UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-05207
ACM INCOME FUND, INC.
(Exact name of registrant as specified in charter)
1345 Avenue of the Americas, New York, New York 10105
(Address of principal executive offices) (Zip code)
Mark R. Manley
Alliance Capital Management L.P.
1345 Avenue of the Americas
New York, New York 10105
(Name and address of agent for service)
Registrant's telephone number, including area code: (800) 221-5672
Date of fiscal year end: December 31, 2005
Date of reporting period: December 31, 2005
ITEM 1. REPORTS TO STOCKHOLDERS.
[LOGO] ALLIANCEBERNSTEIN (R)
Investment Research and Management
ACM Income Fund
Annual Report
December 31, 2005
---------------------------
Investment Products Offered
o Are Not FDIC Insured
o May Lose Value
o Are Not Bank Guaranteed
---------------------------
You may obtain a description of the Fund's proxy voting policies and
procedures, and information regarding how the Fund voted proxies relating to
portfolio securities during the most recent 12-month period ended June 30,
without charge. Simply visit AllianceBernstein's web site at
www.alliancebernstein.com, or go to the Securities and Exchange Commission's
(the "Commission") web site at www.sec.gov, or call AllianceBernstein at (800)
227-4618.
The Fund files its complete schedule of portfolio holdings with the Commission
for the first and third quarters of each fiscal year on Form N-Q. The Fund's
Forms N-Q are available on the Commission's web site at www.sec.gov. The Fund's
Forms N-Q may also be reviewed and copied at the Commission's Public Reference
Room in Washington, DC; information on the operation of the Public Reference
Room may be obtained by calling (800) SEC-0330.
AllianceBernstein Investment Research and Management, Inc. is an affiliate of
Alliance Capital Management L.P., the manager of the funds, and is a member of
the NASD.
February 17, 2006
Annual Report
This report provides management's discussion of fund performance for ACM Income
Fund (the "Fund") for the annual reporting period ended December 31, 2005. The
Fund is a closed-end fund that trades under the New York Stock Exchange symbol
"ACG".
Investment Objectives and Policies
This closed-end fund is designed to provide high current income consistent with
the preservation of capital. The Fund invests principally in U.S. government
obligations. The Fund may also invest a portion of its assets in other
fixed-income securities, including those issued by foreign governments.
Additionally, the Fund may utilize other investment instruments, including
options and futures, and employ leverage.
For more information regarding the Fund's risks, please see "A Word About Risk"
on page 4 and "Note G-Risks Involved in Investing in the Fund" of the Notes to
Financial Statements on page 41.
Investment Results
The table on page 6 provides performance data for the Fund and its benchmark,
the Lehman Brothers (LB) U.S. Aggregate Index, for the six- and 12-month
periods ended December 31, 2005.
The Fund outperformed its benchmark for both the six- and 12-month periods
ended December 31, 2005. The Fund's use of leverage during the year, and its
allocation to emerging market debt, were the primary contributors to the
outperformance for both periods. In addition, the Fund's emerging market
country selection also added to the Fund's performance. Three of the Fund's
largest emerging country weightings (Brazil, Mexico and Russia) posted solid
returns, outperforming the U.S.-only investment-grade index. Low international
interest rates, ample global liquidity, high commodity export prices and
improved economic fundamentals in most emerging countries supported emerging
debt bond prices.
Market Review and Investment Strategy
Official interest rates rose in many developed countries during 2005, with U.S.
rates gaining the most. The U.S. Federal Reserve (the "Fed") raised official
rates another 200 basis points over the course of the year as the U.S. economy
forged ahead despite surging oil prices. The Fed Funds rate was 4.25% as of
December 31, 2005, 325 basis points higher than when the Fed started tightening
18 months ago. In December 2005, however, the Federal Open Market Committee
removed the word "accommodative" from its release, which was widely interpreted
to mean that the long period of monetary tightening was approaching a pause.
U.S. fixed-income returns were generally modest during the annual reporting
period, reflecting higher U.S. interest rates, a significant flattening of the
yield curve and modest spread movement in the non-Treasury sectors. U.S.
Treasuries posted a modest return of 2.79%, according to Lehman Brothers,
substantially underperforming developed non-U.S. dollar govern-
ACM INCOME FUND o 1
ment bond markets. Investment-grade corporates posted the weakest returns among
U.S. bond sectors, returning 1.68%, according to Lehman Brothers.
Investment-grade corporate returns were significantly dampened by both
increasing event risk as well as a series of downgrades in the auto industry.
Mortgage-backed securities returned 2.61%; however, they underperformed
like-duration Treasuries, reflecting concerns about extension risk (the risk
that mortgage durations will shorten or lengthen rapidly as interest rates fall
or rise), and a flood of new supply.
Within the non-benchmark sectors, high yield debt in the U.S. returned 2.74%,
according to Lehman Brothers, outperforming investment-grade corporates. High
yield spreads remained at historically tight levels for the year, benefiting
from low volatility and a historically low default rate. Dampening performance,
however, was a greater incidence of idiosyncratic risk--similar to what
unfolded in the investment-grade corporate sector--where shareholder-friendly
events were on the rise, including an increase in merger and acquisition and
leveraged buyout activity. Also, while the default rate remained quite low, it
notched higher during the year.
The emerging market debt class posted the strongest returns within fixed-income
sectors for the annual period, returning 10.73% according to the J.P. Morgan
Emerging Markets Bond Index Global. All 31 countries represented within J.P.
Morgan's index posted positive returns with the Latin region at 10.88% edging
out non-Latin countries at 10.56%. Emerging market spreads continued to tighten
throughout the year for an additional 110 basis points, ending the period at
237 basis points over Treasuries. The emerging markets enjoyed strong investor
demand, a favorable low global interest rate environment and strong global
liquidity. Additionally, strong capital inflows caused currencies to
appreciate, which allowed central banks in almost every emerging country to
accumulate reserves--one of the most important technical drivers supporting the
sector.
The Fund's three largest emerging market holdings (Brazil, Mexico and Russia)
performed strongly during the year. Brazil benefited from lower domestic
interest rates while Russia continued to benefit from high oil revenues which
it used to help in steadily reducing its external debt. The Fund's portfolio
managers (the "managers") correctly anticipated that Russia would be upgraded
by Standard & Poor's, which helped to contribute to the Fund's positive
performance. Mexico experienced slowing growth with headline inflation below
the 3.0% target and central bank easing.
During the period, the Fund generally maintained its allocations to U.S.
government, corporate and emerging market debt. Although credit metrics
continued to be strong, evidenced by solid corporate earnings, cash flow and a
historically low default rate, rising idiosyncratic and systematic risks caused
the managers to assume a more cautious risk stance within the Fund's corporate
holdings. Spread dispersion by industry was extremely low. As such,
2 o ACM INCOME FUND
the managers continued to focus on security selection as the key to adding
value and avoiding problem credits. The Fund's corporate holdings were well
diversified by issue and issuer. Within the Fund's emerging market allocation,
Brazil and Russia continued to be the Fund's top holdings. Brazil's gross
domestic product declined while inflation remained low. Russia continued to
benefit from high oil revenues, a steady reduction of external debt and
expectations of further rating upgrades.
ACM INCOME FUND o 3
HISTORICAL PERFORMANCE
An Important Note About the Value of Historical Performance
The performance on page 6 represents past performance and does not guarantee
future results. Current performance may be lower or higher than the performance
information shown. Returns are annualized for periods longer than one year. All
fees and expenses related to the operation of the Fund have been deducted.
Performance assumes reinvestment of distributions and does not account for
taxes.
ACM Income Fund Shareholder Information
The daily net asset value of the Fund's shares is available from the Fund's
Transfer Agent by calling (800) 426-5523. The Fund also distributes its daily
net asset value to various financial publications or independent organizations
such as Lipper Inc., Morningstar, Inc. and Bloomberg. Daily market prices for
the Fund's shares are published in the New York Stock Exchange Composite
Transaction section of The Wall Street Journal under the abbreviation "ACM
IncFd." The Fund's NYSE trading symbol is "ACG." Weekly comparative net asset
value (NAV) and market price information about the Fund is published each
Monday in The Wall Street Journal and each Sunday in The New York Times and
other newspapers in a table called "Closed-End Bond Funds." For additional
shareholder information regarding this Fund, please see page 67.
Benchmark Disclosure
The unmanaged Lehman Brothers (LB) U.S. Aggregate Index does not reflect fees
and expenses associated with the active management of a fund portfolio or the
costs and benefits of leverage. The Index covers the U.S. investment-grade
fixed-rate bond market, including government and credit securities, agency
mortgage passthrough securities, asset-backed securities and commercial
mortgage-backed securities. An investor cannot invest directly in an index, and
its results are not indicative of the performance for any specific investment,
including the Fund.
A Word About Risk
The Fund participates in a credit facility for the purpose of utilizing
investment leverage. The Fund may utilize additional leverage through the
investment techniques of reverse repurchase agreements and dollar rolls.
Repurchase agreements involve sales by the Fund of portfolio assets
concurrently with an agreement by the Fund to repurchase the same assets at a
later date at a fixed price. Generally, the effect of such a transaction is
that the Fund can recover all or most of the cash invested in the portfolio
securities involved during the term of the reverse repurchase agreement, while
it will be able to keep the interest income associated with those portfolio
securities. Such transactions are only advantageous if the interest cost to the
Fund of the reverse repurchase agreement transaction is less than the cost of
otherwise obtaining the cash.
The Fund may enter into dollar rolls in which the Fund sells securities for
delivery in the current month and simultaneously contracts to repurchase
substantially similar (same type and coupon) securities on a specified future
date. During the roll period, the Fund forgoes principal and interest paid on
the securities. The Fund is compensated by the difference between the current
sales price and the lower forward price for the future purchase (often referred
to as the "drop") as well as by the interest earned on the cash proceeds of the
initial sale.
(Historical Performance continued on next page)
4 o ACM INCOME FUND
HISTORICAL PERFORMANCE
(continued from previous page)
Reverse repurchase agreements and dollar rolls are speculative techniques and
are considered borrowings by the Fund.
The effect of leverage can realize shareholders higher returns than if the Fund
were not leveraged, and the use of leverage techniques can add to net asset
value (NAV). However, the risks of such techniques are potentially a higher
volatility of the NAV of the Common Stock, potentially more volatility in the
market value of the Common Stock and the relatively greater effect on the NAV
of the Common Stock caused by favorable or adverse changes in the currency
exchange rates. In addition, changes in the interest rate environment can
increase or decrease shareholder returns. The Fund maintains asset coverage of
at least 300%.
To the extent that the current interest rate on the Fund's indebtedness
approaches the net return on the leveraged portion of the Fund's investment
portfolio, then the benefit to the shareholders will be reduced. If the rate on
indebtedness were to exceed the net return on the same portion of the
portfolio, then this would result in a lower rate of return for the
shareholders. Similarly, the use of leverage in a declining market can advance
the decrease of the Fund's NAV more so than if the Fund were not leveraged,
which would likely be reflected in a greater decline in the market price for
shares of Common Stock than if the Fund were not leveraged. In extreme cases,
if the Fund's current investment income were not sufficient to meet interest
payments on indebtedness or if the Fund failed to maintain the asset coverage
required by the 1940 Act, then it could be necessary for the Fund to liquidate
certain investments at a time when it may be disadvantageous to do so, thereby
reducing its NAV.
Part of the Fund's assets will be invested in foreign securities (including
emerging markets) and is subject to greater risk than would a fund with a more
diversified asset class portfolio. Since the Fund invests in foreign currency
denominated securities, fluctuations may be magnified by changes in foreign
exchange rates. Foreign markets can be more volatile than the U.S. market due
to increased risks of adverse issuer, political, regulatory, market or economic
developments. While the Fund invests principally in fixed-income securities, in
order to achieve its investment objectives, the Fund may at times use certain
types of investment derivatives, such as options, futures, forwards and swaps.
These instruments involve risks different from, and in certain cases, greater
than, the risks presented by more traditional investments.
(Historical Performance continued on next page)
ACM INCOME FUND o 5
HISTORICAL PERFORMANCE
(continued from previous page)
THE FUND VS. ITS BENCHMARK Returns
PERIODS ENDED DECEMBER 31, 2005 6 Months 12 Months
-------------------------------------------------------------------------------
ACM Income Fund (NAV) 2.33% 8.32%
LB U.S. Aggregate Index -0.08% 2.43%
The Fund's Market Price per share on December 31, 2005 was $8.28. For
additional Financial Highlights, please see page 48.
GROWTH OF A $10,000 INVESTMENT IN THE FUND
12/31/95 TO 12/31/05
ACM Income Fund (NAV): $23,592
LB U.S. Aggregate Index: $18,188
[THE FOLLOWING TABLE WAS DEPICTED BY A MOUNTAIN CHART IN THE PRINTED MATERIAL.]
ACM Income LB U.S.
Fund (NAV) Aggregate Index
-------------------------------------------------------------------------------
12/31/95 $ 10,000 $ 10,000
12/31/96 $ 11,641 $ 10,363
12/31/97 $ 13,377 $ 11,363
12/31/98 $ 12,256 $ 12,350
12/31/99 $ 11,823 $ 12,249
12/31/00 $ 14,615 $ 13,674
12/31/01 $ 15,070 $ 14,828
12/31/02 $ 17,070 $ 16,348
12/31/03 $ 20,085 $ 17,018
12/31/04 $ 21,780 $ 17,757
12/31/05 $ 23,592 $ 18,188
This chart illustrates the total value of an assumed $10,000 investment in ACM
Income Fund at net asset value (NAV) (from 12/31/95 to 12/31/05) as compared to
the performance of the Fund's benchmark. The chart assumes the reinvestment of
dividends and capital gains.
See Historical Performance and Benchmark disclosures on pages 4-5.
6 o ACM INCOME FUND
PORTFOLIO SUMMARY
December 31, 2005
PORTFOLIO STATISTICS
Net Assets ($mil): $ 1,889.9
SECURITY TYPE BREAKDOWN*
o 61.1% U.S. Government and Government Sponsored
Agency Obligations
o 22.0% Sovereign Debt Obligations
o 6.7% Corporate Debt Obligations [PIE CHART OMITTED]
o 3.3% Bank Loans
o 0.1% Preferred Stock
o 6.8% Short-Term
* All data are as of December 31, 2005. The Fund's security type is expressed
as a percentage of total investments (excluding security lending collateral)
and may vary over time.
ACM INCOME FUND o 7
PORTFOLIO OF INVESTMENTS
December 31, 2005
Principal
Amount
(000) U.S. $ Value
-------------------------------------------------------------------------------
U.S. GOVERNMENT AND GOVERNMENT
SPONSORED AGENCY OBLIGATIONS-98.4%
U.S. Treasury Bonds-36.9%
5.375%, 2/15/31(a) U.S.$ 1,012 $1,136,760
6.25%, 5/15/30(b) 62,230 77,286,735
11.25%, 2/15/15(b) 160,000 240,900,000
12.00%, 8/15/13(a)(b) 82,000 97,285,292
12.50%, 8/15/14(a) 70,300 89,173,933
13.25%, 5/15/14(a) 150,000 191,027,400
------------
696,810,120
U.S. Treasury Notes-17.5%
1.625%, 1/15/15 TIPS(a) 2,340 2,351,514
2.375%, 8/15/06(a) 20,000 19,753,900
2.625%, 5/15/08(b) 24,615 23,645,784
3.00%, 11/15/07(b) 50,000 48,753,900
3.25%, 8/15/07(b) 80,000 78,553,120
3.50%,11/15/09(a) 154 149,254
3.875%, 2/15/13(a) 3,030 2,936,852
4.00%, 9/30/07-11/15/12(a)(b) 35,409 35,071,942
4.125%, 5/15/15(a) 795 777,578
4.25%, 11/30/07-8/15/15(a) 21,020 20,879,354
4.375%, 8/15/12(a) 700 699,918
4.50%, 11/15/15(b) 36,435 36,733,876
4.75%, 5/15/14(b) 58,900 60,333,390
4.875%, 2/15/12(a) 250 256,670
------------
330,897,052
U.S. Treasury Strips-15.5%
Zero coupon, 5/15/17(a) 260,000 155,719,720
Zero coupon, 11/15/21(a) 285,350 136,733,157
------------
292,452,877
Federal National Mortgage
Association-13.5%
5.00%, 10/25/30-10/25/33(a) 51,582 50,480,967
5.375%, 6/07/21(c) GBP 144 274,150
5.50%, 9/25/17-3/25/33(a) U.S.$ 25,150 25,154,449
5.50%, TBA 35,395 35,041,050
6.50%, 4/25/32-9/25/42(a) 13,290 13,707,232
6.50%, TBA 127,720 130,992,825
------------
255,650,673
Federal Home Loan Mortgage
Corporation-10.5%
5.00%, 4/15/16-6/15/31(a) 127,078 124,649,988
5.50%, 7/15/17(a) 15,680 15,878,890
5.50%, TBA 35,080 34,751,125
6.00%, 6/01/20-5/15/35(a) 21,689 21,988,355
------------
197,268,358
8 o ACM INCOME FUND
Principal
Amount
(000) U.S. $ Value
-------------------------------------------------------------------------------
Resolution Funding Corp.-3.9%
Zero coupon, 10/15/20 U.S.$ 150,000 $74,351,700
-------------
Government National Mortgage
Association-0.6%
6.00%, 7/20/32(c) 6,560 6,722,439
7.00%, 12/15/26(a) 4,531 4,764,728
------------
11,487,167
Total U.S. Government and
Government Sponsored
Agency Obligations
(cost $1,810,320,175) 1,858,917,947
-------------
SOVEREIGN DEBT OBLIGATIONS-35.5%
Argentina-1.5%
Republic of Argentina
Zero Coupon, 12/15/35 6,338 329,576
Zero Coupon, 12/15/35 EUR 27,697 1,590,349
Zero Coupon, 12/15/35 ARS 4,423 67,845
0.63%, 12/31/38(c) 1,285 209,398
4.005%, 8/03/12 FRN(c) U.S.$ 20,671 18,426,864
5.83%, 12/31/33(c) ARS 1,166 450,832
7.82%, 12/31/33(c) EUR 5,648 5,583,637
8.28%, 12/31/33(c) U.S.$ 2,326 1,953,889
-------------
28,612,390
Belize-0.0%
Government of Belize
9.50%, 8/15/12(c) 142 123,540
Brazil-8.8%
Brazilian Real
Structured Notes
Zero Coupon, 9/20/07(d) BRL 120,551 40,164,549
Zero Coupon, 1/03/08(d) 59,180 18,953,501
Zero Coupon, 1/05/09(d) 76,692 21,279,206
Zero Coupon, 1/05/10(d) 180,614 43,617,512
Republic of Brazil
8.00%, 1/15/18(c) U.S.$ 1,144 1,232,660
8.25%, 1/20/34(c) 1,228 1,301,680
9.25%, 10/22/10(c) 1,480 1,653,900
10.50%, 7/14/14(c) 2,137 2,617,825
11.00%, 8/17/40(b) 3,665 4,727,850
12.00%, 4/15/10(c) 13,100 15,949,250
12.50%, 1/05/16(c) BRL 6,870 2,945,377
12.75%, 1/15/20(c) U.S.$ 4,532 6,532,878
14.50%, 10/15/09(c) 1,260 1,615,950
Republic of Brazil-DCB FRN
Series L
5.25%, 4/15/12(c) 2,936 2,899,818
-------------
165,491,956
ACM INCOME FUND o 9
Principal
Amount
(000) U.S. $ Value
-------------------------------------------------------------------------------
Bulgaria-0.0%
Republic of Bulgaria
8.25%, 1/15/15(d) U.S.$ 346 $ 416,930
-------------
Colombia-1.0%
Republic of Colombia
10.75%, 1/15/13(c) 1,239 1,536,360
11.75%, 3/01/10(c) COP 14,062,000 6,912,981
11.75%, 2/25/20(c) U.S.$ 7,404 10,273,050
12.00%, 10/22/15(c) COP 1,650,000 863,557
-------------
19,585,948
Dominican Republic-0.1%
Dominican Peso Structured Note
Zero Coupon, 12/11/06(d) DOP 13,100 327,000
Dominican Republic
9.50%, 9/27/11(d)* U.S.$ 1,166 1,229,990
-------------
1,556,990
Ecuador-0.1%
Republic of Ecuador
9.00%, 8/15/30(d)(e) 470 423,000
9.375%, 12/15/15(d) 810 759,375
-------------
1,182,375
El Salvador-0.1%
Republic of El Salvador
7.625%, 9/21/34(d) 527 570,477
7.65%, 6/15/35(d) 449 462,470
-------------
1,032,947
France-0.0%
French Treasury Note
3.00%, 1/12/10(c) EUR 600 710,273
Germany-0.7%
Deutschland Republic
5.25%, 1/04/08(c) 10,000 12,371,873
Indonesia-0.5%
Indonesian Rupiah Structured Notes
14.00%, 6/17/09(d) IDR 4,000,000 414,230
14.25%, 6/19/13(d) 80,000,000 8,406,556
Republic of Indonesia
6.75%, 3/10/14(d) U.S.$ 965 965,000
7.25%, 4/20/15(d) 362 370,688
-------------
10,156,474
Japan-0.5%
Government of Japan
0.1%, 6/20/06(c) JPY 1,121,000 9,509,513
-------------
10 o ACM INCOME FUND
Principal
Amount
(000) U.S. $ Value
-------------------------------------------------------------------------------
Lebanon-0.1%
Lebanese Republic
7.875%, 5/20/11(d) U.S.$ 270 $276,750
10.125%, 8/06/08(d) 875 939,750
11.625%, 5/11/16(c) 120 148,080
-------------
1,364,580
Mexico-5.8%
Mexican Bonos
8.00%, 12/19/13(c) MXP 20,204 1,872,526
9.00%, 12/22/11(c) 324,550 31,818,568
9.00%, 12/20/12(c) 384,204 37,760,998
10.00%, 12/05/24(c) 213,891 22,823,009
United Mexican States
6.375%, 1/16/13(c) U.S.$ 2,626 2,787,499
7.50%, 1/14/12(c) 775 863,350
8.00%, 9/24/22(c) 2,170 2,669,100
8.125%, 12/30/19(c) 3,775 4,643,250
9.875%, 2/01/10(c) 2,180 2,556,050
11.375%, 9/15/16(c) 1,201 1,768,472
-------------
109,562,822
Panama-0.3%
Republic of Panama
7.125%, 1/29/26(c) 2,540 2,571,750
8.875%, 9/30/27(c) 972 1,156,680
9.375%, 7/23/12-4/01/29(c) 283 341,843
9.625%, 2/08/11(c) 288 336,672
10.75%, 5/15/20(c) 730 1,012,145
-------------
5,419,090
Peru-0.7%
Peru Bono Soberano
8.60%, 8/12/17(c) PEN 7,350 2,196,873
9.91%, 5/05/15(c) 1,600 524,019
Republic of Peru
7.35%, 7/21/25(c) U.S.$ 2,053 2,022,205
8.375%, 5/03/16(c) 3,672 4,030,020
8.75%, 11/21/33(c) 4,120 4,635,000
9.875%, 2/06/15(c) 557 667,843
-------------
14,075,960
Philippines-1.1%
Republic of Philippines
8.875%, 3/17/15(c) 3,135 3,445,365
9.00%, 2/15/13(c) 450 497,250
9.50%, 2/02/30(c) 7,648 8,959,632
9.875%, 1/15/19(c) 750 888,000
10.625%, 3/16/25(c) 6,182 7,882,050
-------------
21,672,297
Poland-0.3%
Poland Government Bond
5.75%, 3/24/10(c) PLN 17,626 5,587,225
-------------
ACM INCOME FUND o 11
Principal
Amount
(000) U.S. $ Value
-------------------------------------------------------------------------------
Russia-6.2%
Russian Federation
5.00%, 3/31/30(d) U.S.$ 98,755 $111,346,263
11.00%, 7/24/18(d) 490 722,260
Russian Ministry of Finance
3.00%, 5/14/08(c) 5,320 5,034,316
3.00%, 5/14/11(c) 700 623,910
-------------
117,726,749
South Korea-1.0%
Republic of South Korea
5.25%, 12/10/10(d) KRW 18,756,130 18,404,991
-------------
Spain-0.0%
Kingdom of Spain
5.25%, 4/06/29(c) GBP 109 213,314
-------------
Turkey-5.0%
Republic of Turkey
7.375%, 2/05/25(c) U.S.$ 462 475,860
11.00%, 1/14/13(c) 1,860 2,360,340
11.50%, 1/23/12(c) 860 1,090,050
11.75%, 6/15/10(c) 623 763,175
11.875%, 1/15/30(c) 836 1,282,424
Turkish Lira Structured Notes
Zero coupon, 2/23/06(d) TRY 55,243 40,161,862
Zero coupon, 1/25/07(d) 914 588,333
Zero coupon, 6/28/07(d) 78,561 48,000,953
-------------
94,722,997
Ukraine-0.1%
Government of Ukraine
6.875%, 3/04/11(d) U.S.$ 302 311,060
7.65%, 6/11/13(d) 157 169,560
11.00%, 3/15/07(d) 774 805,226
-------------
1,285,846
United Kingdom-0.3%
United Kingdom Gilt
4.25%, 6/07/32-3/07/36(c) GBP 1,44 52,590,476
5.00%, 3/07/08-3/07/25(c) 284 530,957
8.00%, 6/07/21(c) 541 1,342,124
8.75%, 8/25/17(c) 210 516,039
-------------
4,979,596
Uruguay-0.3%
Republic of Uruguay
7.25%, 2/15/11(c) U.S.$ 500 508,250
7.50%, 3/15/15(c) 4,120 4,212,700
7.875%, 1/15/33 PIK(c) 421 423,741
9.25%, 5/17/17(c) 980 1,107,400
-------------
6,252,091
12 o ACM INCOME FUND
Principal
Amount
(000) U.S. $ Value
-------------------------------------------------------------------------------
Venezuela-1.0%
Republic of Venezuela
5.193%, 4/20/11 FRN(d) U.S.$ 420 $409,710
8.50%, 10/08/14(c) 99 108,553
9.25%, 9/15/27(c) 9,743 11,545,455
10.75%, 9/19/13(c) 5,092 6,283,528
-------------
18,347,246
-------------
Total Sovereign Debt Obligations
(cost $567,199,344) 670,366,013
-------------
CORPORATE DEBT OBLIGATIONS-10.7%
Corporate Debt - High Yield
Obligations-6.7%
Amtrol, Inc.
10.625%, 12/31/06(c) 625 596,875
Antenna TV SA
7.25%, 2/15/15(d) EUR 10 11,573
Ardagh Glass Finance BV
8.875%, 7/01/13(d) 3 3,232
Associated Materials, Inc.
11.25%, 3/01/14(c)(f)* U.S.$ 12,545 6,147,050
AT&T Corp.
9.75%, 11/15/31(c) 1,000 1,256,124
Banco BMG SA
9.15%, 1/15/16(d) 300 295,800
Berry Plastics Corp.
10.75%, 7/15/12(c) 3,820 4,106,500
Central Bank of Nigeria
6.25%, 11/15/20(c) 1,750 1,763,125
Central European Distribution Corp.
8.00%, 7/25/12(d) EUR 78 100,424
Chaoda Modern Agriculture
7.75%, 2/08/10(d) U.S.$ 423 415,597
Charter Communications Holdings
11.00%, 10/01/15(d)* 4,009 3,367,660
11.75%, 5/15/14(d)(f) 10,000 5,550,000
Citigroup (JSC Severstal)
9.25%, 4/19/14(d) 230 248,975
Cognis GmbH
9.50%, 5/15/14(d) EUR 5 6,334
Deutsche Bank AG for Gazstream SA
5.625%, 7/22/13(d) U.S.$ 237 234,630
Digicel, Ltd.
9.25%, 9/01/12(d) 1,426 1,465,215
Eircom Funding
8.25%, 8/15/13(c) EUR 10 13,112
Evraz Group SA
8.25%, 11/10/15(d) U.S.$ 5,502 5,441,478
ACM INCOME FUND o 13
Principal
Amount
(000) U.S. $ Value
-------------------------------------------------------------------------------
Fairfax Financial Holdings Ltd.
7.375%, 4/15/18(c)* U.S.$ 4,883 $4,026,986
8.30%, 4/15/26* 5,000 4,145,045
Freeport-McMoran Copper & Gold, Inc.
10.125%, 2/01/10(c) 500 549,375
Gazprom OAO
9.625%, 3/01/13(d) 3,180 3,830,974
General Motors Acceptance Corp
6.75%, 12/01/14* 10,000 8,996,210
8.00%, 11/01/31(c) 8,000 7,663,048
Hawaiian Telecom Communications, Inc.
12.50%, 5/01/15(d)* 4,940 4,618,900
Heckler & Koch GmbH
9.25%, 7/15/11(d) EUR 5 6,748
Hertz Corporation
10.50%, 1/01/16(d) U.S.$ 2,690 2,770,700
Inmarsat Finance PLC
10.375%, 11/15/12(c)(f) 7,475 6,232,281
Kazkommerts International BV
8.50%, 4/16/13(d) 125 136,175
Kyivstar
7.75%, 4/27/12(d) 100 101,320
10.375%, 8/17/09(d) 200 220,720
Legrand S.A.
8.50%, 2/15/25(c) 10 12,025
Mobifon Holdings BV
12.50%, 7/31/10(c) 5,205 6,037,800
Mobile Telesystems Finance S.A.
9.75%, 1/30/08(d)* 1,185 1,256,100
NCL Corp.
10.625%, 7/15/14(c) 4,845 5,002,462
Newpage Corp.
10.00%, 5/01/12* 3,000 2,947,500
Noble Group Ltd.
6.625%, 3/17/15(d) 560 515,697
Paxson Communications Corp.
10.776%, 1/15/13(d)(f) 7,000 6,728,750
Quality Distribution LLC
9.00%, 11/15/10(c) 1,775 1,581,969
Rainbow National Services LLC
10.375%, 9/01/14(d) 2,500 2,800,000
Reliant Energy Inc.
9.50%, 7/15/13(c) 4,800 4,812,000
Rural Cellular Corp.
9.75%, 1/15/10(c)* 6,500 6,565,000
Russian Standard Finance SA
7.50%, 10/07/10(d) 386 375,867
Select Medical Corp.
9.933%, 9/15/15 FRN(d)* 5,000 5,025,000
SGL Carbon Luxembourg SA
8.50%, 2/01/12(d) EUR 10 12,964
14 o ACM INCOME FUND
Principal
Amount
(000) U.S. $ Value
-------------------------------------------------------------------------------
SunGard Data Systems, Inc.
9.125%, 8/15/13(d)* U.S.$ 5,000 $5,175,000
Time Warner Telecom Inc
10.125%, 2/01/11(c)* 3,465 3,629,587
Tyumen Oil Co.
11.00%, 11/06/07(d) 90 97,686
Willis Group N America
5.125%, 7/15/10(c) 500 498,494
-------------
Total Corporate Debt-High Yield
Obligations
(cost $129,254,603) 127,396,087
-------------
Corporate Debt - High Grade
Obligations-4.0%
Abbey National PLC
7.037%, 2/14/26(c)(e) GBP 29 61,589
Aegon NV
6.125%, 12/15/31(c) 26 53,098
AFC Capital Trust I
8.207%, 2/03/27(c) U.S.$ 1,025 1,084,636
AK Steel Corp.
7.875%, 2/15/09(c)* 6,000 5,700,000
Allied Irish Banks PLC
5.25%, 9/01/15(c) GBP 200 349,853
Amerada Hess Corp.
7.125%, 3/15/33(c) U.S.$ 1,085 1,231,601
America Movil S.A. de C.V.
6.375%, 3/01/35(c) 279 275,178
Aries Vermogensverwaltng
9.60%, 10/25/14(d) 11,750 15,197,450
Australia & New Zealand Banking
Group Ltd.
4.875%, 12/22/08(c) GBP 173 299,882
Aviva PLC
5.902%, 7/27/20(c) 40 72,287
Bank of Scotland Capital Funding
8.117%, 5/31/10(d)(e) 90 174,881
Barclays Bank
8.55%, 9/29/49(d) U.S.$ 638 736,047
9.875%, 5/12/08(c) GBP 195 373,373
Berkley W R Corp.
6.15%, 8/15/19(c) U.S.$ 100 100,635
British Sky Broadcasting PLC
7.75%, 7/09/09(c) GBP 94 176,087
British Telecommunications PLC
7.125%, 2/15/11(c)(e) EUR 1,500 2,074,506
8.625%, 3/26/20(c) GBP 34 76,712
BSKYB Finance UK PLC
5.625%, 10/15/15(d) U.S.$ 350 348,381
5.75%, 10/20/17(d) GBP 179 316,032
ACM INCOME FUND o 15
Principal
Amount
(000) U.S. $ Value
-------------------------------------------------------------------------------
Capital One Bank
6.50%, 6/13/13(c) U.S.$ 1,200 $1,274,926
CIT Group, Inc.
5.50%, 12/15/08(c) GBP 175 306,583
Citigroup, Inc.
5.875%, 7/01/24(c) 32 62,424
Clear Channel Communications, Inc.
5.75%, 1/15/13(c) U.S.$ 220 215,696
Columbia/HCA HealthCare Corp.
6.25%, 2/15/13(c) 175 175,124
7.58%, 9/15/25(c) 630 641,821
7.69%, 6/15/25(c) 355 368,636
Comcast Corp.
4.95%, 6/15/16(c) 1,400 1,320,686
Comerica Bank
8.375%, 7/15/24(c) 2,000 2,406,692
Commonwealth Bank of Australia
4.875%, 12/19/23(c) GBP 180 312,939
Danske Bank A/S
5.563%, 3/16/17(c) 46 82,618
Duke Capital Corp.
5.50%, 3/01/14(c) U.S.$ 500 498,067
6.25%, 2/15/13(c) 1,500 1,562,136
Emap PLC
6.25%, 12/09/13(c) GBP 124 225,746
European Investment Bank
9.50%, 12/09/09(c) 223 453,289
Farmers Exchange Capital
7.05%, 7/15/28(d) U.S.$ 200 211,541
Farmers Insurance Exchange
8.625%, 5/01/24(d) 250 303,444
FirstEnergy Corp.
6.45%, 11/15/11(c) 243 257,579
7.375%, 11/15/31(c) 491 579,365
Foodcorp Ltd.
8.875%, 6/15/12(d) EUR 194 253,791
Ford Motor Co.
6.375%, 2/01/29(c) U.S.$ 300 189,000
Ford Motor Credit Co.
4.95%, 1/15/08(c) 152 136,191
6.625%, 6/16/08(c) 454 411,803
7.00%, 10/01/13(c) 1,500 1,281,685
Friends Provident PLC
6.292%, 7/01/15(c) GBP 174 313,256
General Electric Capital Corp.
5.375%, 12/18/40(c) 41 79,553
General Motors Corp.
7.75%, 3/15/36(c)(f) U.S.$ 1,742 391,950
Goldman Sachs Group, Inc.
6.125%, 2/14/17(c) GBP 45 85,195
16 o ACM INCOME FUND
Principal
Amount
(000) U.S. $ Value
-------------------------------------------------------------------------------
HBOS PLC
5.75%, 11/28/25(c)(e) GBP 32 $ 60,027
HSBC Bank USA
4.625%, 4/01/14(c) U.S.$ 1,000 960,149
ILFC E-Capital Trust I
5.90%, 12/21/65(d) 750 752,947
ING Bank NV
7.00%, 10/05/10(c) GBP 155 292,056
Inter-American Development Bank
9.75%, 5/15/15(c) 173 419,868
International Lease Finance Corp.
3.50%, 4/01/09(c) U.S.$ 496 472,124
Investec Finance PLC
7.75%, 3/01/16(c)(e) GBP 83 154,353
Ipalco Enterprises, Inc.
8.375%, 11/14/08(c) U.S.$ 100 104,750
J.P. Morgan Chase & Co.
5.125%, 9/15/14(c) 250 247,478
6.625%, 3/15/12(c) 1,400 1,508,650
KFW International Finance
5.375%, 12/07/11(c) GBP 125 225,523
Legal & General Finance PLC
5.875%, 4/05/33(c) 26 52,385
Liberty Mutual Group, Inc.
5.75%, 3/15/14(d) U.S.$ 170 167,803
Lloyds TSB Capital
7.834%, 2/07/15(c)(e) GBP 49 101,215
Marks & Spencer PLC
5.625%, 3/24/14(c) 204 355,528
MBNA Europe Funding PLC
6.00%, 11/12/10(c) 70 127,132
Merrill Lynch & Co.
6.00%, 2/17/09(c) U.S.$ 100 103,124
Mizuho Finance
5.79%, 4/15/14(d) 100 103,307
8.375%, 12/29/49(c) 2,295 2,486,633
MM02 PLC
7.625%, 1/25/12(c) GBP 135 261,624
Morgan Stanley
5.125%, 11/30/15(c) 100 173,733
National Capital Trust I
5.62%, 12/17/18(d)(e) 43 77,996
Nationwide Building Society
5.25%, 2/12/18(c)(e) 65 114,521
Northern Rock PLC
5.75%, 2/28/17(c)(e) 169 304,000
PanAmSat Corp.
10.375%, 11/01/14(c)(f) U.S.$ 8,405 5,883,500
Prudential PLC
6.125%, 12/19/31(c) GBP 27 53,523
ACM INCOME FUND o 17
Principal
Amount
(000) U.S. $ Value
-------------------------------------------------------------------------------
Resona Bank Ltd.
4.125%, 9/27/12(d) EUR 67 $ 78,760
5.85%, 4/15/16(d) U.S.$ 138 137,417
Resona Preferred Global Securities
7.191%, 7/30/15(d) 160 169,756
Rexam PLC
7.125%, 3/27/09(c) GBP 58 105,614
Rogers Cable, Inc.
5.50%, 3/15/14(c) U.S.$ 360 337,050
Royal & Sun Alliance Insurance
8.50%, 12/08/14(c)(e) GBP 45 92,303
Royal Bank of Scotland Group PLC
5.625%, 6/07/32(c)(e) 85 160,575
7.387%, 12/31/10(c) 117 223,037
Santander Central Hispano Issue Ltd.
6.80%, 11/29/10(c) 83 155,576
7.25%, 12/07/11(c) 70 135,016
SBC Jersey
8.75%, 12/18/25(c) 118 308,715
SLM Student Loan Trust
5.15%, 9/17/15(d) 100 180,054
South Wales Electricity
9.25%, 11/09/20(c) 19 46,847
Southern Peru Copper Corp.
6.375%, 7/27/15(d) U.S.$ 100 99,818
Sprint Capital Corp.
8.75%, 3/15/32(c) 5,663 7,515,254
Standard Chartered Bank
6.75%, 4/27/09(c) GBP 100 182,228
Svenska Handelsbanken
6.125%, 3/04/09(c) 169 301,754
Telecom Italia Capital SA
5.25%, 10/01/15(c) U.S.$ 600 582,769
Telecom Italia SpA
5.625%, 12/29/15(c) GBP 50 87,891
Tengizchevroil Fin Co
6.124%, 11/15/14(d) U.S.$ 2,172 2,208,924
Time Warner Entertainment Co. LP
8.38%, 3/15/23(c) 145 167,665
Union Carbide Corp.
7.75%, 10/01/96(c) 1,785 1,908,656
Vodafone Group PLC
5.625%, 12/04/25(c) GBP 181 333,114
Western Power Distribution LLC
5.875%, 3/25/27(c) 30 57,561
Westpac Banking Corp.
5.875%, 4/29/18(c) 60 110,564
WMC Finance USA
5.125%, 5/15/13(c) U.S.$ 500 497,818
WPP Finance Corp.
5.875%, 6/15/14(c) 180 182,683
18 o ACM INCOME FUND
Principal
Amount
(000) U.S. $ Value
-------------------------------------------------------------------------------
Yorkshire Power Finance
7.25%, 8/04/28(c) GBP 86 $ 186,225
Zurich Capital Trust
8.376%, 6/01/37(d) U.S.$ 253 273,812
Zurich Finance PLC
6.625%, 10/02/22(c)(e) GBP 94 181,288
-----------
Total Corporate Debt-High Grade
Obligations
(cost $73,488,643) 75,676,657
-----------
Total Corporate Debt Obligations
(cost $202,743,246) 203,072,744
-----------
BANK LOANS-5.3%
ACCO Brands Corporation
5.91-6.12%, 8/15/12 U.S.$ 998 1,007,682
Allegheny Energy Supply
Company, LLC
5.76-6.41%, 3/08/11 712 719,584
Allied Waste North America, Inc.
4.17-6.39%, 1/15/12 1,913 1,922,734
American Achievement Corp.
6.92-8.75%, 3/31/11 1,280 1,296,496
American Safety Razor Company
7.15%, 8/28/12 1,392 1,409,484
Amscan 1TL
7.37%,12/21/12 500 494,375
Atlantic Broadband Finance, LLC
7.20%, 6/30/11 1,000 1,011,875
Aveta Holdings TLB GS
8.03%, 3/31/06 648 647,619
Basell TLB
6.90%, 9/30/15 500 507,344
Basell TLC
7.24%, 9/30/16 500 507,344
Builders FirstSource, Inc.
6.19%, 7/11/11 178 178,519
Butler Animal Health Supply, LLC
7.44-9.00%, 6/01/11 1,990 2,004,925
Calgen 1TL Ommerc BRL SC
8.135%, 4/01/09 500 518,215
Cellnet Technology, Inc.
7.53%, 4/22/12 995 1,004,950
Central Garden & Pet Company
6.12-6.13%, 5/30/09 990 1,002,287
Cheniere LNG Holdings, LLC
6.95%, 9/30/12 1,496 1,506,070
CII Carbon, LLC
6.56%, 8/18/12 995 1,003,706
Cognis Deutschland GMBH & Co.
9.30%, 11/15/13 1,000 1,019,500
ACM INCOME FUND o 19
Principal
Amount
(000) U.S. $ Value
-------------------------------------------------------------------------------
Coinstar, Inc.
6.10%, 7/01/11 U.S.$ 823 $ 828,199
Consolidated Communications, Inc.
5.77-6.11%, 10/14/11 1,330 1,338,827
DaVita Inc.
6.40-6.94%, 4/30/12 958 970,495
Delphi Corp TL JP PR
12.75%, 6/14/11 1,500 1,560,312
Doubleclick, Inc.
8.34%, 6/14/12 998 1,007,475
DynCorp International LLC
6.81-7.43%, 2/08/11 995 997,488
Eagle Rock TLA
6.79%, 12/01/12 1,500 1,503,750
F & W Publications
10.90%, 1/12/13 500 453,334
General Growth Properties, Inc.
6.39%, 12/01/08 1,983 1,994,930
Graham Packaging Company, L.P.
8.81%, 3/04/12 1,000 1,016,250
Harlan TL
8.75%, 12/19/11 500 503,438
Hawaiian Telecom
Communications, Inc.
6.78%, 10/31/12 1,000 1,005,000
HealthSouth Corporation
4.12%, 3/21/10 213 213,031
6.89%, 3/02/11 784 785,521
Hertz Corp DDW
1.125%, 12/21/12 39 39,537
Hertz Corp LOC
4.50%, 12/21/12 33 33,734
Hertz Corp TL
8.50%, 12/21/12 228 230,338
Hexion Specialty Chemicals
6.87-7.06%, 5/25/12 1,991 2,017,040
HIT Entertainment, Inc.
6.46%, 8/05/12 1,000 1,001,750
Huntsman International LLC
6.12%, 12/31/10 1,155 1,160,702
IPC Acquisition Corp.
7.13-7.19%, 7/31/11 499 502,906
Jarden Corporation
6.28%, 1/24/12 953 954,797
6.53%, 1/01/12 948 951,660
Keystone Automotive TL
6.88%, 12/30/12 1,000 1,002,500
Kranson Industries, Inc.
7.28%, 7/31/11 985 994,850
La Paloma Generating Company, LLC
6.11-6.27%, 8/16/12 1,941 1,958,287
20 o ACM INCOME FUND
Principal
Amount
(000) U.S. $ Value
-------------------------------------------------------------------------------
Lion Gables Realty Limited
Partnership
6.09-6.15%, 9/06/06 U.S.$ 937 $ 940,884
Longyear Holdings, Inc.
7.53%, 7/18/12 500 505,000
Maax, Inc.
7.23-7.52%, 6/01/11 1,740 1,714,114
MetroPCS Wireless, Inc.
8.25-8.88%, 5/03/11 2,200 2,256,833
MGM Holdings II
6.78%, 3/15/12 3,500 3,520,682
Motorsport Aftermarket Group, Inc.
7.78%, 12/31/11 1,481 1,486,284
Mueller Group LLC
6.46-6.65%, 10/30/12 2,693 2,712,103
NewPage Corp.
7.56%, 4/15/11 998 1,007,475
NewQuest, Inc.
7.52%, 3/01/11 925 934,250
Ntelos, Inc.
9.39%, 2/24/12 1,000 1,006,250
Owens-Illinois Group, Inc.
6.15%, 4/01/08 788 792,863
PanAmSat Corporation
6.43-6.48%, 7/01/11 982 990,415
Penn National Gaming, Inc.
5.97-6.28%, 5/03/12 2,494 2,521,027
PQ Corporation
6.56%, 1/24/12 1,985 2,004,850
Prestige Brands, Inc.
6.31-8.50%, 4/05/11 2,665 2,686,572
Rainbow National Services LLC
7.18%, 3/31/12 2,978 2,996,109
Rayovac Corporation
6.17-6.78%, 2/07/12 1,987 1,995,769
Regency Gas Services, LLC
6.78%, 5/15/10 1,985 2,007,331
Reliant Energy, Inc.
6.08-6.56%, 12/22/10 916 912,434
Riverside Energy Center
8.49%, 6/22/11 1,611 1,659,646
Rocky Mountain Energy Center, LLC
4.14-8.49%, 6/22/11 1,243 1,279,777
Sealy Mattress Company
6.11-6.16%, 4/15/13 1,593 1,608,850
SemCrude, L.P.
6.61-6.74%, 3/16/11 823 831,960
Smurfit Stone Container
4.29%, 10/01/10 349 352,213
6.56-6.75%, 10/01/11 1,010 1,018,042
ACM INCOME FUND o 21
Shares or
Principal
Amount
(000) U.S. $ Value
-------------------------------------------------------------------------------
Spanish Broadcasting System, Inc.
8.02%, 5/15/13 U.S.$ 1,000 $1,012,500
SSA Global TL
6.52%, 9/28/11 1,496 1,503,731
Stewart Enterprises
5.77-6.25%, 11/01/11 474 478,824
SunGard Data Systems Inc.
6.81%, 1/15/13 1,990 2,001,401
Swett & Crawford 2LL
11.12%, 11/10/12 500 503,750
Telcordia TLB
7.09%, 9/15/12 500 494,688
Texas Genco LLC
6.36-6.38%, 12/14/11 1,981 1,984,247
Universal City Development
Partners, Ltd.
6.15-6.53%, 6/09/11 990 1,001,138
UPC Broadband Holding B.V.
6.80%, 3/03/12 1,000 1,008,214
VWR International, Inc.
6.69%, 4/05/11 2,204 2,230,525
William Carter Company
5.65-5.81%, 6/29/12 1,720 1,735,896
WMG Acquisitions Corporation
6.19-6.59%, 3/22/11 3,432 3,465,129
----------
Total Bank Loans
(cost $99,344,676) 99,950,636
----------
CONVERTIBLE - PREFERRED STOCKS-0.1%
USB Capital VIII
6.35%(c)
(cost $975,000) 39,000 970,574
----------
NON-CONVERTIBLE - PREFERRED STOCKS-0.1%
Banco Santander
6.41%(c) 4,000 100,400
Metlife Inc
6.50%(c) 40 1,036,800
Zurich Funding Trust
1.71%(d)(e) 500 502,969
---------
Total Non-Convertible Preferred Stocks
(cost $1,611,500) 1,640,169
---------
WARRANTS-0.0%
Central Bank of Nigeria
Warrants, expiring 11/15/20(c) 4,500 99,000
22 o ACM INCOME FUND
Principal
Amount
(000) U.S. $ Value
-------------------------------------------------------------------------------
Republic of Venezuela
Warrants, expiring 4/15/20(g) 1,785 $ 0
--------------
Total Warrants
(cost $0) 99,000
--------------
SHORT-TERM INVESTMENTS-11.0%
Repurchase Agreement-6.3%
Merrill Lynch & Co. 4.17%, 12/30/05,
due 1/03/06 in the amount of
$119,413,831 (collateralized by
$38,430,000 FFCB 5.625%,
10/19/20; value-$38,054,000,
$12,905,000 FHLB, 3.625%,
1/15/08; value-$12,602,000,
$38,900,000 FHLB, 4.11%,
3/10/10; value-$37,518,000,
$32,500,000 FNMA, 3.875%,
11/17/08; value-$31,226,000)
(cost $119,400,000) U.S.$ 119,400 119,400,000
--------------
Time Deposit-0.6%
State Street Time Deposit
3.60%, 1/03/06
(cost $11,838,000) 11,838 11,838,000
--------------
U.S. Treasury Obligations-4.1%
U.S. Treasury Bills
3.495%, 1/19/06(a) 48,000 47,916,144
3.965%, 2/02/06(a)(h) 29,000 28,906,852
--------------
(cost $76,813,760) 76,822,996
--------------
Total Short-Term Investments
(cost $208,051,760) 208,060,996
--------------
Total Investments Before Security
Lending Collateral-161.1%
(cost $2,890,245,701) 3,043,078,079
--------------
INVESTMENT OF CASH COLLATERAL
FOR SECURITIES LOANED-3.2%
Short-Term Investment
UBS Private Money Market Fund, LLC
4.15%
(cost $62,078,054) 62,078,054 62,078,054
--------------
Total Investments-164.3%
(cost $2,952,323,755) 3,105,156,133
Other assets less liabilities-(64.3%) (1,215,230,530)
--------------
Net Assets-100.0% $1,889,925,603
==============
ACM INCOME FUND o 23
FINANCIAL FUTURES CONTRACTS SOLD (see Note C)
Value at
Number of Expiration Original December 31, Unrealized
Type Contracts Month Value 2005 Depreciation
-------------------------------------------------------------------------------
5 Year Swap March
Futures 3,830 2006 $399,365,375 $401,617,802 $ (2,252,427)
U.S. Treasury
5 Year March
Futures 521 2006 55,112,031 55,405,964 (293,933)
U.S. Treasury
10 Year March
Futures 4,576 2006 496,724,359 500,650,642 (3,926,283)
U.S. Treasury
20 Year March
Futures 194 2006 21,818,938 22,152,699 (333,761)
------------
$ (6,806,404)
FORWARD EXCHANGE CURRENCY CONTRACTS (see Note C)
U.S. $
Contract Value on U.S. $ Unrealized
Amount Origination Current Appreciation/
(000) Date Value (Depreciation)
-------------------------------------------------------------------------------
Buy Contracts:
British Pound,
settling 1/17/06 1,322 $ 2,334,393 $ 2,274,543 $ (59,850)
settling 2/21/06 153 267,765 262,526 (5,239)
Canadian Dollar,
settling 2/13/06 13,095 11,258,362 11,279,697 21,335
Euro,
settling 1/18/06 2,165 2,550,249 2,565,738 15,489
settling 2/15/06 3,564 4,277,680 4,230,450 (47,230)
Japanese Yen,
settling 2/22/06 987,427 8,535,041 8,428,690 (106,351)
Mexican Peso,
settling 2/21/06 159,970 14,800,000 14,951,824 151,824
South African Rand,
settling 1/17/06 3,261 485,594 514,662 29,068
South Korean Won,
settling 1/26/06 19,544,302 18,870,621 19,339,688 469,067
settling 2/24/06 19,107,210 18,464,640 18,914,222 449,582
Sale Contracts:
British Pound,
settling 2/27/06 10,588 18,443,425 18,213,780 229,645
Canadian Dollar,
settling 2/13/06 28,751 25,001,246 24,765,749 235,497
Euro,
settling 1/17/06 659 792,618 781,544 11,074
settling 1/18/06 6,715 8,155,581 7,958,406 197,175
settling 2/15/06 16,942 20,431,818 20,110,421 321,397
Mexican Peso,
settling 2/21/06 522,212 47,322,666 48,809,223 (1,486,557)
settling 3/22/06 519,512 47,804,222 48,435,168 (630,946)
Polish Zloty
settling 1/06/06 18,681 5,524,231 5,750,724 (226,493)
South Korean Won,
settling 2/24/06 18,733,040 18,400,000 18,543,831 (143,831)
24 o ACM INCOME FUND
CREDIT DEFAULT SWAP CONTRACTS (see Note C)
Notional Unrealized
Swap Counterparty & Amount Interest Termination Appreciation/
Referenced Obligation (000) Rate Date (Depreciation)
-------------------------------------------------------------------------------
Buy Contracts:
Citibank N.A.
Republic of Brazil
12.25%, 3/06/30 1,230 4.07% 8/20/15 $ (112,365)
Citigroup Global
Markets, Inc.
Republic of Brazil
12.25%, 3/06/30 920 4.14 4/20/10 (84,175)
Citigroup Global
Markets, Inc.
Republic of Colombia
8.375%, 2/15/27 1,900 3.02 1/20/10 (142,610)
Citigroup Global
Markets, Inc.
Republic of Hungary
4.50%, 2/06/13 10,250 0.50 11/26/13 (98,138)
Citigroup Global
Markets, Inc.
Republic of Hungary
4.50%, 1/29/14 10,000 0.30 10/20/15 74,067
Citigroup Global
Markets, Inc.
Republic of Philippines
10.625%, 3/16/25 3,360 5.60 3/20/14 (460,290)
Deutsche Bank AG
Republic of Brazil
12.25%, 3/06/30 920 4.02 4/20/10 (76,683)
J P Morgan Chase
Republic of Hungary
4.75%, 2/03/15 1,280 0.30 10/20/15 7,227
Sale Contracts:
Citibank N.A.
Republic of Brazil
12.25%, 3/06/30 1,910 3.09 8/20/10 101,398
Citigroup Global
Markets, Inc.
Gazprom OAO
5.875-10.50%,
4/25/07-4/28/34 10,000 1.04 10/20/10 (92,978)
Citigroup Global
Markets, Inc.
Republic of Brazil
12.25%, 3/06/30 1,932 1.98 4/20/07 43,692
Citigroup Global
Markets, Inc.
Republic of Brazil
12.25%, 3/06/30 6,275 4.40 5/20/06 134,772
Citigroup Global
Markets, Inc.
Republic of Colombia
8.375%, 2/15/27 3,750 1.13 1/20/07 48,524
Citigroup Global
Markets, Inc.
Republic of Philippines
10.625%, 3/16/25 3,360 4.95 3/20/09 356,647
Credit Suisse
First Boston
Republic of Brazil
12.25%, 3/06/30 600 6.90 6/20/07 55,530
Credit Suisse
First Boston
Republic of Venezuela
9.25%, 9/15/27 950 3.17 10/20/15 18,139
ACM INCOME FUND o 25
CREDIT DEFAULT SWAP CONTRACTS (see Note C) (continued)
Notional Unrealized
Swap Counterparty & Amount Interest Termination Appreciation/
Referenced Obligation (000) Rate Date (Depreciation)
-------------------------------------------------------------------------------
Sale Contracts
(continued):
Deutsche Bank AG
Republic of Brazil
12.25%, 3/06/30 1,932 1.90% 4/20/07 $ 38,936
J P Morgan Chase
Gazprom OAO
5.875-10.50%,
4/25/07-4/28/34 1,380 1.04 10/20/10 (12,272)
Morgan Stanley
Republic of Brazil
12.25%, 3/06/30 4,800 3.80 8/20/06 170,614
REVERSE REPURCHASE AGREEMENTS (see Note C)
Interest
Broker Rate Maturity Amount
------------------------------------------------------------------------
Barclays Securities 1.50% 1/11/06 $ 4,303,968
Merrill Lynch 3.40 1/03/06 36,280,666
Merrill Lynch 3.65 1/03/06 59,565,377
Merrill Lynch 3.70 1/03/06 23,263,471
Merrill Lynch 3.70 1/03/06 29,289,851
Merrill Lynch 3.70 1/03/06 48,014,858
Merrill Lynch 3.70 1/03/06 76,301,445
Merrill Lynch 3.70 1/03/06 78,000,847
Merrill Lynch 3.75 1/03/06 243,028,471
Merrill Lynch 3.82 1/03/06 18,127,259
------------
$616,176,213
26 o ACM INCOME FUND
* Represents entire or partial securities out on loan. See Note E for
securities lending information.
(a) Positions, or portion thereof, with an aggregate market value of
$1,030,545,581, have been segregated to collateralize the loan payable
outstanding.
(b) Positions, or portion thereof, with an aggregate market value of
$628,216,989, have been segregated to collateralize reverse repurchase
agreements.
(c) Positions, or portion thereof, with an aggregate market value of
$400,986,525 have been segregated to collateralize open forward exchange
currency contracts.
(d) Security is exempt from registration under Rule 144A of the Securities Act
of 1933. These securities are considered liquid and may be resold in
transactions exempt from registration, normally to qualified institutional
buyers. At December 31, 2005, the aggregate market value of these securities
amounted to $433,605,851 or 22.9% of net assets.
(e) Coupon changes periodically based upon a predetermined schedule. Stated
interest rate in effect at December 31, 2005.
(f) Indicates a security that has a zero coupon that remains in effect until a
predetermined date at which time the stated coupon rate becomes effective until
final maturity.
(g) Non-income producing security.
(h) Position, or portion thereof, with a market value of $8,971,092, has been
segregated to collateralize margin requirements for the open futures contracts.
Currency Abbreviations:
ARS - Argentine Peso
BRL - Brazilian Real
COP - Colombian Peso
DOP - Dominican Peso
EUR - Euro
GBP - British Pound
IDR - Indonesian Rupiah
JPY - Japanese Yen
KRW - South Korean Won
MXP - Mexican Peso
PEN - Peruvian Nuevo Sol
PLN - Polish Zloty
TRY - New Turkish Lira
U.S. $ - United States Dollar
Glossary of Terms:
DCB - Debt Conversion Bond
FFCB - Federal Farm Credit Bank
FHLB - Federal Home Loan Bank
FNMA - Federal National Mortgage Association
FRN - Floating Rate Note
LOC - Letter of Credit
PIK - Pay-In-Kind Payments
TBA - (To Be Assigned) - Securities are purchased on a forward
commitment with an approximate principal amount (generally
+/- 1.0%) and no definite maturity date. The actual principal
amount and maturity will be determined upon settlement when the
specific mortgage pools are assigned.
TIPS - Treasury Inflation Protected Security
ACM INCOME FUND o 27
COUNTRY BREAKDOWN
Percent of
Country Total Investments
-------------------------------------------------------------------
United States 76.14%
Brazil 5.34
Russia 4.65
Mexico 3.54
Turkey 3.05
Argentina 0.92
Philippines 0.70
Colombia 0.63
United Kingdom 0.63
South Korea 0.59
Venezuela 0.59
Peru 0.45
Germany 0.41
Japan 0.40
Indonesia 0.33
Canada 0.27
Uruguay 0.20
Romania 0.19
Poland 0.18
Panama 0.17
Kazakhstan 0.08
Nigeria 0.06
Dominican Republic 0.05
Jamaica 0.05
Ukraine 0.05
Australia 0.04
Ecuador 0.04
Lebanon 0.04
El Salvador 0.03
Hong Kong 0.03
Supranational 0.03
France 0.02
Italy 0.02
Spain 0.02
Bulgaria 0.01
Cayman Islands 0.01
Ireland 0.01
Netherlands 0.01
South Africa 0.01
Sweden 0.01
All data are as of December 31, 2005. The Fund's country breakdown is
expressed as a percentage of total investments and may vary over time.
28 o ACM INCOME FUND
STATEMENT OF ASSETS & LIABILITIES
December 31, 2005
Assets
Investments in securities, at value (cost $2,952,323,755--
including investment of cash collateral for securities
loaned of $62,078,054) $3,105,156,133(a)
Cash 10,957,688
Foreign cash, at value (cost $27,169,732) 27,151,315
Interest and dividends receivable 32,944,891
Unrealized appreciation on forward exchange currency
contracts 2,131,153
Receivable for variation margin on futures contracts 1,278,328
Unrealized appreciation on credit default swap contracts 1,049,546
Paydown receivable 5,732
Total assets 3,180,674,786
Liabilities
Reverse repurchase agreements 616,176,213
Loan payable 400,000,000
Payable for investment securities purchased 204,792,734
Payable for collateral received on securities loaned 62,078,054
Unrealized depreciation on forward exchange currency
contracts 2,706,497
Loan interest payable 2,374,251
Advisory fee payable 1,217,985
Unrealized depreciation on credit default swap contracts 1,079,511
Administrative fee payable 37,006
Accrued expenses 286,932
Total liabilities 1,290,749,183
Net Assets $1,889,925,603
Composition of Net Assets
Capital stock, at par $ 2,291,313
Additional paid-in capital 2,133,062,232
Distributions in excess of net investment income (46,747,088)
Accumulated net realized loss on investments and foreign
currency transactions (344,095,571)
Net unrealized appreciation of investments and foreign
currency denominated assets and liabilities 145,414,717
$1,889,925,603
Net Asset Value Per Share (based on 229,131,273
shares outstanding) $8.25
(a) Includes securities on loan with a value of $58,899,223 (see Note E).
See notes to financial statements.
ACM INCOME FUND o 29
STATEMENT OF OPERATIONS
Year Ended December 31, 2005
Investment Income
Interest $196,643,137
Dividends (net of foreign taxes withheld
of $32,151) 253,506 $196,896,643
Expenses
Advisory fee 12,868,827
Custodian 543,446
Administrative fee 376,793
Transfer agency 324,137
Printing 232,953
Registration fee 201,613
Legal 140,420
Audit 80,822
Directors' fees 38,067
Miscellaneous 83,763
Total expenses before interest expense 14,890,841
Interest expense 31,410,706
Total expenses 46,301,547
Net investment income 150,595,096
Realized and Unrealized Gain (Loss) on
Investment and Foreign Currency
Transactions
Net realized gain (loss) on:
Investment transactions 21,941,120
Swap contracts 588,786
Futures contracts 21,559,475
Written options 651,518
Foreign currency transactions (316,090)
Net change in unrealized
appreciation/depreciation of:
Investments (37,886,079)
Swap contracts (726,810)
Futures contracts (4,660,410)
Written options (5,438)
Foreign currency denominated assets
and liabilities (542,059)
Net gain on investment and foreign
currency transactions 604,013
Net increase in Net Assets from
Operations $151,199,109
See notes to financial statements.
30 o ACM INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
Year Ended Year Ended
December 31, December 31,
2005 2004
-------------------------------------------------------------------------------
Increase (Decrease) in Net Assets
from Operations
Net investment income $ 150,595,096 $ 153,564,319
Net realized gain on investment and
foreign currency transactions 44,424,809 40,631,704
Net change in unrealized
appreciation/depreciation of
investments and foreign currency
denominated assets and liabilities (43,820,796) (43,962,695)
Net increase in net assets from
operations 151,199,109 150,233,328
Dividends and Distributions to
Shareholders from
Net investment income (155,530,605) (177,629,178)
Common Stock Transactions
Reinvestment of dividends resulting
in the issuance of Common Stock 5,985,431 10,814,470
Total increase (decrease) 1,653,935 (16,581,380)
Net Assets
Beginning of period 1,888,271,668 1,904,853,048
End of period (including distributions
in excess of net investment income
of $46,747,088 and $44,489,589,
respectively) $1,889,925,603 $1,888,271,668
See notes to financial statements.
ACM INCOME FUND o 31
STATEMENT OF CASH FLOWS
Year Ended December 31, 2005
Increase (Decrease) in Cash from
Operating Activities:
Interest and dividends received $ 148,216,029
Interest expense paid (30,336,821)
Operating expenses paid (15,083,767)
Net increase in cash from operating
activities $102,795,441
Investing Activities:
Purchases of long-term investments (4,549,221,571)
Proceeds from disposition of long-term
investments 4,502,080,257
Purchases of short-term investments, net (66,296,173)
Premiums received on written options 484,680
Proceeds from swap contracts 588,786
Variation margin paid on futures
contracts 17,910,737
Net decrease in cash from investing
activities (94,453,284)
Financing Activities*:
Cash dividends paid (149,545,174)
Effect of exchange rate on cash (316,090)
Increase in reverse repurchase
agreements 167,267,873
Net increase in cash from financing
activities 17,406,609
Net increase in cash 25,748,766
Cash at beginning of period 12,360,237
Cash at end of period $ 38,109,003
Reconciliation of Net Increase in
Net Assets from Operations to
Net Increase in Cash from
Operating Activities:
Net increase in net assets from
operations $151,199,109
Adjustments:
Decrease in interest and dividend
receivable $ 1,173,079
Accretion of bond discount and
amortization of bond premium (49,853,693)
Increase in interest payable 1,073,885
Decrease in accrued expenses (192,926)
Net realized gain on investments
and foreign currency transactions (44,424,809)
Net change in unrealized
appreciation/depreciation of
investments and foreign currency
denominated assets and liabilities 43,820,796
Total adjustments (48,403,668)
Net Increase in Cash from Operating
Activities $102,795,441
* Non-cash financing activities not included herein consist of reinvestment
of dividends.
See notes to financial statements.
32 o ACM INCOME FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
NOTE A
Significant Accounting Policies
ACM Income Fund, Inc. (the "Fund") is registered under the Investment Company
Act of 1940 as a diversified, closed-end management investment company. The
financial statements have been prepared in conformity with U.S. generally
accepted accounting principles, which require management to make certain
estimates and assumptions that affect the reported amounts of assets and
liabilities in the financial statements and amounts of income and expenses
during the reporting period. Actual results could differ from those estimates.
The following is a summary of significant accounting policies followed by the
Fund.
1. Security Valuation
Portfolio securities are valued at their current market value determined on the
basis of market quotations or, if market quotations are not readily available
or are deemed unreliable, at "fair value" as determined in accordance with
procedures established by and under the general supervision of the Fund's Board
of Directors.
In general, the market value of securities which are readily available and
deemed reliable are determined as follows. Securities listed on a national
securities exchange or on a foreign securities exchange are valued at the last
sale price at the close of the exchange or foreign securities exchange. If
there has been no sale on such day, the securities are valued at the mean of
the closing bid and asked prices on such day. Securities listed on more than
one exchange are valued by reference to the principal exchange on which the
securities are traded; securities not listed on an exchange but traded on The
NASDAQ Stock Market, Inc. ("NASDAQ") are valued in accordance with the NASDAQ
Official Closing Price; listed put or call options are valued at the last sale
price. If there has been no sale on that day, such securities will be valued at
the closing bid prices on that day; open futures contracts and options thereon
are valued using the closing settlement price or, in the absence of such a
price, the most recent quoted bid price. If there are no quotations available
for the day of valuation, the last available closing settlement price is used;
securities traded in the over-the-counter market, ("OTC") (but excluding
securities traded on NASDAQ) are valued at the mean of the current bid and
asked prices as reported by the National Quotation Bureau or other comparable
sources; U.S. Government securities and other debt instruments having 60 days
or less remaining until maturity are valued at amortized cost if their original
maturity was 60 days or less; or by amortizing their fair value as of the 61st
day prior to maturity if their original term to maturity exceeded 60 days;
fixed-income securities, including mortgage backed and asset backed securities,
may be valued on the basis of prices provided by a pricing service or at a
price obtained from one or more of the major broker/dealers. In cases where
broker/dealer quotes are obtained, Alliance Capital Management, L.P. (the
"Adviser") may establish procedures whereby changes in market yields or spreads
are used to adjust, on a daily basis, a recently obtained quoted price on a
security;
ACM INCOME FUND o 33
and OTC and other derivatives are valued on the basis of a quoted bid price or
spread from a major broker/dealer in such security.
Securities for which market quotations are not readily available (including
restricted securities) or are deemed unreliable are valued at fair value.
Factors considered in making this determination may include, but are not
limited to, information obtained by contacting the issuer, analysts, analysis
of the issuer's financial statements or other available documents. In addition,
the Fund may use fair value pricing for securities primarily traded in non-U.S.
markets because most foreign markets close well before the Fund values its
securities at 4:00 p.m., Eastern Time. The earlier close of these foreign
markets gives rise to the possibility that significant events, including broad
market moves, may have occurred in the interim and may materially affect the
value of those securities.
2. Currency Translation
Assets and liabilities denominated in foreign currencies and commitments under
forward exchange currency contracts are translated into U.S. dollars at the
mean of the quoted bid and asked prices of such currencies against the U.S.
dollar. Purchases and sales of portfolio securities are translated into U.S.
dollars at the rates of exchange prevailing when such securities were acquired
or sold. Income and expenses are translated into U.S. dollars at the rates of
exchange prevailing when accrued.
Net realized gain or loss on foreign currency transactions represents foreign
exchange gains and losses from sales and maturities of foreign fixed income
investments, foreign currency exchange contracts, holding of foreign
currencies, currency gains or losses realized between the trade and settlement
dates on foreign investment transactions, and the difference between the
amounts of dividends, interest and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent amounts actually received or paid.
Net unrealized currency gains and losses from valuing foreign currency
denominated assets and liabilities at period end exchange rates are reflected
as a component of unrealized appreciation and depreciation of investments and
foreign currency denominated assets and liabilities.
3. Taxes
It is the Fund's policy to meet the requirements of the Internal Revenue Code
applicable to regulated investment companies and to distribute all of its
investment company taxable income and net realized gains, if any, to
shareholders. Therefore, no provisions for federal income or excise taxes are
required. The Fund may be subject to taxes imposed by countries in which it
invests. Such taxes are generally based on income and/or capital gains earned
or repatriated. Taxes are accrued and applied to net investment income, net
realized gains and net unrealized appreciation/depreciation as such income
and/or gains are earned.
34 o ACM INCOME FUND
4. Investment Income and Investment Transactions
Interest income is accrued daily. Investment transactions are accounted for on
the date the securities are purchased or sold. Investment gains and losses are
determined on the identified cost basis. The Fund amortizes premiums and
accretes discounts as adjustments to interest income.
5. Dividends and Distributions
Dividends and distributions to shareholders are recorded on the ex-dividend
date. Income and capital gains distributions are determined in accordance with
federal tax regulations and may differ from those determined in accordance with
U.S. generally accepted accounting principles. To the extent these differences
are permanent, such amounts are reclassified within the capital accounts based
on their federal tax basis treatment; temporary differences do not require such
reclassification.
6. Repurchase Agreements
The Fund's custodian or designated subcustodian will take control of securities
as collateral under repurchase agreements and determine on a daily basis that
the value of such securities are sufficient to cover the value of the
repurchase agreements. If the seller defaults and the value of collateral
declines, or if bankruptcy proceedings are commenced with respect to the seller
of the security, realization of collateral by the Fund may be delayed or
limited.
NOTE B
Advisory, Administrative Fees and Other Transactions with Affiliates
Under the terms of the investment advisory agreement (the "Advisory
Agreement"), the Fund pays the Adviser a monthly advisory fee in an amount
equal to the sum of 1/12th of .30 of 1% of the Fund's average weekly net assets
up to $250 million, 1/12th of .25 of 1% of the Fund's average weekly net assets
in excess of $250 million, and for the period January 1, 2005 through February
10, 2005, 5.25% of the Fund's daily gross income (i.e., income other than gains
from the sale of securities and foreign currency transactions or gains realized
from options and futures contracts less interest on money borrowed by the Fund)
accrued by the Fund during the month (the "Income Component"). For the period
January 1, 2005 through February 10, 2005, such monthly advisory fee may not
have exceeded in the aggregate 1/12th of 1% of the Fund's average weekly net
assets during each respective month (approximately 1% on an annual basis).
Effective February 11, 2005, the terms of the Advisory Agreement were amended
so that the Income Component of the advisory fee was reduced to 4.75% of the
Fund's daily gross income, as described above, and so that the monthly advisory
fee shall not exceed in the aggregate 1/12th of .95% of the Fund's average
weekly net assets during each respective month (approximately .95% on an annual
basis).
ACM INCOME FUND o 35
Under the terms of the Shareholder Inquiry Agency Agreement with Alliance
Global Investor Services, Inc. ("AGIS"), a wholly-owned subsidiary of the
Adviser, the Fund reimburses AGIS for costs relating to servicing phone
inquiries on behalf of the Fund. During the year ended December 31, 2005, the
Fund reimbursed AGIS $9,660 for such costs.
Under the terms of the Administrative Agreement, the Fund pays its
Administrator, Princeton Administrators, L.P., a fee at the annual rate of .02
of 1% of the Fund's average weekly net assets. Such fee is accrued daily and
paid monthly. Princeton Administrators, L.P. prepares financial and regulatory
reports for the Fund and provides other administrative services.
NOTE C
Investment Transactions
Purchases and sales of investment securities (excluding short-term investments)
for the year ended December 31, 2005 were as follows:
Purchases Sales
-------------------------------------------------------------------------------
Investment securities (excluding
U.S. government securities) $ 1,123,171,438 $ 989,912,315
U.S. government securities 3,469,353,326 3,505,947,850
The cost of investments for federal income tax purposes, gross unrealized
appreciation and unrealized depreciation (excluding foreign currency contracts,
futures contracts, written options and swap contracts) are as follows:
Cost $ 3,004,842,117
Gross unrealized appreciation $ 144,073,831
Gross unrealized depreciation (43,759,815)
Net unrealized appreciation $ 100,314,016
1. Financial Futures Contracts
The Fund may buy or sell financial futures contracts for the purpose of hedging
its portfolio against adverse affects of anticipated movements in the market.
The Fund bears the market risk that arises from changes in the value of these
financial instruments and the imperfect correlation between movements in the
price of the future contracts and movements in the price of the securities
hedged or used for cover.
At the time the Fund enters into a futures contract, the Fund deposits and
maintains as collateral an initial margin as required by the exchange on which
the transaction is effected. Pursuant to the contract, the Fund agrees to
receive from or pay to the broker an amount of cash equal to the daily
fluctuation in the value of the contract. Such receipts or payments are known
as variation margin and are recorded by the Fund as unrealized gains or losses.
Risks may arise from the potential inability of a counterparty to meet the
terms of the contract. When the
36 o ACM INCOME FUND
contract is closed, the Fund records a realized gain or loss equal to the
difference between the value of the contract at the time it was opened and the
time it was closed.
2. Forward Exchange Currency Contracts
The Fund may enter into forward exchange currency contracts in order to hedge
its exposure to changes in foreign currency exchange rates on its foreign
portfolio holdings and to hedge certain firm purchase and sales commitments
denominated in foreign currencies. A forward exchange currency contract is a
commitment to purchase or sell a foreign currency on a future date at a
negotiated forward rate. The gain or loss arising from the difference between
the original contract and the closing of such contract would be included in net
realized gain or loss on foreign currency transactions.
Fluctuations in the value of open forward exchange currency contracts are
recorded for financial reporting purposes as unrealized appreciation and
depreciation by the Fund.
The Fund's custodian will place and maintain cash not available for investment
or other liquid assets in a separate account of the Fund having a value at
least equal to the aggregate amount of the Fund's commitments under forward
exchange currency contracts entered into with respect to position hedges.
Risks may arise from the potential inability of a counterparty to meet the
terms of a contract and from unanticipated movements in the value of a foreign
currency relative to the U.S. dollar. The face or contract amount in U.S.
dollars, reflects the total exposure the Fund has in that particular currency
contract.
3. Option Transactions
For hedging and investment purposes, the Fund may purchase and write (sell) put
and call options on U.S. and foreign government securities and foreign
currencies that are traded on U.S. and foreign securities exchanges and
over-the-counter markets.
The risk associated with purchasing an option is that the Fund pays a premium
whether or not the option is exercised. Additionally, the Fund bears the risk
of loss of the premium and a change in market value should the counterparty not
perform under the contract. Put and call options purchased are accounted for in
the same manner as portfolio securities. The cost of securities acquired
through the exercise of call options is increased by the premiums paid. The
proceeds from securities sold through the exercise of put options are decreased
by the premiums paid.
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 unexer-
ACM INCOME FUND o 37
cised are recorded by the Fund on the expiration date as realized gains from
options written. The difference between the premium received and the amount
paid on effecting a closing purchase transaction, including brokerage
commissions, is also treated as a realized gain, or if the premium received is
less than the amount paid for the closing purchase transaction, as a realized
loss. If a call option is exercised, the premium received is added to the
proceeds from the sale of the underlying security or currency in determining
whether the Fund has realized a gain or loss. If a put option is exercised, the
premium received reduces the cost basis of the security or currency purchased
by the Fund. In writing an option, the Fund bears the market risk of an
unfavorable change in the price of the security or currency underlying the
written option. Exercise of an option written by the Fund could result in the
Fund selling or buying a security or currency at a price different from the
current market value.
Transactions in written options for the year ended December 31, 2005 were as
follows:
Number of
Contracts Premiums
(000) Received
-------------------------------------------------------------------------------
Options outstanding at
December 31, 2004 11,555 $ 166,838
Options written 26,112 413,473
Options terminated in closing purchase
transactions (15,448) (282,438)
Options expired (22,219) (297,873)
Options outstanding at
December 31, 2005 -0- $ -0-
4. Swap Agreements
The Fund may enter into swaps to hedge its exposure to interest rates and
credit risk or for investment purposes. A swap is an agreement that obligates
two parties to exchange a series of cash flows at specified intervals based
upon or calculated by reference to changes in specified prices or rates for a
specified amount of an underlying asset. The payment flows are usually netted
against each other, with the difference being paid by one party to the other.
Risks may arise as a result of the failure of the counterparty to the swap
contract to comply with the terms of the swap contract. The loss incurred by
the failure of a counterparty is generally limited to the net interim payment
to be received by 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.
38 o ACM INCOME FUND
As of January 1, 2004, the Fund has adopted the method of accounting for
interim payments on swap contracts in accordance with Financial Acounting
Standard Board Statement No. 133. The Fund accrues for the interim payments on
swap contracts on a daily basis, with the net amount recorded within unrealized
appreciation/depreciation of swap contracts on the statement of assets and
liabilities. Once the interim payments are settled in cash, the net amount is
recorded as realized gain/loss on swaps, in addition to realized gain/loss
recorded upon the termination of swap contracts on the statement of operations.
Prior to January 1, 2004, these interim payments were reflected within interest
income/expense in the statement of operations. Fluctuations in the value of
swap contracts are recorded as a component of net change in unrealized
appreciation/ depreciation of investments.
The Fund may enter into credit default swaps. The Fund may purchase credit
protection on the referenced obligation of the credit default swap ("Buy
Contract") or provide credit protection on the referenced obligation of the
credit default swap ("Sale Contract"). A sale/(buy) in a credit default swap
provides upon the occurrence of a credit event, as defined in the swap
agreement, for the Fund to buy/(sell) from/(to) the counterparty at the
notional amount (the "Notional Amount") and receive/(deliver) the principal
amount of the referenced obligation. If a credit event occurs, the maximum
payout amount for a Sale Contract is limited to the Notional Amount of the swap
contract ("Maximum Payout Amount"). During the term of the swap agreement, the
Fund receives/(pays) semi-annual fixed payments from/(to) the respective
counterparty, calculated at the agreed upon interest rate applied to the
Notional Amount. These interim payments are recorded within unrealized
appreciation/depreciation of swap contracts on the statement of assets and
liabilities.
Credit default swaps may involve greater risks than if a Fund had invested in
the referenced obligation directly. Credit default swaps are subject to general
market risk, liquidity risk, counterparty risk and credit risk. If the Fund is
a buyer and no credit event occurs, it will lose its investment. In addition,
if the Fund is a seller and a credit event occurs, the value of the referenced
obligation received by the Fund coupled with the periodic payments previously
received, may be less than the Maximum Payout Amount it pays to the buyer,
resulting in a loss to the Fund.
At December 31, 2005, the Fund had Sale Contracts outstanding with Maximum
Payout Amounts aggregating $36,889,000 with net unrealized appreciation of
$863,002 and terms ranging from 1 year to 10 years, as reflected in the
portfolio of investments.
In certain circumstances, the Fund may hold Sale Contracts on the same
referenced obligation and with the same counterparty it has purchased credit
protection, which may reduce its obligation to make payments on Sale Contracts,
if a credit event occurs. The Fund had Buy Contracts outstanding with a
ACM INCOME FUND o 39
Notional Amount of $8,330,000 with respect to the same referenced obligations
and same counterparties of certain Sale Contracts outstanding, which reduced
its obligation to make payments on Sale Contracts to $28,559,000 as of December
31, 2005.
5. Dollar Rolls
The Fund may enter into dollar rolls. Dollar rolls involve sales by the Fund of
securities for delivery in the current month and the Fund's simultaneously
contracting to repurchase substantially similar (same type and coupon)
securities on a specified future date. During the roll period, the Fund forgoes
principal and interest paid on the securities. The Fund is compensated by the
difference between the current sales price and the lower forward price for the
future purchase (often referred to as the "drop") as well as by the interest
earned on the cash proceeds of the initial sale. Dollar rolls involve the risk
that the market value of the securities the Fund is obligated to repurchase
under the agreement may decline below the repurchase price. Dollar rolls are
speculative techniques and may be considered to be borrowings by the Fund. For
the year ended December 31, 2005, the Fund earned income of $2,318,861 from
dollar roll transactions.
6. Reverse Repurchase Agreements
Under a reverse repurchase agreement, the Fund sells securities and agrees to
repurchase them at a mutually agreed upon date and price. At the time the Fund
enters into a reverse repurchase agreement, it will establish a segregated
account with the custodian containing liquid assets having a value at least
equal to the repurchase price.
For the year ended December 31, 2005, the average amount of reverse repurchase
agreements outstanding was $562,288,423 and the daily weighted average annual
interest rate was 3.09%.
NOTE D
Capital Stock
There are 300,000,000 shares of $.01 par value common stock authorized of which
229,131,273 shares were issued and outstanding at December 31, 2005. During the
year ended December 31, 2005 and December 31, 2004, the Fund issued 728,742 and
1,328,765 shares, respectively, in connection with the Fund's dividend
reinvestment plan.
NOTE E
Securities Lending
The Fund has entered into a securities lending agreement with AG Edwards &
Sons, Inc. (the "Lending Agent"). Under the terms of the agreement, the Lending
Agent, on behalf of the Fund, administers the lending of portfolio securities
to certain broker-dealers. In return, the Fund receives fee income from the
lending transactions or it retains a portion of interest on the investment of
any cash received as collateral. The Fund also continues to receive dividends
or
40 o ACM INCOME FUND
interest on the securities loaned. Unrealized gain or loss on the value of the
securities loaned that may occur during the term of the loan will be reflected
in the accounts of the Fund. All loans are continuously secured by collateral
exceeding the value of the securities loaned. All collateral consists of either
cash or U.S. Government securities. The Lending Agent may invest the cash
collateral received in accordance with the investment restrictions of the Fund
in one or more of the following investments: U.S. government or U.S. government
agency obligations, bank obligations, corporate debt obligations, asset-backed
securities, structured products, repurchase agreements and an eligible money
market fund. The Lending Agent will indemnify the Fund for any loss resulting
from a borrower's failure to return a loaned security when due. As of December
31, 2005, the Fund had loaned securities with a value of $58,899,223 and
received cash collateral of $62,078,054, which was invested in a money market
fund as included in the accompanying portfolio of investments. For the year
ended December 31, 2005, the Fund earned fee income of $280,133, which is
included in interest income in the accompanying statement of operations.
NOTE F
Bank Borrowing
The Fund participated in a credit facility for a commercial paper asset
securitization program with Societe Generale ("SG") as Administrative Agent,
and Barton Capital Corporation ("Barton") as lender. The credit facility has a
maximum limit of $400 million. Under the SG Program, Barton will fund advances
to the Fund through the issuance of commercial paper rated A-1+ by Standard &
Poor's Ratings Services and P-1 by Moody's Investors Service, Inc. The
collateral value must be at least 171% of outstanding borrowings. The
borrowings under the SG program are secured by the pledging of the Fund's
portfolio securities as collateral. The interest rate on the Fund's borrowings
is based on the interest rate carried by the commercial paper. The weighted
average annual interest rate was 3.31% and the average borrowing was
$400,000,000 for the year ended December 31, 2005. At December 31, 2005, the
interest rate in effect was 4.20% and the amount of borrowings outstanding was
$400,000,000.
NOTE G
Risks Involved in Investing in the Fund
Interest Rate Risk and Credit Risk--Interest rate risk is the risk that changes
in interest rates will affect the value of the Fund's investments in
fixed-income debt securities such as bonds or notes. Increases in interest
rates may cause the value of the Fund's investments to decline. Credit risk is
the risk that the issuer or guarantor of a debt security, or the counterparty
to a derivative contract, will be unable or unwilling to make timely principal
and/or interest payments, or to otherwise honor its obligations. The degree of
risk for a particular security may be reflected in its credit risk rating.
Credit risk is greater for medium quality and lower-rated securities.
Lower-rated debt securities and similar unrated securities (commonly known as
"junk bonds") have speculative elements or are predominantly speculative risks.
ACM INCOME FUND o 41
Foreign Securities Risk--Investing in securities of foreign companies or
foreign governments involves special risks which include changes in foreign
exchange rates and the possibility of future political and economic
developments which could adversely affect the value of such securities.
Moreover, securities of many foreign companies or foreign governments and their
markets may be less liquid and their prices more volatile than those of
comparable United States companies or the United States government.
The Fund invests in sovereign debt obligations of countries that are considered
emerging market countries at the time of purchase. Therefore, the Fund is
susceptible to governmental factors and economic and debt restructuring
developments adversely affecting the economies of these emerging market
countries. In addition, these debt obligations may be less liquid and subject
to greater volatility than debt obligations of more developed countries.
Indemnification Risk--In the ordinary course of business, the Fund enters into
contracts that contain a variety of indemnifications. The Fund's maximum
exposure under these arrangements is unknown. However, the Fund has not had
prior claims or losses pursuant to these indemnification provisions and expects
the risk of loss thereunder to be remote.
Leverage Risk--The Fund participates in a credit facility for the purpose of
utilizing investment leverage. The Fund may utilize additional leverage through
the investment techniques of reverse repurchase agreements and dollar rolls.
Reverse repurchase agreements and dollar rolls are speculative techniques and
are considered borrowings by the Fund.
The effect of leverage can realize shareholders higher returns than if the Fund
were not leveraged, and the use of leverage techniques can add to net asset
value (NAV). However, the risks of such techniques are potentially a higher
volatility of the NAV of the Common Stock, potentially more volatility in the
market value of the Common Stock and the relatively greater effect on the NAV
of the Common Stock caused by favorable or adverse changes in the currency
exchange rates. In addition, changes in the interest rate environment can
increase or decrease shareholder returns. The Fund maintains asset coverage of
at least 300%.
To the extent that the current interest rate on the Fund's indebtedness
approaches the net return on the leveraged portion of the Fund's investment
portfolio, then the benefit to the shareholders will be reduced. If the rate on
indebtedness were to exceed the net return on the same portion of the
portfolio, then this would result in a lower rate of return for the
shareholders. Similarly, the use of leverage in a declining market can advance
the decrease of the Fund's NAV more so than if the Fund were not leveraged,
which would likely be reflected in a greater decline in the market price for
shares of Common Stock than if the Fund
42 o ACM INCOME FUND
were not leveraged. In extreme cases, if the Fund's current investment income
were not sufficient to meet interest payments on indebtedness or if the Fund
failed to maintain the asset coverage required by the 1940 Act, then it could
be necessary for the Fund to liquidate certain investments at a time when it
may be disadvantageous to do so, thereby reducing its NAV.
NOTE H
Distributions to Shareholders
The tax character of distributions paid during the fiscal years ended December
31, 2005 and December 31, 2004 were as follows:
2005 2004
-------------------------------------------------------------------------------
Distributions paid from:
Ordinary income $ 155,530,605 $ 177,629,178
Total taxable distributions 155,530,605 177,629,178
Total distributions paid $ 155,530,605 $ 177,629,178
As of December 31, 2005, the components of accumulated earnings/(deficit) on a
tax basis were as follows:
Accumulated capital and other losses $ (346,510,828)(a)
Unrealized appreciation/(depreciation) 101,082,886(b)
Total accumulated earnings/(deficit) $ (245,427,942)
(a) On December 31, 2005, the Fund had a net capital loss carryforward of
$329,808,305 of which $67,634,579 expires in the year 2006, $67,513,083 expires
in the year 2007, $8,878,672 expires in the year 2008, $48,113,872 expires in
the year 2009 and $137,668,099 expires in the year 2010. To the extent future
capital gains are offset by capital loss carryforwards, such gains will not be
distributed. Based on certain provisions in the Internal Revenue Code, various
limitations regarding the future utilization of these carryforwards, brought
forward as a result of the Fund's merger with ACM Government Securities Fund
and ACM Government Spectrum Fund, may apply. During the fiscal year, the Fund
utilized capital loss carryforwards of $48,756,242. For the year ended December
31, 2005, the Fund deferred losses on straddles of $3,495,315. Net capital
losses incurred after October 31, and within the taxable year are deemed to
arise in the first business day of the Funds next taxable year. For the year
ended December 31, 2005, the Fund deferred to January 1, 2006 post October
capital losses of $12,170,401 and currency losses of $1,036,807.
(b) The difference between book-basis and tax-basis unrealized
appreciation/(depreciation) is attributable primarily to the tax deferral of
losses on wash sales, the difference between book and tax amortization methods
for premium, the realization for tax purposes of unrealized gains and losses on
certain derivative instruments and the difference between book and tax
treatment of swap income.
During the current fiscal year, permanent differences primarily due to the tax
treatment of foreign currency gains and losses, tax treatment of swap income,
tax treatment of paydown losses, tax treatment of bond premium and
distributions in excess of net investment income, resulted in a net decrease in
distributions in excess of net investment income, a net increase in accumulated
net realized loss
ACM INCOME FUND o 43
on investment and foreign currency transactions and a net decrease to
additional paid-in capital. These reclassifications had no effect on net assets.
NOTE I
Legal Proceedings
As has been previously reported, the staff of the U.S. Securities and Exchange
Commission ("SEC") and the Office of the New York Attorney General ("NYAG")
have been investigating practices in the mutual fund industry identified as
"market timing" and "late trading" of mutual fund shares. Certain other
regulatory authorities have also been conducting investigations into these
practices within the industry and have requested that the Adviser provide
information to them. The Adviser has been cooperating and will continue to
cooperate with all of these authorities. The shares of the Fund are not
redeemable by the Fund, but are traded on an exchange at prices established by
the market. Accordingly, the Fund and its shareholders are not subject to the
market timing and late trading practices that are the subject of the
investigations mentioned above or the lawsuits described below. Please see
below for a description of the agreements reached by the Adviser and the SEC
and NYAG in connection with the investigations mentioned above.
Numerous lawsuits have been filed against the Adviser and certain other
defendants in which plaintiffs make claims purportedly based on or related to
the same practices that are the subject of the SEC and NYAG investigations
referred to above. Some of these lawsuits name the Fund as a party. The
lawsuits are now pending in the United States District Court for the District
of Maryland pursuant to a ruling by the Judicial Panel on Multidistrict
Litigation transferring and centralizing all of the mutual funds involving
market and late trading in the District of Maryland (the "Mutual Fund MDL").
Management of the Adviser believes that these private lawsuits are not likely
to have a material adverse effect on the results of operations or financial
condition of the Fund.
On December 18, 2003, the Adviser confirmed that it had reached terms with the
SEC and the NYAG for the resolution of regulatory claims relating to the
practice of "market timing" mutual fund shares in some of the AllianceBernstein
Mutual Funds. The agreement with the SEC is reflected in an Order of the
Commission ("SEC Order"). The agreement with the NYAG is memorialized in an
Assurance of Discontinuation dated September 1, 2004 ("NYAG Order"). Among the
key provisions of these agreements are the following:
(i) The Adviser agreed to establish a $250 million fund (the "Reimbursement
Fund") to compensate mutual fund shareholders for the adverse effects of market
timing attributable to market timing relationships described in the SEC Order.
According to the SEC Order, the Reimbursement Fund is to be paid, in order of
priority, to fund investors based on (i) their aliquot share of losses suffered
by the fund due to market timing, and (ii) a proportionate
44 o ACM INCOME FUND
share of advisory fees paid by such fund during the period of such market
timing;
(ii) The Adviser agreed to reduce the advisory fees it receives from some of
the AllianceBernstein long-term, open-end retail funds, commencing January 1,
2004, for a period of at least five years; and
(iii) The Adviser agreed to implement changes to its governance and compliance
procedures. Additionally, the SEC Order contemplates that the Adviser's
registered investment company clients, including the Fund, will introduce
governance and compliance changes.
The shares of the Fund are not redeemable by the Fund, but are traded on an
exchange at prices established by the market. Accordingly, the Fund and its
shareholders are not subject to the market timing practices described in the
SEC Order and are not expected to participate in the Reimbursement Fund. Since
the Fund is a closed-end fund, it will not have its advisory fee reduced
pursuant to the terms of the agreements mentioned above.
On February 10, 2004, the Adviser received (i) a subpoena duces tecum from the
Office of the Attorney General of the State of West Virginia and (ii) a request
for information from West Virginia's Office of the State Auditor, Securities
Commission (the "West Virginia Securities Commission") (together, the
"Information Requests"). Both Information Requests require the Adviser to
produce documents concerning, among other things, any market timing or late
trading in the Adviser's sponsored mutual funds. The Adviser responded to the
Information Requests and has been cooperating fully with the investigation.
On April 11, 2005, a complaint entitled The Attorney General of the State of
West Virginia v. AIM Advisors, Inc., et al. ("WVAG Complaint") was filed
against the Adviser, Alliance Capital Management Holding L.P. ("Alliance
Holding"), and various other defendants not affiliated with the Adviser. The
WVAG Complaint was filed in the Circuit Court of Marshall County, West Virginia
by the Attorney General of the State of West Virginia. The WVAG Complaint makes
factual allegations generally similar to those in certain of the complaints
related to the lawsuits discussed above. On May 31, 2005, defendants removed
the WVAG Complaint to the United States District Court for the Northern
District of West Virginia. On July 12, 2005, plaintiff moved to remand. On
October 19, 2005, the WVAG Complaint was transferred to the Mutual fund MDL.
On August 30, 2005, the deputy commissioner of securities of the West Virginia
Securities Commission signed a "Summary Order to Cease and Desist, and Notice
of Right to Hearing" addressed to the Adviser and Alliance Holding. The Summary
Order claims that the Adviser and Alliance Holding violated the West Virginia
Uniform Securities Act, and makes factual allegations generally similar
ACM INCOME FUND o 45
to those in the SEC Order and the NYAG Order. On January 26, 2006, the Adviser,
Alliance Holding, and various unaffiliated defendants filed a Petition for Writ
of Prohibition and Order Suspending Proceedings in West Virginia state court
seeking to vacate the Summary Order and for other relief. The Adviser intends
to vigorously defend against the allegations in the WVAG Complaint.
On June 22, 2004, a purported class action complaint entitled Aucoin, et al. v.
Alliance Capital Management L.P., et al. ("Aucoin Complaint") was filed against
the Adviser, Alliance Capital Management Holding L.P., Alliance Capital
Management Corporation, AXA Financial, Inc., AllianceBernstein Investment
Research & Management, Inc., certain current and former directors of the
AllianceBernstein Mutual Funds, and unnamed Doe defendants. The Aucoin
Complaint names certain of the AllianceBernstein mutual funds as nominal
defendants. The Fund was not named as a defendant in the Aucion Compliant. The
Aucoin Complaint was filed in the United States District Court for the Southern
District of New York by an alleged shareholder of an AllianceBernstein mutual
fund. The Aucoin Complaint alleges, among other things, (i) that certain of the
defendants improperly authorized the payment of excessive commissions and other
fees from fund assets to broker-dealers in exchange for preferential marketing
services, (ii) that certain of the defendants misrepresented and omitted from
registration statements and other reports material facts concerning such
payments, and (iii) that certain defendants caused such conduct as control
persons of other defendants. The Aucoin Complaint asserts claims for violation
of Sections 34(b), 36(b) and 48(a) of the Investment Company Act, Sections 206
and 215 of the Advisers Act, breach of common law fiduciary duties, and aiding
and abetting breaches of common law fiduciary duties. Plaintiffs seek an
unspecified amount of compensatory damages and punitive damages, rescission of
their contracts with the Adviser, including recovery of all fees paid to the
Adviser pursuant to such contracts, an accounting of all fund-related fees,
commissions and soft dollar payments, and restitution of all unlawfully or
discriminatorily obtained fees and expenses.
Since June 22, 2004, nine additional lawsuits making factual allegations
substantially similar to those in the Aucoin Complaint were filed against the
Adviser and certain other defendants. All nine of the lawsuits (i) were brought
as class actions filed in the United States District Court for the Southern
District of New York, (ii) assert claims substantially identical to the Aucoin
Complaint, and (iii) are brought on behalf of shareholders of the Funds.
On February 2, 2005, plaintiffs filed a consolidated amended class action
complaint ("Aucoin Consolidated Amended Complaint") that asserts claims
substantially similar to the Aucoin Complaint and the nine additional lawsuits
referenced above. On October 19, 2005, the District Court dismissed each of the
claims set forth in the Aucoin Consolidated Amended Complaint, except for
plaintiff's claim under Section 36(b) of the Investment Company Act. On January
11,
46 o ACM INCOME FUND
2006, the District Court granted defendants' motion for reconsideration and
dismissed the remaining Section 36(b) claim. Plaintiffs have moved for leave to
amend their consolidated complaint.
The Adviser believes that these matters are not likely to have a material
adverse effect on the Fund or the Adviser's ability to perform advisory
services relating to the Fund.
ACM INCOME FUND o 47
FINANCIAL HIGHLIGHTS
Selected Data For A Share Of Common Stock Outstanding Throughout Each Period
Year Ended December 31,
-----------------------------------------------------------------
2005 2004(a) 2003 2002 2001(b)
----------- ----------- ----------- ----------- -----------
Net asset value, beginning of period $8.27 $8.39 $7.91 $7.87 $8.45
Income From Investment Operations
Net investment income(c) .66 .67 .76 .89 .76
Net realized and unrealized
gain (loss) on investment
and foreign currency
transactions -0- (.01) .59 .07 (.11)
Net increase in net asset value
from operations .66 .66 1.35 .96 .65
Less: Dividends and Distributions
Dividends from net investment
income (.68) (.78) (.87) (.85) (.77)
Distributions in excess of net
investment income -0- -0- -0- -0- (.07)
Tax return of capital -0- -0- -0- (.07) -0-
Total dividends and
distributions (.68) (.78) (.87) (.92) (.84)
Less: Fund Share Transactions
Dilutive effect of rights offering -0- -0- -0- -0- (.32)
Offering costs charged to
paid-in-capital in
excess of par -0- -0- -0- -0- (.07)
Total fund share transactions -0- -0- -0- -0- (.39)
Net asset value, end of period $8.25 $8.27 $8.39 $7.91 $7.87
Market value, end of period $8.28 $8.16 $8.58 $8.46 $7.30
Premium/(Discount) .36% (1.33)% 2.26% 6.95% (7.24)%
Total Investment Return
Total investment return
based on:(d)
Market value 10.18% 4.63% 12.50% 30.60% 7.80%
Net asset value 8.32% 8.44% 17.66% 13.27% 3.11%
Ratios/Supplemental Data
Net assets, end of period
(000's omitted) $1,889,926 $1,888,272 $1,904,853 $1,785,164 $1,764,895
Ratio to average net assets of:
Expenses 2.46% 1.66% 1.67% 1.87% 2.31%
Expenses, excluding interest
expense(e) .79% .98% 1.10% 1.26% 1.18%
Net investment income 7.99% 8.27% 9.28% 11.69% 9.33%
Portfolio turnover rate 160% 139% 276% 414% 676%
Asset coverage ratio 443% 492% 559% 376% 379%
Bank borrowing outstanding
(in millions) $400 $400 $400 $400 $300
See footnote summary on page 49.
48 o ACM INCOME FUND
(a) As of January 1 2004, the Fund has adopted the method of accounting for
interim payments on swap contracts in accordance with Financial Accounting
Standards Board Statement No. 133. These interim payments are reflected within
net realized and unrealized gain (loss) on swap contracts, however prior to
January 1 2004, these interim payments were reflected within interest
income/expense on the statement of operations. The effect of this change for
the year ended December 31, 2004, was to decrease net investment income per
share and increase net realized and unrealized gain (loss) on investment
transactions. The effect on the per share amounts was less than $0.005. The
ratio of net investment income to average net assets was decreased by 0.02%.
(b) As required, effective January 1, 2001, the Fund has adopted the
provisions of the AICPA Audit and Accounting Guide for 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%.
(c) Based on average shares outstanding.
(d) Total investment return is calculated assuming a purchase of common stock
on the opening of the first day and a sale of common stock on the closing of
the last day of each period reported. Dividends and distributions, if any, are
assumed for purposes of this calculation, to be reinvested at prices obtained
under the Fund's Dividend Reinvestment Plan. Generally, total investment return
based on net asset value will be higher than total investment return based on
market value in periods where there is an increase in the discount or a
decrease in the premium of the market value to the net asset value from the
beginning to the end of such periods. Conversely, total investment return based
on net asset value will be lower than total investment return based on market
value in periods where there is a decrease in the discount or an increase in
the premium of the market value to the net asset value from the beginning to
the end of such periods. Total investment return calculated for a period of
less than one year is not annualized.
(e) Excludes net interest expense of 1.67%, .68%, .57%, .61% and 1.13%,
respectively, on borrowings (see Notes C and F).
ACM INCOME FUND o 49
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of ACM Income Fund, Inc.
We have audited the accompanying statement of assets and liabilities of ACM
Income Fund, Inc. (the "Fund"), including the portfolio of investments, as of
December 31, 2005, and the related statements of operations and cash flows for
the year then ended, the statements of changes in net assets for each of the
two years in the period then ended, and the financial highlights for each of
the five years in the period then ended. 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 the standards of the Public Company
Accounting Oversight Board (United States). Those standard 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. We were not engaged to perform an audit of the Fund's internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Fund's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights, assessing the accounting
principles used and significcant estimates made by management, and evaluating
the overall financial statement presentation. Our procedures included
confirmation of securities owned as of December 31, 2005, by correspondence
with the custodian and others, or by other appropriate auditing procedures
where replies from others were not received. 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 the
ACM Income Fund, Inc. at December 31, 2005, the results of its operations and
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 five years in the period then ended, in conformity with U.S. generally
accepted accounting principles.
/s/ Ernst & Young LLP
New York, New York
February 17, 2006
TAX INFORMATION
(unaudited)
59% of the ordinary income dividends paid by the Fund during the fiscal year
ended December 31, 2005, qualify as "interest related dividends" for non-U.S.
shareholders.
50 o ACM INCOME FUND
ADDITIONAL INFORMATION
(unaudited)
Shareholders whose shares are registered in their own names may elect to be
participants in the Dividend Reinvestment and Cash Purchase Plan (the "Plan"),
pursuant to which dividends and capital gain distributions to shareholders will
be paid in or reinvested in additional shares of the Fund. Equiserve Trust
Company, N.A. (the "Agent") will act as agent for participants under the Plan.
Shareholders whose shares are held in the name of a broker or nominee should
contact such broker or nominee to determine whether or how they may participate
in the Plan.
If the Board declares an income distribution or determines to make a capital
gain distribution payable either in shares or in cash, as holders of the Common
Stock may have elected, non-participants in the Plan will receive cash and
participants in the Plan will receive the equivalent in shares of Common Stock
of the Fund valued as follows:
(i) If the shares of Common Stock are trading at net asset value or at a
premium above net asset value at the time of valuation, the Fund will issue new
shares at the greater of net asset value or 95% of the then current market
price.
(ii) If the shares of Common Stock are trading at a discount from net
asset value at the time of valuation, the Agent will receive the dividend or
distribution in cash and apply it to the purchase of the Fund's shares of
Common Stock in the open market on the New York Stock Exchange or elsewhere,
for the participants' accounts. Such purchases will be made on or shortly after
the payment date for such dividend or distribution and in no event more than 30
days after such date except where temporary curtailment or suspension of
purchase is necessary to comply with Federal securities laws. If, before the
Agent has completed its purchases, the market price exceeds the net asset value
of a share of Common Stock, the average purchase price per share paid by the
Agent may exceed the net asset value of the Fund's shares of Common Stock,
resulting in the acquisition of fewer shares than if the dividend or
distribution had been paid in shares issued by the Fund.
The Agent will maintain all shareholders' accounts in the Plan and furnish
written confirmation of all transactions in the account, including information
needed by shareholders for tax records. Shares in the account of each Plan
participant will be held by the Agent in non-certificate form in the name of
the participant, and each shareholder's proxy will include those shares
purchased or received pursuant to the Plan.
There will be no charges with respect to shares issued directly by the Fund to
satisfy the dividend reinvestment requirements. However, each participant will
pay a pro-rata share of brokerage commissions incurred with respect to the
Agent's open market purchases of shares. In each case, the cost per share of
shares purchased for each shareholder's account will be the average cost,
including brokerage commissions, of any shares purchased in the open market
plus the cost of any shares issued by the Fund.
ACM INCOME FUND o 51
The automatic reinvestment of dividends and distributions will not relieve
participants of any income taxes that may be payable (or required to be
withheld) on dividends and distributions.
Experience under the Plan may indicate that changes are desirable. Accordingly,
the Fund reserves the right to amend or terminate the Plan as applied to any
voluntary cash payments made and any dividend or distribution paid subsequent
to written notice of the change sent to participants in the Plan at least 90
days before the record date for such dividend or distribution. The Plan may
also be amended or terminated by the Agent on at least 90 days written notice
to participants in the Plan. All correspondence concerning the Plan should be
directed to the Agent at Equiserve Trust Company, N.A., P.O. Box 43011,
Providence, RI 02940-3011.
Since the filing of the most recent amendment to the Fund's registration
statement with the Securities and Exchange Commission, there have been (i) no
material changes in the Fund's investment objectives or policies, (ii) no
changes to the Fund's charter or by-laws that would delay or prevent a change
of control of the Fund's, (iii) no material changes in the principal risk
factors associated with investment in the Fund.
52 o ACM INCOME FUND
BOARD OF DIRECTORS
William H. Foulk, Jr.(1),(2), Chairman
Marc O. Mayer, President
Ruth Block(1)
David H. Dievler(1)
John H. Dobkin(1)
Michael J. Downey(1)
D. James Guzy(1)
Marshall C. Turner, Jr.(1)
OFFICERS
Philip L. Kirstein, Senior Vice President and Independent Compliance Officer
Andrew M. Aran(3), Vice President
Paul J. DeNoon(3), Vice President
Michael L. Mon, Vice President
Douglas J. Peebles(3), Vice President
Michael A. Snyder(3), Vice President
Kewjin Yuoh(3), Vice President
Emilie D. Wrapp, Secretary
Mark D. Gersten, Treasurer and Chief Financial Officer
Vincent S. Noto, Controller
Administrator
Princeton Administrators, L.P.
P.O. Box 9095
Princeton, NJ 08543-9095
Dividend Paying Agent, Transfer Agent and Registrar
Equiserve Trust Company, N.A.
P.O. Box 43011
Providence, RI 02940-3011
Custodian
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
Independent Registered Public Accounting Firm
Ernst & Young LLP
5 Times Square
New York, NY 10036
Legal Counsel
Seward & Kissel LLP
One Battery Park Plaza
New York, NY 10004
(1) Member of the Audit Committee, the Governance and Nominating Committee and
the Independent Directors Committee.
(2) Member of the Fair Value Pricing Committee.
(3) The day-to-day management of and investment decisions for the Fund are
made by a team of investment professionals consisting of Messrs. Aran, DeNoon,
Peebles, Snyder and Yuoh.
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940 that the Fund may purchase from time to time at market
prices shares of its Common Stock in the open market.
This report, including the financial statements herein, is transmitted to
the shareholders of ACM Income Fund for their information. The financial
information included herein is taken from the records of the Fund. This is not
a prospectus, circular or representation intended for use in the purchase of
shares of the Fund or any securities mentioned in this report.
Annual Certifications-As required, on April 21, 2005, the Fund submitted
to the New York Stock Exchange ("NYSE") the annual certification of the Fund's
Chief Executive Officer certifying that he is not aware of any violation of the
NYSE's Corporate Governance listing standards. The Fund also has included the
certifications of the Fund's Chief Executive Officer and Chief Financial
Officer required by Section 302 of the Sarbanes-Oxley Act of 2002 as exhibits
to the Fund's Form N-CSR filed with the Securities and Exchange Commission for
the annual period.
ACM INCOME FUND o 53
MANAGEMENT OF THE FUND
Board of Directors Information
The business and affairs of the Fund are managed under the direction of the
Board of Directors. Certain information concerning the Fund's Directors is set
forth below.
PORTFOLIOS
IN FUND OTHER
NAME, ADDRESS, PRINCIPAL COMPLEX DIRECTORSHIP
DATE OF BIRTH OCCUPATION(S) OVERSEEN BY HELD BY
(FIRST YEAR ELECTED*) DURING PAST 5 YEARS DIRECTOR DIRECTOR
----------------------------------------------------------------------------------------------------------------------------
INTERESTED DIRECTOR
Marc O. Mayer, + Executive Vice President of Alliance 106 SCB Partners,
1345 Avenue of the Capital Management Corporation Inc.; and
Americas ("ACMC") since 2001 and Executive SCB, Inc.
New York, NY 10105 Managing Director of AllianceBernstein
10/2/57 Investment Research and Manage-
(2003) ment, Inc. ("ABIRM") since 2003;
prior thereto, Chief Executive Officer
of Sanford C. Bernstein & Co., LLC
(institutional research and brokerage
arm of Bernstein & Co. LLC ("SCB
& Co.")) and its predecessor since
prior to 2001.
DISINTERESTED DIRECTORS
William H. Foulk, Jr., #, ++ Investment Adviser and an Inde- 108 None
2 Sound View Drive pendent Consultant. He was for-
Suite 100 merly Senior Manager of Barrett
Greenwich, CT 06830 Associates, Inc., a registered invest-
9/7/32 ment adviser, with which he had
(1998) been associated since prior to 2001.
Chairman of the Board He was formerly Deputy Comptroller
and Chief Investment Officer of the
State of New York and, prior thereto,
Chief Investment Officer of the New
York Bank for Savings.
Ruth Block, #, ** Formerly Executive Vice President 106 None
500 SE Mizner Blvd. and Chief Insurance Officer of The
Boca Raton, FL 33432 Equitable Life Assurance Society of
11/7/30 the United States; Chairman and Chief
(1987) Executive Officer of Evlico (insurance);
Director of Avon, BP (oil and gas),
Ecolab Incorporated (specialty
chemicals), Tandem Financial Group
and Donaldson, Lufkin & Jenrette
Securities Corporation; Governor
at Large, National Association of
Securities Dealers,Inc.
54 o ACM INCOME FUND
PORTFOLIOS
IN FUND OTHER
NAME, ADDRESS, PRINCIPAL COMPLEX DIRECTORSHIP
DATE OF BIRTH OCCUPATION(S) OVERSEEN BY HELD BY
(FIRST YEAR ELECTED*) DURING PAST 5 YEARS DIRECTOR DIRECTOR
----------------------------------------------------------------------------------------------------------------------------
DISINTERESTED DIRECTORS
(continued)
David H. Dievler, # Independent Consultant. Until 107 None
P.O. Box 167 December 1994, he was Senior
Spring Lake, NJ 07762 Vice President of ACMC responsible
10/23/29 for mutual fund administration. Prior
(1987) to joining ACMC in 1984, he was
Chief Financial Officer of Eberstadt
Asset Management since 1968.
Prior to that, he was a Senior
Manager at Price Waterhouse &
Co. Member of the American Institute
of Certified Public Accountants
since 1953.
John H. Dobkin, # Consultant. Formerly President 106 None
P.O. Box 12 of Save Venice, Inc. (preservation
Annandale, NY 12504 organization) from 2001-2002, a
2/19/42 Senior Advisor from June 1999-
(1998) June 2000 and President of Historic
Hudson Valley (historic preservation)
from December 1989-May 1999.
Previously, Director of the National
Academy of Design and during
1988-1992, Director and Chairman
of the Audit Committee of ACMC.
Michael J. Downey, # Consultant since January 2004. 106 Asia Pacific
c/o Alliance Capital Formerly managing partner of Fund, Inc.;
Management L.P. Lexington Capital, LLC (investment and The
Attention:Philip L. Kirstein advisory firm) from December 1997 Merger Fund
1345 Avenue of the until December 2003. Prior thereto,
Americas Chairman and CEO of Prudential
New York, NY 10105 Mutual Fund Management from 1987
1/26/44 to 1993.
(2005)
ACM INCOME FUND o 55
PORTFOLIOS
IN FUND OTHER
NAME, ADDRESS, PRINCIPAL COMPLEX DIRECTORSHIP
DATE OF BIRTH OCCUPATION(S) OVERSEEN BY HELD BY
(FIRST YEAR ELECTED*) DURING PAST 5 YEARS DIRECTOR DIRECTOR
----------------------------------------------------------------------------------------------------------------------------
DISINTERESTED DIRECTORS
(continued)
D. James Guzy, # Chairman of the Board of PLX 106 Intel
P.O. Box 128 Technology (semi-conductors) Corporation,
Glenbrook, NV 89413 and of SRC Computers Inc., with Cirrus Logic
3/7/36 which he has been associated since Corporation,
(2005) prior to 2001. He is also President Novellus
of the Arbor Company (private Corporation,
family investments). Micro
Component
Technology,
the Davis
Selected
Advisors
Group of
Mutual Funds
and
LogicVision
Marshall C. Turner, Jr., # CEO of Toppan Photomasks, Inc. 106 Toppan
220 Montgomery Street (semi-conductor manufacturing Photomasks,
Penthouse 10 services), Austin, Texas, from 2003 Inc., The
San Francisco, CA to present, and President since George Lucas
94104-3402 company acquired in 2005, and Educational
10/10/41 name changed from DuPont Foundation,
(2005) Photomasks. Prior to the company's Chairman
sale in 2005, he was Chairman and of the Board
CEO. He has also been Principal of of the
Turner Venture Associates since 1993. Smithsonian's
National
Museum of
of Natural
History
* There is no stated term of office for the Fund's Directors.
** Ms. Block was an "interested person", as defined in the 1940 Act, from
July 22, 1992 until October 21, 2004 by reason of her ownership of equity
securities of a control person of the Adviser. Ms. Block received shares of The
Equitable Companies Incorporated("Equitable") as part of the demutualization of
The Equitable Life Assurance Society of the United States in 1992. Ms. Block's
Equitable shares were subsequently converted through a corporate action into
American Depositary Shares of AXA, which were sold for approximately $2,400 on
October 21, 2004. Equitable and AXA are control persons of the Adviser.
# Member of the Audit Committee, the Governance and Nominating Committee and
the Independent Directors Committee.
+ Mr. Mayer is an "interested person", as defined in the 1940 Act, due to
his position as an Executive Vice President of ACMC.
++ Member of the Fair Value Pricing Committee.
56 o ACM INCOME FUND
Officer Information
Certain information concerning the Fund's Officers is listed below.
NAME, ADDRESS* POSITION(S) PRINCIPAL OCCUPATION
AND DATE OF BIRTH HELD WITH FUND DURING PAST 5 YEARS
----------------------------------------------------------------------------------------------------
Marc O. Mayer President and Chief See biography above.
10/2/57 Executive Officer
Philip L. Kirstein Senior Vice President Senior Vice President and
5/29/45 and Independent Independent Compliance Officer of the
Compliance Officer AllianceBernstein Funds, with which he
has been associated since October
2004. Prior thereto, he was Of Counsel
to Kirkpatrick & Lockhart, LLP from
October 2003 to October 2004, and
General Counsel of Merrill Lynch
Investment Managers, L.P. since prior
to 2001 until March 2003.
Andrew M. Aran Vice President Senior Vice President of ACMC**, with
4/24/57 which he has been associated since
prior to 2001.
Paul J. DeNoon Vice President Senior Vice President of ACMC**, with
4/18/62 which he has been associated since
prior to 2001.
Michael L. Mon Vice President Vice President of ACMC**, with which
3/2/69 he has been associated since prior to
2001.
Douglas J. Peebles Vice President Executive Vice President of ACMC**,
8/10/65 with which he has been associated
since prior to 2001.
Michael A. Snyder Vice President Senior Vice President of ACMC**
4/18/62 since May 2001 and Director of the
High Yield Portfolio Management Team.
Prior thereto, he was a Managing
Director in the high yield asset
management group at Donaldson,
Lufkin & Jenrette Securities Corporation
since prior to 2001.
Kewjin Yuoh Vice President Vice President of ACMC** since
3/11/71 March 2003. Prior thereto, he was a
Vice President of Credit Suisse Asset
Management since prior to 2001.
Emilie D. Wrapp Secretary Senior Vice President, Assistant
11/13/55 General Counsel and Assistant
Secretary of ABIRM**, with which she
has been associated since prior to
2001.
ACM INCOME FUND o 57
NAME, ADDRESS* POSITION(S) PRINCIPAL OCCUPATION
AND DATE OF BIRTH HELD WITH FUND DURING PAST 5 YEARS
----------------------------------------------------------------------------------------------------
Mark D. Gersten Treasurer and Chief Senior Vice President of Alliance
10/4/50 Financial Officer Global Investor Services, Inc.
("AGIS")** and a Vice President of
ABIRM**, with which he has been
associated since prior to 2001.
Vincent S. Noto Controller Vice President of AGIS**, with which
12/14/64 he has been associated since prior to
2001.
* The address for each of the Fund's officers is 1345 Avenue of the
Americas, New York, NY 10105.
** ACMC, ABIRM, AGIS and SCB&Co. are affiliates of the Fund.
58 o ACM INCOME FUND
INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE FUND'S ADVISORY AGREEMENT
The Fund's disinterested directors (the "directors") unanimously approved the
continuance of the Advisory Agreement between the Fund and the Adviser at a
meeting held on December 14, 2005.
In preparation for the meeting, the directors had requested from the Adviser
and evaluated extensive materials, including performance and expense
information for other investment companies with similar investment objectives
as the Fund derived from data compiled by Lipper Inc. ("Lipper"). Prior to
voting, the directors reviewed the proposed continuance of the Advisory
Agreement with management and with experienced counsel who are independent of
the Adviser and received a memorandum from such counsel discussing the legal
standards for their consideration of the proposed continuance. The directors
also discussed the proposed continuance in four private sessions at which only
the directors, their independent counsel and the Fund's Independent Compliance
Officer were present. In reaching their determinations relating to continuance
of the Advisory Agreement, the directors considered all factors they believed
relevant, including the following:
1. information comparing the performance of the Fund to other investment
companies with similar investment objectives and to an index;
2. the nature, extent and quality of investment, compliance,
administrative and other services rendered by the Adviser;
3. payments received by the Adviser from all sources in respect of the
Fund and all investment companies in the AllianceBernstein Funds complex;
4. the costs borne by, and profitability of, the Adviser and its
affiliates in providing services to the Fund and to all investment companies in
the AllianceBernstein Funds complex;
5. comparative fee and expense data for the Fund and other investment
companies with similar investment objectives;
6. the extent to which economies of scale would be realized to the
extent the Fund grows and whether fee levels reflect any economies of scale for
the benefit of investors;
7. the Adviser's policies and practices regarding allocation of
portfolio transactions of the Fund, including the extent to which the Adviser
benefits from soft dollar arrangements;
ACM INCOME FUND o 59
8. portfolio turnover rates for the Fund compared to other investment
companies with similar investment objectives;
9. fall-out benefits that the Adviser and its affiliates receive from
their relationships with the Fund;
10. the Adviser's representation that there are no institutional
products managed by the Adviser which have a substantially similar investment
style as the Fund;
11. the professional experience and qualifications of the Fund's
portfolio management team and other senior personnel of the Adviser;
12. the terms of the Advisory Agreement; and
13. a report of the Fund's effective and base fee rate as compared
against five competitor funds selected by the Adviser.
The directors also considered their knowledge of the nature and quality of the
services provided by the Adviser to the Fund gained from their experience as
directors or trustees of most of the registered investment companies advised by
the Adviser, their overall confidence in the Adviser's integrity and competence
they have gained from that experience and the Adviser's responsiveness to
concerns raised by them in the past, including the Adviser's willingness to
consider and implement organizational and operational changes designed to
improve investment results and the services provided to the AllianceBernstein
Funds.
In their deliberations, the directors did not identify any particular
information that was all-important or controlling, and the directors attributed
different weights to the various factors.
The directors determined that the overall arrangements between the Fund and the
Adviser, as provided in the Advisory Agreement, were fair and reasonable in
light of the services performed, expenses incurred and such other matters as
the directors considered relevant in the exercise of their business judgment.
The material factors and conclusions that formed the basis for the directors
reaching their determinations to approve the continuance of the Advisory
Agreement (including their determinations that the Adviser should continue to
be the investment adviser for the Fund and that the fees payable to the Adviser
pursuant to the Advisory Agreement are appropriate) were separately discussed
by the directors.
60 o ACM INCOME FUND
Nature, extent and quality of services provided by the Adviser
The directors noted that, under the Advisory Agreement, the Adviser, subject to
the control of the directors, administers the Fund's business and other
affairs. The Adviser manages the investment of the assets of the Fund,
including making purchases and sales of portfolio securities consistent with
the Fund's investment objective and policies. The Adviser also provides the
Fund with such office space, administrative and other services (exclusive of,
and in addition to, any such services provided by any others retained by the
Fund) and executive and other personnel as are necessary for the Fund's
operations. The Adviser pays all of the compensation of directors of the Fund
who are affiliated persons of the Adviser and of the officers of the Fund.
The directors noted that the Advisory Agreement for the Fund does not contain a
reimbursement provision for the cost of certain administrative and other
services provided by the Adviser. The directors noted that the Fund has a
separate administration agreement and pays separate administration fees to its
administrator, which is not affiliated with the Adviser.
The directors considered the scope and quality of services provided by the
Adviser under the Advisory Agreement and noted that the scope of services
provided by advisers had expanded over time as a result of regulatory and other
developments. The directors noted, for example, that the Adviser is responsible
for maintaining and monitoring its own and, to varying degrees, the Fund's
compliance programs, and that these compliance programs have recently been
refined and enhanced in light of new regulatory requirements. The directors
considered the quality of the in-house investment research capabilities of the
Adviser and the other resources it has dedicated to performing services for the
Fund. The quality of administrative and other services, including the Adviser's
role in coordinating the activities of the Fund's other service providers, also
were considered. The directors also considered the Adviser's response to recent
regulatory compliance issues affecting a number of the investment companies in
the AllianceBernstein Funds complex. The directors concluded that, overall,
they were satisfied with the nature, extent and quality of services provided to
the Fund under the Advisory Agreement.
Costs of Services Provided and Profitability to the Adviser
The directors reviewed a schedule of the revenues, expenses and related notes
indicating the profitability of the Fund to the Adviser for calendar years 2003
and 2004. The directors also reviewed information in respect of 2004 that had
been prepared with a revised expense allocation methodology. The directors
noted that the revised expense allocation methodology would be used in 2005,
and that it differed in various respects from the methodology used in prior
years. The directors reviewed the assumptions and methods of allocation used by
the Adviser in preparing fund-specific profitability data, and noted the
Adviser's representation to them that it believed that the methods of
allocation used in
ACM INCOME FUND o 61
preparing the profitability information were reasonable and appropriate and
that the Adviser had previously discussed with the directors that there is no
generally accepted allocation methodology for information of this type.
The directors recognized that it is difficult to make comparisons of
profitability from fund advisory contracts because comparative information is
not generally publicly available and is affected by numerous factors, including
the structure of the particular adviser, the types of funds it manages, its
business mix, numerous assumptions regarding allocations and the adviser's
capital structure and cost of capital. In considering profitability
information, the directors considered the effect of fall-out benefits on the
Adviser's expenses. The directors focused on the profitability of the Adviser's
relationship with the Fund before taxes. The directors recognized that the
Adviser should generally be entitled to earn a reasonable level of profits for
the services it provides to the Fund and, based on their review, concluded that
they were satisfied that the Adviser's level of profitability from its
relationship with the Fund was not excessive.
Fall-Out Benefits
The directors considered that the Adviser benefits from soft dollar
arrangements whereby it receives brokerage and research services from many of
the brokers and dealers that execute purchases and sales of securities on
behalf of its clients on an agency basis. The directors noted that since the
Fund does not engage in brokerage transactions, the Adviser does not receive
soft dollar benefits in respect of portfolio transactions of the Fund. The
directors also noted that a subsidiary of the Adviser provides certain
shareholder services to the Fund and receives compensation from the Fund for
such services.
The directors recognized that the Adviser's profitability would be somewhat
lower if the Adviser's subsidiary did not receive the benefits described above.
The directors understood that the Adviser also might derive reputational and
other benefits from its association with the Fund.
Investment Results
In addition to the information reviewed by the directors in connection with the
meeting, the directors receive detailed comparative performance information for
the Fund at each regular Board meeting during the year. At the meeting, the
directors reviewed information prepared by Lipper showing performance of the
Fund as compared to a fund in its Lipper category (the "Lipper Data") for
periods ended September 30, 2005 over the 1-, 3-, 5- and 10-year periods. The
directors also reviewed information prepared by the Adviser showing performance
of the Fund as compared to the Lipper General U.S. Government Funds (Leveraged)
Average (the "Lipper Average") and the Lehman Brothers U.S. Aggregate Index
(the "Index") for periods ended September 30, 2005 over the year to date, 1-,
3-, 5- and 10-year and since inception periods (August 1987 inception).
62 o ACM INCOME FUND
The directors noted that in both the Lipper Data and the Lipper Average
comparison, the Fund was the only fund in its category for periods beyond 1
year. The directors did not give significant weight to the Lipper Data or
Lipper Average information in such circumstances. The directors noted that the
Fund had significantly outperformed the Index (which, they noted, is
unleveraged) in all periods reviewed. Since the Fund was the only fund in its
Lipper category for all but the most recent of the periods reviewed, the
directors requested additional comparative information from the Adviser. In
response to such request, the Adviser provided, and the directors reviewed, a
report prepared by the Adviser (the "Adviser's Report"), based on information
obtained from Lipper, of the Fund's effective and base fee rate, performance,
leverage methods and total expenses (including interest expense), as compared
to five peer funds (two of which were open-end, and none of which utilize
leverage) selected by the Adviser. The directors noted that the Fund had
outperformed each of the selected peer funds in all periods (1-, 3- and 5-year
periods as of September 30, 2005), and that its shares traded at a slight
premium to net asset value on September 30, 2005 while the shares of the three
peer closed-end funds traded at an average discount of 9.10% on that date.
Since none of the peer funds utilize leverage, the directors did not place
great weight on this information. Based on their review, the directors
concluded that the Fund's relative performance over time was satisfactory.
Advisory Fees and Other Expenses
The directors considered the combined advisory fee paid by the Fund to the
Adviser and administrative fee paid to a third party and information in the
Lipper Data concerning the combined advisory and administrative fee rate paid
by the one other fund in the same Lipper category as the Fund that had been
selected by Lipper and noted that the effective fee rate for this fund was
materially lower than the Fund's pro forma total effective management fee rate
(assuming the new lower contractual advisory fee rate implemented in February
2005 to reduce the advisory fee on the Fund's daily gross income from 525 basis
points to 475 basis points had been in effect throughout fiscal 2004). The
directors noted that the Fund's fee structure (pursuant to which the Fund pays
a fee based on both its net asset value and its gross income) is fairly unusual
in the asset management industry, although two of the peer funds identified by
the Adviser have similar arrangements. The directors also took into account
their general knowledge of advisory fees paid by open-end and closed-end funds
that invest in fixed-income securities. The directors recognized that it is
difficult to make comparisons of advisory fees because there are variations in
the services that are included in the fees paid by other funds.
The directors noted that in connection with the settlement of the market timing
matter with the New York Attorney General, the Adviser agreed to material
reductions (averaging 20%) in the fee schedules of most of the open-end funds
sponsored by the Adviser (other than money market funds). As a result of that
ACM INCOME FUND o 63
settlement, the Adviser's fees (i) for managing open-end high income funds are
..50% of the first $2.5 billion of average daily net assets, .45% for average
daily net assets over that level to $5 billion, and .40% for average daily net
assets over $5 billion; and (ii) for managing open-end low risk income funds
are .45% of the first $2.5 billion of average daily net assets, .40% for
average daily net assets over that level to $5 billion, and .35% for average
daily net assets over $5 billion. The directors noted that each of these fee
schedules, if applied to the Fund, would result in a lower fee rate than that
paid by the Fund pursuant to the Advisory Agreement.
The directors reviewed information in the Adviser's Form ADV and noted that it
charges institutional clients lower fees for advising comparably sized accounts
using strategies that differ from those of the Fund but which involve
investments in securities of the same type that the Fund invests in (i.e.,
fixed income securities). They had previously received an oral presentation
from the Adviser that supplemented the information in the Form ADV.
The Adviser reviewed with the directors the significant differences in the
scope of services it provides to institutional clients and to the Fund. For
example, the Advisory Agreement requires the Adviser to provide, in addition to
investment advice, office facilities and officers (including officers to
provide required certifications). The Adviser also coordinates the provision of
services to the Fund by non-affiliated service providers and is responsible for
the compensation of the Fund's Independent Compliance Officer and certain
related expenses. The provision of these non-advisory services involves costs
and exposure to liability. The Adviser explained that many of these services
normally are not provided to non-investment company clients and that fees
charged to the Fund reflect the costs and risks of the additional obligations.
In light of these facts, the directors did not place significant weight on
these fee comparisons.
The directors noted that at their December 14-16, 2004 meetings, the directors
had requested a reduction in the advisory fees of the Fund to the levels in
accordance with the fee schedules for open-end funds and deferred renewal of
the Fund's Advisory Agreement pending receipt and consideration of their
request by the Adviser. At their February 7-10, 2005 meeting, the directors
considered and approved the Adviser's proposal to amend the Advisory Agreement
to reduce the fee on the Fund's daily gross income from 5.25% to 4.75% and to
cap the fee at 0.95% on an annual basis instead of the then current 1% cap.
The Lipper Data reviewed by the directors showed that the Fund's latest fiscal
period pro forma actual management fee rate was 76.8 basis points (combined
advisory fee payable under the Advisory Agreement and a two basis point
administration fee payable to an entity that is not affiliated with the
Adviser), although it would have been significantly lower if expressed as a
percentage of the Fund's average weekly total assets (i.e., net assets plus
assets supported by leverage).
64 o ACM INCOME FUND
The directors also reviewed information in the Adviser's Report relating to the
five peer funds identified by the Adviser. The directors noted that only two of
the peer funds had fee arrangements similar to that of the Fund involving the
adviser receiving a percentage of the fund's gross income, and that those two
funds paid their advisers a materially higher percentage of such gross income.
The directors noted that the total effective fee rate of the Fund was higher
than the fee rates of the peer funds. They also noted that the total expense
ratios of the peer funds were significantly lower than the Fund's total expense
ratio although the peer funds (other than the merged funds) were significantly
smaller than the Fund. The directors concluded that the Fund's expense ratio
was acceptable.
Economies of Scale
The directors considered that the Fund is a closed-end fund and that it was not
expected to have meaningful asset growth as a result. In such circumstances,
the directors did not view the potential for realization of economies of scale
as the Fund's assets grow to be a material factor in their deliberations. The
directors noted that if the Fund's net assets were to increase materially as a
result of, e.g., an acquisition or rights offering, they would review whether
potential economies of scale would be realized.
ACM INCOME FUND o 65
ALLIANCEBERNSTEIN FAMILY OF FUNDS
--------------------------------
Wealth Strategies Funds
--------------------------------
Balanced Wealth Strategy
Wealth Appreciation Strategy
Wealth Preservation Strategy
Tax-Managed Balanced Wealth Strategy
Tax-Managed Wealth Appreciation Strategy
Tax-Managed Wealth Preservation Strategy
--------------------------------
Blended Style Funds
--------------------------------
U.S. Large Cap Portfolio
International Portfolio
Tax-Managed International Portfolio
--------------------------------
Growth Funds
--------------------------------
Domestic
Growth Fund
Mid-Cap Growth Fund
Large Cap Growth Fund
Small Cap Growth Portfolio
Global & International
Global Health Care Fund
Global Research Growth Fund
Global Technology Fund
Greater China '97 Fund
International Growth Fund*
International Research Growth Fund*
--------------------------------
Value Funds
--------------------------------
Domestic
Balanced Shares
Focused Growth & Income Fund
Growth & Income Fund
Real Estate Investment Fund
Small/Mid Cap Value Fund*
Utility Income Fund
Value Fund
Global & International
Global Value Fund
International Value Fund
--------------------------------
Taxable Bond Funds
--------------------------------
Americas Government Income Trust*
Corporate Bond Portfolio
Emerging Market Debt Fund
Global Strategic Income Trust
High Yield Fund
Multi-Market Strategy Trust
Quality Bond Portfolio*
Short Duration Portfolio
U.S. Government Portfolio
--------------------------------
Municipal Bond Funds
--------------------------------
National
Insured National
Arizona
California
Insured California
Florida
Massachusetts
Michigan
Minnesota
New Jersey
New York
Ohio
Pennsylvania
Virginia
--------------------------------
Intermediate Municipal Bond Funds
--------------------------------
Intermediate California
Intermediate Diversified
Intermediate New York
--------------------------------
Closed-End Funds
--------------------------------
All-Market Advantage Fund
ACM Income Fund
ACM Government Opportunity Fund
ACM Managed Dollar Income Fund
ACM Managed Income Fund
ACM Municipal Securities Income Fund
California Municipal Income Fund
National Municipal Income Fund
New York Municipal Income Fund
The Spain Fund
World Dollar Government Fund
World Dollar Government Fund II
We also offer Exchange Reserves,** which serves as the money market fund
exchange vehicle for the AllianceBernstein mutual funds.
For more complete information on any AllianceBernstein mutual fund, including
investment objectives and policies, sales charges, expenses, risks and other
matters of importance to prospective investors, visit our web site at
www.alliancebernstein.com or call us at (800) 227-4618 for a current
prospectus. You should read the prospectus carefully before you invest.
* Prior to February 1, 2005, Small/Mid Cap Value Fund was named Small Cap
Value Fund. Prior to May 16, 2005, International Growth Fund was named
Worldwide Privatization Fund and International Research Growth Fund was named
International Premier Growth Fund. On June 24, 2005, All-Asia Investment Fund
merged into International Research Growth Fund. On July 8, 2005, New Europe
Fund merged into International Research Growth Fund. On February 1, 2006,
Americas Government Income Trust was renamed Global Government Income Trust
and Quality Bond Portfolio was renamed Intermediate Bond Portfolio.
** An investment in the Fund is not a deposit in a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. Although the Fund seeks to preserve the value of your investment at
$1.00 per share, it is possible to lose money by investing in the Fund.
66 o ACM INCOME FUND
SUMMARY OF GENERAL INFORMATION
ACM Income Fund Shareholder Information
The daily net asset value of the Fund's shares is available from the Fund's
Transfer Agent by calling (800) 426-5523. The Fund also distributes its daily
net asset value to various financial publications or independent organizations
such as Lipper Inc., Morningstar, Inc. and Bloomberg.
Daily market prices for the Fund's shares are published in the New York Stock
Exchange Composite Transaction section of The Wall Street Journal under the
designation "ACM IncFd." The Fund's NYSE trading symbol is "ACG." Weekly
comparative net asset value (NAV) and market price information about the Fund
is published each Monday in The Wall Street Journal and each Sunday in The New
York Times and other newspapers in a table called "Closed-End Bond Funds."
Dividend Reinvestment Plan
A Dividend Reinvestment Plan provides automatic reinvestment of dividends and
capital gains distributions in additional Fund shares. The Plan also allows you
to make optional cash investments in Fund Shares through the Plan Agent. If you
wish to participate in the Plan and your shares are held in your name, simply
complete and mail the enrollment form in the brochure. If your shares are held
in the name of your brokerage firm, bank or other nominee, you should ask them
whether or how you can participate in the Plan.
For questions concerning shareholder account information, or if you would like
a brochure describing the Dividend Reinvestment Plan, please call Equiserve
Trust Company, N.A. at (800) 219-4218.
ACM INCOME FUND o 67
NOTES
68 o ACM INCOME FUND
-------------------------------------------------------------------------------
Privacy Notice
Alliance, the AllianceBernstein Family of Funds and AllianceBernstein
Investment Research and Management, Inc. (collectively, "Alliance" or "we")
understand the importance of maintaining the confidentiality of our customers'
nonpublic personal information. In order to provide financial products and
services to our customers efficiently and accurately, we may collect nonpublic
personal information about our customers from the following sources: (1)
information we receive from account documentation, including applications or
other forms (which may include information such as a customer's name, address,
social security number, assets and income) and (2) information about our
customers' transactions with us, our affiliates and others (including
information such as a customer's account balances and account activity).
It is our policy not to disclose nonpublic personal information about our
customers (or former customers) except to our affiliates, or to others as
permitted or required by law. From time to time, Alliance may disclose
nonpublic personal information that we collect about our customers (or former
customers), as described above, to non-affiliated third party providers,
including those that perform processing or servicing functions and those that
provide marketing services for us or on our behalf pursuant to a joint
marketing agreement that requires the third party provider to adhere to
Alliance's privacy policy. We have policies and procedures to safeguard
nonpublic personal information about our customers (or former customers) which
include: (1) restricting access to such nonpublic personal information and (2)
maintaining physical, electronic and procedural safeguards that comply with
federal standards to safeguard such nonpublic personal information.
-------------------------------------------------------------------------------
ACM INCOME FUND
1345 Avenue of the Americas
New York, NY 10105
(800) 221-5672
[LOGO] ALLIANCEBERNSTEIN (R)
Investment Research and Management
INCAR1205
ITEM 2. CODE OF ETHICS.
(a) The registrant has adopted a code of ethics that applies to its principal
executive officer, principal financial officer and principal accounting
officer. A copy of the registrant's code of ethics is filed herewith as
Exhibit 12(a)(1).
(b) During the period covered by this report, no material amendments were made
to the provisions of the code of ethics adopted in 2(a) above.
(c) During the period covered by this report, no implicit or explicit waivers
to the provisions of the code of ethics adopted in 2(a) above were granted.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The registrant's Board of Directors has determined that independent directors
David H. Dievler and William H. Foulk, Jr. qualify as audit committee financial
experts.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) - (c) The following table sets forth the aggregate fees billed by the
independent registered accounting firm Ernst & Young LLP, for the Fund's last
two fiscal years for professional services rendered for: (i) the audit of the
Fund's annual financial statements included in the Fund's annual report to
stockholders; (ii) assurance and related services that are reasonably related
to the performance of the audit of the Fund's financial statements and are not
reported under (i), which include advice and education related to accounting
and auditing issues and quarterly press release review (for those Funds that
issue quarterly press releases), and preferred stock maintenance testing (for
those Funds that issue preferred stock); and (iii) tax compliance, tax advice
and tax return preparation.
Audit-Related
Audit Fees Fees Tax Fees
---------- ------------- --------
2004 $58,000 $10,030 $17,880
2005 $60,000 $ 3,100 $18,900
(d) Not applicable.
(e) (1) Beginning with audit and non-audit service contracts entered into on or
after May 6, 2003, the Fund's Audit Committee policies and procedures require
the pre-approval of all audit and non-audit services provided to the Fund by
the Fund's independent registered public accounting firm. The Fund's Audit
Committee policies and procedures also require pre-approval of all audit and
non-audit services provided to the Adviser and Service Affiliates to the extent
that these services are directly related to the operations or financial
reporting of the Fund.
(e) (2) All of the amounts for Audit Fees, Audit-Related Fees and Tax Fees in
the table under Item 4 (a) - (c) are for services pre-approved by the Fund's
Audit Committee.
(f) Not applicable.
(g) The following table sets forth the aggregate non-audit services provided to
the Fund, the Fund's Adviser and entities that control, are controlled by or
under common control with the Adviser that provide ongoing services to the
Fund, which include conducting an annual internal control report pursuant to
Statement on Auditing Standards No. 70 ("Service Affiliates"):
Total Amount of
Foregoing Column
Pre-approved by the
All Fees for Audit Committee
Non-Audit Services (Portion Comprised of
Provided to the Audit Related Fees)
Portfolio, the Adviser (Portion Comprised of
and Service Affiliates Tax Fees)
---------------------- ---------------------
2004 $985,628 [$102,910]
($ 85,030)
($ 17,880)
2005 $848,540 [$192,000]
($173,100)
($ 18,900)
(h) The Audit Committee of the Fund has considered whether the provision of
any non-audit services not pre-approved by the Audit Committee provided by the
Fund's independent registered public accounting firm to the Adviser and Service
Affiliates is compatible with maintaining the auditor's independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
The registrant has a separately-designated standing audit committee established
in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934.
The audit committee members are as follows:
Ruth Block
Michael J. Downey
David H. Dievler
William H. Foulk, Jr
John H. Dobkin
D. James Guzy
Marshall C. Turner, Jr.
ITEM 6. SCHEDULE OF INVESTMENTS.
Please see Schedule of Investments contained in the Report to Shareholders
included under Item 1 of this Form N-CSR.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
October 2005
ALLIANCE CAPITAL MANAGEMENT L.P.
Statement of Policies and Procedures for Proxy Voting
Introduction
As a registered investment adviser, Alliance Capital Management L.P. ("Alliance
Capital", "we" or "us") has a fiduciary duty to act solely in the best
interests of our clients. We recognize that this duty requires us to vote
client securities in a timely manner and make voting decisions that are in the
best interests of our clients. Consistent with these obligations, we will
disclose our clients' voting records only to them and as required by mutual
fund vote disclosure regulations. In addition, the proxy committees may, after
careful consideration, choose to respond to surveys regarding past votes.
This statement is intended to comply with Rule 206(4)-6 of the Investment
Advisers Act of 1940. It sets forth our policies and procedures for voting
proxies for our discretionary investment advisory clients, including investment
companies registered under the Investment Company Act of 1940. This statement
applies to Alliance Capital's growth and value investment groups investing on
behalf of clients in both US and non-US securities.
Proxy Policies
This statement is designed to be responsive to the wide range of proxy voting
subjects that can have a significant effect on the investment value of the
securities held in our clients' accounts. These policies are not exhaustive due
to the variety of proxy voting issues that we may be required to consider.
Alliance Capital reserves the right to depart from these guidelines in order to
avoid voting decisions that we believe may be contrary to our clients' best
interests. In reviewing proxy issues, we will apply the following general
policies:
Corporate Governance: Alliance Capital's proxy voting policies recognize the
importance of good corporate governance in ensuring that management and the
board of directors fulfill their obligations to the shareholders. We favor
proposals promoting transparency and accountability within a company. We will
vote for proposals providing for equal access to the proxy materials so that
shareholders can express their views on various proxy issues. We also support
the appointment of a majority of independent directors on key committees and
separating the positions of chairman and chief executive officer. Finally,
because we believe that good corporate governance requires shareholders to have
a meaningful voice in the affairs of the company, we will support non-binding
shareholder proposals that request that companies amend their by-laws to
provide that director nominees be elected by an affirmative vote of a majority
of the votes cast.
Elections of Directors: Unless there is a proxy fight for seats on the Board
or we determine that there are other compelling reasons for withholding votes
for directors, we will vote in favor of the management proposed slate of
directors. That said, we believe that directors have a duty to respond to
shareholder actions that have received significant shareholder support. We may
withhold votes for directors that fail to act on key issues such as failure to
implement proposals to declassify boards, failure to implement a majority vote
requirement, failure to submit a rights plan to a shareholder vote or failure
to act on tender offers where a majority of shareholders have tendered their
shares. In addition, we will withhold votes for directors who fail to attend at
least seventy-five percent of board meetings within a given year without a
reasonable excuse. Finally, we may withhold votes for directors of non-U.S.
issuers where there is insufficient information about the nominees disclosed in
the proxy statement.
Appointment of Auditors: Alliance Capital believes that the company remains in
the best position to choose the auditors and will generally support
management's recommendation. However, we recognize that there may be inherent
conflicts when a company's independent auditor performs substantial non-audit
related services for the company. Although we recognize that there may be
special circumstances that could lead to high levels of non-audit fees in some
years, we would normally consider non-audit fees in excess of 70% of total fees
paid to the auditing firm to be disproportionate. Therefore, absent unique
circumstances, we may vote against the appointment of auditors if the fees for
non-audit related services exceed 70% of the total fees paid by the company to
the auditing firm or there are other reasons to question the independence of
the company's auditors.
Changes in Legal and Capital Structure: Changes in a company's charter,
articles of incorporation or by-laws are often technical and administrative in
nature. Absent a compelling reason to the contrary, Alliance Capital will cast
its votes in accordance with the company's management on such proposals.
However, we will review and analyze on a case-by-case basis any non-routine
proposals that are likely to affect the structure and operation of the company
or have a material economic effect on the company. For example, we will
generally support proposals to increase authorized common stock when it is
necessary to implement a stock split, aid in a restructuring or acquisition or
provide a sufficient number of shares for an employee savings plan, stock
option or executive compensation plan. However, a satisfactory explanation of a
company's intentions must be disclosed in the proxy statement for proposals
requesting an increase of greater than one hundred percent of the shares
outstanding. We will oppose increases in authorized common stock where there is
evidence that the shares will be used to implement a poison pill or another
form of anti-takeover device.
Corporate Restructurings, Mergers and Acquisitions: Alliance Capital believes
proxy votes dealing with corporate reorganizations are an extension of the
investment decision. Accordingly, we will analyze such proposals on a
case-by-case basis, weighing heavily the views of our research analysts that
cover the company and our investment professionals managing the portfolios in
which the stock is held.
Proposals Affecting Shareholder Rights: Alliance Capital believes that certain
fundamental rights of shareholders must be protected. We will generally vote in
favor of proposals that give shareholders a greater voice in the affairs of the
company and oppose any measure that seeks to limit those rights. However, when
analyzing such proposals we will weigh the financial impact of the proposal
against the impairment of shareholder rights.
Anti-Takeover Measures: Alliance Capital believes that measures that impede
corporate transactions such as takeovers or entrench management not only
infringe on the rights of shareholders but may also have a detrimental effect
on the value of the company. We will generally oppose proposals, regardless of
whether they are advanced by management or shareholders, the purpose or effect
of which is to entrench management or excessively or inappropriately dilute
shareholder ownership. Conversely, we support proposals that would restrict or
otherwise eliminate anti-takeover or anti-shareholder measures that have
already been adopted by corporate issuers. For example, we will support
shareholder proposals that seek to require the company to submit a shareholder
rights plan to a shareholder vote. We will evaluate, on a case-by-case basis,
proposals to completely redeem or eliminate such plans. Furthermore, we will
generally oppose proposals put forward by management (including the
authorization of blank check preferred stock, classified boards and
supermajority vote requirements) that appear to be anti-shareholder or intended
as management entrenchment mechanisms.
Executive Compensation: Alliance Capital believes that company management and
the compensation committee of the board of directors should, within reason, be
given latitude to determine the types and mix of compensation and benefit
awards offered to company employees. Whether proposed by a shareholder or
management, we will review proposals relating to executive compensation plans
on a case-by-case basis to ensure that the long-term interests of management
and shareholders are properly aligned. In general, we will analyze the proposed
plans to ensure that shareholder equity will not be excessively diluted. With
regard to stock award or option plans, we consider whether the option exercise
prices are below the market price on the date of grant and whether an
acceptable number of employees are eligible to participate in such programs. We
will generally oppose plans that have below market value exercise prices on the
date of issuance or permit repricing of underwater stock options without
shareholder approval. Other factors such as the company's performance and
industry practice will generally be factored into our analysis. We will
support proposals requiring managements to submit severance packages that
exceed 2.99 times the sum of an executive officer's base salary plus bonus that
are triggered by a change in control to a shareholder vote. Finally, we will
support shareholder proposals requiring companies to expense stock options
because we view them as a large corporate expense that should be appropriately
accounted for.
Social and Corporate Responsibility: Alliance Capital will review and analyze
on a case-by-case basis proposals relating to social, political and
environmental issues to determine whether they will have a financial impact on
shareholder value. We will vote against proposals that are unduly burdensome or
result in unnecessary and excessive costs to the company. We may abstain from
voting on social proposals that do not have a readily determinable financial
impact on shareholder value.
Proxy Voting Procedures
Proxy Voting Committees
Our growth and value investment groups have formed separate proxy voting
committees to establish general proxy policies for Alliance Capital and
consider specific proxy voting matters as necessary. These committees
periodically review these policies and new types of corporate governance
issues, and decide how we should vote on proposals not covered by these
policies. When a proxy vote cannot be clearly decided by an application of our
stated policy, the proxy committee will evaluate the proposal. In addition, the
committees, in conjunction with the analyst that covers the company, may
contact corporate management and interested shareholder groups and others as
necessary to discuss proxy issues. Members of the committee include senior
investment personnel and representatives of the Legal and Compliance
Department. The committees may also evaluate proxies where we face a potential
conflict of interest (as discussed below). Finally, the committees monitor
adherence to these policies.
Conflicts of Interest
Alliance Capital recognizes that there may be a potential conflict of interest
when we vote a proxy solicited by an issuer whose retirement plan we manage, or
we administer, who distributes Alliance Capital sponsored mutual funds, or with
whom we or an employee has another business or personal relationship that may
affect how we vote on the issuer's proxy. Similarly, Alliance may have a
potential material conflict of interest when deciding how to vote on a proposal
sponsored or supported by a shareholder group that is a client. We believe that
centralized management of proxy voting, oversight by the proxy voting
committees and adherence to these policies ensures that proxies are voted with
only our clients' best interests in mind. Additionally, we have implemented
procedures to ensure that our votes are not the product of a material conflict
of interests, including: (i) on an annual basis, the proxy committees will take
reasonable steps to evaluate the nature of Alliance Capital's and our
employees' material business and personal relationships (and those of our
affiliates) with any company whose equity securities are held in client
accounts and any client that has sponsored or has material interest in a
proposal upon which we will be eligible to vote; (ii) requiring anyone
involved in the decision making process to disclose to the chairman of the
appropriate proxy committee any potential conflict that they are aware of
(including personal relationships) and any contact that they have had with any
interested party regarding a proxy vote; (iii) prohibiting employees involved
in the decision making process or vote administration from revealing how we
intend to vote on a proposal in order to reduce any attempted influence from
interested parties; and (iv) where a material conflict of interests exists,
reviewing our proposed vote by applying a series of objective tests and, where
necessary, considering the views of third party research services to ensure
that our voting decision is consistent with our clients' best interests.
Because under certain circumstances Alliance Capital considers the
recommendation of third party research services, the proxy committees will take
reasonable steps to verify that any third party research service is in fact
independent based on all of the relevant facts and circumstances. This includes
reviewing the third party research service's conflict management procedures and
ascertaining, among other things, whether the third party research service (i)
has the capacity and competency to adequately analyze proxy issues; and (ii)
can make such recommendations in an impartial manner and in the best interests
of our clients.
Proxies of Certain Non-US Issuers
Proxy voting in certain countries requires "share blocking." Shareholders
wishing to vote their proxies must deposit their shares shortly before the date
of the meeting (usually one-week) with a designated depositary. During this
blocking period, shares that will be voted at the meeting cannot be sold until
the meeting has taken place and the shares are returned to the clients'
custodian banks. Absent compelling reasons to the contrary, Alliance Capital
believes that the benefit to the client of exercising the vote does not
outweigh the cost of voting (i.e. not being able to sell the shares during this
period). Accordingly, if share blocking is required we generally abstain from
voting those shares.
In addition, voting proxies of issuers in non-US markets may give rise to a
number of administrative issues that may prevent Alliance Capital from voting
such proxies. For example, Alliance Capital may receive meeting notices
without enough time to fully consider the proxy or after the cut-off date for
voting. Other markets require Alliance Capital to provide local agents with
power of attorney prior to implementing Alliance Capital's voting instructions.
Although it is Alliance Capital's policy to seek to vote all proxies for
securities held in client accounts for which we have proxy voting authority, in
the case of non-US issuers, we vote proxies on a best efforts basis.
Loaned Securities
Many clients of Alliance Capital have entered into securities lending
arrangements with agent lenders to generate additional revenue. Alliance
Capital will not be able to vote securities that are on loan under these types
of arrangements. However, under rare circumstances, for voting issues that may
have a significant impact on the investment, we may request that clients recall
securities that are on loan if we determine that the benefit of voting
outweighs the costs and lost revenue to the client or fund and the
administrative burden of retrieving the securities.
Proxy Voting Records
You may obtain information regarding how the Fund voted proxies relating to
portfolio securities during the most recent 12-month period ended June 30,
without charge. Simply visit AllianceBernstein's web site at
www.alliancebernstein.com, or go to the Securities and Exchange Commission's
web site at www.sec.gov, or call AllianceBernstein at (800) 227-4618.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
(a) (1) The management of and investment decisions for the Fund's portfolio are
made by the ACM Income Fund Investment Team.
The following table lists the five members of the team with the most
significant responsibility for the day-to-day management of the Fund's
portfolio, the length of time that each person has been jointly and primarily
responsible for the Fund, and each person's principal occupation during the
past five years:
Principal Occupation
During the Past
Employee; Year; Title Five (5) Years
------------------------------------------------------------------------------
Andrew Aran; since 2002; Senior Vice President of ACMC with
Senior Vice President of ACMC which he has been associated since
prior to 2000.
Paul DeNoon; since 2002; Senior Vice President of ACMC with
Senior Vice President of ACMC which he has been associated since
prior to 2000.
Douglas J. Peebles; since 2002; Executive Vice President of ACMC with
Executive Vice President of ACMC which he has been associated since
prior to 2000.
Michael Snyder; since 2002; Senior Vice President of ACMC with
Senior Vice President of ACMC which he has been associated since
prior to 2000.
Kewjin Yuoh; since 2003; Vice President of ACMC with which
Vice President of ACMC he has been associated since prior
to 2000.
(a) (2) The following tables provide information regarding registered
investment companies other than the Fund, other pooled investment vehicles and
other accounts over which the Fund's portfolio managers also have day-to-day
management responsibilities. The tables provide the numbers of such accounts,
the total assets in such accounts and the number of accounts and total assets
whose fees are based on performance. The information is provided as of the
Fund's fiscal year ended December 31, 2005.
REGISTERED INVESTMENT COMPANIES
(excluding the Fund)
Number of Total Assets
Registered of Registered
Total Number Total Assets Investment Investment
of Registered of Registered Companies Companies
Investment Investment Managed with Managed with
Portfolio Companies Companies Performance- Performance-
Manager Managed Managed based Fees based Fees
--------------------------------------------------------------------------------------------
Andrew Aran 1 118,855,462 NONE NONE
Paul DeNoon 9 3,817,439,190 NONE NONE
Douglas J. Peebles 2 758,722,802 NONE NONE
Michael Snyder 5 364,327,421 NONE NONE
Kewjin Yuoh 3 1,636,205,821 NONE NONE
POOLED INVESTMENT VEHICLES
Number Total Assets
of Pooled of Pooled
Total Number Total Assets Investment Investment
of Pooled of Pooled Vehicles Vehicles
Investment Investment Managed with Managed with
Portfolio Vehicles Vehicles Performance- Performance-
Manager Managed Managed based Fees based Fees
----------------------------------------------------------------------------------------
Andrew Aran NONE NONE NONE NONE
Paul DeNoon 4 7,282,230,675 NONE NONE
Douglas J. Peebles 3 829,324,752 NONE NONE
Michael Snyder 20 184,133,757 NONE NONE
Kewjin Yuoh NONE NONE NONE NONE
OTHER ACCOUNTS
Number of Total Assets
Total Number Total Assets Other Accounts of Other
of Other of Other Managed with Accounts with
Portfolio Accounts Accounts Performance- Performance-
Manager Managed Managed based Fees based Fees
------------------------------------------------------------------------------------------
Andrew Aran 2 188,111,810 2 188,111,810
Paul DeNoon NONE NONE NONE NONE
Douglas J. Peebles 1 42,911,309 NONE NONE
Michael Snyder 1 73,506,281 NONE NONE
Kewjin Yuoh 8 1,044,424,636 1 515,977,908
Investment Professional Conflict of Interest Disclosure
As an investment adviser and fiduciary, Alliance owes its clients and
shareholders an undivided duty of loyalty. We recognize that conflicts of
interest are inherent in our business and accordingly have developed policies
and procedures (including oversight monitoring) reasonably designed to detect,
manage and mitigate the effects of actual or potential conflicts of interest in
the area of employee personal trading, managing multiple accounts for multiple
clients, including AllianceBernstein Mutual Funds, and allocating investment
opportunities. Investment professionals, including portfolio managers and
research analysts, are subject to the above-mentioned policies and oversight
monitoring to ensure that all clients are treated equitably. We place the
interests of our clients first and expect all of our employees to meet their
fiduciary duties.
Employee Personal Trading. Alliance has adopted a Code of Business Conduct and
Ethics that is designed to detect and prevent conflicts of interest when
investment professionals and other personnel of Alliance own, buy or sell
securities which may be owned by, or bought or sold for, clients. Personal
securities transactions by an employee may raise a potential conflict of
interest when an employee owns or trades in a security that is owned or
considered for purchase or sale by a client, or recommended for purchase or
sale by an employee to a client. Subject to the reporting requirements and
other limitations of its Code of Business Conduct and Ethics, Alliance permits
its employees to engage in personal securities transactions, and also allows
them to acquire investments in the AllianceBernstein Mutual Funds through
direct purchase, 401K/profit sharing plan investment and/or notionally in
connection with deferred incentive compensation awards. Alliance's Code of
Ethics and Business Conduct requires disclosure of all personal accounts and
maintenance of brokerage accounts with designated broker-dealers approved by
Alliance. The Code also requires preclearance of all securities transactions
and imposes a one-year holding period for securities purchased by employees to
discourage short-term trading.
Managing Multiple Accounts for Multiple Clients. Alliance has compliance
policies and oversight monitoring in place to address conflicts of interest
relating to the management of multiple accounts for multiple clients.
Conflicts of interest may arise when an investment professional has
responsibilities for the investments of more than one account because the
investment professional may be unable to devote equal time and attention to
each account. The investment professional or investment professional teams for
each client may have responsibilities for managing all or a portion of the
investments of multiple accounts with a common investment strategy, including
other registered investment companies, unregistered investment vehicles, such
as hedge funds, pension plans, separate accounts, collective trusts and
charitable foundations. Among other things, Alliance's policies and procedures
provide for the prompt dissemination to investment professionals of initial or
changed investment recommendations by analysts so that investment professionals
are better able to develop investment strategies for all accounts they manage.
In addition, investment decisions by investment professionals are reviewed for
the purpose of maintaining uniformity among similar accounts and ensuring that
accounts are treated equitably. No investment professional that manages client
accounts carrying performance fees is compensated directly or specifically for
the performance of those accounts. Investment professional compensation
reflects a broad contribution in multiple dimensions to long-term investment
success for our clients and is not tied specifically to the performance of any
particular client's account, nor is it directly tied to the level or change in
level of assets under management.
Allocating Investment Opportunities. Alliance has policies and procedures
intended to address conflicts of interest relating to the allocation of
investment opportunities. These policies and procedures are designed to ensure
that information relevant to investment decisions is disseminated promptly
within its portfolio management teams and investment opportunities are
allocated equitably among different clients. The investment professionals at
Alliance routinely are required to select and allocate investment opportunities
among accounts. Portfolio holdings, position sizes, and industry and sector
exposures tend to be similar across similar accounts, which minimizes the
potential for conflicts of interest relating to the allocation of investment
opportunities. Nevertheless, investment opportunities may be allocated
differently among accounts due to the particular characteristics of an account,
such as size of the account, cash position, tax status, risk tolerance and
investment restrictions or for other reasons.
Alliance's procedures are also designed to prevent potential conflicts of
interest that may arise when Alliance has a particular financial incentive,
such as a performance-based management fee, relating to an account. An
investment professional may perceive that he or she has an incentive to devote
more time to developing and analyzing investment strategies and opportunities
or allocating securities preferentially to accounts for which Alliance could
share in investment gains.
To address these conflicts of interest, Alliance's policies and procedures
require, among other things, the prompt dissemination to investment
professionals of any initial or changed investment recommendations by analysts;
the aggregation of orders to facilitate best execution for all accounts; price
averaging for all aggregated orders; objective allocation for limited
investment opportunities (e.g., on a rotational basis) to ensure fair and
equitable allocation among accounts; and limitations on short sales of
securities. These procedures also require documentation and review of
justifications for any decisions to make investments only for select accounts
or in a manner disproportionate to the size of the account.
(a) (3) Portfolio Manager Compensation
Alliance's compensation program for investment professionals is designed to be
competitive and effective in order to attract and retain the highest caliber
employees. The compensation program for investment professionals is designed to
reflect their ability to generate long-term investment success for our clients,
including shareholders of the AllianceBernstein Mutual Funds. Investment
professionals do not receive any direct compensation based upon the investment
returns of any individual client account, nor is compensation tied directly to
the level or change in level of assets under management. Investment
professionals' annual compensation is comprised of the following:
(i) Fixed base salary: This is generally the smallest portion of compensation.
The base salary is a relatively low, fixed salary within a similar range for
all investment professionals. The base salary is determined at the outset of
employment based on level of experience, does not change significantly from
year-to-year and hence, is not particularly sensitive to performance.
(ii) Discretionary incentive compensation in the form of an annual cash bonus:
Alliance's overall profitability determines the total amount of incentive
compensation available to investment professionals. This portion of
compensation is determined subjectively based on qualitative and quantitative
factors. In evaluating this component of an investment professional's
compensation, Alliance considers the contribution to his/her team or discipline
as it relates to that team's overall contribution to the long-term investment
success, business results and strategy of Alliance. Quantitative factors
considered include, among other things, relative investment performance (e.g.,
by comparison to competitor or peer group funds or similar styles of
investments, and appropriate, broad-based or specific market indices), and
consistency of performance. There are no specific formulas used to determine
this part of an investment professional's compensation and the compensation is
not tied to any pre-determined or specified level of performance. Alliance
also considers qualitative factors such as the complexity and risk of
investment strategies involved in the style or type of assets managed by the
investment professional; success of marketing/business development efforts and
client servicing; seniority/length of service with the firm; management and
supervisory responsibilities; and fulfillment of Alliance's leadership criteria.
(iii) Discretionary incentive compensation in the form of awards under
Alliance's Partners Compensation Plan ("deferred awards"): Alliance's overall
profitability determines the total amount of deferred awards available to
investment professionals. The deferred awards are allocated among investment
professionals based on criteria similar to those used to determine the annual
cash bonus. There is no fixed formula for determining these amounts. Deferred
awards, for which there are various investment options, vest over a four-year
period and are generally forfeited if the employee resigns or Alliance
terminates his/her employment. Investment options under the deferred awards
plan include many of the same AllianceBernstein Mutual Funds offered to mutual
fund investors, thereby creating a close alignment between the financial
interests of the investment professionals and those of Alliance's clients and
mutual fund shareholders with respect to the performance of those mutual funds.
Alliance also permits deferred award recipients to allocate up to 50% of their
award to investments in Alliance's publicly traded equity securities.(1)
(1) Prior to 2002, investment professional compensation also included
discretionary long-term incentive in the form of restricted grants of Alliance
Capital's Master Limited Partnership Units.
(iv) Contributions under Alliance's Profit Sharing/401(k) Plan: The
contributions are based on Alliance's overall profitability. The amount and
allocation of the contributions are determined at the sole discretion of
Alliance.
(a) (4) The dollar range of the Fund's equity securities owned directly or
beneficially by the Fund's portfolio managers as of the Fund's fiscal year
ended December 31, 2005 is set forth below:
DOLLAR RANGE OF EQUITY
SECURITIES IN THE FUND
-------------------------------------------------------------------------
Andrew Aran None
Paul DeNoon None
Douglas J. Peebles None
Michael Snyder None
Kewjin Yuoh None
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
There have been no purchases of equity securities by the Fund or by affiliated
parties for the reporting period.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which shareholders may
recommend nominees to the Fund's Board of Directors since the Fund last
provided disclosure in response to this item.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive officer and principal financial
officer have concluded that the registrant's disclosure controls and procedures
(as defined in Rule 30a-2(c) under the Investment Company Act of 1940, as
amended) are effective at the reasonable assurance level based on their
evaluation of these controls and procedures as of a date within 90 days of the
filing date of this document.
(b) There were no changes in the registrant's internal controls over financial
reporting that occurred during the second fiscal quarter of the period that has
materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
ITEM 12. EXHIBITS.
The following exhibits are attached to this Form N-CSR:
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
12 (a) (1) Code of Ethics that is subject to the disclosure of Item 2
hereof
12 (b) (1) Certification of Principal Executive Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
12 (b) (2) Certification of Principal Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
12 (c) Certification of Principal Executive Officer and Principal
Financial Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant): ACM Income Fund, Inc.
By: /s/ Marc O. Mayer
-------------------
Marc O. Mayer
President
Date: February 28, 2006
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ Marc O. Mayer
-------------------
Marc O. Mayer
President
Date: February 28, 2006
By: /s/ Mark D. Gersten
-------------------
Mark D. Gersten
Treasurer and Chief Financial Officer
Date: February 28, 2006