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Filed Pursuant to Rule 497(e)
Registration File No.: 2-94996
THE HUDSON RIVER TRUST
Principal Office Located at
1345 Avenue of the Americas -- New York, New York 10105
The Hudson River Trust (Trust) is a mutual fund, currently issuing separate
series of shares of beneficial interest, each representing a separate
investment portfolio (Portfolio). There are three Portfolios currently
available to the Members Retirement Program through Separate Account 51
(Pooled) of The Equitable Life Assurance Society of the United States
(Equitable). They are the Conservative Investors, Growth Investors and Global
Portfolios.
This prospectus sets forth concisely the investment objectives and policies
of these three Portfolios and the information about the Trust a prospective
investor should know before investing. It should be read and retained for
future reference.
A Statement of Additional Information (SAI) dated May 1, 1995 has been filed
with the Securities and Exchange Commission (SEC). This SAI is incorporated
by reference into this prospectus and is available at no charge by writing
the Trust at the above address.
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
Financial Highlights ....................... 2
The Trust .................................. 6
Investment Objectives and Policies ........ 6
Investment Techniques ...................... 9
Certain Investment Restrictions ............ 14
Management of the Trust .................... 14
Description of the Trust's Shares .......... 16
Dividends, Distributions and Taxes ........ 17
Investment Performance ..................... 17
Appendix A -- Description of Bond Ratings . A-1
</TABLE>
An investment in the Trust is not a deposit or obligation of, or guaranteed
or endorsed by, any bank and is not federally insured by the Federal Deposit
Insurance Corporation, the Federal Reserve Board, or any other agency.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
PROSPECTUS DATED MAY 1, 1995
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HRT103 (5/95)--#4 Copyright 1995 The Hudson River Trust. All rights reserved.
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FINANCIAL HIGHLIGHTS
The following tables give information regarding income, expenses and capital
changes for a share of beneficial interest in each of the Portfolios
outstanding throughout the periods indicated.
Information regarding portfolio turnover rates, some of which exceeded 100%
during 1994 and 1993, is also included. Higher levels of portfolio activity
result in higher transaction costs, including higher brokerage expenses.
On December 16, 1992, the Trust's Board of Trustees declared a 10-for-1 stock
split of the outstanding shares of the Global Portfolio. The split was
effected on January 1, 1993 for shareholders of record on that date.
Consequently, the shares of beneficial interest outstanding and net asset
value per share presented in the Financial Highlights for a Global Portfolio
share outstanding throughout each period (other than the periods ended
December 31, 1993 and December 31, 1994), and the shares outstanding at the
end of such periods presented for the Global Portfolio, have been restated.
The financial information in the tables below for the fiscal years ended
December 31, 1993 and December 31, 1994 has been audited by Price Waterhouse
LLP, the Trust's independent accountants. Financial highlights for prior
years have been audited by Deloitte & Touche LLP. The audited financial
statements for the Trust appear in the SAI. The Trust's annual report, which
contains additional performance information, is available without charge upon
request.
FINANCIAL HIGHLIGHTS
PER SHARE INCOME AND CAPITAL CHANGES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)(B)
CONSERVATIVE INVESTORS PORTFOLIO:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1994 1993* 1992 1991
------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net asset value, beginning of period (a) .......... $ 11.12 $ 10.94 $ 11.29 $ 10.23
------- -------- ------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ............................ 0.55 0.52 0.64 0.69
Net realized and unrealized gain (loss) on
investments ..................................... (1.00) 0.65 (0.01) 1.28
------- -------- ------- --------
Total from investment operations ................. (0.45) 1.17 0.63 1.97
------- -------- ------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income ............. (0.52) (0.50) (0.62) (0.66)
Dividends in excess of net investment income ..... -- (0.00) -- --
Distributions from realized gains ................ -- (0.49) (0.36) (0.25)
------- -------- ------- --------
Total dividends and distributions ................ (0.52) (0.99) (0.98) (0.91)
------- -------- ------- --------
Net asset value, end of period ..................... $ 10.15 $ 11.12 $ 10.94 $ 11.29
======= ========= ======== =========
Total return (c) ................................... (4.10)% 10.76% 5.64% 19.80%
======= ========= ======== =========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) .................. $173,691 $114,418 $70,675 $50,279
Ratio of expenses to average net assets ............ 0.59% 0.60% 0.61% 0.64%
Ratio of net investment income to average net
assets ........................................... 5.22% 4.49% 5.77% 6.45%
Portfolio turnover rate ............................ 228% 178% 136% 171%
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
OCTOBER 2,
1989 TO
DECEMBER 31,
1990 1989
--------- ---------
<S> <C> <C>
Net asset value, beginning of period (a) ......... $10.26 $10.00
--------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ............................ 0.72 0.15
Net realized and unrealized gain (loss) on
investments ..................................... (0.09) 0.16
--------- ---------
Total from investment operations ................. 0.63 0.31
--------- ---------
LESS DISTRIBUTIONS:
Dividends from net investment income ............. (0.66) (0.05)
Dividends in excess of net investment income ..... -- --
Distributions from realized gains ................ -- --
--------- ---------
Total dividends and distributions ................ (0.66) (0.05)
--------- ---------
Net asset value, end of period ..................... $10.23 $10.26
========= =========
Total return (c) ................................... 6.30% 3.10%
========= =========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) .................. $29,971 $13,984
Ratio of expenses to average net assets ............ 0.73% 0.26%
Ratio of net investment income to average net
assets ........................................... 7.06% 1.54%
Portfolio turnover rate ............................ 88% 0%
<FN>
---------------
Footnotes appear on page 5.
</TABLE>
2
GROWTH INVESTORS PORTFOLIO:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1994 1993* 1992 1991
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Net asset value, beginning of period (a) $ 15.61 $ 14.69 $ 15.17 $ 11.03
---------- ---------- ---------- ---------
INCOME FROM INVESTMENT OPERATIONS: .....
Net investment income .................. 0.50 0.43 0.44 0.41
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions .......................... (0.98) 1.79 0.28 4.93
---------- ---------- ---------- ---------
Total from investment operations ....... (0.48) 2.22 0.72 5.34
---------- ---------- ---------- ---------
LESS DISTRIBUTIONS: ....................
Dividends from net investment income ... (0.46) (0.42) (0.41) (0.37)
Dividends in excess of net investment
income ................................ (0.01) -- -- --
Distributions from realized gains ...... -- (0.88) (0.79) (0.83)
---------- ---------- ---------- ---------
Total dividends and distributions ...... (0.47) (1.30) (1.20) (1.20)
---------- ---------- ---------- ---------
Net asset value, end of period ........... $ 14.66 $ 15.61 $ 14.69 $ 15.17
========== ========== ========== =========
Total return (c) ......................... (3.15)% 15.26% 4.85% 48.83%
========== ========== ========== =========
RATIOS/SUPPLEMENTAL DATA: ................
Net asset, end of period (000's) ........ $492,478 $278,467 $148,650 $84,338
Ratio of expenses to average net assets . 0.59% 0.62% 0.60% 0.66%
Ratio of net investment income to average
net assets ............................. 3.32% 2.71% 3.00% 3.03%
Portfolio turnover rate .................. 131% 118% 129% 139%
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
OCTOBER 2,
1989 TO
DECEMBER 31,
1990 1989
--------- -------------
<S> <C> <C>
Net asset value, beginning of period (a) $ 10.33 $10.00
--------- --------------
INCOME FROM INVESTMENT OPERATIONS: .....
Net investment income .................. 0.44 0.11
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions .......................... 0.64 0.29
--------- --------------
Total from investment operations ....... 1.08 0.40
--------- --------------
LESS DISTRIBUTIONS: ....................
Dividends from net investment income ... (0.38) (0.06)
Dividends in excess of net investment
income ................................ -- --
Distributions from realized gains ...... -- (0.01)
--------- --------------
Total dividends and distributions ...... (0.38) (0.07)
--------- --------------
Net asset value, end of period ........... $ 11.03 $10.33
========= ==============
Total return (c) ......................... 10.70% 4.00%
========= ==============
RATIOS/SUPPLEMENTAL DATA: ................
Net asset, end of period (000's) ........ $24,539 $6,018
Ratio of expenses to average net assets . 0.78% 0.29%
Ratio of net investment income to average
net assets ............................. 4.11% 1.01%
Portfolio turnover rate .................. 92% 6%
<FN>
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Footnotes appear on page 5.
</TABLE>
3
GLOBAL PORTFOLIO:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1994 1993* 1992
---------- ----------- -----------
<S> <C> <C> <C>
Net asset value, beginning of
period (a) ...................... $13.62 $ 11.41 $ 11.64
---------- ----------- -----------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .......... 0.20 0.08 0.14
Net realized and unrealized gain
(loss) on investments and
foreign currency transactions . 0.52 3.58 (0.20)
---------- ----------- -----------
Total from investment operations 0.72 3.66 (0.06)
---------- ----------- -----------
LESS DISTRIBUTIONS:
Dividends from net investment
income ........................ (0.17) (0.15) (0.11)
Distributions from realized
gains ......................... (0.28) (1.30) (0.06)
Distributions in excess of
realized gains ................ (0.00) (0.00) --
Tax return of capital
distributions ................. (0.02) -- --
---------- ----------- -----------
Total dividends and
distributions ................. (0.47) (1.45) (0.17)
---------- ----------- -----------
Net asset value, end of period .. $13.87 $ 13.62 $ 11.41
========== =========== ==========
Total return (c) ................. 5.23% 32.09% (0.50)%
========== =========== ==========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $421,698 $141,257 $49,171
Ratio of expenses to average net
assets ......................... 0.69% 0.84% 0.70%
Ratio of net investment income to
average net assets ............. 1.41% 0.62% 1.20%
Portfolio turnover rate .......... 71% 150% 216%
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
August 27,
Year Ended December 31, 1987 to
----------------------------------------------------- December 31,
1991 1990 1989 1988 1987
--------- --------- --------- -------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period (a) ...................... $ 9.76 $ 10.74 $ 9.57 $ 8.67 $ 10.00
--------- --------- --------- -------- ----------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .......... 0.22 0.38 0.17 0.13 0.01
Net realized and unrealized gain
(loss) on investments and
foreign currency transactions . 2.74 (1.03) 2.38 0.82 (1.34)
--------- --------- --------- -------- ----------
Total from investment operations 2.96 (0.65) 2.55 0.95 (1.33)
--------- --------- --------- -------- ----------
LESS DISTRIBUTIONS:
Dividends from net investment
income ........................ (0.23) (0.33) (0.14) (0.05) --
Distributions from realized
gains ......................... (0.85) -- (1.24) -- --
Distributions in excess of
realized gains ................ -- -- -- -- --
Tax return of capital
distributions ................. -- -- -- -- --
--------- --------- --------- -------- ----------
Total dividends and
distributions ................. (1.08) (0.33) (1.38) (0.05) --
--------- --------- --------- -------- ----------
Net asset value, end of period .. $ 11.64 $ 9.76 $ 10.74 $ 9.57 $ 8.67
Total return (c) ................. 30.54% (6.06)% 26.73% 10.88% (13.30)%
========= ========== ========= ======== ==========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $39,487 $24,097 $15,409 $9,212 $6,030
Ratio of expenses to average net
assets ......................... 0.75% 0.75% 0.80% 1.06% 0.40%
Ratio of net investment income to
average net assets ............. 1.94% 3.67% 1.49% 1.30% 0.19%
Portfolio turnover rate .......... 267% 502% 399% 235% 11%
<FN>
---------------
Footnotes appear on page 5.
</TABLE>
4
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FOOTNOTES TO FINANCIAL HIGHLIGHTS
* Prior to July 22, 1993, Equitable Capital Management Corporation
(Equitable Capital) served as the investment adviser to the Trust. On
July 22, 1993, Alliance Capital Management L.P. acquired the business and
substantially all of the assets of Equitable Capital and became the
investment adviser to the Trust.
(a) Date as of which funds were first allocated to the Portfolios are as
follows:
Global Portfolio -- August 27, 1987
Conservative Investors Portfolio -- October 2, 1989
Growth Investors Portfolio -- October 2, 1989
(b) Net investment income and capital changes per share are based upon
monthly average shares outstanding.
(c) Total 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 return calculated for a
period of less than one year is not annualized.
5
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THE TRUST
The Trust is an open-end management investment company under the Investment
Company Act of 1940 (Investment Company Act). As a "series" type of mutual
fund, the Trust issues shares of beneficial interest currently divided among
thirteen Portfolios, including the Conservative Investors, Growth Investors
and Global Portfolios. Each Portfolio is a separate diversified series of the
Trust. The Trust's assets and liabilities are divided among these Portfolios.
Additional Portfolios may be established. Originally organized as a Maryland
corporation which commenced operations on March 22, 1985, the Trust was
formed as a Massachusetts business trust on July 10, 1987.
The Trust's shares are sold only to separate accounts of insurance companies
in connection with variable life insurance contracts and variable annuity
certificates and contracts (collectively, the Contracts) issued by The
Equitable Life Assurance Society of the United States (Equitable), Equitable
Variable Life Insurance Company (Equitable Variable), an affiliate of
Equitable, and certain insurance companies unaffiliated with Equitable or
Equitable Variable. Equitable and Equitable Variable were the record owners
of approximately 99.5% of the Trust's shares as of March 31, 1995, and
consequently may be deemed to control the Trust.
Shares of the Trust are sold to insurance company separate accounts of
companies that are not affiliated with each other. The Trust does not
currently foresee any disadvantages to policy owners arising from offering
the Trust's shares to separate accounts of insurance companies that are
unaffiliated with each other; however, it is theoretically possible that the
interests of owners of various policies participating in the Trust through
their separate accounts might at some time be in conflict. In the case of a
material irreconcilable conflict, one or more separate accounts might
withdraw their investments in the Trust, which would possibly force the Trust
to sell portfolio securities at disadvantageous prices.
INVESTMENT OBJECTIVES AND POLICIES
FUNDAMENTAL INVESTMENT OBJECTIVES
The following investment objectives of each Portfolio are fundamental and,
unless permitted by law, will not be changed without a vote of the holders of
the majority of the voting securities of that Portfolio. There can, of
course, be no assurance that a Portfolio will achieve its investment
objective.
o The Conservative Investors Portfolio's fundamental investment objective
is to achieve a high total return without, in the investment adviser's
opinion, undue risk to principal. It will pursue this objective by
investing in a diversified mix of publicly traded equity and debt
securities.
o The Growth Investors Portfolio's fundamental investment objective is to
achieve the highest total return consistent with the investment adviser's
determination of reasonable risk. It will pursue this objective by
investing in a diversified mix of publicly traded equity and fixed income
securities, including at times common stocks issued by intermediate and
small-sized companies and at times fixed income securities that are
medium and lower quality debt securities known as "junk bonds."
o The Global Portfolio's fundamental investment objective is to achieve
long-term growth of capital. The Global Portfolio will pursue this
objective by investing primarily in equity securities of non-United
States companies as well as United States issuers.
INVESTMENT POLICIES
The following investment policies and restrictions, unless otherwise noted,
are not fundamental policies of the Portfolios. They may be changed by the
Board of Trustees without a shareholder vote, except as otherwise stated in
this Prospectus or in the Trust's SAI.
THE ASSET ALLOCATION SERIES
The Conservative Investors Portfolio and the Growth Investors Portfolio
together are called the Asset Allocation Series. These Portfolios invest in a
variety of fixed income and equity securities, each pursuant to a different
asset allocation strategy, as described below. The term "asset allocation" is
used to describe
6
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the process of shifting assets among discrete categories of investments in an
effort to reduce risk while producing desired return objectives. Portfolio
management, therefore, will consist not only of specific securities selection
but also of setting, monitoring and changing, when necessary, the asset mix.
Each Portfolio has been designed with a view toward a different "investor
profile." The "conservative investor" has a relatively short-term investment
bias, either because of a limited tolerance for market volatility or a short
investment horizon. This investor is averse to taking risks that may result
in principal loss, even though such aversion may reduce the potential for
higher long-term gains and result in lower performance during periods of
equities market strength. Consequently, the asset mix for the Conservative
Investors Portfolio attempts to reduce volatility while providing modest
upside potential. The "growth investor" has a longer-term investment horizon
and is therefore willing to take more risks in an attempt to achieve
long-term growth of principal. This investor wishes, in effect, to be risk
conscious without being risk averse. The asset mix for the Growth Investors
Portfolio attempts to provide for upside potential without excessive
volatility.
The Trust's investment adviser has established an asset allocation committee
(the Committee), all the members of which are employees of the investment
adviser, which is responsible for setting and continually reviewing the asset
mix ranges of each Portfolio. The Committee meets at least twice each month.
Under normal market conditions, the Committee is expected to change
allocation ranges approximately three to five times per year. However, the
Committee has broad latitude to establish the frequency, as well as the
magnitude, of allocation changes within the guidelines established for each
Portfolio. During periods of severe market disruption, allocation ranges may
change frequently. It is also possible that in periods of stable and
consistent outlook no change will be made. The Committee's decisions are
based on a variety of factors, including liquidity, portfolio size, tax
consequences and general market conditions, always within the context of the
appropriate investor profile for each Portfolio. Consequently, asset mix
decisions for the Conservative Investors Portfolio particularly emphasize
risk assessment of each asset class viewed over the shorter term, while
decisions for the Growth Investors Portfolio are principally based on the
longer term total return potential for each asset class.
When the Committee establishes a new allocation range for a Portfolio, it
also prescribes the length of time during which that Portfolio should achieve
an asset mix within the new range. To achieve a new asset mix, the Portfolios
look first to available cash flow. If cash flow proves insufficient to
achieve the desired asset mix, the Portfolios will sell securities and
reinvest the proceeds in the appropriate asset class.
The Asset Allocation Series Portfolios are permitted to use a variety of
hedging techniques to attempt to control stock market, interest rate and
currency risks. Each of the Portfolios in the Asset Allocation Series may
make loans of up to 50% of its total portfolio securities. Each of the
Portfolios in the Asset Allocation Series may write covered call and put
options and may purchase call and put options on all the types of securities
in which it may invest, as well as securities indexes and foreign currencies.
Each Portfolio may also purchase and sell stock index, interest rate and
foreign currency futures contracts and options thereon, as well as forward
foreign currency exchange contracts. See "Investment Techniques--Forward
Foreign Currency Exchange Contracts," below.
Risk Factors. In addition to the risk factors associated with certain types
of securities in which the Portfolios in the Asset Allocation Series may
invest, and in addition to the risk of loss inherent in any securities
ownership, there is associated with these Portfolios the risk that the
investment adviser will not accurately assess and respond to changing market
conditions. While the investment adviser has established the Committee to
help it anticipate and respond positively to changes in market conditions,
there can be no assurance that this goal will be achieved. Furthermore, there
may be additional operating expenses for these Portfolios during periods of
frequently changing asset mix ranges.
CONSERVATIVE INVESTORS PORTFOLIO--INVESTMENT POLICIES
The Conservative Investors Portfolio attempts to achieve its investment
objective by allocating varying portions of its assets to high quality,
publicly traded fixed income securities (including money market instruments
and cash) and publicly traded common stocks and other equity securities of
United States and non-United States issuers. All fixed income securities held
by the Portfolio will be of investment grade.
7
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This means that they will be in one of the top four rating categories
assigned by S&P or Moody's Investors Service, Inc. (Moody's). Equity
securities invested in by the Portfolio will consist of the types of
securities in which the Common Stock Portfolio may invest and may include
convertible securities. No more than 15% of the Portfolio's assets will be
invested in securities of non-United States issuers. See "Investment
Techniques--Foreign Securities and Currencies," below.
The Portfolio will at all times hold at least 40% of its assets in investment
grade fixed income securities, each having a duration of less than that of a
10-year Treasury bond (the Fixed Income Core). Duration is a measure that
relates the price volatility of a bond to changes in interest rates. The
duration of a bond is the weighted average term to maturity, expressed in
years, of the present value of all future cash flows, including coupon
payments and principal repayments. Thus, by definition, duration is always
less than or equal to full maturity. As of December 31, 1994, the duration of
a 10-year Treasury bond was considered to be 7.0 years.
The Portfolio is generally expected to hold approximately 70% of its assets
in fixed income securities (including the Fixed Income Core) and 30% in
equity securities. Actual asset mixes will be adjusted in response to
economic and credit market cycles. The fixed income asset class will always
comprise at least 50%, but never more than 90%, of the Portfolio's total
assets. The equity class will always comprise at least 10%, but never more
than 50%, of the Portfolio's total assets.
GROWTH INVESTORS PORTFOLIO--INVESTMENT POLICIES
The Growth Investors Portfolio attempts to achieve its investment objective
by allocating varying portions of its assets to a number of asset classes.
Equity investments will include common stocks that are listed on national
securities exchanges as well as those that are traded over-the-counter and
also equity-type securities, which may include preferred stock and
convertible securities, and include securities issued by intermediate and
small-sized companies with favorable growth prospects. More risk is
associated with investment in intermediate and small-sized companies because
they are often dependent on only one or two products. They are more
vulnerable to competition from larger companies with greater resources and to
economic conditions affecting their market sector. Intermediate and
small-sized companies may be new, without long business or management
histories, and perceived by the market as unproven. Their securities may be
held primarily by insiders or institutional investors, which may affect
marketability. The prices of these stocks often fluctuate more than the
overall stock market. Fixed income investments will include investment grade
fixed income securities (including cash and money market instruments) as well
as securities that have a high current yield and that are either rated in the
lower categories by nationally recognized statistical rating organizations
NRSROs (i.e., Baa or lower by Moody's or BBB or lower by S&P) or are unrated.
For a discussion of the risks associated with investment in these higher
yielding securities, see "Investment Techniques--Fixed Income Securities";
"Investment Techniques--Risk Factors of Lower Rated Fixed Income Securities,"
below. For the fiscal year ended December 31, 1994, approximately 20.4% of
the Portfolio was invested in fixed income securities in the following rating
categories, determined on a dollar weighted basis: 12.9% in securities rated
AAA or its equivalent, 6.4% in securities rated BB or its equivalent and 1.1%
in securities rated B or its equivalent. Of these securities, all were rated
by an NRSRO. No more than 30% of the Portfolio's assets will be invested in
securities of non-United States issuers. See "Investment Techniques--Foreign
Securities and Currencies," below.
The Portfolio will at all times hold at least 40% of its assets in publicly
traded common stocks and other equity securities of the type purchased by the
Common Stock Portfolio (the Equity Core). The Portfolio is generally expected
to hold approximately 70% of its assets in equity securities (including the
Equity Core) and 30% in fixed income securities. Actual asset mixes will be
adjusted in response to economic and credit market cycles. The fixed income
asset class will always comprise at least 10%, but never more than 60%, of
the Portfolio's total assets. The equity class will always comprise at least
40%, but never more than 90%, of the Portfolio's total assets.
GLOBAL PORTFOLIO--INVESTMENT POLICIES
The Global Portfolio attempts to achieve its objective by investing primarily
in a diversified portfolio of equity securities selected principally to
permit participation in established non-United States companies
8
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with prospects for growth, as well as in securities issued by United States
companies. These non-United States companies may have operations in the
United States, in their country of incorporation or in other countries. The
Global Portfolio intends to diversify investments among several countries and
to have represented in the Portfolio business activities in not less than
three different countries (including the United States). For temporary or
defensive purposes, the Global Portfolio may at times invest substantially
all of its assets in securities issued by United States companies or in cash
or cash equivalents, including money market instruments issued by foreign
entities.
The Global Portfolio may invest in any type of security including, but not
limited to, shares, preferred or common, as well as shares of mutual funds
which invest in foreign securities, bonds and other evidences of
indebtedness, and other securities of issuers wherever organized and
governments and their political subdivisions. Although no particular
proportion of stocks, bonds or other securities is required to be maintained,
the Global Portfolio, in view of its investment objective, intends under
normal conditions to maintain a portfolio consisting primarily of a
diversified list of equity securities. The Portfolio may make secured loans
of up to 50% of its total portfolio securities. See "Investment
Techniques--Securities Lending," below. The Global Portfolio may write
covered call and put options and may purchase call and put options on
individual equity securities, securities indexes, and foreign currencies. The
Global Portfolio may also purchase and sell stock index, foreign currency and
interest rate futures contracts and options on such contracts, as well as
forward foreign currency exchange contracts. See "Investment
Techniques--Options," "Investment Techniques--Forward Foreign Currency
Exchange Contracts," "Investment Techniques--Futures," and "Investment
Techniques--Risk Factors in Options and Futures," below.
Risk Factors. For a discussion of the risks associated with investments in
foreign securities, see "Investment Techniques--Foreign Securities and
Currencies," below.
INVESTMENT TECHNIQUES
The Portfolios have the flexibility to invest, within limits, in a variety of
instruments designed to enhance their investment capabilities. All of the
Portfolios may make investments in repurchase agreements, and all of the
Portfolios may purchase or sell securities on a when-issued, delayed delivery
or forward commitment basis. The Portfolios may write (i.e., sell) covered
put and call options and buy put and call options on securities and
securities indexes. The Portfolios may also write covered put and call
options and buy put and call options on foreign currencies. The Portfolios
may use exchange-traded financial futures contracts, and options thereon. A
brief description of certain of these investment instruments and their risks
appears below. More detailed information is to be found in the SAI.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES
The Portfolios may invest in mortgage-backed securities, which are mortgage
loans made by banks, savings and loan institutions and other lenders that are
assembled into pools, that are (i) issued by an agency of the U.S.
Government, such as the Government National Mortgage Association (GNMA),
whose securities are guaranteed by the U.S. Treasury, (ii) issued by an
instrumentality of the U.S. Government, such as the Federal National Mortgage
Association (FNMA) whose securities are supported by the instrumentality's
right to borrow from the U.S. Treasury, at the discretion of the U.S.
Treasury, though not backed by the full faith and credit of the U.S.
Government itself, or (iii) collateralized by U.S. Treasury obligations or
U.S. Government agency securities. Interests in such pools are described in
this prospectus as mortgage-backed securities. The Portfolios may invest in
(i) mortgage-backed securities, including GNMA, FNMA and Federal Home Loan
Mortgage Corporation (FHLMC) certificates, (ii) Collateralized Mortgage
Obligations (CMOs) that are issued by non-governmental entities and
collateralized by U.S. Treasury obligations or by U.S. Government agency or
instrumentality securities, (iii) real estate mortgage investment conduits
(REMICs) and (iv) other asset-backed securities. Other asset-backed
securities (unrelated to mortgage loans) may include securities such as
certificates for automobile receivables (CARS) and credit card receivable
securities (CARDS) as well as other asset-backed securities that may be
developed in the future.
9
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The rate of return on mortgage-backed securities, such as GNMA, FNMA and
FHLMC certificates and CMOs, and, to a lesser extent, asset-backed securities
may be affected by early prepayment of principal on the underlying loans or
receivables. Prepayment rates vary widely and may be affected by changes in
market interest rates. It is not possible to accurately predict the average
life of a particular mortgage pool or pool of loans or receivables.
Reinvestment of principal may occur at higher or lower rates than the
original yield. Therefore, the actual maturity and realized yield on
mortgage-backed securities and, to a lesser extent, asset-backed securities
will vary based upon the prepayment experience of the underlying pool of
mortgages or pool of loans or receivables.
The Portfolios may also invest in floating or variable rate mortgage-backed
and asset-backed securities on the same terms as they may invest in floating
or variable rate notes, described below under "Certain Money Market
Instruments."
CERTAIN MONEY MARKET INSTRUMENTS
All of the Portfolios may utilize money market instruments, including
certificates of deposit, time deposits, bankers' acceptances, bank notes and
other short-term debt obligations issued by commercial banks and certificates
of deposit, time deposits, and other short-term obligations issued by savings
and loan associations (S&Ls). Certificates of deposit are receipts from a
bank or an S&L for funds deposited for a specified period of time at a
specified rate of return. Time deposits in banks or S&Ls are generally
similar to certificates of deposit, but are uncertificated. Bankers'
acceptances are time drafts drawn on commercial banks by borrowers, usually
in connection with international commercial transactions.
The Portfolios may also use commercial paper, meaning short-term, unsecured
promissory notes issued by corporations to finance their short-term credit
needs. In addition, these Portfolios may invest in variable or floating rate
notes. Variable and floating rate notes provide for automatic establishment
of a new interest rate at fixed periodic intervals (e.g., daily, monthly) or
whenever some specified interest rate changes. The interest rate on variable
or floating rate securities is ordinarily determined by reference to some
other objective measure such as the U.S. Treasury bill rate. Many floating
rate notes have put or demand features which allow the holder to put the note
back to the issuer or the broker who sold it at certain specified times and
upon notice. Floating rate notes without such a put or demand feature, or in
which the notice period is greater than seven days, may be considered
illiquid securities.
FIXED INCOME SECURITIES
Fixed income securities include preferred and preference stocks and all types
of debt obligations of both domestic and foreign issuers (such as bonds,
debentures, notes, equipment lease certificates, equipment trust
certificates, conditional sales contracts, commercial paper, mortgage-backed
securities and obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities).
Corporate debt securities may bear fixed, contingent or variable rates of
interest and may involve equity features, such as conversion or exchange
rights or warrants for the acquisition of stock of the same or a different
issuer or participation based on revenues, sales or profits or the purchase
of common stock in a unit transaction (where corporate debt securities and
common stock are offered as a unit).
RISK FACTORS OF LOWER RATED FIXED INCOME SECURITIES
Fixed income investments that have a high current yield and that are either
rated in the lower categories by NRSROs (i.e., Baa or lower by Moody's or BBB
or lower by S&P) or are unrated are known as "junk bonds" and are regarded as
predominantly speculative with respect to the issuer's continuing ability to
meet principal and interest payments. Because investment in medium and lower
quality bonds involves greater investment risk, achievement of a Portfolio's
investment objective will be more dependent on the investment adviser's
analysis than would be the case if that Portfolio were investing in higher
quality bonds. Medium and lower quality bonds may be more susceptible to real
or perceived adverse economic and individual corporate developments than
would investment grade bonds. For example, a projected economic downturn or
the possibility of an increase in interest rates could cause a decline in
high yield bond prices because such an event might lessen the ability of
highly leveraged high yield issuers to meet
10
<PAGE>
their principal and interest payment obligations, meet projected business
goals or obtain additional financing. In addition, the secondary trading
market for medium and lower quality bonds may be less liquid than the market
for investment grade bonds. This potential lack of liquidity may make it more
difficult for the investment adviser to value accurately certain portfolio
securities. Further, as with many corporate bonds (including investment grade
issues), there is the risk that certain high yield bonds containing
redemption or call provisions may be called by the issuers of such bonds in a
declining interest rate market, and the relevant Portfolio would then have to
replace such called bonds with lower yielding bonds, thereby decreasing the
net investment income to the Portfolio. Prepayment of mortgages underlying
mortgage-backed securities, even though these securities will generally be
rated in the higher categories of NRSROs, may reduce their current yield and
total return. However, the Trust's investment adviser intends to invest in
these securities only when the potential benefits to a Portfolio are deemed
to outweigh the risks.
REPURCHASE AGREEMENTS
In repurchase agreements, a Portfolio buys securities from a seller, usually
a bank or brokerage firm, with the understanding that the seller will
repurchase the securities at a higher price at a future date. During the term
of the repurchase agreement, the Portfolio's custodian retains the securities
subject to the repurchase agreement as collateral securing the seller's
repurchase obligation, continually monitors on a daily basis the market value
of the securities subject to the agreement and requires the seller to deposit
with the Portfolio's custodian collateral equal to any amount by which the
market value of the securities subject to the repurchase agreement falls
below the resale amount provided under the repurchase agreement. The
creditworthiness of sellers is determined by the investment adviser, subject
to direction of and review by the Board of Trustees. Such transactions afford
an opportunity for the Portfolio to earn a fixed rate of return on available
cash at minimal market risk, although the Portfolio may be subject to various
delays and risks of loss if the seller is unable to meet its obligation to
repurchase. The staff of the SEC currently takes the position that repurchase
agreements maturing in more than seven days are illiquid securities. No
Portfolio will enter into a repurchase agreement if as a result more than 15%
of the Portfolio's net assets would be invested in "illiquid securities".
FORWARD COMMITMENTS AND WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
The Portfolios may enter into forward commitments for the purchase or sale of
securities and may purchase and sell securities on a when-issued or delayed
delivery basis. Forward commitments and when-issued or delayed delivery
transactions arise when securities are purchased or sold by a Portfolio with
payment and delivery taking place in the future in order to secure what is
considered to be an advantageous price or yield to the Portfolio at the time
of entering into the transaction. However, the market value of such
securities may be more or less than the purchase price payable at settlement.
No payment or delivery is made by the Portfolio until it receives delivery or
payment from the other party to the transaction. When a Portfolio engages in
forward commitments or when-issued or delayed delivery transactions, the
Portfolio relies on the other party to consummate the transaction. Failure to
consummate the transaction may result in the Portfolio missing the
opportunity of obtaining a price or yield considered to be advantageous.
Forward commitments and when-issued and delayed delivery transactions are
generally expected to settle within three months from the date the
transactions are entered into, although the Portfolio may close out its
position prior to the settlement date. The Portfolio's custodian will
maintain, in a segregated account of the Portfolio, cash, U.S. Government
securities or other liquid high-grade debt obligations having a value equal
to or greater than the Portfolio's purchase commitments; the custodian will
likewise segregate securities sold under a forward commitment or on a delayed
delivery basis. A Portfolio will sell on a forward settlement basis only
securities it owns or has the right to acquire.
OPTIONS
The Portfolios may write (sell) covered put and call options and buy put and
call options, including options relating to individual securities and
securities indexes. The Portfolios may also write covered put and call
options and buy put and call options on foreign currencies.
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<PAGE>
A call option is a contract that gives to the holder the right to buy a
specified amount of the underlying security at a fixed or determinable price
(called the exercise or strike price) upon exercise of the option. A put
option is a contract that gives the holder the right to sell a specified
amount of the underlying security at a fixed or determinable price upon
exercise of the option. In the case of index options, exercises are settled
through the payment of cash rather than the delivery of property. A call
option on a security will be considered covered, for example, if the
Portfolio holds the security upon which the option is written. The Portfolios
may write call options on securities or securities indexes for the purpose of
increasing their return or to provide a partial hedge against a decline in
the value of their portfolio securities or both. The Portfolios may write put
options on securities or securities indexes in order to earn additional
income or (in the case of put options written on individual securities) to
purchase the underlying security at a price below the current market price.
If a Portfolio writes an option which expires unexercised or is closed out by
the Portfolio at a profit, it will retain all or part of the premium received
for the option, which will increase its gross income. If the option is
exercised, the Portfolio will be required to sell or purchase the underlying
security at a disadvantageous price, or, in the case of index options,
deliver an amount of cash, which loss may only be partially offset by the
amount of premium received. Each of the Portfolios noted above may also
purchase put or call options on securities and securities indexes in order to
hedge against changes in interest rates or stock prices which may adversely
affect the prices of securities that the Portfolio wants to purchase at a
later date, to hedge its existing investments against a decline in value, or
to attempt to reduce the risk of missing a market or industry segment
advance. In the event that the expected changes in interest rates or stock
prices occur, the Portfolio may be able to offset the resulting adverse
effect on the Portfolio by exercising or selling the options purchased. The
premium paid for a put or call option plus any transaction costs will reduce
the benefit, if any, realized by the Portfolio upon exercise or liquidation
of the option. Unless the price of the underlying security or level of the
securities index changes by an amount in excess of the premium paid, the
option may expire without value to the Portfolio. See "Risk Factors in
Options and Futures," below.
Options purchased or written by the Portfolios may be traded on the national
securities exchanges or negotiated with a dealer. Options traded in the
over-the-counter market may not be as actively traded as those on an
exchange, so it may be more difficult to value such options. In addition, it
may be difficult to enter into closing transactions with respect to such
options. Such options, and the securities used as "cover" for such options,
may be considered illiquid securities.
In instances in which a Portfolio has entered into agreements with primary
dealers with respect to the over-the-counter options it has written, and such
agreements would enable the Portfolio to have an absolute right to repurchase
at a pre-established formula price the over-the-counter option written by it,
the Portfolio would treat as illiquid securities only the amount equal to the
formula price described above less the amount by which the option is
"in-the-money," i.e., the amount by which the price of the option exceeds the
exercise price.
The Portfolios may purchase put and call options and write covered put and
call options on foreign currencies for the purpose of protecting against
declines in the dollar value of portfolio securities and against increases in
the dollar cost of securities to be acquired. Such investment strategies will
be used as a hedge and not for speculation. As in the case of other types of
options, however, the writing of an option on foreign currency will
constitute only a partial hedge, up to the amount of the premium received,
and the Portfolio could be required to purchase or sell foreign currencies at
disadvantageous exchange rates, thereby incurring losses. The purchase of an
option on foreign currency may constitute an effective hedge against
fluctuations in exchange rates although, in the event of rate movements
adverse to the Portfolio's position, it may forfeit the entire amount of the
premium plus related transaction costs. Options on foreign currencies may be
traded on the national securities exchanges or in the over-the-counter
market. As described above, options traded in the over-the-counter market may
not be as actively traded as those on an exchange, so it may be more
difficult to value such options. In addition, it may be difficult to enter
into closing transactions with respect to options traded over-the-counter.
FUTURES
The Portfolios may each purchase and sell futures contracts and related
options on debt securities and on indexes of debt securities to hedge against
anticipated changes in interest rates that might otherwise have
12
<PAGE>
an adverse effect on the value of their assets or assets they intend to
acquire. In addition, each Portfolio may purchase and sell stock index
futures contracts and related options to hedge the equity portion of its
assets or equity assets it intends to acquire with regard to market risk as
distinguished from stock-specific risk. As described below under "Foreign
Securities and Currencies," the Portfolios may each enter into futures
contracts and related options on foreign currencies in order to limit their
exchange rate risk. All futures contracts and related options will be traded
on exchanges that are licensed and regulated by the Commodity Futures Trading
Commission (CFTC). All of the Portfolios may enter into futures contracts and
buy and sell related options without limitation, except as noted below.
Pursuant to regulations of the CFTC which provide an exemption from
registration as a commodity pool operator, a Portfolio will not purchase or
sell futures contracts or options on futures contracts unless either (i) the
futures contracts or options thereon are for "bona fide hedging" purposes (as
that term is defined under the CFTC regulations) or (ii) if for other
purposes, the sum of amounts of initial margin deposits and premiums required
to establish non-hedging positions would not exceed 5% of the Portfolio's
liquidation value. When a Portfolio purchases or sells a futures contract or
writes a put or call option on a futures contract, the Portfolio will
segregate with its custodian cash or cash equivalents (less any related
margin deposits) equal to the cost of the futures contract it intends to sell
or purchase to insure that such futures positions are not leveraged, or may
otherwise cover such positions.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
All the Portfolios may enter into contracts for the purchase or sale of a
specific currency at a future date at a price set at the time of the
contract.
Generally, such forward contracts will be for a period of less than three
months. The Portfolios will enter into forward contracts for hedging purposes
only. These transactions will include forward purchases or sales of foreign
currencies for the purpose of protecting the dollar value of securities
denominated in a foreign currency or protecting the dollar equivalent of
interest or dividends to be paid on such securities. Forward contracts are
traded in the inter-bank market, and not on organized commodities or
securities exchanges.
RISK FACTORS IN OPTIONS AND FUTURES
To the extent a hedging transaction is effective, it will protect the value
of the securities or currencies which are hedged but may reduce or eliminate
the potential for gain. The effectiveness of a hedge depends, among other
things, on the correlation between the price movements of the hedging vehicle
and the hedged items, but these correlations generally are imperfect. A
hedging transaction may produce a loss as a result of such imperfect
correlations or for other reasons. The risks of trading futures contracts
also include the risks of inability to effect closing transactions or to do
so at favorable prices; consequently, losses from investing in futures
contracts are potentially unlimited. The risks of option trading include
possible loss of the entire premium on purchased options and inability to
effect closing transactions at favorable prices. The extent to which a
Portfolio can benefit from investments involving options and futures
contracts may also be limited by various tax rules. Favorable results from
options and futures transactions may depend on the investment adviser's
ability to predict correctly the direction of securities prices, interest
rates and other economic factors.
FOREIGN SECURITIES AND CURRENCIES
All of the Portfolios may invest in foreign securities. Investments in
foreign securities may involve a higher degree of risk because of limited
publicly available information, non-uniform accounting, auditing and
financial standards, reduced levels of government regulation of foreign
securities markets, difficulties and delays in transaction settlements, lower
liquidity and greater volatility, withholding or confiscatory taxes, changes
in currency exchange rates, currency exchange control regulations and
restrictions on and the costs associated with the exchange of currencies and
expropriation, nationalization or other adverse political or economic
developments. It may also be more difficult to obtain and enforce a judgment
against a foreign issuer or enterprise and there may be difficulties in
effecting the repatriation of capital invested abroad. In addition, banking,
securities and other business operations abroad may not be subject to
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<PAGE>
regulation as rigorous as that applicable to similar activities in the United
States. Further, there may be restrictions on foreign investment in some
countries. Special tax considerations apply to foreign securities, and
foreign brokerage commissions and other fees are generally higher than in the
United States.
The Portfolios may buy and sell foreign currencies principally for the
purpose of preserving the value of foreign securities or in anticipation of
purchasing foreign securities.
SECURITIES LENDING
For purposes of realizing additional income, each Portfolio may lend
securities with a value of up to 50% of its total assets to broker-dealers
approved by the Board of Trustees. Any such loan of portfolio securities will
be continuously secured by collateral at least equal to the value of the
security loaned. Such collateral will be in the form of cash, marketable
securities issued or guaranteed by the U.S. Government or its agencies, or a
standby letter of credit issued by qualified banks. The risks in lending
portfolio securities, as with other extensions of secured credit, consist of
possible delay in receiving additional collateral or in the recovery of the
securities or possible loss of rights in the collateral should the borrower
fail financially. Loans will only be made to firms deemed by the investment
adviser to be of good standing and will not be made unless, in the judgment
of the investment adviser, the consideration to be earned from such loans
would justify the risk.
CERTAIN INVESTMENT RESTRICTIONS
The following restrictions apply to all of the Portfolios, unless otherwise
stated, and are fundamental. Unless permitted by law, they will not be
changed for any Portfolio without a vote of that Portfolio's shareholders.
Additional investment restrictions appear in the SAI.
None of the Portfolios will make loans, except that this restriction shall
not apply to secured loans of portfolio securities by each of the Portfolios.
Each Portfolio may make loans of portfolio securities not exceeding 50% of
the value of that Portfolio's total assets. This restriction does not prevent
a Portfolio from purchasing debt obligations in which a Portfolio may invest
consistent with its investment policies, or from buying government
obligations, short-term commercial paper or publicly traded debt, including
bonds, notes, debentures, certificates of deposit, and equipment trust
certificates, nor does this restriction apply to loans made under insurance
policies or through entry into repurchase agreements to the extent they may
be viewed as loans.
Each Portfolio elects not to "concentrate" investments in an industry, as
that concept is defined under applicable federal securities laws. In general,
this means that no Portfolio will make an investment in an industry if that
investment would make the Portfolio's holding in that industry exceed 25% of
the Portfolio's total assets. However, the United States Government, its
agencies and instrumentalities are not considered members of any industry for
purposes of this restriction.
Each Portfolio intends to be "diversified," as that term is defined under
applicable Federal securities laws. In general, this means that no Portfolio
will make an investment unless, when considering all its other investments,
75% of the value of the Portfolio's assets would consist of cash, cash items,
U.S. Government securities, securities of other investment companies and
other securities. For the purposes of this restriction, "other securities"
are limited for any one issuer to not more than 5% of the value of the
Portfolio's total assets and to not more than 10% of the issuer's outstanding
voting securities.
MANAGEMENT OF THE TRUST
THE BOARD OF TRUSTEES
The Board of Trustees is responsible for the management of the business and
affairs of the Trust as provided in the laws of the Commonwealth of
Massachusetts and the Trust's Declaration of Trust and By-laws.
THE INVESTMENT ADVISER
Alliance Capital Management L.P. (Alliance), the main office of which is
located at 1345 Avenue of the Americas, New York, New York 10105, serves as
investment adviser to the Trust pursuant to an investment advisory agreement,
relating to each of the Portfolios, between the Trust and Alliance. Alliance,
a publicly traded limited partnership, is indirectly majority-owned by
Equitable.
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Alliance is an investment adviser registered under the Investment Advisers
Act of 1940 (Advisers Act). Alliance, a leading international investment
adviser, acts as an investment adviser to various separate accounts and
general accounts of Equitable and other affiliated insurance companies.
Alliance also provides investment advisory and management services to other
investment companies and to endowment funds, insurance companies, foreign
entities, qualified and non-tax qualified corporate funds, public and private
pension and profit-sharing plans, foundations and tax-exempt organizations.
Alliance manages the day-to-day investment operations of the Trust and
exercises responsibility for the investment and reinvestment of the Trust's
assets. Alliance provides, without charge, personnel to the Trust to render
such clerical, accounting, administrative and other services, other than
investor services, as the Trust may request.
The advisory fee payable by the Trust is at the following annual percentages
of the value of each Portfolio's daily average net assets:
<TABLE>
<CAPTION>
DAILY AVERAGE NET ASSETS
---------------------------------------------
FIRST $350 NEXT $400 OVER $750
MILLION MILLION MILLION
-------------- -------------- -------------
<S> <C> <C> <C>
Conservative Investors,
Growth Investors and Global
Portfolios ................. .550% .525% .500%
</TABLE>
THE PORTFOLIO MANAGERS
CONSERVATIVE INVESTORS AND GROWTH INVESTORS PORTFOLIOS
Franklin Kennedy III, has been the person principally responsible for the
Conservative Investors and Growth Investors Portfolios' investment program
since their inception. Mr. Kennedy, a Senior Vice President of Alliance, with
which he has been associated since 1993, previously was employed by Equitable
Capital Management Corporation (Equitable Capital) since prior to 1990.
GLOBAL PORTFOLIO
Ronald Simcoe has been the person principally responsible for the Global
Portfolio's investment program since 1988. Mr. Simcoe, a Vice President of
Alliance, with which he has been associated since 1993, previously was
employed by Equitable Capital since prior to 1990.
THE TRUST'S EXPENSES
The Trust's investment adviser pays all of the Trust's operating expenses not
specifically assumed by the Trust. In addition to the investment advisory fee
and brokers' commissions, transfer taxes and other fees relating to
purchases, loans and sales of investments, a number of expenses are paid
directly by the Trust. The Trust pays Trustees' fees and expenses; the fees
and expenses of its independent auditors and of its legal counsel; the costs
of printing and mailing of annual and semi-annual reports to shareholders,
proxy statements, prospectuses, prospectus supplements and SAIs, all to the
extent they are sent to existing Contract owners; the costs of printing of
registration statements; bank transaction charges and custodian's fees; any
proxy solicitors' fees and expenses; SEC filing fees; any federal, state or
local income or other taxes; any interest; any membership fees of the
Investment Company Institute and similar organizations; fidelity bond and
Trustees' liability insurance premiums; and any extraordinary expenses, such
as indemnification payments or damages awarded in litigation or settlements
made. The following table, reflecting the Trust's expenses, is based on
information for the year ended December 31, 1994.
<TABLE>
<CAPTION>
CONSERVATIVE GROWTH
INVESTORS INVESTORS GLOBAL
TYPE OF EXPENSE PORTFOLIO PORTFOLIO PORTFOLIO
------------------------- -------------- ----------- -----------
<S> <C> <C> <C>
Investment Advisory Fees 0.55% 0.54% 0.54%
Other Expenses ........... 0.04% 0.05% 0.15%
-------------- ----------- -----------
Total Expenses ........... 0.59% 0.59% 0.69%
============== =========== ===========
</TABLE>
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TRANSACTIONS WITH AFFILIATES
In December 1984, Equitable acquired Donaldson, Lufkin & Jenrette, Inc.
(DLJ). A DLJ subsidiary, Donaldson, Lufkin & Jenrette Securities Corporation,
is one of the nation's largest investment banking and securities firms.
Another DLJ subsidiary, Autranet, Inc., is a securities broker that markets
independently originated research to institutions. Through the Pershing
Division of Donaldson, Lufkin & Jenrette Securities Corporation, DLJ supplies
security execution and clearance services to financial intermediaries
including broker-dealers and banks. To the extent permitted by law, the Trust
may engage in securities and other transactions with the above entities or
may invest in shares of the investment companies with which those entities
have affiliations. The Investment Company Act generally prohibits the Trust
from engaging in securities transactions with DLJ or its affiliates, as
principal, unless pursuant to an exemptive order from the SEC. The Trust may
apply for such exemptive relief. The Trust has adopted procedures, prescribed
by Section 17(e)(2)(A) of the Investment Company Act and Rule 17e-1
thereunder, which are reasonably designed to provide that any commissions it
pays to DLJ or its affiliates do not exceed the usual and customary broker's
commission. In addition, the Trust will adhere to Section 11(a) of the
Securities Exchange Act of 1934 and any applicable rules thereunder governing
floor trading. The Trust has adopted procedures permitting it to purchase
securities, under certain restrictions prescribed by an SEC rule, in a public
offering in which DLJ or an affiliate is an underwriter.
DESCRIPTION OF THE TRUST'S SHARES
CHARACTERISTICS
The Board of Trustees has authority to issue an unlimited number of shares of
beneficial interest, without par value. The shares are divided into thirteen
classes, one class for each Portfolio. Each share is entitled to one vote,
and fractional shares are entitled to fractional votes. The Board of Trustees
may establish additional Portfolios and related classes of shares. The Trust
is not required to hold annual shareholder meetings, but special meetings may
be called for purposes such as electing or removing trustees, changing
fundamental policies or approving an investment advisory agreement.
PURCHASE AND REDEMPTION
Equico Securities, Inc. (Equico), a wholly-owned subsidiary of Equitable, is
the principal underwriter of the Trust. Equico's address is 1755 Broadway,
New York, New York 10019. The Trust will offer and sell its shares without a
sales charge, at each Portfolio's net asset value per share. The price at
which a purchase is effected is based on the next calculation of net asset
value after an order is placed by an insurance company investing in the
Trust. Net asset value per share is calculated for purchases and redemption
of shares of each Portfolio by dividing the value of total Portfolio assets,
less liabilities (including Trust expenses, which are accrued daily), by the
total number of shares of that Portfolio outstanding. The net asset value per
share of each Portfolio is determined each business day at 4:00 p.m. Eastern
time. Values are not calculated on national business holidays.
All shares may be redeemed in accordance with the Trust's Declaration of
Trust and By-Laws. Shares will be redeemed at their net asset value. Sales
and redemptions of shares of the same class by the same shareholder on the
same day will be netted. All redemption requests will be processed and
payment with respect thereto will be made within seven days after tenders.
The Trust may also suspend redemption, if permitted by the Investment Company
Act, for any period during which the New York Stock Exchange is closed or
during which trading is restricted by the SEC or the SEC declares that an
emergency exists. Redemption may also be suspended during other periods
permitted by the SEC for the protection of the Trust's shareholders.
HOW ASSETS ARE VALUED
Values are determined according to accepted accounting practices and all laws
and regulations that apply. The assets of each Portfolio are generally valued
as follows, as further described in the SAI:
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o Stocks and debt securities which mature in more than 60 days are valued
on the basis of market quotations.
o Foreign securities not traded directly, or in American Depositary
Receipt or similar form in the United States, are valued at representative
quoted prices in the currency of the country of origin. Foreign currency
amounts are translated into U.S. dollars at the bid price last quoted by a
composite list of major U.S. banks.
o Short-term debt securities in the Portfolios other than the Money Market
Portfolio which mature in 60 days or less are valued at amortized cost, which
approximates market value. Securities held in the Money Market Portfolio are
valued at prices based on equivalent yields or yield spreads.
o Other securities and assets for which market quotations are not readily
available or for which valuation cannot be provided are valued in good faith
by the Valuation Committee of the Board of Trustees using its best judgment.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Under current federal income tax law, the Trust believes that each Portfolio
is entitled, and the Trust intends that each Portfolio shall qualify each
year and elect, to be treated as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (Internal
Revenue Code). As a regulated investment company, a Portfolio will not be
subject to federal tax on its net investment income and net realized capital
gains to the extent such income and gains are timely distributed to its
insurance company shareholders. Accordingly, each Portfolio intends to
distribute all of its net investment income and net realized capital gains to
its shareholders. An insurance company which is a shareholder of a Portfolio
will generally not be taxed on distributions from that Portfolio. All
dividend distributions will be reinvested in full and fractional shares of
the Portfolio to which they relate.
Although the Trust intends that it and the Portfolios will be operated so
that they will have no federal income or excise tax liability, if any such
liability is nevertheless incurred, the investment performance of the
Portfolio or Portfolios incurring such liability will be adversely affected.
In addition, Portfolios investing in foreign securities and currencies may be
subject to foreign taxes which could reduce the investment performance of
such Portfolio.
In addition to meeting investment diversification rules applicable to
regulated investment companies under Subchapter M of the Internal Revenue
Code, because the Trust funds certain types of Contracts, each Portfolio is
also subject to the investment diversification requirements of Subchapter L
of the Internal Revenue Code. Were any Portfolio to fail to comply with those
requirements, owners of Contracts (other than "pension plan contracts")
funded through the Trust would be taxed immediately on the accumulated
investment earnings under their Contracts and would thereby lose any benefit
of tax deferral. Compliance is therefore carefully monitored by the
investment adviser.
Certain additional tax information appears in the SAI.
For more information regarding the tax implications for owners of Contracts
investing in the Trust, refer to the prospectuses for those products.
INVESTMENT PERFORMANCE
Each Portfolio may illustrate in advertisements or sales materials its
average annual total return, which is the rate of growth of the Portfolio
that would be necessary to achieve the ending value of an investment kept in
the Portfolio for the period specified and is based on the following
assumptions: (1) all dividends and distributions by the Portfolio are
reinvested in shares of the Portfolio at net asset value, and (2) all
recurring fees are included for applicable periods.
Each Portfolio may also illustrate in advertisements or sales materials its
cumulative total return for several time periods throughout the Portfolio's
life based on an assumed initial investment of $1,000. Any such cumulative
total return for each Portfolio will assume the reinvestment of all income
dividends and capital gains distributions for the indicated periods and will
include all recurring fees.
17
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These performance figures are based on historical earnings and are not
intended to indicate future performance. Nor do they reflect fees and charges
imposed under the Contracts, which fees and charges will reduce such
performance figures; therefore, these figures may be of limited use for
comparative purposes. No Portfolio will use information concerning its
investment performance in advertisements or sales materials unless
appropriate information concerning the relevant separate account is also
included.
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APPENDIX A
DESCRIPTION OF BOND RATINGS
Bonds are considered to be "investment grade" if they are in one of the top
four ratings.
S&P's ratings are as follows:
o Bonds rated AAA have the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
o Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the higher rated issues only in small degree.
o Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than bonds in higher
rated categories.
o Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for bonds in this category than in higher rated categories.
o Debt rated BB, B, CCC, CC or C is regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay
interest and repay principal in accordance with the terms of the obligation.
While such debt will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major risk exposures to
adverse debt conditions.
o The rating C1 is reserved for income bonds on which no interest is
being paid.
o Debt rated D is in default and payment of interest and/or repayment of
principal is in arrears.
The ratings from AA to CCC may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within the major rating categories.
Moody's ratings are as follows:
o Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such issues.
o Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other
elements present which make the long term risks appear somewhat larger than
in Aaa securities.
o Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may
be present which suggest a susceptibility to impairment some time in the
future.
o Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any
great length of time. Such bonds lack outstanding investment characteristics
and in fact have speculative characteristics as well.
A-1
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o Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
o Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
o Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
o Bonds which are rated Ca represent obligations which are speculative to
a high degree. Such issues are often in default or have other marked
shortcomings.
o Bonds which are rated C are the lowest class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Moody's applies modifiers to each rating classification from Aa through B to
indicate relative ranking within its rating categories. The modifier "1"
indicates that a security ranks in the higher end of its rating category; the
modifier "2" indicates a mid-range ranking; and the modifier "3" indicates
that the issue ranks in the lower end of its rating category.
A-2
