<PAGE>
AFD EXCHANGE RESERVES
ANNUAL REPORT
SEPTEMBER 30, 1995
<PAGE>
LETTER TO SHAREHOLDERS AFD EXCHANGE RESERVES
=============================================================================
November 2, 1995
Dear Shareholder:
We are pleased to provide an overview of market and Fund activity during AFD
Exchange Reserves' fiscal reporting period ended September 30, 1995. As you
know, AFD Exchange Reserves serves as the money market fund* exchange vehicle
for the Alliance mutual funds. The Fund's investment objective is to provide
maximum current income consistent with safety of principal and liquidity.
The Fund's assets at the end of the fiscal year totaled approximately $116
million, and dividends of $.0235 per Class A share, $.0210 per Class B share and
$.0223 per Class C share were paid over the six-month period since we last
reported.
The Fund remains invested in high quality money market securities, which include
marketable obligations issued or guaranteed by the U.S. Government and its
agencies. As of September 30, the average weighted maturity of the portfolio was
38 days.
ECONOMIC COMMENTARY
During the reporting period, the Federal Reserve Board changed direction on
monetary policy and lowered short-term interest rates following its meeting in
early July. This 25 basis point decrease in the Federal Funds rate marked the
first deduction in official rates in nearly three years.
Our view is that the economic data support the prospect for another round of
Federal Reserve easing before year end. Our economists expect bond yields to
trade in a wide range with a leaning towards lower levels over the next six
months. Should this occur, your Fund will remain biased toward a longer average
maturity in an environment of lower short-term rates.
We appreciate your continued investment in AFD Exchange Reserves and look
forward to reporting to you again early in 1996.
Sincerely,
John D. Carifa
Chairman and President
* Investments in money market funds are neither insured nor guaranteed by the
U.S. Government and there is no assurance that they will be able to maintain a
stable net asset value of $1.00.
1
<PAGE>
STATEMENT OF NET ASSETS
September 30, 1995 AFD Exchange Reserves
============================================================
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) SECURITY YIELD VALUE
- ------------------------------------------------------------
U.S. GOVERNMENT & AGENCY
OBLIGATIONS--99.2%
FEDERAL NATIONAL
MORTGAGE ASSOCIATION--57.8%
<S> <C> <C> <C>
$ 1,800 11/21/95............. 5.57% $ 1,785,796
24,000 11/29/95............. 5.58 23,780,520
2,000 10/12/95............. 5.60 1,996,578
20,100 10/20/95............. 5.65 20,040,063
10,000 1/22/96.............. 6.04 9,810,411
10,000 5.45%, 4/04/97 FRN 5.55 9,992,935
------------
67,406,303
------------
<CAPTION>
FEDERAL HOME LOAN
MORTGAGE CORPORATION--34.6%
<S> <C> <C> <C>
30,000 10/23/95............ 5.58 29,897,700
4,500 10/23/95............ 5.60 4,484,600
1,000 11/06/95............ 5.62 994,380
3,000 10/16/95............ 5.64 2,992,950
2,000 10/16/95............ 5.65 1,995,292
------------
40,364,922
------------
<CAPTION>
PRINCIPAL
AMOUNT
(000) SECURITY YIELD VALUE
===========================================================
FEDERAL HOME LOAN BANK--6.8%
<S> <C> <C>
$7,000 11/17/95............... 5.61% $ 6,948,731
1,000 11/28/95............... 5.61 990,962
------------
7,939,693
------------
TOTAL INVESTMENTS--99.2%
(amortized cost
$115,710,918)... 115,710,918
Other assets less
liabilities--0.8%. 946,655
------------
NET ASSETS--100%
(offering and redemption
price of $1.00 per share;
41,120,079 Class A shares;
65,270,787 Class B shares and
10,268,998 Class C shares
outstanding).......... $ 116,657,573
=============
</TABLE>
- ----------------------------------------------------------
GLOSSARY OF TERMS:
FRN - Floating Rate Note
See notes to financial statements.
2
<PAGE>
STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1995 AFD EXCHANGE RESERVES
===============================================================================
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME
Interest...................................... $ 6,984,634
EXPENSES
Advisory fee.................................. $ 297,892
Distribution fee-Class A...................... 186,700
Distribution fee-Class B...................... 688,887
Distribution fee-Class C...................... 96,961
Transfer agency............................... 197,666
Administrative................................ 116,000
Registration fees............................. 113,960
Custodian..................................... 70,098
Amortization of organizational expense........ 50,374
Audit and legal............................... 44,062
Trustees' fees................................ 19,767
Printing...................................... 11,397
Miscellaneous................................. 6,906
------------
Total expenses................................ 1,900,670
Less: fee waiver.............................. (87,000) 1,813,670
------------ -----------
Net investment income......................... 5,170,964
REALIZED LOSS ON INVESTMENTS
Net realized loss on investments.............. (1,256)
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS..... $ 5,169,708
===========
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
================================================================================
<TABLE>
<CAPTION>
MARCH 25,1994(A)
YEAR ENDED TO
SEPTEMBER 30, 1995 SEPTEMBER 30, 1994
------------------ ------------------
<S> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS
Net investment income......................... $ 5,170,964 $ 504,187
Net realized loss on investments.............. (1,256) (1,035)
------------ -----------
Net increase in net assets from operations.... 5,169,708 503,152
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income
Class A...................................... (1,730,554) (129,869)
Class B...................................... (2,869,673) (292,791)
Class C...................................... (570,737) (81,527)
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Net increase.................................. 62,057,743 54,501,921
------------ -----------
Total increase................................ 62,056,487 54,500,886
NET ASSETS
Beginning of period........................... 54,601,086 100,200
------------ -----------
End of period................................. $116,657,573 $54,601,086
============ ===========
- ------------------------------------------------------------------------------------------
</TABLE>
(a) Commencement of operations.
See notes to financial statements.
3
<PAGE>
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1995 AFD EXCHANGE RESERVES
================================================================================
NOTE A: SIGNIFICANT ACCOUNTING POLICIES
AFD Exchange Reserves (the "Fund") is registered under the Investment Company
Act of 1940 as a diversified open-end investment company. The Fund offers Class
A, Class B and Class C shares. Class A shares are offered to holders of Class A
shares of other Alliance funds without any sales charge at the time of purchase
or redemption. Class B shares are offered to holders of Class B shares of other
Alliance funds without any sales charge at the time of purchase. Class B shares
which are redeemed within a certain number of years of the original purchase of
Alliance fund Class B shares will be subject to a contingent deferred sales
charges. Class B shares will automatically convert to Class A shares in
accordance with the conversion schedule applicable to the original Alliance fund
Class B shares purchased. Class C shares are offered to holders of Class C
shares of other Alliance funds without any sales charge at the time of purchase
or redemption. All three classes of shares have identical voting, dividend,
liquidation and other rights, except that each class bears its own distribution
and transfer agency expenses and has exclusive voting rights with respect to its
distribution plan. The following is a summary of significant accounting
policies followed by the Fund.
1. VALUATION OF SECURITIES
Securities in which the Fund invests are traded primarily in the over-the-
counter market and are valued at amortized cost, under which method a portfolio
instrument is valued at cost and any premium or discount is amortized on a
constant basis to maturity.
2. ORGANIZATION EXPENSES
Organization expenses of approximately $252,000 have been deferred and are
being amortized on a straight-line basis through March, 1999.
3. TAXES
It is the Fund's policy to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute all of its
investment company taxable income and net realized gains, if applicable, to its
shareholders. Therefore, no provisions for federal income or excise taxes are
required.
4. DIVIDENDS
The Fund declares dividends daily and automatically reinvests such dividends in
additional shares at net asset value. Net realized capital gains on investments,
if any, are expected to be distributed near calendar year end.
5. INVESTMENT INCOME AND SECURITY TRANSACTIONS
Interest income is accrued daily. Security transactions are recorded on the date
securities are purchased or sold. Security gains and losses are determined on
the identified cost basis. It is the Fund's policy to take possession of
securities as collateral under repurchase agreements and to determine on a daily
basis that the value of such securities are sufficient to cover the value of the
repurchase agreements.
- --------------------------------------------------------------------------------
NOTE B: ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The Fund pays its Adviser, Alliance Capital Management L.P. an advisory fee at
the annual rate of .25 of 1% on the first $1.25 billion of average daily net
assets; .24 of 1% on the next $.25 billion; .23 of 1% on the next $.25 billion;
.22 of 1% on the next $.25 billion; .21 of 1% on the next $1 billion; and .20 of
1% in excess of $3 billion. In addition to the advisory fee, the Fund also
reimburses the Adviser for certain legal and accounting services provided to the
Fund by the Adviser. For the year ended September 30, 1995, the Fund incurred
costs of $116,000, of which $87,000 was waived by the Adviser.
The Fund compensates Alliance Fund Services, Inc. (a wholly-owned subsidiary of
the Adviser) for providing personnel and facilities to perform transfer agency
services. Such compensation amounted to $144,631 for the year ended September
30, 1995.
4
<PAGE>
AFD EXCHANGE RESERVES
===============================================================================
NOTE C: DISTRIBUTION SERVICES AGREEMENT
The Fund has adopted a Distribution Services Agreement (the "Agreement")
pursuant to Rule 12B-1 under the Investment Company Act of 1940 for Class A,
Class B and Class C . Under the Agreement, the Fund pays a distribution fee to
the Distributor at an annual rate of up to .50 of 1% of the Fund's average daily
net assets attributable to Class A shares, 1.00% of the average daily net assets
attributable to Class B shares and .75 of 1% of the average daily net assets
attributable to Class C shares. Such fee is accrued daily and paid monthly. The
Agreement provides that the Distributor will use such payments in their entirety
for distribution assistance and promotional activities. The Agreement also
provides that the Adviser may use its own resources to finance the distribution
of the Fund's shares.
- -------------------------------------------------------------------------------
NOTE D: INVESTMENT TRANSACTIONS
At September 30, 1995, the cost of securities for federal income tax purposes
was the same as the cost for financial reporting purposes. At September 30,
1995, the Portfolio had a capital loss carryforward of $2,291 of which $1,035
expires in 2002 and $1,256 expires in 2003.
- -------------------------------------------------------------------------------
NOTE E: TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
An unlimited number of shares ($.001 par value) are authorized. At September 30,
1995, capital paid-in aggregated $41,120,079 for Class A, $65,270,787 for Class
B and $10,268,998 for Class C. Transactions, all at $1.00 per share, were as
follows:
<TABLE>
<CAPTION>
CLASS A
------------------------------------------------
MARCH 25, 1994(A)
YEAR ENDED TO
SEPTEMBER 30, 1995 SEPTEMBER 30, 1994
------------------ ------------------
<S> <C> <C>
Shares sold............................................ 254,814,516 79,563,777
Shares issued on reinvestments of dividends............ 1,730,554 129,869
Shares redeemed........................................ (233,640,310) (61,578,327)
------------ -----------
Net increase........................................... 22,904,760 18,115,319
============ ===========
<CAPTION>
CLASS B
------------------------------------------------
MARCH 25, 1994(A)
YEAR ENDED TO
SEPTEMBER 30, 1995 SEPTEMBER 30, 1994
------------------- ------------------
<S> <C> <C>
Shares sold............................................ 235,826,904 87,623,275
Shares issued on reinvestments of dividends............ 2,869,673 292,791
Shares redeemed........................................ (204,665,847) (56,676,109)
------------ -----------
Net increase........................................... 34,030,730 31,239,957
============ ===========
<CAPTION>
CLASS C
-----------------------------------------------
MARCH 25, 1994(A)
YEAR ENDED TO
SEPTEMBER 30, 1995 SEPTEMBER 30, 1994
------------------ ------------------
<S> <C> <C>
Shares sold............................................ 72,011,656 41,236,143
Shares issued on reinvestments of dividends............ 570,737 81,527
Shares redeemed........................................ (67,460,140) (36,171,025)
------------ -----------
Net increase........................................... 5,122,253 5,146,645
============ ===========
</TABLE>
- ------------------------------------------------------------------------------
(a) Commencement of operations.
5
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED) AFD EXCHANGE RESERVES
================================================================================
NOTE F: FINANCIAL HIGHLIGHTS
Selected data for a share outstanding throughout each period.
<TABLE>
<CAPTION>
CLASS A
----------------------------------------
MARCH 25, 1994(A)
YEAR ENDED TO
SEPTEMBER 30, 1995 SEPTEMBER 30, 1994
------------------ ------------------
<S> <C> <C>
Net asset value, beginning of period.................. $ 1.00 $ 1.00
-------- -------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------
Net investment income.................................. .0453 .0126
-------- -------
LESS: DISTRIBUTIONS
- -------------------
Dividends from net investment income................... (.0453) (.0126)
-------- -------
Net asset value, end of period......................... $ 1.00 $ 1.00
======== =======
TOTAL RETURN
- ------------
Total investment return based on
net asset value (b).................................. 4.64% 2.45%(c)
======= =======
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net assets, end of period (in millions)................ $ 41 $18
Ratio of average net assets to:
Expenses, net of waivers............................. 1.21% 1.82%(c)
Expenses, before waivers............................. 1.29% 1.82%(c)
Net investment income (d)............................ 4.63% 2.62%(c)
<CAPTION>
CLASS B
-------------------------------------------
MARCH 25, 1994(A)
YEAR ENDED TO
SEPTEMBER 30, 1995 SEPTEMBER 30, 1994
-------------------- --------------------
<S> <C> <C>
Net asset value, beginning of period.................. $ 1.00 $ 1.00
------- -------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------
Net investment income................................. .0404 .0101
------- -------
LESS: DISTRIBUTIONS
- -------------------
Dividends from net investment income.................. (.0404) (.0101)
------- -------
Net asset value, end of period........................ $ 1.00 $ 1.00
======= =======
TOTAL RETURN
- ------------
Total investment return based on
net asset value (b)................................. 4.12% 1.95%(c)
======= =======
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net assets, end of period (in millions)............... $ 65 $ 31
Ratio of average net assets to:
Expenses, net of waivers............................ 1.70% 2.35%(c)
Expenses, before waivers............................ 1.78% 2.35%(c)
Net investment income (d)........................... 4.17% 1.91%(c)
- ----------------------------------------------------------------------------------------------------------
</TABLE>
(a) Commencement of operations.
(b) Total investment return is calculated assuming an initial investment made
at the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period, and
redemption on the last day of the period. Contingent deferred sales charge
is not reflected in the calculation of total investment return.
(c) Annualized.
(d) Net of expenses waived by the Adviser.
6
<PAGE>
AFD EXCHANGE RESERVES
================================================================================
<TABLE>
<CAPTION>
CLASS C
-------------------------------------------
MARCH 25, 1994(A)
YEAR ENDED TO
SEPTEMBER 30, 1995 SEPTEMBER 30, 1994
------------------- ----------------------
<S> <C> <C>
Net asset value, beginning of period..... $ 1.00 $ 1.00
------- -------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------
Net investment income.................... .0430 .0112
------- -------
LESS: DISTRIBUTIONS
- -------------------
Dividends from net investment income..... (.0430) (.0112)
------- --------
Net asset value, end of period........... $ 1.00 $ 1.00
======= ========
TOTAL RETURN
- ------------
Total investment return based on
net asset value (b).................... 4.39% 2.18%(c)
======= =======
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net assets, end of period (in millions).. $10 $5
Ratio of average net assets to:
Expenses, net of waivers............... 1.45% 2.08%(c)
Expenses, before waivers............... 1.52% 2.08%(c)
Net investment income (d).............. 4.41% 2.14%(c)
- --------------------------------------------------------------------------------------
</TABLE>
(a) Commencement of operations.
(b) Total investment return is calculated assuming an initial investment made
at the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period, and
redemption on the last day of the period. Contingent deferred sales charge
is not reflected in the calculation of total investment return.
(c) Annualized.
(d) Net of expenses waived by the Adviser.
7
<PAGE>
INDEPENDENT AUDITOR'S REPORT AFD EXCHANGE RESERVES
===============================================================================
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS
AFD EXCHANGE RESERVES
We have audited the accompanying statement of net assets of AFD Exchange
Reserves as of September 30, 1995 and the related statements of operations,
changes in net assets, and financial highlights for the periods indicated in the
accompanying financial statements. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
September 30, 1995 by correspondence with the custodian.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AFD
Exchange Reserves as of September 30, 1995, and the results of its operations,
changes in its net assets, and financial highlights for the periods indicated,
in conformity with generally accepted accounting principles.
McGladrey & Pullen, LLP
New York, New York
October 20, 1995
8
<PAGE>
AFD EXCHANGE RESERVES
==============================================================================
AFD EXCHANGE RESERVES
1345 Avenue of the Americas
New York, NY 10105
Toll-free 1(800) 221-5672
TRUSTEES
JOHN D. CARIFA, Chairman and President
RUTH BLOCK /(1)/
DAVID H. DIEVLER, /(1)/
JOHN H. DOBKIN /(1)/
OFFICERS
KATHLEEN A. CORBET, Senior Vice President
WAYNE D. LYSKI, Senior Vice President
JOHN F. CHIODI, JR., Vice President
PAMELA F. RICHARDSON, Vice President
CUSTODIAN
STATE STREET BANK AND TRUST COMPANY
P.O. Box 1912
Boston, MA 02105
LEGAL COUNSEL
SEWARD & KISSEL
One Battery Park Plaza
New York, NY 10004
AUDITORS
MCGLADREY & PULLEN, LLP
555 Fifth Avenue
New York, NY 10017
WILLIAM H. FOULK, JR. /(1)/
JAMES M. HESTER /(1)
CLIFFORD L. MICHEL /(1)/
ROBERT C. WHITE /(1)/
EDMUND P. BERGAN, JR., Secretary
MARK D. GERSTEN, Treasurer & Chief Financial Officer
JOSEPH J. MANTINEO, Controller
TRANSFER AGENT
ALLIANCE FUND SERVICES, INC.
P.O. Box 1520
Secaucus, NJ 07096-1520
DISTRIBUTOR
ALLIANCE FUND DISTRIBUTORS, INC.
1345 Avenue of the Americas
New York, NY 10105
- ------------------------------------------------------------------------------
/(1)/ Member of the audit committee.
Distribution of this report other than to shareholders must be preceded
or accompanied by the Fund's current prospectus, which contains further
information about the Fund.
(R) These registered service marks used under license from the owner,
Alliance Capital Management L.P.
9
