<PAGE>
LETTER TO SHAREHOLDERS ACM GOVERNMENT SPECTRUM FUND, INC.
- --------------------------------------------------------------------------------
January 25, 1995
Dear Shareholder:
Since we last reported to you in June, the Federal Reserve has continued
tightening monetary policy, placing further downward pressure on domestic and
international bond prices. Despite higher interest rates, mortgage-backed
securities performed relatively well over the six-month period, outperforming
U.S. Treasurys and Agencies on an aggregate basis. Seeking diversification
through international investment, your Fund invested 29% of its total net
assets in foreign debt securities. This strategy was successful in 1993, as
the Fund benefited from selective investment in emerging market and other
foreign debt. Unfortunately, in 1994, emerging market debt suffered
widespread selling in the wake of Mexico's economic crisis. The six- and
twelve-month performance of your Fund was adversely affected by both the rise
in interest rates and investor uncertainty over emerging markets.
INVESTMENT RESULTS
For the twelve months ended December 31, 1994, ACM Government Spectrum Fund
had a total return of -18.93% based on the net asset value. Over the same
period, the Fund distributed dividends totaling $.88 per share. The Fund's
total return for the six months since we last reported was -1.14% based on
the net asset value.
Despite the recent net asset value declines, ACM Government Spectrum Fund
has, since its inception in May of 1988, achieved an annualized total return
of +7.40% based on the net asset value.
THE U.S. ECONOMIC AND INTEREST RATE ENVIRONMENT
The U.S. economy continued its impressive expansion in the second half of
1994 with growth estimated at an annual rate of 4.2%. This strong economic
growth pushed the unemployment rate down to 5.4% and boosted the
manufacturing capacity utilization rate to 85%, considered to be its
full-capacity threshold. While broad price indices such as the Consumer Price
Index (CPI) and Producer Price Index (PPI) have shown few signs of
acceleration, commodity prices and core intermediate goods in the PPI, both
indicators of inflationary pressure, have risen sharply over the past 12
months. Concerns over inflation and the unabated growth of the U.S. economy
prompted the Federal Reserve to raise short-term interest rates in August and
again in November. Since June, two-year U.S. Treasurys have risen from 6.18%
to 7.70% and 30-year U.S. Treasurys have risen from 7.61% to 7.88%.
INVESTMENT OUTLOOK
We expect the Federal Reserve to maintain its focus on growth and continue
raising interest rates until GDP growth is reduced to a non-inflationary
level, generally estimated to be 2.5% or less on an annual basis. Any easing
of fiscal policy by the new political leadership in Congress will increase
the need for monetary tightening. Anticipation of further interest rate
increases should put upward pressure on short-term rates. Long-term rates
should remain at current levels (around 8%), provided the Federal Reserve
maintains its aggressive anti-inflation stance and inflation does not surge
ahead unexpectedly. As higher interest rates work their way through the
economy, growth will moderate from the brisk pace
1
<PAGE>
ACM GOVERNMENT SPECTRUM FUND, INC.
- --------------------------------------------------------------------------------
of 1994. Prices at the early stages of the production cycle have increased, and
it is likely that overall inflation indices will undergo some cyclical pressures
in 1995. However, we expect domestic inflation to peak at 4% or less, which
implies that long-term government bonds offer attractive real returns at current
prices. Lower interest rate volatility should continue to benefit mortgage
assets in 1995.
Despite recent events in Mexico, we believe the long-term outlook for
emerging market and other foreign debt remains positive. Overall economic
fundamentals are strong in most emerging market countries, and the long-term
impact of the North American Free Trade Agreement and the General Agreement
on Tariffs and Trade should continue to bolster economic activity in the
years ahead. It is our view that emerging market debt is currently oversold,
and that prices should improve as the Mexican crisis stabilizes and investors
focus anew on the economic fundamentals.
We appreciate your investment in ACM Government Spectrum Fund and look
forward to reporting improved performance in the coming months.
Sincerely,
/s/ John D. Carifa
John D. Carifa
Chairman
/s/ Wayne D. Lyski
Wayne D. Lyski
President
2
<PAGE>
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1994 ACM GOVERNMENT SPECTRUM FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) U.S. $ VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. GOVERNMENT AND AGENCY
OBLIGATIONS--83.0%
U.S. TREASURY
SECURITIES--38.5%
U.S. Treasury Bonds
Zero coupon, 2/15/15............... US$ 140,630 $ 28,550,703
Zero coupon, 8/15/20............... 37,000 4,948,380
7.50%, 11/15/24.................... 4,500 4,304,520
U.S. Treasury Notes
8.50%, 5/15/97..................... 7,150 7,256,106
11.875%, 11/15/03.................. 7,300 9,129,526
12.375%, 5/15/04 (a)............... 33,950 43,896,332
------------
Total U.S. Treasury Securities
(cost $99,999,337)................. 98,085,567
------------
MORTGAGE-RELATED
SECURITIES--32.2%
Federal Home Loan Bank
15.00%, 9/01/95.................... 8,700 9,124,125
15.00%, 9/07/95.................... 8,800 9,240,000
Federal National Mortgage
Association
Zero coupon, 10/09/19.............. 33,200 4,440,500
Government National Mortgage
Association
7.00%, 12/15/23.................... 50,045 44,915,162
7.00%, 1/15/24..................... 9,607 8,622,589
8.00%, 3/15/24..................... 5,796 5,540,483
------------
Total Mortgage-Related Securities
(cost $90,068,143)................. 81,882,859
------------
FEDERAL AGENCY
SECURITIES--12.3%
Small Business Administration
Loan Pools (I/O)
9.50%, 6/15/17 (b)................. 11,063 11,362,448
Student Loan Marketing
Association
15.00%, 9/13/95.................... 13,130 13,782,910
U.S. Department of Veterans'
Affairs (I/O)
10.00%, 9/15/22.................... 5,976 6,049,194
------------
Total Federal Agency Securities
(cost $31,368,382)................. 31,194,552
------------
Total U.S. Government and
Agency Obligations
(cost $221,435,862)................ 211,162,978
------------
SOVEREIGN DEBT
OBLIGATIONS--20.6%
COLLATERALIZED BRADY
BONDS*--7.3%
ECUADOR--0.4%
Republic of Ecuador
Par Bonds FRN
3.00%, 12/31/24 (e)
(cost $1,065,000).................. US$ 3,000 900,000
------------
NIGERIA--6.9%
Central Bank of Nigeria
Euro Par Bonds VRN
5.50%, 11/15/20 (c)
(cost $17,930,412)................. 45,000 17,634,375
------------
Total Collateralized Brady Bonds
(cost $18,995,412)................. 18,534,375
------------
LOAN ASSIGNMENTS--4.1%
ALGERIA--1.1%
Algeria Refinanced Trust
Loan Assignment
7.4375%, 12/21/96
(cost $6,512,275).................. FRF 43,714 2,782,785
------------
ECUADOR--1.0%
Republic of Ecuador
Consolidated Loan Assignment (d)
(cost $3,575,000).................. US$ 5,500 2,695,000
------------
RUSSIA--2.0%
Vneshekonombank
Loan Assignment (d)................ DEM 12,000 2,231,077
Loan Assignment (d)................ US$ 10,000 2,781,250
------------
Total Russian Loan Assignments
(cost $8,805,778).................. 5,012,327
------------
Total Loan Assignments
(cost $18,893,053)................. 10,490,112
------------
OTHER SOVEREIGN DEBT
OBLIGATIONS--9.2%
BRAZIL--6.1%
Republic of Brazil
C-Bonds
8.00%, 4/15/14 (f)
(cost $15,564,379)................. 32,385 15,585,281
------------
BULGARIA--1.7%
Republic of Bulgaria
PDI/IAB Bonds FRN
6.0625%, 7/28/11 (c)
(cost $4,348,198).................. 10,000 4,237,500
------------
</TABLE>
3
<PAGE>
PORTFOLIO OF INVESTMENTS (CONT.) ACM GOVERNMENT SPECTRUM FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) U.S. $ VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
ECUADOR--1.4%
Republic of Ecuador (e)
PDI Bond, 12/31/14
(cost $4,550,000)................... US$ 10,000 $ 3,675,000
------------
Total Other Sovereign
Debt Obligations
(cost $24,462,577).................. 23,497,781
------------
Total Sovereign
Debt Obligations
(cost $62,351,042).................. 52,522,268
------------
FOREIGN SECURITIES--8.7%
ARGENTINA--8.7%
Bonos de Consolidacion de
Daudas Provisionales FRN
3.50%, 4/01/01 (c).................. ARP 14,711 6,246,319
Bonos de Consolidacion FRN
3.50%, 4/01/07 (c).................. 59,033 15,803,733
------------
Total Foreign Securities
(cost $32,555,710).................. 22,050,052
------------
CERTIFICATES OF
DEPOSIT--3.2%
Bayerische Landesbank
Spread Notes
U.S. Treasury Bond
6.25%, 8/15/23 vs. Brazil
Par Bonds 4%, 4/15/24 (g)
9.125%, 9/28/95..................... US$ 1,500 1,112,250
U.S. Treasury Bond
6.25%, 8/15/23 vs. Brazil
Par Bonds 4%, 4/15/24 (g)
9.125%, 10/13/95.................... 1,500 1,139,100
Morgan Guaranty Trust Co.
Indexed Notes
Indexed to Peru (Non-Citi)
Loan Assignment (h)
9.00%, 5/30/95...................... 4,834 4,706,748
Indexed to Ivory Coast
Unrestructured Loan
Assignment (h)
9.00%, 6/19/95...................... 1,311 1,311,000
------------
Total Certificates of Deposit
(cost $9,145,375)................... 8,269,098
------------
CALL OPTIONS
PURCHASED--0.1%
Argentinian Floating Rate Bonds
6.50%, 3/31/05
expiring April '95 @ $72.50
(cost $346,500)..................... US$ 16,500 90,750
------------
Mexican Par Bonds
6.25%, 12/31/19
expiring April '95 @ $63.3125
(cost $627,000)..................... 33,000 95,865
------------
Philippines Par Bonds
5.75%, 12/01/17
expiring May '95 @ $63.75
(cost $98,438)...................... 8,750 103,250
------------
Total Call Options Purchased
(cost $1,071,938)................... 289,865
------------
TOTAL INVESTMENTS--115.6%
(cost $326,559,927)................. 294,294,261
------------
PUT OPTIONS
WRITTEN--(1.4%)
Argentinian Floating Rate Bonds
6.50%, 3/31/05
expiring April '95 @ $68.50
(premium received $305,250)......... 16,500 (1,041,150)
------------
Mexican Par Bonds
6.25%, 12/31/19
expiring April '95 @ $60.3125
(premium received $429,000)......... 33,000 (2,495,757)
------------
Philippines Par Bonds
5.75%, 12/01/17
expiring May '95 @ $57.75
(premium received $48,125).......... 8,750 (55,125)
------------
Total Put Options Written
(premiums received $782,375)........ (3,592,032)
------------
TOTAL INVESTMENTS,
NET OF OUTSTANDING PUT
OPTIONS WRITTEN--114.2%............. 290,702,229
Other assets less liabilities--
(14.2%)............................. (36,085,930)
------------
NET ASSETS--100%...................... $254,616,299
============
</TABLE>
4
<PAGE>
ACM GOVERNMENT SPECTRUM FUND, INC.
- --------------------------------------------------------------------------------
* Sovereign debt obligations issued as part of debt restructurings that
are collateralized in full as to principal due at maturity by U.S.
Treasury zero coupon obligations which have the same maturity as the
Brady Bond.
(a) Security, or a portion thereof, has been segregated to collateralize a
forward exchange currency contract.
(b) Illiquid security. Security, having a cost of $11,063,041 was acquired
in June 8, 1992 and represents 4.5% of net assets at December 31, 1994.
(c) Stated interest rate in effect at December 31, 1994.
(d) Non-income producing security.
(e) Security is a "when if" issue.
(f) Coupon consists of 4.00% cash payment and 4.00% paid-in-kind.
(g) The redemption value of these securities is indexed to the spread
between the referenced treasury yield and the referenced emerging market
debt yield.
(h) The redemption value of these securities is linked to the change in the
bid price of the referenced emerging market debt.
Glossary of Terms:
FRN - Floating Rate Notes.
IAB - Interest Arrears Bonds.
I/O - Interest Only. Interest accrued based on yield to maturity.
PDI - Past Due Interest.
VRN - Variable Rate Notes.
See notes to financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1994 ACM GOVERNMENT SPECTRUM FUND, INC.
- -----------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS
Investments in securities, at value (cost $326,559,927).............................. $ 294,294,261
Cash................................................................................. 141,707
Interest receivable.................................................................. 5,552,684
-------------
Total assets......................................................................... 299,988,652
-------------
LIABILITIES
Outstanding put options written (premiums received $782,375)......................... 3,592,032
Payable for investment securities purchased.......................................... 41,082,688
Advisory fee payable................................................................. 219,704
Net unrealized depreciation of forward exchange currency contract.................... 197,313
Administrative fee payable........................................................... 41,357
Accrued expenses and other liabilities............................................... 239,259
-------------
Total liabilities.................................................................... 45,372,353
-------------
NET ASSETS (equivalent to $6.89 per share, based on 36,938,992 shares outstanding)...... $ 254,616,299
=============
COMPOSITION OF NET ASSETS
Capital stock, at par................................................................ $ 369,390
Additional paid-in capital........................................................... 331,237,793
Accumulated net realized loss........................................................ (41,717,221)
Net unrealized depreciation of investments, options and foreign
currency denominated assets and liabilities........................................ (35,273,663)
-------------
$ 254,616,299
=============
NET ASSET VALUE PER SHARE............................................................... $6.89
=====
</TABLE>
- --------------------------------------------------------------------------------
See notes to financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994 ACM GOVERNMENT SPECTRUM FUND, INC.
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
Interest................................................................... $ 31,429,564
------------
EXPENSES
Advisory fee............................................................... $2,487,724
Administrative fee......................................................... 543,732
Custodian.................................................................. 139,028
Transfer agency............................................................ 106,872
Reports and notices to shareholders........................................ 106,634
Audit and legal............................................................ 69,570
Directors' fees............................................................ 30,991
Miscellaneous.............................................................. 49,961
----------
Total expenses............................................................. 3,534,512
------------
Net investment income...................................................... 27,895,052
------------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS
Net realized loss on investment transactions............................... (39,275,030)
Net realized loss on option transactions................................... (887,445)
Net realized loss on foreign currency transactions......................... (5,279,318)
Net change in unrealized appreciation of:
Investments and options.................................................. (45,017,199)
Foreign currency denominated assets and liabilities...................... (474,611)
------------
Net loss on investments and foreign currency transactions.................. (90,933,603)
------------
NET DECREASE IN NET ASSETS FROM OPERATIONS.................................... $(63,038,551)
============
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1994 DECEMBER 31, 1993
----------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income.......................................................... $ 27,895,052 $ 31,181,064
Net realized gain (loss) on investments, options and foreign currency
transactions................................................................ (45,441,793) 24,271,873
Net change in unrealized appreciation (depreciation) of investments,
options and foreign currency denominated assets and liabilities............. (45,491,810) 13,509,257
------------ ------------
Net increase (decrease) in net assets from operations.......................... (63,038,551) 68,962,194
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income........................................... (25,843,516) (32,344,313)
Distributions from net realized gains.......................................... -0- (12,616,509)
Distributions in excess of net realized gains.................................. -0- (133,072)
Tax return of capital distribution............................................. (6,507,974) -0-
COMMON STOCK TRANSACTIONS
Reinvestment of dividends resulting in the issuance of common stock............ 4,458,917 1,575,667
Proceeds from sale of shares of common stock in rights offering................ -0- 38,263,172
Offering costs charged to additional paid-in capital........................... -0- (441,745)
------------ ------------
Total increase (decrease)...................................................... (90,931,124) 63,265,394
NET ASSETS
Beginning of year.............................................................. 345,547,423 282,282,029
------------ ------------
End of year (including undistributed net investment income of $3,603,976
at December 31, 1993)....................................................... $254,616,299 $345,547,423
============ ============
</TABLE>
- --------------------------------------------------------------------------------
See notes to financial statements.
7
<PAGE>
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 ACM GOVERNMENT SPECTRUM FUND, INC.
- --------------------------------------------------------------------------------
NOTE A: SIGNIFICANT ACCOUNTING POLICIES
ACM Government Spectrum Fund, Inc., (the "Fund") is registered under the
Investment Company Act of 1940 as a non-diversified, closed-end management
investment company. The following is a summary of significant accounting
policies followed by the Fund.
1. SECURITY VALUATION
Portfolio securities traded on a national securities exchange are valued at the
last sale price on such exchange on the day of valuation or, if there was no
sale on such day, the last bid price quoted on such day. Listed securities not
traded and securities traded in the over-the-counter market, including listed
debt securities whose primary market is believed to be over-the-counter, are
valued at the mean between the most recently quoted bid and asked prices
provided by the principal market makers. Options are valued at market value or
fair value using methods determined by the Board of Directors. Securities for
which market quotations are not readily available and illiquid securities will
be valued in good faith at fair value using methods determined by the Board of
Directors. Readily marketable fixed-income securities are valued on the basis of
prices provided by a pricing service when such prices are believed by the
Adviser to reflect the fair value of such securities. Securities which mature in
60 days or less are valued at amortized cost, which approximates market value,
unless this method does not represent fair value.
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 applicable, to
shareholders. Therefore, no provisions for federal income or excise taxes
are required.
3. INVESTMENT INCOME AND SECURITY TRANSACTIONS
Interest income is accrued daily. Security transactions are accounted for on
the date the securities are purchased or sold. Security 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
rates of exchange prevailing when accrued. Net realized loss on foreign
currency transactions of $5,279,318, represent foreign exchange gains and
losses from sales and maturities of foreign securities, holding of foreign
currencies, options on foreign securities and 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 currency gains and losses from valuing
foreign currency denominated assets and liabilities at year end exchange
rates are reflected as a component of net unrealized depreciation of
investments, options and foreign currency denominated assets and liabilities.
5. DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions to shareholders are recorded on the ex-dividend
date. Income dividends and capital gain distributions are determined in
accordance with income tax regulations, which may differ from generally
accepted accounting principles. As a result of a tax return of capital
distribution, a reclassification was made to decrease additional paid-in
capital by $6,507,974. Additionally, due to permanent book-to-tax differences
in the treatment of foreign currency transactions, a $5,655,511 currency loss
was reclassified from accumulated realized loss to undistributed net
investment income.
8
<PAGE>
ACM GOVERNMENT SPECTRUM FUND, INC.
- --------------------------------------------------------------------------------
NOTE B: ADVISORY AND ADMINISTRATIVE FEES
Under the terms of an Investment Advisory Agreement, the Fund pays its
Adviser, Alliance Capital Management L.P., (the "Adviser"), a monthly
advisory fee in an amount equal to the sum of the annualized rate of .30 of
1% of the Fund's average weekly net assets up to $250 million, .25 of 1% 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) 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 an Administration 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) aggregated $992,598,159 and $1,034,062,798, respectively, for
the year ended December 31, 1994.
At December 31, 1994, the cost of securities for federal income tax purposes
was $332,237,257. Accordingly, gross unrealized appreciation of investments
was $377,104 and gross unrealized depreciation of investments was
$38,320,100, resulting in net unrealized depreciation of $37,942,996
(excluding foreign currency transactions).
At December 31, 1994 the Fund had a capital loss carryforward of
approximately $27,164,000 available as a reduction of any future net capital
gains realized before the end of fiscal 2002. Capital and foreign currency
losses incurred after October 31 within the taxable year are deemed to arise
on the first business day of the Fund's next taxable year. In accordance
with the Internal Revenue Code, the Fund incurred and will elect to defer net
foreign currency and capital losses of approximately $9,074,000 until fiscal
1995.
1. FORWARD EXCHANGE CURRENCY CONTRACTS
The Fund enters into forward exchange currency contracts in order to hedge its
exposure to changes in foreign currency exchange rates on its foreign portfolio
holdings and to hedge certain firm purchase and sale commitments denominated in
foreign currencies. A forward exchange currency contract is a commitment to
purchase or sell a foreign currency at a future date at a negotiated forward
rate. The gain or loss arising from the difference between the original contract
and the closing of such contract is included in net realized gain or loss on
foreign currency transactions.
Fluctuations in the value of forward exchange currency contracts are recorded
for financial reporting purposes as unrealized gains or losses by the Fund.
The Fund's custodian will place and maintain cash not available for
investment or U.S. Government securities 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 foreign
currencies relative to the U.S. dollar.
At December 31, 1994, the Fund had an outstanding forward exchange currency
contract to sell 17,500,000
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONT.) ACM GOVERNMENT SPECTRUM FUND, INC.
- --------------------------------------------------------------------------------
German Deutsche Marks maturing on March 6, 1995, with a value at origination
of $11,117,464. The market value of the forward exchange currency contract at
December 31, 1994 was $11,314,777, resulting in unrealized depreciation of
$197,313.
2. OPTIONS TRANSACTIONS
For hedging purposes, the Fund purchases and writes (sells) put and call
options on U.S. and foreign government securities and foreign currencies that
are traded on U.S. and foreign securities exchanges and over-the-counter
markets.
The risk associated with purchasing an option is that the Fund pays a premium
whether or not the option is exercised. Additionally, the Fund bears the risk
of loss of premium and change in market value should the counterparty not
perform under the contract. Put and call options purchased are accounted for
in the same manner as portfolio securities. The cost of securities acquired
through the exercise of call options is increased by the premiums paid. The
proceeds from securities sold through the exercise of put options are
decreased by the premiums paid.
When the Fund writes an option, the premium received by the Fund is recorded as
a liability and is subsequently adjusted to the current market value of the
option written. Premiums received from writing options which expire unexercised
are recorded by the Fund on the expiration date as realized gains from option
transactions. The difference between the premium and the amount paid on
effecting a closing purchase transaction, including brokerage commissions, is
also treated as a realized gain, or if the premium is less than the amount paid
for the closing purchase transaction, as a realized loss.
If a call option is exercised, the premium is added to the proceeds from the
sale of the underlying security or currency in determining whether the Fund
has realized a gain or loss. If a put option is exercised, the premium
reduces the cost basis of the security or currency purchased by the Fund. In
writing an option, the Fund bears the market risk of an unfavorable change in
the price of the security or currency underlying the written option. Exercise
of an option written by the Fund could result in the Fund selling or buying a
security or currency at a price different from the current market value.
Transactions in options written for the year ended December 31, 1994 were as
follows:
<TABLE>
<CAPTION>
NUMBER OF
CONTRACTS PREMIUMS
--------- --------
<S> <C> <C>
Options outstanding at
beginning of year........... -0- $ -0-
Options written............... 4 872,375
Options terminated
in closing purchase
transactions................ (1) (90,000)
----- --------
Options outstanding at
end of year................. 3 $782,375
===== ========
</TABLE>
- --------------------------------------------------------------------------------
NOTE D: CAPITAL STOCK
There are 300,000,000 shares of $0.01 par value common stock authorized. Of
the 36,938,992 shares outstanding at December 31, 1994, the Adviser owned
10,753 shares. Transactions in shares of common stock were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1994 DECEMBER 31, 1993
----------------- -----------------
<S> <C> <C>
Shares reinvested ........................................ 511,617 167,815
Shares issued in connection with rights offering.......... -0- 4,512,366
------- ---------
Net increase in shares outstanding........................ 511,617 4,680,181
======= =========
</TABLE>
10
<PAGE>
ACM GOVERNMENT SPECTRUM FUND, INC.
- --------------------------------------------------------------------------------
NOTE E: QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
NET REALIZED
AND UNREALIZED
GAIN (LOSS) NET INCREASE
ON INVESTMENTS (DECREASE)
AND FOREIGN IN NET ASSETS
NET INVESTMENT CURRENCY RESULTING FROM MARKET PRICE
INCOME TRANSACTIONS OPERATIONS ON NYSE
----------------- --------------------- -------------------- ------------------
TOTAL PER TOTAL PER TOTAL PER
QUARTER ENDED (000) SHARE (000) SHARE (000) SHARE HIGH LOW
- ------------- ------- ----- -------- ------ -------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
December 31, 1994.......... $ 6,959 $ .18 $(26,603) $ (.72) $(19,644) $ (.54) $ 7.625 $6.250
September 30, 1994......... 7,075 .19 7,893 .22 14,968 .41 $ 8.375 $7.500
June 30, 1994.............. 6,424 .17 (17,037) (.46) (10,613) (.29) $ 9.000 $8.125
March 31, 1994............. 7,437 .20 (55,187) (1.50) (47,750) (1.30) $10.625 $8.500
------- ----- -------- ------ -------- ------
$27,895 $ .74 $(90,934) $(2.46) $(63,039) $(1.72)
======= ===== ======== ====== ======== ======
December 31, 1993.......... $ 7,480 $ .21 $ 5,822 $ .16 $ 13,302 $ .37 $10.625 $9.625
September 30, 1993......... 8,292 .26 12,332 .41 20,624 .67 $ 9.875 $9.000
June 30, 1993.............. 7,787 .24 10,007 .31 17,794 .55 $ 9.625 $9.125
March 31, 1993............. 7,622 .24 9,620 .31 17,242 .55 $ 9.625 $8.750
------- ----- -------- ------ -------- ------
$31,181 $ .95 $ 37,781 $ 1.19 $ 68,962 $ 2.14
======= ===== ======== ====== ======== ======
</TABLE>
11
<PAGE>
FINANCIAL HIGHLIGHTS ACM GOVERNMENT SPECTRUM FUND, INC.
- --------------------------------------------------------------------------------
SELECTED DATA FOR A SHARE OF COMMON STOCK OUTSTANDING THROUGHOUT EACH YEAR
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1994 1993 1992 1991 1990
------ ------ ----- ----- ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year....................... $ 9.49 $ 8.89 $9.15 $8.76 $ 9.13
------ ------ ----- ----- ------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------
Net investment income.................................... .74 .95 .87 .96 1.04
Net realized and unrealized gain
(loss) on investments, options and
foreign currency transactions.......................... (2.46) 1.19 (.27) .44 (.31)
------ ------ ----- ----- ------
Net increase (decrease) in net asset
value from operations.................................. (1.72) 2.14 .60 1.40 .73
------ ------ ----- ----- ------
LESS: DIVIDENDS AND DISTRIBUTIONS
- ---------------------------------
Dividends from net investment income..................... (.70) (.96) (.86) (1.01) (1.10)
Distributions from net realized gains.................... -0- (.35) -0- -0- -0-
Tax return of capital distribution....................... (.18) -0- -0- -0- -0-
------ ------ ----- ----- ------
Total dividends and distributions........................ (.88) (1.31) (.86) (1.01) (1.10)
------ ------ ----- ----- ------
CAPITAL SHARE TRANSACTIONS
- --------------------------
Dilutive effect of rights offering....................... -0- (.22) -0- -0- -0-
Offering costs charged to additional
paid-in capital........................................ -0- (.01) -0- -0- -0-
------ ------ ----- ----- ------
Total capital share transactions......................... -0- (.23) -0- -0- -0-
------ ------ ----- ----- ------
Net asset value, end of year............................. $ 6.89 $ 9.49 $8.89 $9.15 $ 8.76
====== ====== ===== ===== ======
Market value, end of year................................ $7.125 $10.00 $9.00 $9.00 $8.375
====== ====== ===== ===== ======
TOTAL RETURN
- ------------
Total investment return based on:(a)
Market value........................................... (20.44)% 26.88% 10.17% 20.53% 4.54%
======= ====== ===== ===== ======
Net asset value........................................ (18.93)% 21.90% 7.04% 17.15% 9.29%
======= ====== ===== ===== ======
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net assets, end of year (000's omitted).................. $254,616 $345,547 $282,282 $288,664 $274,333
Ratio of expenses to average net assets.................. 1.21% 1.21% 1.27% 1.35% 1.42%
Ratio of net investment income to average net assets..... 9.58% 9.77% 9.79% 11.05% 12.01%
Portfolio turnover rate.................................. 294% 445% 471% 442% 419%
</TABLE>
- --------------------------------------------------------------------------------
(a) 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 year 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 years 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 years. Conversely, total investment return
based on net asset value will be lower than total investment return based
on market value in years 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 years.
12
<PAGE>
REPORT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS ACM GOVERNMENT SPECTRUM FUND, INC.
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors
ACM Government Spectrum Fund, Inc.
We have audited the accompanying statement of assets and liabilities of ACM
Government Spectrum Fund, Inc., including the portfolio of investments, as of
December 31, 1994, and the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in
the period then ended and the financial highlights for each of the periods
indicated therein. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1994, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of ACM
Government Spectrum Fund, Inc. at December 31, 1994, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each
of the indicated periods, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
New York, New York
February 17, 1995
13
<PAGE>
ADDITIONAL INFORMATION ACM GOVERNMENT SPECTRUM FUND, INC.
- --------------------------------------------------------------------------------
Shareholders whose shares are registered in their own names may elect to be
participants in the Dividend Reinvestment and Cash Purchase Plan (the "Plan"),
pursuant to which dividends and capital gain distributions to shareholders will
be paid in cash or reinvested in additional shares of the Fund (the "Dividend
Shares"). State Street Bank and Trust Company (the "Agent") will act as agent
for participants under the Plan. Shareholders whose shares are held in the name
of a broker or nominee should contact such broker or nominee to determine
whether or how they may participate in the Plan.
A shareholder who has elected to participate in the Plan may withdraw from
the Plan at any time. There will be no penalty for withdrawal from the Plan
and shareholders who have previously withdrawn from the Plan may rejoin it at
any time. Changes in elections must be in writing and should include the
shareholder's name and address as they appear on the share certificate. An
election to withdraw from the Plan will, until such election is changed, be
deemed to be an election by a shareholder to take all subsequent
distributions in cash. An election will only be effective for a distribution
declared and having a record date of at least ten days after the date on
which the election is received.
Commencing not more than five business days before the dividend payment date,
purchases of the Fund's shares may be made by the Agent, on behalf of the
participants in the Plan, from time to time to satisfy dividend reinvestments
under the Plan. Such purchases by the Agent on or before the dividend payment
date may be made on the New York Stock Exchange (the "Exchange") or elsewhere
at any time when the price plus estimated commissions of the Fund's Common
Stock on the Exchange is lower than the Fund's most recently calculated net
asset value 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 Plan, will obtain
the necessary additional shares as follows. To the extent that outstanding
shares are not available at a cost of less than net asset value per share, the
Agent, on behalf of the participants in the Plan, will accept payment of the
dividend, or the remaining portion thereof, in a uthorized but unissued shares
of the Fund on the dividend payment date. Such shares will be issued at a per
share price equal to the higher of (1) the net asset value 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 Exchange on the payment date is less than the Fund's net
asset value per share on such day, then the Agent will purchase additional
outstanding shares on the Exchange or elsewhere. If before the Agent has
completed such purchases, the market price plus commissions exceeds the net
asset value of the Fund's shares, the average per share purchase price paid by
the Agent may exceed the net asset value of the Fund's shares, resulting in the
acquisition of fewer shares than if shares had been issued by the Fund.
The Agent will maintain all shareholders' accounts in the Plan and furnish
written confirmation of all transactions in the account, including
information needed by shareholders for tax records. Shares in the account of
each Plan participant will be held by the Agent in non-certificated form in
the name of the participant, and each shareholder's proxy will include those
shares purchased or received pursuant to the Plan.
There will be no 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 the brokerage commissions incurred
with respect to the Agent's open market purchases of shares. In each case,
the cost per share of shares purchased for each shareholder's account will be
the average cost, including brokerage commissions, of any shares purchased in
the open market plus the cost of any shares issued by the Fund.
14
<PAGE>
ACM GOVERNMENT SPECTRUM FUND, INC.
- --------------------------------------------------------------------------------
Shareholders participating in the Plan may receive benefits not available to
shareholders not participating in the Plan. If the market price plus
commissions of the Fund's shares is above the net asset value, participants
in the Plan will receive shares of the Fund at a discount of up to 5% from
the current market value. However, if the market price plus commissions is
below the net asset value, participants will receive distributions in shares
with a net asset value 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 the
net asset value. Also, since the Fund does not redeem its shares, the price
on resale may be more or less than the net asset value.
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.
In the case of foreign participants whose dividends are subject to United
States 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 the Plan
may indicate that changes are desirable. Accordingly, the Fund reserves the
right to amend or terminate the Plan as applied to any voluntary cash
payments made and any dividend or distribution paid subsequent to written
notice of the change sent to participants in the Plan at least 90 days before
the record date for such dividend or distribution. The Plan may also be
amended or terminated by the Agent on at least 90 days' written notice to
participants in the Plan. There is no service charge to participants in the
Plan; however, the Fund reserves the right to amend the Plan to include a
service charge payable to the Agent by the participants. All correspondence
concerning the Plan should be directed to the Agent at State Street Bank and
Trust Company, P.O Box 366, Boston, Massachusetts 02101.
Since the filing of the most recent amendment to the Fund's registration
statement with the Securities and Exchange Commission, there have been (i) no
material changes in the Fund's investment objectives or policies, (ii) no
changes to the Fund's charter or by-laws that would delay or prevent a change
of control of the Fund, (iii) no material changes in principal risk factors
associated with investment in the Fund, and (iv) no change in the person
primarily responsible for the day-to-day management of the Fund's portfolio,
who is Wayne D. Lyski, the President of the Fund.
15
<PAGE>
ACM GOVERNMENT SPECTRUM FUND, INC.
- --------------------------------------------------------------------------------
BOARD OF DIRECTORS
JOHN D. CARIFA, Chairman
RUTH BLOCK
DAVID H. DIEVLER
JAMES R. GREENE
DR. JAMES M. HESTER
HON. JAMES D. HODGSON
CLIFFORD L. MICHEL
ROBERT C. WHITE
OFFICERS
WAYNE D. LYSKI, President
PAUL J. DENOON, Vice President
SUSAN PETERSON, Vice President
EDMUND P. BERGAN, JR., Secretary
MARK D. GERSTEN, Treasurer & Chief Financial Officer
JOSEPH J. MANTINEO, Controller
ADMINISTRATOR
MITCHELL HUTCHINS ASSET MANAGEMENT INC.
1285 Avenue of the Americas
New York, NY 10019
CUSTODIAN, DIVIDEND PAYING AGENT, TRANSFER AGENT AND REGISTRAR
STATE STREET BANK AND TRUST COMPANY
225 Franklin Street
Boston, MA 02110
INDEPENDENT AUDITORS
ERNST & YOUNG LLP
787 Seventh Avenue
New York, NY 10019
- --------------------------------------------------------------------------------
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 Spectrum Fund, Inc. 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.
16
<PAGE>
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<PAGE>
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<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
ACM
----------
Government
----------
Spectrum
----------
Fund
----------
Annual Report
December 31, 1994
[LOGO OF ALLIANCE APPEARS HERE]
Mutual funds without the Mystery.(SM)
ACM GOVERNMENT SPECTRUM FUND, INC.
Summary of General Information
THE FUND
ACM Government Spectrum Fund, Inc. is a closed-end investment company whose
shares trade on the New York Stock Exchange. The Fund seeks to provide high
current income consistent with 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 techniques, including options and
futures. The investment adviser of the Fund is Alliance Capital Management L.P.
SHAREHOLDER INFORMATION
Daily market prices for the Fund's shares are published in the New York Stock
Exchange Composite Transaction Section of Newspapers under the designation
"ACMSP". The Fund's NYSE trading symbol is "SI". Weekly comparative net asset
value (NAV) and market price information about the Fund is published each
Monday in The Wall Street Journal and 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. A brochure describing the
Plan is available from the Plan Agent, State Street Bank and Trust Company,
by calling 1-800-219-4218.
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.
ACM GOVERNMENT SPECTRUM FUND, INC.
1345 Avenue of the Americas
New York, New York 10105
[LOGO ALLIANCECAPITAL APPEARS HERE]
(R)These registered service marks used under license from the owner, Alliance
Capital Management L.P.
SPCAR
