<PAGE>
This is filed pursuant to Rule 497(e).
File Nos. 033-34001 and 811-06068
<PAGE>
ACM Institutional Reserves, Inc. (the "Fund") is an open-end investment compa-
ny. The Prime Portfolio, the Government Portfolio and the Tax-Free Portfolio
(singularly a "Portfolio" and collectively "Portfolios"), each of which is di-
versified, are offered by this prospectus. The Fund's investment objectives
are--in the following order of priority--safety of principal, excellent liquid-
ity and maximum current income (which, in the case of the Tax-Free Portfolio,
is exempt from Federal income taxes) to the extent consistent with the first
two objectives.
The Fund offers institutional and corporate investors a convenient and econom-
ical way to invest in managed portfolios.
This prospectus sets forth the information about the Prime, Government and
Tax-Free Portfolios 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 COR-
PORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY. THERE CAN BE NO ASSUR-
ANCE THAT A PORTFOLIO OF THE FUND WILL BE ABLE TO MAINTAIN A STABLE NET ASSET
VALUE OF $1.00 PER SHARE.
A "Statement of Additional Information," dated September 10, 1996 which pro-
vides a further discussion of certain areas in this prospectus and other mat-
ters and 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 your Investment Executive.
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 AC-
CURACY 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.
MONEY MARKET SERVICES
ACM INSTITUTIONAL RESERVES
--Prime portfolio
--Government Portfolio
--Tax-Free Portfolio
Prospectus:
September 10, 1996
Members New york Stock Exchange . SIPC
Davenport & Company LLC
-----------Established 1863-----------
Post Office Box 85678 . Richmond, Virginia 23285-5678
<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.
<TABLE>
<CAPTION>
Annual Fund Operating Expenses Prime Government Tax-free
(as a percentage of average net assets, net of Portfolio Portfolio Portfolio
expense reimbursement or fee waiver) --------- ---------- ---------
<S> <C> <C> <C>
Management Fees............................... .13% .07% .10%
Other Expenses................................ .07 .13 .10
--- --- ---
Total Fund Operating Expenses................. .20% .20% .20%
</TABLE>
Example
You would pay the following expenses on a $1,000 investment, assuming a 5%
annual return (cumulatively through the end of each time period):
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Prime Portfolio................................ $ 2 $ 6 $11 $26
Government Portfolio........................... $ 2 $ 6 $11 $26
Tax-Free Portfolio............................. $ 2 $ 6 $11 $26
</TABLE>
The purpose of the foregoing table is to assist the investor in understanding
the various costs and expenses that an investor in the Prime, Government and
Tax-Free Portfolios will bear directly and indirectly. The expenses listed in
the table for each Portfolio are net of voluntary expense reimbursements and
voluntary fee waivers. The expenses of such Portfolios, before voluntary ex-
pense reimbursements or fee waiver, would be: Prime Portfolio: Management
Fees--.20%, Other Expenses--.07% and Total Fund Operating Expenses--.27%; Gov-
ernment Portfolio: Management Fees--.20%, Other Expenses--.13% and Total Fund
Operating Expenses--.33%; Tax-Free Portfolio: Management Fees--.20%, Other Ex-
penses--.10% and Total Fund Operating Expenses--.30%. 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
Per Share Operating Performance (For A Share Outstanding Throughout Each
Period)
The following tables have been audited by McGladrey & Pullen LLP, the Fund's
independent auditors, whose report thereon appears in the Statement of Addi-
tional Information. This information should be read in conjunction with the fi-
nancial statements and notes thereto included in the Statement of Additional
Information.
<TABLE>
<CAPTION>
Prime Portfolio
-------------------------------------------------------------------------
August 20, 1990(A)
Year Ended Year Ended Year Ended Year Ended Year Ended Through
April 30, April 30, April 30, April 30, April 30, April 30,
1996 1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ---------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- ------- -------
Income From
Investment
Operations
Net Investment
Income......... 0.0560 0.0502 0.0325 0.0353 0.0535 0.0506
------- ------- ------- ------- ------- -------
Less:
Distributions
Dividends from
net investment
income......... (0.0560) (0.0502) (0.0325) (0.0353) (0.0535) (0.0506)
------- ------- ------- ------- ------- -------
Net asset value,
end of period.. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= ======= =======
Total Returns
Total investment
return based on
net asset
value(b)....... 5.76% 5.15% 3.30% 3.59% 5.50% 7.54%(c)
======= ======= ======= ======= ======= =======
Ratios/supplemental
Data
Net assets, end
of period (in
millions)...... $ 493.3 $ 197.8 $ 108.1 $ 64.3 $ 25.0 $ 27.2
RATIO TO AVERAGE
NET ASSETS OF:
Expenses, net of
waivers and
reimbursements. 0.20% 0.20% 0.20% 0.18% 0.02% -0-
Expenses, before
waivers and
reimbursements. 0.32% 0.36% 0.42% 0.54% 0.81% 1.09%
Net investment
income(d)...... 5.54% 5.24% 3.25% 3.42% 5.30% 6.84%(c)
<CAPTION>
Government Portfolio
------------------------------------------------------------
July 22, 1991(a)
Year Ended Year Ended Year Ended Year Ended Through
April 30, April 30, April 30, April 30, April 30,
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period ........ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ---------- ---------- ---------- ----------------
Income From
Investment
Operations
Net investment
income......... 0.0552 0.0493 0.0315 0.0339 0.0377
---------- ---------- ---------- ---------- ----------------
Less:
Distributions
Dividends from
net investment
income......... (0.0552) (0.0493) (0.0315) (0.0339) (0.0377)
---------- ---------- ---------- ---------- ----------------
Net asset value,
end of period . $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ========== ================
Total Returns
Total investment
return based on
net asset
value(b) ...... 5.67% 5.06% 3.20% 3.45% 4.98%(c)
========== ========== ========== ========== ================
Ratios/supplemental
Data
Net assets, end
of period (in
millions)...... $ 150.8 $ 104.4 $ 76.6 $ 73.2 $ 24.7
Ratio To Average
Net Assets Of:
Expenses, net of
waivers and
reimbursements. 0.20% 0.20% 0.20% 0.18% 0.10%(c)
Expenses, before
waivers and
reimbursements. 0.36% 0.38% 0.36% 0.49% 0.86%(c)
Net investment
income(d)...... 5.50% 4.94% 3.15% 3.30% 4.86%(c)
</TABLE>
- ------------
(a) Commencement of operations.
(b) Total investment return is calculated assuming an initial investment made
at the net asset value at the beginning of the period, reinvestment of all
dividends at net asset value during the period and redemption on the last
day of the period.
(c) Annualized.
(d) Net of expenses reimbursed or waived by the Adviser.
2
<PAGE>
--------------
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 seven-day 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. Dividends for
the Prime Portfolio for the seven days ended June 30, 1996, after expense re-
imbursement, amounted to an annualized yield of 5.24%, equivalent to an effec-
tive yield of 5.38%. Absent such reimbursement, the annualized yield for such
period would have been 5.17%, equivalent to an effective yield of 5.31%. Divi-
dends for the Government Portfolio for the seven days ended June 30, 1996, af-
ter expense reimbursement, amounted to an annualized yield of 5.17%, equiva-
lent to an effective yield of 5.31%. Absent such reimbursement, the annualized
yield for such period would have been 5.05%, equivalent to an effective yield
of 5.18%. Dividends for the Tax-Free Portfolio for the seven days ended June
30, 1996 amounted to an annualized yield of 3.46%, equivalent to an effective
yield of 3.52%. Absent such reimbursement, the annualized yield for such pe-
riod would have been 3.36%, equivalent to an effective yield of 3.42%. Further
information about the Fund's performance is contained in the Fund's annual re-
port to shareholders and Statement of Additional Information which may be ob-
tained without charge by contacting Alliance Fund Services, Inc. at the ad-
dress in this prospectus.
<TABLE>
<CAPTION>
TAX-FREE PORTFOLIO
---------------------------------------------------------------
JULY 22, 1991(A)
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED THROUGH
APRIL 30, APRIL 30, APRIL 30, APRIL 30, APRIL 30,
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period ... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income... 0.0372 0.0326 0.0240 0.0287 0.0334
Net unrealized loss on
investments............ --0-- (0.0048) --0-- --0-- --0--
------- ------- ------- ------- -------
Net increase in net
asset value from
operations............. 0.0372 0.0278 0.0240 0.0287 0.0334
------- ------- ------- ------- -------
LESS: DISTRIBUTIONS
Dividends from net
investment income...... (0.0372) (0.0326) (0.0240) (0.0287) (0.0334)
------- ------- ------- ------- -------
ADD: CAPITAL
CONTRIBUTION
Capital Contributed by
the Adviser............ --0-- 0.0048 --0-- --0-- --0--
------- ------- ------- ------- -------
Net asset value, end of
period ................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= =======
TOTAL RETURNS
Total investment return
based on net asset
value(b) .............. 3.79% 3.31%(e) 2.43% 2.92% 4.40%(c)
======= ======= ======= ======= =======
RATIOS/SUPPLEMENTAL DATA
Net assets, end of
period (in millions) .. $ 183.6 $ 35.5 $ 35.6 $ 40.9 $ 8.5
RATIO TO AVERAGE NET
ASSETS OF:
Expenses, net of waivers
and reimbursements..... 0.20% 0.20% 0.20% 0.18% 0.10%(c)
Expenses, before waivers
and reimbursements..... 0.48% 0.76% 0.69% 0.95% 2.08%(c)
Net investment
income(d).............. 3.73% 3.31% 2.40% 2.73% 4.01%(c)
</TABLE>
- -------
(a) Commencement of operations.
(b) Total investment return is calculated assuming an initial investment made
at the net asset value at the beginning of the period, reinvestment of all
dividends at net asset value during the period and redemption on the last
day of the period.
(c) Annualized.
(d) Net of expenses reimbursed or waived by the Adviser.
(e) Capital contributed by the Adviser had no material effect on net asset
value, and therefore, no effect on total return.
INTRODUCTION
The Fund consists of four distinct Portfolios, three of which, the Prime
Portfolio, the Government Portfolio and the Tax-Free Portfolio, are offered by
this prospectus and each of which invests in a diversified portfolio of money
market securities. The Fund is designed for institutional and corporate in-
vestors who can benefit from high money market income. Investors using the
Fund avoid certain mechanical burdens that they would incur by investing in
money market instruments directly, such as monitoring of maturity dates, safe-
guarding of receipts and deliveries, and the maintenance of tax information
and other records. At the time of investment, no security purchased by a Port-
folio can have a maturity exceeding one year, which maturity may extend to 397
days, and the average maturity of each Portfolio cannot exceed 90 days.
3
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives of each Portfolio are--in the following order of
priority--safety of principal, excellent liquidity, and maximum current income
(which, in the case of the Tax-Free Portfolio, is exempt from Federal income
taxes) to the extent consistent with the first two objectives. As a matter of
fundamental policy, each Portfolio pursues its objectives by maintaining a
portfolio of high-quality money market securities all of which, at the time of
investment, have remaining maturities of one year or less which maturities may
extend to 397 days. While neither this policy, the investment objectives, nor
the "other fundamental investment policies" described below may be changed for
a Portfolio without shareholder approval, the nonfundamental investment poli-
cies may be changed upon notice but without such approval. The Fund may in the
future establish additional portfolios which may have different investment ob-
jectives. There can be no assurance that any Portfolio's objectives will be
achieved.
Each Portfolio will comply with Rule 2a-7 under the Investment Company Act of
1940 (the "Act"), as amended from time to time, including the diversification,
quality and maturity conditions imposed by the Rule (a more detailed descrip-
tion of Rule 2a-7 is set forth in the Portfolios' Statement of Additional In-
formation under "Investment Objectives and Policies").
PRIME PORTFOLIO
The money market securities in which the Prime Portfolio invests include: (1)
marketable obligations of, or guaranteed by, the U.S. Government, its agencies
or instrumentalities (collectively, the "U.S. Government"); (2) certificates
of deposit, bankers' acceptances and interest bearing savings deposits issued
or guaranteed by banks or savings and loan associations having total assets of
more than $1 billion and which are members of the Federal Deposit Insurance
Corporation, and certificates of deposit and bankers' acceptances denominated
in U.S. dollars and issued by U.S. branches of foreign banks having total as-
sets of at least $1 billion that are believed by the Adviser to be of quality
equivalent to that of other such instruments in which it may invest; (3) com-
mercial paper of prime quality [i.e., rated A-1+ or A-1 by Standard & Poor's
Corporation ("Standard & Poor's") or Prime-1 by Moody's Investors Service,
Inc. ("Moody's") or, if not rated, issued by companies having outstanding debt
securities rated AAA or AA by Standard & Poor's, or Aaa or Aa by Moody's] and
participation interests in loans extended by banks to such companies; and (4)
repurchase agreements that are collateralized in full each day by liquid secu-
rities of the types listed above. These agreements are entered into with "pri-
mary 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 Cus-
todian. For each repurchase agreement, the Portfolio requires continual main-
tenance of the market value of the underlying collateral in amounts equal to,
or in excess of, the agreement amount. In the event of a dealer default, the
Fund might suffer a loss to the extent the proceeds from the sale of the col-
lateral were less than the repurchase price. The Portfolio may also invest in
certificates of deposit issued by, and time deposits maintained at, foreign
branches of domestic banks described in (2) above and prime quality dollar-
denominated commercial paper issued by foreign companies meeting the criteria
specified in (3) above. The Portfolio's commercial paper investments may in-
clude variable amount master demand notes which represent a direct borrowing
arrangement involving periodically fluctuating rates of interest under a let-
ter agreement between a commercial paper issuer and an institutional lender
pursuant to which the lender may determine to invest varying amounts.
The Portfolio may purchase restricted securities that are determined by the
Adviser to be liquid in accordance with procedures adopted by the Board of Di-
rectors of the Fund. Restricted securities are securities subject to contrac-
tual or legal restrictions on resale, such as those arising from an issuer's
reliance upon certain exemptions from registration under the Securities Act of
1933. The Portfolio may purchase restricted securities eligible for resale un-
der Rule 144A under the Securities Act and commercial paper issued in reliance
upon the exemption from registration in Section 4(2) of the Securities Act
and, in each case, determined by the Adviser to be liquid in accordance with
procedures adopted by the Board of Directors of the Fund.
The Portfolio may invest in asset-backed securities that meet its existing
diversification, quality and maturity criteria. Asset-backed securities are
securities issued by special purpose entities whose primary assets consist of
a pool of loans or accounts receivable. The securities may be in the form of a
beneficial interest in a special purpose trust, limited partnership interest,
or commercial paper or other debt securities issued by a special purpose cor-
poration. Although the securities may have some form of credit or liquidity
enhancement, payments on the securities depend predominately upon collection
of the loans and receivables held by the issuer. It is the Portfolio's current
intention to limit its investment in such securities to not more than 5% of
its net assets.
OTHER FUNDAMENTAL INVESTMENT POLICIES. To maintain portfolio diversification
and reduce investment risk, the Portfolio may not (1) invest 25% or more of
its total
4
<PAGE>
assets in the securities of issuers conducting their principal business activ-
ities in any one industry although there is no such limitation with respect to
U.S. Government securities or bank obligations, including certificates of de-
posit, bankers' acceptances and interest bearing savings deposits (such bank
obligations are issued by domestic banks, including U.S. branches of foreign
banks subject to the same regulation as U.S. banks); (2) invest more than 5%
of its assets in the securities of any one issuer (except the U.S. Government)
although with respect to 25% of its total assets it may invest without regard
to such limitation; (3) invest more than 5% of its assets in the securities of
any issuer (except the U.S. Government) having less than three years of con-
tinuous operation or purchase more than 10% of any class of the outstanding
securities of any issuer (except the U.S. Government); (4) enter into repur-
chase agreements if, as a result thereof, more than 10% of its assets would be
committed to repurchase agreements not terminable within seven days and other
illiquid investments; (5) borrow money except from banks on a temporary basis
in aggregate amounts not exceeding 15% of its assets; the Portfolio will not
purchase any investments while borrowings in excess of 5% of total assets ex-
ist; and (6) mortgage, pledge or hypothecate its assets except to secure such
borrowings.
As a matter of operating policy, fundamental policy number (2) would give the
Portfolio the ability to invest, with respect to 25% of its assets, more than
5% of its assets in any one issuer only in the event Rule 2a-7 is amended in
the future.
GOVERNMENT PORTFOLIO
The securities in which the Government Portfolio invests include: (1) market-
able obligations of, or guaranteed by, 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 un-
der the authority of an act of Congress; and (2) repurchase agreements that
are collateralized in full each day by the types of securities listed above.
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. For each repurchase
agreement, the Portfolio requires continual maintenance of the market value of
the underlying collateral in amounts equal to, or in excess of, the agreement
amount. In the event of a dealer default, the Fund might suffer a loss to the
extent the proceeds from the sale of the collateral were less than the repur-
chase price. The Portfolio may commit up to 15% of its net assets to the pur-
chase of when-issued U.S. Government securities. To facilitate such acquisi-
tions, the Fund's Custodian will maintain, in a separate account of the Port-
folio, U.S. Government securities or other liquid high-grade debt securities
having value equal to, or greater than, such commitments. The price of when-
issued securities, which is generally expressed in yield terms, is fixed at
the time the commitment to purchase is made, but delivery and payment for such
securities take place at a later time. Normally the settlement date occurs
from within ten days to one month after the purchase of the issue. The value
of when-issued securities may fluctuate prior to their settlement, thereby
creating an unrealized gain or loss to the Portfolio.
OTHER FUNDAMENTAL INVESTMENT POLICIES. To maintain portfolio diversification
and reduce investment risk, the Portfolio may not (1) invest more than 5% of
its assets in repurchase agreements with any one vendor thereof or more than
10% of its assets in repurchase agreements not terminable within seven days
and other illiquid investments; (2) borrow money except from banks on a tempo-
rary basis in aggregate amounts not exceeding 10% of its assets; the Portfolio
will not purchase any investments while borrowings in excess of 5% of total
assets exist; and (3) pledge, hypothecate, or in any manner transfer, as secu-
rity for indebtedness, its assets except to secure such borrowings.
TAX-FREE PORTFOLIO
As a matter of fundamental policy, the Tax-Free Portfolio, except when assum-
ing a temporary defensive position, must maintain at least 80% of its total
assets in high-grade municipal securities having maturities of one year or
less (as opposed to taxable investments described below). Normally, substan-
tially all of its income will be tax-exempt as described below.
The Portfolio seeks maximum current income that is exempt from Federal income
taxes by investing principally in a diversified portfolio of high-grade munic-
ipal securities. Such income may be subject to state or local income taxes.
Investors should compare yields (which will fluctuate in response to market
conditions) and tax consequences before making an investment decision.
Under current Federal income tax law, (1) interest on tax-exempt municipal
securities issued after August 7, 1986 which are "specified private activity
bonds" will be treated as an item of tax preference for purposes of the alter-
native minimum tax ("AMT") imposed on individuals and corporations, though for
regular Federal income tax purposes such interest will remain fully tax-ex-
empt, and (2) interest on all tax-exempt obligations will be included in "ad-
justed current earnings" of corporations for AMT purposes. The Portfolio may
purchase "private activity" municipal securities because such issues have pro-
vided, and may continue to provide, somewhat higher yields than other compara-
ble municipal securities. However, the Portfolio will limit its investments so
that no more than 20% of its total income is derived from municipal securities
that bear interest subject to the AMT.
5
<PAGE>
MUNICIPAL SECURITIES. The municipal securities in which the Portfolio invests
include municipal notes and short-term municipal bonds. Municipal notes are
generally used to provide for short-term capital needs and generally have ma-
turities of one year or less. Examples include tax anticipation and revenue
anticipation notes which are generally issued in anticipation of various sea-
sonal revenues, bond anticipation notes, and tax-exempt commercial paper.
Short-term municipal bonds may include general obligation bonds, which are se-
cured by the issuer's pledge of its faith, credit and taxing power for payment
of principal and interest, and revenue bonds, which are generally paid from
the revenues of a particular facility or a specific excise or other source.
The Portfolio may invest in variable 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. Such
adjustments minimize changes in the market value of the obligation and, ac-
cordingly, enhance the ability of the Portfolio to maintain a stable net asset
value. Variable rate securities purchased may include participation interests
in private activity bonds backed by letters of credit of Federal Deposit In-
surance Corporation member banks having total assets of more than $1 billion;
the letters of credit of any single bank in respect of all variable rate obli-
gations will not cover more than 10% of the Portfolio's total assets.
All of the Portfolio's municipal securities at the time of purchase are rated
within the two highest quality ratings of Moody's (Aaa and Aa, MIG 1 and MIG 2
or VMIG 1 and VMIG 2) or Standard & Poor's (AAA and AA or SP-1 and SP-2), or
judged by the Adviser to be of comparable quality. Securities must also meet
credit standards applied by the Adviser.
To further enhance the quality and liquidity of the securities in which the
Tax-Free Portfolio invests, such securities frequently are supported by credit
and liquidity enhancements, such as letters of credit, from third party finan-
cial institutions. The Portfolio continuously monitors the credit quality of
such third parties; however, changes in the credit quality of such a financial
institution could cause the Portfolio's investments backed by that institution
to lose value and affect the Portfolio's share price.
The Portfolio also may invest in stand-by commitments, which may involve cer-
tain expenses and risks, but such commitments are not expected to comprise a
significant portion of its investments. The Portfolio may commit up to 15% of
its net assets to the purchase of when-issued securities. For a description of
when-issued securities, see above.
TAXABLE INVESTMENTS. The taxable investments in which the Portfolio may in-
vest include obligations of the U.S. Government and its agencies, high-quality
certificates of deposit and bankers' acceptances, prime commercial paper and
repurchase agreements.
OTHER FUNDAMENTAL INVESTMENT POLICIES. To reduce investment risk, the Portfo-
lio may not (1) invest more than 25% of its total assets in municipal securi-
ties whose issuers are located in the same state or in municipal securities
the interest upon which is paid from revenues of similar-type projects; (2)
invest more than 5% of its total assets in the securities of any one issuer
except the U.S. Government, although with respect to 25% of its total assets
the Portfolio may invest up to 10% per issuer; (3) purchase more than 10% of
any class of the voting securities of any one issuer except those of the U.S.
Government; (4) invest more than 10% of its assets in repurchase agreements
not terminable within seven days (whether or not illiquid) or other illiquid
investments; (5) have more than 5% of its assets invested in repurchase agree-
ments with the same vendor; and (6) borrow money except from banks on a tempo-
rary basis for extraordinary or emergency purposes in an aggregate amount not
to exceed 15% of the Portfolio's total assets; the Portfolio will not purchase
any investments while borrowings in excess of 5% of total assets exist.
PURCHASE AND REDEMPTION OF SHARES
OPENING ACCOUNTS
Instruct your Investment Executive to use the Prime Portfolio, Government
Portfolio or Tax-Free Portfolio in conjunction with your brokerage account.
These Portfolios are available to accounts in which Davenport & Company LLC
("Davenport") serves as the Registered Investment Adviser.
SUBSEQUENT INVESTMENTS
A. By check through Davenport & Company LLC
Mail or deliver your check made payable to Davenport to your Investment Ex-
ecutive who will deposit it into the Fund(s). Please indicate your account
number on the check.
B. By Sweep
Davenport offers an automatic "sweep" for the Portfolios in the operation of
brokerage accounts for its customers. If you qualify for the sweep arrange-
ment, Davenport will, on a daily basis, sweep into your account all available
credit balances.
6
<PAGE>
C. By Contacting Your Investment Executive
Available credit balances on your brokerage account from proceeds of your se-
curities sales or from any other source can be moved into your Fund account by
contacting your Investment Executive specifically each time there is a cash
balance.
REDEMPTIONS
A. By Contacting Your Investment Executive
Instruct your Investment Executive to make a withdrawal from your Fund ac-
count to purchase securities or to issue a Davenport & Company LLC check.
B. By Sweep
If you qualify for the "sweep", Davenport & Company LLC will automatically
transfer from your Fund account sufficient cash to cover any debit balance
that may occur in your account for any reason.
Redemption proceeds are normally mailed by Davenport on settlement date, but
in no event later than the next business day, unless redemptions have been
suspended or postponed due to the determination of an "emergency" by the Secu-
rities and Exchange Commission or to certain other unusual conditions.
ADDITIONAL INFORMATION
SHARE PRICE. Shares of each Portfolio 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. The net asset value of each Portfolio's shares, except the
Tax-Free Portfolio, is determined each Fund business day (as defined under
"Purchase and Redemption of Shares--Redemptions," above), at 12:00 Noon and
4:00 p.m. (New York time). The net asset value of the Tax-Free Portfolio
shares is determined each Fund business day at 12:00 Noon (New York time). The
net asset value per share of each Portfolio is calculated by taking the sum of
the value of the Portfolio's investments (amortized cost value is used for
this purpose) and any cash or other assets, subtracting liabilities, and di-
viding by the total number of shares of the Portfolio outstanding. All ex-
penses, including the fees payable to the Adviser, are accrued daily.
TIMING OF INVESTMENTS AND REDEMPTIONS. Each Portfolio, except the Tax-Free
Portfolio, has two transaction times each business day, 12:00 Noon and 4:00
p.m. (New York time). The Tax-Free Portfolio has one transaction time each
Fund business day, 12:00 Noon (New York time). Investments receive the full
dividend for a day if the investor's telephone order is placed by 4:00 p.m.
(New York time) for the Prime or Government Portfolio and Federal funds or
bank wire monies are received by State Street Bank before 4:00 p.m. on that
day. Investments receive the full dividend for a day if the investor's tele-
phone order is placed by 12:00 Noon (New York time) and Federal funds or bank
wire monies are secured by State Street Bank before 4:00 p.m. on that day with
respect to the Tax-Free Portfolio.
Redemption proceeds are normally wired the same business day if a redemption
request is received prior to 12:00 Noon, but in no event later than seven
days, unless redemptions have been suspended or postponed due to the determi-
nation of an "emergency" by the Securities and Exchange Commission or to cer-
tain other unusual conditions. Shares do not earn dividends on the day a re-
demption is effected.
MINIMUMS. An initial investment of at least $1,000,000 in the aggregate among
the Portfolios of the Fund is required. There is no minimum for subsequent in-
vestments. The Fund reserves the right at anytime to vary the initial and sub-
sequent investment minimums.
Use of these Portfolios is limited to accounts participating in a Davenport
investment advisory program in which Davenport is the Registered Investment
Adviser.
DAILY DIVIDENDS, OTHER DISTRIBUTIONS, TAXES. All net income of the Tax-Free
Portfolio is determined each business day at 12:00 Noon (New York time), and
that of the Prime and Government Portfolio each business day at 4:00 p.m. (New
York time), and is paid immediately thereafter pro rata to shareholders of
record via automatic investment in additional full and fractional shares of
that Portfolio in each shareholder's account. As such additional shares are
entitled to dividends on following days, a compounding growth of income
occurs.
A Portfolio's net income consists of all accrued interest income on assets
less expenses applicable to that dividend period. Realized gains and losses
are reflected in net asset value and are not included in net income.
Distributions out of tax-exempt interest income earned by the Tax-Free Port-
folio are not subject to Federal income tax (other than the AMT as described
above), but may be subject to state or local income taxes. Any exempt-interest
dividends derived from interest on municipal securities subject to the AMT
will be a tax preference item for purposes of the Federal individual and cor-
porate AMT. Distributions out of taxable interest income, other investment in-
come, and short-term capital gains are tax-
7
<PAGE>
able as ordinary income and distributions of long-term capital gains, if any,
are taxable as long-term capital gains irrespective of the length of time a
shareholder held his shares.
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 invest-
ment advice and, in general, to supervise its management and investment pro-
gram, subject to the general control of the Directors of the Fund. Each Portfo-
lio pays the Adviser at an annual rate of .20 of 1% of the average daily value
of its net assets. During the Fund's fiscal year ended April 30, 1996, the Ad-
viser reimbursed its advisory fee in the amount of $374,443, $241,498 and
$253,985 for the Prime, Government and Tax-Free Portfolios, respectively.
The Adviser has undertaken until, at its request, the Fund notifies investors
to the contrary, that if, in any fiscal year, the aggregate expenses of a Port-
folio, exclusive of taxes, brokerage, interest on borrowings and extraordinary
expenses, but including the management fee, exceed .20 of 1% of a Portfolio's
average net assets for the fiscal year, the Portfolio may deduct from the pay-
ment to be made to the Adviser, or the Adviser will bear, such excess expense.
The Adviser is a leading international investment manager, supervising client
accounts with assets as of June 30, 1996 totaling more than $168 billion (of
which more than $55 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 en-
dowment funds. The 51 registered investment companies managed by the Adviser
comprising 109 separate investment portfolios currently have over two million
shareholders. As of June 30, 1996, the Adviser was retained as an investment
manager of employee benefit fund assets for 33 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, one of the largest life insurance companies in the United States.
The Adviser may make payments from time to time from its own resources, which
may include the management fees paid by the Portfolios of the Fund to compen-
sate broker-dealers, depository institutions, or other persons for providing
distribution assistance and administrative services and to otherwise promote
the sale of shares of the Fund, including paying for the preparation, printing
and distribution of prospectuses and sales literature or other promotional ac-
tivities.
CUSTODIAN, TRANSFER AGENT AND DISTRIBUTOR. State Street Bank and Trust Compa-
ny, 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 Dis-
tributors, 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.
FUND ORGANIZATION. The Fund is an open-end management investment company reg-
istered under the Act consisting of the three Portfolios offered by this Pro-
spectus and the Trust Portfolio, which is offered by a separate prospectus. The
Fund was organized as a Maryland corporation on March 21, 1990. The Fund's ac-
tivities are supervised by its Board of Directors. Shareholders of each Portfo-
lio are entitled to one vote per share and vote as a single series on matters
that affect all series in substantially the same manner.
Maryland law does not require annual meetings of shareholders and it is antic-
ipated that shareholder meetings will be held only when required by Federal or
Maryland law. Shareholders have available certain procedures for the removal of
directors.
REPORTS. Shareholders will receive a monthly summary of their account, as well
as semi-annual and annual reports. Shareholders may arrange for a copy of each
of their account statements to be sent to other parties.
Shareholders requiring sub-accounting services should contact Alliance Fund
Services, Inc. for a description of such services and fees.
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8
