<PAGE>
Letter To Shareholders ACM Government Income Fund, Inc.
- --------------------------------------------------------------------------------
August 19, 1996
Dear Shareholder:
Throughout 1995, the U.S. bond market enjoyed a sustained, broad-based rally
which lasted into January 1996. However, since February, domestic bond market
returns have generally been negative. The market has been reacting to stronger-
than-expected data on the U.S. economy and the belief that the Federal Reserve
may raise interest rates to reduce inflationary pressures. Although U.S.
Treasury securities showed a negative return during the period, mortgage
obligations were able to post a modest gain as prepayment expectations
stabilized. Across all major sectors of the U.S. fixed-income market, shorter-
duration securities outperformed longer-duration securities as interest rates
for all maturities increased. Outside the United States, economic conditions in
Europe and gradually improving economies in Latin America helped to support
rising debt prices.
INVESTMENT RESULTS
Over the six months and twelve months ended June 30, 1996, ACM Government Income
Fund's cumulative total return, on a net asset value basis, was -.27% and
13.17%, respectively. The Fund's performance over the most recent six-month
reporting period was hurt by rising domestic interest rates, as virtually every
sector of the domestic bond market showed negative returns. However, continued
strong performance in emerging-market debt and good developed-country selection
for non-U.S. issuers helped to offset poor domestic market returns.
ECONOMIC REVIEW
The U.S. economy has rebounded from an inventory-related slowdown during the
second half of 1995. Real growth accelerated to 2.2% during the first quarter
of 1996, while final demand increased by a healthy 3.3%. The re-strengthening
continued in the second quarter, led by a rapidly improving labor market.
Employment gains averaged 265,000 per month during the second quarter, and total
hours worked climbed by an annualized 5.6%. Consumer confidence remained
elevated and real household spending continued to grow at a healthy clip. These
factors combined to produce overall growth in gross domestic product of 4.2%
during the quarter.
Inflation was boosted this past spring by rising food and energy prices.
However, the less volatile "core" rate of inflation, estimated at 2.7%, hovered
near a 30-year low. Although the Federal Reserve has been in a holding pattern
since January, recent intensification of inflationary pressures has pushed the
central bank closer to a preemptive tightening of the money supply.
INVESTMENT OUTLOOK
We believe the U.S. economy will slow during the second half of 1996 following
fairly robust second-quarter growth. Our forecast calls for gross-domestic-
product growth of 2.0% to 2.5% in the second half of the year. In our view,
such growth would not prompt an increase in interest rates by the Federal
Reserve. However, if the economy does not show consistent signs of the expected
slowdown, the Federal Reserve is likely to pursue a more restrictive monetary
policy.
Given the expected slowdown in economic activity, we anticipate a fairly stable
interest-rate environment. In our view, interest rates should not move more
than 25 basis points above or below their current level. In this environment,
a moderate shift away from U.S. Treasury issues and into mortgage-backed
securities should be expected. In addition, we would anticipate
1
<PAGE>
ACM Government Income Fund, Inc.
- --------------------------------------------------------------------------------
that both emerging-market and high-yield debt would continue to perform well.
In the developing foreign markets, continued focus on fiscal discipline should
permit further rate reductions, which would support additional gains in debt
prices.
Thank you for your continued interest and investment in ACM Government Income
Fund. We look forward to reporting its progress to you in the coming months.
Sincerely,
/s/ John D. Carifa
John D. Carifa
Chairman
/s/ Wayne D. Lyski
Wayne D. Lyski
President
2
<PAGE>
Portfolio Of Investments
June 30, 1996 (unaudited) ACM Government Income Fund, Inc.
- --------------------------------------------------------------------------------
Principal
Amount
(000) U.S. $ Value
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY
OBLIGATIONS--93.6%
U.S. TREASURY
SECURITIES--83.4%
U.S. Treasury Bonds
Zero coupon, 5/15/09.......... US$ 6,250 $ 2,573,000
Zero coupon, 2/15/10.......... 83,620 32,557,447
Zero coupon, 5/15/10.......... 112,340 42,936,348
7.125%, 2/15/23 (a)........... 55,290 55,886,026
11.875%, 11/15/03 (a)......... 14,800 19,249,176
12.375%, 5/15/04 (a).......... 32,080 43,102,367
12.50%, 8/15/14 (a)........... 18,700 27,509,383
14.00%, 11/15/11 (a).......... 91,030 138,848,970
U.S. Treasury Notes
6.50%, 8/15/05 (a)............ 43,300 42,677,346
7.25%, 5/15/04 (a)............ 39,000 40,407,510
------------
Total U.S. Treasury Securities
(cost $455,245,220)........... 445,747,573
------------
FEDERAL AGENCY
SECURITIES--10.2%
Federal National
Mortgage Association
Zero coupon, 10/09/19......... 52,000 9,441,120
Student Loan Marketing
Association
15.00%, 9/17/96............... 43,920 44,805,427
------------
Total Federal Agency Securities
(cost $57,123,728)............ 54,246,547
------------
Total U.S. Government and
Agency Obligations
(cost $512,368,948)........... 499,994,120
------------
SOVEREIGN DEBT
OBLIGATIONS--41.6%
ALGERIA--1.2%
Algeria Loan Assignment
6.6875%, 12/21/96, FRN
(cost $10,318,512)............ FRF 78,476 6,713,104
------------
Principal
Amount
(000) U.S. $ Value
- --------------------------------------------------------------------------------
ARGENTINA--12.0%
Republic of Argentina Pensioner -
Bocon Series I, FRN
5.42188%, 4/01/01 (b)
(cost $59,065,569)............ US$ 71,399 $ 64,111,743
------------
BULGARIA--14.7%
Republic of Bulgaria
FLIRB, FRN
2.00%, 7/28/12................ 76,500 25,436,250
IAB, FRN
6.25%, 7/28/11................ 112,200 53,260,218
------------
Total Bulgarian Securities
(cost $76,511,730)............ 78,696,468
------------
ECUADOR--3.3%
Republic of Ecuador
Discount Bonds, FRN
3.25%, 2/28/25 (c)............ 21,250 7,703,125
PDI Bonds, FRN
6.0625%, 2/27/15 (d)(e)....... 21,867 9,799,002
------------
Total Ecuadorian Securities
(cost $16,993,006)............ 17,502,127
------------
PANAMA--5.4%
Republic of Panama
IRB
3.50%, 6/30/14 (d)(f)(g)...... 41,000 22,755,000
Republic of Panama
PDI Bonds, FRN
6/30/16 (f)................... 9,750 5,971,875
------------
Total Panamanian Securities
(cost $27,848,125)............ 28,726,875
------------
POLAND--5.0%
Republic of Poland
PDI Bonds
3.75%, 10/27/14 (g)
(cost $26,446,990)............ 34,750 26,757,500
------------
Total Sovereign Debt Obligations
(cost $217,183,932)........... 222,507,817
------------
3
<PAGE>
Portfolio Of Investments (continued) ACM Government Income Fund, Inc.
- --------------------------------------------------------------------------------
Principal
Amount/
Contracts
(000) U.S. $ Value
- --------------------------------------------------------------------------------
NON-U.S. FIXED INCOME
SECURITY--0.5%
Tribasa Toll Road Trust 1
10.50%, 12/01/11 (d)
(cost $2,560,488)............ US$ 3,300 $ 2,508,000
------------
CALL OPTION PURCHASED--0.0%
United Mexican States
expiring October '96
@ $70.9375 (h)
(cost $720,000).............. 400 44,000
------------
TOTAL INVESTMENTS--135.7%
(cost $732,833,368).......... $725,053,937
Other assets less
liabilities--(35.7%)......... (190,825,107)
------------
NET ASSETS--100.0% $534,228,830
============
- --------------------------------------------------------------------------------
(a) Security, or portion thereof, has been segregated to collateralize forward
exchange currency contracts. Total value of segregated securities amounted
to $367,680,778 at June 30, 1996.
(b) All interest is paid-in-kind.
(c) Sovereign debt obligation issued as part of debt restructuring that is
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.
(d) 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 June 30,1996, this security
amounted to $35,062,002 or 6.6% of net assets.
(e) Coupon consists of 3.00% cash payment and 3.0625% paid-in-kind.
(f) When issued.
(g) Coupon increases periodically based upon a predetermined schedule. Stated
interest rate in effect at June 30, 1996.
(h) Non income producing security.
Glossary of Terms:
FLIRB--Front Loaded Interest Reduction Bonds.
FRN--Floating Rate Note. Coupon will fluctuate based upon an interest rate
index. Stated interest rate in effect at June 30, 1996.
IAB--Interest Arrears Bonds.
IRB--Interest Reduction Bond.
PDI--Past Due Interest Bond.
See notes to financial statements.
4
<PAGE>
Statement Of Assets And Liabilities
June 30, 1996 (unaudited) ACM Government Income Fund, Inc.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value (cost $732,833,368)........................................ $725,053,937
Interest receivable............................................................................ 13,294,658
Receivable for investment securities sold...................................................... 7,775,000
Net unrealized appreciation of forward exchange currency contracts............................. 1,487,760
Net unrealized appreciation of swap contracts.................................................. 286,491
Prepaid expenses............................................................................... 50,475
------------
Total assets................................................................................... 747,948,321
------------
LIABILITIES
Due to custodian............................................................................... 295,543
Payable for investment securities purchased.................................................... 120,952,445
Loan payable................................................................................... 90,000,000
Loan interest payable.......................................................................... 1,617,969
Advisory fee payable........................................................................... 391,912
Administrative fee payable..................................................................... 76,172
Accrued expenses............................................................................... 385,450
------------
Total liabilities.............................................................................. 213,719,491
------------
NET ASSETS........................................................................................ $534,228,830
============
COMPOSITION OF NET ASSETS
Capital stock, at par.......................................................................... $ 572,556
Additional paid-in capital..................................................................... 613,190,882
Undistributed net investment income............................................................ 3,285,989
Accumulated net realized loss.................................................................. (76,815,870)
Net unrealized depreciation of investments and options, swap contracts and foreign currency
denominated assets and liabilities............................................................ (6,004,727)
------------
$534,228,830
============
NET ASSET VALUE PER SHARE (based on 57,255,612 shares outstanding)............................. $9.33
=====
</TABLE>
- --------------------------------------------------------------------------------
See notes to financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
Statement Of Operations
Six Months Ended June 30, 1996 (unaudited) ACM Government Income Fund, Inc.
- --------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
Interest.................................................................... $ 33,329,057
EXPENSES
Advisory fee................................................................ $2,308,452
Administrative fee.......................................................... 472,018
Transfer agency............................................................. 148,840
Reports and notices to shareholders........................................ 89,425
Custodian................................................................... 80,500
Audit and legal............................................................. 71,835
Registration fee............................................................ 23,016
Directors' fees............................................................. 14,959
Taxes....................................................................... 13,504
Miscellaneous............................................................... 105,192
------------
Total expenses before interest............................................. 3,327,741
Interest expense............................................................ 2,770,000
------------
Total expenses.............................................................. 6,097,741
------------
Net investment income....................................................... 27,231,316
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS,
OPTIONS, SWAP CONTRACTS AND FOREIGN CURRENCY TRANSACTIONS
Net realized loss on investments and options................................ (15,143,676)
Net realized gain on foreign currency transactions.......................... 818,583
Net change in unrealized appreciation of:
Investments, options and swap contracts................................... (15,138,604)
Foreign currency denominated assets and liabilities....................... 854,106
------------
Net realized and unrealized loss on investments and options, swap contracts
and foreign currency transactions.......................................... (28,609,591)
------------
NET DECREASE IN NET ASSETS FROM OPERATIONS.................................... $(1,378,275)
============
</TABLE>
<TABLE>
<CAPTION>
Statement Of Changes In Net Assets
- --------------------------------------------------------------------------------
Six Months Ended
June 30, 1996 Year Ended
(unaudited) December 31, 1995
------------------ ------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income............................................ $ 27,231,316 $ 55,936,499
Net realized gain (loss) on investments, options and
foreign currency transactions................................... (14,325,093) 9,609,193
Net change in unrealized appreciation (depreciation) of
investments, options, swap contracts and foreign currency
denominated assets and liabilities.............................. (14,284,498) 64,532,677
------------ ------------
Net increase (decrease) in net assets from operations............ (1,378,275) 130,078,369
DIVIDENDS TO SHAREHOLDERS
Dividends from net investment income............................. (23,426,427) (55,314,678)
COMMON STOCK TRANSACTIONS
Reinvestment of dividends resulting in issuance
of Common Stock................................................. 1,508,857 4,249,825
------------ ------------
Total increase (decrease)........................................ (23,295,845) 79,013,516
NET ASSETS
Beginning of year................................................ 557,524,675 478,511,159
------------ ------------
End of period (including undistributed net investment income
of $3,285,989 at June 30, 1996)................................. $534,228,830 $557,524,675
============ ============
- --------------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
6
<PAGE>
Statement Of Cash Flows
Six Months Ended June 30, 1996 (unaudited) ACM Government Income Fund, Inc.
- -------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH FROM
OPERATING ACTIVITIES:
Interest received.............................. $ 32,162,576
Interest expense paid.......................... (1,436,094)
Operating expenses paid........................ (3,287,617)
---------------
Net increase in cash from operating activities. $ 27,438,865
INVESTING ACTIVITIES:
Purchases of long-term portfolio investments... (1,156,087,163)
Proceeds from disposition of long-term
portfolio investments......................... 1,115,578,689
Purchases of short-term portfolio
investment - net.............................. 32,756,281
---------------
Net decrease in cash from investing
activities.................................... (7,752,193)
------------
FINANCING ACTIVITIES*:
Cash dividends paid............................ (24,201,307)
Net decrease in cash........................... (4,514,635)
Decrease in appreciation of foreign currency... (713)
Cash at beginning of year...................... 4,219,805
------------
Cash at end of period.......................... $ (295,543)
============
- -------------------------------------------------------------------------------
RECONCILIATION OF NET INCREASE IN NET ASSETS
FROM OPERATIONS TO NET INCREASE IN CASH
FROM OPERATING ACTIVITIES:
Net decrease in net assets resulting
from operations............................... $ (1,378,275)
ADJUSTMENTS:
Decrease in interest receivable................ $ 3,096,894
Accretion of bond discount..................... (4,263,375)
Increase in accrued expenses................... 1,374,030
Net loss on investments........................ 28,609,591
---------------
Total adjustments.............................. 28,817,140
-------------
NET INCREASE IN CASH FROM OPERATING ACTIVITIES... $ 27,438,865
=============
- -------------------------------------------------------------------------------
* Non-cash financing activities not included herein consist of reinvestment of
dividends.
See notes to financial statements.
7
<PAGE>
Notes To Financial Statements
June 30, 1996 (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. 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 gain on foreign currency transactions
represents foreign exchange gains and losses from sales and maturities of
foreign securities, holding of foreign currencies, options on foreign
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 and options, swap contracts 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.
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
and 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).
The Fund entered into a Shareholder Inquiry Agency Agreement with Alliance Fund
Services, Inc. ("AFS") whereby the Fund reimburses AFS for costs relating to
servicing calls for the Fund. During the six months ended June 30, 1996 there
was no reimbursement paid to AFS.
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
and U.S. Government securities) aggregated $485,500,595 and $495,305,074,
respectively, for the six months ended June 30, 1996.
At June 30, 1996, the cost of investments was $732,833,368. Accordingly, gross
unrealized appreciation of investments was $11,896,297 and gross unrealized
depreciation of investments was $19,675,728, resulting in net unrealized
depreciation of $7,779,431 (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 incurred and
will elect to defer net foreign currency and capital losses of approximately
$1,426,004 and $3,074,792, respectively, until fiscal 1996.
1. Forward Exchange Currency Contracts
The Fund enters into forward exchange currency contracts for investment purposes
and in order to hedge its exposure to changes in foreign currency exchange rates
on its foreign portfolio holdings and to hedge certain firm purchase and sale
commitments denominated in foreign currencies. A forward exchange currency
contract is a commitment to purchase or sell a foreign currency at a future date
at a negotiated forward rate. The gain or loss arising from the difference
between the original contract and the closing of such contract is included in
net realized gain or loss on foreign currency transactions.
Fluctuations in the value of open forward exchange currency contracts are
recorded for financial reporting purposes as unrealized gains or losses.
The Fund's custodian will place and maintain cash not available for investment
or U.S. Government securities in a separate account of the Fund having a value
equal to the aggregate amount of the Fund's commitments under forward exchange
currency contracts entered into with respect to position hedges.
Risks may arise from the potential inability of a counterparty to meet the terms
of a contract and from unanticipated movements in the value of foreign
9
<PAGE>
Notes To Financial Statements (cont.) ACM Government Income Fund, Inc.
- --------------------------------------------------------------------------------
currencies relative to the U.S. dollar. The value on origination date, in U.S.
dollars, as reflected in the following table, reflects the total exposure the
Fund has in that particular currency contract.
At June 30, 1996, the Fund had outstanding forward exchange currency contracts
as follows:
<TABLE>
<CAPTION>
Contract Value on U.S.$ Unrealized
Settlement Contract Origination Current Appreciation
Foreign Currency Buy Contracts Date (000) Date Value (Depreciation)
- ------------------------------ ----------------- ----------- ------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Deutsche Marks................. 7/10/96 - 7/24/96 66,400 $ 44,142,537 $43,715,146 $ (427,391)
Japanese Yen................... 9/17/96 1,726,000 16,809,505 15,962,889 (846,616)
Foreign Currency Sale Contracts
- -------------------------------
Deutsche Marks................. 7/10/96 - 8/12/96 151,673 100,674,903 99,949,089 725,814
Japanese Yen................... 9/17/96 1,726,000 17,998,842 15,962,889 2,035,953
-----------
$1,487,760
===========
</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.
For the six months ended June 30, 1996, the Fund did not have any written option
transactions.
- --------------------------------------------------------------------------------
NOTE D: Interest Rate Swap Agreements
The Fund enters into swaps on sovereign debt obligations to protect itself from
interest rate fluctuations on the underlying floating rate debt instruments and
for investment purposes. A swap is an agreement that obligates two parties to
exchange a series of cash flows at specified intervals based upon or calculated
by reference to changes in specified prices or rates for a specified amount of
an underlying asset. The payment flows are usually netted against each other,
with the difference being paid by one party to the other.
10
<PAGE>
ACM Government Income Fund, Inc.
- --------------------------------------------------------------------------------
Risks may arise as a result of the failure of another party to the swap contract
to comply with the terms of the swap contract. The loss incurred by the failure
of a counterparty is generally limited to the net interest payment to be
received by the Fund, and/or the termination value at the end of the contract.
Therefore, the Fund considers the creditworthiness of each counterparty to a
swap contract in evaluating potential credit risk. Additionally, risks may arise
from unanticipated movements in interest rates or in the value of the underlying
securities.
The Fund records a net receivable or payable on a daily basis for the net
interest income or expense expected to be received or paid in the interest
period. Net interest received or paid on these contracts is recorded as interest
income (or as an offset to interest income). Fluctuations in the value of swap
contracts are recorded for financial statement purposes as unrealized
appreciation or depreciation on swap contracts.
At June 30, 1996 the Fund had outstanding interest rate swap contracts with the
following terms:
<TABLE>
<CAPTION>
Rate Type
-----------------------------
Swap Notional Amount Termination Payments made Payments received Unrealized
Counterparty (000) Date by the Fund by the Fund Appreciation
- ------------- --------------- ----------- -------------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
J.P. Morgan ITL 42,000,000 4/30/01 LIBOR+ 9.18% $280,594
Deutsche Bank ITL 21,000,000 6/10/01 LIBOR+ 8.92% 5,897
------------
$286,491
============
</TABLE>
+ LIBOR London Interbank Offered Rate.
- --------------------------------------------------------------------------------
NOTE E: Capital Stock
There are 300,000,000 shares of $0.01 par value common stock authorized, of
which 57,255,612 shares were outstanding at June 30, 1996. During the six months
ended June 30, 1996 and the year ended December 31, 1995, the Fund issued
162,182 and 476,382 shares, respectively, in connection with the Fund's dividend
reinvestment plan.
- --------------------------------------------------------------------------------
NOTE F: 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
such amount was outstanding for the entire six months ended June 30, 1996.
The renewable credit facility of $90,000,000 will mature on August 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 six
months ended June 30, 1996 was 6.19%. The interest rate at June 30, 1996 was
5.9375%. The Fund is also obligated to pay Morgan Guaranty a commitment fee
computed at the rate of .125 of 1% per annum on the average daily unused portion
of the revolving credit.
11
<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, 1996 -----------------------------------------------------
(unaudited) 1995 1994 1993 1992 1991
------------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period........ $ 9.77 $ 8.45 $11.05 $10.51 $10.59 $ 10.15
-------- -------- -------- -------- -------- --------
Income From Investment Operations
- ---------------------------------
Net investment income (a)................... .47 .99 .91 1.14 .99 1.18
Net realized and unrealized gain (loss)
on investments, options, swap contracts
and foreign currency transactions.......... (.50) 1.30 (2.51) 1.32 (.08) .51
-------- -------- -------- -------- -------- --------
Net increase (decrease) in net asset
value from operations...................... (.03) 2.29 (1.60) 2.46 .91 1.69
-------- -------- -------- -------- -------- --------
Dividends and Distributions
- ---------------------------
Dividends from net investment income........ (.41) (.97) (.76) (1.15) (.99) (1.25)
Distributions from net realized gains....... -0- -0- -0- (.53) -0- -0-
Tax return of capital distribution.......... -0- -0- (.24) -0- -0- -0-
-------- -------- -------- -------- -------- --------
Total dividends and distributions........... (.41) (.97) (1.00) (1.68) (.99) (1.25)
-------- -------- -------- -------- -------- --------
Capital Share Transactions
- --------------------------
Dilutive effect of rights offering.......... -0- -0- -0- (.23) -0- -0-
Offering costs charged to additional
paid-in capital............................ -0- -0- -0- (.01) -0- -0-
-------- -------- -------- -------- -------- --------
Total capital share transactions............ -0- -0- -0- (.24) -0- -0-
-------- -------- -------- -------- -------- --------
Net asset value, end of period.............. $ 9.33 $ 9.77 $ 8.45 $ 11.05 $ 10.51 $ 10.59
-------- -------- -------- -------- -------- --------
Market value, end of period................ $9.875 $ 9.125 $ 9.125 $ 12.25 $ 11.00 $ 11.125
======== ======== ======== ======== ======== ========
Total Investment Return
- -----------------------
Total investment return based on: (b)
Market value.............................. 13.02% 11.37% (17.67)% 28.89% 8.59% 17.84%
======== ======== ======== ======== ======== ========
Net asset value........................... (.27)% 28.73% (15.48)% 21.47% 8.97% 17.42%
======== ======== ======== ======== ======== ========
Ratios/Supplemental Data
- ------------------------
Net assets, end of period (000's omitted)... $534,229 $557,525 $478,511 616,081 509,158 509,206
Ratio of expenses to average net assets..... 2.27%(c) 2.08% 1.60% 1.48% 1.57% 1.93%
Ratio of expenses to average net assets
excluding interest expense................. 1.24%(c) 1.29% 1.18% 1.17% 1.16% 1.30%
Ratio of net investment income to
average net assets......................... 10.16%(c) 11.10% 9.56% 10.06% 9.44% 11.66%
Portfolio turnover rate..................... 156% 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 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.
(c) Annualized.
12
<PAGE>
Additional Information ACM Government Income Fund, Inc.
- --------------------------------------------------------------------------------
Supplemental Proxy Information
The Annual Meeting of Shareholders of the ACM Government Income Fund, Inc. was
held on Friday, May 24, 1996. 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> <C>
1. To elect directors: Class Two Directors
(term expires in 1999)
David H. Dievler 45,091,576 797,409
Dr. James M. Hester 45,076,425 812,560
The Hon. James D. Hodgson 45,026,374 862,611
</TABLE>
<TABLE>
<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, 1996: 45,134,839 284,067 470,079
</TABLE>
13
<PAGE>
ACM Government Income Fund, Inc.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
BOARD OF DIRECTORS
John D. Carifa, Chairman Dr. James M. Hester (1)
Ruth Block (1) Hon. James D. Hodgson (1)
David H. Dievler (1) Clifford L. Michel (1)
James R. Greene (1) Robert C. White (1)
OFFICERS
Wayne D. Lyski, President Edmund P. Bergan, Jr., Secretary
Kathleen A. Corbet, Senior Vice President Mark D. Gersten, Treasurer & Chief Financial Officer
Paul J. DeNoon, Vice President Joseph J. Mantineo, Controller
Susan Peterson, Vice President
ADMINISTRATOR INDEPENDENT AUDITORS
Mitchell Hutchins Asset Management Inc. Ernst & Young LLP
1285 Avenue of the Americas 787 Seventh Avenue
New York, NY 10019 New York, NY 10019
CUSTODIAN, DIVIDEND PAYING AGENT, TRANSFER AGENT AND REGISTRAR
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
</TABLE>
- --------------------------------------------------------------------------------
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.
(1) Member of the Audit Committee.
14
<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)/
Investing without the Mystery./SM/
/(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, 1996
Alliance(R)
Investing without the Mystery./SM/
