AFD EXCHANGE RESERVES
ANNUAL REPORT
SEPTEMBER 30, 1999
LETTER TO SHAREHOLDERS AFD EXCHANGE RESERVES
_______________________________________________________________________________
November 10, 1999
Dear Shareholder:
We are pleased to provide an overview of economic conditions during AFD
Exchange Reserves' annual reporting period ended September 30, 1999. AFD
Exchange Reserves (the "Fund") 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, 1999 totaled approximately $697.0
million, which remains invested in high-quality money market securities. As of
September 30, 1999, the average weighted maturity of the Fund's portfolio was
27 days.
ECONOMIC COMMENTARY
The U.S. Federal Reserve adopted a monetary policy tightening bias in May and
increased the Federal Funds Rate by 25 basis points in June and then by another
25 basis points in August. (A third 25 basis point increase in interest rates
was announced on November 15, 1999, setting the Federal Funds Rate at 5.5%.)
The U.S. economy continued its rapid expansion in the third quarter of 1999
following a 2.8% rise in gross domestic product ("GDP") growth in the first
half of the year. Strong consumer and business spending in the third quarter
offset further deterioration in U.S. trade performance, allowing the U.S.
economy to grow an annualized 5.5% for the quarter. Although the U.S. economy
remains robust, we expect rising interest rates to restrain consumer and
housing expenditure in 2000. The U.S. trade imbalance continues to subtract
from growth, but we expect its significance will diminish somewhat next year as
the global economy returns to health. We anticipate 4% GDP growth in 1999 and
3.8% in 2000.
Headline inflation edged up in the third quarter of 1999 due to the recovery of
energy prices. The total consumer price index ("CPI") rose 2.4% year-on-year
(versus 2.1% in the second quarter of 1999), while underlying CPI (ex-food and
energy) rose 2.0% year-on-year (versus 2.1% in the second quarter of 1999). We
anticipate that the recovery of oil prices to $25.00 per barrel from a 12-year
low of $9.55 per barrel (Brent Crude) will push headline CPI inflation up to
the 3.0% to 3.5% range by early 2000. U.S. wage growth slowed in late 1998 and
early 1999, but now, at 3.8% year-on-year, wage growth may be reaccelerating as
a consequence of fast GDP growth and low unemployment. We expect continued
strong productivity growth to offset inflationary pressures. The bond market
and the Federal Reserve, however, will remain vigilant until growth eases and
the "productivity dividend" is in clear evidence.
The recovery from the 1997/1998 global economic and financial crisis is
proceeding at a rapid pace. Production data from Korea is strong, the odds of a
Chinese devaluation have fallen, Japan is showing signs of significant
restructuring, and there are grounds for optimism regarding Latin America as
the reform process continues amid stabilizing economic performance.
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
STATEMENT OF NET ASSETS
SEPTEMBER 30, 1999 AFD EXCHANGE RESERVES
_______________________________________________________________________________
Principal
Amount
(000) Security Yield Value
- -------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY OBLIGATIONS-69.7%
Federal Farm Credit Bank
$ 83,600 10/01/99 5.18% $ 83,600,000
Federal Home Loan Bank
147,200 10/01/99 5.17 147,200,000
40,000 10/06/00 FRN 5.65 39,972,636
Federal National Mortgage Association
96,569 10/01/99 5.18 96,569,000
23,498 10/25/99 5.22 23,416,227
20,000 10/05/00 MTN 5.62 19,990,222
Student Loan Marketing Association
35,000 10/04/00 FRN 5.62 34,982,888
40,000 10/12/00 FRN 5.68 39,957,004
------------
Total U.S. Government Agency
Obligations
(Amortized Cost $485,687,977) 485,687,977
COMMERCIAL PAPER-60.8%
Albertson's, Inc.
9,000 10/14/99 (a) 5.34 8,982,645
Allstate Corp.
8,000 3/14/00 (a) 5.75 7,789,167
American Express Co.
10,000 10/28/99 5.29 9,960,325
Associates Corp. Of North America
12,500 10/28/99 5.31 12,450,219
At&T Corp.
12,500 10/27/99 5.29 12,452,243
Bell Atlantic Network Funding
9,200 10/27/99 5.29 9,164,851
Bellsouth Telecommunications, Inc.
9,000 10/27/99 5.30 8,965,550
Campbell Soup Co.
10,000 10/26/99 5.28 9,963,333
Cargill Global Funding
9,550 10/15/99 (A) 5.40 9,529,945
Caterpillar Financial Services
5,200 10/27/99 5.27 5,180,208
Chevron Usa, Inc.
12,500 10/29/99 5.29 12,448,570
Coca-Cola Co.
8,000 11/15/99 5.28 7,947,200
Daimler-Benz NA
10,000 10/15/99 5.26 9,979,544
Dupont (E. I.) De Nemours & Co.
10,000 10/28/99 (a) 5.28 9,960,400
Eastman Kodak Co.
10,000 11/01/99 5.30 9,954,361
Equilon Enterprise LLC
10,000 11/08/99 5.30 9,944,056
Florida Power Corp.
8,300 10/15/99 5.35 8,282,731
Ford Motor Credit Co.
10,000 10/26/99 5.29 9,963,264
Ge Capital International Funding
6,058 10/01/99 (a) 5.65 6,058,000
General Electric Co.
10,000 12/23/99 5.34 9,876,883
General Motors Acceptance Corp.
10,000 10/29/99 5.27 9,959,011
Gillette Co.
10,000 11/10/99 (a) 5.30 9,941,111
Government Development Bank Of
Puerto Rico
8,000 11/09/99 5.34 7,953,720
International Lease Finance Corp.
10,000 10/21/99 5.27 9,970,722
J.P. Morgan & Co., Inc.
10,000 10/15/99 5.30 9,979,389
Koch Industries
38,000 10/01/99 (a) 5.55 38,000,000
Metlife Funding, Inc.
10,000 10/29/99 5.30 9,958,778
2
AFD EXCHANGE RESERVES
_______________________________________________________________________________
PRINCIPAL
AMOUNT
(000) SECURITY YIELD VALUE
- -------------------------------------------------------------------------------
National City Corp.
$ 9,000 10/29/99 5.32% $ 8,962,760
National Rural Utilities Corp.
8,000 3/14/00 5.75 7,789,167
Norwest Financial, Inc.
10,000 10/29/99 5.31 9,958,700
Paccar Financial Corp.
4,300 10/15/99 5.29 4,291,154
Pfizer, Inc.
10,000 10/28/99 (a) 5.30 9,960,250
Prudential Funding Corp.
10,000 10/29/99 5.30 9,958,778
Republic New York Corp.
8,000 11/08/99 5.30 7,955,244
Salomon Smith Barney, Inc.
8,000 3/10/00 5.79 7,792,847
Sbc Communications, Inc.
35,000 10/01/99 (a) 5.55 35,000,000
Tampa Electric Co.
7,300 10/29/99 (a) 5.27 7,270,078
Teachers Insurance
10,000 10/29/99 (a) 5.33 9,958,544
Wal-Mart Stores, Inc.
10,000 10/12/99 (a) 5.28 9,983,867
10,000 10/25/99 (a) 5.31 9,964,600
------------
Total Commercial Paper
(amortized cost $423,462,215) 423,462,215
CERTIFICATES OF DEPOSIT-7.9%
Chase Manhattan Bank
7,000 5.37%, 5/22/00 5.86 6,974,102
Fifth Third Bank
10,000 5.29%, 10/01/99 5.29 10,000,000
First Tennessee Bank
10,000 5.32%, 10/25/99 5.32 10,000,102
Harris Trust & Savings Bank
10,000 5.32%, 11/01/99 5.32 10,000,000
Southtrust Bank National Associates
10,000 5.33%, 10/29/99 5.33 10,000,077
Wachovia Bank NA
8,000 5.95%, 9/11/00 5.95 8,000,000
------------
Total Certificates Of Deposit
(Amortized Cost $54,974,281) 54,974,281
BANKERS ACCEPTANCE-2.3%
First Union National Bank
6,000 10/14/99 5.30 5,988,517
Mellon Bank Corp.
10,000 11/02/99 5.30 9,952,889
------------
Total Bankers Acceptance
(amortized cost $15,941,406) 15,941,406
TIME DEPOSIT-1.5%
State Street Bank And Trust Co.
10,700 5.50%, 10/01/99
(amortized cost $10,700,000) 5.50 10,700,000
PROMISSORY NOTE-1.4%
Goldman Sachs Group LP
10,000 5.46%, 11/19/99 (a)
(amortized cost $10,000,000) 5.46 10,000,000
CORPORATE DEBT OBLIGATION-1.2%
Dorada Finance, Inc.
8,000 6.02%, 9/15/00 MTN (a)
(amortized cost $8,000,000) 6.02 8,000,000
3
STATEMENT OF NET ASSETS
(CONTINUED) AFD EXCHANGE RESERVES
_______________________________________________________________________________
PRINCIPAL
AMOUNT
(000) SECURITY YIELD VALUE
- -------------------------------------------------------------------------------
BANK OBLIGATION-1.1%
First National Bank Of Chicago
$ 8,000 5.60%, 6/14/00
(amortized cost $7,997,300) 5.65% $7,997,300
TOTAL INVESTMENTS-145.9%
(amortized cost $1,016,763,179) 1,016,763,179
Payable for shares of beneficial
interest redeemed-(24.8%) (172,538,679)
Payable for investment securities
purchased- (22.2%) (154,814,651)
Other assets less liabilities-1.1% 7,652,594
NET ASSETS-100%
(offering and redemption
price of $1.00 per share;
289,686,085 Class A shares;
267,491,259 Class B shares;
128,302,922 Class C shares
and 11,575,860 Advisor Class
shares outstanding) $697,062,443
(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, 1999, these securities amounted to $190,398,607, representing
27.3% of net assets.
Glossary of Terms:
FRN - Floating Rate Note
MTN - Medium Term Note
See notes to financial statements.
4
STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1999 AFD EXCHANGE RESERVES
_______________________________________________________________________________
INVESTMENT INCOME
Interest $25,261,783
EXPENSES
Advisory fee $1,245,776
Distribution fee - Class A 1,083,551
Distribution fee - Class B 1,890,624
Distribution fee - Class C 647,157
Transfer agency 566,652
Registration fees 233,761
Custodian 175,412
Administrative 100,520
Audit and legal 50,327
Printing 49,792
Trustees' fees 23,067
Amortization of organization expenses 17,641
Miscellaneous 11,379
Total expenses 6,095,659
Net investment income 19,166,124
REALIZED GAIN ON INVESTMENTS
Net realized gain on investment transactions 7,937
NET INCREASE IN NET ASSETS FROM OPERATIONS $19,174,061
See notes to financial statements.
5
STATEMENTS OF CHANGES IN NET ASSETS AFD EXCHANGE RESERVES
_______________________________________________________________________________
YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
------------- ---------------
INCREASE IN NET ASSETS FROM OPERATIONS
Net investment income $ 19,166,124 $ 9,833,512
Net realized gain on investment
transactions 7,937 877
Net increase in net assets from
operations 19,174,061 9,834,389
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income
Class A (8,793,553) (3,899,068)
Class B (6,755,553) (3,613,425)
Class C (3,331,654) (2,241,450)
Advisor Class (285,364) (79,569)
TRANSACTIONS IN SHARES OF BENEFICIAL
INTEREST
Net increase 248,788,147 308,658,607
Total increase 248,796,084 308,659,484
NET ASSETS
Beginning of year 448,266,359 139,606,875
End of year $697,062,443 $448,266,359
See notes to financial statements.
6
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 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 may 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 were deferred and 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, 1999, such reimbursements totaled $100,520.
Alliance Fund Distributors, Inc. (the "Distributor"), a wholly-owned subsidiary
of the Adviser, serves as the Distributor of the Fund's shares. The Distributor
has advised the Fund that it has received front-end sales charges $16,813 from
the sales of Class A shares and $317,381, $1,061,946, and $72,998 in contingent
deferred sales charges imposed upon redemption by shareholders of Class A,
Class B, and Class C shares, respectively, for the year ended September 30,
1999.
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 $442,292 for the year ended September 30, 1999.
NOTE C: DISTRIBUTION SERVICES AGREEMENT
The Fund has adopted a Distribution Services Agreement (the "Agreement")
pursuant to Rule 12b-1 under the Investment Company Act of 1940 for Class A,
Class B and Class C. Under the Agreement, the Fund pays distribution and
servicing fees to the Distributor at an annual rate of up to .50% of the Fund's
average daily net assets attributable to Class A shares, 1.00% of the average
daily net assets attributable to Class B shares and .75% of the average daily
net assets attributable to Class C shares. There are no distribution and
servicing fees on the Advisor Class shares. Such fee is accrued daily and paid
monthly. The Agreement provides that the Distributor will use such payments in
their entirety for distribution assistance and promotional activities. The
Agreement also provides that the Adviser may use its own resources to finance
the distribution of the Fund's shares.
NOTE D: INVESTMENT TRANSACTIONS
At September 30, 1999, the cost of securities for federal income tax purposes
was the same as the cost for financial reporting purposes.
8
AFD EXCHANGE RESERVES
_______________________________________________________________________________
NOTE E: TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
An unlimited number of shares ($.001 par value) are authorized. At September
30, 1999, capital paid-in aggregated $289,686,085 for Class A, $267,491,259 for
Class B, $128,302,922 for Class C and $11,575,860 for Advisor Class.
Transactions, all at $1.00 per share, were as follows:
CLASS A
------------------------------------
YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
------------- -------------
Shares sold 7,526,806,604 2,641,690,288
Shares issued on reinvestments of
dividends 8,793,553 3,899,068
Shares converted from Class B 5,089,768 2,022,278
Shares redeemed (7,419,466,877) (2,520,316,554)
Net increase 121,223,048 127,295,080
CLASS B
------------------------------------
YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
------------- -------------
Shares sold 691,292,049 465,260,947
Shares issued on reinvestments of
dividends 6,755,553 3,613,425
Shares converted to Class A (5,089,768) (2,022,278)
Shares redeemed (577,199,891) (389,575,340)
Net increase 115,757,943 77,276,754
CLASS C
------------------------------------
YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
------------- -------------
Shares sold 2,430,472,681 1,472,287,040
Shares issued on reinvestments of
dividends 3,331,654 2,241,450
Shares redeemed (2,430,333,424) (1,373,646,429)
Net increase 3,470,911 100,882,061
ADVISOR CLASS
------------------------------------
YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
------------- -------------
Shares sold 255,695,937 38,173,285
Shares issued on reinvestments of
dividends 285,364 79,569
Shares redeemed (247,645,056) (35,048,142)
Net increase 8,336,245 3,204,712
9
FINANCIAL HIGHLIGHTS AFD EXCHANGE RESERVES
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
YEAR
<TABLE>
<CAPTION>
CLASS A
-----------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $1.00 $1.00 $1.00 $1.00 $1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income .0408 .0454 .0411 .0416 .0453
LESS: DIVIDENDS
Dividends from net investment income (.0408) (.0454) (.0411) (.0416) (.0453)
Net asset value, end of year $1.00 $1.00 $1.00 $1.00 $1.00
TOTAL RETURN
Total investment return based on net
asset value (a) 4.16% 4.64% 4.19% 4.24% 4.64%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (in millions) $290 $168 $41 $41 $41
Ratios to average net assets of:
Expenses, net of waivers .99% 1.06% 1.38% 1.29% 1.21%
Expenses, before waivers .99% 1.06% 1.38% 1.29% 1.29%
Net investment income 4.06% 4.56% 4.10% 4.15% 4.63%(b)
</TABLE>
<TABLE>
<CAPTION>
CLASS B
-----------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $1.00 $1.00 $1.00 $1.00 $1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income .0357 .0404 .0361 .0366 .0404
LESS: DIVIDENDS
Dividends from net investment income (.0357) (.0404) (.0361) (.0366) (.0404)
Net asset value, end of year $1.00 $1.00 $1.00 $1.00 $1.00
TOTAL RETURN
Total investment return based on net
asset value (a) 3.64% 4.13% 3.67% 3.72% 4.12%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (in millions) $267 $152 $74 $65 $65
Ratios to average net assets of:
Expenses, net of waivers 1.50% 1.58% 1.88% 1.79% 1.70%
Expenses, before waivers 1.50% 1.58% 1.88% 1.79% 1.78%
Net investment income 3.57% 4.05% 3.61% 3.67% 4.17%(b)
</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
-----------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $1.00 $1.00 $1.00 $1.00 $1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income .0383 .0430 .0386 .0390 .0430
LESS: DIVIDENDS
Dividends from net investment income (.0383) (.0430) (.0386) (.0390) (.0430)
Net asset value, end of year $1.00 $1.00 $1.00 $1.00 $1.00
TOTAL RETURN
Total investment return based on net
asset value (a) 3.90% 4.39% 3.93% 3.98% 4.39%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (in millions) $128 $125 $24 $13 $10
Ratios to average net assets of:
Expenses, net of waivers 1.24% 1.29% 1.61% 1.55% 1.45%
Expenses, before waivers 1.24% 1.29% 1.61% 1.55% 1.52%
Net investment income 3.86% 4.34% 3.90% 3.89% 4.41%(b)
</TABLE>
ADVISOR CLASS
----------------------------------------
JANUARY 30,
1997(C)
YEAR ENDED SEPTEMBER 30, TO
------------------------ SEPTEMBER 30,
1999 1998 1997
----------- ----------- ------------
Net asset value, beginning of period $1.00 $1.00 $1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income .0458 .0505 .0254
LESS: DIVIDENDS
Dividends from net investment income (.0458) (.0505) (.0254)
Net asset value, end of period $1.00 $1.00 $1.00
TOTAL RETURN
Total investment return based on net
asset value (a) 4.68% 5.18% 3.14%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (in thousands) $11,576 $3,240 $35
Ratio of expenses to average net assets .49% .55% .88%(d)
Ratio of net investment income to average
net assets .57% 5.08% 4.15%(d)
(a) 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. Total investment return calculated
for a period less than one year is not annualized.
(b) Net of expenses waived by the Adviser.
(c) Commencement of distribution.
(d) Annualized.
11
REPORT OF INDEPENDENT ACCOUNTANTS AFD EXCHANGE RESERVES
_______________________________________________________________________________
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF
AFD EXCHANGE RESERVES
In our opinion, the accompanying statement of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
AFD Exchange Reserves (the "Fund") at September 30, 1999, and the results of
its operations, the changes in its net assets and the financial highlights for
the year then ended, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit, which included
confirmation of securities at September 30, 1999 by correspondence with the
custodian and brokers, provides a reasonable basis for the opinion expressed
above. The financial statements for the year ended September 30, 1998,
including the financial highlights for each of the four years in the period
then ended, were audited by other independent accountants whose report dated
October 16, 1998 expressed an unqualified opinion on those financial statements.
PricewaterhouseCoopers LLP
New York, New York
October 29, 1999
12
CHANGE IN INDEPENDENT ACCOUNTANT AFD EXCHANGE RESERVES
_______________________________________________________________________________
On July 13, 1999, McGladrey & Pullen, LLP ("McGladrey") notified the Fund of
its intention to resign as independent auditors of the Fund pursuant to an
agreement by PricewaterhouseCoopers LLP ("PwC") to acquire McGladrey's
investment company practice. The McGladrey partners and professionals serving
the Fund at the time of the acquisition joined PwC.
The reports of McGladrey on the financial statements of the Fund during the
past two fiscal years contained no adverse opinion or disclaimer of opinion,
and were not qualified or modified as to uncertainty, audit scope or accounting
principles.
In connection with its audits for the two most recent fiscal years and through
July 13, 1999, there were no disagreements with McGladrey on any matter of
accounting principle or practices, financial statement disclosure, or auditing
scope or procedure, which disagreements, if not resolved to the satisfaction of
McGladrey would have caused it to make reference to the subject matter of
disagreement in connection with its report.
On July 13, 1999, the Fund, with the approval of its Board of Trustees and its
Audit Committee, engaged PwC as its independent auditors.
13
AFD EXCHANGE RESERVES
_______________________________________________________________________________
AFD EXCHANGE RESERVES
1345 Avenue of the Americas
New York, NY 10105
Toll-free 1(800) 221-5672
CUSTODIAN
STATE STREET BANK AND TRUST COMPANY
P.O. Box 1912
Boston, MA 02105
LEGAL COUNSEL
SEWARD & KISSEL LLP
One Battery Park Plaza
New York, NY 10004
AUDITORS
PRICEWATERHOUSECOOPERS LLP
1177 Avenue of the Americas
New York, NY 10036
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.
14
THE ALLIANCE FAMILY OF MUTUAL FUNDS
_______________________________________________________________________________
FIXED INCOME
Alliance Bond Fund
U.S. Government Portfolio
Corporate Bond Portfolio
Quality Bond Portfolio
Alliance Global Dollar Government Fund
Alliance Global Strategic Income Trust
Alliance High Yield Fund
Alliance Mortgage Securities Income Fund
Alliance Limited Maturity Government Fund
Alliance Multi-Market Strategy Trust
Alliance North American Government Income Trust
Alliance Short-Term U.S. Government Fund
TAX-FREE INCOME
Alliance Municipal Income Fund
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
MONEY MARKET
AFD Exchange Reserves
GROWTH
The Alliance Fund
Alliance Global Environment Fund
Alliance Growth Fund
Alliance Premier Growth Fund
Select Investors Series - Premier Portfolio
GROWTH & INCOME
Alliance Balanced Shares
Alliance Conservative Investors Fund
Alliance Growth & Income Fund
Alliance Growth Investors Fund
Alliance Real Estate Investment Fund
Alliance Utility Income Fund
AGGRESSIVE GROWTH
Alliance Global Small Cap Fund
Alliance Health Care Fund
Alliance Quasar Fund
Alliance Technology Fund
INTERNATIONAL
Alliance All-Asia Investment Fund
Alliance Greater China '97 Fund
Alliance International Fund
Alliance International Premier Growth Fund
Alliance New Europe Fund
Alliance Worldwide Privatization Fund
INSTITUTIONAL
Premier Growth
Quasar
Real Estate Investment
CLOSED-END FUNDS
Alliance All-Market Advantage Fund
ACM Government Income Fund
ACM Government Opportunity Fund
ACM Government Securities Fund
ACM Government Spectrum Fund
ACM Managed Dollar Income Fund
ACM Managed Income Fund
ACM Municipal Securities Income Fund
Alliance World Dollar Government Fund
Alliance World Dollar Government Fund II
The Austria Fund
The Korean Investment Fund
The Spain Fund
The Southern Africa Fund
CASH MANAGEMENT SERVICES
Alliance Capital Reserves
Alliance Government Reserves
Alliance Institutional Reserves
Prime Portfolio
Government Portfolio
Tax-Free Portfolio
Treasury Portfolio
Trust Portfolio
Alliance Insured Account
Alliance Money Reserves
Alliance Municipal Trust
California Portfolio
Connecticut Portfolio
Florida Portfolio
General Portfolio
Massachusetts Portfolio
New Jersey Portfolio
New York Portfolio
Virginia Portfolio
Alliance Treasury Reserves
Alliance Money Market Fund
Prime Portfolio
General Municipal Portfolio
Government Portfolio
15
AFDAR999
