N-CSR 1 edg12101_ar.txt 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