WDB IN CRUISE SET FMS TO CLIMB FROM FL330 TO FL350. BEGAN DESCENT TO 3500' INSTEAD.

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WE WERE IN CRUISE AT FL330 USING FMS AND AUTOPLT. MEM CENTER CLRED US TO FL350. I SELECTED FL350 ON THE FMS AND ENGAGED VNAV. THE F/O CHANGED THE ALT ALERT SELECTOR TO 35000'. I WAS DISTRACTED FOR A FEW SECS AND THE F/O SAID WE ARE DSNDING. WE WERE DSNDING AT APPROX 1000 FPM. I DISENGAGED THE AUTOPLT AND PUT THE ACFT IN A CLB TO FL350. WE LOST APPROX 1000' IN THIS MANEUVER. SINCE WE HAD UNLIMITED VIS IT WAS DONE SMOOTHLY. I ADVISED THE F/O TO TELL THE MEM CENTER WHAT WE WERE DOING; WHICH HE DID. IN CHKING TO FIND THE CAUSE I FOUND THE FMS CALLING FOR 3500' INSTEAD OF 35000'. APPARENTLY THE FMS DIDN'T TAKE A ZERO OR IT DROPPED OUT. SINCE THE ALT ALERT SELECTOR WAS SET FOR 35000'; THERE WAS NO 250' WARNING OF LEAVING THE ALT. THE CENTER PROBABLY DIDN'T GET AN ALERT FOR THE SAME REASONS. I HAVE BEEN OPERATING THIS EQUIP FOR OVER 7 YRS W/O ANY OCCURRENCE OF THIS NATURE. I GUESS THE LESSON HERE IS; DON'T BE TOO COMPLACENT WITH THIS AUTOMATIC NAV EQUIP. THIS IS ONE SITUATION WHERE WE DON'T HAVE ALT ALERTING TO WARN US OF A DSCNT.