<PAGE>
LETTER TO SHAREHOLDERS ACM Government Spectrum Fund
================================================================================
August 16, 1999
Dear Shareholder:
This report provides the performance, investment strategy, and outlook for the
ACM Government Spectrum Fund (the "Fund") over the six-month period ended June
30, 1999. The Fund is designed to provide high current income consistent with
the preservation of capital. The Fund invests principally in U.S. government
obligations. The Fund may also invest up to 35% of its assets in securities of
foreign governments. Additionally, the Fund may utilize other investment
instruments, including options and futures.
INVESTMENT PERFORMANCE
The following table shows how your Fund performed over the six- and twelve-month
periods ended June 30, 1999. For comparison, we have included performance for
your Fund's benchmark index, as represented by the Lehman Brothers ("LB")
Aggregate Bond Index.
During the six- and twelve-month periods ended June 30, 1999, your Fund
underperformed its benchmark index. As U.S. growth remained strong and global
growth improved, the U.S. Federal Reserve moved to increase interest rates,
causing U.S. Treasury bond prices to fall. As of June 30, your Fund held 64% of
its total market value in the U.S. Treasury sector, versus the LB Aggregate Bond
Index's 35% exposure to U.S. Treasuries. Subsequently, during the six-month
period, the Fund's allocation to the U.S. Treasury market dampened performance.
Over the twelve-month period, turmoil in Asia, which spread through Russia and
Latin America, caused all emerging market debt to underperform. Consequently,
during the twelve months under review, your Fund's 18% exposure to emerging
market bonds was the primary reason for the Fund's underperformance versus the
U.S.-only LB Aggregate Bond Index.
- --------------------------------------------------------------------------------
INVESTMENT RESULTS*
Periods Ended June 30, 1999
Total Returns
6 Months 12 Months
-------- ---------
ACM Government
Spectrum Fund -2.06% 1.56%
Lehman Brothers
Aggregate Bond Index -1.37% 3.15%
* The Fund's investment results are total returns for the period and are
based on the net asset value of the Fund as of June 30, 1999. All fees and
expenses related to the operation of the Fund have been deducted. Returns
for the Fund include the reinvestment of any distributions paid during the
period. Past performance is no guarantee of future results.
The unmanaged Lehman Brothers ("LB") Aggregate Bond Index is composed of
the LB Mortgage-Backed Index, LB Asset-Backed Securities Index and the LB
Government/Corporate Bond Index. It includes Treasury, agency and
corporate bond issues, as well as mortgage-backed securities. An investor
cannot invest directly in an index.
- --------------------------------------------------------------------------------
MARKET OVERVIEW
The outlook for the global economy continued to brighten during the first six
months of 1999. Signs of a strong recovery in East Asia, better-than-expected
growth in Japan, and a quick drop in Brazilian interest rates bolstered investor
confidence. In the United States, private demand growth has downshifted but
remains exceptionally strong, while inflation and unemployment have remained
low. With economic activity remaining strong and global liquidity concerns
abating, the U.S. Federal Reserve adopted a monetary policy tightening bias in
May and increased the Federal Funds rate by 25 basis points, to 5.00%, in June.
For the six months ended June 30, 1999, the U.S. yield curve flattened as short-
and intermediate-term rates rose more than long-term rates. Two-year U.S.
Treasury yields rose from 4.53%, to 5.52%, while thirty-year U.S. Treasury
yields rose from 5.09%, to 5.97%.
1
<PAGE>
LETTER TO SHAREHOLDERS ACM Government Spectrum Fund
================================================================================
During the six-month period ended June 30, 1999, the U.S. bond market, as
represented by the LB Aggregate Bond Index, declined by 1.4% as economic growth
strengthened and the U.S. Federal Reserve raised interest rates. Among the
sectors of the U.S. bond market, the mortgage sector recorded the strongest
performance, while the U.S. Treasury market recorded the weakest performance. As
credit markets continued to stabilize from the turmoil in 1998, and the threat
of higher interest rates surfaced, investors moved out of U.S. Treasuries and
back into higher-yielding sectors in search of higher returns. The mortgage
sector was the main beneficiary of this change in interest-rate expectations.
When interest rates rose, mortgage refinancing slowed and mortgage prepayments
fell, making mortgage-backed securities more attractive.
During the six months under review, most developed countries outside the U.S.
showed signs of improving economic growth while inflation remained low.
Divergent interest-rate policies (the European Central Bank and Bank of Japan
eased, while the U.S. Federal Reserve indicated a tightening bias) caused the
U.S. bond market to underperform all other developed bond markets, in local
currency terms and on a hedged basis. The Japanese bond market, boosted by
domestic investment and, until late in the quarter, a poor economic environment,
posted the strongest performance among bond markets of developed countries. In
aggregate, the developed global bond markets, excluding the U.S., as represented
by the J.P. Morgan ("JPM") non-U.S. Government Bond Index (Hedged), gained 1.0%
during the six months ended June 30, 1999.
In the emerging markets, favorable growth surprises surfaced. Economic weakness
in Latin America proved less severe than anticipated, and the Asian economies
appeared to be improving. However, concerns about tighter U.S. monetary policy
dampened the investor enthusiasm exhibited earlier this year. In aggregate, the
emerging market debt sector, as represented by the JPM Emerging Markets Bond
Index Plus, gained 10.5%, outperforming the traditional bond market sectors
during the six-month period. Individual emerging market returns were mixed
during the period, with Russia posting the largest gains and non-Latin countries
outperforming Latin countries.
INVESTMENT STRATEGY
Over the six-month period ended June 30, 1999, we maintained a longer
interest-rate duration than the market, generally employing U.S. Treasury
holdings with maturities of ten years or more. We opportunistically employed
securities issued in foreign countries to enhance portfolio yield. The Fund held
the government debt of Mexico, Brazil and Argentina. We initiated a position in
Mexican government bonds based on our conviction that this is an improving
credit, moving toward investment-grade status after the presidential election in
2000. We also invested in more developed countries such as New Zealand and
Australia
OUTLOOK
Globally, growth prospects are improving and inflation pressures remain subdued.
While the U.S. economy appears to be moderating somewhat from the robust level
of the first quarter, we still estimate that growth for calendar 1999 will be
close to the 3.9% pace of 1998. We believe the risks remain toward somewhat
tighter monetary policy and higher interest rates. While the non-Treasury
sectors of the market appear to be cheap by historical standards, the upward
pressure on rates, and liquidity concerns related to this year-end are likely to
keep yield premiums wide in the near term. In this environment, security
selection will remain focused on longer-term fundamentals, recognizing that
near-term liquidity will be limited.
In Europe, although there are signs that a mild recovery is underway, we
continue to expect growth to be 1.9% in 1999, down from the 2.6% pace of 1998.
2
<PAGE>
ACM Government Spectrum Fund
================================================================================
Increasing global demand, low interest rates and a weak Euro should help improve
growth prospects going forward. We believe the European Central Bank will
maintain a neutral monetary policy. Japan is also showing signs of stronger
economic activity and we expect 1999 gross domestic product growth to be 0.3%,
an improvement over the 2.9% decline of 1998. The extent to which the Japanese
economy rebounds remains a key issue going forward in terms of global growth and
interest-rate patterns.
Improving global growth and subdued inflation should provide the environment
necessary for emerging countries to gradually improve their credit profiles.
However, in the period ahead we see performance divergences developing between
those countries with constructive reform-oriented policies (expected to
outperform), and those countries with less commitment to the reform process
(expected to underperform). Therefore, country selection will remain critical.
While there may well be short-term market volatility as investor sentiment
shifts with events, we expect the strongest performance from Mexico, Panama,
Brazil and the Philippines.
Thank you for your continued interest and investment in the ACM Government
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, 1999 (unaudited) ACM Government Spectrum Fund
================================================================================
Shares or
Principal
Amount
(000) U.S. $ Value
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AND
AGENCY OBLIGATIONS -- 77.6%
U.S. TREASURY BONDS -- 43.6%
6.125%, 11/15/27 (a)................ $ 7,000 $ 6,952,960
8.125%, 8/15/19 (a)................. 11,000 13,285,910
10.75%, 8/15/05 (a)................. 11,250 13,985,100
12.375%, 5/15/04 (a)................ 7,800 9,923,082
12.75%, 11/15/10 (a)................ 9,250 12,470,110
13.75%, 8/15/04 (a)................. 11,500 15,453,125
14.00%, 11/15/11 (a)................ 23,300 34,083,473
------------
106,153,760
------------
U.S. TREASURY NOTES -- 16.5%
5.25%, 8/15/03 (a).................. 2,000 1,965,940
6.875%, 5/15/06 (a)................. 22,900 24,109,349
7.875%, 11/15/04 (a)................ 12,800 14,000,000
------------
40,075,289
------------
U.S. TREASURY STRIPS -- 7.7%
Zero coupon, 5/15/15................ 51,000 18,749,130
------------
MORTGAGE RELATED
SECURITIES -- 9.8%
Federal National
Mortgage Association
6.00%, 2/01/14...................... 6,334 6,117,773
6.00%, 1/01/29...................... 6,430 6,040,032
8.00%, 6/01/28...................... 5,219 5,368,557
------------
17,526,362
------------
Government National
Mortgage Association
6.50%, 2/15/29...................... 6,482 6,233,032
------------
Total U.S. Government and
Agency Obligations
(cost $195,216,222)................. 188,737,573
------------
SOVEREIGN DEBT
OBLIGATIONS -- 28.2%
ARGENTINA -- 3.2%
Province of Tucuman
9.45%, 8/01/04 (b).................. 1,500 1,229,994
Federal Republic of Argentina
11.00%, 12/04/05.................... 7,000 6,466,250
Warrants expiring
12/03/99 (c)........................ 7,000 70,000
------------
7,766,244
------------
AUSTRALIA -- 2.9%
Commonwealth of
Australia
9.75%, 3/15/02...................... AUD 9,500 $ 6,926,812
------------
BRAZIL -- 2.8%
Republic of Brazil
C Bonds
8.00%, 4/15/14 (d).................. $ 5,379 3,469,300
10.125%, 5/15/27.................... 4,500 3,341,250
------------
6,810,550
------------
COLOMBIA -- 2.5%
Republic of Colombia
8.625%, 4/01/08..................... 8,000 6,200,000
------------
ECUADOR -- 0.8%
Republic of Ecuador
3.50%, 2/28/25...................... 5,000 1,937,500
------------
GREECE -- 2.8%
Hellenic Republic
8.90%, 4/01/03...................... GRD2,000,000 6,814,002
------------
MEXICO -- 3.9%
Mexican Treasury Bill
24.96%, 4/13/00 (e)................. MXP 33,354 2,983,967
United Mexican States
10.375%, 2/17/09 ................... $ 6,500 6,565,000
------------
9,548,967
------------
NEW ZEALAND -- 2.6%
New Zealand
10.00%, 3/15/02..................... NZD 11,000 6,441,290
------------
PANAMA -- 2.7%
Republic of Panama
9.375%, 4/01/29..................... $ 7,000 6,659,100
------------
RUSSIA -- 0.8%
Ministry of Finance
3.00%, 5/14/03 ..................... 3,300 775,500
Russian Principal Loans
FRN
6.718%, 12/15/20.................... 8,000 970,400
Russian IAN FRN
6.0625%, 12/15/15................... 376 58,786
------------
1,804,686
------------
4
<PAGE>
ACM Government Spectrum Fund
================================================================================
Principal
Amount
(000) U.S. $ Value
- --------------------------------------------------------------------------------
SOUTH AFRICA -- 2.1%
Development Bank of
South Africa
Zero coupon, 12/31/27............... ZAR 250,000 $ 766,490
European Bank for
Reconstruction and
Development
Zero coupon, 04/07/27............... 200,000 928,075
International Bank for
Reconstruction and
Development
Zero coupon, 12/31/25............... 300,000 1,475,638
Zero coupon, 2/17/26................ 250,000 1,230,527
Zero coupon, 7/14/27................ 150,000 710,971
------------
5,111,701
------------
TURKEY -- 1.1%
Republic of Turkey
12.375%, 6/15/09.................... $ 2,600 $ 2,580,500
------------
Total Sovereign Debt Obligations
(cost $80,590,782).................. 68,601,352
------------
TOTAL INVESTMENTS -- 105.8%
(cost $275,807,004)................. 257,338,925
Other assets less liabilities--(5.8)% (14,082,783)
------------
NET ASSETS -- 100%.................... $243,256,142
============
- --------------------------------------------------------------------------------
(a) Securities, or portion thereof, have been segregated to collateralize open
forward exchange currency contracts. Total value of segregated securities
amounted to $146,229,049 at June 30, 1999.
(b) Security 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,
1999, this security amounted to $1,229,994 or 0.5% of net assets.
(c) Non-income producing security.
(d) Coupon consists of 5.00% cash payment and 3.00% paid-in-kind.
(e) Interest rate represents annualized yield to maturity at purchase date.
Glossary of Terms:
FRN -- Floating Rate Note
IAN -- Interest Arrears Note
See notes to financial statements.
5
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1999 (unaudited) ACM Government Spectrum Fund
================================================================================
ASSETS
Investments in securities, at value (cost $275,807,004) ...... $257,338,925
Cash ......................................................... 653,251
Interest receivable .......................................... 4,095,287
Receivable for investment securities sold .................... 2,051,661
Unrealized appreciation of forward currency contracts ........ 247,615
Prepaid expenses ............................................. 17,997
------------
Total assets ................................................. 264,404,736
------------
LIABILITIES
Payable for investment securities purchased .................. 19,091,310
Dividend payable ............................................. 1,666,261
Advisory fee payable ......................................... 175,585
Administrative fee payable ................................... 41,560
Accrued expenses ............................................. 173,878
------------
Total liabilities ............................................ 21,148,594
------------
NET ASSETS ..................................................... $243,256,142
============
COMPOSITION OF NET ASSETS
Capital stock, at par ........................................ $ 370,280
Additional paid-in capital ................................... 325,038,367
Distributions in excess of net investment income ............. (1,978,009)
Accumulated net realized loss on investments and foreign
currency transactions ...................................... (61,929,535)
Net unrealized depreciation of investments and foreign
currency denominated assets and liabilities ................ (18,244,961)
------------
$243,256,142
============
NET ASSET VALUE PER SHARE (based on 37,028,027 shares
outstanding) ................................................ $6.57
=====
- --------------------------------------------------------------------------------
See notes to financial statements.
6
<PAGE>
STATEMENT OF OPERATIONS
Six Months Ended June 30, 1999 (unaudited) ACM Government Spectrum Fund
================================================================================
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest ............................................... $ 11,059,331
EXPENSES
Advisory fee ........................................... $955,151
Administrative fee ..................................... 235,472
Custodian .............................................. 53,838
Transfer agency ........................................ 45,746
Reports and notices to shareholders .................... 33,222
Audit and legal ........................................ 37,759
Directors' fees ........................................ 16,312
Registration fee ....................................... 14,376
Taxes .................................................. 12,150
Miscellaneous .......................................... 7,602
--------
Total expenses ......................................... 1,411,628
------------
Net investment income .................................. 9,647,703
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS
Net realized loss on investment transactions ........... (2,066,573)
Net realized loss on foreign currency transactions ..... (664,095)
Net change in unrealized appreciation (depreciation) of:
Investments .......................................... (13,398,698)
Foreign currency denominated assets and liabilities .. 107,111
------------
Net realized and unrealized loss on investments and
foreign currency transactions ........................ (16,022,255)
------------
NET DECREASE IN NET ASSETS FROM OPERATIONS ............. $ (6,374,552)
============
</TABLE>
- --------------------------------------------------------------------------------
See notes to financial statements.
7
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS ACM Government Spectrum Fund
================================================================================
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1999 Year Ended
(unaudited) December 31, 1998
---------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income ................................................... $ 9,647,703 $ 18,484,937
Net realized gain (loss) on investments and foreign currency transactions (2,730,668) 4,658,861
Net change in unrealized appreciation (depreciation) of investments
and foreign currency denominated assets and liabilities ............... (13,291,587) (9,441,992)
------------- -------------
Net increase (decrease) in net assets from operations ................... (6,374,552) 13,701,806
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income .................................... (11,663,518) (18,484,937)
Distributions in excess of net investment income ........................ -0- (1,787,336)
------------- -------------
Total decrease .......................................................... (18,038,070) (6,570,467)
NET ASSETS
Beginning of period ..................................................... 261,294,212 267,864,679
------------- -------------
End of period ........................................................... $ 243,256,142 $ 261,294,212
============= =============
</TABLE>
- --------------------------------------------------------------------------------
See notes to financial statements.
8
<PAGE>
NOTES TO FINANCIAL STATEMENTS
June 30, 1999 (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
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS (cont.) ACM Government Spectrum Fund
================================================================================
denominated assets and liabilities at period end exchange rates are reflected as
a component of net unrealized depreciation of investments and foreign currency
transactions.
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, 1999, the Fund reimbursed AFS $3,420.
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 $58,988,558 and $40,499,629,
respectively, for the six months ended June 30, 1999. There were purchases of
$218,523,829 and sales of $218,431,316 of U.S. government and government agency
obligations during the six months ended June 30, 1999.
At June 30, 1999, the cost of investments for federal income tax purposes was
substantially the same as the cost for financial reporting purposes.
Accordingly, gross unrealized appreciation of investments was $1,140,208 and
gross unrealized depreciation was $19,608,287 resulting in net unrealized
depreciation of $18,468,079 (excluding foreign currency transactions).
At December 31, 1998, the Fund had a capital loss carryforward of $57,016,329 of
which $22,208,518 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
10
<PAGE>
ACM Government Spectrum Fund
================================================================================
and the closing of such contract is included in net realized gain or loss on
foreign currency transactions.
Fluctuations in the value of open forward exchange currency contracts are
reflected for financial reporting purposes as a component of net unrealized
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, 1999, 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 7/27/99 152 $ 101,660 $ 100,614 $ (1,045)
Forward Exchange
Currency Sale Contracts
Australian Dollars, settling 7/15/99 11,000 7,312,470 7,272,670 39,800
Euro Dollars, settling 9/13/99 ...... 1,200 1,266,441 1,244,404 22,037
British Pounds, settling 7/21/99 .... 2,500 4,043,875 3,941,110 102,765
Greek Drachmas, settling 7/30/99 .... 540,115 1,718,487 1,707,007 11,480
Japanese Yen, settling 7/09/99 ...... 533,000 4,426,910 4,411,689 15,221
New Zealand Dollars, settling 7/27/99 12,720 6,795,595 6,738,238 57,357
----------
$ 247,615
==========
</TABLE>
2. Option Transactions
For hedging purposes, the Fund purchases and writes (sells) put and call options
on U.S. and foreign government securities and foreign currencies that are traded
on U.S. and foreign securities exchanges and over-the-counter markets.
The risk associated with purchasing an option is that the Fund pays a premium
whether or not the option is exercised. Additionally, the Fund bears the risk of
loss of premium and change in market value should the counterparty not perform
under the contract. Put and call options purchased are accounted for in the same
manner as portfolio securities. The cost of securities acquired through the
exercise of call options is increased by premiums paid. The proceeds from
securities sold through the exercise of put options are decreased by the
premiums paid.
When the Fund writes an option, the premium received by the Fund is recorded as
a liability and is subsequently adjusted to the current market value of the
option written. Premiums received from written options which expire unexercised
are recorded by the Fund on the expiration date as a realized gain from options
written. The difference between the premium received and the amount paid on
effecting a closing purchase transaction, including brokerage commissions, is
also treated as a realized gain, or if the premium is less than the amount paid
for the closing purchase transaction, as a realized loss. If a call option is
exercised, the premium is added to the proceeds
11
<PAGE>
NOTES TO FINANCIAL STATEMENTS (cont.) ACM Government Spectrum Fund
================================================================================
from the sale of the underlying security or currency in determining whether the
Fund has a realized gain or loss. If a put option is exercised, the premium
reduces the cost basis of the security or currency purchased by the Fund. In
writing an option, the Fund bears the market risk of an unfavorable change in
the price of the security or currency underlying the option written. Exercise of
an option written by the Fund could result in the Fund selling or buying a
security or currency at a price different from the current market value.
For the six months ended June 30, 1999, the Fund did not have any written option
transactions.
3. Interest Rate Swap Agreements
The Fund enters into swaps on sovereign debt obligations to protect itself from
interest rate fluctuations on the underlying debt instruments and for investment
purposes. A swap is an agreement that obligates two parties to exchange a series
of cash flows at specified intervals based upon or calculated by reference to
changes in specified prices or rates for a specified amount of an underlying
asset. The payment flows are usually netted against each other, with the
difference being paid by one party to the other.
Risks may arise as a result of the failure of the counterparty to the swap
contract to comply with the terms of the swap contract. The loss incurred by the
failure of a counterparty is generally limited to the net interest payment to be
received by the Fund, and/or the termination value at the end of the contract.
Therefore, the Fund considers the creditworthiness of each counterparty to a
swap contract in evaluating potential credit risk. Additionally, risks may arise
from unanticipated movements in interest rates or in the value of the underlying
securities.
The Fund records a net receivable or payable on a daily basis for the net
interest income or expense expected to be received or paid during the interest
period. Net interest received or paid on these contracts is recorded as interest
income (or as an offset to interest income). Fluctuations in the value of swap
contracts are recorded for financial statement purposes as net change in
unrealized appreciation (depreciation) of investments.
At June 30, 1999, the Fund did not have any interest rate swap contracts
outstanding.
- --------------------------------------------------------------------------------
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, 1999. During the six months
ended June 30, 1999 and the year ended December 31, 1998, the Fund did not issue
any shares in connection with the dividend reinvestment plan.
- --------------------------------------------------------------------------------
NOTE E: Concentration of Risk
Investing in securities of foreign governments involves special risks which
include changes in foreign exchanges rates and the possibility of future adverse
political and economic developments which could adversely affect the value of
such securities. Moreover, securities of many foreign governments and their
markets may be less liquid and their prices more volatile than those of the
United States Government.
- --------------------------------------------------------------------------------
NOTE F: Year 2000
Many computer systems and applications in use today process transactions using
two-digit date fields for the year of the transaction, rather than the full four
digits. If these systems are not modified or replaced, transactions occurring
after 1999 could be processed as year "1900," which could result in processing
inaccuracies and computer system failures at or after the Year 2000. This is
commonly known as the Year 2000 problem. The Fund and its major service
providers, including
12
<PAGE>
ACM Government Spectrum Fund
================================================================================
Alliance, utilize a number of computer systems and applications that have been
either developed internally or licensed from third party suppliers. In addition,
the Fund and its major service providers, including Alliance, are dependent on
third party suppliers for certain systems applications and for electronic
receipt of information. Should any of computer systems employed by the Fund or
its major service providers, including Alliance, fail to process year 2000
related information properly, that could have a significant negative impact on
the Fund's operations and the services that are provided to the Fund's
stockholders. To the extent that the operations of issuers of securities held by
the Fund are impaired by the Year 2000 problem, or prices of securities held by
the Fund decline as a result of real or perceived problems relating to the Year
2000, the value of the Fund's shares may be materially affected. In addition,
for the Fund's investments in foreign markets, it is possible that foreign
companies and markets will not be as prepared for Year 2000 as domestic
companies and markets.
The Year 2000 issue is a high priority for the Fund and Alliance. The Fund has
been advised that, during 1997, Alliance began a formal Year 2000 initiative
which established a structured and coordinated process to deal with the Year
2000 issue. As part of its initiative, Alliance, established a Year 2000 project
office to manage the Year 2000 initiative, focusing on both information
technology and non-information technology systems. Alliance has also retained
the services of a number of consulting firms which have expertise in advising
and assisting with regard to Year 2000 issues. Alliance reports that by June 30,
1998 it had completed its inventory and assessment of its domestic and
international computer systems and applications, identified mission critical
systems and non-mission critical systems and determined which of these systems
are not Year 2000 compliant. All third party suppliers of mission critical
computer systems and applications have been contacted to verify whether their
systems and applications will be Year 2000 compliant and their responses are
being evaluated. Substantially all of those contacted have responded and
approximately 90% have informed Alliance that their systems and applications are
or will be Year 2000 compliant. Alliance will seek alternative solutions or
third party suppliers for all suppliers who do not furnish a satisfactory
response by July 31, 1999. The same process is being performed for non-mission
critical systems with estimated completion by July 31, 1999. Alliance had
remediated, replaced or retired all of its non-compliant mission critical
systems and applications which can impact the Fund. After each system has been
remediated, it is tested with 19xx dates to determine if it still performs its
intended business function correctly. Next, each system undergoes a simulation
test using dates occurring after December 31, 1999. Inclusive of the replacement
and retirement of some of its systems, Alliance has completed these testing
phases for approximately 89% of nonmission critical systems. Integrated systems
tests will then be conducted to verify that the systems will continue to work
together. Full integration testing of all mission critical and non-mission
critical systems is estimated to be completed by July 31, 1999. Testing of
interfaces with third-party suppliers has begun and will continue throughout
1999. Alliance reports that it has completed an inventory of its facilities and
related technology applications and has begun to evaluate and test these
systems. Alliance reports that it anticipates that these systems will be fully
operable in the year 2000. Alliance, with the assistance of a consulting firm,
is developing Year 2000 specific contingency plans with emphasis on mission
critical functions. These plans seek to provide alternative methods of
processing in the event of a failure that is outside Alliance's control. The
estimated date for the completion of these plans is July 31, 1999.
There are many risks associated with Year 2000 issues, including the risks that
the computer systems and applications used by the Fund and its major service
providers, including Alliance, will nor operate as intended and that the systems
and applications of third party providers to the Fund and its service providers
will not be Year 2000 compliant. Likewise there can be no assurance the
compliance schedules outlined above will be met or that the actual cost incurred
will
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS (cont.) ACM Government Spectrum Fund
================================================================================
not exceed current cost estimates. Should the significant computer systems and
applications used by the Fund and its major service providers or the systems of
its important third party suppliers be unable to process date sensitive
information accurately after 1999, the Fund and its service providers may be
unable to conduct its normal business operations and to provide shareholders
with the required services. In addition, the Fund and its service providers may
incur unanticipated expenses, regulatory actions and legal liabilities. The Fund
and Alliance cannot determine which risks, if any, are most reasonably likely to
occur or the effects of any particular failure to be Year 2000 compliant.
Certain statements provided by Alliance in this section entitled "Year 2000," as
such statements relate to Alliance, are "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. To the fullest
extent permitted by law, the foregoing Year 2000 discussion is a "Year 2000
Readiness Disclosure" within the meaning of the Year 2000 Information and
Readiness Disclosure Act, 15 U.S.C. Sec. 1 (1998).
14
<PAGE>
FINANCIAL HIGHLIGHTS ACM Government Spectrum Fund
================================================================================
Selected Data For A Share Of Common Stock Outstanding Throughout Each Period
<TABLE>
<CAPTION>
Six Months
Ended Years Ended December 31,
June 30, 1999 ---------------------------------------------------------
(unaudited) 1998 1997 1996 1995 1994
------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year ............... $ 7.06 $ 7.23 $ 7.16 $ 7.47 $ 6.89 $ 9.49
------ ------ ------ ------ ------ ------
Income From Investment Operations
Net investment income ............................ .26 .50 .51 .57 .70(a) .74(a)
Net realized and unrealized gain
(loss) on investments, options written
and foreign currency transactions .............. (.43) (.12) .17 (.19) .66 (2.46)
------ ------ ------ ------ ------ ------
Net increase (decrease) in net asset
value from operations .......................... (.17) .38 .68 .38 1.36 (1.72)
------ ------ ------ ------ ------ ------
Less: Dividends and Distributions
Dividends from net investment income ............. (.32) (.50) (.52) (.57) (.70) (.70)
Distributions in excess of net investment income . -0- (.05) (.09) (.12) (.01) -0-
Tax return of capital distribution ............... -0- -0- -0- -0- (.07) (.18)
------ ------ ------ ------ ------ ------
Total dividends and distributions ................ (.32) (.55) (.61) (.69) (.78) (.88)
------ ------ ------ ------ ------ ------
Net asset value, end of period ................... $ 6.57 $ 7.06 $ 7.23 $ 7.16 $ 7.47 $ 6.89
====== ====== ====== ====== ====== ======
Market value, end of period ...................... $5.813 $6.188 $6.625 $6.375 $6.625 $7.125
====== ====== ====== ====== ====== ======
Total Investment Return
Total investment return based on:(b)
Market value ................................... (1.04)% 1.55% 13.79% 6.55% 4.32% (20.44)%
Net asset value ................................ (2.06)% 6.16% 10.57% 6.13% 21.64% (18.93)%
Ratios/Supplemental Data
Net assets, end of period (000's omitted) ........ $243,256 $261,294 $267,865 $265,248 $276,638 $254,616
Ratio of expenses to average net assets .......... 1.13%(c) 1.06% 1.15% 1.17% 1.31% 1.21%
Ratio of net investment income to average
net assets ..................................... 7.70%(c) 7.00% 7.30% 8.10% 10.07% 9.58%
Portfolio turnover rate .......................... 100% 191% 350% 453% 377% 294%
</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.
15
<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 Tuesday, March 9, 1999. The description of each proposal and number of
shares voted at the meeting are as follows:
<TABLE>
<CAPTION>
Voted Withheld/
Voted For Abstain
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. To elect directors: Class Two Directors
(term expires in 2002)
David H. Dievler 32,843,266 1,337,302
William H. Foulk, Jr. 32,848,246 1,332,322
Dr. James M. Hester 32,851,243 1,329,325
<CAPTION>
Voted Voted
Voted For Against Abstain
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
2. To ratify the selection of Ernst & Young LLP
as the Fund's independent auditors for the
fiscal year ending December 31, 1999. 33,021,113 669,288 490,167
</TABLE>
16
<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 LLP
One Battery Park Plaza
New York, NY 10004
- --------------------------------------------------------------------------------
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940 that the Fund may purchase from time to time at market
prices shares of its Common Stock in the open market.
This report, including the financial statements herein, is transmitted to the
shareholders of ACM Government 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 Audit committee
17
<PAGE>
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<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 invests at least 65% of assets
primarily in securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities, and repurchase agreements pertaining to U.S.
Government securities. The Fund may also invest up to 35% of its assets in other
fixed-income securities, including those issued by non-governmental issuers in
the United States and those issued by foreign governments. The Fund may also use
certain other investment techniques, including options and futures. The Fund may
invest up to 35% of its net assets in below-investment grade securities. The
investment adviser of the Fund is Alliance Capital Management L.P.
Shareholder Information
The daily net asset value of the Fund's shares is available from the Fund's
Transfer Agent by calling 1-800-426-5523. The Fund also distributes its daily
net asset value to various financial publications or independent organizations
such as Lipper Inc., Morningstar, Inc. and Bloomberg. Daily market prices for
the Fund's shares are published in the New York Stock Exchange Composite
Transaction Section of newspapers under the designation "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
Alliance Capital [LOGO](R)
(R) These registered service marks used under license from the owner, Alliance
Capital Management L.P.
SPCSR 699
ACM
--------------------------------
GOVERNMENT
--------------------------------
SPECTRUM
--------------------------------
FUND
--------------------------------
Semi-Annual
Report
June 30, 1999
Alliance(R)
