UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number: 811-5207
ACM INCOME FUND, INC.
(Exact name of registrant as specified in charter)
1345 Avenue of the Americas, New York, New York 10105
(Address of principal executive offices) (Zip code)
Mark R. Manley
Alliance Capital Management L.P.
1345 Avenue of the Americas
New York, New York 10105
(Name and address of agent for service)
Registrant's telephone number, including area code: (800) 221-5672
Date of fiscal year end: December 31, 2005
Date of reporting period: June 30, 2005
ITEM 1. REPORTS TO STOCKHOLDERS.
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SEMI-ANNUAL REPORT
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[LOGO] ALLIANCEBERNSTEIN (R)
Investment Research and Management
ACM Income Fund
Semi-Annual Report
June 30, 2005
Investment Products Offered
o Are Not FDIC Insured
o May Lose Value
o Are Not Bank Guaranteed
You may obtain a description of the Fund's proxy voting policies and
procedures, and information regarding how the Fund voted proxies relating to
portfolio securities during the most recent 12-month period ended June 30,
without charge. Simply visit AllianceBernstein's web site at
www.alliancebernstein.com, or go to the Securities and Exchange Commission's
(the "Commission") web site at www.sec.gov, or call AllianceBernstein at (800)
227-4618.
The Fund files its complete schedule of portfolio holdings with the Commission
for the first and third quarters of each fiscal year on Form N-Q. The Fund's
Forms N-Q are available on the Commission's web site at www.sec.gov. The Fund's
Forms N-Q may also be reviewed and copied at the Commission's Public Reference
Room in Washington, DC; information on the operation of the Public Reference
Room may be obtained by calling (800) SEC-0330.
AllianceBernstein Investment Research and Management, Inc. is an affiliate of
Alliance Capital Management L.P., the manager of the funds, and is a member of
the NASD.
August 23, 2005
Semi-Annual Report
This report provides management's discussion of fund performance for ACM Income
Fund (the "Fund") for the semi-annual reporting period ended June 30, 2005. The
Fund is a closed-end fund that trades under the New York Stock Exchange symbol
"ACG".
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 a portion 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, and employs leverage. For more information regarding the
Fund's risks, please see "A Word About Risk" on page 3 and "Note G-Risks
Involved in Investing in the Fund" of the Notes to Financial Statements on page
36.
Investment Results
The table on page 5 provides performance data for the Fund and its benchmark,
the Lehman Brothers (LB) U.S. Aggregate Index, for the six- and 12-month
periods ended June 30, 2005.
The Fund significantly outperformed its benchmark during both the six- and
12-month periods ended June 30, 2005. The Fund's use of leverage, at a time of
continued solid positive returns for fixed-income markets, added to the Fund's
premium. In addition, the Fund's emerging market debt holdings and country
allocation also added to the Fund's relative performance versus the benchmark.
Three of the Fund's largest emerging country weightings (Brazil, Mexico and
Russia) posted solid returns, outperforming the benchmark. Low international
interest rates, ample global liquidity, high commodity export prices and
improved economic fundamentals in most emerging countries supported emerging
debt bond prices.
Although both high yield and investment-grade corporate markets underperformed
during the semi-annual reporting period, the Fund's exposure to those sectors
was relatively small. Industry selection also helped, particularly the Fund's
holdings in the wireless communications and property and casualty sectors.
Market Review and Investment Strategy
The U.S. Treasury market, as measured by the LB Treasury Index, posted a return
of 3.20% for the six-month reporting period ended June 30, 2005 despite
continued rate increases by the U.S. Federal Reserve (the "Fed"). During the
period, the Fed raised rates 100 basis points in quarter percent increments to
3.25%. Nevertheless, long-term U.S. interest rates fell during the period, and
the yield curve continued to flatten. Falling yields, in the view of the Fund's
portfolio managers, were the result of sustained buying of U.S. Treasuries and
other U.S. bonds by official and private foreign investors, coupled with
complacency about inflation pressures.
ACM INCOME FUND o 1
The corporate markets, however, underperformed during the six-month period
under review due to heightened spread volatility surrounding downgrades of
General Motors (GM) and Ford Motor Company to below investment grade. The
investment-grade corporate market returned 2.36% while high yield returned
1.11%, according to Lehman Brothers. Standard and Poor's acted first,
downgrading GM and Ford to BB and BB+, respectively. Fitch Ratings followed
with a downgrade of GM to BB+. Spreads on U.S. automakers had widened sharply
in anticipation of such actions on the heels of GM's profit warning. Both Ford
and GM suffered from declining SUV sales, loss of market share to Asian
manufacturers, and massive health care and pension liabilities.
Though conditions for the automakers had been deteriorating for some time, the
revision to GM's earnings forecast was the catalyst for the rating
agencies--and bondholders--to re-evaluate the prospects of these one-time
market leaders. Spreads on U.S. automakers rebounded in late May and June of
2005, though not enough to recoup losses since the start of the year.
Downgrades to Ford and GM meaningfully affected the investment-grade and
high-yield credit markets because they are among the largest bond issuers in
the U.S.
As mentioned above in the Investment Results section, emerging market debt
continued to be one of the best performing asset classes. This sector has
enjoyed strong investor demand, a favorable low interest rate environment,
strong global liquidity and improving individual country fundamentals.
Additionally, many emerging debt countries markedly improved their external
debt dynamics and pre-funded their debt obligations through 2006. According to
the J.P. Morgan Emerging Markets Bond Index (EMBI) Global, emerging market debt
returned 5.11% for the semi-annual period ended June 30, 2005.
During the reporting period, the Fund's portfolio managers maintained the
Fund's allocations to Brazil, Russia, Colombia, Mexico, Ecuador, Turkey and
Peru. Within the Fund's investment-grade allocation, exposure to utilities,
insurance, tier 1 banks and telecommunications was overweighted while autos
were underweighted. Within the Fund's high yield allocation, exposure to cable,
particularly satellite cable, as well as the financial and wireline industries,
was overweighted. Additionally, the Fund was underweighted in the autos,
technology, food/tobacco and retail industries within high yield.
2 o ACM INCOME FUND
HISTORICAL PERFORMANCE
An Important Note About the Value of Historical Performance
The performance on page 5 represents past performance and does not guarantee
future results. Current performance may be lower or higher than the performance
information shown. Returns are annualized for periods longer than one year. All
fees and expenses related to the operation of the Fund have been deducted.
Performance assumes reinvestment of distributions and does not account for
taxes.
ACM 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) 426-5523. 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 The Wall Street Journal under the designation "ACM
IncFd." 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." For additional
shareholder information regarding this Fund, please see page 52.
Benchmark Disclosure
The unmanaged Lehman Brothers (LB) U.S. Aggregate Index does not reflect fees
and expenses associated with the active management of a mutual fund portfolio.
The Index covers the U.S. investment-grade fixed-rate bond market, including
government and credit securities, agency mortgage passthrough securities,
asset-backed securities and commercial mortgage-backed securities. An investor
cannot invest directly in an index, and its results are not indicative of the
performance for any specific investment, including the Fund.
A Word About Risk
The Fund may utilize additional leverage through the investment techniques of
reverse repurchase agreements and dollar rolls. Repurchase agreements involve
sales by the Fund of portfolio assets concurrently with an agreement by the
Fund to repurchase the same assets at a later date at a fixed price. Generally,
the effect of such a transaction is that the Fund can recover all or most of
the cash invested in the portfolio securities involved during the term of the
reverse repurchase agreement, while it will be able to keep the interest income
associated with those portfolio securities. Such transactions are only
advantageous if the interest cost to the Fund of the reverse repurchase
agreement transaction is less than the cost of otherwise obtaining the cash.
The Fund may enter into dollar rolls in which the Fund sells securities for
delivery in the current month and simultaneously contracts to repurchase
substantially similar (same type and coupon) securities on a specified future
date. During the roll period, the Fund forgoes principal and interest paid on
the securities. The Fund is compensated by the difference between the current
sales price and the lower forward price for the future purchase (often referred
to as the "drop") as well as by the interest earned on the cash proceeds of the
initial sale.
(Historical Performance continued on next page)
ACM INCOME FUND o 3
HISTORICAL PERFORMANCE
(continued from previous page)
Reverse repurchase agreements and dollar rolls are speculative techniques and
are considered borrowings by the Fund. The effect of leverage can realize
shareholders higher returns than if the Fund were not leveraged, and the use of
leverage techniques can add to net asset value (NAV). However, the risks of
such techniques are potentially a higher volatility of the NAV of the Common
Stock, potentially more volatility in the market value of the Common Stock and
the relatively greater effect on the NAV of the Common Stock caused by
favorable or adverse changes in the currency exchange rates. In addition,
changes in the interest rate environment can increase or decrease shareholder
returns. This additional leverage will not exceed 33% of the Fund's total
assets, less liabilities.
To the extent that the current interest rate on the Fund's indebtedness
approaches the net return on the leveraged portion of the Fund's investment
portfolio, then the benefit to the shareholders will be reduced. If the rate on
indebtedness were to exceed the net return on the same portion of the
portfolio, then this would result in a lower rate of return for the
shareholders. Similarly, the use of leverage in a declining market can advance
the decrease of the Fund's NAV more so than if the Fund were not leveraged,
which would likely be reflected in a greater decline in the market price for
shares of Common Stock than if the Fund were not leveraged. In extreme cases,
if the Fund's current investment income were not sufficient to meet interest
payments on indebtedness or if the Fund failed to maintain the asset coverage
required by the 1940 Act, then it could be necessary for the Fund to liquidate
certain investments at a time when it may be disadvantageous to do so, thereby
reducing its NAV.
Part of the Fund's assets will be invested in foreign securities (including
emerging markets) and is subject to greater risk than would a fund with a more
diversified asset class portfolio. Since the Fund invests in foreign currency
denominated securities, fluctuations may be magnified by changes in foreign
exchange rates. Foreign markets can be more volatile than the U.S. market due
to increased risks of adverse issuer, political, regulatory, market or economic
developments. While the Fund invests principally in fixed-income securities, in
order to achieve its investment objectives, the Fund may at times use certain
types of investment derivatives, such as options, futures, forwards and swaps.
These instruments involve risks different from, and in certain cases, greater
than, the risks presented by more traditional investments.
(Historical Performance continued on next page)
4 o ACM INCOME FUND
HISTORICAL PERFORMANCE
(continued from previous page)
THE FUND VS. ITS BENCHMARK
PERIODS ENDED JUNE 30, 2005
Returns
-----------------------
6 Months 12 Months
-----------------------
ACM Income Fund (NAV) 5.85% 16.26%
LB U.S. Aggregate Index 2.51% 6.80%
The Fund's Market Price per share on June 30, 2005 was $8.31. For additional
Financial Highlights, please see page 41.
See Historical Performance and Benchmark disclosures on pages 3-4.
ACM INCOME FUND o 5
PORTFOLIO SUMMARY
June 30, 2005 (unaudited)
PORTFOLIO STATISTICS
Net Assets ($mil): $1,919.0
SECURITY TYPE BREAKDOWN*
[ ] 61.6% U.S. Government and [PIE CHART OMITTED]
Government Sponsored
Agency Obligations
[ ] 21.2% Sovereign Debt Obligations
[ ] 7.4% Corporate Debt Obligations
[ ] 3.2% Bank Loans
[ ] 0.1% Preferred Stock
[ ] 6.5% Short-Term
* All data are as of June 30, 2005. The Fund's security type breakdown is
expressed as a percentage of total investments (excluding security lending
collateral) and may vary over time.
6 o ACM INCOME FUND
PORTFOLIO OF INVESTMENTS
June 30, 2005 (unaudited)
Principal
Amount
(000) U.S. $ Value
-------------------------------------------------------------------------------
U.S. GOVERNMENT AND GOVERNMENT
SPONSORED AGENCY
OBLIGATIONS-99.1%
U.S. Treasury Bonds-38.1%
5.375%, 2/15/31(a) U.S.$ 593 $ 699,740
6.25%, 5/15/30(a)(b) 62,230 81,057,002
11.25%, 2/15/15(b) 160,000 252,568,800
12.00%, 8/15/13(b) 82,000 101,814,562
12.50%, 8/15/14(a) 70,300 93,534,712
13.25%, 5/15/14(a)(b) 150,000 200,994,150
---------------
730,668,966
U.S. Treasury Strips-15.6%
Zero coupon, 5/15/17(a) 260,000 159,285,880
Zero coupon, 11/15/21(a) 285,350 140,605,071
---------------
299,890,951
U.S. Treasury Notes-8.8%
1.625%, 1/15/15(a) 45,000 45,684,373
2.375%, 8/15/06(b) 20,000 19,739,060
2.625%, 5/15/08(a)(b) 24,615 23,919,823
3.50%,11/15/09(a) 154 152,646
3.875%, 2/15/13(a) 3,030 3,033,669
4.00%, 11/15/12(a) 4,664 4,716,288
4.00%, 2/15/15(a) 974 977,463
4.25%, 11/15/13-8/15/14(a) 4,895 5,017,084
4.375%, 8/15/12(a) 700 725,976
4.75%, 5/15/14(a)(b) 58,900 62,498,437
4.875%, 2/15/12(a) 250 265,508
---------------
166,730,327
Federal National Mortgage
Association-21.6%
4.526%, 2/01/35(a) 6,604 6,626,306
4.60%, 12/01/34 VRN(a) 34,316 34,518,402
4.60%, 4/01/35 VRN(a) 19,317 19,425,770
4.623%, 2/01/35 VRN(a) 11,675 11,743,709
5.00%, 9/25/23-10/25/30(a) 59,873 60,360,311
5.50%, 9/25/17-6/25/31(a) 12,454 12,683,089
6.00%, 5/25/30(a) 6,521 6,575,470
6.50%, 4/25/32-1/25/44 19,795 20,639,222
6.50%, TBA 185,090 191,510,402
7.00%, 11/01/17(a) 48,232 50,546,635
---------------
414,629,316
ACM INCOME FUND o 7
Principal
Amount
(000) U.S. $ Value
-------------------------------------------------------------------------------
Federal Home Loan Mortgage
Corporation-10.8%
4.47%, 4/01/35 VRN(a) U.S.$ 11,048 $ 11,051,669
4.749%, 3/01/35 VRN(a) 14,566 14,661,362
5.00%, 1/15/17-7/15/26 I/O(a) 26,503 2,115,599
5.00%, 11/15/26-6/15/33(a) 138,274 144,413,104
5.50%, 7/15/17(a) 15,680 16,289,623
6.00%, 5/15/35(a) 14,638 14,978,821
6.50%, 3/15/28(a) 3,938 4,108,637
---------------
207,618,815
Resolution Funding Corp.-3.9%
Zero coupon, 10/15/20 150,000 75,737,250
Government National Mortgage
Association-0.3%
7.00%, 12/15/26(a) 5,323 5,664,180
Total U.S. Government and Government
Sponsored Agency Obligations
(cost $1,799,359,563) 1,900,939,805
SOVEREIGN DEBT OBLIGATIONS-34.1%
Argentina-1.5%
Republic of Argentina
3.01%, 8/03/12 FRN(c) U.S.$ 17,295 15,608,737
5.83%, 12/31/33(c) ARS 1,149 410,316
7.82%, 12/31/33(c) EUR 5,393 5,867,174
8.28%, 12/31/33(c) U.S.$ 8,353 7,688,741
---------------
29,574,968
Brazil-8.3%
Republic of Brazil
9.25%, 10/22/10(c) 1,480 1,645,020
10.50%, 7/14/14(c) 2,137 2,527,002
11.00%, 8/17/40(b)(c) 14,401 17,281,200
12.00%, 4/15/10(c) 13,100 15,870,650
12.75%, 1/15/20(c) 2,820 3,828,150
14.50%, 10/15/09(c) 1,260 1,636,740
C-Bonds
8.00%, 4/15/14(c) 3,356 3,431,979
DCB FRN
4.3125%, 4/15/12(c) 963 926,253
Brazilian Real Structured Notes
Zero Coupon, 9/20/07(d) BRL 120,551 36,287,973
Zero Coupon, 1/03/08(d) 59,180 17,121,871
Zero Coupon, 1/05/09(d) 76,692 19,230,940
Zero Coupon, 1/05/10(d) 180,614 39,563,102
---------------
159,350,880
8 o ACM INCOME FUND
Principal
Amount
(000) U.S. $ Value
-------------------------------------------------------------------------------
Bulgaria-0.0%
Republic of Bulgaria
8.25%, 1/15/15(d) U.S.$ 346 $ 433,019
Canada-0.3%
Canadian Government
5.00%, 6/01/14(c) CAD 3,515 3,127,122
5.75%, 6/01/33(c) 1,570 1,585,762
---------------
4,712,884
Colombia-1.3%
Republic of Colombia
10.75%, 1/15/13(c) U.S.$ 1,239 1,502,287
11.75%, 3/01/10(c) COP 14,062,000 6,414,007
11.75%, 2/25/20(c) U.S.$ 13,098 17,125,635
12.00%, 10/22/15(c) COP 550,000 249,769
---------------
25,291,698
Dominican Republic-0.0%
Republic of Dominican
9.50%, 9/27/11(d) U.S.$ 656 701,920
Ecuador-1.1%
Republic of Ecuador
8.00%, 8/15/30(d)(e) 24,446 20,534,639
El Salvador-0.1%
Republic of El Salvador
7.625%, 9/21/34(d) 527 567,843
7.65%, 6/15/35(d) 449 446,755
---------------
1,014,598
Indonesia-0.6%
Republic of Indonesia
6.75%, 3/10/14(d) 965 957,763
7.25%, 4/20/15(d) 175 176,313
14.00%, 6/17/09(d) IDR 4,000,000 454,904
14.25%, 6/19/13(d) 80,000,000 9,237,960
---------------
10,826,940
Jamaica-0.1%
Government of Jamaica
9.00%, 6/02/15(c) U.S.$ 517 524,755
10.50%, 10/27/14(c) EUR 200 272,527
10.625%, 6/20/17(c) U.S.$ 59 64,752
12.75%, 9/01/07(d) 200 231,000
---------------
1,093,034
Japan-1.0%
Government of Japan
0.1%, 6/20/06(c) JPY 2,121,000 19,140,155
---------------
ACM INCOME FUND o 9
Principal
Amount
(000) U.S. $ Value
-------------------------------------------------------------------------------
Lebanon-0.0%
Lebanese Republic
7.875%, 5/20/11(d) U.S.$ 270 $ 267,705
10.125%, 8/06/08(c) 270 287,685
11.625%, 5/11/16(c) 120 135,780
---------------
691,170
Mexico-5.3%
Mexican Bonos
8.00%, 12/07/23(c) MXP 134,749 10,632,196
9.00%, 12/20/12(c) 485,666 44,421,323
9.50%, 3/08/07(c) 328,855 31,418,897
10.00%, 12/05/24(c) 27,998 2,650,765
United Mexican States
6.375%, 1/16/13(c) U.S.$ 426 455,820
7.50%, 1/14/12(c) 775 876,913
8.00%, 9/24/22(c) 1,701 2,077,772
8.125%, 12/30/19(c) 4,025 4,930,625
9.875%, 2/01/10(c) 2,180 2,630,170
11.375%, 9/15/16(c) 1,201 1,783,485
---------------
101,877,966
Panama-0.2%
Republic of Panama
3.75%, 7/17/14 VRN(c) 678 664,091
8.875%, 9/30/27(c) 972 1,159,110
9.375%, 7/23/12-4/01/29(c) 904 1,094,390
9.625%, 2/08/11(c) 480 571,200
10.75%, 5/15/20(c) 730 989,150
---------------
4,477,941
Peru-0.5%
Peru Bono Soberano
9.91%, 5/05/15(c) PEN 1,600 545,824
Republic of Peru
8.375%, 5/03/16(c) U.S.$ 3,753 4,208,989
8.750%, 11/21/33(c) 1,129 1,270,125
9.125%, 2/21/12(c) 1,892 2,213,640
9.875%, 2/06/15(c) 877 1,080,903
---------------
9,319,481
Philippines-1.1%
Republic of Philippines
8.875%, 3/17/15(c) 3,135 3,268,237
9.00%, 2/15/13(c) 450 473,175
9.50%, 2/02/30(c) 7,648 7,915,680
9.875%, 1/15/19(c) 750 811,875
10.625%, 3/16/25(c) 6,912 7,741,440
---------------
20,210,407
10 o ACM INCOME FUND
Principal
Amount
(000) U.S. $ Value
-------------------------------------------------------------------------------
Russia-6.1%
Russian Federation
5.00%, 3/31/30(d)(e) U.S.$ 102,169 $ 113,918,435
Russian Ministry of Finance
3.00%, 5/14/11(c) 4,320 3,801,600
---------------
117,720,035
South Africa-0.6%
Republic of South Africa
13.00%, 8/31/10(c) ZAR 60,000 11,371,413
Turkey-4.6%
Republic of Turkey
7.375%, 2/05/25(c) U.S.$ 462 456,918
11.00%, 1/14/13(c) 1,860 2,348,250
11.50%, 1/23/12(c) 860 1,096,500
11.75%, 6/15/10(c) 623 774,077
11.875%, 1/15/30(c) 836 1,205,930
Turkish Lira Structured Notes
Zero coupon, 12/08/05(d) TRL 63,937 44,775,617
Zero coupon, 2/23/06(d) 55,243 37,386,037
Zero coupon, 1/25/07(d) 914 550,608
---------------
88,593,937
Ukraine-0.2%
Government of Ukraine
6.875%, 3/04/11(d) U.S.$ 825 867,487
7.65%, 6/11/13(d) 922 1,016,505
11.00%, 3/15/07(d) 1,032 1,089,090
---------------
2,973,082
Uruguay-0.3%
Republic of Uruguay
7.25%, 2/15/11(c) 1,060 963,634
7.50%, 3/15/15(c) 4,120 4,017,000
7.875%, 1/15/33 PIK(c) 500 499,500
9.25%, 5/17/17 341 368,280
---------------
5,848,414
Venezuela-0.9%
Republic of Venezuela
4.15%, 4/20/11 FRN(d) 420 384,300
5.375%, 8/07/10(c) 2,680 2,492,400
8.50%, 10/08/14(c) 99 102,613
9.25%, 9/15/27(c) 14,439 15,124,853
---------------
18,104,166
Total Sovereign Debt Obligations
(cost $551,181,495) 653,862,747
ACM INCOME FUND o 11
Principal
Amount
(000) U.S. $ Value
-------------------------------------------------------------------------------
CORPORATE DEBT - HIGH YIELD
OBLIGATIONS-6.3%
American Cellular Corp.
10.00%, 8/01/11(c) U.S.$ 5,000 $ 5,075,000
Amkor Technologies Inc.
7.75%, 5/15/13(c)* 3,500 3,010,000
Amtrol Inc.
10.625%, 12/31/06(c) 625 556,250
Associated Materials Inc.
11.25%, 3/01/14(c)(e) 12,545 7,966,075
Berry Plastics Corp.
10.75%, 7/15/12(c) 3,820 4,168,575
Calpine Corp.
8.50%, 7/15/10(d)* 3,700 2,849,000
Charter Communications Holdings
10.75%, 10/01/09(c) 4,655 3,595,988
11.75%, 5/15/11(c)(f) 10,000 6,625,000
Dayton Superior Corp.
13.00%, 6/15/09(c) 5,000 4,400,000
Dex Media, Inc.
9.00%, 11/15/13(c)(f)* 7,000 5,635,000
Fairfax Financial Holdings Ltd.
(Canada)
7.375%, 4/15/18(c)* 9,500 8,027,500
8.30%, 4/15/26(c)* 5,000 4,275,000
Hawaiian Telecom Communications
12.50%, 5/01/15(d)* 4,940 5,261,100
Inmarsat Finance II Plc
(United Kingdom)
10.375%, 11/15/12(c)(f) 7,475 5,867,875
Insight Communications Inc.
12.25%, 2/15/11(f)* 7,000 7,017,500
Milacron Escrow Corp.
11.50%, 5/15/11(c) 5,000 5,250,000
NCL Corp. LTD (Bermuda)
10.625%, 7/15/14(d) 4,845 5,099,363
Newpage Corp.
10.00%, 5/01/12(d) 3,000 3,007,500
Paxson Communications Corp.
12.25%, 1/15/09(c)(f)* 10,000 9,350,000
Pliant Corp.
13.00%, 6/01/10(c)* 7,625 6,176,250
Quality Distribution LLC
9.00%, 11/15/10(c) 1,775 1,633,000
Rainbow National Services LLC
10.375%, 9/01/14(d) 2,500 2,875,000
Rural Cellular Corp.
9.75%, 1/15/10* 6,500 6,045,000
Triton PCS Inc.
9.375%, 2/01/11* 3,500 2,511,250
12 o ACM INCOME FUND
Principal
Amount
(000) U.S. $ Value
-------------------------------------------------------------------------------
Williams Cos Inc. Series A
7.50%, 1/15/31(c) U.S.$ 4,025 $ 4,357,063
Willis Group N America
5.125%, 7/15/10(c) 500 501,090
Total Corporate Debt - High Yield
Obligations
(cost $120,328,212) 121,135,379
CORPORATE DEBT - HIGH
GRADE OBLIGATIONS-3.8%
AFC Capital Trust I
8.207%, 2/03/27(c) 1,025 1,161,717
AK Steel Corp
7.875%, 2/15/09(c)* 6,000 5,460,000
Amerada Hess Corp.
6.65%, 8/15/11(c) 165 181,569
7.125%, 3/15/33(c) 335 397,348
Barclays Bank (United Kingdom)
8.55%, 9/29/49(d) 638 767,562
Berkley W R Corp.
6.15%, 8/15/19(c) 100 104,600
British Telecommunications PLC
(United Kingdom)
7.125%, 2/15/11(c)(e) EUR 1,500 2,192,564
Capital One Bank
6.50%, 6/13/13(c) U.S.$ 1,200 1,320,281
Chuo Mitsui Trust and Banking
Company
5.506%, 12/29/49(d) 1,000 982,426
Clear Channel Communications, Inc.
5.75%, 1/15/13(c) 220 214,964
Columbia/HCA HealthCare Corp.
6.25%, 2/15/13(c) 175 178,870
7.58%, 9/15/25(c) 630 664,243
7.69%, 6/15/25(c) 355 380,338
Comcast Corp.
4.95%, 6/15/16(c) 1,400 1,393,645
Comerica Bank
8.375%, 7/15/24 2,000 2,506,388
Continental Airlines, Inc.
6.703%, 12/15/22(c) 1,816 1,773,331
6.748%, 3/15/17(c) 62 50,726
7.033%, 6/15/11(c) 403 338,423
Dominion Resources Capital Trust III
8.40%, 1/15/31(c) 374 480,561
Duke Capital Corp.
5.50%, 3/01/14(c) 500 514,400
6.25%, 2/15/13(c) 1,500 1,619,285
ACM INCOME FUND o 13
Principal
Amount
(000) U.S. $ Value
-------------------------------------------------------------------------------
Farmers Exchange Capital
7.05%, 7/15/28(d) U.S.$ 200 $ 216,281
Farmers Insurance Exchange
8.625%, 5/01/24(d) 250 310,348
First Energy Corp.
6.45%, 11/15/11(c) 243 265,508
7.375%, 11/15/31(c) 642 784,767
Foodcorp LTD
8.875%, 6/15/12(d) EUR 194 240,053
Ford Motor Co.
6.375%, 2/01/29(c) U.S.$ 300 231,307
7.45%, 7/16/31(c) 734 612,755
Ford Motor Credit Co.
4.95%, 1/15/08(c) 152 144,996
6.625%, 6/16/08(c) 454 448,392
7.00%, 10/01/13* 1,500 1,439,219
7.875%, 6/15/10(c) 15,000 14,823,030
General Motors Corp.
7.75%, 3/15/36(c) 1,742 487,760
HSBC Bank USA
4.625%, 4/01/14(c) 1,000 998,298
International Lease Finance Corp.
3.50%, 4/01/09(c) 496 477,625
Ipalco Enterprises Inc.
8.375%, 11/14/08(c) 100 107,750
J.P. Morgan Chase & Co.
5.125%, 9/15/14(c) 250 255,738
6.625%, 3/15/12(c) 1,400 1,558,568
Liberty Mutual Group Inc.
5.75%, 3/15/14(d) 170 171,139
Merrill Lynch & Co.
6.00%, 2/17/09(c) 100 105,491
Panamsat Holding Corp.
10.375%, 11/01/14(d) 8,405 5,778,438
Qwest Services Corp.
14.00%, 12/15/14(c) 8,907 10,799,738
Rogers Cable Inc. (Canada)
5.50%, 3/15/14(c) 360 339,300
Sprint Capital Corp.
8.75%, 3/15/32(c) 5,663 7,877,862
Time Warner Entertainment Co. LP
8.38%, 3/15/23(c) 145 185,395
Union Carbide Corp.
7.75%, 10/01/96(c) 1,785 1,956,356
WPP Finance Corp. (United Kingdom)
5.875%, 6/15/14(c) 180 190,308
Zurich Capital Trust
8.376%, 6/01/37(d) 261 288,638
Total Corporate Debt-High Grade
Obligations
(cost $71,024,892) 73,778,301
14 o ACM INCOME FUND
Principal
Amount
(000) U.S. $ Value
-------------------------------------------------------------------------------
NON-U.S. CORPORATE DEBT
OBLIGATIONS-1.7%
Australia-0.0%
WMC Finance USA
5.125%, 5/15/13(c) U.S.$ 500 $ 515,987
China-0.0%
Chaoda Modern Agriculture Limited
7.75%, 2/08/10(d) 497 479,605
Hong Kong-0.0%
Noble Group Ltd.
6.625%, 3/17/15(d) 460 424,688
Indonesia-0.1%
Freeport-McMoran Copper & Gold, Inc.
10.125%, 2/01/10(c) 500 556,250
Japan-0.1%
Mizuho Finance
5.79%, 4/15/14(d) 100 105,185
8.375%, 12/29/49(c) 2,295 2,509,583
---------------
2,614,768
Kazakhstan-0.1%
Hurricane Finance BV
9.625%, 2/12/10(d) 200 219,000
Kazkommerts International BV
8.50%, 4/16/13(d) 125 132,500
Tengizchevroil Fin Co
6.124%, 11/15/14(d) 2,172 2,220,870
---------------
2,572,370
Mexico-0.1%
Vitro Envases
10.75%, 7/23/11(d) 700 679,000
Nigeria-0.0%
Central Bank of Nigeria
6.25%, 11/15/20(c) 500 500,000
Romania-0.4%
Mobifon Holdings BV
12.50%, 7/31/10(c) 5,205 6,311,063
ACM INCOME FUND o 15
Principal
Amount
(000) U.S. $ Value
-------------------------------------------------------------------------------
Russia-0.9%
Aries Vermogensverwaltng
9.60%, 10/25/14(d) U.S.$ 11,750 $ 15,220,950
Citigroup (JSC Severstal)
9.25%, 4/19/14(d) 230 237,245
Gazprom OAO
9.625%, 3/01/13(d) 740 906,233
Mobile Telesystems Finance S.A.
9.75%, 1/30/08(d)* 1,185 1,270,913
Tyumen Oil Co.
11.00%, 11/06/07(d) 90 99,627
---------------
17,734,968
Ukraine-0.0%
Kyivstar
7.75%, 4/27/12(d) 100 100,000
10.375%, 8/17/09(d) 200 220,000
---------------
320,000
Total Non-U.S. Corporate Debt
Obligations
(cost $30,388,654) 32,708,699
Total Corporate Debt Obligations
(cost $221,741,758) 227,622,379
BANK LOANS-5.2%
Advanced Medical Optics, Inc.
5.2144%, 6/25/09 895 903,673
Alderwoods Group, Inc.
5.08-5.48%, 9/29/09 1,227 1,240,954
Allegheny Energy Supply
Company, LLC
5.82-5.88%, 3/08/11 776 776,928
Allied Waste North America, Inc.
5.17-5.52%, 1/15/12 1,957 1,960,122
American Acheivement Corp.
5.85-7.50%, 3/25/11 1,349 1,353,639
American Safety Razor Company
5.88-6.07%, 2/28/12 1,496 1,503,731
Atlantic Broadband Finance, LLC
6.11%, 9/01/11 1,000 1,005,000
Builders FirstSource, Inc.
5.598-5.823%, 8/11/11 400 402,500
Butler Animal Health Supply, LLC
6.46%, 7/01/11 2,000 2,017,500
Celanese Holdings LLC
5.74%, 4/06/11 2,991 3,028,466
Cellnet Techonolgy, Inc.
6.19%, 4/26/12 1,000 995,000
Central Garden & Pet Company
4.96-5.08%, 5/14/09 995 1,004,906
16 o ACM INCOME FUND
Principal
Amount
(000) U.S. $ Value
-------------------------------------------------------------------------------
Chiquita Brands LLC
5.84%, 6/28/12 U.S.$ 1,000 $ 1,011,250
Cognis Deutschland GMBH & Co.
8.24%, 11/15/13 1,000 1,015,000
Coinstar, Inc.
4.59%, 7/01/11 829 839,689
Consolidated Communications, Inc.
5.13%, 7/07/11 990 994,950
Davita Inc.
2.25%, 5/17/12 1,000 1,012,190
DynCorp International LLC (Di Finance)
6.0625%, 2/11/11 1,000 1,007,920
Escanaba Timber, LLC
6.00%, 5/02/08 1,000 1,016,250
General Growth Properties, Inc.
5.58%, 11/12/08 1,991 2,004,299
Graham Packaging Company, L.P.
7.75%, 4/07/12 1,000 1,026,670
Hawaiian Telecom Communications Inc.
5.73%, 10/31/12 1,000 1,009,380
Healthsouth Corporation
3.34%, 3/21/10 213 214,825
5.82%, 6/14/07 787 796,115
Hexion Specialty Chemicals
3.375-5.875%, 5/31/12 2,000 2,020,000
Huntsman International LLC
5.5625%, 12/31/10 1,659 1,662,576
Jarden Corporation
5.30-5.49%, 1/24/12 995 1,003,707
Kerr-McGee Corporation
5.79%, 5/24/11 2,000 2,029,440
Kranson Industries, Inc.
6.24%, 7/30/11 990 999,900
Lifepoint Hospitals, Inc.
4.845%, 4/15/12 980 980,245
Maax, Inc.
5.87-6.10%, 6/04/11 1,980 1,980,000
Masonite International
5.66%, 4/06/13 2,000 1,995,560
Metro-Goldwyn-Mayer Studios Inc.
5.74%, 4/08/12 4,000 4,011,520
MetroPCS Wireless, Inc.
7.6875%, 5/27/11 2,000 2,050,000
Motorsport Aftermarket Group, Inc.
5.49%, 12/14/11 1,488 1,495,817
Mueller Group, Inc.
5.52-5.8425%, 3/24/11 2,772 2,785,839
NewPage Corp.
6.25-6.4925%, 5/02/11 1,000 1,010,000
NewQuest, Inc.
6.66%, 3/01/11 975 982,312
ACM INCOME FUND o 17
Principal
Amount
(000) U.S. $ Value
-------------------------------------------------------------------------------
Ntelos, Inc.
8.33%, 2/24/12 U.S.$ 1,000 $ 982,500
Owens-Illinois Group, Inc.
5.02%, 4/01/08 788 794,011
PanAmSat Corporation
5.65%, 8/20/11 985 993,893
Penn National Gaming
5/26/12 2,500 2,533,475
PQ Corp.
5.50%, 2/11/12 1,995 2,009,962
Prestige Brands, Inc.
5.1812-7.25%, 4/06/11 2,686 2,710,437
RailAmerica Transportation Corp.
5.5625%, 9/29/11 991 1,003,220
Rainbow National Services, LLC
6.13%, 3/31/12 2,993 3,015,692
Rayovac Corp
5.54%, 2/07/12 1,000 1,010,420
Regency Gas Services, LLC
6.24%, 6/01/10 1,990 2,009,900
Reliant Energy, Inc.
5.675-6.0888%, 4/30/10 998 1,006,049
Riverside Energy Center
7.44%, 6/24/11 1,633 1,665,464
Rocky Mountain Energy Center, LLC
4.35-7.44%, 6/24/11 1,287 1,313,139
Sealy Mattress Company
4.91-5.08%, 4/14/13 1,894 1,900,907
SemCams Midstream Company
5.99%, 3/16/11 1,083 1,091,129
SemCrude, LP
6.72-7.00%, 3/16/11 2,219 2,237,444
Smurfit Stone Container
3.42%, 11/01/10 349 353,833
5.125-5.5625%, 11/01/11 1,092 1,106,395
Spanish Broadcasting System, Inc.
7.03%, 6/10/13 1,000 1,014,380
Stewart Enterprises
4.75-5.39%, 11/19/11 487 489,810
Texas Genco LLC
1.25-5.49%, 12/14/11 1,991 2,018,008
Trump Entertainment Resorts
Holdings, L.P,
2.50-6.14%, 5/20/12 1,500 1,515,000
Universal City Development
Partners, Ltd
5.19-5.49%, 6/09/11 995 1,003,288
UPC Broadband Holding B.V.
5.752%, 9/30/12 1,000 998,470
VWR International, Inc.
5.65%, 4/07/11 2,204 2,217,440
18 o ACM INCOME FUND
Shares,
Contracts(h) or
Principal
Amount
(000) U.S. $ Value
-------------------------------------------------------------------------------
Warner Chilcott Company, Inc.
5.96-6.01%, 1/18/12 U.S.$ 1,000 $ 1,001,938
Western Wireless Corp.
6.12-6.33%, 5/28/11 3,075 3,079,942
William Carter
5.24%, 7/14/12 2,000 2,025,000
WMG Acquisitions Corp.
5.15-5.52%, 2/28/11 3,452 3,471,794
Wyndham International, Inc.
11.25%, 10/30/11 499 521,819
Total Bank Loans
(cost $99,595,803) 100,242,632
NON-CONVERTIBLE - PREFERRED
STOCKS-0.1%
Banco Santander
6.41%(c) 4,000 101,000
Duquesne Light Co.
6.50%(c) 14,950 778,895
Zurich Funding Trust
1.71%(d) 500 497,800
Total Non-Convertible Preferred Stocks
(cost $1,335,000) 1,377,695
WARRANTS(g)-0.0%
Central Bank of Nigeria
Warrants, expiring 11/15/20(c) 4,500 99,000
Republic of Venezuela
Warrants, expiring 4/15/20 1,785 0
Total Warrants
(cost $0) 99,000
PUT OPTIONS PURCHASED(g)-0.0%
Republic of Ecuador
Expiring Sept '05 @ 78.45
(cost $26,625) 2,130 19,170
SHORT-TERM INVESTMENTS-10.5%
Repurchase Agreement-7.5%
JP Morgan Chase & Co.
3.25%, 6/30/05, due
7/01/05 in the amount of
$144,213,018 (collateralized by
$50,000,000 FNMA, zero coupon
7/27/05; value-$48,921,000,
$46,346,000 FHLMC, 3.625%,
9/15/06; value-$45,892,000
$50,000,000 FNMA, 4.125%,
5/15/10; value-$49,387,000)
(cost $144,200,000) U.S.$ 144,200 144,200,000
ACM INCOME FUND o 19
Shares or
Principal
Amount
(000) U.S. $ Value
-------------------------------------------------------------------------------
U.S. Treasury Obligations-3.0%
U.S. Treasury Bills
2.89%, 7/28/05(a) U.S.$ 48,000 $ 47,896,128
3.20%, 11/17/05(i) 9,000 8,891,010
---------------
(cost $56,793,169) 56,787,138
Total Short-Term Investments
(cost $200,993,169) 200,987,138
Total Investments Before Security
Lending Collateral-160.8%
(cost $2,874,233,413) 3,085,150,566
INVESTMENT OF CASH
COLLATERAL FOR SECURITIES
LOANED-2.1%
Short-Term Investment
UBS Private Money Market Fund, LLC
3.15%
(cost $41,228,001) 41,228,001 41,228,001
Total Investments-162.9%
(cost $2,915,461,414) 3,126,378,567
Other assets less liabilities-(62.9%) (1,207,405,475)
Net Assets-100.0% $ 1,918,973,092
FINANCIAL FUTURES CONTRACTS SOLD (see Note C)
Value at
Number of Expiration June 30, Unrealized
Type Contracts Month Original Value 2005 Depreciation
---------------------------------------------------------------------------------------
5 Year Swap Sept
Futures 6,568 2005 $707,015,567 $710,370,250 $ (3,354,683)
10 Year Swap Sept
Futures 2,117 2005 235,968,970 238,956,375 (2,987,405)
U.S. Treasury Sept
Futures 200 2005 23,730,270 23,750,000 (19,730)
$ (6,361,818)
20 o ACM INCOME FUND
FORWARD EXCHANGE CURRENCY CONTRACTS (see Note C)
U.S. $
Contract Value on U.S. $
Amount Origination Current Unrealized
(000) Date Value Depreciation
---------------------------------------------------------------------------------------
Sale Contracts
Brazilian Real,
settling 7/22/05 26,262 $ 10,856,488 $ 11,147,613 $ (291,125)
Canadian Dollar,
settling 8/05/05 5,646 4,543,091 4,611,850 (68,759)
Euro,
settling 8/18/05 6,898 8,323,317 8,363,505 (40,188)
Mexican Peso,
settling 7/13/05-
7/15/05 809,510 73,807,111 75,110,800 (1,303,689)
CALL OPTIONS WRITTEN (see Note C)
Exercise Expiration
Description Contracts(h) Price Month U.S. $ Value
---------------------------------------------------------------------------------------
Republic of Brazil
11.00%, 8/17/40 27,000 $119.10 July '05 $ 432
11.00%, 8/17/40 27,000 $119.30 July '05 405
(premiums received $589)
CREDIT DEFAULT SWAP CONTRACTS (see Note C)
Notional Unrealized
Swap Counterparty & Amount Interest Termination Appreciation/
Referenced Obligation (000) Rate Date (Depreciation)
---------------------------------------------------------------------------------------
Buy Contracts
Citigroup Global Markets, Inc.
Republic of Colombia
8.375%, 2/15/27 1,900 3.02% 1/20/10 $ (57,361)
Citigroup Global Markets, Inc.
Republic of Hungary
4.50%, 2/06/13 10,250 0.50 11/26/13 (159,593)
Citigroup Global Markets, Inc.
Republic of Philippines
10.625%, 3/16/25 3,360 5.60 3/20/14 (205,286)
Citigroup Global Markets, Inc.
Republic of Brazil
12.25%, 3/06/30 920 4.14 4/20/10 (56,181)
Deutsche Bank AG
Republic of Brazil
12.25%, 3/06/30 920 4.02 10/20/10 (29,716)
ACM INCOME FUND o 21
CREDIT DEFAULT SWAP CONTRACTS (see Note C) (continued)
Notional Unrealized
Swap Counterparty & Amount Interest Termination Appreciation/
Referenced Obligation (000) Rate Date (Depreciation)
---------------------------------------------------------------------------------------
Sale Contracts
Citigroup Global Markets, Inc.
Republic of Brazil
12.25%, 3/06/30 1,932 1.98% 4/20/07 $ 44,503
Citigroup Global Markets, Inc.
Republic of Brazil
12.25%, 3/06/30 6,275 4.40 5/20/06 251,488
Citigroup Global Markets, Inc.
Republic of Brazil
12.25%, 3/06/30 3,000 6.35 8/20/05 95,721
Citigroup Global Markets, Inc.
Republic of Colombia
8.375%, 2/15/27 3,750 1.13 1/20/07 37,420
Citigroup Global Markets, Inc.
Republic of Philippines
10.625%, 3/16/25 3,360 4.95 3/20/09 229,364
Credit Suisse First Boston
Republic of Brazil
12.25%, 3/06/30 600 6.90 6/20/07 62,345
Deutsche Bank AG
Republic of Brazil
12.25%, 3/06/30 1,932 1.90 10/20/07 17,774
Morgan Stanley
Republic of Brazil
12.25%, 3/06/30 4,800 3.80 8/20/06 231,014
REVERSE REPURCHASE AGREEMENTS (see Note C)
Interest
Broker Rate Maturity Amount
------------------------------------------------------------------------------
Barclays Securities 1.80% 12/30/05 $ 13,072,574
Barclays Securities 1.80 12/30/05 4,115,440
Chase Manhattan Bank 3.00 7/12/05 254,063,500
Chase Manhattan Bank 3.15 7/12/05 103,757,229
Citigroup 3.12 7/12/05 60,654,766
Citigroup 3.125 7/12/05 22,945,174
Citigroup 3.15 7/12/05 79,554,478
Citigroup 3.17 7/12/05 19,517,154
Citigroup 3.17 7/12/05 53,174,043
------------
$610,854,358
============
22 o ACM INCOME FUND
* Represents entire or partial securities out on loan. See Note E for
securities lending information.
(a) Positions, or portion thereof, with an aggregate market value of
$1,087,246,522 have been segregated to collateralize the loan payable
outstanding.
(b) Positions, or portion thereof, with an aggregate market value of
$623,204,602 have been segregated to collateralize reverse repurchase
agreements.
(c) Positions, or portion thereof, with an aggregate market value of
$434,695,273 have been segregated to collateralize open forward exchange
currency contracts.
(d) Security is exempt from registration under Rule 144A of the Securities Act
of 1933. These securities are considered liquid and may be resold in
transactions exempt from registration, normally to qualified institutional
buyers. At June 30, 2005, the aggregate market value of these securities
amounted to $396,862,250 or 20.68% of net assets.
(e) Coupon increases periodically based upon a predetermined schedule. Stated
interest rate in effect at June 30, 2005.
(f) 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
(g) Non-income producing security.
(h) One contract related to principal amount of $1.00.
(i) Position, or portion thereof, with an aggregate market value of $8,891,010
has been segregated to collateralize margin requirements for the open futures
contracts.
Currency Abbreviations:
ARS - Argentine Peso
BRL - Brazilian Real
CAD - Canadian Dollar
COP - Colombian Peso
EUR - Euro
IDR - Indonesian Rupiah
JPY - Japanese Yen
MXP - Mexican Peso
PEN - Peru Nuevos Soles
TRL - Turkish Lira
U.S. $ - United States Dollar
ZAR - South African Rand
Glossary of Terms:
DCB - Debt Conversion Bond
FHLMC - Federal Home Loan Mortgage Corporation
FNMA - Federal National Mortgage Association
FRN - Floating Rate Note
I/O - Interest Only
PIK - Pay-In-Kind Payments
TBA - (To Be Assigned) - Securities are purchased on a forward
commitment with an approximate principal amount (generally
+/- 1.0%) and no definite maturity date. The actual principal
amount and maturity will be determined upon settlement when
the specific mortgage pools are assigned.
VRN - Variable Rate Note
See notes to financial statements.
ACM INCOME FUND o 23
STATEMENT OF ASSETS & LIABILITIES
June 30, 2005 (unaudited)
Assets
Investments in securities, at value (cost $2,915,461,414--
including investment of cash collateral for securities
loaned of $41,228,001) $3,126,378,567(a)
Cash 11,492,300
Foreign cash, at value (cost $5,672,748) 5,625,017
Interest and dividends receivable 37,918,673
Receivable for investment securities sold 5,294,331
Unrealized appreciation on credit default swap contracts 969,629
--------------
Total assets 3,187,678,517
--------------
Liabilities
Outstanding call option written, at value
(premiums received $589) 837
Reverse repurchase agreements 610,854,358
Loan payable 400,000,000
Payable for investment securities purchased 206,541,642
Payable for collateral received on securities loaned 41,228,001
Loan interest payable 3,912,826
Payable for variation margin on futures contracts 2,488,469
Unrealized depreciation on forward exchange currency
contracts 1,703,761
Advisory fee payable 1,208,526
Unrealized depreciation on credit default swap contracts 508,137
Accrued expenses 258,868
--------------
Total liabilities 1,268,705,425
--------------
Net Assets $1,918,973,092
==============
Composition of Net Assets
Capital stock, at par $2,287,301
Additional paid-in capital 2,130,204,126
Distributions in excess of net investment income (48,320,636)
Accumulated net realized loss on investments and foreign
currency transactions (368,541,904)
Net unrealized appreciation of investments and foreign
currency denominated assets and liabilities 203,344,205
--------------
$1,918,973,092
==============
Net Asset Value Per Share (based on 228,730,068 shares
outstanding) $8.39
=====
(a) Includes securities on loan with a value of $39,223,374 (see Note E).
See notes to financial statements.
24 o ACM INCOME FUND
STATEMENT OF OPERATIONS
Six Months Ended June 30, 2005 (unaudited)
Investment Income
Interest $ 96,630,713
Dividends (net of foreign taxes withheld
of $3,868) 172,075 $ 96,802,788
--------------
Expenses
Advisory fee 6,522,578
Custodian 248,468
Administrative fee 186,451
Transfer agency 172,248
Printing 165,473
Registration fee 100,067
Legal 64,305
Audit 40,663
Directors' fees 17,790
Miscellaneous 42,897
--------------
Total expenses before interest 7,560,940
Interest expense 13,077,048
--------------
Total expenses 20,637,988
--------------
Net investment income 76,164,800
--------------
Realized and Unrealized Gain (Loss) on
Investment and Foreign Currency
Transactions
Net realized gain (loss) on:
Investment transactions 26,371,573
Swap contracts 333,743
Futures contracts (7,950,037)
Written options 521,563
Foreign currency transactions (1,540,870)
Net change in unrealized
appreciation/depreciation of:
Investments 20,198,696
Swap contracts (235,353)
Futures contracts (4,215,824)
Written options (5,686)
Foreign currency denominated assets
and liabilities (1,633,141)
--------------
Net gain on investment and foreign
currency transactions 31,844,664
--------------
Net increase in Net Assets from
Operations $ 108,009,464
==============
See notes to financial statements.
ACM INCOME FUND o 25
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended
June 30, Year Ended
2005 December 31,
(Unaudited) 2004
============== =============
Increase (Decrease) in Net Assets
from Operations
Net investment income $76,164,800 $153,564,319
Net realized gain on investment and
foreign currency transactions 17,735,972 40,631,704
Net change in unrealized
appreciation/depreciation of
investments and foreign currency
denominated assets and liabilities 14,108,692 (43,962,695)
-------------- -------------
Net increase in net assets from
operations 108,009,464 150,233,328
Dividends and Distributions to
Shareholders from
Net investment income (79,995,847) (177,629,178)
Common Stock Transactions
Reinvestment of dividends resulting in
issuance of common stock 2,687,807 10,814,470
-------------- -------------
Total increase (decrease) 30,701,424 (16,581,380)
Net Assets
Beginning of period 1,888,271,668 1,904,853,048
-------------- -------------
End of period (including distributions in
excess of net investment income
of $48,320,636 and $44,489,589,
respectively) $1,918,973,092 $1,888,271,668
============== ==============
See notes to financial statements.
26 o ACM INCOME FUND
STATEMENT OF CASH FLOWS
Six Month Ended June 30, 2005 (unaudited)
Increase (Decrease) in Cash from
Operating Activities:
Interest and dividends received $69,640,889
Interest expense paid (10,464,588)
Operating expenses paid (7,828,395)
--------------
Net increase in cash from operating
activities $51,347,906
Investing Activities:
Purchases of long-term portfolio
investments (2,786,388,399)
Proceeds from disposition of long-term
portfolio investments 2,727,631,530
Purchases of short-term investments, net (63,851,365)
Premiums received on written options 355,314
Proceeds from swap contracts 333,743
Variation margin paid on futures contracts (7,751,568)
--------------
Net decrease in cash from investing activities (129,670,745)
Financing Activities*:
Cash dividends paid (77,308,040)
Effect of exchange rate on cash (1,558,059)
Increase in reverse repurchase
agreements 161,946,018
--------------
Net increase in cash from financing
activities 83,079,919
--------------
Net increase in cash 4,757,080
Cash at beginning of period 12,360,237
--------------
Cash at end of period $17,117,317
==============
Reconciliation of Net Increase in
Net Assets from Operations to
Net Increase in Cash from
Operating Activities:
Net increase in net assets from
operations $108,009,464
Adjustments:
Increase in interest and dividend receivable $(3,788,323)
Accretion of bond discount and
amortization of bond premium (23,373,576)
Increase in interest payable 2,612,460
Decrease in accrued expenses (267,455)
Net realized gain on investment
and foreign currency transactions (17,735,972)
Net change in unrealized
appreciation/depreciation of
investments and foreign currency
denominated assets and liabilities (14,108,692)
--------------
Total adjustments (56,661,558)
--------------
Net increase in cash from operating
activities $51,347,906
==============
* Non-cash financing activities not included herein consist of reinvestment of
dividends.
See notes to financial statements.
ACM INCOME FUND o 27
NOTES TO FINANCIAL STATEMENTS
June 30, 2005 (unaudited)
NOTE A
Significant Accounting Policies
ACM Income Fund, Inc. (the "Fund'') is registered under the Investment Company
Act of 1940 as a diversified, closed-end management investment company. The
financial statements have been prepared in conformity with U.S. 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 are valued at their current market value determined on the
basis of market quotations or, if market quotations are not readily available
or are deemed unreliable, at "fair value" as determined in accordance with
procedures established by and under the general supervision of the Fund's Board
of Directors.
In general, the market value of securities which are readily available and
deemed reliable are determined as follows. Securities listed on a national
securities exchange or on a foreign securities exchange are valued at the last
sale price at the close of the exchange or foreign securities exchange. If
there has been no sale on such day, the securities are valued at the mean of
the closing bid and asked prices on such day. Securities listed on more than
one exchange are valued by reference to the principal exchange on which the
securities are traded; securities not listed on an exchange but traded on The
NASDAQ Stock Market, Inc. ("NASDAQ") are valued in accordance with the NASDAQ
Official Closing Price; listed put or call options 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; open futures contracts and options thereon
are valued using the closing settlement price or, in the absence of such a
price, the most recent quoted bid price. If there are no quotations available
for the day of valuation, the last available closing settlement price is used;
securities traded in the over-the-counter market, ("OTC") (but excluding
securities traded on NASDAQ) are valued at the mean of the current bid and
asked prices as reported by the National Quotation Bureau or other comparable
sources; U.S. Government securities and other debt instruments having 60 days
or less remaining until maturity are valued at amortized cost if their original
maturity was 60 days or less; or by amortizing their fair value as of the 61st
day prior to maturity if their original term to maturity exceeded 60 days;
fixed-income securities, including mortgage backed and asset backed securities,
may be valued on the basis of prices provided by a pricing service or at a
price obtained from one or more of the major broker/dealers. In cases where
broker/dealer quotes are obtained, Alliance Capital Management, L.P. (the
"Adviser") may establish procedures whereby changes in market yields or spreads
are used to adjust, on a daily basis, a recently obtained quoted price on a
security;
28 o ACM INCOME FUND
and OTC and other derivatives are valued on the basis of a quoted bid price or
spread from a major broker/dealer in such security.
Securities for which market quotations are not readily available (including
restricted securities) or are deemed unreliable are valued at fair value.
Factors considered in making this determination may include, but are not
limited to, information obtained by contacting the issuer, analysts, analysis
of the issuer's financial statements or other available documents. In addition,
the Fund may use fair value pricing for securities primarily traded in non-U.S.
markets because most foreign markets close well before the Fund values its
securities at 4:00 p.m., Eastern Time. The earlier close of these foreign
markets gives rise to the possibility that significant events, including broad
market moves, may have occurred in the interim and may materially affect the
value of those securities.
2. 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 fixed income
investments, foreign currency exchange contracts, holding of foreign
currencies, currency gains or losses realized between the trade and settlement
dates on foreign investment transactions, and the difference between the
amounts of dividends, interest and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent amounts actually received or paid.
Net unrealized currency gains and losses from valuing foreign currency
denominated assets and liabilities at period end exchange rates are reflected
as a component of unrealized appreciation and depreciation of investments and
foreign currency denominated assets and liabilities.
3. 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. The Fund may be subject to taxes imposed by countries in which it
invests. Such taxes are generally based on income and/or capital gains earned
or repatriated. Taxes are accrued and applied to net investment income, net
realized gains and net unrealized appreciation/depreciation as such income
and/or gains are earned.
ACM INCOME FUND o 29
4. Investment Income and Investment Transactions
Interest income is accrued daily. Investment transactions are accounted for on
the date the securities are purchased or sold. Investment gains and losses are
determined on the identified cost basis. The Fund amortizes premiums and
accretes discounts as adjustments to interest income.
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
U.S. 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.
6. Repurchase Agreements
The Fund's custodian or designated subcustodian will take control of securities
as collateral under repurchase agreements and determine on a daily basis that
the value of such securities are sufficient to cover the value of the
repurchase agreements. If the seller defaults and the value of collateral
declines, or if bankruptcy proceedings are commenced with respect to the seller
of the security, realization of collateral by the Fund may be delayed or
limited.
NOTE B
Advisory, Administrative Fees and Other Transactions with Affiliates
Under the terms of an investment advisory agreement, the Fund pays the Adviser
a monthly advisory fee in an amount equal to the sum of 1/12th of .30 of 1% of
the Fund's average weekly net assets up to $250 million, 1/12th of .25 of 1% of
the Fund's average weekly net assets in excess of $250 million, and for the
period January 1, 2005 through February 10, 2005, 5.25% of the Fund's 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 (the "Income Component"). For the period January 1, 2005
through February 10, 2005, such monthly advisory fee may not have exceeded in
the aggregate 1/12th of 1% of the Fund's average weekly net assets during the
month (approximately 1% on an annual basis).
Effective February 11, 2005, the terms of the Advisory Agreement were amended
so that the Income Component of the advisory fee was reduced to 4.75% of the
Fund's daily gross income, as described in Note B, and so that the monthly
advisory fee shall not exceed in the aggregate 1/12th of .95% of the Fund's
average weekly net assets during the month (approximately .95% on an annual
basis).
30 o ACM INCOME FUND
Under the terms of a Shareholder Inquiry Agency Agreement with Alliance Global
Investor Services, Inc. ("AGIS"), a wholly-owned subsidiary of the Adviser, the
Fund reimburses AGIS for costs relating to servicing phone inquiries on behalf
of the Fund. During the six months ended June 30, 2005, the Fund reimbursed
AGIS $5,430 for such costs.
Under the terms of an Administrative Agreement, the Fund pays its
Administrator, Princeton Administrators, L.P. a fee at the annual rate of .02
of 1% of the Fund's average weekly net assets. Such fee is accrued daily and
paid monthly. Princeton Administrators, L.P. prepares financial and regulatory
reports for the Fund and provides other administrative services.
NOTE C
Investment Transactions
Purchases and sales of investment securities (excluding short-term investments)
for the six months ended June 30, 2005 were as follows:
Purchases Sales
============== ==============
Investment securities (excluding
U.S. government securities) $ 699,137,720 $358,789,678
U.S. government securities 2,137,062,082 2,367,910,359
The cost of investments for federal income tax purposes, gross unrealized
appreciation and unrealized depreciation (excluding foreign currency contracts,
futures contracts, written options and swap contracts) are as follows:
Cost $2,915,461,414
==============
Gross unrealized appreciation $ 236,255,458
Gross unrealized depreciation (25,338,305)
--------------
Net unrealized appreciation $ 210,917,153
==============
1. Financial Futures Contracts
The Fund may buy or sell financial futures contracts for the purpose of hedging
its portfolio against adverse affects of anticipated movements in the market.
The Fund bears the market risk that arises from changes in the value of these
financial instruments and the imperfect correlation between movements in the
price of the future contracts and movements in the price of the securities
hedged or used for cover.
At the time the Fund enters into a futures contract, the Fund deposits and
maintains as collateral an initial margin as required by the exchange on which
the transaction is effected. Pursuant to the contract, the Fund agrees to
receive from or pay to the broker an amount of cash equal to the daily
fluctuation in the value of the contract. Such receipts or payments are known
as variation margin and are
ACM INCOME FUND o 31
recorded by the Fund as unrealized gains or losses. Risks may arise from the
potential inability of a counterparty to meet the terms of the contract. When
the contract is closed, the Fund records a realized gain or loss equal to the
difference between the value of the contract at the time it was opened and the
time it was closed.
2. Forward Exchange Currency Contracts
The Fund may enter into forward exchange currency contracts in order to hedge
its exposure to changes in foreign currency exchange rates on its foreign
portfolio holdings and to hedge certain firm purchase and sales commitments
denominated in foreign currencies. A forward exchange currency contract is a
commitment to purchase or sell a foreign currency on 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 would be included in net
realized gain or loss on foreign currency transactions.
Fluctuations in the value of open forward exchange currency contracts are
recorded for financial reporting purposes as unrealized appreciation and
depreciation by the Fund.
The Fund's custodian will place and maintain cash not available for investment
or other 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. The face or contract amount in U.S.
dollars, reflects the total exposure the Fund has in that particular currency
contract.
3. Option Transactions
For hedging and investment purposes, the Fund may purchase and write (sell) 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 the premium and a 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.
32 o ACM INCOME FUND
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 gains 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 received is less than the
amount paid for the closing purchase transaction, as a realized loss. If a call
option is exercised, the premium received 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 received
reduces the cost basis of the security or currency purchased by the Fund. In
writing an option, the Fund bears the market risk of an unfavorable change in
the price of the security or currency underlying the written option. Exercise
of an option written by the Fund could result in the Fund selling or buying a
security or currency at a price different from the current market value.
Transactions in written options for the six months ended June 30, 2005, were as
follows:
Number of
Contracts Premiums
(000) Received
=========== ===========
Options outstanding at
December 31, 2004 11,555 $166,838
Options written 24,772 398,065
Options terminated in closing purchase
transactions (15,178) (279,235)
Options expired (21,095) (285,079)
----------- -----------
Options outstanding at
June 30, 2005 54 $589
=========== ===========
4. Swap Agreements
The Fund may enter into swaps on sovereign debt obligations to hedge its
exposure to interest rates and credit risk or 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 interim payment
to be received by
ACM INCOME FUND o 33
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.
As of January 1, 2004, the Fund has adopted the method of accounting for
interim payments on swap contracts in accordance with Financial Acounting
Standard Board Statement No. 133. The Fund accrues for the interim payments on
swap contracts on a daily basis, with the net amount recorded within unrealized
appreciation/depreciation of swap contracts on the statement of assets and
liabilities. Once the interim payments are settled in cash, the net amount is
recorded as realized gain/loss on swaps, in addition to realized gain/loss
recorded upon the termination of swap contracts on the statement of operations.
Prior to January 1, 2004, these interim payments were reflected within interest
income/expense in the Statement of Operations. Fluctuations in the value of
swap contracts are recorded as a component of net change in unrealized
appreciation/ depreciation of investments.
The Fund may enter into credit default swaps. The Fund may purchase credit
protection on the referenced obligation of the credit default swap ("Buy
Contract") or provide credit protection on the referenced obligation of the
credit default swap ("Sale Contract"). A sale/(buy) in a credit default swap
provides upon the occurrence of a credit event, as defined in the swap
agreement, for the Fund to buy/(sell) from/(to) the counterparty at the
notional amount (the "Notional Amount") and receive/(deliver) the principal
amount of the referenced obligation. If a credit event occurs, the maximum
payout amount for a Sale Contract is limited to the Notional Amount of the swap
contract ("Maximum Payout Amount"). During the term of the swap agreement, the
Fund receives/(pays) semi-annual fixed payments from/(to) the respective
counterparty, calculated at the agreed upon interest rate applied to the
Notional Amount. These interim payments are recorded within unrealized
appreciation/depreciation of swap contracts on the statement of assets and
liabilities.
Credit default swaps may involve greater risks than if a Fund had invested in
the referenced obligation directly. Credit default swaps are subject to general
market risk, liquidity risk, counterparty risk and credit risk. If the Fund is
a buyer and no credit event occurs, it will lose its investment. In addition,
if the Fund is a seller and a credit event occurs, the value of the referenced
obligation received by the Fund coupled with the periodic payments previously
received, may be less than the Maximum Payout Amount it pays to the buyer,
resulting in a loss to the Fund.
At June 30, 2005, the Fund had Sale Contracts outstanding with Maximum Payout
Amounts aggregating $25,649,000, with net unrealized appreciation of
34 o ACM INCOME FUND
$969,629 and terms ranging from 1 year to 4 years, as reflected in the
portfolio of investments.
In certain circumstances, the Fund may hold Sale Contracts on the same
referenced obligation and with the same counterparty it has purchased credit
protection, which may reduce its obligation to make payments on Sale Contracts,
if a credit event occurs. The Fund had Buy Contracts outstanding with a
Notional Amount of $7,100,000 with respect to the same referenced obligations
and same counterparties of certain Sale Contracts outstanding, which reduced
its obligation to make payments on Sale Contracts to $18,549,000 as of June 30,
2005.
5. Dollar Rolls
The Fund may enter into dollar rolls. Dollar rolls involve sales by the Fund of
securities for delivery in the current month and the Fund's simultaneously
contracting to repurchase substantially similar (same type and coupon)
securities on a specified future date. During the roll period, the Fund forgoes
principal and interest paid on the securities. The Fund is compensated by the
difference between the current sales price and the lower forward price for the
future purchase (often referred to as the "drop") as well as by the interest
earned on the cash proceeds of the initial sale. Dollar rolls involve the risk
that the market value of the securities the Fund is obligated to repurchase
under the agreement may decline below the repurchase price. Dollar rolls are
speculative techniques and may be considered to be borrowings by the Fund.
6. 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.
For the six months ended June 30, 2005, the average amount of reverse
repurchase agreements outstanding was $546,954,095 and the daily weighted
average annual interest rate was 2.61%.
NOTE D
Capital Stock
There are 300,000,000 shares of $.01 par value common stock authorized of which
228,730,068 shares were issued and outstanding at June 30, 2005. During the six
months ended June 30, 2005 and the year ended December 31, 2004, the Fund
issued 327,537 and 1,328,765 shares, respectively, in connection with the
Fund's dividend reinvestment plan.
ACM INCOME FUND o 35
NOTE E
Securities Lending
The Fund has entered into a securities lending agreement with AG Edwards &
Sons, Inc. (the "Lending Agent"). Under the terms of the agreement, the Lending
Agent, on behalf of the Fund, administers the lending of portfolio securities
to certain broker-dealers. In return, the Fund receives fee income from the
lending transactions or it retains a portion of interest on the investment of
any cash received as collateral. The Fund also continues to receive dividends
or interest on the securities loaned. Unrealized gain or loss on the value of
the securities loaned that may occur during the term of the loan will be
reflected in the accounts of the Fund. All loans are continuously secured by
collateral exceeding the value of the securities loaned. All collateral
consists of either cash or U.S. Government securities. The Lending Agent may
invest the cash collateral received in accordance with the investment
restrictions of the Fund in one or more of the following investments: U.S.
Government or U.S. Government agency obligations, bank obligations, corporate
debt obligations, asset-backed securities, structured products, repurchase
agreements and an eligible money market fund. The Lending Agent will indemnify
the Fund for any loss resulting from a borrower's failure to return a loaned
security when due. As of June 30, 2005, the Fund had loaned securities with a
value of $39,223,374 and received cash collateral of $41,228,001, which was
invested in a money market fund as included in the accompanying portfolio of
investments. For the six months ended June 30, 2005, the Fund earned fee income
of $97,154, which is included in interest income in the accompanying statement
of operations.
NOTE F
Bank Borrowing
The Fund participated in a credit facility for a commercial paper asset
securitization program with Societe Generale ("SG") as Administrative Agent,
and Barton Capital Corporation ("Barton") as lender. The credit facility has a
maximum limit of $400 million. 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 annual interest rate was 2.82% and the average borrowing was
$400,000,000 for the six months ended June 30, 2005. At June 30, 2005, the
interest rate in effect was 3.03% and the amount of borrowings outstanding was
$400,000,000.
NOTE G
Risks Involved in Investing in the Fund
Interest Rate Risk and Credit Risk--Interest rate risk is the risk that changes
in interest rates will affect the value of the Fund's investments in
fixed-income debt
36 o ACM INCOME FUND
securities such as bonds or notes. Increases in interest rates may cause the
value of the Fund's investments to decline. Credit risk is the risk that the
issuer or guarantor of a debt security, or the counterparty to a derivative
contract, will be unable or unwilling to make timely principal and/or interest
payments, or to otherwise honor its obligations. The degree of risk for a
particular security may be reflected in its credit risk rating. Credit risk is
greater for medium quality and lower-rated securities. Lower-rated debt
securities and similar unrated securities (commonly known as "junk bonds") have
speculative elements or are predominantly speculative risks.
Foreign Securities Risk--Investing in securities of foreign companies or
foreign governments involves special risks which include changes in foreign
exchange rates and the possibility of future political and economic
developments which could adversely affect the value of such securities.
Moreover, securities of many foreign companies or foreign governments and their
markets may be less liquid and their prices more volatile than those of
comparable United States companies or the United States government.
The Fund invests in sovereign debt obligations of countries that are considered
emerging market countries at the time of purchase. Therefore, the Fund is
susceptible to governmental factors and economic and debt restructuring
developments adversely affecting the economies of these emerging market
countries. In addition, these debt obligations may be less liquid and subject
to greater volatility than debt obligations of more developed countries.
Indemnification Risk--In the ordinary course of business, the Fund enters into
contracts that contain a variety of indemnifications. The Fund's maximum
exposure under these arrangements is unknown. However, the Fund has not had
prior claims or losses pursuant to these indemnification provisions and expects
the risk of loss thereunder to be remote.
NOTE H
Distributions to Shareholders
The tax character of distributions to be paid for the year ending December 31,
2005, will be determined at the end of the current fiscal year. The tax
character of distributions paid during the fiscal years ended December 31, 2004
and December 31, 2003 were as follows:
2004 2003
============ ============
Distributions paid from:
Ordinary income $177,629,178 $195,843,523
------------ ------------
Total taxable distributions 177,629,178 195,843,523
Tax return of capital -0- -0-
------------ ------------
Total distributions paid $177,629,178 $195,843,523
============ ============
ACM INCOME FUND o 37
As of December 31, 2004, the components of accumulated earnings/(deficit) on a
tax basis were as follows:
Accumulated capital and other losses $(378,567,879)(a)
Unrealized appreciation/(depreciation) 137,035,927(b)
-------------
Total accumulated earnings/(deficit) $(241,531,952)
=============
(a) On December 31, 2004, the Fund had a net capital loss carryforward of
$378,564,547 of which $116,390,821 expires in the year 2006, $67,513,083
expires in the year 2007, $8,878,672 expires in the year 2008, $48,113,872
expires in the year 2009 and $137,668,099 expires in the year 2010. To the
extent future capital gains are offset by capital loss carryforwards, such
gains will not be distributed. 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. During
the fiscal year, the Fund utilized capital loss carryforwards of $35,897,321.
For the year ended December 31, 2004, the Fund deferred losses on straddles of
$3,332.
(b) The difference between book-basis and tax-basis unrealized
appreciation/(depreciation) is attributable primarily to the tax deferral of
losses on wash sales, the difference between book and tax amortization methods
for premium, the realization for tax purposes of unrealized gains and losses on
certain derivative instruments and the difference between book and tax
treatment of swap income.
NOTE I
Legal Proceedings
As has been previously reported, the staff of the U.S. Securities and Exchange
Commission ("SEC") and the Office of New York Attorney General ("NYAG") have
been investigating practices in the mutual fund industry identified as "market
timing" and "late trading" of mutual fund shares. Certain other regulatory
authorities have also been conducting investigations into these practices
within the industry and have requested that the Adviser provide information to
them. The Adviser has been cooperating and will continue to cooperate with all
of these authorities. The shares of the Fund are not redeemable by the Fund,
but are traded on an exchange at prices established by the market. Accordingly,
the Fund and its shareholders are not subject to the market timing and late
trading practices that are the subject of the investigations mentioned above or
the lawsuits described below. Please see below for a description of the
agreements reached by the Adviser and the SEC and NYAG in connection with the
investigations mentioned above.
Numerous lawsuits have been filed against the Adviser and certain other
defendants in which plaintiffs make claims purportedly based on or related to
the same practices that are the subject of the SEC and NYAG investigations
referred to above. Some of these lawsuits name the Fund as a party. The
lawsuits are now pending in the United States District Court for the District
of Maryland pursuant to a ruling by the Judicial Panel on Multidistrict
Litigation transferring and centralizing all of the mutual fund cases involving
market and late trading in the District of Maryland. Management of the Adviser
believes that these private law-
38 o ACM INCOME FUND
suits are not likely to have a material adverse effect on the results of
operations or financial condition of the Fund.
On December 18, 2003, the Adviser confirmed that it had reached terms with the
SEC and the NYAG for the resolution of regulatory claims relating to the
practice of "market timing" mutual fund shares in some of the AllianceBernstein
Mutual Funds. The agreement with the SEC is reflected in an Order of the
Commission ("SEC Order"). The agreement with the NYAG is memorialized in an
Assurance of Discontinuance dated September 1, 2004 ("NYAG Order"). Among the
key provisions of these agreements are the following:
(i) The Adviser agreed to establish a $250 million fund (the
"Reimbursement Fund") to compensate mutual fund shareholders for the adverse
effects of market timing attributable to market timing relationships described
in the SEC Order. According to the SEC Order, the Reimbursement Fund is to be
paid, in order of priority, to fund investors based on (i) their aliquot share
of losses suffered by the fund due to market timing, and (ii) a proportionate
share of advisory fees paid by such fund during the period of such market
timing;
(ii) The Adviser agreed to reduce the advisory fees it receives from some
of the AllianceBernstein long-term, open-end retail funds, commencing January
1, 2004, for a period of at least five years; and
(iii) The Adviser agreed to implement changes to its governance and
compliance procedures. Additionally, the SEC Order contemplates that the
Adviser's registered investment company clients, including the Fund, will
introduce governance and compliance changes.
The shares of the Fund are not redeemable by the Fund, but are traded on an
exchange at prices established by the market. Accordingly, the Fund and its
shareholders are not subject to the market timing practices described in the
SEC Order and are not expected to participate in the Reimbursement Fund. Since
the Fund is a closed-end fund, it will not have its advisory fee reduced
pursuant to the terms of the agreements mentioned above.
On June 22, 2004, a purported class action complaint entitled Aucoin, et al. v.
Alliance Capital Management L.P., et al. ("Aucoin Complaint") was filed against
the Adviser, Alliance Capital Management Holding L.P., Alliance Capital
Management Corporation, AXA Financial, Inc., AllianceBernstein Investment
Research & Management, Inc., certain current and former directors of the
AllianceBernstein Mutual Funds, and unnamed Doe defendants. The Aucoin
Complaint names certain of the AllianceBernstein mutual funds as nominal
defendants. The Fund was not named as a nominal defendant in the Aucoin
ACM INCOME FUND o 39
Complaint. The Aucoin Complaint was filed in the United States District Court
for the Southern District of New York by an alleged shareholder of an
AllianceBernstein mutual fund. The Aucoin Complaint alleges, among other
things, (i) that certain of the defendants improperly authorized the payment of
excessive commissions and other fees from fund assets to broker-dealers in
exchange for preferential marketing services, (ii) that certain of the
defendants misrepresented and omitted from registration statements and other
reports material facts concerning such payments, and (iii) that certain
defendants caused such conduct as control persons of other defendants. The
Aucoin Complaint asserts claims for violation of Sections 34(b), 36(b) and
48(a) of the Investment Company Act, Sections 206 and 215 of the Advisers Act,
breach of common law fiduciary duties, and aiding and abetting breaches of
common law fiduciary duties. Plaintiffs seek an unspecified amount of
compensatory damages and punitive damages, rescission of their contracts with
the Adviser, including recovery of all fees paid to the Adviser pursuant to
such contracts, an accounting of all fund-related fees, commissions and soft
dollar payments, and restitution of all unlawfully or discriminatorily obtained
fees and expenses.
Since June 22, 2004, numerous additional lawsuits making factual allegations
substantially similar to those in the Aucoin Complaint were filed against the
Adviser and certain other defendants, and others may be filed.
The Adviser believes that these matters are not likely to have a material
adverse effect on the Fund or the Adviser's ability to perform advisory
services relating to the Fund.
40 o ACM INCOME FUND
FINANCIAL HIGHLIGHTS
Selected Data For A Share Of Common Stock Outstanding Throughout Each Period
Six Months
Ended Year Ended December 31,
June 30, 2005 ------------------------------------------------------------
(unaudited) 2004(a) 2003 2002 2001(b) 2000
------------------------------------------------------------------------------
Net asset value, beginning of period $8.27 $8.39 $7.91 $7.87 $8.45 $7.64
------------------------------------------------------------------------------
Income From Investment
Operations
Net investment income(c) .33 .67 .76 .89 .76 .70
Net realized and unrealized gain
(loss) on investment, future
contracts, option contracts
and foreign currency
transactions .14 (.01) .59 .07 (.11) .91
------------------------------------------------------------------------------
Net increase in net asset value
from operations .47 .66 1.35 .96 .65 1.61
------------------------------------------------------------------------------
Less: Dividends and
Distributions
Dividends from net investment
income (.35) (.78) (.87) (.85) (.77) (.70)
Distributions in excess of net
investment income -0- -0- -0- -0- (.07) (.10)
Tax return of capital -0- -0- -0- (.07) -0- -0-
------------------------------------------------------------------------------
Total dividends and distributions (.35) (.78) (.87) (.92) (.84) (.80)
------------------------------------------------------------------------------
Less: Fund Share Transactions
Dilutive effect of rights offering -0- -0- -0- -0- (.32) -0-
Offering costs charged to
paid-in-capital in excess of par -0- -0- -0- -0- (.07) -0-
------------------------------------------------------------------------------
Total fund share transactions -0- -0- -0- -0- (.39) -0-
------------------------------------------------------------------------------
Net asset value, end of period $8.39 $8.27 $8.39 $7.91 $7.87 $8.45
==============================================================================
Market value, end of period $8.31 $8.16 $8.58 $8.46 $7.30 $7.50
==============================================================================
Premium/(Discount) (0.95)% (1.33)% 2.26% 6.95% (7.24)% (11.24)%
Total Investment Return
Total investment return based on:(d)
Market value 6.26% 4.63% 12.50% 30.60% 7.80% 28.97%
Net asset value 5.85% 8.44% 17.66% 13.27% 3.11% 23.58%
Ratios/Supplemental Data
Net assets, end of period
(000's omitted) $1,918,973 $1,888,272 $1,904,853 $1,785,164 $1,764,895 $1,390,542
Ratio to average net assets of:
Expenses 2.21%(f) 1.66% 1.67% 1.87% 2.31% 2.54%
Expenses, excluding interest
expense(e) 0.81%(f) 0.98% 1.10% 1.26% 1.18% 1.19%
Net investment income 8.17%(f) 8.27% 9.28% 11.69% 9.33% 9.40%
Portfolio turnover rate 97% 139% 276% 414% 676% 538%
Asset coverage ratio 461% 492% 559% 376% 379% 339%
Bank borrowing outstanding
(in millions) $400 $400 $400 $400 $300 $300
See footnote summary on page 42.
ACM INCOME FUND o 41
(a) As of January 1 2004, the Fund has adopted the method of accounting for
interim payments on swap contracts in accordance with Financial Accounting
Standards Board Statement No. 133. These interim payments are reflected within
net realized and unrealized gain (loss) on swap contracts, however prior to
January 1, 2004, these interim payments were reflected within interest
income/expense on the statement of operations. The effect of this change for
the year ended December 31, 2004, was to decrease net investment income per
share and increase net realized and unrealized gain (loss) on investment
transactions. The effect on the per share amounts was less than $0.005. The
ratio of net investment income to average net assets was decreased by 0.03%.
(b) As required, effective January 1, 2001, the Fund has adopted the
provisions of the AICPA Audit and Accounting Guide of Investment Companies, and
began amortizing premium on debt securities for financial reporting purposes
only. The effect of this change for the year ended December 31, 2001, was to
decrease net investment income per share by $.05, decrease net realized and
unrealized loss on investment transactions per share by $.05, and decrease the
ratio of net investment income to average net assets from 9.92% to 9.33%. Per
share, ratios and supplemental data for periods prior to January 1, 2001 have
not been restated to reflect this change in presentation.
(c) Based on average shares outstanding.
(d) 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 calculated for a period of less than one
year is not annualized.
(e) Net of interest expense of 1.40%, .68%, .57%, .61%, 1.13% and 1.35%,
respectively, on borrowings (see Notes C and F).
(f) Annualized.
42 o ACM INCOME FUND
SUPPLEMENTAL PROXY INFORMATION
(unaudited)
The Annual Meeting of Stockholders of ACM Income Fund, Inc. was held on March
24, 2005. The description of each proposal and number of shares voted at the
meeting are as follows:
Authority
Voted For Withheld
-----------------------------------------------------------------------------------------
1. To elect directors Class One Nominee
(term expires in 2007)
Michael J. Downey 209,903,346 2,575,547
Class Two Nominees
(terms expire in 2008)
William H. Foulk, Jr. 209,737,630 2,741,264
David H. Dievler 209,732,148 2,746,746
James M. Hester 209,667,684 2,811,210
ACM INCOME FUND o 43
BOARD OF DIRECTORS
William H. Foulk, Jr.(1), Chairman
Marc O. Mayer, President
Ruth Block(1)
David H. Dievler(1)
John H. Dobkin(1)
Michael J. Downey(1)
Dr. James M. Hester(1)
OFFICERS
Philip L. Kirstein, Senior Vice President and Independent Compliance Officer
Andrew M. Aran, Vice President
Paul J. DeNoon(2), Vice President
Michael L. Mon, Vice President
Douglas J. Peebles(2), Vice President
Michael A. Snyder, Vice President
Kewjin Yuoh, Vice President
Mark R. Manley, Secretary
Mark D. Gersten, Treasurer & Chief Financial Officer
Vincent S. Noto, Controller
Administrator
Princeton Administrators, L.P.
P.O. Box 9095
Princeton, NJ08543-9095
Dividend Paying Agent,
Transfer Agent and Registrar
Equiserve Trust Company, N.A.
P.O. Box 43011
Providence, RI 02940-3011
Custodian
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
Independent Registered
Public Accounting Firm
Ernst & Young LLP
5 Times Square
New York, NY 10036
Legal Counsel
Seward & Kissel LLP
One Battery Park Plaza
New York, NY 10004
(1) Member of the Audit Committee, the Independent Directors Committee and the
Governance and Nominating Committee.
(2) Messrs. DeNoon and Peebles are the persons primarily responsible for the
day-to-day management of the Fund's investment portfolio.
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 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.
Annual Certifications-As required, on April 21, 2005, the Fund submitted
to the New York Stock Exchange ("NYSE") the annual certification of the Fund's
Chief Executive Officer certifying that he is not aware of any violation of the
NYSE's Corporate Governance listing standards. The Fund also has included the
certifications of the Fund's Chief Executive Officer and Chief Financial
Officer required by Section 302 of the Sarbanes-Oxley Act of 2002 as exhibits
to the Fund's Form N-CSR filed with the Securities and Exchange Commission for
the annual period.
44 o ACM INCOME FUND
Information Regarding the Review and Approval of the Fund's Advisory Agreement
The Fund's disinterested directors (the "directors") unanimously approved the
continuance of the Advisory Agreement between the Fund and the Adviser, with
the changes approved at the meeting, at a meeting held on February 7-10, 2005.
In preparation for the meeting, the directors had requested from the Adviser
and evaluated extensive materials, including performance and expense
information for other investment companies with similar investment objectives
derived from data compiled by Lipper Inc. ("Lipper"). Prior to voting, the
directors reviewed the proposed continuance of the Advisory Agreement with
management and with experienced counsel who are independent of the Adviser and
received a memorandum from such counsel discussing the legal standards for
their consideration of the proposed continuance. The directors also discussed
the proposed continuance in two private sessions at which only the directors,
their independent counsel and the Fund's Independent Compliance Officer were
present. In reaching their determinations relating to continuance of the
Advisory Agreement, the directors considered all factors they believed
relevant, including the following:
1. information comparing the performance of the Fund to other investment
companies with similar investment objectives and to an index;
2. the nature, extent and quality of investment, compliance,
administrative and other services rendered by the Adviser;
3. payments received by the Adviser from all sources in respect of the
Fund and all investment companies in the AllianceBernstein Fund complex;
4. the costs borne by, and profitability of, the Adviser and its
affiliates in providing services to the Fund and to all investment companies in
the AllianceBernstein Fund complex;
5. comparative fee and expense data for the Fund and other investment
companies with similar investment objectives;
6. the extent to which economies of scale would be realized to the extent
the Fund grows and whether fee levels reflect these economies of scale for the
benefit of investors;
7. the Adviser's policies and practices regarding allocation of portfolio
transactions of the Fund;
8. portfolio turnover rates for the Fund;
ACM INCOME FUND o 45
9. fall-out benefits which the Adviser and its affiliates receive from
their relationships with the Fund;
10. the Adviser's representation that it does not advise other clients with
similar investment objectives and strategies as the Fund;
11. the professional experience and qualifications of the Fund's portfolio
management team and other senior personnel of the Adviser;
12. the terms of the Advisory Agreement, including the proposed revisions
to the Advisory Agreement discussed below; and
13. a report of the Fund's effective and base fee rate as compared against
five competitor funds selected by the Adviser.
The directors also considered their knowledge of the nature and quality of the
services provided by the Adviser to the Fund gained from their experience as
directors or trustees of most of the funds advised by the Adviser, their
overall confidence in the Adviser's integrity and competence they have gained
from that experience and the Adviser's responsiveness to concerns raised by
them in the past, including the Adviser's willingness to consider and implement
organizational and operational changes designed to improve investment results
and the services provided to the AllianceBernstein Funds.
In their deliberations, the directors did not identify any particular
information that was all-important or controlling, and each director attributed
different weights to the various factors.
The directors determined that the overall arrangements between the Fund and the
Adviser, as provided in the Advisory Agreement (with the changes approved at
the meeting), were fair and reasonable in light of the services performed,
expenses incurred and such other matters as the directors considered relevant
in the exercise of their business judgment.
The material factors and conclusions that formed the basis for the directors
reaching their determinations to approve the continuance of the Advisory
Agreement (including their determinations that the Adviser should continue to
be the investment adviser for the Fund and that the fees payable to the Adviser
pursuant to the Advisory Agreement, with the changes approved at the meeting,
are appropriate) were separately discussed by the directors.
Nature, extent and quality of services provided by the Adviser
The directors noted that, under the Advisory Agreement, the Adviser, subject to
the control of the directors, administers the Fund's business and other
affairs. The Adviser manages the investment of the assets of the Fund,
including making
46 o ACM INCOME FUND
purchases and sales of portfolio securities consistent with the Fund's
investment objective and policies. The Adviser also provides the Fund with such
office space, administrative and other services (exclusive of, and in addition
to, any such services provided by any others retained by the Fund) and
executive and other personnel as are necessary for the Fund's operations. The
Adviser pays all of the compensation of directors of the Fund who are
affiliated persons of the Adviser and of the officers of the Fund.
The directors noted that the Advisory Agreement for the Fund does not contain a
reimbursement provision for the cost of certain administrative and other
services provided by the Adviser. The directors noted that the Fund has a
separate administration agreement and pays separate administration fees to its
administrator.
The directors considered the scope and quality of services provided by the
Adviser under the Advisory Agreement and noted that the scope of services
provided by the Adviser had expanded over time as a result of regulatory and
other developments. The directors noted that, for example, the Adviser is
responsible for maintaining and monitoring its own and, to varying degrees, the
Fund's compliance programs, and these compliance programs have recently been
refined and enhanced in light of new regulatory requirements. The directors
considered the quality of the investment research capabilities of the Adviser
and the other resources it has dedicated to performing services for the Fund.
The quality of administrative and other services, including the Adviser's role
in coordinating the activities of the Fund's other service providers, also were
considered. The directors also considered the Adviser's response to recent
regulatory compliance issues affecting many of the investment companies in the
AllianceBernstein Fund complex. The directors concluded that, overall, they
were satisfied with the nature, extent and quality of services provided to the
Fund under the Advisory Agreement.
Costs of Services Provided and Profitability to the Adviser
The directors reviewed a schedule of the revenues, expenses and related notes
indicating the profitability of the Fund to the Adviser for calendar years 2002
and 2003. The directors reviewed the assumptions and methods of allocation used
by the Adviser in preparing fund-specific profitability data, and noted the
Adviser's representation to them that it believed that the methods of
allocation used in preparing the profitability information were reasonable and
appropriate and that the Adviser had previously discussed with the directors
that there is no generally accepted allocation methodology for information of
this type.
The directors recognized that it is difficult to make comparisons of
profitability from fund advisory contracts because comparative information is
not generally publicly available and is affected by numerous factors, including
the structure of the particular adviser, the types of funds it manages, its
business mix, numerous
ACM INCOME FUND o 47
assumptions regarding allocations and the adviser's capital structure and cost
of capital. In considering profitability information, the directors considered
the effect of fall-out benefits on the Adviser's expenses. The directors
focused on the profitability of the Adviser's relationship with the Fund before
taxes. The directors recognized that the Adviser should generally be entitled
to earn a reasonable level of profits for the services it provides to the Fund
and, based on their review, concluded that they were satisfied that the
Adviser's level of profitability from its relationship with the Fund was not
excessive. They also noted that such level of profitability would be reduced
going forward as a result of the amendment to the Advisory Agreement approved
at the meeting.
Fall-Out Benefits
The directors considered that the Adviser benefits from soft dollar
arrangements whereby it receives brokerage and research services from many of
the brokers and dealers that execute purchases and sales of securities on
behalf of its clients. Since the Fund does not normally engage in brokerage
transactions, the Adviser does not receive soft dollar benefits in respect of
portfolio transactions of the Fund. The directors also noted that a subsidiary
of the Adviser provides certain shareholder services to the Fund and receives
compensation from the Fund for such services.
The directors recognized that the Adviser's profitability would be somewhat
lower if the Adviser's subsidiary did not receive the benefits described above.
The directors believe that the Adviser derives reputational and other benefits
from its association with the Fund.
Investment Results
In addition to the information reviewed by the directors in connection with the
meeting, the directors receive detailed comparative performance information for
the Fund at each regular Board meeting during the year. At the meeting, the
directors reviewed information showing performance of the Fund compared to the
other fund in the Lipper General Government Funds Average (Leveraged) for
periods ending December 31, 2004, and compared to the Lehman Brothers Aggregate
Bond Index. The directors noted that the Fund was the only fund in its category
for periods beyond one year and was somewhat above the Lipper median for
periods of one year or less. The directors noted that the Fund had
significantly outperformed the Lehman Brothers Aggregate Bond Index (which,
they noted, is unleveraged) over all periods. Based on their review, the
directors concluded that the Fund's relative investment performance over time
had been satisfactory.
Advisory Fees and Other Expenses
The directors considered the advisory fee rate paid by the Fund to the Adviser
and information derived from Lipper data concerning fee rate paid by the one
other fund in the same Lipper category as the Fund. Since the Fund was the only
48 o ACM INCOME FUND
fund in its Lipper category for all but the most recent of the periods reviewed
(when the Fund was one of only two funds in such category), the directors
requested additional comparative information from the Adviser at their December
14-16, 2004 meetings. In response to such request, the Adviser provided, and
the directors reviewed, a report prepared by the Adviser, based on information
obtained from Lipper, of the Fund's effective and base fee rate, relative
performance, leverage methods and total expenses (net of interest expense), as
compared to five competitor funds identified by the Adviser. The directors also
took into account their general knowledge of advisory fees paid by open-end
funds that invest in fixed-income securities.
The information reviewed by the directors showed that the Fund's at current
size contractual effective fee rate of 83 basis points reflected the Fund's
current combined advisory fee payable under the Advisory Agreement and a two
basis point administration fee payable to an entity that is not affiliated with
the Adviser. The directors noted that only two of the competitor funds
identified by the Adviser had fee arrangements similar to that of the Fund
involving the adviser receiving a percentage of the fund's gross income, and
that those two funds paid their advisers a slightly higher percentage of such
gross income. The directors noted that the Fund had substantially outperformed
the competitor funds, although none of the competitor funds were leveraged, and
that the total effective fee rate of the Fund was above the fee rate of the
competitor funds. They also noted that the expense ratios of the competitor
funds were lower than the Fund's expense ratio although the competitor funds
were significantly smaller than the Fund, but that the shares of each of the
competitor funds traded at discounts of over 9% as of October 31, 2004 whereas
the Fund's shares traded at a small premium on such date. The directors
recognized that it is difficult to make comparisons of advisory fees because
there are variations in the services that are included in the fees paid by
other funds.
The directors noted that in connection with the settlement of the market timing
matter with the New York Attorney General, the Adviser agreed to material
reductions (averaging 20%) in the fee schedules of most of the open-end funds
sponsored by the Adviser (other than money market funds). As a result of that
settlement, the Adviser's fees (i) for managing open-end high income funds are
.50% of the first $2.5 billion of average daily net assets, .45% for average
daily net assets over that level to $5 billion, and .40% for average daily net
assets over $5 billion; and (ii) for managing open-end low risk income funds
are .45% of the first $2.5 billion of average daily net assets, .40% for
average daily net assets over that level to $5 billion, and .35% for average
daily net assets over $5 billion.
At their December 14-16, 2004 meetings, the directors requested a reduction in
the advisory fees of the Fund to the fee levels charged to comparable open-end
funds managed by the Adviser and deferred renewal of the Fund's Advisory
Agreement pending receipt and consideration of proposals by the Adviser. At the
ACM INCOME FUND o 49
February 7-10, 2005 meeting, the directors considered the Adviser's proposal to
amend the Advisory Agreement to reduce the fee on the Fund's daily gross income
from 5.25% to 4.75% and to cap the fee at 0.95% on an annual basis instead of
the current 1% cap. The directors also took account of a presentation by the
Adviser that stressed the Fund's favorable performance over time, the expertise
required to manage the Fund including its leverage, and the Fund's trading
history compared to that of its competitors.
The directors noted that the reduction in the advisory fee proposed by the
Adviser would have resulted in a benefit to the Fund of approximately $1
million if it had been in effect in the Fund's prior fiscal year, and that the
reduction to the fee cap, while not relevant currently, could result in
material savings to the Fund in the event of a sustained high interest rate
environment. The directors concluded that the Fund's expense ratio was
acceptable and noted that it would benefit going forward as a result of the
advisory fee reduction approved at the meeting.
Economies of Scale
The directors considered that the Fund is a closed-end fund and that it was not
expected to have meaningful asset growth as a result. In such circumstances,
the directors did not view the potential for realization of economies of scale
as the Fund's assets grow to be a material factor in their deliberations. The
directors noted that if the Fund's net assets were to increase materially as a
result of, e.g., an acquisition or rights offering, they would review whether
potential economies of scale would be realized.
50 o ACM INCOME FUND
ALLIANCEBERNSTEIN FAMILY OF FUNDS
---------------------------------------------
Wealth Strategies Funds
---------------------------------------------
Balanced Wealth Strategy
Wealth Appreciation Strategy
Wealth Preservation Strategy
Tax-Managed Balanced Wealth Strategy
Tax-Managed Wealth Appreciation Strategy
Tax-Managed Wealth Preservation Strategy
---------------------------------------------
Blended Style Funds
---------------------------------------------
U.S. Large Cap Portfolio
International Portfolio
Tax-Managed International Portfolio
---------------------------------------------
Growth Funds
---------------------------------------------
Domestic
Growth Fund
Mid-Cap Growth Fund
Large Cap Growth Fund*
Small Cap Growth Portfolio
Global & International
Global Health Care Fund*
Global Research Growth Fund
Global Technology Fund*
Greater China '97 Fund
International Growth Fund*
International Research Growth Fund*
---------------------------------------------
Value Funds
---------------------------------------------
Domestic
Balanced Shares
Focused Growth & Income Fund*
Growth & Income Fund
Real Estate Investment Fund
Small/Mid-Cap Value Fund*
Utility Income Fund
Value Fund
Global & International
Global Value Fund
International Value Fund
---------------------------------------------
Taxable Bond Funds
---------------------------------------------
Americas Government Income Trust
Corporate Bond Portfolio
Emerging Market Debt Fund
Global Strategic Income Trust
High Yield Fund
Multi-Market Strategy Trust
Quality Bond Portfolio
Short Duration Portfolio
U.S. Government Portfolio
---------------------------------------------
Municipal Bond Funds
---------------------------------------------
National
Insured National
Arizona
California
Insured California
Florida
Massachusetts
Michigan
Minnesota
New Jersey
New York
Ohio
Pennsylvania
Virginia
---------------------------------------------
Intermediate Municipal Bond Funds
---------------------------------------------
Intermediate California
Intermediate Diversified
Intermediate New York
---------------------------------------------
Closed-End Funds
---------------------------------------------
All-Market Advantage Fund
ACM Income Fund
ACM Government Opportunity Fund
ACM Managed Dollar Income Fund
ACM Managed Income Fund
ACM Municipal Securities Income Fund
California Municipal Income Fund
National Municipal Income Fund
New York Municipal Income Fund
The Spain Fund
World Dollar Government Fund
World Dollar Government Fund II
We also offer Exchange Reserves,** which serves as the money market fund
exchange vehicle for the AllianceBernstein mutual funds.
For more complete information on any AllianceBernstein mutual fund, including
investment objectives and policies, sales charges, expenses, risks and other
matters of importance to prospective investors, visit our web site at
www.alliancebernstein.com or call us at (800) 227-4618 for a current
prospectus. You should read the prospectus carefully before you invest.
* Prior to December 15, 2004, these Funds were named as follows: Global
Health Care Fund was Health Care Fund; Large Cap Growth Fund was Premier Growth
Fund; Global Technology Fund was Technology Fund; and Focused Growth & Income
Fund was Disciplined Value Fund. Prior to February 1, 2005, Small/Mid-Cap Value
Fund was named Small Cap Value Fund. Prior to May 16, 2005, International
Growth Fund was named Worldwide Privatization Fund and International Research
Growth Fund was named International Premier Growth Fund. On June 24, 2005,
All-Asia Investment Fund merged into International Research GrowthFund. On July
8, 2005, New Europe Fund merged into International Research Growth Fund.
** An investment in the Fund is not a deposit in a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. Although the Fund seeks to preserve the value of your investment at
$1.00 per share, it is possible to lose money by investing in the Fund.
ACM INCOME FUND o 51
SUMMARY OF GENERAL INFORMATION
ACM 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) 426-5523. 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 The Wall Street Journal under the
designation "ACM IncFd." 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 Equiserve
Trust Company, N.A. at (800) 219-4218.
52 o ACM INCOME FUND
ACM INCOME FUND
1345 Avenue of the Americas
New York, NY 10105
(800) 221-5672
[LOGO] ALLIANCEBERNSTEIN (R)
Investment Research and Management
INCSR0605
ITEM 2. CODE OF ETHICS.
Not applicable when filing a semi-annual report to shareholders.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable when filing a semi-annual report to shareholders.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable when filing a semi-annual report to shareholders.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable when filing a semi-annual report to shareholders.
ITEM 6. SCHEDULE OF INVESTMENTS.
Please see Schedule of Investments contained in the Report to Shareholders
included under Item 1 of this Form N-CSR.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable when filing a semi-annual report to shareholders.
ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
There have been no purchases of equity securities by the Fund or by affiliated
parties for the reporting period.
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which shareholders may
recommend nominees to the Fund's Board of Directors since the Fund last
provided disclosure in response to this item.
ITEM 10. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive officer and principal financial
officer have concluded that the registrant's disclosure controls and procedures
(as defined in Rule 30a-2(c) under the Investment Company Act of 1940, as
amended) are effective at the reasonable assurance level based on their
evaluation of these controls and procedures as of a date within 90 days of the
filing date of this document.
(b) There were no significant changes in the registrant's internal controls
over financial reporting during the second fiscal quarter of the period that
could significantly affect these controls subsequent to the date of their
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
ITEM 11. EXHIBITS.
The following exhibits are attached to this Form N-CSR:
EXHIBIT NO. DESCRIPTION OF EXHIBIT
11 (b) (1) Certification of Principal Executive Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
11 (b) (2) Certification of Principal Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
11 (c) Certification of Principal Executive Officer and Principal
Financial Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant): ACM Income Fund, Inc.
By: /s/ Marc O. Mayer
--------------------------
Marc O. Mayer
President
Date: August 29, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ Marc O. Mayer
Marc O. Mayer
President
Date: August 29, 2005
By: /s/ Mark D. Gersten
Mark D. Gersten
Treasurer and Chief Financial Officer
Date: August 29, 2005