<PAGE>
LETTER TO SHAREHOLDERS ACM Government Securities Fund
================================================================================
August 16, 1999
Dear Shareholder:
This report provides the performance, investment strategy, and outlook for the
ACM Government Securities Fund (the "Fund") over the six-month period ended June
30, 1999. The Fund is designed to provide high current income consistent with
the preservation of capital. The Fund invests principally in U.S. government
obligations. The Fund may also invest up to 35% of its assets in securities of
foreign governments. Additionally, the Fund may utilize other investment
instruments, including options and futures.
INVESTMENT PERFORMANCE
The following table shows how your Fund performed over the six- and twelve-month
periods ended June 30, 1999. For comparison, we have included performance for
your Fund's benchmark index, as represented by the Lehman Brothers ("LB")
Aggregate Bond Index.
During the six- and twelve-month periods ended June 30, 1999, your Fund
underperformed its benchmark index. As U.S. growth remained strong and global
growth improved, the U.S. Federal Reserve moved to increase interest rates,
causing U.S. Treasury bond prices to fall. As of June 30, your Fund held 71% of
its total market value in the U.S. Treasury sector, versus the LB Aggregate Bond
Index's 35% exposure to U.S. Treasuries. Subsequently, during the six-month
period, the Fund's allocation to the U.S. Treasury market dampened performance.
Over the twelve-month period, turmoil in Asia, which spread through Russia and
Latin America, caused all emerging market debt to underperform. Consequently,
during the twelve months under review, your Fund's 18% exposure to emerging
market bonds was the primary reason for the Fund's underperformance versus the
U.S.-only LB Aggregate Bond Index.
- --------------------------------------------------------------------------------
INVESTMENT RESULTS*
Periods Ended June 30, 1999
Total Returns
6 Months 12 Months
-------- ---------
ACM Government
Securities Fund -4.49% -10.74%
Lehman Brothers
Aggregate Bond Index -1.37% 3.15%
* The Fund's investment results are total returns for the period and are
based on the net asset value of the Fund as of June 30, 1999. All fees and
expenses related to the operation of the Fund have been deducted. Returns
for the Fund include the reinvestment of any distributions paid during the
period. Past performance is no guarantee of future results.
The unmanaged Lehman Brothers ("LB") Aggregate Bond Index is composed of
the LB Mortgage-Backed and LB Asset-Backed Securities indices and the LB
Government/Corporate Bond Index. It includes Treasury, agency and
corporate bond issues, as well as mortgage-backed securities. An investor
cannot invest directly in an index.
- --------------------------------------------------------------------------------
MARKET OVERVIEW
The outlook for the global economy continued to brighten during the first six
months of 1999. Signs of a strong recovery in East Asia, better-than-expected
growth in Japan, and a quick drop in Brazilian interest rates bolstered investor
confidence. In the United States, private demand growth has downshifted but
remains exceptionally strong, while inflation and unemployment have remained
low. With economic activity remaining strong and global liquidity concerns
abating, the U.S. Federal Reserve adopted a monetary policy tightening bias in
May and increased the Federal Funds rate by 25 basis points, to 5.00%, in June.
For the six months ended June 30, 1999, the U.S. yield curve flattened as
short-and intermediate-term rates rose more than long-term rates. Two-year U.S.
Treasury yields rose from 4.53%, to 5.52%, while thirty-year U.S. Treasury
yields rose from 5.09%, to 5.97%.
1
<PAGE>
LETTER TO SHAREHOLDERS ACM Government Securities Fund
================================================================================
During the six-month period ended June 30, 1999, the U.S. bond market, as
represented by the LB Aggregate Bond Index, declined by 1.4% as economic growth
strengthened and the U.S. Federal Reserve raised interest rates. Among the
sectors of the U.S. bond market, the mortgage sector recorded the strongest
performance, while the U.S. Treasury market recorded the weakest performance. As
credit markets continued to stabilize from the turmoil in 1998, and the threat
of higher interest rates surfaced, investors moved out of U.S. Treasuries and
back into higher-yielding sectors in search of higher returns. The mortgage
sector was the main beneficiary of this change in interest-rate expectations.
When interest rates rose, mortgage refinancing slowed and mortgage prepayments
fell, making mortgage-backed securities more attractive.
During the six months under review, most developed countries outside the U.S.
showed signs of improving economic growth while inflation remained low.
Divergent interest-rate policies (the European Central Bank and Bank of Japan
eased, while the U.S. Federal Reserve indicated a tightening bias) caused the
U.S. bond market to underperform all other developed bond markets, in local
currency terms and on a hedged basis. The Japanese bond market, boosted by
domestic investment and, until late in the quarter, a poor economic environment,
posted the strongest performance among bond markets of developed countries. In
aggregate, the developed global bond markets, excluding the U.S., as represented
by the J.P. Morgan ("JPM") non-U.S. Government Bond Index (Hedged), gained 1.0%
during the six months ended June 30, 1999.
In the emerging markets, favorable growth surprises surfaced. Economic weakness
in Latin America proved less severe than anticipated, and the Asian economies
appeared to be improving. However, concerns about tighter U.S. monetary policy
dampened the investor enthusiasm exhibited earlier this year. In aggregate, the
emerging market debt sector, as represented by the JPM Emerging Markets Bond
Index Plus, gained 10.5%, outperforming the traditional bond market sectors
during the six-month period. Individual emerging market returns were mixed
during the period, with Russia posting the largest gains and non-Latin countries
outperforming Latin countries.
INVESTMENT STRATEGY
Over the six-month period ended June 30, 1999, we maintained a longer
interest-rate duration than the market, generally employing U.S. Treasury
holdings with maturities of ten years or more. We opportunistically employed
securities issued in foreign countries to enhance portfolio yield. The Fund held
the government debt of Mexico, Brazil, Argentina and Peru. We initiated a
position in Mexican government bonds based on our conviction that this is an
improving credit, moving toward investment-grade status after the presidential
election in 2000.
OUTLOOK
Globally, growth prospects are improving and inflation pressures remain subdued.
While the U.S. economy appears to be moderating somewhat from the robust level
of the first quarter, we still estimate that growth for calendar 1999 will be
close to the 3.9% pace of 1998. We believe the risks remain toward somewhat
tighter monetary policy and higher interest rates. While the non-Treasury
sectors of the market appear to be cheap by historical standards, the upward
pressure on rates, and liquidity concerns related to this year-end are likely to
keep yield premiums wide in the near term. In this environment,
2
<PAGE>
ACM Government Securities Fund
================================================================================
security selection will remain focused on longer-term fundamentals, recognizing
that near-term liquidity will be limited.
In Europe, although there are signs that a mild recovery is underway, we
continue to expect growth to be 1.9% in 1999, down from the 2.6% pace of 1998.
Increasing global demand, low interest rates and a weak Euro should help improve
growth prospects going forward. We believe the European Central Bank will
maintain a neutral monetary policy. Japan is also showing signs of stronger
economic activity and we expect 1999 gross domestic product growth to be 0.3%,
an improvement over the 2.9% decline of 1998. The extent to which the Japanese
economy rebounds remains a key issue going forward in terms of global growth and
interest-rate patterns.
Improving global growth and subdued inflation should provide the environment
necessary for emerging countries to gradually improve their credit profiles.
However, in the period ahead we see performance divergences developing between
those countries with constructive reform-oriented policies (expected to
outperform), and those countries with less commitment to the reform process
(expected to underperform). Therefore, country selection will remain critical.
While there may well be short-term market volatility as investor sentiment
shifts with events, we expect the strongest performance from Mexico, Panama,
Brazil and the Philippines.
Thank you for your continued interest and investment in the ACM Government
Securities Fund. We look forward to reporting its progress to you in the coming
months.
Sincerely,
/s/ John D. Carifa
John D. Carifa
Chairman
/s/ Wayne D. Lyski
Wayne D. Lyski
President
3
<PAGE>
PORTFOLIO OF INVESTMENTS
June 30, 1999 (unaudited) ACM Government Securities Fund
================================================================================
Principal
Amount
(000) U.S. $ Value
- ------------------------------------------------------------------------
U.S. GOVERNMENT
OBLIGATIONS--99.5%
U.S. TREASURY BONDS--58.0%
8.125%, 8/15/19 (a)............ $ 95,700 $115,587,417
12.375%, 5/15/04 (a)........... 29,320 37,300,611
13.25%, 5/15/14 (a)............ 49,000 74,410,910
14.00%, 11/15/11 (a)........... 89,000 130,190,090
------------
357,489,028
------------
U.S. TREASURY STRIPS--41.5%
Zero coupon, 2/15/10........... 20,080 10,507,061
Zero coupon, 5/15/10 (a)....... 238,260 122,672,926
Zero coupon, 5/15/12 (a)....... 231,250 103,875,188
Zero coupon, 8/15/12........... 43,000 18,990,520
------------
256,045,695
------------
Total U.S. Government
Obligations
(cost $643,630,692)............ 613,534,723
------------
SOVEREIGN DEBT
OBLIGATIONS--25.2%
ARGENTINA--3.5%
Republic of Argentina
Supplier-Bocon FRN
Pro l
2.815%, 4/1/07........... ARS 32,975 21,552,105
------------
BRAZIL--2.6%
Republic of Brazil Global Bonds
11.625%, 4/15/04............... $ 17,600 16,390,880
------------
MEXICO--4.1%
United Mexican States
10.375%, 2/17/09............... 24,750 24,997,500
------------
PERU--3.1%
Republic of Peru
FLIRB
3.75%, 3/07/17 (b) (c)....... 26,600 14,563,500
PDI
4.50%, 3/07/17 (c)........... 7,000 4,296,600
------------
18,860,100
------------
PHILIPPINES--0.9%
Republic of Philippines
9.875%, 1/15/19................ 5,500 5,390,000
------------
Shares or
Principal
Amount
(000) U.S. $ Value
- ------------------------------------------------------------------------
RUSSIA--5.0%
Ministry of Finance
12.75%, 6/24/28 (b)............ $ 26,000 $ 14,560,000
Russian Principal Loans FRN
6.718%, 12/15/20............... 18,000 2,183,400
Russian Federation
8.75%, 7/24/05 (b)............. 28,000 13,930,000
Russian IAN FRN
6.0625%, 12/15/15.............. 4,089 639,072
------------
31,312,472
------------
VENEZUELA--6.0%
Republic of Venezuela
9.25%, 9/15/27................. 33,250 21,655,725
13.625%, 8/15/18............... 17,100 15,304,500
------------
36,960,225
------------
Total Sovereign Debt
Obligations
(cost $162,604,265)............ 155,463,282
------------
CORPORATE DEBT
OBLIGATIONS--6.6%
CANADA--0.6%
Clearnet Communications Inc.
11.75%, 8/13/07................ CAD 2,750 1,260,611
10.40%, 5/15/08................ 6,050 2,465,195
------------
3,725,806
------------
PUERTO RICO--3.4%
Telecom de Puerto Rico
6.80%, 5/15/09 (b)............. $ 22,000 21,099,540
------------
UNITED KINGDOM--0.9%
NTL Communications Corp.
9.75%, 4/15/09 (b)............. GBP 6,000 5,627,214
------------
UNITED STATES--1.7%
Dresdner Funding Trust
8.151%, 6/30/31 (b)............ $ 11,000 10,562,178
------------
Total Corporate Debt Obligations
(cost $42,893,581)............. 41,014,738
------------
PREFERRED STOCK--4.2%
Abbey National PLC............... GBP 6,000 13,500,584
Bank of Scotland................. 4,950 12,113,287
------------
Total Preferred Stock
(cost $27,564,888)............. 25,613,871
------------
4
<PAGE>
ACM Government Securities Fund
================================================================================
Principal
Amount
(000) U.S. $ Value
- ------------------------------------------------------------------------
TIME DEPOSIT--5.4%
State Street Bank & Trust Co.
4.50%, 07/01/99
(cost $33,375,000)............. $ 33,375 $ 33,375,000
------------
TOTAL INVESTMENTS--140.9%
(cost $910,068,426).......... $869,001,614
Other assets less liabilities--
(40.9%) (252,107,310)
------------
NET ASSETS--100.0%............. $616,894,304
============
- ------------------------------------------------------------------------
(a) Securities or portion thereof, have been segregated to collateralize open
forward exchange currency contracts. Total value of segregated securities
amounted to $584,037,142 at June 30, 1999.
(b) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At June 30,
1999, these securities amounted to $80,342,432 or 13.0% of net assets.
(c) Coupon increases periodically based upon a predetermined schedule. Stated
interest rate in effect at June 30, 1999.
Glossary of Terms:
FLIRB-Front Loaded Interest Reduction Bond
FRN-Floating Rate Note
IAN-Interest Arrears Note
PDI-Past Due Interest
See notes to financial statements.
5
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1999 (unaudited) ACM Government Securities Fund
================================================================================
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value (cost $910,068,426) .......................................... $ 869,001,614
Cash ............................................................................................. 186
Receivable for investment securities sold ........................................................ 351,962
Interest receivable .............................................................................. 13,221,539
Unrealized appreciation on swap contracts ........................................................ 958,500
Unrealized appreciation on forward currency contracts ............................................ 810,040
Prepaid expenses ................................................................................. 36,831
-------------
Total assets ..................................................................................... 884,380,672
-------------
LIABILITIES
Loan payable ..................................................................................... 110,000,000
Payable for investment securities purchased ...................................................... 150,446,129
Dividends payable ................................................................................ 5,855,394
Advisory fee payable ............................................................................. 479,004
Loan interest payable ............................................................................ 331,528
Administrative fee payable ....................................................................... 96,112
Accrued expenses ................................................................................. 278,201
-------------
Total liabilities ................................................................................ 267,486,368
-------------
NET ASSETS ........................................................................................ $ 616,894,304
=============
COMPOSITION OF NET ASSETS
Capital stock, at par ............................................................................ $ 780,719
Additional paid-in capital ....................................................................... 835,815,462
Distributions in excess of net investment income ................................................. (6,911,308)
Accumulated net realized loss on investments, swap contracts and foreign currency transactions ... (173,492,280)
Net unrealized depreciation of investments, swap contracts and foreign currency transactions ..... (39,298,289)
-------------
$ 616,894,304
=============
NET ASSET VALUE PER SHARE (based on 78,071,925 shares outstanding) ................................ $ 7.90
=============
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
6
<PAGE>
STATEMENT OF OPERATIONS
Six Months Ended June 30, 1999 (unaudited) ACM Government Securities Fund
================================================================================
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest ............................................................................... $ 36,698,604
Dividends (net of foreign taxes withheld of $82,862) ................................... 986,943 $ 37,685,547
------------
EXPENSES
Advisory fee ........................................................................... 2,683,813
Administrative fee ..................................................................... 551,556
Transfer agency ........................................................................ 109,075
Custodian .............................................................................. 88,600
Reports and notices to shareholders .................................................... 84,165
Audit and legal ........................................................................ 43,440
Registration fee ....................................................................... 29,425
Directors' fees ........................................................................ 15,928
Miscellaneous .......................................................................... 14,304
------------
Total expenses before interest ......................................................... 3,620,306
Interest expense ....................................................................... 3,026,680
------------
Total expenses ......................................................................... 6,646,986
------------
Net investment income .................................................................. 31,038,561
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS,
SWAPS AND FOREIGN CURRENCY TRANSACTIONS
Net realized loss on investment transactions ........................................... (92,778,216)
Net realized loss on swap contracts .................................................... (403,337)
Net realized gain on foreign currency transactions ..................................... 248,167
Net change in unrealized depreciation of investment transactions, swap contracts and
foreign currency denominated assets and liabilities ................................... 31,352,753
------------
Net loss on investment transactions .................................................... (61,580,633)
------------
NET DECREASE IN NET ASSETS FROM OPERATIONS ............................................... $(30,542,072)
============
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
7
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended June 30, 1999 (unaudited) ACM Government Securities Fund
================================================================================
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1999 Year Ended
(unaudited) December 31, 1998
---------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income ...................................................... $ 31,038,561 $ 65,936,091
Net realized loss on investments, options written, swap contracts and
foreign currency transactions ............................................ (92,933,386) (56,219,773)
Net change in unrealized appreciation (depreciation) of investments, swap
contracts and foreign currency denominated assets and liabilities ........ 31,352,753 (70,041,697)
------------- -------------
Net decrease in net assets from operations ................................. (30,542,072) (60,325,379)
DIVIDENDS TO SHAREHOLDERS
Dividends from net investment income ....................................... (40,941,949) (67,744,877)
COMMON STOCK TRANSACTIONS
Reinvestment of dividends resulting in issuance of Common Stock ............ 1,212,405 611,913
------------- -------------
Total decrease ............................................................. (70,271,616) (127,458,343)
NET ASSETS
Beginning of period ........................................................ 687,165,920 814,624,263
------------- -------------
End of period (including undistributed net investment income
of $2,992,080 at December 31, 1998) ...................................... $ 616,894,304 $ 687,165,920
============= =============
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
8
<PAGE>
STATEMENT OF CASH FLOWS
Six Months Ended June 30, 1999 (unaudited) ACM Government Securities Fund
================================================================================
<TABLE>
<S> <C> <C>
INCREASE (DECREASE) IN CASH FROM OPERATING ACTIVITIES:
Interest and dividends received ............................... $ 27,698,799
Interest expense paid ......................................... (3,051,277)
Operating expenses paid ....................................... (3,300,986)
--------------
Net increase in cash from operating activities ................ $ 21,346,536
INVESTING ACTIVITIES:
Purchases of long-term investments ............................ (2,158,111,318)
Proceeds from disposition of long-term investments ............ 2,190,469,368
Proceeds from disposition of short-term investments - net ..... (33,530,170)
--------------
Net decrease in cash from investing activities ................ (1,172,120)
FINANCING ACTIVITIES*:
Cash dividends paid ........................................... (33,874,150)
------------
Net decrease in cash .......................................... (13,699,734)
Cash at beginning of period ................................... 13,699,920
------------
Cash at end of period ......................................... $ 186
============
- -------------------------------------------------------------------------------------------------
RECONCILIATION OF NET DECREASE IN NET ASSETS FROM
OPERATIONS TO NET INCREASE IN CASH FROM OPERATING
ACTIVITIES:
Net decrease in net assets from operations .................... $(30,542,072)
ADJUSTMENTS:
Decrease in interest receivable ............................... $ (616,648)
Accretion of bond discount .................................... (9,370,100)
Increase in accrued expenses .................................. 294,723
Net loss on investments ....................................... 61,580,633
--------------
Total adjustments ............................................. 51,888,608
------------
NET INCREASE IN CASH FROM OPERATING ACTIVITIES .................. $ 21,346,536
============
- -------------------------------------------------------------------------------------------------
</TABLE>
* Non-cash financing activities not included herein consist of reinvestment
of dividends.
See notes to financial statements.
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS
June 30, 1999 (unaudited) ACM Government Securities Fund
================================================================================
NOTE A: Significant Accounting Policies
ACM Government Securities Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940 as a non-diversified, closed-end management
investment company. The financial statements have been prepared in conformity
with generally accepted accounting principles which require management to make
certain estimates and assumptions that affect the reported amounts of assets and
liabilities in the financial statements and amounts of income and expenses
during the reporting period. Actual results could differ from those estimates.
The following is a summary of significant accounting policies followed by the
Fund.
1. Security Valuation
Portfolio securities traded on a national securities exchange or on a foreign
securities exchange (other than foreign securities exchanges whose operations
are similar to those of the United States over-the-counter market) are generally
valued at the last reported sale price or, if there was no sale on such day, the
last bid price quoted on such day. If no bid prices are quoted, then the
security is valued at the mean of the bid and asked prices as obtained on that
day from one or more dealers regularly making a market in that security.
Securities traded on the over-the-counter market, securities listed on a foreign
securities exchange whose operations are similar to the United States
over-the-counter market and securities listed on a national securities exchange
whose primary market is believed to be over-the-counter are valued at the mean
of the closing bid and asked price provided by two or more dealers regularly
making a market in such securities. U.S. government securities and other debt
securities which mature in 60 days or less are valued at amortized cost unless
this method does not represent fair value. Securities for which market
quotations are not readily available are valued at fair value as determined in
good faith by, or in accordance with procedures approved by, the Board of
Directors. Fixed income securities may be valued on the basis of prices provided
by a pricing service when such prices are believed to reflect the fair market
value of such securities. Listed put and call options purchased by the Fund are
valued at the last sale price. If there has been no sale on that day, such
securities will be valued at the closing bid prices on that day.
2. Taxes
It is the Fund's policy to meet the requirements of the Internal Revenue Code
applicable to regulated investment companies and to distribute all of its
investment company taxable income and net realized gains, if any, to
shareholders. Therefore, no provisions for federal income or excise taxes are
required.
3. Investment Income and Investment Transactions
Interest income is accrued daily. Dividend income is recorded on the ex-dividend
date. Investment transactions are accounted for on the date securities are
purchased or sold. Investment gains and losses are determined on the identified
cost basis. The Fund accretes discounts as adjustments to interest income.
4. Currency Translation
Assets and liabilities denominated in foreign currencies and commitments under
forward exchange currency contracts are translated into U.S. dollars at the mean
of the quoted bid and asked prices of such currencies against the U.S. dollar.
Purchases and sales of portfolio securities are translated into U.S. dollars at
the rates of exchange prevailing when such securities were acquired or sold.
Income and expenses are translated into U.S. dollars at the rates of exchange
prevailing when accrued. Net realized gain or loss on foreign currency
transactions represents foreign exchange gains and losses from sales and
maturities of foreign securities, holding of foreign currencies, options on
foreign currencies, closed forward exchange currency contracts, exchange gains
and losses realized between the trade and settlement dates on foreign security
transactions, and the difference between the amounts of interest and foreign
withholding taxes recorded on the Fund's books and the U.S. dollar equivalent of
the amounts actually received or paid. Net foreign currency gains and losses
from valuing foreign currency denominated assets and liabilities at period end
exchange rates are reflected as a component of net unrealized depreciation of
investments, swap contracts and foreign currency transactions.
10
<PAGE>
ACM Government Securities Fund
================================================================================
5. Dividends and Distributions
Dividends and distributions to shareholders are recorded on the ex-dividend
date. Income and capital gains distributions are determined in accordance with
federal tax regulations and may differ from those determined in accordance with
generally accepted accounting principles. To the extent these differences are
permanent, such amounts are reclassified withing the capital accounts based on
their federal tax basis treatment; temporary differences, do not require such
reclassification.
- --------------------------------------------------------------------------------
NOTE B: Advisory, Administrative Fees and Other Transactions with Affiliates
Under the terms of an Investment Advisory Agreement, the Fund pays its Adviser a
monthly advisory fee in an amount equal to the sum of 1/12th of .30% of the
Fund's average weekly net assets up to $250 million, 1/12th of .25% of the
Fund's average weekly net assets in excess of $250 million, and 5.25% of the
daily gross income (i.e., income other than gains from the sale of securities
and foreign currency transactions or gains realized from options and futures
contracts less interest on money borrowed by the Fund) accrued by the Fund
during the month. However, such monthly advisory fee shall not exceed in the
aggregate 1/12th of 1% of the Fund's average weekly net assets during the month
(approximately 1% on an annual basis).
Under the terms of a Shareholder Inquiry Agency Agreement with Alliance Fund
Services, Inc. ("AFS"), an affiliate of the Adviser, the Fund reimburses AFS for
costs relating to servicing phone inquiries on behalf of the Fund. During the
six months ended June 30, 1999, the Fund reimbursed AFS $4,230.
Under the terms of an Administrative Agreement, the Fund pays its Administrator,
Mitchell Hutchins Asset Management Inc., a monthly fee equal to the annualized
rate of .20 of 1% of the Fund's average weekly net assets up to $100 million,
.18 of 1% of the Fund's next $200 million of average weekly net assets, and .16
of 1% of the Fund's average weekly net assets in excess of $300 million. The
Administrator prepares financial and regulatory reports for the Fund and
provides other clerical services.
- --------------------------------------------------------------------------------
NOTE C: Investment Transactions
Purchases and sales of investment securities (excluding short-term investments
and U.S. government securities) aggregated $435,603,273 and $447,542,746
respectively, for the six months ended June 30, 1999. There were purchases of
$1,680,423,655 and sales of $1,743,589,276 of U.S. government and government
agency obligations for the six months ended June 30, 1999.
At June 30, 1999, the cost of investments for federal income tax purposes was
substantially the same as the cost for financially reporting purposes. The gross
unrealized appreciation of investments was $6,017,428 and gross unrealized
depreciation was $47,084,240, resulting in net unrealized depreciation of
$41,066,812 (excluding foreign currency transactions).
At December 31, 1998, the Fund had a capital loss carryforward of $42,513,911 of
which $8,356,705 expires in the year 2003, and $34,157,206 which expires in the
year 2006.
1. Forward Exchange Currency Contracts
The Fund enters into forward exchange currency contracts to hedge its exposure
to changes in foreign currency exchange rates on its foreign portfolio holdings,
to hedge certain firm purchase and sale commitments denominated in foreign
currencies and for investment purposes. A forward exchange currency contract is
a commitment to purchase or sell a foreign currency at a future date at a
negotiated forward rate. The gain or loss arising from the difference between
the original contract and the closing of such contract is included in net
realized gain or loss on foreign currency transactions.
11
<PAGE>
NOTES TO FINANCIAL STATEMENTS (cont.) ACM Government Securities Fund
================================================================================
Fluctuations in the value of open forward exchange currency contracts are
reflected for financial reporting purposes as a component of net unrealized
depreciation of investments, swap contracts and foreign currency transactions.
The Fund's custodian will place and maintain liquid assets in a separate account
of the Fund having a value equal to the aggregate amount of the Fund's
commitments under forward exchange currency contracts entered into with respect
to position hedges.
Risks may arise from the potential inability of a counterparty to meet the terms
of a contract and from unanticipated movements in the value of a foreign
currency relative to the U.S. dollar.
At June 30, 1999, the Fund had outstanding forward exchange currency contracts
as follows:
<TABLE>
<CAPTION>
U.S. $
Forward Exchange Contract Value on U.S.$ Unrealized
Currency Sale Amount Origination Current Appreciation
Contracts (000) Date Value (Depreciation)
-------- ----------- ----------- --------------
<S> <C> <C> <C> <C>
British Pounds, settling 7/23/99 ....... 20,501 $33,137,204 $32,318,492 $ 818,712
Canadian Dollars, settling 8/04/99 ..... 5,845 3,962,627 3,971,299 (8,672)
-----------
$ 810,040
===========
</TABLE>
2. Option Transactions
For hedging purposes, the Fund purchases and writes (sells) put and call options
on U.S. and foreign government securities and foreign currencies that are traded
on U.S. and foreign securities exchanges and over-the-counter markets.
The risk associated with purchasing an option is that the Fund pays a premium
whether or not the option is exercised. Additionally, the Fund bears the risk of
loss of premium and change in market value should the counterparty not perform
under the contract. Put and call options purchased are accounted for in the same
manner as portfolio securities. The cost of securities acquired through the
exercise of call options is increased by premiums paid. The proceeds from
securities sold through the exercise of put options are decreased by the
premiums paid.
When the Fund writes an option, the premium received by the Fund is recorded as
a liability and is subsequently adjusted to the current market value of the
option written. Premiums received from written options which expire unexercised
are recorded by the Fund on the expiration date as a realized gain from options
written. The difference between the premium received and the amount paid on
effecting a closing purchase transaction, including brokerage commissions, is
also treated as a realized gain, or if the premium is less than the amount paid
for the closing purchase transaction, as a realized loss. If a call option is
exercised, the premium is added to the proceeds from the sale of the underlying
security or currency in determining whether the Fund has a realized gain or
loss. If a put option is exercised, the premium reduces the cost basis of the
security or currency purchased by the Fund. In writing an option, the Fund bears
the market risk of an unfavorable change in the price of the security or
currency underlying the option written. Exercise of an option written by the
Fund could result in the Fund selling or buying a security or currency at a
price different from the current market value.
For the six months ended June 30, 1999, the fund did not have any written option
transactions.
3. Swap Agreements
The Fund enters into swaps on sovereign debt obligations to protect itself from
interest rate fluctuations on the underlying debt instruments and for investment
purposes. A swap is an agreement that obligates two parties to exchange a series
of cash flows at specified intervals based upon or calculated by
12
<PAGE>
ACM Government Securities Fund
================================================================================
reference to changes in specified prices or rates for a specified amount of an
underlying asset. The payment flows are usually netted against each other, with
the difference being paid by one party to the other.
Risks may arise as a result of the failure of the counterparty to the swap
contract to comply with the terms of the swap contract. The loss incurred by the
failure of a counterparty is generally limited to the net interest payment to be
received by the Fund, and/or the termination value at the end of the contract.
Therefore, the Fund considers the creditworthiness of each counterparty to a
swap contract in evaluating potential credit risk. Additionally, risks may arise
from unanticipated movements in interest rates or in the underlying value of the
securities.
The Fund records a net receivable or payable on a daily basis for the net
interest income or expense expected to be received or paid during the interest
period. Net interest received or paid on these contracts is recorded as interest
income (or as an offset to interest income). Fluctuations in the value of swap
contracts are recorded for financial statement purposes as a component of net
change in unrealized appreciation (depreciation) of investments and swaps.
At June 30, 1999, the Fund had a total return swap agreement outstanding. The
swap is based on a notional amount of $45,000,000 Russian Principal Loans
obligating the Fund to pay Morgan Guaranty Trust Company ("Morgan Guaranty"),
the swap counterparty, interest based on the London Interbank Offered Rate
("LIBOR") less a spread on the principal amount of $752,760, and obligating the
swap counterparty to pay the Fund any appreciation in the value of the
underlying bond. At June 30, 1999, unrealized appreciation on this total return
swap amounted to $958,500.
- --------------------------------------------------------------------------------
NOTE D: Capital Stock
There are 300,000,000 shares of $0.01 par value common stock authorized, of
which 78,071,925 shares were outstanding at June 30, 1999. During the six months
ended June 30, 1999, and the year ended December 31, 1998, the Fund issued
148,546 and 72,673 shares, respectively, in connection with the Fund's dividend
reinvestment plan.
- --------------------------------------------------------------------------------
NOTE E: Concentration of Risk
Investing in securities of foreign governments involves special risks which
include changes in foreign exchange rates and the possibility of future adverse
political and economic developments which could adversely affect the value of
such securities. Moreover, securities of many foreign governments and their
markets may be less liquid and their prices more volatile than those of the
United States government.
- --------------------------------------------------------------------------------
NOTE F: Bank Borrowing
The Fund has a Revolving Credit Agreement with Morgan Guaranty. The maximum
credit available is $110,000,000 and such amount was outstanding for the six
months ended June 30, 1999.
The renewable credit facility of $110,000,000 will mature on September 10, 1999
and requires no collateralization. The facility may be renewed by the Fund
annually for an additional one-year term.
Interest payments on current borrowings are based on LIBOR plus a premium. The
weighted average interest rate for the six months ended June 30, 1999 was 5.55%.
The interest rate at June 30, 1999 was 5.425%. The Fund is obligated to pay
Morgan Guaranty a commitment fee computed at the rate of .075 of 1% per annum on
the average daily unused portion of the revolving credit.
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS (cont.) ACM Government Securities Fund
================================================================================
NOTE G: Year 2000
Many computer systems and applications in use today process transactions using
two-digit date fields for the year of the transaction, rather than the full four
digits. If these systems are not modified or replaced, transactions occurring
after 1999 could be processed as year "1900," which could result in processing
inaccuracies and computer system failures at or after the Year 2000. This is
commonly known as the Year 2000 problem. The Fund and its major service
providers, including Alliance, utilize a number of computer systems and
applications that have been either developed internally or licensed from third
party suppliers. In addition, the Fund and its major service providers,
including Alliance, are dependent on third party suppliers for certain systems
applications and for electronic receipt of information. Should any of the
computer systems employed by the Fund or its major service providers, including
Alliance, fail to process year 2000 related information properly, that could
have a significant negative impact on the Fund's operations and the services
that are provided to the Fund's stockholders. To the extent that the operations
of issuers of securities held by the Fund are impaired by the Year 2000 problem,
or prices of securities held by the Fund decline as a result of real or
perceived problems relating to the Year 2000, the value of the Fund's shares may
be materially affected. In addition, for the Fund's investments in foreign
markets, it is possible that foreign companies and markets will not be as
prepared for Year 2000 as domestic companies and markets.
The Year 2000 issue is a high priority for the Fund and Alliance. The Fund has
been advised that, during 1997, Alliance began a formal Year 2000 initiative
which established a structured and coordinated process to deal with the Year
2000 issue. As part of its initiative, Alliance established a Year 2000 project
office to manage the Year 2000 initiative, focusing on both information
technology and non-information technology systems. Alliance has also retained
the services of a number of consulting firms which have expertise in advising
and assisting with regard to Year 2000 issues. Alliance reports that by June 30,
1998 it had completed its inventory and assessment of its domestic and
international computer systems and applications, identified mission critical
systems and non-mission critical systems and determined which of these systems
are not Year 2000 compliant. All third party suppliers of mission critical
computer systems and applications have been contacted to verify whether their
systems and applications will be Year 2000 compliant and their responses are
being evaluated. Substantially all of those contacted have responded and
approximately 90% have informed Alliance that their systems and applications are
or will be Year 2000 compliant. Alliance will seek alternative solutions or
third party suppliers for all suppliers who do not furnish a satisfactory
response by July 31, 1999. The same process is being performed for non-mission
critical systems with estimated completion by July 31, 1999. Alliance had
remediated, replaced or retired all of its non-compliant mission critical
systems and applications which can impact the Fund. After each system has been
remediated, it is tested with 19xx dates to determine if it still performs its
intended business function correctly. Next, each system undergoes a simulation
test using dates occurring after December 31, 1999. Inclusive of the replacement
and retirement of some of its systems, Alliance has completed these testing
phases for approximately 89% of nonmission critical systems. Integrated systems
tests will then be conducted to verify that the systems will continue to work
together. Full integration testing of all mission critical and nonmission
critical systems is estimated to be completed by July 31, 1999. Testing of
interfaces with third-party suppliers has begun and will continue throughout
1999. Alliance reports that it has completed an inventory of its facilities and
related technology applications and has begun to evaluate and test these
systems. Alliance reports that it anticipates that these systems will be fully
operable in the year 2000. Alliance, with the assistance of a consulting firm,
is developing Year 2000 specific contingency plans with emphasis on mission
critical functions. These plans seek to provide alternative
14
<PAGE>
ACM Government Securities Fund
================================================================================
methods of processing in the event of a failure that is outside Alliance's
control. The estimated date for the completion of these plans is July 31, 1999.
There are many risks associated with Year 2000 issues, including the risks that
the computer systems and applications used by the Fund and its major service
providers, including Alliance, will not operate as intended and that the systems
and applications of third party providers to the Fund and its service providers
will not be Year 2000 compliant. Likewise there can be no assurance the
compliance schedules outlined above will be met or that the actual cost incurred
will not exceed current cost estimates. Should the significant computer systems
and applications used by the Fund and its major service providers or the systems
of its important third party suppliers be unable to process date sensitive
information accurately after 1999, the Fund and its service providers may be
unable to conduct its normal business operations and to provide shareholders
with the required services. In addition, the Fund and its service providers may
incur unanticipated expenses, regulatory actions and legal liabilities. The Fund
and Alliance cannot determine which risks, if any, are most reasonably likely to
occur or the effects of any particular failure to be Year 2000 compliant.
Certain statements provided by Alliance in this section entitled "Year 2000," as
such statements relate to Alliance, are "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. To the fullest
extent permitted by law, the foregoing Year 2000 discussion is a "Year 2000
Readiness Disclosure" within the meaning of the Year 2000 Information and
Readiness Disclosure Act, 15 U.S.C. Sec. 1 (1998).
15
<PAGE>
FINANCIAL HIGHLIGHTS ACM Government Securities Fund
================================================================================
Selected Data For A Share Of Common Stock Outstanding Throughout Each Period
<TABLE>
<CAPTION>
Six Months
Ended Years Ended December 31,
June 30, 1999 ------------------------------------------------------------
(unaudited) 1998 1997 1996 1995 1994
------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year ................ $ 8.82 $ 10.46 $ 9.90 $ 9.37 $ 8.13 $ 10.88
-------- -------- -------- -------- -------- --------
Income From Investment Operations
Net investment income ............................. .40(a) .86(a) .89 .92 .98(a) .90(a)
Net realized and unrealized gain (loss) on
investments, options written, swap contracts
and foreign currency transactions ............... (.79) (1.63) .54 .55 1.21 (2.65)
-------- -------- -------- -------- -------- --------
Net increase (decrease) in net asset value
from operations ................................. (.39) (.77) 1.43 1.47 2.19 (1.75)
-------- -------- -------- -------- -------- --------
Less: Dividends and Distributions
Dividends from net investment income .............. (.53) (.87) (.87) (.92) (.95) (.78)
Distributions in excess of net investment income .. -0- -0- -0- (.02) -0- -0-
Tax return of capital distribution ................ -0- -0- -0- -0- -0- (.22)
-------- -------- -------- -------- -------- --------
Total dividends and distributions ................. (.53) (.87) (.87) (.94) (.95) (1.00)
-------- -------- -------- -------- -------- --------
Net asset value, end of period .................... $ 7.90 $ 8.82 $ 10.46 $ 9.90 $ 9.37 $ 8.13
======== ======== ======== ======== ======== ========
Market value, end of period ....................... $ 8.00 $ 8.375 $ 10.063 $ 8.875 $ 8.25 $ 8.125
======== ======== ======== ======== ======== ========
Total Investment Return
Total investment return based on: (b)
Market value ...................................... 1.85% (8.74)% 23.93% 19.50% 13.93% (23.69)%
Net asset value ................................... (4.49)% (7.54)% 15.48% 17.29% 29.28% (16.66)%
Ratios/Supplemental Data
Net assets, end of period (000's omitted) ......... $616,894 $687,166 $814,624 $771,044 $729,368 $630,520
Ratio of expenses to average net assets ........... 2.07%(c) 1.96% 1.95% 2.10% 2.03% 1.52%
Ratio of expenses to average net assets
excluding interest expense (d) .................. 1.13%(c) 1.08% 1.08% 1.16% 1.29% 1.14%
Ratio of net investment income to
average net assets .............................. 9.67%(c) 8.76% 8.89% 9.96% 11.55% 9.83%
Portfolio turnover rate ........................... 231% 389% 308% 364% 393% 319%
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Based on average shares outstanding.
(b) Total investment return is calculated assuming a purchase of common stock
on the opening of the first day and a sale on the closing of the last day
of each period reported. Dividends and distributions, if any, are assumed
for purposes of this calculation, to be reinvested at prices obtained
under the Fund's dividend reinvestment plan. Generally, total investment
return based on net asset value will be higher than total investment
return based on market value in periods where there is an increase in the
discount or a decrease in the premium of the market value to the net asset
value from the beginning to the end of such periods. Conversely, total
investment return based on net asset value will be lower than total
investment return based on market value in periods where there is a
decrease in the discount or an increase in the premium of the market value
to the net asset value from the beginning to the end of such periods.
Total investment return for a period of less than one year is not
annualized.
(c) Annualized.
(d) Net of interest expense of .94%, .88%, .87%, .94%, .74%, and .38%,
respectively, on borrowings (see Note F).
16
<PAGE>
ADDITIONAL INFORMATION ACM Government Securities Fund
================================================================================
Supplemental Proxy Information
The Annual Meeting of the Shareholders of the ACM Government Securities Fund was
held on Tuesday, March 9, 1999. The description of each proposal and number of
shares voted at the meeting are as follows:
Voted
Withheld/
Voted For Abstain
- --------------------------------------------------------------------------------
1. To elect directors: Class Two Directors
(term expires in 2002)
David H. Dievler 70,215,114 980,120
William H. Foulk, Jr. 70,213,284 981,950
Dr. James M. Hester 70,196,850 998,384
Voted Voted
Voted For Against Abstain
- --------------------------------------------------------------------------------
2. To ratify the selection of Ernst &
Young LLP as the Fund's independent
auditors for the fiscal year ending
December 31, 1999: 70,150,849 351,119 693,266
17
<PAGE>
ACM Government Securities Fund
================================================================================
BOARD OF DIRECTORS
John D. Carifa, Chairman
Ruth Block (1)
David H. Dievler (1)
James H. Dobkin (1)
William H. Foulk, Jr. (1)
Dr. James M. Hester (1)
Clifford L. Michel (1)
Donald J. Robinson (1)
Robert C. White (1)
OFFICERS
Wayne D. Lyski, President
Kathleen A. Corbet, Senior Vice President
Paul J. DeNoon, Vice President
Christian G. Wilson, Vice President
Edmund P. Bergan, Jr., Secretary
Mark D. Gersten, Treasurer & Chief Financial Officer
Juan J. Rodriguez, Controller
ADMINISTRATOR
Mitchell Hutchins Asset Management Inc.
1285 Avenue of the Americas
New York, NY 10019
INDEPENDENT AUDITORS
Ernst & Young LLP
787 Seventh Avenue
New York, NY 10019
CUSTODIAN, DIVIDEND PAYING AGENT, TRANSFER AGENT AND REGISTRAR
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
LEGAL COUNSEL
Seward & Kissel LLP
One Battery Park Plaza
New York, NY 10004
- --------------------------------------------------------------------------------
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940 that the Fund may purchase from time to time at market
prices shares of its Common Stock in the open market.
This report, including the financial statements herein, is transmitted to the
shareholders of ACM Government Securities Fund for their information. This
financial information included herein is taken from the records of the Fund.
This is not a prospectus, circular or representation intended for use in the
purchase of shares of the Fund or any securities mentioned in this report.
(1) Member of Audit Committee
18
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
ACM Government Securities Fund
Summary of General Information
The Fund
ACM Government Securities Fund is a closed-end investment company whose shares
trade on the New York Stock Exchange. The Fund invests at least 65% of assets
primarily in securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities, and repurchase agreements pertaining to U.S.
Government securities. The Fund may also invest up to 35% of its assets in other
fixed-income securities, including those issued by non-governmental issuers in
the United States and those issued by foreign governments. The Fund may also use
certain other investment techniques, including options and futures. The Fund may
invest up to 35% of its net assets in below investment-grade securities. The
investment ad-viser of the Fund is Alliance Capital Management L.P.
Shareholder Information
The daily net asset value of the Fund's shares is available from the Fund's
Transfer Agent by calling 1-800-426-5523. The Fund also distributes its daily
net asset value to various financial publications or independent organizations
such as Lipper Inc., Morningstar, Inc. and Bloomberg. Daily market prices for
the Fund's shares are published in the New York Stock Exchange Composite
Transaction Section of newspapers under the designation "ACMSc". The Fund's NYSE
trading symbol is "GSF". Weekly comparative net asset value (NAV) and market
price information about the Fund is published each Monday in The Wall Street
Journal, each Sunday in The New York Times and each Saturday in Barron's and
other newspapers in a table called "Closed-End Bond Funds."
Dividend Reinvestment Plan
A Dividend Reinvestment Plan is available to shareholders in the Fund, which
provides automatic reinvestment of dividends and capital gain distributions in
additional Fund shares. The Plan also allows you to make optional cash
investments in Fund shares through the Plan Agent. If you wish to participate in
the Plan and your shares are held in your name, simply complete and mail the
enrollment form in the brochure. If your shares are held in the name of your
brokerage firm, bank or other nominee, you should ask them whether or how you
can participate in the Plan.
For questions concerning shareholder account information, or if you would like a
brochure describing the Dividend Reinvestment Plan, please call State Street
Bank and Trust Company at 1-800-219-4218.
ACM Government Securities Fund
1345 Avenue of the Americas
New York, New York 10105
AllianceCapital [LOGO](R)
(R) These registered service marks used under license from the owner, Alliance
Capital Management L.P.
SECSR 699
ACM
------------------------------------------
GOVERNMENT
------------------------------------------
SECURITIES
------------------------------------------
FUND
------------------------------------------
Semi-Annual
Report
June 30, 1999
Alliance [LOGO](R)
