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CLOSED END
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ACM Income Fund
Semi-Annual Report
June 30, 2002
[GRAPHIC OMITTED]
Alliance Capital [LOGO](R)
The Investment Professional's Choice
Investment Products Offered
---------------------------
o Are Not FDIC Insured
o May Lose Value
o Are Not Bank Guaranteed
---------------------------
----------------------
LETTER TO SHAREHOLDERS
----------------------
LETTER TO SHAREHOLDERS
August 13, 2002
Dear Shareholder:
This report provides the strategy, performance and outlook for ACM Income Fund
(the "Fund") for the semi-annual reporting period ended June 30, 2002. As
previously announced, Wayne D. Lyski is retiring as the person principally
responsible for the day-to-day management of the Fund's portfolio, and is being
replaced in an orderly transition by a team headed by Douglas J. Peebles, Paul
J. DeNoon, Michael A. Snyder, Andrew Aran, and Sean Kelleher. Together these
portfolio managers have 89 years of combined investment experience.
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.
Investment Performance
The following table shows how the Fund performed over the past six- and 12-month
periods ended June 30, 2002. For comparison, we have included the performance of
the Fund's benchmark, the Lehman Brothers (LB) Aggregate Bond Index.
INVESTMENT RESULTS*
Periods Ended June 30, 2002
-----------------------
Total Returns
-----------------------
6 Months 12 Months
--------------------------------------------------------------------------------
ACM Income
Fund (NAV) -3.58% -2.30%
--------------------------------------------------------------------------------
Lehman
Brothers
Aggregate
Bond Index 3.79% 8.63%
--------------------------------------------------------------------------------
* The Fund's investment results are total returns for the periods shown and
are based on the net asset value (NAV) of the Fund as of June 30, 2002.
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 each 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 Bond 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 Income Fund.
Additional investment results appear on pages 7-9.
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ACM INCOME FUND o 1
----------------------
LETTER TO SHAREHOLDERS
----------------------
Since our last report, financial market volatility increased significantly with
the revelation of accounting irregularities, corporate fraud and a slowing
economic recovery. The Fund did not escape the effects of the recent turmoil and
underperformed its benchmark, the LB Aggregate Bond Index.
The Fund's security selection within the investment-grade and high yield
corporate sector, specifically our overweight positions in the
telecommunications subsector, was the primary source of underperformance. A
handful of corporate issues detracted significantly from performance including
WorldCom, Qwest Capital Funding, Microcell Telecommunications, AT&T Wireless,
Sprint Capital Corp. and AT&T.
The credit component of the LB Aggregate Bond Index had one of the worst
relative quarterly returns in its history during the second quarter,
underperforming Treasuries by 1.84%. The telecommunications subsector was the
weakest performer within the LB Aggregate Bond Index, underperforming Treasuries
by 13.5%. The telecommunications subsector, which had suffered post September
11 due to reduced subscriber additions and greater scrutiny of their leveraged
balance sheets, continued to experience heavy selling pressure and precipitously
lower bond prices. Volatility increased further with the unexpected wholesale
downgrading of the entire wireless telecommunications sector by Moody's due to
concerns over the material slowdown in subscriber additions, mature market
conditions and the perceived difficulty for the market to support six national
carriers competing on price.
Finally, WorldCom's sell off on June 26 triggered one of the worst one-day
losses in the history of the high yield market. WorldCom's announcement that it
had overstated its earnings dealt a significant blow to the financial markets
with its bond prices falling 25 to 60 points, depending on the issue. We have
exited the Fund's position in WorldCom.
The Fund's significant allocation to Treasury securities acted as a buffer
against the market's risk aversion late in the period under review. The Fund's
Treasury duration structure contributed positively to performance. The Fund's
longer-dated Treasuries outperformed shorter-dated Treasury securities as the
yield curve steepened during the period.
Within the emerging market sector, the decision to overweight Russia, as well as
the Fund's holdings in Turkey, contributed positively to performance. Detracting
from performance within the emerging market sector were the Fund's holdings in
Brazil. Brazilian debt declined significantly in the second half of the
reporting period due
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2 o ACM INCOME FUND
----------------------
LETTER TO SHAREHOLDERS
----------------------
to general risk aversion as well as concerns regarding Brazil's ability to
manage their debt and political uncertainty over the upcoming elections in
October. The markets have been concerned that an electoral victory for the left
would lead to a sharp move towards populist policies and away from fiscal
discipline. We believe, however, that these fears are exaggerated.
While we have recently reduced the Fund's Brazilian holdings to an underweight
position, we continue to believe that the International Monetary Fund (IMF) and
the United States will be supportive of Brazil and that the country's underlying
fiscal and monetary structure remains intact. We are additionally encouraged
that the presidential candidates have focused on the long-term health of the
Brazilian economy rather than using the current volatility for their own
short-term political gain.
Market Overview
As we entered 2002, signs of a global economic turnaround appeared, helped by
ample global liquidity and a rebound in G-7 nation growth (The G-7 nations are a
group of seven industrialized nations, including Canada, France, Germany,
Italy, Japan, the United Kingdom and the United States). In the U.S., economic
growth surpassed expectations for both the fourth quarter of 2001 and first
quarter of 2002; GDP was 2.7% and 5.0%, respectively. Economic growth was
boosted by robust consumer spending, housing and accommodative monetary policy
(low interest rates) and fiscal policy (tax reductions and increased government
spending). However, continued weakness in the labor market, anemic business
spending and a sharp decline in equity valuations led to uneven growth that
dampened prospects for a stronger recovery. The U.S. Federal Reserve moved to a
neutral stance and maintained interest rates at an accommodative 1.75%.
The U.S. bond market was the beneficiary of a crisis in confidence by investors
and a subsequent decline in the stock market caused by corporate accounting
scandals. Investors turned to the safety of fixed income securities during the
period, particularly securitized bonds such as commercial backed securities
(CBS) and asset backed securities (ABS) up 6.34% and 4.45%, respectively,
offering yield with safety. U.S. Treasuries and investment grade corporate
securities also posted positive returns, at 3.61% and 2.63%, respectively.
However, they underperformed other components within the LB Aggregate Bond
Index.
Corporate market volatility was high throughout the period under review.
Aggressive rating agency downgrades added to investors' building anxiety
regarding the integrity of corporate management. Still, the biggest shock to the
--------------------------------------------------------------------------------
ACM INCOME FUND o 3
----------------------
LETTER TO SHAREHOLDERS
----------------------
market came in late June when WorldCom revealed that it had overstated earnings
for 2001 and first quarter 2002 by close to $3.9 billion. WorldCom bonds
declined in value by 70%-80% as a result and, in a contagion effect, other
telecommunications prices deteriorated as well. As a result, the corporate
market was highly bifurcated.
The high yield segment of the corporate market was further buffeted by concerns
regarding accounting irregularities, negative earnings surprises and declining
equity valuations. The positive returns of the first quarter in the high yield
market were erased by the poor performance of primarily four sectors:
telecommunications, cable, technology and utilities.
Emerging market debt, as measured by the J.P. Morgan Emerging Markets Bond Index
Plus, returned 0.82% for the six-month period ended June 30, 2002, with
non-Latin countries returning 10.83% and Latin countries returning -5.41%. Latin
American markets were affected by contagion from Brazil, Argentina and Ecuador.
Turkey's political crisis also contributed to a generally negative environment.
The best non-Latin performer and the Fund's largest emerging market holding was
Russia, led by strong economic growth, returning 17.99% for the period. The
worst non-Latin performer was Turkey (down 3.35%), whose political crisis
threatened the stability of the governing coalition.
Investment Strategy
As risk aversion returned to the U.S. credit markets during the period, we
trimmed the Fund's corporate holdings by reducing exposure to the
telecommunications sector. Consequently, we increased the Fund's Treasury
allocation continuing to concentrate the Fund's holdings on longer-term Treasury
securities. We also modestly increased positions in U.S. Treasury strips.
Within the emerging market sector, the Fund continued to hold a relatively
diversified array of holdings. We increased the Fund's allocation to the sector
by adding to our Russian position. Russia's economy performed well as the
country continues with reforms and attains greater geopolitical importance. We
also increased the Fund's Latin American position by adding to its holdings in
Ecuador, Venezuela and Mexico.
--------------------------------------------------------------------------------
4 o ACM INCOME FUND
----------------------
LETTER TO SHAREHOLDERS
----------------------
Market Outlook
We continue to expect the economic recovery in the U.S. to advance throughout
the year, however, at a slower pace than originally anticipated. Weakness in the
U.S. equity market, along with rising concerns over corporate integrity, will
slow the recovery of the business sector where the recession was the most
severe. Consequently, the U.S. Federal Reserve should maintain interest rates at
their current levels for the rest of the year. In this environment, the yield
curve will remain steep, with little likelihood of interest rates rising. The
Fund's U.S. Treasury holdings, which encompass the Fund's largest sector
weighting, will continue to benefit during times of volatility.
While we are greatly disappointed in the developments during the second quarter
within the corporate market, we remain vigilant in our investment and research
efforts. Continued scrutiny and inspection of corporate governance and
accounting policies will overhang the market for corporate debt securities,
resulting in heightened volatility. Furthermore, "fallen angels" (investment
grade issues which dropped to non-investment grade status due to ratings
downgrades) are pressuring valuations in various sectors within the high yield
market. High yield should perform better in the second half of 2002, benefiting
from a continuing recovery, surprisingly resilient consumer confidence and
investors' "potential" willingness to assume additional risk for higher yield.
Offsetting these positive catalysts, however, is the increasing risk and
awareness of accounting fraud, corporate governance lapses, equity market
volatility and negative earnings surprises. Within the high yield sector, we
still expect B-rated securities to outperform double B-rated debt. We currently
favor the cable, service and chemicals sectors.
Emerging market bond yields are compelling and offer upside potential if global
recovery is sustained. Of key importance to performance of the asset class for
the second half of 2002 will be the fate of the two countries currently facing
challenges: Brazil and Turkey. Argentina's 2001 default and economic collapse
undermined confidence in emerging market debt in general and led to speculative
attacks on Brazil during its presidential elections period. We expect the
Brazilian economy to limp towards the October elections; however, we are
encouraged by the recent announcement of additional IMF support for Brazil.
--------------------------------------------------------------------------------
ACM INCOME FUND o 5
----------------------
LETTER TO SHAREHOLDERS
----------------------
Thank you for your continued interest and investment in ACM Income Fund. We look
forward to reporting its progress to you in the future.
Sincerely,
/s/ John D. Carifa
John D. Carifa
Chairman
/s/ Douglas Peebles
Douglas Peebles
Vice President
/s/ Paul DeNoon
Paul DeNoon
Vice President
/s/ Michael A. Snyder
Michael A. Snyder
Vice President
/s/ Andrew Aran
Andrew Aran
Vice President
/s/ Sean Kelleher
Sean Kelleher
Vice President
[PHOTO] John D. Carifa
[PHOTO] Douglas Peebles
[PHOTO] Paul DeNoon
[PHOTO] Michael A. Snyder
[PHOTO] Andrew Aran
[PHOTO] Sean Kelleher
Portfolio Managers, Douglas Peebles, Paul DeNoon, Michael A. Snyder, Andrew Aran
and Sean Kelleher, have 89 years of combined investment experience.
--------------------------------------------------------------------------------
6 o ACM INCOME FUND
------------------
PERFORMANCE UPDATE
------------------
PERFORMANCE UPDATE
ACM INCOME FUND (NAV)
GROWTH OF A $10,000 INVESTMENT
6/30/92 TO 6/30/02
[THE FOLLOWING TABLE WAS DEPICTED AS A MOUNTAIN CHART IN THE PRINTED MATERIAL.]
ACM Income Fund
Growth of $10,000
6/30/92 - 6/30/02
ACM Income Lehman Brothers
Fund Aggregate Bond Index
-------------------------------------------------------------------------------
6/30/1992 $10,000 $10,000
6/30/1993 $12,012 $11,178
6/30/1994 $11,129 $11,033
6/30/1995 $12,466 $12,417
6/30/1996 $14,105 $13,040
6/30/1997 $17,278 $14,103
6/30/1998 $18,627 $15,590
6/30/1999 $16,587 $16,080
6/30/2000 $18,458 $16,814
6/30/2001 $21,034 $18,702
6/30/2002 $20,551 $20,316
Lehman Brothers Aggregate Bond Index: $20,316
ACM Income Fund (NAV): $20,551
This chart illustrates the total value of an assumed $10,000 investment in ACM
Income Fund at net asset value (NAV) (from 6/30/92 to 6/30/02) 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 Bond Index.
When comparing ACM 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 Income Fund.
--------------------------------------------------------------------------------
ACM INCOME FUND o 7
------------------
PERFORMANCE UPDATE
------------------
PERFORMANCE UPDATE
ACM INCOME FUND (NAV)
HISTORY OF RETURNS
YEARLY PERIODS ENDED 6/30
[BAR CHART OMITTED]
ACM Income Fund (NAV)-Yearly Periods Ended 6/30
--------------------------------------------------------------------------------
ACM Income Lehman Brothers
Fund (NAV) Aggregate Bond Index
--------------------------------------------------------------------------------
6/30/93 20.12% 11.78%
6/30/94 -7.36% -1.30%
6/30/95 12.02% 12.55%
6/30/96 13.14% 5.02%
6/30/97 22.50% 8.15%
6/30/98 7.81% 10.54%
6/30/99 -10.95% 3.15%
6/30/00 11.28% 4.56%
6/30/01 13.96% 11.23%
6/30/02 -2.30% 8.63%
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
each 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 Bond Index. It includes Treasury, agency and corporate
bond issues, as well as mortgage-backed securities. The Index does not reflect
fees or expenses. An investor cannot invest directly in an index, and its
results are not indicative of any specific investment, including ACM Income
Fund.
--------------------------------------------------------------------------------
8 o ACM INCOME FUND
-----------------
PORTFOLIO SUMMARY
-----------------
PORTFOLIO SUMMARY
June 30, 2002 (unaudited)
INCEPTION DATE PORTFOLIO STATISTICS
8/28/87 Net Assets ($mil): $1,614.2
SECURITY TYPE
72.3% Treasury & Government Agency
17.8% Sovereign
9.2% Corporate [PIE CHART OMITTED]
0.5% Preferred Stock
0.0% Rights & Warrants*
0.2% Short-Term
COUNTRY BREAKDOWN
81.5% United States
6.0% Russia
3.8% Turkey
2.3% Brazil [PIE CHART OMITTED]
2.2% Ecuador
2.0% Mexico
0.8% Venezuela
0.4% Canada
0.4% Philippines
0.6% Other
* Less than 0.05%
All data as of June 30, 2002. The Fund's security type and country
breakdowns are expressed as a percentage of total investments and may vary
over time. "Other" represents less than 0.1% weightings in each of these
countries: Bulgaria, Cayman, Colombia, Dominican Republic, Jamaica,Korea,
Luxembourg, Malaysia, Nigeria, Panama, Peru, South Africa, Tunisia,
Ukraine and Uruguay.
--------------------------------------------------------------------------------
ACM INCOME FUND o 9
------------------------
PORTFOLIO OF INVESTMENTS
------------------------
PORTFOLIO OF INVESTMENTS
June 30, 2002 (unaudited)
Principal
Amount
(000) U.S. $ Value
--------------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY
OBLIGATIONS-106.0%
U.S. Treasury Bonds-75.3%
3.375%, 4/15/32 (TIPS)(a) ............... $ 120,520 $ 127,354,298
5.25%, 11/15/28(a) ...................... 120,000 112,825,200
5.375%, 2/15/31(a)(b) ................... 180,565 176,811,054
10.375%, 11/15/12(a) .................... 82,000 105,392,140
11.25%, 2/15/15(a) ...................... 160,000 248,574,400
12.00%, 8/15/13(a) ...................... 82,000 114,649,120
12.50%, 8/15/14(a) ...................... 70,300 103,409,191
13.25%, 5/15/14(a) ...................... 150,000 225,877,500
--------------
1,214,892,903
--------------
U.S. Treasury Strips-24.0%
Zero coupon, 5/15/17(a) ................. 407,000 172,401,130
Zero coupon, 2/15/19(a) ................. 94,000 35,355,280
Zero coupon, 11/15/21(a) ................ 570,350 180,430,223
--------------
388,186,633
--------------
U.S. Treasury Note (TIPS)-3.7%
3.375%, 1/15/12(a) ...................... 58,213 59,659,011
--------------
Resolution Funding Corp.-3.0%
Zero Coupon, 10/15/20 ................... 150,000 47,872,050
--------------
Total U.S. Government and Agency Obligations
(cost $1,671,729,070) ................... 1,710,610,597
--------------
SOVEREIGN DEBT OBLIGATIONS-26.1%
Sovereign Debt Securities-25.9%
Brazil-3.3%
Republic of Brazil
Global Bonds
11.00%, 8/17/40 ......................... 42,024 23,428,380
12.00%, 4/15/10 ......................... 600 393,900
12.75%, 1/15/20 ......................... 900 558,000
Brazil Real Structured Notes
19.50%, 7/02/03 ......................... 10,000 7,085,000
19.70%, 7/01/03 ......................... 10,000 7,646,400
19.725%, 7/02/03 ........................ 20,000 14,102,000
--------------
53,213,680
--------------
Bulgaria-0.1%
Republic of Bulgaria
8.25%, 1/15/15(c) ....................... 650 644,475
--------------
--------------------------------------------------------------------------------
10 o ACM INCOME FUND
------------------------
PORTFOLIO OF INVESTMENTS
------------------------
Principal
Amount
(000) U.S. $ Value
--------------------------------------------------------------------------------
Colombia-0.1%
Republic of Colombia
Global Bonds
8.70%, 2/15/16 ....................... $ 400 $ 314,000
10.00%, 1/23/12 ...................... 250 236,563
11.75%, 2/25/20 ...................... 1,450 1,410,125
-----------
1,960,688
-----------
Dominican Republic-0.1%
Dominican Republic
9.50%, 9/27/06(c) .................... 575 607,313
-----------
Ecuador-3.2%
Republic of Ecuador
5.00%, 8/15/30(c)(d) ................. 20,825 10,412,500
12.00%, 11/15/12(c) .................. 58,850 41,489,250
-----------
51,901,750
-----------
Jamaica-0.0%
Government of Jamaica
10.625%, 6/20/17 ..................... 500 535,000
-----------
Mexico-2.7%
Mexican Bonos
14.00%, 9/02/04 ...................... MXP 181,869 19,797,301
14.50%, 5/12/05 ...................... 104,792 11,743,436
United Mexican States
7.50%, 1/14/12 ....................... $ 1,000 987,500
8.125%, 12/30/19 ..................... 3,905 3,797,612
8.30%, 8/15/31 ....................... 1,500 1,457,250
10.375%, 2/17/09 ..................... 375 428,062
11.375%, 9/15/16 ..................... 4,160 5,127,200
11.50%, 5/15/26 ...................... 225 285,187
-----------
43,623,548
-----------
Panama-0.1%
Republic of Panama
Discount Bonds FRN
2.625%, 7/17/16 PDI .................. 172 130,579
Global Bonds
9.625%, 2/08/11 ...................... 450 435,375
10.75%, 5/15/20 ...................... 1,000 1,017,500
-----------
1,583,454
-----------
Philippines-0.5%
Republic of Philippines
9.875%, 1/15/19 ...................... 7,900 7,813,100
10.625%, 3/16/25 ..................... 1,100 1,135,750
-----------
8,948,850
-----------
--------------------------------------------------------------------------------
ACM INCOME FUND o 11
------------------------
PORTFOLIO OF INVESTMENTS
------------------------
Principal
Amount
(000) U.S. $ Value
--------------------------------------------------------------------------------
Russia-8.8%
Ministry of Finance
3.00%, 5/14/06 .......................... $ 10,550 $ 8,242,715
3.00%, 5/14/08 .......................... 600 399,000
Russian Federation
5.00%, 3/31/30(c)(d) .................... 180,475 125,655,719
5.00%, 3/31/30(c)(d) .................... 12,105 8,428,106
------------
142,725,540
------------
South Africa-0.1%
Republic of South Africa
7.375%, 4/25/12 ......................... 750 741,525
------------
Tunisia-0.0%
Banque Centrale de Tunisie
7.375%, 4/25/12 ......................... 400 387,000
------------
Turkey-5.6%
Republic of Turkey
11.75%, 6/15/10 ......................... 550 495,825
11.875%, 1/15/30 ........................ 2,045 1,738,250
12.375%, 6/15/09 ........................ 150 138,975
Turkish Lira Structured Notes
47.0%, 9/05/02(e) ....................... 74,500 59,560,450
71.0%, 4/10/03(e) ....................... 45,988 28,796,718
------------
90,730,218
------------
Ukraine-0.1%
Republic of Ukraine
11.00%, 3/15/07 ......................... 992 994,335
------------
Uruguay-0.0%
Republic of Uruguay
7.875%, 7/15/27 ......................... 200 110,000
8.75%, 6/22/10 .......................... 200 115,300
------------
225,300
------------
Venezuela-1.2%
Republic of Venezuela
9.25%, 9/15/27 .......................... 30,275 19,376,000
------------
Total Sovereign Debt Securities
(cost $403,727,227) ..................... 418,198,676
------------
Collateralized Brady Bonds(f)-0.2%
Brazil-0.0%
Republic of Brazil
Discount Bonds FRN
3.125%, 4/15/12 ......................... 1,050 556,500
------------
--------------------------------------------------------------------------------
12 o ACM INCOME FUND
------------------------
PORTFOLIO OF INVESTMENTS
------------------------
Principal
Amount
(000) U.S. $ Value
--------------------------------------------------------------------------------
Bulgaria-0.1%
Republic of Bulgaria
Discount Bonds FRN
Series A
2.813%, 7/28/24 ............................ $ 650 $ 581,750
------------
Nigeria-0.1%
Central Bank of Nigeria
6.25%, 11/15/20(d) ......................... 1,000 661,300
------------
Panama-0.0%
Republic of Panama
4.75%, 7/17/14 IRB(d) ...................... 301 252,778
------------
Peru-0.0%
Republic of Peru FLIRB
4.00%, 3/07/17(d) .......................... 50 33,250
Republic of Peru PDI
4.50%, 3/07/17(d) .......................... 545 392,040
------------
425,290
------------
Venezuela-0.0%
Republic of Venezuela
Discount Bonds FRN
2.875%, 12/18/07 ........................... 393 295,129
------------
Total Collateralized Brady Bonds
(cost $3,017,381) .......................... 2,772,747
------------
Total Sovereign Debt Obligations
(cost $406,744,608) ........................ 420,971,423
------------
CORPORATE DEBT OBLIGATIONS-13.5%
Canada-0.5%
Fairfax Financial Holdings
7.375%, 4/15/18 ............................ 4,500 2,965,239
8.30%, 4/15/26 ............................. 5,000 3,330,175
Microcell Telecommunications, Series B
14.00%, 6/01/06(g) ......................... 27,375 2,326,875
------------
8,622,289
------------
Cayman-0.0%
Unibanco Uniao De Bancos
9.375%, 4/30/12(c)(d) ...................... 225 198,000
------------
--------------------------------------------------------------------------------
ACM INCOME FUND o 13
------------------------
PORTFOLIO OF INVESTMENTS
------------------------
Principal
Amount
(000) U.S. $ Value
--------------------------------------------------------------------------------
Korea-0.1%
Cho Hung Bank FRN
11.875%, 4/01/10(c) ....................... $ 500 $ 575,684
Hanvit Bank
12.75%, 3/01/10(c)(d) ..................... 175 205,844
Korea Deposit Insurance Corp.
2.50%, 12/11/05(c) ........................ 400 419,520
-----------
1,201,048
-----------
Luxembourg-0.0%
Mobile Telesystems Finance S.A.
10.95%, 12/21/04(c) ....................... 710 697,575
-----------
Malaysia-0.0%
Petronas Capital Ltd.
7.875%, 5/22/22(c) ........................ 400 398,555
-----------
Mexico-0.3%
Corporacion Durango S.A. de C.V.
13.75%, 7/15/09(c) ........................ 270 229,500
International Bank for
Reconstruction & Development
15.875%, 2/28/03 .......................... MXP 36,170 3,745,764
-----------
3,975,264
-----------
Philippines-0.0%
Globe Telecom, Inc.
9.75%, 4/15/12(c) ......................... $ 550 556,875
-----------
United States-12.6%
Charter Communications Holdings
10.00%, 5/15/11 ........................... 2,900 1,972,000
10.75%, 10/01/09 .......................... 9,655 6,830,913
11.75%, 5/15/11(g) ........................ 10,000 3,500,000
Finova Group, Inc.
7.50%, 11/15/09 ........................... 24,500 8,207,500
Lucent Technologies, Inc.
6.45%, 3/15/29 ............................ 81,156 42,201,120
Lyondell Chemical Co.
9.50%, 12/15/08 ........................... 6,675 6,241,125
10.875%, 5/01/09 .......................... 11,500 10,235,000
McCaw International Ltd.
13.00%, 4/15/07(g)(h) ..................... 500 8,750
Mizuho JBG Investments FRN
9.87%, 12/31/49(c) ........................ 20,000 17,377,480
Nextel Communications, Inc.
9.375%, 11/15/09 .......................... 11,875 6,056,250
9.95%, 2/15/08(g) ......................... 14,175 6,839,437
10.65%, 9/15/07(g) ........................ 20,900 11,442,750
Nextel Partners, Inc.
12.50%, 11/15/09 .......................... 8,500 3,612,500
--------------------------------------------------------------------------------
14 o ACM INCOME FUND
------------------------
PORTFOLIO OF INVESTMENTS
------------------------
Shares or
Principal
Amount
(000) U.S. $ Value
--------------------------------------------------------------------------------
Owens-Brockway Glass Containers
8.875%, 2/15/09(c) .................... $ 8,000 $ 8,040,000
Pemex Project
9.125%, 10/13/10 ...................... 500 526,250
Qwest Capital Funding
7.75%, 2/15/31 ........................ 36,730 19,283,250
Sprint Capital Corp.
8.75%, 3/15/32(c) ..................... 30,000 22,609,710
Targeted Return Index Securities, FRN
8.654%, 2/01/12(c) .................... 9,000 8,126,910
U.S. West Capital Funding, Inc.
6.875%, 7/15/28 ....................... 28,147 14,495,705
Xerox Captial Trust
8.00%, 2/01/27 ........................ 12,000 5,100,000
--------------
202,706,650
--------------
Total Corporate Debt Obligations
(cost $300,104,643) ................... 218,356,256
--------------
PREFERRED STOCK-0.7%
Centaur Funding Corp., Series C(c)
(cost $13,110,150) .................... 75,000 12,207,975
--------------
RIGHTS & WARRANTS-0.0%
Central Bank of Nigeria,
Warrants expiring 11/15/20(i) ......... 1,000 0
Republic of Venezuela,
Warrants expiring 04/15/20(i) ......... 1,785 0
United Mexican States,
Value Recovery Rights,
expiring 6/30/03 ...................... 2,500,000 7,500
--------------
Total Rights & Warrants
(cost $0) ............................. 7,500
--------------
SHORT-TERM INVESTMENT-0.3%
Time Deposit-0.3%
State Street Bank & Trust Co.
1.25%, 7/01/02
(cost $4,238,000) ..................... $ 4,238 4,238,000
--------------
Total Investments-146.6%
(cost $2,395,926,471) ................. 2,366,391,751
--------------
--------------------------------------------------------------------------------
ACM INCOME FUND o 15
------------------------
PORTFOLIO OF INVESTMENTS
------------------------
Contracts(j) U.S. $ Value
--------------------------------------------------------------------------------
Brazil-0.0%
Call Options Written-0.0%
Federal Republic of Brazil,
American Style,
Expiring Jul '02 @ $66.80 ................ (500) $ (500)
Expiring Jul '02 @ $64.75 ................ (500) (1,500)
Expiring Jul '02 @ $63.25 ................ (500) (3,500)
Expiring Jul '02 @ $62.00 ................ (1,450) (18,850)
Expiring Jul '02 @ $53.75 ................ (1,850) (103,600)
--------------
(premium $154,225) ....................... (127,950)
--------------
Total Investments Net of Outstanding
Call Options Written-146.6%
(cost $2,395,772,246) .................... 2,366,263,801
Other assets less liabilities-(46.6%) ....... (752,033,210)
--------------
Net Assets-100.0% ........................... $1,614,230,591
==============
(a) Securities, or portion thereof, have been segregated to collateralize the
loan outstanding. Total value of segregated securities amounted to
$1,253,955,946 at June 30, 2002.
(b) Securities, or portion thereof, with an aggregate market value of
$107,713,100 have been segregated to collateralize reverse repurchase
agreements.
(c) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At June 30,
2002, these securities amounted to $258,880,991 or 16.0% of net assets.
(d) Coupon increases periodically based upon a predetermined schedule. Stated
interest rate in effect at June 30, 2002.
(e) Annualized yield to maturity at purchase date.
(f) 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.
(g) 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.
(h) Security is in default and is non-income producing.
(i) Non-income producing security.
(j) One contract relates to one share.
Glossary of Terms:
FLIRB - Front Loaded Interest Reduction Bond
FRN - Floating Rate Note
IRB - Interest Reduction Bond
PDI - Past Due Interest
TIPS - Treasury Inflation Protected Security
See notes to financial statements.
--------------------------------------------------------------------------------
16 o ACM INCOME FUND
---------------------------------
STATEMENT OF ASSETS & LIABILITIES
---------------------------------
STATEMENT OF ASSETS & LIABILITIES
June 30, 2002 (unaudited)
Assets
Investments in securities, at value (cost $2,395,926,471) .. $ 2,366,391,751
Cash ....................................................... 2,094,421
Interest and dividends receivable .......................... 44,091,386
Receivable for investment securities sold .................. 10,146,412
Prepaid expenses ........................................... 178,254
---------------
Total assets ............................................... 2,422,902,224
---------------
Liabilities
Loan payable ............................................... 400,000,000
Payable for investment securities purchased ................ 293,717,537
Reverse repurchase agreements .............................. 109,178,721
Loan interest payable ...................................... 3,591,193
Advisory fee payable ....................................... 1,591,788
Administrative fee payable ................................. 211,889
Options written (premium $154,225) ......................... 127,950
Rights offering payable .................................... 70,076
Accrued expenses ........................................... 182,479
---------------
Total liabilities .......................................... 808,671,633
---------------
Net Assets ................................................. $ 1,614,230,591
===============
Composition of Net Assets
Capital stock, at par ...................................... $ 2,247,822
Additional paid-in capital ................................. 2,156,978,774
Distributions in excess of net investment income ........... (4,402,579)
Accumulated net realized loss on investments,
swap contracts, option contracts and
foreign currency transactions ........................... (510,550,758)
Net unrealized depreciation of investments and
foreign currency denominated assets and liabilities ..... (30,042,668)
---------------
$ 1,614,230,591
===============
Net Asset Value Per Share
(based on 224,782,193 shares outstanding) ............... $7.18
=====
See notes to financial statements.
--------------------------------------------------------------------------------
ACM INCOME FUND o 17
-----------------------
STATEMENT OF OPERATIONS
-----------------------
STATEMENT OF OPERATIONS
Six Months Ended June 30, 2002 (unaudited)
Investment Income
Interest ..................................... $ 119,245,340
Dividends .................................... 185,892 $ 119,431,232
-------------
Expenses
Advisory fee ................................. 8,641,990
Administrative fee ........................... 1,317,158
Transfer agency .............................. 297,230
Printing ..................................... 241,315
Custodian .................................... 234,848
Audit and legal .............................. 102,042
Registration fee ............................. 64,762
Directors' fees .............................. 24,797
Miscellaneous ................................ 62,320
-------------
Total expenses before interest ............... 10,986,462
Interest expense ............................. 5,259,925
-------------
Total expenses ............................... 16,246,387
-------------
Net investment income ........................ 103,184,845
-------------
Realized and Unrealized Gain (Loss)
on Investments and Foreign Currency
Transactions
Net realized loss on investment transactions . (112,758,486)
Net realized gain on option contracts ........ 1,147,350
Net realized loss on foreign currency
transactions .............................. (2,434,779)
Net change in unrealized
appreciation/depreciation of:
Investments ............................... (47,980,545)
Option contracts .......................... 26,275
Foreign currency denominated
assets and liabilities .................. (480,702)
-------------
Net loss on investments, option contracts
and foreign currency transactions ......... (162,480,887)
-------------
Net Decrease in Net Assets from
Operations ................................ $ (59,296,042)
=============
See notes to financial statements.
--------------------------------------------------------------------------------
18 o ACM INCOME FUND
----------------------------------
STATEMENT OF CHANGES IN NET ASSETS
----------------------------------
STATEMENT OF CHANGES
IN NET ASSETS
Six Months
Ended Year Ended
June 30, 2002 December 31,
(unaudited) 2001
=============== ===============
Increase (Decrease) in Net Assets
from Operations
Net investment income ................... $ 103,184,845 $ 129,292,933
Net realized loss on investments,
swap contracts, option contracts
and foreign currency transactions .... (114,045,915) (31,090,929)
Net change in unrealized
appreciation/depreciation of
investments, option contracts
and foreign currency denominated
assets and liabilities ............... (48,434,972) 13,340,738
--------------- ---------------
Net increase (decrease) in net assets
from operations ...................... (59,296,042) 111,542,742
Dividends and Distributions to
Shareholders from
Net investment income ................... (95,672,897) (129,292,933)
Distributions in excess of net investment
income ............................... -0- (10,957,527)
Capital Stock Transactions
Reinvestment of dividends resulting in
issuance of Common Stock ............. 4,304,593 3,428,477
Proceeds from sale of shares of
common stock in rights offering ...... -0- 399,632,465
--------------- ---------------
Total increase (decrease) ............... (150,664,346) 374,353,224
Net Assets
Beginning of period ..................... 1,764,894,937 1,390,541,713
--------------- ---------------
End of period ........................... $ 1,614,230,591 $ 1,764,894,937
=============== ===============
See notes to financial statements.
--------------------------------------------------------------------------------
ACM INCOME FUND o 19
-----------------------
STATEMENT OF CASH FLOWS
-----------------------
STATEMENT OF CASH FLOWS
Six Months Ended June 30, 2002 (unaudited)
Increase (Decrease) in Cash from
Operating Activities:
Interest and dividends received ............ $ 77,136,322
Interest expense paid ...................... (2,544,130)
Operating expenses paid .................... (10,408,069)
---------------
Net increase in cash from operating
activities .............................. $ 64,184,123
Investing Activities:
Purchases of long-term investments ......... (3,194,787,944)
Proceeds from disposition of long-term
investments ............................. 2,942,348,764
Sales of short-term investments--net ....... 177,049,315
---------------
Net decrease in cash from investing
activities .............................. (75,389,865)
Financing Activities*:
Cash dividends paid ........................ (106,204,824)
Proceeds from bank loan .................... 100,000,000
Proceeds from reverse repurchase
agreements .............................. 19,817,500
Decrease in payable for rights
offering costs .......................... (783,824)
---------------
Net increase in cash from financing
activities .............................. 12,828,852
-------------
Net increase in cash ....................... 1,623,110
Cash at beginning of period ................ 471,311
-------------
Cash at end of period ...................... $ 2,094,421
=============
--------------------------------------------------------------------------------
Reconciliation of Net Increase in
Net Assets from Operations to
Net Increase in Cash from
Operating Activities:
Net decrease in net assets from
operations .............................. $ (59,296,042)
Adjustments:
Increase in interest and dividend receivable $ (6,051,328)
Accretion of bond discount and amortization
of bond premium ......................... (36,243,582)
Increase in interest payable ............... 2,715,795
Increase in accrued expenses ............... 578,393
Net realized loss on investments, option
contracts and foreign currency
transactions ............................ 114,045,915
Net change in unrealized
appreciation/depreciation of
investments and foreign currency
denominated assets and liabilities ...... 48,434,972
---------------
Total adjustments .......................... 123,480,165
-------------
Net Increase in Cash from Operating
Activities .............................. $ 64,184,123
=============
* Non-cash financing activities not included herein consist of reinvestment
of dividends.
See notes to financial statements.
--------------------------------------------------------------------------------
20 o ACM INCOME FUND
-----------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 2002 (unaudited)
NOTE A
Significant Accounting Policies
ACM 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 prices 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 iden-
--------------------------------------------------------------------------------
ACM INCOME FUND o 21
-----------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
tified cost basis. The Fund accretes discounts as adjustments to interest
income. Additionally, the Fund amortizes premium on debt securities for
financial statement reporting purposes only.
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 period
end exchange rates are reflected as a component of net unrealized appreciation
or depreciation of investments and foreign currency denominated assets and
liabilities.
5. Dividends and Distributions
Dividends and distributions to shareholders are recorded on the ex-dividend
date. Income and capital gains distributions are determined in accordance with
federal tax regulations and may differ from those determined in accordance with
accounting principles generally accepted in the United States. To the extent
these differences are permanent, such amounts are reclassified within the
capital accounts based on their federal tax basis treatment; temporary
differences, do not require such reclassification.
6. 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 whether
the value of such securities are sufficient to cover the value of the repurchase
agreements. If the seller defaults and the value of the 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 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
--------------------------------------------------------------------------------
22 o ACM INCOME FUND
-----------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
5.25% of the daily gross income (i.e., income other than gains from the sale of
securities and foreign currency transactions or gains realized from options and
futures contracts less interest on money borrowed by the Fund) accrued by the
Fund during the month. However, such monthly advisory fee shall not exceed in
the aggregate 1/12th of 1% of the Fund's average weekly net assets during the
month (approximately 1% on an annual basis).
Under the terms of a Shareholder Inquiry Agency Agreement with Alliance Global
Investor Services, Inc. ("AGIS"), an affiliate 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, 2002, the Fund reimbursed AGIS
$11,570.
Under the terms of an Administrative Agreement, the Fund pays its Administrator,
UBS Global Asset Management (US) Inc. ("UBS Global AM," formerly known as
Brinson Advisors, 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. UBS Global AM is an
indirect wholly-owned asset management subsidiary of UBS AG. The Administrator
prepares financial and regulatory reports for the Fund and provides other
clerical services.
NOTE C
Investment Transactions
Purchases and sales of investment securities (excluding short-term investments
and U.S. government securities) aggregated $956,145,084 and $871,128,942,
respectively, for the six months ended June 30, 2002. There were purchases of
$2,151,454,909 and sales of $2,082,035,964 of U.S. government and government
agency obligations for the six months ended June 30, 2002.
At June 30, 2002, the cost of investments for federal income tax purposes was
substantially the same as the cost for financial reporting purposes.
Accordingly, gross unrealized appreciation of investments was $77,901,515, and
gross unrealized depreciation was $107,436,235, resulting in net unrealized
depreciation of $29,534,720 (excluding foreign currency transactions).
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.
--------------------------------------------------------------------------------
ACM INCOME FUND o 23
-----------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
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 denominated
assets and liabilities.
The Fund's custodian places and maintains liquid assets in a separate account of
the Fund having a value at least equal to the aggregate amount of the Fund's
commitments under forward exchange currency contracts entered into with respect
to position hedges.
Risks may arise from the potential inability of a counterparty to meet the terms
of a contract and from unanticipated movements in the value of a foreign
currency relative to the U.S. dollar. At June 30, 2002, the Fund had no
outstanding forward exchange currency contracts.
2. Option Transactions
For hedging purposes, the Fund purchases and writes (sells) put and call options
on U.S. and foreign government securities and foreign currencies that are traded
on U.S. and foreign securities exchanges and over-the-counter markets.
The risk associated with purchasing an option is that the Fund pays a premium
whether or not the option is exercised. Additionally, the Fund bears the risk of
loss of premium and change in market value should the counterparty not perform
under the contract. Put and call options purchased are accounted for in the same
manner as portfolio securities. The cost of securities acquired through the
exercise of call options is increased by 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.
--------------------------------------------------------------------------------
24 o ACM INCOME FUND
-----------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
For the six months ended June 30, 2002, the Fund had the following written
option transactions:
Number of
Contracts
(000) Premium
========= ===========
Options outstanding at December 31, 2001 ............ 0 $ 0
Options written ..................................... (253,300) (2,377,388)
Options expired ..................................... 2,800 23,440
Options terminated in closing purchase transactions.. 245,700 2,199,723
-------- -----------
Options outstanding at June 30, 2002 ................ (4,800) $ (154,225)
======== ===========
3. Swap Agreements
The Fund enters into swaps on sovereign debt obligations to protect itself from
interest rate fluctuations on the underlying debt instruments and for investment
purposes. A swap is an agreement that obligates two parties to exchange a series
of cash flows at specified intervals based upon or calculated by reference to
changes in specified prices or rates for a specified amount of an underlying
asset. The payment flows are usually netted against each other, with the
difference being paid by one party to the other. Risks may arise as a result of
the failure of the counterparty to the swap contract to comply with the terms of
the swap contract. The loss incurred by the failure of a counterparty is
generally limited to the net interest payment to be received by the Fund,
and/or the termination value at the end of the contract. Therefore, the Fund
considers the creditworthiness of each counterparty to a swap contract in
evaluating potential credit risk. Additionally, risks may arise from
unanticipated movements in interest rates or in the value of the underlying
securities.
The Fund records a net receivable or payable on a daily basis for the net
interest income or expense expected to be received or paid during the interest
period. Net interest received or paid on these contracts is recorded as interest
income (or as an offset to interest income). Fluctuations in the value of swap
contracts are recorded for financial statement purposes as a component of net
change in unrealized appreciation/depreciation of investments and swap
contracts.
At June 30, 2002, the Fund did not have any swap agreements outstanding.
NOTE D
Distributions to Shareholders
The tax character of distributions paid during the fiscal years ended December
31, 2001 and December 31, 2000 were as follows:
2001 2000
============ ===========
Distributions paid from:
Ordinary income .................. $143,680,532 $46,990,639
------------ -----------
Total taxable distributions ......... 143,680,532 46,990,639
------------ -----------
Total distributions paid ............ $143,680,532(a) 46,990,639(a)
------------ -----------
--------------------------------------------------------------------------------
ACM INCOME FUND o 25
-----------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
As of December 31, 2001, the components of accumulated earnings/(deficit) on a
tax basis were as follows:
Accumulated capital and other losses .................. $(342,458,906)(b)
Unrealized appreciation/(depreciation) ................ (46,389,404)(c)
-------------
Total accumulated earnings/(deficit) .................. $(388,848,310)
=============
(a) Total distributions paid differ from the Statement of Changes in Net
Assets because for tax purposes dividends are recognized when actually
paid.
(b) On December 31, 2001, the Fund had a net capital loss carryforward of
$333,182,448 of which $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, $8,878,672 expires in the year 2008,
and $48,113,872 expires in the year 2009. To the extent future capital
gains are offset by capital loss carryforward, 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.
Net capital losses incurred after October 31, and within the taxable year
are deemed to arise on the first business day of the Fund's next taxable
year. For the year ended December 31, 2001, the Fund deferred to January
1, 2002, post October capital losses of $5,410,591 and post October
currency losses of $3,018,725. As of December 31, 2001, the Fund deferred
tax straddle losses of $847,142.
(c) The difference between book-basis and tax-basis unrealized
appreciation/(depreciation) is attributable primarily to the tax deferral
of losses on wash sales, the realization for tax purposes of unrealized
gains/losses on certain derivative instruments and the difference between
book and tax amortization methods for premium and market discount.
NOTE E
Capital Stock
There are 300,000,000 shares of $0.01 par value common stock authorized, of
which 224,782,193 shares were outstanding at June 30, 2002. During the six
months ended June 30, 2002 and the year ended December 31, 2001, the Fund is
sued 565,332 and 410,752 shares, respectively, in connection with the Fund's
dividend reinvestment plan.
NOTE F
Rights Offering
During the year ended December 31, 2001, the Fund issued 59,208,424 shares in
connection with a rights offering of the Fund's shares. Shareholders of record
on November 19, 2001, were issued one non-transferable right for each share of
common stock owned, entitling shareholders the opportunity to acquire one newly
issued share of common stock for every three rights held at a subscription price
of $7.03 per share. Offering costs of $993,936 attributed to the rights offering
were charged against additional paid-in capital. Dealer management and
soliciting fees of $15,608,821 were netted against the proceeds of the
subscription.
NOTE G
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
--------------------------------------------------------------------------------
26 o ACM INCOME FUND
-----------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
the securities loaned is deposited and maintained by the borrower with the Fund.
The risks in lending portfolio securities, as with other extensions of credit,
consist of possible loss of rights in the collateral should the borrower fail
financially. In determining whether to lend securities to a particular
borrower, the Adviser will consider all relevant facts and circumstances,
including the creditworthiness of the borrower. While securities are on loan,
the borrower will pay the Fund any income earned thereon and the Fund may invest
any cash collateral in portfolio securities, thereby earning additional income,
or receive an agreed upon amount of income from a borrower who has delivered
equivalent collateral. When such securities are borrowed against cash, the Fund
agrees to pay the borrower of such securities a "rebate rate" for the use of
the cash the borrower has pledged as collateral.
For the six months ended June 30, 2002, the Fund had no security lending
agreements outstanding.
NOTE H
Reverse Repurchase Agreements
Under a reverse repurchase agreement, the Fund sells securities and agrees to
repurchase them at a mutually agreed upon date and price. At the time the Fund
enters into a reverse repurchase agreement, it will establish a segregated
account with the custodian containing liquid assets having a value at least
equal to the repurchase price.
As of June 30, 2002, the Fund had entered into the following reverse repurchase
agreements:
Broker Amount Interest Rate Maturity
========================= =========== ============= ============
Deutsche Bank $99,013,681 1.75% July 1, 2002
Greenwich Capital Markets $10,165,040 1.80% July 3, 2002
For the six months ended June 30, 2002 the average amount of reverse repurchase
agreements outstanding was approximately $213,126,395 and the daily weighted
average annualized interest rate was 1.31%.
NOTE I
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 was
increased to a maximum of $400 million in January 2002. 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
--------------------------------------------------------------------------------
ACM INCOME FUND o 27
-----------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
six months ended June 30, 2002 was 1.96% and the average borrowing was
$398,342,541. At June 30, 2002, the interest rate in effect was 1.87% and the
amount of borrowings outstanding was $400,000,000.
NOTE J
Concentration of Risk
Investing in securities of foreign governments involves special risks which
include changes in foreign exchange rates and the possibility of future adverse
political and economic developments which could adversely affect the value of
such securities. Moreover, securities of many foreign governments and their
markets may be less liquid and their prices more volatile than those of the
United States Government.
--------------------------------------------------------------------------------
28 o ACM INCOME FUND
--------------------
FINANCIAL HIGHLIGHTS
--------------------
FINANCIAL HIGHLIGHTS
Selected Data For A Share Of Common Stock Outstanding Throughout Each Period
Six Months
Ended
June 30, Year Ended December 31,
2002(a) --------------------------------------------------------------------
(unaudited) 2001(a) 2000 1999 1998 1997
--------------------------------------------------------------------------------------
Net asset value,
beginning of period .................... $ 7.87 $ 8.45 $ 7.64 $ 8.80 $ 10.51 $ 10.29
Income From Investment
Operations
Net investment income(b) ................. .46 .76 .70 .79 .88 .94
Net realized and unrealized
gain (loss) on investments,
swap contracts, option
contracts and foreign
currency transactions .................. (.72) (.11) .91 (1.11) (1.71) .54
--------------------------------------------------------------------------------------
Net increase (decrease) in
net asset value from
operations ............................. (.26) .65 1.61 (.32) (.83) 1.48
--------------------------------------------------------------------------------------
Less: Dividends and
Distributions
Dividends from net
investment income ...................... (.43) (.77) (.70) (.79) (.88) (.92)
Distributions in excess of
net investment income .................. -0- (.07) (.10) (.05) -0- -0-
Distributions from net
realized gain on
investments ............................ -0- -0- -0- -0- -0- (.34)
--------------------------------------------------------------------------------------
Total dividends and
distributions .......................... (.43) (.84) (.80) (.84) (.88) (1.26)
--------------------------------------------------------------------------------------
Less: Fund Share
Transactions
Dilutive effect of rights
offering ............................... -0- (.32) -0- -0- -0- -0-
Offering costs charged to
paid-in-capital in excess
of par ................................. -0- (.07) -0- -0- -0- -0-
--------------------------------------------------------------------------------------
Total capital shares
transactions ........................... -0- (.39) -0- -0- -0- -0-
--------------------------------------------------------------------------------------
Net asset value, end of
period ................................. $ 7.18 $ 7.87 $ 8.45 $ 7.64 $ 8.80 $ 10.51
======================================================================================
Market value, end of period .............. $ 7.98 $ 7.30 $ 7.50 $ 6.50 $ 9.125 $ 11.00
======================================================================================
Total Investment Return
Total investment return
based on:(c)
Market value ........................... 15.52% 7.80% 28.97% (20.84)% (9.25)% 20.73%
Net asset value ........................ (3.58)% 3.11% 23.58% (3.53)% (8.38)% 15.08%
See footnote summary on page 30.
--------------------------------------------------------------------------------
ACM INCOME FUND o 29
--------------------
FINANCIAL HIGHLIGHTS
--------------------
Six Months
Ended
June 30, Year Ended December 31,
2002(a) --------------------------------------------------------------
(unaudited) 2001(a) 2000 1999 1998 1997
--------------------------------------------------------------------------------
Ratios/Supplemental Data
Net assets, end of period
(000's omitted) ............... $1,614,231 $1,764,895 $1,390,542 $448,735 $512,296 $605,664
Ratio to average net assets of:
Expenses ...................... 1.89%(e) 2.31% 2.54% 2.37% 2.09% 2.03%
Expenses, excluding
interest expense(d) ........ 1.28%(e) 1.18% 1.19% 1.19% 1.12% 1.11%
Net investment income ......... 12.03%(e) 9.33% 9.40% 9.80% 9.04% 9.02%
Portfolio turnover rate ......... 123% 676% 538% 368% 409% 304%
(a) As required, effective January 1, 2001, the Fund has adopted the
provisions of the AICPA Audit and Accounting Guide Audits of Investment
Companies, and began amortizing premium on debt securities 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%, respectively. Per share, ratios
and supplemental data for periods prior to January 1, 2001 have not been
restated to reflect this change in presentation.
(b) Based on average shares outstanding.
(c) Total investment return is calculated assuming a purchase of common stock
on the opening of the first day and a sale on the closing of the last day
of each period reported. Dividends and distributions, if any, are assumed
for purposes of this calculation, to be reinvested at prices obtained
under the Fund's Dividend Reinvestment Plan. Generally, total investment
return based on net asset value will be higher than total investment
return based on market value in periods where there is an increase in the
discount or a decrease in the premium of the market value to the net asset
value from the beginning to the end of such periods. Conversely, total
investment return based on net asset value will be lower than total
investment return based on market value in periods where there is a
decrease in the discount or an increase in the premium of the market value
to the net asset value from the beginning to the end of such periods.
Total investment return for a period of less than one year is not
annualized.
(d) Net of interest expense of .61%, 1.13%, 1.35%, 1.18%, .97%, and .92%,
respectively, on borrowings (see Notes G, H and I).
(e) Annualized
--------------------------------------------------------------------------------
30 o ACM INCOME FUND
----------------------
ADDITIONAL INFORMATION
----------------------
ADDITIONAL INFORMATION
(unaudited)
Supplemental Proxy Information
The Annual Meeting of Shareholders of ACM Income Fund, Inc. was held on March
20, 2002 and a subsequent meeting was held on April 25, 2002. The description of
each proposal and number of shares voted at the meeting are as follows:
Voted
Abstain/
Authority
Voted For Withheld
================================================================================
1. To elect directors: Class Two Directors
(terms expire in 2005)
David H. Dievler 191,059,656 10,826,863
William H. Foulk, Jr. 191,396,384 10,489,235
Dr. James M. Hester 191,201,914 10,684,605
Voted
Abstain/
Voted Authority
Voted For Against Withheld
================================================================================
2. Authorizing the Board of
Directors from time to time
to increase or decrease the
number of authorized shares
of stock of the Corporation. 114,843,700 23,724,127 5,616,356
--------------------------------------------------------------------------------
ACM INCOME FUND o 31
----------------------------
GLOSSARY OF INVESTMENT TERMS
----------------------------
GLOSSARY OF INVESTMENT TERMS
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.
bond
Bonds are issued by governments or corporations when they need to raise cash.
Bonds are sold, or issued, to investors and have a maturity date, which is the
date the issuer is obligated to repay the investor for the principal, or face
amount, of the bond. Bonds also pay interest until maturity. Bonds are also
called fixed-income securities.
earnings
Revenues minus cost of sales, operating expenses, and taxes, over a given period
of time. Earnings are often the most important determinant of a company's stock
price.
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.
liquidity
The ability of an asset to be quickly converted into cash and without penalty.
net asset value (NAV)
The value of a mutual fund's total assets, minus its liabilities, divided by the
number of shares outstanding.
portfolio
The collection of securities that make up a fund's or an investor's investments.
sector
A group of securities that are similar with respect to maturity, type, rating,
industry and/or coupon. Refers to a distinct part of the economy, for example,
the technology sector.
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.
yield
The rate of return on an asset, usually referring to dividend or interest
payments, expressed as a percentage of current market price.
--------------------------------------------------------------------------------
32 o ACM INCOME FUND
----------------
ALLIANCE CAPITAL
----------------
ALLIANCE CAPITAL
The Investment Professional's Choice
Alliance Capital is a leading global investment management firm with
approximately $412 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 44 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 600
investment professionals in 37 cities and 19 countries. Our commitment to this
process means that our mutual fund shareholders have their portfolios managed by
the same experienced analysts and portfolio managers who manage the pension
funds of some of America's largest institutional investors.
All information on Alliance Capital is as of 6/30/02.
--------------------------------------------------------------------------------
ACM INCOME FUND o 33
--------------------------------
ALLIANCE CAPITAL AT YOUR SERVICE
--------------------------------
ALLIANCE CAPITAL AT YOUR SERVICE
At Alliance Capital, shareholder satisfaction is among our top priorities. That
is why we provide our shareholders with a wide variety of products and
time-saving services.
o Automatic Reinvestment
You may choose to reinvest fund dividend and capital-gains distributions
automatically at no charge.
o Automatic Investment Program
Build your investment account by having money automatically transferred
from your bank account on a regular basis.
o Dividend Direction Plans
You may cross-invest dividends from one fund into the same class of shares
in any other fund without incurring a sales charge--a good way to
diversify your assets.
o Auto Exchange
You may choose to automatically exchange money from one Alliance Capital
fund to another on a regular basis. This can be a good way to dollar cost
average*, helping you to invest with discipline.
o Systematic Withdrawals
Regular checks for specified amounts can be sent to you or to your
brokerage or bank account.
o E-Statements and Electronic Delivery
Sign up to view your quarterly mutual fund, retirement or
CollegeBoundfund(SM) account statements online, rather than wait to
receive paper copies in the mail. You may also sign up for electronic
delivery of your legal documents so you can receive your semi-annual and
annual shareholder reports, prospectuses and prospectus supplements
online. It's easy, convenient and saves you time and storage space. Sign
up today at www.alliancecapital.com. Simply go to Individual Investor,
U.S., Account Access.
o A Choice of Purchase Plans
Most funds are available in A, B, and C Class shares. Many funds are also
available in Advisor Class shares.
o Telephone Transaction
Purchases, transfers and redemptions can be made by calling (800)
221-5672. Our knowledgeable representatives are available to assist you
Monday through Friday from 8:30 a.m. to 7:00 p.m. Eastern Standard Time.
o Alliance Answer: 24-Hour Information
For your convenience, our computerized audio response system is available
to you 24-hours a day by calling (800) 251-0539. Using any touch tone
phone, you can hear share prices, get account balances, review details of
your last transaction, obtain dividend information, order
statements/checkbooks, review fund objectives, and Watchlist information,
order additional copies of statements and request additional year-end tax
forms (available from February 1 to May 31).
o The Alliance Advance
A quarterly newsletter discussing investment strategies, economic news and
other mutual fund matters.
o Our Web Site at www.alliancecapital.com gives you a broad perspective of
Alliance Capital. You can reach Alliance mutual fund and account
information more directly from www.investor.alliancecapital.com. Either
way, you'll have access to extensive Alliance fund data, answers to
frequently asked questions, and financial planning tools and calculators.
* Dollar cost averaging does not assure a profit nor protect against loss in
a declining market. Since this strategy involves continuous investments in
securities, regardless of fluctuating prices, investors should consider
their financial ability to invest during periods of low price levels.
--------------------------------------------------------------------------------
34 o ACM 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
Kathleen A. Corbet, Senior Vice President
Andrew Aran, Vice President
Paul J. DeNoon, Vice President
Sean Kelleher, Vice President
Michael L. Mon, Vice President
Doug Peebles, Vice President
Michael A. Snyder, Vice President
Edmund P. Bergan, Jr., Secretary
Mark D. Gersten, Treasurer & Chief Financial Officer
Vincent S. Noto, Controller
Administrator
UBS Global Asset Management
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
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.
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.
--------------------------------------------------------------------------------
ACM INCOME FUND o 35
--------------------------------
ALLIANCE CAPITAL FAMILY OF FUNDS
--------------------------------
ALLIANCE CAPITAL FAMILY OF FUNDS
U.S. Stock Funds
Growth & Income Fund
Growth Fund
Health Care Fund
Mid-Cap Growth Fund*
Premier Growth Fund
Quasar Fund
Technology Fund
Global & International Stock Funds
All-Asia Investment Fund
Global Small Cap Fund
Greater China '97 Fund
International Fund
International Premier Growth Fund
The Korean Investment Fund
New Europe Fund
Worldwide Privatization Fund
AllianceBernstein Value Funds
Disciplined Value Fund
Global Value Fund
International Value Fund
Real Estate Investment Fund
Small Cap Value Fund
Utility Income Fund
Value Fund
Select Investor Series
Biotechnology Portfolio
Premier Portfolio
Small Cap Growth Portfolio
Technology Portfolio
Asset Allocation Funds
Balanced Shares
Conservative Investors Fund
Growth Investors Fund
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
U.S. Government Portfolio
Tax-Exempt Bond Funds
National
Intermediate Diversified
Insured National
Arizona
California
Intermediate California
Insured California
Florida
Massachusetts
Michigan
Minnesota
Intermediate Municipal Portfolios
New Jersey
New York
Intermediate New York
Ohio
Pennsylvania
Virginia
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 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.
* The Alliance Fund changed its name to Alliance Mid-Cap Growth Fund on
February 1, 2002.
** Alliance North American Government Income Trust changed its name to
Alliance Americas Government Income Trust on March 1, 2002.
*** Alliance Global Dollar Government Fund changed its name to Alliance
Emerging Market Debt Fund on March 1, 2002.
--------------------------------------------------------------------------------
36 o ACM INCOME FUND
------------------------------
SUMMARY OF GENERAL INFORMATION
------------------------------
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) 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 INCOME FUND o 37
ACM 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.
INCSR0602