-----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, LIpbTgwiqAe8tQPLB0kqHgUUsBFdg6zmVkPNaAKiB0myoaFteS+SowrE6uzdhFV6 r90VOs6tmLuWBK9DmVb4tg== 0000936772-99-000105.txt : 19990309 0000936772-99-000105.hdr.sgml : 19990309 ACCESSION NUMBER: 0000936772-99-000105 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990308 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: 99559509 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 U.S. GOVERNMENT PORTFOLIO SEMI-ANNUAL REPORT DECEMBER 31, 1998 ALLIANCE CAPITAL LETTER TO SHAREHOLDERS ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO _______________________________________________________________________________ February 24, 1999 Dear Shareholder: We are pleased to report to you on our performance, investment strategy, and outlook of the Alliance Bond Fund U.S. Government Portfolio (the Fund), for the six-month period ended December 31, 1998. INVESTMENT RESULTS For the six-month period under review, your Fund outperformed its peer group, the Lipper General U.S. Government Funds Average, but trailed the Lehman Brothers Government Bond Index. Our use of Government National Mortgage Association (GNMA) mortgage-backed securities and collateralized mortgage obligations dampened performance because falling interest rates caused mortgage prepayment rates to surge, resulting in diminished price appreciation for all mortgage related securities. INVESTMENT RESULTS* Periods Ended December 31, 1998 TOTAL RETURNS 6 MONTHS 12 MONTHS --------- --------- ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO Class A 4.87% 8.60% Class B 4.49% 7.80% Class C 4.49% 7.80% LEHMAN BROTHERS GOVERNMENT BOND INDEX 5.44% 9.85% LIPPER GENERAL U.S. GOVERNMENT FUNDS AVERAGE 4.27% 8.07% * THE FUND'S INVESTMENT RESULTS ARE TOTAL RETURNS FOR THE PERIODS AND ARE BASED ON THE NET ASSET VALUE OF EACH CLASS OF SHARES. 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. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. THE LEHMAN BROTHERS GOVERNMENT BOND INDEX IS COMPOSED OF THE U.S. TREASURY BOND AND AGENCY BOND INDICES, THE 1-3 YEAR GOVERNMENT INDEX AND THE 20+ YEAR TREASURY INDEX. THE UNMANAGED LIPPER GENERAL U.S. GOVERNMENT FUNDS AVERAGE (LIPPER AVERAGE) IS BASED ON THE PERFORMANCE OF A UNIVERSE OF FUNDS THAT INVEST AT LEAST 65% OF THEIR ASSETS IN U.S. GOVERNMENT AND AGENCY ISSUES. THESE FUNDS HAVE GENERALLY SIMILAR INVESTMENT OBJECTIVES TO YOUR FUND, ALTHOUGH INVESTMENT POLICIES FOR THE VARIOUS FUNDS MAY DIFFER. IN PARTICULAR, MANY FUNDS IN THE LIPPER U.S. GOVERNMENT UNIVERSE ARE NOT REQUIRED TO INVEST SOLELY IN SECURITIES BACKED BY THE FULL FAITH AND CREDIT OF THE UNITED STATES. FOR THE SIX AND 12-MONTH PERIODS ENDED DECEMBER 31, 1998, THE LIPPER AVERAGE CONSISTED OF 190 AND 184 FUNDS, RESPECTIVELY. AN INVESTOR CANNOT INVEST DIRECTLY IN AN INDEX OR AN AVERAGE. ADDITIONAL INVESTMENT RESULTS APPEAR ON PAGE 3. MARKET OVERVIEW Despite an unprecedented wave of financial shocks both at home and abroad during the six-month period ended December 31, 1998, overall U.S. economic growth remained strong, while inflation, interest rates, and unemployment remained at historic lows. Strong consumer demand continued to be the driving force behind the economic expansion. However, the manufacturing sector continued to be negatively affected by weaker exports, as economies outside the U.S. slowed. The Federal Reserve cut interest rates toward the end of the period as the risk of an economic slowdown outweighed the risk of inflation. During the six-month period, the U.S. bond market continued to climb as investors sought safety from global financial market turmoil. At the beginning of the period, global markets suffered from multiple concerns about recession and a liquidity crisis throughout non-government bond markets. The currency devaluation and debt default in Russia, the extreme weakness in the Japanese yen, and the well-publicized bailout of Long Term Capital Management's hedge fund all added to investors' risk aversion. The resulting "flight to quality" spurred a rally in the U.S. Treasury market and other "safe haven" government bond markets outside the U.S. while negatively impacting returns in the corporate, high yield and mortgage bond sectors. The U.S. Federal Reserve and other world central banks reacted by reducing official interest rates. The combined effect of monetary policy ease with the release of stronger than expected U.S. economic growth data reduced market aversion and investors cautiously moved back into higher yielding securities toward the end of the period. The U.S. 1 ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO _______________________________________________________________________________ Treasury sector outperformed all other U.S. bond market sectors over the six-month period. INVESTMENT STRATEGY During the period we maintained the portfolio's asset weighting consistent with the investment objectives of the Fund while seeking a high level of current income. In addition to U.S. Treasuries, the portfolio invested in GNMA mortgage-backed securities to enhance yield. OUTLOOK We believe the risk of global recession has diminished after the recent wave of official interest rate cuts around the world. However, global growth will continue to slow and inflation will remain subdued as the consequences of excess productive capacity are felt around the world. U.S. economic activity is expected to moderate from the robust rate of the fourth quarter, with growth estimates centered around 3.0% for 1999. Further interest rate reductions by the Federal Reserve are likely, but not imminent. U.S. interest rates, as well as inflation, will remain low. In the U.S. fixed income markets, spread sectors (non-U.S. Treasury sectors) will provide opportunities as economic and financial markets stabilize in response to the Federal Reserve's pre-emptive attempts to sustain the economic expansion. We expect the safe-haven premium on Treasuries to diminish somewhat, but Treasuries will continue to perform well given their attractiveness to foreign investors, a low inflationary environment and investor sentiment to constrain risk. We expect the mortgage-backed sector will provide benefits due to their attractive valuations and slower prepayment levels as mortgage rates have risen slightly and we enter a period of slower refinancing. SHAREHOLDERS APPROVE THE BROADENING OF THE FUND'S INVESTMENT POLICIES At a Special Meeting of Shareholders held on February 18, 1999, the Fund's shareholders overwhelmingly approved proposals to broaden the Fund's investment policies. These proposals, which had been developed by Alliance and recommended for shareholder approval by the Fund's Board of Directors, are designed to bring the Fund's investment policies more in line with those of "mainstream" U.S. Government funds. The changes to the Fund's investment policies, which take effect on March 1, 1999, expand the types of U.S. Government securities in which the Fund may invest, and permit the Fund to invest up to 35% of its portfolio in non-U.S. Government, investment-grade securities such as mortgage-backed and asset-backed securities. The Fund may not invest in foreign securities. The Fund's revised policies will enable it to diversify its portfolio investments more broadly and add value through sector rotation within the broad U.S. Government and asset-backed market, rather than solely through the anticipation of interest rate movements in the narrower full faith and credit market. The ability to invest in these sectors will allow the Fund to derive fuller advantage, to the benefit of its shareholders, from the resources and capabilities of Alliance's large fixed income research organization. In addition, such increased diversification will provide additional tools for preserving capital during periods of market volatility. Thank you for your continued interest and investment in the Alliance Bond Fund U.S. Government Portfolio. We look forward to reporting to you in the coming months. Sincerely, John D. Carifa Chairman and President Jeffrey S. Phlegar Vice President SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, GUARANTEED OR ENDORSED BY, ANY BANK; FURTHER, SUCH SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY. SHARES OF THE FUND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. 2 INVESTMENT OBJECTIVE AND POLICIES ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO _______________________________________________________________________________ Alliance Bond Fund U.S. Government Portfolio seeks as high a level of current income as is consistent with prudent investment risk through investment primarily in U.S. Government securities. INVESTMENT RESULTS NAV AND SEC AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1998 CLASS A SHARES WITHOUT WITH SALES CHARGE SALES CHARGE ------------ ------------ One Year 8.60% 3.94% 5 Years 5.68% 4.77% 10 Years 7.98% 7.51% SEC Yield** 4.93% CLASS B SHARES WITHOUT WITH SALES CHARGE SALES CHARGE ------------ ------------ One Year 7.80% 4.80% 5 Years 4.90% 4.90% Since Inception* (a) 6.38% 6.38% SEC Yield** 4.44% CLASS C SHARES WITHOUT WITH SALES CHARGE SALES CHARGE ------------ ------------ One Year 7.80% 6.80% 5 Years 4.90% 4.90% Since Inception* 5.12% 5.12% SEC Yield** 4.44% The Fund's investment results represent Average Annual Total Returns. The NAV and SEC returns reflect reinvestment of dividends and/or capital gains distributions in additional shares without (NAV) and with (SEC) the effect of the 4.25% maximum front-end sales charge for Class A or applicable contingent deferred sales charge for Class B (3% year 1, 2% year 2, 1% year 3, 0% year 4); and for Class C shares (1% year 1). Returns for Class A shares do not reflect the imposition of the 1-year 1% contingent deferred sales charge for accounts over $1,000,000. Past performance does not guarantee future results. Investment return and principle value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. * Inception: 9/30/91 Class B; 5/3/93 Class C. ** SEC Yields are based on SEC guidelines and are calculated on 30 days ended December 31, 1998. (a) Assumes conversion of Class B shares into Class A shares after six years. 3 PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998 (UNAUDITED) ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO _______________________________________________________________________________ PRINCIPAL AMOUNT (000) VALUE - ------------------------------------------------------------------------------- U.S. GOVERNMENT AND AGENCY OBLIGATIONS-113.7% U.S. TREASURY SECURITIES-74.5% U.S. TREASURY BONDS-56.4% 8.00%, 11/15/21 $ 13,000 $ 17,381,390 8.125%, 5/15/21 49,100 66,238,846 8.875%, 8/15/17 54,000 76,063,860 11.625%, 11/15/02 46,500 57,601,875 12.375%, 5/15/04 35,000 47,512,500 12.50%, 8/15/14 65,150 104,657,611 14.00%, 11/15/11 110,900 175,689,998 ------------ 545,146,080 U.S. TREASURY NOTES-15.0% 4.625%, 11/30/00 26,000 26,016,120 8.75%, 8/15/00 111,800 118,840,046 ------------ 144,856,166 U.S. TREASURY STRIP-3.1% zero coupon, 2/15/19 90,000 29,488,500 Total U.S. Treasury Securities (cost $702,904,204) 719,490,746 GOVERNMENT NATIONAL MORTGAGE ASSOCIATION-34.3% Collateralized Mortgage Obligations Series 1997-8 7.00%, 4/15/24 16,000 16,100,000 Series 1997-10 Cl.C 9.50%, 4/16/25 26,250 27,634,163 Series 1997-11 Cl.C 9.50%, 10/20/25 28,052 29,551,099 ------------ 73,285,262 Project Loans 8.50%, 11/15/12-11/15/31 14,327 15,322,464 Single Family Homes 6.50%, 12/15/99 100,000 101,000,000 7.00%, 4/15/24-12/15/28 89,557 91,628,477 7.50%, 7/15/25 1,279 1,318,680 8.00%, 3/15/12 42,101 43,508,934 9.00%, 7/20/24-9/20/24 4,391 4,664,083 ------------ 242,120,174 Total Government National Mortgage Association (cost $335,705,769) 330,727,900 FEDERAL AGENCY SECURITIES-4.9% Financial Assistance Corp. 9.50%, 4/16/04 31,506 31,894,784 United States Agency for International Development 7.11%, 2/01/12 14,000 15,533,420 Total Federal Agency Securities (cost $51,267,597) 47,428,204 TOTAL INVESTMENTS-113.7% (cost $1,089,877,570) 1,097,646,850 Other assets less liabilities-(13.7%) (132,395,210) NET ASSETS-100% $ 965,251,640 See notes to financial statements. 4 STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1998 (UNAUDITED) ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO _______________________________________________________________________________ ASSETS Investments in securities, at value (cost $1,089,877,570) $1,097,646,850 Cash 2,941,403 Interest receivable 15,552,030 Receivable for investments sold 8,316,304 Receivable for capital stock sold 2,154,319 Prepaid expenses 39,816 Total assets 1,126,650,722 LIABILITIES Payable for investment securities purchased 157,800,930 Advisory fee payable 1,330,366 Dividends payable 944,800 Payable for capital stock redeemed 910,438 Distribution fee payable 75,013 Accrued expenses 337,535 Total liabilities 161,399,082 NET ASSETS $ 965,251,640 COMPOSITION OF NET ASSETS Capital stock, at par $ 125,831 Additional paid-in capital 1,163,248,245 Distributions in excess of net investment income (1,771,694) Accumulated net realized loss on investment transactions (204,114,791) Net unrealized appreciation of investments and other assets 7,764,049 $965,251,640 CALCULATION OF MAXIMUM OFFERING PRICE CLASS A SHARES Net asset value and redemption price per share ($396,102,039 / 51,656,159 shares of capital stock issued and outstanding) $7.67 Sales charge--4.25% of public offering price .34 Maximum offering price $8.01 CLASS B SHARES Net asset value and offering price per share ($425,325,945 / 55,430,039 shares of capital stock issued and outstanding) $7.67 CLASS C SHARES Net asset value and offering price per share ($143,823,656 / 18,744,726 shares of capital stock issued and outstanding) $7.67 See notes to financial statements. 5 STATEMENT OF OPERATIONS SIX MONTHS ENDED DECEMBER 31, 1998 (UNAUDITED) ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO _______________________________________________________________________________ INVESTMENT INCOME Interest $36,596,515 EXPENSES Advisory fee $ 2,658,187 Distribution fee - Class A 570,169 Distribution fee - Class B 2,078,030 Distribution fee - Class C 665,706 Transfer agency 607,436 Custodian 91,192 Printing 73,476 Audit and legal 60,968 Administrative 57,872 Registration 16,660 Taxes 16,122 Directors' fees 6,506 Miscellaneous 5,786 Total expenses 6,908,110 Net investment income 29,688,405 REALIZED AND UNREALIZED GAIN ON INVESTMENTS Net realized gain on investment transactions 5,733,139 Net change in unrealized appreciation of investments and other assets 4,913,913 Net gain on investment transactions 10,647,052 NET INCREASE IN NET ASSETS FROM OPERATIONS $40,335,457 See notes to financial statements. 6 STATEMENT OF CHANGES IN NET ASSETS ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO _______________________________________________________________________________ SIX MONTHS ENDED DECEMBER 31, 1998 YEAR ENDED (UNAUDITED) JUNE 30, 1998 ----------------- --------------- INCREASE IN NET ASSETS FROM OPERATIONS Net investment income $ 29,688,405 $ 59,960,724 Net realized gain on investment transactions 5,733,139 4,547,564 Net change in unrealized appreciation (depreciation) of investments and other assets 4,913,913 17,676,067 Net increase in net assets from operations 40,335,457 82,184,355 DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income Class A (13,053,395) (25,072,563) Class B (12,730,045) (27,489,182) Class C (4,073,118) (7,398,979) Tax return of capital Class A -0- (1,242,637) Class B -0- (1,362,408) Class C -0- (366,705) CAPITAL STOCK TRANSACTIONS Net increase (decrease) 97,378,246 (104,135,594) Total increase (decrease) 107,857,145 (84,883,713) NET ASSETS Beginning of year 857,394,495 942,278,208 End of period $965,251,640 $857,394,495 See notes to financial statements. 7 NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998 (UNAUDITED) ALLIANCE BOND FUND U.S. GOVERNMENT 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 accompanying financial statements and notes include the operations of the U.S. Government Portfolio (the "Portfolio") only. The Portfolio offers Class A, Class B and Class C shares. Class A shares are sold with a front-end sales charge of up to 4.25% for purchases not exceeding $1,000,000. With respect to purchases of $1,000,000 or more, Class A shares redeemed within one year of purchase may be subject to a contingent deferred sales charge of 1%. Class B shares are currently sold with a contingent deferred sales charge which declines from 3% to zero depending on the period of time the shares are held. Class B shares will automatically convert to Class A shares six years after the end of the calendar month of purchase. Class C shares are subject to a contingent deferred sales charge of 1% on redemptions made within the first year after purchase. All three classes of shares have identical voting, dividend, liquidation and other rights, except that each class bears different distribution expenses and has exclusive voting rights with respect to its distribution plan. The financial statements have been prepared in conformity with generally accepted accounting principles which require management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and amounts of income and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of significant accounting policies followed by the Portfolio. 1. SECURITY VALUATION Portfolio securities traded on a national securities exchange are valued at the last reported sale price on such exchange on the day of valuation 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 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. 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 any, to shareholders. Therefore, no provisions for federal income or excise taxes are required. 3. INVESTMENT INCOME AND INVESTMENT TRANSACTIONS Interest income is accrued daily. Investment transactions are accounted for on the date securities are purchased or sold. The Portfolio amortizes premiums and accretes discounts as adjustments to interest income. Investment gains and losses are determined on the identified cost basis. 4. INCOME AND EXPENSES All income earned and expenses incurred by the Portfolio are borne on a pro-rata basis by each settled class of shares, based on the 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. 5. DIVIDENDS AND DISTRIBUTIONS Dividends and distributions to shareholders are recorded on the ex-dividend date. Income dividends and capital gains distributions are determined in accordance with federal tax regulations and may differ from those determined in accordance with generally accepted accounting principles. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on their federal tax basis treatment; temporary differences do not require such reclassification. 8 ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO _______________________________________________________________________________ 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 quarterly rate of .15 of 1% (approximately .60 of 1% on an annual basis) of the first $500 million of the Portfolio's net assets and .125 of 1% (approximately .50 of 1% on an annual basis) of its net assets over $500 million, valued on the last business day of the previous quarter. Pursuant to the advisory agreement, the Portfolio paid $57,872 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, 1998. 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 $446,115 for the six months ended December 31, 1998. 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 $18,466 from the sale of Class A shares and $5,377, $150,642 and $34,093 in contingent deferred sales charges imposed upon redemptions by shareholders of Class A, Class B and Class C shares, respectively, for the six months ended December 31, 1998. 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 average daily net assets attributable to both Class B and Class C 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 incurred expenses in excess of the distribution costs reimbursed by the Portfolio in the amount of $7,576,652, and $4,502,265 for Class B and Class C shares, respectively; such costs may be recovered from the Portfolio in future periods as 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 U.S. government obligations (excluding short-term investments) aggregated $1,224,698,960 and $948,448,054, respectively, for the six months ended December 31, 1998. At December 31, 1998, the cost of investments for federal income tax purposes was $1,091,861,253. Accordingly, gross unrealized appreciation of investments was $20,486,600 and gross unrealized depreciation of investments was $14,701,003, resulting in net unrealized appreciation of $5,785,597. At June 30, 1998, the Portfolio had a capital loss carryforward for federal income tax purposes of $208,384,247, of which $8,257,319 expires in the year 1999; $83,016,947 expires in the year 2003; $61,544,081 expires in the year 2004; $51,829,521 expires in the year 2005 and $3,736,379 expires in the year 2006. NOTE E: CAPITAL STOCK There are 600,000,000 shares of $.001 par value capital stock authorized, divided into three classes, designated Class A, Class B and Class C shares. Each class consists of 200,000,000 authorized shares. Transactions in capital stock were as follows: 9 NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO _______________________________________________________________________________ SHARES AMOUNT --------------------------- ------------------------------ SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED DEC. 31, 1998 JUNE 30, DEC. 31, 1998 JUNE 30, (UNAUDITED) 1998 (UNAUDITED) 1998 ------------ ------------ -------------- -------------- CLASS A Shares sold 8,095,351 10,804,046 $ 62,262,062 $ 81,364,926 Shares issued in reinvestment of dividends and distributions 796,193 1,651,986 6,104,702 12,448,223 Shares converted from Class B 3,324,151 2,908,590 25,567,451 21,971,601 Shares redeemed (7,152,325) (16,621,353) (54,933,751) (125,182,615) Net increase (decrease) 5,063,370 (1,256,731) $ 39,000,464 $(9,397,865) CLASS B Shares sold 14,668,398 6,931,240 $112,883,819 $ 52,278,662 Shares issued in reinvestment of dividends and distributions 803,250 1,813,058 6,162,007 13,660,347 Shares converted to Class A (3,324,151) (2,908,590) (25,567,451) (21,971,601) Shares redeemed (8,236,402) (17,960,112) (63,233,834) (135,276,839) Net increase (decrease) 3,911,095 (12,124,404) $ 30,244,541 $ (91,309,431) CLASS C Shares sold 7,951,887 4,489,582 $ 61,315,194 $ 34,077,964 Shares issued in reinvestment of dividends and distributions 325,106 651,004 2,494,740 4,904,415 Shares redeemed (4,634,042) (5,630,703) (35,676,693) (42,410,677) Net increase (decrease) 3,642,951 (490,117) $ 28,133,241 $ (3,428,298) NOTE F: BANK BORROWING A number of open-end mutual funds managed by the Adviser, including the Fund, participate in a $750 million revolving credit facility (the "Facility") intended to provide short-term financing if necessary, subject to certain restrictions in connection with abnormal redemption activity. Commitment fees related to the Facility are paid by the participating funds and are included in the miscellaneous expenses in the statement of operations. The Fund did not utilize the Facility during the six months ended December 31, 1998. NOTE G: SUBSEQUENT EVENT At a Special Meeting of Shareholders held on February 18, 1999, the Fund's shareholders overwhelmingly approved proposals to broaden the Fund's investment policies. These proposals, which had been developed by Alliance and recommended for shareholder approval by the Fund's Board of Directors, are designed to bring the Fund's investment policies more in line with those of "mainstream" U.S. Government funds. The changes to the Fund's investment policies, which take effect on March 1, 1999, expand the types of U.S. Government securities in which the Fund may invest, and permit the Fund to invest up to 35% of its portfolio in non-U.S. Government, investment-grade securities such as mortgage-backed and asset-backed securities. The Fund may not invest in foreign securities. 10 FINANCIAL HIGHLIGHTS ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO _______________________________________________________________________________ SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
CLASS A ---------------------------------------------------------------------------- SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30, 1998 --------------------------------------------------------------- (UNAUDITED) 1998 1997 1996 1995 1994 ----------- ----------- ----------- ----------- ----------- ----------- Net asset value, beginning of year $7.57 $7.41 $7.52 $7.96 $7.84 $8.64 INCOME FROM INVESTMENT OPERATIONS Net investment income .26(a) .54(a) .57(a) .58 .64 .65 Net realized and unrealized gain (loss) on investment transactions .12 .18 (.10) (.44) .13 (.80) Net increase (decrease) in net asset value from operations .38 .72 .47 .14 .77 (.15) LESS: DIVIDENDS AND DISTRIBUTIONS Dividends from net investment income (.28) (.54) (.57) (.58) (.65) (.65) Tax return of capital -0- (.02) (.01) -0- -0- -0- Total dividends and distributions (.28) (.56) (.58) (.58) (.65) (.65) Net asset value, end of period $7.67 $7.57 $7.41 $7.52 $7.96 $7.84 TOTAL RETURN Total investment return based on net asset value (b) 4.87% 10.02% 6.49% 1.74% 10.37% (1.93)% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000's omitted) $396,102 $352,749 $354,782 $397,894 $463,660 $482,595 Ratio of expenses to average net assets 1.07%(c) 1.06% 1.02% 1.01% 1.01% 1.02% Ratio of net investment income to average net assets 6.82%(c) 7.08% 7.66% 7.38% 8.27% 7.76% Portfolio turnover rate 97% 153% 330% 334% 190% 188%
See footnote summary on page 13. 11 FINANCIAL HIGHLIGHTS (CONTINUED) ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO _______________________________________________________________________________ SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
CLASS B ---------------------------------------------------------------------------- SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30, 1998 --------------------------------------------------------------- (UNAUDITED) 1998 1997 1996 1995 1994 ----------- ----------- ----------- ----------- ----------- ----------- Net asset value, beginning of year $7.57 $7.41 $7.52 $7.96 $7.84 $8.64 INCOME FROM INVESTMENT OPERATIONS Net investment income .24(a) .48(a) .52(a) .52 .58 .59 Net realized and unrealized gain (loss) on investment transactions .11 .18 (.10) (.44) .13 (.80) Net increase (decrease) in net asset value from operations .35 .66 .42 .08 .71 (.21) LESS: DIVIDENDS AND DISTRIBUTIONS Dividends from net investment income (.25) (.48) (.52) (.52) (.59) (.59) Tax return of capital -0- (.02) (.01) -0- -0- -0- Total dividends and distributions (.25) (.50) (.53) (.52) (.59) (.59) Net asset value, end of period $7.67 $7.57 $7.41 $7.52 $7.96 $7.84 TOTAL RETURN Total investment return based on net asset value (b) 4.49% 9.20% 5.69% 1.01% 9.52% (2.63)% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000's omitted) $425,326 $390,253 $471,889 $628,628 $774,097 $756,282 Ratio of expenses to average net assets 1.78%(c) 1.76% 1.73% 1.72% 1.72% 1.72% Ratio of net investment income to average net assets 6.10%(c) 6.37% 6.95% 6.67% 7.57% 7.04% Portfolio turnover rate 97% 153% 330% 334% 190% 188%
See footnote summary on page 13. 12 ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO _______________________________________________________________________________ SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
CLASS C ---------------------------------------------------------------------------- SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30, 1998 --------------------------------------------------------------- (UNAUDITED) 1998 1997 1996 1995 1994 ----------- ----------- ----------- ----------- ----------- ----------- Net asset value, beginning of year $7.57 $7.41 $7.52 $7.96 $7.83 $8.64 INCOME FROM INVESTMENT OPERATIONS Net investment income .24(a) .48(a) .52(a) .52 .58 .59 Net realized and unrealized gain (loss) on investment transactions .11 .18 (.10) (.44) .14 (.81) Net increase (decrease) in net asset value from operations .35 .66 .42 .08 .72 (.22) LESS: DIVIDENDS AND DISTRIBUTIONS Dividends from net investment income (.25) (.48) (.52) (.52) (.59) (.59) Tax return of capital -0- (.02) (.01) -0- -0- -0- Total dividends and distributions (.25) (.50) (.53) (.52) (.59) (.59) Net asset value, end of period $7.67 $7.57 $7.41 $7.52 $7.96 $7.83 TOTAL RETURN Total investment return based on net asset value (b) 4.49% 9.21% 5.69% 1.01% 9.67% (2.75)% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000's omitted) $143,824 $114,392 $115,607 $166,075 $181,948 $231,859 Ratio of expenses to average net assets 1.77%(c) 1.76% 1.72% 1.71% 1.71% 1.70% Ratio of net investment income to average net assets 6.09%(c) 6.38% 6.96% 6.68% 7.59% 6.97% Portfolio turnover rate 97% 153% 330% 334% 190% 188%
(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 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. (c) Annualized. 13 ALLIANCE BOND FUND U.S. GOVERNMENT 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 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 1-(800) 221-5672 INDEPENDENT AUDITORS ERNST & YOUNG LLP 787 Seventh Avenue New York, NY 10019 LEGAL COUNSEL SEWARD & KISSEL One Battery Park Plaza New York, NY 10004 (1) Member of the Audit Committee. 14 THE ALLIANCE FAMILY OF MUTUAL FUNDS _______________________________________________________________________________ FIXED INCOME Alliance Bond Fund U.S. Government Portfolio Corporate Bond Portfolio Alliance Global Dollar Government Fund Alliance Global Strategic Income Trust Alliance High Yield Fund Alliance Mortgage Securities Income Fund Alliance Limited Maturity Government Fund Alliance Multi-Market Strategy Trust Alliance North American Government Income Trust Alliance Short-Term U.S. Government Fund TAX-FREE INCOME Alliance Municipal Income Fund California Portfolio Insured California Portfolio Insured National Portfolio National Portfolio New York Portfolio Alliance Municipal Income Fund II Arizona Portfolio Florida Portfolio Massachusetts Portfolio Michigan Portfolio Minnesota Portfolio New Jersey Portfolio Ohio Portfolio Pennsylvania Portfolio Virginia Portfolio MONEY MARKET AFD Exchange Reserves GROWTH The Alliance Fund Alliance Global Environment Fund Alliance Growth Fund Alliance Premier Growth Fund Alliance/Regent Sector Opportunity Fund Select Investors Series - Premier Portfolio GROWTH & INCOME Alliance Balanced Shares Alliance Conservative Investors Fund Alliance Growth & Income Fund Alliance Growth Investors Fund Alliance Real Estate Investment Fund Alliance Utility Income Fund AGGRESSIVE GROWTH Alliance Global Small Cap Fund Alliance Quasar Fund Alliance Technology Fund INTERNATIONAL Alliance All-Asia Investment Fund Alliance Greater China '97 Fund Alliance International Fund Alliance International Premier Growth Fund Alliance New Europe Fund Alliance Worldwide Privatization Fund INSTITUTIONAL Premier Growth Quasar Real Estate Investment CLOSED-END FUNDS Alliance All-Market Advantage Fund ACM Government Income Fund ACM Government Opportunity Fund ACM Government Securities Fund ACM Government Spectrum Fund ACM Managed Dollar Income Fund ACM Managed Income Fund ACM Municipal Securities Income Fund Alliance World Dollar Government Fund Alliance World Dollar Government Fund II The Austria Fund The Korean Investment Fund The Spain Fund The Southern Africa Fund CASH MANAGEMENT SERVICES Alliance Capital Reserves Alliance Government Reserves Alliance Institutional Reserves Prime Portfolio Government Portfolio Tax-Free Portfolio Trust Portfolio Treasury Portfolio Alliance Insured Account Alliance Money Reserves Alliance Municipal Trust California Portfolio Connecticut Portfolio Florida Portfolio General Portfolio Massachusetts Portfolio New Jersey Portfolio New York Portfolio Virginia Portfolio Alliance Treasury Reserves Alliance Money Market Fund Prime Portfolio Government Portfolio General Municipal Portfolio 15 ALLIANCE BOND FUND U.S. GOVERNMENT 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. USGSR -----END PRIVACY-ENHANCED MESSAGE-----