ALLIANCE GOVERNMENT RESERVES
ALLIANCE CAPITAL
ANNUAL REPORT
JUNE 30, 1998
STATEMENT OF NET ASSETS
JUNE 30, 1998 ALLIANCE GOVERNMENT RESERVES
_______________________________________________________________________________
PRINCIPAL
AMOUNT
(000) SECURITY+ YIELD VALUE
- -------------------------------------------------------------------------------
U.S. GOVERNMENT AND
AGENCIES-59.9%
FEDERAL NATIONAL MORTGAGE
ASSOCIATION-30.1%
$ 30,000 5.35%, 7/16/98 5.49% $ 29,996,730
27,000 5.37%, 8/12/98 5.50 26,988,926
39,000 9/09/98 5.50 38,588,225
82,000 9/11/98 5.51 81,109,480
129,970 9/15/98 5.50 128,480,111
95,000 9/23/98 5.51 93,796,350
92,000 9/23/98 5.52 90,832,213
97,000 9/24/98 5.52 95,754,089
34,690 8/10/98 5.50 34,479,547
32,900 7/29/98 5.50 32,759,773
90,000 8/14/98 5.52 89,397,200
90,000 5.52%, 3/03/99 5.62 89,978,856
135,000 5.54%, 5/21/99 5.66 134,907,008
90,000 5.57%, 3/05/99 5.62 89,969,548
90,000 5.60%, 10/20/98 FRN 5.67 89,988,094
91,000 5.60%, 4/28/99 FRN 5.62 90,962,478
180,000 5.65%, 11/04/98 FRN 5.79 179,963,889
35,000 5.84%, 3/29/99 5.69 35,034,517
24,000 6.41%, 7/17/98 5.67 24,006,642
---------------
1,476,993,676
FEDERAL HOME LOAN MORTGAGE CORP.-19.1%
45,000 8/21/98 5.50 44,652,562
110,000 8/24/98 5.50 109,100,750
141,500 9/08/98 5.50 140,027,339
218,786 8/31/98 5.51 216,767,799
145,950 9/09/98 5.51 144,409,011
48,000 9/14/98 5.51 47,456,000
48,000 9/18/98 5.51 47,427,513
194,000 9/25/98 5.51 191,483,497
---------------
941,324,471
FEDERAL HOME LOAN BANK-10.7%
105,000 5.45%, 7/30/98 5.53 104,993,607
73,000 5.56%, 3/25/99 5.71 72,928,262
150,000 5.65%, 3/12/99 5.65 150,000,000
49,000 5.65%, 3/30/99 5.65 49,000,000
45,850 5.71%, 3/04/99 5.71 45,850,000
80,280 5.71%, 3/17/99 5.73 80,262,910
22,000 5.72%, 7/07/98 5.72 22,000,304
525,035,083
Total U.S. Government and Agencies
(amortized cost $2,943,353,230) 2,943,353,230
REPURCHASE AGREEMENTS-39.7%
CIBC/WOOD GUNDY, INC.
125,000 5.65%, dated 6/29/98,
due 7/13/98 in the amount of
$125,274,653 (cost $125,000,000;
collateralized by $78,110,182
FH 786072, value $73,568,928,
$49,355,000 FN 374110,
value $26,585,695, $30,242,971
FH 846319, value $14,234,829
and $21,903,057 FN 294195,
value $14,103,709) (a) 5.65 125,000,000
GOLDMAN SACHS & CO.
122,000 5.54%, dated 6/18/98,
due 7/20/98 in the amount of
$122,600,782 (cost $122,000,000;
collateralized by $128,359,000
FM 00880, value
$126,511,291) (a) 5.54 122,000,000
GOLDMAN SACHS & CO.
122,000 5.54%, dated 6/17/98,
due 7/20/98 in the amount of
$122,619,557 (cost $122,000,000;
collateralized by $130,935,000
FM 00562, value
$126,550,505) (a) 5.54 122,000,000
LEHMAN BROTHERS
125,000 5.54%, dated 6/23/98,
due 7/23/98 in the amount of
$125,577,083 (cost $125,000,000;
collateralized by $44,483,000
FNMA 313929, value
$42,808,624, $26,158,882
FHLMC 20003, value
$25,562,864, $22,975,326
FNMA 160414, value
$22,325,001, $33,443,435
FHLMC 10239, value
$20,768,863 and $24,004,000
FHLMC 00436, value $17,304,862) (a) 5.54 125,000,000
1
STATEMENT OF NET ASSETS (CONTINUED) ALLIANCE GOVERNMENT RESERVES
_______________________________________________________________________________
PRINCIPAL
AMOUNT
(000) SECURITY+ YIELD VALUE
- -------------------------------------------------------------------------------
LEHMAN BROTHERS
$115,000 5.55%, dated 6/30/98,
due 7/21/98 in the amount of
$115,372,313 (cost $115,000,000;
collateralized by $36,378,863
FN 251944, value
$37,072,840, $23,449,628
FN 313189, value
$21,046,940, $100,000,000
FN 124852, value
$16,381,661, $15,266,000
FN 190548, value
$9,564,980, $49,317,768
FN 124869, value
$9,349,197, $15,796,743
FN 250089, value
$8,844,180, $10,281,600
FN 2500460, value
$8,677,623 and $9,484,553
FN 369160, value
$8,282,423) (a) 5.55% $ 115,000,000
MERRILL LYNCH & CO., INC.
120,000 5.55%, dated 6/30/98,
due 7/31/98 in the amount of
$120,573,500 (cost $120,000,000;
collateralized by $26,900,885
FN 422256, value
$25,522,655, $28,689,701
FN 313951, value
$20,507,661, $21,385,610
FN 422261, value
$20,363,326, $50,000,000
FN 299474, value
$18,303,364, $27,096,694
FN 313678, value
$16,877,170, $50,000,000
FH 845619, value
$15,390,985 and
$20,895,000 FH 845790,
value $7,040,157) 5.55 120,000,000
MORGAN STANLEY GROUP, INC.
234,000 6.19%, dated 6/30/98,
due 7/01/98 in the amount of
$234,040,235 (cost $234,000,000;
collateralized by $288,113,000
FNMA 190298, value
$238,775,337) (a) 6.19 234,000,000
PAINE WEBBER GROUP, INC.
140,000 5.54%, dated 6/25/98,
due 8/27/98 in the amount of
$141,357,300 (cost $140,000,000;
collateralized by $50,000,000
FG 00838, value
$49,792,039, $24,750,000
FN 323034, value
$24,593,865, $28,854,572
FN 318698, value
$23,082,134, $20,750,000
FG 00907, value
$20,651,018, $24,750,000
FN 313560, value $20,092,439
and $9,184,000 FN 190831,
value $5,794,173) (a) 5.54 140,000,000
PAINE WEBBER GROUP, INC.
103,000 5.55%, dated 6/11/98,
due 7/09/98 in the amount of
$103,444,617 (cost $103,000,000;
collateralized by $28,752,607
FN 412255, value
$28,620,578, $24,164,115
FG 00562, value
$23,354,954, $27,902,376
FN 341731, value
$22,210,860, $18,868,000
FN 394706, value $16,376,657
and $15,882,262 FN 372188,
value $15,448,729) (a) 5.55 103,000,000
PRUDENTIAL SECURITIES, INC.
125,000 5.54%, dated 6/18/98,
due 7/14/98 in the amount of
$125,500,139 (cost $125,000,000;
collateralized by $131,866,000
FG 00557, value
$128,345,354) (a) 5.54 125,000,000
PRUDENTIAL SECURITIES, INC.
97,000 5.54%, dated 6/30/98,
due 7/29/98 in the amount of
$97,432,889 (cost $97,000,000;
collateralized by $102,670,000
FG 00815, value
$99,533,951) (a) 5.54 97,000,000
2
ALLIANCE GOVERNMENT RESERVES
_______________________________________________________________________________
PRINCIPAL
AMOUNT
(000) SECURITY+ YIELD VALUE
- -------------------------------------------------------------------------------
SALOMON SMITH BARNEY
$139,000 5.54%, dated 6/22/98,
due 7/16/98 in the amount of
$139,513,373 (cost $139,000,000;
collateralized by $93,405,086
FN 190966, value
$59,826,038, $100,000,000
FN 190892, value $55,249,030
and $27,340,000 FN 251787,
value $27,430,685) 5.54% $ 139,000,000
SALOMON SMITH BARNEY
101,000 5.54%, dated 6/24/98,
due 8/26/98 in the amount of
$101,979,195 (cost $101,000,000;
collateralized by $50,000,000
FN 313687, value
$46,865,252, $36,552,000
FN 313294, value $31,121,063
and $27,500,000 FG 00785,
value $25,921,457) 5.54 101,000,000
STATE STREET BANK AND TRUST CO.
38,000 5.50%, dated 6/30/98,
due 7/01/98 in the amount of
$38,005,806 (cost $38,000,000;
collateralized by $32,995,000
U.S. Treasury Bond,
7.25%, 5/15/16, value
$38,763,978) (a) 5.50 38,000,000
UBS FINANCE, INC.
241,000 5.54%, dated 6/19/98,
due 7/15/98 in the amount of
$241,964,268 (cost $241,000,000;
collateralized by $251,375,000
FN 323315, value
$248,547,031) (a) 5.54 241,000,000
Total Repurchase Agreements
(amortized cost $1,947,000,000) 1,947,000,000
TOTAL INVESTMENTS-99.6%
(amortized cost
$4,890,353,230) 4,890,353,230
Other assets less liabilities-0.4% 18,357,644
NET ASSETS-100%
(offering and redemption
price of $1.00 per share;
4,909,579,676 shares outstanding) $4,908,710,874
+ All securities either mature or their interest rate changes in one year or
less.
(a) Repurchase agreements which are terminable within 7 days.
Glossary:
FRN - Floating Rate Note
See notes to financial statements.
3
STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 1998 ALLIANCE GOVERNMENT RESERVES
_______________________________________________________________________________
INVESTMENT INCOME
Interest $ 241,077,064
EXPENSES
Advisory fee (Note B) $20,223,015
Distribution assistance and administrative
service (Note C) 16,145,911
Transfer agency (Note B) 5,134,453
Registration fees 874,914
Printing 434,627
Custodian fees 418,106
Audit and legal fees 65,539
Trustees' fees 12,646
Miscellaneous 48,642
Total expenses 43,357,853
Less: expense reimbursement (528,930)
Net expenses 42,828,923
Net investment income 198,248,141
REALIZED GAIN ON INVESTMENTS
Net realized gain on investment transactions 2,080
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 198,250,221
See notes to financial statements.
4
STATEMENT OF CHANGES IN NET ASSETS ALLIANCE GOVERNMENT RESERVES
_______________________________________________________________________________
YEAR ENDED YEAR ENDED
JUNE 30, 1998 JUNE 30, 1997
------------- -------------
INCREASE IN NET ASSETS FROM OPERATIONS
Net investment income $ 198,248,141 $ 162,394,204
Net realized gain on investment transactions 2,080 46,468
Net increase in net assets from operations 198,250,221 162,440,672
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income (198,248,141) (162,394,204)
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Net increase (Note E) 1,146,223,601 557,419,600
Total increase 1,146,225,681 557,466,068
NET ASSETS
Beginning of year 3,762,485,193 3,205,019,125
End of year $4,908,710,874 $3,762,485,193
See notes to financial statements.
5
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998 ALLIANCE GOVERNMENT RESERVES
_______________________________________________________________________________
NOTE A: SIGNIFICANT ACCOUNTING POLICIES
Alliance Government Reserves (the "Trust") is an open-end diversified
investment company registered under the Investment Company Act of 1940. The
Trust consists of two portfolios: Alliance Government Reserves (the
"Portfolio") and Alliance Treasury Reserves, each of which is considered to be
a separate entity for financial reporting and tax purposes. The Portfolio
pursues its objectives by maintaining a portfolio of high-quality money market
securities all of which, at the time of investment, have remaining maturities
of 397 days or less. 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
Portfolio.
1. VALUATION OF SECURITIES
Securities in which the Portfolio invests are traded primarily in the
over-the-counter market and are valued at amortized cost, under which method a
portfolio instrument is valued at cost and any premium or discount is amortized
on a constant basis to maturity.
2. TAXES
It is the Portfolio'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 its
shareholders. Therefore, no provisions for federal income or excise taxes are
required.
3. DIVIDENDS
The Portfolio declares dividends daily from net investment income and
automatically reinvests such dividends in additional shares at net asset value.
Net realized capital gains on investments, if any, are expected to be
distributed near year end.
4. INVESTMENT INCOME AND INVESTMENT TRANSACTIONS
Interest income is accrued as earned. Investment transactions are recorded on a
trade date basis. Realized gain (loss) from investment transactions is recorded
on the identified cost basis.
5. REPURCHASE AGREEMENTS
It is the Portfolio's policy to take possession of securities as collateral
under repurchase agreements and to determine on a daily basis that the value of
such securities are sufficient to cover the value of the repurchase agreements.
NOTE B: ADVISORY FEE AND TRANSACTIONS WITH AN AFFILIATE OF THE ADVISER
The Portfolio pays its Adviser, Alliance Capital Management L.P., an advisory
fee at the annual rate of .50% on the first $1.25 billion of average daily net
assets; .49% on the next $.25 billion; .48% on the next $.25 billion; .47% on
the next $.25 billion; .46% on the next $1 billion; and .45% in excess of $3
billion. The Adviser has agreed, pursuant to the advisory agreement, to
reimburse the Portfolio to the extent that its annual aggregate expenses
(excluding taxes, brokerage, interest and, where permitted, extraordinary
expenses) exceed 1% of its average daily net assets for any fiscal year. For
the year ended June 30, 1998, the reimbursement amounted to $528,930.
The Portfolio compensates Alliance Fund Services, Inc., a wholly-owned
subsidiary of the Adviser, under a Transfer Agency Agreement for providing
personnel and facilities to perform transfer agency services for the Portfolio.
Such compensation amounted to $2,608,399 for the year ended June 30, 1998.
NOTE C: DISTRIBUTION ASSISTANCE AND ADMINISTRATIVE SERVICES PLAN
Under this Plan, the Portfolio pays the Adviser a distribution fee at the
annual rate of up to .25% of the average daily value of the Portfolio's net
assets. The Plan provides that the Adviser will use such payments in their
entirety for distribution assistance and promotional activities. For the year
ended June 30, 1998, the distribution fee amounted to $10,707,231. In addition,
the Portfolio may reimburse certain broker-dealers for administrative costs
incurred in connection with providing shareholder services, and may reimburse
the Adviser for accounting
6
ALLIANCE GOVERNMENT RESERVES
_______________________________________________________________________________
and bookkeeping, and legal and compliance support. For the year ended June 30,
1998, such payments by the Portfolio amounted to $5,468,680 of which $167,000
was paid to the Adviser.
NOTE D: INVESTMENT TRANSACTIONS
At June 30, 1998, the cost of investments for federal income tax purposes was
the same as the cost for financial reporting purposes. At June 30, 1998 the
Portfolio had a capital loss carryforward of $868,802, of which $80,153 expires
in 2001, $236,674 expires in 2002 and $551,975 expires in the year 2003.
NOTE E: TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
An unlimited number of shares ($.001 par value) are authorized. At June 30,
1998, capital paid-in aggregated $4,909,579,676. Transactions, all at $1.00 per
share, were as follows:
YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30,
1998 1997
-------------- --------------
Shares sold 13,439,392,768 16,812,712,717
Shares issued on reinvestments of dividends 198,248,141 162,394,204
Shares redeemed (12,491,417,308) (16,417,687,321)
Net increase 1,146,223,601 557,419,600
7
FINANCIAL HIGHLIGHTS ALLIANCE GOVERNMENT RESERVES
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
YEAR
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $1.00 $1.00 $1.00 $1.00 $1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income .0463(a) .0443 .0461(a) .0439(a) .0244(a)
LESS: DIVIDENDS
Dividends from net investment income (.0463) (.0443) (.0461) (.0439) (.0244)
Net asset value, end of year $1.00 $1.00 $1.00 $1.00 $1.00
TOTAL RETURN
Total investment return based on net
asset value (b) 4.74% 4.53% 4.72% 4.48% 2.48%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (in millions) $4,909 $3,762 $3,205 $2,514 $2,061
Ratios to average net assets of:
Expenses, net of waivers and
reimbursements 1.00% 1.00% 1.00% 1.00% 1.00%
Expenses, before waivers and
reimbursements 1.01% 1.00% 1.01% 1.05% 1.04%
Net investment income 4.63%(a) 4.44% 4.60%(a) 4.42%(a) 2.46%(a)
</TABLE>
(a) Net of expenses reimbursed or waived by the Adviser.
(b) Total investment return is calculated assuming an initial investment made
at the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period, and
redemption on the last day of the period.
8
INDEPENDENT AUDITOR'S REPORT ALLIANCE GOVERNMENT RESERVES
_______________________________________________________________________________
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS
ALLIANCE GOVERNMENT RESERVES PORTFOLIO
We have audited the accompanying statement of net assets of Alliance Government
Reserves Portfolio as of June 30, 1998 and the related statements of
operations, changes in net assets, and financial highlights for the periods
indicated in the accompanying financial statements. These financial statements
and financial highlights are the responsibility of the Portfolio'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 June
30, 1998, by correspondence with the custodian.
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
Alliance Government Reserves Portfolio as of June 30, 1998, and the results of
its operations, changes in its net assets, and its financial highlights for the
periods indicated, in conformity with generally accepted accounting principles.
McGladrey & Pullen, LLP
New York, New York
July 24, 1998
9
ALLIANCE GOVERNMENT RESERVES
1345 Avenue of the Americas, New York, NY 10105
Toll free 1 (800) 221-5672
YIELDS. For current recorded yield information on Alliance
Government Reserves, call on a touch-tone telephone toll-free
(800) 251-0539 and press the following sequence of keys:
1 # 1 # 2 5 #
For non-touch-tone telephones, call toll-free (800) 221-9513
ALLIANCE CAPITAL
DISTRIBUTION OF THIS REPORT OTHER THAN TO SHAREHOLDERS MUST
BE PRECEDED OR ACCOMPANIED BY THE FUND'S CURRENT PROSPECTUS,
WHICH CONTAINS FURTHER INFORMATION ABOUT THE FUND.
R THESE REGISTERED SERVICE MARKS USED UNDER LICENSE FROM
THE OWNER, ALLIANCE CAPITAL MANAGEMENT L.P.
GOVAR
