ACM
Government
Opportunity
Fund
Annual Report
July 31, 1995
(cover)
Alliance
Mutual funds without the Mystery.
LETTER TO SHAREHOLDERS ACM GOVERNMENT OPPORTUNITY FUND, INC.
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August 25, 1995
Dear Shareholder:
The U.S. bond and equity markets rebounded sharply over the past six months.
The bond market rally was sparked, in large part, by evidence of a slowing U.S.
economy, moderating inflationary pressures and a shift in Federal Reserve
monetary policy. Lower interest rates and soaring corporate profits also helped
propel the stock market to record high levels.
INVESTMENT RESULTS
For the twelve months ended July 31, 1995, ACM Government Opportunity Fund
achieved a total return of +8.67% on a net asset value basis. Performance was
restrained by the difficult market conditions that existed in 1994; over the
past six months, however, performance significantly improved and the Fund
returned +12.44% on a net asset value basis. During this period, all sectors of
the U.S. bond market gained, led by corporate and Treasury securities.
Technology issues have outperformed all other sectors of the stock market.
THE U.S. ECONOMIC ENVIRONMENT
The U.S. economy experienced a pronounced slowdown in the first six months of
the year. In the second quarter, gross domestic product growth fell to 1.1%,
reflecting declines in industrial production and lower final sales growth.
Economic growth will likely slow further without a resurgence in consumer
spending, which represents two-thirds of the nation's economic activity. In the
first four months of the year, consumer expenditures remained weak. However,
more recent personal income and consumer confidence data suggest that higher
consumer spending may lead to stronger economic growth in the second half of
the year. Concerns regarding inflation have largely subsided with the decline
in economic growth. Broad price indices such as the consumer price index and
producer price index have risen only modestly and labor costs remain under
control.
BOND MARKET OUTLOOK
After a tremendous rally in the first two quarters of the year, the outlook for
the U.S. bond markets continues to be favorable. It is our view that U.S.
economic growth will reaccelerate modestly, to an annual growth rate of 2.0%,
in the second half of the year. Moderate economic growth would be positive for
inflation and may allow for further cuts in interest rates. We believe that
inflationary pressures have crested and project that CPI inflation will peak
near 3.5% in 1995. In tacit acknowledgment of the weak U.S. economy, the
Federal Reserve cut interest rates 0.25% in early July.
If our forecast for modest inflation and lower interest rates proves correct,
the result should be an increase in U.S. bond prices. In this environment, we
would expect to continue to maintain a greater percentage of the Fund's assets
in Treasury securities than mortgages. Treasury securities typically outperform
mortgage securities in a declining interest rate environment due to the
existence of prepayment risk in mortgage securities. Prepayment risk is the
risk that homeowners will refinance their mortgages, forcing mortgage investors
to reinvest the proceeds in securities offering lower yields.
In addition, we believe the European bond market has good return potential
given the slowdown in European growth. We have added German bonds to the Fund,
however, we are currently hedging the currency because we believe the U.S.
dollar is significantly undervalued.
EQUITY MARKET OVERVIEW
The equity portion of your Fund's portfolio -and the overall U.S. equity market
- -advanced strongly during the first seven months of 1995. The valuation of
equities has been supported by a strong bond market and generally very good
corporate profit reports. Savings flows into equity mutual funds continue to
average more than $8 billion monthly, and corporate share repurchase programs
and merger and acquisition activity now exceed new equity offerings. Foreign
investment in U.S. shares may also have turned up during the latest quarter.
The now widely held perception of a slowing economy has shifted investor focus
to growth during the year. ACM Government Opportunity Fund's performance was
helped by strong advances in selected technology stocks (examples include
Intel, Cisco Systems, Compaq, Motorola and Oracle), financial stocks (FNMA,
NationsBank) and multinational consumer and health care issues (McDonald's
Corp., Philip Morris, Merck, Schering- Plough). Stocks that restrained Fund
performance included the HMOs such as United Healthcare and energy stocks.
1
ACM GOVERNMENT OPPORTUNITY FUND, INC.
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While the cut in interest rates in July may renew market interest in cyclical
stocks short term, we plan to keep our focus on growth, looking for companies
with the best combination of valuation and earnings growth over the next 3 - 5
years. The overall U.S. equity market is certainly due for a pause or pull back
after the great gains year to date. However, we believe the underpinnings for
stocks are still very solid. We are identifying many companies with excellent
growth potential in the slow growth economic environment, and any progress in
Washington to reduce the budget deficit and cut capital gains taxes will
reinforce confidence and support current price earnings valuations.
Thank you for your continued interest and investment in ACM Government
Opportunity Fund. We look forward to reporting its progress to you early in
1996.
Sincerely,
John D. Carifa
Chairman and President
Wayne D. Lyski
Senior Vice President
2
PORTFOLIO OF INVESTMENTS
JULY 31, 1995 ACM GOVERNMENT OPPORTUNITY FUND, INC.
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PRINCIPAL
AMOUNT
(000) U.S. $ VALUE
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U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 80.1%
U.S. TREASURY SECURITIES - 66.8%
U.S. Treasury Bill
5.41%, 10/26/95 US$ 4,000 $3,948,304
U.S. Treasury Bonds
7.625%, 2/15/25* 3,150 3,454,167
11.875%, 11/15/03* 1,700 2,284,904
12.375%, 5/15/04* 6,050 8,411,382
12.75%, 11/15/10* 2,800 4,066,121
U.S. Treasury Notes
7.50%, 2/15/05* 6,212 6,658,488
7.75%, 11/30/99* 9,000 9,528,750
8.875%, 11/15/98* 10,400 11,258,000
14.00%, 11/15/11* 3,300 5,200,589
U.S. Treasury Strips
Zero coupon, 2/15/15 47,765 12,082,682
Zero coupon, 8/15/20 13,500 2,302,574
Total U.S. Treasury Securities
(cost $70,653,903) 69,195,961
MORTGAGE-RELATED SECURITIES - 8.5%
Federal Home Loan Mortgage Corp.
15.00%, 9/01/95 - 9/07/95 6,600 6,768,094
Federal National Mortgage Association
Zero coupon, 10/09/19 12,100 2,070,625
Total Mortgage-Related Securities
(cost $9,395,084) 8,838,719
FEDERAL AGENCY SECURITY - 3.0%
Small Business Administration
BS92-5B(I/O)(a) 8.50%, 11/15/17
(cost $2,949,612) 2,950 3,104,406
COLLATERALIZED MORTGAGE OBLIGATION - 1.8%
Vendee Mortgage Trust
10.00%, 9/15/22 (I/O)
(cost $2,290,450) 2,290 1,875,462
Total U.S. Government and Agency Obligations
(cost $85,289,049) 83,014,548
SHARES U.S. $ VALUE
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COMMON STOCKS - 26.4%
TECHNOLOGY - 4.7%
Cisco Systems, Inc.(b) 12,000 $ 669,000
Compaq Computer Corp.(b) 8,000 406,000
General Motors Cl.E. 9,500 418,000
Intel Corp. 17,000 1,105,000
Microsoft Corp.(b) 3,000 271,500
Motorola, Inc. 5,000 383,125
Oracle Corp. (b) 18,000 753,750
Silicon Graphics, Inc. (b) 5,000 210,000
Xerox Corp. 5,100 607,536
4,823,911
HEALTHCARE - 3.5%
Abbott Laboratories 4,000 160,000
Amgen, Inc. (b) 2,500 212,813
ASTRA, AB
Series A 4,000 135,660
Series B 10,000 332,765
Columbia/HCA Healthcare Corp. 10,000 490,000
Forest Laboratories, Inc. (b) 5,000 221,875
Health Care Property Investments, Inc. 6,000 194,250
Merck & Co., Inc. 12,000 619,500
Pfizer, Inc. 10,000 505,000
Schering-Plough Corp. 8,000 372,000
United Healthcare Corp. 9,000 407,250
3,651,113
CONSUMER STAPLES - 3.2%
Avon Products, Inc. 4,500 306,000
Colgate-Palmolive Co. 8,000 560,000
Gillette Co. 15,000 656,250
PepsiCo, Inc. 12,000 562,500
Philip Morris Cos., Inc. 14,000 1,002,750
Scott Paper Co. 4,000 183,500
3,271,000
FINANCIAL SERVICES - 3.1%
American International Group, Inc. 7,500 562,500
Citicorp 2,568 160,179
Federal National Mortgage Association 5,000 468,125
First Bank System, Inc. 9,000 390,375
General Re Corp. 2,000 265,250
NationsBank Corp. 5,000 280,625
3
PORTFOLIO OF INVESTMENTS (CONTINUED) ACM GOVERNMENT OPPORTUNITY FUND, INC.
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SHARES U.S. $ VALUE
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Penn Corp. Financial Group, Inc. 8,000 $ 155,000
The PMI Group, Inc. 9,900 460,350
Travelers Group, Inc. 11,000 521,125
3,263,529
TELECOMMUNICATIONS & MULTIMEDIA - 1.9%
Airtouch Communications, Inc.(b) 14,000 441,000
AT&T Corp. 11,000 580,250
Cox Communications, Inc. Cl.A(b) 10,900 220,725
MCI Communications Corp. 15,000 360,000
Vodafone Group PLC (ADR) 10,000 393,750
1,995,725
ENERGY - 1.8%
Amoco Corp. 4,000 269,000
British Petroleum Plc. (ADR) 3,546 321,800
Renaissance Energy, Ltd. (b) 15,000 310,142
Shell Transportation & Trading Co. (ADR) 4,500 335,250
Texaco, Inc. 4,000 266,000
Western Atlas, Inc. (b) 7,000 315,000
1,817,192
CAPITAL GOODS - 1.7%
Allied Signal, Inc. 14,000 654,500
Coltec Industries, Inc. (b) 11,200 170,800
General Electric Co. 15,000 885,000
1,710,300
LEISURE & ENTERTAINMENT - 1.3%
Carnival Corp. Cl.A 7,500 169,686
Eastman Kodak Co. 10,000 576,250
Walt Disney Co. 12,500 732,812
1,478,748
RETAIL - 1.0%
Federated Department Stores (b) 10,000 283,750
Home Depot, Inc. 11,000 482,625
May Department Stores Co. 7,000 303,625
1,070,000
RESTAURANTS & LODGING - 0.7%
McDonalds Corp. 18,000 695,250
TRANSPORTATION - 0.7%
Burlington Northern, Inc. 6,000 415,500
XTRA Corp. 6,000 275,250
690,750
CHEMICALS - 0.6%
Monsanto Co. 5,000 465,625
Morton International, Inc. 6,000 180,000
645,625
MULTI-INDUSTRY - 0.5%
ITT Corp. (b) 4,000 480,000
BASIC INDUSTRY - 0.4%
Plum Creek Timber Co., L.P. 15,000 369,375
AUTO & RELATED - 0.3%
Magna International, Inc. Cl.A. 7,000 322,000
REAL ESTATE - 0.3%
Federal Reality Investment Trust, Inc. 10,000 217,500
Spieker Properties, Inc. 4,000 90,500
308,000
AEROSPACE & DEFENSE - 0.3%
Boeing Co. 4,500 301,500
MINING & METALS - 0.3%
Aluminum Company of America 5,000 284,375
PRINTING & PUBLISHING - 0.1%
American Greetings Cl.A 5,000 151,250
Total Common Stocks (cost $21,416,039) 27,329,643
4
ACM GOVERNMENT OPPORTUNITY FUND, INC.
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PRINCIPAL
AMOUNT
(000) U.S. $ VALUE
- -----------------------------------------------------------------------
FOREIGN SECURITIES - 7.7%
Government of Australia
11/15/06, 6.75% AU$ 5,000 $3,002,965
Government of Finland
3/15/04, 9.5% FIN 20,000 5,006,980
(cost $7,735,941) 8,009,945
CONVERTIBLE BONDS - 1.5%
General Instrument Corp.
5.00%, 6/15/00 US$ 250 397,500
Jones Intercable, Inc.
7.50%, 6/01/07 250 260,625
Legg Mason, Inc.
7.00%, 6/15/11 300 382,500
Wendy's International, Inc.
7.00%, 4/01/06 300 467,625
Total Convertible Bonds
(cost $1,195,017) 1,508,250
SHARES OR
PRINCIPAL
AMOUNT
(000) U.S. $ VALUE
- ------------------------------------------------------------------------
SOVEREIGN DEBT OBLIGATIONS - 0.6%
ECUADOR
Ecuador IE Bonds
12/21/04, 6.750% FRN US$ 271 $ 157,209
Ecuador PDI Bonds
2/27/15, 7.25%(c) 1,402 424,105
(cost $560,750) 581,314
CONVERTIBLE PREFERRED STOCKS - 0.2%
Citicorp, $1.217 (cost $163,890) 9,143 184,003
TOTAL INVESTMENTS - 116.5%
(cost $116,360,686) 120,627,703
Other assets less liabilities - (16.5%) (17,069,714)
NET ASSETS - 100.0% $103,557,989
* Security, or portion thereof, has been segregated to collateralize forward
exchange currency contracts.
(a) Illiquid security, valued at fair market value (see Notes A & F).
(b) Non-income producing security.
(c) Coupon consists of 3.00% cash payment and 4.25% paid-in-kind.
Glossary of Terms:
ADR - American Depository Receipt.
FRN - Floating Rate Note. Stated interest rate in effect
at July 31, 1995.
IE - Interest equalization.
(I/O) - Interest Only. Interest accrued based on yield to maturity.
PDI - Past Due Interest.
See notes to financial statements.
5
STATEMENT OF ASSETS AND LIABILITIES
JULY 31, 1995 ACM GOVERNMENT OPPORTUNITY FUND, INC.
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ASSETS
Investments in securities, at value (cost $116,360,686) $120,627,703
Dividends and interest receivable 1,748,866
Receivable for investment securities sold 12,575
Other assets 12,502
Total assets 122,401,646
LIABILITIES
Due to custodian 338,293
Payable for investment securities purchased 17,394,984
Distribution fee payable 718,953
Unrealized depreciation of forward exchange currency contracts 225,771
Advisory fee payable 65,687
Administration fee payable 13,137
Accrued expenses and other liabilities 86,832
Total liabilities 18,843,657
NET ASSETS
(equivalent to $7.92 per share, based on 13,071,872
shares outstanding) $103,557,989
COMPOSITION OF NET ASSETS
Capital stock, at par $ 130,719
Additional paid-in capital 112,390,697
Distribution in excess of net investment income (342,368)
Accumulated net realized loss (12,673,726)
Net unrealized appreciation on investments and
foreign currency denominated assets and liabilities 4,052,667
$103,557,989
NET ASSET VALUE PER SHARE $7.92
See notes to financial statements
6
STATEMENT OF OPERATIONS
YEAR ENDED JULY 31, 1995 ACM GOVERNMENT OPPORTUNITY FUND, INC.
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INVESTMENT INCOME
Interest $8,354,405
Dividends(net of foreign withholding taxes of $10,652) 522,696 $8,877,101
EXPENSES
Advisory fee 756,327
Administrative fee 168,733
Transfer agency 81,514
Audit and legal 55,196
Printing 36,988
Directors' fees 22,170
Custodian 18,574
Miscellaneous 53,322
Total expenses 1,192,824
Net investment income 7,684,277
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FOREIGN CURRENCY DENOMINATED ASSETS AND LIABILITIES
Net realized loss on investment transactions (4,655,548)
Net realized loss on option transactions (2,028,295)
Net realized loss on foreign currency transactions (610,474)
Net change in unrealized appreciation (depreciation)of:
Investments 7,601,811
Foreign currency denominated assets and liabilities (221,404)
Net gain on investments 86,090
NET INCREASE IN NET ASSETS FROM OPERATIONS $7,770,367
See notes to financial statements.
7
STATEMENT OF CHANGES IN NET ASSETS ACM GOVERNMENT OPPORTUNITY FUND, INC.
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Year Ended Year Ended
July 31,1995 July 31,1994
------------ ------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income $ 7,684,277 $ 8,693,244
Net realized loss on investments, options and
foreign currency transactions (7,294,317) (4,722,393)
Net change in unrealized appreciation
(depreciation) of investments and foreign
currency denominated assets and liabilities 7,380,407 (6,927,768)
Net increase (decrease) in net assets from
operations 7,770,367 (2,956,917)
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (6,304,236) (9,022,883)
Net realized gain -0- (7,057,281)
Tax return of capital distribution (4,054,223) (3,854,849)
COMMON STOCK TRANSACTIONS
Reinvestment of dividends resulting
in the issuance of common stock 316,508 6,221,638
Total decrease (2,271,584) (16,670,292)
NET ASSETS
Beginning of year 105,829,573 122,499,865
End of year $103,557,989 $105,829,573
See notes to financial statements.
8
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1995 ACM GOVERNMENT OPPORTUNITY FUND, INC.
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NOTE A: SIGNIFICANT ACCOUNTING POLICIES
ACM Government Opportunity Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940, as a non-diversified closed-end management
investment company. The following is a summary of significant accounting
policies followed by the Fund.
1. SECURITY VALUATION
Portfolio securities traded on a national securities exchange are valued at the
last sale price on such exchange on the day of valuation or, if there was no
sale on such day, the last bid price quoted on such day. Listed securities not
traded and securities traded in the over-the-counter market, including listed
debt securities whose primary market is believed to be over-the-counter, are
valued at the mean between the most recently quoted bid and asked price
provided by the principal market makers. Options are valued at market value or
fair value using methods determined by the Board of Directors. Securities for
which market quotations are not readily available and illiquid securities which
are subject to limitations as to their resale are valued in good faith, at fair
value, using methods determined by the Board of Directors. Readily marketable
fixed-income securities may be valued on the basis of prices provided by a
pricing service when such prices are believed by the Adviser to reflect the
fair value of such securities. Securities which mature in 60 days or less are
valued at amortized cost, which approximates market value, unless this method
does not represent fair value.
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 applicable, to
shareholders. Therefore, no provision for federal income or excise taxes are
required. Foreign taxes have been provided for on interest income earned on
foreign investments in accordance with the applicable country's tax rates and
to the extent unrecoverable are recorded as a reduction of investment income.
3. INVESTMENT INCOME AND SECURITY TRANSACTIONS
Interest income is accrued daily. Dividend income is recorded on the
ex-dividend date. Security transactions are accounted for on the date
securities are purchased or sold. Security 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 are translated into
U.S. dollars at the mean of the quoted bid and asked price of such currencies
against the U.S. dollar. Purchases and sales of portfolio securities are
translated into U.S. dollars at the rate of exchange prevailing when such
securities were acquired or sold. Income and expenses are translated into U.S.
dollars at rates of exchange prevailing when accrued.
Net realized loss on foreign currency transactions of $610,474 represent
foreign exchange gains and losses from sales and maturities of foreign
securities, holding of foreign currencies, options on foreign securities and
foreign currencies, 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 currency gains and losses from valuing foreign currency denominated assets
and liabilities at period end exchange rates are reflected as a component of
net unrealized appreciation on investments and foreign currency denominated
assets and liabilities.
5. DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions to shareholders are recorded on the ex-dividend
date. Income dividends and capital gains distributions are determined in
accordance with income tax regulations, which may differ from generally
accepted accounting principles.
6. RECLASSIFICATION OF COMPONENTS OF NET ASSETS
During the year, the Fund reclassified certain components of net assets. The
reclassifications were the result of permanent book to tax differences in the
classification of foreign currency transactions as well as the reclassification
of a tax return of capital. The reclassifications resulted in a net increase to
distributions in excess of net investment income of $1,927,132, a net decrease
to accumulated net realized loss of $1,732,433, and a corresponding decrease to
additional paid-in capital of $4,054,223. Net assets were not affected by the
change.
9
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
ACM GOVERNMENT OPPORTUNITY FUND, INC.
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NOTE B: ADVISORY ADMINISTRATIVE FEES AND OTHER AFFILIATED TRANSACTIONS
Under the terms of an Investment Advisory Agreement, the Fund pays its Adviser,
Alliance Capital Management L.P., (the "Adviser"), a monthly advisory fee in an
amount equal to .0625 of 1% of the average weekly net assets of the Fund during
the month (approximately .75 of 1% on an annual basis).
Effective October 1, 1994, the Fund approved a new administrative agreement,
which replaced the administrative agreement between the Fund and the
Shareholder Services Group, Inc. ("TSSG"). Pursuant to the new agreement, the
Fund will pay its new administrator, Alliance Capital Management, L.P., a
monthly fee equal to an annualized rate of .15 of 1% of the Fund's average
weekly net assets.
Under the terms of the Administrative Agreement, in effect prior to October 1,
1994, the Fund paid TSSG a monthly fee equal to the annualized rate of .25 of
1% of the Fund's average weekly net assets.
Brokerage commissions paid for the year ended July 31, 1995 on securities
transactions amounted to $44,050 none of which was paid to affiliated brokers.
NOTE C: INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term investments
and options) aggregated $261,684,423 and $260,683,014, respectively, for the
year ended July 31, 1995.
At July 31, 1995, the cost of investments for federal income tax purposes was
$116,755,217. Accordingly, gross unrealized appreciation of investments was
$7,192,556 and gross unrealized depreciation of investments was $3,320,070
resulting in net unrealized depreciation of $3,872,486 (excluding foreign
currency). For federal income tax purposes, the Fund had a capital loss
carryforward at July 31, 1995 of $5,948,688 which will expire in 2003.
1. FOREIGN EXCHANGE CURRENCY CONTRACTS
The Fund enters into forward exchange currency contracts in order to hedge its
exposure to changes in foreign currency exchange rates on its foreign portfolio
holdings and to hedge certain firm purchase and sale commitments denominated in
foreign currencies. A forward exchange currency contract is a commitment to
purchase or sell a foreign currency at a future date at a negotiated forward
rate. The gain or loss arising from the difference between the original
contract and the closing of such contract is included in net realized gain or
loss on foreign currency transactions.
Fluctuations in the value of forward exchange currency contracts are recorded
for financial reporting purposes as unrealized gains or losses by the Fund.
The Fund's custodian will place and maintain cash not available for investment
or U.S. Government securities in a separate account of the Fund having a value
equal to the aggregate amount of the Fund's commitments under forward exchange
currency contracts entered into with respect to position hedges.
Risks may arise from the potential inability of a counterparty to meet the
terms of a contract and from unanticipated movements in the value of foreign
currencies relative to the U.S. dollar. The face or contract amount, in U.S.
dollars, as reflected in the following table, reflects the total exposure the
Fund has in that particular currency contract.
At July 31, 1995, the Fund had outstanding forward exchange currency contracts
as follows:
CONTRACT VALUE ON U.S.$ UNREALIZED
AMOUNT ORIGINATION CURRENT APPRECIATION
(000) DATE VALUE (DEPRECIATION)
-------- ----------- --------- --------------
FOREIGN CURRENCY BUY CONTRACTS
Deutsche Marks,
expiring 8/10/95 5,000 $3,598,935 $3,606,010 $7,075
Japanese Yen,
expiring 8/10/95 316,750 3,639,086 3,587,194 (51,892)
Italian Lira,
expiring 10/16/95 5,765 3,516,336 3,580,065 63,729
New Zealand Dollars,
expiring 8/03/95 5,000 3,334,500 3,375,000 40,500
10
ACM GOVERNMENT OPPORTUNITY FUND, INC.
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CONTRACT VALUE ON U.S.$ UNREALIZED
AMOUNT ORIGINATION CURRENT APPRECIATION
(000) DATE VALUE (DEPRECIATION)
-------- ----------- ---------- --------------
FOREIGN CURRENCY SALE CONTRACTS
Australian Dollars,
expiring 8/17/95 4,500 $3,303,000 $3,321,590 $ (18,590)
British Pounds,
expiring 8/23/95 2,000 3,202,160 3,188,870 13,290
Deutsche Marks,
expiring 8/10/95 - 10/16/95 10,000 7,181,187 7,215,475 (34,288)
Finnish Markka,
expiring 8/10/95 21,167 4,776,772 5,038,638 (261,866)
Japanese Yen,
expiring 8/10/95 316,750 3,603,465 3,587,194 16,271
----------
$(225,771)
2. OPTIONS TRANSACTIONS
For hedging purposes, the Fund purchases and writes (sells) put and call
options on U.S. and foreign government securities and foreign currencies that
are traded on U.S. and foreign securities exchanges and over-the-counter
markets.
The risk associated with purchasing an option is that the Fund pays a premium
whether or not the option is exercised. Additionally, the Fund bears the risk
of loss of premium and change in market value should the counterparty not
perform under the contract. Put and call options purchased are accounted for in
the same manner as portfolio securities. The cost of securities acquired
through the exercise of call options is increased by premiums paid. The
proceeds from securities sold through the exercise of put options are decreased
by the premiums paid.
When the Fund writes an option, the premium received by the Fund is recorded as
a liability and is subsequently adjusted to the current market value of the
option written. Premiums received from writing options which expire unexercised
are recorded by the Fund on the expiration date as realized gains from option
transactions. The difference between the premium 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 realized a 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 written option. 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.
Transactions in options written for the year ended July 31, 1995 were as
follows:
NUMBER OF
CONTRACTS PREMIUM
--------- ----------
Options outstanding at beginning of year - 0 - $ -0-
Options written 180 257,156
Options terminated in closing purchase
transactions (180) (257,156)
Options outstanding at July 31, 1995 - 0 - $ -0-
NOTE D: CAPITAL STOCK
There are 300,000,000 shares of $.01 par value common stock authorized. Of the
13,071,872 shares outstanding at July 31, 1995, the Adviser owned 10,753
shares. During the years ended July 31, 1995 and 1994, the Fund issued 43,657
and 682,327 shares, respectively, in connection with the Fund's Dividend
Reinvestment Plan.
11
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
ACM GOVERNMENT OPPORTUNITY FUND, INC.
- -------------------------------------------------------------------------------
NOTE E: QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
NET REALIZED AND
UNREALIZED GAIN NET INCREASE
(LOSS) ON (DECREASE)
INVESTMENTS AND IN NET ASSETS
NET INVESTMENT FOREIGN CURRENCY RESULTING FROM MARKET PRICE
INCOME TRANSACTIONS OPERATIONS ON NYSE
--------------- ------------------- ------------------ -----------------
TOTAL PER TOTAL PER TOTAL PER
QUARTER ENDED (000) SHARE (000) SHARE (000) SHARE HIGH LOW
- ----------------- ------ ----- -------- ------ -------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
July 31, 1995 $1,762 $.13 $ 5,620 $ .43 $ 7,382 $ .56 $ 7.750 $6.625
April 30, 1995 1,900 .15 2,266 .17 4,166 .32 $ 7.375 $6.500
January 31, 1995 2,091 .16 (5,195) (.40) (3,104) (.24) $ 7.500 $6.875
October 31, 1994 1,931 .15 (2,605) (.20) (674) (.05) $ 8.375 $7.000
$ 7,684 $ .59 $ 86 $ -0- $ 7,770 $ .59
July 31, 1994 $1,899 $.14 $ (594) $(.05) $ 1,305 $ .09 $ 8.375 $8.125
April 30, 1994 1,952 .15 (16,761) (1.30) (14,809) (1.15) $ 8.625 $7.875
January 31, 1994 2,546 .20 (506) (.04) 2,040 .16 $10.125 $9.250
October 31, 1993 2,296 .19 6,211 .50 8,507 .69 $10.125 $9.625
$8,693 $.68 $(11,650) $(.89) $(2,957) $(.21)
</TABLE>
NOTE F: ILLIQUID SECURITY
DATE
SECURITY ACQUIRED U.S. $ COST
- -------- -------- -----------
Small Business Administration
BS92-5B (I/0)
8.50%, 11/15/17 10/02/92 $2,949,612
The security shown above is illiquid and has been valued at fair value in
accordance with the procedures described in Note A.
The value of this security at July 31, 1995 was $3,104,406, representing 3.0%
of net assets.
12
FINANCIAL HIGHLIGHTS ACM GOVERNMENT OPPORTUNITY FUND, INC.
- -------------------------------------------------------------------------------
SELECTED DATA FOR A SHARE OF COMMON STOCK OUTSTANDING THROUGHOUT EACH YEAR
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
-------------------------------------------------------------
1995 1994 1993 1992 1991
--------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $8.12 $9.92 $9.66 $9.02 $9.01
INCOME FROM INVESTMENT OPERATIONS
Net investment income .59 .68 .79 .69 .90
Net realized and unrealized gain (loss) on
investments and foreign currency transactions -0- (.89) .68 .89 .17
Net increase (decrease) in net asset value from
operations .59 (.21) 1.47 1.58 1.07
LESS: DISTRIBUTIONS
Dividends from net investment income (.48) (.68) (.80) (.90) (1.06)
Distributions from net realized gain -0- (.61) (.41) (.04) -0-
Tax return of capital distribution (.31) (.30) -0- -0- -0-
Total dividends and distributions (.79) (1.59) (1.21) (.94) (1.06)
Net asset value, end of year $7.92 $8.12 $9.92 $9.66 $9.02
Market value, end of year $7.50 $8.125 $9.875 $9.75 $9.375
TOTAL RETURN
Total investment return based on: (a)
Market value 2.85% (2.66)% 14.94% 14.84% 24.29%
Net asset value 8.67% (3.16)% 16.30% 18.26% 12.81%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $103,558 $105,830 $122,500 $115,831 $105,936
Ratio of expenses to average net assets 1.18% 1.20% 1.19% 1.22% 1.22%
Ratio of net investment income to
average net assets 7.62% 7.50% 8.27% 7.31% 9.97%
Portfolio turnover rate 228% 297% 588% 505% 365%
</TABLE>
(a) Total investment return is calculated assuming a purchase of common stock
on the opening of the first day and a sale on the closing of the last day of
each period reported. Dividends and distributions, if any, are assumed for
purposes of this calculation, to be reinvested at prices obtained under the
Fund's dividend reinvestment plan. Generally, total investment return based on
net asset value will be higher than total investment return based on market
value in periods where there is an increase in the discount or a decrease in
the premium of the market value to the net asset value from the beginning to
the end of such periods. Conversely, total investment return based on the net
asset value will be lower than total investment return based on market value in
periods where there is a decrease in the discount or an increase in the premium
of the market value to the net asset value from the beginning to the end of
such years.
13
REPORT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS ACM GOVERNMENT OPPORTUNITY FUND, INC.
- -------------------------------------------------------------------------------
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS
ACM GOVERNMENT OPPORTUNITY FUND, INC.
We have audited the accompanying statement of assets and liabilities of ACM
Government Opportunity Fund, Inc., including the portfolio of investments, as
of July 31, 1995, 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. Our procedures included confirmation of securities owned as of July
31, 1995, 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 Opportunity Fund, Inc. at July 31, 1995, 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.
ERNST & YOUNG LLP
New York, New York
September 21, 1995
14
ADDITIONAL INFORMATION ACM GOVERNMENT OPPORTUNITY FUND, INC.
- -------------------------------------------------------------------------------
Pursuant to the Fund's Dividend Reinvestment Plan (the "Plan"), all
shareholders whose shares are registered in their own names will have all
distributions reinvested automatically in additional shares of the Fund by The
Shareholder Services Group, Inc. ("TSSG"), as agent under the Plan, unless a
shareholder elects to receive cash. Shareholders whose shares are held in the
name of a broker or nominee will automatically have distributions reinvested by
the broker or the nominee in additional shares under the Plan, unless the
service is not provided by the broker or the nominee or the shareholder elects
to receive distributions in cash. If the service is not available, such
distributions will be paid in cash.
TSSG will furnish each person who buys shares with written information relating
to the Plan. Included in such information will be procedures for electing to
receive dividends and distributions in cash (or, in the case of shares held in
the name of a broker or a nominee who does not participate in the Plan, for
electing to participate in the Plan). Shareholders whose shares are held in the
name of a broker or nominee should contact the broker or nominee for details.
All distributions to investors who elect not to participate in the Plan will be
paid by check mailed directly to the record holder by or under the direction of
the TSSG.
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 shares
may have elected, non-participants in the Plan will receive cash and
participants in the Plan will receive the equivalent in shares of the Fund
valued as follows:
(i) If the shares 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 are trading at a discount from net asset value at the time
of valuation, the Plan agent will receive the dividend or distribution in cash
and apply it to the purchase of the Fund's shares 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 Plan 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 Plan agent may exceed the net
asset value of the Fund's shares, resulting in the acquisition of fewer shares
than if the dividend or distribution had been paid in shares issued by the Fund.
TSSG maintains all shareholder accounts in the Plan and furnishes written
confirmation of all transactions in the account, including information needed
by shareholders for personal and tax records. Shares in the account of each
Plan participant will be held by TSSG in non-certificated form in the name of
the participant and each shareholder's proxy will include those shares
purchased pursuant to the Plan.
There is no charge to participants for reinvesting dividends and capital gains
distributions. The fees of TSSG for handling the reinvestment of dividends and
capital gains distributions will be paid by the Fund. There will be no
brokerage charges with respect to shares issued directly by the Fund as a
result of dividends or capital gains distributions payable either in shares or
in cash. However, each participant will bear a pro-rata share of brokerage
commissions incurred with respect to open market purchases in connection with
the reinvestment of dividends or capital gains distributions paid in cash.
The automatic reinvestment of income and capital gains distributions will not
relieve participants of any income tax that may be payable on such income and
capital gains distributions.
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
income or capital gains distributions paid subsequent to written notice of the
change sent to the Plan participants at least 90 days before the date of such
income or capital gain distribution. The Plan may also be amended or terminated
by TSSG with the Fund's prior consent, on at least 90 days written notice to
Plan participants. All correspondence concerning the Plan should be directed to
TSSG by mail at P.O. Box 1376, Boston, MA 02014 or by phone at (800) 331-1710.
15
ADDITIONAL INFORMATION (CONTINUED) ACM GOVERNMENT OPPORTUNITY FUND, INC.
- -------------------------------------------------------------------------------
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 objectives 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 risk factors
associated with investment in the Fund, and (iv) no change in the person
primarily responsible for the day-to-day management of the Fund's portfolio,
who is Wayne D. Lyski, the Senior Vice President of the Fund.
16
ACM GOVERNMENT OPPORTUNITY FUND, INC.
- -------------------------------------------------------------------------------
BOARD OF DIRECTORS
JOHN D. CARIFA, CHAIRMAN AND PRESIDENT
RUTH BLOCK
DAVID H. DIEVLER
JAMES R. GREENE
DR. JAMES M. HESTER
HON. JAMES D. HODGSON
CLIFFORD L. MICHEL
ROBERT C. WHITE
OFFICERS
WAYNE D. LYSKI, SENIOR VICE PRESIDENT
KATHLEEN A. CORBET, SENIOR VICE PRESIDENT
BRUCE W. CALVERT, SENIOR VICE PRESIDENT
THOMAS PERKINS, SENIOR VICE PRESIDENT
PAUL J. DENOON, VICE PRESIDENT
THOMAS BARDONG, VICE PRESIDENT
EDMUND P. BERGAN, JR., SECRETARY
MARK D. GERSTEN, TREASURER & CHIEF FINANCIAL OFFICER
JOSEPH J. MANTINEO, CONTROLLER
ADMINISTRATOR
ALLIANCE CAPITAL MANAGEMENT L.P.
1345 Avenue of the Americas
New York, NY 10105
DIVIDEND PAYING AGENT, TRANSFER AGENT AND REGISTRAR
THE SHAREHOLDER SERVICES GROUP, INC.
One Exchange Plaza
Boston, MA 02109
CUSTODIAN
BANK OF NEW YORK
48 Wall Street
New York, New York 10286
INDEPENDENT ACCOUNTANTS
ERNST & YOUNG LLP
787 Seventh Avenue
New York, NY 10019
17
ACM GOVERNMENT OPPORTUNITY FUND, INC.
Summary of General Information
THE FUND
ACM Government Opportunity Fund, Inc. is a closed-end investment company whose
shares trade on the New York Stock Exchange. The Fund seeks to provide high
current income. Its secondary objective is capital appreciation. The Fund
invests principally in U.S. Government obligations. The Fund also has the
flexibility to invest its assets in securities of selected foreign governments
(maximum 35%) and equity securities (maximum 20%). Additionally, the Fund may
use certain other investment techniques, including options and futures
contracts. The investment advisor of the Fund is Aliance 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 each day, under the
designation "ACM OppFd". The Fund's NYSE trading symbol is "AOF". Weekly
comparative net asset value (NAV) and market price information about the Fund
is published each Monday in THE WALL STREET JOURNAL and each Saturday in THE
NEW YORK TIMES and BARRON'S and other newspapers in a table called "Closed-End
Bond Funds." Additional information about the Fund is available by calling
1-800-221-5672.
DIVIDEND REINVESTMENT PLAN
A Dividend Reinvestment Plan provides automatic reinvestment of dividends and
capital gains in additional Fund Shares. For a copy of the Plan Brochure,
please write to the Plan Agent, The Shareholder Services Group, Inc., P.O. Box
1376, Boston, MA 02104.
ACM GOVERNMMENT OPPORTUNITY FUND, INC.
1345 Avenue of the Americas
New York, New York 10105
ALLIANCE CAPITAL A
Mutual funds without the Mystery..SM
R These registered service marks used under license from the owner, Alliance
Capital Management L.P.
OPPAR
