<PAGE>
This is filed pursuant to Rule 497(c).
File Nos. 33-85850 and 811-8838.
<PAGE>
For more information about the Portfolios, the following documents are
available upon request:
ANNUAL/SEMI-ANNUAL REPORTS TO SHAREHOLDERS
The Portfolios' annual and semi-annual reports to shareholders contain
additional information on the Portfolios' investments.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The Portfolios have an SAI, which contains more detailed information about the
Portfolios, including their operations and investment policies. The Portfolios'
SAI is incorporated by reference into (and is legally part of) this prospectus.
You may request a free copy of a current annual/semi-annual report or the SAI
by contacting your broker or other financial intermediary, or by contacting
Alliance:
BY MAIL: C/O ALLIANCE FUND SERVICES, INC.
P.O. BOX 1520, SECAUCUS, NJ 07096
BY PHONE: For Information: (800) 824-1916
For Literature: (800) 824-1916
Or you may view or obtain these documents from the SEC:
IN PERSON: at the SEC's Public Reference Room in Washington, D.C.
BY PHONE: 1-800-SEC-0330
BY MAIL: Public Reference Section
Securities and Exchange Commission
Washington, DC 20549-6009
(duplicating fee required)
ON THE INTERNET: www.sec.gov
You also may find more information about Alliance on the Internet at:
www.Alliancecapital.com.
TABLE OF CONTENTS
- ---------------------------------------------------------------------
RISK/RETURN SUMMARY 2
PERFORMANCE AND BAR CHART INFORMATION 2
FEES AND EXPENSES OF THE PORTFOLIOS 4
OTHER INFORMATION ABOUT THE PORTFOLIOS'
OBJECTIVES, STRATEGIES, AND RISKS 4
INVESTMENT OBJECTIVES AND STRATEGIES 4
PRIME PORTFOLIO 5
GOVERNMENT PORTFOLIO 5
GENERAL MUNICIPAL PORTFOLIO 5
RISK CONSIDERATIONS 6
MANAGEMENT OF THE PORTFOLIOS 8
PURCHASE AND SALE OF SHARES 8
HOW THE PORTFOLIOS VALUE THEIR SHARES 8
HOW TO BUY SHARES 8
HOW TO SELL SHARES 9
DIVIDENDS, DISTRIBUTIONS AND TAXES 9
DISTRIBUTION ARRANGEMENTS 10
FINANCIAL HIGHLIGHTS 10
ALLIANCE MONEY MARKET FUND
PRIME PORTFOLIO
GOVERNMENT PORTFOLIO
GENERAL MUNICIPAL PORTFOLIO
PROSPECTUS
APRIL 1, 1999
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation
to the contrary is a criminal offense.
This prospectus describes three Portfolios of the Alliance Money Market Fund.
The Portfolios' investment adviser is Alliance Capital Management L.P., a
global investment manager providing diversified services to institutions and
individuals through a broad line of investments including more than 100 mutual
funds.
RISK/RETURN SUMMARY
The following is a summary of certain key information about the Portfolios. You
will find additional information about the Portfolios, including a detailed
description of the risks of an investment in each Portfolio, after this
summary. This prospectus has additional descriptions of the Portfolios'
investments in the discussion under "Other Information About the Portfolios'
Objectives, Strategies, and Risks." That section also includes more information
about the Portfolios, their investments, and related risks.
OBJECTIVES: The investment objectives of each Portfolio are--in the following
order of priority--safety of principal, excellent liquidity and, to the extent
consistent with the first two objectives, maximum current income (exempt from
income taxes to the extent described below in the case of the General Municipal
Portfolio).
PRINCIPAL INVESTMENT STRATEGY: The Portfolios are "money market funds" that
seek to maintain a stable net asset value of $1.00 per share. Each Portfolio
pursues its objectives by maintaining a portfolio of high-quality money market
securities.
PRINCIPAL RISKS: The principal risks of investing in the Portfolios are:
INTEREST RATE RISK This is the risk that changes in interest rates will affect
the yield or value of the Portfolios' investments in debt securities.
CREDIT RISK This is the risk that the issuer or guarantor of a debt security,
or the counterparty to a derivatives contract, will be unable or unwilling to
make timely interest or principal payments, or to otherwise honor its
obligations. The degree of risk for a particular security may be reflected in
its credit rating. Credit risk includes the possibility that any of the
Portfolios' investments will have its credit ratings downgraded.
ANOTHER IMPORTANT THING FOR YOU TO NOTE:
An investment in the Portfolios is not a deposit in a bank and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. Although the Portfolios seek to preserve the value of your
investment at $1.00 per share, it is possible to lose money by investing in the
Portfolios.
PERFORMANCE AND BAR CHART INFORMATION
For each Portfolio, the Risk/Return Summary includes a table showing the
Portfolio's average annual returns and a bar chart showing the Portfolio's
annual returns. The table and the bar chart provide an indication of the
historical risk of an investment in each Portfolio by showing:
- - the Portfolio's average annual returns for one year and the life of the
Portfolio; and
- - changes in the Portfolio's performance from year to year over the life
of the Portfolio.
A Portfolio's past performance does not necessarily indicate how it will
perform in the future.
You may obtain current yield information for any Portfolio by calling
1-800-221-9513 or your broker.
2
PRIME PORTFOLIO
PERFORMANCE TABLE
SINCE
1 YEAR INCEPTION*
------- ----------
4.71% 4.69%
BAR CHART
n/a n/a n/a n/a n/a n/a n/a 4.59% 4.78% 4.71%
89 90 91 92 93 94 95 96 97 98
During the periods shown in the bar chart, the highest return for a quarter was
1.17% (quarter ending March 31, 1998) and the lowest return for a quarter was
1.10% (quarter ending June 30, 1996).
GOVERNMENT PORTFOLIO
PERFORMANCE TABLE
SINCE
1 YEAR INCEPTION*
------- ----------
4.62% 4.61%
BAR CHART
n/a n/a n/a n/a n/a n/a n/a 4.53% 4.67% 4.62%
89 90 91 92 93 94 95 96 97 98
During the periods shown in the bar chart, the highest return for a quarter was
1.16% (quarter ending March 31, 1998) and the lowest return for a quarter was
1.07% (quarter ending December 31, 1998).
GENERAL MUNICIPAL PORTFOLIO
PERFORMANCE TABLE
SINCE
1 YEAR INCEPTION**
------- -----------
2.73% 2.81%
* INCEPTION DATE:12/29/95.
** INCEPTION DATE:12/13/95.
BAR CHART
n/a n/a n/a n/a n/a n/a n/a 2.78% 2.93% 2.73%
89 90 91 92 93 94 95 96 97 98
During the periods shown in the bar chart, the highest return for a quarter was
.77% (quarter ending June 30, 1997) and the lowest return for a quarter was
.65% (quarter ending September 30, 1998).
3
FEES AND EXPENSES OF THE PORTFOLIOS
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Portfolios.
SHAREHOLDER TRANSACTION EXPENSES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
The Portfolios have no sales load on purchases or reinvested dividends,
deferred sales loads, or redemption or exchange fees.
ANNUAL PORTFOLIO OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM PORTFOLIO
ASSETS) AND EXAMPLE
ANNUAL PORTFOLIO OPERATING EXPENSES
-----------------------------------------------
PRIME GOVERNMENT GENERAL MUNICIPAL
------- ------------ -------------------
Management Fees .50% .50% .50%
12b-1 Fees .45% .45% .45%
Other Expenses .11% .19% .22%
Total Portfolio
Operating Expenses 1.06% 1.14% 1.17%
Waiver and/or Expense
Reimbursement* (.06)% (.14)% (.17)%
Net Expenses 1.00% 1.00% 1.00%
* Reflects Alliance's contractual waiver of a portion of its advisory fee
and/or reimbursement of a portion of the Portfolio's operating expenses.
EXAMPLES
The examples are to help you compare the cost of investing in a Portfolio with
the cost of investing in other funds. They assume that you invest $10,000 in
the Portfolio for the time periods indicated and then redeem all of your shares
at the end of those periods. They also assume that your investment has a 5%
return each year, that the Portfolio's operating expenses stay the same and
that all dividends and distributions are reinvested. Your actual costs may be
higher or lower.
PRIME GOVERNMENT GENERAL MUNICIPAL
------- ------------ -------------------
1 Year $102 $102 $102
3 Years $318 $318 $318
5 Years $552 $552 $552
10 Years $1,225 $1,225 $1,225
OTHER INFORMATION ABOUT THE PORTFOLIOS' OBJECTIVES, STRATEGIES, AND RISKS
This section of the prospectus provides a more complete description of the
principal investment objectives, strategies, and risks of the Portfolios.
Please note:
- - Additional descriptions of each Portfolio's strategies and investments,
as well as other strategies and investments not described below, may be found
in the Portfolios' Statement of Additional Information or SAI.
- - There can be no assurance that any Portfolio will achieve its investment
objectives.
INVESTMENT OBJECTIVES AND STRATEGIES
The Portfolios' investment objectives are--in the following order of
priority--safety of principal, excellent liquidity and, to the extent
consistent with the first two objectives, maximum current income (exempt from
Federal income taxes to the extent described below in the
4
case of the General Municipal Portfolio). As money market funds, the Portfolios
must meet the requirements of SEC Rule 2a-7. The Rule imposes strict
requirements on the investment quality, maturity, and diversification of the
Portfolios' investments. Under Rule 2a-7, the Portfolios' investments must each
have a remaining maturity of no more than 397 days and the Portfolios must
maintain an average weighted maturity that does not exceed 90 days.
PRIME PORTFOLIO
The Portfolio pursues its objectives by investing in high-quality money market
securities. The Portfolio may invest in:
- - marketable obligations issued or guaranteed by the U.S. Government or one
of its agencies or instrumentalities;
- - certificates of deposit, bankers' acceptances, and interest-bearing
savings deposits issued or guaranteed by banks or savings and loans
associations (including foreign branches of U.S. banks or U.S. or foreign
branches of foreign banks) having total assets of more than $1 billion;
- - high-quality commercial paper issued by U.S. or foreign companies (rated
or determined by the Adviser to be of comparable quality) and participation
interests in loans extended to such companies;
- - adjustable rate obligations;
- - restricted securities (i.e., securities subject to legal or contractual
restrictions on resale);
- - asset-backed securities; and
- - repurchase agreements that are fully collateralized.
The Portfolio may invest up to 25% of its total assets in money market
instruments issued by foreign branches of foreign banks. To the extent the
Portfolio makes such investments, consideration will be given to their domestic
marketability, the lower reserve requirements generally mandated for overseas
banking operations, the possible impact of interruptions in the flow of
international currency transactions, potential political and social instability
or expropriation, imposition of foreign taxes, the lower level of government
supervision of issuers, the difficulty in enforcing contractual obligations,
and the lack of uniform accounting and financial reporting standards.
The Portfolio does not invest more than 25% of its assets in securities of
issuers in any one industry except for U.S. Government securities or
certificates of deposit and bankers' acceptances issued or guaranteed by, or
interest bearing savings deposits maintained at, banks and savings institutions
and loan associations (including foreign branches of U.S. banks and U.S.
branches of foreign banks).
GOVERNMENT PORTFOLIO
The Portfolio pursues its objectives by investing in high-quality money market
securities. The Government Portfolio may invest in:
- - marketable obligations issued or guaranteed by the U.S. Government or one
of its agencies or instrumentalities;
- - adjustable rate obligations;
- - repurchase agreements that are fully collateralized; and
- - restricted securities (i.e., securities subject to legal and contractual
restrictions on resale).
The Government Portfolio may commit up to 15% of its net assets to the purchase
of when-issued U.S. Government securities.
GENERAL MUNICIPAL PORTFOLIO
The General Municipal Portfolio seeks maximum current income that is exempt
from Federal income taxes by investing principally in a diversified portfolio
of high-quality municipal securities. The Portfolio's income may be subject to
state or local income taxes.
The Portfolio may invest without limit in tax-exempt municipal securities that
are subject to the Federal alternative minimum tax (the "AMT").
MUNICIPAL SECURITIES. The General Municipal Portfolio's investments in
municipal securities include munic-
5
ipal notes and short-term municipal bonds. Municipal notes are generally used
to provide for short-term capital needs and generally have maturities of 397
days or less. Examples include tax anticipation and revenue anticipation notes,
which are generally issued in anticipation of various seasonal revenues, bond
anticipation notes, and tax-exempt commercial paper. Short-term municipal bonds
may include general obligation bonds, which are secured 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 General Municipal 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. These adjustments tend to minimize changes in the market value of
the obligation and, accordingly, enhance the ability of the Portfolio to
maintain a stable net asset value. Variable rate securities purchased may
include participation interests in industrial development bonds backed by
letters of credit of Federal Deposit Insurance Corporation member banks having
total assets of more than $1 billion.
The General Municipal Portfolio may invest in restricted securities (i.e.,
securities subject to legal or contractual restrictions on resale).
The General Municipal Portfolio's municipal securities at the time of purchase
are rated within the two highest quality ratings of Moody's or Standard &
Poor's or judged by the Adviser to be of comparable quality. Securities also
must meet credit standards applied by the Adviser.
The quality and liquidity of the General Municipal Portfolio's investments in
municipal securities are supported by credit and liquidity enhancements, such
as letters of credit, from third party financial institutions. The Portfolio
continuously monitors the credit quality of third parties; however, changes in
the credit quality of these financial institutions could cause the Portfolio's
investments backed by that institution to lose value and affect the Portfolio's
share price.
The General Municipal Portfolio also may invest in stand-by commitments, which
may involve certain expenses and risks, but stand-by commitments are not
expected to comprise more than 5% of the Portfolio's net assets. The Portfolio
may commit up to 15% of its net assets to the purchase of when-issued
securities. The Portfolio's Custodian will maintain liquid assets having value
equal to, or greater than, these 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 these
securities takes place at a later time. Normally, the settlement date occurs
from within ten days to one month after the purchase of the issue.
TAXABLE INVESTMENTS. The General Municipal Portfolio may invest in taxable
investments including obligations of the U.S. Government and its agencies,
high-quality certificates of deposit and bankers' acceptances, prime commercial
paper, and repurchase agreements.
RISK CONSIDERATIONS
The Portfolios' primary risks are interest rate risk and credit risk. Because
the Portfolios invest in short-term securities, a decline in interest rates
will affect the Portfolios' yields as these securities mature or are sold and
the Portfolios purchase new short-term securities with lower yields. Generally,
an increase in interest rates causes the value of a debt instrument to
decrease. The change in value for shorter-term securities is usually smaller
than for securities with longer maturities. Because the Portfolios invest in
securities with short maturities and seek to maintain a stable net asset value
of $1.00 per share, it is possible, though unlikely, that an increase in
interest rates would change the value of your investment.
Credit risk is the possibility that a security's credit rating will be
downgraded or that the issuer of the security will default (fail to make
scheduled interest and principal payments). The Portfolios invest in
highly-rated securities to minimize credit risk.
The Portfolios may invest up to 10% of their net assets in illiquid securities.
Investments in illiquid securities may be subject to liquidity risk, which is
the risk that, under certain circumstances, particular investments may be
difficult to sell at an advantageous price. Illiquid restricted securities also
are subject to the risk that the Portfolio may be unable to sell the security
due to legal or contractual restrictions on resale.
6
The Portfolios' investments in U.S. dollar-denominated obligations (or credit
and liquidity enhancements) of foreign banks, foreign branches of U.S. banks,
U.S. branches of foreign banks, and commercial paper of foreign companies may
be subject to foreign risk. Foreign securities issuers are usually not subject
to the samedegree of regulation as U.S. issuers. Reporting, accounting, and
auditing standards of foreign countries differ, in some cases, significantly
from U.S. standards. Foreign risk includes nationalization, expropriation or
confiscatory taxation, political changes or diplomatic developments that could
adversely affect a Portfolio's investments.
The Portfolios also are subject to management risk because they are actively
managed portfolios. Alliance will apply its investment techniques and risk
analyses in making investment decisions for the Portfolios, but there is no
guarantee that its techniques will produce the intended result.
The General Municipal Portfolio faces municipal market risk. This is the risk
that special factors may adversely affect the value of municipal securities and
have a significant effect on the value of the Portfolio's investments. These
factors include political or legislative changes, uncertainties related to the
tax status of municipal securities, or the rights of investors in these
securities. The Portfolio's investments in certain municipal securities with
principal and interest payments that are made from the revenues of a specific
project or facility, and not general tax revenues, may have increased risks.
Factors affecting the project or facility, such as local business or economic
conditions, could have a significant effect on the project's ability to make
payments of principal and interest on these securities.
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. The failure of any of the
computer systems employed by the Portfolios' major service providers to process
Year 2000 related information properly could have a significant negative impact
on the Portfolios' operations and the services that are provided to the
Portfolios' shareholders. In addition, to the extent that the operations of
issuers of securities held by the Portfolios are impaired by the Year 2000
problem, or prices of securities held by the Portfolios decline as a result of
real or perceived problems relating to the Year 2000, the value of the
Portfolios' shares may be materially affected.
With respect to the Year 2000 problem, the Portfolios have been advised that
Alliance, each Portfolio's investment adviser, Alliance Fund Distributors, Inc.
("AFD"), each Portfolio's principal underwriter, and Alliance Fund Services,
Inc. ("AFS"), each Portfolio's registrar, transfer agent and dividend
disbursing 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 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 issue 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 early 1999. 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
Portfolios.
The Portfolios and Alliance have been advised by the Portfolios' Custodian and
Administrator that they are each in the process of reviewing their systems with
the same goals. As of the date of this prospectus, the Portfolios and Alliance
have no reason to believe that the Custodian or Administrator will be unable to
achieve these goals.
7
MANAGEMENT OF THE PORTFOLIOS
The Portfolios' Adviser is Alliance Capital Management, L.P., 1345 Avenue of
the Americas, New York, NY 10105. Alliance is a leading international
investment adviser supervising client accounts with assets as of December 31,
1998 totaling more than $286 billion (of which approximately $118 billion
represented assets of investment companies). Alliance's clients are primarily
major corporate employee benefit plans, public employee retirement systems,
investment companies, foundations, and endowment funds. The 54 registered
investment companies, with more than 118 separate portfolios, managed by
Alliance currently have over 3.6 million shareholder accounts. As of December
31, 1998, Alliance was retained as investment manager for over 35 of the
FORTUNE 100 companies.
Under its Advisory Agreement with the Portfolios, Alliance provides investment
advisory services and order placement facilities for the Portfolios. For these
advisory services, each Portfolio paid Alliance, for the fiscal year ended
November 30, 1998, as a percentage of average daily net assets:
FEE AS A PERCENTAGE OF
PORTFOLIO AVERAGE DAILY NET ASSETS*
- ---------------------------------------------------------------
Prime Portfolio .44%
Government Portfolio .36%
General Municipal Portfolio .33%
* Fees are stated net of waivers and/or reimbursements. See the "Fee Table"
at the beginning of the prospectus for more information about fee waivers.
ADMINISTRATOR
ADP Financial Information Services, Inc., a wholly-owned subsidiary of
Automatic Data Processing, Inc., serves as administrator of the Fund, on behalf
of the Portfolios. The Administrator performs or arranges for the performance
of certain services, mainly remote processing services through its propriety
shareholder accounting system. ADP is entitled to receive from each Portfolio a
fee computed daily and paid monthly at a maximum annual rate equal to .05% of
such Portfolio's average daily net assets. ADP may, from time to time,
voluntarily waive all or a portion of its fees payable to it under the
Administration Agreement. ADP shall not have any responsibility or authority
for any Portfolio's investments, the determination of investment policy, or for
any matter pertaining to the distribution of Portfolio shares.
PURCHASE AND SALE OF SHARES
HOW THE PORTFOLIOS VALUE THEIR SHARES
Each of the Portfolios' net asset value or NAV is expected to be constant at
$1.00 per share, although this value is not guaranteed. The NAV is calculated
at 4:00 p.m., Eastern time, each day the New York Stock Exchange (NYSE) is open
for business. To calculate NAV, a Portfolio's assets are valued and totaled,
liabilities are subtracted, and the balance, called net assets, is divided by
the number of shares outstanding. Each Portfolio values its securities at their
amortized cost. This method involves valuing an instrument at its cost and
thereafter applying a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on the market
value of the investment.
HOW TO BUY SHARES
INITIAL INVESTMENT
You may purchase a Portfolio's shares through your broker by instructing your
broker to use one or more of Alliance Money Market Fund's Portfolios--Prime,
Government, or the General Municipal Portfolio in connection with your
brokerage account. There is no minimum for initial investment or subsequent
investments.
SUBSEQUENT INVESTMENTS
BY CHECK:
Mail or deliver your check or negotiable draft, payable to your broker, who
will deposit it into the Portfolio(s). Please designate the appropriate
Portfolio and indicate your brokerage account number on the check or draft.
8
BY SWEEP:
Your brokerage firm may offer an automatic "sweep" for the Portfolio in the
operation of brokerage cash accounts for its customers. Contact your broker to
determine if a sweep is available and what the sweep parameters are.
HOW TO SELL SHARES
You may "redeem" your shares (i.e., sell your shares to the Portfolio) on any
day the NYSE is open through your financial intermediary. Your sales price will
be the next-determined NAV after the Portfolio receives your sales request in
proper form. Normally, redemption proceeds will be wired or mailed to you
either the same or the next business day, but generally no later than seven
days. If you recently purchased your shares by check or electronic funds
transfer, your redemption proceeds may be delayed until the Portfolio is
reasonably satisfied that the check or electronic funds transfer has been
collected (which may take up to 15 days). If you are in doubt about what
procedures or documents are required to sell your shares, you should contact
your broker.
BY CONTACTING YOUR BROKER
Instruct your broker to order a withdrawal from your Portfolio account.
BY SWEEP
If your brokerage firm offers an automatic sweep arrangement, the sweep will
automatically transfer from your Portfolio account sufficient amounts to cover
security purchases in your brokerage account.
BY CHECKWRITING
With this service, you may write checks made payable to any payee. First, you
must fill out the signature card which you can obtain from your broker. 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.
You can not write checks for more than the principal balance (not including any
accrued dividends) in your account.
OTHER
The Portfolios have 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 The Bank of New York 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 you redeem shares regardless of
whether the redemption order is received before or after 12:00 Noon.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each of the Portfolios' net income is paid daily to shareholders and
automatically invested in additional shares in your account. The Portfolios
expect that their distributions will primarily consist of net income or, if
any, short-term capital gains as opposed to long-term capital gains.
PRIME PORTFOLIO AND GOVERNMENT PORTFOLIO
For Federal income tax purposes, the Prime and Government Portfolios' dividend
distributions of net income (or short-term taxable gains) will be taxable to
you as ordinary income. Any long-term capital gains distributions may be
taxable to you as long-term capital gains. The Portfolios' distributions also
may be subject to certain state and local taxes.
GENERAL MUNICIPAL PORTFOLIO
Distributions of tax-exempt interest income from this Portfolio are not subject
to Federal income tax (other than the AMT), 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 specific preference item for
purposes of the Federal individual and corporate AMT. Distributions out of
taxable interest income, other investment income and short-term capital gains,
are taxable to you as ordinary income and distributions of long-term capital
gains, if any, are taxable as long-term taxable gains irrespective of the
length of time you may have held your shares.
Consult your tax adviser as to the tax consequences of an investment in the
Portfolios, including the possible applicability of the AMT to a portion of the
distributions.
Each year shortly after December 31, the Portfolio will send you tax
information stating the amount and type of all its distributions for the year.
The sale of Portfolio shares is a taxable transaction for Federal income tax
purposes.
9
DISTRIBUTION ARRANGEMENTS
The Portfolios have adopted a plan under SEC Rule 12b-1 that allows the
Portfolios to pay asset-based sales charges or distribution and service fees
for the distribution and sale of their shares. The Portfolios pay these fees in
the amount of 0.45% as a percent of aggregate average daily net assets. Because
these fees are paid out of the Portfolios' assets on an on-going basis, over
time these fees will increase the cost of your investment and may cost you more
than paying other types of sales fees.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand a Portfolio's
financial performance for the period of the Portfolio's operations. Certain
information reflects financial information for a single Portfolio share. The
total return in the table represents the rate that an investor would have
earned (or lost) on an investment in the Portfolio (assuming reinvestment of
all dividends and distributions). The information has been audited by McGladrey
& Pullen LLP, the Portfolios' independent auditors, whose report, along with
the Portfolios' financial statements, appears in the SAI, which is available
upon request.
<TABLE>
<CAPTION>
PRIME PORTFOLIO
------------------------------------
DECEMBER 29,
1995(A)
YEAR ENDED NOVEMBER 30, TO
------------------------ NOVEMBER 30,
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b) .047 .046 .041
Net gains or losses on securities .000 .000 .000
Total from investment operations .047 .046 .041
LESS: DISTRIBUTIONS
Dividends (.047) (.046) (.041)
Distributions .000 .000 .000
Total distributions (.047) (.046) (.041)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN
Total investment return based on net
asset value (c) 4.77% 4.75% 4.57%(d)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $682 $3,298 $2,772
Ratio to average net assets of:
Expenses, net of waivers and
reimbursements 1.00% 1.00% 1.00%(e)
Expenses, before waivers and
reimbursements 1.06% 1.06% 1.23%(e)
Net investment income (b) 4.69% 4.65% 4.50%(e)
</TABLE>
(a) Commencement of operations.
(b) Net of expenses reimbursed or waived by the Adviser.
(c) 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 period.
(d) The total return is not annualized.
(e) Annualized.
10
<TABLE>
<CAPTION>
GOVERNMENT PORTFOLIO
------------------------------------
DECEMBER 29,
1995(A)
YEAR ENDED NOVEMBER 30, TO
------------------------ NOVEMBER 30,
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b) .046 .045 .041
Net gains or losses on securities .000 .000 .000
Total from investment operations .046 .045 .041
LESS: DISTRIBUTIONS
Dividends (.046) (.045) (.041)
Distributions .000 .000 .000
Total distributions (.046) (.045) (.041)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN
Total investment return based on net
asset value (c) 4.67% 4.64% 4.51%(d)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $42 $124 $100
Ratio to average net assets of:
Expenses, net of waivers and
reimbursements 1.00% 1.00% 1.00%(e)
Expenses, before waivers and
reimbursements 1.14% 1.25% 1.42%(e)
Net investment income (b) 4.60% 4.54% 4.45%(e)
</TABLE>
(a) Commencement of operations.
(b) Net of expenses reimbursed or waived by the Adviser.
(c) 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 period.
(d) The total return is not annualized.
(e) Annualized.
11
<TABLE>
<CAPTION>
GENERAL MUNICIPAL PORTFOLIO
------------------------------------
DECEMBER 13,
1995(A)
YEAR ENDED NOVEMBER 30, TO
------------------------ NOVEMBER 30,
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b) .027 .029 .027
Net gains or losses on securities .000 .000 .000
Total from investment operations .027 .029 .027
LESS: DISTRIBUTIONS
Dividends (.027) (.029) (.027)
Distributions .000 .000 .000
Total distributions (.027) (.029) (.027)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN
Total investment return based on net
asset value (c) 2.76% 2.92% 2.79%(d)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $44 $137 $123
Ratio to average net assets of:
Expenses, net of waivers and
reimbursements 1.00% 1.00% 1.00%(e)
Expenses, before waivers and
reimbursements 1.17% 1.21% 1.39%(e)
Net investment income (b) 2.74% 2.87% 2.76%(e)
</TABLE>
(a) Commencement of operations.
(b) Net of expenses reimbursed or waived by the Adviser.
(c) 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 period.
(d) The total return is not annualized.
(e) Annualized.
12
<PAGE>
This is filed pursuant to Rule 497(c).
File Nos. 33-85850 and 811-8838.
<PAGE>
[LOGO] ALLIANCE MONEY MARKET FUND
_______________________________________________________________
P.O. Box 1520, Secaucus, New Jersey 07096
Toll Free (800) 221-5672
_______________________________________________________________
STATEMENT OF ADDITIONAL INFORMATION
April 1, 1999
_______________________________________________________________
This Statement of Additional Information is not a prospectus but
supplements and should be read in conjunction with the Fund's
current Prospectus dated April 1, 1999. A copy of the Prospectus
may be obtained by contacting the Fund at the address or
telephone number shown above.
TABLE OF CONTENTS
PAGE
INVESTMENT OBJECTIVES AND POLICIES
INVESTMENT RESTRICTIONS
MANAGEMENT OF THE FUND
PURCHASE AND REDEMPTION OF SHARES
DAILY DIVIDENDS - DETERMINATION OF NET ASSET VALUE
TAXES
GENERAL INFORMATION
FINANCIAL STATEMENTS
APPENDIX A -- DESCRIPTION OF MUNICIPAL SECURITIES
APPENDIX B -- DESCRIPTION OF SECURITIES RATINGS
__________________________
(R) This registered service mark used under license from the
owner, Alliance Capital Management L.P.
4
<PAGE>
<PAGE>
_______________________________________________________________
INVESTMENT OBJECTIVES AND POLICIES
_______________________________________________________________
The Alliance Money Market Fund (the "Fund") is an open-end
management investment company. The Fund consists of seven
distinct portfolios, the Prime Portfolio, the Government
Portfolio, the New Jersey Municipal Portfolio, the New York
Municipal Portfolio, the Connecticut Municipal Portfolio, the
California Municipal Portfolio and the General Municipal
Portfolio. Three of the portfolios, the Prime Portfolio,
Government Portfolio and General Municipal Portfolio (hereinafter
sometimes referred to as a "Portfolio" or the "Portfolios"), are
presently being offered by the Fund.
The investment objectives of each Portfolio are - in the
following order of priority - safety of principal, excellent
liquidity, and, to the extent consistent with the first two
objectives, maximum current income (exempt from income taxes to
the extent described below in the case of the General Municipal
Portfolio). As is true with all investment companies, there can
be no assurance that the Fund's objective will be achieved. As a
matter of fundamental policy, each Portfolio pursues its
objectives by maintaining a portfolio of high-quality money
market securities. The General Municipal Portfolio, except when
assuming a temporary defensive position, must maintain at least
80% of its total assets in high-quality municipal securities (as
opposed to taxable investments described below). While no
Portfolio may change this policy or its other fundamental
investment policies (described below) without shareholder
approval, it may, upon notice to shareholders, but without such
approval, change non-fundamental investment policies or create
additional series or classes of shares in order to establish
portfolios which may have different investment objectives.
Normally, substantially all of the General Municipal Portfolio's
income will be tax-exempt as described below. 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 "1940 Act"), as amended from
time to time, including the diversification, quality and maturity
limitations imposed by the Rule. Accordingly, each Portfolio
will invest in securities which, at the time of investment, have
remaining maturities not exceeding 397 days and the average
maturity of each Portfolio's investment portfolio will not exceed
90 days. A more detailed description of Rule 2a-7 is set forth
on page 3.
PRIME AND GOVERNMENT PORTFOLIOS. The investment objectives
of each of the Prime Portfolio and the Government Portfolio are -
5
<PAGE>
<PAGE>
in the following order of priority - safety of principal,
excellent liquidity, and maximum current income to the extent
consistent with the first two objectives.
GENERAL MUNICIPAL PORTFOLIO. The General Municipal Portfolio
seeks maximum current income that is exempt from Federal income
taxes by investing principally in a diversified portfolio of
high-quality municipal securities. Such income may be subject to
state or local income taxes.
POLICIES APPLICABLE TO EACH PORTFOLIO
RULE 2A-7 UNDER THE 1940 ACT. The Fund will comply with Rule
2a-7 under the 1940 Act, as amended from time to time, including
the diversification, quality and maturity limitations imposed by
the Rule. Currently, pursuant to Rule 2a-7, a Portfolio may
invest only in U.S. dollar-denominated "Eligible Securities," (as
that term is defined in the Rule) that have been determined by
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"). 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 also considered to be first tier securities.
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 Portfolios
invest 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 an NRSRO.
Under Rule 2a-7 the Prime Portfolio, the General Municipal
Portfolio and the Government Portfolio may not invest more than
five percent of their respective assets in the securities of any
one issuer other than the United States Government, its agencies
and instrumentalities. In addition, the Prime Portfolio and the
Government Portfolio 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 either the Prime Portfolio or the Government
6
<PAGE>
<PAGE>
Portfolio 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
(the "second tier security restriction"). The second tier
security restriction applies to the General Municipal Portfolio
with respect to its investment in the "conduit" securities of
second tier issuers. A conduit security for purposes of Rule 2a-
7 is a security nominally issued by a municipality, but dependent
for principal and interest payments on a non-municipal issuer
revenues from a non-municipal project.
ILLIQUID SECURITIES. A Portfolio will not maintain more than
10% of its net assets (taken at market value) in illiquid
securities. For this purpose, illiquid securities include, among
others, (a) securities that are illiquid by virtue of the absence
of a readily available market or legal or contractual restriction
on resale, other than restricted securities determined by the
Adviser to be liquid in accordance with procedures adopted by the
Trustees and (b) repurchase agreements not terminable within
seven days. As to illiquid securities, the Portfolio is subject
to a risk that should the Portfolio desire to sell them when a
buyer is not available at a price the Portfolio deems
representative of their value, the value of the Portfolio's net
assets could be adversely affected.
RESTRICTED SECURITIES. A Portfolio may also purchase
restricted securities determined by the Adviser to be liquid in
accordance with procedures adopted by the Trustees, including
securities eligible for resale under Rule 144A under the
Securities Act of 1933 (the "Securities Act") and commercial
paper issued in reliance upon the exemption from registration in
Section 4(2) of such Act. Restricted securities are securities
subject to contractual or legal restrictions on resale, such as
those arising from an issuer's reliance upon certain exemptions
from registration under the Securities Act.
The Trustees have the ultimate responsibility for determining
whether specific securities are liquid or illiquid. The Trustees
have delegated the function of making day-to-day determinations
of liquidity to the Adviser, pursuant to guidelines approved by
the Trustees.
Following the purchase of a restricted security by a
Portfolio, the Adviser monitors continuously the liquidity of
such security and reports to the Trustees regarding purchases of
liquid restricted securities.
INVESTMENTS ISSUED BY FOREIGN BRANCHES OF FOREIGN BANKS.
Each Portfolio may invest up to 25% of its total assets in
instruments issued by foreign branches of foreign banks. The
7
<PAGE>
<PAGE>
Prime Portfolio may make investments in dollar-denominated
certificates of deposit and bankers' acceptances issued or
guaranteed by, or dollar-denominated time deposits maintained at,
foreign branches of U.S. banks and U.S. and foreign branches of
foreign banks, and prime quality dollar-denominated commercial
paper issued by foreign companies. To the extent that the Prime
Portfolio makes such investments, consideration is given to their
domestic marketability, the lower reserve requirements generally
mandated for overseas banking operations, the possible impact of
interruptions in the flow of international currency transactions,
potential political and social instability or expropriation,
imposition of foreign taxes, the lower level of government
supervision of issuers, the difficulty in enforcing contractual
obligations and the lack of uniform accounting and financial
reporting standards.
FUNDAMENTAL POLICIES. Each Portfolio's investment objective
may not be changed without the affirmative vote of a majority of
the Portfolio's outstanding shares as defined below. Except as
otherwise provided, each Portfolio's investment policies are not
designated "fundamental policies" within the meaning of the 1940
Act and may, therefore, be changed by the Trustees of the
Portfolio without a shareholder vote. However, a Portfolio will
not change its investment policies without contemporaneous
written notice to shareholders.
SPECIAL CONSIDERATIONS OF GENERAL MUNICIPAL PORTFOLIO
MUNICIPAL SECURITIES. The term "municipal securities," as
used in reference to the General Municipal Portfolio in the
Prospectus and this Statement of Additional Information, means
obligations issued by or on behalf of states, territories, and
possessions of the United States or their political subdivisions,
agencies and instrumentalities, the interest from which is exempt
(subject to the alternative minimum tax) from Federal income
taxes. The municipal securities in which the General Municipal
Portfolio invests are limited to those obligations which at the
time of purchase:
1. are backed by the full faith and credit of the United
States Government; or
2. are municipal notes rated MIG-1/VMIG-1 or MIG- 2/VMIG-2
by Moody's Investors Service, Inc. ("Moody's") or SP-1 or SP-2 by
Standard and Poor's Corporation ("S&P"), or, if not rated, are of
equivalent investment quality as determined by the Adviser and
ultimately reviewed by the Trustees; or
3. are municipal bonds rated Aa or higher by Moody's, AA or
higher by S&P or, if not rated, are of equivalent investment
8
<PAGE>
<PAGE>
quality as determined by the Adviser and ultimately reviewed by
the Trustees; or
4. are other types of municipal securities, provided that
such obligations are rated Prime-1 by Moody's, A-1 or higher by
S&P or, if not rated, are of equivalent investment quality as
determined by the Adviser and ultimately reviewed by the
Trustees. (See Appendix A for a description of municipal
securities and Appendix B for a description of these ratings.)
The General Municipal Portfolio will not invest 25% or more
of its total assets in the securities of non-governmental issuers
conducting their principal business activities in any one
industry.
ALTERNATIVE MINIMUM TAX. The General Municipal Portfolio may
invest without limitation in tax-exempt municipal securities
subject to the alternative minimum tax (the "AMT"). Under
current Federal income tax law, (1) interest on tax-exempt
municipal securities issued after August 7, 1986 which are
"specified private activity bonds," and the proportionate share
of any exempt-interest dividend paid by a regulated investment
company which receives interest from such specified private
activity bonds, will be treated as an item of tax preference for
purposes of the AMT imposed on individuals and corporations,
though for regular Federal income tax purposes such interest will
remain fully tax-exempt, and (2) interest on all tax-exempt
obligations will be included in "adjusted current earnings" of
corporations for AMT purposes. Such private activity bonds
("AMT-Subject Bonds") have provided, and may continue to provide,
somewhat higher yields than other comparable municipal
securities.
Investors should consider that, in most instances, no state,
municipality or other governmental unit with taxing power will be
obligated with respect to AMT-Subject Bonds. AMT-Subject Bonds
are in most cases revenue bonds and do not generally have the
pledge of the credit or the taxing power, if any, of the issuer
of such bonds. AMT-Subject Bonds are generally limited
obligations of the issuer supported by payments from private
business entities and not by the full faith and credit of a state
or any governmental subdivision. Typically the obligation of the
issuer of an AMT-Subject Bond is to make payments to bond holders
only out of and to the extent of, payments made by the private
business entity for whose benefit the AMT-Subject Bonds were
issued. Payment of the principal and interest on such revenue
bonds depends solely on the ability of the user of the facilities
financed by the bonds to meet its financial obligations and the
pledge, if any, of real and personal property so financed as
security for such payment. It is not possible to provide
9
<PAGE>
<PAGE>
specific detail on each of these obligations in which Fund assets
may be invested.
To further enhance the quality and liquidity of the
securities in which the Portfolio invests, such securities
frequently are supported by credit and liquidity enhancements,
such as letters of credit, from third party financial
institutions. The General Municipal 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.
TAXABLE SECURITIES. Although the General Municipal Portfolio
is, and expects to be, largely invested in municipal securities,
the Portfolio may elect to invest up to 20% of its total assets
in taxable money market securities when such action is deemed to
be in the best interests of shareholders. Such taxable money
market securities also are limited to remaining maturities not
exceeding 397 days at the time of the Portfolio's investment, and
the Portfolio's municipal and taxable securities are maintained
at a dollar-weighted average of 90 days or less. Taxable money
market securities purchased by the Portfolio may include those
described below:
1. marketable obligations of, or obligations guaranteed by,
the United States Government, its agencies or instrumentalities;
or
2. certificates of deposit, bankers' acceptances and
interest-bearing savings deposits of banks having total assets of
more than $1 billion and which are members of the Federal Deposit
Insurance Corporation;
3. commercial paper of prime quality rated A-1 or higher by
S&P or Prime-1 by Moody's or, if not rated, issued by companies
which have an outstanding debt issue rated AA or higher by S&P,
or Aa or higher by Moody's (see Appendix B for a description of
these ratings); or
4. repurchase agreements.
MUNICIPAL SECURITIES GENERALLY. Municipal securities
historically have not been subject to registration with the
Commission. Obligations of issuers of municipal securities are
subject to the provisions of bankruptcy, insolvency, and other
laws affecting the rights and remedies of creditors, such as the
Bankruptcy Code. In addition, the obligations of such issuers
may become subject to laws enacted in the future by Congress,
state legislatures, or referenda extending the time for payment
of principal and/or interest, or imposing other constraints upon
10
<PAGE>
<PAGE>
enforcement of such obligations or upon the ability of
municipalities to levy taxes. There is also the possibility
that, as a result of litigation or other conditions, the ability
of any issuer to pay, when due, the principal of, and interest
on, its municipal securities may be materially affected.
OTHER INVESTMENT PRACTICES
ASSET-BACKED SECURITIES. Each Portfolio may invest in rated,
if required by Rule 2a-7, asset-backed securities that meet its
existing diversification, quality and maturity criteria. The
Portfolios may invest in unrated asset-backed securities whose
assets consist of obligations of one or more municipal issuers.
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 entity. 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. Generally, as
required by Rule 2a-7, the special purpose entity is deemed to be
the issuer of the asset-backed security, however each Portfolio
is required to treat any obligor whose obligations constitute ten
percent or more of the assets of the asset-backed security as the
issuer of the portion of the asset-backed security that such
obligations represent.
VARIABLE RATE OBLIGATIONS. The interest rate payable on
certain securities in which a Portfolio may invest, called
"variable rate" obligations, is not fixed and may fluctuate based
upon changes in market rates. The interest rate payable on a
variable rate security is adjusted either at pre-designated
periodic intervals or whenever there is a change in the market
rate to which the security's interest rate is tied. Other
features may include the right of a Portfolio to demand
prepayment of the principal amount and accrued interest of the
obligation prior to its stated maturity and the right of the
issuer to prepay the principal amount and accrued interest prior
to maturity. Variable rate demand obligations are obligations
ordinarily having stated maturities in excess of 397 days, 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. Investments may also be made in variable amount master
demand notes (which may have put features in excess of 30 days)
which are obligations that permit a fund to invest fluctuating
amounts, at varying rates of interest, pursuant to direct
arrangements between a fund, as lender, and the borrower.
Because these obligations are direct lending arrangements between
11
<PAGE>
<PAGE>
the lender and the borrower, it is not contemplated that such
instruments generally will be traded, and there generally is no
established secondary market or these obligations, although they
are redeemable at face value, plus accrued interest.
Accordingly, when these obligations are not secured by letter of
credit or other credit support arrangements, the fund's right to
redeem is dependent on the ability of the borrower to pay
principal and interest on demand. The main benefit of a variable
rate security is that the interest rate adjustment minimizes
changes in the market value of the obligation. As a result, the
purchase of variable rate securities enhances the ability of a
Portfolio to maintain a stable net asset value per share and to
sell an obligation prior to maturity at a price approximately
equal to the full principal amount. The payment of principal and
interest by issuers of certain securities purchased by a
Portfolio may be guaranteed by letters of credit or other credit
facilities offered by banks or other financial institutions.
Such guarantees may be considered in determining whether a
security meets a Portfolio's investment quality requirements.
Variable rate obligations purchased by a Portfolio may
include participation interests in variable rate industrial
development bonds that are backed by irrevocable letters of
credit or guarantees of banks that meet the criteria for banks
described above in "Taxable Securities." Purchase of a
participation interest gives a Portfolio an undivided interest in
certain such bonds. A Portfolio can exercise the right, on not
more than 30 days' notice, to sell such an instrument back to the
bank from which it purchased the instrument and draw on the
letter of credit for all or any part of the principal amount of
such Portfolio's participation interest in the instrument, plus
accrued interest, but will generally do so only (i) as required
to provide liquidity to such Portfolio, (ii) to maintain a high
quality investment portfolio or (iii) upon a default under the
terms of the demand instrument. Banks retain portions of the
interest paid on such variable rate industrial development bonds
as their fees for servicing such instruments and the issuance of
related letters of credit and repurchase commitments. The
Portfolios follow Rule 2a-7 with respect to its investments in
variable rate instruments supported by letters of credit and
participation interests. Such Portfolio will not purchase
participation interests in variable rate industrial development
bonds unless it receives an opinion of counsel or a ruling of the
Internal Revenue Service that interest earned by such Portfolio
from the bonds in which it holds participation interests is
exempt from Federal income taxes. The Adviser will monitor the
pricing, quality and liquidity of variable rate demand
obligations and participation interests therein held by such
Portfolio on the basis of published financial information, rating
agency reports and other research services to which the Adviser
may subscribe.
12
<PAGE>
<PAGE>
STANDBY COMMITMENTS. A Portfolio may purchase securities
together with the right to resell them to the seller at an
agreed-upon price or yield within specified periods prior to
their maturity dates. Such a right to resell is commonly known
as a "standby commitment," and the aggregate price which such
Portfolio pays for securities with a standby commitment may be
higher than the price which otherwise would be paid. The primary
purpose of this practice is to permit a Portfolio to be as fully
invested as practicable in securities while preserving the
necessary flexibility and liquidity to meet unanticipated
redemptions. In this regard, a Portfolio acquires standby
commitments solely to facilitate portfolio liquidity and does not
exercise its rights thereunder for trading purposes. Since the
value of a standby commitment is dependent on the ability of the
standby commitment writer to meet its obligation to repurchase,
each Portfolio's policy is to enter into standby commitment
transactions only with securities dealers which are determined to
present minimal credit risks.
The acquisition of a standby commitment does not affect the
valuation or maturity of the underlying securities which continue
to be valued in accordance with the amortized cost method.
Standby commitments acquired by a Portfolio are valued at zero in
determining net asset value. Where a Portfolio pays directly or
indirectly for a standby commitment, its cost is reflected as
unrealized depreciation for the period during which the
commitment is held. Standby commitments do not affect the
average weighted maturity of a Portfolio's portfolio of
securities. Stand-by commitments are not expected to comprise
more than 5% of any Portfolio's net assets.
WHEN-ISSUED SECURITIES. Securities are frequently offered 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 within one month after the purchase of
bonds and notes. During the period between purchase and
settlement, no payment is made by a Portfolio to the issuer and,
thus, no interest accrues to such Portfolio from the transaction.
When-issued securities may be sold prior to the settlement date,
but a Portfolio 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 each Portfolio, cash, U.S. Government or
other liquid assets, having value equal to, or greater than, such
commitments. Similarly, a separate account will be maintained to
meet obligations in respect of reverse repurchase agreements. On
delivery dates for such transactions, a Portfolio will meet its
obligations from maturities or sales of the securities held in
the separate account and/or from the available cash flow. If a
13
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<PAGE>
Portfolio, 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 a Portfolio 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 a Portfolio's net assets would be
so committed.
GENERAL. Yields on debt securities are dependent on a
variety of factors, including the general condition of the money
market and of the municipal bond and municipal note market, the
size of a particular offering, the maturity of the obligation and
the rating of the issue. Securities with longer maturities tend
to produce higher yields and are generally subject to greater
price movements than obligations with shorter maturities. An
increase in interest rates will generally reduce the market value
of portfolio investments, and a decline in interest rates will
generally increase the value of portfolio investments. There can
be no assurance, as is true with all investment companies, that a
Portfolio's objectives will be achieved. The achievement of a
Portfolio's investment objectives is dependent in part on the
continuing ability of the issuers of securities in which a
Portfolio invests to meet their obligations for the payment of
principal and interest when due. Each Portfolio generally will
hold securities to maturity rather than follow a practice of
trading. However, a Portfolio may seek to improve portfolio
income by selling certain portfolio securities prior to maturity
in order to take advantage of yield disparities that occur in
securities markets.
REPURCHASE AGREEMENTS. Each Portfolio may also enter into
repurchase agreements pertaining to the types of securities in
which it may invest. A repurchase agreement arises when a buyer
purchases a security and simultaneously agrees to resell it to
the vendor at an agreed-upon future date, normally one day or a
few days later. 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. Each Portfolio requires continuous
maintenance of collateral in an amount equal to, or in excess of,
the market value of the securities which are the subject of the
agreement. In the event that a vendor defaulted on its
repurchase obligation, a Portfolio might suffer a loss to the
extent that the proceeds from the sale of the collateral were
less than the repurchase price. If the vendor became bankrupt,
the Portfolio might be delayed in selling the collateral.
Repurchase agreements may be entered into with member banks of
the Federal Reserve System (including the Fund's Custodian) or
"primary dealers" (as designated by the Federal Reserve Bank of
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New York) in U.S. Government securities. It is each Portfolio's
current practice to enter into repurchase agreements only with
such primary dealers and its Custodian, and the Fund has adopted
procedures for monitoring the creditworthiness of such
organizations. Pursuant to Rule 2a-7, a repurchase agreement is
deemed to be an acquisition of the underlying securities, if the
obligation of the seller to repurchase the securities from the
money market fund is collateralized fully. Accordingly, the
vendor of a fully collateralized repurchase agreement is deemed
to be the issuer of the underlying securities.
REVERSE REPURCHASE AGREEMENTS. Each Portfolio may enter into
reverse repurchase agreements, which involve the sale of
securities held by such Portfolio with an agreement to repurchase
the securities at an agreed upon price, date and interest
payment, although no Portfolio currently intends to enter into
such agreements.
_______________________________________________________________
INVESTMENT RESTRICTIONS
_______________________________________________________________
Unless specified to the contrary, the following restrictions
apply to each Portfolio and are fundamental policies which may
not be changed with respect to each Portfolio without the
affirmative vote of the holders of a majority of such Portfolio's
outstanding voting securities, which means with respect to any
Portfolio (1) 67% or more of the shares represented at a meeting
at which more than 50% of the outstanding shares are present in
person or by proxy or (2) 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 values of
portfolio securities or in the amount of a Portfolio's assets
will not constitute a violation of that restriction.
Each Portfolio:
1. May not, in the case of the Prime Portfolio, invest more
than 25% of its total assets in the securities of issuers
conducting their principal business activities in any one
industry, provided that for purposes of this policy (a) there is
no limitation with respect to investments in municipal securities
(including industrial development bonds), securities issued or
guaranteed by the U.S. Government, its agencies or
instrumentalities, certificates of deposit, bankers' acceptances
and interest-bearing savings deposits, and (b) consumer finance
companies, industrial finance companies and gas, electric, water
and telephone utility companies are each considered to be
separate industries. For purposes of this restriction and those
15
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set forth in restrictions 2 and 3 below, a Portfolio will regard
the entity which has the primary responsibility for the payment
of interest and principal as the issuer;
2. May not invest more than 5% of its total assets in the
securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or
instrumentalities) except that with respect to 25% of their total
assets the Prime Portfolio may invest without regard to such
limitation and the General Municipal Portfolio may invest not
more than 10% of its total assets in the securities of any one
issuer.* For purposes of such 5% and 10% limitations, the
issuer of the letter of credit or other guarantee backing a
participation interest in a variable rate industrial development
bond is deemed to be the issuer of such participation interest;
3. May not purchase more than 10% of any class of the
voting securities of any one issuer except securities issued or
guaranteed by the U.S. Government, its agencies or
instrumentalities;
4. May not, in the cases of the Prime Portfolio and the
Government Portfolio, borrow money except from banks on a
temporary basis or via entering into reverse repurchase
agreements for extraordinary or emergency purposes in an
aggregate amount not to exceed 15% (10% in the case of the
Government Portfolio) of the Portfolio's total assets. Such
borrowings may be used, for example, to facilitate the orderly
maturation and sale of portfolio securities during periods of
abnormally heavy redemption requests, if they should occur. Such
borrowings may not be used to purchase investments and such
Portfolio will not purchase any investment while any such
borrowings exist;
5. May not, in the cases of the Prime Portfolio and the
Government Portfolio, pledge, hypothecate, mortgage or otherwise
encumber its assets except to secure borrowings, including
reverse repurchase agreements, effected within the limitations
set forth in restriction 4. To meet the requirements of
regulations in certain states, a Portfolio, as a matter of
____________________
*As a matter of operating policy, pursuant to Rule 2a-7 each of
the Prime Portfolio and General Municipal Portfolio will invest
no more than 5% of its assets in the first tier (as defined in
Rule 2a-7) securities of any one issuer, except that under Rule
2a-7, a Fund may invest up to 25% of its total assets in the
first tier securities of a single issuer for a period of up to
three business days. Fundamental policy number (2) would give a
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.
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operating policy, will limit any such pledging, hypothecating or
mortgaging to 15% of its total assets, valued at market, so long
as shares of such Portfolio are being sold in those states;
6. May not make loans of money or securities except by the
purchase of debt obligations in which a Portfolio may invest
consistent with its investment objectives and policies and by
investment in repurchase agreements;
7. May not enter into repurchase agreements (i) not
terminable within seven days if, as a result thereof, more than
10% of a Portfolio's total assets would be committed to such
repurchase agreements (whether or not illiquid) or other illiquid
investments, or (ii) with a particular issuer** if immediately
thereafter more than 5% of such Portfolio's assets would be
committed to repurchase agreements entered into with such issuer;
or
8. May not (a) make investments for the purpose of
exercising control; (b) purchase securities of other investment
companies, except in connection with a merger, consolidation,
acquisition or reorganization; (c) invest in real estate (other
than securities secured by real estate or interests therein or
securities issued by companies which invest in real estate or
interests therein), commodities or commodity contracts;
(d) purchase securities on margin, or maintain more than 10% of
its net assets in illiquid securities (which include "restricted
securities" subject to legal restrictions on resale arising from
an issuer's reliance upon certain exemptions from registration
under the Securities Act), however, a Portfolio may purchase
restricted securities determined by the Adviser to be liquid in
accordance with procedures adopted by the Trustees of the Fund,
such as securities eligible for resale under Rule 144A under the
Securities Act and commercial paper issued in reliance upon the
exemption from registration in Section 4(2) of the Securities
Act; (e) make short sales of securities or maintain a short
position or write, purchase or sell puts (except for standby
commitments as described in the Prospectus and above), calls,
straddles, spreads or combinations thereof; (f) purchase or
retain securities of any issuer if those officers and Trustees of
the Fund and officers and directors of the Adviser who own
individually more than 1/2 of 1% of the outstanding securities of
such issuer together own more than 5% of the securities of such
issuer; or (g) act as an underwriter of securities.
In addition, the General Municipal Portfolio may not invest
more than 25% of its total assets in municipal securities
____________________
**Pursuant to Rule 2a-7, the seller of a fully collateralized
repurchase agreement is deemed to be the issuer of the
underlying securities.
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(a) whose issuers are located in the same state, or (b) the
interest upon which is paid from revenues of similar-type
projects.
_______________________________________________________________
MANAGEMENT OF THE FUND
_______________________________________________________________
ORGANIZATION
Each of the Portfolios is a series of Alliance Money Market
Fund, an open-end management investment company registered under
the 1940 Act and organized as a Massachusetts business trust on
October 26, 1994. Each Portfolio's activities are supervised by
the Trustees of the Fund. The Adviser provides investment advice
and, in general, conducts the management and investment program
of the Fund, subject to the general supervision and control of
the Trustees of the Fund.
Normally, shares of each series are entitled to one vote per
share, and vote as a single series, on matters that affect each
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.
TRUSTEES AND OFFICERS
The Trustees and principal officers of the Fund, their ages
and their primary occupations during the past five years are set
forth below. Certain of the Trustees and officers also may be a
trustee, director or officer of other registered investment
companies sponsored by the Adviser. Unless otherwise specified,
the address of each such person is 1345 Avenue of the Americas,
New York, NY 10105.
TRUSTEES
RONALD M. WHITEHILL,*** 60, President, is a Senior Vice
President of ACMC**** and President of Alliance Cash Management
Services with which he has been associated since prior to 1994.
____________________
***Interested person of the Fund as defined in the 1940 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.
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JOHN D. CARIFA,*** 54, Chairman of the Board, is the
President, Chief Operating Officer and a Director of ACMC with
which he has been associated since prior to 1994.
RICHARD S. BORISOFF,*** 53, is a member of the law firm of
Paul, Weiss, Rifkind, Wharton & Garrison with which he has been
associated with since prior to 1994. He is a Director of Stanley
and Elsie Roth Foundation (charitable foundation) and BAR
Assurance and Reinsurance Limited (insurance company). His
address is 1285 Avenue of the Americas, New York, NY 10019.
JEFFREY M. COLE, 52, is a member of the law firm of Baer
Marks & Upham with which he has been associated since prior to
1994. He is a Director of Rigel Communications, Inc. (cable
systems) and an Adjunct Professor of Law at New York University
School of Law. His address is 805 Third Avenue, New York, New
York 10022.
RICHARD J. DALY, 45, is Group Co-President of ADP Financial
Information Services, Inc. and Corporate Vice President of
Automatic Data Processing, Inc. since January 1989. His address
is 51 Mercedes Way, Edgewood, New York 11717.
WILLIAM H. FOULK, JR., 66, is an investment adviser and
independent consultant. He was formerly Senior Manager of
Barrett Associates, Inc., a registered investment adviser, with
which he had been associated since prior to 1994. His address is
2 Greenwich Plaza, Suite 100, Greenwich, Connecticut 06830.
ARTHUR S. KRANSELER, 64, is currently an independent
management consultant. He was formerly Corporate Vice-President
of Corporate Development for Automatic Data Processing, Inc.
(information services data processing) with which he had been
associated since prior to 1994. His address is 3407 South Ocean
Boulevard, Suite 5-C, Highland Beach, Florida 33487.
ROBERT A. LEWIS, 45, is a member of the law firm McCutchen,
Doyle, Brown & Enersen with which he has been associated since
prior to 1994. His address is Three Embarcadero Center, Suite
2800, San Francisco, California 94111.
CLIFFORD L. MICHEL, 59, is a member of the law firm of Cahill
Gordon & Reindel, with which he has been associated since prior
to 1994. He is President and Chief Executive Officer of Wenonah
Development Company (investments) and a Director of Placer Dome
Inc. (mining) and, since 1996, he is a Director, Vice Chairman
and Treasurer of Atlantic Health Systems Inc. and Atlantic
Hospital. His address is St. Bernard's Road, Gladstone, New
Jersey 07934.
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WILLIAM L. RHOADS III, 70, is a financial consultant.
Previously, he was Chairman, Trust and Investment Committee, J.P.
Morgan Delaware (banking) and President and Chief Executive
Officer of C.F. Kettering, Inc. (holding company). Currently,
President and Director of the following holding companies: TRP
Finance, Inc., Church Street Holdings, Inc. and New Century
Holdings, Inc., Vice Chairman and Director of ADP Atlantic, Inc.
and Affiliates and a Director of ADP Insurance Company, Ltd. His
address is 1009 Barley Drive, Wilmington, Delaware.
RICHARD R. STUMM, 40, is Vice President of Automatic Data
Processing/Financial Information Services Division with which he
has been associated since prior to 1994. His address is 2
Journal Square Plaza, Jersey City, NJ 07306.
OFFICERS
JOHN R. BONCZEK, 39, Senior Vice President, is a Vice
President of ACMC with which he has been associated since prior
to 1994.
KATHLEEN A. CORBET, 39, Senior Vice President, is an
Executive Vice President of ACMC since prior to 1994.
ROBERT I. KURZWEIL, 48, Senior Vice President, 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 1994.
RAYMOND J. PAPERA, 43, Senior Vice President, is a Senior
Vice President of ACMC with which he has been associated since
prior to 1994.
PATRICIA NETTER, 47, Senior Vice President, is a Vice
President of ACMC with which she has been associated since prior
to 1994.
KENNETH T. CARTY, 38, Vice President, is an Assistant Vice
President of ACMC with which he has been associated since prior
to 1994.
JOHN F. CHIODI, 32, Vice President, is a Vice President of
ACMC with which he has been associated since prior to 1994.
DORIS T. CILIBERTI, 35, Vice President, is an Assistant Vice
President of ACMC with which she has been associated since prior
to 1994.
LINDA D. KELLEY, 38, Vice President, is an Assistant Vice
President of ACMC with which she has been associated since August
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1993. Previously, she was an Associate Director of The Reserve
Fund since prior to 1994.
EDMUND P. BERGAN, Jr., 48, Secretary, is a Senior Vice
President and 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, 48, Treasurer and Chief Financial Officer,
is a Senior Vice President of AFS with which he has been
associated since prior to 1994.
VINCENT S. NOTO, 34, Controller and Chief Accounting Officer,
is a Vice President of AFS with which he has been associated
since prior to 1994.
The Fund does not pay any fees to, or reimburse expenses of,
its Trustees who are "affiliated persons" of the Adviser. The
aggregate compensation to be paid by the Fund to each of the
Trustees during its current fiscal year ending November 30, 1998
(estimating future payments based upon existing arrangements),
the aggregate compensation paid to each of the Trustees during
calendar year 1998 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.
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Total Number
Total Number of Investment
of Funds in Portfolios
the Alliance Within the
Fund Complex, Funds,
Compensation Including the Including
from the Fund, as to the Fund,
Aggregate Alliance Fund which the as to which
Compensation Complex, Trustee is a the Trustee
Name of Trustee from the Including the Director or is a Director
of the Fund Fund Fund Trustee or Trustee
________________ ____________ _____________ _____________ ______________
John D. Carifa -0- -0- 50 114
Richard S. Borisoff 2,000 2,000 1 3
Jeffrey M. Cole 3,000 3,000 1 3
Richard J. Daly -0- -0 - 1 3
William H. Foulk, Jr. 3,000 241,002.50 45 109
Arthur S. Kranseler 3,000 3,000 1 3
Robert A. Lewis 2,500 2,500 1 3
Clifford L. Michel 3,000 187,762.50 38 90
William L. Rhoads III 3,000 3,000 1 3
Richard R. Stumm -0- -0- 1 3
Ronald M. Whitehill -0- -0- 1 3
As of March 15, 1999, the Trustees and officers of the Fund
as a group owned less than 1% of the shares of the Fund.
ADVISER
Alliance Capital Management L.P., a New York Stock Exchange
listed company with principal offices at 1345 Avenue of the
Americas, New York, New York 10105, has been retained under an
investment advisory agreement (the "Advisory Agreement") to
provide investment advice and, in general, to conduct the
management and investment program of the Fund under the
supervision and control of the Fund's Trustees.
The Adviser is a leading international investment manager
supervising client accounts with assets as of December 31, 1998
of more than $286 billion (of which more than $118 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 December 31, 1998,the
Adviser was retained as an investment manager for employee
benefit plan assets for 35 of the FORTUNE 100 companies. As of
July 31, 1998, the Adviser and its subsidiaries employ
approximately 2,000 employees who operate out of domestic offices
and the offices of subsidiaries in Bahrain, Bangalore, Cairo,
Chennai, Hong Kong, Istanbul, Johannesburg, London, Luxembourg,
22
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Madrid, Moscow, Mumbai, New Delhi, Paris, Pune, Sao Paolo, Seoul,
Singapore, Sydney, Tokyo and Toronto, Vienna and Warsaw. The 54
registered investment companies comprising 118 separate
investment portfolios managed by the Adviser currently have more
than 3.6 million shareholder accounts.
Alliance Capital Management Corporation, the sole general
partner of, and the owner of a 1% general partnership interest
in, the Adviser, is an indirect wholly-owned subsidiary of The
Equitable Life Assurance Society of the United States
("Equitable"), one of the largest life insurance companies in the
United States and a wholly-owned subsidiary of The Equitable
Companies Incorporated ("ECI"). 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, approximately 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 each
Portfolio of 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.
23
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Under the Advisory Agreement, each of the Portfolios pays an
advisory fee at the annual rate of .50 of 1% of the average daily
net assets of each Portfolio. The fee is accrued daily and paid
monthly. For the fiscal year ended November 30, 1998, the Adviser
received from the Prime, Government and General Municipal
Portfolios, net advisory fees of $14,714,715, $503,374 and
$475,957, respectively. For the year ended November 30, 1997,
the Adviser received from the Prime, Government and General
Municipal Portfolios, net advisory fees of $14,448,704, $306,154
and $443,791, respectively. For the period December 29, 1995
(commencement of operations) through November 30, 1996 for the
Prime and Government Portfolios, and for the period December 13,
1995 (commencement of operations) through November 30, 1996 for
the General Municipal Portfolio, the Advisor received from the
Fund net advisory fees of $10,427,618, $412,525 and $500,241,
respectively. The Adviser may waive a portion of its advisory
fees payable from one or more of the Portfolios. The Adviser has
undertaken to reimburse each Portfolio to the extent that its
aggregate expenses (excluding taxes, brokerage, interest and,
where permitted, extraordinary expenses) exceed 1% of its average
daily net assets for the fiscal year unless the Advisor provides
the Fund with at least 60 days' notice prior to the end of the
fiscal year of its determination not to extend the undertaking.
For the year ended November 30, 1998, the Adviser reimbursed the
Prime, Government and General and General Municipal Portfolios
$1,000,900, $137,643 and $186,744, respectively. For the year
ended November 30, 1997, the Adviser reimbursed the Prime,
Government and General and General Municipal Portfolios $923,957,
$255,475 and $247,578, respectively. In accordance with the
Distribution Services Agreement described below, each Portfolio
of the Fund may pay a portion of advertising and promotional
expenses in connection with the sale of shares of the Portfolio.
Each Portfolio also pays for printing of prospectuses and other
reports to shareholders and all expenses and fees related to
registration and filing with the Securities and Exchange
Commission and with state regulatory authorities. Each Portfolio
pays all other expenses incurred in its operations, including the
Adviser's fees; the Administration fees (as described below);
custody, transfer and dividend disbursing expenses; legal and
auditing costs; clerical, accounting and other office costs; fees
and expenses of Trustees who are not affiliated persons; and
interest charges, taxes, brokerage fees, and commissions. As to
the obtaining of clerical and accounting services not required to
be provided to each Portfolio by the Adviser under the Advisory
Agreement, each Portfolio may employ its own personnel. For such
services, it also may utilize personnel employed by the Adviser
or its affiliates; if so done the services may be provided to
each Portfolio at cost, as applicable, and the payments therefore
must be specifically approved in advance by the Fund's Trustees.
24
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The Advisory Agreement became effective on March 16, 1995.
Continuance of the Advisory Agreement until February 29, 2000 was
approved by the vote, cast in person by all the Trustees of 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
February 10, 1999. The Advisory Agreement remains in effect from
year to year provided that such continuance is specifically
approved at least annually by a vote of a majority of the
outstanding shares of each Portfolio or by the Fund's Trustees,
including in either case approval by a majority of the Trustees
who are not parties to the 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
each Portfolio; and it will automatically terminate in the event
of assignment. The Adviser is not liable for any action or
inaction with 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.
THE ADMINISTRATOR
Pursuant to an Administration Agreement, dated as of
March 16, 1995 (the "Administration Agreement"), ADP Financial
Information Services, Inc., a wholly-owned subsidiary of
Automatic Data Processing, Inc., serves as administrator of the
Fund, on behalf of the Portfolios. The Administrator provides
certain administrative and shareholder accounting services,
consisting primarily of remote processing services through its
proprietary shareholder accounting system. ADP does not have any
responsibility or authority for the management of the Portfolios,
the determination of investment policy, or for any matter
pertaining to the distribution of the Fund's shares.
Under the Administration Agreement, ADP may render similar
administrative services to others. The Administration Agreement
is terminable without penalty by the Fund on behalf of each
Portfolio on 60 days' written notice to ADP (which notice may be
waived by ADP) or by ADP on 60 days' written notice to the Fund
(which notice may be waived by the Fund). The Administration
Agreement also provides that ADP shall not be liable for any
error of judgment or mistake of law, except for willful
misfeasance, bad faith or gross negligence in the performance of
its duties or by reason of reckless disregard of its duties under
the Administration Agreement.
The Administration Agreement provides that, in the event the
operating expenses of any Fund or Portfolio, including all
investment advisory and administration fees, but excluding
25
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<PAGE>
brokerage commissions and fees, taxes, interest and extraordinary
expenses such as litigation, for any fiscal year exceed the most
restrictive expense limitation applicable to a Portfolio imposed
by the securities laws or regulations thereunder of any Portfolio
are qualified for sale, as such limitations may be raised or
lowered from time to time, ADP shall reduce its administration
fee (which fee is described below). The amount of any such
reduction to be borne by ADP shall be deducted from the monthly
administration fee otherwise payable to ADP during such fiscal
year; and if such amounts should exceed the monthly fee, shall
pay to each Portfolio its share of such excess expenses no later
than the last day of the first month of the next succeeding
fiscal year.
In consideration of the services provided by ADP pursuant to
the Administration Agreement, ADP receives from each Portfolio a
fee computed daily and paid monthly at a maximum annual rate
equal to .05% of each of the Portfolio's average daily net
assets. ADP may voluntarily waive a portion of the fees payable
to it with respect to each Portfolio under the Administration
Agreement. For the fiscal year ended November 30, 1998, ADP
received from the Prime, Government and General Municipal
Portfolios, net administration fees of $629,699, $25,539 and
$26,475, respectively. For such period, ADP waived its fee in
the amount of $941,863, $38,562 and $39,794, respectively, for
the Prime, Government and General Municipal Portfolios. ADP pays
the fees and expenses of the Trustees who are affiliated with
ADP.
DISTRIBUTION SERVICES AGREEMENT
Rule 12b-1 adopted by the Commission under the 1940 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, on
behalf of the Portfolios, has entered into a Distribution
Services Agreement (the "Agreement") which includes a plan
adopted pursuant to Rule 12b-1 (the "Plan"). Pursuant to the
Plan, each Portfolio pays to the Distributor a Rule 12b-1
distribution services fee, which may not exceed an annual rate of
.45% of each Portfolio's aggregate average daily net assets. In
addition, under the Agreement the Adviser may make payments for
distribution assistance and for administrative and accounting
services from its own resources which may include the management
fee paid by each Portfolio.
Payments under the Agreement are used in their entirety for
(i) payments to broker-dealers and other financial
intermediaries, including Donaldson, Lufkin & Jenrette Securities
Corporation and its Pershing Division, affiliates of the Adviser,
for distribution assistance and to banks and other depository
26
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<PAGE>
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 each
Portfolio and its shareholders. For the year ended November 30,
1998, the Prime Portfolio made payments to the Adviser for
expenditures under the Agreement in amounts aggregating
$14,144,057 which constituted .45% at an annual rate of the
Portfolio's average daily net assets and the Adviser made
payments from its own resources as described above aggregating
$5,030,006. Of the $19,174,063 paid by the Adviser and the
Portfolio under the Agreement, $647,000 was paid for advertising,
printing and mailing of prospectuses to persons other than
current shareholders; and $18,527,063 was paid to broker-dealers
and other financial intermediaries for distribution assistance.
For the year ended November 30, 1998, the Government Portfolio
made payments to the Adviser for expenditures under the Agreement
in amounts aggregating $576,915 which constituted .45% at an
annual rate of the Portfolio's average daily net assets and the
Adviser made payments from its own resources as described above
aggregating $195,954. Of the $772,869 paid by the Adviser and
the Portfolio under the Agreement, $30,000 was paid for
advertising, printing and mailing of prospectuses to persons
other than current shareholders; and $742,869 was paid to broker-
dealers and other financial intermediaries for distribution
assistance. For the year ended November 30, 1998, the General
Municipal Portfolio made payments to the Adviser for expenditures
under the Agreement in amounts aggregating $596,433 which
constituted .45% at an annual rate of the Portfolio's average
daily net assets and the Adviser made payments from its own
resources as described above aggregating $176,377. Of the
$772,810 paid by the Adviser and the Portfolio under the
Agreement, $41,000 was paid for advertising, printing and mailing
of prospectuses to persons other than current shareholders; and
$731,810 was paid to broker-dealers and other financial
intermediaries for distribution assistance.
The administrative and accounting services provided by
broker-dealers, depository institutions and other financial
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 each Portfolio. As interpreted by courts and
administrative agencies, certain laws and regulations limit the
ability of a bank or other depository institution to become an
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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 1940 Act) are committed to the
discretion of the disinterested Trustees then in office.
The Agreement became effective on March 16, 1995.
Continuance of the Agreement until February 29, 2000 was approved
by the vote, case in person by all the Trustees of 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 February 10,
1999.
The Agreement may be continued annually if approved by a
majority vote of the Trustees who neither are interested persons
of the Fund or a Portfolio nor have any direct or indirect
financial interest in the Agreement or in any related agreement,
case in persons at a meeting called for that purpose.
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 a Portfolio may bear pursuant to the
shares of the Portfolio. 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 a Portfolio or by the
Adviser. Any agreement with a qualifying broker-dealer or other
financial intermediary may be terminated without penalty on not
more than 60 days' written notice by a vote of the majority of
non-party Trustees, by a vote of a majority of the outstanding
shares of a Portfolio, or by the Adviser 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
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sales charges and service fees that a mutual fund may impose to
.75% and .25%, respectively, of average annual net assets.
TRANSFER AGENT AND DISTRIBUTOR
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.
_______________________________________________________________
PURCHASE AND REDEMPTION OF SHARES
_______________________________________________________________
The Fund, on behalf of each Portfolio, may refuse any order
for the purchase of shares. The Fund reserves the right to
suspend the sale of its shares to the public in response to
conditions in the securities markets or for other reasons.
Shareholders maintaining Portfolio 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 Portfolio itself so that the institutions may
properly process such orders prior to their transmittal to The
Bank of New York ("BONY"). Should an investor place a transaction
order with such an institution after its deadline, the
institution may not effect the order with the Portfolio 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 Portfolio's distributor accepts
purchase orders from its customers up to 2:15 p.m. (New York
time) for issuance at the 4:00 p.m. transaction time and price.
A brokerage firm acting on behalf of a customer in connection
with transactions in Portfolio 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 Portfolio shares become effective
at the next transaction time after Federal funds or bank wire
monies become available to BONY 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
BONY by bank wire. Money transmitted by a check drawn on a
member of the Federal Reserve System following receipt. Checks
drawn on banks which are not members of the Federal Reserve
29
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<PAGE>
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 a Portfolio 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, check-writing or periodic redemption
procedures. The Fund, on behalf of each Portfolio, reserves the
right to reject any purchase order.
A "business day," during which purchases and redemptions of
Portfolio shares can become effective and the transmittal of
redemption proceeds can occur, is considered for Fund purposes as
any weekday exclusive of national holidays on which the New York
Stock Exchange is closed and Good Friday and Martin Luther King,
Jr. 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. 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 each Portfolio at such time and the income earned.
_______________________________________________________________
DAILY DIVIDENDS - DETERMINATION OF NET ASSET VALUE
_______________________________________________________________
All net income of each Portfolio is determined after the
close of each business day, currently 4:00 p.m. New York time
(and at such other times as the Trustees may determine) and is
paid immediately thereafter pro rata to shareholders of record of
that Portfolio 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.
A Portfolio's net income consists of all accrued interest
income on Portfolio assets less expenses allocable to that
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Portfolio (including accrued expenses and fees payable to the
Adviser) applicable to that dividend period. Realized gains and
losses are reflected in a Portfolio's net asset value and are not
included in net income. Net asset value per share of each
Portfolio is expected to remain constant at $1.00 since all net
income of each Portfolio is declared as a dividend each time net
income is determined and net realized gains and losses are
expected to be relatively small.
The valuation of each Portfolio's securities is based upon
their amortized cost which does not take into account unrealized
securities gains or losses as measured by market valuations. The
amortized cost method involves valuing an instrument at its cost
and thereafter applying a constant amortization to maturity of
any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the instrument. During
periods of declining interest rates, the daily yield on shares of
a Portfolio 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 maintains procedures designed to maintain its share
price at $1.00. Such procedures include review of each
Portfolio's holdings by the Trustees at such intervals as they
deem appropriate to determine whether and to what extent the net
asset value of each Portfolio calculated by using available
market quotations or market equivalents deviates from net asset
value based on amortized cost. 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 of each Portfolio is
determined each business day (and on such other days as the
Trustees deem necessary) at 12:00 Noon and 4:00 p.m. New York
time. The net asset value per share of a Portfolio is calculated
by taking the sum of the value of that Portfolio's investments
and any cash or other assets, subtracting liabilities, and
dividing by the total number of shares of that Portfolio
outstanding. All expenses, including the fees payable to the
Adviser, are accrued daily.
_______________________________________________________________
TAXES
_______________________________________________________________
FEDERAL INCOME TAX CONSIDERATIONS
Each of the Fund's Portfolios has qualified for each fiscal
year to date and intends to qualify in each future year to be
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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
each Portfolio of the Fund distributes all of its net income and
capital gains, each Portfolio should thereby avoid all Federal
income and excise taxes.
Shareholders generally are not subject to Federal income tax
with respect to distributions out of tax-exempt interest income
earned by the General Municipal Portfolio of the Fund. See,
however, "Alternative Minimum Tax" above.
Distributions out of taxable interest income, other
investment income, and short-term capital gains are taxable to
shareholders as ordinary income. Since each Portfolio's
investment income is derived from interest rather than dividends,
no portion of such distributions is eligible for the dividends-
received deduction available to corporations. Long-term capital
gains, if any, distributed by the Fund to a shareholder are
taxable to the shareholder as long-term capital gain,
irrespective of the length of time he may have held his shares.
Distributions of short and long-term capital gains, if any, are
normally made once each year near calendar year-end, although
such distributions may be made more frequently if necessary in
order to maintain the Fund's net asset value at $1.00 per share.
Interest on indebtedness incurred by shareholders to purchase
or carry shares of the Fund is not deductible for Federal income
tax purposes. Under rules of the Internal Revenue Service for
determining when borrowed funds are used for purchasing or
carrying particular assets, shares may be considered to have been
purchased or carried with borrowed funds even though those funds
are not directly linked to the shares. Further, persons who are
"substantial users" (or related persons) of facilities financed
by private activity bonds (within the meaning of Sections 147(a)
of the Code) should consult their tax advisers before purchasing
shares of the General Municipal Portfolio.
Substantially all of the dividends paid by the General
Municipal Portfolio are anticipated to be exempt from Federal
income taxes. Shortly after the close of each calendar year, a
notice is sent to each shareholder advising him of the total
dividends paid into his account for the year and the portion of
such total that is exempt from Federal income taxes. This
portion is determined by the ratio of the tax-exempt income to
total income for the entire year and, thus, is an annual average
rather than a day-by-day determination for each shareholder.
Each Portfolio generally will be required to withhold tax at
the rate of 31% with respect to dividends of net ordinary income
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and net realized capital gains payable to a noncorporate
shareholder unless the shareholder certifies on his subscription
application that the social security or taxpayer identification
number provided is correct and that the shareholder has not been
notified by the Internal Revenue Service that he is subject to
backup withholdings.
STATE INCOME TAX CONSIDERATIONS
PRIME PORTFOLIO AND GOVERNMENT PORTFOLIO. Shareholders of
the Prime Portfolio and the Government Portfolio may be subject
to state and local taxes on distributions from the Prime
Portfolio and Government Portfolio. The laws of some states may
exempt from some taxes dividends from the Prime Portfolio or the
Government Portfolio to the extent such dividends are
attributable to interest from obligations of the U.S. Government
and certain of its agencies and instrumentalities.
GENERAL MUNICIPAL PORTFOLIO. Shareholders of the General
Municipal Portfolio may be subject to state and local taxes on
distributions from the General Municipal Portfolio, including
distributions which are exempt from Federal income taxes. Each
investor should consult his own tax adviser to determine the tax
status of distributions from the General Municipal Portfolio in
his particular state and locality.
_______________________________________________________________
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 securities
transactions for each Portfolio. Because the Portfolios invest
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 Portfolio's shares since the Portfolio's 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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<PAGE>
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 each Portfolio. 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. Portfolio securities
will not be purchased from or sold to the Adviser's affiliate,
Donaldson, Lufkin & Jenrette, Inc., or any subsidiary or
affiliate of the parent. For the year ended November 30, 1998,
the Prime, Government and General Municipal Portfolios paid $-0-,
$-0- and $-0-, respectively, for brokerage commissions.
CAPITALIZATION. All shares of each Portfolio, 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. Shares of each
Portfolio are normally entitled to one vote for all purposes.
Generally, shares of the Fund vote as a single series for the
election of Trustees and on any other matter affecting the Fund.
As to matters affecting each Portfolio differently, such as
approval of the Advisory Agreement and changes in investment
policy, shares of each Portfolio vote as 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 1940 Act.
As of March 15, 1999, there were 857,881,933 shares of
beneficial interest of the Fund outstanding. Of this amount
758,367,974 were for the Prime Portfolio; 49,665,188 were for
the Government Portfolio and 49,848,771 were for the General
Municipal Portfolio. 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 March 15,
1999.
34
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% of
Name and Address No. of Shares Portfolio
Prime Portfolio
Discover Brokerage - Omnibus
280 W. 10200 S
Sandy, UT 84070-4267 758,218,656 99.98%
Government Portfolio
Discover Brokerage - Omnibus
280 W. 10200 S
Sandy, UT 84070-4267 49,626,704 99.9%
General Municipal Portfolio
Discover Brokerage - Omnibus
280 W. 10200 S
Sandy, UT 84070-4267 36,875,526 73.97%
Wayne Hummer-Omnibus 12,936,770 25.95%
300 S. Wacker Dr. suite 1500
Chicago, IL 60606-6607
SHAREHOLDER LIABILITY. Under Massachusetts law, shareholders
could, under certain circumstances, be held personally liable for
the obligations of each Portfolio. However, the Agreement and
Declaration of Trust disclaims shareholder liability for acts or
obligations of the Fund and requires that the Trustees use their
best efforts to ensure that notice of such disclaimer be given in
each note, bond, contract, instrument, certificate or undertaking
made or issued by the trustees or officers of the Fund. The
Agreement and Declaration of Trust provides for indemnification
out of the property of the Portfolios for all loss and expense of
any shareholder of a Portfolio held personally liable for the
obligations of the Portfolio. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is
limited to circumstances in which a Portfolio would be unable to
meet its obligations. In the review of the Adviser, such risk is
not material.
LEGAL MATTERS. The legality of the shares offered hereby has
been passed upon by Seward & Kissel LLP, New York, New York,
counsel for the Fund. Seward & Kissel has relied upon the
opinion of Sullivan & Worcester, Boston, Massachusetts, for
matters relating to Massachusetts law.
ACCOUNTANTS. An opinion relating to each Portfolio's
financial statements is given herein by McGladrey & Pullen LLP,
New York, New York, independent auditors for the Fund.
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YIELD QUOTATIONS AND PERFORMANCE INFORMATION. Advertisements
containing yield quotations for one or more Portfolios 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.
Yield quotations are calculated in accordance with the
standardized method referred to in Rule 482 under the Securities
Act of 1933.
Yield quotations for a Portfolio are thus determined by
(i) computing the net change over a seven-day period, exclusive
of the capital changes, in the value of a hypothetical pre-
existing account having a balance of one share of such Portfolio
at the beginning of such period, (ii) dividing the net change in
account value by the value of the account at the beginning of the
base period to obtain the base period return, and
(iii) multiplying the base period return by (365/7) with the
resulting yield figure carried to the nearest hundredth of one
percent. A Portfolio's effective annual yield represents a
compounding of the annualized yield according to the formula:
effective yield = [(base period return + 1) 365/7] - 1.
The Prime Portfolio's yield for the seven-day period ended
November 30, 1998 was 4.14% which is the equivalent of a 4.23%
compounded effective yield. Absent expense reimbursement, the
annualized yield for this period would have been 4.08%,
equivalent to an effective yield of 4.17%. The Government
Portfolio's yield for the seven-day period ended November 30,
1998 was 4.25% which is the equivalent of a 4.34% compounded
effective yield. Absent expense reimbursement, the annualized
yield for this period would have been 4.11%, equivalent to an
effective yield of 4.20%. The General Municipal Portfolio's
yield for the seven-day period ended November 30, 1998 was 2.43%
which is the equivalent of a 2.46% compounded effective yield.
Absent expense reimbursement, the annualized yield for this
period would have been 2.26%, equivalent to an effective yield of
2.29%.
Depending on an investor's tax bracket, an individual
investor may earn a substantially higher after-tax return from
the General Municipal Portfolio than from comparable investments
whose income is taxable. For example, for an investor subject to
the top 1998 Federal personal income tax rate, the 2.43% tax-
exempt yield of the General Municipal Portfolio for the seven-day
period ended November 30, 1998 was equivalent to a taxable yield
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of 4.02% and the effective yield of 2.46% for such period was
equivalent to a taxable yield of 4.07%.
In this example it is assumed that an investor can fully
deduct the state and local income taxes for Federal income tax
purposes and that the investor is not subject to federal or state
alternative minimum taxes. Taxable equivalent yield is computed
by dividing that portion of the yield of the Portfolio that is
tax exempt (assumed for purposes of the example to be the entire
yield of 5%) by one minus the applicable marginal income tax rate
(39.6% in the case of the General Municipal Portfolio) and adding
the quotient to that portion, if any, of the yield of the General
Municipal Portfolio that is not tax-exempt.
From time to time the General Municipal Portfolio may
advertise hypothetical tax equivalent yields in advertising.
These will be used for illustrative purposes only and not as
representative of the General Municipal Portfolio's past or
future performance.
PERIODIC DISTRIBUTION PLANS. Without affecting shareholders'
right of using any of the methods of redemption described above,
by checking the appropriate boxes on the Application Form
shareholders may elect to participate additionally in the
following plans without any separate charge. Under the Income
Distribution Plan shareholders receive monthly payments of all
the income earned in his or her Portfolio account, with payments
forwarded shortly after the close of the month. Under the
Systematic Withdrawal Plan, shareholders may request checks in
any specified amount of $50 or more each month or in any
intermittent pattern of months. If desired, shareholders can
order, via signature-guaranteed letter to the Portfolio, such
periodic payments to be sent to another person.
REPORTS. You will receive semi-annual and annual reports of
the Portfolio(s) in which you are a shareholder 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.
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 SECURITIES AND
EXCHANGE 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
DESCRIPTION OF MUNICIPAL SECURITIES
_______________________________________________________________
MUNICIPAL NOTES generally are used to provide for short-term
capital needs and usually have maturities of one year or less.
They include the following:
1. PROJECT NOTES, which carry a U.S. Government guarantee,
are issued by public bodies (called "local issuing agencies")
created under the laws of a state, territory, or U.S. possession.
They have maturities that range up to one year from the date of
issuance. Project Notes are backed by an agreement between the
local issuing agency and the Federal Department of Housing and
Urban Development. These Notes provide financing for a wide
range of financial assistance programs for housing,
redevelopment, and related needs (such as low-income housing
programs and renewal programs).
2. TAX ANTICIPATION NOTES are issued to finance working
capital needs of municipalities. Generally, they are issued in
anticipation of various seasonal tax revenues, such as income,
sales, use and business taxes, and are payable from these
specific future taxes.
3. REVENUE ANTICIPATION NOTES are issued in expectation of
receipt of other types of revenues, such as Federal revenues
available under the Federal Revenue Sharing Programs.
4. BOND ANTICIPATION NOTES are issued to provide interim
financing until long-term financing can be arranged. In most
cases, the long-term bonds then provide the money for the
repayment of the Notes.
5. CONSTRUCTION LOAN NOTES are sold to provide construction
financing. After successful completion and acceptance, many
projects receive permanent financing through the Federal Housing
Administration under the Federal National Mortgage Association or
the Government National Mortgage Association.
6. TAX-EXEMPT COMMERCIAL PAPER is a short-term obligation
with a stated maturity of 365 days or less. It is issued by
agencies of state and local governments to finance seasonal
working capital needs or as short-term financing in anticipation
of longer term financing.
A-1
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MUNICIPAL BONDS, which meet longer term capital needs and
generally have maturities of more than one year when issued, have
three principal classifications:
1. GENERAL OBLIGATION BONDS are issued by such entities as
states, counties, cities, towns, and regional districts. The
proceeds of these obligations are used to fund a wide range of
public projects, including construction or improvement of
schools, highways and roads, and water and sewer systems. The
basic security behind General Obligation Bonds is the issuer's
pledge of its full faith and credit and taxing power for the
payment of principal and interest. The taxes that can be levied
for the payment of debt service may be limited or unlimited as to
the rate or amount of special assessments.
2. REVENUE BONDS generally are secured by the net revenues
derived from a particular facility, group of facilities, or, in
some cases, the proceeds of a special excise or other specific
revenue source. Revenue Bonds are issued to finance a wide
variety of capital projects including electric, gas, water and
sewer systems; highways, bridges, and tunnels; port and airport
facilities; colleges and universities; and hospitals. Many of
these Bonds provide additional security in the form of a debt
service reserve fund to be used to make principal and interest
payments. Housing authorities have a wide range of security,
including partially or fully insured mortgages, rent subsidized
and/or collateralized mortgages, and/or the net revenues from
housing or other public projects. Some authorities provide
further security in the form of a state's ability (without
obligation) to make up deficiencies in the debt service reserve
fund.
3. INDUSTRIAL DEVELOPMENT BONDS are considered municipal
bonds if the interest paid thereon is exempt from Federal income
tax and are issued by or on behalf of public authorities to raise
money to finance various privately operated facilities for
business and manufacturing, housing, sports, and pollution
control. These Bonds are also used to finance public facilities
such as airports, mass transit systems, ports, and parking. The
payment of the principal and interest on such Bonds is dependent
solely on the ability of the facility's user to meet its
financial obligations and the pledge, if any, of real and
personal property as security for such payment.
A-2
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_______________________________________________________________
APPENDIX B
DESCRIPTION OF SECURITIES RATINGS
_______________________________________________________________
Municipal and Corporate
BONDS AND MUNICIPAL LOANS
The two highest ratings of Moody's Investors Service, Inc.
("Moody's") for municipal and corporate bonds are Aaa and Aa.
Bonds rated Aaa are judged by Moody's to be of the best quality.
Bonds rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally
known as high-grade bonds. Moody's states that Aa bonds are
rated lower than the best bonds because margins of protection or
other elements make long-term risks appear somewhat larger than
Aaa securities. The generic rating Aa may be modified by the
addition of the numerals 1, 2 or 3. The modifier 1 indicates
that the security ranks in the higher end of the Aa rating
category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates that the issue ranks in the lower end of
such rating category.
The two highest ratings of Standard & Poor's Corporation
("Standard & Poor's") for municipal and corporate bonds are AAA
and AA. Bonds rated AAA have the highest rating assigned by
Standard & Poor's to a debt obligation. Capacity to pay interest
and repay principal is extremely strong. Bonds rated AA have a
very strong capacity to pay interest and repay principal and
differ from the highest rated issues only in a small degree. The
AA rating may be modified by the addition of a plus (+) or minus
(-) sign to show relative standing within that rating category.
SHORT-TERM MUNICIPAL LOANS
Moody's highest rating for short-term municipal loans is
MIG-1/VMIG-1. Moody's states that short-term municipal
securities rated MIG-1/VMIG-1 are of the best quality, enjoying
strong protection from established cash flows of funds for their
servicing or from established and broad-based access to the
market for refinancing, or both. Loans bearing the MIG-2/VMIG-2
designation are of high quality, with margins of protection ample
although not so large as in the MIG1/VMIG-1 group.
Standard & Poor's highest rating for short-term municipal
loans is SP-1. Standard & Poor's states that short- term
municipal securities bearing the SP-1 designation have very
strong or strong capacity to pay principal and interest. Those
issues rated SP-1 which are determined to possess overwhelming
B-1
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safety characteristics will be given a plus (+) designation.
Issues rated SP-2 have satisfactory capacity to pay principal and
interest.
OTHER MUNICIPAL SECURITIES AND COMMERCIAL PAPER
"Prime-1" is the highest rating assigned by Moody's for other
short-term municipal securities and commercial paper, and "A-1+"
and "A-1" are the two highest ratings for commercial paper
assigned by Standard & Poor's (Standard & Poor's does not rate
short-term tax-free obligations). Moody's uses the numbers 1, 2
and 3 to denote relative strength within its highest
classification of "Prime", while Standard & Poor's uses the
number 1+, 1, 2 and 3 to denote relative strength within its
highest classification of "A". 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.
While protective elements may change over the intermediate or
longer term, such changes are most unlikely to impair the
fundamentally strong position of short-term obligations.
Commercial paper issuers 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, and basic earnings and cash flow are in an upward
trend. Typically, the issuer is a strong company in a well-
established industry and has superior management.
B-2
00250217.AM6
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