LETTER TO SHAREHOLDERS Alliance Bond Fund U.S. Government Portfolio
- - --------------------------------------------------------------------------------
February 7, 1995
Dear Shareholder:
The U.S. economy continued its impressive expansion in the second half of 1994
with growth estimated at an annual rate of 4.2%. This strong economic growth
pushed the unemployment rate down to 5.4% and boosted the manufacturing capacity
utilization rate to 85%, considered to be its full-capacity threshold. While
broad price indices such as the Consumer Price Index (CPI) and Producer Price
Index (PPI) have shown few signs of acceleration, commodity prices and core
intermediate goods in the PPI, both indicators of inflationary pressure, have
risen sharply over the past 12 months. Concerns over inflation and the unabated
growth of the U.S. economy prompted the Federal Reserve to raise short-term
interest rates in August and again in November. Responding to tighter monetary
policy, two-year U.S. Treasurys have risen from 6.18% to 7.70% and 30-year U.S.
Treasurys have risen from 7.61% to 7.88% from June 30 through December 31, 1994.
INVESTMENT RESULTS
The table below compares your Portfolio's investment results with the U.S.
Treasury market, represented by the unmanaged Lehman Brothers Government Bond
Index, and with the average return of its competitors, represented by the Lipper
universe of 156 general U.S. Government funds.
Six Months Ended
December 31, 1994
-------------------------
Total Dividends Ending
Return Paid NAV
------ --------- ------
U.S. Government Portfolio
Class A +0.07% $0.326 $7.52
Class B -0.19% $0.296 $7.53
Class C -0.19% $0.296 $7.52
Lehman Brothers
Government Bond Index +0.77%
Lipper General U.S.
Government Funds Average +0.26%
The Portfolio's total returns are based on net asset values as of December 31,
1994. Additional investment results for your Fund appear on page 3.
PORTFOLIO STRATEGY
Alliance Bond Fund U.S. Government Portfolio strengthened its defensive
positioning over the past six months. We accentuated the Portfolio's barbell
structure by adding to short- and long-term maturity positions and reducing
holdings in intermediate-term bonds. This positioning has allowed the Portfolio
to benefit from a flattening of the yield curve, which is the narrowing of
spreads between two-year notes and 30-year bonds. In addition, we continued to
add to the Portfolio's positions in mortgage-backed securities (MBS). With
interest rate volatility declining in the market, MBS are expected to outperform
government securities over the next several months. Market risk, as measured by
the average maturity of the Portfolio, remained unchanged over the six-month
period.
MARKET OUTLOOK
We expect the Federal Reserve to maintain its focus on growth and continue
raising interest rates until GDP growth is reduced to a non-inflationary level,
generally estimated to be 2.5% or less on an annual basis. Any easing of fiscal
policy by the new political leadership in Congress will increase the need for
monetary tightening. Anticipation of further interest rate increases should put
upward pressure on short-term rates. Long-term rates should remain at current
levels (around 8%), provided the Fed maintains its aggressive anti-inflation
stance and inflation does not surge ahead unexpectedly. As higher interest rates
work their way through the economy, growth will moderate from the brisk pace of
1994. Prices at the early stages of the production cycle have increased, and it
is likely that overall inflation indices will undergo some cyclical pressures in
1995. However, we expect domestic inflation to peak at 4% or less, which implies
that long-term government bonds offer attractive real returns at current prices.
1
Alliance Bond Fund U.S. Government Portfolio
- - --------------------------------------------------------------------------------
We appreciate your investment in Alliance Bond Fund U.S. Government Portfolio
and look forward to reporting its progress to you in the coming months.
Sincerely,
/s/ John D. Carifa
John D. Carifa
Chairman and President
/s/ Paul J. DeNoon
Paul J. DeNoon
Vice President
2
INVESTMENT RESULTS Alliance Bond Fund U.S. Government Portfolio
- - --------------------------------------------------------------------------------
Average Annual Total Return as of December 31, 1994
CLASS A SHARES
--------------------------
Without With
Sales Charge Sales Charge
------------ ------------
o One Year -4.38% -8.46%
o Five Years +6.80 +5.88
o Since Inception* +7.36 +6.85
SEC Yield 5.38%
CLASS B SHARES
--------------------------
Without With
Sales Charge Sales Charge
------------ ------------
o One Year -4.98% -7.62%
o Since Inception* +4.70 +4.70
SEC Yield 4.88%
CLASS C SHARES
--------------------------
o One Year -5.10%
o Since Inception* -0.52
SEC Yield 4.88%
The average annual total returns reflect investment of dividends and/or capital
gains distributions in additional shares--with and without the effect of the
4.25% maximum sales charge (Class A) or 3% contingent deferred sales charge
(Class B); Class C shares are not subject to front-end or contingent deferred
sales charges. 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. Yields are for the
30 days ended December 31, 1994.
- - --------------------------------------------------------------------------------
*Inception: 12/2/85, Class A; 9/30/91, Class B; 5/3/93, Class C
3
PORTFOLIO OF INVESTMENTS
December 31, 1994 (unaudited) Alliance Bond Fund U.S. Government Portfolio
- - --------------------------------------------------------------------------------
Principal
Amount
(000) Value
--------- --------------
U.S. GOVERNMENT AND AGENCY
OBLIGATIONS
GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION-40.8%
Builder Buydown
11.00%, 8/15/15-9/15/19 $ 400 $ 434,800
--------------
Construction Loan/Project Loan
7.00%, 11/30/23-9/01/35 16,890 14,820,612
--------------
Mobile Homes
8.00%, 10/15/12 389 385,750
8.25%, 6/15/05-9/15/12 2,027 2,019,585
8.50%, 5/15/08 542 545,183
8.75%, 11/15/00-1/15/12 2,363 2,389,324
9.00%, 10/15/11-1/15/12 1,908 1,943,986
9.25%, 3/15/05-2/15/10 503 515,080
9.50%, 2/15/05 333 342,518
9.75%, 5/15/99-1/15/13 10,437 10,776,242
10.00%, 8/15/02 337 349,307
10.25%, 4/15/98-8/15/12 9,128 9,492,656
11.25%, 3/15/98-5/15/98 70 72,993
--------------
28,832,624
--------------
Project Loans
7.05%, 9/15/25 7,141 6,265,822
7.50%, 2/15/23-1/01/33 9,224 8,373,250
7.55%, 3/15/28 4,507 4,091,704
7.625%, 8/01/28 3,358 3,049,172
7.75%, 4/15/12-6/15/28 22,674 21,101,018
8.00%, 1/15/28-2/15/34 21,110 19,968,601
8.125%, 10/15/29 27,516 26,028,432
8.375%, 1/15/30-7/15/32 15,639 15,001,105
8.50%, 11/15/12-7/15/32 50,614 49,348,217
8.75%, 1/15/33 2,521 2,491,519
9.25%, 5/15/24 7,001 6,958,822
9.50%, 8/01/31 10,346 10,507,158
10.50%, 8/15/29 5,812 6,294,522
10.75%, 5/15/28 5,014 5,477,981
12.30%, 12/15/16 1,898 2,115,047
--------------
187,072,370
--------------
Single Family Homes
8.00%, 7/15/22-4/15/24 $198,340 $189,573,438
8.25%, 4/15/23 14,450 13,860,916
8.43%, 7/15/27 4,962 5,153,529
8.50%, 1/15/17-9/15/24 16,607 16,338,255
8.75%, 11/15/11-12/15/11 2,128 2,152,316
9.00%, 7/15/20-8/05/33 81,589 82,101,522
10.25%, 4/15/98 98 101,432
12.00%, 2/15/13-5/15/14 2,162 2,408,726
--------------
311,690,134
--------------
Total Government National
Mortgage Association
(cost $579,204,051) 542,850,540
--------------
U.S. TREASURY SECURITIES-40.5%
U.S. TREASURY NOTES-21.9%
11.25%, 2/15/95-5/15/95 288,150 291,718,517
--------------
U.S. TREASURY BONDS-14.8%
13.375%, 8/15/01 10,000 12,817,200
13.75%, 8/15/04 44,500 61,841,205
13.875%, 5/15/11 72,500 104,003,425
14.00%, 11/15/11 11,900 17,321,878
--------------
195,983,708
--------------
U.S. TREASURY STRIPS-3.8%
Zero coupon, 2/15/15 246,100 49,963,222
--------------
Total U.S. Treasury Securities
(cost $559,403,620) 537,665,447
--------------
FEDERAL AGENCY SECURITIES-10.4%
Federal Housing Authority
11.93%, 1/01/29 7,946 8,472,178
Financial Assistance Corp.
9.45%, 11/21/03 26,000 27,072,500
9.50%, 4/16/04 31,506 32,362,648
Small Business Administration
BS92-1E(I/O) FRN
9.75%, 4/15/17 (a)(b) 22,657 21,991,593
4
PORTFOLIO OF INVESTMENTS
December 31, 1994 (unaudited) Alliance Bond Fund U.S. Government Portfolio
- - --------------------------------------------------------------------------------
Principal
Amount
(000) Value
--------- --------------
BS92-2A(I/O) FRN
9.72%, 7/15/17 (a)(b) $ 7,769 $ 7,732,065
BS93-2A(I/O) FRN
8.40%, 3/25/18 (a)(b) 16,433 16,109,722
BS93-5A(I/O) FRN
7.00%, 6/15/18 (a)(b) 13,227 11,493,179
BS94-6B(I/O) FRN
9.00%, 5/15/19 (a)(b) 15,119 13,561,680
--------------
Total Federal Agency Securities
(cost $151,276,650) 138,795,565
--------------
COLLATERALIZED MORTGAGE
OBLIGATIONS-7.0%
GNMA-1994-5 FRN
10.00%, 5/16/99 (I/O) (a) 25,455 18,446,698
Vendee Mortgage Trust
1992-1 FRN
7.75%, 12/15/14 11,030 9,696,142
1992-2 FRN
10.00%, 9/15/22 (I/O) (a) 11,530 11,470,003
1992-2E FRN
7.00%, 2/15/17 $ 23,374 $ 18,853,001
1993-1 FRN
10.00%, 2/15/23 (I/O) (a) 12,081 11,870,957
1993-2 FRN
9.50%, 12/15/22 (I/O) (a) 8,645 8,116,479
1993-3 FRN
10.29%, 10/15/23 (I/O) (a) 13,705 11,727,161
1994-1 FRN
9.00%, 2/15/24 (I/O) (a) 2,845 2,791,815
--------------
Total Collateralized Mortgage
Obligations (cost $108,257,867) 92,972,256
--------------
TOTAL INVESTMENTS-98.7%
(cost $1,398,142,188) 1,312,283,808
Other assets less liabilities-1.3% 17,411,361
--------------
NET ASSETS-100% $1,329,695,169
==============
- - --------------------------------------------------------------------------------
(a) Interest rate represents yield to maturity.
(b) Illiquid security (See Notes A & F).
Glossary of Terms:
FRN-Floating rate note.
I/O - Interest only.
See notes to financial statements.
5
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1994 (unaudited) Alliance Bond Fund U.S. Government Portfolio
- - --------------------------------------------------------------------------------
ASSETS
Investments in securities, at value (cost $1,398,142,188) $1,312,283,808
Receivable for investment securities sold 30,272,990
Interest receivable 19,234,197
Receivable for capital stock sold 3,051,352
Prepaid expenses and other assets 115,882
--------------
Total assets 1,364,958,229
--------------
LIABILITIES
Due to custodian 7,590,062
Payable for investment securities purchased 10,613,702
Payable for capital stock redeemed 7,866,719
Dividends payable 6,719,107
Advisory fee payable 1,831,921
Distribution fee payable 168,407
Accrued expenses 473,142
--------------
Total liabilities 35,263,060
--------------
NET ASSETS $1,329,695,169
==============
COMPOSITION OF NET ASSETS
Capital stock, at par $ 176,731
Additional paid-in capital 1,571,003,142
Undistributed net investment income 118,513
Accumulated net realized loss (155,744,837)
Net unrealized depreciation of investments (85,858,380)
--------------
$1,329,695,169
==============
CALCULATION OF MAXIMUM OFFERING PRICE
CLASS A SHARES
Net asset value and redemption price per share
($437,521,456/58,155,627 shares of capital stock issued and
outstanding) $7.52
Sales charge-4.25% of public offering price .33
-----
Maximum offering price $7.85
=====
CLASS B SHARES
Net asset value and offering price per share
($706,179,225/93,835,576 shares of capital stock issued and
outstanding) $7.53
=====
CLASS C SHARES
Net asset value, redemption and offering price per share
($185,994,488/24,740,078 shares of capital stock issued and
outstanding) $7.52
=====
- - --------------------------------------------------------------------------------
See notes to financial statements.
6
STATEMENT OF OPERATIONS
Six Months Ended December 31, 1994
(unaudited) Alliance Bond Fund U.S. Government Portfolio
- - --------------------------------------------------------------------------------
INVESTMENT INCOME
Interest $ 66,969,124
EXPENSES
Advisory fee $3,714,476
Distribution fee-Class A 701,447
Distribution fee-Class B 3,713,044
Distribution fee-Class C 1,073,139
Transfer agency 889,442
Registration 88,773
Administrative 83,304
Custodian 65,874
Printing 41,043
Taxes 39,680
Audit and legal 17,456
Directors' fees 7,608
Miscellaneous 21,759
----------
Total expenses 10,457,045
------------
Net investment income 56,512,079
------------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS
Net realized loss on investments (51,269,143)
Net change in unrealized depreciation of investments (5,580,913)
------------
Net loss on investments (56,850,056)
------------
NET DECREASE IN NET ASSETS FROM OPERATIONS $ (337,977)
============
STATEMENT OF CHANGES IN NET ASSETS
- - --------------------------------------------------------------------------------
Six Months Ended
December 31, Year Ended
1994 June 30,
(unaudited) 1994
---------------- --------------
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS
Net investment income $ 56,512,079 $ 108,609,389
Net realized loss on investments (51,269,143) (62,573,582)
Net change in unrealized depreciation of
investments (5,580,913) (92,105,470)
-------------- --------------
Net decrease in net assets from operations (337,977) (46,069,663)
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A (19,679,657) (40,491,765)
Class B (28,393,522) (51,587,050)
Class C (8,223,207) (16,448,913)
CAPITAL STOCK TRANSACTIONS
Net increase (decrease) (84,406,155) 477,136,349
-------------- --------------
Total increase (decrease) (141,040,518) 322,538,958
NET ASSETS
Beginning of year 1,470,735,687 1,148,196,729
-------------- --------------
End of the period (including undistributed
net investment income of $118,513 for the
six months ended December 31, 1994) $1,329,695,169 $1,470,735,687
============== ==============
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See notes to financial statements.
7
NOTES TO FINANCIAL STATEMENTS
December 31, 1994 (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: Corporate Bond Portfolio and 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 U.S.
Government Portfolio (the "Portfo1io") only. The Portfolio offers three classes
of shares; Class A, Class B and Class C shares. Class A shares are sold with a
front-end sales charge of up to 4.25%. Class B shares are sold with a contingent
deferred sales charge which declines from 3.00% 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 sold without an initial or contingent deferred sales charge. 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 following is
a summary of the significant accounting policies followed by the Portfolio.
1. Security Valuation
Portfolio securities traded on a national securities exchange are valued at the
last reported sales price on such exchange. Listed securities not traded and
securities traded in the over-the-counter market, including listed debt
securities whose primary market is believed to be over-the-counter, are valued
at the mean of the closing bid and asked price as obtained from a recognized
pricing service and brokers. Securities for which bid and asked price quotations
are not readily available are valued in good faith at fair value using methods
determined by the Board of Directors. In determining fair value, consideration
is given to cost, operating and other financial data. Securities which mature in
60 days or less are valued at amortized cost, which approximates market value.
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
shareholders. Therefore, no provisions for federal income or excise taxes are
required.
3. Investment Income and Security Transactions
Interest income is accrued daily. Security transactions are accounted for on the
date the securities are purchased or sold. Security gains and losses are
determined on the identified cost basis. The portfolio accretes original issue
discount as adjustments to income.
4. Dividends and Distributions
Dividends and distributions to shareholders are recorded on the ex-dividend
date. Income dividends and capital gain distributions are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles.
5. Adoption of Statement of Position 93-2
During the year ended June 30, 1994, the Fund adopted Statement of Position 93-2
Determination, Disclosure, and Financial Statement Presentation of Income,
Capital Gain, and Return of Capital Distributions by Investment Companies.
Accordingly, dividends from net investment income and distributions from
realized gains from investment transactions have been determined in accordance
with income tax regulations. Such amounts may differ from investment income and
realized gains.
- - --------------------------------------------------------------------------------
NOTE B: Advisory Fee and Other Transactions with Affiliates
Under the terms of the investment advisory agreement, the Portfolio pays
Alliance Capital Management L.P., (the "Adviser"), an advisory fee equal to .60
of 1% of the first $500 million, and .50 of 1% in excess of $500 million on an
annualized basis, of its net assets at the end of each quarter. The Adviser has
agreed to reimburse the Portfolio pursuant to the securities laws of certain
states to the extent its aggregate annual expenses (exclusive of interest,
taxes, brokerage, distribution fee and extraordinary expenses) exceed 2.5% of
the first $30 million of its average daily net assets, 2% of the next $70
million of its average daily net assets and 1.5% of its average daily net assets
in excess of $100 million. No such reimbursement was required for the six months
ended December 31, 1994. Pursuant to the advisory agreement the Portfolio paid
$83,304 to the Adviser representing the cost of certain legal and account-
8
Alliance Bond Fund U.S. Government Portfolio
- - --------------------------------------------------------------------------------
ing services provided to the Portfolio by the Adviser for the six months ended
December 31, 1994.
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 $563,152 for the six months ended December 31,
1994.
Alliance Fund Distributors, Inc. (a wholly-owned subsidiary of the Adviser)
serves as the Distributor of the Portfolio's shares. The Distributor received
front-end sales charges of $35,534 from the sale of Class A shares and
$1,185,107 in contingent deferred sales charges imposed upon redemptions by
shareholders of Class B shares for the six months ended December 31, 1994.
- - --------------------------------------------------------------------------------
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 the 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 $12,134,330, and $1,936,627 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),
aggregated $795,101,959 and $908,305,122, respectively, for the six months ended
December 31, 1994. At December 31, 1994, the cost of securities for federal
income tax purposes was $1,426,513,771. Accordingly, gross unrealized
appreciation of investments was $947,612 and gross unrealized depreciation of
investments was $115,177,575, resulting in net unrealized depreciation of
$114,229,963. For federal income tax purposes, the Portfolio had a capital loss
carryforward at June 30, 1994 of approximately $29,301,170 of which $21,043,851
expires in 1998 and $8,257,319 in 1999.
- - --------------------------------------------------------------------------------
NOTE E: Capital Stock
There are 600,000,000 shares of $.001 par value capital stock authorized, for
the Portfolio of which 200,000,000 shares are designated for Class A, Class B
and Class C shares, respectively. Transactions in capital stock were as follows:
Shares Amount
------------------------ ----------------------------
Six Months Six Months
Ended Ended
December Year Ended December Year Ended
31, 1994 June 30, 31, 1994 June 30,
(unaudited) 1994 (unaudited) 1994
----------- ----------- ------------- -------------
Class A
Shares sold 3,584,626 11,274,893 $ 27,513,063 $ 95,684,533
Shares issued in
reinvestment of
dividends 1,074,495 2,421,056 8,294,493 20,303,561
Shares issued in
connection with the
acquisition of the
Equitable Government
Securities Fund -0- 698,394 -0- 5,976,599
Shares redeemed (8,094,111) (13,901,306) (62,280,209) (117,389,120)
---------- ----------- ------------- -------------
Net increase (decrease) (3,434,990) 493,037 $ (26,472,653) $ 4,575,573
========== =========== ============= =============
9
NOTES TO FINANCIAL STATEMENTS
(cont.) Alliance Bond Fund U.S. Government Portfolio
- - --------------------------------------------------------------------------------
Shares Amount
------------------------ ----------------------------
Six Months Six Months
Ended Ended
December Year Ended December Year Ended
31, 1994 June 30, 31, 1994 June 30,
(unaudited) 1994 (unaudited) 1994
------------ ----------- ------------- -------------
Class B
Shares sold 11,828,687 46,811,290 $ 90,657,098 $ 398,854,640
Shares issued in
reinvestment of
dividends 1,503,250 3,240,130 11,610,032 27,132,335
Shares issued in
connection with the
acquisition of the
Equitable Government
Securities Fund -0- 2,472,984 -0- 21,318,288
Shares redeemed (16,016,175) (19,937,249) (122,788,580) (166,259,442)
----------- ----------- ------------- -------------
Net increase (decrease) (2,684,238) 32,587,155 $ (20,521,450) $ 281,045,821
=========== =========== ============= =============
Six Months Six Months
Ended Ended
December Year Ended December Year Ended
31, 1994 June 30, 31, 1994 June 30,
(unaudited) 1994 (unaudited) 1994
------------ ----------- ------------- -------------
Class C
Shares sold 2,237,300 47,418,974 $ 17,104,107 $ 407,386,564
Shares issued in
reinvestment of
dividends 595,284 1,327,359 4,607,713 11,125,450
Shares redeemed (7,697,299) (26,983,500) (59,123,872) (226,997,059)
---------- ----------- ------------- -------------
Net increase (decrease) (4,864,715) 21,762,833 $ (37,412,052) $ 191,514,955
========== =========== ============= =============
- - --------------------------------------------------------------------------------
NOTE F: Illiquid Securities
Date
Security Acquired Cost
-------- -----------
Small Business Administration
BS92--IE (I/O)
9.75%, 4/15/17 FRN 5/07/92 $22,656,968
BS92--2A (I/O)
9.72%, 7/15/17 FRN 6/08/92 7,769,170
BS93--2A (I/O)
8.40%, 3/25/18 FRN 1/28/93 16,432,714
BS93--5A (I/O)
7.00%, 6/15/18 1/26/94 13,227,448
BS94--6B (I/O)
9.00%, 5/15/19 6/14/94 15,119,164
------- -----------
$75,205,464
===========
The securities shown above are illiquid and have been valued at fair value in
accordance with the procedures described in Note A. The value of these
securities at December 31, 1994 aggregated $70,888,239, representing 5.3% of net
assets.
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 Year Ended June 30,
31, 1994 -------------------------------------------------
(unaudited) 1994 1993 1992 1991 1990
----------- -------- -------- -------- -------- --------
Net asset value,
beginning of
period $7.84 $8.64 $8.34 $8.01 $8.14 $8.49
----- ----- ----- ----- ----- -----
Income From
Investment Operations
Net investment
income .33 .65 .69 .70 .81 .86
Net realized
and unrealized
gain (loss)
on investments (.32) (.80) .29 .35 (.11) (.38)
----- ----- ----- ----- ----- -----
Net increase
(decrease) in
net asset value
from operations .01 (.15) .98 1.05 .70 .48
----- ----- ----- ----- ----- -----
Less: Distributions
Dividends from
net investment
income (.33) (.65) (.68) (.72) (.83) (.83)
----- ----- ----- ----- ----- -----
Net asset value,
end of period $7.52 $7.84 $8.64 $8.34 $8.01 $8.14
===== ===== ===== ===== ===== =====
Total Return
Total investment
return based on
net asset
value (a) .07% (1.93)% 12.23% 13.52% 8.97% 5.99%
===== ===== ===== ===== ===== =====
Ratios/Supplemental Data
Net assets, end
of year (000's
omitted) $437,521 $482,595 $527,968 $492,448 $491,910 $510,675
Ratio of
expenses to
average net
assets .99%* 1.02% 1.10% 1.12% 1.07% 1.09%
Ratio of net
investment
income to
average net
assets 8.40%* 7.76% 8.04% 8.43% 10.02% 10.35%
Portfolio
turnover rate 103% 188% 386% 418% 402% 455%
- - --------------------------------------------------------------------------------
See footnote summary on page 12.
11
FINANCIAL HIGHLIGHTS (continued) Alliance Bond Fund U.S. Government Portfolio
- - --------------------------------------------------------------------------------
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
<TABLE>
<CAPTION>
Class B Class C
----------------------------------------------- ----------------------------------
Six Months Six Months
Ended September 30, Ended Year May 3,
December 31, Year Ended 1991** to December 31, Ended 1993** to
1994 June 30, June 30, 1994 June 30, June 30,
(unaudited) 1994 1993 1992 (unaudited) 1994 1993
------------ -------- -------- ------------- ------------ -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $7.84 $8.64 $8.34 $8.25 $7.83 $8.64 $8.56
----- ----- ----- ----- ----- ----- -----
Income From Investment Operations
Net investment income .30 .59 .62 .49 .30 .59 .10
Net realized and unrealized
gain (loss) on investments (.31) (.80) .30 .09 (.31) (.81) .08
----- ----- ----- ----- ----- ----- -----
Net increase (decrease) in net asset
value from operations (.01) (.21) .92 .58 (.01) (.22) .18
----- ----- ----- ----- ----- ----- -----
Less: Distributions
Dividends from net investment income (.30) (.59) (.62) (.49) (.30) (.59) (.10)
----- ----- ----- ----- ----- ----- -----
Net asset value, end of period $7.53 $7.84 $8.64 $8.34 7.52 $7.83 $8.64
===== ===== ===== ===== ===== ===== =====
Total Return
Total investment return based on net
asset value (a) (.19)% (2.63)% 11.45% 6.95% (.19)% (2.75)% 2.12%
===== ===== ===== ===== ===== ===== =====
Ratios/Supplemental Data
Net assets, end of period
(000's omitted) $706,179 $756,282 $552,471 $32,227 $185,995 $231,859 $67,757
Ratio of expenses to
average net assets 1.70%* 1.72% 1.81% 1.80%* 1.69%* 1.70% 1.80%*
Ratio of net investment income
to average net assets 7.70%* 7.04% 7.25% 7.40%* 7.71%* 6.97% 6.00%*
Portfolio turnover rate 103% 188% 386% 418% 103% 188% 386%
</TABLE>
- - --------------------------------------------------------------------------------
* Annualized.
** Commencement of distribution.
(a) 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.
12
Alliance Bond Fund U.S. Government Portfolio
- - --------------------------------------------------------------------------------
BOARD OF DIRECTORS
John D. Carifa, Chairman and President
Ruth Block (1)
David H. Dievler
James R. Greene (1)
Dr. James M. Hester (1)
Clifford L. Michel (1)
Eugene F. O'Neil (1)
Robert C. White (1)
OFFICERS
Wayne D. Lyski, Senior Vice President
Paul J. DeNoon, Vice President
Edmund P. Bergan, Jr., Secretary
Mark D. Gersten, Treasurer & Chief Financial Officer
Joseph J. Mantineo, Controller
CUSTODIAN
State Street Bank & Trust Company
225 Franklin Street
Boston, MA 02110
INDEPENDENT AUDITORS
Ernst & Young LLP
787 Seventh Avenue
New York, NY 10019
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
- - --------------------------------------------------------------------------------
(1) Member of the Audit Committee.
13
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(This page left intentionally blank.)
ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO [INDICIA]
1345 Avenue of the Americas
New York, NY 10105
(800) 221-5672
Alliance Capital [LOGO]
Mutual funds without the Mystery(Service Mark)
This report is distributed solely to shareholders of the Fund and is not to be
used as sales literature.
(Registered) These registered service marks used under license from the owner,
Alliance Capital Management L.P.
USGSR
ALLIANCE
BOND FUND
U.S. GOVERNMENT
PORTFOLIO
Semi-Annual Report
December 31, 1994
[LOGO]
LETTER TO SHAREHOLDERS Alliance Bond Fund Corporate Bond Portfolio
- - --------------------------------------------------------------------------------
February 7, 1995
Dear Shareholder:
Since we last reported to you in June, the Federal Reserve has continued
tightening monetary policy, placing further downward pressure on domestic and
international bond prices. While higher interest rates negatively impacted the
value of bonds in the second half of 1994, strong economic growth throughout the
year improved overall corporate earnings to the benefit of corporate
bondholders. Seeking diversification through international investment, your Fund
held 27% of its total assets in foreign debt securities on December 31, 1994.
This strategy was successful in 1993, as the Fund benefited from selective
investment in emerging market and other foreign debt. Unfortunately, in 1994,
emerging market debt suffered widespread selling in the wake of the Mexican
government's decision to abandon its currency trading band and float the peso.
This unexpected action led to price declines for nearly all emerging market
debt. Despite the recent price volatility in domestic and international markets,
we maintain our view that investors who hold a long-term outlook should be
rewarded.
For the six months ended December 31, 1994, the table below compares your
Portfolio's investment results with the overall U.S. bond market, represented by
the unmanaged Lehman Brothers Aggregate Bond Index, and with its competitors,
represented by an average of Lipper's universe of 78 BBB-rated corporate bond
funds. The Portfolio's total returns are based on net asset values (NAV) as of
December 31.
Six Months Ended
December 31, 1994
-------------------------
Total Dividends Ending
Return Paid NAV
------ --------- ------
Corporate Bond Portfolio
Class A -0.64% $0.570 $11.88
Class B -1.00% $0.525 $11.87
Class C -1.00% $0.525 $11.87
Lehman Brothers
Aggregate Bond Index +0.99%
Lipper Corporate Debt
BBB-Rated Funds Average +0.63%
Despite the recent NAV price declines, longer-term results, which apply to Class
A shares, continue to be favorable. Through December 31, the Corporate Bond
Portfolio achieved annualized total returns of 10.05% for the five-year period
and 11.04% for the ten-year period based on NAV. Additional investment results
for your Fund appear on page 3.
THE U.S. ECONOMIC AND INTEREST RATE ENVIRONMENT
The U.S. economy continued its impressive expansion in the second half of 1994
with growth estimated at an annual rate of 4.2%. This strong economic growth
pushed the unemployment rate down to 5.4% and boosted the manufacturing capacity
utilization rate to 85%, its full-capacity threshold. While broad price indices
such as the Consumer Price Index (CPI) and Producer Price Index (PPI) have shown
few signs of acceleration, commodity prices and core intermediate goods in the
PPI, both indicators of inflationary pressure, have risen sharply over the past
12 months. Concerns over inflation and the unabated growth of the U.S. economy
prompted the Federal Reserve to raise short-term interest rates in August and
again in November. Since June, two-year U.S. Treasurys have risen from 6.18% to
7.70% and 30-year U.S. Treasurys have risen from 7.61% to 7.88%.
EMERGING MARKETS SUFFER FROM FALLOUT OVER MEXICAN CRISIS
The Mexican government's decision to float the peso led to a 40% devaluation in
their currency versus the U.S. dollar and to significant price declines for all
Mexican debt obligations, including Brady bonds. The ensuing Mexican economic
crisis has spilled over into other emerging market countries, forcing sovereign
and corporate bond prices lower in Latin America, Eastern Europe, Africa and
many Asian countries. Investor confidence, which was severely shaken in recent
weeks, is largely responsible for the worldwide fall in emerging market debt
prices. Investors are demanding higher interest rates to offset greater
perceived risk, thereby lowering bond prices. As the Mexican government begins
to implement its emergency economic plan, with the help of a $57 billion
1
Alliance Bond Fund Corporate Bond Portfolio
- - --------------------------------------------------------------------------------
U.S. and foreign aid package, we expect investor confidence to return, prompting
a reexamination of the merits of each country's political, social and economic
progress.
INVESTMENT OUTLOOK
Forecasts for improved corporate earnings, continued worldwide economic growth
and low to moderate inflation should combine to benefit the corporate bond
market in 1995. Overall corporate credit quality is expected to improve with
higher earnings leading to price gains for both investment grade and
non-investment grade debt. We believe your Fund is positioned to capture the
benefits of this expected credit quality improvement.
Despite recent events in Mexico, we believe the long-term outlook for emerging
market and other foreign debt remains positive. Overall economic fundamentals
are strong in most emerging market countries, and the long-term impact of the
North American Free Trade Agreement (NAFTA) and the General Agreement on Tariffs
and Trade (GATT) should continue to bolster economic activity in the years
ahead. It is our view that emerging market debt is currently oversold and that
prices will improve as the Mexican crisis stabilizes and investors focus anew on
the economic fundamentals.
We appreciate your investment in Alliance Bond Fund Corporate Bond Portfolio and
look forward to reporting improved performance in the coming months.
Sincerely,
/s/ John D. Carifa
John D. Carifa
Chairman and President
/s/ Wayne D. Lyski
Wayne D. Lyski
Senior Vice President
2
INVESTMENT RESULTS Alliance Bond Fund Corporate Bond Portfolio
- - --------------------------------------------------------------------------------
Average Annual Total Return as of December 31, 1994
CLASS A SHARES
--------------------------
Without With
Sales Charge Sales Charge
------------ ------------
o One Year -12.75% -16.46%
o Five Years +10.05 + 9.11
o Ten Years +11.04 +10.56
SEC Yield 9.11%
CLASS B SHARES
--------------------------
Without With
Sales Charge Sales Charge
------------ ------------
o One Year -13.36% -15.76%
o Since Inception* + 6.26 + 5.35
SEC Yield 8.79%
CLASS C SHARES
--------------------------
o One Year -13.36%
o Since Inception* + 0.38
SEC Yield 8.79%
The average annual total returns reflect investment of dividends and/or capital
gains distributions in additional shares--with and without the effect of the
4.25% maximum sales charge (Class A) or 3% contingent deferred sales charge
(Class B); Class C shares are not subject to front-end or contingent deferred
sales charges. 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. Yields are for the
30 days ended December 31, 1994.
- - --------------------------------------------------------------------------------
*Inception: 1/8/93, Class B; 5/3/93, Class C.
3
PORTFOLIO OF INVESTMENTS
December 31, 1994 (unaudited) Alliance Bond Fund Corporate Bond Portfolio
- - --------------------------------------------------------------------------------
Standard & Principal
Poor's Amount
Ratings(e) (000) Value
- - ------------------------------------------------------------------------------
CORPORATE DEBT OBLIGATIONS-78.0%
MEDIA-21.8%
BB Paramount Communications, Inc.
8.25%, 8/01/22 $30,897 $ 26,008,384
BBB- Time Warner Entertainment
8.375%, 3/15/23 20,000 16,604,800
9.15%, 2/01/23 10,000 8,998,920
BBB- TKR Cable, Inc.
10.50%, 10/30/07 26,350 26,948,408
BB+ Turner Broadcasting System, Inc.
8.375%, 7/01/13 15,000 12,375,000
8.40%, 2/01/24 15,000 11,662,500
------------
102,598,012
------------
UTILITIES-15.5%
ELECTRIC & GAS-15.5%
BB+ BVPS II Funding Corp.
8.89%, 6/01/17 24,955 20,887,335
BBB DQU II Funding Corp.
8.70%, 6/01/16 24,793 23,190,083
BB+ USX Corp.
9.125%, 1/15/13 24,790 24,009,462
9.375%, 2/15/12 5,000 4,942,935
------------
73,029,815
------------
FINANCIAL-13.5%
BBB CCP Insurance, Inc.
10.50%, 12/15/04 24,000 23,894,400
NR Commonwealth Savings Assn.
14.875%, 7/01/95*(a) 1,000 -0-
BB- Home Holdings, Inc.
8.625%, 12/15/03 15,000 12,750,000
A Lehman Brothers, Inc. Index Bonds
FRN, 2/10/96*(b) 16,425 15,603,750
BBB+ Mutual Life Insurance of N.Y.
Zero coupon, 8/15/24(d) $20,000 $ 11,450,000
------------
63,698,150
------------
YANKEE-11.9%
NR Grupo Mexicano de Desarrollo
8.25%, 2/17/01 25,200 15,592,500
A MC-Cuernavaca
9.25%, 7/25/01(d) 25,417 22,017,298
A- Midland Bank Plc.
8.625%, 12/15/04 18,000 17,868,780
------------
55,478,578
------------
TRANSPORTATION-9.6%
BB+ AMR Corp.
10.00%, 4/15/21 22,500 21,555,225
BB United Air Lines, Inc.
10.25%, 7/15/21 25,000 23,560,000
------------
45,115,225
------------
INDUSTRIAL-5.7%
BBB+ Auburn Hills Trust
12.375%, 5/01/20 20,070 26,542,575
------------
Total Corporate Debt Obligations
(cost $398,482,211) 366,462,355
------------
SOVEREIGN DEBT OBLIGATIONS-15.4%
COLLATERALIZED BRADY BONDS-6.6%
BULGARIA-3.5%
NR Bulgaria Interest Arrear Bonds FRN
6.0625%, 7/28/11(d) 38,000 16,078,750
------------
NIGERIA-1.2%
NR Central Bank of Nigeria Series WW FRN
5.50%, 11/15/20 15,000 5,878,125
------------
4
Alliance Bond Fund Corporate Bond Portfolio
- - --------------------------------------------------------------------------------
Standard & Principal
Poor's Amount
Ratings(e) (000) Value
- - ------------------------------------------------------------------------------
VENEZUELA-1.9%
NR Republic of Venezuela DCB
7.687%, 12/18/07 $20,000 $ 9,100,000
------------
Total Collateralized Brady Bonds
(cost $32,418,146) 31,056,875
------------
LOAN PARTICIPATIONS & ASSIGNMENTS-3.9%
PERU-3.3%
B Republic of Peru (Non-Citibank) Loan
Assignment* 28,000 15,680,000
------------
RUSSIA-0.6%
B Vnesheconombank (Russian US$) Loan
Assignment 10,000 2,781,250
------------
Total Loan Participations & Assignments
(cost $21,901,250) 18,461,250
------------
OTHER SOVEREIGN DEBT-4.9%
ARGENTINA-2.9%
NR Repackaged Argentina Domestic Securities
Trust
14.75%, 9/01/02(d) 18,000 13,612,500
------------
BRAZIL-2.0%
B Republic of Brazil "C" Bonds
8.00%, 4/15/14(c) 19,666 9,464,070
------------
Total Other Sovereign Debt Obligations
(cost $26,798,606) 23,076,570
------------
Total Sovereign Debt Obligations
(cost $81,118,002) 72,594,695
------------
U.S. GOVERNMENT/AGENCY OBLIGATIONS-5.6%
AA Federal National Mortgage Assn.
Zero coupon, 10/09/19 $100,000 $ 13,375,000
AAA U.S. Treasury Bond
7.50%, 11/15/24 2,200 2,104,432
AAA U.S. Treasury Strip
Zero coupon, 11/15/21 88,000 10,963,920
------------
Total U.S. Government Obligations
(cost $25,797,768) 26,443,352
------------
CERTIFICATE OF DEPOSIT-1.3%
AAA Morgan Guaranty Trust CD Argentina Par/U.S.
Treasury Spread Note
9.00%, 7/14/95(f)
(cost $15,000,000) 15,000 6,318,750
------------
PREFERRED STOCK-5.2%
A+ Grand Metropolitan Delaware Series A
pfd. 9.42%
(cost $23,988,530) 962 24,656,375
------------
CALL OPTIONS PURCHASED-0.1%
B Mexican Par Bonds expiring April 1995
@ $63.312 330 95,865
NR Philippine Par Bonds expiring May 1995
@ $63.75 123 144,550
5
PORTFOLIO OF INVESTMENTS
(continued) Alliance Bond Fund Corporate Bond Portfolio
- - --------------------------------------------------------------------------------
Standard & Principal
Poor's Amount
Ratings(e) (000) Value
- - ------------------------------------------------------------------------------
NR Republic of Argentina Euro Par Bonds FRN
expiring April 1995 @ $72.50 $240 $ 132,000
------------
Total Call Options Purchased
(cost $1,268,813) 372,415
------------
TOTAL INVESTMENTS-105.6%
(cost $545,655,324) 496,847,942
------------
OUTSTANDING PUT OPTIONS WRITTEN-(0.9%)
B Mexican Par Bonds expiring April 1995
@ $60.312 330 (2,495,757)
NR Philippine Par Bonds expiring May 1995
@ $57.75 123 (77,175)
NR Republic of Argentina Euro Par Bonds FRN
expiring April 1995 @ $68.50 $240 $ (1,514,400)
------------
Total Put Options Written (premiums
received $940,375) (4,087,332)
------------
TOTAL INVESTMENTS NET OF OUTSTANDING OPTIONS
WRITTEN-104.7% 492,760,610
------------
Other assets less liabilities-(4.7%) (22,166,125)
------------
NET ASSETS-100% $470,594,485
============
- - --------------------------------------------------------------------------------
* Non-income producing security.
(a) Currently non-salable and accordingly has no market value.
(b) Coupon payment is based on Lehman Brothers High Yield Index Total Return
less 1.10%.
(c) Coupon consists of 4.00% cash payment and 4.00% Paid-In-Kind.
(d) Securities exempt from Registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to certain qualified buyers. At December 31, 1994
the aggregate market value of these securities amounted to $63,158,548
representing 13.4% of net assets.
(e) Not audited.
(f) Redemption value is linked to the Argentina Par Bonds 4.25% due 2023 minus
the U.S. treasury 6.25% due 2023.
Glossary of Terms:
FRN-Floating rate note.
NR-Not rated.
See notes to financial statements.
6
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1994 (unaudited) Alliance Bond Fund Corporate Bond Portfolio
- - --------------------------------------------------------------------------------
ASSETS
Investments in securities, at value (cost $545,655,324) $496,847,942
Cash 168,742
Receivable for investment securities sold 14,162,500
Interest receivable 12,495,978
Receivable for capital stock sold 1,932,806
Other assets 238,097
------------
Total assets 525,846,065
------------
LIABILITIES
Outstanding options written, at value (premium received $940,375) 4,087,332
Payable for investment securities purchased 43,108,963
Dividends payable 3,375,463
Payable for capital stock redeemed 2,817,757
Unrealized depreciation on interest rate swap contracts 846,600
Distribution fee payable 291,953
Advisory fee payable 268,067
Accrued expenses 455,445
------------
Total liabilities 55,251,580
------------
NET ASSETS $470,594,485
============
COMPOSITION OF NET ASSETS
Capital stock, at par $ 39,632
Additional paid-in capital 537,686,845
Distributions in excess of net investment income (1,836,649)
Accumulated net realized loss on investments, options and other
assets (12,494,404)
Net unrealized depreciation of investments, swaps, options and
other assets (52,800,939)
------------
$470,594,485
============
CALCULATION OF MAXIMUM OFFERING PRICE
CLASS A SHARES
Net asset value and redemption price per share
($212,897,229/17,927,463 shares of capital stock issued and
outstanding) $11.88
Sales charge-4.25% of public offering price .53
------
Maximum offering price $12.41
======
CLASS B SHARES
Net asset value and offering price per share
($207,996,803/17,519,100 shares of capital stock issued and
outstanding) $11.87
======
CLASS C SHARES
Net asset value, redemption and offering price per share
($49,700,453/4,185,568 shares of capital stock issued and
outstanding) $11.87
======
- - --------------------------------------------------------------------------------
See notes to financial statements.
7
STATEMENT OF OPERATIONS
Six Months Ended December 31, 1994
(unaudited) Alliance Bond Fund Corporate Bond Portfolio
- - --------------------------------------------------------------------------------
INVESTMENT INCOME
Interest $ 24,278,890
EXPENSES
Advisory fee 1,522,423
Distribution fee-Class A 342,991
Distribution fee-Class B 1,018,650
Distribution fee-Class C 273,923
Transfer agency 498,087
Administrative 81,189
Registration 64,692
Audit and legal 53,745
Printing 33,975
Custodian 32,909
Taxes 16,948
Directors' fees 6,417
Miscellaneous 16,209
--------
Total expenses 3,962,158
------------
Net investment income 20,316,732
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss on investment transactions (14,299,545)
Net realized loss on options transactions (697,814)
Net change in unrealized depreciation of:
Investments (5,560,416)
Options (3,146,957)
Other assets and swap contracts (833,802)
------------
Net loss on investments (24,538,534)
------------
NET DECREASE IN NET ASSETS FROM OPERATIONS $ (4,221,802)
============
- - --------------------------------------------------------------------------------
See notes to financial statements.
8
STATEMENT OF CHANGES
IN NET ASSETS Alliance Bond Fund Corporate Bond Portfolio
- - --------------------------------------------------------------------------------
Six Months Ended
December 31, Year Ended
1994 June 30,
(unaudited) 1994
---------------- ------------
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS
Net investment income $ 20,316,732 $ 30,576,660
Net realized loss on investments and option
transactions (14,997,359) (6,811,103)
Net change in unrealized appreciation
(depreciation) of investments, options,
swaps and other assets (9,541,175) (50,493,638)
------------ ------------
Net decrease in net assets from operations (4,221,802) (26,728,081)
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
FROM:
Net investment income
Class A (10,248,276) (18,127,011)
Class B (8,422,100) (9,665,798)
Class C (2,265,057) (2,834,458)
Distributions in excess of net investment
income
Class A -0- (720,853)
Class B -0- (384,378)
Class C -0- (112,717)
Net realized gain on investments
Class A -0- (4,062,857)
Class B -0- (2,221,716)
Class C -0- (637,584)
CAPITAL STOCK TRANSACTIONS
Net increase 41,580,601 242,871,795
------------ ------------
Total increase 16,423,366 177,376,342
NET ASSETS
Beginning of year 454,171,119 276,794,777
------------ ------------
End of period $470,594,485 $454,171,119
============ ============
- - --------------------------------------------------------------------------------
See notes to financial statements.
9
NOTES TO FINANCIAL STATEMENTS
December 31, 1994 (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 sold with a front-end sales charge of up to 4.25%. 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 sold without an initial or contingent
deferred sales charge. 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 following is a summary of the significant accounting
policies followed by the Portfolio.
1. Security Valuation
Portfolio securities traded on a national securities exchange are valued at the
last reported sales price on such exchange. Listed securities not traded and
securities traded in the over-the-counter market, including listed debt
securities whose primary market is believed to be over-the-counter, are valued
at the mean of the closing bid and asked price as obtained from a recognized
pricing service and brokers. Securities for which bid and asked price quotations
are not readily available or restricted securities are valued in good faith at
fair value using methods determined by the Board of Directors. In determining
fair value, consideration is given to cost, operating and other financial data.
Securities which mature in 60 days or less are valued at amortized cost, which
approximates market value.
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 or net realized gains, if applicable, to its
shareholders. Therefore, no provisions for federal income or excise taxes are
required.
3. Investment Income and Security Transactions
Interest income is accrued daily. Dividend income is recorded on ex-dividend
date. Security transactions are accounted for on the date the securities are
purchased or sold. Security gains and losses are determined on the identified
cost basis. The Portfolio accretes original issue discount as adjustments to
interest income.
4. Dividends and Distributions
Dividends and distributions to shareholders are recorded on the ex-dividend
date. Income dividends and capital gain distributions are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles.
5. Option Writing
When the Fund writes an option, an amount equal to 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. The difference between the premium and the amount paid on effecting a
closing purchase transaction, including brokerage commissions, is also recorded
as a realized gain, or if the premium is less than the amount paid for the
closing purchase transaction, as a realized loss. If a call option is exercised,
the premium is added to the proceeds from the sale of the underlying security or
currency in determining whether the Fund has realized a gain or loss. If a put
option is exercised, the premium reduces the cost basis of the security or
currency purchased by the Fund. In writing an option, the Fund bears the market
risk of unfavorable changes in the price of the security or currency underlying
the option. Exercise of an option written by the Fund could result in the Fund
selling or buying a security or currency at a price different from the current
market value.
6. Change in Accounting for Distributions to Shareholders
Effective June 30, 1994, the Fund adopted Statement of Position 93-2:
Determination, Disclosure, and Financial
10
Alliance Bond Fund Corporate Bond Portfolio
- - --------------------------------------------------------------------------------
Statement Presentation of Income, Capital Gain, and Return of Capital
Distributions by Investment Companies. As a result, the Funds changed the
classification of distributions to shareholders to better disclose the
differences between financial statement amounts and distributions determined in
accordance with income tax regulations.
- - --------------------------------------------------------------------------------
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. The Adviser has agreed to reimburse the Portfolio pursuant to the
securities laws of certain states to the extent its aggregate annual expenses
(exclusive of interest, taxes, brokerage, distribution fee and extraordinary
expenses) exceed 2.5% of the first $30 million of its average daily net assets,
2% of the next $70 million of its average daily net assets and 1.5% of its
average daily net assets in excess of $100 million. No such reimbursement was
required for the six months ended December 31, 1994.
Pursuant to the advisory agreement, the Portfolio paid $81,189 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, 1994.
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 $317,903 for the six months ended December 31,
1994. Alliance Fund Distributors, Inc. (a wholly-owned subsidiary of the
Adviser) serves as the Distributor of the Portfolio's shares. The Distributor
received front-end sales charges of $34,477 from the sale of Class A shares and
$177,754 in contingent deferred sales charges imposed upon redemptions by
shareholders of Class B shares for the six months ended December 31, 1994.
- - --------------------------------------------------------------------------------
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 $4,784,214 and $499,220, 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)
aggregated $579,440,244 and $528,933,670, respectively, for the six months ended
December 31, 1994. At December 31, 1994, the cost of securities for federal
income tax purposes was $552,244,310. Accordingly, gross unrealized appreciation
of investments was $1,815,551 and gross unrealized depreciation of investments
was $61,205,476, resulting in net unrealized depreciation of $59,389,925. At
June 30, 1994, the Portfolio had a capital loss carryforward for federal income
tax purposes of approximately $150,993,679 of which $34,635,159 expires in 1995;
$8,616,458 in 1996; $93,188,575 in 1997 $14,295,126 in 1998 and $258,361 in
2000. In addition, under certain conditions the Portfolio may be able to use up
to $79,669 of the Alliance Bond Fund High-Grade Portfolio's capital loss
carryforward which was acquired by the Portfolio on December 27, 1989.
11
NOTES TO FINANCIAL STATEMENTS
(cont.) Alliance Bond Fund Corporate Bond Portfolio
- - --------------------------------------------------------------------------------
Transactions in call options written were as follows:
Number of
Contracts Premiums
--------- --------
Options outstanding at beginning of year -0- $ -0-
Options written 692,500 940,375
Options terminated in closing purchase transactions -0- -0-
------- --------
Options outstanding at December 31, 1994 692,500 $940,375
======= ========
The Fund has entered into Interest Rate Swap agreements with Morgan Guaranty
Trust Company of New York ("Morgan"). An Interest Rate Swap is an agreement
between counterparties to exchange interest rate payments that are based on
specified interest rates and a notional amount. At December 31, 1994, the Fund
had outstanding Interest Rate Swaps as follows:
Rate Type
----------------------------------
Swap Notional Termination Payments made Payments received
Counterparty Amount Date by the Fund by the Fund
- - ------------ -------------- ----------- --------------- -----------------
Morgan US$ 38,000,000 1/28/00 Floating--LIBOR Fixed--8.69%
Morgan US$ 20,000,000 12/20/99 Floating--LIBOR Fixed--8.73%
Net unrealized depreciation of outstanding interest rate swap contracts at
December 31, 1994 was $846,600.
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
each for Class B and Class C shares. Transactions in capital stock were as
follows:
Shares Amount
------------------------ ----------------------------
Six Months Six Months
Ended Ended
December Year Ended December Year Ended
31, 1994 June 30, 31, 1994 June 30,
(unaudited) 1994 (unaudited) 1994
----------- ----------- ------------- -------------
Class A
Shares sold 2,366,819 5,742,930 $ 29,910,412 $ 82,239,666
Shares issued in
reinvestment of
dividends and
distributions 360,088 872,225 4,570,734 12,392,066
Shares redeemed (2,321,234) (4,368,745) (29,423,641) (62,049,224)
---------- ---------- ------------ ------------
Net increase 405,673 2,246,410 $ 5,057,505 $ 32,582,508
========== ========== ============ ============
Shares Amount
------------------------ ----------------------------
Six Months Six Months
Ended Ended
December Year Ended December Year Ended
31, 1994 June 30, 31, 1994 June 30,
(unaudited) 1994 (unaudited) 1994
----------- ----------- ------------- -------------
Class B
Shares sold 4,421,605 12,349,016 $ 55,285,133 $176,907,149
Shares issued in
reinvestment of
dividends and
distributions 294,995 494,813 3,740,061 6,963,228
Shares redeemed (1,924,057) (2,041,176) (24,094,816) (28,339,156)
---------- ---------- ------------ ------------
Net increase 2,792,543 10,802,653 $ 34,930,378 $155,531,221
========== ========== ============ ============
12
Alliance Bond Fund Corporate Bond Portfolio
- - --------------------------------------------------------------------------------
Shares Amount
------------------------ ----------------------------
Six Months Six Months
Ended Ended
December Year Ended December Year Ended
31, 1994 June 30, 31, 1994 June 30,
(unaudited) 1994 (unaudited) 1994
----------- ----------- ------------- -------------
Class C
Shares sold 1,209,193 5,917,632 $ 15,311,575 $ 85,653,634
Shares issued in
reinvestment of
dividends and
distributions 101,277 153,436 1,284,146 2,154,714
Shares redeemed (1,192,222) (2,365,354) (15,003,002) (33,050,282)
---------- ---------- ------------ ------------
Net increase 118,248 3,705,714 $ 1,592,719 $ 54,758,066
========== ========== ============ ============
- - --------------------------------------------------------------------------------
* Commencement of distribution.
13
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 Year Ended June 30,
31, 1994 -------------------------------------------------
(unaudited) 1994 1993 1992 1991 1990
----------- -------- -------- -------- -------- --------
Net asset value,
beginning of
period $12.51 $14.15 $12.01 $11.21 $11.39 $12.15
------ ------ ------ ------ ------ ------
Income From
Investment Operations
Net investment
income .55 1.11 1.25 1.06 1.11 1.24
Net realized
and unrealized
gain (loss)
on investments (.61) (1.36) 2.13 .82 (.06) (.86)
Net increase
(decrease) in
net asset value
from operations (.06) (.25) 3.38 1.88 1.05 .38
------ ------ ------ ------ ------ ------
Less: Distributions
Dividends from
net investment
income (.57) (1.11) (1.24) (1.08) (1.23) (1.14)
Dividends in
excess of net
investment
income -0- (.03) -0- -0- -0- -0-
Distributions
from net
realized gains -0- (.25) -0- -0- -0- -0-
Total
dividends and
distributions (.57) (1.39) (1.24) (1.08) (1.23) (1.14)
------ ------ ------ ------ ------ ------
Net asset value,
end of period $11.88 $12.51 $14.15 $12.01 $11.21 $11.39
====== ====== ====== ====== ====== ======
Total Return
Total investment
return based on
net asset
value (a) (.64)% (2.58)% 29.62% 17.43% 9.71% 3.27%
====== ====== ====== ====== ====== ======
Ratios/Supplemental Data
Net assets, end
of period (000's
omitted) $212,897 $219,182 $216,171 $60,356 $62,268 $68,049
Ratio of
expenses to
average net
assets 1.27% 1.30% 1.39% 1.48% 1.44% 1.51%
Ratio of net
investment
income to
average net
assets 8.79% 7.76% 9.29% 8.98% 9.84% 10.70%
Portfolio
turnover rate 106% 372% 579% 610% 357% 480%
- - --------------------------------------------------------------------------------
See footnote summary on page 15.
14
FINANCIAL HIGHLIGHTS Alliance Bond Fund Corporate Bond Portfolio
- - --------------------------------------------------------------------------------
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
<TABLE>
<CAPTION>
Class B Class C
------------------------------------ -----------------------------------
Six Months Six Months
Ended Year January 8, Ended Year May 3,
December 31, Ended 1993** to December 31, Ended 1993** to
1994 June 30, June 30, 1994 June 30, June 30,
(unaudited) 1994 1993 (unaudited) 1994 1993
------------ -------- ---------- ------------ -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $12.50 $14.15 $12.47 $12.50 $14.15 $13.63
------ ------ ------ ------ ------ ------
Income From Investment Operations
Net investment income .52 1.02 .49 .51 1.02 .16
Net realized and unrealized gain
(loss) on investments (.62) (1.37) 1.69 (.61) (1.37) .53
------ ------ ------ ------ ------ ------
Net increase (decrease) in net asset
value from operations (.10) (.35) 2.18 (.10) (.35) .69
------ ------ ------ ------ ------ ------
Less: Distributions
Dividends from net investment income (.53) (1.04) (.50) (.53) (1.05) (.17)
Dividends in excess of net investment
income -0- (.01) -0- -0- .00 -0-
Distribution from net realized gains -0- (.25) -0- -0- (.25) -0-
------ ------ ------ ------ ------ ------
Total dividends and distributions (.53) (1.30) (.50) (.53) (1.30) (.17)
------ ------ ------ ------ ------ ------
Net asset value, end of period 11.87 $12.50 $14.15 11.87 $12.50 $14.15
====== ====== ====== ====== ====== ======
Total Return
Total investment return based on net
asset value (a) (1.00)% (3.27)% 17.75% (1.00)% (3.27)% 5.08%
====== ====== ====== ====== ====== ======
Ratios/Supplemental Data
Net assets, end of period
(000's omitted) 207,997 $184,129 $55,508 49,700 50,860 $5,115
Ratio of expenses to average net
assets 1.98% 2.00% 2.10%* 1.97% 1.99% 2.05%*
Ratio of net investment income to
average net assets 8.11% 7.03% 7.18%* 8.09% 6.98% 5.51%*
Portfolio turnover rate 106% 372% 579% 106% 372% 579%
</TABLE>
- - --------------------------------------------------------------------------------
* Annualized.
** Commencement of distribution.
(a) 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.
15
Alliance Bond Fund Corporate Bond Portfolio
- - --------------------------------------------------------------------------------
BOARD OF DIRECTORS
John D. Carifa, Chairman and President
Ruth Block (1)
David H. Dievler
James R. Greene (1)
Dr. James M. Hester (1)
Clifford L. Michel (1)
Eugene F. O'Neil (1)
Robert C. White (1)
OFFICERS
Wayne D. Lyski, Senior Vice President
Paul J. DeNoon, Vice President
Edmund P. Bergan, Jr., Secretary
Mark D. Gersten, Treasurer & Chief Financial Officer
Patrick J. Farrell, Controller
CUSTODIAN
State Street Bank & Trust Company
225 Franklin Street
Boston, MA 02110
TRANSFER AGENT
Alliance Fund Services, Inc.
P.O. Box 1520
Secaucus, NJ 07096-1520
Toll-Free 1-(800) 221-5672
PRINCIPAL UNDERWRITER
Alliance Fund Distributors, Inc.
1345 Avenue of the Americas
New York, NY 10105
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.
16
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ALLIANCE BOND FUND CORPORATE BOND PORTFOLIO
1345 Avenue of the Americas
New York, NY 10105
(800) 221-5672
Alliance Capital [LOGO]
Mutual funds without the Mystery(Service Mark)
This report is distributed solely to shareholders of the Fund and is not to be
used as sales literature.
(Registered) These registered service marks used under license from the owner,
Alliance Capital Management L.P.
CBPSR
ALLIANCE
BOND FUND
CORPORATE BOND
PORTFOLIO
Semi-Annual
Report
December 31, 1994
[LOGO]
