0- -0- (.01) -0- -0- -0-
------ ------ ------ ------- ------- -------
Total capital share transactions............... -0- -0- (.24) -0- -0- -0-
------ ------ ------ ------- ------- -------
Net asset value, end of period................. $ 9.00 $ 8.45 $11.05 $ 10.51 $ 10.59 $ 10.15
====== ====== ====== ======= ======= =======
Market value, end of period.................... $9.375 $9.125 $12.25 $ 11.00 $11.125 $10.625
====== ====== ====== ======= ======= =======
Total Return
- ------------
Total investment return based on: (a)
Market value................................ 9.44% (17.67)% 28.89% 8.59% 17.84% 11.29%
====== ====== ====== ======= ======= =======
Net asset value............................. 13.45% (15.48)% 21.47% 8.97% 17.42% 8.46%
====== ====== ====== ======= ======= =======
Ratios/Supplemental Data
- ------------------------
Net assets, end of period (000s omitted)....... $512,204 $478,511 $616,081 $509,158 $509,206 $483,006
Ratio of expenses to average net assets........ 1.95%(b) 1.60% 1.48% 1.57% 1.93% 2.21%
Ratio of expenses to average net assets
excluding interest expense.................. 1.26%(b) 1.18% 1.17% 1.16% 1.30% 1.37%
Ratio of net investment income to average
net assets.................................. 11.21%(b) 9.56% 10.06% 9.44% 11.66% 12.16%
Portfolio turnover rate........................ 178% 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 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 the 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 such periods. Total investment return for a period
of less than one year is not annualized.
(b) Annualized.
13
<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.
14
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
15
<PAGE>
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
[LOGO OF ALLIANCE CAPITAL APPEARS HERE]
/(R)/These registered service marks used under license from the owner, Alliance
Capital Management L.P.
INCSR
ACM
- --------------------------------------------------------------------------------
Government
- --------------------------------------------------------------------------------
Income Fund
- --------------------------------------------------------------------------------
Semi-Annual
Report
June 30, 1995
[LOGO OF ALLIANCE APPEARS HERE]
16
