ACM GOVERNMENT OPPORTUNITY FUND
ANNUAL REPORT
JULY 31, 1997
ALLIANCE CAPITAL
LETTER TO SHAREHOLDERS ACM GOVERNMENT OPPORTUNITY FUND
_______________________________________________________________________________
September 5, 1997
Dear Shareholder:
We are pleased to report your Fund's investment results and market activity for
the period ended July 31, 1997.
ACM Government Opportunity Fund's primary investment objective is to provide
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 securities. No more than 20%
of its total assets may be invested in equity securities.
INVESTMENT RESULTS
Over the six month period ended July 31, 1997, ACM Government Opportunity Fund
returned 6.46% versus 5.55% for the Lehman Brothers Aggregate Bond Index. This
outperformance is due primarily to solid performance of the Fund's U.S.
holdings. In particular, the Fund's holdings of government securities performed
well when the market rallied late in the period. The portfolio's modestly
longer-duration securities (relative to the benchmark) also contributed
positively to performance. As interest rates fell during the period, they
caused longer-duration securities to outperform shorter-duration securities.
Strong performance in the non-U.S. debt sector continued to positively impact
portfolio performance during the period. For the 12 months ended July 31, 1997,
your Fund returned 15.99% versus 10.76% for the benchmark based on net asset
value.
INVESTMENTS RESULTS*
Period Ended July 31, 1997
TOTAL RETURNS
6 MONTHS 12 MONTHS
---------- -----------
ACM GOVERNMENT OPPORTUNITY FUND 6.46% 15.99%
LEHMAN BROTHERS AGGREGATE BOND INDEX 5.55% 10.76%
* THE FUND'S INVESTMENT RESULTS ARE CUMULATIVE TOTAL RETURNS FOR THE PERIOD
AND ARE BASED ON THE NET ASSET VALUE AS OF JULY 31, 1997. ALL FEES AND EXPENSES
RELATED TO THE OPERATION OF THE FUND HAVE BEEN DEDUCTED, BUT NO ADJUSTMENT HAS
BEEN MADE FOR SALES CHARGES THAT MAY APPLY WHEN SHARES ARE PURCHASED OR
REDEEMED. THE LEHMAN BROTHERS AGGREGATE BOND INDEX IS COMPOSED OF THE MORTGAGE
BACKED AND ASSET BACKED SECURITIES INDICES, AND THE GOVERNMENT/CORPORATE BOND
INDEX. RETURNS FOR THE FUND AND ITS COMPARATIVE INDEX INCLUDE THE REINVESTMENT
OF ANY DISTRIBUTIONS PAID DURING THE PERIOD. THE INDEX IS UNMANAGED AND
REFLECTS NO FEES OR EXPENSES. AN INVESTOR CANNOT INVEST DIRECTLY IN THE INDEX.
ECONOMIC REVIEW
The U.S. economy continued its strong performance in early 1997, led by
continued strength in the labor market. The unemployment rate dropped to a
20-year low and wages continued to climb. In response to this continued
economic strength and what were viewed as mounting inflationary pressures, the
Federal Reserve Bank raised short-term interest rates in March. Overall,
economic growth, which had risen to 4.3% at the end of 1996, further
accelerated to 4.9% during the first quarter of 1997.
More recent data show that the economy slowed during the second quarter, led by
a decline in consumer spending. Retail sales of merchandise declined 3.8% in
the second quarter, while real construction spending fell 2.0% in April-May.
The production side of the economy experienced a more muted slowdown:
manufacturing output growth slowed to 4.4% (from 5.3% in the first quarter) and
total hours worked increased by only 1.9%
1
ACM GOVERNMENT OPPORTUNITY FUND
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versus 4.1% in the first quarter. However, labor market strength continued
unabated in the second quarter as non-farm payroll growth rose to 237,000 new
jobs per month from first quarter's average of 228,000 new jobs per month.
Overall, Gross Domestic Product (GDP) growth slowed to 2.2% for the quarter.
In spite of an increase in wage pressures, inflation remained very well-behaved
during the period. Consumer prices increased at a 1.5% annual rate in the first
seven months of the year and are up 2.2% from the same period last year.
Wholesale inflation, as measured by the Producer Price Index, fell for an
unprecedented seventh month in a row in July and is down 0.2% from year earlier
levels.
MARKET REVIEW
The U.S. bond market posted modest gains over the past six months. After
trading lower during the first quarter on fears that too-strong growth would
ignite inflation, the market rebounded in the second quarter. Data released
during the quarter, indicating that the economy had slowed from its
unsustainable first quarter pace and inflation remained dormant, helped ease
investor concerns and pushed bond prices higher. Interest rates, which peaked
in late spring following the Fed's decision to raise the Fed Fund's rate, ended
the period lower on all maturities.
In most developed countries, inflation remained stable at low levels but was
offset by modestly improving growth prospects. Most markets had positive
returns but underperformed the U.S. in fully hedged terms. Deteriorating fiscal
conditions in Germany and France increased the probability of a broader, more
inclusive European Monetary Union and heightened concerns that the new euro
currency will be weaker than the deutschmark. As a result, bond markets in the
historically strong European currency countries underperformed the markets of
historically weaker currency countries. In Canada, strong growth and currency
weakness prompted official interest rate increases late in the period. However,
for the period, Canadian bonds outperformed the U.S. in fully hedged terms.
Meanwhile, official interest rates went down in Australia and New Zealand as
inflation fell; both bond markets outperformed the U.S. in fully hedged terms.
The emerging market economies, benefiting from generally stable worldwide
interest rates, moved into their second year of healthy growth and low
inflation. With sustained strength in export markets, the benefits of reform
have begun to penetrate deeper into the emerging market economies. Declining
unemployment has relieved some political pressures and strengthened commitment
to the ongoing process of reform and revitalization. Price performance for the
period was strong in most developing countries as capital inflows returned to
1993 levels and the risk premium on investments narrowed.
INVESTMENT OUTLOOK
We expect economic activity to accelerate somewhat in the current quarter.
Consumer confidence has reached new highs, real income is growing solidly, and
the labor market remains strong, with unemployment at 4.8%. We expect this
re-acceleration to be moderate, with economic growth averaging 3.0% to 3.5% for
1997. With multi-quarter growth trending above the level historically
considered to be non-inflationary, Federal Reserve policymakers will continue
to closely monitor inflationary pressures with a bias towards increasing rates
at the first sign of economic overheating.
Outside of the U.S., we expect inflation to be restrained and growth to remain
positive. Despite the occasional comment about postponing European Monetary
Union, we believe it will proceed, and the historically weaker markets,
particularly Spain and Italy, will outperform Germany and other core countries.
In the non-U.S. dollar bloc, we continue to find value in New Zealand and
Australia, while believing the Bank of Canada will need to tighten monetary
policy to better reflect improving economic fundamentals. Weaker growth in
Southeast Asia will affect the Australian and New Zealand economies, and we
expect a further relaxing of monetary conditions in New Zealand.
Given our expectations for relatively stable growth, inflation and monetary
policy worldwide, the developing markets should provide investment
opportunities as the process of reform and integration continues. However, the
generic risk premiums for these countries are more rationally aligned with
economic fundamentals than they have been for some time and caution is
warranted. We believe that country selection will be more critical than in the
last several quarters.
2
ACM GOVERNMENT OPPORTUNITY FUND
_______________________________________________________________________________
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
3
PORTFOLIO OF INVESTMENTS
JULY 31, 1997 ACM GOVERNMENT OPPORTUNITY FUND
_______________________________________________________________________________
PRINCIPAL
AMOUNT
(000) U.S. $ VALUE
- -------------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS-85.3%
U.S. TREASURY NOTES-39.6%
6.25%, 10/31/01 (a) US$ 9,530 $ 9,658,064
6.50%, 8/15/05 (a) 12,950 13,326,365
7.00%, 7/15/06 (a) 3,500 3,724,220
7.875%, 11/15/04 (a) 7,000 7,761,257
8.875%, 2/15/99 (a) 5,000 5,232,815
12.75%, 11/15/10 (a) 3,250 4,633,284
------------
44,336,005
U.S. TREASURY BONDS-23.9%
8.125%, 8/15/19 (a) 8,250 9,948,988
10.75%, 8/15/05 (a) 4,000 5,180,004
14.00%, 11/15/11 (a) 7,500 11,627,347
------------
26,756,339
U.S. TREASURY STRIP-11.8%
Zero coupon, 2/15/15 40,000 13,137,756
MORTGAGE RELATED SECURITIES-7.3%
Government National Mortgage Association
7.50%, 8/12/27 TBA 3,000 3,051,570
8.00%, 8/12/27 TBA 5,000 5,162,500
------------
8,214,070
FEDERAL AGENCY SECURITY-2.7%
Student Loan Marketing Association
15.00%, 9/23/97 3,000 3,040,500
Total U.S. Government and Agency
Obligations (cost $92,551,156) 95,484,670
SOVEREIGN DEBT OBLIGATIONS-24.9%
NEW ZEALAND-9.0%
New Zealand Government
8.00%, 11/15/06 NZ$ 6,000 4,253,790
10.00%, 3/15/02 8,000 5,850,445
------------
10,104,235
RUSSIA-2.8%
Ministry Finance of Russia
10.00%, 6/26/07 (b) US$ 3,000 3,093,000
SPAIN-5.4%
Spanish Government
5.25%, 1/31/03 ESP 975,000 6,044,862
SWEDEN-7.7%
Swedish Government
5.50%, 4/12/02 SEK 25,000 3,109,353
8.00%, 8/15/07 39,500 5,534,188
------------
8,643,541
Total Sovereign Debt Obligations
(cost $28,637,375) 27,885,638
TIME DEPOSIT-4.9%
Bank of New York
5.25%, 8/01/97
(cost $5,428,000) US$ 5,428 5,428,000
TOTAL INVESTMENTS-115.1%
(cost $126,616,531) 128,798,308
Other assets less liabilities-(15.1%) (16,893,118)
NET ASSETS-100% $111,905,190
(a) Securities or portion thereof, with an aggregate market value of
$71,092,344, have been segregated to collateralize forward exchange currency
contracts and TBA securities.
(b) Security is exempt from registration under Rule 144A of the Securities Act
of 1933. This security may be resold in transactions exempt from registration
normally to qualified institutional buyers. At July 31, 1997, the security
amounted to $3,093,000 or 2.8% of net assets.
Glossary:
TBA - To Be Announced.
See notes to financial statements.
4
STATEMENT OF ASSETS AND LIABILITIES
JULY 31, 1997 ACM GOVERNMENT OPPORTUNITY FUND
_______________________________________________________________________________
ASSETS
Investments in securities, at value (cost $126,616,531) $ 128,798,308
Interest receivable 2,620,017
Receivable for investment securities sold 1,698,435
Net unrealized appreciation of forward exchange
currency contracts 716,079
Total assets 133,832,839
LIABILITIES
Due to custodian 1,730,928
Payable for investment securities purchased 19,903,962
Advisory fee payable 68,733
Administration fee payable 13,747
Accrued expenses and other liabilities 210,279
Total liabilities 21,927,649
NET ASSETS $ 111,905,190
COMPOSITION OF NET ASSETS
Capital stock, at par $ 130,719
Additional paid-in capital 112,964,051
Accumulated undistributed net investment income 518,624
Accumulated net realized loss on investments (4,582,591)
Net unrealized appreciation on investments and foreign
currency denominated assets and liabilities 2,874,387
$ 111,905,190
NET ASSET VALUE PER SHARE (based on 13,071,872
shares outstanding) $8.56
See notes to financial statements.
5
STATEMENT OF OPERATIONS
YEAR ENDED JULY 31, 1997 ACM GOVERNMENT OPPORTUNITY FUND
_______________________________________________________________________________
INVESTMENT INCOME
Interest (net of foreign withholding
taxes of $8,010) $8,889,960
Dividends 76,590 $ 8,966,550
EXPENSES
Advisory fee 813,268
Administrative fee 162,654
Custodian 119,388
Transfer agency 91,344
Audit and legal 62,806
Registration fee 35,344
Directors' fees 31,848
Printing 29,367
Miscellaneous 28,240
Total expenses 1,374,259
Net investment income 7,592,291
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS
Net realized gain on investment transactions 8,330,667
Net realized gain on foreign currency transactions 625,542
Net change in unrealized appreciation
(depreciation) of:
Investments (2,107,112)
Foreign currency denominated assets and liabilities 760,531
Net gain on investments and foreign currency transactions 7,609,628
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 15,201,919
See notes to financial statements.
6
STATEMENT OF CHANGES IN NET ASSETS ACM GOVERNMENT OPPORTUNITY FUND
_______________________________________________________________________________
YEAR ENDED YEAR ENDED
JULY 31, JULY 31,
1997 1996
------------- -------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income $ 7,592,291 $ 6,881,350
Net realized gain on investments and
foreign currency transactions 8,956,209 1,553,134
Net change in unrealized appreciation
(depreciation) of investments and foreign
currency denominated assets and liabilities (1,346,581) 168,301
Net increase in net assets from operations 15,201,919 8,602,785
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (7,843,128) (7,290,617)
Tax return of capital distribution -0- (323,758)
Total increase 7,358,791 988,410
NET ASSETS
Beginning of year 104,546,399 103,557,989
End of year (including undistributed net
investment income of $518,624 at
July 31, 1997) $111,905,190 $104,546,399
See notes to financial statements.
7
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1997 ACM GOVERNMENT OPPORTUNITY FUND
_______________________________________________________________________________
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 is
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. 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 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 investments, closed
forward exchange currency contracts, holdings of foreign currencies, exchange
gains and losses realized between the trade and settlement dates on foreign
investment 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.
Income and capital gains distributions are determined in accordance with
federal tax regulations and may differ from those determined in accordance with
generally accepted accounting principles. To the extent these differences are
permanent, such amounts are reclassified within the capital accounts based on
their federal tax basis treatment; temporary differences, do not require
8
ACM GOVERNMENT OPPORTUNITY FUND
_______________________________________________________________________________
such reclassification. During the current fiscal year, permanent differences,
primarily due to the tax treatment of foreign currency gains, resulted in a net
increase in additional paid-in capital and accumulated undistributed net
investment income, and a corresponding increase in accumulated net realized
loss on investments. This reclassification had no effect on net assets.
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.
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 related to servicing phone inquiries for the Fund. The Fund
reimbursed AFS $3,717 during the year ended July 31, 1997.
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 on investment transactions for the year ended July
31, 1997 amounted to $26,368, none of which was paid to brokers utilizing the
services of the Pershing Division of Donaldson, Lufkin & Jenrette Securities
Corp. ("DLJ"), an affiliate of the Adviser, nor to DLJ directly.
NOTE C: INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term investments
and U.S. government securities) aggregated $166,739,886 and $173,946,410,
respectively, for the year ended July 31, 1997. There were purchases of
$322,444,779 and sales of $313,407,847 of U.S. government and government agency
obligations for the year ended July 31, 1997.
At July 31, 1997, the cost of investments for federal income tax purposes was
$128,904,143. Accordingly, gross unrealized appreciation of investments was
$3,363,942 and gross unrealized depreciation of investments was $3,469,777
resulting in net unrealized depreciation of $105,835 (excluding foreign
currency). For federal income tax purposes, the Fund had a capital loss
carryforward at July 31, 1997 of $2,071,084, which if not utilized 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 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 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
_______________________________________________________________________________
At July 31, 1997, 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
Australian Dollars,
maturing
8/08/97-9/03/97 12,400 $ 9,215,912 $9,241,455 $ 25,543
German Deutsche Marks,
maturing
8/13/97-9/05/97 13,875 7,768,103 7,545,924 (222,179)
Italian Lira,
maturing 8/25/97 9,529,346 5,394,803 5,312,420 (82,383)
New Zealand Dollar,
maturing 9/03/97 6,800 4,605,995 4,398,051 (207,944)
FOREIGN CURRENCY SALE CONTRACTS
Australian Dollars,
maturing
8/08/97-9/03/97 12,400 9,290,156 9,241,498 48,658
German Deutsche Marks,
maturing
8/13/97-9/09/97 17,322 10,026,457 9,428,257 598,200
Italian Lira,
maturing 8/25/97 9,529,346 5,435,556 5,312,420 123,136
New Zealand Dollars,
maturing
8/12/97-8/30/97 15,117 9,954,750 9,794,152 160,598
Swedish Krona,
maturing 10/29/97 71,324 9,055,295 8,986,339 68,956
Swiss Franc,
maturing 9/05/97 5,823 4,064,996 3,861,502 203,494
$ 716,079
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 that 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 a realized a gain or loss. If a
put option is exercised, the premium reduces the cost basis of
10
ACM GOVERNMENT OPPORTUNITY FUND
_______________________________________________________________________________
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.
There were no transactions in options written for the year ended July 31, 1997.
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, 1997. During the year
ended July 31, 1997 and the year ended July 31, 1996, the Fund did not issue
shares in connection with the dividend reinvestment plan.
11
FINANCIAL HIGHLIGHTS ACM GOVERNMENT OPPORTUNITY FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF COMMON STOCK OUTSTANDING THROUGHOUT EACH YEAR
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
---------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $8.00 $7.92 $8.12 $9.92 $9.66
INCOME FROM INVESTMENT OPERATIONS
Net investment income .58 .53 .59 .68 .79
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions .58 .13 -0- (.89) .68
Net increase (decrease) in net asset
value from operations 1.16 .66 .59 (.21) 1.47
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.60) (.56) (.48) (.68) (.80)
Distributions from net realized gains -0- -0- -0- (.61) (.41)
Tax return of capital distribution -0- (.02) (.31) (.30) -0-
Total dividends and distributions (.60) (.58) (.79) (1.59) (1.21)
Net asset value, end of year $8.56 $8.00 $7.92 $8.12 $9.92
Market value, end of year $7.875 $7.00 $7.50 $8.125 $9.875
TOTAL RETURN
Total investment return based on: (a)
Market value 21.95% 1.08% 2.85% (2.66)% 14.94%
Net asset value 15.99% 9.40% 8.67% (3.16)% 16.30%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $111,905 $104,546 $103,558 $105,830 $122,500
Ratio of expenses to average net assets 1.27% 1.28% 1.18% 1.20% 1.19%
Ratio of net investment income to
average net assets 7.00% 6.42% 7.62% 7.50% 8.27%
Portfolio turnover rate 407% 375% 228% 297% 588%
Average commission rate paid (b) $.0501 -- -- -- --
</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.
(b) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for trades on which
commissions are charged.
12
REPORT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS ACM GOVERNMENT OPPORTUNITY FUND
_______________________________________________________________________________
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, 1997, 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, 1997, 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, 1997, 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.
New York, New York
September 3, 1997
13
ADDITIONAL INFORMATION ACM GOVERNMENT OPPORTUNITY 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 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
_______________________________________________________________________________
SUPPLEMENTAL PROXY INFORMATION
The Annual Meeting of Shareholders of the ACMGovernment Opportunity Fund, Inc.
was held on Thursday, July 10, 1997. The description of each proposal and
number of shares voted at the meeting are as follows:
SHARES
SHARES VOTED
VOTED WITHOUT
FOR AUTHORITY
- -------------------------------------------------------------------------------
1. To elect directors: Class One
Director
(term expires
in 1998)
Donald J.
Robinson 8,085,933 165,270
Class Three
Directors
(term expires
in 2000)
Ruth Block 8,077,565 173,638
John D. Carifa 8,085,666 165,537
Robert C. White 8,079,853 171,350
SHARES SHARES
SHARES VOTED VOTED
VOTED FOR 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, 1997 8,083,492 49,383 118,328
15
ACM GOVERNMENT OPPORTUNITY FUND
_______________________________________________________________________________
BOARD OF DIRECTORS
JOHN D. CARIFA, CHAIRMAN AND PRESIDENT
RUTH BLOCK (1)
DAVID H. DIEVLER (1)
JAMES R. GREENE (1)
DR. JAMES M. HESTER (1)
CLIFFORD L. MICHEL (1)
ROBERT C. WHITE (1)
DONALD J. ROBINSON (1)
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 V. PANKER, VICE PRESIDENT
CHRISTIAN G. WILSON, 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
LEGAL COUNSEL
SEWARD & KISSEL
One Battery Park Plaza
New York, NY 10004
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
(1) Member of the Audit Committee.
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 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
Summary of General Information
THE FUND
ACM Government Opportunity Fund 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 adviser of the Fund is Alliance Capital Management L.P.
SHAREHOLDER INFORMATION
Daily market prices for the Fund's shares are published in the New York Stock
Exchange Composite Transaction Section of newspapers 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."
DIVIDEND REINVESTMENT PLAN
A Dividend Reinvestment Plan provides automatic reinvestment of dividends and
capital gains in additional Fund Shares.
For questions concerning shareholder account information or if you would like a
brochure describing the Dividend Reinvestment Plan, please call First Data
Investor Services Group, Inc. at 1-800-331-1710.
ACM GOVERNMENT OPPORTUNITY FUND
1345 Avenue of the Americas
New York, New York 10105
ALLIANCE CAPITAL
R THESE REGISTERED SERVICE MARKS USED UNDER LICENSE FROM THE OWNER, ALLIANCE
CAPITAL MANAGEMENT L.P.
OPPAR
