ALLIANCE
BALANCED
SHARES
ANNUAL REPORT
JULY 31, 1995
LETTER TO SHAREHOLDERS ALLIANCE BALANCED SHARES
- -------------------------------------------------------------------------------
September 5, 1995
Dear Shareholder:
We are pleased to provide you with an update of Alliance Balanced Shares'
performance and investment activity for the fiscal year ended July 31, 1995.
The following table compares the Fund's total returns over the twelve-month
period with that of the broad U.S. stock market, represented by the S&P
500-stock Index; with the U.S. bond market, represented by the Lehman Brothers
(LB) Government/Corporate Bond Index; and with the U.S. Treasury market,
represented by the Salomon Brothers (SB) 1-Year Treasury Index:
Twelve Months Ended July 31, 1995
Total Return Ending NAV
------------ ----------
ALLIANCE BALANCED SHARES
Class A +15.99% $15.08
Class B +15.07% $14.88
Class C +15.06% $14.89
S&P 500 +26.03%
LB GOV'T/CORP. BOND INDEX +10.55%
SB TREASURY INDEX +9.69%
The Fund's total returns are based on the net asset values of each class of
shares as of July 31; additional investment results and complete descriptions
of the Fund's benchmarks, which are all unmanaged, appear on pages 3 and 4.
EQUITY MARKET VALUATION RISK
With the S&P 500 selling at roughly $580, a lot will have to go right to
generate meaningful price gains over the next twelve months. Though the market
seems reasonably valued in the context of current interest rates and inflation
levels, at about 15.7x estimated 1995 earnings of $37, after-tax profit margins
are at a twenty-five year high. At 41x dividends, the S&P 500 is at an all-time
peak valuation by that measure.
Further market gains REQUIRE the continuation of moderate real gross domestic
product growth and low inflation. A strong rebound in growth risks a lagged
pick-up in inflation and immediately higher interest rates, posing a valuation
risk for the market. Conversely, growth below 2% would cap profit growth
immediately and tend to deteriorate into recession over time.
FAVORABLE OUTLOOK FOR MODERATE GROWTH AND LOW INFLATION
Fortunately, prospects for continued non-inflationary growth are good. On a
cyclical basis, autos and housing have stabilized with lower interest rates,
inventories appear to have adjusted to a point where industrial production will
increase and employment and income statistics will improve. Conversely, real
interest rates and debt levels are high, consumer confidence appears to be
slipping, jobs are still being lost as the pace of mergers and consolidations
continues unabated, growth in Europe and Japan remains quite weak and the
dollar is rising. On balance, moderate growth of 2.5% or so seems the most
likely outcome over the next 3-4 quarters.
From a longer-term point of view several secular forces also argue for
moderate, productivity led, non-inflationary growth:
. Modest growth in the labor force together with continuing advances and
falling prices in technology argue for a prolonged increase in capital/labor
ratios in the United States, despite high real interest rates.
. Real progress in lowering out year budget deficits appears likely late this
fall or in 1996. This would enable real interest rates to decline.
. Aging populations and reduced secular demand for consumer goods argue for
limited pricing power and higher savings rates in the U.S. and other developed
countries.
. As developing economies continue to embrace free market policies and global
capital flows increase, upward pressures on labor costs in the developed world
will be mediated. At the same time, improving living standards will create a
new and necessary source of global demand.
Thus, while the risks to the stock market are high if the U.S. economy deviates
from a non-inflationary growth track, the prospects for remaining on that track
seem
1
ALLIANCE BALANCED SHARES
- -------------------------------------------------------------------------------
favorable, and we believe the market can still go somewhat higher (though
probably not without temporary setbacks).
PORTFOLIO POSITIONING
In the context we've outlined, we are starting to gradually reduce your Fund's
total equity exposure, even as we are increasing its modest exposure to foreign
stocks.
Another rally has brought long-term Treasury yields back to 6.5% from a recent
high of 7%. We believe this level of yields is about right over the short run
and a bit high relative to our long-term forecasts. Further strength in the
bond market would probably result in a reduction of the Fund's fixed income
holdings and an increase in cash equivalent securities.
Thank you for your continued interest and investment in Alliance Balanced
Shares. We look forward to reporting its progress to you early in 1996.
Sincerely,
John D. Carifa
Chairman and President
Bruce W. Calvert
Executive Vice President
2
INVESTMENT RESULTS ALLIANCE BALANCED SHARES
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN AS OF JULY 31, 1995
CLASS A SHARES
WITHOUT WITH
SALES CHARGE SALES CHARGE
----------------------------
.One Year +15.99% +11.09%
.Five Years +9.59 +8.64
.Ten Years +10.94 +10.46
CLASS B SHARES
WITHOUT WITH
SALES CHARGE SALES CHARGE
----------------------------
.One Year +15.07% +11.07%
.Since Inception* +8.55 +8.55
CLASS C SHARES
.One Year +15.06%
.Since Inception* +7.37
The average annual total returns reflect investment of dividends and/or capital
gains distributions in additional shares-with and without the effect of the
4.25% maximum front-end sales charge for Class A or applicable contingent
deferred sales charge for Class B (4% year 1, 3% year 2, 2% year 3, 1% year 4);
Class C shares are not subject to front-end or contingent deferred sales
charges. Past performance does not guarantee future results. Investment return
and principal value will fluctuate so that an investor's shares, when redeemed,
may be worth more or less than their original cost.
* Inception: 2/4/91, Class B; 8/2/93, Class C.
3
ALLIANCE BALANCED SHARES
- -------------------------------------------------------------------------------
ALLIANCE BALANCED SHARES
GROWTH OF A $10,000 INVESTMENT:
7/31/85 TO 7/31/95
$39,000
$24,000
$9,000
BALANCED SHARES CLASS A: $27,058
LB GOV'T./CORP.
BOND INDEX
S&P 500
SB 1-YEAR TREASURY
7/31/85 7/31/95
This chart illustrates the total value of an assumed investment in Alliance
Balanced Shares Class A after deducting the maximum 4.25% sales charge, and
with dividends and capital gains reinvested. Performance for Class B and Class
C shares will vary from the results shown above due to differences in expenses
charged to those classes. Past performance is not indicative of future results,
and is not representative of future gain or loss in capital value or dividend
income.
The unmanaged Standard and Poor's 500-stock index includes 500 U.S. stocks
and is a common measure of the performance of the overall U.S. stock market.
The unmanaged Lehman Brothers Government/Corporate Bond Index represents a
combination of the Government Bond Index and the Corporate Bond Index.
The Salomon Brothers 1-Year Treasury Benchmark represents performance of
Treasury bills with 1-year maturities.
When comparing Alliance Balanced Shares to the indices shown above, you
should note that the Fund's performance reflects the maximum sales charge of
4.25% while no such charges are reflected in the performance of the indices.
Balanced Shares
S&P 500
LB Gov't./Corp.
SB 1-Year Treasury
4
ALLIANCE BALANCED SHARES
- -------------------------------------------------------------------------------
ALLIANCE BALANCED SHARES...
SEEKING TO PROVIDE CURRENT INCOME FOR TODAY AND GROWTH OF CAPITAL FOR THE FUTURE
Alliance Balanced Shares is a conservative investment that seeks to provide a
competitive total return.
For some investors, the Fund may be considered a comprehensive investment
vehicle. It strives to achieve higher returns and lower volatility than a
benchmark portfolio comprised of 60% stocks, 25% government and corporate
bonds, and 15% Treasury bills.
We do not focus on short-term performance, nor do we strive to outperform other
balanced funds, many of which are much more aggressively structured.
As the charts illustrate, Alliance Balanced Shares' asset allocation shifts
with changing market conditions. The changes, however, should be neither
dramatic nor frequent, and should not involve significant risk relative to the
benchmark noted above.
Stocks will now typically comprise about 60% of the portfolio. At times,
however, stocks may range from 50% to 70% of the portfolio.
Within the equity portion of the portfolio, we seek to outperform the stock
market without taking undue risk. Stock selection emphasizes investments with
attractive expected return-but always within the context of a diversified
portfolio. Further, a preponderance of the portfolio will always be invested in
high-quality, financially strong, dividend-paying companies.
The balance of the portfolio is comprised of U.S. Government and government
agency securities mixed with high-quality asset-backed and corporate bonds. Our
primary objectives in the fixed-income portfolio are to generate a high, steady
income stream and to provide stability for the net asset value.
We believe that this investment policy will serve the Fund's investors very
well over time.
SIX-MONTH SNAPSHOTS: THE COMPOSITION OF YOUR FUND'S PORTFOLIO
7/31/94 1/31/95 7/31/95
U.S. GOVERNMENTS &MORTGAGES: 18.0%
CORPORATE BONDS: 21.0%
CASH: 14.4%
STOCKS: 46.6%
U.S. GOVERNMENTS &MORTGAGES: 22.5%
CORPORATE BONDS: 11.6%
CASH: 12.3%
STOCKS: 53.6%
U.S. GOVERNMENTS &MORTGAGES: 25.0%
CORPORATE BONDS: 9.8%
CASH: 6.5%
STOCKS: 58.7%
5
TEN LARGEST HOLDINGS
JULY 31, 1995 ALLIANCE BALANCED SHARES
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PERCENT OF
COMPANY VALUE NET ASSETS
- -------------------------------------------------------------------------------
U.S. Treasury Notes $23,899,500 16.8%
Federal National Mortgage Association 7,287,415 5.1
Philip Morris Cos., Inc. 3,581,250 2.5
Borden, Inc., Zero Coupon, 5/22/97 3,510,000 2.5
P T Alatief Freeport Finance, 9.75%, 4/15/01 3,358,250 2.4
Intel Corp. 3,250,000 2.3
Federal Home Loan Mortgage Corp., 7.00%, 7/01/25 2,886,801 2.0
Republic of Italy, 6.875%, 9/27/23 2,620,290 1.8
General Electric Co. 2,360,000 1.7
Walt Disney Co. 2,345,000 1.6
$55,098,506 38.7%
MAJOR PORTFOLIO CHANGES
SIX MONTHS ENDED JULY 31, 1995
SHARES OR PRINCIPAL
PURCHASES BOUGHT HOLDINGS 7/31/95
- -------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp.,7.00%,7/01/25 $2,958,000 $2,958,000
Federal National Mortgage Association,
6.00%, 4/01/09 $5,631,562 $5,631,562
Federal National Mortgage Association,
6.00%, 6/01/09 $1,942,296 $1,942,296
Home Depot, Inc. 40,000 40,000
P T Alatief Freeport Finance, 9.75%, 4/15/01 $3,325,000 $3,325,000
Republic of Italy, 6.875%, 9/27/23 $3,000,000 $3,000,000
Tele-Communications, Inc., 9.80%, 2/01/12 $2,000,000 $2,000,000
Time Warner, Inc., 9.15%, 2/01/23 $2,050,000 $2,050,000
U.S. Treasury Note, 7.875%, 4/15/98 $10,750,000 $10,750,000
U.S. Treasury Note, 7.50%, 2/15/05 $5,255,000 $5,255,000
SALES SOLD HOLDINGS 7/31/95
- -------------------------------------------------------------------------------
Abbey National, Plc., 6.375%, 3/10/99 $3,000,000 -0-
Chevron Corp. 75,000 -0-
May Department Stores Co. 80,000 -0-
Paramount Communications, Inc., 8.25%, 8/01/22 $3,250,000 -0-
Province of Ontario, 5.812%, 8/17/99 $3,700,000 -0-
Stone Container Corp., 9.875%, 2/01/01 $3,000,000 -0-
Time Warner Entertainment, 8.375%, 3/15/23 $3,250,000 -0-
U.S. Treasury Bond, 8.125%, 8/15/19 $2,800,000 -0-
U.S. Treasury Note, 4.25%, 1/31/95 $3,000,000 -0-
Wal-Mart Stores, Inc. 120,000 -0-
6
PORTFOLIO OF INVESTMENTS
JULY 31, 1995 ALLIANCE BALANCED SHARES
- -------------------------------------------------------------------------------
COMPANY SHARES VALUE
- ----------------------------------------------------------------------
COMMON STOCKS-58.1%
CONSUMER PRODUCTS & SERVICES-22.9%
BROADCASTING & CABLE-1.6%
Comcast Corp. Cl.A (SPL) 80,000 $1,615,000
Cox Communications, Inc.Cl.A* 32,500 658,125
2,273,125
COSMETICS-1.5%
Gillette Co. 50,000 2,187,500
DRUGS, HOSPITAL SUPPLIES & MEDICAL SERVICES-7.7%
Abbott Laboratories 40,000 1,600,000
Columbia HCA Healthcare Corp. 45,000 2,205,000
Merck & Co., Inc. 45,000 2,323,125
Pfizer, Inc. 40,000 2,020,000
Schering-Plough Corp. 40,000 1,860,000
United Healthcare Corp. 20,000 905,000
10,913,125
ENTERTAINMENT & LEISURE TIME-2.3%
Carnival Corp. 40,000 905,000
Walt Disney Co. 40,000 2,345,000
3,250,000
FOOD & BEVERAGES-2.1%
McDonald's Corp. 30,000 1,158,750
PepsiCo, Inc. 40,000 1,875,000
3,033,750
HOUSEHOLD PRODUCTS-1.2%
Colgate-Palmolive Co. 25,000 1,750,000
MULTI-INDUSTRY-0.9%
ITT Corp. 11,000 1,320,000
RETAILING-2.2%
AutoZone, Inc.* 50,000 $1,300,000
Home Depot, Inc. 40,000 1,755,000
3,055,000
TOBACCO-2.9%
Philip Morris Cos., Inc. 50,000 3,581,250
UST, Inc. 20,000 545,000
4,126,250
OTHER-0.5%
Duracell International, Inc. 15,000 690,000
32,598,750
SCIENCE & TECHNOLOGY-10.5%
BIOTECHNOLOGY-0.8%
Amgen, Inc.* 14,000 1,190,000
COMMUNICATION EQUIPMENT-0.8%
General Instrument Corp.* 30,000 1,106,250
COMPUTER HARDWARE-1.5%
Compaq Computer Corp.* 26,000 1,319,500
Silicon Graphics, Inc.* 20,000 840,000
2,159,500
COMPUTER SOFTWARE-3.2%
cisco Systems, Inc.* 20,000 1,113,750
General Motors Corp. Cl.E 40,000 1,760,000
Oracle System Corp.* 40,000 1,675,000
4,548,750
SEMI-CONDUCTORS & RELATED-3.5%
Intel Corp. 50,000 3,250,000
Motorola, Inc. 22,000 1,685,750
4,935,750
TELECOMMUNICATION EQUIPMENT-0.1%
Scientific-Atlanta, Inc. 10,000 215,000
7
PORTFOLIO OF INVESTMENTS (CONTINUED) ALLIANCE BALANCED SHARES
- -------------------------------------------------------------------------------
COMPANY SHARES VALUE
- ----------------------------------------------------------------------
OTHER-0.6%
Xerox Corp. 7,000 $ 833,875
14,989,125
FINANCIAL SERVICES-8.7%
BANKING & CREDIT-2.5%
Citicorp 20,000 1,247,500
MBNA Corp. 40,000 1,435,000
NationsBank Corp. 15,000 841,875
3,524,375
BROKERAGE-1.3%
Dean Witter, Discover & Co. 15,000 757,500
Merrill Lynch & Co., Inc. 20,000 1,110,000
1,867,500
INSURANCE-4.9%
American International Group, Inc. 30,000 2,250,000
General Re Corp. 8,000 1,061,000
MGIC Investment Corp. 12,000 609,000
NAC Re Corp. 30,000 1,102,500
Travelers, Inc. 40,000 1,895,000
6,917,500
12,309,375
BASIC INDUSTRIES-7.6%
AUTO PARTS-0.6%
Magna International, Inc.
Cl.A 20,000 920,000
CHEMICALS-2.9%
Morton International, Inc.* 60,000 1,800,000
Rohm & Haas Co. 40,000 2,330,000
4,130,000
ELECTRICAL EQUIPMENT-1.7%
General Electric Co. 40,000 2,360,000
MACHINERY-0.6%
Coltec Industries, Inc.* 60,000 915,000
SHARES OR
PRINCIPAL
AMOUNT
COMPANY (000) VALUE
- ----------------------------------------------------------------------
OTHER-1.8%
Alco Standard Corp. 8,000 $ 651,000
AlliedSignal, Inc. 40,000 1,870,000
2,521,000
10,846,000
PUBLIC UTILITIES-3.2%
TELEPHONE-3.2%
AirTouch Communications, Inc.* 60,000 1,890,000
AT & T Corp. 20,000 1,055,000
MCI Communications Corp. 70,000 1,675,625
4,620,625
ENERGY-1.0%
OIL & GAS SERVICES-1.0%
Enron Corp. 40,000 1,390,000
TRANSPORTATION-0.7%
RAILROAD-0.7%
Conrail, Inc. 15,000 926,250
OTHER-3.5%
G.T. Greater Europe Fund 150,000 1,912,500
Scudder New Asia Fund, Inc.* 80,000 1,270,000
The France Growth Fund, Inc. 160,000 1,740,000
4,922,500
Total Common Stocks (cost $68,872,144) 82,602,625
CORPORATE BONDS-9.7%
COMMUNICATIONS-1.6%
Tele-Communications, Inc.
9.80%, 2/01/12 $2,000 2,210,800
INDUSTRIAL-6.3%
Borden, Inc.
Zero Coupon, 5/22/97(a) 4,000 3,510,000
P T Alatief Freeport Finance
9.75%, 4/15/01 3,325 3,358,250
Time Warner, Inc.
9.15%, 2/01/23 2,050 2,110,639
8,978,889
OTHER-1.8%
Republic of Italy
6.875%, 9/27/23 3,000 2,620,290
Total Corporate Bonds (cost $13,942,300) 13,809,979
MORTGAGE RELATED SECURITIES-7.1%
Federal Home Loan Mortgage Corp.
7.00%, 7/01/25 2,958 2,886,801
Federal National Mortgage Association
6.00%, 4/01/09-6/01/09 7,574 7,287,415
TotalMortgageRelated Securities
(cost $10,287,487) 10,174,216
U.S. GOVERNMENT OBLIGATIONS-17.6%
U.S. Treasury Bond
7.50%, 11/15/24 1,050 1,130,881
8
ALLIANCE BALANCED SHARES
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PRINCIPAL
AMOUNT
COMPANY (000) VALUE
- ----------------------------------------------------------------------
U.S. Treasury Notes
6.75%, 4/30/00 $ 600 $ 613,314
7.125%, 9/30/99 6,200 6,413,094
7.50%, 2/15/05 5,255 5,632,677
7.875%, 4/15/98 10,750 11,240,415
Total U.S.Government Obligations
(cost $24,718,498) 25,030,381
COMMERCIAL PAPER-6.4%
Merrill Lynch & Co., Inc.
5.85%, 8/01/95
(amortized cost $9,079,000) 9,079 9,079,000
TOTALINVESTMENTS-98.9%
(cost $126,899,429) 140,696,201
Other assets less
liabilities-1.1% 1,523,772
NET ASSETS-100% $142,219,973
* Non-income producing security.
(a) Security exempt from Registration under Rule 144A of the Securities Act of
1933. This security may be resold in transactions exempt from registration,
normally to certain qualified buyers. At July 31, 1995, the aggregate market
value of this security amounted to $3,510,000 representing 2.5% of net assets.
See notes to financial statements.
9
STATEMENT OF ASSETS AND LIABILITIES
JULY 31, 1995 ALLIANCE BALANCED SHARES
- -------------------------------------------------------------------------------
ASSETS
Investments in securities, at value (cost $126,899,429) $140,696,201
Cash 546,955
Receivable for investment securities sold 4,945,182
Dividends and interest receivable 876,135
Receivable for capital stock sold 34,826
Total assets 147,099,299
LIABILITIES
Payable for investment securities purchased 4,322,587
Payable for capital stock redeemed 191,909
Advisory fee payable 75,176
Distribution fee payable 41,867
Accrued expenses 247,787
Total liabilities 4,879,326
NET ASSETS $142,219,973
COMPOSITION OF NET ASSETS
Capital stock, at par $94,502
Additional paid-in capital 117,830,925
Undistributed net investment income 1,022,661
Accumulated net realized gain 9,475,113
Net unrealized appreciation of investments 13,796,772
$142,219,973
CALCULATION OF MAXIMUM OFFERING PRICE
CLASS A SHARES
Net asset value and redemption price per share($122,032,621/8,093,872
shares of capital stock issued and outstanding) $15.08
Sales charge-4.25% of public offering price .67
Maximum offering price $15.75
CLASS B SHARES
Net asset value and offering price per share ($15,079,578/1,013,382
shares of capital stock issued and outstanding) $14.88
CLASS C SHARES
Net asset value, redemption and offering price per share ($5,107,774/
342,976 shares of capital stock issued and outstanding) $14.89
See notes to financial statements.
10
STATEMENT OF OPERATIONS
YEAR ENDED JULY 31, 1995 ALLIANCE BALANCED SHARES
- -------------------------------------------------------------------------------
INVESTMENT INCOME
Interest $5,392,426
Dividends (net of foreign taxes withheld of $2,260) 2,015,640
$ 7,408,066
EXPENSES
Advisory fee 1,044,023
Distribution fee - Class A 355,461
Distribution fee - Class B 138,872
Distribution fee - Class C 50,477
Transfer agency 274,247
Administrative 167,029
Registration 86,906
Audit and legal 84,292
Custodian 68,535
Printing 31,302
Directors' fees 24,000
Miscellaneous 32,954
Total expenses 2,358,098
Net investment income 5,049,968
REALIZED AND UNREALIZED GAIN ON INVESTMENTS & FOREIGN CURRENCY
Net realized gain on security transactions 9,860,942
Net realized gain on foreign currency transactions 76
Net realized gain on options transactions 113,966
Net change in unrealized appreciation on securities 9,246,257
Net gain on investments 19,221,241
NET INCREASE IN NET ASSETS FROM OPERATIONS $24,271,209
See notes to financial statements.
11
STATEMENT OF CHANGES IN NET ASSETS ALLIANCE BALANCED SHARES
- -------------------------------------------------------------------------------
YEAR ENDED OCT. 1, 1993
JULY 31, THROUGH
1995 JULY 31,1994*
------------- -------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income $ 5,049,968 $ 3,727,437
Net realized gain on investments 9,974,984 1,521,330
Net change in unrealized appreciation
of investments 9,246,257 (11,401,870)
Net increase (decrease) in net assets
from operations 24,271,209 (6,153,103)
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A (4,018,825) (3,328,864)
Class B (288,412) (209,253)
Class C (105,151) (94,432)
Net realized gain on investments
Class A (264,146) (3,450,935)
Class B (24,685) (236,079)
Class C (8,478) (106,940)
CAPITAL STOCK TRANSACTIONS
Net increase (decrease) (55,580,660) 5,057,935
Total decrease (36,019,148) (8,521,671)
NET ASSETS
Beginning of period 178,239,121 186,760,792
End of period (including undistributed net
investment income of $1,022,661 and $396,666,
respectively) $142,219,973 $178,239,121
* The Fund changed its fiscal year end from September 30 to July 31.
See notes to financial statements.
12
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1995 ALLIANCE BALANCED SHARES
- -------------------------------------------------------------------------------
NOTE A: SIGNIFICANT ACCOUNTING POLICIES
Alliance Balanced Shares, Inc. (the "Fund") is registered under the Investment
Company Act of 1940, as a diversified, open end management investment company.
The Fund offers Class A, Class B and Class C shares. Class A shares are sold
with a front end sales charge of up to 4.25%. Class B shares are sold with a
contingent deferred sales charge which declines from 4% to zero depending on
the period of time the shares are held. Class B shares will automatically
convert to Class A shares eight years after the end of the calendar month of
purchase. Class C shares are sold without an initial or contingent deferred
sales charge. All three classes of shares have identical voting, dividend,
liquidation and other rights, except that each class bears different
distribution expenses and has exclusive voting rights with respect to its
distribution plan. The following is a summary of significant accounting
policies followed by the Fund.
1. SECURITY VALUATION
Portfolio securities traded on national securities exchanges are valued at the
last sales price or, if no sale occurred, at the mean of the bid and asked
price at the regular close of the New York Stock Exchange. Securities traded
on the over the counter market are valued at the mean of the closing bid and
asked price. Securities for which current market quotations are not readily
available (including investments which are subject to limitations as to their
sale) are valued at their fair value as determined in good faith by the Board
of Directors. The Board of Directors has further determined that the value of
certain portfolio debt securities, other than temporary investments in short
term securities, be determined by reference to valuations obtained from a
pricing service. Securities which mature in 60 days or less are valued at
amortized cost, which approximates market value. The ability of issuers of debt
securities held by the Fund to meet their obligations may be affected by
economic developments in a specific industry or region.
2. CURRENCY TRANSLATION
Assets and liabilities denominated in foreign currencies are translated into
U.S. dollars at the mean of the quoted bid and asked price of the respective
currency against the U.S. dollar on the valuation date. Purchases and sales of
portfolio securities are translated at the rates of exchange prevailing when
such securities were acquired or sold. Income and expenses are translated at
rates of exchange prevailing when earned or accrued.
Net realized gain on foreign currency transactions of $76 for the Fund,
represents net foreign exchange gains and losses from holdings of foreign
currencies, currency gains or losses realized between the trade and settlement
dates on security transactions, and the difference between the amounts of
dividends and foreign taxes recorded on the Fund's books and the U.S. dollar
equivalent amounts actually received or paid. Net unrealized currency gains and
losses from valuing foreign currency denominated assets and liabilities at
fiscal year end exchange rates are reflected as a component of unrealized
appreciation on investments and foreign currency denominated assets and
liabilities.
3. OPTIONS TRANSACTIONS
For hedging purposes, the Fund purchases and writes (sells) put and call
options on U.S. securities that are traded on U.S. securities exchanges and
over-the-counter markets.
The risk associated with purchasing an option is that the Fund pays a premium
whether or not the option is exercised. Additionally, the Fund 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 Fund writes an option, the premium received by the Fund is recorded as
a liability and is subsequently adjusted to the current market value of the
option written. Premiums received from writing options which expire unexercised
are recorded by the Fund on the expiration date as realized gains from option
transactions. The difference between the premium and the amount paid on
effecting a closing purchase transaction, including brokerage commissions, is
also treated as a realized gain, or if the premium is less than the amount paid
for the closing purchase transaction, as a realized loss. If a call option is
exercised, the premium is added to the proceeds from the sale of the underlying
security or currency in
13
NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCE BALANCED SHARES
- -------------------------------------------------------------------------------
determining whether the Fund has realized a gain or loss. If a put option is
exercised, the premium reduces the cost basis of the security or currency
purchased by the Fund. In writing an option, the Fund bears the market risk of
an unfavorable change in the price of the security or currency underlying the
written option. Exercise of an option written by the Fund could result in the
Fund selling or buying a security or currency at a price different from the
current market value.
Transactions in options written for the year ended July 31, 1995 were as
follows:
NUMBER OF
CONTRACTS PREMIUMS
--------- --------
Options outstanding at beginning of period -0- $ -0-
Options written 870 179,209
Options terminated in closing purchase transactions (200) (64,398)
Options expired (550) (82,985)
Options exercised (120) (31,826)
Options outstanding at end of period -0- $ -0-
4. TAXES
It is the Fund'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.
5 INVESTMENT INCOME AND SECURITY TRANSACTIONS
Dividend income is recorded on the ex dividend date. Interest income is
accrued daily. Security transactions are accounted for on the date securities
are purchased or sold. Security gains and losses are determined on the
identified cost basis. The Fund accretes discounts as adjustments to interest
income.
6. DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions to shareholders are recorded on the ex dividend
date. Income dividends and capital gain distributions are determined in
accordance with income tax regulations, which may differ from generally
accepted accounting principles.
NOTE B: ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of an investment advisory agreement, the Fund pays its Adviser,
Alliance Capital Management L.P., an advisory fee at an annual rate of .625% of
the first $200 million, .50% of the next $200 million and .45% of the excess
over $400 million of the average daily net assets of the Fund. Such fee is
accrued daily and paid monthly. The Adviser has agreed, under the terms of the
investment advisory agreement, to reimburse the Fund to the extent that its
aggregate expenses (exclusive of interest, taxes, brokerage, distribution fees
and extraordinary expenses) exceed the limits prescribed by any state in which
the Fund's shares are qualified for sale. The Adviser believes that the most
restrictive expense ratio limitation imposed by any state is 2.5% of the first
$30 million of its average daily net assets, 2% of the next $70 million of its
average daily net assets and 1.5% of its average daily net assets in excess of
$100 million. No reimbursement was required for the year ended July 31, 1995.
Pursuant to the Advisory Agreement, the Fund reimburses the Adviser for the
cost of certain legal and accounting services provided to the Fund by the
Adviser. For the year ended July 31, 1995, such reimbursement amounted to
$167,029.
The Fund compensates Alliance Fund Services, Inc. (a wholly-owned subsidiary of
the Adviser) in accordance with a Services Agreement for providing personnel
and facilities to perform transfer agency services for the Fund. Such
compensation amounted to $198,299 for the year ended July 31, 1995.
Alliance Fund Distributors, Inc. (a wholly owned subsidiary of the Adviser)
serves as the Distributor of the
14
ALLIANCE BALANCED SHARES
- -------------------------------------------------------------------------------
Fund's shares. The Distributor received front end sales charges of $4,819 from
the sale of Class A shares and $71,604 in contingent deferred sales charges
imposed upon redemptions by shareholders of Class B shares for the year ended
July 31, 1995.
Brokerage commissions paid on securities transactions for the year ended July
31, 1995 amounted to $308,733, none of which was paid to brokers utilizing the
services of the Pershing Division of Donaldson, Lufkin & Jenrette Securities
Corp. ("DLJ"), an affiliate of the Adviser, nor to DLJ directly.
NOTE C: DISTRIBUTION SERVICES AGREEMENT
The Fund has adopted a Distribution Services Agreement (the "Agreement")
pursuant to Rule 12b 1 under the Investment Company Act of 1940. Under the
Agreement, the Fund pays a distribution fee to the Distributor at an annual
rate of up to .30% of the Fund's average daily net assets attributable to the
Class A shares and 1% of the average daily net assets attributable to both
Class B shares and Class C shares. 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 Fund in the amount of $965,505 and
$262,338, for Class B and C shares, respectively; such costs may be recovered
from the Fund in future periods. 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 Fund's shares.
NOTE D: INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short term investments)
aggregated $276,640,775 and $320,359,124, respectively, for the year ended July
31, 1995. There were purchases of $130,654,963 and sales of $128,406,105 of
U.S. Government and government agency obligations for the year ended July 31,
1995. At July 31, 1995, the cost of securities for federal income tax purposes
was $126,969,994. Accordingly gross unrealized appreciation of investments was
$15,252,805 and gross unrealized depreciation of investments was $1,526,598
resulting in net unrealized appreciation of $13,726,207.
15
NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCE BALANCED SHARES
- -------------------------------------------------------------------------------
NOTE E: CAPITAL STOCK
There are 180,000,000 shares of $.01 par value capital stock authorized,
divided into three classes, designated Class A, Class B and Class C shares.
Each class consists of 60,000,000 authorized shares. Prior to February 23, 1993
there were 60,000,000 shares of $1.00 par value capital stock authorized,
divided into two classes designated Class A and Class B shares. Transactions in
capital stock were as follows:
SHARES AMOUNT
------------------------ ----------------------------
YEAR ENDED OCT. 1,1993 YEAR ENDED OCT. 1,1993
JULY 31, THROUGH JULY 31, THROUGH
1995 JULY 31,1994* 1995 JULY 31,1994*
----------- ----------- ------------- -------------
CLASS A
Shares sold 833,994 876,506 $ 11,355,969 $ 12,195,964
Shares issued in
reinvestment of
dividends and
distributions 258,708 407,717 3,476,710 5,628,682
Shares redeemed (4,776,892) (1,481,275) (67,754,957) (20,511,243)
Net decrease (3,684,190) (197,052) $(52,922,278) $(2,686,597)
CLASS B
Shares sold 253,480 564,263 $ 3,417,128 $ 7,799,514
Shares issued in
reinvestment of
dividends and
distributions 19,426 27,387 257,488 374,239
Shares redeemed (343,847) (403,295) (4,616,970) (5,657,858)
Net increase (decrease) (70,941) 188,355 $ (942,354) $ 2,515,895
CLASS C
Shares sold 100,113 481,248 $ 1,340,570 $ 6,765,099
Shares issued in
reinvestment of
dividends and
distributions 5,947 11,554 78,834 157,982
Shares redeemed (235,619) (124,424) (3,135,432) (1,694,444)
Net increase (decrease) (129,559) 368,378 $(1,716,028) $ 5,228,637
NOTE F: RECLASSIFICATION OF COMPONENTS OF NET ASSETS
In accordance with Statement of Position 93-2 Determination, Disclosure, and
Financial Statement Presentation of Income, Capital Gain, and Return of Capital
Distributions by Investment Companies, permanent book and tax differences
relating to shareholder distributions have been reclassified to additional
paid-in capital. As of July 31, 1995, the cumulative effect of such differences
totaling $11,585 and ($69,033) were reclassified from undistributed net
investment income and undistributed net realized gains, respectively, to
additional paid in capital. Net investment income, net realized gains and net
assets were not affected by this change.
* The Fund changed its fiscal year end from September 30 to July 31.
16
FINANCIAL HIGHLIGHTS ALLIANCE BALANCED SHARES
- -------------------------------------------------------------------------------
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
CLASS A
-------------------------------------------------------------
OCT. 1,1993
YEAR ENDED THROUGH YEAR ENDED SEPTEMBER 30,
JULY 31, JULY 31, -----------------------------------
1995 1994* 1993 1992 1991
---------- -------------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $13.38 $14.40 $13.20 $12.64 $10.41
INCOME FROM INVESTMENT OPERATIONS
Net investment income .46 .29 .34 .44 .46
Net realized and unrealized gain (loss) on investments 1.62 (.74) 1.29 .57 2.17
Net increase (decrease) in net asset value from operations 2.08 (.45) 1.63 1.01 2.63
LESS: DISTRIBUTIONS
Dividends from net investment income (.36) (.28) (.43) (.45) (.40)
Distributions from net realized gains (.02) (.29) -0- -0- -0-
Total dividends and distributions (.38) (.57) (.43) (.45) (.40)
Net asset value, end of period $15.08 $13.38 $14.40 $13.20 $12.64
TOTAL RETURN
Total investment return based on net asset value (b) 15.99% (3.21)% 12.52% 8.14% 25.52%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $122,033 $157,637 $172,484 $143,883 $154,230
Ratio of expenses to average net assets 1.32% 1.27%(c) 1.35% 1.40% 1.44%
Ratio of net investment income to average net assets 3.12% 2.50%(c) 2.50% 3.26% 3.75%
Portfolio turnover rate 179% 116% 188% 204% 70%
</TABLE>
See footnote summary on page 19.
17
FINANCIAL HIGHLIGHTS (CONTINUED) ALLIANCE BALANCED SHARES
- -------------------------------------------------------------------------------
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
CLASS B
----------------------------------------------------------------
OCT. 1,1993
YEAR ENDED THROUGH YEAR ENDED SEPTEMBER 30,
JULY 31, JULY 31, -------------------------------------
1995 1994* 1993 1992 1991(A)
---------- -------------- --------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $13.23 $14.27 $13.13 $12.61 $11.84
INCOME FROM INVESTMENT OPERATIONS
Net investment income .30 .22 .29 .37 .25
Net realized and unrealized gain (loss) on investments 1.65 (.75) 1.22 .54 .80
Net increase (decrease) in net asset value from operations 1.95 (.53) 1.51 .91 1.05
LESS: DISTRIBUTIONS
Dividends from net investment income (.28) (.22) (.37) (.39) (.28)
Distribution from net realized gains (.02) (.29) -0- -0- -0-
Total dividends and distributions (.30) (.51) (.37) (.39) (.28)
Net asset value, end of period $14.88 $13.23 $14.27 $13.13 $12.61
TOTAL RETURN
Total investment return based on net asset value (b) 15.07% (3.80)% 11.65% 7.32% 8.96%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $15,080 $14,347 $12,789 $6,499 $1,830
Ratio of expenses to average net assets 2.11% 2.05%(c) 2.13% 2.16% 2.13% (c)
Ratio of net investment income to average net assets 2.30% 1.73%(c) 1.72% 2.46% 3.19% (c)
Portfolio turnover rate 179% 116% 188% 204% 70%
</TABLE>
See footnote summary on page 19.
18
ALLIANCE BALANCED SHARES
- -------------------------------------------------------------------------------
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
CLASS C
-----------------------------------
AUGUST 2,
YEAR ENDED OCT. 1,1993 1993(D)
JULY 31, THROUGH TO APR. 30,
1995 JULY 31,1994* 1994
---------- ------------ -----------
Net asset value, beginning of period $13.24 $14.28 $13.63
INCOME FROM INVESTMENT OPERATIONS
Net investment income .30 .24 .11
Net realized and unrealized gain (loss)
on investments 1.65 (.77) .71
Net increase (decrease) in net asset value
from operations 1.95 (.53) .82
LESS: DISTRIBUTIONS
Dividends from net investment income (.28) (.22) (.17)
Distributions from net realized gains (.02) (.29) -0-
Total dividends and distributions (.30) (.51) (.17)
Net asset value, end of period $14.89 $13.24 $14.28
TOTAL RETURN
Total investment return based on
net asset value (b) 15.06% (3.80)% 6.01%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $5,108 $6,254 $1,487
Ratios of expenses to average net assets 2.09% 2.03%(c) 2.29%(c)
Ratios of net investment income to average
net assets 2.32% 1.81%(c) 1.47%(c)
Portfolio turnover rate 179% 116% .188%
* The Fund changed its fiscal year end from September 30 to July 31.
(a) For the period February 4, 1991 (commencement of distribution) to
September 30, 1991.
(b) Total investment return is calculated assuming an initial investment made
at the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period, and
redemption on the last day of the period. Initial sales charges or contingent
deferred sales charges are not reflected in the calculation of total investment
return. Total investment return calculated for a period of less than one year
is not annualized.
(c) Annualized.
(d) Commencement of distribution.
19
REPORT OF INDEPENDENT ACCOUNTANTS ALLIANCE BALANCED SHARES
- -------------------------------------------------------------------------------
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF ALLIANCE BALANCED SHARES, INC.
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, the related statement of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Alliance Balanced Shares, Inc. at
July 31, 1995, the results of its operations for the year then ended, the
changes in its net assets for the year then ended and for the period October 1,
1993 through July 31, 1994 and the financial highlights for each of the periods
presented, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits, which included confirmation of
securities at July 31, 1995 by correspondence with the custodian and brokers
and the application of alternative auditing procedures where confirmations from
brokers were not received, provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
New York, New York
September 27, 1995
20
ALLIANCE BALANCED SHARES
- -------------------------------------------------------------------------------
BOARD OF DIRECTORS
JOHN D. CARIFA, CHAIRMAN AND PRESIDENT
RUTH BLOCK (1)
DAVID H. DIEVLER (1)
JOHN H. DOBKIN (1)
WILLIAM H. FOULK, JR. (1)
DR. JAMES M. HESTER (1)
CLIFFORD L. MICHEL (1)
ROBERT C. WHITE (1)
OFFICERS
BRUCE W. CALVERT, EXECUTIVE VICE PRESIDENT
THOMAS J. BARDONG, VICE PRESIDENT
MATTHEW D. BLOOM, VICE PRESIDENT
EDMUND P. BERGAN, JR., SECRETARY
MARK D. GERSTEN, TREASURER & CHIEF FINANCIAL OFFICER
PATRICK J. FARRELL, CONTROLLER
CUSTODIAN
STATE STREET BANK & TRUST COMPANY
225 Franklin Street
Boston, MA 02110
DISTRIBUTOR
ALLIANCE FUND DISTRIBUTORS, INC.
1345 Avenue of the Americas
New York, NY 10105
LEGAL COUNSEL
SEWARD & KISSEL
One Battery Park Plaza
New York, NY 10004
TRANSFER AGENT
ALLIANCE FUND SERVICES, INC.
P.O. Box 1520
Secaucus, NJ 07096-1520
Toll-Free 1-(800) 221-5672
INDEPENDENT ACCOUNTANTS
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, NY 10036-2798
(1) Member of the Audit Committee.
21
(This page left intentionally blank.)
22
(This page left intentionally blank.)
ALLIANCE BALANCED SHARES
1345 Avenue of the Americas
New York, NY 10105
(800) 221-5672
ALLIANCECAPITAL
MUTUAL FUNDS WITHOUT THE MYSTERY.SM
THIS REPORT IS INTENDED SOLELY FOR DISTRIBUTION TO CURRENT SHAREHOLDERS
OF THE FUND.
R THESE REGISTERED SERVICE MARKS USED UNDER LICENSE FROM THE OWNER,
ALLIANCE CAPITAL MANAGEMENT L.P.
BALAR
