AFD EXCHANGE RESERVES
ANNUAL REPORT
SEPTEMBER 30, 1994
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LETTER TO SHAREHOLDERS AFD EXCHANGE RESERVES
Dear Shareholder:
This letter serves as introduction to AFD Exchange Reserves' first report
to shareholders. September 30 marked your Fund's fiscal year end, however,
the following pages include information that covers a seven-month time
frame, as your Fund began operations on March 25, 1994. Current 30-day
yields at the end of the period were 3.07% (Class A), 2.56% (Class B) and
2.82% (Class C). Since inception, AFD Exchange Reserves has distributed
dividends totaling $.0126 per Class A share, $.0101 per Class B share and
$.0112 per Class C shares.
AFD Exchange Reserves is available only to shareholders of other Alliance
mutual funds who wish to exchange their shares for shares of a money market
fund. The Fund's investment objective is to provide maximum current income
consistent with liquidity and safety of principal.
Since your Fund's inception in March 1994, total assets have grown to
approximately $55 million. The Fund is 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 16 days.
ECONOMIC GROWTH SPURS RATE INCREASES
Thus far, 1994 has been a challenging year for the fixed-income markets.
Increases in short-term interest rates, which began in February, have
affected all sectors of the yield curve. The Federal Reserve Board
responded to sustained signs of economic growth by raising the federal funds
target rate from 3.00% to 4.75%.
We believe that short-term interest rates will continue to move higher in
1995 as stronger economic growth persists. As a consequence, the Fund will
remain biased toward a shorter average weighted maturity. We appreciate
your investment in AFD Exchange Reserves and look forward to reporting to
you again in the coming months.
Sincerely,
David H. Dievler
Chairman and President
Pamela Richardson
Vice President
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STATEMENT OF NET ASSETS
SEPTEMBER 30, 1994 AFD EXCHANGE RESERVES
Principal
Amount
(000) Security Yield Value
U.S. GOVERNMENT AND
AGENCIES--100.4%
FEDERAL FARM CREDIT BANK--22.5%
$12,300 10/20/94 4.69% $12,269,554
FEDERAL HOME LOAN
MORTGAGE CORPORATION--27.5%
3,000 10/03/94 4.41% 2,999,265
1,000 10/03/94 4.42 999,755
11,000 10/03/94 4.73 10,997,109
14,996,129
FEDERAL NATIONAL MORTGAGE
ASSOCIATION--50.4%
1,000 10/18/94 4.70 997,781
21,100 10/14/94 4.74 21,063,884
5,500 11/14/94 4.75 5,468,069
27,529,734
TOTAL INVESTMENTS--100.4%
(amortized cost
$54,795,417) $ 54,795,417
Other assets less
liabilities--(0.4%) (194,331)
NET ASSETS--100%
(offering and redemption
price of $1.00 per share;
18,215,319 Class A shares;
31,240,057 Class B shares
and 5,146,745 Class C shares
outstanding) $ 54,601,086
See notes to financial statements.
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STATEMENT OF OPERATIONS
MARCH 25, 1994(A) TO SEPTEMBER 30, 1994 AFD EXCHANGE RESERVES
INVESTMENT INCOME
Interest. . . . . . . . . . . . . . . . . . . $ 1,033,400
EXPENSES
Advisory fee. . . . . . . . . . . . . . . . . $ 60,163
Distribution fee-Class A. . . . . . . . . . . 24,829
Distribution fee-Class B. . . . . . . . . . . 152,969
Distribution fee-Class C. . . . . . . . . . . 28,521
Administrative. . . . . . . . . . . . . . . . 58,077
Registration . . . . . . . . . . . . . . . . 43,343
Custodian . . . . . . . . . . . . . . . . . . 38,181
Transfer agency . . . . . . . . . . . . . . . 36,888
Audit and legal . . . . . . . . . . . . . . . 31,898
Amortization of organization expense. . . . . 26,222
Trustees' fees. . . . . . . . . . . . . . . . 14,466
Printing. . . . . . . . . . . . . . . . . . . 12,793
Miscellaneous . . . . . . . . . . . . . . . . 863
Total expenses. . . . . . . . . . . . . . . . 529,213
Net investment income . . . . . . . . . . . . 504,187
REALIZED LOSS ON INVESTMENTS
Net realized loss on investments. . . . . . . (1,035)
NET INCREASE IN NET ASSETS FROM OPERATIONS. . . $ 503,152
STATMENTS OF CHANGES IN NET ASSETS
MARCH 25, 1994(A)
TO
SEPTEMBER 30, 1994
INCREASE IN NET ASSETS FROM OPERATIONS
Net investment income . . . . . . . . . . . . $ 504,187
Net realized loss on investments. . . . . . . (1,035)
Net increase in net assets from operations. . 503,152
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income
Class A . . . . . . . . . . . . . . . . . . (129,869)
Class B . . . . . . . . . . . . . . . . . . (292,791)
Class C . . . . . . . . . . . . . . . . . . (81,527)
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Net increase. . . . . . . . . . . . . . . . . 54,501,921
Total increase. . . . . . . . . . . . . . . . 54,500,886
NET ASSETS
Beginning of period . . . . . . . . . . . . . 100,200
End of period . . . . . . . . . . . . . . . . $54,601,086
(a) Commencement of operations.
See notes to financial statements.
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NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1994 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 charge. 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 deter-
mined 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. Pursuant to the advisory
agreement, the Fund paid $58,077 to the
Adviser representing the cost of certain legal and accounting services
provided to the Fund by the Adviser for the period ended September 30, 1994.
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 $26,610 for the period ended
September 30, 1994.
NOTE C: DISTRIBUTION SERVICES AGREEMENT
The Fund has adopted a Distribution Services Agreement (the "Agreement")
pursuant to Rule 12B-1 under the Investment Company Act of 1940. Under the
Agreement, the Fund pays a distribution fee to the Distributor at an annual
rate of up to .50 of 1% of the Fund's average daily net assets attributable
to Class A shares, 1.00% of the average daily net assets attributable to
Class B shares and .75 of 1% of the average daily net assets attributable
to Class C shares. Such fee is accrued daily and paid monthly. The
Agreement provides that the Distributor will use such payments in their
entirety for distribution assistance and promotional activities.
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AFD EXCHANGE RESERVES
NOTE D: INVESTMENT TRANSACTIONS
At September 30, 1994, the cost of securities for federal
income tax purposes was the same as the cost for financial reporting
purposes.
NOTE E: TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
An unlimited number of shares ($.001 par value) are authorized. At
September 30, 1994, capital paid-in
aggregated $18,215,319 for Class A, $31,240,057 for Class B and $5,146,745
for Class C. Transactions, all at $1.00 per share, were as follows:
CLASS A CLASS B CLASS C
For the period March 25, 1994(a) to September 30, 1994
Shares sold . . . . . 79,563,777 87,623,275 41,236,143
Shares issued on reinvestments of dividends
129,869 292,791 81,527
Shares redeemed . . . (61,578,327) (56,676,109) (36,171,025)
Net increase. . . . . 18,115,319 31,239,957 5,146,645
NOTE F: FINANCIAL HIGHLIGHTS
Selected data for a share outstanding throughout the period.
CLASS A CLASS B CLASS C
For the period March 25, 1994(a) to September 30, 1994
Net asset value, beginning of period
$ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income . .0126 .0101 .0112
LESS: DISTRIBUTIONS
Dividends from net investment income
(.0126) (.0101) (.0112)
Net asset value, end of period
$ 1.00 $ 1.00 $ 1.00
TOTAL RETURNS
Total investment return based on net asset value (b)(c)
2.45% 1.95% 2.18%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions)
$18 $31 $5
Ratio of expenses to average net assets(c)
1.82% 2.35% 2.08%
Ratio of net investment income to average net assets(c)
2.62% 1.91% 2.14%
(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.
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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, 1994 and the related statements of operations,
changes in net assets, and financial highlights for the period 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 audit.
We conducted our audit 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, 1994 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 audit provides
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, 1994, and the results of its
operations, changes in its net assets, and financial highlights for the
period indicated, in conformity with generally accepted accounting
principles.
McGladrey & Pullen
New York, New York
October 20, 1994
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AFD EXCHANGE RESERVES
AFD EXCHANGE RESERVES
1345 Avenue of the Americas
New York, NY 10105
Toll-free 1(800) 221-5672
TRUSTEES
DAVE H. DIEVLER, Chairman and President
RUTH BLOCK(1)
JOHN D. CARIFA
JOHN H. DOBKIN(1)
WILLIAM H. FOULK, JR.(1)
JAMES M. HESTER(1)
CLIFFORD L. MICHEL(1)
ROBERT C. WHITE(1)
OFFICERS
WAYNE D. LYSKI, SENIOR VICE PRESIDENT
PAMELA F. RICHARDSON, VICE PRESIDENT
EDMUND P. BERGAN, JR., SECRETARY
MARK D. GERSTEN, TREASURER & CHIEF FINANCIAL OFFICER
PATRICK J. FARRELL, CONTROLLER
CUSTODIAN
STATE STREET BANK AND TRUST COMPANY
P.O. Box 1912
Boston, Massachusetts 02105
LEGAL COUNSEL
SEWARD & KISSEL
One Battery Park Plaza
New York, New York 10004
AUDITORS
MCGLADREY & PULLEN
555 Fifth Avenue
New York, New York 10017
TRANSFER AGENT
ALLIANCE FUND SERVICES, INC.
P.O. Box 1520
Secaucus, New Jersey 07096-1520
DISTRIBUTOR
ALLIANCE FUND DISTRIBUTORS, INC.
1345 Avenue of the Americas
New York, New York 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 PROSPECTUR, WHICH CONTAINS FURTHER
INFORMATION ABOUT THE FUND.
THESE REGISTERED SERVICE MARKS USED UNDER LICENSE FROM THE OWNER,
ALLIANCE CAPITAL MANAGEMENT L.P.
