ACM GOVERNMENT OPPORTUNITY FUND
ANNUAL REPORT
JULY 31, 1999
ALLIANCE CAPITAL
LETTER TO SHAREHOLDERS ACM GOVERNMENT OPPORTUNITY FUND
_______________________________________________________________________________
September 27, 1999
Dear Shareholder:
We are pleased to report to you on our performance, investment strategy and
outlook of the ACM Government Opportunity Fund (the "Fund"). The Fund is
designed to provide high current income consistent with preservation of
capital. 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 dividend-paying equity securities, however, no more than 20% of its assets
may be invested in equity securities (currently, the Fund has no equity
investments). Additionally, the Fund may utilize other investment instruments,
including options and futures.
INVESTMENT RESULTS
The following table shows your Fund's performance for the six- and twelve-month
periods ended July 31, 1999. For comparison, we have also included the
performance figures for the Fund's benchmark index, the Lehman Brothers (LB)
Aggregate Bond Index.
During the six- and twelve-month periods, your Fund underperformed its
benchmark index. During the six-month period, the Fund's allocation toward U.S.
Treasuries hurt performance. As U.S. growth remained strong and global growth
improved, the U.S. Federal Reserve moved to increase interest rates, causing
U.S. Treasury bond prices to fall.
Over the twelve-month period, turmoil in Asia, which spread through Russia and
Latin America, caused all emerging-market debt to underperform. Consequently,
during the twelve months under review, your Fund's 21% exposure to
emerging-market bonds was the primary reason for the Fund's underperformance
versus the U.S.-only LB Aggregate Bond Index.
INVESTMENT RESULTS*
Periods Ended July 31, 1999
TOTAL RETURNS
6 MONTHS 12 MONTHS
---------- ---------
ACM GOVERNMENT OPPORTUNITY FUND -3.14% -0.09%
LEHMAN BROTHERS AGGREGATE BOND INDEX -2.49% 2.49%
* THE FUND'S INVESTMENT RESULTS ARE TOTAL RETURNS FOR THE PERIODS AND ARE
BASED ON THE NET ASSET VALUE OF EACH CLASS OF SHARES AS OF JULY 31, 1999. 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 LB
MORTGAGE-BACKED AND LB ASSET-BACKED INDICES AND THE LB GOVERNMENT/CORPORATE
BOND INDEX. AN INVESTOR CANNOT INVEST DIRECTLY IN AN INDEX.
MARKET OVERVIEW
The outlook for the global economy continued to brighten during the six months
ended July 31, 1999. Economic weakness in Latin America proved less severe than
anticipated, the Asian economies appeared to be improving and most developed
countries showed signs of strengthening growth coupled with low inflation. In
the United States, private demand growth has downshifted but remains
exceptionally strong while inflation and unemployment have stayed low. With
economic activity remaining strong and global liquidity concerns abating, the
Federal Reserve adopted a monetary policy tightening bias in May, and increased
the Federal Funds rate by 25 basis points, to 5.00%, in June. For the six
months ended July 31, 1999, the U.S. yield curve flattened as short- and
intermediate-term rates rose more than long-term rates. Two-year U.S. Treasury
yields rose from 4.63%, to 5.64%, while thirty-year U.S. Treasury yields rose
from 5.18%, to 6.11%.
During the six-month period ended July 31, 1999, the U.S. bond market, as
represented by the LB Aggregate Bond Index, declined by 2.5% as economic growth
strengthened and the U.S. Federal Reserve raised interest
1
ACM GOVERNMENT OPPORTUNITY FUND
_______________________________________________________________________________
rates. Among the traditional sectors of the U.S. bond market, the mortgage
sector recorded the strongest performance while the corporate sector recorded
the weakest performance. Rising interest rates and uncertainty regarding future
interest-rate policy hurt corporate bond performance. At the beginning of the
six-month period, the mortgage sector was the main beneficiary of the change in
interest rate expectations. When interest rates rose, mortgage refinancing
slowed and mortgage prepayments fell, making mortgage-backed securities (MBS)
more attractive. However, toward the end of the period, heavy MBS supply and
Fed tightening reversed the gains from the beginning of the period in the
mortgage sector.
During the six-month period ended July 31, 1999, most developed countries
outside the U.S. showed signs of improving economic growth while inflation
remained low. Divergent interest rate policies (the European Central Bank and
Bank of Japan eased while the U.S. Federal Reserve tightened) caused the U.S.
bond market to underperform most developed markets, on a hedged basis. The
Japanese bond market, boosted by domestic investment and, until late in the
quarter, a poor economic environment, posted the strongest performance among
bond markets of developed countries. In aggregate, the developed global bond
markets, excluding the U.S., as represented by the J.P. Morgan non-U.S.
Government Bond Index (Hedged), declined by 1.4% during the six months ended
July 31, 1999.
In the emerging markets, favorable growth surprises surfaced. As previously
mentioned, economic weakness in Latin America proved less severe than
anticipated, and the Asian economies appeared to be improving. However,
concerns about tighter U.S. monetary policy dampened the investor enthusiasm
exhibited earlier this year. In aggregate, the emerging-market debt sector, as
represented by the J.P. Morgan Emerging Markets Bond Index Plus, gained 9.9%,
outperforming the traditional bond market sectors during the six-month period.
Individual emerging-market returns were mixed during the period, with Russia
posting the largest gains and non-Latin countries outperforming Latin countries.
INVESTMENT STRATEGY
Over the six-month period ended July 31, 1999, we maintained a longer
interest-rate duration than the market, generally employing U.S. Treasury
holdings with maturities of ten years or more. We opportunistically employed
securities issued in foreign countries to enhance portfolio yield. We held the
government debt of Argentina, Mexico, Greece, Brazil, Russia and Australia,
among others. We initiated a position in Mexican government bonds based on our
conviction that this is an improving credit, moving toward investment-grade
status after the presidential election in 2000.
OUTLOOK
Globally, growth prospects are improving and inflation pressures remain
subdued. While the U.S. economy appears to be moderating somewhat from the
robust level of the first quarter of 1999, we still estimate that growth for
the 1999 calendar year will be close to the 3.9% pace of 1998. We believe the
risks remain toward somewhat tighter monetary policy and higher interest rates.
While the non-Treasury sectors of the market appear to be cheap by historical
standards, the upward pressure on rates and liquidity concerns related to
year-end 1999 are likely to keep yield premiums wide in the near term. In this
environment, security selection will remain focused on longer-term
fundamentals, recognizing that near-term liquidity will be limited.
In Europe, although there are signs that a mild recovery is underway, we
continue to expect growth to be 1.9% in 1999, down from the 2.6% pace of 1998.
However, increasing global demand, low interest rates and a weak euro will help
improve growth prospects going forward. We believe the European Central Bank
will maintain a neutral monetary policy.
Japan is also showing signs of stronger economic activity and we expect 1999
growth to be 0.3%, an improvement over the 2.9% decline of 1998. The extent to
which the Japanese economy rebounds remains a key issue going forward in terms
of global growth and interest-rate patterns.
Improving global growth and subdued inflation will provide the environment
necessary for emerging countries to gradually improve their credit profile.
However, in the period ahead we see performance divergences developing between
those countries with constructive reform-oriented policies (expected to
outperform), and those countries with less commitment to the reform process
2
ACM GOVERNMENT OPPORTUNITY FUND
_______________________________________________________________________________
(expected to underperform). Therefore, country selection will remain critical.
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, 1999 ACM GOVERNMENT OPPORTUNITY FUND
_______________________________________________________________________________
SHARES OR
PRINCIPAL
AMOUNT
(000) U.S. $ VALUE
- -------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS-76.8%
U.S. TREASURY BONDS-45.3%
6.125%, 11/15/27 (a) US$ 3,250 $ 3,182,969
8.125%, 8/15/19 (a) 4,500 5,374,688
10.75%, 8/15/05 (a) 4,000 4,930,000
12.375%, 5/15/04 (a) 3,200 4,035,002
12.75%, 11/15/10 (a) 3,250 4,348,906
13.75%, 8/15/04 (a) 6,620 8,814,947
14.00%, 11/15/11 (a) 10,500 15,234,849
------------
45,921,361
U.S. TREASURY NOTES-14.3%
6.875%, 5/15/06 (a) 9,900 10,342,411
7.875%, 11/15/04 (a) 3,800 4,121,814
------------
14,464,225
MORTGAGE RELATED SECURITIES-9.7%
Federal National Mortgage
Association
6.00%, 2/01/14 2,658 2,545,867
6.00%, 1/01/29 2,711 2,514,070
8.00%, 6/01/28 2,136 2,189,495
Government National
Mortgage Association
6.50%, 2/15/29 2,740 2,602,315
------------
9,851,747
U.S. TREASURY STRIP-7.5%
Zero coupon, 5/15/15 21,000 7,627,284
Total U.S. Government and
Agency Obligations
(cost $81,385,513) 3,000 77,864,617
SOVEREIGN DEBT OBLIGATIONS-26.5%
ARGENTINA-3.3%
Province of Tucuman
9.45%, 8/01/04 (b) 750 592,502
Republic of Argentina
11.00%, 12/04/05 3,000 2,707,500
Warrants expiring
12/03/99 (c) 3,000 30,000
------------
3,330,002
BRAZIL-1.4%
Republic of Brazil
10.125%, 5/15/27 2,000 1,427,600
COLOMBIA-2.7%
Republic of Colombia
8.625%, 4/01/08 US$ 3,500 2,712,500
GREECE-3.1%
Hellenic Republic
8.90%, 4/01/03 GRD 900,000 3,130,911
MEXICO-3.8%
Mexican Treasury Bill
22.74%, 4/13/00 (d) MXP 15,161 1,377,957
United Mexican States
10.375%, 2/17/09 US$ 2,500 2,525,000
------------
3,902,957
NEW ZEALAND-2.9%
New Zealand Government
10.00%, 3/15/02 NZ$ 5,000 2,924,713
PANAMA-2.7%
Republic of Panama
9.375%, 4/01/29 US$ 3,000 2,775,000
RUSSIA-1.2%
Russian Ministry of Finance
3.00%, 5/14/03 3,800 722,000
Russian Principal Loans
FRN
6.063%, 12/15/20 (e) 4,000 450,000
Russian IAN FRN
6.063%, 12/15/15 (e) 67 10,103
------------
1,182,103
SOUTH AFRICA-2.5%
Development Bank of
South Africa
Zero coupon, 12/31/27 ZAR 120,000 360,741
European Bank for
Reconstruction and
Development
Zero coupon, 4/07/27 43,730 198,966
International Bank for
Reconstruction and
Development
Zero coupon, 12/31/25 200,000 935,652
Zero coupon, 2/17/26 110,000 539,990
Zero coupon, 7/14/27 107,725 479,634
------------
2,514,983
4
ACM GOVERNMENT OPPORTUNITY FUND
_______________________________________________________________________________
PRINCIPAL
AMOUNT
(000) U.S. $ VALUE
- -------------------------------------------------------------------------
TURKEY-2.9%
Republic of Turkey
12.375%, 6/15/09 US$ 1,400 $ 1,421,000
Turkey Treasury Bill
Series 14T
Zero coupon, 8/23/00 TRL 1,376,508,000 1,583,738
------------
3,004,738
Total Sovereign Debt
Obligations
(cost $33,242,690) 26,905,507
NON-COLLATERALIZED BRADY BOND-1.4%
BRAZIL-1.4%
Republic of Brazil C-Bonds
8.00%, 4/15/14 (f)
(cost $1,622,043) US$ 2,391 1,461,349
TIME DEPOSIT-0.5%
Bank of New York
4.50%, 8/02/99
(cost $487,000) US$ 487 487,000
TOTAL INVESTMENTS-105.2%
(cost $116,737,246) 106,718,473
Other assets less
liabilities-(5.2%) (5,273,262)
NET ASSETS-100% $ 101,445,211
(a) Securities, or portion thereof, with an aggregate market value of
$60,385,586, 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 registraton,
normally to qualified institutional buyers. At July 31, 1999, this security
amounted to $592,502 or 0.6% of net assets.
(c) Non-income producing security.
(d) Annualized yield to maturity at purchase date.
(e) Security is in default and is non-income producing.
(f) Coupon consists of 5.00% cash payment and 3.00% paid-in-kind.
Glossary of Terms:
FRN - Floating Rate Note
IAN - Interest Arrears Note
See notes to financial statements.
5
STATEMENT OF ASSETS AND LIABILITIES
JULY 31, 1999 ACM GOVERNMENT OPPORTUNITY FUND
_______________________________________________________________________________
ASSETS
Investments in securities, at value (cost $116,737,246) $ 106,718,473
Cash 165
Receivable for investment securities sold 3,530,289
Interest receivable 2,224,266
Other assets 3,277
Total assets 112,476,470
LIABILITIES
Payable for investment securities purchased 10,727,765
Net unrealized depreciation of forward exchange currency
contracts 135,834
Advisory fee payable 75,604
Administration fee payable 14,013
Accrued expenses 78,043
Total liabilities 11,031,259
NET ASSETS $ 101,445,211
COMPOSITION OF NET ASSETS
Capital stock, at par $ 130,719
Additional paid-in capital 112,970,688
Distribution in excess of net investment income (59,957)
Accumulated net realized loss on investment and foreign
currency transactions (1,446,825)
Net unrealized depreciation of investments and foreign
currency denominated assets and liabilities (10,149,414)
$ 101,445,211
NET ASSET VALUE PER SHARE (based on 13,071,872 shares
outstanding) $7.76
See notes to financial statements.
6
STATEMENT OF OPERATIONS
YEAR ENDED JULY 31, 1999 ACM GOVERNMENT OPPORTUNITY FUND
_______________________________________________________________________________
INVESTMENT INCOME
Interest $ 9,310,087
EXPENSES
Advisory fee $ 805,157
Administrative fee 161,032
Custodian 102,049
Audit and legal 54,009
Transfer agency 40,969
Registration fee 33,981
Printing 32,475
Directors' fees 32,217
Miscellaneous 16,397
Total expenses 1,278,286
Net investment income 8,031,801
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS
Net realized gain on investment transactions 1,132,264
Net realized loss on foreign currency
transactions (339,173)
Net change in unrealized depreciation of:
Investments (8,911,256)
Foreign currency denominated assets and
liabilities (266,712)
Net loss on investments and foreign currency
transactions (8,384,877)
NET DECREASE IN NET ASSETS FROM OPERATIONS $ (353,076)
See notes to financial statements.
7
STATEMENT OF CHANGES IN NET ASSETS ACM GOVERNMENT OPPORTUNITY FUND
_______________________________________________________________________________
YEAR ENDED YEAR ENDED
JULY 31, JULY 31,
1999 1998
------------- -------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income $ 8,031,801 $ 7,660,642
Net realized gain on investment and foreign
currency transactions 793,091 2,829,922
Net change in unrealized depreciation of
investments and foreign currency denominated
assets and liabilities (9,177,968) (3,845,833)
Net increase (decrease) in net assets from
operations (353,076) 6,644,731
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (8,031,801) (7,660,642)
Distributions in excess of net investment
income (203,495) (574,642)
Distributions from net realized gain on
investments (281,054) -0-
Total decrease (8,869,426) (1,590,553)
NET ASSETS
Beginning of year 110,314,637 111,905,190
End of year (including undistributed net
investment income of $277,868, at
July 31, 1998) $ 101,445,211 $ 110,314,637
See notes to financial statements.
8
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1999 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. Mortgage backed and asset backed
securities may be valued at prices obtained from a bond pricing service or at a
price obtained from one or more of the major broker/dealers in such securities.
In cases where broker/dealer quotes are obtained, the Adviser may establish
procedures whereby changes in market yields or spreads are used to adjust, on a
daily basis, a recently obtained quoted bid price on a security. 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
9
NOTES TO FINANCIAL STATEMENTS (CONTINUED) ACM GOVERNMENT OPPORTUNITY FUND
_______________________________________________________________________________
component of net unrealized appreciation (depreciation) 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 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 losses and distribution reclasses, resulted in a
net increase in distributions in excess of net investment income, and a
corresponding decrease in accumulated net realized loss on investments and
foreign currency transactions. 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. During the year ended
July 31, 1999, the Fund reimbursed AFS $965.
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 $62,159,287 and $46,991,989,
respectively, for the year ended July 31, 1999. There were purchases of
$173,820,340 and sales of $190,955,803 of U.S. government and government agency
obligations for the year ended July 31, 1999.
At July 31, 1999, the cost of investments for federal income tax purposes was
$118,439,601. Accordingly, gross unrealized appreciation of investments was
$162,800 and gross unrealized depreciation of investments was $11,883,928
resulting in net unrealized depreciation of $11,721,128 (excluding foreign
currency transactions).
During the year ended July 31, 1999 ACM Government Opportunity Fund utilized
all of its capital loss carryforward which amounted to $949,604.
The Fund elects to treat foreign currency losses from 11/1/98 through 7/31/99
as having occurred the following fiscal year.
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.
10
ACM GOVERNMENT OPPORTUNITY FUND
_______________________________________________________________________________
Risks may arise from the potential inability of a counterparty to meet the
terms of a contract and from unanticipated movements in the value of foreign
currencies relative to the U.S. dollar. The face or contract amount, in U.S.
dollars, as reflected in the following table, reflects the total exposure the
Fund has in that particular currency contract.
At July 31, 1999, 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>
FORWARD EXCHANGE CURRENCY
BUY CONTRACTS
Australian Dollar,
settling 8/30/99 135 $ 87,733 $ 88,192 $ 459
FORWARD EXCHANGE CURRENCY
SALE CONTRACTS
Australian Dollar,
settling 8/10/99 4,000 2,640,600 2,608,135 32,465
Euro,
settling 9/14/99 474 499,544 508,445 (8,901)
Greek Drachma,
settling 9/01/99 324,069 1,057,322 1,062,121 (4,799)
Japanese Yen,
settling 8/30/99 210,200 1,731,466 1,838,224 (106,758)
New Zealand Dollar,
settling 8/30/99 5,777 3,073,263 3,064,812 8,451
Pound Sterling,
settling 9/14/99 1,000 1,563,410 1,620,161 (56,751)
$ (135,834)
</TABLE>
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
11
NOTES TO FINANCIAL STATEMENTS (CONTINUED) ACM GOVERNMENT OPPORTUNITY FUND
_______________________________________________________________________________
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, 1999.
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, 1999. During the year
ended July 31, 1999 and the year ended July 31, 1998, the Fund did not issue
shares in connection with the dividend reinvestment plan.
12
FINANCIAL HIGHLIGHTS ACM GOVERNMENT OPPORTUNITY FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF COMMON STOCK OUTSTANDING THROUGHOUT EACH YEAR
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
-----------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 8.44 $ 8.56 $ 8.00 $ 7.92 $ 8.12
INCOME FROM INVESTMENT OPERATIONS
Net investment income .61 .59 .58 .53 .59
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions (.64) (.08) .58 .13 -0-
Net increase (decrease) in net asset value
from operations (.03) .51 1.16 .66 .59
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.61) (.59) (.58) (.56) (.48)
Distributions in excess of net investment
income (.02) (.04) (.02) -0- -0-
Distributions from net realized gains (.02) -0- -0- -0- -0-
Tax return of capital distribution -0- -0- -0- (.02) (.31)
Total dividends and distributions (.65) (.63) (.60) (.58) (.79)
Net asset value, end of year $ 7.76 $ 8.44 $ 8.56 $ 8.00 $ 7.92
Market value, end of year $ 7.125 $ 7.9375 $ 7.875 $ 7.00 $ 7.50
TOTAL RETURN
Total investment return based on: (a)
Market value (2.46)% 8.90% 21.95% 1.08% 2.85%
Net asset value (.09)% 6.52% 15.99% 9.40% 8.67%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $101,445 $110,315 $111,905 $104,546 $103,558
Ratio of expenses to average net assets 1.19% 1.18% 1.27% 1.28% 1.18%
Ratio of net investment income to average
net assets 7.48% 6.89% 7.00% 6.42% 7.62%
Portfolio turnover rate 211% 230% 407% 375% 228%
</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 periods. Conversely, total investment return based on net asset value will
be lower than total investment return based on market value in years where
there is a decrease in the discount or an increase in the premium of the market
value to the net asset value from the beginning to the end of such years.
13
REPORT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS ACM GOVERNMENT OPPORTUNITY FUND
_______________________________________________________________________________
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, 1999, 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 and financial highlights. Our procedures included confirmation of
securities owned as of July 31, 1999, by correspondence with the custodian and
others. 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, 1999, 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 8, 1999
TAX INFORMATION (UNAUDITED)
_______________________________________________________________________________
In order to meet certain requirements of the Internal Revenue Code we are
advising you that the tax basis long term capital gain distributions paid by
the Fund during the fiscal year July 31, 1999 was $485,897.
Shareholders should not use the above information to prepare their tax returns.
The information necessary to complete your income tax returns will be included
with your Form 1099 DIV which will be sent to you separately in January 2000.
14
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.
15
ADDITIONAL INFORMATION (CONTINUED) ACM GOVERNMENT OPPORTUNITY FUND
_______________________________________________________________________________
SUPPLEMENTAL PROXY INFORMATION
The Annual Meeting of Shareholders of the ACMGovernment Opportunity Fund, Inc.
was held on March 9, 1999. The description of each proposal and number of
shares voted at the meeting are as follows:
VOTED
VOTED FOR AGAINST/ABSTAIN
- -------------------------------------------------------------------------------
1. To elect directors: Class One Directors
(Term expires in 2001)
David H. Dievler 12,141,052 12,377,337
William H. Foulk, Jr. 12,142,303 12,377,336
Dr. James M. Hester 12,122,099 12,377,337
WITHHELD/
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, 1999: 12,170,338 46,561 160,438
16
ACM GOVERNMENT OPPORTUNITY FUND
_______________________________________________________________________________
YEAR 2000
Many computer systems and applications that process transactions use two-digit
date fields for the year of a transaction, rather than the full four digits. If
these systems are not modified or replaced, transactions occurring after 1999
could be processed as year "1900," which could result in processing
inaccuracies and inoperability at or after the year 2000. The Funds and their
major service providers, including Alliance, utilize a number of computer
systems and applications that have been either developed internally or licensed
from third party suppliers. In addition, the Funds and their major service
providers, including Alliance, are dependent on third party suppliers for
certain systems applications and for electronic receipt of information critical
to their business. Should any of computer systems employed by the Funds or
their major service providers, including Alliance, fail to process Year 2000
related information properly, that could have a significant negative impact on
the Funds' operations and the services that are provided to the Funds'
shareholders. To the extent that the operations of issuers of securities held
by the Funds are impaired by the Year 2000 problem, the value of the Fund's
shares may be materially affected. In addition, for the Funds' investments in
foreign markets, it is possible that foreign companies and markets will not be
as prepared for Year 2000 as domestic companies and markets.
The Year 2000 issue is a high priority for the Funds and Alliance. During 1997,
Alliance began a formal Year 2000 initiative which established a structured and
coordinated process to deal with the Year 2000 issue. As part of its
initiative, Alliance established a Year 2000 project office to manage the Year
2000 initiative, focusing on both information technology and non-information
technology systems. The Year 2000 project office meets periodically with the
audit committee of the board of directors of Alliance Capital Management
Corporation, Alliance's general partner, and with Alliance's executive
management to review the status of the Year 2000 efforts. Alliance has also
retained the services of a number of consulting firms which have expertise in
advising and assisting with regard to Year 2000 issues. Alliance reports that
by June 30, 1998 it had completed its inventory and assessment of its domestic
and international computer systems and applications, identified mission
critical systems (those systems where loss of their function would result in
immediate stoppage or significant impairment to core business units) and
nonmission critical systems and determined which of these systems were not Year
2000 compliant. All third party suppliers of mission critical computer systems
and applications and nonmission critical systems have been contacted to verify
whether their systems and applications will be Year 2000 compliant and their
responses are being evaluated. Substantially all of those contacted have
responded and approximately 90% have informed Alliance that their systems and
applications are or will be Year 2000 compliant. All mission critical and
nonmission critical systems supplied by third parties have been tested with the
exception of those third parties not able to comply with Alliance's testing
schedule. Alliance reports that it expects that all testing will be completed
before the end of 1999.
Alliance has remediated, replaced or retired all of its non-compliant mission
critical systems and applications that can affect the Funds. All nonmission
critical systems have been remediated. After each system has been remediated,
it is tested with 19XX dates to determine if it still performs its intended
business function correctly. Next, each system undergoes a simulation test
using dates occurring after December 31, 1999. Inclusive of the replacement and
retirement of some of its systems, Alliance has completed these testing phases
for approximately 98% of mission critical systems and 100% of nonmission
critical systems. Integrated systems tests were conducted to verify that the
systems would continue to work together. Full integration testing of all
mission critical and nonmission critical systems is complete. Testing of
interfaces with third-party suppliers has begun and will continue throughout
1999. Alliance reports that it has completed an inventory of its facilities and
related technology applications and has begun to evaluate and test these
systems. Alliance reports that it anticipates that these systems will be fully
operable in the year 2000. Alliance has deferred certain other planned
information technology projects until after the Year 2000 initiative is
completed. Such delay is not expected to have a material adverse effect on
Alliance's financial condition or results of operations. Alliance, with the
assistance of a consulting firm, is developing Year 2000 specific contingency
plans with emphasis on mission critical functions. These plans seek to provide
17
ADDITIONAL INFORMATION (CONTINUED) ACM GOVERNMENT OPPORTUNITY FUND
_______________________________________________________________________________
alternative methods of processing in the event of a failure that is outside
Alliance's control.
The estimated current cost to Alliance of the Year 2000 initiative ranges from
approximately $40 million to $45 million. These costs consist principally of
modification and testing and costs to develop formal Year 2000 specific
contingency plans. These costs, which will generally be expensed as incurred,
will be funded from Alliance's operations and the issuance of debt. Through
June 30, 1999, Alliance had incurred approximately $36.0 million of costs
related to the Year 2000 initiative. At this time, management of Alliance
believes that the costs associated with resolving the Year 2000 issue will not
have a material adverse effect on Alliance's results of operations, liquidity
or capital resources.
There are many risks associated with Year 2000 issues, including the risks that
the computer systems and applications used by the Funds and their major service
providers will not operate as intended and that the systems and applications of
third-party providers to the Funds and their service providers will not be Year
2000 compliant. Likewise there can be no assurance the compliance schedules
outlined above will be met or that the actual cost incurred will not exceed
current cost estimates. Should the significant computer systems and
applications used by the Funds or their major service providers, or the systems
of their important third-party suppliers, be unable to process date-sensitive
information accurately after 1999, the Funds and their service providers may be
unable to conduct their normal business operations and to provide shareholders
with required services. In addition, the Funds and their service providers may
incur unanticipated expenses, regulatory actions and legal liabilities. The
Funds and Alliance cannot determine which risks, if any, are most reasonably
likely to occur or the effects of any particular failure to be Year 2000
compliant. Certain statements provided by Alliance in this section entitled
"Year 2000", as such statements relate to Alliance, are "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. To the fullest extent permitted by law, the foregoing Year 2000
discussion is a "Year 2000 Readiness Disclosure" within the meaning of the Year
2000 Information and Readiness Disclosure Act, 15 U.S.C. Sec. 1 (1998).
18
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
PAUL J. DENOON, VICE PRESIDENT
THOMAS BARDONG, 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 LLP
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.
19
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
The daily net asset value of the Fund's shares is available from the Fund's
Transfer Agent by calling 1-800-331-1710. The Fund also distributes its daily
net asset value to various financial publications or independent organizations
such as Lipper, Inc., Morningstar, Inc. and Bloomberg.
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.
OPPAR799
