<PAGE>
LETTER TO SHAREHOLDERS ACM Government Spectrum Fund
================================================================================
August 27, 1998
Dear Shareholder:
We are pleased to report to you on our strategy, performance and outlook of the
ACM Government Spectrum Fund. The Fund is designed 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 instruments, including options and futures.
MARKET OVERVIEW
Over the six-month period ended June 30, 1998, the U.S. economy continued its
healthy expansion coupled with low inflation. Fueled by strong domestic demand,
first quarter Gross Domestic Product (GDP), a standard measure of economic
growth, expanded at an annualized rate of 5.5%. In the second quarter,
annualized growth slowed to 1.6%, as strong domestic demand was offset by
weakening industrial production caused by lower exports to economically weakened
Asia. The Consumer Price Index (CPI), a measure of inflation, recorded a
relatively low 1.7% increase year-over-year for the period ended June 30, 1998,
despite the tightest labor market in 28 years. With inflation benign and growth
slowing, the Federal Reserve left interest rates unchanged. Helped by strong
economic fundamentals and uncertainty overseas, the U.S. dollar continued to
strengthen against the major currencies.
During the six-month period under review, U.S. bond prices generally rose in
value as investors, concerned about events in the emerging markets and Japan,
sought the relative safety of U.S. Treasuries. The U.S. Treasury market posted
solid returns with longer term Treasuries outperforming shorter term Treasuries.
When overseas markets stabilized at the beginning of the year following the
volatility in the fourth quarter of 1997, investor focus shifted to short term
expectations of U.S. monetary policy. In May, renewed volatility in Asia,
weakness in the yen, and fiscal problems in Russia, caused a rally in the
Treasury market and pushed bond prices higher.
Most developed countries outside of the U.S. continued to experience strong
domestic demand, but weaker manufacturing activity, due to the continued
instability and general economic weakness in Asia. Economic growth remained
positive and inflation remained low. Japan was the critical exception as slowing
growth and rising unemployment pushed the economy into an official recession.
While interest rates generally declined, all developed bond markets, except
Japan, outperformed the U.S. in local currency terms. In hedged U.S. dollar
terms, all developed countries outperformed the U.S.
In the emerging markets, debt prices fell over the six-month period ended June
30, 1998. Strong gains made in the first quarter were erased in the second
quarter when continued economic weakness was reported from Asia. Though not
affected as negatively as debt prices in emerging Asia, Latin American debt
suffered when investors fled to the safety of developed country debt. In Eastern
Europe, Russia's fiscal problems caused its debt to post the lowest returns
among all the emerging markets.
INVESTMENT STRATEGY
Over the six-month period ended June 30, 1998, we maintained a modestly
barbelled duration structure among our U.S. Treasury holdings, using a
combination of long and short maturity securities. In addition, we
opportunistically employed securities issued in foreign countries to enhance
portfolio yield.
1
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ACM Government Spectrum Fund
================================================================================
For example, during the period we invested in Australian government bonds.
Australia exports heavily to Asia and its economy is expected to slow as Asian
growth slows. We also continued to invest in the developing markets.
INVESTMENT PERFORMANCE
The following table shows how your Fund performed over the past six- and
12-month periods ended June 30, 1998. For comparison, we have included the
Lehman Brothers Aggregate Bond Index, a standard measure of the performance of a
basket of unmanaged debt securities. Over the six-month period under review,
your Fund underperformed the benchmark. Although our U.S. Treasury allocation
posted strong gains, the portfolio's exposure to emerging market debt, which
performed poorly over the period, dampened performance.
INVESTMENT RESULTS*
Periods Ended June 30, 1998
Total Returns
6 Months 12 Months
-------- ---------
ACM Government
Spectrum Fund 2.38% 10.72%
Lehman Brothers
Aggregate Bond Index 3.93% 10.54%
* 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, 1998. 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 Lehman Brothers (LB) Aggregate Bond Index is composed of the Mortgage
Backed and Asset Backed Securities Indices and the Government/Corporate
Bond Index. It includes Treasury, agency and corporate bond issues, as
well as mortgage-backed securities. The index is unmanaged and does not
reflect fees and expenses. An investor cannot invest directly in the
index.
ECONOMIC OUTLOOK
We anticipate slowing global growth and continued benign inflation as Asia
exports cheaper goods to the world and imports less from abroad. With inflation
subdued, we expect monetary policy in the U.S. to remain unchanged for most of
1998. The current slowing of growth in the U.S. is expected to continue with
1998 GDP estimated around 3.0%. Strong domestic demand should continue to be
offset by weakening industrial production and a continued deterioration in the
U.S. trade deficit. U.S. interest rates will remain low as the U.S. Treasury
market continues to provide a safe haven for investors during periods of
volatility overseas.
Without substantial government spending, the Japanese economy is expected to
shrink by 1% this year. Japan's financial and economic difficulties require
structural reforms that will take time in a political context that is currently
without strong leadership. In Europe, growth is expected to slow to 2.5% in 1998
and inflation should remain subdued. Modest rate increases are possible prior to
the January 1999 launch of European Monetary Union.
The emerging markets face challenging problems that require time and economic
growth for resolution. We expect emerging market debt price volatility to remain
elevated, as renewed turmoil in Asia, fiscal and structural problems in Russia,
and a weakened Japan continue to heighten investor concern about all higher
yielding asset classes. Growth in Japan, the world's second largest economy, is
critical if the emerging countries are to resume their process of global
integration. Russia, in particular, will continue to add uncertainty to the
emerging markets as it struggles with the devaluation of the ruble and the
repayment requirements of existing Russian debt obligations. Although Russia is
not critically important to the world's economic prospects, it will
2
<PAGE>
ACM Government Spectrum Fund
================================================================================
continue to have a significant influence on other emerging debt countries. We
are currently evaluating the political and economic events as they unfold in
order to assess the prospects for Russian debt to rebound. Presently, we are
maintaining the Fund's Russian debt positions, which currently comprise 0.39% of
the Fund's portfolio, with little change.
Thank you for your continued interest and investment in the ACM Government
Spectrum 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, 1998 (unaudited) ACM Government Spectrum Fund
================================================================================
Principal
Amount
(000) U.S. $ Value
- -------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS--88.3%
U.S. TREASURY BONDS--43.3%
8.125%, 8/15/19 (a) ..................... US$ 26,000 $ 33,556,120
10.75%, 8/15/05 (a) ..................... 11,250 14,637,262
12.75%, 11/15/10 (a) .................... 9,250 13,174,035
13.75%, 8/15/04 (a) ..................... 11,500 16,333,565
14.00%, 11/15/11 (a) ..................... 23,300 36,147,853
-------------
113,848,835
-------------
U.S. TREASURY NOTES--36.1%
6.25%, 10/31/01 (a) ..................... 20,490 20,915,782
6.50%, 5/31/02 (a) ...................... 30,500 31,515,040
6.50%, 8/15/05 (a) ...................... 8,075 8,521,628
6.75%, 4/30/00 (a) ...................... 10,000 10,210,900
6.875%, 5/15/06 (a) ..................... 11,500 12,452,315
7.875%, 11/15/04 (a) .................... 10,000 11,231,200
-------------
94,846,865
-------------
U.S. TREASURY STRIPS--8.9%
Zero coupon, 5/15/15 .................... 60,630 23,258,881
-------------
Total U.S. Government Obligations
(cost $226,652,265) ..................... 231,954,581
-------------
SOVEREIGN DEBT OBLIGATIONS--16.2%
ARGENTINA--0.6%
Province of Tucuman
9.45%, 8/01/04(b) ...................... US$ 1,786 1,657,273
-------------
AUSTRALIA--3.0%
Commonwealth of Australia
7.50%, 9/15/09 .......................... AU$ 11,000 7,879,798
-------------
BRAZIL--1.5%
Federal Republic of Brazil
10.125%, 5/15/27 ........................ US$ 4,500 3,881,250
-------------
COLOMBIA--2.9%
Republic of Colombia
8.625%, 4/01/08 ......................... 8,000 7,600,000
-------------
KOREA--1.4%
Republic of Korea
8.875%, 4/15/08 ......................... US$ 4,000 3,670,000
-------------
MEXICO--1.0%
Mexican Treasury Bill
17.13%, 5/06/99(c) ...................... MXP 27,500 2,518,343
-------------
NORWAY--2.8%
Kingdom of Norway
9.00%, 1/31/99 .......................... NOK 55,000 7,320,895
-------------
RUSSIA--1.4%
Russian Principal Loans FRN
6.625%, 12/15/20(d) ..................... US$ 8,000 3,727,200
-------------
SOUTH AFRICA--1.6%
Development Bank of
South Africa
Zero coupon, 12/31/27 ................... ZAR 250,000 906,408
European Bank for
Reconstruction and
Development
Zero coupon, 12/31/29 ................... 375,000 1,214,165
International Bank for
Reconstruction and
Development
Zero coupon, 12/31/25 ................... 300,000 1,138,280
Zero coupon, 2/17/26 .................... 75,000 365,515
Zero coupon, 7/14/27 .................... 150,000 682,968
-------------
4,307,336
-------------
Total Sovereign Debt Obligations
(cost $49,455,813) ...................... 42,562,095
-------------
TIME DEPOSIT--2.2%
State Street Bank & Trust Co. ............
5.25%, 7/01/98
(cost $5,758,000) ....................... US$ 5,758 5,758,000
-------------
TOTAL INVESTMENTS--106.7%
(cost $281,866,078) ..................... 280,274,676
Other assets less liabilities--(6.7%) .... (17,535,248)
-------------
NET ASSETS--100% ......................... $ 262,739,428
=============
4
<PAGE>
ACM Government Spectrum Fund
================================================================================
- --------------------------------------------------------------------------------
(a) Securities, or portion thereof, have been segregated to collateralize open
forward exchange currency contracts. Total value of segregated securities
amounted to $208,695,700 at June 30, 1998.
(b) Securities exempt from registration under Rule 144A of the Securities Act
of 1933. This security may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At June 30,
1998, this security amounted to $1,657,273 or 0.6% of net assets.
(c) Interest rate represents annualized yield to maturity at purchase date.
(d) Coupon consists of 3.3125% cash payment and 3.3125% paid-in-kind of
Russian IAN's.
Glossary
FRN--Floating Rate Note
See notes to financial statements.
5
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1998 (unaudited) ACM Government Spectrum Fund
================================================================================
ASSETS
Investments in securities, at value (cost $281,866,078) ..... $ 280,274,676
Cash ........................................................ 446
Interest receivable ......................................... 4,115,327
Net unrealized appreciation of forward exchange
currency contracts ........................................ 573,153
Net unrealized appreciation of swap contracts ............... 403,754
Prepaid expenses ............................................ 31,338
-------------
Total assets ................................................ 285,398,694
-------------
LIABILITIES
Payable for investment securities purchased ................. 22,251,303
Advisory fee payable ........................................ 127,655
Administrative fee payable .................................. 35,265
Accrued expenses ............................................ 245,043
-------------
Total liabilities ........................................... 22,659,266
-------------
NET ASSETS ................................................... $ 262,739,428
=============
COMPOSITION OF NET ASSETS
Capital stock, at par ....................................... $ 370,280
Additional paid-in capital .................................. 329,390,331
Distributions in excess of net investment income ............ (2,738,947)
Accumulated net realized loss on investments,
swap contracts and foreign currency transactions .......... (63,661,578)
Net unrealized depreciation of investments and foreign
currency denominated assets and liabilities ............... (620,658)
-------------
$ 262,739,428
=============
NET ASSET VALUE PER SHARE (based on 37,028,027
shares outstanding) ........................................ $ 7.10
=============
- --------------------------------------------------------------------------------
See notes to financial statements.
6
<PAGE>
STATEMENT OF OPERATIONS
Six Months Ended June 30, 1998 (unaudited) ACM Government Spectrum Fund
================================================================================
INVESTMENT INCOME
Interest ............................................ $ 10,753,581
EXPENSES
Advisory fee ........................................ $929,323
Administrative fee .................................. 244,218
Custodian ........................................... 63,169
Transfer agency ..................................... 39,059
Audit and legal ..................................... 34,309
Reports and notices to shareholders ................. 20,814
Directors' fees ..................................... 15,242
Registration fee .................................... 13,157
Taxes ............................................... 7,377
Miscellaneous ....................................... 31,311
--------
Total expenses ...................................... 1,397,979
------------
Net investment income ............................... 9,355,602
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS
Net realized gain on investment transactions ........ 1,645,738
Net realized loss on foreign currency transactions .. (742,318)
Net change in unrealized appreciation of:
Investments ........................................ (2,928,788)
Foreign currency denominated asset
and liabilities .................................. (2,180,488)
------------
Net realized and unrealized loss on investments
and foreign currency transactions .................. (4,205,856)
------------
NET INCREASE IN NET ASSETS FROM OPERATIONS ........... $ 5,149,746
============
STATEMENT OF CHANGES IN NET ASSETS
================================================================================
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1998 Year Ended
(unaudited) December 31, 1997
---------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income ............................ $ 9,355,602 $ 18,983,610
Net realized gain on investments and
foreign currency transactions .................. 903,420 1,284,519
Net change in unrealized appreciation
(depreciation) of investments and foreign
currency denominated assets and liabilities .... (5,109,276) 4,842,498
------------- -------------
Net increase in net assets from operations ....... 5,149,746 25,110,627
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income ............. (7,536,050) (19,166,509)
Distributions in excess of net investment income . (2,738,947) (3,327,379)
------------- -------------
Total increase (decrease) ........................ (5,125,251) 2,616,739
NET ASSETS
Beginning of year ................................ 267,864,679 265,247,940
------------- -------------
End of period .................................... $ 262,739,428 $ 267,864,679
============= =============
</TABLE>
- --------------------------------------------------------------------------------
See notes to financial statements.
7
<PAGE>
NOTES TO FINANCIAL STATEMENTS
June 30, 1998 (unaudited) ACM Government Spectrum Fund
================================================================================
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 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, holdings 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 and foreign currency denominated assets and liabilities.
8
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ACM Government Spectrum 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 within 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) 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 inquires on behalf of the Fund. During the six
months ended June 30, 1998, the Fund reimbursed AFS $1,995.
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 $90,740,922 and $93,290,434,
respectively, for the six months ended June 30, 1998. There were purchases of
$176,994,045 and sales of $200,612,423 of U.S. government and government agency
obligations for the six months ended June 30, 1998.
At June 30, 1998, the cost of investments for federal income tax purposes was
$282,883,118. Accordingly, gross unrealized appreciation of investments was
$5,291,444 and gross unrealized depreciation was $7,899,886, resulting in net
unrealized depreciation of $2,608,442 (excluding foreign currency transactions).
At December 31, 1997, the Fund had a capital loss carryforward of $61,971,310 of
which $27,163,499 expires in the year 2002, $32,047,923 expires in the year
2003, $2,680,733 expires in the year 2004 and $79,155 expires in the year 2005.
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.
Fluctuations in the value of open forward exchange currency contracts are
reflected for financial reporting
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued) ACM Government Spectrum Fund
================================================================================
purposes as a component of net unrealized depreciation of investments and
foreign currency denominated assets and liabilities.
The Fund's custodian will place and maintain liquid assets in a separate account
of the Fund having a value 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. The value on origination date, in U.S.
dollars, as reflected in the following table, reflects the total exposure the
Fund has in that particular currency contract. At June 30, 1998, the Fund had
outstanding forward exchange currency contracts as follows:
<TABLE>
<CAPTION>
U.S. $
Contract Value on U.S. $ Unrealized
Forward Exchange Amount Origination Current Appreciation
Currency Buy Contracts (000) Date Value (Depreciation)
-------- ----------- ----------- --------------
<S> <C> <C> <C> <C>
Australian Dollars, settling 7/23/98 ............ 16,903 $10,843,162 $10,496,358 $(346,804)
Forward Exchange
Currency Sale Contracts
Australian Dollars, settling 7/14/98 - 7/23/98 .. 29,566 19,278,885 18,358,928 919,957
---------
$ 573,153
=========
- ------------------------------------------------------------------------------------------------------------
</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 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, 1998, the Fund did not have any written option
transactions.
3. Interest Rate Swap Agreements
The Fund enters into swaps on sovereign debt obligations to protect itself from
interest rate fluctuations on
10
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ACM Government Spectrum Fund
================================================================================
the underlying debt instruments and for investment purposes. A swap is an
agreement that obligates two parties to exchange a series of cash flows at
specified intervals based upon or calculated by reference to changes in
specified prices or rates for a specified amount of an underlying asset. The
payment flows are usually netted against each other, with the difference being
paid by one party to the other.
Risks may arise as a result of the failure of the counterparty to the swap
contract to comply with the terms of the swap contract. The loss incurred by the
failure of a counterparty is generally limited to the net interest payment to be
received by the Fund, and/or the termination value at the end of the contract.
Therefore, the Fund considers the creditworthiness of each counterparty to a
swap contract in evaluating potential credit risk. Additionally, risks may arise
from unanticipated movements in interest rates or in the value of the underlying
securities.
The Fund records a net receivable or payable on a daily basis for the net
interest income or expense expected to be received or paid during the interest
period. Net interest received or paid on these contracts is recorded as interest
income (or as an offset to interest income). Fluctuations in the value of swap
contracts are recorded for financial statement purposes as net change in
unrealized appreciation (depreciation) of investments.
At June 30, 1998, the Fund had outstanding interest rate swap contracts with the
following terms:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Rate Type
-------------------------------- Unrealized
Swap Notional Amount Termination Payments made Payments received Appreciation
Counterparty (000) Date by the Fund by the Fund (Depreciation)
- ------------ --------------- ----------- ------------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
Morgan Guaranty
Trust Co. ITL 23,000,000 4/30/01 LIBOR* 9.18% $ 1,533,463
Morgan Guaranty
Trust Co. ITL 23,000,000 4/30/01 7.98% LIBOR* (1,129,709)
-----------
$ 403,754
===========
</TABLE>
* LIBOR--London Interbank Offered Rate.
- --------------------------------------------------------------------------------
NOTE D: Capital Stock
There are 300,000,000 shares of $0.01 par value common stock authorized, of
which 37,028,027 shares were outstanding at June 30, 1998. During the six months
ended June 30, 1998 and the year ended December 31, 1997, the Fund did not issue
any shares in connection with the dividend reinvestment plan.
- --------------------------------------------------------------------------------
NOTE E: Year 2000
Many computer software systems in use today cannot properly process data-related
information from and after January 1, 2000. Should any of the computer systems
employed by the Fund's major service providers fail to process this type of
information properly, that could have a negative impact on the Fund's operations
and the services that are provided to the Fund's shareholders. The Adviser, as
well as Alliance Fund Services, have advised the Fund that they are reviewing
all of their computer systems with the goal of modifying or replacing such
system prior to January 1, 2000, to the extent necessary to foreclose any such
negative impact. In addition, the Adviser has been advised by the Fund's
custodian that it is also in the process of reviewing its systems with the same
goal. As of the date of this report, the Fund and the Adviser have no reason to
believe that these goals will not be achieved. Similarly, the values of certain
of the portfolio securities held by the Fund may be adversely affected by the
inability of the securities' issuers or of third parties to process this type of
information properly.
11
<PAGE>
FINANCIAL HIGHLIGHTS ACM Government Spectrum Fund
================================================================================
Selected Data For A Share Of Common Stock Outstanding Throughout Each Period
<TABLE>
<CAPTION>
Six Months
Ended Year Ended December 31,
June 30, 1998 ------------------------------------------------------------------------
(unaudited) 1997 1996 1995 1994 1993
----------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year ...... $ 7.23 $ 7.16 $ 7.47 $ 6.89 $ 9.49 $ 8.89
----------- ----------- ----------- ------------ ------------ ------------
Income From Investment Operations
Net investment income ................... .25 .51 .57 .70(a) .74(a) .95(a)
Net realized and unrealized gain
(loss) on investments, options written
and foreign currency transactions ...... (.11) .17 (.19) .66 (2.46) 1.19
----------- ----------- ----------- ------------ ------------ ------------
Net increase (decrease) in net asset
value from operations ................. .14 .68 .38 1.36 (1.72) 2.14
----------- ----------- ----------- ------------ ------------ ------------
Less: Dividends and Distributions
Dividends from net investment income .... (.20) (.52) (.57) (.70) (.70) (.96)
Distributions in excess of net investment
income ................................ (.07) (.09) (.12) (.01) -0- -0-
Distributions from net realized gains ... -0- -0- -0- -0- -0- (.35)
Tax return of capital distribution ...... -0- -0- -0- (.07) (.18) -0-
----------- ----------- ----------- ------------ ------------ ------------
Total dividends and distributions ....... (.27) (.61) (.69) (.78) (.88) (1.31)
----------- ----------- ----------- ------------ ------------ ------------
Capital Share Transactions
Dilutive effect of rights offering ...... -0- -0- -0- -0- -0- (.22)
Offering costs charged to additional
paid-in capital ....................... -0- -0- -0- -0- -0- (.01)
----------- ----------- ----------- ------------ ------------ ------------
Total capital share transactions ........ -0- -0- -0- -0- -0- (.23)
----------- ----------- ----------- ------------ ------------ ------------
Net asset value, end of period .......... $ 7.10 $ 7.23 $ 7.16 $ 7.47 $ 6.89 $ 9.49
=========== =========== =========== ============ ============ ============
Market value, end of period ............. $ 6.438 $ 6.625 $ 6.375 $ 6.625 $ 7.125 $ 10.00
=========== =========== =========== ============ ============ ============
Total Investment Return
Total investment return based on:(b)
Market value ........................... 1.31% 13.79% 6.55% 4.32% (20.44)% 26.88%
Net asset value ........................ 2.38% 10.57% 6.13% 21.64% (18.93)% 21.90%
Ratios/Supplemental Data
Net assets, end of period (000's omitted) $ 262,739 $ 267,865 $ 265,248 $ 276,638 $ 254,616 $ 345,547
Ratio of expenses to average net assets . 1.06%(c) 1.15% 1.17% 1.31% 1.21% 1.21%
Ratio of net investment income to
average net assets .................... 7.07%(c) 7.30% 8.10% 10.07% 9.58% 9.77%
Portfolio turnover rate ................. 97% 350% 453% 377% 294% 445%
</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.
12
<PAGE>
ADDITIONAL INFORMATION ACM Government Spectrum Fund
================================================================================
Supplemental Proxy Information
The Annual Meeting of the Shareholders of the ACM Government Spectrum Fund was
held on Thursday, May 28, 1998. The description of each proposal and number of
shares voted at the meeting are as follows:
Shares Shares Voted
Voted For Without Authority
- --------------------------------------------------------------------------------
1. To elect directors: Class One Directors
(term expires in 2001)
John H. Dobkin 31,781,839 802,030
Clifford L. Michel 31,793,351 790,518
Donald J. Robinson 31,792,234 791,634
Class Two Director
(term expires in 1999)
Willliam H. Foulk, Jr. 31,803,278 780,591
Shares Shares Voted Shares 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, 1998: 32,017,850 208,907 357,112
13
<PAGE>
ACM Government Spectrum Fund
================================================================================
BOARD OF DIRECTORS
John D. Carifa, Chairman
Ruth Block (1)
David H. Dievler (1)
John H. Dobkin (1)
William H. Foulk, Jr. (1)
Dr. James M. Hester (1)
Clifford L. Michel (1)
Donald J. Robinson (1)
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
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
LEGAL COUNSEL
Seward & Kissel
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 Spectrum 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 the Audit committee.
14
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
ACM Government Spectrum Fund
Summary of General Information
The Fund
ACM Government Spectrum Fund 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, 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 Spectrum 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.
SPCSAR
- --------------------------------------------------------------------------------
ACM
-------------------------------
GOVERNMENT
-------------------------------
SPECTRUM
-------------------------------
FUND
-------------------------------
Semi-Annual
Report
June 30, 1998
Alliance(R)
- --------------------------------------------------------------------------------
