ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
SEMI-ANNUAL REPORT
FEBRUARY 28, 1999
ALLIANCE CAPITAL
LETTER TO SHAREHOLDERS ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
_______________________________________________________________________________
April 29, 1999
Dear Shareholder:
This semi-annual report contains investment results and market activity for
Alliance Short-Term U.S. Government Fund for the periods ended February 28,
1999.
INVESTMENT RESULTS
The following table shows how your Fund performed during the six- and 12-month
periods ended February 28, 1999. 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 Government Bond Index provides a
broad-based comparison for the Fund, while the LB 3-Month Treasury Bellwether
Index is a good narrow-based benchmark given its short-term orientation.
The performance of the Fund's Class A shares was dampened by our allocation to
adjustable-rate and non-agency mortgage securities. As interest rates fell,
increased prepayments in adjustable and non-agency mortgage securities impaired
performance. In addition, performance of our non-agency holdings was impacted
by spread widening across all non-U.S. Treasury sectors (spread sectors) in the
third quarter of 1998 when market turmoil moved from Asia to Russia and Latin
America.
INVESTMENT RESULTS*
Periods Ended February 28, 1999
TOTAL RETURNS
6 MONTHS 12 MONTHS
------- ---------
ALLIANCE SHORT-TERM U.S.
GOVERNMENT FUND
Class A 1.82% 3.85%
Class B 1.52% 3.22%
Class C 1.42% 3.12%
LEHMAN BROTHERS
1-3 YEAR GOVERNMENT
BOND INDEX 2.06% 5.79%
LEHMAN BROTHERS
3 MONTH TREASURY
BELLWETHER INDEX 2.35% 5.14%
* THE FUND'S INVESTMENT RESULTS REPRESENT TOTAL RETURNS AND ARE BASED ON THE
NET ASSET VALUE AS OF FEBRUARY 28, 1999. ALL FEES AND EXPENSES RELATED TO THE
OPERATION OF THE FUND HAVE BEEN DEDUCTED, BUT NO ADJUSTMENT HAS BEEN MADE FOR
SALES CHARGES THAT MAY APPLY WHEN SHARES ARE PURCHASED OR REDEEMED. 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
During the six-month period ended February 28, 1999, financial markets
stabilized and recovered from the turmoil experienced in the third quarter of
1998. Despite an unprecedented wave of financial shocks both at home and
abroad, overall U.S. economic growth remained strong, while inflation, interest
rates and unemployment reached historic lows. Strong consumer demand and
productivity growth were the driving forces behind the expansion. However, the
manufacturing sector continued to be negatively affected by weaker exports as
economies outside the U.S. continued to slow. The Federal Reserve cut interest
rates at the beginning of the period when the risk of an economic slowdown
outweighed the risk of inflation.
The U.S. bond market recorded modest returns over the six months ended February
28, 1999. At the beginning of the period, the U.S. bond market climbed as
investors continued to seek safety from global market turmoil. However, as
interest rate cuts and stronger-than-expected U.S. economic growth restored
investor confidence, the bond market lost its "safe-haven" appeal. Investors
moved back into higher-yielding assets and the equity market resumed its climb
into record breaking territory. Later in the period, bond market returns were
further dampened as additional positive economic news made it increasingly
unlikely that the Federal Reserve would cut interest rates.
1
ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
_______________________________________________________________________________
Among the sectors of the U.S. bond market, the mortgage and corporate sectors
recorded the strongest performance, while the U.S. treasury market recorded the
weakest performance. The mortgage sector performed poorly at the beginning of
the period as interest rates reached record lows and prepayment expectations
increased. However, as interest rates stabilized and subsequently began to
rise, prepayment expectations fell and investors moved back into the mortgage
sector in search of yield. Similarly, the corporate sector began the period
performing poorly in the risk-adverse environment. But, as the situation
stabilized and corporate earnings remained healthy, investors also moved back
into the corporate sector. However, yield spreads (the difference in yield
between Treasury securities and non-Treasury securities) have still not
recovered to the tight levels reached prior to August of 1998.
INVESTMENT STRATEGY
We added to Cost of Funds Index (COFI) adjustable-rate mortgage securities
(ARMs) in September of 1998 because we believed the lagging reset of the COFI
would perform well as Treasury rates fell. In November of 1998, we reduced
leverage by selling non-agency ARMs and collateralized mortgage obligations
(CMOs) as their spreads narrowed relative to the London Interbank Offered Rate
(LIBOR). In addition, we purchased 15-year Federal National Mortgage
Association 7% based on expectations of well-behaved prepayments and modest
supply. In December of 1998, we sold Government National Mortgage Association
ARMs and moved into premium, fixed-rate mortgage-backed securities. Finally, we
held a position in floating-rate asset-backed securities throughout the period.
We believe this sector is poised for superior performance in the first half of
1999 as credit spreads tighten.
OUTLOOK
We believe the risk of global recession has diminished after the recent wave of
official interest rate cuts around the world. However, global growth should
continue to slow and inflation will remain subdued as the consequences of
excess productive capacity are felt around the world. U.S. economic activity is
expected to remain strong in 1999, while inflation and interest rates remain
low. In this economic environment, it is unlikely that the Federal Reserve will
cut interest rates.
In the U.S. fixed-income market, spread sectors (non-Treasury sectors) will
provide opportunities as economic and financial markets continue to strengthen.
We expect the "safe-haven" premium on Treasuries to diminish somewhat, but
Treasuries will perform well given their attractiveness to foreign investors, a
low inflationary environment and investor sentiment to constrain risk. We
expect the mortgage-backed sector to provide benefits due to their attractive
valuations and slower prepayment levels as mortgage rates have risen slightly
and we enter a period of slower refinancing.
Thank you for your continued interest and investment in 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
Jeffrey S. Phlegar
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 FEBRUARY 28, 1999
CLASS A SHARES
WITHOUT WITH
SALES CHARGE SALES CHARGE
------------ ------------
One Year 3.85% -0.52%
Five Years 3.75% 2.85%
Since Inception* 4.41% 3.76%
SEC Yield** 4.56%
CLASS B SHARES
WITHOUT WITH
SALES CHARGE SALES CHARGE
------------ ------------
One Year 3.22% 0.27%
Five Years 3.03% 3.03%
Since Inception* (a) 3.74% 3.74%
SEC Yield** 4.20%
CLASS C SHARES
WITHOUT WITH
SALES CHARGE SALES CHARGE
------------ ------------
One Year 3.12% 2.14%
Five Years 2.99% 2.99%
Since Inception* 2.91% 2.91%
SEC Yield** 4.20%
SEC AVERAGE ANNUAL TOTAL RETURNS AS OF THE MOST RECENT QUARTER-END
(DECEMBER 31, 1998)
CLASS A CLASS B CLASS C
------- ------- -------
1 Year -0.42% 0.37% 2.24%
5 Years 2.79% 2.97% 2.93%
Since Inception* 3.74% 3.77% 2.89%
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.
* Inception: 5/4/92 Class A and Class B; 8/2/93 Class C.
** SEC yields are based on SEC guidelines and are calculated on 30 days ended
February 28, 1999.
(a) Assumes conversion of Class B shares into Class A shares after six years.
3
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1999 (UNAUDITED) ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
_______________________________________________________________________________
PRINCIPAL
AMOUNT
(000) VALUE
- -------------------------------------------------------------------------------
MORTGAGE-RELATED SECURITIES-63.6%
COLLATERALIZED MORTGAGE OBLIGATIONS-30.3%
FIXED RATE-23.5%
Federal Home Loan Mortgage Corp.
Series 1998-7 Cl. A
6.00%, 3/18/25 $ 466 $ 464,123
Series 1997-80 Cl. DA
6.50%, 3/18/24 1,567 1,575,758
Series 2047 Cl. WA
6.80%, 8/15/26 916 914,476
Series 2012 Cl. A
6.90%, 4/15/26 780 779,712
Series 1923 Cl. B
7.00%, 1/15/23 600 601,314
Series 2058 Cl. A
7.00%, 1/17/25 611 613,661
Series 2072 Cl. CA
7.50%, 10/15/27 419 422,044
Federal National Mortgage Association
Series 1996-68 Cl. B
6.50%, 5/18/17 328 329,733
Series 1997-53 Cl. PA
6.50%, 10/18/15 500 500,000
Series 1997-24 Cl. C
7.00%, 9/18/22 273 275,581
Series 1997-42 Cl. EA
7.25%, 3/18/26 355 357,749
ICI Funding Corp.
Series 1997-1 Cl. A2
9.00%, 3/25/28 146 146,692
Series 1997-2 Cl. 1A9
9.50%, 7/25/28 68 69,047
------------
7,049,890
ADJUSTABLE RATE-6.8%
Bear Stearns Mortgage Securities, Inc.
Series 1996-8 Cl. A7
5.47%, 11/25/27 (a) 64 63,980
Commercial Loan Funding Trust
Series I Cl. A
5.20%, 8/15/05 (a) (b) 163 161,984
Federal Home Loan Mortgage Corp.
Series 1928 Cl. F
5.50%, 12/15/24 (a) 225 225,780
Federal National Mortgage Association
Series 1993-639 Cl. F
5.29%, 8/25/16 (a) 378 378,481
Series 1997-57 Cl. FA
5.37%, 9/18/27 (a) 141 140,842
Series 1992-204 Cl. FA
5.69%, 10/25/22 (a) 413 416,652
Imperial CMB Trust
Series 1997-2 Cl. M1
5.44%, 12/25/27 (a) 379 375,018
Salomon Brothers Mortgage Securities VII, Inc.
Series 1996-AFF1 Cl. A1
6.16%, 1/25/26 (a) 285 284,780
Sears Mortgage Securities Corp.
Series 1992-16B Cl. A2
7.10%, 9/25/22 (a) 0 26
------------
2,047,543
Total Collateralized Mortgage Obligations
(cost $9,141,943) 9,097,433
4
ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
_______________________________________________________________________________
PRINCIPAL
AMOUNT
(000) VALUE
- -------------------------------------------------------------------------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION-22.7%
5.90%, 4/01/17 (a) $ 65 $ 65,556
5.94%, 11/01/28 (a) 29 28,901
5.95%, 11/01/35 (a) 455 458,102
5.97%, 5/01/27 (a) 86 86,326
7.00%, 5/01/11 2,337 2,382,558
7.00%, 12/01/99 (a) 700 713,559
7.01%, 7/01/25 815 826,689
7.16%, 9/01/27 222 224,450
7.22%, 6/01/26 247 250,224
7.33%, 11/01/26 283 287,263
7.50%, 11/01/27-12/01/99 1,452 1,490,308
------------
Total Federal National Mortgage Association
(cost $6,845,903) 6,813,936
FEDERAL HOME LOAN MORTGAGE CORP.-5.3%
7.31%, 2/01/26 (a) 557 561,270
12.00%, 10/01/09-2/01/14 901 1,040,877
------------
Total Federal Home Loan Mortgage Corp.
(cost $1,619,732) 1,602,147
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION-5.3%
6.13%, 11/20/26 1,361 1,376,254
6.13%, 12/20/26 208 209,960
------------
Total Government National Mortgage Association
(cost $1,589,723) 1,586,214
Total Mortgage-Related Securities
(cost $19,197,301) 19,099,730
ASSET BACKED SECURITIES-23.8%
Access Financial Mortgage Loan Trust
Series 1997-3 Cl. A7
5.21%, 10/18/27 (a) 284 283,727
Advanta Credit Card Master Trust
Series 1996-C Cl. A
5.34%, 11/15/03 (a) 350 349,450
Advanta Mortgage Loan Trust
Series 1981-1 Cl. A7
5.15%, 3/25/28 (a) 797 794,238
Amresco Residential Securities Mortgage
Loan Trust
Series 1998-3 Cl. A7
5.18%, 4/25/06 (a) 860 851,995
Chase Mortgage Finance Corp.
Series 1998-S2 Cl. A1
6.50%, 6/25/28 800 804,504
Contimortgage Home Equity Loan Trust
Series 1998-2 Cl. A2A
6.15%, 3/15/13 579 578,628
Countrywide Home Equity Loan Trust
Series 1998-Cl. CTFS
5.12%, 10/15/24 (a) 373 369,339
IMC Home Equity Loan Trust
Series 1998-3 Cl. A3
6.16%, 5/20/14 700 699,566
ITT Federal Bank, fsb
Series 1994-P1 Cl. A1
7.28%, 6/25/24 (a) (b) 154 155,635
Providian Master Trust
Series 1997-1 Cl. A3
5.03%, 5/15/06 (a) 1,000 997,030
5
PORTFOLIO OF INVESTMENTS (CONTINUED)
ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
_______________________________________________________________________________
PRINCIPAL
AMOUNT
(000) VALUE
- -------------------------------------------------------------------------------
Residential Funding Mortgage Securities I
Series 1997-HS2 Cl. A
4.94%, 9/20/22 (a) $ 547 $ 540,168
Saxon Asset Securities Trust
Series 1998-2 Cl. AV1
5.10%, 2/25/28 (a) 754 744,190
Total Asset Backed Securities
(cost $7,187,314) 7,168,470
------------
U.S. GOVERNMENT OBLIGATIONS-11.0%
U.S. Treasury Notes
4.50%, 1/31/01 (c) 2,600 2,568,722
4.63%, 11/30/00 750 743,085
------------
Total U.S. Government Obligations
(cost $3,327,198) 3,311,807
REPURCHASE AGREEMENT-5.0%
State Street Bank and Trust Co.
4.84%, dated 2/26/99, $1,500,605
due 3/01/99, collateralized by
$1,530,000 FNMA, 4.85%, 11/20/00
(cost $1,500,000) 1,500 1,500,000
COMMERCIAL PAPER-1.7%
Wood Street Funding Corp.
4.90%, 3/01/99
(cost $500,000) 500 500,000
TOTAL INVESTMENTS-105.1%
(cost $31,711,813) 31,580,007
Other assets less liabilities-(5.1%) (1,529,697)
------------
NET ASSETS-100% $ 30,050,310
(a) Adjustable rate mortgages; stated interest rate in effect at
February 28, 1999.
(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 February 28, 1999,
these securities amounted to $317,619 or 1.1% of net assets.
(c) Security, or portion thereof, with an aggregate market value of $1,108,000
have been segregated to collateralize reverse repurchase agreements
See notes to financial statements.
6
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 1999 (UNAUDITED) ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
_______________________________________________________________________________
ASSETS
Investments in securities, at value (cost $30,211,813) $ 30,080,007
Repurchase agreement (cost $1,500,000) 1,500,000
Cash 254,325
Receivable for investment securities sold 1,398,461
Receivable for shares of beneficial interest sold 848,357
Interest receivable 188,585
Total assets 34,269,735
LIABILITIES
Payable for investment securities purchased 2,995,538
Reverse repurchase agreement 1,092,192
Dividends payable 32,595
Distribution fee payable 17,913
Management fee payable 5,414
Payable for shares of beneficial interest redeemed 63
Accrued expenses 75,710
Total liabilities 4,219,425
NET ASSETS $ 30,050,310
COMPOSITION OF NET ASSETS
Shares of beneficial interest, at par $31
Additional paid-in capital 31,122,087
Distributions in excess of net investment income (97,250)
Accumulated net realized loss on investment transactions (833,840)
Net unrealized depreciation of investments and other assets (140,718)
$ 30,050,310
CALCULATION OF MAXIMUM OFFERING PRICE
CLASS A SHARES
Net asset value and redemption price per share
($7,402,422 / 787,913 shares of beneficial interest
issued and outstanding) $9.39
Sales charge--4.25% of public offering price .42
Maximum offering price $9.81
CLASS B SHARES
Net asset value and offering price per share
($14,868,772 / 1,559,059 shares of beneficial interest
issued and outstanding) $9.54
CLASS C SHARES
Net asset value and offering price per share
($7,779,116 / 816,888 shares of beneficial interest
issued and outstanding) $9.52
See notes to financial statements.
7
STATEMENT OF OPERATIONS
SIX MONTHS ENDED FEBRUARY 28, 1999 (UNAUDITED)
ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
_______________________________________________________________________________
INVESTMENT INCOME
Interest $ 881,277
EXPENSES
Advisory fee $ 72,418
Distribution fee - Class A 9,008
Distribution fee - Class B 68,743
Distribution fee - Class C 32,900
Custodian 56,279
Registration 33,533
Printing 21,356
Transfer agency 21,093
Audit and legal 15,393
Trustees' fees 9,456
Miscellaneous 590
Total expenses 340,769
Less: expenses waived and reimbursed
by Adviser (See Note B) (85,282)
Net expenses 255,487
Interest expense 33,390
Total expenses including interest expense 288,877
Net investment income 592,400
REALIZED AND UNREALIZED LOSS ON INVESTMENTS
Net realized loss on investment transactions (83,205)
Net change in unrealized depreciation of
investments and other assets (110,271)
Net loss on investments (193,476)
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 398,924
See notes to financial statements.
8
STATEMENT OF CHANGES IN NET ASSETS ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
_______________________________________________________________________________
SIX MONTHS ENDED YEAR ENDED
FEB. 28, 1999 AUGUST 31,
(UNAUDITED) 1998
---------------- -------------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment income $ 592,400 $ 756,194
Net realized loss on investment
transactions (83,205) (133,830)
Net change in unrealized
depreciation of investments and
other assets (110,271) (28,689)
Net increase in net assets
from operations 398,924 593,675
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income
Class A (164,743) (274,620)
Class B (326,640) (281,947)
Class C (156,058) (199,627)
Tax return of capital
Class A -0- (18,747)
Class B -0- (19,247)
Class C -0- (13,628)
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST
Net increase 8,862,960 6,278,281
Total increase 8,614,443 6,064,140
NET ASSETS
Beginning of year 21,435,867 15,371,727
End of period $ 30,050,310 $ 21,435,867
See notes to financial statements.
9
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1999 (UNAUDITED) 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 may 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.
Mortgage backed and asset backed securities may be valued at prices obtained
from a bond pricing service or at a price obtained from one or more of the
major broker/dealers in such securities. In cases where broker/dealer quotes
are obtained, the Adviser may establish procedures whereby changes in market
yields or spreads are used to adjust, on a daily basis, a recently obtained
quoted bid price on a security.
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. Based on the operations of the
Fund as of the semi-annual date, and its distribution policy, the Fund may have
a tax return of
10
ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
_______________________________________________________________________________
capital at year end. At this time, the amount of this tax return of capital is
not estimable.
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 waive its fees and bear certain
expenses to the extent necessary to limit total operating expenses on an annual
basis to 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 six months ended February
28, 1999, the Adviser waived all advisory fees and bore additional operating
expenses in the amount of $85,282.
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 $14,004 for the six months ended February 28, 1999.
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 $2,060 from the sales of Class
A shares and $17,556, and $4,871 in contingent deferred sales charges imposed
upon redemptions by shareholders of Class B and Class C shares, respectively,
for the six months ended February 28, 1999.
Accrued expenses includes $17,023 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.
11
NOTES TO FINANCIAL STATEMENTS (CONT.)
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 $8,860,064 and $6,120,560,
respectively, for the six months ended February 28, 1999. There were purchases
of $30,297,029 and sales of $17,664,247 of U.S. government and government
agency obligations for the six months ended February 28, 1999.
At February 28, 1999, 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 $9,821 and gross unrealized
depreciation of investments was $141,627 resulting in net unrealized
depreciation of $131,806.
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
--------------------------- ------------------------------
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED
FEB. 28, 1999 AUGUST 31, FEB. 28, 1999 AUGUST 31,
(UNAUDITED) 1998 (UNAUDITED) 1998
------------ ------------ -------------- --------------
CLASS A
Shares sold 1,096,989 2,479,220 $ 10,355,690 $ 23,780,868
Shares issued in
reinvestment of
dividends and
distributions 12,839 19,158 121,098 183,032
Shares converted
from Class B 1,782 28,866 16,733 275,890
Shares redeemed (907,440) (2,348,787) (8,572,206) (22,525,423)
Net increase 204,170 178,457 $ 1,921,315 $ 1,714,367
CLASS B
Shares sold 1,884,522 1,141,000 $ 18,070,487 $ 11,027,623
Shares issued in
reinvestment of
dividends and
distributions 24,736 22,555 236,794 218,460
Shares converted to
Class A (1,754) (28,483) (16,733) (275,890)
Shares redeemed (1,473,509) (673,074) (14,115,075) (6,524,245)
Net increase 433,995 461,998 $ 4,175,473 $ 4,445,948
CLASS C
Shares sold 849,540 408,212 $ 8,126,795 $ 3,945,097
Shares issued in
reinvestment of
dividends and
distributions 12,717 19,127 121,563 185,026
Shares redeemed (573,425) (414,401) (5,482,186) (4,012,157)
Net increase 288,832 12,938 $ 2,766,172 $ 117,966
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 February 28, 1999, the Fund had entered into the following reverse
repurchase agreements:
AMOUNT BROKER INTEREST RATE MATURITY
---------- --------------- ------------- -------------
$1,091,750 Lehman Brothers 3.65% March 2, 1999
For the six months ended February 28, 1999, the maximum amount of reverse
repurchase agreements was $4,859,812, the average amount outstanding was
approximately $1,377,382, and the daily weighted average interest rate was
4.854%.
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")
intended 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 six months ended February 28, 1999.
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
-------------------------------------------------------------------------------
SIX MONTHS
ENDED MAY 1, 1994 YEAR
FEB. 28, YEAR ENDED AUGUST 31, THROUGH ENDED
1999 ------------------------------------------ AUGUST 31, APRIL 30,
(UNAUDITED) 1998 1997 1996 1995 1994(A) 1994
----------- ------- ------- ------- ------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.48 $ 9.63 $ 9.66 $ 9.70 $ 9.67 $ 9.77 $10.22
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b) .24(c) .49(c) .47(c) .47 .42 .14 .35
Net realized and unrealized gain (loss)
on investment transactions (.07) (.11) .03 (.02) .05 (.09) (.29)
Net increase in net asset
value from operations .17 .38 .50 .45 .47 .05 .06
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment
income (.26) (.50) (.46) (.49) (.41) (.12) (.42)
Dividends in excess of net
investment income -0- -0- -0- -0- (.03) -0- (.01)
Tax return of capital -0- (.03) (.07) -0- -0- (.03) (.08)
Distributions from net
realized gains -0- -0- -0- -0- -0- -0- -0-
Total dividends and distributions (.26) (.53) (.53) (.49) (.44) (.15) (.51)
Net asset value, end of period $ 9.39 $ 9.48 $ 9.63 $ 9.66 $ 9.70 $ 9.67 $ 9.77
TOTAL RETURN
Total investment return based on
net asset value (d) 1.82% 4.04% 5.29% 4.71% 5.14% .53% .52%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(000's omitted) $7,402 $5,535 $3,901 $3,455 $2,997 $2,272 $2,003
Ratios to average net assets of:
Expenses, net of waivers/
reimbursements 1.40%(e) 1.41%(f) 1.40% 1.40% 1.40% 1.40%(e) 1.27%
Interest expense on reverse
repurchase agreements .25%(e) .42% .01% .13% -0- -0- -0-
Expenses, before waivers/
reimbursements 2.29%(e) 2.81% 2.42% 3.04% 3.71% 2.95%(e) 2.17%
Net investment income 5.08%(e) 5.00% 4.90% 4.85% 4.56% 3.98%(e) 4.41%
Portfolio turnover rate 88% 206% 65% 110% 15% 144% 55%
</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
-------------------------------------------------------------------------------
SIX MONTHS
ENDED MAY 1, 1994 YEAR
FEB. 28, YEAR ENDED AUGUST 31, THROUGH ENDED
1999 ------------------------------------------ AUGUST 31, APRIL 30,
(UNAUDITED) 1998 1997 1996 1995 1994(A) 1994
----------- ------- ------- ------- ------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.62 $ 9.74 $ 9.77 $ 9.81 $ 9.78 $ 9.88 $10.31
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b) .21(c) .42(c) .41(c) .41 .36 .10 .40
Net realized and unrealized gain (loss)
on investment transactions (.06) (.08) .02 (.03) .04 (.07) (.39)
Net increase in net asset
value from operations .15 .34 .43 .38 .40 .03 .01
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment
income (.23) (.43) (.39) (.42) (.34) (.11) (.35)
Dividends in excess of net
investment income -0- -0- -0- -0- (.03) -0- (.01)
Tax return of capital -0- (.03) (.07) -0- -0- (.02) (.08)
Distributions from net
realized gains -0- -0- -0- -0- -0- -0- -0-
Total dividends and distributions (.23) (.46) (.46) (.42) (.37) (.13) (.44)
Net asset value, end of period $ 9.54 $ 9.62 $ 9.74 $ 9.77 $ 9.81 $ 9.78 $ 9.88
TOTAL RETURN
Total investment return based on
net asset value (d) 1.52% 3.52% 4.45% 3.89% 4.32% .28% .03%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(000's omitted) $14,869 $10,827 $6,458 $6,781 $6,380 $6,281 $7,184
Ratios to average net assets of:
Expenses, net of waivers/
reimbursements 2.10%(e) 2.11%(f) 2.10% 2.10% 2.10% 2.10%(e) 2.05%
Interest expense on reverse
repurchase agreements .25%(e) .45% .01% .13% -0- -0- -0-
Expenses, before waivers/
reimbursements 3.02%(e) 3.63% 3.10% 3.74% 4.33% 3.60%(e) 3.21%
Net investment income 4.33%(e) 4.49% 4.13% 4.11% 3.82% 3.22%(e) 3.12%
Portfolio turnover rate 88% 206% 65% 110% 15% 144% 55%
</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
-------------------------------------------------------------------------------
SIX MONTHS AUGUST 2,
ENDED MAY 1, 1994 1993(G)
FEB. 28, YEAR ENDED AUGUST 31, THROUGH TO
1999 ------------------------------------------ AUGUST 31, APRIL 30,
(UNAUDITED) 1998 1997 1996 1995 1994(A) 1994
----------- ------- ------- ------- ------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.61 $ 9.73 $ 9.76 $ 9.80 $ 9.77 $ 9.87 $10.34
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b) .21(c) .42(c) .41(c) .40 .34 .10 .26
Net realized and unrealized gain (loss)
on investment transactions (.07) (.08) .02 (.02) .06 (.07) (.42)
Net increase (decrease) in net asset
value from operations .14 .34 .43 .38 .40 .03 (.16)
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment
income (.23) (.43) (.39) (.42) (.34) (.11) (.25)
Dividends in excess of net
investment income -0- -0- -0- -0- (.03) -0- (.01)
Tax return of capital -0- (.03) (.07) -0- -0- (.02) (.05)
Total dividends and distributions (.23) (.46) (.46) (.42) (.37) (.13) (.31)
Net asset value, end of period $ 9.52 $ 9.61 $ 9.73 $ 9.76 $ 9.80 $ 9.77 $ 9.87
TOTAL RETURN
Total investment return based on
net asset value (d) 1.42% 3.53% 4.45% 3.90% 4.33% .28% (1.56)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(000's omitted) $7,779 $5,074 $5,012 $4,850 $5,180 $7,128 $8,763
Ratios to average net assets of:
Expenses, net of waivers/
reimbursements 2.10%(e) 2.11%(f) 2.10% 2.10% 2.10% 2.10%(e) 2.10%(e)
Interest expense on reverse
repurchase agreements .26%(e) .45% .01% .12% -0- -0- -0-
Expenses, before waivers/
reimbursements 2.97%(e) 3.58% 3.09% 3.72% 4.23% 3.64%(e) 3.10%(e)
Net investment income 4.33%(e) 4.48% 4.15% 4.11% 3.80% 3.26%(e) 2.60%(e)
Portfolio turnover rate 88% 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) Annualized.
(f) 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.
(g) Commencement of distribution.
16
ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
_______________________________________________________________________________
BOARD OF TRUSTEES
JOHN D. CARIFA, CHAIRMAN AND PRESIDENT
RUTH BLOCK (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
JEFFREY S. PHLEGAR, 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.
17
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 U.S. Government Fund
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 Environment Fund
Alliance Growth Fund
Alliance Premier Growth Fund
Alliance/Regent Sector Opportunity Fund
Select Investors Series - Premier Portfolio
GROWTH & INCOME
Alliance Balanced Shares
Alliance Conservative Investors Fund
Alliance Growth & Income Fund
Alliance Growth Investors Fund
Alliance Real Estate Investment Fund
Alliance Utility Income Fund
AGGRESSIVE GROWTH
Alliance Global Small Cap Fund
Alliance Quasar Fund
Alliance Technology Fund
INTERNATIONAL
Alliance All-Asia Investment Fund
Alliance Greater China '97 Fund
Alliance International Fund
Alliance International Premier Growth Fund
Alliance New Europe Fund
Alliance Worldwide Privatization Fund
INSTITUTIONAL
Premier Growth
Quasar
Real Estate Investment
CLOSED-END FUNDS
Alliance All-Market Advantage 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
Alliance Capital Reserves
Alliance Government Reserves
Alliance Institutional Reserves
Prime Portfolio
Government Portfolio
Tax-Free Portfolio
Trust Portfolio
Treasury Portfolio
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
18
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.
STMUSGSR
