-----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, A7wLJbtXbC9XJU0NGQh/R2BGDmbjYJgrtvBSChrmywoiVYyqKRPrphC+PKWvLPJy /Ttbb+ESQhob7Lny0qF/+Q== 0000936772-98-000104.txt : 19980312 0000936772-98-000104.hdr.sgml : 19980312 ACCESSION NUMBER: 0000936772-98-000104 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980311 SROS: NONE 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: 98563848 BUSINESS ADDRESS: STREET 1: 500 PLAZA DRIVE STREET 2: 1345 AVENUE OF THE AMERICAS CITY: SECAUCUS STATE: NJ ZIP: 07094 BUSINESS PHONE: 2125544623 MAIL ADDRESS: STREET 1: 500 PLAZA DRIVE STREET 2: 1345 AVENUE OF THE AMERICAS CITY: SECAUCUS STATE: NJ ZIP: 07094 N-30D 1 ALLIANCE BOND FUND CORPORATE BOND PORTFOLIO SEMI-ANNUAL REPORT DECEMBER 31, 1997 ALLIANCE CAPITAL LETTER TO SHAREHOLDERS ALLIANCE BOND FUND CORPORATE BOND PORTFOLIO _______________________________________________________________________________ February 10, 1998 Dear Shareholder: This semi-annual report contains investment results and market activity for the period ended December 31, 1997. BOND MARKET REVIEW The U.S. bond market posted solid returns in the second half of 1997. Early in the period, interest rates were relatively stable and investor demand for yield oriented securities, i.e., corporates and mortgage-backed securities (MBS), was high. In spite of strong U.S. economic growth, inflation remained almost non-existent, further increasing demand in the bond market. Toward year's end, the financial turmoil which began in Southeast Asia, spilled over into other global bond markets, including the U.S. The resulting "flight to quality" spurred a year-end rally in U.S. Treasury securities while negatively impacting returns in the corporate, mortgage and non-U.S. bond sectors. Interest rates on most maturities fell dramatically over the past six months. The decreasing likelihood that the Federal Reserve would have to raise rates to slow economic growth, coupled with the year-end rally in the Treasury market, helped push interest rates to new lows. Overall, the 30-year Treasury bond, which was yielding 6.78% at the beginning of the period, fell to 5.92% at year end; 5-year note yields fell to 5.71% from 6.37%. INVESTMENT RESULTS The following table shows Alliance Bond Fund Corporate Bond Portfolio's investment results over the six and 12 month periods ended December 31, 1997. Also shown for comparison are the total returns for the U.S. bond market, represented by the unmanaged Lehman Brothers (LB) Aggregate Bond Index, and for the average of the Lipper universe of BBB-rated corporate bond funds. These funds have similar investment objectives to your Fund, although some funds included in the average may have somewhat different investment policies. Over the six month period ended December 31, 1997, the return for your Fund's Class A shares trailed those of its benchmark and the Lipper universe. This underperformance can be traced to sluggish performance in the corporate and emerging market bond sectors. As events unfolded in Southeast Asia, many investors reduced their appetite for all types of credit risk. This risk aversion pushed down prices and produced wider yield spreads in the credit oriented markets. Your Fund's long term performance, however, remains ahead of its benchmark. INVESTMENT RESULTS* Period Ended December 31, 1997 TOTAL RETURNS 6 MONTHS 12 MONTHS --------- --------- ALLIANCE BOND FUND CORPORATE BOND PORTFOLIO Class A 5.62% 11.78% Class B 5.28% 11.05% Class C 5.28% 11.05% LEHMAN BROTHERS AGGREGATE BOND INDEX 6.36% 9.65% LIPPER CORPORATE DEBT FUNDS BBB-RATED AVERAGE 6.50% 10.08% * THE FUND'S INVESTMENT RESULTS ARE CUMULATIVE TOTAL RETURNS FOR THE PERIOD AND ARE BASED ON THE NET ASSET VALUE OF EACH CLASS OF SHARES AS OF DECEMBER 31, 1997. ALL FEES AND EXPENSES RELATED TO THE OPERATION OF THE FUND HAVE BEEN DEDUCTED, BUT NO ADJUSTMENT HAS BEEN MADE FOR SALES CHARGES THAT MAY APPLY WHEN SHARES ARE PURCHASED OR REDEEMED. ALL RETURNS INCLUDE THE REINVESTMENT OF ANY DISTRIBUTIONS PAID DURING THE PERIOD. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. THE LEHMAN BROTHERS (LB) AGGREGATE BOND INDEX IS UNMANAGED AND DOES NOT REFLECT FEES AND EXPENSES. THE LIPPER CORPORATE DEBT FUNDS BBB-RATED AVERAGE FOR THE SIX AND 12 MONTH PERIODS ENDED DECEMBER 31, 1997 REFLECTS THE PERFORMANCE OF 111 AND 102 MUTUAL FUNDS, RESPECTIVELY. THESE FUNDS HAVE GENERALLY SIMILAR INVESTMENT OBJECTIVES TO YOUR FUND, ALTHOUGH INVESTMENT POLICIES FOR THE VARIOUS FUNDS MAY DIFFER. AN INVESTOR CANNOT INVEST DIRECTLY IN THE INDEX OR AVERAGE. ADDITIONAL INVESTMENT RESULTS CAN BE FOUND ON PAGE 3. ECONOMIC REVIEW The U.S. economy continued to be fundamentally strong and grew at a solid pace in the second half of 1997. Total growth, as measured by the Gross Domestic Product (GDP), was likely in the 3% range in the fourth quarter, 1 ALLIANCE BOND FUND CORPORATE BOND PORTFOLIO _______________________________________________________________________________ following third quarter's 3.1% pace. As it has all year, the labor market remained tight and fueled economic growth. The unemployment rate dropped to 4.7% in December and hovered near 20-year lows throughout most of the period. For the year, the U.S. economy created 3.2 million new jobs with over one million jobs added in the fourth quarter alone. Inflation remained remarkably absent for this late in an expansion. Through December, producer prices were down 1.2% from year earlier levels while consumer prices posted a modest 1.7% gain for the same period. Developments in Southeast Asia roiled the world's financial markets. Economic problems which began in Thailand quickly spread to Malaysia, Indonesia, the Philippines and South Korea. In all these countries, fast growth, fueled by strong capital inflows, and overvalued currencies had combined to produce large external trade deficits, property and stock market bubbles and overextended banking systems. Immediate policy responses in the affected countries were often inadequate and/or poorly articulated. This resulted in additional volatility which spread to other markets in the region and created a ripple effect felt from Japan to the U.S. and Europe. In many cases, fundamental analysis temporarily took a back seat to market psychology. In the U.S. bond market, corporate bonds, which had benefited from the stable interest rate environment and strong investor demand for most of the year, were negatively affected. Investors began selling emerging market debt, but the selling quickly spread to all forms of credit oriented debt as uncertainty over the magnitude of the fallout from Southeast Asia grew. The resulting widening of spreads in both domestic corporate bonds and emerging market bonds eroded returns in those sectors while pushing up returns in the U.S. Government bond sector as investors sought safety and liquidity. However, as appropriate policy responses are implemented in the affected countries, we are confident that economic fundamentals will eventually reassert themselves. INVESTMENT OUTLOOK Our outlook for the U.S. remains optimistic. We expect domestic growth to slow from its 1997 pace to a more sustainable 2.5% rate in 1998. The economic slowing in Southeast Asia will further temper U.S. growth in the upcoming year as exports to that region curtail. Meanwhile, the recent decline in interest rates should moderate the anticipated slowing and provide stimulus to the economy to ensure continued growth. The Federal Reserve is unlikely to raise interest rates in the short term in light of the likelihood of slowing growth and the desire to keep global liquidity at high levels. Until the repercussions of events in Southeast Asia are fully understood, we expect interest rate volatility to remain accentuated. In this environment, we expect returns in the domestic corporate bond sector to continue to be choppy. We will maintain emphasis in the portfolio on higher quality issues which are less susceptible to economic developments in Southeast Asia. Outside of the U.S., global growth will be slower and inflation pressures will be reduced as Asia exports cheaper goods to the world and imports less from abroad. In the emerging markets, we expect volatility to remain heightened and liquidity to remain low. Although the direction of Asia's impact is clear, the full extent of the crisis has yet to be determined. At this juncture, stabilizing Korea is key and multinational efforts are clearly focused on this goal. We expect the U.S. Treasury market will continue to be perceived as a "safe haven" for investors until clear policy responses are outlined and there is a commitment to implementing them. As adjustments are made, we believe markets will stabilize and significant investment opportunities will be found in many bond markets around the world. Thank you for your continued interest and investment in Alliance Bond Fund Corporate Bond Portfolio. We look forward to reporting the Fund's progress to you in the coming months. Sincerely, John D. Carifa Chairman and President Wayne D. Lyski Senior Vice President 2 INVESTMENT OBJECTIVE AND POLICIES ALLIANCE BOND FUND CORPORATE BOND PORTFOLIO _______________________________________________________________________________ Alliance Bond Fund Corporate Bond Portfolio seeks primarily to maximize income over the long-term consistent with providing reasonable safety in the value of each shareholder's investment; secondarily, the Fund will seek capital appreciation. It invests primarily in a diversified portfolio of corporate bonds issued by domestic and foreign issuers that give promise of relatively attractive yields. INVESTMENT RESULTS _______________________________________________________________________________ AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1997 CLASS A SHARES WITHOUT WITH SALES CHARGE SALES CHARGE ------------ ------------ One Year 11.78% 7.04% Five Years 12.48% 11.51% Ten Years 12.01% 11.53% SEC Yield** 6.83% CLASS B SHARES WITHOUT WITH SALES CHARGE SALES CHARGE ------------ ------------ One Year 11.05% 8.05% Since Inception* 11.77% 11.77% SEC Yield** 6.43% CLASS C SHARES WITHOUT WITH SALES CHARGE SALES CHARGE ------------ ------------ One Year 11.05% 10.05% Since Inception* 9.89% 9.89% SEC Yield** 6.44% Average annual total returns reflect reinvestment of dividends and/or capital gain distributions in additional shares, with and without the effect of the 4.25% maximum front-end sales charge for Class A shares or applicable contingent deferred sales charge for Class B shares (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: 1/8/93, Class B; 5/3/93, Class C. ** SEC Yields are based on SEC guidelines and are calculated on 30 days ended December 31, 1997. SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, GUARANTEED OR ENDORSED BY, ANY BANK; FURTHER, SUCH SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY. SHARES OF THE FUND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. 3 PORTFOLIO OF INVESTMENTS DECEMBER 31, 1997 (UNAUDITED) ALLIANCE BOND FUND CORPORATE BOND PORTFOLIO _______________________________________________________________________________ STANDARD PRINCIPAL & POOR'S AMOUNT RATINGS (000) VALUE - ------------------------------------------------------------------------- CORPORATE DEBT OBLIGATIONS-68.9% BANKING-9.5% BB Dime Capital Trust I Series A 9.33%, 5/06/27 $36,075 $ 40,868,285 BBB- FBOP Capital Trust I 10.20%, 2/06/27 (a)(b) 23,000 24,794,023 Baa3 Riggs Capital II 8.875%, 3/15/27 (a)(c) 45,500 49,526,750 ------------- 115,189,058 COMMUNICATIONS-3.8% BBB- TCI Communications, Inc. 6.875%, 2/15/06 32,000 32,122,336 7.875%, 2/15/26 12,720 13,690,625 ------------- 45,812,961 FINANCIAL-12.5% BBB- Advanta Capital Trust I 8.99%, 12/17/26 (a)(b) 12,000 12,300,468 BBB- Conseco Finance Trust II 8.70%, 11/15/26 21,600 24,084,626 BBB- Conseco Finance Trust III 8.796%, 4/01/27 20,000 22,700,000 Baa3 Northfork Capital Trust I 8.70%, 12/15/26 (c) 16,230 17,599,358 Baa3 Northfork Capital Trust II 8.00%, 12/15/27 (c) 20,000 20,450,000 BBB Renaissance Capital Trust 8.54%, 3/01/27 (a) 19,470 20,722,505 BBB- Selkirk Cogen Funding Corp. Series A 8.98%, 6/26/12 30,000 33,093,000 ------------- 150,949,957 INDUSTRIAL-12.7% BB- CSN Iron Brazil, SA 9.125%, 6/01/07 (a)(b) 42,500 36,729,775 A Ford Motor Credit Co. 7.50%, 8/01/26 35,000 38,101,700 BBB Raytheon Co. 7.20%, 8/15/27 30,000 31,104,150 BBB- Time Warner, Inc. 7.75%, 6/15/05 45,000 47,820,330 ------------- 153,755,955 INSURANCE-13.7% BBB+ Arkwright CSN Trust 9.625%, 8/15/26 (a) $38,500 45,633,858 BBB- Delphi Funding LLC Series A 9.31%, 3/25/27 25,000 26,995,225 Ca Home Holdings, Inc. 8.625%, 12/15/03 (b)(d) 45,765 14,644,800 A+ Liberty Mutual Insurance 7.697%, 10/15/97 (a) 45,000 47,308,140 BBB Mutual Life Insurance Co. of New York 11.25%, 8/15/24 (a)(e) 25,000 31,549,875 ------------- 166,131,898 PUBLIC UTILITIES-11.8% BB+ CalEnergy Co., Inc. 7.63%, 10/15/07 40,000 40,714,440 BB+ Connecticut Light & Power Co. Series C 7.75%, 6/01/02 15,000 15,101,700 A+ Consolidated Edison Series 94-A 7.125%, 2/15/29 44,000 44,756,184 BB+ Niagara Mohawk Power Corp. 7.75%, 5/15/06 30,000 31,025,700 8.00%, 6/01/04 10,000 10,480,900 ------------- 142,078,924 TRANSPORTATION-4.9% AA+ Continental Airlines Series 1997-1 7.461%, 4/01/15 33,000 34,830,510 BBB- United Airlines 9.56%, 10/19/18 19,591 24,574,950 ------------- 59,405,460 Total Corporate Debt Obligations (cost $822,773,600) 833,324,213 YANKEES-12.8% Baa3 Empresa Electrica Del Norte, SA 7.75%, 3/15/06 (a)(c) 22,000 19,778,000 Caa2 Grupo Mexicano de Desarrollo, SA 8.25%, 2/17/01 (a)(c) 29,200 8,176,000 4 ALLIANCE BOND FUND CORPORATE BOND PORTFOLIO _______________________________________________________________________________ STANDARD PRINCIPAL & POOR'S AMOUNT RATINGS (000) VALUE - ------------------------------------------------------------------------- BBB- MC Cuernavaca Trust 9.25%, 7/25/01 (a) $37,118 $ 35,632,582 Baa3 Reliance Industries, Ltd. 9.375%, 6/24/26 (a)(c) 35,000 34,444,200 BBB- Telefonica de Argentina, SA 11.875%, 11/01/04 35,000 40,810,000 BB Total Access Communication 8.375%, 11/04/06 (a) 33,500 15,242,500 Total Yankees (cost $189,927,362) 154,083,282 U.S. GOVERNMENT OBLIGATIONS-8.3% AAA U.S. Treasury Bond 6.125%, 11/15/27 20,000 20,553,200 AAA U.S. Treasury Note 6.125%, 8/15/07 35,000 35,984,410 AAA U.S. Treasury Strip Zero coupon, 5/15/09 85,000 43,648,350 Total U.S. Government Obligations (cost $99,862,392) 100,185,960 SOVEREIGN DEBT OBLIGATIONS-8.0% BRAZIL-4.0% BB- Republic of Brazil 10.125%, 5/15/27 52,000 48,789,000 PRINCIPAL STANDARD AMOUNT & POOR'S (000) RATINGS OR SHARES VALUE - ------------------------------------------------------------------------- RUSSIA-4.0% Ba2 Russian IAN 6.718%, 12/02/15 (a)(b) $20,000 $ 14,200,000 Ba2 Russian Principal Loans 6.718%, 12/15/20 (a)(b) 55,000 34,168,750 --------------- 48,368,750 Total Sovereign Debt Obligations (cost $100,665,623) 97,157,750 PREFERRED STOCK-5.2% B1 Chevy Chase Capital Corp. Series A 10.375%, (c) 339 17,607,200 A2 NB Capital Corp. 8.35%, (a)(c) 43 45,083,350 Total Preferred Stock (cost $60,332,934) 62,690,550 COMMERCIAL PAPER-1.5% A1+ GE Capital Corp. 5.65%, 1/02/98 (c) (cost $18,597,081) $18,600 18,597,081 TOTAL INVESTMENTS-104.7% (cost $1,292,158,992) 1,266,038,836 Other assets less liabilities-(4.7%) (57,261,643) NET ASSETS-100% $1,208,777,193 (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 qualified buyers. At December 31, 1997, these securities amounted to $475,290,776 or 39.3% of net assets. (b) Duff & Phelps rating. (c) Moody's rating. (d) Illiquid security, valued at fair value (see Note A). (e) Indicates a security that has a zero coupon that remains in effect until a predetermined date at which time the stated coupon rate becomes effective. Glossary: IAN - Interest Arrears Note See notes to financial statements. 5 STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1997 (UNAUDITED) ALLIANCE BOND FUND CORPORATE BOND PORTFOLIO _______________________________________________________________________________ ASSETS Investments in securities, at value (cost $1,292,158,992) $1,266,038,836 Cash 825,148 Receivable for investment securities sold 28,424,375 Interest receivable 18,242,637 Receivable for capital stock sold 3,275,644 Dividends receivable 439,120 Prepaid expenses 68,573 Total assets 1,317,314,333 LIABILITIES Payable for investment securities purchased 103,008,094 Dividends payable 2,875,287 Payable for capital stock redeemed 808,062 Distribution fee payable 748,097 Advisory fee payable 554,941 Accrued expenses 542,659 Total liabilities 108,537,140 NET ASSETS $1,208,777,193 COMPOSITION OF NET ASSETS Capital stock, at par $ 84,106 Additional paid-in capital 1,241,957,247 Distributions in excess of net investment income (4,613,706) Accumulated net realized loss on investment transactions (2,530,298) Net unrealized depreciation of investments (26,120,156) $1,208,777,193 CALCULATION OF MAXIMUM OFFERING PRICE CLASS A SHARES Net asset value and redemption price per share ($437,558,575/ 30,445,406 shares of capital stock issued and outstanding) $14.37 Sales charge--4.25% of public offering price .64 Maximum offering price $15.01 CLASS B SHARES Net asset value and offering price per share ($573,675,483/ 39,917,314 shares of capital stock issued and outstanding) $14.37 CLASS C SHARES Net asset value and offering price per share ($197,543,135/ 13,743,264 shares of capital stock issued and outstanding) $14.37 See notes to financial statements. 6 STATEMENT OF OPERATIONS SIX MONTHS ENDED DECEMBER 31, 1997 (UNAUDITED) ALLIANCE BOND FUND CORPORATE BOND PORTFOLIO _______________________________________________________________________________ INVESTMENT INCOME Interest $47,054,817 Dividends 1,007,932 $ 48,062,749 EXPENSES Advisory fee 3,140,223 Distribution fee - Class A 613,400 Distribution fee - Class B 2,669,378 Distribution fee - Class C 936,264 Transfer agency 724,047 Custodian 121,866 Printing 103,973 Administrative 65,397 Registration 51,698 Audit and legal 43,351 Taxes 18,357 Directors' fees 8,213 Miscellaneous 16,631 Total expenses 8,512,798 Net investment income 39,549,951 REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain on investment transactions 33,359,478 Net change in unrealized depreciation of investments (16,206,729) Net gain on investments 17,152,749 NET INCREASE IN NET ASSETS FROM OPERATIONS $ 56,702,700 See notes to financial statements. 7 STATEMENT OF CHANGES IN NET ASSETS ALLIANCE BOND FUND CORPORATE BOND PORTFOLIO _______________________________________________________________________________ SIX MONTHS ENDED DEC. 31, 1997 YEAR ENDED (UNAUDITED) JUNE 30, 1997 --------------- --------------- INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS Net investment income $ 39,549,951 $ 67,267,838 Net realized gain on investment transactions 33,359,478 45,535,746 Net change in unrealized depreciation of investments (16,206,729) 12,490,228 Net increase in net assets from operations 56,702,700 125,293,812 DIVIDENDS TO SHAREHOLDERS FROM: Net investment income Class A (17,241,139) (28,663,265) Class B (20,726,710) (33,588,524) Class C (7,273,658) (9,618,790) CAPITAL STOCK TRANSACTIONS Net increase 171,382,072 273,894,910 Total increase 182,843,265 327,318,143 NET ASSETS Beginning of year 1,025,933,928 698,615,785 End of period (including undistributed net investment income of $1,077,850 for the year ended June 30, 1997) $1,208,777,193 $1,025,933,928 See notes to financial statements. 8 NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 (UNAUDITED) ALLIANCE BOND FUND CORPORATE BOND PORTFOLIO _______________________________________________________________________________ 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 two portfolios: the Corporate Bond Portfolio and the U.S. Government Portfolio. Each series is considered to be a separate entity for financial reporting and tax purposes. The financial statements and notes include the operations of the Corporate Bond Portfolio (the "Portfolio") only. The Portfolio offers three classes of shares: Class A, Class B and Class C shares. Class A shares are currently sold with a front-end sales charge of up to 4.25% for purchases not exceeding $1,000,000. With respect to purchases of $1,000,000 or more, Class A shares redeemed within one year of purchase will be subject to a contingent deferred sales charge of 1%. Class B shares are 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 the 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 that security. Securities traded on the over-the-counter market, securities listed on a foreign securities market 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-the-counter are valued at the mean of the closing bid and asked price 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 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 services are believed to reflect the fair value of such securities. 2. TAXES It is the Portfolio's policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if applicable, to its shareholders. Therefore, no provisions for federal income or excise taxes are required. 3. INVESTMENT INCOME AND INVESTMENT TRANSACTIONS Interest income is accrued daily. Dividend income is recorded on ex-dividend date. Investment transactions are accounted for on the date the securities are purchased or sold. Investment gains and losses are determined on the identified cost basis. The Portfolio accretes discount as an adjustment to interest income. 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 net assets of such class, except that the Fund's Class B and Class C shares bear higher distribution and transfer agent fees than Class A shares. 9 NOTES TO FINANCIAL STATEMENTS (CONT.) ALLIANCE BOND FUND CORPORATE BOND PORTFOLIO _______________________________________________________________________________ 5. DIVIDENDS AND DISTRIBUTIONS Dividends and distributions to shareholders are recorded on the ex-dividend date and are determined in accordance with income tax regulations. Income and capital gains distributions are determined in accordance with federal tax regulations and may differ from those determined in accordance with generally accepted accounting principles. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on their federal tax basis treatment; temporary differences do not require such reclassification. 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 a annual rate of .625 of 1% of the first $500 million and .50 of 1% in excess of $500 million of the Portfolio's average daily net assets. Such fee is accrued daily and paid monthly. Pursuant to the advisory agreement, the Portfolio paid $65,397 to the Adviser representing the cost of certain legal and accounting services provided to the Portfolio by the Adviser for the six months ended December 31, 1997. The Portfolio compensates Alliance Fund Services, Inc., a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Portfolio. Such compensation amounted to $340,389 for the six months ended December 31, 1997. Alliance Fund Distributors, Inc., (the "Distributor"), a wholly-owned subsidiary of the Adviser, serves as the Distributor of the Portfolio's shares. The Distributor received front-end sales charges of $94,866 from the sale of Class A shares, and $6,626, $232,109 and $42,017 in contingent deferred sales charges imposed upon redemptions by shareholders of Class A, Class B and Class C, respectively, for the six months ended December 31, 1997. 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 a distribution fee 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 Portfolio's average daily net assets attributable to the Class B and Class C shares. Such fee is 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 incurred expenses in excess of the distribution costs reimbursed by the Portfolio in the amount of $10,989,097 and $2,419,628, 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 obligations) aggregated $1,329,875,990 and $1,110,097,012, respectively, for the six months ended December 31, 1997. There were purchases of $393,829,173 and sales of $361,228,878 of U.S. government and government agency obligations for the six months ended December 31, 1997. At December 31, 1997, the cost of securities for federal income tax purposes was $1,293,180,255. Accordingly, gross unrealized appreciation of investments was $46,476,131 and gross unrealized depreciation of investments was $73,617,550, resulting in net unrealized depreciation of $27,141,419. At June 30, 1997, the Portfolio had a capital loss carryforward for federal income tax purposes of $33,098,883 of which $14,295,126 expires in the year 1998; $258,361 expires in the year 2000; $15,028,057 expires in the year 2003 and $3,517,339 expires in the year 2004. 10 ALLIANCE BOND FUND CORPORATE BOND PORTFOLIO _______________________________________________________________________________ 1. OPTIONS TRANSACTIONS For hedging purposes, the Fund purchases and writes (sells) put and call options on debt securities that are traded on U.S. and foreign securities exchanges and over-the-counter markets. The risk associated with purchasing an option is that the Fund pays a premium whether or not the option is exercised. Additionally, the Fund bears the risk of loss of premium and a change in market value should the counterparty not perform under the contract. Put and call options purchased are accounted for in the same manner as portfolio securities. The cost of securities acquired through the exercise of call options is increased by premiums paid. The proceeds from securities sold through the exercise of put options are decreased by the premiums paid. When the Fund writes an option, the premium received by the Fund is recorded as a liability and is subsequently adjusted to the current market value of the option written. Premiums received from writing options which expire unexercised are recorded by the Fund on the expiration date as realized gains from option transactions. The difference between the premium received and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is also treated as a realized gain, or if the premium received is less than the amount paid for the closing purchase transaction, as a realized loss. If a call option is exercised, the premium received is added to the proceeds from the sale of the underlying security in determining whether the Fund has realized a gain or loss. If a put option is exercised, the premium received reduces the cost basis of the security purchased by the Fund. The risk involved in writing an option is that, if the option were exercised, the underlying security would then be purchased or sold by the Fund at a disadvantageous price. For the six months ended December 31, 1997, the Fund did not engage in any options transactions. NOTE E: CAPITAL STOCK There are 350,000,000 shares of $.001 par value capital stock authorized for the Portfolio, of which 250,000,000 shares are designated as Class A and 50,000,000 are designated each for Class B and Class C shares. Transactions in capital stock were as follows: SHARES AMOUNT --------------------------- ------------------------------ SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED DEC. 31, 1997 JUNE 30, DEC. 31, 1997 JUNE 30, (UNAUDITED) 1997 (UNAUDITED) 1997 ------------- ------------ -------------- -------------- CLASS A Shares sold 5,562,120 7,284,369 $ 80,297,795 $100,560,914 Shares issued in reinvestment of dividends 655,726 1,088,659 9,497,312 15,092,550 Shares converted from Class B 723,048 882,859 10,444,289 12,218,491 Shares redeemed (2,628,919) (3,997,163) (37,984,184) (55,154,472) Net increase 4,311,975 5,258,724 $ 62,255,212 $ 72,717,483 CLASS B Shares sold 8,745,218 13,809,148 $126,316,082 $190,717,837 Shares issued in reinvestment of dividends 734,822 1,108,727 10,642,102 15,370,487 Shares converted to Class A (723,048) (882,859) (10,444,289) (12,218,491) Shares redeemed (2,688,251) (5,635,584) (38,897,407) (77,903,904) Net increase 6,068,741 8,399,432 $ 87,616,488 $115,965,929 11 NOTES TO FINANCIAL STATEMENTS (CONT.) ALLIANCE BOND FUND CORPORATE BOND PORTFOLIO _______________________________________________________________________________ SHARES AMOUNT --------------------------- ------------------------------ SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED DEC. 31, 1997 JUNE 30, DEC. 31, 1997 JUNE 30, (UNAUDITED) 1997 (UNAUDITED) 1997 ------------- ------------ -------------- -------------- CLASS C Shares sold 6,468,264 9,879,749 $ 93,431,172 $137,855,734 Shares issued in reinvestment of dividends 360,316 356,660 5,226,216 4,970,992 Shares redeemed (5,400,775) (4,174,633) (77,147,016) (57,615,228) Net increase 1,427,805 6,061,776 $ 21,510,372 $ 85,211,498 12 FINANCIAL HIGHLIGHTS ALLIANCE BOND FUND CORPORATE BOND PORTFOLIO _______________________________________________________________________________ SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
CLASS A ----------------------------------------------------------------------------- SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30, 1997 --------------------------------------------------------------- (UNAUDITED) 1997 1996 1995 1994 1993 ------------ ----------- ----------- ----------- ----------- ----------- Net asset value, beginning of year $14.19 $13.29 $12.92 $12.51 $14.15 $12.01 INCOME FROM INVESTMENT OPERATIONS Net investment income .54(a) 1.15(a) 1.26 1.19 1.11 1.25 Net realized and unrealized gain (loss) on investment transactions .25 .97 .27 .36 (1.36) 2.13 Net increase (decrease) in net asset value from operations .79 2.12 1.53 1.55 (.25) 3.38 LESS: DIVIDENDS AND DISTRIBUTIONS Dividends from net investment income (.61) (1.22) (1.16) (1.14) (1.11) (1.24) Dividends in excess of net investment income -0- -0- -0- -0- (.03) -0- Distributions from net realized gains -0- -0- -0- -0- (.25) -0- Total dividends and distributions (.61) (1.22) (1.16) (1.14) (1.39) (1.24) Net asset value, end of period $14.37 $14.19 $13.29 $12.92 $12.51 $14.15 TOTAL RETURN Total investment return based on net asset value (b) 5.62% 16.59% 12.14% 13.26% (2.58)% 29.62% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000's omitted) $437,559 $370,845 $277,369 $230,750 $219,182 $216,171 Ratio of expenses to average net assets 1.06%(c) 1.12% 1.20% 1.24% 1.30% 1.39% Ratio of net investment income to average net assets 7.45%(c) 8.34% 9.46% 9.70% 7.76% 9.29% Portfolio turnover rate 131% 307% 389% 387% 372% 579%
See footnote summary on page 15. 13 FINANCIAL HIGHLIGHTS (CONTINUED) ALLIANCE BOND FUND CORPORATE BOND PORTFOLIO _______________________________________________________________________________ SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
CLASS B ------------------------------------------------------------------------------- SIX MONTHS JANUARY 8, ENDED 1993(D) DECEMBER 31, YEAR ENDED JUNE 30, TO 1997 -------------------------------------------------- JUNE 30, (UNAUDITED) 1997 , 1996 1995 1994 1993 ------------ ----------- ----------- ----------- ----------- ------------- Net asset value, beginning of period $14.19 $13.29 $12.92 $12.50 $14.15 $12.47 INCOME FROM INVESTMENT OPERATIONS Net investment income .49(a) 1.05(a) 1.15 1.11 1.02 .49 Net realized and unrealized gain (loss) on investment transactions .25 .98 .29 .36 (1.37) 1.69 Net increase (decrease) in net asset value from operations .74 2.03 1.44 1.47 (.35) 2.18 LESS: DIVIDENDS AND DISTRIBUTIONS Dividends from net investment income (.56) (1.13) (1.07) (1.05) (1.04) (.50) Dividends in excess of net investment income -0- -0- -0- -0- (.01) -0- Distribution from net realized gains -0- -0- -0- -0- (.25) -0- Total dividends and distributions (.56) (1.13) (1.07) (1.05) (1.30) (.50) Net asset value, end of period $14.37 $14.19 $13.29 $12.92 $12.50 $14.15 TOTAL RETURN Total investment return based on net asset value (b) 5.28% 15.80% 11.38% 12.54% (3.27)% 17.75% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000's omitted) $573,675 $480,326 $338,152 $241,393 $184,129 $55,508 Ratio of expenses to average net assets 1.76%(c) 1.82% 1.90% 1.99% 2.00% 2.10%(c) Ratio of net investment income to average net assets 6.73%(c) 7.62% 8.75% 9.07% 7.03% 7.18%(c) Portfolio turnover rate 131% 307% 389% 387% 372% 579%
See footnote summary on page 15. 14 ALLIANCE BOND FUND CORPORATE BOND PORTFOLIO _______________________________________________________________________________ SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
CLASS C ------------------------------------------------------------------------------ SIX MONTHS MAY 3, ENDED 1993(D) DECEMBER 31, YEAR ENDED JUNE 30, TO 1997 -------------------------------------------------- JUNE 30, (UNAUDITED) 1997 1996 1995 1994 1993 ------------ ----------- ----------- ----------- ----------- ------------ Net asset value, beginning of period $14.19 $13.29 $12.93 $12.50 $14.15 $13.63 INCOME FROM INVESTMENT OPERATIONS Net investment income .50(a) 1.04(a) 1.14 1.10 1.02 .16 Net realized and unrealized gain (loss) on investment transactions .24 .99 .29 .38 (1.37) .53 Net increase (decrease) in net asset value from operations .74 2.03 1.43 1.48 (.35) .69 LESS: DIVIDENDS AND DISTRIBUTIONS Dividends from net investment income (.56) (1.13) (1.07) (1.05) (1.05) (.17) Distribution from net realized gains -0- -0- -0- -0- (.25) -0- Total dividends and distributions (.56) (1.13) (1.07) (1.05) (1.30) (.17) Net asset value, end of period $14.37 $14.19 $13.29 $12.93 $12.50 $14.15 TOTAL RETURN Total investment return based on net asset value (b) 5.28% 15.80% 11.30% 12.62% (3.27)% 5.08% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000's omitted) $197,543 $174,762 $83,095 $51,028 $50,860 $5,115 Ratio of expenses to average net assets 1.76%(c) 1.82% 1.90% 1.84% 1.99% 2.05%(c) Ratio of net investment income to average net assets 6.78%(c) 7.61% 8.74% 8.95% 6.98% 5.51%(c) Portfolio turnover rate 131% 307% 389% 387% 372% 579%
(a) Based on average shares outstanding. (b) Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Initial sales charge or contingent deferred sales charge is not reflected in the calculation of total investment return. Total investment return calculated for a period less than one year is not annualized. (c) Annualized. (d) Commencement of distribution. 15 ALLIANCE BOND FUND CORPORATE BOND PORTFOLIO _______________________________________________________________________________ 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) DR. JAMES M. HESTER (1) CLIFFORD L. MICHEL (1) DONALD J. ROBINSON (1) OFFICERS WAYNE D. LYSKI, SENIOR VICE PRESIDENT KATHLEEN A. CORBET, SENIOR VICE PRESIDENT PAUL J. DENOON, 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 LEGAL COUNSEL SEWARD & KISSEL One Battery Park Plaza New York, NY 10004 TRANSFER AGENT ALLIANCE FUND SERVICES, INC. P.O. Box 1520 Secaucus, NJ 07096-1520 Toll-Free 1-(800) 221-5672 INDEPENDENT AUDITORS ERNST & YOUNG LLP 787 Seventh Avenue New York, NY 10019 (1) Member of the Audit Committee. 16 THE ALLIANCE FAMILY OF MUTUAL FUNDS _______________________________________________________________________________ FIXED INCOME Alliance Bond Fund U.S. Government Portfolio Corporate Bond Portfolio Alliance Global Dollar Government Fund Alliance Global Strategic Income Trust Alliance High Yield Fund Alliance Mortgage Securities Income Fund Alliance Limited Maturity Government Fund Alliance Multi-Market Strategy Trust Alliance North American Government Income Trust Alliance Short-Term Multi-Market Trust Alliance Short-Term U.S. Government Fund Alliance World Income Trust TAX-FREE INCOME Alliance Municipal Income Fund California Portfolio Insured California Portfolio Insured National Portfolio National Portfolio New York Portfolio Alliance Municipal Income Fund II Arizona Portfolio Florida Portfolio Massachusetts Portfolio Michigan Portfolio Minnesota Portfolio New Jersey Portfolio Ohio Portfolio Pennsylvania Portfolio Virginia Portfolio MONEY MARKET AFD Exchange Reserves GROWTH The Alliance Fund Alliance Global Environment Fund Alliance Global Small Cap Fund Alliance Growth Fund Alliance Premier Growth Fund Alliance/Regent Sector Opportunity Fund GROWTH & INCOME Alliance Strategic Balanced Fund Alliance Balanced Shares Alliance Conservative Investors Fund Alliance Growth & Income Fund Alliance Growth Investors Fund Alliance Income Builder Fund Alliance Real Estate Investment Fund Alliance Utility Income Fund AGGRESSIVE GROWTH Alliance Quasar Fund Alliance Technology Fund INTERNATIONAL Alliance All-Asia Investment Fund Alliance Greater China '97 Fund Alliance International Fund Alliance New Europe Fund Alliance Worldwide Privatization Fund 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 ACM Institutional Reserves Government Portfolio Prime Portfolio Tax-Free Portfolio Trust Portfolio Alliance Capital Reserves Alliance Government Reserves Alliance Insured Account Alliance Money Reserves Alliance Municipal Trust California Portfolio Connecticut Portfolio Florida Portfolio General Portfolio Massachusetts Portfolio New Jersey Portfolio New York Portfolio Virginia Portfolio Alliance Treasury Reserves Alliance Money Market Fund Prime Portfolio Government Portfolio General Municipal Portfolio 17 ALLIANCE BOND FUND CORPORATE BOND PORTFOLIO 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. CBPSR -----END PRIVACY-ENHANCED MESSAGE-----