This is filed pursuant to Rule 497(b).
File Nos. 333-137559 and 811-05207.
[LOGO]
ALLIANCEBERNSTEIN
Investments
ACM GOVERNMENT OPPORTUNITY FUND, INC.
1345 Avenue of the Americas
New York, New York 10105
October 27, 2006
Dear Stockholders:
The Board of Directors (the "Directors") of ACM Government Opportunity Fund
("ACM Government Opportunity") is pleased to invite you to a Special Meeting of
Stockholders of ACM Government Opportunity (the "Meeting") to be held on
Tuesday, December 12, 2006. At this Meeting, we are asking you to approve the
acquisition of the assets and the assumption of the liabilities of ACM
Government Opportunity by ACM Income Fund, Inc. ("ACM Income") and the
dissolution of ACM Government Opportunity. The proposed acquisition is
described in more detail in the attached Prospectus/Proxy Statement.
ACM Income is much larger and somewhat more diversified than ACM Government
Opportunity. We anticipate that the proposed acquisition will result in
benefits to the stockholders of ACM Government Opportunity as more fully
discussed in the Prospectus/Proxy Statement.
The Directors of ACM Government Opportunity have given careful consideration
to the proposed acquisition and have concluded that the acquisition is in the
best interests of ACM Government Opportunity and its stockholders. The
Directors of ACM Government Opportunity recommend that you vote "for" the
proposed acquisition of ACM Government Opportunity by ACM Income.
If the acquisition of ACM Government Opportunity by ACM Income is approved,
each ACM Government Opportunity stockholder will receive shares of ACM Income
having an aggregate net asset value ("NAV") equal to the aggregate NAV of the
stockholder's shares in ACM Government Opportunity. ACM Government Opportunity
would then cease operations. You will not be assessed any sales charges or
other stockholder fees in connection with the proposed acquisition.
We welcome your attendance at the Meeting. If you are unable to attend, we
encourage you to authorize proxies to cast your votes. The Altman Group, Inc.
(the "Proxy Solicitor"), a proxy solicitation firm, has been selected to assist
in the proxy solicitation process. If we have not received your proxy as the
date of the Meeting approaches, you may receive a telephone call from the Proxy
Solicitor to remind you to submit your proxy. No matter how many shares you
own, your vote is important.
Sincerely,
Marc O. Mayer
President
[LOGO]
ALLIANCEBERNSTEIN
Investments
ACM GOVERNMENT OPPORTUNITY FUND, INC.
1345 Avenue of the Americas
New York, New York 10105
Toll Free (800) 221-5672
NOTICE OF A SPECIAL MEETING OF STOCKHOLDERS
SCHEDULED FOR DECEMBER 12, 2006
To the stockholders of ACM Government Opportunity Fund, Inc. ("ACM Government
Opportunity"), a
Maryland corporation:
Notice is hereby given that a Special Meeting of the Stockholders of ACM
Government Opportunity (the "Meeting") will be held at 1345 Avenue of the
Americas, 41st Floor, New York, New York 10105 on Tuesday, December 12, 2006,
at 11:30 a.m., Eastern Time, to consider and vote on the following proposal,
which is more fully described in the accompanying Prospectus/Proxy Statement
dated October 27, 2006:
1. To approve an Agreement and Plan of Acquisition and Liquidation (the
"Plan") among ACM Government Opportunity, ACM Income Fund, Inc. ("ACM
Income"), a Maryland corporation, and AllianceBernstein L.P., providing
for the acquisition by ACM Income of all of the assets and assumption of
all of the liabilities of ACM Government Opportunity in exchange for
shares of ACM Income (the "Proposal"). A vote in favor of this Proposal
by the stockholders of ACM Government Opportunity also will constitute a
vote in favor of the dissolution of ACM Government Opportunity and
termination of its registration under the Investment Company Act of
1940, as amended.
2. To transact any other business that may properly come before the Meeting
and any adjournments or postponements thereof.
Any stockholder of record of ACM Government Opportunity at the close of
business on October 13, 2006 (the "Record Date") is entitled to notice of, and
to vote at, the Meeting or any adjournments or postponements thereof. Proxies
are being solicited on behalf of the Board of Directors. Each stockholder who
does not expect to attend the Meeting and vote in person is requested to
complete, date, sign and promptly return the enclosed proxy card, or to submit
voting instructions by telephone as described on the enclosed proxy card.
By Order of the Board of
Directors,
Marc O. Mayer
President
New York, New York
October 27, 2006
YOUR VOTE IS IMPORTANT
Please indicate your voting instructions on the enclosed proxy card, sign
and date it, and return it in the envelope provided, which needs no postage if
mailed in the United States. Your vote is very important no matter how many
shares you own. In order to save any additional costs of further proxy
solicitation and to allow the Meeting to be held as scheduled, please complete,
date, sign and return your proxy card promptly.
--------------------------------------------------------------------------------
AllianceBernstein(R) and the AB Logo are registered trademarks and service
marks used by permission of the owner, AllianceBernstein L.P.
PROSPECTUS/PROXY STATEMENT
Acquisition of the Assets and Assumption of the Liabilities of
ACM GOVERNMENT OPPORTUNITY FUND, INC.
By, and in Exchange for Shares of,
ACM INCOME FUND, INC.
October 27, 2006
TABLE OF CONTENTS
Questions and Answers 4
Proposal -- Approval of an Agreement and Plan of Acquisition and Liquidation among ACM
Income, ACM Government Opportunity and AllianceBernstein L.P. 6
Summary 7
Comparison of Current Investment Advisory Fees 7
Fee Table and Comparison of Expenses 7
Comparison of Investment Objectives and Policies 10
Principal Risks 11
Federal Income Tax Consequences 11
Comparison of Stockholder Services 12
Service Providers 12
Comparison of Business Structures 12
Information about the Proposed Transaction 12
Introduction 12
Description of the Plan 12
Reasons for the Acquisition 13
Description of Securities to be Issued 16
Dividends and Other Distributions 16
Surrender and Exchange of ACM Government Opportunity Stock Certificates 16
Federal Income Tax Consequences 16
Capitalization Information 17
Trading History and Share Price Data 17
Information about the Funds 17
Management of the Funds 17
Advisory Agreement and Fees 18
Administrator 18
Other Service Providers 18
Voting Information 19
Legal Matters 20
Experts 20
Financial Highlights 20
Appendix A -- Comparison of Investment Objectives and Policies 21
Appendix B -- Description of Principal Risks of the Funds 28
Appendix C -- Other Information 30
Appendix D -- Form of Agreement and Plan of Acquisition and Liquidation Relating to the
Acquisition of all of the Assets and Liabilities of ACM Government Opportunity
Fund, Inc. 34
Appendix E -- Existing and Pro Forma Capitalization 49
2
Appendix F -- Trading History and Share Price Data 50
Appendix G -- Legal Proceedings 51
Appendix H -- Share Ownership Information 53
Appendix I -- Financial Highlights Table 54
3
QUESTIONS AND ANSWERS
The following questions and answers provide an overview of key features of the
proposed acquisition and of the information contained in this Prospectus/Proxy
Statement. Please review the full Prospectus/Proxy Statement prior to casting
your vote.
1. What is this document and why did we send it to you?
This is a combined Prospectus/Proxy Statement that provides you with
information about the proposed acquisition (the "Acquisition") of the assets
and liabilities of ACM Government Opportunity Fund, Inc. ("ACM Government
Opportunity") by ACM Income Fund, Inc. ("ACM Income") and the subsequent
dissolution of ACM Government Opportunity (ACM Government Opportunity and ACM
Income are each a "Fund" and collectively, the "Funds"). This document also
solicits your vote on the Acquisition by requesting that you approve the
Agreement and Plan of Acquisition and Liquidation dated as of September 20,
2006 (the "Plan"), among ACM Government Opportunity, ACM Income and
AllianceBernstein L.P. (the "Adviser").
On September 13, 2006, the Directors approved and declared advisable the
Acquisition of ACM Government Opportunity by ACM Income and the subsequent
dissolution of ACM Government Opportunity and directed that the Acquisition and
dissolution be submitted to stockholders of ACM Government Opportunity for
approval at a Special Meeting of Stockholders to be held on December 12, 2006,
11:30 a.m., Eastern Time (the "Meeting"). You are receiving this
Prospectus/Proxy Statement because you own shares of ACM Government
Opportunity. Each stockholder of record of ACM Government Opportunity as of the
close of business on the Record Date has the right under applicable legal and
regulatory requirements to vote on the Acquisition and dissolution. The
Acquisition will not occur unless it is approved by ACM Government Opportunity
stockholders. This Prospectus/Proxy Statement contains the information you
should know before voting on the proposed Acquisition.
You may contact a Fund at 1-800-221-5672 or write to a Fund at 1345 Avenue of
the Americas, New York, NY 10105.
2. Who is eligible to vote on the Acquisition?
Stockholders of record of ACM Government Opportunity at the close of business
on October 13, 2006 (the "Record Date") are entitled to notice of and to vote
at the Meeting or any adjournment or postponement of the Meeting. If you owned
shares of ACM Government Opportunity on the Record Date, you have the right to
vote even if you subsequently sold your shares.
Each share is entitled to one vote. Shares represented by properly executed
proxies, unless revoked before or at the Meeting, will be voted according to
stockholders' instructions. If you sign and return a proxy card but do not fill
in a vote, your shares will be voted "FOR" the Acquisition. If any other
business properly comes before the Meeting, your shares will be voted at the
discretion of the persons named as proxies.
3. How will the Acquisition work?
The Plan provides for (i) the transfer of all of the assets of ACM Government
Opportunity to ACM Income, (ii) the assumption by ACM Income of all of the
liabilities of ACM Government Opportunity and the subsequent redemption of
shares of ACM Government Opportunity, (iii) the liquidating distribution to ACM
Government Opportunity stockholders of shares of ACM Income equal in aggregate
net asset value ("NAV") to the NAV of their former ACM Government Opportunity
shares, and (iv) the dissolution of ACM Government Opportunity.
As a result of the Acquisition, stockholders of ACM Government Opportunity will
no longer hold shares of ACM Government Opportunity, and instead, will become
stockholders of ACM Income having the same aggregate NAV as the shares of ACM
Government Opportunity that they held immediately before the Acquisition.
Please note that ACM Government Opportunity stockholders who do not participate
in ACM Government Opportunity's Dividend Reinvestment Plan will receive cash in
lieu of fractional shares. You will not be assessed any sales charges or other
stockholder fees in connection with the proposed Acquisition. ACM Government
Opportunity will bear the cost of the Acquisition and certain other costs. The
Acquisition will not occur unless it is approved by the stockholders of ACM
Government Opportunity.
4
4. Why is the Acquisition being proposed?
Based on the recommendation of the Adviser, the Board of Directors of ACM
Government Opportunity (the "Board") concluded that participation by ACM
Government Opportunity in the proposed Acquisition is in the best interests of
ACM Government Opportunity and its stockholders. The Board also concluded that
the proposed Acquisition would not dilute stockholders' interests. In reaching
this conclusion, the Board considered, among other things, the Funds'
investment objectives and investment policies, the expense benefits, exclusive
of interest expense, for ACM Government Opportunity stockholders expected to
result from the Acquisition, the leverage employed by ACM Government
Opportunity and ACM Income, the investment performance and trading history of
the Funds, the costs of the Acquisition, and the tax-free nature of the
Acquisition.
5. When will the Acquisition take place?
If the stockholders of ACM Government Opportunity approve the Acquisition, then
the Acquisition is expected to occur in the first quarter of 2007.
6. Where may I find additional information regarding the Funds?
Additional information about the Funds is available in the Statement of
Additional Information ("SAI") dated October 27, 2006 that has been filed with
the Securities and Exchange Commission ("SEC") in connection with this
Prospectus/Proxy Statement. The SAI and each Fund's Annual Report to
Stockholders, which contains audited financial statements for the Fund's
respective fiscal year, are incorporated by reference into this
Prospectus/Proxy Statement. In addition, the Semi-Annual Reports for ACM Income
and ACM Government Opportunity for the six months ended June 30, 2006 and
January 31, 2006, respectively, are also incorporated by reference into
this Prospectus/Proxy Statement. To request a copy of any of these documents,
please call AllianceBernstein Investments, Inc. at (800) 227-4618.
All of this information is filed with the SEC. You may view or obtain these
documents from the SEC:
In Person: at the SEC's Public Reference Room in Washington, D.C.
By Phone: 1-202-551-8090 (for information on the operations of the Public
Reference Room only)
By Mail: Public Reference Section, Securities and Exchange Commission,
Washington, DC 20549-0102 (duplicating fee required)
By Electronic Mail: publicinfo@sec.gov (duplicating fee required)
On the Internet: www.sec.gov
The shares of the Funds are listed and publicly traded on the New York Stock
Exchange ("NYSE") under the following symbols: ACM Government Opportunity -
"AOF" and ACM Income - "ACG". Reports, proxy statements and other information
concerning the Funds may be inspected at the offices of the NYSE. Additional
copies of the annual and semi-annual reports, as well as the Prospectus/Proxy
Statement and SAI, are available upon request without charge by writing to or
calling the address and telephone number listed below.
By Mail: AllianceBernstein Investor Services, Inc.
P.O. Box 786003
San Antonio, TX 78278-6003
By Phone: For Information: 1-800-221-5672
For Literature: 1-800-227-4618
Other Important Things to Note:
. You may lose money by investing in the Fund.
. The SEC has not approved or disapproved these securities or passed upon
the adequacy of this Prospectus/Proxy Statement. Any representation to
the contrary is a criminal offense.
5
PROPOSAL
APPROVAL OF AN AGREEMENT AND PLAN OF ACQUISITION AND LIQUIDATION
AMONG ACM INCOME,
ACM GOVERNMENT OPPORTUNITY AND ALLIANCEBERNSTEIN LP
On September 13, 2006, the Board of Directors of ACM Government Opportunity
declared advisable and voted to approve the Plan and the Acquisition, subject
to the approval of the stockholders of ACM Government Opportunity. The Plan
provides for: (i) the transfer of all of the assets of ACM Government
Opportunity to ACM Income, (ii) the assumption by ACM Income of all of the
liabilities of ACM Government Opportunity, (iii) the liquidating distribution
to ACM Government Opportunity stockholders of shares of ACM Income equal in
aggregate NAV to the NAV of their former ACM Government Opportunity shares, and
(iv) the dissolution of ACM Government Opportunity.
Each holder of ACM Government Opportunity shares will receive the number of
full shares of ACM Income, plus fractional shares for stockholders that
participate in a Dividend Reinvestment and Cash Purchase Plan ("DRIP") and cash
in lieu of any fractional shares for non-DRIP participating stockholders,
having an aggregate NAV that is equal to the aggregate NAV of the stockholder's
shares of ACM Government Opportunity. With respect to this receipt of shares of
ACM Income as a result of the Acquisition, stockholders of ACM Government
Opportunity will recognize no gain or loss, except with respect to any cash
received in lieu of fractional ACM Income shares by non-DRIP participating
stockholders. If approved by stockholders of ACM Government Opportunity, the
Acquisition is expected to occur in the first quarter of 2007.
An exchange of ACM Government Opportunity shares for ACM Income shares at
NAV may result in ACM Government Opportunity stockholders' receiving ACM Income
shares with an aggregate market value on the date of exchange that is higher or
lower than the market value of their shares immediately prior to the exchange.
The reason for this difference is that the market price for shares of the Funds
in relation to their NAVs may be different, i.e., a Fund's shares may trade at
different discounts or premiums to its NAV.
The stockholders of ACM Government Opportunity must approve the Acquisition
for it to occur. Approval of the Acquisition requires the affirmative vote of
the holders of a majority of the votes entitled to be cast. The Acquisition
does not require approval of the stockholders of ACM Income.
A quorum for the transaction of business by stockholders of ACM Government
Opportunity at the Meeting will consist of the presence in person or by proxy
of the holders of a majority of the shares of ACM Government Opportunity
entitled to vote at the Meeting.
The Board of Directors of ACM Government Opportunity concluded that
participation by ACM Government Opportunity in the proposed Acquisition is in
the best interests of ACM Government Opportunity and its stockholders. The
Board also concluded that the proposed Acquisition would not dilute
stockholders' interests. In reaching this conclusion, the Board considered,
among other things, the Funds' investment objectives and investment policies,
the expense benefits, exclusive of interest expense, for ACM Government
Opportunity stockholders expected to result from the Acquisition, and the cost
and the tax-free nature of the Acquisition.
For a more complete discussion of the factors considered by the Board in
approving the Acquisition, see "Reasons for the Acquisition" in Information
About the Proposed Transaction.
6
SUMMARY
The following summary highlights differences between the Funds. This summary
is not complete and does not contain all of the information that you should
consider before voting on the Acquisition. For more complete information,
please read this entire document. Note that certain information is presented as
of March 31, 2006. At the September 13, 2006, Special Meeting of the Board of
Directors of ACM Government Opportunity referred to below (the "September 13
Special Meeting"), the Adviser represented to the Board that, if the
information was updated, it would not differ in any material respect.
Comparison of Current Investment Advisory Fees
The current management fees of the Funds are shown in the table below. As
indicated in the table, we expect that ACM Income on a pro forma basis would
have a lower management fee after the Acquisition than the current management
fee of ACM Government Opportunity.
Management Fee
--------------
ACM Government Opportunity .75%
ACM Income .65%
Combined Fund .65% (pro forma)
ACM Income's management fee is a combination of a base fee of .30% on the
first $250 million of net assets and .25% on net assets in excess of $250
million thereafter, plus 4.75% of daily gross income, subject to the limitation
that the total management fee will not exceed .95%. The management fee for ACM
Income shown above is based on the current and, after the Acquisition, pro
forma income of ACM Income but the fee has varied significantly in the past and
can be expected to vary in the future based on ACM Income's gross income, which
may be affected by, among other things, interest rate levels and the amount of
leverage employed.
Fee Table and Comparison of Expenses
The Fee Table, shown below, describes the fees and expenses of each Fund as
of March 31, 2006 and includes expenses for the Combined Fund on a pro forma
basis assuming that the Acquisition is approved by stockholders of ACM
Government Opportunity.
7
Fee Table
The purpose of the table below is to assist an investor in understanding the
various costs and expenses that a stockholder bears directly and indirectly
from an investment in the Funds. The table allows you to compare the sales
charges, expenses of each Fund and the estimates for ACM Income on a pro forma
basis in the first year following the Acquisition. The information is presented
as of March 31, 2006.
ACM
Government ACM Income
Opportunity ACM Income Pro Forma
----------- ---------- ----------
Stockholder Transaction Expenses
Sales Load (as a percentage of offering price) None None None
Dividend Reinvestment Plan Fees(a) None None None
Annual Expenses (as a percentage of net assets
attributable to common shares)
Management Fees .75% .65% .65%
Interest Payments on Borrowed Funds 1.30% 2.15% 2.15%
Other Expenses .60% .11% .11%(b)
Total Annual Expenses 2.65% 2.91% 2.91%
Waiver and/or Expense Reimbursement(c) (.10)%(c) None None
Net Annual Expenses Reflecting Waiver(d) 2.55% 2.91% 2.91%
--------
(a)There are no charges with respect to shares issued directly by a Fund to
satisfy the dividend reinvestment requirements. However, each participant
will pay a pro-rata share of brokerage commissions incurred with respect to
a Fund's dividend reinvestment plan agent's open market purchases of shares.
In each case, the cost per share of shares purchased for each stockholder's
account will be the average cost, including brokerage commissions, of any
shares purchased in the open market plus the cost of any shares issued by a
Fund.
(b)Based on estimated expenses.
(c)Reflects the Adviser's voluntary waiver of a portion of its administrative
fee since February 11, 2005.
(d)If interest expenses were excluded net annual expenses reflecting waiver and
net of interest expense on borrowed funds would be 1.25%, .76% and .76%,
respectively.
8
Example
You would pay the following on a $1,000 investment assuming a 5% annual
return. The Example assumes the reinvestment of all dividends and distributions
at net asset value and reflects all recurring and nonrecurring fees.
ACM
Government ACM Income ACM Income
Opportunity Fund Fund Pro Forma
---------------- ---------- ----------
After 1 Year $ 27 $ 29 $ 29
After 3 Years $ 82 $ 90 $ 90
After 5 Years $141 $153 $153
After 10 Years $299 $323 $323
The projected post-Acquisition pro forma Annual Fund Expenses and Example
presented above are based upon numerous material assumptions, including that
(1) the current contractual agreements will remain in place and (2) certain
fixed costs involved in operating ACM Government Opportunity are eliminated.
Although these projections represent good faith estimates, there can be no
assurance that any particular level of expenses or expense savings will be
achieved, because expenses depend on a variety of factors, including the future
level of fund assets, many of which are beyond the control of ACM Income or the
Adviser. Consequently, the Example should not be considered a representation of
future expenses. Actual expenses may be greater or less than those shown.
Comparison of Expenses
As indicated in the Fee Table above, both ACM Government Opportunity and ACM
Income make interest payments as a result of their use of leverage. Since ACM
Income currently uses significantly more leverage than ACM Government
Opportunity, its total annual expense ratio is higher than that of ACM
Government Opportunity even though its expenses other than interest expense are
significantly lower than those of ACM Government Opportunity. The level of
interest expense of a fund in any particular period varies significantly
depending on the amount and type of leverage employed and on interest rate
levels. Also, the Adviser does not employ leverage unless it expects the
leverage to increase a Fund's total returns. The table below illustrates the
expected effect of the Acquisition on expenses other than interest expenses as
well as on total expenses.
Expenses Including
Management Fees and Other
Operating Expenses Only Total Annual Expenses
------------------------- ---------------------
ACM Government Opportunity 1.35%* 2.65%
ACM Income 0.76% 2.91%
Combined Fund 0.76% (pro forma) 2.91% (pro forma)
--------
* After waiver, the expenses were 1.25%.
The Acquisition would, as indicated in the Table above, provide a sizeable
reduction in Management Fees and Other Operating Expenses for ACM Government
Opportunity. With its significantly smaller asset size, ACM Government
Opportunity has higher expenses exclusive of interest expense, which is
predominantly due to higher Other Operating Expenses. ACM Government
Opportunity has "Other Operating Expenses" of 0.60% (0.50% after the waiver of
0.10% of administration fees), while ACM Income has "Other Operating Expenses"
of 0.11%. Total expenses including interest expense would be higher after the
Acquisition than the current total annual expenses of ACM Government
Opportunity but it would be the same as ACM Income's current total annual
expense ratio. As noted above, this is because ACM Income currently uses
leverage to a significantly greater extent than ACM Government Income and
accordingly, has higher interest expense. Interest expense of a fund varies
from period to period depending on the amount and type of leverage employed and
interest rate levels.
9
The Acquisition would, as indicated, provide a sizeable reduction in
Management Fees and Other Operating Expenses for ACM Government Opportunity.
Even were ACM Income to earn the maximum income component of its fee and,
therefore, its maximum management fee of .95%, the expenses of ACM Income on a
pro forma basis would be 1.06%. This level of expenses exclusive of interest
would still remain significantly below ACM Government Opportunity's current
expenses and the Adviser believes that ACM Government Opportunity's
stockholders would benefit from the Acquisition even under a maximum management
fee scenario.
Comparison of Investment Objectives and Policies
ACM Income is a fund of significantly larger size and scale that employs
investment strategies similar to ACM Government Opportunity although ACM Income
has greater investment flexibility than ACM Government Opportunity. Both Funds
primarily invest in U.S. Government securities. The following table shows the
Funds' investment objectives and certain principal investment strategies.
Investment Objective Principal Investment Strategies
-------------------------------------- -----------------------------------------
ACM Income ACM Income's investment objective ACM Income invests at least 65% of
is high current income consistent with its total assets in obligations issued or
preservation of capital. guaranteed by the U.S. Government,
its agencies or instrumentalities
("U.S. Government securities") and
repurchase agreements pertaining to
U.S. Government securities. ACM
Income may invest up to 35% of its
total assets in sovereign debt secu-
rities, corporate debt securities and
high yield debt securities.
ACM Government Opportunity ACM Government Opportunity's ACM Government Opportunity in-
primary investment objective is high vests at least 65% of its total assets in
current income consistent with pru- U.S. Government securities. ACM
dent investment risk. The Fund's Government Opportunity may invest
secondary investment objective is up to 35% of its total assets in sover-
growth of capital. eign debt securities.
As the table above shows, the Funds have similar investment strategies of
investing at least 65% of their assets in U.S. Government securities and the
balance at least partially in sovereign debt securities. ACM Government
Opportunity's stockholders should benefit from the somewhat broader strategy of
ACM Income because ACM Income may invest up to 35% of its assets in sectors
other than sovereign debt, such as corporate investment grade and high yield
debt securities, while ACM Government Opportunity may invest its other assets
only in sovereign debt securities. A more detailed comparison of the Funds'
existing investment strategies and policies is provided in Appendix A. You can
find additional information on the Funds in the SAI.
ACM Income has historically had a higher rate of portfolio turnover than ACM
Government Opportunity. For example, in fiscal 2005, ACM Income's portfolio
turnover rate was 160% compared to 64% for ACM Government Opportunity. A higher
rate of portfolio turnover increases transaction expenses, which are borne by
the Fund and its stockholders. Higher portfolio turnover also may result in the
realization of net short-term capital gains, which, when distributed are
taxable at ordinary income rates to stockholders.
In connection with the Acquisition, at the September 13 Special Meeting, the
Board of Directors approved the elimination of ACM Government Opportunity's
policy to invest at least 80% of its net assets in securities issued by any
government. The Directors adopted a new policy to permit ACM Government
Opportunity to invest up to 35% of its net assets in corporate debt securities
(including collateralized mortgage obligations) and securities rated below BBB
by S&P or Baa by Moody's or, if not rated, of comparable investment quality as
determined by the Adviser. In addition to the adoption of that policy, the
Directors also approved a change in the
10
Fund's name from "ACM Government Opportunity Fund, Inc." to "ACM Opportunity
Fund, Inc." The Board of Directors also granted the Adviser the authority to
operate ACM Government Opportunity pursuant to the same investment policies and
restrictions that govern ACM Income. Each of the foregoing changes is subject
to ACM Government Opportunity stockholders approving the Acquisition.
The intent of these changes is to allow the repositioning of ACM Government
Opportunity's portfolio to align it with the broader investment strategies of
ACM Income prior to the effective date of the Acquisition. The costs of this
portfolio repositioning are expected to be approximately $112,500. The
portfolio repositioning costs on a per share basis is approximately $0.01 per
share. It is anticipated that there will be no capital gain consequences
attributable to the portfolio repositioning. Upon the recommendation of the
Adviser, the Board of Directors determined that it would be appropriate for ACM
Government Opportunity to pay the costs of the portfolio repositioning because
ACM Government Opportunity's stockholders would derive the greatest benefits
from the Acquisition.
Principal Risks
Each Fund is subject to market risk, interest rate risk, credit risk,
leverage risk, foreign risk, and currency risk. A description of each of these
and other risks is provided in Appendix B. ACM Income may invest up to 35% of
its assets in high yield debt securities, whereas ACM Government Opportunity
does not have this investment flexibility. Investments in fixed-income
securities with lower ratings have greater credit risks because they tend to
have a higher probability that the issuer will default or fail to meet its
payment obligations. In addition, because ACM Income uses leverage to a greater
extent, ACM Income is riskier than ACM Government Opportunity. Leverage may
make a Fund's portfolio more volatile because leverage tends to exaggerate the
effect of any increase or decrease in the value of a Fund's investments.
Federal Income Tax Consequences
No gain or loss will be recognized by ACM Government Opportunity as a result
of the Acquisition. With respect to this receipt of shares of ACM Income, no
gain or loss will be recognized by the ACM Government Opportunity stockholders
except with respect to cash received in lieu of fractional shares of ACM Income
by non-DRIP stockholders, as a result of the Acquisition. The aggregate tax
basis of the shares of ACM Income received by a stockholder of ACM Government
Opportunity (including any fractional shares to which the stockholder may be
entitled) will be the same as the aggregate tax basis of the stockholder's
shares of ACM Government Opportunity. The holding period of the shares of ACM
Income received by a stockholder of ACM Government Opportunity (including any
fractional shares to which the stockholder may be entitled) will include the
holding period of the shares of ACM Government Opportunity held by the
stockholder, provided that such shares are held as capital assets by the
stockholder of ACM Government Opportunity at the time of the Acquisition. The
holding period and tax basis of each asset of ACM Government Opportunity in the
hands of ACM Income as a result of the Acquisition will be the same as the
holding period and tax basis of each such asset in the hands of ACM Government
Opportunity prior to the Acquisition. Any gain or loss realized by a
stockholder of ACM Government Opportunity upon receipt of cash in lieu of
fractional shares of ACM Income by non-DRIP stockholders will be recognized by
the stockholder and measured by the difference between the amount of cash
received and the basis of the fractional share and, provided that the ACM
Government Opportunity shares surrendered constitute capital assets in the
hands of the stockholder, will be capital gain or loss. This tax information is
based on the advice of Seward & Kissel LLP, counsel to the Fund. It is a
condition to the closing of the Acquisition that such advice be confirmed in a
written opinion of counsel. An opinion of counsel is not binding on the
Internal Revenue Service.
ACM Government Opportunity has realized capital gains and no capital loss
carryforwards. It is anticipated that ACM Government Opportunity will make a
distribution of capital gains to its stockholders prior to the closing of the
Acquisition.
The per share amount of capital loss carryforwards of ACM Income before the
Acquisition, as of March 31, 2006, was $1.44 per share and, after giving effect
to the Acquisition as if it occurred on such date, the per share amount of
capital loss carryforwards of ACM Income on a pro forma basis after the
Acquisition would be $1.36
11
per share. The decrease in per share amount is due to the spreading of losses
remaining available over the merged share base based on the estimated share
conversion ratio. ACM Government Opportunity's stockholders would potentially
benefit from the increased amount of loss carryforwards available to offset
gains. As a practical matter, the availability of the loss carryforwards in ACM
Income on a pro forma basis after the Acquisition is unlikely to be meaningful
for stockholders because, depending on, among other things, market conditions,
it is uncertain whether ACM Income would be able to use the capital loss
carryforwards. The Fund's investment strategy focuses on achieving high income,
which may mean that its portfolio managers will not sell appreciated securities
to recognize gains that would be offset by capital loss carryforwards where it
would otherwise be advantageous to retain those securities.
Comparison of Stockholder Services
The stockholder services of each Fund are generally the same. The DRIP,
which is available to the Funds' stockholders, provides automatic reinvestment
of dividends and capital gain distributions in additional Fund shares. The DRIP
also allows stockholders to make optional cash investments in Fund shares
through a plan agent. Assuming the Acquisition is approved, the DRIP
stockholders of ACM Government Opportunity will automatically be enrolled in
the DRIP for ACM Income. A more detailed discussion of the DRIP and other
stockholder services and procedures is provided in Appendix C.
Service Providers
The Funds have the same service providers, which will continue in their
capacity after the Acquisition, with one exception. State Street Bank and Trust
Company, which is ACM Income's custodian, will serve in that capacity after the
Acquisition in lieu of ACM Government Opportunity's current custodian, which is
The Bank of New York.
Comparison of Business Structures
Each Fund is organized as a Maryland corporation and is governed by its
Charter, Bylaws and Maryland law. Generally, there are no significant
differences between the Funds in terms of their respective corporate
organizational structure. For more information on the comparison of the
business structure of the Funds, see Appendix C.
INFORMATION ABOUT THE PROPOSED TRANSACTION
Introduction
This Prospectus/Proxy Statement is provided to you to solicit your proxy for
exercise at the Meeting to approve the acquisition of the assets and assumption
of the liabilities of ACM Government Opportunity by ACM Income and the
subsequent liquidation and dissolution of ACM Government Opportunity. The
Meeting will be held at 1345 Avenue of the Americas, 41st Floor, New York, New
York 10105 at 11:30 a.m., Eastern Time, on December 12, 2006. This
Prospectus/Proxy Statement, the accompanying Notice of a Special Meeting of
Stockholders and the enclosed proxy card are being mailed to stockholders of
ACM Government Opportunity on or about October 27, 2006.
Description of the Plan
As provided in the Plan, ACM Income will acquire all the assets and assume
all the liabilities of ACM Government Opportunity at the effective time of the
Acquisition (the "Effective Time"). In return, ACM Income will issue, and ACM
Government Opportunity will distribute to its stockholders, a number of full
and fractional shares of ACM Income (and cash in lieu of fractional shares for
non-DRIP stockholders), determined by dividing the net value of all the assets
of ACM Government Opportunity by the NAV of one share of ACM Income. For this
purpose, the Plan provides the times for and methods of determining the net
value of the assets of each Fund. The Plan provides that stockholders of ACM
Government Opportunity will be credited with shares of ACM Income (or cash in
lieu of fractional shares for non-DRIP stockholders) corresponding to the
aggregate NAV of the ACM Government Opportunity's shares that the stockholder
holds of record at the Effective Time.
12
Following the distribution of shares of ACM Income in full liquidation of
ACM Government Opportunity, ACM Government Opportunity will wind up its
affairs, and liquidate and dissolve as soon as is reasonably practicable after
the Acquisition. In the event the Acquisition does not receive the required
stockholder approval, ACM Government Opportunity will continue its operations
and its Directors will consider what future action, if any, is appropriate.
The projected expenses of the Acquisition, largely those for legal,
accounting, printing and proxy solicitation expenses, are estimated to total
approximately $224,000 and will be borne by ACM Government Opportunity. The
Acquisition costs on a per share basis are approximately $0.02 per share.
The Acquisition is expected to occur in the first quarter of 2007. The
Acquisition is conditioned upon approval of the Plan by ACM Government
Opportunity stockholders and ACM Government Opportunity satisfying the terms of
the Plan. Under applicable legal and regulatory requirements, none of ACM
Government Opportunity's stockholders will be entitled to exercise objecting
stockholders' appraisal rights, i.e., to demand the fair value of their shares
in connection with the Acquisition. Therefore, stockholders will be bound by
the terms of the Acquisition under the Plan. However, any stockholder of ACM
Government Opportunity may sell shares of the Fund's common stock on the NYSE
prior to the Acquisition. The shares of ACM Government Opportunity may cease
trading on the NYSE beginning several days prior to the date of the
Acquisition. Any cessation of trading will be accomplished in compliance with
NYSE rules, including issuance of a press release.
After the Acquisition, ACM Government Opportunity's shares of common stock
will be removed from listing on the NYSE. In addition, ACM Government
Opportunity's shares of common stock will be withdrawn from registration under
the Securities Exchange Act of 1934 and ACM Government Opportunity will
deregister as an investment company under the Investment Company Act of 1940,
as amended (the "1940 Act") and will dissolve under Maryland law.
Completion of the Acquisition is subject to certain conditions set forth in
the Plan, some of which may be waived by a party to the Plan. The Plan may be
amended in any mutually agreed manner, except that no amendment may be made
subsequent to stockholder approval of the Acquisition that materially alters
the obligations of either party. The parties to the Plan may terminate the Plan
by mutual consent and either party has the right to terminate the Plan under
certain circumstances. Among other circumstances, either party may at any time
terminate the Plan unilaterally upon a determination by the party's Board of
Directors that proceeding with the Plan is not in the best interests of the
Fund or its stockholders.
A copy of a form of the Plan is attached as Appendix D.
Reasons for the Acquisition
At the September 13 Special Meeting, the Adviser recommended that the Board
of Directors of ACM Government Opportunity approve and recommend to the Fund's
stockholders for their approval the proposed Plan and the Acquisition. The
Directors considered the factors discussed below from the point of view of the
interests of the Fund and its stockholders. After careful consideration, the
Board of Directors (including all Directors who are not "interested persons" of
the Fund, the Adviser or its affiliates) determined that the Acquisition would
be in the best interests of the Fund's stockholders and that the interests of
existing stockholders of the Fund would not be diluted as a result of the
Acquisition. The Directors of ACM Government Opportunity approved the Plan and
the Acquisition and recommended that the stockholders of ACM Government
Opportunity vote in favor of the Acquisition by approving the Plan.
The Adviser presented the following reasons in favor of the Acquisition:
. The Funds date back to 1987-1988, when they were launched in close
succession along with two other similar closed-end funds (these other
funds were acquired by ACM Income in early 2001). All of these funds
sought high current income, consistent with the preservation of capital,
through investments primarily in U.S. Government securities. ACM Income
conducted its initial public offering on August 21, 1987 and raised $512
million in the offering. ACM Income subsequently conducted two rights
offerings
13
raising $71 million in 1993 and $547 million in 2001. ACM Income's current
net assets are, as of March 31, 2006, $1.87 billion. ACM Government
Opportunity conducted its initial public offering on August 24, 1998 and
raised $123 million in the offering. ACM Government Opportunity's current
net assets are, as of March 31, 2006, $110 million.
The Adviser discussed with the Board that it believes that the
Acquisition of ACM Government Opportunity, which is a significantly
smaller fund with higher expenses, exclusive of interest, by its larger
counterpart, ACM Income, would benefit the Fund and its stockholders.
Currently, ACM Income and ACM Government Opportunity have similar
investment strategies of investing at least 65% of their assets in U.S.
Government securities and the balance at least partially in emerging
market government securities. The Adviser believes that ACM Government
Opportunity's stockholders would benefit from the somewhat broader
strategy of ACM Income because it invests up to 35% of its assets in
sectors other than sovereign debt, such as corporate investment grade and
high yield debt securities, while ACM Government Opportunity invests its
other assets only in sovereign debt securities. The Adviser also
discussed that ACM Income has had a modestly better performance track
record. For the five-year period ended on July 31, 2006, ACM Income
outperformed ACM Government Opportunity by approximately 0.70% on an
annualized basis. ACM Income has outperformed ACM Government Opportunity
on a calendar year basis in three of the last five years. The Adviser
believes that ACM Income's performance advantage is due to its more
broadly diversified portfolio and lower expenses.
At the September 13 Special Meeting, the Directors (with the advice and
assistance of independent counsel) also considered, among other things:
. potential stockholder benefits including (i) the fact that expenses
exclusive of interest expense of ACM Income on a pro forma basis after
the Acquisition would be significantly lower than the current expenses
before interest expense of ACM Government Opportunity even if ACM Income
were to earn its maximum management fee and (ii) the potential for ACM
Government Opportunity's stockholders to benefit from increased earnings
of ACM Income after the Acquisition due to the repositioning of ACM
Government Opportunity's portfolio and the higher level of leverage
maintained by ACM Income in contrast to ACM Government Opportunity and
the anticipation of increased returns as a result of that higher leverage;
. the higher total annual expense ratio of the Combined Fund as compared to
the current total annual expense ratio of ACM Government Opportunity due
to the higher level of leverage that will be used by the Combined Fund
similar to the current level of leverage used by ACM Income;
. the amount and type of leverage used by the two Funds, including the fact
that ACM Income has historically used significantly more leverage than
ACM Government Opportunity and the increased interest costs and potential
benefits associated with leverage;
. the current asset levels of ACM Government Opportunity and the combined
pro forma asset levels of ACM Income;
. the historical investment performance of the Funds, including the fact
that ACM Income's investment performance over time has been better than
that of ACM Government Opportunity;
. the distribution and trading history of the two Funds, including the fact
that ACM Income's dividend has consistently been higher than that of ACM
Government Opportunity, and that the trading price of ACM Income's common
stock compared to its NAV has, over time and currently, been somewhat
more favorable than that of ACM Government Opportunity (trading price
information for the two Funds in provided in Appendix F);
. the significantly different advisory and administration fee arrangements
of the two Funds, including the fact that, although ACM Income's advisory
fee rate is currently significantly lower than that of ACM Government
Opportunity, a significant portion of the fee rate is based on ACM
Income's gross income and the fee rate may significantly exceed that of
ACM Government Opportunity in the future, as it has in the past;
14
. the amount and type of leverage used by the two Funds, including the fact
that ACM Income has historically used significantly more leverage than
ACM Government Opportunity and the increased interest costs and potential
benefits associated with leverage;
. the investment objectives and principal investment strategies of the
Funds; and
. the portfolio management team of ACM Income, one member of which is also
part of the portfolio management team of ACM Government Opportunity,
would continue to manage ACM Income after the Acquisition.
The Directors also considered, among other things:
. the historical and pro forma tax attributes of ACM Government
Opportunity, including that ACM Government Opportunity has realized gains
and no loss carryforwards and that ACM Income has sizeable capital loss
carryforwards, although the availability of these capital loss
carryforwards in ACM Income on a pro forma basis after the Acquisition
may not be meaningful because the Fund's portfolio managers generally
tend to retain appreciated securities as their value is related to their
higher income rather than to recognize gains by selling those securities
that would be offset by capital loss carryforwards;
. the form of the Plan and the terms and conditions of the Acquisition;
. the effect of the Acquisition on the advisory fees of the Funds;
. whether the Acquisition would result in the dilution of stockholders'
interests;
. the number of stockholder accounts and average account sizes of the Funds;
. changes in service providers that would result from the Acquisition;
. the fact that realignment of the investment holdings of ACM Government
Opportunity before the effective date of the Acquisition is anticipated
and associated costs would be borne by ACM Government Opportunity;
. the benefits of the Acquisition to persons other than ACM Government
Opportunity and its stockholders, including the Adviser in particular,
which would benefit from the elimination of monitoring and administering
ACM Government Opportunity, a relatively small fund, that is
substantially duplicative of its larger counterpart, ACM Income;
. the fact that ACM Income will assume all the liabilities of ACM
Government Opportunity;
. the expected federal income tax consequences of the Acquisition;
. whether the Acquisition would be preferable to acquisition by potential
acquirers other than ACM Income, including funds that are not sponsored
by the Adviser;
. the fact that the costs of the Acquisition will be borne by ACM
Government Opportunity;
. the Board's understanding that ACM Government Opportunity's largest
stockholder would be supportive of the Acquisition notwithstanding that a
similar transaction did not secure the necessary level of stockholder
support because of opposition from such stockholder in 2000;
. the tender offer/repurchase policies of the two Funds, which are very
similar; and
. the fact that the Adviser has agreed to indemnify ACM Income for a
three-year period against any undisclosed or other liability of ACM
Government Opportunity and to reimburse ACM Income for any costs in
connection with investigating any such liability, and to continue certain
insurance coverage for ACM Government Opportunity for a six year period.
Also at the September 13 Special Meeting, the Board of Directors of ACM
Income (comprised of the same persons as the Board of ACM Government
Opportunity) approved the proposed Plan. No vote of stockholders of ACM Income
is required in connection with the Acquisition.
15
Description of Securities to be Issued
Under the Plan, ACM Income will issue additional shares of common stock for
distribution to ACM Government Opportunity. Under its Charter and Bylaws, ACM
Income may issue up to 300,000,000 shares of common stock, par value $.01 per
share. Each share of ACM Income represents an equal proportionate interest with
other shares of the Fund. Each share has equal earnings, assets and voting
privileges and is entitled to dividends and other distributions out of the
income earned and gain realized on the assets belonging to the Fund as
authorized by the Board of Directors. Shares of ACM Income entitle their
holders to one vote per full share and fractional votes for fractional shares
held. Shares of ACM Income issued in the Acquisition will be fully paid and
non-assessable.
Dividends and Other Distributions
On or before the Closing Date, as defined in the Plan, ACM Government
Opportunity will, if necessary, declare and pay as a distribution substantially
all of its undistributed net investment income, net short-term capital gain,
net long-term capital gain and net gains from foreign currency transactions, as
applicable, to maintain its treatment as a regulated investment company.
Surrender and Exchange of ACM Government Opportunity Stock Certificates
After the Plan's Effective Time, each holder of a certificate (or
certificates) formerly representing shares of ACM Government Opportunity will
be entitled to receive, upon surrender of the certificate, a certificate
representing the number of ACM Income shares distributable as a result of the
Acquisition. Promptly, after the Plan's Effective Time, Computershare Trust
Company, N.A. will mail to ACM Government Opportunity's certificate holders
instructions and a letter of transmittal for use in surrendering the
certificates. Please do not send share certificates at this time. Although the
certificates will be deemed for all purposes to evidence ownership of the
equivalent number of ACM Income shares, no dividends will be paid to holders of
certificates of ACM Government Opportunity until the holder surrenders the
certificates in accordance with the instructions and letter of transmittal. Any
dividends on ACM Income shares payable after the Effective Time, will be paid
to the certificate holder, without interest, when that holder surrenders an ACM
Government Opportunity share certificate for exchange.
Each ACM Government Opportunity stockholder will receive the number of full
shares of ACM Income, plus fractional shares for stockholders that participate
in a DRIP and cash in lieu of any fractional shares for non-DRIP stockholders,
having an aggregate NAV that, on the effective date of the Acquisition, is
equal to the aggregate NAV of the stockholder's shares of ACM Government
Opportunity. Stockholders of ACM Government Opportunity will recognize no gain
or loss, except with respect to any cash received in lieu of fractional ACM
Income shares by non-DRIP stockholders.
Federal Income Tax Consequences
Subject to certain stated assumptions contained therein, the Funds will
receive an opinion of Seward & Kissel LLP, its counsel, substantially to the
following effect: (i) the Acquisition will constitute a "reorganization" within
the meaning of section 368(a) of the Code and that the Funds will each be "a
party to a reorganization" within the meaning of section 368(b) of the Code;
(ii) a stockholder of ACM Government Opportunity will recognize no gain or loss
on the exchange of the stockholder's shares of ACM Government Opportunity
solely for shares of ACM Income, except with respect to cash received in lieu
of a fractional share of ACM Income by non-DRIP stockholders in connection with
the Acquisition; (iii) neither ACM Government Opportunity nor ACM Income will
recognize any gain or loss upon the transfer of all of the assets of ACM
Government Opportunity to ACM Income in exchange for shares of ACM Income (plus
cash in lieu of certain fractional shares by non-DRIP stockholders) and the
assumption by ACM Income of the liabilities of ACM Government Opportunity
pursuant to the Plan or upon the distribution of shares of ACM Income to
stockholders of ACM Government Opportunity (and cash to non-DRIP stockholders
for their fractional shares) in exchange for shares of ACM Government
Opportunity; (iv) the holding period and tax basis of the assets of ACM
Government Opportunity acquired by ACM Income will be the same as the holding
period and tax basis that ACM Government Opportunity had in such assets
immediately prior to the Acquisition; (v) the aggregate tax basis of shares of
ACM Income received in connection with the Acquisition by each stockholder of
ACM Government Opportunity (including any fractional share to which the
stockholder may be
16
entitled) will be the same as the aggregate tax basis of the shares of ACM
Government Opportunity surrendered in exchange therefor; (vi) the holding
period of shares of ACM Income received in connection with the Acquisition by
each stockholder of ACM Government Opportunity (including any fractional share
to which the stockholder may be entitled) will include the holding period of
the shares of ACM Government Opportunity surrendered in exchange therefor,
provided that such ACM Government Opportunity shares constitute capital assets
in the hands of the stockholder as of the Closing Date; (vii) ACM Income will
succeed to the capital loss carryovers of ACM Government Opportunity, if any,
under section 381 of the Code, but the use by ACM Income of any such capital
loss carryovers (and of capital loss carryovers of ACM Income) may be subject
to limitation under section 383 of the Code; and (viii) any gain or loss
realized by a non-DRIP stockholder of ACM Government Opportunity upon the
receipt of cash for a fractional share of ACM Income to which the stockholder
is entitled will be recognized to the stockholder and measured by the
difference between the amount of cash received and the basis of the fractional
share and, provided that the ACM Government Opportunity shares surrendered
constitute capital assets in the hands of the stockholder, will be capital gain
or loss. This opinion of counsel will not be binding on the Internal Revenue
Service or a court and there is no assurance that the Internal Revenue Service
or a court will not take a view contrary to those expressed in the opinion.
Stockholders of ACM Government Opportunity are encouraged to consult their
tax advisers regarding the effect, if any, of the Acquisition in light of their
individual circumstances. Because the foregoing discussion only relates to the
federal income tax consequences of the Acquisition, those stockholders also are
encouraged to consult their tax advisers as to state and local tax
consequences, if any, of the Acquisition.
Capitalization Information
For information on the existing and pro forma capitalization of the Funds,
see Appendix E.
Trading History and Share Price Data
For information on the trading history and share price data for the Funds,
see Appendix F.
INFORMATION ABOUT THE FUNDS
ACM Income and ACM Government Opportunity are each a diversified, closed-end
management investment companies registered under the 1940 Act and organized as
a Maryland corporation in 1987 and 1988, respectively.
Management of the Funds
The Board of Directors of each Fund, which is comprised of the same persons,
directs the management of the business and affairs of the Fund. Each Board of
Directors approves all significant agreements between the respective Fund and
persons or companies furnishing services to it, including a Fund's agreements
with the Adviser and the Fund's administrator, custodian and transfer and
dividend disbursing agent. The day-to-day operations of a Fund are delegated to
its officers and the Fund's Adviser, subject to the Fund's investment objective
and policies and to general supervision by the Fund's Board of Directors.
Subsequent to the consummation of the Acquisition, the directors and officers
of ACM Income will continue to serve as the directors and officers of the
Combined Fund. The portfolio managers jointly and primarily for the management
of ACM Income are Messrs. Andrew M. Aran, Paul J. DeNoon, Gershon Distenfeld,
Douglas J. Peebles, and Kewjin Yuoh. Messrs. Aran and DeNoon are each a Senior
Vice President with the Adviser, with which each has been associated since
prior to 2001. Mr. Peebles is an Executive Vice President with the Adviser,
with which he has been associated since prior to 2001. Messrs. Distenfeld and
Yuoh are each a Vice President with the Adviser, with which Mr. Distenfeld has
been associated since prior to 2001 and Mr. Yuoh has been associated since
March 2003. The portfolio managers jointly and primarily responsible for the
management of ACM Government Opportunity are Messrs. Paul J. DeNoon, Michael L.
Mon, Douglas J. Peebles and Mathew S. Sheridan. Messrs. Mon and Sheridan are
each a Vice President with the Adviser, with which they have been associated
since prior to 2001. Subsequent to the Acquisition, Messrs. Aran, DeNoon,
Distenfeld, Peebles, and Yuoh will be jointly and primarily responsible for the
day-to-day management of the Combined Fund.
17
The SAI provides additional information about the portfolio managers'
compensation, other accounts managed by the portfolio managers, and the
portfolio managers' ownership of securities in ACM Income.
Advisory Agreement and Fees
Each Fund's investment adviser is AllianceBernstein L.P., 1345 Avenue of the
Americas, New York, New York 10105. The Adviser is a leading international
investment adviser managing client accounts with assets as of June 30, 2006
totaling more than $625 billion (of which more than $88 billion represented the
assets of investment companies). As of June 30, 2006, the Adviser managed
retirement assets for many of the largest public and private employee benefit
plans (including 41 of the nations' FORTUNE 100 companies), for public employee
retirement funds in 37 states, for investment companies, and for foundations,
endowments, banks and insurance companies worldwide. The 45 registered
investment companies managed by the Adviser, comprising 126 separate investment
portfolios, currently have approximately 4.0 million stockholder accounts.
Under each Fund's advisory agreement with the Adviser (the "Advisory
Agreement"), the Adviser provides office space, investment advisory services,
and order placement facilities for the Fund and pays all compensation of
directors and officers of the Fund who are affiliated persons of the Adviser.
Under the Advisory Agreement of ACM Government Opportunity, the Fund pays the
Adviser, as of January 31, 2006, an investment advisory fee at an annual rate
of .75% of average daily net assets. Under the Advisory Agreement of ACM
Income, the Fund pays the Adviser, as of January 31, 2006, an investment
advisory fee of .65% of its average weekly net assets. ACM Income's advisory
fee is a combination of a base fee of .30% on the first $250 million of net
assets and .25% on net assets in excess of $250 million thereafter, plus 4.75%
of daily gross income, subject to the limitation that the total advisory fee
will not exceed .95%. Such fees are accrued daily and paid monthly.
The Advisory Agreements by their terms continue in effect from year to year
if such continuance is specifically approved, at least annually, by a majority
vote of the directors of a Fund who neither are interested persons of the Fund
nor have any direct or indirect financial interest in the Advisory Agreement,
cast in person at a meeting called for the purpose of voting on such approval.
A discussion regarding the basis for a Board of Directors approving the
investment advisory contracts of ACM Government Opportunity and ACM Income is
available in each Fund's Annual Report to Stockholders for fiscal years ended
July 31, 2005 and December 31, 2005, respectively.
The Adviser is the subject of certain legal proceedings instituted by the
SEC and the Office of the New York Attorney General. A discussion of those
proceedings is presented in Appendix G.
Administrator
Under an administration agreement, Princeton Administrators, L.P. serves as
administrator for ACM Income. The Adviser serves as administrator for ACM
Government Opportunity. Under the administrative agreements, Princeton
Administrators, L.P. and the Adviser perform standard administrative services
for the Funds.
ACM Income pays a fee at the annual rate of .02 of 1% of the Fund's average
weekly net assets. Such fee is accrued daily and paid monthly. ACM Government
Opportunity pays an administrative fee at an annual rate of .15% of the Fund's
average weekly net assets. Such fee is accrued daily and paid monthly.
Currently, the Adviser has voluntarily agreed to waive a portion of its
administrative fees so as to charge the Fund at a reduced annual rate of .05%
of the Fund's average weekly net assets.
Other Service Providers
The Acquisition will result in a change to the custodian for ACM Government
Opportunity as described below. AllianceBernstein Investor Services, Inc.
("ABIS"), an affiliate of the Adviser, provides stockholder services for the
Funds. The Funds compensate ABIS for these services. Computershare Trust
Company, N.A. (formerly known as Equiserve Trust Company), P.O. Box 43010,
Providence, RI 02940-3010 serves as the Funds' transfer agent. The Bank of New
York, One Wall Street, New York, NY 10286 serves as the custodian for ACM
Government Opportunity. State Street Bank and Trust Company, 225 Franklin
Street, Boston, MA 02110 serves as the custodian for ACM Income. After the
Acquisition, State Street Bank and Trust Company will serve as custodian for
the Combined Fund. Ernst & Young LLP serves as the Funds' independent
registered public accounting firm.
18
VOTING INFORMATION
The Board of Directors of ACM Government Opportunity has fixed the close of
business on October 13, 2006 as the Record Date for the determination of
stockholders entitled to notice of, and to vote at, the Meeting and at any
adjournments or postponements thereof. Appendix H to this Prospectus/Proxy
Statement lists the total number of ACM Government Opportunity's shares
outstanding as of August 15, 2006. It also identifies holders of more than five
percent of shares of each Fund, and contains information about the executive
officers and Directors of each Fund and their shareholdings in each Fund.
Those stockholders who hold shares directly and not through a broker or
nominee (that is, a stockholder of record) may authorize their proxies to cast
their votes by completing a proxy card and returning it by mailing the enclosed
postage-paid envelope as well as telephoning toll free 1-800-331-5817. Owners
of shares held through a broker or nominee (who is the stockholder of record
for those shares) should follow the directions provided to the stockholder by
the broker or nominee to submit voting instructions. Instructions to be
followed by a stockholder of record to submit a proxy via telephone, including
use of the Control Number on the stockholder's proxy card, are designed to
verify stockholder identities, to allow stockholders to give voting
instructions and to confirm that stockholder instructions have been recorded
properly. Stockholders who authorize proxies by telephone should not also
return a proxy card. A stockholder of record may revoke that stockholder's
proxy at any time prior to exercise thereof by giving written notice to the
Secretary of ACM Government Opportunity at 1345 Avenue of the Americas, New
York, New York 10105, by authorizing a later-dated proxy (either by signing and
mailing another proxy card or, by telephone as indicated above), or by
personally attending and voting at the Meeting.
Properly executed proxies may be returned with instructions to abstain from
voting or to withhold authority to vote (an "abstention") or represent a broker
"non-vote" (which is a proxy from a broker or nominee indicating that the
broker or nominee has not received instructions from the beneficial owner or
other person entitled to vote shares on a particular matter with respect to
which the broker or nominee does not have the discretionary power to vote).
Approval of the Proposal requires the affirmative vote of the holders of a
majority of the votes entitled to be cast. Abstentions and broker non-votes
will be considered present for purposes of determining the existence of a
quorum for the transaction of business but will have the effect of a vote
against the Proposal.
On September 19, 2006, Aon Corporation/Aon Advisers, Inc. ("Aon"), which
beneficially owns 26.5% of ACM Government Opportunity's shares, disclosed in a
filing with the SEC that, based on the respective prices at which the shares of
ACM Government Opportunity and ACM Income were then trading, it intends to vote
its shares in favor of the Acquisition. Aon also disclosed that it reserves the
right to reconsider its initial determination to vote in favor of the
Acquisition should market circumstances change.
If any proposal, other than the Proposal, properly comes before the Meeting,
the shares represented by proxies will be voted on all such proposals in the
discretion of the person or persons voting the proxies. ACM Government
Opportunity has not received notice of, and is not otherwise aware of, any
other matter to be presented at the Meeting.
A quorum for the transaction of business by stockholders of ACM Government
Opportunity at the Meeting will consist of the presence in person or by proxy
of the holders of a majority of the shares of the Fund entitled to vote at the
Meeting. In the event that a quorum is not represented at the Meeting or, even
if a quorum is so present, in the event that sufficient votes in favor of the
position recommended by the Board of Directors on the Proposal are not timely
received, the Chairman of the Board may authorize, or the persons named as
proxies may propose and vote for, one or more adjournments of the Meeting with
no other notice than announcement at the Meeting, up to 120 days after the
Record Date, in order to permit further solicitation of proxies. Shares
represented by proxies indicating a vote against the Proposal will be voted
against adjournment.
ACM Government Opportunity has engaged The Altman Group, Inc. (the "Proxy
Solicitor"), 60 East 42nd Street, Suite 405, New York, New York 10165 to assist
in soliciting proxies for the Meeting. The Proxy Solicitor will receive a fee
of approximately $ 12,500 from the Fund for its solicitation services,
plus reimbursement of out-of-pocket expenses.
19
LEGAL MATTERS
The validity of the shares offered hereby will be passed upon for the Funds
by Seward & Kissel LLP. Seward & Kissel LLP will rely upon the opinion of
Venable LLP for certain matters relating to Maryland law.
EXPERTS
The audited financial statements and financial highlights in the
Prospectus/Proxy Statement and the SAI have been included in reliance on the
report of Ernst & Young LLP, 5 Times Square, New York, NY 10036, the
independent registered public accounting firm for the Funds, given on its
authority as experts in auditing and accounting.
FINANCIAL HIGHLIGHTS
Financial highlights information for the Funds is available at Appendix I.
THE DIRECTORS OF ACM GOVERNMENT OPPORTUNITY RECOMMEND
THAT YOU VOTE FOR THE ACQUISITION OF THE ASSETS
AND LIABILITIES OF ACM GOVERNMENT OPPORTUNITY BY ACM INCOME AND THE DISSOLUTION
OF ACM GOVERNMENT OPPORTUNITY.
20
APPENDIX A
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES
ACM Government Opportunity ACM Income Principal Differences
----------------------------------------- ------------------------ ---------------------------
Investment The primary investment objective of The investment objective As a practical matter, the
Objective the Fund is high current income con- of the Fund is high cur- Funds' investment ob-
sistent with prudent investment risk. rent income consistent jectives are the same.
The Fund's secondary investment with preservation of
objective is growth of capital. (F) capital. (F)
Investment Policies/1/
Status The Fund is a diversified closed-end Same. None.
management investment company.
80% Policy The Fund will invest, under normal The Fund will invest, Both Funds invest primar-
circumstances, at least 80% of its net under normal circum- ily in U.S. Government
assets in securities issued by any stances, at least 80% of Securities (see next row).
government. its net assets in income However, in accordance
producing securities. with SEC rules, ACM
Government Opportunity
will invest at least 80% of
its assets in government
securities because the
Fund's name includes the
term "Government".
U.S. The Fund will invest at least 65% of Same. (F) None.
Government its total assets in obligations issued or
Securities guaranteed by the U.S. Government,
its agencies or instrumentalities
("U.S. Government Securities") and
repurchase agreements pertaining to
U.S. Government Securities. (F)
--------
/1 /Policies with the notation "F" denote fundamental policies, which mean
they may not be changed without a stockholder vote.
21
ACM Government Opportunity ACM Income Principal Differences
------------------------------------- ------------------------------ -------------------------
Other The Fund may invest up to 35% of The Fund may invest up to ACM Income may invest
Securities its total assets in 35% of its total assets in in lower-rated debt secu-
. obligations issued or guaranteed securities other than U.S. rities and corporate debt
by a foreign government or any Government Securities, securities. ACM
of its political subdivisions, including (i) Foreign Gov- Government Opportunity
authorities, agencies or ernment Securities, does not invest in those
instrumentalities, (ii) corporate debt secu- types of securities.
. dividend-paying equity rities (including collateral- ACM Government Oppor-
securities, ized mortgage obligations), tunity may invest in
. certificates of deposit, bankers' (iii) certificates of deposit, equity securities. ACM
acceptances and interest- bankers' acceptances and Income does not invest in
bearing savings deposits of interest bearing savings equity securities.
banks having total assets of deposits of banks having Both Funds may invest in
more than $1 billion and which total assets of more than $1 Foreign Government
are members of the FDIC, billion and which are Securities. ACM Income
. commercial paper of prime qual- members of the FDIC, may not invest more than
ity rated Prime-1 or higher by (iv) commercial paper of 25% of its assets in the
Moody's or A-1 or higher by prime quality rated Foreign Government
S&P or, if not rated, issued by Prime-1 or higher by Securities of any one
companies which have an out- Moody's or A-1 or higher country; whereas, ACM
standing debt issue rated Aa or by S&P or, if not rated, Government Opportuni-
higher by Moody's or AA or issued by companies which ty's investment in these
higher by S&P, and have an outstanding debt securities in any one
. put and call options, futures issue dated Aa or higher by country would be subject
contracts and options on futures Moody's or AA or higher to its 35% limitation.
contracts, options on foreign by S&P, and (v) put and
currencies and forward foreign call options, futures con-
currency exchange contracts. tracts and options on fu-
tures contracts, options on
foreign currencies, and
forward foreign currency
exchange contracts.
The Fund may maintain
up to 35% of its net assets
in securities rated below
Baa by Moody's or below
BBB by S&P or, if not
rated, of comparable in-
vestment quality as de-
termined by the Adviser.
The Fund may invest up to
35% of its total assets in
Foreign Government
Securities of issuers
considered stable by the
Adviser, although the
Fund will not invest 25%
or more of its total assets
in the Foreign Government
Securities of any one
country.
22
ACM Government Opportunity ACM Income Principal Differences
---------------------------------------- --------------------------- ---------------------------
Equity Not more than 20% of the Fund's ACM Government Oppor-
Securities total assets may be invested in equity tunity may invest in
securities equity securities. ACM
Income does not invest in
equity securities.
Options The Fund intends to write covered Same. None.
put and call options and purchase put
and call options on securities of the
types in which it is permitted to in-
vest that are traded on U.S. and for-
eign securities exchanges. The Fund
may also write call options for cross-
hedging purposes. There are no spe-
cific percentage limitations on the
Fund's writing and purchasing of
options.
Restricted The Fund may invest up to 20% of The Fund may invest up As a practical matter,
Securities its total assets in securities purchased to 20% of its total assets there are no significant
in direct placements. in illiquid securities. differences in the Funds'
These securities include, investments in restricted
among others, (i) direct securities since ACM
placements or other secu- Income's investment in
rities which are subject to restricted securities would
legal or contractual re- primarily be comprised of
strictions on resale or for securities purchased in
which there is no readily direct placements.
available market,
(ii) over-the-counter op-
tions and assets used to
cover over-the-counter
options, and (iii) re-
purchase agreements not
terminable within seven
days.
Securities The Fund may lend portfolio secu- Same. None.
Lending rities to brokers, dealers and finan-
cial institutions and receive collateral
in the form of cash or U.S. Govern-
ment Securities. Collateral for such
loans must be maintained at all times
in an amount equal to at least 100%
of the current market value of the
loaned securities. The Fund will nei-
ther lend portfolio securities in ex-
cess of 30% of the value of its total
assets nor lend its portfolio securities
to any officer, director, employee or
affiliate of the Fund or the Adviser.
23
ACM Government Opportunity ACM Income Principal Differences
-------------------------------------- ---------------------------- --------------------------
Futures The Fund may enter into contracts The Fund may enter into ACM Government Oppor-
Contracts and for the purchase or sale for future contracts for the purchase tunity may enter into fu-
Options on delivery of fixed-income securities or sale for future delivery tures contracts based on
Futures or foreign currencies, or contracts of U.S. and Foreign Gov- common stocks since that
Contracts based on financial indices, including ernment Securities, or Fund is permitted to in-
any index of U.S. Government Secu- contracts based on finan- vest in equity securities.
General rities, Foreign Government Secu- cial indices including any ACM Income's invest-
rities or common stocks ("futures index of U.S. and Foreign ments in futures contracts
contracts") and may purchase and Government Securities are subject to the 5% and
write put and call options to buy or ("futures contracts") and 50% restrictions, which
sell futures contracts ("options on may purchase and write were previously require-
futures contracts"). put and call options to ments of the Commodity
buy or sell futures con- Futures Trading Commis-
tracts ("options on futures sion for investment com-
contracts"). panies that invested in
Futures contracts and op- futures contracts. As
tions on futures contracts these requirements are no
can only be used as a longer required, ACM
hedge and not for Income intends to elimi-
speculation. nate these restrictions.
In addition, there are two ACM Government
percentage restrictions: Opportunity's invest-
(i) the Fund will not en- ments in futures contracts
ter into any futures con- are not subject to this
tracts or options on limitation.
futures contracts if
immediately thereafter
the aggregate amount of
initial margin deposits on
all the futures contracts of
the Fund and premiums
paid on options on futures
contracts would exceed
5% of the market value of
the total assets of the
Fund; and (ii) the ag-
gregate market value of
the futures contracts pur-
chased by the Fund can-
not exceed 50% of the
market value of the total
assets of the Fund.
Futures The Fund may not purchase or sell The Fund may not pur- As a practical matter,
Contracts and commodities or commodity contracts chase or sell commodities there is no difference in
Options on (except currencies, currency futures, or commodity contracts these policies.
Futures forward contracts or contracts for the (except currencies, cur-
Contracts future acquisition or delivery of rency futures, forward
fixed income securities and related contracts or contracts for
Specific options futures contracts and options the future acquisition or
on futures contracts and other similar delivery of fixed income
contracts). (F) securities and related op-
tions and other similar
contracts). (F)
24
ACM Government Opportunity ACM Income Principal Differences
-------------------------------------- -------------------------- -----------------------------
Options on The Fund may purchase and write Same. None.
Foreign put and call options on foreign cur-
Currencies rencies for the purpose of protecting
against declines in the U.S. dollar
value of foreign currency denomi-
nated portfolio securities and against
increases in the U.S. dollar costs of
such securities to be acquired.
Forward The Fund may enter into forward The Fund may enter into As a practical matter,
Commitments commitments for the purchase or forward commitments for there is no difference in
sale of fixed-income securities. the purchase or sale of these policies.
securities.
Forward The Fund may purchase or sell for- Same. None.
Foreign ward foreign currency exchange con-
Currency tracts ("forward contracts") to
Exchange attempt to minimize the risk to the
Contracts Fund from adverse changes in the
relationship between the U.S. dollar
and foreign currencies.
Future The Fund may, following written The Fund may, following ACM Income's strategy
Developments notice to stockholders, take advan- written notice to stock- is somewhat broader be-
tage of opportunities in the area of holders, take advantage of cause it is not restricted to
options and futures contracts and opportunities in the area opportunities in the areas
options on futures contracts which of investment practices of options and futures
are not presently contemplated or which are not presently contracts and options on
which are not currently available, contemplated or which futures contracts.
consistent with the Fund's invest- are not currently avail-
ment objective and legally able, consistent with the
permissible. Fund's investment ob-
jective and legally
permissible.
Dollar Rolls The Fund may enter into dollar rolls. Same. None.
Swaps The Fund may use swaps. Same. None.
Repurchase The Fund may enter into repurchase The Fund may enter into As a practical matter, the
Agreements agreements only pertaining to U.S. repurchase agreements Funds' policies on re-
Government Securities pertaining to U.S. purchase agreements are
Government Securities the same, but ACM In-
with member banks of the come may also invest in
Federal Reserve System reverse repurchase
or "primary dealers" in agreements.
such securities.
The Fund may also use
reverse repurchase
agreements.
The Fund may enter into
repurchase agreement
with respect to up to 35%
of its total assets (SAI).
25
ACM Government Opportunity ACM Income Principal Differences
--------------------------------------- ------------------------------ --------------------------
Industry The Fund will not invest 25% or The Fund will not invest As a practical matter, the
Concentration more of its total assets in securities 25% or more of its total Funds' policies on in-
of companies engaged principally in assets in securities of com- dustry concentration are
any one industry, except that this re- panies engaged principally the same.
striction does not apply to U.S. Gov- in any one industry, except
ernment and Foreign Government that this restriction does not
Securities. (F) apply to U.S. Government
Securities. (F)
Lending The Fund will not make loans except Same. (F) None.
through (i) the purchase of debt
obligations in accordance with its
investment objectives and policies;
(ii) the lending of portfolio secu-
rities; or (iii) the use of repurchase
agreements. (F)
Borrowing The Fund may not borrow money, Same. (F) None.
except (i) from a bank or other entity
in a privately arranged transaction and
issue commercial paper, bonds, de-
bentures or notes, in series or other-
wise, with such interest rates,
conversion rights and other terms and
provisions as are determined by the
Board, if after such borrowing or
issuance there is asset coverage of at
least 300% as defined in the 1940 Act
and (ii) for temporary purposes in an
amount not exceeding 5% of the value
of the total assets of the Fund. (F)
Pledging of The Fund may not pledge, hypoth- Same. (F) None.
Assets ecate, mortgage or otherwise
encumber its assets, except to secure
permitted borrowings. (F)
Securities The Fund may not participate on a Same. (F) None.
Trading joint or joint and several basis in any
securities trading account. (F)
Investing for The Fund may not invest in compa- Same. (F) None.
Control nies for the purpose of exercising
control. (F)
Illiquid The Fund may not invest in illiquid Same. (F) None.
Securities securities, including direct place-
ments or other securities which are
subject to legal or contractual re-
strictions on resale or for which there
is no readily available market, if
more than 20% of the Fund's total
assets would be invested in such
securities. (F)
26
ACM Government Opportunity ACM Income Principal Differences
--------------------------------------- ---------- ----------------------------
Short Sales The Fund may not make short sales Same. (F) None.
of securities or maintain a short posi-
tion unless at all times when a short
position is open it owns an equal
amount of such securities or secu-
rities convertible into or exchange-
able for, without payment of any
further consideration, securities of
the same issue as, and equal in
amount to, the securities sold short
("short sales against the box") and
unless more than 10% of the Fund's
net assets is held as collateral for
such sales at any one time. (F)
Other The Fund may not purchase a secu- As a practical matter,
Investment rity if, as a result the Fund would there is no difference
Companies own any securities of an open-end between the Funds' abil-
investment company or more than ity to invest in other in-
3% of the total outstanding voting vestment companies.
stock of any closed-end investment Both Funds are subject to
company or more than 5% of the restrictions under the
value of the Fund's total assets 1940 Act, which limit an
would be invested in securities of investment company's
any closed-end investment company ability to invest in another
or more than 10% of such value in investment company.
closed-end investment companies in ACM Government
general. (F) Opportunity's policy re-
states the 1940 Act
restrictions.
Real Estate The Fund may not purchase or sell Same. (F) None.
real estate, except that it may pur-
chase and sell securities of compa-
nies which deal in real estate or
interests therein. (F)
Mineral The Fund may not invest in interests Same. (F) None.
Exploration in oil, gas, or other mineral explora-
tion or development programs. (F)
Margin The Fund may not purchase securities Same. (F) None.
on margin, except for such short-term
credits as may be necessary for the
clearance of transactions. (F)
Underwriting The Fund may not act as an under- Same. (F) None.
writer of securities, except that the
Fund may acquire restricted secu-
rities under circumstances in which,
if such securities were sold, the Fund
might be deemed to be an under-
writer for purposes of the Securities
Act. (F)
27
APPENDIX B
DESCRIPTION OF PRINCIPAL RISKS OF THE FUNDS
Among the principal risks of investing in a Fund are market risk, interest
rate risk, credit risk, leveraging risk, foreign (non-U.S.) risk, emerging
markets risk, currency risk, derivatives risk, liquidity risk and management
risk. Each of these risks is more fully described below. Each Fund could become
subject to additional risks because the types of investments made by each Fund
can change over time.
Market Risk and This is the risk that the value of a Fund's investments will fluctuate as the
Net Asset Value of Shares stock or bond markets fluctuate and that prices overall will decline over
shorter or longer-term periods. Shares of common stock of closed-end
investment companies, such as the Funds, frequently trade at a discount
to their NAVs. Whether an investor will realize gains or losses upon the
sale of shares of a Fund does not depend directly upon changes in the
Fund's NAV, but rather upon whether the market price of the shares at
the time of sale is above or below the investor's purchase price for the
shares. The market price of the shares of each Fund is determined by
such factors as relative demand for and supply of the shares in the mar-
ket, general market and economic conditions, changes in the Fund's
NAV and other factors beyond the control of the Fund. This market risk
is separate and distinct from the risk that each Fund's NAV may
decrease.
Interest Rate Risk This is the risk that changes in interest rates will affect the yield and
value of a Fund's investments in fixed-income securities. When interest
rates rise, the value of a Fund's investments tends to fall and this de-
crease in value may not be offset by higher interest income from new
investments. Interest rate risk is generally greater for investment compa-
nies that invest in fixed-income securities with longer maturities or dura-
tions. This risk is compounded for the Fund because they invest a
significant portion of their assets in mortgage-related securities. The
value of these securities is affected more by changes in interest rates be-
cause when interest rates rise, the maturities of these types of securities
tend to lengthen and the value of the securities decreases more sig-
nificantly. In addition, these types of securities are subject to prepayment
when interest rates fall, which generally results in lower returns because
a Fund must reinvest its assets in debt securities with lower interest rates.
Credit Risk This is the risk that the issuer or the guarantor of a fixed-income security,
or the counterparty to a derivatives or other contract, will be unable or
unwilling to make timely payments of interest or principal or to other-
wise honor its obligations. The issuer or guarantor may default causing a
loss of the full principal amount of a security and any accrued interest.
The degree of risk for a particular security may be reflected in its credit
rating. Investments in fixed-income securities with lower ratings tend to
have a higher probability that an issuer will default or fail to meet its
payment obligations. Because ACM Income may invest a significant
percentage of its assets in high yield debt securities, ACM Income may
be subject to greater credit risk than ACM Government Opportunity.
28
Leverage Risk When a Fund borrows money or otherwise leverages its portfolio, it may
be more volatile because leverage tends to exaggerate the effect of any
increase or decrease in the value of the portfolio's investments. A Fund
may create leverage through the use of one or more of the following
techniques: reverse repurchase arrangements, forward contracts or dollar
rolls or by borrowing money. This risk is greater for ACM Income be-
cause this Fund historically has employed higher levels of leverage than
ACM Government Opportunity.
Foreign (Non-U.S.) Risk This is the risk of investments in issuers located in foreign countries.
Because the Funds may invest in foreign securities, they are subject to
this risk. A Fund's investments in foreign securities may experience more
rapid and extreme changes in value than investments in securities of U.S.
companies. The securities markets of many foreign countries are rela-
tively small, with a limited number of companies representing a small
number of securities. Foreign companies usually are not subject to the
same degree of regulation as U.S. issuers. Reporting, accounting, and
auditing standards of foreign countries differ, in some cases significantly,
from U.S. standards. Nationalization, expropriation or confiscatory tax-
ation, currency blockage, political changes, or diplomatic developments
could adversely affect a Fund's investments in a foreign country. These
risks are heightened for emerging market countries because there may be
more economic, political and social instability and investments in
companies in emerging markets may have more risk because these secu-
rities may be more volatile and less liquid. To the extent a Fund invests
in a particular country or geographic region, the Fund may have more
significant risk due to market changes or other factors affecting that
country or region, including political instability and unpredictable eco-
nomic conditions.
Emerging Markets Risk Foreign investment risk may be particularly high to the extent a Fund
invests in emerging market securities of issuers based in countries with
developing economies. These securities may present market, credit, cur-
rency, liquidity, legal, political and other risks different from, or greater
than, the risks of investing in developed foreign (non-U.S.) countries.
Currency Risk This is the risk that fluctuations in the exchange rates between the U.S.
Dollar and foreign (non-U.S.) currencies may negatively affect the value
of a Fund's investments or reduce the returns of a Fund.
Derivatives Risk The Funds may use derivatives. These investment strategies may be risk-
ier than other investment strategies and may result in greater volatility for
a Fund, particularly during periods of market declines.
Liquidity Risk Liquidity risk exists when particular investments are difficult to purchase
or sell, possibly preventing a Fund from selling out of these illiquid secu-
rities at an advantageous price. Derivatives and securities involving sub-
stantial market and credit risk tend to involve greater liquidity risk.
Management Risk Each Fund is subject to management risk because it is an actively man-
aged investment portfolio. The Adviser will apply its investment tech-
niques and risk analyses in making investment decisions for each Fund,
but there can be no guarantee that its decisions will produce the desired
results.
29
APPENDIX C
OTHER INFORMATION
The following information provides only a summary of the key features of the
organizational structure, governing documents, and stockholder services of the
Funds.
Each Fund is organized as a Maryland corporation. The Bylaw provisions that
govern each of the Funds are the same. Unless noted below, there are no
significant differences among the Funds in terms of their respective corporate
organizational structures.
The procedures available to a Fund's stockholders for calling stockholders'
meetings and for the removal of directors are the same. Under the Funds'
charters, a director may be removed only for cause by the affirmative vote of
two-thirds of all the votes entitled to be cast in the election of directors.
Special meetings of stockholders for any purpose may be called by a Fund's
Secretary only upon the written request of holders of shares entitled to cast
not less than a majority of the votes entitled to be cast at a meeting.
Except as otherwise required by law, the presence in person or by proxy of
the holders of a majority of the shares entitled to be cast constitutes a
quorum at any meeting of stockholders of a Fund. Under Maryland law, a Maryland
corporation generally cannot dissolve, amend its charter, merge, sell all or
substantially all of its assets, engage in a share exchange or engage in
similar transactions outside the ordinary course of business, unless approved
by the affirmative vote of stockholders entitled to cast at least two-thirds of
the votes entitled to be cast on the matter. However, a Maryland corporation
may provide in its charter for approval of these matters by a lesser
percentage, but not less than a majority of all of the votes entitled to be
cast on the matter. Subject to various exceptions, each Fund's charter
generally provides for approval of charter amendments and extraordinary
transactions by the stockholders entitled to cast at least a majority of the
votes entitled to be cast on the matter. The Bylaws of each Fund provides that
each director shall be elected by the affirmative vote of the holders of a
majority of the votes entitled to be cast thereon. For other matters not
requiring a vote under the 1940 Act, when a quorum is present, the affirmative
vote of a majority of the votes cast shall decide any question brought before
such meeting unless a statute or charter requires a higher voting margin.
Shares of Common Stock of the Funds
There are no subscription/preemptive or exchange rights under any of the
charters. Each share of a Fund has equal voting, dividend, distribution and
liquidation rights. Stockholders are entitled to one vote per share. All voting
rights for the election of directors are non-cumulative, which means that the
holders of more than 50% of the shares of common stock of a Fund can elect 100%
of the directors then nominated for election if they choose to do so and, in
such event, the holders of the remaining shares of common stock will not be
able to elect any directors. Under the rules of the NYSE applicable to listed
companies, each Fund is required to hold an annual meeting of stockholders each
year.
Distributions
The Funds intend to distribute all of their net investment income. Dividends
from such net investment income will be declared and paid monthly to
stockholders. All net realized long or short-term capital gains, if any, will
be distributed at least annually. To permit a Fund to maintain a more stable
monthly distribution, a Fund may, from time to time, pay out less than the
entire amount of net investment income and net realized short-term capital
gains earned in any particular period. Any such amount retained by a Fund would
be available to stabilize future distributions. As a result, distributions paid
by a Fund for any particular period may be more or less than the amount of net
investment income and net realized short-term capital gains actually earned by
the Fund during such period. There are no assurances that a Fund will be able
to maintain a constant level of monthly distributions to stockholders.
Distributions are taxable to stockholders as ordinary income or capital
gains. Stockholders may be proportionately liable for taxes on income and gains
of a Fund but stockholders not subject to tax on their income
30
will not be required to pay tax on amounts distributed to them. A Fund
distributes written notice to stockholders regarding the tax status of all
distributions made during each calendar year.
Dividend Reinvestment Plans
Stockholders of a Fund whose shares are registered in their own names may
elect to be participants in a Fund's Dividend Reinvestment and Cash Purchase
Plan (the "DRIP"), under which dividends and capital gain distributions to
stockholders will be paid or reinvested in additional shares of the Fund (the
"Dividend Shares"). Assuming the Acquisition is approved, the DRIP stockholders
of the ACM Government Opportunity will automatically be enrolled in the DRIP
for ACM Income. Computershare Trust Company (the "Agent") acts as the agent for
participants under the ACM Income DRIP. Stockholders whose shares are held in
the name of a broker or nominee will automatically have distributions
reinvested by the broker or nominee in additional shares under the DRIP, unless
the automatic reinvestment service is not provided by the particular broker or
nominee or the stockholder elects to receive distributions in cash.
Stockholders who do not elect to participate in the DRIP will receive all
distributions in cash paid by check mailed directly to the stockholder of
record (or, if the shares are held in street or other nominee name, then to the
nominee) by Computershare Trust Company as dividend paying agent.
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.
A stockholder who has elected to participate in the DRIP may withdraw from
the DRIP at any time. There will be no penalty for withdrawal from the DRIP and
stockholders who have previously withdrawn from the DRIP may rejoin it at any
time. Changes in elections must be in writing and should include the
stockholder's name and address as they appear on the share certificate. An
election to withdraw from the DRIP will, until such election is changed, be
deemed to be an election by a stockholder to take all subsequent distributions
in cash. An election will be effective only for a distribution declared and
having a record dated of at least 10 days after the date on which the election
is received. A stockholder whose shares are held in the name of a broker or
nominee should contact such broker or nominee concerning changes in that
stockholder's election.
All correspondence concerning the DRIP for ACM Income should be directed to
Computershare Trust Company, P.O. Box 43011, Providence, RI 02940-3011.
Repurchase of Shares
Each Fund's Board of Directors has determined that it would be in the
interest of stockholders of a Fund to attempt to reduce or eliminate any market
value discount should it exist. To that end, each Fund's Board of Directors
presently contemplates that a Fund would from time to time take action either
to repurchase in the open market or to make a tender offer for its own shares
at net asset value. Each Board of Directors has approved a share repurchase
program for its Fund. As of July 31, 2006, only ACM Government Opportunity has
made repurchases under this program. The Boards of Directors presently intend
each quarter to consider the making of a tender offer. A Board of Directors may
at any time, however, decide that a Fund should not make a tender offer.
Any tender offer made by a Fund will be at a price equal to the NAV of the
shares on a date subsequent to receipt by the Fund of all tenders. Each offer
will be made and stockholders notified in accordance with the requirements of
the Securities and Exchange Act of 1934 and the 1940 Act, either by publication
or mailing or both. Each offering document will contain such information as is
prescribed by such laws and the rules and regulations promulgated thereunder.
When a tender offer is authorized to be made by a Board of Directors, a
stockholder wishing to accept the offer will be required to tender all (and not
less than all) of the shares owned by such stockholder (or attributed to the
stockholder for federal income tax purposes under Section 318 of the Code). A
Fund will purchase all shares tendered in accordance with the terms of the
offer unless it determines to accept none of them (based upon one of the
conditions set forth above). Each person tendering shares will be required to
submit a check in the amount of $25.00, payable to the Fund, which will be used
to help defray the costs associated with effecting the tender offer. This
$25.00 fee will be imposed upon each tendering stockholder any of
31
whose tendered shares are purchased in the offer, and will be imposed
regardless of the number of shares purchased. A Fund expects the cost to the
Fund of effecting a tender offer will exceed the aggregate of all such fees
received from those who tender offer their shares. Costs associated with the
tender offer will be charged against capital. During the period of the tender
offer, a Fund's stockholders will be able to obtain the Fund's current net
asset value by use of a toll-free telephone number.
Possible Future Conversion to Open-End Investment Company
ACM Government Opportunity's charter provides that if, during any fiscal
year of ACM Government Opportunity, (i) shares of ACM Government Opportunity's
common stock have traded on the principal securities exchange where listed at
an average discount from net asset value of more than 10%, determined on the
basis of the discount as of the end of the last trading day in each week during
the period of 12 calendar weeks preceding December 31 in such year, and
(ii) during such year ACM Government Opportunity receives written requests from
the holders of 10% or more of ACM Government Opportunity's outstanding shares
of common stock that such a proposal be submitted to ACM Government
Opportunity's stockholders, ACM Government Opportunity will submit to its
stockholders at the next succeeding annual meeting of stockholders a proposal,
to the extent consistent with the 1940 Act, to amend ACM Government
Opportunity's Charter. Such amendment would provide that, upon its adoption by
the holders of 66 2/3% of ACM Government Opportunity's outstanding shares of
common stock, ACM Government Opportunity will convert from a closed-end to an
open-end investment company. The 66 2/3% vote requirement is higher than the
minimum vote required under the 1940 Act. If ACM Government Opportunity
converted to an open-end investment company, it would be able to continuously
issue and offer shares of its common stock and each outstanding share of ACM
Government Opportunity's common stock could be presented to ACM Government
Opportunity at the option of the holder thereof for redemption at net asset
value per share. In such event, ACM Government Opportunity might be required to
liquidate portfolio securities to meet requests for redemption, and its shares
would no longer be listed on the NYSE.
ACM Income's charter has similar provisions. However, the vote required to
approve a conversion is 75% of the outstanding shares of common stock.
A Fund cannot predict whether any repurchase of shares made while the Fund
is a closed-end investment company (as described under "Repurchase of Shares"
above) would increase or decrease the discount from NAV. To the extent that any
such repurchase decreased the discount from NAV to below 10% during the
measurement period described in (i) above, a Fund would not be required to
submit to stockholders a proposal to convert the Fund to an open-end investment
company at the next annual meeting of stockholders.
Certain Anti-Takeover Provisions of the Funds' Charters and Bylaws
The Funds presently have provisions in their Charters and Bylaws (together,
the "Charter Documents") that are intended to limit (i) the ability of other
entities or persons to acquire control of a Fund, (ii) a Fund's freedom to
engage in certain transactions, or (iii) the ability of a Fund's directors or
stockholders to amend the Charter Documents or effect changes in the Fund's
management. These provisions of the Charter Documents may be regarded as
"anti-takeover" provisions.
The Board of Directors of each Fund is divided into three classes, each
having a term of three years. Each class of Directors serves for a three-year
term. Accordingly, only those directors in one class may be changed in any one
year, and it would require two years to change a majority of the Board of
Directors (although under Maryland law procedures are available for the removal
of directors even if they are not then standing for reelections and under SEC
regulations procedures are available for including stockholder proposals in
management's annual proxy statement). Such a system of electing directors may
have the effect of maintaining the continuity of management and, thus, make it
more difficult for a Fund's stockholders to change the majority of directors.
Generally, under a Fund's Charter, the affirmative vote of the holders of a
majority of the votes entitled to be cast is required for the consolidation of
the Fund with another corporation, a merger of the Fund with or into another
corporation (except for certain mergers in which the Fund is the successor), a
statutory share exchange in which the Fund is not the successor, a sale or
transfer of all or substantially all of the Fund's assets, the
32
dissolution of the Fund and certain amendments to the Fund's Charter. In
addition, the affirmative vote of 75% (which is higher than that required under
Maryland law or the 1940 Act) of the outstanding shares of common stock of a
Fund is required generally to authorize any of the following transactions or to
amend the provisions of the Charter relating to such transactions:
(i)merger, consolidation or statutory share exchange of the Fund with or
into any person, corporation or other entity;
(ii)issuance of any securities of the Fund to any person, corporation or
other entity for cash;
(iii)sale, lease or exchange of all or any substantial part of the assets of
the Fund to any person, corporation or other entity (except assets
having an aggregate fair market value of less than $1,000,000); or
(iv)sale, lease or exchange to the Fund, in exchange for securities of the
Fund, of any assets of any person, corporation or other entity (except
assets having an aggregate fair market value of less than $1,000,000);
if such corporation, person or entity is directly, or indirectly through
affiliates or associates, the beneficial owner of more than 5% of the
outstanding shares of the Fund (a "principal stockholder"). However, such vote
would not be required where, under certain conditions, the Board of Directors
approves the transaction, although in certain cases involving merger,
consolidation or statutory share exchange or sale of all or substantially all
of a Fund's assets the affirmative vote of a majority of the outstanding shares
of the Fund would nevertheless be required.
The provisions of the Charter Documents described above and a Fund's right
to repurchase or make a tender offer for its common stock could have the effect
of depriving the owners of shares of opportunities to sell their shares at a
premium over prevailing market prices, by discouraging a third party from
seeking to obtain control of the Fund in a tender offer or similar transaction.
The overall effect of these provisions is to render more difficult the
accomplishment of a merger or the assumption of control by a principal
stockholder. However, they provide the advantage of potentially requiring
persons seeking control of the Fund to negotiate with its management regarding
the price to be paid and facilitating the continuity of the Fund's management
and investment objective and policies. The Board of Directors of each Fund has
considered the foregoing anti-takeover provisions and concluded that they are
in the best interests of the Fund and its stockholders.
Indemnification and Liability of Directors and Officers
The charters of each of the Funds generally provides for the indemnification
of its officers and directors, as applicable, to the full extent permitted by
law. This indemnification does not protect any such person against any
liability to a Fund or any stockholder thereof to which such person would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the satisfaction of
such person's office.
Maryland law permits a Maryland corporation to include in its charter a
provision limiting the liability of its directors and officers to the
corporation and its stockholders for money damages except for liability
resulting from (a) actual receipt of an improper benefit or profit in money,
property or services or (b) active and deliberate dishonesty established by a
final judgment as being material to the cause of action. Each Fund's charter
contains such a provision which eliminates directors' and officers' liability
to the maximum extent permitted by Maryland law. This indemnification does not
protect any such person against any liability to a Fund or any stockholder
thereof to which such person would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the satisfaction of such person's office.
33
APPENDIX D
FORM OF AGREEMENT AND PLAN OF ACQUISITION AND LIQUIDATION
RELATING TO THE ACQUISITION OF ALL OF THE ASSETS AND LIABILITIES
OF ACM GOVERNMENT OPPORTUNITY FUND, INC.
This Agreement and Plan of Acquisition and Liquidation (the "Plan") is made
as of this [ ] day of [ ], 2006, by and among (the "Acquiring
Fund"), a Maryland corporation, (the "Acquired Fund"), a Maryland
corporation, and AllianceBernstein L.P. (the "Adviser").
WHEREAS, the Acquiring Fund and the Acquired Fund are closed-end management
investment companies registered with the Securities and Exchange Commission
(the "SEC") under the Investment Company Act of 1940, as amended (the "1940
Act") and the Securities Exchange Act of 1934, as amended (the "1934 Act") and
shares of common stock of each Fund are currently purchased and sold on the New
York Stock Exchange (the "NYSE");
WHEREAS, the parties desire that the Acquiring Fund acquire the assets and
assume the liabilities of the Acquired Fund in exchange for shares of equal net
asset value of the Acquiring Fund and the distribution of such shares of the
Acquiring Fund to the stockholders of the Acquired Fund (the "Acquisition") and
that the Acquired Fund thereafter liquidate and dissolve; and
WHEREAS, the parties intend that the Acquisition qualify as a
"reorganization" within the meaning of section 368(a) of the United States
Internal Revenue Code of 1986, as amended (the "Code"), and any successor
provisions, and that with respect to the Acquisition, the Acquiring Fund and
the Acquired Fund will each be a "party to a reorganization" within the meaning
of section 368(b) of the Code;
Now, therefore, the Acquiring Fund and the Acquired Fund agree as follows:
1. Definitions
In addition to the terms elsewhere defined herein, each of the following
terms shall have the meaning indicated for that term as follows:
1933 Act Securities Act of 1933, as amended.
Acquiring Fund Share A share of common stock of the Acquiring Fund.
Assets All assets of any kind and all interests, rights, privileges and powers of or
attributable to the Acquired Fund or its shares, as appropriate, whether or
not determinable at the appropriate Effective Time and wherever located,
including, without limitation, all cash, cash equivalents, securities, claims
(whether absolute or contingent, known or unknown, accrued or
unaccrued or conditional or unmatured), contract rights and receivables
(including dividend and interest receivables) owned by the Acquired
Fund or attributable to its shares and any deferred or prepaid expense,
other than unamortized organizational expenses, shown as an asset on the
Acquired Fund's books.
Closing Date Shall be on such date following the date that stockholders of the
Acquired Fund approve the Plan, as the parties may agree.
Effective Time 5:00 p.m. Eastern Time on the Closing Date, or such other time as the
parties may agree to in writing.
34
Financial Statements The audited financial statements of the relevant Fund for its most
recently completed fiscal year and, if applicable, the unaudited financial
statements of that Fund for its most recently completed semi-annual
period.
Fund The Acquiring Fund and/or the Acquired Fund, as the case may be.
Liabilities All liabilities, expenses and obligations of any kind whatsoever of the
Acquired Fund, whether known or unknown, accrued or unaccrued,
absolute or contingent or conditional or unmatured, except that expenses
of the Acquisition, if any, contemplated hereby to be paid by the
Acquired Fund pursuant to Section 25 of this Plan, which shall not be
assumed or paid by the Acquiring Fund and shall not fall within the
definition of Liabilities for purposes of this Plan.
N-14 Registration Statement The Registration Statement of the Acquiring Fund on Form N-14 under
the 1940 Act that will register the Acquiring Fund Shares to be issued in
the Acquisition and will include the proxy materials necessary for the
stockholders of the Acquired Fund to approve the Acquisition.
Valuation Time The close of regular session trading on the NYSE on the Closing Date,
when for purposes of the Plan, the Acquiring Fund determines its net
asset value per Acquiring Fund Share and the Acquired Fund determines
the net value of the Assets.
NAV A Fund's net asset value is calculated by valuing and totaling assets and
then subtracting liabilities and then dividing the balance by the number of
shares that are outstanding.
2. Regulatory Filings
The Acquiring Fund shall promptly prepare and file the N-14 Registration
Statement with the SEC, and the Acquiring Fund and the Acquired Fund also shall
make any other required or appropriate filings with respect to the actions
contemplated hereby.
3. Stockholder Action
As soon as practicable after the effective date of the N-14 Registration
Statement, the Acquired Fund shall hold a stockholders meeting to consider and
approve the Acquisition and this Plan and such other matters as the Board of
Directors may determine. Such approval by the stockholders of the Acquired Fund
shall, to the extent necessary to permit the consummation of the transactions
contemplated herein without violating any investment objective, policy or
restriction of the Acquired Fund, be deemed to constitute approval by the
stockholders of a temporary amendment of any investment objective, policy or
restriction that would otherwise be inconsistent with or violated upon the
consummation of such transactions solely for the purpose of consummating such
transactions.
4. Transfer of the Acquired Fund's Assets.
The Acquiring Fund and the Acquired Fund shall take the following steps with
respect to the Acquisition, as applicable:
(a)On or prior to the Closing Date, the Acquired Fund shall pay or provide
for the payment of all of the Liabilities, expenses, costs and charges
of or attributable to the Acquired Fund that are known to the Acquired
Fund and that are due and payable prior to or as of the Closing Date.
35
(b)Prior to the Effective Time, except to the extent prohibited by Rule
19b-1 under the 1940 Act, the Acquired Fund will declare to Acquired
Fund shareholders of record a dividend or dividends which, together with
all previous such dividends, shall have the effect of distributing
(a) all the excess of (i) Acquired Fund's investment income excludable
from gross income under section 103(a) of the Code over (ii) Acquired
Fund's deductions disallowed under section 265 and 171(a)(2) of the
Code, (b) all of Acquired Fund's investment company taxable income (as
defined in Code section 852), (computed in each case without regard to
any deduction for dividends paid), and (c) all of Acquired Fund's net
realized capital gain (as defined in Code section 1222), if any (after
reduction for any capital loss carryover), in each case for both the
taxable year ending on [ ], and the short taxable year
beginning on [ ], and ending on the Closing Date. Such
dividends will be made to ensure continued qualification of the Acquired
Fund as a "regulated investment company" for tax purposes and to
eliminate fund-level tax.
(c)At the Effective Time, pursuant to Articles of Transfer accepted for
record by the State Department of Assessments and Taxation of Maryland
(the "SDAT"), the Acquired Fund shall assign, transfer, deliver and
convey the Assets to the Acquiring Fund, subject to the Liabilities. The
Acquiring Fund shall then accept the Assets and assume the Liabilities
such that at and after the Effective Time (i) the Assets at or after the
Effective Time shall become and be assets of the Acquiring Fund, and
(ii) the Liabilities at the Effective Time shall attach to the Acquiring
Fund, and shall be enforceable against the Acquiring Fund to the same
extent as if initially incurred by the Acquiring Fund.
(d)Within a reasonable time prior to the Closing Date, the Acquired Fund
shall provide, if requested, a list of the Assets to the Acquiring Fund.
The Acquired Fund may sell any asset on such list prior to the Effective
Time. After the Acquired Fund provides such list, the Acquired Fund will
not acquire any additional securities or permit to exist any
encumbrances, rights, restrictions or claims not reflected on such list,
without the approval of the Acquiring Fund. Within a reasonable time
after receipt of the list and prior to the Closing Date, the Acquiring
Fund will advise the Acquired Fund in writing of any investments shown
on the list that the Acquiring Fund has determined to be inconsistent
with its investment objective, policies and restrictions. The Acquired
Fund will dispose of any such securities prior to the Closing Date to
the extent practicable and consistent with applicable legal
requirements, including the Acquired Fund's investment objectives,
policies and restrictions. In addition, if the Acquiring Fund determines
that, as a result of the Acquisition, the Acquiring Fund would own an
aggregate amount of an investment that would exceed a percentage
limitation applicable to the Acquiring Fund, the Acquiring Fund will
advise the Acquired Fund in writing of any such limitation and the
Acquired Fund shall dispose of a sufficient amount of such investment as
may be necessary to avoid the limitation as of the Effective Time, to
the extent practicable and consistent with applicable legal
requirements, including the Acquired Fund's investment objectives,
policies and restrictions.
(e)The Acquired Fund shall assign, transfer, deliver and convey the Assets
to the Acquiring Fund at the Effective Time on the following basis:
(1)The value of the Assets less the Liabilities, both determined as of
the Valuation Time, shall be divided by the then NAV of one Acquiring
Fund Share, and, in exchange for the transfer of the Assets, the
Acquiring Fund shall simultaneously issue and deliver to the Acquired
Fund the number of full Acquiring Fund Shares so determined that are
allocable to all shares held by or for those stockholders of the
Acquired Fund on a stockholder by stockholder basis plus fractional
Acquiring Fund Shares, rounded to the second decimal place or such
other decimal place as the parties may agree to in writing, allocable
to those stockholders of the Acquired Fund that at the Effective Time
participate in the Acquired Fund's Dividend Reinvestment Plan ("DRIP
Stockholders"), regardless of whether the shares of the Acquired Fund
with respect to which such fractional Acquiring Fund Shares are to be
issued and delivered are held by or for the DRIP Stockholders
directly or in the Acquired Fund's Dividend Reinvestment Plan. The
Acquiring Fund shall at the same time deliver to the Acquired Fund
cash in lieu of any fractional Acquiring Fund Shares allocable to
those stockholders of the Acquired Fund that are not DRIP
Stockholders;
36
(2)The NAV of the Acquiring Fund Shares to be delivered to the Acquired
Fund shall be determined as of the Valuation Time in accordance with
the Acquiring Fund's then applicable valuation procedures, and the
net value of the Assets to be conveyed to the Acquiring Fund shall be
determined as of the Valuation Time in accordance with the then
applicable valuation procedures of the Acquired Fund; and
(3)The portfolio securities of the Acquired Fund shall be made available
by the Acquired Fund to , as custodian for the Acquiring
Fund (the "Custodian"), for examination no later than five business
days preceding the Valuation Time. On the Closing Date, such
portfolio securities and all the Acquired Fund's cash shall be
delivered by the Acquired Fund to the Custodian for the account of
the Acquiring Fund, such portfolio securities to be duly endorsed in
proper form for transfer in such manner and condition as to
constitute good delivery thereof in accordance with the custom of
brokers or, in the case of portfolio securities held in the U.S.
Treasury Department's book-entry system or by The Depository Trust
Company, Participants Trust Company or other third party
depositories, by transfer to the account of the Custodian in
accordance with Rule 17f-4, Rule 17f-5 or Rule 17f-7, as the case may
be, under the 1940 Act and accompanied by all necessary federal and
state stock transfer stamps or a check for the appropriate purchase
price thereof. The cash delivered shall be in the form of currency or
certified or official bank checks, payable to the order of
, the Custodian, or shall be wired to an account pursuant
to instructions provided by the Acquiring Fund.
(f)Promptly after the Closing Date, the Acquired Fund will deliver to the
Acquiring Fund a Statement of Assets and Liabilities of the Acquired
Fund as of the Closing Date.
5. Liquidation and Dissolution of the Acquired Fund, Registration of Acquiring
Fund Shares and Access to Records.
The Acquired Fund and the Acquiring Fund also shall take the following
steps, as applicable:
(a)At or as soon as reasonably practical after the Effective Time, the
Acquired Fund shall liquidate and dissolve by transferring pro rata to
its stockholders of record, the Acquiring Fund Shares and cash it
receives pursuant to Section 4(e)(1) of this Plan. The Acquiring Fund
shall record on its books the ownership by the Acquired Fund's
stockholders of the Acquiring Fund Shares so transferred to such
stockholders, and the Acquired Fund shall simultaneously cancel on its
books all of the issued and outstanding shares of the Acquired Fund. The
Acquiring Fund shall not issue certificates representing Acquiring Fund
Shares to replace certificates representing Acquired Fund shares unless
the Acquired Fund share certificates are first surrendered to the
Acquiring Fund.
Following distribution by the Acquired Fund to its stockholders of all
the Acquiring Fund Shares delivered to the Acquired Fund, the Acquired
Fund shall wind up its affairs and shall take all steps as are necessary
and proper to liquidate and dissolve as soon as is reasonably possible
after the Effective Time, including filing of Articles of Dissolution
with SDAT.
(b)At and after the Closing Date, the Acquired Fund shall provide the
Acquiring Fund and its transfer agent with immediate access to: (i) all
records containing the names, addresses and taxpayer identification
numbers of all of the Acquired Fund's stockholders and the number and
percentage ownership of the outstanding shares of the Acquired Fund
owned by stockholders as of the Effective Time, and (ii) all original
documentation (including all applicable Internal Revenue Service forms,
certificates, certifications and correspondence) relating to the
Acquired Fund stockholders' taxpayer identification numbers and their
liability for or exemption from back-up withholding. The Acquired Fund
shall preserve and maintain, or shall direct its service providers to
preserve and maintain, records with respect to the Acquired Fund as
required by Section 31 of, and Rules 31a-1 and 31a-2 under, the 1940 Act.
37
6. Certain Representations and Warranties of the Acquired Fund.
The Acquired Fund represents and warrants to the Acquiring Fund as follows:
(a)The Acquired Fund is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Maryland. The
Acquired Fund is registered with the SEC as a closed-end management
investment company under the 1940 Act and is duly registered with the
SEC under the 1934 Act, and such registrations will be in full force and
effect as of the Effective Time.
(b)The Acquired Fund has the power and all necessary federal, state and
local qualifications and authorizations to own all of the Assets, to
carry on its business, to enter into this Plan and to consummate the
transactions contemplated herein.
(c)The Board of Directors of the Acquired Fund has duly authorized the
execution and delivery of this Plan and the transactions contemplated
herein. Duly authorized officers of the Acquired Fund have executed and
delivered the Plan. The Plan represents a valid and binding contract,
enforceable in accordance with its terms, subject as to enforcement to
bankruptcy, insolvency, reorganization, arrangement, moratorium, and
other similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles. The execution and
delivery of this Plan does not, and, subject to the approval of
stockholders referred to in Section 3 hereof, the consummation of the
transactions contemplated by this Plan will not, violate the Acquired
Fund's Charter, its Bylaws or any material agreement to which the
Acquired Fund is subject. Except for the approval of its stockholders,
the Acquired Fund does not need to take any other action to authorize
its officers to effectuate this Plan and the transactions contemplated
herein.
(d)The Acquired Fund has qualified as a regulated investment company under
Part I of Subchapter M of Subtitle A, Chapter 1, of the Code, in respect
of each taxable year since the commencement of its operations and
intends to continue to qualify as a regulated investment company for its
taxable year ending upon its liquidation.
(e)The information pertaining to the Acquired Fund included within the N-14
Registration Statement when filed with the SEC, when Part A of the N-14
Registration Statement is distributed to stockholders, at the time of
the stockholders meeting of the Acquired Fund for approval of the
Acquisition and at the Effective Time shall (i) comply in all material
respects with the applicable provisions of the 1933 Act, the 1934 Act
and the 1940 Act, and the rules and regulations thereunder and
applicable state securities laws, and (ii) not contain any untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements made therein
not misleading.
(f)The Acquired Fund has duly authorized and validly issued all of its
issued and outstanding shares of common stock, and all such shares are
fully paid and non-assessable and were offered for sale and sold in
conformity with the registration requirements of all applicable federal
and state securities laws. There are no outstanding options, warrants or
other rights to subscribe for or purchase any of the shares of the
Acquired Fund, nor are there any securities convertible into shares of
the Acquired Fund.
(g)The Acquired Fund shall operate its business in the ordinary course
between the date hereof and the Effective Time. Such ordinary course of
business will include the declaration and payment of customary dividends
and distributions and any other dividends and distributions referred to
in Section 4(b) hereof.
(h)At the Effective Time, the Acquired Fund will have good and marketable
title to the Assets and full right, power and authority to assign,
transfer, deliver and convey the Assets.
(i)The Financial Statements of the Acquired Fund, a copy of which has been
previously delivered to the Acquiring Fund, fairly present the financial
position of the Acquired Fund as of the Acquired Fund's most recent
fiscal year-end and the results of the Acquired Fund's operations and
changes in the Acquired Fund's net assets for the periods indicated.
38
(j)To the knowledge of the Acquired Fund, the Acquired Fund has no
liabilities, whether or not determined or determinable, other than the
Liabilities disclosed or provided for in its Financial Statements or
Liabilities incurred in the ordinary course of business subsequent to
the date of the most recent Financial Statement referencing Liabilities.
(k)To the knowledge of the Acquired Fund, except as has been disclosed in
writing to the Acquiring Fund, no claims, actions, suits, investigations
or proceedings of any type are pending or threatened against the
Acquired Fund or any of its properties or assets or any person whom the
Acquired Fund may be obligated to indemnify in connection with such
litigation, proceeding or investigation. Subject to the foregoing, there
are no facts that the Acquired Fund has reason to believe are likely to
form the basis for the institution of any such claim, action, suit,
investigation or proceeding against the Acquired Fund. The Acquired Fund
is not a party to nor subject to the provisions of any order, decree or
judgment of any court or governmental body that adversely affects, or is
reasonably likely to adversely affect, its financial condition, results
of operations, or the Assets or its ability to consummate the
transactions contemplated by the Plan.
(l)Except for agreements entered into or granted in the ordinary course of
its business, in each case under which no material default exists, and
this Plan, the Acquired Fund is not a party to or subject to any
material contract or other commitments, which if terminated, may result
in material liability to the Acquired Fund or under which (whether or
not terminated) any material payment for periods subsequent to the
Closing Date will be due from the Acquired Fund.
(m)The Acquired Fund has filed its federal income tax returns, copies of
which have been previously made available to the Acquiring Fund, for all
taxable years for which such returns are due and has paid all taxes
payable pursuant to such returns. All of the Acquired Fund's tax
liabilities will have been adequately provided for on its books. No such
return is currently under audit and no unpaid assessment has been
asserted with respect to such returns. To the best of the Acquired
Fund's knowledge, it will not have any tax deficiency or liability
asserted against it or question with respect thereto raised, and it will
not be under audit by the Internal Revenue Service or by any state or
local tax authority for taxes in excess of those already paid. The
Acquired Fund will timely file its federal income tax return for each
subsequent taxable year including its current taxable year.
(n)For federal income tax purposes, the Acquired Fund qualifies as a
"regulated investment company," and the provisions of section 851
through 855 of the Code apply to the Acquired Fund for the remainder of
its current taxable year beginning [ ], and will continue to
apply through the Closing Date.
(o)Since the date of the Financial Statements of the Acquired Fund, there
has been no material adverse change in its financial condition, results
of operations, business, or Assets. For this purpose, negative
investment performance shall not be considered a material adverse change.
(p)The Acquired Fund's investment operations from inception to the date
hereof have been in compliance in all material respects with the
investment policies and investment restrictions set forth in its
prospectus or prospectuses and statement or statements of additional
information as in effect from time to time, except as previously
disclosed in writing to the Acquiring Fund.
(q)The Acquiring Fund Shares to be issued to the Acquired Fund pursuant to
paragraph 4(e)(1) will not be acquired for the purpose of making any
distribution thereof other than to the Acquired Fund Stockholders as
provided in paragraph 4(e)(1).
(r)The Acquired Fund, or its agents, (i) holds a valid Form W-8Ben,
Certificate of Foreign Status of Beneficial Owner for United States
Withholding (or other appropriate series of Form W-8, as the case may
be) or Form W-9, Request for Taxpayer Identification Number and
Certification, for each Acquired Fund stockholder of record, which Form
W-8 or Form W-9 can be associated with reportable payments made by the
Acquired Fund to such stockholder, and/or (ii) has otherwise timely
instituted the appropriate backup withholding procedures with respect to
such stockholder as provided by Section 3406 of the Code and the
regulations thereunder.
39
7. Certain Representations and Warranties of Acquiring Fund.
The Acquiring Fund represents and warrants to the Acquired Fund as follows:
(a)The Acquiring Fund is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Maryland. The
Acquiring Fund is registered with the SEC as a closed-end management
investment company under the 1940 Act and is duly registered with the
SEC under the 1934 Act, and such registrations will be in full force and
effect as of the Effective Time.
(b)The Acquiring Fund shall operate its business in the ordinary course
between the date hereof and the Effective Time. Such ordinary course of
business will include the declaration and payment of customary dividends
and distributions and any other dividends and distributions referred to
in Section 4(b) hereof.
(c)The Acquiring Fund has the power and all necessary federal, state and
local qualifications and authorizations to own all of its assets, to
carry on its business, to enter into this Plan and to consummate the
transactions contemplated herein.
(d)The Board of Directors of the Acquiring Fund has duly authorized
execution and delivery of this Plan and the transactions contemplated
herein. Duly authorized officers of the Acquiring Fund have executed and
delivered the Plan. The Plan represents a valid and binding contract,
enforceable in accordance with its terms, subject as to enforcement to
bankruptcy, insolvency, reorganization, arrangement, moratorium and
other similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles. The execution and
delivery of this Plan does not, and the consummation of the transactions
contemplated by this Plan will not violate the Charter of the Acquiring
Fund, its Bylaws or any material agreement to which the Acquiring Fund
is subject. Except for the approval of its Board, the Acquiring Fund
does not need to take any other action to authorize its officers to
effectuate the Plan and the transactions contemplated herein.
(e)The Acquiring Fund has qualified as a regulated investment company under
Part I of Subchapter M of Subtitle A, Chapter 1, of the Code, in respect
of each taxable year since the commencement of its operations and
qualifies and intends to continue to qualify as a regulated investment
company for its current taxable year.
(f)The N-14 Registration Statement, when filed with the SEC, when Part A of
the N-14 Registration Statement is distributed to stockholders, at the
time of the stockholder meeting of the Acquired Fund for approval of the
Acquisition and at the Effective Time, insofar as it relates to the
Acquiring Fund shall (i) comply in all material respects with the
applicable provisions of the 1933 Act, the 1934 Act and the 1940 Act,
and the rules and regulations thereunder and applicable state securities
laws and (ii) not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary
to make the statements made therein, in light of the circumstances under
which they were made, not misleading.
(g)The Acquiring Fund has duly authorized and validly issued all issued and
outstanding Acquiring Fund Shares, and all such shares are fully paid
and non-assessable and were offered for sale and sold in conformity with
the registration requirements of all applicable federal and state
securities laws. The Acquiring Fund has duly authorized the Acquiring
Fund Shares referred to in Section 4(e) hereof to be issued and
delivered to the Acquired Fund as of the Effective Time. When issued and
delivered, such Acquiring Fund Shares shall be validly issued, fully
paid and non-assessable, and no stockholder of the Acquiring Fund shall
have any preemptive right of subscription or purchase in respect of any
such share. There are no outstanding options, warrants or other rights
to subscribe for or purchase any Acquiring Fund Shares, nor are there
any securities convertible into Acquiring Fund Shares.
(h)To the knowledge of the Acquiring Fund, except as has been disclosed in
writing to the Acquiring Fund, no claims, actions, suits, investigations
or proceedings of any type are pending or threatened against the
Acquiring Fund or any of its properties or assets or any person whom the
Acquiring Fund
40
may be obligated to indemnify in connection with such litigation,
proceeding or investigation. Subject to the foregoing, there are no
facts that the Acquiring Fund currently has reason to believe are likely
to form the basis for the institution of any such claim, action, suit,
investigation or proceeding against the Acquiring Fund. The Acquiring
Fund is not a party to or subject to the provisions of any order, decree
or judgment of any court or governmental body that adversely affects, or
is reasonably likely to adversely affect its financial condition,
results of operations, its assets or its ability to consummate the
transactions contemplated by this Plan.
(i)Except for agreements entered into or granted in the ordinary course of
its business, in each case under which no material default exists, the
Acquiring Fund is not a party to or subject to any material contract,
debt instrument, employee benefit plan, lease, franchise, license or
permit of any kind or nature whatsoever.
(j)The Acquiring Fund has filed its federal income tax returns, copies of
which have been previously made available to the Acquired Fund, for all
taxable years for which such returns are due and has paid all taxes
payable pursuant to such returns. All of the Acquiring Fund's tax
liabilities will have been adequately provided for on its books. No such
return is currently under audit and no unpaid assessment has been
asserted with respect to such returns. To the best of the Acquiring
Fund's knowledge, it will not have any tax deficiency or liability
asserted against it or question with respect thereto raised, and it will
not be under audit by the Internal Revenue Service or by any state or
local tax authority for taxes in excess of those already paid. The
Acquiring Fund will timely file its federal income tax return for each
subsequent taxable year including its current taxable year.
(k)For federal income tax purposes, the Acquiring Fund qualifies as a
"regulated investment company," and the provisions of section 851
through 855 of the Code apply to the Acquiring Fund for the remainder of
its current taxable year beginning [ ], and will continue to
apply through the Closing Date.
(l)The Financial Statements of the Acquiring Fund, a copy of which has been
previously delivered to the Acquired Fund, fairly present the financial
position of the Acquiring Fund's most recent fiscal year-end and the
results of the Acquiring Fund's operations and changes in the Acquiring
Fund's net assets for the period indicated.
(m)Since the date of the Financial Statements of the Acquiring Fund, there
has been no material adverse change in its financial condition, results
of operations, business or assets. Negative investment performance shall
not be considered a material adverse change.
(n)The Acquiring Fund's investment operations from inception to the date
hereof have been in compliance in all material respects with the
investment policies and investment restrictions set forth in its
prospectus or prospectuses and statement or statements of additional
information as in effect from time to time, except as previously
disclosed in writing to the Acquired Fund.
(o)The Acquiring Fund will use all reasonable efforts to obtain the
approvals and authorizations required by the 1933 Act, the 1940 Act and
such other state securities laws as it may deem appropriate in order to
continue its operations after the Closing Date.
8. Conditions to the Obligations of the Acquiring Fund and the Acquired Fund.
The obligations of the Acquiring Fund and the Acquired Fund with respect to
the Acquisition shall be subject to the following conditions precedent:
(a)The stockholders of the Acquired Fund shall have approved the
Acquisition in the manner required by the Charter of the Acquired Fund,
its Bylaws and applicable law. If stockholders of the Acquired Fund fail
to approve the Acquisition as required, that failure shall release the
Funds of their obligations under this Plan.
41
(b)The Acquiring Fund and the Acquired Fund shall have delivered to the
other party a certificate dated as of the Closing Date and executed in
its name by its Secretary or an Assistant Secretary, in a form
reasonably satisfactory to the receiving party, stating that the
representations and warranties of the Acquiring Fund or the Acquired
Fund, as applicable, in this Plan that apply to the Acquisition are true
and correct in all material respects at and as of the Valuation Time.
(c)The Acquiring Fund and the Acquired Fund shall have performed and
complied in all material respects with each of its representations and
warranties required by this Plan to be performed or complied with by it
prior to or at the Valuation Time and the Effective Time.
(d)There has been no material adverse change in the financial condition,
results of operations, business, properties or assets of the Acquiring
Fund or the Acquired Fund since the date of the most recent Financial
Statements. Negative investment performance shall not be considered a
material adverse change.
(e)The Acquiring Fund and the Acquired Fund shall have received an opinion
of Seward & Kissel LLP reasonably satisfactory to each of them,
substantially to the effect that for federal income tax purposes:
(1)the Acquisition will constitute a "reorganization" within the meaning
of section 368(a) of the Code and that the Acquiring Fund and the
Acquired Fund will each be "a party to a reorganization" within the
meaning of section 368(b) of the Code;
(2)a stockholder of the Acquired Fund will recognize no gain or loss on
the exchange of the stockholder's shares of the Acquired Fund solely
for Acquiring Fund Shares, except with respect to cash received in
lieu of a fractional share of the Acquiring Fund in connection with
the Acquisition;
(3)neither the Acquired Fund nor the Acquiring Fund will recognize any
gain or loss upon the transfer of all of the Assets to the Acquiring
Fund in exchange for Acquiring Fund Shares (plus cash in lieu of
fractional shares) and the assumption by Acquiring Fund of the
Liabilities pursuant to this Plan or upon the distribution of
Acquiring Fund Shares and cash to stockholders of the Acquired Fund
in exchange for their respective shares of the Acquired Fund;
(4)the holding period and tax basis of the Assets acquired by the
Acquiring Fund will be the same as the holding period and tax basis
that the Acquired Fund had in such Assets immediately prior to the
Acquisition;
(5)the aggregate tax basis of the Acquiring Fund Shares received in
connection with the Acquisition by each stockholder of the Acquired
Fund (including any fractional share to which the stockholder may be
entitled) will be the same as the aggregate tax basis of the shares
of the Acquired Fund surrendered in exchange therefor, decreased by
any cash received and increased by any gain recognized on the
exchange;
(6)the holding period of the Acquiring Fund Shares received in
connection with the Acquisition by each stockholder of the Acquired
Fund (including any fractional share to which the stockholder may be
entitled) will include the holding period of the shares of the
Acquired Fund surrendered in exchange therefor, provided that such
Acquired Fund shares constitute capital assets in the hands of the
stockholder as of the Closing Date;
(7)The Acquiring Fund will succeed to the capital loss carryovers of the
Acquired Fund, if any, under section 381 of the Code, but the use by
the Acquiring Fund of any such capital loss carryovers (and of
capital loss carryovers of the Acquiring Fund) may be subject to
limitation under section 383 of the Code; and
(8)any gain or loss realized by a stockholder of the Acquired Fund upon
the sale of a fractional share of the Acquiring Fund to which the
stockholder is entitled will be recognized to the stockholder and
measured by the difference between the amount of cash received and
the basis of the fractional
42
share and, provided that the Acquired Fund shares surrendered
constitute capital assets in the hands of the stockholder, will be a
capital gain or loss.
The opinion will be based on certain factual certifications made by
officers of the Funds and will also be based on customary assumptions
and subject to certain qualifications. The opinion is not a guarantee
that the tax consequences of the Acquisition will be as described above.
Notwithstanding this subparagraph (e), Seward & Kissel LLP will express
no view with respect to the effect of the Acquisition on any transferred
asset as to which any unrealized gain or loss is required to be
recognized at the end of a taxable year (or on the termination or
transfer thereof) under federal income tax principles. Each Fund shall
agree to make and provide additional representations to Seward & Kissel
LLP with respect to the Funds that are reasonably necessary to enable
Seward & Kissel LLP to deliver the tax opinion. Notwithstanding anything
in this Plan to the contrary, neither Fund may waive in any material
respect the conditions set forth under this subparagraph (e).
(f)The N-14 Registration Statement shall have become effective under the
1933 Act as to the Acquiring Fund Shares, and the SEC shall not have
instituted and to the knowledge of the Acquiring Fund is not
contemplating instituting, any stop order suspending the effectiveness
of the N-14 Registration Statement.
(g)No action, suit or other proceeding shall be threatened or pending
before any court or governmental agency in which it is sought to
restrain or prohibit, or obtain damages or other relief in connection
with, the Acquisition.
(h)The SEC shall not have issued any unfavorable advisory report under
Section 25(b) of the 1940 Act nor instituted any proceeding seeking to
enjoin consummation of the Acquisition under Section 25(c) of the 1940
Act.
(i)Neither party shall have terminated this Plan with respect to the
Acquisition pursuant to Section 13 of this Plan.
(j)The NYSE shall have approved, upon official notice of issuance, the
listing of the Acquiring Fund Shares to be issued and delivered to the
Acquired Fund pursuant hereto.
9. Conditions to the Obligations of the Acquired Fund.
The obligations of the Acquired Fund with respect to the Acquisition shall
be subject to the following conditions precedent:
(a)The Acquired Fund shall have received an opinion of Seward & Kissel LLP,
counsel to the Acquiring Fund, in form and substance reasonably
satisfactory to the Acquired Fund and dated as of the Closing Date,
substantially to the effect that:
(1)The Acquiring Fund is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Maryland
and is a closed-end, management investment company registered under
the 1940 Act and duly registered under the 1934 Act;
(2)This Plan has been duly authorized, executed and delivered by the
Acquiring Fund and, assuming the N-14 Registration Statement referred
to in Section 2 of this Plan does not contain any material
misstatements or omissions, and assuming due authorization, execution
and delivery of this Plan by the Acquired Fund, represents a legal,
valid and binding contract, enforceable in accordance with its terms,
subject to the effect of bankruptcy, insolvency, moratorium,
fraudulent conveyance and transfer and similar laws relating to or
affecting creditors' rights generally and court decisions with
respect thereto, and further subject to the application of equitable
principles in any proceeding, whether at law or in equity or with
respect to the enforcement of provisions of the Plan and the effect
of judicial decisions which have held that certain provisions are
unenforceable when their enforcement would violate an implied
covenant of good faith and fair dealing or would be commercially
unreasonable or when default under the Plan is not material;
43
(3)The Acquiring Fund Shares to be delivered as provided for by this
Plan are duly authorized and upon delivery will be validly issued,
fully paid and non-assessable by the Acquiring Fund;
(4)The execution and delivery of this Plan did not, and the consummation
of the Acquisition will not, violate the Charter of the Acquiring
Fund, its Bylaws or any agreement of the Acquiring Fund known to such
counsel, after reasonable inquiry; and
(5)To the knowledge of such counsel, no consent, approval, authorization
or order of any federal or state court or administrative or
regulatory agency, other than the acceptance of record of Articles of
Transfer by the SDAT, is required for the Acquiring Fund to enter
into this Plan or carry out its terms, except those that have been
obtained under the 1933 Act, the 1934 Act, the 1940 Act and the rules
and regulations under those Acts or that may be required under state
securities laws or subsequent to the Effective Time or when the
failure to obtain the consent, approval, authorization or order would
not have a material adverse effect on the operation of the Acquiring
Fund.
In rendering such opinion, Seward & Kissel LLP may (i) rely on the
opinion of Venable LLP as to matters of Maryland law to the extent set
forth in such opinion, (ii) make assumptions regarding the authenticity,
genuineness and/or conformity of documents and copies thereof without
independent verification thereof, (iii) limit such opinion to applicable
federal and state law, (iv) define the word "knowledge" and related
terms to mean the knowledge of attorneys then with such firm who have
devoted substantive attention to matters directly related to this Plan
and (v) rely on certificates of officers or directors of the Acquiring
Fund as to factual matters.
(b)The Acquiring Fund shall have received a letter from the Adviser with
respect to insurance matters in form and substance satisfactory to the
Acquired Fund.
10.Conditions to the Obligations of the Acquiring Fund.
The obligations of the Acquiring Fund with respect to the Acquisition shall
be subject to the following conditions precedent:
(a)The Acquiring Fund shall have received an opinion of Seward & Kissel
LLP, counsel to the Acquired Fund, in form and substance reasonably
satisfactory to the Acquiring Fund and dated as of the Closing Date,
substantially to the effect that:
(1)The Acquired Fund is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Maryland
and is a closed-end management investment company registered under
the 1940 act and duly registered under the 1934 Act;
(2)This Plan has been duly authorized, executed and delivered by the
Acquired Fund and, assuming the N-14 Registration Statement referred
to in Section 2 of this Plan does not contain any material
misstatements or omissions, and assuming due authorization, execution
and delivery of this Plan by the Acquiring Fund, represents a legal,
valid and binding contract, enforceable in accordance with its terms,
subject to the effect of bankruptcy, insolvency, moratorium,
fraudulent conveyance and transfer and similar laws relating to or
affecting creditors' rights generally and court decisions with
respect thereto, and further subject to the application of equitable
principles in any proceeding, whether at law or in equity or with
respect to the enforcement of provisions of the Plan and the effect
of judicial decisions which have held that certain provisions are
unenforceable when their enforcement would violate an implied
covenant of good faith and fair dealing or would be commercially
unreasonable or when default under the Plan is not material;
(3)The execution and delivery of this Plan did not, and the consummation
of the Acquisition will not, violate the Charter of the Acquired
Fund, its Bylaws or any agreement of the Acquired Fund known to such
counsel, after reasonable inquiry, and no approval of the Plan by
stockholders of the Acquiring Fund is required under its Charter,
Bylaws or applicable law; and
44
(4)To the knowledge of such counsel, no consent, approval, authorization
or order of any federal or state court or administrative or
regulatory agency, other than the acceptance of record of Articles of
Transfer by the SDAT, is required for the Acquired Fund to enter into
the Plan or carry out its terms, except those that have been obtained
under the 1933 Act, the 1934 Act, the 1940 Act and the rules and
regulations under those Acts or that may be required under state
securities laws or subsequent to the Effective Time or when the
failure to obtain the consent, approval, authorization or order would
not have a material adverse effect on the operation of the Acquired
Fund.
In rendering such opinion, Seward & Kissel LLP may (i) rely on the
opinion of Venable LLP as to matters of Maryland law , (ii) make
assumptions regarding the authenticity, genuineness and/or conformity of
documents and copies thereof without independent verification thereof,
(iii) limit such opinion to applicable federal and state law,
(iv) define the word "knowledge" and related terms to mean the knowledge
of attorneys then with such firm who have devoted substantive attention
to matters directly related to this Plan and (v) rely on certificates of
officers or directors of the Acquired Fund as to factual matters.
(b)The Acquiring Fund shall have received a letter from the Adviser
agreeing to indemnify the Acquiring Fund in respect of certain
liabilities of the Acquired Fund in form and substance satisfactory to
the Acquiring Fund.
11.Closing
(a)The Closing shall be held at the offices of the Funds, 1345 Avenue of
the Americas, New York, New York 10105, or at such other time place as
the parties may agree.
(b)In the event that at the Valuation Time (a) the New York Stock Exchange
shall be closed to trading or trading thereon shall be restricted, or
(b) trading or the reporting of trading on said Exchange or elsewhere
shall be disrupted so that accurate appraisal of the value of the net
assets of the Acquired Fund or the Acquiring Fund is impracticable, the
Closing Date shall be postponed until the first business day after the
day when trading shall have been fully resumed and reporting shall have
been restored; provided that if trading shall not be fully resumed and
reporting restored within three business days of the Valuation Time,
this Plan may be terminated by either the Acquired Fund or the Acquiring
Fund upon the giving of written notice to the other party.
(c)The Acquiring Fund will provide to the Acquired Fund evidence
satisfactory to the Acquired Fund that the Acquiring Fund Shares
issuable pursuant to the Acquisition have been credited to the Acquired
Fund's account on the books of the Acquiring Fund. After the Closing
Date, the Acquiring Fund will provide to the Acquired Fund evidence
satisfactory to the Acquired Fund that such Shares have been credited
pro rata to open accounts in the names of the Acquired Fund Stockholders.
(d)At the Closing each party shall deliver to the other such bills of sale,
instruments of assumption of liabilities, checks, assignments, stock
certificates, receipts or other documents as such other party or its
counsel may reasonably request in connection with the transfer of
assets, assumption of liabilities and liquidation contemplated by the
Plan.
12.Survival of Representations and Warranties.
No representations, warranties or covenants in or pursuant to this Plan
(including certificates of officers) hereto shall survive the completion of the
transactions contemplated herein.
13.Termination of Plan.
A majority of either Fund's Board of Directors may terminate this Plan with
respect to that Fund at any time before the applicable Effective Time if:
(i) the Fund's conditions precedent set forth in Sections 8, 9 or 10 as
appropriate, are not satisfied; or (ii) the Board of Directors determines that
the consummation of the Acquisition is not in the best interests of the Fund or
its stockholders and gives notice of such termination to the other party.
45
14.Governing Law.
This Plan and the transactions contemplated hereby shall be governed,
construed and enforced in accordance with the laws of the State of New York,
except to the extent preempted by federal law, without regard to conflicts of
law principles.
15.Brokerage Fees.
Each party represents and warrants that there are no brokers or finders
entitled to receive any payments in connection with the transactions provided
for in the Plan.
16.Amendments.
The parties may, by agreement in writing authorized by their respective
Board of Directors, amend this Plan at any time before or after the
stockholders of the Acquired Fund approve the Acquisition. However, after
stockholders of the Acquired Fund approve the Acquisition, the parties may not
amend this Plan in a manner that materially alters the obligations of the other
party. This Section shall not preclude the parties from changing the Closing
Date or the Effective Time by mutual agreement.
17.Waivers.
At any time prior to the Closing Date, either party may by written
instrument signed by it (i) waive the effect of any inaccuracies in the
representations and warranties made to it contained herein and (ii) waive
compliance with any of the agreements, covenants or conditions made for its
benefit contained herein. Any waiver shall apply only to the particular
inaccuracy or requirement for compliance waived, and not any other or future
inaccuracy or lack of compliance.
18.Indemnification of Directors.
The Acquiring Fund agrees that all rights to indemnification and all
limitations of liability existing in favor of the Acquired Fund's current and
former Directors and officers, acting in their capacities as such, under the
Acquired Fund's Articles of Incorporation and Bylaws as in effect as of the
date of this Plan shall survive the Acquisition as obligations of the Acquiring
Fund and shall continue in full force and effect, without any amendment
thereto, and shall constitute rights which may be asserted against the
Acquiring Fund, its successors or assigns.
19.Other Matters.
Pursuant to Rule 145 under the 1933 Act, and in connection with the issuance
of any shares to any person who at the time of the Acquisition is, to the
Acquiring Fund's knowledge, an affiliate of a party to the Acquisition pursuant
to Rule 145(c), the Acquiring Fund will cause to be affixed upon the
certificate(s) issued to such person (if any) a legend as follows:
THESE SHARES ARE SUBJECT TO RESTRICTIONS ON TRANSFER UNDER THE SECURITIES
ACT OF 1933 AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT TO ACQUIRING
FUND (OR ITS STATUTORY SUCCESSOR) UNLESS (I) A REGISTRATION STATEMENT WITH
RESPECT TO SUCH SHARES IS EFFECTIVE UNDER THE SECURITIES ACT OF 1933 OR
(II) IN THE OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE FUND, SUCH
REGISTRATION IS NOT REQUIRED.
20.Cooperation and Further Assurances.
Each party will cooperate with the other in fulfilling its obligations under
this Plan and will provide such information and documentation as is reasonably
requested by the other in carrying out the Plan's terms. Each party will
provide such further assurances concerning the performance of its obligations
hereunder and execute all documents for or in connection with the consummation
of the Acquisition as, with respect to such assurances or documents, the other
shall deem necessary or appropriate.
46
21.Updating of N-14 Registration Statement.
If at any time prior to the Effective Time, a party becomes aware of any
untrue statement of a material fact or omission to state a material fact
required to be stated therein or necessary to make the statements made not
misleading in the N-14 Registration Statement, the party discovering the item
shall notify the other party and the parties shall cooperate in promptly
preparing, filing and clearing with the SEC and, if appropriate, distributing
to stockholders appropriate disclosure with respect to the item.
22.Limitation on Liabilities.
The obligations of the Acquired Fund and the Acquiring Fund shall not bind
any of the directors, stockholders, nominees, officers, agents, employees or
agents of the Acquired Fund or the Acquiring Fund personally, but shall bind
only the Acquired Fund or Acquiring Fund, as appropriate. The execution and
delivery of this Plan by an officer of either party shall not be deemed to have
been made by the officer individually or to impose any liability on the officer
personally, but shall bind only the Acquired Fund or the Acquiring Fund, as
appropriate.
23.Termination of the Acquired Fund.
If the parties complete the Acquisition, the Acquired Fund shall terminate
its registration under the 1940 Act, the 1933 Act, and the 1934 Act and will
liquidate and dissolve.
24.Notices.
Any notice, report, statement, certificate or demand required or permitted
by any provision of the Plan shall be in writing and shall be given in person
or by telecopy, certified mail or overnight express courier to:
For the Acquired Fund:
[Acquired Fund]
1345 Avenue of the Americas
New York, New York 10105
Attention: Secretary
For the Acquiring Fund:
[Acquiring Fund]
1345 Avenue of the Americas
New York, New York 10105
Attention: Secretary
25.Expenses.
The Acquisition expenses shall be paid by the Acquired Fund.
26.General.
This Plan supersedes all prior agreements between the parties with respect
to the subject matter hereof and may be amended only in writing signed by both
parties. The headings contained in this Plan are for reference only and shall
not affect in any way the meaning or interpretation of this Plan. Whenever the
context so requires, the use in the Plan of the singular will be deemed to
include the plural and vice versa. Nothing in this Plan, expressed or implied,
confers upon any other person any rights or remedies under or by reason of this
Plan. Neither party may assign or transfer any right or obligation under this
Plan without the written consent of the other party.
47
In Witness Whereof, the parties hereto have executed this Plan as of the day
and year first above written.
[Acquired Fund]
Attest:
------------------------------------- By: -------------------------------------
Name:
-------------------------------- Name: --------------------------------
Title:
-------------------------------- Title: --------------------------------
[Acquiring Fund]
Attest:
------------------------------------- By: -------------------------------------
Name:
-------------------------------- Name: --------------------------------
Title:
-------------------------------- Title: --------------------------------
AllianceBernstein L.P.
By: AllianceBernstein Corporation, its General Partner
By: ---------------------------------
Name: -------------------------
Title: -------------------------
48
APPENDIX E
EXISTING AND PRO FORMA CAPITALIZATION
The following tables set forth (i) the capitalization of the Funds and
(ii) the pro forma capitalization of ACM Income as adjusted giving effect to
the proposed acquisition of assets at net asset value as of March 31, 2006:
ACM
Government ACM Income
Opportunity ACM Income Adjustments (pro forma)
------------ -------------- ----------- --------------
Total Net Assets $109,677,570 $1,869,167,537 $(112,500) $1,978,732,607
Shares outstanding 12,903,932 229,436,279 554,156 242,894,367
NAV per share $ 8.50 $ 8.15 -- $ 8.15
49
APPENDIX F
TRADING HISTORY AND SHARE PRICE DATA
Shares of the Funds are traded on the NYSE under the following symbols: ACM
Government Opportunity--"AOF" and ACM Income--"ACG". Shares of closed-end
management companies frequently trade at discounts from their NAVs, and the
Funds' shares have also traded at a discount in recent times. The following
tables set forth for each Fund's fiscal quarter within the two most recent
fiscal years and each Fund's fiscal quarter since the beginning of the current
fiscal year: (a) the per share high and low sales prices as reported by the
NYSE; (b) the NAV per share, based on the Fund's computation as of 4:00 p.m. on
the last NYSE business day for the week corresponding to the dates on which the
respective high and low prices were recorded; and (c) the discount or premium
to NAV represented by the high and low sales prices shown. The range of NAVs
and of premiums and discounts for the shares during the periods shown may be
broader than is shown in this table. On September 15, 2006, the closing price
per share was $7.96 and $8.21, the NAV per share was $8.13 and $8.51 and the
discount to NAV was (2.09)% and (3.53)%, for ACM Government Opportunity and ACM
Income, respectively.
FYE: July 31
(Discount) or
Corresponding Premium to
Sales Price Net Asset Value Net Asset Value
----------- --------------- --------------
ACM Government Opportunity High Low High Low High Low
-------------------------- ----- ----- ----- ----- ----- ------
Quarter Ended
10/31/04 $8.88 $7.99 $8.41 $8.40 5.85% (5.59)%
1/31/05 $8.19 $7.74 $8.66 $8.50 (5.23)% (10.03)%
4/30/05 $8.23 $7.49 $8.71 $8.34 (5.43)% (10.27)%
7/31/05 $7.92 $7.63 $8.57 $8.42 (7.28)% (9.68)%
10/31/05 $7.93 $7.42 $8.63 $8.42 (7.55)% (11.88)%
1/31/06 $7.76 $7.48 $8.58 $8.41 (9.56)% (11.57)%
4/30/06 $7.78 $7.51 $8.70 $8.41 (9.14)% (11.30)%
7/31/06 $7.67 $7.37 $8.46 $8.16 (7.98)% (10.63)%
FYE: December 31
(Discount) or
Corresponding Premium to
Sales Price Net Asset Value Net Asset Value
----------- --------------- -------------
ACM Income High Low High Low High Low
---------- ----- ----- ----- ----- ----- -----
Quarter Ended
3/31/04 $8.87 $8.47 $8.43 $8.41 5.25% 0.71%
6/30/04 $8.75 $7.20 $8.41 $7.69 4.04% (6.37)%
9/30/04 $8.36 $7.88 $7.98 $7.84 4.76% (0.50)%
12/31/04 $8.20 $7.94 $8.15 $8.08 0.99% (1.73)%
3/31/05 $8.44 $7.97 $8.35 $8.05 1.58% (1.34)%
6/30/05 $8.31 $8.03 $8.36 $8.10 0.86% (1.35)%
9/30/05 $8.38 $8.22 $8.31 $8.27 0.85% (0.84)%
12/31/05 $8.34 $8.04 $8.30 $8.14 1.85% (1.23)%
3/31/06 $8.49 $8.06 $8.36 $8.14 3.07% (0.98)%
6/30/06 $8.14 $7.33 $8.17 $7.82 (0.25)% (7.05)%
50
APPENDIX G
LEGAL PROCEEDINGS
The staff of the U.S. Securities and Exchange Commission ("SEC") and the
Office of the New York Attorney General ("NYAG") have been investigating
practices in the mutual fund industry identified as "market timing" and "late
trading" of mutual fund shares. Certain other regulatory authorities have also
been conducting investigations into these practices within the industry and
have requested that the Adviser provide information to them. The Adviser has
been cooperating and will continue to cooperate with all of these authorities.
Excluding the occurrences of tender offers or stock repurchases, the shares
of a Fund are not redeemable by a Fund, but are traded on an exchange at prices
established by the market. Accordingly, the Fund and its stockholders are not
subject to the market timing and late trading practices that are the subject of
the investigations mentioned above or the lawsuits described below. Please see
below for a description of the agreements reached by the Adviser and the SEC
and NYAG in connection with the investigations mentioned above.
Numerous lawsuits have been filed against the Adviser and certain other
defendants in which plaintiffs make claims purportedly based on or related to
the same practices that are the subject of the SEC and NYAG investigations
referred to above. Some of these lawsuits name one or more of the Funds as a
party. The lawsuits are now pending in the United States District Court for the
District of Maryland pursuant to a ruling by the Judicial Panel on
Multidistrict Litigation transferring and centralizing all of the mutual funds
involving market and late trading in the District of Maryland (the "Mutual Fund
MDL"). Management of the Adviser believes that these private lawsuits are not
likely to have a material adverse effect on the results of operations or
financial condition of a Fund.
On December 18, 2003, the Adviser confirmed that it had reached terms with
the SEC and the NYAG for the resolution of regulatory claims relating to the
practice of "market timing" mutual fund shares in some of the AllianceBernstein
Mutual Funds. The agreement with the SEC is reflected in an Order of the
Commission ("SEC Order"). The agreement with the NYAG is memorialized in an
Assurance of Discontinuation dated September 1, 2004 ("NYAG Order"). Among the
key provisions of these agreements are the following:
(i)The Adviser agreed to establish a $250 million fund (the "Reimbursement
Fund") to compensate mutual fund stockholders for the adverse effects of
market timing attributable to market timing relationships described in
the SEC Order. According to the SEC Order, the Reimbursement Fund is to
be paid, in order of priority, to fund investors based on (i) their
aliquot share of losses suffered by the fund due to market timing, and
(ii) a proportionate share of advisory fees paid by such fund during the
period of such market timing;
(ii)The Adviser agreed to reduce the advisory fees it receives from some of
the AllianceBernstein long-term, open-end retail funds, commencing
January 1, 2004, for a period of at least five years; and
(iii)The Adviser agreed to implement changes to its governance and compliance
procedures. Additionally, the SEC Order contemplates that the Adviser's
registered investment company clients, including the Fund, will
introduce governance and compliance changes.
The shares of a Fund are not redeemable by a Fund, but are traded on an
exchange at prices established by the market. Accordingly, a Fund and its
stockholders are not subject to the market timing practices described in the
SEC Order and are not expected to participate in the Reimbursement Fund. Since
the Funds are closed-end funds, they will not have their advisory fee reduced
pursuant to the terms of the agreements mentioned above.
On February 10, 2004, the Adviser received (i) a subpoena duces tecum from
the Office of the Attorney General of the State of West Virginia and (ii) a
request for information from West Virginia's Office of the State Auditor,
Securities Commission (the "West Virginia Securities Commission") (together,
the "Information Requests"). Both Information Requests require the Adviser to
produce documents concerning, among other things, any market timing or late
trading in the Adviser's sponsored mutual funds. The Adviser responded to the
Information Requests and has been cooperating fully with the investigation.
51
On April 11, 2005, a complaint entitled The Attorney General of the State of
West Virginia v. AIM Advisors, Inc., et al. ("WVAG Complaint") was filed
against the Adviser, Alliance Capital Management Holding L.P. ("Alliance
Holding"), and various other defendants not affiliated with the Adviser. The
WVAG Complaint was filed in the Circuit Court of Marshall County, West Virginia
by the Attorney General of the State of West Virginia. The WVAG Complaint makes
factual allegations generally similar to those in certain of the complaints
related to the lawsuits discussed above. On May 31, 2005, defendants removed
the WVAG Complaint to the United States District Court for the Northern
District of West Virginia. On July 12, 2005, plaintiff moved to remand. On
October 19, 2005, the WVAG Complaint was transferred to the Mutual fund MDL.
On August 30, 2005, the deputy commissioner of securities of the West
Virginia Securities Commission signed a "Summary Order to Cease and Desist, and
Notice of Right to Hearing" addressed to the Adviser and Alliance Holding. The
Summary Order claims that the Adviser and Alliance Holding violated the West
Virginia Uniform Securities Act, and makes factual allegations generally
similar to those in the SEC Order and the NYAG Order. On January 26, 2006, the
Adviser, Alliance Holding, and various unaffiliated defendants filed a Petition
for Writ of Prohibition and Order Suspending Proceedings in West Virginia state
court seeking to vacate the Summary Order and for other relief. The Adviser
intends to vigorously defend against the allegations in the WVAG Complaint.
On June 22, 2004, a purported class action complaint entitled Aucoin, et al.
v. Alliance Capital Management L.P., et al. ("Aucoin Complaint") was filed
against the Adviser, Alliance Capital Management Holding L.P., Alliance Capital
Management Corporation, AXA Financial, Inc., AllianceBernstein Investment
Research & Management, Inc., certain current and former directors of the
AllianceBernstein Mutual Funds, and unnamed Doe defendants. The Aucoin
Complaint names certain of the AllianceBernstein mutual funds as nominal
defendants. The Funds were not named as defendants in the Aucoin Complaint. The
Aucoin Complaint was filed in the United States District Court for the Southern
District of New York by an alleged stockholder of an AllianceBernstein mutual
fund. The Aucoin Complaint alleges, among other things, (i) that certain of the
defendants improperly authorized the payment of excessive commissions and other
fees from fund assets to broker-dealers in exchange for preferential marketing
services, (ii) that certain of the defendants misrepresented and omitted from
registration statements and other reports material facts concerning such
payments, and (iii) that certain defendants caused such conduct as control
persons of other defendants. The Aucoin Complaint asserts claims for violation
of Sections 34(b), 36(b) and 48(a) of the Investment Company Act, Sections 206
and 215 of the Advisers Act, breach of common law fiduciary duties, and aiding
and abetting breaches of common law fiduciary duties. Plaintiffs seek an
unspecified amount of compensatory damages and punitive damages, rescission of
their contracts with the Adviser, including recovery of all fees paid to the
Adviser pursuant to such contracts, an accounting of all fund-related fees,
commissions and soft dollar payments, and restitution of all unlawfully or
discriminatorily obtained fees and expenses.
Since June 22, 2004, nine additional lawsuits making factual allegations
substantially similar to those in the Aucoin Complaint were filed against the
Adviser and certain other defendants. All nine of the lawsuits (i) were brought
as class actions filed in the United States District Court for the Southern
District of New York, (ii) assert claims substantially identical to the Aucoin
Complaint, and (iii) are brought on behalf of stockholders of the Funds.
On February 2, 2005, plaintiffs filed a consolidated amended class action
complaint ("Aucoin Consolidated Amended Complaint") that asserts claims
substantially similar to the Aucoin Complaint and the nine additional lawsuits
referenced above. On October 19, 2005, the District Court dismissed each of the
claims set forth in the Aucoin Consolidated Amended Complaint, except for
plaintiff's claim under Section 36(b) of the Investment Company Act. On
January 11, 2006, the District Court granted defendants' motion for
reconsideration and dismissed the remaining Section 36(b) claim. Plaintiffs
have moved for leave to amend their consolidated complaint.
On October 19, 2005, the District Court granted in part, and denied in part,
defendants' motion to dismiss the Aucoin Complaint and as a result the only
claim remaining is plaintiffs' Section 36(b).
On August 7, 2006, the Mutual Fund MDL signed an Order staying the actions
(including discovery) against the Alliance defendants pending settlement.
The Adviser believes that these matters are not likely to have a material
adverse effect on the Funds or the Adviser's ability to perform advisory
services relating to the Funds.
52
APPENDIX H
SHARE OWNERSHIP INFORMATION
Outstanding Shares
As of August 15, 2006 each Fund had the following number of shares of common
stock outstanding.
Amount
Fund Outstanding
---- -----------
ACM Government Opportunity 12,903,932
ACM Income 229,436,279
Share Ownership
As of August 15, 2006, the directors and officers of each Fund as a group
beneficially owned less than 1% of the outstanding shares of common stock of
that Fund and, to the knowledge of each Fund, the following persons owned
either of record or beneficially, 5% or more of the outstanding shares of the
Fund.
Number of Percentage of
Outstanding Shares Outstanding Shares
Fund Name and Address of Stockholder Owned Owned
---- ------------------------------------------- ------------------ ------------------
ACM Government Aon Corporation/Aon Advisors, Inc./Combined
Opportunity Insurance Company of America
200 E. Randolph Street
Chicago, IL 60601 3,425,736 26.50%
Karpus Management, Inc.
d/b/a Karpus Investment Fund
183 Sully's Trail
Pittsford, NY 14534 677,695 5.25%
ACM Income N/A N/A N/A
The following table shows the percentage of ACM Income's shares on a pro
forma basis after the Acquisition to be owned by the above listed stockholders,
if the Acquisition had been consummated as of August 15, 2006.
Percentage of Outstanding Shares
Name and Address of Stockholder of ACM Income on a pro forma basis
------------------------------- ----------------------------------
Aon Corporation/Aon Advisors, Inc./Combined Insurance
Company of America
200 E. Randolph Street
Chicago, IL 60601 1.48%
Karpus Management, Inc.
d/b/a Karpus Investment Fund
183 Sully's Trail Pittsford,
NY 14534 0.29%
53
APPENDIX I
FINANCIAL HIGHLIGHTS TABLE
The financial highlights table is intended to help you understand each
Fund's financial performance for the past 5 years. Certain information reflects
financial results for a single share of a Fund. The total returns in the table
represent the rate that an investor would have earned (or lost) on an
investment in a Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by Ernst & Young LLP, the
independent registered public accounting firm for the Funds, whose reports,
along with the Funds' financial statements, are included in the Funds' annual
report, which is available upon request.
54
ACM Government Opportunity
Six Months
Ended
January 31, Year Ended July 31,
2006 -----------------------------------------------------
(unaudited) 2005 2004 2003 2002(a) 2001
----------- -------- -------- -------- -------- -------
Net asset value, beginning of period $ 8.50 $ 8.30 $ 8.46 $ 7.95 $ 7.99 $ 7.90
-------- -------- -------- -------- -------- -------
Income From Investment Operations
Net investment income(b) .24(c) .53(c) .57 .67 .61 .69
Net realized and unrealized gain (loss)
on investment and foreign currency
transactions .12 .20 (.07) .56 .13 .12
-------- -------- -------- -------- -------- -------
Net increase in net asset value from
operations .36 .73 .50 1.23 .74 .81
-------- -------- -------- -------- -------- -------
Less: Dividends and Distributions
Dividends from net investment income (.24) (.53) (.60) (.72) (.61) (.64)
Tax return of capital -0- -0- -0- -0- (.02) (.08)
Distributions in excess of net investment
income -0- -0- -0- -0- (.15) -0-
Distributions from net realized gain on
investments (.04) -0- (.06) -0- -0- -0-
-------- -------- -------- -------- -------- -------
Total dividends and distributions (.28) (.53) (.66) (.72) (.78) (.72)
-------- -------- -------- -------- -------- -------
Net asset value, end of period $ 8.58 $ 8.50 $ 8.30 $ 8.46 $ 7.95 $ 7.99
-------- -------- -------- -------- -------- -------
Market value, end of period $ 7.70 $ 7.83 $ 8.29 $ 8.50 $ 9.20 $ 8.67
======== ======== ======== ======== ======== =======
Premium/(Discount) (10.26)% (7.88)% (.12)% .47% 15.72% 8.51%
Total Return
Total investment return based on:(d)
Market value 1.96% .86% 5.28% .43% 16.45% 32.38%
Net asset value 4.66% 9.36% 5.90% 15.68% 9.30% 11.00%
Ratios/Supplemental Data
Net assets, end of period (000's omitted) $110,688 $109,734 $106,990 $108,339 $100,554 $99,888
Ratio to average net assets of:
Expenses, net of waivers/
reimbursements 2.55%(e) 1.95% 1.54%(f) 1.83% 1.92% 2.88%
Expenses, before waivers/
reimbursements 2.65%(e) 2.00% 1.54% 1.83% 1.92% 2.88%
Expenses, excluding interest
expense 1.24%(e) 1.32% 1.28% 1.35% 1.33% 1.45%
Net investment income 5.62%(c)(e) 6.20%(c) 6.65% 7.88% 7.58% 8.69%
Portfolio turnover rate 34% 64% 124% 100% 173% 98%
--------
(a)As required, effective August 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 July 31, 2002 was to
decrease net investment income per share by $0.13, increase net realized and
unrealized gain on investment transactions per share by $0.13, and decrease
the ratio of net investment income to average net assets from 9.16% to
7.58%. Per share, ratios and supplemental data for periods prior to
August 1, 2001 have not been restated to reflect this change in presentation.
(b)Based on average shares outstanding.
(c)Net of expenses waived by the Adviser.
(d)Total investment return is calculated assuming a purchase of common stock on
the opening of the first day and a sale on the closing of the last day of
each period reported. 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 the
net asset value will be lower than total investment return based on market
value in periods where there is a decrease in the discount or an increase in
the premium of the market value to the net asset value from the beginning to
the end of such periods. Total investment return calculated for a period of
less than one year is not annualized.
(e)Annualized.
(f)Reflects a $1,125 waiver by the Adviser which had no effect to the ratio.
55
ACM Income
Six Months
Ended
June 30, Year Ended December 31,
2006 ------------------------------------------------
(unaudited) 2005 2004(a) 2003 2002
----------- ---------- ---------- ---------- ----------
Net asset value, beginning of period $ 8.25 $ 8.27 $ 8.39 $ 7.91 $ 7.87
---------- ---------- ---------- ---------- ----------
Income From Investment Operations
Net investment income(c) .30 .66 .67 .76 .89
Net realized and unrealized gain (loss) on investment and
foreign currency transactions (.31) -0- (.01) .59 .07
---------- ---------- ---------- ---------- ----------
Net increase in net asset value from operations (.01) .66 .66 1.35 .96
---------- ---------- ---------- ---------- ----------
Less: Dividends and Distributions
Dividends from net investment income (.32) (.68) (.78) (.87) (.85)
Distributions in excess of net investment income -0- -0- -0- -0- -0-
Tax return of capital -0- -0- -0- -0- (.07)
---------- ---------- ---------- ---------- ----------
Total dividends and distributions (.32) (.68) (.78) (.87) (.92)
---------- ---------- ---------- ---------- ----------
Less: Fund Share Transactions
Dilutive effect of rights offering -0- -0- -0- -0- -0-
Offering costs charged to paid-in-capital in excess of par -0- -0- -0- -0- -0-
---------- ---------- ---------- ---------- ----------
Total fund share transactions -0- -0- -0- -0- -0-
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 7.92 $ 8.25 $ 8.27 $ 8.39 $ 7.91
---------- ---------- ---------- ---------- ----------
Market value, end of period $ 7.41 $ 8.28 $ 8.16 $ 8.58 $ 8.46
========== ========== ========== ========== ==========
Premium/(Discount) (6.44)% .36% (1.33)% 2.26% 6.95%
Total Investment Return
Total investment return based on:(d)
Market value (6.94)% 10.18% 4.63% 12.50% 30.60%
Net asset value (.18)% 8.32% 8.44% 17.66% 13.27%
Ratios/Supplemental Data
Net assets, end of period (000's omitted) $1,817,170 $1,889,926 $1,888,272 $1,904,853 $1,785,164
Ratio to average net assets of:
Expenses 3.04%(f) 2.46% 1.66% 1.67% 1.87%
Expenses, excluding interest expense(e) .74%(f) .79% .98% 1.10% 1.26%
Net investment income 7.45%(f) 7.99% 8.27% 9.28% 11.69%
Portfolio turnover rate 90% 160% 139% 276% 414%
Asset coverage ratio 413% 443% 492% 559% 376%
Bank borrowing outstanding
(in millions) $ 400 $ 400 $ 400 $ 400 $ 400
-----------
2001(b)
----------
Net asset value, beginning of period $ 8.45
----------
Income From Investment Operations
Net investment income(c) .76
Net realized and unrealized gain (loss) on investment and
foreign currency transactions (.11)
----------
Net increase in net asset value from operations .65
----------
Less: Dividends and Distributions
Dividends from net investment income (.77)
Distributions in excess of net investment income (.07)
Tax return of capital -0-
----------
Total dividends and distributions (.84)
----------
Less: Fund Share Transactions
Dilutive effect of rights offering (.32)
Offering costs charged to paid-in-capital in excess of par (.07)
----------
Total fund share transactions (.39)
----------
Net asset value, end of period $ 7.87
----------
Market value, end of period $ 7.30
==========
Premium/(Discount) (7.24)%
Total Investment Return
Total investment return based on:(d)
Market value 7.80%
Net asset value 3.11%
Ratios/Supplemental Data
Net assets, end of period (000's omitted) $1,764,895
Ratio to average net assets of:
Expenses 2.31%
Expenses, excluding interest expense(e) 1.18%
Net investment income 9.33%
Portfolio turnover rate 676%
Asset coverage ratio 379%
Bank borrowing outstanding
(in millions) $ 300
--------
(a)As of January 1, 2004, the Fund has adopted the method of accounting for
interim payments on swap contracts in accordance with Financial Accounting
Standards Board Statement No. 133. These interim payments are reflected
within net realized and unrealized gain (loss) on swap contracts, however
prior to January 1, 2004, these interim payments were reflected within
interest income/expense on the statement of operations. The effect of this
change for the year ended December 31, 2004, was to decrease net investment
income per share and increase net realized and unrealized gain (loss) on
investment transactions. The effect on the per share amounts was less than
$0.005. The ratio of net investment income to average net assets was
decreased by 0.02%.
(b)As required, effective January 1, 2001, the Fund has adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies, and began
amortizing premium on debt securities for financial reporting purposes only.
The effect of this change for the year ended December 31, 2001, was to
decrease net investment income per share by $.05, decrease net realized and
unrealized loss on investment transactions per share by $.05, and decrease
the ratio of net investment income to average net assets from 9.92% to 9.33%.
(c)Based on average shares outstanding.
(d)Total investment return is calculated assuming a purchase of common stock on
the opening of the first day and a sale of common stock on the closing of
the last day of each period reported. Dividends and distributions, if any,
are assumed for purposes of this calculation, to be reinvested at prices
obtained under the Fund's Dividend Reinvestment Plan. Generally, total
investment return based on net asset value will be higher than total
investment return based on market value in periods where there is an
increase in the discount or a decrease in the premium of the market value to
the net asset value from the beginning to the end of such periods.
Conversely, total investment return based on net asset value will be lower
than total investment return based on market value in periods where there is
a decrease in the discount or an increase in the premium of the market value
to the net asset value from the beginning to the end of such periods. Total
investment return calculated for a period of less than one year is not
annualized.
(e)Excludes net interest expense of 1.67%, .68%, .57%, .61% and 1.13%,
respectively, on borrowings.
(f)Annualized.
56
ACM INCOME FUND, INC.
1345 Avenue of the Americas
New York, New York
Toll Free (800) 221-5672
--------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
October 27, 2006
This Statement of Additional Information relates specifically to the proposed
Acquisition (as defined in the Prospectus/Proxy Statement) wherein ACM Income
Fund, Inc. ("ACM Income") would acquire all of the assets and assume all of the
liabilities of ACM Government Opportunity Fund, Inc. ("ACM Government
Opportunity") in exchange for shares of ACM Income, and cash in lieu of
fractional shares for those stockholders who do not participate in ACM
Government Opportunity's Dividend Reinvestment and Cash Purchase Plan ("DRIP")
(ACM Income and ACM Government Opportunity are each a "Fund" and collectively,
the "Funds".)
AllianceBernstein, L.P. (the "Adviser") serves as investment adviser to the
Funds. This Statement of Additional Information is not a prospectus, but should
be read in conjunction with the Prospectus/Proxy Statement for the Funds dated
October 27, 2006. This Statement of Additional Information does not include all
information that a prospective investor should consider before purchasing shares
of ACM Income, and investors should obtain and read the Prospectus/Proxy
Statement prior to purchasing shares. A copy of the Prospectus/Proxy Statement
may be obtained without charge, by calling 1-800-221-5672. This Statement of
Additional Information incorporates by reference the entire Prospectus/Proxy
Statement.
TABLE OF CONTENTS
Page
INVESTMENT OBJECTIVES AND POLICIES......................................2
INVESTMENT PRACTICES....................................................7
INVESTMENT RESTRICTIONS................................................12
RISK FACTORS AND SPECIAL CONSIDERATIONS................................13
MANAGEMENT OF THE FUNDS................................................17
VALUATION OF PORTFOLIO SECURITIES......................................31
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN...........................33
DESCRIPTION OF COMMON STOCK............................................35
PORTFOLIO TRANSACTIONS.................................................36
DISTRIBUTIONS..........................................................38
TAXATION...............................................................38
LEGAL MATTERS..........................................................43
EXPERTS................................................................43
FINANCIAL STATEMENTS...................................................44
APPENDIX A............................................................A-1
The following supplements the information contained in the Prospectus/Proxy
Statement concerning the Funds. ACM Income and ACM Government Opportunity are
each diversified closed-end investment companies registered under the Investment
Company Act of 1940, as amended (the "1940 Act").
INVESTMENT OBJECTIVES AND POLICIES
GENERAL. The investment objective of ACM Income is to seek high current income
consistent with preservation of capital. The primary investment objective of ACM
Government Opportunity is high current income consistent with prudent investment
risk, with a secondary investment objective of growth of capital. In seeking to
achieve its investment objectives, each Fund invests principally in U.S.
Government Securities (as defined below) and utilizes certain other investment
techniques, including options and futures, intended to enhance income and reduce
market risk. The Funds may also invest in other debt securities including those
of foreign governmental issuers. ACM Government Opportunity may also invest in
dividend-paying equity securities. The Funds are designed primarily for long
term investment and investors should not consider any Fund to be a short-term
trading vehicle. As with all investment companies, there can be no assurance
that a Fund's objective will be achieved.
Each Fund has adopted a fundamental policy that it will invest at least 65% of
its total assets in U.S. Government Securities (as defined below) and repurchase
agreements pertaining to U.S. Government Securities. Each Fund's investment
objective and fundamental policies (and its investment restrictions set forth
below under "Investment Restrictions") may be changed only with the approval of
the holders of a "majority of the Fund's outstanding voting securities," which
means the lesser of (i) 67% of the shares of the Fund represented at a meeting
at which more than 50% of the outstanding shares are present in person or
represented by proxy, or (ii) more than 50% of the outstanding shares. A Fund's
other investment policies described below, except as set forth under "Investment
Restrictions," are not fundamental and may be changed by the Fund without
stockholer approval, but the Fund will not change its investment policies
without contemporaneous notice to its stockholders.
U.S. GOVERNMENT SECURITIES. Securities issued or guaranteed by the United States
Government, its agencies or instrumentalities include: (i) U.S. Treasury
obligations, which differ only in their interest rates, maturities and times of
issuance: U.S. Treasury bills (maturity of one year or less), U.S. Treasury
notes (maturities of one to 10 years), and U.S. Treasury bonds (generally
maturities of greater than 10 years), all of which are backed by the full faith
and credit of the United States, and (ii) obligations issued or guaranteed by
U.S. Government agencies or instrumentalities, including government guaranteed
mortgage-related securities, same of which are backed by the full faith and
credit of the U.S. Treasury, e.g., direct pass-through certificates of the
Government National Mortgage Association; some of which are supported by the
right of the issuer to borrow from the U.S. Government, e.g., obligations of
Federal Home Loan Banks, and some of which are backed only by the credit of the
issuer itself, e.g., obligations of the Student Loan Marketing Association.
Government Guaranteed Mortgage-Related Securities--General. Mortgages backing
the securities purchased by a Fund include, among others, conventional
thirty-year fixed rate mortgages, graduated payment mortgages, fifteen-year
mortgages and adjustable rate mortgages. All of these mortgages can be used to
create pass-through securities. A pass-through security is formed when mortgages
are pooled together and undivided interests in the pool or pools are sold. The
cash flow from the mortgages is passed through to the holders of the securities
in the form of periodic payments of interest, principal and prepayments (net of
a service fee). Prepayments occur when the holder of an individual mortgage
prepays the remaining principal before the mortgages scheduled maturity date. As
a result of the pass-through of prepayments of principal on the underlying
securities mortgage-backed securities are often subject to more rapid prepayment
of principal than their stated maturity would indicate. Because the prepayment
characteristics of the underlying mortgages vary, it is not possible to predict
accurately the realized yield or average life of a particular issue of
pass-through certificates. Prepayment rates are important because of their
effect on the yield and price of the securities. Accelerated prepayments
adversely impact yields for pass-throughs purchased at a premium (i.e., a price
in excess of principal amount) and may involve additional risk of loss of
principal because the premium may not have been fully amortized at the time the
obligation is repaid. The opposite is true for pass-throughs purchased at a
discount. A Fund may purchase mortgage-related securities at a premium or at a
discount. Principal and interest payments on the mortgage-related securities are
government guaranteed to the extent described below. Such guarantees do not
extend to the value or yield of the mortgage-related securities themselves or of
a Fund's shares of common stock.
GNMA Certificates. Certificates of the Government National Mortgage Association
("GNMA Certificates") are mortgage-backed securities, which evidence an
undivided interest in a pool or pools of mortgages. GNMA Certificates that a
Fund purchases are the "modified pass-through" type, which entitle the holder to
receive timely payment of all interest and principal payments due on the
mortgage pool, net of fees paid to the "issuer" and GNMA, regardless of whether
or not the mortgagor actually makes the payment.
The National Housing Act authorizes GNMA to guarantee the timely payment of
principal and interest in securities backed by a pool of mortgages insured by
the Federal Housing Administration ("FHA") or guaranteed by the Veterans
Administration ("VA"). The GNMA guarantee is backed by the full faith and credit
of the United States. The GNMA is also empowered to borrow without limitation
from the U.S. Treasury if necessary to make any payments required under its
guarantee.
The average life of a GNMA Certificate is likely to be substantially shorter
than the original maturity of the mortgages underlying the securities.
Prepayments of principal by mortgagors and mortgage foreclosures will usually
result in the return of the greater part of principal investment long before the
maturity of the mortgages in the pool. Foreclosures impose no risk to principal
investment because of the GNMA guarantee, except to the extent that a Fund has
purchased the certificates above par in the secondary market.
FHLMC Securities. The Federal Home Loan Mortgage Corporation ("FHLMC") was
created in 1970 through enactment of Title III of the Emergency Rome Finance Act
of 1970. Its purpose is to promote development of a nationwide secondary market
in conventional residential mortgages.
The FHLMC issues two types of mortgage pass-through securities ("FHLMC
Certificates"), mortgage participation certificates ("PCs") and guaranteed
mortgage certificates ("GMCs"). PCs resemble GNMA Certificates in that each PC
represents a pro rata share of all interest and principal payments made and owed
on the underlying pool. The FHMLC guarantees timely monthly payment of interest
on PCs and the ultimate payment of principal.
GMCs also represent a pro rata interest in a pool of mortgages. However, these
instruments pay interest semi-annually and return principal once a year in
guaranteed minimum payments. The expected average life of these securities is
approximately ten years. The FHLMC guarantee is not backed by the full faith and
credit of the United States.
FNMA Securities. The Federal National Mortgage Association ("FNMA") was
established in 1938 to create a secondary market in mortgages insured by the
FHA.
FNMA issues guaranteed mortgage pass-through certificates ("FNMA Certificates").
FNMA Certificates resemble GNMA Certificates in that each FNMA Certificate
represents a pro rata share of all interest and principal payments made and owed
on the underlying pool. FNMA guarantees timely payment of interest and principal
on FNMA Certificates. The FNMA guarantee is not backed by the full faith and
credit of the United States.
Zero Coupon Treasury Securities. A Fund may invest in zero coupon Treasury
securities. Currently the only U.S. Treasury security issued without coupons is
the Treasury bill. Although the U.S. Treasury does not itself issue Treasury
notes and bonds without coupons, under the U.S. Treasury STRIPS program interest
and principal payments on certain long term Treasury securities may be
maintained separately in the Federal Reserve book entry system and may be
separately traded and owned. In addition, in the last few years a number of
banks and brokerage firms have separated ("stripped") the principal portions
("corpus") from the coupon portions of U.S. Treasury bonds and notes and hold
them separately in the form of receipts or certificates representing undivided
interests in these instruments (which instruments are generally held by a bank
in a custodial or trust account). The staff of the Securities and Exchange
Commission ("SEC") has indicated, that, in its view these receipts or
certificates should be considered as securities issued by the bank or brokerage
firm involved and, therefore, should not be included in a Fund's categorization
of U.S. Government Securities. The Funds disagree with the staff's
interpretation but has undertaken that it will not invest in such securities
until final resolution of the issue. However, if such securities are deemed to
be U.S. Government Securities a Fund will not be subject to any limitations on
their purchase.
Zero coupon Treasury securities do not entitle the holder to any periodic
payments of interest prior to maturity. Accordingly, such securities usually
trade at a deep discount from their face or par value and will be subject to
greater fluctuations of market value in response to changing interest rates than
debt obligations of comparable maturity which make current distributions of
interest. Current federal tax law requires that a holder (such as a Fund) of a
zero coupon security accrue a portion of the discount at which the security was
purchased as income each year even though the Fund receives no interest payment
in cash on the security during the year.
Repurchase Agreements. A Fund may enter into repurchase agreements pertaining to
U.S. Government Securities with member banks of the Federal Reserve System or
"primary dealers" (as designated by the Federal Reserve Bank of New York) in
such securities. ACM Income may not invest more than 35% of its assets in
repurchase agreements. Currently, a Fund plans to enter into repurchase
agreements only with its Custodian and such primary dealers. A repurchase
agreement arises when a buyer such as a Fund purchases a security and
simultaneously agrees to resell it to the vendor at an agreed-upon future date,
normally one day or a few days later. The resale price is greater than the
purchase price, reflecting an agreed-upon interest rate which is effective for
the period of time the buyer's money is invested in the security and which is
related to the current market rate rather than the coupon rate on the purchased
security. Such agreements permit a Fund to keep all of its assets at work while
retaining "overnight" flexibility in pursuit of investments of a longer-term
nature. A Fund requires continual maintenance by its Custodian for its account
in the Federal Reserve/Treasury Book Entry System of collateral in an amount
equal to, or in excess of, the resale price. In the event a vendor defaulted on
its repurchase obligation, a Fund might suffer a loss to the extent that the
proceeds from the sale of the collateral were less than the repurchase price. In
the event of a vendor's bankruptcy, a Fund might be delayed in, or prevented
from, selling the collateral for the Fund's benefit. A Fund's Board of Directors
("Board") has established procedures, which are periodically reviewed by the
Board, pursuant to which the Fund's Adviser monitor the creditworthiness of the
dealers with which the Fund enters into repurchase agreement transactions.
General. U.S. Government Securities do not generally involve the credit risks
associated with other types of interest-bearing securities although, as a
result, the yields available from U.S Government Securities are generally lower
than the yields available from other interest-bearing securities. Like other
fixed-income securities, however, the values of U.S. Government Securities
change as interest rates fluctuate. When interest rates decline, the values of
U.S. Government Securities can be expected to increase and when interest rates
rise, the values of U.S. Government Securities can be expected to decrease.
OTHER SECURITIES. While the principal investment strategies of the Funds
emphasize investment in U.S. Government Securities, a Fund may, where consistent
with its investment objective, invest in securities other than U.S. Government
Securities, including (i) Foreign Government Securities and (ii) put and call
options, futures contracts and options on futures contracts, options on foreign
currencies, and forward foreign currency exchange contracts, as discussed below
under the caption "Investment Practices."
The Funds may also invest up to 35% of their total assets in (i) certificates of
deposit, bankers' acceptances and interest-bearing savings deposits of banks
having total assets of more than $1 billion and which are members of the Federal
Deposit Insurance Corporation, and (ii) commercial paper of prime quality rated
Prime 1 or higher by Moody's Investors Service, Inc. ("Moody's") or A-1 or
higher by Standard and Poor's Corporation ("S&P") or, if not rated, issued by
companies which have an outstanding debt issue rated Aa or higher by Moody's or
AA or higher by S&P.
ACM Income may also invest up to 35% of its total assets in investment grade
corporate debt securities (including collateralized mortgage obligations).
Investment grade debt securities are those rated Baa or higher by Moody's or BBB
or higher by S&P or, if not so rated, of equivalent investment quality in the
opinion of the Adviser. Securities rated Baa by Moody's or BBB by S&P normally
provide higher yields than higher-rated securities but may be considered to have
speculative characteristics. Sustained periods of deteriorating economic
conditions or rising interest rates are more likely to lead to a weakening in
the issuer's capacity to pay interest and repay principal than in the case of
higher-rated securities. ACM Income may also invest up to 35% of its net assets
in lower-rated securities. Lower-rated securities are rated below Baa by Moody's
or BBB by S&P or, if not rated, of comparable investment quality as determined
by the Adviser.
ACM Government Opportunity may also invest in dividend paying equity securities
although it may invest no more than 20% of its total assets in equity
securities.
Foreign Government Securities. Each Fund may invest up to 35% of its total
assets in Foreign Government Securities of issuers considered stable by the
Fund's Adviser. The Funds may only invest on to 35% of their respective total
assets in such securities. With respect to ACM Income, the Fund will not invest
more than 25% of its total assets in the Foreign Government Securities of any
one country.
Foreign Government Securities are obligations issued or guaranteed by a foreign
government or any of its political subdivisions, authorities, agencies, or
instrumentalities. The Adviser's determination that a particular country should
be considered stable depends on the Adviser's evaluation of political and
economic developments affecting the country as well as recent experience in the
markets for Foreign Government Securities of the country. Examples of foreign
governments which the Adviser currently considers to be stable, among others,
are the governments of Canada, Japan, Sweden, Germany, the United Kingdom and
Mexico. The percentage of a Fund's assets invested in Foreign Government
Securities will vary depending on the relative yields of such securities, the
economies, financial markets, and interest rate climates of the countries in
which the investments are made and the relationship of such countries'
currencies to the U.S. dollar. Currency is judged on the basis of fundamental
economic criteria (e.g., relative inflation levels and trends, growth rate
forecasts, balance of payments status, and economic policies) as well as
technical and political data. A Fund's portfolio of Foreign Government
Securities may include those of a number of foreign countries or, depending upon
market conditions, those of a single country. A Fund may also hold foreign
currency for hedging purposes.
Investing in Foreign Government Securities involves considerations and possible
risks not typically associated with investing in U.S. Government Securities. The
value of Foreign Government Securities investments will be affected by changes
in currency rates or exchange control regulations, application of foreign tax
laws, including withholding taxes, changes in governmental administration or
economic or monetary policy (in this country or abroad) or changed circumstances
in dealings between nations. Costs will be incurred in connection with
conversions between currencies. Foreign brokerage commissions are generally
higher than in the United States, and foreign securities markets may be less
liquid, more volatile and less subject to governmental supervision than in the
United States. Investments in foreign countries could be affected by other
factors not present in the United States, including expropriation, confiscatory
taxation, lack of uniform accounting and auditing standards and potential
difficulties in enforcing contractual obligations and could be subject to
settlement periods.
Collateralized Mortgage Obligations. Collateralized mortgage obligations are
debt obligations issued generally by finance subsidiaries or trusts that are
secured by mortgage-backed certificate, including in many cases, GNMA
Certificates, FHLMC Certificates and FNMA Certificates, together with certain
funds and other collateral.
Scheduled distributions on the mortgage-backed certificates pledged to secure
the collateralized mortgage obligations, together with certain funds and other
collateral, are sufficient to make timely payments of interest on the
collateralized mortgage obligations, and to retire the collateralized mortgage
obligations not later than their stated maturity. Since the rate of payment of
principal of the collateralized mortgage obligations depends on the rate of
payment (including prepayments) of the principal of the underlying
mortgage-backed certificates, the actual maturity of the collateralized mortgage
obligations can occur significantly earlier than their stated maturity. The
collateralized mortgage obligations may be subject to redemption under certain
circumstances. Collateralized mortgage obligations bought at a premium (i.e., a
price in excess of principal amount) may involve additional risk of loss of
principal in the event of unanticipated prepayments of the underlying mortgages
because the premium may not have been fully amortized at the time the obligation
is repaid.
Although payment of the principal of and interest on the mortgage-backed
certificates pledged to secure the collateralized mortgage obligations may be
guaranteed by GNMA, FHLMC or FNMA, the collateralized mortgage obligations
represent obligations solely of the issuer and are not insured or guaranteed by
GNMA, FHLMC, FNMA or any other governmental agency, of by any other person or
entity. The issuers of collateralized mortgage obligations typically have no
significant assets other than those pledged as collateral for the obligations.
Illiquid Securities. Each Fund may invest up to 20% of its total assets in
illiquid securities. These securities include, among others, (i) direct
placements or other securities which are subject to legal or contractual
restrictions on resale or for which there is no readily available market (e.g.,
trading in the security is suspended or, in the case of unlisted securities,
market makers do not exist or will not entertain bids of offers), including any
currency swaps and any assets used to cover currency swaps, (ii)
over-the-counter options and assets used to cover over-the-counter options, and
(iii) repurchase agreements not terminable within seven days. Securities
eligible for resale under Rule 144A under the Securities Act of 1933, as amended
(the "1933 Act"), that have legal or contractual restrictions on resale but have
a readily available market are not deemed to be illiquid for purposes of this
limitation. The Adviser will monitor such securities and in reaching decisions
concerning their marketability will consider, among other things, the following
factors: (i) the frequency of trades and quotes for the security; (ii) the
number of dealers wishing to purchase or sell the security and the number of
other potential purchasers; (iii) dealer undertakings to make a market in the
security; (iv) the nature of the security and the nature of the marketplace
trades (e.g., the time needed to dispose of the security, the method of
soliciting offers and the mechanics of the transfer); and (v) any applicable SEC
interpretation or position with respect to such type of securities.
INVESTMENT PRACTICES
Options on U.S. and Foreign Government Securities. In an effort to increase
current income and to reduce fluctuations in net asset value, a Fund may write
covered put and call options and purchase put and call options on securities of
the types in which it is permitted to invest that are traded on U.S. and foreign
exchanges and over-the-counter. A Fund may also write call options for
cross-hedging purposes. There are no specific limitations on a Fund's writing
and purchasing of options.
A put option gives the purchaser of such option, upon payment of a premium, the
right to deliver a specified amount of a security to the writer of the option on
or before a fixed date at a predetermined price. A call option gives the
purchaser of the option, upon payment of a premium, the right to call upon the
writer to deliver a specified amount of a security on or before a fixed date at
a predetermined price. A call option written by a Fund is "covered" if the Fund
owns the underlying security covered by the call or has an absolute and
immediate right to acquire that security without additional cash consideration
(or for additional cash consideration held in a segregated account by its
Custodian) upon conversion or exchange of other securities held in its
portfolio. A call option is also covered if a Fund holds a call on the same
security in the same principal amount as the call written and the exercise price
of the call held (a) is equal to or less than the exercise price of the call or
(b) is greater than the exercise price of the call written and the difference is
maintained by the Fund in cash and liquid high-grade debt securities in a
segregated account with its Custodian. A put option written by a Fund is
"covered" if the Fund maintains cash not available for investment or liquid
high-grade debt securities with a value equal to the exercise price in a
segregated amount with its Custodian, or else holds a put on the same security
in the same principal amount as the put written and the exercise price of the
put held is equal to or greater than the exercise price of the put written. The
premium paid by the purchaser of an option reflects, among other things, the
relationship of the exercise price to the market price and volatility of the
underlying security, the remaining term of the option, supply and demand and
interest rates.
A call option is written for cross-hedging purposes if a Fund does not own the
underlying security but seeks to provide a hedge against a decline in value in
another security which the Fund owns of has the right to acquire. In such
circumstances, the Fund collateralizes the option by maintaining in a segregated
account with its Custodian cash or U.S. Government Securities in an amount not
less than the market value of the underlying security, marked to market daily. A
Fund would write a call option for cross-hedging purposes, instead of writing a
covered call option, when the premium to be received from the cross-hedge
transaction would exceed that which would be received from writing a covered
call option, while at the same time achieving the desired hedge.
In purchasing a call option, a Fund would be in a position to realize a gain if,
during the option period, the price of the underlying security increased by an
amount in excess of the premium paid. It would realize a loss if the price of
the underlying security declined or remained the same or did not increase during
the period by at least the amount of the premium. In purchasing a put option, a
Fund would be in a position to realize a gain if, during the option period, the
price of the underlying security declined by an amount in excess of the premium
paid. It would realize a loss if the price of the underlying security increased
or remained the same or did not decrease during that period by at least the
amount of the premium. If a put or call option purchased by a Fund were
permitted to expire without being sold or exercised, its premium would be lost
by the Fund.
If a put option written by a Fund were exercised the Fund would be obligated to
purchase the underlying security at the exercise price. If a call option written
by a Fund were exercised the Fund would be obligated to sell the underlying
security at the exercise price. The risk involved in writing a put option is
that there could be a decrease in the market value of the underlying security.
If this occurred, the option could be exercised and the underlying security
would then be sold by the option holder to the Fund at a higher price than its
current market value. These risks involved in writing a call option is that
there could be an increase in the market value or the underlying security. If
this occurred, the option could be exercised and the underlying security would
then be sold by the Fund at a lower price than its current market value. These
risks could be reduced by entering into a closing transaction. A Fund retains
the premium received from writing a put or call option whether or not the option
is exercised.
A Fund may purchase or write options on securities of the types in which it is
permitted to invest in privately negotiated transactions. A Fund will effect
such transactions only with investment dealers and other financial institutions
(such as commercial banks or savings and loan institutions) deemed creditworthy
by the Adviser, and the Adviser has adopted procedures for monitoring the
creditworthiness of such entities. Options purchased or written by a Fund in
negotiated transactions are illiquid and it may not be possible for the Fund to
effect a closing transaction at a time when the Adviser believes it would be
advantageous to do so.
Futures Contracts and Options on Futures Contracts. A Fund may enter into
contracts for the purchase or sale for future delivery of U.S. and Foreign
Government Securities, or contracts based on financial indices including any
index of U.S. and Foreign Government Securities ("futures contracts") and may
purchase and write put and call options to buy or sell futures contracts
("options on futures contracts"). A "sale" of a futures contract means the
acquisition of a contractual obligation to deliver the securities called for by
the contract at a specified price on a specified date. A "purchase" of a futures
contract means the incurring of a contractual obligation to acquire the
securities called for by the contract at a specified price on a specified date.
The purchaser of a futures contract on an index agrees to take or make delivery
of an amount of cash equal to the difference between a specified dollar multiple
of the value of the index on the expiration date of the contract ("current
contract value") and the price at which the contract was originally struck. No
physical delivery of the fixed-income securities underlying the index is made.
Options on futures contracts to be written or purchased by a Fund will be traded
on U.S. or foreign exchanges or over-the-counter. These investment techniques
are used only to hedge against anticipated future changes in market conditions
and interest rates which otherwise might either adversely affect the value of a
Fund's portfolio securities or adversely affect the prices of securities which
the Fund intends to purchase at a later date.
Each Fund's Board has adopted the requirement that futures contracts and options
on futures contracts only be used as a hedge and not for speculation. In
addition to this requirement, the Board for ACM Income has also adopted two
percentage restrictions on the use of futures contracts. The first restriction
is that a Fund will not enter into any futures contracts or options on futures
contracts if immediately thereafter the aggregate amount of initial margin
deposits on all the futures contracts of the Fund and premiums paid on options
on futures contracts would exceed 5% of the market value of the total assets of
the Fund. The second restriction is that the aggregate market value of the
futures contracts purchased by a Fund not exceed 50% of the market value of the
total assets of the Fund. Neither of these restrictions will be changed by the
Board without considering the policies and concerns of the various applicable
federal and state regulatory agencies.
Options On Foreign Currencies. A Fund may purchase and write put and call
options on foreign currencies for the purpose of protecting against declines in
the U.S. dollar value of foreign currency denominated portfolio securities and
against increases in the U.S. dollar cost of such securities to be acquired. As
in the case of other kinds of options, however, the writing of an option on a
foreign currency will constitute only a partial hedge, up to the amount of the
premium received, and a Fund could be required to purchase or sell foreign
currencies at disadvantageous exchange rates, thereby incurring losses. The
purchase of an option on a foreign currency may constitute an effective hedge
against fluctuations in exchange rates although, in the event of rate movements
adverse to a Fund's position, it may forfeit the entire amount of the premium
plus related transaction costs. Options on foreign currencies to be written or
purchased by a Fund will be traded on U.S. and foreign exchanges or over the
counter. There is no specific percentage limitation on a Fund's investments in
options on foreign currencies.
Forward Foreign Currency Exchange Contracts. A Fund may purchase or sell forward
foreign currency exchange contracts ("forward contracts") to attempt to minimize
the risk to the Fund from adverse changes in the relationship between the U.S.
dollar and foreign currencies. A forward contract is an obligation to purchase
or sell a specific currency for an agreed price at a future date, which is
individually negotiated and privately traded by currency traders and their
customers. A Fund may enter into a forward contract, for example, when it enters
into a contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of the security
("transaction hedge"). Additionally, for example, when a Fund believes that a
foreign currency may suffer a substantial decline against the U.S. dollar, it
may enter into a forward sale contract to sell an amount of that foreign
currency approximating the value of some or all of the Fund's portfolio
securities denominated in such foreign currency, or when the Fund believes that
the U.S. dollar may suffer a substantial decline against a foreign currency, it
may enter into a forward purchase contract to buy that foreign currency for a
fixed dollar amount ("position hedge"). A Fund's Custodian will place cash not
available for investment or U.S. Government Securities in a segregated account
of the Fund having a value equal to the aggregate amount of the Fund's
commitments under forward contracts entered into with respect to position
hedges. If the value of the securities placed in the segregated account
declines, additional cash or U.S. Government Securities will be placed in the
account on a daily basis so that the value of the account will equal the amount
of a Fund's commitments with respect to such contracts. As an alternative to
maintaining all or part of the segregated account, a Fund may purchase a call
option permitting the Fund to purchase the amount of foreign currency being
hedged by a forward sale contract at a price no higher than the forward contract
price or the Fund may purchase a put option permitting the Fund to sell the
amount of foreign currency subject to a forward purchase contract at a price as
high or higher than the forward contract price. While these contracts are not
presently regulated by the Commodity Futures Trading Commission ("CFTC"), the
CFTC may in the future assert authority to regulate forward contracts. In such
event a Fund's ability to utilize forward contracts in the manner set forth
above may be restricted. Forward contracts reduce the potential gain from a
positive change in the relationship between the U.S. dollar and foreign
currencies. Unanticipated changes in currency prices may result in poorer
overall performance for the Fund than if it had not entered into such contracts.
Lending of Portfolio Securities. In order to increase income, a Fund may from
time to time lend securities from its portfolio to brokers, dealers and
financial institutions and receive collateral in the form of cash of U.S.
Government Securities. Under a Fund's procedures, collateral for such loans must
be maintained at all times in an amount equal to at least 100% of the current
market value of the loaned securities (including interest accrued on the loaned
securities). The interest accruing on the loaned securities will be paid to a
Fund and the Fund will have the right, on demand, to call back the loaned
securities. The risks in lending portfolio securities, as with other extensions
of credit, consist of possible loss of rights in the collateral should the
borrower fail financially. In determining whether to lend securities to a
particular borrower, a Fund's Adviser (subject to review by the Board) will
consider all relevant facts and circumstances, including the creditworthiness of
the borrower. While securities are on loan, the borrower will pay a Fund any
income earned thereon and the Fund may invest any cash collateral in portfolio
securities, thereby earning additional income, or receive an agreed upon amount
of income from a borrower who has delivered equivalent collateral. A Fund may
pay fees to arrange the loans. A Fund will not lend portfolio securities in
excess of 30% of the value of its total assets nor lend its portfolio securities
to any officer, Director, employee or affiliate of the Fund or the Adviser.
Forward Commitments. A Fund may enter into forward commitments for the purchase
or sale of securities. Such transactions may include purchases on a
"when-issued" basis or purchases or sales on a "delayed delivery" basis. In some
cases, a forward commitment may be conditioned upon the occurrence of a
subsequent event such as approval of a proposed financing by appropriate
municipal authorities (i.e., a "when, as and if issued" trade).
When forward commitment transactions are negotiated, the price, which is
generally expressed in yield terms, is fixed at the time the commitment is made,
but delivery and payment for the securities take place at a later date.
Normally, the settlement date occurs within two months after the transaction,
but delayed settlements beyond two months may be negotiated. Securities
purchased or sold under a forward commitment are subject to market fluctuation,
and no interest accrues to the purchaser prior to the settlement date. At the
time a Fund enters into a forward commitment, it will record the transaction and
thereafter reflect the value of the security purchased or, if sold, the proceeds
to be received, in determining the net asset value ("NAV") of its shares. Any
unrealized appreciation or depreciation reflected in such valuation of a "when,
as and if issued" security would be cancelled in the event that the required
condition did not occur and the trade was cancelled.
The use of forward commitments enables a Fund to protect against anticipated
changes in interest rates and prices. For instance, in periods of rising
interest rate and falling bond prices, a Fund might sell securities in its
portfolio on a forward commitment basis to limit its exposure to falling prices.
In periods of falling interest rates and rising bond prices, a Fund might sell a
security in its portfolio and purchase the same or a similar security on a
when-issued or forward commitment basis, thereby obtaining the benefit of
currently higher cash yields. However, if a Fund's Adviser were to forecast
incorrectly the direction of interest rate movements, the Fund might be required
to complete such when-issued of forward transactions at prices inferior to then
current market values. No forward commitments will be made by a Fund if, as a
result, the Fund's aggregate commitments under such transactions would be more
than 30% of the then current value of the Fund's total assets.
A Fund's right to receive or deliver a security under a forward commitment may
be sold prior to the settlement date, but the Fund enters into forward
commitments only with the intention of actually receiving or delivering the
securities, as the case may be. To facilitate such transactions, a Fund's
Custodian will maintain, in a segregated account of the Fund, cash or liquid
high-grade debt securities having value equal to, or greater than, any
commitments to purchase securities on a forward commitment basis and, with
respect to forward commitments to sell portfolio securities of the Fund, the
portfolio securities, themselves. If a Fund, however, chooses to dispose of the
right to receive or deliver a security subject to a forward commitment prior to
the settlement date of the transaction, it can incur a gain or loss. In the
event the other party to a forward commitment transaction were to default, a
Fund might lose the opportunity to invest money at favorable rates or to dispose
of securities at favorable prices.
General Information Regarding Futures, Options and Forward Contracts. The
successful use of the foregoing investment practices draws upon the Adviser's
special skill and experience with respect to such instruments and usually
depends on the Adviser's ability to forecast interest and exchange rate
movements correctly. Should interest or exchange rates move in an unexpected
manner, a Fund may not achieve the anticipated benefits of the use of these
techniques or may realize losses and thus be in a worse position than if such
strategies had not been used. Unlike many exchange-traded futures contracts and
options on futures contracts, there are no daily price fluctuation limits with
respect to forward contracts, and adverse market movements could therefore
continue to an unlimited extent over a period of time. In addition, the
correlation between movements in the prices of such instruments and movements in
the price of the securities hedged of used for cover will not be perfect and
could produce unanticipated losses.
A Fund's ability to dispose of its positions in futures contracts, options and
forward contracts will depend on the availability of liquid markets in such
instruments. It is impossible to predict the amount of trading interest that may
exist in various types of futures contracts, options and forward contracts. If a
secondary market does not exist with respect to an option purchased or written
by a Fund over-the-counter, it might not be possible to effect a closing
transaction in the option (i.e., dispose of the option) with the result that (i)
an option purchased by the Fund would have to be exercised in order for the Fund
to realize any profit and (ii) the Fund may not be able to sell portfolio
securities covering an option written by the Fund until the option expires or it
delivers the underlying security or futures contract upon exercise. Therefore,
no assurance can be given that a Fund will be able to utilize these instruments
at all or utilize them effectively for the purposes set forth above.
Furthermore, a Fund's ability to engage in options and futures transactions may
be limited by tax considerations.
Short Sales. A Fund may make short sales of securities or maintain a short
position, provided that at all times when a short position is open the Fund owns
an equal amount of such securities of the same issue as, and equal in amount to,
the securities sold short. In addition, a Fund may not make a short sale if more
than 10% of the Fund's net assets (taken at market value) would be held as
collateral for short sales at any one time. If the price of the security sold
short increases between the time of the short sale and the time a Fund replaces
the borrowed security, the Fund will incur a loss; conversely, if the price
declines, the Fund will realize a capital gain. Although a Fund's gain is
limited to the price at which it sold the security short, its potential loss is
unlimited. It is the Funds' present intention to make such sales only for the
purpose of deferring realization of gain or loss for federal income tax
purposes. Certain special federal income tax considerations may apply to short
sales, which are entered into by a Fund.
Reverse Repurchase Agreements. Reverse repurchase agreements involve sales by a
Fund of portfolio assets concurrently with an agreement by the Fund to
repurchase the same assets at a later date at a fixed price. During the reverse
repurchase agreement period, the Fund continues to receive principal and
interest payments on these securities. Generally, the effect of such a
transaction is that a Fund can recover all or most of the cash invested in the
portfolio securities involved during the term of the reverse repurchase
agreement, while it will be able to keep the interest income associated with
those portfolio securities. Such transactions are advantageous only if the
interest cost to a Fund of the reverse repurchase transaction is less than the
cost of otherwise obtaining the cash.
Reverse repurchase agreements involve the risk that the market value of the
securities a Fund is obligated to repurchase under the agreement may decline
below the repurchase price. In the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, a Fund's use of
the proceeds of the agreement may be restricted pending a determination by the
other party, or its trustee or receiver, whether to enforce the Fund's
obligation to repurchase the securities.
Swap Agreements. The Funds may enter into swaps on sovereign debt obligations to
protect themselves 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 a Fund, and/or the termination value at the end of the contract.
Therefore, a 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.
Future Developments. A Fund may, following written notice to its stockholders,
take advantage of other investment practices which are not at present
contemplated for use by the Fund or which currently are not available but which
may be developed, to the extent such investment practices are both consistent
with the Fund's investment objective and legally permissible for the Fund. Such
investment practices, if they arise, may involve risks that exceed those
involved in the activities described above.
INVESTMENT RESTRICTIONS
Each Fund has adopted the following investment restrictions, which may not be
changed without the approval of the holders of a majority of that Fund's
outstanding voting securities as defined above. The percentage limitations set
forth below, as well as those described in the Prospectus/Proxy Statement and
elsewhere in this Statement of Additional Information, apply only at the time an
investment is made or other relevant action is taken by a Fund.
Each Fund will not:
1. Invest 25% or more of its total assets in securities of issuers
conducting their principal business activities in the same industry,
provided that this limitation shall not apply with respect to
investments in U.S. Government Securities (and investments in Foreign
Government Securities, with respect to ACM Government Opportunity);
2. Make loans except through (a) the purchase of debt obligations in
accordance with its investment objective and policies; (b) the lending
of portfolio securities; or (c) the use of repurchase agreements;
3. Borrow money, except a Fund may borrow (a) from a bank or other entity
in a privately arranged transaction and issue commercial paper, bonds,
debentures or notes, in series or otherwise, with such interest rates,
conversion rights and other terms and provisions as are determined by
the Fund's Board, if after such borrowing or issuance there is asset
coverage of at least 300% as defined in the 1940 Act, and (b) for
temporary purposes in an amount not exceeding 5% of the value of the
total assets of the Fund;
4. Pledge, hypothecate, mortgage or otherwise encumber its assets, except
to secure permitted borrowings;
5. Participate on a joint or joint and several basis in any securities
trading account;
6. Invest in companies for the purpose of exercising control;
7. Invest in illiquid securities, including direct placements or other
securities which are subject to legal or contractual restriction on
resale or for which there is no readily available market (e.g.,
trading in the security is suspended or, in the case of unlisted
securities, market makers do not exist or will not entertain bids or
offers), if more than 20% of the Fund's net assets (taken at market
value) would be invested in such securities. For purposes of this
restriction, repurchase agreements not terminable within seven days
will be deemed illiquid. Options purchased by the Fund in privately
negotiated transactions and the securities covering options written by
the Fund in privately negotiated transactions are not subject to this
limitation;
8. Make short sales of securities or maintain a short position, unless at
all times when a short position is open it owns an equal amount of
such securities or securities convertible into or exchangeable for,
without payment of any further consideration, securities of the same
issue as, and equal in amount to, the securities sold short ("short
sales against the box"), and unless not more than 10% of the Fund's
net assets (taken at market value) is held as collateral for such
sales at any one time (it is the Fund's present intention to make such
sales only for the purpose of deferring realization of gain or loss
for federal income tax purposes); or
9. (a) Purchase or sell real estate, except that it may purchase and sell
securities of companies which deal in real estate or interests
therein; (b) purchase or sell commodities or commodity contracts
(except currencies, currency futures, forward contracts or contracts
for the future acquisition or delivery of fixed income securities and
related options and other similar contracts); (c) invest in interests
in oil, gas, or other mineral exploration or development programs; (d)
purchase securities on margin, except for such short-term credits as
may be necessary for the clearance of transactions; and (e) act as an
underwriter of securities, except that the Fund may acquire restricted
securities under circumstances in which, if such securities were sold,
the Fund might be deemed to be an underwriter for purposes of the 1933
Act.
ACM Government Opportunity has an additional investment restriction in that it
will not purchase a security if, as a result (unless the security is acquired
pursuant to a plan of reorganization or an offer of exchange), the Fund would
own any securities of an open-end investment company or more than 3% of the
total outstanding voting stock of any closed-end investment company or more than
5% of the value of the Fund's total assets would be invested in securities of
any closed-end investment company or more than 10% of such value in closed-end
investment companies in general.
RISK FACTORS AND SPECIAL CONSIDERATIONS
General. The NAV of shares of a Fund varies as the aggregate value of the Fund's
portfolio securities increases or decreases. A Fund's NAV changes as the general
levels of interest rates fluctuate. When interest rates decline, the value of a
portfolio invested in fixed-income securities can be expected to rise.
Conversely, when interest rates rise, the value of a portfolio invested in
fixed-income securities can be expected to decline. If the Adviser's expectation
of changes in interest rates or its evaluation of the normal yield relationships
in the fixed-income markets proves to be incorrect, a Fund's income, NAV and
potential capital gain may be decreased or its potential capital loss may be
increased.
Although changes in the value of a Fund's portfolio securities subsequent to
their acquisition are reflected in the Fund's NAV, such changes will not affect
the income received by the Fund from such securities. The dividends paid by a
Fund increase or decrease in relation to the income received by the Fund from
its investments, which is reduced by the Fund's expenses before being
distributed to the Fund's stockholders.
The Fund's use of options, futures contracts, options on futures contracts,
forward contracts and options on foreign currencies may result in the loss of
principal under certain market conditions.
For these reasons, an investment in shares of the Fund should not constitute a
complete investment program and may not be appropriate for investors who cannot
assume the greater risk of capital depreciation inherent in seeking higher
income.
Borrowing. A Fund may, if and when market conditions dictate, borrow, including
on a secured basis, from bank or other entities in privately arranged
transactions to increase the money available to the Fund to invest in securities
when the Fund believes that the income from the securities financed will be
greater than the interest expense paid on the borrowing. Such borrowings involve
additional risk to a Fund, since the interest expense may be greater than the
income from or appreciation of the securities carried by the borrowings and
since the value of the securities carried may decline below the amount borrowed.
A Fund may also borrow to finance repurchases of or tender offers for its shares
when the Fund deems it desirable in order to avoid the untimely disposition of
portfolio securities. A Fund reserves the right to issue preferred stock,
commercial paper, bonds, debentures or notes, in series or otherwise, with such
interest rates, conversion rights and other terms and provisions as are
determined by the Fund's Board of Directors.
A Fund may borrow to the maximum extent permitted under the 1940 Act. The 1940
Act requires a Fund to maintain "asset coverage" of not less than 300% of its
"senior securities representing indebtedness," as those terms are defined and
used in the 1940 Act. In addition, a Fund may not make any cash distributions to
its stockholders if, after the distribution, there would be less than 300% asset
coverage of a senior security representing indebtedness for borrowings
(excluding for this purpose certain evidences of indebtedness made by a bank or
other entity and privately arranged, and not intended to be publicly
distributed). This limitation on a Fund's ability to make distributions could
under certain circumstances impair the Fund's ability to maintain its
qualification for taxation as a registered investment company.
A Fund may also borrow for temporary purposes in an amount not exceeding 5% of
the value of the total assets of the Fund. Such borrowings are not subject to
the asset coverage restrictions set forth in the preceding paragraph.
Any investment gains made with the proceeds obtained from borrowings in excess
or interest paid on the borrowings will cause the net income per share or the
NAV per share of a Fund's common stock to be greater than would otherwise be the
case. On the other hand, if the investment performance of the additional
securities purchased fails to cover their cost (including any interest paid on
the money borrowed) to a Fund, then the net income per share or NAV per share of
the Fund's common stock will be less than would otherwise be the case. This is
the speculative factor know as "leverage."
Effects of Leverage. Utilization of leverage, which is usually considered
speculative, involves certain risks to stockholders. These include a higher
volatility of the NAV of the common stock, caused by favorable or adverse
changes in currency exchange rates. In addition, fluctuations in the interest
rates on a Fund's indebtedness will affect the return to stockholders, with
increases in such rates decreasing such return.
To the extent that the current interest rate on a Fund's indebtedness approaches
the net return on the leveraged portion of the Fund's investment portfolio, the
benefit of leverage to stockholders will be reduced, and if the current interest
rate on the indebtedness were to exceed the net return on such portion of the
Funds' portfolio, the Fund's leverage would result in a lower rate of return to
stockholders and in a lower NAV than if a Fund were not leveraged. In an extreme
case, if a Fund's current investment income were not sufficient to meet interest
requirements on the indebtedness or if a Fund failed to maintain the asset
coverage required by the 1940 Act, it could be necessary for the Fund to
liquidated certain of its investments at a time when it may be disadvantageous
to do so, thereby reducing its NAV.
Investments in Foreign Government Securities. Investing in Foreign Government
Securities involves considerations and possible risks not typically associated
with investing in U.S. Government Securities. The value of Foreign Government
Securities investments will be affected by changes in currency rates or exchange
control regulations, application of foreign tax laws, including withholding
taxes, changes in governmental administration or economic or monetary policy (in
this country or abroad) or changed circumstances in dealings between nations.
Costs will be incurred in connections with conversions between various
currencies. Foreign brokerage commissions are generally higher than in the
United States, and foreign securities markets may be less liquid, more volatile
and less subject to governmental supervision than in the United States.
Investments in foreign countries could be affected by other factors not present
in the United States, including expropriation, confiscatory taxation, lack of
uniform accounting and auditing standards, and potential difficulties in
enforcing contractual obligations, and could be subject to extended settlement
periods.
Investments in Lower-Rated Securities. (ACM Income) Securities rated below
investment grade, i.e., Ba and lower by Moody's or BB and lower by S&P
("lower-rated securities"), or, if not rated, determined by the Adviser to be of
equivalent quality, are subject to greater risk of loss of principal and
interest than higher-rated securities and are considered to be predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal, which may in any case decline during sustained periods of
deteriorating economic conditions or rising interest rates. They are also
generally considered to be subject to greater market risk than higher-rated
securities in times of deteriorating economic conditions. In addition,
lower-rated securities may be more susceptible to real or perceived adverse
economic conditions than investment grade securities, although the market values
of securities rated below investment grade and comparable unrated securities
tend to react less to fluctuations in interest rate levels than do those of
higher-rated securities. Securities rated Ba by Moody's or BB by S&P are judged
to have speculative characteristics or to be predominantly speculative with
respect to the issuer's ability to pay interest and repay principal. Securities
rated B by Moody's and S&P are judged to have highly speculative characteristics
or to be predominantly speculative. Such securities may have small assurance of
interest and principal payments.
The market for lower-rated securities may be thinner and less active than that
for higher-rated securities, which can adversely affect the prices at which
these securities can be sold. To the extent that there is no established
secondary market for lower-rated securities, the Fund may experience difficulty
in valuing such securities and, in turn, the Fund's assets.
The Adviser will try to reduce risk inherent in investment in lower-rated
securities through credit analysis, diversification and attention to current
developments and trends in interest rates and economic and political conditions.
However, there can be no assurance that losses will not occur. Since the risk of
default is higher for lower-rated securities, the Adviser's research and credit
analysis are a correspondingly more important aspect of its program for managing
the Fund's securities than would be the case if the Fund did not invest in
lower-rated securities.
In seeking to achieve the Fund's investment objective, there will be times, such
as during periods of rising interest rates, when depreciation and realization of
capital losses on securities in the Fund's portfolio will be unavoidable.
Moreover, medium- and lower-rated securities and non-rated securities of
comparable quality may be subject to wider fluctuations in yield and market
values than higher-rated securities under certain market conditions. Such
fluctuations after a security is acquired do not affect the cash income received
from that security but are reflected in the NAV of the Fund.
Ratings of securities by Moody's and S&P are a generally accepted barometer of
credit risk. They are, however, subject to certain limitations from an
investor's standpoint. The rating of a security is heavily weighted by past
developments and does not necessarily reflect probable future conditions. There
is frequently a lag between the time a rating is assigned and the time it is
updated. In addition, there may be varying degrees of difference in the credit
risk of securities within each rating category. See Appendix A for a description
of Moody's and S&P's bond ratings.
Certain lower-rated securities in which the Fund may invest may contain call or
buy-back features that permit the issuers thereof to call or repurchase such
securities. Such securities may present risks based on prepayment expectations.
If an issuer exercises such a provision, the Fund may have to replace the called
security with a lower yielding security, resulting in a decreased rate of return
to the Fund.
Repurchase of Shares. In recognition of the possibility that a Fund's shares
might trade at a discount to NAV, each Fund's Board has determined that it would
be in the interest of stockholders for the Fund to attempt to reduce or
eliminate such a market value discount should it exist. To that end, each Fund's
Board presently contemplates that a Fund may from time to time take action
either to repurchase in the open market or to make a tender offer for its own
shares at NAV. Each Fund's Board presently intends each quarter to consider the
making of a tender offer. The Boards may at any time, however, decide that a
Fund should not make a tender offer.
Subject to a Fund's fundamental policy with respect to borrowings, the Fund may
incur debt to finance repurchases and/or tender offers. Interest on any such
borrowing will reduce the Fund's net income.
There can be no assurance that repurchases and/or tender offers will result in a
Fund's shares trading at a price equal to their NAV. Each Fund anticipates that
the market price of its shares will from time to time vary from NAV. The market
price of a Fund's shares will, among other things, be affected by the relative
demand for and supply of such shares in the market, the Fund's investment
performance, the Fund's dividends and yield and investor perception of the
Fund's overall attractiveness as an investment as compared with other investment
alternatives. Nevertheless, the fact that a Fund's shares may be the subject of
tender offers at NAV from time to time may reduce the spread that might
otherwise exist between market price and NAV. In the opinion of the Adviser,
sellers may be less inclined to accept a significant discount if they have a
reasonable expectation of being able to recover NAV in conjunction with a
possible tender offer.
Although each Fund's Board believes that share repurchases and tender offers
might, in certain circumstances have a favorable effect an the market price of a
Fund's shares, it should be recognized that the acquisition of shares by the
Fund would decrease the total assets of the Fund and therefore have the effect
of increasing the Fund's expense ratio. Even if a tender offer has been made, it
is a Board's policy, which may be changed by the Board, not to accept tenders or
effect repurchases if (1) such transactions if consummated, would (a) result in
the delisting of the Fund's shares from the New York Stock Exchange ("NYSE")
(the NYSE having advised the Fund that it would consider delisting if the
aggregate market value of the Fund's outstanding shares is less than $5,000,000,
the number of publicly held shares falls below 600,000 or the number of
round-lot holders fall below 1,200), or (b) impair the Fund's status as a
regulated investment company under the Code (which would make the Fund a taxable
entity, causing the Fund's income to be taxed at the corporate level in addition
to the taxation of stockholders who receive dividends from the Fund); (2) the
Fund would not be able to liquidate portfolio securities in an orderly manner
and consistent with the Fund's investment policies and objective in order to
repurchase shares; or (3) there is, in the Board's judgment, any material (a)
legal action or proceeding instituted or threatened challenging such
transactions or otherwise materially adversely affecting the Fund, (b)
suspension of or limitation on prices for trading securities generally on the
NYSE of any foreign exchange on which portfolio securities of the Fund are
traded, (c) declaration of a banking moratorium by federal, state or foreign
authorities or any suspension of payment by banks in the United States, New York
State or foreign countries in which the Fund invests, (d) limitation affecting
the Fund or the issuers of its portfolio securities imposed by federal, state or
foreign authorities on the extension of credit by lending institutions or on the
exchange of foreign currency, (e) commencement of war, armed hostilities or
other international or national calamity directly or indirectly involving the
United States or other countries in which the Fund invests or (f) other event or
condition which would have a material adverse effect on the Fund or its
stockholders if shares were repurchased. A Board may modify these conditions in
light of experience.
Any tender offer made by ACM Income will be at a price equal to the NAV of the
shares on a date subsequent to the Fund's receipt of all tenders. Any tender
offer made by ACM Government Opportunity will be at a price equal to the NAV per
share determined at the close of business on the day the offer terminates. Each
offer will be made and stockholders notified in accordance with the requirements
of the Securities Exchange Act of 1934, as amended and the 1940 Act, either by
publication or mailing or both. Each offering document will contain such
information as is prescribed by such laws and the rules and regulations
promulgated thereunder. When a tender offer is authorized to be made by a Fund's
Board, a stockholder wishing to accept the offer will be required to tender all
(but not less thin all) of the shares owned by such stockholder (or attributed
to the stockholder for federal income tax purposes under Section 318 of the
Code). A Fund will purchase all shares tendered in accordance with the terms of
the offer unless it determines to accept none of them (based upon one of the
conditions set forth above). Each person tendering shares will be required to
submit a check in the amount of $25.00, payable to the Fund, which will be used
to help defray the costs associated with effecting the tender offer. This $25.00
fee will be imposed upon each tendering stockholder any of whose tendered shares
are purchased in the offer, and will be imposed regardless of the number of
shares purchased. A Fund expects the cost to the Fund of effecting a tender
offer will exceed the aggregate of all such fees received from those who tender
offer their shares. Costs associated with the tender offer will be charged
against capital. During the period of the tender offer, a Fund's stockholders
will be able to obtain the Fund's current NAV by use of a toll-free telephone
number.
If a Fund must liquidate portfolio securities in order to purchase Fund shares
tendered, the Fund may realize gains and losses. If the portfolio securities
sold are "Section 998" items, a Fund's distributable net investment income could
be positively or adversely affected. The portfolio turnover rate of a Fund may
or may not be affected by the Fund's repurchase of shares pursuant to a tender
offer.
Possible Future Conversion to Open-End Investment Company. If, during any fiscal
year of a Fund, (i) shares of the Fund's common stock have traded on the
principal securities exchange where listed at an average discount from net asset
value of more than 10%, determined on the basis of the discount as of the end of
the last trading day in each week during the period of 12 calendar weeks
preceding December 31 in such year, and (ii) during such year the Fund receives
written requests from the holders of 10% or more of the Fund's outstanding
shares of common stock that such a proposal be submitted to the Fund's
stockholders, the Fund will submit to its stockholders at the next succeeding
annual meeting of stockholders a proposal, to the extent consistent with the
1940 Act, to amend the Fund's Charter. Such amendment would provide that, upon
its adoption by the holders of 66 2/3% of a Fund's outstanding shares of common
stock, the Fund will convert from a closed-end to an open-end investment
company. The 66 2/3% vote requirement is higher than the minimum vote required
under the 1940 Act. If a Fund converted to an open-end investment company, it
would be able to continuously issue and offer shares of its common stock and
each outstanding share of the Fund's common stock could be presented to the Fund
at the option of the holder thereof for redemption at net asset value per share.
In such event, a Fund might be required to liquidate portfolio securities to
meet requests for redemption, and its shares would no longer be listed on the
NYSE.
A Fund cannot predict whether any repurchase of shares made while the Fund is a
closed-end investment company (as described under "Repurchase of Shares" above)
would increase or decrease the discount from NAV. To the extent that any such
repurchase decreased the discount from NAV to below 10% during the measurement
period described in (i) above, the Fund would not be required to submit to
stockholders a proposal to convert the Fund to an open-end investment company at
the next annual meeting of stockholders.
MANAGEMENT OF THE FUNDS
Directors and Officers
The Directors and principal officers of a Fund and their principal occupations
during the past five years are set forth below. Unless otherwise specified, the
address of each such person is 1345 Avenue of the Americas, New York, NY 10105.
Each Director and officers is affiliated as such with one or more of the other
registered investment companies sponsored by the Adviser.
Directors
---------
Fund Principal Occupation During
Name, Address and First Year the Past Five Years and Other
Date of Birth Elected Office Affiliations
------------- ------- ------ ------------
Marc O. Mayer* 2003 President Executive Vice President of the
1345 Avenue of the Americas Adviser since 2001 and Executive
New York, NY 10105 Managing Director of
10/2/57 AllianceBernstein Investments, Inc.
("ABI") since 2003; prior thereto, he
was head of AllianceBernstein
Institutional Investments, a unit of
the Adviser, from 2001-2003; prior
thereto, Chief Executive Officer of
Sanford C. Bernstein & Co., LLC
(institutional research and brokerage
arm of Bernstein & Co. LLC ("SCB &
Co.")) and its predecessor since
prior to 2001. He is a Director of
SCB Partners, Inc. and SCB, Inc.
William H. Foulk, Jr., +** 1988 Chairman Investment Adviser and an independent
P.O. Box 5060 Director consultant. He was formerly Senior
Greenwich, CT 06831-0505 Manager of Barrett Associates, Inc.,
9/7/32 a registered investment adviser, with
which he had been associated since
prior to 2001. He was formerly
Deputy Comptroller and Chief
Investment Officer of the State of
New York and, prior thereto, Chief
Investment Officer of the New York
Bank for Savings.
David H. Dievler, + ACM Income - Director Independent Consultant. Until
P.O. Box 167 1987 December 1994, he was Senior Vice
Spring Lake, NJ 07762 ACM Government President of Alliance Capital
10/23/29 Opportunity - Management Corporation ("ACMC")
1988 responsible 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 the American Institute
of Certified Public Accountants since
1953.
John H. Dobkin, + 1988 Director Consultant. Formerly President of
P.O. Box 12 Save Venice, Inc. (preservation
Annandale, NY 12504 organization) from 2001 - 2002, a
2/19/42 Senior Advisor from June 1999 - June
2000 and President of Historic Hudson
Valley (historic preservation) from
December 1989 - May 1999. Previously,
Director of the National Academy of
Design and during 1988 - 1992,
Director and Chairman of the Audit
Committee of ACMC.
Michael J. Downey, + 2005 Director Consultant since January 2004.
c/o AllianceBernstein L.P. Formerly managing partner of
Attention: Philip L. Kirstein Lexington Capital, LLC (investment
1345 Avenue of the Americas advisory firm) from December 1997
New York, NY 10105 until December 2003. Prior thereto,
1/26/44 Chairman and CEO of Prudential Mutual
Fund Management from 1987 to 1993.
Director of Asia Pacific Fund, Inc.
and The Merger Fund.
D. James Guzy, + 2005 Director Chairman of the Board of PLX
P.O. Box 128 Technology (semi-conductors) and of
Glenbrook, NV 89413 SRC Computers Inc., with which he has
3/7/36 been associated since prior to 2001.
He is also President of the Arbor
Company (private family
investments). He is a director of
Intel Corporation (semi-conductors),
Cirrus Logic Corporation
(semi-conductors), and the Davis
Selected Advisors Group of Mutual
Funds.
Nancy P. Jacklin, + 2006 Director Formerly, U.S. Executive Director of
4046 Chancery Court, NW the International Monetary Fund
Washington, DC 20007 (December 2002-May 2006); partner,
5/22/48 Clifford Chance (1992-2002); Senior
Counsel, International Banking and
Finance, and Associate General
Counsel, Citicorp (1985-1992);
Assistant General Counsel
(International), Federal Reserve
Board of Governors (1982-1985); and
Attorney Advisor, U.S. Department of
the Treasury (1973-1982). Member of
the Bar of the District of Columbia
and of New York; member of the
Council on Foreign Relations.
Marshall C. Turner, Jr., + 2005 Director Principal of Turner Venture
220 Montgomery Street Associates since before 2001. From
Penthouse 10 2003 until May 31, 2006, he was CEO
San Francisco, CA of Toppan Photomasks, Inc., Austin,
94104-3402 Texas. (Semi-conductor manufacturing
10/10/41 services). He is also a director of
the George Lucas Educational
Foundation and National Datacast, Inc.
* "Interested person" as defined in the Investment Company Act of 1940, as
amended, of each Fund because of an affiliation with each Fund's investment
adviser, AllianceBernstein L.P.
+ Member of the Audit Committee, the Governance and Nominating Committee and
the Independent Directors Committee.
** Member of the Fair Value Pricing Committee.
During a Fund's fiscal year ended in 2005, the Board of ACM Income met 10 times
and the Board of ACM Government Opportunity met 9 times. The Funds do not have a
policy that requires a Director to attend annual meetings of stockholders.
Each Fund's Board has four standing committees: an Audit Committee, a Governance
and Nominating Committee, an Independent Directors Committee, and a Fair Value
Pricing Committee. The members of the Committees are identified above in the
table listing the Directors. The function of the Audit Committee of each Fund is
to assist the Board in its oversight of a Fund's financial reporting process.
The members of the Audit Committee are "independent" as required by applicable
listing standards of the New York Stock Exchange. During a Fund's fiscal year
ended in 2005, the Audit Committee of each of the Funds met 3 times. During a
Fund's fiscal year ended in 2005, the Governance and Nominating Committee of ACM
Income met 7 times and of ACM Government Opportunity met 6 times.
Each Fund's Board of Directors has adopted a charter for its Governance and
Nominating Committee, a copy of which may be found on the Adviser's website,
http://www.alliancebernstein.com (click on Investor Solutions/Mutual
Funds/Closed-End). Pursuant to the charter of the Governance and Nominating
Committee, the Governance and Nominating Committee assists each Board in
carrying out its responsibilities with respect to governance of a Fund and
identifies, evaluates and selects and nominates candidates for that Board.
The Committee also may set standards or qualifications for Directors. The
Committee may consider candidates as Directors submitted by a Fund's current
Board members, officers, investment adviser, stockholders and other appropriate
sources.
The Governance and Nominating Committee will consider candidates submitted by a
stockholder or group of stockholders who have owned at least 5% of the Fund's
outstanding common stock for at least two years at the time of submission and
who timely provide specified information about the candidates and the nominating
stockholder or group. To be timely for consideration by the Committee, the
submission, including all required information, must be submitted in writing to
the attention of the Secretary at the principal executive offices of a Fund not
less than 120 days before the date of the proxy statement for the previous
year's annual meeting of stockholders. The Committee will consider only one
candidate submitted by such a stockholder or group for nomination for election
at an annual meeting of stockholders. The Committee will not consider
self-nominated candidates.
The Governance and Nominating Committee will consider and evaluate candidates
submitted by stockholders on the basis of the same criteria as those used to
consider and evaluate candidates submitted from other sources. These criteria
include the candidate's relevant knowledge, experience, and expertise, the
candidate's ability to carry out his or her duties in the best interests of a
Fund and the candidate's ability to qualify as a disinterested Director.
The function of each Fund's Fair Value Pricing Committee is to consider, in
advance if possible, any fair valuation decision of the Adviser's Valuation
Committee relating to a security held by a Fund made under unique or highly
unusual circumstances not previously addressed by the Valuation Committee that
would result in a change in the Fund's net asset value ("NAV") by more than
$0.01 per share. The Fair Value Pricing Committee did not meet during a Fund's
most recently completed fiscal year.
The function of each Fund's Independent Directors Committee is to consider and
take action on matters that the Board or Committee believes should be addressed
in executive session of the disinterested Directors, such as review and approval
of the Advisory Agreements. During a Fund's fiscal year ended in 2005, the
Independent Directors Committee of ACM Income met 11 times and of ACM Government
Opportunity met 6 times.
Officers
--------
Name, Address* and Principal Occupation During the Past Five
Date of Birth Office Years and Other Affiliations
------------- ------ -----------------------------------------
Marc O. Mayer President and See biography above.
10/2/57 Chief
Executive
Officer
Philip L. Kirstein Senior Vice Senior Vice President and Independent
5/29/45 President and Compliance Officer of the
Independent AllianceBernstein Funds, with which he has
Compliance been associated since October 2004. Prior
Officer thereto, he was Of Counsel to Kirkpatrick
& Lockhart, LLP from October 2003 to
October 2004, and General Counsel of
Merrill Lynch Investment Managers, L.P.
since prior to 2001 until March 2003.
Andrew M. Aran Vice President Senior Vice President of the Adviser**,
4/24/57 with which he has been associated since
prior to 2001.
Paul J. DeNoon Vice President Senior Vice President of the Adviser**,
4/18/62 with which he has been associated since
prior to 2001.
Gershon Distenfeld Vice President Vice President of the Adviser**, with
12/30/75 which he has been associated since prior
to 2001.
Michael L. Mon Vice President Senior Vice President of the Adivser**,
3/2/69 with which has been associated since prior
to 2001.
Douglas J. Peebles Vice President Executive Vice President of the Adviser**,
8/10/65 with which he has been associated since
prior to 2001.
Kewjin Yuoh Vice President Vice President of the Adviser** since
3/11/71 March 2003. Prior thereto, he was a Vice
President of Credit Suisse Asset
Management since prior to 2001.
Emilie D. Wrapp Secretary Senior Vice President, Assistant General
11/13/55 Counsel and Assistant Secretary of ABI**,
with which she has been associated since
prior to 2001.
Joseph J. Mantineo Treasurer and Senior Vice President of ABIS**, with
3/28/50 Chief which he has been associated since prior
Financial to 2001.
Officer
Vincent S. Noto Controller Vice President of ABIS**, with which he
12/14/64 has been associated since prior to 2001.
--------------------
* The address for each of the Funds' officers is 1345 Avenue of the Americas,
New York, NY 10105.
** The Adviser, ABI and ABIS are affiliates of the Fund.
A Fund does not pay any fees to, or reimburse expenses of, any Director during a
time when such Director is considered an "interested person" of the Fund, as
defined by the 1940 Act. The aggregate compensation paid by each Fund to each of
its Directors during it respective fiscal year ended in 2005, the aggregate
compensation paid to each of the Directors during calendar year 2005 by all of
the investment companies in the AllianceBernstein Fund Complex, and the total
number of investment companies (and separate investment portfolios within those
companies) in the AllianceBernstein Fund Complex with respect to which each of
the Directors serves as a director or trustee, are set forth below. Neither the
Funds nor any other investment company in the AllianceBernstein Fund Complex
provides compensation in the form of pension or retirement benefits to any of
its directors or trustees.
Total Total
Number of Number of
Investment Investment
Total Companies Portfolios
Compensation in the within the
from the Alliance- Alliance-
Alliance- Bernstein Bernstein
Bernstein Fund Fund
Aggregate Fund Complex, Complex,
Compensation Complex, Including Including
from Each Including the Funds, the Funds,
Fund During the Funds, as to which as to which
its Fiscal During the Director the Director
Year Ended Calendar is a Director is a Director
Name of Director in 2005 Year 2005 or a Trustee or a Trustee
---------------- ------- --------- ------------ ------------
Marc O. Mayer $ 0 $ 0 41 111
ACM Income
$ 0
ACM Government
Opportunity
William H. Foulk, Jr. $ 8,113 $487,625 43 113
ACM Income
$ 7,464
ACM Government
Opportunity
David H. Dievler $ 4,724 $269,125 42 112
ACM Income
$ 4,631
ACM Government
Opportunity
John H. Dobkin $ 5,365 $263,125 41 111
ACM Income
$ 4,805
ACM Government
Opportunity
Michael J. Downey $ 4,797 $240,625 41 111
ACM Income
$ 2,228
ACM Government
Opportunity
D. James Guzy* $ 0 $ 32,000 41 111
ACM Income
$ 0
ACM Government
Opportunity
Nancy P. Jacklin* $ 0 $ 0 41 111
ACM Income
$ 0
ACM Government
Opportunity
Marshall C. Turner, Jr.* $ 0 $28,500 41 111
ACM Income
$ 0
ACM Government
* Messrs. Guzy and Turner did not become Directors for the Funds until
December 15, 2005 and were directors for only one fund in the
AllianceBernstein Fund Complex prior to November 15, 2005. Ms. Jacklin did
not become a Director for the Funds until June 14, 2006.
As of January 27, 2006, each of the Directors of each Fund owned less than 1% of
the shares of such Fund and the Directors and officers of each Fund as a group
owned less than 1% of the shares of each such Fund. During each Fund's most
recently completed fiscal year, none of the Funds' Directors engaged in a
purchase or sale of the securities of the Adviser or any of its parents or
subsidiaries in an amount exceeding 1% of the relevant class of securities.
The dollar range of the Funds' securities owned by each Director and the
aggregate dollar range of securities owned in the AllianceBernstein Fund Complex
are set forth below.
Aggregate Dollar
Range of Equity
Securities in the
Funds in the
AllianceBernstein
Fund Complex
Dollar Range of Equity Securities as of
Name of Director in a Fund as of January 27, 2006 January 27, 2006
---------------- -------------------------------- ----------------
Marc O. Mayer None over $100,000
William H. Foulk, Jr. $10,001-$50,000 ACM Income over $100,000
$1-$10,000 ACM Government Opportunity
David H. Dievler $10,001-$50,000 ACM Income over $100,000
$1-$10,000 ACM Government Opportunity
John H. Dobkin None over $100,000
Michael J. Downey $50,001-$100,000 ACM Income over $100,000
None ACM Government Opportunity
D. James Guzy* None $50,000 - $100,000
Nancy P. Jacklin* None $0
Marshall C. Turner, Jr.* None over $100,000
* Messrs. Guzy and Turner did not become Directors for the Funds until
December 15, 2005 and were directors for only one fund in the
AllianceBernstein Fund Complex prior to November 15, 2005. Ms. Jacklin did
not become a Director for the Funds until June 14, 2006.
Each Fund, the Adviser and each Fund's principal underwriter have adopted a Code
of Ethics under Rule 17j-1 of the 1940 Act. These Codes do permit personnel
subject to the Codes to invest in securities, including securities that may be
purchased or held by the Fund. These Codes may be reviewed and copied at the
SEC's Public Reference Room in Washington, DC. For information on the operation
of the Public Reference Room call the SEC at 1-202-551-8090. In addition, these
Codes are available on the SEC's Internet site at http://www.sec.gov or upon
request (for a duplicating fee) at the following E-mail address:
publicinfo@sec.gov or by writing the SEC's Public Reference Section, Washington,
DC 20549-0102
Adviser
The Funds' investment adviser, AllianceBernstein L.P. (the "Adviser"), 1345
Avenue of the Americas, New York, NY 10105, is a leading international
investment adviser managing client accounts with assets as of June 30, 2006
totaling more than $625 billion (of which more than $88 billion represented the
assets of investment companies). As of June 30, 2006, the Adviser managed
retirement assets for many of the largest public and private employee benefit
plans (including 41 of the nations' FORTUNE 100 companies), for public employee
retirement funds in 37 states, for investment companies, and for foundations,
endowments, banks and insurance companies worldwide. The 45 registered
investment companies managed by the Adviser, comprising 126 separate investment
portfolios, currently have approximately 4.0 million stockholder accounts.
The Adviser is a registered investment adviser under the Investment Advisers Act
of 1940, as amended. As of June 30, 2006, AllianceBernstein Holding, L.P.
("Holding"), a Delaware limited partnership, owned approximately 32.7% of the
issued and outstanding units of limited partnership interest in the Adviser
("AllianceBernstein Units"). Units representing assignments of beneficial
ownership of limited partnership interests in Holding ("Holding Units") trade
publicly on the Exchange under the ticker symbol "AB". AllianceBernstein Units
do not trade publicly and are subject to significant restrictions on transfer.
AllianceBernstein Corporation ("AB Corp.") is the general partner of both the
Adviser and Holding. AB Corp. owns 100,000 general partnership units in Holding
and a 1% general partnership interest in the Adviser. AB Corp. is an indirect
wholly-owned subsidiary of AXA Financial, Inc. ("AXA Financial"), a Delaware
corporation.
As of June 30, 2006, AXA, AXA Financial, AXA Equitable Life Insurance Company
("AXA Equitable") and certain subsidiaries of AXA Equitable beneficially owned
approximately 59.6% of the issued and outstanding Alliance Units and
approximately 1.7% of the issued and outstanding Holding Units that, including
the general partnership interests in the Adviser and Holding, represent an
economic interest of approximately 60.6% in the Adviser. As of June 30, 2006,
SCB Partners Inc., a wholly-owned subsidiary of SCB, Inc., beneficially owned
approximately 6.3% of the issued and outstanding AllianceBernstein Units.
AXA, a French company, is the holding company for an international group of
companies and a worldwide leader in financial protection and wealth management.
AXA operates primarily in Western Europe, North America and the Asia/Pacific
region and, to a lesser extent, in other regions including the Middle East,
Africa and South America. AXA has five operating business segments: life and
savings, property and casualty insurance, international insurance (including
reinsurance), asset management and other financial services. AXA Financial is a
wholly-owned subsidiary of AXA. AXA Equitable is an indirect wholly-owned
subsidiary of AXA Financial.
The Advisory Agreements for ACM Income, and ACM Government Opportunity became
effective on April 21, 1988 and August 25, 1988. Each Fund's Advisory Agreement
was approved by the vote, cast in person, of the Fund's Directors including the
Directors who are not parties to the Advisory Agreement or interested persons as
defined in the 1940 Act, of any such party, at a meeting called and held for
that purpose.
The Adviser provides investment advisory services and order placement facilities
for each of the Fund's and pays all compensation of Directors and officers of
the Fund who are affiliated persons of the Adviser. The Adviser or its
affiliates also furnish a Fund, without charge, management supervision and
assistance and office facilities and provide persons satisfactory to a Fund's
Board to serve as the Fund's officers. Each Fund has, under the Advisory
Agreement, assumed obligation to pay for all other expenses. As to the obtaining
of services other than those specifically provided to a Fund by the Adviser, the
Fund may employ its own personnel. For such services, the Fund may also utilize
personnel employed by the Adviser or its affiliates and, in such event, the
services will be provided to the Fund at cost and the payments therefore must be
specifically approved by the Fund's Board.
Under their Advisory Agreements, the Funds pay the Adviser the following
management fees:
ACM Income: the Fund pays the Adviser a monthly advisory fee in an amount
equal to the sum of 1/12th of .30 of 1% of the Fund's average weekly net
assets up to $250 million, 1/12th of .25 of 1% of the Fund's average weekly
net assets in excess of $250 million, and, 4.75% of the Fund's daily gross
income (i.e., income other than gains from the sale of securities and
foreign currency transactions or gains realized from options and futures
contracts less interest on money borrowed by the Fund) accrued by the Fund
during the month (the "Income Component"). The monthly advisory fee shall
not exceed in the aggregate 1/12th of .95% of the Fund's average weekly net
assets during each respective month (approximately .95% on an annual
basis).
ACM Government Opportunity: the Fund pays the Adviser a monthly advisory
fee equal to .0625% of the Fund's average weekly net assets during the
month (equal to an annual fee of approximately .75% of the average weekly
net assets). Such fee is accrued daily and paid monthly.
For the fiscal years ended December 31, 2005, 2004 and 2003, ACM Income paid
advisory fees to the Adviser that, in the aggregate, amounted to $12,868,827,
$14,791,745 and $15,753,531, respectively. For the fiscal year ended July 31,
2005, 2004 and 2003, ACM Government Opportunity paid advisory fees to the
Adviser that, in the aggregate, amounted to $824,374, $827,555 and $809,457,
respectively.
For purposes of the calculation of the fee payable to the Adviser, average
weekly net assets are determined on the basis of the average net assets of a
Fund for each weekly period (ending on Fridays) ending during the month. The net
assets for each weekly period are determined by averaging the net assets on
Friday of such weekly period with the net assets on Friday of the immediately
preceding weekly period. When a Friday is not a Fund business day, then the
calculation will be based on the net assets of a Fund on the Fund business day
immediately preceding such Friday. This advisory fee may be greater than that
paid by most funds. In addition to payments to the Adviser under the Advisory
Agreement, the Fund pays certain other costs.
As to the obtaining of services other than those specifically provided to a Fund
by the Adviser, a Fund may employ its own personnel. For such services, it also
may utilize personnel employed by the Adviser or by other subsidiaries of
Equitable. In such event, the services will be provided to a Fund at cost and
the payments specifically approved by the Fund's Board.
Each Fund's Advisory Agreement is terminable with respect to that Fund without
penalty on 60 days written notice by a vote of a majority of the outstanding
voting securities of such Fund or by a vote of a majority of the Fund's
Directors, or by the Adviser on 60 days written notice, and will automatically
terminate in the event of its assignment. Each Fund's Advisory Agreement
provides that in the absence of willful misfeasance, bad faith or gross
negligence on the part of the Adviser, or of reckless disregard of its
obligations thereunder, the Adviser shall not be liable for any action or
failure to act in accordance with its duties thereunder.
The Advisory Agreements for the Funds continue in effect, provided that such
continuance is specifically approved at least annually by a vote of a majority
of the Fund's outstanding voting securities or by the Fund's Board, including in
either case approval by a majority of the Directors who are not parties to the
Advisory Agreement or interested persons of such parties as defined by the 1940
Act. Most recently, continuance of the Advisory Agreement of each Fund was
approved by the Board, including a majority of the Directors who are not parties
to the Advisory Agreements or interested persons of any such party, at a Meeting
held on December 14, 2005.
Portfolio Managers
The dollar ranges of ACM Income's equity securities owned directly or
beneficially by the Fund's portfolio managers as of December 31, 2005 are set
forth below.
DOLLAR RANGE OF EQUITY SECURITIES IN ACM INCOME
Andrew M. Aran $0
Paul J. DeNoon $0
Gershon Distenfeld $0
Douglas J. Peebles $0
Kewjin Yuoh $0
ACM Income
----------
The following tables provide information regarding registered investment
companies other than the Fund, other pooled investment vehicles and other
accounts over which the Fund's portfolio managers also have day-to-day
management responsibilities. The tables provide the numbers of such accounts,
the total assets in such accounts and the number of accounts and total assets
whose fees are based on performance. The information is provided as of the
Fund's fiscal year ended December 31, 2005.
REGISTERED INVESTMENT COMPANIES
(excluding ACM Income)
Total
Number of Assets of
Registered Registered
Investment Investment
Total Number Total Assets Companies Companies
of Registered of Registered Managed Managed
Investment Investment with with
Companies Companies Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
----------------- ------- ------- ---------- ----------
Andrew M. Aran 1 118,855,462 None None
Paul J. DeNoon 8 3,310,093,819 None None
Gershon Distenfeld 3 179,831,060 None None
Douglas J. Peebles 2 758,722,802 None None
Kewjin Yuoh 3 1,636,205,821 None None
POOLED INVESTMENT VEHICLES
Total
Number Assets
of Pooled of Pooled
Total Total Investment Investment
Number Assets Vehicles Vehicles
of Pooled of Pooled Managed Managed
Investment Investment with with
Vehicles Vehicles Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
----------------- ------- ------- ---------- ----------
Andrew M. Aran None None None None
Paul J. DeNoon 4 7,282,230,675 None None
Gershon Distenfeld 5 2,299,529,494 None None
Douglas J. Peebles 3 829,324,752 None None
Kewjin Yuoh None None None None
OTHER ACCOUNTS
Total
Number of Assets
Other of Other
Total Total Accounts Accounts
Number Assets Managed Managed
of Other of Other with with
Accounts Accounts Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
----------------- ------- ------- ---------- ----------
Andrew M. Aran 2 188,111,810 2 188,111,810
Paul J. DeNoon None None None None
Gershon Distenfeld None None None None
Douglas J. Peebles 1 42,911,309 None None
Kewjin Yuoh 8 1,044,424,636 1 515,977,908
Investment Professional Conflict of Interest Disclosure
-------------------------------------------------------
As an investment adviser and fiduciary, the Adviser owes its clients and
stockholders an undivided duty of loyalty. We recognize that conflicts of
interest are inherent in our business and accordingly have developed policies
and procedures (including oversight monitoring) reasonably designed to detect,
manage and mitigate the effects of actual or potential conflicts of interest in
the area of employee personal trading, managing multiple accounts for multiple
clients, including AllianceBernstein Mutual Funds, and allocating investment
opportunities. Investment professionals, including portfolio managers and
research analysts, are subject to the above-mentioned policies and oversight
monitoring to ensure that all clients are treated equitably. We place the
interests of our clients first and expect all of our employees to meet their
fiduciary duties.
Employee Personal Trading. The Adviser has adopted a Code of Business
Conduct and Ethics that is designed to detect and prevent conflicts of interest
when investment professionals and other personnel of the Adviser own, buy or
sell securities which may be owned by, or bought or sold for, clients. Personal
securities transactions by an employee may raise a potential conflict of
interest when an employee owns or trades in a security that is owned or
considered for purchase or sale by a client, or recommended for purchase or sale
by an employee to a client. Subject to the reporting requirements and other
limitations of its Code of Business Conduct and Ethics, the Adviser permits its
employees to engage in personal securities transactions, and also allows them to
acquire investments in the AllianceBernstein Mutual Funds through direct
purchase, 401K/profit sharing plan investment and/or notionally in connection
with deferred incentive compensation awards. The Adviser's Code of Ethics and
Business Conduct requires disclosure of all personal accounts and maintenance of
brokerage accounts with designated broker-dealers approved by the Adviser. The
Code also requires preclearance of all securities transactions and imposes a
one-year holding period for securities purchased by employees to discourage
short-term trading.
Managing Multiple Accounts for Multiple Clients. The Adviser has compliance
policies and oversight monitoring in place to address conflicts of interest
relating to the management of multiple accounts for multiple clients. Conflicts
of interest may arise when an investment professional has responsibilities for
the investments of more than one account because the investment professional may
be unable to devote equal time and attention to each account. The investment
professional or investment professional teams for each client may have
responsibilities for managing all or a portion of the investments of multiple
accounts with a common investment strategy, including other registered
investment companies, unregistered investment vehicles, such as hedge funds,
pension plans, separate accounts, collective trusts and charitable foundations.
Among other things, the Adviser's policies and procedures provide for the prompt
dissemination to investment professionals of initial or changed investment
recommendations by analysts so that investment professionals are better able to
develop investment strategies for all accounts they manage. In addition,
investment decisions by investment professionals are reviewed for the purpose of
maintaining uniformity among similar accounts and ensuring that accounts are
treated equitably. No investment professional that manages client accounts
carrying performance fees is compensated directly or specifically for the
performance of those accounts. Investment professional compensation reflects a
broad contribution in multiple dimensions to long-term investment success for
our clients and is not tied specifically to the performance of any particular
client's account, nor is it directly tied to the level or change in level of
assets under management.
Allocating Investment Opportunities. The Adviser has policies and
procedures intended to address conflicts of interest relating to the allocation
of investment opportunities. These policies and procedures are designed to
ensure that information relevant to investment decisions is disseminated
promptly within its portfolio management teams and investment opportunities are
allocated equitably among different clients. The investment professionals at the
Adviser routinely are required to select and allocate investment opportunities
among accounts. Portfolio holdings, position sizes, and industry and sector
exposures tend to be similar across similar accounts, which minimizes the
potential for conflicts of interest relating to the allocation of investment
opportunities. Nevertheless, investment opportunities may be allocated
differently among accounts due to the particular characteristics of an account,
such as size of the account, cash position, tax status, risk tolerance and
investment restrictions or for other reasons.
The Adviser's procedures are also designed to prevent potential conflicts of
interest that may arise when the Adviser has a particular financial incentive,
such as a performance-based management fee, relating to an account. An
investment professional may perceive that he or she has an incentive to devote
more time to developing and analyzing investment strategies and opportunities or
allocating securities preferentially to accounts for which the Adviser could
share in investment gains.
To address these conflicts of interest, the Adviser's policies and procedures
require, among other things, the prompt dissemination to investment
professionals of any initial or changed investment recommendations by analysts;
the aggregation of orders to facilitate best execution for all accounts; price
averaging for all aggregated orders; objective allocation for limited investment
opportunities (e.g., on a rotational basis) to ensure fair and equitable
allocation among accounts; and limitations on short sales of securities. These
procedures also require documentation and review of justifications for any
decisions to make investments only for select accounts or in a manner
disproportionate to the size of the account.
Portfolio Manager Compensation
The Adviser's compensation program for investment professionals is designed to
be competitive and effective in order to attract and retain the highest caliber
employees. The compensation program for investment professionals is designed to
reflect their ability to generate long-term investment success for our clients,
including stockholders of the AllianceBernstein Mutual Funds. Investment
professionals do not receive any direct compensation based upon the investment
returns of any individual client account, nor is compensation tied directly to
the level or change in level of assets under management. Investment
professionals' annual compensation is comprised of the following:
(i) Fixed base salary: This is generally the smallest portion of
compensation. The base salary is a relatively low, fixed salary within a similar
range for all investment professionals. The base salary is determined at the
outset of employment based on level of experience, does not change significantly
from year-to-year and hence, is not particularly sensitive to performance.
(ii) Discretionary incentive compensation in the form of an annual cash
bonus: The Adviser's overall profitability determines the total amount of
incentive compensation available to investment professionals. This portion of
compensation is determined subjectively based on qualitative and quantitative
factors. In evaluating this component of an investment professional's
compensation, the Adviser considers the contribution to his/her team or
discipline as it relates to that team's overall contribution to the long-term
investment success, business results and strategy of the Adviser. Quantitative
factors considered include, among other things, relative investment performance
(e.g., by comparison to competitor or peer group funds or similar styles of
investments, and appropriate, broad-based or specific market indices), and
consistency of performance. There are no specific formulas used to determine
this part of an investment professional's compensation and the compensation is
not tied to any pre-determined or specified level of performance. The Adviser
also considers qualitative factors such as the complexity and risk of investment
strategies involved in the style or type of assets managed by the investment
professional; success of marketing/business development efforts and client
servicing; seniority/length of service with the firm; management and supervisory
responsibilities; and fulfillment of the Adviser's leadership criteria.
(iii) Discretionary incentive compensation in the form of awards under the
Adviser's Partners Compensation Plan ("deferred awards"): the Adviser's overall
profitability determines the total amount of deferred awards available to
investment professionals. The deferred awards are allocated among investment
professionals based on criteria similar to those used to determine the annual
cash bonus. There is no fixed formula for determining these amounts. Deferred
awards, for which there are various investment options, vest over a four-year
period and are generally forfeited if the employee resigns or the Adviser
terminates his/her employment. Investment options under the deferred awards plan
include many of the same AllianceBernstein Mutual Funds offered to mutual fund
investors, thereby creating a close alignment between the financial interests of
the investment professionals and those of the Adviser's clients and mutual fund
stockholders with respect to the performance of those mutual funds. The Adviser
also permits deferred award recipients to allocate up to 50% of their award to
investments in the Adviser's publicly traded equity securities.(1)
-------------------
(1) Prior to 2002, investment professional compensation also included
discretionary long-term incentive in the form of restricted grants of
Alliance Capital's Master Limited Partnership Units.
(iv) Contributions under the Adviser's Profit Sharing/401(k) Plan: The
contributions are based on the Adviser's overall profitability. The amount and
allocation of the contributions are determined at the sole discretion of
Adviser.
The Adviser may act as an investment adviser to other persons, firms or
corporations, including investment companies, and is investment adviser to
AllianceBernstein Balanced Shares, Inc., AllianceBernstein Blended Style Series,
Inc., AllianceBernstein Bond Fund, Inc., AllianceBernstein Cap Fund, Inc.,
AllianceBernstein Emerging Market Debt Fund, Inc., AllianceBernstein Exchange
Reserves, AllianceBernstein Fixed-Income Shares, Inc., AllianceBernstein Focused
Growth & Income Fund, Inc., AllianceBernstein Global Government Income Trust,
Inc., AllianceBernstein Global Health Care Fund, Inc., AllianceBernstein Global
Research Growth Fund, Inc., AllianceBernstein Global Strategic Income Trust,
Inc., AllianceBernstein Global Technology Fund, Inc., AllianceBernstein Greater
China '97 Fund, Inc., AllianceBernstein Growth and Income Fund, Inc.,
AllianceBernstein High Yield Fund, Inc., AllianceBernstein Institutional Funds,
Inc., AllianceBernstein International Growth Fund, Inc., AllianceBernstein
International Research Growth Fund, Inc., AllianceBernstein LargeCap Growth
Fund, Inc., AllianceBernstein Mid-Cap Growth Fund, Inc., AllianceBernstein
Municipal Income Fund, Inc., AllianceBernstein Municipal Income Fund II,
AllianceBernstein Real Estate Investment Fund, Inc., AllianceBernstein Short
Duration Portfolio, AllianceBernstein Tax-Managed International Portfolio,
AllianceBernstein Trust, AllianceBernstein Utility Income Fund, Inc.,
AllianceBernstein Variable Products Series Fund, Inc., Sanford C. Bernstein Fund
II, Inc., The AllianceBernstein Pooling Portfolios and The AllianceBernstein
Portfolios, all registered open-end investment companies; and to ACM Government
Opportunity Fund, Inc., ACM Income Fund, Inc., ACM Managed Dollar Income Fund,
Inc., ACM Managed Income Fund, Inc., ACM Municipal Securities Income Fund, Inc.,
Alliance All-Market Advantage Fund, Inc., Alliance California Municipal Income
Fund, Inc., Alliance National Municipal Income Fund, Inc., Alliance New York
Municipal Income Fund, Inc., Alliance World Dollar Government Fund, Inc.,
Alliance World Dollar Government Fund II, Inc. and The Spain Fund, Inc., all
registered closed-end investment companies.
Administrator
Under administration agreements, Princeton Administrators, L.P., a limited
partnership with principal offices in Princeton, N.J. serves as administrator
for ACM Income. The Adviser serves as administrator for ACM Government
Opportunity. Under the administrative agreements, Princeton Administrators, L.P.
and the Adviser perform standard administrative services for the Funds.
Under the administration agreements, the Funds pay the fees set forth
below:
ACM Income: The Fund pays a fee at the annual rate of .02 of 1% of the
Fund's average weekly net assets. Such fee is accrued daily and paid
monthly.
ACM Government Opportunity: The Fund pays an administrative fee at an
annual rate of .15% of the Fund's average weekly net assets. Such fee is
accrued daily and paid monthly. Currently, the Adviser has voluntarily
agreed to waive a portion of its administrative fees so as to charge the
Fund at a reduced annual rate of .05% of the Fund's average weekly net
assets.
For the fiscal years ended December 31, 2005, 2004 and 2003, ACM Income paid
administrative fees to Princeton Administrators, L.P. that, in the aggregate,
amounted to $376,793, $1,603,136 and $2,845,210, respectively. For the fiscal
years ended July 31, 2005, 2004 and 2003, ACM Government Opportunity paid
administrative fees to the Adviser that, in the aggregate, amounted to $164,875,
$165,511 and $161,892, respectively.
Stockholder Servicing
AllianceBernstein Investor Services, Inc. ("ABIS"), an affiliate of the Adviser,
provides stockholder services for the Funds. The Funds reimburse ABIS for these
services. For these services and for the fiscal years ended December 31, 2005,
2004 and 2003 ACM Income paid ABIS $9,660, $7,850 and $13,060, respectively. For
these services and for its fiscal years ended July 31, 2005, 2004 and 2003 ACM
Government Opportunity paid ABIS $445, $360 and $3,710, respectively.
Custodian and Transfer Agent
State Street Bank and Trust Company ("State Street"), 225 Franklin Street,
Boston, MA 02110, serves as custodian for ACM Income. Bank of New York, One Wall
Street, New York, NY 10286 serves as the custodian for ACM Government
Opportunity. Equiserve Trust Company, N.A ("Equiserve") serves as the transfer
agent for ACM Income. Computershare Trust Company, N.A. ("Computershare"), P.O.
Box 43010, Providence, RI 02940-3010 serves as the transfer agent for ACM
Opportunity.
For these services and for the fiscal years ended December 31, 2005, 2004 and
2003. ACM Income paid State Street $543,446, $566,993 and $580,491,
respectively; and paid and Equiserve $324,137, $401,260 and $375,095,
respectively. For these services and for the fiscal years ended July 31, 2005,
2004 and 2003, ACM Opportunity, paid Bank of New York $187,777, $157,660 and
$175,687, respectively; and paid and Computershare $56,677, $48,545 and $53,488,
respectively.
VALUATION OF PORTFOLIO SECURITIES
Each Fund calculates and makes available for weekly publication the NAV of its
shares of common stock. The NAV per share of a Fund's common stock is determined
as of the close of trading on the NYSE each Friday or, when Friday is not a Fund
business day, on the immediately preceding Fund business day, by adding the
market value of all securities in the Fund's portfolio and other assets,
subtracting liabilities incurred or accrued and dividing by the total number of
the Fund's shares of common stock then outstanding.
In accordance with applicable rules under the 1940 Act, portfolio securities are
valued at current market value or at fair value as determined in good faith by
the Board of Directors. The Board of Directors has delegated to the Adviser
certain of the Board's duties with respect to the following procedures. Readily
marketable securities listed on the 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 valued, except as indicated
below, at the last sale price reflected on the consolidated tape at the close of
the Exchange or, in the case of a foreign securities exchange, at the last
quoted sale price, in each case on the business day as of which such value is
being determined. If there has been no sale on such day, the securities are
valued at the quoted bid prices on such day. If no bid prices are quoted on such
day, then the security is valued at the mean of the bid and asked prices at the
close of the Exchange on such day as obtained from one or more dealers regularly
making a market in such security. Where a bid and asked price can be obtained
from only one such dealer, such security is valued at the mean of the bid and
asked price obtained from such dealer unless it is determined that such price
does not represent current market value, in which case the security shall be
valued in good faith at fair value by, or pursuant to procedures established by,
the Board of Directors. Securities for which no bid and asked price quotations
are readily available are valued in good faith at faire value by, or in
accordance with procedures established by, the Board of Directors. Readily
marketable securities not listed on the Exchange or on a foreign securities
exchange are valued in like manner. Portfolio securities traded on the Exchange
and on one or more other foreign or other national securities exchanges, and
portfolio securities not traded on the Exchange but traded on one or more
foreign or other national securities exchanges are valued in accordance with
these procedures by reference to the principal exchange on which the securities
are traded.
Readily marketable securities traded only in the over-the-counter market,
securities listed on a foreign securities exchange whose operations are similar
to those of the United Stated over-the-counter market, and debt securities
listed on a U.S. national securities exchange whose primary market is believed
to be over-the-counter, are valued at the mean of the bid and asked prices at
the close of the Exchange on such day as obtained from two or more dealers
regularly making a market in such security. Where a bid and asked price can be
obtained from only one such dealer, such security is valued at the mean of the
bid and asked price obtained from such dealer unless it is determined that such
price does not represent current market value, in which case the security shall
be valued in good faith at fair value by, or in accordance with procedures
established by, the Board of Directors.
Listed put and call options purchased by a Fund are valued at the last sale
price. If there has been no sale on that day, such securities will be valued at
the closing bid prices on that day.
Open futures contracts and options thereon will be valued using the closing
settlement price or, in the absence of such a price, the most recent quoted bid
price. If there are no quotations available for the day of valuations, the last
available closing settlement price will be used.
U.S. Government Securities and other debt instruments having 60 days or less
remaining until maturity are valued at amortized cost if their original maturity
was 60 days or less, or by amortizing their fair value as of the 61st day prior
to maturity if their original term to maturity exceeded 60 days (unless in
either case the Board of Directors determines that this method does not
represent fair value.)
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. The prices provided by a pricing service take into account
may factors, including institutional size trading in similar groups of
securities and any developments related to specific securities. Mortgage backed
and asset backed securities may be valued at prices obtained from a bond pricing
service or at a price obtained from one or more of the major broker/dealers in
such securities. In cases where broker/dealers quotes are obtained, the Adviser
may establish procedures whereby changes in market yields or spreads are used to
adjust, on a daily basis, a recently obtained quoted bid price on a security.
All other assets of a Fund are valued in good faith at fair value by, or in
accordance with procedures established by, the Board of Directors.
Trading in securities on Far Eastern and European securities exchanges and
over-the-counter markets is normally competed well before the close of business
of each Fund business day. In addition, trading in foreign markets may not take
place on all Fund business days. Furthermore, trading may take place in various
foreign markets on days that are not Fund business days. A Fund's calculation of
the net asset value per share, therefore, does not always take place
contemporaneously with the most recent determination of the prices of portfolio
securities in these markets. Events affecting the values of these portfolio
securities that occur between the time their prices are determined in accordance
with the above procedures and the close of the Exchange will not be reflected in
the Fund's calculation of net asset value unless these prices do not reflect
current market value, in which case the securities will be valued in good faith
by fair value by, or in accordance with procedures established by, the Board of
Directors.
The Board of Directors may suspend the determination of a Fund's net asset value
subject to the rules of the SEC and other governmental rules and regulations, at
a time when: (1) the Exchange is closed, other than customary weekend and
holiday closings, (2) an emergency exists as a result of which it is not
reasonably practicable for the Fund to dispose of securities owned by it or to
determine fairly the value of its net assets.
For purposes of determining a Fund's net asset value per share, all assets and
liabilities initially expressed in a foreign currency will be converted into
U.S. Dollars at the mean of the current bid and asked prices of such currency
against the U.S. Dollar last quoted by a major bank that is a regular
participant in the relevant foreign exchange market or on the basis of a pricing
service that takes into account the quotes provided by a number of such major
banks. If such quotations are not available as of the close of the Exchange, the
rate of exchange will be determined in good faith by, or under the direction of,
the Board of Directors.
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
Stockholders of each Fund whose shares are registered in their own names may
elect to be participants in each Fund's DRIP, under which dividends and capital
gain distributions to stockholders will be paid or reinvested in additional
shares of a Fund (the "Dividend Shares"). Equiserve (the "Agent") serves as the
agent for participants under the DRIP for ACM Income.
Stockholders who do not elect to participate in the DRIP will receive all
distributions in cash paid by check mailed directly to the stockholder of record
(or, if the shares are held in street or other nominee name, then to the
nominee) by the Agent, as dividend disbursing agent.
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. The federal income tax treatment of
reinvestment is described under "Taxation."
A stockholder who has elected to participate in the DRIP may withdraw from the
DRIP at any time. There will be no penalty for withdrawal from the DRIP and
stockholders who have previously withdrawn from the DRIP may rejoin it at any
time. Changes in elections must be in writing and should include the
stockholders name and address as they appear on the share certificate. An
election to withdraw from the DRIP will, until such election is changed, be
deemed to be an election by a stockholder to take all subsequent distributions
in cash. An election will be effective only for a distribution declared and
having a record date of at least 10 days after the date on which the election is
received. A stockholder whose shares are held in the name of a broker or nominee
should contact such broker or nominee concerning changes in that stockholder's
election.
Under a DRIP and commencing not more than five business days before the dividend
payment date, purchases of a Fund's shares may be made by the Agent, on behalf
of the participants in the DRIP, from time to time to satisfy dividend
reinvestments under the DRIP. Such purchases by the Agent on or before the
dividend payment date may be made on the NYSE or elsewhere at any time when the
price plus estimated commissions of a Fund's common stock on the NYSE is lower
than the Fund's most recently calculated NAV per share.
If the Agent determines on the dividend payment date that the shares purchased
as of such date are insufficient to satisfy the dividend reinvestment
requirements, the Agent, on behalf of the participants in the DRIP, will obtain
the necessary additional shares as follows. To the extent that outstanding
shares are not available at a cost of less than per share NAV, the Agent, on
behalf of the participants in the DRIP, will accept payment of the dividend, or
the remaining portion thereof, in authorized but unissued shares of a Fund on
the dividend payment date. Such shares will be issued at a per share price equal
to the higher of (1) the NAV per share on the payment date, or (2) 95% of the
closing market price per share on the payment date. If the closing sale or offer
price, plus estimated commissions, of the common stock on the NYSE on the
payment date is less than a Fund's NAV per share on such day, then the Agent
will purchase additional outstanding shares on the NYSE or elsewhere. If before
the Agent has completed such purchases, the market price plus commissions
exceeds the NAV of a Fund share, the average per share purchase price paid by
the Agent may exceed the NAV of the Fund's shares, resulting in the acquisition
of fewer shares than if shares had been issued by the Fund.
Participants in a DRIP have the option of making additional cash payments to the
Agent, semi-annually, in any amount of $100 or more for investment in a Fund's
shares. The Agent uses all funds received from participants to purchase Fund
shares in the open market on or about each January 15 and July 15. Participants'
cash payments are also used to acquire Fund shares under the same procedure as
that used for reinvestment of dividends and distributions. To allow ample time
for receipt and processing by the Agent, participants should send in voluntary
cash payments to be received by the Agent not later than five business days
before each January 15 and July 15. To avoid unnecessary cash accumulations,
cash payments received after that time and cash payments received more than 30
days prior to these dates will be returned by the Agent and interest will not be
paid on any uninvested cash payments. A participant may withdraw a voluntary
cash payment by written notice, if the notice is received by the Agent not less
than 48 hours before such payment is to be invested.
The Agent will maintain all stockholders' accounts in a DRIP and furnish written
confirmation of all transactions in the account, including information needed by
stockholders for tax records. Shares in the account of each DRIP participant
will be held by the Agent in non-certificated form in the name of the
participant, and each stockholder's proxy will include those shares purchased or
received pursuant to the DRIP.
In the case of stockholders such as banks, brokers or nominees, which hold
shares for others who are the beneficial owners, the Agent will administer the
DRIP on the basis of the number of shares certificated from time to time by the
record stockholders as representing the total amount registered in the record
stockholders' name and held for the account of beneficial owners who are to
participate in the DRIP.
There will be no brokerage 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 stockholder's account will be the average
cost, including brokerage commissions, of any shares purchased in the open
market plus the cost of any shares issued by the Fund. A participant also will
pay brokerage commissions incurred in purchases from voluntary cash payments
made by the participant.
Stockholders participating in a DRIP may receive benefits not available to
stockholders not participating in a Plan. If the market price plus commissions
of a Fund's shares is above the NAV, participants in a DRIP will receive shares
of a Fund at a discount of up to 5% from the current market value. However, if
the market price plus commissions is below the NAV, participants will receive
distributions in shares with a NAV greater than the value of any cash
distribution they would have received on their shares. There may be insufficient
shares available in the market to make distributions in shares at prices below
NAV. Also, since a Fund does not redeem it shares, the price on resale may be
more or less than the NAV.
In the case of foreign participants whose dividends are subject to U.S. income
tax withholding and in the case of any participants subject to 31% federal
backup withholding, the Agent will reinvest dividends after deduction of the
amount required to be withheld.
Experience under a DRIP may indicate that changes are desirable. Accordingly, a
Fund reserves the right to amend or terminate a DRIP 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 DRIP at least 90 days before
the record date for such dividend or distribution. A DRIP may also be amended or
terminated by the Agent on at least 90 days' written notice to participants in
the DRIP. There is no service charge to participants in a DRIP; however, a Fund
reserves the right to amend the DRIP to include a service charge payable to the
Agent by the participants. All correspondence concerning the DRIPs for ACM
Income should be directed to Equiserve Trust Company, N.A., P.O. Box 43011,
Providence, RI 02940-3011 or for ACM Government Opportunity at PFPC, Inc., P.O.
Box 8030, Boston, MA 02266-8030.
DESCRIPTION OF COMMON STOCK
Common Stock of the Funds
Each Fund is authorized to issue up to 300,000,000 shares of common stock, par
value $.01 per share. As of August 15, 2006, ACM Income and ACM Government
Opportunity had 229,436,279 and 12,903,932 shares outstanding, respectively. The
Funds' shares have no preemptive, conversion, exchange or redemption rights.
Each share has equal voting, dividend, distribution and liquidation rights. The
shares of each Fund outstanding are, and the shares of ACM Income, when issued
upon the Acquisitions will be, fully paid and nonassessable. Stockholders are
entitled to one vote per share. All voting rights for the election of Directors
are noncumulative, which means that the holders of more than 50% of the shares
of common stock of a Fund can elect 100% of the Directors then nominated for
election if they choose to do so and, in such event, the holders of the
remaining shares of common stock will not be able to elect any Directors. Under
the rules of the NYSE applicable to listed companies, each Fund is required to
hold an annual meeting of stockholders each year.
Certain Anti-Takeover Provisions of the Fund's Charters Articles of
Incorporation and By-Laws
The Funds presently have provisions in their Charters, and By-Laws (together,
the "Charter Documents") that are intended to limit (i) the ability of other
entities or persons to acquired control of a Fund, (ii) a Fund's freedom to
engage in certain transactions, or (iii) the ability of a Fund's Directors or
stockholders to amend the Charter Documents or effect changes in the Fund's
management. These provisions of the Charter Documents may be regarded as
"anti-takeover" provisions. The Board of Directors of each Fund is divided into
three classes, each having a term of three years. At each annual meeting of
stockholders, the term of one class of Directors expires. Accordingly, only
those Directors in one class maybe changed in any one year, and it would require
two years to change a majority of the Board of Directors (although under
Maryland law procedures are available for the removal of Directors even if they
are not then standing for reelections and under SEC regulations procedures are
available for including stockholders proposals in management's annual proxy
statement). Such system of electing Directors may have the effect of maintaining
the continuity of management and, thus, make it more difficult for the Fund's
stockholders to change the majority of Directors. Under Maryland law and a
Fund's Charter, the affirmative vote of the holders of a majority of the votes
entitles to be cast is required for the consolidation of the Fund with another
corporation, a merger of the Fund with or into another corporation (except for
certain mergers in which the Fund is the successor), a statutory share exchange
in which the Fund is not the successor, a sale or transfer of all or
substantially all of the Fund's assets, the dissolution of the Fund and
amendment to the Fund's Charter. In addition, the affirmative vote of 75% (which
is higher than that required under Maryland law or the 1940 Act) of the
outstanding shares of common stock of a Fund is required generally to authorize
any of the following transactions or to amend the provisions of the Articles of
Incorporation relating to such transactions:
(i) merger, consolidation or statutory share exchange of the Fund
with or into any other corporation;
(ii) issuance of any securities of the Fund to any person or entity
for cash;
(iii) sale, lease ore exchange of all or any substantial part of the
assets of the Fund to any entity or person (except assets having
an aggregate fair market value of less than $1,000,000); or
(iv) sale, lease or exchange to the Fund, in exchange for securities
of the Fund, of any assets of any entity or person (except assets
having an aggregate fair market value of less than $1,000,000);
If such corporation, person or entity is directly, or indirectly through
affiliates, the beneficial owner of more than 5% of the outstanding shares of
the Fund (a "principal stockholder"). However, such vote would not be required
where, under certain condition, the Board of Directors approves the transaction,
although in certain cases involving merger, consolidation or statutory share
exchange or sale of all or substantially all of the Fund's assets the
affirmative vote of a majority of the outstanding shares of a Fund would
nevertheless be required.
The provisions of the Charter Documents described above and a Fund's right to
repurchase or make a tender offer for its common stock could have the effect of
depriving the owners of shares of opportunities to sell their shares at a
premium over prevailing market prices, by discouraging a third party from
seeking to obtain control of a Fund in a tender offer or similar transaction.
The overall effect of these provisions is to render more difficult the
accomplishment of a merger or the assumption of control by a principal
stockholder. However, they provide the advantage of potentially requiring
persons seeking control of a Fund to negotiate with its management regarding the
price to be paid and facilitating the continuity of the Fund's management and
investment objective and policies. The Board of Directors of each Fund has
considered the foregoing anti-takeover provisions and concluded that they are in
the best interests of the Fund and its stockholders.
PORTFOLIO TRANSACTIONS
Subject to the general supervision of a Fund's Board, the Adviser is responsible
for the investment decisions and the placing of orders for portfolio
transactions for the Fund. A Fund's portfolio transactions occur primarily with
issuers, underwriters or major dealers acting as principals. Such transactions
are normally on a net basis, which does not involve payment of brokerage
commissions. The cost of securities purchased from an underwriter usually
includes a commission paid by the issuer to the underwriters; transactions with
dealers normally reflect the spread between bid and asked prices. Premiums are
paid with respect to options purchased by a Fund and brokerage commissions are
payable with respect to transactions in exchange-traded futures contracts.
A Fund has no obligation to enter into transactions in portfolio securities with
any dealer, issuer, underwriter or other entity. In placing orders, it is the
policy of each Fund to obtain the best price and execution for its transactions.
Where best price and execution may be obtained from more than one dealer, the
Adviser may, in its discretion, purchase and sell securities through dealers who
provide research, statistical and other information to the Adviser. Such
services may be used by the Adviser for all of its investment advisory accounts
and, accordingly, not all such services may be used by the Adviser in connection
with a Fund. The supplemental information received from a dealer is in addition
to the services required to be performed by the Adviser under the Advisory
Agreement, and the expenses of the Adviser will not necessarily be reduced as a
result of the receipt of such information. Consistent with the Rules of Fair
Practice of the National Association of Securities Dealers, Inc., and subject to
seeking best price and execution, a Fund may consider sales of shares of the
Fund as a factor in the selection of dealers to enter into portfolio
transactions with the Fund.
Brokerage Allocation and Other Practices
Neither a Fund nor the Adviser has entered into agreements or understandings
with any brokers or dealers regarding the placement of securities transactions
because of research or statistical services they provide. To the extent that
such persons or firms supply investment information to the Adviser for use in
rendering investment advice to a Fund, such information may be supplied at no
cost to the Adviser and, therefore, may have the effect of reducing the expenses
of the Adviser in rendering advice to the Fund. While it is impossible to place
an actual dollar value on such investment information, its receipt by the
Adviser probably does not reduce the overall expenses of the Adviser to any
material extent.
The investment information provided to the Adviser is of the types described in
Section 28(e)(3) of the Securities Exchange Act of 1934 and is designed to
augment the Adviser's own internal research and investment strategy
capabilities. Research and statistical services furnished by brokers through
whom a Fund effects securities transactions are used by the Adviser in carrying
out its investment management responsibilities with respect to all its client
accounts but not all such services may be utilized by the Adviser in connection
with the Fund. A Fund will deal in some instances in equity securities, which
are not listed on a national stock exchange but are traded in the
over-the-counter market. Where transactions are executed in the over-the-counter
market, a Fund will seek to deal with the primary market makers, but when
necessary in order to obtain the best price and execution, it will utilize the
services of others. In all cases, a Fund will attempt to negotiate best
execution.
A Fund may from time to time place orders for the purchase or sale of securities
(including listed call options) with SCB & Co., an affiliate of the Adviser. In
such instances, the placement of orders with such broker would be consistent
with a Fund's objective of obtaining the best execution and would not be
dependent upon the fact that SCB & Co. is an affiliate of the Adviser. With
respect to orders placed with SCB & Co. for execution on a national securities
exchange, commissions received must conform to Section 17(e)(2)(A) of the 1940
Act and Rule 17e-1 thereunder, which permit an affiliated person of a registered
investment company (such as a Fund), or any affiliated person of such person, to
receive a brokerage commission from such registered investment company provided
that such commission is reasonable and fair compared to the commissions received
by other brokers in connection with comparable transactions involving similar
securities during a comparable period of time.
The following table shows the brokerage commission paid on investment
transactions for the last three fiscal years:
Fund Brokerage Commission Paid ($)
---- -----------------------------
ACM Income (Fiscal Year End -
December 31)
2005 $0
2004 $0
2003 $0
ACM Government Opportunity
(Fiscal Year End - July 31)
2005 $0
2004 $0
2003 $0
DISTRIBUTIONS
Each Fund intends to distribute monthly its net investment income. Net
short-term capital gains, if any, will normally be distributed quarterly and net
long-term capital gains, if any, will normally be distributed annually.
TAXATION
The following summary addresses only the principal United States federal income
tax considerations pertinent to a Fund and to stockholders of the Fund. This
summary does not address the United States federal income tax consequences of
owning shares to all categories of investors, some of which may be subject to
special rules. This summary is based upon the advice of counsel for a Fund and
upon current law and interpretations thereof. No confirmation has been obtained
from the relevant tax authorities. There is no assurance that the applicable
laws and interpretations will not change.
In view of the individual nature of tax consequences, each stockholder is
advised to consult the stockholder's own tax adviser with respect to the
specific tax consequences of being a stockholder of a Fund, including the effect
and applicability of federal, state, local, foreign and other tax laws and the
effects of changes therein.
General
Each Fund intends for each taxable year to qualify as a "regulated investment
company" under the Code. To so qualify, a Fund must, among other things, (i)
derive at least 90% of its gross income in each taxable year from dividends,
interest, payments with respect to securities loans, gains from the sale or
other disposition of stock or securities or foreign currency, certain other
income (including but not limited to, gains from options, futures and forward
contracts) derived with respect to its business of investing in stock,
securities or currency or net income derived from interests in certain qualified
publicly traded partnerships; and (ii) diversify its holdings so that, at the
end of each quarter of its taxable year, the following two conditions are met:
(a) at least 50% of the value of the Fund's assets is represented by cash, cash
items, U.S. Government Securities, securities of other regulated investment
companies and other securities with respect to which the Fund's investment is
limited, in respect of any one issuer, to an amount not greater than 5% of the
value of the Fund's assets and to not more than 10% of the outstanding voting
securities of such issuer and (b) not more than 25% of the value of the Fund's
assets is invested in (i) securities of any one issuer (other than U.S.
Government Securities or securities of other regulated investment companies),
(ii) securities (other than securities of other regulated investment companies)
of any two or more issuers which the Fund controls and which are engaged in the
same or similar trades or businesses or related trades or businesses, or (iii)
securities of one or more qualified publicly traded partnerships.
If a Fund qualifies as a regulated investment company for any taxable year and
makes timely distributions to its stockholders of 90% or more of its investment
company taxable income for that year (calculated without regard to its net
capital gain, i.e., the excess of its net long-term capital gain over its net
short-term capital loss), it will not be subject to federal income tax on the
portion of its taxable income for the year (including any net capital gain) that
it distributes to stockholders.
The information set forth in the Prospectus/Proxy Statement and the following
discussion relate solely to the significant United States federal income taxes
on dividends and distributions by a Fund and assumes that the Fund qualifies to
be taxed as a regulated investment company. An investor should consult his or
her own tax advisor with respect to the specific tax consequences of being a
stockholder in a Fund, including the effect and applicability of federal, state,
local and foreign tax laws to his or her own particular situation and the
possible effects of changes therein.
Dividends and Distributions
Each Fund intends to make timely distributions of its taxable income (including
any net capital gain) so that the Fund will not be subject to federal income
taxes. Each Fund also intends to declare and distribute dividends in the amounts
and at the times necessary to avoid the application of the 4% federal excise tax
imposed on certain undistributed income of regulated investment companies. A
Fund will be required to pay the 4% excise tax to the extent it does not
distribute to its stockholders during any calendar year an amount equal to the
sum of (i) 98% of its ordinary taxable income for the calendar year, (ii) 98% of
its capital gain net income and foreign currency gains for the twelve months
ended October 31 of such year (or December 31 if elected by the Fund) and (iii)
any ordinary income or capital gain net income from the preceding calendar year
that was not distributed during such year. For this purpose, income or gain
retained by a Fund that is subject to corporate income tax will be considered to
have been distributed by the Fund by year-end. For federal income and excise tax
purposes, dividends declared and payable to stockholders of record as of a date
in October, November or December but actually paid during the following January
will be taxable to these stockholders for the year declared, and not for the
subsequent calendar year in which the stockholders actually received the
dividend.
Dividends of a Fund's net ordinary income and distributions of any net realized
short-term capital gain are taxable to stockholders as ordinary income. Since
each Fund expects to derive substantially all of its gross income from sources
other than dividends, it is expected that none of the Fund's dividends or
distributions will qualify for the dividends-received deduction for
corporations. Furthermore, it is expected that none of a Fund's distributions be
treated as "qualified dividend income," which is taxable to individuals, trusts
and estates at preferential tax rates if paid on or before December 31, 2010.
Distributions of net capital gain by a Fund to its stockholders will be taxable
to the stockholders as long-term capital gains, irrespective of the length of
time a stockholder may have held his Fund shares. Any dividend or distribution
received by a stockholder on shares of a Fund will have the effect of reducing
the NAV of such shares by the amount of such dividend or distribution.
Furthermore, a dividend or distribution made shortly after the purchase of such
shares by a stockholder, although in effect a return of capital to that
particular stockholder, would be taxable to him as described above. Dividends
are taxable in the manner discussed regardless of whether they are paid to the
stockholder in cash or are reinvested in additional shares of a Fund.
After the end of the taxable year, a Fund will notify stockholders of the
federal income tax status of any distributions made by the Fund to stockholders
during such year.
Sales
Any gain or loss arising from a sale of Fund shares generally will be capital
gain or loss if the Fund shares are held as a capital asset, and will be
long-term capital gain or loss if such stockholder has held such shares for more
than one year at the time of the sale; otherwise it will be short-term capital
gain or loss. However, if a stockholder has held shares in a Fund for six months
or less and during that period has received a distribution of net capital gain,
any loss recognized by the stockholder on the sale of those shares during the
six-month period will be treated as a long-term capital loss to the extent of
such distribution. In determining the holding period of such shares for this
purpose, any period during which a stockholder's risk of loss is offset by means
of options, short sales or similar transactions is not counted.
Any loss realized by a stockholder on a sale or exchange of shares of a Fund
will be disallowed to the extent the shares disposed of are replaced within a
period of 61 days beginning 30 days before and ending 30 days after the shares
are sold or exchanged. For this purpose, acquisitions pursuant to a Fund's DRIP
would constitute a replacement if made within the period. If disallowed, the
loss will be reflected in an upward adjustment to the basis of the shares
acquired.
Backup Withholding
A Fund generally will be required to withhold tax (currently, at the rate of
28%) of reportable payments (which may include dividends and distributions of
net capital gain) payable to a noncorporate stockholder unless the stockholder
certified on his subscription application that the social security or taxpayer
identification number provided is correct and that the stockholder has not been
notified by the Internal Revenue Service that he is subject to backup
withholding.
United States Federal Income Taxation of a Fund
The following discussion relates to certain significant United States federal
income tax consequences to a Fund with respect to the determination of its
"investment company taxable income" each year. This discussion assumes that a
Fund will be taxed as a regulated investment company for each of its taxable
years.
Currency Fluctuations --"Section 988" Gains or Losses
Under the Code, gains or losses attributable to fluctuations in exchange rates
which occur between the time a Fund accrues interest or other receivables or
accrues expenses or other liabilities denominated in a foreign currency and the
time the Fund actually collects such receivables or pays such liabilities are
treated as ordinary income or ordinary loss. Similarly, gains or losses from the
disposition of foreign currencies, from the disposition of debt securities
denominated in a foreign currency, or from the disposition of a forward contract
denominated in a foreign currency which are attributable to fluctuations in the
value of the foreign currency between the date of acquisition of the asset and
the date of disposition also are treated as ordinary income or loss. These gains
or losses, referred to under the Code as "section 988" gains or losses, increase
or decrease the amount of a Fund's investment company taxable income available
to be distributed to its stockholders as ordinary income, rather than increasing
or decreasing the amount of the Fund's net capital gain. Because section 988
losses reduce the amount of ordinary dividends a Fund will be allowed to
distribute for a taxable year, such section 988 losses may result in all or a
portion of prior dividend distributions for such year being recharacterized as a
non-taxable return of capital to stockholders, rather than as an ordinary
dividend, reducing each stockholder's basis in his Fund shares. To the extent
that such distributions exceed such stockholder's basis, each will be treated as
a gain from the sale of shares.
Options Futures Contracts, and Forward Foreign Currency Contracts
Certain listed options, regulated futures contracts, and forward foreign
currency contracts are considered "section 1256 contracts" for federal income
tax purposes. Section 1256 contracts held by a Fund at the end of each taxable
year will be "marked to market" and treated for federal income tax purposes as
though sold for fair market value on the last business day of such taxable year.
Gain or loss realized by a Fund on section 1256 contracts other than forward
foreign currency contracts will be considered 60% long-term and 40% short-term
capital gain or loss. Gain or loss realized by a Fund on forward foreign
currency contracts will be treated as section 988 gain or loss and will
therefore be characterized as ordinary income or loss and will increase or
decrease the amount of the Fund's net investment income available to be
distributed to stockholders as ordinary income, as described above. A Fund can
elect to exempt its section 1256 contracts which are part of a "mixed straddle"
(as described below) from the application of section 1256.
The Treasury Department has the authority to issue regulations that would permit
or require a Fund either to integrate a foreign currency hedging transaction
with the investment that is hedged and treat the two as a single transaction, or
otherwise to treat the hedging transaction in a manner that is consistent with
the hedged investment. The regulations issued under this authority generally
should not apply to the type of hedging transactions in which a Fund intends to
engage.
With respect to over-the-counter put and call options or options traded on
certain foreign exchanges, gain or loss realized by a Fund upon the lapse or
sale of such options held by the Fund will be either long-term or short-term
capital gain or loss depending upon the Fund's holding period with respect to
such option. However, gain or loss realized upon the lapse or closing out of
such options that are written by a Fund will be treated as short-term capital
gain or loss. In general, if a Fund exercises an option, or if an option that
the Fund has written is exercised, gain or loss on the option will not be
separately recognized but the premium received or paid will be included in the
calculation of gain or loss upon disposition of the property underlying the
option.
Gain or loss realized by a Fund on the lapse or sale of put and call options on
foreign currencies which are traded over-the-counter or on certain foreign
exchanges will be treated as section 988 gain or loss and will therefore be
characterized as ordinary income or loss and will increase or decrease the
amount of the Fund's net investment income available to be distributed to
stockholders as ordinary income, as described above. The amount of such gain or
loss shall be determined by subtracting the amount paid, if any, for or with
respect to the option (including any amount paid by a Fund upon termination of
an option written by the Fund) from the amount received, if any, for or with
respect to the option (including any amount received by the Fund upon
termination of an option held by the Fund). In general, if a Fund exercises such
an option on a foreign currency, or such an option that the Fund has written is
exercised, gain or loss on the option will be recognized in the same manner as
if the Fund had sold the option (or paid another person to assume the Fund's
obligation to make delivery under the option) on the date on which the option is
exercised, for the fair market value of the option. The foregoing rules will
also apply to other put and call options which have as their underlying property
foreign currency and which are traded over-the-counter or on certain foreign
exchanges to the extent gain or loss with respect to such options is
attributable to fluctuations in foreign currency exchange rates.
Tax Straddles
Any option, futures contract, forward foreign currency contract, other forward
contract, or other position entered into or held by a Fund in conjunction with
any other position held by the Fund may constitute a "straddle" for federal
income tax purposes. A straddle of which at least one, but not all, the
positions are section 1256 contracts may constitute a "mixed straddle." In
general, straddles are subject to certain rules that may affect the character
and timing of a Fund's gains and losses with respect to straddle positions by
requiring, among other things, that (i) loss realized on disposition of one
position of a straddle not be recognized to the extent that the Fund has
unrealized gains with respect to the other position in such straddle; (ii) the
Fund's holding period in straddle positions be suspended while the straddle
exists (possibly resulting in gain being treated as short-term capital gain
rather than long-term capital gain); (iii) losses recognized with respect to
certain straddle positions which are part of a mixed straddle and which are
non-section 1256 positions be treated as 60% long-term and 40% short-term
capital loss; (iv) losses recognized with respect to certain straddle positions
which would otherwise constitute short-term capital losses be treated as
long-term capital losses; and (v) the deduction of interest and carrying charges
attributable to certain straddle positions may be deferred. The Treasury
Department is authorized to issue regulations providing for the proper treatment
of a mixed straddle where at least one position is capital. No such regulations
have yet been issued. Various elections are available to a Fund which may
mitigate the effects of the straddle rules, particularly with respect to mixed
straddles. In general, the straddle rules described above do not apply to any
straddles held by a Fund all of the offsetting positions of which consist of
section 1256 contracts.
Zero Coupon Treasury Securities
Under current federal tax law, a Fund will receive net investment income in the
form of interest by virtue of holding Treasury bills, notes and bonds, and will
recognize interest attributable to it under the original issue discount rules of
the Code from holding zero coupon Treasury securities. Current federal tax law
requires that a holder (such as a Fund) of a zero coupon security accrue a
portion of the discount at which the security was purchased as income each year
even though the Fund receives no interest payment in cash on the security during
the year. Accordingly, a Fund may be required to pay out as an income
distribution each year an amount which is greater than the total amount of cash
interest the Fund actually received. Such distributions will be made from the
cash assets of a Fund or by liquidation of portfolio securities, if necessary. A
Fund may realize a gain or loss from such sales. In the event a Fund realizes
net capital gains from such transactions, its stockholders may receive a larger
capital gain distribution, if any, than they would have received in the absence
of such transactions.
Government Guaranteed Mortgage Pass-Through Securities
Mortgage pass-through securities such as GNMA Certificates, FNMA Certificates,
and FHLMC Certificates generally are taxable as trusts for Federal income tax
purposes, with the certificate holders treated as the owners of the trust
involved. As a result, payments of interest, principal and prepayments made on
the underlying mortgage pool are taxed directly to certificate holders such as a
Fund. Payments of interest, principal and prepayments made on the underlying
mortgage pool will therefore generally maintain their character when received by
a Fund.
Foreign Taxes
Investment income received by a Fund from foreign government securities may be
subject to foreign income taxes, including taxes withheld at the source. The
United States has entered into tax treaties with many foreign countries which
entitles a Fund to a reduced rate of such taxes or exemption from taxes on such
income. It is impossible to determine the effective rate of foreign tax in
advance since the amount of a Fund's assets to be invested within various
countries is not known.
Other Taxation
The foregoing is a brief summary of the federal tax laws applicable to investors
in the Funds. Investors may also be subject to state and local taxes, although
distributions of a Fund that are derived from interest on certain obligations to
the U.S. Government and agencies thereof may be exempt from state and local
taxes in certain states.
PROXY VOTING
You may obtain a description of a Fund's proxy voting policies and procedures,
and information regarding how the Fund voted proxies relating to portfolio
securities during the most recent 12-month period ended June 30, without charge.
Simply visit AllianceBernstein's web site at www.alliancebernstein.com, or go to
the Securities and Exchange Commission's (the "Commission") web site at
www.sec.gov, or call AllianceBernstein at (800) 227-4618.
The Fund files its complete schedule of portfolio holdings with the Commission
for the first and third quarters of each fiscal year on Form N-Q. The Fund's
Forms N-Q are available on the Commission's web site at www.sec.gov. The Fund's
Forms N-Q may also be reviewed and copied at the Commission's Public Reference
Room in Washington, DC; information on the operation of the Public Reference
Room may be obtained by calling (800) SEC-0330.
LEGAL MATTERS
Certain legal matters concerning the Funds and their participation in the
Acquisition, the issuance of ACM Income shares in connection with the
Acquisition and the tax consequences of the Acquisition will be passed upon by
Seward & Kissel LLP, One Battery Park Plaza, New York, NY 10004, counsel to the
Funds.
EXPERTS
The audited financial information in the Prospectus/Proxy Statement and the SAI
has been included in reliance on the report of Ernst & Young LLP, the
independent registered public accounting firm for the Funds, 787 Seventh Avenue,
New York, NY 10019, given on its authority as experts in auditing and
accounting.
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FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
The Financial Statements required under Item 14 of Form N-14 are incorporated by
reference herein from the:
1. ACM Income Fund, Inc. Annual Report for the period ended December 31, 2005,
filed with the SEC on March 10, 2006 (File No. 811-05207).
2. ACM Income Fund, Inc., Semi-Annual Report for the period ended June 30,
2006, filed with the SEC on September 7, 2006 (File No. 811-05207).
3. ACM Government Opportunities Fund, Inc. Annual Report for the period ended
July 31, 2005 filed with the SEC on October 11, 2005 (File No. 811-05595).
4. ACM Government Opportunities Fund, Inc. Semi-Annual Report for the period
ended January 31, 2006 filed with the SEC on April 11, 2006 (File No.
811-05595).
APPENDIX A
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BOND RATINGS
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Moody's Investors Service, Inc.
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Aaa Bonds which are rated Aaa are judged to be of the
best quality. They carry the smallest degree of
investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a
large or by an exceptionally stable margin and
principal is secure. While the various protective
elements are likely to change, such changes as
can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa Bonds which are rated Aa are judged to be of high
quality by all standards. Together with the Aaa
group they comprise what are generally known as
high grade bonds. They are rated lower than the
best bonds because margins of protection may not
be as large as in Aaa securities or fluctuation
of protective elements may be of greater
amplitude or there may be other elements present
which make the long-term risks appear somewhat
larger than the Aaa securities.
A Bonds which are rated A possess many favorable
investment attributes and are to be considered as
upper-medium-grade obligations. Factors giving
security to principal and interest are considered
adequate but elements may be present which
suggest a susceptibility to impairment some time
in the future.
Baa Bonds which are rated Baa are considered as
medium-grade obligations, i.e., they are neither
highly protected nor poorly secured. Interest
payments and principal security appear adequate
for the present but certain protective elements
may be lacking or may be characteristically
unreliable over any great length of time. Such
bonds lack outstanding investment characteristics
and in fact have speculative characteristics as
well.
Ba Bonds which are rated Ba are judged to have
speculative elements; their future cannot be
considered as well-assured. Often the protection
of interest and principal payments may be very
moderate and thereby not well safeguarded during
both good and bad times over the future.
Uncertainty of position characterizes bonds in
this class.
B Bonds which are rated B generally lack
characteristics of the desirable investment.
Assurance of interest and principal payments or
of maintenance of other terms of the contract
over any long period of time may be small.
Caa Bonds which are rated Caa are of poor standing.
Such issues may be in default or there may be
present elements of danger with respect to
principal or interest.
Ca Bonds which are rated Ca represent obligations
which are speculative in a high degree. Such
issues are often in default or have other marked
shortcomings.
C Bonds which are rated C are the lowest rated
class of bonds and issues so rated can be
regarded as having extremely poor prospects of
ever attaining any real investment standing.
Absence of Rating When no rating has been assigned or where a rating
has been suspended or withdrawn, it may be for
reasons unrelated to the quality of the issue.
Should no rating be assigned, the reason may be one of the following:
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1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies that are
unrated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not published
in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available
reasonable up-to-date data to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.
Note Moody's applies numerical modifiers, 1, 2 and 3
in each generic rating classification from Aa
through B in its corporate bond rating system.
The modifier 1 indicates that the security ranks
in the higher end of its generic rating category;
the modifier 2 indicates a mid-range ranking; and
the modifier 3 indicates that the issue ranks in
the lower end of its generic rating category.
Standards & Poor's Ratings Services
AAA Debt rated AAA has the highest rating assigned by
S&P. Capacity to pay interest and repay principal is
extremely strong.
AA Debt rated AA has a very strong capacity to pay
interest and repay principal and differs from the
highest rated issues only in small degree.
A Debt rated A has a strong capacity to pay
interest and repay principal although it is
somewhat more susceptible to the adverse effects
of changes in circumstances and economic
conditions than debt in higher rated categories.
BBB Debt rated BBB normally exhibits adequate
protection parameters. However, adverse economic
conditions or changing circumstances are more
likely to lead to a weakened capacity to pay
interest and repay principal for debt in this
category than in higher rated categories.
BB, B, CCC, CC, C Debt rated BB, B, CCC, CC or C is regarded as
having significant speculative characteristics.
BB indicates the lowest degree of speculation and
C the highest. While such debt will likely have
some quality and protective characteristics,
these are outweighed by large uncertainties or
major exposures to adverse conditions.
BB Debt rated BB is less vulnerable to nonpayment
than other speculative debt. However, it faces
major ongoing uncertainties or exposure to
adverse business, financial or economic
conditions which could lead to an inadequate
capacity to pay interest and repay principal.
B Debt rated B is more vulnerable to nonpayment
than debt rated BB, but there is capacity to pay
interest and repay principal. Adverse business,
financial or economic conditions will likely
impair the capacity or willingness to pay
principal or repay interest.
CCC Debt rated CCC is currently vulnerable to
nonpayment, and is dependent upon favorable
business, financial and economic conditions to
pay interest and repay principal. In the event of
adverse business, financial or economic
conditions, there is not likely to be capacity to
pay interest or repay principal.
CC Debt rated CC is currently highly vulnerable to
nonpayment.
C The C rating may be used to cover a situation
where a bankruptcy petition has been filed or
similar action has been taken, but payments are
being continued.
D The D rating, unlike other ratings, is not
prospective; rather, it i s used only where a
default has actually occurred.
Plus (+) or Minus (-) The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative
standing within the major rating categories.
NR Not rated.
Fitch Ratings
AAA Bonds considered to be investment grade and of
the highest credit quality. The obligor has an
exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected
by reasonably foreseeable events.
AA Bonds considered to be investment grade and of
very high credit quality. The obligor's ability
to pay interest and repay principal is very
strong, although not quite as strong as bonds
rated AAA. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to
foreseeable future developments, short-term debt
of these issuers is generally rated F- 1+.
A Bonds considered to be investment grade and of
high credit quality. The obligor's ability to pay
interest and repay principal is considered to be
strong, but may be more vulnerable to adverse
changes in economic conditions and circumstances
than bonds with higher ratings.
BBB Bonds considered to be investment grade and of
satisfactory credit quality. The obligor's
ability to pay interest and repay principal is
considered to be adequate. Adverse changes in
economic conditions and circumstances, however,
are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The
likelihood that the ratings of these bonds will
fall below investment grade is higher than for
bonds with higher ratings.
BB Bonds are considered speculative. The obligor's
ability to pay interest and repay principal may
be affected over time by adverse economic
changes. However, business and financial
alternatives can be identified which could assist
the obligor in satisfying its debt service
requirements.
B Bonds are considered highly speculative. While
bonds in this class are currently meeting debt
service requirements, the probability of
continued timely payment of principal and
interest reflects the obligor's limited margin of
safety and the need for reasonable business and
economic activity throughout the life of the
issue.
CCC Bonds have certain identifiable characteristics
which, if not remedied, may lead to default. The
ability to meet obligations requires an
advantageous business and economic environment.
CC Bonds are minimally protected. Default in payment
of interest and/or principal seems probable over
time.
C Bonds are in imminent default in payment of interest
or principal.
DDD, DD, D Bonds are in default on interest and/or
principal payments. Such bonds are extremely
speculative and should be valued on the basis of
their ultimate recovery value in liquidation or
reorganization of the obligor. DDD represents the
highest potential for recovery on these bonds,
and D represents the lowest potential for
recovery.
Plus (+) Minus (-) Plus and minus signs are used with a rating symbol
to indicate the relative position of a credit
within the rating category. Plus and minus signs,
however, are not used in the AAA, DDD, DD or D
categories.
NR Indicates that Fitch does not rate the specific issue.
Dominion Bond Rating Service Limited
Each rating category is denoted by the subcategories "high" and "low". The
absence of either a "high" or "low" designation indicates the rating is in the
"middle" of the category. The AAA and D categories do not utilize "high",
"middle", and "low" as differential grades.
AAA--Long-term debt rated AAA is of the highest credit quality, with
exceptionally strong protection for the timely repayment of principal and
interest. Earnings are considered stable, the structure of the industry in which
the entity operates is strong, and the outlook for future profitability is
favorable. There are few qualifying factors present that would detract from the
performance of the entity. The strength of liquidity and coverage ratios is
unquestioned and the entity has established a credible track record of superior
performance. Given the extremely high standard that Dominion has set for this
category, few entities are able to achieve a AAA rating.
AA--Long-term debt rated AA is of superior credit quality, and protection of
interest and principal is considered high. In many cases they differ from
long-term debt rated AAA only to a small degree. Given the extremely restrictive
definition Dominion has for the AAA category, entities rated AA are also
considered to be strong credits, typically exemplifying above-average strength
in key areas of consideration and unlikely to be significantly affected by
reasonably foreseeable events.
A--Long-term debt rated "A" is of satisfactory credit quality. Protection of
interest and principal is still substantial, but the degree of strength is less
than that of AA rated entities. While "A" is a respectable rating, entities in
this category are considered to be more susceptible to adverse economic
conditions and have greater cyclical tendencies than higher-rated securities.
BBB--Long-term debt rated BBB is of adequate credit quality. Protection of
interest and principal is considered acceptable, but the entity is fairly
susceptible to adverse changes in financial and economic conditions, or there
may be other adverse conditions present which reduce the strength of the entity
and its rated securities.
BB--Long-term debt rated BB is defined to be speculative and non-investment
grade, where the degree of protection afforded interest and principal is
uncertain, particularly during periods of economic recession. Entities in the BB
range typically have limited access to capital markets and additional liquidity
support. In many cases, deficiencies in critical mass, diversification, and
competitive strength are additional negative considerations.
B--Long-term debt rated B is considered highly speculative and there is a
reasonably high level of uncertainty as to the ability of the entity to pay
interest and principal on a continuing basis in the future, especially in
periods of economic recession or industry adversity.
CCC, CC and C--Long-term debt rated in any of these categories is very highly
speculative and is in danger of default of interest and principal. The degree of
adverse elements present is more severe than long-term debt rated B. Long-term
debt rated below B often have features which, if not remedied, may lead to
default. In practice, there is little difference between these three categories,
with CC and C normally used for lower ranking debt of companies for which the
senior debt is rated in the CCC to B range.
D--A security rated D implies the issuer has either not met a scheduled payment
of interest or principal or that the issuer has made it clear that it will miss
such a payment in the near future. In some cases, Dominion may not assign a D
rating under a bankruptcy announcement scenario, as allowances for grace periods
may exist in the underlying legal documentation. Once assigned, the D rating
will continue as long as the missed payment continues to be in arrears, and
until such time as the rating is suspended, discontinued, or reinstated by
Dominion.
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