AFD EXCHANGE RESERVES
ANNUAL REPORT
SEPTEMBER 30, 1998
LETTER TO SHAREHOLDERS AFD EXCHANGE RESERVES
_______________________________________________________________________________
November 12, 1998
Dear Shareholder:
We are pleased to provide an overview of economic conditions during AFD
Exchange Reserves' annual reporting period ended September 30, 1998. AFD
Exchange Reserves serves as the money market fund exchange vehicle for the
Alliance Mutual Funds. The Fund's investment objective is to provide maximum
current income consistent with safety of principal and liquidity.
The Fund's net assets as of September 30, 1998 totaled approximately $448.3
million. The Fund remains invested in high quality money market securities
which include marketable obligations issued or guaranteed by the U.S.
government and its agencies, certificates of deposits and commercial paper. As
of September 30, 1998, the average weighted maturity of the portfolio was 15
days.
ECONOMIC COMMENTARY
During the reporting period ended September 30, 1998, the Federal Reserve
reduced the Fed Funds rate by 25 basis points to 5.25%. This was followed by a
25 basis point cut in the Fed Funds rate to 5.00%, and a 25 basis point cut in
the discount rate to 4.75%, on October 15, 1998.
After a strong 3.9% Gross Domestic Product (GDP) annualized growth rate in
1997, the U.S. economy is slowing in response to deteriorating global economic
and financial conditions. In the third quarter of 1998, real growth slowed to
3.3%, from 3.7% in the first half. We expect U.S. economic growth to average
3.4% in 1998, and to decelerate to 1.8% in 1999. Three main factors that will
continue to restrain U.S. economic growth through 1999 include softer consumer
and business spending combined with weak trade performance.
In the third quarter of 1998, inflation as measured by the Consumer Price
Index, which was 1.6% year-over-year, has drifted upward from the first
quarter's cyclical low of 1.5% as the dollar's rally has stopped and commodity
prices have stabilized. We expect this mild rise to continue to 2.0% through
1999.
Beginning with its August 18, 1998 meeting, the Federal Reserve has become very
concerned about the contractionary impact of the emerging market economic and
financial crisis on the U.S. In early September, evidence of a contraction in
bank lending activity, and abnormally strong demand for liquidity in U.S.
securities markets amplified Fed concerns and resulted in the aggressive
September-October interest rate easings. We expect further easing this year and
in early 1999 to normalize conditions in U.S. credit markets and prevent a
recession.
We appreciate your continued interest in AFD Exchange Reserves.
Sincerely,
John D. Carifa
Chairman and President
AN INVESTMENT IN THE FUND IS NOT (I) INSURED OR GUARANTEED BY THE U.S.
GOVERNMENT, (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.
1
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1998 AFD EXCHANGE RESERVES
_______________________________________________________________________________
PRINCIPAL
AMOUNT
(000) SECURITY YIELD VALUE
- -------------------------------------------------------------------------
COMMERCIAL PAPER-56.9%
American Express Co.
$ 13,000 10/14/98 5.31% $12,975,073
Associates Corp. of North America
13,000 10/01/98 5.76 13,000,000
Bell Atlantic Network Funding
13,000 10/14/98 5.30 12,975,119
Bemis Co., Inc.
13,000 10/01/98 5.80 13,000,000
Citicorp
10,000 10/30/98 5.55 9,955,292
Dupont (E. I.) de Nemours & Co.
8,000 10/15/98 5.26 7,983,636
Eastman Kodak Co.
9,000 10/20/98 5.51 8,973,828
Emerson Electric
8,800 10/21/98 5.26 8,774,284
First Chicago Financial Corp.
13,000 11/10/98 5.28 12,923,733
Ford Motor Credit Corp.
10,000 10/21/98 5.25 9,970,833
GE Financial Assurance Holdings
10,000 10/28/98 5.54 9,958,450
General Motors Acceptance Corp.
13,000 10/07/98 5.55 12,987,975
Henkel Corp.
12,000 11/06/98 5.24 11,937,120
Household Finance Corp.
13,000 10/29/98 5.27 12,946,714
J.P. Morgan & Co.
13,000 10/01/98 5.75 13,000,000
Koch Industries
13,000 10/01/98 (a) 5.75 13,000,000
Morgan Stanley Group, Inc.
12,000 10/28/98 5.53 11,950,230
Norwest Corp.
13,000 11/04/98 5.23 12,935,787
PACCAR Financial Corp.
8,000 10/01/98 5.75 8,000,000
Pacific Gas & Electric Corp.
13,000 10/07/98 5.31 12,988,495
Pepsico, Inc.
11,000 10/21/98 5.25 10,967,917
1,000 10/14/98 5.32 998,079
Prudential Funding Corp.
13,000 10/21/98 5.25 12,962,083
Total Commercial Paper
(amortized cost $255,164,648) 255,164,648
U.S. GOVERNMENT & AGENCY
OBLIGATIONS-26.7%
Federal Farm Credit Bank
79,500 10/01/98 5.40 79,500,000
Federal Home Loan Bank
40,000 10/01/98 5.40 40,000,000
Total U.S. Government &
Agency Obligations
(amortized cost $119,500,000) 119,500,000
CERTIFICATES OF DEPOSIT-6.9%
Harris Trust & Savings
8,000 5.56%, 10/07/98 5.35 8,000,219
Suntrust Bank
10,000 5.25%, 11/04/98 5.24 10,000,094
Wachovia Bank
13,000 5.24%, 10/30/98 5.24 13,000,000
Total Certificates of Deposit
(amortized cost $31,000,313) 31,000,313
BANKERS ACCEPTANCE-3.2%
Chase Manhattan Bank
14,324 5.25%, 10/30/98
(amortized cost $14,263,196) 5.25 14,263,196
2
AFD EXCHANGE RESERVES
_______________________________________________________________________________
PRINCIPAL
AMOUNT
(000) SECURITY YIELD VALUE
- -------------------------------------------------------------------------
BANK OBLIGATIONS-2.9%
Bank of America National Trust
$ 13,000 5.55%, 10/21/98
(amortized cost $13,000,000) 5.55% $ 13,000,000
PROMISSORY NOTE-2.2%
Goldman Sachs Group LP
10,000 5.66%, 11/24/98
(amortized cost $10,000,000) (a) 5.66 10,000,000
TOTAL INVESTMENTS-98.8%
(amortized cost $442,928,157) $442,928,157
Other assets less liabilities-1.2% 5,338,202
NET ASSETS-100% $448,266,359
(a) Securities issued in reliance on Section (4) 2 or Rule 144A of the
Securities Act of 1933. Rule 144A securities may be resold in transactions
exempt from registration, normally to qualified institutional buyers. At
September 30, 1998, these securities amounted to $23,000,000, representing 5.1%
of net assets.
See notes to financial statements.
3
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1998 AFD EXCHANGE RESERVES
_______________________________________________________________________________
ASSETS
Investments in securities, at value (cost $442,928,157) $442,928,157
Cash 4,313,899
Receivable for shares of beneficial interest sold 34,699,398
Interest receivable 142,776
Other assets 18,180
Total assets 482,102,410
LIABILITIES
Payable for investment securities purchased 22,331,371
Payable for shares of beneficial interest redeemed 10,975,947
Distribution fee payable 263,583
Advisory fee payable 88,619
Accrued expenses and other liabilities 176,531
Total liabilities 33,836,051
NET ASSETS $448,266,359
COMPOSITION OF NET ASSETS
Paid-in-capital $448,267,979
Accumulated net realized loss on investment transactions (1,620)
$448,266,359
CALCULATION OF MAXIMUM OFFERING PRICE
CLASS A SHARES
Net asset value and offering price per share ($168,463,344/
168,463,037 shares of beneficial interest issued and outstanding) $1.00
CLASS B SHARES
Net asset value and offering price per share ($151,731,931/
151,733,316 shares of beneficial interest issued and outstanding) $1.00
CLASS C SHARES
Net asset value and offering price per share ($124,831,450/
124,832,011 shares of beneficial interest issued and outstanding) $1.00
ADVISOR CLASS
Net asset value and offering price per share ($3,239,634/
3,239,615 shares of beneficial interest issued and outstanding) $1.00
See notes to financial statements.
4
STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1998 AFD EXCHANGE RESERVES
_______________________________________________________________________________
INVESTMENT INCOME
Interest $12,816,318
EXPENSES
Advisory fee $569,855
Distribution fee - Class A 427,298
Distribution fee - Class B 892,262
Distribution fee - Class C 387,684
Transfer agency 257,323
Custodian 106,401
Administrative 98,457
Registration fees 86,643
Printing 54,714
Audit and legal 40,218
Trustees' fees 31,043
Amortization of organization expenses 28,827
Miscellaneous 2,081
Total expenses 2,982,806
Net investment income 9,833,512
REALIZED GAIN ON INVESTMENTS
Net realized gain on investment transactions 877
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 9,834,389
See notes to financial statements.
5
STATEMENT OF CHANGES IN NET ASSETS AFD EXCHANGE RESERVES
_______________________________________________________________________________
YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
------------- -------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income $ 9,833,512 $ 5,152,750
Net realized gain (loss) on investment
transactions 877 (311)
Net increase in net assets from operations 9,834,389 5,152,439
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income
Class A (3,899,068) (1,638,799)
Class B (3,613,425) (2,707,243)
Class C (2,241,450) (806,371)
Advisor Class (79,569) (337)
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Net increase 308,658,607 19,187,747
Total increase 308,659,484 19,187,436
NET ASSETS
Beginning of year 139,606,875 120,419,439
End of year $448,266,359 $139,606,875
See notes to financial statements.
6
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 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's
investment objective is to provide maximum current income to the extent
consistent with safety of principal and liquidity. The Fund offers Class A,
Class B, Class C and Advisor Class shares. All four 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.
Class A shares are sold for cash without an initial sales charge at the time of
purchase. On cash purchases of $1,000,000 or more, however, 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 redeemed within one year will be
charged. 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. 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
purchase, but on Class A shares that were received in exchange for Alliance
Mutual 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, a 1% CDSC may be assessed if shares of the Fund are redeemed within one
year of the Alliance Mutual Fund Class A shares originally purchased for cash.
Class B shares are sold for cash without an initial sales charge. However, a
CDSC is charged if shares are redeemed within four years after purchase. The
CDSC charge declines from 4% to zero depending on the period of time the shares
are held. Class B shares purchased for cash will automatically convert to Class
A shares after eight years. Class B shares may be exchanged for Class B shares
of other Alliance Mutual Funds. Class B shares also are offered in exchange for
Class B shares of other Alliance Mutual Funds without an initial sales charge.
However, a CDSC may be charged if shares are redeemed within a certain number
of years of the 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.
Class C shares are sold for cash or in exchange for Class C shares of another
Alliance Mutual Fund without an initial sales charge at the time of purchase.
Class C shares are subject to a CDSC of 1% on redemptions made within the first
year after purchase. Class C shares do not convert to any other class of shares
of the Fund. Class C shares may be exchanged for Class C shares of other
Alliance Mutual Funds.
Advisor Class shares are sold for cash or in exchange for Advisor Class shares
of another Alliance Mutual Fund without an initial sales charge or CDSC and are
not subject to ongoing distribution expenses. Advisor Class shares are offered
solely to investors participating in fee-based programs and to certain
retirement plan accounts.
The financial statements have been prepared in conformity with generally
accepted accounting principles which require management to make certain
estimates and assumptions that affect the reported amounts of assets and
liabilities in the financial statements and amounts of income and expenses
during the reporting period. Actual results could differ from those estimates.
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 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 any, to its
shareholders. Therefore, no provisions for federal income or excise taxes are
required.
7
NOTES TO FINANCIAL STATEMENTS (CONTINUED) AFD EXCHANGE RESERVES
_______________________________________________________________________________
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 year end.
5. INCOME AND EXPENSES
All income earned and expenses incurred by the Fund are borne on a pro-rata
basis by each settled class of shares, based on the proportionate interest in
the Fund represented by the shares of such class, except that the Fund's Class
B and Class C shares bear higher distribution and transfer agent fees than
Class A shares and the Advisory Class shares have no distribution fees.
6. INVESTMENT INCOME AND INVESTMENT TRANSACTIONS
Interest income is accrued daily. Investment transactions are recorded on the
date securities are purchased or sold. Investment 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% on the first $1.25 billion of average daily net assets;
.24% on the next $.25 billion; .23% on the next $.25 billion; .22% on the next
$.25 billion; .21% on the next $1 billion; and .20% 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, 1998, such reimbursements totaled $98,457.
The Fund compensates Alliance Fund Services, Inc., a wholly-owned subsidiary of
the Adviser, under a Transfer Agency Agreement for providing personnel and
facilities to perform transfer agency services for the Fund. Such compensation
amounted to $213,994 for the year ended September 30, 1998.
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 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 the average daily net assets
attributable to Class C shares. There is no distribution fee on the Advisor
Class 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, 1998, the cost of securities for federal income tax purposes
was the same as the cost for financial reporting purposes. At September 30,
1998, the Fund had a capital loss carryforward of $1,620, which expires in the
year 2003.
8
AFD EXCHANGE RESERVES
_______________________________________________________________________________
NOTE E: TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
An unlimited number of shares ($.001 par value) are authorized. At September
30, 1998, capital paid-in aggregated $168,463,037 for Class A, $151,733,316 for
Class B, $124,832,011 for Class C and $3,239,615 for Advisor Class.
Transactions, all at $1.00 per share, were as follows:
CLASS A
--------------------------------
YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
--------------- ---------------
Shares sold 2,641,690,288 396,646,176
Shares issued on reinvestments of dividends 3,899,068 1,638,799
Shares converted from Class B 2,022,278 2,779,625
Shares redeemed (2,520,316,554) (402,092,046)
Net increase (decrease) 127,295,080 (1,027,446)
CLASS B
--------------------------------
YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
--------------- ---------------
Shares sold 465,260,947 248,115,983
Shares issued on reinvestments of dividends 3,613,425 2,707,243
Shares converted to Class A (2,022,278) (2,779,625)
Shares redeemed (389,575,340) (238,596,718)
Net increase 77,276,754 9,446,883
CLASS C
--------------------------------
YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
--------------- ---------------
Shares sold 1,472,287,040 263,291,205
Shares issued on reinvestments of dividends 2,241,450 806,371
Shares redeemed (1,373,646,429) (253,364,170)
Net increase 100,882,061 10,733,406
ADVISOR CLASS
--------------------------------
JAN. 30,1997(A)
YEAR ENDED TO
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
--------------- ---------------
Shares sold 38,173,285 120,464
Shares issued on reinvestments of dividends 79,569 337
Shares redeemed (35,048,142) (85,897)
Net increase 3,204,712 34,904
(a) Commencement of distribution.
9
FINANCIAL HIGHLIGHTS AFD EXCHANGE RESERVES
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD
<TABLE>
<CAPTION>
CLASS A
-----------------------------------------------------------------
MARCH 25,
1994(A)
YEAR ENDED SEPTEMBER 30, TO
-------------------------------------------------- SEP. 30,
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00 $1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income .0454 .0411 .0416 .0453 .0126
LESS: DIVIDENDS
Dividends from net investment income (.0454) (.0411) (.0416) (.0453) (.0126)
Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00
TOTAL RETURN
Total investment return based on
net asset value (b) 4.64% 4.19% 4.24% 4.64% 2.45%(c)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $168 $41 $41 $41 $18
Ratios to average net assets of:
Expenses, net of waivers 1.06% 1.38% 1.29% 1.21% 1.82%(c)
Expenses, before waivers 1.06% 1.38% 1.29% 1.29% 1.82%(c)
Net investment income 4.56% 4.10% 4.15% 4.63%(d) 2.62%(c)
</TABLE>
<TABLE>
<CAPTION>
CLASS B
-----------------------------------------------------------------
MARCH 25,
1994(A)
YEAR ENDED SEPTEMBER 30, TO
-------------------------------------------------- SEP. 30,
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00 $1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income .0404 .0361 .0366 .0404 .0101
LESS: DIVIDENDS
Dividends from net investment income (.0404) (.0361) (.0366) (.0404) (.0101)
Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00
TOTAL RETURN
Total investment return based on
net asset value (b) 4.13% 3.67% 3.72% 4.12% 1.95%(c)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $152 $74 $65 $65 $31
Ratios to average net assets of:
Expenses, net of waivers 1.58% 1.88% 1.79% 1.70% 2.35%(c)
Expenses, before waivers 1.58% 1.88% 1.79% 1.78% 2.35%(c)
Net investment income 4.05% 3.61% 3.67% 4.17%(d) 1.91%(c)
</TABLE>
See footnote summary on page 11.
10
AFD EXCHANGE RESERVES
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD
<TABLE>
<CAPTION>
CLASS C
-----------------------------------------------------------------
MARCH 25,
1994(A)
YEAR ENDED SEPTEMBER 30, TO
-------------------------------------------------- SEP. 30,
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00 $1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income .0430 .0386 .0390 .0430 .0112
LESS: DIVIDENDS
Dividends from net investment income (.0430) (.0386) (.0390) (.0430) (.0112)
Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00
TOTAL RETURN
Total investment return based on
net asset value (b) 4.39% 3.93% 3.98% 4.39% 2.18%(c)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $125 $24 $13 $10 $5
Ratios to average net assets of:
Expenses, net of waivers 1.29% 1.61% 1.55% 1.45% 2.08%(c)
Expenses, before waivers 1.29% 1.61% 1.55% 1.52% 2.08%(c)
Net investment income 4.34% 3.90% 3.89% 4.41%(d) 2.14%(c)
</TABLE>
ADVISOR CLASS
------------------------
JANUARY 30,
1997(A)
YEAR ENDED TO
SEP. 30, SEP. 30,
1998 1997
---------- ------------
Net asset value, beginning of period $1.00 $1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income .0505 .0254
LESS: DIVIDENDS
Dividends from net investment income (.0505) (.0254)
Net asset value, end of period $1.00 $1.00
TOTAL RETURN
Total investment return based on net asset value (b) 5.18% 4.71%(c)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $3,240 $35
Ratio of expenses to average net assets .55% .88%(c)
Ratio of net investment income to average net assets 5.08% 4.15%(c)
(a) Commencement of distribution.
(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.
11
REPORT OF INDEPENDENT ACCOUNTANTS AFD EXCHANGE RESERVES
_______________________________________________________________________________
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS AFD EXCHANGE RESERVES
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments of AFD Exchange Reserves as of September 30, 1998
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, 1998 by correspondence with the custodian and brokers. 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, 1998, 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 16, 1998
12
AFD EXCHANGE RESERVES
_______________________________________________________________________________
AFD EXCHANGE RESERVES
1345 Avenue of the Americas
New York, NY 10105
Toll-free 1(800) 221-5672
TRUSTEES
JOHN D. CARIFA, CHAIRMAN AND PRESIDENT
RUTH BLOCK (1)
DAVID H. DIEVLER (1)
JOHN H. DOBKIN (1)
WILLIAM H. FOULK, JR. (1)
JAMES M. HESTER (1)
CLIFFORD L. MICHEL (1)
DONALD J. ROBINSON (1)
OFFICERS
KATHLEEN A. CORBET, SENIOR VICE PRESIDENT
WAYNE D. LYSKI, SENIOR VICE PRESIDENT
RAYMOND J. PAPERA, SENIOR VICE PRESIDENT
KENNETH T. CARTY, VICE PRESIDENT
JOHN F. CHIODI, JR., VICE PRESIDENT
MARIA R. CONA, VICE PRESIDENT
EDMUND P. BERGAN, JR., SECRETARY
MARK D. GERSTEN, TREASURER & CHIEF FINANCIAL OFFICER
VINCENT S. NOTO, CONTROLLER
CUSTODIAN
STATE STREET BANK AND TRUST COMPANY
P.O. Box 1912
Boston, MA 02105
LEGAL COUNSEL
SEWARD & KISSEL
One Battery Park Plaza
New York, NY 10004
AUDITORS
MCGLADREY & PULLEN, LLP
555 Fifth Avenue
New York, NY 10017
TRANSFER AGENT
ALLIANCE FUND SERVICES, INC.
P.O. Box 1520
Secaucus, NJ 07096-1520
DISTRIBUTOR
ALLIANCE FUND DISTRIBUTORS, INC.
1345 Avenue of the Americas
New York, NY 10105
(1) Member of the audit committee.
DISTRIBUTION OF THIS REPORT OTHER THAN TO SHAREHOLDERS MUST BE PRECEDED OR
ACCOMPANIED BY THE FUND'S CURRENT PROSPECTUS, WHICH CONTAINS FURTHER
INFORMATION ABOUT THE FUND.
R THESE REGISTERED SERVICE MARKS USED UNDER LICENSE FROM THE OWNER, ALLIANCE
CAPITAL MANAGEMENT L.P.
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