<PAGE>
LETTER TO SHAREHOLDERS ACM GOVERNMENT INCOME FUND, INC.
================================================================================
February 12, 1996
Dear Shareholders:
The U.S. bond market continued its impressive, broad-based rally over the past
six months. Despite stronger economic growth, the rally strengthened, as
restrained inflationary pressures and a more accommodative monetary policy
buoyed investor confidence. Treasury and mortgage obligations both performed
well, though mortgage returns were tempered by higher prepayment activity.
Across all major sectors of the U.S. fixed income market, longer-duration
securities outperformed shorter-duration securities as interest rates for all
maturities declined. Outside the U.S., emerging market and other foreign debt
prices rose sharply as positive developments in Latin America and Central Europe
encouraged foreign investors.
FUND PERFORMANCE
For the twelve months ended December 31, 1995, ACM Government Income Fund
achieved a total return of +28.73% on a net asset value basis, and over the last
six months, returned +13.47%. Since its initial public offering in August of
1987, the Fund has provided shareholders with an average annual total return of
+10.73% on a net asset value basis.
ECONOMIC REVIEW
While the U.S. economy slowed in the first half of 1995, growth reaccelerated in
the third quarter due to larger than expected increases in residential housing,
government spending and business inventories. Fourth quarter economic growth
appears to have been less robust, however. Retail sales remained weak despite
significant discounting during the holiday season. Gains in real disposable
income have slowed and personal debt levels continue to escalate. Growth also
remains sluggish in the manufacturing sector. The National Association of
Purchasing Management (NAPM) Index was steady at 46% in December but has
remained below 50% for five consecutive months. (A reading below 50% signals a
slowdown in manufacturing output.)
Inflation data remain very favorable to the bond market. Broad price indices
such as the Consumer Price Index and Producer Price Index have risen very
modestly and labor costs remain under control. The benign inflation outlook and
the chance of a significant federal government deficit reduction package may
allow the Federal Reserve to further cut interest rates in the months ahead.
INVESTMENT OUTLOOK
It is our view that U.S. economic growth will remain modest in the period ahead.
Our forecast calls for a fixed base year GDP growth rate of 2.0% in the first
six months of the year ("fixed based year" refers to the government's
traditional GDP measure versus the new "chain-weighted" measure). With few
inflationary pressures on the horizon, we expect the Federal Reserve to cut
interest rates further to stimulate consumer expenditures and investment. If
our forecast proves correct, the result should be further gains in U.S. bond
prices.
In our forecasted interest rate 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.
1
<PAGE>
ACM GOVERNMENT INCOME FUND, INC.
================================================================================
Outside the U.S., our long-term outlook for foreign debt remains positive. In
emerging markets, we believe risk premiums are still too high and will narrow in
many countries where economic prospects are improving. We anticipate maintaining
the Fund's positions in non-U.S. government securities to capitalize on the
potential price appreciation in those markets.
Thank you for your continued interest and investment in ACM Government Income
Fund.
Sincerely,
/s/ John D. Carifa
John D. Carifa
Chairman
/s/ Wayne D. Lyski
Wayne D. Lyski
President
2
<PAGE>
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995 ACM GOVERNMENT INCOME FUND, INC.
================================================================================
PRINCIPAL
AMOUNT
(000) U.S. $ Value
- ----------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS--87.9%
U.S. TREASURY SECURITIES--74.5%
U.S. Treasury Bonds
Zero coupon, 5/15/09 US$ 6,250 $ 2,854,187
Zero coupon, 5/15/10 112,340 47,910,763
Zero coupon, 11/15/21 98,300 20,030,591
7.125%, 2/15/23 (a) 15,800 18,066,352
7.625%, 2/15/25 (a) 65,050 79,543,791
11.875%, 11/15/03 (a) 14,800 20,676,044
12.375%, 5/15/04 (a) 32,080 46,445,745
12.50%, 8/15/14 (a) 18,700 30,185,914
14.00%, 11/15/11 (a) 41,030 68,051,948
U.S. Treasury Notes
7.875%, 11/15/04 (a) 70,650 81,777,375
-----------
Total U.S. Treasury Securities
(cost $400,097,057) 415,542,710
-----------
FEDERAL AGENCY SECURITIES--13.4%
Federal National Mortgage Association
Zero coupon, 10/09/19 52,000 11,220,560
Small Business Administration
Loan Pools (I/O)
8.25%, 2/15/19 (b) 18,207 16,683,305
Student Loan Marketing Association
15.00%, 9/17/96 43,920 46,816,085
-----------
Total Federal Agency Securities
(cost $76,789,229) 74,719,950
-----------
Total U.S. Government and
Agency Obligations
(cost $476,886,286) 490,262,660
-----------
SOVEREIGN DEBT OBLIGATIONS--38.0%
ALGERIA--1.1%
Algeria Loan Assignment
7.775%, 12/21/96
(cost $9,918,573) FRF 78,476 5,929,384
-----------
AUSTRALIA--9.0%
Commonwealth of Australia
10.00%,10/15/07
(cost $49,882,361) AU$ 60,100 $50,370,268
-----------
BULGARIA--6.2%
Republic of Bulgaria
IAB, FRN
6.75%, 7/28/11(c)
(cost $33,283,931) US$ 74,700 34,595,437
-----------
ECUADOR--2.9%
Republic of Ecuador
Discount Bond, FRN
6.8125%, 2/28/25 (c)
(cost $16,106,134) 31,750 16,132,969
-----------
MEXICO--5.0%
Mexican Cetes
36.64%, 1/18/96 (d) MXP 67,133 8,481,369
36.69%, 1/25/96 (d) 56,092 7,024,237
United Mexican States
LIBOR/Cetes Index Notes
46.40%, 11/27/96 (d)(e)(f) US$ 12,000 12,217,500
-----------
Total Mexican Securities
(cost $31,692,652). 27,723,106
-----------
POLAND--5.6%
Republic of Poland PDI
3.75%, 10/27/14 (g)
(cost $30,472,992) 48,300 31,455,375
-----------
RUSSIA--2.5%
Vneshekonombank Loan
Assignment (h)
(cost $12,888,341) DEM 52,000 13,752,178
-----------
SPAIN--5.7%
Government of Spain
10.00%, 2/28/05
(cost $30,949,273) ESP 3,800,000 31,766,183
-----------
Total Sovereign
Debt Obligations
(cost $215,194,257) 211,724,900
-----------
3
<PAGE>
PORTFOLIO OF INVESTMENTS (continued) ACM GOVERNMENT INCOME FUND, INC.
================================================================================
PRINCIPAL
AMOUNT
(000) U.S. $ VALUE
- ----------------------------------------------------------------------------
NON-U.S. FIXED INCOME SECURITIES--3.4%
Mesa Capital Corp
12.75%, 6/30/98 US$ 14,700 $ 13,009,500
Tribasa Toll Road Trust 1
10.50%, 12/01/11 (e) 7,800 5,850,000
-------------
Total Non-U.S. Fixed
Income Securities
(cost $21,182,739) 18,859,500
-------------
OTHER SOVEREIGN DEBT RELATED--0.3%
Bayerische Landesbank Spread Notes--
U.S. Treasury Bond,
7.625%, 2/15/25
versus Brazil Par Bond,
4.25%, 4/15/24 (i)
9.125%, 3/28/96 US$ 500 $ 518,295
9.125%, 4/12/96 500 546,195
Morgan Guaranty Trust Co.
Linked to US$
Unrestructured
Ivory Coast Loan Assignment
9.00%, 2/20/96 (j) 668 665,196
-------------
Total Other Sovereign
Debt Related
(cost $1,667,800) 1,729,686
-------------
TOTAL INVESTMENTS--129.6%
(cost $714,931,082) 722,576,746
Other assets less
liabilities --(29.6%) (165,052,071)
-------------
NET ASSETS--100% $557,524,675
=============
(a) Security, or portion thereof, has been segregated to collateralize forward
exchange currency contracts. Total value of segregated securities amounted
to $344,747,169 at December 31, 1995.
(b) Illiquid security. Security, having a cost of $18,206,546, was acquired on
June 14, 1994 and represents 2.99% of net assets at December 31, 1995.
Interest rate represents yield to maturity, principal amount represents
amortized cost.
(c) Coupon will fluctuate based upon an interest rate index. Stated interest
rate in effect at December 31, 1995.
(d) Stated rate is the annualized yield to maturity at the purchase date.
(e) 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 December 31,
1995, these securities amounted to $18,067,500 or 3.24% of net assets.
(f) Principal amount represents par value at purchase date. The redemption
value of this security is based on the greater of a one year LIBOR return
formula and an indexing formula based on the cetes yield and the Mexican
peso exchange rate.
(g) Coupon increases periodically based upon a predetermined schedule. Stated
interest rate in effect at December 31, 1995.
(h) Security is in default and is non-income producing.
(i) Principal amount represents par value at purchase date. The redemption
value of these securities is indexed to the spread between the referenced
treasury yield and the referenced emerging market debt yield.
(j) Principal amount represents par value at purchase date. 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.
IAB--Interest Arrears Bonds.
I/O--Interest Only.
LIBOR--London Interbank Offered Rate.
PDI--Past Due Interest Bond.
See notes to financial statements.
4
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995 ACM GOVERNMENT INCOME FUND, INC.
================================================================================
ASSETS
Investments in securities, at value (cost $714,931,082)........ $722,576,746
Cash........................................................... 4,219,805
Receivable for investment securities sold...................... 19,112,810
Interest receivable............................................ 16,416,526
Net unrealized appreciation of forward exchange currency
contracts..................................................... 499,330
------------
Total assets................................................... 762,825,217
------------
LIABILITIES
Payable for investment securities purchased.................... 111,969,808
Loan payable................................................... 90,000,000
Dividend payable............................................... 2,283,737
Advisory fee payable........................................... 416,955
Loan interest payable.......................................... 284,062
Administrative fee payable..................................... 79,709
Accrued expenses............................................... 266,271
------------
Total liabilities.............................................. 205,300,542
------------
NET ASSETS....................................................... $557,524,675
============
COMPOSITION OF NET ASSETS
Capital stock, at par.......................................... $ 570,934
Additional paid-in capital..................................... 611,683,647
Distributions in excess of net investment income............... (518,900)
Accumulated net realized loss on investments and foreign
currency transactions......................................... (62,490,777)
Net unrealized appreciation of investments and foreign
currency denominated assets and liabilities................... 8,279,771
------------
$557,524,675
============
NET ASSET VALUE PER SHARE (based on 57,093,430 shares
outstanding)................................................... $9.77
=====
- --------------------------------------------------------------------------------
See notes to financial statements
5
<PAGE>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995 ACM GOVERNMENT INCOME FUND, INC.
================================================================================
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME
Interest...................................................... $ 66,411,918
EXPENSES
Advisory fee.................................................. $ 4,626,325
Administrative fee............................................ 885,282
Transfer agency............................................... 262,304
Custodian..................................................... 256,260
Reports and notices to shareholders........................... 183,130
Audit and legal............................................... 132,730
Registration fee.............................................. 51,577
Taxes......................................................... 36,300
Directors' fees............................................... 30,000
Miscellaneous................................................. 26,520
------------
Total expenses before interest................................ 6,490,428
Interest expense.............................................. 3,984,991
------------
Total expenses................................................ 10,475,419
------------
Net investment income......................................... 55,936,499
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS,
OPTIONS WRITTEN AND FOREIGN CURRENCY TRANSACTIONS
Net realized gain on investments.............................. 15,642,934
Net realized loss on options written.......................... (4,808,830)
Net realized loss on foreign currency transactions............ (1,224,911)
Net change in unrealized depreciation of:
Investments................................................. 57,579,610
Options written............................................. 5,966,117
Foreign currency denominated assets and liabilities......... 986,950
------------
Net realized and unrealized gain on investments, options
written and foreign currency transactions.................... 74,141,870
------------
NET INCREASE IN NET ASSETS FROM OPERATIONS..................... $130,078,369
============
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994
----------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income....................................... $ 55,936,499 $ 51,145,857
Net realized gain (loss) on investments, options
written and foreign currency transactions.................. 9,609,193 (80,456,112)
Net change in unrealized appreciation (depreciation) of
investments, options written and foreign currency
denominated assets and liabilities......................... 64,532,677 (60,638,153)
------------ -------------
Net increase (decrease) in net assets from operations....... 130,078,369 (89,948,408)
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income........................ (55,314,678) (43,243,380)
Tax return of capital distribution.......................... -0- (13,276,559)
COMMON STOCK TRANSACTIONS
Reinvestment of dividends resulting in issuance
of Common Stock............................................ 4,249,825 8,898,161
------------ -------------
Total increase (decrease)................................... 79,013,516 (137,570,186)
NET ASSETS
Beginning of year........................................... 478,511,159 616,081,345
------------ -------------
End of year................................................. $557,524,675 $ 478,511,159
============ =============
</TABLE>
- --------------------------------------------------------------------------------
See notes to financial statements.
6
<PAGE>
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1995 ACM GOVERNMENT INCOME FUND, INC.
================================================================================
<TABLE>
<S> <C> <C>
INCREASE (DECREASE) IN CASH FROM
OPERATING ACTIVITIES:
Interest received............................................ $ 51,159,802
Interest expense paid........................................ (3,834,636)
Operating expenses paid...................................... (6,553,031)
---------------
Net increase in cash from operating activities............... $ 40,772,135
INVESTING ACTIVITIES:
Purchases of long-term portfolio investments................. (2,311,222,263)
Proceeds from disposition of long-term portfolio
investments................................................ 2,299,383,543
Purchases of short-term portfolio investments--net........... (27,232,871)
---------------
Net decrease in cash from investing activities............... (39,071,591)
FINANCING ACTIVITIES*:
Cash dividends paid.......................................... (48,781,116)
Increase in bank borrowing................................... 45,000,000
---------------
Net decrease in cash from financing activities............... (3,781,116)
---------------
Net decrease in cash......................................... (2,080,572)
Increase in appreciation of foreign currency................. 713
Cash at beginning of year.................................... 6,299,664
---------------
Cash at end of year.......................................... $ 4,219,805
RECONCILIATION OF NET INCREASE IN NET ASSETS
FROM OPERATIONS TO NET INCREASE IN CASH
FROM OPERATING ACTIVITIES:
Net increase in net assets from operations................... $ 130,078,369
ADJUSTMENTS:
Increase in interest receivable.............................. $ (4,009,792)
Accretion of bond discount................................... (11,242,324)
Increase in accrued expenses................................. 87,752
Net gain on investments...................................... (74,141,870)
---------------
Total adjustments.......................................... (89,306,234)
---------------
NET INCREASE IN CASH FROM OPERATING ACTIVITIES................. $ 40,772,135
===============
</TABLE>
- --------------------------------------------------------------------------------
* Non-cash financing activities not included herein consist of reinvestment of
dividends.
See notes to financial statements.
7
<PAGE>
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 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. The U.S. dollar value of forward
exchange currency contracts is determined using forward currency exchange rates
supplied by a quotation service. 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 Alliance Capital Management L.P.
(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, provisions for federal income or excise taxes are not
required.
3. INVESTMENT INCOME AND INVESTMENT TRANSACTIONS
Interest income is accrued daily. Investment transactions are accounted for on a
trade date basis. Investment 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
represents 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 appreciation of investments
and foreign currency denominated assets and liabilities.
5. DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions to shareholders are recorded on the ex-dividend date
and are determined in accordance with federal income tax regulations.
Distributions in excess of net investment income result from timing differences
in the treatment of dividends paid between federal income tax and accounting
purposes.
6. RECLASSIFICATION OF COMPONENTS OF NET ASSETS
Due to permanent differences between the accounting and tax classifications of
foreign currency transactions, a $1,224,911 foreign currency loss was
reclassified from accumulated net realized loss on investments and foreign
currency transactions to distributions in excess of net investment income. This
reclassification had no effect on net assets.
8
<PAGE>
ACM GOVERNMENT INCOME FUND, INC.
================================================================================
NOTE B: ADVISORY AND ADMINISTRATIVE FEES
Under the terms of an Investment Advisory Agreement, the Fund pays its 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 $2,330,568,658 and $2,302,262,198, respectively, for the year ended
December 31, 1995.
At December 31, 1995, the cost of investments for federal income tax purposes
was $715,930,000. Accordingly, gross unrealized appreciation of investments was
$19,828,088 and gross unrealized depreciation of investments was $13,181,342,
resulting in net unrealized appreciation of $6,646,746 (excluding foreign
currency transactions) on a federal income tax basis.
At December 31, 1995, the Fund had a capital loss carryforward of $58,417,067 of
which $36,399,960 expires in the year 2002 and $22,017,107 expires in the year
2003. Capital and foreign currency losses incurred after October 31 within the
fiscal year are deemed to arise on the first business day of the Fund's next
fiscal year. In accordance with the Internal Revenue Code, the Fund may elect to
defer net foreign currency and capital losses of approximately $1,426,004 and
$3,074,792, respectively, until fiscal 1996.
1. FORWARD EXCHANGE CURRENCY CONTRACTS
The Fund enters into forward exchange currency contracts for investment purposes
and in order to hedge its exposure to changes in foreign currency exchange rates
on its foreign portfolio holdings and to hedge certain firm purchase and sale
commitments denominated in foreign currencies. A forward exchange currency
contract is a commitment to purchase or sell a foreign currency at a future date
at a negotiated forward rate. The gain or loss arising from the difference
between the original contract and the closing of such contract is included in
net realized gain or loss on foreign currency transactions.
Fluctuations in the value of open forward exchange currency contracts are
recorded for financial reporting purposes as unrealized gains or losses.
The Fund's custodian will place and maintain cash not available for investment
or U.S. Government securities in a separate account of the Fund having a value
equal to the aggregate amount of the Fund's commitments under forward exchange
currency contracts entered into with respect to position hedges.
Risks may arise from the potential inability of a counterparty to meet the terms
of a contract and from unanticipated movements in the value of foreign
currencies relative to the U.S. dollar. The value on origination date, in U.S.
dollars, as reflected in the following table, reflects the total exposure the
Fund has in that particular currency contract.
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS (cont.) ACM GOVERNMENT INCOME FUND, INC.
================================================================================
At December 31, 1995, the Fund had outstanding
forward exchange currency contracts as follows:
<TABLE>
<CAPTION>
VALUE ON U.S.$ UNREALIZED
FOREIGN CURRENCY SETTLEMENT CONTRACT ORIGINATION CURRENT APPRECIATION
BUY CONTRACTS DATE AMOUNT DATE VALUE (DEPRECIATION)
- ---------------- ----------------- ------------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Deutsche Marks 1/16/96 - 1/17/96 73,448,965 $ 52,784,831 $ 51,253,701 $(1,531,130)
FOREIGN CURRENCY
SALE CONTRACTS
- ----------------
Deutsche Marks 1/16/96 - 3/22/96 158,645,931 112,030,612 110,836,821 1,193,791
Japanese Yen 2/6/96 - 9/17/96 2,926,000,000 29,827,796 28,991,127 836,669
-----------
$ 499,330
===========
</TABLE>
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 the 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 options
written. The difference between the premium received 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, 1995, were as
follows:
<TABLE>
<CAPTION>
NUMBER OF
CONTRACTS PREMIUMS
--------- ------------
<S> <C> <C>
Options outstanding at
beginning of year 3 $ 1,602,250
Options written 5 10,280,725
Options terminated in
closing purchase
transactions (7) (11,309,475)
Options expired (1) (573,500)
Options outstanding
----- ------------
at end of year -0- $ -0-
----- ------------
</TABLE>
10
<PAGE>
ACM GOVERNMENT INCOME FUND, INC.
================================================================================
NOTE D: CAPITAL STOCK
There are 300,000,000 shares of $0.01 par value common stock authorized. Of the
57,093,430 shares outstanding at December 31, 1995, the Adviser owned 9,000
shares. During the years ended December 31, 1995 and 1994, the Fund issued
476,382 and 841,480 shares, respectively, in connection with the Fund's dividend
reinvestment plan.
- --------------------------------------------------------------------------------
NOTE E: BANK BORROWING
The Fund has a Revolving Credit Agreement with Morgan Guaranty Trust Company of
New York ("Morgan Guaranty"). The maximum credit available is $90,000,000 and
the average amount of the loan outstanding for the year ended December 31, 1995
was approximately $58,440,000.
The renewable credit facility of $90,000,000 will mature on March 14, 1996 and
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, 1995 was 6.82%. The interest rate at December 31, 1995 was
6.3125%. 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.
- --------------------------------------------------------------------------------
NOTE F: QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
NET REALIZED
AND UNREALIZED
GAIN (LOSS) NET INCREASE
ON INVESTMENTS, (DECREASE)
OPTIONS WRITTEN AND IN NET ASSETS
NET INVESTMENT FOREIGN 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, 1995....... $14,803 $ .26 $ 25,327 $ .44 $ 40,130 $ .70 $ 9.875 $ 9.125
September 30, 1995...... 14,530 .26 12,708 .22 27,238 .48 $ 9.750 $ 9.000
June 30, 1995........... 13,456 .24 52,940 .93 66,396 1.17 $ 9.500 $ 8.125
March 31, 1995.......... 13,147 .23 (16,833) (.29) (3,686) (.06) $ 9.750 $ 8.125
------- --------- -------- -------- --------- -------
$55,936 $ .99 $ 74,142 $ 1.30 $130,078 $ 2.29
======= ========= ======== ======== ========= =======
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>
11
<PAGE>
FINANCIAL HIGHLIGHTS ACM GOVERNMENT INCOME FUND, INC.
================================================================================
SELECTED DATA FOR A SHARE OF COMMON STOCK OUTSTANDING THROUGHOUT EACH YEAR
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 8.45 $ 11.05 $ 10.51 $ 10.59 $ 10.15
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------
Net investment income (a) 0.99 0.91 1.14 .99 1.18
Net realized and unrealized gain (loss) on
investments, options written and foreign
currency transactions 1.30 (2.51) 1.32 (.08) .51
-------- -------- -------- -------- --------
Net increase (decrease) in net asset
value from operations 2.29 (1.60) 2.46 .91 1.69
-------- -------- -------- -------- --------
DIVIDENDS AND DISTRIBUTIONS
- ---------------------------
Dividends from net investment income (0.97) (.76) (1.15) (.99) (1.25)
Distributions from net realized gains -0- -0- (.53) -0- -0-
Tax return of capital distribution -0- (.24) -0- -0- -0-
-------- -------- -------- -------- --------
Total dividends and distributions (0.97) (1.00) (1.68) (.99) (1.25)
-------- -------- -------- -------- --------
CAPITAL SHARE TRANSACTIONS
- --------------------------
Dilutive effect of rights offering -0- -0- (.23) -0- -0-
Offering costs charged to additional
paid-in capital -0- -0- (.01) -0- -0-
-------- -------- -------- -------- --------
Total capital share transactions -0- -0- (.24) -0- -0-
-------- -------- -------- -------- --------
Net asset value, end of year $ 9.77 $ 8.45 $ 11.05 $ 10.51 $ 10.59
======== ======== ======== ======== ========
Market value, end of year $9.125 $ 9.125 $ 12.25 $ 11.00 $ 11.125
======== ======== ======== ======== ========
TOTAL RETURN
- ------------
Total investment return based on: (b)
Market value 11.37% (17.67)% 28.89% 8.59% 17.84%
======== ======== ======== ======== ========
Net asset value 28.73% (15.48)% 21.47% 8.97% 17.42%
======== ======== ======== ======== ========
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net assets, end of year (000's omitted) $557,525 $478,511 $616,081 $509,158 $509,206
Ratio of expenses to average net assets 2.08% 1.60% 1.48% 1.57% 1.93%
Ratio of expenses to average net assets
excluding interest expense 1.29% 1.18% 1.17% 1.16% 1.30%
Ratio of net investment income to average
net assets 11.10% 9.56% 10.06% 9.44% 11.66%
Portfolio turnover rate 380% 298% 424% 521% 516%
- -------------------------------------------------------------------------------------------------------
</TABLE>
(a) Based on average shares outstanding.
(b) 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 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 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.
12
<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, 1995, 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, 1995, 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, 1995, 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 14, 1996
13
<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 reinvested in additional shares of the Fund. State Street Bank and Trust
Company (the "Agent") will act as agent for participants under 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.
If the Board declares an income distribution or determines to make a capital
gain distribution payable either in shares or in cash, as holders of the Common
Stock may have elected, non-participants in the Plan will receive cash and
participants in the Plan will receive the equivalent in shares of Common Stock
of the Fund valued as follows:
(i) If the shares of Common Stock are trading at net asset value or at a
premium above net asset value at the time of valuation, the Fund will issue
new shares at the greater of net asset value or 95% of the then current
market price.
(ii) If the shares of Common Stock are trading at a discount from net asset
value at the time of valuation, the Agent will receive the dividend or
distribution in cash and apply it to the purchase of the Fund's shares of
Common Stock in the open market on the New York Stock Exchange or elsewhere,
for the participants' accounts. Such purchases will be made on or shortly
after the payment date for such dividend or distribution and in no event more
than 30 days after such date except where temporary curtailment or suspension
of purchase is necessary to comply with Federal securities laws. If, before
the Agent has completed its purchases, the market price exceeds the net asset
value of a share of Common Stock, the average purchase price per share paid
by the Agent may exceed the net asset value of the Fund's shares of Common
Stock, resulting in the acquisition of fewer shares than if the dividend or
distribution had been paid in shares issued by the Fund.
The Agent will maintain all shareholders' accounts in the Plan and furnish
written confirmation of all transactions in the account, including information
needed by shareholders for tax records. Shares in the account of each Plan
participant will be held by the Agent in non-certificate form in the name of the
participant, and each shareholder's proxy will include those shares purchased or
received pursuant to the Plan.
There will be no charges with respect to shares issued directly by the Fund to
satisfy the dividend reinvestment requirements. However, each participant will
pay a pro rata share of brokerage commissions incurred with respect to the
Agent's open market purchases of shares. 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.
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.
Experience under the Plan may indicate that changes are desirable. Accordingly,
the Fund reserves the right to amend or terminate the Plan as applied to any
voluntary cash payments made and any dividend or distribution paid subsequent to
written notice of the change sent to participants in the Plan at least 90 days
before the record date for such dividend or distribution. The Plan may also be
amended or terminated by the Agent on at least 90 days' written notice to
participants in the Plan. All correspondence concerning the Plan should be
directed to the Agent at State Street Bank and Trust Company, P.O. Box 366,
Boston, Massachusetts 02101.
Since the filing of the most recent amendment to the Fund's registration
statement with the Securities and Exchange Commission, there have been (i) no
material changes in the Fund's investment objective or policies, (ii) no changes
to the Fund's charter or by-laws that would delay or prevent a change of control
of the Fund, (iii) no material changes in the principal risk factors associated
with investment in the Fund, and (iv) 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.
14
<PAGE>
ADDITIONAL INFORMATION (cont.) ACM GOVERNMENT INCOME FUND, INC.
================================================================================
SUPPLEMENTAL PROXY INFORMATION
The Annual Meeting of Shareholders of the ACM Government Income Fund, Inc. was
held on Thursday, May 25, 1995. The description of each proposal and number of
shares voted at the meeting are as follows:
<TABLE>
<CAPTION>
SHARES SHARES VOTED
VOTED FOR WITHOUT AUTHORITY
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
1. To elect directors: Class One Directors
(term expires in 1998)
James R. Greene 47,464,878 1,580,917
Clifford L. Michel 47,517,216 1,528,579
<CAPTION>
SHARES SHARES SHARES VOTED
VOTED FOR VOTED AGAINST ABSTAIN
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
2. To ratify the selection of Ernst & Young LLP
as the Fund's independent auditors for the Fund's
fiscal year ending December 31, 1995: 48,083,034 301,399 661,362
</TABLE>
15
<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
financial information included herein is taken from the records of the Fund.
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.
16
<PAGE>
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<PAGE>
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<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<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, each Sunday in The New York Times and each Saturday
in Barron's and other newspapers in a table called "Closed-End Bond Funds."
DIVIDEND REINVESTMENT PLAN
A Dividend Reinvestment Plan 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
ALLIANCE CAPITAL [LOGO]
(R)These registered service marks used under license from the owner,
Alliance Capital Management L.P.
INCAR
ACM
--------------------------------------------------
GOVERNMENT
--------------------------------------------------
INCOME FUND
--------------------------------------------------
Annual Report
December 31, 1995
Alliance(R)
Mutual funds without the Mystery
