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This is filed pursuant to Rule 497(c).
File Nos. 2-10988 and 811-00134.
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(LOGO) ALLIANCE BALANCED SHARES, INC.
_________________________________________________________________
c/o Alliance Fund Services, Inc.
P.O. Box 1520, Secaucus, New Jersey 07096-1520
Toll Free (800) 221-5672
For Literature: Toll Free (800) 221-5672
_________________________________________________________________
STATEMENT OF ADDITIONAL INFORMATION
November 1, 1999
_________________________________________________________________
This Statement of Additional Information is not a
prospectus but supplements and should be read in conjunction with
the current Prospectus for Alliance Balanced Shares, Inc. (the
"Fund") that offers the Class A, Class B and Class C shares of
the Fund and the current Prospectus for the Fund that offers the
Advisor Class shares of the Fund (the "Advisor Class Prospectus")
and, together with the Prospectus for the Fund that offers the
Class A, Class B and Class C shares of the Fund, (the
"Prospectus"). Copies of such Prospectuses may be obtained by
contacting Alliance Fund Services, Inc. at the address or the
"For Literature" telephone number shown above.
TABLE OF CONTENTS
PAGE
DESCRIPTION OF THE FUND ..............................
MANAGEMENT OF THE FUND ...............................
EXPENSES OF THE FUND .................................
PURCHASE OF SHARES ...................................
REDEMPTION AND REPURCHASE OF SHARES ..................
SHAREHOLDER SERVICES .................................
NET ASSET VALUE ......................................
DIVIDENDS, DISTRIBUTIONS AND TAXES ...................
PORTFOLIO TRANSACTIONS ...............................
GENERAL INFORMATION ..................................
REPORT OF INDEPENDENT ACCOUNTANTS AND FINANCIAL
STATEMENTS ............................................
APPENDIX A: FUTURES CONTRACTS, OPTIONS ON FUTURES
CONTRACTS AND OPTIONS ON FOREIGN CURRENCIES ........ A-1
APPENDIX B: CERTAIN EMPLOYEE BENEFIT PLANS .......... B-1
________________________
(R) This registered service mark used under license from owner,
Alliance Capital Management L.P.
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____________________________________________________________
DESCRIPTION OF THE FUND
____________________________________________________________
Alliance Balanced Shares, Inc. (the "Fund") is a
diversified, open-end investment company. Except as otherwise
indicated, the investment policies of the Fund are not
"fundamental policies" within the meaning of the Investment
Company Act of 1940, as amended (the "1940 Act"), and may,
therefore, be changed by the Board of Directors without a
shareholder vote. However, the Fund will not change its
investment policies without contemporaneous written notice to its
shareholders. There can be, of course, no assurance that the
Fund will achieve its investment objective.
Investment Objective
The investment objective of the Fund is to achieve a
high return through a combination of current income and capital
appreciation.
How the Fund Pursues its Objective
The Fund has adopted as a fundamental policy that it be
a "balanced fund;" this fundamental policy cannot be changed
without the approval of shareholders. As an investment policy,
the Fund will not purchase a security if as a result of such
purchase less than 25% of its total assets will be in
fixed-income senior securities (including short- and long-term
debt securities, preferred stocks, and convertible debt
securities and preferred stocks to the extent their values are
attributable to their fixed-income characteristics); this
investment policy may be changed by the Fund's Board of Directors
but only with 60 days' prior shareholder notice and in accordance
with the 1940 Act and the Securities and Exchange Commission (the
"Commission"). Subject to such restrictions, the percentage of
the Fund's assets invested in each type of security at any time
shall be in accordance with the judgment of the management.
Additional Investment Policies and Practices
The following additional investment policies supplement
those set forth in the Prospectus.
The Fund's assets are invested in U.S. Government and
agency obligations, bonds whether convertible or nonconvertible
(except that only that portion of the value of the convertible
bonds attributable to their fixed-income characteristics shall be
used for purposes of meeting the 25% fixed-income securities
requirement), senior debt securities (as listed above), and
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preferred and common stocks in such proportions and of such type
as are deemed best adapted to the current economic and market
outlooks. At July 31, 1999, the amount invested in common stocks
was approximately 52.9% of the total assets. The Fund engages
primarily in holding securities for investment and not for
trading purposes. Purchases and sales of portfolio securities
are made at such times and in such amounts as are deemed
advisable in the light of market, economic and other conditions,
irrespective of the volume of portfolio turnover.
Investment in Covered Call Options. Subject to market
conditions, the Fund may try to realize income by writing covered
call option contracts provided that the option is listed on a
domestic securities exchange and that no option will be written
if, as a result, more than 25% of the Fund's assets are subject
to call options. A covered call option is an option on a
security which the Fund owns or can acquire by converting a
convertible security it owns. The purchaser of the option
acquires the right to buy the security from the Fund at a fixed
exercise price at any time prior to the expiration of the option,
regardless of the market price of the security at that time. A
security on which an option has been written will be held in
escrow by the Fund's custodian until the option expires, is
exercised, or a closing purchase transaction is made.
The Fund thus forgoes the opportunity to profit from an
increase in the market price in the underlying security above the
exercise price, in return for the premium it receives from the
purchaser of the option. The Fund's management believes that
such premiums will increase the Fund's income without subjecting
it to substantial risks.
When a security is sold from the Fund's portfolio
against which a call option has been written, the Fund will
effect a closing purchase transaction so as to close out any
existing call option on that security. The Fund will realize a
profit or loss from a closing purchase transaction if the amount
paid to purchase a call option is less or more than the amount
received as a premium from the writing thereof. A closing
purchase transaction cannot be made if trading in the option has
been suspended.
The premium received by the Fund upon writing a call
option will increase the Fund's assets, and a corresponding
liability will be recorded and subsequently adjusted from day to
day to the current value of the option written. For example, if
the current value of the option exceeds the premium received, the
excess would be an unrealized loss and, conversely, if the
premium exceeds the current value, such excess would be an
unrealized gain. The current value of the option will be the
last sales price on the principal exchange on which the option is
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traded or, in the absence of any transactions, the mean between
the closing bid and asked price.
Except as stated above, the Fund may not purchase or
sell put or call options on securities or combinations of put and
call options on securities.
Foreign Securities. The Fund may invest up to 15% of
the value of its total assets in foreign equity and fixed income
securities eligible for purchase by the Fund under the investment
policies described above. Foreign securities investments are
affected by exchange control regulations as well as by changes in
governmental administration, economic or monetary policy (in the
United States and abroad) and changed circumstances in dealings
between nations. Currency exchange rate movements will increase
or reduce the U.S. Dollar value of the Fund's net assets and
income attributable to foreign securities. Costs will be
incurred in connection with the conversion of currencies held by
the Fund. There may be less publicly available information about
foreign issuers than about domestic issuers, and foreign issuers
may not be subject to accounting, auditing and financial
reporting standards and requirements comparable to those of
domestic issuers. Securities of some foreign issuers are less
liquid and more volatile than securities of comparable domestic
issuers, and foreign brokerage commissions are generally higher
than in the United States. Foreign securities markets may also
be less liquid, more volatile and less subject to governmental
supervision than in the United States. Investments in foreign
countries could be affected by other factors not present in the
United States, including expropriation, confiscatory taxation and
potential difficulties in enforcing contractual obligations.
Options on Foreign Currencies. For additional
information on the use, risks and costs of options on foreign
currencies, see Appendix A.
Forward Foreign Currency Exchange Contracts. The Fund
may purchase or sell forward foreign currency exchange contracts
("forward contracts"). While these contracts are not currently
regulated by the Commodity Futures Trading Commission ("CFTC"),
the CFTC may in the future assert authority to regulate forward
contracts. In such event the Fund's ability to utilize forward
contracts in the manner set forth in the Prospectus may be
restricted. Forward contracts will reduce the potential gain
from a positive change in the relationship between the U.S.
Dollar and the foreign currencies that are the subject of the
forward contracts. Unanticipated changes in currency prices may
result in poorer overall performance for the Fund than if it had
not entered into such contracts. The use of foreign currency
forward contracts will not eliminate fluctuations in the
underlying U.S. Dollar equivalent value of the proceeds of or
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rates of return on the Fund's foreign currency-denominated
portfolio securities and the use of such techniques will subject
the Fund to certain risks, as discussed below.
The matching of the increase in value of a forward
contract and the decline in the U.S. Dollar equivalent value of
the foreign-currency denominated asset that is the subject of the
hedge generally will not be precise. In addition, the Fund may
not always be able to enter into foreign currency forward
contracts at attractive prices and this will limit the Fund's
ability to use such contracts to hedge or cross-hedge its assets.
In addition, with regard to the Fund's use of cross-hedges, there
can be no assurance that historical correlations between the
movement of certain foreign currencies relative to the U.S.
Dollar will continue. Thus, at any time poor correlation may
exist between movements in the exchange rates of the foreign
currencies underlying the Fund's cross-hedges and the movements
in the exchange rates of the foreign currencies in which the
Fund's assets that are the subject of such cross-hedges are
denominated. To the extent required by applicable law, the
Fund's Custodian will place liquid assets in a separate account
of the Fund having a value equal to the aggregate amount of the
Fund's commitments under forward contracts entered into with
respect to position hedges and cross-hedges. If the value of the
assets placed in a separate account declines, additional liquid
assets will be placed in the account on a daily basis so that the
value of the account will equal the amount of the Fund's
commitments with respect to such contracts. As an alternative to
maintaining all or part of the separate account, the Fund may
purchase a call option permitting the Fund to purchase the amount
of foreign currency being hedged by a forward sale contract at a
price no higher than the forward contract price or the Fund may
purchase a put option permitting the Fund to sell the amount of
foreign currency subject to a forward purchase contract at a
price as high or higher than the forward contract price. In
addition, the Fund may use such other methods of "cover" as are
permitted by applicable law.
General. There can be no assurance that the Fund will
achieve its investment objective since market risks are inherent
in all securities to varying degrees, although Alliance Capital
Management L.P., the Fund's Investment adviser (the "Adviser")
will try to limit these risks.
Portfolio Turnover. Ordinarily, the annual portfolio
turnover rate will not exceed 200%. A portfolio turnover rate
approximating 200% involves correspondingly greater brokerage
commission expenses than would a lower rate, which must be borne
directly by the Fund and its shareholders.
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Fundamental Investment Policies
The Fund is also subject to the following restrictions
in implementing its investment policies which cannot be changed
without the approval of the holders of a majority of the Fund's
outstanding voting securities.
The Fund may not:
(i) invest more than 5% of its total assets in the
securities of any one issuer, except U.S.
Government securities;
(ii) own more than 10% of the outstanding voting
securities of any one issuer;
(iii) purchase the securities of any other investment
company except in a regular transaction in the
open market;
(iv) purchase the securities of any issuer the business
of which has been in continuous operation for less
than three years;
(v) retain investments in the securities of any issuer
if directors or officers of the Fund or certain
other interested persons own more than 5% of such
securities;
(vi) invest in other companies for the purpose of
exercising control of management;
(vii) purchase securities on margin, borrow money or
sell securities short, except that the Fund may
borrow in an amount up to 10% of its total assets
to meet redemption requests and for the clearance
of purchases and sales of portfolio securities
(the borrowing provision is not for investment
leverage but solely to facilitate management of
the portfolio to enable the Fund to meet
redemption requests where the liquidation of
portfolio securities is deemed to be
disadvantageous or inconvenient and to obtain such
short-term credits as may be necessary for the
clearance of purchases and sales of portfolio
securities; all borrowings at any time outstanding
will be repaid before any additional investments
are made; the Fund will not mortgage, pledge or
hypothecate any assets in connection with any such
borrowing in excess of 15% of the Fund's total
assets);
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(viii) make loans to other persons except certain call
loans upon collateral security (the Fund does not
intend to make such loans; the acquisition of
publicly distributed bonds, debentures and other
debt securities is not considered a loan); (ix)
concentrate its investments in any one industry by
investment of more than 25% of the value of its
total assets in such industry;
(x) underwrite securities issued by other persons;
(xi) purchase any securities as to which it would be
deemed a statutory underwriter under the
Securities Act of 1933, as amended;
(xii) purchase or sell commodities or commodity
contracts; or
(xiii) issue any securities senior to the capital stock
offered hereby.
In addition, the Fund has undertaken with the securities
administrators of certain states where the Fund's shares are sold
not to invest any part of its total assets in interests in oil,
gas, or other mineral exploration or development programs; make
loans to any person or individual; purchase a security, if as a
result (unless the security is acquired pursuant to a plan of
reorganization or an offer of exchange) the Fund would own any
securities of an open-end investment company, or more than 3% of
the total outstanding voting stock of any closed-end investment
company or more than 5% of the value of the Fund's assets would
be invested in securities of any one or more closed-end
investment companies, or more than 10% of the value of the Fund's
total assets would be invested in securities of closed-end
investment companies in the aggregate; invest only in investment
grade fixed income securities; invest in warrants (other than
warrants acquired by the Fund as a part of a unit or attached to
securities at the time of purchase), if as a result such warrants
valued at the lower of cost or market, would exceed 5% of the
value of the Fund's assets at the time of purchase provided that
not more than 2% of the Fund's net assets at the time of purchase
may be invested in warrants not listed on the New York Stock
Exchange (the "Exchange") or the American Stock Exchange;
purchase or sell real property (including limited partnership
interests, but excluding readily marketable interests in real
estate investment trusts or readily marketable securities of
companies which invest in real estate; limit its investments in
illiquid securities together with restricted securities
(excluding 144A securities) to no more than 15% of the Fund's
average net assets.
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____________________________________________________________
MANAGEMENT OF THE FUND
____________________________________________________________
Adviser
Alliance Capital Management L.P., a Delaware limited
partnership with principal offices at 1345 Avenue of the
Americas, New York, New York 10105, has been retained under an
investment advisory agreement (the "Advisory Agreement") to
provide investment advice and, in general, to conduct the
management and investment program of the Fund under the
supervision of the Fund's Board of Directors (see "Management of
the Fund" in the Prospectus).
The Adviser is a leading international adviser managing
client accounts with assets as of September 30, 1999 totaling
more than $317 billion (of which more than $143 billion
represented assets of investment companies). As of September 30,
1999, the Adviser managed retirement assets for many of the
largest public and private employee benefit plans (including 28
of the nation's FORTUNE 100 companies), for public employee
retirement funds in 31 states, for investment companies, and for
foundations, endowments, banks and insurance companies worldwide.
The 52 registered investment companies managed by the Adviser,
comprising 118 separate investment portfolios, currently have
approximately 4.8 million shareholder accounts.
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Alliance Capital Management Corporation ("ACMC")
is the general partner of the Adviser and a wholly owned
subsidiary of The Equitable Life Assurance Society of
the United States ("Equitable"). Equitable, one of the
largest life insurance companies in the United States,
is the beneficial owner of an approximately 55.4%
partnership interest in the Adviser. Alliance Capital
Management Holding L.P. ("Alliance Holding") owns an
approximately 41.9% partnership interest in the Adviser.*
Equity interests in Alliance Holding are traded on the
New York Stock Exchange in the form of units.
Approximately 98% of such interests are owned by the
public and management or employees of the Adviser and
approximately 2% are owned by Equitable. Equitable is a
wholly owned subsidiary of AXA Financial, Inc.
("AXA Financial"), a Delaware corporation whose shares
are traded on the New York Stock Exchange. AXA Financial
serves as the holding company for the Adviser, Equitable
and Donaldson, Lufkin & Jenrette, Inc., an integrated
investment and merchant bank. As of June 30, 1999, AXA,
a French insurance holding company, owned approximately
58.2% of the issued and outstanding shares of common
stock of AXA Financial.
________________________
* Until October 29, 1999, Alliance Holding served as
the investment adviser to the Fund. On that date,
Alliance Holding reorganized by transferring its business
to the Adviser. Prior thereto, the Adviser had no
material business operations. One result of the
reorganization was that the Advisory Agreement, then
between the Fund and Alliance Holding, was transferred
to the Adviser by means of a technical assignment, and
ownership of Alliance Fund Distributors, Inc. and Alliance
Fund Services, Inc., the Fund's principal underwriter and
transfer agent, respectively, also was transferred to
the Adviser.
Under the Advisory Agreement, the Adviser furnishes
advice and recommendations with respect to the Fund's portfolio
of securities and investments and provides persons satisfactory
to the Board of Directors to act as officers and employees of the
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Fund. Such officers and employees, as well as certain Directors
of the Fund may be employees of the Adviser or its affiliates.
The Adviser is, under the Advisory Agreement,
responsible for certain expenses incurred by the Fund, including,
for example, office space and certain other equipment, investment
advisory and administrative services, and any expenses incurred
in promoting the sale of Fund shares (other than the portion of
the promotional expenses borne by the Fund in accordance with an
effective plan pursuant to Rule 12b-1 under the 1940 Act, and the
costs of printing Fund prospectuses and other reports to
shareholders and fees related to registration with the Securities
and Exchange Commission and with state regulatory authorities).
The Fund has, under the Advisory Agreement, assumed the
obligation for payment of all of its other expenses. As to the
obtaining of services other than those specifically provided to
the Fund by the Adviser, the Fund may utilize personnel employed
by the Adviser or by other subsidiaries of Equitable. The Fund
may employ its own personnel or contract for services to be
performed by third parties. In such event, the services will be
provided to the Fund at cost and the payments specifically
approved by the Fund's Board of Directors. The Fund paid to the
Adviser a total of $163,500 in respect of such services during
the fiscal year of the Fund ended in 1999.
For the services rendered by the Adviser under the
Advisory Agreement, the Fund pays the Adviser at the annual rate
of .625 of 1% of the first $200 million, .50% of the excess over
$200 million up to $400 million and .45 of 1% of the excess over
$400 million of the average daily value of the Fund's net assets.
The fee is accrued daily and paid monthly. In this regard, for
the fiscal years ended July 31, 1997, July 31, 1998 and July 31,
1999, the Adviser received from the Fund advisory fees of
$828,903, $1,005,730 and $1,699,074, respectively.
At their Regular Meeting held on July 19, 1994, the
Board of Directors, including a majority of the Directors who are
not "interested persons" as defined in the 1940 Act, voted
unanimously to a change in the fiscal year end from September 30
to July 31.
The Advisory Agreement became effective on July 22,
1992. The Advisory Agreement was approved by the unanimous vote,
cast in person, of the Fund's Directors including the Directors
who are not parties to the Advisory Agreement or interested
persons, as defined in the 1940 Act, of any such party at a
meeting called for the purpose and held on October 14, 1991. At
a meeting held on June 11, 1992, a majority of the outstanding
voting securities of the Fund approved the Advisory Agreement.
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The Advisory Agreement continues in effect for
successive twelve-month periods (computed from each October 1)
provided that such continuance is specifically approved at least
annually by the Fund's Directors or by a majority vote of the
holders of the outstanding voting securities of the Fund and, in
either case, by a majority of the Directors who are not parties
to the Advisory Agreement, or interested persons, as defined in
the 1940 Act, of any such party, at a meeting in person called
for the purpose of voting on such matter. Most recently,
continuance of the Agreement was approved for the period ending
September 30, 2000 by the Board of Directors, including a
majority of the Directors who are not "interested persons" as
defined in the 1940 Act, at their Regular Meeting held on
July 14, 1999.
The Advisory Agreement may be terminated without penalty
on 60 days' written notice by a vote of a majority of the
outstanding voting securities, by a vote of the majority of the
Directors or by the Adviser on 60 days' written notice, and will
automatically terminate in the event of assignment. The Advisory
Agreement provides that the Adviser shall not be liable under the
Advisory Agreement for any mistake of judgment, or in any event
whatsoever, except for lack of good faith, provided that the
Adviser shall be liable to the Fund and security holders by
reason of willful misfeasance, bad faith or gross negligence or
of reckless disregard of its obligations and duties under the
Advisory Agreement.
Certain other clients of the Adviser may have investment
objectives and policies similar to those of the Fund. The
Adviser may, from time to time, make recommendations which result
in the purchase or sale of a particular security by its other
clients simultaneously with the Fund. If transactions on behalf
of more than one client during the same period increase the
demand for securities being purchased or the supply of securities
being sold, there may be an adverse effect on price or quantity.
It is the policy of the Adviser to allocate advisory
recommendations and the placing of orders in a manner which is
deemed equitable by the Adviser to the accounts involved,
including the Fund. When two or more of the clients of the
Adviser (including the Fund) are purchasing or selling the same
security on a given day from the same broker-dealer, such
transactions may be averaged as to price.
The Adviser may act as an investment adviser to other
persons, firms or corporations, including investment companies,
and is investment adviser to the following registered investment
companies: AFD Exchange Reserves, Alliance All-Asia Investment
Fund, Inc., Alliance Balanced Shares, Inc., Alliance Bond Fund,
Inc., Alliance Capital Reserves, Alliance Global Dollar
Government Fund, Inc., Alliance Global Environment Fund, Inc.,
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Alliance Global Small Cap Fund, Inc., Alliance Global Strategic
Income Trust, Inc., Alliance Government Reserves, Alliance
Greater China '97 Fund, Inc., Alliance Growth and Income Fund,
Inc., Alliance Health Care Fund, Inc., Alliance High Yield Fund,
Inc., Alliance Institutional Funds, Inc., Alliance Institutional
Reserves, Inc., Alliance International Fund, Alliance
International Premier Growth Fund, Inc., Alliance Limited
Maturity Government Fund, Inc., Alliance Money Market Fund,
Alliance Mortgage Securities Income Fund, Inc., Alliance Multi-
Market Strategy Trust, Inc., Alliance Municipal Income Fund,
Inc., Alliance Municipal Income Fund II, Alliance Municipal
Trust, Alliance New Europe Fund, Inc., Alliance North American
Government Income Trust, Inc., Alliance Premier Growth Fund,
Inc., Alliance Quasar Fund, Inc., Alliance Real Estate Investment
Fund, Inc., Alliance Select Investor Series, Inc., Alliance
Technology Fund, Inc., Alliance Utility Income Fund, Inc.,
Alliance Variable Products Series Fund, Inc., Alliance Worldwide
Privatization Fund, Inc., The Alliance Fund, Inc., The Alliance
Portfolios and The Hudson River Trust, all registered open-end
investment companies; and to ACM Government Income Fund, Inc.,
ACM Government Securities Fund, Inc., ACM Government Spectrum
Fund, Inc., ACM Government Opportunity Fund, Inc., ACM Managed
Income Fund, Inc., ACM Managed Dollar Income Fund, Inc., ACM
Municipal Securities Income Fund, Inc., Alliance All-Market
Advantage Fund, Inc., Alliance World Dollar Government Fund,
Inc., Alliance World Dollar Government Fund II, Inc., The Austria
Fund, Inc., The Korean Investment Fund, Inc., The Southern Africa
Fund, Inc. and The Spain Fund, Inc., all registered closed-end
investment companies.
Directors and Officers
The business and affairs of the Fund are managed under
the direction of the Board of Directors. The Directors and officers
of the Fund, their ages and their primary occupations during the past
five years are set forth below. Each such Director and officer is also
a director, trustee or officer of other registered investment companies
sponsored by the Adviser. Unless otherwise specified, the address of
each such person is 1345 Avenue of the Americas, New York, New York 10105.
Directors
JOHN D. CARIFA,* 54, Chairman of the Board, is the
President, Chief Operating Officer and a Director of ACMC, with
which he has been associated since prior to 1994.
____________________
* An "interested person" of the Fund as defined in the 1940
Act.
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RUTH BLOCK, 68, was formerly an Executive Vice President
and the Chief Insurance Officer of Equitable. She is a Director
of Ecolab Incorporated (specialty chemicals) and BP Amoco
Corporation (oil and gas). Her address is P.O. Box 4623,
Stamford, Connecticut 06903.
DAVID H. DIEVLER, 70, is an independent consultant. He
was formerly a Senior Vice President of ACMC until December 1994.
His address is P.O. Box 167, Spring Lake, New Jersey 07762.
JOHN H. DOBKIN, 57, has been the President of Historic
Hudson Valley (historic preservation) since prior to 1994.
Previously, he was Director of the National Academy of Design.
His address is 150 White Plains Road, Tarrytown, New York 10591.
WILLIAM H. FOULK, JR., 67, is an Investment Adviser and
an independent consultant. He was formerly Senior Manager of
Barrett Associates, Inc., a registered investment adviser, with
which he had been associated since prior to 1994. His address is
Room 100, 2 Greenwich Plaza, Greenwich, Connecticut 06830.
DR. JAMES M. HESTER, 75, has been President of the Harry
Frank Guggenheim Foundation, with which he has been associated
since prior to 1994. He was formerly President of New York
University, the New York Botanical Garden and Rector of the
United Nations University. His address is 25 Cleveland Lane,
Princeton, New Jersey 08540.
CLIFFORD L. MICHEL, 60, is a member of the law firm of
Cahill Gordon & Reindel, with which he has been associated since
prior to 1994. He is President and Chief Executive Officer of
Wenonah Development Company (investments) and a Director of
Placer Dome, Inc. (mining). His address is St. Bernard's Road,
Gladstone, New Jersey 07934.
DONALD J. ROBINSON, 65, is Senior Counsel to the law
firm of Orrick, Herrington & Sutcliffe and was formerly a senior
partner and a member of the Executive Committee of that firm. He
was also a Trustee of the Museum of the City of New York from
1977 to 1995. His address is 98 Hell's Peak Road, Weston,
Vermont 05161.
Officers
JOHN D. CARIFA, Chairman and President, see Biography,
above.
BRUCE W. CALVERT, Executive Vice President, 52, is the
Vice Chairman and Chief Executive Officer and a Director of ACMC,
with which he has been associated since prior to 1994.
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KATHLEEN A. CORBET, Senior Vice President, 39, is an
Executive Vice President of ACMC, with which she has been
associated since prior to 1994.
PAUL C. RISSMAN, Senior Vice President, 42, is a Senior
Vice President of ACMC, with which he has been associated since
prior to 1994.
THOMAS J. BARDONG, Vice President, 54, is a Senior Vice
President of ACMC, with which he has been associated since prior
to 1994.
MATTHEW D.W. BLOOM, Vice President, 43, is a Senior
Vice President of ACMC, with which he has been associated since
prior to 1994.
CORINNE MOLOF-HILL, Vice President, 35, is a Senior Vice
President of ACMC, with which she has been associated since prior
to 1994.
EDMUND P. BERGAN, JR., Secretary, 49, is a Senior Vice
President and the General Counsel of Alliance Fund Distributors,
Inc. ("AFD") and Alliance Fund Services, Inc. ("AFS") with which
he has been associated since prior to 1994.
ANDREW L. GANGOLF, Assistant Secretary, 45, is a Vice
President and Assistant General Counsel of AFD, with which he has
been associated since December 1994. Prior thereto, he was a
Vice President and Assistant Secretary of Delaware Management
Company, Inc. since prior to 1994.
DOMENICK PUGLIESE, Assistant Secretary, 38, is a Vice
President and Assistant General Counsel of AFD, with which he has
been associated since May 1995. Prior thereto, he was a Vice
President and Counsel of Concord Holding Corporation since prior
to 1994.
EMILIE D. WRAPP, Assistant Secretary, 43, is a Vice
President and Assistant General Counsel of AFD, with which she
has been associated since prior to 1994.
MARK D. GERSTEN, Treasurer and Chief Financial Officer,
49, is a Senior Vice President of AFS and a Vice President of
AFD, with which he has been associated since prior to 1994.
VINCENT S. NOTO, Controller, 34, is a Vice President of
AFS, with which he has been associated since prior to 1994.
The aggregate compensation paid by the Fund to each of
the Directors during its fiscal year ended July 31, 1999, the
aggregate compensation paid to each of the Directors during
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calendar year 1998 by all of the registered investment companies
to which the Adviser provides investment advisory services
(collectively, the "Alliance Fund Complex") and the total number
of registered investment companies (and separate investment
portfolios within those companies) in the Alliance Fund Complex
with respect to which each of the Directors serves as a director
or trustee, are set forth below. Neither the Fund nor any other
fund in the Alliance Fund Complex provides compensation in the
form of pension or retirement benefits to any of its directors or
trustees.
Total Number Total Number
of Investment of Investment
Companies in Portfolios within
the Alliance the Alliance
Total Fund Complex, Fund Complex
Compensation Including the Including the
From the Fund, as to Fund, as to
Alliance Fund which the which the
Aggregate Complex, Director is a Director is a
Name of Compensation Including the Director or Director or
Director From the Fund Fund Trustee Trustee
___________ ____________ ______________ _____________ _______________
John D. Carifa $0 $0 50 116
Ruth Block $3,467$180,763 37 79
David H. Dievler $3,584$216,288 44 86
John H. Dobkin $3,586 $185,363 42 97
William H. Foulk, Jr. $4,087 $241,003 45 111
Dr. James M. Hester $4,089 $172,913 38 80
Clifford L. Michel $3,589 $187,763 39 96
Donald J. Robinson $2,833 $193,709 41 105
As of October 8, 1999, the Directors and officers of the
Fund as a group owned less than 1% of the shares of the Fund.
____________________________________________________________
EXPENSES OF THE FUND
____________________________________________________________
Distribution Services Agreement
The Fund has entered into a Distribution Services
Agreement (the "Agreement") with Alliance Fund Distributors,
Inc., the Fund's principal underwriter (the "Principal
Underwriter"), to permit the Principal Underwriter to distribute
the Funds shares and to permit the Fund to pay distribution
services fees to defray expenses associated with the distribution
of its Class A shares, Class B shares and Class C shares in
accordance with a plan of distribution which is included in the
14
<PAGE>
Agreement and has been duly adopted and approved in accordance
with Rule 12b-1 under the 1940 Act (the "Rule 12b-1 Plan").
During the Fund's fiscal year ended July 31, 1999,
the Fund paid distribution services fees for expenditures under
the Agreement, with respect to Class A shares, in amounts
aggregating $387,575 which constituted .26%, annualized, of the
Fund's aggregate average daily net assets attributable to Class A
shares during the period, and the Adviser made payments from its
own resources as described above aggregating $612,920. Of the
$1,000,495 paid by the Fund and the Adviser under the Rule 12b-1
Plan with respect to the Class A shares, $50,175 was spent on
advertising, $9,686 on the printing and mailing of prospectuses
for persons other than current shareholders, $507,053 for
compensation to broker-dealers and other financial intermediaries
(including, $115,408 to the Fund's Principal Underwriters),
$60,668 for compensation to sales personnel, $372,913 was spent
on printing of sales literature, travel, entertainment, due
diligence and other promotional expenses.
During the Fund's fiscal year ended July 31, 1999, the
Fund paid distribution services fees for expenditures under the
Agreement, with respect to Class B shares, in amounts aggregating
$888,051, which constituted 1.0%, annualized, of the Fund's
aggregate average daily net assets attributable to Class B shares
during the period, and the Adviser made payments from its own
resources as described above aggregating $2,407,602. Of the
$3,295,653 paid by the Fund and the Adviser under the Rule 12b-1
Plan with respect to the Class B shares, $70,334 was spent on
advertising, $18,274 on the printing and mailing of prospectuses
for persons other than current shareholders, $2,749,069 for
compensation to broker-dealers and other financial intermediaries
(including, $188,531 to the Fund's Principal Underwriters),
$40,722 for compensation to sales personnel, $298,816 was spent
on printing of sales literature, travel, entertainment, due
diligence and other promotional expenses, and $118,438 was spent
on interest on Class B shares financing.
During the Fund's fiscal year ended July 31, 1999, the
Fund paid distribution services fees for expenditures under the
Agreement, with respect to Class C shares, in amounts aggregating
$449,485, which constituted 1.0%, annualized, of the Fund's
aggregate average daily net assets attributable to Class C shares
during the period, and the Adviser made payments from its own
resources as described above aggregating $187,657. Of the
$637,142 paid by the Fund and the Adviser with respect to the
Class C shares under the Agreement, $17,674 was spent on
advertising, $5,204on the printing and mailing of prospectuses
for persons other than current shareholders, $514,320 for
compensation to broker-dealers and other financial intermediaries
(including, $47,555 to the Fund's Principal Underwriters),
15
<PAGE>
$10,260 for compensation to sales personnel, $74,694 was spent on
printing of sales literature, travel, entertainment, due
diligence and other promotional expenses, and $14,990 was spent
on interest on Class C shares financing.
Distribution services fees are accrued daily and paid
monthly and are charged as expenses of the Fund as accrued. The
distribution services fees attributable to the Class B shares and
Class C shares are designed to permit an investor to purchase
such shares through broker-dealers without the assessment of an
initial sales charge, and at the same time to permit the
Principal Underwriter to compensate broker-dealers in connection
with the sale of such shares. In this regard the purpose and
function of the combined contingent deferred sales charge and
distribution services fee on the Class B shares and Class C
shares are the same as those of the initial sales charge and
distribution services fee with respect to the Class A shares in
that in each case the sales charge and distribution services fee
provide for the financing of the distribution of the relevant
class of the Fund's shares.
With respect to Class A shares of the Fund, distribution
expenses accrued by AFD in one fiscal year may not be paid from
distribution services fees received from the Fund in subsequent
fiscal years. AFD's compensation with respect to Class B and
Class C shares for any given year, however, will probably exceed
the distribution services fee payable under the Rule 12b-1 Plan
with respect to the class involved and, in the case of Class B
and Class C shares, payments received from contingent deferred
sales charges ("CDSCs"). The excess will be carried forward by
AFD and reimbursed from distribution services fees payable under
the Rule 12b-1 Plan with respect to the class involved and, in
the case of Class B and Class C shares, payments subsequently
received through CDSCs, so long as the Rule 12b-1 Plan is in
effect.
Unreimbursed distribution expenses incurred as of the
end of the Fund's most recently completed fiscal period, and
carried over for reimbursement in future years in respect of the
Class B and Class C shares for the Fund were, respectively,
$4,987,374 (3.66% of the net assets of Class B) and $796,521
(1.25% of the net assets of Class C).
The Rule 12b-1 Plan is in compliance with rules of the
National Association of Securities Dealers, Inc. which
effectively limit the annual asset-based sales charges and
service fees that a mutual fund may pay on a class of shares to
.75% and .25%, respectively, of the average annual net assets
attributable to that class. The rules also limit the aggregate
of all front-end, deferred and asset-based sales charges imposed
16
<PAGE>
with respect to a class of shares by a mutual fund that also
charges a service fee to 6.25% of cumulative gross sales of
shares of that class, plus interest at the prime rate plus 1% per
annum.
In approving the 12b-1 Plan, the Directors of the Fund
determined that there was a reasonable likelihood that the Rule
12b-1 Plan would benefit the Fund and its shareholders. The
distribution services fee of a particular class will not be used
to subsidize the provision of distribution services with respect
to any other class.
The Adviser may from time to time and from its own funds
or such other resources as may be permitted by rules of the
Commission make payments for distribution services to the
Principal Underwriter; the latter may in turn pay part or all of
such compensation to brokers or other persons for their
distribution assistance.
The Agreement will continue in effect for successive
twelve-month periods (computed from each October 1), provided,
however, that such continuance is specifically approved at least
annually by the Directors of the Fund or by vote of the holders
of a majority of the outstanding voting securities (as defined in
the 1940 Act) of that class, and, in either case, by a majority
of the Directors of the Fund who are not parties to the Agreement
or interested persons, as defined in the 1940 Act, of any such
party (other than as directors of the Fund) and who have no
direct or indirect financial interest in the operation of the
Rule 12b-1 Plan or any agreement related thereto. Most recently
the continuance of the Agreement until September 30, 2000 was
approved by a vote, cast in person, of the Directors, including a
majority of the Directors who are not "interested persons", as
defined in the 1940 Act, at their meeting held on July 14,
1999.
In the event that the Rule 12b-1 Plan is terminated
or not continued with respect to the Class A shares, Class B
shares or Class C shares, (i) no distribution services fees
(other than current amounts accrued but not yet paid) would be
owed by the Fund to the Principal Underwriter with respect to
that class, and (ii) the Fund would not be obligated to pay the
Principal Underwriter for any amounts expended under the
Agreement not previously recovered by the Principal Underwriter
from distribution services fees in respect of shares of such
class or through deferred sales charges.
The Glass-Steagall Act and other applicable laws may
limit the ability of a bank or other depository institution to
become an underwriter or distributor of securities. However, in
the opinion of the Fund's management, based on the advice of
17
<PAGE>
counsel, these laws do not prohibit such depository institutions
from providing services for investment companies such as the
administrative, accounting and other services referred to in the
Agreements. In the event that a change in these laws prevented a
bank from providing such services, it is expected that other
services arrangements would be made and that shareholders would
not be adversely affected.
Transfer Agency Agreement
Alliance Fund Services, Inc., an indirect wholly-owned
subsidiary of the Adviser located at 500 Plaza Drive, Secaucus,
New Jersey 07094, receives a transfer agency fee per account
holder of each of the Class A shares, Class B shares, Class C
shares and Advisor Class shares of the Fund, plus reimbursement
for out-of-pocket expenses. The transfer agency fee with respect
to the Class B and Class C shares is higher than the transfer
agency fee with respect to the Class A and Advisor Class shares,
reflecting the additional costs associated with the Class B and
Class C contingent deferred sales charges. For the fiscal year
ended July 31, 1999, the Fund paid Alliance Fund Services, Inc.
$360,260 for transfer agency services.
____________________________________________________________
PURCHASE OF SHARES
____________________________________________________________
The following information supplements that set forth in
the Fund's Prospectus under the heading "Purchase and Sale of
Shares--How to Buy Shares."
General
Shares of the Fund are offered on a continuous basis at
a price equal to their net asset value plus an initial sales
charge at the time of purchase ("Class A shares"), with a
contingent deferred sales charge ("Class B shares"), without any
initial sales charge and, as long as the shares are held for one
year or more, without any contingent deferred sales charge)
("Class C shares"), or, to investors eligible to purchase Advisor
Class shares, without any initial, contingent deferred or asset-
based sales charge, in each case as described below. Shares of
the Fund that are offered subject to a sales charge are offered
through (i) investment dealers that are members of the National
Association of Securities Dealers, Inc. and have entered into
selected dealer agreements with the Principal Underwriter
("selected dealers"), (ii) depository institutions and other
financial intermediaries or their affiliates, that have entered
into selected agent agreements with the Principal Underwriter
("selected agents") and (iii) the Principal Underwriter.
18
<PAGE>
Advisor Class shares of the Fund may be purchased and
held solely (i) through accounts established under fee-based
programs, sponsored and maintained by registered broker-dealers
or other financial intermediaries and approved by the Principal
Underwriter, (ii) through self-directed defined contribution
employee benefit plans (e.g., 401(k) plans) that have at least
1,000 participants or $25 million in assets, (iii) by the
categories of investors described in clauses (i) through (iv)
under "--Sales at Net Asset Value" (other than officers,
directors and present and full-time employees of selected dealers
or agents, or relatives of such person, or any trust, individual
retirement account or retirement plan account for the benefit of
such relative, none of whom is eligible on the basis solely of
such status to purchase and hold Advisor Class shares), or
(iv) by directors and present or retired full-time employees of
CB Richard Ellis, Inc. Generally, a fee-based program must
charge an asset-based or other similar fee and must invest at
least $250,000 in Advisor Class shares of the Fund in order to be
approved by the Principal Underwriter for investment in Advisor
Class shares.
Investors may purchase shares of the Fund either through
selected broker-dealers, agents, financial intermediaries or
other financial representatives or directly through the Principal
Underwriter. A transaction, service, administrative or other
similar fee may be charged by your broker-dealer, agent,
financial intermediary or other financial representative with
respect to the purchase, sale or exchange of Class A, Class B,
Class C or Advisor Class shares made through such financial
representative. Such financial representative may also impose
requirements with respect to the purchase, sale or exchange of
shares that are different from, or in addition to, those imposed
by the Fund, including requirements as to the minimum initial and
subsequent investment amounts. Sales personnel of selected
dealers and agents distributing the Fund's shares may receive
differing compensation for selling Class A, Class B, Class C or
Advisor Class shares.
The Fund may refuse any order for the purchase of
shares. The Fund reserves the right to suspend the sale of its
shares to the public in response to conditions in the securities
markets or for other reasons.
The public offering price of shares of the Fund is their
net asset value, plus, in the case of Class A shares, a sales
charge which will vary depending on the purchase alternative
chosen by the investor, as shown in the table below. On each
Fund business day on which a purchase or redemption order is
received by the Fund and trading in the types of securities in
which the Fund invests might materially affect the value of Fund
shares, the per share net asset value is computed as of the next
19
<PAGE>
close of regular trading on the Exchange (currently 4:00 p.m.
Eastern time) by dividing the value of the Fund's total assets,
less its liabilities, by the total number of its shares then
outstanding. A Fund business day is any day on which the Exchange
is open for trading.
The respective per share net asset values of the
Class A, Class B, Class C and Advisor Class shares are expected
to be substantially the same. Under certain circumstances,
however, the per share net asset values of the Class B and
Class C shares may be lower than the per share net asset value of
the Class A and Advisor Class shares, as a result of the
differential daily expense accruals of the distribution and
transfer agency fees applicable with respect to those classes of
shares. Even under those circumstances, the per share net asset
values of the four classes eventually will tend to converge
immediately after the payment of dividends, which will differ by
approximately the amount of the expense accrual differential
among the classes.
The Fund will accept unconditional orders for its shares
to be executed at the public offering price equal to their net
asset value next determined (plus applicable Class A sales
charges), as described below. Orders received by the Principal
Underwriter prior to the close of regular trading on the Exchange
on each day the Exchange is open for trading are priced at the
net asset value computed as of the close of regular trading on
the Exchange on that day (plus applicable Class A sales charges).
In the case of orders for purchase of shares placed through
selected dealers, agents or financial representatives, as
applicable, the applicable public offering price will be the net
asset value as so determined, but only if the selected dealer,
agent or financial representative receives the order prior to the
close of regular trading on the Exchange and transmits it to the
Principal Underwriter prior to 5:00 p.m. Eastern time. The
selected dealer, agent or financial representative, as
applicable, is responsible for transmitting such orders by 5:00
p.m. Eastern time (certain selected dealers, agents or financial
representatives may enter into operating agreements permitting
them to transmit purchase information to the Principal
Underwriter after 5:00 p.m. Eastern time and receive that day's
net asset value). If the selected dealer, agent or financial
representative fails to do so, the investor's right to that day's
closing price must be settled between the investor and the
selected dealer, agent or financial representative, as
applicable. If the selected dealer, agent or financial
representative, as applicable, receives the order after the close
of regular trading on the Exchange, the price will be based on
the net asset value determined as of the close of regular trading
on the Exchange on the next day it is open for trading.
20
<PAGE>
Following the initial purchase of Fund shares, a
shareholder may place orders to purchase additional shares by
telephone if the shareholder has completed the appropriate
portion of the Subscription Application or an "Autobuy"
application obtained by calling the "For Literature" telephone
number shown on the cover of this Statement of Additional
Information. Except with respect to certain omnibus accounts,
telephone purchase orders may not exceed $500,000. Payment for
shares purchased by telephone can be made only by electronic
funds transfer from a bank account maintained by the shareholder
at a bank that is a member of the National Automated Clearing
House Association ("NACHA"). If a shareholder's telephone
purchase request is received before 3:00 p.m. Eastern time on a
Fund business day, the order to purchase shares is automatically
placed the following Fund business day, and the applicable public
offering price will be the public offering price determined as of
the close of business on such following business day.
Full and fractional shares are credited to a
subscriber's account in the amount of his or her subscription.
As a convenience to the subscriber, and to avoid unnecessary
expense to the Fund, stock certificates representing shares of
the Fund are not issued except upon written request to the Fund
by the shareholder or his or her authorized selected dealer or
agent. This facilitates later redemption and relieves the
shareholder of the responsibility for and inconvenience of lost
or stolen certificates. No certificates are issued for
fractional shares, although such shares remain in the
shareholder's account on the books of the Fund.
In addition to the discount or commission amount paid to
dealers or agents, the Principal Underwriter from time to time
pays additional cash or other incentives to dealers or agents in
connection with the sale of shares of the Fund. Such additional
amounts may be utilized, in whole or in part, to provide
additional compensation to registered representatives who sell
shares of the Fund. On some occasions, such cash or other
incentives may take the form of payment for attendance at
seminars, meals, sporting events or theater performances, or
payment for travel, lodging and entertainment incurred in
connection with travel taken by persons associated with a dealer
or agent to locations within or outside the United States. Such
dealer or agent may elect to receive cash incentives of
equivalent amount in lieu of such payments.
Class A, Class B, Class C and Advisor Class shares each
represent an interest in the same portfolio of investments of the
Fund, have the same rights and are identical in all respects,
except that (i) Class A shares bear the expense of the initial
sales charge (or contingent deferred sales charge, when
applicable) and Class B and Class C shares bear the expense of
21
<PAGE>
the contingent deferred sales charge, (ii) Class B shares and Class
C shares each bear the expense of a higher distribution services fee than
do Class A shares, and Advisor Class shares do not bear such a
fee, (iii) Class B and Class C shares bear higher transfer agency
costs than do Class A and Advisor Class shares, (iv) each of
Class A, Class B and Class C shares has exclusive voting rights
with respect to provisions of the Rule 12b-1 Plan pursuant to
which its distribution services fee is paid and other matters for
which separate class voting is appropriate under applicable law,
provided that, if the Fund submits to a vote of the Class A
shareholders, an amendment to the Rule 12b-1 Plan that would
materially increase the amount to be paid thereunder with respect
to the Class A shares, then such amendment will also be submitted
to the Class B and Advisor Class shareholders and the Class A,
Class B and Advisor Class shareholders will vote separately by
class, and (v) Class B and Advisor Class shares are subject to a
conversion feature. Each class has different exchange privileges
and certain different shareholder service options available.
The Directors of the Fund have determined that currently
no conflict of interest exists between or among the Class A,
Class B, Class C and Advisor Class shares. On an ongoing basis,
the Directors of the Fund, pursuant to their fiduciary duties
under the 1940 Act and state law, will seek to ensure that no
such conflict arises.
Alternative Retail Purchase Arrangements -- Class A, Class B and
Class C Shares**
Class A, Class B and Class C shares have the following
alternative purchase arrangements: Class A shares are sold to
investors choosing the initial sales charge alternative, Class B
shares are sold to investors choosing the deferred sales charge
alternative and Class C shares are sold to investors choosing the
asset-based sales charge alternative. These alternative purchase
arrangements permit an investor to choose the method of
purchasing shares that is most beneficial given the amount of the
purchase, the length of time the investor expects to hold the
shares and other circumstances. Investors should consider
whether, during the anticipated life of their investment in the
Fund, the accumulated distribution services fee and contingent
deferred sales charges on Class B shares prior to conversion, or
the accumulated distribution services fee and contingent deferred
sales charges on Class C shares, would be less than the initial
sales charge and accumulated distribution services fee on Class A
shares purchased at the same time, and to what extent such
differential would be offset by the higher return of Class A
____________________
** Advisor Class shares are sold only to investors described
above in this section under "-General."
22
<PAGE>
shares. Class A shares will normally be more beneficial than
Class B shares to the investor who qualifies for reduced initial
sales charges on Class A shares, as described below. In this
regard, the Principal Underwriter will reject any order (except
orders from certain retirement plans and certain employee benefit
plans) for more than $250,000 for Class B shares. (See Appendix B
for information concerning the eligibility of certain employee
benefit plans to purchase Class B shares at net asset value
without being subject to a contingent deferred sales charge and
the ineligibility of certain such plans to purchase Class A
shares.) Class C shares will normally not be suitable for the
investor who qualifies to purchase Class A shares at net asset
value. For this reason, the Principal Underwriter will reject
any order for more than $1,000,000 for Class C shares.
Class A shares are subject to a lower distribution
services fee and, accordingly, pay correspondingly higher
dividends per share than Class B shares or Class C shares.
However, because initial sales charges are deducted at the time
of purchase, investors purchasing Class A shares would not have
all their funds invested initially and, therefore, would
initially own fewer shares. Investors not qualifying for reduced
initial sales charges who expect to maintain their investment for
an extended period of time might consider purchasing Class A
shares because the accumulated continuing distribution charges on
Class B shares or Class C shares may exceed the initial sales
charge on Class A shares during the life of the investment.
Again, however, such investors must weigh this consideration
against the fact that, because of such initial sales charges, not
all their funds will be invested initially.
Other investors might determine, however, that it would
be more advantageous to purchase Class B shares or Class C shares
in order to have all their funds invested initially, although
remaining subject to higher continuing distribution charges and,
being subject to a contingent deferred sales charge for a four-
year and one-year period, respectively. For example, based on
current fees and expenses, an investor subject to the 4.25%
initial sales charge on Class A shares would have to hold his or
her investment approximately seven years for the Class C
distribution services fee, to exceed the initial sales charge
plus the accumulated distribution services fee of Class A shares.
In this example, an investor intending to maintain his or her
investment for a longer period might consider purchasing Class A
shares. This example does not take into account the time value
of money, which further reduces the impact of the Class C
distribution services fees on the investment, fluctuations in net
asset value or the effect of different performance assumptions.
Those investors who prefer to have all of their funds
invested initially but may not wish to retain Fund shares for the
23
<PAGE>
four-year period during which Class B shares are subject to a
contingent deferred sales charge may find it more advantageous to
purchase Class C shares.
During the Fund's fiscal years ended July 31, 1999,
1998, and 1997, the aggregate amounts of underwriting commission
payable with respect to shares of the Fund were $771,649,
$270,806 and $100,315, respectively. Of that amount the
Principal Underwriter received the amounts of $116,358, $15,193
and $5,903, respectively, representing that portion of the sales
charges paid on shares of the Fund sold during the year which was
not reallowed to selected dealers (and was, accordingly, retained
by the Principal Underwriter). During the Fund's fiscal years
ended in 1999, 1998 and 1997, the Principal Underwriter received
contingent deferred sales charges of $104, $794 and $521,
respectively, on Class A shares, $146,053, $44,906 and $34,203,
respectively, on Class B shares, and $14,920, $3,171 and $1,445,
respectively, on Class C shares.
Class A Shares
The public offering price of Class A shares is the net asset
value plus a sales charge, as set forth below.
Sales Charge
Discount or
Commission
As % of to Dealers
As % of the or Agents
Net Public As % of
Amount of Amount Offering Offering
Purchase Invested Price Price
________ ________ ________ ____________
Less than $100,000 4.44% 4.25% 4.00%
$100,000 but less
than $250,000 3.36 3.25 3.00
$250,000 but less
than $500,000 2.30 2.25 2.00
$500,000 but less
than $1,000,000* 1.78 1.75 1.50
__________________
*There is no initial sales charge on transactions of $1,000,000
or more.
With respect to purchases of $1,000,000 or more, Class A
shares redeemed within one year of purchase will be subject to a
contingent deferred sales charge equal to 1% of the lesser of the
24
<PAGE>
cost of the shares being redeemed or their net asset value at the
time of redemption. Accordingly, no sales charge will be imposed
on increases in net asset value above the initial purchase price.
In addition, no charge will be assessed on shares derived from
reinvestment of dividends or capital gains distributions. The
contingent deferred sales charge on Class A shares will be waived
on certain redemptions, as described below under "Class B
shares." In determining the contingent deferred sales charge
applicable to a redemption of Class A shares, it will be assumed
that the redemption is, first, of any shares that are not subject
to a contingent deferred sales charge (for example, because an
initial sales charge was paid with respect to the shares, or they
have been held beyond the period during which the charge applies
or were acquired upon the reinvestment of dividends or
distributions) and, second, of shares held longest during the
time they are subject to the sales charge. Proceeds from the
contingent deferred sales charge on Class A shares are paid to
the Principal Underwriter and are used by the Principal
Underwriter to defray the expenses of the Principal Underwriter
related to providing distribution-related services to the Fund in
connection with the sales of Class A shares, such as the payment
of compensation to selected dealers and agents for selling
Class A Shares. With respect to purchases of $1,000,000 or more
made through selected dealers or agents, the Adviser may,
pursuant to the Distribution Services Agreement described above,
pay such dealers or agents from its own resources a fee of up to
1% of the amount invested to compensate such dealers or agents
for their distribution assistance in connection with such
purchases.
No initial sales charge is imposed on Class A shares
issued (i) pursuant to the automatic reinvestment of income
dividends or capital gains distributions, (ii) in exchange for
Class A shares of other "Alliance Mutual Funds" (as that term is
defined under "Combined Purchase Privilege" below), except that
an initial sales charge will be imposed on Class A shares issued
in exchange for Class A shares of AFD Exchange Reserves ("AFDER")
that were purchased for cash without the payment of an initial
sales charge and without being subject to a contingent deferred
sales charge or (iii) upon the automatic conversion of Class B
shares or Advisor Class shares as described below under "Class B
Shares -- Conversion Feature" and "--Conversion of Advisor Class
Shares to Class A Shares." The Fund receives the entire net
asset value of its Class A shares sold to investors. The
Principal Underwriter's commission is the sales charge shown
above less any applicable discount or commission "reallowed" to
selected dealers and agents. The Principal Underwriter will
reallow discounts to selected dealers and agents in the amounts
indicated in the table above. In this regard, the Principal
Underwriter may elect to reallow the entire sales charge to
selected dealers and agents for all sales with respect to which
25
<PAGE>
orders are placed with the Principal Underwriter. A selected
dealer who receives reallowance in excess of 90% of such a sales
charge may be deemed to be an "underwriter" under the Securities
Act of 1933, as amended.
Investors choosing the initial sales charge alternative
may under certain circumstances be entitled to pay (i) no initial
sales charge (but may be subject in most such cases to a
contingent deferred sales charge) or (ii) a reduced initial sales
charge. The circumstances under which such investors may pay a
reduced initial sales charge are described below.
Combined Purchase Privilege. Certain persons may
qualify for the sales charge reductions indicated in the schedule
of such charges above by combining purchases of shares of the
Fund into a single "purchase," if the resulting "purchase" totals
at least $100,000. The term "purchase" refers to: (i) a single
purchase by an individual, or to concurrent purchases, which in
the aggregate are at least equal to the prescribed amounts, by an
individual, his or her spouse and their children under the age of
21 years purchasing shares of the Fund for his, her or their own
account(s); (ii) a single purchase by a trustee or other
fiduciary purchasing shares for a single trust, estate or single
fiduciary account although more than one beneficiary is involved;
or (iii) a single purchase for the employee benefit plans of a
single employer. The term "purchase" also includes purchases by
any "company," as the term is defined in the 1940 Act, but does
not include purchases by any such company which has not been in
existence for at least six months or which has no purpose other
than the purchase of shares of the Fund or shares of other
registered investment companies at a discount. The term
"purchase" does not include purchases by any group of individuals
whose sole organizational nexus is that the participants therein
are credit card holders of a company, policy holders of an
insurance company, customers of either a bank or broker-dealer or
clients of an investment adviser. A "purchase" may also include
shares, purchased at the same time through a single selected
dealer or agent, of any other "Alliance Mutual Fund." Currently,
the Alliance Mutual Funds include:
AFD Exchange Reserves
Alliance All-Asia Investment Fund, Inc.
Alliance Bond Fund, Inc.
-Corporate Bond Portfolio
-Quality Bond Portfolio
-U.S. Government Portfolio
Alliance Global Dollar Government Fund, Inc.
Alliance Global Environment Fund, Inc.
Alliance Global Small Cap Fund, Inc.
Alliance Global Strategic Income Trust, Inc.
Alliance Greater China '97 Fund, Inc.
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<PAGE>
Alliance Growth and Income Fund, Inc.
Alliance Health Care Fund, Inc.
Alliance High Yield Fund, Inc.
Alliance International Fund
Alliance International Premier Growth Fund, Inc.
Alliance Limited Maturity Government Fund, Inc.
Alliance Mortgage Securities Income Fund, Inc.
Alliance Multi-Market Strategy Trust, Inc.
Alliance Municipal Income Fund, Inc.
-California Portfolio
-Insured California Portfolio
-Insured National Portfolio
-National Portfolio
-New York Portfolio
Alliance Municipal Income Fund II
-Arizona Portfolio
-Florida Portfolio
-Massachusetts Portfolio
-Michigan Portfolio
-Minnesota Portfolio
-New Jersey Portfolio
-Ohio Portfolio
-Pennsylvania Portfolio
-Virginia Portfolio
Alliance New Europe Fund, Inc.
Alliance North American Government Income Trust, Inc.
Alliance Premier Growth Fund, Inc.
Alliance Quasar Fund, Inc.
Alliance Real Estate Investment Fund, Inc.
Alliance Technology Fund, Inc.
Alliance Utility Income Fund, Inc.
Alliance Worldwide Privatization Fund, Inc.
The Alliance Fund, Inc.
The Alliance Portfolios
-Alliance Growth Fund
-Alliance Conservative Investors Fund
-Alliance Growth Investors Fund
-Alliance Short-Term U.S. Government Fund
Prospectuses for the Alliance Mutual Funds may be
obtained without charge by contacting Alliance Fund Services,
Inc. at the address or the "For Literature" telephone number
shown on the front cover of this Statement of Additional
Information.
Cumulative Quantity Discount (Right of Accumulation). An
investor's purchase of additional Class A shares of the Fund may
qualify for a Cumulative Quantity Discount. The applicable sales
charge will be based on the total of:
(i) the investor's current purchase;
27
<PAGE>
(ii) the net asset value (at the close of business on the
previous day) of (a) all shares of the Fund held by
the investor and (b) all shares of any other Alliance
Mutual Fund held by the investor; and
(iii) the net asset value of all shares described in
paragraph (ii) owned by another shareholder eligible
to combine his or her purchase with that of the
investor into a single "purchase" (see above).
For example, if an investor owned shares of an Alliance
Mutual Fund worth $200,000 at their then current net asset value
and, subsequently, purchased Class A shares of the Fund worth an
additional $100,000, the sales charge for the $100,000 purchase
would be at the 2.25% rate applicable to a single $300,000
purchase of shares of the Fund, rather than the 3.25% rate.
To qualify for the Combined Purchase Privilege or to
obtain the Cumulative Quantity Discount on a purchase through a
selected dealer or agent, the investor or selected dealer or
agent must provide the Principal Underwriter with sufficient
information to verify that each purchase qualifies for the
privilege or discount.
Statement of Intention. Class A investors may also
obtain the reduced sales charges shown in the table above by
means of a written Statement of Intention, which expresses the
investor's intention to invest not less than $100,000 within a
period of 13 months in Class A shares (or Class A, Class B,
Class C and/or Advisor Class shares) of the Fund or any other
Alliance Mutual Fund. Each purchase of shares under a Statement
of Intention will be made at the public offering price or prices
applicable at the time of such purchase to a single transaction
of the dollar amount indicated in the Statement of Intention. At
the investor's option, a Statement of Intention may include
purchases of shares of the Fund or any other Alliance Mutual Fund
made not more than 90 days prior to the date that the investor
signs a Statement of Intention; however, the 13-month period
during which the Statement of Intention is in effect will begin
on the date of the earliest purchase to be included.
Investors qualifying for the Combined Purchase Privilege
described above may purchase shares of the Alliance Mutual Funds
under a single Statement of Intention. For example, if at the
time an investor signs a Statement of Intention to invest at
least $100,000 in Class A shares of the Fund, the investor and
the investor's spouse each purchase shares of the Fund worth
$20,000 (for a total of $40,000), it will only be necessary to
invest a total of $60,000 during the following 13 months in
shares of the Fund or any other Alliance Mutual Fund, to qualify
28
<PAGE>
for the 3.25% sales charge on the total amount being invested
(the sales charge applicable to an investment of $100,000).
The Statement of Intention is not a binding obligation
upon the investor to purchase the full amount indicated. The
minimum initial investment under a Statement of Intention is 5%
of such amount. Shares purchased with the first 5% of such
amount will be held in escrow (while remaining registered in the
name of the investor) to secure payment of the higher sales
charge applicable to the shares actually purchased if the full
amount indicated is not purchased, and such escrowed shares will
be involuntarily redeemed to pay the additional sales charge, if
necessary. Dividends on escrowed shares, whether paid in cash or
reinvested in additional Fund shares, are not subject to escrow.
When the full amount indicated has been purchased, the escrow
will be released. To the extent that an investor purchases more
than the dollar amount indicated on the Statement of Intention
and qualifies for a further reduced sales charge, the sales
charge will be adjusted for the entire amount purchased at the
end of the 13-month period. The difference in the sales charge
will be used to purchase additional shares of the Fund subject to
the rate of the sales charge applicable to the actual amount of
the aggregate purchases.
Investors wishing to enter into a Statement of Intention
in conjunction with their initial investment in Class A shares of
the Fund should complete the appropriate portion of the
Subscription Application found in the Prospectus while current
Class A shareholders desiring to do so can obtain a form of
Statement of Intention by contacting Alliance Fund Services, Inc.
at the address or telephone numbers shown on the cover of this
Statement of Additional Information.
Certain Retirement Plans. Multiple participant payroll
deduction retirement plans may also purchase shares of the Fund
or any other Alliance Mutual Fund at a reduced sales charge on a
monthly basis during the 13-month period following such a plan's
initial purchase. The sales charge applicable to such initial
purchase of shares of the Fund will be that normally applicable,
under the schedule of sales charges set forth in this Statement
of Additional Information, to an investment 13 times larger than
such initial purchase. The sales charge applicable to each
succeeding monthly purchase will be that normally applicable,
under such schedule, to an investment equal to the sum of (i) the
total purchase previously made during the 13-month period and
(ii) the current month's purchase multiplied by the number of
months (including the current month) remaining in the 13-month
period. Sales charges previously paid during such period will
not be retroactively adjusted on the basis of later purchases.
29
<PAGE>
Reinstatement Privilege. A shareholder who has caused
any or all of his or her Class A or Class B shares of the Fund to
be redeemed or repurchased may reinvest all or any portion of the
redemption or repurchase proceeds in Class A shares of the Fund
at net asset value without any sales charge, provided that
(i) such reinvestment is made within 120 calendar days after the
redemption or repurchase date, and (ii) for Class B shares, a
contingent deferred sales charge has been paid and the Principal
Underwriter has approved, at its discretion, the reinstatement of
such shares. Shares are sold to a reinvesting shareholder at the
net asset value next determined as described above. A
reinstatement pursuant to this privilege will not cancel the
redemption or repurchase transaction; therefore, any gain or loss
so realized will be recognized for federal income tax purposes
except that no loss will be recognized to the extent that the
proceeds are reinvested in shares of the Fund within 30 calendar
days after the redemption or repurchase transaction. Investors
may exercise the reinstatement privilege by written request sent
to the Fund at the address shown on the cover of this Statement
of Additional Information.
Sales at Net Asset Value. The Fund may sell its Class A
shares at net asset value (i.e., without any initial sales
charge) and without any contingent deferred sales charge to
certain categories of investors including: (i) investment
management clients of the Adviser or its affiliates;
(ii) officers and present or former Directors of the Fund;
present or former directors and trustees of other investment
companies managed by the Adviser, present or retired full-time
employees of the Adviser, the Principal Underwriter, Alliance
Fund Services, Inc. and their affiliates; officers and directors
of ACMC, the Principal Underwriter, Alliance Fund Services, Inc.
and their affiliates; officers, directors and present and full-
time employees of selected dealers or agents; or the spouse,
sibling, direct ancestor or direct descendant (collectively
"relatives") of any such person; or any trust, individual
retirement account or retirement plan account for the benefit of
any such person or relative; or the estate of any such person or
relative, if such sales are made for investment purposes (such
shares may not be resold except to the Fund); (iii) the Adviser,
Principal Underwriter, Alliance Fund Services, Inc. and their
affiliates; certain employee benefit plans for employees of the
Adviser, the Principal Underwriter, Alliance Fund Services, Inc.
and their affiliates; (iv) registered investment advisers or
other financial intermediaries who charge a management,
consulting or other fee for their service and who purchase shares
through a broker or agent approved by the Principal Underwriter
and clients of such registered investment advisers or financial
intermediaries whose accounts are linked to the master account of
such investment adviser or financial intermediary on the books of
such approved broker or agent; (v) persons participating in a
30
<PAGE>
fee-based program, sponsored and maintained by a registered
broker-dealer or other financial intermediary and approved by the
Principal Underwriter, pursuant to which such persons pay an
asset-based fee to such broker-dealer or financial intermediary,
or its affiliate or agent, for service in the nature of
investment advisory or administrative services; (vi) persons who
establish to the Principal Underwriter's satisfaction that they
are investing within such time period as may be designated by the
Principal Underwriter, proceeds of redemption of shares of such
other registered investment companies as may be designated from
time to time by the Principal Underwriter; and (vii) employer-
sponsored qualified pension or profit-sharing plans (including
Section 401(k) plans), custodial accounts maintained pursuant to
Section 403(b)(7) retirement plans and individual retirement
accounts (including individual retirement accounts to which
simplified employee pension ("SEP") contributions are made), if
such plans or accounts are established or administered under
programs sponsored by administrators or other persons that have
been approved by the Principal Underwriter.
Class B Shares
Investors may purchase Class B shares at the public
offering price equal to the net asset value per share of the
Class B shares on the date of purchase without the imposition of
a sales charge at the time of purchase. The Class B shares are
sold without an initial sales charge so that the Fund will
receive the full amount of the investor's purchase payment.
Proceeds from the contingent deferred sales charge are
paid to the Principal Underwriter and are used by the Principal
Underwriter to defray the expenses of the Principal Underwriter
related to providing distribution-related services to the Fund in
connection with the sale of the Class B shares, such as the
payment of compensation to selected dealers and agents for
selling Class B shares. The combination of the contingent
deferred sales charge and the distribution services fee enables
the Fund to sell the Class B shares without a sales charge being
deducted at the time of purchase. The higher distribution
services fee incurred by Class B shares will cause such shares to
have a higher expense ratio and to pay lower dividends than those
related to Class A shares.
Contingent Deferred Sales Charge. Class B shares that
are redeemed within four years of purchase will be subject to a
contingent deferred sales charge at the rates set forth below
charged as a percentage of the dollar amount subject thereto. The
charge will be assessed on an amount equal to the lesser of the
cost of the shares being redeemed or their net asset value at the
time of redemption. Accordingly, no sales charge will be imposed
on increases in net asset value above the initial purchase price.
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<PAGE>
In addition, no charge will be assessed on shares derived from
reinvestment of dividends or capital gains distributions.
To illustrate, assume that on or after November 19, 1993
an investor purchased 100 Class B shares at $10 per share (at a
cost of $1,000) and in the second year after purchase, the net
asset value per share is $12 and, during such time, the investor
has acquired 10 additional Class B shares upon dividend
reinvestment. If at such time the investor makes his or her
first redemption of 50 Class B shares (proceeds of $600), 10
Class B shares will not be subject to the charge because of
dividend reinvestment. With respect to the remaining 40 Class B
shares, the charge is applied only to the original cost of $10
per share and not to the increase in net asset value of $2 per
share. Therefore, $400 of the $600 redemption proceeds will be
charged at a rate of 3.0% (the applicable rate in the second year
after purchase as set forth below).
The amount of the contingent deferred sales charge, if
any, will vary depending on the number of years from the time of
payment for the purchase of Class B shares until the time of
redemption of such shares.
Contingent Deferred Sales Charge as a %
of Dollar Amount Subject to Charge
Shares Purchased Shares Purchased
Year Before on or After
Since Purchase November 19, 1993 November 19, 1993
First 5.5% 4.0%
Second 4.5% 3.0%
Third 3.5% 2.0%
Fourth 2.5% 1.0%
Fifth 1.5% None
Sixth 0.5% None
Seventh and thereafter None None
In determining the contingent deferred sales charge
applicable to a redemption of Class B shares, it will be assumed
that the redemption is, first, of any shares that were acquired
upon the reinvestment of dividends or distributions) and, second,
of shares held longest during the time they are subject to the
sales charge. When shares acquired in an exchange are redeemed,
the applicable contingent deferred sales charge and conversion
schedules will be the schedules that applied at the time of the
purchase of shares of the corresponding Class of the Alliance
Mutual Fund originally purchased by the shareholder.
The contingent deferred sales charge is waived on
redemptions of shares (i) following the death or disability, as
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<PAGE>
defined in the Internal Revenue Code of 1986, as amended (the
"Code"), of a shareholder, (ii) to the extent that the redemption
represents a minimum required distribution from an individual
retirement account or other retirement plan to a shareholder who
has attained the age of 70-1/2, (iii) that had been purchased by
present or former Directors of the Fund, by the relative of any
such person, by any trust, individual retirement account or
retirement plan account for the benefit of any such person or
relative, or by the estate of any such person or relative, or
(iv) pursuant to a systematic withdrawal plan (see "Shareholder
Services-- Systemic Withdrawal Plan" below).
Conversion Feature. Eight years after the end of the
calendar month in which the shareholder's purchase order was
accepted, Class B shares will automatically convert to Class A
shares and will no longer be subject to a higher distribution
services fee. Such conversion will occur on the basis of the
relative net asset values of the two classes, without the
imposition of any sales load, fee or other charge. The purpose
of the conversion feature is to reduce the distribution services
fee paid by holders of Class B shares that have been outstanding
long enough for the Principal Underwriter to have been
compensated for distribution expenses incurred in the sale of
such shares.
For purposes of conversion to Class A, Class B shares
purchased through the reinvestment of dividends and distributions
paid in respect of Class B shares in a shareholder's account will
be considered to be held in a separate sub-account. Each time
any Class B shares in the shareholder's account (other than those
in the sub-account) convert to Class A, an equal pro-rata portion
of the Class B shares in the sub-account will also convert to
Class A.
The conversion of Class B shares to Class A shares is
subject to the continuing availability of an opinion of counsel
to the effect that the conversion of Class B shares to Class A
shares does not constitute a taxable event under federal income
tax law. The conversion of Class B shares to Class A shares may
be suspended if such an opinion is no longer available at the
time such conversion is to occur. In that event, no further
conversions of Class B shares would occur, and shares might
continue to be subject to the higher distribution services fee
for an indefinite period which may extend beyond the period
ending eight years after the end of the calendar month in which
the shareholder's purchase order was accepted.
33
<PAGE>
Class C Shares
Investors may purchase Class C shares at the public
offering price equal to the net asset value per share of the
Class C shares on the date of purchase without the imposition of
a sales charge either at the time of purchase or, as long as the
shares are held for one year or more, upon redemption. Class C
shares are sold without an initial sales charge so that the Fund
will receive the full amount of the investor's purchase payment
and, as long as the shares are held for one year or more, without
a contingent deferred sales charge so that the investor will
receive as proceeds upon redemption the entire net asset value of
his or her Class C shares. The Class C distribution services fee
enables the Fund to sell Class C shares without either an initial
or contingent deferred sales charge, as long as the shares are
held for one year or more. Class C shares do not convert to any
other class of shares of the Fund and incur higher distribution
services fees than Class A shares, and will thus have a higher
expense ratio and pay correspondingly lower dividends than
Class A shares.
Class C shares that are redeemed within one year of
purchase will be subject to a contingent deferred sales charge of
1%, charged as a percentage of the dollar amount subject thereto.
The charge will be assessed on an amount equal to the lesser of
the cost of the shares being redeemed or their net asset value at
the time of redemption. Accordingly, no sales charge will be
imposed on increases in net asset value above the initial
purchase price. In addition, no charge will be assessed on
shares derived from reinvestment of dividends or capital gains
distributions. The contingent deferred sales charge on Class C
shares will be waived on certain redemptions, as described above
under "--Class B Shares." In determining the contingent deferred
sales charge applicable to a redemption of Class C shares, it
will be assumed that the redemption is, first, of any shares that
are not subject to a contingent deferred sales charge (for
example, because the shares have been held beyond the period
during which the charge applies or were acquired upon the
reinvestment of dividends or distributions) and, second, of
shares held longest during the time they are subject to the sales
charge.
Proceeds from the contingent deferred sales charge are
paid to the Principal Underwriter and are used by the Principal
Underwriter to defray the expenses of the Principal Underwriter
related to providing distribution-related services to the Fund in
connection with the sale of the Class C shares, such as the
payment of compensation to selected dealers and agents for
selling Class C shares. The combination of the contingent
deferred sales charge and the distribution services fee enables
the Fund to sell the Class C shares without a sales charge being
34
<PAGE>
deducted at the time of purchase. The higher distribution
services fee incurred by Class C shares will cause such shares to
have a higher expense ratio and to pay lower dividends than those
related to Class A shares.
Conversion of Advisor Class Shares to Class A Shares
Advisor Class shares may be held solely through the fee-
based program accounts, employee benefit plans and registered
investment advisory or other financial intermediary relationships
described above under "Purchase of Shares--General" by investment
advisory clients of, and certain other persons associated with,
the Adviser and, its affiliates or the Fund. If (i) a holder of
Advisor Class shares ceases to participate in a fee-based program
or plan, or to be associated with the investment adviser of
financial intermediary that satisfies the requirements to
purchase shares set forth under "Purchase of Shares--General" or
(ii) the holder is otherwise no longer eligible to purchase
Advisor Class shares as described in the Advisor Class Prospectus
and this Statement of Additional Information (each, a "Conversion
Event"), then all Advisor Class shares held by the shareholder
will convert automatically to Class A shares of the Fund during
the calendar month following the month in which the Fund is
informed of the occurrence of the Conversion Event. The Fund
will provide the shareholder with at least 30 days' notice of the
conversion. The failure of a shareholder or a fee-based program
to satisfy the minimum investment requirements to purchase
Advisor Class shares will not constitute a Conversion Event. The
conversion would occur on the basis of the relative net asset
values of the two classes and without the imposition of any sales
load, fee or other charge. Class A shares currently bear a .30%
distribution services fee. Advisor Class shares do not have any
distribution services fee. As a result, Class A shares have a
higher expense ratio and may pay correspondingly lower dividends
and have a lower net asset value than Advisor Class shares.
The conversion of Advisor Class shares to Class A shares
is subject to the continuing availability of an opinion of
counsel to the effect that the conversion of Advisor Class shares
to Class A shares does not constitute a taxable event under
federal income tax law. The conversion of Advisor Class shares
to Class A shares may be suspended if such an opinion is no
longer available at the time such conversion is to occur. In
that event, the Advisor Class shareholder would be required to
redeem his Advisor Class shares, which would constitute a taxable
event under federal income tax law.
35
<PAGE>
____________________________________________________________
REDEMPTION AND REPURCHASE OF SHARES
____________________________________________________________
The following information supplements that set forth in
the Fund's Prospectus under the heading "Purchase and Sale of
Shares--How to Sell Shares." If you are an Advisor Class
shareholder through an account established under a fee-based
program your fee-based program may impose requirements with
respect to the purchase, sale or exchange of Advisor Class shares
of the Fund that are different from those described herein. A
transaction fee may be charged by your financial representative
with respect to the purchase, sale or exchange of Advisor Class
shares made through such financial representative.
Redemption
Subject only to the limitations described below, the
Fund's Articles of Incorporation require that the Fund redeem the
shares tendered to it, as described below, at a redemption price
equal to their net asset value as next computed following the
receipt of shares tendered for redemption in proper form. Except
for any contingent deferred sales charge which may be applicable
to Class A, Class B or Class C shares, there is no redemption
charge. Payment of the redemption price will be made within seven
days after the Fund's receipt of such tender for redemption. If
a shareholder is in doubt about what documents are required by
his or her fee-based program or employee benefit plan, the
shareholder should contact his or her financial representative.
The right of redemption may not be suspended or the date
of payment upon redemption postponed for more than seven days
after shares are tendered for redemption, except for any period
during which the Exchange is closed (other than customary weekend
and holiday closings) or during which the Commission determines
that trading thereon is restricted, or for any period during
which an emergency (as determined by the Commission) exists as a
result of which disposal by the Fund of securities owned by it is
not reasonably practicable or as a result of which it is not
reasonably practicable for the Fund fairly to determine the value
of its net assets, or for such other periods as the Commission
may by order permit for the protection of security holders of the
Fund.
Payment of the redemption price will be made in cash.
The value of a shareholder's shares on redemption or repurchase
may be more or less than the cost of such shares to the
shareholder, depending upon the market value of the Fund's
portfolio securities at the time of such redemption or
repurchase. Redemption proceeds on Class A, Class B and Class C
36
<PAGE>
shares will reflect the deduction of the contingent deferred
sales charge, if any. Payment received by a shareholder upon
redemption or repurchase of his shares, assuming the shares
constitute capital assets in his hands, will result in long-term
or short-term capital gains (or loss) depending upon the
shareholder's holding period and basis in respect of the shares
redeemed.
To redeem shares of the Fund for which no share
certificates have been issued, the registered owner or owners
should forward a letter to the Fund containing a request for
redemption. The signature or signatures on the letter must be
guaranteed by an "eligible guarantor institution" as defined in
Rule 17Ad-15 under the Securities Exchange Act of 1934, as
amended.
To redeem shares of the Fund represented by stock
certificates, the investor should forward the appropriate stock
certificate or certificates, endorsed in blank or with blank
stock powers attached, to the Fund with the request that the
shares represented thereby, or a specified portion thereof, be
redeemed. The stock assignment form on the reverse side of each
stock certificate surrendered to the Fund for redemption must be
signed by the registered owner or owners exactly as the
registered name appears on the face of the certificate or,
alternatively, a stock power signed in the same manner may be
attached to the stock certificate or certificates or, where
tender is made by mail, separately mailed to the Fund. The
signature or signatures on the assignment form must be guaranteed
in the manner described above.
Telephone Redemption By Electronic Funds Transfer. Each
Fund shareholder is entitled to request redemption by electronic
fund transfer of shares for which no stock certificates have been
issued by telephone at (800) 221-5672 by a shareholder who has
completed the appropriate portion of the Subscription Application
or, in the case of an existing shareholder, an "Autosell"
application obtained from Alliance Fund Services, Inc. A
telephone redemption request may not exceed $100,000 (except for
certain omnibus accounts), and must be made by 4:00 p.m. Eastern
time on a Fund business day as defined above. Proceeds of
telephone redemptions will be sent by electronic funds transfer
to a shareholder's designated bank account at a bank selected by
the shareholder that is a member of the NACHA.
Telephone Redemption By Check. Each Fund shareholder is
eligible to request redemption by check of Fund shares for which
no stock certificates have been issued by telephone at
(800) 221-5672 before 4:00 p.m. Eastern time on a Fund business
day in an amount not exceeding $50,000. Proceeds of such
redemptions are remitted by check to the shareholder's address of
37
<PAGE>
record. A shareholder otherwise eligible for telephone
redemption by check may cancel the privilege by written
instruction to Alliance Fund Services, Inc., or by checking the
appropriate box on the Subscription Application found in the
Prospectus.
Telephone Redemptions - General. During periods of
drastic economic or market developments, such as the market break
of October 1987, it is possible that shareholders would have
difficulty in reaching AFS by telephone (although no such
difficulty was apparent at any time in connection with the 1987
market break). If a shareholder were to experience such
difficulty, the shareholder should issue written instructions to
Alliance Fund Services, Inc. at the address shown on the cover of
this Statement of Additional Information. The Fund reserves the
right to suspend or terminate its telephone redemption service at
any time without notice. Telephone redemption is not available
with respect to shares (i) for which certificates have been
issued, (ii) held in nominee or "street name" accounts,
(iii) held by a shareholder who has changed his or her address of
record within the preceding 30 calendar days or (iv) held in any
retirement plan account. Neither the Fund nor the Adviser, the
Principal Underwriter or Alliance Fund Services, Inc. will be
responsible for the authenticity of telephone requests for
redemptions that the Fund reasonably believes to be genuine. The
Fund will employ reasonable procedures in order to verify that
telephone requests for redemptions are genuine, including, among
others, recording such telephone instructions and causing written
confirmations of the resulting transactions to be sent to
shareholders. If the Fund did not employ such procedures, it
could be liable for losses arising from unauthorized or
fraudulent telephone instructions. Selected dealers or agents
may charge a commission for handling telephone requests for
redemptions.
Repurchase
The Fund may repurchase shares through the Principal
Underwriter, selected financial intermediaries or selected
dealers or agents. The repurchase price will be the net asset
value next determined after the Principal Underwriter receives
the request (less the contingent deferred sales charge, if any,
with respect to the Class A, Class B and Class C shares), except
that requests placed through selected dealers or agents before
the close of regular trading on the Exchange on any day will be
executed at the net asset value determined as of such close of
regular trading on that day if received by the Principal
Underwriter prior to its close of business on that day (normally
5:00 p.m. Eastern time). The financial intermediary or selected
dealer or agent is responsible for transmitting the request to
the Principal Underwriter by 5:00 p.m. Eastern time (certain
38
<PAGE>
selected dealers, agents or financial representatives may enter
into operating agreements permitting them to transmit purchase
information to the Principal Underwriter after 5:00 p.m. Eastern
time and receive that day's net asset value). If the financial
intermediary or selected dealer or agent fails to do so, the
shareholder's right to receive that day's closing price must be
settled between the shareholder and the dealer or agent. A
shareholder may offer shares of the Fund to the Principal
Underwriter either directly or through a selected dealer or
agent. Neither the Fund nor the Principal Underwriter charges a
fee or commission in connection with the repurchase of shares
(except for the contingent deferred sales charge, if any, with
respect to Class A, Class B and Class C shares). Normally, if
shares of the Fund are offered through a financial intermediary
or selected dealer or agent, the repurchase is settled by the
shareholder as an ordinary transaction with or through the
selected dealer or agent, who may charge the shareholder for this
service. The repurchase of shares of the Fund as described above
is a voluntary service of the Fund and the Fund may suspend or
terminate this practice at any time.
General
The Fund reserves the right to close out an account that
through redemption has remained below $200 for 90 days.
Shareholders will receive 60 days' written notice to increase the
account value before the account is closed. No contingent
deferred sales charge will be deducted from the proceeds of this
redemption. In the case of a redemption or repurchase of shares
of the Fund recently purchased by check, redemption proceeds will
not be made available until the Fund is reasonably assured that
the check has cleared, normally up to 15 calendar days following
the purchase date.
____________________________________________________________
SHAREHOLDER SERVICES
____________________________________________________________
The following information supplements that set forth in
the Fund's Prospectus under the heading "Purchase and Sale of
Shares-Shareholder Services." The shareholder services set forth
below are applicable to Class A, Class B, Class C and Advisor
Class shares unless otherwise indicated. If you are an Advisor
Class shareholder through an account established under a fee-
based program your fee-based program may impose requirements with
respect to the purchase, sale or exchange of Advisor Class shares
of the Fund that are different from those described herein. A
transaction fee may be charged by your financial representative
with respect to the purchase, sale or exchange of Advisor Class
shares made through such financial representative.
39
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Automatic Investment Program
Investors may purchase shares of the Fund through an
automatic investment program utilizing "Electronic Funds
Transfer" drawn on the investor's own bank account. Under such a
program, pre-authorized monthly drafts for a fixed amount (at
least $25) are used to purchase shares through the selected
dealer or selected agent designated by the investor at the public
offering price next determined after the Principal Underwriter
receives the proceeds from the investor's bank. In electronic
form, drafts can be made on or about a date each month selected
by the shareholder. Investors wishing to establish an automatic
investment program in connection with their initial investment
should complete the appropriate portion of the Subscription
Application found in the Prospectus. Current shareholders should
contact Alliance Fund Services, Inc. at the address or telephone
numbers shown on the cover of this Statement of Additional
Information to establish an automatic investment program.
Exchange Privilege
You may exchange your investment in the Fund for shares
of the same class of other Alliance Mutual Funds (including AFD
Exchange Reserves, a money market fund managed by the Adviser).
In addition, (i) present officers and full-time employees of the
Adviser, (ii) present Directors or Trustees of any Alliance
Mutual Fund and (iii) certain employee benefit plans for
employees of the Adviser, the Principal Underwriter, Alliance
Fund Services, Inc. and their affiliates may, on a tax-free
basis, exchange Class A shares of the Fund for Advisor Class
shares of the Fund. Exchanges of shares are made at the net
asset value next determined and without sales or service charges.
Exchanges may be made by telephone or written request. Telephone
exchange requests must be received by Alliance Fund Services,
Inc. by 4:00 p.m. Eastern time on a Fund business day in order to
receive that day's net asset value.
Shares will continue to age without regard to exchanges
for purpose of determining the CDSC, if any, upon redemption and,
in the case of Class B shares, for the purpose of conversion to
Class A shares. After an exchange, your Class B shares will
automatically convert to Class A shares in accordance with the
conversion schedule applicable to the Class B shares of the
Alliance Mutual Fund you originally purchased for cash ("original
shares"). When redemption occurs, the CDSC applicable to the
original shares is applied.
Please read carefully the prospectus of the mutual fund
into which you are exchanging before submitting the request.
Call Alliance Fund Services, Inc. at (800) 221-5672 to exchange
uncertificated shares. Except with respect to exchange of
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Class A shares of the Fund for Advisor Class shares of the Fund,
exchanges of shares as describe above in this section are taxable
transactions for the federal tax purposes. The exchange service
may be changed, suspended or terminated on 60 days written
notice.
All exchanges are subject to the minimum investment
requirements and any other applicable terms set forth in the
Prospectus for the Alliance Mutual Fund whose shares are being
acquired. An exchange is effected through the redemption of the
shares tendered for exchange and the purchase of shares being
acquired at their respective net asset values as next determined
following receipt by the Alliance Mutual Fund whose shares are
being exchanged of (i) proper instructions and all necessary
supporting documents as described in such fund's Prospectus or
(ii) a telephone request for such exchange in accordance with the
procedures set forth in the following paragraph. Exchanges
involving the redemption of shares recently purchased by check
will be permitted only after the Alliance Mutual Fund whose
shares have been tendered for exchange is reasonably assured that
the check has cleared, normally up to 15 calendar days following
the purchase date. Exchanges of shares of Alliance Mutual Funds
will generally result in the realization of a capital gain or
loss for federal income tax purposes.
Each Fund shareholder, and the shareholder's selected
dealer, agent or financial representative, as applicable, are
authorized to make telephone requests for exchanges unless
Alliance Fund Services, Inc., receives written instruction to the
contrary from the shareholder, or the shareholder declines the
privilege by checking the appropriate box on the Subscription
Application found in the Prospectus. Such telephone requests
cannot be accepted with respect to shares then represented by
stock certificates. Shares acquired pursuant to a telephone
request for exchange will be held under the same account
registration as the shares redeemed through such exchange.
Eligible shareholders desiring to make an exchange
should telephone Alliance Fund Services, Inc. with their account
number and other details of the exchange, at (800) 221-5672
before 4:00 p.m., Eastern time, on a Fund business day as defined
above. Telephone requests for exchange received before 4:00 p.m.
Eastern time on a Fund business day will be processed as of the
close of business on that day. During periods of drastic
economic or market developments, such as the market break of
October 1987, it is possible that shareholders would have
difficulty in reaching Alliance Fund Services, Inc. by telephone
(although no such difficulty was apparent at any time in
connection with the 1987 market break). If a shareholder were to
experience such difficulty, the shareholder should issue written
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<PAGE>
instructions to Alliance Fund Services, Inc. at the address shown
on the cover of this Statement of Additional Information.
A shareholder may elect to initiate a monthly "Auto
Exchange" whereby a specified dollar amount's worth of his or her
Fund shares (minimum $25) is automatically exchanged for shares
of another Alliance Mutual Fund. Auto Exchange transactions
normally occur on the 12th day of each month, or the Fund
business day prior thereto.
None of the Alliance Mutual Funds, the Adviser, the
Principal Underwriter or Alliance Fund Services, Inc. will be
responsible for the authenticity of telephone requests for
exchanges that the Fund reasonably believes to be genuine. The
Fund will employ reasonable procedures in order to verify that
telephone requests for exchanges are genuine, including, among
others, recording such telephone instructions and causing written
confirmations of the resulting transactions to be sent to
shareholders. If the Fund did not employ such procedures, it
could be liable for losses arising from unauthorized or
fraudulent telephone instructions. Selected dealers, agents or
financial representatives, as applicable, may charge a commission
for handling telephone requests for exchanges.
The exchange privilege is available only in states where
shares of the Alliance Mutual Fund being acquired may be legally
sold. Each Alliance Mutual Fund reserves the right, at any time
on 60 days' notice to its shareholders, to reject any order to
acquire its shares through exchange or otherwise to modify,
restrict or terminate the exchange privilege.
Retirement Plans
The Fund may be a suitable investment vehicle for part
or all of the assets held in various types of retirement plans,
such as those listed below. The Fund has available forms of such
plans pursuant to which investments can be made in the Fund and
other Alliance Mutual Funds. Persons desiring information
concerning these plans should contact Alliance Fund Services,
Inc. at the "For Literature" telephone number on the cover of
this Statement of Additional Information, or write to:
Alliance Fund Services, Inc.
Retirement Plans
P.O. Box 1520
Secaucus, New Jersey 07096-1520
Individual Retirement Account ("IRA"). Individuals who
receive compensation, including earnings from self-employment,
are entitled to establish and make contributions to an IRA.
Taxation of the income and gains paid to an IRA by the Fund is
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<PAGE>
deferred until distribution from the IRA. An individual's
eligible contribution to an IRA will be deductible if neither the
individual nor his or her spouse is an active participant in an
employer-sponsored retirement plan. If the individual or his or
her spouse is an active participant in an employer-sponsored
retirement plan, the individual's contributions to an IRA may be
deductible, in whole or in part, depending on the amount of the
adjusted gross income of the individual and his or her spouse.
Employer-Sponsored Qualified Retirement Plans. Sole
proprietors, partnerships and corporations may sponsor qualified
money purchase pension and profit-sharing plans, including
Section 401(k) plans ("qualified plans"), under which annual tax-
deductible contributions are made within prescribed limits based
on compensation paid to participating individuals. The minimum
initial investment requirement may be waived with respect to
certain of these qualified plans.
If the aggregate net asset value of shares of the
Alliance Mutual Funds held by a qualified plan reaches $1 million
on or before December 15 in any year, all Class B shares and
Class C shares of the Fund held by the plan can be exchanged at
the plan's request, without any sales charge, for Class A shares
of the Fund.
Simplified Employee Pension Plan ("SEP"). Sole
proprietors, partnerships and corporations may sponsor a SEP
under which they make annual tax-deductible contributions to an
IRA established by each eligible employee within prescribed
limits based on employee compensation.
403(b)(7) Retirement Plan. Certain tax-exempt
organizations and public educational institutions may sponsor
retirement plans under which an employee may agree that monies
deducted from his or her compensation (minimum $25 per pay
period) may be contributed by the employer to a custodial account
established for the employee under the plan.
The Alliance Plans Division of Frontier Trust Company, a
subsidiary of Equitable, which serves as custodian or trustee
under the retirement plan prototype forms available from the
Fund, charges certain nominal fees for establishing an account
and for annual maintenance. A portion of these fees is remitted
to Alliance Fund Services, Inc. as compensation for its services
to the retirement plan accounts maintained with the Fund.
Distributions from retirement plans are subject to
certain Code requirements in addition to normal redemption
procedures. For additional information please contact Alliance
Fund Services, Inc.
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Dividend Direction Plan
A shareholder who already maintains, in addition to his
or her Class A, Class B, Class C or Advisor Class Fund accounts,
a Class A, Class B, Class C or Advisor Class account with one or
more other Alliance Mutual Funds may direct that income dividends
and/or capital gains paid on the shareholder's Class A, Class B,
Class C or Advisor Class Fund shares be automatically reinvested,
in any amount, without the payment of any sales or service
charges, in shares of the same class of such other Alliance
Mutual Fund(s). Further information can be obtained by
contacting Alliance Fund Services, Inc. at the address or the
"For Literature" telephone number shown on the cover of this
Statement of Additional Information. Investors wishing to
establish a dividend direction plan in connection with their
initial investment should complete the appropriate section of the
Subscription Application found in the Prospectus. Current
shareholders should contact Alliance Fund Services, Inc. to
establish a dividend direction plan.
Systematic Withdrawal Plan
General. Any shareholder who owns or purchases shares
of the Fund having a current net asset value of at least $4,000
(for quarterly or less frequent payments), $5,000 (for bi-monthly
payments) or $10,000 (for monthly payments) may establish a
systematic withdrawal plan under which the shareholder will
periodically receive a payment in a stated amount of not less
than $50 on a selected date. Systematic withdrawal plan
participants must elect to have their dividends and distributions
from the Fund automatically reinvested in additional shares of
the Fund.
Shares of the Fund owned by a participant in the Fund's
systematic withdrawal plan will be redeemed as necessary to meet
withdrawal payments and such payments will be subject to any
taxes applicable to redemptions and, except as discussed below,
any applicable contingent deferred sales charge. Shares acquired
with reinvested dividends and distributions will be liquidated
first to provide such withdrawal payments and thereafter other
shares will be liquidated to the extent necessary, and depending
upon the amount withdrawn, the investor's principal may be
depleted. A systematic withdrawal plan may be terminated at any
time by the shareholder or the Fund.
Withdrawal payments will not automatically end when a
shareholder's account reaches a certain minimum level. Therefore,
redemptions of shares under the plan may reduce or even liquidate
a shareholder's account and may subject the shareholder to the
Fund's involuntary redemption provisions. See "Redemption and
Repurchase of Shares -- General." Purchases of additional shares
44
<PAGE>
concurrently with withdrawals are undesirable because of sales
charges when purchases are made. While an occasional lump-sum
investment may be made by a holder of Class A shares who is
maintaining a systematic withdrawal plan, such investment should
normally be an amount equivalent to three times the annual
withdrawal or $5,000, whichever is less.
Payments under a systematic withdrawal plan may be made
by check or electronically via the Automated Clearing House
("ACH") network. Investors wishing to establish a systematic
withdrawal plan in conjunction with their initial investment in
shares of the Fund should complete the appropriate portion of the
Subscription Application found in the Prospectus, while current
Fund shareholders desiring to do so can obtain an application
form by contacting Alliance Fund Services, Inc. at the address or
the "For Literature" telephone number shown on the cover of this
Statement of Additional Information.
CDSC Waiver for Class B Shares and Class C Shares.
Under a systematic withdrawal plan, up to 1% monthly, 2%
bi-monthly or 3% quarterly of the value at the time of redemption
of the Class B or Class C shares in a shareholder's account may
be redeemed free of any contingent deferred sales charge.
With respect to Class B shares, the waiver applies only
with respect to shares acquired after July 1, 1995. Class B
shares that are not subject to a contingent deferred sales charge
(such as shares acquired with reinvested dividends or
distributions) will be redeemed first and will count toward the
foregoing limitations. Remaining Class B shares acquired after
that are held the longest and will be redeemed next. Redemptions
of Class B shares in excess of the foregoing limitations will be
subject to any otherwise applicable contingent deferred sales
charge.
With respect to Class C shares, shares held the longest
will be redeemed first and will count toward the foregoing
limitations. Redemptions in excess of those limitations will be
subject to any otherwise applicable contingent deferred sales
charge.
Statements and Reports
Each shareholder of the Fund receives semi-annual and
annual reports which include a portfolio of investments,
financial statements and, in the case of the annual report, the
report of the Fund's independent accountants,
PricewaterhouseCoopers LLP, as well as a confirmation of each
purchase and redemption. By contacting his or her broker or
Alliance Fund Services, Inc., a shareholder can arrange for
45
<PAGE>
copies of his or her account statements to be sent to another
person.
____________________________________________________________
NET ASSET VALUE
____________________________________________________________
The per share net asset value is computed in accordance
with the Fund's Articles of Incorporation and By-Laws at the next
close of regular trading on the Exchange (ordinarily 4:00 p.m.
Eastern time) following receipt of a purchase or redemption order
by the Fund on each Fund business day on which such an order is
received and on such other days as the Board of Directors deems
appropriate or necessary in order to comply with Rule 22c-1 under
the 1940 Act. The Fund's per share net asset value is calculated
by dividing the value of the Fund's total assets, less its
liabilities, by the total number of its shares then outstanding.
A Fund business day is any weekday on which the Exchange is open
for trading.
In accordance with applicable rules under the 1940 Act,
portfolio securities are valued at current market value or at
fair value as determined in good faith by the Board of Directors.
The Board of Directors has delegated to the Adviser certain of
the Board's duties with respect to the following procedures.
Readily marketable securities listed on the Exchange or on a
foreign securities exchange (other than foreign securities
exchanges whose operations are similar to those of the United
States over-the-counter market) are valued, except as indicted
below, at the last sale price reflected on the consolidated tape
at the close of the Exchange or, in the case of a foreign
securities exchange, at the last quoted sale price, in each case
on the business day as of which such value is being determined.
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. If
no bid or asked prices are quoted on such day, then the security
is valued in good faith at fair value by, or in accordance with
procedures established by, the Board of Directors. Readily
marketable securities not listed on the Exchange or on a foreign
securities exchange but listed on other United States national
securities exchanges or traded on The Nasdaq Stock Market, Inc.
are valued in like manner. Portfolio securities traded on the
Exchange and on one or more foreign or other national securities
exchanges, and portfolio securities not traded on the Exchange
but traded on one or more foreign or other national securities
exchanges are valued in accordance with these procedures by
reference to the principal exchange on which the securities are
traded.
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<PAGE>
Readily marketable securities traded in the over-the-
counter market, securities listed on a foreign securities
exchange whose operations are similar to those of the United
States over-the-counter market, and securities listed on a U.S.
national securities exchange whose primary market is believed to
be over-the-counter (but excluding securities traded on The
Nasdaq Stock Market, Inc.), are valued at the mean of the current
bid and asked prices as reported by Nasdaq or, in the case of
securities not quoted by Nasdaq, the National Quotation Bureau or
another comparable sources.
Listed put or call options purchased by the Fund 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 will be
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 valuations, the last
available closing settlement price will be used.
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
(unless in either case the Board of Directors determines that
this method does not represent fair value).
Fixed-income securities may be valued on the basis of
prices provided by a pricing service when such prices are
believed to reflect the fair market value of such securities.
The prices provided by pricing service take into account many
factors, including institutional size trading in similar groups
of securities and any developments related to specific
securities.
All other assets of the Fund are valued in good faith at
fair value by, or in accordance with procedures established by,
the Board of Directors.
Trading in securities on Far Eastern and European
securities exchanges and over-the-counter markets is normally
completed well before the close of business of each Fund business
day. In addition, trading in foreign markets may not take place
on all Fund business days. Furthermore, trading may take place
in various foreign markets on days that are not Fund business
days. The Fund's calculation of the net asset value per share,
therefore, does not always take place contemporaneously with the
most recent determination of the prices of portfolio securities
47
<PAGE>
in these markets. Events affecting the values of these portfolio
securities that occur between the time their prices are
determined in accordance with the above procedures and the close
of the Exchange will not be reflected in the Fund's calculation
of net asset value unless it is believed that these prices do not
reflect current market value, in which case the securities will
be valued in good faith by, or in accordance with procedures
established by, the Board of Directors at fair value.
The Board of Directors may suspend the determination of
the Fund's net asset value (and the offering and sale of shares),
subject to the rules of the Commission and other governmental
rules and regulations, at a time when: (1) the Exchange is
closed, other than customary weekend and holiday closings, (2) an
emergency exists as a result of which it is not reasonably
practicable for the Fund to dispose of securities owned by it or
to determine fairly the value of its net assets, or (3) for the
protection of shareholders, the Commission by order permits a
suspension of the right of redemption or a postponement of the
date of payment on redemption.
For purposes of determining the Fund's net asset value
per share, all assets and liabilities initially expressed in a
foreign currency will be converted into U.S. dollars at the mean
of the current bid and asked prices of such currency against the
U.S. dollar last quoted by a major bank that is a regular
participant in the relevant foreign exchange market or on the
basis of a pricing service that takes into account the quotes
provided by a number of such major banks. If such quotations are
not available as of the close of the Exchange, the rate of
exchange will be determined in good faith by, or under the
direction of, the Board of Directors.
The assets attributable to the Class A shares, Class B
shares, Class C shares and Advisor Class shares will be invested
together in a single portfolio. The net asset value of each
class will be determined separately by subtracting the
liabilities allocated to that class from the assets belonging to
that class in conformance with the provisions of a plan adopted
by the Fund in accordance with Rule 18f-3 under the 1940 Act.
____________________________________________________________
DIVIDENDS, DISTRIBUTIONS AND TAXES
____________________________________________________________
Dividends paid by the Fund, if any, with respect to
Class A, Class B, Class C and Advisor Class shares will be
calculated in the same manner at the same time on the same day
and will be in the same amount, except that the higher
distribution services applicable to Class B and C shares, and any
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<PAGE>
incremental transfer agency costs relating to Class B and Class C
shares, will be borne exclusively by the class to which they
relate.
The Fund intends to qualify to be taxed as a regulated
investment company under the Internal Revenue Code for each
taxable year. Qualification as a regulated investment company
under the Internal Revenue Code requires, among other things,
that (a) at least 90% of the Fund's annual gross income, without
offset for losses from the sale or other disposition of
securities, be derived from interest, payments with respect to
securities loans, dividends, gains from the sale or other
disposition of securities or options thereon and certain other
qualifying income; and (b) the Fund diversify its holdings so
that, at the end of each quarter of the taxable year, (i) at
least 50% of the market value of the Fund's assets is represented
by cash, government securities and other securities limited in
respect of any one issuer to an amount not greater than 5% of the
Fund's assets and 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of its
assets is invested in the securities of any one issuer (other
than government securities). If the Fund qualifies as a
regulated investment company for any taxable year and makes
timely distributions to the Fund's shareholders of 90% or more of
its net investment income for that year (calculated without
regard to its net capital gain, i.e., the excess of its net long-
term capital gain over its net short-term capital loss) it will
not be subject to federal income tax on the portion of its
taxable income for the year (including any net capital gain) that
it distributes to its shareholders. The Fund will also avoid the
nondeductible 4% federal excise tax that would otherwise apply to
certain undistributed income for a given calendar year if it
makes timely distributions to its shareholders which meet certain
minimum distribution requirements. For this purpose, income or
gain retained by the Fund which is subject to corporate income
tax will be considered to have been distributed by year-end. In
addition, dividends declared in October, November or December
payable to shareholders of record as of a specified date during
such month and paid in the following January will be treated as
having been paid by the Fund and received by shareholders in
December.
In the case of corporate shareholders, a portion of the
Fund's dividends may be eligible for the dividends-received
deduction. The amount eligible for the deduction is limited to
the amount of qualifying dividends received by the Fund. A
corporation's dividends-received deduction generally will be
disallowed unless the corporation holds shares in the Fund at
least 46 days during the 90-day period beginning 45 days before
the date on which the corporation becomes entitled to receive the
dividend. Furthermore, the dividends-received deduction will be
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<PAGE>
disallowed to the extent a corporation's investment in shares of
the Fund is financed with indebtedness.
A dividend or capital gains distribution with respect to
shares of the Fund held by a tax-deferred or qualified plan, such
as an individual retirement account, 403(b)(7) retirement plan or
corporate pension or profit-sharing plan, generally will not be
taxable to the plan. Distributions from such plans will be
taxable to individual participants under applicable tax rules
without regard to the character of the income earned by the
qualified plan.
Gains or losses on sales of securities by the Fund
generally will be long-term capital gains or losses if the
securities have been held by it for more than one year. Other
gains or losses on the sale of securities will be short-term
capital gains or losses. If an option written by the Fund lapses
or is terminated through a closing transaction, such as a
repurchase by the Fund of the option of its holder, the Fund may
realize a short-term capital gain or loss, depending on whether
the premium income is greater or less than the amount paid by the
Fund in the closing transaction. If securities are sold by the
Fund pursuant to the exercise of a call option written by it, the
Fund will add the premium received to the sale price of the
securities delivered in determining the amount of gain or loss on
the sale.
It is the present policy of the Fund to distribute to
shareholders all net investment income quarterly and to
distribute net realized capital gains, if any, annually. The
amount of any such distributions must necessarily depend upon the
realization by the Fund of income and capital gains from
investments. Distributions of net capital gain are taxable as
long-term capital gain, regardless of how long a shareholder has
held shares in the Fund.
____________________________________________________________
PORTFOLIO TRANSACTIONS
____________________________________________________________
Subject to the general supervision and control of the
Directors of the Fund, the Adviser makes the Fund's portfolio
decisions and determines the broker to be used in each specific
transaction with the objective of negotiating best price and
execution. When consistent with the objective of obtaining best
execution, brokerage may be directed to persons or firms
supplying investment information to the Adviser. There may be
occasions where the transaction cost charged by a broker may be
greater than that which another broker may charge if the Fund
determines in good faith that the amount of such transaction cost
50
<PAGE>
is reasonable in relation to the value of the brokerage, research
and statistical services provided by the executing broker.
Consistent with the Rules of Fair Practice of the National
Association of Securities Dealers, Inc., and subject to seeking
best execution, the Fund may consider sales of shares of the Fund
as a factor in the selection of brokers to execute portfolio
transactions for the Fund.
Neither the Fund nor the Adviser has entered into
agreements or understandings with any brokers regarding the
placement of securities transactions because of research or
statistical services they provide. To the extent that such
persons or firms supply investment information to the Adviser for
use in rendering investment advice to the Fund, such information
may be supplied at no cost to the Adviser. While it is
impossible to place an actual dollar value on such investment
information, its receipt by the Adviser probably does not reduce
the overall expenses of the Adviser to any material extent.
The investment information provided to the Adviser is of
the type described in Section 28(e)(3) of the Securities Exchange
Act of 1934 and is designed to augment the Adviser's own internal
research and investment strategy capabilities. Research and
statistical services furnished by brokers through which the Fund
effects securities transactions are used by the Adviser in
carrying out its investment management responsibilities with
respect to all its client accounts but not all such services may
be used by the Adviser in connection with the Fund.
The extent to which commissions that will be charged by
broker-dealers selected by the Fund may reflect an element of
value for research cannot presently be determined. To the extent
that research services of value are provided by broker-dealers
with or through whom the Fund places portfolio transactions, the
Adviser may be relieved of expenses which it might otherwise
bear. Research services furnished by broker-dealers could be
useful and of value to the Adviser in servicing its other clients
as well as the Fund; but, on the other hand, certain research
services obtained by the Adviser as a result of the placement of
portfolio brokerage of other clients could be useful and of value
to it in serving the Fund. Consistent with the Conduct Rules of
the National Association of Securities Dealers, Inc. and subject
to seeking best execution, the Fund may consider sales of shares
of the Fund or other investment companies managed by the Adviser
as a factor in the selection of brokers to execute portfolio
transactions for the Fund.
The Fund may deal in some instances in securities which
are not listed on a national stock exchange but are traded in the
over-the-counter market. The Fund may also purchase listed
securities through the third market, i.e., from a dealer which is
51
<PAGE>
not a member of the exchange on which a security is listed. Where
transactions are executed in the over-the-counter market or third
market, the Fund will seek to deal with the primary market
makers; but when necessary in order to obtain the best price and
execution, it will utilize the services of others. In all cases,
the Fund will attempt to negotiate best execution.
With respect to orders placed with Donaldson, Lufkin &
Jenrette Securities Corporation (DLJ), for execution on a
national securities exchange, commissions received must conform
to Section 17(e)(2)(A) of the 1940 Act and Rule 17e- 1
thereunder, which permit an affiliated person of a registered
investment company (such as the Fund), or any affiliated person
of such person, to receive a brokerage commission from such
registered investment company provided that such commission is
reasonable and fair compared to the commissions received by other
brokers in connection with comparable transactions involving
similar securities during a comparable period of time.
During the fiscal years ended July 31, 1999, 1998 and
1997, the Fund incurred brokerage commissions amounting in the
aggregate to $327,916, $214,102 and $225,475, respectively.
During the fiscal years ended July 31, 1999, 1998 and 1997,
brokerage commissions amounting in the aggregate to $4,902,
$1,645 and $0, respectively, were paid to DLJ and brokerage
commissions amounting in the aggregate to $1,500, $0 and $0,
respectively, were paid to brokers utilizing the Pershing
Division of DLJ. During the fiscal year ended July 31, 1999, the
brokerage commissions paid to DLJ constituted 1.49% of the Fund's
aggregate brokerage commissions and the brokerage commissions
paid to brokers utilizing the Pershing Division of DLJ
constituted .46% of the Fund's aggregate brokerage commissions.
During the fiscal year ended July 31, 1999, of the Fund's
aggregate dollar amount of brokerage transactions involving the
payment of commissions, 1.49% were effected through DLJ and .46%
were effected through brokers utilizing the Pershing Division of
DLJ. During the fiscal year ended July 31, 1999, transactions in
portfolio securities of the Fund aggregating $601,809,336 with
associated brokerage commissions of approximately $148,304 were
allocated to persons or firms supplying research services to the
Fund or the Adviser.
____________________________________________________________
GENERAL INFORMATION
____________________________________________________________
Capitalization
The Fund is a Maryland corporation organized in 1932.
The Fund's capital stock of the Fund currently consists of
52
<PAGE>
3,000,000,000 shares of Class A Common Stock, 3,000,000,000
shares of Class B Common Stock, 3,000,000,000 shares of Class C
and 3,000,000,000 shares of Advisor Class Common Stock each
having a par value $.01 per share. All shares of the Fund, when
issued, are fully paid and non-assessable. The Directors are
authorized to reclassify and issue any unissued shares to any
number of additional series and classes without shareholder
approval. Accordingly, the Directors in the future, for reasons
such as the desire to establish one or more additional portfolios
with different investment objectives, policies or restrictions,
may create additional classes or series of shares. Any issuance
of shares of another class or series would be governed by the
1940 Act and the law of the State of Maryland. If shares of
another series were issued in connection with the creation of a
second portfolio, each share of either portfolio would normally
be entitled to one vote for all purposes. Generally, shares of
both portfolios would vote as a single series on matters, such as
the election of Directors, that affected both portfolios in
substantially the same manner. As to matters affecting each
portfolio differently, such as approval of the Advisory Agreement
and changes in investment policy, shares of each portfolio would
vote as a separate series.
Procedures for calling a shareholders' meeting for the
removal of Directors of the Fund, similar to those set forth in
Section 16(c) of the 1940 Act will be available to shareholders
of the Fund. The rights of the holders of shares of a series may
not be modified except by the vote of a majority of the
outstanding shares of such series.
It is anticipated that annual shareholder meetings will
not be held; shareholder meetings will be held only when required
by federal or state law. Shareholders have available certain
procedures for the removal of Directors.
A shareholder will be entitled to share pro rata with
other holders of the same class of shares all dividends and
distributions arising from the Fund's assets and, upon redeeming
shares, will receive the then current net asset value of the Fund
represented by the redeemed shares less any applicable CDSC. The
Fund is empowered to establish, without shareholder approval,
additional portfolios, which may have different investment
objectives and policies than those of the Fund, and additional
classes of shares within the Fund. If an additional portfolio or
class were established in the Fund, each share of the portfolio
or class would normally be entitled to one vote for all purposes.
Generally, shares of each portfolio and class would vote together
as a single class on matters, such as the election of Directors,
that affect each portfolio and class in substantially the same
manner. Class A, B, C and Advisor Class shares have identical
voting, dividend, liquidation and other rights, except that each
53
<PAGE>
class bears its own transfer agency expenses, each of Class A,
Class B and Class C shares of the Fund bears its own distribution
expenses and Class B shares and Advisor Class shares convert to
Class A shares under certain circumstances. Each class of shares
of the Fund votes separately with respect to the Fund's Rule 12b-
1 distribution plan and other matters for which separate class
voting is appropriate under applicable law. Shares are freely
transferable, are entitled to dividends as determined by the
Directors and, in liquidation of the Fund, are entitled to
receive the net assets of the Fund.
At October 8, 1999 there were 26,548,241 shares of
common stock of the Fund outstanding including 12,375,482
Class A shares, 9,750,116 Class B shares, 4,255,041 Class C
shares and 167,602 Advisor Class shares.
To the knowledge of the Fund, the following persons
owned of record or beneficially, 5% or more of a class of the
outstanding shares of the Fund as of October 8, 1999:
No. of % of
Shares % of % of % of Advisor
Name and Address of Class Class A Class B Class C Class
MLPF&S
For the Sole Benefit of
Its Customers
4800 Deer Lake Dr. East
2nd Floor 1,553,166 16.01%
Jacksonville, FL 1,706,344 40.05%
32246-6484 15,573 9.26%
Trust for Profit Sharing
For Alliance Capital
Employees
1345 Avenue of the Americas
New York, NY 10105 127,946 76.09%
Custodian
State Street Bank and Trust Company, 225 Franklin
Street, Boston, Massachusetts 02110, will act as the Fund's
custodian for the assets of the Fund but plays no part in
deciding the purchase or sale of portfolio securities. Subject
to the supervision of the Fund's Directors, State Street Bank and
Trust Company may enter into sub-custodial agreements for the
holding of the Fund's foreign securities.
54
<PAGE>
Principal Underwriter
Alliance Fund Distributors, Inc., an indirect wholly-
owned subsidiary of the Adviser, located at 1345 Avenue of the
Americas, New York, New York 10105, is the principal underwriter
of shares of the Fund. Under the Distribution Services
Agreement, the Fund has agreed to indemnify the Principal
Underwriter, in the absence of its willful misfeasance, bad
faith, gross negligence or reckless disregard of its obligations
thereunder, against certain civil liabilities, including
liabilities under the Securities Act of 1933, as amended.
Counsel
Legal matters in connection with the issuance of the
common stock offered hereby are passed upon by Seward & Kissel
LLP, New York, New York. Seward & Kissel LLP has relied upon the
opinion of Venable, Baetjer & Howard, LLP, Baltimore, Maryland,
for matters relating to Maryland law.
Independent Accountants
PricewaterhouseCoopers LLP, New York, New York, serves
as independent accountants for the Fund.
Performance Information
From time to time, the Fund advertises its "yield,"
"actual distribution rate" and "total return." Computed
separately for each class, the Fund's yield for any 30-day (or
one month) period is computed by dividing the net investment
income per share earned during such period by the maximum public
offering price per share on the last day of the period, and then
annualizing such 30-day (or one month) yield in accordance with a
formula prescribed by the Commission which provides for
compounding on a semi-annual basis. The Fund's "actual
distribution rate," which may be advertised in items of sales
literature, is computed in the same manner as yield except that
actual income dividends declared per share during the period in
question is substituted for net investment income per share.
Computed separately for each class, the Fund's "total return" is
its average annual compounded total return for recent one, five
and ten year periods. The Fund's actual distribution rate is
computed separately for Class A, Class B, Class C and Advisor
Class shares. The Fund's total return for such a period is
computed by finding, through the use of a formula prescribed by
the Commission, the average annual compounded rate of return over
the period that would equate an assumed initial amount invested
to the value of such investment at the end of the period. For
purposes of computing total return, income dividends and capital
gains distributions paid on shares of the Fund are assumed to
55
<PAGE>
have been reinvested when received and the maximum sales charge
applicable to purchases of Fund shares is assumed to have been
paid.
The Fund calculates average annual total return
information in the Performance Table in the Risk/Return Summary
according to the Commission formula as described above. In
accordance with Commission guidelines, total return information
is presented for each class for the same time periods, i.e., the
1, 5 and 10 years (or over the life of the Fund, if the Fund is
less than 10 years old) ending on the last day of the most recent
calendar year. Since different classes may have first been sold
on different dates ("Actual Inception Dates"), in some cases this
can result in return information being presented for a class for
periods prior to its Actual Inception Date. Where return
information is presented for periods prior to the Actual
Inception Date of a Class (a "Younger Class"), such information
is calculated by using the historical performance of the class
with the earliest Actual Inception Date (the "Oldest Class").
For this purpose, the Fund calculates the difference in total
annual fund operating expenses (as a percentage of average net
assets) between the Younger Class and the Oldest Class, divides
the difference by 12, and subtracts the result from the monthly
performance at net asset value (including reinvestment of all
dividends and distributions) of the Oldest Class for each month
prior to the Younger Class's Actual Inception Date for which
performance information is to be shown. The resulting "pro
forma" monthly performance information is used to calculate the
Younger Class's average annual returns for these periods. Any
conversion feature applicable to the Younger Class is assumed to
occur in accordance with the Actual Inception Date for that
class, not its hypothetical inception date.
The average annual total return based on net asset value
for each class of shares for the one-, five- and ten-year periods
ended July 31, 1999 (or since inception through that date, as
noted) was as follows:
56
<PAGE>
12 Months
Ended 5 Years Ended 10 Years Ended
7/31/99 7/31/99 7/31/99
_________ _____________ ______________
Class A 11.44% 15.86% 10.40%
Class B 10.56% 14.95% 11.56%*
Class C 10.60% 14.97% 12.16%*
Advisor Class 11.71% 18.66%* N/A
*Inception Dates: Class B - February 4, 1991
Class C - May 3, 1993
Advisor Class - October 2, 1996
Advertisements quoting performance ratings of the Fund
as measured by financial publications or by independent
organizations such as Lipper, Inc., Morningstar, Inc. and
advertisements presenting the historical record of payments of
income dividends by the Fund may also from time to time be sent
to investors or placed in newspapers and magazines such as The
New York Times, The Wall Street Journal, Barrons, Investor's
Daily, Money Magazine, Changing Times, Business Week and Forbes
or other media on behalf of the Fund.
Additional Information
Any shareholder inquiries may be directed to the
shareholder's broker or other financial adviser or to Alliance
Fund Services, Inc. at the address or telephone numbers shown on
the front cover of this Statement of Additional Information. This
Statement of Additional Information does not contain all the
information set forth in the Registration Statement filed by the
Fund with the Commission under the Securities Act of 1933, as
amended. Copies of the Registration Statement may be obtained at
a reasonable charge from the Commission or may be examined,
without charge, at the offices of the Securities and Exchange
Commission in Washington, D.C.
57
<PAGE>
________________________________________________________________
REPORT OF INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS
________________________________________________________________
58
<PAGE>
ALLIANCE BALANCED SHARES
ANNUAL REPORT
JULY 31, 1999
PORTFOLIO OF INVESTMENTS
JULY 31, 1999 ALLIANCE BALANCED SHARES
_______________________________________________________________________________
COMPANY SHARES VALUE
- -------------------------------------------------------------------------
COMMON STOCKS & OTHER INVESTMENTS-54.3%
FINANCE-12.2%
BANKING - MONEY CENTER-1.1%
Chase Manhattan Corp. 56,400 $ 4,335,750
BANKING - REGIONAL-4.9%
Bank One Corp. 125,100 6,825,769
BankAmerica Corp. 154,225 10,236,684
Wells Fargo & Co. 53,000 2,067,000
------------
19,129,453
INSURANCE-2.2%
Citigroup, Inc. 140,377 6,255,550
PMI Group, Inc. 16,000 1,023,000
Travelers Property Casualty Corp. Cl.A 34,800 1,374,600
------------
8,653,150
MISCELLANEOUS-4.0%
Associates First Capital Corp. Cl.A 34,800 1,333,275
Household International, Inc. 164,700 7,071,806
MBNA Corp. 197,187 5,619,829
Newcourt Credit Group, Inc. (Canada) 29,000 447,688
The CIT Group, Inc. Cl.A 41,600 1,112,800
------------
15,585,398
------------
47,703,751
TECHNOLOGY-8.3%
COMMUNICATIONS EQUIPMENT-1.4%
Firstcom Corp.
warrants, expiring 10/27/07, (a)(b) 14,000 73,500
Lucent Technologies, Inc. 31,680 2,061,180
Nokia Corp. (ADR) (Finland) 38,000 3,232,375
Optel, Inc.
warrants, expiring 12/30/04, (a)(b) 1,000 10
Viatel, Inc.
warrants, expiring 4/30/09, (a) 4,090 151,330
------------
5,518,395
COMPUTER HARDWARE-0.2%
Compaq Computer Corp. 40,300 967,200
COMPUTER PERIPHERALS-0.3%
Seagate Technology, Inc. (a) 39,000 1,048,125
COMPUTER SERVICES-3.1%
Computer Sciences Corp. 62,700 4,036,312
Electronic Data Systems Corp. 42,000 2,533,125
First Data Corp. 112,100 5,555,956
------------
12,125,393
COMPUTER SOFTWARE-0.5%
Oracle Corp. (a) 49,950 1,902,783
SEMI-CONDUCTOR COMPONENTS-1.1%
Altera Corp. (a) 55,000 1,992,031
Atmel Corp. (a) 82,800 2,465,888
------------
4,457,919
MISCELLANEOUS-1.7%
Sanmina Corp. (a) 49,600 3,237,950
Solectron Corp. (a) 53,600 3,453,850
------------
6,691,800
------------
32,711,615
CONSUMER STAPLES-6.2%
BEVERAGES-0.8%
Coca-Cola Enterprises, Inc. 74,400 2,171,550
Pepsi Bottling Group, Inc. 42,000 992,250
------------
3,163,800
7
PORTFOLIO OF INVESTMENTS (CONTINUED) ALLIANCE BALANCED SHARES
_______________________________________________________________________________
COMPANY SHARES VALUE
- -------------------------------------------------------------------------
COSMETICS-0.3%
Avon Products, Inc. 21,800 $ 991,900
FOOD-2.1%
General Mills, Inc. 13,200 1,093,125
Heinz (H.J.) Co. 21,400 1,008,475
Nabisco Group Holding Corp. 97,000 1,818,750
Tyson Foods, Inc. Cl.A 229,900 4,296,256
------------
8,216,606
HOUSEHOLD PRODUCTS-0.4%
Viad Corp. 48,000 1,587,000
RETAIL - FOOD & DRUG-0.9%
Kroger Co. (a) 133,000 3,499,563
TOBACCO-1.7%
Philip Morris Cos., Inc. 159,500 5,941,375
RJR Tobacco Holdings Corp. (a) 32,333 885,116
------------
6,826,491
------------
24,285,360
CONSUMER SERVICES-6.0%
AIRLINES-0.7%
Continental Airlines, Inc.
Cl.B, (a) 67,500 2,868,750
BROADCASTING & CABLE-0.8%
A.H. Belo Corp. Series A 73,100 1,475,706
CSC Holdings, Inc. Pfd. 360 39,150
Scripps E.W. Co. Cl.A 9,000 468,000
Vodafone AirTouch Plc (ADR)
(United Kingdom) 5,300 1,115,650
------------
3,098,506
ENTERTAINMENT & LEISURE-0.9%
Royal Caribbean Cruises, Ltd. 43,600 2,049,200
Time Warner, Inc. 23,000 1,656,000
------------
3,705,200
PRINTING & PUBLISHING-0.9%
American Banknote Corp.
warrants, expiring 12/01/02, (a)(b) 1,000 1,000
Donnelley (R.R.) & Sons Co. 5,500 192,500
Gannett Co., Inc. 47,200 3,410,200
------------
3,603,700
RETAIL - GENERAL MERCHANDISE-2.2%
Dayton Hudson Corp. 22,900 1,481,344
Saks, Inc. (a) 176,600 4,061,800
Tommy Hilfiger Corp. (a) 79,400 2,932,838
------------
8,475,982
MISCELLANEOUS-0.5%
Newell Rubbermaid, Inc. 43,000 1,859,750
------------
23,611,888
ENERGY-5.6%
DOMESTIC INTEGRATED-2.6%
Kerr-McGee Corp. 53,900 2,775,850
USX-Marathon Group 246,200 7,478,325
------------
10,254,175
DOMESTIC PRODUCERS-0.3%
Murphy Oil Corp. 15,000 742,500
Union Pacific Resources Group, Inc. 20,000 356,250
------------
1,098,750
INTERNATIONAL-0.6%
Total Fina, SA (ADR) (France) 37,000 2,354,125
8
ALLIANCE BALANCED SHARES
_______________________________________________________________________________
COMPANY SHARES VALUE
- -------------------------------------------------------------------------
OIL SERVICE-1.9%
Noble Drilling Corp. (a) 286,700 $ 6,504,506
Transocean Offshore, Inc. 24,800 761,050
------------
7,265,556
MISCELLANEOUS-0.2%
AES Corp. (a) 15,700 942,000
------------
21,914,606
HEALTH CARE-5.3%
BIOTECHNOLOGY-0.0%
Genzyme Corp. (a) 1,861 9,857
DRUGS-2.9%
Bristol-Myers Squibb Co. 99,200 6,596,800
Schering-Plough Corp. 93,000 4,557,000
------------
11,153,800
MEDICAL SERVICES-2.4%
Columbia HCA/Healthcare Corp. 96,800 2,153,800
Lifepoint Hospitals, Inc. (a) 5,094 50,622
Pacificare Health Systems (a) 25,300 1,724,353
Tenet Healthcare Corp. (a) 305,000 5,470,937
Triad Hospitals, Inc. (a) 5,094 54,124
------------
9,453,836
------------
20,617,493
UTILITIES-3.8%
ELECTRIC & GAS UTILITY-2.3%
CMS Energy Corp. 47,300 1,767,838
Consolidated Edison, Inc. 52,200 2,270,700
FPL Group, Inc. 23,900 1,289,106
GPU, Inc. 47,000 1,803,625
Pinnacle West Capital Corp. 50,000 1,996,875
------------
9,128,144
TELEPHONE UTILITY-1.5%
AT&T Corp. 59,845 3,108,199
MCI WorldCom, Inc. (a) 33,950 2,801,936
------------
5,910,135
MISCELLANEOUS-0.0%
Long Distance International, Inc.
warrants, expiring 4/13/08, (a) 1,000 2,500
------------
15,040,779
MULTI-INDUSTRY COMPANIES-3.0%
Honeywell, Inc. 27,600 3,306,825
Tyco International, Ltd. 76,400 7,463,325
U.S. Industries, Inc. 72,300 1,183,913
------------
11,954,063
CAPITAL GOODS-2.2%
POLLUTION CONTROL-0.6%
Republic Services Inc.
Class A, (a) 120,000 2,422,500
MISCELLANEOUS-1.6%
Allied-Signal, Inc. 34,000 2,199,375
United Technologies Corp. 60,600 4,041,263
------------
6,240,638
------------
8,663,138
BASIC INDUSTRIES-1.4%
CHEMICALS-1.4%
Dow Chemical Co. 11,000 1,364,000
Eastman Chemical Co. 22,400 1,157,800
Lyondell Chemical Co. 52,000 949,000
Praxair, Inc. 32,200 1,485,225
Solutia, Inc. 31,500 673,313
------------
5,629,338
CONSUMER MANUFACTURING-0.3%
BUILDING & RELATED-0.3%
Masco Corp. 38,000 1,130,500
Total Common Stocks & Other Investments
(cost $176,234,935) 213,262,531
9
PORTFOLIO OF INVESTMENTS (CONTINUED) ALLIANCE BALANCED SHARES
_______________________________________________________________________________
PRINCIPAL
AMOUNT
COMPANY (000) VALUE
- -------------------------------------------------------------------------
DEBT OBLIGATIONS-33.7%
U.S. GOVERNMENT & AGENCY OBLIGATIONS-22.2%
U.S. Treasury Bonds
5.25%, 11/15/28 $ 2,365 $ 2,063,463
5.25%, 2/15/29 5,110 4,512,743
6.125%, 11/15/27 6,765 6,627,603
6.25%, 8/15/23 3,500 3,467,730
8.125%, 8/15/19 4,900 5,852,413
U.S. Treasury Notes
5.50%, 5/15/09 400 388,000
5.625%, 2/28/01 1,250 1,251,562
5.625%, 5/15/08 1,200 1,165,872
6.25%, 4/30/01 17,000 17,183,260
6.50%, 8/31/01 18,700 18,998,078
6.50%, 5/31/02 12,060 12,289,864
6.625%, 5/15/07 25 25,824
6.875%, 5/15/06 7,325 7,651,182
7.00%, 7/15/06 575 604,291
7.25%, 5/15/04 3,700 3,902,353
7.50%, 2/15/05 1,000 1,069,370
------------
87,053,608
CORPORATE DEBT OBLIGATIONS-9.7%
AEROSPACE & DEFENSE-0.3%
Raytheon Co.
5.70%, 11/01/03 1,000 962,715
AIR TRANSPORTATION-0.2%
Northwest Airlines, Inc.
8.52%, 4/07/04 850 816,904
AUTOMOTIVE-0.5%
Borg-Warner Automotive, Inc.
6.50%, 2/15/09 750 700,306
Federal Mogul Corp.
7.75%, 7/01/06 1,500 1,429,302
------------
2,129,608
BANKING-1.1%
Bank One Corp.
5.625%, 2/17/04 1,000 951,951
Bank United Corp.
8.875%, 5/01/07 1,350 1,343,536
Chase Manhattan Corp.
6.00%, 2/15/09 1,850 1,688,501
Citicorp
6.375%, 11/15/08 500 470,870
------------
4,454,858
BROADCASTING/MEDIA-0.3%
Westinghouse Electric Corp.
8.625%, 8/01/12 1,000 1,056,371
CABLE-0.2%
Cox Communication, Inc.
6.85%, 1/15/18 750 684,706
CHEMICALS-0.6%
ICI North America, Inc.
8.875%, 11/15/06 850 913,587
Lyondell Chemical Co.
9.875%, 5/01/07 (b) 1,350 1,370,250
------------
2,283,837
COMMUNICATIONS-0.5%
Long Distance International, Inc.
12.25%, 4/15/08 1,000 553,750
News America Holdings, Inc.
9.50%, 7/15/24 1,250 1,413,697
------------
1,967,447
ELECTRIC & GAS UTILITY-1.4%
Arizona Public Service Co.
5.875%, 2/15/04 1,250 1,203,936
CalEnergy Co., Inc.
8.48%, 9/15/28 500 522,681
Connecticut Light & Power Co.
6.125%, 2/01/04 1,700 1,634,635
10
ALLIANCE BALANCED SHARES
_______________________________________________________________________________
PRINCIPAL
AMOUNT
COMPANY (000) VALUE
- -------------------------------------------------------------------------
Niagara Mohawk Power Co.
7.75%, 10/01/08 $ 1,000 $ 1,015,468
Public Service Co.
7.10%, 8/01/05 1,000 970,570
------------
5,347,290
ENERGY-0.2%
Conoco, Inc.
5.90%, 4/15/04 850 821,233
FINANCIAL-0.6%
China Development Bank
8.25%, 5/15/09 400 390,000
Household Finance Corp.
6.50%, 11/15/08 1,000 941,540
Merrill Lynch & Co., Inc.
6.00%, 2/17/09 1,000 912,014
------------
2,243,554
INDUSTRIAL-0.4%
Delphi Automotive Systems Corp.
7.125%, 5/01/29 900 815,693
Rohm and Haas Co.
7.40%, 7/15/09 850 861,168
------------
1,676,861
INSURANCE-1.0%
Arkwright CSN Trust
9.625%, 8/15/26 (b) 1,000 1,047,434
Frank Russell & Co.
5.625%, 1/15/09 (b) 1,000 903,807
Prudential Insurance Co.
8.30%, 7/01/25 (b) 2,000 2,141,144
------------
4,092,385
NON-AIR
TRANSPORTATION-0.5%
ERAC USA Finance Co.
6.625%, 5/15/06 (b) 900 899,100
Union Pacific Corp.
6.625%, 2/01/08 1,100 1,050,138
------------
1,949,238
PAPER / PACKAGING-0.1%
Kappa Beheer BV
10.625%, 7/15/09 (b) 400 422,306
PETROLEUM PRODUCTS-0.6%
Apache Finance PTY, Ltd.
6.50%, 12/15/07 1,250 1,188,466
Temple-Inland, Inc.
6.75%, 3/01/09 1,250 1,182,318
------------
2,370,784
PUBLISHING-0.3%
Knight Ridder, Inc.
6.875%, 3/15/29 1,250 1,116,444
RETAIL-0.2%
Kohls Corp.
7.25%, 6/01/29 (b) 850 810,982
TELEPHONE UTILITY-0.7%
MCI Worldcom, Inc.
6.95%, 8/15/28 1,350 1,260,880
Qwest Communications
International, Inc.
7.25%, 11/01/08 (b) 1,465 1,466,831
------------
2,727,711
------------
37,935,234
YANKEE BONDS-1.8%
Abbey National Plc
6.70%, 6/29/49 1,440 1,317,433
Corporacion Andina De Fomento
7.75%, 3/01/04 400 387,319
Deutsche Capital Bank
7.872%, 12/29/49 (b) 900 838,440
Empresa Electrica Del Norte, SA
7.75%, 3/15/06 (b) 1,685 897,262
11
PORTFOLIO OF INVESTMENTS (CONTINUED) ALLIANCE BALANCED SHARES
_______________________________________________________________________________
PRINCIPAL
AMOUNT
COMPANY (000) VALUE
- -------------------------------------------------------------------------
Fuji LLC Pfd.
9.87%, 12/31/49 (b)(c) $ 500 $ 443,546
Laidlaw, Inc.
7.65%, 5/15/06 1,350 1,302,838
Metronet Communications Corp.
1.00%, 6/15/08 850 650,250
Province of Quebec
7.00%, 1/30/07 1,000 996,020
TPSA Finance BV
7.75%, 12/10/08 (b) 500 482,985
------------
7,316,093
Total Debt Obligations
(cost $139,109,569) 132,304,935
SHORT-TERM INVESTMENT-13.3%
TIME DEPOSIT-13.3%
State Street Cayman Islands
4.75%, 8/02/99
(amortized cost $52,167,000) 52,167 52,167,000
TOTAL INVESTMENTS-101.3%
(cost $367,511,504) 397,734,466
Other assets less liabilities-(1.3%) (5,253,637)
NET ASSETS-100% $392,480,829
(a) Non-income producing security.
(b) Securities exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to certain qualified buyers. At July 31, 1999, the
aggregate market value of these securities amounted to $11,798,597 representing
3.0% of net assets.
(c) Coupon increases periodically based upon a predetermined schedule. Stated
interest rate in effect at July 31, 1999.
Glossary:
ADR - American Depositary Receipt.
See notes to financial statements.
12
STATEMENT OF ASSETS AND LIABILITIES
JULY 31, 1999 ALLIANCE BALANCED SHARES
_______________________________________________________________________________
ASSETS
Investments in securities, at value
(cost $367,511,504) $397,734,466
Cash 654
Dividends and interest receivable 2,826,780
Receivable for capital stock sold 1,478,110
Receivable for investment securities sold 996,820
Total assets 403,036,830
LIABILITIES
Payable for investment securities purchased 9,196,745
Payable for capital stock redeemed 531,151
Distribution fee payable 211,132
Advisory fee payable 190,499
Unclaimed dividends 90,989
Unrealized depreciation of forward exchange
currency contract 7,876
Accrued expenses 327,609
Total liabilities 10,556,001
NET ASSETS $392,480,829
COMPOSITION OF NET ASSETS
Capital stock, at par $ 255,433
Additional paid-in capital 344,861,767
Undistributed net investment income 298,965
Accumulated net realized gain on investments and
foreign currency transactions 16,856,146
Net unrealized appreciation of investments and
foreign currency denominated assets and liabilities 30,208,518
$392,480,829
CALCULATION OF MAXIMUM OFFERING PRICE
CLASS A SHARES
Net asset value and redemption price per share
($189,952,921 / 12,155,693 shares of capital stock
issued and outstanding) $15.63
Sales charge--4.25% of public offering price .69
Maximum offering price $16.32
CLASS B SHARES
Net asset value and offering price per share
($136,384,129 / 9,026,990 shares of capital stock
issued and outstanding) $15.11
CLASS C SHARES
Net asset value and offering price per share
($63,516,803 / 4,192,645 shares of capital stock
issued and outstanding) $15.15
ADVISOR CLASS SHARES
Net asset value, redemption and offering price per share
($2,626,976 / 168,003 shares of capital stock
issued and outstanding) $15.64
See notes to financial statements.
13
STATEMENT OF OPERATIONS
YEAR ENDED JULY 31, 1999 ALLIANCE BALANCED SHARES
_______________________________________________________________________________
INVESTMENT INCOME
Interest $8,083,122
Dividends (net of foreign taxes
withheld of $10,528) 2,113,566
$10,196,688
EXPENSES
Advisory fee 1,699,074
Distribution fee - Class A 387,575
Distribution fee - Class B 888,051
Distribution fee - Class C 449,485
Transfer agency 510,344
Administrative 163,500
Custodian 141,119
Printing 79,161
Audit and legal 77,139
Registration 75,359
Directors' fees 22,000
Miscellaneous 33,475
Total expenses 4,526,282
Less: expense offset arrangement
(see Note B) (35,750)
Net expenses 4,490,532
Net investment income 5,706,156
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS
Net realized gain on investment
transactions 19,692,107
Net realized loss on foreign currency
transactions (118,118)
Net change in unrealized appreciation of:
Investments 5,062,714
Foreign currency denominated assets
and liabilities (48,145)
Net gain on investments and foreign
currency transactions 24,588,558
NET INCREASE IN NET ASSETS FROM OPERATIONS $30,294,714
See notes to financial statements.
14
STATEMENT OF CHANGES IN NET ASSETS ALLIANCE BALANCED SHARES
_______________________________________________________________________________
YEAR ENDED YEAR ENDED
JULY 31, JULY 31,
1999 1998
----------- ----------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment income $5,706,156 $3,053,339
Net realized gain on investments
and foreign currency transactions 19,573,989 29,332,189
Net change in unrealized appreciation
(depreciation) of investments and
foreign currency denominated assets
and liabilities 5,014,569 (10,793,637)
Net increase in net assets from
operations 30,294,714 21,591,891
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
FROM:
Net investment income
Class A (3,352,299) (2,363,867)
Class B (1,515,215) (490,313)
Class C (803,428) (113,289)
Advisor Class (55,237) (39,763)
Net realized gain on investments
Class A (12,911,989) (14,565,359)
Class B (6,058,584) (3,474,566)
Class C (1,928,529) (778,193)
Advisor Class (212,403) (200,006)
CAPITAL STOCK TRANSACTIONS
Net increase 204,737,959 37,952,547
Total increase 208,194,989 37,519,082
NET ASSETS
Beginning of year 184,285,840 146,766,758
End of year (including undistributed
net investment income of $298,965
and $492,883, respectively) $392,480,829 $184,285,840
See notes to financial statements.
15
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1999 ALLIANCE BALANCED SHARES
_______________________________________________________________________________
NOTE A: SIGNIFICANT ACCOUNTING POLICIES
Alliance Balanced Shares (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, Class C and Advisor Class 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 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 subject to a contingent deferred sales charge of
1% on redemptions made within the first year after purchase. Advisor Class
shares are sold without an initial or contingent deferred sales charge and are
not subject to ongoing distribution expenses. Advisor Class shares are offered
to investors participating in fee-based programs and to certain retirement plan
accounts. All four classes of shares have identical voting, dividend,
liquidation and other rights, except that each class bears different
distribution expenses and has exclusive voting rights with respect to its
distribution plan. The financial statements have been prepared in conformity
with generally accepted accounting principles which require management to make
certain estimates and assumptions that affect the reported amounts of assets
and liabilities in the financial statements and amounts of income and expenses
during the reporting period. Actual results could differ from those estimates.
The following is a summary of significant accounting policies followed by the
Fund.
1. SECURITY VALUATION
Portfolio securities traded on a national securities exchange or on a foreign
securities exchange (other than foreign securities exchanges whose operations
are similar to those of the United States over-the-counter market) are
generally valued at the last reported sale price or if no sale occurred, at the
mean of the closing bid and asked prices on that day. Readily marketable
securities traded in the over-the-counter market, securities listed on a
foreign securities exchange whose operations are similar to the U.S.
over-the-counter market, and securities listed on a national securities
exchange whose primary market is believed to be over-the-counter, are valued at
the mean of the current bid and asked prices. Fixed income securities which
mature in 60 days or less are valued at amortized cost, unless this method does
not represent fair value. Securities for which current market quotations are
not readily available are valued at their fair value as determined in good
faith by, or in accordance with procedures adopted by, the Board of Directors.
Fixed income securities may be valued on the basis of prices obtained from a
pricing service when such prices are believed to reflect the fair market value
of such securities.
2. CURRENCY TRANSLATION
Assets and liabilities denominated in foreign currencies and commitments under
forward exchange currency contracts are translated into U.S. dollars at the
mean of the quoted bid and asked price of such currencies against the U.S.
dollar. Purchases and sales of portfolio securities are translated into U.S.
dollars at the rates of exchange prevailing when such securities were acquired
or sold. Income and expenses are translated into U.S. dollars at rates of
exchange prevailing when accrued.
Net realized foreign currency gains and losses represent foreign exchange gains
and losses from sales and maturities of debt securities, and foreign exchange
currency contracts and currency gains and losses realized between the trade and
settlement dates on security transactions, and the difference between the
amounts of foreign currency denominated dividends and interest recorded on the
Fund's books and the U.S. dollar equivalent amounts actually received or paid.
The Fund does not isolate the effect of fluctuations in foreign currency
exchange rates when determining the gain or loss upon the sale of equity
securities. Net currency gains and losses from valuing foreign currency
denominated assets and liabilities at year end exchange rates are reflected as
a component of net unrealized appreciation of investments and foreign currency
denominated assets and liabilities.
3. 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.
16
ALLIANCE BALANCED SHARES
_______________________________________________________________________________
4. INVESTMENT INCOME AND INVESTMENT TRANSACTIONS
Dividend income is recorded on the ex-dividend date. Interest income is accrued
daily. Investment transactions are accounted for on the trade date securities
are purchased or sold. The Fund accretes discounts and amortizes premiums as
adjustments to interest income. Investment gains and losses are determined on
the identified cost basis.
5. INCOME AND EXPENSES
All income earned and expenses incurred by the Fund are borne on a pro-rata
basis by each outstanding class of shares, based on the proportionate interest
in the Fund represented by the net assets of such class, except that the Fund's
Class B and Class C shares bear higher distribution and transfer agent fees
than Class A shares and the Advisor Class shares have no distribution fees.
6. DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions to shareholders are recorded on the ex-dividend
date. Income dividends and capital gains distributions are determined in
accordance with federal tax regulations and may differ from those determined in
accordance with 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. During the current fiscal year, permanent
differences, primarily due to net foreign currency losses and merger
adjustments, resulted in a net decrease in undistributed net investment income
and accumulated net realized gain on investments and foreign currency
transactions and a corresponding increase in additional paid-in capital. This
reclassification had no effect on net assets.
NOTE B: ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of an investment advisory agreement, the Fund pays Alliance
Capital Management L.P. (the "Adviser"), an advisory fee at an annual rate of
.625 of 1% of the first $200 million, .50 of 1% of the next $200 million and
.45 of 1% of the excess over $400 million of the average daily net assets of
the Fund. Such fee is accrued daily and paid monthly.
Pursuant to the advisory agreement, the Fund paid $163,500 to the Adviser
representing the cost of certain legal and accounting services provided to the
Fund by the Adviser for the year ended July 31, 1999.
The Fund compensates Alliance Fund Services, Inc., a wholly-owned subsidiary of
the Adviser, under a Transfer Agency Agreement for providing personnel and
facilities to perform transfer agency services for the Fund. Such compensation
amounted to $360,260 for the year ended July 31, 1999.
For the year ended July 31, 1999, the Fund's expenses were reduced by $35,750
under an expense offset arrangement with Alliance Fund Services, Inc.
Alliance Fund Distributors, Inc., (the "Distributor"), a wholly-owned
subsidiary of the Adviser, serves as the Distributor of the Fund's shares. The
Distributor has advised the Fund that it has received front-end sales charges
of $116,358 from the sales of Class A shares and $104, $146,053 and $14,920 in
contingent deferred sales charges imposed upon redemptions by shareholders of
Class A, Class B and Class C shares, respectively, for the year ended July 31,
1999.
Brokerage commissions paid on investment transactions for the year ended July
31, 1999, amounted to $327,916, of which $1,500 was paid to brokers utilizing
the services of the Pershing Division of Donaldson, Lufkin & Jenrette
Securities Corp. ("DLJ"), an affiliate of the Adviser and $4,902 was paid to
DLJ directly.
Accrued expenses includes $24,074 owed to a Director and a former Director
under the Director's deferred compensation plan.
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 1% of the Fund's average
17
NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCE BALANCED SHARES
_______________________________________________________________________________
daily net assets attributable to the Class A shares and 1% of the average daily
net assets attributable to both Class B and Class C shares. There is no
distribution fee on the Advisor Class shares. The fees are accrued daily and
paid monthly. The Agreement provides that the Distributor will use such
payments in their entirety for distribution assistance and promotional
activities. The Distributor has advised the Fund that it has incurred expenses
in excess of the distribution costs reimbursed by the Fund in the amount of
$4,987,374 and $796,521, for Class B and Class C shares, respectively; such
costs may be recovered from the Fund 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 Fund's
shares.
NOTE D: INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term investments
and U.S. government securities) aggregated $210,529,416 and $162,704,650,
respectively, for the year ended July 31, 1999. There were purchases of
$121,060,221 and sales of $107,515,049 of U.S. government and government agency
obligations for the year ended July 31, 1999.
At July 31, 1999, the cost of investments for federal income tax purposes was
substantially the same as the cost for financial reporting purposes. Gross
unrealized appreciation of investments was $46,491,749 and gross unrealized
depreciation of investments was $16,268,787 resulting in net unrealized
appreciation of $30,222,962 excluding foreign currency transactions.
Capital and foreign currency losses incurred after October 31, within the
Fund's fiscal year are deemed to arise on the first business day of the
following fiscal year. The Fund incurred and elected to defer post October
foreign currency losses of $174,635 for the fiscal year ended July 31, 1999.
In connection with the acquisition of Alliance Income Builder Fund (see Note
F), the Fund acquired a capital loss carryforward of $233,465. The Fund
utilized $52,106 of that capital loss carryforward during the year ended July
31, 1999. At July 31, 1999 the Fund had a remaining capital loss carryforward
of $181,359 expiring July 31, 2006 which may be used to offset future gains
subject to certain limitations.
1. FORWARD EXCHANGE CURRENCY CONTRACTS
The Fund enters into forward exchange currency contracts in order to hedge its
exposure to changes in foreign currency exchange rates on foreign portfolio
holdings and to hedge certain firm purchase and sale commitments denominated in
foreign currencies. A forward exchange currency contract is a commitment to
purchase or sell a foreign currency at a future date at a negotiated forward
rate. The gain or loss arising from the difference between the original
contracts and the closing of such contracts is included in net realized gain or
loss on foreign currency transactions.
Fluctuations in the value of forward exchange currency contracts are recorded
for financial reporting purposes as unrealized gains or losses by the Fund.
The Fund's custodian will place and maintain cash not available for investment
or other liquid assets in a separate account of the Fund having a value equal
to the aggregate amount of the Fund's commitments under forward exchange
currency contracts entered into with respect to position hedges.
Risks may arise from the potential inability of a counterparty to meet the
terms of a contract and from unanticipated movements in the value of a foreign
currency relative to the U.S. dollar. The face or contract amount, in U.S.
dollars, as reflected in the following table, reflects the total exposure the
Fund has in that particular currency contract.
18
ALLIANCE BALANCED SHARES
_______________________________________________________________________________
At July 31, 1999, the Fund had an outstanding forward exchange currency
contract, to sell foreign currency against the U.S. dollar, as follows:
US $
CONTRACT VALUE ON US $
AMOUNT ORIGINATION CURRENT UNREALIZED
(000) DATE VALUE DEPRECIATION
-------- ----------- ------- ------------
FORWARD EXCHANGE CURRENCY
SALE CONTRACT
Euro,
settling 8/20/99 400 $420,680 $428,556 $7,876
2. OPTION TRANSACTIONS
For hedging and investment 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 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 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 or currency in determining whether the Fund has
realized a gain or loss. If a put option is exercised, the premium received
reduces the cost basis of the security or currency purchased by the Fund. The
risk involved in writing an option is that, if the option was exercised the
underlying security could then be purchased or sold by the Fund at a
disadvantageous price.
For the year ended July 31, 1999, the Fund did not engage in any option
transactions.
19
NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCE BALANCED SHARES
_______________________________________________________________________________
NOTE E: CAPITAL STOCK
There are 12,000,000,000 shares of $.01 par value capital stock authorized,
divided into four classes, designated Class A, Class B, Class C and Advisor
Class shares. Each class consists of 3,000,000,000 authorized shares.
Transactions in capital stock were as follows:
SHARES AMOUNT
--------------------------- ------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JULY 31, JULY 31, JULY 31, JULY 31,
1999 1998 1999 1998
------------ ------------ -------------- --------------
CLASS A
Shares sold 2,825,403 783,081 $43,311,421 $12,635,293
Shares issued in
connection with
acquisition of
Alliance Income
Builder Fund 200,888 -0- 2,918,932 -0-
Shares issued in
connection with
acquisition of
Alliance Strategic
Balanced Fund 1,915,535 -0- 29,102,502 -0-
Shares issued in
reinvestment of
dividends and
distributions 894,028 944,535 13,148,824 13,941,229
Shares converted
from Class B 198,695 50,090 3,063,821 801,099
Shares redeemed (1,618,986) (1,181,568) (24,811,731) (18,857,650)
Net increase 4,415,563 596,138 $66,733,769 $ 8,519,971
CLASS B
Shares sold 4,838,812 1,722,326 $71,823,741 $26,664,861
Shares issued in
connection with
acquisition of
Alliance Income
Builder Fund 654,701 -0- 9,211,701 -0-
Shares issued in
connection with
acquisition of
Alliance Strategic
Balanced Fund 1,560,740 -0- 22,957,076 -0-
Shares issued in
reinvestment of
dividends and
distributions 434,625 257,589 6,202,323 3,707,795
Shares converted
to Class A (205,216) (51,381) (3,063,821) (801,099)
Shares redeemed (1,327,350) (385,826) (19,586,581) (5,962,038)
Net increase 5,956,312 1,542,708 $87,544,439 $23,609,519
CLASS C
Shares sold 1,253,402 444,670 $18,314,705 $ 6,856,999
Shares issued in
connection with
acquisition of
Alliance Income
Builder Fund 2,591,244 -0- 36,542,673 -0-
Shares issued in
connection with
acquisition of
Alliance Strategic
Balanced Fund 322,665 -0- 4,758,655 -0-
Shares issued in
reinvestment of
dividends and
distributions 146,312 55,815 2,101,413 805,036
Shares redeemed (818,076) (150,879) (11,825,765) (2,339,536)
Net increase 3,495,547 349,606 $49,891,681 $ 5,322,499
20
ALLIANCE BALANCED SHARES
_______________________________________________________________________________
SHARES AMOUNT
--------------------------- ------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JULY 31, JULY 31, JULY 31, JULY 31,
1999 1998 1999 1998
------------ ------------ -------------- --------------
ADVISOR CLASS
Shares sold 42,519 28,502 $ 650,647 $ 441,571
Shares issued in
connection with
acquisition of
Alliance Income
Builder Fund 5,223 -0- 75,890 -0-
Shares issued in
reinvestment of
dividends and
distributions 18,020 16,203 264,964 239,736
Shares redeemed (27,910) (11,315) (423,431) (180,749)
Net increase 37,852 33,390 $ 568,070 $ 500,558
NOTE F: ACQUISITION OF ALLIANCE INCOME BUILDER FUND
On November 13, 1998 the Fund acquired all of the net assets of Alliance Income
Builder Fund pursuant to a plan of reorganization approved by Alliance Income
Builder Fund shareholders on November 2, 1998. The acquisition was accomplished
by a tax-free exchange of 3,452,056 shares of the Fund for 4,944,621 shares of
Alliance Income Builder Fund on November 13, 1998. The aggregate net assets of
the Fund and Alliance Income Builder Fund immediately before the acquisition
were $191,606,941 and $48,749,196, respectively (including unrealized
appreciation in Alliance Income Builder Fund of $1,438,262). Immediately after
the acquisition the combined net assets of the Fund amounted to $240,356,137.
NOTE G: ACQUISITION OF ALLIANCE STRATEGIC BALANCED FUND
On February 1, 1999 the Fund acquired all of the net assets of Alliance
Strategic Balanced Fund pursuant to a plan of reorganization approved by
Alliance Strategic Balanced Fund shareholders on December 18, 1998. The
acquisition was accomplished by a tax-free exchange of 3,798,940 shares of the
Fund for 3,232,951 shares of Alliance Strategic Balanced Fund on February 1,
1999. The aggregate net assets of the Fund and Alliance Strategic Balanced Fund
immediately before the acquisition were $281,968,797 and $56,818,233,
respectively (including unrealized appreciation in Alliance Strategic Balanced
Fund of $8,492,533). Immediately after the acquisition the combined net assets
of the Fund amounted to $338,787,033.
NOTE H: BANK BORROWING
A number of open-end mutual funds managed by the Adviser, including the Fund,
participate in a $750 million revolving credit facility (the "Facility")
intended to provide short-term financing if necessary, subject to certain
restrictions, in connection with abnormal redemption activity. Commitment fees
related to the Facility are paid by the participating funds and are included in
the miscellaneous expenses in the statement of operations. The Fund did not
utilize the Facility during the year ended July 31, 1999.
21
FINANCIAL HIGHLIGHTS ALLIANCE BALANCED SHARES
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR
<TABLE>
<CAPTION>
CLASS A
-----------------------------------------------------------------
YEAR ENDED JULY 31,
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $15.97 $16.17 $14.01 $15.08 $13.38
INCOME FROM INVESTMENT OPERATIONS
Net investment income .36(a) .33(a) .31(a) .37 .46
Net realized and unrealized gain on
investment transactions 1.29 1.86 3.97 .45 1.62
Net increase in net asset value from
operations 1.65 2.19 4.28 .82 2.08
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.34) (.32) (.32) (.41) (.36)
Distributions from net realized gains (1.65) (2.07) (1.80) (1.48) (.02)
Total dividends and distributions (1.99) (2.39) (2.12) (1.89) (.38)
Net asset value, end of year $15.63 $15.97 $16.17 $14.01 $15.08
TOTAL RETURN
Total investment return based on net
asset value (b) 11.44% 14.99% 33.46% 5.23% 15.99%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $189,953 $123,623 $115,500 $102,567 $122,033
Ratio of expenses to average net assets 1.22%(c) 1.30%(c) 1.47%(c) 1.38% 1.32%
Ratio of net investment income to
average net assets 2.31% 2.07% 2.11% 2.41% 3.12%
Portfolio turnover rate 105% 145% 207% 227% 179%
</TABLE>
See footnote summary on page 25.
22
ALLIANCE BALANCED SHARES
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR
<TABLE>
<CAPTION>
CLASS B
-----------------------------------------------------------------
YEAR ENDED JULY 31,
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $15.54 $15.83 $13.79 $14.88 $13.23
INCOME FROM INVESTMENT OPERATIONS
Net investment income .23(a) .21(a) .19(a) .28 .30
Net realized and unrealized gain on
investment transactions 1.25 1.81 3.89 .42 1.65
Net increase in net asset value from
operations 1.48 2.02 4.08 .70 1.95
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.26) (.24) (.24) (.31) (.28)
Distributions from net realized gains (1.65) (2.07) (1.80) (1.48) (.02)
Total dividends and distributions (1.91) (2.31) (2.04) (1.79) (.30)
Net asset value, end of year $15.11 $15.54 $15.83 $13.79 $14.88
TOTAL RETURN
Total investment return based on net
asset value (b) 10.56% 14.13% 32.34% 4.45% 15.07%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $136,384 $47,728 $24,192 $18,393 $15,080
Ratio of expenses to average net assets 1.97%(c) 2.06%(c) 2.25%(c) 2.16% 2.11%
Ratio of net investment income to
average net assets 1.56% 1.34% 1.32% 1.61% 2.30%
Portfolio turnover rate 105% 145% 207% 227% 179%
</TABLE>
See footnote summary on page 25.
23
FINANCIAL HIGHLIGHTS (CONTINUED) ALLIANCE BALANCED SHARES
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR
<TABLE>
<CAPTION>
CLASS C
-----------------------------------------------------------------
YEAR ENDED JULY 31,
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $15.57 $15.86 $13.81 $14.89 $13.24
INCOME FROM INVESTMENT OPERATIONS
Net investment income .24(a) .21(a) .20(a) .26 .30
Net realized and unrealized gain on
investment transactions 1.25 1.81 3.89 .45 1.65
Net increase in net asset value from
operations 1.49 2.02 4.09 .71 1.95
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.26) (.24) (.24) (.31) (.28)
Distributions from net realized gains (1.65) (2.07) (1.80) (1.48) (.02)
Total dividends and distributions (1.91) (2.31) (2.04) (1.79) (.30)
Net asset value, end of year $15.15 $15.57 $15.86 $13.81 $14.89
TOTAL RETURN
Total investment return based on net
asset value (b) 10.60% 14.09% 32.37% 4.52% 15.06%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $63,517 $10,855 $5,510 $6,096 $5,108
Ratio of expenses to average net assets 1.96%(c) 2.05%(c) 2.23%(c) 2.15% 2.09%
Ratio of net investment income to
average net assets 1.57% 1.36% 1.37% 1.63% 2.32%
Portfolio turnover rate 105% 145% 207% 227% 179%
</TABLE>
See footnote summary on page 25.
24
ALLIANCE BALANCED SHARES
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
ADVISOR CLASS
------------------------------------
OCTOBER 2,
1996(D)
YEAR ENDED JULY 31, TO
------------------ JULY 31,
1999 1998 1997
----------- ----------- ----------
Net asset value, beginning of period $15.98 $16.17 $14.79
INCOME FROM INVESTMENT OPERATIONS
Net investment income (a) .39 .37 .23
Net realized and unrealized gain on
investment transactions 1.29 1.87 3.22
Net increase in net asset value from
operations 1.68 2.24 3.45
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.37) (.36) (.27)
Distributions from net realized gains (1.65) (2.07) (1.80)
Total dividends and distributions (2.02) (2.43) (2.07)
Net asset value, end of period $15.64 $15.98 $16.17
TOTAL RETURN
Total investment return based on net
asset value (b) 11.71% 15.32% 25.96%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $2,627 $2,079 $1,565
Ratio of expenses to average net assets (c .97% 1.06% 1.30%(e)
Ratio of net investment income to
average net assets 2.56% 2.33% 2.15%(e)
Portfolio turnover rate 105% 145% 207%
(a) Based on average shares outstanding.
(b) Total investment return is calculated assuming an initial investment made
at the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period, and
redemption on the last day of the period. Initial sales charges or contingent
deferred sales charges are not reflected in the calculation of total investment
return. Total investment return calculated for a period of less than one year
is not annualized.
(c) Ratios reflect expenses grossed up for expense offset arrangement with the
Transfer Agent. For the periods shown below, the net expense ratios were as
follows:
YEAR ENDED JULY 31,
------------------------
1999 1998 1997
---- ---- ----
Class A 1.21% 1.29% 1.46%
Class B 1.96% 2.05% 2.24%
Class C 1.94% 2.04% 2.22%
Advisor Class .96% 1.05% 1.29%
(d) Commencement of distribution.
(e) Annualized.
25
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, and the related statements 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.
(the "Fund") at July 31, 1999, 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 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, 1999 by correspondence with the custodian and brokers,
provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
September 24, 1999
TAX INFORMATION (UNAUDITED)
In order to meet certain requirements of the Internal Revenue Code we are
advising you that the Fund paid $9,822,733 of long term capital gain
distributions during the fiscal year ended July 31, 1999.
Shareholders should not use the above information to prepare their tax returns.
The information necessary to complete your income tax returns will be included
with your Form 1099 DIVwhich will be sent to you separately in January 2000.
26
<PAGE>
____________________________________________________________
APPENDIX A: FUTURES CONTRACTS, OPTIONS ON FUTURES
CONTRACTS AND OPTIONS ON FOREIGN CURRENCIES
____________________________________________________________
Futures Contracts.
The Fund may enter into contracts for the purchase or
sale for future delivery of foreign currencies. U.S. futures
contracts have been designed by exchanges which have been
designated "contracts markets" by the Commodity Futures Trading
Commission ("CFTC"), and must be executed through a futures
commission merchant, or brokerage firm, which is a member of the
relevant contract market. Futures contracts trade on a number of
exchange markets, and, through their clearing corporations, the
exchanges guarantee performance of the contracts as between the
clearing members of the exchange.
At the same time a futures contract is purchased or
sold, the Fund must allocate cash or securities as a deposit
payment ("initial deposit"). It is expected that the initial
deposit would be approximately 1 1/2% to 5% of a contract's face
value. Daily thereafter, the futures contract is valued and the
payment of "variation margin" may be required, since each day the
Fund would provide or receive cash that reflects any decline or
increase in the contract's value.
At the time of delivery of securities pursuant to such a
contract, adjustments are made to recognize differences in value
arising from the delivery of securities with a different price or
interest rate from that specified in the contract. In some (but
not many) cases, securities called for by a futures contract may
not have been issued when the contract was written.
Although futures contracts by their terms call for the
actual delivery or acquisition of securities, in most cases the
contractual obligation is fulfilled before the date of the
contract without having to make or take delivery of the
securities. The offsetting of a contractual obligation is
accomplished by buying (or selling, as the case may be) on a
commodities exchange an identical futures contract calling for
delivery in the same month. Such a transaction, which is
effected through a member of an exchange, cancels the obligation
to make or take delivery of the securities. Since all
transactions in the futures market are made, offset or fulfilled
through a clearinghouse associated with the exchange on which the
contracts are traded, the Fund will incur brokerage fees when it
purchases or sells futures contracts.
A-1
<PAGE>
Options on Futures Contracts
The Fund intends to purchase and write options on
futures contracts for hedging purposes. The Fund is not a
commodity pool and all transactions in futures contracts and
options on futures contracts engaged in by the Fund must
constitute bona fide hedging or other permissible transactions in
accordance with the rules and regulations promulgated by the
CFTC. The purchase of a call option on a futures contract is
similar in some respects to the purchase of a call option on an
individual foreign currency. Depending on the pricing of the
option compared to either the price of the futures contract upon
which it is based or the price of the underlying debt securities,
it may or may not be less risky than ownership of the futures
contract or underlying debt securities. As with the purchase of
futures contracts, when the Fund is not fully invested it may
purchase a call option on a futures contract to hedge against
adverse market conditions.
The writing of a call option on a futures contract
constitutes a partial hedge against declining prices of the
foreign currency which is deliverable upon exercise of the
futures contract. If the futures price at expiration of the
option is below the exercise price, the Fund will retain the full
amount of the option premium which provides a partial hedge
against any decline that may have occurred in the Fund's
portfolio holdings. The writing of a put option on a futures
contract constitutes a partial hedge against increasing prices of
the foreign currency which is deliverable upon exercise of the
futures contract. If the futures price at expiration of the
option is higher than the exercise price, the Fund will retain
the full amount of the option premium which provides a partial
hedge against any increase in the price of a foreign currency
which the Fund intends to purchase. If a put or call option the
Fund has written is exercised, the Fund will incur a loss which
will be reduced by the amount of the premium it receives.
Depending on the degree of correlation between changes in the
value of its portfolio securities and changes in the value of its
futures positions, the Fund's losses from existing options on
futures may to some extent be reduced or increased by changes in
the value of portfolio securities.
The purchase of a put option on a futures contract is
similar in some respects to the purchase of protective put
options on portfolio securities. For example, the Fund may
purchase a put option on a futures contract to hedge the Fund's
portfolio against the risk of rising interest rates.
The amount of risk the Fund assumes when it purchases an
option on a futures contract is the premium paid for the option
plus related transaction costs. In addition to the correlation
A-2
<PAGE>
risks discussed above, the purchase of an option also entails the
risk that changes in the value of the underlying futures contract
will not be fully reflected in the value of the option purchased.
Options on Foreign Currencies
The Fund may purchase and write options on foreign
currencies for hedging purposes in a manner similar to that in
which futures contracts on foreign currencies, or forward
contracts, will be utilized. For example, a decline in the
dollar value of a foreign currency in which portfolio securities
are denominated will reduce the dollar value of such securities,
even if their value in the foreign currency remains constant. In
order to protect against such diminutions in the value of
portfolio securities, the Fund may purchase put options on the
foreign currency. If the value of the currency does decline, the
Fund will have the right to sell such currency for a fixed amount
in dollars and will thereby offset, in whole or in part, the
adverse effect on its portfolio which otherwise would have
resulted.
Conversely, where a rise in the dollar value of a
currency in which securities to be acquired are denominated is
projected, thereby increasing the cost of such securities, the
Fund may purchase call options thereon. The purchase of such
options could offset, at least partially, the effects of the
adverse movements in exchange rates. As in the case of other
types of options, however, the benefit to the Fund deriving from
purchases of foreign currency options will be reduced by the
amount of the premium and related transaction costs. In
addition, where currency exchange rates do not move in the
direction or to the extent anticipated, the Fund could sustain
losses on transactions in foreign currency options which would
require it to forego a portion or all of the benefits of
advantageous changes in such rates.
The Fund may write options on foreign currencies for the
same types of hedging purposes. For example, where the Fund
anticipates a decline in the dollar value of foreign currency
denominated securities due to adverse fluctuations in exchange
rates it could, instead of purchasing a put option, write a call
option on the relevant currency. If the expected decline occurs,
the option will most likely not be exercised, and the diminution
in value of portfolio securities will be offset by the amount of
the premium received.
Similarly, instead of purchasing a call option to hedge
against an anticipated increase in the dollar cost of securities
to be acquired, the Fund could write a put option on the relevant
currency which, if rates move in the manner projected, will
expire unexercised and allow the Fund to hedge such increased
A-3
<PAGE>
cost up to the amount of the premium. As in the case of other
types of options, however, the writing of a foreign currency
option will constitute only a partial hedge up to the amount of
the premium, and only if rates move in the expected direction. If
this does not occur, the option may be exercised and the Fund
would be required to purchase or sell the underlying currency at
a loss which may not be offset by the amount of the premium.
Through the writing of options on foreign currencies, the Fund
also may be required to forego all or a portion of the benefits
which might otherwise have been obtained from favorable movements
in exchange rates.
The Fund intends to write covered call options on
foreign currencies. A call option written on a foreign currency
by the Fund is "covered" if the Fund owns the underlying foreign
currency covered by the call or has an absolute and immediate
right to acquire that foreign currency without additional cash
consideration (or for additional cash consideration held in a
segregated account by its Custodian) upon conversation or
exchange of other foreign currency held in its portfolio. A call
option is also covered if the Fund has a call on the same foreign
currency and in the same principal amount as the call written
where the exercise price of the call held (a) is equal to or less
than the exercise price of the call written or (b) is greater
than the exercise price of the call written if the difference is
maintained by the Fund in cash, U.S. Government Securities and
other high-grade liquid debt securities in a segregated account
with its Custodian.
The Fund also intends to write call options on foreign
currencies for cross-hedging purposes. An option that is
cross-hedged is not covered, but is designed to provide a hedge
against a decline in the U.S. dollar value of a security which
the Fund owns or has the right to acquire and which is
denominated in the currency underlying the option due to an
adverse change in the exchange rate. In such circumstances, the
Fund collateralizes the option by maintaining in a segregated
account with the Fund's Custodian, cash or U.S. Government
Securities or other high- grade liquid debt securities in an
amount not less than the value of the underlying foreign currency
in U.S. dollars marked to market daily.
Additional Risks of Options on Futures Contracts, Forward
Contracts and Options on Foreign Currencies
Unlike transactions entered into by the Fund in futures
contracts, options on foreign currencies and forward contracts
are not traded on contract markets regulated by the CFTC or (with
the exception of certain foreign currency options) by the SEC. To
the contrary, such instruments are traded through financial
institutions acting as market- makers, although foreign currency
A-4
<PAGE>
options are also traded on certain national securities exchanges,
such as the Philadelphia Stock Exchange and the Chicago Board
Options Exchange, subject to SEC regulation. Similarly, options
on securities may be traded over-the-counter. In an over-the-
counter trading environment, many of the protections afforded to
exchange participants will not be available. For example, there
are no daily price fluctuation limits, and adverse market
movements could therefore continue to an unlimited extent over a
period of time. Although the purchaser of an option cannot lose
more than the amount of the premium plus related transaction
costs, this entire amount could be lost. Moreover, the option
writer and a trader of forward contracts could lose amounts
substantially in excess of their initial investments, due to the
margin and collateral requirements associated with such
positions.
Options on foreign currencies traded on national
securities exchanges are within the jurisdiction of the SEC, as
are other securities traded on such exchanges. As a result, many
of the protections provided to traders on organized exchanges
will be available with respect to such transactions. In
particular, all foreign currency option positions entered into on
a national securities exchange are cleared and guaranteed by the
Options Clearing Corporation ("OCC"), thereby reducing the risk
of counterparty default. Further, a liquid secondary market in
options traded on a national securities exchange may be more
readily available than in the over-the-counter market,
potentially permitting the Fund to liquidate open positions at a
profit prior to exercise or expiration, or to limit losses in the
event of adverse market movements.
The purchase and sale of exchange-traded foreign
currency options, however, is subject to the risks of the
availability of a liquid secondary market described above, as
well as the risks regarding adverse market movements, margining
of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effects
of other political and economic events. In addition, exchange-
traded options on foreign currencies involve certain risks not
presented by the over- the-counter market. For example, exercise
and settlement of such options must be made exclusively through
the OCC, which has established banking relationships in
applicable foreign countries for this purpose. As a result, the
OCC may, if it determines that foreign governmental restrictions
or taxes would prevent the orderly settlement of foreign currency
option exercise, or would result in undue burdens on the OCC or
its clearing member, impose special procedures on exercise and
settlement, such as technical changes in the mechanics of
delivery of currency, the fixing of dollar settlement prices or
prohibitions on exercise.
A-5
<PAGE>
In addition, futures contracts, options on futures
contracts, forward contracts and options on foreign currencies
may be traded on foreign exchanges. Such transactions are
subject to the risk of governmental actions affecting trading in
or the prices of foreign currencies or securities. The value of
such positions also could be adversely affected by (i) other
complex foreign political and economic factors, (ii) lesser
availability than in the United States of data on which to make
trading decisions, (iii) delays in the Fund's ability to act upon
economic events occurring in foreign markets during nonbusiness
hours in the United States, (iv) the imposition of different
exercise and settlement terms and procedures and margin
requirements than in the United States, and (v) lesser trading
volume.
A-6
<PAGE>
____________________________________________________________
APPENDIX B:
CERTAIN EMPLOYEE BENEFIT PLANS
____________________________________________________________
Employee benefit plans described below which are
intended to be tax-qualified under section 401(a) of the Internal
Revenue Code of 1986, as amended ("Tax Qualified Plans"), for
which Merrill Lynch, Pierce, Fenner & Smith Incorporated or an
affiliate thereof ("Merrill Lynch") is recordkeeper (or with
respect to which recordkeeping services are provided pursuant to
certain arrangements as described in paragraph (ii) below)
("Merrill Lynch Plans") are subject to specific requirements as
to the Fund shares which they may purchase. Notwithstanding
anything to the contrary contained elsewhere in this Statement of
Additional Information, the following Merrill Lynch Plans are not
eligible to purchase Class A shares and are eligible to purchase
Class B shares of the Fund at net asset value without being
subject to a contingent deferred sales charge:
(i) Plans for which Merrill Lynch is the recordkeeper on a
daily valuation basis, if when the plan is established
as an active plan on Merrill Lynch's recordkeeping
system:
(a) the plan is one which is not already
investing in shares of mutual funds or
interests in other commingled investment
vehicles of which Merrill Lynch Asset
Management, L.P. is investment adviser or
manager ("MLAM Funds"), and either (A) the
aggregate assets of the plan are less than
$3 million or (B) the total of the sum of
(x) the employees eligible to participate in
the plan and (y) those persons, not
including any such employees, for whom a
plan account having a balance therein is
maintained, is less than 500, each of (A)
and (B) to be determined by Merrill Lynch in
the normal course prior to the date the plan
is established as an active plan on Merrill
Lynch's recordkeeping system (an "Active
Plan"); or
(b) the plan is one which is already investing
in shares of or interests in MLAM Funds and
the assets of the plan have an aggregate
value of less than $5 million, as determined
B-1
<PAGE>
by Merrill Lynch as of the date the plan
becomes an Active Plan.
For purposes of applying (a) and (b), there
are to be aggregated all assets of any Tax-
Qualified Plan maintained by the sponsor of
the Merrill Lynch Plan (or any of the
sponsor's affiliates) (determined to be such
by Merrill Lynch) which are being invested
in shares of or interests in MLAM Funds,
Alliance Mutual Funds or other mutual funds
made available pursuant to an agreement
between Merrill Lynch and the principal
underwriter thereof (or one of its
affiliates) and which are being held in a
Merrill Lynch account.
(ii) Plans for which the recordkeeper is not Merrill Lynch,
but which are recordkept on a daily valuation basis by
a recordkeeper with which Merrill Lynch has a
subcontracting or other alliance arrangement for the
performance of recordkeeping services, if the plan is
determined by Merrill Lynch to be so eligible and the
assets of the plan are less than $3 million.
Class B shares of the Fund held by any of the above-
described Merrill Lynch Plans are to be replaced at Merrill
Lynch's direction through conversion, exchange or otherwise by
Class A shares of the Fund on the earlier of the date that the
value of the plan's aggregate assets first equals or exceeds $5
million or the date on which any Class B share of the Fund held
by the plan would convert to a Class A share of the Fund as
described under "Purchase of Shares" and "Redemption and
Repurchase of Shares."
Any Tax Qualified Plan, including any Merrill Lynch
Plan, which does not purchase Class B shares of the Fund without
being subject to a contingent deferred sales charge under the
above criteria is eligible to purchase Class B shares subject to
a contingent deferred sales charge as well as other classes of
shares of the Fund as set forth above under "Purchase of Shares"
and "Redemption and Repurchase of Shares.
B-2
00250027.AO8
