ALLIANCE SHORT TERM MULTI MARKET TRUST INC, 497, 1995-03-21

ALLIANCE SHORT TERM MULTI MARKET TRUST INC
497, 1995-03-21

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<PAGE>

This is filed pursuant to 497(c) File Nos. 33-27131 and 811-5771.

<PAGE>

The Alliance
--------------------------
Bond Funds
--------------------------

P.O. Box 1520, Secaucus, New Jersey 07096-1520
Toll Free (800) 221-5672
For Literature: Toll Free (800) 227-4618

Prospectus and Application

March 1, 1995

U.S. Government Funds Global Bond Funds
-Alliance Short-Term U.S. -Alliance North American
Government Fund Government Income Trust
-U.S. Government -Alliance Global Dollar
Portfolio Government Fund

Mortgage Funds Corporate Bond Fund
-Alliance Mortgage -Corporate Bond Portfolio
Strategy Trust
-Alliance Mortgage Securities
Income Fund

Multi-Market Funds
-Alliance World Income Trust
-Alliance Short-Term
Multi-Market Trust
-Alliance Multi-Market
Strategy Trust

<TABLE>
<CAPTION>
Table of Contents Page
<S> <C>
The Funds at a Glance . . . . . . . . . . . . . . . . . . . . . 2
Expense Information . . . . . . . . . . . . . . . . . . . . . . 4
Financial Highlights. . . . . . . . . . . . . . . . . . . . . . 7
Glossary. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Description of the Funds. . . . . . . . . . . . . . . . . . . . 14
Investment Objectives and Policies. . . . . . . . . . . . . . 14
Additional Investment Practices . . . . . . . . . . . . . . . 20
Certain Fundamental Investment Policies . . . . . . . . . . . 31
Risk Considerations . . . . . . . . . . . . . . . . . . . . . 32
Purchase and Sale of Shares . . . . . . . . . . . . . . . . . . 36
Management of the Funds . . . . . . . . . . . . . . . . . . . . 39
Dividends, Distributions and Taxes. . . . . . . . . . . . . . . 41
General Information . . . . . . . . . . . . . . . . . . . . . . 42
Appendix A: Bond Ratings. . . . . . . . . . . . . . . . . . . . A-1
Appendix B: General Information About Canada,
Mexico and Argentina. . . . . . . . . . . . . . . . . . . . . B-1
</TABLE>

Adviser
Alliance Capital Management L.P.
1345 Avenue Of The Americas
New York, New York 10105

The Alliance Bond Funds provide a broad selection of investment alternatives to
investors seeking high current income. The U.S. Government Funds invest mainly
in U.S. Government securities and the Mortgage Funds invest in mortgage-related
securities, while the Multi-Market Funds diversify their investments among debt
markets around the world and the Global Bond Funds invest primarily in foreign
government securities. The Corporate Bond Fund invests primarily in corporate
debt securities.

Each fund or portfolio (each a "Fund") is, or is a series of, an open-end
management investment company. This Prospectus sets forth concisely the
information which a prospective investor should know about each Fund before
investing. A "Statement of Additional Information" for each Fund that provides
further information regarding certain matters discussed in this Prospectus and
other matters that may be of interest to some investors has been filed with the
Securities and Exchange Commission and is incorporated herein by reference. For
a free copy, call or write Alliance Fund Services, Inc. at the indicated address
or "Literature" telephone number.

Each Fund offers three classes of shares that may be purchased at the investor's
choice at a price equal to their net asset value (i) plus an initial sales
charge imposed at the time of purchase (the "Class A shares"), (ii) with a
contingent deferred sales charge imposed on most redemptions made within three
years of purchase (the "Class B shares"), or (iii) without any initial or
contingent deferred sales charge (the "Class C shares"), except that Alliance
World Income Trust offers only one class of shares which may be purchased at a
price equal to its net asset value without any initial or contingent deferred
sales charge. See "Purchase and Sale of Shares."

An investment in these securities is not a deposit or obligation of, or
guaranteed or endorsed by, any bank and is not federally insured by the Federal
Deposit Insurance Corporation, the Federal Reserve Board or any other agency.

Investors are advised to read this Prospectus carefully and to retain it for
future reference.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

[LOGO OF ALLIANCE APPEARS HERE]

(R)/SM These are registered marks used under licenses from the owner, Alliance
Capital Management L.P.
<PAGE>

The Funds At A Glance

The following summary is qualified in its entirety by the more detailed
information contained in this Prospectus.

The Funds' Investment Manager Is . . .
Alliance Capital Management L.P. ("Alliance"), a global investment manager
providing diversified services to institutions and individuals through a broad
line of investments including 103 mutual funds. Since 1971, Alliance has earned
a reputation as a leader in the investment world with over $121 billion in
assets under management. Alliance provides investment management services to 29
of the FORTUNE 100 companies.

U.S. Government Funds

Short-Term U.S. Government Fund
Seeks . . . High current income consistent with preservation of capital.

Invests primarily in . . . A diversified portfolio of U.S. Government
securities.

U.S. Government Portfolio
Seeks . . . As high a level of current income as is consistent with safety of
principal.

Invests solely in . . . A diversified portfolio of U.S. Government securities
backed by the full faith and credit of the United States.

Mortgage Funds

Mortgage Strategy Trust
Seeks . . . The highest level of current income, consistent with low volatility
of net asset value, that is available from a portfolio of mortgage-related
securities of the highest quality.

Invests primarily in . . . A diversified portfolio of adjustable and fixed-rate
mortgage-related securities that are U.S. Government securities or rated AAA by
S&P or Aaa by Moody's or, if not rated, are of equivalent investment quality.
The Fund's portfolio is structured to achieve low volatility of net asset value
approximating that of a portfolio investing exclusively in two-year U.S.
Treasury securities.

Mortgage Securities Income Fund
Seeks . . . A high level of current income consistent with prudent investment
risk.

Invests primarily in . . . A diversified portfolio of mortgage-related
securities.

Multi-Market Funds
World Income Trust
Seeks . . . The highest level of current income that is available from a
portfolio of high-quality debt securities having remaining maturities of not
more than one year.

Invests primarily in . . . A non-diversified portfolio of debt securities
denominated in the U.S. Dollar and selected foreign currencies. The Fund
maintains at least 35% of its net assets in U.S. Dollar-denominated securities.

Short-Term Multi-Market Trust
Seeks . . . The highest level of current income through investment in a
portfolio of high-quality debt securities having remaining maturities of not
more than three years.

Invests primarily in . . . A non-diversified portfolio of debt securities
denominated in the U.S. Dollar and selected foreign currencies. While the Fund
normally will maintain a substantial portion of its assets in debt securities
denominated in foreign currencies, the Fund will invest at least 25% of its net
assets in U.S. Dollar-denominated securities.

Multi-Market Strategy Trust
Seeks . . . The highest level of current income that is available from a
portfolio of high-quality debt securities having remaining maturities of not
more than five years.

Invests primarily in . . . A non-diversified portfolio of debt securities
denominated in the U.S. Dollar and selected foreign currencies. The Fund expects
to maintain at least 70% of its assets in debt securities denominated in foreign
currencies, but not more than 25% of the Fund's total assets may be invested in
debt securities denominated in a single currency other than the U.S. Dollar.

Global Bond Funds

North American Government Income Trust
Seeks . . . The highest level of current income that is available from a
portfolio of investment grade debt securities issued or guaranteed by the
governments of the United States, Canada and Mexico.

Invests primarily in . . . A non-diversified portfolio of government securities
denominated in the U.S. Dollar, the Canadian Dollar and the Mexican Peso, and
expects to maintain at least 25% of its assets in securities denominated in the
U.S. Dollar. In addition, the Fund may invest up to 25% of its total assets in
debt securities issued by governmental entities in Argentina.

2
<PAGE>

Global Dollar Government Fund
Seeks . . . Primarily a high level of current income and, secondarily, capital
appreciation.

Invests primarily in . . . A non-diversified portfolio of sovereign debt
obligations and in U.S. and non-U.S. corporate fixed-income securities.
Substantially all of the Fund's assets are invested in lower-rated securities.

Corporate Bond Fund

Corporate Bond Portfolio
Seeks . . . Primarily to maximize income over the long term consistent with
providing reasonable safety in the value of each shareholder's investment;
secondarily, the Fund will attempt to increase its capital through appreciation
of its investments in order to preserve and, if possible, increase the
purchasing power of each shareholder's investment.

Invests primarily in . . . A diversified portfolio of corporate bonds issued by
domestic and foreign issuers that give promise of relatively attractive yields.

A Word About Risk . . .
The prices of the shares of the Alliance Bond Funds will fluctuate as the daily
prices of the individual bonds in which they invest fluctuate, so that your
shares, when redeemed, may be worth more or less than their original cost. Price
fluctuations may be caused by changes in the general level of interest rates or
changes in bond credit quality ratings. Changes in interest rates have a greater
effect on bonds with longer maturities than those with shorter maturities. The
prices of non-U.S. Dollar denominated bonds also fluctuate with changes in
foreign exchange rates. Investment in the Global Bond Funds, the Multi-Market
Funds and any other Fund that may invest a significant amount of its assets in
non-U.S. securities involves risks not associated with Funds that invest
primarily in securities of U.S. issuers. While the Funds invest principally in
bonds and fixed-income securities, in order to achieve their investment
objectives, the Funds may at times use certain types of derivative instruments,
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 this Prospectus. See
"Description of the Funds--Additional Investment Practices" and "--Risk
Considerations."

Getting Started . . .
Shares of the Funds are available through your financial representative and most
banks, insurance companies and brokerage firms nationwide. Shares of each Fund
can be purchased for a minimum initial investment of $250, and subsequent
investments can be made for as little as $50. For detailed information about
purchasing and selling shares, see "Purchase and Sale of Shares." In addition,
the Funds offer several time and money saving services to investors. Be sure to
ask your financial representative about:

Automatic Reinvestment
--------------------------------
Automatic Investment Program
--------------------------------
Retirement Plans
--------------------------------
Shareholder Communications
--------------------------------
Dividend Direction Plans
--------------------------------
Auto Exchange
--------------------------------
Systematic Withdrawals
--------------------------------
Check-writing
--------------------------------
A Choice Of Purchase Plans
--------------------------------
Telephone Transactions
--------------------------------
24 Hour Information
--------------------------------

[LOGO OF ALLIANCE APPEARS HERE]

(R)/SM These are registered marks used under licenses from the owner, Alliance
Capital Management L.P.

3
<PAGE>

- --------------------------------------------------------------------------------
Expense Information
- --------------------------------------------------------------------------------

Shareholder Transaction Expenses are one of several factors to consider when you
invest in a Fund. The following tables summarize your maximum transaction costs
from investing in a Fund, other than World Income, and annual operating expenses
for each class of shares of each Fund. World Income, which has only one class of
shares, has no sales charge on purchases or reinvested dividends, deferred sales
charge, redemption fee or exchange fee. For each Fund, the "Examples" below show
the cumulative expenses attributable to a hypothetical $1,000 investment,
assuming a 5% annual return, in each class for the periods specified.

<TABLE>
<CAPTION>
Class A Shares Class B Shares Class C Shares
-------------- -------------- --------------
<S> <C> <C> <C>
Maximum sales charge imposed on purchases (as a percentage of
offering price). . . . . . . . . . . . . . . . . . . . . . . . . . 4.25%(a) None None

Sales charge imposed on dividend reinvestments . . . . . . . . . . None None None

Deferred sales charge (as a percentage of original purchase
price or redemption proceeds, whichever is lower). . . . . . . . . None 3.0% None
during the
first year,
decreasing 1.0%
annually to 0%
after the
third year (b)
Exchange fee . . . . . . . . . . . . . . . . . . . . . . . . . . . None None None
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(a) Reduced for larger purchases. See "Purchase and Sale of Shares--How to Buy
Shares" -page 36.
(b) Class B shares of each Fund automatically convert to Class A shares after
six years. See "Purchase and Sale of Shares--How to Buy Shares" -page 36.

<TABLE>
<CAPTION>
Annual Operating Expenses Examples
- --------------------------------------------------------------- -------------------------------------------------------------
Short-Term U.S.
Government Class A Class B Class C Class A Class B+ Class B++ Class C
------- ------- ------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees(b)(after
waiver) None None None After 1 year $ 56 $ 51 $ 21 $ 21
12b-1 fees .30% 1.00% 1.00% After 3 years $ 85 $ 76 $ 66 $ 66
Other expenses(a)(b)(after After 5 years $116 $113 $113 $113
reimbursement) 1.10% 1.10% 1.10% After 10 years $203 $209 $209 $243
---- ---- ----
Total fund operating
expenses(b) 1.40% 2.10% 2.10%
==== ==== ====
U.S. Government Class A Class B Class C Class A Class B+ Class B++ Class C
------- ------- ------- ------- -------- --------- -------
Management fees .54% .54% .54% After 1 year $ 52 $ 47 $ 17 $ 17
12b-1 fees .30% 1.00% 1.00% After 3 years $ 74 $ 64 $ 54 $ 54
Other expenses(a) .18% .18% .16% After 5 years $ 96 $ 93 $ 93 $ 92
---- ---- ---- After 10 years $162 $167 $167 $201
Total fund operating
expenses 1.02% 1.72% 1.70%
==== ==== ====
Mortgage Strategy Class A Class B Class C Class A Class B+ Class B++ Class C
------- ------- ------- ------- -------- --------- -------
Management fees .65% .65% .65% After 1 year $ 56 $ 51 $ 21 $ 21
12b-1 fees .30% 1.00% 1.00% After 3 years $ 83 $ 75 $ 65 $ 64
Other expenses(a) .39% .43% .39% After 5 years $113 $112 $112 $110
---- ---- ---- After 10 years $197 $205 $205 $237
Total fund operating
expenses 1.34% 2.08% 2.04%
==== ==== ====
Mortgage Securities
Income Class A Class B Class C Class A Class B+ Class B++ Class C
------- ------- ------- ------- -------- --------- -------
Management fees .48% .48% .48% After 1 year $ 55 $ 50 $ 20 $ 20
12b-1 fees .30% 1.00% 1.00% After 3 years $ 82 $ 73 $ 63 $ 62
Other expenses(a) .51% .52% .49% After 5 years $110 $108 $108 $106
---- ---- ---- After 10 years $192 $198 $198 $230
Total fund operating
expenses 1.29% 2.00% 1.97%
==== ==== ====
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

Please refer to the footnotes on page 5.

4
<PAGE>

Annual Operating Expenses Examples
- -------------------------------------------------------------- --------------------------------------------------------
<S> <C>
World Income
Management fees(c)(after waiver) .49% After 1 year $ 17
12b-1 fees(c)(after waiver) .68% After 3 years $ 54
Other expenses(a) .53% After 5 years $ 92
---- After 10 years $201
Total fund operating
expenses(c) 1.70%
====
Short-Term
Multi-Market Class A Class B Class C Class A Class B+ Class B++ Class C
------- ------- ------- ------- -------- --------- -------
Management fees .55% .55% .55% After 1 year $ 54 $ 49 $ 19 $ 19
12b-1 fees .30% 1.00% 1.00% After 3 years $ 77 $ 68 $ 58 $ 58
Other expenses(a) .28% .30% .28% After 5 years $102 $100 $100 $ 99
---- ---- ---- After 10 years $174 $181 $181 $215
Total fund operating
expenses 1.13% 1.85% 1.83%
==== ==== ====
Multi-Market
Strategy Class A Class B Class C Class A Class B+ Class B++ Class C
------- ------- ------- ------- -------- --------- -------
Management fees(d) .60% .60% .60% After 1 year $ 56 $ 51 $ 21 $ 21
12b-1 fees .30% 1.00% 1.00% After 3 years $ 85 $ 76 $ 66 $ 65
Other expenses After 5 years $116 $113 $113 $112
Interest expense .11% .10% .09% After 10 years $204 $210 $210 $241
Other operating expenses(a) .40% .41% .39%
---- ---- ----
Total other expenses .51% .51% .48%
---- ---- ----
Total fund operating
expenses(e) 1.41% 2.11% 2.08%
==== ==== ====
North American
Government Income Class A Class B Class C Class A Class B+ Class B++ Class C
------- ------- ------- ------- -------- --------- -------
Management fees(f) .69% .69% .68% After 1 year $ 59 $ 54 $ 24 $ 24
12b-1 fees .30% 1.00% 1.00% After 3 years $ 94 $ 85 $ 75 $ 75
Other expenses After 5 years $131 $129 $129 $128
Interest expense .33% .34% .33% After 10 years $235 $241 $241 $273
Other operating expenses(a) .38% .38% .38%
---- ---- ----
Total other expenses .71% .72% .71%
---- ---- ----
Total fund operating
expenses(g) 1.70% 2.41% 2.39%
==== ==== ====
Global Dollar Government Class A Class B Class C Class A Class B+ Class B++ Class C
------- ------- ------- ------- -------- --------- -------
Management fees(h) .75% .75% .75% After 1 year $ 58 $ 54 $ 24 $ 24
12b-1 fees .30% 1.00% 1.00% After 3 years $ 92 $ 83 $ 73 $ 73
Other expenses After 5 years $127 $126 $126 $125
Interest expense 0.00% 0.00% 0.00% After 10 years $228 $234 $234 $268
Other operating expenses(a) .58% .60% .59%
---- ---- ----
Total other expenses .58% .60% .59%
---- ---- ----
Total fund operating
expenses 1.63% 2.35% 2.34%
==== ==== ====
Corporate Bond Class A Class B Class C Class A Class B+ Class B++ Class C
------- ------- ------- ------- -------- --------- -------
Management fees .63% .63% .63% After 1 year $ 55 $ 50 $ 20 $ 20
12b-1 fees .30% 1.00% 1.00% After 3 years $ 82 $ 73 $ 63 $ 62
Other expenses(a) .37% .37% .36% After 5 years $111 $108 $108 $107
---- ---- ---- After 10 years $193 $198 $198 $232
Total fund operating
expenses 1.30% 2.00% 1.99%
==== ==== ====
</TABLE>

+ Assumes redemption at end of period and, with respect to shares held ten
years, conversion of Class B shares to Class A shares after six years.
++ Assumes no redemption at end of period and, with respect to shares held ten
years, conversion of Class B shares to Class A shares after six years.
(a) These expenses include a transfer agency fee payable to Alliance Fund
Services, Inc., an affiliate of Alliance, based on a fixed dollar amount
charged to the Fund for each shareholder's account.
(b) Net of voluntary fee waivers and expense reimbursements. Absent such waivers
and reimbursements, annualized management fees would have been .55%,
annualized other expenses would have been 2.10% for Class A, 2.05% for Class
B and 2.09% for Class C and annualized total fund operating expenses would
have been 2.95% for Class A, 3.60% for Class B and 3.64% for Class C.
(c) Net of voluntary fee waivers. Absent such waivers, management fees would
have been .65%, Rule 12b-1 fees would have been .90% and total fund
operating expenses would have been 2.08%.
(d) Represents .60 of 1% of the average daily value of the Fund's adjusted total
net assets.
(e) Excluding interest expense, total fund operating expenses would have been
for Class A, 1.30%, for Class B, 2.01% and for Class C, 1.99%.
(f) Represents .65 of 1% of the average daily value of the Fund's adjusted total
net assets.
(g) Excluding interest expense, total fund operating expenses would have been
for Class A, 1.37%, for Class B, 2.07% and for Class C, 2.06%.
(h) Reflects management fee in effect during the Fund's current fiscal year.

5
<PAGE>

The purpose of the tables on pages 4 and 5 is to assist the investor in
understanding the various costs and expenses that an investor in a Fund will
bear directly or indirectly. Long-term shareholders of a Fund may pay aggregate
sales charges totaling more than the economic equivalent of the maximum initial
sales charges permitted by the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. See "Management of the Funds--
Distribution Services Agreements." The Rule 12b-1 fee for each class comprises a
service fee not exceeding .25% of the aggregate average daily net assets of the
Fund attributable to the class and an asset-based sales charge equal to the
remaining portion of the Rule 12b-1 fee. With respect to each of MULTI-MARKET
STRATEGY and NORTH AMERICAN GOVERNMENT INCOME, "interest expense" represents
interest paid by the Fund on borrowings for the purpose of making additional
portfolio investments. Such borrowings are intended to enable each of those
Funds to produce higher net yields to shareholders than the Funds could pay
without such borrowings. See "Risk Considerations--Effects of Borrowing."
Excluding interest expense, total fund operating expenses of each of MULTI-
MARKET STRATEGY and NORTH AMERICAN GOVERNMENT INCOME would be lower (see notes
(e) and (g) above) and the cumulative expenses shown in the Examples above with
respect to those Funds would be lower. The information shown in the table for
SHORT-TERM U.S. GOVERNMENT reflects annualized expenses based on the Fund's most
recent fiscal period. The management fee rate of GLOBAL DOLLAR GOVERNMENT is
higher than that paid by most other investment companies, but Alliance believes
the fee is comparable to those paid by investment companies of similar
investment orientation. The expense ratios for Class B and Class C shares of
MULTI-MARKET STRATEGY and NORTH AMERICAN GOVERNMENT INCOME are higher than the
expense ratios of most other mutual funds, but are comparable to the expense
ratios of mutual funds whose shares are similarly priced. The Examples set forth
above assume reinvestment of all dividends and distributions and utilize a 5%
annual rate of return as mandated by Commission regulations. The Examples should
not be considered representative of past or future expenses; actual expenses may
be greater or less than those shown.

6
<PAGE>

- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

The tables on the following pages present, for each Fund, per share income and
capital changes for a share outstanding throughout each period indicated. The
information in the tables for Short-Term U.S. Government has been audited by
Price Waterhouse LLP, the independent accountants for the Fund, and for U.S.
Government, Mortgage Strategy, Mortgage Securities Income, World Income, Short-
Term Multi-Market, Multi-Market Strategy, North American Government Income,
Global Dollar Government and Corporate Bond has been audited by Ernst & Young
LLP, the independent auditors for each Fund. A report of Price Waterhouse LLP or
Ernst & Young LLP, as the case may be, on the information with respect to each
Fund appears in the Fund's Statement of Additional Information. The following
information for each Fund should be read in conjunction with the financial
statements and related notes which are included in the Fund's Statement of
Additional Information.

Further information about a Fund's performance is contained in the Fund's annual
report to shareholders, which may be obtained without charge by contacting
Alliance Fund Services, Inc. at the address or the "Literature" telephone number
shown on the cover of this Prospectus.

7
<PAGE>

<TABLE>
<CAPTION>
Net Net Net
Asset Realized and Increase
Value Unrealized (Decrease) In Dividends From Distributions
Beginning of Net Investment Gain(Loss) On Net Asset Value Net Investment From Net
Fiscal Year or Period Period Income(Loss) Investments From Operations Income Realized Gains
--------------------- ------------ -------------- ------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>

Short-Term U.S. Government/+/
Class A
Period Ended 8/31/94**. $ 9.77 $ .14 $ (.09) $ .05 $ (.12) $ 0.00
Year Ended 4/30/94..... 10.22 .35 (.29) .06 (.42) 0.00
5/4/92+ to 4/30/93..... 10.00 .46 .34 .80 (.46) (.12)
Class B
Period Ended 8/31/94**. $ 9.88 $ .10 $ (.07) $ .03 $ (.11) $ 0.00
Year Ended 4/30/94..... 10.31 .40 (.39) .01 (.35) 0.00
5/4/92+ to 4/30/93..... 10.00 .38 .33 .71 (.38) (.02)
Class C
Period Ended 8/31/94**. $ 9.87 $ .10 $ (.07) $ .03 $ (.11) $ 0.00
8/2/93++ to 4/30/94.... 10.34 .26 (.42) (.16) (.25) 0.00

U.S. Government
Class A
Year Ended 6/30/94..... $ 8.64 $ .65 $ (.80) $(.15) $ (.65) $ 0.00
Year Ended 6/30/93..... 8.34 .69 .29 .98 (.68) 0.00
Year Ended 6/30/92..... 8.01 .70 .35 1.05 (.72) 0.00
Year Ended 6/30/91..... 8.14 .81 (.11) .70 (.83) 0.00
Year Ended 6/30/90..... 8.49 .86 (.38) .48 (.83) 0.00
Year Ended 6/30/89..... 8.51 .89 (.03) .86 (.88) 0.00
Year Ended 6/30/88..... 8.90 .93 (.39) .54 (.93) 0.00
Year Ended 6/30/87..... 9.24 .98 (.34) .64 (.98) 0.00
12/1/85+ to 6/30/86.... 9.45 .63 (.21) .42 (.63) 0.00
Class B
Year Ended 6/30/94..... $ 8.64 $ .59 $ (.80) $(.21) $ (.59) $ 0.00
Year Ended 6/30/93..... 8.34 .62 .30 .92 (.62) 0.00
9/30/91++ to 6/30/92 .. 8.25 .49 .09 .58 (.49) 0.00
Class C
Year Ended 6/30/94..... $ 8.64 $ .59 $ (.81) $(.22) $ (.59) $ 0.00
4/30/93++ to 6/30/93... 8.56 .10 .08 .18 (.10) 0.00
Mortgage Securities Income
Class A
Year Ended 12/31/94.... $ 9.29 $ .57 $(1.13) $(.56) $ (.58) $ 0.00
Year Ended 12/31/93.... 9.08 .67 .23 .90 (.67) 0.00
Year Ended 12/31/92.... 9.21 .77 (.09) .68 (.81) 0.00
Year Ended 12/31/91.... 8.79 .88 .41 1.29 (.87) 0.00
Year Ended 12/31/90.... 8.76 .87 .03 .90 (.87) 0.00
Year Ended 12/31/89.... 8.81 .97 (.05) .92 (.97) 0.00
Year Ended 12/31/88.... 9.03 .99 (.23) .76 (.98) 0.00
Year Ended 12/31/87.... 9.74 1.00 (.68) .32 (1.00) (.03)
Year Ended 12/31/86.... 9.97 1.06 (.02) 1.04 (1.06) (.21)
Year Ended 12/31/85.... 9.54 1.22 .43 1.65 (1.22) 0.00
Class B
Year Ended 12/31/94.... $ 9.29 $ .51 $(1.14) $(.63) $ (.51) $ 0.00
Year Ended 12/31/93.... 9.08 .61 .22 .83 (.60) 0.00
1/30/92++ to 12/31/92.. 9.16 .68 (.08) .60 (.68) 0.00
Class C
Year Ended 12/31/94.... $ 9.29 $ .51 $(1.14) $(.63) $ (.51) $ 0.00
5/3/93++ to 12/31/93... 9.30 .40 0.00 .40 (.40) 0.00

Mortgage Strategy
Class A
Year Ended 11/30/94.... $ 9.94 $ .42 $ (.32) $ .10 $ (.48) $ (.01)
Year Ended 11/30/93.... 9.84 .57 .11 .68 (.58) 0.00
6/1/92+ to 11/30/92.... 10.00 .35 (.17) .18 (.34) 0.00
Class B
Year Ended 11/30/94.... $ 9.94 $ .39 $ (.35) $ .04 $ (.42) $ (.01)
Year Ended 11/30/93.... 9.84 .49 .12 .61 (.51) 0.00
6/1/92+ to 11/30/92.... 10.00 .31 (.17) .14 (.30) 0.00
Class C
Year Ended 11/30/94.... $ 9.94 $ .37 $ (.33) $ .04 $ (.42) $ (.01)
5/3/93++ to 11/30/93... 9.98 .27 (.03) .24 (.28) 0.00

World Income
Year Ended 10/31/94.... $ 1.90 $ .18 $ (.12) $ .06 $ (.05) $ 0.00
Year Ended 10/31/93.... 1.91 .22 (.16) .06 (.07) 0.00
Year Ended 10/31/92.... 1.98 .19 (.17) .02 (.09) 0.00
12/3/90+ to 10/31/91... 2.00 .14 (.03) .11 (.13) 0.00
- ------------------------------------------------------------------------------------------------------------------------------------

</TABLE>
Please refer to the footnotes on page 12.

8
<PAGE>

<TABLE>
<CAPTION>
Distributions Total
in Excess Total Investment
of Net Return Dividends Net Asset Return
Investment of and Value End Based on Net
Fiscal Year or Period Income Capital Distributions of Period Asset Value (b)
--------------------- ------------- ------- ------------- --------- ---------------
<S> <C> <C> <C> <C> <C>

Short-Term U.S. Government/+/
Class A
Period Ended 8/31/94**. $ (.03)(a) $ 0.00 $ (.15)(c) $ 9.67 .53%
Year Ended 4/30/94..... (.09)(a) 0.00 (.51)(c) 9.77 .52
5/4/92+ to 4/30/93..... 0.00 0.00 (.58)(c) 10.22 8.20
Class B
Period Ended 8/31/94**. $ (.02)(a) $ 0.00 $ (.13)(c) $ 9.78 .28%
Year Ended 4/30/94..... (.09)(a) 0.00 (.44)(c) 9.88 .03
5/4/92+ to 4/30/93..... 0.00 0.00 (.40)(c) 10.31 7.22
Class C
Period Ended 8/31/94**. $ (.02)(a) $ 0.00 $ (.13)(c) $ 9.77 .28%
8/2/93++ to 4/30/94.... (.06)(a) 0.00 (.31)(c) 9.87 (1.56)

U.S. Government
Class A
Year Ended 6/30/94..... $ 0.00 $ 0.00 $ (.65) $ 7.84 (1.93)%
Year Ended 6/30/93..... 0.00 0.00 (.68) 8.64 12.23
Year Ended 6/30/92..... 0.00 0.00 (.72) 8.34 13.52
Year Ended 6/30/91..... 0.00 0.00 (.83) 8.01 8.97
Year Ended 6/30/90..... 0.00 0.00 (.83) 8.14 5.99
Year Ended 6/30/89..... 0.00 0.00 (.88) 8.49 10.87
Year Ended 6/30/88..... 0.00 0.00 (.93) 8.51 6.41
Year Ended 6/30/87..... 0.00 0.00 (.98) 8.90 7.00
12/1/85+ to 6/30/86.... 0.00 0.00 (.63) 9.24 4.53
Class B
Year Ended 6/30/94..... $ 0.00 $ 0.00 $ (.59) $ 7.84 (2.63)%
Year Ended 6/30/93..... 0.00 0.00 (.62) 8.64 11.45
9/30/91++ to 6/30/92 .. 0.00 0.00 (.49) 8.34 6.95
Class C
Year Ended 6/30/94..... $ 0.00 $ 0.00 $ (.59) $ 7.83 (2.75)%
4/30/93++ to 6/30/93... 0.00 0.00 (.10) 8.64 2.12
Mortgage Securities Income
Class A
Year Ended 12/31/94.... $ 0.00 $ (.02) $ (.60) $ 8.13 (6.14)%
Year Ended 12/31/93.... (.02) 0.00 (.69) 9.29 10.14
Year Ended 12/31/92.... 0.00 0.00 (.81) 9.08 7.73
Year Ended 12/31/91.... 0.00 0.00 (.87) 9.21 15.44
Year Ended 12/31/90.... 0.00 0.00 (.87) 8.79 11.01
Year Ended 12/31/89.... 0.00 0.00 (.97) 8.76 10.98
Year Ended 12/31/88.... 0.00 0.00 (.98) 8.81 8.64
Year Ended 12/31/87.... 0.00 0.00 (1.03) 9.03 3.49
Year Ended 12/31/86.... 0.00 0.00 (1.27) 9.74 11.18
Year Ended 12/31/85.... 0.00 0.00 (1.22) 9.97 18.35
Class B
Year Ended 12/31/94.... $ 0.00 $ (.02) $ (.53) $ 8.13 (6.84)%
Year Ended 12/31/93.... (.02) 0.00 (.62) 9.29 9.38
1/30/92++ to 12/31/92.. 0.00 0.00 (.68) 9.08 7.81
Class C
Year Ended 12/31/94.... $ 0.00 $ (.02) $ (.53) $ 8.13 (6.84)%
5/3/93++ to 12/31/93... (.01) 0.00 (.41) 9.29 4.38

Mortgage Strategy
Class A
Year Ended 11/30/94.... $ 0.00 $ (.04) $ (.53) $ 9.51 1.03%
Year Ended 11/30/93.... 0.00 0.00 (.58) 9.94 7.02
6/1/92+ to 11/30/92.... 0.00 0.00 (.34) 9.84 1.84
Class B
Year Ended 11/30/94.... $ 0.00 $ (.03) $ (.46) $ 9.52 .42%
Year Ended 11/30/93.... 0.00 0.00 (.51) 9.94 6.27
6/1/92+ to 11/30/92.... 0.00 0.00 (.30) 9.84 1.50
Class C
Year Ended 11/30/94.... $ 0.00 $ (.03) $ (.46) $ 9.52 .42%
5/3/93++ to 11/30/93... 0.00 0.00 (.28) 9.94 2.40

World Income
Year Ended 10/31/94.... $ 0.00 $ (.03) $ (.08) $ 1.88 3.27%
Year Ended 10/31/93.... 0.00 0.00 (.07) 1.90 3.51
Year Ended 10/31/92.... 0.00 0.00 (.09) 1.91 1.26
12/3/90+ to 10/31/91... 0.00 0.00 (.13) 1.98 6.08

- ------------------------------------------------------------------------------------------------------------------------------------

<CAPTION>
Net Assets Ratio of Net
At End Of Ratio Investment
Period of Expenses Income (Loss) Portfolio
(000's To Average To Average Turnover
Fiscal Year or Period omitted) Net Assets Net Assets Rate
--------------------- ---------- ----------- ------------- ---------
<S> <C> <C> <C> <C>

Short-Term U.S. Government/+/
Class A
Period Ended 8/31/94**. $ 2,272 1.40%(d) 3.98% 144%
Year Ended 4/30/94..... 2,003 1.27 (d) 4.41 55
5/4/92+ to 4/30/93..... 6,081 1.00*(d) 4.38* 294
Class B
Period Ended 8/31/94**. $ 6,281 2.10%(d) 3.22% 144%
Year Ended 4/30/94..... 7,184 2.05 (d) 3.12 55
5/4/92+ to 4/30/93..... 1,292 1.75*(d) 3.36* 294
Class C
Period Ended 8/31/94**. $ 7,128 2.10%(d) 3.26% 144%
8/2/93++ to 4/30/94.... 8,763 2.10*(d) 2.60* 55

U.S. Government
Class A
Year Ended 6/30/94..... $ 482,595 1.02% 7.76% 188%
Year Ended 6/30/93..... 527,968 1.10 8.04 386
Year Ended 6/30/92..... 492,448 1.12 8.43 418
Year Ended 6/30/91..... 491,910 1.07 10.02 402
Year Ended 6/30/90..... 510,675 1.09 10.35 455
Year Ended 6/30/89..... 532,525 1.11 10.70 148
Year Ended 6/30/88..... 529,909 1.14 10.70 149
Year Ended 6/30/87..... 496,600 1.07 (d) 10.36 255
12/1/85+ to 6/30/86.... 128,870 1.01*(d) 9.30* 193
Class B
Year Ended 6/30/94..... $ 756,282 1.72% 7.04% 188%
Year Ended 6/30/93..... 552,471 1.81 7.25 386
9/30/91++ to 6/30/92 .. 32,227 1.80* 7.40* 418
Class C
Year Ended 6/30/94..... $ 231,859 1.70% 6.97% 188%
4/30/93++ to 6/30/93... 67,757 1.80* 6.00* 386
Mortgage Securities Income
Class A
Year Ended 12/31/94.... $ 553,889 1.29% 6.77% 438%
Year Ended 12/31/93.... 848,069 1.00 7.20 622
Year Ended 12/31/92.... 789,898 1.18 8.56 555
Year Ended 12/31/91.... 544,171 1.16 9.92 439
Year Ended 12/31/90.... 495,353 1.12 10.09 393
Year Ended 12/31/89.... 556,077 1.13 11.03 328
Year Ended 12/31/88.... 619,572 1.11 10.80 239
Year Ended 12/31/87.... 682,650 1.15 10.79 211
Year Ended 12/31/86.... 756,730 1.00 10.86 190
Year Ended 12/31/85.... 609,566 .87 12.30 164
Class B
Year Ended 12/31/94.... $ 921,418 2.00% 6.05% 438%
Year Ended 12/31/93.... 1,454,303 1.70 6.47 622
1/30/92++ to 12/31/92.. 1,153,957 1.67* 5.92* 555
Class C
Year Ended 12/31/94.... $ 58,338 1.97% 6.06% 438%
5/3/93++ to 12/31/93... 91,724 1.67* 5.92* 622

Mortgage Strategy
Class A
Year Ended 11/30/94.... $ 43,173 1.34%(e) 4.78% 375%
Year Ended 11/30/93.... 59,215 1.54 (e) 5.66 499
6/1/92+ to 11/30/92.... 24,186 1.44*(d)(e) 6.58*(d) 101
Class B
Year Ended 11/30/94.... $ 136,458 2.08%(e) 4.12% 375%
Year Ended 11/30/93.... 168,157 2.26 (e) 4.98 499
6/1/92+ to 11/30/92.... 149,188 2.13*(d)(e) 6.01*(d) 101
Class C
Year Ended 11/30/94.... $ 141,838 2.04%(e) 4.10% 375%
5/3/93++ to 11/30/93... 228,703 1.58*(e) 3.70* 499

World Income
Year Ended 10/31/94.... $ 103,310 1.70%(d) 3.96%(d) N/A
Year Ended 10/31/93.... 149,623 1.54 (d) 5.14 (d) N/A
Year Ended 10/31/92.... 318,716 1.59 (d) 7.21 (d) N/A
12/3/90+ to 10/31/91... 1,059,222 1.85*(d) 7.29*(d) N/A
- ------------------------------------------------------------------------------------------------------------------------------------

</TABLE>
Please refer to the footnotes on page 12.

9
<PAGE>

Short-Term Multi-Market
Class A
Year Ended 10/31/94........ $ 9.25 $ .93 $ (.86) $ .07 $ 0.00 $ 0.00
Year Ended 10/31/93........ 9.25 .92 (.32) .60 (.60) 0.00
Year Ended 10/31/92........ 9.94 .91 (.86) .05 (.72) (.02)
Year Ended 10/31/91........ 9.89 .97 .06 1.03 (.97) (.01)
Year Ended 10/31/90........ 9.69 1.09 .19 1.28 (1.08) 0.00
5/5/89+ to 10/31/89........ 9.70 .53 (.01) .52 (.53) 0.00
Class B
Year Ended 10/31/94........ $ 9.25 $ .94 $ (.93) $ .01 $ 0.00 $ 0.00
Year Ended 10/31/93........ 9.25 .87 (.34) .53 (.53) 0.00
Year Ended 10/31/92........ 9.94 .84 (.86) (.02) (.65) (.02)
Year Ended 10/31/91........ 9.89 .89 .07 .96 (.90) (.01)
2/5/90++ to 10/31/90....... 9.77 .74 .12 .86 (.74) 0.00
Class C
Year Ended 10/31/94........ $ 9.25 $ .58 $ (.57) $ .01 $ 0.00 $ 0.00
5/3/93++ to 10/31/93....... 9.18 .28 .05 .33 (.26) 0.00

Multi-Market Strategy
Class A
Year Ended 10/31/94........ $ 8.94 $ .85 $(1.08) $ (.23) $ (.09) $ 0.00
Year Ended 10/31/93........ 8.85 1.02 (.26) .76 (.67) 0.00
Year Ended 10/31/92........ 9.91 1.00 (1.23) (.23) (.81) (.02)
5/29/91+ to 10/28/91....... 10.00 .42 (.09) .33 (.42) 0.00
Class B
Year Ended 10/31/94........ $ 8.94 $ .88 $(1.18) $ (.30) $ (.08) $ 0.00
Year Ended 10/31/93........ 8.85 .92 (.22) .70 (.61) 0.00
Year Ended 10/31/92........ 9.91 1.04 (1.34) (.30) (.74) (.02)
5/29/91+ to 10/28/91....... 10.00 .39 (.09) .30 (.39) 0.00
Class C
Year Ended 10/31/94........ $ 8.94 $ .46 $ (.75) $ (.29) $ (.09) $ 0.00
5/3/93++ to 10/31/93....... 8.76 .32 .16 .48 (.30) 0.00

North American Government Income
Class A
Year Ended 11/30/94........ $10.35 $ 1.02 $(2.12) $(1.10) $ (.91) $ 0.00
Year Ended 11/30/93........ 9.70 1.09 .66 1.75 (1.09) (.01)
3/27/92+ to 11/30/92....... 10.00 .69 (.31) .38 (.68) 0.00
Class B
Year Ended 11/30/94........ $10.35 $ .96 $(2.13) $(1.17) $ (.84) $ 0.00
Year Ended 11/30/93........ 9.70 1.01 .67 1.68 (1.02) (.01)
3/27/92+ to 11/30/92....... 10.00 .64 (.31) .33 (.63) 0.00
Class C
Year Ended 11/30/94........ $10.34 $ .96 $ (2.12) $(1.16) $ (.84) $ 0.00
5/3/93++ to 11/30/93....... 10.04 .58 .30 .88 (.58) 0.00

Global Dollar Government
Class A
2/25/94+ to 8/31/94........ $10.00 $ .45 $ (.86) $ (.41) $ (.45) $ 0.00
Class B
2/25/94+ to 8/31/94........ $10.00 $ .42 $ (.86) $ (.44) $ (.42) $ 0.00
Class C
2/25/94+ to 8/31/94........ $10.00 $ .42 $ (.86) $ (.44) $ (.42) $ 0.00

Corporate Bond
Class A
Year Ended 6/30/94......... $14.15 $1.11 $(1.36) $ (.25) $(1.11) $ (.25)
Year Ended 6/30/93......... 12.01 1.25 2.13 3.38 (1.24) 0.00
Year Ended 6/30/92......... 11.21 1.06 .82 1.88 (1.08) 0.00
Year Ended 6/30/91......... 11.39 1.11 (.06) 1.05 (1.23) 0.00
Year Ended 6/30/90......... 12.15 1.24 (.86) .38 (1.14) 0.00
Year Ended 6/30/89......... 11.82 1.12 .32 1.44 (1.11) 0.00
Year Ended 6/30/88......... 12.24 1.10 (.38) .72 (1.14) 0.00
Nine Months Ended 6/30/87.. 12.25 .86 (.06) .80 (.81) 0.00
Year Ended 9/30/86......... 11.52 1.20 .73 1.93 (1.20) 0.00
Year Ended 9/30/85......... 10.50 1.24 1.04 2.28 (1.26) 0.00
Year Ended 9/30/84......... 11.11 1.25 (.60) .65 (1.26) 0.00
Class B
Year Ended 6/30/94......... $14.15 $1.02 $(1.37) $ (.35) $(1.04) $ (.25)
1/8/93++ to 6/30/93........ 12.47 .49 1.69 2.18 (.50) 0.00
Class C
Year Ended 6/30/94......... $14.15 $1.02 $(1.37) $ (.35) $(1.05) $ (.25)
5/30/93++ to 6/30/93....... 13.63 .16 .53 .69 (.17) 0.00
- ------------------------------------------------------------------------------------------------------------------------------------

</TABLE>
Please refer to the footnotes on page 12.

10
<PAGE>

Distributions Total
In Excess Total Investment
of Net Return Dividends Net Asset Return
Investment of and Value End Based on Net
Fiscal Year or Period Income Capital Distributions of Period Asset Value (b)
--------------------- ---------- ------- ------------- --------- ---------------
<S> <C> <C> <C> <C> <C>
Short-Term Multi-Market
Class A
Year Ended 10/31/94........ $ 0.00 $ (.61) $ (.61) $ 8.71 .84%
Year Ended 10/31/93........ 0.00 0.00 (.60) 9.25 6.67
Year Ended 10/31/92........ 0.00 0.00 (.74) 9.25 .49
Year Ended 10/31/91........ 0.00 0.00 (.98) 9.94 10.91
Year Ended 10/31/90........ 0.00 0.00 (1.08) 9.89 13.86
5/5/89+ to 10/31/89........ 0.00 0.00 (.53) 9.69 5.57
Class B
Year Ended 10/31/94........ $ 0.00 $ (.55) $ (.55) $ 8.71 .12%
Year Ended 10/31/93........ 0.00 0.00 (.53) 9.25 5.91
Year Ended 10/31/92........ 0.00 0.00 (.67) 9.25 (.24)
Year Ended 10/31/91........ 0.00 0.00 (.91) 9.94 10.11
2/5/90++ to 10/31/90....... 0.00 0.00 (.74) 9.89 9.07
Class C
Year Ended 10/31/94........ $ 0.00 $ (.55) $ (.55) $ 8.71 .12%
5/3/93++ to 10/31/93....... 0.00 0.00 (.26) 9.25 3.66

Multi-Market Strategy
Class A
Year Ended 10/31/94........ $ 0.00 $ (.58) $ (.67) $ 8.04 (2.64)%
Year Ended 10/31/93........ 0.00 0.00 (.67) 8.94 9.01
Year Ended 10/31/92........ 0.00 0.00 (.83) 8.85 (2.80)
5/29/91+ to 10/28/91....... 0.00 0.00 (.42) 9.91 3.68
Class B
Year Ended 10/31/94........ $ 0.00 $ (.52) $ (.60) $ 8.04 (3.35)%
Year Ended 10/31/93........ 0.00 0.00 (.61) 8.94 8.25
Year Ended 10/31/92........ 0.00 0.00 (.76) 8.85 (3.51)
5/29/91+ to 10/28/91....... 0.00 0.00 (.39) 9.91 3.36
Class C
Year Ended 10/31/94........ $ 0.00 $ (.52) $ (.61) $ 8.04 (3.34)%
5/3/93++ to 10/31/93....... 0.00 0.00 (.30) 8.94 5.54

North American Government Income
Class A
Year Ended 11/30/94........ $ 0.00 $ (.21) $(1.12) $ 8.13 (11.32)%
Year Ended 11/30/93........ 0.00 0.00 (1.10) 10.35 18.99
3/27/92+ to 11/30/92....... 0.00 0.00 (.68) 9.70 3.49
Class B
Year Ended 11/30/94........ $ 0.00 $ (.21) $(1.05) $ 8.13 (11.89)%
Year Ended 11/30/93........ 0.00 0.00 (1.03) 10.35 18.15
3/27/92+ to 11/30/92....... 0.00 0.00 (.63) 9.70 3.30
Class C
Year Ended 11/30/94........ $ 0.00 $ (.21) $(1.05) $ 8.13 (11.89)%
5/3/93++ to 11/30/93....... 0.00 0.00 (.58) 10.34 9.00

Global Dollar Government
Class A
2/25/94+ to 8/31/94........ $ 0.00 $ 0.00 $ (.45) $ 9.14 (3.77)%
Class B
2/25/94+ to 8/31/94........ $ 0.00 $ 0.00 $ (.42) $ 9.14 (4.17)%
Class C
2/25/94+ to 8/31/94........ $ 0.00 $ 0.00 $ (.42) $ 9.14 (4.16)%

Corporate Bond
Class A
Year Ended 6/30/94......... $ (.03) $ 0.00 $(1.39) $12.51 (2.58)%
Year Ended 6/30/93......... 0.00 0.00 (1.24) 14.15 29.62
Year Ended 6/30/92......... 0.00 0.00 (1.08) 12.01 17.43
Year Ended 6/30/91......... 0.00 0.00 (1.23) 11.21 9.71
Year Ended 6/30/90......... 0.00 0.00 (1.14) 11.39 3.27
Year Ended 6/30/89......... 0.00 0.00 (1.11) 12.15 12.99
Year Ended 6/30/88......... 0.00 0.00 (1.14) 11.82 6.24
Nine Months Ended 6/30/87.. 0.00 0.00 (.81) 12.24 7.32
Year Ended 9/30/86......... 0.00 0.00 (1.20) 12.25 17.19
Year Ended 9/30/85......... 0.00 0.00 (1.26) 11.52 22.66
Year Ended 9/30/84......... 0.00 0.00 (1.26) 10.50 6.44
Class B
Year Ended 6/30/94......... $ (.01) 0.00 $(1.30) $12.50 (3.27)%
1/8/93++ to 6/30/93........ 0.00 0.00 .50 14.15 17.75
Class C
Year Ended 6/30/94......... $ 0.00 0.00 $(1.30) $12.50 (3.27)%
5/30/93++ to 6/30/93....... 0.00 0.00 (.17) 14.15 5.08
- ------------------------------------------------------------------------------------------------------------------------------------

</TABLE>

Net Assets Ratio of Net
At End Of Ratio Investment
Period of Expenses Income (Loss) Portfolio
(000's To Average To Average Turnover
Fiscal Year or Period omitted) Net Assets Net Assets Rate
--------------------- --------- ----------- ------------- ---------
<S> <C> <C> <C> <C>
Short-Term Multi-Market
Class A
Year Ended 10/31/94........ $ 593,677 1.13% 7.28% 109%
Year Ended 10/31/93........ 953,571 1.16 8.26 182
Year Ended 10/31/92........ 1,596,903 1.10 9.00 133
Year Ended 10/31/91........ 2,199,393 1.09 9.64 146
Year Ended 10/31/90........ 1,346,035 1.18 10.81 152
5/5/89+ to 10/31/89........ 210,294 1.14* 10.83* 10
Class B
Year Ended 10/31/94........ 1,003,633 1.85% 6.58% 109%
Year Ended 10/31/93........ 1,742,703 1.87 7.57 182
Year Ended 10/31/92........ 2,966,071 1.81 8.28 133
Year Ended 10/31/91........ 3,754,003 1.81 8.87 146
2/5/90++ to 10/31/90....... 1,950,330 1.86* 9.90* 152
Class C
Year Ended 10/31/94........ $ 8,136 1.83% 6.50% 109%
5/3/93++ to 10/31/93....... 5,538 1.82* 7.19* 182

Multi-Market Strategy
Class A
Year Ended 10/31/94........ $ 52,385 1.41%(f) 7.17% 605%
Year Ended 10/31/93........ 82,977 1.94 (f) 9.17(g) 200
Year Ended 10/31/92........ 141,526 2.53 (f) 10.58(g) 239
5/29/91+ to 10/28/91....... 143,594 2.81*(f) 10.17*(g) 121
Class B
Year Ended 10/31/94........ $ 233,896 2.11%(f) 6.44% 605%
Year Ended 10/31/93........ 431,186 2.64 (f) 8.46(g) 200
Year Ended 10/31/92........ 701,465 3.24 (f) 9.83(g) 239
5/29/91+ to 10/28/91....... 662,981 3.53*(f) 9.40*(g) 121
Class C
Year Ended 10/31/94........ $ 1,252 2.08%(f) 6.10% 605%
5/3/93++ to 10/31/93....... 718 2.44*(f) 7.17*(g) 200

North American Government Income
Class A
Year Ended 11/30/94........ $ 303,538 1.70%(f) 11.22% 131%
Year Ended 11/30/93........ 268,233 1.61 (f) 10.77 254
3/27/92+ to 11/30/92....... 61,702 2.45*(d)(f) 10.93*(d) 86
Class B
Year Ended 11/30/94........ $1,639,602 2.41%(f) 10.53% 131%
Year Ended 11/30/93........ 1,313,591 2.31 (f) 10.01 254
3/27/92+ to 11/30/92....... 216,317 3.13*(d)(f) 10.16*(d) 86
Class C
Year Ended 11/30/94........ $ 369,714 2.39%(f) 10.46% 131%
5/3/93++ to 11/30/93....... 310,230 2.21*(f) 9.74* 254

Global Dollar Government
Class A
2/25/94+ to 8/31/94........ $ 10,995 .75%*(d) 9.82%* 100%
Class B
2/25/94+ to 8/31/94........ $ 47,030 1.45%*(d) 9.11%* 100%
Class C
2/25/94+ to 8/31/94........ $ 10,404 1.45%*(d) 9.05%* 100%

Corporate Bond
Class A
Year Ended 6/30/94......... $ 219,182 1.30% 7.76% 372%
Year Ended 6/30/93......... 216,171 1.39 9.29 579
Year Ended 6/30/92......... 60,356 1.48 8.98 610
Year Ended 6/30/91......... 62,268 1.44 9.84 357
Year Ended 6/30/90......... 68,049 1.51 10.70 480
Year Ended 6/30/89......... 52,381 1.84 9.53 104
Year Ended 6/30/88......... 37,587 1.81 9.24 98
Nine Months Ended 6/30/87.. 41,072 1.27 9.17 95
Year Ended 9/30/86......... 45,178 1.08 9.80 240
Year Ended 9/30/85......... 40,631 1.15 11.00 142
Year Ended 9/30/84......... 36,435 1.18 11.88 10
Class B
Year Ended 6/30/94......... $ 184,129 2.00% 7.03% 372%
1/8/93++ to 6/30/93........ 55,508 2.10* 7.18* 579
Class C
Year Ended 6/30/94......... $ 50,860 1.99% 6.98% 372%
5/30/93++ to 6/30/93....... 5,115 2.05* 5.51* 579
- ------------------------------------------------------------------------------------------------------------------------------------

</TABLE>
Please refer to the footnotes on page 12.

<PAGE>

+ Prior to July 22, 1993, Equitable Capital Management Corporation
+ ("Equitable") served as the investment adviser to The Alliance Portfolios
(the "Trust"), of which Short-Term U.S. Government is a series. On July 22,
1993, Alliance acquired the business and substantially all of the assets of
Equitable and became investment adviser of the Trust.
+ Commencement of operations.
++ Commencement of distribution.
* Annualized.
** Reflects newly adopted fiscal year end.
(a) Includes with respect to Short-Term U.S. Government a return of capital for
the year ended April 30, 1994 of $(0.08) for Class A, $(0.08) for Class B
and $(0.05) for Class C and for the period ended August 31, 1994 of $(0.03)
for Class A and $(0.02) for Class B and Class C.
(b) Total investment return is calculated assuming an initial investment made at
the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at the net asset value during the period, and a
redemption on the last day of the period. Initial sales charge or contingent
deferred sales charge is not reflected in the calculation of total
investment return. Total investment returns calculated for periods of less
than one year are not annualized.
(c) "Total dividends and distributions" includes dividends in excess of net
investment income and return of capital. Short-Term U.S. Government had
dividends in excess of net investment income with respect to Class A shares,
for the year ended April 30, 1994, of $(.01); with respect to Class B
shares, $(.01); and with respect to Class C shares, $(.01).
(d) Net of expenses assumed and/or waived/reimbursed. If Short-Term U.S.
Government had borne all expenses, the expense ratios would have been with
respect to Class A shares, 2.20% (annualized) for 1993, 2.17% for the year
ended April 30, 1994 and 2.95% (annualized) for the period ended August 31,
1994; with respect to Class B shares, 4.81% (annualized) for 1993, 3.21% for
the year ended April 30, 1994 and 3.60% (annualized) for the period ended
August 31, 1994; and with respect to Class C shares, 3.10% (annualized) for
the year ended April 30, 1994 and 3.64% (annualized) for the period ended
August 31, 1994. If U.S. Government had borne all expenses, the expense
ratios would have been 1.22% for 1986 and 1.09% for 1987. If Mortgage
Strategy had borne all expenses, the expense ratios would have been with
respect to Class A shares, 1.55% (annualized) for 1992; and with respect to
Class B shares, 2.28% (annualized) for 1992. The ratio of net investment
income to average net assets would have been with respect to Class A shares,
6.47% (annualized) for 1992; and with respect to Class B shares, 5.86%
(annualized) for 1992. If World Income had borne all expenses, the expense
ratios would have been 1.87% for 1992, 1.92% for 1993 and 2.08% for 1994. If
North American Government Income had borne all expenses, the expense ratios
would have been with respect to Class A shares, 2.49% (annualized) for 1992;
and with respect to Class B shares, 3.16% (annualized) for 1992. If Global
Dollar Government had borne all expenses, the expense ratios would have been
with respect to Class A shares, 1.91% (annualized); with respect to Class B
shares, 2.63% (annualized); and with respect to Class C shares, 2.59%
(annualized).
(e) Includes interest expenses. If Mortgage Strategy had not borne interest
expenses, the ratio of expenses to average net assets would have been with
respect to Class A shares, 1.42% (annualized) for 1992, 1.33% for 1993 and
1.20% for 1994; with respect to Class B shares, 2.10% (annualized) for 1992,
2.07% for 1993 and 1.91% for 1994; and with respect to Class C shares, 1.74%
(annualized) for 1993 and 1.89% for 1994.
(f) Includes interest expenses. If Multi-Market Strategy had not borne interest
expenses, the ratio of expenses to average net assets would have been with
respect to Class A shares, 1.33% (annualized) for 1991, 1.33% for 1992,
1.40% for 1993 and 1.30% for 1994; with respect to Class B shares, 2.05%
(annualized) for 1991, 2.05% for 1992, 2.11% for 1993 and 2.01% for 1994;
and with respect to Class C shares, 2.11% (annualized) for 1993 and 1.99%
for 1994. If North American Government Income had not borne interest
expenses, the ratio of expenses (net of interest expenses) to average net
assets would have been with respect to Class A shares, 1.66% (annualized)
for 1992, 1.33% for 1993 and 1.37% for 1994; with respect to Class B shares,
2.35% (annualized) for 1992, 2.04% for 1993 and 2.07% for 1994; and with
respect to Class C shares, 2.04% (annualized) for 1993 and 2.06% for 1994.
(g) Includes loan fees. If Multi-Market Strategy had not incurred loan fees, the
ratio of net investment income to average net assets would have been with
respect to Class A shares, 11.65% (annualized) for 1991, 11.78% for 1992 and
9.73% for 1993; with respect to Class B shares, 10.88% (annualized) for
1991, 11.02% for 1992 and 8.99% for 1993; and with respect to Class C
shares, 7.50% (annualized) for 1993.

12
<PAGE>

- --------------------------------------------------------------------------------
Glossary
- --------------------------------------------------------------------------------

The following terms are frequently used in this Prospectus. Many of these terms
are explained in greater detail under "Description of the Funds--Additional
Investment Practices" and in Appendix A.

Bonds are fixed, floating and variable rate debt obligations.

Debt securities are bonds, debentures, notes, bills and repurchase agreements.

Fixed-income securities are debt securities, convertible securities and
preferred stocks and include floating rate and variable rate instruments. Fixed-
income securities may be rated (or if unrated, for purposes of the Funds'
investment policies may be determined by Alliance to be of equivalent quality to
those rated) triple-A (Aaa or AAA), high quality (Aa or AA or above), high grade
(A or above) or investment grade (Baa or BBB or above) by, as the case may be,
Moody's, S&P, Duff & Phelps or Fitch, or may be lower-rated securities, as
defined below. In the case of "split-rated" fixed-income securities (i.e.,
securities assigned non-equivalent credit quality ratings, such as Baa by
Moody's but BB by S&P, or, to take another example, Ba by Moody's and BB by S&P
but B by Fitch), a Fund will use the rating deemed by Alliance to be the most
appropriate under the circumstances.

Lower-rated securities are fixed-income securities rated Ba and BB or below, or
determined by Alliance to be of equivalent quality and are commonly referred to
as "junk bonds."

Equity securities are common and preferred stocks, securities convertible into
common and preferred stocks and rights and warrants to subscribe for the
purchase of common and preferred stocks.

Convertible securities are bonds, debentures, corporate notes and preferred
stocks that are convertible into common and preferred stock.

U.S. Government securities are securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. These securities include
securities backed by the full faith and credit of the United States, those
supported by the right of the issuer to borrow from the U.S. Treasury and those
backed only by the credit of the issuing agency itself. The first category
includes U.S. Treasury securities (which are U.S. Treasury bills, notes and
bonds) and certificates issued by GNMA (see below). U.S. Government securities
not backed by the full faith and credit of the United States include
certificates issued by FNMA and FHLMC (see below).

Mortgage-related securities are pools of mortgage loans that are assembled for
sale to investors (such as mutual funds) by various governmental, government-
related and private organizations. These securities include:

ARMS, which are adjustable-rate mortgage securities,

SMRS, which are stripped mortgage-related securities,

CMOs, which are collateralized mortgage obligations,

GNMA certificates, which are securities issued by the Government
National Mortgage Association,

FNMA certificates, which are securities issued by the Federal National
Mortgage Association, and

FHLMC certificates, which are securities issued by the Federal Home
Loan Mortgage Corporation.

Interest-only or IO securities receive only the interest payments on an
underlying debt that has been structured to have two classes, one of which is
the IO class and another of which is the principal-only or PO class, which class
receives only the principal payments on the underlying obligation. POs are
similar to, and are sometimes referred to as, zero coupon securities, which are
debt securities issued without interest coupons.

Foreign government securities are securities issued or guaranteed, as to payment
of principal and interest, by a foreign government or any of its political
subdivisions, authorities, agencies or instrumentalities.

Sovereign debt obligations are foreign government debt securities, loan
participations between foreign governments and financial institutions and
interests in entities organized and operated for the purpose of restructuring
the investment characteristics of foreign government securities.

World Bank is the commonly used name for the International Bank for
Reconstruction and Development.

LIBOR is the London Interbank Offered Rate.

Moody's is Moody's Investors Service, Inc.

S&P is Standard & Poor's Corporation.

Duff & Phelps is Duff & Phelps Credit Rating Co.

Fitch is Fitch Investors Service, Inc.

Prime commercial paper is commercial paper rated Prime-1 or higher by Moody's,
A-1 or higher by S&P, Fitch-1 by Fitch or Duff 1 by Duff & Phelps.

Qualifying bank deposits are certificates of deposit, bankers' acceptances and
interest-bearing savings deposits of banks having total assets of more than $1
billion and which are members of the Federal Deposit Insurance Corporation.

Rule 144A securities are securities that may be resold pursuant to Rule 144A
under the Securities Act of 1933, as amended (the "Securities Act").

1940 Act is the Investment Company Act of 1940, as amended.

Code is the Internal Revenue Code of 1986, as amended.

Commission is the Securities and Exchange Commission.

<PAGE>

------------------------------
Description Of The Funds
------------------------------

Except as noted, (i) the Funds' investment objectives are "fundamental" and
cannot be changed without a shareholder vote, and (ii) the Funds' investment
policies are not fundamental and thus can be changed without a shareholder
vote. No Fund will change a non-fundamental objective or policy without
notifying its shareholders. There is no guarantee that any Fund will achieve
its investment objective.

INVESTMENT OBJECTIVES AND POLICIES

U.S. GOVERNMENT FUNDS

The U.S. Government Funds are diversified investment companies that have been
designed to offer investors high current income consistent with preservation of
capital by investing primarily in U.S. Government securities.

Alliance Short-Term U.S. Government Fund

Alliance Short-Term U.S. Government Fund ("Short-Term U.S. Government") seeks
high current income consistent with preservation of capital by investing
primarily in a portfolio of U.S. Government securities. Under normal
circumstances, the Fund maintains an average dollar-weighted portfolio maturity
of not more than three years and invests at least 65% of its total assets in
U.S. Government securities and repurchase agreements and forward commitments
relating to U.S. Government securities. The Fund's investment objective is not
fundamental.

In addition to investing in U.S. Government securities, the Fund may invest a
portion of its assets in securities of non-governmental issuers. Although these
investments will be of high quality at the time of purchase, they generally
involve higher levels of credit risk than do U.S. Government securities, as well
as the risk (present with all fixed-income securities) of fluctuations in value
as interest rates change. The Fund will not be obligated to dispose of any
security whose credit quality falls below high quality.

The Fund may also (i) invest in certain SMRS, (ii) invest in variable, floating
and inverse floating rate instruments, (iii) make short sales "against the box,"
(iv) enter into various hedging transactions, such as interest rate swaps, caps
and floors, (v) enter into reverse repurchase agreements, (vi) purchase and sell
futures contracts for hedging purposes, (vii) purchase and sell call and put
options on futures contracts or on securities, for hedging purposes or to earn
additional income, (viii) make secured loans of portfolio securities, (ix) enter
into repurchase agreements, and (x) purchase securities for future delivery. The
Fund may not invest more than 15% of its total assets in illiquid securities or
more than 5% of its total assets in securities the disposition of which is
restricted under Federal securities laws (excluding, to the extent permitted by
applicable law, Rule 144A securities). For additional information on the use,
risks and costs of these practices, see "Additional Investment Practices."

U.S. Government Portfolio

U.S. Government Portfolio ("U.S. Government") seeks as high a level of current
income as is consistent with safety of principal. As a matter of fundamental
policy, the Fund pursues its objective by investing solely in U.S. Government
securities that are backed by the full faith and credit of the U.S. Government.
These include U.S. Treasury securities, including zero coupon Treasury
securities, and GNMA certificates, including certain SMRS and variable and
floating rate instruments. The average weighted maturity of the Fund's portfolio
of U.S. Government securities is expected to vary between one year or less and
30 years. For additional information on the use, risks and cost of these
practices, see "Additional Investment Practices." The Fund's investment
objective is not fundamental.

Counsel to the Fund has advised the Fund that, in their view, shares of the Fund
are a legal investment for, among other investors, (i) savings and loan
associations and commercial banks chartered under the laws of the United States,
(ii) savings and loan associations chartered under the laws of Alabama, Arizona,
Arkansas, Colorado, Connecticut, Delaware, Illinois, Louisiana, Maine, Missouri,
Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, Oklahoma, Pennsylvania,
Tennessee, Utah, Washington and Wyoming, (iii) credit unions chartered under the
laws of Alaska*, California, Florida*, Maine, Nevada, New York, Ohio and Utah
and (iv) commercial banks chartered under the laws of Alabama, Alaska, Arizona,
California, Colorado, Connecticut, Delaware, Idaho, Indiana, Kentucky,
Louisiana, Maine, Maryland, Michigan, Minnesota, Missouri, Nebraska, Nevada, New
Hampshire, New Jersey, New Mexico, New York, North Dakota, Ohio, Oregon, Rhode
Island, Tennessee, Texas, Washington and West Virginia. Institutions in the
asterisked(*) states should obtain prior state regulatory approval before
investing in shares of the Fund. In addition, the Fund believes that it is
currently a legal investment for savings and loan associations, credit unions
and commercial banks chartered under the laws of certain other states.

MORTGAGE FUNDS

The Mortgage Funds are diversified investment companies that have been designed
to offer investors high current income from investment in mortgage-related
securities.

Alliance Mortgage Strategy Trust

Alliance Mortgage Strategy Trust, Inc. ("Mortgage Strategy") seeks the highest
level of current income, consistent with low volatility of net asset value, that
is available from a portfolio of mortgage-related securities of the highest
quality. As a matter of fundamental policy the Fund normally has at least 65% of
the value of its total assets invested in mortgage-related securities. The Fund
will purchase only those mortgage-related securities that are triple-A
securities or U.S. Government securities. The Fund's portfolio is structured to
achieve low volatility of net asset value approximating that of

14
<PAGE>

a portfolio investing exclusively in two-year U.S. Treasury securities. The Fund
invests primarily in ARMS and fixed-rate mortgage securities and is designed to
provide a more consistent and less volatile net asset value than that
characteristic of a mutual fund investing primarily in fixed-rate mortgage
securities and a higher yield than that of a mutual fund investing in ARMS.

The Fund believes that because of the nature of its assets, it is not exposed to
any material risk of loss as a result of default on its portfolio securities.
The Fund is, however, exposed to the risk that the prices of such securities
will fluctuate, in some cases significantly, as interest rates change.

Mortgage-related securities in which the Fund may invest include (i) pass-
through mortgage-related securities, including pass-through securities backed by
ARMS and issued by GNMA, FNMA, FHLMC and by private organizations, (ii) CMOs and
multi-class pass-through securities, including floating rate CMOs that are ARMS,
(iii) SMRS, (iv) high coupon fixed-rate mortgage securities, and (v) foreign
mortgage-related securities. For a description of these mortgage-related
securities, see "Additional Investment Practices--Mortgage-Related Securities."
The Fund expects that new types of ARMS, other mortgage-related securities,
asset-backed securities and other securities in which the Fund may invest will
be developed from time to time and will consider investing in such new types of
securities.

The Fund may invest up to 35% of its total assets in (i) triple-A asset-backed
securities, (ii) non-mortgage-related U.S. Government securities, including
certain zero coupon Treasury securities, (iii) Treasury securities issued by
private corporate issuers, (iv) qualifying bank deposits, (v) prime commercial
paper or, if not rated, issued by companies which have outstanding triple-A debt
issues and (vi) triple-A debt securities secured by mortgages on commercial real
estate or residential rental properties.

The Fund may also (i) enter into futures contracts and purchase and write
options on futures contracts, (ii) enter into forward commitments for the
purchase or sale of securities, (iii) enter into interest rate swaps, caps and
floors, (iv) invest in Eurodollar instruments, (v) purchase and write put and
call options on foreign currencies, (vi) invest in variable, floating and
inverse floating rate instruments, (vii) enter into repurchase agreements
pertaining to the types of securities in which it invests, (viii) use reverse
repurchase agreements and dollar rolls and (ix) make secured loans of its
portfolio securities. For additional information on the use, risks and costs of
these practices, see "Additional Investment Practices."

Alliance Mortgage Securities Income Fund

Alliance Mortgage Securities Income Fund, Inc. ("Mortgage Securities Income")
seeks a high level of current income to the extent consistent with prudent
investment risk. The Fund invests primarily in a diversified portfolio of
mortgage-related securities, including CMOs, and, as a matter of fundamental
policy, maintains at least 65% of its total assets in mortgage-related
securities.

The Fund expects that governmental, government-related or private entities may
create mortgage loan pools offering pass-through investments in addition to
those described in this Prospectus. The mortgages underlying these securities
may be instruments whose principal or interest payments may vary or whose terms
to maturity may differ from customary long-term fixed-rate mortgages. As new
types of mortgage-related securities are developed and offered to investors, the
Fund will consider making investments in such new types of securities. The Fund
may invest up to 20% of its total assets in lower-rated mortgage-related
securities. See "Risk Considerations--Securities Ratings" and "--Investment in
Lower-Rated Fixed-Income Securities." The average weighted maturity of the
Fund's portfolio of fixed-income securities is expected to vary between two and
ten years.

The Fund may invest up to 35% of the value of its total assets in (i) U.S.
Government securities, (ii) qualifying bank deposits, (iii) prime commercial
paper or, if not rated, issued by companies which have an outstanding high
quality debt issue, (iv) high grade debt securities secured by mortgages on
commercial real estate or residential rental properties, and (v) high grade
asset-backed securities.

The Fund may also (i) invest in repurchase agreements pertaining to the types of
securities in which it invests, (ii) enter into forward commitments for the
purchase or sale of securities, (iii) purchase put and call options written by
others and write covered put and call options on the types of securities in
which the Fund may invest for hedging purposes, (iv) enter into interest rate
swaps, caps and floors, (v) enter into interest rate futures contracts, (vi)
invest in variable floating and inverse floating rate instruments, and (vii)
lend portfolio securities. The Fund will not invest in illiquid securities if,
as a result, more than 10% of its total assets would be illiquid. For additional
information on the use, risk and costs of these practices, see "Additional
Investment Practices."

MULTI-MARKET FUNDS

The Multi-Market Funds are non-diversified investment companies that have been
designed to offer investors a higher yield than a money market fund and less
fluctuation in net asset value than a longer-term bond fund.

Alliance World Income Trust
Alliance Short-Term Multi-Market Trust
Alliance Multi-Market Strategy Trust

Alliance World Income Trust, Inc. ("World Income"), Alliance Short-Term Multi-
Market Trust, Inc. ("Short-Term Multi-Market") and Alliance Multi-Market
Strategy Trust, Inc. ("Multi-Market Strategy") each seek the highest level of
current income, consistent with what Alliance considers to be prudent investment
risk, that is available from a portfolio of high quality debt securities having
remaining maturities of not more than, with respect to World Income, one year,
with respect to Short-Term Multi-Market, three years, and with respect to Multi-
Market Strategy, five years. Each Fund seeks high current yields by investing in
a portfolio of debt securities

15
<PAGE>

denominated in the U.S. Dollar and selected foreign currencies. The Multi-Market
Funds seek investment opportunities in foreign, as well as domestic, securities
markets. World Income, which is not a money market fund, will maintain at least
35% of its net assets in U.S. Dollar-denominated securities. Short-Term Multi-
Market will normally maintain a substantial portion of its assets in debt
securities denominated in foreign currencies but will invest at least 25% of its
net assets in U.S. Dollar-denominated securities. Multi-Market Strategy normally
expects to maintain at least 70% of its assets in debt securities denominated in
foreign currencies.

In pursuing their investment objectives, the Multi-Market Funds seek to minimize
credit risk and fluctuations in net asset value by investing only in short-term
debt securities. Normally, a high proportion of these Funds' portfolios consists
of money market instruments. Alliance actively manages the Multi-Market Funds'
portfolios in accordance with a multi-market investment strategy, allocating a
Fund's investments among securities denominated in the U.S. Dollar and the
currencies of a number of foreign countries and, within each such country, among
different types of debt securities. Alliance adjusts each Multi-Market Fund's
exposure to each currency such that the percentage of assets invested in
securities of a particular country or denominated in a particular currency
varies in accordance with Alliance's assessment of the relative yield and
appreciation potential of such securities and the relative strength of a
country's currency. Fundamental economic strength, credit quality and interest
rate trends are the principal factors considered by Alliance in determining
whether to increase or decrease the emphasis placed upon a particular type of
security or industry sector within the Fund's investment portfolio. None of the
Multi-Market Funds invests more than 25% of its net assets in debt securities
denominated in a single currency other than the U.S. Dollar.

The returns available from short-term foreign currency-denominated debt
instruments can be adversely affected by changes in exchange rates. Alliance
believes that the use of foreign currency hedging techniques, including "cross-
hedges" (see "Additional Investment Practices--Forward Foreign Currency Exchange
Contracts"), can help protect against declines in the U.S. Dollar value of
income available for distribution to shareholders and declines in the net asset
value of a Fund's shares resulting from adverse changes in currency exchange
rates. For example, the return available from securities denominated in a
particular foreign currency would diminish in the event the value of the U.S.
Dollar increased against such currency. Such a decline could be partially or
completely offset by an increase in value of a cross-hedge involving a forward
exchange contract to sell a different foreign currency, where such contract is
available on terms more advantageous to a Fund than a contract to sell the
currency in which the position being hedged is denominated. It is Alliance's
belief that cross-hedges can therefore provide significant protection of net
asset value in the event of a general rise in the U.S. Dollar against foreign
currencies. However, a cross-hedge cannot protect against exchange rate risks
perfectly, and if Alliance is incorrect in its judgment of future exchange rate
relationships, a Fund could be in a less advantageous position than if such a
hedge had not been established.

Each Multi-Market Fund invests in debt securities denominated in the currencies
of countries whose governments are considered stable by Alliance. In addition to
the U.S. Dollar, such currencies include, among others, the Australian Dollar,
Austrian Schilling, British Pound Sterling, Canadian Dollar, Danish Krone, Dutch
Guilder, European Currency Unit ("ECU"), French Franc, Irish Pound, Italian
Lira, Japanese Yen, Mexican Peso, New Zealand Dollar, Norwegian Krone, Spanish
Peseta, Swedish Krona, Swiss Franc and German Mark.

An issuer of debt securities purchased by a Fund may be domiciled in a country
other than the country in whose currency the instrument is denominated. In
addition, the Multi-Market Funds may purchase debt securities denominated in one
currency the principal amounts of which and value of interest payments on which
are determined with reference (or "linked") to another currency. In this regard,
as of the date of this Prospectus each Fund has invested in U.S. Dollar
denominated securities issued by Mexican issuers and/or Peso-linked securities.
The value of these investments may fluctuate inversely in correlation with
changes in the Peso-Dollar exchange rate and with the general level of interest
rates in Mexico, and, when added to a Multi-Market Fund's investments in Mexican
Peso denominated securities, may exceed 25% of the value of the Fund's net
assets. For a general description of Mexico, see Appendix B and each Multi-
Market Fund's Statement of Additional Information.

Each Multi-Market Fund may invest in debt securities denominated in the ECU,
which is a "basket" consisting of specified amounts of the currencies of certain
of the member states of the European Union, a twelve-nation organization engaged
in cooperative economic activities. The specific amounts of currencies
comprising the ECU may be adjusted by the Council of Ministers of the European
Union to reflect changes in relative values of the underlying currencies.

Each Multi-Market Fund may invest in debt securities issued by supranational
organizations including the World Bank, which was chartered to finance
development projects in developing member countries; the European Union; the
European Coal and Steel Community, which is an economic union of various
European nations' steel and coal industries; and the Asian Development Bank,
which is an international development bank established to lend funds, promote
investment and provide technical assistance to member nations in the Asian and
Pacific regions.

Each Multi-Market Fund seeks to minimize investment risk by limiting its
portfolio investments to debt securities of high quality, and World Income will
invest 65% (and normally substantially all) of its total assets in high quality
income-producing debt securities. Accordingly, the Multi-Market Funds' portfolio
securities will consist of (i) U.S. Government securities, (ii) high quality
foreign government securities, (iii) obligations issued by supranational
entities and corporate debt securities having a triple-A rating, with respect to
World

16
<PAGE>

Income, or a high quality rating, with respect to Short-Term Multi-Market and
Multi-Market Strategy, (iv) certificates of deposit and bankers' acceptances
issued or guaranteed by, or time deposits maintained at, banks (including
foreign branches of foreign banks) having total assets of more than $1 billion,
with respect to World Income, or $500 million, with respect to Short-Term Multi-
Market and Multi-Market Strategy, and determined by Alliance to be of high
quality, and (v) prime commercial paper or, if not rated, issued by U.S. or
foreign companies having outstanding high quality debt securities.

As a matter of fundamental policy, each Multi-Market Fund concentrates at least
25% of its total assets in debt instruments issued by domestic and foreign
companies engaged in the banking industry, including bank holding companies.
Such investments may include certificates of deposit, time deposits, bankers'
acceptances, and obligations issued by bank holding companies, as well as
repurchase agreements entered into with banks (as distinct from non-banks) in
accordance with the policies set forth with respect to the Funds in "Additional
Investment Practices--Repurchase Agreements." See "Risk Considerations--
Investment in the Banking Industry."

Each Multi-Market Fund may also (i) invest in indexed commercial paper, (ii)
enter into futures contracts and purchase and write options on futures
contracts, (iii) purchase and write put and call options on foreign currencies,
(iv) purchase or sell forward foreign currency exchange contracts, (v) with
respect to Short-Term Multi-Market and Multi-Market Strategy, enter into
interest rate swaps, caps and floors, (vi) invest in variable, floating and
inverse floating rate instruments, (vii) make secured loans of its portfolio
securities, and (viii) enter into repurchase agreements. A Multi-Market Fund
will not invest in illiquid securities if as a result more than 10% of its
assets would be so invested. For additional information on the use, risks and
costs of these practices, see "Additional Investment Practices." Multi-Market
Strategy maintains borrowings of approximately 25% of its total assets less
liabilities (other than the amount borrowed). See "Risk Considerations--Effects
of Borrowing."

GLOBAL BOND FUNDS

The Global Bond Funds are non-diversified investment companies that have been
designed to offer investors a high level of current income through investments
primarily in foreign government securities.

Alliance North American Government Income Trust

Alliance North American Government Income Trust, Inc. ("North American
Government Income") seeks the highest level of current income, consistent with
what Alliance considers to be prudent investment risk, that is available from a
portfolio of debt securities issued or guaranteed by the United States, Canada
and Mexico, their political subdivisions (including Canadian provinces but
excluding states of the United States), agencies, instrumentalities or
authorities ("Government securities"). The Fund invests in investment grade
securities denominated in the U.S. Dollar, the Canadian Dollar and the Mexican
Peso and expects to maintain at least 25% of its assets in securities
denominated in the U.S. Dollar. In addition, the Fund may invest up to 25% of
its total assets in debt securities issued by governmental entities of Argentina
("Argentine Government securities"). The Fund expects that it will not retain a
debt security which is down-graded below BBB or Baa, or, if unrated, determined
by Alliance to have undergone similar credit quality deterioration, subsequent
to purchase by the Fund. There may be circumstances, however, such as the
downgrading to below investment grade of all of the securities of a governmental
issuer in one of the countries in which the Fund has substantial investments,
under which the Fund, after considering all the circumstances, would conclude
that it is in the best interests of the shareholders to retain its holdings in
securities of that issuer. The average weighted maturity of the Fund's portfolio
of fixed-income securities is expected to vary between one year or less and 30
years.

Alliance believes that the increasingly integrated economic relationship among
the United States, Canada and Mexico, characterized by the reduction and
projected elimination of most barriers to free trade among the three nations and
the growing coordination of their fiscal and monetary policies, will over the
long term benefit the economic performance of all three countries and promote
greater correlation of currency fluctuation among the U.S. and Canadian Dollars
and the Mexican Peso. See, however, Appendix B and the Fund's Statement of
Additional Information with respect to the current economic crisis and Peso
devaluation in Mexico.

Alliance will actively manage the Fund's assets in relation to market conditions
and general economic conditions and adjust the Fund's investments in an effort
to best enable the Fund to achieve its investment objective. Thus, the
percentage of the Fund's assets invested in a particular country or denominated
in a particular currency will vary in accordance with Alliance's assessment of
the relative yield and appreciation potential of such securities and the
relationship of the country's currency to the U.S. Dollar. The Fund invests at
least, and normally substantially more than, 65% of its total assets in
Government securities. To the extent that its assets are not invested in
Government securities, however, the Fund may invest the balance of its total
assets in investment grade debt securities issued by the governments of
countries located in Central and South America or any of their political
subdivisions, agencies, instrumentalities or authorities, provided that such
securities are denominated in their local currencies. The Fund will not invest
more than 10% of its total assets in debt securities issued by the governmental
entities of any one such country, except that the Fund may invest up to 25% of
its total assets in Argentine Government securities. The Fund will normally
invest at least 65% of its total assets in income-producing securities. For a
general description of Canada, Mexico and Argentina, see Appendix B and the
Fund's Statement of Additional Information.

Canadian Government securities include the sovereign debt of Canada or any of
its provinces and Government of Canada bonds and Government of Canada
Treasury bills. Canada Treasury bills are debt obligations with maturities of
less than one year. A new issue of Government of Canada bonds

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<PAGE>

frequently consists of several different bonds with maturities ranging from one
to 25 years.

All Canadian provinces have outstanding bond issues and several provinces also
guarantee bond issues of provincial authorities, agents and Crown corporations.
Each new issue yield is based upon a spread from an outstanding Government of
Canada issue of comparable term and coupon. Many Canadian municipalities,
municipal financial authorities and Crown corporations raise funds through the
bond market in order to finance capital expenditures. Unlike U.S. municipal
securities, which have special tax status, Canadian municipal securities have
the same tax status as other Canadian Government securities and trade similarly
to such securities. The Canadian municipal market may be less liquid than the
provincial bond market.

Canadian Government securities in which the Fund may invest include a modified
pass-through vehicle issued pursuant to the program established under the
National Housing Act of Canada. Certificates issued pursuant to this program
benefit from the guarantee of the Canada Mortgage and Housing Corporation, a
federal Crown corporation that is (except for certain limited purposes) an
agency of the Government of Canada whose guarantee is an unconditional
obligation of the Government of Canada in most circumstances (similar to that of
GNMA in the United States).

Mexican Government securities denominated and payable in the Mexican Peso
include (i) Cetes, which are book-entry securities sold directly by the Mexican
Government on a discount basis and with maturities that range from seven to 364
days, (ii) Bonds, which are long-term development bonds issued directly by the
Mexican Government with a minimum term of 364 days, and (iii) Ajustabonos, which
are adjustable-rate bonds with a minimum three-year term issued directly by the
Mexican Government with the face amount adjusted each quarter by the quarterly
inflation rate.

The Fund may invest up to 25% of its total assets in Argentine Government
securities that are denominated and payable in the Argentine Peso. Argentine
Government securities include (i) Bono de Inversion y Crecimiento ("BIC"), which
are investment and growth bonds issued directly by the Argentine Government with
maturities of up to ten years, (ii) Bono de Consolidacion Economica ("BOCON"),
which are economic consolidation bonds issued directly by the Argentine
Government with maturities of up to ten years and (iii) Bono de Credito a la
Exportacion ("BOCREX"), which are export credit bonds issued directly by the
Argentine government with maturities of up to four years. To date, Argentine
Government securities are not rated by either S&P, Moody's, Duff & Phelps or
Fitch. Alliance, however, believes, that there are Argentine Government
securities that are of investment grade quality.

The Fund may also (i) enter into futures contracts and purchase and write
options on futures contracts for hedging purposes, (ii) purchase and write put
and call options on foreign currencies, (iii) purchase or sell forward foreign
currency exchange contracts, (iv) write covered put and call options and
purchase put and call options on U.S. Government and foreign government
securities traded on U.S. and foreign securities exchanges, and write put and
call options for cross-hedging purposes, (v) enter into interest rate swaps,
caps and floors, (vi) enter into forward commitments for the purchase or sale of
securities, (vii) invest in variable, floating and inverse floating rate
instruments, (viii) make secured loans of its portfolio securities, and (ix)
enter into repurchase agreements. The Fund will not invest in illiquid
securities if as a result 10% of its net assets would be so invested. For
additional information on the use, risks and costs of these practice, see
"Additional Investment Practices." The Fund also maintains borrowings of
approximately one-third of the Fund's total assets less liabilities (other than
the amount borrowed). See "Risk Considerations--Effects of Borrowing."

Alliance Global Dollar Government Fund

Alliance Global Dollar Government Fund, Inc. ("Global Dollar Government") seeks
primarily a high level of current income, and secondarily capital appreciation.
In seeking to achieve these objectives, the Fund invests at least 65% of its
total assets in sovereign debt obligations. The Fund's investments in sovereign
debt obligations will emphasize obligations of a type customarily referred to as
"Brady Bonds" that are issued as part of debt restructurings and that are
collateralized in full as to principal due at maturity by zero coupon U.S.
Government securities ("collateralized Brady Bonds"). See "Additional Investment
Practices--Brady Bonds." The Fund may also invest up to 35% of its total assets
in U.S. and non-U.S. corporate fixed-income securities. See "Risk
Considerations--U.S. Corporate Fixed-Income Securities." The Fund will limit its
investments in sovereign debt obligations and U.S. and non-U.S. corporate fixed-
income securities to U.S. Dollar-denominated securities. Alliance expects that,
based upon current market conditions, the Fund's portfolio of U.S. fixed-income
securities will have an average maturity range of approximately nine to 15 years
and the Fund's portfolio of non-U.S. fixed-income securities will have an
average maturity range of approximately 15 to 25 years. Alliance anticipates
that the Fund's portfolio of sovereign debt obligations will have a longer
average maturity.

Substantially all of the Fund's assets will be invested in lower-rated
securities, which may include securities having the lowest rating for non-
subordinated debt instruments (i.e., rated C by Moody's or CCC or lower by S&P,
Duff & Phelps and Fitch) and unrated securities of comparable investment
quality. These securities are considered to have extremely poor prospects of
ever attaining any real investment standing, to have a current identifiable
vulnerability to default, to be unlikely to have the capacity to pay interest
and repay principal when due in the event of adverse business, financial or
economic conditions, and/or to be in default or not current in the payment of
interest or principal. For a description of bond ratings, see Appendix A. The
Fund may also invest in investment grade securities. Unrated securities will be
considered for investment by the Fund when Alliance believes that the financial
condition of the issuers of such obligations and the protection afforded by the
terms of the obligations

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<PAGE>

themselves limit the risk to the Fund to a degree comparable to that of rated
securities which are consistent with the Fund's investment objectives and
policies. As of August 31, 1994, the percentages of the Fund's assets invested
in securities rated (or considered by Alliance to be of equivalent quality to
securities rated) in particular rating categories were 14.3% in A and above,
3.0% in Baa or BBB, 35.4% in Ba or BB, 39.1% in B, 6.6% in Caa or CCC, and 1.6%
in non-rated. See "Risk Considerations--Securities Ratings," "--Investment in
Fixed-Income Securities Rated Baa and BBB," "--Investment in Lower-Rated Fixed-
Income Securities" and Appendix A.

With respect to its investments in sovereign debt obligations and non-U.S.
corporate fixed-income securities, the Fund will emphasize investments in
countries that are considered at the time of purchase to be emerging or
developing countries by the World Bank. A substantial part of the Fund's initial
investment focus is expected to be in securities or obligations of Argentina,
Brazil, Mexico, Morocco, the Philippines and Venezuela because these countries
are now, or are expected by Alliance at a future date to be, the principal
participants in debt restructuring programs (including, in the case of
Argentina, Mexico, the Philippines and Venezuela, issuers of currently
outstanding Brady Bonds) that, in Alliance's opinion, will provide the most
attractive investment opportunities for the Fund. See Appendix A to the Fund's
Statement of Additional Information for information about those six countries.
Alliance anticipates that other countries that will provide initial investment
opportunities for the Fund include, among others, Bolivia, Costa Rica, the
Dominican Republic, Ecuador, Jordan, Nigeria, Panama, Peru, Poland, Thailand,
Turkey and Uruguay. See "Additional Investment Practices--Brady Bonds."

The Fund may invest up to 30% of its total assets in the sovereign debt
obligations and corporate fixed-income securities of issuers in any one of
Argentina, Brazil, Mexico, Morocco, the Philippines or Venezuela, each of which
is an emerging market country, and the Fund will limit investments in the
sovereign debt obligations of each such country (or of any other single foreign
country) to less than 25% of its total assets. The Fund expects that it will not
invest more than 10% of its total assets in the sovereign debt obligations and
corporate fixed-income securities of issuers in any other single foreign country
and is not required to invest any minimum amount of its assets in the securities
or obligations of issuers located in any particular country.

A substantial portion of the Fund's investments will be in (i) securities which
were initially issued at discounts from their face values ("Discount
Obligations") and (ii) securities purchased by the Fund at a price less than
their stated face amount or, in the case of Discount Obligations, at a price
less than their issue price plus the portion of "original issue discount"
previously accrued thereon, i.e., purchased at a "market discount."

The Fund may also (i) invest in structured securities, (ii) invest in fixed and
floating rate loans that are arranged through private negotiations between an
issuer of sovereign debt obligations and one or more financial institutions and
in participations in and assignments of these types of loans, (iii) invest in
other investment companies, (iv) invest in warrants, (v) enter into interest
rate swaps, caps and floors, (vi) enter into forward commitments for the
purchase or sale of securities, (vii) make secured loans of its portfolio
securities, (viii) enter into repurchase agreements pertaining to the types of
securities in which it invests, (ix) use reverse repurchase agreements and
dollar rolls, (x) enter into standby commitment agreements, (xi) make short
sales of securities or maintain a short position, (xii) write put and call
options on securities of the types in which it is permitted to invest and write
call options for cross-hedging purposes, (xiii) purchase and sell exchange-
traded options on any securities index composed of the types of securities in
which it may invest, and (xiv) invest in variable, floating and inverse floating
rate instruments. The Fund may also at any time, with respect to up to 35% of
its total assets, temporarily invest funds awaiting reinvestment or held for
reserves for dividends and other distributions to shareholders in U.S. Dollar-
denominated money market instruments. For additional information on the use,
risks and costs of these practices, see "Additional Investment Practices." While
the Fund does not currently intend to do so, it reserves the right to borrow an
amount not to exceed one-third of the Fund's assets less liabilities (other than
the amount borrowed). See "Risk Considerations--Effects of Borrowing."

CORPORATE BOND FUND

Corporate Bond Portfolio

Corporate Bond Portfolio ("Corporate Bond") is a diversified investment company
that seeks primarily to maximize income over the long term consistent with
providing reasonable safety in the value of each shareholder's investment, and
secondarily to increase its capital through appreciation of its investments in
order to preserve and, if possible, increase the purchasing power of each
shareholder's investment. In pursuing these objectives, the Fund's policy is to
invest in readily marketable securities which give promise of relatively
attractive yields, but which do not involve substantial risk of loss of capital.
The Fund follows a policy of maintaining at least 65% of its net assets invested
in debt securities. Such objectives and policies cannot be changed without the
approval of the shareholders. Although the Fund also follows a policy of
maintaining at least 65% of its total assets invested in corporate bonds, it is
permitted to invest in securities of non-corporate issuers.

There is no minimum rating requirement applicable to the Fund's investments in
fixed-income securities, except the Fund expects that it will not retain a
security that is downgraded below B, or if unrated, determined by Alliance to
have undergone similar credit quality deterioration subsequent to purchase.
Currently, the Fund believes its objectives and policies may best be implemented
by investing at least 65% of its total assets in fixed-income securities
considered investment grade or higher. The remainder of the Fund's assets may be
invested in lower-rated fixed-income securities. See "Risk Considerations--
Securities Ratings," "--Investment in Fixed-Income Securities Rated Baa and
BBB," "--Investment in Lower-Rated Fixed-Income Securities" and

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<PAGE>

Appendix A. During the fiscal year ended June 30, 1994, on a weighted average
basis, the percentages of the Fund's assets invested in securities rated (or
considered by Alliance to be of equivalent quality to securities rated) in
particular rating categories were 22% in A and above, 46% in Baa or BBB, 19% in
Ba or BB, and 10% in B. The Fund did not invest in securities rated below B by
each of Moody's, S&P, Duff & Phelps and Fitch or, if not rated, considered by
Alliance to be of equivalent quality to securities so rated.

The Fund has complete flexibility as to the types of securities in which it will
invest and the relative proportions thereof, and the Fund plans to vary the
proportions of its holdings of long- and short-term fixed-income securities and
of equity securities in order to reflect its assessment of prospective cyclical
changes even if such action may adversely affect current income. However,
substantially all of the Fund's investments will be income producing. The
average weighted maturity of the Fund's portfolio of fixed-income securities is
expected to vary between one year or less and 30 years.

The Fund may invest up to 50% of the value of its total assets in foreign debt
securities which will consist primarily of corporate fixed-income securities and
sovereign debt obligations. Not more than 15% of the Fund's total assets may be
invested in these other sovereign debt obligations, which may be lower rated and
considered to be predominantly speculative as regards the issuer's capacity to
pay interest and repay principal.

ADDITIONAL INVESTMENT PRACTICES

Some or all of the Funds may engage in the following investment practices to the
extent described in this Prospectus. See the Statement of Additional Information
of each Fund for a further discussion of the uses, risks and costs of engaging
in these practices.

Derivatives. The Funds may use derivatives in furtherance of their investment
objectives. Derivatives are financial contracts whose value depends on, or is
derived from, the value of an underlying asset, reference rate or index. These
assets, rates, and indices may include bonds, stocks, mortgages, commodities,
interest rates, currency exchange rates, bond indices and stock indices.
Derivatives can be used to earn income or protect against risk, or both. For
example, one party with unwanted risk may agree to pass that risk to another
party who is willing to accept the risk, the second party being motivated, for
example, by the desire either to earn income in the form of a fee or premium
from the first party, or to reduce its own unwanted risk by attempting to pass
all or part of that risk to the first party.

Derivatives can be used by investors such as the Funds to earn income and
enhance returns, to hedge or adjust the risk profile of a portfolio, and either
in place of more traditional direct investments or to obtain exposure to
otherwise inaccessible markets. Each of the Funds is permitted to use
derivatives for one or more of these purposes, although most of the Funds
generally use derivatives primarily as direct investments in order to enhance
yields and broaden portfolio diversification. Each of these uses entails greater
risk than if derivatives were used solely for hedging purposes. Derivatives are
a valuable tool which, when used properly, can provide significant benefit to
Fund shareholders. Alliance is not an aggressive user of derivatives with
respect to any of the Funds. However, a Fund may take a significant position in
those derivatives that are within its investment policies if, in Alliance's
judgement, this represents the most effective response to current or anticipated
market conditions. The Multi-Market Funds in particular generally make extensive
use of carefully selected forwards and other derivatives to achieve the currency
hedging that is an integral part of their investment strategy. Alliance's use of
derivatives is subject to continuous risk assessment and control from the
standpoint of each Fund's investment objectives and policies.

Derivatives may be (i) standardized, exchange-traded contracts or (ii)
customized, privately negotiated contracts. Exchange-traded derivatives tend to
be more liquid and subject to less credit risk than those that are privately
negotiated.

There are four principal types of derivative instruments--options, futures,
forwards and swaps--from which virtually any type of derivative transaction can
be created.

* Options--An option, which may be standardized and exchange-traded, or
customized and privately negotiated, is an agreement that, for a premium
payment or fee, gives the option holder (the buyer) the right but not the
obligation to buy or sell the underlying asset (or settle for cash an amount
based on an underlying asset, rate or index) at a specified price (the
exercise price) during a period of time or on a specified date. A call option
entitles the holder to purchase, while a put option entitles the holder to
sell, the underlying asset (or settle for cash an amount based on an
underlying asset, rate or index). Likewise, when an option is exercised the
writer of the option would be obligated to sell (in the case of a call
option) or to purchase (in the case of a put option) the underlying asset (or
settle for cash an amount based on an underlying asset, rate or index).

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<PAGE>

* Futures--A futures contract is an agreement that obligates the buyer to buy
and the seller to sell a specified quantity of an underlying asset (or settle
for cash the value of a contract based on an underlying asset, rate or index)
at a specific price on the contract maturity date. Futures contracts are
standardized, exchange-traded instruments and are fungible (i.e., considered
to be perfect substitutes for each other). This fungibility allows futures
contracts to be readily offset or cancelled through the acquisition of equal
but opposite positions, which is the primary method in which futures
contracts are liquidated. A cash-settled futures contract does not require
physical delivery of the underlying asset but instead is settled for cash
equal to the difference between the values of the contract on the date it is
entered into and its maturity date.

* Forwards--A forward contract is an obligation by one party to buy, and the
other party to sell, a specific quantity of an underlying commodity or other
tangible asset for an agreed upon price at a future date. Forward contracts
are customized, privately negotiated agreements designed to satisfy the
objectives of each party. A forward contract usually results in the delivery
of the underlying asset upon maturity of the contract in return for the
agreed upon payment.

* Swaps--A swap is a customized, privately negotiated agreement that obligates
two parties to exchange a series of cash flows at specified intervals
(payment dates) based upon or calculated by reference to changes in specified
prices or rates (interest rates in the case of interest rate swaps, currency
exchange rates in the case of currency swaps) for a specified amount of an
underlying asset (the "notional" principal amount). The payment flows are
netted against each other, with the difference being paid by one party to the
other. Except for currency swaps, the notional principal amount is used
solely to calculate the payment streams but is not exchanged. With respect to
currency swaps, actual principal amounts of currencies may be exchanged by
the counterparties at the initiation, and again upon the termination, of the
transaction.

Debt instruments that incorporate one or more of these building blocks for the
purpose of determining the principal amount of and/or rate of interest payable
on the debt instruments are often referred to as "structured securities." An
example of this type of structured security is indexed commercial paper. The
term is also used to describe certain securities issued in connection with the
restructuring of certain foreign obligations. See "Indexed Commercial Paper" and
"Structured Securities" below. The term "derivative" is also sometimes used to
describe securities involving rights to a portion of the cash flows from an
underlying pool of mortgages or other assets from which payments are passed
through to the owner of, or that collateralize, the securities. These securities
are described below under "Mortgage-Related Securities" and "Other Asset-Backed
Securities."

While the judicious use of derivatives by highly experienced investment managers
such as Alliance can be quite beneficial, derivatives also involve risks
different from, and, in certain cases, greater than, the risks presented by more
traditional investments. Following is a general discussion of important risk
factors and issues concerning the use of derivatives that investors should
understand before investing in a Fund.

* Market Risk--This is the general risk attendant to all investments that
the value of a particular investment will change in a way detrimental to the
Fund's interest.

* Management Risk--Derivative products are highly specialized instruments that
require investment techniques and risk analyses different from those
associated with stocks and bonds. The use of a derivative requires an
understanding not only of the underlying instrument but also of the
derivative itself, without the benefit of observing the performance of the
derivative under all possible market conditions. In particular, the use and
complexity of derivatives require the maintenance of adequate controls to
monitor the transactions entered into, the ability to assess the risk that a
derivative adds to a Fund's portfolio and the ability to forecast price,
interest rate or currency exchange rate movements correctly.

* Credit Risk--This is the risk that a loss may be sustained by a Fund as a
result of the failure of another party to a derivative (usually referred to
as a "counterparty") to comply with the terms of the derivative contract. The
credit risk for exchange-traded derivatives is generally less than for
privately negotiated derivatives, since the clearing house, which is the
issuer or counterparty to each exchange-traded derivative, provides a
guarantee of performance. This guarantee is supported by a daily payment
system (i.e., margin requirements) operated by the clearing house in order
to reduce overall credit risk. For privately negotiated derivatives, there is
no similar clearing agency guarantee. Therefore, the Funds consider the
creditworthiness of each counterparty to a privately negotiated derivative in
evaluating potential credit risk.

* Liquidity Risk--Liquidity risk exists when a particular instrument is
difficult to purchase or sell. If a derivative transaction is particularly
large or if the relevant market is illiquid (as is the case with many
privately negotiated derivatives), it may not be possible to initiate a
transaction or liquidate a position at an advantageous price.

* Leverage Risk--Since many derivatives have a leverage component, adverse
changes in the value or level of the underlying asset, rate or index can
result in a loss substantially greater than the amount invested in the
derivative itself. In the case of swaps, the risk of loss generally is
related to a notional principal amount, even if the parties have not made any
initial investment. Certain derivatives have the potential for unlimited
loss, regardless of the size of the initial investment.

* Other Risks--Other risks in using derivatives include the risk of mispricing
or improper valuation of derivatives and the inability of derivatives to
correlate perfectly with underlying assets, rates and indices. Many
derivatives, in

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<PAGE>

particular privately negotiated derivatives, are complex and often valued
subjectively. Improper valuations can result in increased cash payment
requirements to counterparties or a loss of value to a Fund. Derivatives do
not always perfectly or even highly correlate or track the value of the
assets, rates or indices they are designed to closely track. Consequently, a
Fund's use of derivatives may not always be an effective means of, and
sometimes could be counterproductive to, furthering the Fund's investment
objective.

Derivatives Used by the Funds. Following is a description of specific
derivatives currently used by one or more of the Funds.

Options on Securities. In purchasing an option on securities, a Fund would be in
a position to realize a gain if, during the option period, the price of the
underlying securities increased (in the case of a call) or decreased (in the
case of a put) by an amount in excess of the premium paid; otherwise the Fund
would experience a loss not greater than the premium paid for the option. Thus,
a Fund would realize a loss if the price of the underlying security declined or
remained the same (in the case of a call) or increased or remained the same (in
the case of a put) or otherwise did not increase (in the case of a put) or
decrease (in the case of a call) by more than the amount of the premium. If a
put or call option purchased by a Fund were permitted to expire without being
sold or exercised, its premium would represent a loss to the Fund.

A Fund may write a put or call option in return for a premium, which is retained
by the Fund whether or not the option is exercised. Except with respect to
uncovered call options written for cross-hedging purposes, none of the Funds
will write uncovered call or put options. A call option written by a Fund is
"covered" if the Fund owns the underlying security, has an absolute and
immediate right to acquire that security upon conversion or exchange of another
security it holds, or holds a call option on the underlying security with an
exercise price equal to or less than that of the call option it has written. A
put option written by a Fund is covered if the Fund holds a put option on the
underlying securities with an exercise price equal to or greater than that of
the put option it has written.

The risk involved in writing an uncovered put option is that there could be a
decrease in the market value of the underlying securities. If this occurred, a
Fund could be obligated to purchase the underlying security at a higher price
than its current market value. Conversely, the risk involved in writing an
uncovered call option is that there could be an increase in the market value of
the underlying security, and a Fund could be obligated to acquire the underlying
security at its current price and sell it at a lower price. The risk of loss
from writing an uncovered put option is limited to the exercise price of the
option, whereas the risk of loss from writing an uncovered call option is
potentially unlimited.

A Fund may write a call option on a security that it does not own in order to
hedge against a decline in the value of a security that it owns or has the right
to acquire, a technique referred to as "cross-hedging." A Fund would write a
call option for cross-hedging purposes, instead of writing a covered call
option, when the premium to be received from the cross-hedge transaction exceeds
that to be received from writing a covered call option, while at the same time
achieving the desired hedge. The correlation risk involved in cross-hedging may
be greater than the correlation risk involved from other hedging strategies.

Short-Term U.S. Government, Mortgage Securities Income, North American
Government Income, Global Dollar Government and Corporate Bond generally
purchase or write privately negotiated options on securities. A Fund that
purchases or writes privately negotiated options on securities will effect such
transactions only with investment dealers and other financial institutions (such
as commercial banks or savings and loan institutions) deemed creditworthy by
Alliance, and Alliance has adopted procedures for monitoring the
creditworthiness of such counterparties. Privately negotiated options purchased
or written by a Fund may be illiquid, and it may not be possible for the Fund to
effect a closing transaction at an advantageous time. See "Illiquid Securities"
below. Neither Mortgage Securities Income nor Corporate Bond will purchase an
option on a security if, immediately thereafter, the aggregate cost of all
outstanding options purchased by such Fund would exceed 2% of the Fund's total
assets. Nor will either such Fund write an option if, immediately thereafter,
the aggregate value of the Fund's portfolio securities subject to outstanding
options would exceed 15% of the Fund's total assets.

Options on Securities Indices. An option on a securities index is similar to an
option on a security except that, rather than taking or making delivery of a
security at a specified price, an option on a securities index gives the holder
the right to receive, upon exercise of the option, an amount of cash if the
closing level of the chosen index is greater than (in the case of a call) or
less than (in the case of a put) the exercise price of the option.

Options on Foreign Currencies. A Fund invests in options on foreign currencies
that are privately negotiated or traded on U.S. or foreign exchanges for the
purpose of protecting against declines in the U.S. Dollar value of foreign
currency denominated portfolio securities and against increases in the U.S.
Dollar cost of securities to be acquired. The purchase of an option on a foreign
currency may constitute an effective hedge against fluctuations in exchange
rates, although if rates move adversely, a Fund may forfeit the entire amount of
the premium plus related transaction costs.

Warrants. Global Dollar Government may invest in warrants, which are option
securities permitting their holders to subscribe for other securities. Global
Dollar Government may invest in warrants for debt securities or for equity
securities that are acquired in connection with debt instruments. Warrants do
not carry with them dividend or voting rights with

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<PAGE>

respect to the underlying securities, or any rights in the assets of the issuer.
As a result, an investment in warrants may be considered more speculative than
certain other types of investments. In addition, the value of a warrant does not
necessarily change with the value of the underlying securities, and a warrant
ceases to have value if it is not exercised prior to its expiration date.

Futures Contracts and Options on Futures Contracts. Futures contracts that a
Fund may buy and sell may include futures contracts on fixed-income or other
securities or foreign currencies, and contracts based on interest rates or
financial indices, including any index of U.S. Government securities, foreign
government securities or corporate debt securities.

Options on futures contracts are options that call for the delivery upon
exercise of futures contracts. Options on futures contracts written or purchased
by a Fund will be traded on U.S. or foreign exchanges and, except with respect
to Short-Term U.S. Government, will be used only for hedging purposes.

Mortgage Strategy, World Income, Short-Term Multi-Market, Multi-Market Strategy
and North American Government Income will not enter into a futures contract or
option on a futures contract if immediately thereafter the market values of the
outstanding futures contracts of the Fund and the currencies and futures
contracts subject to outstanding options written by the Fund would exceed 50% of
its total assets. Nor will Mortgage Strategy, Mortgage Securities Income, World
Income, Short-Term Multi-Market, Multi-Market Strategy or North American
Government Income do so if immediately thereafter the aggregate of initial
margin deposits on all the outstanding futures contracts of the Fund and
premiums paid on outstanding options on futures contracts would exceed 5% of the
market value of the total assets of the Fund. In addition, Mortgage Securities
Income will not enter into (i) options on futures contracts, (ii) any futures
contract other than one on fixed-income securities or based on interest rates,
or (iii) any futures contract if immediately thereafter the sum of the then
aggregate futures market prices of financial instruments required to be
delivered under open futures contract sales and the aggregate futures market
prices of instruments required to be d elivered under open futures contract
purchases would exceed 30% of the value of the Fund's total assets.

Eurodollar Instruments. Eurodollar instruments are essentially U.S. Dollar-
denominated futures contracts or options thereon that are linked to LIBOR.
Eurodollar futures contracts enable purchasers to obtain a fixed rate for the
lending of funds and sellers to obtain a fixed rate for borrowings. Mortgage
Strategy intends to use Eurodollar futures contracts and options thereon to
hedge against changes in LIBOR (to which many short-term borrowings and floating
rate securities in which the Fund invests are linked).

Forward Foreign Currency Exchange Contracts. Each Fund that purchases or sells
forward contracts on foreign currencies ("forward contracts") attempts to
minimize the risk to it from adverse changes in the relationship between the
U.S. Dollar and other currencies. A Fund may enter into a forward contract, for
example, when it enters into a contract for the purchase or sale of a security
denominated in a foreign currency in order to "lock in" the U.S. Dollar price of
the security ("transaction hedge"). When a Fund believes that a foreign currency
may suffer a substantial decline against the U.S. Dollar, it may enter into a
forward sale contract to sell an amount of that foreign currency approximating
the value of some or all of the Fund's portfolio securities denominated in such
foreign currency, or when the Fund believes that the U.S. Dollar may suffer a
substantial decline against a foreign currency, it may enter into a forward
purchase contract to buy that foreign currency for a fixed dollar amount
("position hedge"). Instead of entering into a position hedge, a Fund may, in
the alternative, enter into a forward contract to sell a different foreign
currency for a fixed U.S. Dollar amount where the Fund believes that the U.S.
Dollar value of the currency to be sold pursuant to the forward contract will
fall whenever there is a decline in the U.S. Dollar value of the currency in
which portfolio securities of the Fund are denominated ("cross-hedge").

Forward Commitments. Forward commitments are forward contracts for the purchase
or sale of securities, including purchases on a "when-issued" basis or purchases
or sales on a "delayed delivery" basis. In some cases, a forward commitment may
be conditioned upon the occurrence of a subsequent event, such as approval and
consummation of a merger, corporate reorganization or debt restructuring or
approval of a proposed financing by appropriate authorities (i.e., a "when, as
and if issued" trade).

When forward commitments with respect to fixed-income securities are negotiated,
the price, which is generally expressed in yield terms, is fixed at the time the
commitment is made, but payment for and delivery of the securities take place at
a later date. Normally, the settlement date occurs within two months after the
transaction, but settlements beyond two months may be negotiated. Securities
purchased or sold under a forward commitment are subject to market fluctuation,
and no interest or dividends accrues to the purchaser prior to the settlement
date. At the time a Fund enters into a forward commitment, it records the
transaction and thereafter reflects the value of the security purchased or, if a
sale, the proceeds to be received, in determining its net asset value. Any
unrealized appreciation or depreciation reflected in such valuation would be
canceled if the required conditions did not occur and the trade were canceled.

The use of forward commitments helps a Fund to protect against anticipated
changes in interest rates and prices. For instance, in periods of rising
interest rates and falling bond prices, a Fund might sell securities in its
portfolio on a forward commitment basis to limit its exposure to falling bond
prices. In periods of falling interest rates and rising bond prices, a Fund
might sell a security in its portfolio and purchase the same or a similar
security on a when-issued or forward commitment basis, thereby obtaining the
benefit of currently higher cash yields. No

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<PAGE>

forward commitments will be made by Mortgage Strategy, North American Government
Income or Global Dollar Government if, as a result, the Fund's aggregate forward
commitments under such transactions would be more than 30% of its total assets.

A Fund's right to receive or deliver a security under a forward commitment may
be sold prior to the settlement date. The Funds enter into forward commitments,
however, only with the intention of actually receiving securities or delivering
them, as the case may be. If a Fund, however, chooses to dispose of the right to
acquire a when-issued security prior to its acquisition or dispose of its right
to deliver or receive against a forward commitment, it may incur a gain or loss.

Interest Rate Transactions (Swaps, Caps and Floors). Each Fund that may enter
into interest rate swap, cap or floor transactions expects to do so primarily
for hedging purposes, which may include preserving a return or spread on a
particular investment or portion of its portfolio or protecting against an
increase in the price of securities the Fund anticipates purchasing at a later
date. The Funds do not intend to use these transactions in a speculative manner.

Interest rate swaps involve the exchange by a Fund with another party of their
respective commitments to pay or receive interest (e.g., an exchange of floating
rate payments for fixed rate payments) computed based on a contractually-based
principal (or "notional") amount. Interest rate swaps are entered into on a net
basis (i.e., the two payment streams are netted out, with the Fund receiving or
paying, as the case may be, only the net amount of the two payments). Interest
rate caps and floors are similar to options in that the purchase of an interest
rate cap or floor entitles the purchaser, to the extent that a specified index
exceeds (in the case of a cap) or falls below (in the case of a floor) a
predetermined interest rate, to receive payments of interest on a notional
amount from the party selling the interest rate cap or floor. A Fund may enter
into interest rate swaps, caps and floors on either an asset-based or liability-
based basis, depending upon whether it is hedging its assets or liabilities.

There is no limit on the amount of interest rate transactions that may be
entered into by a Fund that is permitted to enter into such transactions. Short-
Term Multi-Market, Multi-Market Strategy and North American Government Income
may enter into interest rate swaps involving payments to the same currency or in
different currencies. Short-Term U.S. Government, Mortgage Strategy, Mortgage
Securities Income, Global Dollar Government and Corporate Bond will not enter
into an interest rate swap, cap or floor transaction unless the unsecured senior
debt or the claims-paying ability of the other party thereto is then rated in
the highest rating category of at least one nationally recognized rating
organization. Each of Short-Term Multi-Market, Multi-Market Strategy and North
American Government Income will enter into interest rate swap, cap or floor
transactions with its respective custodian, and with other counterparties, but
only if: (i) for transactions with maturities under one year, such other
counterparty has outstanding prime commercial paper; or (ii) for transactions
with maturities greater than one year, the counterparty has outstanding high
quality debt securities.

The swap market has grown substantially in recent years, with a large number of
banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. As a result, the swap market has
become well established and relatively liquid. Caps and floors are less liquid
than swaps. These transactions do not involve the delivery of securities or
other underlying assets or principal. Accordingly, unless there is a
counterparty default, the risk of loss to a Fund from interest rate transactions
is limited to the net amount of interest payments that the Fund is contractually
obligated to make.

Standby Commitment Agreements. Standby commitment agreements are similar to put
options that commit a Fund, for a stated period of time, to purchase a stated
amount of a security that may be issued and sold to the Fund at the option of
the issuer. The price and coupon of the security are fixed at the time of the
commitment. At the time of entering into the agreement, the Fund is paid a
commitment fee regardless of whether the security ultimately is issued. The
Funds will enter into such agreements only for the purpose of investing in the
security underlying the commitment at a yield and price considered advantageous
and unavailable on a firm commitment basis. The Funds will not enter into
standby commitments with a remaining term in excess of 45 days and will limit
their investments in such commitments so that the aggregate purchase price of
the securities subject to the commitments does not exceed 20% of their
respective assets.

There is no guarantee that the security subject to a standby commitment will be
issued. In addition, the value of the security, if issued, on the delivery date
may be more or less than its purchase price. Since the issuance of the security
is at the option of the issuer, a Fund will bear the risk of capital loss in the
event the value of the security declines and may not benefit from an
appreciation in the value of the security during the commitment period if the
issuer decides not to issue and sell the security to the Fund.

Indexed Commercial Paper. Indexed commercial paper may have its principal linked
to changes in foreign currency exchange rates whereby its principal amount is
adjusted upwards or downwards (but not below zero) at maturity to reflect
changes in the referenced exchange rate. Each Fund that invests in such
commercial paper may do so without limitation. A Fund will purchase such
commercial paper with the currency in which it is denominated and, at maturity,
will receive interest and principal payments thereon in that currency, but the
amount of principal payable by the issuer at maturity will change in proportion
to the change (if any) in the exchange rate between the two specified currencies
between the date the instrument is issued and the date the instrument matures.
While such commercial paper entails the risk of loss of principal, the potential
for realizing gains as a result of changes in foreign currency exchange rates
enables a Fund to hedge (or cross-hedge) against a decline in the U.S. Dollar
value of investments denominated in foreign currencies while providing an
attractive money market rate of return. A Fund will purchase such commercial
paper for hedging purposes only, not for speculation.

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<PAGE>

Mortgage-Related Securities. The mortgage-related securities in which a Fund may
invest typically are securities representing interests in pools of mortgage
loans made to home owners. Mortgage-related securities bear interest at either a
fixed rate or an adjustable rate determined by reference to an index rate. The
mortgage loan pools may be assembled for sale to investors (such as a Fund) by
governmental or private organizations. Mortgage-related securities issued by
GNMA are backed by the full faith and credit of the United States; those issued
by FNMA and FHLMC are not so backed.

Securities representing interests in pools created by private issuers generally
offer a higher rate of interest than securities representing interests in pools
created by governmental issuers because there are no direct or indirect
governmental guarantees of the underlying mortgage payments. However, private
issuers sometimes obtain committed loan facilities, lines of credit, letters of
credit, surety bonds or other forms of liquidity and credit enhancement to
support the timely payment of interest and principal with respect to their
securities if the borrowers on the underlying mortgages fail to make their
mortgage payments. The ratings of such non-governmental securities are generally
dependent upon the ratings of the providers of such liquidity and credit support
and would be adversely affected if the rating of such an enhancer were
downgraded. A Fund may buy mortgage-related securities without credit
enhancement if the securities meet the Fund's investment standards. Although the
market for mortgage-related securities is becoming increasingly liquid, those of
certain private organizations may not be readily marketable.

One type of mortgage-related security is of the "pass-through" variety. The
holder of a pass-through security is considered to own an undivided beneficial
interest in the underlying pool of mortgage loans and receives a pro rata share
of the monthly payments made by the borrowers on their mortgage loans, net of
any fees paid to the issuer or guarantor of the securities. Prepayments of
mortgages resulting from the sale, refinancing or foreclosure of the underlying
properties are also paid to the holders of these securities. Some mortgage-
related securities, such as securities issued by GNMA, are referred to as
"modified pass-through" securities. The holders of these securities are entitled
to the full and timely payment of principal and interest, net of certain fees,
regardless of whether payments are actually made on the underlying mortgages.
Another form of mortgage-related security is a "pay-through" security, which is
a debt obligation of the issuer secured by a pool of mortgage loans pledged as
collateral that is legally required to be paid by the issuer regardless of
whether payments are actually made on the underlying mortgages.

Collateralized mortgage obligations (CMOs) are the predominant type of "pay-
through" mortgage-related security. CMOs are designed to reduce the risk of
prepayment for investors by issuing multiple classes of securities, each having
different maturities, interest rates and payment schedules, and with the
principal and interest on the underlying mortgages allocated among the several
classes in various ways. The collateral securing the CMOs may consist of a pool
of mortgages, but may also consist of mortgage-backed bonds or pass-through
securities. CMOs may be issued by a U.S. Government instrumentality or agency or
by a private issuer. Although payment of the principal of, and interest on, the
underlying collateral securing privately issued CMOs may be guaranteed by GNMA,
FNMA or FHLMC, these CMOs represent obligations solely of the private issuer and
are not insured or guaranteed by GNMA, FNMA, FHLMC, any other governmental
agency or any other person or entity.

Another type of mortgage-related security, known as adjustable-rate mortgage
securities (ARMS), bears interest at a rate determined by reference to a
predetermined interest rate or index. There are two main categories of rates or
indices: (i) rates based on the yield on U.S. Treasury securities and (ii)
indices derived from a calculated measure such as a cost of funds index or a
moving average of mortgage rates. Some rates and indices closely mirror changes
in market interest rate levels, while others tend to lag changes in market rate
levels and tend to be somewhat less volatile.

ARMS may be secured by adjustable-rate mortgages or fixed-rate mortgages. ARMS
secured by fixed-rate mortgages generally have lifetime caps on the coupon rates
of the securities. To the extent that general interest rates increase faster
than the interest rates on the ARMS, these ARMS will decline in value. The
adjustable-rate mortgages that secure ARMS will frequently have caps that limit
the maximum amount by which the interest rate or the monthly principal and
interest payments on the mortgages may increase. These payment caps can result
in negative amortization (i.e., an increase in the balance of the mortgage
loan). Furthermore, since many adjustable-rate mortgages only reset on an annual
basis, the values of ARMS tend to fluctuate to the extent that changes in
prevailing interest rates are not immediately reflected in the interest rates
payable on the underlying adjustable-rate mortgages.

Stripped mortgage-related securities (SMRS) are mortgage-related securities that
are usually structured with two classes of securities collateralized by a pool
of mortgages or a pool of mortgaged-backed bonds or pass-through securities,
with each class receiving different proportions of the principal and interest
payments from the underlying assets. A common type of SMRS has one class of
interest-only securities (IOs) receiving all of the interest payments from the
underlying assets, while the other class of securities, principal-only
securities (POs), receives all of the principal payments from the underlying
assets. IOs and POs are extremely sensitive to interest rate changes and are
more volatile than mortgage-related securities that are not stripped. IOs tend
to decrease in value as interest rates decrease, while POs generally increase in
value as interest rates decrease. If prepayments of the underlying mortgages are
greater than anticipated, the amount of interest earned on the overall pool will
decrease due to the decreasing principal balance of the assets. Changes in the
values of IOs and POs can be substantial and occur quickly, such as occurred in
the

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<PAGE>

first half of 1994 when the value of many POs dropped precipitously due to
increases in interest rates. For this reason, none of the Funds relies on IOs
and POs as the principal means of furthering its investment objective.

The value of mortgage-related securities is affected by a number of factors.
Unlike traditional debt securities, which have fixed maturity dates, mortgage-
related securities may be paid earlier than expected as a result of prepayment
of the underlying mortgages. If property owners make unscheduled prepayments of
their mortgage loans, these prepayments will result in the early payment of the
applicable mortgage-related securities. In that event a Fund may be unable to
invest the proceeds from the early payment of the mortgage-related securities in
an investment that provides as high a yield as the mortgage-related securities.
Consequently, early payment associated with mortgage-related securities causes
these securities to experience significantly greater price and yield volatility
than experienced by traditional fixed-income securities. The occurrence of
mortgage prepayments is affected by the level of general interest rates, general
economic conditions and other social and demographic factors. During periods of
falling interest rates, the rate of mortgage prepayments tends to increase,
thereby tending to decrease the life of mortgage-related securities. During
periods of rising interest rates, the rate of mortgage prepayments usually
decreases, thereby tending to increase the life of mortgage-related securities.
If the life of a mortgage-related security is inaccurately predicted, a Fund may
not be able to realize the rate of return it expected.

As with fixed-income securities generally, the value of mortgage-related
securities can also be adversely affected by increases in general interest rates
relative to the yield provided by such securities. Such adverse effect is
especially possible with fixed-rate mortgage securities. If the yield available
on other investments rises above the yield of the fixed-rate mortgage securities
as a result of general increases in interest rate levels, the value of the
mortgage-related securities will decline. Although the negative effect could be
lessened if the mortgage-related securities were to be paid earlier (thus
permitting a Fund to reinvest the prepayment proceeds in investments yielding
the higher current interest rate), as described above the rate of mortgage
prepayments and early payment of mortgage-related securities generally tends to
decline during a period of rising interest rates.

Although the value of ARMS may not be affected by rising interest rates as much
as the value of fixed-rate mortgage securities is affected by rising interest
rates, ARMS may still decline in value as a result of rising interest rates.
Although, as described above, the yield on ARMS varies with changes in the
applicable interest rate or index, there is often a lag between increases in
general interest rates and increases in the yield on ARMS as a result of
relatively infrequent interest rate reset dates. In addition, adjustable-rate
mortgages and ARMS often have interest rate or payment caps that limit the
ability of the adjustable-rate mortgages or ARMS to fully reflect increases in
the general level of interest rates.

Mortgage Strategy may invest up to 15% of the value of its total assets in
mortgage-related securities denominated in U.S. Dollars or in foreign currencies
and issued or guaranteed by foreign governments or issued by foreign non-
governmental issuers, provided that such foreign mortgage-related securities are
triple-A rated. The percentage of Mortgage Strategy's assets invested in foreign
mortgage-related securities will vary and its portfolio of foreign mortgage-
related securities may include those of a number of foreign countries or,
depending upon market conditions, those of a single country. See "Risk
Considerations--Foreign Investment."

Other Asset-Backed Securities. The securitization techniques used to develop
mortgage-related securities are being applied to a broad range of financial
assets. Through the use of trusts and special purpose corporations, various
types of assets, including automobile loans and leases, credit card receivables,
home equity loans, equipment leases and trade receivables, are being securitized
in structures similar to the structures used in mortgage securitizations. These
asset-backed securities are subject to risks associated with changes in interest
rates and prepayment of underlying obligations similar to the risks of
investment in mortgage-related securities discussed above.

Each type of asset-backed security also entails unique risks depending on the
type of assets involved and the legal structure used. For example, credit card
receivables are generally unsecured obligations of the credit card holder and
the debtors are entitled to the protection of a number of state and federal
consumer credit laws, many of which give such debtors the right to set off
certain amounts owed on the credit cards, thereby reducing the balance due.
There have also been proposals to cap the interest rate that a credit card
issuer may charge. In some transactions, the value of the asset-backed security
is dependent on the performance of a third party acting as credit enhancer or
servicer. Furthermore, in some transactions (such as those involving the
securitization of vehicle loans or leases) it may be administratively burdensome
to perfect the interest of the security issuer in the underlying collateral and
the underlying collateral may become damaged or stolen.

U.S. Government Securities. U.S. Government securities may be backed by the full
faith and credit of the United States, supported only by the right of the issuer
to borrow from the U.S. Treasury or backed only by the credit of the issuing
agency itself. These securities include:

(i) the following U.S. Treasury securities, which are backed by the full
faith and credit of the United States and differ only in their
interest rates, maturities and times of issuance: U.S. Treasury bills
(maturities of one year or less with no interest paid and hence issued
at a discount and repaid at full face value upon maturity), U.S.
Treasury notes (maturities of one to ten years with interest payable
every six months) and U.S. Treasury bonds (generally maturities of
greater than ten years with interest payable every six months);

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<PAGE>

(ii) obligations issued or guaranteed by U.S. Government agencies and
instrumentalities that are supported by the full faith and credit of
the U.S. Government, such as securities issued by GNMA, the Farmers
Home Administration, the Department of Housing and Urban Development,
the Export-Import Bank, the General Services Administration and the
Small Business Administration; and

(iii) obligations issued or guaranteed by U.S. Government agencies and
instrumentalities that are not supported by the full faith and credit
of the U.S. Government, such as securities issued by FNMA and FHLMC,
and governmental CMOs.

The maturities of the U.S. Government securities listed in paragraphs (i) and
(ii) above usually range from three months to 30 years. Such securities, except
GNMA certificates, normally provide for periodic payments of interest in fixed
amounts with principal payments at maturity or specified call dates. For
information regarding GNMA, FNMA and FHLMC certificates and CMOs, see "Mortgage-
Related Securities" above.

U.S. Government securities also include zero coupon securities and principal-
only securities and certain SMRS. In addition, other U.S. Government agencies
and instrumentalities have issued stripped securities that are similar to SMRS.
Such securities include those that are issued with an IO class and a PO class.
See "Mortgage-Related Securities" above and "Zero Coupon and Principal-Only
Securities" below. Although these stripped securities are purchased and sold by
institutional investors through several investment banking firms acting as
brokers or dealers, these securities were only recently developed. As a result,
established trading markets have not yet developed and, accordingly, these
securities may be illiquid.

Guarantees of securities by the U.S. Government or its agencies or
instrumentalities guarantee only the payment of principal and interest on the
securities, and do not guarantee the securities' yield or value or the yield or
value of the shares of a Fund that holds the securities.

U.S. Government securities are considered among the safest of fixed-income
investments. As a result, however, their yields are generally lower than the
yields available from other fixed-income securities.

Zero Coupon and Principal-Only Securities. Zero coupon securities and principal-
only (PO) securities are debt securities that have been issued without interest
coupons or stripped of their unmatured interest coupons, and include receipts or
certificates representing interests in such stripped debt obligations and
coupons. Such a security pays no interest to its holder during its life. Its
value to an investor consists of the difference between its face value at the
time of maturity and the price for which it was acquired, which is generally an
amount significantly less than its face value. Such securities usually trade at
a deep discount from their face or par value and are subject to greater
fluctuations in market value in response to changing interest rates than debt
obligations of comparable maturities and credit quality that make current
distributions of interest. On the other hand, because there are no periodic
interest payments to be reinvested prior to maturity, these securities eliminate
reinvestment risk and "lock in" a rate of return to maturity.

Zero coupon Treasury securities are U.S. Treasury bills issued without interest
coupons. Principal-only Treasury securities are U.S. Treasury notes and bonds
that have been stripped of their unmatured interest coupons, and receipts or
certificates representing interests in such stripped debt obligations and
coupons. Currently the only U.S. Treasury security issued without coupons is the
Treasury bill. Although the U.S. Treasury does not itself issue Treasury notes
and bonds without coupons, under the U.S. Treasury STRIPS program interest and
principal payments on certain long-term Treasury securities may be maintained
separately in the Federal Reserve book entry system and may be separately traded
and owned. In addition, in the last few years a number of banks and brokerage
firms have separated ("stripped") the principal portions from the coupon
portions of U.S. Treasury bonds and notes and sold them separately in the form
of receipts or certificates representing undivided interests in these
instruments (which instruments are generally held by a bank in a custodial or
trust account). The staff of the Commission has indicated that, in its view,
these receipts or certificates should be considered as securities issued by the
bank or brokerage firm involved and, therefore, should not be included in a
Fund's categorization of U.S. Government securities. The Funds disagree with the
staff's position but will not treat such securities as U.S. Government
securities until final resolution of the issue.

Current federal tax law requires that a holder (such as a Fund) of a zero coupon
security accrue a portion of the discount at which the security was purchased as
income each year even though the holder receives no interest payment in cash on
the security during the year. As a result, in order to make the distributions
necessary for a Fund not to be subject to federal income or excise taxes, the
Fund might be required to pay out as an income distribution each year an amount,
obtained by liquidation of portfolio securities or borrowings if necessary,
greater than the total amount of cash that the Fund has actually received as
interest during the year. Each Fund believes, however, that it is highly
unlikely that it would be necessary to liquidate portfolio securities or borrow
money in order to make such required distributions or to meet its investment
objective. For a discussion of the tax treatment of zero coupon Treasury
securities, see "Dividends, Distributions and Taxes--Zero Coupon Treasury
Securities" in the Statement of Additional Information of each Fund that is
permitted to invest in such securities.

Corporate Bond may also invest in "pay-in-kind" debentures (i.e., debt
obligations the interest on which may be paid in the form of obligations of the
same type rather than cash), which have characteristics similar to zero coupon
securities.

Variable, Floating and Inverse Floating Rate Instruments. Fixed-income
securities may have fixed, variable or floating

27
<PAGE>

rates of interest. Variable and floating rate securities pay interest at rates
that are adjusted periodically, according to a specified formula. A "variable"
interest rate adjusts at predetermined intervals (e.g., daily, weekly or
monthly), while a "floating" interest rate adjusts whenever a specified
benchmark rate (such as the bank prime lending rate) changes.

A Fund may invest in fixed-income securities that pay interest at a coupon rate
equal to a base rate, plus additional interest for a certain period of time if
short-term interest rates rise above a predetermined level or "cap." The amount
of such an additional interest payment typically is calculated under a formula
based on a short-term interest rate index multiplied by a designated factor.

Leveraged inverse floating rate debt instruments are sometimes known as inverse
floaters. The interest rate on an inverse floater resets in the opposite
direction from the market rate of interest to which the inverse floater is
indexed. An inverse floater may be considered to be leveraged to the extent that
its interest rate varies by a magnitude that exceeds the magnitude of the change
in the index rate of interest. The higher degree of leverage inherent in inverse
floaters is associated with greater volatility in market value, such that,
during periods of rising interest rates, the market values of inverse floaters
will tend to decrease more rapidly than those of fixed rate securities.

Structured Securities. Structured securities in which Global Dollar Government
and Corporate Bond may invest represent interests in entities organized and
operated solely for the purpose of restructuring the investment characteristics
of sovereign debt obligations, with respect to Global Dollar Government, or
foreign government securities, with respect to Corporate Bond. This type of
restructuring involves the deposit with or purchase by an entity, such as a
corporation or trust, of specified instruments (such as commercial bank loans or
Brady Bonds) and the issuance by that entity of one or more classes of
structured securities backed by, or representing interests in, the underlying
instruments. The cash flow on the underlying instruments may be apportioned
among the newly issued structured securities to create securities with different
investment characteristics such as varying maturities, payment priorities and
interest rate provisions, and the extent of the payments made with respect to
structured securities is dependent on the extent of the cash flow on the
underlying instruments. Because structured securities typically involve no
credit enhancement, their credit risk generally will be equivalent to that of
the underlying instruments. Structured securities of a given class may be either
subordinated or unsubordinated to the right of payment of another class.
Subordinated structured securities typically have higher yields and present
greater risks than unsubordinated structured securities. Global Dollar
Government may invest up to 25% of its total assets, and Corporate Bond may
invest without limit, in these types of structured securities.

Loan Participations and Assignments. A Fund's investments in loans are expected
in most instances to be in the form of participations in loans and assignments
of all or a portion of loans from third parties. A Fund's investment in loan
participations typically will result in the Fund having a contractual
relationship only with the lender and not with the borrower. A Fund will acquire
participations only if the lender interpositioned between the Fund and the
borrower is a lender having total assets of more than $25 billion and whose
senior unsecured debt is rated investment grade or higher. When a Fund purchases
a loan assignment from a lender it will acquire direct rights against the
borrower on the loan. Because loan assignments are arranged through private
negotiations between potential assignees and potential assignors, however, the
rights and obligations acquired by a Fund as the purchaser of an assignment may
differ from, and be more limited than, those held by the assigning lender. The
assignability of certain sovereign debt obligations, with respect to Global
Dollar Government, or foreign government securities, with respect to Corporate
Bond, is restricted by the governing documentation as to the nature of the
assignee such that the only way in which the Fund may acquire an interest in a
loan is through a participation and not an assignment. A Fund may have
difficulty disposing of assignments and participations because to do so it will
have to assign such securities to a third party. Because there is no liquid
market for such securities, such securities can probably be sold only to a
limited number of institutional investors. The lack of a liquid secondary market
may have an adverse effect on the value of such securities and a Fund's ability
to dispose of particular assignments or participations when necessary to meet
its liquidity needs in response to a specific economic event such as a
deterioration in the creditworthiness of the borrower. The lack of a liquid
secondary market for assignments and participations also may make it more
difficult for the Fund to assign a value to these securities for purposes of
valuing the Fund's portfolio and calculating its net asset value.

Global Dollar Government may invest up to 25%, and Corporate Bond may invest up
to 15%, of their total assets, in loan participations and assignments. The
government that is the borrower on the loan will be considered by a Fund to be
the issuer of a loan participation or assignment for purposes of its fundamental
investment policy that it may not invest 25% or more of its total assets in
securities of issuers conducting their principal business activities in the same
industry (i.e., foreign government).

Brady Bonds. Brady Bonds are created through the exchange of existing commercial
bank loans to foreign entities for new obligations in connection with debt
restructurings under a plan introduced by former U.S. Secretary of the Treasury,
Nicholas F. Brady (the "Brady Plan"). Brady Bonds have been issued only
recently, and, accordingly, do not have a long payment history. They may be
collateralized or uncollateralized and issued in various currencies (although
most are U.S. Dollar-denominated) and they are actively traded in the over-the-
counter secondary market.

U.S. Dollar-denominated, collateralized Brady Bonds, which may be fixed-rate
par bonds or floating rate discount bonds,

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are generally collateralized in full as to principal due at maturity by U.S.
Treasury zero coupon obligations that have the same maturity as the Brady Bonds.
Interest payments on these Brady Bonds generally are collateralized by cash or
securities in an amount that, in the case of fixed rate bonds, is equal to at
least one year of rolling interest payments based on the applicable interest
rate at that time and is adjusted at regular intervals thereafter. Certain Brady
Bonds are entitled to "value recovery payments" in certain circumstances, which
in effect constitute supplemental interest payments but generally are not
collateralized. Brady Bonds are often viewed as having up to four valuation
components: (i) collateralized repayment of principal at final maturity, (ii)
collateralized interest payments, (iii) uncollateralized interest payments, and
(iv) any uncollateralized repayment of principal at maturity (these
uncollateralized amounts constitute the "residual risk"). In the event of a
default with respect to collateralized Brady Bonds as a result of which the
payment obligations of the issuer are accelerated, the U.S. Treasury zero coupon
obligations held as collateral for the payment of principal will not be
distributed to investors, nor will such obligations be sold and the proceeds
distributed. The collateral will be held by the collateral agent to the
scheduled maturity of the defaulted Brady Bonds, which will continue to be
outstanding, at which time the face amount of the collateral will equal the
principal payments that would have then been due on the Brady Bonds in the
normal course. In addition, in light of the residual risk of Brady Bonds and,
among other factors, the history of defaults with respect to commercial bank
loans by public and private entities of countries issuing Brady Bonds,
investments in Brady Bonds are to be viewed as speculative.

Convertible Securities. Convertible securities include bonds, debentures,
corporate notes and preferred stocks that are convertible into common stock.
Prior to conversion, convertible securities have the same general
characteristics as non-convertible debt securities, which provide a stable
stream of income with generally higher yields than those of equity securities of
the same or similar issuers. The price of a convertible security will normally
vary with changes in the price of the underlying stock, although the higher
yield tends to make the convertible security less volatile than the underlying
common stock. As with debt securities, the market value of convertible
securities tends to decline as interest rates increase and increase as interest
rates decline. While convertible securities generally offer lower interest or
dividend yields than non-convertible debt securities of similar quality, they
enable investors to benefit from increases in the market price of the underlying
common stock. Convertible debt securities that are rated Baa or lower by Moody's
or BBB or lower by S&P, Duff & Phelps or Fitch and comparable unrated securities
may share some or all of the risks of debt securities with those ratings. For a
description of these risks, see "Risk Considerations--Investment in Lower-Rated
Fixed-Income Securities."

Short Sales. A short sale is effected by selling a security that a Fund does not
own, or if the Fund owns the security, it is not to be delivered upon
consummation of the sale. A short sale is "against the box" if a Fund owns or
has the right to obtain without payment securities identical to those sold
short. Short-Term U.S. Government and Global Dollar Government each may make
short sales only against the box and only for the purpose of deferring
realization of gain or loss for U.S. federal income tax purposes. In addition,
each of these Funds may not make a short sale if, as a result, more than 10% of
net assets (taken at market value), with respect to Global Dollar Government,
and 10% of total assets, with respect to Short-Term U.S. Government, would be
held as collateral for short sales. If the price of the security sold short
increases between the time of the short sale and the time a Fund replaces the
borrowed security, the Fund will incur a loss; conversely, if the price
declines, the Fund will realize a capital gain. Certain special federal income
tax considerations may apply to short sales entered into by a Fund. See
"Dividends, Distributions and Taxes" in the relevant Fund's Statement of
Additional Information.

Repurchase Agreements. A repurchase agreement arises when a buyer purchases a
security and simultaneously agrees to resell it to the vendor at an agreed-upon
future date, normally a day or a few days later. The resale price is greater
than the purchase price, reflecting an agreed-upon interest rate for the period
the buyer's money is invested in the security. Such agreements permit a Fund to
keep all of its assets at work while retaining "overnight" flexibility in
pursuit of investments of a longer-term nature. A Fund requires continual
maintenance of collateral in an amount equal to, or in excess of, the resale
price. If a vendor defaults on its repurchase obligation, a Fund would suffer a
loss to the extent that the proceeds from the sale of the collateral were less
than the repurchase price. If a vendor goes bankrupt, a Fund might be delayed
in, or prevented from, selling the collateral for its benefit. There is no
percentage restriction on any Fund's ability to enter into repurchase
agreements, except that Short-Term U.S. Government may enter into repurchase
agreements on not more than 25% of its total assets. The Funds may enter into
repurchase agreements with member banks of the Federal Reserve System or
"primary dealers" (as designated by the Federal Reserve Bank of New York),
although Mortgage Strategy, World Income, Short-Term Multi-Market, Multi-Market
Strategy, North American Government Income and Global Dollar Government
currently enter into repurchase agreements only with their custodians and such
primary dealers.

Reverse Repurchase Agreements and Dollar Rolls. Reverse repurchase agreements
involve sales by a Fund of portfolio assets concurrently with an agreement by
the Fund to repurchase the same assets at a later date at a fixed price.
During the reverse repurchase agreement period, the Fund continues to receive
principal and interest payments on these securities. Generally, the effect of
such a transaction is that a Fund can recover all or most of the cash
invested in the portfolio securities involved during the term of the reverse
repurchase agreement, while it will be able to keep the interest income
associated with those portfolio securities. Such transactions are only
advantageous if the interest cost to a

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Fund of the reverse repurchase transaction is less than the cost of otherwise
obtaining the cash.

Dollar rolls involve sales by a Fund of securities for delivery in the current
month and the Fund's simultaneously contracting to repurchase substantially
similar (same type and coupon) securities on a specified future date. During the
roll period, a Fund forgoes principal and interest paid on the securities. A
Fund is compensated by the difference between the current sales price and the
lower forward price for the future purchase (often referred to as the "drop") as
well as by the interest earned on the cash proceeds of the initial sale.

Reverse repurchase agreements and dollar rolls involve the risk that the market
value of the securities a Fund is obligated to repurchase under the agreement
may decline below the repurchase price. In the event the buyer of securities
under a reverse repurchase agreement or dollar roll files for bankruptcy or
becomes insolvent, a Fund's use of the proceeds of the agreement may be
restricted pending a determination by the other party, or its trustee or
receiver, whether to enforce the Fund's obligation to repurchase the securities.

Reverse repurchase agreements and dollar rolls are speculative techniques and
are considered borrowings by the Funds. Short-Term U.S. Government may enter
into reverse repurchase agreements with commercial banks and registered broker-
dealers in order to increase income, in an amount up to 33-1/3% of its total
assets. Under normal circumstances, Mortgage Strategy does not expect to engage
in reverse repurchase agreements and dollar rolls with respect to greater than
50% of its total assets. Reverse repurchase agreements and dollar rolls together
with any borrowings by Global Dollar Government will not exceed 33% of its total
assets less liabilities (other than amounts borrowed). See "Risk
Considerations--Effects of Borrowing."

Loans of Portfolio Securities. A Fund may make secured loans of portfolio
securities to brokers, dealers and financial institutions, provided that cash,
liquid high-grade debt securities or bank letters of credit equal to at least
100% of the market value of the securities loaned is deposited and maintained by
the borrower with the Fund. The risks in lending portfolio securities, as with
other extensions of credit, consist of possible loss of rights in the collateral
should the borrower fail financially. In determining whether to lend securities
to a particular borrower, Alliance will consider all relevant facts and
circumstances, including the creditworthiness of the borrower. While securities
are on loan, the borrower will pay the Fund any income earned thereon and the
Fund may invest any cash collateral in portfolio securities, thereby earning
additional income, or receive an agreed upon amount of income from a borrower
who has delivered equivalent collateral. Each Fund will have the right to regain
record ownership of loaned securities to exercise beneficial rights such as
voting rights, subscription rights and rights to dividends, interest or
distributions. A Fund may pay reasonable finders', administrative and custodial
fees in connection with a loan. A Fund will not lend portfolio securities in
excess of 25%, with respect to Short-Term U.S. Government, and 20%, with respect
to each of Mortgage Strategy, Mortgage Securities Income, World Income, Short-
Term Multi-Market, Multi-Market Strategy, North American Government Income and
Global Dollar Government, of its total assets, nor will a Fund lend portfolio
securities to any officer, director, employee or affiliate of the Fund or
Alliance.

Illiquid Securities. Subject to any more restrictive applicable investment
policies, none of the Funds will maintain more than 15% of its net assets in
illiquid securities. Illiquid securities generally include (i) direct placements
or other securities that are subject to legal or contractual restrictions on
resale or for which there is no readily available market (e.g., when trading in
the security is suspended or, in the case of unlisted securities, when market
makers do not exist or will not entertain bids or offers), including many
currency swaps and any assets used to cover currency swaps, (ii) over-the-
counter options and assets used to cover over-the-counter options, and (iii)
repurchase agreements not terminable within seven days. Rule 144A securities
that have legal or contractual restrictions on resale but have a readily
available market are not deemed illiquid. Alliance will monitor the liquidity of
each Fund's Rule 144A portfolio securities under the supervision of the
Directors of that Fund. A Fund that invests in illiquid securities may not be
able to sell such securities and may not be able to realize their full value
upon sale.

Investment in Other Investment Companies. Global Dollar Government may invest in
other investment companies whose investment objectives and policies are
consistent with those of the Fund. Under the 1940 Act, the Fund may invest not
more than 10% of its total assets in securities of other investment companies.
In addition, under the 1940 Act the Fund may not own more than 3% of the total
outstanding voting stock of any investment company and not more than 5% of the
value of the Fund's total assets may be invested in the securities of any
investment company. If the Fund acquired shares in investment companies,
shareholders would bear both their proportionate share of expenses in the Fund
(including management and advisory fees) and, indirectly, the expenses of such
investment companies (including management and advisory fees).

Future Developments. A Fund may, following written notice to its shareholders,
take advantage of other investment practices that are not currently contemplated
for use by the Fund or are not available but may yet be developed, to the extent
such investment practices are consistent with the Fund's investment objective
and legally permissible for the Fund. Such investment practices, if they arise,
may involve risks that exceed those involved in the practices described above.

Defensive Position. For temporary defensive purposes, each Fund may invest in
certain types of short-term, liquid, high grade or high quality (depending on
the Fund) debt securities. These securities may include U.S. Government
securities, qualifying bank deposits, money market instruments, prime commercial
paper and other types of short-term debt securities including notes and bonds.
For Funds that may invest in foreign countries, such securities may also include
short-term, foreign-currency denominated securities of the type mentioned above
issued by foreign governmental entities, companies and supranational
organizations. For a complete

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description of the types of securities in which a Fund may invest while in a
temporary defensive position, see the Fund's Statement of Additional
Information.

Portfolio Turnover. Portfolio turnover rates are set forth under "Financial
Highlights." These rates of portfolio turnover are greater than those of most
other investment companies. A high rate of portfolio turnover involves
correspondingly greater brokerage and other expenses than a lower rate, which
must be borne by the Fund and its shareholders. High portfolio turnover also may
result in the realization of substantial net short-term capital gains. See
"Dividends, Distributions and Taxes" in each Fund's Statement of Additional
Information.

CERTAIN FUNDAMENTAL INVESTMENT POLICIES

Each Fund has adopted certain fundamental investment policies listed below,
which may not be changed without the approval of its shareholders. Additional
investment restrictions with respect to a Fund are set forth in its Statement of
Additional Information.

Short-Term U.S. Government may not (i) invest more than 5% of its total assets
in the securities of any one issuer (other than U.S. Government securities and
repurchase agreements relating thereto), although up to 25% of the Fund's total
assets may be invested without regard to this restriction, or (ii) invest 25% or
more of its total assets in the securities of any one industry.

U.S. Government may not (i) borrow money except from banks for temporary or
emergency purposes and then only in an amount not exceeding 5% of the value of
its total assets at the time the borrowing is made, (ii) make loans to other
persons, (iii) effect a short sale of any security, (iv) purchase securities on
margin, but it may obtain such short-term credits as may be necessary for the
clearance of purchases and sales of securities, or (v) write, purchase or sell
puts, calls or combinations thereof.

Mortgage Strategy may not (i) invest more than 5% of its total assets in the
securities of any one issuer or own more than 10% of the outstanding voting
securities of such issuer (other than U.S. Government securities), except that
up to 25% of the value of the Fund's total assets may be invested without regard
to the 5% and 10% limitations, (ii) invest 25% or more of its total assets in
securities of companies engaged principally in any one industry, except that
this restriction does not apply to investments in the mortgage and mortgage-
financed industry (in which more than 25% of the value of the Fund's total
assets will, except for temporary defensive positions, be invested) or U.S.
Government securities, (iii) borrow money except from banks for emergency or
temporary purposes in an amount not exceeding 5% of the value of the total
assets of the Fund, except that the Fund may engage in reverse repurchase
agreements and dollar rolls in an amount up to 50% of the Fund's total assets,
and (iv) pledge, hypothecate, mortgage or otherwise encumber its assets, except
to secure permitted borrowings.

Mortgage Securities Income may not (i) invest more than 5% of the value of its
total assets in the securities of any one issuer (other than U.S. Government
securities), except that up to 25% of the value of the Fund's total assets may
be invested without regard to this limitation, (ii) invest more than 25% of the
value of its total assets in the securities of issuers conducting their
principal business activities in a single industry, except that this limitation
shall not apply to investments in the mortgage and mortgage-financed industry
(in which more than 25% of the value of the Fund's total assets will, except for
temporary defensive positions, be invested) or U.S. Government securities, (iii)
borrow money except from banks for temporary or emergency purposes, including
the meeting of redemption requests which might require the untimely disposition
of securities, borrowing in the aggregate may not exceed 15%, and borrowing for
purposes other than meeting redemptions may not exceed 5% of the value of the
Fund's total assets (including the amount borrowed) less liabilities (not
including the amount borrowed) at the time the borrowing is made, outstanding
borrowings in excess of 5% of the value of the Fund's total assets will be
repaid before any subsequent investments are made, (iv) pledge, hypothecate,
mortgage or otherwise encumber its assets, except in an amount of not more than
15% of the value of its total assets to secure borrowings for temporary or
emergency purposes and except as provided in (vi) below, provided, however, that
this limitation does not apply to deposits made in connection with the entering
into and holding of interest rate futures contracts, (v) invest more than 10% of
the value of its total assets in the aggregate in illiquid securities or other
illiquid investments and repurchase agreements maturing in more than seven days,
or (vi) lend its portfolio securities if immediately after such a loan more than
20% of the value of the Fund's total assets would be subject to such loans.

World Income may not (i) invest 25% or more of its total assets in securities of
companies engaged principally in any one industry other than the banking
industry except that this restriction does not apply to U.S. Government
securities, (ii) borrow money except from banks for temporary or emergency
purposes, including the meeting of redemption requests which might require the
untimely disposition of securities; borrowing in the aggregate may not exceed
15%, and borrowing for purposes other than meeting redemptions may not exceed 5%
of the value of the Fund's total assets (including the amount borrowed) less
liabilities (not including the amount borrowed) at the time the borrowing is
made; securities will not be purchased while borrowings in excess of 5% of the
value of the Fund's total assets are outstanding, or (iii) pledge, hypothecate,
mortgage or otherwise encumber its assets, except to secure permitted
borrowings.

Short-Term Multi-Market may not (i) invest 25% or more of its total assets in
securities of companies engaged principally in any one industry other than
the banking industry, except that this restriction does not apply to U.S.
Government securities, (ii) borrow money except from banks for temporary or
emergency purposes, including the meeting of redemption requests which might
require the untimely disposition of securities; borrowing in the aggregate
may not exceed 15%, and borrowing for purposes other than meeting redemptions

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<PAGE>

may not exceed 5% of the value of the Fund's total assets (including the amount
borrowed) less liabilities (not including the amount borrowed) at the time the
borrowing is made; securities will not be purchased while borrowings in excess
of 5% of the value of the Fund's total assets are outstanding, or (iii) pledge,
hypothecate, mortgage or otherwise encumber its assets, except to secure
permitted borrowings.

Multi-Market Strategy may not (i) invest 25% or more of its total assets in
securities of companies engaged principally in any one industry other than the
banking industry, except that this restriction does not apply to U.S. Government
securities, (ii) borrow money, except the Fund may, in accordance with
provisions of the 1940 Act, (a) borrow from a bank, if after such borrowing,
there is asset coverage of at least 300% as defined in the 1940 Act, and (b)
borrow for temporary or emergency purposes in an amount not exceeding 5% of the
value of the total assets of the Fund, or (iii) pledge, hypothecate, mortgage or
otherwise encumber its assets, except to secure permitted borrowings.

North American Government Income may not (i) invest 25% or more of its total
assets in securities of companies engaged principally in any one industry except
that this restriction does not apply to U.S. Government securities, (ii) borrow
money, except that the Fund may, in accordance with provisions of the 1940 Act,
(a) borrow from a bank, if after such borrowing, there is asset coverage of at
least 300% as defined in the 1940 Act, and (b) borrow for temporary or emergency
purposes in an amount not exceeding 5% of the value of the total assets of the
Fund, or (iii) pledge, hypothecate, mortgage or otherwise encumber its assets,
except to secure permitted borrowings.

Global Dollar Government may not (i) invest 25% or more of its total assets in
the securities of issuers conducting their principal business activities in any
one industry, except that this restriction does not apply to U.S. Government
securities, (ii) purchase more than 10% of any class of the voting securities of
any one issuer, (iii) borrow money, except the Fund may, in accordance with
provisions of the 1940 Act, (a) borrow from a bank, if after such borrowing,
there is asset coverage of at least 300% as defined in the 1940 Act, and (b)
borrow for temporary or emergency purposes in an amount not exceeding 5% of the
value of the total assets of the Fund, (iv) pledge, hypothecate, mortgage or
otherwise encumber its assets, except to secure permitted borrowings, or (v)
purchase a security if, as a result (unless the security is acquired pursuant to
a plan of reorganization or an offer of exchange), the Fund would own more than
3% of the total outstanding voting stock of any investment company or more than
5% of the value of the Fund's net assets would be invested in securities of any
one or more investment companies.

Corporate Bond may not (i) invest more than 5% of its total assets in the
securities of any one issuer other than U.S. Government securities, or (ii) own
more than 10% of the outstanding voting securities of any issuer.

Risk Considerations

Fixed-Income Securities. The value of each Fund's shares will fluctuate with the
value of its investments. The value of each Fund's investments will change as
the general level of interest rates fluctuates. During periods of falling
interest rates, the values of a Fund's securities generally rise. Conversely,
during periods of rising interest rates, the values of a Fund's securities
generally decline.

In seeking to achieve a Fund's investment objective, there will be times, such
as during periods of rising interest rates, when depreciation and realization of
capital losses on securities in a Fund's portfolio will be unavoidable.
Moreover, medium- and lower-rated securities and non-rated securities of
comparable quality may be subject to wider fluctuations in yield and market
values than higher-rated securities under certain market conditions. Such
fluctuations after a security is acquired do not affect the cash income received
from that security but are reflected in the net asset value of a Fund.

U.S. Corporate Fixed-Income Securities. The U.S. corporate fixed-income
securities in which Global Dollar Government invests may include securities
issued in connection with corporate restructurings such as takeovers or
leveraged buyouts, which may pose particular risks. Securities issued to finance
corporate restructurings may have special credit risks due to the highly
leveraged conditions of the issuer. In addition, such issuers may lose
experienced management as a result of the restructuring. Finally, the market
price of such securities may be more volatile to the extent that expected
benefits from the restructuring do not materialize. The Fund may also invest in
U.S. corporate fixed-income securities that are not current in the payment of
interest or principal or are in default, so long as Alliance believes such
investment is consistent with the Fund's investment objectives. The Fund's
rights with respect to defaults on such securities will be subject to applicable
U.S. bankruptcy, moratorium and other similar laws.

Foreign Investment. The securities markets of many foreign countries are
relatively small, with the majority of market capitalization and trading
volume concentrated in a limited number of companies representing a small
number of industries. Consequently, a Fund whose investment portfolio
includes such securities may experience greater price volatility and
significantly lower liquidity than a portfolio invested solely in equity
securities of U.S. companies. These markets may be subject to greater
influence by adverse events generally affecting the market, and by large
investors trading significant blocks of securities, than is usual in the
United States. Securities settlements may in some instances be subject to
delays and related administrative uncertainties. Furthermore, foreign
investment in the securities markets of certain foreign countries is
restricted or controlled to varying degrees. These restrictions or controls
may at times limit or preclude investment in certain securities and may
increase the cost and expenses of a Fund. In addition, the repatriation of
investment income, capital or the proceeds of sales of

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securities from certain of the countries is controlled under regulations,
including in some cases the need for certain advance government notification or
authority, and if a deterioration occurs in a country's balance of payments, the
country could impose temporary restrictions on foreign capital remittances. A
Fund could be adversely affected by delays in, or a refusal to grant, any
required governmental approval for repatriation, as well as by the application
to it of other restrictions on investment. Investing in local markets may
require a Fund to adopt special procedures or seek local governmental approvals
or other actions, any of which may involve additional costs to a Fund. The
liquidity of a Fund's investments in any country in which any of these factors
exists could be affected and Alliance will monitor the effect of any such factor
or factors on a Fund's investments. Furthermore, transaction costs including
brokerage commissions for transactions both on and off the securities exchanges
in many foreign countries are generally higher than in the U.S.

Issuers of securities in foreign jurisdictions are generally not subject to the
same degree of regulation as are U.S. issuers with respect to such matters as
insider trading rules, restrictions on market manipulation, shareholder proxy
requirements and timely disclosure of information. The reporting, accounting and
auditing standards of foreign countries may differ, in some cases significantly,
from U.S. standards in important respects and less information may be available
to investors in foreign securities than to investors in U.S. securities.
Substantially less information is publicly available about certain non-U.S.
issuers than is available about U.S. issuers.

The economies of individual foreign countries may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross domestic
product or gross national product, rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payments position. Nationalization,
expropriation or confiscatory taxation, currency blockage, political changes,
government regulation, political or social instability or diplomatic
developments could affect adversely the economy of a foreign country or the
Fund's investments in such country. In the event of expropriation,
nationalization or other confiscation, a Fund could lose its entire investment
in the country involved. In addition, laws in foreign countries governing
business organizations, bankruptcy and insolvency may provide less protection to
security holders such as the Fund than that provided by U.S. laws.

World Income may invest a portion of its net assets in securities denominated in
the ECU. There are risks associated with concentration of investments in a
particular region of the world such as Western Europe since the economies and
markets of the countries in the region tend to be interrelated and may be
adversely affected by political, economic and other events in a similar manner.

Alliance believes that, except for currency fluctuations between the U.S. Dollar
and the Canadian Dollar, the matters described above are not likely to have a
material adverse effect on North American Government Income's investments in the
securities of Canadian issuers or investments denominated in Canadian issuers or
investments denominated in Canadian Dollars. The factors described above are
more likely to have a material adverse effect on the Fund's investments in the
securities of Mexican and other non-Canadian foreign issuers, including
investments in securities denominated in Mexican Pesos or other non-Canadian
foreign currencies. If not hedged, however, currency fluctuations could affect
the unrealized appreciation and depreciation of Canadian Government securities
as expressed in U.S. Dollars.

Currency Considerations. Those Funds that invest some portion of their assets in
securities denominated in, and receive revenues in, foreign currencies will be
adversely affected by reductions in the value of those currencies relative to
the U.S. Dollar. These changes will affect a Fund's net assets, distributions
and income. If the value of the foreign currencies in which a Fund receives
income falls relative to the U.S. Dollar between receipt of the income and the
making of Fund distributions, a Fund may be required to liquidate securities in
order to make distributions if the Fund has insufficient cash in U.S. Dollars to
meet the distribution requirements that the Fund must satisfy to qualify as a
regulated investment company for federal income tax purposes. Similarly, if an
exchange rate declines between the time a Fund incurs expenses in U.S. Dollars
and the time cash expenses are paid, the amount of the currency required to be
converted into U.S. Dollars in order to pay expenses in U.S. Dollars could be
greater than the equivalent amount of such expenses in the currency at the time
they were incurred. In light of these risks, a Fund may engage in certain
currency hedging transactions, which themselves, involve certain special risks.
See "Additional Investment Practices" above.

Sovereign Debt Obligations. No established secondary markets may exist for many
of the sovereign debt obligations in which Global Dollar Government will invest.
Reduced secondary market liquidity may have an adverse effect on the market
price and the Fund's ability to dispose of particular instruments when necessary
to meet its liquidity requirements or in response to specific economic events
such as a deterioration in the creditworthiness of the issuer. Reduced secondary
market liquidity for certain sovereign debt obligations may also make it more
difficult for the Fund to obtain accurate market quotations for the purpose of
valuing its portfolio. Market quotations are generally available on many
sovereign debt obligations only from a limited number of dealers and may not
necessarily represent firm bids of those dealers or prices for actual sales.

By investing in sovereign debt obligations, the Fund will be exposed to the
direct or indirect consequences of political, social and economic changes in
various countries. Political changes in a country may affect the willingness of
a foreign government to make or provide for timely payments of its obligations.
The country's economic status, as reflected,

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among other things, in its inflation rate, the amount of its external debt and
its gross domestic product, will also affect the government's ability to honor
its obligations.

The sovereign debt obligations in which the Fund will invest in most cases
pertain to countries that are among the world's largest debtors to commercial
banks, foreign governments, international financial organizations and other
financial institutions. In recent years, the governments of some of these
countries have encountered difficulties in servicing their external debt
obligations, which led to defaults on certain obligations and the restructuring
of certain indebtedness. Restructuring arrangements have included, among other
things, reducing and rescheduling interest and principal payments by negotiating
new or amended credit agreements or converting outstanding principal and unpaid
interest to Brady Bonds, and obtaining new credit to finance interest payments.
Certain governments have not been able to make payments of interest on or
principal of sovereign debt obligations as those payments have come due.
Obligations arising from past restructuring agreements may affect the economic
performance and political and social stability of those issuers.

The ability of governments to make timely payments on their obligations is
likely to be influenced strongly by the issuer's balance of payments, including
export performance, and its access to international credits and investments. To
the extent that a country receives payment for its exports in currencies other
than dollars, its ability to make debt payments denominated in dollars could be
adversely affected. To the extent that a country develops a trade deficit, it
will need to depend on continuing loans from foreign governments, multi-lateral
organizations or private commercial banks, aid payments from foreign governments
and on inflows of foreign investment. The access of a country to these forms of
external funding may not be certain, and a withdrawal of external funding could
adversely affect the capacity of a government to make payments on its
obligations. In addition, the cost of servicing debt obligations can be affected
by a change in international interest rates since the majority of these
obligations carry interest rates that are adjusted periodically based upon
international rates.

The Fund is permitted to invest in sovereign debt obligations that are not
current in the payment of interest or principal or are in default so long as
Alliance believes it to be consistent with the Fund's investment objectives. The
Fund may have limited legal recourse in the event of a default with respect to
certain sovereign debt obligations it holds. For example, remedies from defaults
on certain sovereign debt obligations, unlike those on private debt, must, in
some cases, be pursued in the courts of the defaulting party itself. Legal
recourse therefore may be significantly diminished. Bankruptcy, moratorium and
other similar laws applicable to issuers of sovereign debt obligations may be
substantially different from those applicable to issuers of private debt
obligations. The political context, expressed as the willingness of an issuer of
sovereign debt obligations to meet the terms of the debt obligation, for
example, is of considerable importance. In addition, no assurance can be given
that the holders of commercial bank debt will not contest payments to the
holders of securities issued by foreign governments in the event of default
under commercial bank loan agreements.

Effects of Borrowing. A Fund's loan agreements provide for additional borrowings
and for repayments and reborrowings from time to time, and each Fund that may
borrow expects to effect borrowings and repayments at such times and in such
amounts as will maintain investment leverage in an amount approximately equal to
its borrowing target. The loan agreements provide for a selection of interest
rates that are based on the bank's short-term funding costs in the U.S. and
London markets.

Borrowings by a Fund result in leveraging of the Fund's shares of common stock.
Utilization of leverage, which is usually considered speculative, however,
involves certain risks to a Fund's shareholders. These include a higher
volatility of the net asset value of a Fund's shares of common stock and the
relatively greater effect on the net asset value of the shares. So long as a
Fund is able to realize a net return on its investment portfolio that is higher
than the interest expense paid on borrowings, the effect of leverage will be to
cause the Fund's shareholders to realize a higher current net investment income
than if the Fund were not leveraged. On the other hand, interest rates on U.S.
Dollar-denominated and foreign currency-denominated obligations change from time
to time as does their relationship to each other, depending upon such factors as
supply and demand forces, monetary and tax policies within each country and
investor expectations. Changes in such factors could cause the relationship
between such rates to change so that rates on U.S. Dollar-denominated
obligations may substantially increase relative to the foreign currency-
denominated obligations in which the Fund may be invested. To the extent that
the interest expense on borrowings approaches the net return on a Fund's
investment portfolio, the benefit of leverage to the Fund's shareholders will be
reduced, and if the interest expense on borrowings were to exceed the net return
to shareholders, a Fund's use of leverage would result in a lower rate of return
than if a Fund were not leveraged. Similarly, the effect of leverage in a
declining market could be a greater decrease in net asset value per share than
if the Fund were not leveraged. In an extreme case if a Fund's current
investment income were not sufficient to meet the interest expense on
borrowings, it could be necessary for the Fund to liquidate certain of its
investments, thereby reducing the net asset value of a Fund's shares.

In the event of an increase in rates on U.S. Government securities or other
changed market conditions, to the point where leverage by either Multi-Market
Strategy or North American Government Income could adversely affect the Funds'
shareholders, as noted above, or in anticipation of such changes, either Fund
may increase the percentage of its investment portfolio invested in U.S.
Government securities, which would tend to offset the negative impact of
leverage on Fund shareholders. Either Fund may also reduce the degree to which
it is leveraged by repaying amounts borrowed.

34
<PAGE>

Under the 1940 Act, a Fund is not permitted to borrow unless immediately after
such borrowing there is "asset coverage," as that term is defined and used in
the 1940 Act, of at least 300% for all borrowings of the Fund. In addition,
under the 1940 Act, in the event asset coverage falls below 300%, a Fund must
within three days reduce the amount of its borrowing to such an extent that the
asset coverage of its borrowings is at least 300%. Assuming, for example,
outstanding borrowings representing not more than one-third of a Fund's total
assets less liabilities (other than such borrowings), the asset coverage of the
Fund's portfolio would be 300%; while outstanding borrowings representing 25% of
the Fund's total assets less liabilities (other than such borrowings), the asset
coverage of the Fund's portfolio would be 400%. A Fund will maintain asset
coverage of outstanding borrowings of at least 300% and if necessary will, to
the extent possible, reduce the amounts borrowed by making repayments from time
to time in order to do so. Such repayments could require a Fund to sell
portfolio securities at times considered disadvantageous by Alliance. In the
event that a Fund is required to sell portfolio securities in order to make
repayments, such sales of portfolio securities could cause the Fund to incur
related transaction costs and might cause the Fund to realize gains on
securities held for less than three months. Because not more than 30% of a
Fund's gross income may be derived from the sale or disposition of stocks and
securities held for less than three months to maintain the Fund's tax status as
a regulated investment company, such gains would limit the ability of a Fund to
sell other securities held for less than three months that a Fund might wish to
sell in the ordinary course of its portfolio management and thus might adversely
affect the Fund's yield. See "Dividends, Distributions and Taxes."

Each of Multi-Market Strategy, North American Government Income and Global
Dollar Government may also borrow to repurchase its shares or to meet redemption
requests. In addition, each Fund may borrow for temporary purposes (including
the purposes mentioned in the preceding sentence) in an amount not exceeding 5%
of the value of the assets of the Fund. Borrowings for temporary purposes are
not subject to the 300% asset average limit described above. See "Certain
Fundamental Investment Policies." Short-Term U.S. Government, Multi-Market
Strategy, North American Government Income and Global Dollar Government may also
borrow through the use of reverse repurchase agreements, and Global Dollar
Government also through the use of dollar rolls to the extent permitted by the
1940 Act. See "Investment Objectives and Policies--Reverse Repurchase Agreements
and Dollar Rolls."

Investment in the Banking Industry. Due to the investment policies of Multi-
Market Strategy, World Income and Short-Term Multi-Market with respect to
investments in the banking industry, those Funds will have greater exposure to
the risk factors which are characteristic of such investments. In particular,
the value of and investment return on each Fund's shares will be affected by
economic or regulatory developments in or related to the banking industry.
Sustained increases in interest rates can adversely affect the availability and
cost of funds for a bank's lending activities, and a deterioration in general
economic conditions could increase the exposure to credit losses. The banking
industry is also subject to the effects of: the concentration of loan portfolios
in particular business such as real estate, energy, agriculture or high
technology-related companies; national and local regulation; and competition
within those industries as well as with other types of financial institutions.
In addition, each Fund's investments in commercial banks located in several
foreign countries are subject to additional risks due to the combination in such
banks of commercial banking and diversified securities activities. As discussed
above, however, the Funds will seek to minimize their exposure to such risks by
investing only in debt securities which are determined to be of high quality.

Securities Ratings. The ratings of fixed-income securities by S&P, Moody's, Duff
& Phelps and Fitch are a generally accepted barometer of credit risk. They are,
however, subject to certain limitations from an investor's standpoint. The
rating of an issuer is heavily weighted by past developments and does not
necessarily reflect probable future conditions. There is frequently a lag
between the time a rating is assigned and the time it is updated. In addition,
there may be varying degrees of difference in credit risk of securities within
each rating category.

Investment in Fixed-Income Securities Rated Baa and BBB. Securities rated Baa or
BBB are considered to have speculative characteristics and share some of the
same characteristics as lower-rated securities, as described below. Sustained
periods of deteriorating economic conditions or of rising interest rates are
more likely to lead to a weakening in the issuer's capacity to pay interest and
repay principal than in the case of higher-rated securities.

Investment in Lower-Rated Fixed-Income Securities. Lower-rated securities are
subject to greater risk of loss of principal and interest than higher-rated
securities. They are also generally considered to be subject to greater market
risk than higher-rated securities, and the capacity of issuers of lower-rated
securities to pay interest and repay principal is more likely to weaken than is
that of issuers of higher-rated securities in times of deteriorating economic
conditions or rising interest rates. In addition, lower-rated securities may be
more susceptible to real or perceived adverse economic conditions than
investment grade securities, although the market values of securities rated
below investment grade and comparable unrated securities tend to react less to
fluctuations in interest rate levels than do those of higher-rated securities.
Securities rated Ba or BB are judged to have speculative elements or to be
predominantly speculative with respect to the issuer's ability to pay interest
and repay principal. Securities rated B are judged to have highly speculative
elements or to be predominantly speculative. Such securities may have small
assurance of interest and principal payments. Securities rated Baa by Moody's
are also judged to have speculative characteristics.

The market for lower-rated securities may be thinner and less active than
that for higher-rated securities, which can

35
<PAGE>

adversely affect the prices at which these securities can be sold. To the extent
that there is no established secondary market for lower-rated securities, a Fund
may experience difficulty in valuing such securities and, in turn, the Fund's
assets. Under the Financial Institutions Reform, Recovery, and Enforcement Act
of 1989, federally-insured savings and loan associations were required to have
divested their investments in non-investment grade corporate debt securities by
July 1, 1994. Such divestiture and continuing restrictions on the ability of
such associations to acquire lower-rated securities could have a material
adverse effect on the market and prices of such securities.

Alliance will try to reduce the risk inherent in investment in lower-rated
securities through credit analysis, diversification and attention to current
developments and trends in interest rates and economic and political conditions.
However, there can be no assurance that losses will not occur. Since the risk of
default is higher for lower-rated securities, Alliance's research and credit
analysis are a correspondingly more important aspect of its program for managing
a Fund's securities than would be the case if a Fund did not invest in lower-
rated securities. In considering investments for the Fund, Alliance will attempt
to identify those high-yielding securities whose financial condition is adequate
to meet future obligations, has improved, or is expected to improve in the
future. Alliance's analysis focuses on relative values based on such factors as
interest or dividend coverage, asset coverage, earnings prospects, and the
experience and managerial strength of the issuer.

Non-rated Securities. Non-rated securities will also be considered for
investment by North American Government Income, Global Dollar Government and
Corporate Bond when Alliance believes that the financial condition of the
issuers of such securities, or the protection afforded by the terms of the
securities themselves, limits the risk to the Fund to a degree comparable to
that of rated securities which are consistent with the Fund's objective and
policies.

Non-diversified Status. Each of World Income, Short-Term Multi-Market, Multi-
Market Strategy, North American Government Income and Global Dollar Government
is a "non-diversified" investment company, which means the Fund is not limited
in the proportion of its assets that may be invested in the securities of a
single issuer. However, each Fund intends to conduct its operations so as to
qualify to be taxed as a "regulated investment company" for purposes of the
Code, which will relieve the Fund of any liability for federal income tax to the
extent its earnings are distributed to shareholders. See "Dividends,
Distributions and Taxes" in each Fund's Statement of Additional Information. To
so qualify, among other requirements, each Fund will limit its investments so
that, at the close of each quarter of the taxable year, (i) not more than 25% of
the Fund's total assets will be invested in the securities of a single issuer,
and (ii) with respect to 50% of its total assets, not more than 5% of its total
assets will be invested in the securities of a single issuer and the Fund will
not own more than 10% of the outstanding voting securities of a single issuer. A
Fund's investments in U.S. Government securities are not subject to these
limitations. Because World Income, Short-Term Multi-Market, Multi-Market
Strategy, North American Government Income and Global Dollar Government is each
a non-diversified investment company, it may invest in a smaller number of
individual issuers than a diversified investment company, and an investment in
such Fund may, under certain circumstances, present greater risk to an investor
than an investment in a diversified investment company.

Foreign government securities are not treated like U.S. Government securities
for purposes of the diversification tests described in the preceding paragraph,
but instead are subject to these tests in the same manner as the securities of
non-governmental issuers. In this regard sovereign debt obligations issued by
different issuers located in the same country are often treated as issued by a
single issuer for purposes of these diversification tests. Certain issuers of
structured securities and loan participations may be treated as separate issuers
for the purposes of these tests. Accordingly, in order to meet the
diversification tests and thereby maintain its status as a regulated investment
company, North American Government Income will be required to diversify its
portfolio of foreign government securities in a manner which would not be
necessary if the Fund had made similar investments in U.S. Government
securities.

--------------------------------
Purchase And Sale Of Shares
--------------------------------

HOW TO BUY SHARES

You can purchase shares of any of the Funds through broker-dealers, banks or
other financial intermediaries, or directly through Alliance Fund Distributors,
Inc. ("AFD"), each Fund's principal underwriter. The minimum initial investment
in each Fund is $250. The minimum for subsequent investments in each Fund is
$50. Investments of $25 or more are allowed under the automatic investment
program of each Fund. Share certificates are issued only upon request. See the
Subscription Application and Statements of Additional Information for more
information.

Each Fund offers three classes of shares, Class A, Class B and Class C, except
that World Income offers only one class of shares that you can purchase without
any initial sales charge or contingent deferred sales charge ("CDSC").

Class A Shares--Initial Sales Charge Alternative

You can purchase Class A shares at net asset value plus an initial sales charge,
as follows:

36
<PAGE>

<TABLE>
<CAPTION>
as % of Commission to
Net Amount as % of Dealer/Agent as %
Amount Purchased Invested Offering Price of Offering Price
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $100,000 4.44% 4.25% 4.00%
- -----------------------------------------------------------------------------
$100,000 to
less than $250,000 3.36 3.25 3.00
- -----------------------------------------------------------------------------
$250,000 to
less than $500,000 2.30 2.25 2.00
- -----------------------------------------------------------------------------
$500,000 to
less than $1,000,000 1.78 1.75 1.50
- -----------------------------------------------------------------------------
</TABLE>
On purchases of $1,000,000 or more, you pay no initial sales charge but may pay
a CDSC equal to 1% of the lesser of net asset value at the time of redemption or
original cost if you redeem within one year; Alliance may pay the dealer or
agent a fee of up to 1% of the dollar amount purchased. Certain purchases of
Class A shares may qualify for reduced or eliminated sales charges in accordance
with a Fund's Combined Purchase Privilege, Cumulative Quantity Discount,
Statement of Intention, Privilege for Certain Retirement Plans, Reinstatement
Privilege and Sales at Net Asset Value programs. Consult the Subscription
Application and Statements of Additional Information.

Class B Shares--Deferred Sales Charge Alternative

You can purchase Class B shares at net asset value without an initial sales
charge. However, you may pay a CDSC if you redeem shares within three years
after purchase. Shares obtained from dividend or distribution reinvestment are
not subject to the CDSC. The amount of the CDSC (expressed as a percentage of
the lesser of the current net asset value or original cost) will vary according
to the number of years from the purchase of Class B shares until the redemption
of those shares. The amount of the CDSC for each Fund is as set forth below.
Class B shares of a Fund purchased prior to the date of this Prospectus may be
subject to a different CDSC schedule, which was disclosed in the Fund's
prospectus in use at the time of purchase and is set forth in the Fund's current
Statement of Additional Information.

Year Since Purchase CDSC
-----------------------------------------------------
<S> <C>
First........................................ 3.0%
Second....................................... 2.0%
Third........................................ 1.0%
Fourth....................................... None
</TABLE>

Class B shares are subject to higher distribution fees than Class A shares for a
period of six years (after which they convert to Class A shares). The higher
fees mean a higher expense ratio, so Class B shares pay correspondingly lower
dividends and may have a lower net asset value than Class A shares.

Class C Shares--Asset-Based Sales Charge Alternative

You can purchase Class C shares without any initial sales charge or a CDSC. A
Fund will thus receive the full amount of your purchase, and you will receive
the entire net asset value of your shares upon redemption. Class C shares incur
higher distribution fees than Class A shares and do not convert to any other
class of shares of the Fund. The higher fees mean a higher expense ratio, so
Class C shares pay correspondingly lower dividends and may have a lower net
asset value than Class A shares.

Application of the CDSC

Shares obtained from dividend or distribution reinvestment are not subject to
the CDSC on Class A and Class B shares. The CDSC is deducted from the amount of
the redemption and is paid to AFD. The CDSC will be waived on redemptions of
shares following the death or disability of a shareholder or to meet the
requirements of certain qualified retirement plans. See the Statements of
Additional Information.

How the Funds Value Their Shares

The net asset value of each class of shares of a Fund is calculated by dividing
the value of the Fund's net assets allocable to that class by the outstanding
shares of that class. Shares are valued each day the New York Stock Exchange
(the "Exchange") is open as of the close of regular trading (currently 4:00 p.m.
Eastern time). The securities in a Fund are valued at their current market value
determined on the basis of market quotations or, if such quotations are not
readily available, such other methods as the Fund's Directors believe would
accurately reflect fair market value.

General

The decision as to which class of shares is more beneficial to you depends on
the amount and intended length of your investment. If you are making a large
investment, thus qualifying for a reduced sales charge, you might consider Class
A shares. If you are making a smaller investment, you might consider Class B
shares because 100% of your purchase is invested immediately. If you are unsure
of the length of your investment, you might consider Class C shares because
there are no initial or contingent deferred sales charges. Consult your
financial agent. Dealers and agents may receive differing compensation for
selling Class A, Class B or Class C shares. There is no size limit on purchases
of Class A shares. The maximum purchase of Class B shares is $250,000. The
maximum purchase of Class C shares is $5,000,000. The Funds may refuse any order
to purchase shares.

In addition to the discount or commission paid to dealers or agents, AFD from
time to time pays additional cash or other incentives to dealers or agents,
including Equico Securities, Inc., an affiliate of AFD, in connection with the
sale of shares of the Funds. Such additional amounts may be utilized, in whole
or in part, in some cases together with other revenues of such dealers or
agents, to provide additional compensation to registered representatives who
sell shares of the Funds. On some occasions, such cash or other incentives will
be conditioned upon the sale of a specified minimum dollar amount of the shares
of a Fund and/or other Alliance Mutual Funds during a specific period of time.
Such incentives may take the form of payment for attendance at seminars, meals,
sporting events or theater performances, or payment for travel, lodging and
entertainment incurred in connection with

37
<PAGE>

travel by persons associated with a dealer or agent and their immediate family
members to urban or resort locations within or outside the United States. Such
dealer or agent may elect to receive cash incentives of equivalent amount in
lieu of such payments.

HOW TO SELL SHARES

You may "redeem", i.e., sell your shares in a Fund to the Fund on any day the
Exchange is open, either directly or through your financial intermediary. The
price you will receive is the net asset value (less any applicable CDSC for
Class B shares) next calculated after the Fund receives your request in proper
form. Proceeds generally will be sent to you within seven days. However, for
shares recently purchased by check or electronic funds transfer, a Fund will not
send proceeds until it is reasonably satisfied that the check or electronic
funds transfer has been collected (which may take up to 15 days).

Selling Shares Through Your Broker

A Fund must receive your broker's request before 4:00 p.m. Eastern time for you
to receive that day's net asset value (less any applicable CDSC for Class B
shares). Your broker is responsible for furnishing all necessary documentation
to a Fund and may charge you for this service.

Selling Shares Directly to a Fund

Send a signed letter of instruction or stock power form to Alliance Fund
Services, Inc. ("AFS"), each Fund's registrar, transfer agent and dividend-
disbursing agent, along with certificates, if any, that represent the shares you
want to sell. For your protection, signatures must be guaranteed by a bank, a
member firm of a national stock exchange or other eligible guarantor
institution. Stock power forms are available from your financial intermediary,
AFS, and many commercial banks. Additional documentation is required for the
sale of shares by corporations, intermediaries, fiduciaries and surviving joint
owners. For details contact:

Alliance Fund Services
P.O. Box 1520
Secaucus, NJ 07096-1520
800-221-5672

Alternatively, a request for redemption of shares for which no stock
certificates have been issued can also be made by telephone to 800-221-5672 by a
shareholder who has completed the Subscription Application or an "Autosell"
application obtained from AFS. Telephone redemption requests must be for at
least $500 and may not exceed $100,000, and must be made between 9 a.m. and 4
p.m. New York time on a Fund business day. Proceeds of telephone redemptions
will be sent by electronic funds transfer. Proceeds of telephone redemptions
also may be sent by check to a shareholder's address of record, but only once in
any 30-day period and in amount not exceeding $25,000. Telephone redemption by
check is not available for shares purchased within 15 calendar days prior to the
redemption request, shares held in nominee or "street name" accounts or
retirement plan accounts or shares held by a shareholder who has changed his or
her address of record within the previous 30 calendar days.

General

The sale of shares is a taxable transaction for federal tax purposes. Under
unusual circumstances, a Fund may suspend redemptions or postpone payment for up
to seven days or longer, as permitted by federal securities law. The Funds
reserve the right to close an account that through redemption has remained below
$200 for 90 days. Shareholders will receive 60 days' written notice to increase
the account value before the account is closed.

During drastic economic or market developments, you might have difficulty
reaching AFS by telephone, in which event you should issue written instructions
to AFS. AFS is not responsible for the authenticity of telephonic requests to
purchase, sell or exchange shares. AFS will employ reasonable procedures to
verify that telephone requests are genuine, and could be liable for losses
resulting from unauthorized transactions if it failed to do so. Dealers and
agents may charge a commission for handling telephonic requests. The telephone
service may be suspended or terminated at any time without notice.

SHAREHOLDER SERVICES

AFS offers a variety of shareholder services. For more information about these
services or your account, call AFS's toll-free number, 800-221-5672. Some
services are described in the attached Application. A shareholder's manual
explaining all available services will be provided upon request. To request a
shareholder manual, call 800-227-4618.

HOW TO EXCHANGE SHARES

You may exchange your shares of World Income for Class A shares of other
Alliance Mutual Funds and shares of most Alliance money market funds. You may
exchange your shares of any other Fund for shares of the same class of other
Alliance Mutual Funds (including AFD Exchange Reserves, a money market fund
managed by Alliance). Exchanges of shares are made at the net asset values next
determined, without sales or service charges. Exchanges may be made by telephone
or written request.

Class A and Class B shares will continue to age without regard to exchanges for
the purpose of determining the CDSC, if any, upon redemption and, in the case of
Class B shares, for the purpose of conversion to Class A shares. After an
exchange, your Class B shares will automatically convert to Class A shares in
accordance with the conversion schedule applicable to the Class B shares of the
Alliance Mutual Fund you originally purchased for cash ("original shares"). When
redemption occurs, the CDSC applicable to the original shares is applied.

Please read carefully the prospectus of the mutual fund into which you are
exchanging before submitting the request. Call AFS at 800-221-5672 to exchange
uncertificated shares. An exchange is a taxable capital transaction for federal
tax purposes. The exchange service may be changed, suspended, or terminated on
60 days' written notice.

38
<PAGE>

--------------------------------
Management Of The Funds
--------------------------------

ADVISER

Alliance, which is a Delaware limited partnership with principal offices at 1345
Avenue of the Americas, New York, New York 10105, has been retained under an
advisory agreement (the "Advisory Agreement") to provide investment advice and,
in general, to conduct the management and investment program of each Fund,
subject to the general supervision and control of the Directors of the Fund.

Alliance is a leading international investment manager supervising client
accounts with assets as of December 31, 1994 totaling more than $121 billion (of
which more than $36 billion represented the assets of investment companies).
Alliance's clients are primarily major corporate employee benefit funds, public
employee retirement systems, investment companies, foundations and endowment
funds. The 51 registered investment companies managed by Alliance comprising 103
separate investment portfolios currently have over one million shareholders. As
of December 31, 1994, Alliance was retained as an investment manager for 29 of
the Fortune 100 companies.

Alliance Capital Management Corporation ("ACMC"), the sole general partner of,
and the owner of a 1% general partnership interest in, Alliance, is an indirect
wholly-owned subsidiary of The Equitable Life Assurance Society of the United
States ("Equitable"), one of the largest life insurance companies in the United
States, which is a wholly-owned subsidiary of The Equitable Companies
Incorporated, a holding company controlled by AXA, a French insurance holding
company. Certain information concerning the ownership and control of Equitable
by AXA is set forth in each Fund's Statement of Additional Information under
"Management of the Fund."

The following table lists the person or persons who are primarily responsible
for the day-to-day management of each Fund's portfolio, the length of time that
each person has been primarily responsible, and each person's principal
occupation during the past five years.

Principal occupation
Employee; time period; during the past
Fund title with ACMC five years
- -----------------------------------------------------------------------------------
<S> <C> <C>
Short-Term Paul J. DeNoon since 1993-- Associated with
U.S. Government Vice President Alliance since
January 1992;
prior thereto, a
Vice President at
Manufacturers
Hanover Trust

U.S. Government Wayne D. Lyski since 1983 Associated with
--Executive Vice President Alliance

Paul J. DeNoon since (see above)
January 1992--(see above)

Mortgage Strategy Patricia J. Young since inception Associated with
--Senior Vice President Alliance since
March 1992;
prior thereto, a
managing director
and portfolio
manager for
Hyperion Capital
since March
1991 and a
managing director
with Fischer, Francis,
Trees & Watts

Paul A. Ullman Associated with
since inception-- Alliance since
Vice President March 1992;
prior thereto, a
director and portfolio
manager for Hyperion
Capital since July 1990
and a Vice President
at Salomon Brothers Inc.

Mortgage Securities Patricia J. Young since (see above)
Income March 1992--(see above)

Paul A. Ullman since (see above)
March 1992--(see above)

World Income Robert M. Sinche since Associated with
inception--Senior Vice Alliance
President

Douglas J. Peebles since Associated with
inception--Vice President Alliance

Short-Term Robert M. Sinche since (see above)
Multi-Market inception--(see above)

Multi-Market Strategy Robert M. Sinche since inception (see above)
--(see above)

Douglas J. Peebles since (see above)
inception--(see above)

North American Wayne D. Lyski since inception (see above)
Government Income --(see above)

Robert M. Sinche since inception (see above)
--(see above)

Global Dollar Wayne D. Lyski since inception (see above)
Government --(see above)

Corporate Bond Wayne D. Lyski since (see above)
1987--(see above)

Paul J. DeNoon since (see above)
January 1992--(see above)
</TABLE>

DISTRIBUTION SERVICES AGREEMENTS

Rule 12b-1 adopted by the Commission under the 1940 Act permits an investment
company to pay expenses associated with the distribution of its shares in
accordance with a duly

39
<PAGE>

adopted plan. Each Fund has adopted one or more "Rule 12b-1 plans" (for each
Fund, a "Plan") and has entered into a Distribution Services Agreement (the
"Agreement") with AFD. Pursuant to its Plan, a Fund pays to AFD a Rule 12b-1
distribution services fee, which may not exceed for each Fund other than World
Income an annual rate of .30% (.50% with respect to Short-Term U.S. Government)
of the Fund's aggregate average daily net assets attributable to the Class A
shares, 1.00% of the Fund's aggregate average daily net assets attributable to
the Class B shares and 1.00% of the Fund's aggregate average daily net assets
attributable to the Class C shares, and for World Income may not exceed an
annual rate of .90% of the Fund's aggregate average daily net assets, for
distribution expenses. The Directors of Short-Term U.S. Government currently
limit payments with respect to Class A shares under the Plan to .30% of the
Fund's aggregate average daily net assets attributable to Class A shares. The
Plans provide that a portion of the distribution services fee in an amount not
to exceed .25% of the aggregate average daily net assets of each Fund
attributable to each class of shares constitutes a service fee used for personal
service and/or the maintenance of shareholder accounts.

The Plans provide that AFD will use the distribution services fee received from
a Fund in its entirety for payments (i) to compensate broker-dealers or other
persons for providing distribution assistance, (ii) to otherwise promote the
sale of shares of the Fund, and (iii) to compensate broker-dealers, depository
institutions and other financial intermediaries for providing administrative,
accounting and other services with respect to the Fund's shareholders. In this
regard, some payments under the Plans are used to compensate financial
intermediaries with trail or maintenance commissions in an amount equal to, with
respect to each Fund other than World Income, .25%, annualized, with respect to
Class A shares and Class B shares, and 1.00%, annualized, with respect to Class
C shares, and, with respect to World Income, .90%, annualized, of the assets
maintained in a Fund by their customers. Distribution services fees received
from World Income and the other Funds, except Short-Term U.S. Government, with
respect to Class A shares will not be used to pay any interest expenses,
carrying charges or other financing costs or allocation of overhead of AFD.
Distribution services fees received from the Funds, with respect to Class B and
Class C shares, may be used for these purposes. The Plans also provide that
Alliance may use its own resources to finance the distribution of each Fund's
shares. The Funds are not obligated under the Plans to pay any distribution
services fee in excess of the amounts set forth above. Except as noted below for
Short-Term U.S. Government, with respect to Class A shares of each Fund,
distribution expenses accrued by AFD in one fiscal year may not be paid from
distribution services fees received from the Fund in subsequent fiscal years.
AFD's compensation with respect to Class B and Class C shares under the Plans of
the other Funds is directly tied to the expenses incurred by AFD. Actual
distribution expenses for Class B and Class C shares for any given year,
however, will probably exceed the distribution services fees payable under the
applicable Plan with respect to the class involved and, in the case of Class B
shares, payments received from CDSCs. The excess will be carried forward by AFD
and reimbursed from distribution services fees payable under the Plan with
respect to the class involved and, in the case of Class B shares, payments
subsequently received through CDSCs, so long as the Plan is in effect. Since
AFD's compensation under the Plan of Short-Term U.S. Government is not directly
tied to its expenses incurred, the amount of compensation received by it during
any year may be more or less than its actual expenses.

Unreimbursed distribution expenses incurred as of the end of each Fund's most
recently completed fiscal year, and carried over for reimbursement in future
years in respect of the Class B and Class C shares for all Funds (except Short-
Term U.S. Government), were, as of that time, as follows:

Amount of Unreimbursed Distribution Expenses
(as % of Net Assets of Class)
-------------------------------------------------
Class B Class C
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Short-Term U.S.
Government.... $ 165,033 (2.63%) $ 354,366 (4.97%)
U.S. Government... $13,948,924 (1.84%) $1,761,762 (.76%)
Mortgage Strategy. $ 1,042,848 (.76%) $1,875,176 (1.32%)
Mortgage Securities
Income........ $16,372,116 (1.78%) $1,459,018 (2.50%)
Short-Term Multi-Market $12,115,694 (1.20%) $ 798,673 (9.82%)
Multi-Market Strategy $ 7,254,301 (3.10%) $ 286,168 (22.90%)
North American
Government Income $29,558,594 (1.80%) $2,355,558 (.64%)
Global Dollar Government $ 1,072,560 (2.28%) $ 88,662 (.85%)
Corporate Bond.... $ 4,172,860 (2.27%) $ 391,688 (.77%)
</TABLE>

The Plans are in compliance with rules of the National Association of Securities
Dealers, Inc. which effectively limit the annual asset-based sales charges and
service fees that a mutual fund may pay on a class of shares to .75% and .25%,
respectively, of the average annual net assets attributable to that class. The
rules also limit the aggregate of all front-end, deferred and asset-based sales
charges imposed with respect to a class of shares by a mutual fund that also
charges a service fee to 6.25% of cumulative gross sales of shares of that
class, plus interest at the prime rate plus 1% per annum.

The Glass-Steagall Act and other applicable laws may limit the ability of a bank
or other depository institution to become an underwriter or distributor of
securities. However, in the opinion of the Funds' management, based on the
advice of counsel, these laws do not prohibit such depository institutions from
providing services for investment companies such as the administrative,
accounting and other services referred to in the Agreements. In the event that a
change in these laws prevented a bank from providing such services, it is
expected that other service arrangements would be made and that shareholders
would not be adversely affected. The State of Texas requires that shares of a
Fund may be sold in that state only by dealers or other financial institutions
that are registered there as broker-dealers.

40
<PAGE>

--------------------------
Dividends, Distributions
--------------------------
And Taxes
--------------------------

DIVIDENDS AND DISTRIBUTIONS

Dividends on shares of a Fund will be declared on each Fund business day from
the Fund's net investment income. Dividends on shares for Saturdays, Sundays
and holidays will be declared on the previous business day. Each Fund pays
dividends on its shares after the close of business on the last business day
each month. At your election (which you may change at least 30 days prior to
the record date for a particular dividend or distribution), dividends and
distributions are paid in cash or reinvested in additional shares without
charge.

If you receive an income dividend or capital gains distribution in cash you
may, within 30 days following the date of its payment, reinvest the dividend
or distribution in additional shares of that Fund without charge by returning
to Alliance, with appropriate instructions, the check representing such
dividend or distribution. Thereafter, unless you otherwise specify, you will
be deemed to have elected to reinvest all subsequent dividends and
distributions in shares of that Fund.

Cash dividends can be paid by check or, if the shareholder so elects,
electronically via the ACH network. There is no sales or other charge in
connection with the reinvestment of dividends and capital gains
distributions. Dividends paid by a Fund, if any, with respect to Class A,
Class B and Class C shares will be calculated in the same manner at the same
time on the same day and will be in the same amount, except that the higher
distribution services fees applicable to Class B and Class C shares, and any
incremental transfer agency costs relating to Class B shares, will be borne
exclusively by the class to which they relate.

While it is the intention of each Fund to distribute to its shareholders
substantially all of each fiscal year's net income and net realized capital
gains, if any, the amount and time of any such dividend or distribution must
necessarily depend upon the realization by such Fund of income and capital
gains from investments. There is no fixed dividend rate, and there can be no
assurance that a Fund will pay any dividends or realize any capital gains.

If you buy shares just before a Fund deducts a distribution from its net
asset value, you will pay the full price for the shares and then receive a
portion of the price back as a taxable distribution.

FOREIGN INCOME TAXES

Investment income received by a Fund from sources within foreign countries
may be subject to foreign income taxes withheld at the source. To the extent
that any Fund is liable for foreign income taxes withheld at the source, each
Fund intends, if possible, to operate so as to meet the requirements of the
Code to "pass through" to the Fund's shareholders credits for foreign income
taxes paid, but there can be no assurance that any Fund will be able to do
so.

U.S. FEDERAL INCOME TAXES

Each Fund intends to qualify to be taxed as a "regulated investment company"
under the Code. To the extent that a Fund distributes its taxable income and
net capital gain to its shareholders, qualification as a regulated investment
company relieves that Fund of federal income and excise taxes on that part of
its taxable income including net capital gains which it pays out to its
shareholders. Dividends out of net ordinary income and distributions of net
short-term capital gains are taxable to the recipient shareholders as
ordinary income. In the case of corporate shareholders, such dividends from
certain Funds may be eligible for the dividends-received deduction, except
that the amount eligible for the deduction is limited to the amount of
qualifying dividends received by the Fund. A corporation's dividends-received
deduction will be disallowed unless the corporation holds shares in the Fund
at least 46 days. Furthermore, the dividends-received deduction will be
disallowed to the extent a corporation's investment in shares of a Fund is
financed with indebtedness.

The excess of net long-term capital gains over the net short-term capital
losses realized and distributed by each Fund to its shareholders as capital
gains distributions is taxable to the shareholders as long-term capital
gains, irrespective of the length of time a shareholder may have held his or
her stock. Long-term capital gains distributions are not eligible for the
dividends-received deduction referred to above.

Under the current federal tax law the amount of an income dividend or capital
gains distribution declared by a Fund during October, November or December of
a year to shareholders of record as of a specified date in such a month that
is paid during January of the following year is includable in the prior
year's taxable income of shareholders that are calendar year taxpayers.

Any dividend or distribution received by a shareholder on shares of a Fund
will have the effect of reducing the net asset value of such shares by the
amount of such dividend or distribution. Furthermore, a dividend or
distribution made shortly after the purchase of such shares by a shareholder,
although in effect a return of capital to that particular shareholder, would
be taxable to him or her as described above. If a shareholder held shares six
months or less and during that period received a distribution taxable to such
shareholder as long-term capital gain, any loss realized on the sale of such
shares during such six-month period would be a long-term capital loss to the
extent of such distribution.

A dividend or capital gains distribution with respect to shares of a Fund
held by a tax-deferred or qualified plan, such as an

41
<PAGE>

individual retirement account, 403(b)(7) retirement plan or corporate pension or
profit-sharing plan, will not be taxable to the plan. Distributions from such
plans will be taxable to individual participants under applicable tax rules
without regard to the character of the income earned by the qualified plan.

Distributions by a Fund may be subject to state and local taxes. U.S.
Government, Mortgage Strategy, Mortgage Securities Income, World Income, Short-
Term Multi-Market, Multi-Market Strategy, North American Government Income and
Corporate Bond are qualified to do business in the Commonwealth of Pennsylvania
and, therefore, are subject to the Pennsylvania foreign franchise and corporate
net income tax in respect of their business activities in Pennsylvania.
Accordingly, shares of such Funds are exempt from Pennsylvania personal property
taxes. These Funds anticipate continuing such business activities but reserve
the right to suspend them at any time, resulting in the termination of the
exemptions.

A Fund will be required to withhold 31% of any payments made to a shareholder if
the shareholder has not provided a certified taxpayer identification number to
the Fund, or the Secretary of the Treasury notifies a Fund that a shareholder
has not reported all interest and dividend income required to be shown on the
shareholder's Federal income tax return.

Shareholders will be advised annually as to the federal tax status of dividends
and capital gains distributions made by a Fund for the preceding year.
Shareholders are urged to consult their tax advisers regarding their own tax
situation.

---------------------
General Information
---------------------

PORTFOLIO TRANSACTIONS

Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc., and subject to seeking best price and execution, a
Fund may consider sales of its shares as a factor in the selection of dealers
to enter into portfolio transactions with the Fund.

ORGANIZATION

Each of the following Funds is a Maryland corporation organized in the year
indicated: U.S. Government Portfolio and Corporate Bond Portfolio (each a
series of Alliance Bond Fund, Inc.) (1973), Alliance Mortgage Strategy Trust,
Inc. (1992), Alliance Mortgage Securities Income Fund, Inc. (1983), Alliance
World Income Trust, Inc. (1990), Alliance Short-Term Multi-Market Trust, Inc.
(1989), Alliance Multi-Market Strategy Trust, Inc. (1991), Alliance North
American Government Income Trust, Inc. (1992) and Alliance Global Dollar
Government Fund, Inc. (1993). Prior to January 4, 1993, Corporate Bond
Portfolio was known as Monthly Income Portfolio. Alliance Short-Term U.S.
Government Fund is a series of The Alliance Portfolios, a Massachusetts
business trust that was organized in 1987. Prior to August 2, 1993, The
Alliance Portfolios was known as The Equitable Funds and Short-Term U.S.
Government was known as The Equitable Short-Term U.S. Government Fund.

It is anticipated that annual shareholder meetings will not be held;
shareholder meetings will be held only when required by federal, or in the
case of the Funds organized as Maryland corporations, state law. Shareholders
have available certain procedures for the removal of Directors.

A shareholder in a Fund will be entitled to his or her pro rata share of all
dividends and distributions arising from the Fund's assets and, upon
redeeming shares, will receive the then current net asset value of the Fund
represented by the redeemed shares less any applicable CDSC. The Funds are
empowered to establish, without shareholder approval, additional portfolios,
which may have different investment objectives, and additional classes of
shares. If an additional portfolio or class were established in a Fund, each
share of the portfolio or class would normally be entitled to one vote for
all purposes. Generally, shares of each portfolio and class would vote
together as a single class on matters, such as the election of Directors,
that affect each portfolio and class in substantially the same manner. Class
A, Class B and Class C shares have identical voting, dividend, liquidation and
other rights, except that each class bears its own distribution and transfer
agency expenses. Each class of shares votes separately with respect to a
Fund's Rule 12b-1 distribution plan and other matters for which separate
class voting is appropriate under applicable law. Shares are freely
transferable, are entitled to dividends as determined by the Directors and,
in liquidation of a Fund, are entitled to receive the net assets of the Fund.
Since this Prospectus sets forth information about all the Funds, it is
theoretically possible that a Fund might be liable for any materially
inaccurate or incomplete disclosure in this Prospectus concerning another
Fund. Based on the advice of counsel, however, the Funds believe that the
potential liability of each Fund with respect to the disclosure in this
Prospectus extends only to the disclosure relating to that Fund. Certain
additional matters relating to a Fund's organization are discussed in its
Statement of Additional Information.

PENDING LEGAL PROCEEDINGS INVOLVING NORTH AMERICAN GOVERNMENT INCOME

Between January 6 and February 15, 1995, nine complaints were filed by groups
of shareholders of North American Government Income alleging, among other
things, violations of various federal securities laws as well as fraud,
negligence, negligent misrepresentations and omissions, breach of fiduciary
duty and breach of contract in connection with the Fund's investments in
Mexican and Argentine securities. Four of the actions were filed in the
United States District Court for the Southern District of California, and
five actions were filed in the United States District Court for the Southern
District of New York.

Each of the actions is brought against the Fund, Alliance and ACMC. Other
defendants named in certain of the complaints are AFS and certain officers of
the Fund and ACMC.

42
<PAGE>

Each of the actions seeks to have a plaintiff class certified consisting of
all shareholders of the Fund who purchased or owned shares in the Fund at
varying times between February 1992 and December 1994. The actions seek an
unspecified amount of damages, costs and attorneys' fees. The Fund believes
that the allegations in each of the actions are without merit and intends to
vigorously defend against the claims in the actions.

REGISTRAR, TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT

AFS, an indirect wholly-owned subsidiary of Alliance, located at 500 Plaza
Drive, Secaucus, New Jersey 07094, acts as each Fund's registrar, transfer
agent and dividend-disbursing agent for a fee based upon the number of
shareholder accounts maintained for the Fund. The transfer agency fee with
respect to Class B shares will be higher than the transfer agency fee with
respect to Class A shares or Class C shares.

PRINCIPAL UNDERWRITER

AFD, an indirect wholly-owned subsidiary of Alliance, located at 1345 Avenue
of the Americas, New York, New York 10105, is the principal underwriter of
shares of the Funds.

PERFORMANCE INFORMATION

From time to time, the Funds advertise their "yield" and "total return,"
which are computed separately for Class A, Class B and Class C shares. A
Fund's yield for any 30-day (or one-month) period is computed by dividing the
net investment income per share earned during such period by the maximum
public offering price per share on the last day of the period, and then
annualizing such 30-day (or one-month) yield in accordance with a formula
prescribed by the Commission which provides for compounding on a semi-annual
basis. A Fund may also state in sales literature an "actual distribution
rate" for each class which is computed in the same manner as yield except
that actual income dividends declared per share during the period in question
are substituted for net investment income per share. The actual distribution
rate is computed separately for Class A, Class B and Class C shares.
Advertisements of a Fund's total return disclose its average annual
compounded total return for the periods prescribed by the Commission. A
Fund's total return for each such period is computed by finding, through the
use of a formula prescribed by the Commission, the average annual compounded
rate of return over the period that would equate an assumed initial amount
invested to the value of the investment at the end of the period. For
purposes of computing total return, income dividends and capital gains
distributions paid on shares of a Fund are assumed to have been reinvested
when paid and the maximum sales charges applicable to purchases and
redemptions of a Fund's shares are assumed to have been paid. A Fund will
include performance data for each class of its shares in any advertisement or
sales literature using performance data of that Fund. These advertisements
may quote performance rankings or ratings of a Fund by financial publications
or independent organizations such as Lipper Analytical Services, Inc. and
Morningstar, Inc. or compare a Fund's performance to various indices.

ADDITIONAL INFORMATION

This Prospectus and the Statements of Additional Information, which have been
incorporated by reference herein, do not contain all the information set
forth in the Registration Statements filed by the Funds with the Commission
under the Securities Act. Copies of the Registration Statements may be
obtained at a reasonable charge from the Commission or may be examined,
without charge, at the offices of the Commission in Washington, D.C.

43
<PAGE>

--------------
Appendix A:
--------------
Bond Ratings
--------------

Moody's Investors Service, Inc.

Aaa--Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such issues.

Aa--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat larger than
the Aaa securities.

A--Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate but elements may
be present which suggest a susceptibility to impairment some time in the
future.

Baa--Bonds which are rated Baa are considered as medium-grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payment
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any
great length of time. Such bonds lack outstanding investment characteristics
and in fact have speculative characteristics as well.

Ba--Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.

B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance
of other terms of the contract over any long period of time may be small.

Caa--Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.

Ca--Bonds which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.

C--Bonds which are rated C are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.

Absence of Rating--When no rating has been assigned or where a rating has
been suspended or withdrawn, it may be for reasons unrelated to the quality
of the issue.

Should no rating be assigned, the reason may be one of the following:

1. An application for rating was not received or accepted.

2. The issue or issuer belongs to a group of securities or companies that
are not rated as a matter of policy.

3. There is a lack of essential data pertaining to the issue or issuer.

4. The issue was privately placed, in which case the rating is not
published in Moody's publications.

Suspension or withdrawal may occur if new and material circumstances arise,
the effects of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.

Note--Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates that the issue ranks in the lower end of its generic
rating category.

Standard & Poor's Corporation

AAA--Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.

AA--Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.

A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher rated
categories.

BBB--Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher
rated categories.

BB, B, CCC, CC, C--Debt rated BB, B, CCC, CC and C is regarded as having
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal. BB indicates the least degree of speculation

A-1
<PAGE>

and CCC the highest. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or
major exposures to adverse conditions.

CI--The rating CI is reserved for income bonds on which no interest is
being paid.

D--Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even
if the applicable grace period has not expired, unless S&P believes that
such payments will be made during such grace period. The D rating also
will be used upon the filing of a bankruptcy petition if debt service
payments are jeopardized.

Plus (+) or Minus (-)--The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the
major rating categories.

NR--Not rated.

DUFF & PHELPS CREDIT RATING CO.

AAA--Highest claims paying ability. Risk factors are negligible.

AA+, AA, AA--Very high claims paying ability. Protection factors are
strong. Risk is modest, but may vary slightly over time due to economic
and/or underwriting conditions.

A+, A, A---High claims paying ability. Protection factors are average and
there is an expectation of variability in risk over time due to economic
and/or underwriting conditions.

BBB+, BBB, BBB--Adequate claims paying ability. Protection factors are
adequate. There is considerable variability in risk over time due to
economic and/or underwriting conditions.

BB+, BB, BB---Uncertain claims paying ability and less than
investment-grade quality. However, the company is deemed likely to meet
these obligations when due. Protection factors will vary widely with
changes in economic and/or underwriting conditions.

B+, B, B--Possessing risk that policy holder and contract-holder
obligations will not be paid when due. Protection factors will vary widely
with changes in economic and/or underwriting conditions or company
fortunes.

CCC--There is substantial risk that policy holder and contract holder
obligations will not be paid when due. Company has been or is likely to be
placed under state insurance department supervision.

DD--Company is under an order of liquidation.

FITCH INVESTORS SERVICE, INC.

AAA--Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.

AA--Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds rated
in the AAA and AA categories are not significantly vulnerable to foreseeable
future developments, short-term debt of these issuers is generally rated
F- 1+.

A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.

BBB--Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than for
bonds with higher ratings.

BB--Bonds are considered speculative. The obligor's ability to pay interest
and repay principal may be affected over time by adverse economic changes.
However, business and financial alternatives can be identified which could
assist the obligor in satisfying its debt service requirements.

B--Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflects the obligor's limited
margin of safety and the need for reasonable business and economic
activity throughout the life of the issue.

CCC--Bonds have certain identifiable characteristics which, if not
remedied, may lead to default.

The ability to meet obligations requires an advantageous business and
economic environment.

CC--Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.

C--Bonds are in imminent default in payment of interest or principal.

DDD, DD, D--Bonds are in default on interest and/or principal payments.
Such bonds are extremely speculative and should be valued on the basis of
their ultimate recovery value in liquidation or reorganization of the
obligor. DDD represents the highest potential for recovery on these bonds,
and D represents the lowest potential for recovery.

Plus (+) Minus (-)--Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category.
Plus and minus signs, however, are not used in the AAA, DDD, DD or D
categories.

NR--Indicates that Fitch does not rate the specific issue.

A-2
<PAGE>

----------------------
Appendix B:
----------------------
General Information
----------------------
About Canada, Mexico
----------------------
and Argentina
----------------------

General Information About Canada

Canada consists of a federation of ten Provinces and two federal territories
(which generally fall under federal authority) with a constitutional division
of powers between the federal and Provincial governments. The Parliament of
Canada has jurisdiction over all areas not assigned exclusively to the
Provincial legislatures, and has jurisdiction over such matters as the
federal public debt and property, the regulation of trade and commerce,
currency and coinage, banks and banking, national defense, the postal
services, navigation and shipping and unemployment insurance.

The Canadian economy is based on the free enterprise system with business
organizations ranging from small owner-operated businesses to large
multinational corporations. Manufacturing and resource industries are large
contributors to the country's economic output, but as in many other highly
developed countries, there has been a gradual shift from a largely
goods-producing economy to a predominantly service-based one. Agriculture and
other primary production play a small but key role in the economy. Canada is
also an exporter of energy to the United States in the form of natural gas
(of which Canada has substantial reserves) and hydroelectric power, and has
significant mineral resources. The Canadian economy had experienced little or
no growth over the past several years, and the rate of growth of Canada's
gross domestic product (on an inflation adjusted basis) has declined.

Canadian Dollars are fully exchangeable into U.S. Dollars without foreign
exchange controls or other legal restriction. Since the major developed
country currencies were permitted to float freely against one another, the
range of fluctuation in the U.S. Dollar/Canadian Dollar exchange rate has
been narrower than the range of fluctuation between the U.S. Dollar and most
other major currencies. Recently, however, Canada has experienced a weakening
of its currency. Through January 31, 1995, the Canadian Dollar decreased in
value compared to the U.S. Dollar by approximately 21% from October 1991 and
approximately 5% from September 1994. The range of fluctuation that occurred
in the past is not necessarily indicative of the range of fluctuation that
will occur in the future. Future rates of exchange cannot be predicted.

General Information About The United Mexican States

The United Mexican States ("Mexico") is a nation formed by 31 states and a
Federal District (Mexico City). The Political Constitution of Mexico, which
took effect on May 1, 1917, established Mexico as a Federal Republic and
provides for the separation of executive, legislative and judicial branches.
The President and the members of the General Congress are elected by popular
vote.

While in recent years the Mexican economy has experienced improvement in a
number of areas, including five consecutive years of growth in gross domestic
product and a substantial reduction in the rate of inflation and in public
sector financial deficit, beginning in 1994, Mexico has experienced an
economic crisis that led to the devaluation of the Peso in December 1994.
Much of the past improvement in the Mexican economy has been attributable to
a series of economic policy initiatives initiated by the Mexican government
over the past decade, which seek to modernize and reform the Mexican economy,
control inflation, reduce the financial deficit, increase public revenues
through the reform of the tax system, establish a competitive and stable
currency exchange rate, liberalize trade restrictions and increase investment
and productivity, while reducing the government's role in the economy. In
this regard, the Mexican government has been proceeding with a program for
privatizing certain state owned enterprises, developing and modernizing the
securities markets, increasing investment in the private sector and
permitting increased levels of foreign investment. The recent adoption by
Canada, the United States and Mexico of the North American Free Trade Agreement
could also contribute to the growth of the Mexican economy .

Relatively high rates of interest, inflation, unemployment and, most
recently, the economic crisis that led to the devaluation of the Peso
beginning in December 1994 continue to affect the Mexican economy adversely.
Mexico is currently the second largest debtor nation (among developing
countries) to commercial banks and foreign governments. The successful
implementation of the economic policy initiatives and the growth of the
Mexican economy involve significant structural changes to the Mexican economy
and will necessitate continued economic and fiscal discipline. In addition,
as a condition to receiving assistance from the United States, other
countries and certain international agencies to stabilize the Mexican
economy, the Mexican government has agreed to adhere to a program of strict
economic reform. An important aspect of Mexico's economic policy is the
ability of the government to be successful in its continuing efforts to
control its financial deficit, finance its current account deficit, further
reduce inflation and stabilize the Mexican Peso. Mexico's economy may also be
influenced by international economic conditions, particularly those in the
United States, and by world prices for oil and other commodities. There is no
assurance that Mexico's economic policy initiatives will be successful or
that succeeding administrations will continue these initiatives.

In August 1976, the Mexican government established a policy of allowing the
Mexican Peso to float against the U.S. Dollar and other currencies. Under
this policy, the value of the Mexican Peso consistently declined against the
U.S. Dollar. Under economic policy initiatives implemented since

B-1
<PAGE>

December 1987, the Mexican government introduced a series of schedules allowing
for the gradual devaluation of the Mexican Peso against the U.S. Dollar. These
gradual devaluations continued until December 1994. On December 20, 1994, the
Mexican government announced a new policy that would allow a more substantial
yet still controlled devaluation of the Mexican Peso. On December 22, 1994, the
Mexican government announced that it would not continue with the policy
announced two days earlier and would instead permit the Peso to float against
other currencies, resulting in a continued decline against the U.S. Dollar.

In 1982, Mexico imposed strict foreign exchange controls which shortly
thereafter were relaxed and were eliminated in 1991. There is no assurance that
future regulatory actions in Mexico would not affect the Fund's ability to
obtain U.S. Dollars in exchange for Mexican Pesos.

General Information About The Republic of Argentina

The Republic of Argentina ("Argentina") consists of 23 provinces and the
federal capital of Buenos Aires. Its federal constitution provides for an
executive branch headed by a President, a legislative branch and a judicial
branch. Each province has its own constitution, and elects its own governor,
legislators and judges, without the intervention of the federal government.

The military has intervened in the political process on several occasions
since the 1930's and has ruled the country for 22 of the past 62 years. The
most recent military government ruled the country from 1976 to 1983. Four
unsuccessful military uprisings have occurred since 1983, the most recent in
December 1990.

Shortly after taking office in 1989, the country's current President adopted
market-oriented and reformist policies, including a large privatization
program, a reduction in the size of the public sector and an opening of the
economy to international competition.

In the decade prior to the current announcement of a new economic plan in
March 1991, the Argentine economy was characterized by low and erratic
growth, declining investment rates and rapidly worsening inflation. Despite
its strengths, which include a well-balanced natural resource base and a high
literacy rate, the Argentine economy failed to respond to a series of
economic plans in the 1980's. The Economy Minister's plan represented a
pronounced departure from its predecessors in calling for raised revenues,
reduced expenditures and a reduced public deficit. The extensive
privatization program commenced in 1989 was accelerated, the domestic economy
deregulated and opened up to foreign trade and the frame-work for foreign
investment reformed.

Significant progress was also made in 1992 in rescheduling Argentina's debt
with both external and domestic creditors, which improved fiscal cash flows
in the medium terms and allowed a return to voluntary credit markets. Further
reforms are currently being implemented in order to sustain and continue the
progress to date. There is no assurance that Argentina's economic policy
initiatives will be successful or that succeeding administrations will
continue these initiatives.

The Argentine Peso has been the Argentine currency since January 1, 1992. The
rate of exchange from the Argentine Peso to the U.S. Dollar has been
approximately one to one. However, the historic range is not necessarily
indicative of fluctuations that may occur in the exchange rate over time and
there can be no assurance that future rates of exchange can be accurately
predicted. The Argentine foreign exchange market was highly controlled until
December 1989, when a free exchange rate was established for all foreign
currency transactions. Argentina has eliminated restrictions on foreign
direct investment and capital repatriation. On September 8, 1993, legislation
was adopted abolishing previous requirements of a three-year waiting period
for capital repatriation. Under the new legislation, foreign investors will
be permitted to remit profits at any time.

This prospectus does not constitute an offering in any state in which such
offering may not lawfully be made.

This prospectus is intended to constitute an offer by each Fund only of the
securities of which it is the issuer and is not intended to constitute an offer
by any Fund of the securities of any other Fund whose securities are also
offered by this prospectus. No Fund intends to make any representation as to the
accuracy or completeness of the disclosure in this prospectus relating to any
other Fund. See "General Information--Organization."

B-2
<PAGE>

- --------------------------------------------------------------------------------
ALLIANCE SUBSCRIPTION APPLICATION
- --------------------------------------------------------------------------------

Alliance Bond Funds

Short-Term U.S. Government Fund Short-Term Multi-Market Trust

U.S. Government Portfolio Multi-Market Strategy Trust

Mortgage Strategy Trust North American Government Income Trust

Mortgage Securities Income Fund Global Dollar Government Fund

World Income Trust Corporate Bond Portfolio

- --------------------------------------------------------------------------------
Information And Instructions
- --------------------------------------------------------------------------------

To Open Your New Alliance Account

Please complete the application and mail it to:
Alliance Fund Services, Inc., P.O. Box 1520, Secaucus, New Jersey 07096-1520

Signatures - Please Be Sure To Sign the Application (Section 7)

If shares are registered in the name of:
* an individual, the individual should sign.
* joint tenants, both should sign.
* a custodian for a minor, the custodian should sign.
* a corporation or other organization, an authorized officer should sign
(please indicate corporate office or title).
* a trustee or other fiduciary, the fiduciary or fiduciaries should sign
(please indicate capacity).

Registration

To ensure proper tax reporting to the IRS:
* Individuals, Joint Tenants and Gift/Transfer to a Minor:
- Indicate your name exactly as it appears on your social security card.
* Trust/Other:
- Indicate the name of the entity exactly as it appeared on the notice you
received from the IRS when your Employer Identification number was
assigned.

Please Note:

* Certain legal documents will be required from corporations or other
organizations, executors and trustees, or if a redemption is requested by
anyone other than the shareholder of record. If you have any questions
concerning a redemption, contact the Fund at the number below.

* In the case of redemptions or repurchases of shares recently purchased by
check, redemption proceeds will not be made available until the Fund is
reasonably assured that the check has cleared, normally up to 15 calendar
days following the purchase date.

If We Can Assist You In Any Way, Please Do Not Hesitate To Call Us At:
1-(800) 221-5672.
<PAGE>

- --------------------------------------------------------------------------------
Subscription Application
- --------------------------------------------------------------------------------

Alliance Bond Funds

(see instructions at the front of the application)

- --------------------------------------------------------------------------------
1.Your Account Registration (Please Print)
- --------------------------------------------------------------------------------

[_] INDIVIDUAL OR JOINT ACCOUNT

/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/
Owner's Name (First Name) (MI) (Last Name)

/__/__/__/--/__/__/--/__/__/__/__/
Social Security Number (Required to open account)

/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/
Joint Owner's Name* (First Name ) (MI) (Last Name)
*Joint Tenants with right of survivorship unless otherwise indicated

[_] GIFT/TRANSFER TO A MINOR

/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/
Custodian - One Name Only (First Name) (MI) (Last Name)

/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/
Minor's (First Name) (MI) (Last Name)

/__/__/__/--/__/__/--/__/__/__/__/
Minor's Social Security Number (Required to open account)
Under the State of ___________ (Minor's Residence) Uniform Gifts/Transfer
to Minor's Act

[_] TRUST ACCOUNT

/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/
Name of Trustee

/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/
Name of Trust

/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/
Name of Trust (cont'd)

/__/__/__/__/__/__/__/__/__/__/__/__/__/ /__/__/__/__/__/__/__/__/__/__/__/
Trust Dated Tax ID or Social Security Number
(Required to open account)

[_] OTHER

/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/
Name of Corporation, Partnership or other Entity

/__/__/__/__/__/__/__/__/__/
Tax ID Number

- --------------------------------------------------------------------------------
2. Address
- --------------------------------------------------------------------------------

/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/
Street

/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/
City State Zip Code

/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/__/
If Non-U.S., Specify Country

/__/__/__/--/__/__/__/--/__/__/__/__/ /__/__/__/--/__/__/__/--/__/__/__/__/
Daytime Phone Evening Phone

I am a: [_] U.S. Citizen [_] Non-Resident Alien [_] Resident Alien
[_] Other ______________________________

+ +

For Alliance Use Only

+ +
<PAGE>

- --------------------------------------------------------------------------------
3. Initial Investment
- --------------------------------------------------------------------------------

Minimum: $250; Maximum: Class B only - $250,000; Class C only - $5,000,000.
Make all checks payable to The Alliance Bond Fund in which you are investing.

I hereby subscribe for shares of the following Alliance Bond Fund(s):

<TABLE>
<CAPTION>
Class A Class B Class C
(Initial Sales Dollar (Contingent Deferred Dollar (Asset-based Sales Dollar
Charge) Amount Sales Charge) Amount Charge) Amount
<S> <C> <C> <C> <C> <C> <C>
[_] Short-Term U.S. Government [_] (37) ___________ [_] (51) ___________ [_] (337) ___________
[_] U.S. Government [_] (46) ___________ [_] (76) ___________ [_] (346) ___________
[_] Mortgage Strategy [_] (88) ___________ [_] (89) ___________ [_] (388) ___________
[_] Mortgage Securities Income [_] (52) ___________ [_] (63) ___________ [_] (352) ___________
[_] World Income+ [_] (54) ___________ not offered ___________ not offered ___________
[_] Short-Term Multi-Market [_] (70) ___________ [_] (68) ___________ [_] (370) ___________
[_] Multi-Market Strategy [_] (22) ___________ [_] (23) ___________ [_] (322) ___________
[_] North American Government [_] (55) ___________ [_] (56) ___________ [_] (355) ___________
[_] Global Dollar Government [_] (166) ___________ [_] (266) ___________ [_] (366) ___________
[_] Corporate Bond+ [_] (95) ___________ [_] (295) ___________ [_] (395) ___________
</TABLE>

to be purchased with the enclosed check or draft for $____________
+ No checkwriting available on these funds.

-----------------
Dealer Use Only
Wire Confirm No.:
-----------------

- --------------------------------------------------------------------------------
4. Reduced Charges (Class A Only)
- --------------------------------------------------------------------------------

If you, your spouse or minor children own shares in other Alliance funds, you
may be eligible for a reduced sales charge. Please list below any existing
accounts to be considered and complete the Right of Accumulation section or the
Statement of Intent section.

- ---------------------- ----------------- ---------------------- ----------------
Fund Account Number Fund Account Number

A. Right of Accumulation
[_] Please link the accounts listed above for Right of Accumulation privileges,
so that this and future purchases will receive any discount for which they
are eligible.

B. Statement of Intent
[_] I want to reduce my sales charge by agreeing to invest the following amount
over a 13-month period:
[_] $100,000 [_] $250,000 [_] $500,000 [_] $1,000,000

If the full amount indicated is not purchased within 13 months, I understand an
additional sales charge must be paid from my account.

- ---------------------- ---------------- ----------------------- ----------------
Name on Account Account Number Name on Account Account Number

- --------------------------------------------------------------------------------
5. Distribution Options
- --------------------------------------------------------------------------------

If no box is checked, all distributions will be reinvested in additional shares
of the Fund

<TABLE>
<S> <C> <C> <C>
Income Dividends: (elect one) [_] Reinvest dividends [_] Pay dividends in cash [_] Use Dividend Direction Plan

Capital Gains Distribution: (elect one) [_] Reinvest capital gains [_] Pay capital gains in cash [_] Use Dividend Direction Plan

</TABLE>

If you elect to receive your income dividends or capital gains distributions in
cash, please enclose a preprinted voided check from the bank account you wish to
have your dividends deposited into.**

If you wish to utilize the Dividend Direction Plan, please designate the
Alliance account you wish to have your dividends reinvested in:

- -------------------------------------- -----------------------------------------
Fund Name Existing Account No.

Special Distribution Instructions: [_] Please pay my distributions via check
and send to the address indicated in
Section 2.
[_] Please mail my distributions to the
person and/or address designated below:

- -------------------------------------- -----------------------------------------
Name Address

- -------------------------------------- ---------------------------- ------------
City State Zip

- --------------------------------------------------------------------------------
6. Shareholder Options
- --------------------------------------------------------------------------------

A. Automatic Investment Program (AIP) **

I hereby authorize Alliance Fund Services, Inc. to draw on my bank account,
on or about the ______ day of each month for a monthly investment in my Fund
account in the amount of $____________ (minimum $25 per month). Please attach
a preprinted voided check from the bank account you wish to use. NOTE: If
your bank is not a member of the NACHA, your Alliance account will be
credited on or about the 20th of each month.

The Fund requires signatures of bank account owners exactly as they appear
on bank records.

--------------------------- ------------- --------------------- ------------
Individual Account Date Joint Account Date
** Your bank must be a member of the National Automated Clearing House
Association (NACHA).
<PAGE>

B. Telephone Transactions

You can call our toll-free number 1-800-221-5672 and instruct Alliance Fund
Services, Inc. in a recorded conversation to purchase, redeem or exchange
shares for your account. Purchase and redemption requests will be processed
via electronic funds transfer (EFT) to and from your bank account.
Instructions: * Review the information in the Prospectus about telephone
transaction services.
* Check the box next to the telephone transaction service(s)
you desire.
* If you select the telephone purchase or redemption
privilege, you must write "VOID" across the face of a check
from the bank account you wish to use and attach it to this
application.

Purchases and Redemptions via EFT**

[_] I hereby authorize Alliance Fund Services, Inc. to effect the purchase
and/or redemption of Fund shares for my account according to my telephone
instructions or telephone instructions from my Broker/Agent, and to
withdraw money or credit money for such shares via EFT from the bank
account I have selected.

The fund requires signatures of bank account owners exactly as they appear on
bank records.

------------------------------- -------- --------------------------- --------
Individual Account Owner Date Joint Account Owner Date

Telephone Exchanges and Redemptions by Check
Unless I have checked one or both boxes below, these privileges will
automatically apply, and by signing this application, I hereby authorize
Alliance Fund Services, Inc. to act on my telephone instructions, or on
telephone instructions from any person representing himself to be an
authorized employee of a investment dealer or agent requesting a redemption
or exchange on my behalf. (NOTE: Telephone exchanges may only be processed
between accounts that have identical registrations.) Telephone redemption
checks will only be mailed to the name and address of record; and the address
must have no change within the last 30 days. The maximum telephone redemption
amount is $25,000. This service can be enacted once every 30 days.

[_] I do not elect the telephone exchange service.
---
[_] I do not elect the telephone redemption by check service.
---

C. Systematic Withdrawal Plan (SWP) **

In order to establish a SWP, an investor must own or purchase shares of the
Fund having a current net asset value of at least:
* $10,000 for monthly payments; * $5,000 for bi-monthly payments;
* $4,000 for quarterly or less frequent payments

[_] I authorize this service to begin in _______, 19__, for the amount
Month
of $_______________($50.00 minimum)

Frequency: (Please select one) [_] Monthly [_] Bi-Monthly [_] Quarterly
[_] Annually [_] In the months circled: J F M A M J J A S O N D

Please send payments to: (please select one)

[_] My checking account. Select the date of the month on or about which you
wish the EFT payments to be made: _______________. Please enclose a
preprinted voided check to ensure accuracy.

[_] My address of record designated in Section 2.

[_] The payee and address specified below:

-------------------------------------- --------------------------------------
Name of Payee Address

-------------------------------------- ------------------------- ------------
City State Zip

D. Auto Exchange

[_] I authorize Alliance Fund Services, Inc. to initiate a monthly exchange
for $____________ ($25.00 minimum) on the _________ day of the month,
into the Alliance Fund noted below:

Fund Name: _____________________________________________

[_] Existing account number:____________________________ [_] New account

Shares exchanged will be redeemed at net asset value computed on the date
of the month selected. (If the date selected is not a fund business day
the transaction will be processed on the prior fund business day.)
Certificates must remain unissued.

- --------------------------------------------------------------------------------
7. Shareholder Authorization This section MUST be completed
- --------------------------------------------------------------------------------

I certify under penalty of perjury that the number shown in Section 1 of this
form is my correct tax identification number or social security number and that
I have not been notified that this account is subject to backup withholding.

By selecting any of the above telephone privileges, I agree that neither the
Fund nor its Investment Adviser, Principal Underwriter, Transfer Agent or other
Fund Agent will be liable for any loss, injury, damage or expense as a result of
acting upon telephone instructions purporting to be on my behalf, that the Fund
reasonably believes to be genuine, and that neither the Fund nor any such party
will be responsible for the authenticity of such telephone instructions. I
understand that any or all of these privileges may be discontinued by me or the
Fund at any time. I understand and agree that the Fund reserves the right to
refuse any telephone instructions and that my investment dealer or agent
reserves the right to refuse to issue any telephone instructions I may request.

For non-residents only: Under penalties of perjury, I certify that to the best
of my knowledge and belief, I qualify as a foreign person as indicated in
Section 2.

I am of legal age and capacity and have received and read the Prospectus and
agree to its terms.

- ----------------------------------------- --------------------------------------
Signature Date

- ----------------------------------------- --------------------- ----------------
Signature Date Acceptance Date:

- --------------------------------------------------------------------------------
Dealer/Agent Authorization For selected Dealers or Agents ONLY.
- --------------------------------------------------------------------------------

We hereby authorize Alliance Fund Services, Inc. to act as our agent in
connection with transactions under this authorization form; and we guarantee the
signature(s) set forth in Section 7, as well as the legal capacity of the
shareholder.

Dealer/Agent Firm _______________________ Authorized Signature _________________

Representative First Name _______________ MI ____________ Last Name ____________

Representative Number __________________________________________________________

Branch Office Address __________________________________________________________

City ____________________________________ State _______________ Zip Code _______

Branch Number ___________________________ Branch Phone (_____)__________________
** Your bank must be a member of the National Automated Clearing House
Association (NACHA).
<PAGE>

SIGNATURE CARD NAME OF FUND:
Class A or Class C Account #
(if known)

- --------------------------------------------------------------------------------
Account Name(s) As Registered

- --------------------------------------------------------------------------------
Social Security Number

- --------------------------------------------------------------------------------
Authorized Signature(s) -- for joint accounts, all owners, or their legal
representatives, must sign this card.

1...........................................................................

2...........................................................................

3...........................................................................
- --------------------------------------------------------------------------------
Check One Box [_] All the above signatures are required on checks written
against this account.
[_] Any one signature is acceptable on checks written against
this account.
[_] A combination of signatures is required (specify number).

Subject to conditions printed on reverse side.

STATE STREET BANK AND TRUST COMPANY
<PAGE>

The payment of funds is authorized by the signature(s) appearing on the reverse
side.

If this card is signed by more than one person, all checks will require all
signatures appearing on the reverse side unless a lesser number is indicated. If
no indication is given, all checks will require all signatures. Each signatory
guarantees the genuineness of the other signatures.

The Bank is hereby appointed agent by the person(s) signing this card (the
"Depositor[s]") and, as agent, is authorized and directed to present checks
drawn on this checking account to Alliance __________________________________
("the Fund") or its transfer agent as requests to redeem shares of "the Fund"
registered in the name of the Depositor(s) in the amounts of such checks and to
deposit the proceeds of such redemptions in this checking account. The Bank
shall be liable only for its own negligence. The Depositor(s) agrees to be
subject to the rules and regulations of the Bank pertaining to this checking
account as amended from time to time. The Bank and "the Fund" reserve the right
to change, modify or terminate this checking account and authorization at any
time.

Checks may not be for less than $500 or such other minimum amount as may from
time to time be established by "the Fund" upon prior written notice to its
shareholders. Shares purchases by check (including certified or cashier's check)
will not be redeemed within 15 calendar days of such purchase by checkwriting or
any other method of redemption.

No checkwriting available on Alliance World Income and Alliance Corporate Bond.

Enclose this card with THE application form

<PAGE>

This is filed pursuant to 497(c) File Nos. 33-27131 and 811-5771.

<PAGE>

ALLIANCE SHORT-TERM
MULTI-MARKET TRUST

- ------------------------------------------------------------------
P.O. Box 1520, Secaucus, New Jersey 07096-1520
Toll Free (800) 221-5672
For Literature: Toll Free (800) 227-4618

- ------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION

March 1, 1995
- ------------------------------------------------------------------

This Statement of Additional Information is not a prospectus but
supplements and should be read in conjunction with the Fund's current
Prospectus. A copy of the Prospectus may be obtained by contacting
Alliance Fund Services, Inc. at the address or telephone numbers shown
above.

TABLE OF CONTENTS

Page

Description of the Fund

Management of the Fund

Expenses of the Fund

Purchase of Shares

Redemption and Repurchase of Shares

Shareholder Services

Net Asset Value

Dividends, Distributions and Taxes

Portfolio Transactions

General Information

Financial Statements

Report of Independent Auditors

Appendix A (Obligations of U.S. Government A-1
Agencies or Instrumentalities)

<PAGE>

Appendix B (Bond and Commercial Paper Ratings) B-1

Appendix C (Futures Contracts) C-1

Appendix D (Additional Information About D-1
The United Mexican States)

<PAGE>

- ------------------------------------------------------------------
DESCRIPTION OF THE FUND
- ------------------------------------------------------------------

Except as otherwise indicated, the Alliance Short-Term Multi-
Market Trust, Inc. (the "Fund") has investment policies that are
not "fundamental policies" and, therefore, may be changed by the
Board of Directors without a shareholder vote. However, the Fund
will not change its investment policies without contemporaneous
written notice to its shareholders. The Fund's investment
objective may not be changed without shareholder approval. There
can be, of course, no assurance that the Fund will achieve its
investment objective. The following policies and restrictions
supplement, and should be read in conjunction with, the
information set forth in the Fund's Prospectus under the heading
"Description of the Fund."

INVESTMENT OBJECTIVE

The Fund is a non-diversified, open-end management investment
company which seeks the highest level of current income,
consistent with what Alliance Capital Management L.P. (the
"Adviser"), the Fund's investment adviser, considers to be prudent
investment risk, that is available from a portfolio of high-
quality debt securities having remaining maturities of not more
than three years. The Fund seeks high current yields by investing
in a portfolio of debt securities denominated in the U.S. Dollar
and selected foreign currencies. Accordingly, the Fund will seek
investment opportunities in foreign, as well as domestic,
securities markets. While the Fund normally will maintain a
substantial portion of its assets in debt securities denominated
in foreign currencies, the Fund will invest at least 25% of its
net assets in U.S. Dollar-denominated securities. The Fund is
designed for the investor who seeks a higher yield than a money
market fund or certificate of deposit and less fluctuation in net
asset value than a longer-term bond fund. Certificates of deposit
are insured and generally have fixed interest rates while yields
for the Fund will fluctuate with changes in interest rates and
other market conditions.

HOW THE FUND PURSUES ITS OBJECTIVE

The Fund seeks to minimize credit risk and fluctuations in net
asset value by investing only in shorter-term debt securities.
Normally, a high proportion of the Fund's portfolio consists of
money market instruments. The Adviser actively manages the Fund's
portfolio in accordance with a multi-market investment strategy,
allocating the Fund's investments among securities denominated in
the U.S. Dollar and the currencies of a number of foreign
countries and, within each such country, among different types of
debt securities. The Adviser adjusts the Fund's exposure to each

<PAGE>

currency based on its perception of the most favorable markets and
issuers. In this regard, the percentage of assets invested in
securities of a particular country or denominated in a particular
currency will vary in accordance with the Adviser's assessment of
the relative yield and appreciation potential of such securities
and the relationship of a country's currency to the U.S. Dollar.
Fundamental economic strength, credit quality and interest rate
trends are the principal factors considered by the Adviser in
determining whether to increase or decrease the emphasis placed
upon a particular type of security or industry sector within the
Fund's investment portfolio. The Fund will not invest more than
25% of its net assets in debt securities denominated in a single
currency other than the U.S. Dollar.

The attractive returns currently available from short-term
foreign currency-denominated debt instruments can be adversely
affected by changes in exchange rates. The Adviser believes that
the use of foreign currency hedging techniques, including "cross-
hedges" (see "Additional Investment Policies and Practices-Forward
Foreign Currency Exchange Contracts," below), can help protect
against declines in the U.S. Dollar value of income available for
distribution to shareholders and declines in the net asset value
of the Fund's shares resulting from adverse changes in currency
exchange rates. For example, the return available from securities
denominated in a particular foreign currency would diminish in the
event the value of the U.S. Dollar increased against such
currency. Such a decline could be partially or completely offset
by an increase in value of a cross-hedge involving a forward
exchange contract to sell a different foreign currency, where such
contract is available on terms more advantageous to the Fund than
a contract to sell the currency in which the position being hedged
is denominated. It is the Adviser's belief that cross-hedges can
therefore provide significant protection of net asset value in the
event of a general rise in the U.S. Dollar against foreign
currencies. However, a cross-hedge cannot protect against
exchange rate risks perfectly, and if the Adviser is incorrect in
its judgment of future exchange rate relationships, the Fund could
be in a less advantageous position than if such a hedge had not
been established.

The Fund invests in debt securities denominated in the
currencies of countries whose governments are considered stable by
the Adviser. In addition to the U.S. Dollar, such currencies
include, among others, the Australian Dollar, Austrian Schilling,
British Pound Sterling, Canadian Dollar, Danish Krone, Dutch
Guilder, European Currency Unit ("ECU"), French Franc, Irish
Pound, Italian Lira, Japanese Yen, Mexican Peso, New Zealand
Dollar, Norwegian Krone, Spanish Peseta, Swedish Krona, Swiss
Franc and German Mark.

<PAGE>

An issuer of debt securities purchased by the Fund may be
domiciled in a country other than the country in whose currency
the instrument is denominated. In addition, the Multi-Market
Funds may purchase debt securities denominated in one currency the
principal amounts of which and value of interest payments on which
are determined with reference (or "linked") to another currency.
In this regard, as of the date of this Prospectus each Fund has
invested in U.S. Dollar denominated securities issued by Mexican
issuers and/or Peso-linked securities. The value of these
investments may fluctuate inversely in correlation with changes in
the Peso-Dollar exchange rate and with the general level of
interest rates in Mexico, and, when added to a Multi-Market Fund's
investments in Mexican Peso denominated securities, may exceed 25%
of the value of the Fund's net assets. For a general description
of Mexico, see Appendix D.

The Fund seeks to minimize investment risk by limiting its
portfolio investments to debt securities of high quality.
Accordingly, the Fund's portfolio consists only of: (i) debt
securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities ("U.S. Government Securities");
(ii) obligations issued or guaranteed by a foreign government or
any of its political subdivisions, authorities, agencies, or
instrumentalities, or by supranational entities, all of which are
rated AAA or AA by Standard & Poor's Corporation ("S&P") or Aaa or
Aa by Moody's Investors Services, Inc. ("Moody's") ("High Quality
Ratings") or, if unrated, determined by the Adviser to be of
equivalent quality; (iii) corporate debt securities having at
least one High Quality Rating or, if unrated, determined by the
Adviser to be of equivalent quality; (iv) certificates of deposit
and bankers' acceptances issued or guaranteed by, or time deposits
maintained at, banks (including foreign branches of U.S. banks or
U.S. or foreign branches of foreign banks) having total assets of
more than $500 million and determined by the Adviser to be of high
quality; and (v) commercial paper rated A-1 by S&P, Prime-1 by
Moody's, Fitch-1 by Fitch Investors Service, Inc., or Duff 1 by
Duff & Phelps Inc. or, if not rated, issued by U.S. or foreign
companies having outstanding debt securities rated AAA, AA or A by
S&P, or Aaa, Aa or A by Moody's and determined by the Adviser to
be of high quality.

The Fund may invest without limitation in commercial paper
which is indexed to certain specific foreign currency exchange
rates. The terms of such commercial paper provide that its
principal amount is adjusted upwards or downwards (but not below
zero) at maturity to reflect changes in the exchange rate between
two currencies while the obligation is outstanding. The Fund will
purchase such commercial paper with the currency in which it is
denominated and, at maturity, will receive interest and principal
payments thereon in that currency, but the amount of principal
payable by the issuer at maturity will change in proportion to the

<PAGE>

change (if any) in the exchange rate between the two specified
currencies between the date the instrument is issued and the date
the instrument matures. While such commercial paper entails the
risk of loss of principal, the potential for realizing gains as a
result of changes in foreign currency exchange rates enables the
Fund to hedge (or cross-hedge) against a decline in the U.S.
Dollar value of investments denominated in foreign currencies
while providing an attractive money market rate of return. The
Fund will purchase such commercial paper for hedging purposes
only, not for speculation.

Under normal circumstances, and as a matter of fundamental
policy, the Fund "concentrates" at least 25% of its total assets
in debt instruments issued by domestic and foreign companies
engaged in the banking industry, including bank holding companies.
Such investments may include certificates of deposit, time
deposits, bankers' acceptances, and obligations issued by bank
holding companies, as well as repurchase agreements entered into
with banks (as distinct from non-bank dealers) in accordance with
the policies set forth in "Additional Investment Policies and
Practices--Repurchase Agreements" below. However, when business
or financial conditions warrant the Fund may, for temporary
defensive purposes, vary from its policy of investing at least 25%
of its total assets in the banking industry. For example, the
Fund may reduce its position in debt instruments issued by
domestic and foreign banks and bank holding companies and increase
its position in U.S. Government Securities or cash equivalents.

Due to the Fund's investment policy with respect to
investments in the banking industry, the Fund will have greater
exposure to the risk factors which are characteristic of such
investments. In particular, the value of an investment return on
the Fund's shares will be affected by economic or regulatory
developments in or related to the banking industry. Sustained
increases in interest rates can adversely affect the availability
and cost of funds for a bank's lending activities, and a
deterioration in general economic conditions could increase the
exposure to credit losses. The banking industry is also subject
to the effects of: the concentration of loan portfolios in
particular businesses such as real estate, energy, agriculture or
high technology-related companies; national and local regulation;
and completion within those industries as well as with other types
of financial institutions. In addition, the Fund's investments in
commercial banks located in several foreign countries are subject
to additional risks due to the combination in such banks of
commercial banking and diversified securities activities. As
discussed above, however, the Fund will seek to minimize its
exposure to such risks by investing only in debt securities which
are determined to be of high quality.

<PAGE>

The Fund may invest in debt securities issued by supranational
organizations such as: the International Bank for Reconstruction
and Development (World Bank), which was chartered to finance
development projects in developing member countries; the European
Community, which is a twelve-nation organization engaged in
cooperative economic activities; the European Coal and Steel
Community, which is an economic union of various European nations'
steel and coal industries; and the Asian Development Bank, which
is an international development bank established to lend funds,
promote investment and provide technical assistance to member
nations in the Asian and Pacific regions.

The Fund may invest in debt securities denominated in the ECU,
which is a "basket" consisting of specified amounts of the
currencies of certain of the twelve member states of the European
Community. The specific amounts of currencies comprising the ECU
may be adjusted by the Council of Ministers of the European
Community to reflect changes in relative values of the underlying
currencies. The Adviser does not believe that such adjustments
will adversely affect holders of ECU-denominated obligations or
the marketability of such securities. European governments and
supranationals, in particular, issue ECU-denominated obligations.

Investing in securities issued by foreign governments and
corporations involves considerations and possible risks not
typically associated with investing in obligations issued by the
U.S. government and domestic corporations. The values of foreign
investments are affected by changes in currency rates or exchange
control regulations, application of foreign tax laws, including
withholding taxes, changes in governmental administration or
economic or monetary policy (in this country or abroad) or changed
circumstances in dealings between nations. Costs are incurred in
connection with conversions between various currencies. In
addition, foreign brokerage commissions are generally higher than
in the United States, and foreign securities markets may be less
liquid, more volatile and less subject to governmental supervision
than in the United States. Investments in foreign countries could
be affected by other factors not present in the United States,
including expropriation, confiscatory taxation, lack of uniform
accounting and auditing standards and potential difficulties in
enforcing contractual obligations and could be subject to extended
settlement periods.

ADDITIONAL INVESTMENT POLICIES AND PRACTICES

The following additional investment policies supplement those
set forth above.

LOAN PARTICIPATIONS. The Fund may invest up to 5% of its
total assets in high quality participation interests having
remaining maturities not exceeding one year in loans extended by

<PAGE>

banks to U.S. and foreign companies. In a typical corporate loan
syndication, a number of lenders, usually banks ("co-lenders"),
lend a corporate borrower a specified sum pursuant to the terms
and conditions of a loan agreement. One of the co-lenders usually
agrees to act as the agent bank with respect to the loan. The
loan agreement among the corporate borrower and the co-lenders
identifies the agent bank as well as sets forth the rights and
duties of the parties. The agreement often (but not always)
provides for the collateralization of the corporate borrower's
obligations thereunder and includes various types of restrictive
covenants which must be met by the borrower.

The participation interests acquired by the Fund may,
depending on the transaction, take the form of a direct co-lending
relationship with the corporate borrower, an assignment of an
interest in the loan by a co-lender or another participant, or a
participation in the seller's share of the loan. Typically, the
Fund will look to the agent bank to collect principal of and
interest on a participation interest, to monitor compliance with
loan covenants, to enforce all credit remedies, such as
foreclosures on collateral, and to notify co-lenders of any
adverse changes in the borrower's financial condition or
declarations of insolvency. The agent bank in such cases will be
qualified under the 1940 Act to serve as a custodian for a
registered investment company such as the Fund. The agent bank is
compensated for these services by the borrower pursuant to the
terms of the loan agreement.

When the Fund acts as co-lender in connection with a
participation interest or when the Fund acquires a participation
interest the terms of which provide that the Fund will be in
privity with the corporate borrower, the Fund will have direct
recourse against the borrower in the event the borrower fails to
pay scheduled principal and interest. In cases where the Fund
lacks such direct recourse, the Fund will look to the agent bank
to enforce appropriate credit remedies against the borrower.

The Fund believes that the principal credit risk associated
with acquiring participation interests from a co-lender or another
participant is the credit risk associates with the underlying
corporate borrower. The Fund may incur additional credit risk,
however, when the Fund is in the position of a participant rather
than a co-lender because the Fund must assume the risk of
insolvency of the co-lender from which the participation interest
was acquired and that of any person interpositioned between the
Fund and the co-lender. However, in acquiring participation
interests the Fund will conduct analysis and evaluation of the
financial condition of each such co-lender and participant to
ensure that the participation interest meets the Fund's high
quality standard and will continue to do so as long as it holds a
participation.

<PAGE>

ILLIQUID SECURITIES. The Fund will not invest in illiquid
securities if immediately after such investment more than 10% of
the Fund's total assets (taken at market value) would be invested
in such securities. In addition, the Fund will not maintain more
than 15% of its net assets in illiquid securities. For this
purpose, illiquid securities include, among others, (a) direct
placements or other securities which are subject to legal or
contractual restrictions on resale or for which there is no
readily available market (e.g., trading in the security is
suspended or, in the case of unlisted securities, market makers do
not exist or will not entertain bids or offers), (b) options
purchased by the Fund over-the-counter and the cover for options
written by the Fund over-the-counter, and (c) repurchase
agreements not terminable within seven days. See "Additional
Investment Policies and Practices," below. Securities that have
legal or contractual restrictions on resale but have a readily
available market are not deemed illiquid for purposes of this
limitation.

Historically, illiquid securities have included securities
subject to contractual or legal restrictions on resale because
they have not been registered under the Securities Act of 1933, as
amended ("Securities Act"), securities which are otherwise not
readily marketable and repurchase agreements having a maturity of
longer than seven days. Securities which have not been registered
under the Securities Act are referred to as private placements or
restricted securities and are purchased directly from the issuer
or in the secondary market. Mutual funds do not typically hold a
significant amount of these restricted or other illiquid
securities because of the potential for delays on resale and
uncertainty in valuation. Limitations or resale may have an
adverse effect on the marketability of portfolio securities and a
mutual fund might be unable to dispose of restricted or other
illiquid securities promptly or at reasonable prices and might
thereby experience difficulty satisfying redemptions within seven
days. A mutual fund might also have to register such restricted
securities in order to dispose of them resulting in additional
expense and delay. Adverse market conditions could impede such a
public offering of securities.

In recent years, however, a large institutional market has
developed for certain securities that are not registered under the
Securities Act including repurchase agreements, commercial paper,
foreign securities, municipal securities and corporate bond and
notes. Institutional investors depend on an efficient
institutional market in which the unregistered security can be
readily resold or on an issuer's ability to honor a demand for
repayment. The fact that there are contractual or legal
restrictions on resale to the general public or to certain
institutions may not be indicative of the liquidity of such
investments.

<PAGE>

During the coming year, the Fund may invest up to 5% of its
total assets in restricted securities issued under Section 4(2) of
the Securities Act, which exempts from registration "transactions
by an issuer not involving any public offering." Section 4(2)
instruments are restricted in the sense that they can only be
resold through the issuing dealer to institutional investors and
in private transactions; they cannot be resold to the general
public without registration.

Rule 144A under the Securities Act allows a broader
institutional trading market for securities otherwise subject to
restriction on resale to the general public. Rule 144A
establishes a "safe harbor" from the registration requirements of
the Securities Act for resales of certain securities to qualified
institutional buyers. An insufficient number of qualified
institutional buyers interested in purchasing certain restricted
securities held by the Fund, however, could affect adversely the
marketability of such portfolio securities and the Fund might be
unable to dispose of such securities promptly or at reasonable
prices. Rule 144A has already produced enhanced liquidity for
many restricted securities, and market liquidity for such
securities may continue to expand as a result of this regulation
and the consequent inception of the PORTAL System sponsored by the
National Association of Securities Dealers, Inc., an automated
system for the trading, clearance and settlement of unregistered
securities of domestic and foreign issuers.

The Adviser, acting under the supervision of the Board of
Directors, will monitor the liquidity of restricted securities in
the Fund's portfolio. In reaching liquidity decisions, the
Adviser will consider, INTER ALIA, the following factors: (1) the
frequency of trades and quotes for the security; (2) the number of
dealers issuing quotations to purchase or sell the security; (3)
the number of other potential purchasers of the security; (4) the
number of dealers undertaking to make a market in the security;
(5) the nature of the security (including its unregistered nature)
and the nature of the marketplace for the security (e.g., the time
needed to dispose of the security, the method of soliciting offers
and the mechanics of the transfer); and (6) any applicable
Securities and Exchange Commission (the "Commission")
interpretation or position with respect to such type of
securities.

NET ASSET VALUE FLUCTUATIONS. The net asset value of the
Fund's shares will change as the general levels of interest rates
fluctuate. When interest rates decline, the value of a portfolio
primarily invested in debt securities can be expected to rise.
Conversely, when interest rates rise, the value of a portfolio
primarily invested in debt securities can be expected to decline.
However, a shorter average maturity is generally associated with a
lower level of market value volatility and, accordingly, it is

<PAGE>

expected that the net asset value of the Fund's shares normally
will fluctuate less than that of a longer-term bond fund.

NON-DIVERSIFIED FUND. The Fund is a "non-diversified"
investment company, which means the Fund is not limited in the
proportion of its assets that may be invested in the securities of
a single issuer. However, the Fund conducts, and intends to
continue to conduct, its operations so as to qualify as a
"regulated investment company" for purposes of the Internal
Revenue Code of 1986, as amended (the "Code"), which will relieve
the Fund of any liability for Federal income tax to the extent its
earnings are distributed to shareholders. See "Dividends,
Distributions and Taxes-U.S. Federal Income Taxes." To so qualify,
among other requirements, the Fund will limit its investments so
that, at the close of each quarter of the taxable year, (i) not
more than 25% of the market value of the Fund's total assets will
be invested in the securities of a single issuer, and (ii) with
respect to 50% of the market value of its total assets, not more
than 5% of the market value of its total assets will be invested
in the securities of a single issuer and the Fund will not own
more than 10% of the outstanding voting securities of a single
issuer. For purposes of the Fund's requirement to maintain
diversification for tax purposes, the issuer of a loan
participation will be the underlying borrower. In cases where the
Fund does not have recourse directly against the borrower, both
the borrower and each agent bank and co-lender interposed between
the Fund and the borrower will be deemed issuers of the loan
participation for tax diversification purposes. The Fund's
investments in U.S. Government Securities are not subject to these
limitations. Because the Fund, as a non-diversified investment
company, may invest in a smaller number of individual issuers than
a diversified investment company, an investment in the Fund may,
under certain circumstances, present greater risk to an investor
than an investment in a diversified company.

U.S. GOVERNMENT SECURITIES. For a description of obligations
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities. See Appendix A.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The Fund
may enter into contracts for the purchase or sale for future
delivery of fixed-income securities or foreign currencies, or
contracts based on financial indices including any index of U.S.
Government Securities, foreign government securities or corporate
debt securities ("futures contracts") and may purchase and write
put and call options to buy or sell futures contracts ("options on
futures contracts"). A "sale" of a futures contract means the
acquisition of a contractual obligation to deliver the securities
or foreign currencies called for by the contract at a specified
price on a specified date. A "purchase" of a futures contract
means the incurring of a contractual obligation to acquire the

<PAGE>

securities or foreign currencies called for by the contract at a
specified price on a specified date. The purchaser of a futures
contract on an index agrees to take or make delivery of an amount
of cash equal to the difference between a specified dollar
multiple of the value of the index on the expiration date of the
contract ("current contract value") and the price at which the
contract was originally struck. No physical delivery of the
fixed-income securities underlying the index is made. Options on
futures contracts to be written or purchased by the Fund will be
traded on U.S. or foreign exchanges or over-the-counter. These
investment techniques will be used only to hedge against
anticipated future changes in interest or exchange rates which
otherwise might either adversely affect the value of the Fund's
portfolio securities or adversely affect the prices of securities
which the Fund intends to purchase at a later date. These
investment techniques will not be used for speculation.

See Appendix C for further discussion of the use, risks and
costs of futures contracts and options on futures contracts.

The Fund will not enter into any futures contracts or options
on futures contracts if the aggregate of the market value of the
outstanding futures contracts of the Fund and the market value of
the currencies and futures contracts subject to outstanding
options written by the Fund would exceed 50% of the market value
of the total assets of the Fund; or if immediately thereafter the
amount of margin deposits on all the futures contracts of the Fund
and premiums paid on options on futures contracts would exceed 5%
of the market value of the total assets of the Fund.

For information on the use, risks and costs of options on
foreign currencies, see Appendix C.

OPTIONS ON FOREIGN CURRENCIES. The Fund may purchase and
write put and call options on foreign currencies for the purpose
of protecting against declines in the U.S. Dollar value of foreign
currency-denominated portfolio securities and against increases in
the U.S. Dollar cost of such securities to be acquired. As in the
case of other kinds of options, however, the writing of an option
on a foreign currency constitutes only a partial hedge, up to the
amount of the premium received, and the Fund could be required to
purchase or sell foreign currencies at disadvantageous exchange
rates, thereby incurring losses. The purchase of an option on a
foreign currency may constitute an effective hedge against
fluctuations in exchange rates although, in the event of rate
movements adverse to the Fund's position, it may forfeit the
entire amount of the premium plus related transaction costs.
Options on foreign currencies to be written or purchased by the
Fund are traded on U.S. and foreign exchanges or over-the-counter.
There is no specific percentage limitation on the Fund's
investments in options on foreign currencies.

<PAGE>

See Appendix C for further discussion of the use, risks and
costs of options on foreign currencies.

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. The Fund may
purchase or sell forward foreign currency exchange contracts
("forward contracts") to attempt to minimize the risk to the Fund
from adverse changes in the relationship between the U.S. Dollar
and foreign currencies. A forward contract is an obligation to
purchase or sell a specific currency for an agreed price at a
future date which is individually negotiated and privately traded
by currency traders and their customers. The Fund may enter into
a forward contract, for example, when it enters into a contract
for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. Dollar price of the
security ("transaction hedge"). The Fund may not engage in
transaction hedges with respect to the currency of a particular
country to an extent greater than the aggregate amount of the
Fund's transactions in that currency. Additionally, for example,
when the Fund believes that a foreign currency may suffer a
substantial decline against the U.S. Dollar, it may enter into a
forward sale contract to sell an amount of that foreign currency
approximating the value of some or all of the Fund's portfolio
securities denominated in such foreign currency, or when the Fund
believes that the U.S. Dollar may suffer a substantial decline
against a foreign currency, it may enter into a forward purchase
contract to buy that foreign currency for a fixed dollar amount
("position hedge"). In this situation the Fund may, in the
alternative, enter into a forward contract to sell a different
foreign currency for a fixed U.S. Dollar amount where the Fund
believes that the U.S. Dollar value of the currency to be sold
pursuant to the forward contract will fall whenever there is a
decline in the U.S. Dollar value of the currency in which
portfolio securities of the Fund are denominated ("cross-hedge").
The Fund's Custodian will place cash not available for investment
in U.S. Government Securities or other liquid high-quality debt
securities in a separate account of the Fund having a value equal
to the aggregate amount of the Fund's commitments under forward
contracts entered into with respect to position hedges and cross-
hedges. If the value of the securities placed in a separate
account declines, additional cash or securities will be placed in
the account on a daily basis so that the value of the account will
equal the amount of the Fund's commitments with respect to such
contracts. As an alternative to maintaining all or part of the
separate account, the Fund may purchase a call option permitting
the Fund to purchase the amount of foreign currency being hedged
by a forward sale contract at a price no higher than the forward
contract price or the Fund may purchase a put option permitting
the Fund to sell the amount of foreign currency subject to a
forward purchase contract at a price as high or higher than the
forward contract price.

<PAGE>

While these contracts are not presently regulated by the
Commodity Futures Trading Commission ("CFTC"), the CFTC may in the
future assert authority to regulate forward contracts. In such
event the Fund's ability to utilize forward contracts in the
manner set forth in the Prospectus may be restricted. Forward
contracts will reduce the potential gain from a positive change in
the relationship between the U.S. Dollar and foreign currencies.
Unanticipated changes in currency prices may result in poorer
overall performance for the Fund if it had not entered into such
contracts. The use of foreign currency forward contracts will not
eliminate fluctuations in the underlying U.S. Dollar equivalent
value of the prices of or rates of return on the Fund's foreign
currency-denominated portfolio securities and the use of such
techniques will subject the Fund to certain risks.

The matching of the increase in value of a forward contract
and the decline in the U.S. Dollar equivalent value of the foreign
currency-denominated asset that is the subject of the hedge
generally will not be precise. In addition, the fund may not
always be able to enter into foreign currency forward contracts at
attractive prices and this will limit the Fund's ability to use
such contract to hedge or cross-hedge its assets. Also, with
regard to the Fund's use of cross-hedges, there can be no
assurance that historical correlations between the movement of
certain foreign currencies relative to the U.S. Dollar will
continue. Thus, at any time poor correlation may exist between
movements in the exchange rates of the foreign currencies
underlying the Fund's cross-hedges and the movements in the
exchange rates of the foreign currencies in which the Fund's
assets that are the subject of such cross-hedges are denominated.

INTEREST RATE TRANSACTIONS. The Fund may enter into interest
rate swaps and may purchase or sell interest rate caps and floors.
The Fund expects to enter into these transactions primarily to
preserve a return or spread on a particular investment or portion
of its portfolio. The Fund may also enter into these transactions
to protect against any increase in the price of securities the
Fund anticipates purchasing at a later date. The Fund does not
intend to use these transactions as a speculative investment.
Interest rate swaps involve the exchange by the Fund with another
party of their respective commitments to pay or receive interest,
e.g., an exchange of floating rate payments for fixed rate
payments. The exchange commitments can involve payments to be
made in the same currency or in different currencies. The
purchase of an interest rate cap entitles the purchaser, to the
extent that a specified index exceeds a predetermined interest
rate, to receive payments of interest on a contractually-based
principal amount from the party selling such interest rate cap.
The purchase of an interest rate floor entitles the purchaser, to
the extent that a specified index falls below a predetermined

<PAGE>

interest rate, to receive payments on a notional principal amount
from the party selling such interest rate floor.

The Fund may enter into interest rate swaps, caps and floors
on either an asset-based or liability-based basis depending on
whether it is hedging its assets or its liabilities, and will
usually enter into interest rate swaps on a net basis, i.e., the
two payment streams are netted out, with the Fund receiving or
paying, as the case may be, only the net amount of the two
payments. The net amount of the excess, if any, of the Fund's
obligations over its entitlements with respect to each interest
rate swap will be accrued on a daily basis and an amount of cash
or high-quality liquid securities having an aggregate net asset
value at least equal to the accrued excess will be maintained in a
segregated account by the Fund's Custodian. If the Fund enters
into an interest rate swap on other than a net basis, the Fund
would maintain a segregated account with its Custodian in the full
amount accrued on a daily basis of the Fund's obligations with
respect to the swap. The Fund will enter into interest rate swap,
cap or floor transactions with its Custodian, and with other
counterparties, but only if: (i) for transactions with maturities
under one year, such other counterparty has outstanding short-term
paper rated at least A-1 by S&P or Prime-1 by Moody's, or (ii) for
transactions with maturities greater than one year, the
counterparty has outstanding debt securities rated at least AA by
S&P or Aa by Moody's. If there is a default by the other party to
such a transaction, the Fund will have contractual remedies
pursuant to the agreements related to the transaction. The swap
market has grown substantially in recent years with a large number
of banks and investment banking firms acting both as principals
and agents utilizing standardized swap documentation. The Adviser
has determined that, as a result, the swap market has become
relatively liquid. Caps and floors are more recent innovations
for which standardized documentation has not been developed and,
accordingly, they are less liquid than swaps. To the extent the
Fund sells (i.e., writes) caps and floors, it will maintain in a
segregated account cash or high-quality liquid debt securities
having an aggregate net asset value at least equal to the full
amount, accrued on a daily basis, of the Fund's obligations with
respect to any caps or floors. The use of interest rate swaps is
a highly specialized activity which involves investment techniques
and risks different from those associated with ordinary portfolio
securities transactions. If the Adviser is incorrect in its
forecasts of market values, interest rates and other applicable
factors, the investment performance of the Fund would diminish
compared with what it would have been if these investment
techniques were not used. Moreover, even if the Adviser is
correct in its forecasts, there is a risk that the swap position
may correlate imperfectly with the price of the asset or liability
being hedged.

<PAGE>

There is no limit on the amount of interest rate swap
transactions that may be entered into by the Fund. These
transactions do not involve the delivery of securities or other
underlying assets or principal. Accordingly, the risk of loss
with respect to interest rate swaps is limited to the net amount
of interest payments that the Fund is contractually obligated to
make. If the other party to an interest rate swap defaults, the
Fund's risk of loss consists of the net amount of interest
payments that the Fund contractually is entitled to receive. The
Fund may purchase and sell (i.e., write) caps and floors without
limitation, subject to the segregated account requirement
described above.

GENERAL. The successful use of the foregoing investment
practices draws upon the Adviser's special skills and experience
with respect to such instruments and usually depends on the
Adviser's ability to forecast interest rate and currency exchange
rate movements correctly. Should interest or exchange rates move
in an unexpected manner, the Fund may not achieve the anticipated
benefits of futures contracts, options or forward contracts or may
realize losses and thus be in a worse position than if such
strategies had not been used. Unlike many exchange-traded futures
contracts and options on futures contracts, there are no daily
price fluctuation limits with respect to options on currencies and
forward contracts, and adverse market movements could therefore
continue to an unlimited extent over a period of time. In
addition, the correlation between movements in the prices of such
instruments and movements in the price of the securities and
currencies hedged or used for cover will not be perfect and could
produce unanticipated losses.

The Fund's ability to dispose of its positions in futures
contracts, options and forward contracts will depend on the
availability of liquid markets in such instruments. Markets in
options and futures with respect to a number of fixed-income
securities and currencies are relatively new and still developing.
It is impossible to predict the amount of trading interest that
may exist in various types of futures contracts, options and
forward contracts. If a secondary market does not exist with
respect to an option purchased or written by the Fund over-the-
counter, it might not be possible to effect a closing transaction
in the option (i.e., dispose of the option) with the result that
(i) an option purchased by the Fund would have to be exercised in
order for the Fund to realize any profit and (ii) the Fund may not
be able to sell currencies or portfolio securities covering an
option written by the Fund until the option expires or it delivers
the underlying futures contract or currency upon exercise.
Therefore, no assurance can be given that the Fund will be able to
utilize these instruments effectively for the purposes set forth
above. Furthermore, the Fund's ability to engage in options and

<PAGE>

futures transactions may be limited by tax considerations. See
"Dividends, Distributions and Taxes-U.S. Federal Income Taxes."

LOANS OF PORTFOLIO SECURITIES. The Fund may make secured
loans of its portfolio securities to brokers, dealers and
financial institutions provided that cash, U.S. Government
Securities or other liquid high-quality debt securities or bank
letters of credit equal to at least 100% of the market value of
the securities loaned is deposited and maintained by the borrower
with the Fund. The risks in lending portfolio securities, as with
other extensions of credit, consist of possible loss of rights in
the collateral should the borrower fail financially. In
determining whether to lend securities to a particular borrower,
the Adviser (subject to review by the Board of Directors) will
consider all relevant facts and circumstances, including the
creditworthiness of the borrower. While securities are on loan,
the borrower will pay the Fund any income earned thereon and the
Fund may invest any cash collateral in portfolio securities,
thereby earning additional income, or receive an agreed-upon
amount of income from a borrower who has delivered equivalent
collateral. The Fund will have the right to regain record
ownership of loaned securities to exercise beneficial rights such
as voting rights, subscription rights and rights to dividends,
interest or other distributions. The Fund may pay reasonable
finders, administrative and custodial fees in connection with a
loan. The Fund will not lend portfolio securities in excess of
20% of the value of its total assets, nor will the Fund lend its
portfolio securities to any officer, director, employee or
affiliate of the Fund or the Adviser. The Board of Directors will
monitor the Fund's lending of portfolio securities.

REPURCHASE AGREEMENTS. The Fund may enter into "repurchase
agreements" with member banks of the Federal Reserve System or
"primary dealers" (as designated by the Federal Reserve Bank of
New York) in U.S. Government securities. There is no percentage
restriction on the Fund's ability to enter into repurchase
agreements. Currently the Fund enters into repurchase agreements
only with its Custodian and such primary dealers. A repurchase
agreement arises when a buyer such as the Fund purchases a
security and simultaneously agrees to resell it to the vendor at
an agreed-upon future date, normally one day or a few days later.
The resale price is greater than the purchase price, reflecting an
agreed-upon interest rate which is effective for the period of
time the buyer's money is invested in the security and which is
related to the current market rate rather than the coupon rate on
the purchased security. Such agreements permit the Fund to keep
all of its assets at work while retaining "overnight" flexibility
in pursuit of investments of a longer-term nature. The Fund
requires continual maintenance by its Custodian for its account in
the Federal Reserve/Treasury Book Entry System of collateral in an
amount equal to, or in excess of, the market value of the

<PAGE>

securities which are the subject of this agreement. In the event
a vendor defaulted on its repurchase obligation, the Fund might
suffer a loss to the extent that the proceeds from the sale of the
collateral were less than the repurchase price. In the event of a
vendor's bankruptcy, the Fund might be delayed in, or prevented
from, selling the collateral for the Fund's benefit. The Fund's
Board of Directors has established procedures, which are
periodically reviewed by the Board, pursuant to which the Adviser
monitors the creditworthiness of the dealers with which the Fund
enters into repurchase agreement transactions.

PORTFOLIO TURNOVER. The Fund may engage in active short-term
trading to benefit from yield disparities among different issues
of securities, to seek short-term profits during periods of
fluctuating interest rates, or for other reasons. Such trading
will increase the Fund's rate of turnover (which rate may be
higher that of other investment companies) and the incidence of
short-term capital gain taxable as ordinary income. The annual
portfolio turnover rate for the fiscal years ended October 31,
1993 and 1994 were 182% and 109%, respectively. Management
anticipates that the annual turnover in the Fund will not be in
excess of 500%. An annual turnover rate of 500% occurs, for
example, when all of the securities in the Fund's portfolio are
replaced five times in a period of one year. A high rate of
portfolio turnover involves correspondingly greater expenses than
a lower rate, which expenses must be borne by the Fund and its
shareholders. High portfolio turnover also may result in the
realization of substantial net short-term capital gains. In order
to continue to qualify as a regulated investment company for
Federal tax purposes, less than 30% of the annual gross income of
the Fund must be derived from the sale of securities held by the
Fund for less than three months. See "Dividends, Distributions
and Taxes" and "General Information-Portfolio Transactions."

FUNDAMENTAL INVESTMENT POLICIES

The following restrictions, which supplement those set forth
in the Fund's Prospectus, may not be changed without shareholder
approval, which means the affirmative vote of the holders of
(i) 67% or more of the shares represented at a meeting at which
more than 50% of the outstanding shares are represented, or
(ii) more than 50% of the outstanding shares, whichever is less.

The Fund may not:

1. Make loans except through (i) the purchase of debt
obligations in accordance with its investment objectives
and policies; (ii) the lending of portfolio securities;
or (iii) the use of repurchase agreements;

<PAGE>

2. Participate on a joint or joint and several basis in any
securities trading account;

3. Invest in companies for the purpose of exercise in
control;

4. Make short sales of securities or maintain a short
position, unless at all times when a short position is
open it owns an equal amount of such securities or
securities convertible into or exchangeable for, without
payment of any further consideration, securities of the
same issue as, and equal in amount to, the securities
sold short ("short sales against the box"), and unless
not more than 10% of the Fund's net assets (taken at
market value) is held as collateral for such sales at any
one time (it is the Fund's present intention to make such
sales only for the purpose of deferring realization of
gain or loss for Federal income tax purposes);

5. Purchase a security if, as a result (unless the security
is acquired pursuant to a plan of reorganization or an
offer of exchange), the Fund would own any securities of
an open-end investment-company or more than 3% of the
total outstanding voting stock of any closed-end
investment company or more than 5% of the value of the
Fund's total assets would be invested in securities of
any one or more closed-end investment companies; or

6. (i) Purchase or sell real estate, except that it may
purchase and sell securities of companies which deal in
real estate or purchase and sell securities of companies
which deal in real estate or interests therein;
(ii) purchase or sell commodities or commodity contracts
(except currencies futures contracts on currencies and
related options, forward contracts or contracts for the
future acquisition or delivery of fixed-income securities
and related options, futures contracts and options on
futures contracts and other similar contracts);
(iii) invest in interests in oil, gas, or other mineral
exploration or development programs; (iv) purchase
securities on margin, except for such short-term credits
as may be necessary for the clearance of transactions;
and (v) act as an underwriter of securities, except that
the Fund may acquire restricted securities under
circumstances in which, if such securities were sold, the
Fund might be deemed to be an underwriter for purposes of
the Securities Act.

To maintain portfolio diversification and reduce investment
risk, as a matter of fundamental policy, the Fund may not:
(i) invest 25% or more of its total assets in securities of

<PAGE>

companies engaged principally in any one industry other than the
banking industry, except that this restriction does not apply to
U.S. Government Securities; (ii) borrow money except from banks
for temporary or emergency purposes, including the meeting of
redemption requests which might require the untimely disposition
of securities; borrowing in the aggregate may not exceed 15%, and
borrowing for purposes other than meeting redemptions may not
exceed 5%, of the value of the Fund's total assets (including the
amount borrowed) less liabilities (not including the amount
borrowed) at the time the borrowing is made; securities will not
be purchased while borrowings in excess of 5% of the value of the
Fund's total assets are outstanding; or (iii) pledge, hypothecate,
mortgage or otherwise encumber its assets, except to secure
permitted borrowings.

In addition to the restrictions set forth above, in connection
with the qualification of its shares for sale in certain states,
the Fund has undertaken not to: (i) invest in warrants if, such
warrants valued at the lower cost or market, would exceed 5% of
the value of the Fund's net assets; (ii) purchase the securities
of any company that has a record of less than three years of
continuous operation (including that of any predecessors) if such
purchase at the time thereof would cause more than 5% of its total
assets, taken at current value, to be invested in the securities
of such companies; or (iii) purchase puts, calls, straddles,
spreads and any combination thereof if by reason thereof the value
of its aggregate investment in such classes of securities would
exceed %5 of its total assets. Included within such amount, but
not to exceed 2% of the Fund's net assets, may be warrants which
are not listed on the New York Stock Exchange or the American
Stock Exchange. Warrants acquired by the Fund in units or
attached to securities may be deemed to be without value.

Whenever any investment policy or restriction states a minimum
or maximum percentage of the Fund's assets which maybe invested in
any security or other asset, it is intended that such minimum or
maximum percentage limitation be determined immediately after and
as a result of the Fund's acquisition of such security or other
asset. Accordingly, any later increase or decrease in percentage
beyond the specified limitations resulting from a change in values
or net assets will not be considered a violation.

- ------------------------------------------------------------------
MANAGEMENT OF THE FUND
- ------------------------------------------------------------------

DIRECTORS AND OFFICERS

The Directors and officers of the Fund, their ages and their
principal occupations during the past five years are set forth
below. Each such Director and officer is also a trustee, director

<PAGE>

or officer of other registered investment companies sponsored by
the Adviser. Unless otherwise specified, the address of each such
persons is 1345 Avenue of the Americas, New York, New York 10105.

DIRECTORS

JOHN D. CARIFA*, 49, Chairman of the Board and President, is
the Chief Operating Officer and a Director of Alliance Capital
Management Corporation ("ACMC")** with which he has been
associated since prior to 1990.

RUTH BLOCK, 64, is a Director of Ecolab Incorporated
(specialty chemicals) and Amoco Corporation (oil and gas).
Previously, she was an Executive Vice President and the Chief
Insurance Officer of The Equitable Life Assurance Society of the
United States since prior to 1990. Her address is Box 4653,
Stamford, Connecticut 06903.

DAVID H. DIEVLER, 65, was formerly Chairman of the Board and
President of the Fund, and a Senior Vice President of ACMC.

JAMES R. GREENE, 72, is an independent financial consultant
since prior to 1990. He is also a Director of ASARCO,
Incorporated (metals smelting and refining), Bank Leumi Trust Co.,
Buck Engineering Company (manufacturing), American Reliance
Insurance Co. (insurance) and United Tote (computer software).
His address is 134 Buttonwood Drive, Fair Haven, New Jersey
07701.

DR. JAMES M. HESTER, 70, is President of the Harry Frank
Guggenheim Foundation and a Director of Union Carbide Corporation
with which he has been associated since prior to 1990. He was
formerly President of New York University, the New York Botanical
Garden and Rector of the United Nations University. His address
is 45 East 89th Street, New York, New York 10128.

CLIFFORD L. MICHEL, 55, is a Partner of the law firm of Cahill
Gordon & Reindel with which he has been associated since prior to
1990. He is Chief Executive Officer of Wenonah Development
Company (investments) and a Director of Placer Dome, Inc. (mining)
and Faber-Castell Corporation (writing products). His address is
80 Pine Street, New York, New York 10005.

EUGENE F. O'NEIL, 71, is Managing Director of O'Neil Asset
Management (private investments) with which he has been associated
since prior to 1990. His address is 24 Byfield Lane, Greenwich,
Connecticut 06830.

ROBERT C. WHITE, 74, is a Vice President and the Chief
Financial Officer of the Howard Hughes Medical Institute with
which he has been associated since prior to 1990. He is also a

<PAGE>

Director of MEDSTAT Systems, Inc. (healthcare information) and is
also a Trustee of St. Clair Fixed Income Fund, St. Clair Tax-Free
Fund and St. Clair Equity Fund (registered investment companies).
His address is 30825 River Crossing, Bingham Farms, Michigan
48025.

- -----------------------------
* An "interested person" of the Fund as defined in the 1940 Act.

** For purposes of this Statement of Additional Information, ACMC
refers to Alliance Capital Management Corporation, the sole
general partner of the Adviser, and to the predecessor general
partner of the Adviser of the same name.

<PAGE>

OFFICERS

JOHN D. CARIFA, CHAIRMAN AND PRESIDENT, (see biography,
above).

ROBERT M. SINCHE, SENIOR VICE PRESIDENT, 42, is a Senior Vice
President of ACMC with which he has been associated since prior to
1990.

F. JEANNE GOETZ, VICE PRESIDENT, 40, is a Senior Vice
President of ACMC with which she has been associated since prior
to 1990.

JOHN J. KELLEY, VICE PRESIDENT, 34, is a Vice President of
ACMC with which he has been associated since April 1994.
Previously, he was a Senior Vice President at C.J.
Lawrence/Deutsche Bank, New York since prior to 1990.

DOUGLAS J. PEEBLES, VICE PRESIDENT, 29, is a Vice President of
ACMC with which he has been associated since prior to 1990.

EDMUND P. BERGAN, JR., SECRETARY, 44, is a Senior Vice
President and General Counsel of Alliance Fund Distributors, Inc.
with which he has been associated since prior to 1990.

GEORGE O. MARTINEZ, ASSISTANT SECRETARY, 35, is a Vice
President and Associate General Counsel of Alliance Fund
Distributors, Inc. with which he has been associated since prior
to 1990.

MARK D. GERSTEN, TREASURER AND CHIEF FINANCIAL OFFICER, 44, is
a Vice President of Alliance Fund Distributors, Inc. and a Senior
Vice President of Alliance Fund Services, Inc. with which he has
been associated since prior to 1990.

JOSEPH J. MANTINEO, CONTROLLER, 35, is a Vice President of
Alliance Fund Services, Inc. with which he has been associated
since prior to 1990.

PATRICK J. FARRELL, ASSISTANT CONTROLLER, 35, is a Vice
President of Alliance Fund Services, Inc. with which he has been
associated since prior to 1990.

STEPHEN M. ATKINS, ASSISTANT CONTROLLER, 29, is a Manager of
International Mutual Fund Accounting of Alliance Fund Services,
Inc. since July, 1992; prior thereto, he was a Supervisor in
International Mutual Fund Accounting since prior to 1990.

The Fund does not pay any fees to, or reimburse expenses of,
its Directors who are considered "interested persons" of the Fund.
The aggregate compensation paid by the Fund to each of the

<PAGE>

Directors during its fiscal period ended October 31, 1994, and the
aggregate compensation paid to each of the Directors during
calendar year 1994 by all of the registered investment companies
to which the Adviser provides investment advisory services
(collectively, the "Alliance Fund Complex"), are set forth below.
Each of the Directors is a director or trustee of one or more
other registered investment companies in the Alliance Fund
Complex.

Pension or
Retirement
Benefits Estimated Total
Accrued Annual Compensation
Aggregate As Part Benefits from the Alliance
Name of Director Compensation of Fund upon Fund Complex,
of the Fund from the Fund Expenses Retirement Including the Fund
________________ _____________ __________ ___________ __________________

David H. Dievler $-0- $-0- $-0- $-0-
Ruth Block $4,007 $-0- $-0- $157,000
John D. Carifa $-0- $-0- $-0- $-0-
James R. Greene $2,250 $-0- $-0- $ 77,500
Dr. James M. Hester $4,007 $-0- $-0- $154,500
Clifford L. Michel $4,007 $-0- $-0- $120,500
Eugene F. O'Neil $4,250 $-0- $-0- $ 20,500
Robert C. White $4,040 $-0- $-0- $133,500

As of February 15, 1995, the Directors and officers of the
Fund as a group owned less than 1% of the shares of the Fund.

ADVISER

Alliance Capital Management L.P., a New York Stock Exchange
listed company with principal offices at 1345 Avenue of the
Americas, New York, New York 10105, has been retained under an
investment advisory agreement (the "Advisory Agreement") to
provide investment advice and, in general, to conduct the
management and investment program of the Fund under the
supervision and control of the Fund's Board of Directors.

The Adviser is a leading international investment manager
supervising client accounts with assets as of December 31, 1994 of
more than $121 billion (of which more than $36 billion represented
the assets of investment companies). The Adviser's clients are
primarily major corporate employee benefit funds, public employee
retirement systems, investment companies, foundations and
endowment funds and included, as of December 31, 1994, 29 of the
FORTUNE 100 Companies. As of that date, the Adviser and its
subsidiaries employed approximately 1,450 employees who operated
out of domestic offices and the overseas offices of subsidiaries
in Bombay, Istanbul, London, Sydney, Tokyo, Toronto, Bahrain,

<PAGE>

Luxembourg and Singapore. The 51 registered investment companies
comprising 103 separate investment portfolios managed by the
Adviser currently have more than one million shareholders.

Alliance Capital Management Corporation, the sole general
partner of, and the owner of a 1% general partnership interest in,
the Adviser, is an indirect wholly-owned subsidiary of The
Equitable Life Assurance Society of the United States
("Equitable"), one of the largest life insurance companies in the
United States and a wholly-owned subsidiary of The Equitable
Companies Incorporated ("ECI"), a holding company controlled by
AXA, a French insurance holding company. As of December 31, 1994,
ACMC, Inc. and Equitable Capital Management Corporation, each a
wholly-owned direct or indirect subsidiary of Equitable, owned in
the aggregate approximately 59% of the issued and outstanding
units representing assignments of beneficial ownership of limited
partnership interests in the Adviser ("Units"). As of December
31, 1994, approximately 32% and 9% of the Units were owned by the
public and employees of the Adviser and its subsidiaries,
respectively, including employees of the Adviser who serve as
Directors of the Fund.

AXA owns approximately 60% of the outstanding voting shares of
common stock of ECI. AXA is the holding company for an
international group of insurance and related financial services
companies. AXA's insurance operations are comprised of activities
in life insurance, property and casualty insurance and
reinsurance. The insurance operations are diverse geographically
with activities in France, the United States, the United Kingdom,
Canada and other countries, principally in Europe. AXA is also
engaged in asset management, investment banking and brokerage,
real estate and other financial services activities in the United
States and Europe. Based on information provided by AXA, as of
January 1, 1995, 42.3% of the issued shares (representing 54.7% of
the voting power) of AXA were owned by Midi Participations, a
French corporation that is a holding company. The voting shares
of Midi Participations are in turn owned 60% by Finaxa, a French
corporation that is a holding company, and 40% by subsidiaries of
Assicurazioni Generali S.p.A., an Italian corporation ("Generali")
(one of which, Belgica Insurance Holding S.A., a Belgian
corporation, owned 34.1%). As of January 1, 1995, 62.1% of the
issued shares (representing 75.7% of the voting power) of Finaxa
were owned by five French mutual insurance companies (the
"Mutuelles AXA") (one of which, AXA Assurances I.A.R.D. Mutuelle,
owned 31.8% of the issued shares) (representing 39.0% of the
voting power), and 26.5% of the issued shares (representing 16.6%
of the voting power) of Finaxa were owned by Banque Paribas, a
French bank ("Paribas"). Including the shares owned by Midi
Participations, as of January 1, 1995, the Mutuelles AXA directly
or indirectly owned 51.3% of the issued shares (representing 65.8%
of the voting power) of AXA. In addition, certain subsidiaries of

<PAGE>

AXA own 0.4% of the shares of AXA which are not entitled to be
voted. Acting as a group, the Mutuelles AXA control AXA, Midi
Participations and Finaxa.

Under the Advisory Agreement with the Fund, the Adviser
provides investment advisory services and order placement
facilities for the Fund and pays all compensation of Directors and
officers of the Fund who are affiliated persons of the Adviser.
The Adviser or its affiliates also furnishes the Fund, without
charge, management supervision and assistance and office
facilities and provide persons satisfactory to the Fund's Board of
Directors to serve as the Fund's officers.

The Advisory Agreement provides that the Adviser will
reimburse the Fund for its expenses (exclusive of interest, taxes,
brokerage, expenditures pursuant to the Distribution Services
Agreement described below, and extraordinary expenses, all to the
extent permitted by applicable state securities laws and
regulations) which in any year exceed the limits prescribed by any
state in which the Fund's shares are qualified for sale. The Fund
may not qualify its shares for sale in every state. The Fund
believes that presently the most restrictive expenses ratio
limitation imposed by any state in which the Fund has qualified
its shares for sale is 2.5% of the first $30 million of the Fund's
aggregate average daily net assets, 2.0% of the next $70 million
of its average daily net assets and 1.5% of its average daily net
assets in excess of $100 million. Expense reimbursements, if any,
are accrued daily and paid monthly. No such reimbursement was
required for the year ended October 31, 1994.

For the fiscal years ended October 31, 1992, 1993 and 1994,
the Adviser received an advisory fee in the amount of $33,012,468,
$18,886,560 and $11,648,245, respectively.

The Advisory Agreement became effective on July 22, 1992. The
Advisory Agreement replaced an earlier, substantially identical
agreement (the "First Advisory Agreement") that terminated because
of its technical assignment as a result of AXA's acquisition of
control over Equitable. In anticipation of the assignment of the
First Advisory Agreement, the Advisory Agreement was approved by
the unanimous vote, cast in person, of the Fund's Directors,
including the Directors who are not parties to the Advisory
Agreement or interested persons of any such party, at a meeting
called for such purpose and held on September 11, 1991. At a
meeting held on June 11, 1992, a majority of the outstanding
voting securities of the Fund approved the Advisory Agreement.

The Advisory Agreement continues in effect for successive
twelve month periods (computed from each January 1), provided that
such continuance is specifically approved at least annually by a
majority vote of the holders of the outstanding voting securities

<PAGE>

of the Fund or by a majority vote of the Directors, and in either
case, by a majority of the Directors who neither are interested
persons (as defined in the 1940 Act) of the Fund nor have any
direct or indirect financial interest in the Advisory Agreement,
cast in person at a meeting called for the purpose of voting on
such approval. Most recently, the Board of Directors approved the
continuance of the Advisory Agreement until December 31, 1995 at
their meeting held on December 7, 1994.

The Advisory Agreement is terminable without penalty on 60
days' written notice, by a vote of a majority of the Fund's
outstanding voting securities or by a vote of a majority of the
Fund's Directors or by the Adviser on 60 days' written notice, and
will automatically terminate in the event of its assignment. The
Advisory Agreement provides that in the absence of willful
misfeasance, bad faith or gross negligence on the part of the
Adviser, or of reckless disregard of its obligations thereunder,
the Adviser shall not be liable for any action or failure to act
in accordance with its duties thereunder.

Certain other clients of the Adviser may have investment
objectives and policies similar to those of the Fund. The Adviser
may, from time to time, make recommendations which result in the
purchase or sale of a particular security by its other clients
simultaneously with the Fund. If transactions on behalf of more
than one client during the same period increase the demand for
securities being purchased or the supply of securities being sold,
there may be an adverse effect on price or quantity. It is the
policy of the Adviser to allocate advisory recommendations and the
placing of orders in a manner which is deemed equitable by the
Adviser to the accounts involved, including the Fund. When two or
more of the clients of the Adviser (including the Fund) are
purchasing or selling the same security on a given day from the
same broker-dealer, such transactions may be averaged as to price.

The Adviser may act as an investment adviser to other persons,
firms or corporations, including investment companies, and is the
investment adviser to the following: 1) ACM Institutional
Reserves, Inc., AFD Exchange Reserves, The Alliance Fund, Inc.,
Alliance All-Asia Investment Fund, Inc., Alliance Balanced Shares,
Inc., Alliance Bond Fund, Inc., Alliance Capital Reserves,
Alliance Counterpoint Fund, Alliance Developing Markets Fund,
Inc., Alliance Global Government Fund, Inc., Alliance Global
Dollar Government Fund, Inc., Alliance Global Small Cap Fund,
Inc., Alliance Government Reserves, Alliance Growth and Income
Fund, Inc., Alliance Income Builder Fund, Inc., Alliance
International Fund, Alliance Mortgage Securities Income Fund,
Inc., Alliance Mortgage Strategy Trust, Inc., Alliance Multi-
Market Strategy Trust, Inc., Alliance Municipal Income Fund, Inc.,
Alliance Municipal Income Fund II, Alliance Municipal Trust,
Alliance New Europe Fund, Inc., Alliance North American Government

<PAGE>

Income Trust, Inc., Alliance Premier Growth Fund, Inc., Alliance
Quasar Fund, Inc., Alliance Technology Fund, Inc., Alliance
Utility Income Fund, Inc., Alliance Variable Products Series Fund,
Inc., Alliance World Income Trust, Inc., Alliance Worldwide
Privatization Fund, Inc., Fiduciary Management Associates, The
Alliance Portfolios and The Hudson River Trust, all registered
open-end investment companies; ACM Government Income Fund, Inc.,
ACM Government Securities Fund, Inc., ACM Government Spectrum
Fund, Inc., ACM Government Opportunity Fund, Inc., ACM Managed
Income Fund, Inc., ACM Managed Multi-Market Trust, Inc., ACM
Managed Dollar Income Fund, Inc., ACM Municipal Securities Income
Fund, Inc., Alliance All-Market Advantage Fund, Inc., Alliance
Global Environment Fund, Inc., Alliance World Dollar Government
Fund, Inc., Alliance World Dollar Government Fund II, Inc., The
Global Privatization Fund, Inc., The Austria Fund, Inc., The
Korean Investment Fund, Inc., The Southern Africa Fund, Inc. and
The Spain Fund, Inc., all registered closed-end investment
companies; and 3) Alliance Global Bond Fund, SICAV, Alliance
Global Leisure Fund, Alliance Global Growth Trends Portfolio,
Alliance Global Income Fund, Alliance International Currency
Reserves, Alliance International Health Care Fund, SICAV, Alliance
International Technology Fund, SICAV, Alliance Worldwide Income
Fund, India Liberalisation Fund, SICAV, ML-Alliance Asset
Allocation N.V. and The Spanish Smaller Companies Fund, all
foreign investment companies, all foreign companies.

- ------------------------------------------------------------------
EXPENSES OF THE FUND
- ------------------------------------------------------------------

DISTRIBUTION SERVICES AGREEMENT

The Fund has entered into a Distribution Services Agreement
(the "Agreement") with Alliance Fund Distributors, Inc., the
Fund's principal underwriter (the "Principal Underwriter"), to
permit the Fund directly or indirectly to pay expenses associated
with the distribution of its shares in accordance with a plan of
distribution included in the Agreement and has been duly adopted
and approved in accordance with Rule 12b-1 adopted by the
Commission under the 1940 Act (the "Rule 12b-1 Plan").

Distribution services fees are accrued daily and paid monthly
and are charged as expenses of the Fund as accrued. The
distribution services fees attributable to the Class B shares and
Class C shares are designed to permit an investor to purchase such
shares through broker-dealers without the assessment of an initial
sales charge, and, in the case of Class C shares, without the
assessment of a contingent deferred sales charge, and at the same
time to permit the Principal Underwriter to compensate broker-
dealers in connection with the sale of such shares. In this
regard, the purpose and function of the combined contingent

<PAGE>

deferred sales charge and distribution services fee on the Class B
shares, and the distribution services fee on the Class C shares,
are the same as those of the initial sales charge (or contingent
deferred sales charge, when applicable) and distribution services
fee with respect to the Class A shares in that in each case the
sales charge and/or distribution services fee provide for the
financing of the distribution of the Fund's shares.

Under the Agreement, the Treasurer of the Fund reports the
amounts expended under the Rule 12b-1 Plan and the purposes for
which such expenditures were made to the Directors of the Fund for
their review on a quarterly basis. Also, the Agreement provides
that the selection and nomination of disinterested Directors (as
defined in the 1940 Act) are committed to the discretion of the
disinterested Directors then in office.

The Agreement became effective on July 22, 1992, and was
amended as of April 30, 1993 to permit the distribution of an
additional class of shares, Class C shares. The amendment to the
Agreement was approved by the unanimous vote, cast in person, of
the disinterested Directors at a meeting called for that purpose
and held on February 23, 1993, and by the initial holder of Class
C shares of the Fund on April 30, 1993.

The Adviser may from time to time and from its own funds or
such other resources as may be permitted by rules of the
Commission make payments for distribution services to the
Principal Underwriter; the latter may in turn pay part or all of
such compensation to brokers or other persons for their
distribution assistance.

During the Fund's fiscal year ended October 31, 1994, with
respect to Class A shares, distribution services fees for
expenditures payable to the Principal Underwriter amounted to,
$2,269,739 which constituted .30 of 1% of the Fund's average daily
net assets during such fiscal year, and the Adviser made payments
from its own resources aggregating $731,028. Of the $3,000,767
paid by the Fund and the Adviser under the Plan with respect to
Class A shares, $122,334 was spent on advertising, $36,155 on the
printing and mailing of prospectuses for persons other than
current shareholders, $2,294,446 for compensation to broker-
dealers and other financial intermediaries (including $476,873 to
the Fund's Principal Underwriter), $32,874 for compensation paid
to wholesalers of the Principal Underwriter in respect of sales of
the shares of the Fund and $514,958 was spent on the printing of
sales literature, travel, entertainment, due diligence and other
promotional expenses.

During the Fund's fiscal year ended October 31, 1994, with
respect to Class B shares, distribution services fees for
expenditures payable to the Principal Underwriter amounted to,

<PAGE>

$13,526,862 which constituted 1% of the Fund's average daily net
assets during such fiscal year, and the Adviser made payments from
its own resources aggregating $11,690,735. Of the $4,656,758 paid
by the Fund and the Adviser under the Plan with respect to Class B
shares, $105,102 was spent on advertising, $28,068 on the printing
and mailing of prospectuses for persons other than current
shareholders, $4,119,580 for compensation to broker-dealers and
other financial intermediaries (including $356,231 to the Fund's
Principal Underwriter), $16,634 for compensation paid to
wholesalers of the Principal Underwriters in respect of sales of
shares of the Fund and $387,374 was spent on the printing of sales
literature, travel, entertainment, due diligence and other
promotional expenses.

During the period May 3, 1993 (commencement of distribution)
through October 31, 1994, with respect to Class C shares,
distribution services fees for expenditures payable to the
Principal Underwriter amounted to, $85,932 which constituted 1% of
the Fund's average daily net assets during such fiscal year, and
the Adviser made payments from its own resources aggregating
$625,685. Of the $711,617 paid by the Fund and the Adviser under
the Plan with respect to Class C shares, $73,426 was spent on
advertising, $15,497 on the printing and mailing of prospectuses
for persons other than current shareholders, $331,687 for
compensation to broker-dealers and other financial intermediaries
(including $247,341 to the Fund's Principal Underwriter), $18,062
for compensation paid to wholesalers of the Principal Underwriters
in respect of sales of shares of the Fund and $272,945 was spent
on the printing of sales literature, travel, entertainment, due
diligence and other promotional expenses.

The Agreement will continue in effect for successive twelve-
month periods (computed from each January 1) with respect to each
class of the Fund, provided, however, that such continuance is
specifically approved at least annually by the Directors of the
Fund or by vote of the holders of a majority of the outstanding
voting securities (as defined in the 1940 Act) of that class, and
in either case, by a majority of the Directors of the Fund who are
not parties to this agreement or interested persons, as defined in
the 1940 Act, of any such party (other than as directors of the
Fund) and who have no direct or indirect financial interest in the
operation of the Rule 12b-1 Plan or any agreement related thereto.
Most recently the Directors approved the continuance of the
Agreement until December 31, 1995 at their meeting held on
December 7, 1994.

In the event that the Agreement is terminated or not continued
with respect to the Class A shares, Class B shares or Class C
shares, (i) no distribution services fees (other than current
amounts accrued but not yet paid) would be owed by the Fund to the
Principal Underwriter with respect to that class, and (ii) the

<PAGE>

Fund would not be obligated to pay the Principal Underwriter for
any amounts expended under the Agreement not previously recovered
by the Principal Underwriter from distribution services fees in
respect of shares of such class or through deferred sales charges.

All material amendments to the Agreement must be approved by a
vote of the Directors of the Fund or the Fund's outstanding voting
securities, voting separately by class, and in either case, by a
majority of the disinterested Directors, cast in person at a
meeting called for the purpose of voting on such approval; and the
Agreement may not be amended in order to increase materially the
costs that the Fund may bear pursuant to the Agreement without the
approval of a majority of the outstanding shares of the Fund,
voting separately by class. The Agreement may be terminated
(a) by the Fund without penalty at any time by a majority vote of
the disinterested Directors who have no direct or indirect
financial interest in the Rule 12b-1 Plan, the Agreement or any
related agreement or by a majority vote of the outstanding shares
of the Fund, voting separately by class, or (b) by the Principal
Underwriter. To terminate the Agreement, either party must give
the other party 60 days' written notice; to terminate the Rule
12b-1 Plan only, the Fund is not required to give prior written
notice to the Principal Underwriter. The Rule 12b-1 Plan will
terminate automatically in the event of its assignment.

TRANSFER AGENCY AGREEMENT

Alliance Fund Services, Inc., an indirect wholly-owned
subsidiary of the Adviser, receives a transfer agency fee per
account holder of each of the Class A, Class B and Class C shares
of the Fund, plus reimbursement for out-of-pocket expenses. The
transfer agency fee with respect to the Class B shares is higher
than the transfer agency fee with respect to the Class A shares or
Class C shares, reflecting the additional costs associated with
the Class B contingent deferred sales charge. For the fiscal year
ended October 31, 1994, the Fund paid Alliance Fund Services, Inc.
$2,644,992 for transfer agency services.

- ------------------------------------------------------------------
PURCHASE OF SHARES
- ------------------------------------------------------------------

The following information supplements that set forth in the
Fund's Prospectus under the headings "Purchase and Sale of Shares
- -- How To Buy Shares, How To Sell Shares, and Shareholder
Services."

<PAGE>

GENERAL

Shares of the Fund are offered on a continuous basis at a
price equal to their net asset value plus an initial sales charge
at the time of purchase (the "initial sales charge alternative"),
with a contingent deferred sales charge (the "deferred sales
charge alternative"), or without any initial or contingent
deferred sales charge (the "asset-based sales charge
alternative"), as described below. Shares of the Fund are offered
on a continuous basis through (i) investment dealers that are
members of the National Association of Securities Dealers, Inc.
and have entered into selected dealer agreements with the
Principal Underwriter ("selected dealers"), (ii) depository
institutions and other financial intermediaries or their
affiliates, that have entered into selected agent agreements with
the Principal Underwriter ("selected agents"), or (iii) the
Principal Underwriter. The minimum for initial investments is
$250; subsequent investments (other than reinvestments of
dividends and capital gains distributions in shares) must be in
the minimum amount of $50. As described under "Shareholder
Services," the Fund offers an automatic investment program and a
403(b)(7) retirement plan which permit investments of $25 or more.
The subscriber may use the Subscription Application found in the
Prospectus for his or her initial investment. Sales personnel of
selected dealers and agents distributing the Fund's shares may
receive differing compensation for selling Class A, Class B or
Class C shares.

Investors may purchase shares of the Fund in the United States
either through selected dealers or agents or directly through the
Principal Underwriter. Shares may also be sold in foreign
countries where permissible. The Fund may refuse any order for
the purchase of shares. The Fund reserves the right to suspend
the sale of the Fund's shares to the public in response to
conditions in the securities markets or for other reasons.

The public offering price of shares of the Fund is their net
asset value, plus, in the case of most purchases of Class A
shares, a sales charge which will vary depending on the purchase
alternative chosen by the investor and the amount of the purchase,
as shown in the table below under "Initial Sales Charge
Alternative -- Class A Shares." On each Fund business day on
which a purchase or redemption order is received by the Fund and
trading in the types of securities in which the Fund invests might
materially affect the value of Fund shares, the per share net
asset value is computed in accordance with the Fund's Articles of
Incorporation and By-Laws as of the next close of regular trading
on the New York Stock Exchange (the "Exchange") (currently 4:00
p.m. New York time) by dividing the value of the Fund's total
assets, less its liabilities, by the total number of its shares
then outstanding. The respective per share net asset values of

<PAGE>

the Class A, Class B and Class C shares are expected to be
substantially the same. Under certain circumstances, however, the
per share net asset values of the Class B and Class C shares may
be lower than the per share net asset value of the Class A shares
as a result of the daily expense accruals of the distribution and
transfer agency fees applicable with respect to the Class B and
Class C shares. Even under those circumstances, the per share net
asset values of the three classes eventually will tend to converge
immediately after the payment of dividends, which will differ by
approximately the amount of the expense accrual differential among
the classes. A Fund business day is any weekday, exclusive of
national holidays on which the Exchange is closed and Good Friday.
For purposes of this computation, the securities in the Fund are
valued at their current market value determined on the basis of
market quotations or, if such quotations are not readily
available, such other methods as the Directors believe would
accurately reflect fair market value.

The Fund will accept unconditional orders for shares to be
executed at the public offering price equal to their net asset
value next determined (plus applicable Class A sales charges), as
described below. Orders received by the Principal Underwriter
prior to the close of regular trading on the Exchange on each day
the Exchange is open for trading are priced at the net asset value
computed as of the close of regular trading on the Exchange on
that day (plus applicable Class A sales charges). In the case of
orders for purchase of shares placed through selected dealers or
agents, the applicable public offering price will be the net asset
value as so determined, but only if the selected dealer or agent
receives the order prior to the close of regular trading on the
Exchange and transmits it to the Principal Underwriter prior to
its close of business that same day (normally 5:00 p.m. New York
time). The selected dealer or agent is responsible for
transmitting such orders by 5:00 p.m. If the selected dealer or
agent fails to do so, the investor's right to that day's closing
price must be settled between the investor and the selected dealer
or agent. If the selected dealer or agent receives the order
after the close of regular trading on the Exchange, the price will
be based on the net asset value determined as of the close of
regular trading on the Exchange on the next day it is open for
trading.

Following the initial purchase of Fund shares, a shareholder
may place orders to purchase additional shares by telephone if the
shareholder has completed the appropriate portion of the
Subscription Application or an "Autobuy" application obtained by
calling the "Literature" telephone number shown on the cover of
this Statement of Additional Information. Payment for shares
purchased by telephone can be made only by Electronic Funds
Transfer from a bank account maintained by the shareholder at a
bank that is a member of the National Automated Clearing House

<PAGE>

Association ("NACHA"). If a shareholder's telephone purchase
request is received before 3:00 p.m. New York time on a Fund
business day, the order to purchase shares is automatically placed
the following Fund business day, and the applicable public
offering price will be the public offering price determined as of
the close of business on such following business day.

Full and fractional shares are credited to a subscriber's
account in the amount of his or her subscription. As a
convenience to the subscriber, and to avoid unnecessary expense to
the Fund, stock certificates representing shares of the Fund are
not issued except upon written request to the Fund by the
shareholder or his or her authorized selected dealer or agent.
This facilitates later redemption and relieves the shareholder of
the responsibility for and inconvenience of lost or stolen
certificates. No certificates are issued for fractional shares,
although such shares remain in the shareholder's account on the
books of the Fund.

In addition to the discount or commission amount paid to
dealers or agents, the Principal Underwriter from time to time
pays additional cash bonuses or other incentives to dealers or
agents, including Equico Securities, Inc., an affiliate of the
Principal Underwriter, in connection with the sale of shares of
the Fund. Such additional amounts may be utilized, in whole or in
part, to provide additional compensation to registered
representatives who sell shares of the Fund. On some occasions,
such cash or other incentives will be conditioned upon the sale of
a specified minimum dollar amount of the shares of the Fund and/or
other Alliance Mutual Funds, as defined below, during a specific
period of time. On some occasions, such cash or other incentives
may take the form of payment for attendance at seminars, meals,
sporting events or theater performances, or payment for travel,
lodging and entertainment incurred in connection with travel by
persons associated with a dealer or agent and their immediate
family members to urban or resort locations within or outside the
United States. Such dealer or agent may elect to receive cash
incentives of equivalent amount in lieu of such payments.

ALTERNATIVE PURCHASE ARRANGEMENTS

The Fund issues three classes of shares: Class A shares are
sold to investors choosing the initial sales charge alternative,
Class B shares are sold to investors choosing the deferred sales
charge alternative, and Class C shares are sold to investors
choosing the asset-based sales charge alternative. The three
classes of shares each represent an interest in the same portfolio
of investments of the Fund, have the same rights and are identical
in all respects, except that (i) Class A shares bear the expense
of the initial sales charge (or contingent deferred sales charge,
when applicable) and Class B shares bear the expense of the

<PAGE>

contingent deferred sales charge, (ii) Class B shares and Class C
shares each bear the expense of a higher distribution services fee
and in the case of Class B shares, higher transfer agency costs,
(iii) each class has exclusive voting rights with respect to
provisions of the Rule 12b-1 Plan pursuant to which its
distribution services fee is paid which relates to a specific
class and other matters for which separate class voting is
appropriate under applicable law, provided that, if the Fund
submits to a vote of both the Class A shareholders and the Class B
shareholders an amendment to the Rule 12b-1 Plan that would
materially increase the amount to be paid thereunder with respect
to the Class A shares, the Class A shareholders and the Class B
shareholders will vote separately by Class, and (iv) only the
Class B shares are subject to a conversion feature. Each class
has different exchange privileges and certain different
shareholder service options available.

The alternative purchase arrangements permit an investor to
choose the method of purchasing shares that is most beneficial
given the amount of the purchase, the length of time the investor
expects to hold the shares, and other circumstances. Investors
should consider whether, during the anticipated life of their
investment in the Fund, the accumulated distribution services fee
and contingent deferred sales charges on Class B shares prior to
conversion, or the accumulated distribution services fee on Class
C shares, would be less than the initial sales charge and
accumulated distribution services fee on Class A shares purchased
at the same time, and to what extent such differential would be
offset by the higher return of Class A shares. Class A shares
will normally be more beneficial than Class B shares to the
investor who qualifies for reduced initial sales charges on Class
A shares, as described below. In this regard, the Principal
Underwriter will reject any order (except orders from certain
retirement plans) for more than $250,000 for Class B shares.
Class C shares will normally not be suitable for the investor who
qualifies to purchase Class A shares at net asset value. In
addition, the Principal Underwriter will reject any order for more
than $5,000,000 for Class C shares.

Class A shares are subject to a lower distribution services
fee and, accordingly, pay correspondingly higher dividends per
share than Class B shares or Class C shares. However, because
initial sales charges are deducted at the time of purchase, most
investors purchasing Class A shares would not have all their funds
invested initially and, therefore, would initially own fewer
shares. Investors not qualifying for reduced initial sales
charges who expect to maintain their investment for an extended
period of time might consider purchasing Class A shares because
the accumulated continuing distribution charges on Class B shares
or Class C shares may exceed the initial sales charge on Class A
shares during the life of the investment. Again, however, such

<PAGE>

investors must weigh this consideration against the fact that,
because of such initial sales charges, not all their funds will be
invested initially.

Other investors might determine, however, that it would be
more advantageous to purchase Class B shares or Class C shares in
order to have all their funds invested initially, although
remaining subject to higher continuing distribution charges and,
in the case of Class B shares, being subject to a contingent
deferred sales charge for a three-year period. For example, based
on current fees and expenses, an investor subject to the 4.25%
initial sales charge would have to hold his or her investment
approximately seven years for the Class C distribution services
fee to exceed the initial sales charge plus the accumulated
distribution services fee of Class A shares. In this example, an
investor intending to maintain his or her investment for a longer
period might consider purchasing Class A shares. This example
does not take into account the time value of money, which further
reduces the impact of the Class C distribution services fees on
the investment, fluctuations in net asset value or the effect of
different performance assumptions.

Those investors who prefer to have all of their funds invested
initially but may not wish to retain Fund shares for the three-
year period during which Class B shares are subject to a
contingent deferred sales charge may find it more advantageous to
purchase Class C shares.

The Directors of the Fund have determined that currently no
conflict of interest exists between or among the Class A, Class B
and Class C shares. On an ongoing basis, the Directors of the
Fund, pursuant to their fiduciary duties under the 1940 Act and
state laws, will seek to ensure that no such conflict arises.

During the Fund's fiscal years ended October 31, 1992, 1993
and 1994, the aggregate amount of underwriting commission payable
with respect to shares of the Fund were $37,047,078, $11,939,694
and $3,785,248, respectively. Of that amount, the Principal
Underwriter received amounts of $1,727,949, $155,529 and $50,487,
respectively, representing that portion of the Class A sales
charges paid on Class A shares of the Fund sold during the year
which was not reallowed to selected dealers (and was, accordingly,
retained by the Principal Underwriter). During the fiscal year
ended October 31, 1994, the Principal Underwriter received
$3,115,562 in contingent deferred sales charges with respect to
Class B share redemptions.

<PAGE>

INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES

The public offering price of Class A shares for purchasers
choosing the initial sales charge alternative is the net asset
value plus a sales charge, as set forth below.

Initial Sales Charge

Discount or
Commission
As % of to Dealers
As % of the or Agents
Net Public As % of
Amount of Amount Offering Offering
Purchase Invested Price Price
- ---------- --------- -------- ----------

Less than
$100,000 4.44% 4.25% 4.00%
$100,000 but
less than
250,000 3.36 3.25 3.00
250,000 but
less than
500,000 2.30 2.25 2.00
500,000 but
less than
1,000,000 1.78 1.75 1.50

____________________

There is no initial sales charge on transactions of $1,000,000 or
more.

With respect to purchases of $1,000,000 or more, Class A
shares redeemed within one year of purchase will be subject to a
contingent deferred sales charge equal to 1% of the lesser of the
cost of the shares being redeemed or their net asset value at the
time of redemption. Accordingly, no sales charge will be imposed
on increases in net asset value above the initial purchase price.
In addition, no charge will be assessed on shares derived from
reinvestment of dividends or capital gains distributions. The
contingent deferred sales charge on Class A shares will be waived
on certain redemptions, and such charge will be applied to
redemptions of shares by shareholders who hold both Class A and
Class B shares, as described below under "Deferred Sales Charge
Alternative--Class B Shares." Proceeds from the contingent
deferred sales charge on Class A shares are paid to the Principal
Underwriter and are used by the Principal Underwriter to defray
the expenses of the Principal Underwriter related to providing
distribution-related services to the Fund in connection with the

<PAGE>

sales of Class A shares, such as the payment of compensation to
selected dealers and agents for selling Class A Shares. With
respect to purchases of $1,000,000 or more made through selected
dealers or agents, the Adviser may, pursuant to the Agreement
described above, pay such dealers or agents from its own resources
a fee of up to 1% of the amount invested to compensate such
dealers or agents for their distribution assistance in connection
with such purchases.

Shares issued pursuant to the automatic reinvestment of income
dividends or capital gains distributions are not subject to any
sales charges. The Fund receives the entire net asset value of
its Class A shares sold to investors. The Principal Underwriter's
commission is the sales charge shown above less any applicable
discount or commission "reallowed" to selected dealers and agents.
The Principal Underwriter will reallow discounts to selected
dealers and agents in the amounts indicated in the table above.
The Principal Underwriter may ,however, elect to reallow the
entire sales charge to selected dealers and agents for all sales
with respect to which orders are placed with the Principal
Underwriter. A selected dealer who receives reallowance in excess
of 90% of such a sales charge may be deemed to be an "underwriter"
under the Securities Act of 1933, as amended.

Set forth below is an example of the method of computing the
offering price of the Class A shares. The example assumes a
purchase of Class A shares of the Fund aggregating less than
$100,000 subject to the schedule of sales charges set forth in the
Prospectus at a price based upon the net asset value of Class A
shares of the Fund on October 31, 1994.

Net Asset Value per Class A Share
at October 31, 1994 $8.71

Per Share Sales Charge - 4.25%
of offering price (4.44% .39
of net asset value per share) -----

Class A Per Share Offering Price
to the Public $9.10
=====

An investor choosing the initial sales charge alternative may
under certain circumstances be entitled to pay (i) no initial
sales charge (but subject in most cases to a contingent deferred
sales charge) or (ii) a reduced initial sales charge. The
circumstances under which an investor may pay a reduced initial
sales charge or no initial sales charge are described below.

COMBINED PURCHASE PRIVILEGE. Certain persons may qualify for
the sales charge reductions indicated in the schedule of such

<PAGE>

charges above by combining purchases of shares of the Fund into a
single "purchase," if the resulting "purchase" totals at least
$100,000. The term "purchase" refers to: (i) a single purchase by
an individual, or to concurrent purchases, which in the aggregate
are at least equal to the prescribed amounts, by an individual,
his or her spouse and their children under the age of 21 years
purchasing shares of the Fund for his, her or their own
account(s); (ii) a single purchase by a trustee or other fiduciary
purchasing shares for a single trust, estate or single fiduciary
account although more than one beneficiary is involved; or (iii) a
single purchase for the employee benefit plans of a single
employer. The term "purchase" also includes purchases by any
"company," as the term is defined in the 1940 Act, but does not
include purchases by any such company which has not been in
existence for at least six months or which has no purpose other
than the purchase of shares of the Fund or shares of other
registered investment companies at a discount. The term
"purchase" does not include purchases by any group of individuals
whose sole organizational nexus is that the participants therein
are credit card holders of a company, policy holders of an
insurance company, customers of either a bank or broker-dealer or
clients of an investment adviser. A "purchase" may also include
shares, purchased at the same time through a single selected
dealer or agent, of any other "Alliance Mutual Fund." Currently,
the Alliance Mutual Funds include:

AFD Exchange Reserves
Alliance All-Asia Investment Fund, Inc.
Alliance Balanced Shares, Inc.
Alliance Bond Fund, Inc.
-Corporate Bond Portfolio
-U.S. Government Portfolio
Alliance Counterpoint Fund
Alliance Developing Markets Fund, Inc.
Alliance Global Dollar Government Fund, Inc.
Alliance Global Small Cap Fund, Inc.
Alliance Growth and Income Fund, Inc.
Alliance Income Builder Fund, Inc.
Alliance International Fund
Alliance Mortgage Securities Income Fund, Inc.
Alliance Mortgage Strategy Trust, Inc.
Alliance Multi-Market Strategy Trust, Inc.
Alliance Municipal Income Fund, Inc.
-California Portfolio
-Insured California Portfolio
-Insured National Portfolio
-National Portfolio
-New York Portfolio
Alliance Municipal Income Fund II
-Arizona Portfolio
-Florida Portfolio

<PAGE>

-Massachusetts Portfolio
-Michigan Portfolio
-Minnesota Portfolio
-New Jersey Portfolio
-Ohio Portfolio
-Pennsylvania Portfolio
-Virginia Portfolio
Alliance New Europe Fund, Inc.
Alliance North American Government Income Trust, Inc.
Alliance Premier Growth Fund, Inc.
Alliance Quasar Fund, Inc.
Alliance Short-Term Multi-Market Trust, Inc.
Alliance Technology Fund, Inc.
Alliance Utility Income Fund, Inc.
Alliance World Income Trust, Inc.
Alliance Worldwide Privatization Fund, Inc.
The Alliance Fund, Inc.
The Alliance Portfolios
-Alliance Growth Fund
-Alliance Conservative Investors Fund
-Alliance Growth Investors Fund
-Alliance Short-Term U.S. Government Fund
-Alliance Strategic Balanced Fund
The Hudson River Trust

Prospectuses for the Alliance Mutual Funds may be obtained
without charge by contacting Alliance Fund Services, Inc. at the
address or the "Literature" telephone number shown on the front
cover of this Statement of Additional Information.

CUMULATIVE QUANTITY DISCOUNT (RIGHT OF ACCUMULATION). An
investor's purchase of additional Class A shares of the Fund may
qualify for a Cumulative Quantity Discount. The applicable sales
charge will be based on the total of:

(i) the investor's current purchase;

(ii) the net asset value (at the close of business on the
previous day) of (a) all Class A, Class B and Class C
shares of the Fund held by the investor and (b) all
shares of any other Alliance Mutual Fund held by the
investor; and

(iii) the net asset value of all shares described in paragraph
(ii) owned by another shareholder eligible to combine his
or her purchase with that of the investor into a single
"purchase" (see above).

For example, if an investor owned shares of an Alliance Mutual
Fund worth $200,000 at their then current net asset value and,
subsequently, purchased Class A shares of the Fund worth an

<PAGE>

additional $100,000, the initial sales charge for the $100,000
purchase would be at the 2.25% rate applicable to a single
$300,000 purchase of shares of the Fund, rather than the 3.25%
rate.

To qualify for the Combined Purchase Privilege or to obtain
the Cumulative Quantity Discount on a purchase through a selected
dealer or agent, the investor or selected dealer or agent must
provide the Principal Underwriter with sufficient information to
verify that each purchase qualifies for the privilege or discount.

STATEMENT OF INTENTION. Class A investors may also obtain the
reduced initial sales charges shown in the table above by means of
a written Statement of Intention, which expresses the investor's
intention to invest not less than $100,000 within a period of 13
months in Class A shares (or Class A, Class B and/or Class C
shares) of the Fund or any other Alliance Mutual Fund. Each
purchase of shares under a Statement of Intention will be made at
the public offering price or prices applicable at the time of such
purchase to a single transaction of the dollar amount indicated in
the Statement of Intention. At the investor's option, a Statement
of Intention may include purchases of shares of the Fund or any
other Alliance Mutual Fund made not more than 90 days prior to the
date that the investor signs the Statement of Intention; however,
the 13-month period during which the Statement of Intention is in
effect will begin on the date of the earliest purchase to be
included.

Investors qualifying for the Combined Purchase Privilege
described above may purchase shares of the Alliance Mutual Funds
under a single Statement of Intention. For example, if at the
time an investor signs a Statement of Intention to invest at least
$100,000 in Class A shares of the Fund, the investor and the
investor's spouse each purchase shares of the Fund worth $20,000
(for a total of $40,000), it will be necessary to invest only a
total of $60,000 during the following 13 months in shares of the
Fund or any other Alliance Mutual Fund, to qualify for the 3.25%
initial sales charge on the total amount being invested (the
initial sales charge applicable to an investment of $100,000).

The Statement of Intention is not a binding obligation upon
the investor to purchase the full amount indicated. The minimum
initial investment under a Statement of Intention is 5% of such
amount. Shares purchased with the first 5% of such amount will be
held in escrow (while remaining registered in the name of the
investor) to secure payment of the higher initial sales charge
applicable to the shares actually purchased if the full amount
indicated is not purchased, and such escrowed shares will be
involuntarily redeemed to pay the additional sales charge, if
necessary. Dividends on escrowed shares, whether paid in cash or
reinvested in additional Fund shares, are not subject to escrow.

<PAGE>

When the full amount indicated has been purchased, the escrow will
be released. To the extent that an investor purchases more than
the dollar amount indicated on the Statement of Intention and
qualifies for a further reduced sales charge, the initial sales
charge will be adjusted for the entire amount purchased at the end
of the 13-month period. The difference in the initial sales
charge will be used to purchase additional shares of the Fund
subject to the rate of the initial sales charge applicable to the
actual amount of the aggregate purchases.

Investors wishing to enter into a Statement of Intention in
conjunction with their initial investment in Class A shares of the
Fund should complete the appropriate portion of the Subscription
Application found in the Prospectus while current Class A
shareholders desiring to do so can obtain a form of Statement of
Intention by contacting Alliance Fund Services, Inc. at the
address or telephone numbers shown on the cover of this Statement
of Additional Information.

CERTAIN RETIREMENT PLANS. Multiple participant payroll
deduction retirement plans may also purchase shares of the Fund or
any other Alliance Mutual Fund at a reduced initial sales charge
on a monthly basis during the 13-month period following such a
plan's initial purchase. The initial sales charge applicable to
such initial purchase of shares of the Fund will be that normally
applicable, under the schedule of the initial sales charges set
forth in this Statement of Additional Information, to an
investment 13 times larger than such initial purchase. The sales
charge applicable to each succeeding monthly purchase will be that
normally applicable, under such schedule, to an investment equal
to the sum of (i) the current month's purchase multiplied by the
number of months (including the current month) remaining in the
13-month period, and (ii) the total purchase previously made
during the 13-month period. Sales charges previously paid during
such period will not be retroactively adjusted on the basis of
later purchases.

REINSTATEMENT PRIVILEGE. A shareholder who has caused any or
all of his or her Class A shares of the Fund to be redeemed or
repurchased may reinvest all or any portion of the redemption or
repurchase proceeds in Class A shares of the Fund at net asset
value without any sales charge, provided that such reinvestment is
made within 120 calendar days after the redemption or repurchase
date. Shares are sold to a reinvesting shareholder at the net
asset value next determined as described above. A reinstatement
pursuant to this privilege will not cancel the redemption or
repurchase transaction; therefore, any gain or loss so realized
will be recognized for Federal tax purposes except that no loss
will be recognized to the extent that the proceeds are reinvested
in shares of the Fund. The reinstatement privilege may be used by
the shareholder only once, irrespective of the number of shares

<PAGE>

redeemed or repurchased, except that the privilege may be used
without limit in connection with transactions whose sole purpose
is to transfer a shareholder's interest in the Fund to his or her
individual retirement account or other qualified retirement plan
account. Investors may exercise the reinstatement privilege by
written request sent to the Fund at the address shown on the cover
of this Statement of Additional Information.

SALES AT NET ASSET VALUE. The Fund may sell its Class A
shares at net asset value (i.e., without an initial sales charge)
and without a contingent deferred sales charge to certain
categories of investors including: (i) investment advisory clients
of the Adviser or its affiliates; (ii) officers and present or
former Directors or Trustees of the Fund; present or former
directors and trustees of other investment companies managed by
the Adviser; present or retired full-time employees of the
Adviser; officers, directors and present or retired full-time
employees of ACMC, the Principal Underwriter, Alliance Fund
Services, Inc. and their affiliates; officers, directors and
present and full-time employees of selected dealers or agents; or
the spouse, sibling, direct ancestor or direct descendant
(collectively "relatives") of any such person; or any trust,
individual retirement account or retirement plan account for the
benefit of any such person or relative; or the estate of any such
person or relative, if such shares are purchased for investment
purposes (such shares may not be resold except to the Fund);
(iii) certain employee benefit plans for employees of the Adviser,
the Principal Underwriter, Alliance Fund Services, Inc. and their
affiliates; and (iv) persons participating in a fee based program,
sponsored and maintained by a registered broker-dealer and
approved by the Principal Underwriter, pursuant to which persons
pay an asset-based fee to such or its affiliate or agent, for
services in the nature of investment advisory or administrative
services.

DEFERRED SALES CHARGE ALTERNATIVE -- CLASS B SHARES

Investors choosing the deferred sales charge alternative
purchase Class B shares at the public offering price equal to the
net asset value per share of the Class B shares on the date of
purchase without the imposition of a sales charge at the time of
purchase. The Class B shares are sold without an initial sales
charge so that the Fund will receive the full amount of the
investor's purchase payment.

Proceeds from the contingent deferred sales charge on the
Class B shares are paid to the Principal Underwriter and are used
by the Principal Underwriter to defray the expenses of the
Principal Underwriter related to providing distribution-related
services to the Fund in connection with the sale of the Class B
shares, such as the payment of compensation to selected dealers

<PAGE>

and agents for selling Class B shares. The combination of the
contingent deferred sales charge and the distribution services fee
enables the Fund to sell the Class B shares without a sales charge
being deducted at the time of purchase. The higher distribution
services fee incurred by Class B shares will cause such shares to
have a higher expense ratio and to pay lower dividends than those
related to Class A shares.

CONTINGENT DEFERRED SALES CHARGE. Class B shares which are
redeemed within three years of purchase will be subject to a
contingent deferred sales charge at the rates set forth below
charged as a percentage of the dollar amount subject thereto. The
charge will be assessed on an amount equal to the lesser of the
cost of the shares being redeemed or their net asset value at the
time of redemption. Accordingly, no sales charge will be imposed
on increases in net asset value above the initial purchase price.
In addition, no charge will be assessed on shares derived from
reinvestment of dividends or capital gains distributions.

To illustrate, assume an investor purchased 100 shares at $10
per share (at a cost of $1,000) and in the second year after
purchase, the net asset value per share is $12 and, during such
time, the investor has acquired 10 additional shares upon dividend
reinvestment. If at such time the investor makes his or her first
redemption of 50 Class B shares (proceeds of $600), 10 Class B
shares will not be subject to charge because of dividend
reinvestment. With respect to the remaining 40 Class B shares,
the charge is applied only to the original cost of $10 per share
and not to the increase in net asset value of $2 per share.
Therefore, $400 of the $600 redemption proceeds will be charged at
a rate of 2.0% (the applicable rate in the second year after
purchase as set forth below).

The amount of the contingent deferred sales charge, if any,
will vary depending on the number of years from the time of
payment for the purchase of Class B shares until the time of
redemption of such shares.

CONTINGENT DEFERRED
SALES CHARGE AS A %
OF DOLLAR AMOUNT
YEAR SINCE PURCHASE SUBJECT TO CHARGE

First 3.0%
Second 2.0%
Third 1.0%
Fourth None

In determining the contingent deferred sales charge applicable
to a redemption, it will be assumed that the redemption is first
of any shares in the shareholder's Fund account that are not

<PAGE>

subject to a contingent deferred sales charge, second of Class B
shares held for over three years and third of Class A shares that
are subject to a contingent deferred sales charge held shortest
during the one-year period during which such shares are subject to
the sales charge. When Class B shares acquired in an exchange are
redeemed, the applicable contingent deferred sales charge and
conversion schedules will be the schedules that applied to Class B
shares of the Alliance Mutual Fund originally purchased by the
shareholder at the time of their purchase.

The contingent deferred sales charges on Class A and Class B
shares are waived on redemptions of shares (i) following the death
or disability, as defined in the Internal Revenue Code of 1986, as
amended (the "Code"), of a shareholder, (ii) to the extent that
the redemption represents a minimum required distribution from an
individual retirement account or other retirement plan to a
shareholder who has attained the age of 70-1/2 or (iii) that had
been purchased by present or former Directors or Trustees of the
Fund, by the relative of any such person, by any trust, individual
retirement account or retirement plan account for the benefit of
any such person or relative, or by the estate of any such person
or relative.

CONVERSION FEATURE. At the end of the period ending six years
after the end of the calendar month in which the shareholder's
purchase order was accepted, Class B shares will automatically
convert to Class A shares and will no longer be subject to a
higher distribution services fee. Such conversion will be on the
basis of the relative net asset values of the two classes, without
the imposition of any sales load, fee or other charge. The
purpose of the conversion feature is to reduce the distribution
services fee paid by holders of Class B shares that have been
outstanding long enough for the Principal Underwriter to have been
compensated for distribution expenses incurred in the sale of such
shares.

For purposes of conversion to Class A, Class B shares
purchased through the reinvestment of dividends and distributions
paid in respect of Class B shares in a shareholder's account will
be considered to be held in a separate sub-account. Each time any
Class B shares in the shareholder's account (other than those in
the sub-account) convert to Class A, an equal pro-rata portion of
the Class B shares in the sub-account will also convert to Class
A.

The conversion of Class B shares to Class A shares is subject
to the continuing availability of an opinion of counsel to the
effect that (i) the assessment of the higher distribution services
fee and transfer agency costs with respect to Class B shares does
not result in the Fund's dividends or distributions constituting
"preferential dividends" under the Code, and (ii) the conversion

<PAGE>

of Class B shares to Class A shares does not constitute a taxable
event under federal income tax law. The conversion of Class B
shares to Class A shares may be suspended if such an opinion is no
longer available at the time such conversion is to occur. In that
event, no further conversions of Class B shares would occur, and
shares might continue to be subject to the higher distribution
services fee for an indefinite period which may extend beyond the
period ending six years after the end of the calendar month in
which the shareholder's purchase order was accepted.

ASSET-BASED SALES CHARGE ALTERNATIVE -- CLASS C SHARES

Investors choosing the asset-based sales charge alternative
purchase Class C shares at the public offering price equal to the
net asset value per share of the Class C shares on the date of
purchase without the imposition of a sales charge either at the
time of purchase or upon redemption. Class C shares are sold
without an initial sales charge so that the Fund will receive the
full amount of the investor's purchase payment and without a
contingent deferred sales charge so that the investor will receive
as proceeds upon redemption the entire net asset value of his or
her Class C shares. The Class C distribution services fee enables
the Fund to sell Class C shares without either an initial or
contingent deferred sales charge. Class C shares do not convert
to any other class of shares of the Fund and incur higher
distribution services fees than Class A shares, and will thus have
a higher expense ratio and pay correspondingly lower dividends
than Class A shares.

- ------------------------------------------------------------------
REDEMPTION AND REPURCHASE OF SHARES
- ------------------------------------------------------------------

The following information supplements that set forth in the
Fund's Prospectus under the heading "Purchase and Sale of Share-
- -How to Sell Shares."

REDEMPTION

Subject only to the limitations described below, the Fund's
Articles of Incorporation require that the Fund redeem the shares
of the Fund tendered to it, as described below, at a redemption
price equal to their net asset value as next computed following
the receipt of shares tendered for redemption in proper form.
Except for any contingent deferred sales charge which may be
applicable to Class A shares or Class B shares, there is no
redemption charge. Payment of the redemption price will be made
within seven days after the Fund's receipt of such tender for
redemption.

<PAGE>

The right of redemption may not be suspended or the date of
payment upon redemption postponed for more than seven days after
shares are tendered for redemption, except for any period during
which the New York Stock Exchange (the "Exchange") is closed
(other than customary weekend and holiday closings) or during
which the Commission determines that trading thereon is
restricted, or for any period during which an emergency (as
determined by the Commission) exists as a result of which disposal
by the Fund of securities owned by it is not reasonably
practicable or as a result of which it is not reasonably
practicable for the Fund fairly to determine the value of its net
assets, or for such other periods as the Commission may by order
permit for the protection of security holders of the Fund.

The value of the Fund's shares fluctuates because the value of
the securities in which it invests fluctuates. When the Fund
sells portfolio securities it may realize a gain or a loss,
depending on whether it sells them for more or less than their
costs. (For an explanation of the significance of the treatment
of gains, losses and income for Federal income tax purposes see
"Dividends, Distributions and Taxes").

Payment of the redemption price will be made in cash. The
value of a shareholder's shares on redemption or repurchase may be
more or less than the cost of such shares to the shareholder,
depending upon the market value of the Fund's portfolio securities
at the time of such redemption or repurchase. Redemption proceeds
on Class A shares and Class B shares will reflect the deduction of
the contingent deferred sales charge, if any. Payment (either in
cash or in portfolio securities) received by a shareholder upon
redemption or repurchase of his or her shares, assuming the shares
constitute capital assets in his or her hands, will result in
long-term or short-term capital gains (or loss) depending upon the
shareholder's holding period and basis in respect of the shares
redeemed.

To redeem shares of the Fund for which no stock certificates
have been issued, the registered owner or owners should forward a
letter to the Fund containing a request for redemption. The
signature or signatures on the letter must be guaranteed by an
institution that is an "eligible guarantor" as defined in Rule
17Ad-15 under the Securities Exchange Act of 1934, as amended.

TELEPHONE REDEMPTION BY ELECTRONIC FUNDS TRANSFER. Requests
for redemption of shares for which no stock certificates have been
issued can also be made by telephone at (800) 221-5672 by a
shareholder who has completed the appropriate portion of the
Subscription Application or, in the case of an existing
shareholder, an "Autosell" application obtained from Alliance Fund
Services, Inc. A telephone redemption request must be for at
least $500 and may not exceed $100,000, and must be made between

<PAGE>

9:00 a.m. and 4:00 p.m. New York time on a Fund business day as
defined above. Proceeds of telephone redemptions will be sent by
Electronic Funds Transfer to a shareholder's designated bank
account at a bank selected by the shareholder that is a member of
the NACHA.

TELEPHONE REDEMPTION BY CHECk. Except as noted below, each
Fund shareholder is eligible to request redemption, once in any
30-day period, of Fund shares by telephone at (800) 221-5672
before 4:00 p.m. New York time on a Fund business day in an amount
not exceeding $25,000. Proceeds of such redemptions are remitted
by check to the shareholder's address of record. Telephone
redemption by check is not available with respect to shares (i)
for which certificates have been issued, (ii) held in nominee or
"street name" accounts, (iii) purchased within 15 calendar days
prior to the redemption request, (iv) held by a shareholder who
has changed his or her address of record within the preceding 30
calendar days or (v) held in any retirement plan account. A
shareholder otherwise eligible for telephone redemption by check
may cancel the privilege by written instruction to Alliance Fund
Services, Inc., or by checking the appropriate box on the
Subscription Application found in the Prospectus.

GENERAL. During periods of drastic economic or market
developments, such as the market break of October 1987, it is
possible that shareholders would have difficulty in reaching
Alliance Fund Services, Inc. by telephone (although no such
difficulty was apparent at any time in connection with the 1987
market break). If a shareholder were to experience such
difficulty, the shareholder should issue written instructions to
Alliance Fund Services, Inc. at the address shown on the cover of
this Statement of Additional Information. The Fund reserves the
right to suspend or terminate its telephone redemption service at
any time without notice. Neither the Fund nor the Adviser, the
Principal Underwriter or Alliance Fund Services, Inc. will be
responsible for the authenticity of telephone requests for
redemptions that the Fund reasonably believes to be genuine. The
Fund will employ reasonable procedures in order to verify that
telephone requests for redemptions are genuine, including, among
others, recording such telephone instructions and causing written
confirmations of the resulting transactions to be sent to
shareholders. If the Fund did not employ such procedures, it
could be liable for losses arising from unauthorized or fraudulent
telephone instructions. Selected dealers or agents may charge a
commission for handling telephone requests for redemptions.

To redeem shares of the Fund represented by stock
certificates, the investor should forward the appropriate stock
certificate or certificates, endorsed in blank or with blank stock
powers attached, to the Fund with the request that the shares
represented thereby, or a specified portion thereof, be redeemed.

<PAGE>

The stock assignment form on the reverse side of each stock
certificate surrendered to the Fund for redemption must be signed
by the registered owner or owners exactly as the registered name
appears on the face of the certificate or, alternatively, a stock
power signed in the same manner may be attached to the stock
certificate or certificates or, where tender is made by mail,
separately mailed to the Fund. The signature or signatures on the
assignment form must be guaranteed in the manner described above.

REPURCHASE

The Fund may repurchase shares through the Principal
Underwriter or selected dealers or agents. The repurchase price
will be the net asset value next determined after the Principal
Underwriter receives the request (less the contingent deferred
sales charge, if any, with respect to the Class A shares and Class
B shares), except that requests placed through selected dealers or
agents before the close of regular trading on the Exchange on any
day will be executed at the net asset value determined as of such
close of regular trading on that day if received by the Principal
Underwriter prior to its close of business on that day (normally
5:00 p.m. New York time). The selected dealer or agent is
responsible for transmitting the request to the Principal
Underwriter by 5:00 p.m. If the selected dealer or agent fails to
do so, the shareholder's right to receive that day's closing price
must be settled between the shareholder and the dealer or agent.
A shareholder may offer shares of the Fund to the Principal
Underwriter either directly or through a selected dealer or agent.
Neither the Fund nor the Principal Underwriter charges a fee or
commission in connection with the repurchase of shares (except for
the contingent deferred sales charge, if any, with respect to
Class A shares and Class B shares). Normally, if shares of the
Fund are offered through a selected dealer or agent, the
repurchase is settled by the shareholder as an ordinary
transaction with or through the selected dealer or agent, who may
charge the shareholder for this service. The repurchase of shares
of the Fund as described above is a voluntary service of the Fund
and the Fund may suspend or terminate this practice at any time.

GENERAL

The Fund reserves the right to close out an account that
through redemption has remained below $200 for at least 60 days
after at least 30 days' written notice to the shareholder
subsequent to such period. No contingent deferred sales charge
will be deducted from the proceeds of this redemption. In the
case of a redemption or repurchase of shares of the Fund recently
purchased by check, redemption proceeds will not be made available
until the Fund is reasonably assured that the check has cleared,
normally up to 15 calendar days following the purchase date.

<PAGE>

- ------------------------------------------------------------------
SHAREHOLDER SERVICES
- ------------------------------------------------------------------

The following information supplements that set forth in the
Fund's Prospectus under the heading "Purchase and Sale of Shares
- --Shareholder Services."

SHAREHOLDER SERVICES APPLICABLE TO ALL THREE CLASSES

AUTOMATIC INVESTMENT PROGRAM

Investors may purchase shares of the Fund through an automatic
investment program utilizing "pre-authorized check" drafts drawn
on the investor's own bank account. Under such a program, pre-
authorized monthly drafts for a fixed amount (at least $25) are
used to purchase shares through the selected dealer or selected
agent designated by the investor at the public offering price next
determined after the Principal Underwriter receives the proceeds
from the investor's bank. Drafts may be made in paper form or, if
the investor's bank is a member of the NACHA, in electronic form.
If made in paper form, the draft is normally made on the 20th day
of each month, or the next business day thereafter. If made in
electronic form, drafts can be made on or about a date each month
selected by the shareholder. Investors wishing to establish an
automatic investment program in connection with their initial
investment should complete the appropriate portion of the
Subscription Application found in the Prospectus. Current
shareholders should contact Alliance Fund Services, Inc. at the
address or telephone numbers shown on the cover of this Statement
of Additional Information to establish an automatic investment
program.

EXCHANGE PRIVILEGE

Class A shareholders of the Fund can exchange their Class A
shares for Class A shares of any other Alliance Mutual Fund that
offers Class A shares and for shares of Alliance World Income
Trust, Inc. without the payment of any sales or service charges.
For purposes of applying any applicable contingent deferred sales
charge upon the newly acquired Class A shares, the period of time
the Class A shares surrendered in the exchange have been held is
added to the period of time the newly acquired shares have been
held. Prospectuses for each Alliance Mutual Fund may be obtained
by contacting Alliance Fund Services, Inc. at the address shown on
the cover of this Statement of Additional Information or by
telephone at (800) 227-4618 or, in Illinois, (800) 227-4170.

Class B shareholders of the Fund can exchange their Class B
shares ("original Class B shares") for Class B shares of any other
Alliance Mutual Fund that offers Class B shares ("new Class B

<PAGE>

shares") without the payment of any contingent deferred sales or
service charges. For purposes of computing both the time
remaining before the new Class B shares convert to Class A shares
of that fund and the contingent deferred sales charge payable upon
disposition of the new Class B shares, the period of time for
which the original Class B shares have been held is added to the
period of time for which the new Class B shares have been held.
After an exchange, new Class B shares will automatically convert
into Class A shares in accordance with the conversion schedule
applicable to the Alliance Mutual Fund Class B shares purchased
for cash, and when redemption occurs, the contingent deferred
sales charge schedule applicable to the Class B shares originally
purchased for cash is applied.

Class C shareholders of the Fund can exchange their Class
C shares for Class C shares of any other Alliance Mutual Fund that
offers Class C shares.

All exchanges are subject to the minimum investment
requirements and any other applicable terms set forth in the
Prospectus for the Alliance Mutual Fund whose shares are being
acquired. An exchange is effected through the redemption of the
shares tendered for exchange and the purchase of shares being
acquired at their respective net asset values as next determined
following receipt by the Alliance Mutual Fund whose shares are
being exchanged of (i) proper instructions and all necessary
supporting documents as described in such fund's Prospectus, or
(ii) a telephone request for such exchange in accordance with the
procedures set forth in the following paragraph. Exchanges
involving the redemption of shares recently purchased by check
will be permitted only after the Alliance Mutual Fund whose shares
have been tendered for exchange is reasonably assured that the
check has cleared, normally up to 15 calendar days following the
purchase date. Exchanges of shares of Alliance Mutual Funds will
generally result in the realization of a capital gain or loss for
Federal income tax purposes.

Each Fund shareholder, and the shareholder's selected dealer
or agent, are authorized to make telephone requests for exchanges
unless Alliance Fund Services, Inc., receives written instruction
to the contrary from the shareholder, or the shareholder declines
the privilege by checking the appropriate box on the Subscription
Application found in the Prospectus. Such telephone requests
cannot be accepted with respect to shares then represented by
stock certificates. Shares acquired pursuant to a telephone
request for exchange will be held under the same account
registration as the shares redeemed through such exchange.

Eligible shareholders desiring to make an exchange should
telephone Alliance Fund Services, Inc. with their account number
and other details of the exchange, at (800) 221-5672 between 9:00

<PAGE>

a.m. and 4:00 p.m., New York time, on a Fund business day as
defined above. Telephone requests for exchange received before
4:00 p.m. New York time on a Fund business day will be processed
as of the close of business on that day. During periods of
drastic economic or market developments, such as the market break
of October 1987, it is possible that shareholders would have
difficulty in reaching Alliance Fund Services, Inc. by telephone
(although no such difficulty was apparent at any time in
connection with the 1987 market break). If a shareholder were to
experience such difficulty, the shareholder should issue written
instructions to Alliance Fund Services, Inc. at the address shown
on the cover of this Statement of Additional Information.

A shareholder may elect to initiate a monthly "Auto Exchange"
whereby a specified dollar amount's worth of his or her Fund
shares (minimum $25) is automatically exchanged for shares of
another Alliance Mutual Fund. Auto Exchange transactions normally
occur on the 12th day of each month, or the Fund business day
prior thereto.

Neither the Alliance Funds nor the Adviser, the Principal
Underwriter or Alliance Fund Services, Inc. will be responsible
for the authenticity of telephone requests for exchanges that the
Fund reasonably believes to be genuine. The Fund will employ
reasonable procedures in order to verify that telephone requests
for exchanges are genuine, including, among others, recording such
telephone instructions and causing written confirmations of the
resulting transactions to be sent to shareholders. If the Fund
did not employ such procedures, it could be liable for losses
arising from unauthorized or fraudulent telephone instructions.
Selected dealers or agents may charge a commission for handling
telephone requests for exchanges.

The exchange privilege is available only in states where
shares of the Alliance Mutual Funds being acquired may be legally
sold. Each Alliance Mutual Fund reserves the right, at any time
on 60 days' notice to its shareholders, to reject any order to
acquire its shares through exchange or otherwise to modify,
restrict or terminate the exchange privilege.

RETIREMENT PLANS

The Fund may be a suitable investment vehicle for part or all
of the assets held in various types of retirement plans, such as
those listed below. The Fund has available forms of such plans
pursuant to which investments can be made in the Fund and other
Alliance Mutual Funds. Persons desiring information concerning
these plans should contact Alliance Fund Services, Inc. at the
"Literature" telephone number on the cover of this Prospectus, or
write to:

<PAGE>

Alliance Fund Services
Retirement Plans
P.O. Box 1520
Secaucus, N.J. 07096-1520

INDIVIDUAL RETIREMENT ACCOUNT ("IRA"). Individuals who
receive compensation, including earnings from self-employment, are
entitled to establish and make contributions to an IRA. Taxation
of the income and gains paid to an IRA by the Fund is deferred
until distribution from the IRA. An individual's eligible
contributions to an IRA will be deductible if neither the
individual nor his or her spouse is an active participant in an
employer-sponsored retirement plan. If the individual or his or
her spouse is an active participant in an employer-sponsored
retirement plan, the individual's contributions to an IRA may be
deductible, in whole or in part, depending on the amount of the
adjusted gross income of the individual and his or her spouse.

EMPLOYER-SPONSORED QUALIFIED RETIREMENT PLANS. Sole
proprietors, partnerships and corporations may sponsor qualified
money purchase pension and profit-sharing plans, including Section
401(k) plans ("qualified plans"), under which annual tax-
deductible contributions are made within prescribed limits based
on compensation paid to participating individuals.

If the aggregate net asset value of shares of the Alliance
Mutual Funds held by a qualified plan investing through the
Alliance Premier Retirement Program reaches $5 million on or
before December 15 in any year, all Class B or C shares of the
Fund held by such plan can be exchanged, without any sales charge,
for Class A shares of such Fund.

SIMPLIFIED EMPLOYEE PENSION PLAN ("SEP"). Sole proprietors,
partnerships and corporations may sponsor a SEP under which they
make annual tax-deductible contributions to an IRA established by
each eligible employee within prescribed limits based on employee
compensation.

403(B)(7) RETIREMENT PLAN. Certain tax-exempt organizations
and public educational institutions may sponsor retirement plans
under which an employee may agree that monies deducted from his or
her compensation, minimum $25 per pay period, may be contributed
by the employer to a custodial account established for the
employee under the plan.

The Alliance Plans Division of Frontier Trust Company, a
subsidiary of The Equitable Life Assurance Society of the United
States, which serves as custodian or trustee under the retirement
plan prototype forms available from the Fund, charges certain
nominal fees for establishing an account and for annual
maintenance. A portion of these fees is remitted to Alliance Fund

<PAGE>

Services, Inc. as compensation for its services to the retirement
plan accounts maintained with the Fund.

Distributions from retirement plans are subject to certain
Code requirements in addition to normal redemption procedures.
For additional information please contact Alliance Fund Services,
Inc.

SYSTEMATIC WITHDRAWAL PLAN

Any shareholder who owns or purchases shares of the Fund
having a current net asset value of at least $4,000 (for quarterly
or less frequent payments), $5,000 (for bi-monthly payments) or
$10,000 (for monthly payments) may establish a systematic
withdrawal plan under which the shareholder will periodically
receive a payment in a stated amount of not less than $50 on a
selected date. Systematic withdrawal plan participants must elect
to have their dividends and distributions from the Fund
automatically reinvested in additional shares of the Fund.

Shares of the Fund owned by a participant in the Fund's
systematic withdrawal plan will be redeemed as necessary to meet
withdrawal payments and such withdrawal payments will be subject
to any taxes applicable to redemptions. See "Dividends,
Distributions and Taxes -- Sales and Redemptions." Shares
acquired with reinvested dividends and distributions will be
liquidated first to provide such withdrawal payments and
thereafter other shares will be liquidated to the extent
necessary, and depending upon the amount withdrawn, the investor's
principal may be depleted. A systematic withdrawal plan may be
terminated at any time by the shareholder or the Fund.

Withdrawal payments will not automatically end when a
shareholder's account reaches a certain minimum level. Therefore,
redemptions of shares under the plan may reduce or even liquidate
a shareholder's account and may subject the shareholder to the
Fund's involuntary redemption provisions. See "Redemption and
Repurchase of Shares -- General." Purchases of additional shares
concurrently with withdrawals are undesirable because of sales
charges when purchases are made. While an occasional lump-sum
investment may be made by a shareholder of Class A shares who is
maintaining a systematic withdrawal plan, such investment should
normally be an amount equivalent to three times the annual
withdrawal or $5,000, whichever is less.

For Class A shareholders, Class B shareholders that purchased
their Class B shares under a retirement plan and Class C
shareholders, payments under a systematic withdrawal plan may be
made by check or electronically via the Automated Clearing House
("ACH") network. Investors wishing to establish a systematic
withdrawal plan in conjunction with their initial investment in

<PAGE>

shares of the Fund should complete the appropriate portion of the
Subscription Application found in the Prospectus, while current
Fund shareholders desiring to do so can obtain an application form
by contacting Alliance Fund Services, Inc. at the address or the
"Literature" telephone number shown on the cover of this Statement
of Additional Information.

DIVIDEND DIRECTION PLAN

A shareholder who already maintains, in addition to his or her
Class A, Class B or Class C Fund account, a Class A, Class B or
Class C account with one or more other Alliance Mutual Funds may
direct that income dividends and/or capital gains paid on his or
her Class A, Class B or Class C Fund shares be automatically
reinvested, in any amount, without the payment of any sales or
service charges, in shares of the same class of such other
Alliance Mutual Fund(s). Further information can be obtained by
contacting Alliance Fund Services, Inc. at the address or the
"Literature" telephone number shown on the cover of this Statement
of Additional Information. Investors wishing to establish a
dividend direction plan in connection with their initial
investment should complete the appropriate section of the
Subscription Application found in the Prospectus. Current
shareholders should contact Alliance Fund Services, Inc. to
establish a dividend direction plan.

STATEMENTS AND REPORTS

Each shareholder of the Fund receives semi-annual and annual
reports which include a portfolio of investments, financial
statements and, in the case of the annual report, the report of
the Fund's independent auditors, Ernst & Young LLP, as well as a
monthly cumulative dividend statement and a confirmation of each
purchase and redemption. By contacting his or her broker or
Alliance Fund Services, Inc., a shareholder can arrange for copies
of his or her account statements to be sent to another person.

SHAREHOLDER SERVICES APPLICABLE TO
CLASS A AND CLASS C SHAREHOLDERS ONLY

CHECKWRITING

A new Class A or Class C investor may fill out the Signature
Card which is included in the Prospectus to authorize the Fund to
arrange for a checkwriting service through State Street Bank and
Trust Company (the "Bank") to draw against Class A or Class C
shares of the Fund redeemed from the investor's account. Under
this service, checks may be made payable to any payee in any
amount not less than $500 and not more than 90% of the net asset
value of the Class A or Class C shares in the investor's account
(excluding for this purpose the current month's accumulated

<PAGE>

dividends and shares for which certificates have been issued). A
Class A or Class C shareholder wishing to establish this
checkwriting service subsequent to the opening of his or her Fund
account should contact the Fund by telephone or mail.
Corporations, fiduciaries and institutional investors are required
to furnish a certified resolution or other evidence of
authorization. This checkwriting service will be subject to the
Bank's customary rules and regulations governing checking
accounts, and the Fund and the Bank each reserve the right to
change or suspend the checkwriting service. There is no charge to
the shareholder for the initiation and maintenance of this service
or for the clearance of any checks.

When a check is presented to the Bank for payment, the Bank,
as the shareholder's agent, causes the Fund to redeem, at the net
asset value next determined, a sufficient number of full and
fractional shares of the Fund in the shareholder's account to
cover the check. Because the level of net assets in a
shareholder's account constantly changes due, among various
factors, to market fluctuations, a shareholder should not attempt
to close his or her account by use of a check. In this regard,
the Bank has the right to return checks (marked "insufficient
funds") unpaid to the presenting bank if the amount of the check
exceeds 90% of the assets in the account. Cancelled (paid) checks
are returned to the shareholder. The checkwriting service enables
the shareholder to receive the daily dividends declared on the
shares to be redeemed until the day that the check is presented to
the Bank for payment.

- ------------------------------------------------------------------
NET ASSET VALUE
- ------------------------------------------------------------------

Fund securities that are actively traded in the over-the-
counter market, including listed securities for which the primary
market is believed to be over-the-counter, are valued at the mean
between the most recently quoted bid and asked prices provided by
the principal market makers. Any security for which the primary
market is on an exchange is valued at the last sale price on such
exchange on the day of valuation or, if there was no sale on such
day, the last bid price quoted on such day. Options will be
valued at market value or fair value if no market exists. Futures
contracts will be valued in a like manner, except that open
futures contracts sales will be valued using the closing
settlement price or, in the absence of such a price, the most
recently quoted asked price. Securities and assets for which
market quotations are not readily available are valued at fair
value as determined in good faith by or under the direction of the
Board of Directors of the Fund. However, readily marketable
fixed-income securities may be valued on the basis of prices
provided by a pricing service when such prices are believed by the

<PAGE>

Adviser to reflect the fair market value of such securities. The
prices provided by a pricing service take into account
institutional size trading in similar groups of securities and any
developments related to specific securities. U.S. Government
Securities and other debt instruments having 60 days or less
remaining until maturity are stated at amortized cost if their
original maturity was 60 days or less, or by amortizing their fair
value as of the 61st day prior to maturity if their original term
to maturity exceeded 60 days (unless in either case the Fund's
Board of Directors determines that this method does not represent
fair value).

For purposes of determining the Fund's net asset value per
share, all assets and liabilities initially expressed in foreign
currencies will be converted into U.S. Dollars at the mean of the
bid and asked prices of such currencies against the U.S. Dollar
last quoted by a major bank which is a regular participant in the
institutional foreign exchange markets or on the basis of a
pricing service which takes into account the quotes provided by a
number of such major banks.

The assets belonging to the Class A shares, the Class B shares
and the Class C shares will be invested together in a single
portfolio. The net asset value of each class will be determined
separately by subtracting the expenses and liabilities allocated
to that class from the assets belonging to that class pursuant to
an order issued by the Commission.

- ------------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES
- ------------------------------------------------------------------

U.S. FEDERAL INCOME TAXES

The Fund qualified for the fiscal year ended October 31, 1993
and intends to qualify in the future to be taxed as a "regulated
investment company" under the Internal Revenue Code of 1986, as
amended (the "Code"). Qualification as a regulated investment
company relieves the Fund of Federal income tax and excise taxes
on the portion of its investment company taxable income and net
capital gains which it pays out to its shareholders. Such
qualification does not, of course, involve governmental
supervision of management or investment practices or policies.
Investors should consult their own counsel for a complete
understanding of the requirements the Fund must meet to qualify
for such treatment. The information set forth in the Prospectus
and the following discussion relate solely to the U.S. Federal
income taxes on dividends and distributions by the Fund and
assumes that the Fund qualifies as a regulated investment company.
Investors should consult their own counsel for further details,
including their possible entitlement to foreign tax credits that

<PAGE>

might be "passed through" to them under the rules described below,
and the application of state and local tax laws to his or her
particular situation.

The Fund intends to declare and distribute dividends in the
amounts and at the times necessary to avoid the application of the
4% Federal excise tax imposed on certain undistributed income of
regulated investment companies. The Fund will be required to pay
the 4% excise tax to the extent it does not distribute to its
shareholders during any calendar year at least 98% of its ordinary
income for the calendar year plus 98% of its capital gain net
income and foreign currency gains for the twelve months ended
October 31 of such year. Certain distributions of the Fund which
are paid in January of a given year but are declared in the prior
October, November or December to shareholders of record as of a
specified date during such a month may be treated as having been
distributed in December and will be taxable to shareholders as if
received in December.

Dividends of net ordinary income and distributions of any net
realized short-term capital gain are taxable to shareholders as
ordinary income. Since the Fund expects to derive substantially
all of its gross income (exclusive of capital gains) from sources
other than dividends, it is expected that none of the Fund's
dividends or distributions will qualify for the dividends-received
deduction for corporations.

The excess of net long-term capital gains over the net short-
term capital losses realized and distributed by the Fund to its
shareholders will be taxable to the shareholders as long-term
capital gains, irrespective of the length of time a shareholder
may have held his or her Fund shares. Any dividend or
distribution received by a shareholder on shares of the Fund will
have the effect of reducing the net asset value of such shares by
the amount of such dividend or distribution. Furthermore, a
dividend or distribution made shortly after the purchase of such
shares by a shareholder, although in effect a return of capital to
that particular shareholder, would be taxable to him as described
above. If a shareholder has held shares in the Fund for six
months or less and during that period has received a distribution
taxable to the shareholder as a long-term capital gain, any loss
recognized by the shareholder on the sale of those shares during
the six-month period will be treated as a long-term capital loss
to the extent of the distribution.

Dividends and distributions are taxable in the manner
discussed regardless of whether they are paid to the shareholder
in cash or are reinvested in additional shares of the Fund's
Common Stock.

<PAGE>

The Fund generally will be required to withhold tax at the
rate of 31% with respect to distributions of net ordinary income
and net realized capital gains payable to a noncorporate
shareholder unless the shareholder certifies on his or her
subscription application that the social security or taxpayer
identification number provided is correct and that the shareholder
has not been notified by the Internal Revenue Service that he or
she is subject to backup withholding.

FOREIGN TAX CREDITS

Income received by the Fund may also be subject to foreign
income taxes, including withholding taxes. The United States has
entered into tax treaties with many foreign countries which
entitle the Fund to a reduced rate of such taxes or exemption from
taxes on such income. It is impossible to determine the effective
rate of foreign tax in advance since the amount of the Fund's
assets to be invested within various countries is not known. If
more than 50% of the value of the Fund's total assets at the close
of its taxable year consists of stocks or securities of foreign
corporations, the Fund will be eligible and intends to file an
election with the Internal Revenue Service to pass through to its
shareholders the amount of foreign taxes paid by the Fund.
However, there can be no assurance that the Fund will be able to
do so. Pursuant to this election a shareholder will be required
to (i) include in gross income (in addition to taxable dividends
actually received) his pro rata share of foreign taxes paid by the
Fund, (ii) treat his pro rata share of such foreign taxes as
having been paid by him, and (iii) either deduct such pro rata
share of foreign taxes in computing his taxable income or treat
such foreign taxes as a credit against United States federal
income taxes. Shareholders who are not liable for federal income
taxes, such as retirement plans qualified under section 401 of the
Code, will not be affected by any such pass through of taxes by
the Fund. No deduction for foreign taxes may be claimed by an
individual shareholder who does not itemize deductions. In
addition, certain individual shareholders may be subject to rules
which limit or reduce their availability to fully deduct their pro
rata share of the foreign taxes paid by the Fund. Each
shareholder will be notified within 60 days after the close of the
Fund's taxable year whether the foreign taxes paid by the Fund
will pass through for that year and, if so, such notification will
designate (i) the shareholder's portion of the foreign taxes paid
to each such country and (ii) the portion of dividends that
represents income derived from sources within each such country.

Generally, a credit for foreign taxes may not exceed the
shareholder's United States tax attributable to the shareholder's
total foreign source taxable income. Generally, the source of the
Fund's income flows through to its shareholders. The overall
limitation on a foreign tax credit is also applied separately to

<PAGE>

specific categories of foreign source income, including foreign
source "passive income," including dividends, interest and capital
gains. Further, the foreign tax credit is allowed to offset only
90% of any alternative minimum tax to which a shareholder may be
subject. As a result of these rules, certain shareholders may be
unable to claim a credit for the full amount of their
proportionate share of the foreign taxes paid by the Fund. If a
shareholder could not credit his full share of the foreign tax
paid, double taxation of such income could be mitigated only by
deducting the foreign tax paid, which may be subject to limitation
as described above.

The federal income tax status of each year's distributions by
the Fund will be reported to shareholders and to the Internal
Revenue Service. The foregoing is only a general description of
the treatment of foreign taxes under the United States federal
income tax laws. Because the availability of a foreign tax credit
or deduction will depend on the particular circumstances of each
shareholder, potential investors are advised to consult their own
tax advisers.

CURRENCY FLUCTUATIONS--"SECTION 988" GAINS OR LOSSES

Under the Code, gains or losses attributable to fluctuations
in exchange rates which occur between the time the Fund accrues
interest or other receivables or accrues expenses or other
liabilities denominated in a foreign currency and the time the
Fund actually collects such receivables or pays such liabilities
are treated as ordinary income or ordinary loss. Similarly, gains
or losses from the disposition of foreign currencies, from the
disposition of debt securities denominated in a foreign currency,
or from the disposition of a forward contract denominated in a
foreign currency which are attributable to fluctuations in the
value of the foreign currency between the date of acquisition of
the asset and the date of disposition also are treated as ordinary
gain or loss. These gains or losses, referred to under the Code
as "section 988" gains or losses, increase or decrease the amount
of the Fund's investment company taxable income available to be
distributed to its shareholders as ordinary income, rather than
increasing or decreasing the amount of the Fund's net capital
gain. Because section 988 losses reduce the amount of ordinary
dividends the Fund will be allowed to distribute for a taxable
year, such section 988 losses may result in all or a portion of
prior dividend distributions for such year being recharacterized
as a non-taxable return of capital to shareholders, rather than as
an ordinary dividend, reducing each shareholder's basis in his
Fund shares. To the extent that such distributions exceed such
shareholder's basis, each distribution will be treated as a gain
from the sale of shares.

<PAGE>

OPTIONS, FUTURES AND FORWARD CONTRACTS

Certain listed options, regulated futures contracts, and
forward foreign currency contracts are considered "section 1256
contracts" for federal income tax purposes. Section 1256
contracts held by the Fund at the end of each taxable year will be
"marked to market" and treated for federal income tax purposes as
though sold for fair market value on the last business day of such
taxable year. Gain or loss realized by the Fund on section 1256
contracts other than forward foreign currency contracts will be
considered 60% long-term and 40% short-term capital gain or loss.
Gain or loss realized by the Fund on forward foreign currency
contracts will be treated as section 988 gain or loss and will
therefore be characterized as ordinary income or loss and will
increase or decrease the amount of the Fund's net investment
income available to be distributed to shareholders as ordinary
income, as described above. The Fund can elect to exempt its
section 1256 contracts which are part of a "mixed straddle" (as
described below) from the application of section 1256.

The Treasury Department has the authority to issue regulations
that would permit or require the Fund either to integrate a
foreign currency hedging transaction with the investment that is
hedged and treat the two as a single transaction, or otherwise to
treat the hedging transaction in a manner that is consistent with
the hedged investment. The regulations issued under this
authority generally should not apply to the type of hedging
transactions in which the Fund intends to engage.

With respect to equity options or options traded over-the-
counter or on certain foreign exchanges, gain or loss realized by
the Fund upon the lapse or sale of such options held by the Fund
will be either long-term or short-term capital gain or loss
depending upon the Fund's holding period with respect to such
option. However, gain or loss realized upon the lapse or closing
out of such options that are written by the Fund will be treated
as short-term capital gain or loss. In general, if the Fund
exercises an option, or an option that the Fund has written is
exercised, gain or loss on the option will not be separately
recognized but the premium received or paid will be included in
the calculation of gain or loss upon disposition of the property
underlying the option.

Gain or loss realized by the Fund on the lapse or sale of put
and call options on foreign currencies which are traded over-the-
counter or on certain foreign exchanges will be treated as section
988 gain or loss and will therefore be characterized as ordinary
income or loss and will increase or decrease the amount of the
Fund's net investment income available to be distributed to
shareholders as ordinary income, as described above. The amount
of such gain or loss shall be determined by subtracting the amount

<PAGE>

paid, if any, for or with respect to the option (including any
amount paid by the Fund upon termination of an option written by
the Fund) from the amount received, if any, for or with respect to
the option (including any amount received by the Fund upon
termination of an option held by the Fund). In general, if the
Fund exercises such an option on a foreign currency, or such an
option that the Fund has written is exercised, gain or loss on the
option will be recognized in the same manner as if the Fund had
sold the option (or paid another person to assume the Fund's
obligation to make delivery under the option) on the date on which
the option is exercised, for the fair market value of the option.
The foregoing rules will also apply to other put and call options
which have as their underlying property foreign currency and which
are traded over-the-counter or on certain foreign exchanges to the
extent gain or loss with respect to such options is attributable
to fluctuations in foreign currency exchange rates.

TAX STRADDLES

Any option, futures contract, currency swap, forward foreign
currency contract, or other position entered into or held by the
Fund in conjunction with any other position held by the Fund may
constitute a "straddle" for federal income tax purposes. A
straddle of which at least one, but not all, the positions are
section 1256 contracts may constitute a "mixed straddle". In
general, straddles are subject to certain rules that may affect
the character and timing of the Fund's gains and losses with
respect to straddle positions by requiring, among other things,
that (i) loss realized on disposition of one position of a
straddle not be recognized to the extent that the Fund has
unrealized gains with respect to the other position in such
straddle; (ii) the Fund's holding period in straddle positions be
suspended while the straddle exists (possibly resulting in gain
being treated as short-term capital gain rather than long-term
capital gain); (iii) losses recognized with respect to certain
straddle positions which are part of a mixed straddle and which
are non-section 1256 positions be treated as 60% long-term and 40%
short-term capital loss; (iv) losses recognized with respect to
certain straddle positions which would otherwise constitute short-
term capital losses be treated as long-term capital losses; and
(v) the deduction of interest and carrying charges attributable to
certain straddle positions may be deferred. The Treasury
Department is authorized to issue regulations providing for the
proper treatment of a mixed straddle where at least one position
is ordinary and at least one position is capital. No such
regulations have yet been issued. Various elections are available
to the Fund which may mitigate the effects of the straddle rules,
particularly with respect to mixed straddles. In general, the
straddle rules described above do not apply to any straddles held
by the Fund all of the offsetting positions of which consist of
section 1256 contracts.

<PAGE>

TAXATION OF FOREIGN STOCKHOLDERS

The foregoing discussion relates only to U.S. Federal income
tax law as it affects shareholders who are U.S. residents or U.S.
corporations. The effects of Federal income tax law on
shareholders who are non-resident aliens or foreign corporations
may be substantially different. Foreign investors should consult
their counsel for further information as to the U.S. tax
consequences of receipt of income from the Fund.

- ------------------------------------------------------------------
PORTFOLIO TRANSACTIONS
- ------------------------------------------------------------------

Subject to the general supervision of the Board of Directors
of the Fund, the Adviser is responsible for the investment
decisions and the placing of the orders for portfolio transactions
for the Fund. The Fund's portfolio transactions occur primarily
with issuers, underwriters or major dealers acting as principals.
Such transactions are normally on a net basis which do not involve
payment of brokerage commissions. The cost of securities
purchased from an underwriter usually includes a commission paid
by the issuer to the underwriter; transactions with dealers
normally reflect the spread between bid and asked prices.
Premiums are paid with respect to options purchased by the Fund
and brokerage commissions are payable with respect to transactions
in exchange-traded futures contracts.

The Fund has no obligation to enter into transactions in
portfolio securities with any dealer, issuer, underwriter or other
entity. In placing orders, it is the policy of the Fund to obtain
the best price and execution for its transactions. Where best
price and execution may be obtained from more than one dealer, the
Adviser may, in its discretion, purchase and sell securities
through dealers who provide research, statistical and other
information to the Adviser. Such services may be used by the
Adviser for all of its investment advisory accounts and,
accordingly, not all such services may be used by the Adviser in
connection with the Fund. The supplemental information received
from a dealer is in addition to the services required to be
performed by the Adviser under the Advisory Agreement, and the
expenses of the Adviser will not necessarily be reduced as a
result of the receipt of such information.

<PAGE>

- ------------------------------------------------------------------
GENERAL INFORMATION
- ------------------------------------------------------------------

CAPITALIZATION

The authorized capital stock of the Fund currently consists of
1,200,000,000 shares of Class A Common Stock, $.01 par value,
1,200,000,000 shares of Class B Common Stock, $.01 par value, and
1,200,000,000 shares of Class C Common Stock, $.01 par value.
Class A, Class B and Class C shares each represent interests in
the assets of the Fund and have identical voting, dividend,
liquidation and other rights on the same terms and conditions,
except that expenses related to the distribution of each class and
transfer agency expenses of each class are borne solely by each
class and each class of shares has exclusive voting rights with
respect to provisions of the Fund's Rule 12b-1 distribution plan
which pertain to a particular class and other matters for which
separate class voting is appropriate under applicable law,
provided that, if the Fund submits to a vote of both the Class A
shareholders and the Class B shareholders an amendment to the Rule
12b-1 distribution plan that would materially increase the amount
to be paid thereunder with respect to the Class A shares, the
Class A shareholders and the Class B shareholders will vote
separately by class. The Fund has received an order from the
Commission permitting issuance and sale of the three classes of
shares representing interests in the Fund's existing portfolio.
The issuance and sale of any additional classes will require an
additional order from the Commission.

There is no assurance that such exemptive relief would be
granted. The Fund's Board of Directors may, without shareholder
approval, increase or decrease the number of authorized but
unissued shares of the Fund's Class A, Class B and Class C Common
Stock.

The Board of Directors is authorized to reclassify and issue
any unissued shares to any number of additional series without
shareholder approval. Accordingly, the Board in the future, for
reasons such as the desire to establish one or more additional
portfolios of the Fund with different investment objectives,
policies or restrictions, may create additional series of shares.
Any issuance of shares of another series would be governed by the
1940 Act and the law of the State of Maryland. If shares of
another series were issued in connection with the creation of a
second portfolio, each share of either portfolio would normally be
entitled to one vote for all purposes. Generally, shares of both
portfolios would vote as a single series for the election of
Directors and on any other matter that affected both portfolios in
substantially the same manner. As to matters affecting each
portfolio differently, such as approval of the Advisory Agreement

<PAGE>

and changes in investment policy, shares of each portfolio would
vote as separate series.

Procedures for calling a shareholders meeting for the removal
of Directors of the Fund, similar to those set forth in Section
16(c) of the 1940 Act, are available to shareholders of the Fund.
Meetings of shareholders may be called by 10% of the Fund's
outstanding shareholders.

As of the close of business on February 15, 1995, there were
152,696,887 shares of common stock of the Fund outstanding. Of
this amount, 57,330,624 shares were Class A shares, 94,672,292
shares were Class B shares and 693,971 shares were Class C shares.
Set forth below is certain information as to all persons who, of
record or beneficially, held 5% or more of either class of the
Fund's shares outstanding on February 15, 1995.

NO. OF % OF % OF % OF
NAME AND ADDRESS SHARES CLASS A CLASS B CLASS C

Merrill Lynch 8,045,939 14.0% -- --
Mutual Fund Operations
4800 Deer Lake Dr East,
3rd Floor
Jacksonville, FL 32246

Merrill Lynch 29,367,140 -- 31.0% --
Mutual Fund Operations
4800 Deer Lake Dr East,
3rd Floor
Jacksonville, FL 32246

Merrill Lynch 116,775 -- -- 16.8%
Mutual Fund Operations
4800 Deer Lake Dr East,
3rd Floor
Jacksonville, FL 32246

CUSTODIAN

Brown Brothers Harriman & Co., Water Street, Boston,
Massachusetts 02109, acts as Custodian for the securities and
cash of the Fund, but plays no part in deciding on the purchase or
sale of portfolio securities. Subject to the supervision of the
Fund's Directors, Brown Brothers may enter into subcustodial
agreements for the holding of the Fund's foreign securities.

<PAGE>

PRINCIPAL UNDERWRITER

Alliance Fund Distributors, Inc., 1345 Avenue of the Americas,
New York, New York 10105, serves as the Fund's Principal
Underwriter and as such may solicit orders from the public to
purchase shares of the Fund. Under the Agreement, the Fund has
agreed to indemnify the Principal Underwriter, in the absence of
its willful misfeasance, bad faith, gross negligence or reckless
disregard of its obligations thereunder, against certain civil
liabilities, including liabilities under the Securities Act.

COUNSEL

Legal matters in connection with the issuance of the shares of
Common Stock offered hereby are passed upon by Seward & Kissel,
One Battery Park Plaza, New York, New York 10004. Seward & Kissel
has relied upon the opinion of Venable, Baetjer and Howard, 1800
Mercantile Bank & Trust Building, 2 Hopkins Plaza, Baltimore,
Maryland 21201, for matters relating to Maryland law.

INDEPENDENT AUDITORS

Ernst & Young LLP, 787 Seventh Avenue, New York, New York
10019, has been appointed independent auditors for the Fund.

YIELD AND TOTAL RETURN QUOTATIONS

From time to time the Fund advertises its "yield," "actual
distribution rate" and "total return." The Fund will compute
yield and total return figures separately for Class A, Class B and
Class C shares. The Fund's yield for any 30-day (or one-month)
period is computed by dividing the net investment income per share
earned during such period by the maximum public offering price per
share on the last day of the period, and then annualizing such 30-
day (or one-month) yield in accordance with a formula prescribed
by the Commission which provides for compounding on a semi-annual
basis. The Fund's "actual distribution rate," which may be
advertised in items of sales literature, is computed in the same
manner as yield except that actual income dividends declared per
share during the period in question is substituted for net
investment income per share. Advertisements of the Fund's total
return disclose the Fund's average annual compounded total return
for its most recently completed one-, five- and ten-year periods
(or the period since the Fund's inception). The Fund's total
return for each such period is computed by finding, through the
use of a formula prescribed by the Commission, the average annual
compounded rate of return over the period that would equate an
assumed initial amount invested to the value of such investment at
the end of the period. For purposes of computing total return,
income dividends and capital gains distributions paid on shares of
the Fund are assumed to have been reinvested when received and the

<PAGE>

maximum sales charge applicable to purchases of Fund shares is
assumed to have been paid.

The Fund's yield for the month ended October 31, 1994 was
7.23% for Class A shares, 6.89% for Class B shares and 6.89% for
Class C shares. The Fund's actual distribution rate for such
period was 7.39% for Class A shares, 7.01% for Class B shares and
7.02% for Class C shares. The Fund's total return for the fiscal
year ended October 31, 1994, was -3.44% for Class A shares,
- -2.71% for Class B shares and .12% for Class C shares. For the
period May 5, 1989 (commencement of distribution) through October
31, 1994 was 6.04% for Class A shares, for the period February 5,
1990 (commencement of distribution) through October 31, 1994 was
5.18% for Class B shares and for the period May 3, 1993
(commencement of distribution) through October 31, 1994 was 2.51%
for Class C shares.

Yield and total return are computed separately for Class A,
Class B and Class C shares. Yield and total return are not fixed
and will fluctuate in response to prevailing market conditions or
as a function of the type, and quality of the securities in the
Fund's portfolio, the Fund's average portfolio maturity and its
expenses. Quotations of yield and total return do not include any
provision for the effect of individual income taxes. An
investor's principal invested in the Fund is not fixed and will
fluctuate in response to prevailing market conditions. The Fund
may advertise the fluctuation of its net asset value over certain
time periods and compare its performance to that available from
other investments, including money market funds and certificates
of deposit, the latter of which, unlike the Fund, are insured and
have fixed rates of return. The Fund seeks high current yields by
investing in debt securities denominated in the U.S. Dollar and
selected foreign currencies. Three month deposit rates around the
world on November 30, 1994 were:

United States 6.06%
Japan 2.31
Australia 7.25
Canada 5.68
United Kingdom 6.15
New Zealand 8.81
Germany 5.18
European Currency Unit 5.87
Sweden 7.87
Spain 7.78

Since the Fund's commencement of operations on May 5, 1989,
events throughout the world have resulted in a certain amount of
economic and geopolitical instability. During this period, the
Fund has had fluctuations in net asset value per share, measured
as of the end of each month, as follows:

<PAGE>

CLASS A CLASS B
NET ASSET NET ASSET NET ASSET
DATE VALUE DATE VALUE VALUE

May 30, 1989 $9.55 Jan. 31, 1991 $9.89 $9.88
June 30, 1989 9.60 Feb. 28, 1991 9.92 9.92
July 31, 1989 9.64 Mar. 31, 1991 9.88 9.88
Aug. 29, 1989 9.69 Apr. 30, 1991 9.90 9.90
Sept. 29, 1989 9.64 May 31, 1991 9.90 9.90
Oct. 31, 1989 9.69 June 30, 1991 9.84 9.84
Nov. 30, 1989 9.71 July 31, 1991 9.83 9.83
Dec. 29, 1989 9.77 Aug. 31, 1991 9.88 9.88
Sep. 30, 1991 9.91 9.91
Oct. 31, 1991 9.94 9.94
Nov. 30, 1991 9.84 9.84
Dec. 31, 1991 9.77 9.77

CLASS A CLASS B CLASS A CLASS B
NET ASSET NET ASSET NET ASSET NET ASSET
DATE VALUE VALUE DATE VALUE VALUE

Jan. 31, 1990 9.77 -- Jan. 31, 1992 $9.74 $9.75
Feb. 28, 1990 $9.74 $9.75 Feb. 29, 1992 9.73 9.72
March 30, 1990 9.81 9.81 March 31, 1992 9.68 9.68
April 30, 1990 9.78 9.78 April 30, 1992 9.72 9.71
May 31, 1990 9.78 9.78 May 31, 1992 9.72 9.72
June 29, 1990 9.89 9.88 June 30, 1992 9.70 9.70
July 30, 1990 9.94 9.94 July 31, 1992 9.68 9.68
Aug. 31, 1990 9.94 9.94 Aug. 31, 1992 9.54 9.54
Sep. 30, 1990 9.90 9.90 Sept. 30, 1992 9.22 9.21
Oct. 31, 1990 9.89 9.89 Oct. 31, 1992 9.25 9.25
Nov. 30, 1990 9.86 9.86 Nov. 30, 1992 9.15 9.15
Dec. 31, 1990 9.82 9.82 Dec. 31, 1992 9.12 9.12

<PAGE>

CLASS A CLASS B CLASS C
NET ASSET NET ASSET NET ASSET
DATE VALUE VALUE VALUE

Jan. 31, 1993 $9.14 $9.14 --
Feb. 28, 1993 9.16 9.16 --
March 30, 1993 9.17 9.17 --
April 30, 1993 9.18 9.18 --
May 31, 1993 9.25 9.25 $9.24
June 30, 1993 9.28 9.28 9.28
July 31, 1993 9.30 9.30 9.30
Aug. 31, 1993 9.26 9.27 9.26
Sept. 30, 1993 9.19 9.19 9.18
Oct. 31, 1993 9.25 9.25 9.25
Nov. 30, 1993 9.20 9.20 9.20
Dec. 31, 1993 9.22 9.22 9.22
Jan. 31, 1994 9.22 9.22 9.21
Feb. 28, 1994 9.09 9.09 9.09
March 31, 1994 8.95 8.95 8.95
April 30, 1994 8.92 8.92 8.92
May 31, 1994 8.88 8.88 8.88
June 30, 1994 8.73 8.73 8.73
July 31, 1994 8.76 8.76 8.76
Aug. 31, 1994 8.74 8.74 8.74
Sep. 30, 1994 8.73 8.73 8.73
Oct. 31, 1994 8.71 8.71 8.71
Nov. 30, 1994 8.70 8.70 8.70
Dec. 31, 1994 7.83 7.83 7.83
Jan. 31, 1995 7.59 7.60 7.60

Advertisements quoting performance rankings or ratings of the
Fund as measured by financial publications or by independent
organizations such as Lipper Analytical Services, Inc. ("Lipper")
and Morningstar, Inc. and advertisements presenting the historical
record of payments of income dividends by the Fund may also from
time to time be sent to investor or placed in newspapers,
magazines such as The New York Times, The Wall Street Journal,
Barrons, Investor's Daily, Money Magazine, Changing Times,
Business Week and Forbes or other media on behalf of the Fund.
The Fund has been ranked by Lipper in the category known as "short
world income funds."

In addition, Lipper has ranked the Fund as; #37 out of 44 for
Class A shares, #36 out of 44 for Class B shares and #35 out of 44
for Class C shares of short-world multi-market income funds for
the period ended January 31, 1995. The Morningstar ratings and
the Lipper rankings may be used in advertisements and sales
literature relating to such Fund.

<PAGE>

ADDITIONAL INFORMATION

Any shareholder inquiries may be directed to the shareholder's
broker or to Alliance Fund Services, Inc. at the address or
telephone numbers shown on the front cover of this Statement of
Additional Information. This Statement of Additional Information
does not contain all the information set forth in the Registration
Statement filed by the Fund with the Commission. Copies of the
Registration Statement may be obtained at a reasonable charge from
the Commission or may be examined, without charge, at the offices
of the Commission in Washington, D.C.

69
00250181.AL5

<PAGE>

PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1994 ALLIANCE SHORT-TERM MULTI-MARKET TRUST, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>

PRINCIPAL
AMOUNT
(000) U.S. $ VALUE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>

AUSTRALIA--3.9%
GOVERNMENT/AGENCY--3.9%
Queensland Treasury Corp.
5.125%, 1/15/97
(cost $63,425,624) . . . . . . . . . . . . . . . . . . . . . . . . AU$ 91,000(a) $ 61,981,257
--------------

CANADA--1.3%
GOVERNMENT OBLIGATIONS--1.3%
Canadian Treasury Bills
Zero coupon, 6/29/95
(cost $20,123,086) . . . . . . . . . . . . . . . . . . . . . . . . CA$ 29,320(a) 20,814,805
--------------

FINLAND--3.2%
GOVERNMENT OBLIGATIONS--3.2%
Government of Finland
6.50%, 9/15/96
(cost $43,736,294) . . . . . . . . . . . . . . . . . . . . . . . . FIM 240,000(a) 50,603,101
--------------

GERMANY--4.3%
GOVERNMENT/AGENCY--4.3%
Bundesobligation
Series 98
8.375%, 1/20/97
(cost $62,420,452) . . . . . . . . . . . . . . . . . . . . . . . . DEM 100,000(a) 69,007,014
--------------

ITALY--0.8%
GOVERNMENT OBLIGATIONS--0.8%
Government of Italy
8.50%, 8/01/97
(cost $11,807,417) . . . . . . . . . . . . . . . . . . . . . . . . LIRA 20,000,000(a) 12,105,238
--------------

MEXICO--14.5%
GOVERNMENT OBLIGATIONS--12.4%
Mexican Treasury Bills
Zero coupon, 12/08/94 MXP 59,839(a) 17,156,023
Zero coupon, 12/29/94 69,289(a) 19,704,100
Zero coupon, 1/05/95 200,000(a) 56,718,068
Zero coupon, 1/19/95 46,000(a) 12,975,560
Zero coupon, 4/06/95 28,700(a) 7,872,668
Zero coupon, 5/25/95 50,000(a) 13,473,960
Zero coupon, 6/01/95 100,352(a) 26,975,708
Zero coupon, 10/05/95 54,348(a) 13,938,872
Zero coupon, 11/09/95 116,500(a) 29,604,626
--------------
198,419,585
--------------

BANKING--2.1%
Mexican Nafinsa Pagare
Zero coupon, 12/22/94 15,818 4,485,428
Zero coupon, 1/24/95 . . . . . . . . . . . . . . . . . . . . . . . 107,230 29,969,518
--------------
34,454,946
--------------

Total Mexican Securities
(cost $247,869,817). . . . . . . . . . . . . . . . . . . . . . . . 232,874,531
--------------

NEW ZEALAND--7.9%
GOVERNMENT OBLIGATIONS--4.2%
Government of New Zealand
8.00%, 11/15/95. . . . . . . . . . . . . . . . . . . . . . . . . . NZ$ 109,500(a) 66,952,443
--------------

DEBT OBLIGATION--3.7%
Republic National Bank of New York-FRN
10.66%, 8/04/95. . . . . . . . . . . . . . . . . . . . . . . . . . 100,000(a) 59,266,508
--------------

Total New Zealand Securities
(cost $120,396,956). . . . . . . . . . . . . . . . . . . . . . . . 126,218,951
--------------

SPAIN--4.4%
GOVERNMENT OBLIGATIONS--4.4%
Government of Spain
9.00%, 2/28/97
(cost $67,279,591) . . . . . . . . . . . . . . . . . . . . . . . . ESP 9,040,000(a) 70,080,261
--------------

UNITED KINGDOM--4.7%
GOVERNMENT OBLIGATIONS--4.7%
United Kingdom Treasury Loans
8.75%, 9/01/97 . . . . . . . . . . . . . . . . . . . . . . . . . . GBP 22,300(a) 36,857,907
13.25%, 1/22/97. . . . . . . . . . . . . . . . . . . . . . . . . . 21,000(a) 37,864,625
--------------
(cost $71,596,836) . . . . . . . . . . . . . . . . . . . . . . . . 74,722,532
--------------

UNITED STATES--56.0%
DEBT OBLIGATIONS--16.6%
Deutsche Bank N.Y.
Zero coupon, 1/23/95 US$ 20,484(a) 58,098,769
MAS Capital (Cayman), Ltd.
Class A-2 series notes
Zero coupon, 4/15/95 9,250(b) 9,003,025
Mexus Co.
Peso Linked Medium
Term Secured Notes
7.4375, 12/16/94 . . . . . . . . . . . . . . . . . . . . . . . . . 20,000(b) 20,000,000
Peso Linked U.S. Dollar
Secured Notes Capital
Co., Ltd. II
5.625%, 12/07/94 . . . . . . . . . . . . . . . . . . . . . . . . . 46,000(b) 46,000,000

<PAGE>

PRINCIPAL
AMOUNT
(000) U.S. $ VALUE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>

Republic National
Bank of New York
5.75%, 2/01/95 . . . . . . . . . . . . . . . . . . . . . . . . . . US$ 40,000(a) $ 39,980,000
Wachovia Bank
4.25%, 6/29/95 . . . . . . . . . . . . . . . . . . . . . . . . . . 45,400(a) 44,823,420
4.30%, 8/07/95 . . . . . . . . . . . . . . . . . . . . . . . . . . 50,000(a) 49,260,000
--------------
267,165,214
--------------

GOVERNMENT OBLIGATIONS--11.0%
Mexico Tesebonos
Zero coupon, 5/04/95 51,246 49,242,282
Zero coupon, 7/13/95 59,625 56,327,738
Zero coupon, 7/27/95 76,162 71,736,988
--------------
177,307,008
--------------

CERTIFICATES OF DEPOSIT--6.8%
Bayerische Landesbank
Peso Linked
Zero coupon, 4/12/95 12,000(a) 11,557,200
Morgan Guaranty Trust Co. Nassau
Peso Linked
Zero coupon, 1/19/95 100,000(a) 98,290,000
--------------
109,847,200
--------------

COMMERCIAL PAPER--5.0%
Bankers Trust Corp.
Peso Linked
Zero coupon, 1/05/95 82,000(a) 80,843,800
--------------

TIME DEPOSIT--16.0%
Bank of Tokyo Grand Cayman
4.8125%, 11/01/94. . . . . . . . . . . . . . . . . . . . . . . . . 256,700 256,700,000
--------------

AGENCY OBLIGATIONS--0.6%
Export/Import Bank of Japan
10.375%, 6/27/95 . . . . . . . . . . . . . . . . . . . . . . . . . US$ 10,000(a) 10,270,000
--------------

Total United States Securities
(cost $905,041,522). . . . . . . . . . . . . . . . . . . . . . . . 902,133,222
--------------

OUTSTANDING CALL OPTIONS PURCHASED--0.0%
DEM-vs-US$
expiring January 1995
at 1.55
(cost $852,000). . . . . . . . . . . . . . . . . . . . . . . . . . US$ 80,000 592,000
--------------

TOTAL INVESTMENTS--101.0%
(cost $1,614,549,595) 1,621,132,912
--------------

OUTSTANDING PUT OPTIONS WRITTEN--0.0%
MXP-vs-US$
expiring March 1995
at 4.55
(premiums received $250,000) . . . . . . . . . . . . . . . . . . . US$ 50,000 (300,000)
--------------

TOTAL INVESTMENTS NET OF OUTSTANDING CALL OPTIONS WRITTEN-101.0% 1,620,832,912
Other assets less liabilities--(0.1)% (15,385,513)
--------------
NET ASSETS--100% 1,605,447,399
--------------
--------------

<FN>
- --------------------------------------------------------------------------------
(a) Securities segregated to collateralize forward exchange currency contracts
with an aggregate market value of approximately $1,077,075,933.
(b) Securities are exempt from registration under 144A of the Securities Act of
1933. These securities maybe resold in transactions exempt from
registration, normally to qualified institutional buyers. At October 31,
1994 these securities amounted to $75,003,025 or 4.7% of net assets.

Glossary:
FRN-Floating rate note.
See notes to financial statements.

</TABLE>

<PAGE>

STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1994 ALLIANCE SHORT-TERM MULTI-MARKET TRUST, INC.
- --------------------------------------------------------------------------------

<TABLE>

<S> <C>

ASSETS
Investments in securities, at value (cost $1,614,549,595). . . . . . . . . . . . . $1,621,132,912
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51,978
Interest receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,090,710
Interest receivable on swap contracts. . . . . . . . . . . . . . . . . . . . . . . 2,566,522
Unrealized appreciation of swap contracts. . . . . . . . . . . . . . . . . . . . . 1,169,110
Receivable for capital stock sold. . . . . . . . . . . . . . . . . . . . . . . . . 306,765
--------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,647,317,997
--------------

LIABILITIES
Outstanding options written, at value (premiums received $250,000) . . . . . . . . 300,000
Unrealized depreciation of forward exchange currency contracts . . . . . . . . . . 17,017,407
Payable for capital stock redeemed . . . . . . . . . . . . . . . . . . . . . . . . 12,560,192
Dividend payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,862,075
Advisory fee payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 767,192
Distribution fee payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 196,944
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,166,788
--------------
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,870,598
--------------

NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,605,447,399
--------------
--------------

COMPOSITION OF NET ASSETS
Capital stock, at par. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,843,338
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,697,884,559
Accumulated net realized loss on investments, options and foreign
currency transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (85,784,059)
Net unrealized depreciation of investments and foreign currency denominated
assets and liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8,496,439)
--------------
$1,605,447,399
--------------
--------------

CALCULATION OF MAXIMUM OFFERING PRICE
CLASS A SHARES
Net asset value and redemption price per share
($593,677,242/68,169,361 shares of capital stock issued and outstanding) . . . . $8.71
Sales charge--4.25% of public offering price . . . . . . . . . . . . . . . . . . . .39
-----
Maximum offering price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $9.10
-----
-----

CLASS B SHARES
Net asset value and offering price per share
($1,003,633,227/115,230,304 shares of capital stock issued and outstanding). . . $8.71
-----
-----

CLASS C SHARES
Net asset value, redemption and offering price per share
($8,136,930/934,144 shares of capital stock issued and outstanding). . . . . . . $8.71
-----
-----

</TABLE>

- --------------------------------------------------------------------------------

See notes to financial statements.

<PAGE>

STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1994 ALLIANCE SHORT-TERM MULTI-MARKET TRUST, INC.
- --------------------------------------------------------------------------------

<TABLE>

INVESTMENT INCOME
Interest (net of foreign taxes withheld of $1,473,790) . . . . . . . . . . . . . . $ 178,467,780

EXPENSES
Advisory fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,648,245
Distribution fee--Class A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,269,739
Distribution fee--Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,526,862
Distribution fee--Class C. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85,932
Transfer agency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,051,067
Custodian. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,312,627
Printing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 297,982
Administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168,537
Audit and legal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110,125
Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102,875
Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96,680
Directors' fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,518
Amortization of organization expenses. . . . . . . . . . . . . . . . . . . . . . . 23,141
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51,722
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,769,052
------------ -------------

Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144,698,728
-------------

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY
Net realized loss on investment transactions . . . . . . . . . . . . . . . . . . . (20,009,696)
Net realized loss on options transactions and foreign
currency transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (142,833,385)
Net change in unrealized depreciation of:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72,974,640
Options and foreign currency denominated assets and liabilities. . . . . . . . . (49,839,203)
-------------

Net loss on investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (139,707,644)
-------------

NET INCREASE IN NET ASSETS FROM OPERATIONS . . . . . . . . . . . . . . . . . . . . . $ 4,991,084
-------------
-------------

</TABLE>

STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>

YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
1994 1993
--------------- ----------------
<S> <C> <C>

INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 144,698,728 $ 268,108,928
Net realized loss on investments, options and foreign currency transactions. . . . (162,843,081) (126,022,432)
Net change in unrealized depreciation of investments, options and
foreign currency denominated assets and liabilities. . . . . . . . . . . . . . . 23,135,437 50,650,470
--------------- ---------------
Net increase in net assets from operations . . . . . . . . . . . . . . . . . . . . 4,991,084 192,736,966
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income and other sources
Class A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -0- (76,937,353)
Class B. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -0- (130,025,829)
Class C. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -0- (47,172)
Return of Capital
Class A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (51,591,578) -0-
Class B. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (82,462,553) -0-
Class C. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (524,512) -0-
CAPITAL STOCK TRANSACTIONS
Net decrease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (966,776,583) (1,846,888,310)
--------------- ---------------
Total decrease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,096,364,142) (1,861,161,698)
NET ASSETS
Beginning of year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,701,811,541 4,562,973,239
--------------- ---------------
End of period (including undistributed net investment income
of $150,874,438 in 1993) . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,605,447,399 $ 2,701,811,541
--------------- ---------------
--------------- ---------------

</TABLE>

- --------------------------------------------------------------------------------
See notes to financial statements.

<PAGE>

NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1994 ALLIANCE SHORT-TERM MULTI-MARKET TRUST, INC.
- --------------------------------------------------------------------------------

NOTE A: SIGNIFICANT ACCOUNTING POLICIES
Alliance Short-Term Multi-Market Trust, Inc. (the "Fund"), was incorporated in
the State of Maryland on February 17, 1989 as a non-diversified, open-end
investment company.

The Fund offers Class A, Class B and Class C shares. Class A shares are sold
with a front-end sales charge of up to 4.25%. Class B shares are sold with a
contingentdeferred sales charge which declines from 3.0% to zero depending on
the period of time the shares are held. Class B shares will automatically
convert to Class A shares six years after the end of the calendar month of
purchase. Class C shares are sold without an initial or contingent deferred
sales charge. All three classes of shares have identical voting, dividend,
liquidation and other rights and the same terms and conditions, except that each
class bears different distribution expenses and has exclusive voting rights with
respect to its distribution plan. Distribution of Class C shares commenced on
May 3, 1993. The following is a summary of significant accounting policies
followed by the Fund.

1. SECURITY VALUATION
Investments are stated at value. Investments for which market quotations are
readily available are valued at the closing price on day of valuation.
Securities for which market quotations are not readily available are valued in
good faith at fair value using methods determined by the Board of Directors.
Securities which mature in 60 days or less are valued at amortized cost, which
approximates market value, unless this method does not represent fair value.
Restricted securities are valued at fair value as determined by the Board of
Directors. In determining fair value, consideration is given to cost, operating
and other financial data.

2. OPTION WRITING
When the Fund writes an option, an amount equal to 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. The difference between the premium and the amount paid on
effecting a closing purchase transaction, including brokerage commissions, is
also recorded as a realized gain, or if the premium is less than the amount paid
for the closing purchase transaction, as a realized loss. If a call option is
exercised, the premiums 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 reduces the cost basis of the
security or currency purchased by the Fund. In writing an option, the Fund
bears the market risk of unfavorable changes in the price of the security or
currency underlying the option. Exercise of an option written by the Fund could
result in the Fund selling or buying a security or currency at a price different
from the current market value.

3. CURRENCY TRANSLATION
Assets and liabilities denominated in foreign currencies and commitments under
forward foreign exchange currency contracts are translated into U.S. dollars at
the mean of the quoted bid and asked price of such currencies against the U.S.
dollar. Purchases and sales of portfolio securities are translated at the rates
of exchange prevailing when such securities were acquired or sold. Income and
expenses are translated at rates of exchange prevailing when accrued.

Net foreign exchange losses of $142,833,385 represent foreign exchange gains and
losses from sales and maturities of securities, holdings of foreign currencies,
options on foreign currencies, exchange gains and losses realized between the
trade and settlement dates on security transactions, and the difference between
the amounts of interest recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net currency gains and
losses from valuing foreign currency denominated assets and liabilities at
period end exchange rates are reflected as a component of unrealized
depreciation of investments and foreign currency denominated assets and
liabilities.

4. TAXES
It is the Fund's policy to meet the requirements of the Internal Revenue Code
applicable to regulated investment companies and to distribute all of its
investment company taxable income and net realized gains, if applicable, to
shareholders. Therefore, no provisions for federal income or excise taxes are
required.

5. INVESTMENT INCOME AND SECURITY TRANSACTIONS
Interest income is accrued daily. Security transactions are accounted for on
the date securities are purchased or sold. Security gains and losses are
determined on the identified cost basis. The Fund accretes discounts as
adjustments to interest income.

<PAGE>

6. DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions to shareholders are recorded on the ex-dividend
date. Income dividends and capital gain distributions are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting.

7. CHANGE IN ACCOUNTING FOR DISTRIBUTION TO
SHAREHOLDERS
Effective November 1, 1993, the Fund adopted Statement of Position 93-2:
Determination, Disclosure, and Financial Statement Presentation of Income,
Capital Gain, and Return of Capital Distributions by Investment Companies. As a
result, the Fund changed the classification of distributions to shareholders to
better disclose the differences between financial statement amounts and
distributions determined in accordance with income tax regulations.
Accordingly, permanent book and tax basis differences relating to shareholder
distributions and the accounting for certain investment transactions have been
reclassified to paid-in-capital. As of the current period the cumulative effect
of such differences totaling $160,994,523 and $576,508,567, were reclassified
from undistributed net investment income and accumulated net realized loss to
additional paid-in-capital, respectively. Net, investment income, net realized
gains and net assets were not affected by this change.

- --------------------------------------------------------------------------------

NOTE B: ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of an investment advisory agreement, the Fund pays Alliance
Capital Management L.P. (the "Adviser"), an advisory fee at an annual rate of
.55 of 1% of the average daily net assets of the Fund. Such fee is accrued
daily and paid monthly.

The Adviser has agreed under the terms of the advisory agreement, to reimburse
the Fund to the extent that its aggregate expenses (exclusive of interest,
taxes, brokerage, distribution fee, and extraordinary expenses) exceed the
limits prescribed by any state in which the Fund's shares are qualified for
sale. The Fund believes that the most restrictive expense ratio limitation
currently imposed by any state is 2 1/2% of the first $30 million of the Fund's
average daily net assets, 2% of the next $70 million of its average daily net
assets and 1 1/2% of its average daily net assets in excess of $100 million. No
reimbursement was required by the Adviser for the year ended October 31, 1994.
Pursuant to the advisory agreement, the Fund also paid $168,537 to the Adviser
representing the costs of certain legal and accounting services provided to the
Fund by the Adviser for the year ended October 31, 1994.

The Fund compensates Alliance Fund Services, Inc. (a wholly-owned subsidiary of
the Adviser) under a Transfer Agency Agreement for providing personnel and
facilities to perform transfer agency services for the Fund. Such compensation
amounted to $2,644,922 for the year ended October 31, 1994.

Alliance Fund Distributors, Inc. (a wholly-owned subsidiary of the Adviser)
serves as the Distributor of the Fund's shares. The Distributor received front-
end sales charges of $50,487 from the sale of Class A shares and $3,115,562 in
contingent deferred sales charges imposed upon redemptions by shareholders of
Class B shares for the year ended October 31, 1994.

- --------------------------------------------------------------------------------

NOTE C: DISTRIBUTION SERVICES AGREEMENT
The Fund has adopted a Distribution Services Agreement (the "Agreement")
pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the
Agreement, the Fund pays a distribution fee to the Distributor at an annual rate
of .30 of 1% of the average daily net assets attributable to the Class A
shares and 1% of the average daily net assets attributable to both Class B and
Class C shares. Such fee is 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 $12,115,694, and $798,673, for Class B and C shares, respectively;
such costs may be recovered from the Fund in future periods so long as the
agreement remains in effect. In accordance with the Agreement, there is no
provision for recovery of unreimbursed distribution costs, incurred by the
Distributor, beyond the current fiscal year for Class A shares. The Agreement
also provides that the Adviser may use its own resources to finance the
distribution of the Fund's shares.

<PAGE>

NOTE D: INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term investments)
aggregated $1,615,798,315 and $2,481,248,785, respectively, for the year ended
October 31, 1994.

The Fund enters into forward exchange currency contracts in order to hedge its
exposure to changes in foreigncurrency exchange rates on its foreign portfolio
holdings. A forward exchange currency contract is a commitment to purchase or
sell a foreign currency at a future date at a negotiated forward rate. The gain
or loss arising from the difference between the original contracts and the
closing of such contracts is included in realized gains or losses from foreign
currency transactions. Fluctuations in the value of forward exchange currency
contracts are recorded for financial reporting purposes as unrealized gains or
losses by the Fund. Risks may arise from the potential inability of a
counterparty to meet the terms of a contract and from unanticipated movements in
the value of a foreign currency relative to the U.S. dollar.

At October 31, 1994, the Fund had outstanding forward exchange currency
contracts, as follows:

CONTRACT COST ON U.S. $ UNREALIZED
AMOUNT ORIGINATION CURRENT APPRECIATION
(000) DATE VALUE (DEPRECIATION)
---------- ------------ ------------ --------------
<S> <C> <C> <C> <C>

FOREIGN CURRENCY BUY CONTRACTS
British Pounds, expiring 11/23/94. . . . . . . . 108,836 $169,766,117 $177,900,557 $ 8,134,440
Canadian Dollars, expiring 11/25/94-4/17/95. . . 167,108 121,392,718 123,461,921 2,069,203
Deutsche Marks, expiring 11/18/94-11/23/94 . . . 398,134 258,915,716 264,702,153 5,786,437
Finnish Markka, expiring 11/07/94. . . . . . . . 215,180 46,157,650 46,664,454 506,806
Indonesian Rupiah, expiring 3/06/95-3/07/95. . . 54,650,000 24,294,838 24,604,325 309,487
Italian Lira, expiring 12/12/94. . . . . . . . . 19,717,427 12,752,184 12,772,576 20,392
New Zealand Dollar, expiring 11/03/94-1/24/95. . 124,215 75,156,319 76,295,174 1,138,855
Spanish Pesetas, expiring 11/21/94 . . . . . . . 2,393,694 19,146,105 19,094,462 (51,643)
Swiss Francs, expiring 5/30/95 . . . . . . . . . 275,000 180,742,688 218,854,816 38,112,128

FOREIGN CURRENCY SALE CONTRACTS
Australian Dollars, expiring 1/20/95 . . . . . . 85,784 63,093,274 63,591,578 (498,304)
Belgium Francs, expiring 1/11/95-1/26/95 . . . . 3,305,631 104,541,360 106,772,482 (2,231,122)
British Pounds, expiring 11/18/94-11/23/94 . . . 115,786 182,001,148 189,258,456 (7,257,308)
Canadian Dollars, expiring 11/25/94. . . . . . . 26,932 19,194,640 19,882,775 (688,135)
Deutsche Marks, expiring 11/18/94-11/23/94 . . . 259,481 169,122,722 172,527,399 (3,404,677)
Finnish Markka, expiring 11/07/94-11/15/94 . . . 471,503 92,716,458 102,219,131 (9,502,673)
French Francs, expiring 1/31/95. . . . . . . . . 245,696 47,523,533 47,329,867 193,666
Italian Lira, expiring 12/12/94. . . . . . . . . 5,447,525 3,480,003 3,548,472 (68,469)
Spanish Pesetas, expiring 11/21/94 . . . . . . . 9,166,763 70,845,994 73,105,651 (2,259,657)
Swedish Krona, expiring 11/23/94-11/30/94. . . . 965,397 127,660,636 134,049,615 (6,388,979)
Swiss Francs, expiring 1/31/94-5/30/95 . . . . . 275,000 176,317,060 217,254,912 (40,937,852)
------------
$ 17,017,407
------------
------------

</TABLE>

<PAGE>

The Fund has entered into Interest Rate Swap Agreements with Morgan Guaranty
Trust Co. of N.Y.("Morgan"). An Interest Rate Swap is an agreement between
counterparties to exchange interest rate payments that are based on specified
interest rates and a notional amount. At October 31, 1994, the Fund had
outstanding Interest Rate Swaps as follows:

RATE TYPE
----------------------------------
SWAP NOTIONAL TERMINATION PAYMENTS MADE PAYMENTS RECEIVED
COUNTERPARTY AMOUNT DATE BY THE FUND BY THE FUND
- ------------ ------------------ ----------- --------------- -----------------
Morgan ITL 70,000,000,000 1/20/97 Floating--LIBOR Fixed--7.41%

Net unrealized appreciation of outstanding swap contracts at October 31, 1994
was $1,169,110.

Transactions in call and put options written for the year ended October 31, 1994
were as follows:

NUMBER OF
CONTRACTS PREMIUMS
--------- -----------
Options outstanding at beginning of year . . 0 $ -0-
Options written. . . . . . . . . . . . . . . 5 1,355,732
Options expired. . . . . . . . . . . . . . . (4) (1,105,732)
--- -----------
Options outstanding at 10/31/94. . . . . . . 1 $ 250,000
--- -----------
--- -----------

At October 31, 1994, the cost of investments for federal income tax purposes was
the same as the cost for financial reporting purposes. Accordingly, gross
unrealized appreciation of investments was $26,217,461 and gross unrealized
depreciation of investments was $19,634,144, resulting in net unrealized
depreciation of $6,583,317 (excluding foreign currency transactions). At
October 31, 1994, the Fund had a capital loss carryforward of $60,997,768 of
which $40,988,072 expires in the year 2001 and $20,009,696 in the year 2002.

- --------------------------------------------------------------------------------

NOTE E: ACQUISITION OF THE EQUITABLE SHORT-TERM WORLD INCOME FUND
On August 27, 1993, the Fund acquired all the net assets of The Equitable Short-
Term World Income Fund ("Short-Term World Income") pursuant to a plan of
reorganization approved by the Short-Term World Income shareholders on August
20, 1993. The acquistion was accomplished by a tax-free exchange of 1,822,675
shares of the Fund for 1,972,376 shares of Short-Term World Income on August 27,
1993. The aggregate net assets of the Fund and Short-Term World Income
immediately before the acquistion were $2,901,765,166 and $16,900,781,
(including unrealized depreciation of $572,798), respectively. Immediately
after the acquisition, the combined net assets of the Fund amounted to
$2,918,665,947.

<PAGE>

NOTE F: CAPITAL STOCK
There are 3,600,000,000 shares of $.01 par value capital stock authorized,
dividend into three classes, designated Class A, Class B and Class C shares.
Each Class consists of 1,200,000,000 authorized shares. Transactions in capital
stock were as follows:

SHARES AMOUNT
------------------------------- ----------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1994 1993 1994 1993
----------- ------------ ------------- ----------------
<S> <C> <C> <C> <C>

CLASS A
Shares sold. . . . . . . . . . . . . . . . . . . 4,612,509 10,527,452 $ 41,449,862 $ 96,900,439
Shares issued in reinvestment
of dividends and distributions . . . . . . . . 3,737,652 5,509,969 33,610,283 50,692,546
Shares issued in connection with
the acquisition of the Short-Term
World Income Fund. . . . . . . . . . . . . . . -0- 1,072,623 -0- 10,404,111
Shares redeemed. . . . . . . . . . . . . . . . . (43,296,051) (86,626,544) (388,782,956) (795,503,379)
----------- ------------ ------------- ---------------

Net decrease . . . . . . . . . . . . . . . . . . (34,945,890) (69,516,500) $(313,722,811) $ (637,506,283)
----------- ------------ ------------- ---------------
----------- ------------ ------------- ---------------

CLASS B
Shares sold. . . . . . . . . . . . . . . . . . . 2,833,662 4,453,817 $25,465,262 $40,971,721
Shares issued in reinvestment
of dividends and distributions . . . . . . . . 5,541,971 8,673,179 49,849,081 79,798,743
Shares issued in connection with
the acquisition of the Short-Term
World Income Fund. . . . . . . . . . . . . . . -0- 750,052 -0- 7,069,468
Shares redeemed. . . . . . . . . . . . . . . . . (81,594,355) (146,089,015) (731,549,755) (1,342,755,255)
----------- ------------ ------------- ---------------

Net decrease . . . . . . . . . . . . . . . . . . (73,218,722) (132,211,967) $(656,235,412) $(1,214,915,323)
----------- ------------ ------------- ---------------
----------- ------------ ------------- ---------------

SHARES AMOUNT
------------------------------- ----------------------------------
YEAR ENDED MAY 3, 1994* YEAR ENDED MAY 3, 1993*
OCTOBER 31, TO OCTOBER 31, OCTOBER 31, TO OCTOBER 31,
1994 1993 1994 1993
----------- ------------ ------------- ----------------
<S> <C> <C> <C> <C>

CLASS C
Shares sold. . . . . . . . . . . . . . . . . . . 1,757,618 790,847 $ 15,838,339 $ 7,306,878
Shares issued in reinvestment
of dividends . . . . . . . . . . . . . . . . . 45,138 1,983 403,169 18,312
Shares redeemed. . . . . . . . . . . . . . . . . (1,467,516) (193,926) (13,059,868) (1,791,894)
----------- ------------ ------------- ---------------

Net increase . . . . . . . . . . . . . . . . . . 335,240 598,904 $ 3,181,640 $ 5,533,296
----------- ------------ ------------- ---------------
----------- ------------ ------------- ---------------

</TABLE>

NOTE G: SUBSEQUENT EVENT UNAUDITED MEXICAN DEVALUATION
Subsequent to November 30, 1994 and through February 17, 1995, the Fund's net
assets value per share declined by approximately 12.4%, primarily due to the
devaluation of the Mexican peso.

<PAGE>

FINANCIAL HIGHLIGHTS ALLIANCE SHORT-TERM MULTI-MARKET TRUST, INC.
- --------------------------------------------------------------------------------

SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR

CLASS A
--------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
--------------------------------------------------------------------
1994 1993 1992 1991 1990
--------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>

Net asset value, beginning of year . . . . . . . . $9.25 $9.25 $9.94 $9.89 $9.69
----- ----- ----- ----- -----
INCOME FROM INVESTMENT OPERATIONS
Net investment income. . . . . . . . . . . . . . . .93 .92 .91 .97 1.09
Net realized and unrealized gain
(loss) on investments
and foreign currency transactions. . . . . . . . (.86) (.32) (.86) .06 .19
----- ----- ----- ----- -----
Net increase in net asset . . . . . . . . . . . .
value from operations. . . . . . . . . . . . . . .07 .60 .05 1.03 1.28
----- ----- ----- ----- -----
LESS: DISTRIBUTIONS
Dividends from net investment
income and other sources . . . . . . . . . . . . -0- (.60) (.72) (.97) (1.08)
Return of Capital. . . . . . . . . . . . . . . . . (.61) -0- -0- -0- -0-
Distributions from net realized
gain on investments and foreign
currency transactions. . . . . . . . . . . . . . -0- -0- (.02) (.01) -0-
----- ----- ----- ----- -----
Total dividends and distributions. . . . . . . . . (.61) (.60) (.74) (.98) (1.08)
----- ----- ----- ----- -----
Net asset value, end of year . . . . . . . . . . . $8.71 $9.25 $9.25 $9.94 $9.89
----- ----- ----- ----- -----
----- ----- ----- ----- -----
TOTAL RETURN
Total investment return based on net
asset value (b). . . . . . . . . . . . . . . . . .84% 6.67% .49% 10.91% 13.86%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year
(000's omitted). . . . . . . . . . . . . . . . . $593,677 $953,571 $1,596,903 $2,199,393 $1,346,035
Ratio of expenses to average
net assets . . . . . . . . . . . . . . . . . . . 1.13% 1.16% 1.10% 1.09% 1.18%
Ratio of net investment income to
average net assets . . . . . . . . . . . . . . . 7.28% 8.26% 9.00% 9.64% 10.81%
Portfolio turnover rate. . . . . . . . . . . . . . 109% 182% 133% 146% 152%

<FN>
- --------------------------------------------------------------------------------
See footnote on page

</TABLE>

<PAGE>

SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD

CLASS B
-----------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, FEBRUARY 5, 1990(a)
------------------------------------------------------- TO
1994 1993 1992 1991 OCTOBER 31, 1990
---------- ---------- ---------- ---------- -------------------

Net asset value, beginning of period . . . . . . . $9.25 $9.25 $9.94 $9.89 $9.77
----- ----- ----- ----- -----
INCOME FROM INVESTMENT OPERATIONS
Net investment income. . . . . . . . . . . . . . . .94 .87 .84 .89 .74
Net realized and unrealized gain (loss) on
investments and foreign currency transactions. . (.93) (.34) (.86) .07 .12
----- ----- ----- ----- -----
Net increase (decrease) in net asset value from
operations . . . . . . . . . . . . . . . . . . . .01 .53 (.02) .96 .86
----- ----- ----- ----- -----
LESS: DISTRIBUTIONS
Dividends from net investment income and
other sources. . . . . . . . . . . . . . . . . . -0- (.53) (.65) (.90) (.74)
Return of Capital. . . . . . . . . . . . . . . . . (.55) -0- -0- -0- -0-
Distributions from net realized gain (loss) on
investments and foreign currency transactions. . -0- -0- (.02) (.01) -0-
----- ----- ----- ----- -----
Total dividends and distributions. . . . . . . . . (.55) (.53) (.67) (.91) (.74)
----- ----- ----- ----- -----
Net asset value, end of period . . . . . . . . . . $8.71 $9.25 $9.25 $9.94 $9.89
----- ----- ----- ----- -----
----- ----- ----- ----- -----
TOTAL RETURN
Total investment return based on net asset
value (b). . . . . . . . . . . . . . . . . . . . .12% 5.91% (.24)% 10.11% 9.07%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted). . . . . $1,003,633 $1,742,703 $2,966,071 $3,754,003 $1,950,330
Ratio of expenses to average net assets. . . . . . 1.85% 1.87% 1.81% 1.81% 1.86%(c)
Ratio of net investment income to average
net assets . . . . . . . . . . . . . . . . . . . 6.58% 7.57% 8.28% 8.87% 9.90%(c)
Portfolio turnover rate. . . . . . . . . . . . . . 109% 182% 133% 146% 152%

CLASS C
-----------------------------------
YEAR ENDED MAY 3, 1994(a)
OCTOBER 31, TO
1994 OCTOBER 31, 1993
------------ ----------------
<S> <C> <C>

Net asset value, beginning of period . . . . . . . . . . . . . . $9.25 $9.18
----- -----
INCOME FROM INVESTMENT OPERATIONS
Net investment income. . . . . . . . . . . . . . . . . . . . . . .58 .28
Net realized and unrealized gain (loss) on
investments and foreign currency transactions. . . . . . . . . (.57) .05
----- -----
Net increase in net asset value from
operations . . . . . . . . . . . . . . . . . . . . . . . . . . .01 .33
----- -----
LESS: DISTRIBUTIONS
Dividends from net investment income and
other sources. . . . . . . . . . . . . . . . . . . . . . . . . -0- (.26)
Return of Capital. . . . . . . . . . . . . . . . . . . . . . . . (.55) -0-
Distributions from net realized gain (loss) on
investments and foreign currency transactions. . . . . . . . . -0- -0-
----- -----
Total dividends and distributions . . . . . . . . . . . . . . . (.55) (.26)
----- -----
Net asset value, end of period . . . . . . . . . . . . . . . . . $8.71 $9.25
----- -----
----- -----
TOTAL RETURN
Total investment return based on net asset value (b) . . . . . . .12% 3.66%
----- -----
----- -----
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted). . . . . . . . . . . . $8,136 $5,538
Ratio of expenses to average net assets. . . . . . . . . . . . . 1.83% 1.82%(c)
Ratio of net investment income to average
net assets . . . . . . . . . . . . . . . . . . . . . . . . . . 6.50% 7.19%(c)
Portfolio turnover rate. . . . . . . . . . . . . . . . . . . . . 109% 182%

<FN>
- --------------------------------------------------------------------------------
(a) Commencement of distribution.
(b) Total investment return is calculated assuming an initial investment made
at the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period, and a
redemption on the last day of the period. Initial sales charge or
contingent deferred sales charge is not reflected in the calculation of
total investment return. Total investment return calculated for a period
of less than one year is not annualized.
(c) Annualized.

</TABLE>

<PAGE>

REPORT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS ALLIANCE SHORT-TERM MULTI-MARKET TRUST, INC.
- --------------------------------------------------------------------------------

TO THE SHAREHOLDERS AND BOARD OF DIRECTORS
ALLIANCE SHORT-TERM MULTI-MARKET TRUST, INC.

We have audited the accompanying statement of assets and liabilities of Alliance
Short-Term Multi-Market Trust, Inc. (the "Fund"), including the portfolio of
investments, as of October 31, 1994, and the related statement of operations for
the year then ended, the statement of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
periods indicated therein. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. 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
October 31, 1994, by correspondence with the custodian and brokers. 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 audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Alliance Short-Term Multi-Market Trust, Inc. as of October 31, 1994, the results
of its operations for the year then ended, the changes in its net assets for
each of the two years in the period then ended and the financial highlights for
each of the indicated periods, in conformity with generally accepted accounting
principles.

New York, New York
December , 1994

<PAGE>

APPENDIX A

DESCRIPTION OF OBLIGATIONS
ISSUED OR GUARANTEED BY U.S. GOVERNMENT
AGENCIES OR INSTRUMENTALITIES

FEDERAL FARM CREDIT SYSTEM NOTES AND BONDS--are bonds
issued by a cooperatively owned nationwide system of banks and
associations supervised by the Farm Credit Administration, an
independent agency of the U.S. Government. These bonds are not
guaranteed by the U.S. Government.

MARITIME ADMINISTRATION BONDS--are bonds issued and
provided by the Department of Transportation of the U.S.
Government and are guaranteed by the U.S. Government.

FHA DEBENTURES--are debentures issued by the Federal
Housing Administration of the U.S. Government and are guaranteed
by the U.S. Government.

GNMA CERTIFICATES--are mortgage-backed securities which
represent a partial ownership interest in a pool of mortgage loans
issued by lenders such as mortgage bankers, commercial banks and
savings and loan associations. Each mortgage loan included in the
pool is either insured by the Federal Housing Administration or
guaranteed by the Veterans Administration.

FHLMC BONDS--are bonds issued and guaranteed by the
Federal Home Loan Mortgage Corporation.

FNMA BONDS--are bonds issued and guaranteed by the
Federal National Mortgage Association.

FEDERAL HOME LOAN BANK NOTES AND BONDS--are notes and
bonds issued by the Federal Home Loan Bank System and are not
guaranteed by the U.S. Government.

STUDENT LOAN MARKETING ASSOCIATION ("SALLIE MAE") NOTES
AND BONDs--are notes and bonds issued by the Student Loan
Marketing Association.

Although this list includes a description of the primary
types of U.S. Government agency or instrumentality obligations in
which the Fund intends to invest, the Fund may invest in
obligations of U.S. Government agencies or instrumentalities other
than those listed above.

A-1
00250181.AL5

<PAGE>

APPENDIX B

BOND AND COMMERCIAL PAPER RATINGS

STANDARD & POOR'S BOND RATINGS

A Standard & Poor's corporate debt rating is a current
assessment of the creditworthiness of an obligor with respect to a
specific obligation. Debt rated "AAA" has the highest rating
assigned by Standard & Poor's. Capacity to pay interest and repay
principal is extremely strong. Debt rated "AA" has a very strong
capacity to pay interest and to repay principal and differs from
the highest rated issues only in small degree. Debt rated "A" has
a strong capacity to pay interest and repay principal although it
is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than a debt of a higher
rated category.

The ratings from "AA" and "A" may be modified by the
addition of a plus or minus sign to show relative standing within
the major rating categories.

MOODY'S BOND RATINGS

Excerpts from Moody's description of its corporate bond
ratings: Aaa - judged to be the best quality, carry the smallest
degree of investment risk; Aa - judged to be of high quality by
all standards; A - possess many favorable investment attributes
and are to be considered as higher medium grade obligations; Baa -
considered as medium grade obligations, i.e., they are neither
highly protected nor poorly secured.

FITCH INVESTORS SERVICE BOND RATINGS

AAA. Securities of this rating are regarded as strictly
high-grade, broadly marketable, suitable for investment by
Directors and fiduciary institutions, and liable to but slight
market fluctuation other than through changes in the money rate.
The factor last named is of importance varying with the length of
maturity. Such securities are mainly senior issues of strong
companies, and are most numerous in the railway and public utility
fields, though some industrial obligations have this rating. The
prime feature of an AAA rating is showing of earnings several
times or many times interest requirements with such stability of
applicable earnings that safety is beyond reasonable question
whatever changes occur in conditions. Other features may enter
in, such as a wide margin of protection through collateral
security or direct lien on specific property as in the case of
high class equipment certificates or bonds that are first
mortgages on valuable real estate. Sinking funds or voluntary
reduction of the debt by call or purchase are often factors, while

B-1

<PAGE>

guarantee or assumption by parties other than the original debtor
may also influence the rating.

AA. Securities in this group are of safety virtually
beyond question, and as a class are readily salable while many are
highly active. Their merits are not greatly unlike those of the
AAA class, but a security so rated may be of junior through strong
lien--in many cases directly following an AAA security--or the
margin of safety is less strikingly broad. The issue may be the
obligation of a small company, strongly secured but influenced as
to ratings by the lesser financial power of the enterprise and
more local type of market.

A. A securities are strong investments and in many cases
of highly active market, but are not so heavily protected as the
two upper classes or possibly are of similar security but less
quickly salable. As a class they are more sensitive in standing
and market to material changes in current earnings of the company.
With favoring conditions such securities are likely to work into a
high rating, but in occasional instances changes cause the rating
to be lowered.

STANDARD & POOR'S COMMERCIAL PAPER RATINGS

A is the highest commercial paper rating category
utilized by S&P, which uses the number 1+, 1, 2 and 3 to denote
relative strength within its A classification. Commercial paper
issues rated A by S&P have the following characteristics:
Liquidity ratios are better than industry average. Long-term debt
rating is A or better. The issuer has access to at least two
additional channels of borrowing. Basic earnings and cash flow
are in an upward trend. Typically, the issuer is a strong company
in a well-established industry and has superior management.

MOODY'S COMMERCIAL PAPER RATINGS

Issuers rated Prime-1 (or related supporting
institutions) have a superior capacity for repayment of short-term
promissory obligations. Prime-1 repayment capacity will normally
be evidenced by the following characteristics: Leading market
positions in well established industries; high rates of return on
funds employed; conservative capitalization structures with
moderate reliance on debt and ample asset protection; broad
margins in earnings coverage of fixed financial charges and high
internal cash generation; well established access to a range of
financial markets and assured sources of alternate liquidity.

Issuers rated Prime-2 (or related supporting
institutions) have a strong capacity for repayment of short-term
promissory obligations. This will normally be evidenced by many
of the characteristics cited above but to a lesser degree.

B-2

<PAGE>

Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample
alternate liquidity is maintained.

Issuers rated Prime-3 (or related supporting
institutions) have an acceptable capacity for repayment of short-
term promissory obligations. The effect of industry
characteristics and market composition may be more pronounced.
Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirement for
relatively high financial leverage. Adequate alternate liquidity
is maintained.

FITCH-1, FITCH-2, DUFF 1 AND DUFF 2 COMMERCIAL
PAPER RATINGS

Commercial paper rated "Fitch-1" is considered to be the
highest grade paper and is regarded as having the strongest degree
of assurance for timely payment. "Fitch-2" is considered very
good grade paper and reflects an assurance of timely payment only
slightly less in degree than the strongest issue.

Commercial paper issues rated "Duff 1" by Duff & Phelps,
Inc. have the following characteristics: very high certainty of
timely payment, excellent liquidity factors supported by strong
fundamental protection factors, and risk factors which are very
small. Issues rated "Duff 2" have a good certainty of timely
payment, sound liquidity factors and company fundamentals, small
risk factors, and good access to capital markets.

B-3
00250181.AL5

<PAGE>

APPENDIX C

FUTURES CONTRACTS AND OPTIONS ON FUTURES
CONTRACTS AND FOREIGN CURRENCIES

FUTURES CONTRACTS

The Fund may enter into contracts for the purchase or
sale for future delivery of fixed-income securities or foreign
currencies, or contracts based on financial indices including any
index of U.S. Government Securities, foreign government securities
or corporate debt securities. U.S. futures contracts have been
designed by exchanges which have been designated "contracts
markets" by the Commodity Futures Trading Commission ("CFTC"), and
must be executed through a futures commission merchant, or
brokerage firm, which is a member of the relevant contract market.
Futures contracts trade on a number of exchange markets, and,
through their clearing corporations, the exchanges guarantee
performance of the contracts as between the clearing members of
the exchange. The Fund will enter into futures contracts which
are based on debt securities that are backed by the full faith and
credit of the U.S. Government, such as long-term U.S. Treasury
Bonds, Treasury Notes, Government National Mortgage Association
modified pass-through mortgage-backed securities and three-month
U.S. Treasury Bills. The Fund may also enter into futures
contracts which are based on bonds issued by entities other than
the U.S. government.

At the same time a futures contract is purchased or sold,
the Fund must allocate cash or securities as a deposit payment
("initial deposit"). It is expected that the initial, deposit
would be approximately 1 1/2%-5% of a contract's face value.
Daily thereafter, the futures contract is valued and the payment
of "variation margin" may be required, since each day the Fund
would provide or receive cash that reflects any decline or
increase in the contracts value.

At the time of delivery of securities pursuant to such a
contract, adjustments are made to recognize differences in value
arising from the delivery of securities with a different interest
rate from that specified in the contract. In some (but not many)
cases, securities called for by a futures contract may not have
been issued when the contract was written.

Although futures contracts by their terms call for the
actual delivery or acquisition of securities, in most cases the
contractual obligation is fulfilled before the date of the
contract without having to make or take delivery of the
securities. The offsetting of a contractual obligation is
accomplished by buying (or selling, as the case may be) on a
commodities exchange an identical futures contract calling for

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delivery in the same month. Such a transaction, which is effected
through a member of an exchange, cancels the obligation to make or
take delivery of the securities. Since all transactions in the
futures market are made, offset or fulfilled through a
clearinghouse associated with the exchange on which the contracts
are traded, the Fund will incur brokerage fees when it purchases
or sells futures contracts.

The purpose of the acquisition or sale of a futures
contract, in the case of a portfolio, such as the portfolio of the
Fund, which holds or intends to acquire fixed-income securities,
is to attempt to protect the Fund from fluctuations in interest or
foreign exchange rates without actually buying or selling fixed-
income securities or foreign currency. For example, if interest
rates were expected to increase, the Fund might enter into futures
contracts for the sale of debt securities. Such a sale would have
much the same effect as selling an equivalent value of the debt
securities owned by the Fund. If interest rates did increase, the
value of the debt securities in the portfolio would decline, but
the value of the futures contracts to the Fund would increase at
approximately the same rate, thereby keeping the net asset value
of the Fund from declining as much as it otherwise would have.
The Fund could accomplish similar results by selling debt
securities and investing in bonds with short maturities when
interest rates are expected to increase. However, since the
futures market is more liquid than the cash market, the use of
futures contracts as an investment technique allows the Fund to
maintain a defensive position without having to sell its portfolio
securities.

Similarly, when it is expected that interest rates may
decline, futures contracts may be purchased to attempt to hedge
against anticipated purchases of debt securities at higher prices.
Since the fluctuations in the value of futures contracts should be
similar to those of debt securities, the Fund could take advantage
of the anticipated rise in the value of debt securities without
actually buying them until the market had stabilized. At that
time, the futures contracts could be liquidated and the Fund could
then buy debt securities on the cash market. To the extent the
Fund enters into futures contracts for this purpose, the assets in
the segregated asset account maintained to cover the Fund's
obligations with respect to such futures contracts will consist of
cash, cash equivalents or high quality liquid debt securities from
its portfolio in an amount equal to the difference between the
fluctuating market value of such futures contracts and the
aggregate value of the initial and variation margin payments made
by the Fund with respect to such futures contracts.

The ordinary spreads between prices in the cash and
futures markets, due to differences in the nature of those
markets, are subject to distortions. First, all participants in

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the futures market are subject to initial deposit and variation
margin requirements. Rather than meeting additional variation
margin requirements, investors may close futures contracts through
offsetting transactions which could distort the normal
relationship between the cash and futures markets. Second, the
liquidity of the futures market depends on participants entering
into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take
delivery, liquidity in the futures market could be reduced, thus
producing distortion. Third, from the point of view of
speculators, the margin deposit requirements in the futures market
are less onerous than margin requirements in the securities
market. Therefore, increased participation by speculators in the
futures market may cause temporary price distortions. Due to the
possibility of distortion, a correct forecast of general interest
rate trends by the Adviser may still not result in a successful
transaction.

In addition, futures contracts entail risks. Although
the Fund believes, that use of such contracts will benefit the
Fund, if the Adviser's investment judgment about the general
direction of interest rates is incorrect, the Fund's overall
performance would be poorer than if it had not entered into any
such contract. For example, if the Fund has hedged against the
possibility of an increase in interest rates which would adversely
affect the price of debt securities held in its portfolio and
interest rates decrease instead, the Fund will lose part or all of
the benefit of the increased value of its debt securities which it
has hedged because it will have offsetting losses in its futures
positions. In addition, in such situations, if the Fund has
insufficient cash, it may have to sell debt securities from its
portfolio to meet daily variation margin requirements. Such sales
of bonds may be, but will not necessarily be, at increased prices
which reflect the rising market. The Fund may have to sell
securities at a time when it may be disadvantageous to do so.

OPTIONS ON FUTURES CONTRACTS

The Fund intends to purchase and write options on futures
contracts for hedging purposes. The purchase of a call option on
a futures contract is similar in some respects to the purchase of
a call option on an individual security. Depending on the pricing
of the option compared to either the price of the futures contract
upon which it is based or the price of the underlying debt
securities, it may or may not be less risky than ownership of the
futures contract or underlying debt securities. As with the
purchase of futures contracts, when the Fund is not fully invested
it may purchase a call option on a futures contract to hedge
against a market advance due to declining interest rates.

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The writing of a call option on a futures contract
constitutes a partial hedge against declining prices of the
security or foreign currency which is deliverable upon exercise of
the futures contract. If the futures price at expiration of the
option is below the exercise price, the Fund will retain the full
amount of the option premium which provides a partial hedge
against any decline that may have occurred in the Fund's portfolio
holdings. The writing of a put option on a futures contract
constitutes a partial hedge against increasing prices of the
security or foreign currency which is deliverable upon exercise of
the futures contract. If the futures price at expiration of the
option is higher than the exercise price, the Fund will retain the
full amount of the option premium which provides a partial hedge
against any increase in the price of securities which the Fund
intends to purchase. If a put or call option the Fund has
written is exercised, the Fund will incur a loss which will be
reduced by the amount of the premium it receives. Depending on
the degree of correlation between changes in the value of its
portfolio securities and changes in the value of its futures
positions, the Fund's losses from existing options on futures may
to some extent be reduced or increased by changes in the value of
portfolio securities.

The purchase of a put option on a futures contract is
similar in some respects to the purchase of protective put options
on portfolio securities. For example, the Fund may purchase a put
option on a futures contract to hedge the Fund's portfolio against
the risk of rising interest rates.

The amount of risk the Fund assumes when it purchases an
option on a futures contract is the premium paid for the option
plus related transaction costs. In addition to the correlation
risks discussed above, the purchase of an option also entails the
risk that changes in the value of the underlying futures contract
will not be fully reflected in the value of the option purchased.

OPTIONS ON FOREIGN CURRENCIES

The Fund may purchase and write options on foreign
currencies for hedging purposes in a manner similar to that in
which futures contracts on foreign currencies, or forward
contracts, will be utilized. For example, a decline in the dollar
value of a foreign currency in which portfolio securities are
denominated will reduce the dollar value of such securities, even
if their value in the foreign currency remains constant. In order
to protect against such diminutions in the value of portfolio
securities, the Fund may purchase put options on the foreign
currency. If the value of the currency does decline, the Fund
will have the right to sell such currency for a fixed amount in
dollars and will thereby offset, in whole or in part, the adverse
effect on its portfolio which otherwise would have resulted.

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Conversely, where a rise in the dollar value of a
currency in which securities to be acquired are denominated is
projected, thereby increasing the cost of such securities, the
Fund may purchase call options thereon. The purchase of such
options could offset, at least partially, the effects of the
adverse movements in exchange rates. As in the case of other
types of options, however, the benefit to the Fund deriving from
purchases of foreign currency options will be reduced by the
amount of the premium and related transaction costs. In addition,
where currency exchange rates do not move in the direction or to
the extent anticipated the Fund could sustain losses on
transactions in foreign currency options which would require it to
forego a portion or all of the benefits of advantageous changes in
such rates.

The Fund may write options on foreign currencies for the
same types of hedging purposes. For example, where the Fund
anticipates a decline in the dollar value of foreign currency
denominated securities due to adverse fluctuations in exchange
rates it could, instead of purchasing a put option, write a call
option on the relevant currency. If the expected decline occurs,
the option will most likely not be exercised, and the diminution
in value of portfolio securities will be offset by the amount of
the premium received.

Similarly, instead of purchasing a call option to hedge
against an anticipated increase in the dollar cost of securities
to be acquired, the Fund could write a put option on the relevant
currency which, if rates move in the manner projected, will expire
unexercised and allow the Fund to hedge such increased cost up to
the amount of the premium. As in the case of other types of
options, however, the writing of a foreign currency option will
constitute only a partial hedge up to the amount of the premium,
and only if rates move in the expected direction. If this does
not occur, the option may be exercised and the Fund would be
required to purchase or sell the underlying currency at a loss
which may not be offset by the amount of the premium. Through the
writing of options on foreign currencies, the Fund also may be
required to forego all or a portion of the benefits which might
otherwise have been obtained from favorable movements in exchange
rates.

The Fund intends to write covered call options on foreign
currencies. A call option written on a foreign currency by the
Fund is "covered" if the Fund owns the underlying foreign currency
covered by the call or has an absolute and immediate right to
acquire that foreign currency without additional cash
consideration (or for additional cash consideration held in a
segregated account by its Custodian) upon conversion or exchange
of other foreign currency held in its portfolio. A call option is
also covered if the Fund has a call on the same foreign currency

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and in the same principal amount as the call written where the
exercise price of the call held (a) is equal to or less than the
exercise price of the call written or (b) is greater than the
exercise price of the call written if the difference is maintained
by the Fund in cash, U.S. Government Securities and other high
quality liquid debt securities in a segregated account with its
Custodian.

The Fund also intends to write call options on foreign
currencies that are not covered for cross-hedging purposes. A
call option on a foreign currency is for cross- hedging purposes
if it is not covered, but is designed to provide a hedge against a
decline in the U.S. dollar value of a security which the Fund owns
or has the right to acquire and which is denominated in the
currency underlying the option due to an adverse change in the
exchange rate. In such circumstances, the Fund collateralizes the
option by maintaining in a segregated account with the Fund's
Custodian, cash or U.S. government securities or other high
quality liquid debt securities in an amount not less than the
value of the underlying foreign currency in U.S. dollars marked to
market daily.

ADDITIONAL RISKS OF OPTIONS ON FUTURES CONTRACTS, FORWARD
CONTRACTS AND OPTIONS ON FOREIGN CURRENCIES

Unlike transactions entered into by the Fund in futures
contracts, options on foreign currencies and forward contracts are
not traded on contract markets regulated by the CFTC or (with the
exception of certain foreign currency options) by the SEC. To the
contrary, such instruments are traded through financial
institutions acting as market-makers, although foreign currency
options are also traded on certain national securities exchanges,
such as the Philadelphia Stock Exchange and the Chicago Board
Options Exchange, subject to SEC regulation. Similarly, options
on currencies may be traded over-the-counter. In an over-the-
counter trading environment, many of the protections afforded to
exchange participants will not be available. For example, there
are no daily price fluctuation limits, and adverse market
movements could therefore continue to an unlimited extent over a
period of time. Although the purchaser of an option cannot lose
more than the amount of the premium plus related transaction
costs, this entire amount could be lost. Moreover, the option
writer and a trader of forward contracts could lose amounts
substantially in excess of their initial investments, due to the
margin and collateral requirements associated with such positions.

Options on foreign currencies traded on national
securities exchanges are within the jurisdiction of the SEC, as
are other securities traded on such exchanges. As a result, many
of the protections provided to traders on organized exchanges will
be available with respect to such transactions. In particular,

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all foreign currency option positions entered into on a national
securities exchange are cleared and guaranteed by the Options
Clearing Corporation ("OCC"), thereby reducing the risk of
counterparty default. Further, a liquid secondary market in
options traded on a national securities exchange may be more
readily available than in the over-the-counter market, potentially
permitting the Fund to liquidate open positions at a profit prior
to exercise or expiration, or to limit losses in the event of
adverse market movements.

The purchase and sale of exchange-traded foreign currency
options, however, is subject to the risks of the availability of a
liquid secondary market described above, as well as the risks
regarding adverse market movements, margining of options written,
the nature of the foreign currency market, possible intervention
by governmental authorities and the effects of other political and
economic events. In addition, exchange-traded options on foreign
currencies involve certain risks not presented by the over-the-
counter market. For example, exercise and settlement of such
options must be made exclusively through the OCC, which has
established banking relationships in applicable foreign countries
for this purpose. As a result, the OCC may, if it determines that
foreign governmental restrictions or taxes would prevent the
orderly settlement of foreign currency option exercises, or would
result in undue burdens on the OCC or its clearing member, impose
special procedures on exercise and settlement, such as technical
changes in the mechanics of delivery of currency, the fixing of
dollar settlement prices or prohibitions on exercise.

In addition, futures contracts, options on futures
contracts, forward contracts and options on foreign currencies may
be traded on foreign exchanges. Such transactions are subject to
the risk of governmental actions affecting trading in or the
prices of foreign currencies or securities. The value of such
positions also could be adversely affected by (i) other complex
foreign political and economic factors, (ii) lesser availability
than in the United States of data, on which to make trading
decisions, (iii) delays in the Fund's ability to act upon economic
events occurring in foreign markets during nonbusiness hours in
the United States, (iv) the imposition of different exercise and
settlement terms and procedures and margin requirements than in
the United States, and (v) lesser trading volume.

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APPENDIX D

ADDITIONAL INFORMATION ABOUT THE UNITED MEXICAN STATES

Territory and Population

The United Mexican States ("Mexico") occupies a territory
of 1.96 million square kilometers (756 thousand square miles). To
the north, Mexico shares a border with the United States of
America, and to the south it has borders with Guatemala and
Belize. Its coastline is along both the Gulf of Mexico and the
Pacific Ocean. Mexico comprises 31 states and a Federal District
(Mexico City). It is the second most populous nation in Latin
America, with an estimated population of 91 million.

Mexico's three largest cities are Mexico City,
Guadalajara and Monterrey, with estimated populations in 1990 of
14.9 million, 2.8 million and 2.5 million, respectively. Due to
improved economic and social conditions and better medical care,
the annual rate of population growth averaged 3.5% in the 1960s
and 1970s and 2.2% in the 1980s. In recent years, Government
efforts concerning family planning and birth control, together
with declining birth rates among women under 35 and those living
in urban areas (where approximately 70% of the population lives)
have resulted in a reduction of such rate to an estimated 2.1% at
December 31, 1990.

Government

The present form of government was established by the
Constitution, which took effect on May 1, 1917. The Constitution
established Mexico as a Federal Republic and provides for the
separation of the executive, legislative and judicial branches.
The President and the members of Congress are elected by popular
vote of Mexican citizens over 18 years of age.

Executive authority is vested in the President, who is
elected for a single six-year term. The executive branch consists
of 18 Ministries, the Attorney General, the Federal District
Department and the Attorney General of Mexico City.

Legislative authority is vested in the Congress, which is
composed of the Senate and the Chamber of Deputies. Senators
serve a six-year term. Deputies serve a three-year term, and
neither Senators nor Deputies may serve consecutive terms in the
same chamber. The Senate has 128 members, two for each state and
two for the Federal District. The Chamber of Deputies has 500
members, of whom 300 are elected by direct vote from the electoral
districts, and 200 are selected by a system of proportional
representation. The Constitution provides that the President may

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veto bills and that Congress may override such vetoes with a two-
thirds majority of each Chamber. Judicial authority is vested in
the Supreme Court of Justice, circuit and district courts. The
Supreme Court has 21 members who, subject to ratification by the
Senate, are appointed for life by the President.

Politics

The Partido Revolucionario Instituctional ("PRI") is the
dominant political party in Mexico. Since 1929 the PRI has won
all presidential elections and has held a majority in General
Congress. Until 1989 it had also won all of the state
governorships. The oldest opposition party in Mexico is the
Partido Accion Nacional ("PAN"). The third major party in Mexico
is the Partido de la Revolucion Democratica ("PRD").

On August 21, 1994, elections were held to select a new
President of Mexico for a six-year term beginning on December 1,
1994. In addition, elections were held for three-quarters of the
Senate and the entire Chamber of Deputies. The candidate of the
PRI, Ernesto Zedillo Ponce de Leon, won the Presidential election
with 50.2% of the votes, the candidate of the PAN was second with
26.7% of the votes and the PRD candidate was third with 17.1% of
the votes. With respect to the Congressional elections, the PRI
maintained its majority in both chambers, with 93 seats in the
Senate and 300 seats in the Chamber of Deputies. The PAN has the
second largest representation with 25 seats in the Senate and 119
seats in the Chamber of Deputies and the PRD the third largest
representation with 10 seats in the Senate and 71 seats in the
Chamber of Deputies.

In January 1994, an area in the southern state of Chiapas
experienced civil unrest, including armed attacks on several
villages. The Federal Government responded immediately by
providing support to the local authorities, agreeing to accelerate
the disbursement of expenditures in connection with social
programs that were provided for in the 1994 budget and publicly
offering to negotiate a peaceful resolution that would address the
underlying concerns of the local population. Despite the Federal
Government's attempt to resolve the situation, sporadic attacks
have continued and the area of conflict expanded in December 1994.
In addition, in December 1994, the PRI candidate, Mr. Eduardo
Robledo Rincon, became the Governor of Chiapas amid speculations
of election fraud. His election and subsequent actions, before
his resignation in February 1995, led to more tension between the
rebels and the Government. The Mexican military, in early
February 1995, conducted an operation to restore order in Chiapas.
After restoring order, President Zedillo ordered the military to
halt its offensive, offered amnesty to the rebels and urged them
to return to negotiating a peaceful settlement.

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In addition to the civil unrest in Chiapas, certain
national developments have led to disillusionment among the
electorate with the institutions of government. These events were
the assassination of Luis Donaldo Colosio, the likely successor to
former President Salinas and the murder of Mr. Jose Francisco Ruiz
Massieu, a high-ranking PRI official.

Continuing the reform of the political system, and in
response to the civil unrest in Chiapas and the economic turmoil
facing Mexico resulting from the devaluation of the Peso (as
described below), the Mexican Government and leaders of the PRI
signed an agreement with the opposition parties on January 17,
1995, to continue to democratize the country's political system.
Changes would include controls on fund-raising and campaign
spending, full access to the media for the opposition parties and
the complete independence of the federal elections agency. This
pact may also lead to new elections in Tabasco and Chiapas, where
disputed elections were held last year.

On February 13, 1995, the PRI suffered its worst election
defeat in sixty years when the PAN won almost every major elective
office in the state of Jalisco. It is only the third time in the
PRI's history that it has accepted a defeat in a state-wide
election. Additional state-wide elections are scheduled
throughout 1995, the effect of this recent election result on the
upcoming elections is not clear.

Money and Banking

Banco de Mexico, chartered in 1925, is the central bank
of Mexico. It is the Federal Government's primary instrument for
the execution of monetary policy and the regulation of currency
and credit. It is authorized by law to regulate interest rates
payable on time deposits, to establish minimum reserve
requirements for credit institutions and to provide discount
facilities for certain types of bank loans. The currency unit of
Mexico is the Peso. Mexico repealed its exchange control rules in
1991 and now maintains only a market exchange rate.

A constitutional amendment relating to Banco de Mexico's
activities and role within the Mexican economy became effective on
August 23, 1993. The amendment's purpose was to reinforce the
independence of Banco de Mexico, which may in the future act as a
counterbalance to the executive and legislative branches in fiscal
policy matters. The amendment significantly strengthens Banco de
Mexico's authority with respect to monetary policy, foreign
exchange and related activities and the regulation of the
financial services industry. On April 1, 1994, a new law
governing the activities of Banco de Mexico became effective. The
new law was intended to put into effect the greater degree of
autonomy granted to Banco de Mexico under the constitutional

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amendment described above and also established a Foreign Exchange
Commission charged with determining the nation's exchange rate
policies.

Trade Reform

Mexico has been a member of the General Agreement on
Tariffs and Trade ("GATT") since 1986. Mexico has also entered
into NAFTA with the United States and Canada. In addition, Mexico
signed a framework for a free trade agreement in 1992 with Costa
Rica, El Salvador, Guatemala, Honduras and Nicaragua and entered
into a definitive free trade agreement with Costa Rica in April
1994. A free trade agreement between Mexico and Chile went into
effect on January 1, 1992. A free trade agreement with Colombia
and Venezuela was signed in June 1994 and a similar agreement with
Bolivia was signed in September 1994; both agreements entered into
force in January 1995. In connection with the implementation of
NAFTA, amendments to several laws relating to financial services
(including the Banking Law and the Securities Market Law) became
effective on January 1, 1994. These measures permit non-Mexican
financial groups and financial intermediaries, through Mexican
subsidiaries, to engage in various activities in the Mexican
financial system, including banking and securities activities.

Economic Information Regarding Mexico

During the period from World War II through the mid-
1970's, Mexico experienced sustained economic growth. During the
mid 1970's, Mexico experienced high inflation and, as a result,
the government embarked on a high-growth strategy based on oil
exports and external borrowing. The economy suffered a set back
in 1981 because of a severe drop in oil prices and high interest
rates that substantially increased the country's external debt
service obligations. With no new lending from international
creditors, the Peso was devalued and inflation again rose sharply.
Through much of the 1980's, the Mexican economy continued to
experience high inflation and large foreign indebtedness. In
February 1990, Mexico became the first Latin American country to
reach an agreement with external creditor banks and multi-national
agencies under the U.S. Treasury's approach to debt reduction
known as the "Brady Plan." As part of the Brady Plan, commercial
banks and Mexico agreed to debt reduction and new financing in a
set of agreements comprising the 1989-1992 Financing Package. The
implementation of this package resulted in a substantial reduction
in Mexico's foreign debt and debt service obligations.

The value of Peso has been central to the performance of
the Mexican economy. From late 1982 until November 11, 1991,
Mexico maintained a dual foreign exchange rate system, with a
"controlled" rate and a "free market" rate. The controlled
exchange rate applied to certain imports and exports of goods,

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advances and payments of registered foreign debt and funds used in
connection with the in-bond industry (the industry is comprised of
companies which import raw materials without paying a duty) funds
used for payments of royalties and technical assistance under
registered agreements requiring such payments. The free market
rate was used for all other types of transactions. The dual
system assisted in controlling the value of the Mexican Peso,
particularly from 1983 to 1985. In later years the difference
between the two rates was not significant. Mexico has since
repealed the controlled rate.

Under economic policy initiatives implemented since
December 1987, the Mexican government introduced a schedule of
gradual devaluations of the Mexican Peso that initially amounted
to an average depreciation of the Mexican Peso against the U.S.
Dollar of one Mexican Peso per day. On May 28, 1990, the Mexican
Peso began devaluing by an average of .80 Mexican Pesos per day
instead of one Mexican Peso per day. On November 12, 1990 this
average was decreased to .40 Mexican Pesos per day and on
November 11, 1991 the daily devaluation rate was lowered to .20
Mexican Pesos per day.

On January 1, 1993, the Mexican Government introduced a
new currency, the New Peso. Each New Peso is worth 1,000 old
Mexican Pesos. The New Pesos and old Mexican Pesos were to
continue to be circulated for at least a year with Mexican
businesses being required to post prices in both pesos. At that
time, the Mexican government stated that the New Peso
(hereinafter, the "Peso") was not a devaluation but a move to
simplify the Mexican currency.

Throughout 1993 and most of 1994, the U.S. Dollar
exchange rate was allowed to fluctuate within a band that widened
daily. The ceiling of the band, which is the maximum selling
rate, depreciated at a daily rate of 0.0004 Pesos (equal to
approximately 4.5% per year), while the minimum buying rate
remained fixed.

RECENT DEVELOPMENTS. On December 20, 1994, the Mexican
Government announced a new policy that would allow a more
substantial yet still controlled devaluation of the Mexican Peso.
On December 22, 1994 the Mexican Government announced that it
would not continue with the policy announced two days earlier and
it would instead permit the Peso to float against other
currencies, resulting in a continued decline against the U.S.
Dollar. On December 23, 1994 the exchange rate was 4.67 Pesos to
the U.S. Dollar, and on January 4, 1995 it had fallen further to
5.57 to the U.S. Dollar.

On January 12, 1995, President Clinton proposed a plan to
help stabilize the Mexican economy. Under terms of the proposal,

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the United States would guarantee $40 billion in new loans to
Mexico to be used in the event of a default on outstanding bonds
or loans. In response to President Clinton's plan, the Peso
gained approximately 8% in one day against the U.S. Dollar.
During the next two weeks as it appeared the plan would not be
approved by Congress, the Peso fell again, reaching a new low on
January 31, 1995 of 6.35 Pesos to the U.S. Dollar or an effective
devaluation of approximately 40% since December 20, 1994.

With foreign exchange reserves down from an estimated $30
billion in February 1994 to $6 billion in December 1994 and $3.5
billion at the end of January 1995, there existed significant
concern about the possibility of a Mexican government default on
the approximately $11 billion in Tesobonos maturing from February
to April 1995. Tesobonos are U.S. dollar-denominated Mexican
Government bonds with a face value of $1,000. The purchase price
of a Tesobono is the Peso equivalent of $1,000 on the day the bond
is acquired. On the date the bond matures, an amount equal to the
principal plus interest will be paid in Pesos at the exchange rate
in effect on the date the bond matures.

During January 1995, with foreign investors estimated to
be holding 70% of outstanding Cetes and 80% of outstanding
Tesobonos, it became imperative that Mexico restore foreign
investor confidence. The obligation to repay the Tesobonos was a
significant cause of Mexico's economic turmoil, both because of
the size of the debt and the continuing devaluation of the Peso.
On January 24, 1995, demand for Tesobonos fell dramatically from
the previous week, with interest rates rising to more than 26%.
During this same time, the prices of Mexican Brady Bonds had
decreased by approximately 23%.

On January 31, 1995, President Clinton announced a new
plan that would not require Congressional approval in order to be
implemented. Under the plan, the United States will exchange up
to $20 billion in foreign exchange reserves for Dollars, which, in
turn, will be swapped for Pesos. Mexico has an obligation to
return the Dollars within three to five years. The Federal
Reserve will make available to Mexico up to $6 billion in short-
term loans. The International Monetary Fund will provide $17.8
billion in five-year loans and the Bank for International
Settlements will provide $10 billion in credit to Mexico. In
addition, Canada pledged $1 billion and Latin American nations
pledged $1 billion in credit to Mexico. Under the terms of the
plan, Mexico has an obligation to pay fees for the use of the loan
guarantees and has pledged oil revenues as collateral for loan
guarantees from the United States. In addition, Mexico will be
required to adhere to a program of economic reform, which will
include a reduction in government spending, slowing the growth of
the money-supply and the privatization of more industries.

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It is unclear what effect, if any, these recent
developments will have on the value of the Peso or on the Mexican
economy.

Statistical and Related Information
Concerning Mexico

The following provides certain statistical and related
information regarding historical rates of exchange between the
U.S. Dollar and the Mexican Peso, information concerning inflation
rates, historical information regarding the Mexican gross domestic
product and information concerning interest rates on certain
Mexican Government Securities. Historical information is not
necessarily indicative of future fluctuations or exchange rates.
In 1982, Mexico imposed strict foreign exchange controls which
shortly thereafter were relaxed and were eliminated in 1991.

CURRENCY EXCHANGE RATES. There is no assurance that
future regulatory actions in Mexico would not affect the Fund's
ability to obtain U.S. Dollars in exchange for Mexican Pesos.

The following table sets forth the exchange rates of the
Mexican Peso to the U.S. Dollar with respect to each year from
1981 to 1994 and the months of January and February 1995.

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Free Market Rate Controlled Rate
________________ _______________

End of End of
Period Average Period Average
______ ________ _______ _______

1981. . . . . . . 26 24 -- --
1982. . . . . . . 148 57 96 57
1983. . . . . . . 161 150 143 120
1984. . . . . . . 210 185 192 167
1985. . . . . . . 447 310 371 256
1986. . . . . . . 915 637 923 611
1987. . . . . . . 2.209 1.378 2.198 1.366
1988. . . . . . . 2.281 2.273 2.257 2.250
1989. . . . . . . 2.681 2.483 2.637 2.453
1990. . . . . . . 2.943 2.838 2.939 2.807
1991. . . . . . . 3.075 3.016 3.065* 3.007*
1992. . . . . . . 3.119 3.094 -- --
1993. . . . . . . 3.192 3.155 -- --
1994. . . . . . . 5.325 5.075 -- --
January 1995. . . 6.500 -- -- --
February 1995 . . 6.078 -- -- --

* Through November 10, 1991.

Source: Banco de Mexico.

INFLATION AND CONSUMER PRICES. Through much of the
1980's, the Mexican economy continued to be affected by high
inflation, low growth and high levels of domestic and foreign
indebtedness. The annual inflation rate, as measured by the
consumer price index, rose from 28.7% in December 1981 to 159.2%
in December 1987. In December 1987, the Mexican Government
agreed with labor and business to curb the economy's inflationary
pressures by freezing the surge in wages and prices. The Pacto
de Solidaridad Economica (Pact for Economic Solidarity, the
"PSE") was announced in December 1987 and included the
implementation of restrictive fiscal and monetary policies, the
elimination of trade barriers and the reduction of import
tariffs. The PSE was renamed the Pacto para las Estabilidad y el
Crecimiento Economica (Pact for Stability and Economic Growth,
the "PECE") in November 1988. The PECE has been extended on five
occasions. After substantive increases in public sector prices
and utility rates, price controls were introduced. These
policies lowered the consumer inflation rate from 159.2% in 1987,
to 19.7% in 1989, 29.9% in 1990, 18.8% in 1991, 11.9% in 1992,
and 8.0% in 1993.

Under the PECE, the prices of certain goods and services
provided by the public sector (particularly gasoline, energy for

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<PAGE>

industrial use and utility services) were increased. The private
sector agreed to accept the increases without increasing private
sector prices. Furthermore, the government committed itself to
implementing measures to reduce agricultural sector costs.

On October 3, 1993, the 1993-94 PECE went into effect.
The purposes of that PECE, which was effective through
December 31, 1994, were essentially the same as those of its
predecessor pacts. The Government promised to maintain fiscal
discipline and a balanced budget. Mexico's foreign exchange
policy remains unchanged. The 1993-94 PECE set an inflation
target of 5% for 1994. In addition, the Government agreed to
reduce the highest income tax rate from 35% to 34% and to reduce
(for the next two years) the withholding tax applicable to
interest payments on external debt payable to certain financial
institutions and on publicly issued external debt from 15% to
4.9%. In order to assure industry of stable prices for certain
factors of production, the government has agreed to limit annual
increases in the price of gasoline (except in the border region
with the United States) to a maximum of 5% annually. Commercial
and residential electricity rate increases were also limited to
5%. As the Mexican economy stabilized, there has been a gradual
reduction in the number of goods and services whose prices are
covered by the original PECE, the 1992-93 PECE and the 1993-94
PECE.

On September 24, 1994, the government, together with the
business and labor sectors, entered into a new agreement that
extends the 1993-94 PECE for 1995. That agreement became
effective on January 1, 1995. Its main points are as follows:
(i) an inflation target of 4% for 1995; (ii) a 4% GDP growth
target for 1995; (iii) an increase in salaries by 4%, together
with a productivity increase, the terms of which are yet to be
determined; (iv) the maintenance of the current foreign exchange
policy; (v) the creation of an investment fund to be financed
with the proceeds of privatizations in order to encourage the
participation of the private sector in infrastructure projects;
(vi) gradual increases in the prices of gasoline and electricity,
in amounts not to exceed a 4% increase in 1995; (vii) the
creation of tax benefits for workers receiving certain minimum
salaries; and (viii) a reduction of asset taxes to 1.8% (together
with other benefits relating to asset taxes).

On January 3, 1995, in response to the economic turmoil
following the devaluation of the Peso, President Zedillo
announced an emergency economic plan. The plan reiterates most
of the projections contained in the 1993-94 PECE, but modifies
the inflation projection (increased to 20%) and lowers GDP growth
target (to approximately 1%) for 1995. In addition, President
Zedillo reiterated that taxes would not be increased, Government
spending would decrease by approximately 1.3% of GDP, wages would

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<PAGE>

be allowed to increase by no more than 7% and a Fiscal Advisory
Committee would be created to examine Mexico's fiscal
legislation. It is unclear what effect, if any, these policies
will have on the Mexican economy.

CONSUMER PRICE INDEX. The following table sets forth
the changes in the Mexican consumer price index for each of the
thirteen years ended December 31, 1994.

Annual
Increases in
National Consumer
Price Index
_____________________

1981 . . . . . . . . . . . . . . . . . 28.7%
1982 . . . . . . . . . . . . . . . . . 98.9
1983 . . . . . . . . . . . . . . . . . 80.8
1984 . . . . . . . . . . . . . . . . . 59.2
1985 . . . . . . . . . . . . . . . . . 63.7
1986 . . . . . . . . . . . . . . . . . 105.7
1987 . . . . . . . . . . . . . . . . . 159.2
1988 . . . . . . . . . . . . . . . . . 51.7
1989 . . . . . . . . . . . . . . . . . 19.7
1990 . . . . . . . . . . . . . . . . . 29.9
1991 . . . . . . . . . . . . . . . . . 18.8
1992 . . . . . . . . . . . . . . . . . 11.9
1993 . . . . . . . . . . . . . . . . . 8.0
1994 . . . . . . . . . . . . . . . . . 7.1

Source: Banco de Mexico.

MEXICAN GROSS DOMESTIC PRODUCT. The following table
sets forth certain information concerning Mexico's GDP for the
years 1981 through 1993 at historical and constant prices.

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Gross Change from Prior
Gross Domestic Product Year at
Domestic Product at 1985 Prices Constant Prices
________________ _______________ _______________

(billions of Mexican Old Pesos) (percentage)

1981 . . . . 6,128 46,795 7.9%
1982 . . . . 9,798 46,538 (0.5)
1983 . . . . 17,879 44,548 (4.3)
1984 . . . . 29,472 46,195 3.7
1985 . . . . 47,392 47,392 2.6
1986 . . . . 79,191 45,613 (3.8)
1987 . . . . 193,312 46,460 1.9
1988 . . . . 390,451 47,039 1.2
1989 . . . . 507,618 48,613 3.3
1990 . . . . 686,406 50,774 4.4
1991 . . . . 865,166 52,615 3.6
1992 . . . . 1,019,156 54,010 2.6
1993 . . . . 1,122,928 54,337 0.4

Source: Banco de Mexico.

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INTEREST RATES. The following table sets forth the
average yield as of the date of issuance on 28-day and 91-day
Cetes and Tesobonos for the periods listed below:

Average Cetes and Tesobonos Rates
_________________________________

28-Day 91-Day 28-Day 91-Day
Cetes Cetes Tesobonos Tesobonos
_____ _____ _________ _________

1989:
Jan.-June ............. 51.1% 51.5% --- ---
July-Dec. ............. 38.9 38.0 --- 15.1%
1990:
Jan.-June ............. 41.2 40.7 --- ---
July-Dec. ............. 28.3 29.4 12.0% ---
1991:
Jan.-June ............. 21.2 21.7 --- ---
July-Dec. ............. 17.3 18.0 9.1 ---
1992:
Jan.-June ............. 13.8 13.8 7.5 ---
July-Dec. ............. 17.4 18.0 4.9 4.0
1993:
Jan.-June ............. 16.4 17.3 4.1 5.8
July-Dec. ............. 13.4 13.6 4.0 5.1
1994:
Jan.-Oct. ............. 14.7 15.1 7.0 6.6
November ............. 13.9 14.8 --- 7.3
December ............. 31.0 32.0 --- 10.5
1995:
January ............. 37.0 38.0 --- 25.0
February ............. 59.0 57.0 --- 17.0

Source: Banco de Mexico

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