<PAGE>
This is filed pursuant to Rule 497(c).
File Nos. 33-74230 and 811-08294.
<PAGE>
<PAGE>
[LOGO OF ALLIANCE CAPITAL APPEARS HERE] AFD EXCHANGE RESERVES
- -------------------------------------------------------------------------------
P.O. Box 1520, Secaucus, New Jersey 07096-1520
Toll Free (800) 221-5672
For Literature: Toll Free (800) 227-4618
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AFD Exchange Reserves (the "Fund") is a diversified, open-end management
investment company. The Fund's investment objective is maximum current income
to the extent consistent with safety of principal and liquidity. The Fund
pursues its objective by maintaining a portfolio of high quality U.S. dollar-
denominated money market securities, and is thus referred to as a "money
market fund."
Shares of the Fund should be purchased for cash only as a temporary investment
pending exchange into another Alliance Mutual Fund and should not be held as a
long-term investment.
This Prospectus sets forth concisely the information which a prospective
investor should know about the Fund before investing. A "Statement of
Additional Information" dated February 1, 1996 which provides further
information regarding certain matters discussed in this Prospectus and other
matters which may be of interest to some investors has been filed with the
Securities and Exchange Commission and is incorporated herein by reference.
For a free copy, call or write Alliance Fund Services, Inc. at the indicated
address or "Literature" telephone number.
(R): This registered service mark used under license from the owner, Alliance
Capital Management L.P.
- -------------------------------------------------------------------------------
An investment in the Fund is not (i) insured or guaranteed by the U.S. Govern-
ment, (ii) a deposit or obligation of, or guaranteed or endorsed by, any bank,
or (iii) federally insured by the Federal Deposit Insurance Corporation, the
Federal Reserve Board or any other agency. There can be no assurance that the
Fund will be able to maintain a stable net asset value of $1.00 per share.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
PROSPECTUS/February 1, 1996
Investors are advised to read this Prospectus carefully and to retain it for
future reference.
<PAGE>
EXPENSE INFORMATION
SHAREHOLDER TRANSACTION EXPENSES are one of several factors to consider when
you invest in the Fund. The following table summarizes your maximum transac-
tion costs from investing in the Fund and annual expenses for each class of
shares. The example following the table shows the cumulative expenses attrib-
utable to a hypothetical $1,000 investment in each class for the periods spec-
ified.
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
-------------- --------------- --------------
<S> <C> <C> <C>
Maximum sales charge imposed on
purchases (as a percentage of
offering price)............... None None None
Sales charge imposed on divi-
dend reinvestments............ None None None
Deferred sales charge (as a
percentage of original pur- None(a) 4.0% during None
chase price or redemption pro- the first year,
ceeds, whichever is lower).... decreasing 1.0%
annually to 0%
after the
fourth
year(b)(c)
Exchange Fee................... None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net
assets)
Management fees................ .25% .25% .25%
Rule 12b-1 fees................ .50% 1.00% .75%
Other expenses(d).............. .54% .53% .52%
---- --------------- ----
Total fund operating
expenses(d)................... 1.29% 1.78% 1.52%
==== =============== ====
</TABLE>
- --------
(a) Purchases of Class A shares of $1,000,000 or more (or that were received
in exchange or following a series of exchanges of Class A shares of an Al-
liance Mutual Fund that were part of an original purchase of $1,000,000 or
more) may be subject to a 1% deferred sales charge on redemptions within
one year of the original purchase for cash. See "Purchase and Sale of
Shares--How to Buy Shares--Class A Shares" in this Prospectus.
(b) For Class B shares purchased for cash. The contingent deferred sales
charge schedule applicable to a shareholder's redemption of Class B shares
that were received in exchange of Class B shares of an Alliance Mutual
Fund is the schedule applicable to redemptions of Class B shares of the
Alliance Mutual Fund originally purchased for cash by the shareholder.
(c) Class B shares will automatically convert to Class A shares a certain num-
ber of years after the end of the calendar month in which the sharehold-
er's order to purchase was accepted. For Class B shares purchased for
cash, the number of years is eight. For Class B shares that were received
in exchange of Class B shares of an Alliance Mutual Fund, the number of
years depends on the conversion schedule of the Class B shares of the Al-
liance Mutual Fund originally purchased. Currently, the longest such pe-
riod is eight years. See "Purchase and Sale of Shares--How to Buy Shares--
Class B Shares--Deferred Sales Charge Alternative"--in this Prospectus.
(d) These expenses include a transfer agency fee payable to Alliance Fund
Services, Inc., an affiliate of Alliance Capital Management L.P., based on
a fixed dollar amount charged to the Fund for each shareholder's account.
EXAMPLE
<TABLE>
<CAPTION>
Cumulative expenses Class Class Class Class
paid for the period of A B+ B++ C
---------------------- ----- ----- ----- -----
<S> <C> <C> <C> <C>
1 year.................... $ 13 $ 58 $ 18 $ 15
3 years................... $ 41 $ 76 $ 56 $ 48
5 years................... $ 71 $ 96 $ 96 $ 83
10 years................... $156 $197* $197* $181
</TABLE>
- --------
+ Assumes redemption at end of period and the highest applicable deferred
sale charge schedule. See note (b) above.
++ Assumes no redemption at end of period.
* Assumes the longest applicable conversion schedule. See note (c) above.
The purpose of the foregoing table is to assist the investor in understand-
ing the various costs and expenses that an investor in the Fund will bear di-
rectly or indirectly. Long-term shareholders of the Fund may pay aggregate
sales charges totaling more than the economic equivalent of the maximum ini-
tial sales charges permitted by the Rules of Fair Practice of the National As-
sociation of Securities Dealers, Inc. See "Management of the Fund--Rule 12b-1
Distribution Services Agreement." "Other Expenses" are based on estimated
amounts for the Fund's current fiscal year. The example set forth above as-
sumes reinvestment of all dividends and distributions and utilizes a 5% annual
rate of return as mandated by Securities and Exchange Commission regulations.
The example should not be considered a representation of future expenses; ac-
tual expenses may be greater or less than those shown.
2
<PAGE>
FINANCIAL HIGHLIGHTS . FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
(AUDITED)
The following tables have been audited by McGladrey & Pullen LLP, the Fund's
independent auditors, whose report thereon appears in the Statement of Addi-
tional Information. This information should be read in conjunction with the
financial statements and notes thereto included in the Statement of Additional
Information.
<TABLE>
<CAPTION>
CLASS A
----------------------------------------
MARCH 25, 1994(A)
YEAR ENDED TO
SEPTEMBER 30, 1995 SEPTEMBER 30,1994
------------------ -----------------
<S> <C> <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 mil-
lions)............................... $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)
</TABLE>
<TABLE>
<CAPTION>
CLASS B
----------------------------------------
MARCH 25, 1994(A)
YEAR ENDED TO
SEPTEMBER 30, 1995 SEPTEMBER 30,1994
------------------ -----------------
<S> <C> <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 mil-
lions)............................... $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 re-
demption 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 Alliance Capital Management L.P.
3
<PAGE>
<TABLE>
<CAPTION>
CLASS C
----------------------------------------
MARCH 25, 1994(A)
YEAR ENDED TO
SEPTEMBER 30, 1995 SEPTEMBER 30,1994
------------------ -----------------
<S> <C> <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 mil-
lions)............................... $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 re-
demption 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 Alliance Capital Management L.P.
DESCRIPTION OF THE FUND
INVESTMENT OBJECTIVE AND POLICIES
The Fund is a diversified, open-end management investment company known as a
"mutual fund." The Fund's investment objective is maximum current income to
the extent consistent with safety of principal and liquidity. The Fund pursues
its objective by maintaining a portfolio of high quality U.S. dollar-denomi-
nated money market securities. While the Fund may not change its investment
objective or the "other fundamental investment policies" described in a sepa-
rate section below without shareholder approval, it may, upon notice to share-
holders, but without such approval, change the following investment policies
or create additional classes of shares in order to establish portfolios which
may have different investment objectives. There can, of course, be no assur-
ance that the Fund's objective will be achieved.
MONEY MARKET SECURITIES
The money market securities in which the Fund invests include: (1) market-
able obligations issued or guaranteed by the United States Government, its
agencies or instrumentalities (collectively, the "U.S. Government"); (2) cer-
tificates of deposit and bankers' acceptances issued or guaranteed by, or time
deposits maintained at, banks or savings and loan associations (including for-
eign branches of U.S. banks or U.S. or foreign branches of foreign banks) hav-
ing total assets of more than $500 million; (3) commercial
4
<PAGE>
paper of high quality, i.e., rated A-1 or A-2 by Standard & Poor's Corporation
("S&P"), Prime-1 or Prime-2 by Moody's Investors Service, Inc. ("Moody's"),
Fitch-1 or Fitch-2 by Fitch Investors Service, Inc., or Duff 1 or Duff 2 by
Duff & Phelps Inc, or, if not rated, issued by U.S. or foreign companies hav-
ing outstanding debt securities rated AAA, AA or A by S&P, or Aaa, Aa or A by
Moody's and participation interests in loans extended by banks to such compa-
nies; and (4) repurchase agreements that are collateralized in full each day
by liquid securities of the types listed above. Repurchase agreements may be
entered into only with those banks (including State Street Bank and Trust Com-
pany, the Fund's Custodian) or broker-dealers ("vendors") that are eligible
under the procedures adopted by the Trustees for evaluating and monitoring the
creditworthiness of such vendors. A repurchase agreement would create a loss
to the Fund if, in the event of a vendor default, the proceeds from the sale
of the collateral were less than the repurchase price.
The Fund may invest up to 25% of its total assets in money market instru-
ments issued by foreign branches of foreign banks and other foreign entities.
To the extent that the Fund makes such investments, consideration will be
given to their domestic marketability, the lower reserve requirements gener-
ally mandated for overseas banking operations, the possible impact of inter-
ruptions in the flow of international currency transactions, potential politi-
cal 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 re-
porting standards.
The Fund will not invest more than 10% of its net assets in illiquid securi-
ties which include "restricted securities" subject to legal restrictions on
resale arising from an issuer's reliance upon certain exemptions from regis-
tration under the Securities Act of 1933, as amended, (the "Securities Act").
The Fund may purchase restricted 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 and, in each
case, determined by Alliance Capital Management L.P. ("Alliance") to be liquid
in accordance with procedures adopted by the Trustees of the Fund.
The Fund may invest in asset-backed securities that meet its existing diver-
sification, quality and maturity criteria. Asset-backed securities are securi-
ties 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 bene-
ficial interest in a special purpose trust, limited partnership interest, or
commercial paper or other debt securities issued by a special purpose corpora-
tion. Although the securities may have some form of credit or liquidity en-
hancement, payments on the securities depend predominately upon collection of
the loans and receivables held by the issuer. It is the Fund's current inten-
tion to limit its investment in such securities to not more than 5% of its net
assets.
The Fund will comply with Rule 2a-7 under the Investment Company Act of 1940
(the "Act"), as such rule is amended from time to time, including the diversi-
ty, quality and maturity limitations imposed by the Rule. In accordance with
Rule 2a-7, the Fund will invest in securities
5
<PAGE>
which at the time of investment have remaining maturities not exceeding 397
days and the average maturity of the Fund's investment portfolio will not ex-
ceed 90 days. A more detailed description of Rule 2a-7 is set forth in the
Fund's Statement of Additional Information under "Investment Objective, Poli-
cies and Restrictions."
OTHER FUNDAMENTAL INVESTMENT POLICIES
To maintain portfolio diversification and reduce investment risk, the Fund
may not: (1) invest 25% or more of its assets in the securities of issuers
conducting their principal business activities in any one industry; provided
that, for purposes of this restriction, there is no limitation with respect to
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); (2) invest more
than 5% of its assets in the securities of any one issuer (except the U.S.
Government) although with respect to one-quarter of its total assets it may
invest without regard to such limitation; (3) invest more than 5% of its as-
sets in the securities of any issuer (except the U.S. Government) having less
than three years of continuous operation or purchase more than 10% of any
class of the outstanding securities of any issuer (except the U.S. Govern-
ment); (4) borrow money except from banks on a temporary basis or via entering
into reverse repurchase agreements in aggregate amounts not exceeding 15% of
its assets and to be used exclusively to facilitate the orderly maturation and
sale of portfolio securities during any periods of abnormally heavy redemption
requests, if they should occur; such borrowings may not be used to purchase
investments and the Fund will not purchase any investment while any such
borrowings exist; or (5) mortgage, pledge or hypothecate its assets except to
secure such borrowings.
As a matter of operating policy, fundamental policy number (2) would give
the Fund 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.
PURCHASE AND SALE OF SHARES
Shares of the Fund may be purchased for cash and thereafter exchanged for
shares of the same class of other Alliance Mutual Funds. Under the Alliance
Dollar Cost Averaging Program, exchanges may be made automatically each month,
thus producing a dollar cost averaging effect. Exchanges also may be made at
other times of an investor's choosing. Shares of the Fund should be purchased
for cash only as a temporary investment pending exchange into another Alliance
Mutual Fund and should not be held as a long-term investment.
Shares of the Fund also are available to holders of shares of other Alliance
Mutual Funds who wish to exchange their shares for shares of a money market
fund. Such an exchange transaction is effected through the redemption of the
Alliance Mutual Fund shares tendered for exchange and the purchase of shares
of the Fund
6
<PAGE>
at their respective net asset values as next determined, without sales or
service charges. Exchange purchases into the Fund may be made by telephone or
written request.
Alliance Fund Services, Inc. ("AFS") is not responsible for the authenticity
of telephone exchange requests. AFS will employ reasonable procedures in order
to verify that telephone requests are genuine, and could be liable if it
failed to use those procedures. An exchange is a taxable capital transaction
for federal tax purposes. The Fund reserves the right to reject any order to
acquire its shares through exchange.
HOW TO BUY SHARES
You can purchase shares of the Fund for cash through broker-dealers, banks
or other financial intermediaries. Purchases of shares for cash directly
through Alliance Fund Distributors, Inc. ("AFD"), the Fund's principal under-
writer, may be made only if the purchaser has a financial intermediary of rec-
ord. The minimum initial investment is $250. The minimum for subsequent in-
vestments is $50. Investments of $25 or more are allowed under the automatic
investment program. See the Subscription Application and Statement of Addi-
tional Information for more information.
Existing shareholders may make subsequent purchases by Electronic Funds
Transfer ("EFT") if they have completed the Telephone Transactions section of
the Subscription Application or the Shareholder Options form obtained from
AFS. Telephone purchase orders can be made by calling (800) 221-5672, may not
exceed $500,000, must be received by the Fund by 3:00 p.m. Eastern time on a
Fund business day and will be made at the next day's net asset value (less any
applicable sales charge).
CLASS A SHARES
You can purchase Class A shares for cash at net asset value. Class A shares
are sold without any initial sales charge at the time of purchase. On cash
purchases of $1,000,000 or more, however, you may pay a contingent deferred
sales charge ("CDSC") equal to 1% of the lesser of net asset value at the time
of redemption or original cost if you redeem within one year; Alliance may pay
the dealer or agent a fee of up to 1% of the dollar amount purchased. See "Ap-
plication of the CDSC". As discussed below, Class A shares may be exchanged
for Class A shares of other Alliance Mutual Funds, subject, in the case of
Class A shares of the Fund that were purchased for cash, to any applicable
initial sales charge at the time of exchange. On cash purchases of less than
$1,000,000, a commission will not be paid to the dealer or agent until the
shares are exchanged for Class A shares of another Alliance Mutual Fund.
Class A shares of the Fund also are offered in exchange for Class A shares
of other Alliance Mutual Funds without any sales charge at the time of pur-
chase, but on Class A shares that were received in exchange for Alliance Mu-
tual Fund Class A shares that were not subject to an initial sales charge when
originally purchased for cash because the purchase was of $1,000,000 or more
you may pay a 1% CDSC that will be assessed as described below under "Applica-
tion of the CDSC" if you redeem shares of the Fund within one year of your
purchase of the Alliance Mutual Fund Class A shares originally purchased for
cash. Consult the Subscription Application and Statement of Additional Infor-
mation.
7
<PAGE>
CLASS B SHARES--DEFERRED SALES CHARGE ALTERNATIVE
You can purchase Class B shares for cash at net asset value without an ini-
tial sales charge. However, you may pay a CDSC if you redeem shares within
four years after purchase. The amount of the CDSC (expressed as a percentage
of the lesser of net asset value at the time of redemption or original cost)
will vary according to the number of years from the purchase of Class B shares
until the redemption of those shares. The amount of the CDSC on Class B shares
is set forth below.
<TABLE>
<CAPTION>
Year Since
Purchase CDSC
---------- ----
<S> <C>
First.................................................................... 4.0%
Second................................................................... 3.0%
Third.................................................................... 2.0%
Fourth................................................................... 1.0%
Fifth.................................................................... None
</TABLE>
Class B shares purchased for cash will automatically convert to Class A
shares eight years after the end of the calendar month in which the sharehold-
er's order to purchase was accepted. As discussed below, Class B shares may be
exchanged at net asset value for Class B shares of other Alliance Mutual
Funds. Following an exchange, Class B shares will continue to age for purposes
of determining the CDSC, if any, upon redemption and for purposes of conver-
sion to Class A shares.
Class B shares of the Fund also are offered in exchange for Class B shares
of other Alliance Mutual Funds without any initial sales charge. However, you
may pay a CDSC if you redeem shares of the Fund within a certain number of
years of your original purchase of Alliance Mutual Fund Class B shares. When
redemption occurs, the applicable CDSC schedule is that which applied to the
Alliance Mutual Fund Class B shares originally purchased for cash at the time
of their purchase. See "Application of the CDSC" below.
CLASS C SHARES--ASSET-BASED SALES CHARGE ALTERNATIVE
You can purchase Class C shares for cash or in exchange for Class C shares
of another Alliance Mutual Fund without any initial sales charge or CDSC. Thus
you will receive the entire net asset value of your shares upon redemption.
Class C shares do not convert to any other class of shares of the Fund. As
discussed below, Class C shares may be exchanged at net asset value for Class
C shares of other Alliance Mutual Funds.
GENERAL
The decision as to which class of shares is more beneficial to you depends
on the amount and intended length of your investment and whether you intend to
subsequently exchange your shares for shares of another Alliance Mutual Fund.
If you are making a large cash purchase, thus qualifying for a reduced sales
charge on a subsequent exchange, you might consider purchasing Class A shares.
If you are making a smaller cash purchase, you might consider purchasing Class
B shares because no sales charge will be assessed on subsequent exchanges of
those shares. If you are unsure of the length of your investment, you might
consider Class C shares because there are no initial or contingent deferred
sales charges. Consult your financial agent. Dealers and agents may receive
different compensation for selling Class A, Class B or Class C shares. Class B
and Class
8
<PAGE>
C shares have higher distribution fees, and thus higher expense ratios, and
pay correspondingly lower dividends than Class A shares. There is no size
limit on cash purchases of Class A shares. The maximum cash purchase of Class
B shares is $250,000. The maximum purchase of Class C shares is $5,000,000.
The Fund may refuse any order to purchase shares.
In addition to the discount or commission paid to dealers, AFD from time to
time pays additional cash or other incentives to dealers or agents, including
Equico Securities, Inc., an affiliate of AFD, in connection with the sale of
shares of the Fund. Such additional amounts may be utilized, in whole or in
part, in some cases together with other revenues of such dealers or agents, to
provide additional compensation to registered representatives who sell shares
of the Fund. On some occasions, such cash or other incentives will be condi-
tioned upon the sale of a specified minimum dollar amount of the shares of the
Fund and/or other Alliance Mutual Funds during a specific period of time. Such
incentives may take the form of payment for attendance at seminars, meals,
sporting events or theater performances, or payment for travel, lodging and
entertainment incurred in connection with travel by persons associated with a
dealer and their immediate family members to urban or resort locations within
or outside the United States. Such a dealer may elect to receive cash incen-
tives of equivalent amount in lieu of such payments.
APPLICATION OF THE CDSC
The CDSC is applied to the lesser of the net asset value at the time of re-
demption of the Class A shares or Class B shares being redeemed and the cost
of such shares (or, as to Fund shares acquired through an exchange, the cost
of the Alliance Mutual Fund shares originally purchased for cash). Shares ob-
tained from dividend or distribution reinvestment are not subject to the CDSC.
The CDSC is deducted from the amount of the redemption and is paid to AFD.
The CDSC will be waived on redemptions of shares following the death or dis-
ability of a shareholder, to meet the requirement of certain qualified retire-
ment plans or pursuant to a monthly, bimonthly or quarterly systematic with-
drawal plan. See the Statement of Additional Information.
HOW THE FUND VALUES ITS SHARES
The net asset value of each class' shares is expected to be constant at
$1.00 per share, although this price is not guaranteed. The net asset value
per share is calculated by determining the amount of assets attributable to
each class of shares, subtracting liabilities and dividing by the amount of
outstanding shares for such class. In this connection, the Fund uses the amor-
tized cost value for determining the value of the Fund's investments. Shares
are valued each day the New York Stock Exchange (the "Exchange") is open as of
the close of regular trading (currently 4:00 p.m. Eastern time).
HOW TO EXCHANGE SHARES
You may exchange your investment in the Fund for shares of the same class of
other Alliance Mutual Funds. Exchanges of Class A shares are made at the net
asset value next determined less the amount of any applicable initial sales
charge imposed on the Class A shares of the other Alliance Mutual Fund. Con-
sult the prospectus of the applicable Alliance Mutual Fund for a further ex-
planation of those sales charges.
9
<PAGE>
Exchanges of Class B and Class C shares are made at the net asset values next
determined, without sales or service charges. Exchanges may be made by tele-
phone or written request. Telephone exchange requests must be received by AFS
by 4:00 p.m. Eastern time on a Fund business day to receive that day's net as-
set value (less the amount of any applicable initial sales charge imposed on
the Class A shares of the other Alliance Mutual Fund). The exchange service
may be changed, suspended or terminated on 60 days' written notice.
Under the Alliance Mutual Funds' Right of Accumulation, exchanges of Class A
shares made pursuant to the Alliance Dollar Cost Averaging Program or other-
wise will be assessed an initial sales charge based on the shareholder's total
Alliance Mutual Funds holdings, including shares of the Fund, and therefore
may be eligible for a reduced sales charge. Consult with your financial repre-
sentative or Alliance regarding the Alliance Dollar Cost Averaging Program,
Rights of Accumulation and other time and money saving services to investors.
Class A and Class B shares will age without regard to exchanges for purposes
of determining the CDSC, if any, upon redemption and, in the case of Class B
shares, for the purposes of conversion to Class A shares. After an exchange,
your Class B shares will automatically convert to Class A shares in accordance
with the conversion schedule applicable to the Class B shares of the Alliance
Mutual Fund you originally purchased for cash ("original shares"). When re-
demption occurs, the CDSC applicable to the original shares is applied.
HOW TO SELL SHARES
You may "redeem", i.e., sell your shares to the Fund on any day the Exchange
is open, either directly or through your financial intermediary. The price you
will receive is the net asset value (less any applicable CDSC for Class A and
Class B shares) next calculated after the Fund receives your request in proper
form. Proceeds generally will be sent to you within seven days. However, for
shares recently purchased by check or EFT or for shares acquired in exchange
for Alliance Mutual Fund shares recently purchased by check or EFT, the Fund
will not send proceeds until it is reasonably satisfied that the check or EFT
has been collected (which may take up to 15 days).
SELLING SHARES THROUGH YOUR BROKER
Your broker must receive your request before 4:00 p.m. Eastern time, and
your broker must transmit your request to the Fund by 5:00 p.m. Eastern time,
to receive that day's net asset value (less any applicable CDSC for Class A
and Class B shares). Your broker is responsible for furnishing all necessary
documentation to the Fund, and may charge you for this service.
SELLING SHARES DIRECTLY TO THE FUND
Send a signed letter of instruction or stock power form to AFS, along with
certificates, if any, that represent the shares you want to sell. For your
protection, signatures must be guaranteed by a bank, a member firm of a na-
tional stock exchange or other eligible guarantor institution. Stock power
forms are available from your financial intermediary, AFS and many commercial
banks. Additional documentation is required for the sale of shares by corpora-
tions, intermediaries, fiduciaries and surviving joint owners. For details
contact:
Alliance Fund Services, Inc.
P.O. Box 1520
Secaucus, NJ 07096-1520
1-800-221-5672
10
<PAGE>
Alternatively, a request for redemption of shares for which no stock certif-
icates have been issued can also be made by telephone to 800-221-5672. Tele-
phone redemption requests must be made by 4:00 p.m. Eastern time on a Fund
business day to receive that day's net asset value (less any applicable CDSC
for Class A and Class B shares) and may be made only once in any 30-day peri-
od. A shareholder who has completed the Telephone Transactions section of the
Subscription Application, or the Shareholder Options form obtained from AFS,
can elect to have the proceeds of their redemption sent to their bank via an
EFT. Proceeds of telephone redemptions also may be sent by check to a share-
holder's address of record. Redemption requests by EFT may not exceed $100,000
and redemption requests by check may not exceed $50,000. Telephone redemption
is not available for shares held in nominee or "street name" accounts or re-
tirement plan accounts or shares held by a shareholder who has changed his or
her address of record within the previous 30 calendar days. See "General"
below.
GENERAL
The sale or exchange of shares is a taxable transaction for federal tax pur-
poses. Under unusual circumstances, the Fund may suspend redemptions or post-
pone payment for up to seven days or longer, as permitted by federal securi-
ties law. The Fund reserves the right to close an account that through
redemption has remained below $200 for 90 days. Shareholders will receive 60
days' written notice to increase the account value before the account is
closed.
Alliance sponsors three other money market funds, Alliance Capital Reserves,
Alliance Government Reserves and Alliance Municipal Trust (the "Trusts"). Each
of the Trusts offers a class of shares that has a lower expense ratio and pays
correspondingly higher dividends than shares of the Fund. However, the Trusts
do not have an exchange privilege with Alliance Mutual Funds. Thus, if you
held shares of a Trust and wished to transfer your holdings to an Alliance Mu-
tual Fund, you would be required to redeem shares of the Trust and purchase
shares of that Alliance Mutual Fund with the cash proceeds of your redemption.
Such a transaction would be subject to any sales charges applicable to an
original purchase for cash (or eventual redemption) of shares of that Alliance
Mutual Fund. To obtain the prospectus for any of the Trusts, contact AFS at
the Literature telephone number on the cover of this Prospectus.
During drastic economic or market developments, you might have difficulty in
reaching AFS by telephone, in which event you should issue written instruc-
tions to AFS. AFS is not responsible for the authenticity of telephone re-
quests to purchase, sell or exchange shares. AFS will employ reasonable proce-
dures to verify that telephone requests are genuine, and could be liable for
losses resulting from unauthorized transactions if it failed to do so. Dealers
and agents may charge a commission for handling telephone requests. The tele-
phone service may be suspended or terminated at any time without notice.
SHAREHOLDER SERVICES
AFS offers a variety of shareholder services. For more information about
these services or your account, call AFS's toll-free number, 800-221-5672. A
shareholder's manual explaining all available services will be provided upon
request. To request a shareholder manual call 800-227-4618.
11
<PAGE>
MANAGEMENT OF THE FUND
ADVISER
Alliance Capital Management L.P., a Delaware limited partnership with prin-
cipal offices at 1345 Avenue of the Americas, New York, New York 10105, has
been retained under an advisory agreement (the "Advisory Agreement") to pro-
vide investment advice and, in general, to conduct the management and invest-
ment program of the Fund, subject to the general supervision and control of
the Trustees of the Fund.
Alliance is a leading international investment manager supervising client
accounts with assets as of December 31, 1995 totaling more than $146 billion
(of which more than $48 billion represents the assets of investment compa-
nies). Alliance's clients are primarily major corporate employee benefit
funds, public employee retirement systems, investment companies, foundations
and endowment funds. The 51 registered investment companies managed by Alli-
ance comprising 107 separate investment portfolios currently have over two
million shareholders. As of December 31, 1995, Alliance was retained as an in-
vestment manager for 29 of the Fortune 100 companies.
Alliance Capital Management Corporation, the sole general partner of, and
the owner of 1% general partnership interest in, Alliance, 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 Incor-
porated, a holding company controlled by AXA, a French insurance holding com-
pany. Certain information concerning the ownership and control of Equitable by
AXA is set forth in the Statement of Additional Information under "Management
of the Fund."
Under its Advisory Agreement with the Fund, Alliance provides investment ad-
visory services and order placement facilities for the Fund and pays all com-
pensation of Trustees and officers of the Fund who are affiliated persons of
Alliance. Alliance or its affiliates also furnish the Fund, without charge,
management supervision and assistance and office facilities and provide per-
sons satisfactory to the Fund's Trustees to serve as the Fund's officers. Un-
der the Advisory Agreement, the Fund pays Alliance a fee at the annual rate of
.25 of 1% of the first $1.25 billion of the Fund's average daily net assets;
.24 of 1% of the next $.25 billion of such assets; .23 of 1% of the next $.25
billion of such assets; .22 of 1% of the next $.25 billion of such assets; .21
of 1% of the next $1 billion of such assets, and; .20 of 1% of such average
daily net assets in excess of $3 billion. The fee is accrued daily and paid
monthly.
RULE 12B-1 DISTRIBUTION SERVICES AGREEMENT
Rule 12b-1 adopted by the Securities and Exchange Commission (the "Commis-
sion") under the 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 has entered into a Distribution
Services Agreement (the "Agreement"), which includes a plan adopted pursuant
to Rule 12b-1 (the "Plan") with AFD. Pursuant to the Plan, the
12
<PAGE>
Fund pays to AFD a Rule 12b-1 distribution services fee at an annual rate of
.50 of 1% of the Fund's aggregate average daily net assets attributable to the
Class A shares, 1.00% of the Fund's aggregate average daily net assets attrib-
utable to the Class B shares and .75 of 1% of the Fund's aggregate average
daily net assets attributable to the Class C shares to compensate AFD for dis-
tribution services. The Agreement provides that a portion of the distribution
services fee in an amount equal to .25% of the aggregate average daily net as-
sets of the Fund attributable to each of the Class A shares, Class B shares
and Class C shares constitutes a service fee that AFD will use for personal
service and/or the maintenance of shareholder accounts.
The Agreement provides that AFD may spend the distribution services fee it
receives from the Fund as it deems appropriate on any activities or expenses
primarily intended to result in the sale of shares of the Fund, including, but
not limited to, compensation of employees of AFD, compensation and expenses,
including overhead and telephone and other communication expenses, of AFD and
other broker-dealers, banks and other financial intermediaries that engage in
or support the distribution of shares of the Fund, the preparation, printing
and distribution of prospectuses, statements of additional information, sales
literature and advertising materials, and other promotional activities. In
this regard, some payments under the Agreement are used to compensate finan-
cial intermediaries with trail or maintenance commissions in an amount equal
to .25%, annualized, with respect to Class A shares and Class B shares, and
.50%, annualized, with respect to Class C shares, of the assets maintained in
the Fund by their customers. The Agreement also provides that AFD may, if it
wishes, retain all or any portion of the distribution services fees received
from the Fund for its own purposes. Distribution services fees are accrued
daily and paid monthly, and are charged as expenses of the Fund as accrued.
The Agreement also provides that Alliance may use its own resources to finance
the distribution of the Fund's shares.
The Fund is not obligated under the Agreement to pay any distribution serv-
ices fee in excess of the amounts set forth above. Since AFD's compensation
with respect to each of the Class A shares, Class B shares and Class C shares
is not directly tied to its expenses incurred with respect to such class, the
amount of compensation received by it under the Agreement during any year may
be more or less than its actual expenses.
In the event that the Agreement is terminated or not continued with respect
to the Class A shares, Class B shares or Class C shares, (i) no distribution
services fees (other than current amounts accrued but not yet paid) would be
owed by the Fund to AFD with respect to that class, and (ii) the Fund would
not be obligated to pay AFD for any amounts expended under the Agreement not
previously recovered by AFD from distribution services fees in respect of
shares of such class or recovered through deferred sales charges.
The Agreement is in compliance with rules of the National Association of Se-
curities Dealers, Inc. which effectively limit the annual asset-based sales
charges and service fees that a mu-
13
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
tual fund may pay on a class of shares to .75% and .25%, respectively, of the
average annual net assets attributable to that class. The rules also limit the
aggregate of all front-end, deferred and asset-based sales charges imposed
with respect to a class of shares by a mutual fund that also charges a service
fee to 6.25% of cumulative gross sales of shares of that class, plus interest
at the prime rate plus 1% per annum.
As interpreted by courts and administrative agencies, the Glass-Steagall Act
and other applicable laws and regulations limit the ability of a bank or other
depository institution to become an underwriter or distributor of securities.
However, in the opinion of the Fund's management, based on the advice of coun-
sel, these laws and regulations do not prohibit such depository institutions
from providing services for investment companies such as the administrative,
accounting and other services referred to in the Agreement. In the event that
change in these laws prevented a bank from providing such services, it is ex-
pected that other service arrangements would be made and that shareholders
would not be adversely affected. The State of Texas requires that shares of
the Fund may be sold in that state only by dealers or other financial institu-
tions that are registered there as broker-dealers.
DIVIDENDS, DISTRIBUTIONS AND TAXES
All net income of the Fund is determined each business day at 4:00 p.m.
(Eastern time) and is paid immediately thereafter pro rata to shareholders of
record of each class via automatic investment in additional full and frac-
tional shares in each shareholder's account. As such additional shares are en-
titled to dividends on following days, a compounding growth of income occurs.
Net income consists of all accrued interest income on Fund assets less the
Fund's expenses applicable to that dividend period. Realized gains and losses
are reflected in net asset value and are not included in net income.
The Fund intends to qualify for each taxable year to be taxed as a regulated
investment company under the Internal Revenue Code of 1986, as amended, and,
as such, will not be liable for federal income and excise taxes on the invest-
ment company taxable income and net capital gains distributed to its share-
holders. For federal income tax purposes, distributions out of interest income
earned by the Fund and net realized short-term capital gains are taxable to
you as ordinary income, and distributions of net realized long-term capital
gains, if any, are taxable as long-term capital gains irrespective of the
length of time you may have held your shares. Distributions by the Fund may
also be subject to certain state and local taxes. Each year shortly after
December 31, the Fund will send you tax information stating the amount and
type of all its distributions for the year just ended.
14
<PAGE>
GENERAL INFORMATION
ORGANIZATION
AFD Exchange Reserves is a Massachusetts business trust that was organized
on January 14, 1994. It is anticipated that annual shareholder meetings will
not be held; shareholder meetings will be held only when required by federal
law. Shareholders have available certain procedures for the removal of Trust-
ees.
A shareholder in the Fund will be entitled to his pro rata share of all div-
idends and distributions arising from the Fund's assets and, upon redeeming
shares, will receive the then current net asset value of the Fund represented
by the redeemed shares. The Fund is empowered to establish, without share-
holder approval, additional portfolios which may have different investment ob-
jectives.
Shares are normally entitled to one vote for all purposes. Generally, shares
of the Fund vote as a single series on matters, such as the election of Trust-
ees, that affect all shareholders of the Fund in substantially the same man-
ner. Class A, Class B and Class C shares have identical voting, dividend, liq-
uidation and other rights, except that each class bears its own distribution
and transfer agency expenses. Each class of shares votes separately with re-
spect to the Fund's Rule 12b-1 distribution plan and other matters for which
separate class voting is appropriate under applicable law. Shares are freely
transferable, are entitled to dividends as determined by the Trustees and, in
liquidation of the Fund, are entitled to receive the net assets of the Fund.
Certain additional matters relating to the organization of the Fund are dis-
cussed in the Statement of Additional Information.
REGISTRAR, TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT
Alliance Fund Services, Inc., an indirect wholly-owned subsidiary of Alli-
ance, located at 500 Plaza Drive, Secaucus, New Jersey 07094, acts as the
Fund's registrar, transfer agent and dividend-disbursing agent for a fee based
upon the number of shareholder accounts maintained for the Fund. The transfer
agency fee with respect to the Class B shares will be higher than the transfer
agency fee with respect to the Class A shares or Class C shares.
PRINCIPAL UNDERWRITER
Alliance Fund Distributors, Inc., 1345 Avenue of the Americas, New York, New
York 10105, an indirect wholly-owned subsidiary of Alliance, is the Principal
Underwriter of shares of the Fund.
ADDITIONAL INFORMATION
This Prospectus and the Statement of Additional Information, which have been
incorporated by reference herein, do not contain all the information set forth
in the Registration Statement filed by the Fund with the Commission under the
Securities Act. Copies of the Registration Statement may be obtained at a rea-
sonable charge from the Commission or may be examined, without charge, at the
offices of the Commission in Washington, D.C. This Prospectus does not consti-
tute an offering in any state in which such offering may not lawfully be made.
15
<PAGE>
Alliance Subscription Application
AFD Exchange Reserves
- --------------------------------------------------------------------------------
Information And Instructions
- --------------------------------------------------------------------------------
To Open Your New Alliance Account
Please complete the application and mail it to:
Alliance Fund Services, Inc., P.O. Box 1520, Secaucus, New Jersey 07096-1520
Signatures - Please Be Sure To Sign the Application (Section 6)
If shares are registered in the name of:
. an individual, the individual should sign.
. joint tenants, both should sign.
. a custodian for a minor, the custodian should sign.
. a corporation or other organization, an authorized officer should sign
(please indicate corporate office or title).
. a trustee or other fiduciary, the fiduciary or fiduciaries should sign
(please indicate capacity).
Registration
To ensure proper tax reporting to the IRS:
. Individuals, Joint Tenants and Gift/Transfer to a Minor:
- Indicate your name exactly as it appears on your social security card.
. Trust/Other:
- Indicate the name of the entity exactly as it appeared on the notice you
received from the IRS when your Employer Identification number was assigned.
Please Note:
. Certain legal documents will be required from corporations or other
organizations, executors and trustees, or if a redemption is requested by
anyone other than the shareholder of record. If you have any questions
concerning a redemption, contact the Fund at the number below.
. In the case of redemptions or repurchases of shares recently purchased by
check or electronic funds transfer, redemption proceeds will not be made
available until the Fund is reasonably assured that the check or electronic
funds transfer has cleared, normally up to 15 calendar days following the
purchase date.
If We Can Assist You In Any Way, Please Do Not Hesitate To Call Us At:
1-(800) 221-5672.
<PAGE>
- --------------------------------------------------------------------------------
Subscription Application
- --------------------------------------------------------------------------------
AFD Exchange Reserves
(see instructions at the front of the application)
- --------------------------------------------------------------------------------
1. Your Account Registration (Please Print)
- --------------------------------------------------------------------------------
[ ] INDIVIDUAL OR JOINT ACCOUNT
----------------------------------------------------------------------------
Owner's Name (First Name) (MI) (Last Name)
- -
---------------------------------
Social Security Number (Required to open account)
----------------------------------------------------------------------------
Joint Owner's Name* (First Name ) (MI) (Last Name)
*Joint Tenants with right of survivorship unless otherwise indicated.
[ ] GIFT/TRANSFER TO A MINOR
----------------------------------------------------------------------------
Custodian - One Name Only (First Name) (MI) (Last Name)
----------------------------------------------------------------------------
Minor's Name First Name (MI) (Last Name)
- -
---------------------------------------------------------
Minor's Social Security Number (Required to open account)
Under the State of (Minor's Residence) Uniform Gifts/Transfer to
Minor's Act ---------
[ ] TRUST ACCOUNT
----------------------------------------------------------------------------
Name of Trustee
----------------------------------------------------------------------------
Name of Trust
----------------------------------------------------------------------------
Name of Trust (cont'd)
---------------------------------------- ---------------------------------
Trust Dated Tax ID or Social Security
Number (Required to open account)
[ ] OTHER
----------------------------------------------------------------------------
Name of Corporation, Partnership or other Entity
----------------------------------------------------------------------------
Tax ID Number
- --------------------------------------------------------------------------------
2. Address
- --------------------------------------------------------------------------------
----------------------------------------------------------------------------
Street
----------------------------------------------------------------------------
City State Zip Code
----------------------------------------------------------------------------
If Non-U.S., Specify Country
- - - -
------------------------------------------- ------------------------------
Daytime Phone Evening Phone
I am a: [ ] U.S. Citizen [ ] Non-Resident [ ] Resident Alien [ ] Other
----------------------------------------
For Alliance Use Only
----------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
3. Initial Investment
- --------------------------------------------------------------------------------
Minimum: $250; Maximum: Class B only - $250,000; Class C only - $5,000,000.
Make all checks payable to AFD Exchange Reserves.
I hereby subscribe for shares of AFD Exchange Reserves
[ ] Class A
[ ] Class B (Contingent Deferred Sales Charge)
[ ] Class C (Asset-based Sales Charge)
to be purchased with the enclosed check or draft for $________.
AFD Exchange Reserves may be used to meet the needs of an investor who wishes to
establish a dollar cost averaging program into other like classes of Alliance
Mutual Funds. See "Shareholder Options, Section 5D", below.
Class A shares will not be subject to any initial sales charge at the time of
purchase. However, Class A shares exchanged into Class A shares of another
Alliance Mutual Fund will be subject to applicable sales charges at the time of
the exchange.
--------------------------------
DEALER USE ONLY
Wire Confirm No.:
--------------------------------
- --------------------------------------------------------------------------------
4. Distribution Options
- --------------------------------------------------------------------------------
If no box is checked, all distributions will be reinvested in additional
shares of the Fund
Income Dividends: (elect one)
[ ] Reinvest dividends
[ ] Pay dividends in cash
[ ] Use Dividend Direction Plan
Capital Gains Distribution: (elect one)
[ ] Reinvest capital gains
[ ] Pay capital gains in cash
[ ] Use Dividend Direction Plan
If you elect to receive your income dividends or capital gains distributions in
cash, please enclose a preprinted voided check from the bank account you wish to
have your dividends deposited into.
If you wish to utilize the Dividend Direction Plan, please designate the
Alliance account you wish to have your dividends reinvested in:
- -------------------------------------- --------------------------------------
Name Existing Account No.
- --------------------------------------------------------------------------------
5. Shareholder Options
- --------------------------------------------------------------------------------
A. AUTOMATIC INVESTMENT PROGRAM (AIP)
I hereby authorize Alliance Fund Services, Inc. to draw on my bank account,
on or about the ______ day of each month, for a monthly investment in my Fund
account in the amount of $____________ (minimum $25 per month). Please attach a
preprinted voided check from the bank account you wish to use.
NOTE: If your bank is not a member of the National Automated Clearing House
Association, your Alliance account will be credited on or about the
20th of each month.
The Fund requires signatures of bank account owners exactly as they
appear on bank records.
- -------------------- --------------- -------------------- ---------------
Individual Account Date Joint Account Date
<PAGE>
B. TELEPHONE TRANSACTIONS
You can call our toll-free number 1-800-221-5672 and instruct Alliance Fund
Services, Inc. in a recorded conversation to purchase, redeem or exchange
shares for your account. Purchase and redemption requests will be processed
via electronic funds transfer (EFT) to and from your bank account.
Instructions: . Review the information in the Prospectus about telephone
transaction services.
. Check the box next to the telephone transaction service(s)
you desire.
. If you select the telephone purchase or redemption privilege,
you must write "VOID" across the face of a check from the
bank account you wish to use and attach it to this
application.
Purchases and Redemptions via EFT
[ ] I hereby authorize Alliance Fund Services, Inc. to effect the purchase
and/or redemption of Fund shares for my account according to my telephone
instructions or telephone instructions from my Broker/Agent, and to
withdraw money or credit money for such shares via EFT from the bank
account I have selected.
The Fund requires signatures of bank account owners exactly as they
appear on bank records.
-------------------------- ---------- ------------------------ ----------
Individual Account Owner Date Joint Account Owner Date
C. SYSTEMATIC WITHDRAWAL PLAN (SWP)
In order to establish a SWP, an investor must own or purchase shares of the
Fund having a current net asset value of at least:
. $10,000 for monthly payments;
. $5,000 for bi-monthly payments;
. $4,000 for quarterly or less frequent payments
SWPs on Class B shares of up to approximately 12% (annualized) of the current
market value of an account will be processed free of a contingent deferred
sales charge (CDSC). Under this plan, shareholders will be able to withdraw a
maximum of 1% monthly, 2% bi-monthly or 3% quarterly, of the value of their
Class B shares acquired after July 1, 1995, without the imposition of a CDSC.
Withdrawals in excess of these amounts will continue to be charged the
applicable CDSC. Payments will be made via check.
[ ] I authorize this service to begin in ________, 19____, for the amount of
Month
$_______________ ($50.00 minimum)
Frequency: (Please select one)
[ ] Monthly
[ ] Bi-Monthly
[ ] Quarterly
[ ] Annually
[ ] In the months circled: J F M A M J J A S O N D
Please send payments to: (please select one)
[ ] My checking account. Not offered on Class B shares qualifying for the
CDSC waiver. Select the date of the month on or about which you wish the
EFT payments to be made: _______________. Please enclose a preprinted
voided check to ensure accuracy.
[ ] My address of record designated in Section 2.
[ ] The payee and address specified below:
------------------------------- -------------------------------------------
Name of Payee Address
------------------------------- ------------------------- ---------------
City State Zip
D. ALLIANCE DOLLAR COST AVERAGING PROGRAM (ADCAP)
[ ] I authorize Alliance Fund Services, Inc. to transact monthly exchanges
from my Fund account, into the Alliance Fund(s) listed below:
Dollar Amount Day of Exchange** "To" Fund Account #
($25 minimum) (1st thru 31st) "To" Fund Name (if existing)
[ ] New
[ ] Existing
------------- ----------------- ---------------- -------------------
[ ] New
[ ] Existing
------------- ----------------- ---------------- -------------------
[ ] New
[ ] Existing
------------- ----------------- ---------------- -------------------
[ ] New
[ ] Existing
------------- ----------------- ---------------- -------------------
Exchanges of Class A shares are made at the net asset value next determined
plus any applicable initial sales charge imposed on the Class A shares of the
other Alliance Mutual Fund. Exchanges of Class B and Class C shares are made
at the net asset values next determined, without sales or service charges.
When redemption occurs, the CDSC applicable to the original shares is
applied.
Certificates must remain unissued.
** If the date selected for the exchange is not a Fund business day the
transaction will be processed on the next Fund business day.
<PAGE>
- --------------------------------------------------------------------------------
6. Shareholder Authorization This section MUST be completed
----
- --------------------------------------------------------------------------------
Telephone Exchanges and Redemptions by Check
Unless I have checked one or both boxes below, these privileges will
automatically apply, and by signing this application, I hereby authorize
Alliance Fund Services, Inc. to act on my telephone instructions, or on
telephone instructions from any person representing himself to be an authorized
employee of an investment dealer or agent requesting a redemption or exchange on
my behalf. (NOTE: Telephone exchanges may only be processed between accounts
that have identical registrations.) Telephone redemption checks will only be
mailed to the name and address of record; and the address must have no change
within the last 30 days. The maximum telephone redemption amount is $50,000 per
---
check. This service can be enacted once every 30 days.
- -----
[ ] I do not elect the telephone exchange service.
---
[ ] I do not elect the telephone redemption by check service.
---
I certify under penalty of perjury that the number shown in Section 1 of this
form is my correct tax identification number or social security number and that
I have not been notified that this account is subject to backup withholding.
By selecting any of the above telephone privileges, I agree that neither the
Fund nor Alliance, Alliance Fund Distributors, Inc., Alliance Fund Services,
Inc. or other Fund Agent will be liable for any loss, injury, damage or expense
as a result of acting upon telephone instructions purporting to be on my behalf,
that the Fund reasonably believes to be genuine, and that neither the Fund nor
any such party will be responsible for the authenticity of such telephone
instructions. I understand that any or all of these privileges may be
discontinued by me or the Fund at any time. I understand and agree that the Fund
reserves the right to refuse any telephone instructions and that my investment
dealer or agent reserves the right to refuse to issue any telephone instructions
I may request.
For non-residents only: Under penalties of perjury, I certify that to the best
of my knowledge and belief, I qualify as a foreign person as indicated in
Section 2.
I am of legal age and capacity and have received and read the Prospectus and
agree to its terms.
- ---------------------------- -------------------------------------------------
Signature Date
- ---------------------------- ---------------- -----------------------------
Signature Date Acceptance Date:
- --------------------------------------------------------------------------------
Dealer/Agent Authorization For selected Dealers or Agents ONLY.
- --------------------------------------------------------------------------------
We hereby authorize Alliance Fund Services, Inc. to act as our agent in
connection with transactions under this authorization form; and we guarantee the
signature(s) set forth in Section 6, as well as the legal capacity of the
shareholder.
Dealer/Agent Firm _____________________ Authorized Signature __________________
Representative First Name ______________ MI _____________ Last Name ____________
<PAGE>
Signature Card
Class A or Class C Account # AFD Exchange Reserves
(if known)
- --------------------------------------------------------------------------------
Account Name(s) As Registered
- --------------------------------------------------------------------------------
Social Security Number
- --------------------------------------------------------------------------------
Authorized Signature(s) -- for joint accounts, all owners, or their legal
representatives, must sign this card.
1..............................................................................
2..............................................................................
3..............................................................................
- --------------------------------------------------------------------------------
Check One Box
[ ] All the above signatures are required on checks written against this
account.
[ ] Any one signature is acceptable on checks written against this account.
[ ] A combination of signatures is required (specify number).
Subject to conditions printed on reverse side.
STATE STREET BANK AND TRUST COMPANY
<PAGE>
The payment of funds is authorized by the signature(s) appearing on the reverse
side.
If this card is signed by more than one person, all checks will require all
signatures appearing on the reverse side unless a lesser number is indicated. If
no indication is given, all checks will require all signatures. Each signatory
guarantees the genuineness of the other signatures.
The Bank is hereby appointed agent by the person(s) signing this card (the
"Depositor[s]") and, as agent, is authorized and directed to present checks
drawn on this checking account to AFD Exchange Reserves ("AFDER") or its
transfer agent as requests to redeem shares of AFDER registered in the name of
the Depositor(s) in the amounts of such checks and to deposit the proceeds of
such redemptions in this checking account. The Bank shall be liable only for its
own negligence.
The Depositor(s) agrees to be subject to the rules and regulations of the Bank
pertaining to this checking account as amended from time to time. The Bank and
AFDER reserve the right to change, modify or terminate this checking account and
authorization at any time.
Checks may not be for less than $500 or such other minimum amount as may from
time to time be established by AFDER upon prior written notice to its
shareholders. Shares purchased by check (including certified or cashier's check)
will not be redeemed within 15 calendar days of such purchase by checkwriting or
any other method of redemption.
60084GEN-AFDSC
<PAGE>
Goal: Maximum current income consistent with safety of principal and liquidity.
LOGO
- --------------------
AFD PRO 2/96
This prospectus does not constitute an offering in any state in which such
offering may not lawfully be made.
TABLE OF CONTENTS PAGE
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Expense Information 2
Financial Highlights 3
Description of the Fund 4
Purchase and Sale of Shares 6
Management of the Fund 12
Dividends, Distributions and Taxes 14
General Information 15
</TABLE>
ADVISER
Alliance Capital Management L.P.
1345 Avenue of the Americas
New York, NY 10105
AFD
- --------------------------------------------------------------------------------
Exchange
- --------------------------------------------------------------------------------
Reserves
- --------------------------------------------------------------------------------
Prospectus
February 1, 1996
<PAGE>
This is filed pursuant to Rule 497(c).
File Nos. 33-74230 and 811-08294.
<PAGE>
(LOGO) AFD EXCHANGE RESERVES
_________________________________________________________________
P.O. Box 1520, Secaucus, New Jersey 07096-1520
Toll Free (800) 221-5672
For Literature: Toll Free (800) 227-4618
STATEMENT OF ADDITIONAL INFORMATION
February 1, 1996
This Statement of Additional Information is not a prospectus but
supplements and should be read in conjunction with the Fund's
current Prospectus dated February 1, 1996. Copies of such
Prospectus may be obtained by contacting Alliance Fund Services,
Inc. at the address or the Literature telephone number shown
above.
TABLE OF CONTENTS
Page
Investment Objective, Policies
and Restrictions ............................... 2
Management of the Fund............................ 10
Expenses of the Fund.............................. 17
Purchase of Shares................................ 20
Redemption and Repurchase of Shares............... 32
Shareholder Services.............................. 36
Daily Dividends--Determination of
Net Asset Value................................. 42
Taxes............................................. 44
Portfolio Transactions............................ 44
General Information............................... 45
Financial Statements and
Independent Auditor's Report...................... 49
Appendix--Commercial Paper and
Bond Ratings.................................... A-1
(R) This registered service mark used under license from the
owner, Alliance Capital Management L.P.
<PAGE>
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
AFD Exchange Reserves (the "Fund") is a diversified,
open- end investment company. The Fund's objective is maximum
current income to the extent consistent with safety of principal
and liquidity. The Fund pursues its objective by maintaining a
portfolio of high quality U.S. dollar-denominated money market
securities. In accordance with Rule 2a-7 under the Investment
Company Act of 1940 (the "Act"), the Fund will invest in
securities which at the time of investment have remaining
maturities not exceeding 397 days and the average maturity of the
Fund's investment portfolio will not exceed 90 days. Accordingly,
the Fund may make the following investments diversified by
maturities and issuers:
1. Marketable obligations of, or guaranteed by, the
United States Government, its agencies or instrumentalities.
These include issues of the U.S. Treasury, such as bills,
certificates of indebtedness, notes and bonds, and issues of
agencies and instrumentalities established under the authority of
an act of Congress. The latter issues include, but are not
limited to, obligations of the Bank for Cooperatives, Federal
Financing Bank, Federal Home Loan Bank, Federal Intermediate
Credit Banks, Federal Land Banks, Federal National Mortgage
Association and Tennessee Valley Authority. Some of the
securities are supported by the full faith and credit of the U.S.
Treasury, others are supported by the right of the issuer to
borrow from the Treasury, and still others are supported only by
the credit of the agency or instrumentality.
2. Certificates of deposit and bankers' acceptances
issued or guaranteed by, or time deposits maintained at, banks or
savings and loan associations (including foreign branches of U.S.
banks or U.S. or foreign branches of foreign banks) having total
assets of more than $500 million. Certificates of deposit are
receipts issued by a depository institution in exchange for the
deposit of funds. The issuer agrees to pay the amount deposited
plus interest to the bearer of the receipt on the date specified
on the certificate. The certificate usually can be traded in the
secondary market prior to maturity. Bankers' acceptances
typically arise from short-term credit arrangements designed to
enable businesses to obtain funds to finance commercial
transactions. Generally, an acceptance is a time draft drawn on
a bank by an exporter or an importer to obtain a stated amount of
funds to pay for specific merchandise. The draft is then
"accepted" by a bank that, in effect, unconditionally guarantees
to pay the face value of the instrument on its maturity date. The
acceptance may then be held by the accepting bank as an earning
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asset or it may be sold in the secondary market at the going rate
of discount for a specific maturity. Although maturities for
acceptances can be as long as 270 days, most acceptances have
maturities of six months or less.
3. Commercial paper, including variable amount master
demand notes, of high quality (i.e., rated A-1 or A-2 by Standard
& Poor's Corporation ("Standard & Poor's"), Prime-1 or Prime-2 by
Moody's Investors Service, Inc. ("Moody's"), Fitch-1 or Fitch-2
by Fitch Investors Service, Inc., or Duff 1 or Duff 2 by Duff &
Phelps Inc. or, if not rated, issued by U.S. or foreign companies
which have an outstanding debt issue rated AAA, AA or A by
Standard & Poor's, or Aaa, Aa or A by Moody's and participation
interests in loans extended by banks to such companies). For a
description of such ratings see the Appendix. Commercial paper
consists of short-term (usually from 1 to 270 days) unsecured
promissory notes issued by corporations in order to finance their
current operations. A variable amount master demand note
represents a direct borrowing arrangement involving periodically
fluctuating rates of interest under a letter agreement between a
commercial paper issuer and an institutional lender pursuant to
which the lender may determine to invest varying amounts.
4. Repurchase agreements that are collateralized in
full each day by liquid securities of the types listed above. 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. 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. Repurchase agreements may be entered into
only with those banks (including State Street Bank and Trust
Company, the Fund's Custodian) or broker-dealers ("vendors") that
are eligible under the procedures adopted by the Trustees of the
Trust for evaluating and monitoring such vendors'
creditworthiness. For each repurchase agreement, the Fund
requires continual maintenance of the market value of underlying
collateral in amounts equal to, or in excess of, the agreement
amount. While the maturities of the underlying collateral may
exceed one year, the term of the repurchase agreement is always
less than one year. In the event that a vendor defaulted on its
repurchase obligation, the Fund 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 Fund
might be delayed in selling the collateral. Repurchase
agreements often are for short periods such as one day or a week,
but may be longer. Repurchase agreements not terminable within
seven days will be limited to no more than 10% of the Fund's
assets. Pursuant to Rule 2a-7, a repurchase agreement is deemed
to be an acquisition of the underlying securities provided that
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the obligation of the seller to repurchase the securities from
the fund is collateralized fully (as defined in such Rule).
Accordingly, the vendor of a fully collateralized repurchase
agreement is deemed to be the issuer of the underlying
securities.
Reverse Repurchase Agreements. While the Fund has no
plans to do so, it may enter into reverse repurchase agreements,
which involve the sale of money market securities held by the
Fund with an agreement to repurchase the securities at an agreed-
upon price, date and interest payment.
Asset-backed Securities. The Fund may invest in asset-
backed securities that meet its existing diversification, quality
and maturity criteria. Asset-backed securities are securities
issued by special purpose entities whose primary assets consist
of a pool of loans or accounts receivable. The securities may be
in the form of a beneficial interest in a special purpose trust,
limited partnership interest, or commercial paper or other debt
securities issued by a special purpose corporation. Although the
securities may have some form of credit or liquidity enhancement,
payments on the securities depend predominately upon collection
of the loans and receivables held by the issuer. It is the
Fund's current intention to limit its investment in such
securities to not more than 5% of its net assets.
Illiquid Securities. The Fund has adopted the following
investment policy which may be changed by the vote of the
Trustees: The Fund will not invest in illiquid securities if
immediately after such investment more than 10% of the Fund's net
assets (taken at market value) would be invested in such
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 and (b) repurchase agreements not terminable within
seven days.
The Fund may purchase restricted securities that are
determined by Alliance to be liquid in accordance with procedures
adopted by the Trustees. 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 of 1933, as amended
(the "Securities Act"). The Fund may purchase restricted
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
and, in each case, determined by Alliance to be liquid in
accordance with procedures adopted by the Trustees of the Fund.
4
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In recent years, a large institutional market has
developed for certain types of restricted securities including,
among others, private placements, repurchase agreements,
commercial paper, foreign securities and corporate bonds and
notes. These instruments are often restricted securities because
they are sold in transactions not requiring registration. For
example, commercial paper issues in which the Fund may invest
include, among others, securities issued by major corporations
without registration under the Securities Act in reliance on the
exemption from registration afforded by Section 3(a)(3) of such
Act and commercial paper issued in reliance on the private
placement exemption from registration which is afforded by
Section 4(2) of the Securities Act ("Section 4(2) paper").
Section 4(2) paper is restricted as to disposition under the
Federal securities laws in that any resale must also be made in
an exempt transaction. Section 4(2) paper is normally resold to
other institutional investors through or with the assistance of
investment dealers who make a market in Section 4(2) paper, thus
providing liquidity. Institutional investors, rather than
selling these instruments to the general public, often depend on
an efficient institutional market in which such restricted
securities can be readily resold in transactions not involving a
public offering. In many instances, therefore, the existence of
contractual or legal restrictions on resale to the general public
does not, in practice, impair the liquidity of such investments
from the perspective of institutional holders. In recognition of
this fact, the Staff of the Securities and Exchange Commission
("Commission") has stated that Section 4(2) paper may be
determined to be liquid by the Fund's Trustees, so long as
certain conditions, which are described below, are met.
In 1990, in part to enhance the liquidity in the
institutional markets for restricted securities, the Commission
adopted Rule 144A under the Securities Act to establish a safe
harbor from the Securities Act's registration requirements for
resale of certain restricted securities to qualified
institutional buyers. Pursuant to Rule 144A, the institutional
restricted securities markets may provide both readily
ascertainable values for restricted securities and the ability to
liquidate an investment in order to satisfy share redemption
orders on a timely basis. An insufficient number of qualified
institutional buyers interested in purchasing certain restricted
securities held by the Fund, however, could affect adversely the
marketability of such portfolio securities and the Fund might be
unable to dispose of such securities promptly or at reasonable
prices. Rule 144A has already produced enhanced liquidity for
many restricted securities, and market liquidity for such
securities may continue to expand as a result of Rule 144A and
the consequent inception of the PORTAL System sponsored by the
National Association of Securities Dealers, Inc., an automated
5
<PAGE>
system for the trading, clearance and settlement of unregistered
securities.
The Fund's 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 Alliance, pursuant to guidelines
approved by the Trustees.
Alliance Capital Management L.P. ("Alliance") takes into
account a number of factors in determining whether a restricted
security eligible for resale under Rule 144A of the Securities
Act being considered for purchase is liquid, including at least
the following:
(i) the frequency of trades and quotations for the
security;
(ii) the number of dealers making quotations to purchase
or sell the security;
(iii) the number of other potential purchasers of the
security;
(iv) the number of dealers undertaking to make a market
in the security;
(v) the nature of the security (including its
unregistered nature) and the nature of the
marketplace for the security (e.g., the time needed
to dispose of the security, the method of
soliciting offers and the mechanics of transfer);
and
(vi) any applicable Commission interpretation or
position with respect to such types of securities.
To make the determination that an issue of Section 4(2)
paper is liquid, Alliance must conclude that the following
conditions have been met:
(i) the Section 4(2) paper must not be traded flat or
in default as to principal or interest; and
(ii) the Section 4(2) paper must be rated in one of the
two highest rating categories by at least two
nationally recognized statistical rating
organizations ("NRSROS"), or if only NRSRO rates
the security, by that NRSRO; if the security is
unrated, Alliance must determine that the security
is of equivalent quality.
6
<PAGE>
Alliance must also consider the trading market for the
specific security, taking into account all relevant factors.
Following the purchase of a restricted security by the
Fund, Alliance monitors continuously the liquidity of such
security and reports to the Trustees regarding purchases of
liquid restricted securities.
Subject to its policy of not investing 25% or more of
its total assets in instruments issued by foreign branches of
foreign banks and other foreign entities, the Fund may make
investments in certificates of deposit and bankers' acceptances
issued or guaranteed by, or time deposits maintained at, foreign
branches of U.S. banks and U.S. and foreign branches of foreign
banks, and commercial paper issued by foreign companies. To the
extent that the Fund 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. There can be no assurance, as is
true with all investment companies, that the Fund's objective
will be achieved.
Net income to shareholders is aided both by the Fund's
ability to make investments in large denominations and by its
efficiencies of scale. Also, the Fund 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 money markets. The Fund's investment objective may not
be changed without the affirmative vote of a majority of the
Fund's outstanding shares as defined below. Except as otherwise
provided, the Fund's investment policies are not designated
"fundamental policies" within the meaning of the Act and may,
therefore, be changed by the Trustees of the Fund without a
shareholder vote. However, the Fund will not change its
investment policies without contemporaneous written notice to
shareholders.
The Fund will comply with Rule 2a-7 under the Act, as
amended from time to time, including the diversity, quality and
maturity limitations imposed by the Rule.
Currently, pursuant to Rule 2a-7, the Fund may invest
only in "eligible securities," as that term is defined in the
Rule. Generally, an eligible security is a security that (i) is
denominated in U.S. Dollars and has a remaining maturity of 397
days or less; (ii) is rated, or is issued by an issuer with
7
<PAGE>
short-term debt outstanding that is rated, in one of the two
highest rating categories by two NRSROs or, if only one NRSRO has
issued a rating, by that NRSRO; and (iii) has been determined by
Alliance to present minimal credit risks pursuant to procedures
approved by the Trustees. A security that originally had a
maturity of greater than 397 days is an eligible security if its
remaining maturity at the time of purchase is 397 calendar days
or less and the issuer has outstanding short-term debt that would
be an eligible security. Unrated securities may also be eligible
securities if Alliance 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.
Under Rule 2a-7 the Fund may not invest more than five
percent of its assets in the securities of any one issuer other
than the United States Government, its agencies or
instrumentalities. In addition, the Fund 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 the Fund 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 and (B) five percent of its
total assets in second tier securities.
Investment Restrictions
The following restrictions may not be changed without
the affirmative vote of a majority of the Fund's outstanding
shares, which means the vote of (1) 67% or more of the shares
represented at a meeting at which more than 50% of the
outstanding shares are represented or (2) more than 50% of the
outstanding shares, whichever is less.
The Fund:
1. May not invest 25% or more of its assets in the
securities of issuers conducting their principal business
activities in any one industry; provided that, for purposes of
this restriction, there is no limitation with respect to
investments in securities issued or guaranteed by the United
States Government, its agencies or instrumentalities 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);
8
<PAGE>
2. May not invest more than 5% of its assets in the
securities of any one issuer (exclusive of securities issued or
guaranteed by the United States Government, its agencies or
instrumentalities), except that up to 25% of the value of the
Fund's total assets may be invested without regard to such 5%
limitation;
3. May not invest in more than 10% of any one class of
an issuer's outstanding securities (exclusive of securities
issued or guaranteed by the United States Government, its
agencies or instrumentalities);
4. May not borrow money except from banks on a
temporary basis or via entering into reverse repurchase
agreements in aggregate amounts not to exceed 15% of the Fund's
assets and to be used exclusively to facilitate the orderly
maturation and sale of portfolio securities during any periods of
abnormally heavy redemption requests, if they should occur; such
borrowings may not be used to purchase investments and the Fund
will not purchase any investment while any such borrowings exist;
5. May not pledge, hypothecate or in any manner
transfer, as security for indebtedness, any securities owned or
held by the Fund except as may be necessary in connection with
any borrowing mentioned above, including reverse repurchase
agreements, and in an aggregate amount not to exceed 15% of the
Fund's assets;
6. May not make loans, provided that the Fund may
purchase money market securities and enter into repurchase
agreements; or
7. 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 money market securities secured by real estate or interests
therein or money market securities issued by companies which
invest in real estate, or interests therein), commodities or
commodity contracts, interests in oil, gas and other mineral
exploration or other development programs; (d) purchase
securities on margin; (e) make short sales of securities or
maintain a short position or write, purchase or sell puts, calls,
straddles, spreads or combinations thereof; (f) invest in
securities of issuers (other than agencies and instrumentalities
of the United States Government) having a record, together with
predecessors, of less than three years of continuous operation if
more than 5% of the Fund's assets would be invested in such
securities; (g) purchase or retain securities of any issuers if
those officers and trustees of the Fund and employees of Alliance
who own individually more than 1/2 of 1% of the outstanding
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securities of such issuer together own more than 5% of the
securities of such issuer; or (h) act as an underwriter of
securities.
As a matter of operating policy, fundamental investment
restriction number 2 would give the Fund 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.
In connection with the qualification or registration of
the Fund's shares for sale under the securities laws of certain
states, the Fund has agreed, in addition to the foregoing
investment restrictions, that it (i) will not invest more than 5%
of the value of its total assets at the time of purchase in the
commercial paper, including variable amount master demand notes,
of any one issuer, and (ii) will not pledge, hypothecate or in
any manner transfer, as security for indebtedness, securities
owned by the Fund if such pledge, hypothecation, or transfer
would then result in more than 10% of the Fund's net assets being
so encumbered.
MANAGEMENT OF THE FUND
Trustees and Officers
The Trustees and principal officers of the Trust, their
ages and their principal occupations during the past five years
are set forth below. Unless otherwise specified, the address of
each such person is 1345 Avenue of the Americas, New York, New
York 10105. Those Trustees whose names are preceded by an
asterisk are "interested persons" of the Trust as determined
under the Act. Each Trustee and officer is also a director,
trustee or officer of other registered investment companies
sponsored by Alliance.
Trustees
RUTH BLOCK, 65, is a Director of Ecolab Incorporated
(specialty chemicals) and Amoco Corporation (oil and gas). She
was formerly an Executive Vice President and the Chief Insurance
Officer of the Equitable Life Assurance Society of the United
States since prior to 1991. Her address is P.O. Box 4653,
Stamford, Connecticut 06903.
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JOHN D. CARIFA*, 50, is the President, Chief Operating
Officer and a Director of Alliance Capital Management Corporation
("ACMC")**, with which he has been associated since prior to
1991.
DAVID H. DIEVLER, 66, was formerly a Senior Vice
President of ACMC with which he had been associated since prior
to 1991. He is currently an independent consultant. His address
is P.O. Box 167, Spring Lake, New Jersey 07762.
JOHN H. DOBKIN, 53, has been President of Historic
Hudson Valley (historic preservation) since prior to 1991.
Previously, he was Director of the National Academy of Design.
From 1987 to 1992 he was a Director of ACMC. His address is 105
West 55th Street, New York, New York 10019.
WILLIAM H. FOULK, JR., 63, was formerly Senior Manager
of Barrett Associates, Inc., a registered investment adviser,
with which he had been associated since prior to 1991. His
address is 2 Hekma Road, Greenwich, CT 06831.
DR. JAMES M. HESTER, 71, is President of the Harry Frank
Guggenheim Foundation and a Director of Union Carbide
Corporation, with which he has been associated since prior to
1991. His address is 45 East 89th Street, New York, New York
10128.
CLIFFORD L. MICHEL, 56, is a member of the law firm of
Cahill Gordon & Reindel with which he has been associated since
prior to 1991. He is Chief Executive Officer of Wenonah
Development Company (investments) and a Director of Placer Dome,
Inc. (mining) and Faber-Castell Corporation (writing
instruments). His address is St. Bernard's Road, Gladstone, New
Jersey 07934.
________________________
* An "interested person" of the Fund as defined in the Act.
** For purposes of this Statement of Additional Information,
ACMC refers to Alliance Capital Management Corporation, the
sole general partner of Alliance, and to the predecessor
general partner of Alliance of the same name.
11
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ROBERT C. WHITE, 75, was formerly a Vice President and
the Chief Financial Officer of the Howard Hughes Medical
Institute, with which he has been associated since prior to 1991.
He is also a Trustee of St. Clair Fixed Income Fund, St. Clair
Tax-Free Fund and St. Clair Equity Fund (registered investment
companies) and Director of MEDSTAAT, Systems, Inc. (health care
information). His address is 30835 River Crossing, Bingham
Farms, Michigan 48025.
Officers
KATHLEEN A. CORBET - Senior Vice President, 35, has been
a Senior Vice President of ACMC since July 1993. Previously, she
held various responsibilities as head of Equitable Capital
Management Corporation's Fixed Income Management Department,
Private Placement Secondary Trading and Fund Management since
prior to 1991.
WAYNE D. LYSKI - Senior Vice President, 54, is an
Executive Vice President of ACMC, with which he has been
associated since prior to 1991.
JOHN F. CHIODI, Jr. - Vice President, 29, is a Vice
President of ACMC, with which he has been associated since prior
to 1991.
PAMELA F. RICHARDSON - Vice President, 42, is a Vice
President of ACMC, with which she has been associated since prior
to 1991.
MARK D. GERSTEN - Treasurer and Chief Financial Officer,
45, is a Senior Vice President of Alliance Fund Services, Inc.
and a Vice President of Alliance Fund Distributors, Inc., with
which he has been associated since prior to 1991.
EDMUND P. BERGAN, Jr. - Secretary, 45, is a Senior Vice
President and General Counsel of Alliance Fund Distributors, Inc.
and Alliance Fund Services, Inc. and Vice President and Associate
General Counsel of ACMC, with which he has been associated since
prior to 1991.
JOSEPH J. MANTINEO, Controller, 36, is a Vice President
of Alliance Fund Services, Inc., with which he has been
associated since prior to 1991.
PATRICK J. FARRELL - Assistant Controller, 36, is a Vice
President of Alliance Fund Services, Inc., with which he has been
associated since prior to 1991.
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<PAGE>
VINCENT S. NOTO - Assistant Controller, 31, is a Money
Market Fund Manager, Mutual Funds of Alliance Fund Services,
Inc., with which he has been associated since prior to 1991.
EMILIE D. WRAPP - Assistant Secretary, 40, is Special
Counsel and Vice President of AFD, with which she has been
associated since prior to 1991.
The Fund does not pay any fees to, or reimburse expenses
of, its Directors who are considered "interested persons" of the
Fund. The aggregate compensation paid by the Fund to each of the
Trustees during its fiscal period ended September 30, 1995, and
the aggregate compensation paid to each of the Trustees during
calendar year 1995 by all of the registered investment companies
to which Alliance provides investment advisory services
(collectively, the "Alliance Fund Complex"), are set forth below.
Each of the Trustees is a director or trustee of one or more
other registered investment companies in the Alliance Fund
Complex.
Total Total Number of
Compensation funds in the Alliance
Aggregate From the Alliance Fund Complex, Including
Name of Compensation Fund Complex, the Fund, as to which
Trustee of from the including the Trustee is a
the Fund Fund the Fund Director or Trustee
__________ ____________ _________________ ______________________
John D. Carifa $-0- $-0- 49
Ruth Block $3,000 $159,000 36
David H. Dievler $2,250 $179,200 42
John H. Dobkin $3,000 $117,200 29
William H. Foulk, Jr. $3,000 $143,500 30
Dr. James M. Hester $3,000 $156,000 37
Clifford L. Michel $2,750 $131,500 36
Robert C. White $3,000 $133,200 36
As of January 5, 1996, the Trustees and officers of the
Fund as a group owned less than 1% of the shares of the Fund.
The 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 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.
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The Adviser is a leading international investment
manager supervising client accounts with assets as of
December 31, 1995 of more than $146 billion (of which more than
$48 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 and included, as of December 31,
1995, 29 of the FORTUNE 100 Companies. As of that date, the
Adviser and its subsidiaries employed approximately 1,350
employees who operated out of domestic offices and the overseas
offices of subsidiaries in Bombay, Istanbul, London, Sydney,
Tokyo, Toronto, Bahrain, Luxembourg and Singapore. The 51
registered investment companies comprising 107 separate
investment portfolios managed by the Adviser currently have more
than two million shareholders.
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"), a holding company controlled by
AXA, a French insurance holding company. As of June 30, 1995,
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 59% of the
issued and outstanding units representing assignments of
beneficial ownership of limited partnership interests in the
Adviser ("Units"). As of June 30, 1995, approximately 33% and 8%
of the Units were owned by the public and employees of the
Adviser and its subsidiaries, respectively, including employees
of the Adviser who serve as Directors of the Fund.
AXA owns approximately 60% of the outstanding voting
shares of common stock of ECI. AXA is the holding company for an
international group of insurance and related financial services
companies. AXA's insurance operations are comprised of
activities in life insurance, property and casualty insurance and
reinsurance. The insurance operations are diverse geographically
with activities in France, the United States, the United Kingdom,
Canada and other countries, principally in Europe. AXA is also
engaged in asset management, investment banking and brokerage,
real estate and other financial services activities in the United
States and Europe. Based on information provided by AXA, as of
January 1, 1995, 42.3% of the issued shares (representing 54.7%
of the voting power) of AXA were owned by Midi Participations, a
French corporation that is a holding company. The voting shares
of Midi Participations are in turn owned 60% by Finaxa, a French
corporation that is a holding company, and 40% by subsidiaries of
Assicurazioni Generali S.p.A., an Italian corporation (one of
14
<PAGE>
which, Belgica Insurance Holding S.A., a Belgian corporation,
owned 34.1%). As of January 1, 1995, 62.1% of the issued shares
(representing 75.7% of the voting power) of Finaxa were owned by
five French mutual insurance companies (the "Mutuelles AXA") (one
of which, AXA Assurances I.A.R.D. Mutuelle, owned 31.8% of the
issued shares) (representing 39.0% of the voting power), and
26.5% of the issued shares (representing 16.6% of the voting
power) of Finaxa were owned by Banque Paribas, a French bank.
Including the shares owned by Midi Participations, as of January
1, 1995, the Mutuelles AXA directly or indirectly owned 51.3% of
the issued shares (representing 65.8% of the voting power) of
AXA. In addition, certain subsidiaries of AXA own 0.4% of the
shares of AXA which are not entitled to be voted. Acting as a
group, the Mutuelles AXA control AXA, Midi Participations and
Finaxa.
Under the Advisory Agreement, Alliance provides
investment advisory services and order placement facilities for
the Fund and pays all compensation of Trustees and officers of
the Fund who are affiliated persons of Alliance. Alliance or its
affiliates also furnish the Fund without charge with management
supervision and assistance and office facilities. Under the
Advisory Agreement, the Fund pays an advisory fee at an annual
rate of .25 of 1% of the first $1.25 billion of the average daily
net value of the Fund's net assets, .24 of 1% of the next $.25
billion of such assets, .23 of 1% of the next $.25 billion of
such assets, .22 of 1% of the next $.25 billion of such assets,
.21 of 1% of the next $1 billion of such assets and .20 of 1% of
the average daily value of the Fund's net assets in excess of $3
billion. The fee is accrued daily and paid monthly. As to the
obtaining of clerical and accounting services not required to be
provided to the Fund by Alliance under the Advisory Agreement,
the Fund may employ its own personnel. For such services, it
also may utilize personnel employed by Alliance; if so done, the
services are provided to the Fund at cost and the payments
therefor must be specifically approved in advance by the
Trustees. For the fiscal period ended September 30, 1994,
Alliance received from the Fund advisory fees of $60,163. For
the fiscal year ended September 30, 1995, Alliance received from
the Fund advisory fees of $297,892.
The Advisory Agreement provides that Alliance will
reimburse the Fund for its expenses (exclusive of interest,
taxes, brokerage, expenditures pursuant to the Distribution
Services Agreement described above, and extraordinary expenses,
all to the extent permitted by applicable state securities laws
and regulations) which in any year exceed the limits prescribed
by any state in which the Fund's shares are qualified for sale.
The Fund may not qualify its shares for sale in every state. The
Fund believes that presently the most restrictive state expense
ratio limitation imposed by any state in which the Fund has
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<PAGE>
qualified its shares for sale is 2.5% of the first $30 million of
the mutual fund's average net assets, 2.0% of the next $70
million of its average net assets and 1.5% of its average net
assets in excess of $100 million. For the fiscal period ended
September 30, 1994 and for the fiscal year ended September 30,
1995, no reimbursements were required to be made pursuant to the
most restrictive expense limitation.
The Advisory Agreement is terminable without penalty by
a vote of a majority of the Fund's outstanding voting securities
or by a vote of a majority of the Fund's Trustees on 60 days'
written notice, or by Alliance on 60 days' written notice, and
will automatically terminate in the event of its assignment. The
Advisory Agreement provides that in the absence of willful
misfeasance, bad faith or gross negligence on the part of
Alliance, or of reckless disregard of its obligations thereunder,
Alliance shall not be liable for any action or failure to act in
accordance with its duties thereunder.
The Advisory Agreement became effective on March 23,
1994 having been approved by the unanimous vote, cast in person,
of the Fund's Trustees, including the Trustees who are not
parties to the Advisory Agreement or interested persons as
defined in the Act of any such party, at a meeting called for
that purpose and held on January 18, 1994, and by the Fund's
initial shareholder on March 14, 1994.
The Advisory Agreement will remain in effect until
September 30, 1996 and thereafter for successive twelve-month
periods (computed from each October 1), provided that such
continuance is approved at least annually by a vote of a majority
of the Fund's outstanding voting securities or by the Fund's
Trustees, including in either case, approval by a majority of the
Trustees who are not parties to the Advisory Agreement or
interested persons of any such party as defined by the Act.
Certain other clients of Alliance may have investment
objectives and policies similar to those of the Fund. Alliance
may, from time to time, make recommendations which result in the
purchase or sale of a particular security by its other clients
simultaneously with the Fund. If transactions on behalf of more
than one client during the same period increase the demand for
securities being purchased or the supply of securities being
sold, there may be an adverse effect on price or quantity. It is
the policy of Alliance to allocate advisory recommendations and
the placing of orders in a manner which is deemed equitable by
Alliance to the accounts involved, including the Fund. When two
or more of the clients of Alliance (including the Fund) are
purchasing or selling the same security on a given day from the
same broker-dealer, such transactions may be averaged as to
price.
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EXPENSES OF THE FUND
Distribution Services Agreement
The Fund has entered into a Distribution Services
Agreement (the "Agreement") with the Fund's principal
underwriter, AFD, to permit the Fund directly or indirectly to
pay expenses associated with the distribution of its shares in
accordance with a plan of distribution which is included in the
Agreement and has been duly adopted and approved in accordance
with Rule 12b-1 adopted by the Commission under the Act (the
"Rule 12b-1 Plan").
Under the Agreement, the Treasurer of the Fund reports
the amounts expended under the Rule 12b-1 Plan and the purposes
for which such expenditures were made to the Directors of the
Fund for their review on a quarterly basis. Also, the Agreement
provides that the selection and nomination of Trustees who are
not interested persons of the Fund (as defined in the Act) are
committed to the discretion of such disinterested Trustees then
in office. The Agreement was initially approved by the Directors
of the Fund at a meeting held on January 18, 1994, and by the
Fund's initial shareholder on March 14, 1994.
In approving the Agreement, the Trustees of the Fund
determined that there was a reasonable likelihood that the
Agreement would benefit the Fund and its shareholders.
Information with respect to distribution services fees and other
revenues and expenses of AFD will be presented to the Trustees
each year for their consideration in connection with their
deliberations as to the continuance of the Agreement. In their
review of the Agreement, the Trustees will be asked to take into
consideration separately with respect to each class the
distribution expenses incurred with respect to such class. The
distribution services fee of a particular class will not be used
to subsidize the provision of distribution services with respect
to any other class.
During the Fund's fiscal year ended September 30, 1995,
the Fund paid distribution services fees for expenditures under
the Agreement to AFD with respect to Class A in amounts
aggregating $186,700, which constituted .50 of 1% of Class A's
average daily net assets during such fiscal year, and Alliance
made payments from its own resources aggregating $71,077. Of the
$257,777 paid by the Fund and Alliance under the Agreement in the
case of the Class A shares, $24,387 was spent on advertising,
$4,917 on the printing and mailing of prospectuses for persons
other than current shareholders, $87,693 for compensation to
17
<PAGE>
broker-dealers, $55,977 for compensation to sales personnel and
$84,803 was spent on the printing of sales literature, due
diligence, travel, entertainment, occupancy, communications,
taxes, depreciation and other promotional expenses.
During the Fund's fiscal year ended September 30, 1995,
the Fund paid distribution services fees for expenditures under
the Agreement to AFD with respect to Class B shares in amounts
aggregating $688,887, which constituted 1% of Class B's average
daily net assets during such fiscal year, and Alliance made
payments from its own resources aggregating $1,717,318. Of the
$2,406,205 paid by the Fund and Alliance under the Agreement in
the case of the Class B shares, $44,323 was spent on advertising,
$-0- on the printing and mailing of prospectuses for persons
other than current shareholders, $172,189 for compensation to
broker-dealers, $1,875,666 for compensation paid to sales
personnel, $162,378 for interest on Class B shares financing and
$151,649 was spent on the printing of sales literature, due
diligence, travel, entertainment, occupancy, communications,
taxes, depreciation and other promotional expenses.
During the Fund's fiscal year ended September 30, 1995,
the Fund paid distribution services fees for expenditures under
the Agreement to AFD with respect to Class C shares in amounts
aggregating $96,961, which constituted .75 of 1% of Class C's
average daily net assets during such fiscal year, and Alliance
made payments from its own resources aggregating $21,335. Of the
$118,296 paid by the Fund and Alliance under the Agreement in the
case of the Class C shares, $8,298 was spent on advertising, $-0-
on the printing and mailing of prospectuses for persons other
than current shareholders, $63,509 for compensation to broker-
dealers, $19,138 for compensation to sales personnel and $27,351
was spent on the printing of sales literature, due diligence,
travel, entertainment, occupancy, communications, taxes,
depreciation and other promotional expenses.
Distribution services fees are accrued daily and paid
monthly and are charged as expenses of the Fund as accrued. The
distribution services fees attributable to the Class B shares and
Class C shares are designed to permit an investor to purchase
such shares through broker-dealers without the assessment of an
initial sales charge, and, in the case of Class C shares, without
the assessment of a contingent deferred sales charge, and at the
same time to permit AFD to compensate broker-dealers in
connection with the sale of such shares. In this regard, the
purpose and function of the combined contingent deferred sales
charge and distribution services fee on the Class B shares, and
the distribution services fee on the Class C shares, are the same
as those of the initial sales charge (or contingent deferred
sales charge, when applicable) and distribution services fee with
respect to the Class A shares in that in each case the sales
18
<PAGE>
charge and/or distribution services fee provide for the financing
of the distribution of the Fund's shares.
The Agreement became effective on March 23, 1994. The
Agreement will continue in effect until September 30, 1996 and
thereafter for successive twelve-month periods (computed from
each October 1) with respect to each class of the Fund, provided,
however, that such continuance is specifically approved at least
annually by the Trustees of the Fund or by vote of the holders of
a majority of the outstanding voting securities (as defined in
the Act) of that class, and in either case, by a majority of the
Trustees of the Fund who are not parties to this agreement or
interested persons, as defined in the Act, of any such party
(other than as trustees of the Fund) and who have no direct or
indirect financial interest in the operation of the Rule 12b-1
Plan or any agreement related thereto.
In the event that the Agreement is terminated or not
continued with respect to the Class A shares, Class B shares or
Class C shares, (i) no distribution services fees (other than
current amounts accrued but not yet paid) would be owed by the
Fund to AFD with respect to that class, and (ii) the Fund would
not be obligated to pay AFD for any amounts expended under the
Agreement not previously recovered by AFD from distribution
services fees in respect of shares of such class or through
deferred sales charges.
All material amendments to the Agreement will become
effective only upon approval as provided in the preceding
paragraph; and the Agreement may not be amended in order to
increase materially the costs that the Fund or a particular class
of the Fund may bear pursuant to the Agreement without the
approval of a majority of the holders of the outstanding voting
shares of the Fund or the class of the Fund affected. The
Agreement may be terminated (a) by the Fund without penalty at
any time by a majority vote of the holders of the Fund's
outstanding voting securities, voting separately by class, or by
a majority vote of the disinterested Trustees or (b) by AFD. To
terminate the Agreement, any party must give the other parties 60
days' written notice; to terminate the Rule 12b-1 Plan only, the
Fund is not required to give prior notice to AFD. The Agreement
will terminate automatically in the event of its assignment.
Transfer Agency Agreement
Alliance Fund Services, Inc., an indirect wholly-owned
subsidiary of Alliance, receives a transfer agency fee per
account holder for each of the Class A, Class B and Class C
shares of each portfolio of the Fund, plus reimbursement for
out-of-pocket expenses. The transfer agency fee with respect to
the Class B shares is higher than the transfer agency fee with
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<PAGE>
respect to the Class A shares or the Class C shares reflecting
the additional costs associated with Class B contingent deferred
sales charge. For the fiscal year ended September 30, 1995, the
Fund paid Alliance Fund Services, Inc. $144,631 for transfer
agency services.
PURCHASE OF SHARES
The following information supplements that set forth in
the Fund's Prospectus under the heading "Purchase and Sale of
Shares."
General
Shares of the Fund are offered on a continuous basis at
a price equal to their net asset value. Shares of the Fund are
available to holders of shares of other Alliance Mutual Funds who
wish to exchange their shares for shares of a money market fund
and also may be purchased for cash.
The Fund's three classes of shares each represent an
interest in the same portfolio of investments of the Fund, have
the same rights and are identical in all respects, except that
(i) Class A and Class B shares bear the expense of their
respective contingent deferred sales charges, (ii) Class B and
Class C shares bear the expense of a higher distribution services
fee and higher transfer agency costs, (iii) each class has
exclusive voting rights with respect to provisions of the Rule
12b-1 Plan pursuant to which its distribution services fee is
paid which relates to a specific class and other matters for
which separate class voting is appropriate under applicable law,
provided that, if the Fund submits to a vote of both the Class A
shareholders and the Class B shareholders an amendment to the
Rule 12b-1 Plan that would materially increase the amount to be
paid thereunder with respect to the Class A shares, the Class A
shareholders and the Class B shareholders will vote separately by
Class, and (iv) only the Class B shares are subject to a
conversion feature. Each class has different exchange privileges
and certain different shareholder service options available.
Acquisitions By Exchange
An exchange is effected through the redemption of the
Alliance Mutual Fund shares tendered for exchange and the
purchase of shares of the Fund at net asset value. The Alliance
Mutual Fund the shares of which are being exchanged must receive
(i) proper instructions and any necessary supporting documents as
20
<PAGE>
described in such Fund's Prospectus, or (ii) a telephone request
for such exchange in accordance with the procedures set forth in
the following paragraph. Exchanges of shares recently purchased
by check will be permitted only after reasonable assurance that
the check has cleared, which normally takes up to 15 calendar
days following the purchase date. Exchanges of shares will
generally result in the realization of gain or loss for federal
income tax purposes. Each shareholder, and the shareholder's
selected dealer or agent, are authorized to make telephone
requests for exchanges unless Alliance Fund Services, Inc.
receives written instructions to the contrary from the
shareholder. Such telephone requests cannot be accepted with
respect to shares then represented by certificates. Shares
acquired pursuant to a telephone request for exchange will be
held under the same account registration as the shares redeemed
through such exchange.
Eligible shareholders desiring to make an exchange
should telephone Alliance Fund Services, Inc. with their account
number and other details of the exchange, at (800) 221-5672
between 9:00 a.m. and 4:00 p.m., Eastern time, on a Fund business
day. Telephone requests for exchanges received before 4:00 p.m.
Eastern time on a Fund business day will be processed as of the
close of business on that day. During periods of drastic
economic or market developments, such as the market break of
October 1987, it is possible that shareholders would have
difficulty in reaching Alliance Fund Services, Inc. by telephone
(although no such difficulty was apparent at any time in
connection with the 1987 market break). If a shareholder were to
experience such difficulty, the shareholder should issue written
instructions to Alliance Fund Services, Inc. at the address shown
on the cover of this Statement of Additional Information.
Purchases for Cash
Shares of the Fund should be purchased for cash only as
a temporary investment pending exchange into another Alliance
Mutual Fund and should not be held as a long-term investment.
Class A, Class B and Class C shares are offered for purchase for
cash on a continuous basis through (i) investment dealers that
are members of the National Association of Securities Dealers,
Inc. and have entered into selected dealer agreements with the
Principal Underwriter ("selected dealers"), (ii) depository
institutions and other financial intermediaries or their
affiliates that have entered into selected agent agreements with
the Principal Underwriter ("selected agents"), and (iii) the
Principal Underwriter. The minimum for initial investments is
$250; subsequent investments (other than reinvestments of
dividends and capital gains distributions in shares) must be in
the minimum amount of $50. As described under "Shareholder
Services," the Fund offers an automatic investment program and a
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<PAGE>
403(b)(7) retirement plan which permit investments of $25 or
more. The subscriber may use the Subscription Application found
in the Prospectus for his or her initial investment. Sales
personnel of selected dealers and agents distributing the Fund's
shares may receive differing compensation for selling Class A,
Class B or Class C shares.
Investors may purchase shares of the Fund in the United
States for cash through selected dealers or agents or, if the
purchaser has a financial intermediary of record, directly
through the Principal Underwriter. Shares may also be sold in
foreign countries where permissible.
The Fund will accept unconditional orders for its shares
to be executed at the public offering price equal to their net
asset value next determined as described below. Orders received
by the Principal Underwriter prior to the close of regular
trading on the New York Stock Exchange (the "Exchange") on each
day the Exchange is open for trading are priced at the net asset
value computed as of the close of regular trading on the Exchange
on that day. In the case of orders for purchase of shares placed
through selected dealers or agents, the applicable public
offering price will be the net asset value as so determined, but
only if the selected dealer or agent receives the order prior to
the close of regular trading on the Exchange and transmits it to
the Principal Underwriter prior to its close of business that
same day (normally 5:00 p.m. Eastern time). The selected dealer
or agent is responsible for transmitting such orders by 5:00 p.m.
If the selected dealer or agent fails to do so, the investor's
right to that day's closing price must be settled between the
investor and the selected dealer or agent. If the selected
dealer or agent receives the order after the close of regular
trading on the Exchange, the price will be based on the net asset
value determined as of the close of regular trading on the
Exchange on the next day it is open for trading.
Following the initial purchase for cash of Fund shares,
a shareholder may place orders to purchase additional shares for
cash by telephone if the shareholder has completed the
appropriate portion of the Subscription Application or an
"Autobuy" application obtained by calling the "Literature"
telephone number shown on the cover of this Statement of
Additional Information. Payment for shares purchased by
telephone can be made only by Electronic Funds Transfer from a
bank account maintained by the shareholder at a bank that is a
member of the National Automated Clearing House Association
("NACHA"). If a shareholder's telephone purchase request is
received before 3:00 p.m. Eastern time on a Fund business day,
the order to purchase shares is automatically placed the
following Fund business day, and the applicable public offering
price will be the public offering price determined as of the
22
<PAGE>
close of business on such following business day. A Fund
business day is any weekday, exclusive of national holidays on
which the Exchange is closed and Good Friday. Full and
fractional shares are credited to a subscriber's account in the
amount of his or her subscription.
The per share net asset value of the Fund's shares is
computed in accordance with the Fund's Agreement and Declaration
of Trust as of the next close of regular trading on the Exchange
(currently 4:00 p.m. Eastern time). For purposes of this
computation, the securities in the Fund's portfolio are valued at
their amortized cost value. For more information concerning the
amortized cost method of valuation of securities, see "Daily
Dividends--Determination of Net Asset Value."
The Fund may refuse any order for the acquisition 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. In addition, the Fund reserves the
right, on 60 days' written notice to its shareholders to modify,
restrict or terminate the exchange privilege.
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 the Fund 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, check-writing or periodic redemption procedures.
The Fund reserves the right to reject any purchase order.
In addition to the discount or commission amount paid to
dealers or agents, the Principal Underwriter from time to time
pays additional cash bonuses or other incentives to dealers or
agents, including Equico Securities, Inc., an affiliate of the
Principal Underwriter, in connection with the sale of shares of
the Fund. Such additional amounts may be utilized, in whole or
in part, to provide additional compensation to registered
representatives who sell shares of the Fund. On some occasions,
such cash or other incentives may be conditioned upon the sale of
a specified minimum dollar amount of the shares of the Fund
and/or other Alliance Mutual Funds, as defined below, during a
specific period of time. On some occasions, such cash or other
incentives may take the form of payment for attendance at
seminars, meals, sporting events or theater performances, or
payment for travel, lodging and entertainment incurred in
connection with travel by persons associated with a dealer or
agent and their immediate family members to urban or resort
locations within or outside the United States. Such dealer or
23
<PAGE>
agent may elect to receive cash incentives of equivalent amount
in lieu of such payments.
The alternative purchase arrangements permit an investor
to choose the method of purchasing shares that is most beneficial
given the amount of the purchase, the length of time the investor
expects to hold the shares, whether the investor intends to
subsequently exchange shares for shares of another Alliance
Mutual Fund and other circumstances. The Principal Underwriter
will reject any order (except orders from certain retirement
plans) for more than $250,000 for Class B shares. In addition,
the Principal Underwriter will reject any order for more than
$5,000,000 of Class C shares.
Class A shares are subject to a lower distribution
services fee and, accordingly, pay correspondingly higher
dividends per share than Class B shares or Class C shares.
However, because sales charges are deducted at the time Class A
shares are exchanged for Class A shares of other Alliance Mutual
Funds, investors not qualifying for reduced Class A sales charges
who expect to exchange their shares for Class A shares of another
Alliance Mutual Fund and to maintain their investment for an
extended period of time might consider purchasing Class A shares
because the accumulated continuing distribution charges on
Class B shares or Class C shares may exceed the initial sales
charge on Class A shares during the life of the investment.
Again, however, such investors must weigh this consideration
against the fact that sales charges will be imposed at the time
Class A shares are exchanged for Class A shares of other Alliance
Mutual Funds.
Other investors might determine, however, that it would
be more advantageous to purchase Class B shares or Class C
shares, although these classes are subject to higher continuing
distribution charges and, in the case of Class B shares, are
subject to a contingent deferred sales charge for a four-year
period. This might be true of investors who do not wish to pay
sales charges on subsequent exchanges of shares. Those investors
who prefer to have all of their funds invested initially but may
not wish to retain their investment for the four-year period
during which Class B shares are subject to a contingent deferred
sales charge may find it more advantageous to purchase Class C
shares.
The Trustees of the Fund have determined that currently
no conflict of interest exists among the Class A, Class B and
Class C shares. On an ongoing basis, the Trustees of the Fund,
pursuant to their fiduciary duties under the 1940 Act and state
laws, will seek to ensure that no such conflict arises.
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<PAGE>
Class A Shares
The public offering price of Class A shares is their net
asset value. No sales charge is imposed on Class A shares at the
time of purchase. If Class A shares of the Fund are purchased
for cash and are exchanged for Class A shares of another Alliance
Mutual Fund, the sales charge applicable to the other Alliance
Mutual Fund will be assessed at the time of the exchange.
With respect to purchases of $1,000,000 or more, Class A
shares redeemed within one year of purchase will be subject to a
1% contingent deferred sales charge at the time of redemption.
Class A shares that were received in exchange of Class A shares
of another Alliance Mutual Fund that were not subject to an
initial sales charge when originally purchased for cash because
the purchase was of $1,000,000 or more and that are redeemed
within one year of the original purchase will be subject to a 1%
contingent deferred sales charge. No charge will be assessed on
shares derived from reinvestment of dividends or capital gains
distributions. The contingent deferred sales charge on Class A
shares will be waived on certain redemptions, and such charge
will be applied to redemptions of shares by shareholders who hold
both Class A and Class B shares, as described below under
"Class B Shares--Contingent Deferred Sales Charge" and "Class B
Shares--Waivers of the Contingent Deferred Sales Charges on
Class A Shares and Class B Shares." Proceeds from the contingent
deferred sales charge on Class A shares are paid to the Principal
Underwriter and are used by the Principal Underwriter to defray
the expenses of the Principal Underwriter related to providing
distribution-related services in connection with the sales of
Class A shares, such as the payment of compensation to selected
dealers and agents for selling Class A Shares. With respect to
purchases of $1,000,000 or more made through selected dealers or
agents, the Adviser may, pursuant to the Distribution Services
Agreement described above, pay such dealers or agents from its
own resources a fee of up to 1% of the amount invested to
compensate such dealers or agents for their distribution
assistance in connection with such purchases.
Combined Purchase Privilege. Certain persons may
qualify for the sales charge reductions on Class A shares of
other Alliance Mutual Funds by combining purchases of shares of
the Fund and shares of other Alliance Mutual Funds into a single
"purchase," if the resulting "purchase" totals at least $100,000.
The term "purchase" refers to: (i) a single purchase by an
individual, or concurrent purchases, which in the aggregate are
at least equal to the prescribed amounts, by an individual, his
or her spouse and their children under the age of 21 years
purchasing shares for his, her or their own account(s); (ii) a
single purchase by a trustee or other fiduciary purchasing shares
for a single trust, estate or single fiduciary account although
25
<PAGE>
more than one beneficiary is involved; or (iii) a single purchase
for the employee benefit plans of a single employer. The term
"purchase" also includes purchases by any "company," as the term
is defined in the 1940 Act, but does not include purchases by any
such company which has not been in existence for at least six
months or which has no purpose other than the purchase of shares
of Alliance Mutual Funds or shares of other registered investment
companies at a discount. The term "purchase" does not include
purchases by any group of individuals whose sole organizational
nexus is that the participants therein are credit card holders of
a company, policy holders of an insurance company, customers of
either a bank or broker-dealer or clients of an investment
adviser. Currently, the Alliance Mutual Funds include:
AFD Exchange Reserves
The Alliance Fund, Inc.
Alliance All-Asia Investment Fund, Inc.
Alliance Balanced Shares, Inc.
Alliance Bond Fund, Inc.
-Corporate Bond Portfolio
-U.S. Government Portfolio
Alliance Developing Markets Fund, Inc.
Alliance Global Dollar Government Fund, Inc.
Alliance Global Small Cap Fund, Inc.
Alliance Growth and Income Fund, Inc.
Alliance Income Builder Fund, Inc.
Alliance International Fund
Alliance Mortgage Securities Income Fund, Inc.
Alliance Mortgage Strategy Trust, Inc.
Alliance Multi-Market Strategy Trust, Inc.
Alliance Municipal Income Fund, Inc.
-California Portfolio
-Insured California Portfolio
-Insured National Portfolio
-National Portfolio
-New York Portfolio
Alliance Municipal Income Fund II
-Arizona Portfolio
-Florida Portfolio
-Massachusetts Portfolio
-Michigan Portfolio
-Minnesota Portfolio
-New Jersey Portfolio
-Ohio Portfolio
-Pennsylvania Portfolio
-Virginia Portfolio
Alliance New Europe Fund, Inc.
Alliance North American Government Income Trust, Inc.
Alliance Premier Growth Fund, Inc.
Alliance Quasar Fund, Inc.
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<PAGE>
Alliance Short-Term Multi-Market Trust, Inc.
Alliance Technology Fund, Inc.
Alliance Utility Income Fund, Inc.
Alliance World Income Trust, Inc.
Alliance Worldwide Privatization Fund, Inc.
The Alliance Portfolios
-Alliance Growth Fund
-Alliance Conservative Investors Fund
-Alliance Growth Investors Fund
-Alliance Strategic Balanced Fund
-Alliance Short-Term U.S. Government Fund
Prospectuses for the Alliance Mutual Funds may be
obtained without charge by contacting Alliance Fund Services,
Inc. at the address or the "Literature" telephone number shown on
the front cover of this Statement of Additional Information.
Cumulative Quantity Discount (Right of Accumulation).
An investor's exchange of Class A shares of the Fund for Class A
shares of another Alliance Mutual Fund may qualify for a
Cumulative Quantity Discount from any applicable sales charge.
The applicable sales charge will be based on the total of:
(i) the investor's current purchase;
(ii) the net asset value (at the close of business on
the previous day) of (a) all Class A, Class B and
Class C shares of the Fund held by the investor and
(b) all shares of any other Alliance Mutual Fund
held by the investor; and
(iii) the net asset value of all shares described in
paragraph (ii) owned by another shareholder
eligible to combine his or her purchase with that
of the investor into a single "purchase" (see
above).
For example, if an investor owned shares of the Fund or
another Alliance Mutual Fund worth $200,000 at their then current
net asset value and, subsequently, purchased Class A shares of
another alliance Mutual Fund worth an additional $100,000, the
initial sales charge for the $100,000 purchase would be at the
rate applicable to a single $300,000 purchase of shares of that
Alliance Mutual Fund, rather than the rate applicable to a
$100,000 purchase.
To qualify for the Combined Purchase Privilege or to
obtain the Cumulative Quantity Discount on a purchase through a
selected dealer or agent, the investor or selected dealer or
agent must provide the Principal Underwriter with sufficient
27
<PAGE>
information to verify that each purchase qualifies for the
privilege or discount.
Statement of Intention. Class A investors of the Fund
may also obtain reduced initial sales charges by means of a
written Statement of Intention, which expresses the investor's
intention to invest, including through exchange of their Class A
shares of the Fund, not less than $100,000 within a period of 13
months in Class A shares (or Class A, Class B, and/or Class C
shares) of another Alliance Mutual Fund. Each purchase of shares
under a Statement of Intention will be made at the public
offering price or prices applicable at the time of such purchase
to a single transaction of the dollar amount indicated in the
Statement of Intention. At the investor's option, a Statement of
Intention may include purchases of shares of any Alliance Mutual
Fund made not more than 90 days prior to the date that the
investor signs the Statement of Intention; however, the 13-month
period during which the Statement of Intention is in effect will
begin on the date of the earliest purchase to be included.
Investors qualifying for the Combined Purchase Privilege
described above may purchase shares of the Alliance Mutual Funds
under a single Statement of Intention. For example, if at the
time an investor signs a Statement of Intention to invest at
least $100,000 in Class A shares of an Alliance Mutual Fund, the
investor and the investor's spouse each purchase shares of the
Fund worth $20,000 (for a total of $40,000), it will be necessary
to invest only a total of $60,000 during the following 13 months
in shares of that Alliance Mutual Fund or any other Alliance
Mutual Fund, to qualify for a reduced initial sales charge on the
total amount being invested (i.e., the initial sales charge
applicable to an investment of $100,000).
The Statement of Intention is not a binding obligation
upon the investor to purchase the full amount indicated. The
minimum initial investment under a Statement of Intention is 5%
of such amount. Shares purchased with the first 5% of such
amount will be held in escrow (while remaining registered in the
name of the investor) to secure payment of the higher initial
sales charge applicable to the shares actually purchased if the
full amount indicated is not purchased, and such escrowed shares
will be involuntarily redeemed to pay the additional sales
charge, if necessary. Dividends on escrowed shares, whether paid
in cash or reinvested in additional Alliance Mutual Fund shares,
are not subject to escrow. When the full amount indicated has
been purchased, the escrow will be released. To the extent that
an investor purchases more than the dollar amount indicated on
the Statement of Intention and qualifies for a further reduced
sales charge, the initial sales charge will be adjusted for the
entire amount purchased at the end of the 13-month period. The
difference in the initial sales charge will be used to purchase
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<PAGE>
additional shares of that Alliance Mutual Fund subject to the
rate of the initial sales charge applicable to the actual amount
of the aggregate purchases.
Investors wishing to enter into a Statement of Intention
in conjunction with their initial investment in Class A shares of
that Alliance Mutual Fund should complete the appropriate portion
of the Subscription Application found in the Prospectus of that
Alliance Mutual Fund. Current Class A shareholders of that
Alliance Mutual Fund desiring to do so can obtain a form of
Statement of Intention by contacting Alliance Fund Services, Inc.
at the address or telephone numbers shown on the cover of that
Alliance Mutual Fund's Statement of Additional Information.
Certain Retirement Plans. Multiple participant payroll
deduction retirement plans may also purchase shares of any
Alliance Mutual Fund, including through the exchanges of their
Class A shares of the Fund, at a reduced initial sales charge on
a monthly basis during the 13-month period following such a
plan's initial purchase of that Alliance Mutual Fund's shares.
The initial sales charge applicable to such initial purchase of
shares of that Alliance Mutual Fund will be that normally
applicable, under the schedule of the initial sales charges set
forth in the Statement of Additional Information of that Alliance
Mutual Fund, to an investment 13 times larger than such initial
purchase. The sales charge applicable to each succeeding monthly
purchase will be that normally applicable, under such schedule,
to an investment equal to the sum of (i) the current month's
purchase multiplied by the number of months (including the
current month) remaining in the 13-month period and (ii) the
total purchase previously made during the 13-month period. Sales
charges previously paid during such period will not be
retroactively adjusted on the basis of later purchases.
Class B Shares
Investors choosing the deferred sales charge alternative
purchase Class B shares for cash at the public offering price
equal to the net asset value per share of the Class B shares on
the date of purchase without the imposition of a sales charge at
the time of purchase. Proceeds from the contingent deferred
sales charge on the Class B shares purchased for cash are paid to
the Principal Underwriter and are used by the Principal
Underwriter to defray the expenses of the Principal Underwriter
related to providing distribution-related services to the Fund in
connection with the sale of the Class B shares, such as the
payment of compensation to selected dealers and agents for
selling Class B shares. The higher distribution services fee
incurred by Class B shares will cause such shares to have a
higher expense ratio and to pay lower dividends than those
related to Class A shares.
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<PAGE>
Class B shares of the Fund are also offered to holders
of Class B shares of other Alliance Mutual Funds without any
sales charge at the time of purchase in an exchange transaction.
When Class B shares acquired in an exchange are redeemed, the
applicable contingent deferred sales charge and conversion
schedules will be the schedules that applied to Class B shares of
the Alliance Mutual Fund originally purchased by the shareholder
at the time of their purchase.
Contingent Deferred Sales Charge. Class B shares that
are redeemed within four years of their cash purchase will be
subject to a contingent deferred sales charge at the rates set
forth below charged as a percentage of the dollar amount subject
thereto. The amount of the contingent deferred sales charge, if
any, will vary depending on the number of years from the time of
cash payment for the purchase of Class B shares until the time of
redemption of such shares.
Year Since Contingent Deferred Sales Charge as
Cash Purchase a % of Dollar Amount Subject to Charge
_________________ ___________________________________
First 4.00%
Second 3.00%
Third 2.00%
Fourth 1.00%
Fifth None
In determining the contingent deferred sales charge
applicable to a redemption, it will be assumed that the
redemption is first of any shares in the shareholder's Fund
account that are not subject to a contingent deferred sales
charge, second of Class B shares held for over three years and
third of Class A shares that are subject to a contingent deferred
sales charge held shortest during the one-year period during
which such shares are subject to the sales charge. The CDSC is
applied to the lesser of the net asset value at the time of
redemption of the Class A shares or Class B shares being redeemed
and the cost of such shares (or, as to Fund shares acquired
through an exchange, the cost of the Alliance Mutual Fund shares
originally purchased for cash). Accordingly, no sales charge
will be imposed on increases in net asset value above the initial
purchase price. In addition, no charge will be assessed on
shares derived from reinvestment of dividends or capital gains
distributions.
Waivers of the Contingent Deferred Sales Charges on
Class A Shares and Class B Shares. The contingent deferred sales
charges on Class A and Class B shares are waived on redemptions
of shares (i) following the death or disability, as defined in
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<PAGE>
the Internal Revenue Code of 1986, as amended (the "Code"), of a
shareholder, or (ii) to the extent that the redemption represents
a minimum required distribution from an individual retirement
account or other retirement plan to a shareholder who has
attained the age of 70-1/2, or (iii) that had been purchased by
present or former Trustees of the Fund, by the relative of any
such person, by any trust, individual retirement account or
retirement plan for the benefit of any such person or relative,
or by the estate of any such person or relative, or (iv) pursuant
to a Systematic Withdrawal Plan (see "Shareholder
Services--Systematic Withdrawal Plan").
Conversion Feature. Class B shares of the Fund will
automatically convert to Class A shares of the Fund in accordance
with the conversion schedule applicable to the original Alliance
Mutual Fund Class B shares purchased, or in the case of Class B
shares of the Fund purchased for cash, on the tenth Fund business
day in the month following the month in which the eighth
anniversary date of the acceptance of the purchase order for the
Class B shares occurs, and will no longer be subject to a higher
distribution services fee following conversion. Such conversion
will be on the basis of the relative net asset values of the two
classes, without the imposition of any sales charge, fee or other
charge. The purposes of the conversion feature are (i) to
provide a mechanism whereby the time period for the automatic
conversion of Class B shares to Class A shares will continue to
elapse in the event the Class B shares originally purchased for
cash are subsequently exchanged for Class B shares of the Fund or
Class B shares of another Alliance Mutual Fund and (ii) to reduce
the distribution services fee paid by holders of Class B shares
that have been outstanding long enough for the Principal
Underwriter to have been compensated for distribution expenses
incurred in the original sale of such shares. See "Shareholder
Services--Exchange Privilege."
For purposes of conversion to Class A shares, Class B
shares purchased through the reinvestment of dividends and
distributions paid in respect of Class B shares in a
shareholder's account will be considered to be held in a separate
subaccount. Each time any Class B shares in the shareholder's
account (other than those in the subaccount) convert to Class A
shares, an equal pro-rata portion of the Class B shares in the
subaccount will also convert to Class A shares.
The conversion of Class B shares to Class A shares is
subject to the continuing availability of an opinion of counsel
to the effect that (i) the assessment of the higher distribution
services fee and transfer agency costs with respect to Class B
shares does not result in the Fund's dividends or distributions
constituting "preferential dividends" under the Code, and
(ii) the conversion of Class B shares to Class A shares does not
31
<PAGE>
constitute a taxable event under federal income tax law. The
conversion of Class B shares to Class A shares may be suspended
if such an opinion is no longer available at the time such
conversion is to occur. In that event, no further conversions of
Class B shares would occur, and shares might continue to be
subject to the higher distribution services fee for an indefinite
period which may extend beyond the period ending eight years
after the end of the calendar month in which the shareholder's
purchase order was accepted.
Class C Shares. Investors choosing the asset-based
sales charge alternative purchase Class C shares at the public
offering price equal to the net asset value per share of the
Class C shares on the date of purchase without the imposition of
a sales charge either at the time of purchase or upon redemption.
Class C shares are sold without an initial sales charge so that
the Fund will receive the full amount of the investor's purchase
payment and without a contingent deferred sales charge so that
the investor will receive as proceeds upon redemption the entire
net asset value of his or her Class C shares. The Class C
distribution services fee enables the Fund to sell Class C shares
without either an initial or contingent deferred sales charge.
Class C shares do not convert to any other class of shares of the
Fund.
Class C shares of the Fund are also offered to holders
of Class C shares of other Alliance Mutual Funds without any
sales charge at the time of purchase or redemption.
Class C shares incur higher distribution services fees
than Class A shares, and will thus have a higher expense ratio
and pay correspondingly lower dividends than Class A shares.
REDEMPTION AND REPURCHASE OF SHARES
________________________________________________________________
The following information supplements that set
forth in the Fund's Prospectus under the heading "Purchase and
Sale of Shares--How to Sell Shares."
Redemption
Subject only to the limitations described below, the
Fund will redeem shares tendered to it, as described below, at a
redemption price equal to their net asset value, which is
expected to remain constant at $1.00 per share, following the
receipt of shares tendered for redemption in proper form. Except
for any contingent deferred sales charge which may be applicable
to Class A or Class B shares, there is no redemption charge.
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<PAGE>
Payment of the redemption price will be made within seven days
after the Fund's receipt of such tender for redemption.
The right of redemption may not be suspended or the date
of payment upon redemption postponed for more than seven days
after shares are tendered for redemption, except for any period
during which the Exchange is closed (other than customary weekend
and holiday closings) or during which the Commission determines
that trading thereon is restricted, or for any period during
which an emergency (as determined by the Commission) exists as a
result of which disposal by the Fund of securities owned by it is
not reasonably practicable or as a result of which it is not
reasonably practicable for the Fund fairly to determine the value
of its net assets, or for such other periods as the Commission
may by order permit for the protection of security holders of the
Fund.
Payment of the redemption price may be made either in
cash or in portfolio securities (selected at the discretion of
the Trustees of the Fund and taken at their value used in
determining the redemption price), or partly in cash and partly
in portfolio securities. However, payments will be made wholly
in cash unless the Trustees believe that economic conditions
exist which would make such a practice detrimental to the best
interests of the Fund.
The value of a shareholder's shares on redemption or
repurchase may be more or less than the cost of such shares to
the shareholder, depending upon the market value of the Fund's
portfolio securities at the time of such redemption or repurchase
and the income earned. Redemption proceeds on Class A shares and
Class B shares will reflect the deduction of the contingent
deferred sales charge, if any. Payment (either in cash or in
portfolio securities) received by a shareholder upon redemption
or repurchase of his shares, assuming the shares constitute
capital assets in his hands, will result in long-term or short-
term capital gains (or loss) depending upon the shareholder's
holding period and basis in respect of the shares redeemed.
To redeem shares of a Portfolio for which no stock
certificates have been issued, the registered owner or owners
should forward a letter to the Fund containing a request for
redemption. The signature or signatures on the letter must be
guaranteed by an institution that is an "eligible guarantor" as
defined in Rule 17Ad-15 under the Securities Exchange Act of
1934, as amended.
Telephone Redemption By Electronic Funds Transfer. Each
Fund shareholder is entitled to request redemption by Electronic
Funds Transfer, once in any 30 day period, of shares for which no
stock certificates have been issued by telephone at
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<PAGE>
(800) 221-5672 by a shareholder who has completed the appropriate
portion of the Subscription Application or, in the case of an
existing shareholder, an "Autosell" application obtained from
Alliance Fund Services, Inc. A telephone redemption request may
not exceed $100,000, and must be made before 4:00 p.m. Eastern
time on a Fund business day as defined above. Proceeds of
telephone redemptions will be sent by Electronic Funds Transfer
to a shareholder's designated bank account at a bank selected by
the shareholder that is a member of the NACHA.
Telephone Redemption By Check. Except as noted below,
each Fund shareholder is eligible to request redemption by check,
once in any 30-day period, of Fund shares for which no stock
certificates have been issued by telephone at (800) 221-5672
before 4:00 p.m. Eastern time on a Fund business day in an amount
not exceeding $50,000. Proceeds of such redemptions are remitted
by check to the shareholder's address of record. Telephone
redemption by check is not available with respect to shares
(i) for which certificates have been issued, (ii) held in nominee
or "street name" accounts, (iii) held by a shareholder who has
changed his or her address of record within the preceding 30
calendar days or (iv) held in any retirement plan account. A
shareholder otherwise eligible for telephone redemption by check
may cancel the privilege by written instruction to Alliance Fund
Services, Inc., or by checking the appropriate box on the
shareholder or options form.
General. During periods of drastic economic or market
developments, such as the market break of October 1987, it is
possible that shareholders would have difficulty in reaching
Alliance Fund Services, Inc. by telephone (although no such
difficulty was apparent at any time in connection with the 1987
market break). If a shareholder were to experience such
difficulty, the shareholder should issue written instructions to
Alliance Fund Services, Inc. at the address shown on the cover of
this Statement of Additional Information. The Fund reserves the
right to suspend or terminate its telephone redemption service at
any time without notice. Neither the Fund nor Alliance, AFD or
Alliance Fund Services, Inc. will be responsible for the
authenticity of telephone requests for redemptions that the Fund
reasonably believes to be genuine. The Fund will employ
reasonable procedures in order to verify that telephone requests
for redemptions are genuine, including, among others, recording
such telephone instructions and causing written confirmations of
the resulting transactions to be sent to shareholders. If the
Fund did not employ such procedures, it could be liable for
losses arising from unauthorized or fraudulent telephone
instructions. Selected dealers or agents may charge a commission
for handling telephone requests for redemptions.
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<PAGE>
To redeem shares of the Fund represented by stock
certificates, the investor should forward the appropriate stock
certificate or certificates, endorsed in blank or with blank
stock powers attached, to the Fund with the request that the
shares represented thereby, or a specified portion thereof, be
redeemed. The stock assignment form on the reverse side of each
stock certificate surrendered to the Fund for redemption must be
signed by the registered owner or owners exactly as the
registered name appears on the face of the certificate or,
alternatively, a stock power signed in the same manner may be
attached to the stock certificate or certificates or, where
tender is made by mail, separately mailed to the Fund. The
signature or signatures on the assignment form must be guaranteed
in the manner described above.
Repurchase
The Fund may repurchase shares through the AFD or
selected dealers or agents. The repurchase price will be the net
asset value next determined after AFD receives the request (less
the contingent deferred sales charge, if any, with respect to the
Class A shares and Class B shares), except that requests placed
through selected dealers or agents before the close of regular
trading on the Exchange on any day will be executed at the net
asset value determined as of such close of regular trading on
that day if received by AFD prior to its close of business on
that day (normally 5:00 p.m. Eastern time). The selected dealer
or agent is responsible for transmitting the request to AFD by
5:00 p.m. If the selected dealer or agent fails to do so, the
shareholder's right to receive that day's closing price must be
settled between the shareholder and the dealer or agent. A
shareholder may offer shares of the Fund to AFD either directly
or through a selected dealer or agent. Neither the Fund nor AFD
charges a fee or commission in connection with the repurchase of
shares (except for the contingent deferred sales charge, if any,
with respect to Class A shares and Class B shares). Normally, if
shares of the Fund are offered through a selected dealer or
agent, the repurchase is settled by the shareholder as an
ordinary transaction with or through the selected dealer or
agent, who may charge the shareholder for this service. The
repurchase of shares of the Fund as described above is a
voluntary service of the Fund and the Fund may suspend or
terminate this practice at any time.
General
The Fund reserves the right to close out an account that
through redemption has remained below $200 for 90 days.
Shareholders will receive 60 days' written notice to increase the
account value before the account is closed. No contingent
deferred sales charge will be deducted from the proceeds of this
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<PAGE>
redemption. In the case of a redemption or repurchase of shares
of a Portfolio recently purchased by check, redemption proceeds
will not be made available until the Fund is reasonably assured
that the check has cleared, normally up to 15 calendar days
following the purchase date.
________________________________________________________________
SHAREHOLDER SERVICES
_________________________________________________________________
The following information supplements that set forth in
the Fund's Prospectus under the heading "Purchase and Sale of
Shares--Shareholder Services."
Exchange Privilege
Class A shareholders of the Fund can exchange their
Class A shares for Class A shares of any Alliance fund without
the payment of any sales or service charges. For purposes of
applying any applicable contingent deferred sales charge upon the
newly acquired Class A shares, the period of time the Class A
shares surrendered in the exchange have been held is added to the
period of time the newly acquired shares have been held.
Prospectuses for each Alliance fund may be obtained by contacting
Alliance Fund Services, Inc. at the address shown on the cover of
this Statement of Additional Information or by telephone at
(800) 227-4618 or, in Illinois, (800) 227-4170.
Class B shareholders of the Fund can exchange their
Class B shares ("original Class B shares") for Class B shares of
any other Alliance fund that offers Class B shares ("new Class B
shares") without the payment of any contingent deferred sales or
service charges. For purposes of computing both the time
remaining before the new Class B shares convert to Class A shares
of that fund and the contingent deferred sales charge payable
upon disposition of the new Class B shares, the period of time
for which the original Class B shares have been held is added to
the period of time for which the new Class B shares have been
held. When redemption occurs, the applicable CDSC schedule is
that which applied at that time to the Alliance Class B shares
purchased by the shareholder for cash.
Class C shareholders of the Fund can exchange their
Class shares for Class C shares of the other Alliance funds.
All exchanges are subject to the minimum investment
requirements and any other applicable terms set forth in the
Prospectus for the Alliance fund whose shares are being acquired.
An exchange is effected through the redemption of the shares
tendered for exchange and the purchase of shares being acquired
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<PAGE>
at their respective net asset values as next determined following
receipt by the Alliance fund whose shares are being exchanged of
(i) proper instructions and all necessary supporting documents as
described in such fund's Prospectus, or (ii) a telephone request
for such exchange in accordance with the procedures set forth in
the following paragraph. Exchanges involving the redemption of
shares recently purchased by check will be permitted only after
the Alliance fund whose shares have been tendered for exchange is
reasonably assured that the check has cleared, normally up to 15
calendar days following the purchase date. Exchanges of shares
of Alliance funds will generally result in the realization of a
capital gain or loss for Federal income tax purposes.
Each shareholder, and the shareholder's selected dealer
or agent, are authorized to make telephone requests for exchanges
unless Alliance Fund Services, Inc., receives written instruction
to the contrary from the shareholder. Such telephone requests
cannot be accepted with respect to shares then represented by
stock certificates. Shares acquired pursuant to a telephone
request for exchange will be held under the same account
registration as the shares redeemed through such exchange.
Eligible shareholders desiring to make an exchange
should telephone Alliance Fund Services, Inc. with their account
number and other details of the exchange, at (800) 221-5672
before 4:00 p.m., Eastern time, on a Fund business day as defined
above. Telephone requests for exchange received before 4:00 p.m.
Eastern time on a Fund business day will be processed as of the
close of business on that day. During periods of drastic
economic or market developments, such as the market break of
October 1987, it is possible that shareholders would have
difficulty in reaching Alliance Fund Services, Inc. by telephone
(although no such difficulty was apparent at any time in
connection with the 1987 market break). If a shareholder were to
experience such difficulty, the shareholder should issue written
instructions to Alliance Fund Services, Inc. at the address shown
on the cover of this Statement of Additional Information.
Neither the Alliance Funds nor Alliance, AFD or Alliance
Fund Services, Inc. will be responsible for the authenticity of
telephone requests for exchanges that the Fund reasonably
believes to be genuine. The Fund will employ reasonable
procedures in order to verify that telephone requests for
exchanges are genuine, including, among others, recording such
telephone instructions and causing written confirmations of the
resulting transactions to be sent to shareholders. If the Fund
did not employ such procedures, it could be liable for losses
arising from unauthorized or fraudulent telephone instructions.
Selected dealers or agents may charge a commission for handling
telephone requests for exchanges.
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<PAGE>
The exchange privilege is available only in states where
shares of the Alliance funds being acquired may be legally sold.
Each Alliance fund reserves the right, at any time on 60 days'
notice to its shareholders, to reject any order to acquire its
shares through exchange or otherwise to modify, restrict or
terminate the exchange privilege.
Automatic Investment Program
Investors may purchase shares of the Fund through an
automatic investment program utilizing "pre-authorized check"
drafts drawn on the investor's own bank account. Under such a
program, pre-authorized monthly drafts for a fixed amount (at
least $25) are used to purchase shares through the selected
dealer or selected agent designated by the investor at the public
offering price next determined after the Principal Underwriter
receives the proceeds from the investor's bank. Drafts may be
made in paper form or, if the investor's bank is a member of the
NACHA, in electronic form. If made in paper form, the draft is
normally made on the 20th day of each month, or the next business
day thereafter. If made in electronic form, drafts can be made
on or about a date each month selected by the shareholder.
Investors wishing to establish an automatic investment program in
connection with their initial investment should complete the
appropriate portion of the Subscription Application found in the
Prospectus. Current shareholders should contact Alliance Fund
Services, Inc. at the address or telephone numbers shown on the
cover of this Statement of Additional Information to establish an
automatic investment program.
A shareholder may elect to initiate a monthly "Auto
Exchange" whereby a specified dollar amount's worth of his or her
Fund shares (minimum $25) is automatically exchanged for shares
of another Alliance Mutual Fund. Auto Exchange transactions
normally occur on the 12th day of each month, or the Fund
business day prior thereto.
Retirement Plans
The Fund may be a suitable investment vehicle for part
or all of the assets held in various types of retirement plans,
such as those listed below. The Fund has available forms of such
plans pursuant to which investments can be made in the Fund and
other Alliance Mutual Funds. Persons desiring information
concerning these plans should contact Alliance Fund Services,
Inc. at the "Literature" telephone number on the cover of this
Statement of Additional Information, or write to:
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<PAGE>
Alliance Fund Services, Inc.
Retirement Plans
P.O. Box 1520
Secaucus, New Jersey 07096-1520
Individual Retirement Account ("IRA"). Individuals who
receive compensation, including earnings from self-employment,
are entitled to establish and make contributions to an IRA.
Taxation of the income and gains paid to an IRA by the Fund is
deferred until distribution from the IRA. An individual's
eligible contribution to an IRA will be deductible if neither the
individual nor his or her spouse is an active participant in an
employer-sponsored retirement plan. If the individual or his or
her spouse is an active participant in an employer-sponsored
retirement plan, the individual's contributions to an IRA may be
deductible, in whole or in part, depending on the amount of the
adjusted gross income of the individual and his or her spouse.
Employer-Sponsored Qualified Retirement Plans. Sole
proprietors, partnerships and corporations may sponsor qualified
money purchase pension and profit-sharing plans, including
Section 401(k) plans ("qualified plans"), under which annual tax-
deductible contributions are made within prescribed limits based
on compensation paid to participating individuals.
If the aggregate net asset value of shares of Alliance
funds held by a qualified plan reaches $5 million on or before
December 15 in any year, all Class C shares of the Fund held by
such plan can be exchanged at the plan's request, without any
sales charge, for Class A shares of such Fund.
Simplified Employee Pension Plan ("SEP"). Sole
proprietors, partnerships and corporations may sponsor a SEP
under which they make annual tax-deductible contributions to an
IRA established by each eligible employee within prescribed
limits based on employee compensation.
403(b)(7) Retirement Plan. Certain tax-exempt
organizations and public educational institutions may sponsor
retirements plans under which an employee may agree that monies
deducted from his or her compensation (minimum $25 per pay
period) may be contributed by the employer to a custodial account
established for the employee under the plan.
The Alliance Plans Division of Frontier Trust Company, a
subsidiary of Equitable, which serves as custodian or trustee
under the retirement plan prototype forms available from the
Fund, charges certain nominal fees for establishing an account
and for annual maintenance. A portion of these fees is remitted
to Alliance as compensation for its services to the retirement
plan accounts maintained with the Fund.
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<PAGE>
Distributions from retirement plans are subject to
certain Code requirements in addition to normal redemption
procedures. For additional information please contact Alliance
Fund Services, Inc.
Dividend Direction Plan
A shareholder who already maintains, in addition to his
or her Class A, Class B or Class C Fund account, a Class A,
Class B or Class C account(s) with one or more other Alliance
Mutual Funds may direct that income dividends and/or capital
gains paid on his or her Class A, Class B or Class C Fund shares
be automatically reinvested, in any amount, without the payment
of any sales or service charges, in shares of the same class of
such other Alliance Mutual Fund(s). Further information can be
obtained by contacting Alliance Fund Services, Inc. at the
address or the "Literature" telephone number shown on the cover
of this Statement of Additional Information. Investors wishing
to establish a dividend direction plan in connection with their
initial investment should complete the appropriate section of the
Subscription Application found in the Prospectus. Current
shareholders should contact Alliance Fund Services, Inc. to
establish a dividend direction plan.
Systematic Withdrawal Plan
General. Any shareholder who owns or purchases shares
of the Fund having a current net asset value of at least $4,000
(for quarterly or less frequent payments), $5,000 (for bi-monthly
payments) or $10,000 (for monthly payments) may establish a
systematic withdrawal plan under which the shareholder will
periodically receive a payment in a stated amount of not less
than $50 on a selected date. Systematic withdrawal plan
participants must elect to have their dividends and distributions
from the Fund automatically reinvested in additional shares of
the Fund.
Shares of the Fund owned by a participant in the Fund's
systematic withdrawal plan will be redeemed as necessary to meet
withdrawal payments and such withdrawal payments will be subject
to any taxes applicable to redemptions and, except as discussed
below, any applicable contingent deferred sales charge. Shares
acquired with reinvested dividends and distributions will be
liquidated first to provide such withdrawal payments and
thereafter other shares will be liquidated to the extent
necessary, and depending upon the amount withdrawn, the
investor's principal may be depleted. A systematic withdrawal
plan may be terminated at any time by the shareholder or the
Fund.
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Withdrawal payments will not automatically end when a
shareholder's account reaches a certain minimum level. Therefore,
redemptions of shares under the plan may reduce or even liquidate
a shareholder's account and may subject the shareholder to the
Fund's involuntary redemption provisions. See "Redemption and
Repurchase of Shares--General." Purchases of additional shares
concurrently with withdrawals maybe undesirable because of the
imposition of sales charges. While an occasional lump-sum
investment may be made by a shareholder of Class A shares who is
maintaining a systematic withdrawal plan, such investment should
normally be an amount equivalent to three times the annual
withdrawal or $5,000, whichever is less.
Payments under a systematic withdrawal plan may be made
by check or electronically via the Automated Clearing House
("ACH") network. Investors wishing to establish a systematic
withdrawal plan in conjunction with their initial investment in
shares of the Fund should complete the appropriate portion of the
Subscription Application found in the Prospectus, while current
Fund shareholders desiring to do so can obtain an application
form by contacting Alliance Fund Services, Inc. at the address or
the "Literature" telephone number shown on the cover of this
Statement of Additional Information.
Class B CDSC Waiver for Shares Acquired After July 1,
1995. Under a systematic withdrawal plan, up to 1% monthly, 2%
bi-monthly or 3% quarterly of the value at the time of redemption
of the Class B shares in a shareholder's account originally
acquired for cash after July 1, 1995 may be redeemed free of any
contingent deferred sales charge. Class B shares acquired after
July 1, 1995 that are not subject to a contingent deferred sales
charge (such as shares acquired with reinvested dividends or
distributions) will be redeemed first and will count toward these
limitations. Remaining Class B shares acquired after July 1,
1995 that are held the longest will be redeemed next. Redemptions
of Class B shares acquired after July 1, 1995 in excess of the
foregoing limitations and redemptions of Class B shares acquired
before July 1, 1995 will be subject to any otherwise applicable
contingent deferred sales charge.
Statements and Reports
Each shareholder of the Fund receives semi-annual and
annual reports which include a portfolio of investments,
financial statements and, in the case of the annual report, the
report of the Fund's independent auditors, McGladrey & Pullen
LLP, as well as a monthly cumulative dividend statement and a
confirmation of each purchase and redemption. By contacting his
or her broker or Alliance Fund Services, Inc., a shareholder can
arrange for copies of his or her account statements to be sent to
another person.
41
<PAGE>
Checkwriting
A New Class A or Class C investor may fill out a
Signature Card to authorize the Fund to arrange for a
checkwriting service through State Street Bank and Trust Company
(the "Bank") to draw against Class A or Class C shares of the
Fund redeemed from the investor's account. A Class A or Class C
shareholder wishing to establish this checkwriting service should
contact the Fund by telephone or mail. Under this service,
checks may be made payable to any payee in any amount not less
than $500 and not more than 90% of the net asset value of the
Class A or Class C shares in the investor's account (excluding
for this purpose the current month's accumulated dividends and
shares for which certificates have been issued). Corporations,
fiduciaries and institutional investors are required to furnish a
certified resolution or other evidence of authorization. This
checkwriting service will be subject to the Bank's customary
rules and regulations governing checking accounts, and the Fund
and the Bank each reserve the right to change or suspend the
checkwriting service. There is no charge to the shareholder for
the initiation and maintenance of this service or for the
clearance of any checks.
When a check is presented to the Bank for payment, the
Bank, as the shareholder's agent, causes the Fund to redeem, at
the net asset value next determined, a sufficient number of full
and fractional shares in the shareholder's account to cover the
check. A shareholder should not attempt to close his or her
account by use of a check. In this regard, the Bank has the
right to return checks (marked "insufficient funds") unpaid to
the presenting bank if the amount of the check exceeds 90% of the
assets in the account. Cancelled (paid) checks are returned to
the shareholder. The checkwriting service enables the
shareholder to receive the daily dividends declared on the shares
to be redeemed until the day that the check is presented to the
Bank for payment.
DAILY DIVIDENDS--DETERMINATION OF NET ASSET VALUE
All net income of the Fund is determined after the close
of each business day, currently 4:00 p.m. (Eastern time) (and at
such other times as the Trustees may determine) and is paid
immediately thereafter pro rata to shareholders of record 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.
42
<PAGE>
Net income consists of all accrued interest income on
Fund portfolio assets less the Fund's expenses applicable to that
dividend period. Realized gains and losses are reflected in net
asset value and are not included in net income. Net asset value
per share of each class is expected to remain constant at $1.00
since all net income is declared as a dividend each time net
income is determined.
Dividends paid by the Fund, with respect to Class A,
Class B and Class C shares will be calculated in the same manner
at the same time on the same day and will be in the same amount,
except that the higher distribution services fees applicable to
Class B and Class C shares, and any incremental transfer agency
costs relating to Class B shares, will be borne exclusively by
the class to which they relate.
The valuation of the Fund's portfolio 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 the Fund 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 utilizes the amortized cost method of valuation
of portfolio securities in accordance with the provisions of Rule
2a-7 under the Act. Pursuant to such rule, the Fund maintains a
dollar-weighted average portfolio maturity of 90 days or less and
invests only in securities of high quality. The Fund also
purchases instruments which, at the time of investment, have
remaining maturities of no more than 397 days. The Fund
maintains procedures designed to stabilize, to the extent
reasonably possible, the price per share as computed for the
purpose of sales and redemptions at $1.00. Such procedures
include review of the Fund's portfolio holdings by the Trustees
at such intervals as they deem appropriate to determine whether
and to what extent the net asset value of the Fund calculated by
using available market quotations or market equivalents deviates
from net asset value based on amortized cost. If such deviation
exceeds 1/2 of 1%, the Trustees will promptly consider what
action, if any, should be initiated. In the event the Trustees
determine that such a deviation may result in material dilution
or other unfair results to new investors or existing
shareholders, they will consider corrective action which might
include (1) selling instruments prior to maturity to realize
capital gains or losses or to shorten average portfolio maturity;
43
<PAGE>
(2) withholding dividends of net income on shares; or
(3) establishing a net asset value per share using available
market quotations or equivalents. 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 is determined each
business day as of the close of regular trading in the Exchange
currently 4:00 p.m. (Eastern time). The net asset value per
share of each class is calculated by determining the amount of
assets attributable to each class of shares, subtracting
liabilities, and dividing by the total number of shares
outstanding. All expenses, including the fees payable to
Alliance, are accrued daily.
TAXES
The Fund has qualified to date and intends to qualify in
each future year to be taxed as a regulated investment company
under 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 the Fund distributes all
of its net income and capital gains, the Fund itself should
thereby avoid all Federal income and excise taxes.
For shareholders' Federal income tax purposes, all
distributions by the Fund out of interest income and net realized
short-term capital gains are treated as ordinary income, and
distributions of long-term capital gains, if any, are treated as
long-term capital gains irrespective of the length of time the
shareholder held shares in the Fund. Since the Fund derives
nearly all of its gross income in the form of interest and the
balance in the form of short-term capital gains, it is expected
that for corporate shareholders, none of the Fund's distributions
will be eligible for the dividends-received deduction under
current law.
PORTFOLIO TRANSACTIONS
Subject to the general supervision of the Trustees of
the Fund, Alliance is responsible for the investment decisions
and the placing of the orders for portfolio transactions for the
Fund. Because the Fund invests in securities with short
maturities, there is a relatively high portfolio turnover rate.
However, the turnover rate does not have an adverse effect upon
44
<PAGE>
the net yield and net asset value of the Fund's shares since the
Fund's portfolio 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 does 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
best price and execution may be obtained from more than one
dealer, Alliance, in its discretion, purchases and sells
securities through dealers who provide research, statistical and
other information to Alliance. Such services may be used by
Alliance for all of its investment advisory accounts and,
accordingly, not all such services may be used by Alliance in
connection with the Fund. The supplemental information received
from a dealer is in addition to the services required to be
performed by Alliance under Advisory Agreement, and the expenses
of the Alliance will not necessarily be reduced as a result of
the receipt of such information. During the fiscal period ended
September 30, 1994 and for the fiscal year ended September 30,
1995, the Fund incurred no brokerage commissions.
GENERAL INFORMATION
Capitalization
The Fund has an unlimited number of authorized Class A,
Class B and Class C shares of beneficial interest par value $.001
per share, which may, without shareholder approval, be divided
into an unlimited number of series. All shares of the Fund, 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. Any issuance
of shares of another class would be governed by the Act and the
law of the Commonwealth of Massachusetts. Shares of each
portfolio participate equally in dividends and distributions from
that Portfolio, including any distributions in the event of a
liquidation. Shares of each portfolio are normally entitled to
45
<PAGE>
one vote for all purposes. Generally, shares of all portfolios
vote as a single series for the election of Trustees and on any
other matter affecting all portfolios in substantially the same
manner. 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 a separate series.
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 Act.
An order has been received from the Commission
permitting the issuance and sale of multiple classes of shares
representing interests in the Fund's investment portfolio.
As of the close of business of January 5, 1996, there
were 118,162,479 shares of beneficial interest of the Fund
outstanding. Of this amount, 37,869,927 shares were Class A
shares, 68,676,273 shares were Class B shares and 11,616,279
shares were Class C shares. Set forth below is certain
information as to all persons who, of record or beneficially,
held 5% or more of any of the classes of the Fund's shares
outstanding at January 5, 1996:
No. of % of
Name and Address Shares Class
Class C Shares
Verlin R. Eppert 1,090,412 9%
Rosalie A. Eppert Jt Ten
31490 Bellvine Trail
Birmingham, MI 48025-3703
Shareholder Liability
Under Massachusetts law, shareholders could, under
certain circumstances, be held personally liable for the
obligations of the Fund. 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 Fund for all loss and expense of any shareholder
of the Fund held personally liable for the obligations of the
Fund. Thus, the risk of a shareholder incurring financial loss
on account of shareholder liability is limited to circumstances
in which the Fund would be unable to meet its obligations. In
the view of Alliance, such risk is not material.
46
<PAGE>
Custodian
State Street Bank and Trust Company, 225 Franklin
Street, Boston, Massachusetts 02110, acts as custodian for the
securities and cash of the Fund but plays no part in deciding the
purchase or sale of portfolio securities.
Principal Underwriter
Alliance Fund Distributors, Inc., 1345 Avenue of the
Americas, New York, New York 10105, serves as the Fund's
principal underwriter, and as such may solicit orders from the
public to purchase shares of the Fund. Alliance Fund
Distributors, Inc. is not obligated to sell any specific amount
of shares and will purchase shares for resale only against orders
for shares. Under the Agreement between the Fund and Alliance
Fund Distributors, Inc., the Fund has agreed to indemnify the
distributors, in the absence of its willful misfeasance, bad
faith, gross negligence or reckless disregard of its obligations
thereunder, against certain civil liabilities, including
liabilities under the Securities Act, as amended.
Independent Auditors
An opinion relating to the Fund's financial statements
is given herein by McGladrey & Pullen LLP, 555 Fifth Avenue, New
York, New York, independent auditors for the Fund.
Counsel
Legal matters in connection with the issuance of the
shares offered hereby have been passed upon by Seward & Kissel,
One Battery Park Plaza, New York, New York, counsel for the Fund
and the Adviser. Seward & Kissel has relied upon the opinion of
Sullivan & Worcester, Boston, Massachusetts, for matters relating
to Massachusetts law.
Yield Quotations
Advertisements containing yield quotations which are
computed separately for Class A, Class B and Class C shares may
from time to time be sent to investors or placed in newspapers,
magazines or other media on behalf of the Fund. Such yield
quotations are calculated in accordance with the standardized
method referred to in Rule 482 under the Securities Act. Yield
quotations are thus determined by (i) computing the net changes
over a seven-day period, exclusive of capital changes, in the
value of a hypothetical pre-existing account having a balance of
one share at the beginning of such period, (ii) dividing the net
change in account value by the value of the account at the
beginning of such period, and (iii) multiplying such base period
47
<PAGE>
return by (365/7)--with the resulting yield figure carried to the
nearest hundredth of one percent. Effective annual yield
represents a compounding of the annualized yield according to the
following formula:
effective yield = ((base period return + 1)365/7) - 1.
Dividends for the seven days ended September 30, 1995
for Class A amounted to an annualized yield of 4.48% equivalent
to an effective yield of 4.58%, for Class B an annualized yield
of 3.98% equivalent to an effective yield of 4.06% and for
Class C an annualized yield of 4.25% equivalent to an effective
yield of 4.34%. Current yield information can be obtained by a
recorded message by telephoning toll-free at (800) 221-9513 or in
New York State at (212) 785-9106.
Additional Information. Any shareholder inquiries may
be directed to the shareholder's broker or Alliance Fund
Services, Inc. at the address or telephone numbers shown on the
front cover of this Statement of Additional Information. This
Statement of Additional Information does not contain all the
information set forth in the Registration Statement filed by the
Trust with the Commission under the Securities Act. 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.
48
<PAGE>
<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.
1
<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.
2
<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.
3
<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.
4
<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.
5
<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.
6
<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
7
<PAGE>
APPENDIX
_______________________________________________________________
Prime-1, Prime-2, A-1, A-2, Fitch-1, Fitch-2,
Duff 1 and Duff 2 Commercial Paper Ratings
The Fund will invest only in paper maintaining a high
quality rating.
"Prime-1" is the highest commercial paper rating
assigned by Moody's Investors Services, Inc. ("Moody's"), and
indicates superior ability for repayment of senior short-term
debt obligations. "Prime-2" is the second highest, and denotes a
strong, but somewhat lesser degree of assurance. Commercial
paper issuers rated "Prime" 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; and 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 rate "A" by Standard & Poor's
have the following characteristics: liquidity ratios are better
than industry average; long term debt is "A" or better; the
issuer has access to at least two additional channels of
borrowing; basic earnings and cash flow are in an upward trend;
and typically, the issuer is a strong company in a well-
established industry with superior management. Standard & Poor's
uses the numbers 1+, 1, 2 and 3 to denote relative strength
within its highest classification of "A". The numbers 1 and 2
indicate the relative degree of safety regarding timely payment
with "A-1" paper being somewhat higher than "A-3".
Commercial paper rated "Fitch-1" is considered to be the
highest grade paper and is regarded as having the strongest
degree of assurance for timely payment. "Fitch-2" is considered
very good grade paper and reflects an assurance of timely payment
only slightly less in degree than the strongest issue.
Commercial paper issues rated "Duff 1" by Duff & Phelps,
Inc. have the following characteristics: very high certainty of
timely payment, excellent liquidity factors supported by strong
fundamental protection factors, and risk factors which are very
A-1
<PAGE>
small. Issues rated "Duff 2" have a good certainty of timely
payment, sound liquidity factors and company fundamentals, small
risk factors, and good access to capital markets.
Bonds rated "AAA" and "Aaa" have the highest ratings
assigned to debt obligations by Standard & Poor's and Moody's,
respectively. Standard & Poor's "AAA" rating indicates an
extremely strong capacity to pay principal and interest. Bonds
rated "AA" by Standard & Poor's also qualify as high-quality debt
obligations. Capacity to pay principal and interest is very
strong, and in the majority of instances they differ from "AAA"
issues only in small degree. Standard & Poor's "A" rated bonds
have a strong capacity to pay interest and repay principal but
are somewhat more susceptible to the adverse effects of change in
circumstances and economic conditions than are higher rated
bonds.
Moody's "Aaa" rating indicates the ultimate degree of
protection as to principal and interest. Moody's "Aa" rated
bonds, though also high-grade issues, are rated lower than "Aaa"
bonds because margins of protection may not be as large,
fluctuations of protective elements may be of greater amplitude
or there may be other elements present which make the long term
risks appeal somewhat larger. Moody's "A" rated bonds are
considered upper medium grade obligations possessing many
favorable investment attributes. Although factors giving
security to principal and interest are considered adequate,
elements may exist which suggest that the bonds may be
susceptible to impairment sometime in the future.
A-2
00250163.AH6
