ACM GOVERNMENT OPPORTUNITY FUND
ANNUAL REPORT
JULY 31, 1996
ALLIANCE
INVESTING WITHOUT THE MYSTERY.
LETTER TO SHAREHOLDERS ACM GOVERNMENT OPPORTUNITY FUND, INC.
_______________________________________________________________________________
September 23, 1996
Dear Shareholder:
ACM Government Opportunity Fund's primary investment objective is high current
income, and its secondary objective is growth of capital. The Fund invests at
least 65% of its total assets in U.S. Government and agency securities and has
the flexibility to invest the remaining 35% in selected foreign government
securities and dividend-paying equity securities. No more than 20% of its total
assets may be invested in equity securities.
INVESTMENT RESULTS
For the twelve months ended July 31, 1996, ACM Government Opportunity Fund
achieved a total return of 9.40% on a net asset value basis. From the initial
public offering in August of 1988 through July 31, 1996, the Fund has provided
shareholders with an average annual total return of 10.15% on a net asset value
basis.
ECONOMIC REVIEW
After surviving an inventory scare in 1995, the U.S. economy bounced back early
in 1996 in a relatively balanced and healthy condition. During the first
quarter, real growth accelerated to 2.1%, while final demand increased by a
healthy 3.3%. Moreover, consumer confidence improved, debt service burdens
remained at manageable levels and February retail sales climbed 5%
year-over-yeartheir best showing since last summer. February's shocking
increase in payroll gains (+705,000) raised concerns over higher inflation, but
the 12-month comparisons supported a soft economic landing. Over that period,
payrolls were up 145,000 per month, employment rose 1.5% year-over-year, and
hours worked increased 1.6% year-over-year.
The economic resurgence continued in the second quarter, led by a rapidly
improving labor market. Employment gains averaged 265,000 per month, and total
hours worked climbed by an annualized 5.6%. Consumer confidence remained
elevated, and real household spending continued to grow at a healthy clip.
These factors combined to produce overall Gross Domestic Product (GDP) growth
of 4.8% for the second quarter.
In the spring, higher food and energy prices caused inflation to rise. However,
the less volatile "core" rate of inflation, estimated at 2.7%, hovered near a
30-year low. Although the Federal Reserve has been in a holding pattern since
January, recent intensification of inflationary pressures near the end of the
period pushed the Fed closer to a preemptive tightening position.
BOND MARKET REVIEW
Bonds performed much better during the first half of the period than they did
in the second half of the period.
In the first six months, the U.S. bond market enjoyed a sustained broad-based
rally, thanks largely to lower interest rates. In this environment, corporate
and high yield securities outperformed Treasury securities and mortgage
obligations, with all sectors registering strong positive investment results.
Across all major sectors of the U.S. fixed income market, longer-duration
securities outperformed shorter-duration issues as interest rates for all
maturities declined.
In the second half of the period, concerns over the economy gaining strength
kept bond prices under pressure. These concerns were ignited by the release of
the surprising employment gains in February. In this environment, Treasury
securities showed a negative return, but mortgages posted a modest gain as
prepayment expectations stabilized. Shorter-duration securities outperformed
longer-duration securities as interest rates for all maturities increased.
Outside the U.S., economic conditions in Europe and gradually improving
economies in Latin America helped support raising debt prices in both of these
markets.
EQUITY INVESTMENT REVIEW
The stock market finished 1995 strongly, with the Dow Jones Industrial Average
and the Standard & Poor's 500 stock index up more than one-third from their
levels on January 1, 1995. The gains were largely due to strong corporate
profits and lower interest rates. Corporate profits consistently exceeded
expectations as companies benefited from economic expansion and major cost
cutting initiatives. Other developments that helped the market included:
accelerating free cash flow, which supported share repurchase programs, a
record level of merger and acquisition activity and a record $120 billion net
inflow into U.S. equity mutual funds.
1
ACM GOVERNMENT OPPORTUNITY FUND, INC.
_______________________________________________________________________________
The stock market continued to rally at the start of 1996, but inflationary
worries beginning in February, brought on by surprising economic strength, kept
stocks from continuing their upward surge for the remainder of the period. In
this uncertain environment, we focused on reasonably priced growth stocks. The
portfolio remained well diversified to both industry and economic categories.
We have maintained the maximum commitment to the U.S. equity markets
contemplated by the Fund's investment policies. We also retained some
international exposure.
INVESTMENT OUTLOOK
During the second half of 1996, we believe the U.S. economy will slow. Our
forecast calls for Gross Domestic Product growth of 2% to 2.5% in the final six
months of this year. In our view, such a growth path would not prompt an
increase in interest rates by the Federal Reserve. However, if the economy does
not show consistent signs of slowing, the Fed is likely to tighten monetary
policy.
Given our economic outlook, we anticipate a fairly stable interest rate
environment. Interest rates should not move much outside a plus or minus
25-basis point range from current levels. In this environment, a moderate shift
away from Treasury securities and into mortgage-backed issues should be
expected. In addition, we would anticipate continued exposure in non-U.S. bond
markets.
Outside the U.S., we remain optimistic on emerging and developed market debt
securities. Moderate economic growth in the U.S., stable inflation and
relatively steady bond prices provide a highly favorable environment for this
fixed income market segment. In the developed foreign market, continued focus
by policymakers on fiscal issues should support additional gains in debt
prices. Our positive outlook for the U.S. and overseas bond markets coincides
with our sense that U.S. equity valuation levels have attained unprecedented
heights. As a consequence, equity dividend levels have fallen significantly,
making equities less attractive for an income oriented fund. We therefore are
substantially reducing our equity weighting in favor of fixed income.
Thank you for your continued interest and investment in ACM Government
Opportunity Fund. We look forward to reporting its progress to you in the
coming months.
Sincerely,
John D. Carifa
Chairman and President
Wayne D. Lyski
Senior Vice President
2
PORTFOLIO OF INVESTMENTS
JULY 31, 1996 ACM GOVERNMENT OPPORTUNITY FUND, INC.
_______________________________________________________________________________
SHARES OR
PRINCIPAL
AMOUNT
(000) U.S. $VALUE
- -------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS77.6%
U.S. TREASURY SECURITIES70.2%
U.S. Treasury Bonds
7.125%, 2/15/23 (a) US$ 5,110 $ 5,132,356
10.75%, 8/15/05 (a) 7,500 9,478,125
12.75%, 11/15/10 3,250 4,540,855
14.00%, 11/15/11 (a) 7,000 10,611,552
U.S. Treasury Notes
6.125%, 7/31/00 (a) 11,900 11,732,638
6.125%, 9/30/00 6,000 5,915,616
7.875%, 11/15/04 (a) 10,000 10,706,250
U.S. Treasury Strips
Zero coupon, 11/15/09 (a) 6,000 2,383,362
Zero coupon, 2/15/15 47,765 12,848,307
Total U.S. Treasury Securities
(cost $74,532,772) 73,349,061
FEDERAL AGENCY SECURITIES7.4%
Federal National Mortgage Association
Zero coupon, 10/09/19 12,100 2,227,247
Student Loan Marketing Association
15.00%, 9/17/96 5,490 5,553,267
Total Federal Agency Securities
(cost $8,202,035) 7,780,514
Total U.S. Government and Agency
Obligations (cost $82,734,807) 81,129,575
COMMON STOCKS24.7%
TECHNOLOGY4.8%
Atmel Corp. (b) 6,000 165,750
cisco Systems, Inc.(b) 12,500 646,875
Compaq Computer Corp.(b) 10,000 547,500
Electronic Data Systems Corp. 8,000 423,000
First Data Corp. 4,000 310,500
Informix Corp. (b) 8,000 174,500
Intel Corp. 12,000 901,500
Microsoft Corp.(b) 3,000 353,625
Oracle Corp. (b) 21,000 821,625
Seagate Technology, Inc. (b) 3,000 145,125
Solectron Corp. (b) 9,000 283,500
3 Com Corp. (b) 5,000 196,875
------------
4,970,375
CONSUMER STAPLES4.0%
Gillette Co. 12,800 814,400
McDonald's Corp. 9,500 440,562
Nabisco Holdings Corp. Class A 8,000 270,000
PepsiCo, Inc. 28,000 885,500
Philip Morris Cos., Inc. 11,000 1,150,875
Procter & Gamble Co. 6,500 580,937
------------
4,142,274
FINANCIAL SERVICES3.5%
American International Group, Inc. 6,000 564,750
Chase Manhattan Corp. 5,200 361,400
Federal National Mortgage Association 16,000 508,000
First Union Corp. 6,000 381,000
General Re Corp. 2,000 293,500
Legg Mason, Inc. 9,788 278,958
Merrill Lynch & Company, Inc. 2,000 120,750
The PMI Group, Inc. 7,000 332,500
The Travelers Group, Inc. 20,000 845,000
------------
3,685,858
HEALTHCARE2.8%
ASTRA, AB Series B 10,000 412,387
Baxter International, Inc. 3,000 124,875
Boston Scientific Corp. (b) 3,000 143,250
Columbia/HCA Healthcare 6,000 307,500
Health Care Property Investments, Inc. 6,000 202,500
Merck & Co., Inc. 12,500 803,125
Pfizer, Inc. 5,500 384,313
Schering-Plough Corp. 6,000 330,750
United Healthcare Corp. 8,000 270,000
------------
2,978,700
TELECOMMUNICATIONS & MULTIMEDIA1.7%
Airtouch Communications (b) 9,000 247,500
AT&T Corp. 15,500 807,937
Cox Communications, Inc., Class A 14,000 266,000
Tele-Communications Liberty Media (b) 11,000 242,000
Tele-Communications TCI Class A (b) 16,300 232,275
------------
1,795,712
3
PORTFOLIO OF INVESTMENTS (CONTINUED) ACM GOVERNMENT OPPORTUNITY FUND, INC.
_______________________________________________________________________________
SHARES U.S. $VALUE
- -------------------------------------------------------------------------
LEISURE & ENTERTAINMENT1.5%
Carnival Corp. Class A 10,000 $ 268,750
Eastman Kodak Co. 4,500 335,813
ITT Corp. (b) 5,000 283,750
La Quinta Inns, Inc. 12,000 219,000
Walt Disney Co. 8,000 445,000
------------
1,552,313
CAPITAL GOODS1.4%
Allied Signal, Inc. 10,000 587,500
General Electric Co. 11,000 906,125
------------
1,493,625
RETAIL1.3%
Autozone, Inc. (b) 10,000 288,750
Federated Department Stores, Inc. (b) 11,000 332,750
Home Depot, Inc. 8,000 404,000
Kroger Co. 6,000 226,500
Lowe's Companies, Inc. 4,000 130,500
------------
1,382,500
CHEMICALS1.1%
Monsanto Co. 25,000 781,250
Morton International, Inc. 10,000 360,000
------------
1,141,250
ENERGY0.8%
Mobil Corp. 3,000 331,125
Schlumberger, LTD. 2,000 160,000
Texaco, Inc. 4,000 340,000
------------
831,125
BASIC INDUSTRIES0.7%
Aluminum Company of America 3,000 174,000
Crown Cork & Seal Co., Inc. 5,000 222,500
Plum Creek Timber Co., L.P. 15,000 363,750
------------
760,250
BIOTECHNOLOGY0.4%
Amgen, Inc. (b) 7,500 409,688
SHARES OR
PRINCIPAL
AMOUNT
(000) U.S. $VALUE
- -------------------------------------------------------------------------
TRANSPORTATION0.3%
Burlington Northern Santa Fe 4,500 $ 354,938
AEROSPACE0.2%
Boeing Co. 2,500 221,250
AIRLINES0.2%
Northwest Airlines Corp. Class A (b) 4,600 169,050
Total Common Stocks
(cost $19,969,376) 25,888,908
CONVERTIBLE PREFERRED STOCK0.3%
Penncorp, $3.375
(cost $261,240) 4,000 270,500
FOREIGN SECURITIES7.3%
AUSTRALIA4.9%
Australian Government, 10.00%, 10/15/07
(cost $5,186,528) AU$ 6,000 5,125,260
CANADA2.4%
Canadian Government, 7.00%, 12/01/06
(cost $2,410,680) CA$ 3,500 2,437,277
Total Foreign Securities
(cost $7,597,208) 7,562,537
TIME DEPOSITS0.7%
Bank of New York 5.0625%, 8/01/96
(cost $725,000) US$ 725 725,000
TOTAL INVESTMENTS110.6%
(cost $111,287,631) 115,576,520
Other assets less liabilities(10.6%) (11,030,121)
NET ASSETS100% $104,546,399
(a) Security, or portion thereof, has been segregated to collateralize forward
exchange currency contracts. Total value of segregated securities amounted to
$40,219,757 at July 31, 1996.
(b) Non-income producing.
See notes to financial statements.
4
STATEMENT OF ASSETS AND LIABILITIES
JULY 31, 1996 ACM GOVERNMENT OPPORTUNITY FUND, INC.
_______________________________________________________________________________
ASSETS
Investments in securities, at value (cost $111,287,631) $115,576,520
Receivable for investment securities sold 2,501,402
Dividends and interest receivable 1,625,177
Other assets 11,084
Total assets 119,714,183
LIABILITIES
Due to custodian 21,494
Payable for investment securities purchased 14,908,579
Advisory fee payable 65,235
Unrealized depreciation of forward exchange currency contracts 20,990
Administration fee payable 13,047
Accrued expenses and other liabilities 138,439
Total liabilities 15,167,784
NET ASSETS $104,546,399
COMPOSITION OF NET ASSETS
Capital stock, at par $ 130,719
Additional paid-in capital 112,861,429
Undistributed net investment income 175,598
Accumulated net realized loss (12,842,315)
Net unrealized appreciation on investments and foreign
currency denominated assets and liabilities 4,220,968
$104,546,399
NET ASSET VALUE PER SHARE(based on 13,071,872 shares outstanding) $8.00
See notes to financial statements.
5
STATEMENT OF OPERATIONS
YEAR ENDED JULY 31, 1996 ACM GOVERNMENT OPPORTUNITY FUND, INC.
_______________________________________________________________________________
INVESTMENT INCOME
Interest(net of foreign withholding taxes of $1,570) $7,832,679
Dividends(net of foreign withholding taxes of $3,224) 416,329 $8,249,008
EXPENSES
Advisory fee 804,192
Administrative fee 160,838
Custodian 107,934
Transfer agency 99,692
Audit and legal 87,477
Directors' fees 30,147
Registration 25,831
Printing 21,584
Miscellaneous 29,963
Total expenses 1,367,658
Net investment income 6,881,350
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY
Net realized gain (loss) on:
Investment transactions (93,052)
Options written 22,800
Foreign currency transactions 1,623,386
Net change in unrealized appreciation of:
Investments 21,872
Foreign currency denominated assets and liabilities 146,429
Net gain on investments 1,721,435
NET INCREASE IN NET ASSETS FROM OPERATIONS $8,602,785
See notes to financial statements.
6
STATEMENTS OF CHANGES IN NET ASSETS ACM GOVERNMENT OPPORTUNITY FUND, INC.
_______________________________________________________________________________
YEAR ENDED YEAR ENDED
JULY 31, JULY 31,
1996 1995
------------- -------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income $ 6,881,350 $ 7,684,277
Net realized gain (loss) on investments, options
written and foreign currency transactions 1,553,134 (7,294,317)
Net change in unrealized appreciation of
investments and foreign currency denominated
assets and liabilities 168,301 7,380,407
Net increase in net assets from operations 8,602,785 7,770,367
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (7,290,617) (6,304,236)
Tax return of capital distribution (323,758) (4,054,223)
COMMON STOCK TRANSACTIONS
Reinvestment of dividends resulting in the
issuance of common stock -0- 316,508
Total increase (decrease) 988,410 (2,271,584)
NET ASSETS
Beginning of year 103,557,989 105,829,573
End of year (including undistributed net
investment income of $175,598 at July 31,1996) $104,546,399 $103,557,989
See notes to financial statements.
7
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1996 ACM GOVERNMENT OPPORTUNITY FUND, INC.
_______________________________________________________________________________
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 principle market makers. The U.S. dollar value of forward
exchange currency contracts is determined using forward currency exchange rates
supplied by a quotation service. 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 Alliance Capital Management
L.P. (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 INVESTMENT TRANSACTIONS
Interest income is accrued daily. Dividend income is recorded on the
ex-dividend date. Investment transactions are accounted for on a trade date
basis. 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 and commitments under
forward exchange currency contracts 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 gain on foreign currency transactions represents foreign exchange
gains and losses from sales and maturities of foreign securities, closed
forward exchange currency contracts, holding of 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 year
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 and are determined in accordance with income tax regulations.
6. RECLASSIFICATION OF COMPONENTS OF NET ASSETS
As of July 31, 1996 the Fund reclassified certain components of net assets. The
reclassifications resulted in a net decrease to accumulated net realized loss
of $1,721,722 and net increase to undistributed net investment income and
additional paid-in capital of $1,250,991 and $470,731 respectively. These
reclassifications were the result of permanent book to tax differences,
primarily resulting from tax return of capital distributions and foreign
currency gains. Net assets were not affected by the change.
8
ACM GOVERNMENT OPPORTUNITY FUND, INC.
_______________________________________________________________________________
NOTE B: ADVISORY, ADMINISTRATIVE FEES AND OTHER AFFILIATED TRANSACTIONS
Under the terms of an Investment Advisory Agreement, the Fund pays Alliance
Capital Management L.P., (the "Adviser"), a fee at an annualized rate of .75 of
1% of the Fund's average weekly net assets.
The Fund entered into a Shareholder Inquiry Agency Agreement with Alliance Fund
Services, Inc., ("AFS"), whereby the Fund reimburses AFS for costs related to
servicing calls for the Fund. The Fund paid AFS $3,924 relating to such
servicing for the year ended July 31, 1996.
Under the terms of an Administrative Agreement, the Fund pays Alliance Capital
Management L.P., a monthly fee equal to the annualized rate of .15 of 1% of the
Fund's average weekly net assets.
Brokerage commissions paid for the year ended July 31, 1996 on securities
transactions amounted to $36,922, none of which was paid to affiliated brokers.
NOTE C: INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term investments,
options, and U.S. government obligations) aggregated $142,833,654 and
$151,063,525, respectively, for the year ended July 31, 1996.
At July 31, 1996, the cost of investments for federal income tax purposes was
$114,349,488. Accordingly, gross unrealized appreciation of investments was
$6,980,386 and gross unrealized depreciation of investments was $5,753,354
resulting in net unrealized appreciation of $1,227,032 (excluding foreign
currency). For federal income tax purposes, the Fund had a capital loss
carryforward at July 31, 1996 of $9,780,458 which $6,024,225 will expire in
2003 and $3,756,233 will expire in 2004.
1. FORWARD 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 open 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 securities 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 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.
9
NOTES TO FINANCIAL STATEMENTS (CONT.) ACM GOVERNMENT OPPORTUNITY FUND, INC.
_______________________________________________________________________________
At July 31, 1996, the Fund had outstanding forward exchange currency contracts
as follows:
<TABLE>
<CAPTION>
CONTRACT VALUE ON U.S. $ UNREALIZED
AMOUNT ORIGINATION CURRENT APPRECIATION
(000) DATE VALUE (DEPRECIATION)
--------- ----------- ----------- --------------
<S> <C> <C> <C> <C>
FOREIGN CURRENCY BUY CONTRACTS
Australian Dollar, expiring 8/14/96 5,500 $ 4,336,550 $ 4,320,910 $ (15,640)
Canadian Dollar, expiring 8/12/96-8/22/96 6,225 4,539,860 4,529,484 (10,376)
German Deutsche Marks, expiring 8/5/96-8/13/96 9,000 6,046,619 6,079,788 33,169
Italian Lira, expiring 8/5/96 2,608,375 1,671,628 1,703,112 31,484
New Zealand Dollar, expiring 8/14/96 8,500 5,786,325 5,906,990 120,665
Spanish Peseta, expiring 8/13/96 921,925 7,148,025 7,302,752 154,727
United Kingdom Pound Sterling,
expiring 8/5/96-8/19/96 2,250 3,492,405 3,498,375 5,970
FOREIGN CURRENCY SALE CONTRACTS
Australian Dollar, expiring 8/1/96-8/14/96 4,500 $ 3,567,040 $ 3,535,290 $ 31,750
Canadian Dollar, expiring 8/12/96-8/13/96 9,575 7,020,408 6,966,845 53,563
German Deutsche Marks, expiring 8/5/96-8/23/96 21,500 14,109,388 14,515,370 (405,982)
Italian Lira, expiring 8/5/96 2,608,375 1,695,721 1,703,112 (7,391)
Japanese Yen, expiring 10/2/96 250,000 2,360,272 2,360,250 22
New Zealand Dollar, expiring 8/14/96 8,500 5,877,495 5,906,990 (29,495)
Spanish Peseta, expiring 8/13/96 554,620 4,405,145 4,396,491 8,654
United Kingdom Pound Sterling,
expiring 8/5/96-8/19/96 2,250 3,506,265 3,498,375 7,890
----------
$ (20,990)
</TABLE>
10
ACM GOVERNMENT OPPORTUNITY FUND, INC.
_______________________________________________________________________________
2. OPTIONS TRANSACTIONS
For hedging purposes, the Fund purchases and writes (sells) put and call
options on 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
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 currency
purchased by the Fund. In writing an option, the Fund bears the market risk of
an unfavorable change in the price of the currency underlying the written
option. Exercise of an option written by the Fund could result in the Fund
selling or buying a currency at a price different from the current market value.
Transactions in options written for the year ended July 31, 1996 were as
follows:
NUMBER OF
CONTRACTS PREMIUM
--------- ---------
Options outstanding atbeginning of year -0- $ -0-
Options written 2 22,800
Options expired (2) (22,800)
Options outstanding at July 31, 1996 -0- $ -0-
NOTE D: CAPITAL STOCK
There are 300,000,000 shares of $.01 par value common stock authorized, of
which 13,071,872 shares were outstanding at July 31, 1996. During the year
ended July 31, 1996, the Fund did not issue shares in connection with the
dividend reinvestment plan. During the year ended July 31, 1995, the Fund
issued 43,657 shares in connection with the Funds' dividend reinvestment plan.
11
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,
-----------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $7.92 $8.12 $9.92 $9.66 $9.02
INCOME FROM INVESTMENT OPERATIONS
Net investment income .53 .59 .68 .79 .69
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions .13 -0- (.89) .68 .89
Net increase (decrease) in net asset
value from operations .66 .59 (.21) 1.47 1.58
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.56) (.48) (.68) (.80) (.90)
Distributions from net realized gains -0- -0- (.61) (.41) (.04)
Tax return of capital distribution (.02) (.31) (.30) -0- -0-
Total dividends and distributions (.58) (.79) (1.59) (1.21) (.94)
Net asset value, end of year $8.00 $7.92 $8.12 $9.92 $9.66
Market value, end of year $7.00 $7.50 $8.125 $9.875 $9.75
TOTAL RETURN
Total investment return based on: (a)
Market value 1.08% 2.85% (2.66)% 14.94% 14.84%
Net asset value 9.40% 8.67% (3.16)% 16.30% 18.26%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $104,546 $103,558 $105,830 $122,500 $115,831
Ratio of expenses to average net assets 1.28% 1.18% 1.20% 1.19% 1.22%
Ratio of net investment income to
average net assets 6.42% 7.62% 7.50% 8.27% 7.31%
Portfolio turnover rate 375% 228% 297% 588% 505%
</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.
12
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, 1996, and the related statement of operations for the year then
ended, the statements 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, 1996, 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, 1996, 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 12, 1996
13
ADDITIONAL INFORMATION ACM GOVERNMENT OPPORTUNITY FUND, INC.
_______________________________________________________________________________
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 paid in or reinvested in additional shares of the Fund. First Data Investor
Services Group, Inc. (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 dividends and 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
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 First Data Investor Services Group, Inc., P.O. Box
1376, Boston, Massachusetts 02104.
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 President of the Fund.
14
ACM GOVERNMENT OPPORTUNITY FUND, INC.
_______________________________________________________________________________
SUPPLEMENTAL PROXY INFORMATION
The Annual Meeting of Shareholders of the ACMGovernment Opportunity Fund, Inc.
was held on Friday, May 24, 1996. The description of each proposal and number
of shares voted at the meeting are as follows:
SHARES SHARES VOTED
VOTED FOR WITHOUT AUTHORITY
- -------------------------------------------------------------------------------
1. To elect directors: Class One Directors
(term expires in 1998)
David H. Dievler 11,115,023 264,169
James M. Hester 11,098,976 280,216
The Hon. James D. Hodgson 11,089,704 289,488
SHARES SHARES SHARES VOTED
VOTED FOR VOTED AGAINST ABSTAIN
- -------------------------------------------------------------------------------
2. To ratify the selection of Ernst
&Young LLP as the Fund's independent
auditors for the Fund's fiscal year
ending July 31, 1996 11,119,771 74,967 184,454
15
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
DONALD J. ROBINSON
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
DANIEL J. PANKER, 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
FIRST DATA INVESTOR SERVICES GROUP, INC.
(formerly The Shareholder Services Group, Inc.)
53 State Street
Boston, MA 02109
CUSTODIAN
BANK OF NEW YORK
48 Wall Street
New York, New York 10286
INDEPENDENT AUDITORS
ERNST & YOUNG LLP
787 Seventh Avenue
New York, NY 10019
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940 that the Fund may purchase at market prices from time to
time shares of its Common Stock in the open market.
This report, including the financial statements herein, is transmitted to the
shareholders of ACM Government Opportunity Fund, Inc., for their information.
The 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.
16
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 Alliance Capital Management
L.P.
SHAREHOLDER INFORMATION
Daily market prices for the Fund's shares are published in the New York Stock
Exchange Composite Transaction Section of newspapers 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, each Sunday in THE NEW
YORK TIMES and each Saturday in 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, First Data Investor Services Group, Inc., P.O.
Box 1376, Boston, MA 02104.
ACM GOVERNMENT OPPORTUNITY FUND, INC.
1345 Avenue of the Americas
New York, New York 10105
ALLIANCECAPITAL
INVESTING WITHOUT THE MYSTERY.
R THESE REGISTERED SERVICE MARKS USED UNDER LICENSE FROM THE OWNER, ALLIANCE
CAPITAL MANAGEMENT L.P.
OPPAR
