--------------------------------------------------------------------------------
INVESTMENT GRADE FIXED INCOME
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Alliance Bond Fund
Quality Bond
Portfolio
Annual Report
June 30, 2000
[GRAPHIC OMITTED]
AllianceCapital [LOGO](R)
The Investment Professional's Choice
<PAGE>
Investment Products Offered
---------------------------
o Are Not FDIC Insured
o May Lose Value
o Are Not Bank Guaranteed
---------------------------
This shareholder report must be preceded or accompanied by the Fund's prospectus
for individuals who are not current shareholders of the Fund.
<PAGE>
----------------------
LETTER TO SHAREHOLDERS
----------------------
LETTER TO SHAREHOLDERS
August 9, 2000
Dear Shareholder:
This report contains investment results and market activity for Alliance Bond
Fund Quality Bond Portfolio (the "Fund") for the annual reporting period ended
June 30, 2000. Also included are discussions of the Fund's investment strategy
and outlook.
Investment Objectives and Policies
This open-end Fund seeks high current income consistent with preservation of
capital by investing in investment grade fixed-income securities. The Fund
invests in readily marketable securities that do not involve undue risk of
capital.
Investment Results
The following table shows how the Fund performed over the past six- and 12-month
periods ended June 30, 2000. For comparison, we have included the Lehman
Brothers Aggregate Bond Index, a standard measure of the performance of a basket
of unmanaged debt securities.
Investment Results*
Periods Ended June 30, 2000
----------------------
Total Returns
----------------------
6 Months 12 Months
-------------------------------------
Alliance Bond
Fund Quality
Bond Portfolio
Class A 3.70% 4.40%
-------------------------------------
Class B 3.23% 3.56%
-------------------------------------
Class C 3.34% 3.47%
-------------------------------------
Lehman Brothers
Aggregate Bond
Index 3.99% 4.56%
-------------------------------------
* The Fund's investment results represent total returns for the periods
shown and are based on the net asset value of each class of shares as of
June 30, 2000. 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. Returns for the Fund
include the reinvestment of any distributions paid during the period. Past
performance is no guarantee of future results.
The unmanaged Lehman Brothers (LB) Aggregate Bond Index is a standard
measure of the performance of a basket of unmanaged debt securities. It is
composed of the LB Mortgage-Backed Securities Index, the LB Asset-Backed
Securities Index and the LB Government/Corporate Bond Index. An investor
cannot invest directly in an index, and its results are not indicative of
any particular investment, including Alliance Bond Fund Quality Bond
Portfolio.
Additional investment results appear on pages 5-7.
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ALLIANCE BOND FUND QUALITY BOND PORTFOLIO o 1
<PAGE>
----------------------
LETTER TO SHAREHOLDERS
----------------------
During the six- and 12-month periods ended June 30, 2000, the Fund slightly
underperformed its benchmark, the Lehman Brothers Aggregate Bond Index. Our
yield curve management during the second quarter of 2000 was the predominant
source of the underperformance. We utilized the barbell duration structure
(Treasury holdings concentrated at the long end and short end of the yield
curve) in the first six months of 2000, which dampened performance when the
yield curve became less inverted in the second quarter. Sector allocation among
the traditional sectors enhanced performance, although it was not enough to
offset the negative impact of security selection.
Investment Strategy
During the six-month period under review, we reduced our focus on yield and
moved to an overweighted Treasury position in duration terms. This involved
trimming exposure to credit sensitive and mortgage securities. We also
established a position in the emerging markets. With tighter monetary policy and
the start of the Treasury buy-back program, we utilized a barbell duration
structure in anticipation of yield curve inversion. Within the Treasury sector,
we overweighted the portfolio in long maturity, high-coupon, off-the-run
securities in expectation of Treasury buy-backs. Within the mortgage sector, we
diversified across the coupon spectrum.
In the investment-grade corporate sector, the relatively flat credit curve
provided an opportunity to diversify our holdings along the maturity spectrum.
We also continued to diversify holdings among the corporate subsectors. We added
to our European bank holdings by purchasing Abbey National, a high quality U.K.
bank attractively priced because of its structure. Vodaphone was also
opportunistically purchased and sold during the quarter, having reached its
target. In the emerging markets, we initiated a position in Mexico following
Moody's upgrade of the country to investment-grade status. We expect Standard
and Poor's to upgrade Mexico further this year.
Market Review
The global macroeconomic outlook continued to improve during the first six
months of 2000. The U.S. economy remained strong, growing 4.8% in the first
quarter and 5.2% during the second quarter. Inflation and unemployment remained
low. However, the rise in commodity prices--led by oil--along with low
unemployment, have put upward pressure on U.S. inflation. Strong U.S. economic
activity prompted the Federal Reserve to increase short-term interest rates from
5.50% to 6.50% during the period under review.
The U.S. bond market, as represented by the Lehman Brothers Aggregate Bond
Index, posted a return of 3.99% during the six-month period.
In the U.S. bond market during the six-month period ended June 30, 2000, the
U.S. government sector recorded the strongest performance, 5.0%, followed by the
mortgage-backed securities (MBS) and commercial mortgage-backed securities
(CMBS) sectors, both 3.7%, and the corporate sector, 2.7%.
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2 o ALLIANCE BOND FUND QUALITY BOND PORTFOLIO
<PAGE>
----------------------
LETTER TO SHAREHOLDERS
----------------------
The U.S. government sector of the market posted the best return among the
traditional sectors as a result of the Treasury buy-back program. Faced with a
growing budget surplus, the Treasury began a long-term project to reduce the
supply of outstanding government debt. The yield curve inverted during the
period as investors focused on tighter monetary policy as well as the Treasury
buy-back program. Two-year Treasury yields rose from 6.24% to 6.36%, while
30-year Treasury yields fell from 6.48% to 5.90%.
In spite of strong mortgage fundamentals, the performance of the mortgage-backed
sector was dampened by events in Washington, DC. From a fundamental perspective,
mortgage securities benefited from a strong underlying housing sector. However,
relative performance was dampened by the Treasury buy-back program, which
affected all non-Treasury sectors negatively, as well as the proposal to reduce
the government credit support currently enjoyed by the Federal Home Loan
Mortgage Corporation (FHLMC) and the Federal National Mortgage Association
(FNMA).
The corporate bond sector of the market returned 2.7% during the period.
Corporate bond yield spreads widened as expectations for tighter monetary policy
grew and the Federal Reserve raised interest rates. Perceptions of credit
quality within the corporate market were weakened by heightened event risk
coupled with several announcements of earnings disappointments. However,
corporate yield spreads retraced and tightened partially in June when
expectations for additional rate hikes eased and the Federal Reserve left rates
alone. The emerging market debt sector of the market returned 8.10% during the
period under review. Most of the strong performance occurred in the first
quarter, when emerging market debt reacted positively to improving global
economic fundamentals.
Outlook
While the U.S. economy is currently slowing to a more moderate pace, we believe
that recent inflationary pressures will be successfully contained by a sustained
period of at- or below-trend growth. This may require further tightening of
monetary policy later this year. Interest rates should trade in a narrow range
over the next few months as the Federal Reserve Bank remains on hold. The
Treasury's buy-back program will keep the yield curve somewhat inverted. Spreads
in the non-Treasury sectors are expected to remain generally stable in this
environment.
We plan to reduce the barbell duration structure of the Fund's portfolio. Within
the government sector, we will remain overweight in Treasuries in duration terms
and underweight in agency debt. We continue to prefer mortgage-backed securities
to investment-grade corporates, and have added to our overweight mortgage
allocation since quarter-end. While there may be opportunities in the
credit-sensitive arena, we remain concerned about the trend in aggregate credit
quality as economic activity moderates and event risk perpetuates. Our
investment-grade hold-
--------------------------------------------------------------------------------
ALLIANCE BOND FUND QUALITY BOND PORTFOLIO o 3
<PAGE>
----------------------
LETTER TO SHAREHOLDERS
----------------------
[PHOTO OMITTED] John D. Carifa
[PHOTO OMITTED] Matthew Bloom
Portfolio Manager, Matthew Bloom, has over 20 years of investment experience.
ings will remain diversified across both the maturity spectrum and subsectors of
the corporate market.
Although the global macroeconomic environment remains fundamentally supportive
of the reform efforts of emerging countries, valuations are relatively rich from
a historical perspective. As economic activity in the U.S. moderates and the
likelihood of tighter monetary policy diminishes, the sector's performance
prospects should improve.
Sincerely,
/s/ John D. Carifa
John D. Carifa
Chairman and President
/s/ Matthew Bloom
Matthew Bloom
Vice President
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4 o ALLIANCE BOND FUND QUALITY BOND PORTFOLIO
<PAGE>
------------------
PERFORMANCE UPDATE
------------------
PERFORMANCE UPDATE
ALLIANCE BOND FUND QUALITY BOND PORTFOLIO
GROWTH OF A $10,000 INVESTMENT
7/31/99* TO 6/30/00
[The following table was depicted as a mountain chart in the printed material.]
Lehman Brothers Aggregate Bond Index: $10,501
Alliance Bond Fund Quality Bond Portfolio Class A: $10,020
This chart illustrates the total value of an assumed $10,000 investment in
Alliance Bond Fund Quality Bond Portfolio Class A shares (from 7/31/99 to
6/30/00) as compared to the performance of an appropriate index. The chart
reflects the deduction of the maximum 4.25% sales charge from the initial
$10,000 investment in the Portfolio and assumes the reinvestment of dividends
and capital gains. Performance for Class B and Class C shares will vary from the
results shown above due to differences in expenses charged to these classes.
Past performance is not indicative of future results, and is not representative
of future gain or loss in capital value or dividend income.
The unmanaged Lehman Brothers (LB) Aggregate Bond Index is a standard measure of
the performance of a basket of unmanaged debt securities. It is composed of the
LB Mortgage-Backed Securities Index, the LB Asset-Backed Securities Index and
the LB Government/ Corporate Bond Index.
When comparing Alliance Bond Fund Quality Bond Portfolio to the index shown
above, you should note that no charges or expenses are reflected in the
performance of the index. An investor cannot invest directly in an index and its
results are not indicative of any specific investment, including Alliance Bond
Fund Quality Bond Portfolio.
* Closest month-end after Fund's Class A share inception date of 7/1/99.
--------------------------------------------------------------------------------
ALLIANCE BOND FUND QUALITY BOND PORTFOLIO o 5
<PAGE>
-----------------
PORTFOLIO SUMMARY
-----------------
PORTFOLIO SUMMARY
June 30, 2000
INCEPTION DATE PORTFOLIO STATISTICS
(Class A Shares) Net Assets ($mil): $6.6
7/1/99
SECURITY TYPE
30.56% Treasury
27.03% Federal National Mortgage Association (FNMA)
7.97% Government National Mortgage Association (GNMA)
4.10% Sovereign Bonds
2.45% Yankee Bonds
0.95% Asset-Backed Securities
Corporate [PIE CHART OMITTED]
1.77% Financial
1.49% Banking
1.42% Public Utilities/Electric and Gas
1.23% Broadcasting/Media
0.83% Aerospace and Defense
0.80% Retail
0.37% Energy
0.30% Communications Services
20.31% Short-Term
HOLDING TYPE
79.69% Fixed Income [PIE CHART OMITTED]
20.31% Short-Term Securities
All data as of June 30, 2000. The Fund's holding and security breakdowns may
vary over time. These breakdowns are expressed as a percentage of total
investments.
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6 o ALLIANCE BOND FUND QUALITY BOND PORTFOLIO
<PAGE>
------------------
INVESTMENT RESULTS
------------------
INVESTMENT RESULTS
AVERAGE ANNUAL TOTAL RETURNS AS OF JUNE 30, 2000
Class A Shares
--------------------------------------------------------------------------------
Without Sales Charge With Sales Charge
Since Inception* 4.40% 0.00%
SEC Yield** 5.72%
Class B Shares
--------------------------------------------------------------------------------
Without Sales Charge With Sales Charge
Since Inception* 3.56% 0.61%
SEC Yield** 6.02%
Class C Shares
--------------------------------------------------------------------------------
Without Sales Charge With Sales Charge
Since Inception* 3.47% 2.49%
SEC Yield** 6.07%
The Fund's investment results represent average annual total returns. The
returns reflect reinvestment of dividends and/or capital gains distributions in
additional shares without and with 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.
The Portfolio normally invests all of its assets in securities that are rated at
least BBB by Standard & Poor's or, if unrated, are of comparable quality. The
Portfolio also may invest in convertible debt securities, preferred stock and
dividend-paying stocks, U.S. government obligations, and foreign fixed-income
securities. The Portfolio may invest a portion of its assets in foreign
securities, which may magnify fluctuations. Price fluctuations may also be
caused by changes in interest rates or bond credit quality ratings. These
changes have a greater effect on bonds with longer maturities than on those with
shorter maturities.
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.
* Performance since the Fund's inception date of July 1, 1999.
** SEC yields are based on SEC guidelines and are calculated on 30 days ended
June 30, 2000.
--------------------------------------------------------------------------------
ALLIANCE BOND FUND QUALITY BOND PORTFOLIO o 7
<PAGE>
------------------------
PORTFOLIO OF INVESTMENTS
------------------------
PORTFOLIO OF INVESTMENTS
June 30, 2000
Principal
Amount
(000) U.S. $ Value
--------------------------------------------------------------------------------
U.S. Government & Agency Obligations-72.8%
U.S. Treasury Securities-33.9%
U.S. Treasury Bonds-18.7%
6.25%, 5/15/30................................... $155 $ 162,629
8.125%, 8/15/19-5/15/21.......................... 705 853,294
12.00%, 8/15/13.................................. 160 216,000
----------
1,231,923
----------
U.S. Treasury Notes-15.2%
6.50%, 5/31/02-2/15/10........................... 995 1,004,322
----------
2,236,245
----------
Federal National Mortgage
Association-30.0%
6.00%, 3/01/29-12/31/99.......................... 263 240,281
6.50%, 12/01/99.................................. 160 150,850
7.00%, 3/01/12-12/31/99.......................... 736 717,236
7.50%, 12/01/29-1/01/30.......................... 139 137,239
8.00%, 10/01/27-12/31/99......................... 461 462,942
8.50%, 12/31/99.................................. 265 269,926
----------
1,978,474
----------
Government National Mortgage
Association-8.9%
7.00%, 5/15/29-1/01/99........................... 600 583,127
----------
Total U.S. Government & Agency Obligations
(cost $4,768,210)................................ 4,797,846
----------
Corporate Obligations-9.1%
Aerospace & Defense-0.9%
Raytheon Co.
7.90%, 3/01/03(a)................................ 60 60,321
----------
Banking-1.6%
Citigroup
7.00%, 7/01/07................................... 100 95,961
Nationsbank Corp,.
6.80%, 3/15/28................................... 15 12,782
----------
108,743
----------
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8 o ALLIANCE BOND FUND QUALITY BOND PORTFOLIO
<PAGE>
------------------------
PORTFOLIO OF INVESTMENTS
------------------------
Principal
Amount
(000) U.S. $ Value
--------------------------------------------------------------------------------
Broadcasting/Media-1.4%
CBS Corp.
7.15%, 5/20/05................................... $ 45 $ 44,290
Time Warner, Inc.
8.375%, 3/15/23.................................. 45 46,092
----------
90,382
----------
Communications Services-0.3%
WorldCom, Inc.
6.95%, 8/15/28................................... 25 22,151
----------
Energy-0.4%
Conoco, Inc.
6.95%, 4/15/29................................... 30 27,421
----------
Financial-2.0%
Household Finance Corp.
6.50%, 11/15/08.................................. 70 63,596
Morgan Stanley Dean Witter & Co.
5.625%, 1/20/04.................................. 70 65,764
----------
129,360
----------
Public Utilities-Electric & Gas-1.6%
Cilcorp, Inc.
9.375%, 10/15/29................................. 40 40,451
Niagara Mohawk Power Co.
7.75%, 10/01/08.................................. 65 63,355
----------
103,806
----------
Retail-0.9%
Wal-Mart Stores, Inc.
6.875%, 8/10/09.................................. 60 58,822
----------
Total Corporate Obligations
(cost $604,838).................................. 601,006
----------
Sovereign Debt Obligation-2.8%
Mexico-2.8%
United Mexican States
10.375%, 2/17/09
(cost $188,515).................................. 175 185,500
----------
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ALLIANCE BOND FUND QUALITY BOND PORTFOLIO o 9
<PAGE>
------------------------
PORTFOLIO OF INVESTMENTS
------------------------
Principal
Amount
(000) U.S. $ Value
--------------------------------------------------------------------------------
Yankee Bond-2.7%
Abbey National Capitol Trust
8.963%, 12/29/49................................. $ 65 $ 64,762
Quebec Province of Canada
7.50%, 9/15/29................................... 25 24,601
International Bank For Reconstruction &
Development
7.00%, 1/27/05................................... 90 89,962
----------
Total Yankee Bond
(cost $179,311).................................. 179,325
----------
Asset Backed Security-1.0%
Capital Auto Receivables Asset Trust
5.58%, 6/15/02
(cost $69,644)................................... 70 69,545
----------
Time Deposit-22.6%
State Street Euro Dollar
6.00%, 7/03/00
(amortized cost $1,487,000)...................... 1,487 1,487,000
----------
Total Investments-111.0%
(cost $7,297,518)................................ 7,320,222
Other assets less liabilities-(11.0%)............... (727,813)
----------
Net Assets-100%..................................... $6,592,409
==========
(a) Security exempt from Registration under Rule 144A of the Securities Act of
1933. This security may be resold in transactions exempt from
registration, normally to qualified buyers. At June 30, 2000, this
security amounted to $60,321 or 0.9% of net assets.
See notes to financial statements.
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10 o ALLIANCE BOND FUND QUALITY BOND PORTFOLIO
<PAGE>
---------------------------------
STATEMENT OF ASSETS & LIABILITIES
---------------------------------
STATEMENT OF ASSETS & LIABILITIES
June 30, 2000
Assets
Investments in securities, at value (cost $7,297,518) ........ $ 7,320,222
Cash ......................................................... 728
Interest receivable .......................................... 76,656
Receivable for capital stock sold ............................ 65,109
Receivable for investments sold .............................. 26,304
Receivable due from Advisor .................................. 6,293
-----------
Total assets ................................................. 7,495,312
-----------
Liabilities
Payable for investment securities purchased .................. 780,686
Dividends payable ............................................ 9,824
Distribution fee payable ..................................... 2,220
Payable for capital stock redeemed ........................... 35
Accrued expenses ............................................. 110,138
-----------
Total liabilities ............................................ 902,903
-----------
Net Assets ................................................... $ 6,592,409
===========
Composition of Net Assets
Capital stock, at par ........................................ $ 669
Additional paid-in capital ................................... 6,611,918
Undistributed net investment income .......................... 3,790
Net realized loss on investment transactions ................. (46,672)
Net unrealized appreciation of investments ................... 22,704
-----------
$ 6,592,409
===========
Calculation of Maximum Offering Price
Class A Shares
Net asset value and redemption price per share
($5,071,270 / 514,708 shares of
capital stock issued and outstanding) ..................... $ 9.85
Sales charge--4.25% of public offering price ................. .44
------
Maximum offering price ....................................... $10.29
======
Class B Shares
Net asset value and offering price per share
($1,007,080 / 102,298 shares of
capital stock issued and outstanding) ..................... $ 9.84
======
Class C Shares
Net asset value and offering price per share
($514,059 / 52,309 shares of
capital stock issued and outstanding) ..................... $ 9.83
======
See notes to financial statements.
--------------------------------------------------------------------------------
ALLIANCE BOND FUND QUALITY BOND PORTFOLIO o 11
<PAGE>
-----------------------
STATEMENT OF OPERATIONS
-----------------------
STATEMENT OF OPERATIONS
July 1, 1999(a) to June 30, 2000
Investment Income
Interest............................................. $ 259,750
Expenses
Advisory fee......................................... $ 20,541
Distribution fee - Class A........................... 9,149
Distribution fee - Class B........................... 3,987
Distribution fee - Class C........................... 2,865
Amortization of offering expenses.................... 121,000
Administrative....................................... 120,000
Custodian............................................ 81,243
Audit and legal...................................... 42,578
Transfer agency...................................... 22,170
Printing............................................. 20,592
Registration......................................... 20,430
Directors' fees...................................... 10,593
Miscellaneous........................................ 3,669
---------
Total expenses....................................... 478,817
Less: expenses waived and assumed
by Adviser (See Note B)........................... (437,420)
---------
Net expenses......................................... 41,397
---------
Net investment income................................ 218,353
---------
Realized and Unrealized Gain (Loss)
on Investments
Net realized loss on investment
transactions...................................... (46,672)
Net unrealized appreciation/depreciation
of investments.................................... 22,704
---------
Net loss on investment transactions.................. (23,968)
---------
Net Increase in Net Assets from
Operations........................................ $ 194,385
=========
(a) Commencement of operations.
See notes to financial statements.
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12 o ALLIANCE BOND FUND QUALITY BOND PORTFOLIO
<PAGE>
----------------------------------
STATEMENT OF CHANGES IN NET ASSETS
----------------------------------
STATEMENT OF CHANGES
IN NET ASSETS
July 1, 1999(a)
to
June 30, 2000
===============
Increase (Decrease) in Net Assets from Operations
Net investment income ......................................... $ 218,353
Net realized loss on investment transactions .................. (46,672)
Net unrealized appreciation/depreciation of investments ....... 22,704
-----------
Net increase in net assets from operations .................... 194,385
Dividends to Shareholders from:
Net investment income
Class A .................................................... (179,097)
Class B .................................................... (20,654)
Class C .................................................... (14,812)
Capital Stock Transactions
Net increase .................................................. 6,612,587
-----------
Total increase ................................................ 6,592,409
Net Assets
Beginning of period ........................................... -0-
-----------
End of period ................................................. $ 6,592,409
===========
(a) Commencement of operations.
See notes to financial statements.
--------------------------------------------------------------------------------
ALLIANCE BOND FUND QUALITY BOND PORTFOLIO o 13
<PAGE>
-----------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 2000
NOTE A
Significant Accounting Policies
Alliance Bond Fund, Inc. (the "Fund") is registered under the Investment Company
Act of 1940 as a diversified, open-end management investment company. The Fund,
which is a Maryland corporation, operates as a series company currently
comprised of three portfolios: the Corporate Bond Portfolio, the Quality Bond
Portfolio and the U.S. Government Portfolio. The Quality Bond Portfolio
commenced operations on July 1, 1999. Each series is considered to be a separate
entity for financial reporting and tax purposes. The accompanying financial
statements and notes include the operations of the Quality 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% 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 accounting principles generally accepted
in the United States, 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 or on a foreign
securities exchange (other than foreign securities exchanges whose operations
are similar to those of the United States over-the-counter market) are generally
valued at the last reported sale price, 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 such securities.
Securities traded on the over-the-counter market, securities listed on a foreign
securities exchange whose operations are similar to the United States
over-the-counter market, and securities listed on a national securities exchange
whose primary market is believed to be over-the-counter 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
--------------------------------------------------------------------------------
14 o ALLIANCE BOND FUND QUALITY BOND PORTFOLIO
<PAGE>
-----------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
this method does not represent fair value. Securities for which market
quotations are not readily available are valued at fair value as determined in
good faith by, or in accordance with procedures approved by, the Board of
Directors. Fixed income securities may be valued on the basis of prices provided
by a pricing service when such prices are believed to reflect the fair market
value of such securities.
Mortgage backed and asset backed securities may be valued at prices obtained
from a bond pricing service or at a price obtained from one or more of the major
broker/ dealers in such securities. In cases where broker/dealer quotes are
obtained, the Adviser may establish procedures whereby changes in market yields
or spreads are used to adjust, on a daily basis, a recently obtained quoted bid
price on a security.
2. Taxes
It is the policy of the Portfolio 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. Offering Expenses
Offering expenses of $121,000 had been deferred and were amortized on a straight
line basis through June 30, 2000.
4. 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 accretes discounts as
adjustments to interest income. Investment gains and losses are determined on
the identified cost basis.
5. 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 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.
6. 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 accounting principles generally accepted in the United States. 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
there were no permanent differences.
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 an annual rate of
.55 of 1% of the Portfolio's
--------------------------------------------------------------------------------
ALLIANCE BOND FUND QUALITY BOND PORTFOLIO o 15
<PAGE>
-----------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
average daily net assets. The fee is accrued daily and paid monthly. The adviser
has agreed to waive its fees and bear certain expenses to the extent necessary
to limit total operating expenses on an annual basis to .98%, 1.68% and 1.68% of
the daily average net assets for Class A, Class B and Class C shares,
respectively. For the year ended June 30, 2000, such reimbursement amounted to
$299,420.
Pursuant to the advisory agreement, the Portfolio may reimburse the Adviser for
certain legal and accounting services provided to the Portfolio by the Adviser.
For the year ended June 30, 2000, the Adviser agreed to waive its fees for such
services. Such waiver amounted to $120,000.
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.
For the year ended June 30, 2000 Alliance Fund Services, Inc. agreed to waive
service fees in the amount of $18,000.
For the year ended June 30, 2000, the Fund's expenses were reduced by $130 under
an expense offset arrangement with Alliance Fund Services, Inc.
Alliance Fund Distributors, Inc. (the "Distributor"), a wholly-owned subsidiary
of the Adviser, serves as the Distributor of the Portfolio's shares. The
Distributor has advised the Fund that it has received front-end sales charges of
$23,908 from the sales of Class A shares and $1,812 and $205 in contingent
deferred sales charges imposed upon redemptions by shareholders of Class B and
Class C shares, respectively, for the year ended June 30, 2000.
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 distribution and servicing fees to the Distributor
at an annual rate of up to .30 of 1% of the Portfolio's average daily net assets
attributable to Class A shares and 1% of the average daily net assets
attributable to both Class B and Class C shares. The fees are accrued daily and
paid monthly. The Agreement provides that the Distributor will use such payments
in their entirety for distribution assistance and promotional activities. The
Distributor has advised the Fund that it has incurred expenses in excess of the
distribution costs reimbursed by the Portfolio in the amount of $128,421 and
$140,605 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.
--------------------------------------------------------------------------------
16 o ALLIANCE BOND FUND QUALITY BOND PORTFOLIO
<PAGE>
-----------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE D
Investment Transactions
Purchases and sales of investment securities (excluding short-term investments
and U.S. government securities) aggregated $1,925,758 and $874,518,
respectively, for the year ended June 30, 2000. There were purchases of
$11,257,923 and sales of $6,379,773 of U.S. government and government agency
obligations for the year ended June 30, 2000.
At June 30, 2000, the cost of investments for federal income tax purposes was
$7,329,185. Accordingly, gross unrealized appreciation of investments was
$33,191 and gross unrealized depreciation of investments was $19,450 resulting
in net unrealized appreciation of $13,741. At June 30, 2000, the Portfolio had a
capital loss carryforward of $2,759 which expires in 2008. Capital losses
incurred after October 31 ("post-October" losses) within the taxable year are
deemed to arise on the first business day of the Portfolio's next taxable year.
The Portfolio incurred and will elect to defer net capital losses of $34,950
during fiscal 2000. To the extent that the carryforward losses are used to
offset future capital gains, it is probable that the gain so offset will not be
distributed to shareholders.
NOTE E
Capital Stock
There are 750,000,000 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 250,000,000 authorized shares. Transactions in capital stock
were as follows:
--------------- ---------------
Shares Amount
--------------- ---------------
July 1, 1999(a) July 1, 1999(a)
to to
June 30, 2000 June 30, 2000
----------------------------------
Class A
Shares sold 515,979 $ 5,104,566
-------------------------------------------------------------------------------
Shares issued in reinvestment of dividends 6,078 60,407
-------------------------------------------------------------------------------
Shares redeemed (7,349) (71,927)
-------------------------------------------------------------------------------
Net increase 514,708 $ 5,093,046
===============================================================================
Class B
Shares sold 139,398 $ 1,369,731
-------------------------------------------------------------------------------
Shares issued in reinvestment of dividends 1,136 11,615
-------------------------------------------------------------------------------
Shares redeemed (38,236) (374,844)
-------------------------------------------------------------------------------
Net increase 102,298 $ 1,006,502
===============================================================================
Class C
Shares sold 70,129 $ 682,035
-------------------------------------------------------------------------------
Shares issued in reinvestment of dividends 1,399 18,666
-------------------------------------------------------------------------------
Shares redeemed (19,219) (187,662)
-------------------------------------------------------------------------------
Net increase 52,309 $ 513,039
===============================================================================
(a) Commencement of operations.
--------------------------------------------------------------------------------
ALLIANCE BOND FUND QUALITY BOND PORTFOLIO o 17
<PAGE>
-----------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE F
Bank Borrowing
A number of open-end mutual funds managed by the Adviser, including the
Portfolio, participate in a $750 million revolving credit facility (the
"Facility") intended to provide short-term financing if necessary, in connection
with abnormal redemption activity. Commitment fees related to the Facility are
paid by the participating funds and are included in miscellaneous expenses in
the statement of operations. The Portfolio did not utilize the Facility during
the year ended June 30, 2000.
--------------------------------------------------------------------------------
18 o ALLIANCE BOND FUND QUALITY BOND PORTFOLIO
<PAGE>
--------------------
FINANCIAL HIGHLIGHTS
--------------------
FINANCIAL HIGHLIGHTS
Selected Data For A Share Of Beneficial Interest Outstanding Throughout The
Period
<TABLE>
<CAPTION>
-------- -------- --------
Class A Class B Class C
-------- -------- --------
July 1, July 1, July 1,
1999(a) 1999(a) 1999(a)
to to to
June 30, June 30, June 30,
2000 2000 2000
------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period .............. $10.00 $10.00 $10.00
------------------------------------
Income From Investment Operations
Net investment income(b)(c) ....................... .60 .50 .51
Net realized and unrealized loss on investment
transactions ................................... (.21) (.18) (.20)
------------------------------------
Net increase in net asset value from operations ... .39 .32 .31
------------------------------------
Less: Dividends
Dividends from net investment income .............. (.54) (.48) (.48)
------------------------------------
Net asset value, end of period .................... $ 9.85 $ 9.84 $ 9.83
====================================
Total Return
Total investment return based on net asset value(d) 4.40% 3.56% 3.47%
Ratios/Supplemental Data
Net assets, end of period (000's omitted) ......... $5,071 $1,007 $514
Ratios to average net assets of:
Expenses, net of waivers/reimbursements ........ .98% 1.68% 1.68%
Expenses, before waivers/reimbursements ........ 13.10% 11.29% 11.75%
Net investment income(c) ....................... 5.96% 5.32% 5.35%
Portfolio turnover rate ........................... 215% 215% 215%
</TABLE>
(a) Commencement of operations.
(b) Based on average shares outstanding.
(c) Net of fees waived and expenses reimbursed by the Adviser.
(d) 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.
--------------------------------------------------------------------------------
ALLIANCE BOND FUND QUALITY BOND PORTFOLIO o 19
<PAGE>
----------------------------
INDEPENDENT AUDITOR'S REPORT
----------------------------
REPORT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS
To the Shareholders and Board
of Directors of Alliance Bond
Fund Quality Bond Portfolio
We have audited the accompanying statement of assets and liabilities of Alliance
Bond Fund Quality Bond Portfolio (one of the portfolios comprising the Alliance
Bond Fund, Inc.), including the portfolio of investments, as of June 30, 2000,
and the related statements of operations, changes in net assets and the
financial highlights for the period from July 1, 1999 (commencement of
operations) to June 30, 2000. 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 audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of June 30, 2000, 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
audit provides 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 Quality Bond Portfolio at June 30, 2000, the results of its
operations, changes in its net assets and the financial highlights for the
period from July 1, 1999 (commencement of operations) to June 30, 2000, in
conformity with accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
New York, New York
August 2, 2000
--------------------------------------------------------------------------------
20 o ALLIANCE BOND FUND QUALITY BOND PORTFOLIO
<PAGE>
----------------------------
GLOSSARY OF INVESTMENT TERMS
----------------------------
GLOSSARY OF INVESTMENT TERMS
asset-backed securities (ABS)
Bonds or notes backed by loan paper or accounts receivable originated by banks,
credit card companies or other providers of credit and often enhanced by a bank
letter of credit or by insurance coverage provided by an institution other than
the issuer.
barbell strategy
A portfolio strategy where the manager structures the portfolio so that it is
heavily concentrated in securities with short maturities and in securities with
long maturities.
basis point (bp)
One basis point equals 0.01%.
benchmark
A standard by which a fund's performance can be measured. A benchmark is usually
an unmanaged index, such as the Standard & Poor's 500 Stock Index or the Lehman
Brothers Aggregate Bond Index.
commercial mortgage-backed securities (CMBS)
Similar to mortgage-backed securities in that they have securities or
certificates backed by mortgages, except that investors receive payments out of
the interest and principal of commercially-owned real estate, rather than
residential real estate.
Federal Reserve Board
The seven-member board that oversees Federal Reserve Banks, establishes monetary
policy and monitors the country's economic state.
government bond
A bond that is issued by the U.S. government or its agencies.
index
A compilation of securities of similar types of companies that is used to
measure the investment performance of securities within that specific market. An
index is often used as a benchmark for a mutual fund. An investor cannot invest
directly in an index.
investment-grade bond
A bond that is rated BBB or higher by a credit agency.
mortgage-backed securities (MBS)
Securities or certificates backed by mortgages. Typically issued by institutions
such as the Federal National Mortgage Association (FNMA), Government National
Mortgage Association (GNMA) and the Federal Home Loan Mortgage Corporation
(FHLMC). Investors receive payments out of the interest and principal of the
underlying mortgages.
Treasuries
Negotiable U.S. government debt obligations, backed by the full faith and credit
of the U.S. government. Treasuries are issued either as bills, notes or bonds
depending on the maturity. Treasuries are exempt from state and local taxes.
yield
The rate of return on an asset, usually referring to dividend or interest
payments, expressed as a percentage of current market price.
--------------------------------------------------------------------------------
ALLIANCE BOND FUND QUALITY BOND PORTFOLIO o 21
<PAGE>
----------------
ALLIANCE CAPITAL
----------------
ALLIANCE CAPITAL
The Investment Professional's Choice
Alliance Capital is a leading global investment management firm with nearly $388
billion in assets under management. In recognition of our far-reaching
investment capabilities, Alliance Capital has been selected by employee benefit
plans for 29 of the FORTUNE 100 companies and public retirement funds in 33
states as well as by hundreds of foundations, endowments and foreign
institutions. By sharing this institutional money management experience with
millions of mutual fund investors as well, Alliance stands out as a "manager of
choice" for thousands of investment professionals around the world.
At Alliance Capital, we place a premium on investment research. We carefully
select securities based on our proprietary research, conducted by over 282
investment professionals in 22 investment offices worldwide. Our commitment to
this process means that our mutual fund shareholders have their portfolios
managed by the same experienced analysts and portfolio managers who manage the
pension funds of some of America's largest institutional investors.
All information on Alliance Capital is as of 6/30/00.
--------------------------------------------------------------------------------
22 o ALLIANCE BOND FUND QUALITY BOND PORTFOLIO
<PAGE>
--------------------------------
ALLIANCE CAPITAL AT YOUR SERVICE
--------------------------------
ALLIANCE CAPITAL AT YOUR SERVICE
At Alliance Capital, shareholder satisfaction is among our top priorities.
That's why we provide our shareholders with a wide variety of products and
time-saving services to meet their needs.
o Low Minimum Investments
You can begin investing in Alliance Capital funds with as little as $250
(except for Alliance Select Investor Series Premier Portfolio, Alliance
Select Investor Series Technology Portfolio and Alliance Select Investors
Series Biotechnology Portfolio, which generally have a $10,000 minimum
initial investment) and may make subsequent investments of $50 or more.
o Automatic Reinvestment
You may choose to reinvest fund dividend and capital-gains distributions
automatically at no charge.
o Automatic Investment Program
Build your investment account by having money automatically transferred
from your bank account on a regular basis.
o Dividend Direction Plans
You may cross-invest dividends from one fund into the same class of shares
in any other fund without incurring a sales charge. This can be a good way
to diversify your assets.
o The Alliance Advance
A quarterly newsletter discussing investment strategies, economic news and
other matters that could affect your mutual fund investment.
o Auto Exchange
You may choose to automatically exchange money from one Alliance Capital
fund to another on a regular basis. This can be a good way to dollar cost
average*, helping you to invest with discipline.
o Systematic Withdrawals
Regular checks for specified amounts can be sent to you or to your
brokerage or bank account.
o A Choice of Purchase Plans
Most funds are available in A, B, and C Class shares. Many funds are also
available in Advisor Class shares.
o Telephone Transaction
Purchases, transfers and redemptions can be made by calling (800)
221-5672. Our knowledgeable representatives are available to assist you
Monday through Friday from 8:30 a.m. to 8:00 p.m. Eastern Standard Time.
o Alliance Answer: 24-Hour Information
For your convenience, our computerized audio response system is available
to you 24-hours a day by calling (800) 251-0539. Using any touch tone
phone, you can hear share prices, get account balances, review details of
your last transaction, obtain dividend information, order
statements/checkbooks, review fund objectives, literature and Watchlist
information, order additional copies of statements and request additional
year-end tax forms (available from February 1 to May 31).
o Alliance Capital on the World Wide Web at www.alliancecapital.com. Here,
you can access updated account information, make additional investments,
request more information, exchange between Alliance funds and view fund
performance, press releases and articles.
* Dollar cost averaging does not assure a profit nor protect against loss in
a declining market. Since this strategy involves continuous investments in
securities, regardless of fluctuating prices, investors should consider
their financial ability to invest during periods of low price levels.
--------------------------------------------------------------------------------
ALLIANCE BOND FUND QUALITY BOND PORTFOLIO o 23
<PAGE>
------------------
BOARD OF DIRECTORS
------------------
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
Kathleen A. Corbet, Senior Vice President
Wayne D. Lyski, Senior Vice President
Paul J. DeNoon, Senior Vice President
Matthew Bloom, Vice President
F. Jeanne Goetz, Vice President
Sean Kelleher, 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 (800) 221-5672
Independent Auditors
Ernst & Young LLP
787 Seventh Avenue
New York, NY 10019
Legal Counsel
Seward & Kissel LLP
One Battery Park Plaza
New York, NY 10004
(1) Member of the Audit Committee.
--------------------------------------------------------------------------------
24 o ALLIANCE BOND FUND QUALITY BOND PORTFOLIO
<PAGE>
--------------------------------
ALLIANCE CAPITAL FAMILY OF FUNDS
--------------------------------
ALLIANCE CAPITAL FAMILY OF FUNDS
Domestic Equity Funds
Balanced Shares
Conservative Investors Fund
Disciplined Value Fund
Growth & Income Fund
Growth Fund
Growth Investors Fund
Health Care Fund
Premier Growth Fund
Quasar Fund
Real Estate Investment Fund
Technology Fund
The Alliance Fund
Utility Income Fund
Global & International Equity Funds
All-Asia Investment Fund
Global Small Cap Fund
Greater China '97 Fund
International Fund
International Premier Growth Fund
New Europe Fund
Worldwide Privatization Fund
Select Investor Series
Biotechnology Portfolio
Premier Portfolio
Technology Portfolio
Fixed Income Funds
Corporate Bond Portfolio
Global Dollar Government Fund
Global Strategic Income Trust
High Yield Fund
Multi-Market Strategy Trust
North American Government Income Trust
Quality Bond Portfolio
U.S. Government Portfolio
Municipal Income Funds
National
Insured National
Arizona
California
Insured California
Florida
Massachusetts
Michigan
Minnesota
New Jersey
New York
Ohio
Pennsylvania
Virginia
Closed-End Funds
The Spain Fund
ACM Municipal Securities Income Fund
Alliance All-Market Advantage Fund
ACM Government Income Fund
ACM Government Securities Fund
ACM Government Spectrum Fund
ACM Government Opportunity Fund
ACM Managed Income Fund
The Southern Africa Fund
The Austria Fund
Alliance World Dollar Government Fund
ACM Managed Dollar Income Fund
The Korean Investment Fund
Alliance World Dollar Government Fund II
Alliance also offers AFD Exchange Reserves, which serves as the money market
fund exchange vehicle for the Alliance mutual funds.
To obtain a prospectus for any Alliance Capital fund, call your investment
professional, or call Alliance at (800) 227-4618.
--------------------------------------------------------------------------------
ALLIANCE BOND FUND QUALITY BOND PORTFOLIO o 25
<PAGE>
Alliance Bond Fund Quality Bond Portfolio ---------------
1345 Avenue of the Americas BULK RATE
New York, NY 10105 U.S. POSTAGE
(800) 221-5672 PAID
New York, NY
Permit No. 7131
---------------
AllianceCapital [LOGO](R)
The Investment Professional's Choice
(R) These registered service marks used under license from the owner, Alliance
Capital Management L.P.
QBPAR600
