UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-00134
ALLIANCEBERNSTEIN BALANCED SHARES, INC.
(Exact name of registrant as specified in charter)
1345 Avenue of the Americas, New York, New York 10105
(Address of principal executive offices) (Zip code)
Mark R. Manley
AllianceBernstein L.P.
1345 Avenue of the Americas
New York, New York 10105
(Name and address of agent for service)
Registrant's telephone number, including area code: (800) 221-5672
Date of fiscal year end: November 30, 2006
Date of reporting period: November 30, 2006
ITEM 1. REPORTS TO STOCKHOLDERS.
- -------------------------------------------------------------------------------
ANNUAL REPORT
- -------------------------------------------------------------------------------
AllianceBernstein Balanced Shares
Annual Report
November 30, 2006
[LOGO]
ALLIANCEBERNSTEIN
INVESTMENTS
Investment Products Offered
o Are Not FDIC Insured
o May Lose Value
o Are Not Bank Guaranteed
The investment return and principal value of an investment in the Fund will
fluctuate as the prices of the individual securities in which it invests
fluctuate, so that your shares, when redeemed, may be worth more or less than
their original cost. You should consider the investment objectives, risks,
charges and expenses of the Fund carefully before investing. For a free copy of
the Fund's prospectus, which contains this and other information, visit our web
site at www.alliancebernstein.com or call your financial advisor or
AllianceBernstein(R) at (800) 227-4618. Please read the prospectus carefully
before you invest.
You may obtain performance information current to the most recent month-end by
visiting www.alliancebernstein.com.
This shareholder report must be preceded or accompanied by the Fund's
prospectus for individuals who are not current shareholders of the Fund.
You may obtain a description of the Fund's proxy voting policies and
procedures, and information regarding how the Fund voted proxies relating to
portfolio securities during the most recent 12-month period ended June 30,
without charge. Simply visit AllianceBernstein's web site at
www.alliancebernstein.com, or go to the Securities and Exchange Commission's
(the "Commission") web site at www.sec.gov, or call AllianceBernstein at (800)
227-4618.
The Fund files its complete schedule of portfolio holdings with the Commission
for the first and third quarters of each fiscal year on Form N-Q. The Fund's
Forms N-Q are available on the Commission's web site at www.sec.gov. The Fund's
Forms N-Q may also be reviewed and copied at the Commission's Public Reference
Room in Washington, DC; information on the operation of the Public Reference
Room may be obtained by calling (800) SEC-0330. AllianceBernstein publishes
full portfolio holdings for the Fund monthly at www.alliancebernstein.com.
AllianceBernstein Investments, Inc. is an affiliate of AllianceBernstein L.P.,
the manager of the AllianceBernstein funds, and is a member of the NASD.
AllianceBernstein(R) and the AB Logo are registered trademarks and service
marks used by permission of the owner, AllianceBernstein L.P.
January 26, 2007
Annual Report
This report provides management's discussion of fund performance for
AllianceBernstein Balanced Shares (the "Fund") for the annual reporting period
ended November 30, 2006.
Investment Objective and Policies
The Fund's investment objective is total return consistent with reasonable
risks through a combination of income and long-term growth of capital. The Fund
invests in a diversified portfolio of equity and fixed-income securities. The
percentage of the Fund's assets invested in each type of security will vary.
Normally, the Fund's investments will consist of about 60% in stocks, but
stocks may compose up to 75% of its investments. At least 25% of the Fund's
investments will be invested in fixed-income securities. The Fund may invest up
to 20% of its assets in high yield securities (securities rated below BBB- by
Standard & Poor's Rating Services). As an operating policy, the Fund will
invest no more than 25% of its investments in high yield debt securities in
securities rated CCC- or below. The Fund invests in short- and long-term debt
securities, including U.S. Government and agency securities and preferred and
common stocks in such proportions and of such type as the Adviser deems best
adapted to the current economic and market outlooks. The Fund also may invest
in equity and fixed-income securities of non-U.S. issuers.
Investment Results
The table on page 5 shows the Fund compared to its composite benchmark (the
"Composite"), a 60% / 40% blend of the Russell 1000 Value Index and the Lehman
Brothers (LB) Government/Credit Index, respectively, for the six- and 12-month
periods ended November 30, 2006. Also included in the table are returns for the
Fund's peer group, as represented by the Lipper Mixed-Asset Target Allocation
Growth Funds Average (the "Lipper Average"). Funds in the Lipper Average have
generally similar investment objectives to the Fund, although some may have
different investment policies and sales and management fees.
The Fund's Class A Shares underperformed the Composite for the 12-month period
ended November 30, 2006, and outperformed it for the six-month period ended
November 30, 2006. A description of both the equity and fixed-income portions
of the Fund's performance follows.
On the equity side, the Fund underperformed the Russell 1000 Value Index for
both the six- and 12-month periods ended November 30, 2006. An emphasis on
high-quality, large-cap stocks and an underweighted position in utility and
energy stocks contributed to the underperformance on the equity side,
particularly in the early part of the annual reporting period.
The fixed-income allocation of the Fund's investment portfolio underperformed
for the six-month period, but outperformed for the 12-month period ended
November 30, 2006. The Fund's net yield curve and interest rate exposures added
modestly to relative returns, while corporate bond security selection added the
most value. Within the corporate sector, the underweight
ALLIANCEBERNSTEIN BALANCED SHARES o 1
in long maturity corporate bonds offset some of the Fund's rate, curve and
security selection gains.
Market Review and Investment Strategy
Over the summer, fears that excessive monetary tightening would lead to
recession were replaced by a cautious optimism, with market volatility falling
measurably in both stocks and bonds. Economic growth appeared to slow to a more
sustainable, less inflationary pace, yet corporate profitability and cash flow
continued to be robust. While value stocks have continued to outperform growth
stocks, other key long-standing market trends appear to have changed: mega-cap
stocks, higher quality value stocks, and defensive sector stocks have generally
led the market in recent months.
Mega-cap stocks have been trading at unusually attractive valuations. This
irregularity can be accredited to prolonged strong global economic growth with
low inflation, which gave the impression that peak corporate earnings would
persist indefinitely. But the economic slowdown that is underway will likely
burst that illusion and correct these market distortions. Mega-caps and other
stocks with stable, sustainable earnings growth should regain their normal
valuation premiums. The equity portion of the Fund's portfolio is heavily
invested in such companies in order to capture this valuation anomaly. The
Fund's largest equity holdings are dominant industry players that have high
returns on equity and are exhibiting strong earnings growth.
The investment landscape in the fixed-income markets has been dominated by a
few themes, which remained persistent over the six- and 12-month periods ended
November 30, 2006. Monetary policy remained on a tightening path, both in terms
of U.S. Federal Reserve bias and actual policy rate increases: 100 basis points
of tightening in the 12-month period ended November 30, 2006, and 25 basis
points of tightening in the six-month period ended November 30, 2006. In
addition, sector level risk premium dispersion remained historically tight with
low volatility, which limited value-added through sector rotation. Security
level risk premium dispersion remained tight, also with low volatility,
limiting the value-added in security level rotation. Finally, the inherent risk
of leveraged buyouts in the corporate sector was continuous and intensifying.
The principal area of change over the course of the reporting period was the
level and shape of the U.S. Treasury yield curve as it responded to changes in
expectations about the future path of monetary policy. For example, the
five-year U.S. Treasury bond rose about 80 basis points between November of
2005 and June of 2006, then fell back about 75 basis points from late June to
November 2006. The change in both monetary policy and inflation expectations
also generated a meaningful amount of yield curve volatility, with the spread
between 30-year and two-year bonds moving in a wide range of approximately 30
basis points to -20 basis points over the
2 o ALLIANCEBERNSTEIN BALANCED SHARES
period under review, finally closing at about -5 basis points at the end of
November 2006. The fundamental factors that set the stage for this behavior in
rates and market sectors were solid but decelerating growth and profits,
overlaid with substantial inflation volatility. Energy prices were at the root
of the inflation volatility. For markets, volatile inflation drove high
interest-rate and curve volatility, while steady but slowing growth and profits
facilitated limited sector and security-level volatility.
For most of the 12-month period under review, the fixed-income portion of the
Fund's portfolio concentrated its active risk in interest-rate structure and
curve decisions, as well as security-level corporate bond decisions. The focus
in corporate bonds was to minimize leveraged buyout event risk, while choosing
bonds with good relative yield, and, at the same time, maintaining a low level
of turnover. With limited volatility in the corporate sector, turnover would
have eroded, through trading costs, the below-average excess return opportunity.
ALLIANCEBERNSTEIN BALANCED SHARES o 3
HISTORICAL PERFORMANCE
An Important Note About the Value of Historical Performance
The performance shown on the following pages represents past performance and
does not guarantee future results. Current performance may be lower or higher
than the performance information shown. You may obtain performance information
current to the most recent month-end by visiting www.alliancebernstein.com.
The investment return and principal value of an investment in the Fund will
fluctuate, so that your shares, when redeemed, may be worth more or less than
their original cost. You should consider the investment objectives, risks,
charges and expenses of the Fund carefully before investing. For a free copy of
the Fund's prospectus, which contains this and other information, visit our
website at www.alliancebernstein.com or call your financial advisor or
AllianceBernstein Investments at 800.227.4618. You should read the prospectus
carefully before you invest.
All fees and expenses related to the operation of the Fund have been deducted.
NAV returns do not reflect sales charges; if sales charges were reflected, the
Fund's quoted performance would be lower. SEC returns reflect the applicable
sales charges for each share class: a 4.25% maximum front-end sales charge for
Class A shares; the applicable contingent deferred sales charge for Class B
shares (4% year 1, 3% year 2, 2% year 3, 1% year 4); a 1% 1 year contingent
deferred sales charge for Class C shares. Returns for the different share
classes will vary due to different expenses associated with each class.
Performance assumes reinvestment of distributions and does not account for
taxes.
Benchmark Disclosure
Neither the unmanaged Russell 1000 Value Index nor the Lehman Brothers (LB)
Government/Credit Index reflects fees and expenses associated with the active
management of a mutual fund portfolio. The Russell 1000 Value Index contains
those securities in the Russell 1000 Index with a less-than-average growth
orientation. The unmanaged Russell 1000 Index is composed of 1000 of the
largest capitalized companies that are traded in the United States. The
unmanaged Lehman Brothers (LB) Government/Credit Index represents a combination
of two indices: the LB Government Index which is composed of the LB Treasury
Index and the LB Agency Index, and the LB Credit Index which includes
investment-grade bonds issued by corporations and non-corporate entities. The
composite benchmark represents a 60% / 40% blend of the Russell 1000 Value
Index and the LB Government/Credit Index, respectively. For the six- and
12-month periods ended November 30, 2006, the Lipper Mixed-Asset Target
Allocation Growth Funds Average consisted of 604 and 590 funds, respectively.
These funds have generally similar investment objectives to the Fund, although
some may have different investment policies and sales and management fees. An
investor cannot invest directly in an index or average, and their results are
not indicative of the performance for any specific investment, including the
Fund.
A Word About Risk
The Fund is a "balanced" fund and must invest at least 25% of its total assets
in fixed-income securities. The value of fixed-income securities will change as
the general level of interest rates fluctuates. The Fund may invest in high
yield bonds (i.e., "junk bonds") which involves a greater risk of default and
price volatility than other bonds. Investing in below-investment grade bonds
presents special risks, including credit risk. The Fund can invest in foreign
securities, which may magnify fluctuations due to changes in foreign exchange
rates and the possibility of substantial volatility due to political and
economic uncertainties in foreign countries. In order to achieve its investment
objectives, the Fund may at times use certain types of investment derivatives,
such as options, futures, forwards and swaps. These instruments involve risks
different from, and in certain cases, greater than, the risks presented by more
traditional investments. These risks are fully discussed in the Fund's
prospectus.
(Historical Performance continued on next page)
4 o ALLIANCEBERNSTEIN BALANCED SHARES
HISTORICAL PERFORMANCE
(continued from previous page)
Returns
THE FUND VS. ITS BENCHMARK -----------------------------
PERIODS ENDED NOVEMBER 30, 2006 6 Months 12 Months
- -------------------------------------------------------------------------------
AllianceBernstein Balanced Shares
Class A 10.40% 11.81%
Class B 10.00% 10.94%
Class C 10.02% 11.02%
Advisor Class* 10.61% 12.10%
Class R* 10.20% 11.37%
Class K* 10.38% 11.74%
Class I* 10.52% 12.07%
Composite: 60% Russell 1000 Value Index /
40% Lehman Brothers Government/Credit Index 10.16% 14.39%
Russell 1000 Value Index 12.92% 20.28%
Lehman Brothers Government/Credit Index 6.03% 5.57%
Lipper Mixed-Asset Target Allocation Growth
Funds Average 8.32% 11.88%
* Please note that these share classes are for investors purchasing shares
through accounts established under certain fee-based programs sponsored and
maintained by certain broker-dealers and financial intermediaries,
institutional pension plans and/or investment advisory clients of, and certain
other persons associated with, the Adviser and its affiliates or the Funds.
GROWTH OF A $10,000 INVESTMENT IN THE FUND
11/30/96 TO 11/30/06
AllianceBernstein Balanced Shares Class A: $23,446
Composite: $23,749
LB Government/Credit Index: $18,290
Russell 1000 Value Index: $27,413
[THE FOLLOWING DATA WAS REPRESENTED BY A MOUNTAIN CHART IN THE PRINTED MATERIAL]
AllianceBernstein
Balanced Shares Government/ Russell 1000
Class A Composite LB Credit Index Value Index
- -------------------------------------------------------------------------------
11/30/96 $ 9,575 $ 10,000 $ 10,000 $ 10,000
11/30/97 $ 11,777 $ 12,077 $ 10,741 $ 12,967
11/30/98 $ 13,362 $ 13,670 $ 11,853 $ 14,924
11/30/99 $ 14,413 $ 14,457 $ 11,698 $ 16,486
11/30/00 $ 15,684 $ 15,187 $ 12,753 $ 16,882
11/30/01 $ 16,628 $ 15,601 $ 14,222 $ 16,352
11/30/02 $ 15,344 $ 15,158 $ 15,263 $ 14,781
11/30/03 $ 17,453 $ 17,106 $ 16,238 $ 17,317
11/30/04 $ 19,683 $ 19,406 $ 16,906 $ 20,723
11/30/05 $ 20,972 $ 20,762 $ 17,326 $ 22,792
11/30/06 $ 23,446 $ 23,749 $ 18,290 $ 27,413
This chart illustrates the total value of an assumed $10,000 investment in
AllianceBernstein Balanced Shares Class A shares (from 11/30/96 to 11/30/06) as
compared to the performance of its composite benchmark, a 60% / 40% blend of
the Russell 1000 Value Index and the LB Government/Credit Index, respectively,
as well as each index separately. The chart reflects the deduction of the
maximum 4.25% sales charge from the initial $10,000 investment in the Fund and
assumes the reinvestment of dividends and capital gains distributions.
See Historical Performance and Benchmark disclosures on previous page.
(Historical Performance continued on next page)
ALLIANCEBERNSTEIN BALANCED SHARES o 5
HISTORICAL PERFORMANCE
(continued from previous page)
AVERAGE ANNUAL RETURNS AS OF NOVEMBER 30, 2006
- --------------------------------------------------------------
NAV Returns SEC Returns
Class A Shares
1 Year 11.81% 7.06%
5 Years 7.12% 6.19%
10 Years 9.37% 8.89%
Class B Shares
1 Year 10.94% 6.94%
5 Years 6.33% 6.33%
10 Years(a) 8.72% 8.72%
Class C Shares
1 Year 11.02% 10.02%
5 Years 6.35% 6.35%
10 Years 8.57% 8.57%
Advisor Class Shares+
1 Year 12.10% 12.10%
5 Years 7.42% 7.42%
10 Years 9.67% 9.67%
Class R Shares+
1 Year 11.37% 11.37%
Since Inception* 9.89% 9.89%
Class K Shares+
1 Year 11.74% 11.74%
Since Inception* 8.16% 8.16%
Class I Shares+
1 Year 12.07% 12.07%
Since Inception* 8.50% 8.50%
(a) Assumes conversion of Class B shares into Class A shares after eight years.
* Inception Dates: 11/3/03 for Class R shares; 3/1/05 for Class K and Class I
shares.
+ These share classes are offered at net asset value (NAV) to eligible
investors and their SEC returns are the same as the NAV returns. Please note
that these share classes are for investors purchasing shares through accounts
established under certain fee-based programs sponsored and maintained by
certain broker-dealers and financial intermediaries, institutional pension
plans and/or investment advisory clients of, and certain other persons
associated with, the Adviser and its affiliates or the Funds. The inception
dates for Class R, Class K and Class I are listed above.
See Historical Performance disclosures on page 4.
(Historical Performance continued on next page)
6 o ALLIANCEBERNSTEIN BALANCED SHARES
HISTORICAL PERFORMANCE
(continued from previous page)
SEC AVERAGE ANNUAL RETURNS (WITH ANY APPLICABLE SALES CHARGES)
AS OF THE MOST RECENT CALENDAR QUARTER-END (DECEMBER 31, 2006)
- --------------------------------------------------------------
SEC Returns
Class A Shares
1 Year 8.39%
5 Years 6.36%
10 Years 9.17%
Class B Shares
1 Year 8.46%
5 Years 6.53%
10 Years(a) 8.99%
Class C Shares
1 Year 11.40%
5 Years 6.52%
10 Years 8.84%
Advisor Class Shares+
1 Year 13.63%
5 Years 7.61%
10 Years 9.95%
Class R Shares+
1 Year 12.84%
Since Inception* 10.13%
Class K Shares+
1 Year 13.23%
Since Inception* 8.68%
Class I Shares+
1 Year 13.62%
Since Inception* 9.02%
(a) Assumes conversion of Class B shares into Class A shares after eight years.
* Inception Dates: 11/3/03 for Class R shares; 3/1/05 for Class K and Class I
shares.
+ These share classes are offered at net asset value (NAV) to eligible
investors and their SEC returns are the same as the NAV returns. Please note
that these share classes are for investors purchasing shares through accounts
established under certain fee-based programs sponsored and maintained by
certain broker-dealers and financial intermediaries, institutional pension
plans and/or investment advisory clients of, and certain other persons
associated with, the Adviser and its affiliates or the Funds. The inception
dates for Class R, Class K and Class I are listed above.
See Historical Performance disclosures on page 4.
ALLIANCEBERNSTEIN BALANCED SHARES o 7
FUND EXPENSES
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including sales charges (loads) on purchase payments, contingent
deferred sales charges on redemptions and (2) ongoing costs, including
management fees; distribution (12b-1) fees; and other Fund expenses. This
example is intended to help you understand your ongoing costs (in dollars) of
investing in the Fund and to compare these costs with the ongoing costs of
investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of
the period and held for the entire period as indicated below.
Actual Expenses
The table below provides information about actual account values and actual
expenses. You may use the information, together with the amount you invested,
to estimate the expenses that you paid over the period. Simply divide your
account value by $1,000 (for example, an $8,600 account value divided by $1,000
= 8.6), then multiply the result by the number under the heading entitled
"Expenses Paid During Period" to estimate the expenses you paid on your account
during this period.
Hypothetical Example for Comparison Purposes
The table below also provides information about hypothetical account values and
hypothetical expenses based on the Fund's actual expense ratio and an assumed
annual rate of return of 5% before expenses, which is not the Fund's actual
return. The hypothetical account values and expenses may not be used to
estimate the actual ending account balance or expenses you paid for the period.
You may use this information to compare the ongoing costs of investing in the
Fund and other funds by comparing this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads), or contingent deferred sales charges on redemptions.
Therefore, the hypothetical example is useful in comparing ongoing costs only,
and will not help you determine the relative total costs of owning different
funds. In addition, if these transactional costs were included, your costs
would have been higher.
Beginning Ending
Account Value Account Value Expenses Paid
June 1, 2006 November 30, 2006 During Period*
------------------------------ ------------------------------- ---------------------------
Actual Hypothetical Actual Hypothetical** Actual Hypothetical
----------- ---------------- ----------- ----------------- ----------- -------------
Class A $1,000 $1,000 $1,104.02 $1,020.91 $4.38 $4.20
Class B $1,000 $1,000 $1,100.03 $1,017.20 $8.27 $7.94
Class C $1,000 $1,000 $1,100.24 $1,017.25 $8.21 $7.89
Advisor
Class $1,000 $1,000 $1,106.07 $1,022.31 $2.90 $2.79
Class R $1,000 $1,000 $1,101.95 $1,018.90 $6.48 $6.23
Class K $1,000 $1,000 $1,103.82 $1,020.61 $4.69 $4.51
Class I $1,000 $1,000 $1,105.19 $1,022.11 $3.11 $2.99
* Expenses are equal to the classes' annualized expense ratios of 0.83%,
1.57%, 1.56%, 0.55%, 1.23%, 0.89% and 0.59%, respectively, multiplied by the
average account value over the period, multiplied by 183/365 (to reflect the
one-half year period).
** Assumes 5% return before expenses.
8 o ALLIANCEBERNSTEIN BALANCED SHARES
PORTFOLIO SUMMARY
November 30, 2006
PORTFOLIO STATISTICS
Net Assets ($mil): $1,743.1
SECURITY BREAKDOWN*
[ ] 67.7% Common Stock [PIE CHART OMITTED]
[ ] 17.8% U.S Government & Government
Sponsored Agency Obligations
[ ] 8.8% Corporate Debt Obligations
[ ] 4.2% Collateralized Mortgage Obligations
[ ] 0.8% Sovereign Debt
[ ] 0.2% Preferred Stock
[ ] 0.1% Municipal Obligation
[ ] 0.4% Short-Term
TEN LARGEST HOLDINGS
November 30, 2006
Percent of
Company Value Net Assets
- -------------------------------------------------------------------------------
U.S. Treasury Notes $ 208,305,648 11.9%
Federal National Mortgage Association 70,185,105 4.0
Bank of America Corp. 67,441,693 3.9
JPMorgan Chase & Co. (Common Stocks
and Bonds) 64,596,027 3.7
American International Group, Inc. 58,056,192 3.4
U.S. Treasury Bonds 48,609,561 2.8
Time Warner, Inc. (Common Stocks and
Bonds) 45,649,324 2.6
Citigroup, Inc. 44,248,859 2.5
Exxon Mobil Corp. 43,843,148 2.5
Procter & Gamble Co. 34,729,149 2.0
$ 685,664,706 39.3%
* All data are as of November 30, 2006. The Fund's sector breakdown is
expressed as a percentage of total investments (excluding security lending
collateral) and may vary over time.
ALLIANCEBERNSTEIN BALANCED SHARES o 9
PORTFOLIO OF INVESTMENTS
November 30, 2006
Company Shares U.S. $ Value
- -------------------------------------------------------------------------------
COMMON STOCKS-67.6%
Finance-19.2%
Banking - Money Center-3.7%
The Bank of New York Co., Inc 182,100 $ 6,471,834
JPMorgan Chase & Co. 1,194,568 55,284,607
Wachovia Corp. 63,700 3,451,903
--------------
65,208,344
Banking - Regional-4.3%
Bank of America Corp. 868,850 46,787,573
Northern Trust Corp. 205,800 11,722,368
Wells Fargo & Co. 487,200 17,168,928
--------------
75,678,869
Brokerage & Money Management-1.9%
Goldman Sachs Group, Inc. 80,100 15,603,480
Merrill Lynch & Co., Inc.(a) 190,600 16,664,158
--------------
32,267,638
Insurance-5.8%
ACE, Ltd. 335,500 19,069,820
Allstate Corp. 101,200 6,424,176
American International Group, Inc. 825,600 58,056,192
Axis Capital Holdings, Ltd. 494,400 16,923,312
--------------
100,473,500
Miscellaneous-2.5%
Citigroup, Inc. 892,294 44,248,859
Mortgage Banking-1.0%
Federal National Mortgage Association 309,400 17,645,082
--------------
335,522,292
Consumer Services-9.7%
Broadcasting & Cable-6.0%
Comcast Corp.--Class A(a)(b) 314,106 12,708,729
Comcast Corp.--Special-Class A(a)(b) 168,300 6,779,124
News Corp.--Class A 1,510,000 31,106,000
Time Warner, Inc. 2,266,600 45,649,324
Viacom, Inc.--Class B(b) 248,050 9,304,355
--------------
105,547,532
Printing & Publishing-0.0%
Idearc, Inc.(b) 23,570 649,118
Restaurants & Lodging-2.0%
Hilton Hotels Corp. 442,200 14,517,426
McDonald's Corp. 477,600 20,044,872
--------------
34,562,298
Retail - General Merchandise-1.7%
Best Buy Co., Inc. 72,100 3,963,337
Home Depot, Inc. 666,700 25,314,599
--------------
29,277,936
--------------
170,036,884
10 o ALLIANCEBERNSTEIN BALANCED SHARES
Company Shares U.S. $ Value
- -------------------------------------------------------------------------------
Technology-8.5%
Communication Equipment-2.0%
Cisco Systems, Inc.(b) 476,000 $ 12,794,880
Motorola, Inc. 566,200 12,552,654
QUALCOMM, Inc. 287,000 10,501,330
--------------
35,848,864
Computer Hardware/Storage-3.0%
International Business Machines Corp. 296,700 27,272,664
Sun Microsystems, Inc.(a)(b) 4,503,800 24,410,596
--------------
51,683,260
Computer Services-0.4%
Fiserv, Inc.(b) 136,100 6,956,071
Semiconductor Capital Equipment-0.7%
Applied Materials, Inc.(a) 674,800 12,132,904
Semiconductor Components-0.5%
NVIDIA Corp.(b) 237,300 8,777,727
Software-1.9%
Microsoft Corp. 1,115,000 32,702,950
--------------
148,101,776
Energy-7.3%
Domestic Producers-1.4%
Noble Energy, Inc. 456,800 24,438,800
International-3.8%
Chevron Corp.(a) 320,200 23,156,864
Exxon Mobil Corp. 570,800 43,843,148
--------------
67,000,012
Miscellaneous-0.6%
ConocoPhillips 144,800 9,745,040
Oil Service-1.5%
Baker Hughes, Inc. 84,100 6,175,463
BJ Services Co. 111,800 3,775,486
GlobalSantaFe Corp.(a) 45,200 2,712,000
Nabors Industries, Ltd.(a)(b) 387,800 13,092,128
--------------
25,755,077
--------------
126,938,929
Consumer Staples-6.2%
Beverages-0.2%
PepsiCo, Inc. 59,800 3,705,806
Household Products-2.4%
Colgate-Palmolive Co. 111,900 7,279,095
Procter & Gamble Co.(a) 553,100 34,729,149
--------------
42,008,244
ALLIANCEBERNSTEIN BALANCED SHARES o 11
Company Shares U.S. $ Value
- -------------------------------------------------------------------------------
Miscellaneous-1.1%
Fortune Brands, Inc.(a) 225,700 $ 18,259,130
Tobacco-2.5%
Altria Group, Inc.(a) 353,200 29,742,972
Loews Corp.-Carolina Group 221,000 13,783,770
--------------
43,526,742
--------------
107,499,922
Health Care-5.6%
Drugs-3.7%
Eli Lilly & Co. 287,600 15,412,484
Merck & Co., Inc. 479,400 21,338,094
Wyeth 573,300 27,678,924
--------------
64,429,502
Medical Services-1.9%
WellPoint, Inc.(b) 429,000 32,462,430
--------------
96,891,932
Capital Goods-4.8%
Electrical Equipment-1.5%
Emerson Electric Co. 308,500 26,746,950
Miscellaneous-3.3%
General Electric Co. 734,200 25,902,576
Illinois Tool Works, Inc.(a) 142,100 6,707,120
United Technologies Corp. 372,100 24,011,613
--------------
56,621,309
--------------
83,368,259
Utilities-3.5%
Electric & Gas Utility-0.7%
FirstEnergy Corp. 194,400 11,632,896
Telephone Utility-2.8%
AT&T, Inc.(a) 971,900 32,957,129
Verizon Communications, Inc. 471,400 16,470,716
--------------
49,427,845
--------------
61,060,741
Basic Industry-2.0%
Chemicals-1.8%
Air Products & Chemicals, Inc. 353,000 24,406,420
EI Du Pont de Nemours & Co. 136,400 6,401,252
--------------
30,807,672
Mining & Metals-0.2%
Alcoa, Inc. 136,500 4,254,705
--------------
35,062,377
Transportation-0.8%
Air Freight-0.4%
United Parcel Service, Inc.--Class B 94,200 7,340,064
12 o ALLIANCEBERNSTEIN BALANCED SHARES
Shares or
Principal
Amount
Company (000) U.S. $ Value
- -------------------------------------------------------------------------------
Railroad-0.4%
Union Pacific Corp. 70,800 $ 6,408,816
--------------
13,748,880
Total Common Stocks
(cost $895,932,997) 1,178,231,992
U.S. GOVERNMENT AND
GOVERNMENT SPONSORED
AGENCY OBLIGATIONS-17.8%
U.S. Treasury Bonds-2.8%
4.50%, 2/15/36(a) $ 16,975 16,806,574
6.875%, 8/15/25(a) 11,000 14,001,801
8.125%, 8/15/19(a) 5,110 6,833,031
11.25%, 2/15/15(a) 7,503 10,968,155
--------------
48,609,561
U.S. Treasury Notes-12.0%
1.625%, 1/15/15(a) (TIPS) 2,556 2,452,249
3.00%, 2/15/09-11/15/07(a) 19,585 19,098,126
3.125%, 4/15/09(a) 3,975 3,850,161
3.25%, 8/15/08(a) 10,000 9,775,780
3.625%, 5/15/13(a) 13,975 13,355,404
3.875%, 5/15/10-9/15/10(a) 32,590 31,960,162
4.00%, 4/15/10-11/15/12(a) 15,183 14,946,989
4.125%, 5/15/15(a) 3,566 3,485,070
4.25%, 8/15/13-10/15/10 25,015 24,752,049
5.00%, 2/15/11(a) 22,000 22,501,006
5.125%, 5/15/16(a) 24,771 26,013,414
6.00%, 8/15/09(a) 23,480 24,349,488
6.125%, 8/15/07(a) 11,675 11,765,750
--------------
208,305,648
Federal National Mortgage Association-3.0%
4.25%, 9/15/07(a) 40,655 40,385,295
6.625%, 10/15/07(a) 12,000 12,154,728
--------------
52,540,023
Total U.S. Government and Government
Sponsored Agency Obligations
(cost $305,552,475) 309,455,232
CORPORATE DEBT OBLIGATIONS-8.8%
Automotive-0.2%
Daimlerchrysler North America
4.875%, 6/15/10 2,450 2,401,581
Ford Motor Credit Co.
4.95%, 1/15/08 1,065 1,045,311
--------------
3,446,892
ALLIANCEBERNSTEIN BALANCED SHARES o 13
Principal
Amount
Company (000) U.S. $ Value
- -------------------------------------------------------------------------------
Banking-1.6%
Barclays Bank PLC
8.55%, 6/15/11(c)(d) $ 1,000 $ 1,130,965
The Chuo Mitsui Trust & Banking Co., Ltd.
5.506%, 4/15/49(c)(d) 1,745 1,693,446
Dresdner Funding Trust I
8.151%, 6/30/31(c) 2,625 3,258,407
Fuji JGB Investment
9.87%, 6/30/08(c)(d) 390 415,681
HBOS PLC
5.375%, 11/01/49(c)(d) 2,100 2,097,033
HSBC Bank USA
5.875%, 11/01/34 2,500 2,578,373
ING Capital Funding Trust III
8.439%, 12/29/49(d) 1,000 1,114,616
Northern Rock PLC
5.60%, 4/30/14(c)(d) 2,975 2,920,376
Popular North America, Inc.
4.25%, 4/01/08 385 377,743
RBS Capital Trust III
5.512%, 9/29/49(d) 2,740 2,724,661
Regency Centers LP
5.25%, 8/01/15 1,800 1,774,463
Royal Bank of Scotland Group PLC
7.648%, 9/30/31(d) 1,000 1,208,134
Sanwa Bank, Ltd.
7.40%, 6/15/11 1,600 1,747,394
Sumitomo Mitsui Banking Corp.
5.625%, 10/15/15(c)(d) 550 546,791
UBS Preferred Funding Trust II
7.247%, 6/26/11(d) 1,000 1,080,781
UFJ Finance Aruba AEC
6.75%, 7/15/13 1,565 1,688,029
Unicredito Italiano Capital Trust II
9.20%, 10/05/10(c)(d) 1,320 1,496,749
Wachovia Capital Trust III
5.80%, 3/15/11(d) 670 679,006
--------------
28,532,648
Broadcasting/Media-0.5%
BSKYB Finance UK PLC
5.625%, 10/15/15(c) 680 677,370
Clear Channel Communications, Inc.
5.50%, 9/15/14 1,195 1,020,573
News America Holdings, Inc.
9.25%, 2/01/13 500 594,792
News America, Inc.
5.30%, 12/15/14(a) 1,500 1,493,807
The Thomson Corp.
5.75%, 2/01/08 400 401,800
Time Warner Entertainment Co.
8.375%, 3/15/23 2,000 2,404,410
14 o ALLIANCEBERNSTEIN BALANCED SHARES
Principal
Amount
Company (000) U.S. $ Value
- -------------------------------------------------------------------------------
Viacom Inc.
7.875%, 7/30/30 $ 325 $ 362,466
WPP Finance Corp.
5.875%, 6/15/14 1,000 1,013,523
--------------
7,968,741
Building/Real Estate-0.2%
DR Horton, Inc.
6.50%, 4/15/16 450 457,201
EOP Operating LP
5.875%, 1/15/13 225 236,656
7.875%, 7/15/31 1,000 1,339,790
iStar Financial, Inc.
Series B
5.70%, 3/01/14 900 904,145
6.00%, 12/15/10 800 817,407
--------------
3,755,199
Cable-0.0%
Comcast Corp.
7.05%, 3/15/33 500 550,473
Chemicals-0.4%
Boston Scientific Corp.
6.40%, 6/15/16 1,370 1,405,300
Eastman Chemical Co.
7.25%, 1/15/24 800 860,470
EI Du Pont de Nemours & Co.
3.375%, 11/15/07 2,935 2,874,351
Lubrizol Corp.
5.50%, 10/01/14 1,450 1,433,867
--------------
6,573,988
Communications-0.1%
Qwest Corp.
7.875%, 9/01/11 940 1,003,450
TPSA Finance BV
7.75%, 12/10/08 200 208,200
--------------
1,211,650
Communications - Fixed-0.3%
Embarq Corp.
6.738%, 6/01/13 2,000 2,078,136
GTE Corp.
8.75%, 11/01/21 2,175 2,706,857
--------------
4,784,993
ALLIANCEBERNSTEIN BALANCED SHARES o 15
Principal
Amount
Company (000) U.S. $ Value
- -------------------------------------------------------------------------------
Communications - Mobile-0.3%
AT&T Wireless
8.75%, 3/01/31 $ 1,250 $ 1,668,033
Mobile Telesystems Finance SA
9.75%, 1/30/08(c) 1,000 1,038,900
Nextel Communications, Inc.
Series F
5.95%, 3/15/14 1,335 1,311,637
Telus Corp.
8.00%, 6/01/11 600 662,930
--------------
4,681,500
Conglomerate/Miscellaneous-0.0%
Hutchison Whampoa International, Ltd.
7.45%, 11/24/33(c) 500 585,708
Consumer Manufacturing-0.0%
Sara Lee Corp.
6.125%, 11/01/32 600 561,986
Containers-0.1%
Packaging Corp. of America
4.375%, 8/01/08 1,800 1,771,151
Corporate-0.1%
ZFS Finance USA Trust I
6.15%, 12/15/65(c)(d) 1,000 1,017,730
Energy-0.4%
Amerada Hess Corp.
7.30%, 8/15/31 1,100 1,260,996
Enterprise Products Operating L.P.
Series B
5.60%, 10/15/14 1,850 1,842,023
TXU Energy Co. LLC
7.00%, 3/15/13 895 946,880
Valero Energy Corp.
4.75%, 6/15/13 1,000 962,521
XTO Energy, Inc.
7.50%, 4/15/12 1,400 1,537,274
--------------
6,549,694
Financial-0.8%
Capital One Bank
6.50%, 6/13/13 1,600 1,704,792
Countrywide Financial Corp.
6.25%, 5/15/16 2,850 2,940,228
General Electric Capital Corp.
5.875%, 2/15/12 2,250 2,337,201
Goldman Sachs Group, Inc.
5.70%, 9/01/12 2,610 2,682,918
Rabobank Capital Funding II
5.26%, 12/31/13(c)(d) 1,100 1,089,844
16 o ALLIANCEBERNSTEIN BALANCED SHARES
Principal
Amount
Company (000) U.S. $ Value
- -------------------------------------------------------------------------------
Resona Preferred Global Securities
7.191%, 7/30/15(c)(d) $ 1,145 $ 1,214,017
UBS Preferred Funding Trust V
Series 1
6.243%, 5/15/16(d) 2,575 2,704,798
--------------
14,673,798
Food/Beverage-0.2%
Altria Group, Inc.
7.75%, 1/15/27 1,160 1,448,410
Kraft Foods, Inc.
5.25%, 10/01/13 1,200 1,202,174
Tyson Foods, Inc.
8.25%, 10/01/11 950 1,025,839
--------------
3,676,423
Health Care-0.6%
Boston Scientific Corp.
5.45%, 6/15/14 1,335 1,299,604
6.00%, 6/15/11 700 712,164
6.25%, 11/15/15 1,955 1,987,013
Lincoln National Corp.
7.00%, 5/17/66(d) 2,755 2,955,514
UnitedHealth Group, Inc.
5.25%, 3/15/11 900 903,685
WellPoint, Inc.
5.25%, 1/15/16 600 597,818
Wyeth
6.50%, 2/01/34 2,250 2,517,104
--------------
10,972,902
Hotel/Lodging-0.1%
ITT Corp New
7.375%, 11/15/15 1,119 1,159,254
Starwood Hotels & Resorts Worldwide, Inc.
7.875%, 5/01/12 602 643,371
--------------
1,802,625
Industrial-0.4%
CRH America, Inc.
6.00%, 9/30/16 750 767,200
Hanson Australia Funding Ltd.
5.25%, 3/15/13 945 929,569
Inco Ltd.
7.75%, 5/15/12 2,615 2,870,932
Tyco International Group, SA
6.00%, 11/15/13 1,005 1,051,971
Waste Management, Inc.
6.375%, 11/15/12 675 712,223
--------------
6,331,895
Insurance-0.5%
CNA Financial Corp.
5.85%, 12/15/14 480 487,549
ALLIANCEBERNSTEIN BALANCED SHARES o 17
Principal
Amount
Company (000) U.S. $ Value
- -------------------------------------------------------------------------------
ING Groep NV
5.775%, 12/29/49(d) $ 2,925 $ 2,944,320
Liberty Mutual Group, Inc.
5.75%, 3/15/14(c) 1,600 1,616,336
North Front Pass Through Trust
5.81%, 12/15/24(c)(d) 2,213 2,212,951
Zurich Capital Trust I
8.376%, 6/01/37(c) 950 997,276
--------------
8,258,432
Metals/Mining-0.2%
Ispat Inland ULC
9.75%, 4/01/14 500 558,750
Noranda Inc.
6.00%, 10/15/15 1,645 1,690,336
Southern Copper Corp.
7.50%, 7/27/35 980 1,075,030
--------------
3,324,116
Non-Air Transportation-0.0%
CSX Corp.
5.50%, 8/01/13 400 405,226
Petroleum Products-0.0%
Petronas Capital, Ltd.
7.00%, 5/22/12(c) 850 926,108
Public Utilities - Electric & Gas-0.6%
CenterPoint Energy Resources Corp.
Series B
7.875%, 4/01/13 2,300 2,589,425
Consumers Energy Co.
5.375%, 4/15/13(a) 1,700 1,705,780
Dominion Resources, Inc./VA
7.50%, 6/30/66(d) 3,120 3,413,982
Texas Eastern Transmission Corp.
7.30%, 12/01/10 1,700 1,820,795
TXU Australia Holdings Pty Ltd.
6.15%, 11/15/13(c) 1,200 1,261,416
--------------
10,791,398
Public Utilities - Telephone-0.4%
BellSouth Corp.
5.20%, 9/15/14 2,135 2,107,988
Verizon Virginia, Inc.
Series A
4.625%, 3/15/13 2,915 2,771,990
Windstream Corp.
8.125%, 8/01/13(c) 1,187 1,284,928
--------------
6,164,906
18 o ALLIANCEBERNSTEIN BALANCED SHARES
Principal
Amount
Company (000) U.S. $ Value
- -------------------------------------------------------------------------------
Publishing-0.1%
RH Donnelley Corp
Series A-3
8.875%, 1/15/16 $ 1,100 $ 1,155,000
Supermarket/Drug-0.4%
Bristol-Myers Squibb Co.
6.875%, 8/01/97 2,650 2,941,789
Kroger Co.
6.80%, 4/01/11 1,500 1,581,613
Safeway, Inc.
4.95%, 8/16/10 2,000 1,974,514
5.80%, 8/15/12 1,240 1,262,253
--------------
7,760,169
Technology-0.3%
Electronic Data Systems Corp.
Series B
6.50%, 8/01/13 2,470 2,526,733
Hewlett-Packard Co.
3.625%, 3/15/08 2,940 2,875,347
--------------
5,402,080
Total Corporate Debt Obligations
(cost $151,269,284) 153,637,431
COMMERCIAL MORTGAGE BACKED
SECURITIES-4.2%
Banc of America Commercial Mortgage, Inc.
Series 2005-1, Class A3
4.877%, 11/10/42 10,450 10,394,705
Series 2001-PB1, Class A2
5.787%, 5/11/35 9,967 10,259,415
Bear Stearns Commercial Mortgage
Securities, Inc.
Series 2005-PWR9, A4A, Class A4A
4.871%, 9/11/42 8,000 7,858,238
Series 2005-PW10, Class A4
5.405%, 12/11/40(d) 10,000 10,192,958
Greenwich Capital Commercial Funding Corp.
Series 2003-C2, Class A3, Class A3
4.533%, 1/05/36 5,000 4,911,162
Series 2005-GG3, Class A4, Class A4
4.799%, 8/10/42(d) 10,100 9,893,907
GS Mortgage Securities Corp. II
Series 2004-GG2, Class A6
5.396%, 8/10/38(d) 2,400 2,442,768
JP Morgan Chase Commercial Mortgage
Securities Corp.
Series 2005-LDP3, Class A2
4.851%, 8/15/42 8,500 8,445,833
Series 2006-CB15, Class A4
5.814%, 6/12/43(d) 824 865,587
ALLIANCEBERNSTEIN BALANCED SHARES o 19
Shares or
Principal
Amount
Company (000) U.S. $ Value
- -------------------------------------------------------------------------------
LB-UBS Commercial Mortgage Trust
Series 2004-C7 A2, Class A2
3.992%, 10/15/29 $ 1,095 $ 1,064,769
Series 2006-C1, Class A4
5.156%, 2/15/31 5,000 5,012,931
Merrill Lynch Mortgage Trust
Series 2004-KEY2, Class A4, Class A4
4.864%, 8/12/39(d) 1,600 1,576,864
Total Commercial Mortgage Backed Securities
(cost $73,014,399) 72,919,137
SOVEREIGN DEBT OBLIGATIONS-0.8%
Sovereign-0.2%
Republic of South Africa
7.375%, 4/25/12 3,000 3,258,600
United Mexican States
Series A
6.375%, 1/16/13 4,000 4,216,000
United Mexican States
5.625%, 1/15/17 5,634 5,648,085
Total Sovereign Debt Obligations
(cost $12,632,952) 13,122,685
NON-CONVERTIBLE-PREFERRED
STOCKS-0.2%
Communications-0.0%
Centaur Funding Corp.
9.08%, 4/21/20(c) 1 1,420,500
Public Utilities - Electric & Gas-0.1%
Dte Energy Trust I
7.80%, 2/01/32 60 1,513,800
Banking-0.1%
Royal Bank of Scotland Group PLC
5.75% 50,000 1,224,500
Total Non-Convertible-Preferred Stocks
(cost $4,197,090) 4,158,800
MUNICIPAL OBLIGATIONS-0.1%
Texas-0.1%
Dallas-Fort Worth Texas
International MBIA FSA
7.07%, 11/01/24
(cost $2,043,646) 2,000 2,093,860
20 o ALLIANCEBERNSTEIN BALANCED SHARES
Shares or
Principal
Amount
Company (000) U.S. $ Value
- -------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS-0.4%
Time Deposit-0.4%
State Street Euro Dollar
4.60%, 12/01/06
(cost $6,304,000) $ 6,304 $ 6,304,000
Total Investments Before Security Lending
Collateral-99.8%
(cost $1,450,946,843) 1,739,923,137
INVESTMENT OF CASH COLLATERAL FOR
SECURITIES LOANED-27.5%
Short-Term Investments-27.5%
Morgan Stanley
5.30%, 12/01/06 25,000 25,077,292
UBS Private Money Market Fund, LLC 453,498,695 453,498,695
Total Investment of Cash Collateral for
Securities Loaned
(cost $478,575,987) 478,575,987
Total Investments-127.3%
(cost $1,929,522,830) 2,218,499,124
Other assets less liabilities-(27.3)% (475,350,438)
Net Assets-100.0% $1,743,148,686
(a) Represents entire or partial securities out on loan. See Note E for
securities lending information.
(b) Non-income producing security.
(c) Security is exempt from registration under Rule 144A of the Securities Act
of 1933. These securities are considered liquid and may be resold in
transactions exempt from registration, normally to qualified institutional
buyers. At November 30, 2006, the market value of these securities amounted to
$28,902,532 or 1.7% of net assets.
(d) Variable rate coupon, rate shown as of November 30, 2006.
Glossary:
FSA - Financial Security Assurance Inc.
MBIA - Municipal Bond Investors Assurance
TIPS - Treasury Inflation Protected Security
See notes to financial statements.
ALLIANCEBERNSTEIN BALANCED SHARES o 21
STATEMENT OF ASSETS & LIABILITIES
November 30, 2006
Assets
Investments in securities, at value
(cost $1,929,522,830--including
investment of cash collateral for
securities loaned of $478,575,987) $ 2,218,499,124(a)
Cash 997
Dividends and interest receivable 11,555,892
Receivable for capital stock sold 4,361,692
Receivable for investment securities sold 1,980,297
Total assets 2,236,398,002
Liabilities
Payable for collateral received on securities loaned 478,575,987
Payable for capital stock redeemed 6,896,612
Payable for investment securities purchased 5,739,109
Distribution fee payable 771,641
Advisory fee payable 619,048
Transfer Agent fee payable 173,222
Administrative fee payable 48,952
Accrued expenses and other liabilities 424,745
Total liabilities 493,249,316
Net Assets $ 1,743,148,686
Composition of Net Assets
Capital stock, at par $ 972,615
Additional paid-in capital 1,400,820,714
Undistributed net investment income 5,649,335
Accumulated net realized gain on
investment transactions 46,738,335
Net unrealized appreciation of investments and foreign
currency denominated assets and liabilities 288,967,687
$ 1,743,148,686
Net Asset Value Per Share--21 billion shares of capital stock authorized, $.01
par value
Shares Net Asset
Class Net Assets Outstanding Value
- -------------------------------------------------------------------------
A $ 972,991,474 53,205,227 $18.29*
B $ 478,595,321 27,631,078 $17.32
C $ 176,454,300 10,143,723 $17.40
Advisor $ 107,657,239 5,873,439 $18.33
R $ 3,197,583 175,232 $18.25
K $ 284,692 15,577 $18.28
I $ 3,968,077 217,188 $18.27
* The maximum offering price per share for Class A shares was $19.10 which
reflects a sales charge of 4.25%
(a) Includes securities on loan with a value of $465,388,887 (see Note E).
See notes to financial statements.
22 o ALLIANCEBERNSTEIN BALANCED SHARES
STATEMENT OF OPERATIONS
Year Ended November 30, 2006
Investment Income
Dividends $ 26,173,181
Interest 23,973,904 $ 50,147,085
Expenses
Advisory fee 7,572,264
Distribution fee--Class A 2,703,535
Distribution fee--Class B 5,149,927
Distribution fee--Class C 1,748,942
Distribution fee--Class R 11,726
Distribution fee--Class K 372
Transfer agency--Class A 1,167,193
Transfer agency--Class B 778,336
Transfer agency--Class C 247,297
Transfer agency--Advisor Class 145,595
Transfer agency--Class R 6,072
Transfer agency--Class K 291
Transfer agency--Class I 5,162
Custodian 396,559
Legal 101,087
Administrative 95,477
Registration 91,182
Audit 52,208
Directors' fees 42,121
Total expenses 20,315,346
Less: expense offset arrangement
(see Note B) (167,822)
Net expenses 20,147,524
Net investment income 29,999,561
Realized and Unrealized Gain
on Investment and Foreign
Currency Transactions
Net realized gain on investment
transactions 51,098,334
Net change in unrealized
appreciation/depreciation of:
Investments 106,176,132
Foreign currency denominated assets
and liabilities 7,764
Net gain on investment and foreign
currency transactions 157,282,230
Contribution from Adviser 3,065
Net Increase in Net Assets
from Operations $ 187,284,856
See notes to financial statements.
ALLIANCEBERNSTEIN BALANCED SHARES o 23
STATEMENT OF CHANGES IN NET ASSETS
Year Ended Year Ended
November 30, November 30,
2006 2005
-------------- --------------
Increase (Decrease) in Net Assets
from Operations
Net investment income $ 29,999,561 $ 23,417,803
Net realized gain on
investment transactions 51,098,334 153,206,851
Net change in unrealized
appreciation/depreciation of
investments and foreign
currency denominated assets
and liabilities 106,183,896 (70,507,251)
Contribution from Adviser 3,065 -0-
Net increase in net assets
from operations 187,284,856 106,117,403
Dividends and Distributions to
Shareholders from:
Net investment income
Class A (17,260,134) (14,865,937)
Class B (6,376,164) (6,743,336)
Class C (2,144,241) (2,015,582)
Advisor Class (2,441,340) (2,367,824)
Class R (34,496) (13,689)
Class K (1,209) (115)
Class I (93,442) (7,667)
Net realized gain on investment
transactions
Class A (50,002,078) -0-
Class B (31,812,140) -0-
Class C (10,145,667) -0-
Advisor Class (6,176,472) -0-
Class R (74,994) -0-
Class K (547) -0-
Class I (221,466) -0-
Capital Stock Transactions
Net increase (decrease) (127,129,675) 63,648,673
Total increase (decrease) (66,629,209) 143,751,926
Net Assets
Beginning of period 1,809,777,895 1,666,025,969
End of period (including undistributed
net investment income of $5,649,335
and $3,945,620, respectively) $1,743,148,686 $1,809,777,895
See notes to financial statements.
24 o ALLIANCEBERNSTEIN BALANCED SHARES
NOTES TO FINANCIAL STATEMENTS
November 30, 2006
NOTE A
Significant Accounting Policies
AllianceBernstein Balanced Shares, Inc. (the "Fund") is registered under the
Investment Company Act of 1940 as a diversified, open-end management investment
company. The Fund offers Class A, Class B, Class C, Advisor Class, Class R,
Class K and Class I shares. Class A shares are sold with a front-end sales
charge of up to 4.25% for purchases not exceeding $1,000,000. With respect to
purchases of $1,000,000 or more, Class A shares redeemed within one year of
purchase may be subject to a contingent deferred sales charge of 1%. Class B
shares are currently sold with a contingent deferred sales charge which
declines from 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. Class R and Class K shares are sold without an initial or
contingent deferred sales charge. Advisor Class and Class I shares are sold
without an initial or contingent deferred sales charge and are not subject to
ongoing distribution expenses. All seven classes of shares have identical
voting, dividend, liquidation and other rights, except that the classes bear
different distribution and transfer agency expenses. Each class has exclusive
voting rights with respect to its distribution plan. The financial statements
have been prepared in conformity with U.S. generally accepted accounting
principles which require management to make certain estimates and assumptions
that affect the reported amounts of assets and liabilities in the financial
statements and amounts of income and expenses during the reporting period.
Actual results could differ from those estimates. The following is a summary of
significant accounting policies followed by the Fund.
1. Security Valuation
Portfolio securities are valued at their current market value determined on the
basis of market quotations or, if market quotations are not readily available
or are deemed unreliable, at "fair value" as determined in accordance with
procedures established by and under the general supervision of the Fund's Board
of Directors.
In general, the market value of securities which are readily available and
deemed reliable are determined as follows. Securities listed on a national
securities exchange (other than securities listed on the NASDAQ Stock Market,
Inc. ("NASDAQ")) or on a foreign securities exchange are valued at the last
sale price at the close of the exchange or foreign securities exchange. If
there has been no sale on such day, the securities are valued at the mean of
the closing bid and asked prices on such day. Securities listed on more than
one exchange are valued by reference to the principal exchange on which the
securities are traded; securities listed only on NASDAQ are valued in
accordance with the NASDAQ Official Closing Price; listed put or call options
are valued at the last sale price. If there has been no sale on that day, such
securities will be valued at the closing bid
ALLIANCEBERNSTEIN BALANCED SHARES o 25
prices on that day; open futures contracts and options thereon are valued using
the closing settlement price or, in the absence of such a price, the most
recent quoted bid price. If there are no quotations available for the day of
valuation, the last available closing settlement price is used; securities
traded in the over-the-counter market, ("OTC") are valued at the mean of the
current bid and asked prices as reported by the National Quotation Bureau or
other comparable sources; U.S. government securities and other debt instruments
having 60 days or less remaining until maturity are valued at amortized cost if
their original maturity was 60 days or less; or by amortizing their fair value
as of the 61st day prior to maturity if their original term to maturity
exceeded 60 days; fixed-income securities, including mortgage backed and asset
backed securities, may be valued on the basis of prices provided by a pricing
service or at a price obtained from one or more of the major broker/dealers. In
cases where broker/dealer quotes are obtained, AllianceBernstein L.P. (prior to
February 24, 2006 known as Alliance Capital Management L.P.) (the "Adviser")
may establish procedures whereby changes in market yields or spreads are used
to adjust, on a daily basis, a recently obtained quoted price on a security;
and OTC and other derivatives are valued on the basis of a quoted bid price or
spread from a major broker/dealer in such security.
Securities for which market quotations are not readily available (including
restricted securities) or are deemed unreliable are valued at fair value.
Factors considered in making this determination may include, but are not
limited to, information obtained by contacting the issuer, analysts, analysis
of the issuer's financial statements or other available documents. In addition,
the Fund may use fair value pricing for securities primarily traded in non-U.S.
markets because, most foreign markets close well before the Fund values its
securities at 4:00 p.m., Eastern Time. The earlier close of these foreign
markets gives rise to the possibility that significant events, including broad
market moves, may have occurred in the interim and may materially affect the
value of those securities. To account for this, the Fund may frequently value
many of its foreign equity securities using fair value prices based on third
party vendor modeling tools to the extent available.
2. Currency Translation
Assets and liabilities denominated in foreign currencies and commitments under
forward currency exchange contracts are translated into U.S. dollars at the
mean of the quoted bid and asked prices 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 gain or loss on foreign currency transactions represents foreign
exchange gains and losses from sales and maturities of foreign fixed income
26 o ALLIANCEBERNSTEIN BALANCED SHARES
investments, foreign currency exchange contracts, holding of foreign
currencies, currency gains or losses realized between the trade and settlement
dates on foreign investment transactions, and the difference between the
amounts of dividends, interest and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent amounts actually received or paid.
Net unrealized currency gains and losses from valuing foreign currency
denominated assets and liabilities at period end exchange rates are reflected
as a component of net unrealized appreciation or depreciation 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. The Fund may be subject to taxes imposed by countries in which it
invests. Such taxes are generally based on income and/or capital gains earned
or repatriated. Taxes are accrued and applied to net investment income, net
realized gains and net unrealized appreciation/depreciation as such income
and/or gains are earned.
4. Investment Income and Investment Transactions
Dividend income is recorded on the ex-dividend date or as soon as the Fund is
informed of the dividend. Interest income is accrued daily. Investment
transactions are accounted for on the trade date securities are purchased or
sold. Investment gains and losses are determined on the identified cost basis.
The Fund amortizes premiums and accretes discounts as adjustments to interest
income.
5. Class Allocations
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 for class
specific expense which are allocated to the respective class. Realized and
unrealized gains and losses are allocated among the various share classes based
on respective net assets.
6. Dividends and Distributions
Dividends and distributions to shareholders, if any, are recorded on the
ex-dividend date. Income dividends and capital gains distributions are
determined in accordance with federal tax regulations and may differ from those
determined in accordance with U.S. generally accepted accounting principles. To
the extent these differences are permanent, such amounts are reclassified
within the capital accounts based on their federal tax basis treatment;
temporary differences, do not require such reclassification.
ALLIANCEBERNSTEIN BALANCED SHARES o 27
NOTE B
Advisory Fee and Other Transactions With Affiliates
Under the terms of the investment advisory agreement, the Fund pays the Adviser
an advisory fee at an annual rate of .60% of the first $200 million, .50% of
the next $200 million and .40% in excess of $400 million of the Fund's average
daily net assets. Prior to September 7, 2004, the Fund paid the Adviser an
advisory fee at an annual rate of .625% of the first $200 million, .50% of the
next $200 million and .45% in excess of $400 million of the Fund's average
daily net assets. The fee is accrued daily and paid monthly.
During the year ended November 30, 2006, the Adviser reimbursed the Fund $3,065
for trading losses incurred due to a trade entry error.
Pursuant to the advisory agreement, the Fund paid $95,477 to the Adviser
representing the cost of certain legal and accounting services provided to the
Fund by the Adviser for the year ended November 30, 2006.
The Fund compensates AllianceBernstein Investor Services, Inc. (prior to
February 24, 2006 known as Alliance Global Investor Services, Inc.) ("ABIS"), a
wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for
providing personnel and facilities to perform transfer agency services for the
Fund. ABIS may make payments to intermediaries that provide omnibus account
services, sub-accounting services and/or networking services. Such compensation
retained by ABIS amounted to $1,067,639 for the year ended November 30, 2006.
For the year ended November 30, 2006, the Fund's expenses were reduced by
$167,822 under an expense offset arrangement with ABIS.
AllianceBernstein Investments, Inc., (prior to February 24, 2006 known as
AllianceBernstein Investment Research and Management, Inc.) (the
"Distributor"), a wholly-owned subsidiary of the Adviser, serves as the
distributor of the Fund's shares. The Distributor has advised the Fund that it
has retained front-end sales charges of $42,017 from the sale of Class A shares
and received $25,031, $536,706 and $15,760, respectively, in contingent
deferred sales charges imposed upon redemptions by shareholders of Class A,
Class B and Class C shares, respectively, for the year ended November 30, 2006.
Brokerage commissions paid on investment transactions for the year ended
November 30, 2006 amounted to $1,078,701, of which $75,164 and $0,
respectively, was paid to Sanford C. Bernstein & Co. LLC and Sanford C.
Bernstein Limited, affiliates of the Adviser.
Accrued expenses includes $8,847 owed to a Director under the Director's
deferred compensation plan.
28 o ALLIANCEBERNSTEIN BALANCED SHARES
Subsequent to the Fund's fiscal year end, it was discovered that a clerical
error was made in processing claims for class-action settlement proceeds on
behalf of certain of the Adviser's clients, including some AllianceBernstein
sponsored mutual funds. If it is determined that the Fund is due compensation
under the terms of the settlement, the Fund will receive payment for the amount
of settlement proceeds to which it is entitled.
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 distribution and servicing fees to the Distributor at
an annual rate of up to .30% of the Fund's average daily net assets
attributable to the Class A shares, 1% of the Fund's average daily net assets
attributable to the Class B and Class C shares, .50% of the average daily net
assets attributable to Class R shares and .25% of the Fund's average daily net
assets attributable to Class K shares. There are no distribution and servicing
fees on the Advisor Class and Class I shares. The fees are accrued daily and
paid monthly. The Agreement provides that the Distributor will use such
payments in their entirety for distribution assistance and promotional
activities. The Distributor has incurred expenses in excess of the distribution
costs reimbursed by the Fund in the amount of $8,120,582, $2,702,123, $48,416
and $16,151, for Class B, Class C, Class R and Class K 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 and Class R 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)
for the year ended November 30, 2006, were as follows:
Purchases Sales
-------------- --------------
Investment securities (excluding
U.S government securities) $ 526,508,540 $ 737,413,982
U.S government securities 365,967,230 276,765,657
ALLIANCEBERNSTEIN BALANCED SHARES o 29
The cost of investments for federal income tax purposes, gross unrealized
appreciation and unrealized depreciation (excluding foreign currency
transactions) are as follows:
Cost $1,931,625,112
Gross unrealized appreciation $ 293,157,054
Gross unrealized depreciation (6,283,042)
Net unrealized appreciation $ 286,874,012
1. Forward Currency Exchange Contracts
The Fund may enter into forward currency exchange contracts in order to hedge
its exposure to changes in foreign currency exchange rates on its foreign
portfolio holdings, to hedge certain firm purchase and sales commitments
denominated in foreign currencies and for investment purposes. A forward
currency exchange contract is a commitment to purchase or sell a foreign
currency on a future date at a negotiated forward rate. The gain or loss
arising from the difference between the original contract and the closing of
such contract would be included in net realized gain or loss on foreign
currency transactions.
Fluctuations in the value of open forward currency exchange contracts are
recorded for financial reporting purposes as net unrealized appreciation or
depreciation 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 at
least equal to the aggregate amount of the Fund's commitments under forward
currency exchange contracts entered into with respect to position hedges. Risks
may arise from the potential inability of the 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
reflects the total exposure the Fund has in that particular currency contract.
2. Option Transactions
For hedging and investment purposes, the Fund may purchase and write (sell) put
and call options on U.S. and foreign government securities and foreign
currencies that are traded on U.S. and foreign securities exchanges and
over-the-counter markets.
The risk associated with purchasing an option is that the 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.
30 o ALLIANCEBERNSTEIN BALANCED SHARES
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 options
written. The difference between the premium received and the amount paid on
effecting a closing purchase transaction, including brokerage commissions, is
also treated as a realized gain, or if the premium received is less than the
amount paid for the closing purchase transaction, as a realized loss. If a call
option is exercised, the premium received is added to the proceeds from the
sale of the underlying security 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. In
writing an option, the Fund bears the market risk of an unfavorable change in
the price of the security or currency underlying the written option. Exercise
of an option written by the Fund could result in the Fund's selling or buying a
security or currency at a price different from the current market value. For
the year ended November 30, 2006 the Fund had no transactions in written
options.
NOTE E
Securities Lending
The Fund has entered into a securities lending agreement with AG Edwards &
Sons, Inc. (the "Lending Agent"). Under the terms of the agreement, the Lending
Agent, on behalf of the Fund, administers the lending of portfolio securities
to certain broker-dealers. In return, the Fund receives fee income from the
lending transactions or it retains a portion of interest on the investment of
any cash received as collateral. The Fund also continues to receive dividends
or interest on the securities loaned. Unrealized gain or loss on the value of
the securities loaned that may occur during the term of the loan will be
reflected in the accounts of the Fund. All loans are continuously secured by
collateral exceeding the value of the securities loaned. All collateral
consists of either cash or U.S. government securities. The Lending Agent may
invest the cash collateral received in accordance with the investment
restrictions of the Fund in one or more of the following investments: U.S.
government or U.S. government agency obligations, bank obligations, corporate
debt obligations, asset-backed securities, investment funds, structured
products, repurchase agreements and an eligible money market fund. The Lending
Agent will indemnify the Fund for any loss resulting from a borrower's failure
to return a loaned security when due. As of November 30, 2006, the Fund had
loaned securities with a value of $465,388,887 and received cash collateral
which was invested in short-term securities valued at $478,575,987 as included
in the accompanying portfolio of investments. For the year ended November 30,
2006, the Fund earned fee income of $432,298 which is included in interest
income in the accompanying statement of operations.
ALLIANCEBERNSTEIN BALANCED SHARES o 31
NOTE F
Capital Stock
Each class consists of 3,000,000,000 authorized shares. Transactions in capital
shares for each class were as follows:
Shares Amount
-------------------------- ------------------------------
Year Ended Year Ended Year Ended Year Ended
November 30, November 30, November 30, November 30,
2006 2005 2006 2005
------------ ------------ -------------- --------------
Class A
Shares sold 11,620,241 17,463,904 $ 198,963,151 $ 300,064,143
Shares issued in
reinvestment of
dividends and
distributions 3,748,224 803,946 62,969,071 13,752,794
Shares converted
from Class B 1,341,862 920,998 23,074,244 15,853,043
Shares redeemed (16,642,785) (12,976,574) (284,359,760) (222,887,076)
Net increase 67,542 6,212,274 $ 646,706 $ 106,782,904
Class B
Shares sold 2,113,839 5,179,394 $ 34,269,380 $ 84,451,744
Shares issued in
reinvestment of
dividends and
distributions 2,036,776 349,087 32,459,799 5,685,944
Shares converted
to Class A (1,415,594) (967,585) (23,074,244) (15,853,043)
Shares redeemed (9,232,081) (7,371,203) (149,397,088) (120,475,015)
Net decrease (6,497,060) (2,810,307) $(105,742,153) $ (46,190,370)
Class C
Shares sold 1,290,112 2,115,105 $ 20,946,347 $ 34,634,040
Shares issued in
reinvestment of
dividends and
distributions 558,904 89,626 8,947,122 1,465,461
Shares redeemed (2,521,454) (2,226,881) (40,956,766) (36,513,508)
Net decrease (672,438) (22,150) $ (11,063,297) $ (414,007)
Advisor Class
Shares sold 915,489 1,274,566 $ 15,645,453 $ 21,860,052
Shares issued in
reinvestment of
dividends and
distributions 473,531 131,516 7,969,848 2,252,530
Shares redeemed (2,084,486) (1,491,939) (36,178,679) (25,700,439)
Net decrease (695,466) (85,857) $ (12,563,378) $ (1,587,857)
32 o ALLIANCEBERNSTEIN BALANCED SHARES
Shares Amount
-------------------------- ------------------------------
Year Ended Year Ended Year Ended Year Ended
November 30, November 30, November 30, November 30,
2006 2005 2006 2005
------------ ------------ -------------- --------------
Class R
Shares sold 153,309 122,380 $ 2,608,449 $ 2,105,975
Shares issued in
reinvestment of
dividends and
distributions 3,069 243 51,624 4,151
Shares redeemed (60,416) (65,414) (1,043,612) (1,127,587)
Net increase 95,962 57,209 $ 1,616,461 $ 982,539
March 1, March 1,
Year Ended 2005(a) to Year Ended 2005(a) to
November 30, November 30, November 30, November 30,
2006 2005 2006 2005
------------ ------------ -------------- --------------
Class K
Shares sold 236,810 582 $ 4,011,457 $ 10,100
Shares issued in
reinvestment of
dividends and
distributions 61 -0- 1,027 -0-
Shares redeemed (221,876) -0- (3,776,077) -0-
Net increase 14,995 582 $ 236,407 $ 10,100
Class I
Shares sold 66,754 254,160 $ 1,123,813 4,405,677
Shares issued in
reinvestment of
dividends and
distributions 18,739 438 314,302 7,528
Shares redeemed (102,886) (20,017) (1,698,536) (347,841)
Net increase
(decrease) (17,393) 234,581 $ (260,421) $ 4,065,364
(a) Commencement of distribtution.
NOTE G
Risks Involved in Investing in the Fund
Interest Rate Risk and Credit Risk-- Interest rate risk is the risk that
changes in interest rates will affect the value of the Fund's investments in
fixed-income debt securities such as bonds or notes. Increases in interest
rates may cause the value of the Fund's investments to decline. Credit risk is
the risk that the issuer or guarantor of a debt security, or the counterparty
to a derivative contract, will be unable or unwilling to make timely principal
and/or interest payments, or to otherwise honor its obligations. The degree of
risk for a particular security may be reflected in its credit risk rating.
Credit risk is greater for medium quality and lower-rated securities.
Lower-rated debt securities and similar unrated securities
ALLIANCEBERNSTEIN BALANCED SHARES o 33
(commonly known as "junk bonds") have speculative elements or are predominantly
speculative risks.
Foreign Securities Risk--Investing in securities of foreign companies or
foreign governments involves special risks which include changes in foreign
currency exchange rates and the possibility of future political and economic
developments which could adversely affect the value of such securities.
Moreover, securities of many foreign companies or foreign governments may be
less liquid and their prices more volatile than those of comparable U.S.
companies or of the U.S. government.
Indemnification Risk--In the ordinary course of business, the Fund enters into
contracts that contain a variety of indemnifications. The Fund's maximum
exposure under these arrangements is unknown. However, the Fund has not had
prior claims or losses pursuant to these indemnification provisions and expects
the risk of loss thereunder to be remote.
NOTE H
Joint Credit Facility
A number of open-end mutual funds managed by the Adviser, including the Fund,
participate in a $250 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 November 30, 2006.
NOTE I
Distributions to Shareholders
The tax character of distributions paid during the fiscal years ended November
30, 2006 and November 30, 2005 were as follows:
November 30, November 30,
2006 2005
-------------- --------------
Distributions paid from:
Ordinary income $ 28,351,026 $ 26,014,150
Long-term capital gain 98,433,364 -0-
Total taxable distributions 126,784,390 26,014,150
Total distributions paid $ 126,784,390 $ 26,014,150
34 o ALLIANCEBERNSTEIN BALANCED SHARES
As of November 30, 2006, the components of accumulated earnings (deficit) on a
tax basis were as follows:
Undistributed long-term capital gains $ 41,153,972
Undistributed ordinary income 13,344,829
Unrealized appreciation/(depreciation) 286,865,404(a)
Total accumulated earnings/(deficit) $ 341,364,205(b)
(a) The difference between book-basis and tax-basis unrealized
appreciation/(depreciation) is attributed primarily to the tax deferral of
losses on wash sales and the difference between book tax amortization methods
for bond premium.
(b) The difference between book-basis and tax-basis components of accumulated
earnings/deficit is attributable primarily to deferred compensation.
During the current fiscal year, permanent differences primarily due to a basis
adjustment from a return of capital distribution, and a premium adjustment on
disposed bonds, resulted in a net increase in undistributed net investment
income, a net decrease in accumulated net realized gain on investments and
foreign currency transactions. This reclassification had no effect on net
assets.
NOTE J
Legal Proceedings
As has been previously reported, the staff of the U.S. Securities and Exchange
Commission ("SEC") and the Office of New York Attorney General ("NYAG") have
been investigating practices in the mutual fund industry identified as "market
timing" and "late trading" of mutual fund shares. Certain other regulatory
authorities have also been conducting investigations into these practices
within the industry and have requested that the Adviser provide information to
them. The Adviser has been cooperating and will continue to cooperate with all
of these authorities.
On December 18, 2003, the Adviser confirmed that it had reached terms with the
SEC and the NYAG for the resolution of regulatory claims relating to the
practice of "market timing" mutual fund shares in some of the AllianceBernstein
Mutual Funds. The agreement with the SEC is reflected in an Order of the
Commission ("SEC Order"). The agreement with the NYAG is memorialized in an
Assurance of Discontinuance dated September 1, 2004 ("NYAG Order"). Among the
key provisions of these agreements are the following:
(i) The Adviser agreed to establish a $250 million fund (the "Reimbursement
Fund") to compensate mutual fund shareholders for the adverse effects of market
timing attributable to market timing relationships described in the SEC Order.
According to the SEC Order, the Reimbursement Fund is to be paid, in order of
priority, to fund investors based on (i) their aliquot share of losses suffered
by the fund due to market timing, and (ii) a proportionate share of advisory
fees paid by such fund during the period of such market timing;
ALLIANCEBERNSTEIN BALANCED SHARES o 35
(ii) The Adviser agreed to reduce the advisory fees it receives from some of
the AllianceBernstein long-term, open-end retail funds until December 31, 2008;
and
(iii) The Adviser agreed to implement changes to its governance and compliance
procedures. Additionally, the SEC Order and the NYAG Order contemplate that the
Adviser's registered investment company clients, including the Fund, will
introduce governance and compliance changes.
In anticipation of final, definitive documentation of the NYAG Order and
effective January 1, 2004, the Adviser began waiving a portion of its advisory
fee. On September 7, 2004, the Fund's investment advisory agreement was amended
to reflect the reduced advisory fee. For more information on this waiver and
amendment to the Fund's investment advisory agreement, please see "Advisory Fee
and Other Transactions with Affiliates" above.
A special committee of the Adviser's Board of Directors, comprised of the
members of the Adviser's Audit Committee and the other independent member of
the Adviser's Board, directed and oversaw an internal investigation and a
comprehensive review of the facts and circumstances relevant to the SEC's and
the NYAG's investigations.
In addition, the Independent Directors of the Fund ("the Independent
Directors") have conducted an investigation of the above-mentioned matters with
the advice of an independent economic consultant and independent counsel.
On October 2, 2003, a purported class action complaint entitled Hindo, et al.
v. AllianceBernstein Growth & Income Fund, et al. ("Hindo Complaint") was filed
against the Adviser, Alliance Capital Management Holding L.P. ("Alliance
Holding"), Alliance Capital Management Corporation, AXA Financial, Inc., the
AllianceBernstein Funds, certain officers of the Adviser ("Alliance
defendants"), and certain other defendants not affiliated with the Adviser, as
well as unnamed Doe defendants. The Hindo Complaint was filed in the United
States District Court for the Southern District of New York by alleged
shareholders of two of the AllianceBernstein Funds. The Hindo Complaint alleges
that certain of the Alliance defendants failed to disclose that they improperly
allowed certain hedge funds and other unidentified parties to engage in "late
trading" and "market timing" of AllianceBernstein Fund securities, violating
Sections 11 and 15 of the Securities Act, Sections 10(b) and 20(a) of the
Exchange Act and Sections 206 and 215 of the Advisers Act. Plaintiffs seek an
unspecified amount of compensatory damages and rescission of their contracts
with the Adviser, including recovery of all fees paid to the Adviser pursuant
to such contracts.
Since October 2, 2003, 43 additional lawsuits making factual allegations
generally similar to those in the Hindo Complaint were filed in various federal
and state
36 o ALLIANCEBERNSTEIN BALANCED SHARES
courts against the Adviser and certain other defendants. The plaintiffs in such
lawsuits have asserted a variety of theories for recovery including, but not
limited to, violations of the Securities Act, the Exchange Act, the Advisers
Act, the Investment Company Act, the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), certain state securities laws and common law. All
state court actions against the Adviser either were voluntarily dismissed or
removed to federal court. On February 20, 2004, the Judicial Panel on
Multidistrict Litigation transferred all actions to the United States District
Court for the District of Maryland (the "Mutual Fund MDL").
On September 29, 2004, plaintiffs filed consolidated amended complaints with
respect to four claim types: mutual fund shareholder claims; mutual fund
derivative claims; derivative claims brought on behalf of Alliance Holding; and
claims brought under ERISA by participants in the Profit Sharing Plan for
Employees of the Adviser. All four complaints include substantially identical
factual allegations, which appear to be based in large part on the SEC Order
and the NYAG Order.
On April 21, 2006, the Adviser and attorneys for the plaintiffs in the mutual
fund shareholder claims, mutual fund derivative claims, and ERISA claims
entered into a confidential memorandum of understanding ("MOU") containing
their agreement to settle these claims. The agreement will be documented by a
stipulation of settlement and will be submitted for court approval at a later
date. The derivative claims brought on behalf of Alliance Holding remain
pending.
On February 10, 2004, the Adviser received (i) a subpoena duces tecum from the
Office of the Attorney General of the State of West Virginia and (ii) a request
for information from West Virginia's Office of the State Auditor, Securities
Commission (the "West Virginia Securities Commissioner") (together, the
"Information Requests"). Both Information Requests require the Adviser to
produce documents concerning, among other things, any market timing or late
trading in the Adviser's sponsored mutual funds. The Adviser responded to the
Information Requests and has been cooperating fully with the investigation.
On April 11, 2005, a complaint entitled The Attorney General of the State of
West Virginia v. AIM Advisors, Inc., et al. ("WVAG Complaint") was filed
against the Adviser, Alliance Holding, and various other defendants not
affiliated with the Adviser. The WVAG Complaint was filed in the Circuit Court
of Marshall County, West Virginia by the Attorney General of the State of West
Virginia. The WVAG Complaint makes factual allegations generally similar to
those in the Hindo Complaint. On October 19, 2005, the WVAG Complaint was
transferred to the Mutual Fund MDL.
On August 30, 2005, the West Virginia Securities Commissioner signed a Summary
Order to Cease and Desist, and Notice of Right to Hearing addressed
ALLIANCEBERNSTEIN BALANCED SHARES o 37
to the Adviser and Alliance Holding. The Summary Order claims that the Adviser
and Alliance Holding violated the West Virginia Uniform Securities Act, and
makes factual allegations generally similar to those in the Commission Order
and the NYAG Order. On January 26, 2006, the Adviser, Alliance Holding, and
various unaffiliated defendants filed a Petition for Writ of Prohibition and
Order Suspending Proceedings in West Virginia state court seeking to vacate the
Summary Order and for other relief. The court denied the writ and in September
2006 the Supreme Court of Appeals declined the defendants' petition for appeal.
On September 22, 2006, Alliance and Alliance Holding filed an answer and motion
to dismiss the Summary Order with the Securities Commissioner.
On June 22, 2004, a purported class action complaint entitled Aucoin, et al. v.
Alliance Capital Management L.P., et al. ("Aucoin Complaint") was filed against
the Adviser, Alliance Holding, Alliance Capital Management Corporation, AXA
Financial, Inc., AllianceBernstein Investment Research & Management, Inc.,
certain current and former directors of the AllianceBernstein Mutual Funds, and
unnamed Doe defendants. The Aucoin Complaint names certain of the
AllianceBernstein mutual funds as nominal defendants. The Aucoin Complaint was
filed in the United States District Court for the Southern District of New York
by alleged shareholders of an AllianceBernstein mutual fund. The Aucoin
Complaint alleges, among other things, (i) that certain of the defendants
improperly authorized the payment of excessive commissions and other fees from
fund assets to broker-dealers in exchange for preferential marketing services,
(ii) that certain of the defendants misrepresented and omitted from
registration statements and other reports material facts concerning such
payments, and (iii) that certain defendants caused such conduct as control
persons of other defendants. The Aucoin Complaint asserts claims for violation
of Sections 34(b), 36(b) and 48(a) of the Investment Company Act, Sections 206
and 215 of the Advisers Act, breach of common law fiduciary duties, and aiding
and abetting breaches of common law fiduciary duties. Plaintiffs seek an
unspecified amount of compensatory damages and punitive damages, rescission of
their contracts with the Adviser, including recovery of all fees paid to the
Adviser pursuant to such contracts, an accounting of all fund-related fees,
commissions and soft dollar payments, and restitution of all unlawfully or
discriminatorily obtained fees and expenses.
Since June 22, 2004, nine additional lawsuits making factual allegations
substantially similar to those in the Aucoin Complaint were filed against the
Adviser and certain other defendants. All nine of the lawsuits (i) were brought
as class actions filed in the United States District Court for the Southern
District of New York, (ii) assert claims substantially identical to the Aucoin
Complaint, and (iii) are brought on behalf of shareholders of the Funds.
On February 2, 2005, plaintiffs filed a consolidated amended class action
complaint ("Aucoin Consolidated Amended Complaint") that asserts claims substan-
38 o ALLIANCEBERNSTEIN BALANCED SHARES
tially similar to the Aucoin Complaint and the nine additional lawsuits
referenced above. On October 19, 2005, the District Court dismissed each of the
claims set forth in the Aucoin Consolidated Amended Complaint, except for
plaintiffs' claim under Section 36(b) of the Investment Company Act. On January
11, 2006, the District Court granted defendants' motion for reconsideration and
dismissed the remaining Section 36(b) claim. On May 31, 2006 the District Court
denied plaintiffs' motion for leave to file an amended complaint. On July 5,
2006, plaintiffs filed a notice of appeal. On October 4, 2006 the appeal was
withdrawn by stipulation, with plaintiffs reserving the right to reinstate it
at a later date.
It is possible that these matters and/or other developments resulting from
these matters could result in increased redemptions of the AllianceBernstein
Mutual Funds' shares or other adverse consequences to the AllianceBernstein
Mutual Funds. This may require the AllianceBernstein Mutual Funds to sell
investments held by those funds to provide for sufficient liquidity and could
also have an adverse effect on the investment performance of the
AllianceBernstein Mutual Funds. However, the Adviser believes that these
matters are not likely to have a material adverse effect on its ability to
perform advisory services relating to the AllianceBernstein Mutual Funds.
NOTE K
Change of Independent Registered Public Accounting Firm
On June 14, 2006, KPMG LLP ("KPMG") was selected as the Fund's independent
registered public accounting firm for the 2006 fiscal year. A majority of the
Fund's Board of Directors, including a majority of the independent Directors,
approved the appointment of KPMG LLP. The predecessor independent registered
public accounting firm's reports on the Fund's financial statements for the
year ended November 30, 2005 and the year ended November 30, 2004 contained no
adverse opinion or disclaimer of opinion and were not qualified or modified as
to uncertainty, audit scope or accounting principles. During such fiscal
periods there were no disagreements between the Fund and the predecessor
independent registered public accounting firm on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedures, which such disagreements, if not resolved to the satisfaction of
the predecessor independent registered accounting firm, would have caused them
to make reference to the subject matter of the disagreement in connection with
their reports on the financial statements for such periods.
NOTE L
Recent Accounting Pronouncements
On July 13, 2006, the Financial Accounting Standards Board ("FASB") released
FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" ("FIN
48"). FIN 48 provides guidance for how uncertain tax positions should be
recognized, measured, presented and disclosed in the financial statements. FIN
ALLIANCEBERNSTEIN BALANCED SHARES o 39
48 requires the evaluation of tax positions taken or expected to be taken in
the course of preparing the Fund's tax returns to determine whether the tax
positions are "more-likely-than-not" of being sustained by the applicable tax
authority. Tax positions not deemed to meet the more-likely-than-not threshold
would be recorded in the current period. Adoption of FIN 48 is required for
fiscal years beginning after December 15, 2006 and is to be applied to all open
tax years as of the effective date. At this time, management is evaluating the
implications of FIN 48 and its impact on the financial statements has not yet
been determined.
On September 20, 2006, the FASB released Statement of Financial Accounting
Standards No. 157 "Fair Value Measurements" ("FAS 157"). FAS 157 establishes an
authoritative definition of fair value, sets out a framework for measuring fair
value, and requires additional disclosures about fair-value measurements. The
application of FAS 157 is required for fiscal years beginning after November
15, 2007 and interim periods within those fiscal years. At this time,
management is evaluating the implications of FAS 157 and its impact on the
financial statements has not yet been determined.
40 o ALLIANCEBERNSTEIN BALANCED SHARES
FINANCIAL HIGHLIGHTS
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class A
----------------------------------------------------------------------------
August 1,
Year Ended November 30, 2003 to Year Ended July 31,
------------------------------------- November ------------------------
2006 2005 2004 30, 2003(a) 2003 2002(b)
----------- ----------- ----------- ----------- ----------- -----------
Net asset value,
beginning of period $17.60 $16.81 $15.13 $14.54 $13.26 $15.96
Income From Investment
Operations
Net investment income(c) .34 .28 .31(d) .09 .28 .35
Net realized and unrealized
gain (loss) on investment
transactions 1.61 .81 1.61 .58 1.32 (2.35)
Contribution from Adviser -0-(e) -0- -0- -0- -0- -0-
Net increase (decrease) in
net asset value from
operations 1.95 1.09 1.92 .67 1.60 (2.00)
Less: Dividends and
Distributions
Dividends from net
investment income (.32) (.30) (.24) (.08) (.29) (.34)
Distributions from net
realized gain on investment
transactions (.94) -0- -0- -0- -0- (.36)
Tax return of capital -0- -0- -0- -0- (.03) -0-
Total dividends and
distributions (1.26) (.30) (.24) (.08) (.32) (.70)
Net asset value,
end of period $18.29 $17.60 $16.81 $15.13 $14.54 $13.26
Total Return
Total investment return
based on net asset value(f) 11.81% 6.55% 12.78% 4.62% 12.29% (12.91)%
Ratios/Supplemental Data
Net assets, end of period
(000's omitted) $972,991 $935,414 $788,685 $587,685 $525,637 $384,212
Ratio to average net assets of:
Expenses, net of waivers/
reimbursements .88%(g) 1.04% .97% 1.07%(h) 1.12% 1.10%
Expenses, before waivers/
reimbursements .88%(g) 1.04% 1.00% 1.07%(h) 1.12% 1.10%
Net investment income 2.00%(g) 1.64% 1.93%(d) 1.84%(h) 2.04% 2.36%
Portfolio turnover rate 52% 57% 58% 29% 62% 79%
See footnote summary on page 48.
ALLIANCEBERNSTEIN BALANCED SHARES o 41
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class B
----------------------------------------------------------------------------
August 1,
Year Ended November 30, 2003 to Year Ended July 31,
------------------------------------- November ------------------------
2006 2005 2004 30, 2003(a) 2003 2002(b)
----------- ----------- ----------- ----------- ----------- -----------
Net asset value,
beginning of period $16.74 $16.00 $14.41 $13.87 $12.68 $15.31
Income From Investment
Operations
Net investment income(c) .20 .15 .19(d) .05 .17 .23
Net realized and unrealized
gain (loss) on investment
transactions 1.52 .78 1.53 .55 1.26 (2.25)
Contribution from Adviser -0-(e) -0- -0- -0- -0- -0-
Net increase (decrease) in
net asset value from
operations 1.72 .93 1.72 .60 1.43 (2.02)
Less: Dividends and
Distributions
Dividends from net
investment income (.20) (.19) (.13) (.06) (.22) (.25)
Distributions from net
realized gain on investment
transactions (.94) -0- -0- -0- -0- (.36)
Tax return of capital -0- -0- -0- -0- (.02) -0-
Total dividends and
distributions (1.14) (.19) (.13) (.06) (.24) (.61)
Net asset value,
end of period $17.32 $16.74 $16.00 $14.41 $13.87 $12.68
Total Return
Total investment return
based on net asset value(f) 10.94% 5.82% 11.97% 4.33% 11.44% (13.53)%
Ratios/Supplemental Data
Net assets, end of period
(000's omitted) $478,595 $571,214 $590,890 $534,752 $488,365 $385,868
Ratio to average net assets of:
Expenses net of waivers/
reimbursements 1.62%(g) 1.76% 1.70% 1.81%(h) 1.86% 1.84%
Expenses, before waivers/
reimbursements 1.62%(g) 1.76% 1.73% 1.81%(h) 1.86% 1.84%
Net investment income 1.24%(g) .90% 1.22%(d) 1.14%(h) 1.30% 1.61%
Portfolio turnover rate 52% 57% 58% 29% 62% 79%
See footnote summary on page 48.
42 o ALLIANCEBERNSTEIN BALANCED SHARES
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class C
----------------------------------------------------------------------------
August 1,
Year Ended November 30, 2003 to Year Ended July 31,
------------------------------------- November ------------------------
2006 2005 2004 30, 2003(a) 2003 2002(b)
----------- ----------- ----------- ----------- ----------- -----------
Net asset value,
beginning of period $16.80 $16.06 $14.47 $13.92 $12.72 $15.36
Income From Investment
Operations
Net investment income(c) .21 .15 .19(d) .05 .17 .23
Net realized and unrealized
gain (loss) on investment
transactions 1.53 .78 1.53 .56 1.27 (2.26)
Contribution from Adviser -0-(e) -0- -0- -0- -0- -0-
Net increase (decrease)
in net asset value from
operations 1.74 .93 1.72 .61 1.44 (2.03)
Less: Dividends and
Distributions
Dividends from net
investment income (.20) (.19) (.13) (.06) (.22) (.25)
Distributions from net
realized gain on investment
transactions (.94) -0- -0- -0- -0- (.36)
Tax return of capital -0- -0- -0- -0- (.02) -0-
Total dividends and
distributions (1.14) (.19) (.13) (.06) (.24) (.61)
Net asset value,
end of period $17.40 $16.80 $16.06 $14.47 $13.92 $12.72
Total Return
Total investment return
based on net asset value(f) 11.02% 5.80% 11.92% 4.39% 11.49% (13.55)%
Ratios/Supplemental Data
Net assets, end of period
(000's omitted) $176,454 $181,746 $174,040 $162,243 $150,188 $131,761
Ratio to average net assets of:
Expenses, net of waivers/
reimbursements 1.61%(g) 1.76% 1.69% 1.80%(h) 1.85% 1.84%
Expenses, before waivers/
reimbursements 1.61%(g) 1.76% 1.73% 1.80%(h) 1.85% 1.84%
Net investment income 1.27%(g) .91% 1.23%(d) 1.15%(h) 1.32% 1.61%
Portfolio turnover rate 52% 57% 58% 29% 62% 79%
See footnote summary on page 48.
ALLIANCEBERNSTEIN BALANCED SHARES o 43
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Advisor Class
----------------------------------------------------------------------------
August 1,
Year Ended November 30, 2003 to Year Ended July 31,
------------------------------------- November ------------------------
2006 2005 2004 30, 2003(a) 2003 2002(b)
----------- ----------- ----------- ----------- ----------- -----------
Net asset value,
beginning of period $17.64 $16.84 $15.16 $14.56 $13.28 $15.98
Income From Investment
Operations
Net investment income(c) .39 .33 .35(d) .10 .32 .37
Net realized and unrealized
gain (loss) on investment
transactions 1.61 .82 1.61 .59 1.32 (2.34)
Contribution from Adviser -0-(e) -0- -0- -0- -0- -0-
Net increase (decrease)
in net asset value from
operations 2.00 1.15 1.96 .69 1.64 (1.97)
Less: Dividends and
Distributions
Dividends from net
investment income (.37) (.35) (.28) (.09) (.32) (.37)
Distributions from net
realized gain on investment
transactions (.94) -0- -0- -0- -0- (.36)
Tax return of capital -0- -0- -0- -0- (.04) -0-
Total dividends and
distributions (1.31) (.35) (.28) (.09) (.36) (.73)
Net asset value,
end of period $18.33 $17.64 $16.84 $15.16 $14.56 $13.28
Total Return
Total investment return
based on net asset value(f) 12.10% 6.89% 13.07% 4.75% 12.57% (12.67)%
Ratios/Supplemental Data
Net assets, end of period
(000's omitted) $107,657 $115,873 $112,040 $107,440 $105,567 $101,017
Ratio to average net assets of:
Expenses, net of waivers/
reimbursements .60%(g) .74% .67% .78%(h) .83% .85%
Expenses, before waivers/
reimbursements .60%(g) .74% .71% .78%(h) .83% .85%
Net investment income 2.28%(g) 1.92% 2.19%(d) 2.11%(h) 2.36% 2.79%
Portfolio turnover rate 52% 57% 58% 29% 62% 79%
See footnote summary on page 48.
44 o ALLIANCEBERNSTEIN BALANCED SHARES
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class R
--------------------------------------------------
November 3,
Year Ended November 30, 2003(i) to
------------------------------------- November
2006 2005 2004 30, 2003
----------- ----------- ----------- -----------
Net asset value, beginning of period $17.58 $16.80 $15.13 $15.09
Income From Investment Operations
Net investment income(c) .30 .24 .30(d) .02
Net realized and unrealized gain on investment
transactions 1.58 .82 1.58 .02
Contributions from Adviser -0-(e) -0- -0- -0-
Net increase in net asset value from operations 1.88 1.06 1.88 .04
Less: Dividends and Distributions
Dividends from net investment income (.27) (.28) (.21) -0-
Distributions from net realized gain on
investment transactions (.94) -0- -0- -0-
Total dividends and distributions (1.21) (.28) (.21) -0-
Net asset value, end of period $18.25 $17.58 $16.80 $15.13
Total Return
Total investment return based on net asset
value(f) 11.37% 6.36% 12.52% .27%
Ratios/Supplemental Data
Net assets, end of period (000's omitted) $3,197 $1,393 $371 $10
Ratio to average net assets of:
Expenses, net of waivers/reimbursements 1.22%(g) 1.33% 1.19% 1.34%(h)
Expenses, before waivers/reimbursements 1.22%(g) 1.33% 1.22% 1.34%(h)
Net investment income 1.72%(g) 1.39% 1.94%(d) 1.70%(h)
Portfolio turnover rate 52% 57% 58% 29%
See footnote summary on page 48.
ALLIANCEBERNSTEIN BALANCED SHARES o 45
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class K
-----------------------
Year March 1,
Ended 2005(i) to
November November
30, 2006 30, 2005
---------- ----------
Net asset value, beginning of period $17.60 $17.34
Income From Investment Operations
Net investment income(c) .65 .22
Net realized and unrealized gain on investment
transactions 1.29+ .24
Contribution from Adviser -0-(e) -0-
Net increase in net asset value from operations 1.94 .46
Less: Dividends and Distributions
Dividends from net investment income (.32) (.20)
Distributions from net realized gain on
investment transactions (.94) -0-
Total dividends and distributions (1.26) (.20)
Net asset value, end of period $18.28 $17.60
Total Return
Total investment return based on net asset value(f) 11.74% 2.68%
Ratios/Supplemental Data
Net assets, end of period (000's omitted) $285 $10
Ratio to average net assets of:
Expenses .91%(g) 1.01%(h)
Net investment income 2.15%(g) 1.69%(h)
Portfolio turnover rate 52% 57%
See footnote summary on page 48.
46 o ALLIANCEBERNSTEIN BALANCED SHARES
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class I
-----------------------
Year March 1,
Ended 2005(i) to
November November
30, 2006 30, 2005
---------- ----------
Net asset value, beginning of period $17.60 $17.34
Income From Investment Operations
Net investment income(c) .39 .24
Net realized and unrealized gain on investment
transactions 1.60 .26
Contribution from Adviser -0-(e) -0-
Net increase in net asset value from operations 1.99 .50
Less: Dividends and Distributions
Dividends from net investment income (.38) (.24)
Distributions from net realized gain on
investment transactions (.94) -0-
Total dividends and distributions (1.32) (.24)
Net asset value, end of period $18.27 $17.60
Total Return
Total investment return based on net asset value(f) 12.07% 2.93%
Ratios/Supplemental Data
Net assets, end of period (000's omitted) $3,968 $4,128
Ratio to average net assets of:
Expenses .59%(g) .81%(h)
Net investment income 2.28%(g) 2.41%(h)
Portfolio turnover rate 52% 57%
See footnote summary on page 48.
ALLIANCEBERNSTEIN BALANCED SHARES o 47
(a) The Fund changed its fiscal year end from July 31 to November 30.
(b) As required, effective August 1, 2001, the Fund has adopted the provisions
of the AICPA Audit and Accounting Guide, Audits of Investment Companies and
began amortizing premium on debt securities for financial statement purposes
only. For the year ended July 31, 2002, the effect of this change toClass A,
Class B and Class C was to decrease net investment income by $.01 and decrease
Advisor Class by $.02 per share, increase net unrealized gains and losses by
$.01 for Class A, Class B and Class C; and increase Advisor Class by $.02 per
share. Consequently, the ratio of net investment income to average net assets
was decreased from 2.46% to 2.36% for Class A, 1.71% to 1.61% for Class B,
1.71% to 1.61% for Class C and from 2.89% to 2.79% for Advisor Class on an
annualized basis.
(c) Based on average shares outstanding.
(d) Net of expenses waived by the Adviser and Transfer Agent.
(e) Amount is less than $.005.
(f) 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 return does not reflect the deduction of taxes that a shareholder
would pay on Fund distributions or the redemption of Fund shares. Total
investment return calculated for a period of less than one year is not
annualized.
(g) The ratio includes expenses attributable to costs of proxy solicitation.
(h) Annualized.
(i) Commencement of distribution.
+ Due to the timing of sales and repurchases of capital shares, the net
realized and unrealized gain (loss) per share is not in accord with the
portfolio's change in net realized and unrealized gain (loss) on investment
transactions for the period.
48 o ALLIANCEBERNSTEIN BALANCED SHARES
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
AllianceBernstein Balanced Shares, Inc.
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of AllianceBernstein Balanced Shares, Inc. as of
November 30, 2006, and the related statement of operations, statement of
changes in net assets, and the financial highlights for the year then ended.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit. The statement
of changes in net assets for the year ended November 30, 2005 and the financial
highlights for each of the years or periods in the four-year period ended
November 30, 2005 were audited by other independent registered public
accountants whose report thereon, dated January 23, 2006, expressed an
unqualified opinion on that financial statement and those financial highlights.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures
included confirmation of securities owned as of November 30, 2006, by
correspondence with the custodian and brokers or by other appropriate auditing
procedures. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
AllianceBernstein Balanced Shares, Inc. as of November 30, 2006, and the
results of its operations, changes in its net assets, and its financial
highlights for the year then ended, in conformity with U.S. generally accepted
accounting principles.
/s/ KPMG LLP
New York, New York
January 26, 2007
ALLIANCEBERNSTEIN BALANCED SHARES o 49
TAX INFORMATION
(unaudited)
For the fiscal year ended November 30, 2006 certain dividends paid by the Fund
may be subject to a maximum tax rate of 15%, as provided for by the Jobs and
Growth Tax Relief Reconciliation Act of 2003. The Fund designates a maximum
amount of $28,351,026 as qualified dividend income which is taxed at a maximum
rate of 15%.
For corporate shareholders, 75.42% of the total ordinary income distribution
paid during the current fiscal year ended November 30, 2006 qualifies for the
corporate dividends received deduction. In addition, the Fund designates
$98,433,364 from dividends paid in the fiscal year as long-term capital gains
dividends.
For foreign shareholders, the Fund designates 49.2% of its ordinary dividends
as qualified interest income.
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-DIV which will be sent to you separately in January 2007.
50 o ALLIANCEBERNSTEIN BALANCED SHARES
BOARD OF DIRECTORS
William H. Foulk, Jr.(1), Chairman
Marc O. Mayer, President
David H. Dievler(1)
John H. Dobkin(1)
Michael J. Downey(1)
D. James Guzy(1)
Nancy P. Jacklin(1)
Marshall C. Turner, Jr.(1)
Earl D. Weiner(1)
OFFICERS(2)
Philip L. Kirstein, Senior Vice President and Independent Compliance Officer
Paul C. Rissman, Senior Vice President
Frank V. Caruso, Vice President
John J. Kelley, Vice President
Stanley F. Martinez, Vice President
Stephen W. Pelensky, Vice President
Emilie D. Wrapp, Secretary
Joseph J. Mantineo, Treasurer and Chief Financial Officer
Vincent S. Noto, Controller
Custodian
State Street Bank & Trust Company
One Lincoln Street
Boston, MA 02111
Principal Underwriter
AllianceBernstein Investments, Inc.
1345 Avenue of the Americas
New York, NY 10105
Legal Counsel
Seward & Kissel LLP
One Battery Park Plaza
New York, NY 10004
Transfer Agent
AllianceBernstein Investor Services, Inc.
P.O. Box 786003
San Antonio, TX78278-6003
Toll-Free (800) 221-5672
Independent Registered Public Accounting Firm
KPMG LLP
345 Park Avenue
New York, NY 10154
(1) Member of the Audit Committee, the Governance and Nominating Committee and
the Independent Directors Committee.
(2) The management of and investment decisions for the Fund are made by the
Balanced Shares Investment Team, comprised of senior members of the Relative
Value Investment Team and senior members of the Global Credit Research Team.
Mr. Stephen Pelensky is the investment professional with the most significant
responsibility for the day-to-day management of the equity component of the
Fund's portfolio and Mr. John Kelley is the investment professional with the
most significant responsibility for the day-to-day management of the debt
component of the Fund's portfolio.
ALLIANCEBERNSTEIN BALANCED SHARES o 51
MANAGEMENT OF THE FUND
Board of Directors Information
The business and affairs of the Fund are managed under the direction of the
Board of Directors. Certain information concerning the Fund's Directors is set
forth below.
PORTFOLIOS
IN FUND OTHER
NAME, PRINCIPAL COMPLEX DIRECTORSHIPS
ADDRESS* AND AGE OCCUPATION(S) OVERSEEN BY HELD BY
(FIRST YEAR ELECTED**) DURING PAST 5 YEARS DIRECTOR DIRECTOR
- ---------------------------------------------------------------------------------------------------------------------
INTERESTED DIRECTOR
Marc O. Mayer, *** Executive Vice President of 108 SCBPartners,
1345 Avenue of the AllianceBernstein L.P. Inc. and
Americas ("AllianceBernstein") since 2001 SCBInc.
New York, NY 10105 and Executive Managing Director
49 of AllianceBernstein Investments,
(2003) Inc. ("ABI") since 2003; prior there-
to he was head of AllianceBernstein
Institutional Investments, a unit of
AllianceBernstein from 2001-2003.
Prior thereto, Chief Executive Officer
of Sanford C. Bernstein & Co., LLC
(institutional research and brokerage
arm of Bernstein & Co., LLC) ("SCB
& Co.") and its predecessor since
prior to 2002.
DISINTERESTED DIRECTORS
William H. Foulk, Jr.,#,+ Investment Adviser and an 110 None
Chairman of the Board Independent Consultant. He was
74 formerly Senior Manager of Barrett
(1992) Associates, Inc., a registered
investment adviser, with which he
had been associated since prior
to 2002. He was formerly Deputy
Comptroller and Chief Investment
Officer of the State of New York
and, prior thereto, Chief Investment
Officer of the New York Bank
for Savings.
David H. Dievler, # Independent Consultant. Until 109 None
77 December 1994, he was Senior
(1987) Vice President of AllianceBernstein
Corporation ("ABCorp.") (formerly
Alliance Capital Management Corp-
oration) responsible for mutual
fund administration. Prior to joining
AB Corp. in 1984, he was Chief
Financial Officer of Eberstadt
Asset Management since 1968.
Prior to that, he was a Senior
Manager at Price Waterhouse & Co.
Member of American Institute of
Certified Public Accountants since
1953.
52 o ALLIANCEBERNSTEIN BALANCED SHARES
PORTFOLIOS
IN FUND OTHER
NAME, PRINCIPAL COMPLEX DIRECTORSHIPS
ADDRESS* AND AGE OCCUPATION(S) OVERSEEN BY HELD BY
(FIRST YEAR ELECTED**) DURING PAST 5 YEARS DIRECTOR DIRECTOR
- ---------------------------------------------------------------------------------------------------------------------
DISINTERESTED DIRECTORS
(continued)
John H. Dobkin, # Consultant. Formerly President 108 None
64 of Save Venice, Inc. (preservation
(1992) organization) from 2001-2002,
Senior Advisor from June 1999 -
June 2000 and President of
Historic Hudson Valley (historic
preservation) from December 1989-
May 1999. Previously, Director of
the National Academy of Design
and during 1988-1992, Director and
Chairman of the Audit Committee of
AB Corp. (formerly Alliance Capital
Management Corporation).
Michael J. Downey, # Consultant since January 2004. 108 Asia Pacific
63 Formerly, managing partner of Fund, Inc.
(2005) Lexington Capital, LLC (investment) and The
advisory firm) from December 1997 Merger Fund
until December 2003. Prior thereto,
he was Chairman and CEO of
Prudential Mutual Fund Management
from 1987 to 1993.
D. James Guzy, # Chairman of the Board of PLX 108 Intel Corporation
70 Technology (semi-conductors) and (semi-conductors)
(2005) of SRC Computers Inc., with which and Cirrus Logic
he has been associated since prior Corporation
to 2002. He is also President of (semi-conductors)
the Arbor Company (private family
investments).
Nancy P. Jacklin, # Formerly U.S. Executive Director of 108 None
58 the International Monetary Fund
(2006) (December 2002-May 2006); Partner,
Clifford Chance (1992-2002); Senior
Counsel, International Banking and
Finance, and Associate General
Counsel, Citicorp (1985-1992);
Assistant General Counsel (International),
Federal Reserve Board of Governors
(1982-1985); and Attorney Advisor,
U.S. Department of the Treasury (1973-
1982). Member of the Bar of the District
of Columbia and of New York; and member
of the Council on Foreign Relations.
ALLIANCEBERNSTEIN BALANCED SHARES o 53
PORTFOLIOS
IN FUND OTHER
NAME, PRINCIPAL COMPLEX DIRECTORSHIPS
ADDRESS* AND AGE OCCUPATION(S) OVERSEEN BY HELD BY
(FIRST YEAR ELECTED**) DURING PAST 5 YEARS DIRECTOR DIRECTOR
- ---------------------------------------------------------------------------------------------------------------------
DISINTERESTED DIRECTORS
(continued)
Marshall C. Turner, Jr., # Principal of Turner Venture 108 The
65 Associates (venture capital and George Lucas
(2005) consulting) since prior to 2002. Educational
From 2003 until May 31, 2006, Foundation
he was CEO of Toppan Photomasks, and National
Inc., Austin, Texas (semi-conductor Datacast,
manufacturing services). Inc.
Earl D. Weiner, # Of-Counsel, and Partner from 107 None
67 1976-2006, of the law firm Sullivan &
(2007) Cromwell LLP, specializing in
investment management, corporate
and securities law.
* The address for each of the Fund's disinterested Directors is
AllianceBernstein L.P., c/o Philip L. Kirstein, 1345 Avenue of the Americas,
New York, NY 10105.
** There is no stated term of office for the Fund's Directors.
*** Mr. Mayer is an "interested person", as defined in the 1940 Act, due to
his position as an Executive Vice President of AllianceBernstein.
# Member of the Audit Committee, the Governance and Nominating Committee and
the Independent Directors Committee.
+ Member of the Fair Value Pricing Committee.
54 o ALLIANCEBERNSTEIN BALANCED SHARES
Officer Information
Certain information concerning the Fund's Officers is set forth below.
NAME, ADDRESS* POSITION(S) PRINCIPAL OCCUPATION
AND AGE HELD WITH FUND DURING PAST 5 YEARS**
- --------------------------------------------------------------------------------------------------------------
Marc O. Mayer President and Chief See biography above.
49 Executive Officer
Philip L. Kirstein Senior Vice President Senior Vice President and Independent
61 and Independent Compliance Officer of the Alliance-
Compliance Officer Bernstein Funds, with which he has
been associated since October 2004.
Prior thereto, he was Of Counsel
to Kirkpatrick & Lockhart, LLP from
October 2003 to October 2004, and
General Counsel of Merrill Lynch
Investment Managers, L.P. since
prior to 2002 until March 2003.
Paul C. Rissman Senior Vice Executive Vice President of
50 President AllianceBernstein**, with which he has
been associated since prior to 2002.
Frank V. Caruso Vice President Senior Vice President of
50 AllianceBernstein**, with which he has
been associated since prior to 2002.
John J. Kelley Vice President Senior Vice President of
46 AllianceBernstein**, with which he has
been associated since prior to 2002.
Stanley F. Martinez Vice President Vice President of AllianceBernstein
38 since January 2003. Prior thereto, he
was an Assistant Vice President at
Conning Asset Management in
Hartford, CT since prior to 2002.
Stephen W. Pelensky Vice President Senior Vice President of
51 AllianceBernstein**, with which he has
been associated since prior to 2002.
Emilie D. Wrapp Secretary Senior Vice President, Assistant
51 General Counsel and Assistant
Secretary of ABI**, with which she has
been associated since prior to 2002.
Joseph J. Mantineo Treasurer and Chief Senior Vice President of
47 Financial Officer AllianceBernstein Investor Services, Inc.
("ABIS")**, with which he has been
associated since prior to 2002.
Vincent S. Noto Controller Vice President of ABIS**, with which he
42 has been associated since prior to 2002.
* The address for each of the Fund's Officers is 1345 Avenue of the Americas,
New York, NY 10105.
** AllianceBernstein, ABI, ABIS and SCB & Co. are affiliates of the Fund.
The Fund's Statement of Additional Information ("SAI") has additional
information about the Fund's Directors and Officers and is available without
charge upon request. Contact your financial representative or AllianceBernstein
at (800) 227-4618 for a free prospectus or SAI.
ALLIANCEBERNSTEIN BALANCED SHARES o 55
Information Regarding the Review and Approval of the Fund's Advisory Agreement
The Fund's disinterested directors (the "directors") unanimously approved the
continuance of the Advisory Agreement between the Fund and the Adviser at a
meeting held on June 14, 2006.
In preparation for the meeting, the directors had requested from the Adviser
and evaluated extensive materials, including performance and expense
information for other investment companies with similar investment objectives
as the Fund derived from data compiled by Lipper Inc. ("Lipper"), which is not
affiliated with the Adviser. The directors also reviewed an independent
evaluation from the Fund's Senior Officer (who is also the Fund's Independent
Compliance Officer) of the reasonableness of the advisory fees in the Fund's
Advisory Agreement (as contemplated by the September 2004 Assurance of
Discontinuance between the Adviser and the New York Attorney General) wherein
the Senior Officer concluded that such fees were reasonable. In addition, the
directors received a presentation from the Adviser and had an opportunity to
ask representatives of the Adviser various questions relevant to the proposed
approval. The directors noted that the Senior Officer's evaluation considered
the following factors: management fees charged to institutional and other
clients of the Adviser for like services; management fees charged by other
mutual fund companies for like services; cost to the Adviser and its affiliates
of supplying services pursuant to the Advisory Agreement, excluding any
intra-corporate profit; profit margins of the Adviser and its affiliates from
supplying such services; possible economies of scale as the Fund grows larger;
and nature and quality of the Adviser's services including the performance of
the Fund.
Prior to voting, the directors reviewed the proposed continuance of the
Advisory Agreement with management and with experienced counsel who are
independent of the Adviser and received a memorandum from such counsel
discussing the legal standards for their consideration of the proposed
continuance. The directors also discussed the proposed continuance in two
private sessions at which only the directors, their independent counsel and the
Fund's Independent Compliance Officer were present. In reaching their
determinations relating to continuance of the Advisory Agreement, the directors
considered all factors they believed relevant, including the following:
1. information comparing the performance of the Fund to other investment
companies with similar investment objectives and to an index;
2. the nature, extent and quality of investment, compliance, administrative
and other services rendered by the Adviser;
3. payments received by the Adviser from all sources in respect of the Fund
and all investment companies in the AllianceBernstein Funds complex;
56 o ALLIANCEBERNSTEIN BALANCED SHARES
4. the costs borne by, and profitability of, the Adviser and its affiliates in
providing services to the Fund and to all investment companies in the
AllianceBernstein Funds complex;
5. comparative fee and expense data for the Fund and other investment
companies with similar investment objectives;
6. the extent to which economies of scale would be realized to the extent the
Fund grows and whether fee levels reflect any economies of scale for the
benefit of investors;
7. the Adviser's policies and practices regarding allocation of portfolio
transactions of the Fund, including the extent to which the Adviser benefits
from soft dollar arrangements;
8. information about "revenue sharing" arrangements that the Adviser has
entered into in respect of the Fund;
9. portfolio turnover rates for the Fund compared to other investment
companies with similar investment objectives;
10. fall-out benefits that the Adviser and its affiliates receive from their
relationships with the Fund;
11. the Adviser's representation that there are no institutional produces
managed by it which have a substantially similar investment style as the Fund;
12. The Senior Officer's evaluation of the reasonableness of the fee payable
to the Adviser in the Advisory Agreement.
13. the professional experience and qualifications of the Fund's portfolio
management team and other senior personnel of the Adviser; and
14. the terms of the Advisory Agreement.
The directors also considered their knowledge of the nature and quality of the
services provided by the Adviser to the Fund gained from their experience as
directors or trustees of most of the registered investment companies advised by
the Adviser, their overall confidence in the Adviser's integrity and competence
they have gained from that experience and the Adviser's responsiveness to
concerns raised by them in the past, including the Adviser's willingness to
consider and implement organizational and operational changes designed to
improve investment results and the services provided to the AllianceBernstein
Funds.
ALLIANCEBERNSTEIN BALANCED SHARES o 57
In their deliberations, the directors did not identify any particular
information that was all-important or controlling, and different directors may
have attributed different weights to the various factors.
The directors determined that the overall arrangements between the Fund and the
Adviser, as provided in the Advisory Agreement, were fair and reasonable in
light of the services performed, expenses incurred and such other matters as
the directors considered relevant in the exercise of their business judgment.
The material factors and conclusions that formed the basis for the directors
reaching their determinations to approve the continuance of the Advisory
Agreement (including their determinations that the Adviser should continue to
be the investment adviser for the Fund, and that the fees payable to the
Adviser pursuant to the Advisory Agreement are appropriate) were separately
discussed by the directors.
Nature, Extent and Quality of Services Provided by the Adviser
The directors noted that, under the Advisory Agreement, the Adviser, subject to
the oversight of the directors, administers the Fund's business and other
affairs. The Adviser manages the investment of the assets of the Fund,
including making purchases and sales of portfolio securities consistent with
the Fund's investment objective and policies. Under the Advisory Agreement, the
Adviser also provides the Fund with such office space, administrative and other
services (exclusive of, and in addition to, any such services provided by any
others retained by the Fund) and executive and other personnel as are necessary
for the Fund's operations. The Adviser pays all of the compensation of
directors of the Fund who are affiliated persons of the Adviser and of the
officers of the Fund.
The directors also considered that the Advisory Agreement provides that the
Fund will reimburse the Adviser for the cost of certain clerical, accounting,
administrative and other services provided at the Fund's request by employees
of the Adviser or its affiliates. Requests for these "at no more than cost"
reimbursements are approved by the directors on a quarterly basis and (to the
extent requested and paid) result in a higher rate of total compensation from
the Fund to the Adviser than the fee rates stated in the Fund's Advisory
Agreement.
The directors considered the scope and quality of services provided by the
Adviser under the Advisory Agreement and noted that the scope of services
provided by advisers of funds had expanded over time as a result of regulatory
and other developments. The directors noted, for example, that the Adviser is
responsible for maintaining and monitoring its own and, to varying degrees, the
Fund's compliance programs, and that these compliance programs have recently
been refined and enhanced in light of new regulatory requirements. The
directors considered the quality of the in-house investment research
capabilities of the Adviser and the other resources it has dedicated to
performing services for the
58 o ALLIANCEBERNSTEIN BALANCED SHARES
Fund. The quality of administrative and other services, including the Adviser's
role in coordinating the activities of the Fund's other service providers, also
were considered. The directors also considered the Adviser's response to recent
regulatory compliance issues affecting a number of the investment companies in
the AllianceBernstein Funds complex. The directors concluded that, overall,
they were satisfied with the nature, extent and quality of services provided to
the Fund under the Advisory Agreement.
Costs of Services Provided and Profitability to the Adviser
The directors reviewed a schedule of the revenues, expenses and related notes
indicating the profitability of the Fund to the Adviser for calendar years 2004
and 2005 that had been prepared with an updated expense allocation methodology.
The directors noted that the updated expense allocation methodology differed in
various respects from the methodology used in prior years. The directors
reviewed the assumptions and methods of allocation used by the Adviser in
preparing fund-specific profitability data, and noted the Adviser's
representation to them that it believed that the methods of allocation used in
preparing the profitability information were reasonable and appropriate and
that the Adviser had previously discussed with the directors that there is no
generally accepted allocation methodology for information of this type.
The directors recognized that it is difficult to make comparisons of
profitability from fund advisory contracts because comparative information is
not generally publicly available and is affected by numerous factors, including
the structure of the particular adviser, the types of funds it manages, its
business mix, numerous assumptions regarding allocations and the adviser's
capital structure and cost of capital. In considering profitability
information, the directors considered the effect of fall-out benefits on the
Adviser's expenses, as well as the "revenue sharing" arrangements the Adviser
has entered into with certain entities that distribute shares of the Fund. The
directors focused on the profitability of the Adviser's relationship with the
Fund before taxes and distribution expenses. The directors recognized that the
Adviser should generally be entitled to earn a reasonable level of profits for
the services it provides to the Fund and, based on their review, concluded that
they were satisfied that the Adviser's level of profitability from its
relationship with the Fund was not excessive.
Fall-Out Benefits
The directors considered that the Adviser benefits from soft dollar
arrangements whereby it receives brokerage and research services from many of
the brokers and dealers that execute purchases and sales of securities on
behalf of its clients on an agency basis. They noted that the Adviser makes
annual presentations to the directors regarding its trading practices and
brokerage allocation policies, including its policies with respect to soft
dollar arrangements. The directors noted that the Adviser has represented to
them that all of its soft dollar arrangements are consistent with applicable
legal requirements including the achievement of best execution.
ALLIANCEBERNSTEIN BALANCED SHARES o 59
The directors also considered that the Distributor, which is a wholly-owned
subsidiary of the Adviser, receives 12b-1 fees from the Fund in respect of
classes of shares of the Fund that are subject to the Fund's 12b-1 plan and
retains a portion of such 12b-1 fees, and receives all or a portion of the
sales charges on sales or redemptions of certain classes of shares. The
directors also noted that certain affiliates of the Adviser distribute shares
of the Fund and receive compensation in that connection, that a subsidiary of
the Adviser provides transfer agency services to the Fund and receives
compensation from the Fund for such services and that brokers who are
affiliated with the Adviser are permitted to execute brokerage transactions for
the Fund subject to satisfaction of certain requirements and receive brokerage
commissions from the Fund and liquidity rebates from electronic communication
networks in connection with certain of such transactions.
The directors recognized that the Adviser's profitability would be somewhat
lower if it did not receive research for soft dollars or if the Adviser's
affiliates did not receive the other benefits described above. The directors
understood that the Adviser also might derive reputational and other benefits
from its association with the Fund.
Investment Results
In addition to the information reviewed by the directors in connection with the
meeting, the directors receive detailed comparative performance information for
the Fund at each regular Board meeting during the year. At the meeting, the
directors reviewed information from a report prepared by Lipper showing
performance of the Class A Shares of the Fund as compared to a group of 11 to 6
funds (depending on the year) in its Lipper category selected by Lipper (the
"Performance Group") and as compared to a Performance Universe of 137 to 48
funds (depending on the year) in its Lipper category selected by Lipper (the
"Performance Universe") for periods ended December 31, 2005 over the 1-, 3-, 5-
and 10-year periods, and information prepared by the Adviser showing
performance of the Class A Shares of the Fund as compared to a composite index
(60% Russell 1000 Value Index/40% Lehman Brothers Government/Credit Index) (the
"Index") for periods ended December 31, 2005 over the 1-, 3-, 5- and 10-year
periods. The directors noted that in the Performance Group and Performance
Universe comparisons the Fund was in the 4th quintile in the 1-year period and
1st quintile in the 3-, 5- and 10-year periods. The comparative information
showed that the Fund outperformed the Index in the 3- and 10-year periods, and
underperformed the Index in the 1- and 5-year periods. Comparative information
was not available for the since inception period (June 1932 inception). Based
on their review, the directors concluded that the Fund's relative performance
over time was satisfactory.
Advisory Fees and Other Expenses
The directors considered the advisory fee rate paid by the Fund to the Adviser
and information prepared by Lipper concerning fee rates paid by other funds in
60 o ALLIANCEBERNSTEIN BALANCED SHARES
the same Lipper category as the Fund at a common asset level. The directors
recognized that it is difficult to make comparisons of advisory fees because
there are variations in the services that are included in the fees paid by
other funds.
The Adviser informed the directors that there are no institutional products
managed by it which have a substantially similar investment style as the Fund.
The directors reviewed information in the Adviser's Form ADV and noted that it
charged institutional clients lower fees for advising comparably sized accounts
using strategies that differ from those of the Fund but which involve
investments in securities of the same type that the Fund invests in (i.e.,
equity securities). They had previously received an oral presentation from the
Adviser that supplemented such information. The director also noted that the
Adviser advises a portfolio of another AllianceBernstein Fund with a
substantially similar investment style as the Fund and that the Adviser's fee
schedule for such portfolio has higher breakpoints than the fee schedule in the
Fund's Advisory Agreement.
The Adviser reviewed with the directors the significant differences in the
scope of services it provides to institutional clients and to the Fund. For
example, the Advisory Agreement requires the Adviser to provide, in addition to
investment advice, office facilities and officers (including officers to
provide required certifications). The Adviser also coordinates the provision of
services to the Fund by non-affiliated service providers and is responsible for
the compensation of the Fund's Independent Compliance Officer and certain
related expenses. The provision of these non-advisory services involves costs
and exposure to liability. The Adviser explained that many of these services
normally are not provided to non-investment company clients, and that fees
charged to the Fund reflect the costs and risks of the additional obligations.
The Adviser also noted that since the Fund is constantly issuing and redeeming
its shares, it is more difficult to manage than an institutional account, where
the assets are relatively stable. In light of these facts, the directors did
not place significant weight on these fee comparisons.
The directors also considered the total expense ratio of the Class A shares of
the Fund in comparison to the fees and expenses of funds within two comparison
groups of funds in the same Lipper category created by Lipper: an Expense Group
and an Expense Universe. Lipper described an Expense Group as a representative
sample of comparable funds and an Expense Universe as a broader group,
consisting of all funds in the Fund's investment classification/objective with
a similar load type as the Fund. The Class A expense ratio of the Fund was
based on the Fund's latest fiscal year expense ratio. The directors recognized
that the expense ratio information for the Fund potentially reflected on the
Adviser's provision of services, as the Adviser is responsible for coordinating
services provided to the Fund by others. The directors noted that it was likely
that the expense ratios of some funds in the Fund's Lipper category also were
lowered by waivers or reimbursements by those funds' investment advisers, which
in some cases were voluntary and perhaps temporary.
ALLIANCEBERNSTEIN BALANCED SHARES o 61
The information reviewed by the directors showed that the Fund's at approximate
current size contractual effective fee rate of 43.3 basis points was materially
lower than the Expense Group median. The directors noted that the latest fiscal
year administrative expense reimbursement by the Fund pursuant to the Advisory
Agreement was 1 basis point. The directors also noted that the Fund's total
expense ratio was the same as the Expense Group median and materially lower
than the Expense Universe median. The directors concluded that the Fund's
expense ratio was satisfactory.
Economies of Scale
The directors noted that the advisory fee schedule for the Fund contains
breakpoints so that, if assets were to increase over the breakpoint levels, the
fee rates would be reduced on the incremental assets. The directors also
considered a presentation by an independent consultant discussing economies of
scale issues in the mutual fund industry. The directors believe that economies
of scale are realized (if at all) by the Adviser across a variety of products
and services, and not only in respect of a single fund. The directors noted
that there is no uniform methodology for establishing breakpoints that give
effect to fund-specific services provided by the Adviser and to the economies
of scale that the Adviser may realize in its overall mutual fund business or
those components of it which directly or indirectly affect the Fund's
operations. The directors observed that in the mutual fund industry as a whole,
as well as among funds similar to the Fund, there is no uniformity or pattern
in the fees and asset levels at which breakpoints (if any) apply. Depending on
the age and size of a particular fund and its adviser's cost structure,
different conclusions can be drawn as to whether there are economies of scale
to be realized at any particular level of assets, notwithstanding the intuitive
conclusion that such economies exist, or will be realized at some level of
total assets. Moreover, because different advisers have different cost
structures and service models, it is difficult to draw meaningful conclusions
from the comparison of a fund's advisory fee breakpoints with those of
comparable funds. The directors also noted that the advisory agreements for
many funds do not have breakpoints at all. Having taken these factors into
account, the directors concluded that the Fund's breakpoint arrangements would
result in a sharing of economies of scale in the event of a very significant
increase in the Fund's net assets.
62 o ALLIANCEBERNSTEIN BALANCED SHARES
THIS PAGE IS NOT PART OF THE SHAREHOLDER REPORT OR THE FINANCIAL STATEMENTS
ALLIANCEBERNSTEIN FAMILY OF FUNDS
- --------------------------------------------
Wealth Strategies Funds
- --------------------------------------------
Balanced Wealth Strategy
Wealth Appreciation Strategy
Wealth Preservation Strategy
Tax-Managed Balanced Wealth Strategy
Tax-Managed Wealth Appreciation Strategy
Tax-Managed Wealth Preservation Strategy
- --------------------------------------------
Blended Style Funds
- --------------------------------------------
U.S. Large Cap Portfolio
International Portfolio
Tax-Managed International Portfolio
- --------------------------------------------
Growth Funds
- --------------------------------------------
Domestic
Growth Fund
Mid-Cap Growth Fund
Large Cap Growth Fund
Small Cap Growth Portfolio
Global & International
Global Health Care Fund
Global Research Growth Fund
Global Technology Fund
Greater China '97 Fund
International Growth Fund
International Research Growth Fund
- --------------------------------------------
Value Funds
- --------------------------------------------
Domestic
Balanced Shares
Focused Growth & Income Fund
Growth & Income Fund
Real Estate Investment Fund
Small/Mid-Cap Value Fund
Utility Income Fund
Value Fund
Global & International
Global Value Fund
International Value Fund
- --------------------------------------------
Taxable Bond Funds
- --------------------------------------------
Global Government Income Trust*
Corporate Bond Portfolio
Emerging Market Debt Fund
Global Strategic Income Trust
High Yield Fund
Intermediate Bond Portfolio*
Short Duration Portfolio
U.S. Government Portfolio
- --------------------------------------------
Municipal Bond Funds
- --------------------------------------------
National Michigan
Insured National Minnesota
Arizona New Jersey
California New York
Insured California Ohio
Florida Pennsylvania
Massachusetts Virginia
- --------------------------------------------
Intermediate Municipal Bond Funds
- --------------------------------------------
Intermediate California
Intermediate Diversified
Intermediate New York
- --------------------------------------------
Closed-End Funds
- --------------------------------------------
All-Market Advantage Fund
ACM Income Fund
ACM Government Opportunity Fund
ACM Managed Dollar Income Fund
ACM Managed Income Fund
ACM Municipal Securities Income Fund
California Municipal Income Fund
National Municipal Income Fund
New York Municipal Income Fund
The Spain Fund
World Dollar Government Fund
World Dollar Government Fund II
- --------------------------------------------
Retirement Strategies Funds
- --------------------------------------------
2000 Retirement Strategy
2005 Retirement Strategy
2010 Retirement Strategy
2015 Retirement Strategy
2020 Retirement Strategy
2025 Retirement Strategy
2030 Retirement Strategy
2035 Retirement Strategy
2040 Retirement Strategy
2045 Retirement Strategy
We also offer Exchange Reserves,** which serves as the money market fund
exchange vehicle for the AllianceBernstein mutual funds.
For more complete information on any AllianceBernstein mutual fund, including
investment objectives and policies, sales charges, expenses, risks and other
matters of importance to prospective investors, visit our website at
www.alliancebernstein.com or call us at 800.227.4618 for a current prospectus.
You should read the prospectus carefully before you invest.
* Prior to February 1, 2006, Global Government Income Trust was named Americas
Government Income Trust and Intermediate Bond Portfolio was named Quality Bond
Portfolio.
** An investment in the Fund is not a deposit in a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. Although the Fund seeks to preserve the value of your investment at
$1.00 per share, it is possible to lose money by investing in the Fund.
ALLIANCEBERNSTEIN BALANCED SHARES o 63
THE FOLLOWING IS NOT PART OF THE SHAREHOLDER REPORT OR THE FINANCIAL STATEMENTS
SUMMARY OF SENIOR OFFICER'S EVALUATION OF
INVESTMENT ADVISORY AGREEMENT(1)
The following is a summary of the evaluation of the Investment Advisory
Agreement between AllianceBernstein L.P. (the "Adviser") and AllianceBernstein
Balanced Shares, Inc. (the "Fund"), prepared by Philip L. Kirstein, the Senior
Officer of the Fund for the Directors of the Fund, as required by an August
2004 agreement between the Adviser and the New York State Attorney General (the
"NYAG").(2) The Senior Officer's evaluation of the Investment Advisory
Agreement is not meant to diminish the responsibility or authority of the Board
of Directors of the Fund to perform its duties pursuant to Section 15 of the
Investment Company Act of 1940 (the "40 Act") and applicable state law. The
purpose of the summary is to provide shareholders with a synopsis of the
independent evaluation of the reasonableness of the advisory fees proposed to
be paid by the Fund which was provided to the Directors in connection with
their review of the proposed approval of the continuance of the Investment
Advisory Agreement. The Senior Officer's evaluation considered the following
factors:
1. Management fees charged to institutional and other clients of the Adviser
for like services;
2. Management fees charged by other mutual fund companies for like services;
3. Costs to the Adviser and its affiliates of supplying services pursuant to
the advisory agreement, excluding any intra-corporate profit;
4. Profit margins of the Adviser and its affiliates from supplying such
services;
5. Possible economies of scale as the Fund grows larger; and
6. Nature and quality of the Adviser's services including the performance of
the Fund.
(1) It should be noted that the information in the fee summary was completed
on June 2, 2006 and presented to the Board of Directors on June 14, 2006 in
accordance with the Assurance of Discontinuance between the NYAG and the
Adviser. It also should be noted that references in the fee summary pertaining
to performance and expense ratios refer to Class A shares of the Fund.
(2) Future references to the Fund do not include "AllianceBernstein."
64 o ALLIANCEBERNSTEIN BALANCED SHARES
FUND ADVISORY FEES, EXPENSE REIMBURSEMENTS & RATIOS
The Adviser proposed that the Fund pay the advisory fee set forth in the table
below for receiving the services to be provided pursuant to the Investment
Advisory Agreement:(3)
Net Assets
02/28/06 Advisory Fee Based on % of
Fund (million) Average Daily Net Assets
- -------------------------------------------------------------------------------
Balanced Shares, Inc. $1,781.6 60 bp on 1st $200 million
50 bp on next $200 million
40 bp on the balance
The Adviser is reimbursed as specified in the Investment Advisory Agreement for
certain clerical, legal, accounting, administrative and other services provided
to the Fund. Indicated below is the reimbursement amount, which the Adviser
received from the Fund in the Fund's most recently completed fiscal year,
expressed in dollars and as a percentage of average daily net assets:
As a % of Average
Fund Amount Daily Net Assets
- -------------------------------------------------------------------------------
Balanced Shares, Inc. $95,041 0.01%
Set forth below are the Fund's total expense ratios for the most recently
completed fiscal year:
Fund Total Expense Ratio Fiscal Year End
- -------------------------------------------------------------------------------
Balanced Shares, Inc Class A 1.04% November 30
Class B 1.76%
Class C 1.76%
Class R 1.33%
Class K 1.01%
Class I 0.81%
Adv. Class 0.74%
I. MANAGEMENT FEES CHARGED TO INSTITUTIONAL AND OTHER CLIENTS
The management fees charged to investment companies which the Adviser manages
and sponsors are normally higher than those charged to similar sized
institutional accounts, including pension plans and sub-advised investment
companies. The fee differential reflects, among other things, different
services provided to such clients, and different liabilities assumed. Services
provided by the Adviser to
(3) The Fund's fee schedule was not amended in connection with the Adviser's
settlement with the NYAG in December 2003 since the Fund's fee schedule already
had lower breakpoints than the NYAG related fee schedule for AllianceBernstein
Mutual Funds with a "Balanced" category.
ALLIANCEBERNSTEIN BALANCED SHARES o 65
the Fund that are not provided to non-investment company clients include
providing office space and personnel to serve as Fund Officers, who among other
responsibilities make the certifications required under the Sarbanes-Oxley Act
of 2002, and coordinating with and monitoring the Fund's third party service
providers such as Fund counsel, auditors, custodians, transfer agents and
pricing services. The accounting, administrative, legal and compliance
requirements for the Fund are more costly than those for institutional assets
due to the greater complexities and time required for investment companies,
although as previously noted, a portion of these expenses is reimbursed by the
Fund to the Adviser. Also, retail mutual funds managed by the Adviser are
widely held. Servicing the Fund's investors is more time consuming and labor
intensive compared to institutional clients since the Adviser needs to
communicate with a more extensive network of financial intermediaries and
shareholders. In addition, managing the cash flow of an investment company may
be more difficult than that of a stable pool of assets, such as an
institutional account with little cash movement in either direction,
particularly, if the Fund is in net redemption and the Adviser is frequently
forced to sell securities to raise cash for redemptions. However, managing a
fund with positive cash flow may be easier at times than managing a stable pool
of assets. Finally, in recent years, investment advisers have been sued by
institutional clients and have suffered reputational damage both by the
attendant publicity and outcomes other than complete victories. Accordingly,
the legal and reputational risks associated with institutional accounts are
greater than previously thought, although still not equal to those related to
the mutual fund industry.
Notwithstanding the Adviser's view that managing an investment company is not
comparable to managing other institutional accounts because the services
provided are different, it is worth considering information regarding the
advisory fees charged to institutional accounts with a substantially similar
investment style as the Fund. It should be noted that the Adviser has indicated
that with respect to institutional accounts with assets greater than $300
million, it will negotiate a fee schedule. Discounts that are negotiated vary
based upon each client relationship. However, with respect to the Fund, the
Adviser represented that there is no institutional product that has a
substantially similar investment style as the Fund.
The AllianceBernstein Variable Products Series Fund, Inc. ("AVPS"), which is
managed by the Adviser and is available through variable annuity and variable
life contracts offered by other financial institutions, offers investors the
option to invest in a portfolio that has a substantially similar investment
style as the Fund. The following table shows the fee schedule of such AVPS
portfolio:
Fund AVPS Portfolio Fee Schedule
- -------------------------------------------------------------------------------
Balanced Shares, Inc. Balanced Shares 0.55% on first $2.5 billion
Portfolio 0.45% on next $2.5 billion
0.40% on the balance
66 o ALLIANCEBERNSTEIN BALANCED SHARES
The Adviser represented that it does not sub-advise any registered investment
company with a substantially similar investment style as the Fund.
II. MANAGEMENT FEES CHARGED BY OTHER MUTUAL FUND COMPANIES FOR LIKE SERVICES.
Lipper, Inc. ("Lipper"), an analytical service that is not affiliated with the
Adviser, compared the fees charged to the Fund with fees charged to other
investment companies for similar services by other investment advisers.
Lipper's analysis included the Fund's ranking with respect to the proposed
management fee relative to the Lipper group median at the approximate current
asset level of the Fund.(4)
Effective Lipper
Management Group
Fund Fee(5) Median Ran
- -------------------------------------------------------------------------------
Balanced Shares, Inc. 0.433 0.528 4/11
Lipper also analyzed the total expense ratio of the Fund in comparison to its
Lipper Expense Group(6) and Lipper Expense Universe.(7) Lipper describes a
Lipper Expense Group as a representative sample of comparable funds and a
Lipper Expense Universe as a broader group, consisting of all funds in the same
investment classification/objective with a similar load type as the subject
Fund. The result of that analysis is set forth below:
Expense Lipper Lipper Lipper Lipper
Ratio Group Group Universe Universe
Fund (%)(8) Median(%) Rank Median(%) Rank
- -------------------------------------------------------------------------------
Balanced Shares, Inc. 1.049 1.048 7/11 1.216 15/77
Based on this analysis, the Fund has a more favorable ranking on a management
fee basis than it does on a total expense ratio basis.
(4) The effective management fee is calculated by Lipper using the Fund's
contractual management fee rate at a hypothetical asset level. The hypothetical
asset level is based on the combined net assets of all classes of the Fund,
rounded up to the next $25 million. Lipper's total expense ratio information is
based on the most recent annual report except as otherwise noted. A ranking of
"1" means that the Fund has the lowest effective fee rate in the Lipper peer
group.
(5) The effective management fee rate for the Fund does not reflect the
aforementioned payments made by the Fund to the Adviser for certain clerical,
legal, accounting, administrative, and other services.
(6) Lipper uses the following criteria in screening funds to be included in
the Fund's expense group: fund type, investment classification/objective, load
type and similar 12b-1/non-12b-1 service fees, asset (size) comparability, and
expense components and attributes. A Lipper Expense Group will typically
consist of seven to twenty funds.
(7) Except for asset (size) comparability, Lipper uses the same criteria for
selecting a Lipper Expense Group when selecting a Lipper Expense Universe.
Unlike the Lipper Expense Group, the Lipper Expense Universe allows for the
same adviser to be represented by more than just one fund.
(8) The total expense ratio shown is for the Fund's Class A shares.
ALLIANCEBERNSTEIN BALANCED SHARES o 67
III. COSTS TO THE ADVISER AND ITS AFFILIATES OF SUPPLYING SERVICES PURSUANT TO
THE MANAGEMENT FEE ARRANGEMENT, EXCLUDING ANY INTRA-CORPORATE PROFIT.
A consultant was retained by the Senior Officer to work with the Adviser's
personnel to align the Adviser's two profitability reporting systems. The
alignment, which now has been completed, allows the Adviser's management and
the Directors to receive consistent presentations of the financial results and
profitability although the two profitability reporting systems operate
independently. See Section IV for additional discussion.
IV. PROFIT MARGINS OF THE ADVISER AND ITS AFFILIATES FOR SUPPLYING SUCH
SERVICES.
The profitability information for the Fund prepared by the Adviser for the
Board of Directors was reviewed by the Senior Officer. The Adviser's
profitability from providing investment advisory services to the Fund increased
during calendar year 2005 relative to 2004.
In addition to the Adviser's direct profits from managing the Fund, certain of
the Adviser's affiliates have business relationships with the Fund and may earn
a profit from providing other services to the Fund. The courts have referred to
this type of business opportunity as "fall-out benefits" to the Adviser and
indicated that they should be factored into the evaluation of the total
relationship between the Fund and the Adviser. Neither case law nor common
business practice precludes the Adviser's affiliates from earning a reasonable
profit on this type of relationship. These affiliates provide transfer agent,
distribution, and brokerage related services to the Fund and receive transfer
agent fees, Rule 12b-1 payments, front-end sales loads, contingent deferred
sales charges ("CDSC") and commissions for providing brokerage services. In
addition, the Adviser benefits from soft dollar arrangements which offset
expenses the Adviser would otherwise incur. Additional information regarding
distribution related fees can be found in the prospectus of the Fund.
AllianceBernstein Investments, Inc. ("ABI"), an affiliate of the Adviser, is
the Fund's principal underwriter. ABI and the Adviser have disclosed in the
Fund's prospectus that they may make revenue sharing payments from their own
resources, in addition to resources derived from sales loads and Rule 12b-1
fees, to firms that sell shares of the Fund. In 2005, ABI paid approximately
0.042% of the average monthly assets of the AllianceBernstein Mutual Funds or
approximately $18.0 million for distribution services and educational support
(revenue sharing payments). For 2006, it is anticipated, ABI will pay
approximately 0.04% of the average monthly assets of the AllianceBernstein
Mutual Funds or approximately $17.5 million.(9)
(9) ABI currently inserts the "Advance" in quarterly account statements and
pays the incremental costs associated with the mailing. The incremental cost is
less than what an "independent mailing" would cost.
68 o ALLIANCEBERNSTEIN BALANCED SHARES
After payments to third party intermediaries, ABI retained the following
amounts for Class A front-end load sales charges from sales of the Fund's Class
A shares during the Fund's most recently completed fiscal year:
Fund Amount Received
- -------------------------------------------------------------------------------
Balanced Shares, Inc. $89,483
ABI received the amounts set forth below in Rule 12b-1 fees and CDSC for the
Fund during the Fund's most recent fiscal year:
12b-1 Fees
Fund Received CDSC Received
- -------------------------------------------------------------------------------
Balanced Shares, Inc. $10,199,789 $740,510
Fees and reimbursements for out of pocket expenses charged by AllianceBernstein
Investor Services, Inc. ("ABIS"), the affiliated transfer agent, are based on
the level of the network account and the class of share held by the account.
ABIS also receives a fee per shareholder sub-account for each account
maintained by an intermediary on an omnibus basis. ABIS' after-tax
profitability increased in 2005 in comparison to 2004. ABIS received the
following fee from the Fund in the most recent fiscal year:
Fund ABIS Fee(10)
- -------------------------------------------------------------------------------
Balanced Shares, Inc. $1,119,512
The Fund effected brokerage transactions through the Adviser's affiliate,
Sanford C. Bernstein & Co. LLC ("SCB & Co.") and/or its U.K. affiliate, Sanford
C. Bernstein Limited ("SCB Ltd."), collectively "SCB," and paid commissions for
such transactions during the Fund's most recently completed fiscal year. The
Adviser represented that SCB's profitability from business conducted with the
Fund is comparable to the profitability of SCB's dealings with other similar
third party clients. In the ordinary course of business, SCB receives and pays
liquidity rebates from electronic communications networks ("ECNs") derived from
trading for its clients, including the Fund. These credits and charges are not
being passed on to any SCB client. The Adviser also receives certain soft
dollar benefits from brokers that execute agency trades for the Fund and other
clients. These soft dollar benefits reduce the Adviser's cost of doing business
and increase its profitability.
(10) The fee disclosed is net of any waivers or any other expense offset
arrangement with ABIS. An expense offset is created by the interest earned on
the positive cash balance that occurs within the transfer agent account as
there is a one day lag with regards to money movement from the shareholder's
account to the transfer agent's account and then from the transfer agent's
account to the Fund's account.
ALLIANCEBERNSTEIN BALANCED SHARES o 69
V. POSSIBLE ECONOMIES OF SCALE
The Adviser has indicated that the breakpoints in the fee schedule in the
Investment Advisory Agreement reflect a sharing of economies of scale to the
extent the breakpoints are reached. Based on some of the professional
literature that has considered economies of scale in the mutual fund industry
it is thought that to the extent economies of scale exist, they may more often
exist across a fund family as opposed to a specific fund. This is because the
costs incurred by the Adviser, such as investment research or technology for
trading or compliance systems can be spread across a greater asset base as the
fund family increases in size. It is also possible that as the level of
services required to operate a successful investment company has increased over
time, and advisory firms have made such investments in their business to
provide improved services, there may be a sharing of economies of scale without
a reduction in advisory fees.
An independent consultant made a presentation to the Board of Directors and the
Senior Officer regarding possible economies of scale or scope in the mutual
fund industry. Based on the presentation, it was evident that fund management
companies benefit from economies of scale. However, due to lack of cost data,
researchers had to infer facts about the costs from the behavior of fund
expenses; there was a lack of consensus among researchers as to whether
economies of scale were being passed on to the shareholders. It is contemplated
that additional work will be performed to determine if the benefits of
economies of scale or scope are being passed to shareholders by the Adviser. In
the meantime, it is clear that to the extent a fund's assets exceeds its
initial breakpoint its shareholders benefit from a lower fee rate.
VI. NATURE AND QUALITY OF THE ADVISER'S SERVICES INCLUDING THE PERFORMANCE OF
THE FUND.
With assets under management of $635 billion as of April 30, 2006, the Adviser
has the investment experience to manage and provide non-investment services
(described in Section I) to the Fund.
The information below, which was prepared by Lipper, shows the 1, 3, 5 and 10
year performance ranking of the Fund(11) relative to its Lipper Performance
Group(12) and Lipper Performance Universe(13) for the periods ended December
31, 2005:
Balanced Shares, Inc. Group Universe
- -------------------------------------------------------------------------------
1 year 7/11 92/137
3 year 2/10 18/96
5 year 2/10 6/83
10 year 1/6 5/48
(11) The performance rankings are for the Class A shares of the Fund.
(12) The Lipper Performance Group is identical to the Lipper Expense Group.
(13) For the Lipper Performance Universe, Lipper included the Fund and all of
the funds of the same Lipper Classification/Objective and load type, regardless
of asset size.
70 o ALLIANCEBERNSTEIN BALANCED SHARES
Set forth below are the 1, 3, 5, 10 year and since inception performance
returns of the Fund (in bold)(14) versus its benchmarks:(15)
Periods Ending December 31, 2005
Annualized Performance
- -------------------------------------------------------------------------------
1 3 5 10 Since
Fund Year Year Year Year Inception
- -------------------------------------------------------------------------------
Balanced Shares, Inc. 4.01 12.05 5.04 9.27 9.42
Russell 1000 Value Index 7.05 17.49 5.28 10.94 N/A
S&P 500 Stock Index 4.91 14.38 0.54 9.07 N/A
Lehman Brothers Government/Credit 2.37 3.74 6.11 6.17 N/A
Bond Index
60% Russell 1000 Value Index / 40% 5.18 11.99 5.61 9.03 N/A
Lehman Brothers Government/
Credit Index
CONCLUSION:
Based on the factors discussed above the Senior Officer's conclusion is that
the proposed fee for the Fund is reasonable and within the range of what would
have been negotiated at arms-length in light of all the surrounding
circumstances. This conclusion in respect of the Fund is based on an evaluation
of all of these factors and no single factor was dispositive.
Dated: July 17, 2006
(14) The performance returns shown are for the Class A shares of the Fund.
(15) The Adviser provided Fund and benchmark performance return information
for periods through December 31, 2005 in order to maintain consistency with
Lipper's performance rankings in the analysis.
ALLIANCEBERNSTEIN BALANCED SHARES o 71
NOTES
72 o ALLIANCEBERNSTEIN BALANCED SHARES
ALLIANCEBERNSTEIN BALANCED SHARES
1345 Avenue of the Americas
New York, NY 10105
(800) 221-5672
[LOGO]
ALLIANCEBERNSTEIN
INVESTMENTS
BAL-0151-1106
ITEM 2. CODE OF ETHICS.
(a) The registrant has adopted a code of ethics that applies to its principal
executive officer, principal financial officer and principal accounting
officer. A copy of the registrant's code of ethics is filed herewith as
Exhibit 12(a)(1).
(b) During the period covered by this report, no material amendments were made
to the provisions of the code of ethics adopted in 2(a) above.
(c) During the period covered by this report, no implicit or explicit waivers
to the provisions of the code of ethics adopted in 2(a) above were granted.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The registrant's Board of Directors has determined that independent directors
David H. Dievler and William H. Foulk, Jr. qualify as audit committee financial
experts.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) - (c) The following table sets forth the aggregate fees billed by the
independent registered public accounting firm PricewaterhouseCoopers LLP, for
the Fund's 2005 fiscal year, and by the independent registered public
accounting firm KPMG LLP, for the Fund's 2006 fiscal year, for professional
services rendered for: (i) the audit of the Fund's annual financial statements
included in the Fund's annual report to stockholders; (ii) assurance and
related services that are reasonably related to the performance of the audit of
the Fund's financial statements and are not reported under (i), which include
advice and education related to accounting and auditing issues, quarterly press
release review (for those Funds that issue quarterly press releases), and
preferred stock maintenance testing (for those Funds that issue preferred
stock); and (iii) tax compliance, tax advice and tax return preparation.
Audit Audit-Related Tax
Fees Fees Fees
--------- ------------- --------
2005 $ 42,000 $ 2,680 $ 18,075
2006 $ 35,000 $ 0 $ 9,500
(d) Not applicable.
(e) (1) Beginning with audit and non-audit service contracts entered into on or
after May 6, 2003, the Fund's Audit Committee policies and procedures require
the pre-approval of all audit and non-audit services provided to the Fund by
the Fund's independent registered public accounting firm. The Fund's Audit
Committee policies and procedures also require pre-approval of all audit and
non-audit services provided to the Adviser and Service Affiliates to the extent
that these services are directly related to the operations or financial
reporting of the Fund.
(e) (2) All of the amounts for Audit Fees, Audit-Related Fees and Tax Fees in
the table under Item 4 (a) - (c) are for services pre-approved by the Fund's
Audit Committee.
(f) Not applicable.
(g) The following table sets forth the aggregate non-audit services provided to
the Fund, the Fund's Adviser and entities that control, are controlled by or
under common control with the Adviser that provide ongoing services to the
Fund, which include conducting an annual internal control report pursuant to
Statement on Auditing Standards No. 70 ("Service Affiliates"):
Total Amount of
Foregoing Column Pre-
approved by the Audit
All Fees for Committee
Non-Audit Services (Portion Comprised of
Provided to the Audit Related Fees)
Portfolio, the Adviser (Portion Comprised of
and Service Affiliates Tax Fees)
- -------------------------------------------------------------------------------
2005 $1,137,144 [ $20,755 ]
( $ 2,680 )
( $18,075 )
2006 $2,151,600 [ $ 9,500 ]
( $ 0 )
( $ 9,500 )
(h) The Audit Committee of the Fund has considered whether the provision of any
non-audit services not pre-approved by the Audit Committee provided by the
Fund's independent registered public accounting firm to the Adviser and Service
Affiliates is compatible with maintaining the auditor's independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable to the registrant.
ITEM 6. SCHEDULE OF INVESTMENTS.
Please see Schedule of Investments contained in the Report to Shareholders
included under Item 1 of this Form N-CSR.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable to the registrant.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable to the registrant.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable to the registrant.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which shareholders may
recommend nominees to the Fund's Board of Directors since the Fund last
provided disclosure in response to this item.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive officer and principal financial
officer have concluded that the registrant's disclosure controls and procedures
(as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as
amended) are effective at the reasonable assurance level based on their
evaluation of these controls and procedures as of a date within 90 days of the
filing date of this document.
(b) There were no significant changes in the registrant's internal controls
over financial reporting during the second fiscal quarter of the period that
could significantly affect these controls subsequent to the date of their
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
ITEM 12. EXHIBITS.
The following exhibits are attached to this Form N-CSR:
EXHIBIT NO. DESCRIPTION OF EXHIBIT
12 (a) (1) Code of Ethics that is subject to the disclosure of
Item 2 hereof
12 (b) (1) Certification of Principal Executive Officer Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
12 (b) (2) Certification of Principal Financial Officer Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
12 (c) Certification of Principal Executive Officer and
Principal Financial Officer Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant): AllianceBernstein Balanced Shares, Inc.
By: /s/ Marc O. Mayer
----------------------
Marc O. Mayer
President
Date: January 29, 2007
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ Marc O. Mayer
----------------------
Marc O. Mayer
President
Date: January 29, 2007
By: /s/ Joseph J. Mantineo
----------------------
Joseph J. Mantineo
Treasurer and Chief Financial Officer
Date: January 29, 2007