<PAGE>
This is filed pursuant to Rule 497(c).
Files Nos. 002-63315 and 811-02889
<PAGE>
<PAGE>
YIELD MESSAGES
For current recorded yield information on Alliance Government Reserves, call on
a touchtone telephone tollfree (800) 251-0539 and press the following sequence
of keys: [_]1 [_]# [_]1 [_]# [_]2 [_]5 [_]#. For nontouchtone telephones, call
toll-free (800) 221-9513.
Alliance Government Reserves (the"Fund") is a series of Alliance Government
Reserves, a diversified, openend investment company. The Fund is a money
market fund with investment objectives of safety, liquidity and income. This
prospectus sets forth the information about the Fund that a prospective
investor should know before investing. Please retain it for future reference.
An investment in the Fund is (i) neither insured nor guaranteed by the U.S.
Government; (ii) not a deposit or obligation of, or guaranteed or endorsed by,
any bank; and (iii) not 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.
A "Statement of Additional Information," dated October 30, 1998, which
provides a further discussion of certain areas 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 (800) 221-5672 or write Alliance Fund Services, Inc. at
the address shown on page 6.
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.
(R) This registered service mark used under license from the owner, Alliance
Capital Management L.P.
CONTENTS
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<TABLE>
<S> <C>
Expense Information....................................................... 2
Financial Highlights...................................................... 2
Investment Objectives and Policies........................................ 3
Purchase and Redemption of Shares......................................... 4
Additional Information.................................................... 4
</TABLE>
ALLIANCE GOVERNMENT RESERVES
PROSPECTUS OCTOBER 30, 1998
<PAGE>
- --------------------------------------------------------------------------------
EXPENSE INFORMATION
- --------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
The Fund has no sales load on purchases or reinvested dividends, deferred
sales load, redemption fee or exchange fee.
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets, net of expense reimbursements)
<TABLE>
<S> <C>
Management Fees......................................................... .46%
12b-1 Fees.............................................................. .25
Other Expenses.......................................................... .29
----
Total Fund Operating Expenses........................................... 1.00%
</TABLE>
EXAMPLE
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a
$1,000 investment, assuming a 5% annual
return (cumulatively through the end of
each time period): $10 $32 $55 $122
</TABLE>
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. The expenses listed in the table are net of the contractual
reimbursement by the Adviser described in this prospectus. The expenses of the
Fund, before such reimbursement and fee waiver would be: Management Fees--.47%,
12b-1 Fees--.25%, Other Expenses--.29% and Total Operating Ex-penses--1.01%. The
example should not be considered a representation of past or future expenses;
actual expenses may be greater or less than those shown.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS . FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR (AUDITED)
- --------------------------------------------------------------------------------
The following tables have been audited by McGladrey & Pullen LLP, the Fund's
independent auditors, whose report thereon appears in the Statement of
Additional Information. This information should be read in conjunction with the
financial statements and notes thereto included in the Statement of Additional
Information.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
------ ------ ------ ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, begin-
ning of year........... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------ ------ ------- ------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS
Net investment
income(b).............. .0463(b) .0443 .0461(b) .0439(b) .0244(b) .0256(b) .0421 .0640 .0765 .0774
Net realized gain on in-
vestments.............. -0- -0- -0- -0- -0- .0001 -0- -0- .0001 -0-
------ ------ ------ ------- ------- ------- ------- ------- ------- -------
Net increase in net
assets from operations. .0463 .0443 .0461 .0439 .0244 .0257 .0421 .0640 .0766 .0774
------ ------ ------ ------- ------- ------- ------- ------- ------- -------
LESS: DIVIDENDS AND DIS-
TRIBUTIONS
Dividends from net in-
vestment income........ (.0463) (.0443) (.0461) (.0439) (.0244) (.0256) (.0421) (.0640) (.0765) (.0774)
Distributions from net
realized gains......... -0- -0- -0- -0- -0- (.0001) -0- -0- (.0001) -0-
------ ------ ------ ------- ------- ------- ------- ------- ------- -------
Total dividends and dis-
tributions............. (.0463) (.0443) (.0461) (.0439) (.0244) (.0257) (.0421) (.0640) (.0766) (.0774)
------ ------ ------ ------- ------- ------- ------- ------- ------- -------
Net asset value, end of
year................... $ 1.00 $1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
====== ====== ====== ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN
Total investment return
based on:
net asset value(a)..... 4.74% 4.53% 4.72% 4.48% 2.48% 2.60% 4.30% 6.61% 7.96% 8.04%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year
(in millions).......... $4,909 $3,762 $3,205 $2,514 $2,061 $1,783 $1,572 $1,070 $584 $522
Ratio to average net as-
sets of:
Expenses, net of waivers
and reimbursements..... 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% .95% .89% .88% .88%
Expenses, before waivers
and reimbursements..... 1.01% 1.00% 1.01% 1.05% 1.04% 1.02% .97% .93% .98% .98%
Net investment
income(b).............. 4.63%(b) 4.44% 4.60%(b) 4.42%(b) 2.46%(b) 2.55%(b) 4.17% 6.28% 7.65% 7.86%
</TABLE>
- ---------------------
(a) 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.
(b) Net of expenses reimbursed or waived by the Adviser.
- -------------------------------------------------------------------------------
From time to time the Fund advertises its "yield" and "effective yield."
Both yield figures are based on historical earnings and are not intended to
indicate future performance. To calculate the "yield," the amount of dividends
paid on a share during a specified sevenday period is assumed to be paid each
week over a 52-week period and is shown as a percentage of the investment. To
calculate "effective yield," which will be higher than the "yield" because of
compounding, the dividends paid are assumed to be reinvested. Further
information about the Fund's performance is contained in the annual report to
share holders and Statement of Additional Information which may be obtained
without charge by contacting Alliance Fund Services, Inc. at the address shown
in this prospectus.
2
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVES AND POLICIES
- --------------------------------------------------------------------------------
The Fund's investment objectives are in the following order of priority safety
of principal, excellent liquidity, and maximum current income to the extent
consistent with the first two objectives. As a matter of fundamental policy, the
Fund pursues its objectives by maintaining a portfolio of high quality money
market securities of the types described in the succeeding para graph, all of
which at the time of investment have remaining maturities of one year or less,
which maturities may extend to 397 days. The Fund may not change this policy or
the other fundamental investment policies described in a separate section below
without shareholder approval. The Fund may, without such approval, create
additional portfolios which may have different investment objectives. There can
be no assurance, as is true with all investment companies, that the Fund's
objectives will be achieved.
ONEY MARKET SECURITIES
The securities in which the Fund invests are: (1) marketable obligations of, or
guaranteed by, the United States Government, its agencies or instrumentalities
(collectively, the "U.S. Government"), including issues of the United States
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; and (2) repurchase agreements that are collateralized fully as
that term is defined in Rule 2a-7 ("Rule 2a-7") under the Investment Company Act
of 1940, as amended (the "Act"). These agreements are entered into with "primary
dealers" (as designated by the Federal Reserve Bank of New York) in U.S.
Government securities or State Street Bank and Trust Company, the Fund's
Custodian, and would create a loss to the Fund if, in the event of a dealer
default, the proceeds from the sale of the collateral were less than the
repurchase price. The Fund may commit up to 15% of its net assets to the
purchase of when-issued U.S. Government securities, whose value may fluctuate
prior to their settlement, thereby creating an unrealized gain or loss to the
Fund. The money market securities in which the Fund may invest may have variable
or floating rates of interest ("variable rate obligations") as permitted by Rule
2a-7. Variable rate obligations have interest rates which are adjusted either at
predesignated periodic intervals or whenever there is a change in the market
rate to which the interest rate of the variable rate obligation is tied. Some
variable rate obligations allow the holder to demand payment of principal and
accrued interest at any time, or at specified intervals. The Fund follows Rule
2a-7 with respect to the diversification, quality and maturity of variable rate
obligations.
The Fund will comply with Rule 2a-7, including the diversification, quality
and maturity limitations imposed by the Rule. A more detailed description of
Rule 2a-7 is set forth in the Fund's Statement of Additional Information under
"Investment Objectives and Policies." To the extent that the Fund's limitations
are more permissive than Rule 2a-7, the Fund will comply with the more
restrictive provisions of the Rule.
OTHER FUNDAMENTAL INVESTMENT POLICIES
To maintain portfolio diversification and reduce investment risk, the Fund may
not: (1) borrow money except from banks on a temporary basis or via entering
into reverse repurchase agreements in aggregate amounts not exceeding 10% 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; (2) pledge, hypothecate or in any manner transfer, as security
for indebtedness, its assets except to secure such borrowings; or (3) enter into
repurchase agreements if, as a result thereof, more than 10% of its assets would
be subject to repurchase agreements not terminable within seven days.
3
<PAGE>
- --------------------------------------------------------------------------------
PURCHASE AND REDEMPTION OF SHARES
- --------------------------------------------------------------------------------
OPENING ACCOUNTS
Instruct your Account Executive to open an account in the Fund in conjunction
with your brokerage account.
SUBSEQUENT INVESTMENTS
A. BY CHECK THROUGH YOUR BROKERAGE FIRM
Mail or deliver your check made payable to your brokerage firm to your Account
Executive who will deposit it into your brokerage account. Please indicate your
account number on the check.
B. BY SWEEP
Your brokerage firm may offer an automatic "sweep" for the Fund in the
operation of brokerage cash accounts for its customers. Contact your Account
Executive to determine if a sweep is available and what the sweep parameters
are.
REDEMPTIONS
A. BY CHECKWRITING
With this service, you may write checks made payable to any payee. Checks
cannot be written for more than the principal balance (not including any accrued
dividends) in your account. You must first fill out the Signature Card, which
you can obtain from your Account Executive. There is a charge for check
reorders. The checkwriting service enables you to receive the daily dividends
declared on the shares to be redeemed until the day that your check is presented
for payment.
B. BY SWEEP
If your brokerage firm offers an automatic sweep service, the sweep will
automatically transfer from your Fund account sufficient cash to cover any debit
balance that may occur in your cash account for any reason.
OPENING AN ACCOUNT DIRECTLY WITH THE FUND; SHAREHOLDER SERVICES
If you wish to obtain an Application Form to open an account directly with
the Fund or if you have any questions about the Form, purchasing shares or
other Fund procedures, please telephone the Fund toll-free (800) 221-5672.
For more information on the purchase and redemption of Fund shares, see the
Statement of Additional Information.
The Fund offers a variety of shareholder services. For more information about
these services, call the Fund at (800) 221-5672.
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
SHARE PRICE. Shares are sold and redeemed on a continuous basis without sales
or redemption charges at their net asset value which is expected to be constant
at $1.00 per share, although this price is not guaranteed. The net asset value
of the Fund's shares is determined at 12:00 Noon and 4:00 p.m. (Eastern time)
each business day. The net asset value per share is calculated by taking the sum
of the value of the Fund's investments (amortized cost value is used for this
purpose) and any cash or other assets, subtracting liabilities, and dividing by
the total number of shares outstanding. All expenses, including the fees payable
to the Adviser, are accrued daily.
TIMING OF INVESTMENTS AND REDEMPTIONS. The Fund has two transaction times
each business day, 12:00 Noon and 4:00 p.m. (Eastern time). New investments
represented by Federal funds or bank wire monies received by State Street Bank
at any time during a day prior to 4:00 p.m. are entitled to the full dividend
to be paid to shareholders for that day. Shares do not earn dividends on the
day a redemption
4
<PAGE>
is effected regardless of whether the redemption order is received before or
after 12:00 Noon. However, if you wish to have Federal funds wired the same
day as your telephone redemption request, make sure that your request will be
received by the Fund prior to 12:00 Noon.
During drastic economic or market developments, you might have difficulty in
reaching Alliance Fund Services, Inc. by telephone in which event you should
issue written instructions to Alliance Fund Services, Inc. at the address
shown in this prospectus. Alliance Fund Services, Inc. is not responsible for
the authenticity of telephone requests to purchase or sell shares. Alliance
Fund Services, Inc. will employ reasonable procedures to verify that telephone
requests are genuine and could be liable for losses arising from unauthorized
transactions if it failed to do so. Dealers or agents may charge a commission
for handling telephone requests. The telephone service may be suspended or
terminated at any time without notice.
Redemption proceeds are normally wired or mailed either the same or the next
business day, but in no event later than seven days, unless redemptions have
been suspended or postponed due to the determination of an "emergency" by the
Securities and Exchange Commission or to certain other unusual conditions.
If your Fund shares are not maintained through a financial intermediary,
proceeds from any subsequent redemption by you of Fund shares that were
purchased by check or electronic funds transfer will not be forwarded to you
until the Fund is reasonably assured that your check or electronic funds
transfer has cleared, up to fifteen days following the purchase date. If the
redemption request during such period is in the form of a Fund check, the check
will be marked "insufficient funds" and be returned unpaid to the presenting
bank.
MINIMUMS. The Fund has minimums of $1,000 for initial investments, $100 for
subsequent investments and a $500 minimum maintenance balance for each account.
These minimums do not apply to shareholder accounts maintained through brokerage
firms or other financial institutions, as such financial intermediaries may
maintain their own minimums.
DAILY DIVIDENDS, OTHER DISTRIBUTIONS, 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 via automatic investment in
additional full and fractional shares in each shareholder's account. 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 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.
For Federal 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 certain 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.
THE ADVISER. The Fund retains Alliance Capital Management L.P., 1345 Avenue of
the Americas, New York, NY 10105, under an Advisory Agreement to provide
investment advice and, in general, to conduct the Fund's management and
investment program, subject to the general supervision and control of the
Trustees of the Fund. For the fiscal year ended June 30, 1998, the Fund paid the
Adviser a fee (net of reimbursement) at an annual rate of .46 of 1% of the
average daily value of the Fund's net assets.
The Adviser is a leading international investment manager supervising client
accounts with assets as of
5
<PAGE>
June 30, 1998 of more than $262 billion (of which more than $107 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. The 58
registered investment companies managed by the Adviser comprising 123 separate
investment portfolios currently have more than 3.5 million shareholders. As of
June 30, 1998, the Adviser was retained as an investment manager for employee
benefit plan assets for 32 of the FORTUNE 100 companies.
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, which is a wholly-owned subsidiary of The Equitable Companies
Incorporated, a holding company controlled by AXA-UAP ("AXA"), a French
insurance holding company. Certain information concerning the ownership and
control of Equitable by AXA is set forth in the Fund's Statement of Additional
Information under "Management of the Fund."
Under a Distribution Services Agreement (the "Agreement"), the Fund pays
Alliance Fund Distributors, Inc. (the "Distributors") at a maximum annual rate
of .25 of 1% of the Fund's aggregate average daily net assets. For the fiscal
year ended June 30, 1998, the Fund paid the Distributor at an annual rate of .25
of 1% of the average daily value of the Fund's net assets. Substantially all
such monies (together with significant amounts from the Adviser's own resources)
are paid by the Distributor to broker-dealers and other financial intermediaries
for their distribution assistance and to banks and other depository institutions
for administrative and accounting services provided to the Fund, with any
remaining amounts being used to partially defray other expenses incurred by the
Distributor in distributing Fund shares. The Fund believes that the
administrative services provided by depository institutions are permissible
activities under present banking laws and regulations and will take appropriate
actions (which should not adversely affect the Fund or its shareholders) in the
future to maintain such legal conformity should any changes in, or
interpretations of, such laws or regulations occur.
The Adviser will reimburse the Fund to the extent that the Fund's aggregate
operating expenses (including the Adviser's fee and expenses of the Agreement)
exceed 1% of its average daily net assets for any fiscal year.
CUSTODIAN, TRANSFER AGENT AND DISTRIBUTOR. State Street Bank and Trust Company,
P.O. Box 1912, Boston, MA 02105, is the Fund's Custodian.
Alliance Fund Services, Inc. P.O. Box 1520, Secaucus, NJ 07096-1520, and
Alliance Fund Distributors, Inc., 1345 Avenue of the Americas, New York, NY
10105, are the Fund's Transfer Agent and Distributor, respectively. The Transfer
Agent charges a fee for its services.
YEAR 2000. Many computer systems and applications in use today process
transactions using two digit date fields for the year of the transaction, rather
than the full four digits. If these systems are not modified or replaced,
transactions occurring after 1999 could be processed as year "1900," which could
result in processing inaccuracies and computer system failures. This is commonly
known as the Year 2000 problem. Should any of the computer systems employed by
the Fund's major service providers fail to process Year 2000 information
properly, that could have a significant negative impact on the Fund's operations
and the services that are provided to the Fund's shareholders.
With respect to the Year 2000, the Fund has been advised that the Adviser,
Distributor and Transfer Agent (collectively, "Alliance") began to address the
Year 2000 issue several years ago in connection with the replacement or
upgrading of certain computer systems and applications. During 1997, Alliance
began a formal Year 2000 initiative, which
6
<PAGE>
established a structured and coordinated process to deal with the Year 2000
issue. Alliance reports that it has completed its assessment of the Year 2000
issues on its domestic and international computer systems and applications.
Currently, management of Alliance expects that the required modifications for
the majority of its significant systems and applications that will be in use on
January 1, 2000, will be completed and tested by the end of 1998. Full
integration testing of these systems and testing of interfaces with third-party
suppliers will continue through 1999. At this time, management of Alliance
believes that the costs associated with resolving this issue will not have a
material adverse effect on its operations or on its ability to provide the level
of services it currently provides to the Fund.
The Fund and Alliance have been advised by the Fund's Custodian that it is
also in the process of reviewing its systems with the same goals. As of the
date of this prospectus, the Fund and Alliance have no reason to believe that
the Custodian will be unable to achieve these goals.
FUND ORGANIZATION. The Fund is a series of Alliance Government Reserves (the
"Trust"). The Fund is one of two series of the Trust; shares of the other
series, Alliance Treasury Reserves, are offered by a separate prospectus. The
Trust is a diversified, open-end investment company registered under the Act.
The Trust was reorganized as a Massachusetts business trust in October 1984,
having previously been a Maryland corporation since its formation in December
1978. The Trust's activities are supervised by its Trustees. Normally, each
share of each series is entitled to one vote, and vote as a single series on
matters that affect both series in substantially the same manner. Massachusetts
law does not require annual meetings of shareholders and it is anticipated that
shareholder meetings will be held only when required by Federal law.
Shareholders have available certain procedures for the removal of Trustees.
REPORTS. You receive semi-annual and annual reports of the Fund as well as a
monthly summary of your account. You can arrange for a copy of each of your
account statements to be sent to other parties.
7
<PAGE>
This is filed pursuant to Rule 497(c).
Files Nos. 002-63315 and 811-02889
<PAGE>
[LOGO] ALLIANCE GOVERNMENT RESERVES
_______________________________________________________________
P.O. Box 1520, Secaucus, New Jersey 07096-1520
Toll Free (800) 221-5672
_______________________________________________________________
STATEMENT OF ADDITIONAL INFORMATION
October 30, 1998
_______________________________________________________________
TABLE OF CONTENTS
Page
Investment Objectives and Policies..........................2
Investment Restrictions.....................................6
Management..................................................7
Purchase and Redemption of Shares..........................17
Additional Information.....................................21
Daily Dividends-Determination of Net Asset Value...........24
Taxes......................................................25
General Information........................................26
Appendix-Commercial Paper and Bond Ratings.................30
Financial Statements and Independent Auditor's Report...F1-F9
_______________________________________________________________
This Statement of Additional Information is not a prospectus but
supplements and should be read in conjunction with the Fund's
current Prospectus dated October 30, 1998. A copy of the
Prospectus may be obtained by contacting the Fund at the address
or telephone number shown above.
(R) This registered service mark used under license from the
owner, Alliance Capital Management L.P.
<PAGE>
_______________________________________________________________
INVESTMENT OBJECTIVES AND POLICIES
_______________________________________________________________
The Fund is a diversified, open-end investment company
whose objectives are - in the following order of priority -
safety of principal, excellent liquidity, and maximum current
income to the extent consistent with the first two objectives.
There can be no assurance, as is true with all investment
companies, that the Fund's objectives will be achieved. The Fund
pursues its objectives by maintaining a portfolio of the
following investments diversified by maturities not exceeding one
year or less (which maturities pursuant to Rule 2a-7 under the
Investment Company Act of 1940 as amended (the "Act"), may extend
to 397 days or such greater length of time as may be permitted
from time to time pursuant to Rule 2a-7):
1. Marketable obligations of, or guaranteed by, the
United States Government, its agencies or instrumentalities.
These include issues of the United States 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 these
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. Repurchase agreements pertaining to the above
securities. A repurchase agreement arises when a buyer purchases
a security and simultaneously agrees to resell it to the
counterparty 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 with member banks of the Federal Reserve System
or "primary dealers" (as designated by the Federal Reserve Bank
of New York) in U.S. Government securities or with State Street
Bank and Trust Company ("State Street Bank"), the Fund's
custodian. It is the Fund's current practice, which may be
changed at any time without shareholder approval, to enter into
repurchase agreements only with such primary dealers or State
Street Bank. For each repurchase agreement, the Fund requires
continual maintenance of the market value of the underlying
collateral in amounts equal to, or in excess of, the agreement
2
<PAGE>
amount. While the maturities of the underlying collateral may
exceed 397 days, the term of the repurchase agreement is always
less than 397 days. In the event that a counterparty 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 counterparty became
bankrupt, the Fund 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 money market fund is
collateralized fully (as defined in such Rule). Accordingly, the
counterparty of a fully collateralized repurchase agreement is
deemed to be the issuer of the underlying securities.
Reverse Repurchase Agreements. While the Fund has no
present plans to do so, it may enter into reverse repurchase
agreements, which have the characteristics of borrowing and which
involve the sale of securities held by the Fund with an agreement
to repurchase the securities at an agreed-upon price, date and
interest payment.
When-Issued Securities. Certain new issues that the
Fund is permitted to purchase are available on a "when-issued"
basis. When so offered, the price, which is generally expressed
in yield terms, is fixed at the time the commitment to purchase
is made, but delivery and payment for the when-issued securities
take place at a later date. Normally, the settlement date occurs
from within ten days to one month after the purchase of the
issue. During the period between purchase and settlement, no
payment is made by the Fund to the issuer and, thus, no interest
accrues to the Fund from the transaction. When-issued securities
may be sold prior to the settlement date, but the Fund makes
when-issued commitments only with the intention of actually
acquiring the securities. To facilitate such acquisitions, the
Fund's Custodian will maintain, in a separate account of the
Fund, U.S. Government securities or other liquid high grade debt
securities having value equal to or greater than commitments held
by the Fund. Similarly, a separate account will be maintained to
meet obligations in respect of reverse repurchase agreements. On
delivery dates for such transactions, the Fund will meet its
obligations from maturities or sales of the securities held in
the separate account and/or from the available cash flow. If the
____________________
* As used throughout the Prospectus and Statement of
Additional Information, the term assets shall refer to the
Funds total assets.
3
<PAGE>
Fund, however, chooses to dispose of the right to acquire a when-
issued security prior to its acquisition, it can incur a gain or
loss. At the time the Fund makes the commitment to purchase a
security on a when-issued basis, it records the transaction and
reflects the value of the security in determining its net asset
value. No when-issued commitments will be made if, as a result,
more than 15% of the Fund's net assets would be committed.
Floating and Variable Rate Obligations. The Fund may
purchase floating and variable rate obligations, including
floating and variable rate demand notes and bonds. The Fund may
invest in variable and floating rate obligations whose interest
rates are adjusted either at predesignated periodic intervals or
whenever there is a change in the market rate to which the
security's interest rate is tied. The Fund may also purchase
floating and variable rate demand notes and bonds, which are
obligations ordinarily having stated maturities in excess of
13 months, but which permit the holder to demand payment of
principal and accrued interest at any time, or at specified
intervals not exceeding 397 days, in each case upon not more than
30 days' notice.
While there are many kinds of short-term securities used
by money market investors, the Fund, in keeping with its primary
investment objective of safety of principal, generally restricts
its portfolio to the types of investments listed above. 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 its income by
selling certain portfolio securities prior to maturity in order
to take advantage of yield disparities that occur in money
markets. The market value of the Fund's investments tends to
decrease during periods of rising interest rates and to increase
during intervals of falling rates.
Except as otherwise provided, the Fund's investment policies
are not designated "fundamental policies" within the meaning of
the Investment Company Act of 1940, as amended (the "Act") and
may, therefore, be changed by the Trustees of the Trust without a
shareholder vote. However, the Fund will not change its
investment policies without contemporaneous written notice to
shareholders.
Rule 2a-7 under the Act. 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. To the extent that the Fund's limitations are more
permissive than Rule 2a-7, the Fund will comply with the more
restrictive provisions of the Rule.
4
<PAGE>
Currently, pursuant to Rule 2a-7, the Fund may invest
only in U.S. dollar-denominated "Eligible Securities" (as that
term is defined in the Rule) that have been determined by
Alliance Capital Management L.P. (the "Adviser") to present
minimal credit risks pursuant to procedures approved by the
Trustees. Generally, an Eligible Security is a security that
(i) has a remaining maturity of 397 days or less and (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
nationally recognized statistical rating organizations ("NRSROs")
or, if only one NRSRO has issued a rating, by that NRSRO ("the
requisite NRSROs"). Unrated securities may also be Eligible
Securities if the Adviser 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. Securities in
which the Fund invests may be subject to liquidity or credit
enhancements. These securities are generally considered to be
Eligible Securities if the enhancement or the issuer of the
enhancement has received the appropriate rating from the
requisite NRSROs.
Under Rule 2a-7 the Fund may not invest more than five
percent of its assets in the first tier securities of any one
issuer other than the United States Government, its agencies and
instrumentalities. A first tier security is an Eligible Security
that has received a short-term rating from the requisite NRSROs
in the highest short-term rating category for debt obligations or
is an unrated security deemed to be of comparable quality.
Government securities are considered to be first tier securities.
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, or (B) five percent of its total assets in second
tier securities.
_______________________________________________________________
INVESTMENT RESTRICTIONS
_______________________________________________________________
The foregoing investment objectives and policies and the
following restrictions may not, except as otherwise indicated, be
changed without the approval of a majority of the Fund's
outstanding shares. As used in this prospectus, the term
"majority of the Fund's outstanding shares" means the affirmative
vote of the holders of (a) 67% or more of the shares represented
5
<PAGE>
at a meeting at which more than 50% of the outstanding shares are
represented or (b) more than 50% of the outstanding shares,
whichever is less. If a percentage restriction is adhered to at
the time of an investment, a later increase or decrease in
percentage resulting from a change in value of portfolio
securities or in amount of the Fund's assets will not constitute
a violation of that restriction.
The Fund:
1. May not purchase any security which has a maturity
date more than one year** from the date of the Fund's purchase;
2. May not purchase securities other than marketable
obligations of, or guaranteed by, the United States Government,
its agencies or instrumentalities, or repurchase agreements
pertaining thereto;
3. May not enter into repurchase agreements if, as a
result thereof, more than 10% of the Fund's assets would be
subject to repurchase agreements not terminable within seven days
(which may be considered to be illiquid) or with any one
seller*** if, as a result thereof, more than 5% of the Fund's
assets would be invested in repurchase agreements purchased from
such seller; and may not enter into any reverse repurchase
agreements if, as a result thereof, the Fund's obligations with
respect to reverse repurchase agreements would exceed 10% of the
Fund's assets;
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 10% 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
____________________
** Which maturity, pursuant to Rule 2a-7, may extend to 397
days, or such greater length of time as may be permitted
from time to time pursuant to Rule 2a-7.
*** Pursuant to Rule 2a-7, the seller of a fully
collateralized repurchase agreement is deemed to be the
issuer of the underlying securities.
6
<PAGE>
agreements, and in an aggregate amount not to exceed 10% of the
Fund's assets;
6. May not make loans, provided that the Fund may
purchase securities of the type referred to in paragraph 2 above
and enter into repurchase agreements with respect thereto; or
7. May not act as an underwriter of securities.
_______________________________________________________________
MANAGEMENT
_______________________________________________________________
Trustees and Officers
The Trustees and principal officers of the Fund 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. Those Trustees whose names are preceded by an asterisk
are "interested persons" of the Fund as determined under the Act.
Each Trustee and officer is also a director, trustee or officer
of other registered companies sponsored by the Adviser.
Trustees
DAVE H. WILLIAMS**** , 66, Chairman, is Chairman of the
Board of Directors of Alliance Capital Management Corporation
("ACMC")***** , sole general partner of the Adviser with which he
has been associated since prior to 1993.
JOHN D. CARIFA**** , 53, is the President, Chief
Operating Officer and a Director of ACMC with which he has been
associated since prior to 1993.
SAM Y. CROSS, 71, was, since prior to December 1993,
Executive Vice President of The Federal Reserve Bank of New York
and manager for foreign operations for The Federal Reserve
System. He is also a director of Fuji Bank and Trust Co. He is
Executive-In-Residence at the School of International and Public
____________________
**** 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 the Adviser, and to the
predecessor general partner of the Adviser of the same
name.
7
<PAGE>
Affairs, Columbia University. His address is 200 East 66th
Street, New York, New York 10021.
CHARLES H. P. DUELL, 60, is President of Middleton Place
Foundation with which he has been associated since prior to 1993.
He is also a Director of GRC International, Inc., a Trustee
Emeritus of the National Trust for Historic Preservation and
serves on the Board of Architectural Review, City of Charleston.
His address is Middleton Place Foundation, Ashley River Road,
Charleston, South Carolina 29414.
WILLIAM H. FOULK, JR., 66, is an Investment Adviser and
an Independent Consultant. He was formerly Senior Manager of
Barrett Associates, Inc., a registered investment adviser, with
which he had been associated since prior to 1993. His address is
2 Greenwich Plaza, Suite 100, Greenwich, CT 06830.
DAVID K. STORRS, 54, is President and Chief Executive
Officer of Alternative Investment Group, LLC (an investment
firm). He was formerly President of The Common Fund (investment
management for educational institutions) with which he had been
since prior to 1993. His address is 65 South Gate Road,
Southport, Connecticut 06490.
SHELBY WHITE, 60, is an author and financial journalist.
Her address is One Sutton Place South, New York, New York 10022.
Officers
RONALD M. WHITEHILL - President, 60, is a Senior Vice
President of ACMC and President of Alliance Cash Management
Services with which he has been associated since 1993.
KATHLEEN A. CORBET - Senior Vice President, 38, is an
Executive Vice President of ACMC with which she has been
associated since prior to 1993.
DREW BIEGEL - Senior Vice President, 47 is a Vice
President of ACMC with which he has been associated since prior
to 1993.
JOHN R. BONCZEK - Senior Vice President, 38, is a Vice
President of ACMC with which he has been associated since prior
to 1993.
ROBERT I. KURZWEIL - Senior Vice President, 47, has been
a Vice President of ACMC since May 1994. Previously, he was Vice
President of Sales and Business Development for Automatic Data
Processing with which he had been associated since prior to 1993.
8
<PAGE>
WAYNE D. LYSKI - Senior Vice President, 57, is an
Executive Vice President of ACMC with which he has been
associated since prior to 1993.
PATRICIA NETTER - Senior Vice President, 47, is a Vice
President of ACMC with which she has been associated since prior
to 1993.
RAYMOND J. PAPERA - Senior Vice President, 42, is a
Senior Vice President of ACMC with which he has been associated
since prior to 1993.
KENNETH T. CARTY - Vice President, 36 is an Assistant
Vice President of ACMC with which he has been associated since
prior to 1993.
JOHN F. CHIODI, Jr. - Vice President, 32, is a Vice
President of ACMC with which he has been associated since prior
to 1993.
DORIS T. CILIBERTI - Vice President, 34, is an Assistant
Vice President of ACMC with which she has been associated since
prior to 1993.
MARIA R. CONA - Vice President, 43, is an Assistant Vice
President of ACMC with which she has been associated since prior
to 1993.
WILLIAM J. FAGAN - Vice President, 36, is an Assistant
Vice President of ACMC with which he has been associated since
prior to 1993.
JOSEPH R. LASPINA - Vice President, 38, is an Assistant
Vice President of ACMC with which he has been associated since
prior to 1993.
LINDA D. NEIL - Vice President, 38, is an Assistant Vice
President of ACMC with which she has been associated since prior
to 1993.
EDMUND P. BERGAN, Jr. - Secretary, 48, is a Senior Vice
President and the General Counsel of Alliance Fund Distributors,
Inc. ("AFD") and Alliance Fund Services, Inc. ("AFS") with which
he has been associated since prior to 1993.
MARK D. GERSTEN - Treasurer and Chief Financial Officer,
47, is a Senior Vice President of AFS with which he has been
associated since prior to 1993.
9
<PAGE>
VINCENT S. NOTO - Controller, 33, is an Assistant Vice
President of AFS with which he has been associated since prior to
1993.
ANDREW L. GANGOLF - Assistant Secretary, 44, is a Vice
President and Assistant General Counsel of AFD with which he has
been associated since December 1994. Prior thereto, he was Vice
President and Assistant Secretary of Delaware Management Co.,
Inc.
DOMENICK PUGLIESE - Assistant Secretary, 37, is a Vice
President and Assistant General Counsel of AFD with which he has
been associated since May 1995. Prior thereto, he was Vice
President and Counsel of Concord Holding Corporation since 1994
and Vice President and Associate General Counsel of Prudential
Securities since 1992.
EMILIE D. WRAPP - Assistant Secretary, 42, is a Vice
President and Assistant General Counsel of AFD with which she has
been associated since prior to 1993.
As of October 9, 1998, the Trustees and officers as a
group owned less than 1% of the shares of the Fund.
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 June 30, 1998, the
aggregate compensation paid to each of the Trustees during
calendar year 1997 by all of the funds to which the Adviser
provides investment advisory services (collectively, the
"Alliance Fund Complex") and the total number of registered
investment companies (and separate investment portfolios within
those companies) in the Alliance Fund Complex with respect to
which each of the Trustees serves as a director or trustee, are
set forth below. Neither the Fund nor any other fund in the
Alliance Fund Complex provides compensation in the form of
pension or retirement benefits to any of its directors or
trustees.
10
<PAGE>
Total Number
Total Number of Investment
of Funds in Portfolios
the Alliance Within the
Fund Complex, Funds,
Compensation Including the Including the
from the Fund, as to Fund, as to
Aggregate Alliance Fund which the which the
Compensation Complex, Trustee is a Trustee is a
Name of Trustee from Including Director or Director or
of the Fund the Fund the Fund Trustee Trustee
Dave H. Williams $-0- $-0- 6 15
John D. Carifa $-0- $-0- 53 118
Sam Y. Cross $2,333 $ 12,000 3 12
Charles H.P. Duell $2,333 $ 12,000 3 12
William H. Foulk, Jr. $2,667 $177,504 48 113
David K. Storrs $2,333 $ 12,000 3 12
Shelby White $2,333 $ 12,000 3 12
The Adviser
The Adviser, a Delaware limited partnership with
principal offices at 1345 Avenue of the Americas, New York, New
York 10105, has been retained under an investment advisory
agreement (the "Advisory Agreement") to provide investment advice
and, in general, to conduct the management and investment program
of the Fund under the supervision and control of the Fund's
Trustees.
The Adviser is a leading international investment
manager supervising client accounts with assets as of June 30,
1998 of more than $262 billion (of which more than $107 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. As of June 30, 1998, the
Adviser was retained as an investment manager for employee
benefit plan assets for 32 of the FORTUNE 100 companies. As of
July 31, 1998, the Adviser and its subsidiaries employed
approximately 2,000 employees who operate out of domestic offices
and the offices of subsidiaries in Bahrain, Bangalore, Chennai,
Istanbul, London, Madrid, Mumbai, Paris, Singapore, Tokyo and
Toronto and affiliate offices located in Vienna, Warsaw, Hong
Kong, Sao Paulo and Moscow. The 58 registered investment
companies comprising more than 123 separate investment portfolios
managed by the Adviser currently have more than 3.5 million
shareholders.
Alliance Capital Management Corporation, the sole
general partner of, and the owner of a 1% general partnership
11
<PAGE>
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"). ECI is a holding company
controlled by AXA-UAP ("AXA"), a French insurance holding company
which at March 31, 1998, beneficially owned approximately 59% of
the outstanding voting shares of ECI. As of June 30, 1998, 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.
AXA is a 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
principally in Western Europe, North America and the Asia/Pacific
area. AXA is also engaged in asset management, investment
banking, securities trading, brokerage, real estate and other
financial services activities principally in the United States,
as well as in Western Europe and the Asia/Pacific area.
Based on information provided by AXA, as of March 31,
1998 more than 30% of the voting power of AXA was controlled
directly and indirectly by FINAXA, a French holding company. As
of March 31, 1998 more than 74% of the voting power of FINAXA was
controlled directly and indirectly by four French mutual
insurance companies (the "Mutuelles AXA"), one of which, AXA
Assurances I.A.R.D. Mutuelle, itself controlled directly and
indirectly more than 42% of the voting power of FINAXA. Acting
as a group, the Mutuelles AXA control AXA and FINAXA.
Under the Advisory Agreement, the Adviser provides
investment advisory services and order placement facilities for
the Fund and pays all compensation of Trustees of the Fund who
are affiliated persons of the Adviser. The Adviser 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 .50 of 1% of up to $1.25 billion of the average daily
value of the Fund's net assets, .49 of 1% of the next $.25
billion of such assets, .48 of 1% of the next $.25 billion of
such assets, .47 of 1% of the next $.25 billion of such assets,
.46 of 1% of the next $1 billion of such assets and .45 of 1% of
the average daily net assets of the Fund in excess of $3 billion.
The fee is accrued daily and paid monthly. The Adviser will
reimburse the Fund to the extent that its net expenses (excluding
taxes, brokerage, interest and extraordinary expenses) exceed 1%
12
<PAGE>
of its average daily net assets for any fiscal year. For the
fiscal years ended June 30, 1996, 1997 and 1998 the Adviser
received from the Fund, advisory fees (net of reimbursement for
the fiscal year ended June 30, 1998) of $14,176,991, $17,412,020
and $19,694,085, respectively. In accordance with the
Distribution Services Agreement described below, the Fund may pay
a portion of advertising and promotional expenses in connection
with the sale of shares of the Fund. The Fund also pays for
printing of prospectuses and other reports to shareholders and
all expenses and fees related to registration and filing with the
Commission and with state regulatory authorities. The Fund pays
all other expenses incurred in its operations, including the
Adviser's management fees; custody, transfer and dividend
disbursing expenses; legal and auditing costs; clerical,
administrative accounting, and other office costs; fees and
expenses of Trustees who are not affiliated with the Adviser;
costs of maintenance of the Trust's existence; and interest
charges, taxes, brokerage fees, and commissions. As to the
obtaining of clerical and accounting services not required to be
provided to the Fund by the Adviser under the Advisory Agreement,
the Fund may employ its own personnel. For such services, it
also may utilize personnel employed by the Adviser; if so done,
the services are provided to the Fund at cost and the payments
therefore must be specifically approved in advance by the
Trustees. The Fund paid to the Adviser a total of $163,000,
$164,000 and $167,000, respectively, for such services for the
fiscal years ended June 30, 1996, 1997 and 1998.
The Fund has made arrangements with certain broker-
dealers, including Pershing, Division of Donaldson, Lufkin &
Jenrette Securities Corporation ("Pershing"), an affiliate of the
Adviser, whose customers are Fund shareholders pursuant to which
payments are made to such broker-dealers performing recordkeeping
and shareholder servicing functions. Such functions may include
opening new shareholder accounts, processing purchase and
redemption transactions, and responding to inquiries regarding
the Fund's current yield and the status of shareholder accounts.
The Fund pays fully disclosed and omnibus broker dealers
(including Pershing) for such services. The fund may also pay
for the electronic communications equipment maintained at the
broker-dealers' offices that permits access to the Fund's
computer files and, in addition, reimburses fully-disclosed
broker-dealers at cost for personnel expenses involved in
providing such services. All such payments must be approved or
ratified by the Trustees. For the fiscal years ended June 30,
1996, 1997 and 1998, the Fund reimbursed such broker-dealers a
total of $1,611,378, $2,146,522 and $5,301,680, respectively.
The Advisory Agreement became effective on July 22,
1992. Continuance of the Advisory Agreement until June 30, 1999
was approved by the vote, cast in person by all the Trustees of
13
<PAGE>
the Trust who neither were interested persons of the Trust nor
had any direct or indirect financial interest in the Agreement or
any related agreement, at a meeting called for that purpose on
June 9, 1998.
The Advisory Agreement will remain in effect thereafter
from year to year provided that such continuance is specifically
approved annually by a vote of a majority of the outstanding
shares of the Fund 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 as defined in the
Act. The Advisory Agreement may be terminated without penalty on
60 days' written notice at the option of either party or by a
vote of the outstanding voting securities of the Fund; it will
automatically terminate in the event of assignment. The Adviser
is not liable for any action or inaction in regard to its
obligations under the Advisory Agreement as long as it does not
exhibit willful misfeasance, bad faith, gross negligence, or
reckless disregard of its obligations.
Distribution Services Agreement
Rule 12b-1 under the Act permits an investment company
to directly or indirectly pay expenses associated with the
distribution 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 (the "Distributor"),
which applies to both series of the Trust. Pursuant to the Plan,
the Fund makes payments each month to AFD in an amount that will
not exceed, on an annualized basis, .25 of 1% of the Fund's
aggregate average daily net assets. In addition, under the
Agreement the Distributor makes payments for distribution
assistance and for administrative, accounting and other services
from its own resources which may include the management fee paid
by the Fund.
Payments under the Agreement are used in their entirety
for (i) payments to broker-dealers and other financial
intermediaries, including the Distributor and Donaldson, Lufkin &
Jenrette Securities Corporation and its Pershing Division,
affiliates of the Adviser, for distribution assistance and to
banks and other depository institutions for administrative and
accounting services, and (ii) otherwise promoting the sale of
shares of the Fund such as by paying for the preparation,
printing and distribution of prospectuses and other promotional
materials sent to existing and prospective shareholders and by
directly or indirectly purchasing radio, television, newspaper
and other advertising. In approving the Agreement the Trustees
determined that there was a reasonable likelihood that the
Agreement would benefit the Fund and its shareholders. During
14
<PAGE>
the fiscal year ended June 30, 1998, the Fund made payments to
the Distributor for expenditures, under the Agreement in amounts
aggregating $10,707,231 which constituted .25 of 1% of the Fund's
average daily net assets during the period, and the Adviser made
payments from its own resources as described above aggregating
$12,819,721. Of the $23,526,952 paid by the Adviser and the Fund
under the Agreement, $396,000 was paid for advertising, printing,
and mailing of prospectuses to persons other than current
shareholders; and $23,130,952 was paid to broker-dealers and
other financial intermediaries for distribution assistance.
The administrative and accounting services provided by
banks and other depository institutions may include, but are not
limited to, establishing and maintaining shareholder accounts,
sub-accounting, processing of purchase and redemption orders,
sending confirmations of transactions, forwarding financial
reports and other communications to shareholders and responding
to shareholder inquiries regarding the Fund. As interpreted by
courts and administrative agencies, certain 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
counsel, these laws and regulations do not prohibit such
depository institutions from providing other services for
investment companies such as the administrative and accounting
services described above. The Trustees will consider appropriate
modifications to the Fund's operations, including discontinuance
of payments under the Agreement to banks and other depository
institutions, in the event of any future change in such laws or
regulations which may affect the ability of such institutions to
provide the above-mentioned services.
The Treasurer of the Fund reports the amounts expended
under the Agreement and the purposes for which such expenditures
were made to the Trustees on a quarterly basis. Also, the
Agreement provides that the selection and nomination of
disinterested Trustees (as defined in the Act) are committed to
the discretion of the disinterested Trustees then in office.
The Agreement became effective on July 22, 1992.
Continuance of the Agreement until June 30, 1999 was approved by
the vote, cast in person by all the Trustees of the Fund who
neither were interested persons of the Fund nor had any direct or
indirect financial interest in the Agreement or any related
agreement, at a meeting called for that purpose on
June 9, 1998. The Agreement may be continued annually thereafter
if approved by a majority vote of the Trustees who neither are
interested persons of the Fund nor have any direct or indirect
financial interest in the Agreement or in any related agreement,
cast in person at a meeting called for that purpose.
15
<PAGE>
All material amendments to the Agreement must be
approved by a vote of the Trustees, including a majority of the
disinterested Trustees, cast in person at a meeting called for
that purpose, and the Agreement may not be amended in order to
increase materially the costs which the Fund may bear pursuant to
the Agreement without the approval of a majority of the
outstanding shares of the Fund. The Agreement may also be
terminated at any time by a majority vote of the disinterested
Trustees, or by a majority of the outstanding shares of the Fund
or by the Distributor. Any agreement with a qualifying broker-
dealer or other financial intermediary may be terminated without
penalty on not more than sixty days' written notice by a vote of
the majority of non-party Trustees, by a vote of a majority of
the outstanding shares of the Fund, or by the Distributor and
will terminate automatically in the event of its assignment.
The Agreement is in compliance with rules of the
National Association of Securities Dealers, Inc. (the "NASD")
which became effective July 7, 1993 and which limit the annual
asset-based sales charges and service fees that a mutual fund may
impose to .75% and .25%, respectively, of average annual net
assets.
_______________________________________________________________
PURCHASE AND REDEMPTION OF SHARES
_______________________________________________________________
Generally, shares of the Fund are sold and redeemed on a
continuous basis without sales or redemption charges at their net
asset value which is expected to be constant at $1.00 per share,
although this price is not guaranteed.
Accounts Not Maintained Through Financial Intermediaries
Opening Accounts - New Investments
A. When Funds are Sent by Wire (the wire method permits
immediate credit)
1) Telephone the Fund toll-free at (800) 824-1916.
The Fund will ask for the name of the account as
you wish it to be registered, address of the
account, and taxpayer identification number (social
security number for an individual). The Fund will
then provide you with an account number.
2) Instruct your bank to wire Federal funds (minimum
$1,000) exactly as follows:
16
<PAGE>
ABA 0110 0002-8
State Street Bank and Trust Company
Boston, MA 02101
Alliance Government Reserves
DDA 9903-279-9
Your account name as registered with the Fund
Your account number as registered with the Fund
3) Mail a completed Application Form to:
Alliance Fund Services, Inc.
P.O. Box 1520
Secaucus, New Jersey 07096-1520
B. When Funds are Sent by Check
1) Fill out an Application Form.
2) Mail the completed Application Form along with your
check or negotiable bank draft (minimum $1,000),
payable to "Alliance Government Reserves," to
Alliance Fund Services, Inc. as in A(3) above.
Subsequent Investments
A. Investments by Wire (to obtain immediate credit)
Instruct your bank to wire Federal funds (minimum $100)
to State Street Bank and Trust Company ("State Street Bank") as
in A(2) above.
B. Investments by Check
Mail your check or negotiable bank draft (minimum $100),
payable to "Alliance Government Reserves," to Alliance Fund
Services, Inc. as in A(3) above.
Include with the check or draft the "next investment"
stub from one of your previous monthly or interim account
statements. For added identification, place your Fund account
number on the check or draft.
Investments Made by Check
Money transmitted by a check drawn on a member of the
Federal Reserve System is converted to Federal funds in one
business day following receipt and, thus, is then invested in the
Fund. Checks drawn on banks which are not members of the Federal
Reserve System may take longer to be converted and invested. All
payments must be in United States dollars.
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PROCEEDS FROM ANY SUBSEQUENT REDEMPTION BY YOU OF FUND
SHARES THAT WERE PURCHASED BY CHECK OR ELECTRONIC FUNDS TRANSFER
WILL NOT BE FORWARDED TO YOU UNTIL THE FUND IS REASONABLY ASSURED
THAT YOUR CHECK OR ELECTRONIC FUNDS TRANSFER HAS CLEARED, UP TO
FIFTEEN DAYS FOLLOWING THE PURCHASE DATE. If the redemption
request during such period is in the form of a Fund check, the
check will be marked "insufficient funds" and be returned unpaid
to the presenting bank.
Redemptions
A. By Telephone
You may withdraw any amount from your account on any
Fund business day (i.e., any weekday exclusive of days on which
the New York Stock Exchange or State Street Bank is closed)
between 9:00 a.m. and 5:00 p.m. (Eastern time) via orders given
to AFS by telephone toll-free (800) 824-1916. Such redemption
orders must include your account name as registered with the Fund
and the account number.
If your telephone redemption order is received by AFS
prior to 12:00 Noon (Eastern time), we will send the proceeds in
Federal funds by wire to your designated bank account that day.
The minimum amount for a wire is $1,000. If your telephone
redemption order is received by AFS after 12:00 Noon and before
4:00 p.m., we will wire the proceeds the next business day. You
also may request that proceeds be sent by check to your
designated bank. Redemptions are made without any charge to you.
During periods of drastic economic or market
developments, such as the market break of October 1987, it is
possible that shareholders would have difficulty in reaching AFS
by telephone (although no such difficulty was apparent at any
time in connection with the 1987 market break). If a shareholder
were to experience such difficulty, the shareholder should issue
written instructions to AFS at the address shown on the cover of
this Statement of Additional Information. The Fund reserves the
right to suspend or terminate its telephone redemption service at
any time without notice. Neither the Fund nor the Adviser, or
AFS 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.
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B. By Checkwriting
With this service, you may write checks made payable to
any payee. Checks cannot be written for more than the principal
balance (not including any accrued dividends) in your account.
First, you must fill out the Signature Card which is with the
Application Form. If you wish to establish this checkwriting
service subsequent to the opening of your Fund account, contact
the Fund by telephone or mail. There is no separate charge for
the checkwriting service, except that State Street Bank may
impose charges for checks which are returned unpaid because of
insufficient funds or for checks upon which you have placed a
stop order. There is currently a $7.50 charge for check
reorders.
The checkwriting service enables you to receive the daily
dividends declared on the shares to be redeemed until the day
that your check is presented to State Street Bank for payment.
C. By Mail
You may withdraw any amount from your account at any
time by mail. Written orders for withdrawal, accompanied by duly
endorsed certificates, if issued, should be mailed to Alliance
Fund Services, Inc., P.O. Box 1520, Secaucus, New Jersey
07096-1520. Such orders must include the account name as
registered with the Fund and the account number. All written
orders for redemption, and accompanying certificates, if any,
must be signed by all owners of the account with the signatures
guaranteed by an institution which is an "eligible guarantor" as
defined in Rule 17Ad-15 under the Securities Exchange Act of
1934, as amended.
_______________________________________________________________
ADDITIONAL INFORMATION
_______________________________________________________________
Shareholders maintaining Fund accounts through brokerage
firms and other institutions should be aware that such
institutions necessarily set deadlines for receipt of transaction
orders from their clients that are earlier than the transaction
times of the Fund itself so that the institutions may properly
process such orders prior to their transmittal to State Street
Bank. Should an investor place a transaction order with such an
institution after its deadline, the institution may not effect
the order with the Fund until the next business day.
Accordingly, an investor should familiarize himself or herself
with the deadlines set by his or her institution. (For example,
the Distributor accepts purchase orders from its customers up to
2:15 p.m. Eastern time for issuance at the 4:00 p.m. transaction
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<PAGE>
time and price.) A brokerage firm acting on behalf of a customer
in connection with transactions in Fund shares is subject to the
same legal obligations imposed on it generally in connection with
transactions in securities for a customer, including the
obligation to act promptly and accurately.
Orders for the purchase of Fund shares become effective
at the next transaction time after Federal funds or bank wire
monies become available to State Street Bank for a shareholder's
investment. Federal funds are a bank's deposits in a Federal
Reserve Bank. These funds can be transferred by Federal Reserve
wire from the account of one member bank to that of another
member bank on the same day and are considered to be immediately
available funds; similar immediate availability is accorded
monies received at State Street Bank by bank wire. Money
transmitted by a check drawn on a member of the Federal Reserve
System is converted to Federal funds in one business day
following receipt. Checks drawn on banks which are not members
of the Federal Reserve System may take longer. All payments
(including checks from individual investors) must be in United
States dollars.
All shares purchased are confirmed to each shareholder
and are credited to his or her account at the net asset value.
To avoid unnecessary expense to the Fund and to facilitate the
immediate redemption of shares, share certificates, for which no
charge is made, are not issued except upon the written request of
a shareholder. Certificates are not issued for fractional
shares. Shares for which certificates have been issued are not
eligible for any of the optional methods of withdrawal; namely,
the telephone, telegraph, checkwriting or periodic redemption
procedures. The Fund reserves the right to reject any purchase
order.
Arrangements for Telephone Redemptions. If you wish to
use the telephone redemption procedure, indicate this on your
Application Form and designate a bank and account number to
receive the proceeds of your withdrawals. If you decide later
that you wish to use this procedure, or to change instructions
already given, send a written notice to Alliance Fund Services,
Inc., P.O. Box 1520, Secaucus, New Jersey 07096-1520, with your
signature guaranteed by an institution which is an eligible
guarantor. For joint accounts, all owners must sign and have
their signatures guaranteed.
Automatic Investment Program. A shareholder may
purchase shares of the Fund through an automatic investment
program through a bank that is a member of the National Automated
Clearing House Association. Purchases can be made on a Fund
business day each month designated by the shareholder.
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Shareholders wishing to establish an automatic investment program
should write or telephone the Fund or AFS at (800) 221-5672.
Retirement Plans. The Fund's objectives of safety of
principal, excellent liquidity and maximum current income to the
extent consistent with the first two objectives may make it a
suitable investment vehicle for part or all of the assets held in
various tax-deferred retirement plans. The Fund has available
forms of individual retirement account (IRA), simplified employee
pension plans (SEP), 403(b)(7) plans and employer-sponsored
retirement plans (Keogh or HR10 Plan). Certain services
described in this prospectus may not be available to retirement
accounts and plans. Persons desiring information concerning
these plans should write or telephone the Fund or AFS at
(800) 221-5672.
The Alliance Plans Division of Frontier Trust Company, a
subsidiary of The Equitable Life Assurance Society of the United
States, is the custodian under these plans. The custodian
charges a nominal account establishment fee and a nominal annual
maintenance fee. A portion of such fees is remitted to AFS to
compensate that organization for services rendered to retirement
plan accounts maintained with the Fund.
Periodic Distribution Plans. Without affecting your
right to use any of the methods of redemption described above, by
checking the appropriate boxes on the Application Form, you may
elect to participate additionally in the following plans without
any separate charge. Under the Income Distribution Plan you
receive monthly payments of all the income earned in your Fund
account, with payments forwarded by check or electronically via
the Automated Clearing House ("ACH") network shortly after the
close of the month. Under the Systematic Withdrawal Plan, you
may request payments by check or electronically via the ACH
network in any specified amount of $50 or more each month or in
any intermittent pattern of months. If desired, you can order,
via a signature-guaranteed letter to the Fund, such periodic
payments to be sent to another person. Shareholders wishing
either of the above plans electronically through the ACH network
should write or telephone the Fund or AFS at (800) 221-5672.
The Fund has the right to close out an account if it has
a zero balance on December 31 and no account activity for the
first six months of the subsequent year. Therefore, unless this
has occurred, a shareholder with a zero balance, when
reinvesting, should continue to use his account number.
Otherwise, the account should be re-opened pursuant to procedures
described above or through instructions given to a financial
intermediary.
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A "business day," during which purchases and redemptions
of Fund shares can become effective and the transmittal of
redemption proceeds can occur, is considered for Fund purposes as
any weekday exclusive of New Year's Day, Martin Luther King, Jr.
Day, President's Day (observed), Good Friday, Memorial Day
(observed), Independence Day, Labor Day, Thanksgiving Day and
Christmas Day; if one of these holidays falls on a Saturday or
Sunday, purchases and redemptions will likewise not be processed
on the preceding Friday or the following Monday, respectively.
On any such day that is an official bank holiday in
Massachusetts, neither purchases nor wired redemptions can become
effective because Federal funds cannot be received or sent by
State Street Bank. On such days, therefore, the Fund can only
accept redemption orders for which shareholders desire remittance
by check. The right of redemption may be suspended or the date
of a redemption payment postponed for any period during which the
New York Stock Exchange is closed (other than customary weekend
and holiday closings), when trading on the New York Stock
Exchange is restricted, or an emergency (as determined by the
Commission) exists, or the Commission has ordered such a
suspension for the protection of shareholders. The value of a
shareholder's investment at the time of redemption may be more or
less than his or her cost, depending on the market value of the
securities held by the Fund at such time and the income earned.
_______________________________________________________________
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 is expected to remain constant at $1.00 since all net
income is declared as a dividend each time net income is
determined.
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
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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
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 or such greater
length of time as may be permitted from time to time pursuant to
Rule 2a-7. 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 to the extent required by Rule 2a-7 under the Act 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 at 12:00 Noon and 4:00 p.m. (Eastern time). The net
asset value per share is calculated by taking the sum of the
value of the Fund's investments and any cash or other assets,
subtracting liabilities, and dividing by the total number of
shares outstanding. All expenses, including the fees payable to
the Adviser, are accrued daily.
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_______________________________________________________________
TAXES
_______________________________________________________________
The Fund has qualified in each fiscal year to date and
intends to qualify in each future year to be taxed as a regulated
investment company under the Internal Revenue Code of 1986, as
amended (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
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.
_______________________________________________________________
GENERAL INFORMATION
_______________________________________________________________
Portfolio Transactions. Subject to the general
supervision of the Trustees of the Fund, the Adviser 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 do not involve
payment of brokerage commissions. The cost of securities
purchased from an underwriter usually includes a commission paid
by the issuer to the 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
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best price and execution may be obtained from more than one
dealer, the Adviser may, in its discretion, purchase and sell
securities through dealers who provide research, statistical and
other information to the Adviser. Such services may be used by
the Adviser for all of its investment advisory accounts and,
accordingly, not all such services may be used by the Adviser in
connection with the Fund. The supplemental information received
from a dealer is in addition to the services required to be
performed by the Adviser under the Advisory Agreement, and the
expenses of the Adviser will not necessarily be reduced as a
result of the receipt of such information. During the fiscal
years ended June 30, 1996, 1997 and 1998, the Fund paid no
brokerage commissions.
Capitalization. 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. If shares of another class
were issued in connection with the creation of a second
portfolio, each share of either portfolio would normally be
entitled to one vote for all purposes. Generally, shares of both
portfolios would vote as a single series for the election of
Trustees and on any other matter that affected both portfolios in
substantially the same manner. As to matters affecting each
portfolio differently, such as approval of the Advisory Agreement
and changes in investment policy, shares of each portfolio would
vote as separate classes. 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.
At October 9, 1998, there were 5,750,273,691 shares of
beneficial interest of the Fund outstanding. To the knowledge of
the Fund the following persons owned of record and no person
owned beneficially, 5% or more of the outstanding shares of the
Portfolio as of October 9, 1998:
No. of % of
Name and Address Shares Class
Pershing as Agent 1,093,021,908 19%
Omnibus Account for
Exclusive Benefit of Customers
1 Pershing Plaza
Jersey City, NJ 07399-0002
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<PAGE>
Pershing as Agent 4,042,233,8698 70%
Omnibus Account for
Exclusive Benefit of Customers
1 Pershing Plaza
Jersey City, NJ 07399-0002
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 Trust. 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 the
Adviser, such risk is not material.
Legal Matters. The legality of the shares offered
hereby has been passed upon by Seward & Kissel, 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.
Accountants. An opinion relating to the Fund's
financial statements is given herein by McGladrey & Pullen, LLP,
New York, New York, independent auditors for the Fund.
Yield Quotations. Advertisements containing yield
quotations for the Fund may from time to time be sent to
investors or placed in newspapers, magazines or other media on
behalf of the Fund. These advertisements may quote performance
rankings, ratings or data from independent organizations or
financial publications such as Lipper Analytical Services, Inc.,
Morningstar, Inc., IBC's Money Fund Report, IBC's Money Market
Insight or Bank Rate Monitor or compare the Fund's performance to
bank money market deposit accounts, certificates of deposit or
various indices. Such yield quotations are calculated in
accordance with the standardized method referred to in Rule 482
under the Securities Act of 1933. Yield quotations are thus
determined by (i) computing the net change 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 result by
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<PAGE>
(365/7)--with the resulting yield figure carried to the nearest
hundredth of one percent. The Fund's effective annual yield
represents a compounding of the annualized yield according to the
following formula:
effective yield = [(base period return + 1)365/7] - 1
The Fund's yield for the seven-day period ended June 30,
1998 was 4.60% which is the equivalent of a 4.71% compounded
effective yield. Absent such reimbursement, the annualized yield
for such period would have been 4.59%, equivalent to an effective
yield of 4.70%. Current yield information for the Fund can be
obtained by a recorded message by telephoning toll-free at
(800) 221-9513.
Additional Information. This Statement of Additional
Information does not contain all the information set forth in the
Registration Statement filed by the Fund with the Commission
under the Securities Act of 1933. 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.
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_______________________________________________________________
APPENDIX
_______________________________________________________________
A-1+, A-1 and Prime-1 Commercial Paper Ratings
"A-1+" is the highest, and "A-1" the second highest,
commercial paper rating assigned by Standard & Poor's Corporation
("Standard & Poor's") and "Prime-1" is the highest commercial
paper rating assigned by Moody's Investors Service, Inc.
("Moody's"). Standard & Poor's uses the numbers 1+, 1, 2 and 3
to denote relative strength within its highest classification of
"A", while Moody's uses the numbers 1, 2 and 3 to denote relative
strength within its highest classification of "Prime."
Commercial paper issuers rated "A" by Standard & Poor's have the
following characteristics: liquidity ratios are better than
industry average; long term debt rating is A or better; the
issuer has access to at least two additional channels of
borrowing; basic earnings and cash flow are in an upward trend;
and typically, the issuer is a strong company in a well-
established industry and has superior management. Commercial
paper issuers rated "Prime" by Moody's 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.
AAA & AA and Aaa & Aa Bond Ratings
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 the majority of instances they differ from AAA issues
only in small degree. 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 or
fluctuations of protective elements may be of greater amplitude
or there may be other elements present which make the long-term
risks appear somewhat larger.
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00250185.AL5
