-----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, JaubrZK9rgk14EDD0sI+5rOXx1r+w/X1MvLWrXZmYdW22y3pDEXb7ZwOE3evyl+A iHY8IuI0HV7Fb87ZyKbhyw== 0000936772-99-000222.txt : 19990917 0000936772-99-000222.hdr.sgml : 19990917 ACCESSION NUMBER: 0000936772-99-000222 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990916 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: 99712578 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 ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO ANNUAL REPORT JUNE 30, 1999 ALLIANCE CAPITAL LETTER TO SHAREHOLDERS ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO _______________________________________________________________________________ August 16, 1999 Dear Shareholder: This report provides the performance, investment strategy and outlook for the Alliance Bond Fund U.S. Government Portfolio (the "Fund") over the six-month period ended June 30, 1999. The Fund is designed for investors who seek high current income, consistent with prudent investment risk. INVESTMENT RESULTS The following table provides the investment results for the Alliance Bond Fund U.S. Government Portfolio for the six- and twelve-month periods ended June 30, 1999. For comparison, we have included the total returns for the Lehman Brothers ("LB") Government Bond Index as well as the results for the Lipper General U.S. Government Funds Average (the "Lipper Average"). During the six-month period under review, your Fund underperformed its benchmark index and the Lipper Average. Part of this underperformance may be attributed to the cost of re-balancing the portfolio in order to take advantage of the Fund's new investment policy guidelines, as discussed in the Fund's semi-annual report dated December 31, 1998. Additionally, some of the securities added to the portfolio underperformed U.S. Treasuries as market volatility rose. Over the longer term, however, we believe that these changes should add fundamental long-term value to the portfolio. INVESTMENT RESULTS* Periods Ended June 30, 1999 TOTAL RETURNS 6 MONTHS 12 MONTHS -------- --------- ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO Class A -2.90% 1.83% Class B -3.14% 1.22% Class C -3.14% 1.22% LEHMAN BROTHERS GOVERNMENT BOND INDEX -2.27% 3.05% LIPPER GENERAL U.S. GOVERNMENT FUNDS AVERAGE -2.67% 1.48% * 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 UNMANAGED LEHMAN BROTHERS ("LB") GOVERNMENT BOND INDEX IS COMPOSED OF THE LB U.S. TREASURY BOND AND AGENCY BOND INDICES, THE LB 1-3 YEAR GOVERNMENT INDEX AND THE LB 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. FOR THE SIX AND TWELVE-MONTH PERIODS ENDED JUNE 30, 1999, THE LIPPER AVERAGE CONSISTED OF 186 AND 184 FUNDS, RESPECTIVELY. AN INVESTOR CANNOT INVEST DIRECTLY IN AN INDEX OR AN AVERAGE. ADDITIONAL INVESTMENT RESULTS APPEAR ON PAGE 3. MARKET OVERVIEW The outlook for the global economy continued to brighten during the first six months of 1999. Signs of a strong recovery in East Asia, better-than-expected growth in Japan, and a quick drop in Brazilian interest rates bolstered investor confidence. In the United States, private demand growth has downshifted but remains exceptionally strong, while inflation and unemployment have remained low. With economic activity remaining strong and global liquidity concerns abating, the U.S. Federal Reserve adopted a monetary policy tightening bias in May and increased the Federal Funds rate by 25 basis points, to 5.00%, in June. For the six months ended June 30, 1999, the U.S. yield curve flattened as short- and intermediate-term rates rose more than long-term rates. Two-year U.S. Treasury yields rose from 4.53%, to 5.52%, while thirty-year U.S. Treasury yields rose from 5.09%, to 5.97%. During the six-month period ended June 30, 1999, the U.S. bond market, as represented by the LB Aggregate Bond Index, declined by 1.4% as economic growth 1 ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO _______________________________________________________________________________ strengthened and the U.S. Federal Reserve raised interest rates. Among the traditional sectors of the U.S. bond market, the mortgage sector recorded the strongest performance, while the U.S. Treasury market recorded the weakest performance. As credit markets continued to stabilize from the turmoil in 1998, and the threat of higher interest rates surfaced, investors moved out of U.S. Treasuries and back into higher-yielding sectors in search of higher returns. The mortgage sector was the main beneficiary of this change in interest-rate expectations. When interest rates rose, mortgage refinancing slowed and mortgage prepayments fell, making mortgage-backed securities more attractive. INVESTMENT STRATEGY The shareholder-approved changes in the Fund's investment guidelines went into effect in the beginning of the second quarter of 1999. These changes allow the Fund to diversify some of its holdings into investment-grade fixed-income securities. We decreased our allocation to U.S. Treasury securities as interest rates rose. We maintained our allocation to mortgage-backed securities, which performed well in the rising interest rate environment. Slowing mortgage prepayments made the mortgage-backed sector the best performing domestic fixed-income sector for the period. By the end of the second quarter, approximately one-third of the portfolio was invested in non-Treasury and non-agency securities, with an average rating of AAA. Less than seven percent of the Fund's portfolio is invested in securities rated less than AAA. These securities provide additional yield enhancement to the portfolio. The Fund's largest single asset class outside of U.S. Treasuries is commercial mortgage-backed securities ("CMBS"), which serve as a surrogate for U.S. government agency debentures. AAA-rated CMBS earn approximately sixty basis points more in yield than agency debentures. Going forward, the Fund will continue to utilize investment-grade securities opportunistically to augment the performance of its U.S. government securities portfolio. OUTLOOK Globally, growth prospects are improving and inflation pressures remain subdued. While the U.S. economy appears to be moderating somewhat from the robust level of the first quarter, we still estimate that growth for calendar 1999 will be close to the 3.9% pace of 1998. We believe the risks remain toward somewhat tighter monetary policy and higher interest rates. While the non-Treasury sectors of the market appear to be cheap by historical standards, the upward pressure on rates, and liquidity concerns related to this year-end are likely to keep yield premiums wide in the near term. In this environment, security selection will remain focused on longer-term fundamentals, recognizing that near-term liquidity will be limited. We are cautious in our outlook for high-grade securities at this point. This view is based primarily on the amount of new issue supply that we see coming to market over the next quarter. Furthermore, concerns about liquidity caused by the effects of Y2K are playing an increasing role in determining investor psychology. Thank you for your continued interest and investment in the Alliance Bond Fund U.S. Government Portfolio. We look forward to reporting its progress to you in the coming months. Sincerely, John D. Carifa Chairman and President Jeffrey S. Phlegar Vice President SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, GUARANTEED OR ENDORSED BY, ANY BANK; FURTHER, SUCH SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY. SHARES OF THE FUND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. 2 INVESTMENT OBJECTIVE AND POLICIES ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO _______________________________________________________________________________ Alliance Bond Fund U.S. Government Portfolio seeks as high a level of current income that is consistent with prudent investment risk. The Fund invests primarily in U.S. government securities, including mortgage-related securities, repurchase agreements and forward contracts relating to the U.S. government securities. The Fund may also invest in non-U.S. government mortgage-related and asset-backed securities. The average weighted maturity of the Fund's investments varies between one year or less and thirty years. INVESTMENT RESULTS NAV AND SEC AVERAGE ANNUAL TOTAL RETURNS AS OF JUNE 30, 1999 CLASS A SHARES WITHOUT WITH SALES CHARGE SALES CHARGE ------------ ------------ One Year 1.83% -2.54% Five years 6.02% 5.10% 10 Years 6.81% 6.35% SEC Yield** 5.99% CLASS B SHARES WITHOUT WITH SALES CHARGE SALES CHARGE ------------ ------------ One Year 1.22% -1.64% Five years 5.26% 5.26% Since Inception* (a) 5.56% 5.56% SEC Yield** 5.53% CLASS C SHARES WITHOUT WITH SALES CHARGE SALES CHARGE ------------ ------------ One Year 1.22% 0.27% Five years 5.29% 5.29% Since Inception* 4.16% 4.16% SEC Yield** 5.54% The Fund's investment results represent Average Annual Total Returns. The NAV and SEC returns reflect reinvestment of dividends and/or capital gains distributions in additional shares without (NAV) and with (SEC) the effect of the 4.25% maximum front-end sales charge for Class A or applicable contingent deferred sales charge for Class B (3% year 1, 2% year 2, 1% year 3, 0% year 4); and for Class C shares (1% year 1). Returns for Class A shares do not reflect the imposition of the 1-year 1% contingent deferred sales charge for accounts over $1,000,000. Past performance does not guarantee future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. * Inception: 9/30/91 Class B; 5/3/93 Class C. ** SEC Yields are based on SEC guidelines and are calculated on 30 days ended June 30, 1999. (a) Assumes conversion of Class B shares into Class A shares after six years. 3 ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO _______________________________________________________________________________ ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO GROWTH OF A $10,000 INVESTMENT 6/30/89 TO 6/30/99 $24,000 $20,000 $16,000 $12,000 $10,000 $8,000 Lehman Brothers Government Bond Index: $21,516 Lipper General U.S. Gov't Funds Average: $19,886 U.S. Government Portfolio Class A: $18,504 6/30/89 6/30/90 6/30/91 6/30/92 6/30/93 6/30/94 6/30/95 6/30/96 6/30/97 6/30/98 6/30/99 This chart illustrates the total value of an assumed $10,000 investment in Alliance Bond Fund U.S. Government Portfolio Class A shares (from 6/30/89 to 6/30/99) as compared to the performance of an appropriate broad-based index, as well as a comparative Lipper Average. The chart reflects the deduction of the maximum 4.25% sales charge from the initial $10,000 investment in the Fund and assumes the reinvestment of dividends and capital gains. Performance for Class B and Class C shares will vary from the results shown above due to differences in expenses charged to those classes. Past performance is not indicative of future results, and is not representative of future gain or loss in capital value or dividend income. The unmanaged Lehman Brothers (LB) Government Bond Index is composed of the LB Treasury Bond and LB Agency Bond indices. The Lipper General U.S. Government Funds Average reflects performance of 50 funds (based on the number of funds in the average from 6/30/89 to 6/30/99). These funds have similar investment objectives to Alliance Bond Fund U.S. Government Portfolio, although the investment policies of some funds included in the average may vary. When comparing Alliance Bond Fund U.S. Government Portfolio to the index shown above, you should note that no charges or expenses are reflected in the performance of the index. Lipper results include fees and expenses. Alliance Bond Fund U.S. Government Portfolio Lipper General U.S. Government Funds Average Lehman Brothers Government Bond Index 4 PORTFOLIO OF INVESTMENTS JUNE 30, 1999 ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO _______________________________________________________________________________ PRINCIPAL AMOUNT (000) VALUE - ------------------------------------------------------------------------------- U.S. GOVERNMENT & AGENCY OBLIGATIONS-73.7% U.S. TREASURY SECURITIES-43.2% U.S. TREASURY BONDS-39.9% 5.25%, 11/15/28 (a) $ 16,000 $ 14,182,560 8.125%, 5/15/21 (a) 49,100 59,794,471 8.875%, 8/15/17 24,000 30,660,000 12.50%, 8/15/14 65,150 95,922,951 14.00%, 11/15/11 110,900 162,225,629 ------------ 362,785,611 U.S. TREASURY NOTES-3.3% 5.25%, 5/15/04 (a) 25,000 24,566,500 5.50%, 5/15/09 (a) 5,000 4,884,350 29,450,850 ------------ 392,236,461 FEDERAL NATIONAL MORTGAGE ASSOCIATION-12.9% Zero coupon, 2/15/08 22,130 12,767,925 6.00%, 11/01/13-5/01/14 92,209 89,067,128 6.50%, 12/01/99 15,000 14,779,650 7.00%, 5/01/29 643 635,937 ------------ 117,250,640 GOVERNMENT NATIONAL MORTGAGE ASSOCIATION-10.0% Single Family Homes 7.00%, 12/15/28 45,267 44,658,363 8.00%, 3/15/12 35,499 36,596,702 8.15%, 9/15/20 6,269 6,518,629 9.00%, 7/20/24-9/20/24 3,259 3,447,957 ------------ 91,221,651 COLLATERALIZED MORTGAGE OBLIGATIONS-6.5% Federal Home Loan Mortgage Corp. Series 1955 Cl.K 7.50%, 2/20/24 5,000 5,062,500 Series 1748 Cl.B 8.00%, 6/15/23 13,400 13,835,500 Federal National Mortgage Association Series 1997-44 Cl.PE 7.00%, 6/18/21 23,884 24,055,487 Government National Mortgage Association Series 1997-8 Cl.PI 7.00%, 9/16/21 16,000 16,060,000 ------------ 59,013,487 FEDERAL AGENCY SECURITY-1.1% Tennessee Valley Authority Series 1993-1 Cl.G zero coupon, 11/15/29 10,000 10,347,900 Total U.S. Government & Agency Obligations (cost $690,964,424) 670,070,139 COMMERCIAL MORTGAGE BACKED SECURITIES-23.3% BTC Mortgage Investors Trust Series 1997-Cl.D 6.95%, 12/31/09 (b) 6,846 6,809,648 BTR 2 Trust Series 1999-S1 Cl.C 5.9175%, 2/28/04 (b) 5,000 4,999,200 Credit Suisse First Boston Mortgage Series 1997-C1 Cl.A1C 7.24%, 4/20/07 10,000 10,071,100 Series 1997-Cl.B 7.28%, 6/20/07 (b) 15,000 14,972,100 First Union Lehman Brothers Series 1997-Cl.A2 6.60%, 5/18/07 19,165 18,858,061 Forum Finance Corp. Cl.A 7.125%, 5/15/04 (b) 6,875 7,072,450 5 PORTFOLIO OF INVESTMENTS (CONTINUED) ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO _______________________________________________________________________________ PRINCIPAL AMOUNT (000) VALUE - ------------------------------------------------------------------------------- Government Lease Trust Series 1999-C1 4.00%, 5/18/11 (b) $ 8,725 $ 6,685,531 Kidder Peabody Acceptance Corp. Series 1994-C 7.00%, 2/01/06 7,000 7,040,460 LB Commercial Conduit Mortgage Trust Series 1998-C4 Cl.D 6.50%, 12/15/08 17,035 15,730,800 Series 1999-Cl.A2 6.78%, 4/15/09 28,000 27,772,640 Morgan Stanley Capital I Series 1998 Cl.XL2 6.17%, 10/03/08 14,360 13,561,728 Nationslink Funding Corp. Series 1999-S1L Cl.A1 5.805%, 2/10/01 4,709 4,692,082 Prudential Securities Secured Financing Corp. Series 1999 6.48%, 1/15/09 50,000 48,468,500 Starwood Commercial Mortgage Trust Series 1999 Cl.A2 6.92%, 2/03/09 (b) 25,375 25,004,271 Total Commercial Mortgage Backed Securities (cost $215,859,410) 211,738,571 ASSET BACKED SECURITIES-5.8% ARG Funding Corp. Series 1999-3 Cl.A 5.273%, 8/22/05 (b) 8,500 8,500,000 Blue Stripe, Ltd. Series 1999-Cl.A1 5.4675%, 6/15/04 (b) 7,200 7,200,000 Contimortgage Home Equity Loan Series 1997-2 Cl.M2F 7.56%, 4/15/28 17,187 16,821,776 Option One Mortgage Securities Corp. Series 1999-2 9.66%, 6/25/29 (b) 1,991 1,987,035 Peco Energy Transition Trust Series 1999-A Cl.A5 5.264%, 3/01/09 10,000 9,978,100 Structured Asset Securities Corp. Series 1999 Cl.M1 5.67%, 5/25/29 8,100 8,089,875 Total Asset Backed Securities (cost $52,885,180) 52,576,786 STRIPPED MORTGAGE BACKED SECURITIES-4.4% LB Commercial Conduit Mortgage Trust Series 1999-C1 Cl.X 0.693%, 7/15/23 259,500 11,516,610 Prudential Securities Secured Financing Corp. Series 1999-NRFI Cl.AEC 0.87%, 10/15/18 (b) 375,198 19,990,527 Salomon Brothers Mortgage Securities, Inc. Series 1999-5 2.80%, 6/25/29 154,328 8,102,241 Total Stripped Mortgage Backed Securities (cost $39,721,992) 39,609,378 6 ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO _______________________________________________________________________________ PRINCIPAL AMOUNT (000) VALUE - ------------------------------------------------------------------------------- COLLATERALIZED MORTGAGE OBLIGATIONS-3.4% BA Mortgage Securities, Inc. Cl.A 7.10%, 7/25/26 $ 6,283 $ 6,300,947 Prudential Home Mortgage Securities Co. Series 1992-33 Cl.A2 7.50%, 11/25/22 14,127 14,250,967 Residential Funding Mortgage Corp. Series 1995-S18 Cl.A4 7.00%, 11/25/10 4,578 4,569,216 Securitized Asset Sales, Inc. Series 1993-J Cl.B1 6.81%, 11/28/23 5,550 5,501,377 Total Collateralized Mortgage Obiligations (cost $30,898,588) 30,622,507 REPURCHASE AGREEMENT-0.1% State Street Bank and Trust Co. 4.90%, dated 6/30/99, due 7/01/99 in the amount of $1,100,150 (collateralized by $1,125,000 FFCB 31331R, 5.39%, 4/19/01, value $1,124,411) (cost $1,100,000) 1,100 $ 1,100,000 TOTAL INVESTMENTS-110.7% (cost $1,031,429,594) 1,005,717,381 Other assets less liabilities-(10.7%) (97,095,968) NET ASSETS-100% $ 908,621,413 (a) Securities, or portions thereof, with an aggregate market value of $66,771,800 have been segregated to collateralize reverse repurchase agreements. (b) Securities issued in reliance on section 4(2) or Rule 144A of the Securities and Exchange Act of 1933. Rule 144A securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At June 30, 1999, these securities amounted to $103,220,762 representing 11.4% of net assets. Glossary: FFCB - Federal Farm Credit Bank. See notes to financial statements. 7 STATEMENT OF ASSETS AND LIABILITIES JUNE 30, 1999 ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO _______________________________________________________________________________ ASSETS Investments in securities, at value (cost $1,031,429,594) $1,005,717,381 Cash 202,082 Receivable for investments sold 68,388,455 Receivable for capital stock sold 14,983,960 Interest receivable 10,286,943 Total assets 1,099,578,821 LIABILITIES Payable for investment securities purchased 104,339,413 Reverse repurchase agreement 66,305,595 Payable for capital stock redeemed 16,898,675 Dividends payable 1,729,122 Advisory fee payable 1,257,843 Distribution fee payable 118,127 Accrued expenses 308,633 Total liabilities 190,957,408 NET ASSETS $ 908,621,413 COMPOSITION OF NET ASSETS Capital stock, at par $ 126,271 Additional paid-in capital 1,166,093,045 Distributions in excess of net investment income (1,729,122) Accumulated net realized loss on investment transactions (230,151,406) Net unrealized depreciation of investments and other assets (25,717,375) $ 908,621,413 CALCULATION OF MAXIMUM OFFERING PRICE CLASS A SHARES Net asset value and redemption price per share ($426,166,659 / 59,248,367 shares of capital stock issued and outstanding) $7.19 Sales charge--4.25% of public offering price .32 Maximum offering price $7.51 CLASS B SHARES Net asset value and offering price per share ($338,309,926 / 46,999,325 shares of capital stock issued and outstanding) $7.20 CLASS C SHARES Net asset value and offering price per share ($144,144,828 / 20,023,142 shares of capital stock issued and outstanding) $7.20 See notes to financial statements. 8 STATEMENT OF OPERATIONS YEAR ENDED JUNE 30, 1999 ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO _______________________________________________________________________________ INVESTMENT INCOME Interest $ 74,725,876 EXPENSES Advisory fee $ 5,230,595 Distribution fee - Class A 1,176,338 Distribution fee - Class B 4,017,756 Distribution fee - Class C 1,388,522 Transfer agency 1,242,009 Printing 218,815 Custodian 210,467 Administrative 114,411 Audit and legal 102,799 Registration 83,347 Taxes 55,938 Directors' fees 13,512 Miscellaneous 41,619 Total expenses before interest 13,896,128 Interest expense 790,800 Net expenses 14,686,928 Net investment income 60,038,948 REALIZED AND UNREALIZED LOSS ON INVESTMENTS Net realized loss on investment transactions (20,418,077) Net change in unrealized appreciation of investments and other assets (28,567,511) Net loss on investment transactions (48,985,588) NET INCREASE IN NET ASSETS FROM OPERATIONS $ 11,053,360 See notes to financial statements. 9 STATEMENT OF CHANGES IN NET ASSETS ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO _______________________________________________________________________________ YEAR ENDED YEAR ENDED JUNE 30, 1999 JUNE 30, 1998 --------------- --------------- INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS Net investment income $ 60,038,948 $ 59,960,724 Net realized gain (loss) on investment transactions (20,418,077) 4,547,564 Net change in unrealized appreciation (depreciation) of investments and other assets (28,567,511) 17,676,067 Net increase in net assets from operations 11,053,360 82,184,355 DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income Class A (26,892,164) (25,072,563) Class B (24,633,071) (27,489,182) Class C (8,513,713) (7,398,979) Distributions in excess of net investment income Class A (505,653) -0- Class B (277,687) -0- Class C (116,468) -0- 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) 101,112,314 (104,135,594) Total increase (decrease) 51,226,918 (84,883,713) NET ASSETS Beginning of year 857,394,495 942,278,208 End of year $908,621,413 $857,394,495 See notes to financial statements. 10 NOTES TO FINANCIAL STATEMENTS JUNE 30, 1999 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 three portfolios: the Corporate Bond Portfolio, the Quality Bond Portfolio and the U.S. Government Portfolio. The Quality Bond Portfolio had not commenced operations as of June 30, 1999, but will be commencing 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 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. 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 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. 11 NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO _______________________________________________________________________________ 5. DIVIDENDS AND DISTRIBUTIONS Dividends and distributions to shareholders are recorded on the ex-dividend date. Income dividends and capital gains distributions are determined in accordance with federal tax regulations and may differ from those determined in accordance with generally accepted accounting principles. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on their federal tax basis treatment; temporary differences do not require such reclassification. During the current fiscal year, permanent differences, primarily due to distributions in excess of investment company taxable income, resulted in a net decrease in distributions in excess of net investment income, a net decrease in accumulated net loss on investments and a corresponding decrease in additional paid in capital. This reclassification had no effect on net assets. 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 $114,411 to the Adviser representing the cost of certain legal and accounting services provided to the Portfolio by the Adviser for the year ended June 30, 1999. 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 $920,544 for the year ended June 30, 1999. For the year ended June 30, 1999, the Portfolio's expenses were reduced by $65,217 under an expense offset arrangement with Alliance Fund Services. 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 Fund that it has received front-end sales charges of $116,944 from the sale of Class A shares and $8,849, $370,767 and $78,615 in contingent deferred sales charges imposed upon redemptions by shareholders of Class A, Class B and Class C shares, respectively, for the year ended June 30, 1999. 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 advised the Fund that it has incurred expenses in excess of the distribution costs reimbursed by the Portfolio in the amount of $7,941,217, and $4,847,754 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 investment securities (excluding short-term investments and U.S. government securities) aggregated $478,812,517 and $148,661,320, respectively, for the year ended June 30, 1999. There were purchases of $3,073,124,774 and sales of $3,089,570,612 12 of U.S. government and government agency obligations for the year ended June 30, 1999. At June 30, 1999, the cost of investments for federal income tax purposes was $1,033,451,553. Accordingly, gross unrealized appreciation of investments was $1,044,656 and gross unrealized depreciation of investments was $28,778,828, resulting in net unrealized depreciation of $27,734,172. At June 30, 1999, the Portfolio had a capital loss carry-forward for federal income tax purposes of $200,126,928, of which $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. During the tax year ended June 30, 1999, $114,601 of the capital loss carryforward expired unutilized. 1. FINANCIAL FUTURES CONTRACTS The Portfolio may buy or sell financial futures contracts for the purpose of hedging its portfolio against adverse affects of anticipated movements in the market. The Portfolio bears the market risk that arises from changes in the value of these financial instruments. At the time the Portfolio enters into a futures contract, the Portfolio deposits and maintains as collateral an initial margin as required by the exchange on which the transaction is effected. Pursuant to the contract, the Portfolio agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are known as variation margin and are recorded by the Portfolio as unrealized gains or losses. When the contract is closed, the Portfolio records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the time it was closed. At June 30, 1999, the Portfolio had no outstanding futures contracts. 2. OPTIONS TRANSACTIONS For hedging and investment purposes, the Portfolio 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 Portfolio pays a premium whether or not the option is exercised. Additionally, the Portfolio bears the risk of loss of premium and 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 Portfolio writes an option, the premium received by the Portfolio 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 Portfolio 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 Portfolio 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 Portfolio. The risk involved in writing an option is that, if the option was exercised the underlying security could then be purchased or sold by the Portfolio at a disadvantageous price. There were no written options for the year ended June 30, 1999. 13 NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO _______________________________________________________________________________ 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: SHARES AMOUNT --------------------------- ------------------------------ YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED JUNE 30, JUNE 30, JUNE 30, JUNE 30, 1999 1998 1999 1998 ------------ ------------ -------------- -------------- CLASS A Shares sold 19,224,210 10,804,046 $ 145,163,835 $ 81,364,926 Shares issued in reinvestment of dividends and distributions 1,728,659 1,651,986 13,009,221 12,448,223 Shares converted from Class B 11,651,921 2,908,590 86,786,935 21,971,601 Shares redeemed (19,949,212) (16,621,353) (149,785,083) (125,182,615) Net increase (decrease) 12,655,578 (1,256,731) $ 95,174,908 $ (9,397,865) CLASS B Shares sold 24,468,480 6,931,240 $ 185,888,333 $ 52,278,662 Shares issued in reinvestment of dividends and distributions 1,662,969 1,813,058 12,540,058 13,660,347 Shares converted to Class A (11,639,868) (2,908,590) (86,786,935) (21,971,601) Shares redeemed (19,011,200) (17,960,112) (143,440,490) (135,276,839) Net decrease (4,519,619) (12,124,404) $ (31,799,034) $ (91,309,431) CLASS C Shares sold 13,380,912 4,489,582 $ 101,866,687 $ 34,077,964 Shares issued in reinvestment of dividends and distributions 711,129 651,004 5,357,332 4,904,415 Shares redeemed (9,170,674) (5,630,703) (69,487,579) (42,410,677) Net increase (decrease) 4,921,367 (490,117) $ 37,736,440 $ (3,428,298) NOTE F: REVERSE REPURCHASE AGREEMENTS Under a reverse repurchase agreement, the Portfolio sells securities and agrees to repurchase them at a mutually agreed upon date and price. At the time the Portfolio enters into a reverse repurchase agreement, it will establish a segregated account with the custodian containing liquid assets having a value at least equal to the repurchase price. As of June 30, 1999, the Portfolio had entered into the following reverse repurchase agreements: AMOUNT BROKER INTEREST RATE MATURITY ------ ------ ------------- -------- $ 4,843,750 Goldman Sachs & Co. 3.38% July 2, 1999 $13,940,000 Morgan Stanley Group, Inc. 3.65% July 2, 1999 $24,437,500 Morgan Stanley Group, Inc. 4.25% July 6, 1999 $23,061,250 Morgan Stanley Group, Inc. 5.05% July 7, 1999 For the year ended June 30, 1999, the maximum amount of reverse repurchase agreements outstanding was $151,462,500, the average amount outstanding was approximately $80,474,793, and the daily weighted average interest rate was 2.97%. 14 ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO _______________________________________________________________________________ NOTE G: 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") 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 the miscellaneous expenses in the statement of operations. The Portfolio did not utilize the Facility during the year ended June 30, 1999. 15 FINANCIAL HIGHLIGHTS ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO _______________________________________________________________________________ SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR
CLASS A ----------------------------------------------------------------- YEAR ENDED JUNE 30, ----------------------------------------------------------------- 1999 1998 1997 1996 1995 ----------- ----------- ----------- ----------- ----------- Net asset value, beginning of year $ 7.57 $ 7.41 $ 7.52 $ 7.96 $ 7.84 INCOME FROM INVESTMENT OPERATIONS Net investment income .52(a) .54(a) .57(a) .58 .64 Net realized and unrealized gain (loss) on investment transactions (.37) .18 (.10) (.44) .13 Net increase in net asset value from operations .15 .72 .47 .14 .77 LESS: DIVIDENDS AND DISTRIBUTIONS Dividends from net investment income (.52) (.54) (.57) (.58) (.65) Distribution in excess of net investment income (.01) -0- -0- -0- -0- Tax return of capital -0- (.02) (.01) -0- -0- Total dividends and distributions (.53) (.56) (.58) (.58) (.65) Net asset value, end of year $ 7.19 $ 7.57 $ 7.41 $ 7.52 $ 7.96 TOTAL RETURN Total investment return based on net asset value (b) 1.83% 10.02% 6.49% 1.74% 10.37% RATIOS/SUPPLEMENTAL DATA Net assets, end of year (000's omitted) $426,167 $352,749 $354,782 $397,894 $463,660 Ratio of expenses to average net assets 1.17% 1.06% 1.02% 1.01% 1.01% Ratio of expenses to average net assets, excluding interest expense 1.08% -0- -0- -0- -0- Ratio of net investment income to average net assets 6.86% 7.08% 7.66% 7.38% 8.27% Portfolio turnover rate 320% 153% 330% 334% 190%
See footnote summary on page 18. 16 ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO _______________________________________________________________________________ SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR
CLASS B ----------------------------------------------------------------- YEAR ENDED JUNE 30, ----------------------------------------------------------------- 1999 1998 1997 1996 1995 ----------- ----------- ----------- ----------- ----------- Net asset value, beginning of year $ 7.57 $ 7.41 $ 7.52 $ 7.96 $ 7.84 INCOME FROM INVESTMENT OPERATIONS Net investment income .46(a) .48(a) .52(a) .52 .58 Net realized and unrealized gain (loss) on investment transactions (.36) .18 (.10) (.44) .13 Net increase in net asset value from operations .10 .66 .42 .08 .71 LESS: DIVIDENDS AND DISTRIBUTIONS Dividends from net investment income (.46) (.48) (.52) (.52) (.59) Distributions in excess of net investment income (.01) -0- -0- -0- -0- Tax return of capital -0- (.02) (.01) -0- -0- Total dividends and distributions (.47) (.50) (.53) (.52) (.59) Net asset value, end of year $ 7.20 $ 7.57 $ 7.41 $ 7.52 $ 7.96 TOTAL RETURN Total investment return based on net asset value (b) 1.22% 9.20% 5.69% 1.01% 9.52% RATIOS/SUPPLEMENTAL DATA Net assets, end of year (000's omitted) $338,310 $390,253 $471,889 $628,628 $774,097 Ratio of expenses to average net assets 1.87% 1.76% 1.73% 1.72% 1.72% Ratio of expenses to average net assets, excluding interest expense 1.79% -0- -0- -0- -0- Ratio of net investment income to average net assets 6.13% 6.37% 6.95% 6.67% 7.57% Portfolio turnover rate 320% 153% 330% 334% 190%
See footnote summary on page 18. 17 FINANCIAL HIGHLIGHTS (CONTINUED) ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO _______________________________________________________________________________ SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR
CLASS C ----------------------------------------------------------------- YEAR ENDED JUNE 30, ----------------------------------------------------------------- 1999 1998 1997 1996 1995 ----------- ----------- ----------- ----------- ----------- Net asset value, beginning of year $ 7.57 $ 7.41 $ 7.52 $ 7.96 $ 7.83 INCOME FROM INVESTMENT OPERATIONS Net investment income .46(a) .48(a) .52(a) .52 .58 Net realized and unrealized gain (loss) on investment transactions (.36) .18 (.10) (.44) .14 Net increase in net asset value from operations .10 .66 .42 .08 .72 LESS: DIVIDENDS AND DISTRIBUTIONS Dividends from net investment income (.46) (.48) (.52) (.52) (.59) Distribution in excess of net investment income (.01) -0- -0- -0- -0- Tax return of capital -0- (.02) (.01) -0- -0- Total dividends and distributions (.47) (.50) (.53) (.52) (.59) Net asset value, end of year $ 7.20 $ 7.57 $ 7.41 $ 7.52 $ 7.96 TOTAL RETURN Total investment return based on net asset value (b) 1.22% 9.21% 5.69% 1.01% 9.67% RATIOS/SUPPLEMENTAL DATA Net assets, end of year (000's omitted) $144,145 $114,392 $115,607 $166,075 $181,948 Ratio of expenses to average net assets 1.87% 1.76% 1.72% 1.71% 1.71% Ratio of expenses to average net assets, excluding interest expense 1.78% -0- -0- -0- -0- Ratio of net investment income to average net assets 6.13% 6.38% 6.96% 6.68% 7.59% Portfolio turnover rate 320% 153% 330% 334% 190%
(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. 18 REPORT OF ERNST & YOUNG LLP INDEPENDENT AUDITORS ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO _______________________________________________________________________________ TO THE SHAREHOLDERS AND BOARD OF DIRECTORS ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO We have audited the accompanying statement of assets and liabilities of Alliance Bond Fund U.S. Government Portfolio (one of the portfolios comprising the Alliance Bond Fund, Inc.), including the portfolio of investments, as of June 30, 1999, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Our procedures included confirmation of securities owned as of June 30, 1999, by correspondence with the custodian and others. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Alliance Bond Fund U.S. Government Portfolio at June 30, 1999, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the indicated periods, in conformity with generally accepted accounting principles. New York, New York August 6, 1999 19 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 LLP One Battery Park Plaza New York, NY 10004 (1) Member of the Audit Committee. 20 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 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 Treasury Portfolio Trust 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 General Municipal Portfolio Government Portfolio 21 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. USGAR699 -----END PRIVACY-ENHANCED MESSAGE-----