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CLOSED END
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ACM Government
Income Fund
Semi-Annual Report
June 30, 2000
Alliance Capital [LOGO](R)
The Investment Professional's Choice
Investment Products Offered
---------------------------
o Are Not FDIC Insured
o May Lose Value
o Are Not Bank Guaranteed
---------------------------
----------------------
LETTER TO SHAREHOLDERS
----------------------
LETTER TO SHAREHOLDERS
August 24, 2001
Dear Shareholder:
This report provides you with strategy, performance and outlook of ACM
Government Income Fund (the "Fund") for the semi-annual reporting period ended
June 30, 2001.
Investment Objectives and Policies
This closed-end fund is designed to provide high current income consistent with
the 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 foreign governments.
Additionally, the Fund may utilize other investment instruments, including
options and futures.
Investment Performance
The following table shows how the Fund performed over the past six- and 12-month
periods ended June 30, 2001. For comparison, we have included the performance of
the Fund's benchmark, the Lehman Brothers Aggregate Bond Index.
INVESTMENT RESULTS*
Periods Ended June 30, 2001
----------------------
Total Returns
----------------------
6 Months 12 Months
--------------------------------------------------------------------------------
ACM Government Income Fund (NAV) 1.76% 13.96%
--------------------------------------------------------------------------------
Lehman Brothers Aggregate Bond Index 3.62% 11.23%
--------------------------------------------------------------------------------
* The Fund's investment results are total returns for the periods shown and
are based on the net asset value (NAV) of the Fund as of June 30, 2001.
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 unmanaged Lehman Brothers (LB) Aggregate Bond Index is composed of the
LB Mortgage-Backed Securities Index, the LB Asset-Backed Securities Index
and the LB Government/Credit Index. It includes Treasury, agency and
corporate bond issues, as well as mortgage-backed securities. The Index
does not reflect fees and expenses. An investor cannot invest directly in
an index, and its results are not indicative of any particular investment,
including ACM Government Income Fund.
Additional investment results appear on pages 6-8.
During the six-month period ended June 30, 2001, the Fund underperformed its
benchmark due to a combination of our longer-maturity Treasury securities,
select emerging market holdings and our high-yield positions. For the 12-month
period, the Fund outperformed the benchmark due to our U.S. Treasury and
emerging-market allocations and to security selection within both of those
sectors. Both sectors outperformed significantly in the last half of 2000
relative to the fixed income sectors that make up the index.
The yield curve steepened during the six-month period ended June 30, 2001
--------------------------------------------------------------------------------
ACM GOVERNMENT INCOME FUND o 1
----------------------
LETTER TO SHAREHOLDERS
----------------------
as the Federal Reserve aggressively lowered interest rates, Congress passed tax
cuts and investor sentiment moved toward prospects for a recovery in the second
half of the year. Longer-maturity Treasuries suffered as a result and
underperformed shorter-term Treasury securities during the past six months.
Our high-yield allocation also underperformed relative to the benchmark, which
holds only investment-grade securities. Continued weakness in high yield,
particularly in the telecommunications sector, negatively affected this sector.
Also dampening performance were certain holdings in the emerging markets.
Although the emerging markets as a group performed well during the period, our
Latin American holdings consisted of the two poorest-performing countries:
Argentina and Brazil.
Market Overview
Global economic growth continued to decelerate through the first half of 2001
following a historic period of expansion. In the U.S., restrained consumer
spending, inventory reductions, shrinking investment and weaker export
performance significantly slowed the economy. With underlying inflationary
pressures subdued, the U.S. Federal Reserve lowered interest rates 300 basis
points from 6.50% to 3.50% (year-to-date) to help stimulate the economy. Growth
for the first half of 2001 slowed to an estimated 1.0% compared with 1.6% in the
last half of 2000.
The aggressive easing of monetary policy motivated investors to take on more
credit risk, reducing the attraction of U.S. government bonds. For the six-month
period, U.S. Treasuries returned 1.95%; longer-maturity Treasuries
underperformed, returning -0.41%. The traditional fixed-income markets as
measured by the Lehman Brothers Aggregate Bond Index returned 3.62%, with
corporates outperforming at 5.38%, followed by asset-backed securities (ABS) at
4.41%, mortgage-backed securities (MBS) at 3.78%, collateralized mortgage-backed
securities (CMBS) at 3.43% and agencies at 3.06%. The yield curve steepened
significantly during the period as short-term interest rates declined and
long-term interest rates increased. Two-year yields, which briefly traded below
4.00%, ended the period at 4.24%, down 85 basis points from the beginning of the
year. Thirty-year Treasuries ended the period at 5.76%, up 30 basis points in
the first half of 2001.
The emerging markets sector performed well during the period, despite a weaker
global environment and increased volatility emanating from Turkey and Argentina.
Emerging-market debt posted a positive return of 5.52% for the period. Most
individual country returns were positive during the period, with Russia posting
the largest gain, 28.63%, as it continued to benefit from economic reforms.
Colombia, returning 18.92%, was also a top performer. Individual outperformers
in the Latin American region included Ecuador, 16.75%, and Panama at 12.73%.
Qatar, at 15.60% and the Philippines, 13.37%, also provided strong returns.
Underperformers for the period included Argentina at -6.66% and Brazil at
-0.21%. (All numbers represent the country components of the J.P. Morgan
Emerging Markets Bond Index Plus.)
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2 o ACM GOVERNMENT INCOME FUND
----------------------
LETTER TO SHAREHOLDERS
----------------------
During the period, emerging market focus was on Argentina, where concerns that
the country would not be able to meet debt payments contributed to market
volatility. A $29.25 billion debt swap in early June far exceeded expectations,
leading to a short-term market rally. Although the debt swap was likely to
increase Argentina's overall debt burden, it began to ease concerns over
near-term financing. On June 15, Argentina's Finance Minister Cavallo announced
much-needed economic measures to cut spending and balance Argentina's budget
amidst a backdrop of a slump in tax revenues and a prolonged recession.
Investment Strategy
The investment strategy for the Fund was modified during the first half of 2001.
With aggressive easing of monetary policy, a steep yield curve and improving
global liquidity, we shifted a modest share of the Fund's allocation from
Treasuries toward credit sectors. As a result, the Fund increased its exposure
to both investment-grade and higher-yielding corporate securities at the expense
of Treasury and agency debt. Added to the Fund were corporate holdings that
reflected a concentration in the telecommunications and finance sectors (AT&T
Wireless Group, Charter Communications Holdings, Sanwa Bank Ltd., Telus
Corporation, Adelphia Communications, Nextel Communications, Inc., Worldcom,
Inc. and Pemex Project). In addition, as a result of changing liquidity patterns
in the fixed-income markets over the past few years, we diversified our
credit-sensitive exposure and increased the number of positions held to meet our
allocation. We expect that this focus on diversification will continue for some
time.
Within the Treasury sector, we continued to hold long-maturity, high-coupon
securities in anticipation of further Treasury buybacks. The maturity of our
Treasury securities remained in the intermediate to long spectrum of the yield
curve. We also maintained our positions in U.S. Treasury strips and eliminated
our agency holdings.
Within the emerging-market sector, we continued to hold a relatively diversified
array of holdings. We did, however, modestly reduce our allocation since our
last report. Our holdings outside of Latin America included Russia, Bulgaria,
the Philippines and Turkey. In Latin America, the Fund held positions in
Argentina, Brazil, Colombia, Ecuador and Panama.
Emerging market focus is currently on Argentina's political and liquidity
crises. In our view, the key policy measures are manageable and close to
implementation. Our outlook for Argentina is that the politicians will accept
necessary spending cuts and that the government will find a way to replace their
current bi-weekly borrowings with a single, longer-term debt instrument. If
these events occur, the government will not have to issue debt for approximately
one year. Although all emerging markets have shown an escalation of risk and
volatility in response to Argentina, we remain cautiously optimistic. This is
because, compared with earlier periods, there is less leverage in the global
financial
--------------------------------------------------------------------------------
ACM GOVERNMENT INCOME FUND o 3
----------------------
LETTER TO SHAREHOLDERS
----------------------
system and greater economic and financial flexibility due to the implementation
of floating exchange rates throughout the world.
The Fund's investment strategy will continue to focus on yield and credit at the
expense of Treasuries and agencies. Increased global liquidity and a positively
sloped yield curve will be positive factors for corporate securities. Corporate
industries likely to outperform over the next few months include utilities,
telecommunications and banks. While our outlook for the corporate sector is
positive, security selection is imperative in the face of continued corporate
earnings disappointments.
We will continue to invest a portion of the Fund in a diversified basket of
select emerging market securities. In the longer term, we have a positive view
on the emerging-market sector, given our belief that global growth will recover.
We are cautiously optimistic that the global business downturn will trough in
the second half of 2001 as the U.S. returns to a positive growth mode. However,
we will continue to closely monitor near-term events, and Argentina in
particular.
Outlook
Interest rate cuts by the Federal Reserve and tax cuts by Congress lead us to
believe that economic activity in the U.S. troughed during the second quarter
and that a modest recovery will commence during the third quarter. While the
Federal Reserve currently maintains an easing bias, additional interest rate
cuts will depend on economic activity over the next few months. We expect the
recovery to be very gradual, as the unwinding of the unprecedented wave of
corporate overinvestment continues, profitability remains under pressure and
household debt burdens are high. We estimate U.S. growth to be 1.2% for 2001.
Interest rates will remain low in this environment, with a positively sloped
yield curve.
In August 2001, Argentina received an $8 billion aid package from the
International Monetary Fund (IMF), with $3 billion of the new loan specifically
dedicated to assisting in a voluntary debt exchange, mitigating near-term risk.
The new aid package indicates that the U.S. Treasury will pursue an active role
in seeking a long-term sustainable solution in Argentina and we believe further
measures await. A zero deficit strategy was endorsed by the Argentine government
at the end of July and they are on track to meet this fiscal target for the
month of August. However, interest rates must come down if the policy is to be
sustainable in the fourth quarter. We expect plans for a more sustainable debt
program to be announced in the coming weeks, and we will continue to monitor the
situation.
Impending Name Change
Effective August 31, 2001, the Fund's name will change to ACM Income Fund, Inc.
The Board of Directors approved the name change at the recommendation of
Alliance Capital Management L.P., the Fund's investment adviser, in order to
enable the Fund to maintain the investment flexibility afforded by its current
fundamental investment policy of investing at least 65% of its total assets in
U.S. government securities while complying
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4 o ACM GOVERNMENT INCOME FUND
----------------------
LETTER TO SHAREHOLDERS
----------------------
with the new Securities and Exchange Commission (SEC) rules regarding fund
names. In connection with the new rule, the Board of Directors has also adopted
a non-fundamental investment policy, which may not be changed without 60 days
prior written notice to shareholders, to invest, under normal circumstances, at
least 80% of its net assets in income producing securities. As virtually all of
the Fund's investments are income-producing, the adoption of this new policy
will not have any impact on the management of the Fund's portfolio.
Thank you for your continued interest and investment in ACM Government Income
Fund. We look forward to reporting its progress to you in the future.
Sincerely,
/s/ John D. Carifa
John D. Carifa
Chairman
/s/ Wayne D. Lyski
Wayne D. Lyski
President
[PHOTO OMITTED] John D. Carifa
[PHOTO OMITTED] Wayne D. Lyski
Wayne D. Lyski, Portfolio Manager, has over 27 years of investment experience.
--------------------------------------------------------------------------------
ACM GOVERNMENT INCOME FUND o 5
------------------
PERFORMANCE UPDATE
------------------
PERFORMANCE UPDATE
ACM GOVERNMENT INCOME FUND (NAV)
GROWTH OF A $10,000 INVESTMENT
6/30/91 TO 6/30/01
ACM Government Income Fund (NAV): $24,457
Lehman Brothers Aggregate Bond Index: $21,328
[The following table was represented as a mountain chart in the printed
material.]
ACM Government Lehman Brothers
Income Fund Aggregate Bond Index
-------------------------------------------------------------------------------
6/30/91 $10,000 $10,000
6/30/92 $11,627 $11,404
6/30/93 $13,967 $12,748
6/30/94 $12,940 $12,582
6/30/95 $14,495 $14,161
6/30/96 $16,400 $14,871
6/30/97 $20,090 $16,083
6/30/98 $21,659 $17,779
6/30/99 $19,287 $18,338
6/30/00 $21,461 $19,175
6/30/01 $24,457 $21,328
This chart illustrates the total value of an assumed $10,000 investment in ACM
Government Income Fund at net asset value (NAV) (from 6/30/91 to 6/30/01) as
compared to the performance of an appropriate index. The chart assumes the
reinvestment of dividends and capital gains. Past performance is not indicative
of future results, and is not representative of future gain or loss in capital
value or dividend income.
The unmanaged Lehman Brothers (LB) Aggregate Bond Index is composed of the LB
Mortgage-Backed Securities Index, the LB Asset-Backed Securities Index and the
LB Government/Credit Index.
When comparing ACM Government Income Fund to the index shown above, you should
note that no charges or expenses are reflected in the performance of the index.
An investor cannot invest directly in an index and its results are not
indicative of any specific investment, including ACM Government Income Fund.
--------------------------------------------------------------------------------
6 o ACM GOVERNMENT INCOME FUND
------------------
PERFORMANCE UPDATE
------------------
PERFORMANCE UPDATE
ACM GOVERNMENT INCOME FUND (NAV)
HISTORY OF RETURNS
YEARLY PERIODS ENDED 6/30
[BAR CHART OMITTED]
ACM Government Income Fund (NAV)-Yearly Periods Ended 6/30
--------------------------------------------------------------------------------
ACM Government Lehman Brothers
Income Fund (NAV) Aggregate Bond Index
--------------------------------------------------------------------------------
6/30/92 16.27% 14.04%
6/30/93 20.12% 11.78%
6/30/94 -7.36% -1.30%
6/30/95 12.02% 12.55%
6/30/96 13.14% 5.02%
6/30/97 22.50% 8.15%
6/30/98 7.81% 10.54%
6/30/99 -10.95% 3.15%
6/30/00 11.28% 4.56%
6/30/01 13.96% 11.23%
Past performance is no guarantee of future results. The Fund's investment
results represent total returns and are based on the net asset value (NAV). 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.
The unmanaged Lehman Brothers (LB) Aggregate Bond Index is composed of the LB
Mortgage-Backed Securities Index, the LB Asset-Backed Securities Index and the
LB Government/Credit Index. It includes Treasury, agency and corporate bond
issues, as well as mortgage-backed securities. The Index does not reflect fees
or expenses. An investor cannot invest directly in an index, and its results are
not indicative of any specific investment, including ACM Government Income Fund.
--------------------------------------------------------------------------------
ACM GOVERNMENT INCOME FUND o 7
------------------
PORTFOLOIO SUMMARY
------------------
PORTFOLIO SUMMARY
June 30, 2001 (unaudited)
INCEPTION DATE PORTFOLIO STATISTICS
8/28/87 Net Assets ($mil): $1,353.1
SECURITY TYPE
66.9% Treasury
17.0% Corporate
13.1% Sovereign [PIE CHART]
2.6% Preferred Stock
0.4% Time Deposit
COUNTRY BREAKDOWN
84.1% United States
4.2% Russia
3.5% Argentina
2.4% Mexico
2.1% Turkey
1.6% United Kingdom
1.0% Canada
0.5% Brazil
0.1% Colombia [PIE CHART]
0.1% Ecuador
0.1% Korea
0.1% Panama
0.1% Philippines
0.1% Bulgaria
0.0% Cayman Islands*
0.0% Ukraine*
0.0% Egypt*
0.0% Peru*
* Less than .05%
All data as of June 30, 2001. The Fund's security type and country
breakdowns are expressed as a percentage of total investments and may vary
over time.
--------------------------------------------------------------------------------
8 o ACM GOVERNMENT INCOME FUND
------------------------
PORTFOLIO OF INVESTMENTS
------------------------
PORTFOLIO OF INVESTMENTS
June 30, 2001 (unaudited)
Principal
Amount
(000) U.S. $ Value
--------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS-98.6%
U.S. Treasury Bonds-52.4%
6.25%, 5/15/30(a)(b) .................. $ 96,900 $ 102,637,449
8.125%, 8/15/19(a) .................... 72,665 90,478,825
8.875%, 8/15/17(a) .................... 67,000 87,948,220
12.00%, 8/15/13(a) .................... 73,000 101,025,430
12.50%, 8/15/14(a) .................... 70,300 102,351,879
13.25%, 5/15/14(a) .................... 150,000 223,968,000
--------------
708,409,803
--------------
U.S. Treasury Strips-42.6%
Zero coupon, 5/15/12(a) ............... 246,900 133,397,601
Zero coupon, 8/15/12 .................. 78,000 41,365,740
Zero coupon, 5/15/15(a) ............... 140,000 61,374,600
Zero coupon, 2/15/16(b) ............... 203,400 84,968,316
Zero coupon, 5/15/17(a) ............... 407,000 156,841,520
Zero coupon, 11/15/21(a) .............. 336,750 98,341,102
--------------
576,288,879
--------------
U.S. Treasury Notes-3.6%
4.625%, 5/15/06(a) .................... 30,000 29,587,500
5.00%, 2/15/11(a) ..................... 20,000 19,403,000
--------------
48,990,500
--------------
Total U.S. Government Obligations
(cost $1,339,265,037) ................. 1,333,689,182
--------------
CORPORATE DEBT OBLIGATIONS-25.0%
Canada-1.5%
Telus Corp.
8.00%, 6/01/11(c) ..................... 20,000 20,479,220
--------------
Cayman Islands-0.0%
Petrobras International Finance
9.75%, 7/06/11(d) ..................... 500 498,745
--------------
Korea-0.1%
Hanvit Bank
12.75%, 3/01/10(d) .................... 1,000 1,075,000
--------------
Mexico-0.1%
Grupo Iusacell S.A. de C.V.
14.25%, 12/01/06(c) ................... 200 213,000
Innova S De R. L.
12.875%, 4/01/07(c) ................... 900 830,032
--------------
1,043,032
--------------
--------------------------------------------------------------------------------
ACM GOVERNMENT INCOME FUND o 9
------------------------
PORTFOLIO OF INVESTMENTS
------------------------
Principal
Amount
(000) U.S. $ Value
--------------------------------------------------------------------------------
United Kingdom-1.2%
NTL Communications Corp.
9.75%, 4/15/09(c) ..................... GBP 26,300 $ 15,556,081
------------
United States-22.1%
Adelphia Communications
10.25%, 6/15/11(c) .................... $ 10,000 9,900,000
10.875%, 10/01/10(c) .................. 8,000 8,140,000
AT&T Wireless Group
8.75%, 3/01/31(d) ..................... 20,000 20,834,820
Calpine Corp.
8.50%, 5/01/08(c) ..................... 55,000 53,690,780
Charter Communications Holdings
10.00%, 5/15/11(d) .................... 7,600 7,752,000
10.75%, 10/01/09(c) ................... 9,655 10,210,163
11.75%, 5/15/11(d)(e) ................. 10,000 5,850,000
Delhaize America, Inc.
9.00%, 4/15/31(d) ..................... 11,000 11,997,986
HSBC Capital Funding FRN
10.176%, 12/31/49(d)(e) ............... 45,000 55,767,015
McCaw International Ltd.
13.00%, 4/15/07(c)(e) ................. 500 142,500
Nextel Communications, Inc.
9.375%, 11/15/09(c) ................... 7,780 6,185,100
9.95%, 2/15/08(c)(e) .................. 7,000 4,392,500
10.65%, 9/15/07(c)(e) ................. 13,000 9,213,750
Pemex Project
9.125%, 10/13/10(d) ................... 500 530,625
Sanwa Bank Ltd.
7.40%, 6/15/11(c) ..................... 37,500 36,227,325
U.S. Airways Group, Inc.
Zero coupon, 7/20/19(d) ............... 39,942 34,150,366
Worldcom Inc.
8.25%, 5/15/31(c) ..................... 25,000 24,588,474
------------
299,573,404
------------
Total Corporate Debt Obligations
(cost $347,907,487) ................... 338,225,482
------------
SOVEREIGN DEBT OBLIGATIONS-19.4%
Sovereign Debt Securities-19.3%
Argentina-5.2%
Republic of Argentina
7.00%, 12/19/08(c)(f) ................. 3,448 2,598,762
10.00%, 9/19/08 FRN(c) ................ ARS 34,988 27,127,229
11.75%, 4/07/09(c) .................... $ 2,600 1,989,000
12.00%, 6/19/31(c) .................... 7,023 4,845,810
12.25%, 6/19/18(c) .................... 47,488 33,716,156
------------
70,276,957
------------
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10 o ACM GOVERNMENT INCOME FUND
------------------------
PORTFOLIO OF INVESTMENTS
------------------------
Principal
Amount
(000) U.S. $ Value
--------------------------------------------------------------------------------
Brazil-0.8%
Republic of Brazil
Discount Bonds FRN
5.4375%, 4/15/14(c) .................... $ 850 $ 622,625
6.00%, 4/15/24(c) ...................... 900 594,000
Global Bonds
8.00%, 4/15/24(c) ...................... 2,586 1,913,611
11.00%, 8/17/40(c) ..................... 10,200 7,548,000
-----------
10,678,236
-----------
Colombia-0.1%
Republic of Colombia
Global Bonds
8.375%, 2/15/27(c) ..................... 780 536,250
8.70%, 2/15/16(c) ...................... 1,000 753,500
10.50%, 6/13/06(c) ..................... 310 319,300
-----------
1,609,050
-----------
Ecuador-0.1%
Republic of Ecuador
4.00%, 8/15/30(d)(f) ..................... 3,050 1,308,825
-----------
Egypt-0.0%
Arab Republic of Egypt
8.75%, 7/11/11(d) ........................ 550 549,346
-----------
Mexico-3.4%
Mexican Bonos
16.00%, 1/23/03(c) ....................... MXN 50,039 5,816,071
Mexican Bonos de Proteccion al
Ahorro FRN
8.910%, 1/29/04(c) ....................... 300,000 32,697,846
United Mexican States
8.125%, 12/30/19(c) ...................... $ 7,630 7,210,350
8.375%, 1/14/11(c) ....................... 600 603,000
-----------
46,327,267
-----------
Panama-0.1%
Republic of Panama
10.75%, 5/15/20(c) ....................... 1,750 1,839,775
-----------
Peru-0.1%
Republic of Peru PDI
4.50%, 3/07/17(c)(f) ..................... 900 619,920
-----------
Philippines-0.1%
Republic of Philippines
9.875%, 1/15/19(c) ....................... 1,400 1,211,000
10.625%, 3/16/25(c) ...................... 200 181,500
-----------
1,392,500
-----------
--------------------------------------------------------------------------------
ACM GOVERNMENT INCOME FUND o 11
------------------------
PORTFOLIO OF INVESTMENTS
------------------------
Shares or
Principal
Amount
(000) U.S. $ Value
--------------------------------------------------------------------------------
Russia-6.3%
Ministry of Finance
3.00%, 5/14/03 ......................... $ 1,150 $ 948,750
3.00%, 5/14/06 ......................... 11,350 7,023,380
3.00%, 5/14/08 ......................... 600 306,000
Russian Federation
5.00%, 3/31/30(d)(f) ................... 161,925 76,550,044
------------
84,828,174
------------
Turkey-3.1%
Turkey Treasury Bills
70.50%, 3/06/02(c)(g) .................. TRL 85,023,540 4,450,327
72.01%, 3/06/02(c)(g) .................. 85,000,000 4,449,095
72.10%, 3/06/02(c)(g) .................. 173,570,000 9,085,052
73.54%, 3/06/02(c)(g) .................. 80,000,000 4,187,383
Republic of Turkey
11.875%, 1/15/30(c) .................... $ 23,220 19,388,700
------------
41,560,557
------------
Ukraine-0.0%
Republic of Ukraine
11.00%, 3/15/07(c) ..................... 582 449,304
------------
Total Sovereign Debt Securities
(cost $252,731,356) .................... 261,439,911
------------
Collateralized Brady Bonds(h)-0.1%
Bulgaria
Republic of Bulgaria
Discount Bonds FRN
Series A
6.3125%, 7/28/24(c) .................... 2,000 1,567,600
------------
Total Sovereign Debt Obligations
(cost $254,247,709) .................... 263,007,511
------------
PREFERRED STOCK-3.8%
Abbey National PLC(i) ..................... 10,000 15,491,300
Centaur Funding Corp., Series B(d) ........ 21,310 22,636,654
Centaur Funding Corp., Series C(d) ........ 75,000 13,175,325
------------
Total Preferred Stock
(cost $58,506,514) ..................... 51,303,279
------------
--------------------------------------------------------------------------------
12 o ACM GOVERNMENT INCOME FUND
------------------------
PORTFOLIO OF INVESTMENTS
------------------------
Principal
Amount
(000) U.S. $ Value
-------------------------------------------------------------------------------
SHORT-TERM INVESTMENT-0.6%
TIME DEPOSIT-0.6%
State Street Bank & Trust Co.
3.25%, 7/02/01
(cost $7,619,000) ............................ $ 7,619 $ 7,619,000
---------------
TOTAL INVESTMENTS-147.4%
(cost $2,007,545,747) ........................ 1,993,844,454
Other assets less liabilities-(47.4%) ........... (640,774,264)
---------------
Net Assets-100.0% ............................... $ 1,353,070,190
===============
(a) Securities, or portion thereof, have been segregated to collateralize the
loan outstanding. Total value of segregated securities amounted to
$911,907,011 at June 30, 2001.
(b) Securities, or portion thereof, with an aggregate market value of
$132,632,766 have been segregated to collateralize reverse repurchase
agreements.
(c) Securities, or portion thereof, have been segregated to collateralize open
forward foreign currency contracts. Total value of segregated securities
amounted to $376,090,091 at June 30, 2001.
(d) Security 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,
2001, these securities amounted to $252,676,751 or 18.67% of net assets.
(e) Indicates a security that has a zero coupon that remains in effect until a
predetermined date at which time the stated coupon rate becomes effective
until final maturity.
(f) Coupon increases periodically based upon a predetermined schedule. Stated
interest rate in effect at June 30, 2001.
(g) Annualized yield to maturity at purchase date.
(h) Sovereign debt obligations issued as part of debt restructurings that are
collateralized in full as to principal due at maturity by U.S. Treasury
zero coupon obligations which have the same maturity as the Brady Bond.
(i) Denominated in British Pounds.
Glossary of Terms:
FRN - Floating Rate Note
PDI - Past Due Interest
See notes to financial statements.
--------------------------------------------------------------------------------
ACM GOVERNMENT INCOME FUND o 13
---------------------------------
STATEMENT OF ASSETS & LIABILITIES
---------------------------------
STATEMENT OF ASSETS & LIABILITIES
June 30, 2001 (unaudited)
Assets
Investments in securities, at value (cost $2,007,545,747) .. $1,993,844,454
Cash ....................................................... 867
Foreign cash, at value (cost $6,971,643) ................... 7,002,422
Receivable for investment securities sold .................. 63,206,466
Interest receivable ........................................ 27,160,461
Prepaid expenses ........................................... 323,056
--------------
Total assets ............................................... 2,091,537,726
--------------
Liabilities
Payable for investment securities purchased ................ 300,998,810
Loan payable ............................................... 300,000,000
Reverse repurchase agreements .............................. 134,509,500
Advisory fee payable ....................................... 1,198,418
Loan interest payable ...................................... 1,111,531
Unrealized depreciation on forward exchange currency
contracts ................................................ 270,743
Administrative fee payable ................................. 207,499
Interest payable on reverse repurchase agreements .......... 45,133
Accrued expenses ........................................... 125,902
--------------
Total liabilities .......................................... 738,467,536
--------------
Net Assets ................................................. $1,353,070,190
==============
Composition of Net Assets
Capital stock, at par ...................................... $ 1,646,789
Additional paid-in capital ................................. 1,773,435,237
Undistributed net investment loss .......................... (17,631,442)
Accumulated net realized loss on investments,
swap contracts and foreign currency transactions ......... (408,397,562)
Net unrealized appreciation of investments and
foreign currency transactions ............................ 4,017,168
--------------
$1,353,070,190
==============
Net Asset Value Per Share
(based on 164,678,929 shares outstanding) ............... $ 8.22
==============
See notes to financial statements.
--------------------------------------------------------------------------------
14 o ACM GOVERNMENT INCOME FUND
-----------------------
STATEMENT OF OPERATIONS
-----------------------
STATEMENT OF OPERATIONS
Six Months Ended June 30, 2001 (unaudited)
Investment Income
Interest ..................................... $79,136,642
Dividends (net of foreign taxes
withheld of $63,031) ...................... 1,164,520 $ 80,301,162
-----------
Expenses
Advisory fee ................................. 5,802,469
Administrative ............................... 1,089,393
Printing ..................................... 521,417
Registration ................................. 345,899
Transfer agency .............................. 320,128
Custodian .................................... 209,409
Audit and legal .............................. 81,492
Directors' fees .............................. 32,262
Miscellaneous ................................ 115,590
-----------
Total expenses before interest ............... 8,518,059
Interest expense ............................. 9,472,862
-----------
Total expenses ............................... 17,990,921
------------
Net investment income ........................ 62,310,241
------------
Realized and Unrealized Gain (Loss) on
Investments and Foreign
Currency Transactions
Net realized loss on investment
transactions .............................. (35,795,633)
Net realized gain on options written ......... 451,172
Net realized loss on foreign currency
transactions .............................. (2,854,961)
Net change in unrealized
appreciation/depreciation of:
Investments ............................... (2,074,190)
Foreign currency transactions ............. 1,039,792
------------
Net loss on investments, options and
foreign currency transactions ............. (39,233,820)
------------
Net Increase in Net Assets
from Operations ........................... $ 23,076,421
============
See notes to financial statements.
--------------------------------------------------------------------------------
ACM GOVERNMENT INCOME FUND o 15
----------------------------------
STATEMENT OF CHANGES IN NET ASSETS
----------------------------------
STATEMENT OF CHANGES
IN NET ASSETS
Six Months
Ended Year Ended
June 30, 2001 December 31,
(unaudited) 2000
=============== ===============
Increase (Decrease) in Net Assets
from Operations
Net investment income ....................... $ 62,310,241 $ 46,684,417
Net realized gain (loss) on investments,
options and foreign currency
transactions ............................. (38,199,422) 20,917,915
Net change in unrealized
appreciation/depreciation of
investments and foreign currency
transactions ............................. (1,034,398) 21,637,103
--------------- ---------------
Net increase in net assets from operations .. 23,076,421 89,239,435
Dividends and Distributions to
Shareholders from:
Net investment income ....................... (61,229,585) (46,684,417)
Distributions in excess of net investment
income ................................... -0- (4,915,050)
Capital Stock Transactions
Net increase ................................ -0- 903,815,269
Reinvestment of dividends resulting in
issuance of Common Stock ................. 681,641 351,782
--------------- ---------------
Total increase (decrease) ................... (37,471,523) 941,807,019
Net Assets
Beginning of period ......................... 1,390,541,713 448,734,694
--------------- ---------------
End of period ............................... $ 1,353,070,190 $ 1,390,541,713
=============== ===============
See notes to financial statements.
--------------------------------------------------------------------------------
16 o ACM GOVERNMENT INCOME FUND
-----------------------
STATEMENT OF CASH FLOWS
-----------------------
STATEMENT OF CASH FLOWS
Six Months Ended June 30, 2001 (unaudited)
Increase (Decrease) in Cash from
Operating Activities:
Interest and dividends received ...... $ 66,520,876
Interest expense paid ................ (9,916,885)
Operating expenses paid .............. (8,919,807)
---------------
Net increase in cash from operating
activities ........................ $ 47,684,184
Investing Activities:
Purchases of long-term investments ... (8,483,407,900)
Proceeds from disposition of long-term
investments ....................... 8,386,757,749
Sales of short-term investments--net . 31,626,790
---------------
Net decrease in cash from investing
activities ........................ (65,023,361)
Financing Activities*:
Cash dividends paid .................. (65,838,413)
Proceeds from reverse repurchase
agreements ........................ 90,088,198
---------------
Net increase in cash from financing
activities ........................ 24,249,785
----------------
Net increase in cash ................. 6,910,608
Cash at beginning of period .......... 92,681
----------------
Cash at end of period ................ $ 7,003,289
================
--------------------------------------------------------------------------------
Reconciliation of Net Increase in
Net Assets from Operations to
Net Increase in Cash from
Operating Activities:
Net increase in net assets from
operations ........................ $ 23,076,421
Adjustments:
Decrease in interest receivable ...... $ 4,922,926
Accretion of bond discount ........... (22,979,432)
Amortization of bond premium ......... 4,276,220
Decrease in accrued expenses ......... (845,771)
Net loss on investments .............. 39,233,820
---------------
Total adjustments .................... 24,607,763
----------------
Net Increase in Cash from Operating
Activities ........................... $ 47,684,184
================
* Non-cash financing activities not included herein consist of reinvestment
of dividends.
See notes to financial statements.
--------------------------------------------------------------------------------
ACM GOVERNMENT INCOME FUND o 17
-----------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 2001 (unaudited)
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 financial statements have been prepared in conformity with
accounting principles generally accepted in the United States 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, securities listed on a foreign
securities exchange 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 market
value of such securities. Listed put and call options purchased by the Fund are
valued at the last sale price. If there is no sale on that day, such securities
are 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. Dividend income is recorded on the ex-dividend
date. 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.
--------------------------------------------------------------------------------
18 o ACM GOVERNMENT INCOME FUND
-----------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
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 the rates of exchange
prevailing when accrued. Net realized gain or loss on foreign currency
transactions represents foreign exchange gains and losses from sales and
maturities of foreign securities, holding of foreign currencies, options on
foreign 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 or
depreciation of investments and foreign currency transactions.
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 accordance with
accounting principles generally accepted in the United States. 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.
6. Change in Accounting Principle
As required, effective January 1, 2001, the Fund has adopted the provisions of
the AICPA Audit and Accounting Guide, Audits of Investment Companies, and began
amortizing premium on debt securities for financial statement reporting purposes
only. This change will have no impact on the net assets of the Fund. Prior to
January 1, 2001, the Fund did not amortize premiums on debt securities.
The cumulative effect of this accounting change resulted in a $17,980,546
reduction in cost of investments and a corresponding $17,980,546 increase in net
unrealized appreciation (depreciation), based on investments owned by the Fund
on January 1, 2001.
The effect of this change for the period ended June 30, 2001, was to decrease
net investment income by $4,276,220, increase net unrealized appreciation
(depreciation) by $3,068,041, and increase net realized gains (losses) by
$1,208,179. The statement of changes in net assets and financial highlights for
prior periods have not been restated to reflect this change in accounting
principle.
--------------------------------------------------------------------------------
ACM GOVERNMENT INCOME FUND o 19
-----------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE B
Advisory, Administrative Fees and Other Transactions with Affiliates
Under the terms of an investment advisory agreement, the Fund pays Alliance
Capital Management L.P., (the "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 Global
Investor Services, Inc. ("AGIS"), (formerly, Alliance Fund Services, Inc.) an
affiliate of the Adviser, the Fund reimburses AGIS for costs relating to
servicing phone inquiries on behalf of the Fund. For the six months ended June
30, 2001, the Fund did not reimburse AGIS.
Under the terms of an Administrative Agreement, the Fund pays its Administrator,
Brinson Advisors, Inc. (formerly Mitchell Hutchins Asset Management Inc.), a
monthly fee equal to the annualized rate of .18 of 1% of the Fund's average
weekly net assets up to $100 million, .16 of 1% of the Fund's next $200 million
of average weekly net assets, and .15 of 1% of the Fund's average weekly net
assets in excess of $300 million. Brinson Advisors, Inc. is an indirect
wholly-owned asset management subsidiary of UBS AG. 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 $1,354,419,565 and $1,209,767,375,
respectively, for the six months ended June 30, 2001. There were purchases of
$7,158,743,989 and sales of $7,233,682,401 of U.S. government and government
agency obligations for the six months ended June 30, 2001.
At June 30, 2001, the cost of investments for federal income tax purposes was
substantially the same as the cost for financial reporting purposes.
Accordingly, gross unrealized appreciation of investments was $32,744,630, and
gross unrealized depreciation was $49,513,964, resulting in net unrealized
depreciation of $16,769,334 (excluding foreign currency transactions).
At December 31, 2000, the Fund had a capital loss carryforward of $307,277,094
of which $22,208,518 expires in the year 2001, $40,404,628 expires in the year
2002, $2,680,733 expires in the year 2003, $79,155 expires in the year 2004,
$34,157,206 expires in the year 2005, $131,355,099 expires in the year 2006,
$67,513,083 expires in the year 2007 and $8,878,672 expires in the year 2008.
--------------------------------------------------------------------------------
20 o ACM GOVERNMENT INCOME FUND
-----------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
Based on certain provisions in the Internal Revenue Code, various limitations
regarding the future utilization of these carryforwards, brought forward as a
result of the Fund's merger with ACM Government Securities Fund and ACM
Government Spectrum Fund, may apply.
Capital and foreign currency losses incurred after October 31 ("post October"
losses) within the taxable year are deemed to arise on the first business day of
the Fund's next taxable year. The Fund incurred and will elect to defer net
foreign currency losses of $1,277,197 and net capital losses of $1,133,585
during fiscal year 2000. These carryover losses may be used to offset future
capital gains. To the extent they are so used, future capital gains will not be
distributed to shareholders until they exceed available capital loss carryovers.
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.
Fluctuations in the value of open forward exchange currency contracts are
reflected for financial reporting purposes as a component of net unrealized
appreciation (depreciation) of investments and foreign currency transactions.
The Fund's custodian places and maintains liquid assets in a separate account of
the Fund having a value at least 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 a foreign
currency relative to the U.S. dollar. At June 30, 2001, the Fund had outstanding
forward exchange currency contracts as follows:
U.S. $
Contract Value on U.S. $
Amount Origination Current Unrealized
(000) Date Value Depreciation
------------------------------------------------------------
Forward Exchange
Currency Buy
Contract
Euro Dollars,
settling 7/31/01 ..... 48,500 $41,394,750 $41,076,913 $(317,837)
--------------------------------------------------------------------------------
ACM GOVERNMENT INCOME FUND o 21
-----------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
U.S. $
Contract Value on U.S. $ Unrealized
Amount Origination Current Appreciation
(000) Date Value (Depreciation)
------------------------------------------------------------
Forward Exchange
Currency Sale
Contracts
British Pounds,
settling 7/16/01 ..... 34,137 $48,440,263 $48,045,483 $ 394,780
Canadian Dollars,
settling 7/03/01 ..... 10,627 6,920,296 7,001,914 (81,618)
Mexican Pesos,
settling 7/05/01 ..... 208,762 22,769,496 23,035,564 (266,068)
---------
$(270,743)
=========
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 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 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.
--------------------------------------------------------------------------------
22 o ACM GOVERNMENT INCOME FUND
-----------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
For the six months ended June 30, 2001, the Fund had the following written
option transactions:
Number of
Contracts Premiums
========= ===========
Options outstanding at December 31, 2000 ............. 0 $ 0
Options written ...................................... 1,050 1,041,797
Options terminated in closing purchase transactions .. (1,050) (1,041,797)
------ -----------
Options outstanding at June 30, 2001 ................. 0 $ 0
====== ===========
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 during 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/depreciation of investments and swap
contracts.
At June 30, 2001, the Fund did not have any swap agreements outstanding.
NOTE D
Capital Stock
There are 300,000,000 shares of $0.01 par value common stock authorized, of
which 164,678,929 shares were outstanding at June 30, 2001. During the six
months ended June 30, 2001 and the year ended December 31, 2000, the Fund issued
81,244 and 47,092 shares, respectively, in connection with the Fund's dividend
reinvestment plan. The shares issued in connection with the acquisition of ACM
Government Securities Fund and ACM Government Spectrum Fund at the close of
business on December 19, 2000 were 105,852,934.
--------------------------------------------------------------------------------
ACM GOVERNMENT INCOME FUND o 23
-----------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE E
Security Lending
The Fund may make secured loans of portfolio securities to brokers, dealers and
financial institutions, provided that cash, liquid high-grade debt securities or
bank letters of credit equal to at least 102% of the market value of the
securities loaned is deposited and maintained by the borrower with the Fund.
The risks in lending portfolio securities, as with other extensions of credit,
consist of possible loss of rights in the collateral should the borrower fail
financially. In determining whether to lend securities to a particular borrower,
the Adviser will consider all relevant facts and circumstances, including the
creditworthiness of the borrower. While securities are on loan, the borrower
will pay the Fund any income earned thereon and the Fund may invest any cash
collateral in portfolio securities, thereby earning additional income, or
receive an agreed upon amount of income from a borrower who has delivered
equivalent collateral. When such securities are borrowed against cash, the Fund
agrees to pay the borrower of such securities a "rebate rate" for the use of the
cash the borrower has pledged as collateral.
For the six months ended June 30, 2001, the Fund had no security lending
agreements outstanding.
NOTE F
Reverse Repurchase Agreements
Under a reverse repurchase agreement, the Fund sells securities and agrees to
repurchase them at a mutually agreed upon date and price. At the time the Fund
enters into a reverse repurchase agreement, it will establish a segregated
account with the custodian containing liquid assets having a value at least
equal to the repurchase price.
As of June 30, 2001, the Fund had entered into the following reverse repurchase
agreements:
Amount Broker Interest Rate Maturity
=========== ================================ ============= ============
$48,318,750 Credit Suisse First Boston, Inc. 3.970% July 2, 2001
$86,190,750 Greenwich Capital Markets 3.600% July 5, 2001
For the six months ended June 30, 2001 the maximum amount of reverse repurchase
agreements outstanding was $134,509,500, the average amount outstanding was
approximately $56,677,348 and the daily weighted average annualized interest
rate was 4.48%.
--------------------------------------------------------------------------------
24 o ACM GOVERNMENT INCOME FUND
-----------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE G
Bank Borrowing
On August 11, 1999, the Fund entered into a five-year, $90,000,000 credit
facility for a commercial paper asset securitization program with Societe
Generale ("SG") as Administrative Agent, and Barton Capital Corporation
("Barton") as lender. On December 19, 2000 the credit facility was increased to
$300,000,000. Under the SG Program, Barton will fund advances to the Fund
through the issuance of commercial paper rated A-1+ by Standard & Poor's Ratings
Services and P-1 by Moody's Investors Service, Inc. The collateral value must be
at least 171% of outstanding borrowings. The borrowings under the SG program are
secured by the pledging of the Fund's portfolio securities as collateral. The
interest rate on the Fund's borrowings is based on the interest rate carried by
the commercial paper. The weighted average annualized interest rate for the six
months ended June 30, 2001 was 5.54% and the average borrowing was $300,000,000.
At June 30, 2001, the interest rate in effect was 3.93% and the amount of
borrowings outstanding was $300,000,000.
NOTE H
Concentration of Risk
Investing in securities of foreign governments involves special risks which
include changes in foreign exchange rates and the possibility of future adverse
political and economic developments which could adversely affect the value of
such securities. Moreover, securities of many foreign governments and their
markets may be less liquid and their prices more volatile than those of the
United States Government.
NOTE I
Acquisition of ACM Government Securities Fund and ACM Government Spectrum Fund
Effective as of the close of business on December 19, 2000, the Fund acquired
all of the net assets of ACM Government Securities Fund and ACM Government
Spectrum Fund pursuant to the plan of reorganization and acquisition. The
acquisition was accomplished by a tax-free exchange of 105,852,934 shares of the
Fund for 78,226,348 and 35,235,527 shares of ACM Government Securities Fund and
ACM Government Spectrum Fund, respectively, on December 20, 2000. The aggregate
net assets of the Fund, ACM Government Securities Fund and ACM Government
Spectrum Fund before the acquisition were $494,005,466, $652,545,090 and
$237,788,207, respectively. Immediately after the acquistion the combined net
assets of the Fund amounted to $1,384,338,763.
--------------------------------------------------------------------------------
ACM GOVERNMENT INCOME FUND o 25
--------------------
FINANCIAL STATEMENTS
--------------------
FINANCIAL HIGHLIGHTS
Selected Data For A Share Of Common Stock Outstanding Throughout Each Period
Six Months
Ended
June 30, Year Ended December 31,
2001(a) -------------------------------------------------------------
(unaudited) 2000 1999 1998 1997 1996
-------------------------------------------------------------------------------
Net asset value,
beginning of period ................. $ 8.45 $ 7.64 $ 8.80 $ 10.51 $ 10.29 $ 9.77
-------------------------------------------------------------------------------
Income From Investment
Operations
Net investment income(b) ............... .38 .70 .79 .88 .94 .94
Net realized and unrealized
gain (loss) on investments,
swap contracts, options
written and foreign currency
transactions ........................ (.24) .91 (1.11) (1.71) .54 .55
-------------------------------------------------------------------------------
Net increase (decrease) in net
asset value from operations ......... .14 1.61 (.32) (.83) 1.48 1.49
-------------------------------------------------------------------------------
Less: Dividends and
Distributions
Dividends from net
investment income ................... (.37) (.70) (.79) (.88) (.92) (.94)
Distributions in excess of
net investment income ............... -0- (.10) (.05) -0- -0- (.03)
Distributions from net realized
gains ............................... -0- -0- -0- -0- (.34) -0-
-------------------------------------------------------------------------------
Total dividends and distributions ...... (.37) (.80) (.84) (.88) (1.26) (.97)
-------------------------------------------------------------------------------
Net asset value, end of period ......... $ 8.22 $ 8.45 $ 7.64 $ 8.80 $ 10.51 $ 10.29
===============================================================================
Market value, end of period ............ $ 8.72 $ 7.50 $ 6.50 $ 9.125 $ 11.00 $ 10.25
===============================================================================
Total Investment Return
Total investment return based on:(c)
Market value ........................ 21.62%(d) 28.97% (20.84)% (9.25)% 20.73% 24.15%
Net asset value ..................... 1.76% 23.58% (3.53)% (8.38)% 15.08% 16.40%
Ratios/Supplemental Data
Net assets, end of period
(000's omitted) ..................... $1,353,070 $1,390,542 $448,735 $512,296 $605,664 $590,173
Ratio of expenses to average
net assets .......................... 2.61%(d) 2.54% 2.37% 2.09% 2.03% 2.17%
Ratio of expenses to average
net assets excluding
interest expense(e) ................. 1.24%(d) 1.19% 1.19% 1.12% 1.11% 1.18%
Ratio of net investment income
to average net assets ............... 9.04%(d) 9.40% 9.80% 9.04% 9.02% 9.78%
Portfolio turnover rate ................ 425% 538% 368% 409% 304% 349%
See footnote summary on page 27.
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26 o ACM GOVERNMENT INCOME FUND
--------------------
FINANCIAL STATEMENTS
--------------------
(a) As required, effective January 1, 2001, the Fund has adopted the
provisions of the AICPA Audit and Accounting Guide, Audits of Investment
Companies, and began amortizing premium on debt securities. The effect of
this change for the six months ended June 30, 2001 was to decrease net
investment income per share by $.02, increase net realized and unrealized
gains and losses per share by $.02, and decrease the ratio of net
investment income to average net assets from 9.65% to 9.04%. Per share,
ratios and supplemental data for periods prior to January 1, 2001 have not
been restated to reflect this change in presentation.
(b) Based on average shares outstanding.
(c) 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.
(d) Annualized.
(e) Net of interest expense of 1.37%, 1.35%, 1.18%, .97%, .92%, and .99%,
respectively, on borrowings (see Notes E, F and G).
--------------------------------------------------------------------------------
ACM GOVERNMENT INCOME FUND o 27
----------------------
ADDITIONAL INFORMATION
----------------------
ADDITIONAL INFORMATION
Supplemental Proxy Information
The Annual Meeting of Shareholders of the ACM Government Income Fund was held on
Thursday, March 8, 2001. The description of each proposal and number of shares
voted at the meeting are as follows:
Voted
Abstain/
Voted Authority
For Withheld
==============================================================================================
1. To elect directors: Class One
Directors
(terms expire in
2004)
John H. Dobkin 144,803,011 2,165,668
Clifford L. Michel 145,273,834 1,694,845
Donald J. Robinson 145,252,960 1,715,719
Voted
Abstain/
Voted Voted Authority
For Against Withheld
==============================================================================================
2. To ratify the selection of Ernst &
Young LLP as the Fund's independent
auditors for the fiscal year ending
December 31, 2001: 144,973,170 493,680 1,501,829
--------------------------------------------------------------------------------
28 o ACM GOVERNMENT INCOME FUND
----------------------------
GLOSSARY OF INVESTMENT TERMS
----------------------------
GLOSSARY OF INVESTMENT TERMS
asset-backed securities (ABS)
Bonds or notes backed by loan paper or accounts receivable originated by banks,
credit card companies or other providers of credit and often enhanced by a bank
letter of credit or by insurance coverage provided by an institution other than
the issuer.
basis point (bp)
One basis point equals 0.01%.
benchmark
A standard by which a fund's performance can be measured. A benchmark is usually
an unmanaged index, such as the Standard & Poor's 500 Stock Index or the Lehman
Brothers Aggregate Bond Index.
commercial mortgage-backed securities (CMBS)
Similar to mortgage-backed securities in that they are securities or
certificates backed by mortgages, except that investors receive payments out of
the interest and principal of commercially-owned real estate, rather than
residential real estate.
Federal Reserve Board
The seven-member board that oversees Federal Reserve Banks, establishes monetary
policy and monitors the country's economic state.
government bond
A bond that is issued by the U.S. government or its agencies.
index
A compilation of securities of similar types of companies that is used to
measure the investment performance of securities within that specific market. An
index is often used as a benchmark for a mutual fund. An investor cannot invest
directly in an index.
investment-grade bond
A bond that is rated BBB or higher by a credit agency.
mortgage-backed securities (MBS)
Securities or certificates backed by mortgages. Typically issued by institutions
such as the Federal National Mortgage Association (FNMA), Government National
Mortgage Association (GNMA) and the Federal Home Loan Mortgage Corporation
(FHLMC). Investors receive payments out of the interest and principal of the
underlying mortgages.
Treasuries
Negotiable U.S. government debt obligations, backed by the full faith and credit
of the U.S. government. Treasuries are issued either as bills, notes or bonds
depending on the maturity. Treasuries are exempt from state and local taxes.
--------------------------------------------------------------------------------
ACM GOVERNMENT INCOME FUND o 29
----------------
ALLIANCE CAPITAL
----------------
ALLIANCE CAPITAL
The Investment Professional's Choice
Alliance Capital is a leading global investment management firm with
approximately $465 billion in assets under management. In recognition of our
far-reaching investment capabilities, Alliance Capital has been selected by
employee benefit plans for 36 of the FORTUNE 100 companies and public retirement
funds in 41 states as well as by hundreds of foundations, endowments and foreign
institutions. By sharing this institutional money management experience with
millions of mutual fund investors as well, Alliance stands out as a "manager of
choice" for thousands of investment professionals around the world.
At Alliance Capital, we place a premium on investment research. We carefully
select securities based on our proprietary research, conducted by 642 investment
professionals in 36 cities and 19 countries. Our commitment to this process
means that our mutual fund shareholders have their portfolios managed by the
same experienced analysts and portfolio managers who manage the pension funds of
some of America's largest institutional investors.
All information on Alliance Capital is as of 6/30/01.
--------------------------------------------------------------------------------
30 o ACM GOVERNMENT INCOME FUND
--------------------------------
ALLIANCE CAPITAL AT YOUR SERVICE
--------------------------------
ALLIANCE CAPITAL AT YOUR SERVICE
At Alliance Capital, shareholder satisfaction is among our top priorities. That
is why we provide our shareholders with a wide variety of products and
time-saving services.
o Low Minimum Investments
You can begin investing in Alliance Capital funds with as little as $250
(except for Alliance Select Investor Series Biotechnology Portfolio,
Alliance Select Investor Series Premier Portfolio, Alliance Select
Investor Series Technology Portfolio, and Alliance Select Investor Series
Small Cap Growth Portfolio which generally have a $10,000 minimum initial
investment) and may make subsequent investments of $50 or more.
o Automatic Reinvestment
You may choose to reinvest fund dividend and capital-gains distributions
automatically at no charge.
o Automatic Investment Program
Build your investment account by having money automatically transferred
from your bank account on a regular basis.
o Dividend Direction Plans
You may cross-invest dividends from one fund into the same class of shares
in any other fund without incurring a sales charge--a good way to
diversify your assets.
o Auto Exchange
You may choose to automatically exchange money from one Alliance Capital
fund to another on a regular basis. This can be a good way to dollar cost
average*, helping you to invest with discipline.
o Systematic Withdrawals
Regular checks for specified amounts can be sent to you or to your
brokerage or bank account.
o E-Statements
Sign up to view your quarterly account statement on-line, rather than wait
to receive paper copies in the mail--it's easy, convenient and saves you
time and storage space.
o A Choice of Purchase Plans
Most funds are available in A, B, and C Class shares. Many funds are also
available in Advisor Class shares.
o Telephone Transaction
Purchases, transfers and redemptions can be made by calling (800)
221-5672. Our knowledgeable representatives are available to assist you
Monday through Friday from 8:30 a.m. to 8:00 p.m. Eastern Standard Time.
o Alliance Answer: 24-Hour Information
For your convenience, our computerized audio response system is available
to you 24-hours a day by calling (800) 251-0539. Using any touch tone
phone, you can hear share prices, get account balances, review details of
your last transaction, obtain dividend information, order
statements/checkbooks, review fund objectives, and Watchlist information,
order additional copies of statements and request additional year-end tax
forms (available from February 1 to May 31).
o The Alliance Advance
A quarterly newsletter discussing investment strategies, economic news and
other mutual fund matters.
o Our Website at www.alliancecapital.com gives you a broad perspective of
Alliance Capital. You can reach Alliance mutual fund and account
information more directly from www.investor.alliancecapital.com. Either
way, you'll have access to extensive Alliance fund data, answers to
frequently asked questions, and financial planning tools and calculators.
* Dollar cost averaging does not assure a profit nor protect against loss in
a declining market. Since this strategy involves continuous investments in
securities, regardless of fluctuating prices, investors should consider
their financial ability to invest during periods of low price levels.
--------------------------------------------------------------------------------
ACM GOVERNMENT INCOME FUND o 31
------------------
BOARD OF DIRECTORS
------------------
BOARD OF DIRECTORS
John D. Carifa, Chairman
Ruth Block(1)
David H. Dievler(1)
John H. Dobkin(1)
William H. Foulk, Jr.(1)
Dr. James M. Hester(1)
Clifford L. Michel(1)
Donald J. Robinson(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
Vincent S. Noto, Controller
Administrator
Brinson Advisors, Inc.
51 West 52nd Street
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 LLP
One Battery Park Plaza
New York, NY 10004
(1) Member of the Audit Committee.
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. 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.
--------------------------------------------------------------------------------
32 o ACM GOVERNMENT INCOME FUND
--------------------------------
ALLIANCE CAPITAL FAMILY OF FUNDS
--------------------------------
ALLIANCE CAPITAL FAMILY OF FUNDS
Domestic Equity Funds
Growth & Income Fund
Growth Fund
Health Care Fund
Premier Growth Fund
Quasar Fund
Technology Fund
The Alliance Fund
Global & International Equity Funds
All-Asia Investment Fund
Global Small Cap Fund
Greater China '97 Fund
International Fund
International Premier Growth Fund
New Europe Fund
Worldwide Privatization Fund
AllianceBernstein Value Funds
Disciplined Value Fund
Global Value Fund
International Value Fund
Real Estate Investment Fund
Small Cap Value Fund
Utility Income Fund
Value Fund
Select Investor Series
Biotechnology Portfolio
Premier Portfolio
Small Cap Growth Portfolio
Technology Portfolio
Asset Allocation Funds
Balanced Shares
Conservative Investors Fund
Growth Investors Fund
Fixed Income Funds
Corporate Bond Portfolio
Global Dollar Government Fund
Global Strategic Income Trust
High Yield Fund
Multi-Market Strategy Trust
North American Government Income Trust
Quality Bond Portfolio
U.S. Government Portfolio
Municipal Income Funds
National
Insured National
Arizona
California
Insured California
Florida
Massachusetts
Michigan
Minnesota
New Jersey
New York
Ohio
Pennsylvania
Virginia
Closed-End Funds
All-Market Advantage Fund
The Austria Fund
ACM Government Income Fund
ACM Government Opportunity Fund
The Korean Investment Fund
ACM Managed Dollar Income Fund
ACM Managed Income Fund
ACM Municipal Securities Income Fund
The Southern Africa Fund
The Spain Fund
World Dollar Government Fund
World Dollar Government Fund II
Alliance also offers AFD Exchange Reserves, which serves as the money market
fund exchange vehicle for the Alliance mutual funds.
To obtain a prospectus for any Alliance Capital fund, call your investment
professional, or call Alliance at (800) 227-4618.
--------------------------------------------------------------------------------
ACM GOVERNMENT INCOME FUND o 33
------------------------------
SUMMARY OF GENERAL INFORMATION
------------------------------
SUMMARY OF GENERAL
INFORMATION
ACM Government Income Fund Shareholder Information
The daily net asset value of the Fund's shares is available from the Fund's
Transfer Agent by calling (800) 432-5523. The Fund also distributes its daily
net asset value to various financial publications or independent organizations
such as Lipper Inc., Morningstar, Inc. and Bloomberg.
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 and each Sunday in The New York Times and other
newspapers in a table called "Closed-End Bond Funds."
Dividend Reinvestment Plan
A Dividend Reinvestment Plan provides automatic reinvestment of dividends and
capital gains 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 (800) 219-4218.
--------------------------------------------------------------------------------
34 o ACM GOVERNMENT INCOME FUND
NOTES
--------------------------------------------------------------------------------
ACM GOVERNMENT INCOME FUND o 35
NOTES
--------------------------------------------------------------------------------
36 o ACM GOVERNMENT INCOME FUND
ACM Government Income Fund
1345 Avenue of the Americas
New York, NY 10105
Alliance Capital [LOGO](R)
The Investment Professional's Choice
(R) These registered service marks used under license from the owner, Alliance
Capital Management L.P.
INCSR601