-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ToyAxwnyHkL4KuT7zkhKRzAiZc5RyhATiP2AirzMUhEr/lQYTIovKcGmO02TBJqE zM5rKulb9Hq4zmjFntTjzg== 0000936772-01-000154.txt : 20010308 0000936772-01-000154.hdr.sgml : 20010308 ACCESSION NUMBER: 0000936772-01-000154 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010306 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALLIANCE BOND FUND INC CENTRAL INDEX KEY: 0000003794 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 132754393 FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-02383 FILM NUMBER: 1562370 BUSINESS ADDRESS: STREET 1: 500 PLAZA DRIVE STREET 2: 1345 AVENUE OF THE AMERICAS CITY: SECAUCUS STATE: NJ ZIP: 07094 BUSINESS PHONE: 2013194105 MAIL ADDRESS: STREET 1: 500 PLAZA DRIVE STREET 2: 1345 AVENUE OF THE AMERICAS CITY: SECAUCUS STATE: NJ ZIP: 07094 N-30D 1 0001.txt - -------------------------------------------------------------------------------- INVESTMENT GRADE FIXED INCOME - -------------------------------------------------------------------------------- [GRAPHIC OMITTED] Alliance Bond Fund Quality Bond Portfolio Semi-Annual Report December 31, 2000 Alliance Capital [LOGO](R) The Investment Professional's Choice Investment Products Offered ------------------------------- o Are Not FDIC Insured o May Lose Value o Are Not Bank Guaranteed ------------------------------- This shareholder report must be preceded or accompanied by the Fund's prospectus for individuals who are not current shareholders of the Fund. - -------------------------------------------------------------------------------- LETTER TO SHAREHOLDERS - -------------------------------------------------------------------------------- LETTER TO SHAREHOLDERS February 23, 2001 Dear Shareholder: This report contains the investment strategy, investment results, market activity, and outlook for Alliance Bond Fund Quality Bond Portfolio (the "Portfolio") for the semi-annual reporting period ended December 31, 2000. Investment Objectives and Policies This open-end fund seeks high current income consistent with preservation of capital by investing in investment grade fixed-income securities. The Portfolio invests in readily marketable securities that do not involve undue risk of capital. Investment Results The following table shows the performance of the Portfolio for the six and 12-month periods ended December 31, 2000. For comparison, we have included the Lehman Brothers Aggregate Bond Index (the Index), a standard measure of the performance of a basket of unmanaged debt securities. INVESTMENT RESULTS* Periods Ended December 31, 2000 ----------------------- Total Returns ----------------------- 6 Months 12 Months - ---------------------------------------------- Alliance Bond Fund Quality Bond Portfolio Class A 7.29% 11.26% - ---------------------------------------------- Class B 6.91% 10.37% - ---------------------------------------------- Class C 6.92% 10.50% - ---------------------------------------------- Lehman Brothers Aggregate Bond Index 7.35% 11.63% - ---------------------------------------------- * The Portfolio's investment results represent total returns for the periods shown and are based on the net asset value (NAV) of each class of shares as of December 31, 2000. All fees and expenses related to the operation of the Portfolio have been deducted, but no adjustment has been made for sales charges that may apply when shares are purchased or redeemed. Returns for Advisor Class shares will differ due to different expenses associated with this class. Returns for the Portfolio include the reinvestment of any distributions paid during the period. Past performance is no guarantee of future results. The unmanaged Lehman Brothers (LB) Aggregate Bond Index is a standard measure of the performance of a basket of unmanaged debt securities. It is composed of the LB Mortgage-Backed Securities Index and the LB Government/Credit Bond Index. An investor cannot invest directly in an index, and its results are not indicative of any particular investment, including Alliance Bond Fund Quality Bond Portfolio. Additional investment results appear on pages 5-8. During the six and 12-month periods ended December 31, 2000, the Portfolio marginally underperformed the benchmark. Our concern regarding a slowing economy and the resulting decline in interest rates during the last six-months of the year proved to be well justified. The stock market weakened, consumers scaled back and the Treasury yield curve steepened as a result of slowing economic growth. The repositioning of our maturity structure in anticipation of a steepening yield curve significantly helped the relative - -------------------------------------------------------------------------------- ALLIANCE BOND FUND QUALITY BOND PORTFOLIO o 1 - -------------------------------------------------------------------------------- LETTER TO SHAREHOLDERS - -------------------------------------------------------------------------------- performance of the Portfolio. The Portfolio benefited from our underweight positions in the corporate sector in light of slowing economic growth, and from our focus on higher-quality corporates in a deteriorating credit environment. The agency sector, in which we gradually increased our holdings to an overweight position, also contributed positively to performance. Modestly hurting the Portfolio's relative returns was our mortgage security selection. As interest rates declined and the Federal Reserve prepared to cut rates late in the year, the risk increased that homeowners would begin to refinance their higher-interest home loans. In response, we shifted into lower-coupon mortgage pass-throughs, which are better protected from this prepayment risk. When prepayment risk depressed mortgage performance less than we had anticipated in the fourth quarter, our holdings of lower-coupon mortgages dampened the Portfolio's relative performance. Market Review Following a strong first half of the year, the U.S. economy lost some momentum during the third and fourth quarters. U.S. gross domestic product (GDP) growth slowed from a 5.2% rate in the first half of the year to a 1.8% rate in the second half of 2000. Past interest rate increases, lower stock prices and higher oil prices contributed to the slowdown. The Federal Reserve removed its tightening bias late in the year in response to slower economic growth. The U.S. bond market, as measured by their components in the Index, returned 7.35% over the six-month period ending December 31, 2000 and 11.63% for the full year -- its strongest annual return since 1995. In general, fixed-income securities benefited from slowing economic growth and weak equity markets in 2000. Among the traditional sectors of the fixed-income market, commercial mortgage-backed securities (CMBS) posted the best results for the six-month period at 9.47%, followed by U.S. agencies at 8.30%, U.S. Treasuries at 7.73%, asset-backed securities (ABS) at 7.25%, mortgage-backed securities (MBS) at 7.23%, and investment-grade corporates at 6.39%. Higher-quality securities outperformed lower-quality securities as the economy slowed and investors sought out less risky instruments. U.S. Treasuries also benefited from the government's plan to use the fiscal surplus to reduce outstanding government debt. Longer-maturity issues outperformed shorter issues as expectations for interest rate cuts rose. The CMBS sector benefited from increased investor interest due to credit deterioration in other fixed-income sectors, as well as from sound commercial real estate fundamentals. Real estate markets in general remained healthy, and capital market participation in commercial real estate finance should mitigate some of the valuation fluctuations that have occurred in the past. In addition, the Department of Labor finally declared all investment-grade classes of CMBS to be eligible for in- - -------------------------------------------------------------------------------- 2 o ALLIANCE BOND FUND QUALITY BOND PORTFOLIO - -------------------------------------------------------------------------------- LETTER TO SHAREHOLDERS - -------------------------------------------------------------------------------- vestment by ERISA-regulated investors, which increased demand incrementally for AA through BBB-rated CMBS securities. Rising prepayment expectations dampened MBS performance, though less so than we had anticipated. Because mortgage interest rates stand at their lowest level since the spring of 1999, more of the sector is subject to refinancing risk than at any time in the past three years. The investment-grade corporate sector posted relatively weaker results because of deteriorating corporate earnings, rising defaults, tighter credit availability and expectations of weaker economic growth in 2000. Investment Strategy During the third quarter, we moderated our generally defensive posture. We focused on enhancing the Portfolio's yield by increasing exposure to corporate and mortgage securities and by adding a position in agency debt. We simultaneously reduced our allocation to the Treasury sector to neutral. Lastly, with economic growth moderating and the likelihood of further Fed tightening diminishing, we shifted out of a modestly barbelled maturity structure into a structure more comparable to the benchmark. During the fourth quarter, economic activity slowed, leading to heightened interest rate volatility and paving the way for interest rate cuts early in 2001. In response, we focused on increasing quality and reducing exposure to interest rate volatility by adding to our positions in Treasuries, agencies, high-quality asset-backed securities and high-quality investment-grade corporates, and by decreasing our exposure to mortgages and emerging-market debt. Outlook While the odds of a "hard landing" in the U.S. economy have risen in recent months, the fact that the Federal Reserve moved so quickly in the new year to lower interest rates should help to ensure a "soft landing." We believe that the economy will slow in 2001 to a 2.5% - 3% growth rate, with most of the slowing coming in the first half of the year. In our view, the Federal Reserve will likely continue to lower rates, the yield curve will steepen further and volatility will remain high. We will keep the Portfolio concentrated in intermediate maturities in anticipation of the steepening yield curve. Within the government sector, we expect to remain overweighted in both Treasury and agency debt. On the one hand, lower rates and a steeper yield curve bode well for the corporate sector; on the other hand, the credit cycle is clearly in a downtrend, and earnings disappointments abound. Therefore, over the near term, we plan to maintain a neutral exposure to the sector. Falling interest rates and the rising prepayments that accompany them cause us to remain underweighted in mortgages and to focus our holdings on lower-coupon securities, which will be less subject to a wave of mortgage refinancing. - -------------------------------------------------------------------------------- ALLIANCE BOND FUND QUALITY BOND PORTFOLIO o 3 - -------------------------------------------------------------------------------- LETTER TO SHAREHOLDERS - -------------------------------------------------------------------------------- [PHOTO] John D. Carifa [PHOTO] Matthew Bloom Portfolio Manager, Matthew Bloom, has over 20 years of investment experience. Thank you for your interest and investment in Alliance Bond Fund Quality Bond Portfolio. Sincerely, /s/ John D. Carifa John D. Carifa Chariman and President /s/ Matthew Bloom Matthew Bloom Vice President - -------------------------------------------------------------------------------- 4 o ALLIANCE BOND FUND QUALITY BOND PORTFOLIO - -------------------------------------------------------------------------------- PERFORMANCE UPDATE - -------------------------------------------------------------------------------- PERFORMANCE UPDATE ALLIANCE BOND FUND QUALITY BOND PORTFOLIO GROWTH OF A $10,000 INVESTMENT 7/31/99* TO 12/31/00 o Alliance Bond Fund Quality Bond Portfolio o Lehman Brothers Aggregate Bond Index [LINE CHART OMITTED] Lehman Brothers Aggregate Bond Index: $11,283 Alliance Bond Fund Quality Bond Portfolio Class A: $10,728 This chart illustrates the total value of an assumed $10,000 investment in Alliance Bond Fund Quality Bond Portfolio Class A shares (from 7/31/99 to 12/31/00) as compared to the performance of an appropriate index. The chart reflects the deduction of the maximum 4.25% sales charge from the initial $10,000 investment in the Portfolio and assumes the reinvestment of dividends and capital gains. Performance for Class B, Class C and Advisor Class shares will vary from the results shown above due to differences in expenses charged to these 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 (LB) Aggregate Bond Index is a standard measure of the performance of a basket of unmanaged debt securities. It is composed of the LB Mortgage-Backed Securities Index, and the LB Government/Credit Bond Index. When comparing Alliance Bond Fund Quality Bond Portfolio to the index shown above, you should note that no charges or expenses are reflected in the performance of the index. An investor cannot invest directly in an index, and its results are not indicative of any specific investment, including Alliance Bond Fund Quality Bond Portfolio. *Closest month-end after Fund's Class A share inception date of 7/1/99. - -------------------------------------------------------------------------------- ALLIANCE BOND FUND QUALITY BOND PORTFOLIO o 5 - -------------------------------------------------------------------------------- PERFORMANCE UPDATE - -------------------------------------------------------------------------------- PERFORMANCE UPDATE ALLIANCE BOND FUND QUALITY BOND PORTFOLIO HISTORY OF RETURNS YEARLY PERIODS ENDED 12/31 o Alliance Bond Fund Quality Bond Portfolio o Lehman Brothers Aggregate Bond Index [BAR CHART OMITTED] Alliance Bond Fund Quality Bond Portfolio-- Yearly Periods Ended 12/31 - -------------------------------------------------------------------------------- Alliance Bond Fund Lehman Brothers Quality Bond Portfolio Aggregate Bond Index - -------------------------------------------------------------------------------- 12/31/99* 0.67% 0.56% 12/31/00 11.26% 11.63% Past performance is no guarantee of future results. The Fund's investment results represent total returns for Class A shares and are based on the net asset value (NAV). 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 Class B, C and Advisor Class shares will vary from the results shown above due to different expenses associated with these classes. Returns for the Fund include the reinvestment of any distributions paid during the period. The unmanaged Lehman Brothers (LB) Aggregate Bond Index is a standard measure of the performance of a basket of unmanaged debt securities. It is composed of the LB Mortgage-Backed Securities Index and the LB Government/Credit Bond Index. An investor cannot invest directly in an index, and its results are not indicative of any particular investment, including Alliance Bond Fund Quality Bond Portfolio. * The Fund's return for the period ended 12/31/99 is from the Fund's inception date of 7/1/99 through 12/31/99. The benchmark's return for the period ended 12/31/99 is from 6/30/99 through 12/31/99. - -------------------------------------------------------------------------------- 6 o ALLIANCE BOND FUND QUALITY BOND PORTFOLIO - -------------------------------------------------------------------------------- PORTFOLIO SUMMARY - -------------------------------------------------------------------------------- PORTFOLIO SUMMARY December 31, 2000 (unaudited) INCEPTION DATES Class A Shares 7/1/99 Class B Shares 7/1/99 Class C Shares 7/1/99 PORTFOLIO STATISTICS Net Assets ($mil): $14.9 SECURITY TYPE o 36.4% Treasury o 31.0% Federal National Mortgage Association o 6.4% Government National Mortgage Association o 2.1% Asset-Backed Securities o 1.2% Federal Home Loan Mortgage Corporation o 0.8% Sovereign Bonds [PIE CHART OMITTED] Corporate o 3.4% Communications o 2.9% Financial o 2.4% Public Utilities/Electric and Gas o 2.0% Broadcasting/Media o 1.8% Banking o 1.3% Food/Beverages o 0.8% Aerospace and Defense o 0.6% Air Transportation o 0.2% Retail o 0.2% Non-Air Transportation o 6.5% Short-Term HOLDING TYPE o 93.5% Fixed Income o 6.5% Short-Term Securities [PIE CHART OMITTED] All data as of December 31, 2000. The Fund's holdings and security breakdowns may vary over time. These breakdowns are expressed as a percentage of total investments. - -------------------------------------------------------------------------------- ALLIANCE BOND FUND QUALITY BOND PORTFOLIO o 7 - -------------------------------------------------------------------------------- INVESTMENT RESULTS - -------------------------------------------------------------------------------- INVESTMENT RESULTS AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 2000 Class A Shares - -------------------------------------------------------------------------------- Without Sales Charge With Sales Charge 1 Year 11.26% 6.57% Since Inception* 7.80% 4.76% SEC Yield** 5.15% Class B Shares - -------------------------------------------------------------------------------- Without Sales Charge With Sales Charge 1 Year 10.37% 7.37% Since Inception* 6.98% 5.69% SEC Yield** 4.71% Class C Shares - -------------------------------------------------------------------------------- Without Sales Charge With Sales Charge 1 Year 10.50% 9.50% Since Inception* 6.92% 6.92% SEC Yield** 4.73% The Portfolio's investment results represent average annual total returns. The returns reflect reinvestment of dividends and/or capital gains distributions in additional shares without and with 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. Total return for Advisor Class shares will differ due to different expenses associated with this class. The Portfolio normally invests all of its assets in securities that are rated at least BBB by Standard & Poor's or, if unrated, are of comparable quality. The Portfolio also may invest in convertible debt securities, preferred stock and dividend-paying stocks, U.S. government obligations, and foreign fixed-income securities. The Portfolio may invest a portion of its assets in foreign securities, which may magnify fluctuations. Price fluctuations may also be caused by changes in interest rates or bond credit quality ratings. These changes have a greater effect on bonds with longer maturities than on those with shorter maturities. 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 date: 7/1/99 for all share classes. ** SEC yields are based on SEC guidelines and are calculated on 30 days ended December 31, 2000. - -------------------------------------------------------------------------------- 8 o ALLIANCE BOND FUND QUALITY BOND PORTFOLIO - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS December 31, 2000 (unaudited) Principal Amount (000) U.S. $ Value - -------------------------------------------------------------------------------- U.S. GOVERNMENT & AGENCY OBLIGATIONS - 74.8% U.S. Treasury Securities - 36.3% U.S. Treasury Bonds - 12.3% 8.125%, 8/15/19 ............................. $ 980 $ 1,266,807 12.00%, 8/15/13 ............................. 400 565,124 ----------- 1,831,931 ----------- U.S. Treasury Notes - 21.9% 5.75%, 8/15/03-8/15/10 ...................... 3,190 3,258,522 ----------- U.S. Treasury Strips - 2.1% zero coupon, 8/15/11-2/15/12 ................ 540 301,219 ----------- Federal National Mortgage Association - 30.9% 6.00%, 12/15/05-8/01/29 ..................... 2,334 2,334,191 6.50%, 3/01/29-7/01/30 ...................... 284 279,924 6.625%, 10/15/07 ............................ 295 307,859 6.75%, 8/15/02 .............................. 415 421,872 7.00%, 3/01/12-11/01/30 ..................... 1,246 1,252,493 ----------- 4,596,339 ----------- Government National Mortgage Association - 6.4% 6.50%, 1/15/29-5/15/29 ...................... 538 532,291 7.50%, 8/15/30-11/15/30 ..................... 415 422,129 ----------- 954,420 ----------- Federal Home Loan Mortgage Corp. - 1.2% 6.875%, 9/15/10 ............................. 170 181,023 ----------- Total U.S. Government & Agency Obligations (cost $10,880,840) ............................ 11,123,454 ----------- Corporate Obligations - 15.6% Aerospace & Defense - 0.8% Raytheon Co. 5.70%, 11/01/03 ............................. 60 58,550 7.90%, 3/01/03(a) ........................... 60 61,707 ----------- 120,257 ----------- Air Transportation - 0.6% United Air Lines 7.186%, 4/01/11 ............................. 80 81,700 ----------- Banking - 1.8% Barclays Bank Plc 8.55%, 9/29/49(a) ........................... 55 57,780 - -------------------------------------------------------------------------------- ALLIANCE BOND FUND QUALITY BOND PORTFOLIO o 9 - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS - -------------------------------------------------------------------------------- Principal Amount (000) U.S. $ Value - -------------------------------------------------------------------------------- Citicorp 7.00%, 7/01/07 ............................... $ 100 $ 102,014 Citigroup, Inc. 7.25%, 10/01/10 .............................. 100 103,429 ----------- 263,223 ----------- Broadcasting/Media - 2.0% AT&T Corp. Liberty Media Group 8.25%, 2/01/30 ............................... 85 77,953 Time Warner, Inc. 8.375%, 3/15/23-7/15/33 ...................... 205 222,352 ----------- 300,305 ----------- Communications - 3.4% British Telecommunications Plc 8.625%, 12/15/30 ............................. 100 100,397 Cox Communications, Inc. 7.75%, 11/01/10 .............................. 125 130,035 Qwest Capital Funding, Inc. 7.90%, 8/15/10(a) ............................ 100 102,750 Telefonica Europe BV 7.75%, 9/15/10 ............................... 35 35,491 Verizon Global Funding Corp. 7.75%, 12/01/30 .............................. 135 137,769 ----------- 506,442 ----------- Financial - 2.8% Associates Corp. of North America 5.75%, 11/01/03 .............................. 80 79,012 Goldman Sachs Group, Inc. 7.80%, 1/28/10 ............................... 100 104,872 Household Finance Corp. 6.50%, 11/15/08 .............................. 70 67,314 Lehman Brothers Holdings, Inc. 7.875%, 8/15/10 .............................. 100 103,409 Morgan Stanley Dean Witter & Co. 5.625%, 1/20/04 .............................. 70 68,647 ----------- 423,254 ----------- Food/Beverages - 1.3% ConAgra Foods, Inc. 7.50%, 9/15/05 ............................... 100 104,604 8.25%, 9/15/30 ............................... 80 87,645 ----------- 192,249 ----------- Non-Air Transportation - 0.2% Union Pacific Corp. 6.625%, 2/01/29 .............................. 35 31,386 ----------- - -------------------------------------------------------------------------------- 10 o ALLIANCE BOND FUND QUALITY BOND PORTFOLIO - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS - -------------------------------------------------------------------------------- Principal Amount (000) U.S. $ Value - -------------------------------------------------------------------------------- Public Utilities Electric & Gas - 2.4% AEP Resources, Inc. 6.50%, 12/01/03(a) ........................ $ 250 $ 248,215 Cilcorp, Inc. 9.375%, 10/15/29 .......................... 40 44,241 KeySpan Corp. 7.25%, 11/15/05 ........................... 50 51,989 TXU Corp. 6.375%, 1/01/08 ........................... 20 18,936 ----------- 363,381 ----------- Retail - 0.3% Wal-Mart Stores, Inc. 6.875%, 8/10/09 ........................... 35 36,659 ----------- Total Corporate Obligations (cost $2,250,780) ......................... 2,318,856 ----------- Asset Backed Securities - 2.1% Citibank Credit Card Issuance Trust 6.875%, 11/15/09 (cost $307,020) ........................... 300 309,189 ----------- Sovereign Debt Securities - 0.8% International Bank for Reconstruction & Development 7.00%, 1/27/05 ............................ 90 94,167 Quebec Province of Canada 7.50%, 9/15/29 ............................ 25 27,015 ----------- Total Sovereign Debt Securities (cost $114,376) ........................... 121,182 ----------- Time Deposit - 6.4% State Street Euro Dollar 6.00%, 1/02/01 (amortized cost $958,000) ................. 958 958,000 ----------- Total Investments - 99.7% (cost $14,511,016) ........................ 14,830,681 Other assets less liabilities - 0.3% ........ 42,175 ----------- Net Assets - 100% ........................... $14,872,856 =========== (a) Securities exempt from Registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to certain qualified buyers. At December 31, 2000, the aggregate market value of these securities amounted to $470,452 or 3.2% of net assets. - -------------------------------------------------------------------------------- ALLIANCE BOND FUND QUALITY BOND PORTFOLIO o 11 - -------------------------------------------------------------------------------- STATEMENT OF ASSETS & Liabilities - -------------------------------------------------------------------------------- STATEMENT OF ASSETS & LIABILITIES December 31, 2000 (unaudited) Assets Investments in securities, at value (cost $14,511,016) ..... $ 14,830,681 Cash ....................................................... 842 Receivable for investments sold ............................ 327,971 Receivable for capital stock sold .......................... 294,942 Interest receivable ........................................ 198,619 Receivable due from Adviser ................................ 12,108 ------------ Total assets ............................................... 15,665,163 ------------ Liabilities Payable for investment securities purchased ................ 681,465 Dividends payable .......................................... 16,265 Advisory fee payable ....................................... 5,939 Distribution fee payable ................................... 5,111 Accrued expenses ........................................... 83,527 ------------ Total liabilities .......................................... 792,307 ------------ Net Assets ................................................. $ 14,872,856 ============ Composition of Net Assets Capital stock, at par ...................................... $ 1,453 Additional paid-in capital ................................. 14,501,398 Accumulated net investment loss ............................ (6,810) Net realized gain on investments transactions .............. 57,150 Net unrealized appreciation of investments ................. 319,665 ------------ $ 14,872,856 ============ Calculation of Maximum Offering Price Class A Shares Net asset value and redemption price per share ($7,049,975 / 688,514 shares of capital stock issued and outstanding) .................... $10.24 Sales charge--4.25% of public offering price ............... .45 ------ Maximum offering price ..................................... $10.69 ====== Class B Shares Net asset value and offering price per share ($3,302,193 / 322,761 shares of capital stock issued and outstanding) .................... $10.23 ====== Class C Shares Net asset value and offering price per share ($1,418,453 / 138,857 shares of capital stock issued and outstanding) .................... $10.22 ====== Advisor Class Shares Net asset value and offering price per share ($3,102,235 / 303,004 shares of capital stock issued and outstanding) .................... $10.24 ====== See notes to financial statements. - -------------------------------------------------------------------------------- 12 o ALLIANCE BOND FUND QUALITY BOND PORTFOLIO - -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS - -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS Six Months Ended December 31, 2000 (unaudited) Investment Income Interest ..................................... $ 313,901 Expenses Advisory fee ................................. $ 25,104 Distribution fee Class A ..................... 8,965 Distribution fee Class B ..................... 8,756 Distribution fee Class C ..................... 4,099 Custodian .................................... 74,441 Administrative ............................... 60,000 Audit and legal .............................. 12,505 Directors' fees .............................. 6,430 Printing ..................................... 5,238 Transfer agency .............................. 3,850 Registration ................................. 403 Miscellaneous ................................ 35 --------- Total expenses ............................... 209,826 Less: expenses waived and assumed by Adviser (See Note B) .................... (156,969) --------- Net expenses ................................. 52,857 --------- Net investment income ........................ 261,044 --------- Realized and Unrealized Gain on Investments Net realized gain on investment transactions ............................... 120,755 Net unrealized appreciation/depreciation of investments ............................. 296,962 --------- Net gain on investment transactions .......... 417,717 --------- Net Increase in Net Assets from Operations ................................. $ 678,761 ========= See notes to financial statements. - -------------------------------------------------------------------------------- ALLIANCE BOND FUND QUALITY BOND PORTFOLIO o 13 - -------------------------------------------------------------------------------- STATEMENT OF CHANGES IN NET ASSETS - -------------------------------------------------------------------------------- STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended December 31, July 1, 1999(a) 2000 to (unaudited) June 30, 2000 ============ ============ Increase (Decrease) in Net Assets from Operations Net investment income ........................... $ 261,044 $ 218,353 Net realized gain (loss) on investment transactions .................................. 120,755 (46,672) Net unrealized appreciation/depreciation of investments ................................ 296,962 22,704 ------------ ------------ Net increase in net assets from operations ...... 678,761 194,385 Dividends and Distributions to Shareholders from: Net investment income Class A ....................................... (180,324) (179,097) Class B ....................................... (47,915) (20,654) Class C ....................................... (22,582) (14,812) Advisor Class ................................. (20,824) -0- Net realized gain Class A ....................................... (9,073) -0- Class B ....................................... (3,748) -0- Class C ....................................... (1,633) -0- Advisor Class ................................. (2,479) -0- Capital Stock Transactions Net increase .................................... 7,890,264 6,612,587 ------------ ------------ Total increase .................................. 8,280,447 6,592,409 Net Assets Beginning of period ............................. 6,592,409 -0- ------------ ------------ End of period ................................... $ 14,872,856 $ 6,592,409 ============ ============
(a) Commencement of operations. See notes to financial statements. - -------------------------------------------------------------------------------- 14 o ALLIANCE BOND FUND QUALITY BOND PORTFOLIO - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS December 31, 2000 (unaudited) NOTE A Significant Accounting Policies Alliance Bond Fund, Inc. (the "Fund") is registered under the Investment Company Act of 1940 as a diversified, open-end management investment company. The Fund, which is a Maryland corporation, operates as a series company currently comprised of three portfolios: the Corporate Bond Portfolio, the Quality Bond Portfolio and the U.S. Government Portfolio. The Quality Bond Portfolio commenced operations on July 1, 1999. Each series is considered to be a separate entity for financial reporting and tax purposes. The accompanying financial statements and notes include the operations of the Quality Bond Portfolio (the "Portfolio") only. The Portfolio offers Class A, Class B, Class C and Advisor Class 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. Advisor Class shares are sold without an initial or contingent deferred sales charge and are not subject to ongoing distribution expenses. Advisor Class shares are offered to investors participating in fee-based programs and to certain retirement plan accounts. All four 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 accounting principles generally accepted in the United States, which require management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and amounts of income and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of significant accounting policies followed by the Portfolio. 1. Security Valuation Portfolio securities traded on a national securities exchange or on a foreign securities exchange (other than foreign securities exchanges whose operations are similar to those of the United States over-the-counter market) are generally valued at the last reported sale price, or if there was no sale on such day, the last bid price quoted on such day. If no bid prices are quoted, then the security is valued at the mean of the bid and asked prices as obtained on that day from one or more dealers regularly making a market in such securities. Securities traded on the over-the-counter market, securities listed on a foreign securities exchange whose operations are similar to the United States over-the-counter market, and securities listed on a national securities exchange whose primary market is believed to be over- - -------------------------------------------------------------------------------- ALLIANCE BOND FUND QUALITY BOND PORTFOLIO o 15 - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- the-counter are valued at the mean of the closing bid and asked prices provided by two or more dealers regularly making a market in such securities. U.S. government securities and other debt securities which mature in 60 days or less are valued at amortized cost unless this method does not represent fair value. Securities for which market quotations are not readily available are valued at fair value as determined in good faith by, or in accordance with procedures approved by, the Board of Directors. Fixed income securities may be valued on the basis of prices provided by a pricing service when such prices are believed to reflect the fair market value of such securities. Mortgage backed and asset backed securities may be valued at prices obtained from a bond pricing service or at a price obtained from one or more of the major broker/dealers in such securities. In cases where broker/dealer quotes are obtained, the Adviser may establish procedures whereby changes in market yields or spreads are used to adjust, on a daily basis, a recently obtained quoted bid price on a security. 2. Taxes It is the policy of the Portfolio 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. Offering Expenses Offering expenses of $121,000 had been deferred and were amortized on a straight line basis through December 31, 2000. 4. Investment Income and Investment Transactions Interest income is accrued daily. Investment transactions are accounted for on the date securities are purchased or sold. The Portfolio accretes discounts as adjustments to interest income. Investment gains and losses are determined on the identified cost basis. 5. Income and Expenses All income earned and expenses incurred by the Portfolio are borne on a pro-rata basis by each settled class of shares, based on proportionate interest in the Portfolio represented by the net assets of such class, except that the Portfolio's Class B and Class C shares bear higher distribution and transfer agent fees than Class A shares and the Advisor Class shares have no distribution fees. 6. 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 accounting principles generally accepted in the United States. 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 there were no permanent differences. - -------------------------------------------------------------------------------- 16 o ALLIANCE BOND FUND QUALITY BOND PORTFOLIO - -------------------------------------------------------------------------------- NOTES TO FINANCIALS STATEMENTS - -------------------------------------------------------------------------------- 7. Change in Accounting Principle In November 2000, the American Institute of Certified Public Accountants (AICPA) issued a revised version of its Audit and Accounting Guide for Investment Companies (the "Guide"), which is effective for fiscal years beginning after December 15, 2000. The Guide will require the Portfolio to amortize premiums and discounts on fixed income securities. Upon adoption, the Portfolio will be required to record a cumulative effect adjustment to reflect the amortization of premiums. The adjustment will reduce net investment income and increase unrealized appreciation on securities by the same amount, and therefore will not impact total net assets. At this time, the analysis of the adjustment has not been completed. Although this adjustment affects the financial statements, adoption of this principle will not effect the amount of distributions paid to shareholders, because the Portfolio determines its required distributions under Federal income tax laws. NOTE B Advisory Fee and Other Transactions with Affiliates Under the terms of an investment advisory agreement, the Portfolio pays Alliance Capital Management L.P. (the "Adviser"), an advisory fee at an annual rate of .55 of 1% of the Portfolio's average daily net assets. The 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 .98%, 1.68%, 1.68% and .68% of the daily average net assets for Class A, Class B, Class C shares and Advisor Class, respectively. For the six months ended December 31, 2000, such reimbursement amounted to $156,969. Pursuant to the advisory agreement, the Portfolio may reimburse the Adviser for certain legal and accounting services provided to the Portfolio by the Adviser. For the six months ended December 31, 2000, the Adviser agreed to waive its fees for such services. Such waiver amounted to $60,000. The Portfolio compensates Alliance Fund Services, Inc., a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Portfolio. For the six months ended December 31, 2000 Alliance Fund Services, Inc. agreed to waive service fees in the amount of $1,968. For the six months ended December 31, 2000, the Portfolio's expenses were reduced by $221 under an expense offset arrangement with Alliance Fund Services, Inc. Alliance Fund Distributors, Inc. (the "Distributor"), a wholly-owned subsidiary of the Adviser, serves as the Distributor of the Portfolio's shares. The Distributor has advised the Portfolio that it has received front-end sales charges of $2,031 from the sales of Class A shares and $950 in contingent deferred sales charges imposed upon - -------------------------------------------------------------------------------- ALLIANCE BOND FUND QUALITY BOND PORTFOLIO o 17 - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- redemptions by shareholders of Class B shares, for the six months ended December 31, 2000. NOTE C Distribution Services Agreement The Portfolio has adopted a Distribution Services Agreement (the "Agreement") pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the Agreement, the Portfolio pays distribution and servicing fees to the Distributor at an annual rate of up to .30 of 1% of the Portfolio'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. There are no distribution and servicing fees on the Advisor Class shares. The fees are accrued daily and paid monthly. The Agreement provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities. The Distributor has advised the Portfolio that it has incurred expenses in excess of the distribution costs reimbursed by the Portfolio in the amount of $2,759 and $210 for Class B and Class C shares, respectively. Such costs may be recovered from the Portfolio in future periods so long as the Agreement is in effect. In accordance with the Agreement, there is no provision for recovery of unreimbursed distribution costs incurred by the Distributor beyond the current fiscal year for Class A shares. The Agreement also provides that the Adviser may use its own resources to finance the distribution of the Portfolio's shares. NOTE D Investment Transactions Purchases and sales of investment securities (excluding short-term investments and U.S. government securities) aggregated $2,892,736 and $1,243,089, respectively, for the six months ended December 31, 2000. There were purchases of $17,735,467 and sales of $11,633,370 of U.S. government and government agency obligations for the six months ended December 31, 2000. At December 31, 2000, the cost of investments for federal income tax purposes was substantially the same as the cost for financial reporting purposes. Accordingly, gross unrealized appreciation of investments was $321,473 and gross unrealized depreciation of investments was $1,808 resulting in net unrealized appreciation of $319,665. At June 30, 2000, the Portfolio had a capital loss carryforward of $2,759 which expires in 2008. Capital losses incurred after October 31 ("post-October" losses) within the taxable year are deemed to arise on the first business day of the Portfolio's next taxable year. The Portfolio incurred and will elect to defer net capital losses of $34,950 during fiscal 2000. These carry over losses may be used to offset future capital gains. To the extent they are so used, future capital gains will not be distributed to shareholders until they exceed available capital loss carryovers. NOTE E Capital Stock There are 1,000,000,000 shares of $.001 par value capital stock authorized, - -------------------------------------------------------------------------------- 18 o ALLIANCE BOND FUND QUALITY BOND PORTFOLIO - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- divided into four classes, designated Class A, Class B, Class C and Advisor Class shares. Each class consists of 250,000,000 authorized shares. Transactions in capital stock were as follows:
------------------------------------- ------------------------------------- Shares Amount ------------------------------------- ------------------------------------- Six Months Ended Six Months Ended December 31, July 1, 1999(a) December 31, July 1, 1999(a) 2000 to 2000 to (unaudited) June 30, 2000 (unaudited) June 30, 2000 --------------------------------------------------------------------------------- Class A Shares sold 286,770 515,979 $ 2,869,609 $ 5,104,566 - ------------------------------------------------------------------------------------------------ Shares issued in reinvestment of dividends and distributions 11,928 6,078 119,725 60,407 - ------------------------------------------------------------------------------------------------ Shares redeemed (124,892) (7,349) (1,249,433) (71,927) - ------------------------------------------------------------------------------------------------ Net increase 173,806 514,708 $ 1,739,901 $ 5,093,046 ================================================================================================ Class B Shares sold 250,903 139,398 $ 2,519,517 $ 1,369,731 - ------------------------------------------------------------------------------------------------ Shares issued in reinvestment of dividends and distributions 3,360 1,136 33,774 11,615 - ------------------------------------------------------------------------------------------------ Shares redeemed (33,800) (38,236) (336,668) (374,844) - ------------------------------------------------------------------------------------------------ Net increase 220,463 102,298 $ 2,216,623 $ 1,006,502 ================================================================================================ Class C Shares sold 118,955 70,129 $ 1,192,342 $ 682,035 - ------------------------------------------------------------------------------------------------ Shares issued in reinvestment of dividends and distributions 2,114 1,399 21,190 18,666 - ------------------------------------------------------------------------------------------------ Shares redeemed (34,521) (19,219) (345,626) (187,662) - ------------------------------------------------------------------------------------------------ Net increase 86,548 52,309 $ 867,906 $ 513,039 ================================================================================================
(a) Commencement of operations. - -------------------------------------------------------------------------------- ALLIANCE BOND FUND QUALITY BOND PORTFOLIO o 19 - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- ------------------ ------------------- Shares Amount ------------------ ------------------- October 9, 2000(b) October 9, 2000(b) to December 31, to December 31, 2000 2000 (unaudited) (unaudited) ---------------------------------------------- Advisor Class Shares sold 302,853 $ 3,064,038 - -------------------------------------------------------------------------------- Shares issued in reinvestment of dividends and distributions 1,824 18,537 - -------------------------------------------------------------------------------- Shares redeemed (1,673) (16,741) - -------------------------------------------------------------------------------- Net increase 303,004 $ 3,065,834 ================================================================================ NOTE F Bank Borrowing A number of open-end mutual funds managed by the Adviser, including the Portfolio, participate in a $750 million revolving credit facility (the "Facility") intended to provide short-term financing if necessary, in connection with abnormal redemption activity. Commitment fees related to the Facility are paid by the participating funds and are included in miscellaneous expenses in the statement of operations. The Portfolio did not utilize the Facility during the six months ended December 31, 2000. (b) Commencement of distribution. - -------------------------------------------------------------------------------- 20 o ALLIANCE BOND FUND QUALITY BOND PORTFOLIO - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS Selected Data For A Share Of Beneficial Interest Outstanding Throughout Each Period
-------------------------------- CLASS A -------------------------------- Six Months July 1, Ended 1999(a) December 31, to 2000 June 30, (unaudited) 2000 -------------------------------- Net asset value, beginning of period ................ $ 9.85 $ 10.00 -------------------------------- Income From Investment Operations Net investment income(b)(c) ......................... .30 .60 Net realized and unrealized gain (loss) on investment transactions ...................................... .40 (.21) -------------------------------- Net increase in net asset value from operations ..... .70 .39 -------------------------------- Less: Dividends and Distributions Dividends from net investment income ................ (.30) (.54) Distributions from net realized gains ............... (.01) -0- -------------------------------- Total dividends and distributions ................... (.31) (.54) -------------------------------- Net asset value, end of period ...................... $ 10.24 $ 9.85 ================================ Total Return Total investment return based on net asset value(d) . 7.29% 4.40% Ratios/Supplemental Data Net assets, end of period (000's omitted) ........... $ 7,050 $ 5,071 Ratios to average net assets of: Expenses, net of waivers/reimbursements ........... .98%(e) .98% Expenses, before waivers/reimbursements ........... 4.46%(e) 13.10% Net investment income(c) .......................... 5.89%(e) 5.96% Portfolio turnover rate ............................. 146% 215%
See footnote summary on page 24. - -------------------------------------------------------------------------------- ALLIANCE BOND FUND QUALITY BOND PORTFOLIO o 21 - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- Selected Data For A Share Of Beneficial Interest Outstanding Throughout Each Period
-------------------------------- CLASS B -------------------------------- Six Months July 1, Ended 1999(a) December 31, to 2000 June 30, (unaudited) 2000 -------------------------------- Net asset value, beginning of period ................ $ 9.84 $10.00 -------------------------------- Income From Investment Operations Net investment income(b)(c) ......................... .25 .50 Net realized and unrealized gain (loss) on investment transactions ...................................... .42 (.18) -------------------------------- Net increase in net asset value from operations ..... .67 .32 -------------------------------- Less: Dividends and Distributions Dividends from net investment income ................ (.27) (.48) Distributions from net realized gains ............... (.01) -0- -------------------------------- Total dividends and distributions ................... (.28) (.48) -------------------------------- Net asset value, end of period ...................... $10.23 $ 9.84 ================================ Total Return Total investment return based on net asset value(d) . 6.91% 3.56% Ratios/Supplemental Data Net assets, end of period (000's omitted) ........... $3,302 $1,007 Ratios to average net assets of: Expenses, net of waivers/reimbursements ........... 1.68%(e) 1.68% Expenses, before waivers/reimbursements ........... 4.88%(e) 11.29% Net investment income(c) .......................... 5.16%(e) 5.32% Portfolio turnover rate ............................. 146% 215%
See footnote summary on page 24. - -------------------------------------------------------------------------------- 22 o ALLIANCE BOND FUND QUALITY BOND PORTFOLIO - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- Selected Data For A Share Of Beneficial Interest Outstanding Throughout Each Period
-------------------------------- CLASS C -------------------------------- Six Months July 1, Ended 1999(a) December 31, to 2000 June 30, (unaudited) 2000 -------------------------------- Net asset value, beginning of period ................ $ 9.83 $10.00 -------------------------------- Income From Investment Operations Net investment income(b)(c) ......................... .26 .51 Net realized and unrealized gain (loss) on investment transactions ...................................... .41 (.20) -------------------------------- Net increase in net asset value from operations ..... .67 .31 -------------------------------- Less: Dividends and Distributions Dividends from net investment income ................ (.27) (.48) Distributions from net realized gains ............... (.01) -0- -------------------------------- Total dividends and distributions ................... (.28) (.48) -------------------------------- Net asset value, end of period ...................... $10.22 $ 9.83 ================================ Total Return Total investment return based on net asset value(d) . 6.92% 3.47% Ratios/Supplemental Data Net assets, end of period (000's omitted) ........... $1,419 $ 514 Ratios to average net assets of: Expenses, net of waivers/reimbursements ........... 1.68%(e) 1.68% Expenses, before waivers/reimbursements ........... 5.01%(e) 11.75% Net investment income(c) .......................... 5.29%(e) 5.35% Portfolio turnover rate ............................. 146% 215%
See footnote summary on page 24. - -------------------------------------------------------------------------------- ALLIANCE BOND FUND QUALITY BOND PORTFOLIO o 23 - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- Selected Data For A Share Of Beneficial Interest Outstanding Throughout Each Period ----------- ADVISOR CLASS ----------- October 9, 2000(f) to December 31, 2000 (unaudited) ----------- Net asset value, beginning of period ....................... $ 9.97 ----------- Income From Investment Operations Net investment income(b)(c) ................................ .11 Net realized and unrealized gain on investment transactions .30 ----------- Net increase in net asset value from operations ............ .41 ----------- Less: Dividends and Distributions Dividends from net investment income ....................... (.13) Distributions from net realized gains ...................... (.01) ----------- Total dividends and distributions .......................... (.14) ----------- Net asset value, end of period ............................. $10.24 =========== Total Return Total investment return based on net asset value(d) ........ 4.40% Ratios/Supplemental Data Net assets, end of period (000's omitted) .................. $3,102 Ratios to average net assets of: Expenses, net of waivers/reimbursements .................. .68%(e) Expenses, before waivers/reimbursements .................. 3.06%(e) Net investment income(c) ................................. 6.21%(e) Portfolio turnover rate .................................... 146% (a) Commencement of operations. (b) Based on average shares outstanding. (c) Net of fees waived and expenses reimbursed by the Adviser. (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) Commencement of distribution. - -------------------------------------------------------------------------------- 24 o ALLIANCE BOND FUND QUALITY BOND PORTFOLIO - -------------------------------------------------------------------------------- GLOSSARY OF INVESTMENT TERMS - -------------------------------------------------------------------------------- GLOSSARY OF INVESTMENT TERMS asset-backed securities (ABS) Bonds or notes backed by loan paper or accounts receivable originated by banks, credit card companies or other providers of credit or by insurance coverage provided by an institution other than the issuer. barbell strategy A portfolio strategy where the manager structures the portfolio so that it is heavily concentrated in securities with short maturities and in securities with long maturities. benchmark A standard by which a fund's performance can be measured. A benchmark is usually an unmanaged index, such as the Standard & Poor's 500 Stock Index or the Lehman Brothers Aggregate Bond Index. commercial mortgage-backed securities (CMBS) Similar to mortgage-backed securities in that they have securities or certificates backed by mortgages, except that investors receive payments out of the interest and principal of commercially-owned real estate, rather than residential real estate. Federal Reserve Board The seven-member board that oversees Federal Reserve Banks, established monetary policy and monitors the country's economic state. government bond A bond that is issued by the U.S. government or its agencies. index A compilation of securities of similar types of companies that is used to measure the investment performance of securities within that specific market. An index is often used as a benchmark for a mutual fund. An investor cannot invest directly in an index. investment-grade bond A bond that is rated BBB or higher by a credit agency. mortgage-backed securities (MBS) Securities or certificates backed by mortgages. Typically issued by institutions such as the Federal National Mortgage Association (FNMA), Government National Mortgage Association (GNMA) and the Federal Home Loan Mortgage Corporation (FHLMC). Investors receive payments out of the interest and principal of the underlying mortgages. Treasuries Negotiable U.S. government debt obligations, backed by the full faith and credit of the U.S. government. Treasuries are issued either as bills, notes or bonds depending on the maturity. Treasuries are exempt from state and local taxes. - -------------------------------------------------------------------------------- ALLIANCE BOND FUND QUALITY BOND PORTFOLIO o 25 - -------------------------------------------------------------------------------- ALLIANCE CAPITAL - -------------------------------------------------------------------------------- ALLIANCE CAPITAL The Investment Professional's Choice Alliance Capital is a leading global investment management firm with approximately $454 billion in assets under management. In recognition of our far-reaching investment capabilities, Alliance Capital has been selected by employee benefit plans for 43 of the FORTUNE 100 companies and public retirement funds in 41 states as well as by hundreds of foundations, endowments and foreign institutions. By sharing this institutional money management experience with millions of mutual fund investors as well, Alliance stands out as a "manager of choice" for thousands of investment professionals around the world. At Alliance Capital, we place a premium on investment research. We carefully select securities based on our proprietary research, conducted by over 605 investment professionals in 36 cities and 21 countries. Our commitment to this process means that our mutual fund shareholders have their portfolios managed by the same experienced analysts and portfolio managers who manage the pension funds of some of America's largest institutional investors. All information on Alliance Capital is as of 12/31/00. - -------------------------------------------------------------------------------- 26 o ALLIANCE BOND FUND QUALITY BOND PORTFOLIO - -------------------------------------------------------------------------------- ALLIANCE CAPITAL AT YOUR SERVICE - -------------------------------------------------------------------------------- ALLIANCE CAPITAL AT YOUR SERVICE At Alliance Capital, shareholder satisfaction is among our top priorities. That's why we provide our shareholders with a wide variety of products and time-saving services to meet their needs. o Low Minimum Investments You can begin investing in Alliance Capital funds with as little as $250 (except for Alliance Select Investor Series Biotechnology Portfolio, Alliance Select Investor Series Premier Portfolio, Alliance Select Investor Series Technology Portfolio, and Alliance Select Investor Series Small Cap Growth Portfolio which generally have a $10,000 minimum initial investment) and may make subsequent investments of $50 or more. o Automatic Reinvestment You may choose to reinvest fund dividend and capital-gains distributions automatically at no charge. o Automatic Investment Program Build your investment account by having money automatically transferred from your bank account on a regular basis. o Dividend Direction Plans You may cross-invest dividends from one fund into the same class of shares in any other fund without incurring a sales charge. This can be a good way to diversify your assets. o The Alliance Advance A quarterly newsletter discussing investment strategies, economic news and other matters that could affect your mutual fund investment. o Auto Exchange You may choose to automatically exchange money from one Alliance Capital fund to another on a regular basis. This can be a good way to dollar cost average*, helping you to invest with discipline. o Systematic Withdrawals Regular checks for specified amounts can be sent to you or to your brokerage or bank account. o A Choice of Purchase Plans Most funds are available in A, B, and C Class shares. Many funds are also available in Advisor Class shares. o Telephone Transaction Purchases, transfers and redemptions can be made by calling (800) 221-5672. Our knowledgeable representatives are available to assist you Monday through Friday from 8:30 a.m. to 8:00 p.m. Eastern Standard Time. o Alliance Answer: 24-Hour Information For your convenience, our computerized audio response system is available to you 24-hours a day by calling (800) 251-0539. Using any touch tone phone, you can hear share prices, get account balances, review details of your last transaction, obtain dividend information, order statements/checkbooks, review fund objectives, literature and Watchlist information, order additional copies of statements and request additional year-end tax forms (available from February 1 to May 31). o Alliance Capital on the World Wide Web at www.alliancecapital.com. Here, you can access updated account information, make additional investments, request more information, exchange between Alliance funds and view fund performance, press releases and articles. * Dollar cost averaging does not assure a profit nor protect against loss in a declining market. Since this strategy involves continuous investments in securities, regardless of fluctuating prices, investors should consider their financial ability to invest during periods of low price levels. - -------------------------------------------------------------------------------- ALLIANCE BOND FUND QUALITY BOND PORTFOLIO o 27 - -------------------------------------------------------------------------------- BOARD OF DIRECTORS - -------------------------------------------------------------------------------- BOARD OF DIRECTORS John D. Carifa, Chairman and President Ruth Block(1) David H. Dievler(1) John H. Dobkin(1) William H. Foulk, Jr.(1) Clifford L. Michel(1) Donald J. Robinson(1) OFFICERS Kathleen A. Corbet, Senior Vice President Wayne D. Lyski, Senior Vice President Paul J. DeNoon, Senior Vice President Matthew Bloom, Vice President F. Jeanne Goetz, Vice President Sean Kelleher, Vice President Jeffrey S. Phlegar, Vice President Edmund P. Bergan, Jr., Secretary Mark D. Gersten, Treasurer & Chief Financial Officer Juan J. Rodriguez, Controller 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 Transfer Agent Alliance Fund Services, Inc. P.O. Box 1520 Secaucus, NJ 07096-1520 Toll-Free (800) 221-5672 Independent Auditors Ernst & Young LLP 787 Seventh Avenue New York, NY 10019 Legal Counsel Seward & Kissel LLP One Battery Park Plaza New York, NY 10004 (1) Member of the Audit Committee. - -------------------------------------------------------------------------------- 28 o ALLIANCE BOND FUND QUALITY BOND PORTFOLIO - -------------------------------------------------------------------------------- ALLIANCE CAPITAL FAMILY OF FUNDS - -------------------------------------------------------------------------------- ALLIANCE CAPITAL FAMILY OF FUNDS Domestic Equity Funds Balanced Shares Conservative Investors Fund Disciplined Value Fund Growth & Income Fund Growth Fund Growth Investors Fund Health Care Fund Premier Growth Fund Quasar Fund Real Estate Investment Fund Technology Fund The Alliance Fund Utility Income Fund Global & International Equity Funds All-Asia Investment Fund Global Small Cap Fund Greater China '97 Fund International Fund International Premier Growth Fund New Europe Fund Worldwide Privatization Fund Select Investor Series Biotechnology Portfolio Premier Portfolio Technology Portfolio Small Cap Growth Portfolio Fixed Income Funds Corporate Bond Portfolio Global Dollar Government Fund Global Strategic Income Trust High Yield Fund Multi-Market Strategy Trust North American Government Income Trust Quality Bond Portfolio U.S. Government Portfolio Municipal Income Funds National Insured National Arizona California Insured California Florida Massachusetts Michigan Minnesota New Jersey New York Ohio Pennsylvania Virginia Closed-End Funds All-Market Advantage Fund The Austria Fund ACM Government Income Fund ACM Government Opportunity Fund The Korean Investment Fund ACM Managed Dollar Income Fund ACM Managed Income Fund ACM Municipal Securities Income Fund The Southern Africa Fund The Spain Fund World Dollar Government Fund World Dollar Government Fund II Alliance also offers AFD Exchange Reserves, which serves as the money market fund exchange vehicle for the Alliance mutual funds. To obtain a prospectus for any Alliance Capital fund, call your investment professional, or call Alliance at (800) 227-4618. - -------------------------------------------------------------------------------- ALLIANCE BOND FUND QUALITY BOND PORTFOLIO o 29 Alliance Bond Fund Quality Bond Portfolio 1345 Avenue of the Americas New York, NY 10105 (800) 221-5672 Alliance Capital [LOGO](R) The Investment Professional's Choice (R) These registered service marks used under license from the owner, Alliance Capital Management L.P. QBPSR1200 -----END PRIVACY-ENHANCED MESSAGE-----