<PAGE>
Letter To Shareholders ACM Government Securities Fund
================================================================================
February 20, 1998
Dear Shareholder:
This annual report contains investment results and market commentary for ACM
Government Securities Fund for the period ended December 31, 1997.
BOND MARKET REVIEW
The U.S. bond market posted solid returns in the second half of 1997. Early in
the period, interest rates remained relatively stable and investor demand for
yield oriented securities was high. In spite of strong U.S. economic growth,
inflation remained almost nonexistent, further increasing demand in the bond
market. Toward year-end, financial turmoil, which began in Southeast Asia,
spilled over into other global bond markets, including the U.S. The resulting
"flight to quality" spurred a year-end rally in U.S. Treasury securities while
negatively impacting returns in the corporate, mortgage and non-U.S. bond
sectors.
Interest rates on most maturities fell dramatically over the past six months.
The decreasing likelihood that the Federal Reserve would have to raise rates to
slow economic growth, coupled with the year-end rally in the Treasury market,
helped push interest rates to new lows. Overall, the 30-year Treasury bond,
which was yielding 6.78% at the beginning of the period, fell to 5.92% at year-
end; 5-year note yields fell from 6.37% to 5.71%.
In most developed markets outside of the U.S., growth remained positive while
inflation troughed or declined. All developed bond markets posted solid positive
returns on a hedged basis. In most emerging markets, however, the long run of
strong positive bond market performance was interrupted in the fourth quarter as
the financial crisis in Southeast Asia spilled over into other financial
markets.
INVESTMENT RESULTS
Over the six month period ended December 31, 1997, we are pleased to report that
ACM Government Securities Fund returned 9.90% at net asset value (NAV) versus
6.36% for the Lehman Brothers Aggregate Bond Index. This strong performance
versus the Fund's benchmark can be attributed primarily to the performance of
the Fund's U.S. holdings. As our view of the economic situation in Southeast
Asia deteriorated, we reduced the Fund's holdings in those securities most
likely to be negatively impacted (primarily emerging market debt) and increased
the Fund's allocation to U.S. Treasuries. When the Treasury market rallied in
the fourth quarter, your Fund's overweight position in this sector helped drive
up returns. For the 12 months ended December 31, 1997, your Fund also performed
well, returning 15.48% at NAV versus 9.65% for its benchmark.
- --------------------------------------------------------------------------------
INVESTMENT RESULTS*
Period Ended December 31, 1997
Total Return
6 Months 12 Months
-------- ---------
ACM Government
Securities Fund 9.90% 15.48%
Lehman Brothers
Aggregate Bond Index 6.36% 9.65%
*The Fund's investment results are cumulative total returns for the period and
are based on the net asset value of the Fund as of December 31, 1997. All fees
and expenses related to the operation of the Fund have been deducted. Returns
for the Fund include the reinvestment of any distributions paid during the
period. Past performance is no guarantee of future results.
The Lehman Brothers (LB) Aggregate Bond Index is composed of the Mortgage Backed
and Asset Backed Securities Indices and the Government/Corporate Bond Index. It
includes Treasury, agency and corporate bond issues, as well as mortgage-backed
securities. The index is unmanaged and does not reflect fees and expenses. An
investor cannot invest directly in the index.
1
<PAGE>
ACM Government Securities Fund
================================================================================
ECONOMIC REVIEW
The U.S. economy continues to be fundamentally strong and grew at a solid pace
in the second half of 1997. Total growth, as measured by the Gross Domestic
Product (GDP), accelerated to 4.3% in the fourth quarter, following the third
quarter's 3.1% pace. As it has all year, the labor market remained tight and
fueled economic growth. The unemployment rate dropped to 4.7% in December and
hovered near 20-year lows throughout most of the period. For the year, the U.S.
economy created 3.2 million new jobs with over one million jobs added in the
fourth quarter alone. Inflation remained remarkably absent for this late in an
expansion period. Through December, producer prices were down 1.2% from year
earlier levels while consumer prices posted a modest 1.7% gain for the same time
frame.
In Europe, attention centered on which countries will qualify for European
Monetary Union and at what currency level. Growth was moderate and dominated by
exports, while inflation dropped from the peak levels it reached during the
summer. Spain and Italy lowered short term rates, bringing them closer to other
European levels.
In Canada, growth remained strong, inflation was stable and the Central Bank
raised rates to support the weakening Canadian dollar. Meanwhile, the precarious
recovery in Japan was further jeopardized by the deepening economic and
financial turmoil in Asia.
The emerging market economies were roiled by developments in Southeast Asia. The
economic problems began in Thailand and quickly spread to Malaysia, Indonesia,
the Philippines and South Korea. Fast growth, fueled by strong capital inflows,
and overvalued currencies combined to produce large external trade deficits,
property and stock market bubbles, and overextended banking systems. The sharp
currency devaluations that occurred in these countries ignited fears that other
developing economies with managed currency regimes would suffer similar
consequences. Hong Kong, Argentina, Brazil, Russia and Korea subsequently came
under increased scrutiny and pressure. Korea was particularly hard hit with its
large current account deficit and its private sectors' heavy reliance on short
term external debt financings. Policy responses in the affected countries were
often inadequate and/or poorly articulated. This resulted in additional
volatility which spread to other markets in the region and created a ripple
effect felt from Japan to the U.S. and Europe. In many cases, fundamental
analysis temporarily took a back seat to market psychology. However, as
appropriate policy responses are implemented we believe economic fundamentals
will eventually reassert themselves.
INVESTMENT OUTLOOK
Our outlook for the U.S. remains optimistic. We expect domestic growth to slow
from its 1997 pace to a more sustainable 2.5% rate in 1998. The economic slowing
in Southeast Asia will further temper U.S. growth in the upcoming year as
exports to that region curtail. Meanwhile, the recent decline in interest rates
should moderate the anticipated slowing and provide stimulus to the economy to
ensure continued growth. The Federal Reserve is unlikely to raise interest rates
in the short term in light of the likelihood of slowing growth and the desire to
keep global liquidity at high levels. Until the repercussions of events in
Southeast Asia are fully understood, we expect interest rate volatility to
remain elevated.
Outside of the U.S., global growth should be slower and inflation pressures
should be reduced as Asia exports cheaper goods to the world and imports less
from abroad. Among the major economic blocs, the greatest impact will be felt in
Japan where weaker domestic demand will only be partially offset by a widening
trade surplus. Economic activity in Australia and New Zealand should also be
2
<PAGE>
ACM Government Securities Fund
================================================================================
dramatically lower because of these countries' substantial trading relationships
with Asia.
In Europe, the primary theme will continue to be European Monetary Union and the
convergence of interest rates across the continent. With high unemployment, low
inflation and weak domestic demand, short term rates should converge around
4.0%. This is lower than previously expected and should enable Italy and Spain
to trim rates further.
In the emerging markets, we expect volatility to remain elevated and liquidity
to remain low. Although the direction of Asia's impact is clear, the full extent
of the crisis has yet to be determined. At this juncture, stabilizing Korea is
key, and multinational efforts are clearly focused on this goal. We expect the
U.S. Treasury market to continue to be perceived as a "safe haven" for investors
until clear policy responses are outlined and there is a commitment to
implementing them. As adjustments are made, we believe markets will stabilize
and significant investment opportunities will be found in many bond markets
around the world.
Thank you for your continued interest and investment in ACM Government
Securities 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
3
<PAGE>
Portfolio Of Investments
December 31, 1997 ACM Government Securities Fund
================================================================================
Principal
Amount
(000) U.S. $ Value
- --------------------------------------------------------------------------------
U.S. GOVERNMENT
OBLIGATIONS-98.9%
U.S. TREASURY BONDS-87.0%
Zero coupon, 5/15/09........... $ 15,440 $ 7,928,594
Zero coupon, 2/15/10........... 20,080 9,837,393
Zero coupon, 5/15/10........... 235,760 113,690,545
Zero coupon, 2/15/11........... 57,500 26,440,800
6.125%, 11/15/27............... 130,200 133,801,332
6.375%, 8/15/27................ 183,955 194,015,499
12.375%, 5/15/04............... 29,320 39,517,789
14.00%, 11/15/11............... 117,840 183,112,754
--------------
708,344,706
--------------
U.S. TREASURY NOTES-11.9%
6.125%, 8/15/07................ 42,250 43,418,635
7.00%, 7/15/06................. 49,750 53,698,658
--------------
97,117,293
--------------
Total U.S. Government Obligations
(cost $787,228,786)............ 805,461,999
--------------
SOVEREIGN DEBT
OBLIGATIONS-27.7%
BRAZIL-4.8%
Republic of Brazil
10.125%, 5/15/27................ 41,250 38,723,438
--------------
ECUADOR-2.8%
Republic of Ecuador (Par)
Collateralized
3.50%, 2/28/25 (a)............. 41,250 22,739,062
--------------
PANAMA-1.4%
Republic of Panama
IRB
3.75%, 7/17/14................. 7,250 5,546,250
PDI FRN
6.6875%, 7/17/16 (b)........... 6,676 5,441,221
--------------
Total Panamanian Securities 10,987,471
--------------
PERU-2.2%
Republic of Peru
PDI
4.00%, 3/07/17 (a)............. 27,500 18,081,250
--------------
RUSSIA-16.5%
Russia Principal Loan FRN
6.71875%, 12/15/20 (c)......... 188,550 117,136,688
Russian IAN FRN
6.71875%, 12/15/15 (d)......... 24,750 17,572,500
--------------
Total Russian Securities......... 134,709,188
--------------
Total Sovereign Debt Obligations
(cost $244,504,939)............ 225,240,409
--------------
TIME DEPOSIT-5.8%
State Street Bank & Trust Co.
Cayman Islands
5.25%, 1/02/98
(cost $47,616,000)............. 47,616 47,616,000
--------------
TOTAL INVESTMENTS-132.4%
(cost $1,079,349,725).......... 1,078,318,408
Other assets less
liabilities-(32.4%)............ (263,694,145)
--------------
NET ASSETS-100.0% $ 814,624,263
==============
- --------------------------------------------------------------------------------
(a) Coupon increases periodically based upon a predetermined schedule. Stated
interest rate in effect at December 31, 1997.
(b) Coupon consists of 4.00% cash payment and 2.6875% paid-in-kind.
(c) Coupon consists of 4.00% cash payment and 2.71875% paid-in-kind.
(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 December 31,
1997, this security amounted to $17,572,500 or 2.2% of net assets.
Glossary of Terms:
FRN--Floating Rate Note. Coupon will fluctuate based upon an interest
rate index. Stated interest rate in effect at December 31, 1997.
IAN--Interest Arrears Note
IRB--Interest Reduction Bond
PDI--Past Due Interest
See notes to financial statements.
4
<PAGE>
Statement Of Assets And Liabilities
December 31, 1997 ACM Government Securities Fund
================================================================================
ASSETS
Investments in securities, at value (cost $1,079,349,725).... $1,078,318,408
Interest receivable.......................................... 13,243,432
Unrealized appreciation on swap contract..................... 421,972
--------------
Total assets................................................. 1,091,983,812
--------------
LIABILITIES
Due to custodian............................................. 22,654
Loan payable................................................. 110,000,000
Payable for investment securities purchased.................. 161,862,976
Dividend payable............................................. 2,335,521
Loan interest payable........................................ 2,077,396
Advisory fee payable......................................... 504,914
Administrative fee payable................................... 113,295
Swap interest payable........................................ 105,688
Accrued expenses............................................. 337,105
--------------
Total liabilities............................................ 277,359,549
--------------
NET ASSETS.................................................... $ 814,624,263
==============
COMPOSITION OF NET ASSETS
Capital stock, at par........................................ $ 778,507
Additional paid-in capital................................... 833,993,356
Undistributed net investment income.......................... 4,800,866
Accumulated net realized loss on investments and foreign
currency transactions....................................... (24,339,121)
Net unrealized depreciation of investments and swap
contract.................................................... (609,345)
--------------
$ 814,624,263
==============
NET ASSET VALUE PER SHARE (based on 77,850,706 shares
outstanding)................................................ $10.46
======
- --------------------------------------------------------------------------------
See notes to financial statements.
5
<PAGE>
Statement Of Operations
Year Ended December 31, 1997 ACM Government Securities Fund
===============================================================================
INVESTMENT INCOME
Interest....................................... $ 84,533,278
EXPENSES
Advisory fee................................... $ 6,168,048
Administrative fee............................. 1,328,236
Transfer agency................................ 232,694
Custodian...................................... 189,818
Reports and notices to shareholders............ 153,766
Audit and legal................................ 119,396
Registration fee............................... 66,256
Taxes.......................................... 54,225
Directors' fees................................ 32,120
Miscellaneous.................................. 64,936
------------
Total expenses before interest................. 8,409,495
Interest expense............................... 6,801,514
------------
Total expenses................................. 15,211,009
------------
Net investment income.......................... 69,322,269
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS, SWAPS
AND FOREIGN CURRENCY TRANSACTIONS
Net realized gain on investment
transactions.................................. 70,840,335
Net realized loss on foreign
currency transactions......................... (11,367)
Net change in unrealized
appreciation of:
Investments and swaps......................... (27,377,422)
Foreign currency denominated assets
and liabilities.............................. (1,465,082)
------------
Net realized and unrealized gain on investments
and foreign currency transactions.............. 41,986,464
------------
NET INCREASE IN NET ASSETS FROM
OPERATIONS...................................... $111,308,733
============
Statement Of Changes In Net Assets
================================================================================
Year Ended Year Ended
December 31, 1997 December 31, 1996
----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS
Net investment income................ $ 69,322,269 $ 71,775,938
Net realized gain on investments and
foreign currency transactions....... 70,828,968 25,544,552
Net change in unrealized
appreciation of investments, swaps
and foreign
currency denominated assets and
liabilities........................ (28,842,504) 17,533,931
------------ ------------
Net increase in net assets from
operations.......................... 111,308,733 114,854,421
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS
Dividends from net investment income (67,728,701) (71,775,938)
Distributions in excess of net
investment income................... -0- (1,402,636)
------------ ------------
Total increase....................... 43,580,032 41,675,847
NET ASSETS
Beginning of year.................... 771,044,231 729,368,384
------------ ------------
End of year (including undistributed
net investment income of $4,800,866
and $3,214,000, respectively)....... $814,624,263 $771,044,231
============ ============
- --------------------------------------------------------------------------------
See notes to financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
Statement Of Cash Flows
Year Ended December 31, 1997 ACM Government Securities Fund
================================================================================================
<S> <C> <C>
INCREASE (DECREASE) IN CASH FROM OPERATING ACTIVITIES:
Interest received........................................... $ 78,219,836
Interest paid............................................... (6,637,312)
Operating expenses paid..................................... (8,408,422)
---------------
Net increase in cash from operating activities.............. $ 63,174,102
INVESTING ACTIVITIES:
Purchases of long-term investments.......................... (3,059,532,666)
Proceeds from disposition of long-term investments.......... 2,944,287,982
Proceeds from disposition of short-term investments -- net.. 121,890,068
---------------
Net increase in cash from investing activities.............. 6,645,384
FINANCING ACTIVITIES*:
Cash dividends paid......................................... (70,064,222)
------------
Net decrease in cash........................................ (244,736)
Cash at beginning of year................................... 222,082
------------
Due to custodian at end of year............................. $ (22,654)
============
- ------------------------------------------------------------------------------------------------
RECONCILIATION OF NET INCREASE IN NET ASSETS FROM
OPERATIONS TO NET INCREASE IN CASH FROM OPERATING
ACTIVITIES:
Net increase in net assets from operations.................. $111,308,733
ADJUSTMENTS:
Decrease in interest receivable............................. $ 4,450,771
Accretion of bond discount.................................. (10,764,213)
Increase in accrued expenses................................ 165,275
Net gain on investments..................................... (41,986,464)
---------------
Total adjustments........................................... (48,134,631)
------------
NET INCREASE IN CASH FROM OPERATING ACTIVITIES............... $ 63,174,102
============
- ------------------------------------------------------------------------------------------------
</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, 1997 ACM Government Securities Fund
================================================================================
NOTE A: Significant Accounting Policies
ACM Government Securities Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940 as a non-diversified, closed-end management
investment company. The financial statements have been prepared in conformity
with generally accepted accounting principles which require management to make
certain estimates and assumptions that affect the reported amounts of assets and
liabilities in the financial statements and amounts of income and expenses
during the reporting period. Actual results could differ from those estimates.
The following is a summary of significant accounting policies followed by the
Fund.
1. Security Valuation
Portfolio securities traded on a national securities exchange or on a foreign
securities exchange (other than foreign securities exchanges whose operations
are similar to those of the United States over-the-counter market) are generally
valued at the last reported sale price or, if there was no sale on such day, the
last bid price quoted on such day. If no bid prices are quoted, then the
security is valued at the mean of the bid and asked prices as obtained on that
day from one or more dealers regularly making a market in that security.
Securities traded on the over-the-counter market, and securities listed on a
foreign securities market whose operations are similar to the United States
over-the-counter market and securities listed on a national securities exchange
whose primary market is believed to be over-the-counter are valued at the mean
of the closing bid and asked price provided by two or more dealers regularly
making a market in such securities. U.S. government securities and other debt
securities which mature in 60 days or less are valued at amortized cost unless
this method does not represent fair value. Securities for which market
quotations are not readily available are valued at fair value as determined in
good faith by, or in accordance with procedures approved by, the Board of
Directors. Fixed income securities may be valued on the basis of prices provided
by a pricing service when such prices are believed to reflect the fair value of
such securities. Listed put and call options purchased by the Fund are valued at
the last sale price. If there has been no sale on that day, such securities will
be valued at the closing bid prices on that day.
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 any, to
shareholders. Therefore, no provisions for federal income or excise taxes are
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 earned or accrued. Net realized loss 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 foreign currency gains and losses
from valuing foreign currency denominated assets and liabilities at year end
exchange rates are reflected as a component of net unrealized appreciation of
investments and foreign currency denominated assets and liabilities.
5. Dividends and Distributions
Dividends and distributions to shareholders are recorded on the ex-dividend
date. Income and capital gains distributions are determined in accordance with
federal tax regulations and may differ from those determined in
8
<PAGE>
ACM Government Securities Fund
================================================================================
accordance with generally accepted accounting principles. To the extent these
differences are permanent, such amounts are reclassified within the capital
accounts based on their federal tax basis treatment; temporary differences do
not require such reclassification. During the current fiscal year, permanent
differences, primarily due to foreign currency transactions, resulted in a net
increase in accumulated net realized loss on investments and foreign currency
transactions and a corresponding decrease in additional paid-in capital and
undistributed net investment income. This reclassification had no effect on net
assets.
- --------------------------------------------------------------------------------
NOTE B: Advisory, Administrative Fees and
Other Transactions with Affiliates
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).
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
year ended December 31, 1997, the Fund agreed to pay AFS $4,515.
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 $1,014,920,761 and $971,552,618,
respectively, for the year ended December 31, 1997. There were purchases of
$1,907,029,882 and sales of $1,939,231,643 of U.S. government and government
agency obligations for the year ended December 31, 1997.
At December 31, 1997, the cost of investments for federal income tax purposes
was $1,095,063,975. Accordingly, gross unrealized appreciation of investments
was $22,906,580 and gross unrealized depreciation was $39,652,147, resulting in
net unrealized depreciation of $16,745,567 (excluding foreign currency
transactions).
At December 31, 1997, the Fund had a capital loss carryforward of $8,356,705
which expires in the year 2003.
1. Forward Exchange Currency Contracts
The Fund enters into forward exchange currency contracts to hedge its exposure
to changes in foreign currency exchange rates on its foreign portfolio holdings,
to hedge certain firm purchase and sale commitments denominated in foreign
currencies and for investment purposes. 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.
9
<PAGE>
Notes To Financial Statements (cont.) ACM Government Securities Fund
================================================================================
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 December 31, 1997, the Fund had no outstanding forward exchange currency
contracts.
2. Option Transactions
For hedging purposes, the Fund purchases and writes (sells) put and call options
on U.S. and foreign government securities and foreign currencies that are traded
on U.S. and foreign securities exchanges and over-the-counter markets.
The risk associated with purchasing an option is that the Fund pays a premium
whether or not the option is exercised. Additionally, the Fund bears the risk of
loss of premium and change in market value should the counterparty not perform
under the contract. Put and call options purchased are accounted for in the same
manner as portfolio securities. The cost of securities acquired through the
exercise of call options is increased by premiums paid. The proceeds from
securities sold through the exercise of put options are decreased by the
premiums paid.
When the Fund writes an option, the premium received by the Fund is recorded as
a liability and is subsequently adjusted to the current market value of the
option written. Premiums received from written options which expire unexercised
are recorded by the Fund on the expiration date as 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 realized gain, or if the premium is less than the amount paid
for the closing purchase transaction, as 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 a realized 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, 1997, the Fund did not have any written option
transactions.
3. 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 the counterparty 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
10
<PAGE>
ACM Government Securities Fund
================================================================================
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 (depreciation) of investments.
At December 31, 1997, the Fund had a total return swap agreement outstanding.
The swap is based on a notional amount of $44,700,000 Russian IAN bonds and
obligates the Fund to pay to Morgan Guaranty Trust Company, the swap
counterparty, interest based on Libor less a spread on the principal amount of
$31,315,027, and obligates the swap counterparty to pay the Fund any
appreciation in the value of the underlying bond. At December 31, 1997,
unrealized appreciation on the total return swap amounted to $421,972.
- --------------------------------------------------------------------------------
NOTE D: Capital Stock
There are 300,000,000 shares of $0.01 par value common stock authorized, of
which 77,850,706 shares were outstanding at December 31, 1997. During the years
ended December 31, 1997 and 1996, the Fund did not issue any shares in
connection with the 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 $110,000,000 and
such amount was outstanding for the entire year ended December 31, 1997.
The renewable credit facility of $110,000,000 will mature on September 11, 1998
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, 1997 was 6.18%. The interest rate at December 31, 1997 was
6.125%. The Fund is 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 Securities Fund
================================================================================
Selected Data For A Share Of Common Stock Outstanding Throughout Each Year
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year.................. $ 9.90 $ 9.37 $ 8.13 $ 10.88 $ 10.47
-------- -------- -------- -------- --------
Income From Investment Operations
- ---------------------------------
Net investment income............................... .89 .92 .98(a) .90(a) 1.13(a)
Net realized and unrealized gain
(loss) on investments, swaps, options written
and foreign currency transactions.................. .54 .55 1.21 (2.65) 1.26
-------- -------- -------- -------- --------
Net increase (decrease) in net asset value
from operations.................................... 1.43 1.47 2.19 (1.75) 2.39
Less: Dividends and Distributions
- ---------------------------------
Dividends from net investment income................ (.87) (.92) (.95) (.78) (1.13)
Distributions in excess of net investment income.... -0- (.02) -0- -0- -0-
Distributions from net realized gains............... -0- -0- -0- -0- (.62)
Tax return of capital distribution.................. -0- -0- -0- (.22) -0-
-------- -------- -------- -------- --------
Total dividends and distributions................... (.87) (.94) (.95) (1.00) (1.75)
-------- -------- -------- -------- --------
Capital Share Transactions
- --------------------------
Dilutive effect of rights offering.................. -0- -0- -0- -0- (.22)
Offering costs charged to additional
paid-in capital.................................... -0- -0- -0- -0- (.01)
-------- -------- -------- -------- --------
Total capital share transactions.................... -0- -0- -0- -0- (.23)
-------- -------- -------- -------- --------
Net asset value, end of year........................ $ 10.46 $ 9.90 $ 9.37 $ 8.13 $ 10.88
======== ======== ======== ======== ========
Market value, end of year........................... $ 10.063 $ 8.875 $ 8.25 $ 8.125 $ 11.875
======== ======== ======== ======== ========
Total Investment Return
- -----------------------
Total investment return based on: (b)
Market value....................................... 23.93% 19.50% 13.93% (23.69)% 30.25%
Net asset value.................................... 15.48% 17.29% 29.28% (16.66)% 21.10%
Ratios/Supplemental Data
- ------------------------
Net assets, end of year (000's omitted)............. $814,624 $771,044 $729,368 $630,520 $829,712
Ratio of expenses to average net assets............. 1.95% 2.10% 2.03% 1.52% 1.43%
Ratio of expenses to average net assets
excluding interest expense (c)..................... 1.08% 1.16% 1.29% 1.14% 1.16%
Ratio of net investment income to
average net assets................................. 8.89% 9.96% 11.55% 9.83% 9.83%
Portfolio turnover rate............................. 308% 364% 393% 319% 443%
</TABLE>
- --------------------------------------------------------------------------------
(a) Based on average shares outstanding.
(b) Total investment return is calculated assuming a purchase of common stock
on the opening of the first day and a sale on the closing of the last day
of each year reported. Dividends and distributions, if any, are assumed for
purposes of this calculation, to be reinvested at prices obtained under the
Fund's dividend reinvestment plan. Generally, total investment return based
on net asset value will be higher than total investment return based on
market value in 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 .87%, .94%, .74%, .38% and .27%, respectively,
on borrowings (see Note E).
12
<PAGE>
REPORT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS ACM Government Securities Fund
================================================================================
To the Shareholders and Board of Directors
ACM Government Securities Fund, Inc.
We have audited the accompanying statement of assets and liabilities of ACM
Government Securities Fund, Inc., including the portfolio of investments, as of
December 31, 1997, and the related statements of operations and cash flows for
the year then ended, the statement of changes in net assets for each of the two
years in the period then ended and the financial highlights for each of the
periods indicated therein. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1997, 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 Securities Fund, Inc. at December 31, 1997, the results of its
operations and its cash flows for the year then ended, the changes in its net
assets for each of the two years in the period then ended, and the financial
highlights for each of the indicated periods, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
New York, New York
January 30, 1998
13
<PAGE>
Additional Information ACM Government Securities 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
Partnership 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 shares 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 Partnership Company, P.O. Box
366, Boston, Massachusetts 02101.
Since the filing of the most recent amendment to the Fund's registration
statement with the Securities and Exchange Commission, there have been (i) no
material changes in the Fund's investment objective or policies, (ii) no changes
to the Fund's charter or by-laws that would delay or prevent a change of control
of the Fund, (iii) no material changes in the principal risk factors associated
with investment in the Fund, and (iv) no change in the person primarily
responsible for the day-to-day management of the Fund's portfolio, who is Wayne
D. Lyski, the President of the Fund.
14
<PAGE>
ACM Government Securities Fund
================================================================================
BOARD OF DIRECTORS
John D. Carifa, Chairman Dr. James M. Hester (1)
Ruth Block (1) Clifford L. Michel (1)
David H. Dievler (1) Donald J. Robinson
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
Paul J. DeNoon, Vice President Financial Officer
Christian G. Wilson, Vice President Joseph J. Mantineo, Controller
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, LEGAL COUNSEL
TRANSFER AGENT AND REGISTRAR Seward & Kissel
State Street Bank and Trust Company One Battery Park Plaza
225 Franklin Street New York, NY 10004
Boston, MA 02110
- --------------------------------------------------------------------------------
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
shareholders of ACM Government Securities Fund, for their information. The
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 Audit Committee
15
<PAGE>
ACM Government Securities Fund
Summary of General Information
The Fund
ACM Government Securities 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
"ACMSc". The Fund's NYSE trading symbol is "GSF". 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. 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.
For questions concerning shareholder account information, or if you would like a
brochure describing the Dividend Reinvestment Plan, please call State Street
Bank and Trust Company at 1-800-219-4218.
ACM Government Securities Fund
1345 Avenue of the Americas
New York, New York 10105
[LOGO OF ALLIANCE CAPITAL APPEARS HERE]
(R)These registered service marks used under license from the owner,
Alliance Capital Management L.P.
SECAR
------------------------------------------------
ACM
------------------------
GOVERNMENT
------------------------
SECURITIES
------------------------
FUND
------------------------
Annual Report
December 31, 1997
Alliance(R)
------------------------------------------------
