<PAGE>
Letter To Shareholders ACM Government Spectrum Fund
================================================================================
February 1, 2000
Dear Shareholder:
We are pleased to provide this annual shareholder report for ACM Government
Spectrum Fund (the "Fund"). The report includes the performance, investment
strategy and outlook for the Fund over the 12-month period ended December 31,
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 past six- and
12-month periods ended December 31, 1999. For comparison, we have included the
performance for the Fund's benchmark, the Lehman Brothers ("LB") Aggregate Bond
Index.
As shown, during the six- and 12-month periods ended December 31, 1999, your
Fund outperformed its benchmark index. Our allocation to emerging market debt
and mortgage securities enhanced performance over both periods.
During both periods, emerging market debt outperformed all other sectors of the
bond market as global growth improved and commodity prices firmed. Approximately
30% of your Fund was allocated to the emerging market debt sector throughout the
12-month period (the benchmark holds no emerging market debt). In addition, your
Fund's exposure to the mortgage sector enhanced performance. The prepayment risk
embedded in many of these securities as well as their generally shorter
durations, helped cushion their price declines in 1999's rising interest rate
environment.
INVESTMENT RESULTS*
Periods Ended December 31, 1999
Total Returns
6 Months 12 Months
-------- ---------
ACM Government
Spectrum Fund 4.30% 2.24%
Lehman Brothers
Aggregate Bond Index 0.56% -0.82%
* 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,
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 Lehman Brothers Aggregate Bond Index is composed of the Lehman
Brothers Mortgage-Backed and Lehman Brothers Asset-Backed Securities
indices and the Lehman Brothers 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 an
index.
MARKET REVIEW
The global economy is on the mend, and the United States deserves much of the
credit. U.S. growth was 5.8% during the fourth quarter of 1999, and 4% for the
calendar year. Two-and-a-half million new jobs were created during 1999, and
unemployment fell to 4.1%, a 30-year low. U.S. consumers are confident and it
shows in their spending, which grew at a 5% rate during the fourth quarter.
Private demand is increasing in Europe, a development that will support
export-led recoveries in East Asia (including Japan) and Latin America. The rise
in commodity prices, led by oil, has started to flow through to U.S. inflation:
the Consumer Price Index moved above 2.5% on a year-over-year basis during the
fourth quarter versus 2% during the first nine months of 1999. These
developments, together with continuing economic strength, have sparked inflation
concerns in the United States,
1
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ACM Government Spectrum Fund
================================================================================
pushed-up bond yields and triggered three 25 basis-point (bp) interest rate
hikes by the U.S. Federal Reserve during 1999. (An additional interest rate
increase was announced on February 2, 2000, after the close of the Fund's
reporting period.) The weakness in U.S. bond prices spread throughout much of
the industrialized world this year, although not always with the same
inflationary justification.
1999 was a poor year for the U.S. fixed-income market. Mortgage-backed
securities, commercial mortgage-backed securities, and asset-backed securities
posted the best returns during the year. The prepayment risk embedded in many of
these securities, as well as their generally shorter durations, helped cushion
their price declines in the rising interest rate environment. U.S. government
bonds posted the worst returns during the year as the Federal Reserve raised
interest rates. The investment-grade corporate sector, as measured by the LB
Corporate Bond Index, also posted an unusual loss of -1.96% for the year.
Emerging market debt was the standout best performer among the fixed-income
sectors during 1999 as global economic growth improved and commodity prices
firmed. With a total return for the year of 25.97% (19.70% excluding Russia),
and a fourth-quarter gain of 12.58% (9.60% excluding Russia), emerging market
debt far outdistanced its fixed-income competition and rivaled U.S. equity
benchmarks. The annual results for calendar year 1999 were in part generated by
the low end-1998 starting point; the JP Morgan Emerging Markets Bond Index-Plus
did not regain its high of May 1998 until the middle of December 1999. Among the
individual markets, Russia posted the best return. Rising oil prices along with
progress in restructuring Soviet-era debt helped the performance of Russian
debt. Also, the big three Latin markets of Argentina, Brazil, and Mexico scored
impressive results of 12.97%, 40.68%, and 15.30% for the year as their economies
gained strength.
INVESTMENT STRATEGY
Over the past 12-month period ended December 31, 1999, we maintained a longer
interest rate duration than the market, generally employing U.S. Treasury
holdings with maturities of 10 years or more. We opportunistically employed
securities issued in foreign countries to enhance portfolio yield. The Fund held
the government debt of Mexico, Brazil, Argentina, Philippines and Turkey. We
increased the Fund's exposure in Mexico due to its expected upgrade to
investment-grade status in 2000. We also increased exposure in Turkey due to
diligent fiscal reforms and the increased possibility of membership in the
European Union. Because of the region's improved credit quality, we initiated a
position in the Philippines toward the end of the year.
OUTLOOK
Our near-term outlook for fixed-income markets assumes that the U.S. economy
will stay relatively strong and that the global economy will continue to
recover. Higher bond yields are cooling overheated U.S. domestic demand, and we
believe further increases will help to restore a more balanced domestic/foreign
mix over the next six months. We expect tighter monetary policy measures in
2000. The European Central Bank (the "ECB") will be most likely to follow the
U.S. Federal Reserve with additional tightening in 2000. The higher official
rates should begin to slow the interest rate sensitive sectors enough to remove
some of the future inflation risk. As this happens, bond markets will begin to
discount the peaking of the current global growth cycle.
2
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ACM Government Spectrum Fund
================================================================================
Given these expectations, we expect bond prices to struggle in the short term.
The recent data from the U.S. leaves quite a bit of uncertainty about whether
rates at current or forecasted levels will restrain the economy enough to turn
inflation expectations lower again. The recovery in Europe is indeed broadening,
and it is clear that the ECB will look to provide some counterbalance to the
cyclical recovery that is also receiving pro-cyclical fiscal support.
We believe that ongoing reforms and a favorable global economic backdrop will
make the emerging market debt sector the best performing sector of fixed-income
securities for many months to come. Stronger global growth coupled with the
recent firming in commodity prices will continue to provide the environment
necessary for emerging countries to gradually improve their credit profiles.
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, 1999 ACM Government Spectrum Fund
================================================================================
Principal
Amount U.S. $
(000) Value
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AND
AGENCY OBLIGATIONS--73.4%
U.S. TREASURY BONDS--45.6%
6.125%, 8/15/29 (a)(b). $ 5,600 $ 5,338,368
8.125%, 8/15/19 (a)..... 18,265 20,813,515
10.75%, 8/15/05 (a)..... 9,600 11,449,536
12.375%, 5/15/04 (a).... 3,350 4,082,812
12.75%, 11/15/10 (a).... 7,825 10,089,320
13.25%, 5/15/14 (a)..... 3,150 4,538,457
13.75%, 8/15/04 (a)..... 15,730 20,190,871
14.00%, 11/15/11 (a).... 24,800 34,596,000
------------
111,098,879
------------
U.S. TREASURY NOTES--10.7%
6.00%, 8/15/09 (a)...... 8,500 8,234,375
6.875%, 5/15/06 (a)..... 9,600 9,769,536
7.875%, 11/15/04 (a).... 7,650 8,088,651
------------
26,092,562
------------
MORTGAGE RELATED
SECURITIES--9.0%
Federal National
Mortgage Association
7.50%, 11/01/29......... 11,466 11,337,263
8.00%, 6/01/28.......... 4,587 4,641,336
------------
15,978,599
Government National
Mortgage Association
6.50%, 2/15/29.......... 6,404 6,010,006
------------
21,988,605
------------
U.S. TREASURY STRIPS--7.4%
Zero coupon, 5/15/15.... 51,000 17,917,320
------------
U.S. Treasury Bills--0.7%
5.40%, 1/13/00 (c)
(cost $1,691,988)....... 1,695 1,691,988
------------
Total U.S. Government
and Agency
Obligations
(cost $190,724,059)..... 178,789,354
------------
SOVEREIGN DEBT
OBLIGATIONS--34.3%
OTHER SOVEREIGN
DEBT OBLIGATIONS--30.0%
ARGENTINA--2.1%
Republic of Argentina
11.00%, 12/04/05........ 5,250 5,142,375
------------
BRAZIL--2.0%
Republic of Brazil
C-Bonds
8.00%, 4/15/14 (d)...... 6,339 4,762,507
------------
COLOMBIA--1.6%
Republic of Colombia
8.625%, 4/01/08......... 4,500 3,920,850
------------
MEXICO--6.6%
United Mexican States
10.375%, 2/17/09........ 9,650 10,289,795
Mexican Cetes
21.72%, 4/13/00 (e).....MXN 33,354 3,301,128
21.86%, 9/7/00 (e)...... 25,968 2,423,426
------------
16,014,349
------------
PANAMA--2.8%
Republic of Panama
9.375%, 4/01/29......... $ 7,000 6,711,600
------------
PHILIPPINES--5.0%
Republic of Philippines
9.50%, 10/21/24......... 9,500 9,618,750
9.875%, 1/15/19......... 2,600 2,567,500
------------
12,186,250
------------
POLAND--2.0%
Government of Poland
10.00%, 6/12/04.........PLN 22,000 4,934,704
------------
RUSSIA--1.6%
Ministry of Finance
3.00%, 5/14/03.......... $ 7,700 2,656,500
Russian Principal
Loans FRN
6.91%, 12/15/20 (f)..... 8,000 1,260,000
Russian IAN FRN
6.91%, 12/15/15 (f)..... 135 23,574
------------
3,940,074
------------
4
<PAGE>
ACM Government Spectrum Fund
================================================================================
Principal
Amount U.S. $
(000) Value
- --------------------------------------------------------------------------------
SOUTH AFRICA--2.4%
Development Bank of
South Africa
Zero coupon,
12/31/27................ZAR 250,000 $ 1,035,743
European Bank for
Reconstruction and
Development
Zero coupon, 4/07/27.... 116,605 625,177
International Bank for
Reconstruction and
Development
Zero coupon,
12/31/25................ 300,000 1,676,686
Zero coupon, 2/17/26.... 250,000 1,380,991
Zero coupon, 7/14/27.... 237,275 1,267,523
------------
5,986,120
------------
TURKEY--3.9%
Turkey Treasury Bills
Zero coupon, 8/23/00....TRL 2,725,000,000 3,667,496
Republic of Turkey
12.375%, 6/15/09........ $ 2,025 2,176,875
Turkey Government
Bond
72.0%, 10/03/01.........TRL 1,360,000,000 3,565,487
------------
9,409,858
------------
Total Other Sovereign
Debt Obligations
(cost $78,499,235)...... 73,008,687
------------
NON-COLLATERALIZED
BRADY BONDS--3.1%
BULGARIA
Republic of Bulgaria
IAB FRN
6.50%, 7/28/11.......... 9,700 7,638,750
------------
COLLATERALIZED
BRADY BONDS(g)--1.2%
BULGARIA
Republic of Bulgaria
Discount Bonds FRN
Series A
6.50%, 7/28/24.......... 3,500 2,804,550
------------
Total Sovereign Debt
Obligations
(cost $88,921,111)...... 83,451,987
------------
TOTAL INVESTMENTS--107.7%
(cost $279,645,170)..... 262,241,341
Other assets less
liabilities--(7.7%)...... (18,706,997)
------------
NET ASSETS--100% $243,534,344
============
- --------------------------------------------------------------------------------
(a) Securities, or portion thereof, have been segregated to collateralize open
forward exchange currency contracts. Total value of segregated securities
amounted to $137,191,441 at December 31, 1999.
(b) Securities, or portions thereof, with an aggregate market value of
$5,467,925 have been segregated to collateralize reverse repurchase
agreements.
(c) Interest rate shown is the discount rate at date of purchase.
(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) Security is in default and is non-income producing.
(g) Sovereign debt obligations issued as part of debt restructurings that are
collateralized in full as to principal due at maturity by U.S. Treasury
zero coupon obligations which have the same maturity as the Brady Bond.
Glossary of Terms:
FRN-Floating Rate Note
IAN-Interest Arrears Note
IAB-Interest Arrears Bond
See notes to financial statements.
5
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1999 ACM Government Spectrum Fund
================================================================================
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value (cost $279,645,170) ...................... $ 262,241,341
Cash ......................................................................... 950
Interest receivable .......................................................... 5,564,596
-------------
Total assets ................................................................. 267,806,887
-------------
LIABILITIES
Payable for investment securities purchased .................................. 18,256,470
Reverse repurchase agreement ................................................. 5,614,000
Advisory fee payable ......................................................... 212,566
Administrative fee payable ................................................... 43,960
Net unrealized depreciation of forward exchange currency contracts ........... 10,735
Interest payable on reverse repurchase agreements ............................ 17,232
Accrued expenses ............................................................. 117,580
-------------
Total liabilities ............................................................ 24,272,543
-------------
NET ASSETS ..................................................................... $ 243,534,344
=============
COMPOSITION OF NET ASSETS
Capital stock, at par ........................................................ $ 370,280
Additional paid-in capital ................................................... 325,038,367
Undistributed net investment income .......................................... 652,049
Accumulated net realized loss on investments and foreign currency transactions (65,119,275)
Net unrealized depreciation of investments and foreign currency transactions . (17,407,077)
-------------
$ 243,534,344
=============
NET ASSET VALUE PER SHARE (based on 37,028,027 shares outstanding) ............. $6.58
=====
</TABLE>
- --------------------------------------------------------------------------------
See notes to financial statements.
6
<PAGE>
STATEMENT OF OPERATIONS
Year Ended December 31, 1999 ACM Government Spectrum Fund
================================================================================
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest ................................................ $ 24,906,272
EXPENSES
Advisory fee ............................................ $ 2,048,567
Administrative fee ...................................... 464,910
Custodian ............................................... 125,526
Reports and notices to shareholders ..................... 81,820
Transfer agency ......................................... 81,290
Audit and legal ......................................... 72,927
Directors' fees ......................................... 33,976
Registration fee ........................................ 32,373
Miscellaneous ........................................... 15,330
------------
Total expenses .......................................... 2,956,719
------------
Net investment income ................................... 21,949,553
------------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS
Net realized loss on investment transactions ............ (5,853,297)
Net realized loss on foreign currency transactions ...... (1,222,782)
Net change in unrealized appreciation/depreciation of:
Investments ........................................... (12,334,448)
Foreign currency transactions ......................... (119,255)
------------
Net loss on investments and foreign currency transactions (19,529,782)
------------
NET INCREASE IN NET ASSETS FROM OPERATIONS ................ $ 2,419,771
============
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
================================================================================
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1999 December 31, 1998
----------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income ..................................................... $ 21,949,553 $ 18,484,937
Net realized gain (loss) on investments and foreign currency transactions . (7,076,079) 4,658,861
Net change in unrealized appreciation/depreciation of investments
and foreign currency denominated assets and liabilities ................. (12,453,703) (9,441,992)
------------- -------------
Net increase in net assets from operations ................................ 2,419,771 13,701,806
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income ...................................... (20,179,639) (18,484,937)
Distributions in excess of net investment income .......................... -0- (1,787,336)
------------- -------------
Total decrease ............................................................ (17,759,868) (6,570,467)
NET ASSETS
Beginning of year ......................................................... 261,294,212 267,864,679
------------- -------------
End of year (including undistributed net investment income of $652,049
and $37,806 for the years ended December 31, 1999 and 1998, respectively) $ 243,534,344 $ 261,294,212
============= =============
</TABLE>
- --------------------------------------------------------------------------------
See notes to financial statements.
7
<PAGE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 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 is no sale on that day, such securities
are 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 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
8
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ACM Government Spectrum Fund
================================================================================
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 foreign currency losses, resulted in net decrease in
undistributed net investment income and a corresponding decrease in accumulated
net realized loss on investment transactions. This reclassification had no
affect on net assets.
- --------------------------------------------------------------------------------
NOTE B: Advisory, Administrative Fees and Other Transactions with Affiliates
Under the terms of an investment advisory agreement, the Fund pays Alliance
Capital Management L.P., (the "Adviser"), an 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, 1999, the Fund reimbursed AFS $2,310.
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 $137,363,364 and $114,700,521,
respectively, for the year ended December 31, 1999. There were purchases of
$359,829,121 and sales of $362,283,870 of U.S. government and government agency
obligations during the year ended December 31, 1999.
At December 31, 1999, the cost of investments for federal income tax purposes
was $284,765,877. Accordingly, gross unrealized appreciation of investments was
$2,888,221 and gross unrealized depreciation was $25,412,757, resulting in net
unrealized depreciation of $22,524,536 (excluding foreign currency
transactions).
At December 31, 1999, the Fund had a capital loss carryforward of $59,837,363 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, $79,155 expires in the year 2005 and
$2,821,034 expires in the year 2007.
1. Forward Exchange Currency Contracts
The Fund enters into forward exchange currency contracts to hedge its exposure
to changes in foreign currency exchange rates on its foreign portfolio holdings,
to hedge certain firm purchase and sale commitments denominated in foreign
currencies and for investment purposes. A forward exchange currency contract is
a commitment to purchase or sell a foreign currency at a future date at a
negotiated forward rate. The gain or loss arising from the difference between
the original contract and the closing of such contract is included in net
realized gain or loss on foreign currency transactions.
Fluctuations in the value of open forward exchange currency contracts are
reflected for financial reporting
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued) ACM Government Spectrum Fund
================================================================================
purposes as a component of net unrealized depreciation of investments and
foreign currency transactions.
The Fund's custodian places and maintains liquid assets in a separate account of
the Fund having a value at least 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 December 31, 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>
Euro Dollars, settling 03/15/00..... 4,607 $4,703,464 $4,667,428 $(36,036)
Forward Exchange
Currency Sale Contracts
Euro Dollars, settling 03/15/00..... 4,607 4,692,729 4,667,428 25,301
--------
$(10,735)
========
</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 the premiums paid. The proceeds from
securities sold through the exercise of put options are decreased by the
premiums paid.
When the Fund writes an option, the premium received by the Fund is recorded as
a liability and is subsequently adjusted to the current market value of the
option written. Premiums received from 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, 1999, the Fund did not have any written option
transactions.
3. Swap Agreements
The Fund enters into swaps on sovereign debt obligations to protect itself from
interest rate fluctuations on the underlying debt instruments and for investment
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, 1999, the Fund did not have any 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, 1999. During the year
ended December 31, 1999 and the year ended December 31, 1998, the Fund did not
issue any shares in connection with the dividend reinvestment plan.
- --------------------------------------------------------------------------------
NOTE E: Reverse Repurchase Agreements
Under a reverse repurchase agreement, the Fund sells securities and agrees to
repurchase them at a mutually agreed upon date and price. At the time the Fund
enters into a reverse repurchase agreement, it will establish a segregated
account with the custodian containing liquid assets having a value at least
equal to the repurchase price.
As of December 31, 1999, the Fund had entered into the following reverse
repurchase agreement:
Amount Broker Interest Rate Maturity
------ ------ ------------- --------
$5,614,000 Greenwich Capital Markets, Inc. 4.25% January 12, 2000
For the year ended December 31, 1999 the maximum amount of reverse repurchase
agreements outstanding was $11,819,500, the average amount outstanding was
approximately $7,387,000 and the daily weighted average interest rate was 4.44%
- --------------------------------------------------------------------------------
NOTE F: 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,
-----------------------------------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ................. $ 7.06 $ 7.23 $ 7.16 $ 7.47 $ 6.89
------ ------ ------ ------ ------
Income From Investment Operations
- ---------------------------------
Net investment income .............................. .59 .50 .51 .57 .70(a)
Net realized and unrealized gain
(loss) on investments, options written
and foreign currency transactions ................ (.53) (.12) .17 (.19) .66
------ ------ ------ ------ ------
Net increase in net asset
value from operations ............................ .06 .38 .68 .38 1.36
------ ------ ------ ------ ------
Less: Dividends and Distributions
- ---------------------------------
Dividends from net investment income ............... (.54) (.50) (.52) (.57) (.70)
Distributions in excess of net investment income ... -0- (.05) (.09) (.12) (.01)
Tax return of capital distribution ................. -0- -0- -0- -0- (.07)
------ ------ ------ ------ ------
Total dividends and distributions .................. (.54) (.55) (.61) (.69) (.78)
------ ------ ------ ------ ------
Net asset value, end of year ....................... $ 6.58 $ 7.06 $ 7.23 $ 7.16 $ 7.47
====== ====== ====== ====== ======
Market value, end of year .......................... $5.438 $6.188 $6.625 $6.375 $6.625
====== ====== ====== ====== ======
Total Investment Return
- -----------------------
Total investment return based on:(b)
Market value ..................................... (3.56)% 1.55% 13.79% 6.55% 4.32%
Net asset value .................................. 2.24% 6.16% 10.57% 6.13% 21.64%
Ratios/Supplemental Data
- ------------------------
Net assets, end of year (000's omitted) ............ $243,534 $261,294 $267,865 $265,248 $276,638
Ratio of expenses to average net assets ............ 1.20% 1.06% 1.15% 1.17% 1.31%
Ratio of net investment income to
average net assets ............................... 8.88% 7.00% 7.30% 8.10% 10.07%
Portfolio turnover rate ............................ 186% 191% 350% 453% 377%
</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 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, 1999, 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 auditing standards generally accepted
in the United States. 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, 1999, 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, 1999, 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 periods indicated therein, in conformity with accounting principles
generally accepted in the United States.
/s/ Ernst & Young LLP
New York, New York
February 21, 2000
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 share of
shares purchased for each shareholder's account will be the average cost,
including brokerage commissions, of any shares purchased in the open market plus
the cost of any shares issued by the Fund.
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.
14
<PAGE>
ACM Government Spectrum Fund
================================================================================
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, Wayne D. Lyski, the
President of the Fund.
Year 2000
With respect to the Year 2000 issue, the Fund has been advised by Alliance and
by its major service providers that there is no indication that they have had or
will experience significant system interruptions.
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.
51 West 52nd Street
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 the Audit committee.
16
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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
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.
SPCAR 1299
ACM
- --------------------------------------------------------------------------------
GOVERNMENT
- --------------------------------------------------------------------------------
SPECTRUM
- --------------------------------------------------------------------------------
FUND
- --------------------------------------------------------------------------------
Annual Report
December 31, 1999
Alliance Capital [LOGO](R)
