--------------------------------------------------------------------------------
CLOSED END
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ACM Income Fund
Annual Report
December 31, 2002
[GRAPHIC OMITTED]
Alliance Capital [LOGO](R)
The Investment Professional's Choice
Investment Products Offered
---------------------------
o Are Not FDIC Insured
o May Lose Value
o Are Not Bank Guaranteed
---------------------------
Alliance Fund Distributors, Inc., the principal underwriter of the
Alliance mutual funds and an affiliate of Alliance Capital Management
L.P., the manager of the funds, is a member of the NASD.
----------------------
LETTER TO SHAREHOLDERS
----------------------
LETTER TO SHAREHOLDERS
February 24, 2003
Dear Shareholder:
This report provides the strategy, performance and outlook for ACM Income Fund
(the "Fund") for the annual reporting period ended December 31, 2002.
Investment Objectives and Policies
This closed-end fund is designed to provide high current income consistent with
the preservation of capital. The Fund invests principally in U.S. government
obligations. The Fund may also invest a portion of its assets in other fixed
income securities, including those issued by foreign governments. Additionally,
the Fund may utilize other investment instruments, including options and futures
and employs leverage.
Investment Performance
The following table shows how the Fund performed over the past six- and 12-month
periods ended December 31, 2002. For comparison, we have included the
performance of the Fund's benchmark, the Lehman Brothers (LB) Aggregate Bond
Index.
INVESTMENT RESULTS*
Periods Ended December 31, 2002
-----------------------
Total Returns
-----------------------
6 Months 12 Months
--------------------------------------------------------------------------------
ACM Income
Fund (NAV) 17.49% 13.27%
--------------------------------------------------------------------------------
Lehman
Brothers
Aggregate
Bond Index 6.23% 10.25%
--------------------------------------------------------------------------------
The Fund's Market Value per share on December 31, 2002 was $8.46.
* The Fund's investment results are total returns for the periods shown and
are based on the net asset value (NAV) of the Fund as of December 31,
2002. All fees and expenses related to the operation of the Fund have been
deducted. Returns for the Fund include the reinvestment of any
distributions paid during each period. Past performance is no guarantee of
future results.
The unmanaged Lehman Brothers (LB) Aggregate Bond Index is composed of the
LB Mortgage-Backed Securities Index, the LB Asset-Backed Securities Index
and the LB Government/Credit Bond Index. It includes Treasury, agency and
corporate bond issues, as well as mortgage-backed securities. The index
does not reflect fees and expenses. An investor cannot invest directly in
an index, and its results are not indicative of any particular investment,
including ACM Income Fund.
Additional investment results appear on pages 6 - 8.
The Fund outperformed its benchmark, the LB Aggregate Bond Index, for the six-
and 12-month periods ended December 31, 2002. The outperformance was primarily
due to the Fund's overweighted position and leveraging of long maturity U.S.
Treasuries. The Fund's emerging market debt allocation also contributed
positively to performance. While the contribution of the Fund's corporate
holdings were positive, they underperformed relative to the LB Aggregate Bond
Index for the year ended December 31, 2002.
The U.S. Treasury market was driven during the annual period by a flight to
--------------------------------------------------------------------------------
ACM INCOME FUND o 1
----------------------
LETTER TO SHAREHOLDERS
----------------------
quality and the U.S. Federal Reserve's willingness to cut interest rates.
Several shocks during the year were absorbed by the U.S. markets including a
sluggish economic recovery, corporate governance scandals, a sharp drop in
equity valuations, and geopolitical tensions including the potential of military
actions against Iraq. As a consequence, the U.S. Federal Reserve lowered
interest rates to historic lows to help spur an anemic domestic economy.
All of these economic, corporate and political developments contributed to the
strength of the U.S Treasury market and led the Fund's overweighted Treasury
position to outperform relative to the index. Augmenting the strong Treasury
return was the Fund's concentration at the longer end of the maturity spectrum.
During the period under review, longer-term Treasuries significantly
outperformed shorter maturity Treasuries. In addition, our use of leverage to
overweight U.S. Treasury portion of the Fund further contributed to the Fund's
positive returns.
The Fund's emerging market debt holdings provided mixed results through most of
the year, but significantly helped performance in the fourth quarter. Russia,
the Fund's largest emerging market holding (9.1% of net assets as of December
31, 2002), was the best performer for the year. Russia enjoyed strong fiscal
performance, a healthy account surplus on the back of higher oil prices and
numerous credit upgrades. Significant economic reforms and a greater
geopolitical role by President Putin also raised Russia's profile.
The Fund's holdings in Brazil detracted from performance early in the period.
Investor risk aversion, which emanated from a slower pace of economic recovery,
fears regarding Brazil's troublesome debt dynamics and political uncertainty
over the elections in October, significantly hurt returns in the first three
quarters of the year. Concerns regarding the election included worries that a
victory for the left would lead to a sharp move toward populist policies and
away from fiscal discipline.
The Fund maintained its holdings in Brazil despite these concerns, as we
believed fears regarding the elections were exaggerated. The period after the
election in October of the new Brazilian President, Luiz da Silva, the candidate
of the left, marked the beginning of a significant rally in Brazilian debt. A
steady moderation of left leaning campaign promises and a demonstrable
commitment from the new government to maintain disciplined economic policies
allayed investor fears. Brazilian debt surged from its summer low of -35.95%
through July 30, 2002, ending the year with a negative return of only -3.60%.
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2 o ACM INCOME FUND
----------------------
LETTER TO SHAREHOLDERS
----------------------
Detracting from the Fund's performance was its holdings of Mexican debt.
Although Mexican sovereign debt prices rose, the weakening Mexican peso offset
any benefit. Similar to the U.S. Treasury market, Mexican debt was helped by a
general flight to quality. Mexico's economy, which is more integrated with the
U.S. economy than with other central and Latin American economies, provided a
safe haven for those seeking to avoid risk in the region. However, like the U.S.
dollar, the peso weakened significantly as hopes of a stronger economic recovery
in the U.S. diminished earlier in the year.
Within the corporate sector, the Fund's investment grade and high yield holdings
detracted from performance, relative to the benchmark, for the year. Although
corporate performance lagged in the first half of the year, improved economic
and market conditions in the second half of the year, particularly in the fourth
quarter, allowed us to recapture some of the underperformance from this sector.
In the first half of the reporting period, the Fund's security selection within
the investment grade corporate sector, specifically its overweight positions in
the telecommunications subsector, was the largest detractor from the Fund's
performance. A handful of corporate issues detracted significantly from
performance, including WorldCom, Qwest Services Corp., Microcell
Telecommunications, AT&T Wireless, Sprint Capital Corp. and AT&T Corp.
Investment Strategy Review
We continued to hold an overweighted position in U.S. government and agency
securities, but we have reduced the overall duration of interest rate
sensitivity of the Fund in the last three months of the reporting period. Since
our semi-annual report in June 2002, we have trimmed a portion of the Fund's
Treasury holdings in favor of a substantial position in Federal National
Mortgage Association (FNMA) 30-year mortgage pass-through securities.
Our belief was that the economic slowdown in the U.S. had bottomed and the U.S.
Federal Reserve was reaching the end of its easing cycle, both of which had
previously favored Treasuries. We also became less positive on U.S. Treasuries
due to the likelihood for increased Treasury issuance given the burgeoning
federal budget deficit. We believed that mortgage-pass through securities
offered a favorable alternative to Treasury securities with an opportunity to
add yield.
Most notably, in the last six months, we increased the diversification of the
Fund's corporate holdings given the volatility within the past year. Within high
yield, we are focusing the Fund on fundamentally sound credits in oversold
sectors and on the economically sensitive industries, such as paper and
--------------------------------------------------------------------------------
ACM INCOME FUND o 3
----------------------
LETTER TO SHAREHOLDERS
----------------------
packaging. We believe these sectors should rebound as the economy continues to
progress on its path of recovery. Within the emerging market sector, we
increased the Fund's allocation during the period and continued to hold a
relatively diversified array of securities. Within the Fund's emerging market
holdings, individual countries with increased allocation included Russia and
Brazil, both of which benefited the Fund later in the year.
Outlook
We remain optimistic for 2003, estimating real GDP to grow close to 4.0%. The
expectation is that a stimulus package of tax cuts and government spending
increases will be proposed and passed by Congress early this year. Progress
toward resolving geopolitical tension may create volatility early on; however,
we expect economic and financial performance to improve by mid-year.
Improving economic growth in 2003 and growing budget deficits point to rising
U.S. Treasury rates. Our research indicates that the corporate sectors of the
market are likely to outperform U.S. Treasuries as economic growth broadens and
risk aversion and volatility continue to decline.
Our view of the emerging markets for 2003 is positive given the recent strength
of the emerging market class in the fourth quarter of 2002, and our belief that
the cyclical economic downturn in the U.S. has bottomed. Events in Brazil,
especially the direction of policy initiatives set forth by newly elected
President Luiz da Silva, will have a significant influence on market sentiment
in coming months. We believe that President da Silva's economic team will be
committed to the reduction of U.S. dollar-linked debt, which will make Brazil
less vulnerable to external shocks. We plan to continue to maintain the Fund's
overweight position in Russia. Continuously high oil prices and strong foreign
reserves will bode well for Russia as the economy continues to expand.
Within the investment-grade and high yield sectors, we expect spreads to tighten
with some of the contraction due to a rising Treasury yield curve. This
contraction, along with the coupon yield, should produce solid positive results
for high yield in 2003. We remain focused on the fundamentals of individual
issuers because one of the primary risks in this lower growth environment is
that it places an additional strain on highly leveraged companies. Since
economic growth varies greatly from one industry to another, fundamental credit
research is critical to identifying the winners and the losers. With interest
rates near all time lows and the economy slowly improving, we believe that
corporate securities are poised to perform well in 2003.
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4 o ACM INCOME FUND
----------------------
LETTER TO SHAREHOLDERS
----------------------
Thank you for your continued interest and investment in ACM Income Fund. We look
forward to reporting its progress to you in the future.
Sincerely,
/s/ John D. Carifa
John D. Carifa
Chairman
/s/ Douglas Peebles
Douglas J. Peebles
Vice President
/s/ Paul DeNoon
Paul J. DeNoon
Vice President
/s/ Michael A. Snyder
Michael A. Snyder
Vice President
/s/ Andrew M. Aran
Andrew M. Aran
Vice President
/s/ S. Sean Kelleher
S. Sean Kelleher
Vice President
[PHOTO] John D. Carifa
[PHOTO] Douglas J. Peebles
[PHOTO] Paul J. DeNoon
[PHOTO] Michael A. Snyder
[PHOTO] Andrew M. Aran
[PHOTO] S. Sean Kelleher
Portfolio Managers, Douglas J. Peebles, Paul J. DeNoon, Michael A. Snyder,
Andrew M. Aran and S. Sean Kelleher, have 89 years of combined investment
experience.
--------------------------------------------------------------------------------
ACM INCOME FUND o 5
------------------
PERFORMANCE UPDATE
------------------
PERFORMANCE UPDATE
ACM INCOME FUND (NAV)
GROWTH OF A $10,000 INVESTMENT
12/31/92 TO 12/31/02
Lehman Brothers Aggregate Bond Index: $20,637
ACM Income Fund (NAV): $22,563
[THE FOLLOWING TABLE WAS DEPICTED AS A MOUNTAIN CHART IN THE PRINTED MATERIAL.]
Lehman Brothers Aggregate
ACM Income Fund (NAV) Bond Index
-------------------------------------------------------------------------------
12/31/92 $10,000 $10,000
12/31/93 $12,186 $10,975
12/31/94 $10,267 $10,655
12/31/95 $13,216 $12,623
12/31/96 $15,385 $13,082
12/31/97 $17,707 $14,345
12/31/98 $16,199 $15,591
12/31/99 $15,629 $15,462
12/31/00 $19,314 $17,260
12/31/01 $19,917 $18,718
12/31/02 $22,563 $20,637
This chart illustrates the total value of an assumed $10,000 investment in ACM
Income Fund at net asset value (NAV) (from 12/31/92 to 12/31/02) as compared to
the performance of an appropriate index. The chart assumes the reinvestment of
dividends and capital gains. Past performance is not indicative of future
results, and is not representative of future gain or loss in capital value or
dividend income.
The unmanaged Lehman Brothers (LB) Aggregate Bond Index is composed of the LB
Mortgage-Backed Securities Index, the LB Asset-Backed Securities Index and the
LB Government/Credit Bond Index. It includes Treasury, agency and corporate bond
issues, as well as mortgage-backed securities.
When comparing ACM Income Fund to the index shown above, you should note that no
charges or expenses are reflected in the performance of the index. An investor
cannot invest directly in an index, and its results are not indicative of any
specific investment, including ACM Income Fund.
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6 o ACM INCOME FUND
------------------
PERFORMANCE UPDATE
------------------
PERFORMANCE UPDATE
ACM INCOME FUND (NAV)
HISTORY OF RETURNS
YEARLY PERIODS ENDED 12/31
[BAR CHART OMITTED]
ACM Income Fund (NAV) -- Yearly Periods Ended 12/31
--------------------------------------------------------------------------------
ACM Income Lehman Brothers
Fund (NAV) Aggregate Bond Index
--------------------------------------------------------------------------------
12/31/93 21.84% 9.75%
12/31/94 -15.75% -2.92%
12/31/95 28.73% 18.47%
12/31/96 16.41% 3.63%
12/31/97 15.08% 9.65%
12/31/98 -8.38% 8.69%
12/31/99 -3.53% -0.82%
12/31/00 23.58% 11.63%
12/31/01 3.11% 8.44%
12/31/02 13.27% 10.25%
Past performance is no guarantee of future results. The Fund's investment
results represent total returns and are based on the net asset value (NAV). All
fees and expenses related to the operation of the Fund have been deducted.
Returns for the Fund include the reinvestment of any distributions paid during
each period.
The unmanaged Lehman Brothers (LB) Aggregate Bond Index is composed of the LB
Mortgage-Backed Securities Index, the LB Asset-Backed Securities Index and the
LB Government/Credit Bond Index. It includes Treasury, agency and corporate bond
issues, as well as mortgage-backed securities. The Index does not reflect fees
or expenses. An investor cannot invest directly in an index, and its results are
not indicative of any specific investment, including ACM Income Fund.
--------------------------------------------------------------------------------
ACM INCOME FUND o 7
-----------------
PORTFOLIO SUMMARY
-----------------
PORTFOLIO SUMMARY
December 31, 2002
INCEPTION DATE PORTFOLIO STATISTICS
8/28/87 Net Assets ($mil): $1,785.2
SECURITY TYPE
55.1% Treasury & Government Agency
18.0% Sovereign
13.4% Corporate [PIE CHART OMITTED]
0.9% Preferred Stock
12.6% Short-Term
COUNTRY BREAKDOWN
79.9% United States
5.5% Russia
4.2% Brazil
2.4% Turkey
2.2% Mexico
1.1% Columbia
0.7% Philippines [PIE CHART OMITTED]
0.6% Venezuela
0.5% Cayman
0.5% Panama
0.5% Peru
0.4% Malaysia
0.3% Ireland
0.3% United Kingdom
0.9% Other
All data as of December 31, 2002. The Fund's security type and country breakdown
are expressed as a percentage of total investments and may vary over time.
"Other" represents less than 0.2% weightings in the following countries:
Bulgaria, Canada, Belize, Hong Kong, Nigeria, Ukraine, Ecuador, El Salvador,
South Africa, Luxembourg and Uruguay.
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8 o ACM INCOME FUND
------------------------
PORTFOLIO OF INVESTMENTS
------------------------
PORTFOLIO OF INVESTMENTS
December 31, 2002 (unaudited)
Principal
Amount
(000) U.S. $ Value
--------------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 90.3%
U.S. Treasury Bonds - 55.3%
3.375%, 4/15/32 (TIPS)(a) ................... $ 147,074 $169,710,180
5.250%, 11/15/28(a)(b) ...................... 60,000 62,688,300
7.25%, 5/15/16(a) ........................... 20,000 25,615,640
11.25%, 2/15/15(a)(b) ....................... 160,000 266,506,400
12.00%, 8/15/13(a) .......................... 82,000 119,428,572
12.50%, 8/15/14(a) .......................... 70,300 108,045,125
13.25%, 5/15/14(a)(b) ....................... 150,000 235,341,900
-------------
987,336,117
-------------
U.S. Treasury Strips - 13.2%
Zero coupon, 5/15/17(a) ..................... 260,000 128,395,280
Zero coupon, 11/15/21(a)(b) ................. 285,350 106,326,261
-------------
234,721,541
-------------
U.S. Treasury Note - 0.0%
4.375%, 8/15/12(a) .......................... 700 731,910
-------------
Resolution Funding Corp. - 3.2%
Zero coupon, 10/15/20 ....................... 150,000 56,460,000
-------------
Mortgage Related Securities - 18.6%
Federal Home Loan Mortgage Corporation
6.50%, TBA .................................. 70,000 72,909,340
Federal National Mortgage Association
5.50%, TBA .................................. 150,000 153,000,000
7.00%, TBA .................................. 100,000 106,312,500
-------------
332,221,840
-------------
Total U.S. Government and Agency Obligations
(cost $1,496,544,155) ....................... 1,611,471,408
-------------
SOVEREIGN DEBT OBLIGATIONS - 29.4%
Sovereign Debt Securities - 27.2%
Belize - 0.1%
Republic of Belize
9.50%, 8/15/12(c) ........................... 2,350 2,407,446
-------------
Brazil - 4.6%
Republic of Brazil
Global Bonds
8.875%, 4/15/24(c) .......................... 1,525 834,938
11.00%, 1/11/12(c) .......................... 12,250 8,134,000
11.00%, 8/17/40(d) .......................... 49,124 30,653,376
11.25%, 7/26/07(c) .......................... 2,300 1,759,500
11.50%, 3/12/08(c) .......................... 200 151,000
12.00%, 4/15/10(c) .......................... 14,550 10,548,750
--------------------------------------------------------------------------------
ACM INCOME FUND o 9
------------------------
PORTFOLIO OF INVESTMENTS
------------------------
Principal
Amount
(000) U.S. $ Value
--------------------------------------------------------------------------------
12.75%, 1/15/20(c) .......................... $ 900 $ 630,000
14.50%, 10/15/09(c) ......................... 4,625 3,827,187
Brazilian Real Structured Notes
19.50%, 7/02/03(e) .......................... BRL 23,450 6,127,000
19.70%, 7/01/03(e) .......................... 23,040 7,808,500
19.725%, 7/02/03(e) ......................... 46,580 12,184,000
------------
82,658,251
------------
Bulgaria - 0.3%
Republic of Bulgaria
8.25%, 1/15/15(e) ........................... $ 5,124 5,597,970
------------
Colombia - 1.7%
Republic of Colombia
Global Bonds
8.70%, 2/15/16(c) ........................... 400 294,000
9.75%, 4/23/09(c) ........................... 150 156,750
10.00%, 1/23/12(c) .......................... 490 497,350
10.50%, 7/09/10(c) .......................... 650 682,500
11.75%, 2/25/20(c) .......................... 27,300 29,183,700
------------
30,814,300
------------
Ecuador - 0.1%
Republic of Ecuador
6.00%, 8/15/30(e)(f) ........................ 425 176,375
12.00%, 11/15/12(e) ......................... 975 555,750
------------
732,125
------------
El Salvador - 0.0%
Republic of El Salvador
7.75%, 1/24/23(e) ........................... 300 298,500
------------
Mexico - 3.6%
Mexican Bonos
9.50%, 3/08/07(c) ........................... MXP 328,855 31,603,786
United Mexican States
7.50%, 1/14/12(c) ........................... $ 1,000 1,072,500
8.125%, 12/30/19(c) ......................... 1,905 2,009,775
10.375%, 2/17/09(c) ......................... 3,225 3,974,813
10.50%, 7/14/11(c) .......................... MXP 81,148 8,377,059
11.375%, 9/15/16(c) ......................... $ 5,235 7,014,900
14.50%, 5/12/05(c) .......................... MXP 96,553 10,327,972
------------
64,380,805
------------
Panama - 0.8%
Republic of Panama
Global Bonds
9.375%, 7/23/12(c) .......................... $ 2,000 2,153,000
9.625%, 2/08/11(c) .......................... 450 491,175
10.75%, 5/15/20(c) .......................... 10,425 11,649,938
14,294,113
------------
--------------------------------------------------------------------------------
10 o ACM INCOME FUND
------------------------
PORTFOLIO OF INVESTMENTS
------------------------
Principal
Amount
(000) U.S. $ Value
--------------------------------------------------------------------------------
Peru - 0.8%
Republic of Peru
9.125%, 1/15/08(c) .......................... $ 3,825 $ 3,882,375
9.125%, 2/21/12(c) .......................... 10,225 10,058,844
------------
13,941,219
------------
Philippines - 0.9%
Republic of Philippines
9.00%, 2/15/13(b) ........................... 6,700 6,639,700
9.875%, 1/15/19(c) .......................... 7,750 7,691,875
10.625%, 3/16/25(c) ......................... 975 1,006,687
------------
15,338,262
------------
Russia - 9.1%
Ministry of Finance
3.00%, 5/14/06(c) ........................... 10,330 9,090,400
3.00%, 5/14/08(c) ........................... 600 474,000
Russian Federation
5.00%, 3/31/30(e)(f) ........................ 192,305 153,122,857
------------
162,687,257
------------
South Africa - 0.1%
Republic of South Africa
7.375%, 4/25/12(c) .......................... 750 813,750
------------
Turkey - 4.0%
Republic of Turkey
11.50%, 1/23/12(c) .......................... 775 798,250
11.75%, 6/15/10(c) .......................... 850 898,025
11.875%, 1/15/30(c) ......................... 1,650 1,728,375
12.375%, 6/15/09(c) ......................... 125 135,313
Turkish Lira Structured Notes .................. TRL
41.34%, 4/10/03(e)(g) ....................... 21,478,599,36 11,629,912
39.97%, 4/10/03(e)(g) ....................... 76,389,035,17 41,361,504
56.67%, 5/08/03(e)(g) ....................... 27,914,698,94 14,540,748
------------
71,092,127
------------
Ukraine - 0.2%
Republic of Ukraine
11.00%, 3/15/07(c) .......................... $ 3,835 3,966,510
------------
Uruguay - 0.0%
Republic of Uruguay
7.875%, 7/15/27(c) .......................... 200 98,000
8.75%, 6/22/10(c) ........................... 100 56,500
------------
154,500
------------
Venezuela - 0.9%
Republic of Venezuela
9.25%, 9/15/27(c) ........................... 23,400 15,947,100
------------
Total Sovereign Debt Securities
(cost $424,055,347) ......................... 485,124,235
------------
--------------------------------------------------------------------------------
ACM INCOME FUND o 11
------------------------
PORTFOLIO OF INVESTMENTS
------------------------
Principal
Amount
(000) U.S. $ Value
--------------------------------------------------------------------------------
Collateralized Brady Bonds(h) - 2.2%
Brazil - 2.0%
Republic of Brazil
Discount Bonds FRN
2.625%, 4/15/12(c) .......................... $ 425 $ 232,000
8.00%, 4/15/14(c) ........................... 53,443 35,147,520
------------
35,379,520
------------
Nigeria - 0.2%
Central Bank of Nigeria
6.25%, 11/15/20(c)(f) ....................... 4,500 3,015,000
------------
Panama - 0.0%
Republic of Panama
Discount Bonds FRN PDI
2.75%, 7/17/16(c) ........................... 458 365,392
------------
Peru - 0.0%
Republic of Peru FLIRB
4.00%, 3/07/17(c)(f) ........................ 50 35,625
Republic of Peru PDI
4.50%, 3/07/17(c)(f) ........................ 539 425,810
------------
461,435
------------
Venezuela - 0.0%
Republic of Venezuela
Discount Bonds FRN
2.313%, 12/18/07(c) ......................... 476 359,524
------------
Total Collateralized Brady Bonds
(cost $35,123,236) .......................... 39,580,871
------------
Total Sovereign Debt Obligations
(cost $459,178,583) ......................... 524,705,106
------------
CORPORATE DEBT OBLIGATIONS - 21.9%
Brazil - 0.2%
Banco Nac De Desen Econo
6.50%, 6/15/06(e) ........................... 5,350 4,327,080
------------
Canada - 0.4%
Fairfax Financial Holdings
7.375%, 4/15/18(c) .......................... 4,500 2,727,189
8.30%, 4/15/26(c) ........................... 5,000 3,102,515
Microcell Telecommunications, Series B
14.00%, 6/01/06(i) .......................... 27,375 958,125
------------
6,787,829
------------
--------------------------------------------------------------------------------
12 o ACM INCOME FUND
------------------------
PORTFOLIO OF INVESTMENTS
------------------------
Principal
Amount
(000) U.S. $ Value
--------------------------------------------------------------------------------
Cayman - 0.0%
Petrobras International Finance
9.875%, 5/09/08(c) .......................... $ 300 $ 275,250
Unibanco Uniao De Banco
9.375%, 4/30/12(e)(f) ....................... 225 150,680
------------
425,930
------------
Hong Kong - 0.1%
PCCW-HKTC Capital Ltd.
7.75%, 11/15/11(e) .......................... 1,700 1,833,408
------------
Ireland - 0.5%
MDP Acquisitions PLC
9.625%, 10/01/12(e) ......................... 7,810 8,161,450
------------
Luxembourg - 0.0%
Mobile Telesystems Finance S.A.
10.95%, 12/21/04(c) ......................... 710 747,275
------------
Malaysia - 0.6%
Petroliam Nasional Berhad
7.625%, 10/15/26(e) ......................... 425 441,328
Petronas Capital Ltd.
7.875%, 5/22/22(e) .......................... 9,100 9,807,216
------------
10,248,544
------------
Philippines - 0.4%
Globe Telecom, Inc.
9.75%, 4/15/12(c) ........................... 550 573,375
Philippine Long Distance Telephone Company
11.375%, 5/15/12(c) ......................... 6,250 5,696,844
------------
6,270,219
------------
Russia - 0.0%
Tyumen Oil
11.00%, 11/06/07(e) ......................... 200 206,750
------------
United Kingdom - 0.5%
Avecia Group PLC
11.00%, 7/01/09(c) .......................... 7,500 5,887,500
British Telecommunications PLC
8.125%, 12/15/10(c) ......................... 1,500 1,801,584
Vodafone Group PLC
7.75%, 2/15/10 .............................. 1,700 2,008,329
------------
9,697,413
------------
--------------------------------------------------------------------------------
ACM INCOME FUND o 13
------------------------
PORTFOLIO OF INVESTMENTS
------------------------
Principal
Amount
(000) U.S. $ Value
--------------------------------------------------------------------------------
United States - 19.2%
Alabama Power Co.
5.875%, 12/01/22(c) ............................. $ 900 $ 928,994
Alderwoods Group, Inc.
12.25%, 1/02/09(c) .............................. 3,785 3,463,275
Allied Waste North America, Inc., Series B
10.00%, 8/01/09 ................................. 13,000 12,967,500
Anthem, Inc.
6.80%, 8/01/12(c) ............................... 4,000 4,360,144
AOL Time Warner, Inc.
6.875%, 5/01/12(c) .............................. 2,950 3,121,961
Applied Extrusion Technologies, Series B
10.75%, 7/01/11 ................................. 10,563 5,070,240
Berry Plastics
10.75%, 7/15/12 ................................. 6,820 7,297,400
Charter Communications Holdings
10.00%, 5/15/11(c) .............................. 2,900 1,305,000
10.75%, 10/01/09(c) ............................. 4,655 2,129,663
11.75%, 5/15/11(c)(j) ........................... 10,000 2,550,000
CIT Group, Inc.
7.75%, 4/02/12 .................................. 2,000 2,250,088
Citigroup, Inc.
5.625%, 8/27/12 ................................. 2,000 2,106,884
Comerica Bank
8.375%, 7/15/24 ................................. 2,000 2,387,290
Conocophillips
4.75%, 10/15/12(e) .............................. 1,525 1,536,155
Devon Energy Corp.
7.95%, 4/15/32(c) ............................... 4,000 4,824,096
Dex Media East LLC
12.125%, 11/15/12(e) ............................ 6,760 7,520,500
Dole Food, Inc.
7.25%, 5/01/09(c) ............................... 4,200 4,072,635
Duke Capital Corp.
6.25%, 2/15/13 .................................. 2,800 2,498,681
Echostar DBS Corp.
9.375%, 2/01/09 ................................. 9,000 9,562,500
Extended Stay America, Inc.
9.875%, 6/15/11(c) .............................. 7,000 7,140,000
Farmers Exchange Capital
7.05%, 7/15/28(e) ............................... 1,000 656,015
Finova Group, Inc.
7.50%, 11/15/09 ................................. 24,500 8,575,000
FirstEnergy Corp., Series B
6.45%, 11/15/11(c) .............................. 3,000 2,990,502
FMC Corp.
10.25%, 11/01/09(e) ............................. 4,285 4,649,225
Ford Motor Company
7.45%, 7/16/31(c) ............................... 2,000 1,744,418
--------------------------------------------------------------------------------
14 o ACM INCOME FUND
------------------------
PORTFOLIO OF INVESTMENTS
------------------------
Principal
Amount
(000) U.S. $ Value
--------------------------------------------------------------------------------
Ford Motor Credit Company
7.25%, 10/25/11(c) .............................. $ 1,000 $ 973,227
Goldman Sachs Group, Inc.
5.70%, 9/01/12 .................................. 2,900 3,021,727
Host Marriott L.P., Series I
9.50%, 1/15/07 .................................. 4,000 4,080,000
Household Finance Corp.
6.75%, 5/15/11(c) ............................... 1,500 1,601,847
Huntsman ICI Chemicals LLC
10.125%, 7/01/09(c) ............................. 7,500 6,262,500
Insight Midwest
9.75%, 10/01/09(e) .............................. 2,500 2,387,500
J.P. Morgan Chase & Co.
5.75%, 1/02/13(c) ............................... 2,250 2,282,767
6.625%, 3/15/12 ................................. 1,400 1,519,979
Lin Holdings Corp.
10.00%, 3/01/08(c)(j) ........................... 9,071 9,309,114
Lyondell Chemical Co.
9.50%, 12/15/08(c) .............................. 6,675 6,241,125
10.875%, 5/01/09 ................................ 10,990 9,451,400
Mediacom Broadband LLC
11.00%, 7/15/13 ................................. 5,645 5,757,900
Meristar Hospitality Operations
10.50%, 6/15/09 ................................. 6,120 5,615,100
Nextel Communications, Inc.
9.375%, 11/15/09 ................................ 9,485 8,631,350
10.65%, 9/15/07(j) .............................. 7,900 7,584,000
Nextel Partners, Inc.
12.50%, 11/15/09 ................................ 8,500 7,692,500
Nisource Finance Corp.
7.875%, 11/15/10(c) ............................. 4,960 5,459,249
Northrop Grumman Corp.
7.75%, 2/15/31(c) ............................... 2,950 3,547,879
Owens-Brockway Glass Containers
8.875%, 2/15/09(c) .............................. 8,000 8,280,000
Panamsat Corp.
8.50%, 2/01/12(e) ............................... 1,180 1,132,800
Pathmark Stores, Inc.
8.75%, 2/01/12(c) ............................... 175 161,875
Paxson Communications Corp.
10.75%, 7/15/08 ................................. 6,500 6,443,125
Pemex Project
9.125%, 10/13/10(c) ............................. 500 573,750
Plastipak Holdings, Inc.
10.75%, 9/01/11(e) .............................. 1,500 1,584,375
Pliant Corp.
13.00%, 6/01/10 ................................. 7,625 7,026,462
Progress Energy, Inc.
6.85%, 4/15/12(c) ............................... 600 658,350
--------------------------------------------------------------------------------
ACM INCOME FUND o 15
------------------------
PORTFOLIO OF INVESTMENTS
------------------------
Share or
Principal
Amount
(000) U.S. $ Value
--------------------------------------------------------------------------------
Qwest Services Corp.
14.00%, 12/15/14(e) ............................. $29,907 $32,150,025
Raytheon Co.
7.00%, 11/01/28(c) .............................. 4,475 4,802,583
Resolution Performance
13.50%, 11/15/10(c) ............................. 6,575 6,969,500
RH Donnelley Finance Corp.
10.875%, 12/15/12(e) ............................ 5,065 5,546,175
Rite Aid Corp.
11.25%, 7/01/08(c) .............................. 5,220 4,854,600
Rural Cellular Corp.
9.75%, 1/15/10 .................................. 13,000 7,865,000
Service Corp. International
6.00%, 12/15/05(c) .............................. 4,000 3,780,000
7.70%, 4/15/09(e) ............................... 4,000 3,760,000
Six Flags, Inc.
9.75%, 6/15/07 .................................. 3,612 3,521,700
10.00%, 4/01/08(c)(j) ........................... 3,442 3,347,345
Sprint Capital Corp.
6.875%, 11/15/28(c) ............................. 10,000 8,075,610
8.75%, 3/15/32(c) ............................... 3,000 2,858,679
Swift & Co.
10.125%, 10/01/09(e) ............................ 6,580 6,251,000
Teco Energy, Inc.
10.50%, 12/01/07(e) ............................. 700 686,773
Triton PCS, Inc.
8.75%, 11/15/11 ................................. 4,000 3,260,000
11.00%, 5/01/08(c)(j) ........................... 7,500 6,281,250
Tyson Foods, Inc.
8.25%, 10/01/11(c) .............................. 4,000 4,736,868
Venetian Casino
11.00%, 6/15/10(e) .............................. 6,000 6,300,000
Verizon Global Funding Corp.
7.375%, 9/01/12(c) .............................. 1,440 1,660,301
7.75%, 6/15/32 .................................. 1,550 1,823,829
Waste Management, Inc.
6.375%, 11/15/12(e) ............................. 960 989,689
Wells Fargo & Company
5.00%, 11/15/14(c) .............................. 500 506,157
-----------
343,015,151
-----------
Total Corporate Debt Obligations
(cost $417,912,032) ............................. 391,721,049
-----------
PREFERRED STOCKS - 1.5%
Centaur Funding Corp., Series C(e) ................. 75,000 13,582,125
CSC Holding, Inc.(c) ............................... 140,829 13,156,086
-----------
Total Preferred Stocks
(cost $20,166,326) .............................. 26,738,211
-----------
--------------------------------------------------------------------------------
16 o ACM INCOME FUND
------------------------
PORTFOLIO OF INVESTMENTS
------------------------
Shares,
Contract(l)
or Principal
Amount
(000) U.S. $ Value
--------------------------------------------------------------------------------
CALL OPTIONS PURCHASED(k) - 0.0%
Federal Republic of Brazil,
Expiring Jan '03 @ $58.375 .................... 825,000 $ 63,525
Ministry of Russia
Expiring Mar '03 @ $79.4375 ................... 1,000,000 14,000
--------------
Total Call Options Purchased
(premiums paid $44,398) ....................... 77,525
--------------
WARRANTS - 0.0%
Central Bank of Nigeria
Warrants expiring 11/15/20(k) ................. 4,500 0
Republic of Venezuela
Warrants expiring 4/15/20(k) .................. 1,785 0
United Mexican States
Warrants expiring 6/30/03 ..................... 2,500,000 8,125
--------------
Total Warrants
(cost $0) ..................................... 8,125
--------------
SHORT-TERM INVESTMENTS - 20.7%
Repurchase Agreement - 20.5%
State Street Bank & Trust Co.
1.20%, dated 12/31/02, due 1/02/03 in the
amount of $364,924,327 (collateralized by:
$66,200,000 FHLMC, 7.00% due 06/01/32,
$51,000,000 FHLB, 1.60% due 01/16/04,
$51,520,000 FNMA, 6.50% due 07/01/32,
$51,000,000 FHLB, 1.55% due 01/14/04,
$51,000,000 FHLB, 1.55% due 01/14/04,
$51,195,000 FNMA, Zero Coupon due
04/30/03 and $40,925,000 FNMA,
7.25% due 01/15/10; value -- $372,210,600)
(cost $364,900,000) ........................... $ 364,900 364,900,000
--------------
U.S. Treasury Obligation - 0.2%
U.S. Treasury Bills
1.18%, 3/20/03(m)(n)
(cost $3,989,773) ............................. 4,000 3,989,773
--------------
Total Short-Term Investments
(cost $368,889,773) ........................... 368,889,773
--------------
Total Investments - 163.8%
(cost $2,762,735,267) ......................... $2,923,611,197
--------------
--------------------------------------------------------------------------------
ACM INCOME FUND o 17
------------------------
PORTFOLIO OF INVESTMENTS
------------------------
Contracts(l) U.S. $ Value
--------------------------------------------------------------------------------
CALL OPTION WRITTEN(k) - 0.0%
Federal Republic of Brazil,
Expiring Mar '03 @ $68.25
(premium received $19,000) ............... 1,000,000 $ (12,000)
---------------
Total Investments, Net of Outstanding
Call Option Written - 163.8%
(cost $2,762,716,267) .................... 2,923,599,197
Other assets less liabilities* - (63.8%) .... (1,138,435,204)
---------------
NET ASSETS - 100.0% ......................... $ 1,785,163,993
===============
*SECURITY LENDING INFORMATION
Includes cash collateral received of $44,083,770 for securities on loan as of
December 31, 2002 (see Note G). The lending agent invested the cash collateral
in a short-term investment as follows:
Percent
Current U.S. $ of Net
Yield Shares Value Assets
------ ---------- ----------- -------
UBS Private Money Market Fund LLC 1.46% 44,083,770 $44,083,770 2.5%
FINANCIAL FUTURES CONTRACTS SOLD
Value at
Number of Expiration Original December 31, Unrealized
Type Contracts Month Value 2002 Depreciation
========== ========= ========== ======== ============ =============
U.S. Treasury
Note March
5 Year Future 2,530 2003 $279,618,681 $286,522,500 $(6,903,819)
FORWARD EXCHANGE CURRENCY CONTRACTS
U.S. $
Contract Value on U.S. $ Unrealized
Amount Origination Current Appreciation/
(000) Date Value (Depreciation)
-------------------------------------------------------------------------------
Buy Contract
Mexican Peso,
settling 1/17/03 .... 270,775 $25,928,126 $25,899,882 $ (28,244)
Sale Contract
Mexican Peso,
settling 1/17/03 .... 580,845 56,361,602 55,558,353 803,249
---------
$ 775,005
=========
See footnote summary on page 19.
--------------------------------------------------------------------------------
18 o ACM INCOME FUND
------------------------
PORTFOLIO OF INVESTMENTS
------------------------
(a) Positions, or portion thereof, with an aggregate market value of
$772,564,817 have been segregated to collateralize the loan outstanding.
(b) Positions, or portion thereof, with an aggregate market value of
$455,179,750 have been segregated to collateralize reverse repurchase
agreements.
(c) Positions, or portion thereof, with an aggregate market value of
$403,091,796 have been segregated to collateralize open forward exchange
currency contracts.
(d) Position, or portion thereof, with an aggregate market value of
$30,653,376 has been segregated to collaterize the call option written.
(e) Securities exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At December 31,
2002, these securities amounted to $367,063,385 or 20.6% of net assets.
(f) Coupon increases periodically based upon a predetermined schedule. Stated
interest rate in effect at December 31, 2002.
(g) Annualized yield to maturity at purchase date.
(h) Sovereign debt obligations issued as part of debt restructurings that are
collateralized in full as to principal due at maturity by U.S. Treasury
zero coupon obligations which have the same maturity as the Brady Bond.
(i) Security is in default and is non-income producing.
(j) 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.
(k) Non-income producing security.
(l) One contract relates to principal amount of $1.00.
(m) Security has been segregated to collateralize margin requirements for open
futures contracts sold.
(n) Interest rate shown is the discount rate at date of purchase.
Currency Abbreviations:
BRL - Brazilian Real
MXP - Mexican Peso
TRL - Turkish Lira
Glossary of Terms:
FLIRB - Front Loaded Interest Reduction Bond
FHLB - Federal Home Loan Bank
FHLMC - Federal Home Loan Mortgage Corporation
FNMA - Federal National Mortgage Association
FRN - Floating Rate Note
PDI - Past Due Interest
TBA - (To Be Assigned) -- Securities are purchased on a forward
commitment with an appropriate principal amount (generally
+/- 1.0%) and no definite maturity date. The actual
principal amount and maturity date will be determined upon
settlement when the specific mortgage pools are assigned.
TIPS - Treasury Inflation Protected Security
See notes to financial statements.
--------------------------------------------------------------------------------
ACM INCOME FUND o 19
---------------------------------
STATEMENT OF ASSETS & LIABILITIES
---------------------------------
STATEMENT OF ASSETS & LIABILITIES
December 31, 2002
Assets
Investments in securities, at value (cost $2,397,835,267) $ 2,558,711,197(a)
Repurchase agreement, at value (cost $364,900,000) ...... 364,900,000
Receivable for investment securities sold ............... 124,010,315
Collateral held for securities loaned ................... 44,083,770
Interest and dividends receivable ....................... 42,319,086
Net unrealized appreciation on forward exchange
currency contracts ................................... 775,005
Variation margin on futures contracts ................... 395,313
Prepaid expenses ........................................ 104,359
---------------
Total assets ............................................ 3,135,299,045
---------------
Liabilities
Due to custodian ........................................ 177,711
Reverse repurchase agreements ........................... 449,720,996
Outstanding option written, at value (premium
received $19,000) .................................... 12,000
Payable for investment securities purchased ............. 453,777,081
Loan payable ............................................ 400,000,000
Payable for collateral received on securities loaned .... 44,083,770
Advisory fee payable .................................... 1,442,563
Loan interest payable ................................... 345,691
Administrative fee payable .............................. 233,736
Accrued expenses ........................................ 341,504
---------------
Total liabilities ....................................... 1,350,135,052
---------------
Net Assets .............................................. $ 1,785,163,993
===============
Composition of Net Assets
Capital stock, at par ................................... $ 2,257,243
Additional paid-in capital .............................. 2,108,367,830
Distributions in excess of net investment income ........ (19,647,737)
Accumulated net realized loss on investment and
foreign currency transactions ........................ (460,489,766)
Net unrealized appreciation of investments and
foreign currency denominated assets and liabilities .. 154,676,423
---------------
$ 1,785,163,993
===============
Net Asset Value Per Share
(based on 225,724,280 shares outstanding) ............ $7.91
=====
(a) Includes securities on loan with a value of $41,940,815 (see Note G).
See notes to financial statements.
--------------------------------------------------------------------------------
20 o ACM INCOME FUND
-----------------------
STATEMENT OF OPERATIONS
-----------------------
STATEMENT OF OPERATIONS
Year Ended December 31, 2002
Investment Income
Interest ............................................. $ 231,067,625
Dividends ............................................ 972,970 $232,040,595
------------
Expenses
Advisory fee ......................................... 16,710,508
Administrative fee ................................... 2,616,801
Printing ............................................. 703,340
Custodian ............................................ 476,554
Transfer agency ...................................... 469,079
Registration fee ..................................... 193,930
Audit and legal ...................................... 162,830
Directors' fees ...................................... 50,005
Miscellaneous ........................................ 119,582
------------
Total expenses before interest ....................... 21,502,629
Interest expense ..................................... 10,485,507
------------
Total expenses ....................................... 31,988,136
------------
Net investment income ................................ 200,052,459
------------
Realized and Unrealized Gain (Loss)
on Investment and Foreign Currency
Transactions Net realized gain (loss) on:
Investment transactions .......................... (103,554,494)
Written options ................................... 1,471,473
Foreign currency transactions ..................... (18,207,559)
Net change in unrealized appreciation/depreciation of:
Investments ....................................... 142,430,105
Written options ................................... 7,000
Futures contracts ................................. (6,903,819)
Foreign currency denominated assets
and liabilities ................................. 750,833
------------
Net gain on investment and foreign
currency transactions ............................. 15,993,539
------------
Net Increase in Net Assets from
Operations ........................................ $216,045,998
============
See notes to financial statements.
--------------------------------------------------------------------------------
ACM INCOME FUND o 21
----------------------------------
STATEMENT OF CHANGES IN NET ASSETS
----------------------------------
STATEMENT OF CHANGES IN NET ASSETS
Year Ended Year Ended
December 31, December 31,
2002 2001
=============== ===============
Increase (Decrease) in Net Assets
from Operations
Net investment income .................... $ 200,052,459 $ 129,292,933
Net realized loss on investment and
foreign currency transactions ......... (120,290,580) (31,090,929)
Net change in unrealized
appreciation/depreciation
of investments and foreign
currency denominated assets
and liabilities ....................... 136,284,119 13,340,738
--------------- ---------------
Net increase in net assets from operations 216,045,998 111,542,742
Dividends and Distributions to
Shareholders from
Net investment income .................... (191,884,640) (129,292,933)
Distributions in excess of net investment
income ................................ -0- (10,957,527)
Tax return of capital .................... (15,245,936) -0-
Capital Stock Transactions
Reinvestment of dividends resulting in
issuance of Common Stock .............. 11,353,634 3,428,477
Proceeds from sale of shares of common
stock in rights offering .............. -0- 399,632,465
--------------- ---------------
Total increase ........................... 20,269,056 374,353,224
Net Assets
Beginning of period ...................... 1,764,894,937 1,390,541,713
--------------- ---------------
End of period ............................ $ 1,785,163,993 $ 1,764,894,937
=============== ===============
See notes to financial statements.
--------------------------------------------------------------------------------
22 o ACM INCOME FUND
-----------------------
STATEMENT OF CASH FLOWS
-----------------------
STATEMENT OF CASH FLOWS
Year Ended December 31, 2002
Increase (Decrease) in Cash from
Operating Activities:
Interest and dividends received ........... $ 159,405,026
Interest expense paid ..................... (11,025,630)
Operating expenses paid ................... (20,818,694)
---------------
Net increase in cash from operating
activities ............................. $ 127,560,702
Investing Activities:
Purchases of long-term investments ........ (9,922,299,521)
Proceeds from disposition of long-term
investments ............................ 9,745,772,473
Purchases of short-term
investments--net ....................... (241,693,736)
Cash collateral received on securities
loaned ................................. 44,083,770
Premium received on written options ....... 19,000
Variation margin paid on futures contracts (7,299,132)
---------------
Net decrease in cash from investing
activities ............................. (381,417,146)
Financing Activities*:
Cash dividends paid ....................... (206,308,869)
Proceeds from bank loan ................... 100,000,000
Due to Custodian .......................... 177,711
Proceeds from reverse repurchase
agreements ............................. 360,370,191
Decrease in payable for rights
offering costs ......................... (853,900)
---------------
Net increase in cash from financing
activities ............................. 253,385,133
---------------
Net decrease in cash ...................... (471,311)
Cash at beginning of period ............... 471,311
---------------
Cash at end of period ..................... $ -0-
---------------
--------------------------------------------------------------------------------
Reconciliation of Net Increase in
Net Assets from Operations to
Net Increase in Cash from
Operating Activities:
Net increase in net assets from
operations ............................. $ 216,045,998
Adjustments:
Increase in interest and dividends
receivable $ (4,279,028)
Accretion of bond discount and
amortization of bond premium ........... (68,356,541)
Decrease in interest payable .............. (540,123)
Increase in accrued expenses .............. 683,935
Net realized loss on investment and
foreign currency transactions .......... 120,290,580
Net change in unrealized
appreciation/depreciation of
investments and foreign currency
denominated assets and liabilities ..... (136,284,119)
---------------
Total adjustments ......................... (88,485,296)
---------------
Net Increase in Cash from Operating
Activities ............................. $ 127,560,702
===============
* Non-cash financing activities not included herein consist of reinvestment
of dividends.
See notes to financial statements.
--------------------------------------------------------------------------------
ACM INCOME FUND o 23
-----------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTES TO FINANCIAL STATEMENTS
December 31, 2002
NOTE A
Significant Accounting Policies
ACM Income Fund, Inc. (the "Fund") is registered under the Investment Company
Act of 1940 as a non-diversified, closed-end management investment company. The
financial statements have been prepared in conformity with accounting principles
generally accepted in the United States which require management to make certain
estimates and assumptions that affect the reported amounts of assets and
liabilities in the financial statements and amounts of income and expenses
during the reporting period. Actual results could differ from those estimates.
The following is a summary of significant accounting policies followed by the
Fund.
1. Security Valuation
Portfolio securities traded on a national securities exchange or on a foreign
securities exchange (other than foreign securities exchanges whose operations
are similar to those of the United States over-the-counter market) are generally
valued at the last reported sale price or, if there was no sale on such day, the
last bid price quoted on such day. If no bid prices are quoted, then the
security is valued at the mean of the bid and asked prices as obtained on that
day from one or more dealers regularly making a market in that security.
Securities traded on the over-the-counter market, securities listed on a foreign
securities exchange whose operations are similar to the United States
over-the-counter market and securities listed on a national securities exchange
whose primary market is believed to be over-the-counter are valued at the mean
of the closing bid and asked prices provided by two or more dealers regularly
making a market in such securities. U.S. government securities and other debt
securities which mature in 60 days or less are valued at amortized cost unless
this method does not represent fair value. Securities for which market
quotations are not readily available are valued at fair value as determined in
good faith by, or in accordance with procedures approved by, the Board of
Directors. Fixed income securities may be valued on the basis of prices provided
by a pricing service when such prices are believed to reflect the fair market
value of such securities. Listed put and call options purchased by the Fund are
valued at the last sale price. If there is no sale on that day, such securities
are valued at the closing bid prices on that day.
2. Taxes
It is the Fund's policy to meet the requirements of the Internal Revenue Code
applicable to regulated investment companies and to distribute all of its
investment company taxable income and net realized gains, if any, to
shareholders. Therefore, no provisions for federal income or excise taxes are
required.
3. Investment Income and Investment Transactions
Interest income is accrued daily. Dividend income is recorded on the ex-dividend
date. Investment transactions are accounted for on the date securities are
purchased or sold. Investment gains and losses are deter mined on the identified
cost basis. The Fund accretes discounts as adjustments to interest income.
Additionally, the Fund amortizes premium on debt securities as adjustments to
interest in-
--------------------------------------------------------------------------------
24 o ACM INCOME FUND
-----------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
come for financial statement reporting purposes only.
4. Currency Translation
Assets and liabilities denominated in foreign currencies and commitments under
forward exchange currency contracts are translated into U.S. dollars at the mean
of the quoted bid and asked prices of such currencies against the U.S. dollar.
Purchases and sales of portfolio securities are translated into U.S. dollars at
the rates of exchange prevailing when such securities were acquired or sold.
Income and expenses are translated into U.S. dollars at the rates of exchange
prevailing when accrued.
Net realized gain or loss on foreign currency transactions represents foreign
exchange gains and losses from sales and maturities of foreign securities,
holding of foreign currencies, options on foreign currencies, closed forward
exchange currency contracts, exchange gains and losses realized between the
trade and settlement dates on foreign security transactions, and the difference
between the amounts of interest and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent 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 net unrealized appreciation or depreciation of investments and
foreign currency denominated assets and liabilities.
5. Dividends and Distributions
Dividends and distributions to shareholders, are recorded on the ex-dividend
date. Income and capital gains distributions are determined in accordance with
federal tax regulations and may differ from those determined in accordance with
accounting principles generally accepted in the United States. To the extent
these differences are permanent, such amounts are reclassified within the
capital accounts based on their federal tax basis treatment; temporary
differences, do not require such reclassification. During the current fiscal
year, permanent differences, primarily due to foreign currency transactions,
expiring capital loss carryforward, recognition of bond premium and tax return
of capital, resulted in a net increase in distributions in excess of net
investment income, a decrease in accumulated net realized loss on investments
and foreign currency transactions and a decrease in additional paid-in capital.
This change had no effect on net assets.
6. Repurchase Agreements
The Fund's custodian or designated subcustodian will take control of securities
as collateral under repurchase agreements and determine on a daily basis whether
the value of such securities is sufficient to cover the value of the repurchase
agreements. If the seller defaults and the value of the collateral declines or
if bankruptcy proceedings are commenced with respect to the seller of the
security, realization of collateral by the Fund may be delayed or limited.
NOTE B
Advisory, Administrative Fees and Other Transactions with Affiliates
Under the terms of an investment advisory agreement, the Fund pays Alliance
Capital Management L.P. (the "Adviser") a monthly advisory fee in
--------------------------------------------------------------------------------
ACM INCOME FUND o 25
-----------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
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 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. However,
such monthly advisory fee shall not exceed in the aggregate 1/12th of 1% of the
Fund's average weekly net assets during the month (approximately 1% on an annual
basis).
Under the terms of a Shareholder Inquiry Agency Agreement with Alliance Global
Investor Services, Inc. (AGIS), 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, 2002, the Fund reimbursed AGIS
$11,570 for such costs.
Under the terms of an Administrative Agreement, the Fund pays its Administrator,
UBS Global Asset Management (US) Inc. ("UBS Global AM"), a monthly fee equal to
the annual rate of .18 of 1% of the Fund's average weekly net assets up to $100
million, .16 of 1% of the Fund's next $200 million of average weekly net assets,
and .15 of 1% of the Fund's average weekly net assets in excess of $300 million.
UBS Global AM is an indirect wholly-owned asset management subsidiary of UBS AG.
The Administrator prepares financial and regulatory reports for the Fund and
provides other clerical services.
NOTE C
Investment Transactions
Purchases and sales of investment securities (excluding short-term investments
and U.S. government securities) aggregated $1,699,112,498 and $1,393,866,107,
respectively, for the year ended December 31, 2002. There were purchases of
$8,299,903,360 and sales of $8,475,916,681 of U.S. government and government
agency obligations for the year ended December 31, 2002.
At December 31, 2002, the cost of investments for federal income tax purposes
was $2,805,507,670. Accordingly, gross unrealized appreciation of investments
was $229,010,042, and gross unrealized depreciation was $110,906,515, resulting
in net unrealized appreciation of $118,103,527 (excluding futures, written
option and foreign currency transactions).
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.
At the time the Fund enters into a future 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
--------------------------------------------------------------------------------
26 o ACM INCOME FUND
-----------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
by the Fund as unrealized gains or losses. When the contract is closed, the Fund
records a realized gain or loss equal to the difference between the value of the
contract at the time it was opened and at the time it was closed.
2. Forward Exchange Currency Contracts
The Fund enters into forward exchange currency contracts to hedge its exposure
to changes in foreign currency exchange rates on its foreign portfolio holdings,
to hedge certain firm purchase and sale commitments denominated in foreign
currencies and for investment purposes. A forward exchange currency contract is
a commitment to purchase or sell a foreign currency at a future date at a
negotiated forward rate. The gain or loss arising from the difference between
the original contract and the closing of such contract is included in net
realized gain or loss on foreign currency transactions.
Fluctuations in the value of open forward exchange currency contracts are
reflected for financial reporting purposes as a component of net unrealized
appreciation or depreciation of investments and foreign currency denominated
assets and liabilities.
The Fund's custodian will place and maintain 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 purposes, the Fund purchases and writes (sells) put and call options
on U.S. and foreign government securities and foreign currencies that are traded
on U.S. and foreign securities exchanges and over-the-counter markets.
The risk associated with purchasing an option is that the Fund pays a premium
whether or not the option is exercised. Additionally, the Fund bears the risk of
loss of premium and change in market value should the counterparty not perform
under the contract. Put and call options purchased are accounted for in the same
manner as portfolio securities. The cost of securities acquired through the
exercise of call options is increased by the premiums paid. The proceeds from
securities sold through the exercise of put options are decreased by the
premiums paid.
When the Fund writes an option, the premium received by the Fund is recorded as
a liability and is subsequently adjusted to the current market value of the
option written. Premiums received from written options which expire unexercised
are recorded by the Fund on the expiration date as realized gain from options
written. The difference
--------------------------------------------------------------------------------
ACM INCOME FUND o 27
-----------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
between the premium received and the amount paid on effecting a closing purchase
transaction, including brokerage commissions, is also treated as a realized
gain, or if the premium is less than the amount paid for the closing purchase
transaction, as a realized loss. If a call option is exercised, the premium is
added to the proceeds from the sale of the underlying security or currency in
determining whether the Fund has realized a gain or loss. If a put option is
exercised, the premium 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 option written. Exercise of an option written by the Fund could
result in the Fund selling or buying a security or currency at a price different
from the current market value.
Transactions in options written for the year ended December 31, 2002, were as
follows:
Number of
Contracts
(000) Premium
========= ===========
Options outstanding at December 31, 2001 .......... 0 $ 0
Options written ................................... 257,433 2,503,755
Options terminated in closing purchase transactions (245,700) (2,199,723)
Options expired ................................... (10,733) (285,032)
-------- -----------
Options outstanding at December 31, 2002 .......... 1,000 $ 19,000
======== ===========
4. Swap Agreements
The Fund enters into swaps on sovereign debt obligations to protect itself from
interest rate fluctuations on the underlying debt instruments and for investment
purposes. A swap is an agreement that obligates two parties to exchange a series
of cash flows at specified intervals based upon or calculated by reference to
changes in specified prices or rates for a specified amount of an underlying
asset. The payment flows are usually netted against each other, with the
difference being paid by one party to the other. Risks may arise as a result of
the failure of the counterparty to the swap contract to comply with the terms of
the swap contract. The loss incurred by the failure of a counterparty is
generally limited to the net interest payment to be received by the Fund, and/or
the termination value at the end of the contract. Therefore, the Fund considers
the creditworthiness of each counterparty to a swap contract in evaluating
potential credit risk. Additionally, risks may arise from unanticipated
movements in interest rates or in the value of the underlying securities.
The Fund records a net receivable or payable on a daily basis for the net
interest income or expense expected to be received or paid during the interest
period. Net interest received or paid on these contracts is recorded as interest
income (or as an offset to interest income). Fluctuations in the value of swap
contracts are recorded for financial statement purposes as a component of net
change in unrealized appreciation/depreciation of investments and swap
contracts.
At December 31, 2002, the Fund did not have any swap agreements outstanding.
--------------------------------------------------------------------------------
28 o ACM INCOME FUND
-----------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE D
Distributions to Shareholders
The tax character of distributions paid during the fiscal years ended December
31, 2002 and December 31, 2001 were as follows:
2002 2001
============ =============
Distributions paid from:
Ordinary income ........................ $191,884,640 $ 143,680,532
------------ -------------
Total taxable distributions ............... 191,884,640 143,680,532
Tax return of capital ..................... 15,245,936 -0-
------------ -------------
Total distributions paid .................. $207,130,576 $ 143,680,532(a)
------------ -------------
As of December 31, 2002, the components of accumulated earnings/(deficit) on a
tax basis were as follows:
Accumulated capital and other losses ..................... $(443,493,716)(b)
Unrealized appreciation/(depreciation) ................... 118,032,834(c)
-------------
Total accumulated earnings/(deficit) ..................... $(325,460,882)
=============
(a) Total distributions paid differ from the Statement of Changes in Net
Assets because for tax purposes dividends are recognized when actually
paid.
(b) On December 31, 2002, the Fund had a net capital loss carryforward of
$430,445,919 of which $2,680,733 expires in the year 2003, $79,155 expires
in the year 2004, $34,157,206 expires in the year 2005, $131,355,099
expires in the year 2006, $67,513,083 expires in the year 2007, $8,878,672
expires in the year 2008, $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 carryforward, it is anticipated 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 in December
2000, may apply. Net capital losses incurred after October 31, and within
the taxable year are deemed to arise on the first business day of the
Fund's next taxable year. For the year ended December 31, 2002, the Fund
deferred to January 1, 2003, post October capital losses of $12,301,068
and post October currency losses of $746,729.
(c) The difference between book-basis and tax-basis unrealized
appreciation/(depreciation) is attributable primarily to the tax deferral
of losses on wash sales, the realization for tax purposes of unrealized
gains/losses on certain derivative instruments and the difference between
book and tax amortization methods for premium.
NOTE E
Capital Stock
There are 300,000,000 shares of $0.01 par value common stock authorized, of
which 225,724,280 shares were outstanding at December 31, 2002. During the year
ended December 31, 2002 and the year ended December 31, 2001, the Fund issued
1,507,419 and 410,752 shares, respectively, in connection with the Fund's
dividend reinvestment plan.
--------------------------------------------------------------------------------
ACM INCOME FUND o 29
-----------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE F
Rights Offering
During the year ended December 31, 2001, the Fund issued 59,208,424 shares in
connection with a rights offering of the Fund's shares. Shareholders of record
on November 19, 2001, were issued one non-transferable right for each share of
common stock owned, entitling shareholders the opportunity to acquire one newly
issued share of common stock for every three rights held at a subscription price
of $7.03 per share. Offering costs of $993,936 attributed to the rights offering
were charged against additional paid-in capital. Dealer management and
soliciting fees of $15,608,821 were netted against the proceeds of the
subscription.
NOTE G
Security Lending
The Fund has entered into a securities lending agreement with AG Edwards & Sons,
Inc. (the "Lending Agent"). Under the terms of the agreement, the Lending Agent,
on behalf of the Fund, administers the lending of portfolio securities to
certain broker-dealers. In return, the Fund receives fee income from the lending
transactions or it retains a portion of interest on the investment of any cash
received as collateral. The Fund also continues to receive dividends or interest
on the securities loaned. Unrealized gain or loss on the value of the securities
loaned that may occur during the term of the loan will be reflected in the
accounts of the Fund. All loans are continuously secured by collateral exceeding
the value of the securities loaned. All collateral consists of either cash or
U.S. Government securities. The Lending Agent may invest the cash collateral
received in accordance with the investment restrictions of the Fund in one or
more of the following investments: U.S. Government or U.S. Government agency
obligations, bank obligations, corporate debt obligations, asset-backed
securities, structured products, repurchase agreements and an eligible money
market fund. The Lending Agent will indemnify the Fund for any loss resulting
from a borrower's failure to return a loaned security when due. As of December
31, 2002, the Fund had loaned securities with a value of $41,940,815 and
received cash collateral of $44,083,770, which was invested in a money market
fund as included in the footnotes to the accompanying portfolio of investments.
For the year ended December 31, 2002, the Fund earned fee income of $90,579
which is included in interest income in the accompanying statement of
operations.
NOTE H
Reverse Repurchase Agreements
Under a reverse repurchase agreement, the Fund sells securities and agrees to
repurchase them at a mutually agreed upon date and price. At the time the Fund
enters into a reverse repurchase agreement, it will establish a segregated
account with the custodian containing liquid assets having a value at least
equal to the repurchase price.
--------------------------------------------------------------------------------
30 o ACM INCOME FUND
-----------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
As of December 31, 2002, the Fund had entered into the following reverse
repurchase agreements:
Broker Amount Interest Rate Maturity
========================= ============ ============= ================
Deutsche Bank $392,339,564 1.37% January 2, 2003
J.P. Morgan Chase $ 4,940,291 0.55% January 7, 2003
Greenwich Capital Markets $ 52,441,141 1.25% January 29, 2003
For the year ended December 31, 2002, the average amount of reverse repurchase
agreements outstanding was approximately $213,313,773 and the daily weighted
average annual interest rate was 1.26%.
NOTE I
Bank Borrowing
The Fund participated in a credit facility for a commercial paper asset
securitization program with Societe Generale ("SG") as Administrative Agent, and
Barton Capital Corporation ("Barton") as lender. The credit facility was
increased to a maximum of $400 million in January 2002. Under the SG Program,
Barton will fund advances to the Fund through the issuance of commercial paper
rated A-1+ by Standard & Poor's Ratings Services and P-1 by Moody's Investors
Service, Inc. The collateral value must be at least 171% of outstanding
borrowings. The borrowings under the SG program are secured by the pledging of
the Fund's portfolio securities as collateral. The interest rate on the Fund's
borrowings is based on the interest rate carried by the commercial paper. The
weighted average annual interest rate was 1.75% and the average borrowing was
$399,178,082 for the year ended December 31, 2002. At December 31, 2002, the
interest rate in effect was 1.39% and the amount of borrowings outstanding was
$400,000,000.
NOTE J
Concentration of Risk
Investing in securities of foreign governments involves special risks which
include changes in foreign exchange rates and the possibility of future adverse
political and economic developments which could adversely affect the value of
such securities. Moreover, securities of many foreign governments and their
markets may be less liquid and their prices more volatile than those of the
United States Government.
--------------------------------------------------------------------------------
ACM INCOME FUND o 31
--------------------
FINANCIAL HIGHLIGHTS
--------------------
FINANCIAL HIGHLIGHTS
Selected Data For A Share Of Common Stock Outstanding Throughout Each Period
Year Ended December 31,
--------------------------------------------------
2002 2001(a) 2000 1999 1998
--------------------------------------------------
Net asset value, beginning
of period .................. $ 7.87 $ 8.45 $ 7.64 $ 8.80 $10.51
--------------------------------------------------
Income From Investment
Operations
Net investment income(b) ..... .89 .76 .70 .79 .88
Net realized and unrealized
gain (loss) on investment
and foreign currency
transactions ............... .07 (.11) .91 (1.11) (1.71)
--------------------------------------------------
Net increase (decrease) in net
asset value from
operations ................. .96 .65 1.61 (.32) (.83)
--------------------------------------------------
Less: Dividends and
Distributions
Dividends from net
investment income .......... (.85) (.77) (.70) (.79) (.88)
Distributions in excess of net
investment income .......... -0- (.07) (.10) (.05) -0-
Tax return of capital ........ (.07) -0- -0- -0- -0-
--------------------------------------------------
Total dividends and
distributions .............. (.92) (.84) (.80) (.84) (.88)
--------------------------------------------------
Less: Fund Share
Transactions
Dilutive effect of rights
offering ................... -0- (.32) -0- -0- -0-
Offering costs charged to
paid-in-capital in excess
of par ..................... -0- (.07) -0- -0- -0-
--------------------------------------------------
Total fund share
transactions ............... -0- (.39) -0- -0- -0-
--------------------------------------------------
Net asset value,
end of period .............. $ 7.91 $ 7.87 $ 8.45 $ 7.64 $ 8.80
==================================================
Market value, end of period .. $ 8.46 $ 7.30 $ 7.50 $ 6.50 $ 9.13
==================================================
Total Investment Return
Total investment return
based on:(c)
Market value ............... 30.60% 7.80% 28.97% (20.84)% (9.25)%
Net asset value ............ 13.27% 3.11% 23.58% (3.53)% (8.38)%
See footnote summary on page 33.
--------------------------------------------------------------------------------
32 o ACM INCOME FUND
--------------------
FINANCIAL HIGHLIGHTS
--------------------
Year Ended December 31,
----------------------------------------------------------------
2002 2001(a) 2000 1999 1998
----------------------------------------------------------------
Ratios/Supplemental Data
Net assets, end of period
(000's omitted) ............. $1,785,164 $1,764,895 $1,390,542 $448,735 $512,296
Ratio to average net assets of:
Expenses .................... 1.87% 2.31% 2.54% 2.37% 2.09%
Expenses, excluding
interest expense(d) ......... 1.26% 1.18% 1.19% 1.19% 1.12%
Net investment income ....... 11.69% 9.33% 9.40% 9.80% 9.04%
Portfolio turnover rate ....... 414% 676% 538% 368% 409%
Asset coverage ratio .......... 376% 379% 339% 325% 325%
Bank borrowing outstanding
(in millions) ............... $400 $300 $300 $ 90 $ 90
(a) As required, effective January 1, 2001, the Fund has adopted the
provisions of the AICPA Audit and Accounting Guide Audits of Investment
Companies, and began amortizing premium on debt securities for financial
reporting purposes only. The effect of this change for the year ended
December 31, 2001, was to decrease net investment income per share by
$.05, decrease net realized and unrealized loss on investment transactions
per share by $.05, and decrease the ratio of net investment income to
average net assets from 9.92% to 9.33%. Per share, ratios and supplemental
data for periods prior to January 1, 2001 have not been restated to
reflect this change in presentation.
(b) Based on average shares outstanding.
(c) Total investment return is calculated assuming a purchase of common stock
on the opening of the first day and a sale on the closing of the last day
of each period reported. Dividends and distributions, if any, are assumed
for purposes of this calculation, to be reinvested at prices obtained
under the Fund's Dividend Reinvestment Plan. Generally, total investment
return based on net asset value will be higher than total investment
return based on market value in periods where there is an increase in the
discount or a decrease in the premium of the market value to the net asset
value from the beginning to the end of such periods. Conversely, total
investment return based on net asset value will be lower than total
investment return based on market value in periods where there is a
decrease in the discount or an increase in the premium of the market value
to the net asset value from the beginning to the end of such periods.
(d) Net of interest expense of .61%, 1.13%, 1.35%, 1.18% and .97%,
respectively, on borrowings (see Notes G, H and I).
--------------------------------------------------------------------------------
ACM INCOME FUND o 33
---------------------------
REPORT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS
--------------------------
REPORT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS
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., including the portfolio of investments, as of December 31,
2002, and the related statements of operations and cash flows for the year then
ended, the statement of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the 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 auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of December 31, 2002, by correspondence with
the custodian and others. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of ACM
Income Fund, Inc. at December 31, 2002, the results of its operations and its
cash flows for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the five years in the period then ended, in conformity with accounting
principles generally accepted in the United States.
/s/ Ernst & Young LLP
New York, New York
February 10, 2003
--------------------------------------------------------------------------------
34 o ACM INCOME FUND
----------------------
ADDITIONAL INFORMATION
----------------------
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. State Street Bank and
Trust Company (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 participant's 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
--------------------------------------------------------------------------------
ACM INCOME FUND o 35
----------------------
ADDITIONAL INFORMATION
----------------------
cost, including brokerage commissions, of any shares purchased in the open
market plus the cost of any shares issued by the Fund.
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 State Street Bank and Trust Company, PO Box 8200,
Boston, Massachusetts 02266-8200.
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, (iii) no material changes in the principal risk factors
associated with investment in the Fund, and (iv) there has been a change to the
Fund's day-to-day management, from Mr. Wayne D. Lyski to a team headed by Paul
J. DeNoon, Douglas J. Peebles, Michael A. Snyder, Andrew M. Aran and S. Sean
Kelleher.
--------------------------------------------------------------------------------
36 o ACM INCOME FUND
----------------------------
GLOSSARY OF INVESTMENT TERMS
----------------------------
GLOSSARY OF INVESTMENT TERMS
benchmark
A standard by which a fund's performance can be measured. A benchmark is usually
an unmanaged index, such as the Standard & Poor's 500 Stock Index or the Lehman
Brothers Aggregate Bond Index.
bond
Bonds are issued by governments or corporations when they need to raise cash.
Bonds are sold, or issued, to investors and have a maturity date, which is the
date the issuer is obligated to repay the investor for the principal, or face
amount, of the bond. Bonds also pay interest until maturity. Bonds are also
called fixed-income securities.
earnings
Revenues minus cost of sales, operating expenses, and taxes, over a given period
of time. Earnings are often the most important determinant of a company's stock
price.
index
A compilation of securities of similar types of companies that is used to
measure the investment performance of securities within that specific market. An
index is often used as a benchmark for a mutual fund. An investor cannot invest
directly in an index.
liquidity
The ability of an asset to be quickly converted into cash and without penalty.
net asset value (NAV)
The value of a mutual fund's total assets, minus its liabilities, divided by the
number of shares outstanding.
portfolio
The collection of securities that make up a fund's or an investor's investments.
sector
A group of securities that are similar with respect to maturity, type, rating,
industry and/or coupon. Refers to a distinct part of the economy, for example,
the technology sector.
Treasuries
Negotiable U.S. government debt obligations, backed by the full faith and credit
of the U.S. government. Treasuries are issued either as bills, notes or bonds
depending on the maturity. Treasuries are exempt from state and local taxes.
yield
The rate of return on an asset, usually referring to dividend or interest
payments, expressed as a percentage of current market price.
--------------------------------------------------------------------------------
ACM INCOME FUND o 37
----------------
ALLIANCE CAPITAL
----------------
ALLIANCE CAPITAL
The Investment Professional's Choice
Alliance Capital is a leading global investment management firm with
approximately $387 billion in assets under management. In recognition of our
far-reaching investment capabilities, Alliance Capital has been selected by
employee benefit plans for 43 of the FORTUNE 100 companies and public retirement
funds in 44 states as well as by hundreds of foundations, endowments and foreign
institutions. By sharing this institutional money management experience with
millions of mutual fund investors as well, Alliance stands out as a "manager of
choice" for thousands of investment professionals around the world.
At Alliance Capital, we place a premium on investment research. We carefully
select securities based on our proprietary research, conducted by over 580
investment professionals in 36 cities and 19 countries. Our commitment to this
process means that our mutual fund shareholders have their portfolios managed by
the same experienced analysts and portfolio managers who manage the pension
funds of some of America's largest institutional investors.
All information on Alliance Capital is as of 12/31/02.
--------------------------------------------------------------------------------
38 o ACM INCOME FUND
------------------
BOARD OF DIRECTORS
------------------
BOARD OF DIRECTORS
John D. Carifa, Chairman
Ruth Block(1)
David H. Dievler(1)
John H. Dobkin(1)
William H. Foulk, Jr.(1)
Dr. James M. Hester(1)
Clifford L. Michel(1)
Donald J. Robinson(1)
OFFICERS
Kathleen A. Corbet, Senior Vice President
Andrew M. Aran, Vice President
Paul J. DeNoon, Vice President
S. Sean Kelleher, Vice President
Michael L. Mon, Vice President
Douglas J. Peebles, Vice President
Michael A. Snyder, Vice President
Edmund P. Bergan, Jr., Secretary
Mark D. Gersten, Treasurer & Chief Financial Officer
Vincent S. Noto, Controller
Administrator
UBS Global Asset Management
51 West 52nd Street
New York, NY 10019
Custodian, Dividend Paying Agent, Transfer Agent and Registrar
State Street Bank
and Trust Company
225 Franklin Street
Boston, MA 02110
Independent Auditors
Ernst & Young LLP
5 Times Square
New York, NY 10036
Legal Counsel
Seward & Kissel LLP
One Battery Park Plaza
New York, NY 10004
(1) Member of the Audit Committee.
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940 that the Fund may purchase from time to time at market
prices shares of its Common Stock in the open market.
This report, including the financial statements herein, is transmitted to
the shareholders of ACM Income Fund for their information. The financial
information included herein is taken from the records of the Fund. This is
not a prospectus, circular or representation intended for use in the
purchase of shares of the Fund or any securities mentioned in this report.
--------------------------------------------------------------------------------
ACM INCOME FUND o 39
----------------------
MANAGEMENT OF THE FUND
----------------------
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, AGE OF DIRECTOR, PRINCIPAL COMPLEX DIRECTORSHIPS
ADDRESS OCCUPATION(S) OVERSEEN BY HELD BY
(YEARS OF SERVICE) DURING PAST 5 YEARS DIRECTOR DIRECTOR
------------------------------------------------------------------------------------------------------------------------------
INTERESTED DIRECTOR*
John D. Carifa, *, 57 President, Chief Operating Officer 114 None
1345 Avenue of the and a Director of Alliance Capital
Americas Management Corporation ("ACMC"),
New York, NY 10105 with which he has been associated
(16) since prior to 1998.
DISINTERESTED
DIRECTORS
Ruth Block, #+, 72, Formerly an Executive Vice President 93 None
P.O. Box 4623 and Chief Insurance Officer of The
Stamford, CT 06903 Equitable Life Assurance Society of
(16) the United States; Chairman and Chief
Executive Officer of Evlico;
formerly a Director of Avon, BP
Amoco Corporation (oil and gas),
Ecolab Incorporated (specialty
chemicals), Tandem Financial
Group, and Donaldson Lufkin &
Jenrette Securities Corporation.
David H. Dievler, #+, 73 Independent consultant. Until 98 None
P.O. Box 167 December 1994 he was Senior Vice
Spring Lake, NJ 07762 President of ACMC responsible
(16) for mutual fund administration.
Prior 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
American Institute of Certified
Public Accountants since 1953.
John H. Dobkin, #+, 61 Consultant. He was formerly a 94 None
P.O. Box 12 Senior Advisor from June 1999 -
Annandale, NY 12504 June 2000 and President (December
(16) 1989 - May 1999) of Historic Hudson
Valley (historic preservation). Previously,
Director of the National Academy
of Design. During 1988-92, he was
Director and Chairman of the Audit
Committee of ACMC.
--------------------------------------------------------------------------------
40 o ACM INCOME FUND
----------------------
MANAGEMENT OF THE FUND
----------------------
PORTFOLIOS
IN FUND OTHER
NAME, AGE OF DIRECTOR, PRINCIPAL COMPLEX DIRECTORSHIPS
ADDRESS OCCUPATION(S) OVERSEEN BY HELD BY
(YEARS OF SERVICE) DURING PAST 5 YEARS DIRECTOR DIRECTOR
------------------------------------------------------------------------------------------------------------------------------
William H. Foulk, Jr., #+, 70 Investment Adviser and an 110 None
2 Sound View Drive independent consultant. He was
Suite 100 formerly Senior Manager of
Greenwich, CT 06830 Barrett Associates, Inc., a registered
(5) investment adviser, with which he
had been associated since prior
to 1998. He was formerly Deputy
Comptroller of the State of New
York and, prior thereto, Chief
Investment Officer of the New
York Bank for Savings.
Dr. James M. Hester, #+, 78 President of the Harry Frank 11 None
25 Clevland Lane Guggenheim Foundation, with
Princeton, NJ 08540 which he has been associates since
(16) prior to 1998. Formerly President
of New York University and the
New York Botanical Garden.
Formerly Rector of the United
Nations University and Vice
Chairman of the Board of the
Federal Reserve Bank of New York.
Clifford L. Michel, #+, 63 Senior Counsel of the law firm 93 Placer Dome Inc.
15 St. Bernard's Road of Cahill Gordon & Reindel since
Gladstone, NJ 07934 February 2001 and a partner of
(16) that firm for more than 25 years
prior thereto. He is President
and Chief Executive Officer of
Wenonah Development Company
(investments) and a Director of
Placer Dome Inc. (mining).
Donald J. Robinson, #+, 68 Senior Counsel to the law firm 92 None
98 Hell's Peak Road of Orrick, Herrington & Sutcliffe LLP
Weston, VT 05161 since prior to 1998. Formerly a
(8) senior partner and a member of
the Executive Committee of that
firm. He was also a member and
Chairman of the Municipal
Securities Rulemaking Board and
Trustee of the Museum of the City
of New York.
* Mr. Carifa is an "interested director", as defined in the 1940 Act, due to
his position as President and Chief Operating Officer of ACMC, the Fund's
investment adviser.
# Member of the Audit Committee.
+ Member of the Nominating Committee.
--------------------------------------------------------------------------------
ACM INCOME FUND o 41
----------------------
MANAGEMENT OF THE FUND
----------------------
Officers of The Fund
Certain information concerning the Fund's Officers is listed below.
NAME, ADDRESS,* POSITION(S) PRINCIPAL OCCUPATION
AND AGE HELD WITH FUND DURING PAST 5 YEARS
-------------------------------------------------------------------------------------------------------
Kathleen A. Corbet, 42 Senior Vice President Executive Vice President of Alliance Capital
Management Corporation (ACMC)**, with which she
has been associated since prior to 1998.
Andrew M. Aran, 45 Vice President Senior Vice President of ACMC**, with which he
has been associated since prior to 1998.
Paul J. DeNoon, 40 Vice President Senior Vice President of ACMC**, with which he
has been associated since prior to 1998.
S. Sean Kelleher, 41 Vice President Senior Vice President of ACMC**, with which he
has been associated since 1999. Previously, he
was a manager of the MBS swaps desk at Deutsche
Bank since prior to 1998.
Michael L. Mon, 33 Vice President Vice President of ACMC**, with which he has been
associated since June 1999. Prior thereto he was
a Portfolio Manager at Brundage, Story and Rose
since prior to 1998.
Douglas J. Peebles, 37 Vice President Senior Vice President of ACMC**, with which he
has been associated since prior to 1998.
Michael A. Snyder, 40 Vice President Senior Vice President of ACMC** since May, 2001.
Prior thereto he was a Managing Director in the
high yield asset management group at Donaldson,
Lufkin & Jenrette Corporation from 1998 to 2001,
and a Managing Director at Bear Stearns & Co.
since prior to 1998.
Edmund P. Bergan, Jr., 52 Secretary Senior Vice President and the General Counsel of
Alliance Fund Distributors, Inc. (AFD)** and
Alliance Global Investor Services Inc.
("AGIS")**, with which he has been associated
since prior to 1998.
Mark D. Gersten, 52 Treasurer and Chief Senior Vice President of AGIS** and Vice President of AFD**,
Financial Officer with which he has been associated since prior to
1998.
Vincent S. Noto, 38 Controller Vice President of AGIS**, with which he has been
associated since prior to 1998.
* The address for each of the Fund's Officers is 1345 Avenue of the
Americas, New York, NY 10105, unless otherwise noted.
** ACMC, AFD and AGIS are affiliates of the Fund.
--------------------------------------------------------------------------------
42 o ACM INCOME FUND
--------------------------------
ALLIANCE CAPITAL FAMILY OF FUNDS
--------------------------------
ALLIANCE CAPITAL FAMILY OF FUNDS
U.S. Stock Funds
Growth & Income Fund
Growth Fund
Health Care Fund
Mid-Cap Growth Fund*
Premier Growth Fund
Quasar Fund
Technology Fund
AllianceBernstein Value Funds
Disciplined Value Fund
Global Value Fund
International Value Fund
Real Estate Investment Fund
Small Cap Value Fund
Utility Income Fund
Value Fund
AllianceBernstein Blended Style Series
U.S. Large Cap Portfolio
Global & International Stock Funds
All-Asia Investment Fund
Global Small Cap Fund
Greater China '97 Fund
International Premier Growth Fund
New Europe Fund
Worldwide Privatization Fund
Select Investor Series
Biotechnology Portfolio
Premier Portfolio
Small Cap Growth Portfolio
Technology Portfolio
Taxable Bond Funds
Americas Government Income Trust**
Corporate Bond Portfolio
Emerging Market Debt Fund***
Global Strategic Income Trust
High Yield Fund
Multi-Market Strategy Trust
Quality Bond Portfolio
U.S. Government Portfolio
Tax-Exempt Bond Funds
National
Intermediate Diversified
Insured National
Arizona
California
Intermediate California
Insured California
Florida
Massachusetts
Michigan
Minnesota
New Jersey
New York
Intermediate New York
Ohio
Pennsylvania
Virginia
Asset Allocation Funds
Balanced Shares
Conservative Investors Fund
Growth Investors Fund
Closed-End Funds
All-Market Advantage Fund
ACM Income Fund
ACM Government Opportunity Fund
ACM Managed Dollar Income Fund
ACM Managed Income Fund
ACM Municipal Securities Income Fund
California Municipal Income Fund
National Municipal Income Fund
New York Municipal Income Fund
The Southern Africa Fund
The Spain Fund
World Dollar Government Fund
World Dollar Government Fund II
Alliance also offers AFD Exchange Reserves, which serves as the money market
fund exchange vehicle for the Alliance mutual funds.
To obtain a prospectus for any Alliance Capital fund, call your investment
professional, or call Alliance at (800) 227-4618.
* The Alliance Fund changed its name to Alliance Mid-Cap Growth Fund on
February 1, 2002.
** Alliance North American Government Income Trust changed its name to
Alliance Americas Government Income Trust on March 1, 2002.
*** Alliance Global Dollar Government Fund changed its name to Alliance
Emerging Market Debt Fund on March 1, 2002.
--------------------------------------------------------------------------------
ACM INCOME FUND o 43
------------------------------
SUMMARY OF GENERAL INFORMATION
------------------------------
SUMMARY OF GENERAL INFORMATION
ACM Income Fund Shareholder Information
The daily net asset value of the Fund's shares is available from the Fund's
Transfer Agent by calling (800) 432-5523. The Fund also distributes its daily
net asset value to various financial publications or independent organizations
such as Lipper Inc., Morningstar, Inc. and Bloomberg.
Daily market prices for the Fund's shares are published in the New York Stock
Exchange Composite Transaction section of newspapers under the designation
"ACMIn." The Fund's NYSE trading symbol is "ACG." Weekly comparative net asset
value (NAV) and market price information about the Fund is published each Monday
in The Wall Street Journal and each Sunday in The New York Times and other
newspapers in a table called "Closed-End Bond Funds."
Dividend Reinvestment Plan
A Dividend Reinvestment Plan provides automatic reinvestment of dividends and
capital gains distributions in additional Fund shares. The Plan also allows you
to make optional cash investments in Fund Shares through the Plan Agent. If you
wish to participate in the Plan and your shares are held in your name, simply
complete and mail the enrollment form in the brochure. If your shares are held
in the name of your brokerage firm, bank or other nominee, you should ask them
whether or how you can participate in the Plan.
For questions concerning shareholder account information, or if you would like a
brochure describing the Dividend Reinvestment Plan, please call State Street
Bank and Trust Company at (800) 219-4218.
--------------------------------------------------------------------------------
44 o ACM INCOME FUND
ACM Income Fund
1345 Avenue of the Americas
New York, NY 10105
Alliance Capital [LOGO](R)
The Investment Professional's Choice
(R) These registered service marks used under license from the owner, Alliance
Capital Management L.P.
INCAR1202