UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-02383
ALLIANCEBERNSTEIN BOND FUND, INC.
(Exact name of registrant as specified in charter)
1345 Avenue of the Americas, New York, New York 10105
(Address of principal executive offices) (Zip code)
Mark R. Manley
AllianceBernstein L.P.
1345 Avenue of the Americas
New York, New York 10105
(Name and address of agent for service)
Registrant's telephone number, including area code: (800) 221-5672
Date of fiscal year end: September 30, 2006
Date of reporting period: September 30, 2006
ITEM 1. REPORTS TO STOCKHOLDERS.
AllianceBernstein Bond Fund
Corporate Bond Portfolio
September 30, 2006
Annual Report
[LOGO]
ALLIANCEBERNSTEIN
INVESTMENTS
- ---------------------------
Investment Products Offered
o Are Not FDIC Insured
o May Lose Value
o Are Not Bank Guaranteed
- ---------------------------
The investment return and principal value of an investment in the Fund will
fluctuate as the prices of the individual securities in which it invests
fluctuate, so that your shares, when redeemed, may be worth more or less than
their original cost. You should consider the investment objectives, risks,
charges and expenses of the Fund carefully before investing. For a free copy of
the Fund's prospectus, which contains this and other information, visit our web
site at www.alliancebernstein.com or call your financial advisor or
AllianceBernstein(R) at (800) 227-4618. Please read the prospectus carefully
before you invest.
You may obtain performance information current to the most recent month-end by
visiting www.alliancebernstein.com.
This shareholder report must be preceded or accompanied by the Fund's
prospectus for individuals who are not current shareholders of the Fund.
You may obtain a description of the Fund's proxy voting policies and
procedures, and information regarding how the Fund voted proxies relating to
portfolio securities during the most recent 12-month period ended June 30,
without charge. Simply visit AllianceBernstein's web site at
www.alliancebernstein.com, or go to the Securities and Exchange Commission's
(the "Commission") web site at www.sec.gov, or call AllianceBernstein at (800)
227-4618.
The Fund files its complete schedule of portfolio holdings with the Commission
for the first and third quarters of each fiscal year on Form N-Q. The Fund's
Forms N-Q are available on the Commission's web site at www.sec.gov. The Fund's
Forms N-Q may also be reviewed and copied at the Commission's Public Reference
Room in Washington, DC; information on the operation of the Public Reference
Room may be obtained by calling (800) SEC-0330.
AllianceBernstein Investments, Inc. is an affiliate of AllianceBernstein L.P.,
the manager of the AllianceBernstein funds, and is a member of the NASD.
AllianceBernstein(R) and the AB Logo are registered trademarks and service
marks used by permission of the owner, AllianceBernstein L.P.
November 20, 2006
Annual Report
This report provides management's discussion of fund performance for
AllianceBernstein Bond Fund Corporate Bond Portfolio (the "Portfolio") for the
annual reporting period ended September 30, 2006.
Investment Objective and Policies
This open-end fund seeks to maximize total returns from price appreciation and
income. The Portfolio invests, under normal circumstances, at least 80% of its
net assets in corporate bonds and other corporate debt securities. The
Portfolio also invests in securities of non-corporate issuers. The Portfolio
invests primarily in fixed-income securities considered investment grade but
also invests in below investment-grade securities. The Portfolio may invest up
to 50% of its assets in foreign (non-U.S.) fixed-income securities and in
sovereign debt obligations. All of the Portfolio's investments, whether foreign
or domestic, are U.S. dollar-denominated. The Portfolio may invest in debt
securities with a range of maturities from short- to long-term.
Investment Results
The table on page 6 shows the Portfolio's performance compared to its new
benchmark, the Lehman Brothers (LB) Baa U.S. Credit Index, and its old
benchmark, the LB Long Baa U.S. Credit Index, for the six- and 12-month periods
ended September 30, 2006. The Fund's benchmark was changed because the new
benchmark contains securities whose duration is much more closely aligned with
the Portfolio's strategy. Performance for the Lipper Corporate Debt BBB-Rated
Funds Average has also been included. Funds in the Lipper Average have
generally similar investment objectives to the Portfolio, although some may
have different investment policies and sales and management fees.
The Portfolio's Class A Shares outperformed the new benchmark, the LB Baa U.S.
Credit Index, for the 12-month period ended September 30, 2006 and
underperformed for the six-month period. Contributing positively during both
periods was the Portfolio's exposure to high yield and crossover holdings,
which outperformed during the 12-month period. Early in the period, the
Portfolio's underweight to the leisure/entertainment industry, which
underperformed, contributed positively to relative performance. The Portfolio's
security selection within the cable media industry also contributed positively
to performance during both periods.
Detracting from relative performance for both the six- and 12-month periods was
the Portfolio's shorter-than-benchmark duration, especially in the final three
months of the period, as fixed-income assets rallied. Also detracting from
performance early in the period was the Portfolio's overweight position in the
telecommunication industry, which underperformed.
Market Review and Investment Strategy
U.S. fixed-income returns were generally weak in the first three quarters of
the 12-month period, buffeted by higher interest rates and continued U.S.
Federal Reserve ("Fed") interest rate increases. In the third quarter, however,
both fixed-income and eq-
ALLIANCEBERNSTEIN BOND FUND CORPORATE BOND PORTFOLIO o 1
uity markets bounced back strongly, sparked by evidence of a cooling U.S.
economy led by a slowdown in the housing market, fading inflation concerns and
the first U.S. monetary policy shift in more than two years. The Fed left the
Fed funds rate unchanged at 5.25% in August and September, following 425 basis
points of consecutive rate hikes. Yields across the maturity spectrum rose
during the period as the Fed raised rates, with the 10-year yield gaining 30
basis points to end the period at 4.63%. The Treasury yield curve inverted on
the short end of the curve with the yield spread between the two-year yield and
the 30-year yield at only 8 basis points.
The corporate bond market posted a relatively weak absolute return of 3.32% for
the annual period but outperformed duration-neutral Treasuries by 0.35%.
Intermediate credit, which returned 3.46%, outperformed long credit, which
returned 3.02%, as longer maturity securities were more negatively impacted by
rising rates. For the year, all industries posted positive returns.
Outperforming industries included airlines, which returned 9.24%, services,
which returned 8.58%, tobacco, which returned 6.66% and supermarkets, which
returned 6.03%. Airlines gained, as they were able to pass along fare increases
while capacity was reduced. The supermarkets industry benefited as leveraged
buyout fears receded and investors focused more on a rebound in same-store
sales and profit margins.
Industries which underperformed included automotives, returning 0.62%, building
materials, returning 1.44% and wireless telecommunications, returning 1.77%.
The automotive industry continued to be plagued by deteriorating financial
conditions and a slowdown in sales. Building materials were negatively impacted
by higher mortgage rates and a slowdown in the real estate market.
The corporate high yield market, as represented by the Lehman Brothers High
Yield Index, posted an absolute return of 8.07%, significantly outperforming
both investment-grade corporate bonds and U.S. Treasuries. High yield was
helped by strong fundamentals, investors willingness to assume risk and a
strong rally in the third quarter, as the Fed halted its rate hikes. By quality
tier, lower-rated debt outperformed higher-quality debt with B-rated debt
returning 7.64% and BB-rated debt returning 5.17%. Similar to investment-grade
credit, all industry sectors posted positive returns for the reporting period.
Early in the period, the Portfolio's U.S. Investment Grade Corporate Bond and
U.S. High Yield investment team (the "team") positioned the Portfolio in
anticipation of rising interest rates. Accordingly, the team maintained a
shorter-than-benchmark interest rate exposure and a slightly longer spread
duration exposure. A relatively conservative credit profile was also maintained
in the Portfolio, as risks increased and spreads remained historically tight,
particularly in the below-investment-grade category. The Portfolio's maturity
distribution took a more neutral position relative to the benchmark, with a
slight underweight in long duration exposure. The team maintained a more modest
exposure to high yield in the Portfolio, while concentrating most of
2 o ALLIANCEBERNSTEIN BOND FUND CORPORATE BOND PORTFOLIO
the below-investment-grade exposure to crossover issues. Industries which were
overweighted during the period included wirelines, where Portfolio analysts'
quantitative models indicated cheap valuations. The team also favored banks, as
well as property and casualty insurance, which are traditionally resilient to
leveraged buyouts. High quality banks were also utilized by the Portfolio to
offset lower-quality holdings. Underweighted industries for the 12-month period
included automotives, building materials, home construction and energy.
Late in the period, as the U.S. economy slowed and prospects increased for a
more accommodative Fed policy stance, the Portfolio's duration was increased to
a near-neutral position versus its index. The team also modestly increased the
Portfolio's high yield position. Despite the expected end to additional rate
increases, the Portfolio remained underweighted in long duration credit
exposure, as a nearly flat yield curve adds little incremental compensation for
additional interest rate risk.
ALLIANCEBERNSTEIN BOND FUND CORPORATE BOND PORTFOLIO o 3
HISTORICAL PERFORMANCE
An Important Note About the Value of Historical Performance
The performance shown on the following pages represents past performance and
does not guarantee future results. Current performance may be lower or higher
than the performance information shown. You may obtain performance information
current to the most recent month-end by visiting www.alliancebernstein.com.
The investment return and principal value of an investment in the Portfolio
will fluctuate, so that your shares, when redeemed, may be worth more or less
than their original cost. You should consider the investment objectives, risks,
charges and expenses of the Portfolio carefully before investing. For a free
copy of the Portfolio's prospectus, which contains this and other information,
visit our website at www.alliancebernstein.com or call your financial advisor
or AllianceBernstein Investments at 800.227.4618. You should read the
prospectus carefully before you invest.
All fees and expenses related to the operation of the Portfolio have been
deducted. NAV returns do not reflect sales charges; if sales charges were
reflected, the Portfolio's quoted performance would be lower. SEC returns
reflect the applicable sales charges for each share class: a 4.25% maximum
front-end sales charge for Class A shares; the applicable contingent deferred
sales charge for Class B shares (3% year 1, 2% year 2, 1% year 3, 0% year 4); a
1% 1 year contingent deferred sales charge for Class C shares. Returns for the
different share classes will vary due to different expenses associated with
each class. Performance assumes reinvestment of distributions and does not
account for taxes.
Benchmark Disclosure
Neither the unmanaged Lehman Brothers (LB) Baa U.S. Credit Index nor the LB
Long Baa U.S. Credit Index reflects fees and expenses associated with the
active management of a mutual fund portfolio. The LB Baa U.S. Credit Index
contains both corporate and non-corporate sectors that are rated investment
grade. The LB Long Baa Credit Index is a measure of corporate and non-corporate
fixed-income securities that are rated investment grade (Baa by Moody's
Investors Service or BBB by Standard & Poor's) and have at least 10 years to
final maturity. The unmanaged Lipper Corporate Debt BBB-Rated Funds Average
(the "Lipper Average") is based on the performance of a universe of funds that
invest at least 65% of their assets in corporate or government debt issues
rated in the top four grades. For the six- and 12-month periods ended September
30, 2006, the Lipper Average consisted of 169 and 166 funds, respectively. An
investor cannot invest directly in an index or an average, and their results
are not indicative of the performance for any specific investment, including
the Portfolio.
(Historical Performance continued on next page)
4 o ALLIANCEBERNSTEIN BOND FUND CORPORATE BOND PORTFOLIO
HISTORICAL PERFORMANCE
(continued from previous page)
A Word About Risk
The Portfolio can invest in foreign securities, including in emerging markets,
which may magnify fluctuations due to changes in foreign exchange rates and the
possibility of substantial volatility due to political and economic
uncertainties in foreign countries. Price fluctuation in the Portfolio's
securities may be caused by changes in the general level of interest rates or
changes in bond credit quality ratings. Please note, as interest rates rise,
existing bond prices fall and can cause the value of an investment in the
Portfolio to decline. Changes in interest rates have a greater effect on bonds
with longer maturities than on those with shorter maturities. High yield bonds,
otherwise known as "junk bonds", involve a greater risk of default and price
volatility than other bonds. Investing in below-investment grade securities
presents special risks, including credit risk. Investments in the Portfolio are
not guaranteed because of fluctuation in the net asset value of the underlying
fixed-income related investments. Similar to direct bond ownership, bond funds
have the same interest rate, inflation and credit risks that are associated
with the underlying bonds owned by the Portfolio. Portfolio purchasers should
understand that, in contrast to owning individual bonds, there are ongoing fees
and expenses associated with owning shares of bond funds. This Portfolio can
utilize leverage as an investment strategy. When a Portfolio borrows money or
otherwise leverages its portfolio, it may be volatile because leverage tends to
exaggerate the effect of any increase or decrease in the value of a Portfolio's
investments. A Portfolio may create leverage through the use of reverse
repurchase arrangements, forward contracts or dollar rolls or by borrowing
money. While the Portfolio invests principally in bonds and other fixed-income
securities, in order to achieve its investment objectives, the Portfolio may at
times use certain types of investment derivatives, such as options, futures,
forwards and swaps. These instruments involve risks different from, and in
certain cases, greater than, the risks presented by more traditional
investments. These risks are fully discussed in the Portfolio's prospectus.
(Historical Performance continued on next page)
ALLIANCEBERNSTEIN BOND FUND CORPORATE BOND PORTFOLIO o 5
HISTORICAL PERFORMANCE
(continued from previous page)
Returns
THE PORTFOLIO VS. ITS BENCHMARK ----------------------------
PERIODS ENDED SEPTEMBER 30, 2006 6 Months 12 Months
- -------------------------------------------------------------------------------
AllianceBernstein Bond Fund
Corporate Bond Portfolio
Class A 3.96% 3.86%
Class B 3.51% 3.05%
Class C 3.51% 3.05%
Advisor Class* 4.04% 4.09%
Class R* 3.72% 3.46%
Class K* 4.00% 3.94%
Class I* 4.15% 4.22%
Lehman Brothers Baa U.S.
Credit Index 4.17% 3.32%
Lehman Brothers Long Baa
U.S. Credit Index 5.04% 3.02%
Lipper Corporate Debt
BBB-Rated Funds Average 3.57% 3.51%
* Please note that these share classes are for investors purchasing shares
through institutional pension plans and investment advisory clients of, and
certain other persons associated with, the advisor and its affiliates or the
Funds.
GROWTH OF A $10,000 INVESTMENT IN THE PORTFOLIO
9/30/96 TO 9/30/06
[THE FOLLOWING DATA WAS REPRESENTED BY A MOUNTAIN CHART IN THE PRINTED MATERIAL]
LB Long Baa U.S. Credit Index: $21,511
LB Baa U.S. Credit Index: $19,454
AllianceBernstein Bond Fund Corporate Bond Portfolio Class A: $17,529
AllianceBernstein
Bond Fund
Corporate Bond LB Long
Portfolio Baa U.S. LB Baa U.S.
Class A Credit Index Credit Index
- -------------------------------------------------------------------------------
9/30/96 $ 9,575 $ 10,000 $ 10,000
9/30/97 $ 11,317 $ 11,435 $ 11,182
9/30/98 $ 10,844 $ 12,686 $ 12,274
9/30/99 $ 11,186 $ 12,272 $ 12,186
9/30/00 $ 12,078 $ 12,843 $ 12,821
9/30/01 $ 12,997 $ 14,346 $ 14,303
9/30/02 $ 12,420 $ 15,208 $ 15,011
9/30/03 $ 15,043 $ 18,383 $ 17,342
9/30/04 $ 16,248 $ 19,861 $ 18,341
9/30/05 $ 16,875 $ 20,880 $ 18,829
9/30/06 $ 17,529 $ 21,511 $ 19,454
This chart illustrates the total value of an assumed $10,000 investment in
AllianceBernstein Bond Fund Corporate Bond Portfolio Class A shares (from
9/30/96 to 9/30/06) as compared to the performance of the Portfolio's new
benchmark, the Lehman Brothers Baa U.S. Credit Index, and the Portfolio's old
benchmark, the Lehman Brothers Long Baa U.S. Credit 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 distributions.
See Historical Performance and Benchmark disclosures on pages 4-5.
(Historical Performance continued on next page)
6 o ALLIANCEBERNSTEIN BOND FUND CORPORATE BOND PORTFOLIO
HISTORICAL PERFORMANCE
(continued from previous page)
AVERAGE ANNUAL RETURNS AS OF SEPTEMBER 30, 2006
NAV Returns SEC Returns
- -------------------------------------------------------------------------------
Class A Shares
1 Year 3.86% -0.53%
5 Years 6.17% 5.25%
10 Years 6.23% 5.77%
SEC Yield** 4.48%
Class B Shares
1 Year 3.05% 0.09%
5 Years 5.40% 5.40%
10 Years(a) 5.79% 5.79%
SEC Yield** 3.97%
Class C Shares
1 Year 3.05% 2.07%
5 Years 5.42% 5.42%
10 Years 5.48% 5.48%
SEC Yield** 3.99%
Advisor Class Shares+
1 Year 4.09% 4.09%
Since Inception* 10.16% 10.16%
SEC Yield** 4.99%
Class R Shares+
1 Year 3.46% 3.46%
Since Inception* 5.21% 5.21%
SEC Yield** 4.42%
Class K Shares+
1 Year 3.94% 3.94%
Since Inception* 1.89% 1.89%
SEC Yield** 4.71%
Class I Shares+
1 Year 4.22% 4.22%
Since Inception* 2.19% 2.19%
SEC Yield** 5.06%
(a) Assumes conversion of Class B shares into Class A shares after six years.
* Inception Dates: 8/8/02 for Advisor Class shares; 11/3/03 for Class R
shares; 3/1/05 for Class K and Class I shares.
** SEC yields are calculated based on SEC guidelines for the 30-day period
ended September 30, 2006.
+ These share classes are offered at net asset value (NAV) to eligible
investors and their SEC returns are the same as the NAV returns. Please note
that these share classes are for investors purchasing shares through
institutional pension plans and investment advisory clients of, and certain
other persons associated with, the Adviser and its affiliates or the Funds. The
inception dates for these share classes are listed above.
See Historical Performance disclosures on pages 4-5.
(Historical Performance continued on next page)
ALLIANCEBERNSTEIN BOND FUND CORPORATE BOND PORTFOLIO o 7
HISTORICAL PERFORMANCE
(continued from previous page)
SEC AVERAGE ANNUAL RETURNS (WITH ANY APPLICABLE SALES CHARGES) AS OF THE MOST
RECENT CALENDAR QUARTER-END (SEPTEMBER 30, 2006)
SEC Returns
- -------------------------------------------------------------------------------
Class A Shares
1 Year -0.53%
5 Years 5.25%
10 Years 5.77%
Class B Shares
1 Year 0.09%
5 Years 5.40%
10 Years(a) 5.79%
Class C Shares
1 Year 2.07%
5 Years 5.42%
10 Years 5.48%
Advisor Class Shares+
1 Year 4.09%
Since Inception* 10.16%
Class R Shares+
1 Year 3.46%
Since Inception* 5.21%
Class K Shares+
1 Year 3.94%
Since Inception* 1.89%
Class I Shares+
1 Year 4.22%
Since Inception* 2.19%
(a) Assumes conversion of Class B shares into Class A shares after six years.
* Inception Dates: 8/8/02 for Advisor Class shares; 11/3/03 for Class R
shares; 3/1/05 for Class K and Class I shares.
+ Please note that these share classes are for investors purchasing shares
through institutional pension plans and investment advisory clients of, and
certain other persons associated with, the Adviser and its affiliates or the
Funds. The inception dates for these share classes are listed above.
See Historical Performance disclosures on pages 4-5.
8 o ALLIANCEBERNSTEIN BOND FUND CORPORATE BOND PORTFOLIO
FUND EXPENSES
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including sales charges (loads) on purchase payments, contingent
deferred sales charges on redemptions and (2) ongoing costs, including
management fees; distribution (12b-1) fees; and other Fund expenses. This
example is intended to help you understand your ongoing costs (in dollars) of
investing in the Fund and to compare these costs with the ongoing costs of
investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of
the period and held for the entire period as indicated below.
Actual Expenses
The table below provides information about actual account values and actual
expenses. You may use the information, together with the amount you invested,
to estimate the expenses that you paid over the period. Simply divide your
account value by $1,000 (for example, an $8,600 account value divided by $1,000
= 8.6), then multiply the result by the number under the heading entitled
"Expenses Paid During Period" to estimate the expenses you paid on your account
during this period.
Hypothetical Example for Comparison Purposes
The table below also provides information about hypothetical account values and
hypothetical expenses based on the Fund's actual expense ratio and an assumed
annual rate of return of 5% before expenses, which is not the Fund's actual
return. The hypothetical account values and expenses may not be used to
estimate the actual ending account balance or expenses you paid for the period.
You may use this information to compare the ongoing costs of investing in the
Fund and other funds by comparing this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads), or contingent deferred sales charges on redemptions.
Therefore, the hypothetical example is useful in comparing ongoing costs only,
and will not help you determine the relative total costs of owning different
funds. In addition, if these transactional costs were included, your costs
would have been higher.
Beginning Ending
Account Value Account Value Expenses Paid
April 1, 2006 September 30, 2006 During Period*
- ---------------------------------------------------------------------------------------------------------
Actual Hypothetical Actual Hypothetical** Actual Hypothetical
- ---------------------------------------------------------------------------------------------------------
Class A $1,000 $1,000 $1,039.64 $1,019.55 $5.62 $5.57
Class B $1,000 $1,000 $1,035.11 $1,015.94 $9.29 $9.20
Class C $1,000 $1,000 $1,035.14 $1,015.99 $9.23 $9.15
Advisor
Class $1,000 $1,000 $1,040.36 $1,021.06 $4.09 $4.05
Class R $1,000 $1,000 $1,037.16 $1,018.10 $7.10 $7.03
Class K $1,000 $1,000 $1,039.96 $1,019.90 $5.27 $5.22
Class I $1,000 $1,000 $1,041.45 $1,021.36 $3.79 $3.75
* Expenses are equal to the classes' annualized expense ratios of 1.10%,
1.82%, 1.81%, 0.80%, 1.39%, 1.03% and 0.74%, respectively, multiplied by the
average account value over the period, multiplied by 183/365 (to reflect the
one-half year period).
** Assumes 5% return before expenses.
ALLIANCEBERNSTEIN BOND FUND CORPORATE BOND PORTFOLIO o 9
PORTFOLIO SUMMARY
September 30, 2006
PORTFOLIO STATISTICS
Net Assets ($mil): $612.0
SECURITY TYPE BREAKDOWN*
o 10.8% Preferred Stock [PIE CHART OMITTED]
o 1.6% Asset Backed Securities
CORPORATE DEBT OBLIGATIONS
o 11.4% Public Utilities - Electric & Gas [PIE CHART OMITTED]
o 8.7% Banking
o 7.1% Financial
o 5.7% Food & Beverages
o 5.7% Broadcasting/Media
o 4.8% Communications
o 4.7% Cable
o 4.7% Insurance
o 3.9% Petroleum Products
o 3.2% Metals/Mining
o 3.1% Paper/Packaging
o 2.7% Public Utilities - Telephone
o 2.7% Health Care
o 19.1% Other
o 0.1% Short-Term
* All data are as of September 30, 2006. The Portfolio's security type
breakdown is expressed as a percentage of total investments (excluding security
lending collateral) and may vary over time. "Other" represents less than 2.6%
weightings in automotive, building/real estate, chemicals,
communications-fixed, communications-mobile, energy, gaming, industrial,
non-air transportation, publishing, retail, supermarket/drug and technology.
10 o ALLIANCEBERNSTEIN BOND FUND CORPORATE BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
September 30, 2006
Principal
Amount
(000) U.S. $ Value
- -------------------------------------------------------------------------------
CORPORATE DEBT OBLIGATIONS-86.2%
Automotive-0.5%
DaimlerChrysler North America
4.875%, 6/15/10 $ 3,150 $ 3,060,549
Banking-8.6%
CA Preferred Funding Trust
7.00%, 1/30/49 9,000 9,101,700
Dresdner Funding Trust I
8.151%, 6/30/31(a) 10,000 11,843,430
HBOS PLC
6.413%, 9/29/49(a) 5,000 4,825,750
Mizuho Finance Group
8.375%, 12/29/49 9,100 9,640,540
Russian Standard Finance
7.50%, 10/07/10(a) 1,314 1,274,580
UBS Preferred Funding Trust I
8.622%, 10/29/49 10,000 11,128,320
Wachovia Capital Trust III
5.80%, 8/29/49 4,710 4,722,783
------------
52,537,103
Broadcasting/Media-5.6%
BSKYB Finance UK PLC
6.50%, 10/15/35(a) 4,000 3,915,112
Clear Channel Communications, Inc.
5.50%, 9/15/14 5,000 4,645,450
5.75%, 1/15/13 5,000 4,805,330
News America, Inc.
6.40%, 12/15/35 5,000 4,903,660
Time Warner, Inc.
7.70%, 5/01/32* 5,000 5,583,690
Turner Broadcasting System, Inc.
8.375%, 7/01/13 9,473 10,646,629
------------
34,499,871
Building/Real Estate-1.3%
D.R. Horton, Inc.
6.00%, 4/15/11 4,256 4,230,979
Developers Diversified Realty Corp.
5.375%, 10/15/12 3,850 3,810,595
------------
8,041,574
Cable-4.6%
AT&T Broadband Corp.
9.455%, 11/15/22 15,420 19,952,925
DirecTV Holdings LLC
6.375%, 6/15/15 5,155 4,845,700
ALLIANCEBERNSTEIN BOND FUND CORPORATE BOND PORTFOLIO o 11
Principal
Amount
(000) U.S. $ Value
- -------------------------------------------------------------------------------
Insight Midwest LP
9.75%, 10/01/09 $ 2,000 $ 2,035,000
Rogers Cable, Inc.
7.875%, 5/01/12 1,500 1,601,250
------------
28,434,875
Chemicals-0.9%
Union Carbide Corp.
7.75%, 10/01/96* 5,000 5,260,210
Communications-4.7%
British Telecommunications PLC
8.375%, 12/15/10 12,000 13,447,716
Sprint Capital Corp.
7.625%, 1/30/11 5,000 5,383,555
TCI Communications Financing III
9.65%, 3/31/27 5,000 5,310,095
Viacom, Inc.
5.75%, 4/30/11(a) 4,500 4,491,027
------------
28,632,393
Communications - Fixed-0.8%
Embarq Corp.
6.738%, 6/01/13 5,000 5,144,380
Communications - Mobile-2.5%
Nextel Communications, Inc.
Series E
6.875%, 10/31/13 5,000 5,089,715
Series D
7.375%, 8/01/15 10,000 10,317,390
------------
15,407,105
Energy-2.0%
Kinder Morgan Finance Corp.
5.35%, 1/05/11 5,000 4,862,870
Ras Laffan LNG III
Series B
5.838%, 9/30/27(a) 6,200 5,982,008
Tesoro Corp.
6.25%, 11/01/12(a) 1,500 1,445,625
------------
12,290,503
Financial-6.9%
AFC Capital Trust I
8.207%, 2/03/27* 5,000 5,196,625
BOI Capital Funding Number 2
5.571%, 2/01/16(a) 1,425 1,374,537
ILFC E-Capital Trust II
6.25%, 12/21/65(a) 1,500 1,499,511
12 o ALLIANCEBERNSTEIN BOND FUND CORPORATE BOND PORTFOLIO
Principal
Amount
(000) U.S. $ Value
- -------------------------------------------------------------------------------
iStar Financial, Inc.
5.375%, 4/15/10 $ 2,500 $ 2,486,950
6.00%, 12/15/10 4,505 4,580,161
Mitsubishi UFG Capital Finance 1, Ltd.
6.346%, 7/29/49 2,400 2,419,466
Residential Capital Corp.
6.375%, 6/30/10 10,000 10,117,780
Resona Preferred Global Securities
7.191%, 12/29/49(a) 5,000 5,175,000
Washington Mutual Preferred Funding Trust I
6.534%, 3/29/49(a)* 2,700 2,652,480
ZFS Finance USA Trust I
6.15%, 12/15/65(a)* 7,000 6,966,337
------------
42,468,847
Food & Beverage-5.7%
Altria Group, Inc.
7.75%, 1/15/27* 5,000 6,054,065
ConAgra Foods, Inc.
7.875%, 9/15/10 3,707 4,031,722
Reynolds American, Inc.
7.25%, 6/01/13(a) 3,000 3,087,084
7.625%, 6/01/16(a) 9,000 9,335,781
Tyson Foods, Inc.
8.25%, 10/01/11* 11,250 12,092,715
------------
34,601,367
Gaming-1.5%
Harrah's Operating Co., Inc.
5.375%, 12/15/13 10,000 9,352,640
Health Care-2.6%
Boston Scientific Corp.
6.00%, 6/15/11 3,000 3,017,907
Coventry Health Care, Inc.
5.875%, 1/15/12 1,660 1,647,004
Humana, Inc.
6.45%, 6/01/16 2,200 2,279,708
WellPoint, Inc.
5.85%, 1/15/36* 4,400 4,267,740
Wyeth
6.50%, 2/01/34 4,500 4,857,282
------------
16,069,641
Industrial-2.5%
Inco, Ltd.
5.70%, 10/15/15 7,995 7,705,485
Tyco International Group, SA
6.00%, 11/15/13 5,050 5,225,892
6.875%, 1/15/29 2,000 2,226,476
------------
15,157,853
ALLIANCEBERNSTEIN BOND FUND CORPORATE BOND PORTFOLIO o 13
Principal
Amount
(000) U.S. $ Value
- -------------------------------------------------------------------------------
Insurance-4.6%
Farmers Insurance Exchange
8.625%, 5/01/24(a) $ 3,000 $ 3,554,220
Liberty Mutual Group
6.70%, 8/15/16(a) 5,000 5,193,140
North Front Pass-Thru Trust
5.81%, 12/15/24(a) 5,000 4,912,390
Ohio Casualty Corp.
7.30%, 6/15/14 6,650 7,062,978
WR Berkley Corp.
5.60%, 5/15/15 7,500 7,364,070
------------
28,086,798
Metals/Mining-3.2%
Alcan, Inc.
5.20%, 1/15/14 3,500 3,415,709
International Steel Group, Inc.
6.50%, 4/15/14 2,565 2,532,938
Ispat Inland ULC
9.75%, 4/01/14 6,000 6,757,500
Southern Copper Corp.
7.50%, 7/27/35 1,900 1,988,567
Teck Cominco, Ltd.
6.125%, 10/01/35 5,000 4,803,185
------------
19,497,899
Non-Air Transportation-2.3%
BNSF Funding Trust I
6.613%, 12/15/55 6,815 6,849,682
CSX Transportation, Inc.
9.75%, 6/15/20 5,200 7,012,980
------------
13,862,662
Paper/Packaging-3.0%
Packaging Corp. of America
5.75%, 8/01/13 2,825 2,772,478
Weyerhaeuser Co.
6.75%, 3/15/12* 15,000 15,676,980
------------
18,449,458
Petroleum Products-3.8%
Enterprise Products Operating LP
5.00%, 3/01/15 10,000 9,378,030
6.65%, 10/15/34 8,000 8,009,864
Tengizchevroil Finance Co.
6.124%, 11/15/14(a) 6,215 6,152,850
------------
23,540,744
Public Utilities - Electric & Gas-11.2%
Aquila, Inc.
14.875%, 7/01/12* 2,435 3,195,937
Duke Capital LLC
6.75%, 2/15/32* 6,000 6,359,754
Senior Note
8.00%, 10/01/19 9,000 10,456,650
14 o ALLIANCEBERNSTEIN BOND FUND CORPORATE BOND PORTFOLIO
Principal
Amount
(000) U.S. $ Value
- -------------------------------------------------------------------------------
Energy Transfer Partners LP
5.95%, 2/01/15* $ 1,500 $1,496,933
Exelon Corp.
6.75%, 5/01/11 5,000 5,253,825
Indiantown Cogeneration LP
Series A-9
9.26%, 12/15/10 6,489 6,758,911
Kansas Gas & Electric
5.647%, 3/29/21* 5,000 4,842,100
Potomac Edison Co.
5.35%, 11/15/14 3,500 3,440,433
Progress Energy, Inc.
7.10%, 3/01/11 6,000 6,431,646
TECO Energy, Inc.
7.00%, 5/01/12 5,000 5,175,000
7.20%, 5/01/11 5,000 5,212,500
TXU Corp.
5.55%, 11/15/14 7,000 6,613,446
Xcel Energy, Inc.
6.50%, 7/01/36 3,300 3,481,639
------------
68,718,774
Public Utilities - Telephone-2.7%
Telecom Italia Capital
4.00%, 1/15/10 5,000 4,737,550
Verizon New England, Inc.
6.50%, 9/15/11 5,000 5,129,255
Verizon New Jersey, Inc.
5.875%, 1/17/12 5,000 5,050,525
Windstream Corp.
8.125%, 8/01/13(a) 1,369 1,452,851
------------
16,370,181
Publishing-0.4%
R.R. Donnelley & Sons Co.
4.95%, 4/01/14 2,400 2,159,647
Retail-1.3%
Federated Department Stores, Inc.
6.625%, 4/01/11 2,500 2,588,495
GSC Holdings Corp
8.00%, 10/01/12* 5,000 5,150,000
------------
7,738,495
Supermarket/Drug-2.0%
Delhaize America, Inc.
9.00%, 4/15/31 2,000 2,342,778
Safeway, Inc.
5.80%, 8/15/12 5,000 5,005,465
The Kroger Co.
4.95%, 1/15/15 5,250 4,933,052
------------
12,281,295
ALLIANCEBERNSTEIN BOND FUND CORPORATE BOND PORTFOLIO o 15
Shares or
Principal
Amount
(000) U.S. $ Value
- -------------------------------------------------------------------------------
Technology-1.0%
Electronic Data Systems Corp.
6.00%, 8/01/13 $ 6,000 $ 6,086,556
Total Corporate Debt Obligations
(cost $527,725,504) 527,751,420
PREFERRED STOCKS-10.6%
Banking-2.6%
CoBank
Series B(a) 100 5,443,200
Royal Bank of Scotland Group PLC
Series N 200 5,060,000
US Bancorp 200 5,170,000
------------
15,673,200
Building/Real Estate-0.8%
Equity Residential
Series N* 200 4,988,000
Communications-3.8%
Centaur Funding Corp.
Series B(a) 20 23,486,775
Financial-3.4%
Merrill Lynch & Co., Inc.
Series 3 400 10,356,000
Morgan Stanley Group, Inc.
Series A 400 10,320,000
------------
20,676,000
Total Preferred Stocks
(cost $60,280,000) 64,823,975
ASSET BACKED SECURITIES-1.6%
Chase Issuance Trust
Series 2005-A7 Class A7
4.55%, 3/15/13
(cost $10,041,145) $ 10,000 9,843,750
SHORT-TERM INVESTMENT-0.1%
Time Deposit-0.1%
State Street Euro Dollar
4.60%, 10/02/06
(cost $300,000) 300 300,000
Total Investments Before Security Lending
Collateral-98.5%
(cost $598,346,649) 602,719,145
16 o ALLIANCEBERNSTEIN BOND FUND CORPORATE BOND PORTFOLIO
Shares or
Principal
Amount
(000) U.S. $ Value
- -------------------------------------------------------------------------------
INVESTMENT OF CASH COLLATERAL FOR
SECURITIES LOANED-9.1%
Short-Term Investments
Fountain Square Funding
5.42%, 10/02/06 $ 5,000 $ 4,999,247
Gemini Finance
5.29%-5.39%, 10/02/06-10/12/06 26,800 26,786,056
Giro Balanced Funding
5.30%, 10/26/06 10,000 9,963,368
Variable Funding Corp.
5.29%, 10/23/06 10,000 9,967,794
------------
51,716,465
UBS Private Money Market Fund, LLC 4,010,857 4,010,857
Total Investment of Cash Collateral for
Securities Loaned
(cost $55,727,322) 55,727,322
Total Investments-107.6%
(cost $654,073,971) 658,446,467
Other assets less liabilities-(7.6)% (46,460,532)
Net Assets-100% $ 611,985,935
CREDIT DEFAULT SWAP CONTRACTS (see Note D)
Notional Unrealized
Swap Counterparty & Amount Interest Termination Appreciation/
Referenced Obligation(s) (000) Rate Date (Depreciation)
- -------------------------------------------------------------------------------
Buy:
JPMorgan $ 4,700 .35% 3/20/11 $(20,243)
Wachovia Capital
Trust III
Morgan Stanley 3,400 1.82% 9/20/11 (55,820)
Kinder Morgan, Inc.
Morgan Stanley 1,600 1.83% 9/20/11 (26,923)
Kinder Morgan, Inc.
Morgan Stanley 5,000 .37% 6/20/11 10,985
Time Warner, Inc.
ALLIANCEBERNSTEIN BOND FUND CORPORATE BOND PORTFOLIO o 17
CREDIT DEFAULT SWAP CONTRACTS (see Note D) (continued)
Notional Unrealized
Swap Counterparty & Amount Interest Termination Appreciation/
Referenced Obligation(s) (000) Rate Date (Depreciation)
- -------------------------------------------------------------------------------
Sell:
Lehman Brothers $ 10,000 1.58% 9/20/07 $57,828
Avalon Bay
Communities, Inc.
Series H,
Preferred Stock
CIT Group, Inc.
Series A,
Preferred Stock
Duke Energy Corp.,
Series C,
Preferred Stock
Merrill Lynch & Co., Inc.
Series 1,
Preferred Stock
MetLife, Inc.,
Series B,
Preferred Stock
Royal Bank of
Scotland
Group PLC,
Series M,
Preferred Stock
Washington
Mutual, Inc.
Series A
Merrill Lynch 6,000 .53% 12/20/15 35,172
Union Pacific Corp.
INTEREST RATE SWAP (see Note D)
Rate Type
----------------------------
Notional Payments Payments
Swap Amount Termination made by received by Unrealized
Counterparty (000) Date the Portfolio the Portfolio Appreciation
- -------------------------------------------------------------------------------
JPMorgan $22,000 8/04/36 3 Month LIBOR+ 5.643% $1,167,586
+ LIBOR (London Interbank Offered Rate)
* Represents entire or partial securities out on loan. See Note E for
securities lending information.
(a) Security is exempt from registration under Rule 144A of the Securities
Act of 1933. These securities are considered liquid and may be resold in
transactions exempt from registration, normally to qualified institutional
buyers. At September 30, 2006, the aggregate market value of these securities
amounted to $114,063,688 or 18.6% of net assets.
See notes to financial statements.
18 o ALLIANCEBERNSTEIN BOND FUND CORPORATE BOND PORTFOLIO
STATEMENT OF ASSETS & LIABILITIES
September 30, 2006
Assets
Investments in securities, at value
(cost $654,073,971--including investment
of cash collateral for securities
loaned of $55,727,322) $ 658,446,467(a)
Cash 49,968
Interest and dividends receivable 10,904,369
Receivable for investment securities sold 3,444,457
Receivable for capital stock sold 2,132,044
Unrealized appreciation of swap contracts 1,271,571
Total assets 676,248,876
Liabilities
Payable for collateral on securities loaned 55,727,322
Payable for capital stock redeemed 3,493,339
Payable for investment securities purchased 3,082,694
Dividends payable 985,981
Distribution fee payable 260,814
Advisory fee payable 251,991
Unrealized depreciation of swap contracts 102,986
Transfer agent fee payable 81,596
Administrative fee payable 25,508
Accrued expenses 250,710
Total liabilities 64,262,941
Net Assets $ 611,985,935
Composition of Net Assets
Capital stock, at par $ 51,717
Additional paid-in capital 896,134,999
Undistributed net investment income 77,048
Accumulated net realized loss on investment transactions (289,818,910)
Net unrealized appreciation of investments 5,541,081
$ 611,985,935
Net Asset Value Per Share--21 billion shares of capital stock authorized,
$.001 par value
Shares Net Asset
Class Net Assets Outstanding Value
- -------------------------------------------------------------------------------
A $415,539,231 35,105,677 $11.84*
B $ 99,051,955 8,378,730 $11.82
C $ 90,971,969 7,689,478 $11.83
Advisor $ 5,457,428 461,304 $11.83
R $ 149,912 12,662 $11.84
K $ 618,548 52,249 $11.84
I $ 196,892 16,630 $11.84
* The maximum offering price per share for Class A shares was $12.37 which
reflects a sales charge of 4.25%.
(a) Includes securities on loan with a value of $53,253,959 (see Note E).
See notes to financial statements.
ALLIANCEBERNSTEIN BOND FUND CORPORATE BOND PORTFOLIO o 19
STATEMENT OF OPERATIONS
Year Ended September 30, 2006
Investment Income
Interest $ 37,487,235
Dividends 4,064,181 $ 41,551,416
Expenses
Advisory fee 3,363,914
Distribution fee--Class A 1,319,479
Distribution fee--Class B 1,291,541
Distribution fee--Class C 983,643
Distribution fee--Class R 408
Distribution fee--Class K 74
Transfer agency--Class A 837,116
Transfer agency--Class B 277,071
Transfer agency--Class C 194,034
Transfer agency--Advisor Class 9,933
Transfer agency--Class R 215
Transfer agency--Class K 59
Transfer agency--Class I 112
Custodian 246,072
Printing 207,068
Registration fees 114,006
Administrative 99,000
Audit 76,090
Legal 64,289
Directors' fees 30,930
Miscellaneous 34,555
Total expenses 9,149,609
Less: expense offset arrangement
(see Note B) (29,239)
Net expenses 9,120,370
Net investment income 32,431,046
Realized and Unrealized Gain (Loss)
on Investment Transactions
Net realized gain (loss) on:
Investment transactions (4,281,448)
Futures contracts 685,627
Swap contracts (1,246,575)
Net change in unrealized
appreciation/depreciation of:
Investments (14,054,920)
Swap contracts 7,009,119
Net loss on investment
transactions (11,888,197)
Net Increase in Net Assets
from Operations $ 20,542,849
See notes to financial statements.
20 o ALLIANCEBERNSTEIN BOND FUND CORPORATE BOND PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
Year Ended Year Ended
September 30, September 30,
2006 2005
- -------------------------------------------------------------------------------
Increase (Decrease) in Net Assets
from Operations
Net investment income $ 32,431,046 $ 42,717,500
Net realized gain (loss)
on investment
transactions (4,842,396) 37,749,359
Net change in unrealized
appreciation/depreciation
of investments (7,045,801) (49,142,057)
Net increase in net assets
from operations 20,542,849 31,324,802
Dividends to Shareholders from
Net investment income
Class A (22,942,215) (26,331,894)
Class B (5,779,960) (9,462,753)
Class C (4,433,687) (5,421,178)
Advisor Class (289,824) (186,170)
Class R (4,155) (1,090)
Class K (1,687) (292)
Class I (5,133) (312)
Capital Stock Transactions
Net decrease (136,946,182) (118,487,269)
Total decrease (149,859,994) (128,566,156)
Net Assets
Beginning of period 761,845,929 890,412,085
End of period (including
undistributed
net investment income of $77,048,
and $520,578, respectively) $ 611,985,935 $ 761,845,929
See notes to financial statements.
ALLIANCEBERNSTEIN BOND FUND CORPORATE BOND PORTFOLIO o 21
NOTES TO FINANCIAL STATEMENTS
September 30, 2006
NOTE A
Significant Accounting Policies
AllianceBernstein 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 Intermediate Bond Portfolio, formerly Quality Bond Portfolio and the U.S.
Government Portfolio. Each series is considered to be a separate entity for
financial reporting and tax purposes. This report relates only to the Corporate
Bond Portfolio. The Corporate Bond Portfolio (the "Portfolio") offers Class A,
Class B, Class C, Advisor Class, Class R, Class K and Class I 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. Class R and Class
K shares are sold without an initial or contingent deferred sales charge.
Advisor Class and Class I shares are sold without an initial or contingent
deferred sales charge and are not subject to ongoing distribution expenses. All
seven classes of shares have identical voting, dividend, liquidation and other
rights, except that the classes bear different distribution and transfer agency
expenses. Each class has exclusive voting rights with respect to its
distribution plan. The financial statements have been prepared in conformity
with U.S. 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 are valued at their current market value determined on the
basis of market quotations or, if market quotations are not readily available
or are deemed unreliable, at "fair value" as determined in accordance with
procedures established by and under the general supervision of the Fund's Board
of Directors.
In general, the market value of securities which are readily available and
deemed reliable are determined as follows. Securities listed on a national
securities exchange (other than securities listed on the NASDAQ Stock Market,
Inc. ("NASDAQ")) or on a foreign securities exchange are valued at the last
sale price
22 o ALLIANCEBERNSTEIN BOND FUND CORPORATE BOND PORTFOLIO
at the close of the exchange or foreign securities exchange. If there has been
no sale on such day, the securities are valued at the mean of the closing bid
and asked prices on such day. Securities listed on more than one exchange are
valued by reference to the principal exchange on which the securities are
traded; securities listed only on NASDAQ are valued in accordance with the
NASDAQ Official Closing Price; listed put or call options are valued at the
last sale price. If there has been no sale on that day, such securities will be
valued at the closing bid prices on that day; open futures contracts and
options thereon are valued using the closing settlement price or, in the
absence of such a price, the most recent quoted bid price. If there are no
quotations available for the day of valuation, the last available closing
settlement price is used; securities traded in the over-the-counter market,
("OTC") are valued at the mean of the current bid and asked prices as reported
by the National Quotation Bureau or other comparable sources; U.S. government
securities and other debt instruments having 60 days or less remaining until
maturity are valued at amortized cost if their original maturity was 60 days or
less; or by amortizing their fair value as of the 61st day prior to maturity if
their original term to maturity exceeded 60 days; fixed-income securities,
including mortgage backed and asset backed securities, may be valued on the
basis of prices provided by a pricing service or at a price obtained from one
or more of the major broker/dealers. In cases where broker/dealer quotes are
obtained, AllianceBernstein L.P. (prior to February 24, 2006 known as Alliance
Capital Management L.P.) (the "Adviser") may establish procedures whereby
changes in market yields or spreads are used to adjust, on a daily basis, a
recently obtained quoted price on a security; and OTC and other derivatives are
valued on the basis of a quoted bid price or spread from a major broker/dealer
in such security.
Securities for which market quotations are not readily available (including
restricted securities) or are deemed unreliable are valued at fair value.
Factors considered in making this determination may include, but are not
limited to, information obtained by contacting the issuer, analysts, analysis
of the issuer's financial statements or other available documents. In addition,
the Portfolio may use fair value pricing for securities primarily traded in
non-U.S. markets because most foreign markets close well before the Portfolio
values its securities at 4:00 p.m., Eastern Time. The earlier close of these
foreign markets gives rise to the possibility that significant events,
including broad market moves, may have occurred in the interim and may
materially affect the value of those securities.
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. The Portfolio may be subject to taxes imposed by countries in which
it invests.
ALLIANCEBERNSTEIN BOND FUND CORPORATE BOND PORTFOLIO o 23
Such taxes are generally based on income and/or capital gains earned or
repatriated. Taxes are accrued and applied to net investment income, net
realized gains and net unrealized appreciation/depreciation as such income
and/or gains are earned.
3. Investment Income and Investment Transactions
Dividend income is recorded on the ex-dividend date or as soon as the Portfolio
is informed of the dividend. Interest income is accrued daily. Investment
transactions are accounted for on the date securities are purchased or sold.
Investment gains and losses are determined on the identified cost basis. The
Portfolio accretes discounts and amortizes premiums as adjustments to interest
income.
4. Class Allocations
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 for class
specific expenses which are allocated to the respective class. Expenses of the
Fund are charged to each Portfolio in proportion to net assets. Realized and
unrealized gains and losses are allocated among the various share classes based
on their respective net assets.
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 U.S. 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.
NOTE B
Advisory Fee and Other Transactions with Affiliates
Under the terms of the investment advisory agreement, the Portfolio pays the
Adviser an advisory fee at an annual rate of .50% of the first $2.5 billion,
..45% of the next $2.5 billion and .40% in excess of $5 billion, of the
Portfolio's average daily net assets. Prior to September 7, 2004, the Portfolio
paid the Adviser an advisory fee at an annual rate of .625% of the first $500
million and .50% in excess of $500 million of the Portfolio's average daily net
assets. The fee is accrued daily and paid monthly.
24 o ALLIANCEBERNSTEIN BOND FUND CORPORATE BOND PORTFOLIO
Pursuant to the advisory agreement, the Portfolio paid $99,000 to the Adviser
representing the cost of certain legal and accounting services provided to the
Portfolio by the Adviser for the year ended September 30, 2006.
The Fund compensates AllianceBernstein Investor Services, Inc. (prior to
February 24, 2006 known as Alliance Global Investor Services, Inc.) ("ABIS"), a
wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for
providing personnel and facilities to perform transfer agency services for the
Fund. ABIS may make payments to intermediaries that provide omnibus account
services, sub-accounting services and/or networking services. Such compensation
retained by ABIS amounted to $542,963 for the year ended September 30, 2006.
For the year ended September 30, 2006, the Portfolio's expenses were reduced by
$29,239 under an expense offset arrangement with ABIS.
AllianceBernstein Investments, Inc. (prior to February 24, 2006 known as
AllianceBernstein Investment Research and Mangement, Inc.) (the "Distributor"),
a wholly-owned subsidiary of the Adviser, serves as the distributor of the
Portfolio's shares. The Distributor has advised the Portfolio that it has
retained front-end sales charges of $12,262 from the sales of Class A shares
and received $8,045, $103,458 and $10,994, respectively, in contingent deferred
sales charges imposed upon redemptions by shareholders of Class A, Class B and
Class C shares, respectively, for the year ended September 30, 2006.
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 the Portfolio's average daily
net assets attributable to Class A shares, 1% of the Portfolio's average daily
net assets attributable to both Class B and Class C shares, .50% of the
Portfolio's average daily net assets attributable to Class R shares and .25% of
the Portfolio's average daily net assets attributable to Class K shares. There
are no distribution and servicing fees on the Advisor Class and Class I 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 amounts of
$10,300,952, $5,766,355, $5,069 and $0 for Class B, Class C, Class R and Class
K 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.
ALLIANCEBERNSTEIN BOND FUND CORPORATE BOND PORTFOLIO o 25
NOTE D
Investment Transactions
Purchases and sales of investment securities (excluding short-term investments)
for the year ended September 30, 2006, were as follows:
Purchases Sales
- -------------------------------------------------------------------------------
Investment securities (excluding
U.S. government securities) $ 397,371,940 $ 485,521,188
U.S. government securities 85,931,757 132,274,577
The cost of investments for federal income tax purposes, gross unrealized
appreciation and unrealized depreciation (excluding swaps) are as follows:
Cost $ 654,236,046
Gross unrealized appreciation $ 10,500,651
Gross unrealized depreciation (6,290,230)
Net unrealized appreciation $ 4,210,421
1. Option Transactions
For hedging and investment purposes, the Portfolio may purchase and write
(sell) put and call options on debt securities that are traded on U.S. and
foreign securities exchanges and over-the-counter markets and swap agreements
(commonly referred to as swaptions).
The risk associated with purchasing an option is that the Portfolio pays a
premium whether or not the option is exercised. Additionally, the Portfolio
bears the risk of loss of premium and change in market value should the
counterparty not perform under the contract. Put and call options purchased are
accounted for in the same manner as portfolio securities. The cost of
securities acquired through the exercise of call options is increased by
premiums paid. The proceeds from securities sold through the exercise of put
options are decreased by the premiums paid.
When the Portfolio writes an option, the premium received by the Portfolio is
recorded as a liability and is subsequently adjusted to the current market
value of the option written. Premiums received from written options which
expire unexercised are recorded by the Portfolio on the expiration date as
realized gains from options written. The difference between the premium
received and the amount paid on effecting a closing purchase transaction,
including brokerage commissions, is also treated as a realized gain, or if the
premium received is less than the amount paid for the closing purchase
transaction, as a realized loss. If a call option is exercised, the premium
received is added to the proceeds from the sale of the underlying security in
determining whether the Portfolio has realized a gain or loss. If a put option
is exercised, the premium received reduces the cost
26 o ALLIANCEBERNSTEIN BOND FUND CORPORATE BOND PORTFOLIO
basis of the security purchased by the Portfolio. In writing an option, the
Portfolio bears the market risk of an unfavorable change in the price of the
security underlying the written option. Exercise of an option written by the
Portfolio could result in the Portfolio selling or buying a security at a price
different from the current market value. For the year ended September 30, 2006
the Portfolio had no transactions in written options.
2. Swap Agreements
The Portfolio may enter into swaps to hedge its exposure to interest rates and
credit risk or for investment purposes. A swap is an agreement that obligates
two parties to exchange a series of cash flows at specified intervals based
upon or calculated by reference to changes in specified prices or rates for a
specified amount of an underlying asset. The payment flows are usually netted
against each other, with the difference being paid by one party to the other.
Risks may arise as a result of the failure of the counterparty to the swap
contract to comply with the terms of the swap contract. The loss incurred by
the failure of a counterparty is generally limited to the net interim payment
to be received by the Portfolio, and/or the termination value at the end of the
contract. Therefore, the Portfolio considers the creditworthiness of each
counterparty to a swap contract in evaluating potential credit risk.
Additionally, risks may arise from unanticipated movements in interest rates or
in the value of the underlying securities.
As of October 1, 2003, the Portfolio has adopted the method of accounting for
interim payments on swap contracts in accordance with Financial Accounting
Standards Board Statement No. 133. The Portfolio accrues for the interim
payments on swap contracts on a daily basis, with the net amount recorded
within unrealized appreciation/depreciation of swap contracts on the statement
of assets and liabilities. Once the interim payments are settled in cash, the
net amount is recorded as realized gain/loss on swaps, in addition to realized
gain/loss recorded upon termination of swap contracts on the statement of
operations. Prior to October 1, 2003, these interim payments were reflected
within interest income/expense in the statement of operations. Fluctuations in
the value of swap contracts are recorded as a component of net change in
unrealized appreciation/depreciation of investments.
The Portfolio may enter into credit default swaps. The Portfolio may purchase
credit protection on the referenced obligation of the credit default swap ("Buy
Contract") or provide credit protection on the referenced obligation of the
credit default swap ("Sale Contract"). A sale/(buy) in a credit default swap
provides upon the occurrence of a credit event, as defined in the swap
agreement, for the Portfolio to buy/(sell) from/(to) the counterparty at the
notional amount
ALLIANCEBERNSTEIN BOND FUND CORPORATE BOND PORTFOLIO o 27
(the "Notional Amount") and receive/(deliver) the principal amount of the
referenced obligation. If a credit event occurs, the maximum payout amount for
a Sale Contract is limited to the Notional Amount of the swap contract
("Maximum Payout Amount"). During the term of the swap agreement, the Portfolio
receives/(pays) semi-annual fixed payments from/(to) the respective
counterparty, calculated at the agreed upon interest rate applied to the
Notional Amount. These interim payments are recorded within unrealized
appreciation/depreciation of swap contracts on the statement of assets and
liabilities.
Credit default swaps may involve greater risks than if a Portfolio had invested
in the referenced obligation directly. Credit default swaps are subject to
general market risk, liquidity risk, counterparty risk and credit risk. If the
Portfolio is a buyer and no credit event occurs, it will lose its investment.
In addition, if the Portfolio is a seller and a credit event occurs, the value
of the referenced obligation received by the Portfolio coupled with the
periodic payments previously received, may be less than the Maximum Payout
Amount it pays to the buyer, resulting in a loss to the Portfolio.
At September 30, 2006, the Portfolio had Sale Contracts outstanding with
Maximum Payout Amounts aggregating $16,000,000, with net unrealized
appreciation of $93,000, and terms of less than one year to 9 years, as
reflected in the portfolio of investments.
In certain circumstances, the Portfolio may hold Sale Contracts on the same
referenced obligation and with the same counterparty it has purchased credit
protection, which may reduce its obligation to make payments on Sale Contracts,
if a credit event occurs.
3. Reverse Repurchase Agreements
Under a reverse repurchase agreement, the Portfolio sells securities and agrees
to repurchase them at a mutually agreed upon date and price. At the time the
Portfolio enters into a reverse repurchase agreement, it will establish a
segregated account with the custodian containing liquid assets having a value
at least equal to the repurchase price.
For the year ended September 30, 2006, the Portfolio had no transactions in
reverse repurchase agreements.
28 o ALLIANCEBERNSTEIN BOND FUND CORPORATE BOND PORTFOLIO
4. Financial Futures Contracts
The Portfolio may buy or sell financial futures contracts for the purpose of
hedging its portfolio against adverse effects of anticipated movements in the
market. The Portfolio bears the market risk that arises from changes in the
value of these financial instruments and the imperfect correlation between
movements in the price of the futures contracts and movements in the price of
the securities hedged or used for cover.
At the time the Portfolio enters into a futures contract, the Portfolio
deposits and maintains as collateral an initial margin with the broker, as
required by the exchange on which the transaction is affected. Pursuant to the
contract, the Portfolio agrees to receive from or pay to the broker an amount
of cash equal to the daily fluctuation in the value of the contract. Such
receipts or payments are known as variation margin and are recorded by the
Portfolio as unrealized gains or losses. Risks may arise from the potential
inability of a counterparty to meet the terms of the contract. When the
contract is closed, the Portfolio records a realized gain or loss equal to the
difference between the value of the contract at the time it was opened and the
time it was closed.
NOTE E
Securities Lending
The Portfolio has entered into a securities lending agreement with AG Edwards &
Sons, Inc., (the "Lending Agent"). Under the terms of the agreement, the
Lending Agent, on behalf of the Portfolio, administers the lending of portfolio
securities to certain broker-dealers. In return, the Portfolio receives fee
income from the lending transactions or it retains a portion of interest on the
investment of any cash received as collateral. The Portfolio also continues to
receive dividends or interest on the securities loaned. Unrealized gain or loss
on the value of the securities loaned that may occur during the term of the
loan will be reflected in the accounts of the Portfolio. All loans are
continuously secured by collateral exceeding the value of the securities
loaned. All collateral consists of either cash or U.S. government securities.
The Lending Agent may invest the cash collateral received in accordance with
the investment restrictions of the Portfolio in one or more of the following
investments: U.S. government or U.S. government agency obligations, bank
obligations, corporate debt obligations, asset-backed securities, investment
funds, structured products, repurchase agreements and an eligible money market
fund. The Lending Agent will indemnify the Portfolio for any loss resulting
from a borrower's failure to return a loaned security when due. As of September
30, 2006, the Portfolio had loaned securities with a value of $53,253,959 and
received cash collateral which was invested in short-term securities valued at
$55,727,322 as included in the accompanying portfolio of investments. For the
year ended September 30, 2006, the Portfolio earned fee income of $82,172 which
is included in interest income in the accompanying statement of operations.
ALLIANCEBERNSTEIN BOND FUND CORPORATE BOND PORTFOLIO o 29
NOTE F
Capital Stock
Each class consists of 3,000,000,000 authorized shares. Transactions in capital
shares for each class were as follows:
Shares Amount
--------------------------- ------------------------------
Year Ended Year Ended Year Ended Year Ended
September 30, September 30, September 30, September 30,
2006 2005 2006 2005
------------ ------------ -------------- --------------
Class A
Shares sold 4,016,871 4,610,455 $ 47,460,818 $ 56,557,019
Shares issued in
reinvestment of
dividends 1,421,001 1,569,512 16,688,135 19,213,947
Shares converted
from Class B 1,549,291 3,336,050 18,205,393 40,930,028
Shares redeemed (12,098,632) (11,359,866) (141,944,764) (139,267,023)
Net decrease (5,111,469) (1,843,849) $ (59,590,418) $ (22,566,029)
Class B
Shares sold 568,651 1,237,626 $ 6,746,239 $ 15,172,576
Shares issued in
reinvestment of
dividends 345,832 534,444 4,059,344 6,538,548
Shares converted
to Class A (1,551,187) (3,340,339) (18,205,393) (40,930,028)
Shares redeemed (4,567,131) (5,490,400) (53,557,445) (67,252,868)
Net decrease (5,203,835) (7,058,669) $ (60,957,255) $ (86,471,772)
Class C
Shares sold 729,227 947,050 $8,623,570 $ 11,613,928
Shares issued in
reinvestment of
dividends 235,393 272,247 2,762,415 3,331,569
Shares redeemed (2,492,475) (2,404,933) (29,249,350) (29,473,603)
Net decrease (1,527,855) (1,185,636) $ (17,863,365) $ (14,528,106)
Advisor Class
Shares sold 116,355 438,090 $ 1,379,179 $ 5,414,629
Shares issued in
reinvestment of
dividends 23,818 14,875 279,359 181,546
Shares redeemed (92,863) (46,049) (1,097,124) (561,245)
Net increase 47,310 406,916 $ 561,414 $ 5,034,930
30 o ALLIANCEBERNSTEIN BOND FUND CORPORATE BOND PORTFOLIO
Shares Amount
--------------------------- ------------------------------
Year Ended Year Ended Year Ended Year Ended
September 30, September 30, September 30, September 30,
2006 2005 2006 2005
------------ ------------ -------------- --------------
Class R
Shares sold 11,499 2,982 $ 134,961 $ 36,622
Shares issued in
reinvestment of
dividends 338 46 3,949 559
Shares redeemed (1,913) (1,136) (22,485) (13,859)
Net increase 9,924 1,892 $ 116,425 $ 23,322
March 1, March 1,
2005(a) to 2005(a) to
September 30, September 30,
2005 2005
--------------------------- --------------------------
Class K
Shares sold 51,419 816 $ 603,189 $ 10,186
Shares issued in
reinvestment of
dividends 14 -0- 158 -0-
Net increase 51,433 816 $ 603,347 $ 10,186
Class I
Shares sold 19,527 817 $ 226,810 $ 10,200
Shares issued in
reinvestment of
dividends 385 -0- 4,467 -0-
Shares redeemed (4,099) -0- (47,607) -0-
Net increase 15,813 817 $ 183,670 $ 10,200
(a) Commencement of distribution.
NOTE G
Joint Credit Facility
A number of open-end mutual funds managed by the Adviser, including the
Portfolio, participate in a $250 million revolving credit facility (the
"Facility") to provide short-term financing if necessary, in connection with
abnormal redemption activity. Commitment fees related to the Facility are paid
by the participating funds and are included in the miscellaneous expenses in
the statement of operations. The Portfolio did not utilize the Facility during
the year ended September 30, 2006.
NOTE H
Risks Involved in Investing in the Portfolio
Interest Rate Risk and Credit Risk--Interest rate risk is the risk that changes
in interest rates will affect the value of the Portfolio's investments in
fixed-income debt securities such as bonds or notes. Increases in interest
rates may cause the
ALLIANCEBERNSTEIN BOND FUND CORPORATE BOND PORTFOLIO o 31
value of the Portfolio's investments to decline. Credit risk is the risk that
the issuer or guarantor of a debt security, or the counterparty to a derivative
contract, will be unable or unwilling to make timely principal and/or interest
payments, or to otherwise honor its obligations. The degree of risk for a
particular security may be reflected in its credit risk rating. Credit risk is
greater for medium quality and lower-rated securities. Lower-rated debt
securities and similar unrated securities (commonly known as "junk bonds") have
speculative elements or are predominantly speculative risks.
Foreign Securities Risk--Investing in securities of foreign companies or
foreign governments involves special risks which include changes in foreign
currency exchange rates and the possibility of future political and economic
developments which could adversely affect the value of such securities.
Moreover, securities of many foreign companies or foreign governments and their
markets may be less liquid and their prices more volatile than those of
comparable U.S. companies or of the U.S. government.
Indemnification Risk--In the ordinary course of business, the Portfolio enters
into contracts that contain a variety of indemnifications. The Portfolio's
maximum exposure under these arrangements is unknown. However, the Portfolio
has not had prior claims or losses pursuant to these indemnification provisions
and expects the risk of loss thereunder to be remote.
NOTE I
Distributions to Shareholders
The tax character of distributions paid during the fiscal years ended September
30, 2006 and September 30, 2005 were as follows:
September 30, September 30,
2006 2005
- -------------------------------------------------------------------------------
Distributions paid from:
Ordinary income $ 33,456,661 $ 41,403,689
Total taxable distributions 33,456,661 41,403,689
Total distributions paid $ 33,456,661 $ 41,403,689
As of September 30, 2006, the components of accumulated earnings/(deficit) on a
tax basis were as follows:
Undistributed ordinary income $ 1,205,873
Accumulated capital and other losses (289,818,908)(a)
Unrealized appreciation/(depreciation) 5,398,237(b)
Total accumulated earnings/(deficit) $ (283,214,798)(c)
32 o ALLIANCEBERNSTEIN BOND FUND CORPORATE BOND PORTFOLIO
(a) On September 30, 2006, the Portfolio had a net capital loss carryforward
for federal income tax purposes of $283,462,759 of which $42,210,031 expires in
the year 2007, $54,554,000 expires in the year 2008, $52,066,319 expires in the
year 2009 and $134,632,409 expires in the year 2010. To the extent future
capital gains are offset by capital loss carryforwards, such gains will not be
distributed. During the fiscal year, the Portfolio utilized capital loss
carryforwards of $1,350,278. For the fiscal year ended September 30, 2006, the
Portfolio deferred to October 1, 2006, post-October capital losses of
$6,356,149.
(b) The differences between book-basis and tax-basis unrealized
appreciation/(depreciation) are attributable primarily to the tax deferral of
losses on wash sales, the difference between book and tax treatment of swap
income and the difference between book and tax amortization methods for premium.
(c) The difference between book-basis and tax-basis components of accumulated
earnings/(deficit) is attributable to dividends payable.
During the current fiscal year, permanent differences primarily due to the tax
treatment of swaps, paydown gain reclassification, commission expense
adjustment and tax treatment of bond premium resulted in an increase to
undistributed net investment income, a net increase to accumulated net realized
loss on investment transactions and a net decrease to additional paid in
capital. This reclassification had no effect on net assets.
NOTE J
Legal Proceedings
As has been previously reported, the staff of the U.S. Securities and Exchange
Commission ("SEC") and the Office of New York Attorney General ("NYAG") have
been investigating practices in the mutual fund industry identified as "market
timing" and "late trading" of mutual fund shares. Certain other regulatory
authorities have also been conducting investigations into these practices
within the industry and have requested that the Adviser provide information to
them. The Adviser has been cooperating and will continue to cooperate with all
of these authorities.
On December 18, 2003, the Adviser confirmed that it had reached terms with the
SEC and the NYAG for the resolution of regulatory claims relating to the
practice of "market timing" mutual fund shares in some of the AllianceBernstein
Mutual Funds. The agreement with the SEC is reflected in an Order of the
Commission ("SEC Order"). The agreement with the NYAG is memorialized in an
Assurance of Discontinuance dated September 1, 2004 ("NYAG Order"). Among the
key provisions of these agreements are the following:
(i) The Adviser agreed to establish a $250 million fund (the
"Reimbursement Fund") to compensate mutual fund shareholders for the adverse
effects of market timing attributable to market timing relationships described
in the SEC Order. According to the SEC Order, the Reimbursement Fund is to be
paid, in order of priority, to fund investors based on (i) their aliquot share
of losses suffered by the fund due to market
ALLIANCEBERNSTEIN BOND FUND CORPORATE BOND PORTFOLIO o 33
timing, and (ii) a proportionate share of advisory fees paid by such fund
during the period of such market timing;
(ii) The Adviser agreed to reduce the advisory fees it receives from
some of the AllianceBernstein long-term, open-end retail funds until December
31, 2008; and
(iii) The Adviser agreed to implement changes to its governance and
compliance procedures. Additionally, the SEC Order and the NYAG Order
contemplate that the Adviser's registered investment company clients, including
the Fund, will introduce governance and compliance changes.
In anticipation of final, definitive documentation of the NYAG Order and
effective January 1, 2004, the Adviser began waiving a portion of its advisory
fee. On September 7, 2004, the Fund's investment advisory agreement was amended
to reflect the reduced advisory fee. For more information on this waiver and
amendment to the Fund's investment advisory agreement, please see "Advisory Fee
and Other Transactions with Affiliates" above.
A special committee of the Adviser's Board of Directors, comprised of the
members of the Adviser's Audit Committee and the other independent member of
the Adviser's Board, directed and oversaw an internal investigation and a
comprehensive review of the facts and circumstances relevant to the SEC's and
the NYAG's investigations.
In addition, the Independent Directors of the Fund ("the Independent
Directors") have conducted an investigation of the above-mentioned matters with
the advice of an independent economic consultant and independent counsel.
On October 2, 2003, a purported class action complaint entitled Hindo, et al.
v. AllianceBernstein Growth & Income Fund, et al. ("Hindo Complaint") was filed
against the Adviser, Alliance Capital Management Holding L.P. ("Alliance
Holding"), Alliance Capital Management Corporation, AXA Financial, Inc., the
AllianceBernstein Funds, certain officers of the Adviser ("Alliance
defendants"), and certain other defendants not affiliated with the Adviser, as
well as unnamed Doe defendants. The Hindo Complaint was filed in the United
States District Court for the Southern District of New York by alleged
shareholders of two of the AllianceBernstein Funds. The Hindo Complaint alleges
that certain of the Alliance defendants failed to disclose that they improperly
allowed certain hedge funds and other unidentified parties to engage in "late
trading" and "market timing" of AllianceBernstein Fund securities, violating
Sections 11 and 15 of the Securities Act, Sections 10(b) and 20(a) of the
Exchange Act and Sections 206 and 215 of the Advisers Act. Plaintiffs seek an
unspecified amount of compensatory damages and rescission of their contracts
with the Adviser, including recovery of all fees paid to the Adviser pursuant
to such contracts.
34 o ALLIANCEBERNSTEIN BOND FUND CORPORATE BOND PORTFOLIO
Since October 2, 2003, 43 additional lawsuits making factual allegations
generally similar to those in the Hindo Complaint were filed in various federal
and state courts against the Adviser and certain other defendants. The
plaintiffs in such lawsuits have asserted a variety of theories for recovery
including, but not limited to, violations of the Securities Act, the Exchange
Act, the Advisers Act, the Investment Company Act, the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), certain state securities
laws and common law. All state court actions against the Adviser either were
voluntarily dismissed or removed to federal court. On February 20, 2004, the
Judicial Panel on Multidistrict Litigation transferred all actions to the
United States District Court for the District of Maryland (the "Mutual Fund
MDL").
On September 29, 2004, plaintiffs filed consolidated amended complaints with
respect to four claim types: mutual fund shareholder claims; mutual fund
derivative claims; derivative claims brought on behalf of Alliance Holding; and
claims brought under ERISA by participants in the Profit Sharing Plan for
Employees of the Adviser. All four complaints include substantially identical
factual allegations, which appear to be based in large part on the SEC Order
and the NYAG Order.
On April 21, 2006, the Adviser and attorneys for the plaintiffs in the mutual
fund shareholder claims, mutual fund derivative claims, and ERISA claims
entered into a confidential memorandum of understanding ("MOU") containing
their agreement to settle these claims. The agreement will be documented by a
stipulation of settlement and will be submitted for court approval at a later
date. The derivative claims brought on behalf of Alliance Holding remain
pending.
On February 10, 2004, the Adviser received (i) a subpoena duces tecum from the
Office of the Attorney General of the State of West Virginia and (ii) a request
for information from West Virginia's Office of the State Auditor, Securities
Commission (the "West Virginia Securities Commissioner") (together, the
"Information Requests"). Both Information Requests require the Adviser to
produce documents concerning, among other things, any market timing or late
trading in the Adviser's sponsored mutual funds. The Adviser responded to the
Information Requests and has been cooperating fully with the investigation.
On April 11, 2005, a complaint entitled The Attorney General of the State of
West Virginia v. AIM Advisors, Inc., et al. ("WVAG Complaint") was filed
against the Adviser, Alliance Holding, and various other defendants not
affiliated with the Adviser. The WVAG Complaint was filed in the Circuit Court
of Marshall County, West Virginia by the Attorney General of the State of West
Virginia. The WVAG Complaint makes factual allegations generally similar to
those in the Hindo Complaint. On October 19, 2005, the WVAG Complaint was
transferred to the Mutual Fund MDL.
ALLIANCEBERNSTEIN BOND FUND CORPORATE BOND PORTFOLIO o 35
On August 30, 2005, the West Virginia Securities Commissioner signed a Summary
Order to Cease and Desist, and Notice of Right to Hearing addressed to the
Adviser and Alliance Holding. The Summary Order claims that the Adviser and
Alliance Holding violated the West Virginia Uniform Securities Act, and makes
factual allegations generally similar to those in the Commission Order and the
NYAG Order. On January 26, 2006, the Adviser, Alliance Holding, and various
unaffiliated defendants filed a Petition for Writ of Prohibition and Order
Suspending Proceedings in West Virginia state court seeking to vacate the
Summary Order and for other relief. The court denied the writ and in September
2006 the Supreme Court of Appeals declined the defendants' petition for appeal.
On September 22, 2006, Alliance and Alliance Holding filed an answer and motion
to dismiss the Summary Order with the Securities Commissioner.
On June 22, 2004, a purported class action complaint entitled Aucoin, et al. v.
Alliance Capital Management L.P., et al. ("Aucoin Complaint") was filed against
the Adviser, Alliance Holding, Alliance Capital Management Corporation, AXA
Financial, Inc., AllianceBernstein Investment Research & Management, Inc.,
certain current and former directors of the AllianceBernstein Mutual Funds, and
unnamed Doe defendants. The Aucoin Complaint names certain of the
AllianceBernstein mutual funds as nominal defendants. The Aucoin Complaint was
filed in the United States District Court for the Southern District of New York
by alleged shareholders of an AllianceBernstein mutual fund. The Aucoin
Complaint alleges, among other things, (i) that certain of the defendants
improperly authorized the payment of excessive commissions and other fees from
fund assets to broker-dealers in exchange for preferential marketing services,
(ii) that certain of the defendants misrepresented and omitted from
registration statements and other reports material facts concerning such
payments, and (iii) that certain defendants caused such conduct as control
persons of other defendants. The Aucoin Complaint asserts claims for violation
of Sections 34(b), 36(b) and 48(a) of the Investment Company Act, Sections 206
and 215 of the Advisers Act, breach of common law fiduciary duties, and aiding
and abetting breaches of common law fiduciary duties. Plaintiffs seek an
unspecified amount of compensatory damages and punitive damages, rescission of
their contracts with the Adviser, including recovery of all fees paid to the
Adviser pursuant to such contracts, an accounting of all fund-related fees,
commissions and soft dollar payments, and restitution of all unlawfully or
discriminatorily obtained fees and expenses.
Since June 22, 2004, nine additional lawsuits making factual allegations
substantially similar to those in the Aucoin Complaint were filed against the
Adviser and certain other defendants. All nine of the lawsuits (i) were brought
as class actions filed in the United States District Court for the Southern
District of New York, (ii) assert claims substantially identical to the Aucoin
Complaint, and (iii) are brought on behalf of shareholders of the Funds.
36 o ALLIANCEBERNSTEIN BOND FUND CORPORATE BOND PORTFOLIO
On February 2, 2005, plaintiffs filed a consolidated amended class action
complaint ("Aucoin Consolidated Amended Complaint") that asserts claims
substantially similar to the Aucoin Complaint and the nine additional lawsuits
referenced above. On October 19, 2005, the District Court dismissed each of the
claims set forth in the Aucoin Consolidated Amended Complaint, except for
plaintiffs' claim under Section 36(b) of the Investment Company Act. On January
11, 2006, the District Court granted defendants' motion for reconsideration and
dismissed the remaining Section 36(b) claim. On May 31, 2006 the District Court
denied plaintiffs' motion for leave to file an amended complaint. On July 5,
2006, plaintiffs filed a notice of appeal. On October 4, 2006 the appeal was
withdrawn by stipulation, with plaintiffs reserving the right to reinstate it
at a later date.
It is possible that these matters and/or other developments resulting from
these matters could result in increased redemptions of the AllianceBernstein
Mutual Funds' shares or other adverse consequences to the AllianceBernstein
Mutual Funds. This may require the AllianceBernstein Mutual Funds to sell
investments held by those funds to provide for sufficient liquidity and could
also have an adverse effect on the investment performance of the
AllianceBernstein Mutual Funds. However, the Adviser believes that these
matters are not likely to have a material adverse effect on its ability to
perform advisory services relating to the AllianceBernstein Mutual Funds.
NOTE K
Recent Accounting Pronouncements
On July 13, 2006, the Financial Accounting Standards Board ("FASB") released
FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" ("FIN
48"). FIN 48 provides guidance for how uncertain tax positions should be
recognized, measured, presented and disclosed in the financial statements. FIN
48 requires the evaluation of tax positions taken or expected to be taken in
the course of preparing the Portfolio's tax returns to determine whether the
tax positions are "more-likely-than-not" of being sustained by the applicable
tax authority. Tax positions not deemed to meet the more-likely-than-not
threshold would be recorded in the current period. Adoption of FIN 48 is
required for fiscal years beginning after December 15, 2006 and is to be
applied to all open tax years as of the effective date. At this time,
management is evaluating the implications of FIN 48 and its impact on the
financial statements has not yet been determined.
On September 20, 2006, the FASB released Statement of Financial Accounting
Standards No. 157 "Fair Value Measurements" ("FAS 157"). FAS 157 establishes an
authoritative definition of fair value, sets out a framework for measuring fair
value, and requires additional disclosures about fair-value measurements. The
application of FAS 157 is required for fiscal years beginning after November
15, 2007 and interim periods within those fiscal years. At this time,
management is evaluating the implications of FAS 157 and its impact on the
financial statements has not yet been determined.
ALLIANCEBERNSTEIN BOND FUND CORPORATE BOND PORTFOLIO o 37
FINANCIAL HIGHLIGHTS
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class A
----------------------------------------------------------------------------
Year Ended July 1 Year Ended
September 30, 2003 to June 30,
------------------------------------- Sept. 30, ------------------------
2006 2005 2004(a) 2003(b) 2003 2002(c)
----------- ----------- ----------- ----------- ----------- -----------
Net asset value, beginning of period $12.01 $12.18 $11.97 $12.03 $10.70 $12.29
Income From Investment Operations
Net investment income(d) .59 .66 .75(e) .18 .77 .94
Net realized and unrealized gain
(loss) on investment
transactions (.15) (.19) .18 (.06) 1.35 (1.55)
Net increase (decrease) in net
asset value from operations .44 .47 .93 .12 2.12 (.61)
Less: Dividends and Distributions
Dividends from net investment
income (.61) (.64) (.72) (.18) (.76) (.94)
Tax return of capital -0- -0- -0- -0- (.03) (.04)
Total dividends and distributions (.61) (.64) (.72) (.18) (.79) (.98)
Net asset value, end of period $11.84 $12.01 $12.18 $11.97 $12.03 $10.70
Total Return
Total investment return based on
net asset value(f) 3.86% 3.86% 8.01% 1.06% 20.75% (5.51)%
Ratios/Supplemental Data
Net assets, end of period
(000's omitted) $415,539 $483,169 $512,458 $535,318 $555,979 $520,984
Ratio to average net assets of:
Expenses, net of waivers/
reimbursements 1.11%(g) 1.08% 1.16% 1.20%(h) 1.16% 1.12%
Expenses, before waivers/
reimbursements 1.11%(g) 1.08% 1.20% 1.20%(h) 1.16% 1.12%
Expenses, before waivers/
reimbursements, excluding
interest expense 1.11%(g) 1.08% 1.12% 1.15%(h) 1.13% 1.09%
Net investment income 5.06%(g) 5.38% 6.25%(e) 6.18%(h) 6.96% 7.79%
Portfolio turnover rate 73% 127% 230% 65% 171% 276%
See footnote summary on page 45.
38 o ALLIANCEBERNSTEIN BOND FUND CORPORATE BOND PORTFOLIO
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class B
---------------------------------------------------------------------------
Year Ended July 1 Year Ended
September 30, 2003 to June 30,
------------------------------------- Sept. 30, -----------------------
2006 2005 2004(a) 2003(b) 2003 2002(c)
----------- ----------- ----------- ----------- ----------- -----------
Net asset value, beginning of period $12.00 $12.17 $11.96 $12.02 $10.70 $12.30
Income From Investment Operations
Net investment income(d) .51 .57 .66(e) .16 .69 .85
Net realized and unrealized gain
(loss) on investment
transactions (.16) (.19) .19 (.06) 1.35 (1.55)
Net increase (decrease) in net
asset value from operations .35 .38 .85 .10 2.04 (.70)
Less: Dividends and Distributions
Dividends from net investment
income (.53) (.55) (.64) (.16) (.70) (.85)
Distributions in excess of net
investment income -0- -0- -0- -0- -0- (.01)
Tax return of capital -0- -0- -0- -0- (.02) (.04)
Total dividends and distributions (.53) (.55) (.64) (.16) (.72) (.90)
Net asset value, end of period $11.82 $12.00 $12.17 $11.96 $12.02 $10.70
Total Return
Total investment return based on
net asset value(f) 3.05% 3.13% 7.26% .88% 19.85% (6.23)%
Ratios/Supplemental Data
Net assets, end of period
(000's omitted) $99,052 $162,973 $251,173 $383,763 $418,095 $458,394
Ratio to average net assets of:
Expenses, net of waivers/
reimbursements 1.84%(g) 1.80% 1.89% 1.92%(h) 1.88% 1.83%
Expenses, before waivers/
reimbursements 1.84%(g) 1.80% 1.93% 1.92%(h) 1.88% 1.83%
Expenses, before waivers/
reimbursements, excluding
interest expense 1.84%(g) 1.79% 1.84% 1.87%(h) 1.85% 1.80%
Net investment income 4.33%(g) 4.65% 5.55%(e) 5.48%(h) 6.27% 7.05%
Portfolio turnover rate 73% 127% 230% 65% 171% 276%
See footnote summary on page 45.
ALLIANCEBERNSTEIN BOND FUND CORPORATE BOND PORTFOLIO o 39
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class C
---------------------------------------------------------------------------------
Year Ended July 1 Year Ended
September 30, 2003 to June 30,
------------------------------------- Sept. 30, ----------------------------
2006 2005 2004(a) 2003(b) 2003 2002(c)
----------- ----------- ----------- ----------- ----------- --------------
Net asset value, beginning of period $12.01 $12.18 $11.96 $12.02 $10.70 $12.30
Income From Investment Operations
Net investment income(d) .51 .57 .67(e) .16 .69 .85
Net realized and unrealized gain
(loss) on investment
transactions (.16) (.19) .19 (.06) 1.35 (1.55)
Net increase (decrease) in net
asset value from operations .35 .38 .86 .10 2.04 (.70)
Less: Dividends and Distributions
Dividends from net investment
income (.53) (.55) (.64) (.16) (.70) (.85)
Distributions in excess of net
investment income -0- -0- -0- -0- -0- (.01)
Tax return of capital -0- -0- -0- -0- (.02) (.04)
Total dividends and distributions (.53) (.55) (.64) (.16) (.72) (.90)
Net asset value, end of period $11.83 $12.01 $12.18 $11.96 $12.02 $10.70
Total Return
Total investment return based on
net asset value(f) 3.05% 3.14% 7.35% .88% 19.85% (6.23)%
Ratios/Supplemental Data
Net assets, end of period
(000's omitted) $90,972 $110,680 $126,685 $157,719 $168,123 $179,418
Ratio to average net assets of:
Expenses, net of waivers/
reimbursements 1.82%(g) 1.79% 1.87% 1.91%(h) 1.87% 1.82%
Expenses, before waivers/
reimbursements 1.82%(g) 1.79% 1.92% 1.91%(h) 1.87% 1.82%
Expenses, before waivers/
reimbursements, excluding
interest expense 1.82%(g) 1.78% 1.84% 1.86%(h) 1.84% 1.79%
Net investment income 4.36%(g) 4.65% 5.55%(e) 5.49%(h) 6.28% 7.07%
Portfolio turnover rate 73% 127% 230% 65% 171% 276%
See footnote summary on page 45.
40 o ALLIANCEBERNSTEIN BOND FUND CORPORATE BOND PORTFOLIO
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Advisor Class
---------------------------------------------------------------
Year Ended July 1, August 8,
September 30, 2003 to, 2002(i) to
------------------------------------- Sept. 30, June 30,
2006 2005 2004(a) 2003(b) 2003
----------- ----------- ----------- ----------- -----------
Net asset value, beginning of period $12.01 $12.19 $11.98 $12.03 $10.21
Income From Investment Operations
Net investment income(d) .63 .68 .84(e) .19 .69
Net realized and unrealized
gain (loss) on investment
transactions (.16) (.18) .13 (.05) 1.85
Net increase in net asset value
from operations .47 .50 .97 .14 2.54
Less: Dividends and Distributions
Dividends from net investment
income (.65) (.68) (.76) (.19) (.70)
Tax return of capital -0- -0- -0- -0- (.02)
Total dividends and distributions (.65) (.68) (.76) (.19) (.72)
Net asset value, end of period $11.83 $12.01 $12.19 $11.98 $12.03
Total Return
Total investment return based
on net asset value(f) 4.09% 4.10% 8.34% 1.22% 25.70%
Ratios/Supplemental Data
Net assets, end of period
(000's omitted) $5,457 $4,971 $86 $2,883 $2,298
Ratio to average net assets of:
Expenses, net of waivers/
reimbursements .81%(g) .83% .88% .91%(h) .88%(h)
Expenses, before waivers/
reimbursements .81%(g) .83% .92% .91%(h) .88%(h)
Expenses, before waivers/
reimbursements, excluding
interest expense .81%(g) .82% .83% .86%(h) .85%(h)
Net investment income 5.37%(g) 5.62% 6.52%(e) 6.51%(h) 6.90%(h)
Portfolio turnover rate 73% 127% 230% 65% 171%
See footnote summary on page 45.
ALLIANCEBERNSTEIN BOND FUND CORPORATE BOND PORTFOLIO o 41
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class R
--------------------------------------------
Year Ended November 3,
September 30, 2003(i) to
--------------------------- September 30,
2006 2005 2004(a)
----------- ----------- --------------
Net asset value, beginning of period $12.02 $12.18 $11.88
Income From Investment Operations
Net investment income(d) .56 .60 .66(e)
Net realized and unrealized gain (loss)
on investment transactions (.16) (.15) .27
Net increase in net asset value
from operations .40 .45 .93
Less: Dividends
Dividends from net
investment income (.58) (.61) (.63)
Net asset value, end of period $11.84 $12.02 $12.18
Total Return
Total investment return based on
net asset value(f) 3.46% 3.71% 8.04%
Ratios/Supplemental Data
Net assets, end of period
(000's omitted) $150 $33 $10
Ratio to average net assets of:
Expenses, net of
waivers/reimbursements 1.36%(g) 1.39% 1.34%(h)
Expenses, before
waivers/reimbursements 1.36%(g) 1.39% 1.39%(h)
Expenses, before
waivers/reimbursements,
excluding interest expense 1.36%(g) 1.38% 1.31%(h)
Net investment income 4.92%(g) 5.02% 6.04%(e)(h)
Portfolio turnover rate 73% 127% 230%
See footnote summary on page 45.
42 o ALLIANCEBERNSTEIN BOND FUND CORPORATE BOND PORTFOLIO
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class K
-------------------------------
Year March 1,
Ended 2005(i) to
September 30, September 30,
2006 2005
------------- --------------
Net asset value, beginning of period $12.01 $12.48
Income From Investment Operations
Net investment income(d) .34 .37
Net realized and unrealized gain (loss)
on investment transactions .11+ (.48)
Net increase (decrease) in net asset
value from operations .45 (.11)
Less: Dividends
Dividends from net investment income (.62) (.36)
Net asset value, end of period $11.84 $12.01
Total Return
Total investment return based on
net asset value(f) 3.94% (.89)%
Ratios/Supplemental Data
Net assets, end of period
(000's omitted) $619 $10
Ratio to average net assets of:
Expenses 1.03%(g) 1.10%(h)
Expenses, excluding interest expense 1.03%(g) 1.10%(h)
Net investment income 5.51%(g) 5.25%(h)
Portfolio turnover rate 73% 127%
See footnote summary on page 45.
ALLIANCEBERNSTEIN BOND FUND CORPORATE BOND PORTFOLIO o 43
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class I
-------------------------------
Year March 1,
Ended 2005(i) to
September 30, September 30,
2006 2005
------------ -----------
Net asset value, beginning of period $12.01 $12.48
Income From Investment Operations
Net investment income(d) .64 .40
Net realized and unrealized loss on
investment transactions (.16) (.49)
Net increase (decrease) in net asset
value from operations .48 (.09)
Less: Dividends
Dividends from net investment income (.65) (.38)
Net asset value, end of period $11.84 $12.01
Total Return
Total investment return based on
net asset value(f) 4.22% (.70)%
Ratios/Supplemental Data
Net assets, end of period (000's omitted) $197 $10
Ratio to average net assets of:
Expenses .73%(g) .79%(h)
Expenses, excluding interest expense .73%(g) .79%(h)
Net investment income 5.58%(g) 5.59%(h)
Portfolio turnover rate 73% 127%
See footnote summary on page 45.
44 o ALLIANCEBERNSTEIN BOND FUND CORPORATE BOND PORTFOLIO
(a) As of October 1, 2003, the Portfolio has adopted the method of accounting
for interim payments on swap contracts in accordance with Financial Accounting
Standards Board Statement No. 133. These interim payments are reflected within
net realized and unrealized gain (loss) on swap contracts, however, prior to
October 1, 2003, these interim payments were reflected within interest
income/expense on the statement of operations. The effect of this change for
the year ended September 30, 2004, was to increase net investment income per
share by $.02 for Class A, B, C, Advisor Class and Class R and decrease net
realized and unrealized gain on investment transactions per share by $.02 for
Classs A, B, C, Advisor Class and Class R. Consequently, the ratios of net
investment income to average net assets increased by 0.18%, 0.16%, 0.16%, 0.18%
and 0.17% for Class A, B, C, Advisor Class and Class R, respectively.
(b) The Portfolio changed its fiscal year end from June 30 to September 30.
(c) As required, effective July 1, 2001, the Portfolio has adopted the
provisions of the AICPA Audit and Accounting Guide, Audits of Investment
Companies, and began amortizing premium on debt securities for financial
statement reporting purposes only. The effect of this change for the year ended
June 30, 2002, was to decrease net investment income per share and net realized
and unrealized loss on investments per share by less than $.01 for Class A,
Class B and Class C, respectively, and decrease the ratio of net investment
income to average net assets from 7.82% to 7.79% for Class A, from 7.08% to
7.05% for Class B and from 7.10% to 7.07% for Class C.
(d) Based on average shares outstanding.
(e) Net of expenses waived and reimbursed by the Adviser.
(f) Total investment return is calculated assuming an initial investment is
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 does not reflect the deduction of taxes that a
shareholder would pay on Portfolio distributions or the redemption of Portfolio
shares. Total investment return calculated for a period of less than one year
is not annualized.
(g) The ratio includes expenses attributable to costs of proxy solicitation.
(h) Annualized.
(i) Commencement of distribution.
+ Due to the timing of sales and repurchases of capital shares, the net
realized and unrealized gain (loss) per share is not in accord with the
portfolio's change in net realized and unrealized gain (loss) on investment
transactions for the period.
ALLIANCEBERNSTEIN BOND FUND CORPORATE BOND PORTFOLIO o 45
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
AllianceBernstein Bond Fund, Inc. Corporate Bond Portfolio
We have audited the accompanying statement of assets and liabilities of
Corporate Bond Portfolio (the "Portfolio"), one of the Portfolios constituting
the AllianceBernstein Bond Fund, Inc., including the portfolio of investments,
as of September 30, 2006, and the related statement of operations for the year
then ended, the statement of changes in net assets for each of the two years in
the period then ended, and the financial highlights for each of the periods
indicated therein. These financial statements and financial highlights are the
responsibility of the Portfolio's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (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. We were not engaged to perform an audit of the Portfolio's
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the Portfolio's internal
control over financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements and financial highlights, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. Our procedures
included confirmation of securities owned as of September 30, 2006 by
correspondence with the custodian and others or by other appropriate auditing
procedures where replies from others were not received. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Corporate Bond Portfolio at September 30, 2006, the results of its operations
for the year then ended, the changes in its net assets for each of the two
years in the period then ended, and the financial highlights for each of the
indicated periods in conformity with U.S. generally accepted accounting
principles.
/s/ Ernst & Young LLP
New York, New York
November 17, 2006
46 o ALLIANCEBERNSTEIN BOND FUND CORPORATE BOND PORTFOLIO
TAX INFORMATION
(unaudited)
73.2% of the ordinary income dividends paid by the Fund during the fiscal year
ended September 30, 2006, qualify as "interest related dividends" for non-U.S.
shareholders.
ALLIANCEBERNSTEIN BOND FUND CORPORATE BOND PORTFOLIO o 47
BOARD OF DIRECTORS
William H. Foulk, Jr.(1), Chairman
Marc O. Mayer, President and Chief Executive Officer
Ruth Block(1)
David H. Dievler(1)
John H. Dobkin(1)
Michael J. Downey(1)
D. James Guzy(1)
Nancy P. Jacklin(1)
Marshall C. Turner, Jr.(1)
OFFICERS
Philip L. Kirstein, Senior Vice President and Independent Compliance Officer
Andrew M. Aran(2), Vice President
Gershon Distenfeld(2), Vice President
Jeffrey S. Phlegar(2), Vice President
Lawrence J. Shaw(2), Vice President
Emilie D. Wrapp, Secretary
Joseph J. Mantineo, Treasurer and Chief Financial Officer
Vincent S. Noto, Controller
Custodian
State Street Bank & Trust Company
One Lincoln Street
Boston, MA 02111
Principal Underwriter
AllianceBernstein Investments, Inc.
1345 Avenue of the Americas
New York, NY 10105
Transfer Agent
AllianceBernstein Investor Services, Inc.
P.O. Box 786003
San Antonio, TX 78278-6003
Toll-Free (800) 221-5672
Independent Registered Public Accounting Firm
Ernst & Young LLP
5 Times Square
New York, NY 10036
Legal Counsel
Seward & Kissel LLP
One Battery Park Plaza
New York, NY 10004
(1) Member of the Audit Committee, the Governance and Nominating Committee
and the Independent Directors Committee.
(2) The day-to-day management of and investment decisions for the Portfolio
are made by the Global Credit Investment Team. Messrs. Aran, Distenfeld,
Phlegar and Shaw are the investment professionals with the most significant
responsibility for the day-to-day management of the Portfolio.
48 o ALLIANCEBERNSTEIN BOND FUND CORPORATE BOND PORTFOLIO
MANAGEMENT OF THE FUND
Board of Directors Information
The business and affairs of the Fund are managed under the direction of the
Board of Directors. Certain information concerning the Fund's Directors is set
forth below.
PORTFOLIOS
IN FUND OTHER
NAME, ADDRESS, PRINCIPAL COMPLEX DIRECTORSHIP(S)
AGE, OCCUPATION(S) OVERSEEN BY HELD BY
(FIRST YEAR ELECTED*) DURING PAST 5 YEARS DIRECTOR DIRECTOR
- ------------------------------------------------------------------------------------------------------------------------
DISINTERESTED DIRECTORS
William H. Foulk, Jr. # Investment Adviser and an 113 None
P.O. Box 5060 independent consultant. He was
Greenwich, CT formerly Senior Manager of Barrett
06831-0505 Associates, Inc., a registered
74 investment adviser, with which
(1998) he had been associated since
Chairman of the Board prior to 2001. He was formerly
Deputy Comptroller and Chief
Investment Officer of the State
of New York and, prior thereto,
Chief Investment Officer of the
New York Bank for Savings.
Ruth Block #, ** Formerly Executive Vice President 100 None
500 SE Mizner Blvd. and Chief Insurance Officer of The
Boca Raton, FL 33432 Equitable Life Assurance Society
76 of the United States; Chairman and
(1987) Chief Executive Officer of Evlico
(insurance); Director of Avon, BP
(oil and gas), Ecolab Incorporated
(specialty chemicals), Tandem Financial
Group and Donaldson, Lufkin &
Jenrette Securities Corporation;
Governor at Large, National Association
of Securities Dealers, Inc.
David H. Dievler # Independent consultant. Until 112 None
P.O. Box 167 December 1994, he was Senior
Spring Lake, NJ 07762 Vice President of AllianceBernstein
77 Corporation ("AB Corp"), (formerly
(1987) Alliance Capital Management
Corporation) responsible for mutual fund
administration. Prior to joining AB Corp.
in 1984, he was Chief Financial Officer
of Eberstadt Asset Management since
1968. Prior to that, he was Senior
Manager at Price Waterhouse & Co.
Member of American Institute of Certified
Public Accountants since 1953.
John Dobkin # Consultant. Formerly President 111 None
P.O. Box 12 of Save Venice, Inc. (preservation
Annandale, NY 12504 organization) from 2001 - 2002, Senior
64 Advisor from June 1999 - June 2000
(1998) and President of Historic Hudson Valley
(historic preservation) from December
1989 - May 1999. Previously, Director
of the National Academy of Design and
during 1988 - 1992, Director and
Chairman of the Audit Committee
of AB Corp (formerly Alliance Capital
Management Corporation).
ALLIANCEBERNSTEIN BOND FUND CORPORATE BOND PORTFOLIO o 49
PORTFOLIOS
IN FUND OTHER
NAME, ADDRESS, PRINCIPAL COMPLEX DIRECTORSHIP(S)
AGE, OCCUPATION(S) OVERSEEN BY HELD BY
(FIRST YEAR ELECTED*) DURING PAST 5 YEARS DIRECTOR DIRECTOR
- ------------------------------------------------------------------------------------------------------------------------
DISINTERESTED DIRECTORS
(continued)
Michael J. Downey # Consultant since January 111 Asia Pacific
c/o Alliance Capital 2004. Formerly managing Fund, Inc.;
Management L.P. partner of Lexington Capital, and The
1345 Avenue of the Americas LLC (investment advisory firm) Merger Fund.
New York, NY 10105 from December 1997 until
Attention: Phil Kirstein December 2003. Prior thereto,
62 Chairman and CEO of Prudential
(2005) Mutual Fund Management
from 1987 to 1993.
D. James Guzy, # Chairman of the Board of PLX 111 Intel Corporation,
P.O. Box 128 Technology (semi-conductors) Cirrus Logic
Glenbrook, NV 89413 and of SRC Computers Inc., Corporation,
70 with which he has been associated and the
(2005) since prior to 2001. He is also Davis Selected
President of the Arbor Company Advisers Group of
(private family investments). Mutual Funds
Nancy P. Jacklin, # Formerly U.S. Executive Director 111 None
4046 Chancery Court, of the International Monetary
NW Fund (December 2002-May
Washington, DC 20007 2006); partner, Clifford Chance
58 (1992-2002); Senior Counsel,
(2006) International Banking and Finance,
and Associate General Counsel,
Citicorp (1985-1992); Assistant
General Counsel (International),
Federal Reserve Board of
Governors (1982-1985); and
Attorney Advisor, U.S. Department
of the Treasury (1973-1982).
Member of the Bar of the District
of Columbia and of New York;
member of the Council on
Foreign Relations
Marshall C. Turner, Jr., # Principal of Turner Venture 111 The George Lucas
220 Montgomery Street Associates (venture capital and Educational
Penthouse 10 consulting) since prior to 2001. Foundation
San Francisco, Chairman and CEO, DuPont and National
CA 94104 Photomasks, Inc., Austin, Texas, Datacast, Inc.
65 2003-2005, and President and
(2005) CEO since company acquired,
and name changed to Toppan
Photomasks, Inc. in 2005
(semiconductor manufacturing
services).
50 o ALLIANCEBERNSTEIN BOND FUND CORPORATE BOND PORTFOLIO
PORTFOLIOS
IN FUND OTHER
NAME, ADDRESS, PRINCIPAL COMPLEX DIRECTORSHIP(S)
AGE, OCCUPATION(S) OVERSEEN BY HELD BY
(FIRST YEAR ELECTED*) DURING PAST 5 YEARS DIRECTOR DIRECTOR
- ------------------------------------------------------------------------------------------------------------------------
INTERESTED DIRECTOR
Marc O. Mayer,+ Executive Vice President of the 111 SCB Partners
1345 Avenue of the Adviser since 2001, and Inc.;
Americas New York, Executive Managing Director of SCB, Inc.
NY 10105 AllianceBernstein Investments,
49 Inc. ("ABI") since 2003; prior thereto,
(2003) he was head of AllianceBernstein
Institutional Investments, a unit of
the Adviser from 2001-2003. Prior
thereto, Chief Executive Officer of
Sanford C. Bernstein & Co., LLC
(institutional research and brokerage
arm of Bernstein & Co. LLC)
("SCB & Co.") and its predecessor
since prior to 2001.
* There is no stated term of office for the Fund's directors.
** Ms.Block was an "interested person", as defined in the 1940 Act, from
July 22, 1992 until October 21, 2004 by reason of her ownership of securities
of a control person of the Adviser. Ms. Block received shares of The Equitable
Companies Incorporated ("Equitable") as part of the demutualization of The
Equitable Life Assurance Society of the United States in 1992. Ms. Block's
Equitable shares were subsequently converted through a corporate action into
American Depositary Shares of AXA, which were sold for approximately $2,400 on
October 21, 2004. Equitable and AXA are control persons of the Adviser.
# Member of the Audit Committee, Governance and Nominating Committee and
Independent Directors Committee.
+ Mr.Mayer is an "interested director", as defined in the 1940 Act, due to
his position as an Executive Vice President of the Adviser.
ALLIANCEBERNSTEIN BOND FUND CORPORATE BOND PORTFOLIO o 51
Officer Information
Certain information concerning the Fund's Officers is set forth below.
PRINCIPAL
NAME, ADDRESS*, POSITION(S) PRINCIPAL OCCUPATION
AND AGE HELD WITH FUND DURING PAST 5 YEARS
- ------------------------------------------------------------------------------------------------------
Marc O. Mayer President and Chief See biography above.
49 Executive Officer
Philip L. Kirstein Senior Vice President Senior Vice President and Independent
61 & Independent Compliance Officer of the
Compliance Officer AllianceBernstein Funds, with which he
has been associated since October
2004. Prior thereto, he was Of Counsel
to Kirkpatrick & Lockhart, LLP from
October 2003 to October 2004, and
General Counsel of Merrill Lynch
Investment Managers L.P. since prior
to 2001 until March 2003.
Andrew M. Aran Vice President Senior Vice President of
49 AllianceBernstein, with which he has
been associated since prior to 2001.
Gershon Distenfeld Vice President Vice President of AllianceBernstein with
31 which he has been associated since
prior to 2001.
Jeffrey S. Phlegar Vice President Executive Vice President of the
40 Adviser**, with which he has been
associated since prior to 2001.
Lawrence J. Shaw Vice President Senior Vice President of the Adviser**,
55 with which he has been associated
since prior to 2001.
Emilie D. Wrapp Secretary Senior Vice President, Assistant
51 General Counsel and Assistant
Secretary of AllianceBernstein
Investments, Inc., with which she has
been associated since prior to 2001.
Joseph Mantineo Treasurer and Chief Senior Vice President of
47 Financial Officer AllianceBernstein Investor Services
("ABIS") and Vice President of ABIRM**,
with which he has been associated
since prior to 2001.
Vincent S. Noto Controller Vice President of ABIS**, with which
42 he has been associated since prior to
2001.
* The address for each of the Fund's Officers is 1345 Avenue of the
Americas, New York, NY 10105.
** The Adviser, AllianceBernstein Investments Inc., ABIS and SCBA Co. are
affiliates of the Fund.
The Fund's Statement of Additional Information ("SAI") has additional
information about the Fund's Directors and Officers and is available without
charge upon request. Contact your financial representative or Alliance Capital
at 1-800-227-4618 for a free prospectus or SAI.
52 o ALLIANCEBERNSTEIN BOND FUND CORPORATE BOND PORTFOLIO
Information Regarding the Review and Approval of the Portfolio's Investment
Advisory Contract
In this disclosure, the term "Fund" refers to AllianceBernstein Bond Fund,
Inc., and the term "Portfolio" refers to the Corporate Bond Portfolio.
The Fund's disinterested directors (the "directors") unanimously approved the
continuance of the Investment Advisory Contract (the "Advisory Agreement")
between the Fund and the Adviser in respect of the Portfolio at a meeting held
on June 14, 2006.
In preparation for the meeting, the directors had requested from the Adviser
and received and evaluated extensive materials, including performance and
expense information for other investment companies with similar investment
objectives derived from data compiled by Lipper Inc. ("Lipper"), which is not
affiliated with the Adviser. The directors also reviewed an independent
evaluation from the Fund's Senior Officer (who is also the Fund's Independent
Compliance Officer) of the reasonableness of the advisory fees in the Advisory
Agreement in respect of the Portfolio (as contemplated by the September 2004
Assurance of Discontinuance between the Adviser and the New York Attorney
General) wherein the Senior Officer concluded that such fees were reasonable.
In addition, the directors received a presentation from the Adviser and had an
opportunity to ask representatives of the Adviser various questions relevant to
the proposed approval. The directors noted that the Senior Officer's evaluation
considered the following factors: management fees charged to institutional and
other clients of the Adviser for like services; management fees charged by
other mutual fund companies for like services; cost to the Adviser and its
affiliates of supplying services pursuant to the Advisory Agreement, excluding
any intra-corporate profit; profit margins of the Adviser and its affiliates
from supplying such services; possible economies of scale as the Portfolio
grows larger; and nature and quality of the Adviser's services including the
performance of the Portfolio.
Prior to voting, the directors reviewed the proposed continuance of the
Advisory Agreement in respect of the Portfolio with management and with
experienced counsel who are independent of the Adviser and received a
memorandum from such counsel discussing the legal standards for their
consideration of the proposed continuance. The directors also discussed the
proposed continuance in two private sessions at which only the directors, their
independent counsel and the Fund's Independent Compliance Officer were present.
In reaching their determinations relating to continuance of the Advisory
Agreement in respect of the Portfolio, the directors considered all factors
they believed relevant, including the following:
1. information comparing the performance of the Portfolio to other
investment companies with similar investment objectives and to an index;
ALLIANCEBERNSTEIN BOND FUND CORPORATE BOND PORTFOLIO o 53
2. the nature, extent and quality of investment, compliance,
administrative and other services rendered by the Adviser;
3. payments received by the Adviser from all sources in respect of the
Portfolio and all investment companies in the AllianceBernstein Funds complex;
4. the costs borne by, and profitability of, the Adviser and its
affiliates in providing services to the Portfolio and to all investment
companies in the AllianceBernstein Funds complex;
5. comparative fee and expense data for the Portfolio and other
investment companies with similar investment objectives;
6. the extent to which economies of scale would be realized to the
extent the Portfolio grows and whether fee levels reflect any economies of
scale for the benefit of investors;
7. the Adviser's policies and practices regarding allocation of
portfolio transactions of the Portfolio;
8. information about "revenue sharing" arrangements that the Adviser has
entered into in respect of the Portfolio;
9. portfolio turnover rates for the Portfolio compared to other
investment companies with similar investment objectives;
10. fall-out benefits which the Adviser and its affiliates receive from
their relationships with the Portfolio;
11. the Adviser's representation that there are no institutional products
managed by the Adviser which have a substantially similar investment style as
the Portfolio;
12. the Senior Officer's evaluation of the reasonableness of the fee
payable to the Adviser in the Advisory Agreement;
13. the professional experience and qualifications of the Portfolio's
portfolio management team and other senior personnel of the Adviser; and
14. the terms of the Advisory Agreement.
The directors also considered their knowledge of the nature and quality of the
services provided by the Adviser to the Portfolio gained from their experience
as directors or trustees of most of the registered investment companies advised
by the Adviser, their overall confidence in the Adviser's integrity and
competence
54 o ALLIANCEBERNSTEIN BOND FUND CORPORATE BOND PORTFOLIO
they have gained from that experience and the Adviser's responsiveness to
concerns raised by them in the past, including the Adviser's willingness to
consider and implement organizational and operational changes designed to
improve investment results and the services provided to the AllianceBernstein
Funds.
In their deliberations, the directors did not identify any particular
information that was all-important or controlling, and different directors may
have attributed different weights to the various factors.
The directors determined that the overall arrangements between the Portfolio
and the Adviser, as provided in the Advisory Agreement, were fair and
reasonable in light of the services performed, expenses incurred and such other
matters as the directors considered relevant in the exercise of their business
judgment.
The material factors and conclusions that formed the basis for the directors
reaching their determinations to approve the continuance of the Advisory
Agreement in respect of the Portfolio (including their determinations that the
Adviser should continue to be the investment adviser for the Portfolio, and
that the fees payable to the Adviser pursuant to the Advisory Agreement are
appropriate) were separately discussed by the directors.
Nature, Extent and Quality of Services Provided by the Adviser
The directors noted that, under the Advisory Agreement, the Adviser, subject to
the oversight of the directors, administers the Portfolio's business and other
affairs. The Adviser manages the investment of the assets of the Portfolio,
including making purchases and sales of portfolio securities consistent with
the Portfolio's investment objective and policies. Under the Advisory
Agreement, the Adviser also provides the Portfolio with such office space,
administrative and other services (exclusive of, and in addition to, any such
services provided by any others retained by the Portfolio) and executive and
other personnel as are necessary for the Portfolio's operations. The Adviser
pays all of the compensation of directors of the Fund who are affiliated
persons of the Adviser and of the officers of the Fund.
The directors also considered that the Advisory Agreement provides that the
Portfolio will reimburse the Adviser for the cost of certain clerical,
accounting, administrative and other services provided at the Portfolio's
request by employees of the Adviser or its affiliates. Requests for these "at
no more than cost" reimbursements are approved by the directors on a quarterly
basis and (to the extent requested and paid) result in a higher rate of total
compensation from the Portfolio to the Adviser than the fee rates stated in the
Portfolio's Advisory Agreement.
The directors considered the scope and quality of services provided by the
Adviser under the Advisory Agreement and noted that the scope of services
provided by advisers of funds had expanded over time as a result of regulatory
and
ALLIANCEBERNSTEIN BOND FUND CORPORATE BOND PORTFOLIO o 55
other developments. The directors noted, for example, that the Adviser is
responsible for maintaining and monitoring its own and, to varying degrees, the
Portfolio's compliance programs, and that these compliance programs have
recently been refined and enhanced in light of new regulatory requirements. The
directors considered the quality of the in-house investment research
capabilities of the Adviser and the other resources it has dedicated to
performing services for the Portfolio. The quality of administrative and other
services, including the Adviser's role in coordinating the activities of the
Portfolio's other service providers, also were considered. The directors also
considered the Adviser's response to recent regulatory compliance issues
affecting a number of the investment companies in the AllianceBernstein Funds
complex. The directors concluded that, overall, they were satisfied with the
nature, extent and quality of services provided to the Portfolio under the
Advisory Agreement.
Costs of Services Provided and Profitability to the Adviser
The directors reviewed a schedule of the revenues, expenses and related notes
indicating the profitability of the Portfolio to the Adviser for calendar years
2004 and 2005 that had been prepared with an updated expense allocation
methodology. The directors noted that the updated methodology differed in
various respects from the methodology used in prior years. The directors
reviewed the assumptions and methods of allocation used by the Adviser in
preparing fund-specific profitability data, and noted the Adviser's
representation to them that it believed that the methods of allocation used in
preparing the profitability information were reasonable and appropriate and
that the Adviser had previously discussed with the directors that there is no
generally accepted allocation methodology for information of this type.
The directors recognized that it is difficult to make comparisons of
profitability from fund advisory contracts because comparative information is
not generally publicly available and is affected by numerous factors, including
the structure of the particular adviser, the types of funds it manages, its
business mix, numerous assumptions regarding allocations and the adviser's
capital structure and cost of capital. In considering profitability
information, the directors considered the effect of fall-out benefits on the
Adviser's expenses, as well as the "revenue sharing" arrangements the Adviser
has entered into with certain entities that distribute shares of the Portfolio.
The directors focused on the profitability of the Adviser's relationship with
the Portfolio before taxes and distribution expenses. The directors recognized
that the Adviser should generally be entitled to earn a reasonable level of
profits for the services it provides to the Portfolio and, based on their
review, concluded that they were satisfied that the Adviser's level of
profitability from its relationship with the Portfolio was not excessive.
Fall-Out Benefits
The directors considered that the Adviser benefits from soft dollar
arrangements whereby it receives brokerage and research services from many of
the brokers and
56 o ALLIANCEBERNSTEIN BOND FUND CORPORATE BOND PORTFOLIO
dealers that execute purchases and sales of securities on behalf of its clients
on an agency basis. The directors noted that since the Portfolio does not
engage in brokerage transactions, the Adviser does not receive soft dollar
benefits in respect of portfolio transactions of the Portfolio.
The directors also considered that the Distributor, which is a wholly-owned
subsidiary of the Adviser, receives 12b-1 fees from the Portfolio in respect of
classes of shares of the Portfolio that are subject to the Fund's 12b-1 plan
and retains a portion of such 12b-1 fees, and receives all or a portion of the
sales charges on sales or redemptions of certain classes of shares. The
directors also noted that certain affiliates of the Adviser distribute shares
of the Portfolio and receive compensation in that connection and that a
subsidiary of the Adviser provides transfer agency services to the Portfolio
and receives compensation from the Portfolio for such services.
The directors recognized that the Adviser's profitability would be somewhat
lower if the Adviser's affiliates did not receive the benefits described above.
The directors understood that the Adviser also might derive reputational and
other benefits from its association with the Portfolio.
Investment Results
In addition to the information reviewed by the directors in connection with the
meeting, the directors receive detailed comparative performance information for
the Portfolio at each regular Board meeting during the year. At the meeting,
the directors reviewed information provided by the Senior Officer based on
information obtained from a Lipper database showing performance of the Class A
Shares of the Portfolio as compared to a group of 8 to 7 funds (depending on
the year) in its Lipper category selected by Lipper (the "Performance Group")
and as compared to a universe of 25 to 10 funds (depending on the year) in its
Lipper category selected by Lipper (the "Performance Universe") for periods
ended April 30, 2006 over the 1-, 3-, 5- and 10-year periods. The directors
also reviewed information prepared by the Adviser showing performance of the
Class A Shares of the Portfolio as compared to the Lehman Brothers BAA U.S.
Credit Index (the "Index") for periods ended April 30, 2006 over the 1-, 3-,
5-, 10-year and since inception periods (March 1974 inception). The directors
noted that in the Performance Group comparison the Portfolio was in the 5th
quintile in the 1-year period, 2nd quintile in the 3-year period, 4th quintile
in the 5-year period and 2nd quintile in the 10-year period, and in the
Performance Universe comparison the Portfolio was in the 4th quintile in the
1-year period, 2nd quintile in the 3-year period, 3rd quintile in the 5-year
period and 2nd quintile in the 10-year period. The comparative information
showed that the Portfolio outperformed the Index in the 3-year period and
underperformed the Index in all other periods reviewed. Based on their review
and their discussion of the reasons for the Portfolio's recent underperformance
with the Adviser, the directors retained confidence in the Adviser's ability to
continue to advise the Portfolio and con-
ALLIANCEBERNSTEIN BOND FUND CORPORATE BOND PORTFOLIO o 57
cluded that the Portfolio's investment performance was understandable. The
directors informed the Adviser that they planned to closely monitor the
Portfolio's performance.
Advisory Fees and Other Expenses
The directors considered information provided by the Senior Officer based on
information obtained from a Lipper database showing the actual advisory fee
rate paid by the Portfolio to the Adviser and the fee rates paid by other funds
in the same Lipper category as the Portfolio. The directors recognized that it
is difficult to make comparisons of advisory fees because there are variations
in the services that are included in the fees paid by other funds.
The Adviser informed the directors that there are no institutional products
managed by it which have a substantially similar investment style as the
Portfolio. The directors reviewed information in the Adviser's Form ADV and
noted that it charged institutional clients lower fees for advising comparably
sized accounts using strategies that differ from those of the Portfolio but
which involve investments in securities of the same type that the Portfolio
invests in (i.e., fixed income taxable securities). They had previously
received an oral presentation from the Adviser that supplemented such
information.
The Adviser reviewed with the directors the significant differences in the
scope of services it provides to institutional clients and to the Portfolio.
For example, the Advisory Agreement requires the Adviser to provide, in
addition to investment advice, office facilities and officers (including
officers to provide required certifications). The Adviser also coordinates the
provision of services to the Portfolio by non-affiliated service providers and
is responsible for the compensation of the Fund's Independent Compliance
Officer and certain related expenses. The provision of these non-advisory
services involves costs and exposure to liability. The Adviser explained that
many of these services normally are not provided to non-investment company
clients, and that fees charged to the Portfolio reflect the costs and risks of
the additional obligations. The Adviser also noted that since the Portfolio is
constantly issuing and redeeming its shares, it is more difficult to manage
than an institutional account, where the assets are relatively stable. In light
of these facts, the directors did not place significant weight on these fee
comparisons.
The directors also considered the total expense ratio of the Class A shares of
the Portfolio in comparison to the fees and expenses of funds within two
comparison groups created by Lipper: an Expense Group and an Expense Universe.
Lipper described an Expense Group as a representative sample of comparable
funds and an Expense Universe as a broader group, consisting of all funds in
the investment classification/objective with a similar load type as the subject
Portfolio. The Class A expense ratio of the Portfolio was based on the
Portfolio's latest fiscal year expense ratio. The directors recognized that the
expense ratio information for
58 o ALLIANCEBERNSTEIN BOND FUND CORPORATE BOND PORTFOLIO
the Portfolio potentially reflected on the Adviser's provision of services, as
the Adviser is responsible for coordinating services provided to the Portfolio
by others. The directors noted that it was likely that the expense ratios of
some funds in the Portfolio's Lipper category also were lowered by waivers or
reimbursements by those funds' investment advisers, which in some cases were
voluntary and perhaps temporary.
The directors noted that the Portfolio's actual advisory fee rate of 50 basis
points was the same as the Expense Group median. The directors noted that the
latest fiscal year administrative expense reimbursement by the Portfolio
pursuant to the Advisory Agreement was one basis point and that as a result,
the Adviser's total compensation pursuant to the Portfolio's Advisory Agreement
was at a rate that was slightly higher than the Expense Group median. The
directors also noted that the Portfolio's total expense ratio was materially
higher than the Expense Group median and somewhat higher than the Expense
Universe median. The directors noted that the Adviser had recently reviewed
with them steps being taken that are intended to reduce expenses of the
AllianceBernstein Funds. The directors concluded that the Portfolio's expense
ratio was acceptable.
Economies of Scale
The directors noted that the advisory fee schedule for the Portfolio contains
breakpoints so that, if assets were to increase over the breakpoint levels, the
fee rates would be reduced on the incremental assets. The directors also
considered a presentation by an independent consultant discussing economies of
scale issues in the mutual fund industry. The directors believe that economies
of scale are realized (if at all) by the Adviser across a variety of products
and services, and not only in respect of a single fund. The directors noted
that there is no uniform methodology for establishing breakpoints that give
effect to fund-specific services provided by the Adviser and to the economies
of scale that the Adviser may realize in its overall mutual fund business or
those components of it which directly or indirectly affect the Portfolio's
operations. The directors observed that in the mutual fund industry as a whole,
as well as among funds similar to the Portfolio, there is no uniformity or
pattern in the fees and asset levels at which breakpoints (if any) apply.
Depending on the age and size of a particular fund and its adviser's cost
structure, different conclusions can be drawn as to whether there are economies
of scale to be realized at any particular level of assets, notwithstanding the
intuitive conclusion that such economies exist, or will be realized at some
level of total assets. Moreover, because different advisers have different cost
structures and service models, it is difficult to draw meaningful conclusions
from the comparison of a fund's advisory fee breakpoints with those of
comparable funds. The directors also noted that the advisory agreements for
many funds do not have breakpoints at all. Having taken these factors into
account, the directors concluded that the Portfolio's breakpoint arrangements
would result in a sharing of economies of scale in the event of a very
significant increase in the Portfolio's net assets.
ALLIANCEBERNSTEIN BOND FUND CORPORATE BOND PORTFOLIO o 59
THE FOLLOWING IS NOT PART OF THE SHAREHOLDER REPORT OR THE FINANCIAL STATEMENTS
SUMMARY OF SENIOR OFFICER'S EVALUATION OF INVESTMENT ADVISORY AGREEMENT(1)
The following is a summary of the evaluation of the Investment Advisory
Agreement between AllianceBernstein L.P. (the "Adviser") and the
AllianceBernstein Bond Fund, Inc. (the "Fund") in respect of AllianceBernstein
Corporate Bond Portfolio (the "Portfolio"), prepared by Philip L. Kirstein, the
Senior Officer of the Fund for the Directors of the Fund, as required by an
August 2004 agreement between the Adviser and the New York State Attorney
General (the "NYAG").(2) The Senior Officer's evaluation of the Investment
Advisory Agreement is not meant to diminish the responsibility or authority of
the Board of Directors of the Fund to perform its duties pursuant to Section 15
of the Investment Company Act of 1940 (the "40 Act") and applicable state law.
The purpose of the summary is to provide shareholders with a synopsis of the
independent evaluation of the reasonableness of the advisory fees proposed to
be paid by the Portfolio which was provided to the Directors in connection with
their review of the proposed approval of the continuance of the Investment
Advisory Agreement. The Senior Officer's evaluation considered the following
factors:
1. Advisory fees charged to institutional and other clients of the
Adviser for like services;
2. Advisory fees charged by other mutual fund companies for like
services;
3. Costs to the Adviser and its affiliates of supplying services
pursuant to the advisory agreement, excluding any intra-corporate profit;
4. Profit margins of the Adviser and its affiliates from supplying such
services;
5. Possible economies of scale as the Portfolio grows larger; and
6. Nature and quality of the Adviser's services including the
performance of the Portfolio.
PORTFOLIO ADVISORY FEES, EXPENSE REIMBURSEMENTS & RATIOS
The Adviser proposed that the Portfolio pay the advisory fee set forth in the
table below for receiving the services to be provided pursuant to the
Investment Advisory Agreement. The fee schedule below, implemented in January
2004 in
(1) It should be noted that the information in the fee summary was completed
on October 23, 2006 and presented to the Board of Directors on October
31-November 2, 2006.
(2) Future references to the Portfolio do not include "AllianceBernstein."
References in the fee summary pertaining to performance and expense ratios
refer to Class A shares of the Portfolio.
60 o ALLIANCEBERNSTEIN BOND FUND CORPORATE BOND PORTFOLIO
connection with the Adviser's settlement with the NYAG in December 2003, is
based on a master schedule that contemplates eight categories of funds with
almost all funds in each category having the same advisory fee schedule.(3)
Net Assets Advisory Fee Based
09/30/06 on % of Average
Category (million) Daily Net Assets Portfolio
- -------------------------------------------------------------------------------
High Income $612.3 50 bp on 1st $2.5 billion Corporate Bond
45 bp on next $2.5 billion Portfolio
40 bp on the balance
The Adviser is reimbursed as specified in the Investment Advisory Agreement for
certain clerical, legal, accounting, administrative and other services provided
to the Portfolio. During the most recently completed fiscal year, the Adviser
received $92,000 (0.01% of the Portfolio's average daily net assets) for such
services.
Set forth below are the Portfolio's total expense ratios for the most recent
semi-annual period:
Portfolio Total Expense Ratio(4) Fiscal Year
- -------------------------------------------------------------------------------
Corporate Bond Portfolio Advisor 0.82% September 30
Class A 1.13%
Class B 1.85%
Class C 1.83%
Class R 1.35%
Class K 1.04%
Class I 0.81%
I. ADVISORY FEES CHARGED TO INSTITUTIONAL AND OTHER CLIENTS
The advisory fees charged to investment companies which the Adviser manages and
sponsors are normally higher than those charged to similar sized institutional
accounts, including pension plans and sub-advised investment companies. The fee
differential reflects, among other things, different services provided to such
clients, and different liabilities assumed. Services provided by the Adviser to
the Portfolio that are not provided to non-investment company clients include
providing office space and personnel to serve as Fund Officers, who among other
responsibilities make the certifications required under the Sarbanes-Oxley Act
of 2002, and coordinating with and monitoring the Portfolio's third party
service providers such as Fund counsel, auditors, custodians, transfer agents
and pricing services. The accounting, administrative, legal and compliance
requirements for the Portfolio are more costly than those for institutional
assets due to the greater complexities and time required for investment
companies, although, as previously noted, a portion of the costs are reimbursed
by the Portfolio to the Adviser. Also, retail mutual funds managed by the
Adviser are widely held. Servicing the
(3) Most of the AllianceBernstein Mutual Funds, which the Adviser manages,
were affected by the Adviser's settlement with the NYAG.
(4) Annualized.
ALLIANCEBERNSTEIN BOND FUND CORPORATE BOND PORTFOLIO o 61
Portfolio's investors is more time consuming and labor intensive compared to
institutional clients since the Adviser needs to communicate with a more
extensive network of financial intermediaries and shareholders. In addition,
managing the cash flow of an investment company may be more difficult than that
of a stable pool of assets, such as an institutional account with little cash
movement in either direction, particularly if the fund is in net redemption and
the Adviser is frequently forced to sell securities to raise cash for
redemptions. However, managing a fund with positive cash flow may be easier at
times than managing a stable pool of assets. Finally, in recent years,
investment advisers have been sued by institutional clients and have suffered
reputational damage both by the attendant publicity and outcomes other than
complete victories. Accordingly, the legal and reputational risks associated
with institutional accounts are greater than previously thought, although still
not equal to those related to the mutual fund industry.
Notwithstanding the Adviser's view that managing an investment company is not
comparable to managing other institutional accounts because the services
provided are different, it is worth considering information regarding the
advisory fees charged to institutional accounts with substantially similar
investment styles as the Portfolio. However, with respect to the Portfolio, the
Adviser represented that there is no institutional product in the Form ADV that
has a substantially similar investment style as the Portfolio.
The Adviser represented that it does not sub-advise any registered investment
company with a substantially similar investment style as the Portfolio.
II. MANAGEMENT FEES CHARGED BY OTHER MUTUAL FUND COMPANIES FOR LIKE SERVICES.
Lipper, Inc. ("Lipper"), an analytical service that is not affiliated with the
Adviser, compared the fees charged to the Portfolio with fees charged to other
investment companies for similar services by other investment advisers.
Lipper's analysis included the Portfolio's ranking with respect to the proposed
advisory fee relative to the median of the Portfolio's Lipper Expense Group
("EG")(5) at the approximate current asset level of the Portfolio.(6)
(5) Lipper does not consider average account size when constructing EGs.
Funds with relatively small average account sizes tend to have higher transfer
agent expense ratio than comparable sized funds that have relatively large
average account sizes. Note that there are limitations on Lipper expense
category data because different funds categorize expenses differently.
(6) The contractual management fee is calculated by Lipper using the
Portfolio's contractual management fee rate at a hypothetical asset level. The
hypothetical asset level is based on the combined net assets of all classes of
the Portfolio, rounded up to the next $25 million. Lipper's total expense ratio
information is based on the most recent annual report except as otherwise
noted. A ranking of "1" means that the Portfolio has the lowest effective fee
rate in the Lipper peer group.
62 o ALLIANCEBERNSTEIN BOND FUND CORPORATE BOND PORTFOLIO
Lipper describes an EG as a representative sample of comparable funds. Lipper's
standard methodology for screening funds to be included in an EG entails the
consideration of several fund criteria, including fund type, investment
classification/objective, load type and similar 12b-1/non-12b-1 service fees,
asset (size) comparability, and expense components and attributes. An EG will
typically consist of seven to twenty funds. However, because the Portfolio's
original EG had an insufficient number of peers, at the request of the Adviser
and the Senior Officer, Lipper expanded the Portfolio's EG to include peers
that had a similar (but not the same) Lipper investment
classification/objective.
Lipper
Contractual Expense
Management Group
Portfolio Fee(7) Median Rank
- -------------------------------------------------------------------------------
Corporate Bond Portfolio(8) 0.500 0.500 4/11
Because Lipper had expanded the Portfolio's EG, under Lipper's standard
guidelines, the Portfolio's Lipper Expense Universe ("EU") was also expanded to
include universes of those peers that had a similar (but not the same) Lipper
investment objective/classification.(9) A "normal" EU will include funds that
have the same investment objective/classification as the subject fund.(10) Set
forth below is a comparison of the Portfolio's total expense ratio and the
medians of the Portfolio's EGs and EUs. The Portfolio's total expense ratio
rankings are also shown:
Lipper Lipper
Expense Exp. Exp.
Ratio Group Universe
Portfolio (%)(11) Median (%) Rank Median (%) Rank
- -------------------------------------------------------------------------------
Corporate Bond
Portfolio(12) 1.077 1.026 10/11 1.005 37/47
Based on this analysis, the Portfolio has a more favorable ranking on a
management fee basis than it does on a total expense ratio basis.
(7) The contractual management fee does not reflect any expense
reimbursements made by the Portfolio to the Adviser for certain clerical,
legal, accounting, administrative, and other services.
(8) The Portfolio's EG, includes the Portfolio, five other BBB-rated
corporate debt funds, and five A-rated corporate debt funds.
(9) The expansion of the Fund's EU was not requested by the Adviser or the
Senior Officer. They requested that only the EGs be expanded.
(10) Except for asset size comparability, Lipper uses the same criteria for
selecting a Lipper Expense Group when selecting a Lipper Expense Universe.
Unlike the Lipper Expense Group, the Lipper Expense Universe allows for the
same adviser to be represented by more than just one fund.
(11) Most recently completed fiscal year Class A share total expense ratio.
(12) The Portfolio's EU, includes the Portfolio, the EG and all other
BBB-rated and A-rated corporate debt funds.
ALLIANCEBERNSTEIN BOND FUND CORPORATE BOND PORTFOLIO o 63
III. COSTS TO THE ADVISER AND ITS AFFILIATES OF SUPPLYING SERVICES PURSUANT TO
THE ADVISORY FEE ARRANGEMENT, EXCLUDING ANY INTRA-CORPORATE PROFIT.
A consultant was retained by the Senior Officer to work with the Adviser's
personnel to align the Adviser's two profitability reporting systems. The
alignment, which now has been completed, allows the Adviser's management and
the Directors to receive consistent presentations of the financial results and
profitability although the two profitability reporting systems operate
independently. See Section IV for additional discussion.
IV. PROFIT MARGINS OF THE ADVISER AND ITS AFFILIATES FOR SUPPLYING SUCH
SERVICES.
The profitability information for the Portfolio prepared by the Adviser for the
Board of Directors was reviewed by the Senior Officer and the consultant. The
Adviser's profitability from providing investment advisory services to the
Portfolio increased during calendar year 2005 relative to 2004.
In addition to the Adviser's direct profits from managing the Portfolio,
certain of the Adviser's affiliates have business relationships with the
Portfolio and may earn a profit from providing other services to the Portfolio.
The courts have referred to this type of business opportunity as "fall-out
benefits" to the Adviser and indicated that such benefits should be factored
into the evaluation of the total relationship between the Portfolio and the
Adviser. Neither case law nor common business practice precludes the Adviser's
affiliates from earning a reasonable profit on this type of relationship
provided the affiliates' charges and services are competitive. These affiliates
provide transfer agent and distribution related services to the Portfolio and
receive transfer agent fees, Rule 12b-1 payments, front-end sales loads and
contingent deferred sales charges ("CDSC").
AllianceBernstein Investments, Inc. ("ABI"), an affiliate of the Adviser, is
the Portfolio's principal underwriter. ABI and the Adviser have disclosed in
the Portfolio's prospectus that they may make revenue sharing payments from
their own resources, in addition to resources derived from sales loads and Rule
12b-1 fees, to firms that sell shares of the Portfolio. In 2005, ABI paid
approximately 0.042% of the average monthly assets of the AllianceBernstein
Mutual Funds or approximately $18.0 million for distribution services and
educational support (revenue sharing payments). For 2006, it is anticipated,
ABI will pay approximately 0.04% of the average monthly assets of the
AllianceBernstein Mutual Funds or approximately $17.5 million.(13) During the
Portfolio's most recently completed fiscal year, ABI received from the
Portfolio $21,699, $4,813,825 and $174,345 in front-end sales charges, Rule
12b-1 and CDSC fees, respectively.
(13) ABI currently inserts the "Advance" in quarterly account statements and
pays the incremental costs associated with the mailing. The incremental cost is
less than what an "independent mailing" would cost.
64 o ALLIANCEBERNSTEIN BOND FUND CORPORATE BOND PORTFOLIO
Fees and reimbursements for out of pocket expenses charged by AllianceBernstein
Investor Services, Inc. ("ABIS"), the affiliated transfer agent for the
Portfolio, are charged on a per account basis, based on the level of service
provided and the class of share held by the account. ABIS also receives a fee
per shareholder sub-account for each account maintained by an intermediary on
an omnibus basis. ABIS' after-tax profitability increased in 2005 in comparison
to 2004. During the Portfolio's most recently completed fiscal year, ABIS
received $651,716 in fees from the Portfolio.(14)
V. POSSIBLE ECONOMIES OF SCALE
The Adviser has indicated that the breakpoints in the fee schedule being
proposed reflect a sharing of economies of scale to the extent they exist.
Based on some of the professional literature that has considered economies of
scale in the mutual fund industry, it is thought that to the extent economies
of scale exist, they may more often exist across a fund family as opposed to a
specific fund. This is because the costs incurred by the Adviser, such as
investment research or technology for trading or compliance systems can be
spread across a greater asset base as the fund family increases in size. It is
also possible that as the level of services required to operate a successful
investment company has increased over time, and advisory firms have made such
investments in their business to provide improved services, there may be a
sharing of economies of scale without a reduction in advisory fees.
An independent consultant, retained by the Senior Officer, made a presentation
to the Board of Directors regarding possible economies of scale or scope in the
mutual fund industry. Based on the presentation, it was evident that fund
management companies benefit from economies of scale. However, due to the lack
of cost data, researchers had to infer facts about the costs from the behavior
of fund expenses; there was a lack of consensus among researchers as to whether
economies of scale were being passed on to the shareholders. In the meantime,
it is clear that to the extent a fund's assets were to exceed the initial
breakpoint its shareholders would benefit from a lower fee rate.
VI. NATURE AND QUALITY OF THE ADVISER'S SERVICES, INCLUDING THE PERFORMANCE OF
THE PORTFOLIO
With assets under management of approximately $659 billion as of September 30,
2006, the Adviser has the investment experience to manage and provide
non-investment services (described in Section I) to the Portfolio.
14 The fees disclosed are net of any expense offsets with ABIS. An expense
offset is created by the interest earned on the positive cash balance that
occur within the transfer agent account as there is a one day lag with regards
to money movement from the shareholder's account to the transfer agent's
account and then the transfer agent's account to the Portfolio's account.
During the Portfolio's most recently completed fiscal year, the fees paid by
the Portfolio to ABIS were reduced by $8,679 under the offset agreement between
the Portfolio and ABIS.
ALLIANCEBERNSTEIN BOND FUND CORPORATE BOND PORTFOLIO o 65
The information below, prepared by Lipper, shows the 1, 3, 5 and 10 year
performance returns and rankings of the Portfolio(15) relative to the
Portfolio's Lipper Performance Group ("PG") and Lipper Performance Universe
("PU")(16) for the periods ended June 30, 2006.(17)
Corporate Bond Portfolio
Portfolio Return PG Median PU Median PG Rank PU Rank
- -------------------------------------------------------------------------------
1 year -1.99 -0.95 -1.01 6/6 27/31
3 year 3.92 2.91 2.77 1/6 4/27
5 year 5.07 4.98 5.19 3/6 11/19
10 year 6.14 5.84 6.05 2/6 3/11
Set forth below are the 1, 3, 5, 10 year and since inception performance
returns of the Portfolio (in bold)(18) versus its benchmark:(19)
Periods Ending June 30, 2006
Annualized Performance
- -------------------------------------------------------------------------------
1 3 5 10 Since
Portfolio Year Year Year Year Inception
- -------------------------------------------------------------------------------
Corporate Bond
Portfolio -1.99 3.92 5.07 6.14 8.94
Lehman Brothers
BAA U.S. Credit
Index -2.37 2.39 5.96 6.61 9.41
CONCLUSION:
Based on the factors discussed above the Senior Officer's conclusion is that
the proposed advisory fee for the Portfolio is reasonable and within the range
of what would have been negotiated at arms-length in light of all the
surrounding circumstances. This conclusion in respect of the Portfolio is based
on an evaluation of all of these factors and no single factor was dispositive.
Dated: November 15, 2006
(15) The performance returns and rankings are for the Class A shares of the
Portfolio. It should be noted that the performance returns of the Portfolio
that is shown was provided by the Adviser. Lipper maintains its own database
that includes the Portfolio's performance returns. However, differences in
distribution price (ex-date versus payable date) and rounding differences may
cause the Adviser's own performance returns of the Portfolio to be one or two
basis points different from Lipper. To maintain consistency in this evaluation,
the performance returns of the Portfolio, as reported by the Adviser, are
provided instead of Lipper.
(16) The Portfolio's PG and PU are not identical to the Portfolio's EG and EU.
The Portfolio's PG only includes peers from the Portfolio's EG that have the
same Lipper investment classification/objective as the Portfolio. The
Portfolio's PU is not identical to the Portfolio's EU. Funds with negative
management fees are excluded from EUs but not necessarily from PUs. In
addition, PUs only include funds of the same Lipper investment
objective/classification as the Portfolio, in contrast to EUs, which include
funds of similar but not the same investment objective/classification.
(17) Note that the current Lipper investment classification/objective dictates
the PG and PU throughout the life of the Fund even if a Fund may have had a
different investment classification/objective at different points in time.
(18) The performance returns shown are for the Class A shares of the Portfolio.
(19) The Adviser provided Portfolio and benchmark performance return
information for periods through June 30, 2006.
66 o ALLIANCEBERNSTEIN BOND FUND CORPORATE BOND PORTFOLIO
THIS PAGE IS NOT PART OF THE SHAREHOLDER REPORT OR THE FINANCIAL STATEMENTS
ALLIANCEBERNSTEIN FAMILY OF FUNDS
- --------------------------------------------
Wealth Strategies Funds
- --------------------------------------------
Balanced Wealth Strategy
Wealth Appreciation Strategy
Wealth Preservation Strategy
Tax-Managed Balanced Wealth Strategy
Tax-Managed Wealth Appreciation Strategy
Tax-Managed Wealth Preservation Strategy
- --------------------------------------------
Blended Style Funds
- --------------------------------------------
U.S. Large Cap Portfolio
International Portfolio
Tax-Managed International Portfolio
- --------------------------------------------
Growth Funds
- --------------------------------------------
Domestic
Growth Fund
Mid-Cap Growth Fund
Large Cap Growth Fund
Small Cap Growth Portfolio
Global & International
Global Health Care Fund
Global Research Growth Fund
Global Technology Fund
Greater China '97 Fund
International Growth Fund
International Research Growth Fund
- --------------------------------------------
Value Funds
- --------------------------------------------
Domestic
Balanced Shares
Focused Growth & Income Fund
Growth & Income Fund
Real Estate Investment Fund
Small/Mid-Cap Value Fund
Utility Income Fund
Value Fund
Global & International
Global Value Fund
International Value Fund
- --------------------------------------------
Taxable Bond Funds
- --------------------------------------------
Global Government Income Trust*
Corporate Bond Portfolio
Emerging Market Debt Fund
Global Strategic Income Trust
High Yield Fund
Intermediate Bond Portfolio*
Short Duration Portfolio
U.S. Government Portfolio
- --------------------------------------------
Municipal Bond Funds
- --------------------------------------------
National Michigan
Insured National Minnesota
Arizona New Jersey
California New York
Insured California Ohio
Florida Pennsylvania
Massachusetts Virginia
- --------------------------------------------
Intermediate Municipal Bond Funds
- --------------------------------------------
Intermediate California
Intermediate Diversified
Intermediate New York
- --------------------------------------------
Closed-End Funds
- --------------------------------------------
All-Market Advantage Fund
ACM Income Fund
ACM Government Opportunity Fund
ACM Managed Dollar Income Fund
ACM Managed Income Fund
ACM Municipal Securities Income Fund
California Municipal Income Fund
National Municipal Income Fund
New York Municipal Income Fund
The Spain Fund
World Dollar Government Fund
World Dollar Government Fund II
- --------------------------------------------
Retirement Strategies Funds
- --------------------------------------------
2000 Retirement Strategy
2005 Retirement Strategy
2010 Retirement Strategy
2015 Retirement Strategy
2020 Retirement Strategy
2025 Retirement Strategy
2030 Retirement Strategy
2035 Retirement Strategy
2040 Retirement Strategy
2045 Retirement Strategy
We also offer Exchange Reserves,** which serves as the money market fund
exchange vehicle for the AllianceBernstein mutual funds.
For more complete information on any AllianceBernstein mutual fund, including
investment objectives and policies, sales charges, expenses, risks and other
matters of importance to prospective investors, visit our website at
www.alliancebernstein.com or call us at 800.227.4618 for a current prospectus.
You should read the prospectus carefully before you invest.
* Prior to February 1, 2006, Global Government Income Trust was named
Americas Government Income Trust and Intermediate Bond Portfolio was named
Quality Bond Portfolio.
** An investment in the Fund is not a deposit in a bank and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. Although the Fund seeks to preserve the value of your
investment at $1.00 per share, it is possible to lose money by investing in the
Fund.
ALLIANCEBERNSTEIN BOND FUND CORPORATE BOND PORTFOLIO o 67
NOTES
68 o ALLIANCEBERNSTEIN BOND FUND CORPORATE BOND PORTFOLIO
ALLIANCEBERNSTEIN BOND FUND CORPORATE BOND PORTFOLIO
1345 Avenue of the Americas
New York, NY 10105
(800) 221-5672
[LOGO]
ALLIANCEBERNSTEIN
INVESTMENTS
CB-0151-0906
- -------------------------------------------------------------------------------
ANNUAL REPORT
- -------------------------------------------------------------------------------
AllianceBernstein Bond Fund
U.S. Government Portfolio
Annual Report
September 30, 2006
[LOGO]
ALLIANCEBERNSTEIN
INVESTMENTS
- ---------------------------
Investment Products Offered
o Are Not FDIC Insured
o May Lose Value
o Are Not Bank Guaranteed
- ---------------------------
The investment return and principal value of an investment in the Fund will
fluctuate as the prices of the individual securities in which it invests
fluctuate, so that your shares, when redeemed, may be worth more or less than
their original cost. You should consider the investment objectives, risks,
charges and expenses of the Fund carefully before investing. For a free copy of
the Fund's prospectus, which contains this and other information, visit our web
site at www.alliancebernstein.com or call your financial advisor or
AllianceBernstein(R) at (800) 227-4618. Please read the prospectus carefully
before you invest.
You may obtain performance information current to the most recent month-end by
visiting www.alliancebernstein.com.
This shareholder report must be preceded or accompanied by the Fund's
prospectus for individuals who are not current shareholders of the Fund.
You may obtain a description of the Fund's proxy voting policies and
procedures, and information regarding how the Fund voted proxies relating to
portfolio securities during the most recent 12-month period ended June 30,
without charge. Simply visit AllianceBernstein's web site at
www.alliancebernstein.com, or go to the Securities and Exchange Commission's
(the "Commission") web site at www.sec.gov, or call AllianceBernstein at (800)
227-4618.
The Fund files its complete schedule of portfolio holdings with the Commission
for the first and third quarters of each fiscal year on Form N-Q. The Fund's
Forms N-Q are available on the Commission's web site at www.sec.gov. The Fund's
Forms N-Q may also be reviewed and copied at the Commission's Public Reference
Room in Washington, DC; information on the operation of the Public Reference
Room may be obtained by calling (800) SEC-0330.
AllianceBernstein Investments, Inc. is an affiliate of AllianceBernstein L.P.,
the manager of the AllianceBernstein funds, and is a member of the NASD.
AllianceBernstein(R) and the AB Logo are registered trademarks and service
marks used by permission of the owner, AllianceBernstein L.P.
November 27, 2006
Annual Report
This report provides management's discussion of fund performance for
AllianceBernstein Bond Fund U.S. Government Portfolio (the "Portfolio") for the
annual reporting period ended September 30, 2006.
Investment Objective and Policies
This open-end fund seeks to generate income and price appreciation without
assuming what AllianceBernstein considers undue risk. The Portfolio invests,
under normal circumstances, at least 80% of its net assets in U.S. government
securities and repurchase agreements and forward contracts relating to U.S.
government securities. The Portfolio may invest the remaining 20% of its net
assets in non-U.S. government debt securities, such as mortgage-related and
other asset-backed securities, loan participations, inflation-protected
securities, structured securities and variable, floating, and inverse floating
rate instruments, preferred stock, and other corporate debt securities. The
Portfolio will not invest in any security rated below BBB- by S&P or Baa- by
Moody's. The Portfolio may invest in debt securities with a range of maturities
from short- to long-term.
Investment Results
The table on page 4 shows the Portfolio's performance compared to its
benchmark, the Lehman Brothers (LB) Government Index, which represents the U.S.
government bond market, for the six- and 12-month periods ended September 30,
2006. We have also included performance for the Lipper General U.S. Government
Funds Average (the "Lipper Average"). Funds in the Lipper Average have
generally similar investment objectives to the Portfolio, although some may
have different investment policies and sales and management fees.
The Portfolio underperformed its benchmark, the LB Government Index, and its
Class A shares outperformed the Lipper Average, for both the six- and 12-month
periods ended September 30, 2006. The Portfolio's shorter-than-benchmark
duration was a positive factor for the 12-month period under review, as
interest rates along the yield curve rose for most of the year. Additionally,
the Portfolio's non-Treasury holdings added to relative performance for both
the six- and 12-month periods under review, as spread sectors outperformed the
Treasury market.
The Portfolio's defensive shorter-duration positioning detracted from
performance during the latter half of the six-month period under review, as
U.S. interest rates fell sharply in the third quarter and bond market returns
rallied.
Market Review and Investment Strategy
U.S. fixed-income returns were generally weak in the first three quarters of
the 12-month period ended September 30, 2006, buffeted by higher interest rates
and continued U.S. Federal Reserve ("Fed") rate increases. The final three
months of the period, however, saw a broad-based rally in both the fixed-income
and equity markets as the economy slowed, oil prices declined and the Fed ended
its interest-rate hike cycle. The Fed raised official
ALLIANCEBERNSTEIN BOND FUND U.S. GOVERNMENT PORTFOLIO o 1
interest rates 150 basis points in quarter point increments during the year to
end the reporting period at 5.25%. Yields across the maturity spectrum rose as
the Fed raised rates, with the 10-year yield gaining 30 basis points to end the
reporting period at 4.63%. The Treasury yield curve remained flat with the
yield spread between the two- and 30-year at only 8 basis points.
U.S. Treasury securities returned 3.09% for the 12-month period ended September
30, 2006, according to the LB Treasury Index. Shorter-term Treasuries (1-3
years) outperformed, returning 3.71%, while longer-maturity Treasuries (5-10
years) underperformed, returning 2.81% and 20+ years returned 1.84%.
Among non-government sectors, mortgages and asset-backed securities (ABS) led,
posting returns of 4.19% and 4.16% respectively, according to Lehman Brothers.
Mortgages benefited from relatively low volatility and muted prepayment risk,
while ABS were underpinned by strong technical demand. Commercial
mortgage-backed securities (CMBS) returned 4.06% for the reporting period,
helped by improving delinquency trends.
During the six- and 12-month periods under review, the Portfolio remained
positioned for U.S. interest rates to rise. Accordingly, the Portfolio's
overall duration was kept shorter than that of the benchmark. Quantitative and
fundamental research also indicated attractive relative valuations among
mortgage-related securities. Even though mortgage spreads remained near the low
end of their historical range, they were viewed as fair, and it was expected
that mortgages would remain stable. Consequently, an allocation to mortgages
within the Portfolio was maintained.
2 o ALLIANCEBERNSTEIN BOND FUND U.S. GOVERNMENT PORTFOLIO
HISTORICAL PERFORMANCE
An Important Note About the Value of Historical Performance
The performance shown on the following pages represents past performance and
does not guarantee future results. Current performance may be lower or higher
than the performance information shown. You may obtain performance information
current to the most recent month-end by visiting www.alliancebernstein.com.
The investment return and principal value of an investment in the Portfolio
will fluctuate, so that your shares, when redeemed, may be worth more or less
than their original cost. You should consider the investment objectives, risks,
charges and expenses of the Portfolio carefully before investing. For a free
copy of the Portfolio's prospectus, which contains this and other information,
visit our website at www.alliancebernstein.com or call your financial advisor
or AllianceBernstein Investments at 800.227.4618. You should read the
prospectus carefully before you invest.
All fees and expenses related to the operation of the Portfolio have been
deducted. NAV returns do not reflect sales charges; if sales charges were
reflected, the Portfolio's quoted performance would be lower. SEC returns
reflect the applicable sales charges for each share class: a 4.25% maximum
front-end sales charge for Class A shares; the applicable contingent deferred
sales charge for Class B shares (3% year 1, 2% year 2, 1% year 3, 0% year 4); a
1% 1 year contingent deferred sales charge for Class C shares. Returns for the
different share classes will vary due to different expenses associated with
each class. Performance assumes reinvestment of distributions and does not
account for taxes.
Benchmark Disclosure
The unmanaged Lehman Brothers (LB) Government Index does not reflect fees and
expenses associated with the active management of a mutual fund portfolio. The
Index is composed of the LB Treasury Index and the LB Agency Index. For the
six- and 12-month periods ended September 30, 2006, the Lipper General U.S.
Government Funds Average consisted of 188 and 184 funds, respectively. These
funds have generally similar investment objectives to the Portfolio, although
some may have different investment policies and sales and management fees. An
investor cannot invest directly in an index or average, and their results are
not indicative of the performance for any specific investment, including the
Portfolio.
A Word About Risk
Price fluctuations in the Portfolio's securities may be caused by changes in
the general level of interest rates or changes in bond credit quality ratings.
Please note, as interest rates rise, existing bond prices fall and can cause
the value of an investment in the Portfolio to decline. Changes in interest
rates have a greater effect on bonds with longer maturities than on those with
shorter maturities. Investments in the Portfolio are not guaranteed because of
fluctuation in the net asset value of the underlying fixed-income related
investments. Similar to direct bond ownership, bond funds have the same
interest rate, inflation and credit risks that are associated with the
underlying bonds owned by the Portfolio. The Portfolio's investments in
mortgage-related or asset-backed securities may be subjected to prepayment
risk. Portfolio purchasers should understand that, in contrast to owning
individual bonds, there are ongoing fees and expenses associated with owning
shares of bond funds. While the Portfolio invests principally in bonds and
other fixed-income securities, in order to achieve its investment objectives,
the Portfolio may at times use certain types of investment derivatives, such as
options, futures, forwards and swaps. These instruments involve risks different
from, and in certain cases, greater than, the risks presented by more
traditional investments. The Portfolio may utilize leverage through the use of
reverse repurchase arrangements, forward contracts or dollar rolls or by
borrowing money. When a fund borrows money or otherwise leverages its
portfolio, it may be volatile because leverage tends to exaggerate the effect
of any increase or decrease in the value of a fund's investments. These risks
are fully discussed in the Portfolio's prospectus.
(Historical Performance continued on next page)
ALLIANCEBERNSTEIN BOND FUND U.S. GOVERNMENT PORTFOLIO o 3
HISTORICAL PERFORMANCE
(continued from previous page)
Returns
THE PORTFOLIO VS. ITS BENCHMARK ---------------------------------
PERIODS ENDED SEPTEMBER 30, 2006 6 Months 12 Months
- -------------------------------------------------------------------------------
AllianceBernstein Bond Fund
U.S. Government Portfolio
Class A 3.28% 2.60%
Class B 2.90% 1.86%
Class C 2.90% 1.87%
Advisor Class* 3.42% 2.75%
Class R* 3.05% 2.26%
Class K* 3.20% 2.57%
Class I* 3.52% 2.89%
Lehman Brothers
Government Index 3.56% 3.30%
Lipper General U.S. Government
Funds Average 3.12% 2.29%
* Please note that these share classes are for investors purchasing shares
through institutional pension plans and investment advisory clients of, and
certain other persons associated with, the Adviser and its affiliates or the
Funds.
GROWTH OF A $10,000 INVESTMENT IN THE PORTFOLIO
9/30/96 TO 9/30/06
AllianceBernstein Bond Fund U.S. Government Portfolio Class A: $15,849
Lehman Brothers Government Index: $18,298
[THE FOLLOWING DATA WAS REPRESENTED BY A MOUNTAIN CHART IN THE PRINTED MATERIAL]
AllianceBernstein
Bond Fund Lehman
U.S. Government Brothers
Portfolio Government
Class A Index
- -------------------------------------------------------------------------------
9/30/96 $ 9,575 $ 10,000
9/30/97 $ 10,372 $ 10,916
9/30/98 $ 11,656 $ 12,399
9/30/99 $ 11,342 $ 12,189
9/30/00 $ 12,100 $ 13,064
9/30/01 $ 13,507 $ 14,796
9/30/02 $ 14,558 $ 16,282
9/30/03 $ 14,728 $ 16,860
9/30/04 $ 15,095 $ 17,284
9/30/05 $ 15,444 $ 17,713
9/30/06 $ 15,849 $ 18,298
This chart illustrates the total value of an assumed $10,000 investment in
AllianceBernstein Bond Fund U.S. Government Portfolio Class A shares (from
9/30/96 to 9/30/06) as compared to the performance of the Portfolio's
benchmark, the Lehman Brothers Government 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
distributions.
See Historical Performance and Benchmark disclosures on previous page.
(Historical Performance continued on next page)
4 o ALLIANCEBERNSTEIN BOND FUND U.S. GOVERNMENT PORTFOLIO
HISTORICAL PERFORMANCE
(continued from previous page)
AVERAGE ANNUAL RETURNS AS OF SEPTEMBER 30, 2006
NAV Returns SEC Returns
- -------------------------------------------------------------------------------
Class A Shares
1 Year 2.60% -1.76%
5 Years 3.24% 2.35%
10 Years 5.17% 4.71%
SEC Yield** 4.53%
Class B Shares
1 Year 1.86% -1.08%
5 Years 2.48% 2.48%
10 Years(a) 4.71% 4.71%
SEC Yield** 3.99%
Class C Shares
1 Year 1.87% 0.89%
5 Years 2.51% 2.51%
10 Years 4.42% 4.42%
SEC Yield** 4.01%
Advisor Class Shares+
1 Year 2.75% 2.75%
5 Years 3.58% 3.58%
Since Inception* 4.95% 4.95%
SEC Yield** 5.02%
Class R Shares+
1 Year 2.26% 2.26%
Since Inception* 2.79% 2.79%
SEC Yield** 4.33%
Class K Shares+
1 Year 2.57% 2.57%
Since Inception* 2.76% 2.76%
SEC Yield** 4.66%
Class I Shares+
1 Year 2.89% 2.89%
Since Inception* 3.08% 3.08%
SEC Yield** 4.85%
(a) Assumes conversion of Class B shares into Class A shares after six years.
* Inception Date: 10/6/00 for Advisor Class shares; 11/3/03 for Class R
shares; 3/1/05 for Class K and Class I shares.
** SEC yields are calculated based on SEC guidelines for the 30-day period
ended September 30, 2006.
+ These share classes are offered at net asset value (NAV) to eligible
investors and their SEC returns are the same as the NAV returns. Please note
that these share classes are for investors purchasing shares through
institutional pension plans and investment advisory clients of, and certain
other persons associated with, the Adviser and its affiliates or the Funds. The
inception dates for these share classes are listed above.
See Historical Performance disclosures on page 3.
(Historical Performance continued on next page)
ALLIANCEBERNSTEIN BOND FUND U.S. GOVERNMENT PORTFOLIO o 5
HISTORICAL PERFORMANCE
(continued from previous page)
SEC AVERAGE ANNUAL RETURNS (WITH ANY APPLICABLE SALES CHARGES) AS OF THE MOST
RECENT CALENDAR QUARTER-END (SEPTEMBER 30, 2006)
SEC Returns
- -------------------------------------------------------------------------------
Class A Shares
1 Year -1.76%
5 Years 2.35%
10 Years 4.71%
Class B Shares
1 Year -1.08%
5 Years 2.48%
10 Years(a) 4.71%
Class C Shares
1 Year 0.89%
5 Years 2.51%
10 Years 4.42%
Advisor Class Shares+
1 Year 2.75%
5 Years 3.58%
Since Inception* 4.95%
Cass R Shares+
1 Year 2.26%
Since Inception* 2.79%
Class K Shares+
1 Year 2.57%
Since Inception* 2.76%
Class I Shares+
1 Year 2.89%
Since Inception* 3.08%
(a) Assumes conversion of Class B shares into Class A shares after six years.
* Inception Date: 10/6/00 for Advisor Class shares; 11/3/03 for Class R
shares; 3/1/05 for Class K and Class I shares.
+ Please note that these share classes are for investors purchasing shares
through institutional pension plans and investment advisory clients of, and
certain other persons associated with, the Adviser and its affiliates or the
Funds. The inception dates for these share classes are listed above.
See Historical Performance disclosures on page 3.
6 o ALLIANCEBERNSTEIN BOND FUND U.S. GOVERNMENT PORTFOLIO
FUND EXPENSES
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including sales charges (loads) on purchase payments, contingent
deferred sales charges on redemptions and (2) ongoing costs, including
management fees; distribution (12b-1) fees; and other Fund expenses. This
example is intended to help you understand your ongoing costs (in dollars) of
investing in the Fund and to compare these costs with the ongoing costs of
investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of
the period and held for the entire period as indicated below.
Actual Expenses
The table below provides information about actual account values and actual
expenses. You may use the information, together with the amount you invested,
to estimate the expenses that you paid over the period. Simply divide your
account value by $1,000 (for example, an $8,600 account value divided by $1,000
= 8.6), then multiply the result by the number under the heading entitled
"Expenses Paid During Period" to estimate the expenses you paid on your account
during this period.
Hypothetical Example for Comparison Purposes
The table below also provides information about hypothetical account values and
hypothetical expenses based on the Fund's actual expense ratio and an assumed
annual rate of return of 5% before expenses, which is not the Fund's actual
return. The hypothetical account values and expenses may not be used to
estimate the actual ending account balance or expenses you paid for the period.
You may use this information to compare the ongoing costs of investing in the
Fund and other funds by comparing this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads), or contingent deferred sales charges on redemptions.
Therefore, the hypothetical example is useful in comparing ongoing costs only,
and will not help you determine the relative total costs of owning different
funds. In addition, if these transactional costs were included, your costs
would have been higher.
Beginning Ending
Account Value Account Value Expenses Paid
April 1, 2006 September 30, 2006 During Period*
- ---------------------------------------------------------------------------------------------------------
Actual Hypothetical Actual Hypothetical** Actual Hypothetical
- ---------------------------------------------------------------------------------------------------------
Class A $1,000 $1,000 $1,032.76 $1,020.56 $4.59 $4.56
Class B $1,000 $1,000 $1,029.03 $1,016.90 $8.29 $8.24
Class C $1,000 $1,000 $1,029.01 $1,017.00 $8.19 $8.14
Advisor
Class $1,000 $1,000 $1,034.18 $1,022.06 $3.06 $3.04
Class R $1,000 $1,000 $1,030.52 $1,018.55 $6.62 $6.58
Class K $1,000 $1,000 $1,031.96 $1,020.21 $4.94 $4.91
Class I $1,000 $1,000 $1,035.16 $1,021.46 $3.67 $3.65
* Expenses are equal to the classes' annualized expense ratios of 0.90%,
1.63%, 1.61%, 0.60%, 1.30%, 0.97% and 0.72%, respectively, multiplied by the
average account value over the period, multiplied by 183/365 (to reflect the
one-half year period).
** Assumes 5% return before expenses.
ALLIANCEBERNSTEIN BOND FUND U.S. GOVERNMENT PORTFOLIO o 7
PORTFOLIO SUMMARY
September 30, 2006
PORTFOLIO STATISTICS
Net Assets ($mil): $611.1
SECURITY TYPE BREAKDOWN*
o 55.8% U.S. Treasury Securities
o 17.7% Federal National Mortgage Association
o 10.0% Collateralized Mortgage Obligations
o 7.5% Government National Mortgage Association
o 2.2% Stripped Mortgage Backed Securities
o 2.2% Commercial Mortgage Backed Securities
o 1.7% Federal Home Loan Mortgage Corp.
o 0.5% Asset Backed Securities
o 0.3% Federal Agency-Commercial
Mortgage Backed Securities
o 0.2% Federal Agency-Collateralized
Mortgage Obligations
o 1.9% Short-Term
* All data are as of September 30, 2006. The Portfolio's security type
breakdown is expressed as a percentage of total investments (excluding security
lending collateral) and may vary over time.
8 o ALLIANCEBERNSTEIN BOND FUND U.S. GOVERNMENT PORTFOLIO
PORTFOLIO OF INVESTMENTS
September 30, 2006
Principal
Amount
(000) U.S. $ Value
- -------------------------------------------------------------------------------
U.S. GOVERNMENT & GOVERNMENT
SPONSORED AGENCY OBLIGATIONS-88.5%
U.S. Treasury Bonds-32.4%
6.25%, 8/15/23 $ 33,300 $ 38,661,833
6.25%, 5/15/30* 22,000 26,439,534
7.125%, 2/15/23 20,000 25,121,880
7.50%, 11/15/16 19,500 23,887,500
11.25%, 2/15/15* 20,000 29,089,060
12.50%, 8/15/14* 45,150 54,587,388
------------
197,787,195
Mortgage Pass Thru's-28.6%
Federal Home Loan Mortgage Corp.
4.124%, 1/01/35(a) 5,520 5,542,516
4.245%, 10/01/35(a) 964 959,446
4.397%, 8/01/34(a) 747 744,910
4.398%, 9/01/34(a) 545 543,916
4.601%, 4/01/35(a) 724 717,114
4.682%, 6/01/35(a) 1,467 1,455,270
5.734%, 5/01/36(a) 763 768,692
Federal National Mortgage Association
4.00%, 5/01/19-3/01/20 6,089 5,762,881
4.124%, 12/01/34(a) 3,344 3,331,767
4.138%, 11/01/34(a) 1,002 999,695
4.175%, 9/01/35(a) 544 542,452
4.308%, 8/01/34(a) 799 800,370
4.38%, 8/01/34(a) 1,416 1,419,456
4.412%, 8/01/34(a) 893 892,884
4.466%, 1/01/36(a) 763 760,612
4.477%, 5/01/33(a) 867 869,687
4.515%, 7/01/35(a) 1,229 1,227,899
4.53%, 8/01/35(a) 491 489,529
4.699%, 5/01/35(a) 968 963,491
4.786%, 7/01/35(a) 1,704 1,696,024
4.813%, 7/01/35(a) 805 803,014
5.00%, TBA 40,890 40,174,425
5.00%, 12/01/17-12/01/19 21,246 20,946,595
5.50%, 6/01/20 14,750 14,783,230
5.589%, 4/01/36(a) 1,051 1,054,167
5.811%, 3/01/36(a) 2,533 2,556,560
5.942%, 6/01/36(a) 387 392,778
5.948%, 6/01/36(a) 1,727 1,744,472
6.038%, 5/01/36(a) 1,016 1,029,809
6.417%, 1/01/36(a) 1,376 1,411,902
6.50%, 8/01/34-5/01/35 10,250 10,479,459
Government National Mortgage Association
5.50%, 7/15/33-4/20/36 35,923 35,617,916
7.00%, 12/15/26 2,928 3,022,433
7.50%, 12/15/14 6,212 6,427,644
8.00%, 3/15/12 2,759 2,834,010
ALLIANCEBERNSTEIN BOND FUND U.S. GOVERNMENT PORTFOLIO o 9
Principal
Amount
(000) U.S. $ Value
- -------------------------------------------------------------------------------
8.15%, 9/15/20 $ 395 $ 419,945
9.00%, 12/15/09-12/15/19 676 692,169
------------
174,879,139
U.S. Treasury Notes-25.6%
3.25%, 1/15/09* 28,600 27,737,538
3.625%, 1/15/10* 7,010 6,802,168
3.875%, 5/15/09 19,845 19,479,098
4.00%, 6/15/09-4/15/10 63,580 62,428,236
4.00%, 3/15/10* 21,840 21,425,389
4.50%, 11/15/15* 18,560 18,380,191
------------
156,252,620
U.S. Treasury Inflation Index Security-1.4%
1.875%, 7/15/13 8,696 8,470,862
Federal Agency - Commercial Mortgage
Backed Securities-0.3%
Government National Mortgage Association
Series 2006-32 Class XM
0.487%, 11/16/45 5,873 336,756
Series 2006-39 Class IO
1.187%, 7/16/46 24,979 1,425,047
------------
1,761,803
Federal Agency - Collateralized Mortgage
Obligations-0.2%
Fannie Mae Strip
Series 334 Class 22
5.00%, 2/01/18 2,017 312,842
Series 339 Class 25
5.00%, 7/01/18 3,144 503,984
Series 339 Class 26
5.00%, 7/01/18 2,576 410,957
Series 351 Class 27
5.00%, 4/01/19 1,127 185,340
------------
1,413,123
Total U.S. Government & Government
Sponsored Agency Obligations
(cost $540,842,006) 540,564,742
COLLATERALIZED MORTGAGE OBLIGATIONS-10.6%
Adjustable Rate Mortgage Trust
Series 2005-4 Class 3A1
4.995%, 8/25/35 3,028 2,984,013
Bear Stearns Alt-A Trust
Series 2005-10 Class 24A1
5.957%, 1/25/36 2,679 2,705,205
Series 2006-2 Class 23A1
5.99%, 3/25/36 3,662 3,694,105
Series 2006-3 Class 22A1
6.242%, 5/25/36 2,866 2,904,628
10 o ALLIANCEBERNSTEIN BOND FUND U.S. GOVERNMENT PORTFOLIO
Principal
Amount
(000) U.S. $ Value
- -------------------------------------------------------------------------------
Citigroup Mortgage Loan Trust, Inc.
Series 2005-2 Class 1A4
5.115%, 5/25/35 $ 3,007 $ 2,970,017
Countrywide Home Loans
Series 2005-12 Class 1A5
5.25%, 5/25/35 7,424 7,332,536
Series 2006-HYB4 Class 2A1
5.842%, 6/20/36 4,185 4,209,340
Greenpoint Mortgage Funding Trust
Series 2006-AR2 Class 4A1
6.432%, 3/25/36 3,326 3,409,603
Indymac Index Mortgage Loan Trust
Series 2006-AR7 Class 4A1
6.265%, 5/25/36 2,019 2,046,646
JP Morgan Alternative Loan Trust
Series 2006-A2 Class 4A1
6.383%, 5/25/36 2,892 2,946,274
JP Morgan Mortgage Trust
Series 2006-A4 Class 1A1
5.852%, 6/25/36 2,893 2,915,333
Merrill Lynch Mortgage Investors, Inc.
Series 2006-A1 Class 2A1
6.201%, 3/25/36 3,117 3,156,176
Residential Asset Mortgage Products, Inc.
Series 2004-SL2 Class A2
6.50%, 10/25/31 4,534 4,579,484
Series 2004-SL4 Class A4
7.00%, 7/25/32 1,552 1,586,395
Residential Asset Securitization Trust
Series 2003-A15 Class B2
5.582%, 2/25/34 1,722 1,634,965
Residential Funding Mortgage Securities I, Inc.
Series 2005-SA3 Class 3A
5.243%, 8/25/35 2,994 2,965,631
Structured Asset Mortgage Investments, Inc.
Series 2005-AR7 Class 5X1
1.429%, 3/25/46 4,832 149,499
Structured Asset Securities Corp.
Series 2003-21 Class 2A1
4.00%, 8/25/33 3,444 3,359,231
Series 2006-RM1 Class AIO
5.00%, 8/25/46(b) 4,960 1,088,274
Series 2003-6A Class B3
5.425%, 3/25/33 2,058 2,011,941
Series 2002-3 Class B3
6.50%, 3/25/32 3,361 3,335,819
Wells Fargo Mortgage Backed Securities Trust
Series 2006-AR11 Class A4
5.539%, 8/25/36 3,086 3,065,030
Total Collateralized Mortgage Obligations
(cost $65,228,088) 65,050,145
ALLIANCEBERNSTEIN BOND FUND U.S. GOVERNMENT PORTFOLIO o 11
Principal
Amount
(000) U.S. $ Value
- -------------------------------------------------------------------------------
STRIPPED MORTGAGE BACKED SECURITIES-2.4%
Countrywide Alternative Loan Trust
Series 2005-27 Class 2X1
1.312%, 8/25/35 $ 40,301 $ 1,070,408
Series 2005-27 Class 2X2
0.567%, 8/25/35 7,422 143,846
Series 2005-59 Class 2X
1.601%, 11/20/35 14,851 541,172
Credit Suisse First Boston Mortgage
Securities Corp.
Series 2001-CK3 Class AX
1.274%, 6/15/34(b) 31,790 1,263,024
Greenpoint Mortgage Funding Trust
Series 2005-AR5 Class 4X1
Zero coupon, 11/25/45 17,131 358,730
Series 2005-AR5 Class 4X2
Zero coupon, 11/25/45 9,832 153,678
LB-UBS Commercial Mortgage Trust
Series 2006-C6 Class XCL
0.07%, 9/15/39(b) 77,387 1,484,277
Series 2005-C7 Class XCL
0.081%, 11/15/40(b) 122,556 1,174,089
Morgan Stanley Capital I
Series 2003-IQ4 Class X1
0.207%, 5/15/40(b) 87,783 2,935,477
Mortgage Capital Funding, Inc.
Series 1996-MC2 Class X
3.024%, 12/21/26 3,582 7,952
Prudential Securities Secured Financing Corp.
Series 1999-NRF1 Class AEC
0.946%, 11/01/31(b) 253,073 5,377,806
Total Stripped Mortgage Backed Securities
(cost $16,806,944) 14,510,459
COMMERCIAL MORTGAGE BACKED SECURITIES-2.4%
Banc of America Commercial Mortgage, Inc.
Series 2006-2, Class A4
5.93%, 5/10/45 1,790 1,851,594
Citigroup Commercial Mortgage Trust
Series 2004-C1 Class A4
5.53%, 4/15/40 2,040 2,059,665
CS First Boston Mortgage Securities Corp.
Series 2004-C1 Class A4
4.75%, 1/15/37 715 691,197
JP Morgan Chase Commercial Mortgage Securities
Series 2006-CB15 Class A4
5.814%, 6/12/43 1,485 1,534,792
Series 2006-LDP7 Class A4
6.066%, 4/15/45 1,580 1,649,678
12 o ALLIANCEBERNSTEIN BOND FUND U.S. GOVERNMENT PORTFOLIO
Principal
Amount
(000) U.S. $ Value
- -------------------------------------------------------------------------------
LB-UBS Commercial Mortgage Trust
Series 2004-C2 Class A4
4.367%, 3/15/36 $ 1,700 $ 1,603,551
Merrill Lynch Mortgage Trust
Series 2004-KEY2 Class A4
4.864%, 8/12/39 2,420 2,347,763
Series 2004-BPC1 Class A5
4.855%, 10/12/41 1,890 1,830,994
Merrill Lynch/Countrywide Commercial
Mortgage Trust
Series 2006-2 Class A4
6.105%, 6/12/46 895 936,868
Total Commercial Mortgage Backed Securities
(cost $14,029,530) 14,506,102
ASSET BACKED SECURITIES-0.5%
Fixed Rate-0.5%
Countrywide Asset-Backed Certificates
Series 2004-2N Class N1
5.00%, 2/25/35(b) 88 87,832
DB Master Finance, LLC
Series 2006-1 Class A2
5.779%, 6/20/31(b) 1,395 1,415,939
Residential Asset Mortgage Products, Inc.
Series 2004-SL3 Class A3
7.50%, 12/25/31 1,340 1,384,649
SASCO Net Interest Margin Trust
Series 2004-9XS Class A
5.25%, 5/28/34(b) 345 327,904
Total Asset Backed Securities
(cost $3,216,066) 3,216,324
SHORT-TERM INVESTMENTS-2.0%
U.S. Government & Government Sponsored
Agency Obligations-2.0%
Federal National Mortgage Association
Zero coupon, 10/02/06 12,000 11,998,417
U.S. Treasury Bill-0.0%
Zero coupon, 1/25/07(c) 250 246,171
Total Short-Term Investments
(cost $12,244,588) 12,244,588
Total Investments Before Security Lending
Collateral-106.4%
(cost $652,367,222) 650,092,360
ALLIANCEBERNSTEIN BOND FUND U.S. GOVERNMENT PORTFOLIO o 13
Shares or
Principal
Amount
(000) U.S. $ Value
- -------------------------------------------------------------------------------
INVESTMENT OF CASH COLLATERAL
FOR SECURITIES LOANED-30.7%
Short-Term Investments
Fountain Square Funding
5.42%, 10/02/06 $ 27,000 $ 26,995,935
FPL Group
5.30%, 10/16/06 14,575 14,542,996
Giro Balanced Funding
5.29%, 10/11/06 20,000 19,970,722
Goldman Sachs
5.36%, 10/01/06 25,000 25,112,344
Gotham Funding
5.31%, 10/17/06 30,000 29,929,466
Morgan Stanley
5.32%, 10/01/06 50,000 50,220,533
Norinchukin Bank
5.32%, 10/20/06 20,000 20,011,778
------------
186,783,774
UBS Private Money Market Fund, LLC 1,163,998 1,163,998
Total Investment of Cash Collateral for
Securities Loaned
(cost $187,947,772) 187,947,772
Total Investments-137.1%
(cost $840,314,994) 838,040,132
Other assets less liabilities-(37.1)% (226,928,129)
Net Assets-100% $ 611,112,003
FINANCIAL FUTURES CONTRACTS PURCHASED (see Note D)
Value at
Number of Expiration Original September 30, Unrealized
Type Contracts Month Value 2006 Appreciation
- ------------------------------------------------------------------------------------------------
U.S. Treasury Note
5 Yr Future 235 December 2006 $24,705,057 $24,796,172 $91,115
* Represents entire or partial securities out on loan. See Note E for
securities lending information.
(a) Variable rate coupon, rate shown as of September 30, 2006.
(b) Security is exempt from registration under Rule 144A of the Securities
Act of 1933. These securities are considered liquid and may be resold in
transactions exempt from registration, normally to qualified institutional
buyers. At September 30, 2006, the aggregate market value of these securities
amounted to $15,154,622 or 2.5% of net assets.
(c) Positions, or portions thereof, with a market value of $246,171 have been
segregated to collateralize margin requirements for open futures contracts.
Glossary:
TBA - (To Be Announced)
See notes to financial statements.
14 o ALLIANCEBERNSTEIN BOND FUND U.S. GOVERNMENT PORTFOLIO
STATEMENT OF ASSETS & LIABILITIES
September 30, 2006
Assets
Investments in securities, at value (cost $840,314,994--
including investment of cash collateral for securities
loaned of $187,947,772) $838,040,132(a)
Cash 210,065
Interest receivable 5,906,930
Receivable for capital stock sold 1,242,705
Total assets 845,399,832
Liabilities
Payable for collateral received on securities loaned 187,947,772
Payable for investment securities purchased 41,632,534
Payable for capital stock redeemed 2,492,007
Dividends payable 778,905
Advisory fee payable 689,542
Distribution fee payable 237,391
Transfer Agent fee payable 121,710
Administrative fee payable 24,386
Payable for variation margin on futures contracts 14,688
Accrued expenses 348,894
Total liabilities 234,287,829
Net Assets $611,112,003
Composition of Net Assets
Capital stock, at par $89,353
Additional paid-in capital 750,341,842
Distributions in excess of net investment income (6,248,034)
Accumulated net realized loss on investment
transactions (130,886,387)
Net unrealized depreciation of investments (2,184,771)
--------------
$611,112,003
Net Asset Value Per Share-21 billion shares of capital stock authorized,
$.001 par value
Shares Net Asset
Class Net Assets Outstanding Value
- --------------------------------------------------------------------
A $457,168,129 66,854,491 $6.84*
B $ 81,833,944 11,968,525 $6.84
C $ 66,795,805 9,754,115 $6.85
Advisor $ 5,258,812 767,815 $6.85
R $ 35,732 5,225 $6.84
K $ 9,842 1,439 $6.84
I $ 9,739 1,424 $6.84
- --------------------------------------------------------------------
* The maximum offering price per share for Class A shares was $7.14 which
reflects a sales charge of 4.25%.
(a) Includes securities on loan with a value of $181,446,035 (see Note E).
See notes to financial statements.
ALLIANCEBERNSTEIN BOND FUND U.S. GOVERNMENT PORTFOLIO o 15
STATEMENT OF OPERATIONS
Year Ended September 30, 2006
Investment Income
Interest $36,462,467
Expenses
Advisory fee $ 2,971,997
Distribution fee--Class A 1,475,622
Distribution fee--Class B 1,074,775
Distribution fee--Class C 736,617
Distribution fee--Class R 147
Distribution fee--Class K 25
Transfer agency--Class A 680,776
Transfer agency--Class B 196,872
Transfer agency--Class C 118,245
Transfer agency--Advisor Class 8,782
Transfer agency--Class R 77
Transfer agency--Class K 21
Transfer agency--Class I 18
Printing 264,590
Custodian 175,160
Administrative 96,866
Legal 95,085
Registration fees 87,231
Audit 70,035
Directors' fees 31,158
Miscellaneous 50,753
Total expenses before interest expense 8,134,852
Interest expense 265,353
Total expenses 8,400,205
Less: expense offset arrangement
(see Note B) (42,000)
Net expenses 8,358,205
Net investment income 28,104,262
Realized and Unrealized Gain (Loss)
on Investment Transactions
Net realized gain (loss) on:
Investment transactions (11,629,018)
Futures contracts 2,126,700
Net change in unrealized
appreciation/depreciation of:
Investments (4,828,928)
Futures contracts (308,105)
Net loss on investment transactions (14,639,351)
Net Increase in Net Assets
from Operations $ 13,464,911
See notes to financial statements.
16 o ALLIANCEBERNSTEIN BOND FUND U.S. GOVERNMENT PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
Year Ended Year Ended
September 30, September 30,
2006 2005
------------- -------------
Increase (Decrease) in Net Assets
from Operations
Net investment income $ 28,104,262 $ 43,694,771
Net realized loss on investment
transactions (9,502,318) (7,902,534)
Net change in unrealized
appreciation/depreciation
of investments (5,137,033) (10,220,230)
Net increase in net assets
from operations 13,464,911 25,572,007
Dividends to Shareholders from
Net investment income
Class A (22,604,739) (24,186,748)
Class B (4,137,570) (6,345,707)
Class C (2,849,239) (3,259,002)
Advisor Class (303,181) (12,695,436)
Class R (1,262) (760)
Class K (451) (238)
Class I (475) (254)
Capital Stock Transactions
Net decrease (145,187,552) (416,393,877)
Total decrease (161,619,558) (437,310,015)
Net Assets
Beginning of period 772,731,561 1,210,041,576
End of period (including distributions
in excess of net investment income
of ($6,248,034) and
($6,188,867), respectively) $ 611,112,003 $ 772,731,561
See notes to financial statements.
ALLIANCEBERNSTEIN BOND FUND U.S. GOVERNMENT PORTFOLIO o 17
NOTES TO FINANCIAL STATEMENTS
September 30, 2006
NOTE A
Significant Accounting Policies
AllianceBernstein 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 Intermediate Bond Portfolio, (formerly the Quality Bond Portfolio) and the
U.S. Government Portfolio. Each series is considered to be a separate entity
for financial reporting and tax purposes. This report relates only to the U.S.
Government Portfolio. The U.S. Government Portfolio (the "Portfolio") offers
Class A, Class B, Class C, Advisor Class, Class R, Class K and Class I 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. Class R and Class
K shares are sold without an initial or contingent deferred sales charge.
Advisor Class and Class I shares are sold without an initial or contingent
deferred sales charge and are not subject to ongoing distribution expenses. All
seven classes of shares have identical voting, dividend, liquidation and other
rights, except that the classes bear different distribution and transfer agency
expenses. Each class has exclusive voting rights with respect to its
distribution plan. The financial statements have been prepared in conformity
with U.S. 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 are valued at their current market value determined on the
basis of market quotations or, if market quotations are not readily available
or are deemed unreliable, at "fair value" as determined in accordance with
procedures established by and under the general supervision of the Fund's Board
of Directors.
In general, the market value of securities which are readily available and
deemed reliable are determined as follows. Securities listed on a national
securities exchange (other than securities listed on the NASDAQ Stock Market,
Inc. ("NASDAQ"))or on a foreign securities exchange are valued at the last sale
price at the close of the exchange or foreign securities exchange. If there has
been no sale on such day, the securities are valued at the mean of the closing
bid and asked prices on such day. Securities listed on more than one exchange
are valued by ref-
18 o ALLIANCEBERNSTEIN BOND FUND U.S. GOVERNMENT PORTFOLIO
erence to the principal exchange on which the securities are traded; securities
listed only on NASDAQ are valued in accordance with the NASDAQ Official Closing
Price; listed put or call options are valued at the last sale price. If there
has been no sale on that day, such securities will be valued at the closing bid
prices on that day; open futures contracts and options thereon are valued using
the closing settlement price or, in the absence of such a price, the most
recent quoted bid price. If there are no quotations available for the day of
valuation, the last available closing settlement price is used; securities
traded in the over-the-counter market, ("OTC") are valued at the mean of the
current bid and asked prices as reported by the National Quotation Bureau or
other comparable sources; U.S. Government securities and other debt instruments
having 60 days or less remaining until maturity are valued at amortized cost if
their original maturity was 60 days or less; or by amortizing their fair value
as of the 61st day prior to maturity if their original term to maturity
exceeded 60 days; fixed-income securities, including mortgage backed and asset
backed securities, may be valued on the basis of prices provided by a pricing
service or at a price obtained from one or more of the major broker/dealers. In
cases where broker/dealer quotes are obtained, AllianceBernstein L.P. (prior to
February 24, 2006 known as Alliance Capital Management L.P.) (the "Adviser")
may establish procedures whereby changes in market yields or spreads are used
to adjust, on a daily basis, a recently obtained quoted price on a security;
and OTC and other derivatives are valued on the basis of a quoted bid price or
spread from a major broker/dealer in such security.
Securities for which market quotations are not readily available (including
restricted securities) or are deemed unreliable are valued at fair value.
Factors considered in making this determination may include, but are not
limited to, information obtained by contacting the issuer, analysts, analysis
of the issuer's financial statements or other available documents. In addition,
the Fund may use fair value pricing for securities primarily traded in non-U.S.
markets because, most foreign markets close well before the Fund values its
securities at 4:00 p.m., Eastern Time. The earlier close of these foreign
markets gives rise to the possibility that significant events, including broad
market moves, may have occurred in the interim and may materially affect the
value of those 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. The Portfolio may be subject to taxes imposed by countries in which
it invests. Such taxes are generally based on income and/or capital gains
earned or repatriated. Taxes are accrued and applied to net investment income,
net realized gains and net unrealized appreciation/depreciation as such income
and/or gains are earned.
ALLIANCEBERNSTEIN BOND FUND U.S. GOVERNMENT PORTFOLIO o 19
3. Investment Income and Investment Transactions
Interest income is accrued daily. Investment transactions are accounted for on
the date securities are purchased or sold. Investment gains and losses are
determined on the identified cost basis. The Portfolio accretes discounts and
amortizes premiums as adjustments to interest income.
4. Class Allocations
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 for class
specific expenses which are allocated to the respective class. Expenses of the
Fund are charged to each Portfolio in proportion to net assets. Realized and
unrealized gains and losses are allocated among the various share classes based
on their respective net assets.
5. Dividends and Distributions
Dividends and distributions to shareholders, if any, 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 U.S. 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.
6. Repurchase Agreements
It is the Portfolio's policy that its custodian or designated subcustodian take
control of securities as collateral under repurchase agreements and to
determine on a daily basis that the value of such securities are sufficient to
cover the value of the repurchase agreements. If the seller defaults and the
value of the collateral declines or if bankruptcy proceedings are commenced
with respect to the seller of the security, realization of collateral by the
Portfolio may be delayed or limited.
NOTE B
Advisory Fee and Other Transactions with Affiliates
Under the terms of the investment advisory agreement, the Portfolio pays the
Adviser an advisory fee at an annual rate of .45% of the first $2.5 billion,
..40% of the next $2.5 billion and .35% in excess of $5 billion, of the
Portfolio's net assets valued on the last business day of the previous quarter.
Prior to September 7, 2004, the Portfolio paid the Adviser an advisory fee at a
quarterly rate of .15% (approximately .60% on an annual basis) of the first
$500 million of the Portfolio's net assets and .125% (approximately .50% on an
annual basis) of it net assets over $500 million, valued on the last business
day of the previous quarter. The fee is accrued daily and paid quarterly.
20 o ALLIANCEBERNSTEIN BOND FUND U.S. GOVERNMENT PORTFOLIO
Pursuant to the advisory agreement, the Portfolio paid $96,866 to the Adviser
representing the cost of certain legal and accounting services provided to the
Portfolio by the Adviser for the year ended September 30, 2006.
The Portfolio compensates AllianceBernstein Investor Services, Inc. (prior to
February 24, 2006 known as Alliance Global Investor Services, Inc.) ("ABIS"), 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. ABIS may make payments to intermediaries that provide omnibus
account services, sub-accounting services and/or networking services. Such
compensation retained by ABIS amounted to $683,446 for the year ended September
30, 2006.
For the year ended September 30, 2006, the Portfolio's expenses were reduced by
$42,000 under an expense offset arrangement with ABIS.
AllianceBernstein Investments, Inc. (prior to February 24, 2006 known as
AllianceBernstein Investment Research and Management, Inc.) (the
"Distributor"), a wholly-owned subsidiary of the Adviser, serves as the
distributor of the Portfolio's shares. The Distributor has advised the
Portfolio that it has retained front-end sales charges of $6,482 from the sales
of Class A shares and received $6,791, $64,181 and $3,594 in contingent
deferred sales charges imposed upon redemptions by shareholders of Class A,
Class B and Class C shares, respectively, for the year ended September 30, 2006.
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 the Portfolio's average daily
net assets attributable to Class A shares, 1% of the average daily net assets
attributable to both Class B and Class C shares, .50% of the Portfolio's
average daily net assets attributable to Class R shares and .25% of the
Portfolio's average daily net assets attributable to Class K shares. There are
no distribution and servicing fees on the Advisor Class and Class I 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 amounts of
$2,236,462, $6,165,272, $2,100 and $0 for Class B, Class C, Class R and Class K
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.
ALLIANCEBERNSTEIN BOND FUND U.S. GOVERNMENT PORTFOLIO o 21
NOTE D
Investment Transactions
Purchases and sales of investment securities (excluding short-term investments)
for the year ended September 30, 2006, were as follows:
Purchases Sales
Investment securities (excluding ------------- --------------
U.S. government securities) $ 110,376,641 $ 104,607,650
U.S. government securities 989,499,883 1,081,227,382
The cost of investments for federal income tax purposes, gross unrealized
appreciation and unrealized depreciation (excluding future contracts) are as
follows:
Cost $ 850,091,722
Gross unrealized appreciation $ 9,446,481
Gross unrealized depreciation (21,498,071)
-------------
Net unrealized depreciation $ (12,051,590)
-------------
1. Financial Futures Contracts
The Portfolio may buy or sell financial futures contracts for the purpose of
hedging its portfolio against adverse effects of anticipated movements in the
market. The Portfolio bears the market risk that arises from changes in the
value of these financial instruments and the imperfect correlation between
movements in the price of the futures contracts and movements in the price of
the securities hedged or used for cover.
At the time the Portfolio enters into a futures contract, the Portfolio
deposits and maintains as collateral an initial margin with the broker, as
required by the exchange on which the transaction is affected. Pursuant to the
contract, the Portfolio agrees to receive from or pay to the broker an amount
of cash equal to the daily fluctuation in the value of the contract. Such
receipts or payments are known as variation margin and are recorded by the
Portfolio as unrealized gains or losses. Risks may arise from the potential
inability of a counterparty to meet the terms of the contract. When the
contract is closed, the Portfolio records a realized gain or loss equal to the
difference between the value of the contract at the time it was opened and the
time it was closed.
2. Swap Agreements
The Portfolio may enter into interest rate swaps to protect itself from
interest rate fluctuations on the underlying debt instruments. A swap is an
agreement that obligates two parties to exchange a series of cash flows at
specified intervals based upon or calculated by reference to changes in
specified prices or rates for a specified amount of an underlying asset. The
payment flows are usually netted against each other, with the difference being
paid by one party to the other.
22 o ALLIANCEBERNSTEIN BOND FUND U.S. GOVERNMENT PORTFOLIO
Risks may arise as a result of the failure of the counterparty to the swap
contract to comply with the terms of the swap contract. The loss incurred by
the failure of a counterparty is generally limited to the net interim payment
to be received by the Portfolio, and/or the termination value at the end of the
contract. Therefore, the Portfolio considers the creditworthiness of each
counterparty to a swap contract in evaluating potential credit risk.
Additionally, risks may arise from unanticipated movements in interest rates or
in the value of the underlying securities.
As of October 1, 2003, the Portfolio has adopted the method of accounting for
interim payments on swap contracts in accordance with Financial Accounting
Standards Board Statement No. 133. The Portfolio accrues for the interim
payments on swap contracts on a daily basis, with the net amount recorded
within unrealized appreciation/depreciation of swap contracts on the statement
of assets and liabilities. Once the interim payments are settled in cash, the
net amount is recorded as realized gain/loss on swaps, in addition to realized
gain/loss recorded upon termination of swap contracts on the statement of
operations. Prior to October 1, 2003, these interim payments were reflected
within interest income/expense in the statement of operations. Fluctuations in
the value of swap contracts are recorded as a component of net change in
unrealized appreciation/depreciation of investments.
3. Option Transactions
For hedging and investment purposes, the Portfolio may purchase and write
(sell) put and call options on U.S. and foreign government securities and
foreign currencies that are traded on U.S. and foreign securities exchanges and
over-the-counter markets.
The risk associated with purchasing an option is that the Portfolio pays a
premium whether or not the option is exercised. Additionally, the Portfolio
bears the risk of loss of premium and change in market value should the
counterparty not perform under the contract. Put and call options purchased are
accounted for in the same manner as portfolio securities. The cost of
securities acquired through the exercise of call options is increased by
premiums paid. The proceeds from securities sold through the exercise of put
options are decreased by the premiums paid.
When the Portfolio writes an option, the premium received by the Portfolio is
recorded as a liability and is subsequently adjusted to the current market
value of the option written. Premiums received from written options which
expire unexercised are recorded by the Portfolio on the expiration date as
realized gains from options written. The difference between the premium
received and the amount paid on effecting a closing purchase transaction,
including brokerage commissions, is also treated as a realized gain, or if the
premium received is less than the amount paid for the closing purchase
transaction, as a realized loss. If a call
ALLIANCEBERNSTEIN BOND FUND U.S. GOVERNMENT PORTFOLIO o 23
option is exercised, the premium received is added to the proceeds from the
sale of the underlying security in determining whether the Portfolio has
realized a gain or loss. If a put option is exercised, the premium received
reduces the cost basis of the security purchased by the Portfolio. In writing
an option, the Portfolio bears the market risk of an unfavorable change in the
price of the security underlying the written option. Exercise of an option
written by the Portfolio could result in the Portfolio selling or buying a
security at a price different from the current market value. For the year ended
September 30, 2006, the Portfolio had no transactions in written options.
4. Reverse Repurchase Agreements
Under a reverse repurchase agreement, the Portfolio sells securities and agrees
to repurchase them at a mutually agreed upon date and price. At the time the
Portfolio enters into a reverse repurchase agreement, it will establish a
segregated account with the custodian containing liquid assets having a value
at least equal to the repurchase price.
For the year ended September 30, 2006, the average amount of reverse repurchase
agreements outstanding was $6,218,498 and the daily weighted average annualized
interest rate was 4.19%. There were no reverse repurchase agreements
outstanding at September 30, 2006.
5. Dollar Rolls
The Portfolio may enter into dollar rolls. Dollar rolls involve sales by the
Portfolio of securities for delivery in the current month and the Portfolio's
simultaneously contracting to repurchase substantially similar (same type and
coupon) securities on a specified future date. During the roll period, the
Portfolio forgoes principal and interest paid on the securities. The Portfolio
is compensated by the difference between the current sales price and the lower
forward price for the future purchase (often referred to as the "drop") as well
as by the interest earned on the cash proceeds of the initial sale. Dollar
rolls involve the risk that the market value of the securities the Portfolio is
obligated to repurchase under the agreement may decline below the repurchase
price. Dollar rolls are speculative techniques and may be considered to be
borrowings by the Portfolio. For the year ended September 30, 2006, the
Portfolio earned drop income of $264,012 which is included in interest income
in the accompanying statement of operations.
NOTE E
Securities Lending
The Portfolio has entered into a securities lending agreement with AG Edwards &
Sons, Inc. (the "Lending Agent"). Under the terms of the agreement, the Lending
Agent, on behalf of the Portfolio, administers the lending of portfolio
securities to certain broker-dealers. In return, the Portfolio receives fee
income from the lending transactions or it retains a portion of interest on the
investment of any cash received as collateral. The Portfolio also continues to
receive divi-
24 o ALLIANCEBERNSTEIN BOND FUND U.S. GOVERNMENT PORTFOLIO
dends or interest on the securities loaned. Unrealized gain or loss on the
value of the securities loaned that may occur during the term of the loan will
be reflected in the accounts of the Portfolio. All loans are continuously
secured by collateral exceeding the value of the securities loaned. All
collateral consists of either cash or U.S. government securities. The Lending
Agent may invest the cash collateral received in accordance with the investment
restrictions of the Portfolio in one or more of the following investments: U.S.
government or U.S. government agency obligations, bank obligations, corporate
debt obligations, asset-backed securities, investment funds, structured
products, repurchase agreements and an eligible money market fund. The Lending
Agent will indemnify the Portfolio for any loss resulting from a borrower's
failure to return a loaned security when due. As of September 30, 2006, the
Portfolio had loaned securities with a value of $181,446,035 and received cash
collateral which was invested in short-term securities valued at $187,947,772
as included in the accompanying portfolio of investments. For the year ended
September 30, 2006, the Portfolio earned fee income of $319,098 which is
included in interest income in the accompanying statement of operations.
NOTE F
Capital Stock
Each class consists of 3,000,000,000 authorized shares. Transactions in capital
shares for each class were as follows:
Shares Amount
-------------------------- ------------------------------
Year Ended Year Ended Year Ended Year Ended
September 30, September 30, September 30, September 30,
2006 2005 2006 2005
------------ ------------ -------------- --------------
Class A
Shares sold 3,048,503 3,126,480 $20,805,776 $22,073,490
Shares issued in
reinvestment of
dividends 2,200,043 2,261,039 15,016,751 15,978,830
Shares converted
from Class B 1,871,028 4,124,189 12,764,162 29,086,145
Shares redeemed (18,093,151) (19,738,404) (123,462,197) (139,391,330)
Net decrease (10,973,577) (10,226,696) $(74,875,508) $(72,252,865)
Class B
Shares sold 691,326 1,200,396 $4,711,220 $8,484,320
Shares issued in
reinvestment of
dividends 469,777 657,216 3,208,836 4,646,224
Shares converted
to Class A (1,871,255) (4,124,192) (12,764,162) (29,086,145)
Shares redeemed (7,205,125) (10,168,820) (49,186,249) (71,816,023)
Net decrease (7,915,277) (12,435,400) $(54,030,355) $(87,771,624)
ALLIANCEBERNSTEIN BOND FUND U.S. GOVERNMENT PORTFOLIO o 25
Shares Amount
-------------------------- ------------------------------
Year Ended Year Ended Year Ended Year Ended
September 30, September 30, September 30, September 30,
2006 2005 2006 2005
------------ ------------ -------------- --------------
Class C
Shares sold 689,394 941,980 $4,716,179 $6,658,949
Shares issued in
reinvestment of
dividends 265,512 301,582 1,815,660 2,134,703
Shares redeemed (3,254,684) (4,215,458) (22,265,463) (29,812,297)
Net decrease (2,299,778) (2,971,896) $(15,733,624) $(21,018,645)
Advisor Class
Shares sold 501,706 20,593,240 $3,469,562 $145,526,826
Shares issued in
reinvestment of
dividends 44,186 1,746,230 302,189 12,364,185
Shares redeemed (633,069) (56,168,512) (4,330,825) (393,271,216)
Net decrease (87,177) (33,829,042) $(559,074) $(235,380,205)
Class R
Shares sold 2,333 1,334 $15,834 $9,408
Shares issued in
reinvestment of
dividends 124 51 840 359
Shares redeemed (833) (58) (5,668) (405)
Net increase 1,624 1,327 $11,006 $9,362
March 1, March 1,
Year Ended 2005(a) to Year Ended 2005(a) to
September 30, September 30, September 30, September 30,
2006 2005 2006 2005
------------ ------------ -------------- --------------
Class K
Shares sold -0- 1,439 $-0- $10,100
Shares issued in
reinvestment of
dividends -0-(b) -0- 3 -0-
Net increase -0-(b) 1,439 $3 $10,100
Class I
Shares sold -0- 1,425 $-0- $10,000
Net increase -0- 1,425 $-0- $10,000
(a) Commencement of distribution
(b) Share amount is less than one full share.
26 o ALLIANCEBERNSTEIN BOND FUND U.S. GOVERNMENT PORTFOLIO
NOTE G
Risks Involved in Investing in the Portfolio
Interest Rate Risk and Credit Risk--Interest rate risk is the risk that changes
in interest rates will affect the value of the Portfolio's investments in
fixed-income debt securities such as bonds or notes. Increases in interest
rates may cause the value of the Portfolio's investments to decline. Credit
risk is the risk that the issuer or guarantor of a debt security, or the
counterparty to a derivative contract, will be unable or unwilling to make
timely principal and/or interest payments, or to otherwise honor its
obligations. The degree of risk for a particular security may be reflected in
its credit risk rating. Credit risk is greater for medium quality and
lower-rated securities. Lower-rated debt securities and similar unrated
securities (commonly known as "junk bonds") have speculative elements or are
predominantly speculative risks.
Indemnification Risk--In the ordinary course of business, the Portfolio enters
into contracts that contain a variety of indemnifications. The Portfolio's
maximum exposure under these arrangements is unknown. However, the Portfolio
has not had prior claims or losses pursuant to these indemnification provisions
and expects the risk of loss thereunder to be remote.
NOTE H
Joint Credit Facility
A number of open-end mutual funds managed by the Adviser, including the
Portfolio, participate in a $250 million revolving credit facility (the
"Facility") to provide short-term financing if necessary, in connection with
abnormal redemption activity. Commitment fees related to the Facility are paid
by the participating funds and are included in the miscellaneous expenses in
the statement of operations. The Portfolio did not utilize the Facility during
the year ended September 30, 2006.
NOTE I
Distributions to Shareholders
The tax character of distributions paid during the fiscal years ended September
30, 2006 and September 30, 2005 were as follows:
September 30, September 30,
2006 2005
-------------- --------------
Distributions paid from:
Ordinary income $ 29,896,917 $ 46,488,145
Total taxable distributions 29,896,917 46,488,145
Tax return of capital -0- -0-
Total distributions paid $ 29,896,917 $ 46,488,145
ALLIANCEBERNSTEIN BOND FUND U.S. GOVERNMENT PORTFOLIO o 27
As of September 30, 2006, the components of accumulated earnings/(deficit) on a
tax basis were as follows:
Accumulated capital and other losses $(130,795,272)(a)
Undistributed ordinary income 4,307,599
Unrealized appreciation/(depreciation) (12,052,613)(b)
Total accumulated earnings/(deficit) $(138,540,286)(c)
(a) On September 30, 2006, the Portfolio had a net capital loss carryforward
for federal income tax purposes of $117,963,701 (of which $7,887,386 was
attributable to the purchase of net assets of Alliance Mortgage Securities
Income Fund, Inc., by the Portfolio in December of 2000), of which, $48,732,137
expires in the year 2007, $6,470,420 expires in the year 2008, $23,497,731
expires in the year 2011, $27,734,923 expires in the year 2013, and 11,528,490
expires in the year 2014. To the extent future capital gains are offset by
capital loss carryforwards, such gains will not be distributed. During the
fiscal year ended September 30, 2006, $16,083,708 of capital loss carryforward
expired. Based on certain provision in the Internal Revenue Code, various
limitations regarding the future utilization of these carryforwards, brought
forward as a result of the Portfolio's merger with Alliance Limited Maturity
Government, Inc. may apply. Net capital losses incurred after October 31, and
within the taxable year are deemed to arise on the first business day of the
Portfolio's next taxable year. For the fiscal year ended September 30, 2006,
the Portfolio deferred to October 1, 2006 post-October capital losses of
$12,794,456. For the year ended September 30, 2006, the Portfolio deferred
losses on straddles of $37,115.
(b) The difference between book-basis and tax-basis unrealized
appreciation/(depreciation) are attributable primarily to the tax deferral of
losses on wash sales, the difference between book and tax amortization methods
for premium and the realization for tax purposes of unrealized gains(losses) on
certain derivative instruments.
(c) The difference between book-basis and tax-basis components of accumulated
earnings/(deficit) is attributable primarily to dividends payable.
During the current fiscal year, permanent differences primarily due to the tax
treatment on bond premium, reclassification of paydown gains/losses and the
expiration of capital loss carryforward resulted in a net decrease in
distributions in excess of net investment income, a net decrease in accumulated
net realized loss on investment transactions and a net decrease in additional
paid-in capital. This reclassification had no effect on net assets.
NOTE J
Legal Proceedings
As has been previously reported, the staff of the U.S. Securities and Exchange
Commission ("SEC") and the Office of New York Attorney General ("NYAG") have
been investigating practices in the mutual fund industry identified as "market
timing" and "late trading" of mutual fund shares. Certain other regulatory
authorities have also been conducting investigations into these practices
within the industry and have requested that the Adviser provide information to
them. The Adviser has been cooperating and will continue to cooperate with all
of these authorities.
28 o ALLIANCEBERNSTEIN BOND FUND U.S. GOVERNMENT PORTFOLIO
On December 18, 2003, the Adviser confirmed that it had reached terms with the
SEC and the NYAG for the resolution of regulatory claims relating to the
practice of "market timing" mutual fund shares in some of the AllianceBernstein
Mutual Funds. The agreement with the SEC is reflected in an Order of the
Commission ("SEC Order"). The agreement with the NYAG is memorialized in an
Assurance of Discontinuance dated September 1, 2004 ("NYAG Order"). Among the
key provisions of these agreements are the following:
(i) The Adviser agreed to establish a $250 million fund (the "Reimbursement
Fund") to compensate mutual fund shareholders for the adverse effects of market
timing attributable to market timing relationships described in the SEC Order.
According to the SEC Order, the Reimbursement Fund is to be paid, in order of
priority, to fund investors based on (i) their aliquot share of losses suffered
by the fund due to market timing, and (ii) a proportionate share of advisory
fees paid by such fund during the period of such market timing;
(ii) The Adviser agreed to reduce the advisory fees it receives from some
of the AllianceBernstein long-term, open-end retail funds until December 31,
2008; and
(iii) The Adviser agreed to implement changes to its governance and
compliance procedures. Additionally, the SEC Order and the NYAG Order
contemplate that the Adviser's registered investment company clients, including
the Fund, will introduce governance and compliance changes.
In anticipation of final, definitive documentation of the NYAG Order and
effective January 1, 2004, the Adviser began waiving a portion of its advisory
fee. On September 7, 2004, the Fund's investment advisory agreement was amended
to reflect the reduced advisory fee. For more information on this waiver and
amendment to the Fund's investment advisory agreement, please see "Advisory Fee
and Other Transactions with Affiliates" above.
A special committee of the Adviser's Board of Directors, comprised of the
members of the Adviser's Audit Committee and the other independent member of
the Adviser's Board, directed and oversaw an internal investigation and a
comprehensive review of the facts and circumstances relevant to the SEC's and
the NYAG's investigations.
In addition, the Independent Directors of the Fund ("the Independent
Directors") have conducted an investigation of the above-mentioned matters with
the advice of an independent economic consultant and independent counsel.
ALLIANCEBERNSTEIN BOND FUND U.S. GOVERNMENT PORTFOLIO o 29
On October 2, 2003, a purported class action complaint entitled Hindo, et al.
v. AllianceBernstein Growth & Income Fund, et al. ("Hindo Complaint") was filed
against the Adviser, Alliance Capital Management Holding L.P. ("Alliance
Holding"), Alliance Capital Management Corporation, AXA Financial, Inc., the
AllianceBernstein Funds, certain officers of the Adviser ("Alliance
defendants"), and certain other defendants not affiliated with the Adviser, as
well as unnamed Doe defendants. The Hindo Complaint was filed in the United
States District Court for the Southern District of New York by alleged
shareholders of two of the AllianceBernstein Funds. The Hindo Complaint alleges
that certain of the Alliance defendants failed to disclose that they improperly
allowed certain hedge funds and other unidentified parties to engage in "late
trading" and "market timing" of AllianceBernstein Fund securities, violating
Sections 11 and 15 of the Securities Act, Sections 10(b) and 20(a) of the
Exchange Act and Sections 206 and 215 of the Advisers Act. Plaintiffs seek an
unspecified amount of compensatory damages and rescission of their contracts
with the Adviser, including recovery of all fees paid to the Adviser pursuant
to such contracts.
Since October 2, 2003, 43 additional lawsuits making factual allegations
generally similar to those in the Hindo Complaint were filed in various federal
and state courts against the Adviser and certain other defendants. The
plaintiffs in such lawsuits have asserted a variety of theories for recovery
including, but not limited to, violations of the Securities Act, the Exchange
Act, the Advisers Act, the Investment Company Act, the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), certain state securities
laws and common law. All state court actions against the Adviser either were
voluntarily dismissed or removed to federal court. On February 20, 2004, the
Judicial Panel on Multidistrict Litigation transferred all actions to the
United States District Court for the District of Maryland (the "Mutual Fund
MDL").
On September 29, 2004, plaintiffs filed consolidated amended complaints with
respect to four claim types: mutual fund shareholder claims; mutual fund
derivative claims; derivative claims brought on behalf of Alliance Holding; and
claims brought under ERISA by participants in the Profit Sharing Plan for
Employees of the Adviser. All four complaints include substantially identical
factual allegations, which appear to be based in large part on the SEC Order
and the NYAG Order.
On April 21, 2006, the Adviser and attorneys for the plaintiffs in the mutual
fund shareholder claims, mutual fund derivative claims, and ERISA claims
entered into a confidential memorandum of understanding ("MOU") containing
their agreement to settle these claims. The agreement will be documented by a
stipulation of settlement and will be submitted for court approval at a later
date. The derivative claims brought on behalf of Alliance Holding remain
pending.
30 o ALLIANCEBERNSTEIN BOND FUND U.S. GOVERNMENT PORTFOLIO
On February 10, 2004, the Adviser received (i) a subpoena duces tecum from the
Office of the Attorney General of the State of West Virginia and (ii) a request
for information from West Virginia's Office of the State Auditor, Securities
Commission (the "West Virginia Securities Commissioner") (together, the
"Information Requests"). Both Information Requests require the Adviser to
produce documents concerning, among other things, any market timing or late
trading in the Adviser's sponsored mutual funds. The Adviser responded to the
Information Requests and has been cooperating fully with the investigation.
On April 11, 2005, a complaint entitled The Attorney General of the State of
West Virginia v. AIM Advisors, Inc., et al. ("WVAG Complaint") was filed
against the Adviser, Alliance Holding, and various other defendants not
affiliated with the Adviser. The WVAG Complaint was filed in the Circuit Court
of Marshall County, West Virginia by the Attorney General of the State of West
Virginia. The WVAG Complaint makes factual allegations generally similar to
those in the Hindo Complaint. On October 19, 2005, the WVAG Complaint was
transferred to the Mutual Fund MDL.
On August 30, 2005, the West Virginia Securities Commissioner signed a Summary
Order to Cease and Desist, and Notice of Right to Hearing addressed to the
Adviser and Alliance Holding. The Summary Order claims that the Adviser and
Alliance Holding violated the West Virginia Uniform Securities Act, and makes
factual allegations generally similar to those in the Commission Order and the
NYAG Order. On January 26, 2006, the Adviser, Alliance Holding, and various
unaffiliated defendants filed a Petition for Writ of Prohibition and Order
Suspending Proceedings in West Virginia state court seeking to vacate the
Summary Order and for other relief. The court denied the writ and in September
2006 the Supreme Court of Appeals declined the defendants' petition for appeal.
On September 22, 2006, Alliance and Alliance Holding filed an answer and motion
to dismiss the Summary Order with the Securities Commissioner.
On June 22, 2004, a purported class action complaint entitled Aucoin, et al. v.
Alliance Capital Management L.P., et al. ("Aucoin Complaint") was filed against
the Adviser, Alliance Holding, Alliance Capital Management Corporation, AXA
Financial, Inc., AllianceBernstein Investment Research & Management, Inc.,
certain current and former directors of the AllianceBernstein Mutual Funds, and
unnamed Doe defendants. The Aucoin Complaint names certain of the
AllianceBernstein mutual funds as nominal defendants. The Aucoin Complaint was
filed in the United States District Court for the Southern District of New York
by alleged shareholders of an AllianceBernstein mutual fund. The Aucoin
Complaint alleges, among other things, (i) that certain of the defendants
improperly authorized the payment of excessive commissions and other fees from
fund assets to broker-dealers in exchange for preferential marketing services,
(ii) that certain of the defendants misrepresented and omitted from
registration statements and other reports material facts concerning such
payments, and
ALLIANCEBERNSTEIN BOND FUND U.S. GOVERNMENT PORTFOLIO o 31
(iii) that certain defendants caused such conduct as control persons of other
defendants. The Aucoin Complaint asserts claims for violation of Sections
34(b), 36(b) and 48(a) of the Investment Company Act, Sections 206 and 215 of
the Advisers Act, breach of common law fiduciary duties, and aiding and
abetting breaches of common law fiduciary duties. Plaintiffs seek an
unspecified amount of compensatory damages and punitive damages, rescission of
their contracts with the Adviser, including recovery of all fees paid to the
Adviser pursuant to such contracts, an accounting of all fund-related fees,
commissions and soft dollar payments, and restitution of all unlawfully or
discriminatorily obtained fees and expenses.
Since June 22, 2004, nine additional lawsuits making factual allegations
substantially similar to those in the Aucoin Complaint were filed against the
Adviser and certain other defendants. All nine of the lawsuits (i) were brought
as class actions filed in the United States District Court for the Southern
District of New York, (ii) assert claims substantially identical to the Aucoin
Complaint, and (iii) are brought on behalf of shareholders of the Funds.
On February 2, 2005, plaintiffs filed a consolidated amended class action
complaint ("Aucoin Consolidated Amended Complaint") that asserts claims
substantially similar to the Aucoin Complaint and the nine additional lawsuits
referenced above. On October 19, 2005, the District Court dismissed each of the
claims set forth in the Aucoin Consolidated Amended Complaint, except for
plaintiffs' claim under Section 36(b) of the Investment Company Act. On January
11, 2006, the District Court granted defendants' motion for reconsideration and
dismissed the remaining Section 36(b) claim. On May 31, 2006 the District Court
denied plaintiffs' motion for leave to file an amended complaint. On July 5,
2006, plaintiffs filed a notice of appeal. On October 4, 2006 the appeal was
withdrawn by stipulation, with plaintiffs reserving the right to reinstate it
at a later date.
It is possible that these matters and/or other developments resulting from
these matters could result in increased redemptions of the AllianceBernstein
Mutual Funds' shares or other adverse consequences to the AllianceBernstein
Mutual Funds. This may require the AllianceBernstein Mutual Funds to sell
investments held by those funds to provide for sufficient liquidity and could
also have an adverse effect on the investment performance of the
AllianceBernstein Mutual Funds. However, the Adviser believes that these
matters are not likely to have a material adverse effect on its ability to
perform advisory services relating to the AllianceBernstein Mutual Funds.
32 o ALLIANCEBERNSTEIN BOND FUND U.S. GOVERNMENT PORTFOLIO
NOTE K
Recent Accounting Pronouncements
On July 13, 2006, the Financial Accounting Standards Board ("FASB") released
FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" ("FIN
48"). FIN 48 provides guidance for how uncertain tax positions should be
recognized, measured, presented and disclosed in the financial statements. FIN
48 requires the evaluation of tax positions taken or expected to be taken in
the course of preparing the Portfolio's tax returns to determine whether the
tax positions are "more-likely-than-not" of being sustained by the applicable
tax authority. Tax positions not deemed to meet the more-likely-than-not
threshold would be recorded in the current period. Adoption of FIN 48 is
required for fiscal years beginning after December 15, 2006 and is to be
applied to all open tax years as of the effective date. At this time,
management is evaluating the implications of FIN 48 and its impact on the
financial statements has not yet been determined.
On September 20, 2006, the FASB released Statement of Financial Accounting
Standards No. 157 "Fair Value Measurements" ("FAS 157"). FAS 157 establishes an
authoritative definition of fair value, sets out a framework for measuring fair
value, and requires additional disclosures about fair-value measurements. The
application of FAS 157 is required for fiscal years beginning after November
15, 2007 and interim periods within those fiscal years. At this time,
management is evaluating the implications of FAS 157 and its impact on the
financial statements has not yet been determined
ALLIANCEBERNSTEIN BOND FUND U.S. GOVERNMENT PORTFOLIO o 33
FINANCIAL HIGHLIGHTS
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
CLASS A
-----------------------------------------------------------------
July 1,
Year Ended September 30, 2003 to Year Ended June 30,
------------------------------- September ----------------------
2006 2005 2004 30, 2003(a) 2003 2002(b)
----------------------------------------------------------------------
Net asset value,
beginning of period $6.98 $7.11 $7.27 $7.49 $7.21 $7.14
Income From Investment
Operations
Net investment income(c) .30 .28 .30(d) .06 .27 .37
Net realized and unrealized
gain (loss) on investment
transactions (.13) (.12) (.13) (.20) .35 .13
Net increase (decrease) in net
asset value from operations .17 .16 .17 (.14) .62 .50
Less: Dividends and
Distributions
Dividends from net investment
income (.31) (.29) (.33) (.08) (.34) (.37)
Distributions in excess of net
investment income -0- -0- -0- -0- -0- (.03)
Tax return of capital -0- -0- -0- -0- -0- (.03)
Total dividends and distributions (.31) (.29) (.33) (.08) (.34) (.43)
Net asset value, end of period $6.84 $6.98 $7.11 $7.27 $7.49 $7.21
Total Return
Total investment return based on
net asset value(e) 2.60% 2.31% 2.49% (1.80)% 8.82% 7.11%
Ratios/Supplemental Data
Net assets, end of period
(000's omitted) $457,168 $543,547 $626,183 $811,376 $889,115 $865,739
Ratio to average net assets of:
Expenses, net of waivers/
reimbursements 1.04%(f) 1.30% 1.34% 1.18%(g) 1.10% 1.23%
Expenses, before waivers/
reimbursements 1.04%(f) 1.30% 1.39% 1.18%(g) 1.10% 1.23%
Expenses, before waivers/
reimbursements, excluding
interest expense 1.00%(f) 1.06% 1.10% 1.11%(g) 1.09% 1.09%
Net investment income 4.33%(f) 3.90% 4.23%(d) 3.43%(g) 3.64% 5.15%
Portfolio turnover rate 159% 166% 150% 241% 976% 1,009%
See footnote summary on page 40.
34 o ALLIANCEBERNSTEIN BOND FUND U.S. GOVERNMENT PORTFOLIO
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
CLASS B
-----------------------------------------------------------------
July 1,
Year Ended September 30, 2003 to Year Ended June 30,
------------------------------- September ----------------------
2006 2005 2004 30, 2003(a) 2003 2002(b)
----------------------------------------------------------------------
Net asset value,
beginning of period $6.98 $7.11 $7.27 $7.49 $7.21 $7.14
Income From Investment
Operations
Net investment income(c) .24 .23 .25(d) .05 .22 .32
Net realized and unrealized
gain (loss) on investment
transactions (.12) (.12) (.13) (.20) .35 .13
Net increase (decrease) in net
asset value from operations .12 .11 .12 (.15) .57 .45
Less: Dividends and
Distributions
Dividends from net investment
income (.26) (.24) (.28) (.07) (.29) (.32)
Distributions in excess of net
investment income -0- -0- -0- -0- -0- (.03)
Tax return of capital -0- -0- -0- -0- -0- (.03)
Total dividends and distributions (.26) (.24) (.28) (.07) (.29) (.38)
Net asset value, end of period $6.84 $6.98 $7.11 $7.27 $7.49 $7.21
Total Return
Total investment return based on
net asset value(e) 1.86% 1.57% 1.74% (1.98)% 8.07% 6.36%
Ratios/Supplemental Data
Net assets, end of period
(000's omitted) $81,834 $138,856 $229,823 $399,040 $495,606 $400,221
Ratio to average net assets of:
Expenses, net of waivers/
reimbursements 1.79%(f) 2.02% 2.07% 1.90%(g) 1.82% 1.93%
Expenses, before waivers/
reimbursements 1.79%(f) 2.02% 2.13% 1.90%(g) 1.82% 1.93%
Expenses, before waivers/
reimbursements, excluding
interest expense 1.75%(f) 1.78% 1.83% 1.83%(g) 1.81% 1.80%
Net investment income 3.59%(f) 3.20% 3.55%(d) 2.75%(g) 2.95% 4.41%
Portfolio turnover rate 159% 166% 150% 241% 976% 1,009%
See footnote summary on page 40.
ALLIANCEBERNSTEIN BOND FUND U.S. GOVERNMENT PORTFOLIO o 35
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
CLASS C
-----------------------------------------------------------------
July 1,
Year Ended September 30, 2003 to Year Ended June 30,
------------------------------- September ----------------------
2006 2005 2004 30, 2003(a) 2003 2002(b)
----------------------------------------------------------------------
Net asset value,
beginning of period $6.99 $7.12 $7.28 $7.50 $7.22 $7.15
Income From Investment
Operations
Net investment income(c) .25 .23 .25(d) .05 .22 .32
Net realized and unrealized
gain (loss) on investment
transactions (.12) (.12) (.13) (.20) .35 .13
Net increase (decrease) in net
asset value from operations .13 .11 .12 (.15) .57 .45
Less: Dividends and
Distributions
Dividends from net investment
income (.27) (.24) (.28) (.07) (.29) (.32)
Distributions in excess of net
investment income -0- -0- -0- -0- -0- (.03)
Tax return of capital -0- -0- -0- -0- -0- (.03)
Total dividends and distributions (.27) (.24) (.28) (.07) (.29) (.38)
Net asset value, end of period $6.85 $6.99 $7.12 $7.28 $7.50 $7.22
Total Return
Total investment return based on
net asset value(e) 1.87% 1.58% 1.73% (1.98)% 8.06% 6.35%
Ratios/Supplemental Data
Net assets, end of period
(000's omitted) $66,796 $84,303 $107,003 $167,359 $204,006 $202,030
Ratio to average net assets of:
Expenses, net of waivers/
reimbursements 1.76%(f) 2.02% 2.06% 1.89%(g) 1.81% 1.93%
Expenses, before waivers/
reimbursements 1.76%(f) 2.02% 2.11% 1.89%(g) 1.81% 1.93%
Expenses, before waivers/
reimbursements, excluding
interest expense 1.72%(f) 1.77% 1.82% 1.83%(g) 1.80% 1.79%
Net investment income 3.60%(f) 3.19% 3.56%(d) 2.76%(g) 2.96% 4.42%
Portfolio turnover rate 159% 166% 150% 241% 976% 1,009%
See footnote summary on page 40.
36 o ALLIANCEBERNSTEIN BOND FUND U.S. GOVERNMENT PORTFOLIO
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Advisor Class
-----------------------------------------------------------------
July 1,
Year Ended September 30, 2003 to Year Ended June 30,
------------------------------- September ----------------------
2006 2005 2004 30, 2003(a) 2003 2002(b)
----------------------------------------------------------------------
Net asset value,
beginning of period $7.00 $ 7.12 $7.28 $7.50 $7.21 $7.14
Income From Investment
Operations
Net investment income(c) .31 .30 .32(d) .07 .29 .39
Net realized and unrealized
gain (loss) on investment
transactions (.12) (.11) (.12) (.20) .37 .13
Net increase (decrease) in net
asset value from operations .19 .19 .20 (.13) .66 .52
Less: Dividends and
Distributions
Dividends from net investment
income (.34) (.31) (.36) (.09) (.37) (.39)
Distributions in excess of net
investment income -0- -0- -0- -0- -0- (.03)
Tax return of capital -0- -0- -0- -0- -0- (.03)
Total dividends and distributions (.34) (.31) (.36) (.09) (.37) (.45)
Net asset value, end of period $6.85 $7.00 $7.12 $7.28 $7.50 $7.21
Total Return
Total investment return based on
net asset value(e) 2.75% 2.76% 2.82% (1.72)% 9.29% 7.41%
Ratios/Supplemental Data
Net assets, end of period
(000's omitted) $5,259 $5,981 $247,020 $204,108 $197,649 $177,834
Ratio to average net assets of:
Expenses, net of waivers/
reimbursements .74%(f) .94% 1.02% .89%(g) .81% .89%
Expenses, before waivers/
reimbursements .74%(f) .94% 1.08% .89%(g) .81% .89%
Expenses, before waivers/
reimbursements, excluding
interest expense .70%(f) .72% .79% .81%(g) .80% .81%
Net investment income 4.61%(f) 4.11% 4.52%(d) 3.72%(g) 3.96% 5.41%
Portfolio turnover rate 159% 166% 150% 241% 976% 1,009%
See footnote summary on page 40.
ALLIANCEBERNSTEIN BOND FUND U.S. GOVERNMENT PORTFOLIO o 37
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class R
----------------------------------------
November 3
Year Ended September 30, 2003(h) to
------------------------- September 30,
2006 2005 2004
-----------------------------------------
Net asset value, beginning of period $6.98 $7.11 $7.14
Income From Investment Operations
Net investment income(c) .27 .26 .26(d)
Net realized and unrealized gain (loss) on
investment transactions (.12) (.11) .00
Net increase in net asset value
from operations .15 .15 .26
Less: Dividends
Dividends from net investment income (.29) (.28) (.29)
Net asset value, end of period $6.84 $6.98 $7.11
Total Return
Total investment return based on net asset value(e) 2.26% 2.14% 3.72%
Ratios/Supplemental Data
Net assets, end of period (000's omitted) $35 $25 $16
Ratio to average net assets of:
Expenses, net of waivers/reimbursements 1.34%(f) 1.49% 1.48%(g)
Expenses, before waivers/reimbursements 1.34%(f) 1.49% 1.54%(g)
Expenses, before waivers/reimbursements,
excluding interest expense 1.31%(f) 1.25% 1.27%(g)
Net investment income 4.03%(f) 3.68% 4.08%(d)(g)
Portfolio turnover rate 159% 166% 150%
See footnote summary on page 40.
38 o ALLIANCEBERNSTEIN BOND FUND U.S. GOVERNMENT PORTFOLIO
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class K
---------------------------------
March 1,
Year Ended 2005(h) to
September 30, September 30,
2006 2005
--------------------------------
Net asset value, beginning of period $6.98 $7.02
Income From Investment Operations
Net investment income(c) .30 .16
Net realized and unrealized loss on investment transactions (.13) (.03)
Net increase in net asset value from operations .17 .13
Less: Dividends
Dividends from net investment income (.31) (.17)
Net asset value, end of period $6.84 $6.98
Total Return
Total investment return based on net asset value(e) 2.57% 1.79%
Ratios/Supplemental Data
Net assets, end of period (000's omitted) $10 $10
Ratio to average net assets of:
Expenses 1.02%(f) 1.17%(g)
Expenses, excluding interest expense .98%(f) .95%(g)
Net investment income 4.34%(f) 3.79%(g)
Portfolio turnover rate 159% 166%
See footnote summary on page 40.
ALLIANCEBERNSTEIN BOND FUND U.S. GOVERNMENT PORTFOLIO o 39
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class I
---------------------------------
March 1,
Year Ended 2005(h) to
September 30, September 30,
2006 2005
--------------------------------
Net asset value, beginning of period $6.98 $7.02
Income From Investment Operations
Net investment income(c) .32 .17
Net realized and unrealized loss on investment transactions (.13) (.03)
Net increase in net asset value from operations .19 .14
Less: Dividends
Dividends from net investment income (.33) (.18)
Net asset value, end of period $6.84 $6.98
Total Return
Total investment return based on net asset value(e) 2.89% 1.97%
Ratios/Supplemental Data
Net assets, end of period (000's omitted) $10 $10
Ratio to average net assets of:
Expenses .75%(f) .89%(g)
Expenses, excluding interest expense .71%(f) .68%(g)
Net investment income 4.62%(f) 4.10%(g)
Portfolio turnover rate 159% 166%
(a) The Portfolio changed its fiscal year end from June 30 to September 30.
(b) As required, effective July 1, 2001, the Portfolio has adopted the
provisions of the AICPA Audit and Accounting Guide, Audits of Investment
Companies, and began amortizing premium on debt securities for financial
statement reporting purposes only. The effect of this change for the year ended
June 30, 2002 was to decrease net investment income per share by $.03, increase
net realized and unrealized gain on investment transactions per share by $.03,
and decrease the ratio of net investment income to average net assets from
5.56% to 5.15% for Class A, from 4.82% to 4.41% for Class B, from 4.83% to
4.42% for Class C and from 5.81% to 5.41% for Advisor Class. Per share, ratios
and supplemental data for periods prior to July 1, 2001 have not been restated
to reflect this change in presentation.
(c) Based on average shares outstanding.
(d) Net of expenses waived and reimbursed by the Adviser.
(e) 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 does not reflect the deduction of taxes that a
shareholder would pay on fund distributions or the redemption of fund
shares.Total investment return calculated for a period of less than one year is
not annualized.
(f) The ratio includes expenses attributable to costs of proxy solicitation.
(g) Annualized.
(h) Commencement of distribution.
40 o ALLIANCEBERNSTEIN BOND FUND U.S. GOVERNMENT PORTFOLIO
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
AllianceBernstein Bond Fund, Inc. U.S. Government Portfolio
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of the U.S. Government Portfolio (the
"Portfolio"), one of the portfolios constituting the AllianceBernstein Bond
Fund, Inc., as of September 30, 2006, and the related statement of operations
for the period then ended, the statement of changes in net assets for each of
the two years in the period then ended, and the financial highlights for each
of the periods indicated therein. These financial statements and financial
highlights are the responsibility of the Portfolio's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (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. We were not engaged to perform an audit of the Portfolio's
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the Portfolio's internal
control over financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements and financial highlights, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. Our procedures
included confirmation of securities owned as of September 30, 2006 by
correspondence with the custodian and others or by other appropriate auditing
procedures where replies from others were not received. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
U.S. Government Portfolio of the AllianceBernstein Bond Fund, Inc. at September
30, 2006, the results of its operations for the year then ended, the changes in
its net assets for each of the two years in the period then ended, and the
financial highlights for each of the indicated periods, in conformity with U.S.
generally accepted accounting principles.
/s/ Ernst & Young LLP
New York, New York
November 17, 2006
ALLIANCEBERNSTEIN BOND FUND U.S. GOVERNMENT PORTFOLIO o 41
TAX INFORMATION
(unaudited)
93.7% of the ordinary income dividends paid by the Fund during the fiscal year
ended September 30, 2006, qualify as "interest related dividends" for non-U.S.
shareholders.
42 o ALLIANCEBERNSTEIN BOND FUND U.S. GOVERNMENT PORTFOLIO
BOARD OF DIRECTORS
William H. Foulk, Jr.(1), Chairman
Marc O. Mayer, President and Chief Executive Officer
Ruth Block(1)
David H. Dievler(1)
John H. Dobkin(1)
Michael J. Downey(1)
D. James Guzy(1)
Nancy P. Jacklin(1)
Marshall C. Turner, Jr.(1)
OFFICERS
Philip L. Kirstein, Senior Vice President and Independent Compliance Officer
Sean Kelleher(2), Vice President
Lipkee Lu(2), Vice President
Jeffrey S. Phlegar, Vice President
Kewjin Yuoh(2), Vice President
Joseph J. Mantineo, Treasurer and Chief Financial Officer
Vincent S. Noto, Controller
Emilie D. Wrapp, Secretary
Custodian
State Street Bank & Trust Company
One Lincoln Street
Boston, MA 02111
Principal Underwriter
AllianceBernstein Investments, Inc.
1345 Avenue of the Americas
New York, NY 10105
Transfer Agent
AllianceBernstein Investor Services, Inc.
P.O. Box 786003
San Antonio, Texas 78278-6003
Toll-Free (800) 221-5672
Independent Registered Public Accounting Firm
Ernst & Young LLP
5 Times Square
New York, NY 10036
Legal Counsel
Seward & Kissel LLP
One Battery Park Plaza
New York, NY 10004
(1) Member of the Audit Committee, the Governance and Nominating Committee and
the Independent Directors Committee.
(2) The day-to-day management of and investment decisions for the portfolio
are made by the U.S.Investment Grade: Structured Asset Investment Team. Messrs.
Yuoh, Kelleher, and Lu are the investment professionals with the most
significant responsibility for the day-to-day management of the Portfolio.
ALLIANCEBERNSTEIN BOND FUND U.S. GOVERNMENT PORTFOLIO o 43
MANAGEMENT OF THE FUND
Board of Directors Information
The business and affairs of the Fund are managed under the direction of the
Board of Directors. Certain information concerning the Fund's Directors is set
forth below.
PORTFOLIOS
IN FUND OTHER
PRINCIPAL COMPLEX DIRECTORSHIPS
NAME, ADDRESS, AGE OCCUPATION(S) OVERSEEN BY HELD BY
(FIRST YEAR ELECTED*) DURING PAST 5 YEARS DIRECTOR DIRECTOR
- ---------------------------------------------------------------------------------------------------------------------
DISINTERESTED DIRECTORS
William H. Foulk, Jr., ## Investment Adviser and an 113 None
P.O. Box 5060 independent consultant. He was
Greenwich, CT formerly Senior Manager of Barrett
06831-0505 Associates, Inc., a registered
74 investment adviser, with which
(1998) he had been associated since
Chairman of the Board prior to 2001. He was formerly
Deputy Comptroller and Chief
Investment Officer of the State
of New York and, prior thereto,
Chief Investment Officer of the
New York Bank for Savings.
Ruth Block, ##, ** Formerly Executive Vice 100 None
500 SE Mizner Blvd. President and Chief Insurance
Boca Raton, FL 33432 Officer of The Equitable Life
76 Assurance Society of the United
(1987) States; Chairman and Chief
Executive Officer of Evlico
(insurance); Director of Avon,
BP (oil and gas), Ecolab
Incorporated (specialty chemicals),
Tandem Financial Group and Donaldson,
Lufkin & Jenrette Securities
Corporation; Governor at Large,
National Association of Securities
Dealers, Inc.
David H. Dievler, ## Independent consultant. Until 112 None
P.O. Box 167 December 1994, he was Senior
Spring Lake, NJ 07762 Vice President of AllianceBernstein
77 Corporation ("AB Corp"),
(1987) (formerly Alliance Capital
Management Corporation)
responsible for mutual fund
administration. Prior to joining
AB Corp in 1984, he was Chief
Financial Officer of Eberstadt Asset
Management since 1968. Prior to that,
he was Senior Manager at Price
Waterhouse & Co. Member of the
American Institute of Certified
Public Accountants since 1953.
44 o ALLIANCEBERNSTEIN BOND FUND U.S. GOVERNMENT PORTFOLIO
PORTFOLIOS
IN FUND OTHER
PRINCIPAL COMPLEX DIRECTORSHIPS
NAME, ADDRESS, AGE OCCUPATION(S) OVERSEEN BY HELD BY
(FIRST YEAR ELECTED*) DURING PAST 5 YEARS DIRECTOR DIRECTOR
- ---------------------------------------------------------------------------------------------------------------------
DISINTERESTED DIRECTORS
(continued)
John H. Dobkin, ## Consultant. Formerly President of 111 None
P.O. Box 12, Save Venice, Inc. (preservation
Annandale, NY 12504 organization) from 2001-2002,
64 Senior Advisor from June 1999
(1998) - June 2000 and President of
Historic Hudson Valley (historic
preservation) from December 1989-May
1999. Previously, Director of the
National Academy of Design and during
1988-1992, Director and Chairman of
the Audit Committee of AB Corp
(formerly Alliance Capital Management
Corporation).
Michael J. Downey, ## Consultant since January 2004. 111 Asia Pacific
c/o Alliance Capital Formerly managing partner of Fund, Inc.;
Management L.P. Lexington Capital, LLC (investment and The
1345 Avenue of the advisory firm) from December 1997 Merger Fund.
Americas until December 2003. Prior thereto,
New York, NY 10105 Chairman and CEO of Prudential
Attn: Phil Kirstein Mutual Fund Management from
62 1987 to 1993.
(2005)
D. James Guzy, ## Chairman of the Board of PLX 111 Intel Corporation,
P.O. Box 128 Technology (semi-conductors) Cirrus Logic
Glenbrook, NV 89413 and of SRC Computers, Inc., Corporation,
70 with which he has been associated and the
(2005) since prior to 2001. He is also Davis Selected
President of the Arbor Company Advisers Group of
(private family investments). Mutual Funds.
Nancy P. Jacklin, ## Formerly U.S. Executive Director 111 None
4046 Chancery Court, of the International Monetary
NW Fund (December 2002-May
Washington, DC 20007 2006); partner, Clifford Chance
58 (1992-2002); Senior Counsel,
(2006) International Banking and Finance,
and Associate General Counsel,
Citicorp (1985-1992); Assistant
General Counsel (International),
Federal Reserve Board of
Governors (1982-1985); and
Attorney Advisor, U.S. Department
of the Treasury (1973-1982).
Member of the Bar of the District
of Columbia and of New York;
member of the Council on
Foreign Relations.
ALLIANCEBERNSTEIN BOND FUND U.S. GOVERNMENT PORTFOLIO o 45
PORTFOLIOS
IN FUND OTHER
PRINCIPAL COMPLEX DIRECTORSHIPS
NAME, ADDRESS, AGE OCCUPATION(S) OVERSEEN BY HELD BY
(FIRST YEAR ELECTED*) DURING PAST 5 YEARS DIRECTOR DIRECTOR
- ---------------------------------------------------------------------------------------------------------------------
DISINTERESTED DIRECTORS
(continued)
Marshall C. Turner, Jr., ## Principal of Turner Venture 111 The George
220 Montgomery Street Associates (venture capital and Lucas Educational
Penthouse 10 consulting) since prior to 2001. Foundation, and
San Francisco, Chairman and CEO, DuPont National
CA 94104 Photomasks, Inc., Austin, Texas, Datacast, Inc.
65 2003-2005, and President and
(2005) CEO since company acquired,
and name changed to Toppan
Photomasks, Inc. in 2005
(semiconductor manufacturing
services).
INTERESTED DIRECTOR
Marc O. Mayer, + Executive Vice President of 111 SCB Partners
1345 Avenue of the the Adviser since 2001, and Inc.;
Americas New York, Executive Managing Director of SCB, Inc.
NY 10105 AllianceBernstein Investments,
49 Inc. ("ABI") since 2003; prior thereto,
(2003) he was head of AllianceBernstein
Institutional Investments, a unit of
the Adviser from 2001-2003. Prior
thereto, Chief Executive Officer of
Sanford C. Bernstein & Co., LLC
(institutional research and brokerage
arm of Bernstein & Co. LLC)
("SCB & Co.") and its predecessor
since prior to 2001.
* There is no stated term of office for the Fund's Directors.
** Ms. Block was an "interested person", as defined in the 1940 Act, from July
22, 1992 until October 21, 2004 by reason of her ownership of securities of a
control person of the Adviser. Ms. Block received shares of The Equitable
Companies Incorporated ("Equitable") as part of the demutualization of The
Equitable Life Assurance Society of the United States in 1992. Ms. Block's
Equitable shares were subsequently converted through a corporate action into
American Depositary Shares of AXA, which were sold for approximately $2,400 on
October 21, 2004. Equitable and AXA are control persons of the Adviser.
## Member of the Audit Committee, Governance and Nominating Committee and
Independent Directors Committee.
+ Mr. Mayer is an "interested director", as defined in the 1940 Act, due to
his position as an Executive Vice President of the Adviser.
46 o ALLIANCEBERNSTEIN BOND FUND U.S. GOVERNMENT PORTFOLIO
Officer Information
Certain information concerning the Fund's Officers is set forth below.
NAME, ADDRESS* POSITION(S) HELD PRINCIPAL OCCUPATION DURING
AND AGE WITH FUND PAST 5 YEARS
- --------------------------------------------------------------------------------------------------------------
Marc O. Mayer President and Chief See biography above.
49 Executive Officer
Philip L. Kirstein Senior Vice President Senior Vice President and
61 and Independent Independent Compliance Officer of
Compliance Officer the AllianceBernstein Funds, with which he has been
associated since October 2004. Prior thereto, he was
Of Counsel to Kirkpatrick & Lockhart, LLP from October
2003 to October 2004, and General Counsel of Merrill
Lynch Investment Managers L.P. since prior to 2001
until March 2003.
S. Sean Kelleher Vice President Senior Vice President of
45 AllianceBernstein, with which he has been associated
since prior to 2001.
Lipkee Lu Vice President Vice President of AllianceBernstein
38 since June 2005. Prior thereto, he was a Senior Vice
President and Structured Product portfolio manager at
Deerfield Capital Management LLC since prior to 2001.
Jeffrey S. Phlegar Vice President Executive Vice President of the Adviser,
40 with which he has been associated since prior to 2001.
Kewjin Yuoh Vice President Vice President of the Adviser since
35 March 2003. Prior thereto, he was a Vice President of
Credit Suisse Asset Management from 2000 to 2002 and a
Vice President of Brundage, Story & Rose since prior
to 2001.
Emilie D. Wrapp Secretary Senior Vice President, Assistant General
51 Counsel and Assistant Secretary of AllianceBernstein
Investments, Inc. with which she has been associated
since prior to 2001.
Joseph J. Mantineo Treasurer and Chief Senior Vice President of
47 Financial Officer AllianceBernstein Investments Services Inc. ("ABIS")**
and Vice President of AllianceBernstein Investments,
Inc.**, with which he has been associated since prior
to 2001.
ALLIANCEBERNSTEIN BOND FUND U.S. GOVERNMENT PORTFOLIO o 47
NAME, ADDRESS* POSITION(S) HELD PRINCIPAL OCCUPATION DURING
AND AGE WITH FUND PAST 5 YEARS
- --------------------------------------------------------------------------------------------------------------
Vincent S. Noto Controller Vice President of AGIS**, with which
42 he has been associated since prior to 2000.
* The address for each of the Fund's Officers is 1345 Avenue of the Americas,
New York, NY 10105.
** The Adviser, AllianceBernstein Investements Inc., ABIS and SCBA Co. are
affiliates of the Fund.
The Fund's Statement of Additional Information ("SAI") has additional
information about the Fund's Directors and Officers and is available without
charge upon request. Contact your financial representative or Alliance Capital
at 1-800-227-4618 for a free prospectus or SAI.
48 o ALLIANCEBERNSTEIN BOND FUND U.S. GOVERNMENT PORTFOLIO
Information Regarding the Review and Approval of the Portfolio's Investment
Advisory Contract
In this disclosure, the term "Fund" refers to AllianceBernstein Bond Fund,
Inc., and the term "Portfolio" refers to the U.S. Government Portfolio.
The Fund's disinterested directors (the "directors") unanimously approved the
continuance of the Investment Advisory Contract (the "Advisory Agreement")
between the Fund and the Adviser in respect of the Portfolio at a meeting held
on June 14, 2006.
In preparation for the meeting, the directors had requested from the Adviser
and received and evaluated extensive materials, including performance and
expense information for other investment companies with similar investment
objectives derived from data compiled by Lipper Inc. ("Lipper"), which is not
affiliated with the Adviser. The directors also reviewed an independent
evaluation from the Fund's Senior Officer (who is also the Fund's Independent
Compliance Officer) of the reasonableness of the advisory fees in the Advisory
Agreement in respect of the Portfolio (as contemplated by the September 2004
Assurance of Discontinuance between the Adviser and the New York Attorney
General) wherein the Senior Officer concluded that such fees were reasonable.
In addition, the directors received a presentation from the Adviser and had an
opportunity to ask representatives of the Adviser various questions relevant to
the proposed approval. The directors noted that the Senior Officer's evaluation
considered the following factors: management fees charged to institutional and
other clients of the Adviser for like services; management fees charged by
other mutual fund companies for like services; cost to the Adviser and its
affiliates of supplying services pursuant to the Advisory Agreement, excluding
any intra-corporate profit; profit margins of the Adviser and its affiliates
from supplying such services; possible economies of scale as the Portfolio
grows larger; and nature and quality of the Adviser's services including the
performance of the Portfolio.
Prior to voting, the directors reviewed the proposed continuance of the
Advisory Agreement in respect of the Portfolio with management and with
experienced counsel who are independent of the Adviser and received a
memorandum from such counsel discussing the legal standards for their
consideration of the proposed continuance. The directors also discussed the
proposed continuance in two private sessions at which only the directors, their
independent counsel and the Fund's Independent Compliance Officer were present.
In reaching their determinations relating to continuance of the Advisory
Agreement in respect of the Portfolio, the directors considered all factors
they believed relevant, including the following:
1. information comparing the performance of the Portfolio to other
investment companies with similar investment objectives and to an index;
ALLIANCEBERNSTEIN BOND FUND U.S. GOVERNMENT PORTFOLIO o 49
2. the nature, extent and quality of investment, compliance,
administrative and other services rendered by the Adviser;
3. payments received by the Adviser from all sources in respect of the
Portfolio and all investment companies in the AllianceBernstein Funds complex;
4. the costs borne by, and profitability of, the Adviser and its
affiliates in providing services to the Portfolio and to all investment
companies in the AllianceBernstein Funds complex;
5. comparative fee and expense data for the Portfolio and other investment
companies with similar investment objectives;
6. the extent to which economies of scale would be realized to the extent
the Portfolio grows and whether fee levels reflect any economies of scale for
the benefit of investors;
7. the Adviser's policies and practices regarding allocation of portfolio
transactions of the Portfolio;
8. information about "revenue sharing" arrangements that the Adviser has
entered into in respect of the Portfolio;
9. portfolio turnover rates for the Portfolio compared to other investment
companies with similar investment objectives;
10. fall-out benefits which the Adviser and its affiliates receive from
their relationships with the Portfolio;
11. the Adviser's representation that there are no institutional products
managed by the Adviser which have a substantially similar investment style as
the Portfolio;
12. the Senior Officer's evaluation of the reasonableness of the fee
payable to the Adviser in the Advisory Agreement;
13. the professional experience and qualifications of the Portfolio's
portfolio management team and other senior personnel of the Adviser; and
14. the terms of the Advisory Agreement.
The directors also considered their knowledge of the nature and quality of the
services provided by the Adviser to the Portfolio gained from their experience
as directors or trustees of most of the registered investment companies advised
by
50 o ALLIANCEBERNSTEIN BOND FUND U.S. GOVERNMENT PORTFOLIO
the Adviser, their overall confidence in the Adviser's integrity and competence
they have gained from that experience and the Adviser's responsiveness to
concerns raised by them in the past, including the Adviser's willingness to
consider and implement organizational and operational changes designed to
improve investment results and the services provided to the AllianceBernstein
Funds.
In their deliberations, the directors did not identify any particular
information that was all-important or controlling, and different directors may
have attributed different weights to the various factors.
The directors determined that the overall arrangements between the Portfolio
and the Adviser, as provided in the Advisory Agreement, were fair and
reasonable in light of the services performed, expenses incurred and such other
matters as the directors considered relevant in the exercise of their business
judgment.
The material factors and conclusions that formed the basis for the directors
reaching their determinations to approve the continuance of the Advisory
Agreement in respect of the Portfolio (including their determinations that the
Adviser should continue to be the investment adviser for the Portfolio, and
that the fees payable to the Adviser pursuant to the Advisory Agreement are
appropriate) were separately discussed by the directors.
Nature, Extent and Quality of Services Provided by the Adviser
The directors noted that, under the Advisory Agreement, the Adviser, subject to
the oversight of the directors, administers the Portfolio's business and other
affairs. The Adviser manages the investment of the assets of the Portfolio,
including making purchases and sales of portfolio securities consistent with
the Portfolio's investment objective and policies. Under the Advisory
Agreement, the Adviser also provides the Portfolio with such office space,
administrative and other services (exclusive of, and in addition to, any such
services provided by any others retained by the Portfolio) and executive and
other personnel as are necessary for the Portfolio's operations. The Adviser
pays all of the compensation of directors of the Fund who are affiliated
persons of the Adviser and of the officers of the Fund.
The directors also considered that the Advisory Agreement provides that the
Portfolio will reimburse the Adviser for the cost of certain clerical,
accounting, administrative and other services provided at the Portfolio's
request by employees of the Adviser or its affiliates. Requests for these "at
no more than cost" reimbursements are approved by the directors on a quarterly
basis and (to the extent requested and paid) result in a higher rate of total
compensation from the Portfolio to the Adviser than the fee rates stated in the
Portfolio's Advisory Agreement.
ALLIANCEBERNSTEIN BOND FUND U.S. GOVERNMENT PORTFOLIO o 51
The directors considered the scope and quality of services provided by the
Adviser under the Advisory Agreement and noted that the scope of services
provided by advisers of funds had expanded over time as a result of regulatory
and other developments. The directors noted, for example, that the Adviser is
responsible for maintaining and monitoring its own and, to varying degrees, the
Portfolio's compliance programs, and that these compliance programs have
recently been refined and enhanced in light of new regulatory requirements. The
directors considered the quality of the in-house investment research
capabilities of the Adviser and the other resources it has dedicated to
performing services for the Portfolio. The quality of administrative and other
services, including the Adviser's role in coordinating the activities of the
Portfolio's other service providers, also were considered. The directors also
considered the Adviser's response to recent regulatory compliance issues
affecting a number of the investment companies in the AllianceBernstein Funds
complex. The directors concluded that, overall, they were satisfied with the
nature, extent and quality of services provided to the Portfolio under the
Advisory Agreement.
Costs of Services Provided and Profitability to the Adviser
The directors reviewed a schedule of the revenues, expenses and related notes
indicating the profitability of the Portfolio to the Adviser for calendar years
2004 and 2005 that had been prepared with an updated expense allocation
methodology. The directors noted that the updated methodology differed in
various respects from the methodology used in prior years. The directors
reviewed the assumptions and methods of allocation used by the Adviser in
preparing fund-specific profitability data, and noted the Adviser's
representation to them that it believed that the methods of allocation used in
preparing the profitability information were reasonable and appropriate and
that the Adviser had previously discussed with the directors that there is no
generally accepted allocation methodology for information of this type.
The directors recognized that it is difficult to make comparisons of
profitability from fund advisory contracts because comparative information is
not generally publicly available and is affected by numerous factors, including
the structure of the particular adviser, the types of funds it manages, its
business mix, numerous assumptions regarding allocations and the adviser's
capital structure and cost of capital. In considering profitability
information, the directors considered the effect of fall-out benefits on the
Adviser's expenses, as well as the "revenue sharing" arrangements the Adviser
has entered into with certain entities that distribute shares of the Portfolio.
The directors focused on the profitability of the Adviser's relationship with
the Portfolio before taxes and distribution expenses. The directors recognized
that the Adviser should generally be entitled to earn a reasonable level of
profits for the services it provides to the Portfolio and, based on their
review, concluded that they were satisfied that the Adviser's level of
profitability from its relationship with the Portfolio was not excessive.
52 o ALLIANCEBERNSTEIN BOND FUND U.S. GOVERNMENT PORTFOLIO
Fall-Out Benefits
The directors considered that the Adviser benefits from soft dollar
arrangements whereby it receives brokerage and research services from many of
the brokers and dealers that execute purchases and sales of securities on
behalf of its clients on an agency basis. The directors noted that since the
Portfolio does not engage in brokerage transactions, the Adviser does not
receive soft dollar benefits in respect of portfolio transactions of the
Portfolio.
The directors also considered that the Distributor, which is a wholly-owned
subsidiary of the Adviser, receives 12b-1 fees from the Portfolio in respect of
classes of shares of the Portfolio that are subject to the Fund's 12b-1 plan
and retains a portion of such 12b-1 fees, and receives all or a portion of the
sales charges on sales or redemptions of certain classes of shares. The
directors also noted that certain affiliates of the Adviser distribute shares
of the Portfolio and receive compensation in that connection and that a
subsidiary of the Adviser provides transfer agency services to the Portfolio
and receives compensation from the Portfolio for such services.
The directors recognized that the Adviser's profitability would be somewhat
lower if the Adviser's affiliates did not receive the benefits described above.
The directors understood that the Adviser also might derive reputational and
other benefits from its association with the Portfolio.
Investment Results
In addition to the information reviewed by the directors in connection with the
meeting, the directors receive detailed comparative performance information for
the Portfolio at each regular Board meeting during the year. At the meeting,
the directors reviewed information provided by the Senior Officer based on
information obtained from a Lipper database showing performance of the Class A
Shares of the Portfolio as compared to a group of 9 to 8 funds (depending on
the year) in its Lipper category selected by Lipper (the "Performance Group")
and as compared to a universe of 28 to 23 funds (depending on the year) in its
Lipper category selected by Lipper (the "Performance Universe") for periods
ended April 30, 2006 over the 1-, 3-, 5- and 10-year periods. The directors
also reviewed information prepared by the Adviser showing performance of the
Class A Shares of the Portfolio as compared to the Lehman Brothers Government
Bond Index (the "Index") for periods ended April+30, 2006 over the 1-, 3-, 5-,
10-year and since inception periods (December 1985 inception). The directors
noted that in the Performance Group and Performance Universe comparisons the
Portfolio was in the 5th quintile in all periods reviewed. The comparative
information showed that the Portfolio underperformed the Index in all periods
reviewed. Based on their review and their discussion of the reasons for the
Portfolio's underperformance with the Adviser, the directors retained
confidence in the Adviser's ability to continue to advise the Portfolio and
concluded
ALLIANCEBERNSTEIN BOND FUND U.S. GOVERNMENT PORTFOLIO o 53
that the Portfolio's performance was understandable. The directors informed the
Adviser that they planned to closely monitor the Portfolio's performance.
Advisory Fees and Other Expenses
The directors considered information provided by the Senior Officer based on
information obtained from a Lipper database showing the actual advisory fee
rate paid by the Portfolio to the Adviser and fee rates paid by other funds in
the same Lipper category as the Portfolio. The directors recognized that it is
difficult to make comparisons of advisory fees because there are variations in
the services that are included in the fees paid by other funds.
The Adviser informed the directors that there are no institutional products
managed by it which have a substantially similar investment style as the
Portfolio. The directors reviewed information in the Adviser's Form ADV and
noted that it charged institutional clients lower fees for advising comparably
sized accounts using strategies that differ from those of the Portfolio but
which involve investments in securities of the same type that the Portfolio
invests in (i.e., fixed income taxable securities). They had previously
received an oral presentation from the Adviser that supplemented such
information. The directors also noted that the Adviser advises a portfolio of
another AllianceBernstein fund with a similar investment style as the Portfolio
for the same fee rate schedule as the Portfolio except that the Portfolio's fee
rate schedule is a quarterly fee based on net asset value at the end of each
quarter and the portfolio's fee rate is a monthly fee based on average daily
net assets. The directors also noted that the Adviser sub-advises another
registered investment company with similar investment strategies as the
Portfolio at a lower fee rate than the Portfolio.
The Adviser reviewed with the directors the significant differences in the
scope of services it provides to institutional clients and sub-advised funds
and to the Portfolio. For example, the Advisory Agreement requires the Adviser
to provide, in addition to investment advice, office facilities and officers
(including officers to provide required certifications). The Adviser also
coordinates the provision of services to the Portfolio by non-affiliated
service providers and is responsible for the compensation of the Fund's
Independent Compliance Officer and certain related expenses. The provision of
these non-advisory services involves costs and exposure to liability. The
Adviser explained that many of these services normally are not provided to
non-investment company clients or to investment company clients when the
Adviser acts in a pure sub-advisory capacity, and that fees charged to the
Portfolio reflect the costs and risks of the additional obligations. The
Adviser also noted that since the Portfolio is constantly issuing and redeeming
its shares, it is more difficult to manage than an institutional account, where
the assets are relatively stable. In light of these facts, the directors did
not place significant weight on these fee comparisons.
54 o ALLIANCEBERNSTEIN BOND FUND U.S. GOVERNMENT PORTFOLIO
The directors also considered the total expense ratio of the Class A shares of
the Portfolio in comparison to the fees and expenses of funds within two
comparison groups created by Lipper: an Expense Group and an Expense Universe.
Lipper described an Expense Group as a representative sample of comparable
funds and an Expense Universe as a broader group, consisting of all funds in
the investment classification/objective with a similar load type as the subject
Portfolio. The Class A expense ratio of the Portfolio was based on the
Portfolio's latest fiscal year expense ratio. The directors recognized that the
expense ratio information for the Portfolio potentially reflected on the
Adviser's provision of services, as the Adviser is responsible for coordinating
services provided to the Portfolio by others. The directors noted that it was
likely that the expense ratios of some funds in the Portfolio's Lipper category
also were lowered by waivers or reimbursements by those funds' investment
advisers, which in some cases were voluntary and perhaps temporary.
The directors noted that the Portfolio's actual advisory fee rate of 43 basis
points was materially lower than the Expense Group median. The directors noted
that the latest fiscal year administrative expense reimbursement by the
Portfolio pursuant to the Advisory Agreement was one basis point. The directors
noted that the Portfolio's total expense ratio was somewhat higher than the
Expense Group and Expense Universe medians. The directors also noted that the
Adviser had recently reviewed with them steps being taken that are intended to
reduce expenses of the AllianceBernstein Portfolios. The directors concluded
that the Portfolio's expense ratio was acceptable.
Economies of Scale
The directors noted that the advisory fee schedule for the Portfolio contains
breakpoints so that, if assets were to increase over the breakpoint levels, the
fee rates would be reduced on the incremental assets. The directors also
considered a presentation by an independent consultant discussing economies of
scale issues in the mutual fund industry. The directors believe that economies
of scale are realized (if at all) by the Adviser across a variety of products
and services, and not only in respect of a single fund. The directors noted
that there is no uniform methodology for establishing breakpoints that give
effect to fund-specific services provided by the Adviser and to the economies
of scale that the Adviser may realize in its overall mutual fund business or
those components of it which directly or indirectly affect the Portfolio's
operations. The directors observed that in the mutual fund industry as a whole,
as well as among funds similar to the Portfolio, there is no uniformity or
pattern in the fees and asset levels at which breakpoints (if any) apply.
Depending on the age and size of a particular fund and its adviser's cost
structure, different conclusions can be drawn as to whether there are economies
of scale to be realized at any particular level of assets, notwithstanding the
intuitive conclusion that such economies exist, or will be realized at some
level of total assets. Moreover, because different advisers have different cost
structures and service models, it is difficult to draw meaningful
ALLIANCEBERNSTEIN BOND FUND U.S. GOVERNMENT PORTFOLIO o 55
conclusions from the comparison of a fund's advisory fee breakpoints with those
of comparable funds. The directors also noted that the advisory agreements for
many funds do not have breakpoints at all. Having taken these factors into
account, the directors concluded that the Portfolio's breakpoint arrangements
would result in a sharing of economies of scale in the event of a very
significant increase in the Portfolio's net assets.
56 o ALLIANCEBERNSTEIN BOND FUND U.S. GOVERNMENT PORTFOLIO
THE FOLLOWING IS NOT PART OF THE SHAREHOLDER REPORT OR THE FINANCIAL STATEMENTS
SUMMARY OF SENIOR OFFICER'S EVALUATION OF INVESTMENT ADVISORY AGREEMENT(1)
The following is a summary of the evaluation of the Investment Advisory
Agreement between AllianceBernstein L.P. (the "Adviser") and AllianceBernstein
Bond Fund, Inc. (the "Fund") in respect of AllianceBernstein U.S. Government
Portfolio (the "Portfolio"), prepared by Philip L. Kirstein, the Senior Officer
of the Fund for the Directors of the Fund, as required by an August 2004
agreement between the Adviser and the New York State Attorney General (the
"NYAG").(2) The Senior Officer's evaluation of the Investment Advisory
Agreement is not meant to diminish the responsibility or authority of the Board
of Directors of the Fund to perform its duties pursuant to Section 15 of the
Investment Company Act of 1940 (the "40 Act") and applicable state law. The
purpose of the summary is to provide shareholders with a synopsis of the
independent evaluation of the reasonableness of the advisory fees proposed to
be paid by the Portfolio which was provided to the Directors in connection with
their review of the proposed approval of the continuance of the Investment
Advisory Agreement. The Senior Officer's evaluation considered the following
factors:
1. Advisory fees charged to institutional and other clients of the Adviser
for like services;
2. Advisory fees charged by other mutual fund companies for like services;
3. Costs to the Adviser and its affiliates of supplying services pursuant
to the advisory agreement, excluding any intra-corporate profit;
4. Profit margins of the Adviser and its affiliates from supplying such
services;
5. Possible economies of scale as the Portfolio grows larger; and
6. Nature and quality of the Adviser's services including the performance
of the Portfolio.
PORTFOLIO ADVISORY FEES, EXPENSE REIMBURSEMENTS & RATIOS
The Adviser proposed that the Portfolio pay the advisory fee set forth in the
table below for receiving the services to be provided pursuant to the
Investment Advisory Agreement. The fee schedule below, implemented in January
2004 in connection with the Adviser's settlement with the NYAG in December
2003, is based on a master schedule that contemplates eight categories of funds
with almost all funds in each category having the same advisory fee schedule.(3)
(1) It should be noted that the information in the fee summary was completed
on October 23, 2006 and presented to the Board of Directors on October
31-November 2, 2006.
(2) Future references to the Portfolio do not include "AllianceBernstein."
References in the fee summary pertaining to performance and expense ratios
refer to the Class A shares of the Portfolio.
(3) Most of the AllianceBernstein Mutual Funds, which the Adviser manages,
were affected by the Adviser's settlement with the NYAG.
ALLIANCEBERNSTEIN BOND FUND U.S. GOVERNMENT PORTFOLIO o 57
Net Assets
09/30/06
Category (million) Advisory Fee(4) Portfolio
- -------------------------------------------------------------------------------
Low Risk $611.5 45 bp on 1st $2.5 billion U.S. Government
Income 40 bp on next $2.5 billion Portfolio
35 bp on the balance
The Adviser is reimbursed as specified in the Investment Advisory Agreement for
certain clerical, legal, accounting, administrative and other services provided
to the Portfolio. During the Portfolio's most recently completed fiscal year,
the Adviser received $91,771 (0.01% of the Portfolio's average daily net
assets) for such services.
Set forth below are the Portfolio's total expense ratios for the most recent
semi-annual period:
Portfolio Total Expense Ratio(5) Fiscal Year
- -------------------------------------------------------------------
U.S. Government Class A 0.84% September 30
Portfolio(6) Advisor 1.15%
Class B 1.89%
Class C 1.87%
Class R 1.39%
Class K 1.05%
Class I 0.75%
I. ADVISORY FEES CHARGED TO INSTITUTIONAL AND OTHER CLIENTS
The advisory fees charged to investment companies which the Adviser manages and
sponsors are normally higher than those charged to similar sized institutional
accounts, including pension plans and sub-advised investment companies. The fee
differential reflects, among other things, different services provided to such
clients, and different liabilities assumed. Services provided by the Adviser to
the Portfolio that are not provided to non-investment company clients include
providing office space and personnel to serve as Fund Officers, who among other
responsibilities make the certifications required under the Sarbanes-Oxley Act
of 2002, and coordinating with and monitoring the Portfolio's third party
service providers such as Fund counsel, auditors, custodians, transfer agents
and pricing services. The accounting, administrative, legal and compliance
requirements for the Portfolio are more costly than those for institutional
assets due to the greater complexities and time required for investment
companies, although as previously noted, a portion of these expenses are
reimbursed by the Portfolio to the Adviser. Also, retail mutual funds managed
by the Adviser are widely held. Servicing the Portfolio's investors is more
time consuming and labor intensive compared to
(4) The Portfolio's advisory fees are based on the Portfolio's net assets at
the end of each quarter and are paid on a quarterly basis.
(5) Annualized.
(6) Includes interest expense of 0.06%, relating to the short-term credit
facility used by the Portfolio.
58 o ALLIANCEBERNSTEIN BOND FUND U.S. GOVERNMENT PORTFOLIO
institutional clients since the Adviser needs to communicate with a more
extensive network of financial intermediaries and shareholders. In addition,
managing the cash flow of an investment company may be more difficult than that
of a stable pool of assets, such as an institutional account with little cash
movement in either direction, particularly if the Portfolio is in net
redemption and the Adviser is frequently forced to sell securities to raise
cash for redemptions. However, managing a fund with positive cash flow may be
easier at times than managing a stable pool of assets. Finally, in recent
years, investment advisers have been sued by institutional clients and have
suffered reputational damage both by the attendant publicity and outcomes other
than complete victories. Accordingly, the legal and reputational risks
associated with institutional accounts are greater than previously thought,
although still not equal to those related to the mutual fund industry.
Notwithstanding the Adviser's view that managing an investment company is not
comparable to managing other institutional accounts because the services
provided are different, it is worth considering information regarding the
advisory fees charged to institutional accounts with substantially similar
investment styles as the Portfolio. However, with respect to the Portfolio, the
Adviser represented that there is no institutional product in the Form ADV that
has a substantially similar investment style as the Portfolio.
The adviser also manages the AllianceBernstein Variable Products Series Fund,
Inc. "AVPS"), which is available through variable annuity and variable life
contracts offered by other financial institutions and offers policyholders the
option to utilize certain AVPS portfolios as the investment option underlying
their insurance contracts. Set forth below is the fee schedule of the AVPS
portfolio that has a similar investment style as the Portfolio:(7)
Portfolio AVPS Portfolio Fee Schedule
- -------------------------------------------------------------------------------
U.S. Government U.S. Government / 0.45% on first $2.5 billion
Portfolio(8) High Grade Securities 0.40% on next $2.5 billion
Portfolio 0.35% on the balance
The Adviser represented that it does not sub-advise any registered investment
company that has a similar investment strategy as the Portfolio.
(7) It should be noted that AVPS was affected by the settlement between the
Adviser and the NYAG.
(8) AVPS U.S. Government / High Grade Securities Portfolio's management fees
are paid on a monthly basis and are based on the portfolio's average daily net
assets, in contrast to the Portfolio, whose fees are paid on a quarterly basis
and are based on the Portfolio's quarter end net assets.
ALLIANCEBERNSTEIN BOND FUND U.S. GOVERNMENT PORTFOLIO o 59
II. MANAGEMENT FEES CHARGED BY OTHER MUTUAL FUND COMPANIES FOR LIKE SERVICES.
Lipper, Inc. ("Lipper"), an analytical service that is not affiliated with the
Adviser, compared the fees charged to the Portfolio with fees charged to other
investment companies for similar services by other investment advisers.
Lipper's analysis included the Portfolio's ranking with respect to the proposed
advisory fee relative to the median of the Portfolio's Lipper Expense Group
("EG")(9) at the approximate current asset level of the Portfolio.(10)
Lipper describes an EG as a representative sample of comparable funds. Lipper's
standard methodology for screening funds to be included in an EG entails the
consideration of several fund criteria, including fund type, investment
classification/objective, load type and similar 12b-1/non-12b-1 service fees,
asset (size) comparability, and expense components and attributes. An EG will
typically consist of seven to twenty funds.
Contractual Lipper
Management Expense Group
Portfolio Fee(11) Median Rank
- ----------------------------------------------------------------------
U.S. Government Portfolio 0.450 0.509 5/12
Lipper also analyzed the Portfolio's most recently completed fiscal year total
expense ratio in comparison to the Portfolio's EG and Lipper Expense Universe
("EU"). The EU(12) is a broader group compared to the EG, consisting of all
funds that have the same investment classification/objective and load type as
the subject Portfolio.
Expense Lipper Exp. Lipper Exp
Ratio Group Universe
Portfolio (%)(13) Median (%) Rank Median (%) Rank
- -------------------------------------------------------------------------------
U.S. Government Portfolio 1.066 0.982 11/12 0.990 24/32
(9) Lipper does not consider average account size when constructing EGs.
Funds with relatively small average account sizes tend to have higher transfer
agent expense ratio than comparable sized funds that have relatively large
average account sizes.
(10) The contractual management fee is calculated by Lipper using the
Portfolio's contractual management fee rate at a hypothetical asset level. The
hypothetical asset level is based on the combined net assets of all classes of
the Portfolio, rounded up to the next $25 million. Lipper's total expense ratio
information is based on the most recent annual report except as otherwise
noted. A ranking of "1" means that the Portfolio has the lowest effective fee
rate in the Lipper peer group.
(11) The contractual management fee does not reflect any expense
reimbursements made by the Portfolio to the Adviser for certain clerical,
legal, accounting, administrative, and other services.
(12) Except for asset (size) comparability, Lipper uses the same criteria for
selecting a Lipper Expense Group when selecting a Lipper Expense Universe.
Unlike the Lipper Expense Group, the Lipper Expense Universe allows for the
same adviser to be represented by more than just one fund.
(13) Most recently completed fiscal year Class A share total expense ratio.
60 o ALLIANCEBERNSTEIN BOND FUND U.S. GOVERNMENT PORTFOLIO
Based on this analysis, the Portfolio has a more favorable ranking on a
management fee basis than it does on a total expense ratio basis.
III. COSTS TO THE ADVISER AND ITS AFFILIATES OF SUPPLYING SERVICES PURSUANT TO
THE ADVISORY FEE ARRANGEMENT, EXCLUDING ANY INTRA-CORPORATE PROFIT.
A consultant was retained by the Senior Officer to work with the Adviser's
personnel to align the Adviser's two profitability reporting systems. The
alignment, which now has been completed, allows the Adviser's management and
the Directors to receive consistent presentations of the financial results and
profitability although the two profitability reporting systems operate
independently. See Section IV for additional discussion.
IV. PROFIT MARGINS OF THE ADVISER AND ITS AFFILIATES FOR SUPPLYING SUCH
SERVICES.
The profitability information for the Portfolio prepared by the Adviser for the
Board of Directors was reviewed by the Senior Officer and the consultant. The
Adviser's profitability from providing investment advisory services to the
Portfolio increased during calendar year 2005 relative to 2004.
In addition to the Adviser's direct profits from managing the Portfolio,
certain of the Adviser's affiliates have business relationships with the
Portfolio and may earn a profit from providing other services to the Portfolio.
The courts have referred to this type of business opportunity as "fall-out
benefits" to the Adviser and indicated that such benefits should be factored
into the evaluation of the total relationship between the Portfolio and the
Adviser. Neither case law nor common business practice precludes the Adviser's
affiliates from earning a reasonable profit on this type of relationship
provided the affiliates' charges and services are competitive. These affiliates
provide transfer agent and distribution related services to the Portfolio and
receive transfer agent fees, Rule 12b-1 payments, front-end sales loads and
contingent deferred sales charges ("CDSC").
AllianceBernstein Investments, Inc. ("ABI"), an affiliate of the Adviser, is
the Portfolio's principal underwriter. ABI and the Adviser have disclosed in
the Portfolio's prospectus that they may make revenue sharing payments from
their own resources, in addition to resources derived from sales loads and Rule
12b-1 fees, to firms that sell shares of the Portfolio. In 2005, ABI paid
approximately 0.042% of the average monthly assets of the AllianceBernstein
Mutual Funds or approximately $18.0 million for distribution services and
educational support (revenue sharing payments). For 2006, it is anticipated,
ABI will pay approximately 0.04% of the average monthly assets of the
AllianceBernstein Mutual Funds or approximately $17.5 million.(14) During the
Portfolio's most recently
(14) ABI currently inserts the "Advance" in quarterly account statements and
pays the incremental costs associated with the mailing. The incremental cost is
less than what an "independent mailing" would cost.
ALLIANCEBERNSTEIN BOND FUND U.S. GOVERNMENT PORTFOLIO o 61
completed fiscal year, ABI received from the Portfolio $9,606, $4,541,671 and
$183,553 in front-end sales charges, Rule 12b-1 and CDSC fees, respectively.
Fees and reimbursements for out of pocket expenses charged by AllianceBernstein
Investor Services, Inc. ("ABIS"), the affiliated transfer agent for the
Portfolio, are charged on a per account basis, based on the level of service
provided and the class of share held by the account. ABIS also receives a fee
per shareholder sub-account for each account maintained by an intermediary on
an omnibus basis. ABIS' after-tax profitability increased in 2005 in comparison
to 2004. During the Portfolio's most recently completed fiscal year, ABIS
received $1,554,400 in fees from the Portfolio.(15)
V. POSSIBLE ECONOMIES OF SCALE
The Adviser has indicated that the breakpoints in the fee schedule being
proposed reflect a sharing of economies of scale to the extent they exist.
Based on some of the professional literature that has considered economies of
scale in the mutual fund industry it is thought that to the extent economies of
scale exist, they may more often exist across a fund family as opposed to a
specific fund. This is because the costs incurred by the Adviser, such as
investment research or technology for trading or compliance systems can be
spread across a greater asset base as the fund family increases in size. It is
also possible that as the level of services required to operate a successful
investment company has increased over time, and advisory firms have made such
investments in their business to provide improved services, there may be a
sharing of economies of scale without a reduction in advisory fees.
An independent consultant, retained by the Senior Officer, made a presentation
to the Board of Directors regarding possible economies of scale or scope in the
mutual fund industry. Based on the presentation, it was evident that fund
management companies benefit from economies of scale. However, due to lack of
cost data, researchers had to infer facts about the costs from the behavior of
fund expenses; there was a lack of consensus among researchers as to whether
economies of scale were being passed on to the shareholders. In the meantime,
it is clear that to the extent a fund's assets were to exceed the initial
breakpoint its shareholders benefit from a lower fee rate.
VI. NATURE AND QUALITY OF THE ADVISER'S SERVICES INCLUDING THE PERFORMANCE OF
THE PORTFOLIO.
With assets under management of approximately $659 billion as of September 30,
2006, the Adviser has the investment experience to manage and provide
non-investment services (described in Section I) to the Portfolio.
(15) The fees disclosed are net of any expense offsets with ABIS. An expense
offset is created by the interest earned on the positive cash balance that
occur within the transfer agent account as there is a one day lag with regards
to money movement from the shareholder's account to the transfer agent's
account and then the transfer agent's account to the Portfolio's account.
During the Portfolio's most recently completed fiscal year, the fees paid by
the Portfolio to ABIS were reduced by $15,301 under the offset agreement
between the Portfolio and ABIS.
62 o ALLIANCEBERNSTEIN BOND FUND U.S. GOVERNMENT PORTFOLIO
The information below shows the 1, 3, 5 and 10 year performance returns and
rankings of the Portfolio(16) relative to the Portfolio's Lipper Performance
Group ("PG") and Lipper Performance Universe ("PU")(17) for the periods ended
June 30, 2006.(18)
U.S. Government Portfolio
Portfolio Return PG Median PU Median PG Rank PU Rank
- -------------------------------------------------------------------------------
1 year -1.98 -1.44 -1.39 12/12 37/42
3 year 0.69 1.26 1.13 11/12 33/39
5 year 3.54 4.08 4.07 11/12 28/36
10 year 4.94 5.37 5.32 12/12 25/30
Set forth below are the 1, 3, 5, 10 year and since inception performance
returns of the Portfolio (in bold)(19) versus its benchmark:(20)
Periods Ending June 30, 2006
Annualized Performance
- -------------------------------------------------------------------------------
Since
Funds 1 Year 3 Year 5 Year 10 Year Inception
- -------------------------------------------------------------------------------
U.S. Government Portfolio -1.98 0.69 3.54 4.94 6.22
Lehman Brothers
Government Bond Index -1.16 1.31 4.73 6.04 7.40
CONCLUSION:
Based on the factors discussed above the Senior Officer's conclusion is that
the proposed advisory fee for the Portfolio is reasonable and within the range
of what would have been negotiated at arms-length in light of all the
surrounding circumstances. This conclusion in respect of the Portfolio is based
on an evaluation of all of these factors and no single factor was dispositive.
Dated: November 15, 2006
(16) The performance returns and rankings are for the Class A shares of the
Portfolio. It should be noted that the performance returns of the Portfolio
that is shown was provided by the Adviser. Lipper maintains its own database
that includes the Portfolio's performance returns. However, differences in the
distribution price (ex-date versus payable date) and rounding differences may
cause the Adviser's own performance returns of the Portfolio to be one or two
basis points different from Lipper. To maintain consistency in this evaluation,
the performance returns of the Portfolio, as reported by the Adviser, are
provided instead of Lipper.
(17) The Portfolio's PG is identical to the Portfolio's EG. The Portfolio's PU
is not identical to the Portfolio's EU. Funds with negative management fees are
normally excluded from EUs, but not necessarily from PUs.
(18) Note that the current Lipper investment classification/objective dictates
the PG and PU throughout the life of the Portfolio even if a Portfolio may have
had a different investment classification/objective at different points in time.
(19) The performance returns shown are for the Class A shares of the Portfolio.
(20) The Adviser provided Portfolio and benchmark performance return
information for periods through June 30, 2006.
ALLIANCEBERNSTEIN BOND FUND U.S. GOVERNMENT PORTFOLIO o 63
THIS PAGE IS NOT PART OF THE SHAREHOLDER REPORT OR THE FINANCIAL STATEMENTS
ALLIANCEBERNSTEIN FAMILY OF FUNDS
- ---------------------------------------------
Wealth Strategies Funds
- ---------------------------------------------
Balanced Wealth Strategy
Wealth Appreciation Strategy
Wealth Preservation Strategy
Tax-Managed Balanced Wealth Strategy
Tax-Managed Wealth Appreciation Strategy
Tax-Managed Wealth Preservation Strategy
- ---------------------------------------------
Blended Style Funds
- ---------------------------------------------
U.S. Large Cap Portfolio
International Portfolio
Tax-Managed International Portfolio
- ---------------------------------------------
Growth Funds
- ---------------------------------------------
Domestic
Growth Fund
Mid-Cap Growth Fund
Large Cap Growth Fund
Small Cap Growth Portfolio
Global & International
Global Health Care Fund
Global Research Growth Fund
Global Technology Fund
Greater China '97 Fund
International Growth Fund
International Research Growth Fund
- ---------------------------------------------
Value Funds
- ---------------------------------------------
Domestic
Balanced Shares
Focused Growth & Income Fund
Growth & Income Fund
Real Estate Investment Fund
Small/Mid-Cap Value Fund
Utility Income Fund
Value Fund
- ---------------------------------------------
Global & International
- ---------------------------------------------
Global Value Fund
International Value Fund
- ---------------------------------------------
Taxable Bond Funds
- ---------------------------------------------
Global Government Income Trust*
Corporate Bond Portfolio
Emerging Market Debt Fund
Global Strategic Income Trust
High Yield Fund
Intermediate Bond Portfolio*
Short Duration Portfolio
U.S. Government Portfolio
- ---------------------------------------------
Municipal Bond Funds
- ---------------------------------------------
National Michigan
Insured National Minnesota
Arizona New Jersey
California New York
Insured California Ohio
Florida Pennsylvania
Massachusetts Virginia
- ---------------------------------------------
Intermediate Municipal Bond Funds
- ---------------------------------------------
Intermediate California
Intermediate Diversified
Intermediate New York
- ---------------------------------------------
Closed-End Funds
- ---------------------------------------------
All-Market Advantage Fund
ACM Income Fund
ACM Government Opportunity Fund
ACM Managed Dollar Income Fund
ACM Managed Income Fund
ACM Municipal Securities Income Fund
California Municipal Income Fund
National Municipal Income Fund
New York Municipal Income Fund
The Spain Fund
World Dollar Government Fund
World Dollar Government Fund II
- ---------------------------------------------
Retirement Strategies Funds
- ---------------------------------------------
2000 Retirement Strategy
2005 Retirement Strategy
2010 Retirement Strategy
2015 Retirement Strategy
2020 Retirement Strategy
2025 Retirement Strategy
2030 Retirement Strategy
2035 Retirement Strategy
2040 Retirement Strategy
2045 Retirement Strategy
We also offer Exchange Reserves,** which serves as the money market fund
exchange vehicle for the AllianceBernstein mutual funds.
For more complete information on any AllianceBernstein mutual fund, including
investment objectives and policies, sales charges, expenses, risks and other
matters of importance to prospective investors, visit our website at
www.alliancebernstein.com or call us at 800.227.4618 for a current prospectus.
You should read the prospectus carefully before you invest.
* Prior to February 1, 2006, Global Government Income Trust was named
Americas Government Income Trust and Intermediate Bond Portfolio was named
Quality Bond Portfolio.
** An investment in the Fund is not a deposit in a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. Although the Fund seeks to preserve the value of your investment at
$1.00 per share, it is possible to lose money by investing in the Fund.
64 o ALLIANCEBERNSTEIN BOND FUND U.S. GOVERNMENT PORTFOLIO
ALLIANCEBERNSTEIN BOND FUND U.S. GOVERNMENT
1345 Avenue of the Americas
New York, NY 10105
(800) 221-5672
[LOGO]
ALLIANCEBERNSTEIN
INVESTMENTS
USG-0151-0906
ITEM 2. CODE OF ETHICS.
(a) The registrant has adopted a code of ethics that applies to its principal
executive officer, principal financial officer and principal accounting
officer. A copy of the registrant's code of ethics is filed herewith as
Exhibit 12(a)(1).
(b) During the period covered by this report, no material amendments were made
to the provisions of the code of ethics adopted in 2(a) above.
(c) During the period covered by this report, no implicit or explicit waivers
to the provisions of the code of ethics adopted in 2(a) above were granted.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The registrant's Board of Directors has determined that independent directors
David H. Dievler and William H. Foulk, Jr. qualify as audit committee financial
experts.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) - (c) The following table sets forth the aggregate fees billed by the
independent registered public accounting firm Ernst & Young LLP, for the Fund's
last two fiscal years for professional services rendered for: (i) the audit of
the Fund's annual financial statements included in the Fund's annual report to
stockholders; (ii) assurance and related services that are reasonably related
to the performance of the audit of the Fund's financial statements and are not
reported under (i), which include advice and education related to accounting
and auditing issues and quarterly press release review (for those Funds which
issue press releases), and preferred stock maintenance testing (for those Funds
that issue preferred stock); and (iii) tax compliance, tax advice and tax
return preparation.
Audit-Related
Audit Fees Fees Tax Fees
---------- ------------- ---------
AllianceBernstein U.S.
Government Portfolio 2005 $52,000 $4,117 $13,031
2006 $54,500 $5,566 $12,781
AllianceBernstein Corporate
Bond Portfolio 2005 $49,000 $4,012 $19,247
2006 $54,500 $5,566 $14,675
(d) Not applicable.
(e) (1) Beginning with audit and non-audit service contracts entered into on or
after May 6, 2003, the Fund's Audit Committee policies and procedures require
the pre-approval of all audit and non-audit services provided to the Fund by
the Fund's independent registered public accounting firm. The Fund's Audit
Committee policies and procedures also require pre-approval of all audit and
non-audit services provided to the Adviser and Service Affiliates to the extent
that these services are directly related to the operations or financial
reporting of the Fund.
(e) (2) All of the amounts for Audit Fees, Audit-Related Fees and Tax Fees in
the table under Item 4 (a) - (c) are for services pre-approved by the Fund's
Audit Committee.
(f) Not applicable.
(g) The following table sets forth the aggregate non-audit services provided to
the Fund, the Fund's Adviser and entities that control, are controlled by or
under common control with the Adviser that provide ongoing services to the
Fund, which include preparing an annual internal control report pursuant to
Statement on Auditing Standards No. 70 ("Service Affiliates"):
Total Amount of
Foregoing Column
Pre-approved by the
All Fees for Audit Committee
Non-Audit Services (Portion Comprised of
Provided to the Audit Related Fees)
Portfolio, the Adviser (Portion Comprised of
and Service Affiliates Tax Fees)
---------------------- ---------------------
AllianceBernstein U.S.
Government Portfolio
2005 $892,044 [ $184,851 ]
( $171,820 )
( $ 13,031 )
2006 $679,835 ( $149,862 )
( $137,081 )
( $ 12,781 )
AllianceBernstein
Corporate Bond
Portfolio 2005 $898,155 [ $190,962 ]
( $171,715 )
( $ 19,247 )
2006 $681,729 [ $169,385 ]
( $154,710 )
( $ 14,675 )
(h) The Audit Committee of the Fund has considered whether the provision of any
non-audit services not pre-approved by the Audit Committee provided by the
Fund's independent registered public accounting firm to the Adviser and Service
Affiliates is compatible with maintaining the auditor's independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable to the registrant.
ITEM 6. SCHEDULE OF INVESTMENTS.
Please see Schedule of Investments contained in the Report to Shareholders
included under Item 1 of this Form N-CSR.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable to the registrant.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable to the registrant.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable to the registrant.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which shareholders may
recommend nominees to the Fund's Board of Directors since the Fund last
provided disclosure in response to this item.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive officer and principal financial
officer have concluded that the registrant's disclosure controls and procedures
(as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as
amended) are effective at the reasonable assurance level based on their
evaluation of these controls and procedures as of a date within 90 days of the
filing date of this document.
(b) There were no changes in the registrant's internal controls over financial
reporting that occurred during the second fiscal quarter of the period that has
materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
ITEM 12. EXHIBITS.
The following exhibits are attached to this Form N-CSR:
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
12 (a) (1) Code of Ethics that is subject to the disclosure of
Item 2 hereof
12 (b) (1) Certification of Principal Executive Officer Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
12 (b) (2) Certification of Principal Financial Officer Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
12 (c) Certification of Principal Executive Officer and
Principal Financial Officer Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant): AllianceBernstein Bond Fund, Inc.
By: /s/ Marc O. Mayer
-------------------------
Marc O. Mayer
President
Date: November 28, 2006
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ Marc O. Mayer
-------------------------
Marc O. Mayer
President
Date: November 28, 2005
By: /s/ Joseph J. Mantineo
-------------------------
Joseph J. Mantineo
Treasurer and Chief Financial Officer
Date: November 28, 2006