<PAGE>
LETTER TO SHAREHOLDERS ACM Government Spectrum Fund
================================================================================
February 26, 1999
Dear Shareholder:
This report provides an overview of our strategy, performance and outlook for
the ACM Government Spectrum Fund for the annual reporting period ended December
31, 1998. 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 RESULTS
The following table shows how your Fund performed over the past six- and
12-month periods ended December 31, 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. Your Fund underperformed the benchmark for
both the six- and 12-month periods under review. Although our U.S. Treasury and
developed government bond allocations posted strong gains, the portfolio's
exposure to emerging market debt, which performed poorly over the period,
dampened performance.
INVESTMENT RESULTS*
Periods Ended December 31, 1998
Total Returns
6 Months 12 Months
-------- ---------
ACM Government
Spectrum Fund 3.69% 6.16%
Lehman Brothers
Aggregate Bond Index 4.58% 8.69%
* The Fund's investment results are total returns for the period and are
based on the net asset value of the Fund as of December 31, 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 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.
MARKET OVERVIEW
During the six-month period ended December 31, 1998, global markets experienced
volatility as financial and economic turmoil, spreading from Asia to Russia,
then to Latin America, elevated concerns about recession and a global economic
slowdown. However, decisive stimulative policies by the Federal Reserve and the
Central Banks in Europe to cut interest rates stemmed the downward trend and
ended the year with cautious optimism.
Despite global turmoil, the United States continued on a path of robust growth
driven by domestic consumer demand. Manufacturing, however, remained weak as
world export markets declined. Inflation continued to be benign and employment
strong throughout the period. The Federal Reserve, as a hedge against a slowing
global economy, lowered interest rates three times by a quarter of a percentage
point from 5.50% to 4.75%.
The U.S. bond market, which posted solid gains, provided a safe haven for
investors seeking liquidity during periods of global volatility. As investors
became more risk averse, U.S. Treasuries outperformed all other U.S. fixed
income sectors during the six- month period. Treasury yields (which move in the
opposite direction of price) reached record lows prior to rebounding at the end
of the period.
In the developed markets outside of the U.S., government bond returns were
augmented by investors' aversion to risk. Traditional safe haven markets ben-
1
<PAGE>
ACM Government Spectrum Fund
================================================================================
efited from both the flight to quality and the increased probability of monetary
easing, while non-safe haven countries suffered from low liquidity. On an
individual country basis, all developed government bond markets posted strong
returns with the exception of Japan.
In the emerging markets, debt prices fell over the six-month period when renewed
global volatility, caused by fiscal problems in Russia, heightened investor
concerns about all higher yielding asset classes. Investor confidence was
briefly restored in July, when the International Monetary Fund (IMF) approved an
emergency loan package for the Russian government. However, the downward fall of
emerging market debt prices resumed and accelerated in August after the Russian
government devalued the ruble and defaulted on its domestic debt. This move by
the Russian government led to a general sell-off of emerging market assets as
investors moved to lower their portfolios' risk exposure. In September, investor
concern shifted to Brazil, which, like Russia, has a semi-fixed currency regime
and deficits in both its fiscal and current accounts. After reaching a low in
September, emerging market debt prices rebounded as the U.S. and other
industrial countries began easing monetary policy.
INVESTMENT STRATEGY
During the six-month period under review, we maintained a longer interest rate
duration than the market generally employing U.S. Treasury holdings with
maturities of 10 years or more. In addition, we opportunistically employed
securities issued in foreign countries to enhance portfolio yield. For example,
we invested in New Zealand, Norwegian, Australian and Canadian government bonds,
subsequently selling the latter two positions. We also continued to invest in
the developing markets.
ECONOMIC OUTLOOK
We believe the risk of global recession has diminished after the recent wave of
official interest rate cuts around the world. However, global growth should
continue to slow and inflation should remain subdued as the consequences of
excess productive capacity are felt around the world. U.S. economic activity is
expected to moderate from the robust rate of the fourth quarter with growth
estimates centered around 3.0% for 1999. Further interest rate reductions by the
Federal Reserve are not imminent, however, we believe the Federal Reserve will
respond quickly to accommodate liquidity needs, if, and as, they arise. U.S.
interest rates, as well as inflation, should remain low and the U.S. Treasury
market will continue to provide a safe haven during times of volatility.
In Europe, we expect growth to slow to 2% in 1999 from 2.6% in 1998. Inflation
is expected to remain low. Additional rate cuts by the European Central Bank are
likely. The new Euro will provide interesting investment opportunities as it
stimulates the development of a European bond market exhibiting similar
characteristics to the U.S. bond market. Longer term, it is expected to rival
the U.S. dollar in strength. Japanese growth is expected to decline by 1% in
1999 after having shrunk an estimated 2.9% in 1998. A deflationary cycle has
taken hold in Japan and is negatively impacting the world economic outlook. We
remain pessimistic on the outlook for Japanese growth until meaningful financial
and real-sector reforms are implemented.
In the emerging market arena, increased uncertainty has been generated by the
change in Brazil's exchange rate policy. Spreads on emerging market debt have
widened considerably as a result, weakening growth prospects for Latin America.
Furthermore,
2
<PAGE>
ACM Government Spectrum Fund
================================================================================
we remain concerned about the effects that slower global growth and low
commodity prices will have on emerging markets. In this environment, we expect
emerging market debt prices to remain volatile. They should contain periods of
improved sentiment, triggered by stimulative policies in developed countries,
interspersed with episodes of weakness, as investors lose confidence in the pace
of reforms in emerging countries and Japan.
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
December 31, 1998 ACM Government Spectrum Fund
================================================================================
Principal
Amount U.S. $ Value
(000)
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AND
AGENCY OBLIGATIONS-78.4%
U.S. TREASURY
BONDS-41.1%
8.125%, 8/15/19 (a)........ $ 19,000 $ 25,373,930
10.75%, 8/15/05 (a)........ 11,250 15,004,687
12.75%, 11/15/10 (a)....... 9,250 13,435,625
13.75%, 8/15/04 (a)........ 11,500 16,540,220
14.00%, 11/15/11 (a)....... 23,300 36,912,326
------------
107,266,788
------------
U.S. TREASURY
NOTES-26.7%
5.25%, 8/15/03............. 4,500 4,614,615
5.75%, 8/15/03............. 7,600 7,936,072
6.25%, 10/31/01 (a)........ 17,000 17,711,790
6.50%, 8/15/05 (a)......... 8,075 8,874,910
6.875%, 5/15/06 (a)........ 16,950 19,164,009
7.875%, 11/15/04 (a)....... 10,000 11,585,900
------------
69,887,296
------------
U.S. TREASURY
STRIPS-8.0%
Zero coupon, 5/15/15....... 51,000 20,840,640
------------
MORTGAGE RELATED
SECURITY-2.6%
Federal National Mortgage
Association
4.75%, 11/14/03............ 7,000 6,910,330
Total U.S. Government and
Agency Obligations
(cost $196,645,760)........ 204,905,054
------------
SOVEREIGN DEBT
OBLIGATIONS-19.5%
ARGENTINA-3.2%
Province of Tucuman
9.45%, 8/01/04 (b)......... 1,643 1,355,351
Federal Republic of Argentina
11.00%, 12/04/05........... 7,000 6,982,500
Warrants expiring
9/19/27 (c)................ 7 30,450
------------
8,368,301
------------
BRAZIL-2.3%
Republic of Brazil C Bonds
8.00%, 4/15/14 (d)......... $ 5,299 $ 3,153,078
10.125%, 5/15/27........... 4,500 2,992,500
------------
6,145,578
------------
COLOMBIA-2.6%
Republic of Colombia
8.625%, 4/01/08............ 8,000 6,800,000
------------
ECUADOR-1.7%
Republic of Ecuador
3.50%, 2/28/25............. 10,300 4,377,500
------------
GREECE-1.6%
Hellenic Republic
8.90%, 4/01/03............. GRD 1,100 4,122,838
------------
MEXICO-1.0%
Mexican Treasury Bill
20.25%, 5/06/99 (e)........ MXP 27,500 2,500,171
------------
NEW ZEALAND-2.5%
New Zealand
10.00%, 3/15/02............ NZD 11,000 6,575,458
------------
NORWAY-2.8%
Kingdom of Norway
9.00%, 1/31/99............. NOK 55,000 7,238,995
------------
RUSSIA-0.1%
Russian Principal Loans FRN
6.625%, 12/15/20 (f)....... $ 8,000 370,000
Russian IAN FRN
5.969%, 12/15/15........... 135 14,144
------------
384,144
------------
SOUTH AFRICA-1.7%
Development Bank of
South Africa
Zero coupon, 12/31/27...... ZAR 250,000 785,189
European Bank for
Reconstruction and
Development
Zero coupon, 12/31/29...... 375,000 1,241,448
4
<PAGE>
ACM Government Spectrum Fund
================================================================================
Principal
Amount
(000) U.S. $ Value
- -------------------------------------------------------------------------------
International Bank for
Reconstruction and
Development
Zero coupon, 12/31/25 300,000 1,400,608
Zero coupon, 2/17/26 75,000 364,158
Zero coupon, 7/14/27 ZAR 150,000 $ 646,826
------------
4,438,229
------------
U.S. $ Value
- -------------------------------------------------------------------------------
Total Sovereign Debt Obligations
(cost $64,279,889) 50,951,214
------------
TOTAL INVESTMENTS--97.9%
(cost $260,925,649) $255,856,268
Other assets less liabilities--2.1%. 5,437,944
------------
NET ASSETS--100% $261,294,212
============
- --------------------------------------------------------------------------------
(a) Securities, or portion thereof, have been segregated to collateralize open
forward exchange currency contracts. Total value of segregated securities
amounted to $117,425,000 at December 31, 1998.
(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 December 31, 1998, this
security amounted to $1,355,351 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.
(f) Paid-in-kind in Russian IAN's.
Glossary of Terms:
FRN Floating Rate Note
IAN Interest Arrears Note
See notes to financial statements.
5
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998 ACM Government Spectrum Fund
================================================================================
ASSETS
Investments in securities, at value (cost $260,925,649)........ $255,856,268
Cash........................................................... 840,485
Interest receivable............................................ 4,724,238
Net unrealized appreciation of forward exchange
currency contracts........................................... 122,343
-----------
Total assets................................................... 261,543,334
-----------
LIABILITIES
Administrative fee payable..................................... 45,708
Accrued expenses............................................... 203,414
-----------
Total liabilities.............................................. 249,122
-----------
NET ASSETS...................................................... $261,294,212
============
COMPOSITION OF NET ASSETS
Capital stock, at par.......................................... $ 370,280
Additional paid-in capital..................................... 325,038,367
Undistributed net investment income............................ 37,806
Accumulated net realized loss on investments and
foreign currency transactions................................ (59,198,867)
Net unrealized depreciation of investments and
foreign currency denominated assets and liabilities.......... (4,953,374)
-------------
$261,294,212
=============
NET ASSET VALUE PER SHARE (based on 37,028,027
shares outstanding)........................................... $7.06
======
- -------------------------------------------------------------------------------
See notes to financial statements.
6
<PAGE>
STATEMENT OF OPERATIONS
Year Ended December 31, 1998 ACM Government Spectrum Fund
================================================================================
INVESTMENT INCOME
Interest............................................ $21,297,125
EXPENSES
Advisory fee........................................ $1,898,639
Administrative fee.................................. 497,633
Custodian........................................... 105,755
Transfer agency..................................... 91,873
Audit and legal..................................... 73,133
Reports and notices to shareholders................. 45,598
Directors' fees..................................... 33,734
Registration fee.................................... 32,373
Taxes............................................... 19,500
Miscellaneous....................................... 13,950
----------
Total expenses...................................... 2,812,188
----------
Net investment income............................... 18,484,937
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS
Net realized gain on investment transactions........ 5,366,131
Net realized loss on foreign currency
transactions...................................... (707,270)
Net change in unrealized appreciation
(depreciation) of:
Investments....................................... (6,810,521)
Foreign currency denominated assets and
liabilities..................................... (2,631,471)
-----------
Net realized and unrealized loss on investments
and foreign currency transactions................. (4,783,131)
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS........... $13,701,806
===========
STATEMENT OF CHANGES IN NET ASSETS
===============================================================================
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1998 December 31, 1997
----------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income............................... $ 18,484,937 $ 18,983,610
Net realized gain on investments and foreign
currency transactions ............................ 4,658,861 1,284,519
Net change in unrealized appreciation
(depreciation) of investments and foreign
currency denominated assets and liabilities....... (9,441,992) 4,842,498
------------ ------------
Net increase in net assets from operations.......... 13,701,806 25,110,627
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income................ (18,484,937) (19,166,509)
Distributions in excess of net investment
income............................................ (1,787,336) (3,327,379)
------------ ------------
Total increase (decrease)........................... (6,570,467) 2,616,739
------------ ------------
NET ASSETS
Beginning of year................................... 267,864,679 265,247,940
------------ ------------
End of year (including undistributed net
investment income of $37,806 at
December 31, 1998)................................ 261,294,212 $267,864,679
============ ============
- ------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
7
<PAGE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 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 year end
exchange rates are reflected as a component of net unrealized depreciation of
investments and foreign currency denominated assets and liabilities.
8
<PAGE>
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. During the current fiscal year, permanent differences,
primarily due to distributions in excess of taxable income, resulted in net
decrease in additional paid-in capital and a corresponding decrease in
undistributed net investment income. This reclassification had no effect on net
assets.
- --------------------------------------------------------------------------------
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
year ended December 31, 1998, 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 $172,280,179 and $161,057,040,
respectively, for the year ended December 31, 1998. There were purchases of
$346,102,222 and sales of $403,084,949 of U.S. government and government agency
obligations for the year ended December 31, 1998.
At December 31, 1998, the cost of investments for federal income tax purposes
was $263,108,183. Accordingly, gross unrealized appreciation of investments was
$8,562,010 and gross unrealized depreciation was $15,813,925, resulting in net
unrealized depreciation of $7,251,915 (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 hold-
ings, 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.
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS(continued) ACM Government Spectrum Fund
================================================================================
Fluctuations in the value of open forward exchange currency contracts are
reflected for financial reporting purposes as a component of net unrealized
depreciation of investments 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 commit-
ments 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 December 31, 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 Sale Contracts (000) Date Value (Depreciation)
----------- ------------- ----------- -----------------
<S> <C> <C> <C> <C>
Deutsche Marks, settling 1/15/99...................... 6,890 $4,150,544 $4,137,096 $ 13,448
Norwegian Krone, settling 2/08/99..................... 57,902 7,753,036 7,592,887 160,149
New Zealand Dollars, settling 3/15/99................. 12,720 6,647,720 6,698,974 (51,254)
---------
$122,343
=========
</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 secu-
rities sold through the exercise of put options are decreased by the premiums
paid.
When the Fund writes an option, the premium received by the Fund is recorded as
a liability and is subsequently adjusted to the current market value of the
option written. Premiums received from written options which expire unexercised
are recorded by the Fund on the expiration date as a realized gain from options
written. The difference between the premium received and the amount paid on
effecting a closing purchase transaction, including brokerage commissions, is
also treated as a realized gain, or if the premium is less than the amount paid
for the closing purchase transaction, as a realized loss. If a call option is
exercised, the premium is added to the proceeds from the sale of the underlying
security or currency in determining whether the Fund has a realized gain or
loss. If a put option is exercised, the premium reduces the cost basis of the
security or currency purchased by the Fund. In writing an option, the Fund bears
the market risk of an unfavorable change in the price of the security or
currency underlying the option written. Exercise of an option written by the
Fund could result in the Fund selling or buying a security or currency at a
price different from the current market value.
For the year ended December 31, 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 the underlying debt instruments and for
investment
10
<PAGE>
ACM Government Spectrum Fund
================================================================================
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 December 31, 1998, 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 December 31, 1998. During the years
ended December 31, 1998 and 1997, 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 exchange rates and the possibility of future adverse
political and economic developments which could adversely affect the value of
such securities. Moreover, securities of many foreign governments and their
markets may be less liquid and their prices more volatile than those of the
United States government.
11
<PAGE>
FINANCIAL HIGHLIGHTS ACM Government Spectrum Fund
================================================================================
Selected Data For A Share Of Common Stock Outstanding Throughout Each Year
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ----- ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year.................... $ 7.23 $ 7.16 $ 7.47 $ 6.89 $ 9.49
------ ------ ------ ----- ------
Income From Investment Operations
- ---------------------------------
Net investment income................................. .50 .51 .57 .70(a) .74(a)
Net realized and unrealized gain
(loss) on investments, options written
and foreign currency transactions.................... (.12) .17 (.19) .66 (2.46)
------ ------ ------ ----- --------
Net increase (decrease) in net asset
value from operations............................... .38 .68 .38 1.36 (1.72)
------ ------ ------ ----- --------
Less: Dividends and Distributions
- ---------------------------------
Dividends from net investment income.................. (.50) (.52) (.57) (.70) (.70)
Distributions in excess of net investment income...... (.05) (.09) (.12) (.01) -0-
Tax return of capital distribution.................... -0- -0- -0- (.07) (.18)
------ ------ ------ ----- --------
Total dividends and distributions..................... (.55) (.61) (.69) (.78) (.88)
------ ------ ------ ----- --------
Net asset value, end of year.......................... $ 7.06 $ 7.23 $ 7.16 $ 7.47 $ 6.89
====== ====== ======= ===== =======
Market value, end of year............................. $ 6.188 $ 6.625 $ 6.375 $ 6.625 $ 7.125
====== ====== ======= ===== =======
Total Investment Return
- -----------------------
Total investment return based on:(b)
Market value......................................... 1.55% 13.79% 6.55% 4.32% (20.44)%
Net asset value...................................... 6.16% 10.57% 6.13% 21.64% (18.93)%
Ratios/Supplemental Data
- ------------------------
Net assets, end of year (000's omitted)............... $261,294 $267,865 $265,248 $276,638 $254,616
Ratio of expenses to average net assets............... 1.06% 1.15% 1.17% 1.31% 1.21%
Ratio of net investment income to average net assets.. 7.00% 7.30% 8.10% 10.07% 9.58%
Portfolio turnover rate............................... 191% 350% 453% 377% 294%
</TABLE>
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(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 year reported. Dividends and distributions, if any, are assumed for
purposes of this calculation, to be reinvested at prices obtained under the
Fund's Dividend Reinvestment Plan. Generally, total investment return based
on net asset value will be higher than total investment return based on
market value in years where there is an increase in the discount or a
decrease in the premium of the market value to the net asset value from the
beginning to the end of such years. Conversely, total investment return
based on net asset value will be lower than total investment return based on
market value in years where there is a decrease in the discount or an
increase in the premium of the market value to the net asset value from the
beginning to the end of such years.
12
<PAGE>
REPORT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS ACM Government Spectrum Fund
================================================================================
To the Shareholders and Board of Directors
ACM Government Spectrum Fund, Inc.
We have audited the accompanying statement of assets and liabilities of ACM
Government Spectrum Fund, Inc., including the portfolio of investments, as of
December 31, 1998, and the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the periods
indicated therein. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1998, by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of ACM
Government Spectrum Fund, Inc. at December 31, 1998, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the indicated periods in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
New York, New York
February 3, 1999
13
<PAGE>
ADDITIONAL INFORMATION (unaudited) ACM Government Spectrum Fund
================================================================================
Shareholders whose shares are registered in their own names may elect to be
participants in the Dividend Reinvestment and Cash Purchase Plan (the "Plan"),
pursuant to which dividends and capital gain distributions to shareholders will
be reinvested in additional shares of the Fund. State Street Bank and Trust
Company (the "Agent") will act as agent for participants under the Plan.
Shareholders whose shares are held in the name of a broker or nominee should
contact such broker or nominee to determine whether or how they may participate
in the Plan.
If the Board declares an income distribution or determines to make a capital
gain distribution payable either in shares or in cash, as holders of the Common
Stock may have elected, non-participants in the Plan will receive cash and
participants in the Plan will receive the equivalent in shares of Common Stock
of the Fund valued as follows:
(i) If the shares of Common Stock are trading at net asset value or at a premium
above net asset value at the time of valuation, the Fund will issue new shares
at the greater of net asset value or 95% of the then current market price.
(ii) If the shares of Common Stock are trading at a discount from net asset
value at the time of valuation, the Agent will receive the dividend or
distribution in cash and apply it to the purchase of the Fund's shares of
Common Stock in the open market on the New York Stock Exchange or elsewhere, for
the participants' accounts. Such purchases will be made on or shortly after the
payment date for such dividend or distribution and in no event more than 30 days
after such date except where temporary curtailment or suspension of purchase is
necessary to comply with Federal securities laws. If, before the Agent has
completed its purchases, the market price exceeds the net asset value of a share
of Common Stock, the average purchase price per share paid by the Agent may
exceed the net asset value of the Fund's shares of Common Stock, resulting in
the acquisition of fewer shares than if the dividend or distribution had been
paid in shares issued by the Fund.
The Agent will maintain all shareholders' accounts in the Plan and furnish
written confirmation of all transactions in the account, including information
needed by shareholders for tax records. Shares in the account of each Plan
participant will be held by the Agent in non-certificate form in the name of the
participant, and each shareholder's proxy will include those shares purchased
or received pursuant to the Plan.
There will be no charges with respect to shares issued directly by the Fund to
satisfy the dividend reinvestment requirements. However, each participant will
pay a pro rata share of brokerage commissions incurred with respect to the
Agent's open market purchases of shares. In each case, the cost per shares of
shares purchased for each shareholder's account will be the average cost,
including brokerage commissions, of any shares purchased in the open market plus
the cost of any shares issued by the Fund.
The automatic reinvestment of dividends and distributions will not relieve
participants of any income taxes that may be payable (or required to be
withheld) on the dividends and distribution.
Experience under the Plan may indicate that changes are desirable. Accordingly,
the Fund reserves the right to amend or terminate the Plan as applied to any
voluntary cash payments made and any dividend or distribution paid subsequent to
written notice of the change sent to participants in the Plan at least 90 days
before the record date for such dividend or distribution. The Plan may also be
amended or terminated by the Agent on at least 90 days' written notice to
participants in the Plan.
All correspondence concerning the Plan should be directed to the Agent at State
Street Bank and Trust Company, P.O. Box 8200, Boston, Massachusetts 02266-8200.
Since the filing of the most recent amendment to the Fund's registration
statement with the Securities and Exchange Commission, there have been (i) no
material changes in the Fund's investment objective or policies, (ii) no
changes to the Fund's charter or by-laws that would delay or prevent a change
of control of the Fund, (iii) no material changes in the principal factors
associated with investment in the Fund, and (iv) no changes in the person
primarily responsible for the day-to-day management of the Fund's portfolio,
who is Wayne D. Lyski, the President of the Fund.
14
<PAGE>
ADDITIONAL INFORMATION (unaudited) (continued) ACM Government Spectrum Fund
================================================================================
Year 2000
Many computer systems and applications in use today process transactions using
two-digit data fields for the year of the transaction, rather that 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. This is commonly known as the year
2000 problem. Should any of the computer systems employed by the Fund's major
service providers 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 shareholders. In addition, 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.
With respect to the Year 2000, the Fund has been advised that Alliance, the
Fund's investment adviser, Alliance Fund Distributors, Inc. ("AFD"), the
Fund's principal underwriter, and Alliance Fund Services, Inc. ("AFD"), the
Fund's registrar transfer agent and dividend disbursing agent (collectively,
"Alliance"), began to address the year 2000 issue several years ago in
connection with the replacement or upgrading of certain computer systems and
applications. During 1997, Alliance began a formal Year 2000 initiative, which
established a structured and coordinated process to deal with the Year 2000
issues. Alliance reports that it has completed its assessment of the Year 2000
issues on its domestic and international computer systems and applications.
Currently, management of Alliance expects that the required modifications for
the majority of its significant systems and applications that will be in use on
January 1, 2000, will be completed and tested in early 1999. Full integration
testing of these systems and testing of interfaces with third-party suppliers
will continue through 1999. At this time, management of Alliance believes that
the costs associated with resolving this issue will not have a material adverse
effect on its operations or on its ability to provide the level of services it
currently provides to the Fund.
The Fund and Alliance have been advised by the Fund's Custodian that they are
also in the process of reviewing their systems with the same goals. As of the
date of this report, the Fund and Alliance have no reason to believe that the
Custodian will be unable to achieve these goals.
15
<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 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.
16
<PAGE>
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<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
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)These registered service marks used under license from the owner,
Alliance Capital Management L.P.
SPCAR
- --------------------------------------------------------------------------------
ACM
------------------
Government
------------------
SPECTRUM
------------------
Fund
------------------
Annual Report
August 31, 1998
Alliance (R)
- --------------------------------------------------------------------------------
