<PAGE>
M.S.D. & T. FUNDS, INC.
PRIME MONEY MARKET FUND
GOVERNMENT MONEY MARKET FUND
TAX-EXEMPT MONEY MARKET FUND
SUPPLEMENT DATED JANUARY 24, 1997
TO PROSPECTUS DATED SEPTEMBER 30, 1996
1. The following replaces the second sentence of the first paragraph under
the heading "INVESTMENT OBJECTIVES, POLICIES AND RISKS--Prime Money Market
Fund" on page 6 of the Prospectus:
The Fund may invest in a broad range of short-term, high quality, U.S.
dollar-denominated instruments, such as government, bank, commercial and other
obligations of both foreign and domestic issuers, that are available in the
money markets.
2. The following replaces the entire paragraph under the heading "INVESTMENT
OBJECTIVES, POLICIES AND RISKS--Other Investment Policies and Related Risks--
Corporate Obligations" on page 8 of the Prospectus:
The Prime Money Market Fund and, to a limited extent, the Tax-Exempt Money
Market Fund may invest in domestic corporate debt obligations, primarily
commercial paper. Commercial paper is a short-term promissory note with a
maturity ranging from 1 to 270 days issued by a corporation. Corporate bonds
purchased by the Funds will have remaining maturities of 397 days or less.
The Prime Money Market Fund may also invest in short-term, high quality,
U.S. dollar-denominated corporate debt obligations of foreign issuers where
the Adviser deems the investments to present minimal credit risks. Investments
in foreign securities involve certain inherent risks, such as future political
and economic developments, the possible imposition of foreign withholding tax
on the interest payable on such instruments, the possible establishment of
foreign controls, the possible seizure or nationalization of foreign deposits
or assets, or the adoption of other foreign government restrictions that might
adversely affect payment of interest or principal.
