ACM GOVERNMENT OPPORTUNITY FUND
SEMI-ANNUAL REPORT
JANUARY 31, 1999
ALLIANCE CAPITAL
LETTER TO SHAREHOLDERS ACM GOVERNMENT OPPORTUNITY FUND
_______________________________________________________________________________
March 22, 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).
INVESTMENT RESULTS
The following table shows how your Fund performed over the past six- and
12-month periods ended January 31, 1999. For comparison, we have also included
performance for the Fund's benchmark, as represented by 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. Treasury allocation posted strong gains, the
Fund's exposure to emerging market debt dampened performance. As a result of
the currency devaluation and debt default in Russia, emerging market debt was
the worst performing fixed income asset class over the six- and 12-month
periods ended January 31, 1999.
However, we believe that the worst of the emerging market turmoil is behind us,
and, as a result, there are now many investment opportunities in those markets.
To take advantage of such opportunities, we have increased our portfolio
allocation to non-U.S. government securities. In particular, we have increased
positions in Argentinean and Mexican debt, which we believe will benefit from
positive economic reforms and growth.
INVESTMENT RESULTS*
Periods Ended January 31, 1999
TOTAL RETURNS
6 MONTHS 12 MONTHS
--------- ---------
ACM GOVERNMENT OPPORTUNITY FUND 3.15% 3.52%
LEHMAN BROTHERS AGGREGATE BOND INDEX 5.10% 8.08%
* 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 LB
MORTGAGE-BACKED SECURITIES INDEX, THE LB ASSET-BACKED SECURITIES INDEX AND THE
LB GOVERNMENT/CORPORATE BOND INDEX. AN INVESTOR CANNOT INVEST DIRECTLY IN AN
INDEX.
MARKET OVERVIEW
During the six-month period ended January 31, 1999, global markets experienced
volatility as financial and economic turmoil, spreading from Asia to Russia and
Latin America, elevated concerns about a global economic slowdown. However,
interest rate cuts by the Federal Reserve and central banks throughout the
world, along with stronger than expected U.S. economic growth, stemmed the
downward trend. Financial markets recovered, lead by equity markets.
Despite global turmoil, the United States continued on a path of robust growth
driven by domestic consumer demand. Manufacturing, however, remained weak as
world export markets declined. Inflation and unemployment remained historically
low throughout the period. The Federal Reserve lowered interest rates from
5.50% to 4.75% at the beginning of the period when the risk of slowing economic
growth outweighed the risk of rising inflation.
The U.S. bond market posted solid gains over the period as investors fled more
risky markets for the safety of fixed income assets. The Treasury market,
regarded as the safest of safe havens, was the chief beneficiary of this flight
to quality. However, after interest rates were cut and markets stabilized, the
Treasury market lost its safe haven appeal, and investors moved back into
higher yielding assets. Strong U.S. economic growth, along with solid corporate
earnings, helped the corporate and high yield sectors recover in the last three
months of the period. Among the U.S. bond market sectors, the Treasury sector
performed best and the high yield sector performed worst over the six-month
period.
In the emerging markets, debt prices fell over the six-month period. At the
beginning of the period, the Russian
1
ACM GOVERNMENT OPPORTUNITY FUND
_______________________________________________________________________________
government devalued the ruble and defaulted on its domestic debt. This move by
the Russian government led to a general sell-off of emerging market assets as
investors moved to lower their risk exposure. Subsequently, investor concern
shifted to Brazil, which, like Russia, had a semi-fixed currency regime and
deficits in both its fiscal and current accounts. After reaching a low in
September of 1998, emerging market debt prices rebounded as the U.S. and other
countries began easing monetary policy. In January of 1999, emerging market
debt prices fell once again when Brazil devalued the real.
During the six-month period, South Korean debt posted the best performance,
while Russia posted the worst performance among emerging debt markets. South
Korea's investment grade rating, along with its current account surpluses and
prudent debt management, has sheltered the country from market volatility. In
Latin America, Ecuador, followed by Brazil, was the worst performing debt
market. Ecuador suffered from a currency devaluation, low oil prices and
political uncertainty.
INVESTMENT STRATEGY
Over the six-month period ended January 31, 1999, we maintained a longer
interest rate duration than the market, generally employing U.S. Treasury
holdings with maturities of 10 years or more. We opportunistically employed
securities issued in foreign countries to enhance portfolio yield. Government
debt was held in Argentina, New Zealand, Ecuador, Australia and Brazil, among
others.
OUTLOOK
We believe the risk of global recession has diminished after the recent wave of
official interest rate cuts around the world. However, global growth will
continue to slow and inflation will remain subdued as the consequences of
excess productive capacity are felt around the world. U.S. economic activity is
expected to moderate from the robust rate of the fourth quarter with growth
estimates centered around 3.3% for 1999. Further interest rate reductions by
the Federal Reserve are not imminent, however, U.S. interest rates, as well as
inflation, will remain low, and the U.S. Treasury market will continue to
provide a safe haven during times of volatility.
In the emerging markets, increased uncertainty has been generated by the change
in Brazil's exchange rate policy. Spreads on emerging market debt have widened
considerably as a result, weakening growth prospects for Latin America.
Furthermore, we remain concerned about the effects that slower global growth
and low commodity prices will have on emerging markets. In this environment, we
expect emerging market debt prices to remain volatile with periods of improved
sentiment, triggered by stimulative policies in developed countries,
interspersed with episodes of weakness, as investors lose confidence in the
pace of reforms in emerging countries and Japan.
We remain positive in our view on Mexico and Argentina, as economic policy in
each country remains quite strong and their long-term trend toward improving
credit fundamentals remains intact. Although the turmoil in Brazil may
negatively affect Mexico's asset prices, we do not expect the impact to be
either great or long term.
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
JANUARY 31, 1999 (UNAUDITED) ACM GOVERNMENT OPPORTUNITY FUND
_______________________________________________________________________________
PRINCIPAL
AMOUNT
(000) U.S. $ VALUE
- -------------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS-83.1%
U.S. TREASURY BONDS-35.7%
8.125%, 8/15/19 (a) US $ 7,900 $10,605,750
10.75%, 8/15/05 (a) 4,000 5,327,500
13.75%, 8/15/04 (a) 4,500 6,450,471
14.00%, 11/15/11 (a) 10,500 16,576,875
38,960,596
U.S. TREASURY NOTES-29.3%
5.75%, 8/15/03 (a) 2,900 3,031,408
6.25%, 10/31/01 (a) 9,030 9,399,670
6.50%, 8/15/05 (a) 2,450 2,693,469
6.875%, 5/15/06 (a) 6,600 7,458,000
7.875%, 11/15/04 (a) 4,000 4,637,500
12.75%, 11/15/10 (a) 3,250 4,707,423
31,927,470
MORTGAGE RELATED SECURITIES-10.2%
Government National Mortgage Association
6.50%, 1/15/29 TBA 2,750 2,786,064
Federal National Mortgage Association
6.00%, 1/01/14 TBA 2,750 2,762,072
6.00%, 1/01/29 2,764 2,736,864
8.00%, 6/01/28 2,750 2,864,030
8,362,966
U.S. TREASURY STRIP-7.9%
Zero coupon, 5/15/15 21,000 8,665,713
Total U.S. Government and Agency Obligations
(cost $87,338,233) 90,702,809
SOVEREIGN DEBT OBLIGATIONS-19.5%
ARGENTINA-3.1%
Province of Tucuman
9.45%, 8/01/04 (b) 822 653,038
Republic of Argentina
11.00%, 12/04/05 3,000 2,733,750
Warrants expiring
12/03/99 (c) 3,000 7,500
3,394,288
AUSTRALIA-2.2%
Australian Government
8.75%, 8/15/08 AU $ 3,000 2,409,918
BRAZIL-1.1%
Republic of Brazil
10.125%, 5/15/27 US 2,000 1,207,600
CHINA-1.8%
People's Republic of China
7.30%, 12/15/08 2,000 1,902,688
COLOMBIA-2.7%
Republic of Colombia
8.625%, 4/01/08 3,500 2,992,500
GREECE-2.3%
Hellenic Republic
8.90%, 4/01/03 GRD 660,000 2,521,203
MEXICO-1.0%
Mexican Treasury Bill
20.18%, 5/06/99 (d) MXP 12,500 1,131,508
NEW ZEALAND -2.8%
New Zealand Government
10.00%, 3/15/02 NZ $ 5,000 3,066,044
RUSSIA-0.3%
Russian
IAN FRN
5.969%, 12/15/15 US $ 67 6,486
Russian Principal Loans FRN
6.625%, 12/15/20 (e) 4,000 295,000
301,486
SOUTH AFRICA-2.2%
Development Bank of South Africa
Zero coupon, 12/31/27 120,000 397,680
European Bank for Reconstruction and
Development
Zero coupon, 12/31/29 125,000 434,963
International Bank for Reconstruction
and Development
Zero coupon, 12/31/25 200,000 961,060
Zero coupon, 2/17/26 60,000 282,353
Zero coupon, 7/14/27 75,000 325,601
2,401,657
Total Sovereign Debt Obligations
(cost $27,438,361) 21,328,892
3
PORTFOLIO OF INVESTMENTS (CONTINUED) ACM GOVERNMENT OPPORTUNITY FUND
_______________________________________________________________________________
PRINCIPAL
AMOUNT
(000) U.S. $ VALUE
- -------------------------------------------------------------------------------
COLLATERALIZED BRADY BOND-(F) 1.9%
ECUADOR-1.9%
Republic of Ecuador
Euro Par Bonds
3.50%, 2/28/25 (g)
(cost $2,391,792) US $5,000 $ 2,094,000
NON-COLLATERALIZED BRADY BOND-1.2%
BRAZIL-1.2%
Republic of Brazil C - Bonds
8.00%, 4/15/14 (h)
(cost $1,585,427) 2,355 1,257,227
TIME DEPOSIT-1.8%
Bank of New York
4.313%, 2/01/99
(cost $1,957,000) US $1,957 $ 1,957,000
------------
TOTAL INVESTMENTS-107.5%
(cost $120,710,813) 117,339,928
Other assets less liabilities-(7.5%) (8,209,603)
------------
NET ASSETS-100% $109,130,325
(a) Securities, or portion thereof, with an aggregate market value of
$70,888,066 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 January 31, 1999, this security
amounted to $653,038 or 0.6% of net assets.
(c) Non-income producing security.
(d) Annualized yield to maturity at purchase date.
(e) Paid-in-kind in Russian IAN's.
(f) Sovereign debt obligation issued as part of debt restructuring that is
collateralized in full as to principal due at maturity by a U.S. Treasury zero
coupon obligation which has the same maturity as the Brady Bond.
(g) Coupon increases periodically based upon a predetermined schedule. Stated
interest rate in effect at January 31, 1999.
(h) Coupon consists of 5.00% cash payment and 3.00% paid-in-kind.
Glossary of Terms:
FRN - Floating Rate Note
IAN - Interest Arrears Note
TBA - To Be Announced
See notes to financial statements.
4
STATEMENT OF ASSETS AND LIABILITIES
JANUARY 31, 1999 (UNAUDITED) ACM GOVERNMENT OPPORTUNITY FUND
_______________________________________________________________________________
ASSETS:
Investments in securities, at value (cost $120,710,813) $117,339,928
Cash 1,004
Receivable for investment securities sold 7,853,023
Interest receivable 2,339,575
Net unrealized appreciation of forward exchange currency
contracts 41,132
Other assets 4,140
Total assets 127,578,802
LIABILITIES:
Payable for investment securities purchased 18,208,336
Advisory fee payable 82,734
Administration fee payable 15,438
Accrued expenses 141,969
Total liabilities 18,448,477
NET ASSETS: $109,130,325
COMPOSITION OF NET ASSETS
Capital stock, at par $ 130,719
Additional paid-in capital 112,970,688
Undistributed net investment income 49,284
Accumulated net realized loss on investment and
foreign currency transactions (694,875)
Net unrealized depreciation on investments and
foreign currency denominated assets and liabilities (3,325,491)
$109,130,325
NET ASSET VALUE PER SHARE (based on 13,071,872 shares
outstanding) $8.35
See notes to financial statements.
5
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JANUARY 31, 1999 (UNAUDITED)
ACM GOVERNMENT OPPORTUNITY FUND
_______________________________________________________________________________
INVESTMENT INCOME
Interest $4,545,997
EXPENSES
Advisory fee $ 414,694
Administrative fee 82,939
Custodian 59,234
Audit and legal 29,144
Transfer agency 23,068
Directors' fees 17,013
Printing 13,520
Miscellaneous 17,321
Total expenses 656,933
Net investment income 3,889,064
REALIZED AND UNREALIZED GAIN (LOSS ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS
Net realized gain on investment transactions 2,080,092
Net realized loss on foreign currency
transactions (400,721)
Net change in unrealized depreciation of:
Investments (2,263,368)
Foreign currency denominated assets and
liabilities (90,677)
Net loss on investments and foreign
currency transactions (674,674)
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 3,214,390
See notes to financial statements.
6
STATEMENT OF CHANGES IN NET ASSETS ACM GOVERNMENT OPPORTUNITY FUND
_______________________________________________________________________________
SIX MONTHS ENDED YEAR ENDED
JANUARY 31, 1999 JULY 31,
(UNAUDITED) 1998
---------------- ----------------
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS
Net investment income $ 3,889,064 $ 7,660,642
Net realized gain on investments and
foreign currency transactions 1,679,371 2,829,922
Net change in unrealized depreciation
of investments and foreign
currency denominated assets and
liabilities (2,354,045) (3,845,833)
Net increase net assets from operations 3,214,390 6,644,731
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
FROM:
Net investment income (4,117,648) (7,660,642)
Distributions in excess of net
investment income -0- (574,642)
Distributions from net realized gain
on investments (281,054) -0-
Total decrease (1,184,312) (1,590,553)
NET ASSETS
Beginning of year 110,314,637 111,905,190
End of period (including undistributed
net investment income $49,284 and
$277,868, respectively) $109,130,325 $110,314,637
See notes to financial statements.
7
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1999 (UNAUDITED) 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 component of net
unrealized appreciation on investments and foreign currency denominated assets
and liabilities.
8
ACM GOVERNMENT OPPORTUNITY FUND
_______________________________________________________________________________
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.
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 six months
ended January 31, 1999, there was no reimbursement paid to AFS.
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 $40,906,555 and $29,828,380,
respectively, for the six months ended January 31, 1999. There were purchases
of $97,087,001 and sales of $108,278,028 of U.S. government and government
agency obligations for the six months ended January 31, 1999.
At January 31, 1999, the cost of investments for federal income tax purposes
was $120,710,813. Accordingly, gross unrealized appreciation of investments was
$3,591,120 and gross unrealized depreciation of investments was $6,962,005
resulting in net unrealized depreciation of $3,370,885 (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 January 31, 1999, 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 3/16/99 3,650 $2,314,371 $2,293,610 $20,761
Euro,
settling 2/17/99 2,173 2,543,478 2,471,034 72,444
New Zealand Dollars,
settling 3/16/99 5,777 3,018,961 3,114,568 (95,607)
Norwegian Krone,
settling 2/09/99 31,178 4,174,712 4,131,178 43,534
-------
$41,132
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 six months ended January 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 January 31, 1999. During the six
months ended January 31, 1999 and the year ended July 31, 1998, the Fund did
not issue shares in connection with the dividend reinvestment plan.
10
ACM GOVERNMENT OPPORTUNITY FUND
_______________________________________________________________________________
NOTE E: YEAR 2000
Many computer systems and applications in use today process transactions using
two-digit date fields for the year of the 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 failures. This is commonly known as the year 2000 problem. Should
any of the computer systems employed by the Fund's major service providers fail
to process Year 2000 related information properly, that could have a
significant negative impact on the Fund's operations and the services that are
provided to the Fund's shareholders. In addition, to the extent that the
operations of issuers of securities held by the Fund are impaired by the Year
2000 problem, or prices of securities held by the Fund decline as a result of
real or perceived problems relating to the Year 2000, the value of the Fund's
shares may be materially affected.
With respect to the Year 2000, the Fund has been advised that Alliance, the
Fund's investment adviser, Alliance Fund Distributors, Inc. ("AFD"), the Fund's
principal underwriter, and Alliance Fund Services, Inc. ("AFS"), the Fund's
registrar transfer agent and dividend disbursing agent (collectively,
Alliance), began to address the year 2000 issue several years ago in connection
with the replacement or upgrading of certain computer systems and applications.
During 1997, Alliance began a formal Year 2000 initiative, which established a
structured and coordinated process to deal with the Year 2000 issues. Alliance
reports that it has completed its assessment of the Year 2000 issues on its
domestic and international computer systems and applications.
Currently, management of Alliance expects that the required modifications for
the majority of its significant systems and applications that will be in use on
January 1, 2000, will be completed and tested in early 1999. Full integration
testing of these systems and testing of interfaces with third party suppliers
will continue through 1999. At this time, management of Alliance believes that
the costs associated resolving this issue will not have a material adverse
effect on its operations or on its ability to provide the level of services it
currently provides to the Fund.
The Fund and Alliance have been advised by the Fund's Custodian that they are
also in the process of reviewing their systems with the same goals. As of the
date of this report, the Fund and Alliance have no reason to believe that the
Custodian will be unable to achieve these goals.
11
FINANCIAL HIGHLIGHTS ACM GOVERNMENT OPPORTUNITY FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF COMMON STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JANUARY 31, YEAR ENDED JULY 31,
1999 ---------------------------------------------------------------
(UNAUDITED) 1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $8.44 $8.56 $8.00 $7.92 $8.12 $9.92
INCOME FROM INVESTMENT OPERATIONS
Net investment income .30 .59 .58 .53 .59 .68
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions (.05) (.08) .58 .13 -0- (.89)
Net increase (decrease) in net asset value
from operations .25 .51 1.16 .66 .59 (.21)
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.32) (.59) (.58) (.56) (.48) (.68)
Distributions in excess of net investment
income -0- (.04) (.02) -0- -0- -0-
Distributions from net realized gains (.02) -0- -0- -0- -0- (.61)
Tax return of capital distribution -0- -0- -0- (.02) (.31) (.30)
Total dividends and distributions (.34) (.63) (.60) (.58) (.79) (1.59)
Net asset value, end of period $8.35 $8.44 $8.56 $8.00 $7.92 $8.12
Market value, end of period $7.875 $7.9375 $7.875 $7.00 $7.50 $8.125
TOTAL RETURN
Total investment return based on: (a)
Market value 3.44% 8.90% 21.95% 1.08% 2.85% (2.66)%
Net asset value 3.15% 6.52% 15.99% 9.40% 8.67% (3.16)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $109,130 $110,315 $111,905 $104,546 $103,558 $105,830
Ratio of expenses to average
net assets 1.19%(b) 1.18% 1.27% 1.28% 1.18% 1.20%
Ratio of net investment income to
average net assets 7.03%(b) 6.89% 7.00% 6.42% 7.62% 7.50%
Portfolio turnover rate 119% 230% 407% 375% 228% 297%
</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.
(b) Annualized.
12
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
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.
13
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.
OPPSR
