<PAGE>
Letter To Shareholders ACM Government Income Fund
================================================================================
August 4, 1997
Dear Shareholder:
The U.S. bond market posted modest gains through the first half of 1997. After
trading lower during the first quarter on fears that too-strong growth would
ignite inflation, the market rebounded in the second quarter. Data released
during the quarter indicated that the economy had slowed from its unsustainable
first quarter pace and inflation remained dormant, thus easing investor concerns
and pushing the market higher.
Interest rates, which peaked in late spring following the Fed's decision to
raise the Fed Funds rate, ended the period lower on all maturities. Among
investment-grade bonds, mortgage-backed securities were the best performing,
followed by corporates, asset-backed and government securities.
Outside the U.S., low inflation throughout the world helped emerging markets to
continue their strong performance. In many developed markets, however, low
inflation was offset by improving growth prospects.
INVESTMENT RESULTS*
Total returns for the periods ended June 30, 1997.
6 Months 12 Months
-------- ---------
ACM Government
Income Fund 4.94% 22.50%
Lehman Brothers
Aggregate Bond Index 3.09 8.15
* Total returns are based on net asset value.
INVESTMENT STRATEGY
The Fund's outperformance is due primarily to the Fund's U.S. holdings. In
particular, the Fund's holdings of mortgage-backed securities performed well as
stabilizing interest rates increased investor demand for yield-oriented
securities, driving prices higher. The portfolio's modestly longer duration
(relative to the benchmark) also contributed positively to performance, as did
strong performance in the emerging market debt sector.
ECONOMIC REVIEW
The U.S. economy continued its strong growth in early 1997, led by continued
strength in the labor market. The unemployment rate dropped to twenty-year lows
and wages continued to climb. In response to the continued economic strength and
what were viewed as mounting inflationary pressures, the Federal Reserve Bank
raised short-term interest rates in March. Overall, economic growth, which had
risen to 3.8% at the end of 1996, further accelerated to 4.9% during the first
quarter of 1997.
In Germany and France, deteriorating fiscal conditions increased the probability
of a broader, more inclusive European Monetary Union and heightened concerns
that the new Euro currency will be weaker than the German deutschmark.
Throughout Europe, stronger growth reduced hopes of further monetary easing.
In Canada, strong growth and currency weakness prompted official interest rate
increases late in the period under review. Meanwhile, the central banks in
Australia and New Zealand lowered interest rates as inflation fell.
The emerging market economies, benefiting from generally stable or falling
worldwide interest rates, moved into their second year of healthy growth and low
inflation. With sustained strength in export markets, the benefits of reform
have begun to penetrate deeper into the emerging market economies. Declining
unemployment has relieved some political pressures and strengthened commitment
to the ongoing process of reform and revitalization.
1
<PAGE>
ACM Government Income Fund
===============================================================================
INVESTMENT OUTLOOK
We expect economic activity to accelerate somewhat in the third quarter.
Consumer confidence has reached new highs, real income is growing solidly and
the labor market remains strong, with unemployment at 5.0%. We expect this re-
acceleration to be moderate, with economic growth averaging 3.0% to 3.5% for
1997. With multi-quarter growth trending above the level historically considered
to be non-inflationary, Federal Reserve policymakers will continue to closely
monitor inflationary pressures with a bias towards increasing rates at the first
sign of economic overheating.
Outside of the U.S., we expect inflation to be restrained and growth to remain
positive. Despite the occasional comment about postponing European Monetary
Union, we believe it will proceed and the historically weaker markets,
particularly Spain and Italy, will outperform Germany and the other stronger
countries. While general conditions in Japan are improving, the recovery is
uneven, with large multinational corporations faring much better than those
businesses that depend on the domestic market; we do not foresee changes in
Japanese monetary policy this year. Canada has already embarked on what will
likely be a series of official rate increases.
Given our expectations for relatively stable growth, inflation and monetary
policy worldwide, the developing markets should provide investment opportunities
as the process of reform and integration continues. However, the generic risk
premiums for these countries are more rationally aligned with economic
fundamentals than they have been for some time and caution is warranted. We
believe that country selection will be more critical than in the last several
quarters.
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, 1997 (unaudited) ACM Government Income Fund
================================================================================
Principal
Amount
(000) U.S. $ Value
- --------------------------------------------------------------------
U.S. GOVERNMENT
OBLIGATIONS-92.8%
U.S. Treasury Bonds-68.3%
Zero coupon, 5/15/09 US$ 6,250 $ 2,823,875
Zero coupon, 2/15/10 83,620 35,817,791
Zero coupon, 5/15/10 112,340 47,236,723
Zero coupon, 2/15/11 42,700 16,989,903
6.50%, 11/15/26 (a) 21,000 20,140,260
6.75%, 8/15/26 (a) 60,550 59,925,730
12.375%, 5/15/04 (a) 46,380 61,272,154
12.50%, 8/15/14 (a) 18,700 27,497,789
14.00%, 11/15/11 (a) 91,030 137,184,941
-----------
408,889,166
-----------
U.S. Treasury Notes-24.5%
6.25%, 10/31/01 (a) 11,000 10,948,410
6.25%, 2/15/07 (a) 54,500 53,324,980
6.625%, 3/31/02 (a) 52,900 53,379,274
6.625%, 5/15/07 (a) 29,000 29,240,120
-----------
146,892,784
-----------
Total U.S. Government
Obligations
(cost $563,872,321) 555,781,950
-----------
SOVEREIGN DEBT
RELATED--22.0%
Morgan Guaranty Trust Co.
Indexed Note
Linked to Russian US$
Vneshekonombank
Loan Assignment
14.00%, 8/15/97 (g)
(cost $130,081,875) 130,082 131,486,759
-----------
SOVEREIGN DEBT
OBLIGATIONS-13.7%
ARGENTINA-2.0%
Republic of Argentina
Bocon Provisional
Series 1 FRN
3.356%, 4/01/07 (b) ARS 15,188 11,808,070
-----------
Contracts or
Principal
Amount
(000) U.S. $ Value
- --------------------------------------------------------------------
BRAZIL-2.5%
Republic of Brazil
C-Bonds
8.00%, 4/15/14 (c) US$ 18,939 $ 15,228,128
------------
PANAMA-2.1%
Republic of Panama
PDI
6.5625%, 7/17/16 (d)(e) 13,943 12,261,411
------------
PERU-5.4%
Republic of Peru
FLIRB
3.25%, 3/07/17 (e)(f) 53,800 32,145,500
------------
RUSSIA-1.7%
Government of Russia
Ministry of Finance
10.00%, 6/26/07 (f) 10,200 10,169,400
------------
Total Sovereign
Debt Obligations
(cost $80,293,162) 81,612,509
------------
LOAN PARTICIPATION
& ASSIGNMENTS-2.1%
MOROCCO-2.1%
Kingdom of Morocco
Loan Participation FRN
6.8125%, 1/01/09
(cost $12,193,460) 13,750 12,607,031
------------
CALL OPTION
PURCHASED-0.0%
GBP -vs.- DEM Spread Option
expiring 7/16/97@ DEM 1.44 (h)
(cost $550,000) 500 210,000
------------
TOTAL INVESTMENTS-130.6%
(cost $786,990,818) 781,698,249
Other assets less
liabilities--(30.6%) (182,953,380)
------------
NET ASSETS-100% $598,744,869
============
3
<PAGE>
Portfolio Of Investments (unaudited)(cont.) ACM Government Income Fund
================================================================================
- --------------------------------------------------------------------------------
(a) Securities, or portion thereof, have been segregated to collateralize a
when-issued security whose settlement date has yet to be determined. Total
value of segregated securities amounted to $452,913,658 at June 30, 1997.
(b) All interest is paid-in-kind.
(c) Coupon consists of 4.50% cash payment and 3.50% paid-in-kind.
(d) Coupon consists of 4.00% cash payment and 2.5625% paid-in-kind.
(e) Coupon increases periodically based upon a predetermined schedule.
Stated interest rate in effect at June 30, 1997.
(f) Securities exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At June 30, 1997,
these securities amounted to $42,314,900 or 7.1% of net assets.
(g) 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.
(h) Non-income producing security.
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 June 30, 1997.
PDI--Past due interest bond.
See notes to financial statements.
4
<PAGE>
Statement Of Assets And Liabilities
June 30, 1997 (unaudited) ACM Government Income Fund
================================================================================
ASSETS
Investments in securities, at value (cost $786,990,818).... $781,698,249
Receivable for investment securities sold.................. 65,890,210
Interest receivable........................................ 9,668,984
Prepaid expenses........................................... 53,245
------------
Total assets............................................... 857,310,688
------------
LIABILITIES
Loan payable............................................... 90,000,000
Due to custodian........................................... 142,938
Payable for investment securities purchased................ 166,927,134
Loan interest payable...................................... 733,500
Advisory fee payable....................................... 393,181
Administrative fee payable................................. 86,505
Accrued expenses........................................... 282,561
------------
Total liabilities.......................................... 258,565,819
------------
NET ASSETS................................................... $598,744,869
============
COMPOSITION OF NET ASSETS
Capital stock, at par...................................... $ 575,333
Additional paid-in capital................................. 615,909,050
Undistributed net investment income........................ 7,131,484
Accumulated net realized loss on investments
and foreign currency transactions........................ (19,652,298)
Net unrealized depreciation of investments and foreign
currency denominated assets and liabilities.............. (5,218,700)
------------
$598,744,869
============
NET ASSET VALUE PER SHARE (based on 57,533,299 shares
outstanding)............................................... $10.41
======
- --------------------------------------------------------------------------------
See notes to financial statements.
5
<PAGE>
Statement Of Operations
Six Months Ended June 30, 1997 (unaudited) ACM Government Income Fund
================================================================================
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME
Interest................................................... $33,216,807
EXPENSES
Advisory fee............................................... $2,403,030
Administrative fee......................................... 507,905
Transfer agency............................................ 110,098
Custodian.................................................. 84,085
Audit and legal............................................ 60,063
Reports and notices to shareholders........................ 48,037
Registration fee........................................... 22,227
Taxes...................................................... 16,317
Directors' fees............................................ 15,928
Miscellaneous.............................................. 24,595
----------
Total expenses before interest............................. 3,292,285
Interest expense........................................... 2,682,781
----------
Total expenses............................................. 5,975,066
-----------
Net investments income..................................... 27,241,741
-----------
REALIZED AND UNREALIZED GAIN (LOSS ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS
Net realized gain on investment transactions............... 26,588,125
Net realized gain on foreign currency transactions......... 803,010
Net change in unrealized appreciation of:
Investments.............................................. (25,121,250)
Foreign currency denominated assets and liabilities...... (995,231)
-----------
Net realized and unrealized gain on investments and
foreign currency transactions............................ 1,274,654
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS................... $28,516,395
===========
<CAPTION>
Statement Of Changes In Net Assets
====================================================================================================
Six Months Ended
June 30, 1997 Year Ended
(unaudited) December 31, 1996
-------------------- --------------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
<S> <C> <C>
Net investment income................................. $ 27,241,741 $ 54,051,986
Net realized gain on investments and foreign
currency transactions............................... 27,391,135 19,178,729
Net change in unrealized appreciation of investments
and foreign currency denominated assets and
liabilities......................................... (26,116,481) 12,618,010
-------------- -------------
Net increase in net assets from operations............ 28,516,395 85,848,725
DIVIDENDS TO SHAREHOLDERS
Dividends from net investment income.................. (21,550,323) (54,051,986)
Dividends in excess of net investment income.......... -0- (1,772,419)
COMMON STOCK TRANSACTIONS
Reinvestment of dividends resulting in issuance of
Common Stock.......................................... 1,606,182 2,623,620
-------------- -------------
Total increase........................................ 8,572,254 32,647,940
NET ASSETS
Beginning of year..................................... 590,172,615 557,524,675
-------------- -------------
End of period (including undistributed net investment
income of $7,131,484 and $1,440,066, respectively).. $ 598,744,869 $ 590,172,615
============== =============
- ---------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
6
<PAGE>
Statement Of Cash Flows
Six Months Ended June 30, 1997 (unaudited) ACM Government Income Fund
================================================================================
INCREASE (DECREASE) IN CASH FROM
OPERATING ACTIVITIES:
Interest received......................... $ 33,048,452
Interest paid............................. (2,652,781)
Operating expenses paid................... (3,406,772)
--------------
Net increase in cash from operating
Activities.............................. $ 26,988,899
INVESTING ACTIVITIES:
Purchases of long-term investments........ (1,104,846,854)
Proceeds from disposition of long-term
investments............................. 1,114,565,164
Purchases of short-term investment--net... (10,309,042)
--------------
Net decrease in cash from investing
activities.............................. (590,732)
FINANCING ACTIVITIES*:
Cash dividends paid....................... (26,542,094)
-------------
Net decrease in cash...................... (143,927)
Cash at beginning of year................. 989
-------------
Cash at end of period..................... $ (142,938)
=============
================================================================================
RECONCILIATION OF NET INCREASE IN NET ASSETS
FROM OPERATIONS TO NET INCREASE IN CASH
FROM OPERATING ACTIVITIES:
Net increase in net assets resulting
from operations......................... $ 28,516,395
ADJUSTMENTS:
Decrease in interest receivable........... $ 3,955,657
Accretion of bond discount................ (4,124,012)
Decrease in accrued expenses.............. (84,487)
Net gain on investments................... (1,274,654)
------------
Total adjustments......................... (1,527,496)
------------
NET INCREASE IN CASH FROM OPERATING
ACTIVITIES................................ $ 26,988,899
============
- --------------------------------------------------------------------------------
*Non-cash financing activities not included herein consist of reinvestment of
dividends.
See notes to financial statements.
<PAGE>
Notes To Financial Statements
June 30, 1997 (unaudited) ACM Government Income Fund
================================================================================
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
the date securities are purchased or sold. 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 foreign 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 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.
For federal income tax purposes, the Fund's distributions of income and capital
gains are subject to recharacterization, which may include a tax return of
capital, at the end of the year to reflect the final investment results for that
year.
8
<PAGE>
ACM Government Income Fund
================================================================================
NOTE B: Advisory and Administrative Fee
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, 1/12 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).
Under the terms of a Shareholder Inquiry Agency Agreement with Alliance Fund
Services, Inc. ("AFS"), an affiliate of the Adviser, the Fund reimburses AFS for
costs relating to servicing phone inquiries on behalf of the Fund. During the
six months ended June 30, 1997, 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 $371,373,768 and $429,501,503,
respectively, for the six months ended June 30, 1997. There were purchases of
$671,138,139 and sales of $725,860,689 of U.S. government and government agency
obligations during the six months ended June 30,1997.
At June 30, 1997, the cost of investments for federal income tax purposes was
$793,970,479. Accordingly, gross unrealized appreciation of investments was
$3,434,098, and gross unrealized depreciation of investments was $15,706,328,
resulting in net unrealized depreciation of $12,272,230, (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
reflected for financial reporting purposes as a component of net unrealized
depreciation of investments and 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.
Risks may arise from the potential inability of a counterparty to meet the terms
of a contract and from unanticipated movements in the value of foreign
currencies relative to the U.S. dollar.
At June 30, 1997, the Fund had no outstanding forward exchange currency
contracts.
9
<PAGE>
Notes To Financial Statements (unaudited)(cont.) ACM Government Income Fund
================================================================================
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 six months ended June 30, 1997, the Fund did not have any written option
transactions.
3. 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 a component of net
change in unrealized appreciation of investments.
At June 30, 1997, the Fund had no outstanding interest rate swap contracts.
10
<PAGE>
ACM Government Income Fund
================================================================================
NOTE D: Capital Stock
There are 300,000,000 shares of $0.01 par value common stock authorized, of
which 57,533,299 shares were outstanding at June 30, 1997. During the six months
ended June 30, 1997 and the year ended December 31, 1996, the Fund issued
159,794 and 280,075 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
such amount was outstanding for the entire six months ended June 30, 1997.
The renewable credit facility of $90,000,000 will expire on August 13, 1997 and
requires no collateralization. The facility may be renewed by the Fund annually
for an additional one-year term.
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, 1997 was 6.01%. The interest rate at June 30, 1997 was
6.1125%. 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 Period
<TABLE>
<CAPTION>
Six Months
Ended Year Ended December 31,
June 30, 1997 -----------------------------------------------
(unaudited) 1996 1995 1994 1993 1992
----------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year............... $10.29 $ 9.77 $ 8.45 $11.05 $10.51 $10.59
Income From Investment Operations
- ---------------------------------
Net investment income (a)........................ .48 .94 .99 .91 1.14 .99
Net realized and unrealized gain (loss) on
investments, options written and
foreign currency transactions.................. .02 .55 1.30 (2.51) 1.32 (.08)
------ ------ ------ ------ ------- -----
Net increase (decrease) in net asset
value from operations.......................... .50 1.49 2.29 (1.60) 2.46 .91
------ ------ ------ ------ ------- -----
Less: Dividends and Distributions
- ---------------------------------
Dividends from net investment income............. (.38) (.94) (.97) (.76) (1.15) (.99)
Distributions in excess of net
investment income.............................. -0- (.03) -0- -0- -0- -0-
Distributions from net realized gains............ -0- -0- -0- -0- (.53) -0-
Tax return of capital distribution............... -0- -0- -0- (.24) -0- -0-
------ ------ ------ ------ ------- -----
Total dividends and distributions................ (.38) (.97) (.97) (1.00) (1.68) (.99)
------ ------ ------ ------ ------- -----
Capital Share Transactions
- --------------------------
Dilutive effect of rights offering............... -0- -0- -0- -0- (.23) -0-
Offering costs charged to additional
paid-in capital................................ -0- -0- -0- -0- (.01) -0-
------ ------ ------ ------ ------- -----
Total capital share transactions................. -0- -0- -0- -0- (.24) -0-
------ ------ ------ ------ ------- -----
Net asset value, end of period................... $10.41 $10.29 $ 9.77 $ 8.45 $11.05 $10.51
====== ====== ====== ====== ====== ======
Market value, end of period...................... $10.44 $10.25 $9.125 $9.125 $12.25 $11.00
====== ====== ====== ====== ====== ======
Total Investment Return
- -----------------------
Total investment return based on: (b)
Market value................................... 5.63% 24.15% 11.37% (17.67)% 28.89% 8.59%
Net asset value................................ 4.94% 16.40% 28.73% (15.48)% 21.47% 8.97%
Ratios/Supplemental Data
- ------------------------
Net assets, end of period (000's omitted)........ $598,745 $590,173 $557,525 $478,511 $616,081 $509,158
Ratio of expenses to average net assets.......... 2.06%(c) 2.17% 2.08% 1.60% 1.48% 1.57%
Ratio of expenses to average net assets
excluding interest expense (d)................. 1.14%(c) 1.18% 1.29% 1.18% 1.17% 1.16%
Ratio of net investment income to average
net assets..................................... 9.40%(c) 9.78% 11.10% 9.56% 10.06% 9.44%
Portfolio turnover rate.......................... 150% 349% 380% 298% 424% 521%
- ----------------------------------------------------------------------------------------------------------------------------
</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.
(d) Net of interest expense of .92%, .99%, .79%, .42%, .31% and .41%,
respectively, on loan agreements (See Note E).
12
<PAGE>
Additional Information ACM Government Income Fund
================================================================================
Supplemental Proxy Information
The Annual Meeting of Shareholders of the ACM Government Income Fund was held on
Thursday, July 10, 1997. The description of each proposal and number of shares
voted at the meeting are as follows:
Shares Shares Voted
Voted For Without Authority
- --------------------------------------------------------------------------------
1. To elect directors: Class Three Directors
(term expires in 2000)
Ruth Block 47,215,367 872,445
John D. Carifa 47,283,954 803,858
Robert C. White 47,144,901 942,911
Class One Director
(term expires in 1998)
Donald J. Robinson 47,249,624 838,188
Shares Shares Shares Voted
Voted For Voted Against Abstain
- --------------------------------------------------------------------------------
2. To ratify the selection of
Ernst & Young LLP as the Fund's
independent auditors for the
fiscal year ending December
31, 1997: 47,254,228 264,634 568,950
13
<PAGE>
ACM Government Income Fund
================================================================================
BOARD OF DIRECTORS
John D. Carifa, Chairman
Ruth Block (1)
David H. Dievler (1)
James R. Greene (1)
Clifford L. Michel (1)
Dr. James M. Hester (1)
Robert C. White (1)
OFFICERS
Wayne D. Lyski, President
Kathleen A. Corbet, Senior Vice President
Paul J. DeNoon, Vice President
Christian G. Wilson, 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
INDEPENDENT AUDITORS
Ernst & Young LLP
787 Seventh Avenue New
York, NY 10019
CUSTODIAN, DIVIDEND PAYING AGENT,
TRANSFER AGENT AND REGISTRAR
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
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.
14
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<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."
Additional information about the Fund is available by calling 1-800-221-5672.
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](R)
(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, 1997
ALLIANCE(R)
