ALLIANCE MORTGAGE STRATEGY TRUST INC, 485BPOS, 1995-10-31

ALLIANCE MORTGAGE STRATEGY TRUST INC
485BPOS, 1995-10-31

Previous: NUVEEN INSURED CALIFORNIA PREMIUM INCOME MUNICIPAL FUND INC, NSAR-B, 1995-10-31

Next: 21ST CENTURY TRUST SERIES 5, 497J, 1995-10-31

<PAGE>

As filed with the Securities and Exchange
Commission on October 31, 1995

File Nos. 33-47031
8ll-06627

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

Pre-Effective Amendment No.

Post-Effective Amendment No. 9 X

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940

Amendment No. 10 X

Alliance Mortgage Strategy Trust, Inc.
(Exact Name of Registrant as Specified in Charter)

1345 Avenue of the Americas, New York, New York 10105
(Address of Principal Executive Office) (Zip Code)

Registrant's Telephone Number,
including Area Code: (212) 969-1000

EDMUND P. BERGAN, JR.
Alliance Capital Management L.P.
1345 Avenue of the Americas
New York, New York 10105
(Name and address of agent for service)

It is proposed that this filing will become effective
(check appropriate box)

X immediately upon filing pursuant to paragraph (b)
-----
----- on (date) pursuant to paragraph (b)
----- 60 days after filing pursuant to paragraph (a)(1)
----- on (date) pursuant to paragraph (a)(1)
----- 75 days after filing pursuant to paragraph (a)(2)

<PAGE>

----- on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
----- This post-effective amendment designates a new effective
date for a previously filed post-effective
amendment.

Registrant has registered an indefinite number of shares of
Common Stock pursuant to Rule 24f-2 under the Investment Company
Act of 1940. Registrant filed a notice pursuant to such Rule for
its fiscal year ended November 30, 1994 on January 24, 1995.

<PAGE>

CROSS REFERENCE SHEET
(as required by Rule 404(c))

N-1A ITEM NO. LOCATION IN PROSPECTUS (CAPTION)

PART A

Item 1. Cover Page Cover Page

Item 2. Synopsis The Fund At a Glance

Item 3. Condensed Financial Information Financial Highlights

Item 4. General Description of Registrant Description of the
Fund; General
Information

Item 5. Management of the Fund Management of the
Fund; General
Information

Item 6. Capital Stock and Other
Securities Dividends,
Distributions and
Taxes; General
Information

Item 7. Purchase of Securities Being
Offered Purchase and Sale of
Shares; General
Information

Item 8. Redemption or Repurchase Purchase and Sale of
Shares; General
Information

Item 9. Pending Legal Proceedings Not Applicable

PART B Location in Statement
of Additional
Information

Item 10. Cover Page Cover Page

Item 11. Table of Contents Cover Page

Item 12. General Information and History Description of the
Fund; General
Information

<PAGE>

Item 13. Investment Objectives and
Policies Investment Objective,
Policies and
Restrictions

Item 14. Management of the Registrant Management of the
Fund

Item 15. Control Persons and Principal
Holders of Securities Management of the
Fund; General
Information

Item 16. Investment Advisory and
Other Services Management of the
Fund

Item 17. Brokerage Allocation and
Other Practices General Information

Item 18. Capital Stock and Other
Securities General Information

Item 19. Purchase, Redemption and Pricing
of Securities Being Offered Redemption and
Repurchase of Shares;
Net Asset Value

Item 20. Tax Status Investment Objective,
Policies and
Restrictions;
Dividends,
Distributions and
Taxes

Item 21. Underwriters General Information

Item 22. Calculation of Performance Data General Information

Item 23. Financial Statements Financial Statements;
Report of Independent
Auditors

<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

NOVEMBER 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 OF CONTENTS PAGE
- -------------------------------------------------------
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 37
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

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.

ALLIANCE
MUTUAL FUNDS WITHOUT THE MYSTERY

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

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 ADVISER 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 105 mutual funds. Since 1971, Alliance has earned
a reputation as a leader in the investment world with over $135 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.

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

ALLIANCE
MUTUAL FUNDS WITHOUT THE MYSTERY

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

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.

CLASS A SHARES CLASS B SHARES CLASS C SHARES
-------------- -------------- --------------
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
_______________________________________________________________________________

(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
- -------------------------------------------------------------- -------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SHORT-TERM U.S. GOVERNMENT CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS 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 .53% .53% .53% After 1 year $ 52 $ 47 $ 17 $ 17
12b-1 fees .30% 1.00% 1.00% After 3 years $ 73 $ 64 $ 54 $ 54
Other expenses(a) .18% .19% .18% After 5 years $ 96 $ 93 $ 93 $ 93
Total fund operating After 10 years $161 $167 $167 $202
expenses 1.01% 1.72% 1.71%

MORTGAGE STRATEGY CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C
------- ------- ------- ------- -------- --------- -------
Management fees .65% .65% .65% After 1 year $ 61 $ 57 $ 27 $ 27
12b-1 fees .30% 1.00% 1.00% After 3 years $101 $ 93 $ 83 $ 83
Other expenses After 5 years $143 $141 $141 $142
Interest expense .65% .66% .69% After 10 years $259 $266 $266 $301
Other operating expenses(a) .34% .35% .34%
Total other expenses .99% 1.01% 1.03%
Total fund operating expenses(h) 1.94% 2.66% 2.68%

MORTGAGE SECURITIES INCOME CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C
------- ------- ------- ------- -------- --------- -------
Management fees .51% .51% .51% After 1 year $ 57 $ 52 $ 22 $ 22
12b-1 fees .30% 1.00% 1.00% After 3 years $ 87 $ 78 $ 68 $ 68
Other expenses After 5 years $119 $117 $117 $116
Interest expense .43% .43% .43% After 10 years $211 $217 $217 $250
Other operating expenses(a) .23% .24% .23%
Total other expenses .66% .67% .66%
Total fund operating expenses(i) 1.47% 2.18% 2.17%
</TABLE>

PLEASE REFER TO THE FOOTNOTES ON PAGE 5.

<TABLE>
<CAPTION>
ANNUAL OPERATING EXPENSES EXAMPLES
- -------------------------------------------------------------- -------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
WORLD INCOME
Management fees(c)(after waiver) .49% After 1 year $19
12b-1 fees(c)(after waiver) .68% After 3 years $60
Other expenses(a) .73% After 5 years $103
Total fund operating expenses(c) 1.90% After 10 years $222

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 $ 55 $ 50 $ 20 $ 20
12b-1 fees .30% 1.00% 1.00% After 3 years $ 82 $ 73 $ 63 $ 62
Other expenses(a) .44% .45% .43% After 5 years $110 $108 $108 $107
Total fund operating expenses 1.29% 2.00% 1.98% After 10 years $192 $198 $198 $231

MULTI-MARKET STRATEGY CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C
------- ------- ------- ------- -------- --------- -------
Management fees .60% .60% .60% After 1 year $ 58 $ 53 $ 23 $ 23
12b-1 fees .30% 1.00% 1.00% After 3 years $ 91 $ 82 $ 72 $ 72
Other expenses After 5 years $125 $123 $123 $123
Interest expense .07% .07% .07% After 10 years $223 $230 $230 $264
Other operating expenses(a) .62% .63% .63%
Total other expenses .69% .70% .70%
Total fund operating expenses(d) 1.59% 2.30% 2.30%

NORTH AMERICAN
GOVERNMENT INCOME CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C
------- ------- ------- ------- -------- --------- -------
Management fees(e) .65% .65% .65% After 1 year $ 69 $ 64 $ 34 $ 34
12b-1 fees .30% 1.00% 1.00% After 3 years $123 $114 $104 $104
Other expenses After 5 years $179 $177 $177 $177
Interest expense 1.16% 1.15% 1.15% After 10 years $333 $338 $338 $368
Other operating expenses(a) .59% .60% .60%
Total other expenses 1.75% 1.75% 1.75%
Total fund operating expenses(f) 2.70% 3.40% 3.40%

GLOBAL DOLLAR GOVERNMENT CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C
------- ------- ------- ------- -------- --------- -------
Management fees(g) .75% .75% .75% After 1 year $ 61 $ 57 $ 27 $ 27
12b-1 fees .30% 1.00% 1.00% After 3 years $101 $ 92 $ 82 $ 82
Other expenses(a) After 5 years $142 $140 $140 $140
.88% .89% .88 After 10 years $258 $264 $264 $296
Total fund operating expenses 1.93% 2.64% 2.63%

CORPORATE BOND CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C
------- ------- ------- ------- -------- --------- -------
Management fees(h) .63% .63% .63% After 1 year $ 55 $ 50 $ 20 $ 20
12b-1 fees .30% 1.00% 1.00% After 3 years $ 80 $ 72 $ 62 $ 61
Other expenses(a) .32% .36% .32% After 5 years $108 $107 $107 $105
Total fund operating expenses 1.25% 1.99% 1.95% After 10 years $187 $195 $195 $227
</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. NET OF VOLUNTARY
(B) FEE WAIVERS AND EXPENSE REIMBURSEMENTS. ABSENT SUCH WAIVERS AND
REIMBURSEMENTS, MANAGEMENT FEES WOULD HAVE BEEN .55%, OTHER EXPENSES
WOULD HAVE BEEN 2.86% FOR CLASS A, 2.78% FOR CLASS B AND 2.68% FOR CLASS
C AND TOTAL FUND OPERATING EXPENSES WOULD HAVE BEEN 3.71% FOR CLASS A,
4.33% FOR CLASS B AND 4.23% FOR CLASS C.
(C) NET OF VOLUNTARY FEE WAIVERS. ABSENT SUCH WAIVERS, ANNUALIZED MANAGEMENT
FEES WOULD HAVE BEEN .65%, ANNUALIZED RULE 12B-1 FEES WOULD HAVE BEEN
.90% AND ANNUALIZED TOTAL FUND OPERATING EXPENSES WOULD HAVE BEEN 2.28%.
(D) EXCLUDING INTEREST EXPENSE, TOTAL FUND OPERATING EXPENSES WOULD HAVE BEEN
FOR CLASS A, 1.52%, FOR CLASS B, 2.23% AND FOR CLASS C, 2.23%.
(E) REPRESENTS .65 OF 1% OF THE AVERAGE DAILY VALUE OF THE FUND'S ADJUSTED
TOTAL NET ASSETS.
(F) EXCLUDING INTEREST EXPENSE, TOTAL FUND OPERATING EXPENSES WOULD HAVE BEEN
FOR CLASS A, 1.54%, FOR CLASS B, 2.25% AND FOR CLASS C, 2.25%.
(G) EXCLUDING INTEREST EXPENSE, TOTAL FUND OPERATING EXPENSES WOULD HAVE BEEN
FOR CLASS A, 1.29%, FOR CLASS B, 2.00%, FOR CLASS C, 1.99%.
(H) EXCLUDING INTEREST EXPENSE, TOTAL FUND OPERATING EXPENSES WOULD HAVE BEEN
FOR CLASS A, 1.04%, FOR CLASS B, 1.75%, FOR CLASS C, 1.74%

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 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.

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.

SHORT-TERM U.S. GOVERNMENT
CLASS A
Year Ended 8/31/95 $9.67 $.42 $.05 $.47 $(.41) $0.00
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
Year Ended 8/31/95 $9.78 $.36 $.04 $.40 $(.34) $0.00
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
Year Ended 8/31/95 $9.77 $.34 $.06 $.40 $(.34) $0.00
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 6/30/95 $7.84 $.64 $.13) $.77 $(.65) $0.00
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 6/30/95 $7.84 $.58 $.13 $.71 $(.59) $0.00
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 6/30/95 $7.83 $.58 $.14 $.72 $(.59) $0.00
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
Six Months Ended 6/30/95
(unaudited) $8.13 $.28 $.49 $.77 $(.30) $0.00
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
Six Months Ended 6/30/95
(unaudited) $8.13 $.28 $.46 $.74 $(.26) $0.00
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
Six Months Ended 6/30/95
(unaudited) $8.13 $.29 $.45 $.74 $(.26) $0.00
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
Six Months Ended 5/31/95
(unaudited) $9.51 $.28 $(.03) $.25 $(.27) $(.00)
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
Six Months Ended 5/31/95
(unaudited) $9.52 $.24 $(.03) $(.21) $(.23) $0.00
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
Six Months Ended 5/31/95
(unaudited) $9.52 $.25 $(.04) $.21 $(.23) $0.00
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
Six Months Ended 4/30/95
(unaudited) $1.88 $.06 $(.22) $(.16) $(.05) $0.00
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.

$(.03) $0.00 $(.37) $ 9.81 4.32% $ 6,380 2.10%(d) 3.80% 15%
(.02)(a) 0.00 (.13)(c) 9.78 .28 6,281 2.10(d) 3.22 144
(.09)(a) 0.00 (.44)(c) 9.88 .03 7,184 2.05(d) 3.12 55
0.00 0.00 (.40)(c) 10.31 7.22 1,292 1.75*(d) 3.36* 294

$(.03) $0.00 $(.37) $ 9.80 4.33% $ 5,180 2.10%(d) 3.80% 15%
(.02)(a) 0.00 (.13)(c) 9.77 .28 7,128 2.10(d) 3.26 144
(.06)(a) 0.00 (.31)(c) 9.87 (1.56) 8,763 2.10*(d) 2.60* 55

$0.00 $0.00 $(.65) $ 7.96 10.37% $ 463,660 1.01% 8.27% 190%
0.00 0.00 (.65) 7.84 (1.93) 482,595 1.02 7.76 188
0.00 0.00 (.68) 8.64 12.23 527,968 1.10 8.04 386
0.00 0.00 (.72) 8.34 13.52 492,448 1.12 8.43 418
0.00 0.00 (.83) 8.01 8.97 491,910 1.07 10.02 402
0.00 0.00 (.83) 8.14 5.99 510,675 1.09 10.35 455
0.00 0.00 (.88) 8.49 10.87 532,525 1.11 10.70 148
0.00 0.00 (.93) 8.51 6.41 529,909 1.14 10.70 149
0.00 0.00 (.98) 8.90 7.00 496,600 1.07(d) 10.36 255
0.00 0.00 (.63) 9.24 4.53 128,870 1.01*(d) 9.30* 193

$0.00 $0.00 $(.59) $ 7.96 9.52% $ 774,097 1.72% 7.57% 190%
0.00 0.00 (.59) 7.84 (2.63) 756,282 1.72 7.04 188
0.00 .00 (.62) 8.64 11.45 552,471 1.81 7.25 386
0.00 .00 (.49) 8.34 6.95 32,227 1.80* 7.40* 418

$0.00 $0.00 $(.59) $ 7.96 9.67% $ 181,948 1.71% 7.59% 190%
0.00 0.00 (.59) 7.83 (2.75) 231,859 1.70 6.97 188
0.00 .00 (.10) 8.64 2.12 67,757 1.80* 6.00* 386

$0.00 $0.00 $(.30) $ 8.60 9.54% $ 535,191 1.47%* 6.86%* 158%
0.00 (.02) (.60) 8.13 (6.14) 553,889 1.29 6.77 438
(.02) 0.00 (.69) 9.29 10.14 848,069 1.00 7.20 622
0.00 0.00 (.81) 9.08 7.73 789,898 1.18 8.56 555
0.00 0.00 (.87) 9.21 15.44 544,171 1.16 9.92 439
0.00 0.00 (.87) 8.79 11.01 495,353 1.12 10.09 393
0.00 0.00 (.97) 8.76 10.98 556,077 1.13 11.03 328
0.00 0.00 (.98) 8.81 8.64 619,572 1.11 10.80 239
0.00 0.00 (1.03) 9.03 3.49 682,650 1.15 10.79 211
0.00 0.00 (1.27) 9.74 11.18 756,730 1.00 10.86 190
0.00 0.00 (1.22) 9.97 18.35 609,566 .87 12.30 164

$0.00 $0.00 $(.26) $ 8.61 9.26% $ 850,246 2.18%* 6.15%* 158%
0.00 (.02) (.53) 8.13 (6.84) 921,418 2.00 6.05 438
(.02) 0.00 (.62) 9.29 9.38 1,454,303 1.70 6.47 622
0.00 0.00 (.68) 9.08 7.81 1,153,957 1.67* 5.92* 555

$0.00 $0.00 $(.26) $ 8.61 9.26% $ 51,991 2.17%* 6.16%* 158%
0.00 (.02) (.53) 8.13 (6.84) 58,338 1.97 6.06 438
(.01) 0.00 (.41) 9.29 4.34 91,724 1.67* 5.92* 622

$0.00 $0.00 $(.27) $ 9.49 2.64% $ 34,094 1.94%*(e) 5.53%* 197%
0.00 (.04) (.53) 9.51 1.03 43,173 1.34(e) 4.78 375
0.00 0.00 (.58) 9.94 7.02 59,215 1.54(e) 5.66 499
0.00 0.00 (.34) 9.84 1.84 24,186 1.44*(d)(e) 6.58*(d) 101

$0.00 $0.00 $(.23) $ 9.50 2.28% $ 109,749 2.66%*(e) 4.83%* 197%
0.00 (.03) (.46) 9.52 .42 136,458 2.08(e) 4.12 375
0.00 0.00 (.51) 9.94 6.27 168,157 2.26(e) 4.98 499
0.00 0.00 (.30) 9.84 1.50 149,188 2.13*(d)(e) 6.01*(d) 101

$0.00 $0.00 $(.23) $ 9.50 2.28% $92,940 2.68%*(e) 4.84%* 197%
0.00 (.03) (.46) 9.52 .42 141,838 2.04(e) 4.10 375
0.00 0.00 (.28) 9.94 2.40 228,703 1.58*(e) 3.70* 499

$0.00 $0.00 $(.05) $ 1.67 (8.60)% $ 66,180 1.90%(d) 6.39%(d) N/A
0.00 (.03) (.08) 1.88 3.27 103,310 1.70(d) 3.96(d) N/A
0.00 0.00 (.07) 1.90 3.51 149,623 1.54 (d) 5.14(d) N/A
0.00 0.00 (.09) 1.91 1.26 318,716 1.59(d) 7.21(d) N/A
0.00 0.00 (.13) 1.98 6.08 1,059,222 1.85*(d) 7.29*(d) N/A
</TABLE>

PLEASE REFER TO THE FOOTNOTES ON PAGE 12.

<TABLE>
<CAPTION>
NET NET
NET REALIZED AND INCREASE
ASSET NET UNREALIZED (DECREASE) DIVIDENDS DISTRIBUTIONS
VALUE INVESTMENT GAIN IN NET ASSET FROM NET FROM NET
BEGINNING INCOME (LOSS) ON VALUE FROM INVESTMENT REALIZED
FISCAL YEAR OR PERIOD OF PERIOD (LOSS) INVESTMENTS OPERATIONS INCOME GAINS
- --------------------- --------- ---------- ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM MULTI-MARKET
CLASS A
Six Months Ended 4/30/95
(unaudited) $8.71 $.27 $(1.18) $(.91) $(.36) $0.00
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
Six Months Ended 4/30/95
(unaudited) $8.71 $.25 $(1.18) $(.93) $(.33) $0.00
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
Six Months Ended 4/30/95
(unaudited) $8.71 $.23 $(1.16) $(.93) $(.33) $0.00
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
Six Months Ended 4/30/95
(unaudited) $8.04 $.27 $(1.22) $(.95) $(.33) $0.00
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
Six Months Ended 4/30/95
(unaudited) $8.04 $.24 $(1.21) $(.97) $(.30) $0.00
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
Six Months Ended 4/30/95
(unaudited) $8.04 $.25 $(1.23) $(.98) $(.30) $0.00
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
Six Months Ended 5/31/95
(unaudited) $ 8.13 $ .54 $(1.21) $(.67) $(.48) $0.00
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
Six Months Ended 5/31/95
(unaudited) $ 8.13 $ .51 $(1.21) $(.70) $(.45) $0.00
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
Six Months Ended 5/31/95
(unaudited) $ 8.13 $ .51 $(1.21) $(.70) $(.45) $0.00
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
Year Ended 8/31/95 $ 9.14 $ .86 $(1.10) $(.24) $(.88) $0.00
2/25/94+ to 8/31/94 10.00 .45 (.86) (.41) (.45) 0.00

CLASS B
Year Ended 8/31/95 $ 9.14 $ .80 $(1.11) $(.31) $(.81) $0.00
2/25/94+ to 8/31/94 10.00 .42 (.86) (.44) (.42) 0.00

CLASS C
Year Ended 8/31/95 $ 9.14 $ .79 $(1.10) $(.31) $(.81) $0.00
2/25/94+ to 8/31/94 10.00 .42 (.86) (.44) (.42) 0.00

CORPORATE BOND
CLASS A
Year Ended 6/30/95 $12.51 $1.19 $ .36 $1.55 $(1.14) $0.00
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

CLASS B
Year Ended 6/30/95 $12.50 $1.11 $ .36 $1.47 $(1.05) $0.00
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 6/30/95 $12.50 $1.10 $ .38 $1.48 $(1.05) $0.00
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.

<TABLE>
<CAPTION>
TOTAL RATIO OF NET
DISTRIBUTIONS INVESTMENT NET ASSETS INVESTMENT
IN EXCESS TOTAL RETURN AT END OF RATIO INCOME
OF NET RETURN DIVIDENDS NET ASSET BASED ON PERIOD OF EXPENSES (LOSS) PORTFOLIO
INVESTMENT OF AND VALUE END NET ASSET (000'S TO AVERAGE TO AVERAGE TURNOVER
NCOME CAPITAL DISTRIBUTIONS OF PERIOD VALUE (B) OMITTED) NET ASSETS NET ASSETS RATE
- -------------- -------- ------------- ---------- ---------- ------------ ------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$0.00 $0.00 $(.36) $ 7.44 (10.52)% $ 377,025 1.29%* 7.32%* 119%
0.00 (.61) (.61) 8.71 .84 593,677 1.13 7.28 109
0.00 0.00 (.60) 9.25 6.67 953,571 1.16 8.26 182
0.00 0.00 (.74) 9.25 .49 1,596,903 1.10 9.00 133
0.00 0.00 (.98) 9.94 10.91 2,199,393 1.09 9.64 146
0.00 0.00 (1.08) 9.89 13.86 1,346,035 1.18 10.81 152
0.00 0.00 (.53) 9.69 5.57 210,294 1.14* 10.83* 10
$0.00 $0.00 $(.33) $ 7.45 (10.76)% $633,287 2.00%* 6.62%* 119%
0.00 (.55) (.55) 8.71 .12 1,003,633 1.85 6.58 109
0.00 0.00 (.53) 9.25 5.91 1,742,703 1.87 7.57 182
0.00 0.00 (.67) 9.25 (.24) 2,966,071 1.81 8.28 133
0.00 0.00 (.91) 9.94 10.11 3,754,003 1.81 8.87 146
0.00 0.00 (.74) 9.89 9.07 1,950,330 1.86* 9.90* 152
$0.00 $0.00 $(.33) $ 7.45 (10.76)% $4,168 1.98%* 6.59%* 119%
0.00 (.55) (.55) 8.71 .12 8,136 1.83 6.50 109
0.00 0.00 (.26) 9.25 3.66 5,538 1.82* 7.19* 182

$0.00 $0.00 $(.33) $ 6.76 (11.83)% $ 33,998 1.59%*(f) 7.80%* 156%
0.00 (.58) (.67) 8.04 (2.64) 52,385 1.41(f) 7.17 605
0.00 0.00 (.67) 8.94 9.01 82,977 1.94(f) 9.17(g) 200
0.00 0.00 (.83) 8.85 (2.80) 141,526 2.53(f) 10.58(g) 239
0.00 0.00 (.42) 9.91 3.68 143,594 2.81*(f) 10.17*(g) 121
$0.00 $0.00 $(.30) $ 6.77 (12.09)% $ 141,783 2.30%*(f) 7.10%* 156%
0.00 (.52) (.60) 8.04 (3.35) 233,896 2.11(f) 6.44 605
0.00 0.00 (.61) 8.94 8.25 431,186 2.64(f) 8.46(g) 200
0.00 0.00 (.76) 8.85 (3.51) 701,465 3.24(f) 9.83(g) 239
0.00 0.00 (.39) 9.91 3.36 662,981 3.53*(f) 9.40*(g) 121
$0.00 $0.00 $(.30) $ 6.76 (12.22)% $856 2.30%*(f) 7.15%* 156%
0.00 (.52) (.61) 8.04 (3.34) 1,252 2.08(f) 6.10% 605%
0.00 0.00 (.30) 8.94 5.54 718 2.44*(f) 7.17*(g) 200

$0.00 $0.00 $(.48) $ 6.98 (7.18)% $ 236,421 2.70%*(f) 17.21%* 60%
0.00 (.21) (1.12) 8.13 (11.32) 303,538 1.70(f) 11.22 131
0.00 0.00 (1.10) 10.35 18.99 268,233 1.61(f) 10.77 254
0.00 0.00 (.68) 9.70 3.49 61,702 2.45*(d)(f) 10.93*(d) 86
$0.00 $0.00 $(.45) $ 6.98 (7.81)% $1,157,639 3.40%*(f) 16.44%* 60%
0.00 (.21) (1.05) 8.13 (11.89) 1,639,602 2.41(f) 10.53 131
0.00 0.00 (1.03) 10.35 18.15 1,313,591 2.31(f) 10.01 254
0.00 0.00 (.63) 9.70 3.30 216,317 3.13*(d)(f) 10.16*(d) 86
$0.00 $0.00 $(.45) $ 6.98 (7.69)% $ 232,577 3.40%*(f) 16.44%* 60%
0.00 (.21) (1.05) 8.13 (11.89) 369,714 2.39(f) 10.46 131
0.00 0.00 (.58) 10.34 9.00 310,230 2.21*(f) 9.74* 254

$0.00 $0.00 $(.88) $ 8.02 (1.48)% $ 12,020 1.93% 11.25% 301%
0.00 0.00 (.45) 9.14 (3.77) 10,995 .75*(d) 9.82* 100
$0.00 $0.00 $(.81) $ 8.02 (2.40)% $ 62,406 2.64%* 10.52% 301%
0.00 0.00 (.42) 9.14 (4.17) 47,030 1.45*(d) 9.11* 100
$0.00 $0.00 $(.81) $ 8.02 (2.36)% $ 9,330 2.63%* 10.46% 301%
0.00 0.00 (.42) 9.14 (4.16) 10,404 1.45*(d) 9.05* 100

$0.00 $0.00 $(1.14) $12.92 13.26% $ 230,750 1.24% 9.70% 387%
(.03) 0.00 (1.39) 12.51 (2.58) 219,182 1.30 7.76 372
0.00 0.00 (1.24) 14.15 29.62 216,171 1.39 9.29 579
0.00 0.00 (1.08) 12.01 17.43 60,356 1.48 8.98 610
0.00 0.00 (1.23) 11.21 9.71 62,268 1.44 9.84 357
0.00 0.00 (1.14) 11.39 3.27 68,049 1.51 10.70 480
0.00 0.00 (1.11) 12.15 12.99 52,381 1.84 9.53 104
0.00 0.00 (1.14) 11.82 6.24 37,587 1.81 9.24 98
0.00 0.00 (.81) 12.24 7.32 41,072 1.27 9.17 95
0.00 0.00 (1.20) 12.25 17.19 45,178 1.08 9.80 240
0.00 0.00 (1.26) 11.52 22.66 40,631 1.15 11.00 142
0.00 0.00 (1.26) 10.50 6.44 36,435 1.18 11.88 10
$0.00 $0.00 $(1.05) $12.92 12.54% $ 241,393 1.99% 9.07% 387%
(.01) 0.00 (1.30) 12.50 (3.27) 184,129 2.00 7.03 372
0.00 0.00 (50) 14.15 17.75 55,508 2.10* 7.18* 579
$0.00 $0.00 $(1.05) $12.93 12.62% $ 51,028 1.84% 8.95% 387%
0.00 0.00 (1.30) 12.50 (3.27) 50,860 1.99 6.98 372
0.00 0.00 (.17) 14.15 5.08 5,115 2.05* 5.51* 579
</TABLE>

PLEASE REFER TO THE FOOTNOTES ON PAGE 12.

+ 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, 2.95% (ANNUALIZED) FOR THE PERIOD ENDED AUGUST 31,
1994, 3.71% FOR THE YEAR ENDED AUGUST 31, 1995; WITH
RESPECT TO CLASS B SHARES, 4.81% (ANNUALIZED) FOR 1993, 3.21% FOR THE YEAR
ENDED APRIL 30, 1994, 3.60% (ANNUALIZED) FOR THE PERIOD ENDED AUGUST 31,
1994, 4.33% FOR THE YEAR ENDED AUGUST 31, 1995; AND WITH
RESPECT TO CLASS C SHARES, 3.10% (ANNUALIZED) FOR THE YEAR ENDED APRIL 30,
1994, 3.64% (ANNUALIZED) FOR THE PERIOD ENDED AUGUST 31, 1994, 4.23% FOR THE
YEAR ENDED AUGUST 31, 1995. 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, 2.08% FOR 1994, AND
3.36% (ANNUALIZED) FOR THE SIX MONTHS ENDED APRIL 30, 1995. 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 FOR THE PERIOD FEBRUARY 25, 1994 TO AUGUST 31, 1994, 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, 1.20%
FOR 1994, AND 1.29% (ANNUALIZED) FOR THE SIX MONTHS ENDED APRIL 30, 1995; WITH
RESPECT TO CLASS B SHARES, 2.10% (ANNUALIZED) FOR 1992, 2.07% FOR 1993, 1.91%
FOR 1994, AND 2.00% (ANNUALIZED) FOR THE SIX MONTHS ENDED APRIL 30, 1995; AND
WITH RESPECT TO CLASS C SHARES, 1.74% (ANNUALIZED) FOR 1993 AND 1.89% FOR 1994,
1.99% (ANNUALIZED) FOR THE SIX MONTHS ENDED APRIL 30, 1995.

(F) INCLUDES INTEREST EXPENSES. IF MULTI-MARKET STRATEGY HAD NOT BORNE
INTEREST EXPENSES OR LOAN FEES, 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, 1.52% (ANNUALIZED) FOR THE
SIX MONTHS ENDED APRIL 30, 1995; WITH RESPECT TO CLASS B SHARES, 2.05%
(ANNUALIZED) FOR 1991, 2.05% FOR 1992, 2.11% FOR 1993 AND 2.01% FOR 1994, 2.23%
(ANNUALIZED) FOR THE SIX MONTHS ENDED APRIL 30, 1995; AND WITH RESPECT TO CLASS
C SHARES, 2.11% (ANNUALIZED) FOR 1993 AND 1.99% FOR 1994, 2.23% (ANNUALIZED)
FOR THE SIX MONTHS ENDED APRIL 30, 1995. 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,
1.54% (ANNUALIZED) FOR THE SIX MONTHS ENDED APRIL 30, 1995; WITH RESPECT TO
CLASS B SHARES, 2.35% (ANNUALIZED) FOR 1992, 2.04% FOR 1993 AND 2.07% FOR
1994, 2.25% (ANNUALIZED) FOR THE SIX MONTHS ENDED APRIL 30, 1995; AND WITH
RESPECT TO CLASS C SHARES, 2.04% (ANNUALIZED) FOR 1993 AND 2.06% FOR 1994,
2.25% (ANNUALIZED) FOR THE SIX MONTHS ENDED APRIL 30, 1995.

(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.

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 are debt securities that 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 debt 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 Ratings Services.

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.

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 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 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 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 Multi-Market Fund may be domiciled
in a country other than the country in whose currency the instrument is
denominated. In addition, the Funds may purchase debt securities (sometimes
referred to as 'linked' securities) that are denominated in one
currency while the principal amounts of, and value of interest payments on,
such securities are determined with reference 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. 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 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,
determined by Alliance to be of equivalent quality and issued by U.S. or
foreign companies having outstanding: in the case of WORLD INCOME, triple-A
rated debt securities; in the case of MULTI-MARKET STRATEGY, high quality debt
securities; and in the case of SHORT-TERM MULTI-MARKET, high grade 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
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 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, 1995, 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 ____% in A and above, ____% in Baa or BBB, ____% in Ba or BB,
____% in B, ____% in Caa or CCC, and ____% 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 Appendix A. During the
fiscal year ended June 30, 1995, 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 ____% in A and above, ____% in Baa or BBB, ____% in Ba or BB, and ____% 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).

. 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 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 on securities. 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 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) any futures contract other than one
on fixed-income securities or based on interest rates, (ii) 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 delivered under open futures contract purchases would exceed 30% of the
value of the Fund's total assets, or (iii) options on futures contracts.

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 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 forwaPrd 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 receive interest
and principal payments on such commercial paper in the currency in which such
commercial paper is denominated, 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.

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. 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.
Mortgage-related securities bear interest at either a fixed rate or an
adjustable rate determined by reference to an index rate. Mortgage-related
securities frequently provide for monthly payments that consist of both
interest and principal, unlike more traditional debt securities which normally
do not provide for periodic repayments of principal.

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, which, as
discussed below, causes these securities to experience significantly greater
price and yield volatility than experienced by traditional fixed-income
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. In a CMO, a series of bonds or
certificates is issued in multiple classes. Each class of a CMO, often
referred to as a "tranche," is issued at a specific coupon rate and has a
stated maturity or final distribution date. Principal prepayments on
collateral underlying a CMO may cause it to be retired substantially earlier
than the stated maturities or final distribution dates. The principal and
interest on the underlying mortgages may be allocated among several classes
of a series of a CMO in many ways. In a common structure, payments of
principal, including any principal prepayments, on the underlying mortgages
are applied to the classes of the series of a CMO in the order of their
respective stated maturities or final distribution dates, so that no payment
of principal will be made on any class of a CMO until all other classes
having an earlier stated maturity or final distribution date have been paid
in full. One or more tranches of a CMO may have coupon rates that reset
periodically, or "float", at a specified increment over an index such as
LIBOR. Floating-rate CMOs may be backed by fixed or adjustable rate
mortgages. To date, fixed-rate mortgages have been more commonly utilized
for this purpose. Floating-rate CMOs are typically issued with lifetime caps
on the coupon rate thereon. These caps, similar to the caps on
adjustable-rate mortgages described below, represent a ceiling beyond which
the coupon rate on a floating-rate CMO may not be increased regardless of
increases in the interest rate index to which the floating-rate CMO is tied.
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 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);

(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 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, 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 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 or equivalent
securities in order to exercise ownership 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 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 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 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 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, 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 many 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.

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 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 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, 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:

Initial Sales Charge
as % of Commission to
Net Amount as % of Dealer/Agent as %
Amount Purchased Invested Offering Price of Offering Price
- -------------------------------- --------- -------------- -----------------
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

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
-----------------------------
First 3.0%
Second 2.0%
Third 1.0%
Thereafter None

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, to meet the
requirements of certain qualified retirement plans or pursuant to a
systematic withdrawal plan. 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 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. Eastern 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 an amount not exceeding $50,000. 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.

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 or Trustess of
the Fund.

Alliance is a leading international investment manager supervising client
accounts with assets as of September 30, 1995 totaling more than $140 billion
(of which more than $44 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 105 separate investment portfolios currently have over two million
shareholders. As of September 30, 1995, 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
- -------------------------------------------------------------------------------

Short-Term Patricia J. Young since 1995 Associated with
Government -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 1995 Alliance since
March 1992; prior
thereto, a director and
portfolio manager for
Hyperion Capital since
July 1990 and a
Vice President at
Salomon Brothers Inc.

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

Paul J. DeNoon since Associated with Alliance
January 1992- since January 1992;
Vice President prior thereto, a
Vice President at
Manufacturers
Hanover Trust

Mortgage Strategy Patricia J. Young since (see above)
inception-(see above)

Paul A. Ullman (see ablve)
since inception-
(see above)

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

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

Short-Term Douglas J. Peebles since (see above)
Multi-Market 1995-(see above)

Multi-Market Strategy Douglas J. Peebles since (see above)
inception-(see above)

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

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

Corporate Bond Wayne D. Lyski since (see above)
1987-(see above)
Paul J. DeNoon since (see above)
January 1992-(see above)

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 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 Trustees 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
- --------------------------------------------------------------------------------
Short-Term U.S. Government $ 348,789 (5.47%) $ 500,617 (9.67%)
U.S. Government $13,511,108 (1.74%) $2,224,264 (1.22%)
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 $ 1,832,297 (2.94%) $ 174,111 (1.86%)
Corporate Bond $ 5,476,418 (2.27%) $ 607,167 (1.19%)

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.

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 20th

day of each month or, if such day is not a business day, the first business day
thereafter. 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 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
On July 25, 1995; a Consolidated and Supplemental Class Action Complaint
('Complaint') styled IN RE ALLIANCE NORTH AMERICAN GOVERNMENT INCOME TRUST,
INC. SECURITIES LITIGATION was filed in the United States District Court for
the Southern District of New York against the Fund, Alliance, ACMC, AFD, The
Equitable Companies Incorporated, a parent of Alliance, certain officers of the
Fund, certain current and former directors of the Fund, certain current and
former officers of ACMC and certain directors of ACMC; alleging violations of
federal securities laws, fraud and breach of fiduciary duty in connection with
the Fund's investments in Mexican and Argentine securities. The Complaint seeks
certification of a plaintiff class of all persons who purchased or owned Class
A, B or C shares of the Fund from March 27, 1992 through December 23, 1994. The
Complaint alleges that as of the date of the Complaint, the Fund's losses
exceeded $750,000,000. The Complaint seeks as relief unspecified damages,
costs and attorneys' fees.

The principal allegations of the Complaint are that upon the advice of Alliance
the Fund purchased debt securities issued by the Mexican and Argentine
governments in amounts that were not permitted by the Fund's investment
objective, and that there was no shareholder vote to change the investment
objective to permit purchases in such amounts. The Complaint further alleges
that the decline in the value of the Mexican and Argentine securities held by
the Fund caused the Fund's net asset value to decline to the detriment of the
Fund's shareholders.
On September 26, 1995, defendants jointly filed a motion to dismiss the
Complaint in its entirety. The Fund and Alliance believe that the allegations
in the Complaint are without merit and intend to vigorously defend against
these claims.

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.

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 RATINGS SERVICES

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
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.

A-1

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

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.

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. During the last several years, Canada has experienced a weakening
of its currency. In January 1995, the Canadian Dollar fell to a nine-year low
against the U.S. dollar, decreasing in value compared to the U.S. Dollar by
approximately 25% from October 1991. From January 31, 1995, through September
29, 1995, the Canadian Dollar increased in value by approximately 5%.
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.

In 1994 Mexico faced internal and external conditions that resulted in an
economic crisis that continues to affect the Mexican economy adversely.
Growing trade and current account deficits, which could no longer be financed
by inflows of foreign capital, were factors contributing to the crisis. A
weakening economy and unsettling political and social developments caused
investors to lose confidence in the Mexican economy. This resulted in a
large decline in foreign reserves followed by a sharp and rapid devaluation
of the Mexican Peso. The ensuing economic and financial crisis resulted in
higher inflation and domestic interest rates, a contraction in real gross
domestic product and a liquidity crisis.

In response to the adverse economic conditions that developed at the end of
1994, the Mexican government instituted a new economic programs; and a new
social accord among the government, business and labor sectors of the
country was entered into in an effort to stabilize the economy and the
financial markets. To help relieve Mexico's liquidity crisis and restore
financial assistance from the United States, other countries and certain
international agencies conditioned upon the implementation and continuation
of the economic reform program.

While the Mexican economy has stabilized, it is still in a recession and
suffers from high inflation and high interest rates. 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.
The recovery of the economy will require continued economic and fiscal
discipline as well as stable political and social conditions.

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 December

B-1

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.
As a result of the economic stabilization reforms, gross domestic product has
increased and inflation has decreased.

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.

In 1991 the Argentine government enacted currency reforms, which required the
domestic currency to be fully backed by foreign exchange reserves, in an effort
to make the Argentine Peso fully convertible into the U.S. Dollar at a rate of
one to one.

The Argentine Peso has been the Argentine currency since January 1, 1992.
Since that date, the rate of exchange from the Argentine Peso to the U.S.
Dollar has remained 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

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.

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

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):

Class B Class C
Class A (CONTINGENT (ASSET-
(INITIAL DEFERRED BASED
SALES DOLLAR SALES DOLLAR SALES DOLLAR
CHARGE) AMOUNT CHARGE) AMOUNT CHARGE) AMOUNT
-------- ------- -------- ------- -------- ------
[ ]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)

to be purchased with the enclosed check or draft for $ _______________
+ NO CHECKWRITING AVAILABLE ON THESE FUNDS.

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

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

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:

_____________________________________ ________________________________________
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).

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 an 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 $50,000
per check. 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 of
Month
$_____________($50.00 MINIMUM)

Frequency: (Please select one) [ ] Monthly [ ] Bi-Monthly
[ ] Quarterly [ ] Annually
[ ] In the months circled: JFMAMJJASOND

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 next 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

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 NumberBranch Office Address
City ________________________________ State ________ Zip Code _________________
Branch Number _______________________ Branch Phone (_____)_____________________

** YOUR BANK MUST BE A MEMBER OF THE NATIONAL AUTOMATED CLEARING HOUSE
ASSOCIATION (NACHA). 50136GEN-BFApp

<PAGE>

ALLIANCE MORTGAGE
(LOGO)(R) STRATEGY TRUST, INC.

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 (as amended November 1, 1995)

_________________________________________________________________

This Statement of Additional Information is not a prospectus 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

Report of Independent Auditors and Financial
Statements

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

Appendix B (Futures Contracts and Options on
Futures Contracts and Foreign Currencies) B-1

<PAGE>

_________________________________________________________________

DESCRIPTION OF THE FUND
_________________________________________________________________

The following investment policies and restrictions
supplement, and should be read in conjunction with, the
information set forth in the Prospectus of Alliance Mortgage
Strategy Trust, Inc. (the "Fund") under the heading "Description
of the Fund." Except as otherwise indicated, investment policies
of the Fund are not designated "fundamental policies" within the
meaning of the Investment Company Act of 1940, as amended (the
"1940 Act"), and may, therefore, be changed by the Fund's Board
of Directors without a shareholder vote. However, the Fund will
not change its investment policies without contemporaneous
written notice to 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.

INVESTMENT OBJECTIVE

The Fund is a diversified, open-end management
investment company which 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. Except when the Fund assumes a temporary
defensive position, it will have at least 65% of the value of its
total assets invested in mortgage-related securities. The Fund
will only purchase mortgage- related securities that are issued
or guaranteed by the United States Government, its agencies or
instrumentalities, or are rated AAA by Standard & Poor's Ratings
Services ("S&P") or Aaa by Moody's Investors Service, Inc.
("Moody's") or, if not rated, are of equivalent investment
quality as determined by Alliance Capital Management L.P. (the
"Adviser"), the Fund's investment adviser. 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. The Fund is designed for the
investor who seeks a more consistent and less volatile net asset
value than that characteristic of a mutual fund investing
primarily in fixed-rate mortgage-related securities, and a higher
yield than that of a mutual fund investing in adjustable rate
mortgage-related securities.

The Adviser continuously monitors the ratings of
securities held by the Fund and the creditworthiness of their
issuers. For a description of the ratings used by S&P and
Moody's, see Appendix A.

<PAGE>

HOW THE FUND PURSUES ITS OBJECTIVE

In seeking to achieve its investment objective, the Fund
will invest primarily in adjustable and fixed-rate mortgage-
related securities. Adjustable rate mortgage-related securities
("adjustable rate mortgage securities" or "ARMS") have adjustable
interest rates which reset at periodic intervals. The value of
ARMS, as well as fixed-rate mortgage securities, like other debt
securities, generally varies inversely with changes in market
interest rates. However, the value of ARMS should generally be
more resistant to price swings than that of fixed-rate debt
securities because the interest rates of ARMS move with market
interest rates. Accordingly, as interest rates change, the value
of the Fund's shares should be more stable than that of funds
which invest primarily in fixed-rate mortgage-related securities
or in fixed-rate non-mortgage-related debt securities, which do
not provide for adjustment of their interest rates. See
"Adjustable Rate Mortgage Securities," below.

The Adviser seeks to provide a relatively stable net
asset value by investing the Fund's assets in a portfolio of
securities which the Adviser believes, in the aggregate, will
experience relatively low price volatility. A group of mortgage-
related securities may, in the aggregate, experience lower price
volatility if, for example, the group contains adjustable rate
securities the value of which tends to fluctuate less
significantly as compared to fixed-rate securities of comparable
maturities, and securities the value of which tends to move in
opposite directions relative to other mortgage-related securities
in response to changes in interest rates, such as the interest-
only class (as defined below) of stripped mortgage-related
securities. See "Adjustable Rate Mortgage Securities" and
"Stripped Mortgage- Related Securities," below.

The Fund believes that because of the nature of the
Fund's assets, it is not exposed to any material risk of loss as
a result of default on any securities held by the Fund. Like all
investors in interest-bearing securities, however, the Fund is
exposed to the risk that the prices of individual securities held
by it can fluctuate, in some cases significantly, in response to
changes in prevailing interest rates.

The Fund's investment policy of investing at least 65%
of the value of its total assets in mortgage-related securities
(except when in a temporary defensive posture) is deemed
fundamental and may not be changed without shareholder approval.
The Fund's other investment polices are not fundamental and,
therefore, may be changed by the Board of Directors without
shareholder approval. For this purpose (and for the purpose of
changing the Fund's investment restrictions and approving the
Fund's advisory agreement, each as more fully described below),

<PAGE>

the approval of a majority of the Fund's outstanding voting
securities means the affirmative vote of (i) 67% or more of the
shares represented at a meeting at which more than 50% of the
outstanding shares are present in person or by proxy, or (ii)
more than 50% of the outstanding shares, whichever is less.

PASS-THROUGH MORTGAGE-RELATED SECURITIES -- GENERAL. The
mortgage- related securities in which the Fund may invest provide
funds for mortgage loans made to residential home buyers. These
include securities which represent interests in pools of mortgage
loans made by lenders such as savings and loan institutions,
mortgage bankers and commercial banks. Pools of mortgage loans
are assembled for sale to investors (such as the Fund) by various
governmental, government-related and private organizations.

Interests in pools of mortgage-related securities differ
from other forms of traditional debt securities, which normally
provide for periodic payment of interest in fixed amounts with
principal payments at maturity or specified call dates. Instead,
mortgage-related securities provide a monthly payment which
consists of both interest and principal. In effect, these
payments are a "pass-through" of the monthly interest and
principal payments made by the individual borrowers on their
residential mortgage loans, net of any fees paid to the issuer or
guarantor of such securities. Additional payments result from
repayments of principal resulting from the sale of the underlying
residential property, refinancing or foreclosure, net of fees or
costs which may be incurred. Some mortgage-related securities,
such as securities issued by the Government National Mortgage
Association ("GNMA"), are described as "modified pass-through."
These securities entitle the holder to receive all interest and
principal payments owed on the mortgage pool, net of certain
fees, regardless of whether or not the mortgagors actually make
mortgage payments when due.

The investment characteristics of pass-through mortgage-
related securities differ from those of traditional fixed income
securities. The major differences include the payment of interest
and principal on the mortgage- related securities on a more
frequent schedule, as described above, and the possibility that
principal may be prepaid at any time due to prepayments on the
underlying mortgage loans or other assets. These differences can
result in significantly greater price and yield volatility than
is the case with traditional fixed income securities.

Prepayments occur when the holder of an individual
mortgage prepays the remaining principal before the mortgage's
scheduled maturity date. As a result of the pass-through of
prepayments of principal on the underlying securities, mortgage-
related securities are often subject to more rapid prepayment of
principal than their stated maturity would indicate. Prepayment

<PAGE>

rates are important because of their effect on the yield and
price of the securities. Accelerated prepayments adversely impact
yields for pass-throughs purchased at a premium (i.e., a price in
excess of principal amount) and may involve additional risk of
loss of principal because the premium may not have been fully
amortized at the time the obligation is repaid. The opposite is
true for pass-throughs purchased at a discount. The Fund may
purchase mortgage-related securities at a premium or at a
discount.

Generally, prepayments on pass-through mortgage-related
securities increase during periods of falling mortgage interest
rates and decrease during periods of rising mortgage interest
rates, although social and demographic factors and general
economic conditions may also affect the occurrence of
prepayments. Reinvestment of prepayments may occur at higher or
lower interest rates than the original investment, thus affecting
the yield of the Fund.

Since the inception of the pass-through mortgage-related
security in 1970, the market for these securities has expanded
considerably. The size of the primary issuance market and active
participation in the secondary market by securities dealers and
many types of investors makes government and government-related
pass-through pools highly liquid. Private conventional pools of
mortgages (pooled by commercial banks, savings and loans
institutions and others, with no relationship with government and
government-related entities) have also achieved broad market
acceptance and consequently an active secondary market has
emerged. However, the market for conventional pools is smaller
and less liquid than the market for the government and
government-related mortgage pools. The Fund may purchase some
mortgage- related securities through private placement, in which
case only a limited secondary market exists, and the security may
be considered illiquid and therefore subject to the investment
policy for illiquid securities described below.

GOVERNMENT AGENCY PASS-THROUGH MORTGAGE-RELATED
SECURITIES. Mortgages backing the mortgage-related securities
issued or guaranteed by the United States Government that the
Fund may invest in include, among others, conventional thirty
year fixed- rate mortgages, graduated payment mortgages, fifteen
year mortgages and adjustable-rate mortgages. All of these
mortgages can be used to create pass-through securities.
Principal and interest payments on the mortgage-related
securities are guaranteed by the United States Government to the
extent described below. Such guarantees do not extend to the
value or yield of the mortgage-related securities themselves or
of the Fund's shares of common stock.

<PAGE>

The principal governmental (i.e., backed by the full
faith and credit of the United States Government) guarantor of
mortgage-related securities is GNMA. GNMA is a wholly-owned
United States Government corporation within the Department of
Housing and Urban Development.

GNMA CERTIFICATES. Certificates of GNMA ("GNMA
Certificates") are mortgage-related securities which evidence-an
undivided interest in a pool or pools of mortgages. GNMA
Certificates that the Fund may purchase are the "modified pass-
through" type, which entitle the holder to receive timely payment
of all interest and principal payments due on the mortgage pool,
net of fees paid to the "issuer" and GNMA, regardless of whether
or not the mortgagors actually make mortgage payments when due.

The National Housing Act authorizes GNMA to guarantee
the timely payment of principal and interest on securities backed
by a pool of mortgages insured by the Federal Housing
Administration ("FHA") or guaranteed by the Veterans
Administration. The GNMA guarantee is backed by the full faith
and credit of the United States Government. GNMA is also
empowered to borrow without limitation from the U.S. Treasury if
necessary to make any payments required under its guarantee.

Prepayments of principal by mortgagors and mortgage
foreclosures will usually result in the return of the greater
part of principal investment long before the maturity of the
mortgages in the pool. Foreclosures impose no risk to principal
investment because of the GNMA guarantee, except to the extent
that the Fund has purchased the certificates above par in the
secondary market.

FNMA CERTIFICATES. FNMA was established in 1938 to
create a secondary market in mortgages insured by FHA. FNMA
issues guaranteed mortgage pass- through certificates ("FNMA
Certificates"). FNMA Certificates resemble GNMA Certificates in
that each FNMA Certificate represents a pro rata share of all
interest and principal payments made and owed on the underlying
pool. FNMA guarantees timely payment of interest and principal on
FNMA Certificates. The FNMA guarantee is not backed by the full
faith and credit of the United States Government.

Government-related (i.e., not backed by the full faith
and credit of the United States Government) guarantors include
the Federal National Mortgage Association ("FNMA") and the
Federal Home Loan Mortgage Corporation ("FHLMC"). FNMA was
established in 1938 to create a secondary market in mortgages
insured by the Federal Housing Administration (the "FHA"). FNMA
is a government- sponsored corporation owned entirely by private
stockholders. Pass-through securities issued by FNMA are
guaranteed as to timely payment of principal and interest by FNMA

<PAGE>

but are not backed by the full faith and credit of the United
States Government. FNMA Certificates resemble GNMA Certificates
in that each FNMA Certificate represents a PRO RATA share of all
interest and principal payments made and owed on the underlying
pool.

FHLMC SECURITIES. FHLMC was created in 1970 through
enactment of Title III of the Emergency Home Finance Act of 1970.
Its purpose is to promote development of a nationwide secondary
market in conventional residential mortgages.

FHLMC issues two types of pass-through mortgage-related
securities: mortgage participation certificates ("PCs") and
guaranteed mortgage certificates ("GMCs"). PCs resemble GNMA
Certificates in that each PC represents a pro rata share of all
interest and principal payments made and owed on the underlying
pool. FHLMC guarantees timely monthly payment of interest on PCs
and the ultimate payment of principal. GMCs also represent a pro
rata interest in a pool of mortgages. However, these instruments
pay interest semi-annually and return principal once a year in
guaranteed minimum payments. The FHLMC guarantee is not backed by
the full faith and credit of the United States Government.

PRIVATE PASS-THROUGH MORTGAGE-RELATED SECURITIES.
Commercial banks, savings and loan institutions, private mortgage
insurance companies, mortgage bankers and other secondary market
issuers also create pass-through pools of conventional
residential mortgage loans. Such issuers may also be the
originators of the underlying mortgage loans as well as the
guarantors of the mortgage-related securities. Pools created by
such non-governmental issuers generally offer a higher rate of
interest than government and government- related pools because
there are no direct or indirect government guarantees of payments
in the former pools. However, timely payment of interest and
principal of these pools is generally supported by various forms
of insurance or guarantees, including individual loan, title,
pool and hazard insurance. The insurance and guarantees are
issued by government entities, private insurers and the mortgage
poolers. Such insurance and guarantees and the creditworthiness
of the issuers thereof will be considered in determining whether
a mortgage-related security meets the Fund's investment quality
standards. There can be no assurance that the private insurers
can meet their obligations under the policies. The Fund may buy
mortgage-related securities without insurance or guarantees if
through an examination of the loan experience and practices of
the poolers the Adviser determines that the securities meet the
Fund's quality standards.

Although the market for such securities is becoming
increasingly liquid, securities issued by certain private

<PAGE>

organizations may not be readily marketable. See the investment
policy for illiquid securities described below.

COLLATERALIZED MORTGAGE OBLIGATIONS AND MULTI-CLASS
PASS-THROUGH SECURITIES. Mortgage-related securities in which
the Fund may invest may also include collateralized mortgage
obligations ("CMOs") and multi-class pass- through securities.
CMOs are debt obligations issued by special purpose entities that
are secured by mortgage-backed certificates, including, in many
cases, certificates issued by governmental and government-related
guarantors, including GNMA, FNMA and FHLMC, together with certain
funds and other collateral. Multi-class pass-through securities
are equity interests in a trust composed of mortgage loans or
other mortgage-related securities. Payments of principal and
interest on underlying collateral provide the funds to pay debt
service on the CMO or make scheduled distributions on the multi-
class pass-through security. CMOs and multi-class pass-through
securities (collectively CMOs unless the context indicates
otherwise) may be issued by agencies or instrumentalities of the
United States Government or by private organizations. The issuer
of a CMO may elect to be treated as a Real Estate Mortgage
Investment Conduit ("REMIC").

A CMO, one of a series of bonds or certificates, is
issued in multiple classes. Each class of CMOs, often referred to
as a "tranche," is issued at a specific coupon rate and has a
stated maturity or final distribution date. Principal prepayments
on collateral underlying a CMO may cause it to be retired
substantially earlier than the stated maturities or final
distribution dates. Interest is paid or accrues on all classes of
a CMO on a monthly, quarterly or semi-annual basis. The principal
and interest on the underlying mortgages may be allocated among
the several classes of a series of a CMO in many ways. In a
common structure, payments of principal, including any principal
prepayments, on the underlying mortgages are applied to the
classes of the series of a CMO in the order of their respective
stated maturities or final distribution dates, so that no payment
of principal will be made on any class of a CMO until all other
classes having an earlier stated maturity or final distribution
date have been paid in full.

One or more tranches of a CMO may have coupon rates
which reset periodically at a specified increment over an index
such as the London Interbank Offered Rate ("LIBOR"). These
adjustable rate tranches known as "floating rate CMOs" will be
considered as ARMS by the Fund. Floating rate CMOs may be backed
by fixed or adjustable rate mortgages. To date, fixed-rate
mortgages have been more commonly utilized for this purpose.
Floating rate CMOs are typically issued with lifetime caps on the
coupon rate thereon. These caps, similar to the caps on
adjustable rate mortgages described in "Adjustable Rate Mortgage

<PAGE>

Securities," below, represent a ceiling beyond which the coupon
rate on a floating rate CMO may not be increased regardless of
increases in the interest rate index to which the floating rate
CMO is geared.

ADJUSTABLE RATE MORTGAGE SECURITIES. Adjustable rate
mortgage securities in which the Fund may invest include (i)
pass-through securities backed by adjustable rate mortgages and
issued by GNMA, FNMA, FHLMC and by private organizations and (ii)
floating rate CMOs. The interest rates on ARMS are reset at
periodic intervals to an increment over some predetermined
interest rate index. There are two main categories of indices:
(i) those based on U.S. Treasury securities and (ii) those
derived from a calculated measure such as a cost of funds index
or a moving average of mortgage rates. Commonly utilized indices
include the one-year Treasury rate, the three-month Treasury bill
rate, the six-month Treasury bill rate, rates on longer-term
Treasury securities, the 11th District Federal Home Loan Bank
Cost of Funds Index, the National Median Cost of Funds, the one-
month or three-month LIBOR, the prime rate of a specific bank or
commercial paper rates. Some indices, such as the one-year
Treasury rate, closely mirror changes in market interest rate
levels. Others, such as the 11th District Home Loan Bank Cost of
Funds Index (often related to ARMS issued by FNMA), tend to lag
changes in market rate levels and tend to be somewhat less
volatile. The Adviser will seek to diversify the Fund's
investments in ARMS among a variety of indices and reset periods
so that the Fund is not at any one time unduly exposed to the
risk of interest rate fluctuations. In selecting a type of ARMS
for investment, the Adviser will also consider the liquidity of
the market for such ARMS.

The underlying adjustable rate mortgages which back ARMS
in which the Fund may invest will frequently have caps and floors
which limit the maximum amount by which the loan rate to the
residential borrower may change up or down (i) per reset or
adjustment interval and (ii) over the life of the loan. Some
residential adjustable rate mortgage loans restrict periodic
adjustments by limiting changes in the borrower's monthly
principal and interest payments rather than limiting interest
rate changes. These payment caps may result in negative
amortization, i.e., an increase in the balance of the mortgage
loan. ARMS in which the Fund may invest may also be backed by
fixed-rate mortgages. Such ARMS, known as floating rate CMOs (as
described above), generally have lifetime caps on the coupon
rates. To the extent that interest rates rise faster than the
allowable caps on ARMS, such ARMS will behave more like
securities backed by fixed-rate mortgages than by adjustable rate
mortgage loans. Consequently, interest rate increases in excess
of caps can be expected to cause ARMS to behave more like
traditional debt securities than adjustable rate securities and,

<PAGE>

accordingly, to decline in value to a greater extent than would
be the case in the absence of such caps.

As noted above, because the interest rates on ARMS are
adjusted in response to changing interest rates, fluctuations in
prices of ARMS due to changes in interest rates will be less than
in the case of traditional debt securities. The adjustable rate
feature of ARMS will not, however, eliminate such price
fluctuations, particularly during periods of extreme fluctuations
in interest rates. Also, since many adjustable rate mortgages
only reset on an annual basis, it can be expected that the prices
of ARMS will 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.

ARMS, like other mortgage-related securities, differ
from conventional bonds in that principal is to be paid back over
the life of ARMS rather than at maturity. As a result, the holder
of the ARMS (i.e., the Fund) receives monthly scheduled payments
of principal and interest and may receive unscheduled principal
payments representing prepayments on the underlying mortgages.
When the holder reinvests the payments and any unscheduled
prepayments it receives, it may receive a rate of interest on the
reinvestment which is lower than the rate on the existing ARMS.
For this reason, ARMS are less effective than longer-term debt
securities as a means of "locking in" longer-term interest rates.

ARMS, while having less risk of price decline during
periods of rapidly rising rates than certain fixed-rate mortgage-
related securities of comparable maturities, will have less
potential for capital appreciation than such securities. In
addition, to the extent ARMS are purchased at a premium, mortgage
foreclosures and unscheduled principal prepayments will result in
some loss of the holders' principal investment to the extent of
the premium paid. On the other hand, if ARMS are purchased at a
discount, an unscheduled prepayment of principal will increase
total return and accelerate the recognition of income to the Fund
and, as a result, will increase the amount of income received by
shareholders to the extent that the Fund distributes such income.
For a discussion of the tax treatment of the distribution of
income to shareholders, see "Dividends, Distributions and Taxes."

STRIPPED MORTGAGE-RELATED SECURITIES. Stripped
mortgage-related securities ("SMRS") are derivative multi-class
mortgage-related securities. SMRS may be issued by the United
States Government, its agencies or instrumentalities, or by
private originators of, or investors in, mortgage loans,
including savings and loan associations, mortgage banks,
commercial banks, investment banks and special purpose
subsidiaries of the foregoing.

<PAGE>

SMRS are usually structured with two classes that
receive different proportions of the interest and principal
distributions on a pool of GNMA, FNMA or FHLMC certificates,
whole loans or private pass-through mortgage- related securities
("Mortgage Assets"). A common type of SMRS will have one class
receiving some of the interest and most of the principal from the
Mortgage Assets, while the other class will receive most of the
interest and the remainder of the principal. In the most extreme
case, one class will receive all of the interest (the interest-
only or "IO" class), while the other class will receive all of
the principal (the principal-only or "PO" class). The yield to
maturity on an IO class is extremely sensitive to the rate of
principal payments (including prepayments) on the related
underlying Mortgage Assets, and a rapid rate of principal
prepayments may have a material adverse effect on the yield to
maturity of the IO class. The rate of principal prepayment will
change as the general level of interest rates fluctuates. If the
underlying Mortgage Assets experience greater than anticipated
principal prepayments, the Fund may fail to fully recoup its
initial investment in these securities, even if the securities
are rated AAA by S&P or Aaa by Moody's. Due to their structure
and underlying cash flows, SMRS may be more volatile than
mortgage-related securities that are not stripped.

Although SMRS 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. The
staff of the Securities and Exchange Commission (the
"Commission") currently considers certain SMRS, other than fixed
IO and PO class SMRS issued by the United States Government, its
agencies or instrumentalities, to be illiquid securities. The
Fund will treat such securities as illiquid so long as the staff
maintains that position. Fixed IO and PO class SMRS issued by the
United States Government, its agencies or instrumentalities will
be treated as liquid provided they are so determined by, or under
procedures approved by, the Board of Directors.

HIGH COUPON FIXED-RATE MORTGAGE-RELATED SECURITIES. High
coupon fixed- rate mortgage-related securities provide the holder
with a stated rate of interest ("coupon rate") that is higher at
the time of purchase than the then prevailing market rate yield.
Such securities are purchased at a price greater than par since
the coupon rate is higher than the market rate. The Fund believes
that high coupon fixed-rate mortgage-related securities that have
been outstanding for a period of time sufficient to establish
their payment and prepayment experience offer greater price
stability than other mortgage- related securities. Their prices
do not tend to rise as rapidly as those of traditional fixed-rate
securities in declining interest rate environments and tend to

<PAGE>

decline more slowly in increasing interest rate environments. If
the Fund purchases such mortgage-related securities at a premium,
a prepayment rate that is faster than expected will reduce both
market value and income from that which was anticipated, while a
prepayment rate that is slower than expected will have the
opposite effect of increasing income and market value.

TYPES OF CREDIT SUPPORT. To lessen the effect of
failures by obligors on underlying mortgages to make payments,
mortgage-related securities may contain credit support. Such
credit support falls into two categories: (i) liquidity
protection and (ii) protection against losses resulting from
ultimate default by an obligor on underlying assets. Liquidity
protection refers to the provision of advances, generally by the
entity administering the pool of assets, to ensure that the pass-
through of payments due on the underlying pool occurs in a timely
fashion. Protection against losses resulting from ultimate
default enhances the likelihood of ultimate payment of the
obligations on at least a portion of the assets in the pool. The
protections may be provided through guarantees, insurance
policies or letters of credit obtained by the issuer or sponsor
from third parties, through various means of structuring the
transaction or through a combination of these approaches. The
Fund will not pay any additional fees for such credit support,
although the existence of credit support may increase the price
of a security.

The ratings of securities for which third-party credit
enhancement provides liquidity protection or protection against
losses from default are generally dependent upon the continued
creditworthiness of the enhancement provider. The ratings of such
securities could be subject to reduction in the event of
deterioration in the credit-worthiness of the enhancement
provider even in cases where the delinquency and loss experience
on the underlying pool of assets is better than expected.

Examples of credit support arising out of the structure
of the transaction include "senior-subordinated securities"
(multiple class securities with one or more classes subordinate
to other classes as to the payment of principal thereof and
interest thereon, with the result that defaults on the underlying
assets are borne first by the holders of the subordinated class),
creation of "reserve funds" (where cash or investments, sometimes
funded from a portion of the payments on the underlying assets,
are held in reserve against future losses) and "over-
collateralization" (where the scheduled payments on, or the
principal amount of, the underlying assets exceed those expected
to be required to make payment on the securities and pay any
servicing or other fees). The degree of credit support provided
for each issue is generally based on historical information with
respect to the level of credit risk associated with the

<PAGE>

underlying assets. Other information which may be considered
includes demographic factors, loan underwriting practices and
general market and economic conditions. Delinquency or loss in
excess of that which is anticipated could adversely affect the
return on an investment in such a security.

FOREIGN MORTGAGE-RELATED SECURITIES. The Fund may invest
up to 15% of the value of its total assets in mortgage-related
securities denominated in the U.S. Dollar or foreign currencies
that (i) are issued or guaranteed by foreign governments or their
political subdivisions, authorities, agencies or
instrumentalities and rated AAA by S&P or Aaa by Moody's or, if
not rated, are of equivalent investment quality as determined by
the Adviser and (ii) are issued by non-governmental issuers
located in foreign countries and rated AAA by S&P or Aaa by
Moody's. The percentage of the Fund's assets invested in foreign
mortgage-related securities will vary depending on the relative
yields of such securities, the economies, financial markets, and
interest rate climates of the countries in which the investments
are made and the relationship of such countries' currencies to
the U.S. Dollar. The Fund's 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.

Investors should be aware that there are risks
associated with investment by the Fund in foreign securities.
Foreign securities investments are affected by changes in
currency rates or exchange control regulations as well as by
changes in governmental administration, economic or monetary
policy (in the United States or abroad) and changed circumstances
in dealings between nations. Currency exchange rate movements
will increase or reduce the U.S. Dollar value of the Fund's net
assets and income attributable to foreign securities. Costs are
incurred in connection with the purchase or sale of foreign
mortgage-related securities by the Fund. There may be less
publicly available information about foreign issuers than about
domestic issuers, and foreign issuers may not be subject to
accounting, auditing and financial reporting standards and
requirements comparable to those of domestic issuers. Securities
of some foreign issuers are less liquid and more volatile than
securities of comparable domestic issuers, and foreign brokerage
commissions are generally higher than in the United States.
Foreign securities markets may be less liquid, more volatile and
less subject to governmental supervision than in the United
States. Investments in foreign countries could be affected by
other factors not present in the United States, including
expropriation, confiscatory taxation and potential difficulties
in enforcing contractual obligations.

DIRECT INVESTMENT IN MORTGAGES. The Fund may invest up
to 10% of the value of its total assets directly in mortgages

<PAGE>

securing residential real estate (i.e., the Fund becomes the
mortgagee). Such investments are not "mortgage-related
securities" as described above. They are normally available from
lending institutions which group together a number of mortgages
for resale (usually from 10 to 50 mortgages) and which act as
servicing agent for the purchaser with respect to, among other
things, the receipt of principal and interest payments. (Such
investments are also referred to as "whole loans.") The vendor
of such mortgages receives a fee from the Fund for acting as
servicing agent. The vendor does not provide any insurance or
guarantees covering the repayment of principal or interest on the
mortgages. Unlike pass- through securities, whole loans
constitute direct investments in mortgages inasmuch as the Fund,
rather than a financial intermediary, becomes the mortgagee with
respect to such loans purchased by the Fund. At present, such
investments are considered to be illiquid by the Adviser. The
Fund will invest in such mortgages only if the Adviser has
determined through an examination of the mortgage loans and their
originators (which may include an examination of such factors as
{percentage of family income dedicated to loan service and
relationship between loan value and market value) that the
purchase of the mortgages should not present a significant risk
of loss to the Fund. The Fund has no present intention of making
any direct investments in mortgages.

OTHER SECURITIES--GENERAL. The Fund may invest up to
35% of the value of its total assets in (i) securities backed by
assets such as automobile or credit card receivables or home
equity loans ("asset-backed securities" described below) rated
AAA by S&P or Aaa by Moody's or, if not rated, of equivalent
investment quality as determined by the Adviser, (ii) non-
mortgage- related securities issued or guaranteed by the United
States Government, its agencies and instrumentalities, including
certain "zero coupon" Treasury securities, described below, (iii)
"zero coupon" Treasury securities issued by private corporate
issuers, described below, (iv) 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, (v) commercial paper of
prime quality rated A-1 by S&P or Prime-1 by Moody's or, if not
rated, issued by companies which have an outstanding debt issue
rated AAA by S&P or Aaa by Moody's and (vi) debt securities
which, although not mortgage-related securities, are secured by
mortgages on commercial real estate or residential rental
properties, provided such securities are rated AAA by S&P or Aaa
by Moody's or, if not rated, are of equivalent investment quality
as determined by the Adviser; such securities may entitle the
holder to participate in income derived from the mortgaged
properties or from sales thereof. When business or financial
conditions warrant, the Fund may take a temporary defensive
position and invest without limit in the foregoing securities.

<PAGE>

ASSET-BACKED SECURITIES. The securitization techniques
used to develop mortgage-related securities are now being applied
to a broad range of assets. Through the use of trusts and special
purpose corporations, various types of assets, primarily
automobile and credit card receivables and home equity loans, are
being securitized in pass-through structures similar to the
mortgage pass-through structures described above or in a pay-
through structure similar to the CMO structure.

In general, the collateral supporting asset-backed
securities is of shorter maturity than mortgage loans and is less
likely to experience unexpected levels of prepayments. As with
mortgage-related securities, asset- backed securities are often
backed by a pool of assets representing the obligations of a
number of different parties and use similar credit enhancement
techniques.

Asset-backed securities do not have the benefit of the
same security interest in the related collateral as do mortgage-
related securities. Credit card receivables are generally
unsecured 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. Most issuers
of automobile receivables permit the servicers to retain
possession of the underlying obligations. If the servicer were to
sell these obligations to another party, there is a risk that the
purchaser would acquire an interest superior to that of the
holders of the related automobile receivables. In addition,
because of the large number of vehicles involved in a typical
issuance and the technical requirements of state laws, the
trustee for the holders of the automobile receivables may not
have a perfected security interest in all of the obligations
backing such receivables. Therefore, there is the possibility
that recoveries on repossessed collateral may not, in some cases,
be available to support payments on these securities.

"ZERO COUPON" TREASURY SECURITIES. The Fund may invest
in "zero coupon" Treasury securities, which are U.S. Treasury
bills issued without interest coupons, U.S. Treasury notes and
bonds which have been stripped of their unmatured interest
coupons, and receipts or certificates representing interests in
such stripped debt obligations and coupons. A zero coupon
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 will be subject to greater
fluctuations of market value in response to changing interest
rates than debt obligations of comparable maturities which make

<PAGE>

current distributions of interest. On the other hand, because
there are no periodic interest payments to be reinvested prior to
maturity, zero coupon securities eliminate reinvestment risk and
lock in a rate of return to maturity. Current federal tax law
requires that a holder (such as the 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 Fund receives
no interest payment in cash on the security during the year. For
additional discussion of the tax treatment of "zero coupon"
Treasury securities, see "Dividends, Distributions and Taxes--
United States Federal Income Taxation of the Fund--Zero Coupon
Treasury Securities."

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 ("corpus") 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 the Fund's categorization of U.S. Government
Securities (as defined below in "Certain Fundamental Investment
Policies"). The Fund disagrees with the staff's position but will
not treat such securities as U.S. Government Securities until
final resolution of the issue.

NEW INSTRUMENTS. 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 and marketed from time to time. Consistent with the
Fund's investment objective, policies and quality standards, the
Adviser will consider investing in such new types of securities.

ADDITIONAL INVESTMENT POLICIES AND PRACTICES

The following additional investment policies supplement
those set forth above.

FUTURES CONTRACTS AND OPTIONS THEREON. The Fund may
enter into contracts for the purchase or sale for future delivery
of fixed-income securities or foreign securities, or contracts
based on financial indices including any index of (i) securities

<PAGE>

issued or guaranteed by the United States Government, its
agencies or instrumentalities or (ii) 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
securities 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 securities
or foreign securities 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 and
the price at which the contract was originally struck. 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.

The successful use of such instruments 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 rate movements correctly.
Should interest or exchange rates move in an unexpected manner,
the Fund may not achieve the anticipated benefits of futures
contracts or options on futures contracts or may realize losses
and thus will be in a worse position than if such strategies had
not been used. In addition to the correlation between movements
in the price of futures contracts or options on futures contracts
and movements in the price of the securities hedged or used for
cover will not be perfect and could produce unanticipated losses.

The Board of Directors has adopted the requirement that
futures contracts and options on futures contracts only be used
as a hedge and not for speculation. In addition to this
requirement, the Board of Directors has also adopted two
percentage restrictions on the use of futures contracts: (i) the
aggregate of 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, or (ii) 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. Neither of these
restrictions will be changed by the Fund's Board of Directors

<PAGE>

without considering the policies and concerns of the various
applicable federal and state regulatory agencies.

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

FORWARD COMMITMENTS. The Fund may enter into forward
commitments for the purchase or sale of securities. Such
transactions may include 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, i.e., a "when, as
and if issued" trade.

When forward commitment transactions are negotiated, the
price, which is generally expressed in yield terms, is fixed at
the time the commitment is made, but delivery and payment for the
securities take place at a later date, normally within two months
after the transaction, although delayed settlements beyond two
months may be negotiated. Securities purchased or sold under a
forward commitment are subject to market fluctuation, and no
interest accrues to the purchaser prior to the settlement date.
At the time the Fund enters into a forward commitment, it will
record the transaction and thereafter reflect 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 of a "when, as and if
issued" security would be cancelled in the event that the
required condition did not occur and the trade was cancelled.

The use of forward commitments enables the Fund to
protect against anticipated changes in interest rates and prices.
For instance, in periods of rising interest rates and falling
bond prices, the 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, the 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. However, if the Adviser were to
forecast incorrectly the direction of interest rate movements,
the Fund might be required to complete such when-issued or
forward transactions at prices less favorable than current market
values. No forward commitments will be made by the Fund if, as a
result, the Fund's aggregate commitments under such transactions
would be more than 30% of the then current value of the Fund's
total assets.

The Fund's right to receive or deliver a security under
a forward commitment may be sold prior to the settlement date,

<PAGE>

but the Fund will enter into forward commitments only with the
intention of actually receiving or delivering the securities, as
the case may be. To facilitate such transactions, the Fund's
custodian will maintain, in the separate account of the Fund,
cash or high-quality liquid debt securities having value equal
to, or greater than, any commitments to purchase securities on a
forward commitment basis and, with respect to forward commitments
to sell portfolio securities of the Fund, the portfolio
securities themselves. If the Fund, however, chooses to dispose
of the right to receive or deliver a security subject to a
forward commitment prior to the settlement date of the
transaction, it can incur a gain or loss. In the event the other
party to a forward commitment transaction were to default, the
Fund might lose the opportunity to invest money at favorable
rates or to dispose of securities at favorable prices.

INTEREST RATE TRANSACTIONS. The Fund may, without limit,
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 in a speculative manner. 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 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 the interest rate cap. The purchase of an
interest rate floor entitles the purchaser, to the extent that a
specified index falls below a predetermined interest rate, to
receive payments of interest on a contractually-based principal
amount from the party selling the 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 debt 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 will maintain a segregated account in

<PAGE>

the full amount accrued on a daily basis of the Fund's
obligations with respect to the swap. The Fund will not enter
into any 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. The Adviser
will monitor the creditworthiness of counterparties on an ongoing
basis. If there were a default by such a counterparty, the Fund
would have contractual remedies. 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 yet 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 the 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 the 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.

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 all over.

EURODOLLAR INSTRUMENTS. The Fund may invest in
Eurodollar instruments for hedging purposes. Eurodollar
instruments are essentially U.S. dollar- denominated futures
contracts or options thereon that are linked to the LIBOR.
Eurodollar futures contracts enable purchasers to obtain a fixed-
rate for the lending of funds and sellers to obtain a fixed-rate

<PAGE>

for borrowings. The Fund intends to use Eurodollar futures
contracts and options thereon to hedge against changes in the
LIBOR to which many short-term borrowings and floating rate
securities are linked. Eurodollar instruments are subject to the
same limitations and risks as other futures contracts and options
thereon as described above and below and in the Fund's Statement
of Additional Information.

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. Options on foreign currencies to be written or
purchased by the Fund are traded on U.S. and foreign exchanges or
over-the-counter. As in the case of other kinds of options, the
writing of an option on a foreign currency constitutes only a
partial hedge, up to the amount of the premium received. The Fund
must offset an exchange-traded option which it has written
through a closing purchase transaction. 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. The
Fund must offset an exchange-traded option which it has purchased
by entering into a closing sale transaction. In connection with
options written or purchased by the Fund over-the-counter, the
Fund can only look to the counter-party for purposes of offset.
There is no specific percentage limitation on the Fund's
investments in options on foreign currencies.

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

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, interest rate
transactions or forward commitment 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
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 values of the securities and currencies hedged will not be
perfect and could produce unanticipated losses.

<PAGE>

The Fund's ability to dispose of its position in futures
contracts, options, interest rate transaction and forward
commitment contracts will depend on the availability of liquid
markets in such instruments. Markets for these vehicles with
respect to a number of fixed-income securities and currencies are
relatively new and still developing. If, for example, a secondary
market did 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 portfolio
securities covering an option written by the Fund until the
option expired or it delivered the underlying currency or futures
contract upon exercise. 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 futures transactions may be limited by tax
considerations. See "Dividends, Distributions and Taxes."

REPURCHASE AGREEMENTS. The Fund may enter into
"repurchase agreements," pertaining to the types of securities in
which it invests, 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 (as defined below).
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. 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 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 securities which are the subject of the 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.

REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS. The
Fund may also use reverse repurchase agreements and dollar rolls.

<PAGE>

Reverse repurchase agreements involve sales by the Fund of
portfolio assets concurrently with an agreement by the Fund to
repurchase the same assets at a later date at a fixed price.
Generally, the effect of such a transaction is that the 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 the Fund of the reverse
repurchase transaction is less than the cost of obtaining the
cash otherwise.

The Fund may enter into dollar rolls in which the Fund
sells securities for delivery in the current month and
simultaneously contracts to repurchase substantially similar
securities on a specified future date. During the roll period,
the Fund foregoes principal and interest paid on the securities.
The Fund is compensated by the difference between the current
sales price and the lower forward price for the future purchase
as well as by the interest earned on the cash proceeds of the
initial sale.

The Fund will establish a segregated account in which it
will maintain cash or high-quality liquid debt securities equal
in value to its obligations in respect of reverse repurchase
agreements and dollar rolls. Reverse repurchase agreements and
dollar rolls involve the risk that the market value of the
securities the 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, the 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 Fund.
Under the requirements of the Investment Company Act of 1940 (the
"1940 Act"), the Fund is required to maintain an asset coverage
(including the proceeds of the borrowings) of at least 300% of
all borrowings. However, under normal circumstances, the Fund
does not expect to engage in reverse repurchase agreements and
dollar rolls with respect to greater than 50% of the Fund's total
assets.

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 (as defined below), its agencies or instrumentalities
or bank letters of credit equal to at least 100% of the market

<PAGE>

value of the securities loaned are 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 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
either the Fund or the Adviser. The Board of Directors will
monitor the Fund's lending of portfolio securities.

ILLIQUID SECURITIES. The Fund has adopted the following
investment policy which may be changed by the vote of the Board
of Directors. The Fund will not maintain more than 15% of the
Fund's net assets (taken at market value) in illiquid securities.
For this purpose, illiquid securities include, among others, (i)
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), (ii) options
purchased by the Fund over-the-counter and the cover for options
written by the Fund over-the-counter, and (iii) repurchase
agreements not terminable within seven days. Securities eligible
for resale under Rule 144A under the Securities Act of 1933, as
amended, that have legal or contractual restrictions on resale
but have a readily available market are not deemed illiquid for
purposes of this limitation. The Adviser will monitor the
liquidity of such securities under the supervision of the Board
of Directors of the Fund.

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 (the "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 delays on

<PAGE>

resale and uncertainty in valuation. Limitations on 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 bonds 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.

During the coming year, the Fund may invest up to 5% of
its net assets (taken at market value) 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; 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

<PAGE>

in the Fund's portfolio. In reaching liquidity decisions, the
Adviser will consider, inter alia, the following factors: (i) the
frequency of trades and quotes for the security; (ii) the number
of dealers making quotations to purchase or sell the security;
(iii) the number of other potential purchasers of the security;
(iv) the number of dealers undertaking to make a market in the
security; (v) 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 (vi) any applicable Commission interpretation or position
with respect to such type of securities.

PORTFOLIO TURNOVER

The investment activities described above are likely to
result in the Fund engaging in a considerable amount of trading
of securities held for less than one year. Accordingly, it can be
expected that the Fund will have a higher turnover rate, and,
thus, a higher incidence of short-term capital gains taxable as
ordinary income, than might be expected from investment companies
which invest substantially all of their funds on a long-term
basis. For the fiscal years ended November 30, 1993, November 30,
1994 and the period ended May 31, 1995 the portfolio turnover
rates of the securities of the Fund were 499%, 375%, and 197%,
respectively. Management anticipates that the annual turnover
in the Fund will not exceed 500%. An annual turnover rate of 500%
occurs, for example, when all the securities in the Fund's
portfolio are replaced five times in a period of one year. A
higher rate of portfolio turnover involves correspondingly
greater expenses than a lower rate, which expenses must be borne
by the Fund and its shareholders. 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 a vote
of a majority of the Fund's outstanding voting securities which
means the vote of (1)467% or more of the shares represented at a
meeting at which more than 50% of the outstanding shares of the
Fund are represented or (2) more than 50% of the outstanding
shares of the Fund, whichever is less.

The Fund may not:

1. Make loans except through (i) the purchase of debt
obligations in accordance with its investment objective and
policies; (ii) the lending of portfolio securities; and (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 exercising
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;

6. (i) Purchase or sell real estate, except that it
may invest in mortgage-related securities and whole loans and
purchase and sell securities of companies which deal in real
estate or interests therein; (ii) purchase or sell commodities or
commodities contracts, except that it may invest in futures
contracts and options on futures contracts and contracts for the
future acquisition or delivery of fixed-income securities; (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 are 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 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
securities issued or guaranteed by the United States Government,
its agencies or instrumentalities ("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)

<PAGE>

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.

In addition to the restrictions set forth above, in
connection with the qualification of its shares for sale in
certain states, the Fund may not 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. 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 (the
"Exchange") or the American Stock Exchange. Warrants acquired by
the Fund in units or attached to securities may be deemed to be
without value. The Fund also undertakes that it will not purchase
illiquid securities if immediately after such investment more
than 10% of the Fund's net assets (taken at market value) would
be invested in such securities and that it will not purchase the
securities of any company that has a record of less than three
years of continuous operation (including that of 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.

Whenever any investment policy or restriction states a
minimum or maximum percentage of the Fund's assets which may be
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.

<PAGE>

_________________________________________________________________

MANAGEMENT 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
September 30, 1995 totaling over $140 billion (of which more than
$44 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 September 30,
1995, 29 of the FORTUNE 100 companies. As of that date, the
Adviser and its subsidiaries employed approximately 1,350
employees who operated out of domestic offices and the overseas
offices of subsidiaries in Bombay, Istanbul, London, Sydney,
Tokyo, Toronto, Bahrain, Luxembourg and Singapore. The 51
registered investment companies managed by the Adviser comprising
105 separate investment portfolios currently more than two
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 June 30, 1995,
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 June 30,
1995, approximately 33% and 8% 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

<PAGE>

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 voting 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% of the voting
power), and 26.5% of the voting 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 voting shares (representing
65.8% of the voting power) of AXA. In addition, certain
subsidiaries of 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.

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 sold, there may be an adverse effect
on price. 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.

Under the Advisory Agreement, 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,

<PAGE>

management supervision and assistance and office facilities and
provides persons satisfactory to the Fund's Board of Directors to
serve as the Fund's officers.

The Advisory Agreement is terminable without penalty 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 on 60 days'
written notice, 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.

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", as defined in
the 1940 Act, of any such party) at a meeting called for the
purpose held on April 29, 1992, and by the Fund's initial
shareholder of the Fund on April 29, 1992.

The Advisory Agreement continues in force for successive
twelve-month periods (computed from each December 1), provided
that such continuance is specifically approved at least annually
by the Fund's Directors or by a majority vote of the holders of
the outstanding voting securities of the Fund, and, in either
case, by a majority of the Directors who are not parties to the
Advisory Agreement or interested persons, as defined in the 1940
Act, of any such party. Most recently, the continuance of the
Advisory Agreement until November 30, 1996 was approved by a
vote, cast in person, of the Directors, including a majority of
the Directors who are not parties to the Advisory Agreement or
interested persons of any such party, at a meeting called for
that purpose and held on September 12, 1995. The Advisory
Agreement may be terminated without penalty on 60 days' written
notice at the option of either party or by a vote of the
shareholders; it will automatically terminate in the event of
assignment. The Adviser is not liable for any action or inaction
in regard to its obligations under the Advisory Agreement as long
as it does not exhibit willful misfeasance, bad faith, gross
negligence, or reckless disregard of its obligations.

For the services rendered by the Adviser under the
Advisory Agreement, the Fund pays the Adviser at an annual rate

<PAGE>

of .65 of 1% of the Fund's average net assets. For the fiscal
years ended November 30, 1994 and November 30, 1993 and for the
fiscal period June 1, 1992 (commencement of operations) to
November 30, 1992, the Adviser received from the Fund advisory
fees in the amounts of $3,005,558, $1,704,432 and $217,753,
respectively.

The Adviser may act as an investment adviser to other
persons, firms or corporations, including investment companies,
and is investment adviser to ACM Institutional Reserves, Inc.,
AFD Exchange Reserves, Inc., 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 Fund, Alliance Global Dollar Government Fund,
Inc., Alliance Global Small Cap Fund, Inc., Alliance Government
Reserves, Alliance Growth and Income Fund, Inc., Alliance
International Fund, Alliance Money Market 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 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 Variable
Products Series Fund, Inc., Alliance World Income Trust, Inc.,
Alliance Worldwide Privatization Fund, Inc., The Alliance
Portfolios, Fiduciary Management Associates and The Hudson River
Trust, all registered open-end investment companies; and to ACM
Government Income Fund, Inc., ACM Government Securities Fund,
Inc., ACM Government Spectrum Fund, Inc., ACM Government
Opportunity Fund, Inc., ACM Managed Income Fund, Inc., ACM
Managed Dollar Income Fund, Inc., ACM Municipal Securities Income
Fund,Inc., Alliance All-Market Advantage Fund, Inc., Alliance
Global Environment Fund, Inc., Alliance World Dollar Government
Fund, Inc., Alliance World Dollar Government Fund II, Inc., The
Austria Fund, Inc., The Global Privatization Fund, Inc., The
Korean Investment Fund, Inc., The Southern Africa Fund, Inc. and
The Spain Fund, Inc., all registered closed-end investment
companies.

DIRECTORS AND OFFICERS

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

<PAGE>

DIRECTORS

JOHN D. CARIFA*, 50, Chairman of the Board of Directors
and President of the Fund; he is also the President and Chief
Operating Officer and a Director of 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 P.O. Box 4653,
Stamford, Connecticut 06903.

DAVID H. DIEVLER, 66, was formerly Chairman of the Board
of Directors and President of the Fund, and a Senior Vice
President of ACMC with which he had been associated since prior
to 1990 through 1994. He is currently an independent consultant.
His address is P.O. Box 167, Spring Lake, New Jersey 07762.

JOHN H. DOBKIN, 53, has been President of Historic
Hudson Valley (historic preservation) since 1990. Previously, he
was Director of the National Academy of Design. From 1987 to
1992, he was a Director of ACMC. His address is Historic Hudson
Valley, 105 White Plains Rd., Tarrytown, New York, New York
10591.

WILLIAM H. FOULK, JR., 63, was formerly a Senior Manager
of Barrett Associates, Inc., a registered investment adviser,
since prior to 1990. His address is 2 Hekma Road, Greenwich,
Connecticut 06831.

DR. JAMES M. HESTER, 71, 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, 56, is a partner in the law firm of
Cahill Gordon & Reindel with which he has been associated since
prior to 1990. He is also Chief Executive Officer of Wenonah
Development Company (investments) and a Director of Placer Dome,
Inc. (mining). His address is St. Bernard's Road, Gladstone, New
Jersey 07934.

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

<PAGE>

ROBERT C. WHITE, 75, is currently an Independent
Consultant; formerly, he was a Vice President and Chief Financial
Officer of the Howard Hughes Medical Institute with which he has
been associated since prior to 1990. His address is 30835 River
Crossing, Bingham Farms, Michigan 48025.

OFFICERS

JOHN D. CARIFA, Chairman and President, see biography
under "DIRECTORS" section, above.

WAYNE D. LYSKI, 53, Senior Vice President, is an
Executive Vice President of ACMC with which he has been
associated since prior to 1990.

KATHLEEN A. CORBET, 35, Senior Vice President, has been
a Senior Vice President of ACMC since July 1993. Previously, she
held various responsibilities as head of Equitable Capital
Management Corporation's Fixed Income Management Department,
Private Placement Secondary Trading and Fund Management since
prior to 1990.

PATRICIA J. YOUNG, 41, Senior Vice President, is a
Senior Vice President of ACMC with which she has been associated
since March 1992. Previously, she was a Managing Director and
Portfolio Manager for Hyperion Capital since March 1991. Prior
thereto, she was a Managing Director with Fischer, Francis, Trees
& Watts since prior to 1990.

PAUL A. ULLMAN, 37, Senior Vice President, is a Vice
President of ACMC with which he has been associated since March
1992. Previously, he was a Director and Portfolio Manager at
Hyperion Capital since July 1990. Prior thereto, he was a Vice
President at Salomon Brothers since prior to 1990.

EDMUND P. BERGAN, JR., 45, Secretary, is a Senior Vice
President and General Counsel of Alliance Fund Distributors, Inc.
and Alliance Fund Services, Inc., ("AFD") and Vice President and
Assistant General Counsel of ACMC, with which he has been
associated since prior to 1990.

ANDREW L. GANGOLF, 41, Assistant Secretary, has been a
Vice President and Assistant General Counsel of AFD since
December 1994. Prior thereto he was a Vice President and
Assistant Secretary of Delaware Management Company, Inc. since
October 1992 and a Vice President and Counsel to Equitable Life
Assurance Society of the United States since prior to 1990.

MARK D. GERSTEN, 45, Treasurer and Chief Financial
Officer, is a Senior Vice President of Alliance Fund Services,
Inc., with which he has been associated since prior to 1990.

<PAGE>

PATRICK J. FARRELL, 36, Controller, is a Vice President
of Alliance Fund Services, Inc., with which he has been
associated since prior to 1990.

STEPHEN M. ATKINS, Assistant Controller, 30, is a
Manager of Taxable Fixed-Income Mutual Fund Accounting of
Alliance Fund Services, Inc. and formerly he was a Manager in
International Mutual Fund Accounting for Alliance Fund Services,
Inc. with which he has been associated since prior to 1990.

JOSEPH J. MANTINEO, 36, Assistant Controller, is a Vice
President of Alliance Fund Services, Inc., with which he has been
associated since prior to 1990.

The aggregate compensation paid by the Fund to each of
the Directors during its fiscal period ended November 30, 1994,
the aggregate compensation paid to each of the Directors during
calendar year 1994 by all of the funds to which the Adviser
provides investment advisory services (collectively, the
"Alliance Fund Complex"), and the total number of registered
investment companies in the Alliance Fund Complex with respect to
which each of the Directors serves as a director or trustee, are
set forth below. Neither the Fund nor any fund in the Alliance
Fund Complex provides compensation in the form of pension or
retirement benefits to any of its directors or trustees. Each of
the Directors is a director or trustee of one or more other
registered investment companies in the Alliance Fund Complex.

Total Number
of Funds in
the Alliance
Total Complex,
Compensation Including the
From the Fund, as to
Alliance Fund which the
Aggregate Complex, Director is a
Name of Director Compensation Including the Director or
of the Fund From the Fund Fund Director
________________ _____________ _____________ ______________

John D. Carifa $0 $-0- 49
Ruth Block $3,211 $157,000 63
Daivd H. Dievler $0 $-0- 42
John H. Dobkin $3,486 $110,750 29
William H. Foulk, Jr. $4,081 $141,500 30
Dr. James M. Hester $3,586 $154,500 37
Clifford L. Michel $3,211 $120,500 36
Robert C. White $3,577 $133,500 36

<PAGE>

As of October 10, 1995, the Directors and officers of
the Fund as a group owned less than 1% of the shares of the
Fund.

_________________________________________________________________

EXPENSES OF THE FUND
_________________________________________________________________

DISTRIBUTION SERVICES AGREEMENT

The Fund has entered into, a Distribution Services
Agreement (the "Agreement") with Alliance Fund Distributors,
Inc., the Fund's principal underwriter (the "Principal
Underwriter"), to permit the Fund directly or indirectly to pay
expenses associated with the distribution of its shares in
accordance with a plan of distribution which is 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
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 Directors who are
not "interested persons" of the Fund, as defined in the 1940 Act,
are committed to the discretion of such 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

<PAGE>

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
Securities and Exchange 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 fiscal year ended November 30, 1994, the Fund
paid distribution services fees for expenditures under the
Agreement with respect to Class A shares, in amounts aggregating
$233,954 which constituted .30 of 1%, annualized, of the Fund's
average daily net assets during the period, and the Adviser made
payments from its own resources as described above aggregating
$281,890. Of the $515,844 paid by the Fund and the Adviser under
the Plan with respect to Class A shares, $22,397 was spent on
advertising, $7,560 on the printing and mailing of prospectuses
for persons other than current shareholders, $220,617 for
compensation to broker-dealers and other financial intermediaries
(including, $37,217 to the Fund's Principal Underwriter), $81,508
for compensation to sales personnel and $183,762 was spent on the
printing of sales literature, travel, entertainment, due
diligence and other promotional expenses.

During the fiscal year ended November 30, 1994, with
respect to Class B shares, the Fund paid distribution services
fees for expenditures under the Agreement in the aggregate amount
of $1,659,349 which constituted approximately 1% of average daily
net assets attributable to the Class B shares during the period
and the Adviser made payments from its own resources, as
described above, aggregating $-0-. Of the $718,662 paid by the
Fund and the Adviser under the Plan, $13,713 was spent on
advertising, $8,661 on printing and mailing of prospectuses for
persons other than current shareholders, $578,585 for
compensation to broker-dealers and other financial intermediaries
(including, $37,567 to the Fund's Principal Underwriter), $35,427
for compensation to sales personnel and $44,709 was spent on the
printing of sales literature, travel, entertainment, due
diligence and other promotional expenses. The additional
$940,687 in payments to the Principal Underwriter will be carried
forward and offset against future distribution service fees
payable under the Plan.

During the fiscal year ended November 30, 1994, with
respect to Class C shares the Fund paid distribution services
fees for expenditures under the Agreement in the aggregate amount

<PAGE>

of amount $2,184,741 which constituted approximately 1%,
annualized, of the Fund's average daily net assets attributable
to Class C shares during the period and the Adviser made payments
from its own resources as described above aggregating $1,098,493.
Of the $3,283,234 paid by the Fund and the Adviser under the Plan
with respect to Class C shares, $84,017 was spent on advertising,
$26,400 on printing and mailing of prospectuses for persons other
than current shareholders, $2,565,230 for compensation to broker-
dealers and other financial intermediaries (including, $426,255
to the Fund's Principal Underwriter), $259,279 for compensation
to sales personnel and $348,308 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 October 1), provided,
however, that such continuance is specifically approved at least
annually by the Directors of the Fund or by vote of the holders
of a majority of the outstanding voting securities (as defined in
the 1940 Act) of that class, and, in either case, by a majority
of the Directors of the Fund who are not parties to the Agreement
or interested persons, as defined in the 1940 Act, of any such
party (other than as directors of the Fund) and who have no
direct or indirect financial interest in the operation of the
Rule 12b-1 Plan or any agreement related thereto. Most recently
the continuance of the Agreement until September 30, 1996 was
approved by a vote, cast in person, of the Directors, including a
majority of the Directors who are not "interested persons", as
defined in the 1940 Act, at their meeting held on September 12,
1995.

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 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 or the holders of 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 holders
of the outstanding voting shares of the class affected. The

<PAGE>

Agreement may be terminated (a) by the Fund without penalty at
any time by a majority vote of the holders of the outstanding
voting securities of the Fund, voting separately by class or by a
majority vote of the directors who are not "interested persons"
as defined in the 1940 Act, or (b) by the Principal Underwriter.
To terminate the Agreement, any party must give the other parties
60 days' written notice; to terminate the Rule 12b-1 Plan only,
the Fund need give no notice to the Principal Underwriter. The
Agreement 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 shares, Class B shares 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 the Class C shares reflecting the additional
costs associated with the Class B contingent deferred sales
charge. For the fiscal year ended November 30, 1994, the Fund
paid Alliance Fund Services, Inc. $432,483 for transfer agency
services.

_________________________________________________________________

PURCHASE OF SHARES
_________________________________________________________________

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

GENERAL

Shares of the Fund are offered on a continuous basis at
a price equal to their net asset value plus an initial sales
charge at the time of purchase (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

<PAGE>

$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 its shares to the public in response to
conditions in the securities markets or for other reasons.

The public offering price of shares of the Fund is their
net asset value, plus, in the case of 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 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,
Exchange-listed securities and over-the-counter securities
admitted to trading on the NASDAQ National List are valued at the
last quoted sale or, if no sale, at the mean of closing bid and
asked prices and portfolio bonds are presently valued by a

<PAGE>

recognized pricing service. If accurate quotations are not
available, securities will be valued at fair value determined in
good faith by the Board of Directors.

The Fund will accept unconditional orders for its shares
to be executed at the public offering price equal to their net
asset value next determined (plus applicable Class A sales
charges), as described below. Orders received by the Principal
Underwriter prior to the close of regular trading on the Exchange
on each day the Exchange is open for trading are priced at the
net asset value computed as of the close of regular trading on
the Exchange on that day (plus applicable Class A sales charges).
In the case of orders for purchase of shares placed through
selected dealers 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 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

<PAGE>

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 paid to
dealers or agents, the Principal Underwriter from time to time
pays additional cash 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
taken 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 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

<PAGE>

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 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

<PAGE>

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 November 30, 1994,
November 30, 1993 and the fiscal period June 1, 1992
(commencement of operations) through November 30, 1992, the
aggregate amount of underwriting commission payable with respect
to Class A shares of the Fund were $825,625, $837,723 and
$758,559, respectively. Of those amounts, the Principal
Underwriter, received the amounts of $28,083, $2,132 and $1,281,
respectively, representing that portion of the sales charges paid
on shares of the Fund sold during the year which was not
reallowed to selected dealers (and was, accordingly, retained by
the Principal Underwriter).

During the Fund's fiscal year ended November 30, 1994,
the Principal Underwriter received $590,655 in contingent
deferred sales charges with respect to Class B shares.

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.

<PAGE>

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
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

<PAGE>

such dealers or agents for their distribution assistance in
connection with such purchases.

No initial sales charge is imposed on Class A shares
issued (i) pursuant to the automatic reinvestment of income
dividends or capital gains distributions, or (ii) in exchange for
Class A shares of other "Alliance Mutual Funds" (as that term is
defined under "Combined Purchase Privilege" below), except that
an initial sales charge will be imposed on Class A shares issued
in exchange for Class A shares of AFD Exchange Reserves ("AFDER")
that were purchased for cash without the payment of an initial
sales charge and without being subject to a contingent deferred
sales charge. 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 above
at a price based upon the net asset value of Class A shares of
the Fund on May 31, 1995.

Net Asset Value per Class A
Share at May 31, 1995 $9.49

Per Share Sales Charge - 4.25%
of offering price (4.43% of
net asset value per share) $0.42

Class A Per Share Offering Price
to the Public $9.91
======

An investor choosing the initial sales charge
alternative may under certain circumstances be entitled to pay
(i) no initial sales charge (but be 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.

<PAGE>

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

AFD Exchange Reserves
The Alliance Fund, Inc.
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 Money Market 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

<PAGE>

-New York Portfolio
Alliance Municipal Income Fund II
-Arizona Portfolio
-Florida Portfolio
-Massachusetts Portfolio
-Michigan Portfolio
-Minnesota Portfolio
-New Jersey Portfolio
-Ohio Portfolio
-Pennsylvania Portfolio
-Virginia Portfolio
Alliance New Europe Fund, Inc.
Alliance North American Government Income Trust, Inc.
Alliance Premier Growth Fund, Inc.
Alliance Quasar Fund, Inc.
Alliance 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 Portfolios
-The Alliance Growth Fund
-The Alliance Conservative Investors Fund
-The Alliance Growth Investors Fund
-The Alliance Strategic Balanced Fund
-The Alliance Short-Term U.S. Government Fund

Prospectuses for the Alliance Mutual Funds may be
obtained without charge by contacting Alliance Fund Services,
Inc. at the address or the "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).

<PAGE>

For example, if an investor owned shares of an Alliance
Mutual Fund worth $200,000 at their then current net asset value
and, subsequently, purchased Class A shares of the Fund worth an
additional $100,000, the 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

<PAGE>

sales charge applicable to the shares actually purchased if the
full amount indicated is not purchased, and such escrowed shares
will be involuntarily redeemed to pay the additional sales
charge, if necessary. Dividends on escrowed shares, whether paid
in cash or reinvested in additional Fund shares, are not subject
to escrow. When the full amount indicated has been purchased, the
escrow will be released. To the extent that an investor
purchases more than the dollar amount indicated on the Statement
of Intention and qualifies for a further reduced sales charge,
the 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 30 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

<PAGE>

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 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 any 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 of the Fund; present or former
directors and trustees of other investment companies managed by
the Adviser; present or retired full-time employees of the
Adviser, the Principal Underwriter, Alliance Fund Services, Inc.
and their affiliates; officers and directors of ACMC, the
Principal Underwriter, Alliance Fund Services, Inc. and their
affiliates; officers, directors and present and full-time
employees of selected dealers or agents; or the spouse, sibling,
direct ancestor or direct descendant (collectively "relatives")
of any such person; or any trust, individual retirement account
or retirement plan account for the benefit of any such person or
relative; or the estate of any such person or relative, if such
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; (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 such persons pay an asset-based
fee to such broker-dealer, or its affiliates or agent, for
services in the nature of investment advisory or administrative
services; (v) persons who establish to the Principal
Underwriter's satisfaction that they are investing, within such
time period as may be designated by the Principal Underwriter,
proceeds of redemption of shares of such other registered
investment companies as may be designated from time to time by
the Principal Underwriter; and (vi) employer-sponsored qualified
pension or profit-sharing plans (including Section 401(k) plans),
custodial accounts maintained pursuant to Section 403(b)(7)
retirement plans and individual retirement accounts (including
individual retirement accounts to which simplified employee

<PAGE>

pension (SEP) contributions are made), if such plans or accounts
are established or administered under programs sponsored by
administrators or other persons that have been approved by the
Principal Underwriter.

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
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 four years of purchase will be subject to a
contingent deferred sales charge at the rates set forth below
charged as a percentage of the dollar amount subject thereto. The
charge will be assessed on an amount equal to the lesser of the
cost of the shares being redeemed or their net asset value at the
time of redemption. Accordingly, no sales charge will be imposed
on increases in net asset value above the initial purchase price.
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 Class B
shares at $10 per share (at a cost of $1,000) and in the second
year after purchase, the net asset value per share is $12 and,
during such time, the investor has acquired 10 additional Class B
shares upon dividend reinvestment. If at such time the investor
makes his or her first redemption of 50 Class B shares (proceeds
of $600), 10 Class B shares will not be subject to 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

<PAGE>

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 as a %
Year Since Purchase of Dollar Amount Subject to Charge
___________________ __________________________________

First 3.0%
Second 2.0%
Third 1.0%
Thereafter 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 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, (iii) that had been purchased by present or former Directors
of the Fund, by the relative of any such person, by any trust,
individual retirement account or retirement plan account for the
benefit of any such person or relative, or by the estate of any
such person or relative, or (iv) pursuant to a systematic
withdrawal plan (see "Shareholder Services - Systematic
Withdrawal Plan" below).

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

<PAGE>

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 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

<PAGE>

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
Shares--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 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.

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 Securities and Exchange Commission determines
that trading thereon is restricted, or for any period during
which an emergency (as determined by the Securities and Exchange
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 Securities and Exchange Commission may by
order permit for the protection of security holders of the Fund.

Payment of the redemption price will be made in cash.
The value of a shareholder's shares on redemption or repurchase
may be more or less than the cost of such shares to the
shareholder, depending upon the market value of the Fund's
portfolio securities at the time of such redemption or
repurchase. Redemption proceeds on Class A 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 shares, assuming the shares constitute capital
assets in his hands, will result in long-term or short-term

<PAGE>

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 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 $50,000. 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

<PAGE>

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. 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

<PAGE>

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.

_________________________________________________________________

SHAREHOLDER SERVICES
_________________________________________________________________

The following information supplements that set forth in
the Fund's Prospectus under the heading "Purchase and Sale of
Shares- -Shareholder Services." The shareholder services set
forth below are applicable to all three classes of shares of the
Fund.

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

<PAGE>

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 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 originally 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

<PAGE>

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 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 following
Fund business day.

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

<PAGE>

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
Statement of Additional Information, or write to:

Alliance Fund Services, Inc.
Retirement Plans
P.O. Box 1520
Secaucus, New Jersey 07096-1520

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

EMPLOYER-SPONSORED QUALIFIED RETIREMENT PLANS. Sole
proprietors, partnerships and corporations may sponsor qualified
money purchase pension and profit-sharing plans, including
Section 401(k) plans ("qualified plans"), under which annual tax-

<PAGE>

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 the qualified plan 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 at the
Plan's request, 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
retirements 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 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.

DIVIDEND DIRECTION PLAN

A shareholder who already maintains, in addition to his
or her Class A, Class B or Class C Fund account, Class A, Class B
or Class C account(s) 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

<PAGE>

initial investment should complete the appropriate section of the
Subscription Application found in the Prospectus. Current
shareholders should contact Alliance Fund Services, Inc. to
establish a dividend direction plan.

SYSTEMATIC WITHDRAWAL PLAN

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

Shares of the Fund owned by a participant in the Fund's
systematic withdrawal plan will be redeemed as necessary to meet
withdrawal payments and such withdrawal payments will be subject
to any taxes applicable to redemptions and, except as discussed
below, any applicable contingent deferred sales charge. Shares
acquired with reinvested dividends and distributions will be
liquidated first to provide such withdrawal payments and
thereafter other shares will be liquidated to the extent
necessary, and depending upon the amount withdrawn, the
investor's principal may be depleted. A systematic withdrawal
plan may be terminated at any time by the shareholder or the
Fund.

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

Payments under a systematic withdrawal plan may be made
by check or electronically via the Automated Clearing House
("ACH") network. Investors wishing to establish a systematic
withdrawal plan in conjunction with their initial investment in
shares of the Fund should complete the appropriate portion of the
Subscription Application found in the Prospectus, while current
Fund shareholders desiring to do so can obtain an application

<PAGE>

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.

Class B CDSC Waiver for Shares Acquired After July 1,
1995. Under a systematic withdrawal plan, up to 1% monthly, 2%
bi- monthly or 3% quarterly of the value at the time of
redemption of the Class B shares in a shareholder's account
acquired after July 1, 1995 may be redeemed free of any
contingent deferred sales charge (such as shares acquired with
reinvested dividends or distributions) will be redeemed first and
will count toward these limitations. Remaining Class B shares
acquired after July 1, 1995 that are held the longest will be
redeemed next. Redemptions of Class B shares acquired after July
1, 1995 in excess of the foregoing limitations and redemptions of
Class B shares acquired before July 1, 1995 will be subject to
any otherwise applicable contingent deferred sales charge.

STATEMENTS AND REPORTS

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

_________________________________________________________________

NET ASSET VALUE
_________________________________________________________________

Securities which are traded over-the-counter and on a
national securities exchange will be valued according to the
broadest and most representative market, and it is expected that
for the fixed-income securities in which the Fund invests this
ordinarily will be the over-the-counter market. However, fixed-
income securities may be valued on the basis of prices provided
by a pricing service when such prices are believed by the 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. Securities not priced in this
manner are valued at the most recent quoted bid price, or, when
stock exchange valuations are used, at the latest quoted sale
price on the day of valuation. If there is no such reported
sale, the latest quoted bid price will be used. Futures
contracts and options on futures contracts will be valued in a
like manner, except that open futures contracts sales will be

<PAGE>

valued using the closing settlement price or, in the absence of
such a price, the most recent quoted asked price. Portfolio
instruments having less than 60 days remaining until maturity are
valued at amortized cost, unless the Board of Directors
determines that such cost does not represent fair value. Other
assets and securities for which no quotations are readily
available will be valued in good faith at fair value using
methods determined by the Board of Directors.

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 that 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 accrued 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 TAXATION OF DIVIDENDS AND DISTRIBUTIONS

GENERAL

The Fund qualified for the fiscal year ended
November 30, 1994 and intends to qualify in the future for tax
treatment as a "regulated investment company" under the Internal
Revenue Code of 1986, as amended (the "Code"). Qualification
relieves the Fund of federal income tax liability on the part of
its net ordinary income and net realized capital gains which it
timely distributes 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 to be taxed as a "regulated investment
company."

In order to qualify as a regulated investment company
for any taxable year, the Fund must, among other things,
(i) derive at least 90% of its gross income from dividends,
interest, certain payments with respect to securities loans and

<PAGE>

gains from the sale or other disposition of securities or other
income (including but not limited to the gains from options,
futures or forward contracts) derived with respect to its
business of investing in securities, and (ii) derive less than
30% of its gross income from the sale or other disposition of
securities, or certain options, futures or forward contracts held
for less than three months. These requirements limit the Fund's
ability to write and purchase options, to purchase and sell
futures contracts, to purchase or sell forward contracts, to
enter into interest rate swaps, and to purchase or sell interest
rate caps and floors.

The information set forth in the Prospectus and the
following discussion relate solely to the significant United
States federal income taxes on dividends and distributions by the
Fund and assumes that the Fund qualifies to be taxed as a
regulated investment company. An investor should consult his or
her own tax counsel with respect to the specific tax consequences
of being a shareholder of the Fund, including the effect and
applicability of federal, state and local tax laws to his or her
own particular situation and the possible effects of changes
therein.

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 an amount
equal to the sum of (i) 98% of its ordinary taxable income for
the calendar year, (ii) 98% of its capital gain net income and
foreign currency gains for the twelve months ended November 30
(or December 31 if elected by the Fund) of such year and
(iii) any ordinary income or capital gain net income from the
preceding calendar year that was not distributed during such
year. For this purpose, income or gain retained by the Fund that
is subject to corporate income tax will be considered to have
been distributed by the Fund by year-end. For federal income and
excise tax purposes, dividends declared and payable to
shareholders of record as of a date in October, November or
December but actually paid during the following January will be
taxable to these shareholders for the year declared, and not for
the subsequent calendar year in which the shareholders actually
receive the dividend.

Dividends of the Fund's 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 from
sources other than dividends, it is expected that none of the

<PAGE>

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 or her 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 dividend.

Dividends 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.

The Fund generally will be required to withhold tax at
the rate of 31% with respect to dividends of net ordinary income
and net distributions of 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.

UNITED STATES FEDERAL INCOME TAXATION OF THE FUND

The following discussion relates to certain significant
United States federal income tax consequences to the Fund with
respect to the determination of its "investment company taxable
income" each year. This discussion assumes that the Fund will be
taxed as a regulated investment company for each of its taxable
years.

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 debt securities

<PAGE>

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 or her Fund shares. To
the extent that such distributions exceed such shareholder's
basis, each will be treated as a gain from the sale of shares.

OPTIONS AND FUTURES CONTRACTS. Certain listed options
and regulated futures 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 generally will be considered 60% long-term and 40%
short-term capital gain or loss provided that the Fund may elect
to treat gain or loss realized by the Fund on section 1256
contracts with respect to foreign currencies as ordinary. 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 over-the-counter put and call options,
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 if an option that

<PAGE>

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 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). 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, or forward
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. The
Treasury Department recently has issued proposed regulations
which, if adopted, would treat interest rate swaps, caps and
floors entered into or purchased by the Fund as positions which
may also constitute part of 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

<PAGE>

be deferred. 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. The Treasury Department is authorized to issue
regulations providing for the proper treatment of a mixed
straddle where at least one position consists of an ordinary
asset and at least one position consists of a capital asset. No
such regulations have yet been issued.

ZERO COUPON TREASURY SECURITIES. Under current federal
tax law, the Fund will receive net investment income in the form
of interest by virtue of holding Treasury bills, notes and bonds,
and will recognize interest attributable to it under the original
issue discount rules of the Code from holding zero coupon
Treasury securities. Current federal tax law requires that a
holder (such as the 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 Fund receives no interest
payment in cash on the security during the year. Accordingly,
the Fund may be required to pay out as an income distribution
each year an amount which is greater than the total amount of
cash interest the Fund actually received. Such distributions
will be made from the cash assets of the Fund or by liquidation
of portfolio securities, if necessary. If a distribution of cash
necessitates the liquidation of portfolio securities, the Adviser
will select which securities to sell. The Fund may realize a
gain or loss from such sales. In the event the Fund realizes net
capital gains from such transactions, its shareholders may
receive a larger capital gain distribution, if any, than they
would have in the absence of such transactions.

MORTGAGE PASS-THROUGH SECURITIES. Mortgage pass-through
securities such as GNMA Certificates, FNMA Certificates, FHLMC
Certificates, and privately issued mortgage-related securities
generally are taxable as trusts for federal income tax purposes,
with the certificate holders treated as the owners of the trust
involved. As a result, payments of interest, principal and
prepayments made on the underlying mortgage pool are taxed
directly to certificate holders such as the Fund. Payments of
interest, principal and prepayments made on the underlying
mortgage pool will therefore generally maintain their character
when received by the Fund.

STRIPPED MORTGAGE-RELATED SECURITIES. Certain classes
of MRS which are issued at a discount, the payments of which are
subject to acceleration by reason of prepayments of the
underlying Mortgage Assets securing such classes, are subject to
special rules for determining the portion of the discount at
which the class was issued which must be accrued as income each

<PAGE>

year. Under Code section 1272(a)(6), a principal-only class or a
class which receives a portion of the interest and a portion of
the principal from the underlying Mortgage Assets is subject to
rules which require accrual of interest to be calculated and
included in the income of a holder (such as the Fund) based on
the increase in the present value of the payments remaining on
the class, taking into account payments includable in the class'
stated redemption price at maturity which are received during the
accrual period. For this purpose, the present value calculation
is made at the beginning of each accrual period (i) using the
yield to maturity determined for the class at the time of its
issuance (determined on the basis of compounding at the close of
each accrual period and properly adjusted for the length of the
accrual period), calculated on the assumption that certain
prepayments will occur, and (ii) taking into account any
prepayments that have occurred before the close of the accrual
period. Since interest included in the Fund's income as a result
of these rules will have been accrued and not actually paid, the
Fund may be required to pay out as an income distribution each
year an amount which is greater than the total amount of cash
interest the Fund actually received, with possible results as
described above.

Code section 1272(a)(6) does not apply to interest-only
SMRS. Under proposed regulations governing contingent payment
obligations such as interest-only classes, interest payments made
prior to maturity on such a class would be treated as payments of
interest to the extent that interest has been deemed to accrue on
the class' issue price, and then as payments of principal.
Interest payments made at maturity would be treated as payments
of principal to the extent of the "outstanding principal balance"
of the class, and then as payments of interest to the extent of
any excess.

REAL ESTATE MORTGAGE INVESTMENT CONDUITS. The Fund may
invest in REMICs. Interests in REMICs are classified as either
"regular" interests or "residual" interests. Regular interests
in a REMIC are treated as debt instruments for federal income tax
purposes to which the rules generally applicable to debt
obligations apply. If regular interests in a REMIC are issued at
a discount, the rules of Code section 1272(a)(6) as discussed
above under "stripped mortgage-related securities" apply for
determining the portion of the discount at which the interest was
issued which must be accrued as income each year. The
application of these rules may increase the amount of the Fund's
net investment income available to be distributed to
shareholders, potentially causing the Fund to pay out as an
income distribution each year an amount which is greater than the
total amount of cash interest the Fund actually received, as
discussed above.

<PAGE>

Under the Code, special rules apply with respect to the
treatment of a portion of the Fund income from REMIC residual
interests. (Such portion is referred to herein as "Excess
Inclusion Income".) Excess Inclusion Income generally cannot be
offset by net operating losses and, in addition, constitutes
unrelated business taxable income to entities which are subject
to the unrelated business income tax. The Code provides that a
portion of Excess Inclusion Income attributable to REMIC residual
interests held by regulated investment companies such as the Fund
shall, pursuant to regulations, be allocated to the shareholders
of such regulated investment company in proportion to the
dividends received by such shareholders. Accordingly,
shareholders of the Fund will generally not be able to use net
operating losses to offset such Excess Inclusion Income. In
addition, if a shareholder of the Fund is a tax-exempt entity not
subject to the unrelated business income tax and is allocated any
amount of Excess Inclusion Income, the Fund must pay a tax on the
amount of Excess Inclusion Income allocated to such shareholder
at the highest corporate rate. Any tax paid by the Fund as a
result of this requirement may be deducted by the Fund from the
gross income of the residual interest involved. A shareholder
subject to the unrelated business income tax may be required to
file a return and pay a tax on such Excess Inclusion Income even
though a shareholder might not have been required to pay such tax
or file such return absent the receipt of such Excess Inclusion
Income. It is anticipated that only a small portion, if any, of
the assets of the Fund will be invested in REMIC residual
interests. Accordingly, the amount of Excess Inclusion Income,
if any, received by the Fund and allocated to its shareholders
should be quite small. Shareholders that are subject to the
unrelated business income tax should consult their own tax
advisor regarding the treatment of their income derived from the
Fund.

FOREIGN TAXES. Income received by the Fund also may be
subject to foreign income taxes, including taxes withheld at the
source. 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. The Fund will not be
eligible to pass through to its shareholders the amount of
foreign taxes paid by the Fund for purposes of the "foreign tax
credit" under the federal income tax.

<PAGE>

_________________________________________________________________

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. The 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. Consistent with the
Rules of Fair Practice of the National Association of Securities
Dealers, Inc., and subject to seeking best price and execution,
the Fund may consider sales of shares of the Fund as a factor in
the selection of dealers to enter into portfolio transactions
with the Fund. Portfolio securities will not be purchased from
or sold to Donaldson, Lufkin & Jenrette Securities Corporation,
an affiliate of the Adviser, or any other subsidiary or affiliate
of The Equitable Life Assurance Society of the United States.

<PAGE>

Fund will not be in excess of 500%. An annual turnover rate of
500% occurs, for example, when all 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
gain. See "Dividends, Distributions and Taxes" and "General
Information-Portfolio Transactions" in the Prospectus.

_________________________________________________________________

GENERAL INFORMATION
_________________________________________________________________

CAPITALIZATION

The Fund's shares have non-cumulative voting rights,
which means that the holders of more than 50% of the shares
voting for the election of Directors can elect 100% of the
Directors if they choose to do so, and in such event the holders
of the remaining less than 50% of the shares voting for such
election of Directors will not be able to elect any person or
persons to the Board of Directors.

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 may create
additional series of shares 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. Any issuance of shares of another series would be
governed by the 1940 Act and the laws 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 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.

An order has been received from the Securities and
Exchange Commission permitting the issuance and sale of three
classes of shares representing interests in the Fund. The

<PAGE>

issuance and sale of any additional classes will require an
additional order from the Securities and Exchange Commission.
There is no assurance that such exemptive relief would be
granted.

At October 10, 1995, there were 3,065,280 Class A
shares, 9,512,532 Class B shares and 7,751,431 Class C shares of
common stock. To the knowledge of the Fund, the following
persons owned of record, and no person owned beneficially, 5% or
more of the outstanding shares of the Fund as of October 10,
1995:

No. of % of % of % of
Name and Address Shares Class A Class B Class C
________________ ______ _______ _______ _______

International Technology 257,414 8.21%
Underwrt. Fiduciary Acct.
4800 Montgomery Ln. 11th Fl.
Bethesda, MD 20814-5341

Cornell University 488,646 15.56%
Short Term Fund
Terrace Hill
Ithaca, NY 14850

Merrill Lynch 2,416,838 26.31%
Mutual Fund Operations
4800 Deer Lake Dr. East
3rd Floor
Jacksonville, Florida
32246-6484

Merrill Lynch 3,794,045 49.14%
Mutual Fund Operations
4800 Deer Lake Dr. East
3rd Floor
Jacksonville, Florida
32246-6484

CUSTODIAN

State Street Bank and Trust Company, 225 Franklin Street,
Boston, Massachusetts 02110, 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.

<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 Distribution
Services Agreement, the Fund has agreed to indemnify the
Principal Underwriter, in the absence of its willful misfeasance,
bad faith, gross negligence or reckless disregard of its
obligations thereunder, against certain civil liabilities,
including liabilities under the Securities Act of 1933.

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, LLP, 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, have been appointed as 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'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.
The actual distribution rate is compounded separately for Class A
shares, Class B shares and Class C shares. 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 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 in the value of

<PAGE>

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 maximum sales charge applicable
to purchases of Fund shares is assumed to have been paid.

The Fund's yield for the month ended May 31, 1995 was
5.54% for Class A shares, 5.08% for Class B shares and 5.09% for
Class C shares. The Fund's distribution rates for such period
for Class A, Class B and Class C shares were 5.42%, 4.95% and
4.96%, respectively. The Fund's average annual total returns for
the the period June 1, 1992 (commencement of operations) through
May 31, 1995, were 2.68% and 3.17%% for Class A shares and Class
B shares, respectively, and, for the period May 3, 1993
(commencement of distribution for Class C shares) through May 31,
1995, was 2.44% for Class C shares. The Fund's average annual
total returns for the one-year period ended May 31, 1995 were
<1.04%>, <0.22%> and 2.72% for Class A, Class B and Class C
shares, respectively. The Fund's average annual total returns
for the fiscal year ended November 30, 1994 and for the period
June 1, 1992 (commencement of operations) through November 30,
1994, respectively, were 1.03% and 3.93% for Class A shares and
.42% and 3.24% for Class B shares; for the year ended November
30, 1994 and for the period May 3, 1993 (commencement of
distribution for Class C shares) through November 30, 1994,
respectively, were .42% and 1.77% for Class C shares. The Fund
will compute yield and total return figures separately for
Class A shares, Class B shares 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.

Advertisements quoting performance rankings of the Fund
as measured by financial publications or by independent
organizations such as Lipper Analytical Services, Inc.
("Lipper"), and advertisements presenting the historical record
of payments of income dividends by the Fund may also from time to
time be sent to investors or placed in newspapers, magazines such
as The Wall Street Journal, The New York Times, Barrons,
Investor's Daily, Money Magazine, Changing Times, Business Week

<PAGE>

and Forbes or other media on behalf of the Fund. It is expected
that the Fund will be ranked by Lipper in the category known as
"U.S. Mortgage Bond Funds."

ADDITIONAL INFORMATION

Any shareholder inquiries may be directed to the
shareholder's broker or to Alliance Fund Services, Inc. at the
address or telephone number 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.

77
00250110.AL3

<PAGE>

PORTFOLIO OF INVESTMENTS
MAY 31, 1995 (UNAUDITED) ALLIANCE MORTGAGE STRATEGY TRUST
- -------------------------------------------------------------------------------
PRINCIPAL
AMOUNT
(000) VALUE
- ---------------------------------------------------------------------------
MORTGAGE-RELATED SECURITIES-74.2%
COLLATERALIZED MORTGAGE OBLIGATIONS-45.7%
ADJUSTABLE RATE-31.2%
Donaldson, Lufkin & Jenrette Series 1994-QE1 A1
7.42%, 4/25/24 $12,570 $12,586,692
Federal National Mortgage Association REMIC
Series 1993-89 F
6.49%, 9/25/21 12,869 12,889,555
Series 1992-138 FA
6.59%, 10/25/18 13,285 13,328,444
Resolution Trust Corp.
Series 92-CHF A-2
7.16%, 12/25/20 25,775 26,032,908
Sears Mortgage Secs Corp.
Series 92-18 A1
7.44%, 9/25/22 8,872 9,032,442
73,870,041
FIXED RATE-14.5%
Federal Home Loan Mortgage Corp.
Series 1302-PE
7.50%, 12/15/15 10,542 10,601,299
Series 1016-Y
9.35%, 9/15/05 7,831 7,958,459
Residential Funding Corp.
Series 1993-S37A A1
7.00%, 10/25/23 4,947 4,940,666
Secs I
Series 1993-S14 A4
7.50%, 4/25/23 738 736,509
Structured Asset Secs Corp.
Series 1989 1C
9.50%, 5/01/18 9,969 10,043,988
34,280,921
Total Collateralized Mortgage Obligations
(cost $108,603,059) $108,150,962

FEDERAL HOME LOAN MORTGAGE CORP.-6.4%
7.61%, 7/01/21* $11,827 12,248,000
11.00%, 9/01/13-2/10/16 2,708 2,916,126
Total Federal Home Loan Mortgage Corp.
(cost $15,230,077) 15,164,126

FEDERAL NATIONAL MORTGAGE ASSOCIATION-10.2%
5.86%, 1/01/25* 6,984 7,111,439
7.20%, 2/01/25* 14,113 14,537,642
7.50%, 4/01/08*(a) 2 1,679
11.25%, 2/01/16 2,340 2,540,651
Total Federal National Mortgage Association
(cost $23,993,039) 24,191,411

GOVERNMENT NATIONAL MORTGAGE ASSOCIATION-11.9%
9.00%, 12/06/19-5/15/25 24,878 26,083,070
11.25%, 7/15/13-1/15/16(GPM) 1,346 1,475,826
11.50%, 6/15/13(GPM) 532 586,343
11.50%, 4/15/13 27 29,802
11.75%, 1/20/16(GPM) 40 44,122
Total Government National Mortgage Association
(cost $27,904,079) 28,219,163
Total Mortgage-Related Securities
(cost $175,730,254) 175,725,662

ALLIANCE MORTGAGE STRATEGY TRUST
- -------------------------------------------------------------------------------
PRINCIPAL
AMOUNT
(000) VALUE
- -------------------------------------------------------------------------------
ASSET BACKED SECURITIES-17.4%
Advanta Mortgage Loan Trust
Series 95-1 A2
7.82%, 2/25/04 $ 5,000 $ 5,020,300
Series 1995-1 Cl. A1
7.86%, 10/25/00 1,784 1,784,739
Excel Credit Corp.
Series 1994-1A
6.73%, 3/01/04 10,839 10,884,851
Lehman Home Equity Loan Trust
Series 1994-2
6.58%, 6/15/24 12,269 12,213,975
Student Loan Funding Corp.,
Inc. Ohio Student Loan Revenue
Series A1
6.55%, 1/01/99 11,230 11,230,000
Total Asset Backed Securities
(cost $41,179,470) 41,133,865

U.S. GOVERNMENT OBLIGATIONS-9.6%
U.S. TREASURY NOTES-7.9%
U.S. Treasury Notes
6.75%, 4/30/00+ 11,500 11,825,220
7.50%, 2/15/05+ 6,300 6,829,578
18,654,798

CONTRACT OR
PRINCIPAL
AMOUNT
(000) VALUE
- -------------------------------------------------------------------------------
U.S. TREASURY BONDS-1.7%
U.S. Treasury Bonds
7.63%, 2/15/25 $3,655 $4,108,439
Total U.S. Government Obligations
(cost $21,842,645) 22,763,237

OPTIONSONFUTURES PURCHASEDCALL-0.2%
U.S. Treasury Notes expiring August 1995 @ $110.00
(cost $223,495) 343 439,469

TOTAL INVESTMENTS-101.4%
(cost $238,975,864) 240,062,233
Other assets less liabilities-(1.4%) (3,278,730)

NET ASSETS-100% $236,783,503

* Adjustable rate mortgages stated interest rate in effect at May 31, 1995.
+ Securities segregated to collateralize reverse repurchase agreements with
an aggregate market value of approximately $18,650,000.

(a) 15 year mortgage.

Glossary of Terms:
GPM - Graduated payment mortgage.
See notes to financial statements.

STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1995 (UNAUDITED) ALLIANCE MORTGAGE STRATEGY TRUST
- -------------------------------------------------------------------------------
ASSETS
Investments in securities, at value (cost $238,975,864) $240,062,233
Cash 1,081,980
Receivable for investment securities sold 12,067,302
Interest receivable 1,830,337
Receivable for capital stock sold 219,185
Deferred organization expenses 124,535
Prepaid expenses 46,072
Total assets 255,431,644

LIABILITIES
Reverse repurchase agreement 16,784,737
Dividends and distributions payable 789,878
Payable for capital stock redeemed 631,927
Distribution fee payable 184,274
Advisory fee payable 133,521
Accrued expenses 123,804
Total liabilities 18,648,141

NET ASSETS $236,783,503

COMPOSITION OF NET ASSETS
Capital stock, at par $24,931
Additional paid-in capital 257,945,572
Distributions in excess of net investment income (848,879)
Accumulated net realized loss (21,424,490)
Net unrealized appreciation of investments and options 1,086,369
$236,783,503
CALCULATION OF MAXIMUM OFFERING PRICE
CLASS A SHARES
Net asset value and redemption price per share ($34,093,946/
3,591,144 shares of capital stock issued and outstanding) $9.49
Sales charge-4.25% of public offering price .42
Maximum offering price $9.91
CLASS B SHARES
Net asset value and offering price per share ($109,749,279/
11,553,947 shares of capital stock issued and outstanding) $9.50
CLASS C SHARES
Net asset value, redemption and offering price per share ($92,940,278
/9,785,343 shares of capital stock issued and outstanding) $9.50

See notes to financial statements.

STATEMENT OF OPERATIONS
SIX MONTHS ENDED MAY 31, 1995 (UNAUDITED) ALLIANCE MORTGAGE STRATEGY TRUST
- -------------------------------------------------------------------------------

INVESTMENT INCOME
Interest $10,301,737
EXPENSES
Advisory fee 892,847
Distribution fee - Class A 59,107
Distribution fee - Class B 616,521
Distribution fee - Class C 560,067
Transfer agency 201,149
Administrative 85,879
Registration 54,772
Audit and legal 34,218
Amortization of organization expenses 27,575
Printing 27,571
Custodian 26,775
Directors' fees 8,869
Miscellaneous 4,715
Total expenses before interest 2,600,065
Interest expense 919,560
Total expenses 3,519,625
Net investment income 6,782,112

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss on investments and options (9,164,526)
Net change in unrealized depreciation of investments and options 8,372,611
Net loss on investments (791,915)

NET INCREASE IN NET ASSETS FROM OPERATIONS $5,990,197

See notes to financial statements.

STATEMENT OF CHANGES IN NET ASSETS ALLIANCE MORTGAGE STRATEGY TRUST
- -------------------------------------------------------------------------------

SIX MONTHS ENDED YEAR ENDED
MAY 31, 1995 NOVEMBER 30,
(UNAUDITED) 1994
------------- -------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income $ 6,782,112 $ 19,530,101
Net realized loss on investments (9,164,526) (11,827,131)
Net change in unrealized depreciation of
investments and options 8,372,611 (5,594,513)
Net increase in net assets from operations 5,990,197 2,108,457

DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A (1,117,527) (3,836,051)
Class B (3,053,371) (7,086,010)
Class C (2,785,143) (9,332,006)
Return of capital
Class A -0- (320,880)
Class B -0- (592,734)
Class C -0- (780,607)
Net realized gain on investments
Class A -0- (74,284)
Class B -0- (184,922)
Class C -0- (274,605)

CAPITAL STOCK TRANSACTIONS
Net decrease (83,719,506) (114,232,551)
Total decrease (84,685,350) (134,606,193)

NET ASSETS
Beginning of year 321,468,853 456,075,046
End of period $236,783,503 $321,468,853

See notes to financial statements.

NOTES TO FINANCIAL STATEMENTS
MAY 31, 1995 (UNAUDITED) ALLIANCE MORTGAGE STRATEGY TRUST
- -------------------------------------------------------------------------------
NOTE A: SIGNIFICANT ACCOUNTING POLICIES
Alliance Mortgage Strategy Trust, Inc. (the 'Fund'), was incorporated in the
state of Maryland on April 8, 1992 as a diversified, open-end management
investment company. The Fund currently offers three classes of shares. Class A
shares are sold with a front-end sales charge of up to 4.25%. Class B shares
are sold with a contingent deferred sales charge which declines from 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. The following is a summary
of significant accounting policies followed by the Fund.

1. SECURITY VALUATION
Fixed-income securities are valued on the basis of prices provided by a pricing
service and brokers. However, securities which are traded over-the-counter and
on a national securities exchange may be valued according to the broadest and
most representative market. It is expected that, for the fixed-income
securities and options in which the Fund invests, this ordinarily will be the
over-the-counter market. Securities not priced in this manner are valued at the
latest quoted bid price, or when exchange valuations are used, at the latest
quoted sale price on the day of valuation. If there is no such reported sale,
the latest quoted bid price will be used. Other securities for which quotations
are not readily available or illiquid securities are valued in good faith at
fair value using methods determined by the Board of Directors. In determining
fair value, consideration is given to cost, operations and other financial
data. Securities which mature in 60 days or less are valued at amortized cost,
which approximates market value.

2. ORGANIZATION EXPENSES
Organization expenses of approximately $276,500 have been deferred and are
being amortized on a straight-line basis through August, 1997.

3. TAXES
It is the Fund's policy to meet the requirements of the Internal Revenue Code
applicable to regulated investment companies and to distribute all of its
investment company taxable income and net realized gains, if applicable, to
shareholders. Therefore, no provisions for federal income or excise taxes are
required.

4. INVESTMENT INCOME AND SECURITY TRANSACTIONS
Interest income is accrued daily. Fee income is generated by participating in
forward commitments, in which the Fund agrees to the delayed settlement of
securities. By agreeing to the delayed settlement of securities, the Fund
receives a fee from the seller. The fee is accrued from the settlement date of
the associated sale transaction to the purchase settlement date. Security
transactions are accounted for on the date the securities are purchased or
sold. The Fund accretes original issue discount as adjustments to interest
income. Security gains or losses are determined on the identified cost basis.

5. DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions to shareholders are recorded on the ex-dividend
date. Distributions in excess of net investment income represent distributions
recognized in accordance with generally accepted accounting principles but
recognized in future periods for tax purposes.

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
.65 of 1% of the average daily net assets of the Fund. Such fee is accrued
daily and paid monthly.

NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCE MORTGAGE STRATEGY TRUST
- -------------------------------------------------------------------------------
average daily net assets in excess of $100 million. No such reimbursement was
required for the six months ended May 31, 1995. Pursuant to the advisory
agreement, the Fund paid $85,879 to the Adviser representing the cost of
certain legal and accounting services provided to the Fund by the Adviser.

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 $16,588 for the six months ended May 31, 1995. 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 $4,503 from the sale of Class A shares and $335,952 in contingent
deferred sales charge imposed upon redemptions by shareholders of Class B
shares for the six months ended May 31, 1995.

NOTE C: DISTRIBUTION SERVICES AGREEMENT
The Fund has adopted a Distribution Services Agreement (the 'Agreement')
pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the
Agreement, the Fund pays a distribution fee to the Distributor at an annual
rate of up to .30 of 1% of the average daily net assets attributable to the
Class A shares and 1% of the average daily net assets attributable to the 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 $399,780 and $2,099,951 for Class B and C shares, respectively;
such costs may be recovered from the Fund in future periods so long as the
Agreement is in effect. In accordance with the Agreement, there is no provision
for recovery of unreimbursed distribution costs, incurred by the Distributor,
beyond the current fiscal year for Class A shares. The Agreement also provides
that the Adviser may use its own resources to finance the distribution of the
Fund's shares.

NOTE D: INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term investments)
aggregated $551,016,671 and $690,211,981, respectively, for the six months
ended May 31, 1995.

At May 31, 1995, the cost of securities for federal income tax purposes was the
same as for financial reporting purposes. Accordingly, gross unrealized
appreciation of investments was $2,052,656 and gross unrealized depreciation of
investments was $966,287 resulting in net unrealized appreciation of $1,086,369.

At November 30, 1994, for federal income tax purposes the Fund had a capital
loss carryforward of $12,259,964 of which $219,463 expires in the year 2000;
$177,358 expires in the year 2001 and $11,863,143 expires in the year 2002.

1. OPTION TRANSACTIONS
For hedging purposes, the Fund purchases and writes (sells) put and call
options on U.S. and foreign government securities and foreign currencies that
are traded on U.S. and foreign securities exchanges and over-the-counter
markets.

The risk associated with purchasing an option is that the Fund pays a premium
whether or not the option is exercised. Additionally, the Fund bears the risk
of loss of premium and change in market value should the counterparty not
perform under the contract. Put and call options purchased are accounted for in
the same manner as portfolio securities. The cost of securities acquired
through the exercise of call options is increased by premiums paid. The
proceeds from securities sold through the exercise of put options are decreased
by the premiums paid.

When the Fund writes an option, the premium received by the Fund is recorded as
a liability and is subsequently adjusted to the current market value of the
option written. Premiums received from writing options which expire unexercised
are recorded by the Fund on the expiration date as realized gains from option
transactions.

ALLIANCE MORTGAGE STRATEGY TRUST
- -------------------------------------------------------------------------------
The difference between the premium and the amount paid on effecting a closing
purchase transaction, including brokerage commissions, is also treated as a
realized gain, or if the premium is less than the amount paid for the closing
purchase transaction, as a realized loss. If a call option is exercised, the
premium is added to the proceeds from the sale of the underlying security or
currency in determining whether the Fund has realized a gain or loss. If a put
option is exercised, the premium reduces the cost basis of the security or
currency purchased by the Fund. In writing an option, the Fund bears the market
risk of an unfavorable change in the price of the security or currency
underlying the written option. Exercise of an option written by the Fund could
result in the Fund selling or buying a security or currency at a price
different from the current market value.

There were no options written for the six months ended May 31, 1995.

NOTE E: CAPITAL STOCK
There are 9,000,000,000 shares of $.001 par value capital stock authorized,
divided into three classes, designated Class A, Class B and Class C shares.
Each class consists of 3,000,000,000 authorized shares. Transactions in capital
stock were as follows:

SHARES AMOUNT
---------------------------- ----------------------------
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED
MAY 31,1995 NOV. 30, MAY 31,1995 NOV. 30,
(UNAUDITED) 1994 (UNAUDITED) 1994
------------- ------------ ------------- -------------
CLASS A
Shares sold 571,446 10,402,991 $ 5,402,307 $102,403,447
Shares issued in
reinvestment of
dividends and
distributions 47,347 196,834 446,838 1,920,619
Shares redeemed (1,566,304) (12,019,791) (14,798,716) (116,943,609)
Net decrease (947,511) (1,419,966) $ (8,949,571) $(12,619,543)

CLASS B
Shares sold 2,044,356 8,985,316 $ 19,318,820 $87,892,802
Shares issued in
reinvestment of
dividends and
distributions 126,659 517,255 1,196,147 5,040,145
Shares redeemed (4,956,323) (12,081,682) (46,868,721) (117,377,470)
Net decrease (2,785,308) (2,579,111) $(26,353,754) $(24,444,523)

CLASS C
Shares sold 1,403,379 28,575,040 $13,268,405 $281,368,499
Shares issued in
reinvestment of
dividends and
distributions 131,196 796,235 1,238,829 7,769,566
Shares redeemed (6,654,148) (37,474,348) (62,923,415) (366,306,550)
Net decrease (5,119,573) (8,103,073) $(48,416,181) $(77,168,485)

NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCE MORTGAGE STRATEGY TRUST
- -------------------------------------------------------------------------------
NOTE F: REVERSE REPURCHASE AGREEMENTS
Under a reverse repurchase agreement, the Fund sells securities and agrees to
repurchase them at a mutually agreed upon date and price. At the time the Fund
enters into a reverse repurchase agreement, it may establish a segregated
account with the custodian containing cash, cash equivalents or liquid
high-grade debt securities having a value at least equal to the repurchase
price.

As of May 31, 1995, the Fund had entered into the following reverse repurchase
agreements:

AMOUNT BROKER INTEREST RATE MATURITY
------------- ------------ ------------- ------------
$9,820,625.00 Bear Stearns 5.50% June 6, 1995
$6,961,500.00 Bear Stearns 5.75% June 6, 1995

For the six months ended May 31, 1995, the maximum amount of reverse repurchase
agreements outstanding was $91,661,915, the average amount outstanding was
approximately $32,096,600, and the daily weighted average interest rate was
5.67%.

* Commencement of distribution.

FINANCIAL HIGHLIGHTS ALLIANCE MORTGAGE STRATEGY TRUST
- -------------------------------------------------------------------------------
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD

<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED YEAR ENDED JUNE 1, 1992*
MAY 31, 1995 NOV. 30, NOV. 30, TO
(UNAUDITED) 1994 1993 NOV. 30,1992
------------ ----------- ---------- ---------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $9.51 $9.94 $ 9.84 $10.00

INCOME FROM INVESTMENT OPERATIONS
Net investment income .28 .42 .57 .35(a)
Net realized and unrealized gain (loss)
on investments (.03) (.32) .11 (.17)
Net increase in net asset value
from operations .25 .10 .68 .18

LESS: DISTRIBUTIONS
Dividends from net investment income (.27) (.48) (.58) (.34)
Return of capital -0- (.04) -0- -0-
Distributions from net realized gains -0- (.01) -0- -0-
Total dividends and distributions (.27) (.53) (.58) (.34)
Net asset value, end of period $9.49 $ 9.51 $9.94 $ 9.84

TOTAL RETURN
Total investment return based
on net asset value (1) 2.64% 1.03% 7.02% 1.84%

RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $34,094 $43,173 $59,215 $24,186
Ratio of expenses to average net assets 1.94%(b) 1.34% 1.54% 1.44%(b)(d)
Ratio of expenses to average net assets
excluding interest expense (c) 1.29%(b) 1.20% 1.33% 1.42%(b)
Ratio of net investment income
to average net assets 5.53%(b) 4.78% 5.66% 6.58%(b)(d)
Portfolio turnover rate 197% 375% 499% 101%
</TABLE>

See footnote summary on page 15.

FINANCIAL HIGHLIGHTS (CONTINUED) ALLIANCE MORTGAGE STRATEGY TRUST
- -------------------------------------------------------------------------------
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD

<TABLE>
<CAPTION>
CLASS B
SIX MONTHS ENDED YEAR ENDED YEAR ENDED JUNE 1, 1992*
MAY 31, 1995 NOV. 30, NOV. 30, TO
(UNAUDITED) 1994 1993 NOV. 30, 1992
------------- ---------- ---------- --------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $9.52 $9.94 $ 9.84 $10.00

INCOME FROM INVESTMENT OPERATIONS
Net investment income .24 .39 .49 .31(a)
Net realized and unrealized gain (loss)
on investments (.03) (.35) .12 (.17)
Net increase in net asset value
from operations .21 .04 .61 .14

LESS: DISTRIBUTIONS
Dividends from net investment income (.23) (.42) (.51) (.30)
Return of capital -0- (.03) -0- -0-
Distributions from net realized gains -0- (.01) -0- -0-
Total dividends and distributions (.23) (.46) (.51) (.30)
Net asset value, end of period $9.50 $9.52 $9.94 $9.84

TOTAL RETURN
Total investment return based on net asset
value (1) 2.28% .42% 6.27% 1.50%

RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $109,749 $136,458 $168,157 $149,188
Ratio of expenses to average net assets 2.66%(b) 2.08% 2.26% 2.13%(b)(d)
Ratio of expenses to average net assets
excluding interest expense (c) 2.00%(b) 1.91% 2.07% 2.10%(b)
Ratio of net investment income to average
net assets 4.83%(b) 4.12% 4.98% 6.01%(b)(d)
Portfolio turnover rate 197% 375% 499% 101%
</TABLE>

See footnote summary on page 15.

ALLIANCE MORTGAGE STRATEGY TRUST
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD

CLASS C
SIX MONTHS YEAR MAY 3,
ENDED ENDED 1993**
MAY 31,1995 NOV.30, TO NOV. 30,
(UNAUDITED) 1994 1993
------------ ------- -----------
Net asset value, beginning of period $9.52 $9.94 $9.98

INCOME FROM INVESTMENT OPERATIONS
Net investment income .25 .37 .27
Net realized and unrealized gain (loss)
on investments (.04) (.33) (.03)
Net increase in net asset value from
operations .21 .04 .24

LESS: DISTRIBUTIONS
Dividends from net investment income (.23) (.42) (.28)
Return of capital -0- (.03) -0-
Distributions from net realized gains -0- (.01) -0-
Total dividends and distributions (.23) (.46) (.28)
Net asset value, end of period $9.50 $9.52 $9.94

TOTAL RETURN
Total investment return based
on net asset value (1) 2.28% .42% 2.40%

RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $92,940 $141,838 $228,703
Ratio of expenses to average net assets 2.68%(b) 2.04% 1.74%(b)
Ratio of expenses to average net assets
excluding interest expense (c) 1.99%(b) 1.89% 1.58%(b)
Ratio of net investment income
to average net assets 4.84%(b) 4.10% 3.70%(b)
Portfolio turnover rate 197% 375% 499%

* Commencement of operations.
** Commencement of distribution.

(a) Net of expenses waived by the Adviser.
(b) Annualized.
(c) Net of interest expenses on reverse repurchase agreements (see Note F).
(d) If the Fund had borne all expenses, the expense ratios would have been
1.55% for Class A shares and 2.28% for Class B shares. The net investment
income ratios would have been 6.47% for Class A shares and 5.86% for Class B
shares.

(1) Total investment return is calculated assuming an initial investment made
at the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period, and
redemption on the last day of the period. Initial sales charges or contingent
deferred sales charges are not reflected in the calculation of total investment
return. Total investment return calculated for a period of less than one year
is not annualized.

<PAGE>

PORTFOLIO OF INVESTMENTS
November 30, 1994 Alliance Mortgage Strategy Trust
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Value
<S> <C> <C>
MORTGAGE-RELATED SECURITIES-81.3%
COLLATERALIZED MORTGAGE
OBLIGATIONS-36.0%
ADJUSTABLE RATE-23.2%
Donaldson, Lufkin & Jenrette
Series 1993-20 A1
6.23%, 11/25/23 ............... 7,836 $ 7,744,980
Series 1994-QE1 A1
6.45%, 4/25/24 ................ 14,683 14,573,096
Guardian Savings & Loan
Assn. Series 1990-3
6.820%, 3/01/20 ............... 7,251 6,872,898
Resolution Trust Corp.
Series 1992-CHF A-2
6.65%, 12/25/20 ............... 27,342 27,590,508
Series 1992-5 A-4
9.24%, 5/25/26 ................ 17,621 17,797,210
------------
74,578,692
------------
FIXED RATE-12.8%
American Southwest Financial
Corp. Series 56C
8.25%, 4/25/16 ................ $ 5,371 5,360,116
Chase Mortgage Finance Corp.
Series 1993-D2 2A4
7.75%, 3/25/25 ................ 2,394 2,348,956
Federal Home Loan Mortgage Corp.
Series 1108 H
8.00%, 4/15/05+ ................ 10,530 10,509,939
Series 1016-Y
9.35%, 11/15/20+ ............... 7,475 7,605,684
Federal National Mortgage
Association
Series 1992-28A
6.25%, 12/25/16+ ............... 5,552 5,468,983
Series 1991-27J
8.20%, 4/25/01+ ................ 8,742 8,721,339
Residential Funding Corp.
Series 1993-S14
7.50%, 4/25/23 ................ 1,185 1,175,281
------------
41,190,298
------------
Total Collateralized Mortgage
Obligations (cost $118,638,250) 115,768,990
------------
FEDERAL HOME LOAN
MORTGAGE CORP-23.5%
5.31%, 8/01/24* ............... $ 2,123 $ 2,059,487
5.44%, 7/01/24* ............... 2,602 2,550,351
5.47%, 9/01/24* ............... 1,827 1,790,463
5.50%, (d)* ................... 10,000 9,863,000
5.50%, 7/01/24-9/01/24* ....... 1,547 1,516,395
5.55%, 9/01/24* ............... 3,354 3,282,681
5.58%, 9/01/24* ............... 538 527,050
5.63%, 9/01/24* ............... 3,759 3,663,718
5.64%, 8/01/24-10/01/24* ...... 517 506,699
5.65%, 10/26/24* .............. 15,008 14,803,762
5.67%, 4/01/22*+ ............... 14,147 14,090,622
5.68%, 8/01/24* ............... 4,714 4,675,484
5.70%, 9/01/24-11/01/24* ...... 1,489 1,459,485
5.76%, 9/01/24* ............... 829 811,974
5.94%, 10/01/24* .............. 1,675 1,649,928
5.98%,10/01/24* ............... 5,853 5,786,682
6.02%, 9/01/24* ............... 1,835 1,814,038
6.11%, 10/01/24* .............. 1,637 1,620,630
11.00%, 1/01/11-9/01/20 ....... 3,045 3,220,636
------------
Total Federal Home Loan
Mortgage Corp.
(cost $77,592,724) ............ 75,693,085
------------
FEDERAL NATIONAL
MORTGAGE ASSOCIATION-21.0%
5.50%, (d) .................... 16,000 15,640,000
5.55%, (d) .................... 8,000 7,830,000
5.70%, (d) .................... 7,000 6,860,000
5.71%, 10/01/24*+ .............. 6,480 6,399,375
5.75%, 9/01/24*+ ............... 14,827 14,705,333
5.75%, (d) .................... 6,000 5,887,500
5.86%, (d) .................... 7,000 6,860,000
7.50%, 4/01/08(c)* ............ 2 1,708
11.25%, 2/01/16 ............... 2,495 2,663,837
14.00%, 9/01/14 ............... 551 626,374
------------
Total Federal National
Mortgage Association
(cost $68,290,344) ............ 67,474,127
------------
</TABLE>

5
<PAGE>

PORTFOLIO OF INVESTMENTS (continued)
Alliance Mortgage Strategy Trust
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Value

<S> <C> <C>
GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION-0.8%
6.75%, 5/20/23* ............... $ 72 $ 71,768
11.25%, 7/15/13-1/15/16 (GPM) 1,625 1,738,551
11.50%, 4/15/13 ............... 78 84,139
11.50%, 2/15/13-6/15/13 (GPM) . 536 579,702
11.75%, 1/20/16 (GPM) ......... 62 66,603
------------
Total Government National
Mortgage Association
(cost $2,614,300) ............. 2,540,763
------------
Total Mortgage-Related
Securities
(cost $267,135,618) ........... 261,476,965
--------------
ASSET BACKED SECURITIES-44.5%
Choice Credit Card
Master Trust Ser. 1992-2A
6.11%, 4/15/99 ................ 31,700 31,814,120
ITT Floorplan Receivables
Master Trust Ser. 1994-1A
5.58%, 2/15/01 ................ 27,000 26,983,800
Lehman Home Equity
Loan Trust Ser. 1994-2
5.79%, 6/15/24 ................ 23,218 23,185,407
LINCS Series 1994-2
7.29%, 8/10/95 ................ 25,000 24,937,500
MBNA Master Credit
Card Trust Ser. 1994-CA
5.62%, 3/15/04 ................ 18,000 17,987,400
World Omni Wholesale
Master Trust Ser. 1994-1-A
5.825%, 10/25/01 .............. $18,250 $ 18,242,700
------------
Total Asset Backed Securities
(cost $143,322,990) ........... 143,150,927
------------
FEDERAL AGENCY
SECURITIES-3.6%
Small Business
Administration-3.6%
RMO-F06 (I/O)
10.00%, 12/25/18*(a)(b) ....... 3,408 4,178,468
RMO-F07 (I/O)
10.00%, 12/25/18*(a)(b) ....... 4,725 4,223,214
RMO-F08 (I/O)
10.00%, 12/25/18*(a)(b) ....... 4,793 3,073,637
------------
Total Federal Agency
Securities
(cost $12,925,551) ............ 11,475,319
------------

COMMERCIAL PAPER-7.7%
Bankers Trust Co.
Peso Linked
zero coupon, 1/05/95
(cost $24,812,794) ............ 25,000 24,807,500
------------
TOTAL INVESTMENTS-137.1%
(cost $448,196,953) ........... 440,910,711
Other assets less liabilities-
(37.1)% (119,441,858)
------------
NET ASSETS-100% ............... $ 321,468,853
=============
</TABLE>
* Adjustable rate mortgages stated interest rate in effect at November 30,
1994.
+ Securities segregated to collateralize reverse repurchase agreements
with an aggregate market value of approximately $67,500,000.
(a) Illiquid security, valued at fair value (see Notes A&E).
(b) Interest rate represents yield to maturity.
(c) 15 year mortgage.
(d) Securities to be announced at a future date.
Glossary of terms:
GPM - Graduated payment mortgage.
I/O - Interest only.
LINCS - Linked certificates.
See notes to financial statements.

6
<PAGE>

STATEMENT OF ASSETS AND LIABILITIES
November 30, 1994 Alliance Mortgage Strategy Trust
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Investments in securities, at value (cost $448,196,953) $440,910,711
Cash .................................................. 2,049,985
Interest receivable ................................... 2,295,172
Receivable for investment securities sold ............. 1,037,697
Receivable for capital stock sold ..................... 445,601
Deferred organization expenses ........................ 152,110
Other assets .......................................... 12,022
------------
Total assets .......................................... 446,903,298
------------
LIABILITIES
Reverse repuchase agreement ........................... 65,866,000
Payable for investment securities purchased ........... 53,202,656
Payable for capital stock redeemed .................... 5,017,971
Dividends payable ..................................... 688,812
Distribution fee payable .............................. 251,362
Advisory fee payable .................................. 181,943
Accrued expenses ...................................... 225,701
------------
Total liabilities ..................................... 125,434,445
------------

NET ASSETS .............................................. $321,468,853
============
COMPOSITION OF NET ASSETS
Capital stock, at par ................................. $ 33,783
Additional paid-in capital ............................ 341,656,226
Distributions in excess of net investment income ...... (674,950)
Accumulated net realized loss ......................... (12,259,964)
Net unrealized depreciation of investments ............ (7,286,242)
------------
$321,468,853
============
CALCULATION OF MAXIMUM OFFERING PRICE
Class A Shares
Net asset value and redemption price per share
($43,172,980/4,538,655 shares of capital stock
issued and outstanding) ............................. $9.51
Sales charge-4.25% of public offering price ........... .42
-----
Maximum offering price ................................ $9.93
=====
Class B Shares
Net asset value and offering price per share
($136,458,147/14,339,255 shares of capital stock
issued and outstanding) ............................. $9.52
=====
Class C Shares
Net asset value, redemption and offering price
per share ($141,837,726/14,904,916 shares of
capital stock issued and outstanding) ............... $9.52
=====
</TABLE>
See notes to financial statements.

7
<PAGE>

STATEMENT OF OPERATIONS
Year Ended November 30, 1994 Alliance Mortgage Strategy Trust
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME
Interest ................................ $27,927,070
Fee income .............................. 565,857 $28,492,927
-----------
EXPENSES
Advisory fee ............................ 3,005,558
Distribution fee-Class A ................ 233,954
Distribution fee-Class B ................ 1,659,349
Distribution fee-Class C ................ 2,184,741
Transfer agency ......................... 432,483
Administrative .......................... 159,362
Registration ............................ 122,188
Printing ................................ 108,351
Audit and legal ......................... 104,800
Custodian ............................... 95,100
Amortization of organization expenses ... 55,302
Directors' fees ......................... 24,787
Miscellaneous ........................... 47,617
-----------
Total expenses before interest .......... 8,233,592
Interest expense ........................ 729,234
-----------
Total expenses .......................... 8,962,826
------------
Net investment income ................... 19,530,101
------------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS
Net realized loss on investments ........ (11,827,131)
Net change in unrealized depreciation
of investments ........................ (5,594,513)
------------
Net loss on investments ................. (17,421,644)
------------
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 2,108,457
============
</TABLE>
See notes to financial statements.

8
<PAGE>

STATEMENT OF CHANGES IN NET ASSETS Alliance Mortgage Strategy Trust
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
November 30, November 30,
1994 1993
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment income ............... $ 19,530,101 $ 12,771,877
Net realized gain (loss) on
investments ....................... (11,827,131) 692,217
Net change in unrealized appreciation
(depreciation) of investments ..... (5,594,513) 151,858
------------ ------------
Net increase in net assets from
operations ........................ 2,108,457 13,615,952
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income
Class A ........................... (3,836,051) (2,219,657)
Class B ........................... (7,086,010) (8,517,206)
Class C ........................... (9,332,006) (2,478,311)
Return of capital
Class A ........................... (320,880) -0-
Class B ........................... (592,734) -0-
Class C ........................... (780,607) -0-
Net realized gain on investments
Class A ........................... (74,284) -0-
Class B ........................... (184,922) -0-
Class C ........................... (274,605) -0-
CAPITAL STOCK TRANSACTIONS
Net increase (decrease) ............. (114,232,551) 282,299,912
------------ ------------
Total increase (decrease) ........... (134,606,193) 282,700,690

NET ASSETS
Beginning of year ................... 456,075,046 173,374,356
------------ ------------
End of year ......................... $321,468,853 $456,075,046
============ ============
</TABLE>
9
<PAGE>

NOTES TO FINANCIAL STATEMENTS
November 30, 1994 Alliance Mortgage Strategy Trust
- -------------------------------------------------------------------------------

NOTE A: Significant Accounting Policies
Alliance Mortgage Strategy Trust, Inc. (the "Fund"), was incorporated in
the state of Maryland on April 8, 1992 as a diversified, open-end management
investment company. The Fund had no operations until April 28, 1992, when it
sold 5,000 shares of common stock Class A and 5,000 shares of common stock Class
B for $100,000 to Alliance Capital Management, L.P. (the "Adviser"). Investment
operations commenced on June 1, 1992. On February 23, 1993, the Board of
Directors of the Fund approved the creation of a third class of shares, Class C
shares. The Fund currently offers three classes of shares. Class A shares are
sold with a front-end sales charge of up to 4.25%. Class B shares are sold with
a contingent deferred sales charge which declines from 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
Fixed-income securities are valued on the basis of prices provided by a
pricing service and brokers. However, securities which are traded
over-the-counter and on a national securities exchange may be valued
according to the broadest and most representative market. It is expected
that, for the fixed-income securities and options in which the Fund invests,
this ordinarily will be the over-the-counter market. Securities not priced in
this manner are valued at the latest quoted bid price, or when exchange valuat
ions are used, at the latest quoted sale price on the day of valuation. If
there is no such reported sale, the latest quoted bid price will be used.
Other securities for which quotations are not readily available or illiquid
securities are valued in good faith at fair value using methods determined by
the Board of Directors. In determining fair value, consideration is given to
cost, operations and other financial data. Securities which mature in 60
days or less are valued at amortized cost, which approximates market value.

2. Organization Expenses
Organization expenses of approximately $276,500 have been deferred and are
being amortized on a straight-line basis through August, 1997.

3. Taxes
It is the Fund's policy to meet the requirements of the Internal Revenue Code
applicable to regulated investment companies and to distribute all of its
investment company taxable income and net realized gains, if applicable, to
shareholders. Therefore, no provisions for federal income or excise taxes are
required.

4. Investment Income and Security Transactions
Interest income is accrued daily. Fee income is generated by participating in
forward commitments, in which the Fund agrees to the delayed settlement of
securities. By agreeing to the delayed settlement of securities, the Fund
receives a fee from the seller. The fee is accrued from the settlement date
of the associated sale transaction to the purchase settlement date. Security
transactions are accounted for on the date the securities are purchased or
sold. The Fund accretes original issue discount as adjustments to interest
income. Security gains or losses are determined on the identified cost basis.

5. Dividends and Distributions
Dividends and distributions to shareholders are recorded on the ex-dividend
date. Distributions in excess of net investment income represent
distributions recognized in accordance with generally accepted accounting
principles but recognized in future periods for tax purposes.

6. Changes in Accounting for Distributions to Shareholders
Effective December 1, 1993, the Fund adopted Statement of Position 93-2
(SOP): Determination, Disclosure, and Financial Statement Presentation of
Income, Capital Gain, and Return of Capital Distributions by Investment
Companies. The effect of the adoption of this SOP was a

10
<PAGE>

Alliance Mortgage Strategy Trust
- -------------------------------------------------------------------------------

decrease to distributions in excess of net investment income of $2,065,998
and a corresponding increase to accumulated net realized loss of $371,777 and
a decrease to additional paid-in capital of $1,694,221. The reclasses were
the result of permanent book to tax differences in the classification of
paydown losses, as well as reclassification of a tax return of capital to
additional paid-in capital. Net assets were not affected by the 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
.65 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 investment advisory agreement,
to reimburse the Fund to the extent that its aggregate annual expenses
(exclusive of interest, taxes, brokerage, distribution fee, and extraordinary
expenses) in any year exceed 2.5% of the first $30 million of its 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.
No such reimbursement was required for the year ended November 30, 1994.
Pursuant to the advisory agreement, the Fund paid $161,833 to the Adviser
representing the cost of certain legal and accounting services provided to
the Fund by the Adviser.

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 $268,150 for the year ended November 30, 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 $28,083 from the sale of Class A shares and
$590,655 in contingent deferred sales charge imposed upon redemptions by
shareholders of Class B shares for the year ended November 30, 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 up to .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 the
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 $1,042,848 and $1,875,176 for Class B
and C shares, respectively; such costs may be recovered from the Fund in
future periods so long as the Agreement is in effect. In accordance with the
Agreement, there is no provision for recovery of unreimbursed distribution
costs, incurred by the Distributor, beyond the current fiscal year for Class
A shares. The Agreement also provides that the Adviser may use its own
resources to finance the distribution of the Fund's shares.

- -------------------------------------------------------------------------------
NOTE D: Investment Transactions
Purchases and sales of investment securities (excluding short-term
investments) aggregated $1,495,237,851 and $1,537,483,830, respectively, for
the year ended November 30, 1994.

At November 30, 1994, the cost of securities for federal income tax purposes
was the same as for financial reporting purposes. Accordingly, gross
unrealized appreciation of investments was $1,134 and gross unrealized
depreciation of investments was $7,287,376 resulting in net unrealized
depreciation of $7,286,242.

At November 30, 1994, for federal income tax purposes the Fund had a capital
loss carryforward totaling $12,259,964 of which $219,463 expires in the year
2000; $177,358 expires in the year 2001 and $11,863,143 expires in the year
2002.

11
<PAGE>

NOTES TO FINANCIAL STATEMENTS (continued) Alliance Mortgage Strategy Trust
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NOTE E: Illiquid Securities Date
Security Acquired Cost
<S> <C> <C>
SMALL BUSINESS ADMINISTRATION
RMO--F06 (I/O)
10.00%, 12/25/18 .............................. 12/28/93 $ 4,793,303
RMO--F07 (1/O)
10.00%, 12/25/18 .............................. 12/28/93 4,724,603
RMO--F08 (1/O)
10.00%, 12/25/18 .............................. 12/28/93 3,407,645
-----------
$12,925,551
===========
</TABLE>
The securities shown are illiquid and have been valued at fair value in
accordance with the procedures described in Note A. The value of these
securities at November 30, 1994 was $11,475,319 representing 3.6% of net assets.

- -------------------------------------------------------------------------------
NOTE F: Capital Stock
There are 9,000,000,000 shares of $.001 par value capital stock authorized,
divided into three classes, designated Class A, Class B and Class C shares.
Each class consists of 3,000,000,000 authorized shares. Transactions in
capital stock were as follows:
<TABLE>
<CAPTION>
SHARES AMOUNT
Year Ended Year Ended Year Ended Year Ended
November 30, November 30, November 30, November 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Class A
Shares sold ...................... 10,402,991 6,553,153 $102,403,447 $65,411,296
Shares issued in reinvestment of
dividends and distributions .... 196,834 144,129 1,920,619 1,437,002
Shares redeemed .................. (12,019,791) (3,197,123) (116,943,609) (31,861,489)
------------- ------------- ------------ -----------
Net increase (decrease) .......... (1,419,966) 3,500,159 $(12,619,543) $34,986,809
============= ============= ============ ===========

Class B
Shares sold ...................... 8,985,316 8,953,304 $ 87,892,802 $89,128,009

Shares issued in reinvestment of
dividends and distributions .... 517,255 508,652 5,040,145 5,068,394
Shares redeemed .................. (12,081,682) (7,703,221) (117,377,470) (76,811,539)
------------- ------------- ------------ -----------
Net increase (decrease) .......... (2,579,111) 1,758,735 $(24,444,523) $17,384,864
============= ============= ============ ===========
</TABLE>

12
<PAGE>

Alliance Mortgage Strategy Trust
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES AMOUNT
Year Ended May 3, 1993* Year Ended May 3, 1993*
November 30, to November 30, November 30, to November 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Class C
Shares sold ...................... 28,575,040 29,051,561 $281,368,499 $290,249,572

Shares issued in reinvestment
of dividends and distributions 796,235 121,830 7,769,566 1,217,899
Shares redeemed .................. (37,474,348) (6,165,402) (366,306,550) (61,539,232)
------------- ------------- ------------ ------------
Net increase (decrease) .......... (8,103,073) 23,007,989 $(77,168,485) $229,928,239
============= ============= ============ ============
</TABLE>

- -------------------------------------------------------------------------------
NOTE G: Reverse Repurchase Agreements
Under a reverse repurchase agreement, the Fund sells securities and agrees
to repurchase them at a mutually agreed upon date and price. At the time the
Fund enters into a reverse repurchase agreement, it may establish a segregated
account with the custodian containing cash, cash equivalents or liquid
high-grade debt securities having a value at least equal to the repurchase
price. As of November 30, 1994, the Fund had entered into a reverse repurchase
agreement in the amount of $65,866,000 with Prudential Securities with an
interest rate of 5.62% maturing on December 7, 1994. For the year ended November
30, 1994, the maximum amount of reverse repurchase agreements outstanding was
$82,585,000, the average amount outstanding was approximately $32,422,000, and
the daily weighted average interest rate was 4.51%.

* Commencement of distribution.

13
<PAGE>

FINANCIAL HIGHLIGHTS Alliance Mortgage Strategy Trust
- -------------------------------------------------------------------------------

Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
<TABLE>
<CAPTION>
Class A
Year Ended Year Ended June 1, 1992*
November 30, November 30, to
1994 1993 November 30, 1992
<S>
<C> <C> <C>
Net asset value, beginning of period .. $9.94 $9.84 $10.00
----- ----- ------
Income From Investment Operations
Net investment income ................. .42 .57 .35(a)
Net realized and unrealized gain (loss)
on investments ...................... (.32) .11 (.17)
----- ----- ------
Net increase in net asset value
from operations ..................... .10 .68 .18
----- ----- ------
Less: Distributions
Dividends from net investment income .. (.48) (.58) (.34)
Return of capital ..................... (.04) -0- -0-
Distributions from net realized gains . (.01) -0- -0-
----- ----- ------
Total dividends and distributions ..... (.53) (.58) (.34)
----- ----- ------
Net asset value, end of period ........ $9.51 $9.94 $9.84
===== ===== ======
Total Return
Total investment return
based on net asset value (1) ........ 1.03% 7.02% 1.84%
===== ===== ======

Ratios/Supplemental Data
Net assets, end of period
(000's omitted) ..................... $43,173 $59,215 $24,186

Ratio of expenses to
average net assets .................. 1.34% 1.54% 1.44%(b)(d)

Ratio of expenses to average net assets
excluding interest expense (c) ...... 1.20% 1.33% 1.42%(b)

Ratio of net investment
income to average net assets ...... 4.78% 5.66% 6.58%(b)(d)

Portfolio turnover rate ............... 375% 499% 101%
</TABLE>

See footnote summary on page 16.

14
<PAGE>

Alliance Mortgage Strategy Trust
- -------------------------------------------------------------------------------

Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
<TABLE>
<CAPTION>
Class B
Year Ended Year Ended June 1, 1992*
November 30, November 30, to
1994 1993 November 30, 1992
<S> <C> <C> <C>
Net asset value, beginning of period .. $9.94 $9.84 $10.00
----- ----- ------
Income From Investment Operations
Net investment income ................. .39 .49 .31(a)

Net realized and unrealized gain (loss)
on investments ...................... (.35) .12 (.17)
----- ----- ------
Net increase in net asset value
from operations ..................... .04 .61 .14
----- ----- ------
Less: Distributions
Dividends from net investment income .. (.42) (.51) (.30)
Return of capital ..................... (.03) -0- -0-
Distributions from net realized gains . (.01) -0- -0-
----- ----- ------
Total dividends and distributions ..... (.46) (.51) (.30)
----- ----- ------
Net asset value, end of period ........ $9.52 $9.94 $ 9.84
===== ===== ======
Total Return
Total investment return
based on net asset value (1) ........ .42% 6.27% 1.50%
===== ===== ======
Ratios/Supplemental Data
Net assets, end of period
(000's omitted) .....................$136,458 $168,157 $149,188

Ratio of expenses to
average net assets .................. 2.08% 2.26% 2.13%(b)(d)

Ratio of expenses to average net assets
excluding interest expense (c) ...... 1.91% 2.07% 2.10%(b)

Ratio of net investment
income to average net assets ........ 4.12% 4.98% 6.01%(b)(d)
Portfolio turnover rate ............... 375% 499% 101%
</TABLE>
See footnote summary on page 16.

15
<PAGE>

FINANCIAL HIGHLIGHTS (continued) Alliance Mortgage Strategy Trust
- -------------------------------------------------------------------------------

Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
<TABLE>
<CAPTION>
Class C
Year Ended May 3, 1993**
November 30, to November 30,
1994 1993

<S> <C> <C>
Net asset value, beginning of period .. $9.94 $9.98
----- -----
Income From Investment Operations
Net investment income ................. .37 .27

Net realized and unrealized gain (loss)
on investments ...................... (.33) (.03)
----- -----
Net increase in net asset value
from operations ..................... .04 .24
----- -----
Less: Distributions
Dividends from net investment income .. (.42) (.28)
Return of capital ..................... (.03) -0-
Distributions from net realized gains . (.01) -0-
----- -----
Total dividends and distributions ..... (.46) (.28)
----- -----
Net asset value, end of period ........ $9.52 $9.94
===== =====
Total Return
Total investment return
based on net asset value (1) ........ .42% 2.40%

Ratios/Supplemental Data
Net assets, end of period
(000's omitted) .....................$141,838 $228,703

Ratio of expenses to
average net assets .................. 2.04% 1.58%(b)

Ratio of expenses to average net assets
excluding interest expense (c) ...... 1.89% 1.74%(b)

Ratio of net investment
income to average net assets ........ 4.10% 3.70%(b)
Portfolio turnover rate ............... 375% 499%
</TABLE>

* Commencement of operations.
** Commencement of distribution.
(a) Net of expenses waived by the Adviser.
(b) Annualized.
(c) Net of interest expenses on reverse repurchase agreements (see
Note G).
(d) If the Fund had borne all expenses, the expense ratios would have been
1.55% for Class A shares and 2.28% for Class B shares. The net investment
income ratios would have been 6.47% for Class A shares and 5.86% for
Class B shares.
(1) Total investment return is calculated assuming an initial investment made
at the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period, and
redemption on the last day of the period. Initial sales charges or
contingent deferred sales charges are not reflected in the calculation of
total investment return. Total investment return calculated for a period
of less than one year is not annualized.

16
<PAGE>

REPORT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS Alliance Mortgage Strategy Trust
- -------------------------------------------------------------------------------

To the Shareholders and Board of Directors
Alliance Mortgage Strategy Trust, Inc.

We have audited the accompanying statement of assets and liabilities of
Alliance Mortgage Strategy Trust, Inc., including the portfolio of
investments, as of November 30, 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 November 30, 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 Mortgage Strategy Trust, Inc. at November 30, 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.

[SIGNATURE]

New York, New York
January 13, 1995

<PAGE>

APPENDIX A

BOND AND COMMERCIAL PAPER RATINGS

STANDARD & POOR'S BOND RATINGS

A Standard & Poor's Ratings Services ("S&P") 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 S&P. 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 of "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 the description by Moody's Investors
Service, Inc. 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.

STANDARD & POOR'S COMMERCIAL PAPER RATINGS

A is the highest commercial paper rating category
utilized by S&P, which uses the numbers 1+, 1, 2 and 3 to denote
relative strength within its A classification. Commercial paper
issuers 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.

A-1

<PAGE>

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.
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.

A-2

<PAGE>

APPENDIX B

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 securities issued or guaranteed by the United States
Government, its agencies or instrumentalities or corporate debt
securities. 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
United States Government, such as long-term U.S. Treasury Bonds,
Treasury Notes, Government National Mortgage Association modified
pass-through mortgage-related securities and three-month U.S.
Treasury Bills.

At the same time a futures contract is purchased or
sold, the Fund must allocate cash or securities as a deposit
payment ("initial deposit"). It is expected that the initial
deposit would be approximately 1 1/2% to 5% of a contract's face
value. Daily thereafter, the futures contract is valued and the
payment of "variation margin" may be required, since each day the
Fund would provide or receive cash that reflects any decline or
increase in the contract's value.

At the time of delivery of securities pursuant to such a
contract, adjustments are made to recognize differences in value
arising from the delivery of securities with a different 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 in
the case of future contracts with respect to debt securities
entered into by the Fund and in all cases in the case of futures
contracts with respect to foreign currencies entered into by the
Fund the contractual obligation is fulfilled before the date of
the contract without having to make or take delivery of the
securities or foreign currencies. The offsetting of a

B-1

<PAGE>

contractual obligation is accomplished by buying (or selling, as
the case may be) on a commodities exchange an identical futures
contract calling for delivery in the same month. Such a
transaction, which is effected through a member of an exchange,
cancels the obligation to make or take delivery of the securities
or currency. 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 rates without actually buying or selling fixed-income
securities. 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.

B-2

<PAGE>

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 denominated in foreign currencies, is to attempt to
protect the Fund from fluctuations in foreign exchange rates
without actually buying or selling fixed-income securities or
foreign currency. For example, the Fund can sell futures
contracts on a specified currency to protect against a decline in
value of such currency and its portfolio securities which are
denominated in such currency. Similarly, the Fund may sell
futures contracts on one currency to hedge against fluctuations
in the value of securities denominated in a different currency if
there is an established historical record of correlation between
the two currencies.

The Fund can purchase futures contracts on foreign
currency to fix the price in U.S. Dollars of a security
denominated in such currency that the Fund has acquired or
expects to acquire. This would be done, for example, when the
Fund anticipates the subsequent purchase of particular securities
when it has the necessary cash, but expects currency exchange
rates then available in the applicable market to be less
favorable than rates that are currently available. To the extent
the Fund enters into futures contracts for this purpose, the
assets in the segregated account maintained with the Fund's
Custodian to cover the Fund's obligations with respect to such
futures contracts will consist of cash, cash equivalents or high-
grade 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
the futures market are subject to initial margin and variation
margin requirements. Rather than meeting additional variation
margin requirements, investors may close-out futures contracts
positions 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

B-3

<PAGE>

forecast of general interest rate or foreign currency exchange
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 or exchange 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 or currency.
Depending on the pricing of the option compared to either the
price of the futures contract upon which it is based or the price
of the underlying debt securities or foreign currency, it may or
may not be less risky than ownership of the futures contract or
underlying debt securities or foreign currency. As with the
purchase of futures contracts against declining prices of foreign
currency, 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.

The writing of a call option on a futures contract
constitutes a partial hedge against declining prices of the
security which is deliverable upon exercise of the futures
contract or against declining prices of foreign currency. 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 which is deliverable upon
exercise of the futures contract and against increasing prices of
foreign currency. If the futures price at expiration of the

B-4

<PAGE>

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 or against any increase in the price of
currency. 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 or foreign currency. 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 and options on futures contracts on
foreign currencies will be utilized. For example, a decline in
the dollar value of a foreign currency in which portfolio
securities are denominated will reduce the dollar value of such
securities, even if their value in the foreign currency remains
constant. In order to protect against such diminutions in the
value of portfolio securities, the Fund may purchase put options
on the foreign currency. If the value of the currency does
decline, the Fund will have the right to sell such currency for a
fixed amount in dollars and will thereby offset, in whole or in
part, the adverse effect on its portfolio which otherwise would
have resulted. Conversely, where a rise in the dollar value of a
currency in which securities to be acquired are denominated is
projected, thereby increasing the cost of such securities, the
Fund may purchase call options thereon. The purchase of such
options could offset, at least partially, the effects of the
adverse movements in exchange rates. The Fund must offset an
exchange-traded option which it has purchased by entering into a
"closing sale transaction." A closing sale transaction
terminates the obligation of the writer of the option and does

B-5

<PAGE>

not result in the ownership of an option. The Fund realizes a
profit or loss from a closing sale transaction if the premium
received from the transaction is more than or less than the cost
of the option.

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. However, the losses to the Fund would be limited to
amount of premiums paid.

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 U.S. 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 U.S. 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. The Fund must offset an exchange-traded option which
it has written through a closing purchase transaction. The Fund
realizes a profit or a loss from a closing purchase transaction
if the cost of the transaction is less than or more than the
premium received by the Fund from writing the option. 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.

In connection with options written or purchased by the
Fund over-the-counter, the Fund can only look to the counterparty
for purposes of offset.

The Fund intends to write covered call options on
foreign currencies. A call option is covered if the Fund has a
call on the same foreign currency and in the same principal

B-6

<PAGE>

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, or
high-grade liquid debt securities in a segregated account with
its Custodian.

The Fund also intends to write call options on foreign
currencies for cross-hedging purposes. An option that is cross-
hedged is not covered, but is designed to provide a hedge against
a decline in the U.S. Dollar value of a security which the Fund
owns or has the right to acquire and which is denominated in the
currency other than 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 high-grade liquid debt
securities in an amount not less than the value of the underlying
foreign currency in U.S. Dollars marked to market daily.

ADDITIONAL RISKS OF OPTIONS ON FUTURES CONTRACTS AND OPTIONS
ON FOREIGN CURRENCIES.

Unlike transactions entered into by the Fund in futures
contracts and options on futures contracts, options on foreign
currencies 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. 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 could lose amounts
substantially in excess of their initial investments, due to the
margin and collateral requirements associated with such
positions.

Options on foreign currencies traded on national
securities exchanges are within the jurisdiction of the SEC, as
are other securities traded on such exchanges. As a result, many
of the protections provided to traders on organized exchanges
will be available with respect to such transactions. In
particular, all foreign currency option positions entered into on
a national securities exchange are cleared and guaranteed by the
Options Clearing Corporation ("OCC"), thereby reducing the risk

B-7

<PAGE>

of counterparty default. Further, a liquid secondary market in
options traded on a national securities exchange may be more
readily available than in the over-the-counter market,
potentially permitting the Fund to liquidate open positions at a
profit prior to exercise or expiration, or to limit losses in the
event of adverse market movements.

The purchase and sale of exchange-traded foreign
currency options, however, is subject to the risks of the
availability of a liquid secondary market described above, as
well as the risks regarding adverse market movements, margining
of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effects
of other political and economic events. In addition, exchange-
traded options on foreign currencies involve certain risks not
presented by the over-the-counter market. For example, exercise
and settlement of such options must be made exclusively through
the OCC, which has established banking relationships in
applicable foreign countries for this purpose. As a result, the
OCC may, if it determines that foreign governmental restrictions
or taxes would prevent the orderly settlement of foreign currency
option exercise, or would result in undue burdens on the OCC or
its clearing member, impose special procedures on exercise and
settlement, such as technical changes in the mechanics of
delivery of currency, the fixing of dollar settlement prices or
prohibitions on exercise. These risks could affect the ability
of the Fund to offset positions in a timely and profitable
fashion.

In addition, futures contracts, options on futures
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.

B-8
00250110.AL3

<PAGE>

PART C
OTHER INFORMATION

ITEM 24. Financial Statements and Exhibits

(a) FINANCIAL STATEMENTS

Included in the Prospectus:

Financial Highlights

Included in the Statement of Additional Information:

Portfolio of Investments, May 31, 1995*.
Statement of Assets and Liabilities, May 31, 1995*.
Statement of Operations, six months ended May 31,
1995*.
Statement of Changes in Net Assets, six months ended
May 31, 1995* and year ended November 30, 1994.
Notes to Financial Statements, May 31, 1995*.
Financial Highlights, for Class A and Class B shares
the six months ended May 31, 1995* and the years
ended November 30, 1994, November 30, 1993 and the
period June 1, 1992 (commencement of operations)
to November 30, 1992; for Class C shares the six
months ended May 31, 1995*, the year ended
November 30, 1994, and the period May 3, 1993
(commencement of operations) through November 30,
1993.

Portfolio of Investments, November 30, 1994
Statement of Assets and Liabilities, November 30, 1994
Statement of Operations, year ended November 30, 1994
Statement of Changes in Net Assets, years ended
November 30, 1994 and November 30, 1993
Notes to Financial Statements, November 30, 1994
Financial Highlights, for Class A and Class B shares
for years ended November 30, 1994, November 30,
1993 and the period June 1, 1992 (commencement of
operations) to November 30, 1992; for Class C
shares for year ended November 30, 1994 and for
the period May 3, 1993 (commencement of
operations) through November 30, 1993
Report of Independent Auditors

Included in Part C of the Registration Statement:

All other schedules are either inapplicable or the required
information is contained in the Financial Statement.

* Unaudited.

C-1

<PAGE>

(b) EXHIBITS

(1) Copy of Articles of Incorporation of the
Registrant - Incorporated by reference from
Registrant's Registration Statement on Form N-
1A, filed with the Securities and Exchange
Commission on April 8, 1992.

(1) (a) Articles of Amendment to Articles of
Incorporation - Incorporated by reference from
Pre-Effective Amendment No. 2 of Registrant's
Registration Statement on Form N- 1A, filed
with the Securities and Exchange Commission on
April 30, 1992.

(2) Copy of Amended By-Laws of the Registrant -
Incorporated by reference from Post-Effective
Amendment No. 1 of Registrant's Registration
Statement on Form N- 1A, filed with the
Securities and Exchange Commission on October
30, 1992.

(3) Not applicable.

(4) (a) Form of Stock Certificate for Class A Shares -
Incorporated by reference from Pre-Effective
Amendment No. 2 to Registrant's Registration
Statement on Form N-1A, filed with the
Securities and Exchange Commission on April
30, 1992.

(b) Form of Stock Certificate for Class B Shares -
Incorporated by reference from Pre-Effective
Amendment No. 2 of Registrant's Registration
Statement on Form N- 1A, filed with the
Securities and Exchange Commission on April
30, 1992.

(5) Copy of Advisory Agreement between the
Registrant and Alliance Capital Management
L.P. - Incorporated by reference from Post-
Effective Amendment No. 1 to Registrant's
Registration Statement on Form N-1A, filed
with the Securities and Exchange Commission on
October 30, 1992.

(6) (a) Distribution Services Agreement between the
Registrant and Alliance Fund Distributors,
Inc. - Incorporated by reference from Post-
Effective Amendment No. 4 to Registrant's
Registration Statement on Form N1-A, filed

C-2

<PAGE>

with the Securities and Exchange Commission on
January 31, 1994.

(b) Selected Dealer Agreement between Alliance
Fund Distributors, Inc. and selected dealers
offering shares of Registrant - Incorporated
by reference from Post- Effective Amendment
No. 3 to Registrant's Registration Statement
on Form N-1A, filed with the Securities and
Exchange Commission on March 2, 1993.

(c) Selected Agent Agreement between Alliance Fund
Distributors, Inc. and selected agents making
available shares of Registrant - Incorporated
by reference from Post-Effective Amendment No.
3 to Registrant's Registration Statement on
Form N-1A, filed with the Securities and
Exchange Commission on March 2, 1993.

(7) Not applicable.

(8) Copy of Custodian Contract between the
Registrant and State Street Bank and Trust
Company - Incorporated by reference from Post-
Effective Amendment No. 1 to Registrant's
Registration Statement on Form N-1A, filed
with the Securities and Exchange Commission on
October 30, 1992.

(9) Copy of Transfer Agency Agreement between the
Registrant and Alliance Fund Services, Inc. -
Incorporated by reference from Post-Effective
Amendment No. 1 to Registrant's Registration
Statement on Form N- 1A, filed with the
Securities and Exchange Commission on October
30, 1992.

(10) (a) Opinion and Consent of Seward & Kissel -
Incorporated by reference from Pre-Effective
Amendment No. 2 to Registrant's Registration
Statement on Form N-1A, filed with the
Securities and Exchange Commission on April
30, 1992.

(b) Opinion and Consent of Venable, Baetjer and
Howard, LLP Incorporated by reference from
Pre-Effective Amendment No. 2 to Registrant's
Registration Statement on Form N- 1A, filed
with the Securities and Exchange Commission on
April 30, 1992.

C-3

<PAGE>

(11) Consent of Independent Auditors - Filed
herewith.

(12) Not applicable.

(13) Investment representation letter of Alliance
Capital Management L.P. - Incorporated by
reference from Pre- Effective Amendment No. 2
to Registrant's Registration Statement on Form
N-1A, filed with the Securities and Exchange
Commission on April 30, 1992.

(14) Not applicable.

(15) Rule 12b-1 Plan - See Exhibit 6(a).

(16) Schedule for computation of performance
quotations - Incorporated by reference from
Pre-Effective Amendment No. 2 to Registrant's
Registration Statement on Form N- 1A, filed
with the Securities and Exchange Commission on
April 30, 1992.

(27) Financial Data Schedule - filed herewith.

Other Exhibit: Powers of Attorney of Ms. Block and
Messrs. Carifa, Dievler, Hester, Michel and White - Incorporated
by reference from Pre-Effective Amendment No. 2 of Registrant's
Registration Statement on Form N-1A, filed with the Securities
and Exchange Commission on April 30, 1992.

Power of Attorney of William H. Foulk, Jr. - Incorporated by
reference from Post-Effective Amendment No. 1 of Registrant's
Registration Statement on Form N-1A, filed with the Securities
and Exchange Commission on October 30, 1992.

ITEM 25. Persons Controlled by or under Common Control with
Registrant.

None.

ITEM 26. Number of Holders of Securities.

As of October 10, 1995, the Registrant had 3,065,279
record holders of Class A shares of common stock, 9,512,432
record holders of Class B shares of common stock and 7,751,431
record holders of Class C shares of common stock.

C-4

<PAGE>

ITEM 27. Indemnification

It is the Registrant's policy to indemnify its directors and
officers, employees and other agents to the maximum extent
permitted by Section 2-418 of the General Corporation Law of the
State of Maryland and as set forth in Article EIGHTH of
Registrant's Articles of Incorporation, filed as Exhibit 1,
Article VII and Article VIII of the Registrant's By-Laws filed as
Exhibit 2 and Section 10 of the Distribution Services Agreement
filed as Exhibit 6(a), all as set forth below. The liability of
the Registrant's directors and officers is dealt with in
Article EIGHTH of Registrant's Articles of Incorporation, and
Article VII, Section 7 and Article VIII, Section 1 through
Section 6 of the Registrant's By-Laws, as set forth below. The
Adviser's liability for any loss suffered by the Registrant or
its shareholders is set forth in Section 4 of the Advisory
Agreement filed as Exhibit 5 to this Registration Statement, as
set forth below.

SECTION 2-418 OF THE MARYLAND GENERAL CORPORATION LAW READS AS
FOLLOWS:

"2-418 INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND
AGENTS.--(a) In this section the following words have the
meaning indicated.

(1) "Director" means any person who is or was a
director of a corporation and any person who, while a director of
a corporation, is or was serving at the request of the
corporation as a director, officer, partner, trustee, employee,
or agent of another foreign or domestic corporation, partnership,
joint venture, trust, other enterprise, or employee benefit plan.

(2) "Corporation" includes any domestic or foreign
predecessor entity of a corporation in a merger, consolidation,
or other transaction in which the predecessor's existence ceased
upon consummation of the transaction.

(3) "Expenses" include attorney's fees.

(4) "Official capacity" means the following:

(i) When used with respect to a director, the
office of director in the corporation; and

(ii) When used with respect to a person other than
a director as contemplated in subsection (j), the elective or
appointive office in the corporation held by the officer, or the
employment or agency relationship undertaken by the employee or
agent in behalf of the corporation.

C-5

<PAGE>

(iii) "Official capacity" does not include
service for any other foreign or domestic corporation or any
partnership, joint venture, trust, other enterprise, or employee
benefit plan.

(5) "Party" includes a person who was, is, or is
threatened to be made a named defendant or respondent in a
proceeding.

(6) "Proceeding" means any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative, or investigative.

(b)(1) A corporation may indemnify any director made a
party to any proceeding by reason of service in that capacity
unless it is established that:

(i) The act or omission of the director was
material to the matter giving rise to the proceeding; and

1. Was committed in bad faith; or

2. Was the result of active and deliberate
dishonesty; or

(ii) The director actually received an improper
personal benefit in money, property, or services; or

(iii) In the case of any criminal proceeding, the
director had reasonable cause to believe that the act or omission
was unlawful.

(2) (i) Indemnification may be against judgments,
penalties, fines, settlements, and reasonable expenses actually
incurred by the director in connection with the proceeding.

(ii) However, if the proceeding was one by or in
the right of the corporation, indemnification may not be made in
respect of any proceeding in which the director shall have been
adjudged to be liable to the corporation.

(3) (i) The termination of any proceeding by judgment,
order or settlement does not create a presumption that the
director did not meet the requisite standard of conduct set forth
in this subsection.

(ii) The termination of any proceeding by
conviction, or a plea of nolo contendere or its equivalent, or an
entry of an order of probation prior to judgment, creates a
rebuttable presumption that the director did not meet that
standard of conduct.

C-6

<PAGE>

(c) A director may not be indemnified under subsection
(b) of this section in respect of any proceeding charging
improper personal benefit to the director, whether or not
involving action in the director's official capacity, in which
the director was adjudged to be liable on the basis that personal
benefit was improperly received.

(d) Unless limited by the charter:

(1) A director who has been successful, on the merits
or otherwise, in the defense of any proceeding referred to in
subsection (b) of this section shall be indemnified against
reasonable expenses incurred by the director in connection with
the proceeding.

(2) A court of appropriate jurisdiction upon
application of a director and such notice as the court shall
require, may order indemnification in the following
circumstances:

(i) If it determines a director is entitled to
reimbursement under paragraph (1) of this subsection, the court
shall order indemnification, in which case the director shall be
entitled to recover the expenses of securing such reimbursement;
or

(ii) If it determines that the director is fairly
and reasonably entitled to indemnification in view of all the
relevant circumstances, whether or not the director has met the
standards of conduct set forth in subsection (b) of this section
or has been adjudged liable under the circumstances described in
subsection (c) of this section, the court may order such
indemnification as the court shall deem proper. However,
indemnification with respect to any proceeding by or in the right
of the corporation or in which liability shall have been adjudged
in the circumstances described in subsection (c) shall be limited
to expenses.

(3) A court of appropriate jurisdiction may be the same
court in which the proceeding involving the director's liability
took place.

(e)(1) Indemnification under subsection (b) of this
section may not be made by the corporation unless authorized for
a specific proceeding after a determination has been made that
indemnification of the director is permissible in the
circumstances because the director has met the standard of
conduct set forth in subsection (b) of this section.

(2) Such determination shall be made:

C-7

<PAGE>

(i) By the board of directors by a majority vote
of a quorum consisting of directors not, at the time, parties to
the proceeding, or, if such a quorum cannot be obtained, then by
a majority vote of a committee of the board consisting solely of
two or more directors not, at the time, parties to such
proceeding and who were duly designated to act in the matter by a
majority vote of the full board in which the designated directors
who are parties may participate;

(ii) By special legal counsel selected by the board
or a committee of the board by vote as set forth in subparagraph
(i) of this paragraph, or, if the requisite quorum of the full
board cannot be obtained therefor and the committee cannot be
established, by a majority vote of the full board in which
directors who are parties may participate; or

(iii) By the stockholders.

(3) Authorization of indemnification and determination
as to reasonableness of expenses shall be made in the same manner
as the determination that indemnification is permissible.
However, if the determination that indemnification is permissible
is made by special legal counsel, authorization of
indemnification and determination as to reasonableness of
expenses shall be made in the manner specified in subparagraph
(ii) of paragraph (2) of this subsection for selection of such
counsel.

(4) Shares held by directors who are parties to the
proceeding may not be voted on the subject matter under this
subsection.

(f)(1) Reasonable expenses incurred by a director who
is a party to a proceeding may be paid or reimbursed by the
corporation in advance of the final disposition of the
proceeding, upon receipt by the corporation of:

(i) A written affirmation by the director of the
director's good faith belief that the standard of conduct
necessary for indemnification by the corporation as authorized in
this section has been met; and

(ii) A written undertaking by or on behalf of the
director to repay the amount if it shall ultimately be determined
that the standard of conduct has not been met.

(2) The undertaking required by subparagraph (ii) of
paragraph (1) of this subsection shall be an unlimited general
obligation of the director but need not be secured and may be
accepted without reference to financial ability to make the
repayment.

C-8

<PAGE>

(3) Payments under this subsection shall be made as
provided by the charter, bylaws, or contract or as specified in
subsection (e) of this section.

(g) The indemnification and advancement of expenses
provided or authorized by this section may not be deemed
exclusive of any other rights, by indemnification or otherwise,
to which a director may be entitled under the charter, the
bylaws, a resolution of stockholders or directors, an agreement
or otherwise, both as to action in an official capacity and as to
action in another capacity while holding such office.

(h) This section does not limit the corporation's power
to pay or reimburse expenses incurred by a director in connection
with an appearance as a witness in a proceeding at a time when
the director has not been made a named defendant or respondent in
the proceeding.

(i) For purposes of this section:

(1) The corporation shall be deemed to have requested a
director to serve an employee benefit plan where the performance
of the director's duties to the corporation also imposes duties
on, or otherwise involves services by, the director to the plan
or participants or beneficiaries of the plan:

(2) Excise taxes assessed on a director with respect to
an employee benefit plan pursuant to applicable law shall be
deemed fines; and

(3) Action taken or omitted by the director with
respect to an employee benefit plan in the performance of the
director's duties for a purpose reasonably believed by the
director to be in the interest of the participants and
beneficiaries of the plan shall be deemed to be for a purpose
which is not opposed to the best interests of the corporation.

(j) Unless limited by the charter:

(1) An officer of the corporation shall be indemnified
as and to the extent provided in subsection (d) of this section
for a director and shall be entitled, to the same extent as a
director, to seek indemnification pursuant to the provisions of
subsection (d);

(2) A corporation may indemnify and advance expenses to
an officer, employee, or agent of the corporation to the same
extent that it may indemnify directors under this section; and

(3) A corporation, in addition, may indemnify and
advance expenses to an officer, employee, or agent who is not a

C-9

<PAGE>

director to such further extent, consistent with law, as may be
provided by its charter, bylaws, general or specific action of
its board of directors or contract.

(k)(1) A corporation may purchase and maintain insurance
on behalf of any person who is or was a director, officer,
employee, or agent of the corporation, or who, while a director,
officer, employee, or agent of the corporation, is or was serving
at the request, of the corporation as a director, officer,
partner, trustee, employee, or agent of another foreign or
domestic corporation, partnership, joint venture, trust, other
enterprise, or employee benefit plan against any liability
asserted against and incurred by such person in any such capacity
or arising out of such person's position, whether or not the
corporation would have the power to indemnify against liability
under the provisions of this section.

(2) A corporation may provide similar protection,
including a trust fund, letter of credit, or surety bond, not
inconsistent with this section.

(3) The insurance or similar protection may be provided
by a subsidiary or an affiliate of the corporation.

(l) Any indemnification of, or advance of expenses to,
a director in accordance with this section, if arising out of a
proceeding by or in the right of the corporation, shall be
reported in writing to the stockholders with the notice of the
next stockholders' meeting or prior to the meeting."

ARTICLE EIGHTH OF THE REGISTRANT'S ARTICLES OF INCORPORATION
READS AS FOLLOWS:

"(1) To the full extent that limitations on the
liability of directors and officers are permitted by the
Maryland General Corporation Law, no director or officer
of the Corporation shall have any liability to the
Corporation or its stockholders for damages. This
limitation on liability applies to events occurring at
the time a person serves as a director or officer of the
Corporation whether or not such person is a director or
officer at the time of any proceeding in which liability
is asserted.

"(2) The Corporation shall indemnify and advance
expenses to its currently acting and its former
directors to the full extent that indemnification of
directors is permitted by the Maryland General
Corporation Law. The Corporation shall indemnify and
advance expenses to its officers to the same extent as
its directors and to such further extent as is

C-10

<PAGE>

consistent with law. The Board of Directors may by By-
Law, resolution or agreement make further provisions for
indemnification of directors, officers, employees and
agents to the full extent permitted by the Maryland
General Corporation Law.

"(3) No provision of this Article shall be effective to
protect or purport to protect any director or officer of
the Corporation against any liability to the Corporation
or its stockholders to which he would otherwise be
subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties
involved in the conduct of his office.

"(4) References to the Maryland General Corporation Law
in this Article are to that law as from time to time
amended. No amendment to the Charter of the Corporation
shall affect any right of any person under this Article
based on any event, omission or proceeding prior to the
amendment."

ARTICLE VII, SECTION 7 OF THE REGISTRANT'S BY-LAWS READS AS
FOLLOWS:

Section 7. INSURANCE AGAINST CERTAIN LIABILITIES. The
Corporation shall not bear the cost of insurance that
protects or purports to protect directors and officers
of the Corporation against any liabilities to the
Corporation or its security holders to which any such
director or officer would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct
of his office.

ARTICLE VIII OF THE REGISTRANT'S BY-LAWS READS AS FOLLOWS:

Section 1. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Corporation shall indemnify its directors to the
full extent that indemnification of directors is
permitted by the Maryland General Corporation Law. The
Corporation shall indemnify its officers to the same
extent as its directors and to such further extent as is
consistent with law. The Corporation shall indemnify
its directors and officers who while serving as
directors or officers also serve at the request of the
Corporation as a director, officer, partner, trustee,
employee, agent or fiduciary of another corporation,
partnership, joint venture, trust, other enterprise or
employee benefit plan to the full extent consistent with
law. The indemnification and other rights provided by
this Article shall continue as to a person who has

C-11

<PAGE>

ceased to be a director or officer and shall inure to
the benefit of the heirs, executors and administrators
of such a person. This Article shall not protect any
such person against any liability to the Corporation or
any stockholder thereof to which such person would
otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office ("disabling
conduct").

Section 2. ADVANCES. Any current or former director or
officer of the Corporation seeking indemnification
within the scope of this Article shall be entitled to
advances from the Corporation for payment of the
reasonable expenses incurred by him in connection with
the matter as to which he is seeking indemnification in
the manner and to the full extent permissible under the
Maryland General Corporation Law. The person seeking
indemnification shall provide to the Corporation a
written affirmation of his good faith belief that the
standard of conduct necessary for indemnification by the
Corporation has been met and a written undertaking to
repay any such advance if it should ultimately be
determined that the standard of conduct has not been
met. In addition, at least one of the following
additional conditions shall be met: (a) the person
seeking indemnification shall provide a security in form
and amount acceptable to the Corporation for his
undertaking; (b) the Corporation is insured against
losses arising by reason of the advance; or (c) a
majority of a quorum of directors of the Corporation who
are neither "interested persons" as defined in Section
2(a)(19) of the Investment Company Act of 1940, as
amended, nor parties to the proceeding ("disinterested
non-party directors"), or independent legal counsel, in
a written opinion, shall have determined, based on a
review of facts readily available to the Corporation at
the time the advance is proposed to be made, that there
is reason to believe that the person seeking
indemnification will ultimately be found to be entitled
to indemnification.

Section 3. PROCEDURE. At the request of any person
claiming indemnification under this Article, the Board
of Directors shall determine, or cause to be determined,
in a manner consistent with the Maryland General
Corporation Law, whether the standards required by this
Article have been met. Indemnification shall be made
only following: (a) a final decision on the merits by a
court or other body before whom the proceeding was
brought that the person to be indemnified was not liable

C-12

<PAGE>

by reason of disabling conduct or (b) in the absence of
such a decision, a reasonable determination, based upon
a review of the facts, that the person to be indemnified
was not liable by reason of disabling conduct by (i) the
vote of a majority of a quorum of disinterested non-
party directors or (ii) an independent legal counsel in
a written opinion.

Section 4. INDEMNIFICATION OF EMPLOYEES AND AGENTS.
Employees and agents who are not officers or directors
of the Corporation may be indemnified, and reasonable
expenses may be advanced to such employees or agents, as
may be provided by action of the Board of Directors or
by contract, subject to any limitations imposed by the
Investment Company Act of 1940.

Section 5. OTHER RIGHTS. The Board of Directors may
make further provision consistent with law for
indemnification and advance of expenses to directors,
officers, employees and agents by resolution, agreement
or otherwise. The indemnification provided by this
Article shall not be deemed exclusive of any other
right, with respect to indemnification or otherwise, to
which those seeking indemnification may be entitled
under any insurance or other agreement or resolution of
stockholders or disinterested directors or otherwise.
The rights provided to any person by this Article shall
be enforceable against the Corporation by such person
who shall be presumed to have relied upon it in serving
or continuing to serve as a director, officer, employee,
or agent as provided above.

Section 6. AMENDMENTS. References in this Article are
to the Maryland General Corporation Law and to the
Investment Company Act of 1940 as from time to time
amended. No amendment of these By-laws shall affect any
right of any person under this Article based on any
event, omission or proceeding prior to the amendment.

The Advisory Agreement to be between the Registrant and Alliance
Capital Management L.P. provides that Alliance Capital Management
L.P. will not be liable under such agreements for any mistake of
judgment or in any event whatsoever except for lack of good faith
and that nothing therein shall be deemed to protect Alliance
Capital Management L.P. against any liability to the Registrant
or its security holders to which it would otherwise be subject by
reason of wilful misfeasance, bad faith or gross negligence in
the performance of its duties thereunder, or by reason of
reckless disregard of its duties and obligations thereunder.

C-13

<PAGE>

The Distribution Services Agreement between the Registrant and
Alliance Fund Distributors, Inc. provides that the Registrant
will indemnify, defend and hold Alliance Fund Distributors, Inc.,
and any person who controls it within the meaning of Section 15
of the Securities Act of 1933 (the "Securities Act"), free and
harmless from and against any and all claims, demands,
liabilities and expenses which Alliance Fund Distributors, Inc.
or any controlling person may incur arising out of or based upon
any alleged untrue statement of a material fact contained in the
Registrant's Registration Statement, Prospectus or Statement of
Additional Information or arising out of, or based upon any
alleged omission to state a material fact required to be stated
in any one of the foregoing or necessary to make the statements
in any one of the foregoing not misleading.

The foregoing summaries are qualified by the entire text of
Registrant's Articles of Incorporation and By-Laws, the Advisory
Agreement between Registrant and Alliance Capital Management L.P.
and the Distribution Services Agreement between Registrant and
Alliance Fund Distributors, Inc. which were filed herewith as
Exhibits 1, 2, 5 and 6(a), respectively, in response to Item 24
and each of which are incorporated by reference herein.

Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that,
in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid
by a director, officer or the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the
question of whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.

In accordance with Release No. IC-11330 (September 2, 1980), the
Registrant will indemnify its directors, officers, investment
manager and principal underwriters only if (1) a final decision
on the merits was issued by the court or other body before whom
the proceeding was brought that the person to be indemnified (the
"indemnitee") was not liable by reason or willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office ("disabling conduct") or
(2) a reasonable determination is made, based upon a review of

C-14

<PAGE>

the facts, that the indemnitee was not liable by reason of
disabling conduct, by (a) the vote of a majority of a quorum of
the directors who are neither "interested persons" of the
Registrant as defined in section 2(a)(19) of the Investment
Company Act of 1940 nor parties to the proceeding
("disinterested, non-party directors"), or (b) an independent
legal counsel in a written opinion. The Registrant will advance
attorneys fees or other expenses incurred by its directors,
officers, investment adviser or principal underwriters in
defending a proceeding, upon the undertaking by or on behalf of
the indemnitee to repay the advance unless it is ultimately
determined that he is entitled to indemnification and, as a
condition to the advance, (1) the indemnitee shall provide a
security for his undertaking, (2) the Registrant shall be insured
against losses arising by reason of any lawful advances, or (3) a
majority of a quorum of disinterested, non-party directors of the
Registrant, or an independent legal counsel in a written opinion,
shall determine, based on a review of readily available facts (as
opposed to a full trial-type inquiry), that there is reason to
believe that the indemnitee ultimately will be found entitled to
indemnification.

ITEM 28. Business and Other Connections of Investment Adviser.

The descriptions of Alliance Capital Management L.P. under the
captions "Management of the Fund" in the Prospectus and in the
Statement of Additional Information constituting Parts A and B,
respectively, of this Registration Statement are incorporated by
reference herein.

The information as to the directors and executive officers of
Alliance Capital Management Corporation, the general partner of
Alliance Capital Management L.P., set forth in Alliance Capital
Management L.P.'s Form ADV filed with the Securities and Exchange
Commission on April 21, 1988 (File No. 801-32361) and amended
through the date hereof, is incorporated by reference herein.

ITEM 29. Principal Underwriters

(a) Alliance Fund Distributors, Inc. is the Registrant's
Principal Underwriter in connection with the sale of
shares of the Registrant, also acts as Principal
Underwriter or Distributor for the following investment
companies:

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.

C-15

<PAGE>

Alliance Capital Reserves
Alliance Counterpoint Fund
Alliance Developing Markets Fund, Inc.
Alliance Global Dollar Government Fund, Inc.
Alliance Global Fund
Alliance Global Small Cap Fund, Inc.
Alliance Government Reserves
Alliance Growth and Income Fund, Inc.
Alliance Income Builder Fund, Inc.
Alliance International Fund
Alliance Money Market Fund
Alliance Mortgage Securities Income Fund, Inc.
Alliance Multi-Market Strategy Trust, Inc.
Alliance Municipal Income Fund, Inc.
Alliance Municipal Income Fund II
Alliance Municipal Trust
Alliance New Europe Fund, Inc.
Alliance North American Government Income Trust, Inc.
Alliance Premier Growth Fund, Inc.
Alliance Quasar Fund, Inc.
Alliance 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.
Fiduciary Management Associates
The Alliance Portfolios

(b) The following are the Directors and officers of Alliance
Fund Distributors, Inc., the principal place of business
of which is 1345 Avenue of the Americas, New York, New
York, 10105.

POSITIONS AND OFFICES POSITIONS AND
NAME WITH UNDERWRITER WITH REGISTRANT

Michael J. Laughlin Chairman

Robert L. Errico President

Kimberly A. Baumgardner Senior Vice President

Edmund P. Bergan, Jr. Senior Vice President, Secretary
General Counsel, and
Secretary

Daniel J. Dart Senior Vice President

Byron M. Davis Senior Vice President

Geoffrey L. Hyde Senior Vice President

C-16

<PAGE>

Barbara J. Krumseik Senior Vice President

Stephen R. Laut Senior Vice President

Dusty W. Paschall Senior Vice President

Antonios G. Poleonadkis Senior Vice President

Gregory K. Shannahan Senior Vice President

Joseph F. Sumanski Senior Vice President

James P. Syrett Senior Vice President

Peter J. Szabo Senior Vice President

Richard A. Winge Senior Vice President

Warren C. Babcock, III Vice President

Benji A. Baer Vice President

Kenneth F. Barkoff Vice President

William P. Beanblossum Vice President

Jack C. Bixler Vice President

Casimir Bolanowski Vice President

Kevin T. Cannon Vice President

Leo H. Cook Vice President

Richard W. Dabney Vice President

Mark J. Dunbar Vice President

Linda A. Finnerty Vice President

William C. Fisher Vice President

Robert M. Frank Vice President

Gerard J. Friscia Vice President &
Controller

Andrew L. Gangolf Vice President

C-17

<PAGE>

Mark D. Gersten Vice President Treasurer and
Chief Financial
Officer

Joseph W. Gibson Vice President

Troy L. Glawe Vice President

Herbert H. Goldman Vice President

James E. Gunter Vice President

Alan Halfenger Vice President

George R. Hrabovsky Vice President

Valerie J. Hugo Vice President

Robert H. Joseph, Jr. Vice President & Treasurer

Richard D. Keppler Vice President

Sheila F. Lamb Vice President

Donna M. Lamback Vice President

Thomas Leavitt, III Vice President

James M. Liptrot Vice President

Christopher J. MacDonald Vice President

Mark R. Manley Vice President

Daniel D. McGinley Vice President

Maura A. McGrath Vice President

Matthew P. Mintzer Vice President

Nicole Nolan-Koester Vice President

Robert T. Pigozzi Vice President

James J. Posch Vice President

Robert E. Powers Vice President

Domenick Pugliese Vice President

Bruce W. Reitz Vice President

C-18

<PAGE>

Dennis A Sanford Vice President

Raymond S. Sclafani Vice President

J. William Strott, Jr. Vice President

Richard E. Tambourine Vice President

Nicholas K. Willett Vice President

Neil S. Wood Vice President

Emilie D. Wrapp Vice President

Maria L. Carreras Assistant Vice President

Sarah A. Chodera Assistant Vice President

John W. Cronin Assistant Vice President

Sohaila S. Farsheed Assistant Vice President

Leon M. Fern Assistant Vice President

William B. Hanigan Assistant Vice President

Vicky M. Hayes Assistant Vice President

Daniel M. Hazard Assistant Vice President

John C. Hershock Assistant Vice President

James J. Hill Assistant Vice President

Kalen H. Holliday Assistant Vice President

Thomas K. Intoccia Assistant Vice President

Edward W. Kelly Assistant Vice President

Patrick Look Assistant Vice President

Michael F. Mahoney Assistant Vice President

Shawn P. McClain Assistant Vice President

Thomas F. Monnerat Assistant Vice President

Joanna D. Murray Assistant Vice President

Jeanette M. Nardella Assistant Vice President

C-19

<PAGE>

Camilo R. Pedraza Assistant Vice President

Carol H. Rappa Assistant Vice President

Karen C. Satterberg Assistant Vice President

Robert M. Smith Assistant Vice President

Joseph T. Tocyloski Assistant Vice President

ITEM 30. Location of Accounts and Records.

The majority of the accounts, books and other documents
required to be maintained by Section 31(a) of the
Investment Company Act of 1940 and the rules thereunder
are maintained as follows: journals, ledgers,
securities records and other original records are
maintained principally at the offices of Alliance Fund
Services, Inc., 500 Plaza Drive, Secaucus, New Jersey,
07094-1520 and at the offices of State Street Bank and
Trust Company, the Registrant's custodian, 225 Franklin
Street, Boston, MA 02110. All other records so required
to be maintained are maintained at the offices of
Alliance Capital Management L.P., 1345 Avenue of the
Americas, New York, New York, 10105.

ITEM 31. Management Services.

Not applicable.

ITEM 32. Undertakings

The Registrant undertakes to provide assistance to
shareholders in communications concerning the removal of
any Director of the Fund in accordance with Section 16
of the Investment Company Act of 1940.

(c) The Registrant undertakes to furnish each person to
whom a prospectus is delivered with a copy of the
annual report to shareholders upon request and
without charge.

C-20

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of
1933, as amended, and the Investment Company Act of 1940, as
amended, the Registrant certifies that it meets all of the
requirements for effectiveness of this Amendment to its
Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this Amendment to the
Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York
and State of New York, on the 30th day of October, 1995.

ALLIANCE MORTGAGE STRATEGY TRUST, INC.

By: /s/ John D. Carifa
John D. Carifa
Chairman and President

Pursuant to the requirements of the Securities Act of
1933, as amended, this Amendment to the Registration Statement
has been signed below by the following persons in the capacities
and on the date indicated.

SIGNATURE TITLE DATE

1. Principal
Executive Officer:

/s/ John D. Carifa Chairman and October 30, 1995
John D. Carifa President

2. Principal Financial and
Accounting Officer:

/s/ Mark D. Gersten Treasurer and October 30, 1995
Mark D. Gersten Chief Financial
Officer

C-21

<PAGE>

3. All of the Directors:

Ruth Block

John D. Carifa
David H. Dievler
John H. Dobkin
William H. Foulk, Jr.
Dr. James Hester
Clifford L. Michel
Robert C. White

By: /s/ Edmund P. Bergan, Jr. October 30, 1995
Edmund P. Bergan, Jr.
(Attorney-in-Fact)

C-22

<PAGE>

INDEX TO EXHIBITS

(11) Consent of Independent Auditors

(27) Financial Data Schedule

C-23
00250110.AL3

<PAGE>

CONSENT OF INDEPENDENT AUDITORS

We consent to the reference to our firm under the captions
"Financial Highlights", "Shareholder Services - Statements and
Reports" and "General Information - Independent Auditors" and to
the use of our report dated January 13, 1995, in this
Registration Statement (Form N-1A 33-47031) of Alliance Mortgage
Strategy Trust, Inc.

/s/ Ernst & Young LLP

ERNST & YOUNG LLP

New York, New York
October 25, 1995

00250110.AL2

WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.

<PAGE>

Mortgage Strategy Fund
<ARTICLE> 6

<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1995
<PERIOD-END> NOV-30-1995
<INVESTMENTS-AT-COST> 238,975,864
<INVESTMENTS-AT-VALUE> 240,062,233
<RECEIVABLES> 15,198,804
<ASSETS-OTHER> 170,607
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 236,783,503
<PAYABLE-FOR-SECURITIES 0
<SENIOR-LONG-TERM-DEBT> 16,784,737
<OTHER-ITEMS-LIABILITIES> 1,863,404
<TOTAL-LIABILITIES> 18,648,141
<SENIOR-EQUITY> 24,931
<PAID-IN-CAPITAL-COMMON> 257,945,572
<SHARES-COMMON-STOCK> 24,930,434
<SHARES-COMMON-PRIOR> 33,782,826
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 848,879
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 21,424,490
<ACCUM-APPREC-OR-DEPREC> 1,086,369
<NET-ASSETS> 236,783,503
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 10,301,737
<OTHER-INCOME> 0
<EXPENSES-NET> 3,519,625
<NET-INVESTMENT-INCOME> 6,782,112
<REALIZED-GAINS-CURRENT> (9,164,526)
<APPREC-INCREASE-CURRENT> 8,372,611
<NET-CHANGE-FROM-OPS> 5,990,197
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 6,956,041
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 37,989,532
<NUMBER-OF-SHARES-REDEEMED> 124,590,852
<SHARES-REINVESTED> 2,881,814
<NET-CHANGE-IN-ASSETS> 5,990,197
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 674,950
<OVERDIST-NET-GAINS-PRIOR> 12,259,964
<GROSS-ADVISORY-FEES> 892,847
<INTEREST-EXPENSE> 919,560
<GROSS-EXPENSE> 3,519,625
<AVERAGE-NET-ASSETS> 275,476,827

<PAGE>

<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

00250110.AL0

</TABLE>