  I explore the observational appearance of the photosphere of an
ultrarelativistic flow with internal dissipation of energy (``dissipative'' GRB
models). As a case study, I use the magnetic reconnection model (AC model) that
makes robust predictions on the energy dissipation rates at different radii in
the flow. With analytical and numerical tools for the radiative transfer
problem, I show that the flow develops a hot photosphere where inverse Compton
scattering leads to highly non-thermal spectra. For a wide range of
luminosities and baryon loadings of the flow, this spectrum is very close to
the observed prompt GRB emission. Its luminosity ranges from ~3 to 20% of that
of the total energy input.
