<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 9, 1996
REGISTRATION NO. 2-94996
REGISTRATION NO. 811-4185
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
[ ]
PRE-EFFECTIVE AMENDMENT NO.
[ ]
POST-EFFECTIVE AMENDMENT NO. 27
[X]
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940
[ ]
AMENDMENT NO. 28
[X]
THE HUDSON RIVER TRUST
(EXACT NAME OF REGISTRANT AS SPECIFIED IN DECLARATION OF TRUST)
1345 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10105
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
JAMES M. BENSON, PRESIDENT
787 SEVENTH AVENUE
47TH FLOOR
NEW YORK, NEW YORK 10019
(NAME AND ADDRESS OF AGENT FOR SERVICE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (800) 852-6860
PLEASE SEND COPIES OF ALL COMMUNICATIONS TO:
EDMUND P. BERGAN, JR.
ALLIANCE CAPITAL MANAGEMENT L.P.
1345 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10105
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: CONTINUOUS.
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[X] 60 days after filing pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph (a)(i)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on (date) pursuant to paragraph (a)(ii) of Rule 485
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post- effective amendment.
PURSUANT TO RULE 24F-2(A)(1) OF THE INVESTMENT COMPANY ACT OF 1940, THE
REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OR AMOUNT OF SECURITIES UNDER
THE SECURITIES ACT OF 1933.
THE REGISTRANT'S 24F-2 NOTICE FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
WAS FILED ON FEBRUARY 29, 1996.
<PAGE>
THE HUDSON RIVER TRUST
CROSS-REFERENCE SHEET
ITEMS REQUIRED BY FORM N-1A
<TABLE>
<CAPTION>
ITEM NUMBER IN PART A PROSPECTUS CAPTION
----------------------------------------------- ---------------------------
<S> <C> <C>
1. Cover Page ..................................... COVER PAGE
2. Synopsis ....................................... NOT APPLICABLE
3. Condensed Financial Information ................ FINANCIAL HIGHLIGHTS
THE TRUST; INVESTMENT
4. General Description of Registrant .............. OBJECTIVES AND POLICIES
5. Management of the Trust ........................ MANAGEMENT OF THE TRUST
5A. Management's Discussion of Fund Performance ... NOT APPLICABLE
6. Capital Stock and Other Securities ............. THE TRUST; DESCRIPTION OF
THE TRUST'S SHARES;
DIVIDENDS, DISTRIBUTIONS
AND TAXES
7. Purchase of Securities Being Offered ........... DESCRIPTION OF THE TRUST'S
SHARES
8. Redemption or Repurchase ....................... DESCRIPTION OF THE TRUST'S
SHARES
9. Legal Proceedings .............................. NOT APPLICABLE
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF ADDITIONAL
ITEM NUMBER IN PART B INFORMATION CAPTION
-------------------------------------------------------- ----------------------------
<S> <C> <C>
10. Cover Page .............................................. COVER PAGE
11. Table of Contents ....................................... TABLE OF CONTENTS
12. General Information and History ......................... GENERAL INFORMATION AND
HISTORY
13. Investment Objectives and Policies ...................... INVESTMENT RESTRICTIONS OF
THE PORTFOLIOS; DESCRIPTION
OF CERTAIN SECURITIES IN
WHICH THE PORTFOLIOS MAY
INVEST
14. Management of the Fund .................................. MANAGEMENT OF THE TRUST;
INVESTMENT ADVISORY AND
OTHER SERVICES
15. Control Persons and Principal Holders of Securities .... GENERAL INFORMATION AND
HISTORY; DESCRIPTION OF THE
TRUST'S SHARES*
16. Investment Advisory and Other Services .................. INVESTMENT ADVISORY AND
OTHER SERVICES; FINANCIAL
STATEMENTS
<PAGE>
STATEMENT OF ADDITIONAL
ITEM NUMBER IN PART B INFORMATION CAPTION
-------------------------------------------------------- ----------------------------
17. Brokerage Allocation and Other Practices ................ INVESTMENT ADVISORY AND
OTHER SERVICES
18. Capital Stock and Other Securities ...................... GENERAL INFORMATION AND
HISTORY; DESCRIPTION OF THE
TRUST'S SHARES*
19. Purchase, Redemption and Pricing of Securities Being
Offered ................................................. PURCHASE AND PRICING OF
SECURITIES; DESCRIPTION OF
THE TRUST'S SHARES*
20. Tax Status .............................................. CERTAIN TAX CONSIDERATIONS
21. Underwriters ............................................ OTHER SERVICES
22. Calculation of Performance Data ......................... PORTFOLIO PERFORMANCE
23. Financial Statements .................................... FINANCIAL STATEMENTS
</TABLE>
[FN]
- - - ------------
Prospectus Caption *
<PAGE>
PART A: THE PROSPECTUS OF THE TRUST'S POST-EFFECTIVE AMENDMENT NO. 26 FILED WITH
THE COMMISSION ON MAY 1, 1996 PURSUANT TO RULE 485(b) IS INCORPORATED HEREIN
BY REFERENCE.
<PAGE>
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 thirteen
series of shares of beneficial interest, each representing a separate
investment portfolio (Portfolio). The Portfolios are The Asset Allocation
Series: Conservative Investors, Balanced and Growth Investors; The Equity
Series: Growth and Income, Equity Index, Common Stock, Global, International
and Aggressive Stock; and The Fixed Income Series: Money Market, Intermediate
Government Securities, Quality Bond and High Yield. An investment in the
Money Market Portfolio is neither insured nor guaranteed by the U.S.
Government. The Trust offers two classes of shares on behalf of each
Portfolio: Class A shares, offered pursuant to another prospectus, and Class
B shares offered hereby.
This prospectus sets forth concisely the investment objectives and policies
of the thirteen 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 July 8, 1996 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>
<CAPTION>
PAGE
--------
<S> <C>
Financial Highlights ........................ 2
The Trust ................................... 11
Investment Objectives and Policies .......... 11
Investment Techniques ....................... 25
Certain Investment Restrictions ............. 31
Management of the Trust ..................... 32
Description of the Trust's Shares .......... 35
Dividends, Distributions and Taxes .......... 37
Investment Performance ...................... 37
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 JULY 8, 1996
- - - -----------------------------------------------------------------------------
HRT103 (5/96) Copyright 1996 The Hudson River Trust. All rights reserved.
<PAGE>
FINANCIAL HIGHLIGHTS
As of December 31, 1995, none of the Portfolios had begun issuing Class B
shares (which are expected to be first offered on or about the date hereof).
Accordingly, the Financial Highlights set forth below relate solely to Class
A shares and do not reflect the Class B shares' distribution fees currently
payable at the rate of .25% per annum.
The following tables give information regarding income, expenses and capital
changes in the Common Stock and Money Market Portfolios attributable to a
Portfolio share of beneficial interest outstanding throughout the periods
indicated, based upon monthly average shares outstanding, and other
supplementary data. The information is presented under the continuing entity
basis of accounting as if the reorganization described in "General
Information and History" in the SAI had always been in effect.
The succeeding tables also give equivalent information for a share of
beneficial interest in each of the other 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. The
equity component of the Balanced Portfolio's portfolio turnover rates in 1995
and 1994 was 152% and 81%, respectively, and the fixed income component was
233% and 196%, respectively, in 1995 and 1994.
On December 16, 1992, the Trust's Board of Trustees declared a 10-for-1 stock
split of the outstanding shares of the Money Market, High Yield, Balanced,
Common Stock, Global and Aggressive Stock Portfolios (Split Portfolios). 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 Split
Portfolio share outstanding throughout each period (other than the periods
ended December 31, 1993, December 31, 1994 and December 31, 1995), and the
shares outstanding at the end of such periods presented for the Split
Portfolios, have been restated.
The financial information in the tables below for the fiscal years ended
December 31, 1993, December 31, 1994 and December 31, 1995 has been audited
by Price Waterhouse LLP, the Trust's independent accountants. Financial
highlights for prior years have been audited by another independent
accounting firm. 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)(C)
ASSET ALLOCATION SERIES
CONSERVATIVE INVESTORS PORTFOLIO:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994
----------------------- --------------
<S> <C> <C> <C>
Net asset value, beginning of period (a) ............ $ 10.15 $11.12 $10.94
----------------------- -------------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ............................. 0.60 0.55 0.52
Net realized and unrealized gain (loss) on
investments ...................................... 1.43 (1.00) 0.65
----------------------- -------------- ----------
Total from investment operations .................. 2.03 (0.45) 1.17
----------------------- -------------- ----------
LESS DISTRIBUTIONS:
Dividends from net investment income .............. (0.59) (0.52) (0.50)
Dividends in excess of net investment income ...... -- -- (0.00)
Distributions from realized gains ................. (0.07) -- (0.49)
----------------------- -------------- ----------
Total dividends and distributions ................. (0.66) (0.52) (0.99)
----------------------- -------------- ----------
Net asset value, end of period ...................... $ 11.52 $10.15 $11.12
======================= ============== ==========
Total return (d) .................................... 20.40% (4.10)% 10.76%
======================= ============== ==========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) ................... $252,101 $173,691 $114,418
Ratio of expenses to average net assets ............. 0.59% 0.59% 0.60%
Ratio of net investment income to average net assets 5.48% 5.22% 4.49%
Portfolio turnover rate ............................. 287% 228% 178%
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
OCTOBER 2,
1989 to
DECEMBER 31,
1992 1991 1990 1989
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net asset value, beginning of period (a) ............ $ 11.29 $ 10.23 $ 10.26 $10.00
--------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ............................. 0.64 0.69 0.72 0.15
Net realized and unrealized gain (loss) on
investments ...................................... (0.01) 1.28 (0.09) 0.16
--------- --------- --------- ---------
Total from investment operations .................. 0.63 1.97 0.63 0.31
--------- --------- --------- ---------
LESS DISTRIBUTIONS:
Dividends from net investment income .............. (0.62) (0.66) (0.66) (0.05)
Dividends in excess of net investment income ...... -- -- -- --
Distributions from realized gains ................. (0.36) (0.25) -- --
--------- --------- --------- ---------
Total dividends and distributions ................. (0.98) (0.91) (0.66) (0.05)
--------- --------- --------- ---------
Net asset value, end of period ...................... $ 10.94 $ 11.29 $ 10.23 $10.26
========= ========= ========= =========
Total return (d) .................................... 5.64% 19.80% 6.30% 3.10%
========= ========= ========= =========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) ................... $70,675 $50,279 $29,971 $13,984
Ratio of expenses to average net assets ............. 0.61% 0.64% 0.73% 0.26%
Ratio of net investment income to average net assets 5.77% 6.45% 7.06% 1.54%
<PAGE>
OCTOBER 2,
1989 to
DECEMBER 31,
1992 1991 1990 1989
--------- --------- --------- ---------
Portfolio turnover rate ............................. 136% 171% 88% 0%
<FN>
- - - ------------
Footnotes appear on page 10.
2
<PAGE>
BALANCED PORTFOLIO:
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1995 1994 1993* 1992
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net asset value, beginning of
period (a) ................... $ 14.87 $ 16.67 $ 16.19 $ 18.48
---------- ---------- ---------- ----------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income ........ 0.54 0.45 0.50 0.56
Net realized and unrealized
gain (loss) on investments . 2.36 (1.78) 1.46 (1.11)
---------- ---------- ---------- ----------
Total from investment
operations .................. 2.90 (1.33) 1.96 (0.55)
---------- ---------- ---------- ----------
LESS DISTRIBUTIONS:
Dividends from net
investment income ........... (0.54) (0.44) (0.50) (0.55)
Dividends in excess of net
investment income ........... -- (0.03) -- --
Distributions from realized
gains ....................... (0.47) -- (0.95) (1.19)
Distributions in excess of
realized gains .............. -- -- (0.03) --
Tax return of capital
distributions ............... -- (0.00) -- --
---------- ---------- ---------- ----------
Total dividends and
distributions ............... (1.01) (0.47) (1.48) (1.74)
---------- ---------- ---------- ----------
Net asset value, end of period $ 16.76 $ 14.87 $ 16.67 $ 16.19
========== ========== ========== ==========
Total return (d) .............. 19.75% (8.02)% 12.28% (2.85)%
========== ========== ========== ==========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000's) ...................... $1,523,142 $1,329,820 $1,364,640 $1,076,670
Ratio of expenses to average
net assets ................... 0.40% 0.39% 0.39% 0.40%
Ratio of net investment income
to average net assets ........ 3.33% 2.87% 2.99% 3.30%
Portfolio turnover rate ...... 186% 115% 99% 91%
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
JANUARY 27,
1986 to
DECEMBER 31,
1991 1990 1989 1988 1987 1986
-------- -------- -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period (a) ................... $ 14.40 $ 15.16 $ 13.38 $ 12.39 $ 12.79 $10.00
-------- -------- -------- -------- -------- ------------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income ........ 0.60 0.78 0.85 0.67 0.41 0.39
Net realized and unrealized
gain (loss) on investments . 5.23 (0.76) 2.53 0.95 (0.47) 2.52
-------- -------- -------- -------- -------- ------------
Total from investment
operations .................. 5.83 0.02 3.38 1.62 (0.06) 2.91
-------- -------- -------- -------- -------- ------------
LESS DISTRIBUTIONS:
Dividends from net
investment income ........... (0.55) (0.78) (0.85) (0.63) (0.34) (0.11)
Dividends in excess of net
investment income ........... -- -- -- -- -- --
Distributions from realized
gains ....................... (1.20) -- (0.75) -- -- (0.01)
Distributions in excess of
realized gains .............. -- -- -- -- -- --
Tax return of capital
distributions ............... -- -- -- -- -- --
-------- -------- -------- -------- -------- ------------
Total dividends and
distributions ............... (1.75) (0.78) (1.60) (0.63) (0.34) (0.12)
-------- -------- -------- -------- -------- ------------
Net asset value, end of period $ 18.48 $ 14.40 $ 15.16 $ 13.38 $ 12.39 $12.79
======== ======== ======== ======== ======== ============
Total return (d) .............. 41.25% 0.25% 25.84% 13.27% (0.86)% 29.10%
======== ======== ======== ======== ======== ============
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000's) ...................... $964,262 $286,432 $241,910 $161,819 $108,913 $23,858
Ratio of expenses to average
net assets ................... 0.41% 0.45% 0.45% 0.51% 0.47% 0.62%
Ratio of net investment income
to average net assets ........ 3.60% 5.35% 5.71% 5.15% 2.88% 3.03%
Portfolio turnover rate ...... 159% 119% 132% 204% 197% 219%
<FN>
- - - ------------
Footnotes appear on page 10.
3
<PAGE>
GROWTH INVESTORS PORTFOLIO:
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994 1993
----------------------- -------------- ----------
<S> <C> <C> <C>
Net asset value, beginning of period (a) $14.66 $15.61 $14.69
----------------------- -------------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .................. 0.57 0.50 0.43
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions .......................... 3.24 (0.98) 1.79
----------------------- -------------- ----------
Total from investment operations ....... 3.81 (0.48) 2.22
----------------------- -------------- ----------
LESS DISTRIBUTIONS:
Dividends from net investment income ... (0.54) (0.46) (0.42)
Dividends in excess of net investment
income ................................ (0.01) (0.01) --
Distributions from realized gains ...... (0.24) -- (0.88)
----------------------- -------------- ----------
Total dividends and distributions ...... (0.79) (0.47) (1.30)
----------------------- -------------- ----------
Net asset value, end of period ........... $17.68 $14.66 $15.61
======================= ============== ==========
Total return (d) ......................... 26.37% (3.15)% 15.26%
======================= ============== ==========
RATIOS/SUPPLEMENTAL DATA:
Net asset, end of period (000's) ........ $896,134 $492,478 $278,467
Ratio of expenses to average net assets . 0.56% 0.59% 0.62%
Ratio of net investment income to average
net assets ............................. 3.43% 3.32% 2.71%
Portfolio turnover rate .................. 107% 131% 118%
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
OCTOBER 2,
1989 to
DECEMBER 31
1992 1991 1990 1989
---------- --------- --------- --------
<S> <C> <C> <C> <C>
Net asset value, beginning of period (a) $ 15.17 $ 11.03 $ 10.33 $10.00
---------- --------- --------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .................. 0.44 0.41 0.44 0.11
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions .......................... 0.28 4.93 0.64 0.29
---------- --------- --------- --------
Total from investment operations ....... 0.72 5.34 1.08 0.40
---------- --------- --------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income ... (0.41) (0.37) (0.38) (0.06)
Dividends in excess of net investment
income ................................ -- -- -- --
Distributions from realized gains ...... (0.79) (0.83) -- (0.01)
---------- --------- --------- --------
Total dividends and distributions ...... (1.20) (1.20) (0.38) (0.07)
---------- --------- --------- --------
Net asset value, end of period ........... $ 14.69 $ 15.17 $ 11.03 $10.33
========== ========= ========= ========
Total return (d) ......................... 4.85% 48.83% 10.70% 4.00%
========== ========= ========= ========
RATIOS/SUPPLEMENTAL DATA:
Net asset, end of period (000's) ........ $148,650 $84,338 $24,539 $6,018
Ratio of expenses to average net assets . 0.60% 0.66% 0.78% 0.29%
Ratio of net investment income to average
net assets ............................. 3.00% 3.03% 4.11% 1.01%
Portfolio turnover rate .................. 129% 139% 92% 6%
</TABLE>
EQUITY SERIES
GROWTH AND INCOME PORTFOLIO:
<TABLE>
<CAPTION>
OCTOBER 1, 1993
YEAR ENDED TO DECEMBER 31,
DECEMBER 31, 1993
-------------------- -----------------
1995 1994
--------- ---------
<S> <C> <C> <C>
Net asset value, beginning of period (a) .............. $ 9.70 $ 9.95 $10.00
--------- --------- -----------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ................................ 0.33 0.31 0.03
Net realized and unrealized gain (loss) on
investments .......................................... 1.97 (0.36) (0.06)
--------- --------- -----------------
Total from investment operations ..................... 2.30 (0.05) (0.03)
--------- --------- -----------------
LESS DISTRIBUTIONS:
Dividends from net investment income ................. (0.30) (0.20) (0.02)
Dividends in excess of net investment income ........ -- -- (0.00)
Tax return of capital distribution ................... -- -- (0.00)
--------- --------- -----------------
Total dividends and distributions .................... (0.30) (0.20) (0.02)
--------- --------- -----------------
Net asset value, end of period ........................ $ 11.70 $ 9.70 $ 9.95
========= ========= =================
Total return (d) ...................................... 24.07% (0.58)% (0.25)%
========= ========= =================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) ..................... $98,053 $31,522 $1,456
Ratio of expenses to average net assets ............... 0.60% 0.78% 2.70%(b)
Ratio of net investment income to average net assets . 3.11% 3.13% 1.12%(b)
Portfolio turnover rate ............................... 65% 52% 48%
<FN>
- - - ------------
Footnotes appear on page 10.
4
<PAGE>
EQUITY INDEX PORTFOLIO:
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED MARCH 1, 1994 TO
DECEMBER 31, 1995 DECEMBER 31, 1994
----------------- --------------------
<S> <C> <C>
Net asset value, beginning of period (a) ............... $ 9.87 $10.00
----------------- --------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ................................. 0.26 0.20
Net realized and unrealized gain (loss) on investments 3.32 (0.09)
----------------- --------------------
Total from investment operations ...................... 3.58 0.11
----------------- --------------------
LESS DISTRIBUTIONS:
Dividends from net investment income .................. (0.22) (0.20)
Distributions of realized gains ....................... (0.09) (0.03)
Distributions in excess of realized gains ............. (0.01) (0.01)
----------------- --------------------
Total dividends and distributions ..................... (0.32) (0.24)
----------------- --------------------
Net asset value, end of period ......................... $ 13.13 $ 9.87
================= ====================
Total return (d) ....................................... 36.48% 1.08%
================= ====================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) ...................... $165,785 $36,748
Ratio of expenses to average net assets ................ 0.48% 0.49%(b)
Ratio of net investment income to average net assets .. 2.16% 2.42%(b)
Portfolio turnover rate ................................ 9% 7%
</TABLE>
COMMON STOCK PORTFOLIO:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------
1995 1994 1993* 1992
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net asset value, beginning
of year (a) ....... $ 13.36 $14.65 $13.49 $14.18
------------ ------------ ------------ ------------
INCOME FROM
INVESTMENT
OPERATIONS:
Net investment
income ................ 0.20 0.20 0.23 0.24
Net realized and
unrealized gain
(loss) on invest-
ments and
foreign currency
transactions .......... 4.12 (0.51) 3.10 0.20
------------ ------------ ------------ ------------
Total from invest-
ment operations ....... 4.32 (0.31) 3.33 0.44
------------ ------------ ------------ ------------
LESS DISTRIBUTIONS:
Dividends from net
investment
income ................ (0.20) (0.19) (0.23) (0.24)
Dividends in
excess of net
investment
income ................ (0.02) (0.01) (0.00) --
Distributions from
realized gains ........ (0.95) (0.77) (1.94) (0.89)
Distributions in excess
of realized gains ..... (0.03) -- -- --
Tax return of capital
distributions ......... -- (0.01) -- --
------------ ------------ ------------ ------------
Total dividends
and distributions ..... (1.20) (0.98) (2.17) (1.13)
------------ ------------ ------------ ------------
Net asset value, end
of year ................ $ 16.48 $13.36 $14.65 $13.49
============ ============ ============ ============
Total return (d) ........ 32.45% (2.14)% 24.84% 3.22%
============ ============ ============ ============
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of
year (000's) ........... $4,879,677 $3,466,245 $3,125,128 $2,307,292
Ratio of expenses to
average net assets ..... 0.38% 0.38% 0.38% 0.38%
Ratio of net invest-
ment income to
average net assets ..... 1.27% 1.40% 1.55% 1.73%
Portfolio turnover rate 61% 52% 82% 71%
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
1991 1990 1989 1988 1987 1986
------------ ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, begin-
ning of year (a) ....... $11.22 $12.87 $12.19 $10.15 $11.34 $11.28
------------ ---------- ---------- ---------- ---------- ----------
INCOME FROM
INVESTMENT
OPERATIONS:
Net investment
income ................ 0.32 0.21 0.27 0.23 0.17 0.19
Net realized and
unrealized gain
(loss) on invest-
ments and
foreign currency
transactions .......... 3.91 (1.25) 2.84 2.04 0.72 1.77
------------ ---------- ---------- ---------- ---------- ----------
Total from invest-
ment operations ....... 4.23 (1.04) 3.11 2.27 0.89 1.96
------------ ---------- ---------- ---------- ---------- ----------
LESS DISTRIBUTIONS:
Dividends from net
investment
income ................ (0.29) (0.22) (0.26) (0.23) (0.17) (0.15)
Dividends in
excess of net
investment
income ................ -- -- -- -- -- --
Distributions from
realized gains ........ (0.98) (0.39) (2.17) -- (1.91) (1.75)
Distributions in excess
of realized gains ..... -- -- -- -- -- --
Tax return of capital
distributions ......... -- -- -- -- -- --
------------ ---------- ---------- ---------- ---------- ----------
Total dividends
and distributions ..... (1.27) (0.61) (2.43) (0.23) (2.08) (1.90)
------------ ---------- ---------- ---------- ---------- ----------
<PAGE>
1991 1990 1989 1988 1987 1986
------------ ---------- ---------- ---------- ---------- ----------
Net asset value, end
of year ................ $ 14.18 $ 11.22 $ 12.87 $ 12.19 $ 10.15 $ 11.34
============ ========== ========== ========== ========== ==========
Total return (d) ........ 37.90 % (8.11 )% 25.59 % 22.44 % 7.49 % 17.33 %
============ ========== ========== ========== ========== ==========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of
year (000's) ........... $2,126,402 $673,476 $725,627 $537,827 $434,558 $351,580
Ratio of expenses to
average net assets ..... 0.40 % 0.44 % 0.43 % 0.46 % 0.46 % 0.47 %
Ratio of net invest-
ment income to
average net assets ..... 2.32 % 1.72 % 1.87 % 2.02 % 1.21 % 1.43 %
Portfolio turnover rate 90 % 82 % 90 % 71 % 86 % 89 %
<FN>
- - - ------------
Footnotes appear on page 10.
5
<PAGE>
GLOBAL PORTFOLIO:
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1995 1994 1993* 1992
----------------------- -------------- ---------- ----------
<S> <C> <C> <C> <C>
Net asset value, beginning of
period (a) ...................... $13.87 $13.62 $11.41 $11.64
----------------------- -------------- ---------- ---------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .......... 0.26 0.20 0.08 0.14
Net realized and unrealized gain
(loss) on investments and
foreign currency transactions . 2.32 0.52 3.58 (0.20)
----------------------- -------------- ---------- ---------
Total from investment operations 2.58 0.72 3.66 (0.06)
----------------------- -------------- ---------- ---------
LESS DISTRIBUTIONS:
Dividends from net investment
income ........................ (0.25) (0.17) (0.15) (0.11)
Distributions from realized
gains ......................... (0.42) (0.28) (1.30) (0.06)
Distributions in excess of
realized gains ................ (0.03) (0.00) (0.00) --
Tax return of capital
distributions ................. (0.01) (0.02) -- --
----------------------- -------------- ---------- ---------
Total dividends and
distributions ................. (0.71) (0.47) (1.45) (0.17)
----------------------- -------------- ---------- ---------
Net asset value, end of period .. $15.74 $13.87 $13.62 $11.41
======================= ============== ========== =========
Total return (d) ................. 18.81% 5.23% 32.09% (0.50)%
======================= ============== ========== =========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $686,140 $421,698 $141,257 $49,171
Ratio of expenses to average net
assets ......................... 0.61% 0.69% 0.84% 0.70%
Ratio of net investment income to
average net assets ............. 1.76% 1.41% 0.62% 1.20%
Portfolio turnover rate .......... 67% 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 (d) ................. 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%
</TABLE>
INTERNATIONAL PORTFOLIO:
<TABLE>
<CAPTION>
APRIL 3,
--------
1995 TO
-------
DECEMBER 31,
-----------
1995
----
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD (A) ............ $ 10.00
--------------
INCOME FROM INVESTMENT OPERATIONS:
NET INVESTMENT INCOME .............................. 0.14
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS ... 0.98
--------------
TOTAL FROM INVESTMENT OPERATIONS ................... 1.12
--------------
LESS DISTRIBUTIONS:
DIVIDENDS FROM NET INVESTMENT INCOME ............... (0.07)
DIVIDENDS IN EXCESS OF NET INVESTMENT INCOME ...... (0.13)
DISTRIBUTIONS OF REALIZED GAINS .................... (0.05)
--------------
TOTAL DIVIDENDS AND DISTRIBUTIONS .................. (0.25)
--------------
NET ASSET VALUE, END OF PERIOD ...................... $ 10.87
==============
TOTAL RETURN (D) .................................... 11.29%
==============
RATIOS/SUPPLEMENTAL DATA:
NET ASSETS, END OF PERIOD (000'S) ................... $28,684
RATIO OF EXPENSES TO AVERAGE NET ASSETS ............. 1.03%(B)
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS 1.71%(B)
PORTFOLIO TURNOVER RATE ............................. 56%
</TABLE>
- - - ------------
Footnotes appear on page 10.
6
<PAGE>
AGGRESSIVE STOCK PORTFOLIO:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1995 1994 1993* 1992
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net asset value, beginning of
period (a) ...................... $ 30.63 $31.89 $29.81 $33.82
---------- ---------- ---------- ----------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .......... 0.10 0.04 0.09 0.17
Net realized and unrealized gain
(loss) on investments ......... 9.54 (1.26) 4.91 (1.25)
---------- ---------- ---------- ----------
Total from investment operations 9.64 (1.22) 5.00 (1.08)
---------- ---------- ---------- ----------
LESS DISTRIBUTIONS:
Dividends from net investment
income ........................ (0.10) (0.04) (0.09) (0.18)
Distributions from realized
gains ......................... (4.49) -- (2.75) (2.75)
Distributions in excess of
realized gains ................ -- -- (0.07) --
Tax return of capital
distribution .................. -- (0.00) (0.01) --
---------- ---------- ---------- ----------
Total dividends and
distributions ................. (4.59) (0.04) (2.92) (2.93)
---------- ---------- ---------- ----------
Net asset value, end of period .. $ 35.68 $30.63 $31.89 $29.81
========== ========== ========== ==========
Total return (d) ................. 31.63% (3.81)% 16.77% (3.16)%
========== ========== ========== ==========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $2,700,515 $1,832,164 $1,557,332 $1,210,576
Ratio of expenses to average net
assets ......................... 0.49% 0.49% 0.49% 0.50%
Ratio of net investment income to
average net assets ............. 0.28% 0.12% 0.28% 0.57%
Portfolio turnover rate .......... 127% 92% 89% 68%
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, JANUARY 27,
--------------------------------------------- 1986 to
DECEMBER 31,
1991 1990 1989 1988 1987 1986
-------- -------- ------- ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period (a) ...................... $ 19.37 $ 19.90 $ 14.07 $ 14.09 $ 13.35 $10.00
-------- -------- ------- ------- ------- ------------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .......... 0.12 0.16 0.23 0.20 0.20 0.12
Net realized and unrealized gain
(loss) on investments ......... 16.68 1.46 5.87 (0.03) 0.79 3.46
-------- -------- ------- ------- ------- ------------
Total from investment operations 16.80 1.62 6.10 0.17 0.99 3.58
-------- -------- ------- ------- ------- ------------
LESS DISTRIBUTIONS:
Dividends from net investment
income ........................ (0.10) (0.16) (0.23) (0.19) (0.13) (0.05)
Distributions from realized
gains ......................... (2.25) (1.99) (0.04) -- (0.12) (0.18)
Distributions in excess of
realized gains ................ -- -- -- -- -- --
Tax return of capital
distribution .................. -- -- -- -- -- --
-------- -------- ------- ------- ------- ------------
Total dividends and
distributions ................. (2.35) (2.15) (0.27) (0.19) (0.25) (0.23)
-------- -------- ------- ------- ------- ------------
Net asset value, end of period .. $ 33.82 $ 19.37 $ 19.90 $ 14.07 $ 14.09 $13.35
======== ======== ======= ======= ======= ============
Total return (d) ................. 86.87% 8.16% 43.50% 1.13% 7.30% 35.90%
======== ======== ======= ======= ======= ============
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $959,257 $120,960 $99,459 $62,116 $47,776 $8,414
Ratio of expenses to average net
assets ......................... 0.51% 0.55% 0.55% 0.65% 0.58% 0.78%
Ratio of net investment income to
average net assets ............. 0.40% 0.78% 1.29% 1.35% 1.19% 0.99%
Portfolio turnover rate .......... 117% 54% 89% 70% 134% 60%
<FN>
- - - ------------
Footnotes appear on page 10.
7
<PAGE>
FIXED INCOME SERIES
MONEY MARKET PORTFOLIO:
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1995 1994 1993* 1992
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Net asset value, beginning
of year(a) .................... $ 10.14 $10.12 $10.11 $10.13
---------- ---------- ---------- ----------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income ......... 0.57 0.41 0.30 0.37
Net realized and
unrealized gain (loss)
on investments ............... -- -- -- (0.01)
---------- ---------- ---------- ----------
Total from investment
operations ................... 0.57 0.41 0.30 0.36
---------- ---------- ---------- ----------
LESS DIVIDENDS:
Dividends from net
investment income ............ (0.55) (0.39) (0.29) (0.38)
---------- ---------- ---------- ----------
Total dividends ............... (0.55) (0.39) (0.29) (0.38)
---------- ---------- ---------- ----------
Net asset value, end of year $ 10.16 $10.14 $10.12 $10.11
========== ========== ========== ==========
Total return (d) ............... 5.74% 4.02% 3.00% 3.57%
========== ========== ========== ==========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000's) $386,691 $325,391 $248,460 $268,584
Ratio of expenses to average
net assets .................... 0.44% 0.42% 0.42% 0.43%
Ratio of net investment
income to average net
assets ........................ 5.53% 4.01% 2.91% 3.63%
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
1991 1990 1989 1988 1987 1986
---------- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of year(a) .................... $10.17 $10.14 $10.13 $10.09 $10.02 $10.01
---------- ---------- ---------- ---------- ---------- ---------
Net investment income ......... 0.61 0.81 0.89 0.73 0.64 0.67
Net realized and
unrealized gain (loss)
on investments ............... -- 0.01 0.01 (0.01 ) 0.01 (0.01 )
---------- ---------- ---------- ---------- ---------- ---------
Total from investment
operations ................... 0.61 0.82 0.90 0.72 0.65 0.66
---------- ---------- ---------- ---------- ---------- ---------
LESS DIVIDENDS:
Dividends from net
investment income ............ (0.65 ) (0.79 ) (0.89 ) (0.68 ) (0.58 ) (0.65 )
---------- ---------- ---------- ---------- ---------- ---------
Total dividends ............... (0.65 ) (0.79 ) (0.89 ) (0.68 ) (0.58 ) (0.65 )
---------- ---------- ---------- ---------- ---------- ---------
Net asset value, end of year $ 10.13 $ 10.17 $ 10.14 $ 10.13 $ 10.09 $ 10.02
========== ========== ========== ========== ========== =========
Total return (d) ............... 6.20 % 8.22 % 9.18 % 7.32 % 6.63 % 6.60 %
========== ========== ========== ========== ========== =========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000's) $302,395 $359,426 $289,338 $234,378 $154,606 $91,743
Ratio of expenses to average
net assets .................... 0.43 % 0.44 % 0.44 % 0.48 % 0.46 % 0.46 %
Ratio of net investment
income to average net
assets ........................ 5.96 % 7.85 % 8.70 % 7.14 % 6.29 % 6.45 %
</TABLE>
INTERMEDIATE GOVERNMENT SECURITIES PORTFOLIO (E):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------------------------------- APRIL 1, 1991 TO
1995 1994 1993* 1992 DECEMBER 31, 1991
--------- --------- ---------- ---------- -----------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period (a) ............... $ 8.87 $ 10.08 $10.53 $10.73 $10.00
--------- --------- ---------- ---------- -----------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ................................. 0.58 0.65 0.59 0.60 0.52
Net realized and unrealized gain (loss) on investments 0.57 (1.08) 0.51 (0.02) 0.66
--------- --------- ---------- ---------- -----------------
Total from investment operations ...................... 1.15 (0.43) 1.10 0.58 1.18
--------- --------- ---------- ---------- -----------------
LESS DISTRIBUTIONS:
Dividends from net investment income .................. (0.55) (0.78) (0.68) (0.60) (0.34)
Distributions from realized gains ..................... -- -- (0.87) (0.18) (0.11)
--------- --------- ---------- ---------- -----------------
Total dividends and distributions ..................... (0.55) (0.78) (1.55) (0.78) (0.45)
--------- --------- ---------- ---------- -----------------
Net asset value, end of period ......................... $ 9.47 $ 8.87 $10.08 $10.53 $10.73
========= ========= ========== ========== =================
Total return (d) ....................................... 13.33% (4.37)% 10.58% 5.53% 12.10%
========= ========= ========== ========== =================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) ...................... $71,780 $48,518 $158,511 $293,587 $241,290
Ratio of expenses to average net assets ................ 0.57% 0.56% 0.53% 0.52% 0.43%
Ratio of net investment income to average net assets .. 6.15% 6.75% 5.43% 5.63% 4.88%
Portfolio turnover rate ................................ 255% 133% 254% 316% 174%
<FN>
- - - ------------
Footnotes appear on page 10.
</TABLE>
8
<PAGE>
QUALITY BOND PORTFOLIO:
<TABLE>
<CAPTION>
OCTOBER 1, 1993
YEAR ENDED TO DECEMBER 31,
DECEMBER 31, 1993
---------------------- -----------------
1995 1994
---------- ----------
<S> <C> <C> <C>
Net asset value, beginning of period (a) ................................... $ 8.72 $ 9.82 $ 10.00
---------- ---------- -----------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ..................................................... 0.57 0.66 0.11
Net realized and unrealized gain (loss) on investments and foreign
currency transactions .................................................... 0.88 (1.16) (0.16)
---------- ---------- -----------------
Total from investment operations .......................................... 1.45 (0.50) (0.05)
---------- ---------- -----------------
LESS DISTRIBUTIONS:
Dividends from net investment income ...................................... (0.56) (0.55) (0.12)
Distributions in excess of realized gains ................................. -- -- (0.01)
Tax return of capital distributions ....................................... -- (0.05) --
---------- ---------- -----------------
Total dividends and distributions ......................................... (0.56) (0.60) (0.13)
---------- ---------- -----------------
Net asset value, end of period ............................................. $ 9.61 $ 8.72 $ 9.82
========== ========== =================
Total return (d) ........................................................... 17.02% (5.10)% (0.51)%
========== ========== =================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) .......................................... $157,443 $127,575 $104,832
Ratio of expenses to average net assets .................................... 0.59% 0.59% 0.69%(b)
Ratio of net investment income to average net assets ....................... 6.13% 7.17% 4.62%(b)
Portfolio turnover rate .................................................... 411% 222% 77%
</TABLE>
HIGH YIELD PORTFOLIO:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994 1993* 1992
----------------------- ------------ ------- --------
<S> <C> <C> <C> <C>
Net asset value, beginning of period (a) $ 8.91 $10.08 $ 9.15 $ 8.96
----------------------- ------------ ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .................. 0.98 0.89 0.94 0.89
Net realized and unrealized gain (loss)
on investments ........................ 0.73 (1.17) 1.10 0.19
----------------------- ------------ ------- -------
Total from investment operations ....... 1.71 (0.28) 2.04 1.08
----------------------- ------------ ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income ... (0.94) (0.88) (0.92) (0.89)
Dividends in excess of net investment
income ................................ (0.04) (0.01) -- --
Distributions from realized gains ...... -- -- (0.19) --
----------------------- ------------ ------- -------
Total dividends and distributions ...... (0.98) (0.89) (1.11) (0.89)
----------------------- ------------ ------- -------
Net asset value, end of period ........... $ 9.64 $ 8.91 $10.08 $ 9.15
======================= ============ ======= =======
Total return (d) ......................... 19.92% (2.79)% 23.15% 12.31%
======================= ============ ======= =======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) ....... $118,129 $73,895 $67,169 $47,687
Ratio of expenses to average net assets . 0.60% 0.61% 0.63% 0.60%
Ratio of net investment income to average
net assets ............................. 10.34% 9.23% 9.52% 9.58%
Portfolio turnover rate .................. 350% 248% 280% 177%
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
JANUARY 2,
1987 TO
DECEMBER 31,
1991 1990 1989 1988 1987
------- ------- ------- ------- ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period (a) $ 7.97 $ 9.14 $ 9.72 $ 9.67 $10.00
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .................. 0.89 1.04 1.09 1.00 1.06
Net realized and unrealized gain (loss)
on investments ........................ 0.99 (1.14) (0.60) (0.08) (0.60)
------- ------- ------- ------- -------
Total from investment operations ....... 1.88 (0.10) 0.49 0.92 0.46
------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income ... (0.89) (1.07) (1.07) (0.87) (0.79)
Dividends in excess of net investment
income ................................ -- -- -- -- --
Distributions from realized gains ...... -- -- -- -- --
------- ------- ------- ------- -------
Total dividends and distributions ...... (0.89) (1.07) (1.07) (0.87) (0.79)
------- ------- ------- ------- -------
Net asset value, end of period ........... $ 8.96 $ 7.97 $ 9.14 $ 9.72 $ 9.67
======= ======= ======= ======= =======
Total return (d) ......................... 24.46% (1.10)% 5.14% 9.73% 4.68%
======= ======= ======= ======= =======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) ....... $45,066 $36,569 $41,280 $34,810 $10,687
Ratio of expenses to average net assets . 0.61% 0.62% 0.62% 0.73% 0.98%
Ratio of net investment income to average
net assets ............................. 10.31% 12.04% 11.22% 10.05% 10.62%
Portfolio turnover rate .................. 187% 53% 116% 209% 235%
<FN>
- - - ------------
Footnotes appear on page 10.
</TABLE>
9
<PAGE>
- - - ------------
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:
Common Stock Portfolio -- June 16, 1975
Money Market Portfolio -- July 13, 1981
Balanced Portfolio -- January 27, 1986
Aggressive Stock Portfolio -- January 27, 1986
High Yield Portfolio -- January 2, 1987
Global Portfolio -- August 27, 1987
Conservative Investors Portfolio -- October 2, 1989
Growth Investors Portfolio -- October 2, 1989
Intermediate Government Securities Portfolio -- April 1, 1991
Quality Bond Portfolio -- October 1, 1993
Growth and Income Portfolio -- October 1, 1993
Equity Index Portfolio -- March 1, 1994
International Portfolio -- April 3, 1995
(b) Annualized.
(c) Net investment income and capital changes per share are based upon
monthly average shares outstanding.
(d) 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.
(e) On February 22, 1994 shares of the Intermediate Government Securities
Portfolio of the Trust were substituted for shares of the Trust's
Short-Term World Income Portfolio.
10
<PAGE>
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. 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 99.6% of the Trust's shares as of March 31, 1996, and
consequently may be deemed to control the Trust.
Class B 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.
The Trust offers two classes of shares on behalf of each Portfolio: Class A
shares are offered pursuant to another prospectus at net asset value and are
not subject to fees imposed pursuant to a distribution plan. Class B shares
are offered pursuant to this prospectus at net asset value and are subject to
distribution fees imposed under a distribution plan (the "Distribution Plan")
adopted pursuant to Rule 12b-1 under the Investment Company Act. Inquiries
regarding Class A shares should be addressed to EQ Financial Consultants, Inc.,
the Trust's underwriter of Class A shares, at 1755 Broadway, New York, NY 10019
(tel. No. 1-212- - ).
The two classes of shares are offered under the Trust's multiple class
distribution system approved by the Trust's Board of Trustees on , 1996
and are designed to allow promotion of insurance products investing in the
Trust through alternative distribution channels. Under the Trust's
multi-class system, shares of each class of a Portfolio represent an equal
pro rata interest in that Portfolio and, generally, shall have identical
voting, dividend, liquidation, and other rights, other than the payment of
distribution fees under the Distribution Plan.
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.
THE ASSET ALLOCATION SERIES
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 Balanced Portfolio's fundamental investment objective is to
achieve a high return through both appreciation of capital and
current income. The Balanced Portfolio will pursue this objective
by investing in a diversified portfolio of publicly traded equity
and debt securities and short-term money market instruments.
o The Growth Investors Portfolio's fundamental investment objective
is to achieve the highest total
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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."
THE EQUITY SERIES
o The Growth and Income Portfolio's fundamental investment objective
is to provide a high total return through a combination of current
income and capital appreciation by investing primarily in
income-producing common stocks and securities convertible into
common stocks.
o The Equity Index Portfolio's fundamental investment objective is to
seek a total return before expenses that approximates the total
return performance of the Standard & Poor's Corporation (S&P) 500
Index, including reinvestment of dividends, at a risk level
consistent with that of the Index.
o The Common Stock Portfolio's fundamental investment objective is to
achieve long-term growth of its capital and increase income. It
will pursue this objective by investing primarily in common stock
and other equity-type instruments.
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.
o The International Portfolio's fundamental investment objective is
to achieve long-term growth of capital by investing primarily in a
diversified portfolio of equity securities selected principally to
permit participation in non-United States companies with prospects
for growth.
o The Aggressive Stock Portfolio's fundamental investment objective
is to achieve long-term growth of capital. The Aggressive Stock
Portfolio will pursue this objective by investing primarily in
common stocks and other equity-type securities issued by quality
small and intermediate sized companies with strong growth prospects
and in covered options on those securities.
THE FIXED INCOME SERIES
o The Money Market Portfolio's fundamental investment objective is to
obtain a high level of current income, preserve its assets and
maintain liquidity. The Money Market Portfolio will pursue this
objective by investing in primarily high quality U.S. dollar
denominated money market instruments.
o The Intermediate Government Securities Portfolio's fundamental
investment objective is to achieve high current income consistent
with relative stability of principal through investment primarily
in debt securities issued or guaranteed as to principal and
interest by the U.S. Government or any of its agencies or
instrumentalities. The Portfolio's investments will each have a
final maturity of not more than ten years or a duration not
exceeding that of a 10-year Treasury note.
o The Quality Bond Portfolio's fundamental investment objective is to
achieve high current income consistent with preservation of capital
by investing primarily in investment grade fixed income securities.
The Quality Bond Portfolio reserves the right to invest in
convertible debt securities, preferred stocks and dividend-paying
common stocks.
o The High Yield Portfolio's fundamental investment objective is to
achieve high return by maximizing current income and, to the extent
consistent with that objective, capital appreciation. The High
Yield Portfolio will pursue this objective by investing primarily
in a diversified mix of high yield, fixed income securities
involving greater volatility of price and risk of principal and
income than high quality fixed income securities. The medium and
lower quality debt securities in which the Portfolio may invest are
known as "junk bonds."
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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, the Balanced 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 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 "balanced investor" is somewhat less aggressive than the growth investor
and seeks a medium to long-term investment posture. This investor is
sensitive to risk, but is willing to take on some risk in seeking high total
return. Consequently, the asset mix for the Balanced Portfolio attempts to
capture a sizable portion of the market's upside while diversifying risk
among asset classes.
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.
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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. 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, 1995, the duration of
a 10-year Treasury bond was considered to be 5.61 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.
BALANCED PORTFOLIO--INVESTMENT POLICIES
The Balanced Portfolio attempts to achieve its objective by investing varying
portions of its assets in publicly-traded equity and debt securities and
money market instruments. The Balanced Portfolio attempts to achieve
long-term growth of capital by investing in common stock and other
equity-type instruments. It will try to achieve a competitive level of
current income and capital appreciation through investments in publicly
traded debt securities and a high level of current income through investments
in money market instruments.
The portion of the Balanced Portfolio's assets invested in each type of
security will vary in accordance with economic conditions, the general level
of common stock prices, interest rates and other relevant considerations,
including the risks associated with each investment medium. Although the
Balanced Portfolio will seek to reduce the risks associated with any one
investment medium by utilizing a variety of investments, performance will
depend upon the investment adviser's ability to assess accurately and react
to changing market conditions.
The Balanced Portfolio will at all times hold at least 25% of its assets in
fixed income securities (including, for these purposes, that portion of the
value of securities convertible into common stock which is attributable to
the fixed income characteristics of those securities). The Portfolio's equity
securities will always comprise at least 25%, but never more than 75%, of the
Portfolio's total assets. Consequently, the Portfolio will have "Core
Holdings" of at least 25% fixed income securities and 25% equity securities.
Over time, holdings by the Portfolio are currently expected to average
approximately 50% in fixed income securities and approximately 50% in equity
securities. Actual asset mixes will be adjusted in response to economic and
credit market cycles.
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The equity securities invested in by the Balanced Portfolio will consist of
the types of securities in which the Common Stock Portfolio may invest. The
money market securities will consist of the types of securities and credit
quality in which the Money Market Portfolio may invest. The debt securities
will consist principally of bonds, notes, debentures and equipment trust
certificates. The Portfolio may also buy debt securities with equity features
such as conversion or exchange rights or warrants for the acquisition of
stock or participations based on revenues, rates or profits. These debt
securities will principally be investment grade securities rated at least Baa
by Moody's or BBB by S&P, or will be issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. If such Baa or BBB debt
securities held by the Portfolio fall below those ratings, the Portfolio will
not be obligated to dispose of them and may continue to hold them if the
investment adviser considers them appropriate investments under the
circumstances. In addition, the Balanced Portfolio may at times hold some of
its assets in cash. The Portfolio may invest no more than 20% of its total
assets in foreign securities. See "Investment Techniques--Foreign Securities
and Currencies," below. The Portfolio may make secured loans of up to 50% of
its total portfolio securities. See "Investment Techniques--Securities
Lending," below. The Balanced Portfolio 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.
The Balanced Portfolio may also purchase and sell stock index, interest rate
and foreign currency futures contracts and options thereon. See "Investment
Techniques--Options," "Investment Techniques-- Futures" and "Investment
Techniques--Risk Factors in Options and Futures," below.
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";
and "Investment Techniques--Risk Factors of Lower Rated Fixed Income
Securities," below. For the fiscal year ended December 31, 1995,
approximately 31.18% of the Portfolio was invested in fixed income
securities, all rated AAA or its equivalent. 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.
THE EQUITY SERIES
- - - -----------------
GROWTH AND INCOME PORTFOLIO--INVESTMENT POLICIES
The Growth and Income Portfolio seeks to maintain a portfolio yield above
that of issuers comprising the S&P 500 Index and to achieve (in the long run)
a rate of growth in portfolio income that exceeds the rate
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of inflation. The Growth and Income Portfolio will generally invest in common
stocks of "blue chip" issuers, i.e., those (1) which have a total market
capitalization of at least $1 billion, (2) which pay periodic dividends and
(3) whose common stock is in the highest four issuer ratings for S&P (i.e.,
A+, A, A- or B+) or Moody's (i.e., High Grade, Investment Grade, Upper Medium
Grade or Medium Grade) or, if unrated, is determined to be of comparable
quality by the Trust's investment adviser. It is expected that on average the
dividend rate of these issuers will exceed the average rate of issuers
constituting the S&P 500 Index.
The Growth and Income Portfolio may invest without limit in securities
convertible into common stocks which include convertible bonds, convertible
preferred stocks and warrants convertible into common stocks. The Growth and
Income Portfolio may invest up to 30% of its total assets in high yield, high
risk convertible securities rated at the time of purchase below investment
grade (i.e., rated Ba or lower by Moody's or BB or lower by S&P or determined
by the Trust's investment adviser to be of comparable quality). Convertible
securities normally provide a higher yield than the underlying stock but
lower than a fixed income security without the convertible feature. Also, the
price of a convertible security will normally vary to some degree with
changes in the price of the underlying common stock although in some market
conditions the higher yield tends to make the convertible security less
volatile than the underlying common stock. In addition, the price of a
convertible security will also vary to some degree inversely with interest
rates. For additional discussion of the risks associated with investment in
lower- rated securities, see "Investment Techniques--Fixed Income Securities"
and "Investment Techniques--Risk Factors of Lower Rated Fixed Income
Securities," below. For more information concerning the bond ratings assigned
by Moody's and S&P, see Appendix B.
The Growth and Income Portfolio does not expect to invest more than 25% of
its total assets in foreign securities, although it may do so without limit.
It may enter into foreign currency futures contracts (and related options),
forward foreign currency exchange contracts and options on currencies for
hedging purposes. See "Investment Techniques--Forward Foreign Currency
Exchange Contracts," below.
The Growth and Income Portfolio may write covered call and put options on
securities and securities indexes for hedging purposes or to enhance its
return and may purchase call and put options on securities and securities
indexes for hedging purposes. The Growth and Income Portfolio may also
purchase and sell securities index futures contracts and may write and
purchase options thereon for hedging purposes. See "Investment
Techniques--Options," "Investment Techniques--Futures," and "Investment
Techniques-- Risk Factors in Options and Futures," below.
For temporary defensive purposes, the Growth and Income Portfolio may invest
in certain money market instruments. See "Investment Techniques--Certain
Money Market Instruments," below.
EQUITY INDEX PORTFOLIO--INVESTMENT POLICIES
The Equity Index Portfolio's investment objective is to seek a total return
before expenses that approximates the total return performance of the S&P 500
Index (Index), including reinvestment of dividends, at a risk level
consistent with that of the Index. The Index is a widely publicized index
that tracks 500 companies traded on the New York and American Stock Exchanges
and in the over-the- counter market. It is weighted by market value so that
each company's stock influences the Index in proportion to its market
importance. While most issuers are among the 500 largest U.S. companies in
terms of aggregate market value, some other stocks are included by S&P for
purposes of diversification. The value of the Index may change over time due
to a variety of factors, including economic factors and events affecting
issuers included in the Index.
In managing the Equity Index Portfolio, the Trust's investment adviser will
not utilize customary economic, financial or market analyses or other
traditional investment techniques. Rather, the investment adviser will use
proprietary modeling techniques to construct a portfolio which it believes
will, in the aggregate, approximate the performance results of the Index. The
investment adviser will first select from the largest capitalization
securities in the Index on a capitalization-weighted basis. Generally, the
largest capitalization securities reasonably track the Index because the
Index is significantly influenced by a small number of securities. However,
selecting securities on the basis of their capitalization alone would distort
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the Equity Index Portfolio's industry diversification, and therefore economic
events could potentially have a dramatically different impact on the
performance of the Equity Index Portfolio from that of the Index. Recognizing
this fact, the modeling techniques also consider industry diversification
when selecting investments for the Equity Index Portfolio. The investment
adviser also seeks to diversify the Equity Index Portfolio's assets with
respect to market capitalization. As a result, the Equity Index Portfolio
will include securities of smaller and medium-sized capitalization companies
in the Index.
Although the modeling techniques are intended to produce a portfolio whose
performance approximates that of the Index (before expenses), there can be no
assurance that these techniques will reduce "tracking error" (i.e., the
difference between the Equity Index Portfolio's investment results (before
expenses) and the Index's). Tracking error may arise as a result of brokerage
costs, fees and operating expenses and a lack of correlation between the
Equity Index Portfolio's investments and the Index.
Cash may be accumulated in the Equity Index Portfolio until it reaches
approximately 1% of the value of the Equity Index Portfolio at which time
such cash will be invested in common stocks as described above. Accumulation
of cash increases tracking error. The Equity Index Portfolio will, however,
remain substantially fully invested in common stocks even when common stock
prices are generally falling. Also, adverse performance of a stock will
ordinarily not result in its elimination from the Equity Index Portfolio.
In order to reduce brokerage costs, maintain liquidity to meet shareholder
redemptions or minimize tracking error when the Equity Index Portfolio holds
cash, the Equity Index Portfolio may from time to time buy and hold futures
contracts on the Index and options on such futures contracts. See "Investment
Techniques--Futures" and "Investment Techniques--Risk Factors in Options and
Futures," below. The contract value of futures contracts purchased by the
Equity Index Portfolio plus the contract value of futures contracts
underlying call options purchased by the Equity Index Portfolio will not
exceed 20% of the Equity Index Portfolio's total assets.
The Equity Index Portfolio may seek to increase income by lending securities
with a value of up to 50% of its total assets to brokers-dealers. See
"Investment Techniques--Securities Lending," below.
COMMON STOCK PORTFOLIO--INVESTMENT POLICIES
The Common Stock Portfolio attempts to achieve its investment objective by
investing primarily in common stocks and other equity-type securities that
the Trust's investment adviser believes will share in the growth of the
nation's economy over a long period.
Most of the time, the Common Stock Portfolio will invest primarily in common
stocks that are listed on national securities exchanges. Smaller amounts will
be invested in stocks that are traded over-the- counter and in other
equity-type securities (such as preferred stocks or convertible debt
instruments). Current income is an incidental consideration. The Common Stock
Portfolio generally will not invest more than 20% of its total assets in
foreign securities. See "Investment Techniques--Foreign Securities and
Currencies," below.
If, in light of economic conditions and the general level of common stock
prices, it appears that the Portfolio's investment objective will not be met
by using all its assets to buy equities, the Common Stock Portfolio may also
use part of its assets to make nonequity investments. These could include
buying securities such as nonparticipating and nonconvertible preferred
stocks and certain fixed income securities. Fixed income securities will
include investment grade bonds and debentures and money market instruments,
as well as securities that have a high current yield because they 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. For a discussion of the risks associated
with investment in these higher yielding securities, see "Investment
Techniques--Fixed Income Securities" and "Investment Techniques--Risk Factors
of Lower Rated Fixed Income Securities," below. For the fiscal year ended
December 31, 1995, less than 1% of the average assets of the Portfolio were
invested in higher yielding securities.
The Common Stock Portfolio may make temporary investments in money market
instruments of the same type and credit quality in which the Money Market
Portfolio may invest. The Portfolio may make
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secured loans of up to 50% of its total portfolio securities. See "Investment
Techniques--Securities Lending," below. The Common Stock Portfolio may write
covered call and put options and may buy call and put options on individual
common stocks and other equity-type securities, securities indexes, and
foreign currencies. The Portfolio may also purchase and sell stock index and
foreign currency futures contracts and options thereon. See "Investment
Techniques--Options," "Investment Techniques-- Futures," and "Investment
Techniques--Risk Factors in Options and Futures," below.
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 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.
INTERNATIONAL PORTFOLIO--INVESTMENT POLICIES
The International Portfolio attempts to achieve its objective by investing
primarily in a diversified portfolio of equity securities selected
principally to permit participation in non-United States companies or foreign
governmental enterprises with prospects for growth. These non-United States
companies may have operations in the United States, in their country of
incorporation and/or in other countries. The International Portfolio intends
to have represented in the Portfolio business activities in not less than
three different countries and may invest anywhere in the world, including
Europe, Canada, Australia, Asia, Latin America and Africa. The International
Portfolio may purchase securities of developing countries, which include,
among others, Mexico, Brazil, Hong Kong, India, Poland, Turkey and South
Africa. The International Portfolio intends to diversify investments among
several countries, although for temporary defensive purposes, the
International Portfolio may at times invest substantially all of its assets
in securities issued by a single major developed country (e.g., the United
States) or in cash or cash equivalents, including money market instruments
issued by that country.
The International Portfolio may invest in any type of investment grade, fixed
income security including, but not limited to, preferred stock, convertible
securities, bonds, notes and other evidences of indebtedness of foreign
issuers, including obligations of foreign governments. The International
Portfolio may also establish and maintain temporary cash balances in U.S. and
foreign short-term high-grade
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money market instruments for defensive purposes or to take advantage of
buying opportunities. Although no particular proportion of stocks, bonds or
other securities is required to be maintained, the International Portfolio,
in view of its investment objective, intends under normal market conditions
to maintain a portfolio consisting primarily of a diversified list of equity
securities. The International Portfolio may make loans of up to 50% of its
portfolio securities. See "Investment Techniques--Securities Lending," below.
The International Portfolio may write covered call and put options and may
purchase call and put options on individual equity securities, securities
indexes, and foreign currencies. See "Investment Techniques--Options," below.
The International 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--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.
AGGRESSIVE STOCK PORTFOLIO--INVESTMENT POLICIES
The Aggressive Stock Portfolio attempts to achieve its objective by investing
primarily in common stocks and other equity-type securities issued by
intermediate and small-sized companies with favorable growth prospects.
The Aggressive Stock Portfolio may also invest a portion of its assets in
securities of companies in cyclical industries, companies whose securities
are temporarily undervalued, companies in special situations and less widely
known companies.
If, in light of economic conditions, it appears that the Aggressive Stock
Portfolio's objective will not be achieved primarily through investments in
common stocks, the Portfolio may also invest in other equity-type securities
(such as preferred stocks and convertible debt instruments) and protective
options. Under certain market conditions, the Aggressive Stock Portfolio may
also invest in corporate fixed income securities, which will generally be
investment grade, or invest part of its assets in cash or cash equivalents
for liquidity or defensive purposes, including money market instruments rated
at least Prime-1 by Moody's or A-1 by S&P. The Aggressive Stock Portfolio may
invest no more than 20% of its total assets in foreign securities. See
"Investment Techniques--Foreign Securities and Currencies," below. The
Portfolio may make secured loans of up to 50% of its total portfolio
securities. See "Investment Techniques--Securities Lending," below. The
Aggressive Stock Portfolio may write covered call options and may purchase
call and put options on individual equity securities, securities indexes and
foreign currencies. The Aggressive Stock Portfolio may also purchase and sell
stock index and foreign currency futures contracts and options thereon. See
"Investment Techniques--Options," "Investment Techniques-- Futures" and "Risk
Factors in Options and Futures," below.
Risk Factors. 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.
THE FIXED INCOME SERIES
- - - -----------------------
MONEY MARKET PORTFOLIO--INVESTMENT POLICIES
The Money Market Portfolio attempts to achieve its objective by investing
primarily in a diversified portfolio of high-quality U.S. dollar-denominated
money market instruments. The instruments in which the Portfolio invests
include: (1) marketable obligations of, or guaranteed by, the U.S.
Government, its agencies or instrumentalities (collectively, the U.S.
Government); (2) certificates of deposit, bankers'
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acceptances, bank notes, time deposits and interest bearing savings deposits
issued or guaranteed by (a) domestic banks (including their foreign branches)
or savings and loan associations having total assets of more than $1 billion
and which are members of the Federal Deposit Insurance Corporation (FDIC) in
the case of banks, or insured by the FDIC, in the case of savings and loan
associations or (b) foreign banks (either by their foreign or U.S. branches)
having total assets of at least $5 billion and having an issue of either
commercial paper rated at least A-1 by S&P or Prime-1 by Moody's or long term
debt rated at least AA by S&P or Aa by Moody's; (3) commercial paper (rated
at least A-1 by S&P or Prime-1 by Moody's or, if not rated, issued by
domestic or foreign companies having outstanding debt securities rated at
least AA by S&P or Aa by Moody's) and participation interests in loans
extended by banks to such companies; (4) mortgage-backed securities and
asset-backed securities; (5) corporate debt obligations with remaining
maturities of less than one year, rated at least AA by S&P or Aa by Moody's,
as well as corporate debt obligations rated at least A by S&P or Moody's,
provided the corporation also has outstanding an issue of commercial paper
rated at least A-1 by S&P or Prime-1 by Moody's; (6) floating rate or master
demand notes; and (7) repurchase agreements covering securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities (see
"Investment Techniques--Repurchase Agreements," below). Time deposits with
maturities greater than seven days are considered to be illiquid securities.
Investments by the Money Market Portfolio are limited to those which present
minimal credit risk. If a security held by the Money Market Portfolio is no
longer deemed to present minimal credit risk, the Money Market Portfolio will
dispose of the security as soon as practicable unless the Trustees determine
that such action would not be in the best interest of the Portfolio.
Purchases of securities that are unrated must be ratified by the Trustees of
the Trust. Because the market value of debt obligations fluctuates as an
inverse function of changing interest rates, the Portfolio seeks to minimize
the effect of such fluctuations by investing only in instruments with a
remaining maturity of 397 calendar days or less at the time of investment,
except for obligations of the U.S. Government, its agencies, and
instrumentalities which may have a remaining maturity of 762 calendar days or
less. The Portfolio will maintain a dollar- weighted average portfolio
maturity of 90 days or less. The Money Market Portfolio may invest up to 20%
of its total assets in U.S. dollar-denominated foreign money market
instruments. See "Investment Techniques--Foreign Securities and Currencies,"
below. The Portfolio may make secured loans of up to 50% of its total
portfolio securities. See "Investment Techniques--Securities Lending," below.
INTERMEDIATE GOVERNMENT SECURITIES PORTFOLIO--INVESTMENT POLICIES
The Intermediate Government Securities Portfolio (Government Portfolio)
attempts to achieve its investment objective by investing primarily in debt
securities issued or guaranteed as to the timely payment of principal and
interest by the U.S. Government or any of its agencies or instrumentalities
(U.S. Government Securities). The Government Portfolio may also invest in
repurchase agreements and forward commitments related to U.S. Government
Securities. The Portfolio may seek to enhance its current return and may seek
to hedge against changes in interest rates by engaging in transactions
involving related options, futures and options on futures.
The Government Portfolio expects that under normal market conditions it will
invest at least 80% of its total assets in U.S. Government Securities and
repurchase agreements and forward commitments relating to U.S. Government
Securities. U.S. Government Securities include, without limitation, the
following:
o U.S. Treasury Bills--Direct obligations of the U.S. Treasury which
are issued in maturities of one year or less. No interest is paid
on Treasury Bills; instead, they are issued at a discount and
repaid at full face value when they mature. They are backed by the
full faith and credit of the U.S. Government.
o U.S. Treasury Notes--Direct obligations of the U.S. Treasury issued
in maturities which vary between one and ten years, with interest
payable every six months. They are backed by the full faith and
credit of the U.S. Government.
o U.S. Treasury Bonds--These direct obligations of the U.S. Treasury
are issued in maturities more than ten years from the date of
issue, with interest payable every six months. They are backed by
the full faith and credit of the U.S. Government.
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o "Ginnie Maes"--Ginnie Maes are debt securities issued by a mortgage
banker or other mortgagee and represent an interest in a pool of
mortgages insured by the Federal Housing Administration or the
Farmer's Home Administration or guaranteed by the Veteran's
Administration. The Government National Mortgage Association (GNMA)
guarantees the timely payment of principal and interest. Ginnie
Maes, although not direct obligations of the U.S. Government, are
guaranteed by the U.S. Treasury.
o "Fannie Maes"--The Federal National Mortgage Association (FNMA) is
a government- sponsored corporation owned entirely by private
stockholders that purchases residential mortgages from a list of
approved seller/servicers. Pass-through securities issued by FNMA
are guaranteed as to timely payment of principal and interest by
FNMA and supported by FNMA's right to borrow from the U.S.
Treasury, at the discretion of the U.S. Treasury. Fannie Maes are
not backed by the full faith and credit of the U.S. Government.
o "Freddie Macs"--The Federal Home Loan Mortgage Corporation (FHLMC),
a corporate instrumentality of the U.S. Government, issues
participation certificates (PCs) which represent an interest in
residential mortgages from FHLMC's National Portfolio. FHLMC
guarantees the timely payment of interest and ultimate collection
of principal, but PCs are not backed by the full faith and credit
of the U.S. Government.
o Governmental Collateralized Mortgage Obligations--These are
securities issued by a U.S. Government instrumentality or agency
which are backed by a portfolio of mortgages or mortgage-backed
securities held under an indenture. See "Other Investments," below.
o "Sallie Maes"--The Student Loan Marketing Association (SLMA) is a
government-sponsored corporation owned entirely by private
stockholders that provides liquidity for banks and other
institutions engaged in the Guaranteed Student Loan Program. These
loans are either directly guaranteed by the U.S. Treasury or
guaranteed by state agencies and reinsured by the U.S. Government.
SLMA issues both short term notes and longer term public bonds to
finance its activities.
The Portfolio may also invest in "zero coupon" U.S. Government Securities
which have been stripped of their unmatured interest coupons and receipts or
in certificates representing undivided interests in such stripped U.S.
Government Securities and coupons. These securities tend to be more volatile
than other types of U.S. Government Securities.
Guarantees of the Portfolio's securities by the U.S. Government or its
agencies or instrumentalities guarantee only the payment of principal at
maturity and interest when due on the guaranteed securities, and do not
guarantee the securities' yield or value or the yield or value of the
Government Portfolio's shares.
The Portfolio buys and sells securities with a view to maximizing current
return without, in the view of the investment adviser, undue risk to
principal. Potential capital gains resulting from possible changes in
interest rates will not be a major consideration. The Portfolio may take full
advantage of a wide range of maturities of U.S. Government Securities and may
adjust the dollar-weighted average maturity of its portfolio from time to
time, depending on its assessment of relative yields on securities of
different maturities and the expected effect of future changes in interest
rates on the market value of the Portfolio's portfolio. However, at all
times, each instrument in the Portfolio will have either a final maturity of
not more than ten years or a duration not exceeding that of a 10-year
Treasury note. Duration is a measure that relates the price volatility of a
security to changes in interest rates. The duration of a security 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, 1995, the duration of a 10-year Treasury bond was
considered to be 5.61 years. The Portfolio may also invest a substantial
portion of its assets in money market instruments. See "Investment
Techniques--Certain Money Market Instruments," below.
It is a fundamental policy of the Government Portfolio that under normal
market conditions it will invest at least 65% of its total assets in U.S.
Government Securities and repurchase agreements and forward commitments
relating to U.S. Government Securities.
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Other Investments. The Government Portfolio may also purchase collateralized
mortgage obligations (CMOs) issued by non-governmental issuers and securities
issued by a real estate mortgage investment conduit (REMIC). See "Investment
Techniques--Mortgage-Backed and Asset-Backed Securities," below. The
Government Portfolio will purchase only CMOs collateralized by U.S.
Government Securities. However, CMOs issued by entities other than U.S.
Government agencies or instrumentalities and securities issued by REMICs are
not considered U.S. Government Securities for purposes of the investment
policies of the Government Portfolio even though the CMOs may be
collateralized by U.S. Government Securities. Such securities will generally
be investment grade. In the event such securities fall below investment
grade, the Portfolio will not be obligated to dispose of such securities and
may continue to hold such securities if, in the opinion of the investment
adviser, such investment is considered appropriate under the circumstances.
In order to enhance its current return and to reduce fluctuations in net
asset value, the Portfolio may write call and put options on U.S. Government
Securities which are "covered" as described herein and may purchase call and
put options on U.S. Government Securities. The Portfolio may also enter into
interest rate futures contracts with respect to U.S. Government Securities,
and may write and purchase options thereon. See "Investment
Techniques--Options" and "Investment Techniques--Futures," below.
The Portfolio may also enter into forward commitments for the purchase of
U.S. Government Securities, purchase such securities on a when-issued or
delayed delivery basis, make secured loans of its portfolio securities
without limitation and enter into repurchase agreements with respect to U.S.
Government Securities with commercial banks and registered broker-dealers.
See "Investment Techniques--Forward Commitments and When-Issued and Delayed
Delivery Securities," below.
The Portfolio may make short sales involving either securities retained in
the Portfolio's portfolio or securities which the Portfolio has the absolute
right to acquire without additional consideration.
Special Considerations. U.S. Government Securities are considered among the
safest of fixed income investments. As a result, however, their yields are
generally lower than the yields available from corporate debt securities. As
with other mutual funds, the value of the Portfolio's shares will fluctuate
with the value of its investments. The value of the Portfolio's investments
will change as the general level of interest rates fluctuates. During periods
of falling interest rates, the values of U.S. Government Securities generally
rise. Conversely, during periods of rising interest rates, the values of U.S.
Government Securities generally decline. In an effort to preserve the capital
of the Portfolio when interest rates are generally rising, the investment
adviser may shorten the average maturity of the U.S. Government Securities in
the Portfolio's portfolio. Because the principal values of U.S. Government
Securities with shorter maturities are less affected by rising interest
rates, a portfolio with a shorter average maturity will generally diminish
less in value during such periods than a portfolio of longer average
maturity. Since U.S. Government Securities with shorter maturities, however,
generally have a lower yield to maturity, the Portfolio's current return
based on its net asset value will generally be lower as a result of such
action than it would have been had such action not been taken. Ginnie Maes
and other mortgage-backed or mortgage related securities in which the
Portfolio invests may not be an effective means of "locking in" favorable
long-term interest rates since the Portfolio must reinvest scheduled and
unscheduled principal payments relating to such securities. At the time
principal payments or prepayments are received by the Portfolio and
reinvested, prevailing interest rates may be higher or lower than the
Portfolio's current yield.
At times when the Portfolio has written call options, its ability to profit
from declining interest rates will be limited. Any resulting appreciation in
the value of the Portfolio would likely be partially or wholly offset by the
losses on call options written by the Portfolio. The termination of option
positions under such conditions would result in the realization of capital
losses, which would reduce the amounts available for distribution to
shareholders.
QUALITY BOND PORTFOLIO--INVESTMENT POLICIES
The Quality Bond Portfolio expects to invest in readily marketable securities
with relatively attractive yields, but which do not, in the opinion of the
Trust's investment adviser, involve undue risk of loss of capital. The
Quality Bond Portfolio will follow a policy of investing at least 65% of its
total assets in
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securities which at the time of purchase are rated at least Baa by Moody's or
BBB by S&P, or in unrated fixed income securities determined by the
investment adviser to be of comparable quality. In the event that the credit
rating of a security held by the Quality Bond Portfolio falls below
investment grade (or, in the case of unrated securities, the investment
adviser determines that the quality of such security has deteriorated below
investment grade), the Quality Bond Portfolio will not be obligated to
dispose of such security and may continue to hold the obligation if, in the
opinion of the investment adviser, such investment is considered appropriate
in the circumstances. The Quality Bond Portfolio will also seek to maintain
an average aggregate quality rating of its portfolio securities of at least A
(Moody's and S&P). For more information concerning the bond ratings assigned
by Moody's and S&P, see Appendix B.
The Quality Bond Portfolio has complete flexibility as to the types of
securities in which it will invest and the relative proportions thereof, and
the Quality Bond Portfolio plans to vary the proportions of its holdings of
long- and short-term fixed income securities (including debt securities,
convertible debt securities and U.S. Government obligations) and preferred
stocks in order to reflect its assessment of prospective cyclical changes
even if such action may adversely affect current income. The Quality Bond
Portfolio will not, however, invest more than 5% of its total assets in the
securities of any one issuer, excepting U.S. Government obligations, although
up to 25% of the total assets of the Portfolio may be invested without regard
to this restriction. Further, the Quality Bond Portfolio will not own more
than 10% of the outstanding voting securities of any issuer.
The Quality Bond Portfolio may invest in foreign securities. The Quality Bond
Portfolio will not invest more than 20% of its total assets in securities
denominated in currencies other than the U.S. dollar. See "Investment
Techniques--Foreign Securities and Currencies," below. The Quality Bond
Portfolio may enter into foreign currency futures contracts (and related
options), forward foreign currency exchange contracts and options on foreign
currencies for hedging purposes. See "Investment Techniques--Forward Foreign
Currency Exchange Contracts," below.
For temporary defensive purposes, the Quality Bond Portfolio may invest in
certain money market instruments. See "Investment Techniques--Certain Money
Market Instruments," below.
The Quality Bond Portfolio may purchase put and call options written by
others and write covered put and call options overlying the types of
securities in which the Quality Bond Portfolio may invest. The Quality Bond
Portfolio also intends to write covered call options for cross-hedging
purposes. A call option is for cross-hedging purposes if it is designed to
provide a hedge against a decline in value of another security which the
Portfolio owns or has the right to acquire. See "Investment
Techniques--Options," below.
Interest Rate Transactions. The Quality Bond Portfolio may seek to protect
the value of its investments from interest rate fluctuations by entering into
various hedging transactions, such as interest rate swaps and the purchase or
sale of interest rate caps and floors. The Portfolio expects to enter into
these transactions primarily to preserve a return or spread on a particular
investment or portion of its portfolio. The Quality Bond Portfolio may also
enter into these transactions to protect against an increase in the price of
securities the Portfolio anticipates purchasing at a later date. The Quality
Bond Portfolio intends to use these transactions as a hedge and not as a
speculative investment. Interest rate swaps involve the exchange by the
Quality Bond Portfolio with another party of their respective commitments to
pay or receive interest, e.g., an exchange of floating rate payments for
fixed rate payments. The purchase of an interest rate cap entitles the
purchaser, to the extent that a specified index exceeds a predetermined
interest rate, to receive payments on a notional principal amount from the
party selling such interest rate cap. The purchase of an interest rate floor
entitles the purchaser, to the extent that a specified index falls below a
predetermined interest rate, to receive payments of interest on a notional
principal amount from the party selling such interest rate floor.
The Quality Bond Portfolio may enter into interest rate swaps, caps and
floors on either an asset-based or liability-based basis depending on whether
it is hedging its assets or its liabilities, and will only enter into such
swaps, caps and floors on a net basis, i.e., the two payment streams are
netted out, with the Quality Bond Portfolio receiving or paying, as the case
may be, only the net amount of the two payments. The net amount of the
excess, if any, of the Quality Bond Portfolio's obligations over its
entitlements with
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respect to each interest rate swap, cap or floor will be accrued on a daily
basis and an amount of cash or liquid securities having an aggregate net
asset value at least equal to the accrued excess will be maintained in a
segregated account by the custodian. The Quality Bond Portfolio will not
enter into any interest rate swap, cap or floor transaction unless the
unsecured senior debt or the claims-paying ability of the other party thereto
is rated in the highest rating category of at least one NRSRO at the time of
entering into such transaction. If there is a default by the other party to
such a transaction, the Quality Bond Portfolio will have contractual remedies
pursuant to the agreements related to the transaction. The swap market has
grown substantially in recent years with a large number of banks and
investment banking firms acting both as principals and agents. As a result,
the swap market has become well established and provides a degree of
liquidity. Caps and floors are more recent innovations which tend to be less
liquid than swaps.
Zero Coupon Securities. To the extent consistent with its investment
objective, the Quality Bond Portfolio may invest in "zero coupon" securities,
which are debt securities that have been stripped of their unmatured interest
coupons, and receipts or certificates representing interests in such stripped
debt obligations and coupons. A zero coupon security pays no interest to its
holder during its life. Its value to an investor consists of the difference
between its face value at the time of maturity and the price for which it was
acquired, which is generally an amount significantly less than its face
value. Accordingly, such securities usually trade at a deep discount from
their face or par value and will be subject to greater fluctuations of market
value in response to changing interest rates than debt obligations of
comparable maturities that make current distributions of interest. The
Quality Bond Portfolio may also invest in "pay-in-kind" debentures (i.e.,
debt obligations the interest on which may be paid in the form of additional
obligations of the same type rather than cash) which have characteristics
similar to zero coupon securities.
The Quality Bond Portfolio may invest in collateralized mortgage obligations
or CMOs. See "Investment Techniques--Mortgage-Backed and Asset-Backed
Securities," below. The Portfolio may purchase and sell interest rate futures
contracts and options thereon and may make loans of securities with a value
of up to 50% of its total assets. See "Investment Techniques--Futures,"
"Investment Techniques--Risk Factors in Options and Futures" and "Investment
Techniques--Securities Lending," below.
HIGH YIELD PORTFOLIO--INVESTMENT POLICIES
The High Yield Portfolio attempts to achieve its objective by investing
primarily in a diversified mix of high yield, fixed income securities
potentially involving greater volatility of price and risk of principal and
income than high quality fixed income securities.
Ordinarily, the Portfolio will invest a portion of its funds in fixed income
securities which have a high current yield and that are either rated in the
lower categories of NRSROs (i.e., rated Baa or lower by Moody's or BBB or
lower by S&P) or are unrated. The Portfolio may also make temporary
investments in money market instruments of the same type as the Money Market
Portfolio. The Portfolio will not invest more than 10% of its total assets in
(i) fixed income securities which are rated lower than B3 or B- or their
equivalents by one NRSRO or if unrated are of equivalent quality as
determined by the investment adviser, and (ii) money market instruments of
any entity which has an outstanding issue of unsecured debt that is rated
lower than B3 or B- or their equivalents by an NRSRO or if unrated is of
equivalent quality as determined by the investment adviser; however, this
restriction will not apply to (i) fixed income securities which, in the
opinion of the investment adviser, have similar characteristics to securities
which are rated B3 or higher by Moody's or B- or higher by S&P, or (ii) money
market instruments of any entity that has an unsecured issue of outstanding
debt which, in the opinion of the investment adviser, has similar
characteristics to securities which are so rated. See Appendix B,
"Description of Bond Ratings," for a description of each rating category. In
the event that any securities held by the High Yield Portfolio fall below
those ratings, the Portfolio will not be obligated to dispose of such
securities and may continue to hold such securities if, in the opinion of the
investment adviser, such investment is considered appropriate under the
circumstances.
For the fiscal year ended December 31, 1995, the approximate percentages of
the Portfolio's average assets invested in securities of each rating
category, determined on a dollar weighted basis, were as follows: 6.2% in
securities rated AAA or its equivalent, 25.2% in securities rated BB or its
equivalent and
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65.5% in securities rated B or its equivalent. Of these securities, 98.4%
were rated by an NRSRO and 1.6% were unrated. All of the unrated securities
were considered by the investment adviser to be of comparable quality to the
Portfolio's investments rated by an NRSRO.
The Portfolio may also invest in fixed income securities which are providing
high current yields because of risks other than credit, such as prepayment
risks, in the case of mortgage-backed securities, or currency risks, in the
case of non-U.S. dollar denominated foreign securities. Smaller amounts may
also be invested in common stocks and other equity-type securities (such as
convertible debt securities). See "Investment Techniques--Fixed Income
Securities" and "Investment Techniques--Risk Factors of Lower Rated Fixed
Income Securities," below.
The High Yield Portfolio will be managed to maximize current income by taking
advantage of market developments, yield disparities and variations in the
creditworthiness of issuers. Substantially all of the Portfolio's investments
will be income producing. The Portfolio will use various strategies in
attempting to achieve its objective. The Portfolio may make secured loans of
its portfolio securities without limitation. See "Investment
Techniques--Securities Lending," below. In order to enhance its current
return and to reduce fluctuations in net asset value, the Portfolio may write
covered call and put options and may purchase call and put options on
individual fixed income securities, securities indexes and foreign
currencies. The Portfolio may also purchase and sell stock index, interest
rate and foreign currency futures contracts and options thereon. See
"Investment Techniques--Options," "Investment Techniques-- Futures," and
"Risk Factors in Options and Futures," 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, other than the Equity Index Portfolio, 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, other than the Money Market and the Equity Index Portfolios,
may write (i.e., sell) covered put and call options and buy put and call
options on securities and securities indexes. The Portfolios, other than the
Money Market, Equity Index and Government Portfolios, may also write covered
put and call options and buy put and call options on foreign currencies. The
Balanced, Common Stock, Aggressive Stock, High Yield, Global, International,
Conservative Investors, Growth Investors, Government, Quality Bond, Growth
and Income and Equity Index 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, other than the Equity Index Portfolio, 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 GNMA) whose
securities are guaranteed by the U.S. Treasury, (ii) issued by an
instrumentality of the U.S. Government (such as 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, other than the Equity Index Portfolio, may invest in (i)
mortgage-backed securities, including GNMA, FNMA and FHLMC certificates, (ii)
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) 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.
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
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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 fixed rate mortgage-backed and asset-backed securities in which the Money
Market Portfolio invests will have remaining maturities of less than one
year. 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, other than the Equity Index Portfolio, 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
26
<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"
(except that the limitation is 10% for the Money Market Portfolio).
LOAN ASSIGNMENTS AND PARTICIPATIONS
The High Yield Portfolio may invest in participations and assignments of
loans to corporate, governmental, or other borrowers originally made by
institutional lenders or lending syndicates. These investments are subject to
the same risks associated with fixed income securities generally. For
example, loans to foreign governments will involve a risk that the
governmental entities responsible for the repayment of the loan may be
unable, or unwilling, to pay interest and repay principal when due. In
addition, loan participations and assignments may have a lower yield because
they are often not rated and may also be less liquid than other debt
interests.
Even if the loans are secured, there is no assurance that the liquidation of
collateral from a secured loan would satisfy the borrower's obligation, or
that the collateral can be liquidated. Also, if a loan is foreclosed, the
Portfolio could become part owner of any collateral, and would bear the costs
and liabilities associated with owning and disposing of the collateral. In
addition, it is conceivable that under emerging legal theories of lender
liability, the Portfolio could be held liable as a co-lender.
A loan is often administered by a bank or other financial institution that
acts as agent for all holders. The agent administers the terms of the loan,
as specified in the loan agreement. Unless, under the terms of the loan or
other indebtedness, the Portfolio has direct recourse against the borrower
(usually not the case with loan participations), it may have to rely on the
agent to apply appropriate credit remedies against a borrower. Consequently,
loan participations may also be adversely affected by the insolvency of the
lending bank or other intermediary.
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-
27
<PAGE>
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, other than the Money Market and the Equity Index 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, other than the Money Market, Government and Equity Index
Portfolios, may also write covered put and call options and buy put and call
options on foreign currencies.
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.
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<PAGE>
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, except the Money Market, Government and Equity Index
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 High Yield, Global, International, Conservative Investors, Growth
Investors, Government, Balanced and Quality Bond 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 an adverse effect on the value of their
assets or assets they intend to acquire. In addition, each Portfolio listed
above (except the Government and Quality Bond Portfolios) as well as the
Common Stock, Aggressive Stock and Growth and Income Portfolios 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. In the case
of the Equity Index Portfolio, futures contracts and related options on the
S&P 500 Index may be purchased in order to reduce brokerage costs, maintain
liquidity to meet shareholder redemptions or minimize tracking error. As
described below under "Foreign Securities and Currencies," the High Yield,
Global, International, Conservative Investors, Growth Investors, Balanced,
Common Stock, Aggressive Stock, Quality Bond and Growth and Income Portfolios
may each enter into futures contracts and related options on foreign
currencies in order to limit its 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, except the Money Market Portfolio, 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. In addition, the contract value of futures contracts
purchased by the Equity Index Portfolio plus the contract value of futures
contracts underlying call options purchased by the Equity Index Portfolio
will not exceed 20% of the Equity Index Portfolio's total assets. 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, except the Money Market, Government and Equity Index
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.
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<PAGE>
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, except the Government and Equity Index 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 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. In addition, the High Yield and Government
Portfolios may each make secured loans of its portfolio securities without
restriction. 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.
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<PAGE>
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, other than the High Yield and Government Portfolios, 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. The
High Yield and Government Portfolios may make secured loans of portfolio
securities or cash without limitation.
Each Portfolio, except as noted below, 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,
this restriction does not apply to investments by the Money Market Portfolio
in certificates of deposit or securities issued and guaranteed by domestic
banks. Furthermore, 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.
As a matter of operating policy, except as noted below, the Money Market
Portfolio will invest no more than 5% of the value of its total assets, at
the time of acquisition, in the securities of any one issuer, other than
obligations of the U.S. Government, its agencies and instrumentalities.
However, the Money Market Portfolio may invest up to 25% of the value of its
total assets in First Tier Securities (as defined in Rule 2a-7 under the
Investment Company Act of 1940) of a single issuer for a period of up to
three business days after the purchase of such securities. The Money Market
Portfolio will also not (i) invest more than 5% of the value of its total
assets, at time of acquisition, in Second Tier Securities (as defined in Rule
2a-7 under the Investment Company Act of 1940) or (ii) invest more than the
greater of 1% of the value of the Portfolio's total assets or $1,000,000, at
the time of acquisition, in Second Tier Securities of a single issuer.
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<PAGE>
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.
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 .550% .525% .500%
Balanced ............... .400% .375% .350%
Growth Investors ....... .550% .525% .500%
Common Stock ........... .400% .375% .350%
Global ................. .550% .525% .500%
Aggressive Stock ....... .500% .475% .450%
Money Market ........... .400% .375% .350%
Intermediate Government
Securities ............ .500% .475% .450%
High Yield ............. .550% .525% .500%
</TABLE>
<TABLE>
<CAPTION>
FIRST $500 NEXT $500 OVER $1
MILLION MILLION BILLION
-------------- -------------- ------------
<S> <C> <C> <C>
Growth and Income .550% .525% .500%
Quality Bond ...... .550% .525% .500%
</TABLE>
<TABLE>
<CAPTION>
FIRST $750 NEXT $750 OVER $1.5
MILLION MILLION BILLION
-------------- -------------- --------------
<S> <C> <C> <C>
EQUITY INDEX .350% .300% .250%
</TABLE>
<TABLE>
<CAPTION>
FIRST $500 NEXT $1 OVER $1.5
MILLION BILLION BILLION
-------------- ------------ --------------
<S> <C> <C>
International .900% .850% .800%
</TABLE>
32
<PAGE>
THE PORTFOLIO MANAGERS
THE ASSET ALLOCATION SERIES
- - - ---------------------------
CONSERVATIVE INVESTORS, BALANCED AND GROWTH INVESTORS PORTFOLIOS
Robert G. Heisterberg is the person principally responsible for the
Conservative Investors, Balanced and Growth Investors Portfolios' investment
programs as of February 12, 1996. Mr. Heisterberg, a Senior Vice President of
Alliance and Global Economic Policy Analysis, has been associated with
Alliance since 1977.
THE EQUITY SERIES
- - - -----------------
GROWTH AND INCOME PORTFOLIO
Paul Rissman and W. Theodore Kuck are the persons principally responsible for
the Growth and Income Portfolio's investment program, Mr. Rissman since
February 12, 1996 and Mr. Kuck since its the Portfolio's inception. Mr.
Rissman, a Vice President of Alliance, has been associated with Alliance
since 1989. Mr. Kuck, a Vice President of Alliance, has been associated with
Alliance since 1971.*
EQUITY INDEX PORTFOLIO
Judith A. Maglio has been the person principally responsible for the Equity
Index Portfolio's investment program since inception. Ms. Maglio, a Vice
President of Alliance, has been associated with Alliance since 1970.
COMMON STOCK PORTFOLIO
Tyler J. Smith has been the person principally responsible for the Common
Stock Portfolio's investment program since 1977. Mr. Smith, a Senior Vice
President of Alliance, has been associated with Alliance since 1970.*
GLOBAL AND INTERNATIONAL PORTFOLIOS
Ronald Simcoe has been the person principally responsible for the Global
Portfolio's investment program since 1988 and the International Portfolio's
investment program since its inception. Mr. Simcoe, a Vice President of
Alliance, has been associated with Alliance since 1977.*
AGGRESSIVE STOCK PORTFOLIO
Alden M. Stewart and Randall E. Haase have been the persons principally
responsible for the Aggressive Stock Portfolio's investment program since
1993. Mr. Stewart, an Executive Vice President of Alliance, has been
associated with Alliance since 1970.* Mr. Haase, a Vice President of
Alliance, has been associated with Alliance since 1988.*
THE FIXED INCOME SERIES
- - - -----------------------
MONEY MARKET PORTFOLIO
Raymond J. Papera has been the person principally responsible for the Money
Market Portfolio's investment program since 1990. Mr. Papera, a Vice
President of Alliance, has been associated with Alliance since 1990.*
INTERMEDIATE GOVERNMENT SECURITIES PORTFOLIO
Patricia J. Young and Paul A. Ullman have been the persons principally
responsible for the Intermediate Government Securities Portfolio's investment
program since 1995. Ms. Young, Senior Vice President of
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<PAGE>
Alliance, with which she has been associated since 1992, previously was
employed by Hyperion Capital (beginning in 1991) and Fischer, Francis, Trees
& Watts prior thereto. Mr. Ullman, Vice President of Alliance, with which he
has been associated since 1992, previously was employed by Hyperion Capital
since 1990.
QUALITY BOND PORTFOLIO
Matthew Bloom has been the person principally responsible for the Quality
Bond Portfolio's investment program since 1995. Mr. Bloom, a Vice President
of Alliance, has been associated with Alliance since 1989.
HIGH YIELD PORTFOLIO
Wayne C. Tappe has been the person principally responsible for the High Yield
Portfolio's investment program since 1995. Mr. Tappe, a Vice President of
Alliance, has been associated with Alliance since 1987.*
___________________________
* Prior to July 22, 1993, with Equitable Capital Management Corporation
(Equitable Capital). On that date Alliance acquired the business and
substantially all of the assets of Equitable Capital and became the
investment adviser to the Trust.
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.
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.
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<PAGE>
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 Trust is divided into thirteen
portfolios, each of which has Class A and Class B shares. The Board
of Trustees may establish additional Portfolios and additional classes of
shares. Each share of each class of a Portfolio shall be entitled to one vote
(or fraction thereof in respect of a fractional share) on matters that such
shares (or class of shares) shall be entitled to vote. Shareholders of each
Portfolio shall vote together on any matter, except to the extent otherwise
required by the Investment Company Act, or when the Board of Trustees of the
Trust have determined that the matter affects only the interest of shareholders
of one or more classes, in which case only the shareholders of such class or
classes shall be entitled to vote thereon. Any matter shall be deemed to have
been effectively acted upon with respect to each Portfolio if acted upon as
provided in Rule 18f-2 under the the Investment Company Act, or any successor
rule, and in the Declaration of Trust. 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.
Under the Trust's multi-class system, shares of each class of a Portfolio
represent an equal pro rata interest in that Portfolio and, generally, shall
have identical voting, dividend, liquidation, and other rights, preferences,
powers, restrictions, limitations, qualifications and terms and conditions,
except that: (1) each class shall have a different designation; (2) each
class of shares shall bear its "class expenses;" (3) each class shall have
exclusive voting rights on any matter submitted to shareholders that relates
solely to its distribution arrangement; (4) each class shall have separate
voting rights on any matter submitted to shareholders in which the interests
of one class differ from the interests of any other class; (5) each class may
have separate exchange privileges; and (6) each class may have different
conversion features, although a conversion feature is not currently
contemplated. Expenses currently designated as "Class Expenses" by the
Trust's Board of Trustees under the plan pursuant to Rule 18f-3 include, for
example, payments to the Distributor pursuant to the distribution plan for
that class and certain securities registration fees.
PURCHASE AND REDEMPTION
Class B shares are offered at net asset value and are subject to distribution
fees under the Distribution Plan. 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.
The Trust has a distribution agreement with Equitable Distributors, Inc. (the
"Distributor"), a Delaware corporation and an indirect, wholly-owned
subsidiary of The Equitable Life Assurance Society of the United States
located at 787 Seventh Avenue, New York, New York 10019 in respect of the
Class B shares.
The Trust has adopted the Distribution Plan pursuant to Rule 12b-1 under the
Investment Company Act for the Class B shares of the Trust. Pursuant to the
Distribution Plan, the Trust compensates the Distributor assets attributable to
the Class B shares for services rendered and expenses borne in connection with
activities primarily intended to result in the sale of the Trust's Class B
shares. It is anticipated that a substantial portion of the amounts received by
the Distributor will be used to defray various costs incurred or paid by the
Distributor in connection with the printing and mailing of Trust prospectuses,
statements of additional information, any supplements thereto and shareholder
reports and holding seminars and sales meetings designated to promote the
distribution of Class B shares. The Distributor may also use some portion of the
amounts received to provide compensation to financial intermediaries and third-
party broker-dealers for their services in
connection with the distribution of Class B shares.
35
<PAGE>
The Distribution Plan provides that the Trust, on behalf of each Portfolio,
may pay annually up to 0.50% of the average daily net assets of a Portfolio
attributable to its Class B shares in respect of activities primarily
intended to result in the sale of Class B shares. Under the distribution
agreement payments to the Distributor are made monthly at an annual rate equal
to 0.25% of average daily net assets. Under the terms of the Distribution Plan
and the distribution agreement, each Portfolio is authorized to make payments
monthly to the Distributor which may be used to pay or reimburse entities
providing distribution and shareholder servicing with respect to the Class B
shares for such entities' fees or expenses incurred or paid in that regard.
The Distribution Plan is of a type known as a "compensation" plan because
payments are made for services rendered to the Trust regardless of the level
of expenditures by the Distributor. The Trustees will, however, take into
account such expenditures for purposes of reviewing operations under the Plan
and in connection with their annual consideration of the Plan's renewal. The
Distributor has indicated that it expects its expenditures to include,
without limitation: (a) the printing and mailing of Trust prospectuses,
statements of additional information, any supplements thereto and shareholder
reports for existing and prospective variable annuity contract and variable
life insurance policy owners; (b) those relating to the development,
preparation, printing and mailing of Trust advertisements, sales literature
and other promotional materials describing and/or relating to the Trust; (c)
holding seminars and sales meetings designed to promote the distribution of
Trust Class B shares; (d) obtaining information and providing explanations to
wholesale and retail distributors of variable annuity contract and variable
life insurance policies regarding Trust investment objectives and policies
and other information about the Trust and its Portfolios, including the
performance of the Portfolios; (e) training sales personnel regarding the
Trust; and (f) financing any other activity that the Distributor determines
is primarily intended to result in the sale of Class B shares.
All shares may be redeemed in accordance with the Trust's Declaration of
Trust and By-Laws. Class B 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:
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.
36
<PAGE>
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.
The Money Market Portfolio may illustrate in advertisements or sales
materials its yield and effective yield. The Portfolio's yield refers to
income generated by an investment in the Portfolio over a 7-day period,
expressed as an annual percentage rate. The Money Market Portfolio's
effective yield is calculated similarly but assumes that income earned from
the investment is reinvested. The Portfolio's effective yield will be
slightly higher than its yield because of the compounding effect of this
assumed reinvestment.
The Government, Quality Bond and High Yield Portfolios each may illustrate in
advertisements or sales materials its yield based on a recent 30-day period,
which reflects the income per share earned by that Portfolio's investments.
The yield is calculated by dividing that Portfolio's net investment income
per share during that period by the net asset value on the last day of that
period and annualizing the result.
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.
37
<PAGE>
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
<PAGE>
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
<PAGE>
PART B: THE STATEMENT OF ADDITIONAL INFORMATION OF THE TRUST'S POST-
EFFECTIVE AMENDMENT NO. 26 FILED WITH THE COMMISSION ON MAY 1, 1996 PURSUANT TO
RULE 485(B) IS INCORPORATED HEREIN BY REFERENCE.
<PAGE>
THE HUDSON RIVER TRUST
1345 Avenue of the Americas -- New York, New York 10105
STATEMENT OF ADDITIONAL INFORMATION
JULY 8, 1996
This Statement of Additional Information is not a prospectus. It should be
read in conjunction with The Hudson River Trust (Trust) Prospectus dated July
8, 1996 relating to Class B shares and retained for future reference. This
Statement of Additional Information relates to the Trust's Class B shares. A
separate Statement of Additional Information relates to the Trust's Class A
shares.
A copy of the Prospectus to which this Statement of Additional Information
relates is available at no charge by writing the Trust at the above address.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
General Information and History ........................................ 2
Investment Restrictions of the Portfolios .............................. 4
Description of Certain Securities in Which the Portfolios May Invest .. 6
Management of the Trust ................................................ 21
Investment Advisory and Other Services ................................. 26
Brokerage Allocation ................................................... 28
Trust Expenses and Other Charges ....................................... 30
Purchase and Pricing of Securities ..................................... 30
Certain Tax Considerations ............................................. 32
Portfolio Performance .................................................. 33
Other Services ......................................................... 36
Financial Statements ................................................... 37
Appendix A--Description of Commercial Paper Ratings .................... A-1
</TABLE>
- - - -----------------------------------------------------------------------------
HRT-SAI (5/96) Copyright 1996. The Hudson River Trust. All rights
reserved. Catalog No.126491
<PAGE>
GENERAL INFORMATION AND HISTORY
THE TRUST
The Hudson River Trust is an open-end management investment company--a type
of company commonly known as a "mutual fund." It is registered as such under
the Investment Company Act of 1940, as amended (Investment Company Act).
Originally organized as a Maryland corporation, the Trust's operations
commenced on March 22, 1985. On July 10, 1987, the Trust was formed as a
Massachusetts business trust. The Trust continuously offers its shares
exclusively to separate accounts of insurance companies in connection with
variable life insurance contracts and variable annuity certificates and
contracts (collectively, Contracts). Currently, the Trust's shareholders are
separate accounts of The Equitable Life Assurance Society of the United
States (Equitable), separate accounts of Equitable Variable Life Insurance
Company (Equitable Variable), a wholly-owned subsidiary of Equitable, a
separate account of Integrity Life Insurance Company, a separate account of
American Franklin Life Insurance Company, a separate account of Transamerica
Occidental Life Insurance Company and a separate account of SAFECO Life
Insurance Company, all of which are insurance companies unaffiliated with
Equitable. The Trust may offer its shares to separate accounts of other
insurance companies, both affiliated and not affiliated with Equitable. As of
March 31, 1996, Equitable and Equitable Variable owned approximately 99.6% of
the Trust's outstanding shares and, as a result, may be deemed to be control
persons with respect to the Trust.
As a "series" type of mutual fund, the Trust issues separate series of shares
of beneficial interest, each of which represents a separate portfolio
(Portfolio) of investments. Each Portfolio resembles a separate fund issuing
a separate class of stock. The Common Stock and Money Market Portfolios are
the successors to Separate Accounts I and II of Equitable Variable. (See
"Description of Reorganization and Other Matters"). The Balanced and
Aggressive Stock Portfolios received their initial funding on January 27,
1986 from Equitable Variable. The High Yield Portfolio received its initial
funding on January 2, 1987. The Global Portfolio received its initial funding
on August 27, 1987. The Conservative Investors and Growth Investors
Portfolios received their initial funding on October 2, 1989. The
Intermediate Government Securities Portfolio (Government Portfolio) received
its initial funding on April 1, 1991. The Quality Bond and Growth and Income
Portfolios received their initial funding on October 1, 1993. The Equity
Index Portfolio received its initial funding on March 1, 1994. The
International Portfolio received its initial funding on April 3, 1995.
Because of current Federal securities law requirements, the Trust expects
that its shareholders will offer to owners of the Contracts (Contractowners)
the opportunity to instruct them as to how shares allocable to their
Contracts will be voted with respect to certain matters, such as approval of
investment advisory agreements. As of March 31, 1996, to the Trust's
knowledge, no Contractowners other than those set forth below owned Contracts
entitling such persons to give voting instructions regarding more than 5% of
the outstanding shares of a Portfolio.
<TABLE>
<CAPTION>
INTERNATIONAL QUALITY BOND
PORTFOLIO PORTFOLIO
---------------------- ---------------------
UNITS %OF UNITS % OF
OWNED PORTFOLIO OWNED PORTFOLIO
-------- ------------ -------- ---------
<S> <C> <C> <C> <C>
Boatmen's Trust Co.* 10,860,007 61.79
Equitable ........... 501,445 8.59
Wachovia Bank** .... 2,682,954 15.27
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
EQUITY INDEX GLOBAL
PORTFOLIO PORTFOLIO
------------------------ ------------------------
% OF % OF
UNITS OWNED PORTFOLIO UNITS OWNED PORTFOLIO
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Boatmen's Trust Co.*
Equitable ........... 3,410,647 7.19
Wachovia Bank** .... 2,801,789 16.37
<FN>
- - - ------------
* Boatmen's Trust Co., Trustee under Master Trust Agreement for SBC
Communications, Inc. Deferred Compensation Plans and other Executive Benefit
Plans.
** Wachovia Bank of Georgia, N.A., Trustee for the Mars, Inc.
Non-Qualified Retirement Benefits Trust.
The principal addresses of Boatmen's Trust Co., Equitable and Wachovia Bank
are 175 East Houston Street, San Antonio, Texas; 787 Seventh Avenue, New
York, New York; and 301 North Main Street, Winston-Salem, North Carolina,
respectively.
Were such a Contractowner's funds withdrawn from the Trust or transferred to
a different Portfolio at the Contractowner's request, the Trust could be
forced to sell portfolio securities at disadvantageous prices.
2
<PAGE>
LEGAL CONSIDERATIONS
Under Massachusetts law, annual election of Trustees is not required, and, in
the normal course, the Trust does not expect to hold annual meetings of
shareholders. There will normally be no meetings of shareholders for the
purpose of electing Trustees unless and until such time as less than a
majority of the Trustees holding office have been elected by shareholders, at
which time the Trustees then in office will call a shareholders' meeting for
the election of Trustees. Pursuant to the procedures set forth in Section
16(c) of the Investment Company Act, shareholders of record of not less than
two-thirds of the outstanding shares of the Trust may remove a Trustee by a
vote cast in person or by proxy at a meeting called for that purpose.
Except as set forth above, the Trustees shall continue to hold office and may
appoint successor Trustees. Voting rights are not cumulative, so that the
holders of more than 50% of the shares voting in the election of Trustees
can, if they choose to do so, elect all the Trustees of the Trust, in which
event the holders of the remaining shares will be unable to elect any person
as a Trustee. Amendments to the Declaration of Trust of the Trust generally
require the affirmative vote of a majority of the outstanding shares of the
Trust.
The shares of each Portfolio, when issued, will be fully paid and
non-assessable and will have no preference, preemptive, conversion, exchange
or similar rights.
Under Massachusetts law, in certain circumstances shareholders may be held
personally liable as partners for the obligations of a business trust such as
the Trust. The shareholders of the Trust are the insurance companies whose
separate accounts invest in it. The Trust's Declaration of Trust contains
provisions designed to protect shareholders from such liability to the extent
of the Trust's assets. As a result, the risk of personal liability for the
insurance company shareholders is remote.
The Declaration of Trust further provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law, but nothing in the
Declaration of Trust protects a Trustee against any liability to which he or
she would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct
of his or her office. The Declaration of Trust permits the Trust to purchase
and maintain on behalf of the Trustees insurance against certain liabilities.
DESCRIPTION OF REORGANIZATION AND OTHER MATTERS
The following transactions, referred to as the Reorganization, were effected
simultaneously on March 22, 1985, pursuant to an Agreement and Plan of
Reorganization dated November 20, 1984, entered into by Equitable Variable,
Separate Accounts I and II, and The Hudson River Fund, Inc. (the Fund), the
predecessor of the Trust.
Equitable Variable divided Separate Account I into two divisions, a Common
Stock Division and a Money Market Division. Separate Account II was combined
with Separate Account I (the Continuing Separate Account). Rather than
investing directly, the Common Stock Division and the Money Market Division
of the Continuing Separate Account invested in shares of the Fund, which, in
turn, invested in diversified portfolios of common stock or money market
investments.
In order for the Fund to commence operations, all the investment assets of
Separate Accounts I and II (together with any related liabilities) were
transferred to the Common Stock and Money Market Portfolios of the Fund,
respectively, in exchange for shares in those Portfolios having an equivalent
aggregate net asset value.
On September 30, 1987, all of the Fund's assets and liabilities were
transferred to the Trust, pursuant to an Agreement and Plan of Reorganization
(the Plan) between the Fund and the Trust. The Plan was proposed to
shareholders in order to permit greater operating flexibility and
efficiencies. The Plan provided for changes of domicile (from Maryland to
Massachusetts) and of form of organization (from a corporation to a business
trust). However, in all other material respects the Trust was identical to
the Fund immediately prior to the execution of the Plan.
3
<PAGE>
INVESTMENT RESTRICTIONS OF THE PORTFOLIOS
FUNDAMENTAL RESTRICTIONS
The following restrictions apply to all of the Portfolios and are
fundamental. Unless permitted by law, they will not be changed for any
Portfolio without a vote of that Portfolio's shareholders.
None of the Portfolios will:
o underwrite securities issued by other persons except to the extent that,
in connection with the disposition of its portfolio investments, it may be
deemed to be an underwriter under certain Federal securities laws;
o make short sales of securities, except when it has, by reason of
ownership of other securities, the right to obtain securities of equivalent
kind and amount that will be held so long as it is in a short position;
o issue senior securities;
o purchase real estate or mortgages; however, the Portfolios may, as
appropriate and consistent with their investment policies and other
investment restrictions, buy securities of issuers which engage in real
estate operations and securities which are secured by interests in real
estate (including partnership interests and shares of real estate investment
trusts), and may hold and sell real estate acquired as a result of ownership
of such securities;
o purchase any security on margin or borrow money, except that this
restriction shall not apply to borrowing from banks for temporary purposes,
to the pledging of assets to banks in order to transfer funds for various
purposes as required without interfering with the orderly liquidation of
securities in a Portfolio (but not for leveraging purposes), to margin
payments or pledges in connection with options, futures contracts, options on
futures contracts, forward contracts or options on foreign currencies or,
with respect to the Quality Bond Portfolio, to transactions in interest rate
swaps, caps and floors; or
o make loans (including lending cash or securities), except that this
restriction shall not apply to the High Yield and Government Portfolio.
Additionally, each of the other Portfolios 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, except as noted below, 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 assets. However, this
restriction does not apply to investments by the Money Market Portfolio in
certificates of deposit or securities issued and guaranteed by domestic
banks. Furthermore, the U.S. Government, its agencies and instrumentalities
are not considered members of any industry. 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. As a
matter of operating policy, each Portfolio will not consider repurchase
agreements to be subject to the above-stated 5% limitation if all the
collateral underlying the repurchase agreements are U.S. Government
securities and such repurchase agreements are fully collateralized.
4
<PAGE>
Further, as a matter of operating policy, the Money Market Portfolio will
invest no more than 5% of the value of its total assets in securities of any
one issuer, other than U.S. Government securities, except that the Money
Market Portfolio may invest up to 25% of its total assets in First Tier
Securities (as defined in Rule 2a-7 under the Investment Company Act) of a
single issuer for a period of up to three business days after the purchase of
such security. Further, as a matter of operating policy, the Money Market
Portfolio will not invest more than (i) the greater of 1% of its total assets
or $1,000,000 in Second Tier Securities (as defined in Rule 2a-7 under the
Investment Company Act) of a single issuer and (ii) 5% of the Money Market
Portfolio's total assets, when acquired, in Second Tier Securities.
These policies of the Portfolios with respect to concentration and
diversification will not be changed for any Portfolio without a vote of that
Portfolio's shareholders, unless permitted by law.
NON-FUNDAMENTAL RESTRICTIONS
The following investment restrictions apply to all of the Portfolios, but are
not fundamental. They may be changed for any Portfolio without a vote of that
Portfolio's shareholders.
None of the Portfolios will:
o invest more than 15% of its assets in securities restricted as to
disposition under Federal securities laws, or securities otherwise considered
illiquid or not readily marketable, including repurchase agreements having a
maturity of more than seven days; however, this restriction will not apply to
securities sold pursuant to Rule 144A under the Securities Act of 1933, so
long as such securities meet liquidity guidelines to be established by the
Trust's Board of Trustees;
o trade in foreign exchange (except transactions incidental to the
settlement of purchases or sales of securities for a Portfolio); however, the
Global and International Portfolios may trade in foreign exchange without
limitation in connection with their foreign currency hedging strategies; and
the High Yield, Quality Bond, Growth and Income, Conservative Investors,
Balanced, Common Stock, Aggressive Stock and Growth Investors Portfolios may
trade in foreign exchange in connection with their foreign currency hedging
strategies, provided the amount of foreign exchange underlying such a
Portfolio's currency hedging transactions does not exceed 10% of such
Portfolio's assets;
o acquire securities of any company that is a securities broker or dealer,
a securities underwriter, an investment adviser of an investment company, or
an investment adviser registered under the Investment Advisers Act of 1940
(other than any such company that derives no more than 15% of its gross
revenues from securities related activities), except the Portfolios (other
than the Money Market Portfolio) may purchase bank, trust company, and bank
holding company stock, and except that each of the Portfolios may invest, in
accordance with Rule 12d3-1 under the Investment Company Act, up to 5% of its
total assets in any such company provided that it owns no more than 5% of the
outstanding equity securities of any class plus 10% of the outstanding debt
securities of such company; or
o make an investment in order to exercise control or management over a
company.
In addition, none of the Portfolios will invest more than 5% of its assets in
the securities of any one investment company, own more than 3% of any one
investment company's outstanding voting securities, or have total holdings of
investment company securities in excess of 10% of the value of the
Portfolio's assets.
ADDITIONAL INVESTMENT RESTRICTION THAT APPLIES TO THE COMMON STOCK, BALANCED,
AGGRESSIVE STOCK AND CONSERVATIVE INVESTORS PORTFOLIOS
The Common Stock, Balanced, Aggressive Stock and Conservative Investors
Portfolios will operate under the general investment restrictions described
above. In addition, they will not:
o acquire securities of investment companies not registered under the
Investment Company Act.
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ADDITIONAL INVESTMENT RESTRICTIONS THAT APPLY TO THE MONEY MARKET PORTFOLIO
The Money Market Portfolio will operate under the general investment
restrictions described above. In addition, it will not:
o invest more than 10% of its assets in securities restricted as to
disposition under Federal securities laws, or securities otherwise considered
illiquid or not readily marketable, including repurchase agreements having a
maturity of more than seven days; however, this restriction will not apply to
securities sold pursuant to Rule 144A under the Securities Act of 1933, so
long as such securities meet liquidity guidelines to be established by the
Trust's Board of Trustees;
o purchase oil and gas interests;
o purchase or write puts or calls (options); or
o purchase equity securities, voting securities other than securities of
registered investment companies with investment policies not substantially
broader than those of the Portfolio (subject to the above percentage
limitations) or local or state government securities.
The Money Market Portfolio will invest only in funds whose investment
policies are similar to or narrower than those of the Portfolio. It is
expected that such investments would be made in funds designed for
institutional investors such as the Portfolio and would be used for amounts
which might otherwise be left uninvested because they do not meet the
minimums necessary for other permitted investments or to take advantage of
higher yields available at that time in such funds.
ADDITIONAL INVESTMENT RESTRICTION THAT APPLIES TO THE HIGH YIELD AND GROWTH
INVESTORS PORTFOLIOS
The High Yield and Growth Investors Portfolios will operate under the general
investment restrictions described above. In addition, each will not:
o invest more than 10% of its total assets in (i) fixed income securities
which are rated lower than B3 by Moody's Investors Service, Inc. (Moody's) or
B- by Standard & Poor's Corporation (S&P) or are unrated, and (ii) money
market instruments of any entity which has an outstanding issue of unsecured
debt that is rated lower than B3 by Moody's or B- by S&P, or is unrated;
however this restriction will not apply to (i) fixed income securities which,
in the opinion of the Trust's investment adviser, have similar
characteristics to securities which are rated B3 or higher by Moody's or B-
or higher by S&P, or (ii) money market instruments of any entity that has an
unsecured issue of outstanding debt which, in the opinion of the Trust's
investment adviser, has similar characteristics to securities which are so
rated.
DESCRIPTION OF CERTAIN SECURITIES IN WHICH THE PORTFOLIOS MAY INVEST
REPURCHASE AGREEMENTS
All of the Portfolios, except the Equity Index Portfolio, may enter into
repurchase agreements. Under a repurchase agreement, underlying debt
instruments are acquired for a relatively short period (usually not more than
one week and never more than a year) subject to an obligation of the seller
to repurchase and the Portfolio to resell the instrument at a fixed price and
time, thereby determining the yield during the Portfolio's holding period.
This results in a fixed rate of return insulated from market fluctuation
during that holding period.
Repurchase agreements may have the characteristics of loans by the Portfolio.
During the term of the repurchase agreement, the Portfolio retains the
security subject to the repurchase agreement as collateral securing the
seller's repurchase obligation, continually monitors on a daily basis the
market value of the security subject to the agreement and requires the seller
to deposit with the Portfolio collateral equal to any amount by which the
market value of the security subject to the repurchase agreement falls below
the resale amount provided under the repurchase agreement. A Portfolio enters
into repurchase agreements with respect to United States Government
obligations, certificates of deposit, or bankers' acceptances with registered
broker-dealers, United States Government securities dealers or domestic banks
whose
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creditworthiness is determined to be satisfactory by the Trust's investment
adviser, Alliance Capital Management L.P. (Alliance), pursuant to guidelines
adopted by the Board of Trustees. Generally, a Portfolio does not invest in
repurchase agreements maturing in more than seven days. The staff of the
Securities and Exchange Commission (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 maturing in
more than seven days if as a result more than 15% of the Portfolio's net
assets (10% for the Money Market Portfolio) would be invested in "illiquid
securities."
If a seller under a repurchase agreement were to default on the agreement and
be unable to repurchase the security subject to the agreement, the Portfolio
would look to the collateral underlying the seller's repurchase agreement,
including the security subject to the repurchase agreement, for satisfaction
of the seller's obligation to the Portfolio. In the event a repurchase
agreement is considered a loan and the seller defaults, the Portfolio might
incur a loss if the value of the collateral declines and may incur
disposition costs in liquidating the collateral. In addition, if bankruptcy
proceedings are commenced with respect to the seller, realization on the
collateral may be delayed or limited and a loss may be incurred.
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 or sell securities on a "when-issued" or "delayed
delivery" basis. Forward commitments and when-issued or delayed delivery
transactions arise when securities are purchased 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 price of or yield on a comparable security
available when delivery takes place may vary from the price of or yield on
the security at the time that the forward commitment or when-issued or
delayed delivery transaction was entered into. Agreements for such purchases
might be entered into, for example, when a Portfolio anticipates a decline in
interest rates and is able to obtain a more advantageous price or yield by
committing currently to purchase securities to be issued later. When a
Portfolio purchases securities on a forward commitment, when-issued or
delayed delivery basis, it does not pay for the securities until they are
received, and the Portfolio is required to create a segregated account with
the Trust's custodian and to maintain in that account cash, U.S. Government
securities or other liquid high-grade debt obligations in an amount equal to
or greater than, on a daily basis, the amount of the Portfolio's forward
commitments, when-issued or delayed delivery commitments.
A Portfolio will only enter into forward commitments and make commitments to
purchase securities on a when-issued or delayed delivery basis with the
intention of actually acquiring the securities. However, the Portfolio may
sell these securities before the settlement date if it is deemed advisable as
a matter of investment strategy. 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 by entering
into a matching sale transaction.
Although none of the Portfolios intends to make such purchases for
speculative purposes and each Portfolio intends to adhere to the policies of
the SEC, purchases of securities on such bases may involve more risk than
other types of purchases. For example, by committing to purchase securities
in the future, a Portfolio subjects itself to a risk of loss on such
commitments as well as on its portfolio securities. Also, a Portfolio may
have to sell assets which have been set aside in order to meet redemptions.
In addition, if a Portfolio determines it is advisable as a matter of
investment strategy to sell the forward commitment or when-issued or delayed
delivery securities before delivery, that Portfolio may incur a gain or loss
because of market fluctuations since the time the commitment to purchase such
securities was made. Any such gain or loss would be treated as a capital gain
or loss and would be treated for tax purposes as such. When the time comes to
pay for the securities to be purchased under a forward commitment or on a
when-issued or delayed delivery basis, a Portfolio will meet its obligations
from the then available cash flow or the sale of securities, or, although it
would not normally expect to do so, from the sale of the forward commitment
or when-issued or delayed delivery securities themselves (which may have a
value greater or less than a Portfolio's payment obligation).
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WARRANTS
All the Portfolios, except the Money Market Portfolio, may purchase warrants
and similar rights, which are rights to purchase securities at specific
prices valid for a specific period of time. Their prices do not necessarily
move parallel to the prices of the underlying securities, and warrantholders
receive no dividends and have no voting rights or rights with respect to the
assets of an issuer. Warrants cease to have value if not exercised prior to
the expiration date.
FOREIGN SECURITIES
Each Portfolio, except the Government and Equity Index Portfolios, may invest
in foreign securities. Each of the Common Stock, Balanced, Quality Bond and
Aggressive Stock Portfolios has the discretion to invest a portion of its
assets in foreign securities. Generally, this amount will not exceed 20% of
each Portfolio's total assets. The Money Market Portfolio may invest up to
20% of its assets in foreign money market instruments denominated in U.S.
dollars. The Conservative Investors Portfolio may invest up to 15% of its
assets in foreign securities, the Growth Investors Portfolio may invest up to
30% of its assets in foreign securities, and the Growth and Income Portfolio
may invest up to 25% of its assets in foreign securities. The High Yield
Portfolio may purchase foreign securities, provided the value of issues
denominated in foreign currency shall not exceed 20% of the Portfolio's total
assets and the value of issues denominated in United States currency shall
not exceed 25% of the Portfolio's total assets.
No percentage limitation applies to investments in foreign securities by the
Global Portfolio or the International Portfolio.
Foreign securities involve currency risks. The value of a foreign security
denominated in foreign currency changes with variations in the exchange
rates. Fluctuations in exchange rates may also affect the earning power and
asset value of the foreign entity issuing a security, even one denominated in
U.S. dollars. Dividend and interest payments will be repatriated based on the
exchange rate at the time of disbursement, and restrictions on capital flows
may be imposed.
Foreign securities may be subject to foreign government taxes which reduce
their attractiveness. Other risks of investing in such securities include
political or economic instability in the country involved, the difficulty of
predicting international trade patterns and the possibility of imposition of
exchange controls. The prices of such securities may be more volatile than
those of domestic securities. In addition, there may be less publicly
available information about a foreign issuer than about a domestic issuer.
Foreign issuers generally are not subject to uniform accounting, auditing and
financial reporting standards comparable to those applicable to domestic
issuers. There is generally less regulation of stock exchanges, brokers,
banks and listed companies abroad than in the United States, and settlements
may be slower and may be subject to failure. With respect to certain foreign
countries, there is a possibility of expropriation of assets or
nationalization, imposition of withholding taxes on dividend or interest
payments, difficulty in obtaining and enforcing judgments against foreign
entities or diplomatic developments which could affect investment in these
countries. Losses and other expenses may be incurred in converting between
various currencies in connection with purchases and sales of foreign
securities.
For many foreign securities, there are U.S. dollar-denominated American
Depository Receipts (ADRs) which are traded in the United States on exchanges
or over-the-counter, are issued by domestic banks or trust companies and for
which market quotations are readily available. ADRs do not lessen the foreign
exchange risk inherent in investing in the securities of foreign issuers.
However, by investing in ADRs rather than directly in stock of foreign
issuers, the Portfolios will avoid currency risks which might occur during
the settlement period for either purchases or sales. A Portfolio may purchase
foreign securities directly, as well as through ADRs.
MORTGAGE-BACKED SECURITIES
Government National Mortgage Association (GNMA) certificates are
mortgage-backed securities representing part ownership of a pool of mortgage
loans. These loans, issued by lenders such as mortgage bankers, commercial
banks and savings and loan associations, are either insured by the Federal
Housing
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Administration or the Farmer's Home Administration or guaranteed by the
Veterans Administration. A "pool" or group of such mortgages is assembled and
after being approved by GNMA, is offered to investors through securities
dealers. Once approved by GNMA, the timely payment of interest and principal
on each mortgage is guaranteed by GNMA and backed by the full faith and
credit of the U.S. Treasury. GNMA certificates differ from bonds in that
principal is paid back monthly by the borrower over the term of the loan
rather than returned in a lump sum at maturity. GNMA certificates are called
"pass-through" securities because both interest and principal payments
(including prepayments) are passed through to the holder of the certificate.
In addition to GNMA certificates, a Portfolio (other than the Equity Index
Portfolio) may invest in mortgage-backed securities issued by the Federal
National Mortgage Association (FNMA) and by the Federal Home Loan Mortgage
Corporation (FHLMC). FNMA, a federally chartered and privately- owned
corporation, issues mortgage-backed pass-through securities which are
guaranteed as to timely payment of principal and interest by FNMA. FHLMC, a
corporate instrumentality of the United States whose stock is owned by the
Federal Home Loan Banks, issues participation certificates which represent an
interest in mortgages from FHLMC's portfolio. FHLMC guarantees the timely
payment of interest and the ultimate collection of principal. Securities
guaranteed by FNMA and FHLMC are not backed by the full faith and credit of
the United States. If other fixed or variable rate pass-through securities
issued by the United States Government or its agencies or instrumentalities
are developed in the future, the Portfolios reserve the right to invest in
them.
The Portfolios (other than the Equity Index Portfolio) may also invest in
other types of mortgage-backed securities issued by governmental or
non-governmental entities, such as banks and other mortgage lenders. These
other instruments include collateralized mortgage obligations (CMOs),
mortgage pass- through bonds and mortgage-backed bonds. Non-governmental
securities may offer a higher yield but may also be subject to greater price
fluctuation and risk than governmental securities.
CMOs are obligations fully collateralized directly or indirectly by a pool of
mortgages on which payments of principal and interest are passed through to
the holders of the CMOs on the same schedule as they are received, although
not necessarily on a pro rata basis. In reliance on an SEC interpretation,
investments in certain qualifying CMOs, including CMOs that have elected to
be treated as Real Estate Mortgage Investment Conduits (REMICs), are not
subject to the Investment Company Act's limitation on acquiring interests in
other investment companies. In order to be able to rely on the SEC's
interpretation, the CMOs and REMICs must be unmanaged, fixed-asset issuers
that (i) invest primarily in mortgage- backed securities, (ii) do not issue
redeemable securities, (iii) operate under general exemptive orders exempting
them from all provisions of the Investment Company Act, and (iv) are not
registered or regulated under the Investment Company Act as investment
companies. To the extent that a Portfolio selects CMOs or REMICs that do not
meet the above requirements, the Portfolio may not invest more than 10% of
its assets in all such entities and may not acquire more than 3% of the
voting securities of any single such entity. Mortgage-backed bonds are
general obligations of the issuer fully collateralized directly or indirectly
by a pool of mortgages. The mortgages serve as collateral for the issuer's
payment obligations on the mortgage-backed bonds but interest and principal
payments on the mortgages are not passed through directly (as with GNMA, FNMA
and FHLMC pass-through securities) or on a modified basis (as with CMOs).
Accordingly, a change in the rate of prepayments on the pool of mortgages
could change the effective maturity of a CMO but not the effective maturity
of a mortgage-backed bond (although, like many bonds, mortgage-backed bonds
may be callable by the issuer prior to maturity). It is expected that
governmental, government-related, or private entities may create mortgage
loan pools and other mortgage-backed securities offering mortgage
pass-through and mortgage-collateralized investments in addition to those
described above.
Commercial banks, savings and loans, private mortgage insurance companies,
mortgage bankers, and other secondary market issuers also create pass-through
pools of conventional residential mortgage loans. In addition, such issuers
may be the originators and/or servicers of the underlying mortgage loans as
well as the guarantors of the mortgage-backed securities. Pools created by
non-governmental issuers generally offer a higher rate of interest than
government and government-related pools because of the absence of direct or
indirect government or agency guarantors. Timely payment of interest and
principal with respect
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to these pools may be supported by various forms of insurance or guarantees,
including individual loan, title, pool and hazard insurance, and letters of
credit. The insurance, guarantees, and creditworthiness of the issuers
thereof will be considered in determining whether a mortgage-backed security
meets a Portfolio's investment quality standards. There is no assurance that
the private insurers or guarantors can meet their obligations under the
insurance policies or guarantee arrangements.
Each Portfolio (other than the Equity Index Portfolio) may buy
mortgage-backed securities without insurance or guarantees, if the investment
adviser determines that the securities meet the Portfolio's quality
standards. The investment adviser will, consistent with each Portfolio's
investment objectives, policies, and quality standards, consider making
investments in new types of mortgage-backed securities as such securities are
developed and offered to investors.
Prepayment of mortgages underlying mortgage-backed securities may reduce
their current yield and total return. During periods of declining interest
rates, such prepayments can be expected to accelerate and the Portfolios
would be required to reinvest the proceeds at the lower interest rates then
available. In addition, prepayments of mortgages which underlie securities
purchased at a premium could result in capital losses because the premium may
not have been fully amortized at the time the obligation is repaid. The
Portfolios do not intend to invest in these securities unless the Trust's
adviser believes that the potential benefits outweigh the risks.
ASSET-BACKED SECURITIES
The Portfolios (other than the Equity Index Portfolio) may purchase
asset-backed securities (unrelated to first mortgage loans) that represent
fractional interests in pools of retail installment loans, both secured (such
as Certificates for Automobile Receivables) and unsecured, leases or
revolving credit receivables both secured and unsecured (such as Credit Card
Receivable Securities). These assets are generally held by a special purpose
trust and payments of principal and interest or interest only are passed
through or paid through monthly or quarterly to certificate holders and may
be guaranteed up to certain amounts by letters of credit issued by a
financial institution affiliated or unaffiliated with the trustee or
originator of the trust.
Underlying automobile sales contracts, leases or credit card receivables are
subject to prepayment, which may reduce the overall return to certificate
holders. Nevertheless, for asset-backed securities, principal repayment rates
tend not to vary much with interest rates and the short-term nature of the
underlying car loans, leases or receivables tends to dampen the impact of any
change in the prepayment level. Certificate holders may also experience
delays in payment on the certificates if the full amounts due on underlying
sales contracts, leases or receivables are not realized by the Trust because
of unanticipated legal or administrative costs of enforcing the contracts or
because of depreciation or damage to the collateral (usually automobiles)
securing certain contracts, or other factors. If consistent with its
investment objective and policies, a Portfolio may invest in other
asset-backed securities that may be developed in the future.
SECURITIES ISSUED OR GUARANTEED BY THE U.S. GOVERNMENT OR ITS AGENCIES OR
INSTRUMENTALITIES
These securities include issues of the United States Treasury, such as bills,
certificates of indebtedness, notes and bonds, and issues of agencies and
instrumentalities established under the authority of an act of Congress.
Such agencies and instrumentalities include, but are not limited to, the
National Bank for Cooperatives, each of the Federal Financing Banks, FHLMC,
the Farm Credit Banks, Federal Land Banks, FNMA, Tennessee Valley Authority,
Farm Credit System, Farm Credit System Financial Assistance Corporation,
Inter-American Development Bank, Maritime Administration, Resolution Trust
Corporation, Federal Agricultural Mortgage Corporation, Small Business
Administration, U.S. Postal Service and Washington Metropolitan Transit
Authority.
Issues of the U.S. Treasury are direct obligations of the U.S. Government and
are backed by the full faith and credit of the United States. Issues of
agencies, such as GNMA, are guaranteed by the U.S. Treasury,
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and issues of other agencies and instrumentalities, such as FNMA, are
supported by the issuing agency's or instrumentality's right to borrow from
the U.S. Treasury, at the discretion of the U.S. Treasury, or are supported
by the issuing agency's or instrumentality's own credit.
CERTIFICATES OF DEPOSIT, BANKERS' ACCEPTANCES AND BANK TIME DEPOSITS
Certificates of deposit are receipts issued by a bank in exchange for the
deposit of funds. The issuer agrees to pay the amount deposited plus interest
to the bearer of the receipt on the date specified on the certificate. The
certificate usually can be traded in the secondary market prior to maturity.
Bankers' acceptances typically arise from short-term credit arrangements
designed to enable businesses to obtain funds to finance commercial
transactions. Generally, an acceptance is a time draft drawn on a bank by an
exporter or an importer to obtain a stated amount of funds to pay for
specific merchandise. The draft is then "accepted" by a bank that, in effect,
unconditionally guarantees to pay the face value of the instrument on its
maturity date. The acceptance may then be held by the accepting bank as an
earning asset or it may be sold in the secondary market at the going rate of
discount for a specific maturity. Although maturities for acceptances can be
as long as 270 days, most maturities are six months or less.
Bank time deposits are funds kept on deposit with a bank for a stated period
of time in an interest bearing account. At present, bank time deposits
maturing in more than seven days are not considered by management of the
Trust to be readily marketable and therefore are subject to the 15% limit on
illiquid securities.
COMMERCIAL PAPER, MASTER DEMAND NOTES AND FLOATING RATE NOTES
Commercial paper consists of short-term (usually from 1 to 270 days)
unsecured promissory notes issued by corporations in order to finance their
current operations.
Variable amount master demand notes are obligations that permit the
investment of fluctuating amounts by a Portfolio, at varying rates of
interest pursuant to direct arrangements between the Portfolio, as lender,
and the borrower. These notes permit daily changes in the amounts borrowed.
The Portfolio has the right to increase the amount under the note at any time
up to the full amount provided by the note agreement, or to decrease the
amount, and the borrower may repay up to the full amount of the note without
penalty. Because variable amount master notes are direct lending arrangements
between the lender and borrower, and not generally backed by bank letters of
credit, it is not generally contemplated that such instruments will be
traded, and there is no secondary market for these notes, although they are
redeemable (and thus immediately repayable by the borrower) at face value,
plus accrued interest, at any time. Therefore, the Portfolio's right to
redeem depends on the ability of the borrower to pay principal and interest
on demand. Variable amount master demand notes are valued at their face
amount (par) because of their one-day demand feature. In connection with
master demand note arrangements, the Portfolio considers earning power, cash
flow, and other liquidity ratios of the issuer. Master demand notes, as such,
are not typically rated by credit rating agencies.
Floating or variable rate notes are generally medium to long-term debt
securities, but may include short-term debt securities, issued by entities
such as commercial banks, corporations or sovereign borrowers. They are
interest bearing securities on which the coupon is adjusted periodically to
reflect money market conditions. The period at the end of which the
adjustment occurs is often called the interest reset period. The Portfolios
will buy only notes with an interest reset period of six months or less.
There is an active secondary market for floating or variable rate notes.
EURODOLLAR SECURITIES
Negotiable certificates of deposit and time deposits of foreign branches of
American or foreign banks payable in United States dollars are known as
Eurodollar deposits. Eurodollar securities also include bonds underwritten by
an international syndicate and sold "at issue" to non-U.S. investors. Such
securities are not registered with the SEC or issued domestically and are
primarily traded in foreign markets. Certain risks applicable to foreign
securities apply to Eurodollar instruments. Investment risks from these
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securities include future political and economic developments, possible
foreign withholding taxes on interest, possible seizure of foreign deposits,
or the possible establishment of exchange controls affecting payment on these
securities. See "Foreign Securities," above, for additional information about
foreign securities. In addition to those risks, foreign branches of American
and foreign banks have extensive government regulation which may limit both
the amount and type of loans and interest rates. In addition, the banking
industry's profitability is closely linked to prevailing money market
conditions for financing lending operations. Both general economic conditions
and credit risks play an important part in the operations of the industry.
American banks are required to maintain reserves, are limited in how much
they can loan a single borrower and are subject to other regulations to
promote financial soundness. Not all of these laws and regulations apply to
foreign branches of American and foreign banks. In addition, foreign
countries have accounting and reporting principles that differ from those in
the United States.
HIGH YIELD DEBT SECURITIES
The High Yield Portfolio, as described in the Prospectus, intends to invest
primarily in debt securities offering high current income. The Growth
Investors Portfolio may invest up to 15% of its total assets in such high
yield debt securities, and the Growth and Income Portfolio may invest up to
30% of its total assets in high yield convertible securities. High yield
securities may be medium and lower quality securities rated, for example, BB
or B by one of the nationally recognized statistical rating organizations
(NRSROs) or may be unrated but of similar investment quality as determined by
the Portfolio's investment adviser. These securities are also known as "junk
bonds." The market values of such high yield securities tend to reflect
individual corporate developments to a greater extent than higher rated
securities, which react primarily to fluctuations in the general level of
interest rates. Such medium and lower rated securities also tend to be more
sensitive to real or perceived adverse economic conditions than higher rated
securities.
Companies that issue high yield securities are often highly leveraged and may
not have available to them more traditional methods of financing. Therefore,
the risk associated with acquiring the securities of such issuers generally
is greater than is the case with higher rated securities. For example, during
an economic downturn or a sustained period of rising interest rates, highly
leveraged issuers of high yield securities may experience "financial stress"
and may not have sufficient revenues to meet their payment obligations. Such
an issuer's ability to service its obligations may also be adversely affected
by specific corporate developments, or the issuer's inability to meet
specific projected business forecasts, or the unavailability of additional
financing. Risk of loss due to default by the issuer is also significantly
greater for the holders of high yield securities because such securities are
generally unsecured and are generally subordinated to the debts of other
creditors of the issuer.
The High Yield, Growth and Income and Growth Investors Portfolios may have
difficulty disposing of certain high yield securities, particularly those
perceived to have a high credit risk, because there may be a thin trading
market for such securities. Because not all dealers maintain markets in all
high yield securities, there is no established retail secondary market for
certain of these securities, and the Portfolios anticipate that such
securities could be sold only to a limited number of dealers or institutional
investors. Moreover, to the extent a secondary trading market for high yield
securities does exist, it is generally less liquid than the secondary market
for higher rated securities. The lack of a highly liquid secondary market for
certain high yield securities may have an adverse impact on the market price
for such securities and each Portfolio's ability to dispose of particular
issues when necessary to meet the Portfolio's liquidity needs or in response
to a specific economic event such as a deterioration in the creditworthiness
of the issuer. Adverse publicity and investor perceptions, whether or not
based on fundamental analysis, may decrease the values and liquidity of high
yield securities, especially in a thinly traded market. The lack of a liquid
secondary market for certain securities may also make it more difficult for
the Portfolios to obtain accurate market quotations for purposes of valuing
certain of its high yield portfolio securities. Market quotations are
generally available on many high yield issues only from a limited number of
dealers and may not necessarily represent firm bids of such dealers or prices
for actual sales.
In addition, the market for high yield securities, at its current size, has
not weathered a major economic recession, and one cannot be certain what
effect such a recession might have on such securities. It is
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possible, however, that a recession could severely disrupt the market for
such medium and lower quality securities and may have an adverse impact on
the value of such securities. In addition, it is possible that an economic
downturn could adversely affect the ability of the issuers of such securities
to repay principal and pay interest on such securities.
From time to time, proposals have been discussed regarding new legislation
designed to limit the use of certain high yield securities by issuers in
connection with leveraged buy-outs, mergers and acquisitions, or to limit the
deductibility of interest payments on such securities. Such proposals if
enacted into law could: (i) reduce the market for such securities generally;
(ii) negatively affect the financial condition of issuers of high yield
securities by removing or reducing a source of future financing; and (iii)
negatively affect the value of specific high yield issues and the high yield
market in general.
Factors adversely impacting the market value of high yield securities may
adversely impact each Portfolio's net asset value. In addition, each
Portfolio may incur additional expenses to the extent it is required to seek
recovery upon a default in the payment of principal or interest on its
portfolio securities. The Portfolios will not rely primarily on ratings of
NRSROs, but rather will rely on the investment adviser's judgment, analysis
and experience in evaluating the creditworthiness of an issuer. In evaluating
such securities, Alliance will take into consideration, among other things,
the issuer's financial resources, its sensitivity to economic conditions and
trends, its operating history, the quality of the issuer's management and
regulatory matters.
TRANSACTIONS IN OPTIONS, FUTURES AND FORWARD CONTRACTS
To the extent provided below, the Portfolios may enter into transactions in
options, futures and forward contracts on a variety of instruments and
indexes, in order to protect against declines in the value of portfolio
securities and increases in the cost of securities to be acquired and, in the
case of options written on securities or indexes of securities, to increase a
Portfolio's return. All the Portfolios, except the Money Market Portfolio,
are authorized to engage in futures transactions. In general, the Portfolios
will limit their use of futures contracts and options on futures contracts so
that either (i) the contracts or options thereon are for "bona fide hedging"
purposes as defined under regulations of the Commodity Futures Trading
Commission (CFTC) or (2) if for other purposes, no more than 5% of the
liquidation value of each Portfolio's total assets will be used for initial
margin or option premiums required to establish non-hedging positions. These
instruments will be used for hedging purposes and not for speculation or to
leverage the Portfolios.
OPTIONS ON SECURITIES
Writing Call Options. Every Portfolio, except the Money Market and Equity
Index Portfolios, may write (sell) covered call options on its portfolio
securities in an attempt to enhance investment performance. A call option is
a contract which gives the purchaser of the option (in return for a premium
paid) the right to buy, and the writer of the option (in return for a premium
received) the obligation to sell, the underlying security at the exercise
price at any time prior to the expiration of the option, regardless of the
market price of the security during the option period. A covered call option
is, for example, a call option written on a security that is owned by the
writer (or on a security convertible into such a security without additional
consideration) throughout the option period.
A Portfolio will write covered call options both to reduce the risks
associated with certain of its investments and to increase total investment
return through the receipt of premiums. In return for the premium income, the
Portfolio will give up the opportunity to profit from an increase in the
market price of the underlying security above the exercise price so long as
its obligations under the contract continue, except insofar as the premium
represents a profit. Moreover, in writing the call option, the Portfolio will
retain the risk of loss should the price of the security decline. The premium
is intended to offset that loss in whole or in part. Unlike the situation in
which the Portfolio owns securities not subject to a call option, the
Portfolio, in writing call options, must assume that the call may be
exercised at any time prior to the expiration of its obligation as a writer,
and that in such circumstances the net proceeds realized from the sale of the
underlying securities pursuant to the call may be substantially below the
prevailing market price.
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A Portfolio may terminate its obligation under an option it has written by
buying an identical option. Such a transaction is called a "closing purchase
transaction." The Portfolio will realize a gain or loss from a closing
purchase transaction if the amount paid to purchase a call option is less or
more than the amount received from the sale of the corresponding call option.
Also, because increases in the market price of a call option will generally
reflect increases in the market price of the underlying security, any loss
resulting from the exercise or closing out of a call option is likely to be
offset in whole or part by unrealized appreciation of the underlying security
owned by the Portfolio. When an underlying security is sold from the
Portfolio's securities portfolio, the Portfolio will effect a closing
purchase transaction so as to close out any existing covered call option on
that underlying security. A closing purchase transaction for exchange-traded
options may be made only on a national securities exchange (exchange). There
is no assurance that a liquid secondary market on an exchange will exist for
any particular option, or at any particular time, and for some options, such
as over-the-counter options, no secondary market on an exchange may exist. If
the Portfolio is unable to effect a closing purchase transaction, the
Portfolio will not sell the underlying security until the option expires or
the Portfolio delivers the underlying security upon exercise.
Writing Put Options. The writer of a put option becomes obligated to purchase
the underlying security at a specified price during the option period if the
buyer elects to exercise the option before its expiration date. A Portfolio
which writes a put option will be required to "cover" it, for example, by
depositing and maintaining in a segregated account with its custodian cash,
United States Government securities or other liquid high-grade debt
obligations having a value equal to or greater than the exercise price of the
option.
The Portfolios, except the Money Market and Equity Index Portfolios, may
write put options either to earn additional income in the form of option
premiums (anticipating that the price of the underlying security will remain
stable or rise during the option period and the option will therefore not be
exercised) or to acquire the underlying security at a net cost below the
current value (e.g., the option is exercised because of a decline in the
price of the underlying security, but the amount paid by the Portfolio,
offset by the option premium, is less than the current price). The risk of
either strategy is that the price of the underlying security may decline by
an amount greater than the premium received. The premium which a Portfolio
receives from writing a put option will reflect, among other things, the
current market price of the underlying security, the relationship of the
exercise price to that market price, the historical price volatility of the
underlying security, the option period, supply and demand and interest rates.
A Portfolio may effect a closing purchase transaction to realize a profit on
an outstanding put option or to prevent an outstanding put option from being
exercised. If a Portfolio is able to enter into a closing purchase
transaction, the Portfolio will realize a profit (or loss) from that
transaction if the cost of the transaction is less (or more) than the premium
received from the writing of the option. After writing a put option, a
Portfolio may incur a loss equal to the difference between the exercise price
of the option and the sum of the market value of the underlying security plus
the premiums received from the sale of the option.
Purchasing Options. The Portfolios, except the Money Market and Equity Index
Portfolios, may purchase put options and call options. The Portfolios may
purchase put options on securities to protect their holdings against a
substantial decline in market value. The purchase of put options on
securities will enable a Portfolio to preserve, at least partially,
unrealized gains in an appreciated security in its portfolio without actually
selling the security. In addition, the Portfolio will continue to receive
interest or dividend income on the security. The Portfolios may also purchase
call options on securities to protect against substantial increases in prices
of securities the Portfolios intend to purchase pending their ability to
invest in an orderly manner in those securities. The Portfolios may sell put
or call options they have previously purchased, which could result in a net
gain or loss depending on whether the amount received on the sale is more or
less than the premium and other transaction costs paid on the put or call
option which was bought.
SECURITIES INDEX OPTIONS
The Portfolios, except for the Money Market and Equity Index Portfolios, may
write covered put and call options and purchase call and put options on
securities indexes for the purpose of hedging against the risk
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of unfavorable price movements adversely affecting the value of a Portfolio's
securities or securities it intends to purchase. Each Portfolio writes only
"covered" options. A call option on a securities index is considered covered,
for example, if, so long as the Portfolio is obligated as the writer of the
call, it holds securities the price changes of which are, in the opinion of
Alliance, expected to replicate substantially the movement of the index or
indexes upon which the options written by the Portfolio are based. A put on a
securities index written by a Portfolio will be considered covered if, so
long as it is obligated as the writer of the put, the Portfolio segregates
with its custodian cash, United States Government securities or other liquid
high-grade debt obligations having a value equal to or greater than the
exercise price of the option. Unlike a stock option, which gives the holder
the right to purchase or sell a specified stock at a specified price, an
option on a securities index gives the holder the right to receive a cash
"exercise settlement amount" equal to (i) the difference between the exercise
price of the option and the value of the underlying stock index on the
exercise date, multiplied by (ii) a fixed "index multiplier."
A securities index fluctuates with changes in the market values of the
securities so included. For example, some securities index options are based
on a broad market index such as the S&P 500 or the NYSE Composite Index, or a
narrower market index such as the S&P 100. Indexes may also be based on an
industry or market segment such as the AMEX Oil and Gas Index or the Computer
and Business Equipment Index. Options on stock indexes are currently traded
on the following exchanges among others: The Chicago Board Options Exchange;
New York Stock Exchange; and American Stock Exchange.
The effectiveness of hedging through the purchase of securities index options
will depend upon the extent to which price movements in the portion of the
securities portfolio being hedged correlate with price movements in the
selected securities index. Perfect correlation is not possible because the
securities held or to be acquired by a Portfolio will not exactly match the
composition of the securities indexes on which options are written. In the
purchase of securities index options the principal risk is that the premium
and transaction costs paid by a Portfolio in purchasing an option will be
lost if the changes (increase in the case of a call, decrease in the case of
a put) in the level of the index do not exceed the cost of the option.
In writing securities index options, the principal risk is that price changes
in the hedged securities will not correlate with price changes in the
options, and thus the Portfolio could bear a loss on the options that would
be only partially offset (or not offset at all) by the increased value or
reduced cost of the hedged securities. Moreover, in the event the Portfolio
were unable to close an option it had written, it might be unable to sell the
securities used as cover.
OVER-THE-COUNTER OPTIONS
Options traded in the over-the-counter market may not be as actively traded
as those on an exchange. Accordingly, 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. The Portfolios will engage
in such transactions only with firms of sufficient credit so as to minimize
these risks. Such options and the securities used as "cover" for such options
may be considered illiquid securities.
The Portfolios may enter into contracts (or amend existing contracts) with
primary dealer(s) with whom they write over-the-counter options. The
contracts will provide that each Portfolio has the absolute right to
repurchase an option it writes at any time at a repurchase price which
represents the fair market value, as determined in good faith through
negotiation between the parties, but which in no event will exceed a price
determined pursuant to a formula contained in the contract. Although the
specific details of the formula may vary between contracts with different
primary dealers, the formula will generally be based on a multiple of the
premium received by each Portfolio for writing the option, plus the amount,
if any, of the option's intrinsic value (i.e., the amount the option is
"in-the-money"). The formula will also include a factor to account for the
difference between the price of the security and the strike price of the
option if the option is written "out-of-the-money." Although the specific
details of the formula may vary with different primary dealers, each contract
will provide a formula to determine the maximum price at which each Portfolio
can repurchase the option at any time. The Portfolios have established
standards of creditworthiness for these primary dealers, although the
Portfolios may still be subject to the risk that firms participating in such
transactions will fail to meet their obligations. In instances in which a
Portfolio
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has entered into agreements 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
only securities equal in amount 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.
FUTURES TRANSACTIONS
All the Portfolios, except the Money Market Portfolio, may trade in certain
futures contracts. A futures contract is a bilateral agreement to buy or sell
a security (or deliver a cash settlement price, in the case of a contract
relating to an index or otherwise not calling for physical delivery at the
end of trading in the contracts) for a set price in the future. No purchase
price is paid or received when the contract is entered into. Instead, a good
faith deposit known as initial margin is made with the broker and subsequent
daily payments known as variation margin are made to and by the broker
reflecting changes in the value of the security or level of the index.
Futures contracts are designated by boards of trade which have been
designated "contracts markets" by the CFTC. By using futures contracts as a
risk management technique, given the greater liquidity in the futures market
than in the cash market, it might be possible to accomplish certain results
more quickly and with lower transaction costs.
Purchases or sales of securities index futures contracts may be used to
attempt to protect a Portfolio's current or intended investments from broad
fluctuations in securities prices, and interest rate and foreign currency
futures contracts are purchased or sold to attempt to hedge against the
effects of interest or exchange rate changes on a Portfolio's current or
intended investments in fixed income or foreign securities. All the
Portfolios, except the Money Market, Equity Index and Government Portfolios,
may trade in foreign currency futures contracts. In the event that an
anticipated decrease in the value of portfolio securities occurs as a result
of a general stock market decline, a general increase in interest rates or a
decline in the dollar value of foreign currencies in which portfolio
securities are denominated, the adverse effects of such changes may be
offset, in whole or part, by gains on the sale of futures contracts. In
addition, the increased cost of portfolio securities to be acquired, caused
by a general rise in the dollar value of foreign currencies or by a rise in
stock prices or a decline in interest rates, may be offset, in whole or part,
by gains on futures contracts purchased by a Portfolio. In order to achieve
desired asset mix parameters, the Conservative Investors and Growth Investors
Portfolios may use futures contracts and related options transactions to
establish a position in an asset class as a temporary substitute for
purchasing individual securities, which may be subsequently purchased in
orderly fashion. Similarly, these transactions may enable the Conservative
Investors and Growth Investors Portfolios to reduce a position in an asset
class as a temporary substitute for selling individual securities, in order
to effect an orderly sale program. In the case of the Equity Index Portfolio,
futures contracts and related options on the S&P 500 Index may be purchased
in order to reduce brokerage costs, maintain liquidity to meet shareholder
redemptions or minimize tracking error. A Portfolio will incur brokerage fees
when it purchases and sells futures contracts, and it will be required to
maintain margin deposits. (See "Risks of Transactions in Options, Futures
Contracts and Forward Currency Contracts," below.) Positions taken in the
futures markets are not normally held until delivery or cash settlement is
required, but are instead liquidated through offsetting transactions which
may result in a gain or a loss. While futures positions taken by a Portfolio
will usually be liquidated in this manner, the Portfolio may instead make or
take delivery of underlying securities whenever it appears economically
advantageous to the Portfolio to do so. A clearing organization associated
with the exchange on which futures are traded assumes responsibility for
closing out transactions and guarantees that as between the clearing members
of an exchange, the sale and purchase obligations will be performed with
regard to all positions that remain open at the termination of the contract.
SECURITIES INDEX FUTURES CONTRACTS
A securities index futures contract does not require the physical delivery of
securities, but merely provides for profits and losses resulting from changes
in the market value of the contract to be credited or debited at the close of
each trading day to the respective accounts of the parties to the contract.
On the contract's
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expiration date a final cash settlement occurs and the futures positions are
simply closed out. Changes in the market value of a particular index futures
contract reflect changes in the specified index of securities on which the
future is based.
By establishing an appropriate "short" position in index futures, a Portfolio
may seek to protect the value of its portfolio against an overall decline in
the market for such securities. Alternatively, in anticipation of a generally
rising market, a Portfolio can seek to avoid losing the benefit of apparently
low current prices by establishing a "long" position in securities index
futures and later liquidating that position as particular securities are in
fact acquired. To the extent that these hedging strategies are successful,
the Portfolio will be affected to a lesser degree by adverse overall market
price movements than would otherwise be the case.
OPTIONS ON FUTURES CONTRACTS
Each of the Portfolios, other than the Money Market Portfolio, may also
purchase and write exchange-traded call and put options on futures contracts
of the type which the particular Portfolio is authorized to enter into. These
options are traded on exchanges that are licensed and regulated by the CFTC
for the purpose of options trading. A call option on a futures contract gives
the purchaser the right, in return for the premium paid, to purchase a
futures contract (assume a "long" position) at a specified exercise price at
any time before the option expires. A put option gives the purchaser the
right, in return for the premium paid, to sell a futures contract (assume a
"short" position), for a specified exercise price, at any time before the
option expires. The Portfolios will write only options on futures contracts
which are "covered." A Portfolio will be considered "covered" with respect to
a put option it has written if, so long as it is obligated as a writer of the
put, the Portfolio segregates with its custodian cash, United States
Government securities or liquid high-grade debt obligations at all times
equal to or greater than the aggregate exercise price of the puts it has
written (less any related margin deposited with the futures broker). A
Portfolio will be considered "covered" with respect to a call option it has
written on a debt security future if, so long as it is obligated as a writer
of the call, the Portfolio owns a security deliverable under the futures
contract. A Portfolio will be considered "covered" with respect to a call it
has written on a securities index future if the Portfolio owns, so long as
the Portfolio is obligated as the writer of the call, a portfolio of
securities the price changes of which are, in the opinion of Alliance,
expected to replicate substantially the movement of the index upon which the
futures contract is based.
Upon the exercise of a call, the writer of the option is obligated to sell
the futures contract (to deliver a "long" position to the option holder) at
the option exercise price, which will presumably be lower than the current
market price of the contract in the futures market. Upon exercise of a put,
the writer of the option is obligated to purchase the futures contract
(deliver a "short" position to the option holder) at the option exercise
price which will presumably be higher than the current market price of the
contract in the futures market. When the holder of an option exercises it and
assumes a long futures position, in the case of a call, or a short futures
position, in the case of a put, its gain will be credited to its futures
margin account, while the loss suffered by the writer of the option will be
debited to its account and must be immediately paid by the writer. However,
as with the trading of futures, most participants in the options markets do
not seek to realize their gains or losses by exercise of their option rights.
Instead, the holder of an option will usually realize a gain or loss by
buying or selling an offsetting option at a market price that will reflect an
increase or a decrease from the premium originally paid.
Options on futures contracts can be used by a Portfolio to hedge
substantially the same risks as might be addressed by the direct purchase or
sale of the underlying futures contracts. If the Portfolio purchases an
option on a futures contract, it may obtain benefits similar to those that
would result if it held the futures position itself. Purchases of options on
futures contracts may present less risk in hedging than the purchase and sale
of the underlying futures contracts since the potential loss is limited to
the amount of the premium plus related transaction costs.
The purchase of put options on futures contracts is a means of hedging a
portfolio of securities against a general decline in market prices. The
purchase of a call option on a futures contract represents a means of hedging
against a market advance when a Portfolio is not fully invested.
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If a Portfolio writes options on futures contracts, the Portfolio will
receive a premium but will assume a risk of adverse movement in the price of
the underlying futures contract comparable to that involved in holding a
futures position. If the option is not exercised, the Portfolio will realize
a gain in the amount of the premium, which may partially offset unfavorable
changes in the value of securities held in or to be acquired for the
Portfolio. If the option is exercised, the Portfolio will incur a loss in the
option transaction, which will be reduced by the amount of the premium it has
received, but which will offset any favorable changes in the value of its
portfolio securities or, in the case of a put, lower prices of securities it
intends to acquire.
The writing of a call option on a futures contract constitutes a partial
hedge against declining prices of the underlying securities. If the futures
price at expiration is below the exercise price, the Portfolio will retain
the full amount of the option premium, which provides a partial hedge against
any decline that may have occurred in the value of the Portfolio's holdings
of securities. The writing of a put option on a futures contract is analogous
to the purchase of a futures contract in that it hedges against an increase
in the price of securities the Portfolio intends to acquire. However, the
hedge is limited to the amount of premium received for writing the put.
While the holder or writer of an option on a futures contract may normally
terminate its position by selling or purchasing an offsetting option of the
same series, a Portfolio's ability to establish and close out options
positions at fairly established prices will be subject to the existence of a
liquid market. The Portfolios will not purchase or write options on futures
contracts unless, in Alliance's opinion, the market for such options has
sufficient liquidity that the risks associated with such options transactions
are not at unacceptable levels.
LIMITATIONS ON PURCHASE AND SALE OF FUTURES CONTRACTS AND OPTIONS ON FUTURES
CONTRACTS
The Portfolios will not engage in transactions in futures contracts and
related options for speculation. All the Portfolios, other than the Money
Market Portfolio, may enter into futures contracts and buy and sell related
options as described above. The Portfolios will not purchase or sell futures
contracts or related options unless either (1) the futures contracts or
options thereon are purchased for "bona fide hedging" purposes (as that term
is defined under the CFTC regulations) or (2) if purchased for other
purposes, the sum of the amounts of initial margin deposits on a Portfolio's
existing futures and premiums required to establish non-hedging positions
would not exceed 5% of the liquidation value of the Portfolio's total assets.
In instances involving the purchase of futures contracts or the writing of
put options thereon by a Portfolio, an amount of cash and cash equivalents,
equal to the cost of such futures contracts or options written (less any
related margin deposits), will be deposited in a segregated account with its
custodian, thereby insuring that the use of such futures contracts and
options is unleveraged. In instances involving the sale of futures contracts
or the writing of call options thereon by a Portfolio, the securities
underlying such futures contracts or options will at all times be maintained
by the Portfolio or, in the case of index futures and related options, the
Portfolio will own securities the price changes of which are, in the opinion
of Alliance, expected to replicate substantially the movement of the index
upon which the futures contract or option is based.
Positions in futures contracts may be closed out only on an exchange or a
board of trade which provides the market for such futures. Although the
Portfolios intend to purchase or sell futures only on exchanges or boards of
trade where there appears to be an active market, there is no guarantee that
such will exist for any particular contract or at any particular time. If
there is not a liquid market at a particular time, it may not be possible to
close a futures position at such time, and, in the event of adverse price
movements, a Portfolio would continue to be required to make daily cash
payments of maintenance margin. However, in the event futures positions are
used to hedge portfolio securities, the securities will not be sold until the
futures positions can be liquidated. In such circumstances, an increase in
the price of securities, if any, may partially or completely offset losses on
the futures contracts.
FOREIGN CURRENCY OPTIONS, FOREIGN CURRENCY FUTURES CONTRACTS AND OPTIONS ON
FUTURES
The Portfolios, other than the Money Market, Government and Equity Index
Portfolios, may purchase or sell exchange-traded or over-the-counter foreign
currency options, foreign currency futures contracts
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and related options on foreign currency futures contracts as a hedge against
possible variations in foreign exchange rates. The Portfolios will write
options on foreign currency or on foreign currency futures contracts only if
they are "covered." A put on a foreign currency or on a foreign currency
futures contract written by a Portfolio will be considered "covered" if, so
long as the Portfolio is obligated as the writer of the put, it segregates
with the Portfolio's custodian cash, U.S. Government securities or other
liquid high-grade debt securities equal at all times to the aggregate
exercise price of the put. A call on a foreign currency or on a foreign
currency future contract written by the Portfolio will be considered
"covered" only if the Portfolio owns short term debt securities with a value
equal to the face amount of the option contract and denominated in the
currency upon which the call is written. Option transactions may be effected
to hedge the currency risk on non-U.S. dollar-denominated securities owned by
a Portfolio, sold by a Portfolio but not yet delivered or anticipated to be
purchased by a Portfolio. As an illustration, a Portfolio may use such
techniques to hedge the stated value in U.S. dollars of an investment in a
Japanese yen-denominated security. In these circumstances, a Portfolio may
purchase a foreign currency put option enabling it to sell a specified amount
of yen for dollars at a specified price by a future date. To the extent the
hedge is successful, a loss in the value of the dollar relative to the yen
will tend to be offset by an increase in the value of the put option. 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.
Certain differences exist between foreign currency hedging instruments.
Foreign currency options provide the holder the right to buy or to sell a
currency at a fixed price on or before a future date. Listed options are
third-party contracts (performance is guaranteed by an exchange or clearing
corporation) which are issued by a clearing corporation, traded on an
exchange and have standardized prices and expiration dates. Over-the-counter
options are two-party contracts and have negotiated prices and expiration
dates. See "Over-the-Counter Options," above. A futures contract on a foreign
currency is an agreement between two parties to buy and sell a specified
amount of the currency for a set price on a future date. Futures contracts
and listed options on futures contracts are traded on boards of trade or
futures exchanges. 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.
A Portfolio will not speculate in foreign currency options, futures or
related options. Accordingly, a Portfolio will not hedge a currency
substantially in excess of the market value of the securities denominated in
that currency which it owns or the expected acquisition price of securities
which it anticipates purchasing.
Hedging against a decline in the value of a currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. These hedging transactions also preclude
the opportunity for gain if the value of the hedged currency should rise.
Whether a currency hedge benefits a Portfolio will depend on Alliance's
ability to predict future currency exchange rates.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
When a Portfolio invests in foreign securities, the securities are usually
denominated in foreign currency, and the Portfolio may temporarily hold
foreign currency in connection with such investments. As a result, the value
of the Portfolio's assets will be subject to fluctuations based on changes in
the relative value of the foreign currency and the United States dollar. To
control the effects of this exchange risk, all the Portfolios, except the
Money Market, Equity Index and Government Portfolios, may enter into forward
foreign currency exchange contracts (forward currency contracts), which are
agreements to purchase or sell foreign currencies at a specified future date
and price. Forward currency contracts are usually used to fix the United
States dollar value of securities a Portfolio has agreed to buy or sell
(transaction hedging). The Portfolios may also use forward currency contracts
to hedge the United States dollar value of securities it already owns
(position hedging). The Portfolios will not speculate in forward currency
contracts.
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In general, forward currency contracts are not regulated by any governmental
authority, or guaranteed by a third party or traded on an exchange.
Accordingly, each party to a forward currency contract is dependent upon the
creditworthiness and good faith of the other. Creditworthiness is evaluated
by Alliance.
RISKS OF TRANSACTIONS IN OPTIONS, FUTURES CONTRACTS AND FORWARD CURRENCY
CONTRACTS
Although the Portfolios will enter into transactions in futures contracts,
options on securities and securities indexes, options on futures contracts,
forward currency contracts and certain currency options as described above
for hedging purposes, and transactions in options on securities and
securities indexes to generate option premium income, their use does involve
the following risks. A lack of correlation between the index or instrument
underlying an option or futures contract and the assets being hedged, or
unexpected adverse price movements, could render a Portfolio's hedging
strategy unsuccessful and could result in losses. Moreover, when an option
has been written, in the event of a decline, the underlying position is only
hedged to the extent of the amount of premium received. Over-the-counter
transactions in options on foreign currencies and options on securities and
securities indexes also involve a lack of an organized exchange trading
environment, making them less liquid, and making it more difficult to value
them than if they were exchange traded.
In addition, there can be no assurance that a liquid secondary market will
exist for any futures contract or option purchased or sold, and a Portfolio
may be required to maintain a position until exercise or expiration, which
could result in losses. If a futures market were to become unavailable, in
the event of an adverse movement, the Portfolio would be required to continue
to make daily cash payments of variation margin if it could not close a
futures position. If an options market were to become unavailable and a
closing transaction could not be entered into, an option holder would be able
to realize profits or limit losses only by exercising an option, and an
option writer would remain obligated until exercise or expiration. Finally,
if a broker or clearing member of an options or futures clearing corporation
were to become insolvent, the Portfolios could experience delays and might
not be able to trade or exercise options or futures purchased through that
broker. In addition, the Portfolios could have some or all of their positions
closed out without their consent. If substantial and widespread, these
insolvencies could ultimately impair the ability of the clearing corporations
themselves. While the principal purpose of hedging is to limit the effects of
adverse market movements, the attendant expense may cause the Portfolios'
returns to be less than if hedging had not taken place. The overall
effectiveness of hedging therefore depends on Alliance's accuracy in
predicting future changes in interest rate levels or securities price
movements, as well as on the expense of hedging.
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MANAGEMENT OF THE TRUST
As of March 31, 1996, the Trustees and officers of the Trust owned Contracts
entitling them to provide voting instructions in the aggregate with respect
to less than one percent of the Trust's shares of beneficial interest.
THE TRUSTEES
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NAME, ADDRESS AND AGE PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- - - ------------------------------------- ----------------------------------------------------------------
<S> <C>
*John D. Carifa (51)................... President, Chief Operating Officer and a Director of Alliance
Alliance Capital Management L.P. Capital Management Corporation, the general partner of Alliance
1345 Avenue of the Americas ("ACMC"); Chairman and Chief Executive Officer of Alliance's
New York, NY 10105 Mutual Fund Division. Mr. Carifa also serves as a director or
trustee of all other registered investment companies sponsored
by Alliance, and a director of Frontier Trust Company, a
subsidiary of Equitable.
Richard W. Couper (73)................ President Emeritus and Trustee of Woodrow Wilson
The Burke Library National Fellowship Foundation and President Emeritus of the New
Hamilton College York Public Library.
P.O. Box 345
Clinton, NY 13323-0345
Brenton W. Harries (68)............... Director of Enhance Reinsurance Co. since December 1986. Mr.
14 Point Road Harries was also President and Chief Executive Officer, Global
Wilton Point, Electronic Markets Company from August 1985 to October 1986
South Norwalk, CT 06854
Howard E. Hassler (Chairman) (66).... Currently a consultant specializing in retailing, finance and
200 East 57th Street real estate. Former Chairman and Chief Executive Officer of
Penthouse D Brooks Fashion Stores, Inc. (specialty clothing stores); Former
New York, NY 10022 Chairman, President and Chief Operating Officer of Allied Stores
Corporation (department and specialty stores), 1987; Executive
Vice President and Director,
Allied Stores Corporation from June 1984 to June 1987.
William L. Mannion (65)............... Retired. Former Group Senior Vice President of Operations of
45 Bonnie Way American Ultramar Limited until December 31, 1986.
Allendale, NJ 07401
Alton G. Marshall (74)................ Senior Fellow, Nelson A. Rockefeller Institute of Government
136 E. 79th Street since January 1991. Mr. Marshall is also President of Alton G.
New York, NY 10021 Marshall Associates, Inc., New York, New York, a real estate
investment corporation, since 1981; Director of EQK Partners,
Atlanta, Georgia, since 1984; Director, New York State Electric
& Gas Corp., since 1971; Director and Chairman of the Executive
Committee of Lincoln Savings Bank since January 1991, and
Chairman and Chief Executive Officer of such bank from March
1984 through December 1990.
21
<PAGE>
NAME, ADDRESS AND AGE PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- - - ------------------------------------- ----------------------------------------------------------------
*Peter D. Noris (40)................... Executive Vice President and Chief Investment Officer of
Equitable Equitable since May 1995; prior thereto, Vice President of
787 Seventh Avenue Salomon Brothers Inc., from 1992 to 1995. Principal of
New York, NY 10019 Equity Division, Morgan Stanley & Co. Inc., from 1984 to 1992.
Director of Equitable Variable and Equitable Real Estate
Investment Management, Inc. since September 1995 and of ACMC
since July 1995.
Donald J. Robinson (61)............... Partner and Member of the Executive Committee of the law firm of
599 Lexington Avenue Orrick, Herrington & Sutcliffe from July 1987 to December 1994.
New York, NY 10022 Of Counsel since January 1995.
Doris H. Smith (65) ................... Former President, College of Mount Saint Vincent.
</TABLE>
3961 Carpenter Avenue
Bronx, New York 10466
*Trustees Carifa and Noris are "interested persons" (as defined in the
Investment Company Act) of the Trust. Mr. Carifa is deemed an "interested
person" of the Trust by virtue of his position as a director and officer of
ACMC. Mr. Noris is deemed an "interested person" of the Trust by virtue of
his position as an officer of Equitable and a director of ACMC.
Trustees Couper, Harries and Robinson are Trustees (but not "interested
persons") of The Alliance Portfolios, a mutual fund. Trustee Robinson is also
a director or trustee (but not an "interested person") of three other mutual
funds advised by Alliance. Trustee Marshall is an independent general partner
(but not an "interested person") of Equitable Capital Partners, L.P. and
Equitable Capital Partners (Retirement Fund), L.P., both of which are
business development companies registered under the Investment Company Act.
COMMITTEES OF THE BOARD
The Trust has a standing audit committee consisting of Trustees Mannion,
Couper, Harries, Hassler, Marshall, Robinson and Smith. The audit committee's
function is to recommend to the Board of Trustees a firm of independent
auditors to conduct the annual audit of the Trust's financial statements;
review with such firm the outline, scope and results of this annual audit;
and review the performance and fees charged by the independent auditors for
professional services. In addition, the committee meets with the independent
auditors and representatives of management to review accounting activities
and areas of financial reporting and control. The Trust has no standing
executive committee.
The Trust has a nominating committee consisting of Trustees Hassler, Couper
and Robinson. This committee considers individuals for nomination as Trustees
of the Trust.
The Trust has a valuation committee consisting of Trustees Harries, Mannion
and Noris. This committee determines the value of any of the Trust's
securities and assets for which market quotations are not readily available
or for which valuation cannot otherwise be provided.
The Trust has a compensation committee consisting of Trustees Robinson,
Hassler and Mannion. The compensation committee's function is to review the
Trustees' compensation arrangements.
The Trust has a conflicts committee consisting of Trustees Hassler, Robinson
and Smith. The conflicts committee's function is to take any action necessary
to resolve conflicts among shareholders.
22
<PAGE>
TRUSTEE COMPENSATION TABLE
<TABLE>
<CAPTION>
TOTAL
PENSION OR COMPENSATION FROM
RETIREMENT THE ALLIANCE FUND
AGGREGATE BENEFITS ACCRUED ESTIMATED ANNUAL COMPLEX,
COMPENSATION AS PART OF TRUST BENEFITS UPON INCLUDING THE
TRUSTEE FROM THE TRUST EXPENSES RETIREMENT TRUST1
- - - ------------------ -------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C>
John D. Carifa $ -0- $-0- $-0- $ -0-
- - - ------------------ -------------- ---------------- ---------------- -----------------
Richard W. Couper $42,500 $-0- $-0- $ 66,500
- - - ------------------ -------------- ---------------- ---------------- -----------------
Brenton W. Harries $42,500 $-0- $-0- $ 66,500
- - - ------------------ -------------- ---------------- ---------------- -----------------
Howard E. Hassler $55,750 $-0- $-0- $ 55,750
- - - ------------------ -------------- ---------------- ---------------- -----------------
William L. Mannion $44,500(3) $-0- $-0- $ 44,500
- - - ------------------ -------------- ---------------- ---------------- -----------------
Alton G. Marshall $42,500 $-0- $-0- $112,000
- - - ------------------ -------------- ---------------- ---------------- -----------------
Peter D. Noris $ -0- $-0- $-0- $ -0-
- - - ------------------ -------------- ---------------- ---------------- -----------------
Donald J. Robinson $42,500(2) $-0- $-0- $ 60,500
- - - ------------------ -------------- ---------------- ---------------- -----------------
Doris H. Smith $40,500 $-0- $-0- $ 40,500
- - - ------------------ -------------- ---------------- ---------------- -----------------
<FN>
- - - ------------
(1)There are 107 investment companies in the Alliance Fund Complex.
(2)Including amounts deferred.
(3)Completely deferred.
</TABLE>
COMPENSATION OF TRUSTEES
Each Trustee, other than those who are "interested persons" of the Trust (as
defined in the Investment Company Act), receives from the Trust an annual fee
of $29,000, plus an additional fee of $4,000 per board meeting and $2,000 per
committee meeting attended. The meeting fee paid to the Trustee acting as
chairman of the meeting is increased by 50%. The Chairman of the Board
receives an additional annual retainer of $7,000. Trustees receive $1,000 for
each day spent performing special services requested by the Chairman or the
President of the Trust, and reimbursement for expenses in connection with the
performance of regular and special services.
During the year ended December 31, 1995 the Trust paid total retainer and
meeting fees of $310,750 (including deferrals of $69,000).
A deferred compensation plan for the benefit of the Trustees has been adopted
by the Trust. Under the plan each Trustee may defer payment of all or part of
the fees payable for such Trustee's services. Each Trustee may defer payment
of such fees until his retirement as a Trustee or until the earlier
attainment of a specified age. Fees deferred under the plan, together with
accrued interest thereon, will be disbursed to a participating Trustee in
monthly installments over a five to twenty year period elected by such
Trustee.
THE TRUST'S OFFICERS
No officer of the Trust receives any compensation paid by the Trust. Each
officer of the Trust is an employee of Alliance or Equitable. The Trust's
principal executive officers are:
<TABLE>
<CAPTION>
NAME AND AGE POSITION WITH TRUST PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- - - ------------------------------ --------------------------------- -----------------------------------------------
<S> <C> <C>
James M. Benson (49) President and Chief Executive President and Chief Operating Officer,
Officer Equitable (February 1994 to present); Senior
Executive Vice President, Equitable (April 1993
to February 1994); Director, Association for
Advanced Life Underwriting, Health Plans, Inc.
(August 1988 to present).
23
<PAGE>
NAME AND AGE POSITION WITH TRUST PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- - - ------------------------------ --------------------------------- -----------------------------------------------
Mark D. Gersten (45) Treasurer and Chief Financial Senior Vice President, Alliance Fund Services,
Officer Inc. (AFS) with which he has been associated
since prior to 1991.
Laura Mah (40) Controller and Chief Accounting Vice President, Alliance Capital Management
Officer Corporation (ACMC) (July 1993 to present);
Equitable Capital Management Corporation (ECMC)
(April 1989 to July 1993).
Bruce Calvert (49) Vice President Vice Chairman and Chief Investment Officer of
ACMC with which he has been associated since
prior to 1991.
Kathleen A. Corbet (36) Vice President Senior Vice President, ACMC (July 1993 to
present); Executive Vice President, ECMC (June
1992 to July 1993); Senior Vice President, ECMC
(May 1991 to June 1992); Managing Director,
ECMC (September 1988 to May 1991).
Nelson R. Jantzen (51) Vice President Senior Vice President, ACMC (July 1993 to
present); Executive Vice President, ECMC (June
1992 to July 1993); Senior Vice President, ECMC
(February 1990 to June 1992); Managing
Director, ECMC (January 1987 to February 1990).
Director, Equitable Capital DHO Ltd. (November
1990 to July 1993); Secretary and Treasurer,
Equitable Capital Diversified Holdings L.P. II
(February 1990 to July 1993); Secretary and
Treasurer, Equitable Capital Diverisifed
Holdings L.P. I (May 1989 to July 1993);
Investment Officer, Equitable Variable
(February 1977 to July 1993); Investment
Officer, Equitable (February 1977 to July
1993).
Barbara J. Krumsiek (43) Vice President Senior Vice President, Alliance Fund
Distributors Inc. (AFD) (July 1993 to present);
Executive Vice President, ECMC (June 1992 to
July 1993); Senior Vice President, ECMC (March
1987 to June 1992).
Wayne D. Lyski (54) Vice President Executive Vice President, ACMC with which he
has been associated since prior to 1991.
24
<PAGE>
NAME AND AGE POSITION WITH TRUST PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- - - ------------------------------ --------------------------------- -----------------------------------------------
Michael S. Martin (49) Vice President Chairman and Director, Equico Securities, Inc.
(January 1992 to present); Chairman and
Director, TRAEBCO (January 1992 to present);
Chairman and Director, Frontier Trust Company
(January 1992 to present); Senior Vice
President, Equitable (January 1988 to present).
Samuel B. Shlesinger (49) Vice President Senior Vice President, Equitable Variable
(February 1986 to present); Senior Vice
President, Equitable (November 1986 to
present); President and Chief Executive
Officer, Equitable of Colorado (October 1985 to
present).
Alden M. Stewart (50) Vice President Executive Vice President, ACMC (July 1993 to
present); ECMC since prior to 1991.
Edmund P. Bergan, Jr. (45) Secretary Senior Vice President and General Counsel, AFD
with which he has been associated since prior
to 1991.
</TABLE>
25
<PAGE>
INVESTMENT ADVISORY AND OTHER SERVICES
GENERAL INFORMATION
Alliance, an investment adviser registered with the SEC under the Investment
Advisers Act of 1940, has served as the investment adviser to the Trust since
July 22, 1993. Alliance is a major international investment adviser that
serves its clients, who primarily are major corporate employee benefit funds,
public employee retirement systems, investment companies, foundations and
endowment funds, with a staff of more than 1,400 employees operating out of
domestic offices and the overseas offices of subsidiaries in London, England;
Tokyo, Japan; Vancouver and Toronto, Canada; Melbourne, Australia; and
Dusseldorf, Germany. The principal offices of Alliance are located at 1345
Avenue of the Americas, New York, New York 10105.
Alliance is a publicly-traded Delaware limited partnership whose limited
partnership interests, represented by units, are listed on the New York Stock
Exchange. As of March 1, 1996, ACMC, Inc. and Equitable Capital Management
Corporation, each a wholly-owned direct or indirect subsidiary of Equitable,
owned in the aggregate approximately 57.6% of the issued and outstanding
units representing assignments of beneficial ownership of limited partnership
interests in the Adviser ("Units"), and approximately 32.4% and 10.0% of the
Units were owned by the public and employees of the Adviser and its
subsidiaries, respectively, calculated. ACMC, the sole general partner of,
and the owner of a 1% general partnership interest in, Alliance, is a
wholly-owned subsidiary of Equitable Investment Corporation (EIC), which in
turn is wholly-owned by Equitable Holding Corporation (EHC), a wholly-owned
subsidiary of Equitable.
Equitable, which is a New York life insurance company and one of the largest
life insurance companies in the United States, is a wholly-owned subsidiary
of The Equitable Companies Incorporated (The Equitable Companies), a
publicly-owned holding company. The principal offices of The Equitable
Companies and Equitable are located at 787 Seventh Avenue, New York, New York
10019.
AXA, a French insurance holding company, currently owns approximately 63.9%
of the outstanding voting shares of common stock of The Equitable Companies.
Under its investment arrangements with Equitable and The Equitable Companies,
AXA is able to exercise significant influence over the operations and capital
structure of The Equitable Companies, Equitable and their subsidiaries. AXA
is the principal holding company for most of the companies in one of the
largest insurance groups in Europe. The majority of AXA's stock is owned by a
group of five French mutual insurance companies, the AXA Group, which is the
third largest insurance group in France and one of the largest insurance
groups in Europe. Principally engaged in property and casualty insurance and
life insurance in Europe and elsewhere in the world, the AXA Group is also
involved in real estate operations and certain other financial services,
including mutual fund management, lease financing services and brokerage
services.
ADVISORY AGREEMENT
The Investment Advisory Agreement terminates automatically in the event of
its assignment or, with respect to any Portfolio, upon 60 days' notice given
by the Trust's Board of Trustees, by Alliance or by majority vote (as defined
in the Investment Company Act and the rules thereunder) of the Portfolio's
shares. Otherwise, the term of the Investment Advisory Agreement on behalf of
each Portfolio is two years, but the Agreement will remain in effect from
year to year with respect to any Portfolio so long as its continuance is
approved at least annually by a majority of the non-interested members of the
Board of Trustees, and by (i) a majority vote (as defined in the Investment
Company Act and the rules thereunder) of the Portfolio's shareholders or (ii)
the Board of Trustees.
26
<PAGE>
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 .... .550% .525% .500%
Balanced ................... .400% .375% .350%
Growth Investors ........... .550% .525% .500%
Common Stock ............... .400% .375% .350%
Global ..................... .550% .525% .500%
Aggressive Stock ........... .500% .475% .450%
Money Market ............... .400% .375% .350%
Intermediate Goverment
Securities ................ .500% .475% .450%
High Yield ................. .550% .525% .500%
FIRST $500 NEXT $500
MILLION MILLION OVER $1 BILLION
---------------- ---------------- ----------------
Growth and Income .......... .550% .525% .500%
Quality Bond ............... .550% .525% .500%
FIRST $750 NEXT $750 OVER $1.5
MILLION MILLION BILLION
---------------- ---------------- ----------------
Equity Index ............... .350% .300% .250%
FIRST $500 OVER $1.5
MILLION NEXT $1 BILLION BILLION
---------------- ---------------- ----------------
International .............. .900% .850% .800%
</TABLE>
Because of undertakings made by Equitable Variable in connection with the
Reorganization, Equitable Variable reimburses the Common Stock and Money
Market Divisions of its Continuing Separate Account to offset completely the
effect on such divisions of the portion of the Trust's advisory fees
applicable to such divisions which exceed a .25% effective annual rate. In
addition, Equitable Variable reimburses the High Yield, Aggressive Stock and
Balanced Divisions of its Separate Account I for the portion of the Trust's
advisory fees applicable to those divisions which exceeds a .25% effective
annual rate. Because of expense limits in the variable annuity contracts
funded by its Separate Account A, Equitable reimburses the Common Stock,
Money Market and Balanced Division of that separate account for the portion
of the Trust's advisory fees applicable to those divisions which exceeds a
.26% effective rate, and the Aggressive Stock Division for the portion that
exceeds a .41% effective rate. Policies sold by insurers other than Equitable
and Equitable Variable and newer policy designs of Equitable Variable bear
the advisory fees without adjustment. For a discussion of the Reorganization,
see "General Information," above.
In 1995, the Trust paid advisory fees of $40,636,168 to Alliance. In 1994,
the Trust paid advisory fees of $31,614,475 to Alliance. In 1993, the Trust
paid advisory fees of $15,066,885 to Equitable Capital Management Corporation
(Equitable Capital), the Trust's prior investment adviser, for the period
January 1, 1993 to July 22, 1993 and advisory fees of $9,858,491 to Alliance
for the period July 23, 1993 to December 31, 1993.
27
<PAGE>
SPECIFIC SERVICES PERFORMED
Alliance performs the following services for or on behalf of the Trust
pursuant to the Investment Advisory Agreement.
Subject to the approval and supervision of the Board of Trustees, Alliance
exercises overall responsibility for the investment and reinvestment of the
Trust's assets. Alliance manages each Portfolio and is responsible for the
investment operations of the Trust and the composition of each Portfolio,
including the purchase, retention and disposition of the investments,
securities and cash contained therein, in accordance with each Portfolio's
investment objectives and policies as stated in the Trust's Declaration of
Trust, By-laws, Prospectus and SAI as from time to time in effect. In
connection therewith, Alliance provides investment research and supervision
of the Trust's investments and conducts a continuous program of investment
evaluation and, if appropriate, sales and reinvestment of the Trust's assets.
Alliance furnishes to the Trust such statistical information, with respect to
the investments which the Trust may hold or contemplate purchasing, as the
Trust may reasonably request. On Alliance's own initiative, it apprises the
Trust of important developments materially affecting each Portfolio and
furnishes the Trust from time to time such information as it may believe
appropriate for this purpose. In addition, Alliance furnishes to the Board of
Trustees such periodic and special reports as the Board may reasonably
request. Alliance also implements all purchases and sales of investments for
each Portfolio in a manner consistent with such investment policies, as from
time to time amended.
Alliance, on behalf of the Trust, arranges for the placement of orders and
other execution of transactions for each Portfolio. Alliance furnishes to the
Trust, at least once every three months, a schedule of the investments and
other assets held in each Portfolio and a statement of all purchases and
sales for each Portfolio made during the period since the last preceding
report. Alliance prepares the financial statements for the Trust's
Prospectuses, SAIs and annual and semi-annual reports to shareholders and
furnishes such other investment accounting services as the Trust may from
time to time reasonably request. Alliance computes the Trust's net asset
value per share for each Portfolio on a daily basis.
At the Trust's request, Alliance provides, without charge, personnel, who may
be the Trust's officers, to render such clerical, accounting, administrative
and other services, other than investor services, to the Trust as it may from
time to time request. Also, Alliance furnishes to the Trust, without charge,
such office facilities, which may be Alliance's own offices, as Alliance may
believe appropriate or as the Trust may reasonably request, subject to the
requirements of any regulatory authority to which Alliance may be subject.
However, the Trust may also hire its own employees and contract for services
to be performed by third parties.
Pursuant to the terms of the Investment Advisory Agreement, Alliance has
contracted with Equitable for the provision of certain administrative
services to the Trust.
Alliance also performs investment advisory services for certain of
Equitable's separate and advisory accounts and for other clients, including
mutual funds registered as investment companies under the Investment Company
Act, some of which fund Contracts issued by Equitable, Equitable Variable and
certain other unaffiliated insurance companies. There are occasions on which
transactions for the Trust may be executed as part of concurrent
authorizations to purchase or sell the same security for Equitable's general
account or for other accounts or investment companies managed by Equitable or
Alliance. These concurrent authorizations potentially can be either
advantageous or disadvantageous to the Trust. When these concurrent
authorizations occur, the objective is to allocate the executions and related
brokerage charges among the accounts or mutual funds in an equitable manner.
BROKERAGE ALLOCATION
SELECTION OF BROKERS
Pursuant to the Investment Advisory Agreement, Alliance, on behalf of the
Trust, arranges for the placement of orders and other transactions for each
Portfolio.
28
<PAGE>
BROKERAGE COMMISSIONS
The Portfolios are charged for securities brokers' commissions, transfer
taxes and similar fees relating to securities transactions. Alliance seeks to
obtain the best price and execution on all orders placed for the Portfolios,
considering all the circumstances except to the extent it may be permitted to
pay higher commissions as described below.
It is expected that securities will ordinarily be purchased in the primary
markets, whether over-the- counter or listed, and that listed securities may
be purchased in the over-the-counter market if that market is deemed the
primary market.
Transactions on stock exchanges involve the payment of brokerage commissions.
In transactions on stock exchanges in the United States, these commissions
are negotiated, whereas on many foreign stock exchanges these commissions are
fixed. However, brokerage commission rates in certain countries in which the
Portfolios may invest may be discounted for certain large domestic and
foreign investors such as the Portfolios. A number of foreign banks and
brokers will be used for execution of each Portfolio's portfolio
transactions. In the case of securities traded in the foreign and domestic
over-the-counter markets, there is generally no stated commission, but the
price usually includes an undisclosed com- mission or mark-up. In
underwritten offerings, the price generally includes a disclosed fixed
commission or discount.
Alliance may, in the allocation of brokerage business, take into
consideration research and other brokerage services provided by brokers and
dealers to Equitable or Alliance. The research services include economic,
market, industry and company research material. Based upon an assessment of
the value of research and other brokerage services provided, proposed
allocations of brokerage for commission transactions are periodically
prepared internally.
In limited cases, certain brokers have been advised informally that, although
the Trust is under no legal obligation, an attempt will be made to meet the
internally proposed level of allocated brokerage business to the broker for
brokerage and research services over a period of time. Equitable Variable and
its affiliates, in their insurance and investment operations, and Alliance,
in its investment advisory operations, engage in transactions in the normal
course of business with brokers and dealers which execute orders of the
Portfolios. The allocation of the Trust's portfolio brokerage business is not
affected by such transactions.
Commissions charged by brokers which provide research services may be
somewhat higher than commissions charged by brokers which do not provide
them. As permitted by Section 28(e) of the Securities Exchange Act of 1934
and by policies adopted by the Trustees, Alliance may cause the Trust to pay
a broker-dealer which provides brokerage and research services to Alliance an
amount of commission for effecting a securities transaction for the Trust in
excess of the commission another broker-dealer would have charged for
effecting that transaction.
Alliance does not engage brokers whose commissions it believes to be
unreasonable in relation to services provided. The overall reasonableness of
commissions paid will be evaluated by rating brokers on such general factors
as execution capabilities, quality of research (that is, quantity and quality
of information provided, diversity of sources utilized, nature and frequency
of communication, professional experience, analytical ability and
professional stature of the broker) and financial standing, as well as the
net results of specific transactions, taking into account such factors as
price, promptness, size of order and difficulty of execution. The research
services obtained will, in general, be used by Alliance for the benefit of
all accounts for which it makes investment decisions. The receipt of research
services from brokers will tend to reduce Alliance's expenses in managing the
Portfolios other than the Money Market Portfolio. This has been taken into
account when setting the amount paid for managing those Portfolios. Although
orders may be given by the Money Market Portfolio to brokers or dealers which
provide research services to Alliance, the fact that the investment adviser
may benefit from such research has not been considered when setting the
amount paid for managing that Portfolio. This is because Money Market
Portfolio transactions will generally be with issuers or market makers where
no commissions are charged. In 1993 the Trust paid an aggregate of
$14,267,261 in brokerage commissions of which $2,154,951 was paid to
29
<PAGE>
brokers relating to transactions aggregating $1,230,357,454 which were
directed to them in part for research services provided by them. In 1994 the
Trust paid an aggregate of $15,624,978 in brokerage commissions of which
$3,918,833 was paid to brokers relating to transactions aggregating
$1,594,352,806 which were directed to them in part for research services
provided by them. In 1995 the Trust paid an aggregate of $21,329,056 in
brokerage commissions of which $18,468,344 was paid to brokers relating to
transactions aggregating $8,928,306,482 which were directed to them in part
for research services provided by them.
BROKERAGE TRANSACTIONS WITH AFFILIATES
To the extent permitted by law, the Trust may engage in brokerage
transactions with its affiliate, Donaldson, Lufkin & Jenrette, Inc. (DLJ),
with brokers who are DLJ affiliates, or with unaffiliated brokers who trade
or clear through DLJ. 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 the Investment Company Act, which are reasonably designed to provide that
any commissions or other remuneration it pays to DLJ or its affiliates do not
exceed the usual and customary broker's commission. In addition, the Trust
will adhere to the requirements under the Securities Exchange Act of 1934
governing floor trading. Also, due to securities law limitations, the Trust
will limit purchases of securities in a public offering, if such securities
are underwritten by DLJ or its affiliates. During the years ended December
31, 1993, December 31, 1994, and December 31, 1995, the Trust paid no
brokerage commissions to DLJ.
TRUST EXPENSES AND OTHER CHARGES
Pursuant to the Trust's Investment Advisory Agreement, Alliance is obligated
to pay all of the Trust's operating expenses not specifically assumed by the
Trust. In addition, as principal underwriter, Equitable Variable will bear
the Trust's marketing expenses. Although the Trust does specifically assume
certain of its operating expenses (in addition to the investment advisory
fee), a daily adjustment will be made in the values under certain Contracts
outstanding and offered by Equitable and Equitable Variable when their
management separate accounts were reorganized into unit investment trust form
to offset completely the impact of any such expense on values under such
Contracts. Contracts sold by insurers other than Equitable and Equitable
Variable and new policy designs of Equitable and Equitable Variable bear such
expenses without adjustment. Although Equitable and Equitable Variable do not
expect the Trust to incur any federal income or excise tax liability (see
"Dividends, Distributions and Taxes" in the Prospectus), Equitable and
Equitable Variable reserve the right to exclude any such taxes from such
adjustments.
The expenses which the Trust will pay directly are set forth in the
Prospectus.
PURCHASE AND PRICING OF SECURITIES
As stated in the Prospectus, the Trust will offer and sell its shares at each
Portfolio's per share net asset value, which will be determined in the manner
set forth below.
The net asset value of the shares of each Portfolio of the Trust will be
determined once daily, immediately after the declaration of dividends, if
any, at the close of business on each business day. The net asset value per
share of each Portfolio will be computed by dividing the sum of the
investments held by that Portfolio, plus any cash or other assets, minus all
liabilities, by the total number of outstanding shares of that Portfolio at
such time. All expenses borne by the Trust, including the investment advisory
fee payable to Alliance, will be accrued daily.
The net asset value per share of any series (i.e., Portfolio) will be
determined and computed as follows, in accordance with generally accepted
accounting principles, and consistent with the Investment Company Act:
o The assets belonging to each series will include (a) all consideration
received by the Trust for the issue or sale of shares of that particular
series, together with all assets in which such consideration
30
<PAGE>
is invested or reinvested, (b) all income, earnings, profits, and proceeds
thereof, including any proceeds derived from the sale, exchange or
liquidation of such assets, (c) any funds or payments derived from any
reinvestment of such proceeds in whatever form the same may be and (d)
General Items, if any, allocated to that series. General Items includes any
assets, income, earnings, profits, and proceeds thereof, funds, or payments
which are not readily identifiable as belonging to any particular series.
General Items will be allocated as the Trust's Board of Trustees considers
fair and equitable.
o The liabilities belonging to each series will include (a) the
liabilities of the Trust in respect of that series, (b) all expenses, costs,
charges and reserves attributable to that series, and (c) any general
liabilities, expenses, costs, charges or reserves of the Trust which are not
readily identifiable as belonging to any particular series which have been
allocated as the Trust's Board of Trustees considers fair and equitable.
The value of each Portfolio will be determined at the close of business on
each "business day," i.e., each day in which the degree of trading in the
Portfolio might materially affect the net asset value of such Portfolio.
Normally, this would be each day that the New York Stock Exchange is open and
would include some Federal holidays. For stocks and options, the close of
trading is the 4:00 p.m. and 4:15 p.m. close respectively of the New York
Stock Exchange and the Options Price Reporting Authority; for bonds it is the
close of business in New York City, and for foreign securities it is the
close of business in the applicable foreign country with exchange rates
determined at 2:00 p.m. New York City time.
Values are determined according to accepted accounting practices and all laws
and regulations that apply. The assets of each Portfolio are valued as
follows:
o Stocks listed on national securities exchanges and certain
over-the-counter issues traded on the NASDAQ national market system are
valued at the last sale price, or, if there is no sale, at the latest
available bid price. Other unlisted stocks are valued at their last sale
price or, if there is no reported sale during the day, at a bid price
estimated by a broker.
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 is
converted into its U.S. dollar equivalent at current exchange rates.
o U.S. Treasury securities and other obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities, are valued at
representative quoted prices.
o Long-term corporate bonds are valued at prices obtained from a bond
pricing service of a major dealer in bonds when such prices are available;
however, when such prices are not available, such bonds are valued at a bid
price estimated by a broker.
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. Short-term debt securities in such
Portfolios which mature in more than 60 days are valued at representative
quoted prices. Securities held by the Money Market Portfolio are valued at
prices based on equivalent yields or yield spreads.
o Convertible preferred stocks listed on national securities exchanges
are valued as of their last sale price or, if there is no sale, at the latest
available bid price.
o Convertible bonds, and unlisted convertible preferred stocks, are
valued at bid prices obtained from one or more of the major dealers in such
bonds or stocks. Where there is a discrepancy between dealers, values may be
adjusted based on recent premium spreads to the underlying common stocks.
o Mortgage backed and asset backed securities are valued at prices
obtained from a bond pricing service where available, or at a bid price
obtained from one or more of the major dealers in such securities. If a
quoted price is unavailable, an equivalent yield or yield spread quotes will
be obtained from a broker and converted to a price.
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o Purchased options, including options on futures, are valued at their
last bid price. Written options are valued at their last asked price.
o Futures contracts are valued as of their last sale price or, if there
is no sale, at the latest available bid price.
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.
The market value of a put or call option will usually reflect, among other
factors, the market price of the underlying security.
When the Trust writes a call option, an amount equal to the premium received
by the Trust is included in the Trust's financial statements as an asset and
an equivalent liability. The amount of the liability is subsequently
marked-to-market to reflect the current market value of the option written.
When an option expires on its stipulated expiration date or the Trust enters
into a closing purchase or sale transaction, the Trust realizes a gain (or
loss) without regard to any unrealized gain or loss on the underlying
security, and the liability related to such option is extinguished. When an
option is exercised, the Trust realizes a gain or loss from the sale of the
underlying security, and the proceeds of sale are increased by the premium
originally received, or reduced by the price paid for the option.
Alliance may, from time to time, under the general supervision of the Board
of Trustees or its valuation committee, utilize the services of one or more
pricing services available in valuing the assets of the Trust. Alliance will
continuously monitor the performance of these services.
CERTAIN TAX CONSIDERATIONS
Each Portfolio is treated for Federal income tax purposes as a separate
taxpayer. 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 (the Code). Such qualification does not
involve supervision of management or investment practices or policies by any
governmental agency or bureau.
As a regulated investment company, each Portfolio will not be subject to
federal income or excise tax on any of its net investment income or net
realized capital gains which are timely distributed to shareholders under the
Code. Under present law, as a Massachusetts business trust doing business in
New York, a Portfolio will also not be subject to any excise or income taxes
in Massachusetts or New York on such amounts. A number of technical rules are
prescribed for computing net investment income and net capital gains. For
example, dividends are generally treated as received on the ex-dividend date.
Also, certain foreign currency losses and capital losses arising after
October 31 of a given year may be treated as if they arise on the first day
of the next taxable year.
Portfolios investing in foreign securities or currencies may be subject to
foreign taxes which could reduce the investment performance of such
Portfolios. However, if foreign securities comprise more than 50% of the
year-end value of any Portfolio, the Portfolio may elect to pass through such
foreign taxes as a deemed dividend to shareholders. In such a case the
shareholder and not the Portfolio would be entitled to claim a Federal tax
deduction or credit for foreign taxes, as appropriate. As of December 31,
1994 only the Global Portfolio qualified to pass through foreign tax paid to
its shareholders.
To qualify for treatment as a regulated investment company, a Portfolio must,
among other things, derive in each taxable year at least 90% of its gross
income from dividends, interest, payments with respect to securities loans,
gains from the sale or other disposition of stock or securities or foreign
currencies, or other income derived with respect to its business of
investing. A Portfolio must also derive less than 30% of its gross income in
each taxable year from gains from the sale or other disposition of stock or
securities held for less than three months. Other investments subject to this
three-month limit are options, futures or forward contracts (other than those
relating to foreign currency), or in certain circumstances, foreign
currencies and related options, futures and forward contracts the gains on
which are not directly related
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to the Portfolio's business of investing in stock or securities. This 30%
rule may be inapplicable in the context of certain abnormal redemptions of
Portfolio shares. For purposes of these tests, gross income is determined
without regard to losses from the sale or other disposition of stock or
securities.
In addition, the Secretary of the Treasury has regulatory authority to
exclude from qualifying income described above foreign currency gains which
are not "directly related" to a regulated investment company's "principal
business of investing" in stock, securities or related options or futures.
The Secretary of the Treasury has not to date exercised this authority.
Generally, in order to avoid a 4% nondeductible excise tax, each Portfolio of
the Trust must distribute to its shareholders during the calendar year the
following amounts:
o 98% of the Portfolio's ordinary income for the calendar year;
o 98% of the Portfolio's capital gain net income (all capital gains, both
long-term and short-term, minus all such capital losses), all computed as if
the Portfolio were on a taxable year ending October 31 of the year in
question and beginning the previous November 1; and
o any undistributed ordinary income or capital gain net income for the
prior year.
The excise tax is inapplicable to any regulated investment company whose sole
shareholders are either tax-exempt pension trusts or separate accounts of
life insurance companies funding variable contracts. Although each Portfolio
believes that it is not subject to the excise tax, the Portfolios intend to
make the distributions required to avoid the imposition of such a tax.
Because the Trust is used to fund non-qualified Contracts each Portfolio must
meet the diversification requirements imposed by the Code or these policies
will fail to qualify as life insurance and annuities. In general, for a
Portfolio to meet the investment diversification requirements of Subchapter L
of the Code, Treasury regulations require that no more than 55% of the total
value of the assets of the Portfolio may be represented by any one
investment, no more than 70% by two investments, no more than 80% by three
investments and no more than 90% by four investments. Generally, for purposes
of the regulations, all securities of the same issuer are treated as a single
investment. In the context of United States Government securities (including
any security that is issued, guaranteed or insured by the United States or an
instrumentality of the United States) each U.S. Government agency or
instrumentality is treated as a separate issuer. Compliance with the
regulations is tested on the last day of each calendar year quarter. There is
a 30 day period after the end of each calendar year quarter in which to cure
any non-compliance.
PORTFOLIO PERFORMANCE
MONEY MARKET PORTFOLIO YIELD
The Money Market Portfolio calculates yield information for seven-day
periods. The seven-day current yield calculation is based on a hypothetical
shareholder account with one share at the beginning of the period. To
determine the seven-day rate of return, the net change in the share value is
computed by subtracting the share value at the beginning of the period from
the share value (exclusive of capital changes) at the end of the period. The
net change is divided by the share value at the beginning of the period to
obtain the base period rate of return. This seven-day base period return is
then multiplied by 365/7 to produce an annualized current yield figure
carried to the nearest one-hundredth of one percent.
Realized capital gains or losses and unrealized appreciation or depreciation
of the Portfolio are excluded from this calculation. The net change in share
values also reflects all accrued expenses of the Money Market Portfolio as
well as the value of additional shares purchased with dividends from the
original shares and any additional shares.
The effective yield is obtained by adjusting the current yield to give effect
to the compounding nature of the Money Market Portfolio's investments, as
follows: The unannualized base period return is compounded by adding one to
the base period return, raising the sum to a power equal to 365 divided by 7,
and subtracting one from the result--i.e., effective yield = [(base period
return +1)365/7] - 1.
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Money Market Portfolio yields will fluctuate daily. Accordingly, yields for
any given period are not necessarily representative of future results. Yield
is a function of the type and quality of the instruments in the Money Market
Portfolio, maturities and rates of return on investments, among other
factors. In addition, the value of shares of the Money Market Portfolio will
fluctuate and not remain constant.
The Money Market Portfolio yield may be compared with yields of other
investments. However, it should not be compared to the return on fixed rate
investments which guarantee rates of interest for specified periods. The
yield also should not be compared to the yield of money market funds made
available to the general public because their yields usually are calculated
on the basis of a constant $1 price per share and they pay out earnings in
dividends which accrue on a daily basis. Investment income of the Money
Market Portfolio, including any realized gains as well as accrued interest,
is not paid out in dividends but is reflected in the share value. The Money
Market Portfolio yield also does not reflect insurance company charges and
fees applicable to Contracts.
The seven-day current yield for the Money Market Portfolio was 5.44% for the
period ended December 31, 1995. The effective yield for that period was
5.44%.
QUALITY BOND, GOVERNMENT AND HIGH YIELD PORTFOLIO YIELDS
Yields of the Quality Bond, Government and High Yield Portfolios will be
computed by annualizing net investment income, as determined by the SEC's
formula, calculated on a per share basis for a recent 30-day period and
dividing that amount by a Portfolio share's net asset value (reduced by any
undeclared earned income expected to be paid shortly as a dividend) on the
last trading day of that period. Net investment income will reflect
amortization of any market value premium or discount of fixed income
securities (except for obligations backed by mortgages or other assets) over
such period and may include recognition of a pro rata portion of the stated
dividend rate of dividend paying portfolio securities. The Portfolios' yields
will vary from time to time depending upon market conditions, the
compostition of each Portfolio's portfolio and operating expenses of the
Trust allocated to each Portfolio. Yield should also be considered relative
to changes in the value of a Portfolio's shares and to the relative risks
associated with the investment objectives and policies of the Portfolios.
These yields do not reflect insurance company charges and fees applicable to
the Contracts.
At any time in the future, yields and total return may be higher or lower
than past yields and there can be no assurance that any historical results
will continue.
The 30 day yields for the Quality Bond, Government and High Yield Portfolios
for the period ended December 31, 1995 were 5.31%, 6.28% and 10.57%,
respectively.
TOTAL RETURN CALCULATIONS
Each Portfolio may provide average annual total return information calculated
according to a formula prescribed by the SEC. According to that formula,
average annual total return figures represent the average annual compounded
rate of return for the stated period. Average annual total return quotations
reflect the percentage change between the beginning value of a static account
in the Portfolio and the ending value of that account measured by the then
current net asset value of that Portfolio assuming that all dividends and
capital gains distributions during the stated period were invested in shares
of the Portfolio when paid. Total return is calculated by finding the average
annual compounded rates of return of a hypothetical investment that would
equate the initial amount invested to the ending redeemable value of such
investment, according to the following formula:
T = (ERV/P)1/n - 1
where T equals average annual total return; where ERV, the ending redeemable
value, is the value at the end of the applicable period of a hypothetical
$1,000 investment made at the beginning of the applicable period; where P
equals a hypothetical initial investment of $1,000; and where n equals the
number of years.
The average annual total returns through December 31, 1995 for the Common
Stock Portfolio for one year, five years, and 10 years were 32.45%, 18.16%,
and 15.16%, respectively.
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The average annual total returns through December 31, 1995 for the
Intermediate Government Securities Portfolio for one year and since inception
(on April 1, 1991) were 13.33%, and 7.63%, respectively.
The average annual total returns through December 31, 1995 for the High Yield
Portfolio for one year, five years, and since inception (on January 2, 1987)
were 19.92%, 14.95%, and 10.20%, respectively.
The average annual total returns through December 31, 1995 for the Balanced
Portfolio for one year, five years, and since inception (on January 27, 1986)
were 19.75%, 11.17%, and 12.08%, respectively.
The average annual total returns through December 31, 1995 for the Global
Portfolio for one year, five years, and since inception (on August 27, 1987)
were 18.81%, 16.49%, and 11.36%, respectively.
The average annual total returns through December 31, 1995 for the Aggressive
Stock Portfolio for one year, five years, and since inception (on January 27,
1986) were 31.63%, 21.75%, and 20.02%, respectively.
The average annual total returns through December 31, 1995 for the
Conservative Investors Portfolio for one year, five years, and since
inception (on October 2, 1989) were 20.40%, 10.15%, and 9.65%, respectively.
The average annual total returns through December 31, 1995 for the Growth
Investors Portfolio for one year, five years, and since inception (on October
2, 1989) were 26.37%, 17.13%, and 16.05%, respectively.
The average annual total returns through December 31, 1995 for the Quality
Bond Portfolio for one year and since inception (on October 1, 1993) were
17.02% and 4.54%, respectively.
The average annual total returns through December 31, 1995 for the Growth and
Income Portfolio for one year and since inception (on October 1, 1993) were
24.07% and 9.66%, respectively.
The average annual total return through December 31, 1995 for the Equity
Index Portfolio for one year and since inception (on March 1, 1994) was
36.48% and 19.11%, respectively.
The aggregate annual total return through December 31, 1995 for the
International Portfolio since inception (April 3, 1995) was 11.29%.
Each Portfolio, from time to time, also may advertise its cumulative total
return figures. Cumulative total return is the compound rate of return on a
hypothetical initial investment of $1,000 for a specified period. Cumulative
total return quotations reflect changes in the price of a Portfolio's shares
and assume that all dividends and capital gains distributions during the
period were reinvested in shares of that Portfolio. Cumulative total return
is calculated by finding the compound rates of return of a hypothetical
investment over such period, according to the following formula (cumulative
total return is then expressed as a percentage):
C = (ERV/P) - 1
Where:
C = Cumulative Total Return
P = a hypothetical initial investment of $1,000
ERV = ending redeemable value; ERV is the value, at the end of the applicable
period, of a hypothetical $1,000 investment made at the beginning of the
applicable period.
The cumulative total return, since the inception of each Portfolio through
December 31, 1995, for the Common Stock, Intermediate Government Securities,
High Yield, Balanced, Global, Aggressive Stock, Conservative Investors,
Growth Investors, Quality Bond, Growth and Income, Equity Index and
International Portfolios were 1,468.54%, 41.83%, 139.75%, 210.41%, 145.55%,
512.26%, 77.86%, 153.57%, 10.50%, 23.05%, 37.96% and 11.29%, respectively.
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OTHER SERVICES
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP, 1177 Avenue of the Americas, New York, New York 10036,
serves as the Trust's independent accountant. The financial statements of
the Common Stock, Money Market, Balanced, Aggressive Stock, High Yield,
Global, Conservative Investors, Growth Investors, Intermediate Government
Securities, Quality Bond, Growth and Income and Equity Index Portfolios for
the year ended December 31, 1995 and the International Portfolio for the
period April 3, 1995 (commencement of operations) through December 31, 1995,
which are included in this SAI, have been audited by Price Waterhouse LLP,
the Trust's independent accountant for such periods, as stated in their
report appearing herein, and have been so included in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
CUSTODIAN
The Chase Manhattan Bank, N.A., whose principal address is One Chase
Manhattan Plaza, New York, New York 10081, has been designated the Custodian
of the Trust's portfolio securities and other assets.
TRANSFER AGENT
Equitable serves as the transfer agent and dividend disbursing agent for the
Trust. For the year ended December 31, 1995, Equitable received no
compensation for providing such services for the Trust.
UNDERWRITER
The Trust has a distribution agreement with Equitable Distributors, Inc. (the
"Class B Distributor"), an indirect wholly-owned subsidiary of Equitable and
an affiliate of the Adviser in respect of the Class B shares. The address for
the Class B Distributor is 787 Seventh Avenue, New York, New York 10019.
The Trust's distribution agreement in respect of Class B shares dated , 199
(the "Class B Underwriting Agreement"), will remain in effect until , 199 ,
and from year to year thereafter only if its continuance is approved annually
by (1) a majority of the Trustees who are not parties to such agreement or
"interested persons" (as defined in the Investment Company Act) of the Trust or
a Portfolio and who have no direct or indirect financial interest in the
operation of the distribution plan adopted under Rule 12b-1 of the Investment
Company Act (the "Distribution Plan") or any such related agreement (the
"Independent Trustees") and (2) either by vote of a majority of the Trustees or
a majority of the outstanding voting securities of the Trust.
The Class B Distributor will pay for printing and distributing prospectuses
or reports prepared for its use in connection with the offering of the Class
B shares to the public and preparing, printing and mailing any other
literature or advertising in connection with the offering of the Class B
shares to the public. The Class B Distributor will pay all fees and expenses
in connection with its qualification and registration as a broker or dealer
under Federal and state laws and of any activity which is primarily intended to
result in the sale of Class B shares issued by the Trust, unless the
Distribution Plan in effect for Class B shares provides that the Trust shall
bear some or all of such expenses.
As agent, the Class B Distributor currently offers shares of each Portfolio
on a continuous basis to the separate accounts of insurance companies
offering the Contracts in all states in which the Portfolio or the Trust may
from time to time be registered or where permitted by applicable law. The
distribution agreement provides that the Class B Distributor accepts orders for
shares at net asset value without sales commission or load being charged.
The Class B Distributor has made no firm commitment to acquire shares of any
Portfolio.
A description of the Distribution Plan and related services and fees
thereunder is provided in the prospectus. On , 1996, the Board of Trustees of
the Trust unanimously approved the Distribution Plan. In connection with its
consideration of the Distribution Plan, the Board of Trustees was
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furnished with drafts of the Distribution Plan and the related materials,
including information related to the advantages and disadvantages of Rule
12b-1 plans currently being used in the mutual fund industry. Legal counsel
for the Independent Trustees provided additional information, summarized the
provisions of the proposed Distribution Plan and discussed the legal and
regulatory considerations in adopting such Distribution Plan.
The Board considered various factors in connection with its decision as to
whether to approve the Distribution Plan, including (a) the nature and causes
of the circumstances which make implementation of the Distribution Plan
necessary and appropriate; (b) the way in which the Distribution Plan would
address those circumstances, including the nature and potential amount of
expenditures; (c) the nature of the anticipated benefits; (d) the possible
benefits of the Distribution Plan to any other person relative to those of
the Trust; (e) the effect of the Distribution Plan on existing owners of
variable annuity contracts and variable life insurance policies; (f) the
merits of possible alternative plans or pricing structures; (g) competitive
conditions in the variable products industry and (h) the relationship of the
Distribution Plan to other distribution efforts of the Trust.
Based upon its review of the foregoing factors and the materials presented to
it, and in light of its fiduciary duties under relevant state law and the
Investment Company Act, the Board determined, in the exercise of its business
judgment, that the Distribution Plan is reasonably likely to benefit the Trust
and the shareholders of its Portfolios.
The Board realizes that there is no assurance that the expenditure of Trust
assets to finance distribution of Trust shares will have the anticipated
results. However, the Board believes there is a reasonable likelihood that
one or more of such benefits will result, and since the Board will be in a
position to monitor the distribution expenses of the Trust, it will be able
to evaluate the benefit of such expenditures in deciding whether to continue
the Distribution Plan.
The Distribution Plan and any Rule 12b-1 related agreement that is entered
into by the Trust or the Class B Distributor in connection with the
Distribution Plan will continue in effect for a period of more than one year
only so long as continuance is specifically approved at least annually by a
vote of a majority of the Trust's Board of Trustees, and of a majority of the
Independent Trustees, cast in person at a meeting called for the purpose of
voting on the Distribution Plan, or the Rule 12b-1 related agreement, as
applicable. In addition, the Distribution Plan and any Rule 12b-1 related
agreement may be terminated as to Class B shares of a Portfolio at any time,
without penalty, by vote of a majority of the outstanding Class B shares of
that Portfolio or by vote of a majority of the Independent Trustees. The
Distribution Plan also provides that it may not be amended to increase
materially the amount (up to .50% of average daily net assets annually) that may
be spent for distribution of Class B shares of a Portfolio without the approval
of Class B shareholders of that Portfolio.
FINANCIAL STATEMENTS
The Trust's financial statements for the fiscal year ended December 31,
1995 are incorporated by reference to the Trust's post-effective amendment no.
26, filed with the Securities and Exchange Commission pursuant to Rule
485(b) on May 1, 1996.
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APPENDIX A
DESCRIPTION OF COMMERCIAL PAPER RATINGS
A-1 AND PRIME-1 COMMERCIAL PAPER RATINGS
The rating A-1 (including A-1+) is the highest commercial paper rating
assigned by S&P. Commercial paper rated A-1 by S&P has the following
characteristics:
o liquidity ratios are adequate to meet cash requirements;
o long-term senior debt is rated "A" or better;
o the issuer has access to at least two additional channels of borrowing;
o basic earnings and cash flow have an upward trend with allowance made
for unusual circumstances;
o typically, the issuer's industry is well established and the issuer has
a strong position within the industry; and
o the reliability and quality of management are unquestioned.
Relative strength or weakness of the above factors determines whether the
issuer's commercial paper is rated A-1, A-2 or A-3. Issues rated A-1 that are
determined by S&P to have overwhelming safety characteristics are designated
A-1+.
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's. Among the factors considered by Moody's in assigning ratings are the
following:
o evaluation of the management of the issuer;
o economic evaluation of the issuer's industry or industries and an
appraisal of speculative-type risks which may be inherent in certain areas;
o evaluation of the issuer's products in relation to competition and
customer acceptance;
o liquidity;
o amount and quality of long-term debt;
o trend of earnings over a period of ten years;
o financial strength of parent company and the relationships which exist
with the issuer; and
o recognition by the management of obligations which may be present or may
arise as a result of public interest questions and preparations to meet
such obligations.
A-1
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PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
<TABLE>
<CAPTION>
<S> <C>
(a) Financial Statements:
The following financial statements are filed as part of this amended Registration Statement.
Included in Part A -- Prospectus of the Registration Statement: Financial Highlights.
Included in Part B -- Statement of Additional Information of the Registration Statement:
* Audited Statements of Assets and Liabilities as of December 31, 1995.
* Audited Statements of Operations for the year ended December 31, 1995.
* Audited Statements of Changes in Net Assets of the Common Stock, Money Market, Balanced, Aggressive
Stock, High Yield, Global, Conservative Investors, Growth Investors, Quality Bond, Growth and Income
and Intermediate Government Securities Portfolios for the years ended December 31, 1995 and 1994,
of the Equity Index Portfolio for the year ended December 31, 1995 and for the period from March
1, 1994 (date of commencement of operations) through December 1, 1994 and of the International Portfolio
for the period from April 3, 1995 (date of commencement of operations) through December 31, 1995.
* Money Market Portfolio Audited Portfolio of Investments as of December 31, 1995.
* Intermediate Government Securities Portfolio Audited Portfolio of Investments as of December 31,
1995.
* Quality Bond Portfolio Audited Portfolio of Investments as of December 31, 1995.
* High Yield Portfolio Audited Portfolio of Investments as of December 31, 1995.
* Balanced Portfolio Audited Portfolio of Investments as of December 31, 1995.
* Growth and Income Portfolio Audited Portfolio of Investments as of December 31, 1995.
* Equity Index Portfolio Audited Portfolio of Investments as of December 31, 1995.
* Common Stock Portfolio Audited Portfolio of Investments as of December 31, 1995.
* Global Portfolio Audited Portfolio of Investments as of December 31, 1995.
* Aggressive Stock Portfolio Audited Portfolio of Investments as of December 31, 1995.
* Conservative Investors Portfolio Audited Portfolio of Investments as of December 31, 1995.
* Growth Investors Portfolio Audited Portfolio of Investments as of December 31, 1995.
* International Portfolio Audited Portfolio of Investments as of December 31, 1995.
* Notes to Financial Statements.
* Financial Highlights.
* Report of Independent Accountants.
</TABLE>
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* Incorporated by reference.
1
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<TABLE>
<CAPTION>
<S> <C>
(b) Exhibits:
The following exhibits are filed herewith:
*(1)(a) Articles of Incorporation of The Hudson River Fund, Inc. (the "Fund") (previously filed with the original
Registration Statement on December 20, 1984).
*(1)(b) Articles Supplementary of the Fund (relating to the Balanced and Aggressive Stock Series) (previously
filed with Post-Effective Amendment No. 4 on January 10, 1986).
*(1)(c) Articles Supplementary of the Fund (relating to the High Yield Series) (previously filed with Post-Effective
Amendment No. 6 on October 10, 1986).
*(1)(d) Declaration of Trust of The Hudson River Trust (the "Trust") (previously filed with Post-Effective
Amendment No. 9 on August 17, 1987).
*(2)(a) By-Laws of the Fund (previously filed with the original Registration Statement on December 20, 1984).
*(2)(b) By-Laws of the Trust (previously filed with Post-Effective Amendment No. 11 on April 29, 1988).
(3) Not applicable.
*(4)(a) Portions of Declaration of Trust relating to shareholders' rights (previously filed with Post-Effective
Amendment No. 22 on February 28, 1994).
*(4)(b) Portions of By-Laws of the Trust relating to shareholders' rights (previously filed with Post-Effective
Amendment No. 22 on February 28, 1994).
*(5)(a) Investment Advisory Agreement among the Fund, Equitable Investment Management Corporation ("EIMC")
and Integrity Life Insurance Company ("Integrity") (previously filed with the original Registration
Statement on December 20, 1984).
*(5)(b) Amendment No. 1 to Investment Advisory Agreement (previously filed with Post-Effective Amendment No.
4 on January 10, 1986).
*(5)(c) Amendment No. 2 to Investment Advisory Agreement (previously filed with Post-Effective Amendment No.
6 on October 10, 1986).
*(5)(d) Amendment No. 3 to Investment Advisory Agreement (previously filed with Post-Effective No. 7 on February
27, 1987).
*(5)(e) Investment Advisory Agreement between the Trust and Equitable Capital Management Corporation ("Equitable
Capital") (previously filed with Post-Effective Amendment No. 12 on April 28, 1989).
*(5)(f) Amendment No. 1 to the Investment Advisory Agreement between the Trust and Equitable Capital (previously
filed with Post-Effective Amendment No. 14 on April 30, 1990).
*(5)(g) Amendment No. 2 to the Investment Advisory Agreement between the Trust and Equitable Capital (previously
filed with Post-Effective Amendment No. 14 on April 30, 1990).
*(5)(h) Form of Investment Advisory Agreement between the Trust and Equitable Capital re Short-Term World
Income Portfolio (previously filed with Post-Effective Amendment No. 15 on December 21, 1990).
- - - ---------------
*Incorporated by reference.
2
<PAGE>
*(5)(i) Form of Investment Advisory Agreement between the Trust and Equitable Capital re Intermediate Government
Securities Portfolio (previously filed with Post-Effective Amendment No. 15 on December 21, 1990).
*(5)(j) Form of Sub-Advisory Agreement among the Trust, Equitable Capital and Hanseatic Management, Inc.
("Hanseatic") (previously filed with Post-Effective Amendment No. 15 on December 21, 1990).
*(5)(k) Investment Advisory Agreement between the Trust and Equitable Capital dated July 22, 1992 (previously
filed with Post-Effective Amendment No. 19 on March 2, 1993).
*(5)(l) Form of Investment Advisory Agreement between the Trust and Alliance Capital Management L.P. ("Alliance")
(previously filed with Post-Effective Amendment No. 19 on March 2, 1993).
*(5)(m) Form of Investment Advisory Agreement between the Trust and Alliance (previously filed with Post-Effective
Amendment No. 20 on June 28, 1993).
*(5)(n) Investment Advisory Agreement between the Trust and Alliance dated July 22, 1993 (previously filed
with Post-Effective Amendment No. 21 on February 17, 1994).
*(5)(o) Investment Advisory Agreement between the Trust and Alliance dated July 22, 1993 (previously filed
with Post-Effective Amendment No. 25 on May 1, 1995).
*(6)(a) Form of Distribution Agreement among the Trust, Equitable Variable Life Insurance Company ("Equitable
Variable" or "EVLICO") and Integrity (previously filed with Post-Effective Amendment No. 9 on August
17, 1987).
*(6)(b) Form of Sales Agreement between Integrity and other Insurance Companies (previously filed with
Post-Effective Amendment No. 4 on January 10, 1986).
*(6)(c) Distribution Agreement between the Trust and Equitable Variable (previously filed with Post-Effective
Amendment No. 12 on April 28, 1989).
*(6)(d) Distribution Agreement between the Trust and Integrity (previously filed with Post-Effective Amendment
No. 12 on April 28, 1989).
*(6)(e) Distribution Agreement between the Trust and Integrity, dated September 30, 1991 (previously filed
with Post-Effective Amendment No. 15 on December 21, 1990).
*(6)(f) Distribution Agreement between the Trust and Equitable Variable dated September 30, 1991 (previously
filed with Post-Effective Amendment No. 15 on December 20, 1990).
*(6)(g) Distribution Agreement between the Trust and Equitable Variable dated July 22, 1992 (previously filed
with Post-Effective Amendment No. 19 on March 2, 1993).
*(6)(h) Distribution Agreement between the Trust and Equico Securities, Inc. ("Equico") dated May 1, 1994
(previously filed with Post-Effective Amendment No. 23 on August 24, 1994).
*(6)(i) Distribution Agreement between the Trust and Equico dated January 1, 1995 (previously filed with
Post-Effective Amendment No. 25 on May 1, 1995).
(6)(j) Form of Class A Distribution Agreement between the Trust and EQ Financial Consultants, Inc.
(6)(k) Form of Class B Distribution Agreement between the Trust and Equitable Distributors, Inc.
- - - ---------------
*Incorporated by reference.
3
<PAGE>
(7) Not applicable.
*(8)(a) Custodian Agreement between the Fund and Manufacturers Hanover Trust Company (previously filed with
Pre-Effective Amendment No. 2 on March 26, 1985).
*(8)(b) Amendment of Custodian Agreement between the Fund and Manufacturers Hanover Trust Company (previously
filed with Post-Effective Amendment No. 1 on August 14, 1985).
*(8)(c) Custody Agreement, dated January 27, 1986, among the Fund, Integrity and The Chase Manhattan Bank,
N.A. ("Chase") (previously filed with Post-Effective Amendment No. 5 on February 28, 1986).
*(8)(d) Amendment of Custodian Agreement between the Fund and Manufacturers Hanover Trust Company, extending
the Agreement to December 31, 1985 (previously filed with Post-Effective Amendment No. 4 on January
10, 1986).
*(8)(e) Amendment of Custodian Agreement between the Fund and Manufacturers Hanover Trust Company, extending
the Agreement to January 31, 1986 (previously filed with Post-Effective Amendment No. 4 on January
10, 1986).
*(8)(f) Custodian Agreement between the Trust and Chase, dated August 25, 1988 (previously filed with Post-Effective
Amendment No. 12 on April 28, 1989).
*(9)(a)(1) Agreement and Plan of Reorganization among Equitable Variable, Separate Account I of Equitable Variable,
Separate Account II of Equitable Variable and the Fund (previously filed with the original Registration
Statement on December 20, 1984).
*(9)(a)(2) Agreement relating to effective date of reorganization among Separate Account I of Equitable Variable,
Separate Account II of Equitable Variable and the Fund (previously filed with Pre-Effective Amendment
No. 1 on March 14, 1985).
*(9)(b) Agreement pursuant to Rule 11a2-2(T) under the Securities Exchange Act of 1934 among the Fund, Integrity,
EIMC, Donaldson, Lufkin & Jenrette Securities Corporation and Autranet, Inc. (previously filed with
Post-Effective Amendment No. 1 on August 14, 1985).
*(9)(c)(1) Code of Ethics of the Fund (previously filed with Pre-Effective Amendment No. 1 on March 14, 1985).
*(9)(c)(2) Amendment of Code of Ethics of the Fund (previously filed with Post-Effective Amendment No. 1 on August
14, 1985).
*(9)(d) Fidelity Bond between the Fund and National Union Fire Insurance Company of Pittsburgh, Pa.
*(9)(e) Form of Agreement and Plan of Reorganization between the Fund and the Trust (previously filed with
Post-Effective Amendment No. 9 on August 17, 1987).
(10) Inapplicable.
(11)(a) Consent of Price Waterhouse LLP.
*(11)(b)(1) Powers of Attorney (previously filed with Post-Effective Amendment No. 12 on April 28, 1989).
*(11)(b)(2) Powers of Attorney (previously filed with Post-Effective Amendment No. 14 on April 30, 1991).
- - - ---------------
*Incorporated by reference.
4
<PAGE>
*(11)(b)(3) Powers of Attorney (previously filed with Post-Effective Amendment No. 17 on February 26, 1992).
*(11)(b)(4) Powers of Attorney (previously filed with Post-Effective Amendment No. 19 on March 2, 1993).
*(11)(b)(5) Powers of Attorney (previously filed with Post-Effective Amendment No. 20 on June 28, 1993).
*(11)(b)(6) Powers of Attorney (previously filed with Post-Effective Amendment No. 24 on December 1, 1994).
(12) Inapplicable.
(13) See Exhibit number 9(a)(1) above.
(14) Inapplicable.
(15) Rule 12b-1 Plan.
*(16) Schedule for computation of Portfolio yield quotations and total return.
(17) Financial Data Schedule.
(18) Rule 18f-3 Plan.
</TABLE>
[FN]
- - - ------------
* Incorporated by reference.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Equitable and Equitable Variable control the Trust by virtue of their
ownership of 99.5% of the Trust's shares as of March 31, 1995. All Trust
shareholders are required to solicit instructions from their policyowners as
to certain matters. The Trust also offers its shares to insurance companies
unaffiliated with Equitable or Equitable Variable.
On July 22, 1992, Equitable converted from a New York mutual life
insurance company to a publicly-owned New York stock life insurance company.
At that time Equitable became a wholly-owned subsidiary of The Equitable
Companies Incorporated ("Holding Company" or "EQ") and currently Equitable
constitutes the Holding Company's only operating business. Equitable Variable
(a New York stock life insurance company) is a wholly-owned subsidiary of
Equitable.
The largest stockholder of the Holding Company is AXA, a French insurance
holding company. AXA currently owns approximately 60% of the outstanding
shares of common stock of the Holding Company plus convertible preferred
stock. AXA, a public company with shares traded on the Paris Bourse (the
French stock exchange), is the principal holding company for most of the
companies in one of the largest insurance groups in Europe. The majority of
AXA's stock is owned by a group of five French mutual insurance companies.
The response to Item 26 included in Post-Effective Amendment No. 5 to the
Registration Statement on Form N-4 for Separate Account A of Equitable (File
Nos. 33-47949 and 811-1705) is incorporated herein by reference.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
<TABLE>
<CAPTION>
(1) (2) NUMBER OF RECORD HOLDERS AS OF MARCH 31,
TITLE OF CLASS 1996
- - - --------------------------- ---------------------------------------------
<S> <C> <C>
Class A shares of
beneficial interest 14
</TABLE>
5
<PAGE>
ITEM 27. INDEMNIFICATION
DECLARATION OF TRUST
The Declaration of Trust provides in substance that no Trustee or officer
and no investment adviser or other third party shall be liable to the Trust,
its shareholders, or to any shareholder, Trustee, officer, employee or agent
for any action or failure to act, except upon a showing of bad faith, willful
misfeasance, gross negligence or reckless disregard of duties. The
Declaration of Trust further provides in substance that, with the exceptions
stated above, a Trustee or officer of the Trust is entitled to be indemnified
against all liability incurred in connection with the affairs of the Trust.
In addition, the Declaration of Trust authorizes the Trust to purchase and
pay for liability insurance to indemnify the Trustees and officers against
certain claims and liabilities.
MASSACHUSETTS LAW
Under Massachusetts law, shareholders of a Massachusetts business trust
such as the Trust may, under certain circumstances, be held personally liable
as partners for the obligations of the Trust. The Trust's Declaration of
Trust contains an express disclaimer of shareholder liability for acts or
obligations of the Trust and requires that notice of such disclaimer be given
in each agreement, obligation or instrument entered into or executed by the
Trust or the Trustees.
INSURANCE
To the extent permitted by New York law and subject to all applicable
requirements thereof, Equitable has undertaken to indemnify each Trustee and
officer of the Trust, so long as Equitable indirectly controls the Trust, who
is made or threatened to be made a party to any action or proceeding, whether
civil or criminal, by reason of the fact that he or she, his or her testator
or intestate, is or was a Trustee or officer of the Trust.
The Trustees and officers are insured under a policy issued by Lloyd's of
London to Equitable and certain affiliates:
Annual Limit: $25,000,000
Deductible: $5,000,000 each loss and aggregate for company
retention, nil per trustee and officer individually.
The Trustees and officers are also insured under a policy issued by X.L.
Insurance Company of $25,000,000 coverage and a policy issued by A.C.E.
Insurance Company of $50,000,000 coverage excess of the Lloyd's policy.
UNDERTAKING
Insofar as indemnification for liability arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
The descriptions of Alliance Capital Management L.P. under the caption
"Management of the Trust" in the Prospectus and under the caption "Investment
Advisory and Other Services" in the Statement of Additional Information
constituting Parts A and B, respectively, of this Registration Statement are
incorporated by reference herein.
6
<PAGE>
The information as to the directors and executive officers of Alliance
Capital Management Corporation, the general partner of Alliance Capital
Management L.P., set forth in Alliance Capital Management L.P.'s Form ADV
filed with the Securities and Exchange Commission on April 21, 1988 (File No.
801-32361) and amended through the date hereof, is incorporated by reference.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) EQ Financial Consultants, Inc. is the principal underwriter of the
Trust's Class A shares, and Equitable Distributors, Inc. is the principal
underwriter of the Trust's Class B shares.
(b) Set forth below is certain information regarding the directors and
officers of EQ Financial Consultants, Inc., the principal underwriter of the
Trust's Class A shares, and of Equitable Distributors, Inc., the principal
underwriter of the Trust's Class B shares. The business address of the
persons whose names are preceded by a single asterisk is 787 Seventh Avenue,
New York, New York 10019. The business address of the persons whose names are
preceded by a double asterisk is 1755 Broadway, 3rd Floor, New York, New York
10019. Ms. Krumsiek's business address is 1345 Avenue of the Americas, 33rd
Floor, New York, New York 10105. Mr. Kornweiss's business address is 4251
Crums Mill Road, Harrisburg, PA 17112. Mr. Radbill's business address is 135
West Fiftieth Street, 4th Floor, New York, New York, 10020.
<TABLE>
<CAPTION>
POSITIONS AND POSITIONS AND
NAME AND PRINCIPAL OFFICES WITH OFFICES WITH
BUSINESS ADDRESS EQ FINANCIAL CONSULTANTS, INC. REGISTRANT
- - - ---------------------------- ----------------------------------------------------- ------------------
<S> <C> <C>
DIRECTORS
*Derry E. Bishop Director None
*Harvey Blitz Director None
Barbara J. Krumsiek Director Vice President
*Michael S. Martin Director Vice President
**Michael F. McNelis Director None
**Richard V. Silver Director None
*Mark R. Wutt Director None
OFFICERS
*Michael S. Martin Chairman of the Board and Chief Executive Officer Vice President
**Michael F. McNelis President and Chief Operating Officer None
*Derry E. Bishop Executive Vice President None
*Gordon G. Dinsmore Executive Vice President None
*Donald D. Higgins Executive Vice President None
**Martin J. Telles Executive Vice President None
*Fred A. Folco Executive Vice President None
*Thomas J. Duddy, Jr. Executive Vice President None
*William J. Green Executive Vice President None
*A. Frank Beaz Executive Vice President None
*Dennis D. Witte Executive Vice President None
**Robert McKenna Senior Vice President and Chief Financial Officer None
**Theresa A. Nurge-Alws Senior Vice President None
*Naomi Friedland-Wechsler General Counsel None
**Ronald Boswell First Vice President None
**Donna M. Dazzo First Vice President None
**Nancy Yurinan First Vice President None
**Michael Brzozowski Vice President None
**Amy Franceschini Vice President None
**Linda Funigiello Vice President None
**James Furlong Vice President None
**Richard Koll Vice President None
Peter R. Kornweiss Vice President None
**Frank Lupo Vice President None
**T.S. Narayanan Vice President None
*Janet E. Hannon Secretary None
*Linda J. Galasso Assistant Secretary None
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
POSITIONS AND POSITIONS AND
NAME AND PRINCIPAL OFFICES WITH OFFICES WITH
BUSINESS ADDRESS EQUITABLE DISTRIBUTORS, INC. REGISTRANT
- - - ----------------------------- ---------------------------------------- -----------------
<S> <C> <C>
DIRECTORS
*Harvey E. Blitz Director None
*Jerome S. Golden Director None
*Michael P. Kiley Director None
Geoffrey H. Radbill Director None
*Dennis D. Witte Director None
OFFICERS
*Jerome S. Golden Chairman and Chief Executive Officer None
*Michael P. Kiley President None
*Dennis D. Witte Chief Operating Officer None
*Thomas D. Bullen Chief Financial Officer None
**Michael Brzozowski Chief Compliance Officer None
*Naomi Friedland-Wechsler Chief Legal Officer None
*Ronald R. Quist Treasurer None
*Janet Hannon Secretary None
*Linda J. Galasso Assistant Secretary None
</TABLE>
(c) Inapplicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The Trust's accounts and records required to be maintained by Section
31(a) of the Investment Company Act of 1940 and the Rules thereunder are in
the physical possession of the following:
The Trust
Rule 31a-1(b)(4)
Rule 31a-2(a)(1)
Alliance Capital Management Corporation
135 West 50th Street
New York, New York 10019
Rule 31a-1(b)(1)-(3),(5)-(12)
Rule 31a-2(a)(1)-(2)
The Chase Manhattan Bank, N.A.
One Chase Manhattan Plaza
New York, New York 10081
Rule 31a-1(b)(2)-(3)
Rule 31a-2(a)(2)
ITEM 31. MANAGEMENT SERVICES
Inapplicable.
ITEM 32. UNDERTAKINGS
The Registrant undertakes to furnish each person to whom a prospectus is
delivered with a copy of the Registrant's latest annual report to
shareholders upon request and without charge.
***************
NOTICE
A copy of the Declaration of Trust of The Hudson River Trust (the "Trust")
is on file with the Secretary of State of The Commonwealth of Massachusetts
and notice is hereby given that this Registration Statement has been executed
on behalf of the Trust by an officer of the Trust as an officer and by its
Trustees as trustees and not individually and the obligations of or arising
out of this Registration Statement are not binding upon any of the Trustees,
officers or shareholders individually but are binding only upon the assets
and property of the Trust.
8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of the Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
amendment to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, and the
State of New York on the 8th day of May 1996.
THE HUDSON RIVER TRUST
By: /s/ Kathleen A. Corbet
-----------------------------------
Title: Vice President
Pursuant to the requirements of the Securities Act of 1933, this amended
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
PRINCIPAL EXECUTIVE OFFICER:
James M. Benson,
President and Chief Executive Officer
PRINCIPAL FINANCIAL OFFICER:
Mark D. Gersten,
Treasurer and Chief Financial Officer
PRINCIPAL ACCOUNTING OFFICER:
Laura Mah,
Controller and Chief Accounting Officer
TRUSTEES:
John D. Carifa
Richard W. Couper
Brenton W. Harries
Howard E. Hassler
William L. Mannion
Alton G. Marshall
Donald J. Robinson
Doris H. Smith
By: /s/ Edmund P. Bergan, Jr.
-----------------------------------
Edmund P. Bergan, Jr.
As Attorney-in-Fact
May 8, 1996
9
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- --------------------------------------------------------------------------------
<S> <C>
(6)(j) Form of Class A Distribution Agreement between the Trust and EQ Financial Consultants, Inc.
(6)(k) Form of Class B Distribution Agreement between the Trust and Equitable Distributors, Inc.
11(a) Consent of Price Waterhouse LLP
(15) Rule 12b-1 Plan
(17) Financial Data Schedule
(18) Rule 18f-3 Plan
</TABLE>
<PAGE>
CLASS A
DISTRIBUTION AGREEMENT
AGREEMENT, dated as of June , 1996 by and between The Hudson River Trust
and EQ Financial Consultants, Inc. (the "Distributor").
WITNESSETH:
WHEREAS, the Trust is a Massachusetts business trust whose shareholders
are and will be separate accounts in unit investment trust form ("Eligible
Separate Accounts") of insurance companies;
WHEREAS, variable insurance and annuity product ("Variable Products") net
premiums, contributions and considerations will be allocated to Eligible
Separate Accounts for investment in the Trust;
WHEREAS, the Trust's shares may not be sold separately from the Variable
Products;
WHEREAS, the Trust has previously entered into a Distribution Agreement,
dated as of January 1, 1995 (the "Prior Agreement"), by and between The
Hudson River Trust and Equico Securities, Inc. ("Equico") under which Equico
has undertaken marketing activities with respect to Trust shares;
WHEREAS, Equico has changed its name to EQ Financial Consultants, Inc. and
the Trust's existing shares are being redesignated as Class A shares in
connection with the creation and designation of a new class of Class B
shares;
WHEREAS, the parties wish to restate the Prior Agreement to reflect such
changes and to make other conforming changes;
WHEREAS, the Trust is registered as an open end investment company under
the Investment Company Act of 1940 ("Investment Company Act"); WHEREAS, the
Investment Company Act prohibits any principal underwriter for a registered
open end investment company from offering for sale, selling, or delivering
after sale any security of which such company is the issuer, except pursuant
to a written contract with such company, and the Distributor will be a
principal underwriter for sale of securities issued by the Trust;
WHEREAS, the Distributor is registered as a broker-dealer under the
Securities Exchange Act of 1934 ("Securities Exchange Act") and is a member
of the National Association of Securities Dealers, Inc. ("NASD");
NOW THEREFORE, the Trust and the Distributor agree as follows:
Section 1. The Trust has ratified a Policy on Conflicts (the "Policy"),
which was adopted by the Board of Directors of the Hudson River Fund, Inc.,
predecessor of the Trust. This Agreement shall be subject to the provisions
of the Policy, the terms of which are incorporated herein by reference, made
a part hereof and controlling. The Policy may be amended or superseded,
without prior notice, and this Agreement shall be deemed amended to the
extent the Policy is amended or superseded. The Distributor represents and
warrants that it will act in a manner consistent with such Policy as so set
forth and as it may be amended or superseded, so long as it is a principal
underwriter of the Class A shares of the Trust. This provision shall survive
the termination of this Agreement.
Section 2. The Distributor is hereby authorized, from time to time, to
enter into separate written agreements ("Sales Agreements" or, individually,
a "Sales Agreement"), on terms and conditions not inconsistent with this
Agreement, with insurance companies which have Eligible Separate Accounts and
which agree to participate in the distribution of the Trust's Class A shares,
directly or through affiliated broker dealers (collectively, with the
insurance companies the "Participating Insurance Companies"), by means of
distribution of Variable Products and to use their best efforts to solicit
applications for Variable Products. The Distributor may not enter into any
Sales Agreement with any Participating Insurance Company that is more
favorable than that maintained with any other Participating Insurance Company
and Eligible Separate Account, except that not all portfolios of the Trust
need be made available for investment by all Participating Insurance
Companies, Eligible Separate Accounts or Variable Products. Each Sales
Agreement shall be entered into jointly with the Participating Insurance
Company and the Eligible Separate Account.
1
<PAGE>
Section 3. Such Participating Insurance Companies and their agents or
representatives soliciting applications for Variable Products shall be duly
and appropriately licensed, registered or otherwise qualified for the sale of
Variable Products under any applicable insurance laws and any applicable
securities laws of one or more states or other jurisdictions in which
Variable Products may be lawfully sold. Each such Participating Insurance
Company shall, when required by law, be both registered as a broker dealer
under the Securities Exchange Act and a member of the NASD. Each such
Participating Insurance Company shall agree to comply with all laws and
regulations, whether federal or state, and whether relating to insurance,
securities or other general areas, including but not limited to the
record-keeping and sales supervision requirements of such laws and
regulations.
Section 4. The Trust's shares are divided into series, each representing a
different portfolio of investments ("Portfolios") and each series is further
divided into Class A and Class B shares. The Trust Portfolios and any
restrictions on availability relating thereto are set forth in Schedule A
hereto, which may be amended from time to time.
Purchases and redemptions of the Trust shares of each Portfolio shall be
at the net asset value therefor, computed as set forth in the most recent
relevant Prospectus and Statement of Additional Information relating to the
Trust contained in its Registration Statement of Form N- 1A, File No.
2-94996, or any amendments thereto (respectively, "Trust Prospectus" and
"SAI"), and any supplements thereto. Trust shares may not be sold or
transferred except to an Eligible Separate Account with the prior approval of
the Trust's Board of Trustees.
Section 5. The Trust shall not pay any compensation to the Distributor for
services as principal underwriter herein, nor shall the Trust reimburse the
Distributor for any expenses related to such services. The Distributor may,
but need not, pay or charge Participating Insurance Companies pursuant to
agreements as described in Section 2.
Section 6. The Trust represents to the Distributor that the Trust
Prospectus and SAI, as of their respective effective dates, contain all
statements and information which are required to be stated therein by the
Securities Act of 1933 and in all respects conform to the requirements
thereof, and neither the Trust Prospectus nor the SAI include any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein not misleading;
provided, however, that the foregoing representations shall not apply to
information contained in or omitted from the Trust Prospectus and SAI in
reliance upon, and in conformity with, written information furnished by the
Distributor specifically for use in the preparation thereof.
In this connection, the Distributor acknowledges that the day-to-day
operations of the Trust, including without limitation, investment management,
securities brokerage allocation, cash control, accounting, record keeping and
other administrative, marketing and regulatory compliance functions, are
carried on and may in the future be carried on by The Equitable Life
Assurance Society of the United States ("Equitable"), affiliates of
Equitable, and other parties unaffiliated with Equitable on behalf of the
Trust (collectively, the "Preparing Parties"), under various agreements and
arrangements, and that such activities in large measure provide the basis
upon which statements and information are included or omitted from the Trust
Prospectus and SAI. The Distributor further acknowledges that because of the
foregoing arrangements, the preparation of the Trust Prospectus and SAI is
substantially in the control of the Preparing Parties, subject to the broad
supervisory authority and responsibility of the Trust's Board of Trustees,
and that, essentially, the only Trust Prospectus or SAI information not
independently known to, or prepared by, the Preparing Parties is personal
information as to each Trustee's full name, age, background, business
experience and other personal information that may require disclosures under
securities laws and for which the Preparing Parties necessarily must rely on
each such Trustee to produce.
Section 7. The Trust will periodically prepare Prospectuses (and, if
applicable, SAIs) and any supplements thereto, proxy materials and annual and
semi-annual reports (collectively, the "Documents") and shall make camera
ready copy available to the Distributor for reproduction by them or the
Participating Insurance Companies. Subject to the prior approval of the
Trust's officers, the Trust shall pay the cost of printing and mailing
Documents which are distributed to existing owners of Variable Products,
provided that the Distributor or the Participating Insurance Companies shall
be required to submit
2
<PAGE>
documentation in support of such expenses which is satisfactory to the
officers of the Trust. The Trust shall not pay the cost of printing or
mailing Documents except as specified in this Section 7. The Trust will use
its best efforts to provide notice to the Distributor of anticipated filings
or supplements. The Distributor or the Participating Insurance Companies may
alter the form of some or all of the Documents, with the prior approval of
the Trust's officers. Any preparation costs associated with altering the form
of the Documents will be borne by the Distributor or the Participating
Insurance Companies, not the Trust.
Section 8. The Distributor and officers of the Trust may from time to time
authorize descriptions of the Trust for use in sales literature or
advertising by the Participating Insurance Companies (including brochures,
letters, illustrations and other similar materials, whether transmitted
directly to potential applicants or published in print or audio-visual
media), which authorization will not be unreasonably withheld or delayed.
Section 9. The Distributor shall furnish to the Trust, at least quarterly,
reports as to the sales of Trust shares made pursuant to this Agreement.
These reports may be combined with any similar report prepared by the
Distributor or any of the Preparing Parties.
Section 10. The Distributor shall submit to all regulatory and
administrative bodies having jurisdiction over the operations of the
Distributor, the Trust, or any Participating Insurance Company, present or
future, any information, reports or other material which any such body by
reason of this Agreement may request or require as authorized by applicable
laws or regulations.
Section 11. This Agreement shall be subject to the provisions of the
Investment Company Act, the Securities Exchange Act and the Securities Act of
1933 and the rules, regulations, and rulings thereunder and of the NASD, from
time to time in effect, including such exemptions from the Investment Company
Act and no-action positions as the Securities and Exchange Commission or its
staff may grant, and the terms hereof shall be interpreted and construed in
accordance therewith. Without limiting the generality of the foregoing, (a)
the term "assigned" shall not include any transaction exempted from section
15(b)(2) of the Investment Company Act and (b) the vote of the persons having
voting rights in respect of the Trust referred to in Section 12 shall be the
affirmative votes of the lesser of (i) the holders of more than 50% of all
votes in respect of Class A shares entitled to be cast in respect of the
Trust or (ii) the holders of at least 67% of the votes in respect of Class A
shares which are present at a meeting of such persons if the holders of more
than 50% of all votes in respect of Class A shares entitled to be cast in
respect of the Trust are present or represented by proxy at such meeting, in
either case voted in accordance with the provisions of the Policy.
Section 12. This Agreement shall continue in effect only so long as such
continuance is specifically approved at least annually by a majority of the
Trustees of the Trust who are not interested persons of the Trust or the
Distributor and by (a) persons having voting rights in respect of the Trust,
by the vote stated in Section 11, voted in accordance with the provisions of
the Policy, or (b) the Board of Trustees of the Trust.
Section 13. This Agreement shall terminate automatically if it shall be
assigned.
Section 14. A copy of the Agreement and Declaration of Trust of the Trust
is on file with the Secretary of State of The Commonwealth of Massachusetts
and notice is given hereby that this Agreement is executed on behalf of the
trustees of the Trust as trustees and not individually, and that the
obligations of or arising out of this Agreement are not binding upon any of
the trustees or shareholders individually but are binding only upon the
assets and property of each Portfolio.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
THE HUDSON RIVER TRUST
Attest:
By:
- - - ------------------- -------------------------------------
Assistant Secretary Vice President
EQ FINANCIAL CONSULTANTS, INC. (formerly
EQUICO SECURITIES, INC.)
Attest:
By:
- - - ------------------- -------------------------------------
Michael F. McNelis
President and Chief Operating Officer
4
<PAGE>
SCHEDULE A
PORTFOLIOS OF THE HUDSON RIVER TRUST
Common Stock
Money Market
Balanced
Aggressive Stock
High Yield
Global
Conservative Investors
Growth Investors
Government Securities
Quality Bond
Growth and Income
Equity Index
International (as of second quarter of 1995)
RESTRICTIONS
None
<PAGE>
CLASS B
DISTRIBUTION AGREEMENT
AGREEMENT, dated as of June , 1996 by and between The Hudson River Trust
(the "Trust") and Equitable Distributors, Inc. (the "Distributor").
WITNESSETH:
WHEREAS, the Trust is a Massachusetts business trust whose shareholders
are and will be separate accounts in unit investment trust form ("Eligible
Separate Accounts") of insurance companies;
WHEREAS, variable insurance and annuity product ("Variable Products") net
premiums, contributions and considerations will be allocated to Eligible
Separate Accounts for investment in the Trust;
WHEREAS, the Trust's shares may not be sold separately from the Variable
Products;
WHEREAS, the Trust has adopted a distribution plan in respect of its Class
B shares pursuant to Rule 12b-1 under the Investment Company Act of 1940
("Investment Company Act");
WHEREAS, the Trust desires the Distributor to undertake marketing
activities with respect to Class B shares of the Trust's constituent
Portfolios and to compensate the Distributor for services rendered and
expenses borne in connection therewith;
WHEREAS, the Trust is registered as an open end investment company under
the Investment Company Act;
WHEREAS, the Investment Company Act prohibits any principal underwriter
for a registered open end investment company from offering for sale, selling,
or delivering after sale any security of which such company is the issuer,
except pursuant to a written contract with such company, and the Distributor
will be a principal underwriter for sale of Class B shares issued by the
Trust;
WHEREAS, the Distributor is registered as a broker-dealer under the
Securities Exchange Act of 1934 ("Securities Exchange Act") and is a member
of the National Association of Securities Dealers, Inc. ("NASD");
NOW THEREFORE, the Trust and the Distributor agree as follows:
Section 1. The Trust has ratified a Policy on Conflicts (the "Policy"),
which was adopted by the Board of Directors of the Hudson River Fund, Inc.,
predecessor of the Trust. This Agreement shall be subject to the provisions
of the Policy, the terms of which are incorporated herein by reference, made
a part hereof and controlling. The Policy may be amended or superseded,
without prior notice, and this Agreement shall be deemed amended to the
extent the Policy is amended or superseded. The Distributor represents and
warrants that it will act in a manner consistent with such Policy as so set
forth and as it may be amended or superseded, so long as it is a principal
underwriter of the Class B shares of the Trust. This provision shall survive
the termination of this Agreement.
Section 2. The Distributor is hereby authorized, from time to time, to
enter into separate written agreements ("Sales Agreements" or, individually,
a "Sales Agreement"), on terms and conditions not inconsistent with this
Agreement, with insurance companies which have Eligible Separate Accounts and
which agree to participate in the distribution of the Trust's Class B shares,
directly or through affiliated broker dealers (collectively, with the
insurance companies the "Participating Insurance Companies"), by means of
distribution of Variable Products and to use their best efforts to solicit
applications for Variable Products. The Distributor may not enter into any
Sales Agreement with any Participating Insurance Company that is more
favorable than that maintained with any other Participating Insurance Company
and Eligible Separate Account, except that not all portfolios of the Trust
need be made available for investment by all Participating Insurance
Companies, Eligible Separate Accounts or Variable Products. Each Sales
Agreement shall be entered into jointly with the Participating Insurance
Company and the Eligible Separate Account.
Section 3. Such Participating Insurance Companies and their agents or
representatives soliciting applications for Variable Products shall be duly
and appropriately licensed, registered or otherwise
1
<PAGE>
qualified for the sale of Variable Products under any applicable insurance
laws and any applicable securities laws of one or more states or other
jurisdictions in which Variable Products may be lawfully sold. Each such
Participating Insurance Company shall, when required by law, be both
registered as a broker dealer under the Securities Exchange Act and a member
of the NASD. Each such Participating Insurance Company shall agree to comply
with all laws and regulations, whether federal or state, and whether relating
to insurance, securities or other general areas, including but not limited to
the record-keeping and sales supervision requirements of such laws and
regulations.
Section 4. The Trust's shares are divided into series, each representing a
different portfolio of investments ("Portfolios") and each series is further
divided into Class A and Class B shares. The Trust Portfolios and any
restrictions on availability relating thereto are set forth in Schedule A
hereto, which may be amended from time to time.
Purchases and redemptions of the Trust's Class B shares of each Portfolio
shall be at the net asset value therefor, computed as set forth in the most
recent relevant Prospectus and Statement of Additional Information relating
to the Trust contained in its Registration Statement of Form N-1A, File No.
2-94996, or any amendments thereto (respectively, "Trust Prospectus" and
"SAI"), and any supplements thereto. Trust shares may not be sold or
transferred except to an Eligible Separate Account with the prior approval of
the Trust's Board of Trustees.
Section 5. As compensation to the Distributor for services rendered and
expenses borne as principal underwriter herein, each Portfolio shall pay the
Distributor a monthly fee (payable on or before the [fifth] business day of
the following month) at a rate equal to .25% per annum of the average daily
net assets of the Portfolio attributable to Class B shares. The Distributor
may, but need not, pay or charge Participating Insurance Companies pursuant
to agreements as described in Section 2.
Section 6. The Trust represents to the Distributor that the Trust
Prospectus and SAI, as of their respective effective dates, contain all
statements and information which are required to be stated therein by the
Securities Act of 1933 and in all respects conform to the requirements
thereof, and neither the Trust Prospectus nor the SAI include any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein not misleading;
provided, however, that the foregoing representations shall not apply to
information contained in or omitted from the Trust Prospectus and SAI in
reliance upon, and in conformity with, written information furnished by the
Distributor specifically for use in the preparation thereof.
In this connection, the Distributor acknowledges that the day-to-day
operations of the Trust, including without limitation, investment management,
securities brokerage allocation, cash control, accounting, record keeping and
other administrative, marketing and regulatory compliance functions, are
carried on and may in the future be carried on by the Equitable Life
Assurance Society of the United States ("Equitable"), affiliates of
Equitable, and other parties unaffiliated with Equitable on behalf of the
Trust (collectively, the "Preparing Parties"), under various agreements and
arrangements, and that such activities in large measure provide the basis
upon which statements and information are included or omitted from the Trust
Prospectus and SAI. The Distributor further acknowledges that because of the
foregoing arrangements, the preparation of the Trust Prospectus and SAI is
substantially in the control of the Preparing Parties, subject to the broad
supervisory authority and responsibility of the Trust's Board of Trustees,
and that, essentially, the only Trust Prospectus or SAI information not
independently known to, or prepared by, the Preparing Parties is personal
information as to each Trustee's full name, age, background, business
experience and other personal information that may require disclosures under
securities laws and for which the Preparing Parties necessarily must rely on
each such Trustee to produce.
Section 7. The Trust will periodically prepare Prospectuses (and, if
applicable, SAIs) and any supplements thereto, proxy materials and
semi-annual reports (collectively, the "Documents") and shall make camera
ready copy available to the Distributor for reproduction by them or the
Participating Insurance Companies. The Trust shall not pay the cost of
reproducing the Documents for use by the Distributor or Participating
Insurance Companies pursuant to this Agreement. The Trust will use its best
efforts to provide notice to the Distributor of anticipated filings or
supplements. The Distributor or the
2
<PAGE>
Participating Insurance Companies may alter the form of some or all of the
Documents, with the prior approval of the Trust's officers. Any preparation
costs associated with altering the form of the Documents will be borne by the
Distributor or the Participating Insurance Companies, not the Trust.
Section 8. The Distributor and officers of the Trust may from time to time
authorize descriptions of the Trust for use in sales literature or
advertising by the Participating Insurance Companies (including brochures,
letters, illustrations and other similar materials, whether transmitted
directly to potential applicants or published in print or audio-visual
media), which authorization will not be unreasonably withheld or delayed.
Section 9. The Distributor shall furnish to the Trust, at least quarterly,
reports as to the sales of Trust shares made pursuant to this Agreement.
These reports may be combined with any similar report prepared by the
Distributor or any of the Preparing Parties.
Section 10. The Distributor shall submit to all regulatory and
administrative bodies having jurisdiction over the operations of the
Distributor, the Trust, or any Participating Insurance Company, present or
future, any information, reports or other material which any such body by
reason of this Agreement may request or require as authorized by applicable
laws or regulations.
Section 11. This Agreement shall be subject to the provisions of the
Investment Company Act, the Securities Exchange Act and the Securities Act of
1933 and the rules, regulations, and rulings thereunder and of the NASD, from
time to time in effect, including such exemptions from the Investment Company
Act and no-action positions as the Securities and Exchange Commission or its
staff may grant, and the terms hereof shall be interpreted and construed in
accordance therewith. Without limiting the generality of the foregoing, (a)
the term "assigned" shall not include any transaction exempted from section
15(b)(2) of the Investment Company Act and (b) the vote of the persons having
voting rights in respect of the Trust referred to in Section 12 shall be the
affirmative votes of the lesser of (i) the holders of more than 50% of all
votes in respect of Class B shares entitled to be cast in respect of the
Trust or (ii) the holders of at least 67% of the votes in respect of Class B
shares which are present at a meeting of such persons if the holders of more
than 50% of all votes in respect of Class B shares entitled to be cast in
respect of the Trust are present or represented by proxy at such meeting, in
either case voted in accordance with the provisions of the Policy.
Section 12. This Agreement shall continue in effect only so long as such
continuance is specifically approved at least annually by a majority of the
Trustees of the Trust who are not interested persons of the Trust or the
Distributor and who have no direct or indirect financial interest in the
distribution plan pursuant to which this Agreement has been authorized (or
any agreement thereunder) (the "Independent Trustees") by (a) persons having
voting rights in respect of the Trust, by the vote stated in Section 11,
voted in accordance with the provisions of the Policy, or (b) the Board of
Trustees of the Trust. This Agreement may be terminated at any time without
penalty by a majority of the Independent Trustees or by persons having voting
rights in respect of the Trust by the vote stated in Section 11.
Section 13. This Agreement shall terminate automatically if it shall be
assigned.
Section 14. A copy of the Agreement and Declaration of Trust of the Trust
is on file with the Secretary of State of The Commonwealth of Massachusetts
and notice is given hereby that this Agreement is executed on behalf of the
trustees of the Trust as trustees and not individually, and that the
obligations of or arising out of this Agreement are not binding upon any of
the trustees or shareholders individually but are binding only upon the
assets and property of each portfolio.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
THE HUDSON RIVER TRUST
Attest:
By:
- - - ------------------- -----------------------------------
Assistant Secretary Vice President
EQUITABLE DISTRIBUTORS, INC.
Attest:
By:
- - - ------------------- ----------------------------------
President and Chief Operating
Officer
4
<PAGE>
SCHEDULE A
PORTFOLIOS OF THE HUDSON RIVER TRUST
Common Stock
Money Market
Balanced
Aggressive Stock
High Yield
Global
Conservative Investors
Growth Investors
Government Securities
Quality Bond
Growth and Income
Equity Index
International (as of second quarter of 1995)
RESTRICTIONS
None
<PAGE>
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 27 to the registration statement of Form N-1A (the
"Registration Statement") of our report dated February 8, 1996, relating to
the financial statements and financial highlights appearing in the December
31, 1995 Annual Report to Shareholders of the Hudson River Trust, which are
also incorporated by reference into the Registration Statement. We also
consent to the reference to us under the heading "Financial Highlights" in
such Prospectus and to the reference to us under the heading "Independent
Accountants" in such Statement of Additional Information.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
May 8, 1996
<PAGE>
THE HUDSON RIVER TRUST
CLASS B
DISTRIBUTION PLAN
WHEREAS, the Board of Trustees of The Hudson River Trust (the "Trust")
including the Independent Trustees, have concluded in the exercise of their
reasonable business judgment and in light of their fiduciary duties under the
Investment Company Act of 1940 and state law that there is a reasonable
likelihood that this Plan (the "Plan") will benefit each of the Trust's
constituent Portfolios (each a "Portfolio") and the Class B shareholders
thereof; and
WHEREAS this Plan has been approved by the Class B shareholders of each
Portfolio;
NOW THEREFORE, in consideration of the foregoing, the Trust's Class B Plan
is hereby adopted as follows:
Section 1. The Trust is authorized to pay a fee (the "Distribution Fee")
for services rendered and expenses borne in connection with the distribution
of the Class B shares of the Trust, at an annual rate with respect to each
portfolio of the Trust represented by a separate series of shares (a
"Portfolio") not to exceed .50% of the average daily net assets attributable
to the Portfolio's Class B shares. Some or all of such fee may be paid to the
distributor of the Trust's Class B shares (the "Class B Distributor")
pursuant to a distribution contract. Subject to such limit and subject to the
provisions of Section 9 hereof, the Distribution Fee shall be as approved
from time to time by (a) the Trustees of the Trust and (b) the Independent
Trustees of the Trust and may be paid in respect of services rendered and
expenses borne in the past in connection with the Portfolio's Class B shares
as to which no Distribution Fee was paid on account of such limitation. If at
any time this Plan shall not be in effect with respect to the Class B shares
of all Portfolios of the Trust, the Distribution Fee shall be computed on the
basis of the net assets of the Class B shares of those Portfolios for which
the Plan is in effect. The Distribution Fee shall be accrued daily and paid
monthly or at such other intervals as the Trustees shall determine.
Section 2. Some or all of the Distribution Fee paid to the Class B
Distributor may be spent on any activities or expenses primarily intended to
result in the sale of Class B shares of the Trust, including, but not limited
to the following:
(a) compensation to and expenses of employees of the Class B
Distributor, including overhead and telephone expenses, who engage in the
distribution of Class B shares;
(b) printing and mailing of prospectuses, statements of additional
information and reports for prospective purchasers of variable annuity or
variable life insurance contracts ("Variable Contracts") investing
indirectly in Class B shares;
(c) compensation to financial intermediaries and broker-dealers to pay
or reimburse them for their services or expenses in connection with the
distribution of Variable Contracts;
(d) expenses relating to the development, preparation, printing and
mailing of Trust advertisements, sales literature and other promotional
materials describing and/or relating to the Trust;
(e) expenses of holding seminars and sales meetings designed to
promote the distribution of Trust Class B shares;
(f) expenses of obtaining information and providing explanations to
Variable Contract owners regarding Trust investment objectives and
policies and other information about the Trust and its Portfolios,
including the performance of the Portfolios;
(g) expenses of training sales personnel regarding the Trust;
(h) expenses of compensating sales personnel in connection with the
allocation of cash values and premiums of the Variable Contracts to the
Trust; and
(i) expenses of personal services and/or maintenance of Variable
Contract owner accounts with respect to Trust Class B shares attributable
to such accounts.
1
<PAGE>
Section 3. This Plan shall not take effect with respect to the Class B
shares of any Portfolio of the Trust until it has been approved by a vote of
at least a majority of the outstanding voting securities representing the
Class B shares of that Portfolio. This Plan shall be deemed to have been
effectively approved with respect to the Class B shares of any Portfolio if a
majority of the outstanding voting securities representing the Class B shares
of that Portfolio votes for the approval of this Plan, notwithstanding that
this Plan has not been approved by a majority of the outstanding voting
securities representing the Class B shares of any other Portfolio or that
this Plan has not been approved by a majority of the outstanding voting
securities representing the Class B shares of the Trust.
Section 4. This Plan shall not take effect until it has been approved,
together with any related agreements, by votes of the majority (or whatever
greater percentage may, from time to time, be required by Section 12(b) of
the Investment Company Act of 1940 (the "Act") or the rules and regulations
thereunder) of both (a) the Trustees of the Trust, and (b) the Independent
Trustees of the Trust cast in person at a meeting called for the purpose of
voting on this Plan or such agreement.
Section 5. This Plan shall continue in effect for a period of more than
one year after it takes effect only so long as such continuance is
specifically approved at least annually in the manner provided for approval
of this Plan in Section 4.
Section 6. Any person authorized to direct the disposition of monies paid
or payable by the Class B shares of the Trust pursuant to this Plan or any
related agreement shall provide to the Trustees of the Trust, and the
Trustees shall review, at least quarterly, a written report of the amounts so
expended and the purposes for which such expenditures were made.
Section 7. This Plan may be terminated at any time with respect to the
Class B shares of any Portfolio by vote of a majority of the Independent
Trustees, or by vote of a majority of the outstanding voting securities
representing the Class B shares of that Portfolio.
Section 8. All agreements with any person relating to implementation of
this Plan with respect to the Class B shares of any Portfolio shall be in
writing, and any agreement related to this Plan with respect to the Class B
shares of any Portfolio shall provide:
A. That such agreement may be terminated at any time, without payment of
any penalty, by vote of a majority of the Independent Trustees or by vote of
a majority of the outstanding voting securities representing the Class B
shares of such Portfolio, on not more than 60 days' written notice to any
other party to the agreement; and
B. That such agreement shall terminate automatically in the event of its
assignment.
Section 9. This Plan may not be amended to increase materially the amount
of distribution fees permitted pursuant to Section 1 hereof without approval
in the manner provided in Section 3 hereof, and all material amendments to
this Plan shall be approved in the manner provided for approval of this Plan
in Section 4.
Section 10. As used in this Plan, (a) the term "Independent Trustees"
shall mean those Trustees of the Trust who are not interested persons of the
Trust, and have no direct or indirect financial interest in the operation of
this Plan or any agreements related to it, and (b) the terms "assignment",
"interested person" and "majority of the outstanding voting securities" shall
have the respective meanings specified in the Act and the rules and
regulations thereunder, subject to such exemptions as may be granted by the
Securities and Exchange Commission.
Adopted as of [July , 1996].
2
[ARTICLE] 6
[SERIES]
[NUMBER] 1
[NAME] COMMON STOCK PORTFOLIO
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] DEC-31-1995
[PERIOD-END] DEC-31-1995
[INVESTMENTS-AT-COST] 3,900,452,197
[INVESTMENTS-AT-VALUE] 4,875,871,045
[RECEIVABLES] 18,048,637
[ASSETS-OTHER] 13,991,920
[OTHER-ITEMS-ASSETS] 18,344,700
[TOTAL-ASSETS] 4,926,256,302
[PAYABLE-FOR-SECURITIES] 8,035,250
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 38,544,052
[TOTAL-LIABILITIES] 46,579,302
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 3,916,746,349
[SHARES-COMMON-STOCK] 296,135,981
[SHARES-COMMON-PRIOR] 259,461,555
[ACCUMULATED-NII-CURRENT] 8,246,095
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] (34,107,750)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 988,792,306
[NET-ASSETS] 4,879,677,000
[DIVIDEND-INCOME] 62,582,054
[INTEREST-INCOME] 6,975,119
[OTHER-INCOME] 0
[EXPENSES-NET] 16,124,237
[NET-INVESTMENT-INCOME] 53,432,936
[REALIZED-GAINS-CURRENT] 262,461,526
[APPREC-INCREASE-CURRENT] 845,152,888
[NET-CHANGE-FROM-OPS] 1,161,047,350
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (60,000,594)
[DISTRIBUTIONS-OF-GAINS] (270,958,905)
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 32,314,046
[NUMBER-OF-SHARES-REDEEMED] (15,886,663)
[SHARES-REINVESTED] 20,247,043
[NET-CHANGE-IN-ASSETS] 1,413,432,139
[ACCUMULATED-NII-PRIOR] 3,552,516
[ACCUMULATED-GAINS-PRIOR] (15,481,358)
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 14,946,487
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 16,124,237
[AVERAGE-NET-ASSETS] 4,210,139,494
[PER-SHARE-NAV-BEGIN] 13.36
[PER-SHARE-NII] 0.20
[PER-SHARE-GAIN-APPREC] 4.12
[PER-SHARE-DIVIDEND] (0.22)
[PER-SHARE-DISTRIBUTIONS] (0.98)
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 16.48
[EXPENSE-RATIO] 0.38
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
[ARTICLE] 6
[SERIES]
[NUMBER] 2
[NAME] MONEY MARKET PORTFOLIO
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] DEC-31-1995
[PERIOD-END] DEC-31-1995
[INVESTMENTS-AT-COST] 382,846,598
[INVESTMENTS-AT-VALUE] 383,012,005
[RECEIVABLES] 3,729,772
[ASSETS-OTHER] 116,470
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 386,858,247
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 167,301
[TOTAL-LIABILITIES] 167,301
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 386,427,732
[SHARES-COMMON-STOCK] 38,057,162
[SHARES-COMMON-PRIOR] 32,095,980
[ACCUMULATED-NII-CURRENT] 97,807
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 165,407
[NET-ASSETS] 386,690,946
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 19,759,375
[OTHER-INCOME] 0
[EXPENSES-NET] 1,447,045
[NET-INVESTMENT-INCOME] 18,312,330
[REALIZED-GAINS-CURRENT] 0
[APPREC-INCREASE-CURRENT] 145,252
[NET-CHANGE-FROM-OPS] 18,457,582
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (18,199,892)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 38,608,910
[NUMBER-OF-SHARES-REDEEMED] (34,441,594)
[SHARES-REINVESTED] 1,793,866
[NET-CHANGE-IN-ASSETS] 61,299,950
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] (14,631)
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 1,320,130
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 1,447,045
[AVERAGE-NET-ASSETS] 331,400,438
[PER-SHARE-NAV-BEGIN] 10.14
[PER-SHARE-NII] 0.57
[PER-SHARE-GAIN-APPREC] 0
[PER-SHARE-DIVIDEND] (0.55)
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 10.16
[EXPENSE-RATIO] 0.44
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
[ARTICLE] 6
[SERIES]
[NUMBER] 3
[NAME] BALANCED PORTFOLIO
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] DEC-31-1995
[PERIOD-END] DEC-31-1995
[INVESTMENTS-AT-COST] 1,383,682,049
[INVESTMENTS-AT-VALUE] 1,504,511,537
[RECEIVABLES] 17,083,736
[ASSETS-OTHER] 4,810,822
[OTHER-ITEMS-ASSETS] 160,627,359
[TOTAL-ASSETS] 1,687,033,454
[PAYABLE-FOR-SECURITIES] 2,659,384
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 161,232,342
[TOTAL-LIABILITIES] 163,891,726
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 1,402,865,274
[SHARES-COMMON-STOCK] 90,899,832
[SHARES-COMMON-PRIOR] 89,448,391
[ACCUMULATED-NII-CURRENT] 86,599
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] (639,633)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 120,829,488
[NET-ASSETS] 1,523,141,728
[DIVIDEND-INCOME] 10,938,202
[INTEREST-INCOME] 42,020,343
[OTHER-INCOME] 0
[EXPENSES-NET] 5,655,085
[NET-INVESTMENT-INCOME] 47,303,460
[REALIZED-GAINS-CURRENT] 64,616,058
[APPREC-INCREASE-CURRENT] 144,740,180
[NET-CHANGE-FROM-OPS] 256,659,698
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (47,099,230)
[DISTRIBUTIONS-OF-GAINS] (41,562,533)
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 3,451,513
[NUMBER-OF-SHARES-REDEEMED] (7,393,399)
[SHARES-REINVESTED] 5,393,327
[NET-CHANGE-IN-ASSETS] 193,322,116
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] (23,956,611)
[OVERDISTRIB-NII-PRIOR] (26,573)
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 5,237,550
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 5,655,085
[AVERAGE-NET-ASSETS] 1,422,625,649
[PER-SHARE-NAV-BEGIN] 14.87
[PER-SHARE-NII] 0.54
[PER-SHARE-GAIN-APPREC] 2.36
[PER-SHARE-DIVIDEND] (0.54)
[PER-SHARE-DISTRIBUTIONS] (0.47)
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 16.76
[EXPENSE-RATIO] 0.40
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
[ARTICLE] 6
[SERIES]
[NUMBER] 4
[NAME] AGGRESSIVE STOCK PORTFOLIO
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] DEC-31-1995
[PERIOD-END] DEC-31-1995
[INVESTMENTS-AT-COST] 2,162,160,335
[INVESTMENTS-AT-VALUE] 2,675,322,143
[RECEIVABLES] 28,430,909
[ASSETS-OTHER] 4,389,240
[OTHER-ITEMS-ASSETS] 64,978,600
[TOTAL-ASSETS] 2,773,120,892
[PAYABLE-FOR-SECURITIES] 6,430,077
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 66,175,966
[TOTAL-LIABILITIES] 72,606,043
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 2,191,338,507
[SHARES-COMMON-STOCK] 75,690,902
[SHARES-COMMON-PRIOR] 59,811,998
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] (4,129)
[ACCUMULATED-NET-GAINS] (3,981,337)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 513,161,808
[NET-ASSETS] 2,700,514,849
[DIVIDEND-INCOME] 9,527,352
[INTEREST-INCOME] 7,494,955
[OTHER-INCOME] 0
[EXPENSES-NET] 10,818,797
[NET-INVESTMENT-INCOME] 6,203,510
[REALIZED-GAINS-CURRENT] 346,368,084
[APPREC-INCREASE-CURRENT] 262,696,319
[NET-CHANGE-FROM-OPS] 615,267,913
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (6,246,522)
[DISTRIBUTIONS-OF-GAINS] (300,293,392)
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 24,290,758
[NUMBER-OF-SHARES-REDEEMED] (17,101,621)
[SHARES-REINVESTED] 8,689,767
[NET-CHANGE-IN-ASSETS] 868,350,569
[ACCUMULATED-NII-PRIOR] 12,105
[ACCUMULATED-GAINS-PRIOR] (50,819,364)
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 10,210,784
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 10,818,797
[AVERAGE-NET-ASSETS] 2,219,990,270
[PER-SHARE-NAV-BEGIN] 30.63
[PER-SHARE-NII] 0.10
[PER-SHARE-GAIN-APPREC] 9.54
[PER-SHARE-DIVIDEND] (0.10)
[PER-SHARE-DISTRIBUTIONS] (4.49)
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 35.68
[EXPENSE-RATIO] 0.49
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
[ARTICLE] 6
[SERIES]
[NUMBER] 5
[NAME] HIGH YIELD PORTFOLIO
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] DEC-31-1995
[PERIOD-END] DEC-31-1995
[INVESTMENTS-AT-COST] 110,787,784
[INVESTMENTS-AT-VALUE] 112,882,893
[RECEIVABLES] 10,534,218
[ASSETS-OTHER] 30,052
[OTHER-ITEMS-ASSETS] 16,746,850
[TOTAL-ASSETS] 140,194,013
[PAYABLE-FOR-SECURITIES] 5,246,556
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 16,818,874
[TOTAL-LIABILITIES] 22,065,430
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 117,138,948
[SHARES-COMMON-STOCK] 12,254,186
[SHARES-COMMON-PRIOR] 8,292,776
[ACCUMULATED-NII-CURRENT] 22,557
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] (1,128,031)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 2,095,109
[NET-ASSETS] 118,128,583
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 10,449,665
[OTHER-INCOME] 0
[EXPENSES-NET] 575,623
[NET-INVESTMENT-INCOME] 9,874,042
[REALIZED-GAINS-CURRENT] 1,037,899
[APPREC-INCREASE-CURRENT] 6,108,056
[NET-CHANGE-FROM-OPS] 17,019,997
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (10,259,504)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 4,920,577
[NUMBER-OF-SHARES-REDEEMED] (2,047,031)
[SHARES-REINVESTED] 1,087,864
[NET-CHANGE-IN-ASSETS] 44,233,954
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] (1,762,421)
[OVERDISTRIB-NII-PRIOR] (6,358)
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 521,901
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 575,623
[AVERAGE-NET-ASSETS] 95,478,393
[PER-SHARE-NAV-BEGIN] 8.91
[PER-SHARE-NII] 0.98
[PER-SHARE-GAIN-APPREC] 0.73
[PER-SHARE-DIVIDEND] (0.98)
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 9.64
[EXPENSE-RATIO] 0.60
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
[ARTICLE] 6
[SERIES]
[NUMBER] 6
[NAME] GLOBAL PORTFOLIO
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] DEC-31-1995
[PERIOD-END] DEC-31-1995
[INVESTMENTS-AT-COST] 603,019,021
[INVESTMENTS-AT-VALUE] 678,407,015
[RECEIVABLES] 5,595,073
[ASSETS-OTHER] 6,667,534
[OTHER-ITEMS-ASSETS] 33,615,050
[TOTAL-ASSETS] 724,284,672
[PAYABLE-FOR-SECURITIES] 3,671,218
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 34,473,061
[TOTAL-LIABILITIES] 38,144,279
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 612,649,654
[SHARES-COMMON-STOCK] 43,590,992
[SHARES-COMMON-PRIOR] 30,411,710
[ACCUMULATED-NII-CURRENT] 455,586
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] (1,942,133)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 74,977,286
[NET-ASSETS] 686,140,393
[DIVIDEND-INCOME] 7,426,190
[INTEREST-INCOME] 5,799,137
[OTHER-INCOME] 0
[EXPENSES-NET] 3,422,252
[NET-INVESTMENT-INCOME] 9,803,075
[REALIZED-GAINS-CURRENT] 17,804,800
[APPREC-INCREASE-CURRENT] 72,106,049
[NET-CHANGE-FROM-OPS] 99,713,924
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (9,500,310)
[DISTRIBUTIONS-OF-GAINS] (18,886,037)
[DISTRIBUTIONS-OTHER] (546,316)
[NUMBER-OF-SHARES-SOLD] 156,621,046
[NUMBER-OF-SHARES-REDEEMED] (4,317,611)
[SHARES-REINVESTED] 1,875,847
[NET-CHANGE-IN-ASSETS] 264,442,110
[ACCUMULATED-NII-PRIOR] 215,631
[ACCUMULATED-GAINS-PRIOR] (923,706)
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 2,957,363
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 3,422,252
[AVERAGE-NET-ASSETS] 557,491,807
[PER-SHARE-NAV-BEGIN] 13.87
[PER-SHARE-NII] 0.26
[PER-SHARE-GAIN-APPREC] 2.32
[PER-SHARE-DIVIDEND] (0.25)
[PER-SHARE-DISTRIBUTIONS] (0.45)
[RETURNS-OF-CAPITAL] (0.01)
[PER-SHARE-NAV-END] 15.74
[EXPENSE-RATIO] 0.61
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
[ARTICLE] 6
[SERIES]
[NUMBER] 7
[NAME] CONSERVATIVE INVESTORS PORTFOLIO
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] DEC-31-1995
[PERIOD-END] DEC-31-1995
[INVESTMENTS-AT-COST] 233,830,095
[INVESTMENTS-AT-VALUE] 248,258,573
[RECEIVABLES] 3,683,363
[ASSETS-OTHER] 297,764
[OTHER-ITEMS-ASSETS] 93,741,041
[TOTAL-ASSETS] 345,980,741
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 93,879,746
[TOTAL-LIABILITIES] 93,879,746
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 237,609,491
[SHARES-COMMON-STOCK] 21,883,284
[SHARES-COMMON-PRIOR] 17,113,999
[ACCUMULATED-NII-CURRENT] 63,026
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 14,428,478
[NET-ASSETS] 252,100,995
[DIVIDEND-INCOME] 524,570
[INTEREST-INCOME] 12,303,070
[OTHER-INCOME] 0
[EXPENSES-NET] 1,252,869
[NET-INVESTMENT-INCOME] 11,574,771
[REALIZED-GAINS-CURRENT] 11,270,671
[APPREC-INCREASE-CURRENT] 16,138,395
[NET-CHANGE-FROM-OPS] 38,983,837
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (11,510,223)
[DISTRIBUTIONS-OF-GAINS] (1,556,393)
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 4,574,632
[NUMBER-OF-SHARES-REDEEMED] (983,364)
[SHARES-REINVESTED] 1,178,017
[NET-CHANGE-IN-ASSETS] 78,409,685
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] (9,715,153)
[OVERDISTRIB-NII-PRIOR] (1,522)
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 1,156,344
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 1,252,869
[AVERAGE-NET-ASSETS] 211,378,418
[PER-SHARE-NAV-BEGIN] 10.15
[PER-SHARE-NII] 0.60
[PER-SHARE-GAIN-APPREC] 1.43
[PER-SHARE-DIVIDEND] (0.59)
[PER-SHARE-DISTRIBUTIONS] (0.07)
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 11.52
[EXPENSE-RATIO] 0.59
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
[ARTICLE] 6
[SERIES]
[NUMBER] 8
[NAME] GROWTH INVESTORS PORTFOLIO
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] DEC-31-1995
[PERIOD-END] DEC-31-1995
[INVESTMENTS-AT-COST] 760,456,806
[INVESTMENTS-AT-VALUE] 878,864,009
[RECEIVABLES] 16,084,883
[ASSETS-OTHER] 4,000,377
[OTHER-ITEMS-ASSETS] 181,639,018
[TOTAL-ASSETS] 1,080,588,287
[PAYABLE-FOR-SECURITIES] 2,298,845
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 182,155,582
[TOTAL-LIABILITIES] 184,454,427
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 778,073,456
[SHARES-COMMON-STOCK] 50,677,525
[SHARES-COMMON-PRIOR] 33,600,588
[ACCUMULATED-NII-CURRENT] 105,968
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] (397,563)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 118,351,999
[NET-ASSETS] 896,133,860
[DIVIDEND-INCOME] 5,787,751
[INTEREST-INCOME] 21,516,203
[OTHER-INCOME] 0
[EXPENSES-NET] 3,852,051
[NET-INVESTMENT-INCOME] 23,451,903
[REALIZED-GAINS-CURRENT] 20,094,016
[APPREC-INCREASE-CURRENT] 114,933,862
[NET-CHANGE-FROM-OPS] 158,479,781
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (23,881,643)
[DISTRIBUTIONS-OF-GAINS] (11,896,371)
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 16,117,087
[NUMBER-OF-SHARES-REDEEMED] (1,144,340)
[SHARES-REINVESTED] 2,104,190
[NET-CHANGE-IN-ASSETS] 403,656,311
[ACCUMULATED-NII-PRIOR] 146,879
[ACCUMULATED-GAINS-PRIOR] (8,208,832)
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 3,584,538
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 3,852,051
[AVERAGE-NET-ASSETS] 683,756,684
[PER-SHARE-NAV-BEGIN] 14.66
[PER-SHARE-NII] 0.57
[PER-SHARE-GAIN-APPREC] 3.24
[PER-SHARE-DIVIDEND] (0.55)
[PER-SHARE-DISTRIBUTIONS] (0.24)
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 17.68
[EXPENSE-RATIO] 0.56
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
[ARTICLE] 6
[SERIES]
[NUMBER] 9
[NAME] INTERMEDIATE GOVERNMENT SECURITIES PORTFOLIO
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] DEC-31-1995
[PERIOD-END] DEC-31-1995
[INVESTMENTS-AT-COST] 74,723,960
[INVESTMENTS-AT-VALUE] 76,370,937
[RECEIVABLES] 5,102,058
[ASSETS-OTHER] 16,517
[OTHER-ITEMS-ASSETS] 6,643,688
[TOTAL-ASSETS] 88,133,200
[PAYABLE-FOR-SECURITIES] 9,666,046
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 6,687,329
[TOTAL-LIABILITIES] 16,353,375
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 79,487,800
[SHARES-COMMON-STOCK] 7,577,459
[SHARES-COMMON-PRIOR] 5,471,948
[ACCUMULATED-NII-CURRENT] 22,777
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] (9,377,729)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 1,646,977
[NET-ASSETS] 71,779,825
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 3,998,091
[OTHER-INCOME] 0
[EXPENSES-NET] 338,353
[NET-INVESTMENT-INCOME] 3,659,738
[REALIZED-GAINS-CURRENT] 1,061,357
[APPREC-INCREASE-CURRENT] 2,579,005
[NET-CHANGE-FROM-OPS] 7,300,100
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (3,633,574)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 3,178,905
[NUMBER-OF-SHARES-REDEEMED] (1,464,671)
[SHARES-REINVESTED] 391,277
[NET-CHANGE-IN-ASSETS] 23,261,961
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] (10,439,086)
[OVERDISTRIB-NII-PRIOR] (3,387)
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 295,954
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 338,353
[AVERAGE-NET-ASSETS] 59,482,727
[PER-SHARE-NAV-BEGIN] 8.87
[PER-SHARE-NII] 0.58
[PER-SHARE-GAIN-APPREC] 0.57
[PER-SHARE-DIVIDEND] (0.55)
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 9.47
[EXPENSE-RATIO] 0.57
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
[ARTICLE] 6
[SERIES]
[NUMBER] 10
[NAME] QUALITY BOND PORTFOLIO
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] DEC-31-1995
[PERIOD-END] DEC-31-1995
[INVESTMENTS-AT-COST] 149,681,749
[INVESTMENTS-AT-VALUE] 153,826,664
[RECEIVABLES] 3,658,221
[ASSETS-OTHER] 47,771
[OTHER-ITEMS-ASSETS] 20,985,500
[TOTAL-ASSETS] 178,518,156
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 21,075,309
[TOTAL-LIABILITIES] 21,075,309
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 159,028,166
[SHARES-COMMON-STOCK] 16,383,900
[SHARES-COMMON-PRIOR] 14,634,796
[ACCUMULATED-NII-CURRENT] 63,771
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] (5,823,240)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 4,174,150
[NET-ASSETS] 157,442,847
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 9,694,417
[OTHER-INCOME] 0
[EXPENSES-NET] 847,560
[NET-INVESTMENT-INCOME] 8,846,857
[REALIZED-GAINS-CURRENT] 3,312,031
[APPREC-INCREASE-CURRENT] 10,351,408
[NET-CHANGE-FROM-OPS] 22,510,296
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (8,729,254)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 2,039,780
[NUMBER-OF-SHARES-REDEEMED] (1,231,693)
[SHARES-REINVESTED] 941,017
[NET-CHANGE-IN-ASSETS] 29,867,378
[ACCUMULATED-NII-PRIOR] 683,882
[ACCUMULATED-GAINS-PRIOR] (10,071,395)
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 790,598
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 847,560
[AVERAGE-NET-ASSETS] 144,262,230
[PER-SHARE-NAV-BEGIN] 8.72
[PER-SHARE-NII] 0.57
[PER-SHARE-GAIN-APPREC] 0.88
[PER-SHARE-DIVIDEND] (0.56)
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 9.61
[EXPENSE-RATIO] 0.59
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
[ARTICLE] 6
[SERIES]
[NUMBER] 11
[NAME] GROWTH & INCOME PORTFOLIO
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] DEC-31-1995
[PERIOD-END] DEC-31-1995
[INVESTMENTS-AT-COST] 86,427,597
[INVESTMENTS-AT-VALUE] 97,536,248
[RECEIVABLES] 1,548,467
[ASSETS-OTHER] 18,113
[OTHER-ITEMS-ASSETS] 1,066,750
[TOTAL-ASSETS] 100,169,578
[PAYABLE-FOR-SECURITIES] 994,457
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 1,122,300
[TOTAL-LIABILITIES] 2,116,757
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 87,432,803
[SHARES-COMMON-STOCK] 8,380,234
[SHARES-COMMON-PRIOR] 3,251,126
[ACCUMULATED-NII-CURRENT] 10,278
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] (498,911)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 11,108,651
[NET-ASSETS] 98,052,821
[DIVIDEND-INCOME] 1,276,889
[INTEREST-INCOME] 1,026,456
[OTHER-INCOME] 0
[EXPENSES-NET] 373,441
[NET-INVESTMENT-INCOME] 1,929,904
[REALIZED-GAINS-CURRENT] (78,675)
[APPREC-INCREASE-CURRENT] 11,348,703
[NET-CHANGE-FROM-OPS] 13,199,932
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (1,919,557)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 5,330,789
[NUMBER-OF-SHARES-REDEEMED] (375,025)
[SHARES-REINVESTED] 173,344
[NET-CHANGE-IN-ASSETS] 66,530,450
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] (420,236)
[OVERDISTRIB-NII-PRIOR] (69)
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 338,067
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 373,441
[AVERAGE-NET-ASSETS] 62,016,005
[PER-SHARE-NAV-BEGIN] 9.70
[PER-SHARE-NII] 0.33
[PER-SHARE-GAIN-APPREC] 1.97
[PER-SHARE-DIVIDEND] (0.30)
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 11.70
[EXPENSE-RATIO] 0.60
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
[ARTICLE] 6
[SERIES]
[NUMBER] 12
[NAME] EQUITY INDEX PORTFOLIO
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] DEC-31-1995
[PERIOD-END] DEC-31-1995
[INVESTMENTS-AT-COST] 142,183,170
[INVESTMENTS-AT-VALUE] 163,208,624
[RECEIVABLES] 2,178,758
[ASSETS-OTHER] 1,037,577
[OTHER-ITEMS-ASSETS] 476,000
[TOTAL-ASSETS] 166,900,959
[PAYABLE-FOR-SECURITIES] 549,349
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 566,329
[TOTAL-LIABILITIES] 1,115,678
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 144,880,868
[SHARES-COMMON-STOCK] 12,630,306
[SHARES-COMMON-PRIOR] 3,723,880
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] (851)
[ACCUMULATED-NET-GAINS] (123,990)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 21,029,254
[NET-ASSETS] 165,785,281
[DIVIDEND-INCOME] 2,080,947
[INTEREST-INCOME] 180,058
[OTHER-INCOME] 0
[EXPENSES-NET] 413,142
[NET-INVESTMENT-INCOME] 1,847,863
[REALIZED-GAINS-CURRENT] 1,143,375
[APPREC-INCREASE-CURRENT] 21,464,214
[NET-CHANGE-FROM-OPS] 24,455,452
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (1,841,475)
[DISTRIBUTIONS-OF-GAINS] (1,227,474)
[DISTRIBUTIONS-OTHER] (123)
[NUMBER-OF-SHARES-SOLD] 12,811,615
[NUMBER-OF-SHARES-REDEEMED] (4,148,263)
[SHARES-REINVESTED] 243,074
[NET-CHANGE-IN-ASSETS] 129,037,073
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] (47,017)
[OVERDISTRIB-NII-PRIOR] (113)
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 295,735
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 413,142
[AVERAGE-NET-ASSETS] 85,657,693
[PER-SHARE-NAV-BEGIN] 9.87
[PER-SHARE-NII] 0.26
[PER-SHARE-GAIN-APPREC] 3.32
[PER-SHARE-DIVIDEND] (0.22)
[PER-SHARE-DISTRIBUTIONS] (0.10)
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 13.13
[EXPENSE-RATIO] 0.48
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
[ARTICLE] 6
[SERIES]
[NUMBER] 13
[NAME] INTERNATIONAL PORTFOLIO
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] DEC-31-1995
[PERIOD-END] DEC-31-1995
[INVESTMENTS-AT-COST] 28,252,263
[INVESTMENTS-AT-VALUE] 29,176,683
[RECEIVABLES] 128,629
[ASSETS-OTHER] 403,458
[OTHER-ITEMS-ASSETS] 375,100
[TOTAL-ASSETS] 30,083,870
[PAYABLE-FOR-SECURITIES] 961,083
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 438,924
[TOTAL-LIABILITIES] 1,400,007
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 27,831,272
[SHARES-COMMON-STOCK] 2,637,866
[SHARES-COMMON-PRIOR] 0
[ACCUMULATED-NII-CURRENT] 6,487
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] (98,401)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 944,505
[NET-ASSETS] 28,683,863
[DIVIDEND-INCOME] 55,208
[INTEREST-INCOME] 172,902
[OTHER-INCOME] 0
[EXPENSES-NET] 85,655
[NET-INVESTMENT-INCOME] 142,455
[REALIZED-GAINS-CURRENT] 266,775
[APPREC-INCREASE-CURRENT] 944,505
[NET-CHANGE-FROM-OPS] 1,353,735
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (382,493)
[DISTRIBUTIONS-OF-GAINS] (118,651)
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 2,781,575
[NUMBER-OF-SHARES-REDEEMED] (190,166)
[SHARES-REINVESTED] 46,457
[NET-CHANGE-IN-ASSETS] 28,683,863
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 73,079
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 85,655
[AVERAGE-NET-ASSETS] 11,123,659
[PER-SHARE-NAV-BEGIN] 10.00
[PER-SHARE-NII] 0.14
[PER-SHARE-GAIN-APPREC] 0.98
[PER-SHARE-DIVIDEND] (0.20)
[PER-SHARE-DISTRIBUTIONS] (0.05)
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 10.87
[EXPENSE-RATIO] 1.03
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
THE HUDSON RIVER TRUST
PLAN PURSUANT TO RULE 18F-3 UNDER THE
INVESTMENT COMPANY ACT OF 1940
EFFECTIVE , 1996
This Plan (the "Plan") is adopted by The Hudson River Trust (the "Trust")
pursuant to Rule 18f-3 under the Investment Company Act of 1940 (the "Act")
and sets forth the general characteristics of, and the general conditions
under which the Trust may offer, multiple classes of shares of its now
existing and hereafter created portfolios. This Plan is intended to allow the
Trust to offer multiple classes of shares to the full extent and in the
manner permitted by Rule 18f-3 under the Act (the "Rule"), subject to the
requirements and conditions imposed by the Rule. This Plan may be revised or
amended from time to time as provided below.
CLASS DESIGNATIONS
Each of the Trust's constituent portfolios (each, a "Portfolio") may from
time to time issue one or more of the following classes of shares: Class A
shares (constituting the new designation for all shares issued prior to the
date hereof) and Class B shares. Each of the two classes of shares will
represent interests in the same portfolio of investments of the Portfolio
and, except as described herein, shall have the same rights and obligations
as each other class. Each class shall be subject to such investment minimums
and other conditions of eligibility as are set forth in the Trust's
prospectus or statement of additional information as from time to time in
effect (the "Prospectus").
CLASS CHARACTERISTICS
Class A shares are offered at a public offering price that is equal to
their net asset value ("NAV") without an initial sales charge or a contingent
deferred sales charge ("CDSC").
Class B shares are offered at their NAV, without an initial sales charge
or a CDSC, but may be subject to a Rule 12b-1 fee, which may include a
service fee, as described in the Prospectus.
The Class A shares and Class B shares may subsequently be offered pursuant
to an initial sales charge and/or CDSC (each of which may be subject to
reduction or waiver) as permitted by the Act, and as described in the
Prospectus.
ALLOCATIONS TO EACH CLASS
EXPENSE ALLOCATIONS
The following expenses shall be allocated, to the extent practicable, on a
class-by-class basis: (i) Rule 12b-1 fees payable by the Trust to the
distributor or principal underwriter of the Trust's Class B shares (the
"Class B Distributor"),(1) and (ii) transfer agency costs attributable to Class
A shares and Class B shares. Subject to the approval of the Trust's Board of
Trustees, including a majority of the independent Trustees, the following
"Class Expenses" may, to the extent not required to be borne by the Trust's
investment adviser (the "Adviser") pursuant to the Trust's Investment
Advisory Agreement, be allocated on a class-by-class basis: (a) printing and
postage expenses related to preparing and distributing materials such as
shareholder reports, prospectuses and proxy statements to current
shareholders of a specific class, (b) SEC registration fees incurred with
respect to a specific class, (c) blue sky and foreign registration fees and
expenses incurred with respect to a specific class, (d) the expenses of
administrative personnel and services required to support shareholders of a
specific class, (e) litigation and other legal expenses relating to a
specific class of shares, (f) Trustees' fees or expenses incurred as a result
of issues relating to a specific class of shares, (g) accounting and
consulting expenses relating to a specific class of shares, (h) any fees
imposed pursuant to a non-Rule 12b-1 shareholder services plan that relate to
a specific class of shares, and (i) any additional expenses, not including
advisory or custodial fees or other expenses related to the
- - - -----------------
(1) As of the date of this Plan, only Class B shareholders have a Rule 12b-1
plan.
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<PAGE>
management of the Trust's assets, if these expenses are actually incurred in
a different amount with respect to a class, or if services are provided with
respect to a class that are of a different kind or to a different degree than
with respect to one or more other classes.
All expenses not now or hereafter designated as Class Expenses ("Portfolio
Expenses") will be allocated to each class on the basis of the net asset
value of that class in relation to the net asset value of the Portfolio.
However, notwithstanding the above, the Trust may allocate all expenses
other than Class Expenses on the basis of relative net assets (settled
shares), as permitted by rule 18f-3(c)(2) under the Act.
WAIVERS AND REIMBURSEMENTS
The Adviser or Class B Distributor may choose to waive or reimburse Rule
12b-1 fees, transfer agency fees or any Class Expenses on a voluntary,
temporary basis. Such waiver or reimbursement may be applicable to some or
all of the classes and may be in different amounts for one or more classes.
INCOME, GAINS AND LOSSES
Income and realized and unrealized capital gains and losses shall be
allocated to each class on the basis of the net asset value of that class in
relation to the net asset value of the Portfolio.
The Portfolio may allocate income and realized and unrealized capital
gains and losses to each share based on relative net assets (i.e. settled
shares), as permitted by Rule 18f-3(c)(2) under the Act.
CONVERSION AND EXCHANGE
CONVERSION FEATURES
Neither Class A shares nor Class B shares shall convert into the other.
Subsequent classes of shares (each a "Converting Class") may automatically
convert into another class of shares (the "Conversion Class"), subject to
such terms as may be approved by the Trustees.
In the event of any material increase in payments authorized under the
Rule 12b-1 plan (or, if presented to shareholders, any material increase in
payments authorized by a non-Rule 12b-1 shareholder services plan) applicable
to any Conversion Class, existing Converting Class shares will stop
converting into the Conversion Class shares unless the Converting Class
shareholders, voting separately as a class, approve the increase in such
payments. Pending approval of such increase, or if such increase is not
approved, the Trustees shall take such action as is necessary to ensure that
existing Converting Class shares are exchanged or converted into a new class
of shares ("New Conversion Class") identical in all material respects to the
Conversion Class shares as existed prior to the implementation of the
increase in payments, no later than such shares were previously scheduled to
convert to the Conversion Class shares. If deemed advisable by the Trustees
to implement the foregoing, such action may include the exchange of all
existing Converting Class shares for a new class of shares ("New Converting
Class"), identical to existing Converting Class shares, except that New
Converting Class shares shall convert to New Conversion Class shares.
Converting Class shares sold after the implementation of the fee increase may
convert into Conversion Class shares subject to the higher maximum payment,
provided that the material features of the Conversion Class plan and the
relationship of such plan to the Converting Class shares are disclosed in an
effective registration statement.
EXCHANGE FEATURES
Shares of each class generally will be permitted to be exchanged only for
shares of a class with similar characteristics in another Portfolio; Class A
shares may be exchanged for Class A shares of another Portfolio; Class B
shares may be exchanged for Class B shares of another Portfolio. All exchange
features applicable to each class will be described in the Prospectus.
DIVIDENDS
Dividends paid by the Trust with respect to its Class A and Class B
shares, to the extent any dividends are paid, will be calculated in the same
manner, at the same time and will be in the same amount, except
2
<PAGE>
that any Rule 12b-1 fee payments relating to a class of shares will be borne
exclusively by that class and any incremental transfer agency costs or, if
applicable, Class Expenses relating to a class shall be borne exclusively by
that class.
VOTING RIGHTS
Each share of each Portfolio entitles the shareholder of record to one
vote. Each class of shares of the Portfolio will vote separately as a class
with respect to any Rule 12b-1 plan applicable to that class and on other
matters for which class voting is required under applicable law. Class B
shareholders will vote separately as a class to approve any material increase
in payments authorized under the Rule 12b-1 plan applicable to Class B
shares.
RESPONSIBILITIES OF THE TRUSTEES
On an ongoing basis, the Trustees will monitor the Trust and each
Portfolio for the existence of any material conflicts among the interests of
the two classes of shares. The Trustees shall further monitor on an ongoing
basis the use of waivers or reimbursement by the Adviser and the Class B
Distributor of expenses to guard against cross-subsidization between classes.
The Trustees, including a majority of the independent Trustees, shall take
such action as is reasonably necessary to eliminate any such conflict that
may develop. If a conflict arises, the Adviser and Class B Distributor and
the distributor of the Class A shares (together with the Class B Distributor,
the "Distributors"), at their own cost, will remedy such conflict up to and
including establishing one or more new registered management investment
companies.
REPORTS TO THE TRUSTEES
The Adviser and the Distributors will be responsible for reporting any
potential or existing conflicts among the two classes of shares to the
Trustees. In addition, the Trustees will receive quarterly and annual
statements concerning distributions and shareholder servicing expenditures
complying with paragraph (b)(3)(ii) of Rule 12b-1. In the statements, only
expenditures properly attributable to the direct or indirect sale or
servicing of a particular class of shares shall be used to justify any
distribution or service fee charged to that class. The statements, including
the allocations upon which they are based, will be subject to the review of
the independent Trustees in the exercise of their fiduciary duties.
AMENDMENTS
The Plan may be amended from time to time in accordance with the
provisions and requirements of Rule 18f-3 under the Act.
Adopted this day of , 1996
By: ______________________
Edmund P. Bergan, Jr.
Secretary
3
