ACM GOVERNMENT OPPORTUNITY FUND
ANNUAL REPORT
JULY 31, 1998
ALLIANCE CAPITAL
LETTER TO SHAREHOLDERS ACM GOVERNMENT OPPORTUNITY FUND
_______________________________________________________________________________
September 23, 1998
Dear Shareholder:
We are pleased to report to you on our investment strategy, performance and
outlook of the ACM Government Opportunity Fund. The Fund is designed to provide
high current income consistent with prudent investment risk. The Fund invests
principally in U.S. government obligations. The Fund may also invest up to 35%
of its assets in securities of foreign governments and up to 20% of its assets
in equity securities. Additionally, the Fund may utilize other investment
instruments, including options and futures.
INVESTMENT RESULTS
The following table shows how your Fund performed over the past six- and
12-month periods ended July 31, 1998. For comparison, we have included
performance for the Fund's benchmark, the Lehman Brothers Aggregate Bond Index,
which is a standard measure of the performance of a basket of unmanaged debt
securities.
Over the past six- and 12-month periods your Fund underperformed its benchmark.
Although our U.S. Government allocation posted strong gains, the portfolio's
exposure to emerging market debt, which performed poorly over the period,
dampened performance.
INVESTMENT RESULTS*
Periods Ended July 31, 1998
TOTAL RETURNS
6 MONTHS 12 MONTHS
-------- ---------
ACM GOVERNMENT OPPORTUNITY FUND 0.35% 6.52%
LEHMAN BROTHERS AGGREGATE BOND INDEX 2.83% 7.87%
* THE FUND'S INVESTMENT RESULTS ARE TOTAL RETURNS FOR THE PERIODS AND ARE
BASED ON THE NET ASSET VALUE OF EACH CLASS OF SHARES. 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. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
THE LEHMAN BROTHERS (LB) AGGREGATE BOND INDEX IS COMPOSED OF THE
MORTGAGE-BACKED SECURITIES INDEX, THE ASSET-BACKED SECURITIES INDEX AND THE
GOVERNMENT/CORPORATE BOND INDEX. AN INVESTOR CANNOT INVEST DIRECTLY IN AN INDEX.
MARKET OVERVIEW
Over the six-month period ended July 31, 1998, the U.S. economy continued its
healthy expansion coupled with low inflation. Fueled by strong domestic demand,
first quarter Gross Domestic Product (GDP), a standard measure of economic
growth, expanded at an annualized rate of 5.5%. In the second quarter,
annualized GDP growth slowed to 1.6%, as strong domestic demand was offset by
weakening industrial production caused by lower exports to an economically
weakened Asia. The Consumer Price Index (CPI), a measure of inflation, recorded
a relatively low 1.7% increase year-over-year for the period ended July 31,
despite the tightest labor market in 28 years. With inflation benign and growth
slowing, the Federal Reserve left interest rates unchanged. Helped by strong
economic fundamentals and uncertainty overseas, the U.S. dollar continued to
strengthen against the major currencies.
During the six-month period ended July 31, 1998, U.S. bond prices generally
rose in value as investors, concerned about events in the emerging markets and
Japan, sought the relative safety of U.S. Treasuries. The U.S. Treasury market
posted solid returns with longer-term Treasuries outperforming shorter-term
Treasuries. When overseas markets stabilized at the beginning of the year,
following the volatility in the fourth quarter of 1997, investors' focus
shifted to short-term expectations of U.S. monetary policy, causing bond prices
to trade within a short range. In May 1998, renewed volatility in Asia,
weakness in the yen and fiscal problems in Russia caused a rally in the
Treasury market and pushed bond prices higher.
During the period, most developed countries outside of the U.S. continued to
experience strong domestic demand but weaker manufacturing activity due to the
continued instability and general economic weakness in Asia. Economic growth in
these countries remained positive and inflation remained low. Japan was the
critical exception as slowing growth and rising unemployment pushed the economy
into an official recession. While interest rates generally declined, most
developed bond markets outperformed the U.S. bond market in local currency
terms.
In the emerging markets, debt prices fell over the six-month period ended July
31, 1998. Strong gains made in
1
ACM GOVERNMENT OPPORTUNITY FUND
_______________________________________________________________________________
the first quarter of 1998 were erased in the second quarter when continued
economic weakness was reported from Asia. Though not affected as negatively as
debt prices in emerging Asia, Latin American debt suffered when investors fled
to the relative safety of developed country debt. In Eastern Europe, Russia's
fiscal problems caused its debt to post the lowest returns among all the
emerging markets.
INVESTMENT STRATEGY
Over the six-month period ended July 31, 1998, we maintained a modestly
barbelled duration structure among our U.S. Government holdings, using a
combination of long- and short-maturity securities. In addition, we
opportunistically employed securities issued in foreign countries to contribute
to the Fund's attractive current income characteristics. For example, we
invested in bonds issued by the governments of New Zealand and Australia
because both countries export heavily to Asia, and their economies are expected
to slow as Asian growth slows; presenting a scenario in which bonds typically
perform relatively well. In addition, we held a diversified group of emerging
market debt securities which, as of the end of the period, amounted to
approximately 12% of the portfolio and spread across seven countries. The Fund
continues not to hold any equities.
OUTLOOK
We anticipate slowing global growth and continued benign inflation as Asia
exports cheaper goods to the world and imports less from abroad. With inflation
subdued, we expect monetary policy in the U.S. to remain unchanged for most of
1998. The current slowing of growth in the U.S. is expected to continue with
1998 GDP estimated around 3.0%. Strong domestic demand will continue to be
offset by weakening industrial production and a continued deterioration in the
U.S. trade deficit. U.S. interest rates will remain low as the U.S. Treasury
market will continue to provide a safe haven for investors during periods of
volatility overseas.
Without substantial government spending, the Japanese economy is expected to
shrink by 1% this year. Japan's financial and economic difficulties require
structural reforms that will take time in a political context that is currently
without strong leadership. In Europe, growth is expected to slow to 2.5% in
1998 and inflation should remain subdued. Modest rate decreases are possible
prior to the January 1999 launch of the European Monetary Union.
The emerging markets face challenging problems that require time and economic
growth for resolution. We expect emerging market debt price volatility to
remain elevated, as renewed turmoil in Asia, fiscal and structural problems in
Russia and a weakened Japan continue to heighten investor concern about all
higher yielding asset classes. Growth in Japan, the world's second largest
economy, is critical if the emerging countries are to resume their process of
global integration.
Thank you for your continued interest and investment in the 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, 1998 ACM GOVERNMENT OPPORTUNITY FUND
_______________________________________________________________________________
PRINCIPAL
AMOUNT
(000) U.S. $ VALUE
- ---------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS-89.2%
U.S. TREASURY NOTES-39.5%
6.25%, 10/31/01 (a) US$ 9,530 $ 9,726,566
6.50%, 5/31/02 (a) 15,750 16,252,047
6.50%, 8/15/05 (a) 2,450 2,583,221
6.875%, 5/15/06 5,500 5,940,006
7.875%, 11/15/04 (a) 4,000 4,482,504
12.75%, 11/15/10 (a) 3,250 4,607,892
------------
43,592,236
U.S. TREASURY BONDS-39.4%
8.125%, 8/15/19 (a) 12,250 15,653,209
10.75%, 8/15/05 (a) 4,000 5,182,504
13.75%, 8/15/04 4,500 6,361,880
14.00%, 11/15/11 (a) 10,500 16,212,661
------------
43,410,254
U.S. TREASURY STRIP-10.3%
Zero coupon, 5/15/15 30,000 11,361,510
Total U.S. Government Obligations
(cost $96,334,464) 98,364,000
SOVEREIGN DEBT OBLIGATIONS-18.3%
ARGENTINA-0.8%
Province of Tucuman
9.45%, 8/01/04 (b) US$ 893 848,217
AUSTRALIA-3.2%
Republic of Australia
7.50%, 9/15/09 AU$ 5,000 3,540,686
BRAZIL-1.6%
Republic of Brazil
10.125%, 5/15/27 US$ 2,000 1,792,600
COLOMBIA-3.1%
Republic of Colombia
8.625%, 4/01/08 US$ 3,500 3,379,250
MEXICO-1.1%
Mexican Treasury Bill
20.18%, 5/06/99 (c) MXP 12,500 1,183,009
NORWAY-3.0%
Kingdom of Norway
9.00%, 1/31/99 NOK 25,000 3,363,260
POLAND-1.7%
Republic of Poland
PDI
4.00%, 10/27/14 (d) US$ 2,000 1,838,750
RUSSIA-1.5%
Russian Principal Loans
FRN
6.625%, 12/15/20 (e) US$ 4,000 1,703,200
SOUTH AFRICA-2.3%
Development Bank of South Africa
Zero coupon, 12/31/27 ZAR 120,000 402,289
European Bank for Reconstruction
and Development
Zero coupon, 12/31/29 125,000 500,818
International Bank for
Reconstruction and Development
Zero coupon, 12/31/25 200,000 932,134
Zero coupon, 2/17/26 60,000 339,493
Zero coupon, 7/14/27 75,000 367,948
------------
2,542,682
Total Sovereign Debt Obligations
(cost $23,328,707) 20,191,654
TIME DEPOSIT-0.8%
Bank of New York
5.125%, 8/03/98
(cost $908,000) US$ 908 908,000
TOTAL INVESTMENTS-108.3%
(cost $120,571,171) 119,463,654
Other assets less liabilities-(8.3%) (9,149,017)
NET ASSETS-100% $ 110,314,637
3
PORTFOLIO OF INVESTMENTS (CONTINUED) ACM GOVERNMENT OPPORTUNITY FUND
_______________________________________________________________________________
(a) Securities or portion thereof, with an aggregate market value of
$69,589,352, have been segregated to collateralize forward exchange currency
contracts.
(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, 1998, this security
amounted to $848,217 or 0.8% of net assets.
(c) Annualized yield to maturity at purchase date.
(d) Coupon increases periodically based upon a predetermined schedule. Stated
interest rate in effect at July 31, 1998.
(e) Coupon consists of 3.3125% cash payment and 3.3125% paid-in kind of
Russian IAN's.
Glossary of Terms:
FRN Floating Rate Note
PDI Past Due Interest
See notes to financial statements.
4
STATEMENT OF ASSETS AND LIABILITIES
JULY 31, 1998 ACM GOVERNMENT OPPORTUNITY FUND
_______________________________________________________________________________
ASSETS
Investments in securities, at value (cost $120,571,171) $ 119,463,654
Interest receivable 2,339,877
Net unrealized appreciation of forward exchange
currency contracts 135,420
Other assets 12,998
Total assets 121,951,949
LIABILITIES
Due to custodian 4,924
Payable for investment securities purchased 11,394,445
Advisory fee payable 64,828
Administration fee payable 12,667
Accrued expenses 160,448
Total liabilities 11,637,312
NET ASSETS $ 110,314,637
COMPOSITION OF NET ASSETS
Capital stock, at par $ 130,719
Additional paid-in capital 112,970,688
Undistributed net investment income 277,868
Accumulated net realized loss on investments and foreign
currency transactions (2,093,192)
Net unrealized depreciation on investments and foreign
currency denominated assets and liabilities (971,446)
$ 110,314,637
NET ASSET VALUE PER SHARE (based on 13,071,872 shares outstanding) $8.44
See notes to financial statements.
5
STATEMENT OF OPERATIONS
YEAR ENDED JULY 31, 1998 ACM GOVERNMENT OPPORTUNITY FUND
_______________________________________________________________________________
INVESTMENT INCOME
Interest $ 8,974,501
EXPENSES
Advisory fee $ 833,478
Administrative fee 166,691
Custodian 120,841
Audit and legal 55,231
Transfer agency 49,165
Directors' fees 33,140
Printing 29,820
Miscellaneous 25,493
Total expenses 1,313,859
Net investment income 7,660,642
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY
TRANSACTIONS
Net realized gain on investment transactions 2,489,399
Net realized gain on foreign currency
transactions 340,523
Net change in unrealized appreciation of:
Investments (3,289,294)
Foreign currency denominated assets and
liabilities (556,539)
Net loss on investments and foreign
currency transactions (1,015,911)
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 6,644,731
See notes to financial statements.
6
STATEMENT OF CHANGES IN NET ASSETS ACM GOVERNMENT OPPORTUNITY FUND
_______________________________________________________________________________
YEAR ENDED YEAR ENDED
JULY 31, JULY 31,
1998 1997
------------- -------------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment income $ 7,660,642 $ 7,592,291
Net realized gain on investments and
foreign currency transactions 2,829,922 8,956,209
Net change in unrealized appreciation of
investments and foreign currency
denominated assets and liabilities (3,845,833) (1,346,581)
Net increase in net assets from operations 6,644,731 15,201,919
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income (7,660,642) (7,592,291)
Distributions in excess of net
investment income (574,642) (250,837)
Total increase (decrease) (1,590,553) 7,358,791
NET ASSETS
Beginning of year 111,905,190 104,546,399
End of year (including undistributed net
investment income of $277,868 and
$518,624, respectively) $ 110,314,637 $ 111,905,190
See notes to financial statements.
7
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1998 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 financial statements have been prepared in conformity
with generally accepted accounting principles which require management to make
certain estimates and assumptions that affect the reported amounts of assets
and liabilities in the financial statements and amounts of income and expenses
during the reporting period. Actual results could differ from those estimates.
The following is a summary of significant accounting policies followed by the
Fund.
1. SECURITY VALUATION
Portfolio securities traded on a national securities exchange or on a foreign
securities exchange (other than foreign securities exchanges whose operations
are similar to those of the United States over-the-counter market) are
generally valued at the last reported sale price or, if there was no sale on
such day, the last bid price quoted on such day. If no bid prices are quoted,
then the security is valued at the mean of the bid and asked prices as obtained
on that day from one or more dealers regularly making a market in that
security. Securities traded on the over-the-counter market, securities listed
on a foreign securities exchange whose operations are similar to the United
States over-the-counter market and securities listed on a national securities
exchange whose primary market is believed to be over-the-counter are valued at
the mean of the closing bid and asked price provided by two or more dealers
regularly making a market in such securities. U.S. government securities and
other debt securities which mature in 60 days or less are valued at amortized
cost unless this method does not represent fair value. Securities for which
market quotations are not readily available are valued at fair value as
determined in good faith by, or in accordance with procedures approved by, the
Board of Directors. Fixed income securities may be valued on the basis of
prices provided by a pricing service when such prices are believed to reflect
the fair market value of such securities. Listed put and call options purchased
by the Fund are valued at the last sale price. If there has been no sale on
that day, such securities will be valued at the closing bid prices on that day.
2. TAXES
It is the Fund's policy to meet the requirements of the Internal Revenue Code
applicable to regulated investment companies and to distribute all of its
investment company taxable income and net realized gains, if any, to
shareholders. Therefore, no provision for federal income or excise taxes is
required.
3. INVESTMENT INCOME AND INVESTMENT TRANSACTIONS
Interest income is accrued daily. Dividend income is recorded on the
ex-dividend date. Investment transactions are accounted for on 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 or loss 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. Income and capital gains distributions are determined in accordance with
federal tax
8
ACM GOVERNMENT OPPORTUNITY FUND
_______________________________________________________________________________
regulations and may differ from those determined in accordance with generally
accepted accounting principles. To the extent these differences are permanent,
such amounts are reclassified within the capital accounts based on their
federal tax basis treatment; temporary differences do not require such
reclassification. During the current fiscal year, permanent differences,
primarily due to the tax treatment of foreign currency gains, resulted in a net
increase in additional paid-in capital and 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 monthly fee equal to .0625 of 1% of
the Fund's average weekly net assets during the month (equal to an annual fee
of approximately .75 of 1% of the 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 $1,160 during the year ended July 31, 1998.
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.
NOTE C: INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term investments
and U.S. government securities) aggregated $80,124,004 and $85,115,417,
respectively, for the year ended July 31, 1998. There were purchases of
$201,404,544 and sales of $200,842,466 of U.S. government and government agency
obligations for the year ended July 31, 1998.
At July 31, 1998, the cost of investments for federal income tax purposes was
$121,107,224. Accordingly, gross unrealized appreciation of investments was
$2,124,974 and gross unrealized depreciation of investments was $3,768,544
resulting in net unrealized depreciation of $1,643,570 (excluding foreign
currency transactions).
For federal income tax purposes, the Fund had a capital loss carryforward at
July 31, 1998 of $949,604, which will expire in the year 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 (CONTINUED) ACM GOVERNMENT OPPORTUNITY FUND
_______________________________________________________________________________
At July 31, 1998, the Fund had outstanding forward exchange currency contracts
as follows:
CONTRACT VALUE ON U.S. $ UNREALIZED
AMOUNT ORIGINATION CURRENT APPRECIATION/
(000) DATE VALUE (DEPRECIATION)
-------- ----------- ----------- --------------
FORWARD EXCHANGE
CURRENCY SALE CONTRACTS
- -----------------------
Australian Dollars,
settling 9/14/98 5,756 $ 3,592,296 $ 3,498,533 $ 93,763
German Deutsche Marks,
settling 9/15/98 3,800 2,113,224 2,142,626 (29,402)
Japanese Yen,
settling 10/19/98 603,225 4,298,618 4,227,559 71,059
-----------
$ 135,420
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 received and the amount paid
on effecting a closing purchase transaction, including brokerage commissions,
is also treated as a realized gain, or if the premium received is less that the
amount paid for the closing purchase transaction, as a realized loss. If a call
option is exercised, the premium received 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 received 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 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 options written for the year ended July 31, 1998.
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, 1998. During the year
ended July 31, 1998 and the year ended July 31, 1997, the Fund did not issue
shares in connection with the dividend reinvestment plan.
10
ACM GOVERNMENT OPPORTUNITY FUND
_______________________________________________________________________________
NOTE E: YEAR 2000 (UNAUDITED)
Many computer software systems in use today cannot properly process
date-related information from and after January 1, 2000. Should any of the
computer systems employed by the Fund's major service providers fail to process
this type of information properly, that could have a negative impact on the
Fund's operations and the services that are provided to the Fund's
shareholders. The Adviser, as well as Alliance Fund Services, have advised the
Fund that they are reviewing all of their computer systems with the goal of
modifying or replacing such systems prior to January 1, 2000, to the extent
necessary to foreclose any such negative impact. In addition, the Adviser has
been advised by the Fund's custodian that it is also in the process of
reviewing its systems with the same goal. As of the date of this report, the
Fund and the Adviser have no reason to believe that these goals will not be
achieved. Similarly, the values of certain of the portfolio securities held by
theFund may be adversely affected by the inability of the securities' issuers
or of third parties to process this type of information properly.
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,
-----------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 8.56 $ 8.00 $ 7.92 $ 8.12 $ 9.92
INCOME FROM INVESTMENT OPERATIONS
Net investment income .59 .58 .53 .59 .68
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions (.08) .58 .13 -0- (.89)
Net increase (decrease) in net asset
value from operations .51 1.16 .66 .59 (.21)
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.59) (.58) (.56) (.48) (.68)
Distributions in excess of net
investment income (.04) (.02) -0- -0- -0-
Distributions from net realized gains -0- -0- -0- -0- (.61)
Tax return of capital distribution -0- -0- (.02) (.31) (.30)
Total dividends and distributions (.63) (.60) (.58) (.79) (1.59)
Net asset value, end of year $ 8.44 $ 8.56 $ 8.00 $ 7.92 $ 8.12
Market value, end of year $ 7.9375 $ 7.875 $ 7.00 $ 7.50 $ 8.125
TOTAL RETURN
Total investment return based on: (a)
Market value 8.90% 21.95% 1.08% 2.85% (2.66)%
Net asset value 6.52% 15.99% 9.40% 8.67% (3.16)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $110,315 $111,905 $104,546 $103,558 $105,830
Ratio of expenses to average net assets 1.18% 1.27% 1.28% 1.18% 1.20%
Ratio of net investment income to
average net assets 6.89% 7.00% 6.42% 7.62% 7.50%
Portfolio turnover rate 230% 407% 375% 228% 297%
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, 1998, 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, 1998, 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, 1998, 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 9, 1998
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 May 28, 1998. The description of each proposal and number of shares
voted at the meeting are as follows:
<TABLE>
<CAPTION>
SHARES SHARES VOTED
VOTED FOR WITHOUT AUTHORITY
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. To elect directors: Class One Directors
(Term expires in 2001)
John H. Dobkin 11,782,252 148,456
Clifford L. Michel 11,806,868 123,839
Donald J. Robinson 11,809,199 121,509
Class Two Director
(Term expires in 1999)
William H. Foulk, Jr. 11,807,898 122,810
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, 1998: 11,754,774 54,080 121,854
</TABLE>
15
ACM GOVERNMENT OPPORTUNITY FUND
_______________________________________________________________________________
BOARD OF DIRECTORS
JOHN D. CARIFA, CHAIRMAN AND PRESIDENT
RUTH BLOCK (1)
DAVID H. DIEVLER (1)
JOHN H. DOBKIN (1)
WILLIAM H. FOULK, JR. (1)
DR. JAMES M. HESTER (1)
CLIFFORD L. MICHEL (1)
DONALD J. ROBINSON (1)
ROBERT C. WHITE (1)
OFFICERS
WAYNE D. LYSKI, 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
JUAN J. RODRIGUEZ, 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.
53 State Street
Boston, MA 02109
LEGAL COUNSEL
SEWARD & KISSEL
One Battery Park Plaza
New York, NY 10004
CUSTODIAN
BANK OF NEW YORK
One 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
