ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO
ANNUAL REPORT
JUNE 30, 1997
ALLIANCE CAPITAL
LETTER TO SHAREHOLDERS ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO
_______________________________________________________________________________
August 5, 1997
Dear Shareholder:
The U.S. bond market posted modest gains through the first half of 1997. After
trading lower during the first quarter on fears that excessive growth would
ignite inflation, the market rebounded in the second quarter. Economic data
released during the quarter, indicating that the economy had slowed from its
unsustainable first quarter pace and inflation remained dormant, helped ease
investor concerns and pushed the market higher. Interest rates, which peaked in
late spring following the Federal Reserve's decision to increase short-term
interest rates, ended the period lower across the maturity spectrum.
Among the investment grade sectors, mortgage-backed securities were among the
best performing, posting moderate gains, as rangebound interest rates
stabilized mortgage prepayment expectations. Mortgage performance was further
enhanced by declining interest rate volatility.
INVESTMENT RESULTS
The following table provides the investment returns for the U.S. Government
Portfolio for the six and twelve month periods ended June 30, 1997. Also shown
for comparison are the total returns for the U.S. Treasury market, represented
by the unmanaged Lehman Brothers Government Bond Index, and the average results
of the Lipper universe of general U.S. Government Funds. These funds have
similar investment objectives to your Fund, though some funds included in the
average may have somewhat different investment policies. During the six months
ended June 30, 1997, the Fund's performance improved relative to its peer
group, the Lipper U.S. Government Funds Average and its benchmark, the Lehman
Brothers Government Bond Index.
INVESTMENT RESULTS*
Period Ended June 30, 1997
TOTAL RETURNS
6 MONTHS 12 MONTHS
---------- -----------
ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO
Class A 2.18% 6.49%
Class B 1.80% 5.69%
Class C 1.80% 5.69%
LEHMAN BROTHERS GOVERNMENT BOND INDEX 2.63% 7.40%
LIPPER U.S. GOVERNMENT FUNDS AVERAGE 2.47% 7.01%
* THE FUND'S INVESTMENT RESULTS ARE CUMULATIVE TOTAL RETURNS FOR THE PERIOD
AND ARE BASED ON THE NET ASSET VALUE OF EACH CLASS OF SHARES AS OF JUNE 30,
1997. ALL FEES AND EXPENSES RELATED TO THE OPERATION OF THE FUND HAVE BEEN
DEDUCTED, BUT NO ADJUSTMENT HAS BEEN MADE FOR SALES CHARGES THAT MAY APPLY WHEN
SHARES ARE PURCHASED OR REDEEMED. ALL RETURNS INCLUDE THE REINVESTMENT OF ANY
DISTRIBUTIONS PAID DURING THE PERIOD.
THE LEHMAN BROTHERS (LB) GOVERNMENT BOND INDEX IS UNMANAGED AND DOES NOT
REFLECT FEES AND EXPENSES. IT IS MADE UP OF THE U.S. TREASURY BOND AND AGENCY
BOND INDICES. THE LIPPER GENERAL U.S. GOVERNMENT FUNDS AVERAGE FOR THE 6 AND 12
MONTH PERIODS REFLECTS THE PERFORMANCE OF 176 AND 169 MUTUAL FUNDS,
RESPECTIVELY. THE AVERAGE INCLUDES FEES AND EXPENSES, BUT NO SALES CHARGES.
ADDITIONAL INVESTMENT RESULTS CAN BE FOUND ON PAGE 3.
ECONOMIC REVIEW
The U.S. economy continued its strong performance in early 1997, led by
continued strength in the labor market. The unemployment rate dropped to 20
year lows and wages continued to climb. Overall, economic growth, as measured
by Gross Domestic Product (GDP), which had risen to an annual rate of 3.8% at
the end of 1996, further accelerated to 4.9% during the first quarter of 1997.
In response to the continued economic strength and perception of mounting
inflationary pressures, the Federal Reserve Bank raised short-term interest
rates in March.
The economy slowed sharply during the second quarter to a 2.2% growth rate, led
by a decline in consumer spending. Retail sales of merchandise declined 3.8% in
the second quarter, while real construction spending fell
1
ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO
_______________________________________________________________________________
2.0% in April - May. The production side of the economy experienced a more
muted slowdown: manufacturing output growth slowed to 4.4% (from 5.3% in the
first quarter) and total hours worked increased by only 1.9% (versus 4.1% in
the first quarter). However, labor market strength continued unabated in the
second quarter as the average non-farm payroll growth rose to 237,000 new jobs
per month from first quarter's average of 228,000 per month.
In spite of an increase in wage pressures, inflation remained very well-behaved
during the first half of 1997. Through June, consumer prices advanced 2.3%
year-over-year while producer prices declined 0.1% year-over-year.
BOND MARKET REVIEW
The U.S. bond market posted modest gains through June, as interest rates
declined across all maturities and prices rose. Bond prices traded lower during
the first quarter. However, the market reversed in late April and rallied as
data was released indicating that the economy had slowed from its unsustainable
first quarter pace, inflation remained dormant, and the Federal Reserve was
unlikely to make any sustained moves in interest rates. In response to slowing
growth in the second quarter, the Federal Reserve made no change to monetary
policy and interest rates on all maturities fell; the shape of the yield curve
was essentially unchanged as two-year Treasury yields declined from 6.41% to
6.06%, while 30-year bond yields declined from 7.10% to 6.78%. The change in
interest rates left the yield differential between the two-year and 30-year
U.S. Treasury at 72 basis points compared to 69 basis points at the beginning
of the year.
PORTFOLIO ACTIVITY
The Fund's duration, or interest rate sensitivity, was returned to neutral;
that is the Fund was structured to match the interest rate sensitivity of the
market for U.S. Treasury securities which comprise the largest sector
concentration of your Fund as of June 30, 1997. The Fund made opportunistic
purchases of full-faith and credit agency securities. In an effort to increase
the portfolio yield in a rangebound interest rate market environment, the Fund
purchased GNMA pass-throughs and collaterallized mortgage obligations (CMOs).
INVESTMENT OUTLOOK
We expect economic activity to accelerate somewhat in the third quarter.
Consumer confidence has reached new highs, real income is growing solidly, and
the labor market remains strong, with the unemployment rate at 5.0%. We expect
this reacceleration to be moderate, with economic growth averaging 3.0% to 3.5%
for 1997. The pace of this reacceleration, however, will be closely monitored
for inflationary pressures by the Federal Reserve with a bias towards
increasing rates at the first sign of overheating.
Thank you for your continued interest and investment in Alliance U.S.
Government Portfolio. We look forward to reporting the Portfolio's progress to
you in the coming months.
Sincerely,
John D. Carifa
Chairman and President
Patricia J. Young
Senior Vice President
Jeffrey S. Phlegar
Vice President
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, GUARANTEED OR ENDORSED
BY, ANY BANK; FURTHER, SUCH SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
SHARES OF THE FUND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
2
INVESTMENT OBJECTIVE AND POLICIES
ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO
_______________________________________________________________________________
Alliance Bond Fund U.S. Government Portfolio seeks as high a level of current
income as is consistent with safety of principal. The Fund is a diversified,
open-end investment company that invests solely in U.S. Government securities
that are backed by the full faith and credit of the U.S. Government.
INVESTMENT RESULTS
_______________________________________________________________________________
AVERAGE ANNUAL TOTAL RETURNS AS OF JUNE 30, 1997
CLASS A SHARES
WITHOUT WITH
SALES CHARGE SALES CHARGE
------------ ------------
One Year 6.49% 2.01%
Five Years 5.65% 4.73%
Ten Years 7.37% 6.90%
SEC Yield** 6.37%
CLASS B SHARES
WITHOUT WITH
SALES CHARGE SALES CHARGE
------------ ------------
One Year 5.69% 2.74%
Five Years 4.88% 4.88%
Since Inception* 5.50% 5.50%
SEC Yield** 5.97%
CLASS C SHARES
WITHOUT WITH
SALES CHARGE SALES CHARGE
------------ ------------
One Year 5.69% 4.70%
Since Inception* 3.68% 3.68%
SEC Yield** 5.95%
Average annual total returns reflect reinvestment of dividends and/or capital
gain distributions in additional shares, with and without the effect of the
4.25% maximum front-end sales charge for Class A shares or applicable
contingent deferred sales charge for Class B shares (3% year 1, 2% year 2, 1%
year 3, 0% year 4); and for Class C shares (1% year 1). Returns for Class A
shares do not reflect the imposition of the 1 year 1% contingent deferred sales
charge for accounts over $1,000,000.
Past performance does not guarantee future results. Investment returns 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, 1997.
3
ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO
_______________________________________________________________________________
ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO
GROWTH OF A $10,000 INVESTMENT
6/30/87 TO 6/30/97
LB GOV'TBOND INDEX: $21,518
$23,000
$21,000
$19,000
$17,000
$15,000
$13,000
$11,000
$9,000
LIPPER GENERAL U.S. GOV'T FUNDS AVERAGE: $20,509
U.S. GOVERNMENT PORTFOLIO CLASS A: $19,484
$10,000
6/30/87 6/30/88 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
This chart illustrates the total value of an assumed $10,000 investment in
Alliance Bond Fund U.S. Government Portfolio Class A shares (from 6/30/87 to
6/30/97) as compared to the performance of an appropriate broad-based index.
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
Treasury Bond and Agency Bond Indices.
The unmanaged Lipper General U.S. Government Funds Average reflects performance
of 187 mutual funds, only 49 of which have existed for the full 10-year period.
These funds have generally 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 and
average shown above, you should note that no charges or expenses are reflected
in the performance of the index. Lipper results include fees and expenses.
U.S. Government Portfolio
LBGovernment Bond Index
Lipper General U.S. Government Funds Average
4
PORTFOLIO OF INVESTMENTS
JUNE 30, 1997
ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO
_______________________________________________________________________________
PRINCIPAL
AMOUNT
(000) VALUE
- -------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS-105.0%
U.S. TREASURY SECURITIES-76.0%
U.S. TREASURY BILL-0.2%
Zero coupon, 7/03/97 $ 1,500 $ 1,499,621
U.S. TREASURY BONDS-45.6%
8.125%, 5/15/21 45,000 51,511,050
12.00%, 8/15/13 74,585 104,990,321
12.50%, 8/15/14 72,250 106,241,457
14.00%, 11/15/11 110,900 167,129,627
-------------
429,872,455
U.S. TREASURY NOTES-30.2%
8.00%, 8/15/99 35,000 36,290,450
8.25%, 7/15/98 30,400 31,122,000
8.50%, 2/15/00 91,000 95,976,790
8.75%, 8/15/00 34,200 36,577,926
8.875%, 2/15/99 48,500 50,606,840
9.00%, 5/15/98 30,000 30,810,900
9.25%, 8/15/98 3,600 3,728,808
-------------
285,113,714
Total U.S. Treasury Securities
(cost $724,630,939) 716,485,790
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION-20.2%
Collateralized Mortgage Obligations
Series 1996-7 Cl.A
7.50%, 8/16/18 19,566 19,803,947
Series 1997-8 Cl.DA
8.00%, 9/16/23 24,221 24,781,039
Series 1997-10 Cl.C
9.50%, 7/30/27 26,250 30,019,336
Series 1997-11 Cl.C
7.50%, 7/30/27 28,052 32,075,709
-------------
106,680,031
Mobile Homes
8.00%, 8/15/16 687 708,524
8.25%, 6/15/05-3/15/16 5,035 5,199,787
8.50%, 5/15/08-1/15/12 1,024 1,060,810
8.75%, 11/15/00-1/15/12 3,842 4,013,340
9.00%, 10/15/11-1/15/12 1,269 1,329,726
9.75%, 5/15/99-1/15/13 6,381 6,859,050
10.25%, 4/15/98-6/15/13 5,758 6,176,495
11.25%, 3/15/98-5/15/98 13 13,393
-------------
25,361,125
Project Loans
7.30%, 1/15/31 7,664 7,589,477
7.50%, 1/15/35 6,928 6,919,384
8.00%, 2/15/28-1/15/29 5,211 5,306,187
8.50%, 11/15/12-11/15/31 14,648 15,148,025
8.75%, 1/15/33 2,499 2,628,668
9.00%, 4/15/29 3,666 3,844,501
10.50%, 8/15/29 5,768 6,365,925
-------------
47,802,167
Single Family Homes
9.00%, 7/20/24-9/20/24 9,627 10,129,322
Total Government National Mortgage Association
(cost $189,695,291) 189,972,645
5
PORTFOLIO OF INVESTMENTS (CONTINUED)
ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO
_______________________________________________________________________________
PRINCIPAL
AMOUNT
(000) VALUE
- -------------------------------------------------------------------------
FEDERAL AGENCY SECURITIES-8.8%
Federal Housing Authority
11.93%, 1/01/29 $ 7,898 $ 8,386,322
Financial Assistance Corp.
9.45%, 11/21/03 26,000 27,049,620
9.50%, 4/16/04 31,506 33,199,447
United States Agency for International
Development
7.11%, 2/01/12 14,000 14,172,620
Total Federal Agency Securities
(cost $89,764,024) 82,808,009
TOTAL INVESTMENTS-105.0%
(cost $1,004,090,254) $989,266,444
Other assets less liabilities-(5.0%) (46,988,236)
NET ASSETS-100% $942,278,208
See notes to financial statements.
6
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1997
ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO
_______________________________________________________________________________
ASSETS
Investments in securities, at value (cost $1,004,090,254) $ 989,266,444
Cash 2,860
Interest receivable 19,808,315
Receivable for capital stock sold 2,223,901
Total assets 1,011,301,520
LIABILITIES
Payable for investment securities purchased 62,309,721
Payable for capital stock redeemed 2,923,554
Dividends payable 1,930,953
Advisory fee payable 1,302,848
Distribution fee payable 133,920
Accrued expenses 422,316
Total liabilities 69,023,312
NET ASSETS $ 942,278,208
COMPOSITION OF NET ASSETS
Capital stock, at par $ 127,085
Additional paid-in capital 1,193,148,600
Distributions in excess of net investment income (1,930,953)
Accumulated net realized loss on investment transactions (234,240,593)
Net unrealized depreciation of investments and other assets (14,825,931)
$ 942,278,208
CALCULATION OF MAXIMUM OFFERING PRICE
CLASS A SHARES
Net asset value and redemption price per share ($354,781,835/
47,849,520 shares of capital stock issued and outstanding) $7.41
Sales charge-4.25% of public offering price .33
Maximum offering price $7.74
CLASS B SHARES
Net asset value and offering price per share ($471,889,305/
63,643,348 shares of capital stock issued and outstanding) $7.41
CLASS C SHARES
Net asset value and offering price per share ($115,607,068/
15,591,892 shares of capital stock issued and outstanding) $7.41
See notes to financial statements.
7
STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 1997
ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO
_______________________________________________________________________________
INVESTMENT INCOME
Interest $92,321,660
EXPENSES
Advisory fee $5,646,070
Distribution fee--Class A 1,125,773
Distribution fee--Class B 5,520,145
Distribution fee--Class C 1,366,882
Transfer agency 1,296,410
Custodian 192,135
Printing 153,465
Administrative 124,969
Audit and legal 101,022
Taxes 94,975
Registration 54,227
Directors' fees 12,546
Miscellaneous 19,206
Total expenses 15,707,825
Net investment income 76,613,835
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss on investment transactions (17,906,339)
Net change in unrealized depreciation of investments
and other assets 4,101,240
Net loss on investment transactions (13,805,099)
NET INCREASE IN NET ASSETS FROM OPERATIONS $62,808,736
See notes to financial statements.
8
STATEMENT OF CHANGES
IN NET ASSETS
ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO
_______________________________________________________________________________
YEAR ENDED YEAR ENDED
JUNE 30, 1997 JUNE 30, 1996
--------------- ---------------
INCREASE IN NET ASSETS FROM OPERATIONS
Net investment income $ 76,613,835 $ 92,374,940
Net realized loss on investment transactions (17,906,339) (47,116,946)
Net change in unrealized appreciation
(depreciation) of investments and other
assets 4,101,240 (26,134,142)
Net increase in net assets from operations 62,808,736 19,123,852
DIVIDENDS ANDDISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A (28,676,683) (32,265,939)
Class B (38,040,411) (48,490,547)
Class C (9,425,145) (11,692,283)
Tax return of capital
Class A (537,368) -0-
Class B (712,834) -0-
Class C (176,616) -0-
CAPITAL STOCK TRANSACTIONS
Net decrease (235,558,940) (153,783,285)
Total decrease (250,319,261) (227,108,202)
NET ASSETS
Beginning of year 1,192,597,469 1,419,705,671
End of year $ 942,278,208 $1,192,597,469
See notes to financial statements.
9
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
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 "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%
for purchases not exceeding $1,000,000. With respect to purchases of $1,000,000
or more, Class A shares redeemed within one year of purchase will be subject to
a contingent deferred sales charge of 1%. Class B shares are currently 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 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 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 which mature in 60 days or less are
valued at amortized cost, which approximates market value, unless this method
does not represent fair value. Securities for which market quotations are not
readily available and 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.
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 INVESTMENT TRANSACTIONS
Interest income is accrued daily. Investment transactions are accounted for on
the date the securities are purchased or sold. Investment gains and losses are
determined on the identified cost basis. The portfolio amortizes premiums and
accretes discount as adjustments to interest income.
4. DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions to shareholders are recorded on the ex-dividend
date and are determined in accordance with income tax regulations.
Income and capital gains distributions are determined in accordance with
federal tax regulations and may differ from those determined in accordance with
generally accepted accounting principles. To the extent these differences are
permanent, such amounts are reclassified within the capital accounts based on
their federal tax basis treatment; temporary differences do not require such
reclassification. During the current fiscal year, permanent differences,
primarily due to return of capital distributions, resulted in a net decrease in
distributions in excess of net investment income and a corresponding decrease
in additional paid-in capital. This reclassification had no affect on net
assets.
10
ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO
_______________________________________________________________________________
NOTE B: ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of an Investment Advisory Agreement, the Fund pays Alliance
Capital Management L.P. (the "Adviser"), an advisory fee at a quarterly rate
equal to .15 of 1% (approximately .60 of 1% on an annual basis) of the first
$500 million of the Fund'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 $124,969 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, 1997.
The Portfolio compensates Alliance Fund Services, Inc. (a wholly-owned
subsidiary of the Adviser) under a Transfer Agency Agreement for providing
personnel and facilities to perform transfer agency services for the Portfolio.
Such compensation amounted to $924,043 for the year ended June 30, 1997.
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 $32,721 from the sale of Class A shares and $478,593
and $19,275 in contingent deferred sales charges imposed upon redemptions by
shareholders of Class B and Class C, respectively, for the year ended June 30,
1997.
NOTE C: DISTRIBUTION SERVICES AGREEMENT
The Portfolio has adopted a Distribution Services Agreement (the "Agreement")
pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the
Agreement, the Portfolio pays a distribution fee to the Distributor at an
annual rate of up to .30 of 1% of the Portfolio's average daily net assets
attributable to 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 $8,593,091, and $3,589,130
for Class B and Class C shares, respectively; such costs may be recovered from
the Portfolio in future periods, so long as the Agreement is in effect. In
accordance with the Agreement, there is no provision for recovery of
unreimbursed distribution costs, incurred by the Distributor, beyond the
current fiscal year for Class A shares. The Agreement also provides that the
Adviser may use its own resources to finance the distribution of the
Portfolio's shares.
NOTE D: INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term investments
and U.S. government obligations) aggregated $16,643,240 and $11,761,936,
respectively, for the year ended June 30, 1997. Purchases and sales of U.S.
government obligations aggregated $3,714,749,680 and $3,934,087,945,
respectively, for the year ended June 30, 1997. At June 30, 1997, the cost of
securities for federal income tax purposes was $1,005,553,937. Accordingly,
gross unrealized appreciation of investments was $1,988,028 and gross
unrealized depreciation of investments was $18,275,521, resulting in net
unrealized depreciation of $16,287,493. For federal income tax purposes, the
Portfolio had a capital loss carryforward at June 30, 1997 of approximately
$224,492,949 of which $19,845,081 expires in the year 1998; $8,257,319 expires
in the year 1999; $83,016,947 expires in the year 2003; $61,544,081 expires in
the year 2004; and $51,829,521 expires in the year 2005.
11
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 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
--------------------------- ------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1997 1996 1997 1996
------------ ------------ -------------- --------------
CLASS A
Shares sold 7,330,644 8,593,308 $ 54,720,782 $ 67,686,755
Shares issued in
reinvestment of
dividends and
distributions 1,852,073 2,069,864 13,859,387 16,232,269
Shares converted
from Class B 2,400,559 1,518,616 17,892,778 11,511,531
Shares redeemed (16,635,865) (17,526,781) (124,255,277) (137,499,410)
Net decrease (5,052,589) (5,344,993) $ (37,782,330) $ (42,068,855)
CLASS B
Shares sold 5,813,050 11,077,356 $ 43,483,332 $ 87,210,898
Shares issued in
reinvestment of
dividends and
distributions 2,166,310 2,551,782 16,211,718 20,013,580
Shares converted
to Class A (2,400,559) (1,518,616) (17,892,778) (11,511,531)
Shares redeemed (25,514,220) (25,781,796) (190,768,847) (201,478,136)
Net decrease (19,935,419) (13,671,274) $(148,966,575) $(105,765,189)
CLASS C
Shares sold 3,571,988 7,342,699 $ 26,694,306 $ 57,646,630
Shares issued in
reinvestment of
dividends and
distributions 544,818 444,118 4,070,889 3,477,381
Shares redeemed (10,605,329) (8,562,292) (79,575,230) (67,073,252)
Net decrease (6,488,523) (775,475) $ (48,810,035) $ (5,949,241)
12
FINANCIAL HIGHLIGHTS
ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------------
YEAR ENDED JUNE 30,
---------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $7.52 $7.96 $7.84 $8.64 $8.34
INCOME FROM INVESTMENT OPERATIONS
Net investment income .57(a) .58 .64 .65 .69
Net realized and unrealized gain (loss)
on investment transactions (.10) (.44) .13 (.80) .29
Net increase (decrease) in net asset
value from operations .47 .14 .77 (.15) .98
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.57) (.58) (.65) (.65) (.68)
Tax return of capital (.01) -0- -0- -0- -0-
Total dividends and distributions (.58) (.58) (.65) (.65) (.68)
Net asset value, end of year $7.41 $7.52 $7.96 $7.84 $8.64
TOTAL RETURN
Total investment return based on net
asset value (b) 6.49% 1.74% 10.37% (1.93)% 12.23%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $354,782 $397,894 $463,660 $482,595 $527,968
Ratio of expenses to average net assets 1.02% 1.01% 1.01% 1.02% 1.10%
Ratio of net investment income to
average net assets 7.66% 7.38% 8.27% 7.76% 8.04%
Portfolio turnover rate 330% 334% 190% 188% 386%
</TABLE>
See footnote summary on page 15.
13
FINANCIAL HIGHLIGHTS (CONTINUED)
ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR
<TABLE>
<CAPTION>
CLASS B
---------------------------------------------------------------
YEAR ENDED JUNE 30,
---------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $7.52 $7.96 $7.84 $8.64 $8.34
INCOME FROM INVESTMENT OPERATIONS
Net investment income .52(a) .52 .58 .59 .62
Net realized and unrealized gain (loss)
on investment transactions (.10) (.44) .13 (.80) .30
Net increase (decrease) in net asset
value from operations .42 .08 .71 (.21) .92
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.52) (.52) (.59) (.59) (.62)
Tax return of capital (.01) -0- -0- -0- -0-
Total dividends and distributions (.53) (.52) (.59) (.59) (.62)
Net asset value, end of year $7.41 $7.52 $7.96 $7.84 $8.64
TOTAL RETURN
Total investment return based on net
asset value (b) 5.69% 1.01% 9.52% (2.63)% 11.45%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $471,889 $628,628 $774,097 $756,282 $552,471
Ratio of expenses to average net assets 1.73% 1.72% 1.72% 1.72% 1.81%
Ratio of net investment income to
average net assets 6.95% 6.67% 7.57% 7.04% 7.25%
Portfolio turnover rate 330% 334% 190% 188% 386%
</TABLE>
See footnote summary on page 15.
14
ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
CLASS C
----------------------------------------------------------------
MAY 3,
1993(C)
YEAR ENDED JUNE 30, TO
-------------------------------------------------- JUNE 30,
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $7.52 $7.96 $7.83 $8.64 $8.56
INCOME FROM INVESTMENT OPERATIONS
Net investment income .52(a) .52 .58 .59 .10
Net realized and unrealized gain (loss)
on investment transactions (.10) (.44) .14 (.81) .08
Net increase (decrease) in net asset
value from operations .42 .08 .72 (.22) .18
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.52) (.52) (.59) (.59) (.10)
Tax return of capital (.01) -0- -0- -0- -0-
Total dividends and distributions (.53) (.52) (.59) (.59) (.10)
Net asset value, end of period $7.41 $7.52 $7.96 $7.83 $8.64
TOTAL RETURN
Total investment return based on net
asset value (b) 5.69% 1.01% 9.67% (2.75)% 2.12%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $115,607 $166,075 $181,948 $231,859 $67,757
Ratio of expenses to average net assets 1.72% 1.71% 1.71% 1.70% 1.80%(d)
Ratio of net investment income to
average net assets 6.96% 6.68% 7.59% 6.97% 6.00%(d)
Portfolio turnover rate 330% 334% 190% 188% 386%
</TABLE>
(a) Based on average shares outstanding.
(b) Total investment return is calculated assuming an initial investment made
at the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period, and
redemption on the last day of the period. Initial sales charge or contingent
deferred sales charge is not reflected in the calculation of total investment
return. Total investment return calculated for a period less than one year is
not annualized.
(c) Commencement of distribution.
(d) Annualized.
15
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, 1997, 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. Our procedures included confirmation of securities owned as of June
30, 1997, by correspondence with the custodian and brokers. 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, 1997, 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 8, 1997
16
ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO
_______________________________________________________________________________
BOARD OF DIRECTORS
JOHN D. CARIFA, CHAIRMAN AND PRESIDENT
RUTH BLOCK (1)
DAVID H. DIEVLER (1)
JAMES R. GREENE (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
PATRICIA J. YOUNG, SENIOR VICE PRESIDENT
JEFFREY S. PHLEGAR, VICE PRESIDENT
EDMUND P. BERGAN, JR., SECRETARY
MARK D. GERSTEN, TREASURER & CHIEF FINANCIAL OFFICER
JUAN J. RODRIGUEZ, CONTROLLER
CUSTODIAN
STATE STREET BANK & TRUST COMPANY
225 Franklin Street
Boston, MA 02110
PRINCIPAL UNDERWRITER
ALLIANCE FUND DISTRIBUTORS, INC.
1345 Avenue of the Americas
New York, NY 10105
TRANSFER AGENT
ALLIANCE FUND SERVICES, INC.
P.O. Box 1520
Secaucus, NJ 07096-1520
Toll-Free 1-(800) 221-5672
INDEPENDENT AUDITORS
ERNST & YOUNG LLP
787 Seventh Avenue
New York, NY 10019
LEGAL COUNSEL
SEWARD & KISSEL
One Battery Park Plaza
New York, NY 10004
(1) Member of the Audit Committee.
17
THE ALLIANCE FAMILY OF MUTUAL FUNDS
_______________________________________________________________________________
FIXED INCOME
Alliance Bond Fund
U.S. Government Portfolio
Corporate Bond Portfolio
Alliance Global Dollar Government Fund
Alliance Global Strategic Income Trust
Alliance High Yield Fund
Alliance Mortgage Securities Income Fund
Alliance Limited Maturity Government Fund
Alliance Multi-Market Strategy Trust
Alliance North American Government Income Trust
Alliance Short-Term Multi-Market Trust
Alliance Short-Term U.S. Government Fund
Alliance World Income Trust
TAX-FREE INCOME
Alliance Municipal Income Fund
California Portfolio
Insured California Portfolio
Insured National Portfolio
National Portfolio
New York Portfolio
Alliance Municipal Income Fund II
Arizona Portfolio
Florida Portfolio
Massachusetts Portfolio
Michigan Portfolio
Minnesota Portfolio
New Jersey Portfolio
Ohio Portfolio
Pennsylvania Portfolio
Virginia Portfolio
MONEY MARKET
AFD Exchange Reserves
GROWTH
The Alliance Fund
Alliance Global Small Cap Fund
Alliance Growth Fund
Alliance Premier Growth Fund
Alliance/Regent Sector Opportunity Fund
GROWTH & INCOME
Alliance Strategic Balanced Fund
Alliance Balanced Shares
Alliance Conservative Investors Fund
Alliance Growth & Income Fund
Alliance Growth Investors Fund
Alliance Income Builder Fund
Alliance Real Estate Investment Fund
Alliance Utility Income Fund
AGGRESSIVE GROWTH
Alliance Quasar Fund
Alliance Technology Fund
INTERNATIONAL
Alliance All-Asia Investment Fund
Alliance International Fund
Alliance New Europe Fund
Alliance Worldwide Privatization Fund
CLOSED-END FUNDS
Alliance All-Market Advantage Fund
Alliance Global Environment Fund
ACM Government Income Fund
ACM Government Opportunity Fund
ACM Government Securities Fund
ACM Government Spectrum Fund
ACM Managed Dollar Income Fund
ACM Managed Income Fund
ACM Municipal Securities Income Fund
Alliance World Dollar Government Fund
Alliance World Dollar Government Fund II
The Austria Fund
The Korean Investment Fund
The Spain Fund
The Southern Africa Fund
CASH MANAGEMENT SERVICES
ACM Institutional Reserves
Government Portfolio
Prime Portfolio
Tax-Free Portfolio
Trust Portfolio
Alliance Capital Reserves
Alliance Government Reserves
Alliance Insured Account
Alliance Money Reserves
Alliance Municipal Trust
California Portfolio
Connecticut Portfolio
Florida Portfolio
General Portfolio
Massachusetts Portfolio
New Jersey Portfolio
New York Portfolio
Virginia Portfolio
Alliance Treasury Reserves
Alliance Money Market Fund
Prime Portfolio
Government Portfolio
General Municipal Portfolio
18
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.
USGAR
