AFD EXCHANGE RESERVES, 497, 1997-02-24

AFD EXCHANGE RESERVES
497, 1997-02-24

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<PAGE>

This is filed pursuant to Rule 497(c).
File Nos. 33-74230 and 811-08294.

<PAGE>

[LOGO OF ALLIANCE CAPITAL APPEARS HERE] AFD EXCHANGE RESERVES
- -------------------------------------------------------------------------------
P.O. Box 1520, Secaucus, New Jersey 07096-1520
Toll Free (800) 221-5672
For Literature: Toll Free (800) 227-4618

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

AFD Exchange Reserves (the "Fund") is a diversified, open-end management
investment company. The Fund's investment objective is maximum current income
to the extent consistent with safety of principal and liquidity. The Fund
pursues its objective by maintaining a portfolio of high quality U.S. dollar-
denominated money market securities, and is thus referred to as a "money
market fund."

Shares of the Fund should be purchased for cash only as a temporary investment
pending exchange into another Alliance Mutual Fund and should not be held as a
long-term investment.

This Prospectus sets forth concisely the information which a prospective
investor should know about the Fund before investing. A "Statement of
Additional Information" dated February 3, 1997 which provides further
information regarding certain matters discussed in this Prospectus and other
matters which 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 call the "For Literature" telephone number shown above.

(R): This registered service mark used under license from the owner, Alliance
Capital Management L.P.

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

An investment in the Fund is not (i) insured or guaranteed by the U.S. Govern-
ment, (ii) a deposit or obligation of, or guaranteed or endorsed by, any bank,
or (iii) federally insured by the Federal Deposit Insurance Corporation, the
Federal Reserve Board or any other agency. There can be no assurance that the
Fund will be able to maintain a stable net asset value of $1.00 per share.

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.

PROSPECTUS/February 3, 1997

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

EXPENSE INFORMATION

SHAREHOLDER TRANSACTION EXPENSES are one of several factors to consider when
you invest in the Fund. The following table summarizes your maximum transac-
tion costs from investing in the Fund and annual expenses for each class of
shares. The example following the table shows the cumulative expenses attrib-
utable to a hypothetical $1,000 investment in each class for the periods spec-
ified.

<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
-------------- --------------- ---------------
<S> <C> <C> <C>
Maximum sales charge imposed
on purchases (as a percent-
age of offering price)..... None None None
Sales charge imposed on div-
idend reinvestments........ None None None
Deferred sales charge (as a
percentage of original pur- None(a) 4.0% during 1.00% during
chase price or redemption the first year, the first year,
proceeds, whichever is low- decreasing 1.0% 0% thereafter
er)........................ annually to 0%
after the
fourth
year(b)(c)
Exchange Fee................ None None None
ANNUAL FUND OPERATING EX-
PENSES (as a percentage of
average net assets)
Management fees............. .25% .25% .25%
Rule 12b-1 fees............. .50% 1.00% .75%
Other expenses(d)........... .54% .54% .55%
---- --------------- ---------------
Total fund operating
expenses(d)................ 1.29% 1.79% 1.55%
==== =============== ===============
</TABLE>
- --------
(a) Purchases of Class A shares of $1,000,000 or more (or that were received
in exchange or following a series of exchanges of Class A shares of an Al-
liance Mutual Fund that were part of an original purchase of $1,000,000 or
more) may be subject to a 1% deferred sales charge on redemptions within
one year of the original purchase for cash. See "Purchase and Sale of
Shares--How to Buy Shares--Class A Shares" in this Prospectus.
(b) For Class B shares purchased for cash. The contingent deferred sales
charge schedule applicable to a shareholder's redemption of Class B shares
that were received in exchange of Class B shares of an Alliance Mutual
Fund is the schedule applicable to redemptions of Class B shares of the
Alliance Mutual Fund originally purchased for cash by the shareholder.
(c) Class B shares will automatically convert to Class A shares a certain num-
ber of years after the end of the calendar month in which the sharehold-
er's order to purchase was accepted. For Class B shares purchased for
cash, the number of years is eight. For Class B shares that were received
in exchange of Class B shares of an Alliance Mutual Fund, the number of
years depends on the conversion schedule of the Class B shares of the Al-
liance Mutual Fund originally purchased. Currently, the longest such pe-
riod is eight years. See "Purchase and Sale of Shares--How to Buy Shares--
Class B Shares--Deferred Sales Charge Alternative"--in this Prospectus.
(d) These expenses include a transfer agency fee payable to Alliance Fund
Services, Inc., an affiliate of Alliance Capital Management L.P., based on
a fixed dollar amount charged to the Fund for each shareholder's account.

EXAMPLE

<TABLE>
<CAPTION>
Cumulative expenses Class Class Class Class Class
paid for the period of A B+ B++ C+ C++
---------------------- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
1 year............. $ 13 $ 58 $ 18 $ 26 $ 16
3 years............ $ 41 $ 76 $ 56 $ 49 $ 49
5 years............ $ 71 $ 97 $ 97 $ 84 $ 84
10 years............ $156 $197* $197* $185 $185
</TABLE>
- --------
+ Assumes redemption at end of period and the highest applicable deferred
sale charge schedule. See note (b) above.
++ Assumes no redemption at end of period.
* Assumes the longest applicable conversion schedule. See note (c) above.

The purpose of the foregoing table is to assist the investor in understand-
ing the various costs and expenses that an investor in the Fund will bear di-
rectly or indirectly. Long-term shareholders of the Fund may pay aggregate
sales charges totaling more than the economic equivalent of the maximum ini-
tial sales charges permitted by the Rules of Fair Practice of the National As-
sociation of Securities Dealers, Inc. See "Management of the Fund--Rule 12b-1
Distribution Services Agreement." "Other Expenses" are based on estimated
amounts for the Fund's current fiscal year. The example set forth above as-
sumes reinvestment of all dividends and distributions and utilizes a 5% annual
rate of return as mandated by Securities and Exchange Commission (the "Commis-
sion") regulations. The example should not be considered a representation of
future expenses; actual expenses may be greater or less than those shown.

2
<PAGE>

FINANCIAL HIGHLIGHTS . FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
(AUDITED)

The following tables have been audited by McGladrey & Pullen LLP, the Fund's
independent auditors, whose report thereon appears in the Statement of Addi-
tional Information. This information should be read in conjunction with the
financial statements and notes thereto included in the Statement of Additional
Information.

<TABLE>
<CAPTION>
CLASS A
--------------------------------------
YEAR ENDED
SEPTEMBER 30, MARCH 25, 1994(a)
---------------- TO
1996 1995 SEPTEMBER 30,1994
------- ------- -----------------
<S> <C> <C> <C>
Net asset value, beginning of period.... $ 1.00 $ 1.00 $ 1.00
------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment income................... .0416 .0453 .0126
------- ------- -------
LESS: DISTRIBUTIONS
Dividends from net investment income.... (.0416) (.0453) (.0126)
------- ------- -------
Net asset value, end of period.......... $ 1.00 $ 1.00 $ 1.00
======= ======= =======
TOTAL RETURN
Total investment return based on net as-
set value(b)........................... 4.24% 4.64% 2.45%(c)
======= ======= =======
RATIOS/SUPPLEMENTAL DATA
Net Assets, end of period (in millions). $41 $41 $18
Ratio of average net assets to:
Expenses, net of waivers............... 1.29% 1.21% 1.82%(c)
Expenses, before waivers............... 1.29% 1.29% 1.82%(c)
Net investment income.................. 4.15% 4.63%(d) 2.62%(c)
</TABLE>

<TABLE>
<CAPTION>
CLASS B
--------------------------------------
YEAR ENDED
SEPTEMBER 30, MARCH 25, 1994(a)
---------------- TO
1996 1995 SEPTEMBER 30,1994
------- ------- -----------------
<S> <C> <C> <C>
Net asset value, beginning of period.... $ 1.00 $ 1.00 $ 1.00
------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment income................... .0366 .0404 .0101
------- ------- -------
LESS: DISTRIBUTIONS
Dividends from net investment income.... (.0366) (.0404) (.0101)
------- ------- -------
Net asset value, end of period.......... $ 1.00 $ 1.00 $ 1.00
======= ======= =======
TOTAL RETURN
Total investment return based on net as-
set value(b)........................... 3.72% 4.12% 1.95%(c)
======= ======= =======
RATIOS/SUPPLEMENTAL DATA
Net Assets, end of period (in millions). $65 $65 $31
Ratio of average net assets to:
Expenses, net of waivers............... 1.79% 1.70% 2.35%(c)
Expenses, before waivers............... 1.79% 1.78% 2.35%(c)
Net investment income.................. 3.67% 4.17%(d) 1.91%(c)
</TABLE>
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(a) Commencement of operations.
(b) Total investment return is calculated assuming an initial investment made
at the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period, and re-
demption on the last day of the period. Contingent deferred sales charge
is not reflected in the calculation of total investment return.
(c) Annualized.
(d) Net of expenses waived by the Adviser.

3
<PAGE>

<TABLE>
<CAPTION>
CLASS C
-------------------------------------
YEAR ENDED
SEPTEMBER 30, MARCH 25, 1994(a)
--------------- TO
1996 1995 SEPTEMBER 30,1994
------ ------- -----------------
<S> <C> <C> <C>
Net asset value, beginning of period..... $ 1.00 $ 1.00 $ 1.00
------ ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment income.................... .0390 .0430 .0112
------ ------- -------
LESS: DISTRIBUTIONS
Dividends from net investment income..... (.0390) (.0430) (.0112)
------ ------- -------
Net asset value, end of period........... $ 1.00 $ 1.00 $ 1.00
====== ======= =======
TOTAL RETURN
Total investment return based on net as-
set value(b)............................ 3.98% 4.39% 2.18%(c)
====== ======= =======
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions).. $13 $10 $5
Ratio of average net assets to:
Expenses, net of waivers................ 1.55% 1.45% 2.08%(c)
Expenses, before waivers................ 1.55% 1.52% 2.08%(c)
Net investment income................... 3.89% 4.41%(d) 2.14%(c)
</TABLE>
- --------
(a) Commencement of operations.
(b) Total investment return is calculated assuming an initial investment made
at the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period, and re-
demption on the last day of the period. Contingent deferred sales charge
is not reflected in the calculation of total investment return.
(c) Annualized.
(d) Net of expenses waived by the Adviser.

DESCRIPTION OF THE FUND

INVESTMENT OBJECTIVE AND POLICIES

The Fund is a diversified, open-end management investment company known as a
"mutual fund." The Fund's investment objective is maximum current income to
the extent consistent with safety of principal and liquidity. The Fund pursues
its objective by maintaining a portfolio of high quality U.S. dollar-denomi-
nated money market securities. While the Fund may not change its investment
objective or the "other fundamental investment policies" described in a sepa-
rate section below without shareholder approval, it may, upon notice to share-
holders, but without such approval, change the following investment policies
or create additional classes of shares in order to establish portfolios which
may have different investment objectives. There can, of course, be no assur-
ance that the Fund's objective will be achieved.

MONEY MARKET SECURITIES

4
<PAGE>

Standard & Poor's Corporation ("S&P"), Prime-1 or Prime-2 by Moody's Investors
Service, Inc. ("Moody's"), Fitch-1 or Fitch-2 by Fitch Investors Service,
Inc., or Duff 1 or Duff 2 by Duff & Phelps Inc, or, if not rated, issued by
U.S. or foreign companies having outstanding debt securities rated AAA, AA or
A by S&P, or Aaa, Aa or A by Moody's and participation interests in loans ex-
tended by banks to such companies; and (4) repurchase agreements that are col-
lateralized in full each day by liquid securities of the types listed above.
Repurchase agreements may be entered into only with those banks (including
State Street Bank and Trust Company, the Fund's Custodian) or broker-dealers
("vendors") that are eligible under the procedures adopted by the Trustees for
evaluating and monitoring the creditworthiness of such vendors. A repurchase
agreement would create a loss to the Fund if, in the event of a vendor de-
fault, the proceeds from the sale of the collateral were less than the repur-
chase price.

The Fund may invest up to 25% of its total assets in money market instru-
ments issued by foreign branches of foreign banks and other foreign entities.
To the extent that the Fund makes such investments, consideration will be
given to their domestic marketability, the lower reserve requirements gener-
ally mandated for overseas banking operations, the possible impact of inter-
ruptions in the flow of international currency transactions, potential politi-
cal and social instability or expropriation, imposition of foreign taxes, the
lower level of government supervision of issuers, the difficulty in enforcing
contractual obligations and the lack of uniform accounting and financial re-
porting standards.

The Fund will not invest more than 10% of its net assets in illiquid securi-
ties, which include "restricted securities" subject to legal restrictions on
resale arising from an issuer's reliance upon certain exemptions from regis-
tration under the Securities Act of 1933, as amended, (the "Securities Act"),
other than restricted securities determined by Alliance Capital Management
L.P. ("Alliance") to be liquid in accordance with procedures adopted by the
Trustees of the Fund, such as securities eligible for resale under Rule 144A
under the Securities Act and commercial paper issued in reliance upon the ex-
emption from registration in Section 4(2) of the Securities Act.

The Fund may invest in asset-backed securities that meet its existing diver-
sification, quality and maturity criteria. Asset-backed securities are securi-
ties issued by special purpose entities whose primary assets consist of a pool
of loans or accounts receivable. The securities may be in the form of a bene-
ficial interest in a special purpose trust, limited partnership interest, or
commercial paper or other debt securities issued by a special purpose corpora-
tion. Although the securities may have some form of credit or liquidity en-
hancement, payments on the securities depend predominately upon collection of
the loans and receivables held by the issuer.

The Fund will comply with Rule 2a-7 under the Investment Company Act of 1940
(the "Act"), as such rule is amended from time to time, including the diversi-
fication, quality and maturity limitations imposed by the Rule. In accordance
with Rule 2a-7, the Fund will invest in securities which at the time of in-
vestment have remaining maturities not exceeding 397 days and the average ma-
turity of the Fund's investment portfolio will not exceed 90 days. A more de-
tailed description of Rule 2a-7 is set forth in the Fund's Statement of
Additional Information under "Investment Objective, Policies and
Restrictions."

5
<PAGE>

OTHER FUNDAMENTAL INVESTMENT POLICIES

To maintain portfolio diversification and reduce investment risk, the Fund
may not: (1) invest 25% or more of its assets in the securities of issuers
conducting their principal business activities in any one industry; provided
that, for purposes of this restriction, there is no limitation with respect to
U.S. Government securities or certificates of deposit and bankers' acceptances
issued or guaranteed by, or interest bearing savings deposits maintained at,
banks and savings institutions and loan associations (including foreign
branches of U.S. banks and U.S. branches of foreign banks); (2) invest more
than 5% of its assets in the securities of any one issuer (except the U.S.
Government) although with respect to one-quarter of its total assets it may
invest without regard to such limitation; (3) invest more than 5% of its as-
sets in the securities of any issuer (except the U.S. Government) having less
than three years of continuous operation or purchase more than 10% of any
class of the outstanding securities of any issuer (except the U.S. Govern-
ment); (4) borrow money except from banks on a temporary basis or via entering
into reverse repurchase agreements in aggregate amounts not exceeding 15% of
its assets and to be used exclusively to facilitate the orderly maturation and
sale of portfolio securities during any periods of abnormally heavy redemption
requests, if they should occur; such borrowings may not be used to purchase
investments and the Fund will not purchase any investment while any such
borrowings exist; or (5) mortgage, pledge or hypothecate its assets except to
secure such borrowings.

As a matter of operating policy, fundamental policy number (2) would give
the Fund the ability to invest, with respect to 25% of its assets, more than
5% of its assets in any one issuer only in the event Rule 2a-7 is amended in
the future.
PURCHASE AND SALE OF SHARES

Shares of the Fund may be purchased for cash and thereafter exchanged for
shares of the same class of other Alliance Mutual Funds. Under the Alliance
Dollar Cost Averaging Program, exchanges may be made automatically each month,
thus producing a dollar cost averaging effect. Exchanges also may be made at
other times of an investor's choosing. Shares of the Fund should be purchased
for cash only as a temporary investment pending exchange into another Alliance
Mutual Fund and should not be held as a long-term investment.

Shares of the Fund also are available to holders of shares of other Alliance
Mutual Funds who wish to exchange their shares for shares of a money market
fund. Such an exchange transaction is effected through the redemption of the
Alliance Mutual Fund shares tendered for exchange and the purchase of shares
of the Fund at their respective net asset values as next determined, without
sales or service charges. Exchange purchases into the Fund may be made by tel-
ephone or written request.

Alliance Fund Services, Inc. ("AFS") is not responsible for the authenticity
of telephone exchange requests. AFS will employ reasonable procedures in order
to verify that telephone requests are genuine, and could be liable if it
failed to use those procedures. An exchange is a taxable capital transaction
for federal tax purposes. The Fund reserves the right to reject any order to
acquire its shares through exchange.

HOW TO BUY SHARES

You can purchase shares of the Fund for cash at a price based on the next
calculation of

6
<PAGE>

their net asset value after receipt of a proper purchase order either through
broker-dealers, banks or other financial intermediaries. Purchases of shares
for cash directly through Alliance Fund Distributors, Inc. ("AFD"), the Fund's
principal underwriter, may be made only if the purchaser has a financial in-
termediary of record. The minimum initial investment is $250. The minimum for
subsequent investments is $50. Investments of $25 or more are allowed under
the automatic investment program. See the Subscription Application and State-
ment of Additional Information for more information.

Existing shareholders may make subsequent purchases by Electronic Funds
Transfer ("EFT") if they have completed the Telephone Transactions section of
the Subscription Application or the Shareholder Options form obtained from
AFS. Telephone purchase orders can be made by calling (800) 221-5672 and may
not exceed $500,000.

CLASS A SHARES

You can purchase Class A shares for cash at net asset value. Class A shares
are sold without any initial sales charge at the time of purchase. On cash
purchases of $1,000,000 or more, however, you may pay a contingent deferred
sales charge ("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. See "Ap-
plication of the CDSC". As discussed below, Class A shares may be exchanged
for Class A shares of other Alliance Mutual Funds, subject, in the case of
Class A shares of the Fund that were purchased for cash, to any applicable
initial sales charge at the time of exchange. On cash purchases of less than
$1,000,000, a commission will not be paid to the dealer or agent until the
shares are exchanged for Class A shares of another Alliance Mutual Fund.

Class A shares of the Fund also are offered in exchange for Class A shares
of other Alliance Mutual Funds without any sales charge at the time of pur-
chase, but on Class A shares that were received in exchange for Alliance Mu-
tual Fund Class A shares that were not subject to an initial sales charge when
originally purchased for cash because the purchase was of $1,000,000 or more
you may pay a 1% CDSC that will be assessed as described below under "Applica-
tion of the CDSC" if you redeem shares of the Fund within one year of your
purchase of the Alliance Mutual Fund Class A shares originally purchased for
cash. Consult the Subscription Application and Statement of Additional Infor-
mation.

CLASS B SHARES--DEFERRED SALES CHARGE ALTERNATIVE

You can purchase Class B shares for cash at net asset value without an ini-
tial sales charge. However, you may pay a CDSC if you redeem shares within
four years after purchase. The amount of the CDSC (expressed as a percentage
of the lesser of net asset value at the time of redemption 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 on Class B shares
is set forth below.

<TABLE>
<CAPTION>
Year Since
Purchase CDSC
---------- ----
<S> <C>
First.................................................................... 4.0%
Second................................................................... 3.0%
Third.................................................................... 2.0%
Fourth................................................................... 1.0%
Fifth.................................................................... None
</TABLE>

Class B shares purchased for cash will automatically convert to Class A
shares eight years after the end of the calendar month in which the sharehold-
er's order to purchase was accepted. As discussed below, Class B shares may be
exchanged at net asset value for Class B shares of

7
<PAGE>

other Alliance Mutual Funds. Following an exchange, Class B shares will con-
tinue to age for purposes of determining the CDSC, if any, upon redemption and
for purposes of conversion to Class A shares.

Class B shares of the Fund also are offered in exchange for Class B shares
of other Alliance Mutual Funds without any initial sales charge. However, you
may pay a CDSC if you redeem shares of the Fund within a certain number of
years of your original purchase of Alliance Mutual Fund Class B shares. When
redemption occurs, the applicable CDSC schedule is that which applied to the
Alliance Mutual Fund Class B shares originally purchased for cash at the time
of their purchase. See "Application of the CDSC" below.

CLASS C SHARES--ASSET-BASED SALES CHARGE ALTERNATIVE

You can purchase Class C shares for cash or in exchange for Class C shares
of another Alliance Mutual Fund without any initial sales charge, and, if you
hold your shares for one year or more, you will receive the entire net asset
value of your shares upon redemption. Class C shares do not convert to any
other class of shares of the Fund. As discussed below, Class C shares may be
exchanged at net asset value for Class C shares of other Alliance Mutual
Funds.

Class C shares redeemed within one year of purchase will be subject to a
CDSC equal to 1% of the lesser of the original cost of the shares being re-
deemed or net asset value at the time of redemption.

GENERAL

The decision as to which class of shares is more beneficial to you depends
on the amount and intended length of your investment and whether you intend to
subsequently exchange your shares for shares of another Alliance Mutual Fund.
If you are making a large cash purchase, thus qualifying for a reduced sales
charge on a subsequent exchange, you might consider purchasing Class A shares.
If you are making a smaller cash purchase, you might consider purchasing Class
B shares because no sales charge will be assessed on subsequent exchanges of
those shares. If you are unsure of the length of your investment, you might
consider Class C shares because there is no initial sales charges and no CDSC
as long as the shares are held for one year or more. Consult your financial
agent. Dealers and agents may receive different compensation for selling Class
A, Class B or Class C shares. Class B and Class C shares have higher distribu-
tion fees, and thus higher expense ratios, and pay correspondingly lower divi-
dends than Class A shares. There is no size limit on cash purchases of Class A
shares. The maximum cash purchase of Class B shares is $250,000. The maximum
purchase of Class C shares is $1,000,000. The Fund may refuse any order to
purchase shares.

The Fund offers a fourth class of shares, Advisor Class shares, by means of
separate prospectus. Advisor Class shares may be purchased and held solely by
(i) accounts established under a fee-based program sponsored and maintained by
a registered broker-dealer or other financial intermediary and approved by
AFD, (ii) a self-directed defined contribution employee benefit plan (e.g., a
401(k) plan) that has at least 1,000 participants or $25 million in assets and
(iii) certain other categories of investors described in the prospectus for
the Advisor Class, including investment advisory clients of, and certain other
persons associated with, Alliance and its affiliates or the Fund. Advisor
Class shares are offered without any initial sales charge or CDSC and without
an ongoing distribution fee and are expected, therefore, to have

8
<PAGE>

different performance than Class A, Class B or Class C shares. You may obtain
more information about Advisor Class shares by contacting AFS at 800-221-5672
or by contacting your financial representative.

In addition to the discount or commission paid to dealers, 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 Fund. 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 Fund. On some occasions, such cash or other incentives will be condi-
tioned upon the sale of a specified minimum dollar amount of the shares of the
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 and their immediate family members to urban or resort locations within
or outside the United States. Such a dealer may elect to receive cash incen-
tives of equivalent amount in lieu of such payments.

APPLICATION OF THE CDSC

The CDSC is applied to the lesser of the net asset value at the time of re-
demption of the shares being redeemed and the cost of such shares (or, as to
Fund shares acquired through an exchange, the cost of the Alliance Mutual Fund
shares originally purchased for cash). Shares obtained from dividend or dis-
tribution reinvestment are not subject to the CDSC.

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 dis-
ability of a shareholder, to meet the requirement of certain qualified retire-
ment plans or pursuant to a monthly, bimonthly or quarterly systematic with-
drawal plan. See the Statement of Additional Information.

HOW THE FUND VALUES ITS SHARES

The net asset value of each class' shares is expected to be constant at
$1.00 per share, although this price is not guaranteed. The net asset value
per share is calculated by determining the amount of assets attributable to
each class of shares, subtracting liabilities and dividing by the amount of
outstanding shares for such class. In this connection, the Fund uses the amor-
tized cost value for determining the value of the Fund's investments. 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).

HOW TO EXCHANGE SHARES

You may exchange your investment in the Fund for shares of the same class of
other Alliance Mutual Funds. Exchanges of Class A shares are made at the net
asset value next determined less the amount of any applicable initial sales
charge imposed on the Class A shares of the other Alliance Mutual Fund. Con-
sult the prospectus of the applicable Alliance Mutual Fund for a further ex-
planation of those sales charges. Exchanges of Class B and Class C shares are
made at the net asset values next determined, without sales or service
charges. Exchanges may be made by telephone or written request. Telephone ex-
change requests must be received by AFS by 4:00 p.m. Eastern time on a Fund
business day to receive that day's net asset value (less the amount of any ap-
plicable initial sales charge imposed on the Class A shares of the other Alli-
ance Mutual Fund). The exchange service may be changed, suspended or termi-
nated on 60 days' written notice.

9
<PAGE>

Under the Alliance Mutual Funds' Right of Accumulation, exchanges of Class A
shares made pursuant to the Alliance Dollar Cost Averaging Program or other-
wise will be assessed an initial sales charge based on the shareholder's total
Alliance Mutual Funds holdings, including shares of the Fund, and therefore
may be eligible for a reduced sales charge. Consult with your financial repre-
sentative or Alliance regarding the Alliance Dollar Cost Averaging Program,
Rights of Accumulation and other time and money saving services to investors.

Shares will age without regard to exchanges for purposes of determining the
CDSC, if any, upon redemption and, in the case of Class B shares, for the pur-
poses 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.

HOW TO SELL SHARES

You may "redeem", i.e., sell your shares 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) 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 EFT or for shares acquired in exchange for Alliance Mutual Fund
shares recently purchased by check or EFT, the Fund will not send proceeds un-
til it is reasonably satisfied that the check or EFT has been collected (which
may take up to 15 days).

SELLING SHARES THROUGH YOUR BROKER

Your broker must receive your request before 4:00 p.m. Eastern time, and
your broker must transmit your request to the Fund by 5:00 p.m. Eastern time,
to receive that day's net asset value (less any applicable CDSC). Your broker
is responsible for furnishing all necessary documentation to the Fund, and may
charge you for this service.

SELLING SHARES DIRECTLY TO THE FUND

Send a signed letter of instruction or stock power form to AFS, 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 na-
tional 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 corpora-
tions, intermediaries, fiduciaries and surviving joint owners. For details
contact:

Alliance Fund Services, Inc.
P.O. Box 1520
Secaucus, NJ 07096-1520
1-800-221-5672

10
<PAGE>

also may be sent by check to a shareholder's address of record. Redemption re-
quests by EFT may not exceed $100,000 and redemption requests by check may not
exceed $50,000. Telephone redemption is not available for shares held in nomi-
nee 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. See "General" below.

GENERAL

The sale or exchange of shares is a taxable transaction for federal tax pur-
poses. Under unusual circumstances, the Fund may suspend redemptions or post-
pone payment for up to seven days or longer, as permitted by federal securi-
ties law. The Fund reserves 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.

Alliance sponsors four other money market funds, Alliance Money Market Fund,
Alliance Capital Reserves, Alliance Government Reserves and Alliance Municipal
Trust (the "Trusts"). Each of the Trusts offers a class of shares that has a
lower expense ratio and pays correspondingly higher dividends than shares of
the Fund. However, the Trusts do not have an exchange privilege with Alliance
Mutual Funds. Thus, if you held shares of a Trust and wished to transfer your
holdings to an Alliance Mutual Fund, you would be required to redeem shares of
the Trust and purchase shares of that Alliance Mutual Fund with the cash pro-
ceeds of your redemption. Such a transaction would be subject to any sales
charges applicable to an original purchase for cash (or eventual redemption)
of shares of that Alliance Mutual Fund. To obtain the prospectus for any of
the Trusts, contact AFS at the Literature telephone number on the cover of
this Prospectus.

During drastic economic or market developments, you might have difficulty in
reaching AFS by telephone, in which event you should issue written instruc-
tions to AFS. AFS is not responsible for the authenticity of telephone re-
quests to purchase, sell or exchange shares. AFS will employ reasonable proce-
dures 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 telephone requests. The tele-
phone 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. A
shareholder's manual explaining all available services will be provided upon
request. To request a shareholder manual call 800-227-4618.

MANAGEMENT OF THE FUND

ADVISER

Alliance Capital Management L.P., a Delaware limited partnership with prin-
cipal offices at 1345 Avenue of the Americas, New York, New York 10105, has
been retained under an advisory agreement (the "Advisory Agreement") to pro-
vide investment advice and, in general, to conduct the management and invest-
ment program of the Fund, subject to the general supervision and control of
the Trustees of the Fund.

Alliance is a leading international investment manager supervising client
accounts with

11
<PAGE>

assets as of September 30, 1996 of more than $173 billion (of which more than
$59 billion represents the assets of investment companies). Alliance's clients
are primarily major corporate employee benefit funds, public employee retire-
ment systems, investment companies, foundations and endowment funds. The 52
registered investment companies managed by Alliance comprising 110 separate
investment portfolios currently have over two million shareholders. As of
September 30, 1996, Alliance was retained as an investment manager for 33 of
the Fortune 100 companies.

Alliance Capital Management Corporation, the sole general partner of, and
the owner of 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 and a wholly-owned subsidiary of The Equitable Companies Incor-
porated, a holding company controlled by AXA, a French insurance holding com-
pany. Certain information concerning the ownership and control of Equitable by
AXA is set forth in the Statement of Additional Information under "Management
of the Fund."

Under its Advisory Agreement with the Fund, Alliance provides investment ad-
visory services and order placement facilities for the Fund and pays all com-
pensation of Trustees and officers of the Fund who are affiliated persons of
Alliance. Alliance or its affiliates also furnish the Fund, without charge,
management supervision and assistance and office facilities and provide per-
sons satisfactory to the Fund's Trustees to serve as the Fund's officers. Un-
der the Advisory Agreement, the Fund pays Alliance a fee at the annual rate of
.25 of 1% of the first $1.25 billion of the Fund's average daily net assets;
.24 of 1% of the next $.25 billion of such assets; .23 of 1% of the next $.25
billion of such assets; .22 of 1% of the next $.25 billion of such assets; .21
of 1% of the next $1 billion of such assets, and; .20 of 1% of such average
daily net assets in excess of $3 billion. The fee is accrued daily and paid
monthly.

RULE 12B-1 DISTRIBUTION SERVICES AGREEMENT

Rule 12b-1 adopted by the Commission under the Act permits an investment
company to directly or indirectly pay expenses associated with the distribu-
tion of its shares in accordance with a duly adopted and approved plan. The
Fund has entered into a Distribution Services Agreement (the "Agreement"),
which includes a plan adopted pursuant to Rule 12b-1 (the "Plan") with AFD.
Pursuant to the Plan, the Fund pays to AFD a Rule 12b-1 distribution services
fee at an annual rate of .50 of 1% of the Fund's aggregate average daily net
assets attributable to the Class A shares, 1.00% of the Fund's aggregate aver-
age daily net assets attributable to the Class B shares and .75 of 1% of the
Fund's aggregate average daily net assets attributable to the Class C shares
to compensate AFD for distribution services. The Agreement provides that a
portion of the distribution services fee in an amount equal to .25% of the ag-
gregate average daily net assets of the Fund attributable to each of the Class
A shares, Class B shares and Class C shares constitutes a service fee that AFD
will use for personal service and/or the maintenance of shareholder accounts.

The Agreement provides that AFD may spend the distribution services fee it
receives from the Fund as it deems appropriate on any activities or expenses
primarily intended to result in the sale of shares of the Fund, including, but
not limited to, compensation of employees of AFD, compensation and expenses,
including overhead and telephone and other communication expenses, of AFD and
other broker-dealers,

12
<PAGE>

banks and other financial intermediaries that engage in or support the distri-
bution of shares of the Fund, the preparation, printing and distribution of
prospectuses, statements of additional information, sales literature and ad-
vertising materials, and other promotional activities. In this regard, some
payments under the Agreement are used to compensate financial intermediaries
with trail or maintenance commissions in an amount equal to .25%, annualized,
with respect to Class A shares and Class B shares, and .50%, annualized, with
respect to Class C shares, of the assets maintained in the Fund by their
customers. The Agreement also provides that AFD may, if it wishes, retain all
or any portion of the distribution services fees received from the Fund for
its own purposes. Distribution services fees are accrued daily and paid month-
ly, and are charged as expenses of the Fund as accrued. The Agreement also
provides that Alliance may use its own resources to finance the distribution
of the Fund's shares.

The Fund is not obligated under the Agreement to pay any distribution serv-
ices fee in excess of the amounts set forth above. Since AFD's compensation
with respect to each of the Class A shares, Class B shares and Class C shares
is not directly tied to its expenses incurred with respect to such class, the
amount of compensation received by it under the Agreement during any year may
be more or less than its actual expenses.

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 AFD with respect to that class, and (ii) the Fund would
not be obligated to pay AFD for any amounts expended under the Agreement not
previously recovered by AFD from distribution services fees in respect of
shares of such class or recovered through deferred sales charges.

The Agreement is in compliance with rules of the National Association of Se-
curities 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 mu-
tual 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.

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

13
<PAGE>

DIVIDENDS, DISTRIBUTIONS AND TAXES

All net income of the Fund is determined each business day at 4:00 p.m.
(Eastern time) and is paid immediately thereafter pro rata to shareholders of
record of each class via automatic investment in additional full and frac-
tional shares in each shareholder's account. As such additional shares are en-
titled to dividends on following days, a compounding growth of income occurs.

Net income consists of all accrued interest income on Fund assets less the
Fund's expenses applicable to that dividend period. Realized gains and losses
are reflected in net asset value and are not included in net income.

The Fund intends to qualify for each taxable year to be taxed as a regulated
investment company under the Internal Revenue Code of 1986, as amended, and,
as such, will not be liable for federal income taxes on the investment company
taxable income and net capital gains distributed to its shareholders. For fed-
eral income tax purposes, distributions out of interest income earned by the
Fund and net realized short-term capital gains are taxable to you as ordinary
income, and distributions of net realized long-term capital gains, if any, are
taxable as long-term capital gains irrespective of the length of time you may
have held your shares. Distributions by the Fund may also be subject to cer-
tain state and local taxes. Each year shortly after December 31, the Fund will
send you tax information stating the amount and type of all its distributions
for the year just ended.

GENERAL INFORMATION

ORGANIZATION

AFD Exchange Reserves is a Massachusetts business trust that was organized
on January 14, 1994. It is anticipated that annual shareholder meetings will
not be held; shareholder meetings will be held only when required by federal
law. Shareholders have available certain procedures for the removal of Trust-
ees.

A shareholder in the Fund will be entitled to his pro rata share of all div-
idends 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. The Fund is empowered to establish, without share-
holder approval, additional portfolios which may have different investment ob-
jectives.

Shares are normally entitled to one vote for all purposes. Generally, shares
of the Fund vote as a single series on matters, such as the election of Trust-
ees, that affect all shareholders of the Fund in substantially the same man-
ner. Classes A, B, C and Advisor Class shares have identical voting, dividend,
liquidation and other rights, except that each class bears its own transfer
agency expenses, each of Class A, Class B and Class C shares bears its own
distribution expenses and Class B shares and Advisor Class shares convert to
Class A shares under certain circumstances. Each class of shares votes sepa-
rately 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

14
<PAGE>

Trustees and, in liquidation of a Fund, are entitled to receive the net assets
of the Fund. Certain additional matters relating to a Fund's organization are
discussed in its Statement of Additional Information.

REGISTRAR, TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT

Alliance Fund Services, Inc., an indirect wholly-owned subsidiary of Alli-
ance, located at 500 Plaza Drive, Secaucus, New Jersey 07094, acts as the
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 the Class B shares will be higher than the transfer
agency fee with respect to the Class A shares or Class C shares.

PRINCIPAL UNDERWRITER

Alliance Fund Distributors, Inc., 1345 Avenue of the Americas, New York, New
York 10105, an indirect wholly-owned subsidiary of Alliance, is the Principal
Underwriter of shares of the Fund.

ADDITIONAL INFORMATION

This Prospectus and the Statement of Additional Information, which have been
incorporated by reference herein, do not contain all the information set forth
in the Registration Statement filed by the Fund with the Commission under the
Securities Act. Copies of the Registration Statement may be obtained at a rea-
sonable charge from the Commission or may be examined, without charge, at the
offices of the Commission in Washington, D.C. This Prospectus does not consti-
tute an offering in any state in which such offering may not lawfully be made.

15
<PAGE>

ALLIANCE SUBSCRIPTION APPLICATION

AFD Exchange Reserves

- --------------------------------------------------------------------------------
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 6)

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 or electronic funds transfer, redemption proceeds will not be made
available until the Fund is reasonably assured that the check or electronic
funds transfer has cleared, normally up to 15 calendar days following the
purchase date.

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

- --------------------------------------------------------------------------------
SUBSCRIPTION APPLICATION
- --------------------------------------------------------------------------------

AFD Exchange Reserves

(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 Name 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 [_] Resident Alien [] Other

++++ ++++
+ +
+ +
For Alliance Use Only

* +
* +
**** ++++
<PAGE>

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

Minimum: $250; Maximum: Class B only - $250,000; Class C only - $1,000,000. Make
all checks payable to AFD Exchange Reserves.
I hereby subscribe for shares of AFD Exchange Reserves

[_] Class A [_] Class B (Contingent [_] Class C (Asset-based
Deferred Sales Charge) Sales Charge)

to be purchased with the enclosed check or draft for $__________________ .

AFD Exchange Reserves may be used to meet the needs of an investor who wishes to
establish a dollar cost averaging program into other like classes of Alliance
Mutual Funds. See "Shareholder Options, Section 5D", below.

Class A shares will not be subject to any initial sales charge at the time of
purchase. However, Class A shares exchanged into Class A shares of another
Alliance Mutual Fund will be subject to applicable sales charges at the time of
the exchange.
------------------------------------------
DEALER USE ONLY
Wire Comfirm No.:
------------------------------------------

- --------------------------------------------------------------------------------
4. Distribution Options
- --------------------------------------------------------------------------------

If no box is checked, all distributions will be reinvested in
additional shares of the Fund
<TABLE>
<S> <C> <C> <C>
Income Dividends: (elect one) [_]Reinvest dividends [_]Pay dividends in cash [_]Use Dividend Direction Plan
Capital Gains Distribution: (elect one) [_]Reinvest capital gains [_]Pay capital gains in cash [_]Use Dividend Direction Plan
</TABLE>

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

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

________________________________________ ______________________________________
Name Existing Account No.

- --------------------------------------------------------------------------------
5. 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: Your bank must be a member of the National Automated Clearing House
Association.

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

_______________________ ________________ __________________ _________________
Individual Account Date Joint Account Date
<PAGE>

B. TELEPHONE TRANSACTIONS

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

Purchases and Redemptions via EFT

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

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

____________________________ _________ _______________________ ___________
Individual Account Owner Date Joint Account Owner Date

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
Month
amount of $_______________($50.00 minimum)

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

Please send payments to: (please select one)
[_] My checking account. Select the date of the month on or about which you
wish the EFT payments to be made: _______________. Please enclose a
preprinted voided check to ensure accuracy.
[_] My address of record designated in Section 2.
[_] The payee and address specified below:

_______________________________________ ____________________________________
Name of Payee Address

_______________________________________ ____________________________________
City State Zip

D. ALLIANCE DOLLAR COST AVERAGING PROGRAM (ADCAP)
[_] I authorize Alliance Fund Services, Inc. to transact monthly exchanges
from my Fund account into shares of the Alliance Fund(s) listed below:

Dollar Amount Day of Exchange** "To" Fund Account #
($25 minimum) (1st thru 31st) "To" Fund Name (if existing)

[_] New
[_] Existing
______________ _________________ _______________ ___________________
[_] New
[_] Existing
______________ _________________ _______________ ___________________
[_] New
[_] Existing
______________ _________________ _______________ ___________________
[_] New
[_] Existing
______________ _________________ _______________ ___________________

Exchanges of Class A shares are made at the net asset value next determined
plus any applicable initial sales charge imposed on the Class A shares of the
other Alliance Mutual Fund. Exchanges of Class B and Class C shares are made
at the net asset values next determined, without sales or service charges.
When redemption occurs, the CDSC applicable to the original shares is
applied.

Certificates must remain unissued.

** If the date selected for the exchange is not a Fund business day the
transaction will be processed on the next Fund business day.
<PAGE>

- --------------------------------------------------------------------------------
6. SHAREHOLDER AUTHORIZATION This section MUST be completed
----
- --------------------------------------------------------------------------------

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.
---

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 Alliance, Alliance Fund Distributors, Inc., Alliance Fund Services,
Inc. 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.

The Internal Revenue Service does not require your consent to any provision of
this document other than the certification required to avoid back-up
withholding.

________________________________ ______________________________________________
Signature Date

________________________________ _______________________ _____________________
Signature Date Acceptance Date:

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

We hereby authorize Alliance Fund Services, Inc. to act as our agent in
connection with transactions under this authorization form; and we guarantee the
signature(s) set forth in Section 6, as well as the legal capacity of the
shareholder.

Dealer/Agent Firm _____________________ Authorized Signature __________________

Representative First Name _____________ MI ___ Last Name _____________________

Branch Office Address

City _________________________________ State ______________ Zip Code _________

Branch Number _________________________ Branch Phone ( ) ____________________
<PAGE>

SIGNATURE CARD
CLASS A OR CLASS C ACCOUNT # AFD EXCHANGE RESERVES
(if known)
________________________________________________________________________________
ACCOUNT NAME(S) AS REGISTERED

________________________________________________________________________________
SOCIAL SECURITY NUMBER

________________________________________________________________________________
AUTHORIZED SIGNATURE(s) -- for joint accounts, all owners, or their legal
representatives, must sign this card.

1.
------------------------------------------------------------------------------

2.
------------------------------------------------------------------------------

3.
------------------------------------------------------------------------------
________________________________________________________________________________
Check One Box [_] All the above signatures are required on checks written
against this account.
[_] Any one signature is acceptable on checks written against this
account.
[_] A combination of signatures is required (specify number).
Subject to conditions printed on reverse side.
STATE STREET BANK AND TRUST COMPANY
<PAGE>

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

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

The Bank is hereby appointed agent by the person(s) signing this card (the
"Depositor[s]") and, as agent, is authorized and directed to present checks
drawn on this checking account to AFD Exchange Reserves ("AFDER") or its
transfer agent as requests to redeem shares of AFDER registered in the name of
the Depositor(s) in the amounts of such checks and to deposit the proceeds of
such redemptions in this checking account. The Bank shall be liable only for its
own negligence.

The Depositor(s) agrees to be subject to the rules and regulations of the Bank
pertaining to this checking account as amended from time to time. The Bank and
AFDER reserve the right to change, modify or terminate this checking account and
authorization at any time.

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

AFD PRO 2/97

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

TABLE OF CONTENTS PAGE
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
Expense Information 2
Financial Highlights 3
Description of the Fund 4
Purchase and Sale of Shares 6
Management of the Fund 11
Dividends, Distributions and Taxes 14
General Information 14
</TABLE>

ADVISER
Alliance Capital Management L.P.
1345 Avenue of the Americas
New York, NY 10105

AFD
- --------------------------------------------------------------------------------
Exchange
- --------------------------------------------------------------------------------
Reserves
- --------------------------------------------------------------------------------

Prospectus

February 3, 1997

Goal: Maximum current income consistent with safety of principal and liquidity.

[LOGO OF ALLIANCE APPEARS HERE]

<PAGE>

This is filed pursuant to Rule 497(c).
File Nos. 33-74230 and 811-08294.

<PAGE>

[LOGO OF ALLIANCE CAPITAL AFD EXCHANGE RESERVES
APPEARS HERE] Advisor Class
- -------------------------------------------------------------------------------
P.O. Box 1520, Secaucus, New Jersey 07096-1520
Toll Free (800) 221-5672
For Literature: Toll Free (800) 227-4618

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

Shares of the Fund should be purchased for cash only as a temporary investment
pending exchange into another Alliance Mutual Fund and should not be held as a
long-term investment.

This Prospectus offers the Advisor Class shares of the Fund which may be
purchased at net asset value without any initial or contingent deferred sales
charges and without ongoing distribution expenses. Advisor Class shares are
offered solely to (i) investors participating in fee-based programs meeting
certain standards established by Alliance Fund Distributors, Inc., the Fund's
principal underwriter, (ii) participants in self-directed defined contribution
employee benefit plans (e.g., 401(k) plans) that meet certain minimum
standards and (iii) certain other categories of investors described in the
Prospectus, including investment advisory clients of, and certain other
persons associated with, Alliance Capital Management L.P. and its affiliates
or the Fund. See "Purchase and Sale of Shares."

This Prospectus sets forth concisely the information which a prospective
investor should know about the Fund before investing. A "Statement of
Additional Information" dated February 3, 1997 which provides further
information regarding certain matters discussed in this Prospectus and other
matters which 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 call the "For Literature" telephone number shown above.

(R): This registered service mark used under license from the owner, Alliance
Capital Management L.P.

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

PROSPECTUS/February 3, 1997

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

- --------------------------------------------------------------------------------
EXPENSE INFORMATION
- --------------------------------------------------------------------------------

SHAREHOLDER TRANSACTION EXPENSES are one of several factors to consider when
you invest in the Fund. The following table summarizes your maximum transac-
tion costs from investing in Advisor Class shares of the Fund and estimated
annual expenses for Advisor Class shares. The "Example" following the table
shows the cumulative expenses attributable to a hypothetical $1,000 investment
in Advisor Class shares for the periods specified.

<TABLE>
<CAPTION>
ADVISOR CLASS SHARES
--------------------
<S> <C>
Maximum sales charge imposed on purchases................ None
Sales charge imposed on dividend reinvestments........... None
Deferred sales charge.................................... None
Exchange Fee............................................. None
ANNUAL FUND OPERATING EXPENSES
Management fees.......................................... .25%
12b-1 fees............................................... None
Other expenses(a)........................................ .54%
----
Total fund operating expenses(b)......................... .79%
====
</TABLE>
- --------
(a) These expenses include a transfer agency fee payable to Alliance Fund
Services, Inc., an affiliate of Alliance Capital Management L.P., based on
a fixed dollar amount charged to the Fund for each shareholder's account.
(b) The expense information does not reflect any charges or expenses imposed
by your financial representative or your employee benefit plan.

EXAMPLE

<TABLE>
<CAPTION>
Cumulative expenses
paid for the period of Advisor Class
---------------------- -------------
<S> <C>
1 year.................................. $ 8
3 years................................. $25
</TABLE>
- --------

The purpose of the foregoing table is to assist the investor in understand-
ing the various costs and expenses that an investor in Advisor Class shares of
the Fund will bear directly or indirectly. "Other Expenses" are based on esti-
mated amounts for the Fund's current fiscal year. The Example set forth above
assumes reinvestment of all dividends and distributions and utilizes a 5% an-
nual rate of return as mandated by Securities and Exchange Commission (the
"Commission") regulations. The Example should not be considered a representa-
tion of future expenses; actual expenses may be greater or less than those
shown.

2
<PAGE>

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

INVESTMENT OBJECTIVE AND POLICIES

MONEY MARKET SECURITIES

The money market securities in which the Fund invests include: (1) market-
able obligations issued or guaranteed by the United States Government, its
agencies or instrumentalities (collectively, the "U.S. Government"); (2) cer-
tificates of deposit and bankers' acceptances issued or guaranteed by, or time
deposits maintained at, banks or savings and loan associations (including for-
eign branches of U.S. banks or U.S. or foreign branches of foreign banks) hav-
ing total assets of more than $500 million; (3) commercial paper of high qual-
ity, i.e., rated A-1 or A-2 by Standard & Poor's Corporation ("S&P"), Prime-1
or Prime-2 by Moody's Investors Service, Inc. ("Moody's"), Fitch-1 or Fitch-2
by Fitch Investors Service, Inc., or Duff 1 or Duff 2 by Duff & Phelps Inc,
or, if not rated, issued by U.S. or foreign companies having outstanding debt
securities rated AAA, AA or A by S&P, or Aaa, Aa or A by Moody's and partici-
pation interests in loans extended by banks to such companies; and (4) repur-
chase agreements that are collateralized in full each day by liquid securities
of the types listed above. Repurchase agreements may be entered into only with
those banks (including State Street Bank and Trust Company, the Fund's Custo-
dian) or broker-dealers ("vendors") that are eligible under the procedures
adopted by the Trustees for evaluating and monitoring the creditworthiness of
such vendors. A repurchase agreement would create a loss to the Fund if, in
the event of a vendor default, the proceeds from the sale of the collateral
were less than the repurchase price.

3
<PAGE>

OTHER FUNDAMENTAL INVESTMENT POLICIES

4
<PAGE>

(5) mortgage, pledge or hypothecate its assets except to secure such
borrowings.

- --------------------------------------------------------------------------------
PURCHASE AND SALE OF SHARES
- --------------------------------------------------------------------------------

Advisor Class shares of the Fund may be purchased for cash and thereafter
exchanged for Advisor Class shares of other Alliance Mutual Funds. Under the
Alliance Dollar Cost Averaging Program, exchanges may be made automatically
each month, thus producing a dollar cost averaging effect. Exchanges also may
be made at other times of an investor's choosing. Advisor Class shares of the
Fund should be purchased for cash only as a temporary investment pending ex-
change into Advisor Class shares of another Alliance Mutual Fund and should
not be held as a long-term investment.

Advisor Class shares of the Fund also are available to holders of Advisor
Class shares of other Alliance Mutual Funds who wish to exchange their Advisor
Class shares for Advisor Class shares of a money market fund. Such an exchange
transaction is effected through the redemption of Alliance Mutual Fund Advisor
Class shares tendered for exchange and the purchase of Advisor Class shares of
the Fund at their respective net asset values as next determined. Exchange
purchases into the Fund may be made by telephone or written request.

HOW TO BUY SHARES

The Fund offers multiple classes of shares, of which only the Advisor Class
is offered by this Prospectus. Advisor Class shares of the Fund may be pur-
chased through your financial representative at net asset value without any
initial or contingent deferred sales charges and are not subject to ongoing
distribution expenses. Advisor Class shares may be purchased and held solely
(i) through accounts established under a fee-based program, sponsored and
maintained by a registered broker-dealer or other financial intermediary and
approved by Alliance Fund Distributors, Inc. ("AFD"), the Fund's principal un-
derwriter, (ii) through a self-directed defined contribution employee benefit
plan (e.g., a 401(k) plan) that has at least 1,000 participants or $25 million
in assets, (iii) by investment advisory clients of, and certain other persons
associated with, Alliance and its affiliates or the Fund, and (iv) through
registered investment ad-

5
<PAGE>

visers or other financial intermediaries who charge a management, consulting
or other fee for their service and who purchase shares through a broker or
agent approved by AFD and clients of such registered investment advisers or
financial intermediaries whose accounts are linked to the master account of
such investment adviser or financial intermediary on the books of such ap-
proved broker or agent. For more detailed information about who may purchase
and hold Advisor Class shares see the Statement of Additional Information. A
shareholder's Advisor Class shares will automatically convert to Class A
shares of the Fund under certain circumstances. For a more detailed descrip-
tion of the Conversion Feature and Class A shares, see "Conversion Feature."
Generally, a fee-based program must charge an asset-based or other similar fee
and must invest at least $250,000 in Advisor Class shares of the Fund in order
to be approved by AFD for investment in Advisor Class shares. For more de-
tailed information about who may purchase and hold Advisor Class shares see
the Statement of Additional Information. Fee-based and other programs through
which Advisor Class shares may be purchased may impose different requirements
with respect to minimum initial and subsequent investment levels than de-
scribed above. See the Subscription Application and Statement of Additional
Information for more information.

The Fund may refuse any order to purchase Advisor Class shares. In this re-
gard, the Fund reserves the right to restrict purchases of Advisor Class
shares (including through exchanges) when there appears to be evidence of a
pattern of frequent purchases and sales made in response to short-term consid-
erations.

HOW THE FUND VALUES ITS SHARES

The net asset value of Advisor Class shares is expected to be constant at
$1.00 per share, although this price is not guaranteed. The net asset value
per share is calculated by determining the amount of assets attributable to
each class of shares, subtracting liabilities and dividing by the amount of
outstanding shares for such class. In this connection, the Fund uses the amor-
tized cost value for determining the value of the Fund's investments. 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).

HOW TO EXCHANGE SHARES

You may exchange your investment in Advisor Class shares of the Fund for Ad-
visor Class shares of other Alliance Mutual Funds. Exchanges of Advisor Class
shares are made at the net asset value next determined and without sales or
service charges. Exchanges may be made by telephone or written request. Tele-
phone exchange requests must be received by AFS by 4:00 p.m. Eastern time on a
Fund business day to receive that day's net asset value. Please read carefully
the prospectus of the mutual fund into which you are exchanging before submit-
ting the request. Call AFS at 800-221-5672 to exchange uncertificated shares.
An exchange is a taxable capital transaction for federal tax purposes. The ex-
change service may be changed, suspended or terminated on 60 days' written no-
tice.

HOW TO SELL SHARES

You may "redeem", i.e., sell your shares to the Fund on any day the Exchange
is open,

6
<PAGE>

either directly or through your financial representative. The price you will
receive is the net asset value 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 ("EFT") or for shares acquired in exchange for Alliance Mutual Fund
shares recently purchased by check or EFT, the Fund will not send proceeds un-
til it is reasonably satisfied that the check or EFT has been collected (which
may take up to 15 days). If you are in doubt about what documents are required
by your fee-based program or employee benefit plan, you should contact your
financial representative.

SELLING SHARES THROUGH YOUR FINANCIAL REPRESENTATIVE

Your financial representative must receive your request before 4:00 p.m.
Eastern time, and your financial representative must transmit your request to
the Fund by 5:00 p.m. Eastern time, to receive that day's net asset value.
Your financial representative is responsible for furnishing all necessary doc-
umentation to the Fund, and may charge you for this service.

SELLING SHARES DIRECTLY TO THE FUND

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 certif-
icates have been issued can also be made by telephone to 800-221-5672. Tele-
phone redemption requests must be made by 4:00 p.m. Eastern time on a Fund
business day to receive that day's net asset value and, except for certain om-
nibus accounts, may be made only once in any 30-day period. A shareholder who
has completed the Telephone Transactions section of the Subscription Applica-
tion, or the Shareholder Options form obtained from AFS, can elect to have the
proceeds of his or her redemption sent to his or her bank via an EFT. Proceeds
of telephone redemptions also may be sent by check to a shareholder's address
of record. Except for certain omnibus accounts, redemption requests by EFT may
not exceed $100,000 and redemption requests by check may not exceed $50,000.
Telephone redemption is not available for 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.
See "General" below.

GENERAL

The sale or exchange of shares is a taxable transaction for federal tax pur-
poses. Under unusual circumstances, the Fund may suspend redemptions or post-
pone payment for up to seven

7
<PAGE>

days or longer, as permitted by federal securities law. The Fund reserves the
right to close an account that through redemption has remained be- low $200
for 90 days. Shareholders will receive 60 days' written notice to increase the
account value before the account is closed.

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.

GENERAL

If you are a Fund shareholder through an account established under a fee-
based program, your fee-based program may impose requirements with respect to
the purchase, sale or exchange of Advisor Class shares of the Fund that are
different from those described in this Prospectus. A transaction fee may be
charged by your financial representative with respect to the purchase, sale or
exchange of Advisor Class shares made through such financial representative.

The Fund offers three classes of shares other than the Advisor Class, which
are Class A, Class B and Class C. All classes of shares of the Fund have a
common investment objective and investment portfolio. Class A shares are of-
fered with an initial sales charge and pay a distribution services fee. Class
B shares have a contingent deferred sales charge (a "CDSC") and also pay a
distribution services fee. Class C shares have no initial sales charge or CDSC
as long as they are not redeemed within one year of purchase, but pay a
distribution services fee. Because Advisor Class shares have no initial sales
charge or CDSC and pay no distribution services fee, Advisor Class shares are
expected to have different performance from Class A, Class B or Class C
shares. You may obtain more information about Class A, Class B and Class C
shares, which are not offered by this Prospectus, by contacting AFS by tele-
phone at 800-221-5672 or by contacting your financial representative.

8
<PAGE>

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

ADVISER

Alliance is a leading international investment manager supervising client
accounts with assets as of September 30, 1996 of more than $173 billion (of
which more than $59 billion represents the assets of investment companies).
Alliance's clients are primarily major corporate employee benefit funds, pub-
lic employee retirement systems, investment companies, foundations and endow-
ment funds. The 52 registered investment companies managed by Alliance com-
prising 110 separate investment portfolios currently have over two million
shareholders. As of September 30, 1996, Alliance was an investment manager of
employee benefit plan assets for 33 of the Fortune 100 companies.

DISTRIBUTION SERVICES AGREEMENT

The Fund has entered into a Distribution Services Agreement with AFD with
respect to the Advisor Class shares. As interpreted by courts and administra-
tive agencies, the Glass-Steagall Act and other applicable laws and regula-
tions limit the ability of a bank or other depository institution to become an
underwriter or distributor of securities. However, in the opinion of the
Fund's management, based on the advice of counsel,

9
<PAGE>

these laws and regulations do not prohibit such depository institutions from
providing services for investment companies such as the administrative, ac-
counting and other services referred to in the Agreement. In the event that
change in these laws prevented a bank from providing such services, it is ex-
pected that other service arrangements would be made and that shareholders
would not be adversely affected. The State of Texas requires that shares of
the Fund may be sold in that state only by dealers or other financial institu-
tions that are registered there as broker-dealers.

- --------------------------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
CONVERSION FEATURE
- --------------------------------------------------------------------------------

CONVERSION TO CLASS A SHARES

Advisor Class shares may be held solely through the fee-based program ac-
counts, employee benefit plans and registered investment advisory or other fi-
nancial intermediary relationship described above under "--How to Buy Shares,"
by investment advisory clients of, and by certain persons associated with, Al-
liance and its affiliates or the Fund. If (i) a holder of Advisor Class shares
ceases to participate in the fee-based program or plan, or to be associated
with an investment advisory or financial intermediary, in each case that sat-
isfies the requirements to purchase shares set forth under "--How to Buy
Shares" or (ii) the holder is otherwise no longer eligible to purchase Advisor
Class shares as described in this Prospectus (each, a "Conversion Event"),
then all Advisor Class shares held by the

10
<PAGE>

shareholder will convert automatically and without notice to the shareholder,
other than the notice contained in this Prospectus, to Class A shares of the
Fund during the calendar month following the month in which the Fund is in-
formed of the occurrence of the Conversion Event. The failure of a shareholder
or a fee-based program to satisfy the minimum investment requirements to pur-
chase Advisor Class shares will not constitute a Conversion Event. The conver-
sion would occur on the basis of the relative net asset values of the two
classes and without the imposition of any sales load, fee or other charge.

DESCRIPTION OF CLASS A SHARES

The following sets forth maximum transaction costs, annual expenses, per share
income and capital changes for Class A shares of the Fund. Class A shares are
subject to a distribution fee that may not exceed an annual rate of .30%. The
higher fees mean a higher expense ratio, so Class A shares pay correspondingly
lower dividends and may have a lower net asset value than Advisor Class
shares.
SHAREHOLDER TRANSACTION EXPENSES are one of several factors to consider when
you invest in the Fund. The following table summarizes your maximum
transaction costs from investing in Class A shares of the Fund and annual
expenses for Class A shares of the Fund. The Example below the table shows the
cumulative expenses attributable to a hypothetical $1,000 investment for the
periods specified.

CLASS A SHARES
<TABLE>
<S> <C>
Maximum sales charge imposed on purchases (as a percentage of of-
fering price)(a)................................................. None
Sales charge imposed on dividend reinvestments.................... None
Deferred sales charge (as a percentage of original purchase price
or redemption proceeds, whichever is lower)...................... None
Exchange fee...................................................... None

ANNUAL FUND OPERATING EXPENSES
Management fees................................................... .25%
12b-1 Fees........................................................ .50
Other expenses(b)................................................. .54
----
Total fund operating expenses..................................... 1.29%
====
</TABLE>

EXAMPLES
<TABLE>
<CAPTION>
AFTER 1 YEAR AFTER 3 YEARS AFTER 5 YEARS AFTER 10 YEARS
------------ ------------- ------------- --------------
<S> <C> <C> <C> <C>
Class A........... $13 $41 $71 $156
</TABLE>
- --------
(a) Advisor Class shares convert to Class A shares at net asset value and
without the imposition of any sales charge and accordingly the maximum
sales charge of 4.25% on most purchases of Class A shares for cash does
not apply.
(b) These expenses include a transfer agency fee payable to AFS an affiliate
of Alliance, based on a fixed dollar amount charged to the Fund for each
shareholder's account.

The purpose of the foregoing table is to assist the investor in
understanding the various costs and expenses that an investor in the Fund will
bear directly or indirectly. Long-term shareholders of Class A shares of the
Fund may pay aggregate sales charges totaling more than the economic
equivalent of the maximum initial sales charges permitted by the Conduct Rules
of the National Association of Securities Dealers, Inc. "Other Expenses" are
based on estimated amounts for the Fund's current fiscal year. The Example set
forth above assumes reinvestment of all dividends and distributions and

11
<PAGE>

utilizes a 5% annual rate of return as mandated by Commission regulations. The
Example should not be considered representative of past or future expenses;
actual expenses may be greater or less than those shown.

FINANCIAL HIGHLIGHTS. The following table presents per share income and
capital changes for a Class A share outstanding throughout each period
indicated. The information in the table has been audited by McGladrey &
Pullen, LLP, the independent accountants for the Fund. A report of McGladrey &
Pullen, LLP on the information with respect to the Fund appears in the Fund's
Statement of Additional Information. The following information should be read
in conjunction with the financial statements and related notes which are
included in the Fund's Statement of Additional Information.

<TABLE>
<CAPTION>
CLASS A
-----------------------------------------------
YEAR ENDED YEAR ENDED MARCH 25, 1994(a)
SEPTEMBER 30, SEPTEMBER 30, TO
1996 1995 SEPTEMBER 30, 1994
------------- ------------- ------------------
<S> <C> <C> <C>
Net asset value, beginning of
period......................... $1.00 $1.00 $1.00
------ ------ ------
INCOME FROM INVESTMENT OPERA-
TIONS
Net investment income........... .0416 .0453 .0126
------ ------ ------
LESS: DISTRIBUTIONS
Dividends from net investment
income......................... (.0416) (.0453) (.0126)
------ ------ ------
Net asset value, end of period.. $1.00 $1.00 $1.00
====== ====== ======
TOTAL RETURN
Total investment return based on
net asset value(b)............. 4.24% 4.64% 2.45%(c)
====== ====== ======
RATIOS/SUPPLEMENTAL DATA
Net Assets, end of period (in
millions)...................... $41 $41 $18
Ratio of average net assets to:
Expenses, net of waivers....... 1.29% 1.21% 1.82%(c)
Expenses, before waivers....... 1.29% 1.29% 1.82%(c)
Net investment income.......... 4.15% 4.63%(d) 2.62%(c)
</TABLE>
- --------
(a) Commencement of operations.
(b) Total investment return is calculated assuming an initial investment made
at the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period, and
redemption on the last day of the period. Contingent deferred sales charge
is not reflected in the calculation of total investment return.
(c) Annualized.
(d) Net of expenses waived by the Adviser.

12
<PAGE>

- --------------------------------------------------------------------------------
GENERAL INFORMATION
- --------------------------------------------------------------------------------

ORGANIZATION

AFD Exchange Reserves is a Massachusetts business trust that was organized
on January 14, 1994. It is anticipated that annual shareholder meetings will
not be held; shareholder meetings will be held only when required by federal
or state law. Shareholders have available certain procedures for the removal
of Trustees.

A shareholder in the Fund will be entitled to share pro rata with other
holders of the same class of shares all dividends and distributions arising
from the Fund's assets and, upon redeeming shares, will receive the then cur-
rent net asset value of the Fund represented by the redeemed shares. The Fund
is empowered to establish, without shareholder approval, additional portfolios
which may have different investment objectives.

Shares are normally entitled to one vote for all purposes. Generally, shares
of the Fund vote as a single series on matters, such as the election of Trust-
ees, that affect all shareholders of the Fund in substantially the same man-
ner. Advisor Class, Class A, Class B and Class C shares have identical voting,
dividend, liquidation and other rights, except that each class bears its own
transfer agency expenses, each of Class A, Class B and Class C shares bears
its own distribution expenses and Class B shares and Advisor Class shares con-
vert to Class A shares under certain circumstances. Each class of shares votes
separately with respect to matters for which separate class voting is appro-
priate under applicable law. Shares are freely transferable, are entitled to
dividends as determined by the Trustees and, in liquidation of the Fund, are
entitled to receive the net assets of the Fund. Certain additional matters re-
lating to the organization of the Fund are discussed in the Statement of Addi-
tional Information.

REGISTRAR, TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT

PRINCIPAL UNDERWRITER

Alliance Fund Distributors, Inc., 1345 Avenue of the Americas, New York, New
York 10105, an indirect wholly-owned subsidiary of Alliance, is the Principal
Underwriter of shares of the Fund.

ADDITIONAL INFORMATION

This Prospectus and the Statement of Additional Information, which have been
incorporated by reference herein, do not contain all the information set forth
in the Registration Statement filed by the Fund with the Commission under the
Securities Act. Copies of the Registration Statement may be obtained at a rea-
sonable charge from the Commission or may be examined, with- out charge, at
the offices of the Commission in Washington, D.C. This Prospectus does not
constitute an offering in any state in which such offering may not lawfully be
made.

13
<PAGE>

ALLIANCE SUBSCRIPTION APPLICATION

AFD Exchange Reserves
Advisor Class

- --------------------------------------------------------------------------------
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 6)

Registration

Please Note:

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

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

AFD Exchange Reserves

(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 Name 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, Investment only retirement plan, or other
Entity

_________________ ____________________________________________
Tax ID Number Trustee Name (Retirement Plans only)

- --------------------------------------------------------------------------------
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 [_] Resident Alien [_] Other

+++++ ++++
+ +
+ +

For Alliance Use Only

+ +
+ +
+++++ ++++
<PAGE>

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

Minimum: $250. Make all checks payable to AFD Exchange Reserves.
I hereby subscribe for Advisor Class shares of AFD Exchange Reserves

to be purchased with the enclosed check or draft for $______________.

AFD Exchange Reserves may be used to meet the needs of an investor who wishes to
establish a dollar cost averaging program into other Alliance
Mutual Funds that offer Advisor Class shares. See "Shareholder Options, Section
5D", below.

-----------------------------------------
DEALER USE ONLY
Wire Confirm No.:
-----------------------------------------

- --------------------------------------------------------------------------------
4. Distribution Options
- --------------------------------------------------------------------------------

If no box is checked, all distributions will be reinvested in additional shares
of the Fund
<TABLE>
<S> <C>
Income Dividends: (elect one) [_] Reinvest dividends
[_] Pay dividends in cash
[_] Use Dividend Direction Plan
Capital Gains Distribution: (elect one) [_] Reinvest capital gains
[_] Pay capital gains in cash
[_] Use Dividend Direction Plan
</TABLE>
If you elect to receive your income dividends or capital gains distributions in
cash, please enclose a preprinted voided check from the bank account you wish to
have your dividends deposited into.

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

______________________________________ _________________________________________
Name Existing Account No.

- --------------------------------------------------------------------------------
5. 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: Your bank must be a member of the National Automated Clearing House
Association.

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

___________________ _________________ _______________________ _________________
Individual Account Date Joint Account Date
<PAGE>

B.TELEPHONE TRANSACTIONS

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

Purchases and Redemptions via EFT

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

_________________________ ______________ ____________________ ________________
Individual Account Owner Date Joint Account Owner Date

C.SYSTEMATIC WITHDRAWAL PLAN (SWP)

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

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

_____________________________________ ________________________________________
Name of Payee Address

_____________________________________ _____________________ __________________
City State Zip

D. ALLIANCE DOLLAR COST AVERAGING PROGRAM (ADCAP)
[_] I authorize Alliance Fund Services, Inc. to transact monthly exchanges
from my Fund account into Advisor Class shares of the Alliance
Fund(s) listed below:

Dollar Amount Day of Exchange** "To" Fund Account #
($25 minimum) (1st thru 31st) "To" Fund Name (if existing)

[_] New
[_] Existing
______________ _________________ _______________ ____________________

Exchanges of Advisor Class shares are made at the net asset value next
determined.

Certificates must remain unissued.

** If the date selected for the exchange is not a Fund business day the
transaction will be processed on the next Fund business day.
<PAGE>

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

Telephone Exchanges and Redemptions by Check

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

By selecting any of the above telephone privileges, I agree that neither the
Fund nor Alliance, Alliance Fund Distributors, Inc., Alliance Fund Services,
Inc. 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.

The Internal Revenue Service does not require your consent to any provision of
this document other than the certification required to avoid back-up
withholding.

______________________________________ _________________________________________
Signature Date

______________________________________ ___________________ _____________________
Signature Date Acceptance Date:

Dealer/Agent Firm ____________________ Authorized Signature ____________________

Representative First Name ____________ MI _______ Last Name ____________________
<PAGE>

Signature Card
Advisor Class Account # AFD Exchange Reserves
(if known)
- --------------------------------------------------------------------------------
Account Name(s) As Registered

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

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

1.
------------------------------------------------------------------------------
2.
------------------------------------------------------------------------------
3.
------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Check One Box [_] All the above signatures are required on checks written
against this account.
[_] Any one signature is acceptable on checks written against
this account.
[_] A combination of signatures is required (specify number).
Subject to conditions printed on reverse side.
STATE STREET BANK AND TRUST COMPANY
<PAGE>

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

AFD PRO 2/97

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

TABLE OF CONTENTS PAGE
- --------------------------------------------------------------------------------
<S> <C>
Expense Information 2
Description of the Fund 3
Purchase and Sale of Shares 5
Management of the Fund 9
Dividends, Distributions and Taxes 10
Conversion Feature 10
General Information 13
</TABLE>

ADVISER
Alliance Capital Management L.P.
1345 Avenue of the Americas
New York, NY 10105

Prospectus
(Advisor Class)
February 3, 1997

Goal: Maximum current income consistent with safety of principal and liquidity.

[LOGO OF ALLIANCE CAPITAL APPEARS HERE]

<PAGE>

This is filed pursuant to Rule 497(c).
File Nos. 33-74230 and 811-08294.

<PAGE>

(LOGO) AFD EXCHANGE RESERVES
_________________________________________________________________

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
February 3, 1997

This Statement of Additional Information is not a prospectus but
supplements and should be read in conjunction with the current
Prospectus that offers Class A, Class B and Class C shares of the
Fund and the current Prospectus that offers the Advisor Class
shares of the Fund (the "Advisor Class Prospectus" and, together
with the Prospectus for the Fund that offers the Class A, Class B
and Class C shares, the "Prospectus"). Copies of the
Prospectuses may be obtained by contacting Alliance Fund
Services, Inc. at the address or the "For Literature" telephone
number shown above.

TABLE OF CONTENTS
Page

Investment Objective, Policies
and Restrictions ............................... 2
Management of the Fund............................ 11
Expenses of the Fund.............................. 17
Purchase of Shares................................ 21
Redemption and Repurchase of Shares............... 38
Shareholder Services.............................. 42
Daily Dividends--Determination of
Net Asset Value................................. 50
Taxes............................................. 51
Portfolio Transactions............................ 52
General Information............................... 53
Financial Statements and
Independent Auditor's Report...................... 57
Appendix--Commercial Paper and
Bond Ratings.................................... A-1

(R) This registered service mark used under license from the
owner, Alliance Capital Management L.P.

<PAGE>

INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS

AFD Exchange Reserves (the "Fund") is a diversified,
open-end investment company. The Fund's objective is maximum
current income to the extent consistent with safety of principal
and liquidity. The Fund pursues its objective by maintaining a
portfolio of high quality U.S. dollar-denominated money market
securities. In accordance with Rule 2a-7 under the Investment
Company Act of 1940 (the "Act"), the Fund will invest in
securities which at the time of investment have remaining
maturities not exceeding 397 days and the average maturity of the
Fund's investment portfolio will not exceed 90 days. Accordingly,
the Fund may make the following investments diversified by
maturities and issuers:

1. Marketable obligations of, or guaranteed by, the
United States Government, its agencies or instrumentalities.
These include issues of the U.S. Treasury, such as bills,
certificates of indebtedness, notes and bonds, and issues of
agencies and instrumentalities established under the authority of
an act of Congress. The latter issues include, but are not
limited to, obligations of the Bank for Cooperatives, Federal
Financing Bank, Federal Home Loan Bank, Federal Intermediate
Credit Banks, Federal Land Banks, Federal National Mortgage
Association and Tennessee Valley Authority. Some of the
securities are supported by the full faith and credit of the U.S.
Treasury, others are supported by the right of the issuer to
borrow from the Treasury, and still others are supported only by
the credit of the agency or instrumentality.

2. Certificates of deposit and bankers' acceptances
issued or guaranteed by, or time deposits maintained at, banks or
savings and loan associations (including foreign branches of U.S.
banks or U.S. or foreign branches of foreign banks) having total
assets of more than $500 million. Certificates of deposit are
receipts issued by a depository institution in exchange for the
deposit of funds. The issuer agrees to pay the amount deposited
plus interest to the bearer of the receipt on the date specified
on the certificate. The certificate usually can be traded in the
secondary market prior to maturity. Bankers' acceptances
typically arise from short-term credit arrangements designed to
enable businesses to obtain funds to finance commercial
transactions. Generally, an acceptance is a time draft drawn on
a bank by an exporter or an importer to obtain a stated amount of
funds to pay for specific merchandise. The draft is then

<PAGE>

"accepted" by a bank that, in effect, unconditionally guarantees
to pay the face value of the instrument on its maturity date. The
acceptance may then be held by the accepting bank as an earning
asset or it may be sold in the secondary market at the going rate
of discount for a specific maturity. Although maturities for
acceptances can be as long as 270 days, most acceptances have
maturities of six months or less.

3. Commercial paper, including variable amount master
demand notes, of high quality (i.e., rated A-1 or A-2 by Standard
& Poor's Corporation ("Standard & Poor's"), Prime-1 or Prime-2 by
Moody's Investors Service, Inc. ("Moody's"), Fitch-1 or Fitch-2
by Fitch Investors Service, Inc., or Duff 1 or Duff 2 by Duff &
Phelps Inc. or, if not rated, issued by U.S. or foreign companies
which have an outstanding debt issue rated AAA, AA or A by
Standard & Poor's, or Aaa, Aa or A by Moody's and participation
interests in loans extended by banks to such companies). For a
description of such ratings see the Appendix. Commercial paper
consists of short-term (usually from 1 to 270 days) unsecured
promissory notes issued by corporations in order to finance their
current operations. A variable amount master demand note
represents a direct borrowing arrangement involving periodically
fluctuating rates of interest under a letter agreement between a
commercial paper issuer and an institutional lender pursuant to
which the lender may determine to invest varying amounts.

4. Repurchase agreements that are collateralized in
full each day by liquid securities of the types listed above. 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. The resale price is greater than the purchase
price, reflecting an agreed-upon market rate which is effective
for the period of time the buyer's money is invested in the
security and which is not related to the coupon rate on the
purchased security. Repurchase agreements may be entered into
only with those banks (including State Street Bank and Trust
Company, the Fund's Custodian) or broker-dealers ("vendors") that
are eligible under the procedures adopted by the Trustees of the
Trust for evaluating and monitoring such vendors'
creditworthiness. For each repurchase agreement, the Fund
requires continual maintenance of the market value of underlying
collateral in amounts equal to, or in excess of, the agreement
amount. While the maturities of the underlying collateral may
exceed one year, the term of the repurchase agreement is always
less than one year. In the event that 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. If the vendor became bankrupt, the Fund

<PAGE>

might be delayed in selling the collateral. Repurchase
agreements often are for short periods such as one day or a week,
but may be longer. Repurchase agreements not terminable within
seven days will be limited to no more than 10% of the Fund's
assets. Pursuant to Rule 2a-7, a repurchase agreement is deemed
to be an acquisition of the underlying securities provided that
the obligation of the seller to repurchase the securities from
the fund is collateralized fully (as defined in such Rule).
Accordingly, the vendor of a fully collateralized repurchase
agreement is deemed to be the issuer of the underlying
securities.

Reverse Repurchase Agreements. While the Fund has no
plans to do so, it may enter into reverse repurchase agreements,
which involve the sale of money market securities held by the
Fund with an agreement to repurchase the securities at an agreed-
upon price, date and interest payment.

Asset-Backed Securities. The Fund may invest in asset-
backed securities that meet its existing diversification, quality
and maturity criteria. Asset-backed securities are securities
issued by special purpose entities whose primary assets consist
of a pool of loans or accounts receivable. The securities may be
in the form of a beneficial interest in a special purpose trust,
limited partnership interest, or commercial paper or other debt
securities issued by a special purpose corporation. Although the
securities may have some form of credit or liquidity enhancement,
payments on the securities depend predominately upon collection
of the loans and receivables held by the issuer.

Illiquid Securities. The Fund has adopted the following
investment policy which may be changed by the vote of the
Trustees: The Fund will not invest in 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. For this purpose, illiquid securities include, among
others, (a) securities that are illiquid by virtue of the absence
of a readily available market or legal or contractual restriction
on resale, other than restricted securities determined by
Alliance Capital Management L.P. ("Alliance") to be liquid in
accordance with procedures adopted by the Trustees of the Fund
and (b) repurchase agreements not terminable within seven days.

The Fund may purchase restricted securities that are
determined by Alliance to be liquid in accordance with procedures
adopted by the Trustees. Restricted securities are securities
subject to contractual or legal restrictions on resale, such as
those arising from an issuer's reliance upon certain exemptions

<PAGE>

from registration under the Securities Act of 1933, as amended
(the "Securities Act"). For example, the Fund may purchase
restricted securities eligible for resale under Rule 144A under
the Securities Act and commercial paper issued in reliance upon
the exemption from registration in Section 4(2) of the Securities
Act and, in each case, determined by Alliance to be liquid in
accordance with procedures adopted by the Trustees of the Fund.

In recent years, a large institutional market has
developed for certain types of restricted securities including,
among others, private placements, repurchase agreements,
commercial paper, foreign securities and corporate bonds and
notes. These instruments are often restricted securities because
they are sold in transactions not requiring registration. For
example, commercial paper issues in which the Fund may invest
include, among others, securities issued by major corporations
without registration under the Securities Act in reliance on the
exemption from registration afforded by Section 3(a)(3) of such
Act and commercial paper issued in reliance on the private
placement exemption from registration which is afforded by
Section 4(2) of the Securities Act ("Section 4(2) paper").
Section 4(2) paper is restricted as to disposition under the
Federal securities laws in that any resale must also be made in
an exempt transaction. Section 4(2) paper is normally resold to
other institutional investors through or with the assistance of
investment dealers who make a market in Section 4(2) paper, thus
providing liquidity. Institutional investors, rather than
selling these instruments to the general public, often depend on
an efficient institutional market in which such restricted
securities can be readily resold in transactions not involving a
public offering. In many instances, therefore, the existence of
contractual or legal restrictions on resale to the general public
does not, in practice, impair the liquidity of such investments
from the perspective of institutional holders. In recognition of
this fact, the Staff of the Securities and Exchange Commission
("Commission") has stated that Section 4(2) paper may be
determined to be liquid by the Fund's Trustees, so long as
certain conditions, which are described below, are met.

In 1990, in part to enhance the liquidity in the
institutional markets for restricted securities, the Commission
adopted Rule 144A under the Securities Act to establish a safe
harbor from the Securities Act's registration requirements for
resale of certain restricted securities to qualified
institutional buyers. Pursuant to Rule 144A, the institutional
restricted securities markets may provide both readily
ascertainable values for restricted securities and the ability to
liquidate an investment in order to satisfy share redemption

<PAGE>

orders on a timely basis. 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 Rule 144A 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.

The Fund's Trustees have the ultimate responsibility for
determining whether specific securities are liquid or illiquid.
The Trustees have delegated the function of making day-to-day
determinations of liquidity to Alliance, pursuant to guidelines
approved by the Trustees.

Alliance takes into account a number of factors in
determining whether a restricted security eligible for resale
under Rule 144A of the Securities Act being considered for
purchase is liquid, including at least the following:

(i) the frequency of trades and quotations 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 transfer);
and

(vi) any applicable Commission interpretation or
position with respect to such types of securities.

<PAGE>

To make the determination that an issue of Section 4(2)
paper is liquid, Alliance must conclude that the following
conditions have been met:

(i) the Section 4(2) paper must not be traded flat or
in default as to principal or interest; and

(ii) the Section 4(2) paper must be rated in one of the
two highest rating categories by at least two
nationally recognized statistical rating
organizations ("NRSROS"), or if only NRSRO rates
the security, by that NRSRO; if the security is
unrated, Alliance must determine that the security
is of equivalent quality.

Alliance must also consider the trading market for the
specific security, taking into account all relevant factors.

Following the purchase of a restricted security by the
Fund, Alliance monitors continuously the liquidity of such
security and reports to the Trustees regarding purchases of
liquid restricted securities.

Subject to its policy of not investing 25% or more of
its total assets in instruments issued by foreign branches of
foreign banks and other foreign entities, the Fund may make
investments in certificates of deposit and bankers' acceptances
issued or guaranteed by, or time deposits maintained at, foreign
branches of U.S. banks and U.S. and foreign branches of foreign
banks, and commercial paper issued by foreign companies. To the
extent that the Fund makes such investments, consideration is
given to their domestic marketability, the lower reserve
requirements generally mandated for overseas banking operations,
the possible impact of interruptions in the flow of international
currency transactions, potential political and social instability
or expropriation, imposition of foreign taxes, the lower level of
government supervision of issuers, the difficulty in enforcing
contractual obligations and the lack of uniform accounting and
financial reporting standards. There can be no assurance, as is
true with all investment companies, that the Fund's objective
will be achieved.

Net income to shareholders is aided both by the Fund's
ability to make investments in large denominations and by its
efficiencies of scale. Also, the Fund may seek to improve
portfolio income by selling certain portfolio securities prior to
maturity in order to take advantage of yield disparities that
occur in money markets. The Fund's investment objective may not

<PAGE>

be changed without the affirmative vote of a majority of the
Fund's outstanding shares as defined below. Except as otherwise
provided, the Fund's investment policies are not designated
"fundamental policies" within the meaning of the Act and may,
therefore, be changed by the Trustees of the Fund without a
shareholder vote. However, the Fund will not change its
investment policies without contemporaneous written notice to
shareholders.

The Fund will comply with Rule 2a-7 under the Act, as
amended from time to time, including the diversification, quality
and maturity limitations imposed by the Rule.

Currently, pursuant to Rule 2a-7, the Fund may invest
only in "eligible securities," as that term is defined in the
Rule. Generally, an eligible security is a security that (i) is
denominated in U.S. Dollars and has a remaining maturity of 397
days or less; (ii) is rated, or is issued by an issuer with
short-term debt outstanding that is rated, in one of the two
highest rating categories by two NRSROs or, if only one NRSRO has
issued a rating, by that NRSRO; and (iii) has been determined by
Alliance to present minimal credit risks pursuant to procedures
approved by the Trustees. A security that originally had a
maturity of greater than 397 days is an eligible security if its
remaining maturity at the time of purchase is 397 calendar days
or less and the issuer has outstanding short-term debt that would
be an eligible security. Unrated securities may also be eligible
securities if Alliance determines that they are of comparable
quality to a rated eligible security pursuant to guidelines
approved by the Trustees. A description of the ratings of some
NRSROs appears in the Appendix attached hereto.

Under Rule 2a-7 the Fund may not invest more than five
percent of its assets in the securities of any one issuer other
than the United States Government, its agencies or
instrumentalities. In addition, the Fund may not invest in a
security that has received, or is deemed comparable in quality to
a security that has received, the second highest rating by the
requisite number of NRSROs (a "second tier security") if
immediately after the acquisition thereof the Fund would have
invested more than (A) the greater of one percent of its total
assets or one million dollars in securities issued by that issuer
which are second tier securities and (B) five percent of its
total assets in second tier securities.

<PAGE>

Investment Restrictions

The following restrictions may not be changed without
the affirmative vote of a majority of the Fund's outstanding
shares, which means the vote of (1) 67% or more of the shares
represented at a meeting at which more than 50% of the
outstanding shares are represented or (2) more than 50% of the
outstanding shares, whichever is less.

The Fund:

1. May not invest 25% or more of its assets in the
securities of issuers conducting their principal business
activities in any one industry; provided that, for purposes of
this restriction, there is no limitation with respect to
investments in securities issued or guaranteed by the United
States Government, its agencies or instrumentalities or
certificates of deposit and bankers' acceptances issued or
guaranteed by, or interest-bearing savings deposits maintained
at, banks and savings institutions and loan associations
(including foreign branches of U.S. banks and U.S. branches of
foreign banks);

2. May not invest more than 5% of its assets in the
securities of any one issuer (exclusive of securities issued or
guaranteed by the United States Government, its agencies or
instrumentalities), except that up to 25% of the value of the
Fund's total assets may be invested without regard to such 5%
limitation;

3. May not invest in more than 10% of any one class of
an issuer's outstanding securities (exclusive of securities
issued or guaranteed by the United States Government, its
agencies or instrumentalities);

4. May not borrow money except from banks on a
temporary basis or via entering into reverse repurchase
agreements in aggregate amounts not to exceed 15% of the Fund's
assets and to be used exclusively to facilitate the orderly
maturation and sale of portfolio securities during any periods of
abnormally heavy redemption requests, if they should occur; such
borrowings may not be used to purchase investments and the Fund
will not purchase any investment while any such borrowings exist;

5. May not pledge, hypothecate or in any manner
transfer, as security for indebtedness, any securities owned or
held by the Fund except as may be necessary in connection with
any borrowing mentioned above, including reverse repurchase

<PAGE>

agreements, and in an aggregate amount not to exceed 15% of the
Fund's assets;

6. May not make loans, provided that the Fund may
purchase money market securities and enter into repurchase
agreements; or

7. May not (a) make investments for the purpose of
exercising control; (b) purchase securities of other investment
companies, except in connection with a merger, consolidation,
acquisition or reorganization; (c) invest in real estate (other
than money market securities secured by real estate or interests
therein or money market securities issued by companies which
invest in real estate, or interests therein), commodities or
commodity contracts, interests in oil, gas and other mineral
exploration or other development programs; (d) purchase
securities on margin; (e) make short sales of securities or
maintain a short position or write, purchase or sell puts, calls,
straddles, spreads or combinations thereof; (f) invest in
securities of issuers (other than agencies and instrumentalities
of the United States Government) having a record, together with
predecessors, of less than three years of continuous operation if
more than 5% of the Fund's assets would be invested in such
securities; (g) purchase or retain securities of any issuers if
those officers and trustees of the Fund and employees of Alliance
who own individually more than 1/2 of 1% of the outstanding
securities of such issuer together own more than 5% of the
securities of such issuer; or (h) act as an underwriter of
securities.

As a matter of operating policy, fundamental investment
restriction number 2 would give the Fund the ability to invest,
with respect to 25% of its assets, more than 5% of its assets in
any one issuer only in the event Rule 2a-7 is amended in the
future.

In connection with the qualification or registration of
the Fund's shares for sale under the securities laws of certain
states, the Fund has agreed, in addition to the foregoing
investment restrictions, that it (i) will not invest more than 5%
of the value of its total assets at the time of purchase in the
commercial paper, including variable amount master demand notes,
of any one issuer, and (ii) will not pledge, hypothecate or in
any manner transfer, as security for indebtedness, securities
owned by the Fund if such pledge, hypothecation, or transfer
would then result in more than 10% of the Fund's net assets being
so encumbered.

<PAGE>

MANAGEMENT OF THE FUND

Trustees and Officers

The Trustees and principal officers of the Trust, their
ages and their principal occupations during the past five years
are set forth below. Unless otherwise specified, the address of
each such person is 1345 Avenue of the Americas, New York, New
York 10105. Each Trustee and officer is also a director, trustee
or officer of other registered investment companies sponsored by
Alliance.

Trustees

RUTH BLOCK, 65, is a Director of Ecolab Incorporated
(specialty chemicals) and Amoco Corporation (oil and gas). She
was formerly an Executive Vice President and the Chief Insurance
Officer of the Equitable Life Assurance Society of the United
States since prior to 1992. Her address is P.O. Box 4653,
Stamford, Connecticut 06903.

JOHN D. CARIFA,* 51, is the President, Chief Operating
Officer and a Director of Alliance Capital Management Corporation
("ACMC"),** with which he has been associated since prior to
1992.

DAVID H. DIEVLER, 66, was formerly a Senior Vice
President of ACMC with which he had been associated since prior
to 1992. He is currently an independent consultant. His address
is P.O. Box 167, Spring Lake, New Jersey 07762.

JOHN H. DOBKIN, 54, has been President of Historic
Hudson Valley (historic preservation) since prior to 1992.
Previously, he was Director of the National Academy of Design.
From 1987 to 1992 he was a Director of ACMC. His address is 105
West 55th Street, New York, New York 10019.

____________________

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

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

<PAGE>

WILLIAM H. FOULK, JR., 64, is an investment adviser and
independent consultant. He was formerly Senior Manager of
Barrett Associates, Inc., a registered investment adviser, with
which he had been associated since prior to 1992. His address is
2 Hekma Road, Greenwich, CT 06831.

DR. JAMES M. HESTER, 72, is President of the Harry Frank
Guggenheim Foundation and a Director of Union Carbide
Corporation, with which he has been associated since prior to
1992. 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, 57, is a member of the law firm of
Cahill Gordon & Reindel with which he has been associated since
prior to 1992. He is Chief Executive Officer of Wenonah
Development Company (investments) and a Director of Placer Dome,
Inc. (mining). His address is St. Bernard's Road, Gladstone, New
Jersey 07934.

DONALD J. ROBINSON, 62, was formerly a partner at
Orrick, Herrington & Sutcliff and is currently of counsel to that
law firm. His address is 666 Fifth Avenue, 19th Floor, New York,
New York 10103.

Officers

JOHN D. CARIFA - Chairman and President, see Biography
above.***

KATHLEEN A. CORBET - Senior Vice President, 35, 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 1992.

WAYNE D. LYSKI - Senior Vice President, 54, is an
Executive Vice President of ACMC, with which he has been
associated since prior to 1992.

JOHN F. CHIODI, Jr. - Vice President, 29, is a Vice
President of ACMC, with which he has been associated since prior
to 1992.

____________________

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

<PAGE>

PAMELA F. RICHARDSON - Vice President, 42, is a Vice
President of ACMC, with which she has been associated since prior
to 1992.

MARK D. GERSTEN - Treasurer and Chief Financial Officer,
45, is a Senior Vice President of Alliance Fund Services, Inc.
and a Vice President of Alliance Fund Distributors, Inc., with
which he has been associated since prior to 1992.

EDMUND P. BERGAN, Jr. - Secretary, 45, is a Senior Vice
President and General Counsel of Alliance Fund Distributors, Inc.
and Alliance Fund Services, Inc. and Vice President and Associate
General Counsel of ACMC, with which he has been associated since
prior to 1992.

JOSEPH J. MANTINEO, Controller, 36, is a Vice President
of Alliance Fund Services, Inc., with which he has been
associated since prior to 1992.

VINCENT S. NOTO - Assistant Controller, 32, is an
Assistant Vice President of Alliance Fund Services, Inc., with
which he has been associated since prior to 1992.

EMILIE D. WRAPP - Assistant Secretary, 40, is Special
Counsel and Vice President of AFD, with which she has been
associated since prior to 1992.

The Fund does not pay any fees to, or reimburse expenses
of, its Trustees who are considered "interested persons" of the
Fund. The aggregate compensation paid by the Fund to each of the
Trustees during its fiscal year ended September 30, 1996, and the
aggregate compensation paid to each of the Trustees during
calendar year 1996 by all of the registered investment companies
to which Alliance provides investment advisory services
(collectively, the "Alliance Fund Complex"), are set forth below.
Each of the Trustees is a director or trustee of one or more
other registered investment companies in the Alliance Fund
Complex.

<PAGE>

Total Total Number of
Compensation funds in the Alliance
Aggregate From the Alliance Fund Complex, Including
Name of Compensation Fund Complex, the Fund, as to which
Trustee of from the including the Trustee is a
the Fund Fund the Fund Director or Trustee
__________ ____________ _________________ ______________________

John D. Carifa $ -0- $ -0- 50
Ruth Block $3,679 $157,500 37
David H. Dievler $3,659 $182,000 43
John H. Dobkin $3,751 $121,250 30
William H. Foulk, Jr. $3,778 $144,250 32
Dr. James M. Hester $3,686 $148,500 38
Clifford L. Michel $3,686 $146,068 38
Donald J. Robinson $367 $137,250 38

As of January 17, 1997, the Trustees and officers of the
Fund as a group owned less than 1% of the shares of the Fund.

The 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 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 Trustees.

The Adviser is a leading international investment
manager supervising client accounts with assets as of
September 30, 1996 of more than $173 billion (of which more than
$59 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,
1996, 33 of the FORTUNE 100 Companies. As of that date, the
Adviser and its subsidiaries employed approximately 1,450
employees who operated out of domestic offices and the overseas
offices of subsidiaries in Bombay, Istanbul, London, Sydney,
Tokyo, Toronto, Bahrain, Luxembourg and Singapore. The 52
registered investment companies comprising 110 separate
investment portfolios managed by the Adviser currently have more
than two million shareholders.

<PAGE>

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, 1996,
ACMC, Inc. and Equitable Capital Management Corporation, each a
wholly-owned direct or indirect subsidiary of Equitable, together
with Equitable, owned in the aggregate approximately 57% of the
issued and outstanding units representing assignments of
beneficial ownership of limited partnership interests in the
Adviser ("Units"). As of June 30, 1996, approximately 33% and
10% 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.

As of September 6, 1996, AXA and its subsidiaries own
approximately 60.7% of the issued and outstanding shares of
capital stock of ECI. AXA is the holding company for an
international group of insurance and related financial services
companies. AXA's insurance operations include activities in life
insurance, property and casualty insurance and reinsurance. The
insurance operations are diverse geographically, with activities
in France, the United States, Australia, the United Kingdom,
Canada and other countries, principally in Europe and the
Asia/Pacific area. AXA is also engaged in asset management,
investment banking, securities trading, brokerage, real estate
and other financial service activities in the United States,
Europe and the Asia/Pacific area.

Based on information provided by AXA, as of September 9,
1996, 36.3% of the issued ordinary shares (representing 49.1% of
the voting power) of AXA were owned directly or indirectly by
Finaxa, a French holding company ("Finaxa"). As of September 9,
1996, 61.3% of the voting shares (representing 73.5% 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 34.8% of the voting shares
representing 40.6% of the voting power), and 23.7% of the voting
shares of Finaxa (representing 15.0% of the voting power) were
owned by Banque Paribas, a French bank. Including the ordinary
shares directly or indirectly owned by Finaxa, the Mutuelles AXA
directly or indirectly owned 42.0% of the issued ordinary shares
(representing 56.8% of the voting power) of AXA as of September
9, 1996. Acting as a group, the Mutuelles AXA control AXA and
Finaxa. In addition, as of September 9, 1996, 7.8% of the issued

<PAGE>

ordinary shares of AXA without the power to vote were owned by
subsidiaries of AXA.

Under the Advisory Agreement, Alliance provides
investment advisory services and order placement facilities for
the Fund and pays all compensation of Trustees and officers of
the Fund who are affiliated persons of Alliance. Alliance or its
affiliates also furnish the Fund without charge with management
supervision and assistance and office facilities. Under the
Advisory Agreement, the Fund pays an advisory fee at an annual
rate of .25 of 1% of the first $1.25 billion of the average daily
net value of the Fund's net assets, .24 of 1% of the next $.25
billion of such assets, .23 of 1% of the next $.25 billion of
such assets, .22 of 1% of the next $.25 billion of such assets,
.21 of 1% of the next $1 billion of such assets and .20 of 1% of
the average daily value of the Fund's net assets in excess of $3
billion. The fee is accrued daily and paid monthly. As to the
obtaining of clerical and accounting services not required to be
provided to the Fund by Alliance under the Advisory Agreement,
the Fund may employ its own personnel. For such services, it
also may utilize personnel employed by Alliance; if so done, the
services are provided to the Fund at cost and the payments
therefor must be specifically approved in advance by the
Trustees. For the fiscal year ended September 30, 1995, Alliance
received from the Fund advisory fees of $297,892. For the fiscal
year ended September 30, 1996, Alliance received from the Fund
advisory fees of $297,876.

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 Trustees on 60 days'
written notice, or by Alliance 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
Alliance, or of reckless disregard of its obligations thereunder,
Alliance shall not be liable for any action or failure to act in
accordance with its duties thereunder.

The Advisory Agreement became effective on March 23,
1994 having been approved by the unanimous vote, cast in person,
of the Fund's Trustees, including the Trustees who are not
parties to the Advisory Agreement or interested persons as
defined in the Act of any such party, at a meeting called for
that purpose and held on January 18, 1994, and by the Fund's
initial shareholder on March 14, 1994.

<PAGE>

The Advisory Agreement will remain in effect until
September 30, 1997 and thereafter for successive twelve-month
periods (computed from each October 1), provided that such
continuance is approved at least annually by a vote of a majority
of the Fund's outstanding voting securities or by the Fund's
Trustees, including in either case, approval by a majority of the
Trustees who are not parties to the Advisory Agreement or
interested persons of any such party as defined by the Act.

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

EXPENSES OF THE FUND

Distribution Services Agreement

The Fund has entered into a Distribution Services
Agreement (the "Agreement") with Alliance Fund Distributor, Inc.
the Fund's principal underwriter(the "Principal Underwriter") to
permit the Fund to pay distribution services fees to defray
expenses associated with the distribution of its Class A, Class B
and Class C 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 Act (the "Rule 12b-1 Plan").

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 Trustees of the Fund
for their review on a quarterly basis. Also, the Agreement
provides that the selection and nomination of Trustees who are
not interested persons of the Fund (as defined in the Act) are

<PAGE>

committed to the discretion of such disinterested Trustees then
in office. The Agreement was initially approved by the Trustees
of the Fund at a meeting held on January 18, 1994, and by the
Fund's initial shareholder on March 14, 1994.

In approving the Agreement, the Trustees of the Fund
determined that there was a reasonable likelihood that the
Agreement would benefit the Fund and its shareholders.
Information with respect to distribution services fees and other
revenues and expenses of the Principal Underwriter will be
presented to the Trustees each year for their consideration in
connection with their deliberations as to the continuance of the
Agreement. In their review of the Agreement, the Trustees will
be asked to take into consideration separately with respect to
each class the distribution expenses incurred with respect to
such class. The distribution services fee of a particular class
will not be used to subsidize the provision of distribution
services with respect to any other class.

During the Fund's fiscal year ended September 30, 1996,
the Fund paid distribution services fees for expenditures under
the Agreement to the Principal Underwriter with respect to
Class A in amounts aggregating $199,590, which constituted .50 of
1% of Class A's average daily net assets during such fiscal year,
and Alliance made payments from its own resources aggregating
$163,096. Of the $362,686 paid by the Fund and Alliance under
the Agreement in the case of the Class A shares, $36,433 was
spent on advertising, $6,760 on the printing and mailing of
prospectuses for persons other than current shareholders,
$138,382 for compensation to broker-dealers, $47,395 for
compensation to sales personnel and $133,716 was spent on the
printing of sales literature, due diligence, travel,
entertainment, occupancy, communications, taxes, depreciation and
other promotional expenses.

During the Fund's fiscal year ended September 30, 1996,
the Fund paid distribution services fees for expenditures under
the Agreement to The Principal Underwriter with respect to
Class B shares in amounts aggregating $660,870, which constituted
1% of Class B's average daily net assets during such fiscal year,
and Alliance made payments from its own resources aggregating
$137,350. Of the $798,220 paid by the Fund and Alliance under
the Agreement in the case of the Class B shares, $46,260 was
spent on advertising, $4,250 on the printing and mailing of
prospectuses for persons other than current shareholders,
$519,056 for compensation to broker-dealers, $28,294 for
compensation paid to sales personnel, $98,145 for interest on
Class B shares financing and $102,215 was spent on the printing

<PAGE>

of sales literature, due diligence, travel, entertainment,
occupancy, communications, taxes, depreciation and other
promotional expenses.

During the Fund's fiscal year ended September 30, 1996,
the Fund paid distribution services fees for expenditures under
the Agreement to the Principal Underwriter with respect to
Class C shares in amounts aggregating $98,588, which constituted
.75 of 1% of Class C's average daily net assets during such
fiscal year, and Alliance made payments from its own resources
aggregating $84,952. Of the $183,540 paid by the Fund and
Alliance under the Agreement in the case of the Class C shares,
$17,992 was spent on advertising, $3,191 on the printing and
mailing of prospectuses for persons other than current
shareholders, $107,194 for compensation to broker-dealers,
$19,588 for compensation to sales personnel and $35,605 was spent
on the printing of sales literature, due diligence, travel,
entertainment, occupancy, communications, taxes, depreciation and
other promotional expenses.

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.

The Agreement became effective on March 23, 1994 with
respect to the Class A shares, Class B shares and Class C shares
and June 4, 1996 with respect to the Advisor Class shares. The
Agreement will continue in effect until September 30, 1997 and
thereafter for successive twelve-month periods (computed from
each October 1) with respect to each class of the Fund, provided,
however, that such continuance is specifically approved at least
annually by the Trustees of the Fund or by vote of the holders of
a majority of the outstanding voting securities (as defined in

<PAGE>

the Act) of that class, and in either case, by a majority of the
Trustees of the Fund who are not parties to this agreement or
interested persons, as defined in the Act, of any such party
(other than as trustees 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. 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 will become
effective only upon approval as provided in the preceding
paragraph; and the Agreement may not be amended in order to
increase materially the costs that the Fund or a particular class
of the Fund may bear pursuant to the Agreement without the
approval of a majority of the holders of the outstanding voting
shares of the Fund or the class or classes of the Fund affected.
The Agreement may be terminated (a) by the Fund without penalty
at any time by a majority vote of the holders of the Fund's
outstanding voting securities, voting separately by class, or by
a majority vote of the disinterested Trustees 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 is not required to give prior
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 Alliance, receives a transfer agency fee per
account holder of each of the Class A shares, Class B shares,
Class C shares and Advisor Class shares of the Fund, plus
reimbursement for out-of-pocket expenses. The transfer agency
fee with respect to the Class B shares and Class C shares is
higher than the transfer agency fee with respect to the Class A
shares and Advisor Class shares. For the fiscal year ended
September 30, 1996, the Fund paid Alliance Fund Services, Inc.
$129,936 for transfer agency services.

<PAGE>

PURCHASE OF SHARES

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

General

Shares of the Fund are offered on a continuous basis at
a price equal to their net asset value. Shares of the Fund are
available to holders of shares of other Alliance Mutual Funds who
wish to exchange their shares for shares of a money market fund
and also may be purchased for cash.

If you are a Fund shareholder through an account
established under a fee-based program, your fee-based program may
impose requirements with respect to the purchase, sale or
exchange of Advisor Class shares of the Fund that are different
from those described in the Advisor Class Prospectus and this
Statement of Additional Information. A transaction fee may be
charged by your financial representative with respect to the
purchase or sale of Advisor Class shares made through such
financial representative.

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

<PAGE>

Acquisitions By Exchange

An exchange is effected through the redemption of the
Alliance Mutual Fund shares tendered for exchange and the
purchase of shares of the Fund at net asset value. The Alliance
Mutual Fund the shares of which are being exchanged must receive
(i) proper instructions and any 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 reasonable assured that the check has cleared, which
normally takes up to 15 calendar days following the purchase
date. Exchanges of shares of Alliance Mutual Funds will
generally result in the realization of gain or loss for federal
income tax purposes.

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

Each Fund shareholder, and the shareholder's selected
dealer, agent or financial representative, as applicable, are
authorized to make telephone requests for exchanges unless
Alliance Fund Services, Inc. receives written instructions 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.

<PAGE>

Purchases for Cash

Shares of the Fund should be purchased for cash only as
a temporary investment pending exchange into another Alliance
Mutual Fund and should not be held as a long-term investment.

Shares of the Fund are offered on a continuos basis at a
price equal to their net asset value ("Class A shares"), with a
contingent deferred sales charge ("Class B shares"), without any
initial sales charge, and, as long as the shares are held for a
year or more, without any contingent deferred sales charge
("Class C shares"), or, to investors eligible to purchase Advisor
class shares without any initial, contingent deferred, or asset-
based sales charge, in each case described below. Shares of the
Fund that are offered subject to a sales charge are offered
through (i) investment dealers that are members of the National
Association of Securities Dealers, Inc. and have entered into
selected dealer agreements with the Principal Underwriter
("selected dealers"), (ii) depository institutions and other
financial intermediaries or their affiliates that have entered
into selected agent agreements with the Principal Underwriter
("selected agents"), and (iii) the Principal Underwriter.

Advisor Class shares of the Fund may be purchased and
held solely (i) through accounts established under fee-based
programs, sponsored and maintained by registered broker-dealers
or other financial intermediaries and approved by the Principal
Underwriter, pursuant to which each investor pays an asset-based
fee at an annual rate of at least .50% of the assets in the
investor's account, to the sponsor, or its affiliate or agent,
(ii) through self-directed defined contribution employee benefit
plans (e.g., 401(k) plans) that have at least 1,000 participants
or $25 million in assets, (iii) by investment management clients
of Alliance or its affiliates, (iv) by officers and present or
former Trustees of the Fund; present or former directors and
trustees of other investment companies managed by Alliance;
present or retired full-time employees of Alliance, 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 full-time employees of selected dealers or
agents; or the spouse, sibling, direct ancestor or direct
descendent (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), (v) by Alliance, the Principal Underwriter, Alliance Fund

<PAGE>

Services, Inc. and their affiliates; certain employee benefit
plans for employees of Alliance, the Principal Underwriter,
Alliance Fund Services, Inc. and their affiliates,
(vi) registered investment advisers or other financial
intermediaries who charge a management, consulting or other fee
for their service and who purchase shares through a broker or
agent approved by the Principal Underwriter and clients of such
registered investment advisers or financial intermediaries whose
accounts are linked to the master account of such investment
adviser or financial intermediary on the books of such approved
broker or agent; (vii) by 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
affiliate or agent, for service in the nature of investment
advisory or administrative services; (vii) by 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; (ix) by employer-
sponsored qualified pension or profit-sharing plans (including
Section 401(k) plans), custodial accounts maintained pursuant to
Section 403(b)(7) retirement plans and individual retirement
accounts (including individual retirement accounts to which
simplified employee pension (SEP) contributions are made), if
such plans or accounts are established or administered under
programs sponsored by administrators or other persons that have
been approved by the Principal Underwriter; and (x) by directors
and present or retired full-time employees of Koll Real Estate
Services.

The respective per share net asset values of the
Class A, Class B, Class C and Advisor Class shares are expected
to be substantially the same. Under certain circumstances,
however, the per share net asset values of the Class B and
Class C shares may be lower than the per share net asset value of
the Class A and Advisor Class shares, as a result of the
differential daily expense accruals of the distribution and
transfer agency fees applicable with respect to those classes of
shares. Even under those circumstances, the per share net asset
values of the four classes eventually will tend to converge
immediately after the payment of dividends, which will differ by
approximately the amount of the expense accrual differential
among the classes.

Investors may purchase shares of the Fund either through
selected dealers, agents or financial representatives or directly

<PAGE>

through the Principal Underwriters. Sales personnel of selected
dealers and agents distributing the Fund's shares may receive
differing compensation for selling Class A, Class B, Class C or
Advisor Class shares. Shares may also be sold in foreign
countries where permissible. 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 Fund will accept unconditional orders for its shares
to be executed at the public offering price equal to their net
asset value next determined 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. In the
case of orders for purchase of shares placed through selected
dealers, agents or financial representatives, as applicable, the
applicable public offering price will be the net asset value as
so determined, but only if the selected dealer, agent or
financial representative receives the order prior to the close of
regular trading on the Exchange and transmits it to the Principal
Underwriter prior to its close of business that same day
(normally 5:00 p.m. Eastern time). The selected dealer, agent or
financial representative is responsible for transmitting such
orders by 5:00 p.m. If the selected dealer, agent or financial
representative fails to do so, the investor's right to that day's
closing price must be settled between the investor and the
selected dealer, agent or financial representative. If the
selected dealer, agent or financial representative, as
applicable, receives the order after the close of regular trading
on the Exchange, the price will be based on the net asset value
determined as of the close of regular trading on the Exchange on
the next day it is open for trading.

Following the initial purchase for cash of Fund shares,
a shareholder may place orders to purchase additional shares for
cash by telephone if the shareholder has completed the
appropriate portion of the Subscription Application or an
"Autobuy" application obtained by calling the "For Literature"
telephone number shown on the cover of this Statement of
Additional Information. Except with respect to certain Omnibus
accounts, telephone purchase orders may not exceed $500,000.
Payment for shares purchased by telephone can be made only by
Electronic Funds Transfer from a bank account maintained by the
shareholder at a bank that is a member of the National Automated
Clearing House Association ("NACHA"). If a shareholder's
telephone purchase request is received before 3:00 p.m. Eastern
time on a Fund business day, the order to purchase shares is

<PAGE>

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.

The per share net asset value of the Fund's shares is
computed in accordance with the Fund's Agreement and Declaration
of Trust as of the next close of regular trading on the Exchange
(currently 4:00 p.m. Eastern time) by dividing the value of the
Fund's total assets, less its liabilities, by the total number of
its shares then outstanding. For purposes of this computation,
the securities in the Fund's portfolio are valued at their
amortized cost value. For more information concerning the
amortized cost method of valuation of securities, see "Daily
Dividends--Determination of Net Asset Value."

The Fund may refuse any order for the acquisition 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. In addition, the Fund reserves the
right, on 60 days' written notice to its shareholders to reject
any order to acquire its shares through exchange or otherwise to
modify, restrict or terminate the exchange privilege.

All shares purchased are confirmed to each shareholder
and are credited to his or her account at the net asset value.
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 by the
shareholder or his or her authorized selected dealer or agent.
This facilitates later redemption and relieves the shareholder of
the responsibility for any inconvenience of lost or stolen stock
certificates. No certificates are issued for fractional shares,
although such shares remain in the shareholder's account on the
books of the Fund. Shares for which certificates have been
issued are not eligible for any of the optional methods of
withdrawal, namely, the telephone, check-writing or periodic
redemption procedures. The Fund reserves the right to reject any
purchase order.

Advisor Class shares of the Fund are offered to holders
of Advisor Class shares of other Alliance Mutual Funds without
any sales charge at the time of purchase or redemption.

In addition to the discount or commission paid to
dealers or agents, the Principal Underwriter from time to time
pays additional cash bonuses or other incentives to dealers or

<PAGE>

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,
cash or other incentives will be conditioned upon the sale of a
specified minimum dollar amount of the shares of the Fund and/or
other Alliance Mutual Funds, as defined below, during a specific
period of time. On some occasions, such cash or other incentives
may take the form of payment for attendance at seminars, meals,
sporting events or theater performances, or payment for travel,
lodging and entertainment incurred in connection with travel by
persons associated with a dealer or agent and their immediate
family members to urban or resort locations within or outside the
United States. Such dealer or agent may elect to receive cash
incentives of equivalent amount in lieu of such payments.

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

Alternative Retail Purchase Arrangements -- Class A, Class B and
Class C shares.****

The alternative purchase arrangements available with
respect to Class A shares, Class B shares and Class C shares
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, whether the
investor intends to subsequently exchange shares for shares of
another Alliance Mutual Fund and other circumstances. The
Principal Underwriter will reject any order (except orders from
certain retirement plans) for more than $250,000 for Class B
shares. In addition, the Principal Underwriter will reject any
order for more than $5,000,000 of 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 sales charges are deducted at the time Class A
shares are exchanged for Class A shares of other Alliance Mutual
Funds, investors not qualifying for reduced Class A sales charges
____________________

****Advisor Class shares are sold only to investors described
above in this section under "-- Purchase for Cash."

<PAGE>

who expect to exchange their shares for Class A shares of another
Alliance Mutual Fund and 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 sales charges will be imposed at the time
Class A shares are exchanged for Class A shares of other Alliance
Mutual Funds.

Other investors might determine, however, that it would
be more advantageous to purchase Class B shares or Class C
shares, although these classes are subject to higher continuing
distribution charges and, in the case of Class B shares, are
subject to a contingent deferred sales charge for a four-year
period. This might be true of investors who do not wish to pay
sales charges on subsequent exchanges of shares. Those investors
who prefer to have all of their funds invested initially but may
not wish to retain their investment for the four-year period
during which Class B shares are subject to a contingent deferred
sales charge may find it more advantageous to purchase Class C
shares.

Class A Shares

The public offering price of Class A shares is their net
asset value. No sales charge is imposed on Class A shares at the
time of purchase. If Class A shares of the Fund are purchased
for cash and are exchanged for Class A shares of another Alliance
Mutual Fund, the sales charge applicable to the other Alliance
Mutual Fund will be assessed at the time of the exchange.

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. Class A shares that were received in exchange
of Class A shares of another Alliance Mutual Fund that were not
subject to an initial sales charge when originally purchased for
cash because the purchase was of $1,000,000 or more and that are
redeemed within one year of the original purchase will be subject
to a 1% contingent deferred sales charge. 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.
In determining the contingent deferred sales charge applicable to
a redemption of Class A shares, it will be assumed that the

<PAGE>

redemption is, first, of any shares that are not subject to a
contingent deferred sales charge (for example, because an initial
sales charge was paid with respect to the shares, or they have
been held beyond the period during which the charge applies or
were acquired upon the reinvestment of dividends or
distributions) and, second, of shares held longest during the
time they are subject to the sales charge. Proceeds from the
contingent deferred sales charge on Class A shares are paid to
the Principal Underwriter and are used by the Principal
Underwriter to defray the expenses of the Principal Underwriter
related to providing distribution-related services to the Fund in
connection with the sales of Class A shares, such as the payment
of compensation to selected dealers or agents for selling Class A
shares. With respect to purchases of $1,000,000 or more made
through selected dealers or agents, the Adviser may, pursuant to
the Distribution Services Agreement described above, pay such
dealers or agents from its own resources a fee of up to 1% of the
amount invested to compensate such dealers or agents for their
distribution assistance in connection with such purchases.

Combined Purchase Privilege. Certain persons may
qualify for the sales charge reductions on Class A shares of
other Alliance Mutual Funds by combining purchases of shares of
the Fund and shares of other Alliance Mutual Funds 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 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 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 Alliance Mutual Funds 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. Currently, the Alliance Mutual Funds include:

AFD Exchange Reserves

<PAGE>

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 Developing Markets Fund, Inc.
Alliance Global Dollar Government Fund, Inc.
Alliance Global Small Cap Fund, Inc.
Alliance Global Strategic Income Trust, Inc.
Alliance Growth and Income Fund, Inc.
Alliance Income Builder Fund, Inc.
Alliance International Fund
Alliance Limited Maturity Government Fund, Inc.
Alliance Mortgage Securities Income Fund, Inc.
Alliance Multi-Market Strategy Trust, Inc.
Alliance Municipal Income Fund, Inc.
-California Portfolio
-Insured California Portfolio
-Insured National Portfolio
-National Portfolio
-New York Portfolio
Alliance Municipal Income Fund II
-Arizona Portfolio
-Florida Portfolio
-Massachusetts Portfolio
-Michigan Portfolio
-Minnesota Portfolio
-New Jersey Portfolio
-Ohio Portfolio
-Pennsylvania Portfolio
-Virginia Portfolio
Alliance New Europe Fund, Inc.
Alliance North American Government Income Trust, Inc.
Alliance Premier Growth Fund, Inc.
Alliance Quasar Fund, Inc.
Alliance Real Estate Investment Fund, Inc.
Alliance/Regent Sector Opportunity 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
-Alliance Growth Fund
-Alliance Conservative Investors Fund
-Alliance Growth Investors Fund
-Alliance Strategic Balanced Fund

<PAGE>

-Alliance Short-Term U.S. Government Fund

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

Cumulative Quantity Discount (Right of Accumulation).
An investor's exchange of Class A shares of the Fund for Class A
shares of another Alliance Mutual Fund may qualify for a
Cumulative Quantity Discount from any applicable sales charge.
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 shares of the Fund
held by the investor and (b) all shares of any
other Alliance Mutual Fund held by the investor;
and

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

For example, if an investor owned shares of the Fund or
another Alliance Mutual Fund worth $200,000 at their then current
net asset value and, subsequently, purchased Class A shares of
another alliance Mutual Fund worth an additional $100,000, the
sales charge for the $100,000 purchase would be at the rate
applicable to a single $300,000 purchase of shares of that
Alliance Mutual Fund, rather than the rate applicable to a
$100,000 purchase.

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 of the Fund
may also obtain reduced sales charges by means of a written
Statement of Intention, which expresses the investor's intention
to invest, including through exchange of their Class A shares of

<PAGE>

the Fund, not less than $100,000 within a period of 13 months in
Class A shares (or Class A, Class B, Class C and/or Advisor Class
shares) of another 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 any 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 an Alliance Mutual 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 that Alliance Mutual Fund or any other Alliance
Mutual Fund, to qualify for a reduced initial sales charge on the
total amount being invested (i.e., 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 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 Alliance Mutual Fund shares, are not
subject to escrow. When the full amount indicated has been
purchased, the escrow will be released. To the extent that an
investor purchases more than the dollar amount indicated on the
Statement of Intention and qualifies for a further reduced sales
charge, the sales charge will be adjusted for the entire amount
purchased at the end of the 13-month period. The difference in
the sales charge will be used to purchase additional shares of
that Alliance Mutual Fund subject to the rate of the initial
sales charge applicable to the actual amount of the aggregate
purchases.

<PAGE>

Investors wishing to enter into a Statement of Intention
in conjunction with their initial investment in Class A shares of
that Alliance Mutual Fund should complete the appropriate portion
of the Subscription Application found in the Prospectus of that
Alliance Mutual Fund. Current Class A shareholders of that
Alliance Mutual Fund 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 that
Alliance Mutual Fund's Statement of Additional Information.

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

Class B Shares

Investors may purchase Class B shares for cash 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 investors purchase payment.

Proceeds from the contingent deferred sales charge on
the Class B shares purchased for cash 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

<PAGE>

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.

Class B shares of the Fund are also offered to holders
of Class B shares of other Alliance Mutual Funds without any
sales charge at the time of purchase in an exchange transaction.
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.

Contingent Deferred Sales Charge. Class B shares that
are redeemed within four years of their cash 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 amount of the contingent deferred sales charge, if
any, will vary depending on the number of years from the time of
cash payment for the purchase of Class B shares until the time of
redemption of such shares.

Year Since Contingent Deferred Sales Charge as
Cash Purchase a % of Dollar Amount Subject to Charge
_________________ ___________________________________

First 4.00%
Second 3.00%
Third 2.00%
Fourth 1.00%
Fifth None

In determining the contingent deferred sales charge
applicable to a redemption of Class B shares, it will be assumed
that the redemption is, first, of any shares that were acquired
upon the reinvestment of dividends or distributions, and, second,
of shares held the longest during the time they are subject to
the sales charge. The CDSC is applied to the lesser of the net
asset value at the time of redemption of the Class A shares or
Class B shares being redeemed and the cost of such shares (or, as
to Fund shares acquired through an exchange, the cost of the
Alliance Mutual Fund shares originally purchased for cash).
Accordingly, no sales charge will be imposed on increases in net
asset value above the initial purchase price. In addition, no

<PAGE>

charge will be assessed on shares derived from reinvestment of
dividends or capital gains distributions.

The contingent deferred sales charges is 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, or (ii) to the extent that the
redemption represents a minimum required distribution from an
individual retirement account or other retirement plan to a
shareholder who has attained the age of 70-1/2, or (iii) that had
been purchased by present or former Trustees of the Fund, by the
relative of any such person, by any trust, individual retirement
account or retirement plan 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").

Conversion Feature. Class B shares of the Fund will
automatically convert to Class A shares of the Fund in accordance
with the conversion schedule applicable to the original Alliance
Mutual Fund Class B shares purchased, or in the case of Class B
shares of the Fund purchased for cash, on the tenth Fund business
day in the month following the month in which the eighth
anniversary date of the acceptance of the purchase order for the
Class B shares occurs, and will no longer be subject to a higher
distribution services fee following conversion. Such conversion
will occur on the basis of the relative net asset values of the
two classes, without the imposition of any sales charge, fee or
other charge. The purposes of the conversion feature are (i) to
provide a mechanism whereby the time period for the automatic
conversion of Class B shares to Class A shares will continue to
elapse in the event the Class B shares originally purchased for
cash are subsequently exchanged for Class B shares of the Fund or
Class B shares of another Alliance Mutual Fund and (ii) 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 original sale of such shares. See "Shareholder
Services--Exchange Privilege."

For purposes of conversion to Class A shares, 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 subaccount) convert to Class A
shares, an equal pro-rata portion of the Class B shares in the
sub-account will also convert to Class A shares.

<PAGE>

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

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

Class C shares that are redeemed within one year of
purchase will be subject to a contingent deferred sales charge of
1%, charged as a percentage of the dollar amount subject thereto.
The charge will be assessed on an amount equal to the lesser of
the cost of the shares being redeemed or their net asset value at
the time of redemption. Accordingly, no sales charge will be
imposed on increases in net asset value above the initial
purchase price. In addition, no charge will be assessed on shares
derived from reinvestment of dividends or capital gains
distributions. The contingent deferred sales charge on Class C
shares will be waived on certain redemptions, as described above
under "--Class B Shares."

<PAGE>

In determining the contingent deferred sales charge
applicable to a redemption of Class C shares, it will be assumed
that the redemption is, first, of any shares that are not subject
to a contingent deferred sales charge (for example, because the
shares have been held beyond the period during which the charge
applies or were acquired upon the reinvestment of dividends or
distributions) and, second, of shares held longest during the
time they are subject to the sales charge.

Proceeds from the contingent deferred sales charge are
paid to the Principal Underwriter and are used by the Principal
Underwriter to defray the expenses of the Principal Underwriter
related to providing distribution-related services to the Fund in
connection with the sale of the Class C shares, such as the
payment of compensation to selected dealers and agents for
selling Class C shares. The combination of the contingent
deferred sales charge and the distribution services fee enables
the Fund to sell the Class C shares without a sales charge being
deducted at the time of purchase. The higher distribution
services fee incurred by Class C shares will cause such shares to
have a higher expense ratio and to pay lower dividends than those
related to Class A shares and Advisor Class shares.

Class C shares of the Fund are also offered to holders
of Class C shares of other Alliance Mutual Funds without any
sales charge at the time of purchase or redemption.

Conversion of Advisor Class Shares to Class A Shares

Advisor Class shares may be held solely through the fee-
based program accounts and employee benefit plans and registered
investment advisory or other financial intermediary relationships
described above under "Purchase of Shares--Purchase for Cash,"
and by investment advisory clients of, and certain other persons
associated with, the Adviser and its affiliates or the Fund. If
(i) a holder of Advisor Class shares ceases to participate in a
fee-based program or plan, or to be associated with the
investment adviser or financial intermediary that satisfies the
requirements to purchase shares set forth under "Purchase of
Shares--Purchase for Cash" or (ii) the holder is otherwise no
longer eligible to purchase Advisor Class shares as described in
the Advisor Class Prospectus and this Statement of Additional
Information (each, a "Conversion Event"), then all Advisor Class
shares held by the shareholder will convert automatically and
without notice to the shareholder, other than the notice
contained in the Advisor Class Prospectus and this Statement of
Additional Information, to Class A shares of the Fund during the
calendar month following the month in which the Fund is informed

<PAGE>

of the occurrence of the Conversion Event. The failure of a
shareholder or a fee-based program to satisfy the minimum
investment requirements to purchase Advisor Class shares will not
constitute a Conversion Event. The conversion would occur on the
basis of the relative net asset values of the two classes and
without the imposition of any sales load, fee or other charge.
Class A shares currently bear a .30% distribution services fee
and have a higher expense ratio than Advisor Class shares. As a
result, Class A shares may pay correspondingly lower dividends
and have a lower net asset value than Advisor Class shares.

The conversion of Advisor Class shares to Class A shares
is subject to the continuing availability of an opinion of
counsel to the effect that the conversion of Advisor Class shares
to Class A shares does not constitute a taxable event under
federal income tax law. The conversion of Advisor Class shares
to Class A shares may be suspended if such an opinion is no
longer available at the time such conversion is to occur. In
that event, the Advisor Class shareholder would be required to
redeem his Advisor Class shares, which would constitute a taxable
event under federal income tax law.

REDEMPTION AND REPURCHASE OF SHARES
________________________________________________________________

The following information supplements that set forth in
the Fund's Prospectus under the heading "Purchase and Sale of
Shares--How to Sell Shares." If you are an Advisor Class
shareholder through an account established under a fee-based
program your fee-based program may impose requirements with
respect to the purchase, sale or exchange of Advisor Class shares
of the Fund that are different from those described herein. A
transaction fee may be charged by your financial representative
with respect to the purchase, sale or exchange of Advisor Class
shares made through such financial representative.

Redemption

Subject only to the limitations described below, the
Fund will redeem shares tendered to it, as described below, at a
redemption price equal to their net asset value, which is
expected to remain constant at $1.00 per share, following the
receipt of shares tendered for redemption in proper form. Except
for any contingent deferred sales charge which may be applicable
to Class A, Class B or Class C shares, there is no redemption
charge. Payment of the redemption price will be made within seven

<PAGE>

days after the Fund's receipt of such tender for redemption. If
a shareholder is in doubt about what documents are required by
his or her fee-based program or employee benefit plan, the
shareholder should contact his or her financial representative.

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

Payment of the redemption price may be made either in
cash or in portfolio securities (selected at the discretion of
the Trustees of the Fund and taken at their value used in
determining the redemption price), or partly in cash and partly
in portfolio securities. However, payments will be made wholly
in cash unless the Trustees believe that economic conditions
exist which would make such a practice detrimental to the best
interests of the Fund.

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
and the income earned. Redemption proceeds on Class A shares,
Class B shares and Class C 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 capital gains (or loss) depending upon the
shareholder's holding period and basis in respect of the shares
redeemed.

To redeem shares of a Portfolio 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 "eligible guarantor institution" as defined in

<PAGE>

Rule 17Ad-15 under the Securities Exchange Act of 1934, as
amended.

To redeem shares of the Fund represented by stock
certificates, the investor should forward the appropriate stock
certificate or certificates, endorsed in blank or with blank
stock powers attached, to the Fund with the request that the
shares represented thereby, or a specified portion thereof, be
redeemed. The stock assignment form on the reverse side of each
stock certificate surrendered to the Fund for redemption must be
signed by the registered owner or owners exactly as the
registered name appears on the face of the certificate or,
alternatively, a stock power signed in the same manner may be
attached to the stock certificate or certificates or, where
tender is made by mail, separately mailed to the Fund. The
signature or signatures on the assignment form must be guaranteed
in the manner described above.

Telephone Redemption By Electronic Funds Transfer. Each
Fund shareholder is entitled to request redemption by Electronic
Funds Transfer, once in any 30 day period (except for certain
omnibus accounts) of shares for which no stock certificates have
been issued by telephone at (800) 221-5672 by a shareholder who
has completed the appropriate portion of the Subscription
Application or, in the case of an existing shareholder, an
"Autosell" application obtained from Alliance Fund Services, Inc.
A telephone redemption request may not exceed $100,000 (except
for certain omnibus accounts), and must be made before 4:00 p.m.
Eastern time on a Fund business day as defined above. Proceeds
of telephone redemptions will be sent by Electronic Funds
Transfer to a shareholder's designated bank account at a bank
selected by the shareholder that is a member of the NACHA.

Telephone Redemption By Check. Except for certain
omnibus accounts or as noted below, each Fund shareholder is
eligible to request redemption by check, once in any 30-day
period, of Fund shares for which no stock certificates have been
issued by telephone at (800) 221-5672 before 4:00 p.m. Eastern
time on a Fund business day in an amount not exceeding $50,000.
Proceeds of such redemptions are remitted by check to the
shareholder's address of 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) held by a shareholder who has changed his
or her address of record within the preceding 30 calendar days or
(iv) held in any retirement plan account. A shareholder
otherwise eligible for telephone redemption by check may cancel
the privilege by written instruction to Alliance Fund Services,

<PAGE>

Inc., or by checking the appropriate box on the shareholder or
options form.

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

Repurchase

The Fund may repurchase shares through the Principal
Underwriter, selected financial intermediaries or selected
dealers or agents. The repurchase price will be the net asset
value next determined after the Principal Underwriter receives
the request (less the contingent deferred sales charge, if any,
with respect to the Class A, Class B and Class C shares), except
that requests placed through selected dealers or agents before
the close of regular trading on the Exchange on any day will be
executed at the net asset value determined as of such close of
regular trading on that day if received by the Principal
Underwriter prior to its close of business on that day (normally
5:00 p.m. Eastern time). The financial intermediary or selected
dealer or agent is responsible for transmitting the request to
the Principal Underwriter by 5:00 p.m. If the financial
intermediary or selected dealer or agent fails to do so, the
shareholder's right to receive that day's closing price must be
settled between the shareholder and the dealer or agent. A
shareholder may offer shares of the Fund to the Principal
Underwriter either directly or through a selected dealer or

<PAGE>

agent. Neither the Fund nor the Principal Underwriter charges a
fee or commission in connection with the repurchase of shares
(except for the contingent deferred sales charge, if any, with
respect to Class A, Class B and Class C shares). Normally, if
shares of the Fund are offered through a selected dealer or
agent, the repurchase is settled by the shareholder as an
ordinary transaction with or through the selected dealer or
agent, who may charge the shareholder for this service. The
repurchase of shares of the Fund as described above is a
voluntary service of the Fund and the Fund may suspend or
terminate this practice at any time.

General

The Fund reserves the right to close out an account that
through redemption has remained below $200 for 90 days.
Shareholders will receive 60 days' written notice to increase the
account value before the account is closed. No contingent
deferred sales charge will be deducted from the proceeds of this
redemption. In the case of a redemption or repurchase of shares
of a Portfolio recently purchased by check, redemption proceeds
will not be made available until the Fund is reasonably assured
that the check has cleared, normally up to 15 calendar days
following the purchase date.

________________________________________________________________

SHAREHOLDER SERVICES
_________________________________________________________________

The following information supplements that set forth in
the Fund's Prospectus under the heading "Purchase and Sale of
Shares--Shareholder Services." The shareholder services set
forth below are applicable to Class A, Class B, Class C and
Advisor Class shares unless otherwise indicated. If you are an
Advisor Class shareholder through an account established under a
fee-based program your fee-based program may impose requirements
with respect to the purchase, sale or exchange of Advisor Class
shares of the Fund that are different from those described
herein. A transaction fee may be charged by your financial
representative with respect to the purchase, sale or exchange of
Advisor Class shares made through such financial representative.

Automatic Investment Program

Investors may purchase shares of the Fund through an
automatic investment program utilizing Electronic Funds Transfer
drafts drawn on the investor's own bank account. Under such a

<PAGE>

program, pre-authorized monthly drafts for a fixed amount (at
least $25) are used to purchase shares through the selected
dealer or selected agent designated by the investor at the public
offering price next determined after the Principal Underwriter
receives the proceeds from the investor's bank. In electronic
form, drafts can be made on or about a date each month selected
by the shareholder. Investors wishing to establish an automatic
investment program in connection with their initial investment
should complete the appropriate portion of the Subscription
Application found in the Prospectus. Current shareholders should
contact Alliance Fund Services, Inc. at the address or telephone
numbers shown on the cover of this Statement of Additional
Information to establish an automatic investment program.

Exchange Privilege

You may exchange your investment in the Fund for shares
of the same class of other Alliance Mutual Funds. In addition,
(i) present officers and full-time employees of the Adviser, (ii)
present Directors or Trustees of any Alliance Mutual Fund and
(iii) certain employee benefit plans for employees of the
Adviser, the Principal Underwriter, Alliance Fund Services, Inc.
and their affiliates may, on a tax-free basis, exchange Class A
shares of the Fund for Advisor Class shares of the Fund.
Exchanges of shares are made at the net asset value next
determined and without sales or service charges. Exchanges may
be made by telephone or written request. Telephone exchange
requests must be received by Alliance Fund Services, Inc. by
4:00 p.m. Eastern time on a Fund business day in order to receive
that day's net asset value.

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

Please read carefully the prospectus of the mutual fund
into which you are exchanging before submitting the request.
Call Alliance Fund Services, Inc. at 800-221-5672 to exchange
uncertificated shares. Except with respect to exchanges of Class
A shares of the Fund for Advisor Class shares of the Fund,
exchanges of shares as described above in this section are
taxable transactions for federal income tax purposes. The

<PAGE>

exchange service may be changed, suspended, or terminated on 60
days' written notice.

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

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

Eligible shareholders desiring to make an exchange
should telephone Alliance Fund Services, Inc. with their account
number and other details of the exchange, at (800) 221-5672
before 4:00 p.m., Eastern time, on a Fund business day as defined
above. Telephone requests for exchange received before 4:00 p.m.
Eastern time on a Fund business day will be processed as of the
close of business on that day. During periods of drastic
economic or market developments, such as the market break of
October 1987, it is possible that shareholders would have
difficulty in reaching Alliance Fund Services, Inc. by telephone
(although no such difficulty was apparent at any time in
connection with the 1987 market break). If a shareholder were to
experience such difficulty, the shareholder should issue written
instructions to Alliance Fund Services, Inc. at the address shown
on the cover of this Statement of Additional Information.

<PAGE>

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

None of the Alliance Funds, Alliance, the Principal
Underwriter or Alliance Fund Services, Inc. will be responsible
for the authenticity of telephone requests for exchanges that the
Fund reasonably believes to be genuine. The Fund will employ
reasonable procedures in order to verify that telephone requests
for exchanges are genuine, including, among others, recording
such telephone instructions and causing written confirmations of
the resulting transactions to be sent to shareholders. If the
Fund did not employ such procedures, it could be liable for
losses arising from unauthorized or fraudulent telephone
instructions. Selected dealers, agents or financial
representatives, as applicable, may charge a commission for
handling telephone requests for exchanges.

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

Retirement Plans

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

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

Individual Retirement Account ("IRA"). Individuals who
receive compensation, including earnings from self-employment,
are entitled to establish and make contributions to an IRA.
Taxation of the income and gains paid to an IRA by the Fund is

<PAGE>

deferred until distribution from the IRA. An individual's
eligible contribution to an IRA will be deductible if neither the
individual nor his or her spouse is an active participant in an
employer-sponsored retirement plan. If the individual or his or
her spouse is an active participant in an employer-sponsored
retirement plan, the individual's contributions to an IRA may be
deductible, in whole or in part, depending on the amount of the
adjusted gross income of the individual and his or her spouse.

Employer-Sponsored Qualified Retirement Plans. Sole
proprietors, partnerships and corporations may sponsor qualified
money purchase pension and profit-sharing plans, including
Section 401(k) plans ("qualified plans"), under which annual tax-
deductible contributions are made within prescribed limits based
on compensation paid to participating individuals. The minimum
initial investment requirement may be waived with respect to
certain of these qualified plans.

If the aggregate net asset value of shares of Alliance
funds held by a qualified plan reaches $5 million on or before
December 15 in any year, all Class B or Class C shares of the
Fund held by the plan can be exchanged at the plan's request,
without any sales charge, for Class A shares of the Fund.

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

403(b)(7) Retirement Plan. Certain tax-exempt
organizations and public educational institutions may sponsor
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 Equitable, which serves as custodian or trustee
under the retirement plan prototype forms available from the
Fund, charges certain nominal fees for establishing an account
and for annual maintenance. A portion of these fees is remitted
to Alliance 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

<PAGE>

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, Class C or Advisor Class Fund account, a
Class A, Class B, Class C or Advisor Class 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, Class C
or Advisor Class Fund shares be automatically reinvested, in any
amount, without the payment of any sales or service charges, in
shares of the same class of such other Alliance Mutual Fund(s).
Further information can be obtained by contacting Alliance Fund
Services, Inc. at the address or the "For Literature" telephone
number shown on the cover of this Statement of Additional
Information. Investors wishing to establish a dividend direction
plan in connection with their initial investment should complete
the appropriate section of the Subscription Application found in
the Prospectus. Current shareholders should contact Alliance
Fund Services, Inc. to establish a dividend direction plan.

Systematic Withdrawal Plan

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

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

<PAGE>

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 maybe undesirable because of the
imposition of sales charges. While an occasional lump-sum
investment may be made by a shareholder of Class A shares who is
maintaining a systematic withdrawal plan, such investment should
normally be an amount equivalent to three times the annual
withdrawal or $5,000, whichever is less.

Payments under a systematic withdrawal plan may be made
by check or electronically via the Automated Clearing House
("ACH") network. Investors wishing to establish a systematic
withdrawal plan in conjunction with their initial investment in
shares of the Fund should complete the appropriate portion of the
Subscription Application found in the Prospectus, while current
Fund shareholders desiring to do so can obtain an application
form by contacting Alliance Fund Services, Inc. at the address or
the "For Literature" telephone number shown on the cover of this
Statement of Additional Information.

CDSC Waiver for Class B Shares and Class C Shares.
Under a systematic withdrawal plan, up to 1% monthly, 2% bi-
monthly or 3% quarterly of the value at the time of redemption of
the Class B or Class C shares in a shareholder's account may be
redeemed free of any contingent deferred sales charge.

With respect to Class B shares, the waiver applies only
with respect to shares acquired after July 1, 1995. Class B
shares that are not subject to a contingent deferred sales charge
(such as shares acquired with reinvested dividends or
distributions) will be redeemed first and will count toward the
foregoing limitations. Remaining Class B shares that are held
the longest will be redeemed next. Redemptions of Class B shares
in excess of the foregoing limitations will be subject to any
otherwise applicable contingent deferred sales charge.

With respect to Class C shares, shares held the longest
will be redeemed first and will count toward the foregoing
limitations. Redemptions in excess of those limitations will be
subject to any otherwise applicable contingent deferred sales
charge.

<PAGE>

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, McGladrey & Pullen
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.

Checkwriting

A New Class A or Class C investor may fill out a
Signature Card to authorize the Fund to arrange for a
checkwriting service through State Street Bank and Trust Company
(the "Bank") to draw against Class A or Class C shares of the
Fund redeemed from the investor's account. A Class A or Class C
shareholder wishing to establish this checkwriting service should
contact the Fund by telephone or mail. Under this service,
checks may be made payable to any payee in any amount not less
than $500 and not more than 90% of the net asset value of the
Class A or Class C shares in the investor's account (excluding
for this purpose the current month's accumulated dividends and
shares for which certificates have been issued). Corporations,
fiduciaries and institutional investors are required to furnish a
certified resolution or other evidence of authorization. This
checkwriting service will be subject to the Bank's customary
rules and regulations governing checking accounts, and the Fund
and the Bank each reserve the right to change or suspend the
checkwriting service. There is no charge to the shareholder for
the initiation and maintenance of this service or for the
clearance of any checks.

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

<PAGE>

DAILY DIVIDENDS--DETERMINATION OF NET ASSET VALUE

All net income of the Fund is determined after the close
of each business day, currently 4:00 p.m. (Eastern time) (and at
such other times as the Trustees may determine) and is paid
immediately thereafter pro rata to shareholders of record via
automatic investment in additional full and fractional shares in
each shareholder's account at the rate of one share for each
dollar distributed. As such additional shares are entitled to
dividends on following days, a compounding growth of income
occurs.

Net income consists of all accrued interest income on
Fund portfolio assets less the Fund's expenses applicable to that
dividend period. Realized gains and losses are reflected in net
asset value and are not included in net income. Net asset value
per share of each class is expected to remain constant at $1.00
since all net income is declared as a dividend each time net
income is determined.

Dividends paid by the Fund, 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.

The valuation of the Fund's portfolio securities is
based upon their amortized cost which does not take into account
unrealized securities gains or losses as measured by market
valuations. The amortized cost method involves valuing an
instrument at its cost and thereafter applying a constant
amortization to maturity of any discount or premium, regardless
of the impact of fluctuating interest rates on the market value
of the instrument. During periods of declining interest rates,
the daily yield on shares of the Fund may be higher than that of
a fund with identical investments utilizing a method of valuation
based upon market prices for its portfolio instruments; the
converse would apply in a period of rising interest rates.

The Fund utilizes the amortized cost method of valuation
of portfolio securities in accordance with the provisions of Rule
2a-7 under the Act. Pursuant to such rule, the Fund maintains a
dollar-weighted average portfolio maturity of 90 days or less and

<PAGE>

invests only in securities of high quality. The Fund also
purchases instruments which, at the time of investment, have
remaining maturities of no more than 397 days. The Fund
maintains procedures designed to stabilize, to the extent
reasonably possible, the price per share as computed for the
purpose of sales and redemptions at $1.00. Such procedures
include review of the Fund's portfolio holdings by the Trustees
at such intervals as they deem appropriate to determine whether
and to what extent the net asset value of the Fund calculated by
using available market quotations or market equivalents deviates
from net asset value based on amortized cost. If such deviation
exceeds 1/2 of 1%, the Trustees will promptly consider what
action, if any, should be initiated. In the event the Trustees
determine that such a deviation may result in material dilution
or other unfair results to new investors or existing
shareholders, they will consider corrective action which might
include (1) selling instruments prior to maturity to realize
capital gains or losses or to shorten average portfolio maturity;
(2) withholding dividends of net income on shares; or
(3) establishing a net asset value per share using available
market quotations or equivalents. There can be no assurance,
however, that the Fund's net asset value per share will remain
constant at $1.00.

The net asset value of the shares is determined each
business day as of the close of regular trading in the Exchange
currently 4:00 p.m. (Eastern time). The net asset value per
share of each class is calculated by determining the amount of
assets attributable to each class of shares, subtracting
liabilities, and dividing by the total number of shares
outstanding. All expenses, including the fees payable to
Alliance, are accrued daily.

TAXES

The Fund has qualified to date and intends to qualify in
each future year to be taxed as a regulated investment company
under the Code, and as such, will not be liable for Federal
income and excise taxes on the net income and capital gains
distributed to its shareholders. Since the Fund distributes all
of its net income and capital gains, the Fund itself should
thereby avoid all Federal income and excise taxes.

For shareholders' Federal income tax purposes, all
distributions by the Fund out of interest income and net realized

<PAGE>

short-term capital gains are treated as ordinary income, and
distributions of long-term capital gains, if any, are treated as
long-term capital gains irrespective of the length of time the
shareholder held shares in the Fund. Since the Fund derives
nearly all of its gross income in the form of interest and the
balance in the form of short-term capital gains, it is expected
that for corporate shareholders, none of the Fund's distributions
will be eligible for the dividends-received deduction under
current law.

PORTFOLIO TRANSACTIONS

Subject to the general supervision of the Trustees of
the Fund, Alliance is responsible for the investment decisions
and the placing of the orders for portfolio transactions for the
Fund. Because the Fund invests in securities with short
maturities, there is a relatively high portfolio turnover rate.
However, the turnover rate does not have an adverse effect upon
the net yield and net asset value of the Fund's shares since the
Fund's portfolio transactions occur primarily with issuers,
underwriters or major dealers in money market instruments acting
as principals. Such transactions are normally on a net basis
which does not involve payment of brokerage commissions. The
cost of securities purchased from an underwriter usually includes
a commission paid by the issuer to the underwriters; transactions
with dealers normally reflect the spread between bid and asked
prices.

The Fund has no obligations 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, Alliance, in its discretion, purchases and sells
securities through dealers who provide research, statistical and
other information to Alliance. Such services may be used by
Alliance for all of its investment advisory accounts and,
accordingly, not all such services may be used by Alliance in
connection with the Fund. The supplemental information received
from a dealer is in addition to the services required to be
performed by Alliance under Advisory Agreement, and the expenses
of the Alliance will not necessarily be reduced as a result of
the receipt of such information. During the fiscal year ended
September 30, 1995 and for the fiscal year ended September 30,
1996, the Fund incurred no brokerage commissions.

<PAGE>

GENERAL INFORMATION

Capitalization

The Fund has an unlimited number of authorized Class A,
Class B, Class C and Advisor Class shares of beneficial interest
par value $.001 per share, which may, without shareholder
approval, be divided into an unlimited number of series. All
shares of the Fund, when issued, are fully paid and non-
assessable. The Trustees are authorized to reclassify and issue
any unissued shares to any number of additional classes or series
without shareholder approval. Accordingly, the Trustees in the
future, for reasons such as the desire to establish one or more
additional portfolios with different investment objectives,
policies or restrictions, may create additional classes or series
of shares. Any issuance of shares of another class would be
governed by the Act and the law of the Commonwealth of
Massachusetts. Shares of each portfolio participate equally in
dividends and distributions from that Portfolio, including any
distributions in the event of a liquidation. Shares of each
portfolio are normally entitled to one vote for all purposes.
Generally, shares of all portfolios vote as a single series for
the election of Trustees and on any other matter affecting all
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 vote as a separate series. Certain procedures for
the removal by shareholders of Trustees of investment trusts,
such as the Fund, are set forth in Section 16(c) of the Act.

As of the close of business on January 17, 1997, there
were 119,400,550 shares of beneficial interest of the Fund
outstanding. Of this amount, 33,902,454 shares were Class A
shares, 71,836,297 shares were Class B shares and 13,661,799
shares were Class C shares. Set forth below is certain
information as to all persons who, of record or beneficially,
held 5% or more of any of the classes of the Fund's shares
outstanding at January 17, 1997:

<PAGE>

No. of % of
Name and Address Shares Class

Class C Shares

Verlin R. Eppert 1,132,271 8.29%
Rosalie A. Eppert Jt Ten
31490 Bellvine Trail
Birmingham, MI 48025-3703

CEBCO Construction Inc. 873,892 6.40%
Acct #2
Attn: Jerry Cummings
P.O. Box 476
Spring Lake, NC 28390-0476

Shareholder Liability

Under Massachusetts law, shareholders could, under
certain circumstances, be held personally liable for the
obligations of the Fund. However, the Agreement and Declaration
of Trust disclaims shareholder liability for acts or obligations
of the Fund and requires that the Trustees use their best efforts
to ensure that notice of such disclaimer be given in each note,
bond, contract, instrument, certificate or undertaking made or
issued by the Trustees or officers of the Fund. The Agreement
and Declaration of Trust provides for indemnification out of the
property of the Fund for all loss and expense of any shareholder
of the Fund held personally liable for the obligations of the
Fund. Thus, the risk of a shareholder incurring financial loss
on account of shareholder liability is limited to circumstances
in which the Fund would be unable to meet its obligations. In
the view of Alliance, such risk is not material.

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 the
purchase or sale of portfolio securities.

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. Alliance Fund
Distributors, Inc. is not obligated to sell any specific amount

<PAGE>

of shares and will purchase shares for resale only against orders
for shares. Under the Agreement between the Fund and Alliance
Fund Distributors, Inc., the Fund has agreed to indemnify the
distributors, 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, as amended.

Independent Auditors

An opinion relating to the Fund's financial statements
is given herein by McGladrey & Pullen LLP, 555 Fifth Avenue, New
York, New York, independent auditors for the Fund.

Counsel

Legal matters in connection with the issuance of the
shares offered hereby have been passed upon by Seward & Kissel,
One Battery Park Plaza, New York, New York, counsel for the Fund
and the Adviser. Seward & Kissel has relied upon the opinion of
Sullivan & Worcester, Boston, Massachusetts, for matters relating
to Massachusetts law.

Yield Quotations

Advertisements containing yield quotations which are
computed separately for Class A, Class B, Class C and Advisor
Class shares may from time to time be sent to investors or placed
in newspapers, magazines or other media on behalf of the Fund.
Such yield quotations are calculated in accordance with the
standardized method referred to in Rule 482 under the Securities
Act. Yield quotations are thus determined by (i) computing the
net changes over a seven-day period, exclusive of capital
changes, in the value of a hypothetical pre-existing account
having a balance of one share at the beginning of such period,
(ii) dividing the net change in account value by the value of the
account at the beginning of such period, and (iii) multiplying
such base period return by (365/7)--with the resulting yield
figure carried to the nearest hundredth of one percent.
Effective annual yield represents a compounding of the annualized
yield according to the following formula:

effective yield = ((base period return + 1)365/7) - 1.

Dividends for the seven days ended September 30, 1996
for Class A amounted to an annualized yield of 3.p96% equivalent
to an effective yield of 4.04%, for Class B an annualized yield
of 3.45% equivalent to an effective yield of 3.51% and for

<PAGE>

Class C an annualized yield of 3.71% equivalent to an effective
yield of 3.78%. Current yield information can be obtained by a
recorded message by telephoning toll-free at (800) 221-9513 or in
New York State at (212) 785-9106.

Additional Information. Any shareholder inquiries may
be directed to the shareholder's broker or Alliance Fund
Services, Inc. at the address or telephone numbers shown on the
front cover of this Statement of Additional Information. This
Statement of Additional Information does not contain all the
information set forth in the Registration Statement filed by the
Trust with the Commission under the Securities Act. Copies of
the Registration Statement may be obtained at a reasonable charge
from the Commission or may be examined, without charge, at the
Commission's offices in Washington, D.C.

<PAGE>

STATEMENT OF NET ASSETS
September 30, 1996 AFD Exchange Reserves
_______________________________________________________________________________

Principal
Amount
(000) Security Yield Value
- -------------------------------------------------------------------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS-98.4%
FEDERAL NATIONAL MORTGAGE ASSOCIATION-37.7%
8,500 10/16/96 5.33% $ 8,481,123
5,000 11/01/96 5.35 4,976,965
22,000 10/15/96 5.38 21,953,971
10,000 5.47%, 4/04/97 FRN 5.57 9,997,628
------------
45,409,687

FEDERAL HOME LOAN MORTGAGE CORPORATION-22.4%
10,000 10/10/96 5.22 9,986,950
4,000 10/11/96 5.24 3,994,178
11,000 10/10/96 5.29 10,985,452
2,000 10/01/96 5.70 2,000,000
------------
26,966,580

FEDERAL HOME LOAN BANK-18.6%
22,500 11/12/96 5.33 22,360,088

TENNESSEE VALLEY AUTHORITY-9.5%
11,500 11/07/96 5.20 11,438,539

STUDENT LOAN MARKETING ASSOCIATION-4.5%
5,500 12/18/96 5.34 5,436,365

U.S. TREASURY NOTE-4.2%
5,000 6.88%, 3/31/97 5.52 5,032,429

FEDERAL FARM CREDIT BANK-1.5%
1,800 11/06/96 5.31 1,790,442

Total U.S. Government & Agency Obligations
(amortized cost $118,434,130) 118,434,130

TOTAL INVESTMENTS-98.4%
(amortized cost $118,434,130) 118,434,130
Other assets less liabilities-1.6% 1,985,309

NET ASSETS-100%
(offering and redemption price of $1.00
per share; 42,195,404 Class A shares;
65,009,678 Class B shares and 13,216,543
Class C shares outstanding) $120,419,439

Glossary:
FRN - Floating Rate Note

See notes to financial statements

STATEMENT OF OPERATIONS
Year Ended September 30, 1996 AFD Exchange Reserves
_______________________________________________________________________________

INVESTMENT INCOME
Interest $6,495,746

EXPENSES
Advisory fee $297,876
Distribution fee-Class A 199,591
Distribution fee-Class B 660,870
Distribution fee-Class C 98,588
Transfer agency 173,439
Registration fees 120,032
Custodian 92,963
Administrative 92,765
Audit and legal 62,722
Amortization of organizational expense 44,310
Printing 28,075
Trustees' fees 24,945
Miscellaneous 8,999
Total expenses 1,905,175
Net investment income 4,590,571

REALIZED GAIN ON INVESTMENTS
Net realized gain on investments 105

NET INCREASE IN NET ASSETS FROM OPERATIONS $4,590,676

STATEMENTS OF CHANGES IN NET ASSETS
_______________________________________________________________________________

Year Ended Year Ended
Sep. 30,1996 Sep. 30,1995
------------- -------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income $ 4,590,571 $ 5,170,964
Net realized gain (loss) on investments 105 (1,256)
Net increase in net assets from operations 4,590,676 5,169,708

DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income
Class A (1,654,846) (1,730,554)
Class B (2,424,825) (2,869,673)
Class C (510,900) (570,737)

TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Net increase 3,761,761 62,057,743
Total increase 3,761,866 62,056,487

NET ASSETS
Beginning of year 116,657,573 54,601,086
End of year $120,419,439 $116,657,573

See notes to financial statements.

NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 AFD EXCHANGE RESERVES
_______________________________________________________________________________

NOTE A: SIGNIFICANT ACCOUNTING POLICIES
AFD Exchange Reserves (the "Fund") is registered under the Investment Company
Act of 1940 as a diversified open-end investment company. The Fund offers Class
A, Class B, Class C and Advisor Class shares. All four classes of shares have
identical voting, dividend, liquidation and other rights, except that each
class bears its own distribution and transfer agency expenses and has exclusive
voting rights with respect to its distribution plan.

Class A shares are sold for cash without any initial sales charge at the time
of purchase. On cash purchases of $1,000,000 or more, however, a contingent
deferred sales charge ("CDSC") equal to 1% of the lesser of net asset value at
the time of redemption or original cost if redeemed within one year will be
charged. Class A shares may be exchanged for Class A shares of other Alliance
Mutual Funds, subject, in the case of Class A shares of the Fund that were
purchased for cash, to any applicable initial sales charge at the time of
exchange. Class A shares of the Fund also are offered in exchange for Class A
shares of other Alliance Mutual Funds without any sales charge at the time of
purchase, but on Class A shares that were received in exchange for Alliance
Mutual Fund Class A shares that were not subject to an initial sales charge
when originally purchased for cash because the purchase was of $1,000,000 or
more, a 1% CDSC may be assessed if shares of the Fund are redeemed within one
year of the Alliance Mutual Fund Class A shares originally purchased for cash.

Class B shares are sold for cash without an initial sales charge. However, a
CDSC is charged if shares are redeemed within four years after purchase. The
CDSC charge declines from 4% to zero depending on the period of time the shares
are held. Class B shares purchased for cash will automatically convert to Class
A shares after eight years. Class B shares may be exchanged for Class B shares
of other Alliance Mutual Funds. Class B shares also are offered in exchange for
Class B shares of other Alliance Mutual Funds without any initial sales charge.
However, a CDSC may be charged if shares are redeemed within a certain number
of years of the original purchase of Alliance Mutual Fund Class B shares. When
redemption occurs, the applicable CDSC schedule is that which applied to the
Alliance Mutual Fund Class B shares originally purchased for cash at the time
of their purchase.

Class C shares are sold for cash or in exchange for Class C shares of another
Alliance Mutual Fund without any initial sales charge or CDSC. Class C shares
do not convert to any other class of shares of the Fund. Class C shares may be
exchanged for Class C shares of other Alliance Mutual Funds.

Effective October 1, 1996, Advisor Class shares are sold for cash or in
exchange for Advisor Class shares of another Alliance Mutual Fund without any
initial or contingent CDSC and are not subject to ongoing distribution
expenses. Advisor Class shares are offered solely to (i) investors
participating in fee-based programs meeting certain standards established by
Alliance Fund Distributors, Inc., the Fund's principal underwriter, (ii)
participants in self-directed defined contribution employee benefit plans
(e.g., 401(k) plans) that meet certain minimum standards and (iii) investment
advisory clients of, and certain other persons associated with, Alliance
Capital Management L.P. and its affiliates or the Fund.

The following is a summary of significant accounting policies followed by the
Fund.

1. Valuation of Securities
Securities in which the Fund invests are traded primarily in the
over-the-counter market and are valued at amortized cost, under which method a
portfolio instrument is valued at cost and any premium or discount is amortized
on a constant basis to maturity.

2. Organization Expenses
Organization expenses of approximately $198,644 have been deferred and are
being amortized on a straight-line basis through March, 1999.

3. Taxes
It is the Fund's policy to comply with 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 its
shareholders. Therefore, no provisions for federal income or excise taxes are
required.

4. Dividends
The Fund declares dividends daily and automatically reinvests such dividends in
additional shares at net asset value. Net realized capital gains on
investments, if any, are expected to be distributed near calendar year end.

5. Investment Income and Security Transactions
Interest income is accrued daily. Security transactions are recorded on the
date securities are purchased or sold. Security gains and losses are determined
on the identified cost basis. It is the Fund's policy to take
possession of securities as collateral under repurchase agreements and to
determine on a daily basis that the value of such securities are sufficient to
cover the value of the repurchase agreements.

AFD EXCHANGE RESERVES
_______________________________________________________________________________

NOTE B: ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The Fund pays its Adviser, Alliance Capital Management L.P. an advisory fee at
the annual rate of .25 of 1% on the first $1.25 billion of average daily net
assets; .24 of 1% on the next $.25 billion; .23 of 1% on the next $.25 billion;
.22 of 1% on the next $.25 billion; .21 of 1% on the next $1 billion; and .20
of 1% in excess of $3 billion. In addition to the advisory fee, the Fund also
reimburses the Adviser for certain legal and accounting services provided to
the Fund by the Adviser. For the year ended September 30, 1996, the Fund
incurred costs of $92,765.

The Fund compensates Alliance Fund Services, Inc. (a wholly-owned subsidiary of
the Adviser) for providing personnel and facilities to perform transfer agency
services. Such compensation amounted to $129,936 for the year ended September
30, 1996.

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 for Class A,
Class B and Class C. Under the Agreement, the Fund pays a distribution fee to
the Distributor at an annual rate of up to .50 of 1% of the Fund's average
daily net assets attributable to Class A shares, 1.00% of the average daily net
assets attributable to Class B shares and .75 of 1% of the average daily net
assets attributable to 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
Agreement also provides that the Adviser may use its own resources to finance
the distribution of the Fund's shares.

NOTE D: INVESTMENT TRANSACTIONS
At September 30, 1996, the cost of securities for federal income tax purposes
was the same as the cost for financial reporting purposes. At September 30,
1996, the Portfolio had a capital loss carryforward of $2,186, of which $930
expires in 2002 and $1,256 expires in 2003.

NOTE E: TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
An unlimited number of shares ($.001 par value) are authorized. At September
30, 1996, capital paid-in aggregated $42,195,404 for Class A, $65,009,678 for
Class B and $13,216,543 for Class C. Transactions, all at $1.00 per share, were
as follows:

CLASS A
------------------------------
YEAR ENDED YEAR ENDED
SEP. 30, 1996 SEP. 30, 1995
------------- -------------
Shares sold 382,975,223 254,814,516
Shares issued on reinvestments of dividends 1,654,846 1,730,554
Shares converted from Class B 1,090,820 0
Shares redeemed (384,645,564) (233,640,310)
Net increase 1,075,325 22,904,760

CLASS B
------------------------------
YEAR ENDED YEAR ENDED
SEP. 30, 1996 SEP. 30, 1995
------------- -------------
Shares sold 166,636,823 235,826,904
Shares issued on reinvestments of dividends 2,424,825 2,869,673
Shares converted to Class A (1,090,820) 0
Shares redeemed (168,231,937) (204,665,847)
Net increase (decrease) (261,109) 34,030,730

CLASS C
------------------------------
YEAR ENDED YEAR ENDED
SEP. 30, 1996 SEP. 30, 1995
------------- -------------
Shares sold 90,072,507 72,011,656
Shares issued on reinvestments of dividends 510,900 570,737
Shares redeemed (87,635,862) (67,460,140)
Net increase 2,947,545 5,122,253

NOTES TO FINANCIAL STATEMENTS (CONTINUED) AFD EXCHANGE RESERVES
_______________________________________________________________________________

NOTE F: FINANCIAL HIGHLIGHTS
Selected data for a share outstanding throughout each period.

CLASS A
--------------------------------------
YEAR ENDED SEPTEMBER 30 MARCH 25,
------------------------ 1994(a) TO
1996 1995 SEP. 30,1994
----------- ----------- ------------
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00

INCOME FROM INVESTMENT OPERATIONS
Net investment income .0416 .0453 .0126
LESS: DISTRIBUTIONS
Dividends from net investment income (.0416) (.0453) (.0126)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00

TOTAL RETURN
Total investment return based on
net asset value (b) 4.24% 4.64% 2.45%(c)

RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $41 $41 $18
Ratio of average net assets to:
Expenses, net of waivers 1.29% 1.21% 1.82%(c)
Expenses, before waivers 1.29% 1.29% 1.82%(c)
Net investment income 4.15% 4.63%(d) 2.62%(c)

CLASS B
--------------------------------------
YEAR ENDED SEPTEMBER 30 MARCH 25,
------------------------ 1994(a) TO
1996 1995 SEP. 30,1994
----------- ----------- ------------
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00

INCOME FROM INVESTMENT OPERATIONS
Net investment income .0366 .0404 .0101
LESS: DISTRIBUTIONS
Dividends from net investment income (.0366) (.0404) (.0101)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00

TOTAL RETURN
Total investment return based on
net asset value (b) 3.72% 4.12% 1.95%(c)

RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $65 $65 $31
Ratio of average net assets to:
Expenses, net of waivers 1.79% 1.70% 2.35%(c)
Expenses, before waivers 1.79% 1.78% 2.35%(c)
Net investment income 3.67% 4.17%(d) 1.91%(c)

(a) Commencement of operations.

(b) Total investment return is calculated assuming an initial investment made
at the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period, and
redemption on the last day of the period. Contingent deferred sales charge is
not reflected in the calculation of total investment return.

(d) Net of expenses waived by the Adviser.

AFD EXCHANGE RESERVES
_______________________________________________________________________________

CLASS C
--------------------------------------
YEAR ENDED SEPTEMBER 30 MARCH 25,
------------------------ 1994(a) TO
1996 1995 SEP. 30,1994
----------- ----------- ------------
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00

INCOME FROM INVESTMENT OPERATIONS
Net investment income .0390 .0430 .0112

LESS: DISTRIBUTIONS
Dividends from net investment income (.0390) (.0430) (.0112)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00

TOTAL RETURN
Total investment return based on
net asset value (b) 3.98% 4.39% 2.18%(c)

RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $13 $10 $5
Ratio of average net assets to:
Expenses, net of waivers 1.55% 1.45% 2.08%(c)
Expenses, before waivers 1.55% 1.52% 2.08%(c)
Net investment income 3.89% 4.41%(d) 2.14%(c)

(a) Commencement of operations.

(d) Net of expenses waived by the Adviser.

INDEPENDENT AUDITOR'S REPORT AFD EXCHANGE RESERVES
_______________________________________________________________________________

TO THE BOARD OF TRUSTEES AND SHAREHOLDERS AFD EXCHANGE RESERVES

We have audited the accompanying statements of net assets of AFD Exchange
Reserves as of September 30, 1996 and the related statements of operations,
changes in net assets, and financial highlights for the periods indicated in
the accompanying financial statements. 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
September 30, 1996 by correspondence with the custodian.

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 AFD
Exchange Reserves as of September 30, 1996, and the results of its operations,
changes in its net assets, and financial highlights for the periods indicated,
in conformity with generally accepted accounting principles.

McGladrey & Pullen, LLP
New York, New York
October 21, 1996

<PAGE>

APPENDIX

_______________________________________________________________

Prime-1, Prime-2, A-1, A-2, Fitch-1, Fitch-2,
Duff 1 and Duff 2 Commercial Paper Ratings

The Fund will invest only in paper maintaining a high
quality rating.

"Prime-1" is the highest commercial paper rating
assigned by Moody's Investors Services, Inc. ("Moody's"), and
indicates superior ability for repayment of senior short-term
debt obligations. "Prime-2" is the second highest, and denotes a
strong, but somewhat lesser degree of assurance. Commercial
paper issuers rated "Prime" have the following characteristics:
their short-term debt obligations carry the smallest degree of
investment risk; margins of support for current indebtedness are
large or stable with cash flow and asset protection well assured;
current liquidity provides ample coverage of near-term
liabilities and unused alternative financing arrangements are
generally available; and while protective elements may change
over the intermediate or longer term, such changes are most
unlikely to impair the fundamentally strong position of short-
term obligations.

Commercial paper issuers rate "A" by Standard & Poor's
have the following characteristics: liquidity ratios are better
than industry average; long term debt 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;
and typically, the issuer is a strong company in a well-
established industry with superior management. Standard & Poor's
uses the numbers 1+, 1, 2 and 3 to denote relative strength
within its highest classification of "A". The numbers 1 and 2
indicate the relative degree of safety regarding timely payment
with "A-1" paper being somewhat higher than "A-3".

Commercial paper rated "Fitch-1" is considered to be the
highest grade paper and is regarded as having the strongest
degree of assurance for timely payment. "Fitch-2" is considered
very good grade paper and reflects an assurance of timely payment
only slightly less in degree than the strongest issue.

A-1

<PAGE>

Commercial paper issues rated "Duff 1" by Duff & Phelps,
Inc. have the following characteristics: very high certainty of
timely payment, excellent liquidity factors supported by strong
fundamental protection factors, and risk factors which are very
small. Issues rated "Duff 2" have a good certainty of timely
payment, sound liquidity factors and company fundamentals, small
risk factors, and good access to capital markets.

Bonds rated "AAA" and "Aaa" have the highest ratings
assigned to debt obligations by Standard & Poor's and Moody's,
respectively. Standard & Poor's "AAA" rating indicates an
extremely strong capacity to pay principal and interest. Bonds
rated "AA" by Standard & Poor's also qualify as high-quality debt
obligations. Capacity to pay principal and interest is very
strong, and in the majority of instances they differ from "AAA"
issues only in small degree. Standard & Poor's "A" rated bonds
have a strong capacity to pay interest and repay principal but
are somewhat more susceptible to the adverse effects of change in
circumstances and economic conditions than are higher rated
bonds.

Moody's "Aaa" rating indicates the ultimate degree of
protection as to principal and interest. Moody's "Aa" rated
bonds, though also high-grade issues, are rated lower than "Aaa"
bonds because margins of protection may not be as large,
fluctuations of protective elements may be of greater amplitude
or there may be other elements present which make the long term
risks appeal somewhat larger. Moody's "A" rated bonds are
considered upper medium grade obligations possessing many
favorable investment attributes. Although factors giving
security to principal and interest are considered adequate,
elements may exist which suggest that the bonds may be
susceptible to impairment sometime in the future.

A-2
00250163.AL0