<PAGE>
LETTER TO SHAREHOLDERS ACM Government Income Fund
================================================================================
February 11, 1997
Dear Shareholder:
U.S. bond market returns were subdued throughout 1996. Stronger-than-expected
job growth and uncertainty about whether the Federal Reserve would raise
interest rates to slow economic growth kept bond market returns negative for
much of the year. The fixed-income market rallied towards the end of 1996,
pushing market returns into positive territory for the first time since January,
as the fear of accelerating inflation diminished. Across all major sectors of
the bond market, interest rates for all maturities increased, causing
shorter-duration securities to outperform longer-duration securities.
Mortgage-backed securities were the best performing sector of the domestic,
investment-grade bond market as higher interest rates slowed mortgage prepayment
expectations. Outside the U.S., slow worldwide economic growth and low inflation
provided a favorable investment environment for both developed market and
emerging market debt.
During the 6- and 12-month periods ended December 31, 1996, your Fund
outperformed the Lehman Brothers Aggregate Bond Index. This outperformance is
due primarily to strong performance in the emerging and developed non-U.S. bond
markets and to management's country selection within these sectors. At year-end,
your Fund's net asset value was $10.29 per share.
INVESTMENT RESULTS*
Total returns for the periods ended December 31, 1996.
6 Months 12 Months
-------- ---------
ACM Government Income
Fund 16.71% 16.40%
Lehman Brothers Aggregate
Bond Index 4.90 3.63
* Total returns are based on net asset value.
ECONOMIC REVIEW
The U.S. economy finished 1996 on a strong note. After moderating in the third
quarter, the economy picked up speed in the fourth quarter, led by a rebound in
consumer spending. The annualized gain in retail sales of merchandise jumped to
4.8% in the fourth quarter, up from only 0.9% in the third quarter. Exports
surged by an annualized 32.7% in October and November, unexpectedly adding to
year-end growth. The production side of the economy also showed strength.
Industrial production grew at an annualized pace of 6.0% and monthly payroll
growth increased to 217,000, up from third quarter's average of 171,000. In all,
growth in aggregate output (gross domestic product or GDP), which dipped to 2.1%
in the third quarter, accelerated to 4.7% during the final three months of 1996.
Broad inflation measures were slightly higher at the end of 1996 as consumer
prices increased 3.3% year-over-year and producer prices were up 2.8%. However,
excluding the volatile food and energy sectors, inflation remained very
well-behaved with year-over-year consumer and producer prices up only 2.6% and
0.6%, respectively.
CURRENT OUTLOOK
Our outlook for the U.S. economy assumes that while economic growth accelerated
at the end of 1996, it will moderate again during the first half of 1997. As
this occurs, current upward pressures on inflation should dissipate. Until clear
signs of a slowing economy emerge, concerns about inflation will keep U.S.
interest rates within their recent ranges. The Fed remains on hold with its
neutral-to-slightly-restrictive policy. Given justified concerns about the
economic outlook, further near-term weakness in bond prices and higher bond
yields cannot be ruled-out. However, such developments would only facilitate the
economic slowing we see later in 1997.
1
<PAGE>
ACM Government Income Fund
================================================================================
Overall, we think the non-dollar bond markets will continue to outperform the
U.S. Treasury market into 1997. Continued tight fiscal policy in Europe as
countries move to meet the requirements for monetary union should support higher
bond prices in the upcoming year.
We continue to have a favorable outlook for emerging market debt. Ongoing
economic reforms in a worldwide environment of moderate growth and generally low
inflation should support further gains in this sector. However, as risk premiums
for this asset class have narrowed from their highs at the end of 1994, we
expect the pace of price appreciation of these securities to slow.
As always, we appreciate your continued interest and investment in ACM
Government Income Fund and look forward to continuing to serve your investment
needs.
Sincerely,
/s/ John D. Carifa
John D. Carifa
Chairman
/s/ Wayne D. Lyski
Wayne D. Lyski
President
2
<PAGE>
PORTFOLIO OF INVESTMENTS
December 31, 1996 ACM Government Income Fund
================================================================================
Principal
Amount
(000) U.S. $ Value
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY
OBLIGATIONS--105.2%
U.S. TREASURY
SECURITIES--97.8%
U.S. Treasury Bonds
Zero coupon, 5/15/09 ......... US$ 6,250 $ 2,769,687
Zero coupon, 2/15/10 ......... 83,620 35,110,366
Zero coupon, 5/15/10 ......... 112,340 46,342,497
Zero coupon, 2/15/11 ......... 42,700 16,701,251
6.50%, 11/15/26 (a) .......... 22,500 22,081,725
6.75%, 8/15/26 (a) ........... 67,550 68,056,625
12.375%, 5/15/04 (a) ......... 46,380 62,569,403
12.50%, 8/15/14 (a) .......... 18,700 27,947,711
14.00%, 11/15/11 (a) ......... 91,030 139,973,190
U.S. Treasury Notes
6.25%, 10/31/01 (a) .......... 22,000 22,020,680
6.50%, 8/15/05 (a) ........... 43,300 43,577,553
6.50%, 10/15/06 (a) .......... 51,000 51,278,970
8.50%, 4/15/97 (a) ........... 38,000 38,332,500
-------------
Total U.S. Treasury
Securities ................... 576,762,158
-------------
MORTGAGE RELATED
SECURITY--7.4%
Federal National Mortgage
Association TBA
8.00%, 1/01/99 ............... 43,000 43,806,250
-------------
Total U.S. Government and
Agency Obligations
(cost $625,460,690) .......... 620,568,408
-------------
SOVEREIGN DEBT
OBLIGATIONS--24.4%
CANADA--6.5%
Canadian Government
8.00%, 6/01/23 ............... CA$ 35,000 28,461,597
NAV Canada
7.40%, 6/01/27 ............... 13,850 10,021,602
-------------
Total Canadian Securities ...... 38,483,199
-------------
PANAMA--7.8%
Republic of Panama
IRB
3.50%, 7/17/14 (b) ........... US$ 65,950 45,917,687
-------------
PERU--7.1%
Republic of Peru
FLIRB
3.25%, 3/15/16 (b)(c)(d) ..... 22,500 12,375,000
PDI
4.00%, 12/01/17 (b)(c)(d) .... 50,400 29,799,000
-------------
Total Peruvian
Securities ................... 42,174,000
-------------
RUSSIA--3.0%
Russia Principal Loans, FRN
12/29/20 (c)(d) .............. 30,000 17,643,750
-------------
Total Sovereign Debt
Obligations
(cost $135,570,310) .......... 144,218,636
-------------
SOVEREIGN DEBT
RELATED--18.9%
Morgan Guaranty Trust Co.
Indexed Note
Linked to Russian US$
Vneshekonombank
Loan Assignment
14.00%, 2/28/97 (e)
(cost $95,722,313) ........... 95,722 111,794,950
-------------
TIME DEPOSIT--0.2%
State Street Bank & Trust Co.,
Cayman Islands
5.00%, 1/02/97
(cost $1,026,000) ............ 1,026 1,026,000
-------------
TOTAL INVESTMENTS--148.7%
(cost $857,779,313) .......... 877,607,994
Other assets less
liabilities--(48.7%) ......... (287,435,379)
-------------
NET ASSETS--100.0% ............. $ 590,172,615
=============
3
<PAGE>
PORTFOLIO OF INVESTMENTS (continued) ACM Government Income Fund
================================================================================
- --------------------------------------------------------------------------------
(a) Securities, or portion thereof, have been segregated to collateralize
forward exchange currency contracts, when issued securities and the TBA
security. Total value of segregated securities amounted to $475,838,357 at
December 31, 1996.
(b) Coupon increases periodically based upon a predetermined schedule. Stated
interest rate in effect at December 31, 1996.
(c) Securities are 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,
1996, these securities amounted to $59,817,750 or 10.1% of net assets.
(d) When issued.
(e) 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:
FLIRB--Front loaded interest reduction bond.
FRN--Floating rate note. Coupon will fluctuate based upon an interest rate
index. Stated interest rate in effect at December 31, 1996.
IRB--Interest reduction bond.
PDI--Past due interest bond.
TBA--To be announced
See notes to financial statements.
4
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996 ACM Government Income Fund
================================================================================
ASSETS
Investments in securities, at value (cost $857,779,313) .... $ 877,607,994
Cash ....................................................... 989
Receivable for investment securities sold .................. 25,330,781
Interest receivable ........................................ 13,597,757
Net unrealized appreciation of forward exchange currency
contracts ................................................ 1,022,117
-------------
Total assets ............................................... 917,559,638
-------------
LIABILITIES
Payable for investment securities purchased ................ 229,262,081
Loan payable ............................................... 90,000,000
Dividend payable ........................................... 6,597,953
Loan interest payable ...................................... 703,500
Advisory fee payable ....................................... 382,553
Administrative fee payable ................................. 86,079
Accrued expenses ........................................... 354,857
-------------
Total liabilities .......................................... 327,387,023
-------------
NET ASSETS ................................................... $ 590,172,615
=============
COMPOSITION OF NET ASSETS
Capital stock, at par ...................................... $ 573,735
Additional paid-in capital ................................. 614,304,466
Undistributed net investment income ........................ 1,440,066
Accumulated net realized loss on investments and foreign
currency transactions .................................... (47,043,433)
Net unrealized appreciation of investments and foreign
currency denominated assets and liabilities .............. 20,897,781
-------------
$ 590,172,615
=============
NET ASSET VALUE PER SHARE (based on 57,373,505 shares
outstanding) ............................................... $ 10.29
=============
- --------------------------------------------------------------------------------
See notes to financial statements.
5
<PAGE>
STATEMENT OF OPERATIONS
Year Ended December 31, 1996 ACM Government Income Fund
================================================================================
INVESTMENT INCOME
Interest ........................................... $66,058,469
EXPENSES
Advisory fee ....................................... $ 4,685,977
Administrative fee ................................. 964,786
Transfer agency .................................... 283,005
Reports and notices to shareholders ................ 189,185
Custodian .......................................... 161,210
Audit and legal .................................... 114,775
Registration fee ................................... 50,695
Taxes .............................................. 36,300
Directors' fees .................................... 30,000
Miscellaneous ...................................... 29,925
-----------
Total expenses before interest ..................... 6,545,858
Interest expense ................................... 5,460,625
-----------
Total expenses ..................................... 12,006,483
-----------
Net investment income .............................. 54,051,986
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS
Net realized gain on investments ................... 16,785,003
Net realized gain on foreign currency transactions . 2,393,726
Net change in unrealized appreciation of:
Investments ....................................... 12,183,017
Foreign currency denominated assets and
liabilities ..................................... 434,993
-----------
Net realized and unrealized gain on investments and
foreign currency transactions .................... 31,796,739
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS ........... $85,848,725
===========
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
=============================================================================================
Year Ended Year Ended
December 31, 1996 December 31, 1995
----------------- -----------------
<S> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS
Net investment income .............................. $ 54,051,986 $ 55,936,499
Net realized gain on investments, options written
and foreign currency transactions ................ 19,178,729 9,609,193
Net change in unrealized appreciation (depreciation)
of investments, options written and foreign currency
denominated assets and liabilities ............... 12,618,010 64,532,677
------------- -------------
Net increase in net assets from operations ......... 85,848,725 130,078,369
DIVIDENDS TO SHAREHOLDERS
Dividends from net investment income ............... (54,051,986) (55,314,678)
Dividends in excess of net investment income ....... (1,772,419) -0-
COMMON STOCK TRANSACTIONS
Reinvestment of dividends resulting in issuance of
Common Stock ..................................... 2,623,620 4,249,825
------------- -------------
Total increase ..................................... 32,647,940 79,013,516
NET ASSETS
Beginning of year .................................. 557,524,675 478,511,159
------------- -------------
End of year (including undistributed net investment
income of $1,440,066 at December 31, 1996) ....... $ 590,172,615 $ 557,524,675
============= =============
</TABLE>
- --------------------------------------------------------------------------------
See notes to financial statements.
6
<PAGE>
STATEMENT OF CASH FLOWS
Year Ended December 31, 1996 ACM Government Income Fund
================================================================================
<TABLE>
<S> <C> <C>
INCREASE (DECREASE) IN CASH FROM
OPERATING ACTIVITIES:
Interest received ................................ $ 60,140,992
Interest paid .................................... (5,041,187)
Operating expenses paid .......................... (6,485,304)
---------------
Net increase in cash from operating activities ... $ 48,614,501
INVESTING ACTIVITIES:
Purchases of long-term investments ............... (2,451,226,933)
Proceeds from disposition of long-term investments 2,507,190,441
Purchases of short-term investments--net ......... (59,909,543)
---------------
Net decrease in cash from investing activities ... (3,946,035)
FINANCING ACTIVITIES*:
Cash dividends paid .............................. (48,886,569)
-------------
Net decrease in cash ............................. (4,218,103)
Decrease in appreciation of foreign currency ..... (713)
Cash at beginning of year ........................ 4,219,805
-------------
Cash at end of year .............................. $ 989
=============
- --------------------------------------------------------------------------------
RECONCILIATION OF NET INCREASE IN NET ASSETS FROM -------------
OPERATIONS TO NET INCREASE IN CASH FROM OPERATING
ACTIVITIES:
Net increase in net assets from operations ....... $ 85,848,725
ADJUSTMENTS:
Decrease in interest receivable .................. $ 2,840,325
Accretion of bond discount ....................... (8,757,802)
Increase in accrued expenses ..................... 479,992
Net gain on investments .......................... (31,796,739)
---------------
Total adjustments ............................... (37,234,224)
-------------
NET INCREASE IN CASH FROM OPERATING ACTIVITIES ..... $ 48,614,501
=============
</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, 1996 ACM Government Income Fund
================================================================================
NOTE A: Significant Accounting Policies
ACM Government Income Fund, (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, holdings 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 year end exchange
rates are reflected as a component of net change in unrealized appreciation of
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.
6. Reclassification of Components of Net Assets
Due to permanent book to tax differences, a $2,393,726 foreign currency gain and
a $1,337,659 capital gain were reclassified from accumulated net realized loss
on investments and foreign currency transactions to undistributed net investment
income. These reclassifications had no effect on net assets.
8
<PAGE>
ACM Government Income Fund
================================================================================
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 1/12th of .30% of the
Fund's average weekly net assets up to $250 million, 1/12th of .25% 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).
On November 28, 1995, the Fund entered into a Shareholder Inquiry Agency
Agreement with Alliance Fund Services, Inc. ("AFS"), an affiliate of the
Adviser, whereby the Fund reimburses AFS for costs relating to servicing phone
inquiries for the Fund. During the year ended December 31, 1996 the Fund agreed
to pay AFS $11,585.
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 $1,071,308,949 and $1,202,746,204,
respectively, for the year ended December 31, 1996. There were purchases of
$1,497,101,621 and sales of $1,310,332,712 of U.S. government and government
agency obligations for the year ended December 31, 1996.
At December 31, 1996, the cost of investments for federal income tax purposes
was $866,967,571. Accordingly, gross unrealized appreciation of investments was
$26,855,828 and gross unrealized depreciation of investments was $16,215,405,
resulting in net unrealized appreciation of $10,640,423 (excluding foreign
currency transactions) on a federal income tax basis.
At December 31, 1996, the Fund had a capital loss carryforward of $37,855,175 of
which $15,910,659 expires in the year 2002 and $21,944,516 expires in the year
2003.
1. Forward Exchange Currency Contracts
The Fund enters into forward exchange currency contracts for investment purposes
and in order to hedge its exposure to changes in foreign currency exchange rates
on its foreign portfolio holdings and to hedge certain firm purchase and sale
commitments denominated in foreign currencies. A forward exchange currency
contract is a commitment to purchase or sell a foreign currency at a future date
at a negotiated forward rate. The gain or loss arising from the difference
between the original contract and the closing of such contract is included in
net realized gain or loss on foreign currency transactions.
Fluctuations in the value of open forward exchange currency contracts are
recorded for financial reporting purposes as net change in unrealized
appreciation of foreign currency denominated assets and liabilities.
The Fund's custodian will place and maintain liquid assets in a separate account
of the Fund having a value equal to the aggregate amount of the Fund"s
commitments under forward exchange currency contracts entered into with respect
to position hedges.
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS (cont.) ACM Government Income Fund
================================================================================
Risks may arise from the potential inability of a counterparty to meet the terms
of a contract and from unanticipated movements in the value of foreign
currencies relative to the U.S. dollar. The value on origination date, in U.S.
dollars, as reflected in the following table, reflects the total exposure the
Fund has in that particular currency contract.
At December 31, 1996, the Fund had outstanding forward exchange currency
contracts as follows:
<TABLE>
<CAPTION>
Contract Value on U.S.$ Unrealized
Settlement Amount Origination Current Appreciation
Date(s) (000) Date Value (Depreciation)
---------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Foreign Currency Buy Contracts
Deutsche Marks ................ 1/21/97 30,260,000 $20,223,487 $19,691,688 $ (531,799)
Swedish Krona ................. 1/22/97 182,367,847 26,722,522 26,765,475 42,953
Foreign Currency Sale Contracts
Canadian Dollars .............. 2/12/97 53,036,233 39,070,675 38,841,180 229,495
Deutsche Marks ................ 1/21/97 30,260,000 20,156,671 19,699,418 457,253
Swedish Krona ................. 1/22/97 182,367,847 27,589,690 26,765,475 824,215
-----------
$ 1,022,117
===========
</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 option written. 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 year ended December 31, 1996, the Fund did not have any written option
transactions.
10
<PAGE>
ACM Government Income Fund
================================================================================
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 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.
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 net change in
unrealized appreciation of investments.
At December 31, 1996, the Fund had no outstanding interest rate swap contracts.
- --------------------------------------------------------------------------------
NOTE E: Capital Stock
There are 300,000,000 shares of $0.01 par value common stock authorized, of
which 57,373,505 shares were outstanding at December 31, 1996. During the years
ended December 31, 1996 and 1995, the Fund issued 280,075 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 year ended December 31, 1996.
The renewable credit facility of $90,000,000 will expire on May 14, 1997 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, 1996 was 6.07%. The interest rate at December 31, 1996 was
5.8625%. The Fund is also obligated to pay Morgan Guaranty a commitment fee
computed at the rate of .075 of 1% per annum on the average daily unused portion
of the revolving credit.
11
<PAGE>
FINANCIAL HIGHLIGHTS ACM Government Income Fund
================================================================================
Selected Data For a Share of Common Stock Outstanding Throughout Each Year
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ........... $ 9.77 $ 8.45 $ 11.05 $ 10.51 $ 10.59
--------- --------- --------- --------- ---------
Income From Investment Operations
- ---------------------------------
Net investment income (a) .................... .94 .99 .91 1.14 .99
Net realized and unrealized gain (loss) on
investments, options written and foreign
currency transactions ...................... .55 1.30 (2.51) 1.32 (.08)
--------- --------- --------- --------- ---------
Net increase (decrease) in net asset
value from operations ...................... 1.49 2.29 (1.60) 2.46 .91
--------- --------- --------- --------- ---------
Dividends and Distributions
- ---------------------------
Dividends from net investment income ......... (.94) (.97) (.76) (1.15) (.99)
Dividends in excess of net investment income . (.03) -0- -0- -0- -0-
Distributions from net realized gains ........ -0- -0- -0- (.53) -0-
Tax return of capital distribution ........... -0- -0- (.24) -0- -0-
--------- --------- --------- --------- ---------
Total dividends and distributions ............ (.97) (.97) (1.00) (1.68) (.99)
--------- --------- --------- --------- ---------
Capital Share Transactions
- --------------------------
Dilutive effect of rights offering ........... -0- -0- -0- (.23) -0-
Offering costs charged to additional
paid-in capital ............................ -0- -0- -0- (.01) -0-
--------- --------- --------- --------- ---------
Total capital share transactions ............. -0- -0- -0- (.24) -0-
--------- --------- --------- --------- ---------
Net asset value, end of year ................. $ 10.29 $ 9.77 $ 8.45 $ 11.05 $ 10.51
========= ========= ========= ========= =========
Market value, end of year .................... $ 10.25 $ 9.125 $ 9.125 $ 12.25 $ 11.00
========= ========= ========= ========= =========
Total Investment Return
- -----------------------
Total investment return based on: (b)
Market value ............................... 24.15% 11.37% (17.67)% 28.89% 8.59%
Net asset value ............................ 16.40% 28.73% (15.48)% 21.47% 8.97%
Ratios/Supplemental Data
- ------------------------
Net assets, end of year (000's omitted) ...... $ 590,173 $ 557,525 $ 478,511 $ 616,081 $ 509,158
Ratio of expenses to average net assets ...... 2.17% 2.08% 1.60% 1.48% 1.57%
Ratio of expenses to average net assets
excluding interest expense ................. 1.18%(c) 1.29% 1.18% 1.17% 1.16%
Ratio of net investment income to average
net assets ................................. 9.78% 11.10% 9.56% 10.06% 9.44%
Portfolio turnover rate ...................... 349% 380% 298% 424% 521%
</TABLE>
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(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 years where there is an increase in the discount or a
decrease in the premium of the market value to the net asset value from the
beginning to the end of such years. Conversely, total investment return
based on net asset value will be lower than total investment return based
on market value in years where there is a decrease in the discount or an
increase in the premium of the market value to the net asset value from the
beginning to the end of such years.
(c) Net of interest expense of .99% on loan agreement (see Note F).
12
<PAGE>
REPORT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS ACM Government Income Fund
================================================================================
To the Shareholders and Board of Directors
ACM Government Income Fund
We have audited the accompanying statement of assets and liabilities of ACM
Government Income Fund, including the portfolio of investments, as of December
31, 1996, 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 and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1996, 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, at December 31, 1996, 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 years, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
New York, New York
February 3, 1997
13
<PAGE>
ADDITIONAL INFORMATION ACM Government Income Fund
================================================================================
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 8200,
Boston, Massachusetts 02266-8200.
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>
ACM Government Income Fund
================================================================================
BOARD OF DIRECTORS
John D. Carifa, Chairman
Ruth Block (1)
David H. Dievler (1)
James R. Greene (1)
Dr. James M. Hester (1)
Hon. James D. Hodgson (1)
Clifford L. Michel (1)
Donald J. Robinson (1)
Robert C. White (1)
OFFICERS
Wayne D. Lyski, President
Kathleen A. Corbet, Senior Vice 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
LEGAL COUNSEL
Seward & Kissel
One Battery Park Plaza
New York, NY 10004
- --------------------------------------------------------------------------------
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 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.
15
<PAGE>
ACM Government Income Fund
Summary of General Information
The Fund
ACM Government Income Fund 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
1345 Avenue of the Americas
New York, New York 10105
Alliance Capital [LOGO]
Investing without the Mystery.
(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, 1996
Alliance (R)
Investing without the Mystery.(SM)
