ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
ANNUAL REPORT
AUGUST 31, 1998
ALLIANCE CAPITAL
LETTER TO SHAREHOLDERS ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
_______________________________________________________________________________
October 22, 1998
Dear Shareholder:
We are pleased to report to you on our investment strategy, performance and
outlook for the Alliance Short-Term U.S. Government Fund. The Fund's objective
is to provide investors with high current income consistent with preservation
of capital. To achieve its objective, the Fund invests primarily in a
diversified portfolio of U.S. Government securities.
INVESTMENT PERFORMANCE
The following table shows how your Fund performed during the six- and 12-month
periods ended August 31, 1998. For comparison, we have included performance for
the Lehman Brothers (LB) 1-3 Year Government Bond Index and the LB 3-Month
Treasury Bellwether Index. The LB 1-3 Year Index provides a broad-based
comparison for the Short-Term U.S. Government Fund, while the LB 3-Month
Treasury Index is a good narrow-based benchmark, given its short-term
orientation.
During both time periods, the Fund's performance trailed that of its
benchmarks. This underperformance is primarily attributable to the more
conservative duration structure of the Fund. Throughout the period, longer-term
duration securities outperformed shorter-term duration securities as interest
rates declined and the yield curve flattened.
INVESTMENT RESULTS*
Periods Ended August 31, 1998
TOTAL RETURNS
6 MONTHS 12 MONTHS
-------- ---------
ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
Class A 1.99% 4.04%
Class B 1.68% 3.52%
Class C 1.68% 3.53%
LEHMAN BROTHERS 1-3 YEAR GOVERNMENT
BOND INDEX 3.71% 7.37%
LEHMAN BROTHERS 3-MONTH TREASURY
BELLWETHER INDEX 2.73% 5.42%
* THE FUND'S INVESTMENT RESULTS REPRESENT TOTAL RETURNS AND ARE BASED ON THE
NET ASSET VALUE AS OF AUGUST 31, 1998. 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 INCLUDE THE REINVESTMENT OF ANY DISTRIBUTIONS PAID DURING THE PERIOD.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
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 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.
MARKET OVERVIEW
Through the six-month period ended August 31, 1998, the U.S. bond market
recorded positive returns in an environment of healthy economic growth and low
inflation. However, returns were dampened across all non-Treasury sectors by
events unfolding in the emerging markets. Renewed volatility in Asia, weakness
in the yen and fiscal problems in Russia heightened investor concerns which
lead to a flight to quality. This trend gained momentum in August when a
collapse of the Russian financial system led to an abrupt sell-off across
global credit sensitive bond and stock markets. During this volatile period,
the U.S. government sector, acting as a safe haven, posted the best return
among the U.S. bond market sectors.
INVESTMENT STRATEGY
During the six-month period ended August 31, 1998, we adjusted the portfolio to
reflect current market conditions. Fixed-rate premium pass-throughs were
purchased versus two-year Treasury notes. These premium mortgage-backed
securities represented value relative to other
1
ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
_______________________________________________________________________________
short-duration assets even at high prepayment levels. As interest rates
continued to decline, we reduced our exposure to both conventional and
Government National Mortgage Association (GNMA) adjustable-rate mortgages, as
well as fixed-rate mortgage-backed securities. In August, we re-entered the
GNMA adjustable-rate mortgage market at lower prices than at which we had
previously sold these securities, as we expect the downward adjustment in
homeowners' coupon rates to contain prepayments.
OUTLOOK
Going forward, we anticipate slowing global growth and continued benign
inflation as Asia exports cheaper goods to the world and imports less from
abroad. In the U.S., we expect growth to continue slowing with second half 1998
Gross Domestic Product (GDP) growth declining to 2.8%, and 1999 GDP growth
slowing further. Strong domestic demand will continue to be offset by weakening
industrial production and a continued deterioration in the U.S. trade deficit.
The combination of low U.S. inflation and slowing domestic and global growth
will prompt further rate cuts before the end of 1998. U.S. interest rates will
remain low as the U.S. Treasury market continues to provide a safe haven for
investors during periods of volatility overseas.
Thank you for your continued interest and investment in the Alliance Short-Term
U.S. Government Fund. We look forward to reporting its progress to you in the
coming months.
Sincerely,
John D. Carifa
Chairman and President
Patricia J. Young
Vice President
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.
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 the preservation of capital and invests primarily in a diversified
portfolio of U.S. Government securities.
INVESTMENT RESULTS
_______________________________________________________________________________
NAV AND SEC AVERAGE ANNUAL TOTAL RETURNS AS OF AUGUST 31, 1998
CLASS A SHARES
WITHOUT WITH
SALES CHARGE SALES CHARGE
------------ ------------
One Year 4.04% -0.41%
Five Years 3.55% 2.65%
Since Inception* 4.47% 3.76%
SEC Yield** 4.85%
CLASS B SHARES
WITHOUT WITH
SALES CHARGE SALES CHARGE
------------ ------------
One Year 3.52% 0.56%
Five Years 2.86% 2.86%
Since Inception*(a) 3.79% 3.79%
SEC Yield** 4.29%
CLASS C SHARES
WITHOUT WITH
SALES CHARGE SALES CHARGE
------------ ------------
One Year 3.53% 2.54%
Five Years 2.85% 2.85%
Since Inception* 2.91% 2.91%
SEC Yield** 4.28%
SEC AVERAGE ANNUAL TOTAL RETURNS AS OF THE MOST RECENT QUARTER-END
(JUNE 30, 1998)
CLASS A CLASS B CLASS C
--------- --------- ---------
1 Year -0.21% 0.55% 2.53%
5 Years 2.82% 3.00% n/a
Since Inception* 3.74% 3.77% 2.87%
The Fund's investment results represent average annual total returns. The NAV
and SEC returns reflect reinvestment of dividends and/or capital gains
distributions in additional shares without (NAV) and with (SEC) 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.
(a) Assumes conversion of Class B shares into Class A shares after six years.
* Inception: 5/4/92 Class A and Class B; 8/2/93 Class C.
** Yields are for the 30 days ended August 31, 1998.
n/a: not applicable
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 8/31/98
$17,000
$16,000
$15,000
$14,000
$13,000
$12,000
$11,000
$10,000
$9,000
LEHMAN BROTHERS GOVERNMENT BOND INDEX: $16,247
LEHMAN BROTHERS 1-3 YEAR GOVERNMENT BOND INDEX: $14,358
LEHMAN BROTHERS 3-MONTH TREASURY BELLWETHER INDEX: $13,312
SHORT-TERM U.S. GOVERNMENT FUND CLASS A: $12,522
5/31/92 8/31/92 8/31/93 8/31/94 8/31/95 8/31/96 8/31/97 8/31/98
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
8/31/98) 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 LB
Treasury Bond and LB Agency Bond Indexes, the LB 1-3 Year Government Bond Index
and the LB 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, 1998 ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
_______________________________________________________________________________
PRINCIPAL
AMOUNT
(000) VALUE
- -------------------------------------------------------------------------------
MORTGAGE-RELATED SECURITIES-75.3%
COLLATERALIZED MORTGAGE OBLIGATIONS-40.6%
FIXED RATE-24.6%
CMC Securities Corp.
Series 1993-E Cl. ES4
5.75%, 11/25/08 $ 60 $ 60,265
Countrywide Funding Corp.
Series 1994-9 Cl. A2
6.50%, 5/25/24 565 564,450
Federal Home Loan Mortgage Corp.
Series 1903 Cl. B
6.75%, 10/15/03 600 599,628
Series 1923 Cl. B
7.00%, 1/15/23 600 604,500
Series 2072 Cl. CA
7.50%, 10/15/27 494 500,468
Federal National Mortgage Association
Series 1996-68 Cl. B
6.50%, 5/18/17 449 451,255
Series 1997-53 Cl. PA
6.50%, 10/18/15 500 500,940
Series 1997-24 Cl. C
7.00%, 9/18/22 414 416,714
Series 1997-42 Cl. EA
7.25%, 3/18/26 520 526,141
Government National Mortgage Association
Series 1996-25 Cl. A
7.50%, 7/20/17 407 407,200
ICI Funding Corp.
Series 1997-1 Cl. A2
9.00%, 3/25/28 345 348,496
Series 1997-2 Cl. 1A9
9.50%, 7/25/28 198 200,514
Residential Funding Mortgage
Securities Co.
Series 1992-S31 Cl. A4
7.50%, 9/25/06 86 85,413
------------
5,265,984
ADJUSTABLE RATE-16.0%
Bear Stearns Mortgage Securities, Inc.
Series 1996-8 Cl. A7
6.19%, 11/25/27 (a) 88 88,039
Commercial Loan Funding Trust
Series I Cl. A
5.89%, 8/15/05 (a) (b) 163 163,261
Federal Home Loan Mortgage Corp.
Series 1928 Cl. F
6.13%, 12/15/24 (a) 363 364,465
Federal National Mortgage Association
Series 1993-639 Cl. F
6.04%, 8/25/16 (a) 479 481,562
Series 1992-204 Cl. FA
6.44%, 10/25/22 (a) 535 545,711
Imperial CMB Trust
Series 1997-2 Cl. M1
6.19%, 12/25/27 (a) 497 496,693
Prudential Securities Financial Asset
Funding Corp.
Series 1993-7 Cl. A2
7.65%, 2/26/23 (a) 600 612,936
Salomon Brothers Mortgage
Securities VII, Inc.
Series 1996-AFF1 Cl. A1
6.16%, 1/25/26 (a) 360 360,529
Sears Mortgage Securities
Corp.
Series 1992-16B Cl. A2
6.71%, 9/25/22 (a) 324 326,031
------------
3,439,227
5
PORTFOLIO OF INVESTMENTS (CONTINUED)
ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
_______________________________________________________________________________
PRINCIPAL
AMOUNT
(000) VALUE
- -------------------------------------------------------------------------------
Total Collateralized Mortgage Obligations
(cost $8,722,405) $ 8,705,211
FEDERAL NATIONAL MORTGAGE
ASSOCIATION-24.9%
5.96%, 5/01/27 (a) $ 149 151,887
7.48%, 7/01/25 (a) 1,017 1,043,087
7.50%, 12/01/99 900 925,308
7.51%, 1/01/27 (a) 184 186,233
7.58%, 6/01/26 (a) 360 368,174
7.60%, 9/01/27 (a) 327 333,917
7.64%, 11/01/26 (a) 400 409,329
8.00%, 10/01/99-12/01/99 865 886,706
12.00%, 3/01/13-5/01/15 899 1,035,189
Total Federal National Mortgage
Association
(cost $5,332,328) 5,339,830
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION-5.6%
6.88%, 4/20/23 (a) 484 493,579
7.00%, 11/20/26-12/20/26 (a) 681 691,147
Total Government National Mortgage
Association
(cost $1,187,032) 1,184,726
FEDERAL HOME LOAN MORTGAGE CORP.-4.2%
7.87%, 2/01/26 (a) 710 724,670
12.00%, 2/01/14 153 175,733
Total Federal Home Loan Mortgage Corp.
(cost $910,371) 900,403
Total Mortgage-Related Securities
(cost $16,152,136) 16,130,170
ASSET BACKED SECURITIES-9.6%
Access Financial Mortgage Loan Trust
Series 1997-3 Cl. A7
5.89%, 10/18/27 (a) 405 405,459
Advanta Credit Card Master Trust
Series 1996-C Cl. A
5.81%, 11/15/03 (a) 350 349,888
AFC Mortgage Loan Trust
Series 1998-2 Cl. 1A
5.75%, 7/25/28 (a) 391 390,912
Countrywide Home Equity Loan Trust
Series 1998-Cl. CTFS
5.83%, 10/15/24 (a) 400 400,000
Equicon Home Equity Loan Trust
Mortgage Loan
Series 1994-2 Cl. A7
6.24%, 11/18/25 (a) 293 292,711
ITT Federal Bank, fsb
Series 1994-P1 Cl. A1
7.68%, 6/25/24 (a) (b) 224 226,400
Total Asset Backed Securities
(cost $2,067,331) 2,065,370
REPURCHASE AGREEMENTS-15.5%
Goldman, Sachs & Co.
5.81%, dated 8/31/98,
$400,065 due 9/01/98,
collateralized by
$423,000 FGLMC,
7.00%, 2/01/28 400 400,000
PaineWebber, Inc.
5.70%, dated 8/31/98,
$975,154 due 9/01/98,
collateralized by
$983,000 FNMA,
6.50%, 8/01/13 975 975,000
6
ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
_______________________________________________________________________________
PRINCIPAL
AMOUNT
(000) VALUE
- -------------------------------------------------------------------------------
Prudential Securities, Inc.
5.83%, dated 8/31/98,
$975,158 due 9/01/98,
collateralized by
$985,000 FHLM,
6.25%, 12/15/22 $ 975 $ 975,000
State Street Bank and Trust Co.
5.82%, dated 8/31/98,
$975,158 due 9/01/98,
collateralized by
$980,000 FNMA,
5.96%, 11/16/99 975 975,000
Total Repurchase Agreements
(cost $3,325,000) 3,325,000
TOTAL INVESTMENTS-100.4%
(cost $21,544,467) 21,520,540
Other assets less liabilities-(0.4%) (84,673)
NET ASSETS-100% $ 21,435,867
(a) Adjustable rate mortgages; stated interest rate in effect at August 31,
1998.
(b) Securities are exempt from registration under Rule 144A of the Securities
Act of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At August 31, 1998,
these securities amounted to $389,661 or 1.8% of net assets.
See notes to financial statements.
7
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1998 ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
_______________________________________________________________________________
ASSETS
Investments in securities, at value (cost $18,219,467) $ 18,195,540
Repurchase agreements (cost $3,325,000) 3,325,000
Cash 14,285
Receivable for shares of beneficial interest sold 1,739,336
Receivable for investment securities sold 1,217,912
Interest receivable 326,887
Receivable due from Adviser 36,875
Total assets 24,855,835
LIABILITIES
Payable for investment securities purchased 3,237,982
Payable for shares of beneficial interest redeemed 63,727
Dividends payable 27,533
Distribution fee payable 11,197
Accrued expenses 79,529
Total liabilities 3,419,968
NET ASSETS $ 21,435,867
COMPOSITION OF NET ASSETS
Shares of beneficial interest, at par $ 22
Additional paid-in capital 22,259,136
Distributions in excess of net investment income (42,209)
Accumulated net realized loss on investment transactions (750,635)
Net unrealized depreciation of investments and other assets (30,447)
$ 21,435,867
CALCULATION OF MAXIMUM OFFERING PRICE
CLASS A SHARES
Net asset value and redemption price per share
($5,534,521/583,743 shares of beneficial interest
issued and outstanding) $9.48
Sales charge--4.25% of public offering price .42
Maximum offering price $9.90
CLASS B SHARES
Net asset value and offering price per share
($10,827,357/1,125,064 shares of beneficial interest
issued and outstanding) $9.62
CLASS C SHARES
Net asset value and offering price per share
($5,073,989/528,056 shares of beneficial interest
issued and outstanding) $9.61
See notes to financial statements.
8
STATEMENT OF OPERATIONS
YEAR ENDED AUGUST 31, 1998 ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
_______________________________________________________________________________
INVESTMENT INCOME
Interest $ 1,131,931
EXPENSES
Advisory fee $ 89,353
Distribution fee - Class A 15,938
Distribution fee - Class B 64,165
Distribution fee - Class C 45,169
Custodian 95,580
Audit and legal 37,999
Transfer agency 35,846
Registration 35,722
Printing 29,028
Trustees' fees 23,284
Miscellaneous 1,433
Total expenses 473,517
Less: expenses waived and reimbursed
by Adviser (See Note B) (167,832)
Less: expense offset arrangement (See Note B) (1,705)
Net expenses 303,980
Interest expense 71,757
Total expenses including interest expense 375,737
Net investment income 756,194
REALIZED AND UNREALIZED LOSS ON INVESTMENTS
Net realized loss on investment transactions (133,830)
Net change in unrealized depreciation of
investments and other assets (28,689)
Net loss on investments (162,519)
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 593,675
See notes to financial statements.
9
STATEMENT OF CHANGES IN NET ASSETS ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
_______________________________________________________________________________
YEAR ENDED YEAR ENDED
AUGUST 31, AUGUST 31,
1998 1997
------------ ------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income $ 756,194 $ 712,010
Net realized gain (loss) on investment
transactions (133,830) 41,888
Net change in unrealized depreciation of
investments and other assets (28,689) 5,742
Net increase in net assets from operations 593,675 759,640
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A (274,620) (175,837)
Class B (281,947) (293,780)
Class C (199,627) (234,511)
Tax return of capital
Class A (18,747) (25,833)
Class B (19,247) (43,161)
Class C (13,628) (34,454)
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Net increase 6,278,281 333,768
Total increase 6,064,140 285,832
NET ASSETS
Beginning of year 15,371,727 15,085,895
End of year $ 21,435,867 $ 15,371,727
See notes to financial statements.
10
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1998 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"), 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, except that each class bears different
distribution expenses and has exclusive voting rights with respect to its
distribution plan. 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 are valued at the
last sale price on such exchange on the day of valuation or, if there was no
sale on such day, the mean of the bid and asked prices on that day's closing.
Securities traded on the over-the-counter market are valued at the mean of the
current bid and asked prices reported by NASDAQ, the National Quotation Bureau
or other comparable sources deemed appropriate to reflect the fair market value
thereof. 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 the Trustees.
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.
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 provisions for federal income or excise taxes are
required.
3. INVESTMENT INCOME AND INVESTMENT TRANSACTIONS
Interest income is accrued daily. Investment transactions are accounted for on
the date securities are purchased or sold. The Fund accretes discount as an
adjustment to interest income. Investment gains and losses are determined on
the identified cost basis.
4. 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 than Class A. Expenses of the Trust are
charged to each Fund in proportion to settled shares.
5. DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions to shareholders are recorded on the ex-dividend
date.
Income dividends 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 decrease in
distributions in excess of net investment income and a corresponding decrease
in additional paid-in capital. This reclassification had no effect on net
assets.
11
NOTES TO FINANCIAL STATEMENTS (CONT.)
ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
_______________________________________________________________________________
6. 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.
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 Adviser has agreed to voluntarily waive its fees and bear
certain expenses so that total operating 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, 1998,
the Adviser waived all advisory fees and bore additional operating expenses in
the amount of $167,832.
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. Such compensation
amounted to $20,680 for the year ended August 31, 1998.
In addition, for the year ended August 31, 1998, the Fund's expenses were
reduced by $1,705 under an expense offset arrangement with Alliance Fund
Services. Transfer agency fees reported in the statement of operations exclude
these credits.
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 $18,771, and $2,286 in contingent deferred sales charges
imposed upon redemptions by shareholders of Class B and Class C shares,
respectively, for the year ended August 31, 1998.
Accrued expenses includes $14,676 owed to a Trustee under the Trust's deferred
compensation plan.
NOTE C: DISTRIBUTION PLANS
The Trust has adopted a plan of distribution 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 Plans, the Fund pays a
distribution fee to the Distributor at an annual rate of up to .50 of 1% 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 1% of the
Fund's aggregate average daily net assets attributable to Class A shares. The
Plan provides that the Distributor will use such payments in their entirety for
distribution assistance and promotional activites.
The Fund is not obligated under the Plans to pay any distribution services fee
in excess of the amounts set forth above. The purpose of the payments to the
Distributor under the Plans is to compensate the Distributor for its
distribution services with respect to the sale of the Fund's 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 Plans are characterized by the
staff of the Securities and Exchange Commission as being of the "compensation"
variety.
In the event that a Plan is terminated or not continued, no distribution
services fees (other than current amounts accrued but not yet paid) would be
owed by the Fund to the Distributor with respect to the relevant class.
The Plans also provide that the Adviser may use its own resources to finance
the distribution of the Fund's shares.
12
ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
_______________________________________________________________________________
NOTE D: INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term investments
and U.S. government securities) aggregated $6,391,721 and $5,516,964,
respectively, for the year ended August 31, 1998. There were purchases of
$35,676,646 and sales of $30,455,402 of U.S. government and government agency
obligations for the year ended August 31, 1998.
At August 31, 1998, 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 $28,566 and gross unrealized
depreciation of investments was $52,493 resulting in net unrealized
depreciation of $23,927.
At August 31, 1998, the Fund had net capital loss carryforward of $631,135 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,
$14,141 expires in the fiscal year ending 2004 and $14,331 expires in the
fiscal year ending 2006 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. The
Fund incurred and elected to defer post October losses of $119,499 for the year
ended August 31, 1998.
NOTE E: SHARES OF BENEFICIAL INTEREST
There are 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,
1998 1997 1998 1997
------------ ------------ -------------- --------------
CLASS A
Shares sold 2,479,220 271,217 $ 23,780,868 $ 2,618,771
Shares issued in
reinvestment of
dividends 19,158 15,376 183,032 148,473
Shares converted
from Class B 28,866 16,392 275,890 158,206
Shares redeemed (2,348,787) (255,414) (22,525,423) (2,466,879)
Net increase 178,457 47,571 $ 1,714,367 $ 458,571
CLASS B
Shares sold 1,141,000 658,962 $ 11,027,623 $ 6,439,331
Shares issued in
reinvestment of
dividends 22,555 24,392 218,460 238,244
Shares converted
to Class A (28,483) (16,203) (275,890) (158,206)
Shares redeemed (673,074) (698,307) (6,524,245) (6,822,354)
Net increase
(decrease) 461,998 (31,156) $ 4,445,948 $ (302,985)
CLASS C
Shares sold 408,212 434,159 $ 3,945,097 $ 4,238,239
Shares issued in
reinvestment of
dividends 19,127 18,955 185,026 184,964
Shares redeemed (414,401) (435,115) (4,012,157) (4,245,021)
Net increase 12,938 17,999 $ 117,966 $ 178,182
13
NOTES TO FINANCIAL STATEMENTS (CONT.)
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, 1998, the Fund had no reverse repurchase agreements
outstanding. For the year ended August 31, 1998, the maximum amount of reverse
repurchase agreements was $3,363,000, the average amount outstanding was
approximately $1,087,446, and the daily weighted average interest rate was
5.488%.
NOTE G: BANK BORROWING
A number of open-end mutual funds managed by the Adviser, including the Fund,
participate in a $750 million revolving credit facility (the "Facility") to
provide short-term financing if necessary, subject to certain restrictions in
connection with abnormal redemption activity. Commitment fees related to the
Facility are paid by the participating funds and are included in the
miscellaneous expenses in the statement of operations. The Fund did not utilize
the Facility during the year ended August 31, 1998.
14
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
YEAR ENDED AUGUST 31, THROUGH YEAR ENDED
-------------------------------------------------- AUGUST 31, APRIL 30,
1998 1997 1996 1995 1994(A) 1994
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.63 $ 9.66 $ 9.70 $ 9.67 $ 9.77 $10.22
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b) .49(c) .47(c) .47 .42 .14 .35
Net realized and unrealized gain (loss)
on investment transactions (.11) .03 (.02) .05 (.09) (.29)
Net increase in net asset
value from operations .38 .50 .45 .47 .05 .06
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.50) (.46) (.49) (.41) (.12) (.42)
Dividends in excess of net investment
income -0- -0- -0- (.03) -0- (.01)
Tax return of capital (.03) (.07) -0- -0- (.03) (.08)
Distributions from net realized gains -0- -0- -0- -0- -0- -0-
Total dividends and distributions (.53) (.53) (.49) (.44) (.15) (.51)
Net asset value, end of period $ 9.48 $ 9.63 $ 9.66 $ 9.70 $ 9.67 $ 9.77
TOTAL RETURN
Total investment return based on net
asset value (d) 4.04% 5.29% 4.71% 5.14% .53% .52%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $5,535 $3,901 $3,455 $2,997 $2,272 $2,003
Ratios to average net assets of:
Expenses, net of waivers/reimbursements 1.41%(e) 1.40% 1.40% 1.40% 1.40%(f) 1.27%
Interest expense on reverse
repurchase agreements .42% .01% .13% -0- -0- -0-
Expenses, before waivers/reimbursements 2.81% 2.42% 3.04% 3.71% 2.95%(f) 2.17%
Net investment income 5.00% 4.90% 4.85% 4.56% 3.98%(f) 4.41%
Portfolio turnover rate 206% 65% 110% 15% 144% 55%
</TABLE>
See footnotes on page 17.
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 B
------------------------------------------------------------------------------
MAY 1, 1994
YEAR ENDED AUGUST 31, THROUGH YEAR ENDED
-------------------------------------------------- AUGUST 31, APRIL 30,
1998 1997 1996 1995 1994(A) 1994
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.74 $ 9.77 $ 9.81 $ 9.78 $ 9.88 $10.31
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b) .42(c) .41(c) .41 .36 .10 .40
Net realized and unrealized gain (loss)
on investment transactions (.08) .02 (.03) .04 (.07) (.39)
Net increase in net asset
value from operations .34 .43 .38 .40 .03 .01
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.43) (.39) (.42) (.34) (.11) (.35)
Dividends in excess of net investment
income -0- -0- -0- (.03) -0- (.01)
Tax return of capital (.03) (.07) -0- -0- (.02) (.08)
Distributions from net realized gains -0- -0- -0- -0- -0- -0-
Total dividends and distributions (.46) (.46) (.42) (.37) (.13) (.44)
Net asset value, end of period $ 9.62 $ 9.74 $ 9.77 $ 9.81 $ 9.78 $ 9.88
TOTAL RETURN
Total investment return based on net
asset value (d) 3.52% 4.45% 3.89% 4.32% .28% .03%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $10,827 $6,458 $6,781 $6,380 $6,281 $7,184
Ratios to average net assets of:
Expenses, net of waivers/reimbursements 2.11%(e) 2.10% 2.10% 2.10% 2.10%(f) 2.05%
Interest expense on reverse
repurchase agreements .45% .01% .13% -0- -0- -0-
Expenses, before waivers/reimbursements 3.63% 3.10% 3.74% 4.33% 3.60%(f) 3.21%
Net investment income 4.49% 4.13% 4.11% 3.82% 3.22%(f) 3.12%
Portfolio turnover rate 206% 65% 110% 15% 144% 55%
</TABLE>
See footnotes on page 17.
16
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,
1998 1997 1996 1995 1994(A) 1994
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.73 $ 9.76 $ 9.80 $ 9.77 $ 9.87 $10.34
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b) .42(c) .41(c) .40 .34 .10 .26
Net realized and unrealized gain (loss)
on investment transactions (.08) .02 (.02) .06 (.07) (.42)
Net increase (decrease) in net asset
value from operations .34 .43 .38 .40 .03 (.16)
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.43) (.39) (.42) (.34) (.11) (.25)
Dividends in excess of net investment
income -0- -0- -0- (.03) -0- (.01)
Tax return of capital (.03) (.07) -0- -0- (.02) (.05)
Total dividends and distributions (.46) (.46) (.42) (.37) (.13) (.31)
Net asset value, end of period $ 9.61 $ 9.73 $ 9.76 $ 9.80 $ 9.77 $ 9.87
TOTAL RETURN
Total investment return based on net
asset value (d) 3.53% 4.45% 3.90% 4.33% .28% (1.56)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $5,074 $5,012 $4,850 $5,180 $7,128 $8,763
Ratios to average net assets of:
Expenses, net of waivers/reimbursements 2.11%(e) 2.10% 2.10% 2.10% 2.10%(f) 2.10%(f)
Interest expense on reverse
repurchase agreements .45% .01% .12% -0- -0- -0-
Expenses, before waivers/reimbursements 3.58% 3.09% 3.72% 4.23% 3.64%(f) 3.10%(f)
Net investment income 4.48% 4.15% 4.11% 3.80% 3.26%(f) 2.60%(f)
Portfolio turnover rate 206% 65% 110% 15% 144% 55%
</TABLE>
(a) The Fund changed its fiscal year end from April 30 to August 31.
(b) Net of fees waived and expenses reimbursed by Adviser.
(c) Based on average shares outstanding.
(d) 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.
(e) Ratio reflects expenses grossed up for expense offset arrangement with the
transfer agent. For the year ended August 31, 1998, the ratio of expenses net
of waivers and reimbursements would have been 1.40%, 2.10%, and 2.10% for Class
A, Class B and Class C shares, respectively.
(f) Annualized.
(g) Commencement of distribution.
17
REPORT OF INDEPENDENT ACCOUNTANTS ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
_______________________________________________________________________________
TO THE TRUSTEES 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, 1998, the results of its operations
for the year then ended, the changes in its net assets for each of the two
years in the period then ended and the financial highlights for each of the
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, 1998 by correspondence with the custodian and brokers,
provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
October 7, 1998
18
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, SENIOR VICE PRESIDENT
KATHLEEN A. CORBET, SENIOR VICE PRESIDENT
WAYNE D. LYSKI, SENIOR VICE PRESIDENT
PATRICIA J. YOUNG, 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
PRICEWATERHOUSECOOPERS LLP
1177 Avenue of the Americas
New York, NY 10036-2798
(1) Member of the Audit Committee.
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
