-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EhdHA/Q5Tjn5HBSaUXlfsPDXvGBUBEbW+aS20B9zdezzvPtF3d8jYLmRIIBohOsi L9sd2ai99qfCvep/a5aLmA== 0000936772-01-000152.txt : 20010308 0000936772-01-000152.hdr.sgml : 20010308 ACCESSION NUMBER: 0000936772-01-000152 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010306 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ACM GOVERNMENT INCOME FUND INC CENTRAL INDEX KEY: 0000816754 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 133420585 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-05207 FILM NUMBER: 1562354 BUSINESS ADDRESS: STREET 1: ALLIANCE CAPITAL MGMT L P STREET 2: 1345 AVENUE OF THE AMERICAS CITY: NEW YORK STATE: NY ZIP: 10105 BUSINESS PHONE: 212-969-2127 MAIL ADDRESS: STREET 1: ALLIANCE CAPITAL MANAGEMENT L P STREET 2: 1345 AVENUE OF THE AMERICAS CITY: NEW YORK STATE: NY ZIP: 10105 N-30D 1 0001.txt - -------------------------------------------------------------------------------- CLOSED END - -------------------------------------------------------------------------------- ACM Government Income Fund [GRAPHIC OMITTED] Annual Report December 31, 2000 Alliance Capital [LOGO](R) The Investment Professional's Choice Investment Products Offered --------------------------- o Are Not FDIC Insured o May Lose Value o Are Not Bank Guaranteed --------------------------- ---------------------- LETTER TO SHAREHOLDERS ---------------------- LETTER TO SHAREHOLDERS February 23, 2001 Dear Shareholder: This report provides you with strategy, performance and outlook of ACM Government Income Fund (the "Fund") for the annual reporting period ended December 31, 2000. Investment Objective and Policies This closed-end fund is designed to provide high current income consistent with the preservation of capital. The Fund invests principally in U.S. government obligations. The Fund may also invest up to 35% of its assets in other fixed-income securities, including corporate debt securities and securities issued by foreign governments. The Fund may invest up to 35% of its assets in securities rated below Baa by Moody's or BBB by Standard & Poor's. Investment Performance The following table shows how the Fund performed over the past six- and 12-month periods ended December 31, 2000. For comparison, we have included the performance of the Fund's benchmark, the Lehman Brothers Aggregate Bond Index. - -------------------------------------------------------------------------------- INVESTMENT RESULTS* Periods Ended December 31, 2000 ------------------------ Total Returns ------------------------ 6 Months 12 Months - -------------------------------------------------------------------------------- ACM Government Income Fund 11.97% 23.58% - -------------------------------------------------------------------------------- Lehman Brothers Aggregate Bond Index 7.35% 11.63% - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- * The Fund's investment results are total returns for the periods shown and are based on the net asset value (NAV) as of December 31, 2000. All fees and expenses related to the operation of the Fund have been deducted. Returns for the Fund include the reinvestment of any distributions paid during the period. Past performance is no guarantee of future results. The unmanaged Lehman Brothers (LB) Aggregate Bond Index is composed of the LB Mortgage-Backed Securities Index, the LB Asset-Backed Securities Index and the LB Government/Credit Index. It includes Treasury, agency and corporate bond issues, as well as mortgage-backed securities. The Index does not reflect fees and expenses. An investor cannot invest directly in an index, and its results are not indicative of any particular investment, including ACM Government Income Fund. Additional investment results appear on pages 5-7. - -------------------------------------------------------------------------------- During both the six- and 12-month periods ended December 31, 2000, the Fund outperformed its benchmark due to our emphasis on, and security selection among, both U.S. Treasury securities and emerging market debt. Both of these sectors outperformed significantly relative to the fixed income sectors that comprise the Lehman Brothers Index. The Market Overview section details these specific markets. Our U.S. Treasury duration structure and security selection enhanced performance throughout the year. We periodically adjusted the maturity profile of the Portfolio's U.S. Treasury holdings - -------------------------------------------------------------------------------- ACM GOVERNMENT INCOME FUND o 1 - ---------------------- LETTER TO SHAREHOLDERS - ---------------------- to take advantage of changes in the yield curve. Also contributing to the Fund's outperformance was our relative emphasis on certain countries within the emerging market sector, specifically, Russia, Brazil and Mexico. The returns for the year in all three countries were in the top tier of the returns within the emerging market sector. Consequently, two of the Fund's top 10 holdings were from these markets. Investment Strategy The investment strategy for the U.S. government portion of the Fund's portfolio changed during the second half of 2000. During the first half of the year and continuing early into the second half, this portion of the Fund's portfolio was invested in long maturity securities. As the prospects for slower economic growth became apparent, we shortened the maturity profile of the Fund. The Fund benefited from the strategy as the yield curve steepened and shorter maturities outperformed longer-dated maturities. In the non-U.S. portion of the Fund's portfolio, emerging market securities added value during the year. The primary exposure in this sector was to Mexico, Brazil and Russia. Holdings in these three emerging market countries were held virtually throughout the year as the combination of economic reform, positive global economic growth and rising commodity prices (mainly oil) enhanced their credit profiles. Market Overview Following a strong first half of the year, the U.S. economy lost momentum in the second half. U.S. gross domestic product (GDP) growth slowed from 5.2% in the first half of the year to 1.8% in the second half. Past interest rate increases, lower stock prices and higher oil prices contributed to the slowdown. The Federal Reserve removed its tightening bias late in the year in response to slower economic growth. The U.S. bond market, as measured by the Lehman Brothers Aggregate Bond Index (the Index), returned 7.35% over the six-month period ended December 31, 2000 and 11.63% for the 12 months then ended--its best annual return since 1995. In general, fixed-income securities benefited from slowing economic growth and weak equity markets in 2000. Among the traditional sectors of the fixed income market, as measured by their components in the Index, commercial mortgage-backed securities (CMBS) posted the best results for the six months at 9.47%, followed by U.S. agencies at 8.30%, U.S. Treasuries at 7.73%, asset-backed securities (ABS) at 7.25%, mortgage-backed securities (MBS) at 7.23% and investment-grade corporates at 6.39%. Higher-quality securities outperformed lower-quality securities as the economy slowed and investors sought out less risky investments. U.S. Treasuries also benefited from the govern- - -------------------------------------------------------------------------------- 2 o ACM GOVERNMENT INCOME FUND ---------------------- LETTER TO SHAREHOLDERS ---------------------- ment's plan to use the fiscal surplus to reduce outstanding government debt. Longer-maturity issues outperformed shorter issues as expectations for interest rate cuts rose. The CMBS sector benefited from increased investor interest due to credit deterioration in other fixed-income sectors, as well as from sound commercial real estate fundamentals. Rising prepayment expectations dampened mortgage-backed security performance. Since mortgage interest rates stand at their lowest level since the spring of 1999, more of the sector has become subject to refinancing risk than at any time in the past three years. The investment-grade corporate sector posted relatively weak results because of deteriorating corporate earnings, rising defaults, tighter credit availability and expectations of weaker economic growth in 2000. Emerging market debt was the strongest performing fixed-income sector for the second consecutive year; the emerging market component of the Index returned 15.66% in 2000. Strong global growth in the first half of the year benefited emerging markets' economic fundamentals, though slowing global growth in the second half of the year appeared to be negatively affecting emerging markets in the fourth quarter. Outlook While the odds of a "hard landing" for the U.S. economy have risen in recent months, the fact that the Federal Reserve moved so quickly in the new year to lower interest rates should help to ensure a "soft landing." We believe that the economy will slow in 2001 to a 2.5% to 3% growth rate, with most of the slowing coming in the first half of the year. In our view, the Federal Reserve will likely continue to lower rates, the yield curve will steepen further and volatility will remain high. In anticipation of a steepening yield curve, we are continuing to concentrate the Fund in intermediate maturities. Within the U.S. Government sector, we expect to remain overweighted in both Treasury and agency debt. Although lower interest rates in the U.S. and a likely end to global tightening should encourage the flow of capital into emerging markets, a sharp slowdown in U.S. economic growth could negate that benefit. The effect of further declines in oil prices will vary from country to country, with oil importers benefiting and oil exporters hurting. On balance, we believe emerging market debt will continue to generate strong relative returns over the medium-term. Acquisition Update As previously announced, on December 19, 2000 the Fund completed its acquisition (the "Acquisitions") of the net assets of two very similar funds, ACM Government Securities Fund ("Government Securities") and ACM Government Spectrum Fund ("Government Spectrum"). The Acquisitions had previously been approved by the stockholders of each Fund. Stockholders of Government Securities and Government Spectrum received shares of Government Income equivalent in - -------------------------------------------------------------------------------- ACM GOVERNMENT INCOME FUND o 3 - ---------------------- LETTER TO SHAREHOLDERS - ---------------------- - -------------------------------------------------------------------------------- [PHOTO OMITTED] John D. Carifa [PHOTO OMITTED] Wayne D. Lyski Portfolio Manager, Wayne D. Lyski, has over 26 years of investment experience. - -------------------------------------------------------------------------------- aggregate net asset value to the shares they held in Government Securities or Government Spectrum as of the close of business on December 19. The Acquisitions have nearly tripled the size of the Fund, thus reducing its expense ratio, but have not significantly affected the Fund's portfolio characteristics or investment strategy. Thank you for your continued interest and investment in ACM Government Income Fund. We look forward to reporting its progress to you in the future. Sincerely, /s/ John D. Carifa John D. Carifa Chairman /s/ Wayne D. Lyski Wayne D. Lyski President - -------------------------------------------------------------------------------- 4 o ACM GOVERNMENT INCOME FUND ------------------ PERFORMANCE UPDATE ------------------ PERFORMANCE UPDATE ACM GOVERNMENT INCOME FUND (NAV) GROWTH OF A $10,000 INVESTMENT 12/31/90 TO 12/31/00 o ACM Government Income Fund (NAV) o Lehman Brothers Aggregate Bond Index [MOUNTAIN GRAPH OMITTED] ACM Government Income Fund (NAV): $24,716 Lehman Brothers Aggregate Bond Index: $21,504 This chart illustrates the total value of an assumed $10,000 investment in ACM Government Income Fund at net asset value (NAV) (from 12/31/90 to 12/31/00) as compared to the performance of an appropriate index. The chart assumes the reinvestment of dividends and capital gains. Past performance is not indicative of future results, and is not representative of future gain or loss in capital value or dividend income. The unmanaged Lehman Brothers (LB) Aggregate Bond Index is composed of the LB Mortgage-Backed Securities Index, the LB Asset-Backed Securities Index and the LB Government/Credit Index. It includes Treasury, agency and corporate bond issues, as well as mortgage-backed securities. When comparing ACM Government Income Fund to the index shown above, you should note that no charges or expenses are reflected in the performance of the index. An investor cannot invest directly in an index, and its results are not indicative of any specific investment, including ACM Government Income Fund. - -------------------------------------------------------------------------------- ACM GOVERNMENT INCOME FUND o 5 - ------------------ PERFORMANCE UPDATE - ------------------ PERFORMANCE UPDATE ACM GOVERNMENT INCOME FUND (NAV) HISTORY OF RETURNS YEARLY PERIODS ENDED 12/31 o ACM Government Income Fund (NAV) o Lehman Brothers Aggregate Bond Index [BAR CHART OMITTED] ACM Government Income Fund (NAV)-Yearly Periods Ended 12/31 - -------------------------------------------------------------------------------- ACM Government Lehman Brothers Income Fund (NAV) Aggregate Bond Index - -------------------------------------------------------------------------------- 12/31/91 17.98% 16.00% 12/31/92 8.48% 7.40% 12/31/93 21.84% 9.75% 12/31/94 -15.75% -2.92% 12/31/95 28.73% 18.47% 12/31/96 16.41% 3.63% 12/31/97 15.09% 9.65% 12/31/98 -8.52% 8.69% 12/31/99 -3.52% -0.82% 12/31/00 23.58% 11.63% Past performance is no guarantee of future results. The Fund's investment results represent total returns and are based on the net asset value (NAV). All fees and expenses related to the operation of the Fund have been deducted. Returns for the Fund include the reinvestment of any distributions paid during the period. The unmanaged Lehman Brothers (LB) Aggregate Bond Index is composed of the LB Mortgage-Backed Securities Index, the LB Asset-Backed Securities Index and the LB Government/Credit Index. It includes Treasury, agency and corporate bond issues, as well as mortgage-backed securities. The Index does not reflect fees and expenses. An investor cannot invest directly in an index, and its results are not indicative of the performance for any specific investment, including ACM Government Income Fund. - -------------------------------------------------------------------------------- 6 o ACM GOVERNMENT INCOME FUND ----------------- PORTFOLIO SUMMARY ----------------- PORTFOLIO SUMMARY December 31, 2000 INCEPTION DATE PORTFOLIO STATISTICS 8/28/87 Net Assets ($mil): $1,390.5 SECURITY TYPE o 71.9% Treasury o 16.9% Sovereign o 6.9% Corporate o 1.6% Time Deposit [PIE CHART OMITTED] o 1.6% Preferred Stock o 0.8% FNMA o 0.3% GNMA COUNTRY BREAKDOWN o 78.0% United States o 6.9% Brazil o 4.7% Russia o 3.9% United Kingdom o 2.3% Mexico o 1.2% Turkey o 0.5% Argentina [PIE CHART OMITTED] o 0.5% Canada o 0.5% India o 0.3% Qatar o 0.3% Panama o 0.2% Philippines o 0.2% Bulgaria o 0.2% Netherlands o 0.2% Venezula o 0.1% Korea All data as of December 31, 2000. The Fund's security type and country breakdowns may vary over time. These breakdowns are expressed as a percentage of total investments. - -------------------------------------------------------------------------------- ACM GOVERNMENT INCOME FUND o 7 - ------------------------ PORTFOLIO OF INVESTMENTS - ------------------------ PORTFOLIO OF INVESTMENTS December 31, 2000 Principal Amount (000) U.S. $ Value - -------------------------------------------------------------------------------- U.S. GOVERNMENT AND AGENCY OBLIGATIONS-103.6% U.S. Treasury Bonds-50.5% 6.125%, 8/15/29(a) ...................... $ 3,500 $ 3,806,810 6.25%, 5/15/30(a) ....................... 51,100 57,008,182 8.125%, 8/15/19(a) ...................... 102,665 132,710,939 12.00%, 8/15/13(a) ...................... 73,000 103,135,130 12.50%, 8/15/14(a) ...................... 26,300 39,211,722 13.25%, 5/15/14(a) ...................... 63,150 96,540,562 14.00%, 11/15/11(a)(b) .................. 188,800 270,278,528 -------------- 702,691,873 -------------- U.S. Treasury Strips-38.3% Zero coupon, 5/15/10(a) ................. 246,260 151,139,612 Zero coupon, 2/15/11(a) ................. 44,000 25,877,280 Zero coupon, 5/15/11(a) ................. 80,000 46,394,400 Zero coupon, 5/15/12(a) ................. 446,900 243,600,721 Zero coupon, 8/15/12 .................... 78,000 41,854,020 Zero coupon, 5/15/15(a) ................. 51,000 23,064,750 -------------- 531,930,783 -------------- U.S. Treasury Notes-13.3% 5.75%, 8/15/10(a) ....................... 42,000 44,014,740 6.50%, 2/15/10(a) ....................... 67,000 73,302,020 7.00%, 7/15/06(a) ....................... 62,500 68,027,500 -------------- 185,344,260 -------------- Mortgage Related Securities-1.5% Federal National Mortgage Association 7.50%, 11/01/29(c) ...................... 10,769 10,926,955 8.00%, 6/01/28(c) ....................... 3,956 4,086,979 Government National Mortgage Association 6.50%, 2/15/29(c) ....................... 5,871 5,805,205 -------------- 20,819,139 -------------- Total U.S. Government and Agency Obligations (cost $1,441,291,170) ................... 1,440,786,055 -------------- SOVEREIGN DEBT OBLIGATIONS-24.0% Sovereign Debt Securities-23.7% Argentina-0.8% Republic of Argentina 7.5625%, 3/31/23 FRN(c) ................. 1,000 761,300 7.625%, 3/31/05 FRN(c) .................. 374 340,255 9.75%, 9/19/27(c) ....................... 880 706,200 10.25%, 7/21/30(b)(c) ................... 7,200 5,976,000 11.75%, 4/07/09(c) ...................... 2,600 2,414,880 12.00%, 2/01/20(c) ...................... 760 691,600 -------------- 10,890,235 -------------- - -------------------------------------------------------------------------------- 8 o ACM GOVERNMENT INCOME FUND ------------------------ PORTFOLIO OF INVESTMENTS ------------------------ Principal Amount (000) U.S. $ Value - -------------------------------------------------------------------------------- Brazil-9.9% Republic of Brazil Discount Bonds FRN 6.00%, 4/15/24(c) ................. $ 5,000 $ 3,450,000 7.625%, 4/15/24(c) ................ 7,500 5,718,750 Global Bonds 11.00%, 8/17/40(c) ................ 146,100 119,400,225 12.25%, 3/06/30(c) ................ 5,050 4,687,662 14.50%, 10/15/09(c) ............... 3,500 3,850,000 ------------ 137,106,637 ------------ Colombia-0.0% Republic of Colombia 8.70%, 2/15/16(c) ................. 1,000 670,000 ------------ Ecuador-0.0% Republic of Ecuador 12.00%, 11/15/12(d) ............... 500 332,000 ------------ Mexico-3.2% Mexican Treasury Bills 16.35%, 9/06/01(c)(e) ............. MXN 30,202 2,809,116 17.15%, 3/22/01(c)(e) ............. 23,808 2,382,993 United Mexican States 6.25%, 12/31/19(c)(f) ............. $ 6,250 5,671,875 10.375%, 2/17/09(c) ............... 9,650 10,531,045 11.375%, 9/15/16(c) ............... 20,000 23,250,000 ------------ 44,645,029 ------------ Panama-0.5% Republic of Panama 9.375%, 4/01/29(c) ................ 7,000 6,790,000 ------------ Peru-0.0% Republic of Peru PDI 4.50%, 3/07/17(c)(g) .............. 400 258,000 ------------ Philippines-0.3% Republic of Philippines 9.875%, 1/15/19(c) ................ 4,750 3,776,250 ------------ Qatar-0.4% State of Qatar 9.75%, 6/15/30(d) ................. 5,500 5,500,000 ------------ Russia-6.7% Russian Federation 2.50%, 3/31/30(d) ................. 248,425 92,848,844 ------------ - -------------------------------------------------------------------------------- ACM GOVERNMENT INCOME FUND o 9 - ------------------------ PORTFOLIO OF INVESTMENTS - ------------------------ Principal Amount (000) U.S. $ Value - -------------------------------------------------------------------------------- Turkey-1.7% Republic of Turkey 11.75%, 6/15/10(b)(c) ................... $23,900 $ 21,808,750 12.375%, 6/15/09(c) ..................... 2,000 1,870,000 ------------ 23,678,750 ------------ Ukraine-0.0% Republic of Ukraine 11.00%, 3/15/07(c) ...................... 500 350,000 ------------ Venezuela-0.2% Republic of Venezuela 9.25%, 9/15/27(c) ....................... 5,000 3,225,000 ------------ Total Sovereign Debt Securities (cost $328,252,780) ..................... 330,070,745 ------------ Collateralized Brady Bonds(h)-0.3% Bulgaria Republic of Bulgaria Discount Bonds FRN Series A 7.75%, 7/28/24(c) ....................... 5,500 4,180,000 ------------ Total Sovereign Debt Obligations (cost $332,541,432) ..................... 334,250,745 ------------ CORPORATE DEBT OBLIGATIONS-9.8% Canada-0.7% Clearnet Communications Inc. ............... 10.40%, 5/15/08(c)(i) ................... CAD 11,000 6,012,131 11.75%, 8/13/07(c) ...................... 5,000 2,949,410 ------------ 8,961,541 ------------ India-0.7% Reliance Industries Ltd. ................... 10.50%, 8/06/46(d) ...................... $11,525 10,276,946 ------------ Korea-0.1% Hanvit Bank 12.75%, 3/01/10(d) ...................... 1,000 990,000 ------------ Netherlands-0.3% Mosenergo Finance 8.375%, 10/09/02(d) ..................... 5,000 4,062,500 ------------ - -------------------------------------------------------------------------------- 10 o ACM GOVERNMENT INCOME FUND ------------------------ PORTFOLIO OF INVESTMENTS ------------------------ Shares or Principal Amount (000) U.S. $ Value - -------------------------------------------------------------------------------- United Kingdom-4.3% British Telecommunications PLC 8.625%, 12/15/30(c) .................. $ 45,000 $ 45,178,470 NTL Communications Corp. ................ 9.75%, 4/15/09 ....................... GBP 22,300 14,808,602 -------------- 59,987,072 -------------- United States-3.7% HSBC Capital Funding FRN 10.176%, 12/31/49(d) ................. $ 45,000 51,889,995 -------------- Total Corporate Debt Obligations (cost $142,793,563) .................. 136,168,054 -------------- PREFERRED STOCK-2.3% Abbey National PLC(j) ................... 10,000,000 16,635,216 Centaur Funding Corp., Series B(d) ...... 15,000 15,124,500 -------------- Total Preferred Stock (cost $37,965,508) ................... 31,759,716 -------------- TIME DEPOSIT-2.3% State Street Bank & Trust Co. ........... 6.00%, 1/02/01 (cost $32,090,000) ................... 32,090 32,090,000 -------------- Total Investments-142.0% (cost $1,986,681,673) ................ 1,975,054,570 Other assets less liabilities-(42.0%) ... (584,512,857) -------------- Net Assets-100.0% ....................... $1,390,541,713 ============== - -------------------------------------------------------------------------------- ACM GOVERNMENT INCOME FUND o 11 - ------------------------ PORTFOLIO OF INVESTMENTS - ------------------------ (a) Securities, or portion thereof, have been segregated to collateralize the loan outstanding. Total value of segregated securities amounted to $1,118,974,667 at December 31, 2000. (b) Securities, or portion thereof, with an aggregate market value of $44,125,880 have been segregated to collateralize reverse repurchase agreements. (c) Securities, or portion thereof, have been segregated to collateralize open forward foreign currency contracts. Total value of segregated securities amounted to $299,329,051 at December 31, 2000. (d) Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At December 31, 2000, these securities amounted to $181,024,785 or 13.0% of net assets. (e) Annualized yield to maturity at purchase date. (f) Security trades with value recovery rights expiring June 30, 2003. (g) Coupon increases periodically based upon a predetermined schedule. Stated interest rate in effect at December 31, 2000. (h) Sovereign debt obligations issued as part of debt restructurings that are collateralized in full as to principal due at maturity by U.S. Treasury zero coupon obligations which have the same maturity as the Brady Bond. (i) 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. (j) Denominated in British Pounds. Glossary of Terms: FRN - Floating Rate Note PDI - Past Due Interest See notes to financial statements. - -------------------------------------------------------------------------------- 12 o ACM GOVERNMENT INCOME FUND --------------------------------- STATEMENT OF ASSETS & LIABILITIES --------------------------------- STATEMENT OF ASSETS & LIABILITIES December 31, 2000 Assets Investments in securities, at value (cost $1,986,681,673) ................................. $ 1,975,054,570 Cash ..................................................... 92,681 Interest receivable ...................................... 32,083,387 Receivable for investment securities sold ................ 6,514,439 Prepaid expenses ......................................... 184,027 --------------- Total assets ............................................. 2,013,929,104 --------------- Liabilities Loan payable ............................................. 300,000,000 Payable for investment securities purchased .............. 269,660,320 Reverse repurchase agreements ............................ 44,421,302 Dividend payable ......................................... 4,608,828 Unrealized depreciation on forward exchange currency contracts .................................... 1,301,877 Interest payable on reverse repurchase agreements ........ 697,961 Advisory fee payable ..................................... 643,262 Loan interest payable .................................... 574,124 Due to broker ............................................ 328,602 Administrative fee payable ............................... 128,042 Accrued expenses ......................................... 1,023,073 --------------- Total liabilities ........................................ 623,387,391 --------------- Net Assets ............................................... $ 1,390,541,713 =============== Composition of Net Assets Capital stock, at par .................................... $ 1,645,977 Additional paid-in capital ............................... 1,772,754,408 Distributions in excess of net investment income ......... (731,552) Accumulated net realized loss on investments, swap contracts and foreign currency transactions ...... (370,198,140) Net unrealized depreciation of investments and foreign currency transactions ..................... (12,928,980) --------------- $ 1,390,541,713 =============== Net Asset Value Per Share (based on 164,597,685 shares outstanding) ............. $8.45 ===== See notes to financial statements. - -------------------------------------------------------------------------------- ACM GOVERNMENT INCOME FUND o 13 - ----------------------- STATEMENT OF OPERATIONS - ----------------------- STATEMENT OF OPERATIONS Year Ended December 31, 2000 Investment Income Interest .................................... $ 58,294,115 Dividends (net of foreign taxes withheld of $78,290) ..................... 1,011,062 $ 59,305,177 ------------ Expenses Advisory fee ................................ 4,142,943 Administrative fee .......................... 869,106 Transfer agency ............................. 228,606 Custodian ................................... 162,498 Printing .................................... 150,807 Registration fee ............................ 115,054 Audit and legal ............................. 95,224 Directors' fees ............................. 38,168 Miscellaneous ............................... 97,964 ------------ Total expenses before interest .............. 5,900,370 Interest expense ............................ 6,720,390 ------------ Total expenses .............................. 12,620,760 ------------ Net investment income ....................... 46,684,417 ------------ Realized and Unrealized Gain (Loss) on Investments, Swap Contracts and Foreign Currency Transactions Net realized gain on investment transactions ............................. 9,626,486 Net realized gain on swap contracts ......... 8,896,848 Net realized gain on foreign currency transactions ............................. 2,394,581 Net change in unrealized appreciation/depreciation of: Investments and swap contracts ........... 22,736,908 Foreign currency transactions ............ (1,099,805) ------------ Net gain on investments, swap contracts and foreign currency transactions ........ 42,555,018 ------------ Net Increase in Net Assets from Operations .......................... $ 89,239,435 ============ See notes to financial statements. - -------------------------------------------------------------------------------- o ACM GOVERNMENT INCOME FUND ---------------------------------- STATEMENT OF CHANGES IN NET ASSETS ---------------------------------- STATEMENT OF CHANGES IN NET ASSETS
Year Ended Year Ended December 31, December 31, 2000 1999 =============== =============== Increase (Decrease) in Net Assets from Operations Net investment income ................... $ 46,684,417 $ 45,991,552 Net realized gain (loss) on investments, swap contracts and foreign currency transactions ......................... 20,917,915 (70,950,391) Net change in unrealized appreciation/ depreciation of investments, swap contracts and foreign currency transactions ................ 21,637,103 6,797,462 --------------- --------------- Net increase (decrease) in net assets from operations ...................... 89,239,435 (18,161,377) Dividends and Distributions to Shareholders Dividends from net investment income .... (46,684,417) (45,991,552) Distributions in excess of net investment income ............................... (4,915,050) (3,151,911) Capital Stock Transactions Net increase ............................ 903,815,269 -0- Reinvestment of dividends resulting in issuance of Common Stock ............. 351,782 3,743,746 --------------- --------------- Total increase (decrease) ............... 941,807,019 (63,561,094) Net Assets Beginning of period ..................... 448,734,694 512,295,788 --------------- --------------- End of period ........................... $ 1,390,541,713 $ 448,734,694 =============== ===============
See notes to financial statements. - -------------------------------------------------------------------------------- ACM GOVERNMENT INCOME FUND o 15 - ----------------------- STATEMENT OF CASH FLOWS - ----------------------- STATEMENT OF CASH FLOWS Year Ended December 31, 2000 Increase (Decrease) in Cash from Operating Activities: Interest and dividends received ........ $ 18,053,609 Interest expense paid .................. (6,858,887) Operating expenses paid ................ (4,863,962) --------------- Net increase in cash from operating activities .......................... $ 6,330,760 Investing Activities: Purchases of long-term investments ..... (5,087,984,882) Proceeds from disposition of long-term investments ......................... 3,983,748,254 Purchases of short-term investments--net (13,599,295) --------------- Net decrease in cash from investing activities .......................... (1,117,835,923) Financing Activities*: Cash dividends paid .................... (46,638,857) Proceeds from bank loan ................ 210,000,000 Proceeds from reverse repurchase agreements .......................... 44,421,302 Proceeds from capital stock transactions 903,815,269 --------------- Net increase in cash from financing activities .......................... 1,111,597,714 --------------- Net increase in cash ................... 92,551 Cash at beginning of period ............ 130 --------------- Cash at end of period .................. $ 92,681 =============== - ---------------------------------------------------------------------------------- Reconciliation of Net Increase in Net Assets from Operations to Net Increase in Cash from Operating Activities: Net increase in net assets from operations .......................... $ 89,239,435 Adjustments: Increase in interest receivable ........ $ (23,019,797) Accretion of bond discount ............. (18,231,771) Increase in accrued expenses ........... 897,911 Net gain on investments ................ (42,555,018) --------------- Total adjustments ...................... (82,908,675) --------------- Net Increase in Cash from Operating Activities .......................... $ 6,330,760 ===============
* Non-cash financing activities not included herein consist of reinvestment of dividends. See notes to financial statements. - -------------------------------------------------------------------------------- 16 o ACM GOVERNMENT INCOME FUND ----------------------------- NOTES TO FINANCIAL STATEMENTS ----------------------------- NOTES TO FINANCIAL STATEMENTS December 31, 2000 NOTE A Significant Accounting Policies ACM Government Income Fund, Inc. (the "Fund") is registered under the Investment Company Act of 1940 as a non-diversified, closed-end management investment company. The financial statements have been prepared in conformity with accounting principles generally accepted in the United States which require management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and amounts of income and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of significant accounting policies followed by the Fund. 1. Security Valuation Portfolio securities traded on a national securities exchange or on a foreign securities exchange (other than foreign securities exchanges whose operations are similar to those of the United States over-the-counter market) are generally valued at the last reported sale price or, if there was no sale on such day, the last bid price quoted on such day. If no bid prices are quoted, then the security is valued at the mean of the bid and asked prices as obtained on that day from one or more dealers regularly making a market in that security. Securities traded on the over-the-counter market, securities listed on a foreign securities exchange whose operations are similar to the United States over-the-counter market and securities listed on a national securities exchange whose primary market is believed to be over-the-counter are valued at the mean of the closing bid and asked price provided by two or more dealers regularly making a market in such securities. U.S. government securities and other debt securities which mature in 60 days or less are valued at amortized cost unless this method does not represent fair value. Securities for which market quotations are not readily available are valued at fair value as determined in good faith by, or in accordance with procedures approved by, the Board of Directors. Fixed income securities may be valued on the basis of prices provided by a pricing service when such prices are believed to reflect the fair market value of such securities. Listed put and call options purchased by the Fund are valued at the last sale price. If there is no sale on that day, such securities are valued at the closing bid prices on that day. 2. Taxes It is the Fund's policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required. 3. Investment Income and Investment Transactions Interest income is accrued daily. Dividend income is recorded on the ex-dividend date. Investment transactions are accounted for on the date securities are purchased or sold. Investment gains and losses are determined on the identified cost basis. The Fund accretes discounts as adjustments to interest income. - -------------------------------------------------------------------------------- ACM GOVERNMENT INCOME FUND o 17 - ----------------------------- NOTES TO FINANCIAL STATEMENTS - ----------------------------- 4. Currency Translation Assets and liabilities denominated in foreign currencies and commitments under forward exchange currency contracts are translated into U.S. dollars at the mean of the quoted bid and asked prices of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated into U.S. dollars at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated into U.S. dollars at the rates of exchange prevailing when accrued. Net realized gain or loss on foreign currency transactions represents foreign exchange gains and losses from sales and maturities of foreign securities, holding of foreign currencies, options on foreign currencies, closed forward exchange currency contracts, exchange gains and losses realized between the trade and settlement dates on foreign security transactions, and the difference between the amounts of interest and foreign withholding taxes recorded on the Fund's books and the U.S. dollar equivalent of the amounts actually received or paid. Net foreign currency gains and losses from valuing foreign currency denominated assets and liabilities at year end exchange rates are reflected as a component of net unrealized appreciation (depreciation) of investments and foreign currency transactions. 5. Dividends and Distributions Dividends and distributions to shareholders are recorded on the ex-dividend date. Income and capital gains distributions are determined in accordance with federal tax regulations and may differ from those determined in accordance with accounting principles generally accepted in the United States. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on their federal tax basis treatment; temporary differences, do not require such reclassification. During the current fiscal year, permanent differences, primarily due to tax treatment of foreign currency transactions and merger transactions, resulted in a net decrease in distribution in excess of net investment income, increase in accumulated net realized loss on investment and a corresponding increase in additional paid in capital. 6.Change in Accounting Principle In November 2000, the American Institute of Certified Public Accountants (AICPA) issued a revised version of its Audit and Accounting Guide for Investment Companies (the "Guide"), which is effective for fiscal years beginning after December 15, 2000. The Guide will require the Fund to amortize premiums and discounts on fixed income securities. Upon adoption, the Fund will be required to record a cumulative effect adjustment to reflect the amortization of premiums. The adjustment will reduce net investment income and increase unrealized appreciation on securities by the same amount, and therefore will not impact total net assets. At this time, the analysis of the adjustment has not been completed. Although this adjustment affects the financial statements, adoption of this principle will not effect the amount of distributions paid to shareholders, because the Fund determines its required distributions under Federal income tax laws. - -------------------------------------------------------------------------------- 18 o ACM GOVERNMENT INCOME FUND ----------------------------- NOTES TO FINANCIAL STATEMENTS ----------------------------- NOTE B Advisory, Administrative Fees and Other Transactions with Affiliates Under the terms of an investment advisory agreement, the Fund pays Alliance Capital Management L.P., (the "Adviser") a monthly advisory fee in an amount equal to the sum of 1/12th of .30% of the Fund's average weekly net assets up to $250 million, 1/12th of .25% of the Fund's average weekly net assets in excess of $250 million, and 5.25% of the daily gross income (i.e., income other than gains from the sale of securities and foreign currency transactions or gains realized from options and futures contracts less interest on money borrowed by the Fund) accrued by the Fund during the month. However, such monthly advisory fee shall not exceed in the aggregate 1/12th of 1% of the Fund's average weekly net assets during the month (approximately 1% on an annual basis). Under the terms of a Shareholder Inquiry Agency Agreement with Alliance Fund Services, Inc. ("AFS"), an affiliate of the Adviser, the Fund reimburses AFS for costs relating to servicing phone inquiries on behalf of the Fund. For the year ended December 31, 2000, the Fund will reimburse AFS $6,602. Under the terms of an Administrative Agreement, the Fund pays its Administrator, Mitchell Hutchins Asset Management Inc., a monthly fee equal to the annualized rate of .18 of 1% of the Fund's average weekly net assets up to $100 million, .16 of 1% of the Fund's next $200 million of average weekly net assets, and .15 of 1% of the Fund's average weekly net assets in excess of $300 million. The Administrator prepares financial and regulatory reports for the Fund and provides other clerical services. NOTE C Investment Transactions Purchases and sales of investment securities (excluding short-term investments and U.S. government securities) aggregated $847,844,651 and $501,483,512, respectively, for the year ended December 31, 2000. There were purchases of $4,400,810,983 and sales of $3,488,779,181 of U.S. government and government agency obligations for the year ended December 31, 2000. At December 31, 2000, the cost of investments for federal income tax purposes was $2,048,469,132. Accordingly, gross unrealized appreciation of investments was $40,927,045, and gross unrealized depreciation was $114,341,607, resulting in net unrealized depreciation of $73,414,562 (excluding foreign currency transactions). At December 31, 2000, the Fund had a capital loss carryforward of $307,277,094 of which $22,208,518 expires in the year 2001, $40,404,628 expires in the year 2002, $2,680,733 expires in the year 2003, $79,155 expires in the year 2004, $34,157,206 expires in the year 2005, $131,355,099 expires in the year 2006, $67,513,083 expires in the year 2007 and $8,878,672 expires in the year 2008. 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 INCOME FUND o 19 - ----------------------------- NOTES TO FINANCIAL STATEMENTS - ----------------------------- ACM Government Securities Fund and ACM Government Spectrum Fund, may apply. Capital and foreign currency losses incurred after October 31 ("post October" losses) within the taxable year are deemed to arise on the first business day of the Fund's next taxable year. The Fund incurred and will elect to defer net foreign currency losses of $1,277,197 and net capital losses of $1,133,585 during fiscal year 2000. These carryover losses may be used to offset future capital gains. To the extent they are so used, future capital gains will not be distributed to shareholders until they exceed available capital loss carryovers. 1. Forward Exchange Currency Contracts The Fund enters into forward exchange currency contracts to hedge its exposure to changes in foreign currency exchange rates on its foreign portfolio holdings, to hedge certain firm purchase and sale commitments denominated in foreign currencies and for investment purposes. A forward exchange currency contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated forward rate. The gain or loss arising from the difference between the original contract and the closing of such contract is included in net realized gain or loss on foreign currency transactions. Fluctuations in the value of open forward exchange currency contracts are reflected for financial reporting purposes as a component of net unrealized appreciation (depreciation) of investments and foreign currency transactions. The Fund's custodian places and maintains liquid assets in a separate account of the Fund having a value at least equal to the aggregate amount of the Fund's commitments under forward exchange currency contracts entered into with respect to position hedges. Risks may arise from the potential inability of a counterparty to meet the terms of a contract and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. At December 31, 2000, the Fund had outstanding forward exchange currency contracts as follows: U.S. $ Contract Value on U.S. $ Unrealized Amount Origination Current Appreciation (000) Date Value (Depreciation) - -------------------------------------------------------------------------------- Forward Exchange Currency Buy Contract Euro Dollars, settling 3/02/01...... 48,500 $45,151,075 $45,663,808 $ 512,733 Forward Exchange Currency Sale Contracts British Pounds, settling 1/11/01...... 32,217 46,423,589 48,186,704 (1,763,115) - -------------------------------------------------------------------------------- 20 o ACM GOVERNMENT INCOME FUND ----------------------------- NOTES TO FINANCIAL STATEMENTS ----------------------------- U.S. $ Contract Value on U.S. $ Unrealized Amount Origination Current Appreciation (000) Date Value (Depreciation) - ------------------------------------------------------------------------------- Canadian Dollars, settling 1/16/01.... 10,627 $ 7,000,576 $ 7,085,977 $ (85,401) Mexican Peso, settling 1/17/01.... 18,420 1,910,000 1,903,439 6,561 settling 3/05/01.... 30,175 3,100,000 3,072,655 27,345 ------------ $ (1,301,877) ============ 2. Option Transactions For hedging purposes, the Fund purchases and writes (sells) put and call options on U.S. and foreign government securities and foreign currencies that are traded on U.S. and foreign securities exchanges and over-the-counter markets. The risk associated with purchasing an option is that the Fund pays a premium whether or not the option is exercised. Additionally, the Fund bears the risk of loss of premium and change in market value should the counterparty not perform under the contract. Put and call options purchased are accounted for in the same manner as portfolio securities. The cost of securities acquired through the exercise of call options is increased by the premiums paid. The proceeds from securities sold through the exercise of put options are decreased by the premiums paid. When the Fund writes an option, the premium received by the Fund is recorded as a liability and is subsequently adjusted to the current market value of the option written. Premiums received from written options which expire unexercised are recorded by the Fund on the expiration date as realized gain from options written. The difference between the premium received and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is also treated as a realized gain, or if the premium is less than the amount paid for the closing purchase transaction, as a realized loss. If a call option is exercised, the premium is added to the proceeds from the sale of the underlying security or currency in determining whether the Fund has realized a gain or loss. If a put option is exercised, the premium reduces the cost basis of the security or currency purchased by the Fund. In writing an option, the Fund bears the market risk of an unfavorable change in the price of the security or currency underlying the option written. Exercise of an option written by the Fund could result in the Fund selling or buying a security or currency at a price different from the current market value. For the year ended December 31, 2000, the Fund did not have any written option transactions. 3. Swap Agreements The Fund enters into swaps on sovereign debt obligations to protect itself from interest rate fluctuations on the underlying debt instruments and for investment purposes. A swap is an agreement that obligates two parties to exchange a series of cash flows at spec- - -------------------------------------------------------------------------------- ACM GOVERNMENT INCOME FUND o 21 - ----------------------------- NOTES TO FINANCIAL STATEMENTS - ----------------------------- ified intervals based upon or calculated by reference to changes in specified prices or rates for a specified amount of an underlying asset. The payment flows are usually netted against each other, with the difference being paid by one party to the other. Risks may arise as a result of the failure of the counterparty to the swap contract to comply with the terms of the swap contract. The loss incurred by the failure of a counterparty is generally limited to the net interest payment to be received by the Fund, and/or the termination value at the end of the contract. Therefore, the Fund considers the creditworthiness of each counterparty to a swap contract in evaluating potential credit risk. Additionally, risks may arise from unanticipated movements in interest rates or in the value of the underlying securities. The Fund records a net receivable or payable on a daily basis for the net interest income or expense expected to be received or paid during the interest period. Net interest received or paid on these contracts is recorded as interest income (or as an offset to interest income). Fluctuations in the value of swap contracts are recorded for financial statement purposes as a component of net change in unrealized appreciation/depreciation of investments and swap contracts. At December 31, 2000, the Fund did not have any swap agreements outstanding. NOTE D Capital Stock There are 300,000,000 shares of $0.01 par value common stock authorized, of which 164,597,685 shares were outstanding at December 31, 2000. During the year ended December 31, 2000 and the year ended December 31, 1999, the Fund issued 47,092 and 458,154 shares, respectively, in connection with the Fund's dividend reinvestment plan. The shares issued in connection with the acquisition of ACM Government Securities Fund and ACM Government Spectrum Fund were 105,852,934. NOTE E Reverse Repurchase Agreements Under a reverse repurchase agreement, the Fund sells securities and agrees to repurchase them at a mutually agreed upon date and price. At the time the Fund enters into a reverse repurchase agreement, it will establish a segregated account with the custodian containing liquid assets having a value at least equal to the repurchase price. As of December 31, 2000, the Fund had entered into the following reverse repurchase agreements: Amount Broker Interest Rate Maturity ============ ============= ============= =============== $2,104,635 Merrill Lynch 4.875% January 2, 2001 $9,139,167 Merrill Lynch 4.000% January 2, 2001 $33,177,500 Merrill Lynch 6.500% January 8, 2001 For the year ended December 31, 2000 the maximum amount of reverse repurchase agreements outstanding was $80,453,200, the average amount outstanding was approximately $54,802,932 and the daily weighted average annualized interest rate was 6.00%. - -------------------------------------------------------------------------------- 22 o ACM GOVERNMENT INCOME FUND ----------------------------- NOTES TO FINANCIAL STATEMENTS ----------------------------- NOTE F Security Lending The Fund may make secured loans of portfolio securities to brokers, dealers and financial institutions, provided that cash, liquid high-grade debt securities or bank letters of credit equal to at least 102% of the market value of the securities loaned is deposited and maintained by the borrower with the Fund. For the year ended December 31, 2000, the maximum amount of security lending agreements outstanding was $29,177,500, the average amount outstanding was approximately $14,889,750 and the daily weighted average interest rate was 5.42%. The risks in lending portfolio securities, as with other extensions of credit, consist of possible loss of rights in the collateral should the borrower fail financially. In determining whether to lend securities to a particular borrower, the Adviser will consider all relevant facts and circumstances, including the creditworthiness of the borrower. While securities are on loan, the borrower will pay the Fund any income earned thereon and the Fund may invest any cash collateral in portfolio securities, thereby earning additional income, or receive an agreed upon amount of income from a borrower who has delivered equivalent collateral. When such securities are borrowed against cash, the Fund agrees to pay the borrower of such securities a "rebate rate" for the use of the cash the borrower has pledged as collateral. As of December 31, 2000, the Fund had no security lending agreements outstanding. NOTE G Bank Borrowing On August 11, 1999, the Fund entered into a five-year, $90,000,000 credit facility for a commercial paper asset securitization program with Societe Generale ("SG") as Administrative Agent, and Barton Capital Corporation ("Barton") as lender. On December 19, 2000 the credit facility was increased to $300,000,000. Under the SG Program, Barton will fund advances to the Fund through the issuance of commercial paper rated A-1+ by Standard & Poor's Ratings Services and P-1 by Moody's Investors Service, Inc. The collateral value must be at least 171% of outstanding borrowings. The borrowings under the SG program are secured by the pledging of the Fund's portfolio securities as collateral. The interest rate on the Fund's borrowings is based on the interest rate carried by the commercial paper. The weighted average annualized interest rate for the year ended December 31, 2000 was 6.51% and the average borrowing was $97,000,000. At December 31, 2000, the interest rate in effect was 6.67% and the amount of borrowings outstanding was $300,000,000. NOTE H Concentration of Risk Investing in securities of foreign governments involves special risks which include changes in foreign exchange - -------------------------------------------------------------------------------- ACM GOVERNMENT INCOME FUND o 23 - ----------------------------- NOTES TO FINANCIAL STATEMENTS - ----------------------------- rates and the possibility of future adverse political and economic developments which could adversely affect the value of such securities. Moreover, securities of many foreign governments and their markets may be less liquid and their prices more volatile than those of the United States Government. NOTE I Acquisition of ACM Government Securities Fund and ACM Government Spectrum Fund Effective as of the close of business on December 19, 2000, the Fund acquired all of the net assets of ACM Government Securities Fund and ACM Government Spectrum Fund pursuant to the plan of reorganization and acquisition. The acquisition was accomplished by a tax-free exchange of 105,852,934 shares of the Fund for 78,226,348 and 35,235,527 shares of ACM Government Securities Fund and ACM Government Spectrum Fund, respectively, on December 20, 2000. The aggregate net assets of the Fund, ACM Government Securities Fund and ACM Government Spectrum Fund before the acquisition were $494,005,466, $652,545,090 and $237,788,207, respectively. Immediately after the acquistion the combined net assets of the Fund amounted to $1,384,338,763. - -------------------------------------------------------------------------------- 24 o ACM GOVERNMENT INCOME FUND -------------------- FINANCIAL HIGHLIGHTS -------------------- FINANCIAL HIGHLIGHTS Selected Data For A Share Of Common Stock Outstanding Throughout Each Period
Year Ended December 31, --------------------------------------------------------------------- 2000 1999 1998 1997 1996 --------------------------------------------------------------------- Net asset value, beginning of period ........ $ 7.64 $ 8.80 $ 10.51 $ 10.29 $ 9.77 --------------------------------------------------------------------- Income From Investment Operations Net investment income(a) ...... .70 .79 .88 .94 .94 Net realized and unrealized gain (loss) on investments, swap contracts, options written and foreign currency transactions ............... .91 (1.11) (1.71) .54 .55 --------------------------------------------------------------------- Net increase (decrease) in net asset value from operations ................. 1.61 (.32) (.83) 1.48 1.49 --------------------------------------------------------------------- Less: Dividends and Distributions Dividends from net investment income .......... (.70) (.79) (.88) (.92) (.94) Distributions in excess of net investment income ...... (.10) (.05) -0- -0- (.03) Distributions from net realized gains ............. -0- -0- -0- (.34) -0- --------------------------------------------------------------------- Total dividends and distributions .............. (.80) (.84) (.88) (1.26) (.97) --------------------------------------------------------------------- Net asset value, end of period .............. $ 8.45 $ 7.64 $ 8.80 $ 10.51 $ 10.29 ===================================================================== Market value, end of period ... $ 7.50 $ 6.50 $ 9.125 $ 11.00 $ 10.25 ===================================================================== Total Investment Return Total investment return based on:(b) Market value ............... 28.97% (20.84)% (9.25)% 20.73% 24.15% Net asset value ............ 23.58% (3.53)% (8.38)% 15.08% 16.40% Ratios/Supplemental Data Net assets, end of period (000's omitted) ............ $1,390,542 $448,735 $512,296 $605,664 $590,173 Ratio of expenses to average net assets ......... 2.54% 2.37% 2.09% 2.03% 2.17% Ratio of expenses to average net assets excluding interest expense(c) ........ 1.19% 1.19% 1.12% 1.11% 1.18% Ratio of net investment income to average net assets ................. 9.40% 9.80% 9.04% 9.02% 9.78% Portfolio turnover rate ....... 538% 368% 409% 304% 349%
See footnote summary on page 26. - -------------------------------------------------------------------------------- ACM GOVERNMENT INCOME FUND o 25 - -------------------- FINANCIAL HIGHLIGHTS - -------------------- (a) Based on average shares outstanding. (b) Total investment return is calculated assuming a purchase of common stock on the opening of the first day and a sale on the closing of the last day of each year reported. Dividends and distributions, if any, are assumed for purposes of this calculation, to be reinvested at prices obtained under the Fund's Dividend Reinvestment Plan. Generally, total investment return based on net asset value will be higher than total investment return based on market value in years where there is an increase in the discount or a decrease in the premium of the market value to the net asset value from the beginning to the end of such years. Conversely, total investment return based on net asset value will be lower than total investment return based on market value in years where there is a decrease in the discount or an increase in the premium of the market value to the net asset value from the beginning to the end of such period. Total investment return for a period of less than one year is not annualized. (c) Net of interest expense of 1.35%, 1.18%, .97%, .92%, and .99%, respectively, on borrowings (see Notes E and H). - -------------------------------------------------------------------------------- 26 o ACM GOVERNMENT INCOME FUND --------------------------- REPORT OF ERNST & YOUNG LLP INDEPENDENT AUDITORS --------------------------- REPORT OF ERNST & YOUNG LLP INDEPENDENT AUDITORS To the Shareholders and Board of Directors ACM Government Income Fund, Inc. We have audited the accompanying statement of assets and liabilities of ACM Government Income Fund, Inc., including the portfolio of investments, as of December 31, 2000, and the related statements of operations and cash flows for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2000, by correspondence with the custodian and others. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of ACM Government Income Fund, Inc. at December 31, 2000, the results of its operations and its cash flows for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein, in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP New York, New York February 12, 2001 - -------------------------------------------------------------------------------- ACM GOVERNMENT INCOME FUND o 27 - ---------------------- ADDITIONAL INFORMATION - ---------------------- ADDITIONAL INFORMATION Supplemental Proxy Information A special Meeting of Shareholders of the ACM Government Income Fund was held on Tuesday, November 14, 2000. The description of the proposal and number of shares voted at the meeting are as follows: Voted Abstain/ Voted Voted Authority For Against Withheld ================================================================================ 1. To approve separate agreements and Plans of Acquisition and Liquidation and to approve the transfer of all the assets and liabilities of ACM Government Securities Fund and ACM Government Spectrum Fund to ACM Government Income Fund. 31,442,651 1,884,710 1,367,296 - -------------------------------------------------------------------------------- 28 o ACM GOVERNMENT INCOME FUND ---------------------------- GLOSSARY OF INVESTMENT TERMS ---------------------------- GLOSSARY OF INVESTMENT TERMS asset-backed securities (ABS) Bonds or notes backed by loan paper or accounts receivable originated by banks, credit card companies or other providers of credit and often enhanced by a bank letter of credit or by insurance coverage provided by an institution other than the issuer. basis point (bp) One basis point equals 0.01%. benchmark A standard by which a fund's performance can be measured. A benchmark is usually an unmanaged index, such as the Standard & Poor's 500 Stock Index or the Lehman Brothers Aggregate Bond Index. commercial mortgage-backed securities (CMBS) Similar to mortgage-backed securities in that they are securities or certificates backed by mortgages, except that investors receive payments out of the interest and principal of commercially-owned real estate, rather than residential real estate. Consumer Price Index (CPI) An index that measures the cost of living. The CPI is published by the U.S. Bureau of Labor Statistics. Federal Reserve Board The seven-member board that oversees Federal Reserve Banks, establishes monetary policy and monitors the country's economic state. government bond A bond that is issued by the U.S. government or its agencies. index A compilation of securities of similar types of companies that is used to measure the investment performance of securities within that specific market. An index is often used as a benchmark for a mutual fund. An investor cannot invest directly in an index. investment-grade bond A bond that is rated BBB or higher by a credit agency. mortgage-backed securities Securities or certificates backed by mortgages. Typically issued by institutions such as the Federal National Mortgage Association (FNMA), Government National Mortgage Association (GNMA) and the Federal Home Loan Mortgage Corporation (FHLMC). Investors receive payments out of the interest and principal of the underlying mortgages. Treasuries Negotiable U.S. government debt obligations, backed by the full faith and credit of the U.S. government. Treasuries are issued either as bills, notes or bonds depending on the maturity. Treasuries are exempt from state and local taxes. - -------------------------------------------------------------------------------- ACM GOVERNMENT INCOME FUND o 29 - ---------------- ALLIANCE CAPITAL - ---------------- ALLIANCE CAPITAL The Investment Professional's Choice Alliance Capital is a leading global investment management firm with approximately $454 billion in assets under management. In recognition of our far-reaching investment capabilities, Alliance Capital has been selected by employee benefit plans for 43 of the FORTUNE 100 companies and public retirement funds in 41 states as well as by hundreds of foundations, endowments and foreign institutions. By sharing this institutional money management experience with millions of mutual fund investors as well, Alliance stands out as a "manager of choice" for thousands of investment professionals around the world. At Alliance Capital, we place a premium on investment research. We carefully select securities based on our proprietary research, conducted by over 605 investment professionals in 36 cities and 21 countries. Our commitment to this process means that our mutual fund shareholders have their portfolios managed by the same experienced analysts and portfolio managers who manage the pension funds of some of America's largest institutional investors. All information on Alliance Capital is as of 12/31/00. - -------------------------------------------------------------------------------- 30 o ACM GOVERNMENT INCOME FUND ------------------ BOARD OF DIRECTORS ------------------ BOARD OF DIRECTORS John D. Carifa, Chairman Ruth Block(1) David H. Dievler(1) John H. Dobkin(1) William H. Foulk, Jr.(1) Dr. James M. Hester(1) Clifford L. Michel(1) Donald J. Robinson(1) Officers Wayne D. Lyski, President Kathleen A. Corbet, Senior Vice President Paul J. DeNoon, Vice President Christian G. Wilson, Vice President Edmund P. Bergan, Jr., Secretary Mark D. Gersten, Treasurer & Chief Financial Officer Juan J. Rodriguez, Controller Administrator Mitchell Hutchins Asset Management Inc. 51 West 52nd Street New York, NY 10019 Custodian, Dividend Paying Agent, Transfer Agent and Registrar State Street Bank and Trust Company 225 Franklin Street Boston, MA 02110 Independent Auditors Ernst & Young LLP 787 Seventh Avenue New York, NY 10019 Legal Counsel Seward & Kissel LLP One Battery Park Plaza New York, NY 10004 (1) Member of the Audit Committee. Notice is hereby given in accordance with Section 23(c) of the Investment Company Act of 1940 that the Fund may purchase from time to time at market prices shares of its Common Stock in the open market. This report, including the financial statements herein, is transmitted to the shareholders of ACM Government Income Fund for their information. The financial information included herein is taken from the records of the Fund. This is not a prospectus, circular or representation intended for use in the purchase of shares of the Fund or any securities mentioned in this report. - -------------------------------------------------------------------------------- ACM GOVERNMENT INCOME FUND o 31 - -------------------------------- ALLIANCE CAPITAL FAMILY OF FUNDS - -------------------------------- ALLIANCE CAPITAL FAMILY OF FUNDS Domestic Equity Funds Balanced Shares Conservative Investors Fund Disciplined Value Fund Growth & Income Fund Growth Fund Growth Investors Fund Health Care Fund Premier Growth Fund Quasar Fund Real Estate Investment Fund Technology Fund The Alliance Fund Utility Income Fund Global & International Equity Funds All-Asia Investment Fund Global Small Cap Fund Greater China '97 Fund International Fund International Premier Growth Fund New Europe Fund Worldwide Privatization Fund Select Investor Series Biotechnology Portfolio Premier Portfolio Technology Portfolio Small Cap Growth Portfolio Fixed Income Funds Corporate Bond Portfolio Global Dollar Government Fund Global Strategic Income Trust High Yield Fund Multi-Market Strategy Trust North American Government Income Trust Quality Bond Portfolio U.S. Government Portfolio Municipal Income Funds National Insured National Arizona California Insured California Florida Massachusetts Michigan Minnesota New Jersey New York Ohio Pennsylvania Virginia Closed-End Funds All-Market Advantage Fund The Austria Fund ACM Government Income Fund ACM Government Opportunity Fund The Korean Investment Fund ACM Managed Dollar Income Fund ACM Managed Income Fund ACM Municipal Securities Income Fund The Southern Africa Fund The Spain Fund World Dollar Government Fund World Dollar Government Fund II Alliance also offers AFD Exchange Reserves, which serves as the money market fund exchange vehicle for the Alliance mutual funds. To obtain a prospectus for any Alliance Capital fund, call your investment professional, or call Alliance at (800) 227-4618. - -------------------------------------------------------------------------------- 32 o ACM GOVERNMENT INCOME FUND ------------------------------ SUMMARY OF GENERAL INFORMATION ------------------------------ SUMMARY OF GENERAL INFORMATION ACM Government Income Fund Shareholder Information The daily net asset value of the Fund's shares is available from the Fund's Transfer Agent by calling (800) 432-5523. The Fund also distributes its daily net asset value to various financial publications or independent organizations such as Lipper Inc., Morningstar, Inc. and Bloomberg. Daily market prices for the Fund's shares are published in the New York Stock Exchange Composite Transaction section of newspapers under the designation "ACMIn." The Fund's NYSE trading symbol is "ACG." Weekly comparative net asset value (NAV) and market price information about the Fund is published each Monday in The Wall Street Journal and each Sunday in The New York Times and other newspapers in a table called "Closed-End Bond Funds." Dividend Reinvestment Plan A Dividend Reinvestment Plan provides automatic reinvestment of dividends and capital gains distributions in additional Fund shares. The Plan also allows you to make optional cash investments in Fund Shares through the Plan Agent. If you wish to participate in the Plan and your shares are held in your name, simply complete and mail the enrollment form in the brochure. If your shares are held in the name of your brokerage firm, bank or other nominee, you should ask them whether or how you can participate in the Plan. For questions concerning shareholder account information, or if you would like a brochure describing the Dividend Reinvestment Plan, please call State Street Bank and Trust Company at (800) 219-4218. - -------------------------------------------------------------------------------- ACM GOVERNMENT INCOME FUND o 33 ACM Government Income Fund 1345 Avenue of the Americas New York, NY 10105 Alliance Capital [LOGO](R) The Investment Professional's Choice (R) These registered service marks used under license from the owner, Alliance Capital Management L.P. INCAR1200 -----END PRIVACY-ENHANCED MESSAGE-----