ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
ANNUAL REPORT
AUGUST 31, 1997
ALLIANCE CAPITAL
LETTER TO SHAREHOLDERS
ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
_______________________________________________________________________________
October 13, 1997
Dear Shareholder:
The Alliance Short-Term U.S. Government Fund's annual reporting period closed
on August 31, 1997. Since our last report to you dated February 28, 1997, the
U.S. bond market has posted modest returns. After moving lower during the first
quarter as interest rates rose, the market rallied strongly over the summer to
end the period with moderate gains. Within the traditional bond market (i.e.
governments, investment grade corporates, mortgage-backed securities and
asset-backed securities), the yield-oriented sectors (investment grade
corporates and mortgage-backed securities) were the best performing.
INVESTMENT RESULTS
The following table shows how your Fund performed in the periods ended August
31, 1997. For comparison, we have shown returns for the Lehman Brothers (LB)
1-3 Year Government Bond Index and the LB 3-Month Treasury Bellwether Index.
The 1-3 Year Index provides a broad-based comparison for the Short-Term U.S.
Government Fund, while the 3-Month Treasury Index is a good narrow-based
benchmark given its short-term orientation.
For the period ended August 31, 1997 your Fund's performance trailed that of
its benchmarks. Sluggish performance of the Fund's holdings in premium mortgage
pools that had high prepayment rates during the period, as well as the Fund's
shorter duration during a time when longer duration securities outperformed
securities with shorter durations, dampened Portfolio performance during the
most recent period.
INVESTMENT RESULTS*
Period Ended August 31, 1997
TOTAL RETURN
6 MONTHS 12 MONTHS
---------- -----------
ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
Class A 2.28% 5.29%
Class B 1.86% 4.45%
Class C 1.86% 4.45%
LB 1-3 YEAR GOVERNMENT BOND INDEX 3.36% 7.04%
LB 3-MONTH TREASURY BELLWETHER INDEX 2.82% 5.57%
* THE FUND'S INVESTMENT RESULTS ARE CUMULATIVE TOTAL RETURNS FOR THE PERIOD
AND ARE BASED ON THE NET ASSET VALUE OF EACH CLASS OF SHARES AS OF AUGUST 31,
1997. ALL FEES AND EXPENSES RELATED TO THE OPERATION OF THE FUND HAVE BEEN
DEDUCTED, BUT NO ADJUSTMENT HAS BEEN MADE FOR SALES CHARGES THAT MAY APPLY WHEN
SHARES ARE PURCHASED OR REDEEMED. RETURNS FOR THE FUND AND ITS COMPARATIVE
INDICES INCLUDE THE REINVESTMENT OF ANY DISTRIBUTIONS PAID DURING THE PERIOD.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
ALL COMPARATIVE INDICES ARE UNMANAGED AND REFLECT NO FEES OR EXPENSES. THE
LEHMAN BROTHERS 1-3 YEAR GOVERNMENT BOND INDEX IS COMPOSED OF U.S. GOVERNMENT
AGENCY AND TREASURY SECURITIES WITH MATURITIES OF ONE TO THREE YEARS. THE
LEHMAN BROTHERS 3-MONTH TREASURY BELLWETHER INDEX MEASURES PERFORMANCE OF
3-MONTH U.S. TREASURY BILLS. U.S. TREASURY SECURITIES ARE GUARANTEED AS TO
PRINCIPAL AND INTEREST IF HELD TO MATURITY WHEREAS THE VALUE OF THE FUND'S
SHARES WILL FLUCTUATE SO THAT YOUR SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR
LESS THAN THEIR ORIGINAL COST. AN INVESTOR CANNOT INVEST DIRECTLY IN THE
INDICES.
ADDITIONAL INVESTMENT RESULTS APPEAR ON PAGE 3.
ECONOMIC REVIEW
The U.S. economy has continued to perform strongly since our last report.
Ongoing strength in the labor market pushed the unemployment rate to 20-year
lows during the first quarter and wages proceeded to climb. In response to
ongoing economic strength and what were viewed as mounting inflationary
pressures, the Federal Reserve Bank raised short-term interest rates in March.
Overall, economic growth, which had risen to 4.3% at the end of 1996, further
accelerated to 4.9% during the first three months of 1997.
1
ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
_______________________________________________________________________________
More recent data show that the economy slowed in the second quarter, but
continued to grow at a robust clip. The Commerce Department, which had
initially estimated second quarter growth at 2.2%, revised up its estimate for
Gross Domestic Product (GDP) growth to 3.3%. The main causes for this revision
were significant upward corrections in exports and the rate of inventory
growth. Although the growth contributions from these components are unlikely to
be repeated during the second half of 1997, the stronger growth rate reveals
that the U.S. economy entered the third quarter with much more momentum than
originally thought. Preliminary data indicate that the labor market remains
strong with an estimated 200,000 jobs created in August (adjusted for the
effects of the UPS strike). Meanwhile, consumer confidence remains near its
recent highs and consumer spending continues to be strong.
In spite of an increase in wage pressures, inflation remained very well-behaved
during the period. Consumer prices increased at a 1.6% annual rate in the first
eight months of the year and are up 2.2% from the same period last year.
Wholesale inflation, as measured by the Producer Price Index, fell for an
unprecedented seven months in a row before finally showing an increase in
August. Overall, producer prices are down 0.2% from year earlier levels.
BOND MARKET REVIEW
The U.S. bond market posted modest gains over the past six months. After
trading lower during the first quarter on fears that overly robust growth would
ignite inflation, the market rebounded over the summer. Data released during
the period indicating that the economy had slowed from its unsustainable first
quarter pace and inflation remained dormant helped ease investor concerns and
pushed bond prices higher. Interest rates, which peaked in late spring
following the Fed's decision to raise the Fed Funds rate, ended the period
lower on all maturities. Longer-duration securities outperformed
shorter-duration securities over the past six months.
AREAS OF THE MARKET
The short duration sector continued to post strong duration-adjusted
performance, especially the adjustable rate mortgage (ARM) market. Within the
ARM market, conventional Constant Maturity Treasury (CMT) ARMs were the best
performers. While Cost-of-Funds-Index (COFI) ARMs lagged as investors were
initially concerned about the responsiveness of the index in a rising rate
environment, spreads subsequently narrowed when Treasury rates declined and
investors recognized that COFI ARMs were undervalued. The summer rally in the
bond market eased credit concerns in the asset-backed sector, narrowing spreads.
We reduced the Fund's allocation to the ARM sector during the period as
spreads reached new lows. These monies were reinvested in COFI ARMs and high
quality, short Collateralized Mortgage Obligations (CMOs). We added COFI ARMs
to the Fund because we expect its index to remain higher than market levels in
a rallying market and prepayments to be stable. Additionally, short CMOs are
expected to perform well given their yield advantage to Treasuries.
INVESTMENT OUTLOOK
We expect economic activity to slow towards the end of 1997. Consumer
confidence has reached new highs, real income is growing solidly and the labor
market remains strong with unemployment at 4.9%. With multi-quarter growth
trending above the level historically considered to be non-inflationary,
Federal Reserve policy makers will continue to closely monitor inflationary
pressures with a predisposition towards increasing rates at the first sign of
economic overheating.
Thank you for your continued interest and investment in Alliance Short-Term
U.S. Government Fund. We look forward to reporting to you again on market
activity and the Fund's investment results in coming periods.
Sincerely,
John D. Carifa
Chairman and President
Patricia J. Young
Senior Vice President
2
INVESTMENT OBJECTIVE AND POLICIES
ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
_______________________________________________________________________________
Alliance Short-Term U.S. Government Fund seeks high current income consistent
with preservation of capital and invests primarily in a diversified portfolio
of U.S. Government securities.
INVESTMENT RESULTS
_______________________________________________________________________________
AVERAGE ANNUAL TOTAL RETURNS AS OF AUGUST 31, 1997
CLASS A SHARES
WITHOUT WITH
SALES CHARGE SALES CHARGE
------------ ------------
One Year 5.29% 0.80%
Five Years 3.98% 3.09%
Since Inception* 4.55% 3.70%
SEC Yield** 5.15%
CLASS B SHARES
WITHOUT WITH
SALES CHARGE SALES CHARGE
------------ ------------
One Year 4.45% 1.46%
Five Years 3.22% 3.22%
Since Inception* 3.76% 3.76%
SEC Yield** 4.60%
CLASS C SHARES
WITHOUT WITH
SALES CHARGE SALES CHARGE
------------ ------------
One Year 4.45% 3.46%
Since Inception* 2.76% 2.76%
SEC Yield** 4.61%
The average annual total returns reflect reinvestment of dividends and/or
capital gains distributions in additional shares, with and without the effect
of the 4.25% maximum front-end sales charge for Class A or applicable
contingent deferred sales charge for Class B (3% year 1, 2% year 2, 1% year 3,
0% year 4); and for Class C shares (1% year 1). Returns for Class A shares do
not reflect the imposition of the 1 year 1% contingent deferred sales charge
for accounts over $1,000,000.
Past performance does not guarantee future results. Investment return and
principal value will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than their original cost.
* Inception: 5/4/92, Class A and Class B; 8/2/93, Class C.
** Yields are for the 30 days ended August 31, 1997.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, GUARANTEED OR ENDORSED
BY, ANY BANK; FURTHER, SUCH SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
SHARES OF THE FUND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
3
ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
_______________________________________________________________________________
ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
GROWTH OF A $10,000 INVESTMENT
5/31/92* TO 8/31/97
$15,000
$14,000
$13,000
$12,000
$11,000
$10,000
$9,000
LLEHMAN BROTHER GOVERNMENT BOND INDEX: $14,471
LEHMAN BROTHERS 1-3 YEAR GOVERNMENT BOND INDEX: $13,381
LEHMAN BROTHERS 3-MONTH TREASURY BELLWETHER INDEX: $12,627
SHORT-TERM U.S. GOVERNMENT FUND CLASS A: $12,036
5/31/92 8/31/92 8/31/93 8/31/94 8/31/95 8/31/96 8/31/97
This chart illustrates the total value of an assumed $10,000 investment in
Alliance Short-Term U.S. Government Fund Class A shares (from 5/31/92 to
8/31/97) as compared to the performance of appropriate broad-based indices. The
chart reflects the deduction of the maximum 4.25% sales charge from the initial
$10,000 investment in the Fund and assumes the reinvestment of dividends and
capital gains. Performance for Class B and Class C shares will vary from the
results shown above due to differences in expenses charged to those classes.
Past performance is not indicative of future results, and is not representative
of future gain or loss in capital value or dividend income.
The unmanaged Lehman Brothers Government Bond Index is composed of the Treasury
Bond and Agency Bond Indexes, the 1-3 Year Government Bond Index and the 20+
Year Treasury Index.
The unmanaged Lehman Brothers 1-3 Year Government Bond Index is composed of
U.S. government agency and Treasury securities with maturities of one to three
years.
The unmanaged Lehman Brothers 3-Month Treasury Bellwether Index measures
performance of 3-month U.S. Treasury bills. U.S. Treasury securities are
guaranteed as to principal and interest if held to maturity whereas the value
of the Fund's shares will fluctuate so that your shares, when redeemed, may be
worth more or less than their original cost.
When comparing Alliance Short-Term U.S. Government Fund to the indices shown
above, you should note that no charges or expenses are reflected in the
performance of the indices.
Short-Term U.S. Government Fund
Lehman Brothers Government Bond Index
Lehman Brothers 1-3 Year Government Bond Index
Lehman Brothers 3-Month Treasury Bellwether Index
* Month-end nearest to Fund's inception date of 5/4/92.
4
PORTFOLIO OF INVESTMENTS
AUGUST 31, 1997
ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
_______________________________________________________________________________
PRINCIPAL
AMOUNT
(000) VALUE
- -------------------------------------------------------------------------
MORTGAGE-RELATED SECURITIES-91.7%
COLLATERALIZED MORTGAGE OBLIGATIONS-44.6%
FIXED RATE-25.3%
Federal Home Loan Mortgage Corp.
Series 1561 Cl. B
5.00%, 4/15/03 $ 252 $251,323
Series 1398 Cl. D
5.50%, 3/15/02 98 97,530
Series 1163 Cl. H
7.50%, 12/15/19 191 192,230
Federal National Mortgage Association
Series 1993-8 Cl. PD
5.75%, 4/25/13 461 458,730
Series 1992-25 Cl. E
6.75%, 11/25/03 526 524,081
Series 1997-30 Cl. K
7.00%, 9/18/05 518 517,296
ICI Funding Corp.
Series 1997-1 Cl. A2
9.00%, 3/25/28 781 806,431
Series 1997-2 Cl. 1A9
9.50%, 7/25/28 393 409,420
Prudential Home Mortgage Securities Co., Inc.
Series 1992-29 Cl. A7
8.00%, 10/25/22 628 629,540
------------
3,886,581
ADJUSTABLE RATE-19.3%
Bear Stearns Mortgage Securities, Inc.
Series 1996-8 Cl. A7
6.13%, 11/25/27 (a) 337 337,648
Federal Home Loan Mortgage Corp.
Series 1465 Cl. FA
6.138%, 2/15/08 (a) 563 566,694
Federal National Mortgage Association
Series 1997-20 Cl. F
6.21%, 3/25/27 (a) 909 908,492
Salomon Brothers Mortgage Securities VII, Inc.
Series 1996-AFF1 Cl. A1
6.09%, 1/25/26 (a) 623 623,766
Sears Mortgage Securities Corp.
Series 1992-16B Cl. A2
7.31%, 9/25/22 (a) 523 528,834
------------
2,965,434
Total Collateralized Mortgage Obligations
(cost $6,856,218) 6,852,015
FEDERAL NATIONAL MORTGAGE ASSOCIATION-38.0%
6.07%, 11/01/27 (a) 776 768,251
6.76%, 1/01/27 (a) 691 703,916
7.43%, 5/01/18 (a) 493 511,532
7.80%, 8/01/23 (a) (b) 830 859,608
7.84%, 7/01/25 (a) 474 491,469
8.00%, 10/01/99 (b) 657 666,150
8.05%, 10/01/24 (a) 538 558,823
12.00%, 3/01/13-5/01/15 1,118 1,285,655
Total Federal National Mortgage Association
(cost $5,828,004) 5,845,404
FEDERAL HOME LOAN MORTGAGE CORP.-9.1%
7.87%, 10/01/24 (a) 1,000 1,034,380
12.00%, 2/01/14 314 358,151
Total Federal Home Loan Mortgage Corp.
(cost $1,399,040) 1,392,531
Total Mortgage-Related Securities
(cost $14,083,262) 14,089,950
5
PORTFOLIO OF INVESTMENTS (CONTINUED)
ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
_______________________________________________________________________________
PRINCIPAL
AMOUNT
(000) VALUE
- -------------------------------------------------------------------------
ASSET BACKED SECURITIES-12.2%
AT&T Universal Card Master Trust
Series 1996-1 Cl. A
5.875%, 4/17/03 (a) $ 500 $500,155
Household Revolving Home Equity Loan Trust
Series 1996-2 Cl. A
5.77%, 2/20/18 (a) 293 292,920
ITT Federal Bank, fsb
Series 1994 P1 Cl. A1
7.89%, 6/25/24 (a) (c) 413 418,958
Nellie Mae Education Loan Trust
Series 1994-A Cl. A2
5.99%, 9/15/15 (a) 663 665,729
Total Asset Backed Securities
(cost $1,878,274) 1,877,762
REPURCHASE AGREEMENT-2.7%
Prudential-Bache Securities, Inc.
5.55%, dated 8/29/97,
due 9/02/97, collateralized by $505,000 FNMA,
5.623%, 2/01/27,
(cost $414,000) 414 414,000
TOTAL INVESTMENTS-106.6%
(cost $16,375,536) 16,381,712
Other assets less liabilities-(6.6%) (1,009,985)
NET ASSETS-100% $15,371,727
(a) Adjustable rate mortgages; stated interest rate in effect at August 31,
1997.
(b) Securities, or a portion thereof, with an aggregate market value $714,408
have been segregated to collateralize reverse repurchase agreements.
(c) 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 August 31, 1997, the security
amounted to $ 418,958 or 2.7% of net assets.
Glossary:
FNMA - Federal National Mortgage Association
See notes to financial statements.
6
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1997
ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
_______________________________________________________________________________
ASSETS
Investments in securities, at value (cost $16,375,536) $16,381,712
Cash 14,330
Receivable for shares of beneficial interest sold 140,196
Interest receivable 103,056
Receivable for investments sold 31,449
Receivable due from adviser 5,376
Total assets 16,676,119
LIABILITIES
Reverse repurchase agreement 698,425
Payable for shares of beneficial interest redeemed 489,954
Dividend payable 22,831
Distribution fee payable 11,248
Accrued expenses 81,934
Total liabilities 1,304,392
NET ASSETS $15,371,727
COMPOSITION OF NET ASSETS
Shares of beneficial interest, at par $ 16
Additional paid-in capital 16,028,896
Distributions in excess of net investment income (38,622)
Accumulated net realized loss on investment transactions (616,805)
Net unrealized depreciation of investments (1,758)
$15,371,727
CALCULATION OF MAXIMUM OFFERING PRICE
CLASS A SHARES
Net asset value and redemption price per share ($3,901,374/
405,286 shares of beneficial interest issued and outstanding) $ 9.63
Sales charge--4.25% of public offering price .43
Maximum offering price $10.06
CLASS B SHARES
Net asset value and offering price per share ($6,458,329/
663,066 shares of beneficial interest issued and outstanding) $ 9.74
CLASS C SHARES
Net asset value and offering price per share ($5,012,024/
515,118 shares of beneficial interest issued and outstanding) $ 9.73
See notes to financial statements.
7
STATEMENT OF OPERATIONS
YEAR ENDED AUGUST 31, 1997
ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
_______________________________________________________________________________
INVESTMENT INCOME
Interest $1,042,406
EXPENSES
Advisory fee $ 91,527
Distribution fee - Class A 11,031
Distribution fee - Class B 72,104
Distribution fee - Class C 57,538
Custodian 82,254
Audit and legal 42,489
Transfer agency 39,034
Registration 32,453
Printing 26,942
Trustees' fees 23,914
Amortization of organization expenses 4,671
Miscellaneous 9,433
Total expenses 493,390
Less: expenses waived and reimbursed by adviser
(See note B) (164,863)
Net expenses 328,527
Interest expense 1,869
Total expenses including interest expense 330,396
Net investment income 712,010
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investment transactions 41,888
Net change in unrealized depreciation of investments 5,742
Net gain on investments 47,630
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 759,640
See notes to financial statements.
8
STATEMENT OF CHANGES IN NET ASSETS ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
_______________________________________________________________________________
YEAR ENDED YEAR ENDED
AUGUST 31, AUGUST 31,
1997 1996
------------ ------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income $ 712,010 $ 645,706
Net realized gain (loss) on investment
transactions 41,888 (13,066)
Net change in unrealized appreciation
(depreciation) of investments 5,742 (30,800)
Net increase in net assets from operations 759,640 601,840
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A (175,837) (156,805)
Class B (293,780) (288,818)
Class C (234,511) (220,224)
Tax return of capital
Class A (25,833) -0-
Class B (43,161) -0-
Class C (34,454) -0-
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Net increase 333,768 592,950
Total increase 285,832 528,943
NET ASSETS
Beginning of year 15,085,895 14,556,952
End of year $15,371,727 $15,085,895
See notes to financial statements.
9
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1997
ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
_______________________________________________________________________________
NOTE A: SIGNIFICANT ACCOUNTING POLICIES
Alliance Short-Term U.S. Government Fund (the "Fund"), a series of The Alliance
Portfolios (the "Trust") which was organized as a Massachusetts Business Trust
on March 29, 1987, is registered under the Investment Company Act of 1940, as a
diversified, open-end management investment company. The Fund offers Class A,
Class B and Class C shares. Class A shares are sold with a front-end sales
charge of up to 4.25% for purchases not exceeding $1,000,000. With respect to
purchases of $1,000,000 or more, Class A shares redeemed within one year of
purchase will be subject to a contingent deferred sales charge of 1%. Class B
shares are currently sold with a contingent deferred sales charge which
declines from 3% to zero depending on the period of time the shares are held.
Class B shares will automatically convert to Class A shares six years after the
end of the calendar month of purchase. Class C shares are subject to a
contingent deferred sales charge of 1% on redemptions made within the first
year after purchase. All three classes of shares have identical voting,
dividend, liquidation and other rights with respect to its distribution plan.
The following is a summary of significant accounting policies followed by the
Fund.
1. SECURITY VALUATION
Portfolio securities traded on national securities exchanges are valued at the
last reported sales price on such exchange. Listed securities not traded and
securities traded in the over-the-counter market, including listed debt
securities whose primary market is believed to be over-the-counter, are valued
at the mean of the closing bid and asked price as obtained from a recognized
pricing service and brokers. Securities for which bid and asked price
quotations are not readily available are valued in good faith at fair value
using methods determined by the Board of Trustees. Securities which mature in
60 days or less are valued at amortized cost, which approximates market value.
2. ORGANIZATION EXPENSES
Organization expenses of approximately $50,000 were deferred and amortized on a
straight-line basis through May, 1997.
3. TAXES
It is the Fund's policy to meet the requirements of the Internal Revenue Code
applicable to regulated investment companies and to distribute all of its
investment company taxable income and net realized gains, if applicable, to
shareholders. Therefore, no provisions for federal income or excise taxes are
required.
4. INVESTMENT INCOME AND INVESTMENT TRANSACTIONS
Interest income is accrued daily. Investment transactions are accounted for on
the date securities are purchased or sold. Investment gains and losses are
determined on the identified cost basis. The Fund accretes discount as an
adjustment to interest income.
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 a tax return of capital, resulted in a net increase in
distributions in excess of net invesment income and a corresponding decrease in
additional paid-in capital. This reclassification had no affect on net assets.
6. INCOME AND EXPENSES
All income earned and expenses incurred by the Fund are borne on a pro-rata
basis by each settled class of shares, based on the proportionate interest in
the Fund represented by the shares of such class, except that the Fund's Class
B and Class C shares bear higher distribution fees and, in the case of Class B
shares, higher transfer agent fees. Expenses of the Trust are charged to each
Fund in proportion to settled shares.
7. REPURCHASE AGREEMENT
The Fund's custodian takes possession of collateral pledged for investments in
repurchase agreements, the market value of which is required to be at least
102% of the resale amount at the time of purchase. The value of the collateral
is marked-to-market on a daily basis and additional collateral is requested
from the counterparty, as necessary, to ensure that its value is at least equal
at all times to the total amount of the repurchase obligation, including
interest. If the seller defaults and the value of the collateral declines or if
bankruptcy proceedings commence with the respect to the seller of the security,
realization of the collateral by the Fund may be delayed or limited.
10
ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
_______________________________________________________________________________
NOTE B: ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of an investment advisory agreement, the Fund pays Alliance
Capital Management L.P. (the "Adviser") an advisory fee at an annual rate of
.55 of 1% of the Fund's average daily net assets. Such fee is accrued daily and
paid monthly. The Investment Adviser has agreed to voluntarily waive its fees
and bear certain expenses so that total expenses do not exceed on an annual
basis 1.40%, 2.10% and 2.10% of the daily average net assets for the Class A,
Class B and Class C shares, respectively. For the year ended August 31, 1997,
such reimbursement amounted to $164,863.
The Fund 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 Fund. Compensation under
this agreement amounted to $17,500 for the year ended August 31, 1997.
Alliance Fund Distributors, Inc., (the "Distributor"), a wholly-owned
subsidiary of the Adviser serves as the Distributor of the Fund's shares. The
Distributor received front-end sales charges of $1,927 from the sale of Class A
shares and $37,385 and $3,387 in contingent deferred sales charges imposed upon
redemptions by shareholders of Class B and Class C shares, respectively, for
the year ended August 31, 1997.
Accrued expenses includes $10,991 owed to a Trustee under the Trust's deferred
compensation plan.
NOTE C: DISTRIBUTION PLANS
The Trust has adopted a Plan for each class of shares of the Fund pursuant to
Rule 12b-1 under the Investment Company Act of 1940 (each a "Plan" and
collectively the "Plans"). Under the Plan, the Fund pays a distribution fee to
the Distributor at an annual rate of up to .50% of the Fund's average daily net
assets attributable to Class A shares and 1% of the average daily net assets
attributable to both Class B and Class C shares. The Trustees currently limit
payments under the Class A plan to .30% of the Fund's aggregate average daily
net assets attributable to Class A shares.
The Fund is not obligated under the Plan to pay any distribution services fee
in excess of the amounts set forth above. The purpose of the payments to the
Distributor under the Plan is to compensate the Distributor for its
distribution services with respect to the sale of the Funds' shares. Since the
Distributor's compensation is not directly tied to its expenses, the amount of
compensation received by it under the Plan during any year may be more or less
than its actual expenses. For this reason, the Plan is characterized by the
staff of the Commission as being of the "compensation" variety.
In the event that a Plan is terminated or not continued, (i) no distribution
services fees (other than current amounts accrued but not yet paid) would be
owed by the Funds to the Distributor with respect to the relevant class and
(ii) the Funds would not be obligated to pay the Distributor for any amounts
expended by the Distributor not previously recovered by the Distributor from
distribution services fees in respect of shares of such class or, in the case
of Class B shares, recovered through deferred sales charges.
The Plans also provides that the Adviser may use its own resources to finance
the distribution of the Fund's shares.
NOTE D: INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term investments
and U.S. government securities) aggregated $6,154,591 and $3,241,948,
respectively, for the year ended August 31, 1997. There were purchases of
$13,535,253 and sales of $6,509,839 of U.S. government and government agency
obligations for the year ended August 31, 1997.
11
NOTES TO FINANCIAL STATEMENTS (CONT.)
ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
_______________________________________________________________________________
At August 31, 1997, the cost of investments for federal income tax purposes was
the same as the cost for financial reporting purposes. Accordingly, gross
unrealized appreciation of investments was $32,567 and gross unrealized
depreciation of investments was $26,391 resulting in net unrealized
appreciation of $6,176.
At August 31, 1997 the Fund had net capital loss carryforward of $616,804 of
which $44,110 expires in the fiscal year ending 2001, $36,136 expires in the
fiscal year ending 2002, $522,417 expires in the fiscal year ending 2003, and
$14,141 expires in the fiscal year ending 2004 to the extent provided by the
regulations. To the extent that this loss carryforward is used to offset future
capital gains, it is probable that the gains so offset will not be distributed
to shareholders. Capital losses incurred after October 31, within the Fund's
fiscal year are deemed to arise on the first business day of the following
fiscal year.
NOTE E: SHARES OF BENEFICIAL INTEREST
There is an unlimited number of $0.00001 par value shares of beneficial
interest authorized divided into three classes, designated Class A, Class B and
Class C shares. Transactions in shares of beneficial interest were as follows:
SHARES AMOUNT
--------------------------- ------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
1997 1996 1997 1996
------------ ------------ -------------- --------------
CLASS A
Shares sold 271,217 247,602 $ 2,618,771 $ 2,403,892
Shares issued in
reinvestment of
dividends 15,376 8,915 148,473 86,515
Shares converted
from Class B 16,392 16,994 158,206 166,372
Shares redeemed (255,414) (224,741) (2,466,879) (2,182,378)
Net increase 47,571 48,770 $ 458,571 $ 474,401
CLASS B
Shares sold 658,962 686,744 $ 6,439,331 $ 6,747,952
Shares issued in
reinvestment of
dividends 24,392 16,716 238,244 164,023
Shares converted
to Class A (16,203) (17,183) (158,206) (166,372)
Shares redeemed (698,307) (642,638) (6,822,354) (6,315,168)
Net increase(decrease) (31,156) 43,639 $ (302,985) $ 430,435
CLASS C
Shares sold 434,159 434,234 $ 4,238,239 $ 4,258,011
Shares issued in
reinvestment of
dividends 18,955 11,782 184,964 115,471
Shares redeemed (435,115) (477,627) (4,245,021) (4,685,368)
Net increase(decrease) 17,999 (31,611) $ 178,182 $ (311,886)
12
ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
_______________________________________________________________________________
NOTE F: REVERSE REPURCHASE AGREEMENTS
Under a reverse repurchase agreement, the Fund sells securities and agrees to
repurchase them at a mutually agreed upon date and price. At the time the Fund
enters into a reverse repurchase agreement, it will establish a segregated
account with the custodian containing cash, cash equivalents or liquid
high-grade debt securities having a value at least equal to the repurchase
price.
As of August 31, 1997, the Fund had entered into the following reverse
repurchase agreements:
AMOUNT BROKER INTEREST RATE MATURITY
------------ -------------- --------------- -----------------
$194,000 Morgan Stanley 5.70% September 2, 1997
$504,000 Morgan Stanley 5.72% September 5, 1997
For the year ended August 31, 1997, the maximum amount of reverse repurchase
agreements outstanding was $698,000, the average amount outstanding was
approximately $432,519, and the daily weighted average interest rate was 5.72%.
13
FINANCIAL HIGHLIGHTS
ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD
<TABLE>
<CAPTION>
CLASS A
------------------------------------------------------------------------------
MAY 1, 1994 MAY 4,1992(b)
YEAR ENDED AUGUST 31, THROUGH YEAR ENDED TO
------------------------------------- AUGUST 31, APRIL 30, APRIL 30,
1997 1996 1995 1994(A) 1994 1993
----------- ----------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $9.66 $9.70 $9.67 $9.77 $10.22 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (c) .47(d) .47 .42 .14 .35 .46
Net realized and unrealized gain (loss)
on investments .03 (.02) .05 (.09) (.29) .34
Net increase in net asset value from
operations .50 .45 .47 .05 .06 .80
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.46) (.49) (.41) (.12) (.42) (.46)
Dividends in excess of net investment income -0- -0- (.03) -0- (.01) -0-
Tax return of capital (.07) -0- -0- (.03) (.08) -0-
Distributions from net realized gains -0- -0- -0- -0- -0- (.12)
Total dividends and distributions (.53) (.49) (.44) (.15) (.51) (.58)
Net asset value, end of period $9.63 $9.66 $9.70 $9.67 $ 9.77 $10.22
TOTAL RETURN
Total investment return based on net
asset value (e) 5.29% 4.71% 5.14% .53% .52% 8.20%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $3,901 $3,455 $2,997 $2,272 $2,003 $6,081
Ratio to average net assets of:
Expenses, net of waivers/reimbursements 1.40% 1.40% 1.40% 1.40%(f) 1.27% 1.00%(f)
Interest expense on reverse
repurchase agreements .01% .13% -0- -0- -0- -0-
Expenses, before waivers/reimbursements 2.42% 3.04% 3.71% 2.95%(f) 2.17% 2.20%(f)
Net investment income 4.90% 4.85% 4.56% 3.98%(f) 4.41% 4.38%(f)
Portfolio turnover rate 65% 110% 15% 144% 55% 294%
</TABLE>
See footnotes on page 16.
14
ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD
<TABLE>
<CAPTION>
CLASS B
------------------------------------------------------------------------------
MAY 1, 1994 MAY 4,1992(b)
YEAR ENDED AUGUST 31, THROUGH YEAR ENDED TO
------------------------------------- AUGUST 31, APRIL 30, APRIL 30,
1997 1996 1995 1994(A) 1994 1993
----------- ----------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $9.77 $9.81 $9.78 $9.88 $10.31 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (c) .41(d) .41 .36 .10 .40 .38
Net realized and unrealized gain (loss)
on investments .02 (.03) .04 (.07) (.39) .33
Net increase in net asset value from
operations .43 .38 .40 .03 .01 .71
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.39) (.42) (.34) (.11) (.35) (.38)
Dividends in excess of net investment income -0- -0- (.03) -0- (.01) -0-
Tax return of capital (.07) -0- -0- (.02) (.08) -0-
Distributions from net realized gains -0- -0- -0- -0- -0- (.02)
Total dividends and distributions (.46) (.42) (.37) (.13) (.44) (.40)
Net asset value, end of period $9.74 $9.77 $9.81 $9.78 $ 9.88 $10.31
TOTAL RETURN
Total investment return based on net
asset value (e) 4.45% 3.89% 4.32% .28% .03% 7.22%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $6,458 $6,781 $6,380 $6,281 $7,184 $1,292
Ratios of average net assets of:
Expenses, net of waivers/reimbursements 2.10% 2.10% 2.10% 2.10%(f) 2.05% 1.75%(f)
Interest expense on reverse
repurchase agreements .01% .13% -0- -0- -0- -0-
Expenses, before waivers/reimbursements 3.10% 3.74% 4.33% 3.60%(f) 3.21% 4.81%(f)
Net investment income 4.13% 4.11% 3.82% 3.22%(f) 3.12% 3.36%(f)
Portfolio turnover rate 65% 110% 15% 144% 55% 294%
</TABLE>
See footnotes on page 16.
15
FINANCIAL HIGHLIGHTS (CONTINUED)
ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD
<TABLE>
<CAPTION>
CLASS C
----------------------------------------------------------------
AUGUST 2,
MAY 1, 1994 1993(g)
YEAR ENDED AUGUST 31, THROUGH TO
------------------------------------- AUGUST 31, APRIL 30,
1997 1996 1995 1994(A) 1994
----------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $9.76 $9.80 $9.77 $9.87 $10.34
INCOME FROM INVESTMENT OPERATIONS
Net investment income (c) .41(d) .40 .34 .10 .26
Net realized and unrealized gain (loss)
on investments .02 (.02) .06 (.07) (.42)
Net increase (decrease) in net asset value
from operations .43 .38 .40 .03 (.16)
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.39) (.42) (.34) (.11) (.25)
Dividends in excess of net investment income -0- -0- (.03) -0- (.01)
Tax return of capital (.07) -0- -0- (.02) (.05)
Total dividends and distributions (.46) (.42) (.37) (.13) (.31)
Net asset value, end of period $9.73 $9.76 $9.80 $9.77 $ 9.87
TOTAL RETURN
Total investment return based on net
asset value (e) 4.45% 3.90% 4.33% .28% (1.56)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $5,012 $4,850 $5,180 $7,128 $8,763
Ratios of average net assets of:
Expenses, net of waivers/reimbursements 2.10% 2.10% 2.10% 2.10%(f) 2.10%(f)
Interest expense on reverse
repurchase agreements .01% .12% -0- -0- -0-
Expenses, before waivers/reimbursements 3.09% 3.72% 4.23% 3.64%(f) 3.10%(f)
Net investment income 4.15% 4.11% 3.80% 3.26%(f) 2.60%(f)
Portfolio turnover rate 65% 110% 15% 144% 55%
</TABLE>
(a) The Fund changed its fiscal year end from April 30 to August 31.
(b) Commencement of operations.
(c) Net of fees waived and expenses reimbursed by Adviser.
(d) Based on average shares outstanding.
(e) 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. Initial sales charges or contingent
deferred sales charges are not reflected in the calculation of total investment
return. Total investment return calculated for a period of less than one year
is not annualized.
(f) Annualized.
(g) Commencement of distribution.
Prior to July 22, 1993, Equitable Capital Management Corporation
(Equitable Capital) served as the investment adviser to the Trust. On July 22,
1993, Alliance Capital Management L.P. acquired the business and substantially
all of the assets of Equitable Capital and became the investment adviser of the
Trust.
16
REPORT OF INDEPENDENT ACCOUNTANTS
ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
_______________________________________________________________________________
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Alliance Short-Term U.S.
Government Fund (one of the portfolios of the Alliance Portfolios, hereafter
referred to as the "Fund") at August 31, 1997, the results of its operations
for the year then ended, the changes in its net assets for each of the two
years in the period then ended and the financial highlights for each of the
periods presented, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits, which included confirmation of
securities at August 31, 1997 by correspondence with the custodian and brokers
provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
New York, New York
October 13, 1997
17
ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
_______________________________________________________________________________
BOARD OF TRUSTEES
JOHN D. CARIFA, CHAIRMAN AND PRESIDENT
RUTH BLOCK (1)
RICHARD W. COUPER (1)
WILLIAM H. FOULK, JR. (1)
BRENTON W. HARRIES (1)
DONALD J. ROBINSON (1)
OFFICERS
BRUCE W. CALVERT, VICE PRESIDENT
KATHLEEN A. CORBET, VICE PRESIDENT
WAYNE D. LYSKI, VICE PRESIDENT
EDMUND P. BERGAN, JR., CLERK
MARK D. GERSTEN, TREASURER & CHIEF FINANCIAL OFFICER
VINCENT S. NOTO, CONTROLLER & CHIEF ACCOUNTING OFFICER
CUSTODIAN
STATE STREET BANK & TRUST COMPANY
225 Franklin Street
Boston, MA 02110
PRINCIPAL UNDERWRITER
ALLIANCE FUND DISTRIBUTORS, INC.
1345 Avenue of the Americas
New York, NY 10105
LEGAL COUNSEL
ROPES & GRAY
One International Place
Boston, MA 02110-2624
TRANSFER AGENT
ALLIANCE FUND SERVICES, INC.
P.O. Box 1520
Secaucus, NJ 07096-1520
Toll-Free 1-(800) 221-5672
INDEPENDENT ACCOUNTANTS
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, NY 10036-2798
(1) Member of the Audit Committee.
18
THE ALLIANCE FAMILY OF MUTUAL FUNDS
_______________________________________________________________________________
FIXED INCOME
Alliance Bond Fund
U.S. Government Portfolio
Corporate Bond Portfolio
Alliance Global Dollar Government Fund
Alliance Global Strategic Income Trust
Alliance High Yield Fund
Alliance Mortgage Securities Income Fund
Alliance Limited Maturity Government Fund
Alliance Multi-Market Strategy Trust
Alliance North American Government Income Trust
Alliance Short-Term Multi-Market Trust
Alliance Short-Term U.S. Government Fund
Alliance World Income Trust
TAX-FREE INCOME
Alliance Municipal Income Fund
California Portfolio
Insured California Portfolio
Insured National Portfolio
National Portfolio
New York Portfolio
Alliance Municipal Income Fund II
Arizona Portfolio
Florida Portfolio
Massachusetts Portfolio
Michigan Portfolio
Minnesota Portfolio
New Jersey Portfolio
Ohio Portfolio
Pennsylvania Portfolio
Virginia Portfolio
MONEY MARKET
AFD Exchange Reserves
GROWTH
The Alliance Fund
Alliance Global Small Cap Fund
Alliance Growth Fund
Alliance Premier Growth Fund
Alliance/Regent Sector Opportunity Fund
GROWTH & INCOME
Alliance Strategic Balanced Fund
Alliance Balanced Shares
Alliance Conservative Investors Fund
Alliance Growth & Income Fund
Alliance Growth Investors Fund
Alliance Income Builder Fund
Alliance Real Estate Investment Fund
Alliance Utility Income Fund
AGGRESSIVE GROWTH
Alliance Quasar Fund
Alliance Technology Fund
INTERNATIONAL
Alliance All-Asia Investment Fund
Alliance International Fund
Alliance New Europe Fund
Alliance Worldwide Privatization Fund
CLOSED-END FUNDS
Alliance All-Market Advantage Fund
Alliance Global Environment Fund
ACM Government Income Fund
ACM Government Opportunity Fund
ACM Government Securities Fund
ACM Government Spectrum Fund
ACM Managed Dollar Income Fund
ACM Managed Income Fund
ACM Municipal Securities Income Fund
Alliance World Dollar Government Fund
Alliance World Dollar Government Fund II
The Austria Fund
The Korean Investment Fund
The Spain Fund
The Southern Africa Fund
CASH MANAGEMENT SERVICES
ACM Institutional Reserves
Government Portfolio
Prime Portfolio
Tax-Free Portfolio
Trust Portfolio
Alliance Capital Reserves
Alliance Government Reserves
Alliance Insured Account
Alliance Money Reserves
Alliance Municipal Trust
California Portfolio
Connecticut Portfolio
Florida Portfolio
General Portfolio
Massachusetts Portfolio
New Jersey Portfolio
New York Portfolio
Virginia Portfolio
Alliance Treasury Reserves
Alliance Money Market Fund
Prime Portfolio
Government Portfolio
General Municipal Portfolio
19
ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
1345 Avenue of the Americas
New York, NY 10105
(800) 221-5672
ALLIANCE CAPITAL
THIS REPORT IS INTENDED SOLELY FOR DISTRIBUTION TO CURRENT SHAREHOLDERS
OF THE FUND.
R THESE REGISTERED SERVICE MARKS USED UNDER LICENSE FROM THE OWNER,
ALLIANCE CAPITAL MANAGEMENT L.P.
STMUSGAR
