ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO
SEMI-ANNUAL REPORT
DECEMBER 31, 1998
ALLIANCE CAPITAL
LETTER TO SHAREHOLDERS ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO
_______________________________________________________________________________
February 24, 1999
Dear Shareholder:
We are pleased to report to you on our performance, investment strategy, and
outlook of the Alliance Bond Fund U.S. Government Portfolio (the Fund), for the
six-month period ended December 31, 1998.
INVESTMENT RESULTS
For the six-month period under review, your Fund outperformed its peer group,
the Lipper General U.S. Government Funds Average, but trailed the Lehman
Brothers Government Bond Index. Our use of Government National Mortgage
Association (GNMA) mortgage-backed securities and collateralized mortgage
obligations dampened performance because falling interest rates caused mortgage
prepayment rates to surge, resulting in diminished price appreciation for all
mortgage related securities.
INVESTMENT RESULTS*
Periods Ended December 31, 1998
TOTAL RETURNS
6 MONTHS 12 MONTHS
--------- ---------
ALLIANCE BOND FUND
U.S. GOVERNMENT PORTFOLIO
Class A 4.87% 8.60%
Class B 4.49% 7.80%
Class C 4.49% 7.80%
LEHMAN BROTHERS GOVERNMENT
BOND INDEX 5.44% 9.85%
LIPPER GENERAL U.S. GOVERNMENT
FUNDS AVERAGE 4.27% 8.07%
* THE FUND'S INVESTMENT RESULTS ARE TOTAL RETURNS FOR THE PERIODS AND ARE
BASED ON THE NET ASSET VALUE OF EACH CLASS OF SHARES. ALL FEES AND EXPENSES
RELATED TO THE OPERATION OF THE FUND HAVE BEEN DEDUCTED, BUT NO ADJUSTMENT HAS
BEEN MADE FOR SALES CHARGES THAT MAY APPLY WHEN SHARES ARE PURCHASED OR
REDEEMED. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
THE LEHMAN BROTHERS GOVERNMENT BOND INDEX IS COMPOSED OF THE U.S. TREASURY
BOND AND AGENCY BOND INDICES, THE 1-3 YEAR GOVERNMENT INDEX AND THE 20+ YEAR
TREASURY INDEX. THE UNMANAGED LIPPER GENERAL U.S. GOVERNMENT FUNDS AVERAGE
(LIPPER AVERAGE) IS BASED ON THE PERFORMANCE OF A UNIVERSE OF FUNDS THAT INVEST
AT LEAST 65% OF THEIR ASSETS IN U.S. GOVERNMENT AND AGENCY ISSUES. THESE FUNDS
HAVE GENERALLY SIMILAR INVESTMENT OBJECTIVES TO YOUR FUND, ALTHOUGH INVESTMENT
POLICIES FOR THE VARIOUS FUNDS MAY DIFFER. IN PARTICULAR, MANY FUNDS IN THE
LIPPER U.S. GOVERNMENT UNIVERSE ARE NOT REQUIRED TO INVEST SOLELY IN SECURITIES
BACKED BY THE FULL FAITH AND CREDIT OF THE UNITED STATES. FOR THE SIX AND
12-MONTH PERIODS ENDED DECEMBER 31, 1998, THE LIPPER AVERAGE CONSISTED OF
190 AND 184 FUNDS, RESPECTIVELY. AN INVESTOR CANNOT INVEST DIRECTLY IN AN
INDEX OR AN AVERAGE.
ADDITIONAL INVESTMENT RESULTS APPEAR ON PAGE 3.
MARKET OVERVIEW
Despite an unprecedented wave of financial shocks both at home and abroad
during the six-month period ended December 31, 1998, overall U.S. economic
growth remained strong, while inflation, interest rates, and unemployment
remained at historic lows. Strong consumer demand continued to be the driving
force behind the economic expansion. However, the manufacturing sector
continued to be negatively affected by weaker exports, as economies outside the
U.S. slowed. The Federal Reserve cut interest rates toward the end of the
period as the risk of an economic slowdown outweighed the risk of inflation.
During the six-month period, the U.S. bond market continued to climb as
investors sought safety from global financial market turmoil. At the beginning
of the period, global markets suffered from multiple concerns about recession
and a liquidity crisis throughout non-government bond markets. The currency
devaluation and debt default in Russia, the extreme weakness in the Japanese
yen, and the well-publicized bailout of Long Term Capital Management's hedge
fund all added to investors' risk aversion. The resulting "flight to quality"
spurred a rally in the U.S. Treasury market and other "safe haven" government
bond markets outside the U.S. while negatively impacting returns in the
corporate, high yield and mortgage bond sectors. The U.S. Federal Reserve and
other world central banks reacted by reducing official interest rates. The
combined effect of monetary policy ease with the release of stronger than
expected U.S. economic growth data reduced market aversion and investors
cautiously moved back into higher yielding securities toward the end of the
period. The U.S.
1
ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO
_______________________________________________________________________________
Treasury sector outperformed all other U.S. bond market sectors over the
six-month period.
INVESTMENT STRATEGY
During the period we maintained the portfolio's asset weighting consistent with
the investment objectives of the Fund while seeking a high level of current
income. In addition to U.S. Treasuries, the portfolio invested in GNMA
mortgage-backed securities to enhance yield.
OUTLOOK
We believe the risk of global recession has diminished after the recent wave of
official interest rate cuts around the world. However, global growth will
continue to slow and inflation will remain subdued as the consequences of
excess productive capacity are felt around the world. U.S. economic activity is
expected to moderate from the robust rate of the fourth quarter, with growth
estimates centered around 3.0% for 1999. Further interest rate reductions by
the Federal Reserve are likely, but not imminent. U.S. interest rates, as well
as inflation, will remain low.
In the U.S. fixed income markets, spread sectors (non-U.S. Treasury sectors)
will provide opportunities as economic and financial markets stabilize in
response to the Federal Reserve's pre-emptive attempts to sustain the economic
expansion. We expect the safe-haven premium on Treasuries to diminish somewhat,
but Treasuries will continue to perform well given their attractiveness to
foreign investors, a low inflationary environment and investor sentiment to
constrain risk. We expect the mortgage-backed sector will provide benefits due
to their attractive valuations and slower prepayment levels as mortgage rates
have risen slightly and we enter a period of slower refinancing.
SHAREHOLDERS APPROVE THE BROADENING OF THE FUND'S INVESTMENT POLICIES
At a Special Meeting of Shareholders held on February 18, 1999, the Fund's
shareholders overwhelmingly approved proposals to broaden the Fund's investment
policies. These proposals, which had been developed by Alliance and recommended
for shareholder approval by the Fund's Board of Directors, are designed to
bring the Fund's investment policies more in line with those of "mainstream"
U.S. Government funds. The changes to the Fund's investment policies, which
take effect on March 1, 1999, expand the types of U.S. Government securities in
which the Fund may invest, and permit the Fund to invest up to 35% of its
portfolio in non-U.S. Government, investment-grade securities such as
mortgage-backed and asset-backed securities. The Fund may not invest in foreign
securities.
The Fund's revised policies will enable it to diversify its portfolio
investments more broadly and add value through sector rotation within the broad
U.S. Government and asset-backed market, rather than solely through the
anticipation of interest rate movements in the narrower full faith and credit
market. The ability to invest in these sectors will allow the Fund to derive
fuller advantage, to the benefit of its shareholders, from the resources and
capabilities of Alliance's large fixed income research organization. In
addition, such increased diversification will provide additional tools for
preserving capital during periods of market volatility.
Thank you for your continued interest and investment in the Alliance Bond Fund
U.S. Government Portfolio. We look forward to reporting to you in the coming
months.
Sincerely,
John D. Carifa
Chairman and President
Jeffrey S. Phlegar
Vice President
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, GUARANTEED OR ENDORSED
BY, ANY BANK; FURTHER, SUCH SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
SHARES OF THE FUND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
2
INVESTMENT OBJECTIVE AND POLICIES
ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO
_______________________________________________________________________________
Alliance Bond Fund U.S. Government Portfolio seeks as high a level of current
income as is consistent with prudent investment risk through investment
primarily in U.S. Government securities.
INVESTMENT RESULTS
NAV AND SEC AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1998
CLASS A SHARES
WITHOUT WITH
SALES CHARGE SALES CHARGE
------------ ------------
One Year 8.60% 3.94%
5 Years 5.68% 4.77%
10 Years 7.98% 7.51%
SEC Yield** 4.93%
CLASS B SHARES
WITHOUT WITH
SALES CHARGE SALES CHARGE
------------ ------------
One Year 7.80% 4.80%
5 Years 4.90% 4.90%
Since Inception* (a) 6.38% 6.38%
SEC Yield** 4.44%
CLASS C SHARES
WITHOUT WITH
SALES CHARGE SALES CHARGE
------------ ------------
One Year 7.80% 6.80%
5 Years 4.90% 4.90%
Since Inception* 5.12% 5.12%
SEC Yield** 4.44%
The Fund's investment results represent Average Annual Total Returns. The NAV
and SEC returns reflect reinvestment of dividends and/or capital gains
distributions in additional shares without (NAV) and with (SEC) the effect of
the 4.25% maximum front-end sales charge for Class A or applicable contingent
deferred sales charge for Class B (3% year 1, 2% year 2, 1% year 3, 0% year 4);
and for Class C shares (1% year 1). Returns for Class A shares do not reflect
the imposition of the 1-year 1% contingent deferred sales charge for accounts
over $1,000,000.
Past performance does not guarantee future results. Investment return and
principle value will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than their original cost.
* Inception: 9/30/91 Class B; 5/3/93 Class C.
** SEC Yields are based on SEC guidelines and are calculated on 30 days ended
December 31, 1998.
(a) Assumes conversion of Class B shares into Class A shares after six years.
3
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998 (UNAUDITED) ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO
_______________________________________________________________________________
PRINCIPAL
AMOUNT
(000) VALUE
- -------------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS-113.7%
U.S. TREASURY SECURITIES-74.5%
U.S. TREASURY BONDS-56.4%
8.00%, 11/15/21 $ 13,000 $ 17,381,390
8.125%, 5/15/21 49,100 66,238,846
8.875%, 8/15/17 54,000 76,063,860
11.625%, 11/15/02 46,500 57,601,875
12.375%, 5/15/04 35,000 47,512,500
12.50%, 8/15/14 65,150 104,657,611
14.00%, 11/15/11 110,900 175,689,998
------------
545,146,080
U.S. TREASURY NOTES-15.0%
4.625%, 11/30/00 26,000 26,016,120
8.75%, 8/15/00 111,800 118,840,046
------------
144,856,166
U.S. TREASURY STRIP-3.1%
zero coupon, 2/15/19 90,000 29,488,500
Total U.S. Treasury Securities
(cost $702,904,204) 719,490,746
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION-34.3%
Collateralized Mortgage Obligations
Series 1997-8
7.00%, 4/15/24 16,000 16,100,000
Series 1997-10 Cl.C
9.50%, 4/16/25 26,250 27,634,163
Series 1997-11 Cl.C
9.50%, 10/20/25 28,052 29,551,099
------------
73,285,262
Project Loans
8.50%, 11/15/12-11/15/31 14,327 15,322,464
Single Family Homes
6.50%, 12/15/99 100,000 101,000,000
7.00%, 4/15/24-12/15/28 89,557 91,628,477
7.50%, 7/15/25 1,279 1,318,680
8.00%, 3/15/12 42,101 43,508,934
9.00%, 7/20/24-9/20/24 4,391 4,664,083
------------
242,120,174
Total Government National
Mortgage Association
(cost $335,705,769) 330,727,900
FEDERAL AGENCY SECURITIES-4.9%
Financial Assistance Corp.
9.50%, 4/16/04 31,506 31,894,784
United States Agency for International
Development
7.11%, 2/01/12 14,000 15,533,420
Total Federal Agency Securities
(cost $51,267,597) 47,428,204
TOTAL INVESTMENTS-113.7%
(cost $1,089,877,570) 1,097,646,850
Other assets less liabilities-(13.7%) (132,395,210)
NET ASSETS-100% $ 965,251,640
See notes to financial statements.
4
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998 (UNAUDITED) ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO
_______________________________________________________________________________
ASSETS
Investments in securities, at value (cost $1,089,877,570) $1,097,646,850
Cash 2,941,403
Interest receivable 15,552,030
Receivable for investments sold 8,316,304
Receivable for capital stock sold 2,154,319
Prepaid expenses 39,816
Total assets 1,126,650,722
LIABILITIES
Payable for investment securities purchased 157,800,930
Advisory fee payable 1,330,366
Dividends payable 944,800
Payable for capital stock redeemed 910,438
Distribution fee payable 75,013
Accrued expenses 337,535
Total liabilities 161,399,082
NET ASSETS $ 965,251,640
COMPOSITION OF NET ASSETS
Capital stock, at par $ 125,831
Additional paid-in capital 1,163,248,245
Distributions in excess of net investment income (1,771,694)
Accumulated net realized loss on investment transactions (204,114,791)
Net unrealized appreciation of investments and other assets 7,764,049
$965,251,640
CALCULATION OF MAXIMUM OFFERING PRICE
CLASS A SHARES
Net asset value and redemption price per share
($396,102,039 / 51,656,159 shares of capital
stock issued and outstanding) $7.67
Sales charge--4.25% of public offering price .34
Maximum offering price $8.01
CLASS B SHARES
Net asset value and offering price per share
($425,325,945 / 55,430,039 shares of capital
stock issued and outstanding) $7.67
CLASS C SHARES
Net asset value and offering price per share
($143,823,656 / 18,744,726 shares of capital
stock issued and outstanding) $7.67
See notes to financial statements.
5
STATEMENT OF OPERATIONS
SIX MONTHS ENDED DECEMBER 31, 1998 (UNAUDITED)
ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO
_______________________________________________________________________________
INVESTMENT INCOME
Interest $36,596,515
EXPENSES
Advisory fee $ 2,658,187
Distribution fee - Class A 570,169
Distribution fee - Class B 2,078,030
Distribution fee - Class C 665,706
Transfer agency 607,436
Custodian 91,192
Printing 73,476
Audit and legal 60,968
Administrative 57,872
Registration 16,660
Taxes 16,122
Directors' fees 6,506
Miscellaneous 5,786
Total expenses 6,908,110
Net investment income 29,688,405
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investment transactions 5,733,139
Net change in unrealized appreciation of
investments and other assets 4,913,913
Net gain on investment transactions 10,647,052
NET INCREASE IN NET ASSETS FROM OPERATIONS $40,335,457
See notes to financial statements.
6
STATEMENT OF CHANGES
IN NET ASSETS ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO
_______________________________________________________________________________
SIX MONTHS ENDED
DECEMBER 31, 1998 YEAR ENDED
(UNAUDITED) JUNE 30, 1998
----------------- ---------------
INCREASE IN NET ASSETS FROM OPERATIONS
Net investment income $ 29,688,405 $ 59,960,724
Net realized gain on investment
transactions 5,733,139 4,547,564
Net change in unrealized appreciation
(depreciation) of investments and other
assets 4,913,913 17,676,067
Net increase in net assets from operations 40,335,457 82,184,355
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A (13,053,395) (25,072,563)
Class B (12,730,045) (27,489,182)
Class C (4,073,118) (7,398,979)
Tax return of capital
Class A -0- (1,242,637)
Class B -0- (1,362,408)
Class C -0- (366,705)
CAPITAL STOCK TRANSACTIONS
Net increase (decrease) 97,378,246 (104,135,594)
Total increase (decrease) 107,857,145 (84,883,713)
NET ASSETS
Beginning of year 857,394,495 942,278,208
End of period $965,251,640 $857,394,495
See notes to financial statements.
7
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 (UNAUDITED) ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO
_______________________________________________________________________________
NOTE A: SIGNIFICANT ACCOUNTING POLICIES
Alliance Bond Fund, Inc. (the "Fund") is registered under the Investment
Company Act of 1940 as a diversified, open-end management investment company.
The Fund, which is a Maryland corporation, operates as a series company
currently comprised of two portfolios: the Corporate Bond Portfolio and the
U.S. Government Portfolio. Each series is considered to be a separate entity
for financial reporting and tax purposes. The accompanying financial statements
and notes include the operations of the U.S. Government Portfolio (the
"Portfolio") only. The Portfolio offers Class A, Class B and Class C shares.
Class A shares are sold with a front-end sales charge of up to 4.25% for
purchases not exceeding $1,000,000. With respect to purchases of $1,000,000 or
more, Class A shares redeemed within one year of purchase may be subject to a
contingent deferred sales charge of 1%. Class B shares are currently sold with
a contingent deferred sales charge which declines from 3% to zero depending on
the period of time the shares are held. Class B shares will automatically
convert to Class A shares six years after the end of the calendar month of
purchase. Class C shares are subject to a contingent deferred sales charge of
1% on redemptions made within the first year after purchase. All three classes
of shares have identical voting, dividend, liquidation and other rights, except
that each class bears different distribution expenses and has exclusive voting
rights with respect to its distribution plan. The financial statements have
been prepared in conformity with generally accepted accounting principles which
require management to make certain estimates and assumptions that affect the
reported amounts of assets and liabilities in the financial statements and
amounts of income and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of significant
accounting policies followed by the Portfolio.
1. SECURITY VALUATION
Portfolio securities traded on a national securities exchange are valued at the
last reported sale price on such exchange on the day of valuation or, if there
was no sale on such day, the last bid price quoted on such day. If no bid
prices are quoted, then the security is valued at the mean of the bid and asked
prices as obtained on that day from one or more dealers regularly making a
market in that security. Securities traded on the over-the-counter market are
valued at the mean of the closing bid and asked prices provided by two or more
dealers regularly making a market in such securities. U.S. government
securities and other debt securities which mature in 60 days or less are valued
at amortized cost unless this method does not represent fair value. Securities
for which market quotations are not readily available are valued at fair value
as determined in good faith by, or in accordance with procedures approved by,
the Board of Directors. Fixed income securities may be valued on the basis of
prices provided by a pricing service when such prices are believed to reflect
the fair market value of such securities.
2. TAXES
It is the Portfolio's policy to meet the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute all of its
investment company taxable income and net realized gains, if any, to
shareholders. Therefore, no provisions for federal income or excise taxes are
required.
3. INVESTMENT INCOME AND INVESTMENT TRANSACTIONS
Interest income is accrued daily. Investment transactions are accounted for on
the date securities are purchased or sold. The Portfolio amortizes premiums and
accretes discounts as adjustments to interest income. Investment gains and
losses are determined on the identified cost basis.
4. INCOME AND EXPENSES
All income earned and expenses incurred by the Portfolio are borne on a
pro-rata basis by each settled class of shares, based on the proportionate
interest in the Portfolio represented by the net assets of such class, except
that the Portfolio's Class B and Class C shares bear higher distribution and
transfer agent fees than Class A shares.
5. DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions to shareholders are recorded on the ex-dividend
date. Income dividends and capital gains distributions are determined in
accordance with federal tax regulations and may differ from those determined in
accordance with generally accepted accounting principles. To the extent these
differences are permanent, such amounts are reclassified within the capital
accounts based on their federal tax basis treatment; temporary differences do
not require such reclassification.
8
ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO
_______________________________________________________________________________
NOTE B: ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of an investment advisory agreement, the Portfolio pays
Alliance Capital Management L.P. (the "Adviser"), an advisory fee at a
quarterly rate of .15 of 1% (approximately .60 of 1% on an annual basis) of the
first $500 million of the Portfolio's net assets and .125 of 1% (approximately
.50 of 1% on an annual basis) of its net assets over $500 million, valued on
the last business day of the previous quarter.
Pursuant to the advisory agreement, the Portfolio paid $57,872 to the Adviser
representing the cost of certain legal and accounting services provided to the
Portfolio by the Adviser for the six months ended December 31, 1998.
The Portfolio compensates Alliance Fund Services, Inc., a wholly-owned
subsidiary of the Adviser, under a Transfer Agency Agreement for providing
personnel and facilities to perform transfer agency services for the Portfolio.
Such compensation amounted to $446,115 for the six months ended December 31,
1998.
Alliance Fund Distributors, Inc. (the "Distributor"), a wholly-owned subsidiary
of the Adviser, serves as the Distributor of the Portfolio's shares. The
Distributor received front-end sales charges of $18,466 from the sale of Class
A shares and $5,377, $150,642 and $34,093 in contingent deferred sales charges
imposed upon redemptions by shareholders of Class A, Class B and Class C
shares, respectively, for the six months ended December 31, 1998.
NOTE C: DISTRIBUTION SERVICES AGREEMENT
The Portfolio has adopted a Distribution Services Agreement (the "Agreement")
pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the
Agreement, the Portfolio pays a distribution fee to the Distributor at an
annual rate of up to .30 of 1% of the Portfolio's average daily net assets
attributable to Class A shares and 1% of the average daily net assets
attributable to both Class B and Class C shares. The fees are accrued daily and
paid monthly. The Agreement provides that the Distributor will use such
payments in their entirety for distribution assistance and promotional
activities. The Distributor has incurred expenses in excess of the distribution
costs reimbursed by the Portfolio in the amount of $7,576,652, and $4,502,265
for Class B and Class C shares, respectively; such costs may be recovered from
the Portfolio in future periods as long as the Agreement is in effect. In
accordance with the Agreement, there is no provision for recovery of
unreimbursed distribution costs incurred by the Distributor beyond the current
fiscal year for Class A shares. The Agreement also provides that the Adviser
may use its own resources to finance the distribution of the Portfolio's shares.
NOTE D: INVESTMENT TRANSACTIONS
Purchases and sales of U.S. government obligations (excluding short-term
investments) aggregated $1,224,698,960 and $948,448,054, respectively, for the
six months ended December 31, 1998.
At December 31, 1998, the cost of investments for federal income tax purposes
was $1,091,861,253. Accordingly, gross unrealized appreciation of investments
was $20,486,600 and gross unrealized depreciation of investments was
$14,701,003, resulting in net unrealized appreciation of $5,785,597.
At June 30, 1998, the Portfolio had a capital loss carryforward for federal
income tax purposes of $208,384,247, of which $8,257,319 expires in the year
1999; $83,016,947 expires in the year 2003; $61,544,081 expires in the year
2004; $51,829,521 expires in the year 2005 and $3,736,379 expires in the year
2006.
NOTE E: CAPITAL STOCK
There are 600,000,000 shares of $.001 par value capital stock authorized,
divided into three classes, designated Class A, Class B and Class C shares.
Each class consists of 200,000,000 authorized shares. Transactions in capital
stock were as follows:
9
NOTES TO FINANCIAL STATEMENTS
(CONTINUED) ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO
_______________________________________________________________________________
SHARES AMOUNT
--------------------------- ------------------------------
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED
DEC. 31, 1998 JUNE 30, DEC. 31, 1998 JUNE 30,
(UNAUDITED) 1998 (UNAUDITED) 1998
------------ ------------ -------------- --------------
CLASS A
Shares sold 8,095,351 10,804,046 $ 62,262,062 $ 81,364,926
Shares issued in
reinvestment of
dividends and
distributions 796,193 1,651,986 6,104,702 12,448,223
Shares converted
from Class B 3,324,151 2,908,590 25,567,451 21,971,601
Shares redeemed (7,152,325) (16,621,353) (54,933,751) (125,182,615)
Net increase
(decrease) 5,063,370 (1,256,731) $ 39,000,464 $(9,397,865)
CLASS B
Shares sold 14,668,398 6,931,240 $112,883,819 $ 52,278,662
Shares issued in
reinvestment of
dividends and
distributions 803,250 1,813,058 6,162,007 13,660,347
Shares converted
to Class A (3,324,151) (2,908,590) (25,567,451) (21,971,601)
Shares redeemed (8,236,402) (17,960,112) (63,233,834) (135,276,839)
Net increase
(decrease) 3,911,095 (12,124,404) $ 30,244,541 $ (91,309,431)
CLASS C
Shares sold 7,951,887 4,489,582 $ 61,315,194 $ 34,077,964
Shares issued in
reinvestment of
dividends and
distributions 325,106 651,004 2,494,740 4,904,415
Shares redeemed (4,634,042) (5,630,703) (35,676,693) (42,410,677)
Net increase
(decrease) 3,642,951 (490,117) $ 28,133,241 $ (3,428,298)
NOTE F: BANK BORROWING
A number of open-end mutual funds managed by the Adviser, including the Fund,
participate in a $750 million revolving credit facility (the "Facility")
intended to provide short-term financing if necessary, subject to certain
restrictions in connection with abnormal redemption activity. Commitment fees
related to the Facility are paid by the participating funds and are included in
the miscellaneous expenses in the statement of operations. The Fund did not
utilize the Facility during the six months ended December 31, 1998.
NOTE G: SUBSEQUENT EVENT
At a Special Meeting of Shareholders held on February 18, 1999, the Fund's
shareholders overwhelmingly approved proposals to broaden the Fund's investment
policies. These proposals, which had been developed by Alliance and recommended
for shareholder approval by the Fund's Board of Directors, are designed to
bring the Fund's investment policies more in line with those of "mainstream"
U.S. Government funds. The changes to the Fund's investment policies, which
take effect on March 1, 1999, expand the types of U.S. Government securities in
which the Fund may invest, and permit the Fund to invest up to 35% of its
portfolio in non-U.S. Government, investment-grade securities such as
mortgage-backed and asset-backed securities. The Fund may not invest in foreign
securities.
10
FINANCIAL HIGHLIGHTS ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------------------------
SIX MONTHS
ENDED
DECEMBER 31, YEAR ENDED JUNE 30,
1998 ---------------------------------------------------------------
(UNAUDITED) 1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year $7.57 $7.41 $7.52 $7.96 $7.84 $8.64
INCOME FROM INVESTMENT OPERATIONS
Net investment income .26(a) .54(a) .57(a) .58 .64 .65
Net realized and unrealized gain (loss)
on investment transactions .12 .18 (.10) (.44) .13 (.80)
Net increase (decrease) in net asset
value from operations .38 .72 .47 .14 .77 (.15)
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.28) (.54) (.57) (.58) (.65) (.65)
Tax return of capital -0- (.02) (.01) -0- -0- -0-
Total dividends and distributions (.28) (.56) (.58) (.58) (.65) (.65)
Net asset value, end of period $7.67 $7.57 $7.41 $7.52 $7.96 $7.84
TOTAL RETURN
Total investment return based on net
asset value (b) 4.87% 10.02% 6.49% 1.74% 10.37% (1.93)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $396,102 $352,749 $354,782 $397,894 $463,660 $482,595
Ratio of expenses to average net assets 1.07%(c) 1.06% 1.02% 1.01% 1.01% 1.02%
Ratio of net investment income to
average net assets 6.82%(c) 7.08% 7.66% 7.38% 8.27% 7.76%
Portfolio turnover rate 97% 153% 330% 334% 190% 188%
</TABLE>
See footnote summary on page 13.
11
FINANCIAL HIGHLIGHTS (CONTINUED)
ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
CLASS B
----------------------------------------------------------------------------
SIX MONTHS
ENDED
DECEMBER 31, YEAR ENDED JUNE 30,
1998 ---------------------------------------------------------------
(UNAUDITED) 1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year $7.57 $7.41 $7.52 $7.96 $7.84 $8.64
INCOME FROM INVESTMENT OPERATIONS
Net investment income .24(a) .48(a) .52(a) .52 .58 .59
Net realized and unrealized gain (loss)
on investment transactions .11 .18 (.10) (.44) .13 (.80)
Net increase (decrease) in net asset
value from operations .35 .66 .42 .08 .71 (.21)
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.25) (.48) (.52) (.52) (.59) (.59)
Tax return of capital -0- (.02) (.01) -0- -0- -0-
Total dividends and distributions (.25) (.50) (.53) (.52) (.59) (.59)
Net asset value, end of period $7.67 $7.57 $7.41 $7.52 $7.96 $7.84
TOTAL RETURN
Total investment return based on net
asset value (b) 4.49% 9.20% 5.69% 1.01% 9.52% (2.63)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $425,326 $390,253 $471,889 $628,628 $774,097 $756,282
Ratio of expenses to average net assets 1.78%(c) 1.76% 1.73% 1.72% 1.72% 1.72%
Ratio of net investment income to
average net assets 6.10%(c) 6.37% 6.95% 6.67% 7.57% 7.04%
Portfolio turnover rate 97% 153% 330% 334% 190% 188%
</TABLE>
See footnote summary on page 13.
12
ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
CLASS C
----------------------------------------------------------------------------
SIX MONTHS
ENDED
DECEMBER 31, YEAR ENDED JUNE 30,
1998 ---------------------------------------------------------------
(UNAUDITED) 1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year $7.57 $7.41 $7.52 $7.96 $7.83 $8.64
INCOME FROM INVESTMENT OPERATIONS
Net investment income .24(a) .48(a) .52(a) .52 .58 .59
Net realized and unrealized gain (loss)
on investment transactions .11 .18 (.10) (.44) .14 (.81)
Net increase (decrease) in net asset
value from operations .35 .66 .42 .08 .72 (.22)
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.25) (.48) (.52) (.52) (.59) (.59)
Tax return of capital -0- (.02) (.01) -0- -0- -0-
Total dividends and distributions (.25) (.50) (.53) (.52) (.59) (.59)
Net asset value, end of period $7.67 $7.57 $7.41 $7.52 $7.96 $7.83
TOTAL RETURN
Total investment return based on net
asset value (b) 4.49% 9.21% 5.69% 1.01% 9.67% (2.75)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $143,824 $114,392 $115,607 $166,075 $181,948 $231,859
Ratio of expenses to average net assets 1.77%(c) 1.76% 1.72% 1.71% 1.71% 1.70%
Ratio of net investment income to
average net assets 6.09%(c) 6.38% 6.96% 6.68% 7.59% 6.97%
Portfolio turnover rate 97% 153% 330% 334% 190% 188%
</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 charges or contingent
deferred sales charges are not reflected in the calculation of total investment
return. Total investment return calculated for a period of less than one year
is not annualized.
(c) Annualized.
13
ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO
_______________________________________________________________________________
BOARD OF DIRECTORS
JOHN D. CARIFA, CHAIRMAN AND PRESIDENT
RUTH BLOCK (1)
DAVID H. DIEVLER (1)
JOHN H. DOBKIN (1)
WILLIAM H. FOULK, JR. (1)
DR. JAMES M. HESTER (1)
CLIFFORD L. MICHEL (1)
DONALD J. ROBINSON (1)
OFFICERS
WAYNE D. LYSKI, SENIOR VICE PRESIDENT
KATHLEEN A. CORBET, SENIOR VICE PRESIDENT
JEFFREY S. PHLEGAR, VICE PRESIDENT
EDMUND P. BERGAN, JR., SECRETARY
MARK D. GERSTEN, TREASURER & CHIEF FINANCIAL OFFICER
JUAN J. RODRIGUEZ, CONTROLLER
CUSTODIAN
STATE STREET BANK & TRUST COMPANY
225 Franklin Street
Boston, MA 02110
PRINCIPAL UNDERWRITER
ALLIANCE FUND DISTRIBUTORS, INC.
1345 Avenue of the Americas
New York, NY 10105
TRANSFER AGENT
ALLIANCE FUND SERVICES, INC.
P.O. Box 1520
Secaucus, NJ 07096-1520
Toll-Free 1-(800) 221-5672
INDEPENDENT AUDITORS
ERNST & YOUNG LLP
787 Seventh Avenue
New York, NY 10019
LEGAL COUNSEL
SEWARD & KISSEL
One Battery Park Plaza
New York, NY 10004
(1) Member of the Audit Committee.
14
THE ALLIANCE FAMILY OF MUTUAL FUNDS
_______________________________________________________________________________
FIXED INCOME
Alliance Bond Fund
U.S. Government Portfolio
Corporate Bond Portfolio
Alliance Global Dollar Government Fund
Alliance Global Strategic Income Trust
Alliance High Yield Fund
Alliance Mortgage Securities Income Fund
Alliance Limited Maturity Government Fund
Alliance Multi-Market Strategy Trust
Alliance North American Government Income Trust
Alliance Short-Term U.S. Government Fund
TAX-FREE INCOME
Alliance Municipal Income Fund
California Portfolio
Insured California Portfolio
Insured National Portfolio
National Portfolio
New York Portfolio
Alliance Municipal Income Fund II
Arizona Portfolio
Florida Portfolio
Massachusetts Portfolio
Michigan Portfolio
Minnesota Portfolio
New Jersey Portfolio
Ohio Portfolio
Pennsylvania Portfolio
Virginia Portfolio
MONEY MARKET
AFD Exchange Reserves
GROWTH
The Alliance Fund
Alliance Global Environment Fund
Alliance Growth Fund
Alliance Premier Growth Fund
Alliance/Regent Sector Opportunity Fund
Select Investors Series - Premier Portfolio
GROWTH & INCOME
Alliance Balanced Shares
Alliance Conservative Investors Fund
Alliance Growth & Income Fund
Alliance Growth Investors Fund
Alliance Real Estate Investment Fund
Alliance Utility Income Fund
AGGRESSIVE GROWTH
Alliance Global Small Cap Fund
Alliance Quasar Fund
Alliance Technology Fund
INTERNATIONAL
Alliance All-Asia Investment Fund
Alliance Greater China '97 Fund
Alliance International Fund
Alliance International Premier Growth Fund
Alliance New Europe Fund
Alliance Worldwide Privatization Fund
INSTITUTIONAL
Premier Growth
Quasar
Real Estate Investment
CLOSED-END FUNDS
Alliance All-Market Advantage Fund
ACM Government Income Fund
ACM Government Opportunity Fund
ACM Government Securities Fund
ACM Government Spectrum Fund
ACM Managed Dollar Income Fund
ACM Managed Income Fund
ACM Municipal Securities Income Fund
Alliance World Dollar Government Fund
Alliance World Dollar Government Fund II
The Austria Fund
The Korean Investment Fund
The Spain Fund
The Southern Africa Fund
CASH MANAGEMENT SERVICES
Alliance Capital Reserves
Alliance Government Reserves
Alliance Institutional Reserves
Prime Portfolio
Government Portfolio
Tax-Free Portfolio
Trust Portfolio
Treasury Portfolio
Alliance Insured Account
Alliance Money Reserves
Alliance Municipal Trust
California Portfolio
Connecticut Portfolio
Florida Portfolio
General Portfolio
Massachusetts Portfolio
New Jersey Portfolio
New York Portfolio
Virginia Portfolio
Alliance Treasury Reserves
Alliance Money Market Fund
Prime Portfolio
Government Portfolio
General Municipal Portfolio
15
ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO
1345 Avenue of the Americas
New York, NY 10105
(800) 221-5672
ALLIANCE CAPITAL
THIS REPORT IS INTENDED SOLELY FOR DISTRIBUTION TO CURRENT SHAREHOLDERS
OF THE FUND.
R THESE REGISTERED SERVICE MARKS USED UNDER LICENSE FROM THE OWNER,
ALLIANCE CAPITAL MANAGEMENT L.P.
USGSR
