<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 27,1998
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 [X]
PRE-EFFECTIVE AMENDMENT NO.
POST-EFFECTIVE AMENDMENT NO. 31 [X]
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 [X]
AMENDMENT NO. 32 [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)
JOHN D. CARIFA, PRESIDENT
1345 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10105
(NAME AND ADDRESS OF AGENT FOR SERVICE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (800) 221-5672
---------
PLEASE SEND COPIES OF ALL COMMUNICATIONS TO:
EDMUND P. BERGAN, JR. J.B. KITTREDGE
ALLIANCE CAPITAL MANAGEMENT L.P. ROPES & GRAY
1345 AVENUE OF THE AMERICAS ONE INTERNATIONAL PLACE
NEW YORK, NEW YORK 10105 BOSTON, MASSACHUSETTS 02110-2624
---------
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: CONTINUOUS.
It is proposed that this filing will become effective (check appropriate box)
[X] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 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.
===============================================================================
<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
4. General Description of Registrant .............. THE TRUST; INVESTMENT
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
-------------------------------------------------------- ----------------------------
INVESTMENT ADVISORY AND
17. Brokerage Allocation and Other Practices................ 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>
PART C
Information required to be included in Part C is set forth under
the appropriate Item, so numbered, in Part C of the Registration
Statement.
- ------------
* Prospectus Caption
<PAGE>
PROSPECTUS SUPPLEMENT DATED MARCH 1, 1998
TO PROSPECTUSES DATED MAY 1, 1997
THE HUDSON RIVER TRUST
The section of the Prospectuses entitled "Financial Highlights" is hereby
supplemented with the following:
FINANCIAL HIGHLIGHTS
The financial information below for the fiscal year ended on December 31,
1997 has been audited by Price Waterhouse LLP, the Trust's independent
accountants. The December 31, 1997 audited financial statements of the Trust,
and the "Report of the Independent Accountants" thereon, are incorporated by
reference herein. The Trust's 1997 annual report, which contains additional
performance information, is available without charge upon request.
SELECTED DATA FOR A PORTFOLIO SHARE OUTSTANDING THROUGHOUT THE PERIOD(C)
<TABLE>
<CAPTION>
ALLIANCE INTERMEDIATE
ALLIANCE MONEY GOVERNMENT SECURITIES ALLIANCE QUALITY
MARKET PORTFOLIO PORTFOLIO BOND PORTFOLIO
---------------------- ----------------------- ----------------
CLASS IA CLASS IB CLASS IA CLASS IB* CLASS IA
SHARES SHARES SHARES SHARES SHARES
---------- ---------- ---------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period(a) .............. $10.17 $10.16 $ 9.29 $ 9.27 $ 9.49
---------- ---------- ---------- ----------- ----------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ............................... 0.54 0.52 0.53 0.32 0.60
Net realized and unrealized gain on investments and
foreign currency transactions ...................... -- -- 0.13 0.22 0.24
---------- ---------- ---------- ----------- ----------------
Total from investment operations .................... 0.54 0.52 0.66 0.54 0.84
---------- ---------- ---------- ----------- ----------------
LESS DISTRIBUTIONS:
Dividends from net investment income ................ (0.53) (0.51) (0.51) (0.38) (0.59)
Distributions from realized gains ................... (0.00) (0.00) -- -- --
---------- ---------- ---------- ----------- ----------------
Total dividends and distributions ................... (0.53) (0.51) (0.51) (0.38) (0.59)
---------- ---------- ---------- ----------- ----------------
Net asset value, end of period ....................... $10.18 $10.17 $ 9.44 $ 9.43 $ 9.74
========== ========== ========== =========== ================
Total return(d) ...................................... 5.42% 5.16% 7.29% 5.83% 9.14%
========== ========== ========== =========== ================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) .................... $449,960 $123,675 $115,114 $5,052 $203,233
Ratio of expenses to average net assets .............. 0.39% 0.63% 0.55% 0.81%(b) 0.57%
Ratio of net investment income to average net assets 5.28% 5.02% 5.61% 5.15%(b) 6.19%
Portfolio turnover rate .............................. -- -- 285% 285% 374%
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
ALLIANCE GROWTH &
ALLIANCE HIGH YIELD INCOME ALLIANCE EQUITY INDEX
PORTFOLIO PORTFOLIO PORTFOLIO
---------------------- ----------------------- -----------------------
CLASS IA CLASS IB CLASS IA CLASS IB* CLASS IA CLASS IB*
SHARES SHARES SHARES SHARES SHARES SHARES
---------- ---------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period(a) $10.02 $10.01 $13.01 $13.42 $15.16 $16.35
---------- ---------- ---------- ----------- ---------- -----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .................. 1.04 1.05 0.15 0.05 0.26 0.14
Net realized and unrealized gain on
investments and foreign currency
transactions .......................... 0.75 0.71 3.30 2.91 4.64 3.48
---------- ---------- ---------- ----------- ---------- -----------
Total from investment operations ...... 1.79 1.76 3.45 2.96 4.90 3.62
---------- ---------- ---------- ----------- ---------- -----------
LESS DISTRIBUTIONS:
Dividends from net investment income ... (0.97) (0.95) (0.15) (0.09) (0.25) (0.17)
Distributions from realized gains ..... (0.43) (0.43) (0.93) (0.93) (0.07) (0.07)
---------- ---------- ---------- ----------- ---------- -----------
Total dividends and distributions ..... (1.40) (1.38) (1.08) (1.02) (0.32) (0.24)
---------- ---------- ---------- ----------- ---------- -----------
Net asset value, end of period .......... $10.41 $10.39 $15.38 $15.36 $19.74 $19.73
========== ========== ========== =========== ========== ===========
Total return(d) ......................... 18.48% 18.19% 26.90% 22.41% 32.58% 22.28%
========== ========== ========== =========== ========== ===========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) ...... $355,473 $66,338 $555,059 $32,697 $943,631 $ 110
Ratio of expenses to average net assets 0.62% 0.88% 0.58% 0.83%(b) 0.37% 0.62%(b)
Ratio of net investment income to
average net assets ..................... 9.82% 9.76% 0.99% 0.43%(b) 1.46% 1.10%(b)
Portfolio turnover rate ................. 390% 390% 79% 79% 3% 3%
Average commission rate paid ............ -- -- $0.0586 $0.0586 $0.0309 $0.0309
</TABLE>
<TABLE>
<CAPTION>
ALLIANCE
ALLIANCE COMMON ALLIANCE GLOBAL INTERNATIONAL
STOCK PORTFOLIO PORTFOLIO PORTFOLIO
------------------------ ------------------------ -----------------------
CLASS IA CLASS IB CLASS IA CLASS IB CLASS IA CLASS IB*
SHARES SHARES SHARES SHARES SHARES SHARES
------------ ---------- ------------ ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period(a) $18.23 $18.22 $16.92 $16.91 $11.50 $11.39
------------ ---------- ------------ ---------- ---------- -----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .................. 0.14 0.10 0.17 0.12 0.10 0.02
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions .......................... 5.12 5.11 1.75 1.76 (0.45) (0.31)
------------ ---------- ------------ ---------- ---------- -----------
Total from investment operations ...... 5.26 5.21 1.92 1.88 (0.35) (0.29)
------------ ---------- ------------ ---------- ---------- -----------
LESS DISTRIBUTIONS:
Dividends from net investment income ... (0.11) (0.08) (0.36) (0.33) (0.32) (0.28)
Distributions from realized gains ..... (1.77) (1.77) (1.19) (1.19) (0.56) (0.56)
------------ ---------- ------------ ---------- ---------- -----------
Total dividends and distributions ..... (1.88) (1.85) (1.55) (1.52) (0.88) (0.84)
------------ ---------- ------------ ---------- ---------- -----------
Net asset value, end of period .......... $21.61 $21.58 $17.29 $17.27 $10.27 $10.26
============ ========== ============ ========== ========== ===========
Total return(d) ......................... 29.40% 29.07% 11.66% 11.38% (2.98)% (2.54)%
============ ========== ============ ========== ========== ===========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) ......$9,331,994 $228,780 $1,203,867 $21,520 $190,611 $3,286
Ratio of expenses to average net assets 0.39% 0.64% 0.69% 0.97% 1.08% 1.38%(b)
Ratio of net investment income to
average net assets ..................... 0.69% 0.46% 0.97% 0.67% 0.83% 0.20%(b)
Portfolio turnover rate ................. 52% 52% 57% 57% 59% 59%
Average commission rate paid ............ $0.0579 $0.0579 $0.0412 $0.0412 $0.0294 $0.0294
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
ALLIANCE
ALLIANCE AGGRESSIVE ALLIANCE SMALL CAP CONSERVATIVE
STOCK PORTFOLIO GROWTH PORTFOLIO INVESTORS PORTFOLIO
------------------------ ------------------------- -----------------------
CLASS IA CLASS IB CLASS IA* CLASS IB* CLASS IA CLASS IB*
SHARES SHARES SHARES SHARES SHARES SHARES
------------ ---------- ----------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period(a) $35.85 $35.83 $10.00 $10.00 $11.29 $11.29
------------ ---------- ----------- ------------ ---------- -----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .................. 0.04 (0.11) 0.01 (0.01) 0.49 0.31
Net realized and unrealized gain on
investments and foreign currency
transactions .......................... 3.71 3.77 2.65 2.65 0.97 1.01
------------ ---------- ----------- ------------ ---------- -----------
Total from investment operations ...... 3.75 3.66 2.66 2.64 1.46 1.32
------------ ---------- ----------- ------------ ---------- -----------
LESS DISTRIBUTIONS:
Dividends from net investment income ... (0.05) (0.03) (0.01) (0.00) (0.49) (0.36)
Distributions from realized gains ..... (3.33) (3.33) (0.30) (0.30) (0.37) (0.37)
------------ ---------- ----------- ------------ ---------- -----------
Total dividends and distributions ..... (3.38) (3.36) (0.31) (0.30) (0.86) (0.73)
------------ ---------- ----------- ------------ ---------- -----------
Net asset value, end of period .......... $36.22 $36.13 $12.35 $12.34 $11.89 $11.88
============ ========== =========== ============ ========== ===========
Total return(d) ......................... 10.94% 10.66% 26.74% 26.57% 13.25% 11.84%
============ ========== =========== ============ ========== ===========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) ......$4,589,771 $73,486 $94,676 $46,324 $307,847 $5,694
Ratio of expenses to average net assets 0.54% 0.81% 0.95%(b) 1.15%(b) 0.57% 0.80%(b)
Ratio of net investment income to
average net assets ..................... 0.11% (0.28)% 0.10%(b) (0.12)%(b) 4.17% 3.82%(b)
Portfolio turnover rate ................. 123% 123% 96% 96% 206% 206%
Average commission rate paid ............ $0.0571 $0.0571 $0.0488 $0.0488 $0.0413 $0.0413
</TABLE>
<TABLE>
<CAPTION>
ALLIANCE
ALLIANCE BALANCED GROWTH INVESTORS
PORTFOLIO PORTFOLIO
----------------- -------------------------
CLASS IA CLASS IA CLASS IB
SHARES SHARES SHARES
------------ ------------ -----------
<S> <C> <C> <C>
Net asset value, beginning of period(a) $16.64 $17.20 $17.19
------------ ------------ -----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .................. 0.58 0.41 0.36
Net realized and unrealized gain on
investments and foreign currency
transactions .......................... 1.86 2.43 2.43
------------ ------------ -----------
Total from investment operations ...... 2.44 2.84 2.79
------------ ------------ -----------
LESS DISTRIBUTIONS:
Dividends from net investment income ... (0.59) (0.46) (0.43)
Distributions from realized gains ..... (0.91) (1.03) (1.03)
------------ ------------ -----------
Total dividends and distributions ..... (1.50) (1.49) (1.46)
------------ ------------ -----------
Net asset value, end of period .......... $17.58 $18.55 $18.52
============ ============ ===========
Total return(d) ......................... 15.06% 16.87% 16.58%
============ ============ ===========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) ...... $1,724,089 $1,630,389 $35,730
Ratio of expenses to average net assets 0.45% 0.57% 0.82%
Ratio of net investment income to
average net assets ..................... 3.30% 2.18% 1.88%
Portfolio turnover rate ................. 146% 121% 121%
Average commission rate paid ............ $0.0409 $0.0460 $0.0460
</TABLE>
- ------------
* For the period from May 1, 1997 (commencement of operations) to
December 31, 1997.
3
<PAGE>
(a) Date as of which funds were first allocated to the Portfolios are as
follows:
Class IA:
Alliance Common Stock Portfolio--June 16, 1975
Alliance Money Market Portfolio--July 13, 1981
Alliance Balanced Portfolio--January 27, 1986
Alliance Aggressive Stock Portfolio--January 27, 1986
Alliance High Yield Portfolio--January 2, 1987
Alliance Global Portfolio--August 27, 1987
Alliance Conservative Investors Portfolio--October 2, 1989
Alliance Growth Investors Portfolio--October 2, 1989
Alliance Intermediate Government Securities Portfolio--April 1, 1991
Alliance Quality Bond Portfolio--October 1, 1993
Alliance Growth and Income Portfolio--October 1, 1993
Alliance Equity Index Portfolio--March 1, 1994
Alliance International Portfolio--April 3, 1995
Alliance Small Cap Growth Portfolio--May 1, 1997
Class IB:
Alliance Money Market, Alliance High Yield, Alliance Common Stock,
Alliance Global, Alliance Aggressive Stock and Alliance Growth
Investors Portfolios--October 2, 1996.
Alliance Intermediate Government Securities, Alliance Growth and
Income, Alliance Equity Index, Alliance International, Alliance Small
Cap Growth and Alliance Conservative Investors Portfolios--May 1, 1997.
(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.
4
<PAGE>
THE HUDSON RIVER TRUST
Principal Office Located at
1345 Avenue of the Americas -- New York, New York 10105
The Hudson River Trust (the "Trust") is a mutual fund, currently issuing
fourteen series of shares of beneficial interest, each representing a
separate investment portfolio (each a "Portfolio"). The Portfolios are The
Asset Allocation Series: Alliance Conservative Investors, Alliance Balanced
and Alliance Growth Investors; The Equity Series: Alliance Growth and Income,
Alliance Equity Index, Alliance Common Stock, Alliance Global, Alliance
International, Alliance Aggressive Stock and Alliance Small Cap Growth; and
The Fixed Income Series: Alliance Money Market, Alliance Intermediate
Government Securities, Alliance Quality Bond and Alliance High Yield. An
investment in the Alliance Money Market Portfolio is neither insured nor
guaranteed by the U.S. Government. Shares of each Portfolio are currently
divided into two classes: Class IA shares, offered hereby, and Class IB
shares, offered pursuant to another prospectus.
This prospectus sets forth concisely the investment objectives and policies
of the fourteen 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 relating to Class IA shares ("SAI")
dated May 1, 1997 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. California
residents may obtain the SAI at no charge by calling 1-800-999-3527.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Financial Highlights........................ 2
The Trust................................... 11
Investment Objectives and Policies.......... 11
Investment Techniques....................... 26
Certain Investment Restrictions............. 32
Management of the Trust..................... 32
Description of the Trust's Shares........... 36
Dividends, Distributions and Taxes.......... 37
Investment Performance...................... 38
Appendix A--Description of Bond Ratings .... A-1
Appendix B--Performance Information ........ B-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 OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
PROSPECTUS DATED MAY 1, 1997
- -----------------------------------------------------------------------------
HRT103 (5/97) Copyright 1996 The Hudson River Trust. All rights reserved.
<PAGE>
FINANCIAL HIGHLIGHTS
The financial information in the tables below for the fiscal years ended on
or after December 31, 1993 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 December 31, 1996
audited financial statements of the Trust and the "Report of Independent
Accountants" appear in the SAI. The Trust's annual report, which contains
additional performance information, is available without charge upon request.
No shares of the Alliance Small Cap Growth Portfolio were outstanding as of
December 31, 1996.
FINANCIAL HIGHLIGHTS
PER SHARE INCOME AND CAPITAL CHANGES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)(C)
ASSET ALLOCATION SERIES
ALLIANCE CONSERVATIVE INVESTORS PORTFOLIO:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1996 1995 1994 1993*
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net asset value, beginning of period (a) ..... $11.52 $10.15 $11.12 $10.94
---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ....................... 0.50 0.60 0.55 0.52
Net realized and unrealized gain (loss) on
investments................................ 0.07 1.43 (1.00) 0.65
---------- ---------- ---------- ----------
Total from investment operations ............ 0.57 2.03 (0.45) 1.17
---------- ---------- ---------- ----------
LESS DISTRIBUTIONS:
Dividends from net investment income ........ (0.51) (0.59) (0.52) (0.50)
Distributions from realized gains .......... (0.27) (0.07) -- (0.49)
Distributions in excess of realized gains ... (0.02) -- -- --
---------- ---------- ---------- ----------
Total dividends and distributions .......... (0.80) (0.66) (0.52) (0.99)
---------- ---------- ---------- ----------
Net asset value, end of period................ $11.29 $11.52 $10.15 $11.12
========== ========== ========== ==========
Total return (d).............................. 5.21% 20.40% (4.10)% 10.76%
========== ========== ========== ==========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's)............. $282,402 $252,101 $173,691 $114,418
Ratio of expenses to average net assets ..... 0.61% 0.59% 0.59% 0.60%
Ratio of net investment income to average net
assets ...................................... 4.48% 5.48% 5.22% 4.49%
Portfolio turnover rate....................... 181% 287% 228% 178%
Average commission rate paid (f).............. $0.0488 -- -- --
</TABLE>
<PAGE>
(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)
Distributions from realized gains .......... (0.36) (0.25) -- --
Distributions in excess of realized gains ... -- -- -- --
--------- --------- --------- --------------
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%
Portfolio turnover rate....................... 136% 171% 88% 0%
Average commission rate paid (f).............. -- -- -- --
</TABLE>
- ------------
Footnotes appear on page 10.
2
<PAGE>
ALLIANCE BALANCED PORTFOLIO (H):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1996 1995 1994 1993* 1992
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
year (a)...................... $ 16.76 $ 14.87 $ 16.67 $ 16.19 $ 18.48
------------ ------------ ------------ ------------ ------------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income......... 0.53 0.54 0.45 0.50 0.56
Net realized and unrealized
gain (loss) on investments .. 1.31 2.36 (1.78) 1.46 (1.11)
------------ ------------ ------------ ------------ ------------
Total from investment
operations................... 1.84 2.90 (1.33) 1.96 (0.55)
------------ ------------ ------------ ------------ ------------
LESS DISTRIBUTIONS:
Dividends from net
investment income............ (0.53) (0.54) (0.44) (0.50) (0.55)
Dividends in excess of net
investment income............ -- -- (0.03) -- --
Distributions from realized
gains........................ (1.40) (0.47) -- (0.95) (1.19)
Distributions in excess of
realized gains............... (0.03) -- -- (0.03) --
Total dividends and
distributions................ (1.96) (1.01) (0.47) (1.48) (1.74)
------------ ------------ ------------ ------------ ------------
Net asset value, end of year .. $ 16.64 $ 16.76 $ 14.87 $ 16.67 $ 16.19
============ ============ ============ ============ ============
Total return (d)............... 11.68% 19.75% (8.02)% 12.28% (2.85)%
============ ============ ============ ============ ============
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(000's)....................... $1,637,856 $1,523,142 $1,329,820 $1,364,640 $1,076,670
Ratio of expenses to average
net assets.................... 0.41% 0.40% 0.39% 0.39% 0.40%
Ratio of net investment income
to average net assets......... 3.15% 3.33% 2.87% 2.99% 3.30%
Portfolio turnover rate (i) ... 177% 186% 115% 99% 91%
Average commission rate
paid (f)...................... $ 0.0516 -- -- -- --
</TABLE>
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
1991 1990 1989 1988 1987
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
year (a)...................... $ 14.40 $ 15.16 $ 13.38 $ 12.39 $ 12.79
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income......... 0.60 0.78 0.85 0.67 0.41
Net realized and unrealized
gain (loss) on investments .. 5.23 (0.76) 2.53 0.95 (0.47)
---------- ---------- ---------- ---------- ----------
Total from investment
operations................... 5.83 0.02 3.38 1.62 (0.06)
---------- ---------- ---------- ---------- ----------
LESS DISTRIBUTIONS:
Dividends from net
investment income............ (0.55) (0.78) (0.85) (0.63) (0.34)
Dividends in excess of net
investment income............ -- -- -- -- --
Distributions from realized
gains........................ (1.20) -- (0.75) -- --
Distributions in excess of
realized gains............... -- -- -- -- --
Total dividends and
distributions................ (1.75) (0.78) (1.60) (0.63) (0.34)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year .. $ 18.48 $ 14.40 $ 15.16 $ 13.38 $ 12.39
========== ========== ========== ========== ==========
Total return (d)............... 41.25% 0.25% 25.84% 13.27% (0.86)%
========== ========== ========== ========== ==========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(000's)....................... $964,262 $286,432 $241,910 $161,819 $108,913
Ratio of expenses to average
net assets.................... 0.41% 0.45% 0.45% 0.51% 0.47%
Ratio of net investment income
to average net assets......... 3.60% 5.35% 5.71% 5.15% 2.88%
Portfolio turnover rate (i) ... 159% 119% 132% 204% 197%
Average commission rate
paid (f)...................... -- -- -- -- --
</TABLE>
- ------------
Footnotes appear on page 10.
3
<PAGE>
ALLIANCE GROWTH INVESTORS PORTFOLIO:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1996 1995 1994
--------------- ----------- ----------
<S> <C> <C> <C>
Net asset value, beginning of period (a) . $ 17.68 $14.66 $15.61
--------------- ----------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .................. 0.40 0.57 0.50
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions .......................... 1.66 3.24 (0.98)
--------------- ----------- ----------
Total from investment operations ........ 2.06 3.81 (0.48)
--------------- ----------- ----------
LESS DISTRIBUTIONS:
Dividends from net investment income .... (0.40) (0.54) (0.46)
Dividends in excess of net investment
income................................. (0.03) (0.01) (0.01)
Distributions from realized gains ...... (2.10) (0.24) --
Distributions in excess of realized
gains.................................. (0.01) -- --
--------------- ----------- ----------
Total dividends and distributions ...... (2.54) (0.79) (0.47)
--------------- ----------- ----------
Net asset value, end of period............ $ 17.20 $17.68 $14.66
=============== =========== ==========
Total return (d) ......................... 12.61% 26.37% (3.15)%
=============== =========== ==========
RATIOS/SUPPLEMENTAL DATA:
Net asset, end of period (000's).......... $1,301,643 $896,134 $492,478
Ratio of expenses to average net assets . 0.57% 0.56% 0.59%
Ratio of net investment income to average
net assets .............................. 2.31% 3.43% 3.32%
Portfolio turnover rate................... 190% 107% 131%
Average commission rate paid (f).......... $ 0.0495 -- --
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
OCTOBER 2,
1989 TO
DECEMBER 31,
1993* 1992 1991 1990 1989
---------- ---------- --------- --------- --------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period (a) . $ 14.69 $ 15.17 $ 11.03 $ 10.33 $10.00
---------- ---------- --------- --------- --------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .................. 0.43 0.44 0.41 0.44 0.11
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions .......................... 1.79 0.28 4.93 0.64 0.29
---------- ---------- --------- --------- --------------
Total from investment operations ........ 2.22 0.72 5.34 1.08 0.40
---------- ---------- --------- --------- --------------
LESS DISTRIBUTIONS:
Dividends from net investment income .... (0.42) (0.41) (0.37) (0.38) (0.06)
Dividends in excess of net investment
income................................. -- -- -- -- --
Distributions from realized gains ...... (0.88) (0.79) (0.83) -- (0.01)
Distributions in excess of realized
gains.................................. -- -- -- -- --
---------- ---------- --------- --------- --------------
Total dividends and distributions ...... (1.30) (1.20) (1.20) (0.38) (0.07)
---------- ---------- --------- --------- --------------
Net asset value, end of period............ $ 15.61 $ 14.69 $ 15.17 $ 11.03 $10.33
========== ========== ========= ========= ==============
Total return (d) ......................... 15.26% 4.85% 48.83% 10.70% 4.00%
========== ========== ========= ========= ==============
RATIOS/SUPPLEMENTAL DATA:
Net asset, end of period (000's).......... $278,467 $148,650 $84,338 $24,539 $6,018
Ratio of expenses to average net assets . 0.62% 0.60% 0.66% 0.78% 0.29%
Ratio of net investment income to average
net assets .............................. 2.71% 3.00% 3.03% 4.11% 1.01%
Portfolio turnover rate................... 118% 129% 139% 92% 6%
Average commission rate paid (f).......... -- -- -- -- --
</TABLE>
<PAGE>
EQUITY SERIES
ALLIANCE GROWTH AND INCOME PORTFOLIO:
<TABLE>
<CAPTION>
OCTOBER 1, 1993
YEAR ENDED TO
DECEMBER 31, DECEMBER 31, 1993
-------------------------------- -----------------
1996 1995 1994
---------- --------- ---------
<S> <C> <C> <C> <C>
Net asset value, beginning of period (a)............... $ 11.70 $ 9.70 $ 9.95 $10.00
---------- --------- --------- -----------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................................. 0.24 0.33 0.31 0.03
Net realized and unrealized gain (loss) on
investments........................................... 2.05 1.97 (0.36) (0.06)
---------- --------- --------- -----------------
Total from investment operations...................... 2.29 2.30 (0.05) (0.03)
---------- --------- --------- -----------------
LESS DISTRIBUTIONS:
Dividends from net investment income.................. (0.23) (0.30) (0.20) (0.02)
Dividends in excess of net investment income ......... -- -- -- (0.00)
Distributions from realized gains .................... (0.75) -- -- --
---------- --------- --------- -----------------
Tax return of capital distribution.................... -- -- -- (0.00)
---------- --------- --------- -----------------
Total dividends and distributions..................... (0.98) (0.30) (0.20) (0.02)
---------- --------- --------- -----------------
Net asset value, end of period......................... $ 13.01 $ 11.70 $ 9.70 $ 9.95
========== ========= ========= =================
Total return (d)....................................... 20.09% 24.07% (0.58)% (0.25)%
========== ========= ========= =================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's)...................... $232,080 $98,053 $31,522 $1,456
Ratio of expenses to average net assets................ 0.58% 0.60% 0.78% 2.70%(b)
Ratio of net investment income to average net assets .. 1.94% 3.11% 3.13% 1.12%(b)
Portfolio turnover rate................................ 88% 65% 52% 48%
Average commission rate paid (f)....................... $ 0.0604 -- -- --
</TABLE>
- ------------
Footnotes appear on page 10.
4
<PAGE>
ALLIANCE EQUITY INDEX PORTFOLIO:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 1, 1994
DECEMBER 31, TO DECEMBER 31, 1994
---------------------- --------------------
1996 1995
---------- ----------
<S> <C> <C> <C>
Net asset value, beginning of period (a)................ $ 13.13 $ 9.87 $10.00
---------- ---------- --------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ................................. 0.27 0.26 0.20
Net realized and unrealized gain (loss) on investments 2.65 3.32 (0.09)
---------- ---------- --------------------
Total from investment operations ...................... 2.92 3.58 0.11
---------- ---------- --------------------
LESS DISTRIBUTIONS:
Dividends from net investment income .................. (0.25) (0.22) (0.20)
Distributions of realized gains........................ (0.64) (0.09) (0.03)
Distributions in excess of realized gains.............. -- (0.01) (0.01)
---------- ---------- --------------------
Total dividends and distributions...................... (0.89) (0.32) (0.24)
---------- ---------- --------------------
Net asset value, end of period ......................... $ 15.16 $ 13.13 $ 9.87
========== ========== ====================
Total return (d) ....................................... 22.39% 36.48% 1.08%
========== ========== ====================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) ...................... $386,249 $165,785 $36,748
Ratio of expenses to average net assets................. 0.39% 0.48% 0.49%(b)
Ratio of net investment income to average net assets ... 1.91% 2.16% 2.42%(b)
Portfolio turnover rate ................................ 15% 9% 7%
Average commission rate paid (f)........................ $ 0.0306 -- --
</TABLE>
ALLIANCE COMMON STOCK PORTFOLIO (G)(H):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1996 1995 1994 1993* 1992
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net asset value, begin-
ning of year (a)........ $16.48 $13.36 $14.65 $13.49 $14.18
------------ ------------ ------------ ------------ ------------
INCOME FROM
INVESTMENT
OPERATIONS:
Net investment
income................. 0.15 0.20 0.20 0.23 0.24
Net realized and
unrealized gain
(loss) on invest-
ments and
foreign currency
transactions........... $3.73 4.12 (0.51) 3.10 0.20
------------ ------------ ------------ ------------ ------------
Total from invest-
ment operations........ 3.88 4.32 (0.31) 3.33 0.44
------------ ------------ ------------ ------------ ------------
LESS DISTRIBUTIONS:
Dividends from net
investment
income................. (0.15) (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......... (1.76) (0.95) (0.77) (1.94) (0.89)
Distributions in excess
of realized gains...... (0.22) (0.03) -- -- --
Tax return of capital
distributions.......... -- -- (0.01) -- --
------------ ------------ ------------ ------------ ------------
Total dividends
and distributions...... (2.13) (1.20) (0.98) (2.17) (1.13)
------------ ------------ ------------ ------------ ------------
Net asset value, end
of year................. $18.23 $16.48 $13.36 $14.65 $13.49
============ ============ ============ ============ ============
Total return (d)......... 24.28% 32.45% (2.14)% 24.84% 3.22%
============ ============ ============ ============ ============
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of
year (000's)............ $6,625,390 $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% 0.38%
Ratio of net invest-
ment income to
average net assets...... 0.85% 1.27% 1.40% 1.55% 1.73%
Portfolio turnover rate 55% 61% 52% 82% 71%
Average commission rate
paid (f)................ $0.0565 -- -- -- --
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
1991 1990 1989 1988 1987
------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value, begin-
ning of year (a)........ $11.22 $12.87 $12.19 $10.15 $11.34
------------ ---------- ---------- ---------- ----------
INCOME FROM
INVESTMENT
OPERATIONS:
Net investment
income................. 0.32 0.21 0.27 0.23 0.17
Net realized and
unrealized gain
(loss) on invest-
ments and
foreign currency
transactions........... 3.91 (1.25) 2.84 2.04 0.72
------------ ---------- ---------- ---------- ----------
Total from invest-
ment operations........ 4.23 (1.04) 3.11 2.27 0.89
------------ ---------- ---------- ---------- ----------
LESS DISTRIBUTIONS:
Dividends from net
investment
income................. (0.29) (0.22) (0.26) (0.23) (0.17)
Dividends in
excess of net
investment
income................. -- -- -- -- --
Distributions from
realized gains......... (0.98) (0.39) (2.17) -- (1.91)
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)
------------ ---------- ---------- ---------- ----------
Net asset value, end
of year................. $ 14.18 $ 11.22 $ 12.87 $ 12.19 $ 10.15
============ ========== ========== ========== ==========
Total return (d)......... 37.90% (8.11)% 25.59% 22.44% 7.49%
============ ========== ========== ========== ==========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of
year (000's)............ $2,126,402 $673,476 $725,627 $537,827 $434,558
Ratio of expenses to
average net assets...... 0.40% 0.44% 0.43% 0.46% 0.46%
Ratio of net invest-
ment income to
average net assets...... 2.32% 1.72% 1.87% 2.02% 1.21%
Portfolio turnover rate 90% 82% 90% 71% 86%
Average commission rate
paid (f)................ -- -- -- -- --
</TABLE>
- ------------
Footnotes appear on page 10.
5
<PAGE>
ALLIANCE GLOBAL PORTFOLIO (H):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period (a)....................... $15.74 $13.87 $13.62 $11.41 $11.64
------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income ........... 0.21 0.26 0.20 0.08 0.14
Net realized and unrealized gain
(loss) on investments and
foreign currency transactions.. 2.05 2.32 0.52 3.58 (0.20)
------ ------ ------ ------ ------
Total from investment
operations..................... 2.26 2.58 0.72 3.66 (0.06)
------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net investment
income......................... (0.21) (0.25) (0.17) (0.15) (0.11)
Dividends in excess of net
investment income.............. (0.08) -- -- -- --
Distributions from realized
gains.......................... (0.79) (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 ................. (0.00) (0.01) (0.02) -- --
------ ------ ------ ------ ------
Total dividends and
distributions.................. (1.08) (0.71) (0.47) (1.45) (0.17)
------ ------ ------ ------ ------
Net asset value, end of period ... $16.92 $15.74 $13.87 $13.62 $11.41
====== ====== ====== ====== ======
Total return (d) ................. 14.60% 18.81% 5.23% 32.09% (0.50)%
====== ====== ====== ====== ======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000's) ......................... $997,041 $686,140 $421,698 $141,257 $49,171
Ratio of expenses to average net
assets .......................... 0.60% 0.61% 0.69% 0.84% 0.70%
Ratio of net investment income to
average net assets .............. 1.28% 1.76% 1.41% 0.62% 1.20%
Portfolio turnover rate........... 59% 67% 71% 150% 216%
Average commission rate paid (f) . $ 0.0418 -- -- -- --
</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) --
Dividends in excess of net
investment income.............. -- -- -- -- --
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%
Average commission rate paid (f) . -- -- -- -- --
</TABLE>
ALLIANCE INTERNATIONAL PORTFOLIO:
<TABLE>
<CAPTION>
APRIL 3,
YEAR ENDED 1995 TO
DECEMBER 31, DECEMBER 31,
1996 1995
- ---------------------------------------------------- -------------- ------------
<S> <C> <C>
Net asset value, beginning of period (a)............. $10.87 $10.00
------- --------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income............................... 0.13 0.14
Net realized and unrealized gain on investments .... 0.94 0.98
------- --------------
Total from investment operations.................... 1.07 1.12
------- --------------
LESS DISTRIBUTIONS:
Dividends from net investment income................ (0.10) (0.07)
Dividends in excess of net investment income ....... (0.09) (0.13)
Distributions of realized gains..................... (0.25) (0.05)
------- --------------
Total dividends and distributions................... (0.44) (0.25)
------- --------------
Net asset value, end of period....................... $11.50 $10.87
======= ==============
Total return (d)..................................... 9.82% 11.29%
======= ==============
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's).................... $151,907 $28,684
Ratio of expenses to average net assets.............. 1.06% 1.03%(b)
Ratio of net investment income to average net
assets.............................................. 1.10% 1.71%(b)
Portfolio turnover rate.............................. 48% 56%
Average commission rate paid (f)..................... $ 0.0251 --
</TABLE>
- ------------
Footnotes appear on page 10.
6
<PAGE>
ALLIANCE AGGRESSIVE STOCK PORTFOLIO (H):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
1996 1995 1994 1993* 1992
----------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
year (a) ....................... $ 35.68 $30.63 $31.89 $29.81 $33.82
------------ ---------- ------------ ---------- ----------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .......... 0.09 0.10 0.04 0.09 0.17
Net realized and unrealized
gain (loss) on investments.... 7.52 9.54 (1.26) 4.91 (1.25)
------------ ---------- ------------ ---------- ----------
Total from investment
operations ................... 7.61 9.64 (1.22) 5.00 (1.08)
------------ ---------- ------------ ---------- ----------
LESS DISTRIBUTIONS:
Dividends from net investment
income........................ (0.09) (0.10) (0.04) (0.09) (0.18)
Dividends in excess of net
investment income............. (0.00) -- -- -- --
Distributions from realized
gains......................... (7.33) (4.49) -- (2.75) (2.75)
Distributions in excess of
realized gains................ (0.02) -- -- (0.07) --
Tax return of capital
distribution.................. -- -- (0.00) (0.01) --
------------ ---------- ------------ ---------- ----------
Total dividends and
distributions................. (7.44) (4.59) (0.04) (2.92) (2.93)
------------ ---------- ------------ ---------- ----------
Net asset value, end of year ... $ 35.85 $35.68 $30.63 $31.89 $29.81
============ ========== ============ ========== ==========
Total return (d)................. 22.20% 31.63% (3.81)% 16.77% (3.16)%
============ ========== ============ ========== ==========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000's) . $3,865,256 $2,700,515 $1,832,164 $1,557,332 $1,210,576
Ratio of expenses to average net
assets ......................... 0.48% 0.49% 0.49% 0.49% 0.50%
Ratio of net investment income
to average net assets .......... 0.24% 0.28% 0.12% 0.28% 0.57%
Portfolio turnover rate ......... 108% 127% 92% 89% 68%
Average commission rate
paid (f) ....................... $0.0263 -- -- -- --
</TABLE>
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
1991 1990 1989 1988 1987
-------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
year (a) ....................... $ 19.37 $ 19.90 $ 14.07 $ 14.09 $ 13.35
-------- -------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .......... 0.12 0.16 0.23 0.20 0.20
Net realized and unrealized
gain (loss) on investments.... 16.68 1.46 5.87 (0.03) 0.79
-------- -------- ------- ------- -------
Total from investment
operations ................... 16.80 1.62 6.10 0.17 0.99
-------- -------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment
income........................ (0.10) (0.16) (0.23) (0.19) (0.13)
Dividends in excess of net
investment income............. -- -- -- -- --
Distributions from realized
gains......................... (2.25) (1.99) (0.04) -- (0.12)
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)
-------- -------- ------- ------- -------
Net asset value, end of year ... $ 33.82 $ 19.37 $ 19.90 $ 14.07 $ 14.09
======== ======== ======= ======= =======
Total return (d)................. 86.87% 8.16% 43.50% 1.13% 7.30%
======== ======== ======= ======= =======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000's) . $959,257 $120,960 $99,459 $62,116 $47,776
Ratio of expenses to average net
assets ......................... 0.51% 0.55% 0.55% 0.65% 0.58%
Ratio of net investment income
to average net assets .......... 0.40% 0.78% 1.29% 1.35% 1.19%
Portfolio turnover rate ......... 117% 54% 89% 70% 134%
Average commission rate
paid (f) ....................... -- -- -- -- --
</TABLE>
- ------------
Footnotes appear on page 10.
7
<PAGE>
FIXED INCOME SERIES
ALLIANCE MONEY MARKET PORTFOLIO (G)(H):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1996 1995 1994 1993* 1992
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of year(a)..................... $10.16 $10.14 $10.12 $10.11 $10.13
------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income.......... 0.54 0.57 0.41 0.30 0.37
Net realized and
unrealized gain (loss)
on investments................ (0.01) -- -- -- (0.01)
------ ------ ------ ------ ------
Total from investment
operations.................... 0.53 0.57 0.41 0.30 0.36
------ ------ ------ ------ ------
LESS DIVIDENDS:
Dividends from net
investment income............. (0.52) (0.55) (0.39) (0.29) (0.38)
------ ------ ------ ------ ------
Total dividends................ (0.52) (0.55) (0.39) (0.29) (0.38)
------ ---------- ---------- ---------- ----------
Net asset value, end of year .. $10.17 $10.16 $10.14 $10.12 $10.11
====== ========== ========== ========== ==========
Total return (d)................ 5.33% 5.74% 4.02% 3.00% 3.57%
====== ========== ========== ========== ==========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000's) $463,422 $386,691 $325,391 $248,460 $268,584
Ratio of expenses to average
net assets..................... 0.43% 0.44% 0.42% 0.42% 0.43%
Ratio of net investment
income to average net
assets......................... 5.17% 5.53% 4.01% 2.91% 3.63%
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
1991 1990 1989 1988 1987
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of year(a)..................... $10.17 $10.14 $10.13 $10.09 $10.02
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income.......... 0.61 0.81 0.89 0.73 0.64
Net realized and
unrealized gain (loss)
on investments................ -- 0.01 0.01 (0.01) 0.01
---------- ---------- ---------- ---------- ----------
Total from investment
operations.................... 0.61 0.82 0.90 0.72 0.65
---------- ---------- ---------- ---------- ----------
LESS DIVIDENDS:
Dividends from net
investment income............. (0.65) (0.79) (0.89) (0.68) (0.58)
---------- ---------- ---------- ---------- ----------
Total dividends................ (0.65) (0.79) (0.89) (0.68) (0.58)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year .. $10.13 $10.17 $10.14 $10.13 $10.09
========== ========== ========== ========== ==========
Total return (d)................ 6.20% 8.22% 9.18% 7.32% 6.63%
========== ========== ========== ========== ==========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000's) $302,395 $359,426 $289,338 $234,378 $154,606
Ratio of expenses to average
net assets..................... 0.43% 0.44% 0.44% 0.48% 0.46%
Ratio of net investment
income to average net
assets......................... 5.96% 7.85% 8.70% 7.14% 6.29%
</TABLE>
<PAGE>
ALLIANCE INTERMEDIATE GOVERNMENT SECURITIES PORTFOLIO (E):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------------------------------------------- APRIL 1, 1991 TO
1996 1995 1994 1993* 1992 DECEMBER 31, 1991
--------- --------- --------- ---------- ---------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period (a) ........................ $ 9.47 $ 8.87 $10.08 $10.53 $10.73 $10.00
----- --------- --------- ---------- ---------- ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ............. 0.54 0.58 0.65 0.59 0.60 0.52
Net realized and unrealized gain
(loss) on investments ............ (0.19) 0.57 (1.08) 0.51 (0.02) 0.66
----- --------- --------- ---------- ---------- ------
Total from investment operations .. 0.35 1.15 (0.43) 1.10 0.58 1.18
----- --------- --------- ---------- ---------- ------
LESS DISTRIBUTIONS:
Dividends from net investment
income ............................ (0.53) (0.55) (0.78) (0.68) (0.60) (0.34)
Distributions from realized gains . -- -- -- (0.87) (0.18) (0.11)
----- --------- --------- ---------- ---------- ------
Total dividends and distributions . (0.53) (0.55) (0.78) (1.55) (0.78) (0.45)
----- --------- --------- ---------- ---------- ------
Net asset value, end of period ..... $ 9.29 $ 9.47 $ 8.87 $10.08 $10.53 $10.73
===== ========= ========= ========== ========== ======
Total return (d) ................... 3.78% 13.33% (4.37)% 10.58% 5.53% 12.10%
===== ========= ========= ========== ========== ======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) .. $88,384 $71,780 $48,518 $158,511 $293,587 $241,290
Ratio of expenses to average net
assets ............................ 0.56% 0.57% 0.56% 0.53% 0.52% 0.43%
Ratio of net investment income to
average net assets ................ 5.73% 6.15% 6.75% 5.43% 5.63% 4.88%
Portfolio turnover rate ............ 318% 255% 133% 254% 316% 174%
</TABLE>
- ------------
Footnotes appear on page 10.
8
<PAGE>
ALLIANCE QUALITY BOND PORTFOLIO:
<TABLE>
<CAPTION>
OCTOBER 1, 1993
YEAR ENDED TO
DECEMBER 31, DECEMBER 31, 1993
---------------------------------- -----------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C> <C>
Net asset value, beginning of period (a)............. $ 9.61 $ 8.72 $ 9.82 $ 10.00
---------- ---------- ---------- -----------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income............................... 0.57 0.57 0.66 0.11
Net realized and unrealized gain (loss) on
investments and foreign currency transactions...... (0.07) 0.88 (1.16) (0.16)
---------- ---------- ---------- -----------------
Total from investment operations.................... 0.50 1.45 (0.50) (0.05)
---------- ---------- ---------- -----------------
LESS DISTRIBUTIONS:
Dividends from net investment income................ (0.60) (0.56) (0.55) (0.12)
Dividends in excess of net investment income........ (0.02) -- -- --
Distributions in excess of realized gains........... -- -- -- (0.01)
Tax return of capital distributions................. -- -- (0.05) --
---------- ---------- ---------- -----------------
Total dividends and distributions................... (0.62) (0.56) (0.60) (0.13)
---------- ---------- ---------- -----------------
Net asset value, end of period....................... $ 9.49 $ 9.61 $ 8.72 $ 9.82
========== ========== ========== =================
Total return (d)..................................... 5.36% 17.02% (5.10)% (0.51)%
========== ========== ========== =================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's).................... $155,023 $157,443 $127,575 $104,832
Ratio of expenses to average net assets.............. 0.59% 0.59% 0.59% 0.69%(b)
Ratio of net investment income to average net assets. 6.06% 6.13% 7.17% 4.62%(b)
Portfolio turnover rate.............................. 431% 411% 222% 77%
</TABLE>
ALLIANCE HIGH YIELD PORTFOLIO (H):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1996 1995 1994 1993* 1992
---------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period
(a)...................................... $ 9.64 $ 8.91 $10.08 $ 9.15 $ 8.96
---------- ---------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .................. 1.02 0.98 0.89 0.94 0.89
Net realized and unrealized gain (loss)
on investments ....................... 1.07 0.73 (1.17) 1.10 0.19
---------- ---------- --------- --------- ---------
Total from investment operations ....... 2.09 1.71 (0.28) 2.04 1.08
---------- ---------- --------- --------- ---------
LESS DISTRIBUTIONS:
Dividends from net investment income .. (0.98) (0.94) (0.88) (0.92) (0.89)
Dividends in excess of net investment
income................................ (0.03) (0.04) (0.01) -- --
Distributions from realized gains ...... (0.70) -- -- (0.19) --
---------- ---------- --------- --------- ---------
Total dividends and distributions ...... (1.71) (0.98) (0.89) (1.11) (0.89)
---------- ---------- --------- --------- ---------
Net asset value, end of period........... $ 10.02 $ 9.64 $ 8.91 $10.08 $ 9.15
========== ========== ========= ========= =========
Total return (d)......................... 22.89% 19.92% (2.79)% 23.15% 12.31%
========== ========== ========= ========= =========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) ....... $199,360 $118,129 $73,895 $67,169 $47,687
Ratio of expenses to average net assets . 0.59% 0.60% 0.61% 0.63% 0.60%
Ratio of net investment income to
average net assets ..................... 9.93% 10.34% 9.23% 9.52% 9.58%
Portfolio turnover rate ................. 485% 350% 248% 280% 177%
</TABLE>
<PAGE>
(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%
</TABLE>
- ------------
Footnotes appear on page 10.
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. ("Alliance") 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:
Alliance Common Stock Portfolio -- June 16, 1975
Alliance Money Market Portfolio -- July 13, 1981
Alliance Balanced Portfolio -- January 27, 1986
Alliance Aggressive Stock Portfolio -- January 27, 1986
Alliance High Yield Portfolio -- January 2, 1987
Alliance Global Portfolio -- August 27, 1987
Alliance Conservative Investors Portfolio -- October 2, 1989
Alliance Growth Investors Portfolio -- October 2, 1989
Alliance Intermediate Government Securities Portfolio -- April 1, 1991
Alliance Quality Bond Portfolio -- October 1, 1993
Alliance Growth and Income Portfolio -- October 1, 1993
Alliance Equity Index Portfolio -- March 1, 1994
Alliance 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 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.
(f) For fiscal years beginning on or after September 1, 1995, a portfolio
is required to disclose its average commission rate paid per share for
security trades on which commissions are charged.
(g) Information shown for the Alliance Common Stock and Alliance Money
Market Portfolios is 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.
(h) On December 16, 1992, the Trust's Board of Trustees declared a 10-for-1
stock split of the outstanding shares of the Alliance Money Market,
Alliance High Yield, Alliance Balanced, Alliance Common Stock, Alliance
Global and Alliance Aggressive Stock Portfolios ("Split Portfolios").
The split was effected on January 1, 1993 for shareholders of record on
that date. Consequently, the information presented in the tables above
for each Split Portfolio share outstanding throughout each period
(other than the periods ended prior to January 1, 1993), and the shares
outstanding at the end of such periods presented for the Split
Portfolios, has been restated.
(i) The Alliance Balanced Portfolio's portfolio turnover rates in 1996 and
1995 were 139% and 152%, respectively, for the equity component and
were 221% and 233%, respectively, for the fixed income component.
10
<PAGE>
THE TRUST
The Trust is an open-end management investment company under the Investment
Company Act of 1940 (the "Investment Company Act"). As a "series" investment
company, the Trust issues shares of beneficial interest that are currently
divided into fourteen Portfolios, although the Trust may, from time to time,
establish additional Portfolios. Each Portfolio is a separate diversified
series of the Trust, and the Trust's assets and liabilities are divided among
the Portfolios. Originally organized as a Maryland corporation which
commenced operations on March 22, 1985, the Trust was reorganized as a
Massachusetts business trust on July 10, 1987.
Shares of each Portfolio are currently divided into two classes: Class IA
shares are offered pursuant to this prospectus at net asset value and are not
subject to fees imposed pursuant to a distribution plan. Class IB shares are
offered pursuant to another prospectus at net asset value and are subject to
distribution fees imposed pursuant to a distribution plan (the "Distribution
Plan") adopted under Rule 12b-1 under the Investment Company Act. Class IB
shares are sold to an insurance company separate account of Equitable.
Inquiries regarding Class IB shares should be addressed to Equitable, Income
Management Group, at 200 Plaza Drive, Secaucus, NJ 07096 (toll-free:
1-800-789-7771).
The two classes of shares are offered under the Trust's multiple class
distribution system approved by the Trust's Board of Trustees, 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 the assets of that Portfolio and, generally, have identical
voting, dividend, liquidation, and other rights, other than with respect to
the payment of distribution fees under the Distribution Plan.
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") and
certain insurance companies unaffiliated with Equitable. Equitable was the
record owner of approximately 99.7% and 100% of the Trust's Class IA and
Class IB shares, respectively, as of March 31, 1997, and consequently may be
deemed to control the Trust.
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 could force the
Trust to sell portfolio securities at disadvantageous prices.
INVESTMENT OBJECTIVES AND POLICIES
FUNDAMENTAL INVESTMENT OBJECTIVES
The following investment objectives of each Portfolio are fundamental and,
unless permitted by law, will not be changed without a vote of the holders of
the majority of the voting securities of that Portfolio. There can, of
course, be no assurance that a Portfolio will achieve its investment
objective.
THE ASSET ALLOCATION SERIES
o The Alliance 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 Alliance Balanced Portfolio's fundamental investment objective
is to achieve a high return through both appreciation of capital
and current income. The Alliance 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 Alliance Growth Investors Portfolio's fundamental investment
objective is to achieve the highest total return consistent with
the investment adviser's determination of reasonable risk. It will
pursue this objective by investing in a diversified mix of publicly
traded equity and fixed
11
<PAGE>
income securities, including at times common stocks issued by
intermediate and small-sized companies and at times lower quality
fixed income securities commonly known as "junk bonds."
THE EQUITY SERIES
o The Alliance 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 Alliance 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
("S&P") 500 Composite Stock Price Index, including reinvestment of
dividends, at a risk level consistent with that of the Index.
o The Alliance 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 Alliance Global Portfolio's fundamental investment objective is
to achieve long-term growth of capital. The Alliance Global
Portfolio will pursue this objective by investing primarily in
equity securities of non-U.S. companies as well as U.S. issuers.
o The Alliance 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-U.S. companies with
prospects for growth.
o The Alliance Aggressive Stock Portfolio's fundamental investment
objective is to achieve long-term growth of capital. The Alliance
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 that, in the
opinion of Alliance, have strong growth prospects and in covered
options on those securities.
o The Alliance Small Cap Growth Portfolio's fundamental investment
objective is to achieve long-term growth of capital. The Alliance
Small Cap Growth Portfolio will pursue this objective by investing
primarily in U.S. common stocks and other equity-type securities
issued by smaller companies that, in the opinion of Alliance, have
favorable growth prospects.
THE FIXED INCOME SERIES
o The Alliance Money Market Portfolio's fundamental investment
objective is to obtain a high level of current income, preserve its
assets and maintain liquidity. The Alliance Money Market Portfolio
will pursue this objective by investing in primarily high quality
U.S. dollar-denominated money market instruments.
o The Alliance 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 Alliance Intermediate Government Securities
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 Alliance 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 Alliance Quality Bond Portfolio
reserves the right to invest in convertible debt securities,
preferred stocks and dividend-paying common stocks.
o The Alliance 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 Alliance High Yield Portfolio will pursue this
objective by investing primarily
12
<PAGE>
in a diversified mix of high yield, fixed income securities, which
generally involve greater volatility of price and risk of principal
and income than higher quality fixed income securities. Lower
quality debt securities are commonly known as "junk bonds."
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 SAI.
THE ASSET ALLOCATION SERIES
The Alliance Conservative Investors Portfolio, the Alliance Balanced
Portfolio and the Alliance 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 selecting specific securities
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
equity market strength. Consequently, the asset mix for the Alliance
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 Alliance
Growth Investors Portfolio attempts to provide for upside potential without
excessive volatility.
The "balanced investor" is somewhat less aggressive than the growth investor
and has a medium-to long-term investment horizon. 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 Alliance Balanced Portfolio attempts to
capture a sizable portion of the market's upside while diversifying risk
among asset classes.
Alliance Capital Management L.P., the Trust's investment adviser
("Alliance"), has established an asset allocation committee (the
"Committee"), all the members of which are employees of Alliance, 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 Alliance
Conservative Investors Portfolio particularly emphasize risk assessment of
each asset class viewed over the shorter term, while decisions for the
Alliance 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 it appears that cash flow will, in the
opinion of Alliance, be insufficient to achieve the desired asset mix, the
Portfolios will sell securities and reinvest the proceeds in the appropriate
asset class.
13
<PAGE>
The Asset Allocation Series Portfolios are permitted to use a variety of
hedging techniques to attempt to control stock market, interest rate and
currency risks. Each of the Portfolios in the Asset Allocation Series may
make loans of up to 50% of its total portfolio securities. Each of the
Portfolios in the Asset Allocation Series may write covered call and put
options and may purchase call and put options on all the types of securities
in which it may invest, as well as securities indexes and foreign currencies.
Each Portfolio may also purchase and sell stock index, interest rate and
foreign currency futures contracts and options thereon, as well as forward
foreign currency exchange contracts. See "Investment Techniques--Forward
Foreign Currency Exchange Contracts," below.
Risk Factors. In addition to the risk factors associated with the securities
in which the Portfolios in the Asset Allocation Series may invest, these
Portfolios bear the risk that Alliance will not accurately assess and respond
to changing market conditions. While Alliance 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, these
Portfolios may incur additional operating expenses during periods of
frequently changing asset mix ranges.
ALLIANCE CONSERVATIVE INVESTORS PORTFOLIO--INVESTMENT POLICIES
The Alliance 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 U.S. and non-U.S. 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"). The Portfolio may invest in the types of equity
securities in which the Alliance Common Stock Portfolio may invest, including
convertible securities. No more than 15% of the Portfolio's assets will be
invested in securities of non-U.S. 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, as determined by
Alliance, that is 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. In
some cases, Alliance's calculation of duration will be based on certain
assumptions (including assumptions regarding prepayment rates, in the case of
mortgage-backed or asset-backed securities, and foreign and domestic interest
rates). As of December 31, 1996, the duration of a 10-year Treasury bond was
considered by Alliance to be 7.2 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.
ALLIANCE BALANCED PORTFOLIO--INVESTMENT POLICIES
The Alliance 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 Alliance 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 Alliance 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
14
<PAGE>
relevant considerations, including the risks associated with each investment
medium. Although the Alliance Balanced Portfolio will seek to reduce the
risks associated with any one investment medium by utilizing a variety of
investments, performance will depend upon Alliance's ability to assess
accurately and react to changing market conditions.
The Alliance 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, as well
as money market instruments). 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.
The equity securities invested in by the Alliance Balanced Portfolio will
consist of the types of securities in which the Alliance Common Stock
Portfolio may invest. The money market securities will consist of the types
of securities and credit quality in which the Alliance 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 Alliance considers them appropriate investments under the
circumstances. In addition, the Alliance Balanced Portfolio may at times hold
some of its assets in cash. The Portfolio may invest up to 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 Alliance 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 Alliance 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.
ALLIANCE GROWTH INVESTORS PORTFOLIO--INVESTMENT POLICIES
The Alliance 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 both exchange-traded and
over-the-counter common stocks and equity-type securities, which may include
preferred stock and convertible securities, and may include securities issued
by intermediateand small-sized companies that, in the opinion of Alliance,
have favorable growth prospects. More risk is associated with investment in
intermediate and small-sized companies because they are often dependent on
limited product lines, financial resources or management groups. They may be
more vulnerable to competition from larger companies with greater resources
and to economic conditions affecting their market sector. Intermediateand
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, and may trade
infrequently or in limited volume. The prices of these stocks often fluctuate
more than those of larger, more established companies. 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,
15
<PAGE>
1996, approximately 19% 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-U.S. 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
Alliance 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
ALLIANCE GROWTH AND INCOME PORTFOLIO--INVESTMENT POLICIES
The Alliance 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 of
inflation. The Alliance 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 Alliance. 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 Alliance Growth and Income Portfolio may invest without limit in
securities convertible into common stocks, which include convertible bonds,
convertible preferred stocks and convertible warrants. The Alliance 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 yield that is higher than that of
the underlying stock but lower than that of 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 Alliance 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 Alliance 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 Alliance 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 Alliance Growth and Income Portfolio
may invest in certain money market instruments. See "Investment
Techniques--Certain Money Market Instruments," below.
16
<PAGE>
ALLIANCE EQUITY INDEX PORTFOLIO--INVESTMENT POLICIES
The Alliance Equity Index Portfolio's investment objective is to seek a total
return before expenses that approximates the total return of the S&P 500
Index (the "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 Alliance 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 that 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
the Alliance Equity Index Portfolio's industry diversification, and therefore
economic events could potentially have a dramatically different impact on the
performance of the Alliance Equity Index Portfolio from that of the Index.
Recognizing this fact, the modeling techniques also consider industry
diversification when selecting investments for the Alliance Equity Index
Portfolio. The investment adviser also seeks to diversify the Alliance Equity
Index Portfolio's assets with respect to market capitalization. As a result,
the Alliance 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 Alliance 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 Alliance Equity Index Portfolio's investments and the Index.
Cash may be accumulated in the Alliance Equity Index Portfolio until it
reaches approximately 1% of the value of the Alliance Equity Index Portfolio
at which time such cash will be invested in common stocks as described above.
Accumulation of cash increases tracking error. The Alliance 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
Alliance Equity Index Portfolio.
In order to reduce brokerage costs, maintain liquidity to meet shareholder
redemptions or minimize tracking error when the Alliance Equity Index
Portfolio holds cash, the Alliance 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 Alliance Equity Index Portfolio plus
the contract value of futures contracts underlying call options purchased by
the Alliance Equity Index Portfolio will not exceed 20% of the Alliance
Equity Index Portfolio's total assets.
The Alliance 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.
ALLIANCE COMMON STOCK PORTFOLIO--INVESTMENT POLICIES
The Alliance Common Stock Portfolio attempts to achieve its investment
objective by investing primarily in common stocks and other equity-type
securities that Alliance believes will share in the growth of the nation's
economy over a long period.
17
<PAGE>
Most of the time, the Alliance 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 Alliance
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 Alliance 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, 1996, less than 1% of the average assets
of the Portfolio were invested in higher yielding securities.
The Alliance Common Stock Portfolio may make temporary investments in money
market instruments of the same type and credit quality as those in which the
Alliance Money Market Portfolio may invest. The Portfolio may make secured
loans of up to 50% of its total portfolio securities. See "Investment
Techniques--Securities Lending," below. The Alliance 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.
ALLIANCE GLOBAL PORTFOLIO--INVESTMENT POLICIES
The Alliance 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-U.S. companies that,
in the opinion of Alliance, have prospects for growth, as well as in
securities issued by United States companies. These non-U.S. companies may
have operations in the United States, in their country of incorporation or in
other countries. The Alliance 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 Alliance Global
Portfolio may at times invest substantially all of its assets in securities
issued by U.S. companies or in cash or cash equivalents, including money
market instruments issued by foreign entities.
The Alliance 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 Alliance Global Portfolio intends under normal conditions to invest in
equity securities. The Portfolio may make secured loans of up to 50% of its
total portfolio securities. See "Investment Techniques--Securities Lending,"
below. The Alliance 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 Alliance 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.
18
<PAGE>
ALLIANCE INTERNATIONAL PORTFOLIO--INVESTMENT POLICIES
The Alliance International Portfolio attempts to achieve its objective by
investing primarily in a diversified portfolio of equity securities selected
principally to permit participation in non-U.S. companies or foreign
governmental enterprises that, in the opinion of Alliance, have prospects for
growth. These non-U.S. companies may have operations in the United States, in
their country of incorporation and/or in other countries. The Alliance
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 Alliance International Portfolio may purchase securities of
developing countries, which include, among others, Mexico, Brazil, Hong Kong,
India, Poland, Turkey and South Africa. The Alliance International Portfolio
intends to diversify investments among several countries, although for
temporary defensive purposes, the Alliance 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 Alliance 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 Alliance
International Portfolio may also establish and maintain temporary cash
balances in U.S. and foreign short-term high-grade 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 Alliance International Portfolio intends under normal
market conditions to invest primarily in equity securities. The Alliance
International Portfolio may make loans of up to 50% of its portfolio
securities. See "Investment Techniques--Securities Lending," below. The
Alliance 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 Alliance 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.
ALLIANCE AGGRESSIVE STOCK PORTFOLIO--INVESTMENT POLICIES
The Alliance Aggressive Stock Portfolio attempts to achieve its objective by
investing primarily in common stocks and other equity-type securities issued
by intermediateand small-sized companies that, in the opinion of Alliance,
have favorable growth prospects. The Alliance 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 Alliance 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
Alliance 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 Alliance 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 Alliance 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 Alliance 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.
19
<PAGE>
Risk Factors. More risk is associated with investment in intermediateand
small-sized companies, because they are often dependent on limited product
lines, financial resources or management groups. They may be more vulnerable
to competition from larger companies with greater resources and to economic
conditions affecting their market sector. Intermediateand 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, and may trade infrequently or in
limited volume. The prices of these stocks often fluctuate more than those of
larger more established companies.
ALLIANCE SMALL CAP GROWTH PORTFOLIO--INVESTMENT POLICIES
The Alliance Small Cap Growth Portfolio will pursue its objective by
investing primarily in U.S. common stocks and other equity-type securities
issued by smaller companies with favorable growth prospects. The Alliance
Small Cap Growth 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.
The Alliance Small Cap Growth Portfolio may also invest in equity-type
securities other than common stocks (such as preferred stocks and convertible
debt instruments) and in protective options if it is Alliance's judgment
that, in light of economic conditions, such investments offer the Alliance
Small Cap Growth Portfolio better prospects for achieving its objective.
Under certain market conditions, the Small Cap Growth 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 Alliance Small Cap Growth
Portfolio will not invest more than 20% of its net asset value, measured at
the time of investment, in securities principally traded on foreign
securities markets (other than commercial paper). See "Investment
Techniques--Foreign Securities and Currencies," below. The Alliance Small Cap
Growth Portfolio may make secured loans of up to 50% of its total portfolio
securities. See "Investment Techniques--Securities Lending," below. The
Alliance Small Cap Growth Portfolio may write covered call options and may
purchase call and put options on individual equity securities, securities
indexes and foreign currencies. The Alliance Small Cap Growth Portfolio may
also purchase and sell stock index and foreign currency futures contracts and
options thereon. See "Investment Techniques--Forward Commitments and
When-Issued and Delayed Delivery Securities," "Investment
Techniques--Options," "Investment Techniques--Futures," and "Investment
Techniques--Risk Factors in Options and Futures," below.
Under current SEC guidelines, for so long as the Portfolio has the words
"Small Cap" in its name, it is required, under normal market conditions, to
invest at least 65% of its total assets in securities of smaller
capitalization companies (currently considered by Alliance to mean companies
with market capitalization at or below $2 billion).
Risk Factors. More risk is associated with investment in small-sized
companies, because they tend to be often dependent on limited product lines,
financial resources or management groups. They tend to be more vulnerable to
competition from larger companies with greater resources and to economic
conditions affecting their market sector. 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, and may trade infrequently or in limited volume. The prices of
these stocks often fluctuate more than those of larger, more established
companies.
THE FIXED INCOME SERIES
ALLIANCE MONEY MARKET PORTFOLIO--INVESTMENT POLICIES
The Alliance 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' 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
20
<PAGE>
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 (see
"Investment Techniques--Repurchase Agreements," below). Time deposits with
maturities greater than seven days are considered to be illiquid securities.
Investments by the Alliance Money Market Portfolio are limited to those which
present minimal credit risk. If a security held by the Alliance Money Market
Portfolio is no longer deemed to present minimal credit risk, the Alliance
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, 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
Alliance 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.
ALLIANCE INTERMEDIATE GOVERNMENT SECURITIES PORTFOLIO--INVESTMENT POLICIES
The Alliance Intermediate Government Securities 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 Alliance Intermediate Government Securities 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 Alliance Intermediate Government Securities 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.
21
<PAGE>
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
Alliance Intermediate Government Securities Portfolio's shares.
The Portfolio buys and sells securities with a view to maximizing current
return without, in the view of Alliance, 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 Alliance's
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 securities held by the Portfolio. However, at all times, each instrument
held by the Portfolio will have either a final maturity of not more than ten
years or a duration, as determined by Alliance, 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. In some cases, Alliance's calculation of duration
will be based on certain assumptions (including assumptions regarding
prepayment rates, in the mortgage-backed or asset-backed securities, and
foreign and domestic interest rates). As of December 31, 1996, the duration
of a 10-year Treasury bond was considered by Alliance to be 7.2 years. The
Portfolio may also invest a substantial portion of its assets in money market
instruments. See "Investment Techniques--Certain Money Market Instruments,"
below.
22
<PAGE>
It is a fundamental policy of the Alliance Intermediate Government Securities
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.
Other Investments. The Alliance Intermediate Government Securities Portfolio
may also purchase collateralized mortgage obligations ("CMOs") issued by
non-governmental issuers and securities issued by a real estate mortgage
investment conduits ("REMICs"). See "Investment Techniques--Mortgage-Backed
and Asset-Backed Securities," below. The Alliance Intermediate Government
Securities Portfolio will purchase only CMOs only if they 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 Alliance Intermediate Government Securities 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 Alliance, such investment is 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. Because U.S. Government Securities with shorter maturities
generally have a lower yield to maturity, however, 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.
ALLIANCE QUALITY BOND PORTFOLIO--INVESTMENT POLICIES
The Alliance Quality Bond Portfolio expects to invest in readily marketable
securities with relatively attractive yields, but which do not, in the
opinion of Alliance, involve undue risk of loss of capital. The
23
<PAGE>
Alliance Quality Bond Portfolio will follow a policy of investing at least
65% of its total assets in securities which are rated at the time of purchase
at least Baa by Moody's or BBB by S&P, or in unrated fixed income securities
determined by Alliance to be of comparable quality. In the event that the
credit rating of a security held by the Alliance Quality Bond Portfolio falls
below investment grade (or, in the case of unrated securities, Alliance
determines that the quality of such security has deteriorated below
investment grade), the Alliance Quality Bond Portfolio will not be obligated
to dispose of such security and may continue to hold the obligation if, in
the opinion of Alliance, such investment is appropriate in the circumstances.
The Alliance 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 Alliance Quality Bond Portfolio has complete flexibility as to the types
of securities in which it will invest and the relative proportions thereof,
and the Alliance 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 Alliance's assessment of prospective
cyclical changes even if such action may adversely affect current income.
The Alliance Quality Bond Portfolio may invest in foreign securities. The
Alliance 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
Alliance 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 Alliance Quality Bond Portfolio may
invest in certain money market instruments. See "Investment
Techniques--Certain Money Market Instruments," below.
The Alliance Quality Bond Portfolio may purchase put and call options and
write covered put and call options on securities it may purchase. The
Alliance 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 Alliance 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 Alliance 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 Alliance 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 Alliance 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 Alliance 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 Alliance 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 Alliance Quality Bond Portfolio's obligations over
its entitlements with 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 Alliance Quality
24
<PAGE>
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 Alliance Quality Bond
Portfolio will have contractual remedies pursuant to the agreements related
to the transaction. Caps and floors are relatively recent innovations which
may be illiquid.
Zero Coupon Securities. To the extent consistent with its investment
objective, the Alliance 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. Accordingly, such
securities usually trade at a deep discount from their face or par value and
will be subject to greater fluctuations in market value in response to
changing interest rates than debt obligations of comparable maturities that
make current distributions of interest. The Alliance 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 Alliance 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.
ALLIANCE HIGH YIELD PORTFOLIO--INVESTMENT POLICIES
The Alliance High Yield Portfolio attempts to achieve its objective by
investing primarily in a diversified mix of high yield, fixed income
securities, which generally involve 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 assets 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 Alliance
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 Alliance, 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 Alliance; however, this restriction will not apply to (i)
fixed income securities which, in the opinion of Alliance, 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 Alliance, 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 Alliance 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
Alliance, such investment is considered appropriate under the circumstances.
For the fiscal year ended December 31, 1996, 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: 0% in
securities rated AAA or its equivalent, 13.4% in securities rated BB or its
equivalent and 58.6% in securities rated B or its equivalent. Of these
securities, 89.8% were rated by an NRSRO and 10.2% 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
25
<PAGE>
risks, in the case of non-U.S. dollar denominated foreign securities. The
Portfolio 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 Alliance High Yield Portfolio will attempt 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 Alliance 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 Alliance Money Market and the Alliance
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 Alliance Money Market, Alliance Equity Index and
Alliance Intermediate Government Securities Portfolios, may also write
covered put and call options and buy put and call options on foreign
currencies. The Alliance Balanced, Alliance Common Stock, Alliance Aggressive
Stock, Alliance Small Cap Growth, Alliance High Yield, Alliance Global,
Alliance International, Alliance Conservative Investors, Alliance Growth
Investors, Alliance Intermediate Government Securities, Alliance Quality
Bond, Alliance Growth and Income and Alliance Equity Index Portfolios may buy
and sell 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 Alliance 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 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 predict with certainty 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
26
<PAGE>
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
Alliance 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 invest in money market instruments, including
certificates of deposit, time deposits, bankers' acceptances, bank notes and
other short-term debt obligations issued by commercial banks or 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 Alliance Equity Index Portfolio, may also
invest in 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 or 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 but of comparable quality 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 Alliance'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 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
27
<PAGE>
make it more difficult for the Portfolio 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 also reduce
their current yield and total return. However, Alliance 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 Alliance, subject to the
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%
(10% in the case of the Alliance Money Market Portfolio) of the Portfolio's
net assets would be invested in "illiquid securities."
LOAN ASSIGNMENTS AND PARTICIPATIONS
The Alliance 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 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, and the Portfolio will generally 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-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
Alliance considers to be an advantageous price or yield to the Portfolio at
the time of entering into the transaction. However, the
28
<PAGE>
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 an advantageous price or
yield. Forward commitments and when-issued and delayed delivery transactions
are generally expected to settle within four 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, liquid assets 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 Alliance Money Market and Alliance 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 Alliance Money Market,
Alliance Intermediate Government Securities and Alliance 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.
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,
29
<PAGE>
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 Alliance Money Market, Alliance Intermediate
Government Securities and Alliance 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 Alliance High Yield, Alliance Global, Alliance International, Alliance
Conservative Investors, Alliance Growth Investors, Alliance Intermediate
Government Securities, Alliance Balanced and Alliance 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 Alliance Intermediate Government
Securities and Alliance Quality Bond Portfolios) as well as the Alliance
Common Stock, Alliance Aggressive Stock, Alliance Small Cap Growth and
Alliance 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 Alliance 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 Alliance High Yield, Alliance
Global, Alliance International, Alliance Conservative Investors, Alliance
Growth Investors, Alliance Balanced, Alliance Common Stock, Alliance
Aggressive Stock, Alliance Small Cap Growth, Alliance Quality Bond and
Alliance 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 Alliance 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) 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 Alliance Equity Index Portfolio plus the contract
value of futures contracts underlying call options purchased by the Alliance
Equity Index Portfolio will not exceed 20% of the Alliance 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 liquid assets (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.
30
<PAGE>
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
All the Portfolios, except the Alliance Money Market, Alliance Intermediate
Government Securities and Alliance 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.
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 U.S. dollar value of securities
denominated in a foreign currency or protecting the U.S. 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 Alliance Intermediate Government Securities
and Alliance 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 Alliance High Yield and
Alliance Intermediate Government Securities 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
31
<PAGE>
securities or possible loss of rights in the collateral should the borrower
fail financially. Loans will only be made to firms deemed by Alliance to be
of good standing and will not be made unless, in the judgment of Alliance,
the consideration to be earned from such loans would justify the risk.
PORTFOLIO TURNOVER
Portfolio turnover rates are set forth under "Financial Highlights." These
rates of portfolio turnover may be greater than those of most other
investment companies. A high rate of portfolio turnover involves
correspondingly greater brokerage and other expenses than a lower rate, which
must be borne by the Portfolio.
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.
The Alliance High Yield and Alliance Intermediate Government Securities
Portfolios may make secured loans of portfolio securities or cash without
limitation. None of the other Portfolios will make loans, except that each
such Portfolio may make loans of portfolio securities not exceeding 50% of
the value of that Portfolio's total assets. This restriction does not prevent
a Portfolio from purchasing debt obligations in which a Portfolio may invest
consistent with its investment policies, or from buying government
obligations, short-term commercial paper or publicly traded debt, including
bonds, notes, debentures, certificates of deposit, and equipment trust
certificates, nor does this restriction apply to loans made under insurance
policies or through entry into repurchase agreements to the extent they may
be viewed as loans.
Each Portfolio, 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
holdings in that industry exceed 25% of the Portfolio's total assets.
However, this restriction does not apply to investments by the Alliance 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 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 Alliance 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 Alliance 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 Alliance 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.
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 Agreement and Declaration of Trust and By-laws.
32
<PAGE>
THE INVESTMENT ADVISER
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 (the "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, administrative and other services, other than investor
services or accounting 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>
FIRST NEXT NEXT NEXT
$750 MILLION $750 MILLION $1 BILLION $2.5 BILLION THEREAFTER
-------------- -------------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C>
Alliance International ............. 0.900% 0.825% 0.800% 0.780% 0.770%
Alliance Global .................... 0.675% 0.600% 0.550% 0.530% 0.520%
Alliance Aggressive Stock .......... 0.625% 0.575% 0.525% 0.500% 0.475%
Alliance Common Stock .............. 0.475% 0.425% 0.375% 0.355% 0.345%*
Alliance Growth and Income ......... 0.550% 0.525% 0.500% 0.480% 0.470%
Alliance Small Cap Growth .......... 0.900% 0.850% 0.825% 0.800% 0.775%
Alliance Growth Investors .......... 0.550% 0.500% 0.450% 0.425% 0.400%
Alliance Balanced .................. 0.450% 0.400% 0.350% 0.325% 0.300%
Alliance Conservative Investors .... 0.475% 0.425% 0.375% 0.350% 0.325%
Alliance High Yield ................ 0.600% 0.575% 0.550% 0.530% 0.520%
Alliance Quality Bond .............. 0.525% 0.500% 0.475% 0.455% 0.445%
Alliance Intermediate Government
Securities ........................ 0.500% 0.475% 0.450% 0.430% 0.420%
Alliance Equity Index .............. 0.325% 0.300% 0.275% 0.255% 0.245%
Alliance Money Market .............. 0.350% 0.325% 0.300% 0.280% 0.270%
</TABLE>
* On assets in excess of $10 billion, the management fee for the Alliance
Common Stock Portfolio is reduced to 0.335% of average daily net assets.
THE PORTFOLIO MANAGERS
THE ASSET ALLOCATION SERIES
ALLIANCE CONSERVATIVE INVESTORS, ALLIANCE BALANCED AND ALLIANCE GROWTH
INVESTORS PORTFOLIOS
Robert G. Heisterberg has been the person principally responsible for the
Alliance Conservative Investors, Alliance Balanced and Alliance Growth
Investors Portfolios' investment programs since February 12, 1996. Mr.
Heisterberg, a Senior Vice President of Alliance and Global Economic Policy
Analysis, has been associated with Alliance since 1977.
33
<PAGE>
THE EQUITY SERIES
ALLIANCE GROWTH AND INCOME PORTFOLIO
Paul Rissman and W. Theodore Kuck have been the persons principally
responsible for the Alliance Growth and Income Portfolio's investment
program, Mr. Rissman since February 12, 1996 and Mr. Kuck since 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.*
ALLIANCE EQUITY INDEX PORTFOLIO
Judith A. Maglio has been the person principally responsible for the Alliance
Equity Index Portfolio's investment program since its inception. Ms. Maglio,
a Vice President of Alliance, has been associated with Alliance since 1970.
ALLIANCE COMMON STOCK PORTFOLIO
Tyler J. Smith has been the person principally responsible for the Alliance
Common Stock Portfolio's investment program since 1977. Mr. Smith, a Senior
Vice President of Alliance, has been associated with Alliance since 1970.*
ALLIANCE GLOBAL AND ALLIANCE INTERNATIONAL PORTFOLIOS
Ronald L. Simcoe has been the person principally responsible for the Alliance
Global Portfolio's investment program since 1988 and the Alliance
International Portfolio's investment program since its inception. Mr. Simcoe,
a Vice President of Alliance, has been associated with Alliance since 1978.*
ALLIANCE AGGRESSIVE STOCK PORTFOLIO
Alden M. Stewart and Randall E. Haase have been the persons principally
responsible for the Alliance 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.*
ALLIANCE SMALL CAP GROWTH PORTFOLIO
Michael F. Gaffney has been the person principally responsible for the
Alliance Small Cap Growth Portfolio's investment program since its inception.
Mr. Gaffney, a Senior Vice President of Alliance, has been associated with
Alliance since 1987.*
THE FIXED INCOME SERIES
ALLIANCE MONEY MARKET PORTFOLIO
Raymond J. Papera has been the person principally responsible for the
Alliance Money Market Portfolio's investment program since 1990. Mr. Papera,
a Vice President of Alliance, has been associated with Alliance since 1990.*
ALLIANCE INTERMEDIATE GOVERNMENT SECURITIES PORTFOLIO
Patricia J. Young and Jeffrey S. Phlegar have been the persons principally
responsible for the Alliance Intermediate Government Securities Portfolio's
investment program, Ms. Young since 1995 and Mr. Phlegar since 1997. Ms.
Young, a Senior Vice President of Alliance, has been associated with Alliance
since 1992. Mr. Phlegar, a Vice President of Alliance, has been associated
with Alliance since 1988.
ALLIANCE QUALITY BOND PORTFOLIO
Matthew Bloom has been the person principally responsible for the Alliance
Quality Bond Portfolio's investment program since 1995. Mr. Bloom, a Vice
President of Alliance, has been associated with Alliance since 1989.
34
<PAGE>
ALLIANCE HIGH YIELD PORTFOLIO
Wayne C. Tappe has been the person principally responsible for the Alliance
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 pays all of its operating expenses not specifically assumed by
Alliance. The expenses borne by the Trust include or could include taxes;
brokerage commissions; interest charges; securities lending fees; fees and
expenses of the registration or qualification of a Portfolio's securities
under federal or state securities laws; fees of the Portfolio's custodian,
transfer agent, independent accountants and legal counsel; all expenses of
shareholders' and trustees' meetings; all expenses of the preparation,
typesetting, printing and mailing to existing shareholders of prospectuses,
prospectus supplements, statements of additional information, proxy
statements, and annual and semi-annual reports; any proxy solicitor's fees
and expenses; costs of fidelity bonds and Trustees' liability insurance
premiums as well as extraordinary expenses such as indemnification payments
or damages awarded in litigation or settlements made; any membership fees of
the Investment Company Institute and similar organizations; costs of
maintaining the Trust's corporate existence and the compensation of Trustees
who are not directors, officers, or employees of Alliance or its affiliates.
The following table, reflecting the Trust's estimated expenses, is based on
information for the year ended December 31, 1996 and has been restated to
reflect (i) the fees that would have been paid to Alliance if the present
advisory agreement had been in effect as of January 1, 1996 and (ii)
estimated accounting expenses for the year ended December 31, 1997. No
information has been provided with respect to Alliance Small Cap Growth
Portfolio because such Portfolio has not yet completed its first fiscal year.
<TABLE>
<CAPTION>
ALLIANCE
ALLIANCE ALLIANCE GROWTH ALLIANCE ALLIANCE
CONSERVATIVE ALLIANCE GROWTH AND EQUITY COMMON
INVESTORS BALANCED INVESTORS INCOME INDEX STOCK
TYPE OF EXPENSE PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------------- -------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Investment Advisory Fees 0.48% 0.42% 0.53% 0.55% 0.33% 0.38%
Other Expenses ........... 0.07% 0.05% 0.06% 0.05% 0.05% 0.03%
-------------- ----------- ----------- ----------- ----------- -----------
Total Expenses ........... 0.55% 0.47% 0.59% 0.60% 0.38% 0.41%
============== =========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
ALLIANCE
ALLIANCE ALLIANCE INTERMEDIATE ALLIANCE ALLIANCE
ALLIANCE AGGRESSIVE MONEY GOVERNMENT QUALITY HIGH ALLIANCE
GLOBAL STOCK MARKET SECURITIES BOND YIELD INTERNATIONAL
TYPE OF EXPENSE PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------- ----------- ------------ ----------- -------------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment Advisory
Fees .............. 0.65% 0.55% 0.35% 0.50% 0.53% 0.60% 0.90%
Other Expenses ..... 0.08% 0.03% 0.04% 0.09% 0.05% 0.06% 0.18%
----------- ------------ ----------- -------------- ----------- ----------- ---------------
Total Expenses ..... 0.73% 0.58% 0.39% 0.59% 0.58% 0.66% 1.08%
=========== ============ =========== ============== =========== =========== ===============
</TABLE>
Actual investment advisory fees, other expenses and total expenses for the
year ended December 31, 1996 were as follows:
<TABLE>
<CAPTION>
ALLIANCE
ALLIANCE ALLIANCE GROWTH ALLIANCE ALLIANCE
CONSERVATIVE ALLIANCE GROWTH AND EQUITY COMMON
INVESTORS BALANCED INVESTORS INCOME INDEX STOCK
TYPE OF EXPENSE PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------------- -------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Investment Advisory Fees 0.55% 0.37% 0.52% 0.55% 0.35% 0.36%
Other Expenses ........... 0.06% 0.04% 0.05% 0.03% 0.04% 0.02%
-------------- ----------- ----------- ----------- ----------- -----------
Total Expenses ........... 0.61% 0.41% 0.57% 0.58% 0.39% 0.38%
============== =========== =========== =========== =========== ===========
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
ALLIANCE
ALLIANCE ALLIANCE INTERMEDIATE ALLIANCE ALLIANCE
ALLIANCE AGGRESSIVE MONEY GOVERNMENT QUALITY HIGH ALLIANCE
GLOBAL STOCK MARKET SECURITIES BOND YIELD INTERNATIONAL
TYPE OF EXPENSE PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------- ----------- ------------ ----------- -------------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment Advisory
Fees .............. 0.53% 0.46% 0.40% 0.50% 0.55% 0.55% 0.90%
Other Expenses ..... 0.07% 0.02% 0.03% 0.06% 0.04% 0.04% 0.16%
----------- ------------ ----------- -------------- ----------- ----------- ---------------
Total Expenses ..... 0.60% 0.48% 0.43% 0.56% 0.59% 0.59% 1.06%
=========== ============ =========== ============== =========== =========== ===============
</TABLE>
TRANSACTIONS WITH AFFILIATES
In December 1984, Equitable acquired Donaldson, Lufkin & Jenrette, Inc.
("DLJ"). A DLJ subsidiary, Donaldson, Lufkin & Jenrette Securities
Corporation, is one of the nation's largest investment banking and securities
firms. Another DLJ subsidiary, Autranet, Inc., is a securities broker that
markets independently originated research to institutions. Through the
Pershing Division of Donaldson, Lufkin & Jenrette Securities Corporation, DLJ
supplies security execution and clearance services to financial
intermediaries including broker-dealers and banks. To the extent permitted by
law, the Trust may engage in securities and other transactions with the above
entities or may invest in shares of the investment companies with which those
entities have affiliations. The Investment Company Act generally prohibits
the Trust from engaging in securities transactions with DLJ or its
affiliates, as principal, unless pursuant to an exemptive order from the SEC.
The Trust may apply for such exemptive relief. The Trust has adopted
procedures, prescribed by Section 17(e)(2)(A) of the Investment Company Act
and Rule 17e-1 thereunder, which are reasonably designed to provide that any
commissions it pays to DLJ or its affiliates do not exceed the usual and
customary broker's commission. In addition, the Trust will adhere to Section
11(a) of the Securities Exchange Act of 1934 and any applicable rules
thereunder governing floor trading. The Trust has adopted procedures
permitting it to purchase securities, under certain restrictions prescribed
by an SEC rule, in a public offering in which DLJ or an affiliate is an
underwriter.
DESCRIPTION OF THE TRUST'S SHARES
CHARACTERISTICS
The Board of Trustees has authority to issue an unlimited number of shares of
beneficial interest, without par value. The Trust is divided into fourteen
portfolios, each of which has Class IA and Class IB 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 on which
such shares (or class of shares) shall be entitled to vote. Shareholders of
each Portfolio 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 Investment Company Act, or any
successor rule, and in the Trust's Agreement and 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 equal pro rata interests in the assets of 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 arrangements; (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,
although exchange privileges are not currently contemplated; and (6) each
class may have different conversion features, although a conversion feature
is not currently
36
<PAGE>
contemplated. Expenses currently designated as "Class Expenses" by the
Trust's Board of Trustees under the plan pursuant to Rule 18f-3 are currently
limited to payments to the Distributor pursuant to the Distribution Plan for
Class IB shares.
PURCHASE AND REDEMPTION
EQ Financial Consultants, Inc., formerly Equico Securities, Inc. ("EQ
Financial"), a wholly-owned subsidiary of Equitable, is the principal
underwriter of the Class IA shares of the Trust. EQ Financial's address is
1755 Broadway, New York, New York 10019. The Trust will offer and sell its
shares without a sales charge, at each Portfolio's net asset value per share.
The price at which a purchase is effected is based on the next calculation of
net asset value after an order is placed by an insurance company investing in
the Trust. Net asset value per share is calculated for purchases and
redemption of shares of each Portfolio by dividing the value of total
Portfolio assets, less liabilities (including Trust expenses, which are
accrued daily), by the total number of shares of that Portfolio outstanding.
The net asset value per share of each Portfolio is determined each business
day at 4:00 p.m. Eastern time. Values are not calculated on national business
holidays.
All shares may be redeemed in accordance with the Trust's Agreement and
Declaration of Trust and By-Laws. Shares will be redeemed at their net asset
value. Sales and redemptions of shares of the same class by the same
shareholder on the same day will be netted. All redemption requests will be
processed and payment with respect thereto will be made within seven days
after tenders.
The Trust may also suspend redemption, if permitted by the Investment Company
Act, for any period during which the New York Stock Exchange is closed or
during which trading is restricted by the SEC or the SEC declares that an
emergency exists. Redemption may also be suspended during other periods
permitted by the SEC for the protection of the Trust's shareholders.
HOW ASSETS ARE VALUED
Values are determined according to accepted accounting practices and all laws
and regulations that apply. The assets of each Portfolio are generally valued
as follows, as further described in the SAI:
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 Alliance
Money Market Portfolio which mature in 60 days or less are valued at
amortized cost, which approximates market value. Securities held in the
Alliance Money Market Portfolio are valued at prices based on equivalent
yields or yield spreads.
o Other securities and assets for which market quotations are not readily
available or for which valuation cannot be provided are valued in good
faith by the Valuation Committee of the Board of Trustees using its best
judgment.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Under current federal income tax law, the Trust believes that each Portfolio
is entitled, and the Trust intends that each Portfolio shall qualify each
year and elect, to be treated as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "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.
37
<PAGE>
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 Portfolios.
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 Alliance 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 Alliance 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 Alliance Intermediate Government Securities, Alliance Quality Bond and
Alliance 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.
38
<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>
APPENDIX B
PERFORMANCE INFORMATION
The following tables provide performance results for The Hudson River Trust
Portfolios (except for the Alliance Small Cap Growth Portfolio), net of
investment management fees and direct operating expenses of the Trust,
together with comparative benchmarks, including both unmanaged market indexes
and universes of managed portfolios. The unmanaged market indexes do not
reflect any asset-based charges for investment management or other expenses,
which are inapplicable to these benchmarks. The rates of return shown for the
Portfolios are not an estimate or guarantee of future investment performance
and do not take into account charges applicable to the Contracts or imposed
at the separate account level. The ultimate change in Contract values will
depend not only on the performance of the Portfolios at the underlying Trust
level, but also on the insurance and administrative charges, applicable sales
charges, and the mortality and expense risk charge applicable under such
Contracts. These Contract charges effectively reduce the dollar amount of any
net gains and increase the dollar amount of any net losses.
The Lipper averages are contained in Lipper's survey of the performance of a
large number of mutual funds. This survey is published by Lipper Analytical
Services, Inc., a firm recognized for its reporting of performance of
actively managed funds. According to Lipper, performance data are presented
net of investment management fees, direct operating expenses and, for funds
with Rule 12b-1 plans, asset-based sales charges. Performance data for funds
which assess sales charges in other ways do not reflect deductions for sales
charges. Performance data shown for the Portfolios does not reflect deduction
for sales charges (which are assessed at the policy level). This means that
to the extent that asset-based sales charges deducted by some funds have
lowered the Lipper averages, the performance data shown for the Portfolios
appears relatively more favorable than the performance data for the Lipper
averages.
The performance results presented below are based on Portfolio percent
changes in net asset values with dividends and capital gains reinvested.
Similarly, the market indexes have been adjusted, where necessary, to reflect
the benefit of reinvestment of income, dividends and capital gains.
Cumulative rates of return reflect performance over a stated period of time.
Annualized rates of return represent the rate of growth that would have
produced the corresponding cumulative return had performance been constant
over the entire period.
From time to time the Trust and/or its shareholders may include in reports or
in advertising material descriptions of general economic and market
conditions affecting the Trust and/or its shareholders and may compare the
performance of the Trust's Portfolios with (1) that of other insurance
company separate accounts, if appropriate, or mutual funds included in the
rankings prepared by Lipper or similar investment services that monitor the
performance of insurance company separate accounts or mutual funds, (2) other
appropriate indices of investment securities and averages for peer universes
of funds which are described in this prospectus, or (3) data developed by the
Trust and/or its shareholders derived from such indices or averages.
Each Portfolio's performance may also be compared to the performance of other
mutual funds by Morningstar, Inc. which ranks mutual funds on the basis of
historical risk and total return. Morningstar rankings are calculated using
the mutual fund's average annual return for certain periods and a risk factor
that reflects the mutual fund's performance relative to three-month Treasury
bill monthly returns. Morningstar's rankings range from five stars (highest)
to one star (lowest) and represent Morningstar's assessment of the historical
risk level and total return of a mutual fund as a weighted average for 3-, 5-
and 10-year periods. In each category, Morningstar limits its five star
rankings to 10% of the funds it follows and its four star rankings to 22.5%
of the funds it follows. Rankings are not absolute or necessarily predictive
of future performance.
The Lehman Treasury Bond Index ("Lehman Treasury") represents an unmanaged
group of securities consisting of all currently offered public obligations of
the U.S. Treasury intended for distribution in the domestic market.
B-1
<PAGE>
The Standard and Poor's 500 Composite Stock Price Index ("S&P 500")
represents an unmanaged weighted index of 500 industrial, transportation,
utility, and financial companies, widely regarded by investors as
representative of the stock market.
The Lehman Government/Corporate Bond Index ("Lehman Gov't Corp.") represents
an unmanaged group of securities widely regarded by investors as
representative of the bond market.
The Value Line Convertible Index is comprised of 585 of the most actively
traded convertible bonds and preferred stocks on an unweighted basis.
The Morgan Stanley Capital International World Index ("MSCI World Index") is
an arithmetic, market value-weighted average of the performance of over 1,300
securities listed on the stock exchanges of twenty foreign countries and the
United States.
The Morgan Stanley Capital International EAFE Index ("MSCI EAFE") is a market
capitalization weighted equity index composed of a sample of companies
representative of the market structure of Europe, Australia and the Far East.
The Standard & Poor's MidCap 400 Index ("S&P 400") represents an unmanaged
weighted index of 400 domestic stocks chosen for market size (median market
capitalization of about $610 million), liquidity, and industry group
representation.
The Russell 2000 Index consists of the smallest 2,000 securities in the
Russell 3000 Index. (The Russell 3000 Index represents approximately 98% of
the investable U.S. equity market.) The Russell 2000 Index, widely regarded
in the industry as the premier measure of small capitalization stocks,
represents approximately 11% of the Russell 3000 Index total market
capitalization.
The Lehman Intermediate Government Bond Index represents an unmanaged group
of securities consisting of all United States Treasury and agency securities
with remaining maturities of from one to ten years and issue amounts of at
least $100 million outstanding.
The Lehman Aggregate Bond Index is an index comprised of investment grade
fixed income securities, including U.S. Treasury, mortgage-backed, corporate
and "Yankee" bonds (U.S. dollar-denominated bonds issued outside the United
States).
The Merrill Lynch High Yield Master Index ("ML Master") represents an
unmanaged group of securities widely regarded by investors as representative
of the high yield bond market.
The "blended" performance numbers (e.g., 50% S&P 400/50% Russell 2000) in all
cases assume a static mix of the two indices.
The dates as of which funds were first allocated to the Portfolios are as
follows: the Alliance Common Stock Portfolio on June 16, 1975; the Alliance
Money Market Portfolio on July 13, 1981; the Alliance Balanced and Alliance
Aggressive Stock Portfolios on January 27, 1986; the Alliance High Yield
Portfolio on January 2, 1987; the Alliance Global Portfolio on August 27,
1987; the Alliance Conservative Investors and Alliance Growth Investors
Portfolios on October 2, 1989; the Alliance Intermediate Government
Securities Portfolio on April 1, 1991; the Alliance Quality Bond and Alliance
Growth and Income Portfolios on October 1, 1993; the Alliance Equity Index
Portfolio on March 1, 1994; and the Alliance International Portfolio on April
3, 1995. In the "Since Inception" columns of Table I and Table II below, the
performance of each Portfolio and its comparative indices is measured from
the date funds were first allocated to the Portfolios, except as follows: for
the Alliance Common Stock Portfolio and its comparative indices, from January
13, 1976, the date on which the unit value was established and Contract owner
contributions were first accepted by the Alliance Common Stock Portfolio's
separate account predecessor; for the Lipper Money Market Funds Average, from
June 1, 1981; for the Lipper Balanced Funds and Small Company Growth Funds
Averages, from January 1, 1986; and for the Lipper Global Funds Average, from
August 28, 1987.
The Trust's Portfolios serve as the underlying investment vehicles for
Contracts. Shares of these Portfolios cannot be purchased directly. Shares of
the Portfolios of the Trust are purchased by corresponding investment
divisions of insurance company separate accounts. Refer to the attached
Contract prospectus for further information about your Contract including a
description of all charges and expenses.
B-2
<PAGE>
TABLE I
ANNUALIZED RATES OF RETURN
PERIODS ENDING DECEMBER 31, 1996
<TABLE>
<CAPTION>
SINCE
PORTFOLIO/BENCHMARKS 1 YEAR 3 YEARS 5 YEARS 10 YEARS 15 YEARS INCEPTION
-------- --------- --------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
THE ASSET ALLOCATION SERIES
ALLIANCE CONSERVATIVE INVESTORS ............. 5.21% 6.70% 7.32% -- -- 9.03%
Lipper Flexible Portfolio Average ........... 13.59 11.78 10.84 -- -- 10.68
70% Lehman Treasury/30% S&P 500.............. 8.78 10.14 9.64 -- -- 10.42
- -------------------------------------------- -------- --------- --------- ---------- ---------- -----------
ALLIANCE BALANCED ........................... 11.68 7.15 6.06 10.38% -- 12.05
Lipper Balanced Mutual Funds Average ........ 13.76 11,67 10.73 11.09 -- 11.65
50% S&P 500/50% Lehman Gov't Corp. .......... 12.93 13.15 11.47 12.30 -- 12.98
- -------------------------------------------- -------- --------- --------- ---------- ---------- -----------
ALLIANCE GROWTH INVESTORS.................... 12.61 11.29 10.76 -- -- 15.57
Lipper Flexible Portfolio Average ........... 13.59 11.78 10.84 -- -- 10.68
70% S&P 500/30% Lehman Gov't Corp. .......... 16.94 15.84 13.02 -- -- 12.73
- -------------------------------------------- -------- --------- --------- ---------- ---------- -----------
THE EQUITY SERIES
ALLIANCE GROWTH AND INCOME................... 20.09 14.00 -- -- -- 12.77
Lipper Growth & Income Funds Average ........ 20.78 16.15 -- -- -- 15.71
75% S&P 500/25% Value Line Convertible ...... 21.28 17.93 -- -- -- 17.24
- -------------------------------------------- -------- --------- --------- ---------- ---------- -----------
ALLIANCE EQUITY INDEX........................ 22.39 -- -- -- -- 20.25
Lipper S&P 500 Index Funds Average........... 22.30 -- -- -- -- 20.10
S&P 500...................................... 22.96 -- -- -- -- 20.90
- -------------------------------------------- -------- --------- --------- ---------- ---------- -----------
ALLIANCE COMMON STOCK........................ 24.28 17.22 15.72 15.83 16.51% 15.22
Lipper Growth Equity Mutual Funds Average ... 19.24 15.23 13.04 13.47 14.58 15.06
S&P 500...................................... 22.96 19.66 15.20 15.28 14.85 14.63
- -------------------------------------------- -------- --------- --------- ---------- ---------- -----------
ALLIANCE GLOBAL ............................. 14.60 12.74 13.50 -- -- 11.70
Lipper Global Mutual Funds Average........... 16.51 9.61 11.36 -- -- 8.69
MSCI World .................................. 13.48 12.91 10.82 -- -- 7.44
- -------------------------------------------- -------- --------- --------- ---------- ---------- -----------
ALLIANCE INTERNATIONAL....................... 9.82 -- -- -- -- 12.14
Lipper International Mutual Funds Average ... 11.78 -- -- -- -- 13.12
MSCI EAFE.................................... 6.05 -- -- -- -- 8.74
- -------------------------------------------- -------- --------- --------- ---------- ---------- -----------
ALLIANCE AGGRESSIVE STOCK.................... 22.20 15.66 11.83 18.60 -- 20.22
Lipper Small Company Growth Funds
Average..................................... 20.20 15.31 15.10 14.22 -- 13.46
50% S&P 400/50% Russell 2000................. 17.85 14.14 14.80 14.29 -- 13.98
- -------------------------------------------- -------- --------- --------- ---------- ---------- -----------
THE FIXED INCOME SERIES
ALLIANCE MONEY MARKET ....................... 5.33 5.03 4.31 5.90 7.08 7.28
Lipper Money Market Mutual Funds
Average..................................... 4.80 4.63 3.96 5.52 6.66 7.01
3 Month T-Bill .............................. 5.25 5.07 4.37 5.67 6.72 6.97
- -------------------------------------------- -------- --------- --------- ---------- ---------- -----------
ALLIANCE INTERMEDIATE GOVERNMENT SECURITIES 3.78 3.99 5.60 -- -- 6.95
Lipper Intermediate Government Funds
Average..................................... 2.68 4.55 5.66 -- -- 6.96
Lehman Intermediate Government Bond ........ 4.06 5.37 6.23 -- -- 7.43
- -------------------------------------------- -------- --------- --------- ---------- ---------- -----------
ALLIANCE QUALITY BOND........................ 5.36 5.38 -- -- -- 4.79
Lipper Corporate Debt Funds A Rated
Average..................................... 2.49 5.11 -- -- -- 4.60
Lehman Aggregate Bond........................ 3.63 6.03 -- -- -- 5.57
- -------------------------------------------- -------- --------- --------- ---------- ---------- -----------
ALLIANCE HIGH YIELD.......................... 22.89 12.73 14.66 -- -- 11.41
Lipper High Current Yield Mutual
Funds Average............................... 13.67 8.30 12.10 -- -- 9.38
ML Master.................................... 11.06 9.59 12.76 -- -- 11.24
- -------------------------------------------- -------- --------- --------- ---------- ---------- -----------
</TABLE>
B-3
<PAGE>
TABLE II
CUMULATIVE RATES OF RETURN
PERIODS ENDING DECEMBER 31, 1996
<TABLE>
<CAPTION>
SINCE
PORTFOLIO/BENCHMARKS 1 YEAR 3 YEARS 5 YEARS 10 YEARS 15 YEARS INCEPTION
- ------------------------------------------ -------- --------- --------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
THE ASSET ALLOCATION SERIES
ALLIANCE CONSERVATIVE INVESTORS............ 5.21% 21.49% 42.36% -- -- 87.12
Lipper Flexible Portfolio Average ........ 13.59 40.15 68.94 -- -- 112.84
70% Lehman Treasury/30% S&P 500 ........... 8.78 33.60 58.40 -- -- 105.23
- ------------------------------------------ -------- --------- --------- ---------- ---------- -----------
ALLIANCE BALANCED.......................... 11.68 23.00 34.23 168.58 -- 246.66
Lipper Balanced Mutual Funds Average ..... 13.76 39.41 66.98 188.07 -- 235.32
50% S&P 500/50% Lehman Gov't Corp. ....... 12.93 44.87 72.14 218.95 -- 279.68
- ------------------------------------------ -------- --------- --------- ---------- ---------- -----------
ALLIANCE GROWTH INVESTORS.................. 12.61 37.83 66.71 -- -- 185.55
Lipper Flexible Portfolio Average. ....... 13.59 40.15 68.94 -- -- 112.84
70% S&P 500/30% Lehman Gov't Corp. ....... 16.94 55.46 84.42 -- -- 138.49
- ------------------------------------------ -------- --------- --------- ---------- ---------- -----------
THE EQUITY SERIES
ALLIANCE GROWTH AND INCOME................. 20.09 48.14 -- -- -- 47.77
Lipper Growth & Income Funds Average ..... 20.78 56.95 -- -- -- 60.96
75% S&P 500/25% Value Line Convertible ... 21.28 63.99 -- -- -- 67.75
- ------------------------------------------ -------- --------- --------- ---------- ---------- -----------
ALLIANCE EQUITY INDEX ..................... 22.39 -- -- -- -- 68.84
Lipper S&P 500 Index Funds Average ....... 22.30 -- -- -- -- 68.03
S&P 500.................................... 22.96 -- -- -- -- 71.28
- ------------------------------------------ -------- --------- --------- ---------- ---------- -----------
ALLIANCE COMMON STOCK...................... 24.28 61.08 107.55 334.66% 888.92% 1,849.35
Lipper Growth Equity Mutual Funds Average . 19.24 53,78 87.06 266.86 705.20 2,152.74
S&P 500.................................... 22.96 71.34 102.85 314.34 925.25 1,655.74
- ------------------------------------------ -------- --------- --------- ---------- ---------- -----------
ALLIANCE GLOBAL............................ 14.60 43.28 88.36 -- -- 181.40
Lipper Global Mutual Funds Average ....... 16.51 32.17 72.23 -- -- 120.81
MSCI World ................................ 13.48 43.95 67.12 -- -- 95.62
- ------------------------------------------ -------- --------- --------- ---------- ---------- -----------
ALLIANCE INTERNATIONAL..................... 9.82 -- -- -- -- 22.21
Lipper International Mutual Funds Average . 11.78 -- -- -- -- 24.22
MSCI EAFE.................................. 6.05 -- -- -- -- 15.78
- ------------------------------------------ -------- --------- --------- ---------- ---------- -----------
ALLIANCE AGGRESSIVE STOCK.................. 22.20 54.73 74.93 450.62 -- 648.20
Lipper Small Company Growth Funds Average 20.20 54.13 104.43 288.11 -- 309.45
50% S&P 400/50% Russell 2000............... 17.85 48.69 99.38 280.32 -- 318.19
- ------------------------------------------ -------- --------- --------- ---------- ---------- -----------
THE FIXED INCOME SERIES
ALLIANCE MONEY MARKET...................... 5.33 15.85 23.51 77.35 179.15 196.68
Lipper Money Market Mutual Funds Average . 4.80 14.54 21.42 71.13 163.30 185.78
3 Month T-Bill............................. 5.25 15.99 23.86 73.61 165.31 184.26
- ------------------------------------------ -------- --------- --------- ---------- ---------- -----------
ALLIANCE INTERMEDIATE GOVERNMENT
SECURITIES................................ 3.78 12.47 31.33 -- -- 47.16
Lipper Intermediate Government Funds
Average .................................. 2.68 14.32 31.82 -- -- 47.39
Lehman Intermediate Government Bond ...... 4.06 16.98 35.30 -- -- 51.07
- ------------------------------------------ -------- --------- --------- ---------- ---------- -----------
ALLIANCE QUALITY BOND...................... 5.36 17.01 -- -- -- 16.42
Lipper Corporate Debt Funds A Rated
Average .................................. 2.49 16.16 -- -- -- 15.79
Lehman Aggregate Bond...................... 3.63 19.19 -- -- -- 19.27
- ------------------------------------------ -------- --------- --------- ---------- ---------- -----------
ALLIANCE HIGH YIELD........................ 22.89 43.27 98.16 -- -- 194.62
Lipper High Current Yield Bond Funds
Average .................................. 13.67 27.12 77.40 -- -- 146.99
ML Master ................................. 11.06 31.63 82.29 -- -- 190.43
- ------------------------------------------ -------- --------- --------- ---------- ---------- -----------
</TABLE>
B-4
<PAGE>
TABLE III
ANNUAL RATES OF RETURN
<TABLE>
<CAPTION>
ALLIANCE ALLIANCE ALLIANCE ALLIANCE
YEAR ENDING COMMON MONEY AGGRESSIVE ALLIANCE HIGH ALLIANCE
DECEMBER 31 STOCK MARKET STOCK BALANCED YIELD GLOBAL
- ----------- -------- -------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
1976........ 9.2%*
1977........ -9.2
1978........ 8.2
1979........ 29.8
1980........ 50.1
1981........ -5.8 7.1%*
1982........ 17.6 13.0
1983........ 26.1 8.9
1984........ -2.0 10.9
1985........ 33.4 8.2
1986........ 17.3 6.6 35.9%* 29.1%*
1987........ 7.5 6.6 7.3 -0.9 4.7%* -13.3%*
1988........ 22.4 7.3 1.1 13.3 9.7 10.9
1989........ 25.6 9.2 43.5 25.8 5.1 26.7
1990........ -8.1 8.2 8.2 0.3 -1.1 -6.1
1991........ 37.9 6.2 86.9 41.3 24.5 30.5
1992........ 3.2 3.6 -3.2 -2.8 12.3 -0.5
1993........ 24.8 3.0 16.8 12.3 23.2 32.1
1994........ -2.1 4.0 -3.8 -8.0 -2.8 5.2
1995........ 32.5 5.7 31.6 19.8 19.9 18.8
1996........ 24.3 5.3 22.2 11.7 22.9 14.6
- ----------- -------- -------- ---------- -------- -------- --------
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
ALLIANCE
ALLIANCE ALLIANCE ALLIANCE ALLIANCE GROWTH ALLIANCE
YEAR ENDING CONSERV. GROWTH INTERMEDIATE QUALITY AND EQUITY ALLIANCE
DECEMBER 31 INVESTORS INVESTORS GOVT. SECURITIES BOND INCOME INDEX INTERNATIONAL
- ----------- --------- --------- ---------------- -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1976 .......
1977 .......
1978 .......
1979 .......
1980 .......
1981 .......
1982 .......
1983 .......
1984 .......
1985 .......
1986 .......
1987 .......
1988 .......
1989........ 3.1%* 4.0%*
1990........ 6.3 10.7
1991........ 19.8 48.8 12.1%*
1992........ 5.6 4.9 5.5
1993........ 10.8 15.3 10.6 -0.5%* -0.3%*
1994........ -4.1 -3.2 -4.4 -5.1 -0.6 1.1*
1995........ 20.4 26.4 13.3 17.0 24.0 36.5 11.3%*
1996........ 5.2 12.6 3.8 5.4 20.1 22.4 9.8
- ----------- --------- --------- ---------------- -------- -------- -------- ----
</TABLE>
- ------------
*Unannualized from the inception date described in the Prospectus through the
end of the calendar year indicated.
B-5
<PAGE>
PERFORMANCE OF PORTFOLIOS MANAGED SIMILARLY TO THE ALLIANCE SMALL CAP GROWTH
PORTFOLIO
In addition to managing the assets of the Alliance Small Cap Growth
Portfolio, Alliance manages six portfolios of discretionary tax-exempt
accounts of institutional clients managed as described below without
significant client-imposed restrictions ("Historical Portfolios"). These
accounts have substantially the same investment objectives and policies and
are managed in accordance with essentially the same investment strategies and
techniques as those of the Alliance Small Cap Growth Portfolio. The
Historical Portfolios are not subject to certain limitations, diversification
requirements and other restrictions to which the Alliance Small Cap Growth
Portfolio, as a registered investment company, is subject and which if
applicable to the Historical Portfolios, may have adversely affected the
performance results of the Historical Portfolios.
Set forth below is performance data provided by Alliance relating to the
Historical Portfolios for each of the fourteen full calendar years during
which Alliance has managed the Historical Portfolios. As of December 31,
1996, the assets in the Historical Portfolios totaled approximately $397
million and the average size of a Historical Portfolio was $66 million. Each
Historical Portfolio has a nearly identical composition of individual
investment holdings and related percentage weightings.
The performance data is net of an imputed advisory fee deemed paid quarterly
at the same level as the advisory fee payable by the Alliance Small Cap
Growth Portfolio, although the actual advisory fees payable by the Historical
Portfolios varied. The performance data includes the cost of brokerage
commissions, but excludes custodial fees, transfer agency costs and other
administrative expenses that will be payable by the Alliance Small Cap Growth
Portfolio and will result in a higher expense ratio for the Alliance Small
Cap Growth Portfolio. Expenses associated with the distribution of Class IB
shares of the Alliance Small Cap Growth Portfolio in accordance with the plan
adopted by the Trust's Board of Trustees pursuant to Rule 12b-1 under the
Investment Company Act ("distribution fees") are also excluded. The
performance data has also not been adjusted for corporate or individual
taxes, if any, payable by the account owners.
Alliance has calculated the investment performance of the Historical
Portfolios on a trade-date basis. Dividends have been accrued at the end of
the month and cash flows weighted daily. Due to the similarity of investment
composition and the performance of each of the Historical Portfolios,
composite investment performance for all portfolios has been determined on a
simple average, rather than a dollar-weighted, basis. New accounts are
included in the composite investment performance computations at the
beginning of the month following the initial contribution. The composite
total returns set forth below are calculated using a method that links the
monthly returns, for the disclosed periods, resulting in a time-weighted rate
of return.
As reflected below, the Historical Portfolios have over time performed
favorably when compared with the performance of recognized performance
indices. The Russell 2000 Index is compiled by Frank Russell Company and
consists of the 2000 smallest of the 3000 largest capitalization U.S.
companies. The Russell 2000 Growth Index is compiled by Frank Russell Company
and consists of that half of the 2000 smallest of the 3000 largest
capitalization U.S. companies that has higher price-to-book ratios and higher
forecasted growth values. The Russell Indices reflect changes in market
prices, but excludes investment income.
To the extent the Alliance Small Cap Growth Portfolio does not invest in U.S.
common stocks or utilizes investment techniques such as futures or options,
the Russell Indices may not be substantially comparable to the Alliance Small
Cap Growth Portfolio. The Russell Indices are included to illustrate material
economic and market factors that existed during the time period shown. The
Russell Indices do not reflect the deduction of any fees. If the Alliance
Small Cap Growth Portfolio were to purchase a portfolio of securities
substantially identical to the securities comprising the Russell Indices, the
Alliance Small Cap Growth Portfolio's performance relative to the Russell
Indices would be reduced by the Alliance Small Cap Growth Portfolio's
expenses, including brokerage commissions, advisory fees, distribution fees,
custodial fees, transfer agency costs and other administrative expenses as
well as by the impact on the Alliance Small Cap Growth Portfolio's
shareholders of sales charges and income taxes.
B-6
<PAGE>
The Lipper Small Company Growth Fund Index is prepared by Lipper Analytical
Services, Inc. and represents a composite index of the investment performance
for the 30 largest growth mutual funds. The composite investment performance
of the Lipper Small Company Growth Fund Index reflects investment management
and administrative fees and other operating expenses paid by these mutual
funds and reinvested income dividends and capital gain distributions, but
excludes the impact of any income taxes and sales charges.
The following performance data is provided solely to illustrate Alliance's
performance in managing the Historical Portfolios as measured against certain
broad based market indices and against the composite performance of other
open-end growth mutual funds. Investors should not rely on the following
performance data of the Historical Portfolios as an indication of future
performance of the Alliance Small Cap Growth Portfolio. The composite
investment performance for the periods presented may not be indicative of
future rates of return. Other methods of computing investment performance may
produce different results, and the results for different periods may vary.
SCHEDULE OF COMPOSITE INVESTMENT PERFORMANCE--HISTORICAL PORTFOLIOS
FOR THE FOURTEEN YEARS ENDED DECEMBER 31, 1996*
<TABLE>
<CAPTION>
LIPPER SMALL
RUSSELL CO.
HISTORICAL RUSSELL 2000 GROWTH GROWTH
PORTFOLIOS 2000 INDEX INDEX FUND INDEX
TOTAL RETURN TOTAL RESEARCH TOTAL RETURN TOTAL RETURN
-------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
Year ended:
December 31, 1996 ................. 36.91% 16.50% 11.26% 20.00%
December 31, 1995 ................. 54.59% 28.45% 31.04% 32.02%
December 31, 1994 ................. -3.47% -1.82% -2.43% -0.58%
December 31, 1993 ................. 14.35% 18.88% 13.36% 17.41%
December 31, 1992 ................. 4.85% 18.41% 7.77% 13.39%
December 31, 1991 ................. 40.96% 46.04% 51.19% 51.56%
December 31, 1990 ................. -23.46% -19.48% -17.41% -9.49%
December 31, 1989 ................. 25.81% 16.26% 20.17% 25.26%
December 31, 1988 ................. 25.63% 25.02% 20.37% 19.87%
December 31, 1987 ................. -7.66% -8.80% -10.48% -3.87%
December 31, 1986 ................. 15.30% 5.68% 3.58% 9.76%
December 31, 1985 ................. 42.57% 31.05% 30.97% 30.84%
December 31, 1984 ................. -11.73% -7.30% -15.83% -9.78%
December 31, 1983 ................. 32.53% 29.13% 20.13% 26.28%
Cumulative total return for the
period January 1, 1983 to December
31, 1996 ............................. 641.74% 434.41% 285.48% 492.59%
</TABLE>
- ------------
* Total return is a measure of investment performance that is based upon
the change in value of an investment from the beginning to the end of a
specified period and assumes reinvestment of all dividends and other
distributions. The basis of preparation of this data is described in
the preceding discussion.
The average annual total returns presented below are based upon the
cumulative total return as of December 31, 1996, assume a steady compounded
rate of return and are not year-by-year results, which fluctuated over the
periods as shown.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
---------------------------------------------------------
LIPPER SMALL
RUSSELL CO.
HISTORICAL RUSSELL 2000 GROWTH GROWTH
PORTFOLIOS 2000 INDEX INDEX FUND INDEX
------------ ------------ ------------ ---------------
<S> <C> <C> <C> <C>
Three years ........... 26.89% 13.68% 12.47% 15.32%
Five years ............ 19.62% 15.64% 11.69% 15.24%
Ten years ............. 14.45% 12.42% 10.88% 14.34%
Since January 1, 1983 15.38% 12.72% 10.12% 13.15%
</TABLE>
B-7
<PAGE>
THE HUDSON RIVER TRUST
Principal Office Located at
1345 Avenue of the Americas -- New York, New York 10105
The Hudson River Trust (the "Trust") is a mutual fund, currently issuing
fourteen series of shares of beneficial interest, each representing a
separate investment portfolio (each a "Portfolio"). The Portfolios are The
Asset Allocation Series: Alliance Conservative Investors, Alliance Balanced
and Alliance Growth Investors; The Equity Series: Alliance Growth and Income,
Alliance Equity Index, Alliance Common Stock, Alliance Global, Alliance
International, Alliance Aggressive Stock and Alliance Small Cap Growth; and
The Fixed Income Series: Alliance Money Market, Alliance Intermediate
Government Securities, Alliance Quality Bond and Alliance High Yield. An
investment in the Alliance Money Market Portfolio is neither insured nor
guaranteed by the U.S. Government. Shares of each Portfolio are currently
divided into two classes: Class IA shares, ,offered pursuant to another
prospectus and Class IB shares, offered hereby.
This prospectus sets forth concisely the investment objectives and policies
of the fourteen 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 relating to Class IB shares ("SAI")
dated May 1, 1997 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. California
residents may obtain the SAI at no charge by calling 1-800-999-3527.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Financial Highlights......................... 2
The Trust.................................... 3
Investment Objectives and Policies........... 3
Investment Techniques........................ 18
Certain Investment Restrictions.............. 24
Management of the Trust...................... 24
Description of the Trust's Shares............ 28
Dividends, Distributions and Taxes........... 30
Investment Performance....................... 31
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 OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
PROSPECTUS DATED MAY 1, 1997
- -----------------------------------------------------------------------------
HRT103 (5/97) Copyright 1996 The Hudson River Trust. All rights reserved.
<PAGE>
FINANCIAL HIGHLIGHTS
The financial information in the table below has been audited by Price
Waterhouse LLP, the Trust's independent accountants. The December 31, 1996
audited financial statements of the Trust and the "Report of Independent
Accountants" appear in the SAI. The Trust's annual report, which contains
additional performance information, is available without charge upon request.
No Class IB shares of the Alliance Conservative Investors, Alliance Balanced,
Alliance Growth and Income, Alliance Equity Index, Alliance International,
Alliance Small Cap Growth, Alliance Intermediate Government Securities and
Alliance Quality Bond Portfolios were outstanding as of December 31, 1996.
FINANCIAL HIGHLIGHTS
PER SHARE INCOME AND CAPITAL CHANGES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)(b)
<TABLE>
<CAPTION>
OCTOBER 2, 1996 TO DECEMBER 31, 1996
-------------------------------------
ALLIANCE ALLIANCE ALLIANCE
AGGRESSIVE COMMON GROWTH
STOCK STOCK INVESTORS
------------ ---------- -----------
<S> <C> <C> <C>
Net asset value, beginning of period ........ $ 37.28 $ 17.90 $ 16.78
------------ ---------- -----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ...................... (0.01) 0.02 0.07
Net realized and unrealized gain on
investments and foreign currency
transactions .............................. 0.85 1.52 0.71
------------ ---------- -----------
Total from investment operations ........... 0.84 1.54 0.78
------------ ---------- -----------
LESS DISTRIBUTIONS:
Dividends from net investment income ....... -- (0.00) (0.02)
Dividends in excess of net investment income (0.02) (0.03) (0.09)
Distributions from realized gains .......... (0.23) (0.16) (0.02)
Distributions in excess of realized gains .. (2.04) (1.03) (0.24)
Tax return of capital distributions ........ -- -- --
------------ ---------- -----------
Total dividends and distributions .......... (2.29) (1.22) (0.37)
------------ ---------- -----------
Net asset value, end of period ............... $ 35.83 $18.22 $ 17.19
============ ========== ===========
Total return (c).............................. 2.32% 8.49% 4.64%
============ ========== ===========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) ............ $ 613 $ 1,244 $ 472
Ratio of expenses to average net assets ..... 0.73%(a) 0.63%(a) 0.84%(a)
Ratio of net investment income to average net
assets ..................................... (0.10)%(a) 0.61%(a) 1.69%(a)
Portfolio turnover rate....................... 108% 55% 190%
Average commission rate paid ................. $0.0263 $0.0565 $0.0495
</TABLE>
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
ALLIANCE
ALLIANCE ALLIANCE MONEY
GLOBAL HIGH YIELD MARKET
---------- ------------ ----------
<S> <C> <C> <C>
Net asset value, beginning of period ........ $ 16.57 $10.25 $10.16
---------- ------------ ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ...................... 0.02 0.19 0.11
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions .............................. 0.81 0.15 0.01
---------- ------------ ----------
Total from investment operations ........... 0.83 0.34 0.12
---------- ------------ ----------
LESS DISTRIBUTIONS:
Dividends from net investment income ....... -- (0.03) (0.02)
Dividends in excess of net investment income (0.11) (0.25) (0.10)
Distributions from realized gains .......... (0.10) (0.01) --
Distributions in excess of realized gains .. (0.28) (0.29) --
Tax return of capital distributions ........ (0.00) -- --
---------- ------------ ----------
Total dividends and distributions .......... (0.49) (0.58) (0.12)
---------- ------------ ----------
Net asset value, end of period ............... $ 16.91 $10.01 $10.16
========== ============ ==========
Total return (c).............................. 4.98% 3.32% 1.29%
========== ============ ==========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) ............ $ 290 $ 685 $3,184
Ratio of expenses to average net assets ..... 0.86%(a) 0.82%(a) 0.67%(a)
Ratio of net investment income to average net
assets ..................................... 0.48%(a) 8.71%(a) 4.94%(a)
Portfolio turnover rate....................... 59% 485% --
Average commission rate paid ................. $0.0418 -- --
</TABLE>
- ------------
* 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. ("Alliance") acquired
the business and substantially all of the assets of Equitable Capital
and became the investment adviser to the Trust.
(a) Annualized.
(b) Net investment income and capital changes per share are based upon
monthly average shares outstanding.
(c) Total return is calculated assuming an initial investment made at the
net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period, and
redemption on the last day of the period. Total return calculated for a
period of less than one year is not annualized.
2
<PAGE>
THE TRUST
The Trust is an open-end management investment company under the Investment
Company Act of 1940 (the "Investment Company Act"). As a "series" investment
company, the Trust issues shares of beneficial interest that are currently
divided into fourteen Portfolios, although the Trust may, from time to time,
establish additional Portfolios. Each Portfolio is a separate diversified
series of the Trust, and the Trust's assets and liabilities are divided among
the Portfolios. Originally organized as a Maryland corporation which
commenced operations on March 22, 1985, the Trust was reorganized as a
Massachusetts business trust on July 10, 1987.
Shares of each Portfolio are currently divided into two classes: Class IA
shares are offered pursuant to another prospectus at net asset value and are
not subject to fees imposed pursuant to a distribution plan. Class IB shares
are offered pursuant to this prospectus at net asset value and are subject to
distribution fees imposed pursuant to a distribution plan (the "Distribution
Plan") adopted under Rule 12b-1 under the Investment Company Act. Class IB
shares are sold to an insurance company separate account of Equitable.
Inquiries regarding Class IB shares should be addressed to Equitable, Income
Management Group, at 200 Plaza Drive, Secaucus, NJ 07096 (toll-free:
1-800-789-7771).
The two classes of shares are offered under the Trust's multiple class
distribution system approved by the Trust's Board of Trustees, 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 the assets of that Portfolio and, generally, have identical
voting, dividend, liquidation, and other rights, other than with respect to
the payment of distribution fees under the Distribution Plan.
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") and
certain insurance companies unaffiliated with Equitable. Equitable was the
record owner of approximately 99.7% and 100% of the Trust's Class IA and
Class IB shares, respectively, as of March 31, 1997, and consequently may be
deemed to control the Trust.
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 could force the
Trust to sell portfolio securities at disadvantageous prices.
INVESTMENT OBJECTIVES AND POLICIES
FUNDAMENTAL INVESTMENT OBJECTIVES
The following investment objectives of each Portfolio are fundamental and,
unless permitted by law, will not be changed without a vote of the holders of
the majority of the voting securities of that Portfolio. There can, of
course, be no assurance that a Portfolio will achieve its investment
objective.
THE ASSET ALLOCATION SERIES
o The Alliance 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 Alliance Balanced Portfolio's fundamental investment objective
is to achieve a high return through both appreciation of capital
and current income. The Alliance 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 Alliance Growth Investors Portfolio's fundamental investment
objective is to achieve the highest total return consistent with
the investment adviser's determination of reasonable risk. It will
pursue this objective by investing in a diversified mix of publicly
traded equity and fixed
3
<PAGE>
income securities, including at times common stocks issued by
intermediate and small-sized companies and at times lower quality
fixed income securities commonly known as "junk bonds."
THE EQUITY SERIES
o The Alliance 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 Alliance 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
("S&P") 500 Composite Stock Price Index, including reinvestment of
dividends, at a risk level consistent with that of the Index.
o The Alliance 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 Alliance Global Portfolio's fundamental investment objective is
to achieve long-term growth of capital. The Alliance Global
Portfolio will pursue this objective by investing primarily in
equity securities of non-U.S. companies as well as U.S. issuers.
o The Alliance 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-U.S. companies with
prospects for growth.
o The Alliance Aggressive Stock Portfolio's fundamental investment
objective is to achieve long-term growth of capital. The Alliance
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 that, in the
opinion of Alliance Capital Management L.P. ("Alliance"), have
strong growth prospects and in covered options on those securities.
o The Alliance Small Cap Growth Portfolio's fundamental investment
objective is to achieve long-term growth of capital. The Alliance
Small Cap Growth Portfolio will pursue this objective by investing
primarily in U.S. common stocks and other equity-type securities
issued by smaller companies that, in the opinion of Alliance, have
favorable growth prospects.
THE FIXED INCOME SERIES
o The Alliance Money Market Portfolio's fundamental investment
objective is to obtain a high level of current income, preserve its
assets and maintain liquidity. The Alliance Money Market Portfolio
will pursue this objective by investing in primarily high quality
U.S. dollar-denominated money market instruments.
o The Alliance 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 Alliance Intermediate Government Securities
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 Alliance 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 Alliance Quality Bond Portfolio
reserves the right to invest in convertible debt securities,
preferred stocks and dividend-paying common stocks.
o The Alliance 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 Alliance High Yield Portfolio will pursue this
objective by investing primarily
4
<PAGE>
in a diversified mix of high yield, fixed income securities, which
generally involve greater volatility of price and risk of principal
and income than higher quality fixed income securities. Lower
quality debt securities are commonly known as "junk bonds."
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 SAI.
THE ASSET ALLOCATION SERIES
The Alliance Conservative Investors Portfolio, the Alliance Balanced
Portfolio and the Alliance 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 selecting specific securities
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
equity market strength. Consequently, the asset mix for the Alliance
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 Alliance
Growth Investors Portfolio attempts to provide for upside potential without
excessive volatility.
The "balanced investor" is somewhat less aggressive than the growth investor
and has a medium-to long-term investment horizon. 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 Alliance Balanced Portfolio attempts to
capture a sizable portion of the market's upside while diversifying risk
among asset classes.
Alliance Capital Management L.P., the Trust's investment adviser
("Alliance"), has established an asset allocation committee (the
"Committee"), all the members of which are employees of Alliance, 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 Alliance
Conservative Investors Portfolio particularly emphasize risk assessment of
each asset class viewed over the shorter term, while decisions for the
Alliance 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 it appears that cash flow will, in the
opinion of Alliance, be insufficient to achieve the desired asset mix, the
Portfolios will sell securities and reinvest the proceeds in the appropriate
asset class.
5
<PAGE>
The Asset Allocation Series Portfolios are permitted to use a variety of
hedging techniques to attempt to control stock market, interest rate and
currency risks. Each of the Portfolios in the Asset Allocation Series may
make loans of up to 50% of its total portfolio securities. Each of the
Portfolios in the Asset Allocation Series may write covered call and put
options and may purchase call and put options on all the types of securities
in which it may invest, as well as securities indexes and foreign currencies.
Each Portfolio may also purchase and sell stock index, interest rate and
foreign currency futures contracts and options thereon, as well as forward
foreign currency exchange contracts. See "Investment Techniques--Forward
Foreign Currency Exchange Contracts," below.
Risk Factors. In addition to the risk factors associated with the securities
in which the Portfolios in the Asset Allocation Series may invest, these
Portfolios bear the risk that Alliance will not accurately assess and respond
to changing market conditions. While Alliance 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, these
Portfolios may incur additional operating expenses during periods of
frequently changing asset mix ranges.
ALLIANCE CONSERVATIVE INVESTORS PORTFOLIO--INVESTMENT POLICIES
The Alliance 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 U.S. and non-U.S. 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"). The Portfolio may invest in the types of equity
securities in which the Alliance Common Stock Portfolio may invest, including
convertible securities. No more than 15% of the Portfolio's assets will be
invested in securities of non-U.S. 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, as determined by
Alliance, that is 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. In
some cases, Alliance's calculation of duration will be based on certain
assumptions (including assumptions regarding prepayment rates, in the case of
mortgage-backed or asset-backed securities, and foreign and domestic interest
rates). As of December 31, 1996, the duration of a 10-year Treasury bond was
considered by Alliance to be 7.2 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.
ALLIANCE BALANCED PORTFOLIO--INVESTMENT POLICIES
The Alliance 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 Alliance 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 Alliance 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
6
<PAGE>
relevant considerations, including the risks associated with each investment
medium. Although the Alliance Balanced Portfolio will seek to reduce the
risks associated with any one investment medium by utilizing a variety of
investments, performance will depend upon Alliance's ability to assess
accurately and react to changing market conditions.
The Alliance 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, as well
as money market instruments). 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.
The equity securities invested in by the Alliance Balanced Portfolio will
consist of the types of securities in which the Alliance Common Stock
Portfolio may invest. The money market securities will consist of the types
of securities and credit quality in which the Alliance 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 Alliance considers them appropriate investments under the
circumstances. In addition, the Alliance Balanced Portfolio may at times hold
some of its assets in cash. The Portfolio may invest up to 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 Alliance 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 Alliance 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.
ALLIANCE GROWTH INVESTORS PORTFOLIO--INVESTMENT POLICIES
The Alliance 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 both exchange-traded and
over-the-counter common stocks and equity-type securities, which may include
preferred stock and convertible securities, and may include securities issued
by intermediate-and small-sized companies that, in the opinion of Alliance,
have favorable growth prospects. More risk is associated with investment in
intermediate and small-sized companies because they are often dependent on
limited product lines, financial resources or management groups. They may be
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, and may trade
infrequently or in limited volume. The prices of these stocks often fluctuate
more than those of larger, more established companies. 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,
7
<PAGE>
1996, approximately 19% 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-U.S. 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
Alliance 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
ALLIANCE GROWTH AND INCOME PORTFOLIO--INVESTMENT POLICIES
The Alliance 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 of
inflation. The Alliance 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 Alliance. 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 Alliance Growth and Income Portfolio may invest without limit in
securities convertible into common stocks, which include convertible bonds,
convertible preferred stocks and convertible warrants. The Alliance 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 yield that is higher than that of
the underlying stock but lower than that of 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 Alliance 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 Alliance 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 Alliance 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 Alliance Growth and Income Portfolio
may invest in certain money market instruments. See "Investment
Techniques--Certain Money Market Instruments," below.
8
<PAGE>
ALLIANCE EQUITY INDEX PORTFOLIO--INVESTMENT POLICIES
The Alliance Equity Index Portfolio's investment objective is to seek a total
return before expenses that approximates the total return of the S&P 500
Index (the "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 Alliance 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 that 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
the Alliance Equity Index Portfolio's industry diversification, and therefore
economic events could potentially have a dramatically different impact on the
performance of the Alliance Equity Index Portfolio from that of the Index.
Recognizing this fact, the modeling techniques also consider industry
diversification when selecting investments for the Alliance Equity Index
Portfolio. The investment adviser also seeks to diversify the Alliance Equity
Index Portfolio's assets with respect to market capitalization. As a result,
the Alliance 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 Alliance 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 Alliance Equity Index Portfolio's investments and the Index.
Cash may be accumulated in the Alliance Equity Index Portfolio until it
reaches approximately 1% of the value of the Alliance Equity Index Portfolio
at which time such cash will be invested in common stocks as described above.
Accumulation of cash increases tracking error. The Alliance 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
Alliance Equity Index Portfolio.
In order to reduce brokerage costs, maintain liquidity to meet shareholder
redemptions or minimize tracking error when the Alliance Equity Index
Portfolio holds cash, the Alliance 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 Alliance Equity Index Portfolio plus
the contract value of futures contracts underlying call options purchased by
the Alliance Equity Index Portfolio will not exceed 20% of the Alliance
Equity Index Portfolio's total assets.
The Alliance 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.
ALLIANCE COMMON STOCK PORTFOLIO--INVESTMENT POLICIES
The Alliance Common Stock Portfolio attempts to achieve its investment
objective by investing primarily in common stocks and other equity-type
securities that Alliance believes will share in the growth of the nation's
economy over a long period.
9
<PAGE>
Most of the time, the Alliance 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 Alliance
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 Alliance 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, 1996, less than 1% of the average assets
of the Portfolio were invested in higher yielding securities.
The Alliance Common Stock Portfolio may make temporary investments in money
market instruments of the same type and credit quality as those in which the
Alliance Money Market Portfolio may invest. The Portfolio may make secured
loans of up to 50% of its total portfolio securities. See "Investment
Techniques--Securities Lending," below. The Alliance 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.
ALLIANCE GLOBAL PORTFOLIO--INVESTMENT POLICIES
The Alliance 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-U.S. companies that,
in the opinion of Alliance, have prospects for growth, as well as in
securities issued by United States companies. These non-U.S. companies may
have operations in the United States, in their country of incorporation or in
other countries. The Alliance 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 Alliance Global
Portfolio may at times invest substantially all of its assets in securities
issued by U.S. companies or in cash or cash equivalents, including money
market instruments issued by foreign entities.
The Alliance 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 Alliance Global Portfolio intends under normal conditions to invest in
equity securities. The Portfolio may make secured loans of up to 50% of its
total portfolio securities. See "Investment Techniques--Securities Lending,"
below. The Alliance 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 Alliance 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.
10
<PAGE>
ALLIANCE INTERNATIONAL PORTFOLIO--INVESTMENT POLICIES
The Alliance International Portfolio attempts to achieve its objective by
investing primarily in a diversified portfolio of equity securities selected
principally to permit participation in non-U.S. companies or foreign
governmental enterprises that, in the opinion of Alliance, have prospects for
growth. These non-U.S. companies may have operations in the United States, in
their country of incorporation and/or in other countries. The Alliance
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 Alliance International Portfolio may purchase securities of
developing countries, which include, among others, Mexico, Brazil, Hong Kong,
India, Poland, Turkey and South Africa. The Alliance International Portfolio
intends to diversify investments among several countries, although for
temporary defensive purposes, the Alliance 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 Alliance 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 Alliance
International Portfolio may also establish and maintain temporary cash
balances in U.S. and foreign short-term high-grade 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 Alliance International Portfolio intends under normal
market conditions to invest primarily in equity securities. The Alliance
International Portfolio may make loans of up to 50% of its portfolio
securities. See "Investment Techniques--Securities Lending," below. The
Alliance 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 Alliance 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.
ALLIANCE AGGRESSIVE STOCK PORTFOLIO--INVESTMENT POLICIES
The Alliance 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 that, in the opinion of Alliance,
have favorable growth prospects. The Alliance 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 Alliance 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
Alliance 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 Alliance 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 Alliance 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 Alliance 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.
11
<PAGE>
Risk Factors. More risk is associated with investment in intermediate-and
small-sized companies, because they are often dependent on limited product
lines, financial resources or management groups. They may be 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, and may trade infrequently or in
limited volume. The prices of these stocks often fluctuate more than those of
larger more established companies.
ALLIANCE SMALL CAP GROWTH PORTFOLIO--INVESTMENT POLICIES
The Alliance Small Cap Growth Portfolio will pursue its objective by
investing primarily in U.S. common stocks and other equity-type securities
issued by smaller companies with favorable growth prospects. The Alliance
Small Cap Growth 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.
The Alliance Small Cap Growth Portfolio may also invest in equity-type
securities other than common stocks (such as preferred stocks and convertible
debt instruments) and in protective options if it is Alliance's judgment
that, in light of economic conditions, such investments offer the Alliance
Small Cap Growth Portfolio better prospects for achieving its objective.
Under certain market conditions, the Small Cap Growth 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 Alliance Small Cap Growth
Portfolio will not invest more than 20% of its net asset value, measured at
the time of investment, in securities principally traded on foreign
securities markets (other than commercial paper). See "Investment
Techniques--Foreign Securities and Currencies," below. The Alliance Small Cap
Growth Portfolio may make secured loans of up to 50% of its total portfolio
securities. See "Investment Techniques--Securities Lending," below. The
Alliance Small Cap Growth Portfolio may write covered call options and may
purchase call and put options on individual equity securities, securities
indexes and foreign currencies. The Alliance Small Cap Growth Portfolio may
also purchase and sell stock index and foreign currency futures contracts and
options thereon. See "Investment Techniques--Forward Commitments and
When-Issued and Delayed Delivery Securities," "Investment
Techniques--Options," "Investment Techniques--Futures," and "Investment
Techniques--Risk Factors in Options and Futures," below.
Under current SEC guidelines, for so long as the Portfolio has the words
"Small Cap" in its name, it is required, under normal market conditions, to
invest at least 65% of its total assets in securities of smaller
capitalization companies (currently considered by Alliance to mean companies
with market capitalization at or below $2 billion).
Risk Factors. More risk is associated with investment in small-sized
companies, because they tend to be often dependent on limited product lines,
financial resources or management groups. They tend to be more vulnerable to
competition from larger companies with greater resources and to economic
conditions affecting their market sector. 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, and may trade infrequently or in limited volume. The prices of
these stocks often fluctuate more than those of larger, more established
companies.
THE FIXED INCOME SERIES
ALLIANCE MONEY MARKET PORTFOLIO--INVESTMENT POLICIES
The Alliance 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' 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
12
<PAGE>
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 (see
"Investment Techniques--Repurchase Agreements," below). Time deposits with
maturities greater than seven days are considered to be illiquid securities.
Investments by the Alliance Money Market Portfolio are limited to those which
present minimal credit risk. If a security held by the Alliance Money Market
Portfolio is no longer deemed to present minimal credit risk, the Alliance
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, 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
Alliance 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.
ALLIANCE INTERMEDIATE GOVERNMENT SECURITIES PORTFOLIO--INVESTMENT POLICIES
The Alliance Intermediate Government Securities 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 Alliance Intermediate Government Securities 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 Alliance Intermediate Government Securities 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.
13
<PAGE>
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
Alliance Intermediate Government Securities Portfolio's shares.
The Portfolio buys and sells securities with a view to maximizing current
return without, in the view of Alliance, 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 Alliance's
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 securities held by the Portfolio. However, at all times, each instrument
held by the Portfolio will have either a final maturity of not more than ten
years or a duration, as determined by Alliance, 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. In some cases, Alliance's calculation of duration
will be based on certain assumptions (including assumptions regarding
prepayment rates, in the mortgage-backed or asset-backed securities, and
foreign and domestic interest rates). As of December 31, 1996, the duration
of a 10-year Treasury bond was considered by Alliance to be 7.2 years. The
Portfolio may also invest a substantial portion of its assets in money market
instruments. See "Investment Techniques--Certain Money Market Instruments,"
below.
14
<PAGE>
It is a fundamental policy of the Alliance Intermediate Government Securities
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.
Other Investments. The Alliance Intermediate Government Securities Portfolio
may also purchase collateralized mortgage obligations ("CMOs") issued by
non-governmental issuers and securities issued by a real estate mortgage
investment conduits ("REMICs"). See "Investment Techniques--Mortgage-Backed
and Asset-Backed Securities," below. The Alliance Intermediate Government
Securities Portfolio will purchase only CMOs only if they 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 Alliance Intermediate Government Securities 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 Alliance, such investment is 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. Because U.S. Government Securities with shorter maturities
generally have a lower yield to maturity, however, 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.
ALLIANCE QUALITY BOND PORTFOLIO--INVESTMENT POLICIES
The Alliance Quality Bond Portfolio expects to invest in readily marketable
securities with relatively attractive yields, but which do not, in the
opinion of Alliance, involve undue risk of loss of capital. The
15
<PAGE>
Alliance Quality Bond Portfolio will follow a policy of investing at least
65% of its total assets in securities which are rated at the time of purchase
at least Baa by Moody's or BBB by S&P, or in unrated fixed income securities
determined by Alliance to be of comparable quality. In the event that the
credit rating of a security held by the Alliance Quality Bond Portfolio falls
below investment grade (or, in the case of unrated securities, Alliance
determines that the quality of such security has deteriorated below
investment grade), the Alliance Quality Bond Portfolio will not be obligated
to dispose of such security and may continue to hold the obligation if, in
the opinion of Alliance, such investment is appropriate in the circumstances.
The Alliance 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 Alliance Quality Bond Portfolio has complete flexibility as to the types
of securities in which it will invest and the relative proportions thereof,
and the Alliance 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 Alliance's assessment of prospective
cyclical changes even if such action may adversely affect current income.
The Alliance Quality Bond Portfolio may invest in foreign securities. The
Alliance 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
Alliance 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 Alliance Quality Bond Portfolio may
invest in certain money market instruments. See "Investment
Techniques--Certain Money Market Instruments," below.
The Alliance Quality Bond Portfolio may purchase put and call options and
write covered put and call options on securities it may purchase. The
Alliance 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 Alliance 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 Alliance 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 Alliance 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 Alliance 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 Alliance 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 Alliance 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 Alliance Quality Bond Portfolio's obligations over
its entitlements with 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 Alliance Quality
16
<PAGE>
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 Alliance Quality Bond
Portfolio will have contractual remedies pursuant to the agreements related
to the transaction. Caps and floors are relatively recent innovations which
may be illiquid.
Zero Coupon Securities. To the extent consistent with its investment
objective, the Alliance 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. Accordingly, such
securities usually trade at a deep discount from their face or par value and
will be subject to greater fluctuations in market value in response to
changing interest rates than debt obligations of comparable maturities that
make current distributions of interest. The Alliance 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 Alliance 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.
ALLIANCE HIGH YIELD PORTFOLIO--INVESTMENT POLICIES
The Alliance High Yield Portfolio attempts to achieve its objective by
investing primarily in a diversified mix of high yield, fixed income
securities, which generally involve 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 assets 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 Alliance
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 Alliance, 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 Alliance; however, this restriction will not apply to (i)
fixed income securities which, in the opinion of Alliance, 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 Alliance, 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 Alliance 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
Alliance, such investment is considered appropriate under the circumstances.
For the fiscal year ended December 31, 1996, 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: 0% in
securities rated AAA or its equivalent, 13.4% in securities rated BB or its
equivalent and 58.6% in securities rated B or its equivalent. Of these
securities, 89.8% were rated by an NRSRO and 10.2% 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
17
<PAGE>
risks, in the case of non-U.S. dollar denominated foreign securities. The
Portfolio 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 Alliance High Yield Portfolio will attempt 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 Alliance 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 Alliance Money Market and the Alliance
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 Alliance Money Market, Alliance Equity Index and
Alliance Intermediate Government Securities Portfolios, may also write
covered put and call options and buy put and call options on foreign
currencies. The Alliance Balanced, Alliance Common Stock, Alliance Aggressive
Stock, Alliance Small Cap Growth, Alliance High Yield, Alliance Global,
Alliance International, Alliance Conservative Investors, Alliance Growth
Investors, Alliance Intermediate Government Securities, Alliance Quality
Bond, Alliance Growth and Income and Alliance Equity Index Portfolios may buy
and sell 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 Alliance 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 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 predict with certainty 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
18
<PAGE>
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
Alliance 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 invest in money market instruments, including
certificates of deposit, time deposits, bankers' acceptances, bank notes and
other short-term debt obligations issued by commercial banks or 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 Alliance Equity Index Portfolio, may also
invest in 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 or 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 but of comparable quality 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 Alliance'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 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
19
<PAGE>
make it more difficult for the Portfolio 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 also reduce
their current yield and total return. However, Alliance 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 Alliance, subject to the
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%
(10% in the case of the Alliance Money Market Portfolio) of the Portfolio's
net assets would be invested in "illiquid securities."
LOAN ASSIGNMENTS AND PARTICIPATIONS
The Alliance 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 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, and the Portfolio will generally 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-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
Alliance considers to be an advantageous price or yield to the Portfolio at
the time of entering into the transaction. However, the
20
<PAGE>
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 an advantageous price or
yield. Forward commitments and when-issued and delayed delivery transactions
are generally expected to settle within four 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, liquid assets 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 Alliance Money Market and Alliance 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 Alliance Money Market,
Alliance Intermediate Government Securities and Alliance 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.
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,
21
<PAGE>
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 Alliance Money Market, Alliance Intermediate
Government Securities and Alliance 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 Alliance High Yield, Alliance Global, Alliance International, Alliance
Conservative Investors, Alliance Growth Investors, Alliance Intermediate
Government Securities, Alliance Balanced and Alliance 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 Alliance Intermediate Government
Securities and Alliance Quality Bond Portfolios) as well as the Alliance
Common Stock, Alliance Aggressive Stock, Alliance Small Cap Growth and
Alliance 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 Alliance 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 Alliance High Yield, Alliance
Global, Alliance International, Alliance Conservative Investors, Alliance
Growth Investors, Alliance Balanced, Alliance Common Stock, Alliance
Aggressive Stock, Alliance Small Cap Growth, Alliance Quality Bond and
Alliance 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 Alliance 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) 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 Alliance Equity Index Portfolio plus the contract
value of futures contracts underlying call options purchased by the Alliance
Equity Index Portfolio will not exceed 20% of the Alliance 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 liquid assets (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.
22
<PAGE>
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
All the Portfolios, except the Alliance Money Market, Alliance Intermediate
Government Securities and Alliance 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.
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 U.S. dollar value of securities
denominated in a foreign currency or protecting the U.S. 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 Alliance Intermediate Government Securities
and Alliance 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 Alliance High Yield and
Alliance Intermediate Government Securities 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
23
<PAGE>
securities or possible loss of rights in the collateral should the borrower
fail financially. Loans will only be made to firms deemed by Alliance to be
of good standing and will not be made unless, in the judgment of Alliance,
the consideration to be earned from such loans would justify the risk.
PORTFOLIO TURNOVER
Portfolio turnover rates are set forth under "Financial Highlights." These
rates of portfolio turnover may be greater than those of most other
investment companies. A high rate of portfolio turnover involves
correspondingly greater brokerage and other expenses than a lower rate, which
must be borne by the Portfolio.
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.
The Alliance High Yield and Alliance Intermediate Government Securities
Portfolios may make secured loans of portfolio securities or cash without
limitation. None of the other Portfolios will make loans, except that each
such Portfolio may make loans of portfolio securities not exceeding 50% of
the value of that Portfolio's total assets. This restriction does not prevent
a Portfolio from purchasing debt obligations in which a Portfolio may invest
consistent with its investment policies, or from buying government
obligations, short-term commercial paper or publicly traded debt, including
bonds, notes, debentures, certificates of deposit, and equipment trust
certificates, nor does this restriction apply to loans made under insurance
policies or through entry into repurchase agreements to the extent they may
be viewed as loans.
Each Portfolio, 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
holdings in that industry exceed 25% of the Portfolio's total assets.
However, this restriction does not apply to investments by the Alliance 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 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 Alliance 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 Alliance 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 Alliance 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.
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 Agreement and Declaration of Trust and By-laws.
24
<PAGE>
THE INVESTMENT ADVISER
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 (the "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, administrative and other services, other than investor
services or accounting 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>
FIRST NEXT NEXT NEXT
$750 MILLION $750 MILLION $1 BILLION $2.5 BILLION THEREAFTER
-------------- -------------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C>
Alliance International...................... 0.900% 0.825% 0.800% 0.780% 0.770%
Alliance Global............................. 0.675% 0.600% 0.550% 0.530% 0.520%
Alliance Aggressive Stock................... 0.625% 0.575% 0.525% 0.500% 0.475%
Alliance Common Stock....................... 0.475% 0.425% 0.375% 0.355% 0.345%*
Alliance Growth and Income.................. 0.550% 0.525% 0.500% 0.480% 0.470%
Alliance Small Cap Growth................... 0.900% 0.850% 0.825% 0.800% 0.775%
Alliance Growth Investors................... 0.550% 0.500% 0.450% 0.425% 0.400%
Alliance Balanced........................... 0.450% 0.400% 0.350% 0.325% 0.300%
Alliance Conservative Investors............. 0.475% 0.425% 0.375% 0.350% 0.325%
Alliance High Yield......................... 0.600% 0.575% 0.550% 0.530% 0.520%
Alliance Quality Bond....................... 0.525% 0.500% 0.475% 0.455% 0.445%
Alliance Intermediate Government
Securities................................. 0.500% 0.475% 0.450% 0.430% 0.420%
Alliance Equity Index....................... 0.325% 0.300% 0.275% 0.255% 0.245%
Alliance Money Market....................... 0.350% 0.325% 0.300% 0.280% 0.270%
</TABLE>
* On assets in excess of $10 billion, the management fee for the Alliance
Common Stock Portfolio is reduced to 0.335% of average daily net assets.
THE PORTFOLIO MANAGERS
THE ASSET ALLOCATION SERIES
ALLIANCE CONSERVATIVE INVESTORS, ALLIANCE BALANCED AND ALLIANCE GROWTH
INVESTORS PORTFOLIOS
Robert G. Heisterberg has been the person principally responsible for the
Alliance Conservative Investors, Alliance Balanced and Alliance Growth
Investors Portfolios' investment programs since February 12, 1996. Mr.
Heisterberg, a Senior Vice President of Alliance and Global Economic Policy
Analysis, has been associated with Alliance since 1977.
25
<PAGE>
THE EQUITY SERIES
ALLIANCE GROWTH AND INCOME PORTFOLIO
Paul Rissman and W. Theodore Kuck have been the persons principally
responsible for the Alliance Growth and Income Portfolio's investment
program, Mr. Rissman since February 12, 1996 and Mr. Kuck since 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.*
ALLIANCE EQUITY INDEX PORTFOLIO
Judith A. Maglio has been the person principally responsible for the Alliance
Equity Index Portfolio's investment program since its inception. Ms. Maglio,
a Vice President of Alliance, has been associated with Alliance since 1970.
ALLIANCE COMMON STOCK PORTFOLIO
Tyler J. Smith has been the person principally responsible for the Alliance
Common Stock Portfolio's investment program since 1977. Mr. Smith, a Senior
Vice President of Alliance, has been associated with Alliance since 1970.*
ALLIANCE GLOBAL AND ALLIANCE INTERNATIONAL PORTFOLIOS
Ronald L. Simcoe has been the person principally responsible for the Alliance
Global Portfolio's investment program since 1988 and the Alliance
International Portfolio's investment program since its inception. Mr. Simcoe,
a Vice President of Alliance, has been associated with Alliance since 1978.*
ALLIANCE AGGRESSIVE STOCK PORTFOLIO
Alden M. Stewart and Randall E. Haase have been the persons principally
responsible for the Alliance 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.*
ALLIANCE SMALL CAP GROWTH PORTFOLIO
Michael F. Gaffney has been the person principally responsible for the
Alliance Small Cap Growth Portfolio's investment program since its inception.
Mr. Gaffney, a Senior Vice President of Alliance, has been associated with
Alliance since 1987.*
THE FIXED INCOME SERIES
ALLIANCE MONEY MARKET PORTFOLIO
Raymond J. Papera has been the person principally responsible for the
Alliance Money Market Portfolio's investment program since 1990. Mr. Papera,
a Vice President of Alliance, has been associated with Alliance since 1990.*
ALLIANCE INTERMEDIATE GOVERNMENT SECURITIES PORTFOLIO
Patricia J. Young and Jeffrey S. Phlegar have been the persons principally
responsible for the Alliance Intermediate Government Securities Portfolio's
investment program, Ms. Young since 1995 and Mr. Phlegar since 1997. Ms.
Young, a Senior Vice President of Alliance, has been associated with Alliance
since 1992. Mr. Phlegar, a Vice President of Alliance, has been associated
with Alliance since 1988.
ALLIANCE QUALITY BOND PORTFOLIO
Matthew Bloom has been the person principally responsible for the Alliance
Quality Bond Portfolio's investment program since 1995. Mr. Bloom, a Vice
President of Alliance, has been associated with Alliance since 1989.
26
<PAGE>
ALLIANCE HIGH YIELD PORTFOLIO
Wayne C. Tappe has been the person principally responsible for the Alliance
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 pays all of its operating expenses not specifically assumed by
Alliance. The expenses borne by the Trust include or could include taxes;
brokerage commissions; interest charges; securities lending fees; fees and
expenses of the registration or qualification of a Portfolio's securities
under federal or state securities laws; fees of the Portfolio's custodian,
transfer agent, independent accountants and legal counsel; all expenses of
shareholders' and trustees' meetings; all expenses of the preparation,
typesetting, printing and mailing to existing shareholders of prospectuses,
prospectus supplements, statements of additional information, proxy
statements, and annual and semi-annual reports; any proxy solicitor's fees
and expenses; costs of fidelity bonds and Trustees' liability insurance
premiums as well as extraordinary expenses such as indemnification payments
or damages awarded in litigation or settlements made; any membership fees of
the Investment Company Institute and similar organizations; costs of
maintaining the Trust's corporate existence and the compensation of Trustees
who are not directors, officers, or employees of Alliance or its affiliates.
The following table, reflecting the Trust's estimated expenses, is based on
information for Class IA shares the year ended December 31, 1996 and has been
restated to reflect (i) the fees that would have been paid to Alliance if the
present advisory agreement had been in effect as of January 1, 1996 and (ii)
estimated accounting expenses for the year ended December 31, 1997. No
information has been provided with respect to Alliance Small Cap Growth
Portfolio because such Portfolio has not yet completed its first fiscal year.
<TABLE>
<CAPTION>
ALLIANCE
ALLIANCE ALLIANCE GROWTH ALLIANCE ALLIANCE
CONSERVATIVE ALLIANCE GROWTH AND EQUITY COMMON
INVESTORS BALANCED INVESTORS INCOME INDEX STOCK
TYPE OF EXPENSE PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------------- -------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Investment Advisory Fees 0.48% 0.42% 0.53% 0.55% 0.33% 0.38%
12b-1 Fees ............... 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
Other Expenses ........... 0.07% 0.05% 0.06% 0.05% 0.05% 0.03%
-------------- ----------- ----------- ----------- ----------- -----------
Total Expenses ........... 0.80% 0.72% 0.84% 0.85% 0.63% 0.66%
============== =========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
ALLIANCE
ALLIANCE ALLIANCE INTERMEDIATE ALLIANCE ALLIANCE
ALLIANCE AGGRESSIVE MONEY GOVERNMENT QUALITY HIGH ALLIANCE
GLOBAL STOCK MARKET SECURITIES BOND YIELD INTERNATIONAL
TYPE OF EXPENSE PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------- ----------- ------------ ----------- -------------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment Advisory
Fees .............. 0.65% 0.55% 0.35% 0.50% 0.53% 0.60% 0.90%
12b-1 Fees ......... 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
Other Expenses ..... 0.08% 0.03% 0.04% 0.09% 0.05% 0.06% 0.18%
----------- ------------ ----------- -------------- ----------- ----------- ---------------
Total Expenses ..... 0.98% 0.83% 0.64% 0.84% 0.83% 0.91% 1.33%
=========== ============ =========== ============== =========== =========== ===============
</TABLE>
27
<PAGE>
Actual investment advisory fees, other expenses and total expenses for the
period ended December 31, 1996 were as follows:
<TABLE>
<CAPTION>
ALLIANCE
ALLIANCE ALLIANCE GROWTH ALLIANCE ALLIANCE
CONSERVATIVE ALLIANCE GROWTH AND EQUITY COMMON
INVESTORS BALANCED INVESTORS INCOME INDEX STOCK
TYPE OF EXPENSE PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------------- -------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Investment Advisory Fees 0.55% 0.37% 0.52% 0.55% 0.35% 0.36%
12b-1 Fees ............... 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
Other Expenses ........... 0.06% 0.04% 0.05% 0.03% 0.04% 0.02%
-------------- ----------- ----------- ----------- ----------- -----------
Total Expenses ........... 0.86% 0.66% 0.82% 0.83% 0.64% 0.63%
============== =========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
ALLIANCE
ALLIANCE ALLIANCE INTERMEDIATE ALLIANCE ALLIANCE
ALLIANCE AGGRESSIVE MONEY GOVERNMENT QUALITY HIGH ALLIANCE
GLOBAL STOCK MARKET SECURITIES BOND YIELD INTERNATIONAL
TYPE OF EXPENSE PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------- ----------- ------------ ----------- -------------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment Advisory
Fees .............. 0.53% 0.46% 0.40% 0.50% 0.55% 0.55% 0.90%
12b-1 Fees ......... 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
Other Expenses ..... 0.07% 0.02% 0.03% 0.06% 0.04% 0.04% 0.16%
----------- ------------ ----------- -------------- ----------- ----------- ---------------
Total Expenses ..... 0.85% 0.73% 0.68% 0.81% 0.84% 0.84% 1.31%
=========== ============ =========== ============== =========== =========== ===============
</TABLE>
TRANSACTIONS WITH AFFILIATES
In December 1984, Equitable acquired Donaldson, Lufkin & Jenrette, Inc.
("DLJ"). A DLJ subsidiary, Donaldson, Lufkin & Jenrette Securities
Corporation, is one of the nation's largest investment banking and securities
firms. Another DLJ subsidiary, Autranet, Inc., is a securities broker that
markets independently originated research to institutions. Through the
Pershing Division of Donaldson, Lufkin & Jenrette Securities Corporation, DLJ
supplies security execution and clearance services to financial
intermediaries including broker-dealers and banks. To the extent permitted by
law, the Trust may engage in securities and other transactions with the above
entities or may invest in shares of the investment companies with which those
entities have affiliations. The Investment Company Act generally prohibits
the Trust from engaging in securities transactions with DLJ or its
affiliates, as principal, unless pursuant to an exemptive order from the SEC.
The Trust may apply for such exemptive relief. The Trust has adopted
procedures, prescribed by Section 17(e)(2)(A) of the Investment Company Act
and Rule 17e-1 thereunder, which are reasonably designed to provide that any
commissions it pays to DLJ or its affiliates do not exceed the usual and
customary broker's commission. In addition, the Trust will adhere to Section
11(a) of the Securities Exchange Act of 1934 and any applicable rules
thereunder governing floor trading. The Trust has adopted procedures
permitting it to purchase securities, under certain restrictions prescribed
by an SEC rule, in a public offering in which DLJ or an affiliate is an
underwriter.
DESCRIPTION OF THE TRUST'S SHARES
CHARACTERISTICS
The Board of Trustees has authority to issue an unlimited number of shares of
beneficial interest, without par value. The Trust is divided into fourteen
portfolios, each of which has Class IA and Class IB 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 on which
such shares (or class of shares) shall be entitled to vote. Shareholders of
each Portfolio 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 Investment Company Act,
28
<PAGE>
or any successor rule, and in the Trust's Agreement and 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 equal pro rata interests in the assets of 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 arrangements; (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,
although exchange privileges are not currently contemplated; 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 are currently limited to payments to the Distributor pursuant to the
Distribution Plan for Class IB shares.
PURCHASE AND REDEMPTION
Class IB 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 purchase 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 for its Class IB shares 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.
The Trust has adopted the Distribution Plan pursuant to Rule 12b-1 under the
Investment Company Act for the Class IB shares of the Trust. Pursuant to the
Distribution Plan, the Trust compensates the Distributor from assets
attributable to the Class IB shares for services rendered and expenses borne
in connection with activities primarily intended to result in the sale of
Trust's Class IB shares. It is anticipated that a 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 with
wholesale and retail sales personnel designed to promote the distribution of
Class IB shares. The Distributor may also use a 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 IB shares.
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 IB shares in respect of activities primarily
intended to result in the sale of Class IB shares. However, under the
distribution agreement payments to the Distributor for activities pursuant to
the Distribution Plan are limited to payments at an annual rate equal to
0.25% of average daily net assets of a Portfolio attributable to its Class IB
shares. 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 IB 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 with respect to Class IB
shares 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 Distribution Plan and in connection with their
annual consideration of the Plan's
29
<PAGE>
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 prospective Contract owners with respect to the
Class IB shares of the Trust; (b) those relating to the development,
preparation, printing and mailing of advertisements, sales literature and
other promotional materials describing and/or relating to the Class IB shares
of the Trust; (c) holding seminars and sales meetings designed to promote the
distribution of the Trust Class IB shares; (d) obtaining information and
providing explanations to wholesale and retail distributors of Contracts
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 Class IB shares of the
Trust; and (f) financing any other activity that the Distributor determines
is primarily intended to result in the sale of Class IB shares.
All shares may redeemed in accordance with the Trust's Agreement and
Declaration of Trust and By-Laws. Class IB 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 Alliance
Money Market Portfolio which mature in 60 days or less are valued at
amortized cost, which approximates market value. Securities held in the
Alliance Money Market Portfolio are valued at prices based on equivalent
yields or yield spreads.
o Other securities and assets for which market quotations are not readily
available or for which valuation cannot be provided are valued in good
faith by the Valuation Committee of the Board of Trustees using its best
judgment.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Under current federal income tax law, the Trust believes that each Portfolio
is entitled, and the Trust intends that each Portfolio shall qualify each
year and elect, to be treated as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "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 Portfolios.
30
<PAGE>
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 Alliance 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 Alliance 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 Alliance Intermediate Government Securities, Alliance Quality Bond and
Alliance 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.
31
<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>
THE HUDSON RIVER TRUST
1345 Avenue of the Americas -- New York, New York 10105
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1997, AS REVISED OCTOBER 31, 1997
This Statement of Additional Information is not a prospectus. It should be
read in conjunction with The Hudson River Trust ("Trust") Prospectus dated
May 1, 1997, as revised October 31, 1997 relating to Class IA shares and
retained for future reference. This Statement of Additional Information
relates to the Trust's Class IA shares. A separate Statement of Additional
Information relates to the Trust's Class IB 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 ... 7
Management of the Trust................................................. 21
Investment Advisory and Other Services.................................. 25
Brokerage Allocation.................................................... 28
Trust Expenses and Other Charges........................................ 29
Purchase and Pricing of Securities...................................... 30
Certain Tax Considerations.............................................. 31
Portfolio Performance................................................... 32
Other Services.......................................................... 35
Description of Commercial Paper Ratings................................. 36
Financial Statements ................................................... 36
</TABLE>
- -----------------------------------------------------------------------------
HRT-SAI (5/97) Copyright 1997. 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 reorganized as a
Massachusetts business trust. Shares of each Portfolio are divided into two
classes: Class IA shares and Class IB shares. Class IA shares are offered at
net asset value pursuant to this Statement of Additional Information and a
related prospectus and are not subject to fees imposed under any distribution
plan. Class IB shares are offered at net asset value pursuant to a separate
Statement of Additional Information and related prospectus 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. Prior to
October 1, 1996, the Trust offered only Class IA shares.
The two classes of shares are offered under the Trust's multiple class
distribution system approved by the Trust's Board of Trustees on June 7, 1996
and are designed to allow promotion of insurance products that invest 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 the assets of that Portfolio and, generally, have
identical voting, dividend, liquidation, and other rights, other than with
respect to the payment of distribution fees under the Distribution Plan.
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 of Class IA shares are separate accounts
of The Equitable Life Assurance Society of the United States ("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, regardless of whether they are affiliated with
Equitable. As of September 30, 1997, Equitable owned approximately 99.7% of
the Trust's outstanding Class IA shares and all of the Trust's outstanding
Class IB shares and, as a result, may be deemed to control the Trust.
As a "series" investment company, 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 Alliance Common Stock and Alliance
Money Market Portfolios are the successors to Separate Accounts I and II of
Equitable Variable Life Insurance Company, formerly a wholly owned subsidiary
of Equitable that was merged into Equitable as of January 1, 1997 ("Equitable
Variable"). (See "Description of Reorganization and Other Matters"). The
Alliance Balanced and Alliance Aggressive Stock Portfolios received their
initial funding on January 27, 1986 from Equitable Variable. The Alliance
High Yield Portfolio received its initial funding on January 2, 1987. The
Alliance Global Portfolio received its initial funding on August 27, 1987.
The Alliance Conservative Investors and Alliance Growth Investors Portfolios
received their initial funding on October 2, 1989. The Alliance Intermediate
Government Securities Portfolio received its initial funding on April 1,
1991. The Alliance Quality Bond and Alliance Growth and Income Portfolios
received their initial funding on October 1, 1993. The Alliance Equity Index
Portfolio received its initial funding on March 1, 1994. The Alliance
International Portfolio received its initial funding on April 3, 1995. The
Alliance Small Cap Growth Portfolio is expected to receive its initial
funding on May 1, 1997.
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 September 30, 1997,
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 either class of the outstanding shares of a Portfolio.
2
<PAGE>
CLASS IA
<TABLE>
<CAPTION>
ALLIANCE INTERMEDIATE
QUALITY BOND GLOBAL GOVERNMENT SECURITIES
PORTFOLIO PORTFOLIO PORTFOLIO
------------------------- ------------------------ ----------------------
UNITS % OF UNITS % OF UNITS % OF
OWNED PORTFOLIO OWNED PORTFOLIO OWNED PORTFOLIO
------------ ----------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Boston Safe Deposit and Trust Co.* 11,708,726 60.0
Equitable Realty Assets Corp. ..... 3,594,948 5.6
PNC Bank, N.A.** .................. 658,036 5.7
</TABLE>
- ------------
* Boston Safe Deposit and Trust Co., successor Trustee under Master Trust
Agreement for SBC Communication's, Inc. Deferred Compensation Plans and
other Executive Benefit Plans.
** PNC Bank, N.A. under Ashland Inc. Executive and Director Retirement
Benefit Security Trust.
CLASS IB
<TABLE>
<CAPTION>
ALLIANCE INTERMEDIATE ALLIANCE EQUITY ALLIANCE
GOVERNMENT SECURITIES INDEX INTERNATIONAL
PORTFOLIO PORTFOLIO PORTFOLIO
--------------------- -------------------- ---------------------
UNITS % OF UNITS % OF UNITS % OF
OWNED PORTFOLIO OWNED PORTFOLIO OWNED PORTFOLIO
-------- ----------- ------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
John V. Summers ...... 11,789 5.3
Thomas Lavelle
Wilson............... 15,785 7.1
Hilda M. Banks ....... 1,541 36.1
Betty A. Starkey .... 781 18.3
William R. Borowski . 318 7.4
Natalina Amici ....... 1,008 23.6
Albert J. Schiff .... 14,964 7.4
Gerald G. Gonyo....... 12,333 6.1
Nelson R. De Lara ... 13,652 6.7
</TABLE>
The principal addresses of Boston Safe Deposit and Trust Co., Equitable
Realty Assets Corp., PNC Bank, N.A., John V. Summers, Thomas Lavelle Wilson,
Hilda M. Banks, Betty A. Starkey, William R. Borowski, Natalina Amici, Albert
J. Schiff, Gerald G. Gonyo, and Nelson R. De Lara are 175 E. Houston St., San
Antonio, TX, 900 Park Avenue, Atlanta, GA, 100 Ashland Dr., Ashland, KY, 8206
Valley Forge, Houston, TX, 15 Paradise Dr., Henrico, NC, 1904 Crescent Dr.,
Champaign, IL, 34 Breesport Road, Horseheads, NY, RR 6, Fergus Falls, MN,
3202 Summerlyn Ct. #H, Greensboro, NC, 30 Stanwich Road, Greenwich, CT, 14
Springfield Road, E. Brunswick, NJ, 26 Glen Alpine Road, Phoenix, MD,
respectively.
Were such a substantial 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.
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. The Trust has agreed to be bound by the procedures
set forth in Section 16(c) of the Investment Company Act, and accordingly,
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.
3
<PAGE>
The shares of each Portfolio, when issued, will be fully paid and
non-assessable by the Trust 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.
At a meeting held on April 9, 1997, the shareholders of the Trust approved
the amendment and restatement of the Trust's Agreement and Declaration of
Trust. On April 16, 1997 the Agreement and Declaration of Trust was amended
and restated, and filed with the office of the Secretary of the Commonwealth
of Massachusetts.
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;
4
<PAGE>
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 Alliance 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 Alliance High Yield and Alliance
Intermediate Government Securities Portfolios. 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
holdings in that industry exceed 25% of the Portfolio's assets. However, this
restriction does not apply to investments by the Alliance 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 the collateral underlying the repurchase agreements consists
exclusively of U.S. Government securities and such repurchase agreements are
fully collateralized.
Further, as a matter of operating policy, the Alliance 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
Alliance 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
Alliance 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
its total assets, at the time a Second Tier Security is 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.
5
<PAGE>
None of the Portfolios will:
o invest more than 15% of its net 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 Alliance Global and Alliance International Portfolios may
trade in foreign exchange without limitation in connection with their
foreign currency hedging strategies; and the Alliance High Yield,
Alliance Quality Bond, Alliance Growth and Income, Alliance Conservative
Investors, Alliance Balanced, Alliance Common Stock, Alliance Aggressive
Stock, Alliance Growth Investors and Alliance Small Cap Growth
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 that the Portfolios (other than the Alliance 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 APPLICABLE TO THE ALLIANCE COMMON STOCK,
ALLIANCE BALANCED, ALLIANCE AGGRESSIVE STOCK AND ALLIANCE CONSERVATIVE
INVESTORS PORTFOLIOS
The Alliance Common Stock, Alliance Balanced, Alliance Aggressive Stock and
Alliance 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.
ADDITIONAL INVESTMENT RESTRICTIONS APPLICABLE TO THE ALLIANCE MONEY MARKET
PORTFOLIO
The Alliance 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.
6
<PAGE>
The Alliance 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 APPLICABLE TO THE ALLIANCE HIGH YIELD AND
ALLIANCE GROWTH INVESTORS PORTFOLIOS
The Alliance High Yield and Alliance 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 ("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 (A) 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 (B) 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 Alliance 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 debt instruments 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 the Portfolio's holding period.
Repurchase agreements may exhibit 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 U.S. Government obligations,
certificates of deposit, or bankers' acceptances with registered
broker-dealers, U.S. Government securities dealers or domestic banks whose
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% (10%, in the
case of the Alliance Money Market Portfolio) of the Portfolio's net assets
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.
7
<PAGE>
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 Alliance
considers 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
liquid assets 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 a 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, 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 that 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).
WARRANTS
All the Portfolios, except the Alliance 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 in parallel with 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 Alliance Intermediate Government Securities and
Alliance Equity Index Portfolios, may invest in foreign securities. Each of
the Alliance Common Stock, Alliance Balanced, Alliance Quality Bond, Alliance
Aggressive Stock and Alliance Small Cap Growth 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 Alliance
Money Market Portfolio may invest up to 20% of its assets in foreign money
market instruments denominated in U.S. dollars. The Alliance Conservative
Investors Portfolio may invest up to 15% of its assets in foreign securities,
the Alliance Growth Investors Portfolio
8
<PAGE>
may invest up to 30% of its assets in foreign securities, and the Alliance
Growth and Income Portfolio may invest up to 25% of its assets in foreign
securities. The Alliance High Yield Portfolio may purchase foreign
securities, provided the value of issues denominated in foreign currencies
shall not exceed 20% of the Portfolio's total assets and the value of issues
denominated in U.S. currency shall not exceed 25% of the Portfolio's total
assets.
No percentage limitation applies to investments in foreign securities by the
Alliance Global Portfolio or the Alliance International Portfolio.
Foreign securities involve currency risks. The value of a foreign security
denominated in a foreign currency changes with fluctuations in 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 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 Alliance 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
9
<PAGE>
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
mortgage-backed securities issued by the U.S. 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 Alliance 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 loan institutions, 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 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 Alliance 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. Alliance 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
10
<PAGE>
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 Alliance 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 retail installment loans, leases or revolving credit receivables
are subject to prepayment, which may reduce the overall return to certificate
holders. Certificate holders may also experience delays in payment on the
certificates if the full amounts due on underlying retail installment loans,
leases or revolving credit receivables are not realized by the Trust because
of unanticipated legal or administrative costs of enforcing the contracts,
retail installment loans, leases or revolving credit receivables, or because
of depreciation or damage to the collateral (usually automobiles) securing
certain contracts, retail installment loans, leases or revolving credit
receivables, 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 U.S. 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, 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.
11
<PAGE>
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
U.S. or foreign banks payable in U.S. 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
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 U.S. and
foreign banks are subject to 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.
U.S. 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 U.S. 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 Alliance High Yield Portfolio, as described in the Prospectus, intends to
invest primarily in debt securities offering high current income. The
Alliance Growth Investors Portfolio may invest up to 15% of its total assets
in such high yield debt securities, and the Alliance Growth and Income
Portfolio may invest
12
<PAGE>
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 Alliance. 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 risks associated with acquiring the securities of such issuers generally
are 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, 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 Alliance High Yield, Alliance Growth and Income and Alliance 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 exists, it may be 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 possible 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 securities 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 judgment, analysis and
13
<PAGE>
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 and quality of management, its sensitivity
to economic conditions and trends, its operating history 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 Alliance 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. Each Portfolio, other than the Alliance Money Market
and Alliance 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.
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.
14
<PAGE>
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 liquid
securities having a value equal to or greater than the exercise price of the
option.
The Portfolios, except the Alliance Money Market and Alliance 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 Alliance Money Market and
Alliance 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 purchased.
SECURITIES INDEX OPTIONS
The Portfolios, except the Alliance Money Market and Alliance 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 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 liquid securities 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 included in the index. For example, some securities index options
are based on a broad market index such as the S&P 500 or the New York Stock
Exchange ("NYSE") Composite Index, or a narrower market index such as the S&P
100.
15
<PAGE>
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; NYSE; 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. The
principal risk of purchasing securities index options 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.
The principal risk of writing securities index options 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 traded 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, in the
opinion of Alliance, 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 Portfolios
have established standards of creditworthiness for these primary dealers, the
Portfolios may still be subject to the risk that firms participating in such
transactions will fail to meet their obligations. With respect to agreements
concerning the over-the-counter options a Portfolio has written, the
Portfolio will 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 Alliance 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 Commodity Futures Trading Commission
("CFTC").
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
16
<PAGE>
currency futures contracts may be 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 Alliance Money Market, Alliance Equity Index and
Alliance Intermediate Government Securities 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 in 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 in part, by gains on futures
contracts purchased by a Portfolio. In order to achieve desired asset mix
parameters, the Alliance Conservative Investors and Alliance 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 Alliance
Conservative Investors and Alliance 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. In the case of the Alliance
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 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 futures contract 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
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 Alliance Money Market Portfolio, may
also purchase and write exchange-traded call and put options on futures
contracts it 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
17
<PAGE>
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 liquid securities 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 the
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 so long as the Portfolio is obligated as the writer of the
call, the Portfolio owns 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 futures margin 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.
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.
18
<PAGE>
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, except the Alliance
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 liquid assets 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 Alliance Money Market, Alliance Intermediate
Government Securities and Alliance Equity Index Portfolios, may purchase or
sell exchange-traded or over-the-counter foreign currency options, foreign
currency futures contracts 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 currencies or on foreign
currency futures contracts only if they are "covered." A put option 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 liquid assets equal at all times to the aggregate exercise price of
the put. A call option on a foreign currency or on a foreign currency futures
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.
Although the purchase of an option on foreign currency may constitute an
effective hedge against fluctuations in exchange rates in the event of
exchange rate movements adverse to the Portfolio's position it may forfeit
the entire amount of the premium plus related transaction costs.
19
<PAGE>
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, thus 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 foreign currency exchange rates.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
When a Portfolio invests in foreign securities, the securities are usually
denominated in a 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 U.S. dollar. To control
the effects of this exchange risk, all of the Portfolios, except the Alliance
Money Market, Alliance Equity Index and Alliance Intermediate Government
Securities 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 U.S. 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 U.S. dollar
value of securities it already owns ("position hedging"). The Portfolios will
not speculate in forward currency contracts.
In general, forward currency contracts are not regulated by any governmental
authority 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. The Portfolios will only enter
forward currency contracts with counter parties that, in the opinion of
Alliance, do not present undue credit risk.
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 involves
certain risks. A lack of correlation between the index or instrument
underlying an option or futures contract and the assets or liabilities 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 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. Accordingly a
Portfolio may be required to maintain a position until exercise or
expiration, which could result in losses. If in the event of an adverse
movement the Portfolio could not
20
<PAGE>
close a futures position, it would be required to continue to make daily cash
payments of variation margin. If a Portfolio could not close an option
position, an option holder would be able to realize profits or limit losses
only by exercising the 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 or offset 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 and/or securities price movements, as well as on the expense of
hedging.
MANAGEMENT OF THE TRUST
As of March 31, 1997, 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
<TABLE>
<CAPTION>
NAME, ADDRESS AND AGE PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- ------------------------------------- ----------------------------------------------------------------
<S> <C>
*John D. Carifa (52)................... President, Chief Operating Officer and a Director of ACMC;
Alliance Capital Management L.P. Chairman and Chief Executive Officer of Alliance's Mutual Fund
1345 Avenue of the Americas Division. Currently a Director and Trustee of all other
New York, NY 10105 registered investment companies (the "Alliance Mutual Funds")
sponsored by Alliance, and Director of Frontier Trust Company,
a subsidiary of Equitable.
Richard W. Couper (74)................ President Emeritus of the Woodrow Wilson National Fellowship
The Burke Library Foundation and President Emeritus of the New York Public
Hamilton College Library.
P.O. Box 345
Clinton, NY 13323-0345
Brenton W. Harries (69)............... 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)(67) ..... 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 (66)............... Retired. Former Group Senior Vice President of Operations of
45 Bonnie Way American Ultramar Limited until December 1986; President and
Allendale, NJ 07401 Chief Executive Officer of Tittston Petroleum, Inc., from
January 1978 to July 1985; Director of the East Jersey Railroad
and the Bayonne Terminal Warehouse from July 1978 to May 1983.
21
<PAGE>
NAME, ADDRESS AND AGE PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- ------------------------------------- ----------------------------------------------------------------
Alton G. Marshall (75)................ Senior Fellow, Nelson A. Rockefeller Institute of Government
136 E. 79th Street since January 1991. President of Alton G. Marshall Associates,
New York, NY 10021 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.
Clifford L. Michel (57)............... Partner of the law firm of Cahill Gordon & Reindel since January
St. Bernard's Road 1972. President, Chief Executive Officer and Director of Wenonah
Gladstone, NJ 07934 Development Company (investment holding company) since 1976.
Director since 1987 and Member of the Human Resources,
Environmental and Safety, and Executive Committees since 1987 of
Placer Dome Inc. (mining). Director, Faber-Castell Corporation
from 1988-1994 (writing instruments). President of Board of
Trustees of St. Mark's School from 1988 to 1993. Chairman of the
Board of Trustees of Morristown Memorial Hospital (and Memorial
Health Foundation) from 1991 to 1996. Director, Vice Chairman
and Treasurer of Atlantic Health Systems, Inc. and Atlantic
Hospital since 1996.
*Peter D. Noris (41)................... Executive Vice President (since May 1995) and Chief Investment
The Equitable Life Assurance Society Officer of Equitable (since July 1995); Executive Vice
of the United States President, The Equitable Companies Incorporated ("Equitable
787 Seventh Avenue Companies")(since May 1995); Director of Alliance Capital
New York, NY 10019 Management Corporation ("ACMC"), the general partner of
Alliance, since July 1995. Prior thereto, Vice President of
Salomon Brothers Inc., from 1992 to 1995. Principal of Morgan
Stanley & Co. Inc., from 1984 to 1992.
Donald J. Robinson (62)............... Senior Partner of the law firm of Orrick, Herrington & Sutcliffe
599 Lexington Avenue from July 1987 to December 1994; Member of the Executive
New York, NY 10022 Committee of the firm from January to December 1994; Senior
Counsel of the firm since January 1995. Trustee of the Museum of
the City of New York from 1977 to 1995.
</TABLE>
*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 and
director of ACMC and Alliance. 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 37 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.
Trustee Michel is a director or trustee (but not an "interested person") of
37 other mutual funds advised by Alliance. Trustee Hassler is a director (but
not an "interested person") of Alliance Real Estate Investment Fund, Inc.
22
<PAGE>
COMMITTEES OF THE BOARD
The Trust has a standing audit committee consisting of Trustees Mannion,
Couper, Harries, Hassler, Marshall, Michel and Robinson. 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 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, Michel
and Robinson. The conflicts committee's function is to take any action
necessary to resolve conflicts among shareholders.
TRUSTEE COMPENSATION TABLE
<TABLE>
<CAPTION>
TOTAL
PENSION OR COMPENSATION FROM
AGGREGATE RETIREMENT THE ALLIANCE FUND
COMPENSATION BENEFITS ACCRUED ESTIMATED ANNUAL COMPLEX,
FROM THE AS PART OF TRUST BENEFITS UPON INCLUDING THE
TRUSTEE TRUST EXPENSES RETIREMENT TRUST(1)
- ------------------ -------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C>
John D. Carifa $ -0- $-0- $-0- $ -0-
- ------------------ -------------- ---------------- ---------------- -----------------
Richard W. Couper $59,000(2) $-0- $-0- $ 85,000
- ------------------ -------------- ---------------- ---------------- -----------------
Brenton W. Harries $59,000 $-0- $-0- $ 86,000
- ------------------ -------------- ---------------- ---------------- -----------------
Howard E. Hassler $85,000 $-0- $-0- $ 86,750
- ------------------ -------------- ---------------- ---------------- -----------------
William L. Mannion $66,000(2) $-0- $-0- $ 66,000
- ------------------ -------------- ---------------- ---------------- -----------------
Alton G. Marshall $61,000 $-0- $-0- $134,500
- ------------------ -------------- ---------------- ---------------- -----------------
Clifford L. Michel $20,068(3) $-0- $-0- $146,068
- ------------------ -------------- ---------------- ---------------- -----------------
Peter D. Noris $ -0- $-0- $-0- $ -0-
- ------------------ -------------- ---------------- ---------------- -----------------
Donald J. Robinson $63,000(2) $-0- $-0- $137,250
- ------------------ -------------- ---------------- ---------------- -----------------
</TABLE>
- ------------
(1) As of December 31, 1996 there were 110 investment companies in the
Alliance Fund Complex.
(2) Completely deferred.
(3) Appointed as Trustee on October 16, 1996.
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, 1996, the Trust paid total retainer and
meeting fees of $413,068 (including deferrals of $188,000).
23
<PAGE>
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>
Mark D. Gersten (46) Treasurer and Chief Financial Senior Vice President, Alliance Fund Services, Inc.
Officer ("AFS"), with which he has been associated since
prior to 1991.
Thomas R. Manley (45) Controller and Chief Vice President, ACMC (May 1996 to present); Assistant
Accounting Officer Vice President, ACMC (July 1993 to May 1996); Assistant
Vice President, Equitable Capital Management
Corporation ("ECMC")(March 1991 to July 1993).
Bruce Calvert (50) Vice President Vice Chairman and Chief Investment Officer of ACMC,
with which he has been associated since prior to
1991.
Kathleen A. Corbet (37) 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 (52) 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).
Wayne D. Lyski (55) 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 (50) Vice President Senior Vice President, Equitable (June 1985 to
present); Chairman, EQF (May 1992 to present); Chief
Executive Officer, EQF (January 1994 to present);
formerly, Vice President, Equitable Variable (May
1996 to December 1996); Chairman and Chief Executive
Officer, EquiSource of New York (January 1992 to
October 1994) and Frontier (April 1992 to October
1994); Vice President and Treasurer, Equitable
Distributors, Inc. (August 1993 to February 1995).
Director of several Equitable-affiliated companies.
Samuel B. Shlesinger (50) Vice President Senior Vice President, Equitable (November 1986 to
present); Senior Vice President, Equitable Variable
(February 1988 to December 1996); President and Chief
Executive Officer, Equitable of Colorado (October
1985 to present).
Alden M. Stewart (51) Vice President Executive Vice President, ACMC (July 1993 to present);
ECMC since prior to 1991.
Edmund P. Bergan, Jr. (46) Secretary Senior Vice President and General Counsel, AFD, with
which he has been associated since prior to 1991.
</TABLE>
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. Alliance's principal executive officer is Dave H.
Williams, its Chairman and Chief Executive Officer.
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 December 31, 1996, ACMC, Inc. and Equitable Capital
Management Corporation, each a wholly-owned direct or indirect subsidiary of
Equitable, owned in the aggregate approximately 57% of the issued and
outstanding units representing assignments of beneficial ownership of limited
partnership interests in the Adviser ("Units"), and approximately 33% and 10%
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. The principal offices of Alliance and ACMC are
located at 1345 Avenue of the Americas, New York, New York 10105.
25
<PAGE>
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 and 1290 Avenue of the Americas, New York, New York 10019,
respectively.
AXA, a French insurance holding company, currently owns approximately 63.9%
of the outstanding voting shares of common stock of The Equitable Companies.
As a majority shareholder of 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 holding
company for an international group of insurance and related financial
services companies. AXA is the eleventh largest insurance group in the world
based on the worldwide revenues in 1994 and the second largest French
insurance group based on worldwide gross premiums in 1994. AXA is also
engaged in asset management, investment banking, securities trading and
financial services activities principally in the United States, as well as in
Western Europe and the Asia Pacific area.
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.
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 NEXT NEXT NEXT
$750 MILLION $750 MILLION $1 BILLION $2.5 BILLION THEREAFTER
-------------- -------------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C>
Alliance Conservative Investors .475% .425% .375% .350% .325%
Alliance Balanced ............... .450% .400% .350% .325% .300%
Alliance Growth Investors ...... .550% .500% .450% .425% .400%
Alliance Common Stock ........... .475% .425% .375% .355% .345%*
Alliance Global ................. .675% .600% .550% .530% .520%
Alliance Aggressive Stock ...... .625% .575% .525% .500% .475%
Alliance Small Cap Growth ...... .900% .850% .825% .800% .775%
Alliance Money Market ........... .350% .325% .300% .280% .270%
Alliance Intermediate Government
Securities ..................... .500% .475% .450% .430% .420%
Alliance High Yield ............. .600% .575% .550% .530% .520%
Alliance Growth and Income ..... .550% .525% .500% .480% .470%
Alliance Quality Bond ........... .525% .500% .475% .455% .445%
Alliance Equity Index ........... .325% .300% .275% .255% .245%
Alliance International .......... .900% .825% .800% .780% .770%
</TABLE>
- ------------
* On assets in excess of $10 billion, the management fee for the Alliance
Common Stock Portfolio is reduced to 0.335% of average daily net assets.
Because of undertakings made by Equitable Variable in connection with the
Reorganization, Equitable reimburses the Alliance Common Stock and Alliance
Money Market Divisions of its Continuing Separate
26
<PAGE>
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 reimburses the Alliance High
Yield, Alliance Aggressive Stock and Alliance 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 Alliance Common Stock, Alliance Money
Market and Alliance 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 Alliance Aggressive Stock Division for
the portion that exceeds a .41% effective rate. Policies sold by insurers
other than Equitable and newer policy designs of Equitable bear the advisory
fees without adjustment. For a discussion of the Reorganization, see "General
Information," above.
In 1996, the Trust paid advisory fees of $59,901,466 to Alliance. 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.
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 Agreement and
Declaration of Trust, By-laws, Prospectus and Statement of Additional
Information 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.
At the Trust's request, Alliance provides, without charge, personnel, who may
be the Trust's officers, to render such clerical, administrative and other
services, other than investor services or accounting services, to the Trust
and also furnishes to the Trust, without charge, such office facilities,
which may be Alliance's own offices, as may be required to perform its
investment advisory and portfolio management services. 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 and certain other
unaffiliated insurance companies. There are occasions on which transactions
for the Trust may be
27
<PAGE>
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.
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.
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
28
<PAGE>
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 Alliance 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 Alliance 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 Alliance Money Market Portfolio transactions will generally
be with issuers or market makers where no commissions are charged. 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. In 1996 the Trust paid an aggregate
of $27,895,553 in brokerage commissions of which $25,576,822 was paid to
brokers relating to transactions aggregating $12,956,909,742 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, 1994 and December 31, 1995, the Trust paid no brokerage commissions to
DLJ, and during the fiscal year ended December 31, 1996, the Trust paid
$2,500 to Autranet, Inc., an affiliate of DLJ, in accordance with the
procedures described above.
TRUST EXPENSES AND OTHER CHARGES
Pursuant to the Trust's Investment Advisory Agreement, the Trust is obligated
to pay all of its operating expenses not specifically assumed by Alliance. In
addition, as principal underwriter of the Trust's Class IA shares, EQ
Financial Consultants, Inc. ("EQ Financial") will bear the Trust's marketing
expenses. A daily adjustment will be made in the values under certain
Contracts outstanding and offered by Equitable and Equitable Variable when
the management separate accounts of Equitable and Equitable Variable 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 bear such expenses without adjustment. Although Equitable does
not expect the Trust to incur any federal income or excise tax liability (see
"Dividends, Distributions and Taxes" in the Prospectus), Equitable reserves
the right to exclude any such taxes from such adjustments.
The expenses borne by the Trust include or could include taxes; brokerage
commissions; interest charges; securities lending fees; fees and expenses of
the registration or qualification of a Portfolio's securities under federal
or state securities laws; fees of the Portfolio's custodian, transfer agent,
independent accountants, and legal counsel; all expenses of shareholders' and
trustees' meetings; all expenses of the preparation, typesetting, printing
and mailing to existing shareholders of prospectuses, prospectus supplements,
statements of additional information, proxy statements, and annual and
semi-annual reports; any proxy solicitor's fees and expenses; costs of
fidelity bonds and Trustees; liability insurance premiums as well as
extraordinary expenses such as indemnification payments or damages awarded in
litigation or settlements made; any membership fees of the Investment Company
Institute and similar organizations; costs of maintaining the Trust's
corporate existence and the compensation of Trustees who are not directors,
officers, or employees of Alliance or its affiliates.
29
<PAGE>
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
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 NYSE 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. (Eastern time) close respectively of the NYSE and the
Options Price Reporting Authority; for bonds the close of trading 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 generally 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.
30
<PAGE>
o Short-term debt securities held by 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 held by 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.
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 for assistance in valuing the assets of the Trust. Alliance
will continuously monitor the performance of such pricing 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, as amended (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.
31
<PAGE>
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 in such stock, securities or currencies. In addition, until the
start of a Portfolio's first tax year beginning after August 5, 1997, 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 certain assets
including stock or securities, held for less than three months. 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 minus
all 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 U.S. 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
ALLIANCE MONEY MARKET PORTFOLIO YIELD
The Alliance 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 Alliance Money Market
Portfolio as well as the value of additional shares purchased with dividends
from the original shares and any additional shares.
32
<PAGE>
The effective yield is obtained by adjusting the current yield to give effect
to the compounding nature of the Alliance 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.
Alliance 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 Alliance Money Market Portfolio, maturities and rates of return on
investments, among other factors. In addition, the value of shares of the
Alliance Money Market Portfolio will fluctuate and not remain constant.
The Alliance 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 Alliance
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 Alliance Money Market Portfolio yield also does not reflect insurance
company charges and fees applicable to Contracts.
The seven-day current yield for Class IA shares of the Money Market Portfolio
was 5.18% for the period ended December 31, 1996. The effective yield for
that period was 5.27%.
ALLIANCE QUALITY BOND, ALLIANCE INTERMEDIATE GOVERNMENT SECURITIES AND
ALLIANCE HIGH YIELD PORTFOLIO YIELDS
Yields of the Alliance Quality Bond, Alliance Intermediate Government
Securities and Alliance 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 Class IA shares of the Alliance Quality Bond, Alliance
Intermediate Government Securities and Alliance High Yield Portfolios for the
period ended December 31, 1996 were 5.94%, 5.60% and 10.65%, 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
33
<PAGE>
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. These total returns do not reflect insurance company charges
and fees applicable to the Contracts.
The average annual total returns through December 31, 1996 for Class IA
shares of the Alliance Common Stock Portfolio for one year, five years, and
10 years were 24.28%, 15.72%, and 15.83%, respectively.
The average annual total returns through December 31, 1996 for Class IA
shares of the Alliance Intermediate Government Securities Portfolio for one
year, five years, and since inception (on April 1, 1991) were 3.78%, 5.60%,
and 6.95%, respectively.
The average annual total returns through December 31, 1996 for Class IA
shares of the Alliance High Yield Portfolio for one year, five years, and
since inception (on January 2, 1987) were 22.89%, 14.66%, and 11.41%,
respectively.
The average annual total returns through December 31, 1996 for Class IA
shares of the Alliance Balanced Portfolio for one year, five years, and ten
years were 11.68%, 6.06%, and 10.38%, respectively.
The average annual total returns through December 31, 1996 for Class IA
shares of the Alliance Global Portfolio for one year, five years, and since
inception (on August 27, 1987) were 14.60%, 13.50%, and 11.70%, respectively.
The average annual total returns through December 31, 1996 for Class IA
shares of the Alliance Aggressive Stock Portfolio for one year, five years,
and ten years were 22.20%, 11.83%, and 18.60%, respectively.
The average annual total returns through December 31, 1996 for Class IA
shares of the Alliance Conservative Investors Portfolio for one year, five
years, and since inception (on October 2, 1989) were 5.21%, 7.32%, and 9.03%,
respectively.
The average annual total returns through December 31, 1996 for Class IA
shares of the Alliance Growth Investors Portfolio for one year, five years,
and since inception (on October 2, 1989) were 12.61%, 10.76%, and 15.57%,
respectively.
The average annual total returns through December 31, 1996 for Class IA
shares of the Alliance Quality Bond Portfolio for one year and since
inception (on October 1, 1993) were 5.36% and 4.79%, respectively.
The average annual total returns through December 31, 1996 for Class IA
shares of the Alliance Growth and Income Portfolio for one year and since
inception (on October 1, 1993) were 20.09% and 12.77%, respectively.
The average annual total return through December 31, 1996 for Class IA shares
of the Alliance Equity Index Portfolio for one year and since inception (on
March 1, 1994) was 22.39% and 20.25%, respectively.
The average annual total return through December 31, 1996 for Class IA shares
of the Alliance International Portfolio for one year and since inception
(April 3, 1995) was 9.82% and 12.14%, respectively.
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
34
<PAGE>
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 returns, since the inception of each Portfolio through
December 31, 1996, for Class IA shares of the Alliance Common Stock, Alliance
Intermediate Government Securities, Alliance High Yield, Alliance Balanced,
Alliance Global, Alliance Aggressive Stock, Alliance Conservative Investors,
Alliance Growth Investors, Alliance Quality Bond, Alliance Growth and Income,
Alliance Equity Index and Alliance International Portfolios were 1,849.35%,
47.19%, 194.62%, 246.66%, 181.40%, 648.20%, 87.12%, 185.55%, 16.42%, 47.77%,
68.84% and 22.21%, respectively. These total returns do not reflect insurance
company charges and fees applicable to the Contracts.
OTHER SERVICES
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP, 1177 Avenue of the Americas, New York, New York 10036,
serves as the Trust's independent accountants. The financial statements of
the Alliance Common Stock, Alliance Money Market, Alliance Balanced, Alliance
Aggressive Stock, Alliance High Yield, Alliance Global, Alliance Conservative
Investors, Alliance Growth Investors, Alliance Intermediate Government
Securities, Alliance Quality Bond, Alliance Growth and Income, Alliance
Equity Index and Alliance International Portfolios for the year ended
December 31, 1996, which are included in this SAI, have been audited by Price
Waterhouse LLP, the Trust's independent accountants 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, 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, 1996, Equitable received no
compensation for providing such services for the Trust.
UNDERWRITER
EQ Financial, a wholly-owned subsidiary of Equitable, serves, without
compensation from the Trust, as the principal underwriter of the Class IA
shares of the Trust, pursuant to an agreement with the Trust. Under the terms
of the agreement, EQ Financial is not obligated to sell any specific number
of shares. It has authority, pursuant to the agreement, to enter into similar
contracts with other insurance companies and with other entities registered
as broker-dealers under the Securities Exchange Act of 1934.
As principal underwriter, EQ Financial bears the Trust's marketing expenses.
However, EQ Financial expects to be reimbursed for the portion of expenses
attributable to the marketing of other insurance companies' products by such
insurance companies. EQ Financial has entered into sales agreements with
Equitable and each unaffiliated insurer under which shares of the Trust are
made available for the investment of net considerations which are received
under variable insurance contracts and are allocated to their respective
separate accounts.
35
<PAGE>
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.
FINANCIAL STATEMENTS
The "Report of Independent Accountants" and the audited financial
statements of the Trust included in the Trust's annual report for the fiscal
year ended December 31, 1996, filed electronically on March 10, 1997 (File
No. 811-4185), the unaudited financial statements included in the Trust's
semi-annual report for the six-month period ended June 30, 1997, filed
electronically on August 27, 1997 (File No. 811-4185), and the financial
highlights included in Part A of this registration statement are incorporated
by reference into this SAI. The December 31, 1996 audited financial
statements incorporated by reference into this SAI and the financial
highlights included in Part A of this registration statement and incorporated
by reference into this SAI (other than financial highlights for the six-month
period ended June 30, 1997) have been so included and incorporated in
reliance upon the report of the independent accountants, given on their
authority as experts in auditing and accounting.
36
<PAGE>
THE HUDSON RIVER TRUST
1345 Avenue of the Americas -- New York, New York 10105
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1997, AS REVISED OCTOBER 31, 1997
This Statement of Additional Information is not a prospectus. It should be
read in conjunction with The Hudson River Trust ("Trust") Prospectus dated
May 1, 1997, as revised October 31, 1997 relating to Class IB shares and
retained for future reference. This Statement of Additional Information
relates to the Trust's Class IB shares. A separate Statement of Additional
Information relates to the Trust's Class IA 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 ... 7
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
Description of Commercial Paper Ratings................................. 39
Financial Statements ................................................... 39
</TABLE>
- -----------------------------------------------------------------------------
HRT-SAI (5/97) Copyright 1997. 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 reorganized as a
Massachusetts business trust. Shares of each Portfolio are divided into two
classes: Class IA shares and Class IB shares. Class IA shares are offered at
net asset value pursuant to a separate Statement of Additional Information
and a related prospectus and are not subject to fees imposed under any
distribution plan. Class IB shares are offered at net asset pursuant to this
Statement of Additional Information and a related prospectus 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. Prior
to October 1, 1996, the Trust offered only Class IA shares.
The two classes of shares are offered under the Trust's multiple class
distribution system approved by the Trust's Board of Trustees on June 7, 1996
and are designed to allow promotion of insurance products that invest 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 the assets of that Portfolio and, generally, have
identical voting, dividend, liquidation, and other rights, other than with
respect to the payment of distribution fees under the Distribution Plan.
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").
Class IB shares are sold only to an insurance company separate account of The
Equitable Life Assurance Society of the United States ("Equitable").
Currently, the Trust's shareholders of Class IA shares are 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,
regardless of whether they are affiliated with Equitable. As of September 30,
1997, Equitable owned approximately 99.7% of the Trust's outstanding Class IA
shares and all of the Trust's outstanding class IB shares and, as a result,
may be deemed to control the Trust.
As a "series" investment company, 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 Alliance Common Stock and Alliance
Money Market Portfolios are the successors to Separate Accounts I and II of
Equitable Variable Life Insurance Company, formerly a wholly owned subsidiary
of Equitable that was merged into Equitable as of January 1, 1997 ("Equitable
Variable"). (See "Description of Reorganization and Other Matters"). The
Alliance Balanced and Alliance Aggressive Stock Portfolios received their
initial funding on January 27, 1986 from Equitable Variable. The Alliance
High Yield Portfolio received its initial funding on January 2, 1987. The
Alliance Global Portfolio received its initial funding on August 27, 1987.
The Alliance Conservative Investors and Alliance Growth Investors Portfolios
received their initial funding on October 2, 1989. The Alliance Intermediate
Government Securities Portfolio received its initial funding on April 1,
1991. The Alliance Quality Bond and Alliance Growth and Income Portfolios
received their initial funding on October 1, 1993. The Alliance Equity Index
Portfolio received its initial funding on March 1, 1994. The Alliance
International Portfolio received its initial funding on April 3, 1995. The
Alliance Small Cap Portfolio is expected to receive its initial funding on
May 1, 1997.
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 September 30, 1997,
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 either class of the outstanding shares of a Portfolio.
2
<PAGE>
CLASS IA
<TABLE>
<CAPTION>
ALLIANCE INTERMEDIATE
QUALITY BOND GLOBAL GOVERNMENT SECURITIES
PORTFOLIO PORTFOLIO PORTFOLIO
------------------------- ------------------------ ----------------------
UNITS % OF UNITS % OF UNITS % OF
OWNED PORTFOLIO OWNED PORTFOLIO OWNED PORTFOLIO
------------ ----------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Boston Safe Deposit and Trust Co.* 11,708,726 60.0
Equitable Realty Assets Corp. ..... 3,594,948 5.6
PNC Bank, N.A.** .................. 658,036 5.7
</TABLE>
- ------------
* Boston Safe Deposit and Trust Co., successor Trustee under Master Trust
Agreement for SBC Communication's, Inc. Deferred Compensation Plans and
other Executive Benefit Plans.
** PNC Bank, N.A. under Ashland Inc. Executive and Director Retirement
Benefit Security Trust.
CLASS IB
<TABLE>
<CAPTION>
ALLIANCE INTERMEDIATE ALLIANCE EQUITY ALLIANCE
GOVERNMENT SECURITIES INDEX INTERNATIONAL
PORTFOLIO PORTFOLIO PORTFOLIO
--------------------- -------------------- ---------------------
UNITS % OF UNITS % OF UNITS % OF
OWNED PORTFOLIO OWNED PORTFOLIO OWNED PORTFOLIO
-------- ----------- ------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
John V. Summers ...... 11,789 5.3
Thomas Lavelle
Wilson............... 15,785 7.1
Hilda M. Banks ....... 1,541 36.1
Betty A. Starkey .... 781 18.3
William R. Borowski . 318 7.4
Natalina Amici ....... 1,008 23.6
Albert J. Schiff .... 14,964 7.4
Gerald G. Gonyo....... 12,333 6.1
Nelson R. De Lara ... 13,652 6.7
</TABLE>
The principal addresses of Boston Safe Deposit and Trust Co., Equitable
Realty Assets Corp., PNC Bank, N.A., John V. Summers, Thomas Lavelle Wilson,
Hilda M. Banks, Betty A. Starkey, William R. Borowski, Natalina Amici, Albert
J. Schiff, Gerald G. Gonyo, and Nelson R. De Lara are 175 E. Houston St., San
Antonio, TX, 900 Park Avenue, Atlanta, GA, 100 Ashland Dr., Ashland, KY, 8206
Valley Forge, Houston, TX, 15 Paradise Dr., Henrico, NC, 1904 Crescent Dr.,
Champaign, IL, 34 Breesport Road, Horseheads, NY, RR 6, Fergus Falls, MN,
3202 Summerlyn Ct. #H, Greensboro, NC, 30 Stanwich Road, Greenwich, CT, 14
Springfield Road, E. Brunswick, NJ, 26 Glen Alpine Road, Phoenix, MD,
respectively.
Were such a substantial 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.
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. The Trust has agreed to be bound by the procedures
set forth in Section 16(c) of the Investment Company Act, and accordingly,
shareholders of record of not less than two-thirds of the outstanding shares
of the Trust (including both Class IA and Class IB shares) 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.
3
<PAGE>
The shares of each Portfolio, when issued, will be fully paid and
non-assessable by the Trust 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.
At a meeting held on April 9, 1997, the shareholders of the Trust approved
the amendment and restatement of the Trust's Agreement and Declaration of
Trust. On April 16, 1997 the Agreement and Declaration of Trust was amended
and restated, and filed with the office of the Secretary of the Commonwealth
of Massachusetts.
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;
4
<PAGE>
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 Alliance 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 Alliance High Yield and Alliance
Intermediate Government Securities Portfolios. 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
holdings in that industry exceed 25% of the Portfolio's assets. However, this
restriction does not apply to investments by the Alliance 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 the collateral underlying the repurchase agreements consists
exclusively of U.S. Government securities and such repurchase agreements are
fully collateralized.
Further, as a matter of operating policy, the Alliance 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
Alliance 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
Alliance 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
its total assets, at the time a Second Tier Security is 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 net assets in securities restricted as to
disposition under Federal securities laws, or securities otherwise
considered illiquid or not readily marketable, including
5
<PAGE>
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 Alliance Global and Alliance International Portfolios may
trade in foreign exchange without limitation in connection with their
foreign currency hedging strategies; and the Alliance High Yield,
Alliance Quality Bond, Alliance Growth and Income, Alliance Conservative
Investors, Alliance Balanced, Alliance Common Stock, Alliance Aggressive
Stock, Alliance Growth Investors and Alliance Small Cap Growth
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 that the Portfolios (other than the Alliance 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 APPLICABLE TO THE ALLIANCE COMMON STOCK,
ALLIANCE BALANCED, ALLIANCE AGGRESSIVE STOCK AND ALLIANCE CONSERVATIVE
INVESTORS PORTFOLIOS
The Alliance Common Stock, Alliance Balanced, Alliance Aggressive Stock and
Alliance 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.
ADDITIONAL INVESTMENT RESTRICTIONS APPLICABLE TO THE ALLIANCE MONEY MARKET
PORTFOLIO
The Alliance 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 Alliance 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.
6
<PAGE>
ADDITIONAL INVESTMENT RESTRICTION APPLICABLE TO THE ALLIANCE HIGH YIELD AND
ALLIANCE GROWTH INVESTORS PORTFOLIOS
The Alliance High Yield and Alliance 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 ("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 (A) 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 (B) 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 Alliance 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 debt instruments 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 the Portfolio's holding period.
Repurchase agreements may exhibit 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 U.S. Government obligations,
certificates of deposit, or bankers' acceptances with registered
broker-dealers, U.S. Government securities dealers or domestic banks whose
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% (10%, in the
case of the Alliance Money Market Portfolio) of the Portfolio's net assets
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 Alliance
considers 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
7
<PAGE>
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
liquid assets 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 a 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, 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 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).
WARRANTS
All the Portfolios, except the Alliance 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 in parallel with 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 Alliance Intermediate Government Securities and
Alliance Equity Index Portfolios, may invest in foreign securities. Each of
the Alliance Common Stock, Alliance Balanced, Alliance Quality Bond, Alliance
Aggressive Stock and Alliance Small Cap Growth 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 Alliance
Money Market Portfolio may invest up to 20% of its assets in foreign money
market instruments denominated in U.S. dollars. The Alliance Conservative
Investors Portfolio may invest up to 15% of its assets in foreign securities,
the Alliance Growth Investors Portfolio may invest up to 30% of its assets in
foreign securities, and the Alliance Growth and Income Portfolio may invest
up to 25% of its assets in foreign securities. The Alliance High Yield
Portfolio may purchase foreign securities, provided the value of issues
denominated in foreign currencies shall not exceed 20% of the Portfolio's
total assets and the value of issues denominated in U.S. 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.
8
<PAGE>
Foreign securities involve currency risks. The value of a foreign security
denominated in a foreign currency changes with fluctuations in 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 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 Alliance 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
mortgage-backed securities issued by the U.S. 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 Alliance 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"),
9
<PAGE>
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 loan institutions, 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 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 Alliance 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. Alliance 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 Alliance Equity Index Portfolio) may purchase
asset-backed securities (unrelated to first mortgage loans) that represent
fractional interests in pools of retail installment loans,
10
<PAGE>
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 retail installment loans, leases or revolving credit receivables
are subject to prepayment, which may reduce the overall return to certificate
holders. Certificate holders may also experience delays in payment on the
certificates if the full amounts due on underlying retail installment loans,
leases or revolving credit receivables are not realized by the Trust because
of unanticipated legal or administrative costs of enforcing the contracts,
retail installment loans, leases or revolving credit receivables or because
of depreciation or damage to the collateral (usually automobiles) securing
certain contracts, retail installment loans, leases or revolving credit
receivables 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 U.S. 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, 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.
11
<PAGE>
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
U.S. or foreign banks payable in U.S. 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
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 U.S. and
foreign banks are subject to 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.
U.S. 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 U.S. 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 Alliance High Yield Portfolio, as described in the Prospectus, intends to
invest primarily in debt securities offering high current income. The
Alliance Growth Investors Portfolio may invest up to 15% of its total assets
in such high yield debt securities, and the Alliance 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 Alliance 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 risks associated with acquiring the securities of such
12
<PAGE>
issuers generally are 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, 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 Alliance High Yield, Alliance Growth and Income and Alliance 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 exists, it may be 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 possible 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 securities 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 Alliance'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 and quality of management, its sensitivity to
economic conditions and trends, its operating history 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 Alliance Money Market
Portfolio, are authorized to engage in futures transactions. In general, the
13
<PAGE>
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. Each Portfolio, other than the Alliance Money Market
and Alliance 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.
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 liquid
securities having a value equal to or greater than the exercise price of the
option.
The Portfolios, except the Alliance Money Market and Alliance 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
14
<PAGE>
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 Alliance Money Market and
Alliance 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 purchased.
SECURITIES INDEX OPTIONS
The Portfolios, except the Alliance Money Market and Alliance 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 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 liquid securities 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 included in the index. For example, some securities index options
are based on a broad market index such as the S&P 500 or the New York Stock
Exchange ("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; NYSE; 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. The
principal risk of purchasing securities index options is that the premium and
15
<PAGE>
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.
The principal risk of writing securities index options 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 traded 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, in the
opinion of Alliance, 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 Portfolios
have established standards of creditworthiness for these primary dealers, the
Portfolios may still be subject to the risk that firms participating in such
transactions will fail to meet their obligations. With respect to agreements
concerning the over-the-counter options a Portfolio has written, the
Portfolio will 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 Alliance 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 Commodity Futures Trading Commission
("CFTC").
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 may be 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 Alliance Money Market, Alliance Equity Index and
Alliance Intermediate Government Securities 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 in 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
16
<PAGE>
or a decline in interest rates, may be offset, in whole or in part, by gains
on futures contracts purchased by a Portfolio. In order to achieve desired
asset mix parameters, the Alliance Conservative Investors and Alliance 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
Alliance Conservative Investors and Alliance 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. In the case of the
Alliance 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 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 futures contract 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
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 Alliance Money Market Portfolio, may
also purchase and write exchange-traded call and put options on futures
contracts 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 liquid securities 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 the 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 so long as the Portfolio is obligated as the
writer of the call, the Portfolio
17
<PAGE>
owns 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 futures margin 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.
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, except the Alliance
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
18
<PAGE>
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 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 Alliance Money Market, Alliance Intermediate
Government Securities and Alliance Equity Index Portfolios, may purchase or
sell exchange-traded or over-the-counter foreign currency options, foreign
currency futures contracts 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 currencies or on foreign
currency futures contracts only if they are "covered." A put option 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 liquid assets equal at all times to the aggregate exercise price of
the put. A call option on a foreign currency or on a foreign currency futures
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.
Although the purchase of an option on foreign currency may constitute an
effective hedge against fluctuations in exchange rates in the event of
exchange 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, thus 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.
19
<PAGE>
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 foreign currency exchange rates.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
When a Portfolio invests in foreign securities, the securities are usually
denominated in a 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 U.S. dollar. To control
the effects of this exchange risk, all of the Portfolios, except the Alliance
Money Market, Alliance Equity Index and Alliance Intermediate Government
Securities 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 U.S. 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 U.S. dollar
value of securities it already owns ("position hedging"). The Portfolios will
not speculate in forward currency contracts.
In general, forward currency contracts are not regulated by any governmental
authority 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. The Portfolios will only enter
forward currency contracts with counter parties that, in the opinion of
Alliance do not present undue credit risk.
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 involves
certain risks. A lack of correlation between the index or instrument
underlying an option or futures contract and the assets or liabilities 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 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. Accordingly, a
Portfolio may be required to maintain a position until exercise or
expiration, which could result in losses. If, in the event of an adverse
movement, the Portfolio could not close a futures position, it would be
required to continue to make daily cash payments of variation margin. If a
Portfolio could not close an option position, an option holder would be able
to realize profits or limit losses only by exercising the 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 or offset 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 and/or securities price
movements, as well as on the expense of hedging.
20
<PAGE>
MANAGEMENT OF THE TRUST
As of March 31, 1997, 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
<TABLE>
<CAPTION>
NAME, ADDRESS AND AGE PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- ------------------------------------- ----------------------------------------------------------------
<S> <C>
*John D. Carifa (52)................... President, Chief Operating Officer and a Director of ACMC;
Alliance Capital Management L.P. Chairman and Chief Executive Officer of Alliance's Mutual Fund
1345 Avenue of the Americas Division. Currently a Director and Trustee of all other
New York, NY 10105 registered investment companies (the "Alliance Mutual Funds")
sponsored by Alliance, and Director of Frontier Trust Company, a
subsidiary of Equitable.
Richard W. Couper (74)................ President Emeritus of the Woodrow Wilson National Fellowship
The Burke Library Foundation and President Emeritus of the New York Public
Hamilton College Library.
P.O. Box 345
Clinton, NY 13323-0345
Brenton W. Harries (69)............... 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)(67) ..... 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 (66)............... Retired. Former Group Senior Vice President of Operations of
45 Bonnie Way American Ultramar Limited until December, 1986; President and
Allendale, NJ 07401 Chief Executive Officer of Tittston Petroleum, Inc., from
January 1978 to July 1985; Director of the East Jersey Railroad
and the Bayonne Terminal Warehouse from July 1978 to May 1983.
Alton G. Marshall (75)................ Senior Fellow, Nelson A. Rockefeller Institute of Government
136 E. 79th Street since January 1991. President of Alton G. Marshall Associates,
New York, NY 10021 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
- ------------------------------------- ----------------------------------------------------------------
Clifford L. Michel (57)................ Partner of the law firm of Cahill Gordon & Reindel since January
St. Bernard's Road 1972. President, Chief Executive Officer and Director of Wenonah
Gladstone, NJ 07934 Development Company (investment holding company) since 1976.
Director since 1987 and Member of the Human Resources,
Environmental and Safety, and Executive Committees since 1987 of
Placer Dome Inc. (mining). Director, Faber-Castell Corporation
from 1988-1994 (writing instruments). President of Board of
Trustees of St. Mark's School from 1988 to 1993. Chairman of the
Board of Trustees of Morristown Memorial Hospital (and Memorial
Health Foundation) from 1991 to 1996. Director, Vice Chairman
and Treasurer of Atlantic Health Systems, Inc. and Atlantic
Hospital since 1996.
*Peter D. Noris (41)................... Executive Vice President (since May 1995) and Chief Investment
The Equitable Life Assurance Society Officer of Equitable (since July 1995); Executive Vice
of the United States President, The Equitable Companies Incorporated ("Equitable
787 Seventh Avenue Companies")(since May 1995); Director of Alliance Capital
New York, NY 10019 Management Corporation ("ACMC"), the general partner of
Alliance, since July 1995. Prior thereto, Vice President of
Salomon Brothers Inc., from 1992 to 1995. Principal of Morgan
Stanley & Co. Inc., from 1984 to 1992.
Donald J. Robinson (62)............... Senior Partner of the law firm of Orrick, Herrington & Sutcliffe
599 Lexington Avenue from July 1987 to December 1994; Member of the Executive
New York, NY 10022 Committee of the firm from January to December 1994; Senior
Counsel of the firm since January 1995. Trustee of the Museum of
the City of New York from 1977 to 1995.
</TABLE>
*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 and
director of ACMC and Alliance. 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 37 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.
Trustee Michel is a director or trustee (but not an "interested person") of
37 other mutual funds advised by Alliance. Trustee Hassler is a director (but
not an "interested person") of Alliance Real Estate Investment Fund, Inc.
COMMITTEES OF THE BOARD
The Trust has a standing audit committee consisting of Trustees Mannion,
Couper, Harries, Hassler, Marshall, Michel and Robinson. 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.
22
<PAGE>
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, Michel
and Robinson. The conflicts committee's function is to take any action
necessary to resolve conflicts among shareholders.
TRUSTEE COMPENSATION TABLE
<TABLE>
<CAPTION>
TOTAL
PENSION OR COMPENSATION FROM
AGGREGATE RETIREMENT THE ALLIANCE FUND
COMPENSATION BENEFITS ACCRUED ESTIMATED ANNUAL COMPLEX,
FROM THE AS PART OF TRUST BENEFITS UPON INCLUDING THE
TRUSTEE TRUST EXPENSES RETIREMENT TRUST1
- ------------------- -------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C>
John D. Carifa $ -0- $-0- $-0- $ -0-
- ------------------- -------------- ---------------- ---------------- -----------------
Richard W. Couper $59,000(2) $-0- $-0- $ 85,000
- ------------------- -------------- ---------------- ---------------- -----------------
Brenton W. Harries $59,000 $-0- $-0- $ 86,000
- ------------------- -------------- ---------------- ---------------- -----------------
Howard E. Hassler $85,000 $-0- $-0- $ 86,750
- ------------------- -------------- ---------------- ---------------- -----------------
William L. Mannion $66,000(2) $-0- $-0- $ 66,000
- ------------------- -------------- ---------------- ---------------- -----------------
Alton G. Marshall $61,000 $-0- $-0- $134,500
- ------------------- -------------- ---------------- ---------------- -----------------
Clifford L.
Michel(3) $20,068 $-0- $-0- $146,068
- ------------------- -------------- ---------------- ---------------- -----------------
Peter D. Noris $ -0- $-0- $-0- $ -0-
- ------------------- -------------- ---------------- ---------------- -----------------
Donald J. Robinson $63,000(2) $-0- $-0- $137,250
- ------------------- -------------- ---------------- ---------------- -----------------
</TABLE>
- -----------
(1) As of December 31, 1996, there were 110 investment companies in the
Alliance Fund Complex.
(2) Completely deferred.
(3) Appointed as Trustee on October 16, 1996.
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, 1996 the Trust paid total retainer and
meeting fees of $413,068 (including deferrals of $188,000).
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.
23
<PAGE>
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>
Mark D. Gersten (46) Treasurer and Chief Financial Senior Vice President, Alliance Fund Services, Inc.
Officer ("AFS"), with which he has been associated since
prior to 1991.
Thomas R. Manley (45) Controller and Chief Vice President, ACMC (May 1996 to present); Assistant
Accounting Officer Vice President, ACMC (July 1993 to May 1996); Assistant
Vice President, Equitable Capital Management
Corporation ("ECMC")(March 1991 to July 1993).
Bruce Calvert (50) Vice President Vice Chairman and Chief Investment Officer of ACMC,
with which he has been associated since prior to
1991.
Kathleen A. Corbet (37) 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 (52) 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).
Wayne D. Lyski (55) 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 (50) Vice President Senior Vice President, Equitable (June 1985 to
present); Chairman, EQF (May 1992 to present); Chief
Executive Officer, EQF (January 1994 to present);
formerly, Vice President, Equitable Variable (May
1996 to December 1996); Chairman and Chief Executive
Officer, EquiSource of New York (January 1992 to
October 1994) and Frontier (April 1992 to October
1994); Vice President and Treasurer, Equitable
Distributors, Inc. (August 1993 to February 1995).
Director of several Equitable-affiliated companies.
Samuel B. Shlesinger (49) Vice President Senior Vice President, Equitable (November 1986 to
present); Senior Vice President, Equitable Variable
(February 1988 to December 1996); President and Chief
Executive Officer, Equitable of Colorado (October
1985 to present).
Alden M. Stewart (51) Vice President Executive Vice President, ACMC (July 1993 to present);
ECMC since prior to 1991.
Edmund P. Bergan, Jr. (46) 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. Alliance's principal executive officer is Dave H.
Williams, its Chairman and Chief Executive Officer.
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 December 31, 1996, ACMC, Inc. and Equitable Capital
Management Corporation, each a wholly-owned direct or indirect subsidiary of
Equitable, owned in the aggregate approximately 57% of the issued and
outstanding units representing assignments of beneficial ownership of limited
partnership interests in the Adviser ("Units"), and approximately 33% and 10%
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. The principal offices of Alliance are located at
1345 Avenue of the Americas, New York, New York 10105.
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 and 1290 Avenue of the Americas, New York, New York 10019,
respectively.
AXA, a French insurance holding company, currently owns approximately 63.9%
of the outstanding voting shares of common stock of The Equitable Companies.
As a majority shareholder of 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 holding
company for an international group of insurance and related financial
services companies. AXA is the eleventh largest insurance group in the world
based on worldwide revenues in 1994 and the second largest French insurance
group based on worldwide gross premiums in 1994. AXA is also engaged in asset
management, investment banking, securities trading and financial services
activities principally in the United States, as well as in Western Europe and
the Asia Pacific area.
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 NEXT NEXT NEXT
$750 MILLION $750 MILLION $1 BILLION $2.5 BILLION THEREAFTER
-------------- -------------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C>
Alliance Conservative Investors .475% .425% .375% .350% .325%
Alliance Balanced ............... .450% .400% .350% .325% .300%
Alliance Growth Investors ...... .550% .500% .450% .425% .400%
Alliance Common Stock ........... .475% .425% .375% .355% .345%*
Alliance Global ................. .675% .600% .550% .530% .520%
Alliance Aggressive Stock ...... .625% .575% .525% .500% .475%
Alliance Small Cap Growth........ .900% .850% .825% .800% .775%
Alliance Money Market ........... .350% .325% .300% .280% .270%
Alliance Intermediate Government
Securities ..................... .500% .475% .450% .430% .420%
Alliance High Yield ............. .600% .575% .550% .530% .520%
Alliance Growth and Income ..... .550% .525% .500% .480% .470%
Alliance Quality Bond ........... .525% .500% .475% .455% .445%
Alliance Equity Index ........... .325% .300% .275% .255% .245%
Alliance International .......... .900% .825% .800% .780% .770%
</TABLE>
- ------------
* On assets in excess of $10 billion, the management fee for the Alliance
Common Stock Portfolio is reduced to 0.335% of average daily net
assets.
Because of undertakings made by Equitable Variable in connection with the
Reorganization, Equitable reimburses the Alliance Common Stock and Alliance
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 reimburses the Alliance High Yield,
Alliance Aggressive Stock and Alliance 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 Alliance Common Stock, Alliance Money Market and
Alliance 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 Alliance Aggressive Stock Division for the portion
that exceeds a .41% effective rate. Policies sold by insurers other than
Equitable and newer policy designs of Equitable bear the advisory fees
without adjustment. For a discussion of the Reorganization, see "General
Information," above.
In 1996, the Trust paid advisory fees of $59,901,466 to Alliance. 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.
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 Agreement and
Declaration of Trust, By-laws, Prospectus and Statement of Additional
Information from time to time in effect. In connection therewith, Alliance
provides investment research and supervision of the Trust's
27
<PAGE>
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.
At the Trust's request, Alliance provides, without charge, personnel, who may
be the Trust's officers, to render such clerical, administrative and other
services, other than investor services or accounting services, to the Trust
and also furnishes to the Trust, without charge, such office facilities,
which may be Alliance's own offices, as may be required to perform its
investment advisory and portfolio management services. 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 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.
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
28
<PAGE>
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.
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 Alliance 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 Alliance 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 Alliance Money Market Portfolio transactions will generally
be with issuers or market makers where no commissions are charged. 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. In 1996 the Trust paid an aggregate
of $27,895,553 in brokerage commissions of which $25,576,822 was paid to
brokers relating to transactions aggregating $12,956,909,742 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
29
<PAGE>
of securities in a public offering, if such securities are underwritten by
DLJ or its affiliates. During the years ended December 31, 1994 and December
31, 1995, the Trust paid no brokerage commissions to DLJ, and during the
fiscal year ended December 31, 1996, the Trust paid $2,500 to Autranet, Inc.,
an affiliate of DLJ, in accordance with the procedures described above.
TRUST EXPENSES AND OTHER CHARGES
Pursuant to the Trust's Investment Advisory Agreement, the Trust is obligated
to pay all of its operating expenses not specifically assumed by Alliance. A
daily adjustment will be made in the values under certain Contracts
outstanding and offered by Equitable when the management separate accounts of
Equitable and Equitable Variable 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 bear such expenses without
adjustment. Although Equitable does not expect the Trust to incur any federal
income or excise tax liability (see "Dividends, Distributions and Taxes" in
the Prospectus), Equitable reserves the right to exclude any such taxes from
such adjustments.
The expenses borne by the Trust include or could include taxes; brokerage
commissions; interest charges; securities lending fees; fees and expenses of
the registration or qualification of a Portfolio's securities under federal
or state securities laws; fees of the Portfolio's custodian, transfer agent,
independent accountants, and legal counsel; all expenses of shareholders' and
trustees' meetings; all expenses of the preparation, typesetting, printing
and mailing to existing shareholders of prospectuses, prospectus supplements,
statements of additional information, proxy statements, and annual and
semi-annual reports; any proxy solicitor's fees and expenses; costs of
fidelity bonds and Trustees' liability insurance premiums as well as
extraordinary expenses such as indemnification payments or damages awarded in
litigation or settlements made; any membership fees of the Investment Company
Institute and similar organizations; costs of maintaining the Trust's
corporate existence and the compensation of Trustees who are not directors,
officers, or employees of Alliance or its affiliates.
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
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
30
<PAGE>
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 NYSE 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. (Eastern time) close respectively of the NYSE and the
Options Price Reporting Authority; for bonds the close of trading 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 generally 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 held by 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 held by 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.
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.
31
<PAGE>
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 for assistance in valuing the assets of the Trust. Alliance
will continuously monitor the performance of such pricing 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, as amended (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.
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
in such stock, securities or currencies. In addition, until the start of a
Portfolio's first tax year beginning after August 5, 1997, 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 certain assets, including stock or
securities, held for less than three months. 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 minus
all 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.
32
<PAGE>
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 U.S. 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
Investment operations commenced with respect to Class IB shares of the
Alliance Aggressive Stock, Alliance Common Stock, Alliance Growth Investors,
Alliance Global, Alliance High Yield and Alliance Money Market Portfolios on
October 2, 1996. Returns shown for Class IB shares for periods prior to
October 2, 1996 and returns shown for Class IB shares of other Portfolios are
derived from the historical performance of Class IA shares. These returns
have not been adjusted to reflect the 12b-1 fees, currently paid at an annual
rate of 0.25% of average net assets, applicable to Class IB shares, Class IA
shares are not subject to any 12b-1 fees. All other things being equal,
returns for Class IB shares would have been adversely affected (i.e.,
reduced) by the amount of such higher expenses, compounded over the relevant
period.
At any time in the future, yields and total returns may be higher or lower
than past yields or returns and there can be no assurance that any historical
results will continue. All returns assume reinvestment of distributions at
net asset value and represent past performance; they do not guarantee future
results. Investment return and principal value will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their
original cost.
ALLIANCE MONEY MARKET PORTFOLIO YIELD
The Alliance 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 Alliance 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 Alliance 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.
Alliance 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 Alliance Money Market Portfolio, maturities and rates of return on
investments, among other factors. In addition, the value of shares of the
Alliance Money Market Portfolio will fluctuate and not remain constant.
The Alliance 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
33
<PAGE>
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 Alliance 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 Alliance Money Market Portfolio yield also does not
reflect insurance company charges and fees applicable to Contracts.
The seven-day current yield for Class IB shares of the Alliance Money Market
Portfolio was 4.93% for the period ended December 31, 1996. The effective
yield for that period was 5.02%.
ALLIANCE QUALITY BOND, ALLIANCE INTERMEDIATE GOVERNMENT SECURITIES AND
ALLIANCE HIGH YIELD PORTFOLIO YIELDS
Yields of the Alliance Quality Bond, Alliance Intermediate Government
Securities and Alliance 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.
The 30-day yield for Class IB shares of the Alliance High Yield Portfolio for
the period ended December 31, 1996 was 10.42%.
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. These total returns do not reflect insurance company charges
and fees applicable to the Contracts.
The average annual total returns through December 31, 1996 for Class IB
shares of the Alliance Common Stock Portfolio for one year, five years and 10
years were 24.20%, 15.71%, and 15.82%, respectively, and the cumulative total
return since October 2, 1996 was 8.49%.
The average annual total returns through December 31, 1996 for Class IB
shares of the Alliance Intermediate Government Securities Portfolio for one
year, five years, and since the Portfolio's inception (on April 1, 1991) were
3.78%, 5.60%, and 6.95%, respectively.
The average annual total returns through December 31, 1996 for Class IB
shares of the Alliance High Yield Portfolio for one year, five years, and
since the Portfolio's inception (on January 2, 1987) were 22.81%, 14.64%,
11.40%, respectively, and the cumulative total return since October 2, 1996
was 3.32%.
34
<PAGE>
The average annual total returns through December 31, 1996 for Class IB
shares of the Alliance Balanced Portfolio for one year, five years, and ten
years were 11.68%, 6.06%, and 10.38%, respectively.
The average annual total returns through December 31, 1996 for Class IB
shares of the Alliance Global Portfolio for one year, five years and since
the Portfolio's inception (on August 27, 1987) were 14.53%, 13.49%, and
11.69%, respectively, and the cumulative total return since October 2, 1996
was 4.98%.
The average annual total returns through December 31, 1996 for Class IB
shares of the Alliance Aggressive Stock Portfolio for one year, five years
and ten years were 22.13%, 11.82%, and 18.59%, respectively, and the
cumulative total return since October 2, 1996 was 2.32%.
The average annual total returns through December 31, 1996 for the Alliance
Conservative Investors Portfolio for one year, five years, and since the
Portfolio's inception (on October 2, 1989) were 5.21%, 7.32%, and 9.03%,
respectively.
The average annual total returns through December 31, 1996 for Class IB
shares of the Alliance Growth Investors Portfolio for one year, five years
and since the Portfolio's inception (on October 2, 1989) were 12.54%, 10.75%,
and 15.56%, respectively, and the cumulative total return since October 2,
1996 was 4.64%.
The average annual total returns through December 31, 1996 for Class IB
shares of the Alliance Quality Bond Portfolio for one year and since the
Portfolio's inception (on October 1, 1993) were 5.36% and 4.79%,
respectively.
The average annual total returns through December 31, 1996 for Class IB
shares of the Alliance Growth and Income Portfolio for one year and since the
Portfolio's inception (on October 1, 1993) were 20.09% and 12.77%,
respectively.
The average annual total return through December 31, 1996 for Class IB shares
of the Alliance Equity Index Portfolio for one year and since the Portfolio's
inception (on March 1, 1994) was 22.39% and 20.25%, respectively.
The average annual total return through December 31, 1996 for the Alliance
International Portfolio for one year and since the Portfolio's inception
(April 3, 1995) was 9.82% and 12.14%, respectively.
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 returns, since the inception of each Portfolio through
December 31, 1996, for Class IB shares of the Alliance Common Stock, Alliance
Intermediate Government Securities, Alliance High Yield, Alliance Balanced,
Alliance Global, Alliance Aggressive Stock, Alliance Conservative Investors,
Alliance Growth Investors, Alliance Quality Bond, Alliance Growth and Income,
Alliance Equity Index and Alliance International Portfolios were 1,848.15%,
47.19%, 194.42%, 246.66%, 181.24%, 647.76%, 87.12%, 185.38%, 16.42%, 47.77%,
68.84% and 22.21%, respectively. These total returns do not reflect insurance
company charges and fees applicable to the Contracts.
35
<PAGE>
OTHER SERVICES
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP, 1177 Avenue of the Americas, New York, New York 10036,
serves as the Trust's independent accountant, providing audit and tax
services.
CUSTODIAN
The Chase Manhattan Bank, 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, 1996, Equitable received no
compensation for providing such services for the Trust.
UNDERWRITER
The Trust has a distribution agreement with Equitable Distributors, Inc. (the
"Class IB Distributor"), an indirect wholly-owned subsidiary of Equitable and
an affiliate of Alliance, in respect of the Class IB shares. The address for
the Class IB Distributor is 787 Seventh Avenue, New York, New York 10019.
The Trust's distribution agreement in respect of Class IB shares dated July
8, 1996 (the "Class IB Underwriting Agreement"), will remain in effect until
July 8, 1997, 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 IB Distributor will pay for printing and distributing prospectuses
or reports prepared for its use in connection with the offering of the Class
IB shares to prospective investors and preparing, printing and mailing any
other literature or advertising in connection with the offering of the Class
IB shares to prospective investors. The Class IB 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 IB shares issued by the
Trust, unless the Distribution Plan in effect for Class IB shares provides
that the Trust or another entity shall bear some or all of such expenses.
As agent, the Class IB 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
Class IB Underwriting Agreement provides that the Class IB Distributor
accepts orders for shares at net asset value without sales commission or load
being charged. The Class IB 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 June 7, 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 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
generally and with other competing funding vehicles for variable annuity and
variable life contracts. 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.
36
<PAGE>
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 Class IB shares of the Trust 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 Class IB
shares 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 IB Distributor in connection with the
Distribution Plan will continue in effect for a period of more than one year
only so long as its 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 IB shares of a Portfolio at any time,
and in the case of any Rule 12b-1 related agreement, upon 60 days' written
notice, without penalty, by vote of a majority of the outstanding Class IB
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 (to more than .50% of average daily net assets
annually) that may be spent for distribution of Class IB shares of a
Portfolio without the approval of Class IB shareholders of that Portfolio.
The Trustees currently limit payments under the Distribution Plan to .25% of
a Portfolio's aggregate average daily net assets attributable to the Class IB
shares. The Distribution Plan provides that a portion of the distribution
services fee in an amount not to exceed .25% of the aggregate average daily
net assets of a Portfolio attributable to Class IB shares constitutes a
service fee that the Class IB Distributor will use for personal service
and/or the maintenance of shareholder accounts. The Distribution Plan also
provides that Alliance may use its own resources, which may include
management fees received by Alliance from the Trust or other investment
companies which it manages and Alliance's past profits, to finance the
distribution of the Portfolios' shares.
For services rendered by the Class IB Distributor in connection with the
distribution of Class IB shares pursuant to the Distribution Plan, the Class
IB Distributor received $63 with respect to the Class IB shares of Alliance
Aggressive Stock Portfolio, $134 with respect to the Class IB shares of
Alliance Common Stock Portfolio, $78 with respect to the Class IB shares of
Alliance Growth Investors Portfolio, $49 with respect to the Class IB shares
of Alliance Global Portfolio, $58 with respect to the Class IB shares of
Alliance High Yield Portfolio and $254 with respect to the Class IB shares of
Alliance Money Market Portfolio, for the period October 2, 1996 to December
31, 1996.
The Class IB Distributor has informed the Trust that expenses incurred by
the Trust and costs allocated to it in connection with activities primarily
intended to result in the sale of Class IB shares were as follows for the
period October 2, 1996 to December 31, 1996:
37
<PAGE>
AMOUNT OF EXPENSE AND ALLOCATED COST
<TABLE>
<CAPTION>
ALLIANCE ALLIANCE ALLIANCE ALLIANCE ALLIANCE ALLIANCE
CATEGORY OF EXPENSE AGGRESSIVE STOCK COMMON STOCK GROWTH INVESTORS GLOBAL HIGH YIELD MONEY MARKET
- ----------------------------- ----------------- ------------ ---------------- --------- ---------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Advertising/Marketing......... $63 $134 $78 $49 $58 $254
Printing and Mailing of
Prospectuses and Semi-Annual
and Annual Reports to Other
than Current Shareholders ... 0 0 0 0 0 0
Compensation to
Underwriters................. 0 0 0 0 0 0
Compensation to Dealers .....
Compensation to Sales
Personnel.................... 0 0 0 0 0 0
Interest, Carrying or Other
Financing Charges............ 0 0 0 0 0 0
Other (includes personnel
cost of those home office
employees involved in the
distribution effort and the
travel-related expenses
incurred by the marketing
personnel conducting
seminars).................... 0 0 0 0 0 0
</TABLE>
38
<PAGE>
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.
FINANCIAL STATEMENTS
The "Report of Independent Accountants" and the audited financial
statements of the Trust included in the Trust's annual report for the fiscal
year ended December 31, 1996, filed electronically on March 10, 1997 (File
No. 811-4185), the unaudited financial statements included in the Trust's
semi-annual report for the six-month period ended June 30, 1997, filed
electronically on August 27, 1997 (File No. 811-4185), and the financial
highlights included in Part A of this registration statement are incorporated
by reference into this SAI. The December 31, 1996 audited financial
statements incorporated by reference into this SAI and the financial
highlights included in Part A of this registration statement and incorporated
by reference into this SAI (other than financial highlights for the six-month
period ended June 30, 1997) have been so included and incorporated in
reliance upon the report of the independent accountants, given on their
authority as experts in auditing and accounting.
39
<PAGE>
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, 1997.
Audited Statements of Operations for the year ended December 31, 1997.
Audited Statements of Changes in Net Assets of the Alliance Common Stock, Alliance Money Market,
Alliance Balanced, Alliance Aggressive Stock, Alliance High Yield, Alliance Global, Alliance Conservative
Investors, Alliance Growth Investors, Alliance Quality Bond, Alliance Growth and Income, Alliance
Equity Index and Alliance Intermediate Government Securities Portfolios for the years ended December
31, 1997 and 1996 and of the Alliance International Portfolio for the year ended December 31, 1997
and for the period from April 3, 1996 (date of commencement of operations) through December 31, 1996 and
of the Alliance Small Cap Growth Portfolio for the period from May 1, 1997 (date of commencement of
operations) through December 31, 1997.
Alliance Money Market Portfolio Audited Portfolio of Investments as of December 31, 1997.
Alliance Intermediate Government Securities Portfolio Audited Portfolio of Investments as of December
31, 1997.
Alliance Quality Bond Portfolio Audited Portfolio of Investments as of December 31, 1997.
Alliance High Yield Portfolio Audited Portfolio of Investments as of December 31, 1997.
Alliance Balanced Portfolio Audited Portfolio of Investments as of December 31, 1997.
Alliance Growth and Income Portfolio Audited Portfolio of Investments as of December 31, 1997.
Alliance Equity Index Portfolio Audited Portfolio of Investments as of December 31, 1997.
Alliance Common Stock Portfolio Audited Portfolio of Investments as of December 31, 1997.
Alliance Global Portfolio Audited Portfolio of Investments as of December 31, 1997.
Alliance Aggressive Stock Portfolio Audited Portfolio of Investments as of December 31, 1997.
Alliance Conservative Investors Portfolio Audited Portfolio of Investments as of December 31, 1997.
Alliance Growth Investors Portfolio Audited Portfolio of Investments as of December 31, 1997.
Alliance International Portfolio Audited Portfolio of Investments as of December 31, 1997.
Alliance Small Cap Growth Portfolio Audited Portfolio of Investments as of December 31, 1997.
Notes to Financial Statements.
Financial Highlights.
Report of Independent Accountants.
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
(b) Exhibits:
The following exhibits are filed herewith or incorporated by reference to the filing indicated:
(1) Amended and Restated Agreement and Declaration of Trust of the Trust (previously filed with Post-Effective
Amendment No. 29 on May 1, 1997).
(2) By-Laws of the Trust (previously filed with Post-Effective Amendment No. 29 on May 1, 1997).
(3) Not applicable (previously filed with Post-Effective Amendment No. 29 on May 1, 1997).
(4)(a) Portions of Amended and Restated Agreement and Declaration of Trust relating to shareholders' rights
(previously filed with Post-Effective Amendment No. 28 on February 14, 1997).
(4)(b) Portions of By-Laws of the Trust relating to shareholders' rights (previously filed with Post-Effective
Amendment No. 28 on February 14, 1997).
(5) Investment Advisory Agreement between the Trust and Alliance dated May 1, 1997 (previously filed with
Post-Effective Amendment No. 29 on May 1, 1997).
(6)(a) Class IA Distribution Agreement between the Trust and EQ Financial Consultants, Inc. (previously filed
with Post-Effective Amendment No. 27 on May 9, 1996).
(6)(b) Class IB Distribution Agreement between the Trust and Equitable Distributors, Inc. (previously filed
with Post-Effective Amendment No. 27 on May 9, 1996).
(7) Not applicable.
(8) Custodian Agreement between the Trust and Chase, dated August 25, 1988 (previously filed with Post-Effective
Amendment No. 29 on May 1, 1997).
(10) Not applicable.
(11)(a) Consent of Price Waterhouse LLP.
(11)(b) Powers of Attorney (previously filed with Post-Effective Amendment No. 29 on May 1, 1997).
(12) Not applicable.
(13) Not applicable.
(14) Not applicable.
(15) Rule 12b-1 Plan (previously filed with Post-Effective Amendment No. 27 on May 9, 1996).
(16) Schedule for computation of Portfolio yield quotations and total return (previously filed with Post-Effective
Amendment No. 26 on May 1, 1996).
(17) Financial Data Schedules.
(18) Rule 18f-3 Plan (previously filed with Post-Effective Amendment No. 27 on May 9, 1996).
</TABLE>
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Equitable controls the Trust by virtue of their ownership of % of the
Trust's shares as of September 30, 1997. 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.
2
<PAGE>
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.
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)
TITLE OF CLASS NUMBER OF RECORD HOLDERS AS OF SEPTEMBER 30, 1997
- --------------------------------- ---------------------------------------------------
<S> <C>
Class IA shares of beneficial
interest 8
Class IB 2
</TABLE>
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.
3
<PAGE>
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.
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 IA shares, and Equitable Distributors, Inc. is the principal
underwriter of the Trust's Class IB 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 IA shares, and of Equitable Distributors, Inc., the principal
underwriter of the Trust's Class IB shares. The business address of the
persons whose names are preceded by a single asterisk is 1290 Avenue of the
Americas, New York, New York 10104. The business address of the persons whose
names are preceded by a double asterisk is 1755 Broadway, 3rd Floor, New
York, New York 10019. Mr. Witte's business address is 135 West Fiftieth
Street, 4th Floor, New York, New York 10020. Mr. Kornweiss's business address
is 4251 Crums Mill Road, Harrisburg, PA 17112. Mr. Bullen's and Mr. Hayes'
business address is 200 Plaza Drive, Secaucus, New Jersey 07096. The business
address for Messrs. Brakovich, Shepherdson and Beaz is 660 Newport Center
Drive, Suite 1200, Newport Beach, California 92660. The business address for
Mr. Laughlin is 1345 Avenue of the Americas, New York, New York 10105.
<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
Michael J. Laughlin Director None
*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
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
POSITIONS AND POSITIONS AND
NAME AND PRINCIPAL OFFICES WITH OFFICES WITH
BUSINESS ADDRESS EQ FINANCIAL CONSULTANTS, INC. REGISTRANT
- --------------------------- ----------------------------------------------------- ------------------
<S> <C> <C>
**Michael F. McNelis President and Chief Operating Officer None
*Derry E. Bishop Executive Vice President None
*Gordon G. Dinsmore Executive Vice President None
**Martin J. Telles Executive Vice President and Chief Marketing Officer 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
*Harvey Blitz Executive Vice President None
*Peter D. Noris Executive Vice President Trustee
**Robert McKenna Senior Vice President and Chief Financial Officer None
**Theresa A. Nurge-Alws Senior Vice President None
*Mary P. Breen Vice President and Counsel None
**Ronald Boswell First Vice President None
**Donna M. Dazzo First Vice President None
*Robin K. Murray First Vice President None
*Michael Brzozowski Vice President and Compliance Director None
Edward J. Hayes Vice President None
**Amy Franceschini Vice President None
**Linda Funigiello Vice President None
**James Furlong Vice President None
Peter R. Kornweiss Vice President None
**Frank Lupo Vice President None
**T.S. Narayanan Vice President None
**James R. Anderson Vice President None
*Raymond T. Barry Vice President None
Rosemary Magee Vice President None
Laura A. Pellegrini Vice President None
*Janet E. Hannon Secretary None
*Linda J. Galasso Assistant Secretary None
</TABLE>
<TABLE>
<CAPTION>
POSITIONS AND POSITIONS AND
NAME AND PRINCIPAL OFFICES WITH OFFICES WITH
BUSINESS ADDRESS EQUITABLE DISTRIBUTORS, INC. REGISTRANT
- ------------------------------ ------------------------------------------------ -----------------
<S> <C> <C>
DIRECTORS
Greg Brakovich Director None
*Jerome S. Golden Director None
*William T. McCaffrey Director None
*James A. Shepherdson, III Director None
OFFICERS
Jerome S. Golden Chairman of the Board None
Greg Brakovich Co-President, Co-Chief Executive Officer and None
Managing Director
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
POSITIONS AND POSITIONS AND
NAME AND PRINCIPAL OFFICES WITH OFFICES WITH
BUSINESS ADDRESS EQUITABLE DISTRIBUTORS, INC. REGISTRANT
- ------------------------------ ------------------------------------------------ -----------------
<S> <C> <C>
James A. Shepherdson, III Co-President, Co-Chief Executive Officer and None
Managing Director
Dennis D. Witte Senior Vice President None
Thomas D. Bullen Chief Financial Officer None
*Michael Brzozowski Chief Compliance Officer None
*Mary P. Breen Vice President and Counsel 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)
Chase Global Funds Services Company
73 Tremont Street
Boston, MA 02108
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.
6
<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 25th day of February 1998.
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:
John D. Carifa,
President and Chief Executive Officer
PRINCIPAL FINANCIAL OFFICER:
Mark D. Gersten,
Treasurer and Chief Financial Officer
PRINCIPAL ACCOUNTING OFFICER:
Thomas R. Manley,
Controller and Chief Accounting Officer
TRUSTEES:
John D. Carifa
Richard W. Couper
Brenton W. Harries
Howard E. Hassler
William L. Mannion
Clifford L. Michel
Peter D. Noris
Donald J. Robinson
By: /s/ Edmund P. Bergan, Jr.
-------------------------------
Edmund P. Bergan, Jr.
As Attorney-in-Fact
February 25, 1998
7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
(11)(a) Consent of Price Waterhouse LLP.
(27) Financial Data Schedules.
</TABLE>
<PAGE>
Exhibit 11(a)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Statements of
Additional Information constituting part of this Post-Effective Amendment
No. 31 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated February 9, 1998, relating to the financial
statements and financial highlights appearing in the December 31, 1997 Annual
Report to Shareholders of The Hudson River Trust, which are also incorporated
by reference into such Statements of Additional Information, and to the
incorporation by reference of our report into the Prospectuses which constitute
part of this Registration Statement. We also consent to the references to us
under the heading "Financial Highlights" in such Prospectuses and in the
Prospectus Supplement constituting part of this Registration Statement and to
the references to us under the heading "Other Services -- Independent
Accountants" and "Financial Statements" in such Statement of Additional
Information.
/s/ PRICE WATERHOUSE LLP
- ------------------------
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
February 23, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000759751
<NAME> THE HUDSON RIVER TRUST
<SERIES>
<NUMBER> 011
<NAME> ALLIANCE COMMON STOCK PORTFOLIO - CLASS IA
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 7,039,048,426
<INVESTMENTS-AT-VALUE> 9,725,410,132
<RECEIVABLES> 104,159,004
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 662,838,280
<TOTAL-ASSETS> 10,492,407,416
<PAYABLE-FOR-SECURITIES> 142,569,172
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 789,064,511
<TOTAL-LIABILITIES> 931,633,683
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 6,704,717,648
<SHARES-COMMON-STOCK> 431,744,475
<SHARES-COMMON-PRIOR> 363,529,982
<ACCUMULATED-NII-CURRENT> 8,941,474
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 175,796,508
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,671,318,103
<NET-ASSETS> 9,331,993,502
<DIVIDEND-INCOME> 68,591,236
<INTEREST-INCOME> 18,865,438
<OTHER-INCOME> 0
<EXPENSES-NET> (31,640,935)
<NET-INVESTMENT-INCOME> 55,815,739
<REALIZED-GAINS-CURRENT> 983,715,133
<APPREC-INCREASE-CURRENT> 1,046,218,790
<NET-CHANGE-FROM-OPS> 2,085,749,662
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (43,806,963)
<DISTRIBUTIONS-OF-GAINS> (700,688,717)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 50,744,225
<NUMBER-OF-SHARES-REDEEMED> (18,396,632)
<SHARES-REINVESTED> 35,866,900
<NET-CHANGE-IN-ASSETS> 2,934,140,154
<ACCUMULATED-NII-PRIOR> (194,316)
<ACCUMULATED-GAINS-PRIOR> (92,937,401)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 29,420,651
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 31,640,935
<AVERAGE-NET-ASSETS> 7,987,511,074
<PER-SHARE-NAV-BEGIN> 18.23
<PER-SHARE-NII> 0.14
<PER-SHARE-GAIN-APPREC> 5.12
<PER-SHARE-DIVIDEND> (0.11)
<PER-SHARE-DISTRIBUTIONS> (1.77)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 21.61
<EXPENSE-RATIO> 0.39
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000759751
<NAME> THE HUDSON RIVER TRUST
<SERIES>
<NUMBER> 012
<NAME> ALLIANCE COMMON STOCK PORTFOLIO - CLASS IB
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 7,039,048,426
<INVESTMENTS-AT-VALUE> 9,725,410,132
<RECEIVABLES> 104,159,004
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 662,838,280
<TOTAL-ASSETS> 10,492,407,416
<PAYABLE-FOR-SECURITIES> 142,569,172
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 789,064,511
<TOTAL-LIABILITIES> 931,633,683
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 6,704,717,648
<SHARES-COMMON-STOCK> 10,601,628
<SHARES-COMMON-PRIOR> 68,266
<ACCUMULATED-NII-CURRENT> 8,941,474
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 175,796,508
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,671,318,103
<NET-ASSETS> 228,780,231
<DIVIDEND-INCOME> 68,591,236
<INTEREST-INCOME> 18,865,438
<OTHER-INCOME> 0
<EXPENSES-NET> (31,640,935)
<NET-INVESTMENT-INCOME> 55,815,739
<REALIZED-GAINS-CURRENT> 983,715,133
<APPREC-INCREASE-CURRENT> 1,046,218,790
<NET-CHANGE-FROM-OPS> 2,085,749,662
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (241,911)
<DISTRIBUTIONS-OF-GAINS> (16,923,582)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 9,736,070
<NUMBER-OF-SHARES-REDEEMED> (29,575)
<SHARES-REINVESTED> 826,867
<NET-CHANGE-IN-ASSETS> 2,934,140,154
<ACCUMULATED-NII-PRIOR> (194,316)
<ACCUMULATED-GAINS-PRIOR> (92,937,401)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 29,420,651
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 31,640,935
<AVERAGE-NET-ASSETS> 79,166,595
<PER-SHARE-NAV-BEGIN> 18.22
<PER-SHARE-NII> 0.10
<PER-SHARE-GAIN-APPREC> 5.11
<PER-SHARE-DIVIDEND> (0.08)
<PER-SHARE-DISTRIBUTIONS> (1.77)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 21.58
<EXPENSE-RATIO> 0.64
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000759751
<NAME> THE HUDSON RIVER TRUST
<SERIES>
<NUMBER> 021
<NAME> ALLIANCE MONEY MARKET PORTFOLIO - CLASS IA
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 551,106,796
<INVESTMENTS-AT-VALUE> 551,218,667
<RECEIVABLES> 23,651,196
<ASSETS-OTHER> 250,597
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 575,120,460
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,485,010
<TOTAL-LIABILITIES> 1,485,010
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 573,354,238
<SHARES-COMMON-STOCK> 44,192,317
<SHARES-COMMON-PRIOR> 45,575,983
<ACCUMULATED-NII-CURRENT> 149,936
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 19,405
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 111,871
<NET-ASSETS> 449,959,833
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 26,575,962
<OTHER-INCOME> 0
<EXPENSES-NET> (1,945,403)
<NET-INVESTMENT-INCOME> 24,630,559
<REALIZED-GAINS-CURRENT> 57,662
<APPREC-INCREASE-CURRENT> (45,650)
<NET-CHANGE-FROM-OPS> 24,642,571
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (21,721,933)
<DISTRIBUTIONS-OF-GAINS> (30,365)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 88,164,162
<NUMBER-OF-SHARES-REDEEMED> (91,686,416)
<SHARES-REINVESTED> 2,138,588
<NET-CHANGE-IN-ASSETS> 107,029,256
<ACCUMULATED-NII-PRIOR> 43,191
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,701,504
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,945,403
<AVERAGE-NET-ASSETS> 426,399,375
<PER-SHARE-NAV-BEGIN> 10.17
<PER-SHARE-NII> 0.54
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (0.53)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.18
<EXPENSE-RATIO> 0.39
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000759751
<NAME> THE HUDSON RIVER TRUST
<SERIES>
<NUMBER> 022
<NAME> ALLIANCE MONEY MARKET PORTFOLIO - CLASS IB
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 551,106,796
<INVESTMENTS-AT-VALUE> 551,218,667
<RECEIVABLES> 23,651,196
<ASSETS-OTHER> 250,597
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 575,120,460
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,485,010
<TOTAL-LIABILITIES> 1,485,010
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 573,354,238
<SHARES-COMMON-STOCK> 12,163,496
<SHARES-COMMON-PRIOR> 313,273
<ACCUMULATED-NII-CURRENT> 149,936
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 19,405
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 111,871
<NET-ASSETS> 123,675,617
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 26,575,962
<OTHER-INCOME> 0
<EXPENSES-NET> (1,945,403)
<NET-INVESTMENT-INCOME> 24,630,559
<REALIZED-GAINS-CURRENT> 57,662
<APPREC-INCREASE-CURRENT> (45,650)
<NET-CHANGE-FROM-OPS> 24,642,571
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,801,881)
<DISTRIBUTIONS-OF-GAINS> (7,892)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 15,458,380
<NUMBER-OF-SHARES-REDEEMED> (3,884,676)
<SHARES-REINVESTED> 276,519
<NET-CHANGE-IN-ASSETS> 107,029,256
<ACCUMULATED-NII-PRIOR> 43,191
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,701,504
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,945,403
<AVERAGE-NET-ASSETS> 41,915,722
<PER-SHARE-NAV-BEGIN> 10.16
<PER-SHARE-NII> 0.52
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (0.51)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.17
<EXPENSE-RATIO> 0.63
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000759751
<NAME> THE HUDSON RIVER TRUST
<SERIES>
<NUMBER> 031
<NAME> ALLIANCE BALANCED PORTFOLIO - CLASS IA
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 1,529,925,684
<INVESTMENTS-AT-VALUE> 1,711,741,713
<RECEIVABLES> 14,192,595
<ASSETS-OTHER> 1,336,861
<OTHER-ITEMS-ASSETS> 239,139,139
<TOTAL-ASSETS> 1,966,410,308
<PAYABLE-FOR-SECURITIES> 2,125,059
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 240,196,720
<TOTAL-LIABILITIES> 242,321,779
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,515,099,274
<SHARES-COMMON-STOCK> 98,055,256
<SHARES-COMMON-PRIOR> 98,455,586
<ACCUMULATED-NII-CURRENT> 84,008
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 25,662,052
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 183,283,195
<NET-ASSETS> 1,724,088,529
<DIVIDEND-INCOME> 9,530,794
<INTEREST-INCOME> 52,969,301
<OTHER-INCOME> 0
<EXPENSES-NET> (7,440,032)
<NET-INVESTMENT-INCOME> 55,060,063
<REALIZED-GAINS-CURRENT> 113,021,038
<APPREC-INCREASE-CURRENT> 65,873,768
<NET-CHANGE-FROM-OPS> 233,954,869
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (54,844,131)
<DISTRIBUTIONS-OF-GAINS> (84,244,038)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,662,533
<NUMBER-OF-SHARES-REDEEMED> (12,097,554)
<SHARES-REINVESTED> 8,034,691
<NET-CHANGE-IN-ASSETS> 86,233,025
<ACCUMULATED-NII-PRIOR> (190,700)
<ACCUMULATED-GAINS-PRIOR> (3,096,172)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 6,677,983
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 7,440,032
<AVERAGE-NET-ASSETS> 1,666,598,455
<PER-SHARE-NAV-BEGIN> 16.64
<PER-SHARE-NII> 0.58
<PER-SHARE-GAIN-APPREC> 1.86
<PER-SHARE-DIVIDEND> (0.59)
<PER-SHARE-DISTRIBUTIONS> (0.91)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 17.58
<EXPENSE-RATIO> 0.45
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000759751
<NAME> THE HUDSON RIVER TRUST
<SERIES>
<NUMBER> 041
<NAME> ALLIANCE AGGRESSIVE STOCK PORTFOLIO - CLASS IA
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 4,067,187,001
<INVESTMENTS-AT-VALUE> 4,484,945,342
<RECEIVABLES> 217,932,111
<ASSETS-OTHER> 181,729
<OTHER-ITEMS-ASSETS> 612,639,016
<TOTAL-ASSETS> 5,315,698,198
<PAYABLE-FOR-SECURITIES> 26,255,439
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 626,185,456
<TOTAL-LIABILITIES> 652,440,895
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4,116,687,538
<SHARES-COMMON-STOCK> 126,731,100
<SHARES-COMMON-PRIOR> 107,805,909
<ACCUMULATED-NII-CURRENT> (113,631)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 128,925,055
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 417,758,341
<NET-ASSETS> 4,589,771,586
<DIVIDEND-INCOME> 17,775,006
<INTEREST-INCOME> 10,411,701
<OTHER-INCOME> 0
<EXPENSES-NET> (23,686,934)
<NET-INVESTMENT-INCOME> 4,499,773
<REALIZED-GAINS-CURRENT> 523,431,192
<APPREC-INCREASE-CURRENT> (75,825,667)
<NET-CHANGE-FROM-OPS> 452,105,298
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (6,323,032)
<DISTRIBUTIONS-OF-GAINS> (381,316,889)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 34,847,127
<NUMBER-OF-SHARES-REDEEMED> (27,155,091)
<SHARES-REINVESTED> 11,233,155
<NET-CHANGE-IN-ASSETS> 797,387,886
<ACCUMULATED-NII-PRIOR> (58,479)
<ACCUMULATED-GAINS-PRIOR> (5,374,000)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 22,471,593
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 23,686,934
<AVERAGE-NET-ASSETS> 4,344,203,628
<PER-SHARE-NAV-BEGIN> 35.85
<PER-SHARE-NII> 0.04
<PER-SHARE-GAIN-APPREC> 3.71
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> (3.33)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 36.22
<EXPENSE-RATIO> 0.54
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000759751
<NAME> THE HUDSON RIVER TRUST
<SERIES>
<NUMBER> 042
<NAME> ALLIANCE AGGRESSIVE STOCK PORTFOLIO - CLASS IB
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 4,067,187,001
<INVESTMENTS-AT-VALUE> 4,484,945,342
<RECEIVABLES> 217,932,111
<ASSETS-OTHER> 181,729
<OTHER-ITEMS-ASSETS> 612,639,016
<TOTAL-ASSETS> 5,315,698,198
<PAYABLE-FOR-SECURITIES> 26,255,439
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 626,185,456
<TOTAL-LIABILITIES> 652,440,895
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4,116,687,538
<SHARES-COMMON-STOCK> 2,034,175
<SHARES-COMMON-PRIOR> 17,094
<ACCUMULATED-NII-CURRENT> (113,631)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 128,925,055
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 417,758,341
<NET-ASSETS> 73,485,717
<DIVIDEND-INCOME> 17,775,006
<INTEREST-INCOME> 10,411,701
<OTHER-INCOME> 0
<EXPENSES-NET> (23,686,934)
<NET-INVESTMENT-INCOME> 4,499,773
<REALIZED-GAINS-CURRENT> 523,431,192
<APPREC-INCREASE-CURRENT> (75,825,667)
<NET-CHANGE-FROM-OPS> 452,105,298
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (8,975)
<DISTRIBUTIONS-OF-GAINS> (6,038,166)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,856,882
<NUMBER-OF-SHARES-REDEEMED> (15,597)
<SHARES-REINVESTED> 175,796
<NET-CHANGE-IN-ASSETS> 797,387,886
<ACCUMULATED-NII-PRIOR> (58,479)
<ACCUMULATED-GAINS-PRIOR> (5,374,000)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 22,471,593
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 23,686,934
<AVERAGE-NET-ASSETS> 30,189,388
<PER-SHARE-NAV-BEGIN> 35.83
<PER-SHARE-NII> (0.11)
<PER-SHARE-GAIN-APPREC> 3.77
<PER-SHARE-DIVIDEND> (0.03)
<PER-SHARE-DISTRIBUTIONS> (3.33)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 36.13
<EXPENSE-RATIO> 0.81
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000759751
<NAME> THE HUDSON RIVER TRUST
<SERIES>
<NUMBER> 051
<NAME> ALLIANCE HIGH YIELD PORTFOLIO - CLASS IA
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 401,820,273
<INVESTMENTS-AT-VALUE> 409,444,270
<RECEIVABLES> 12,899,260
<ASSETS-OTHER> 3,867,754
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 426,211,284
<PAYABLE-FOR-SECURITIES> 4,100,000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 300,406
<TOTAL-LIABILITIES> 4,400,406
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 412,006,119
<SHARES-COMMON-STOCK> 34,161,761
<SHARES-COMMON-PRIOR> 19,900,343
<ACCUMULATED-NII-CURRENT> 29,459
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,151,303
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 7,623,997
<NET-ASSETS> 355,473,286
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 31,369,008
<OTHER-INCOME> 0
<EXPENSES-NET> (1,905,820)
<NET-INVESTMENT-INCOME> 29,463,188
<REALIZED-GAINS-CURRENT> 19,038,590
<APPREC-INCREASE-CURRENT> 2,081,485
<NET-CHANGE-FROM-OPS> 50,583,263
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (26,828,709)
<DISTRIBUTIONS-OF-GAINS> (13,814,454)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 15,273,062
<NUMBER-OF-SHARES-REDEEMED> (4,915,625)
<SHARES-REINVESTED> 3,903,981
<NET-CHANGE-IN-ASSETS> 221,765,413
<ACCUMULATED-NII-PRIOR> 23,927
<ACCUMULATED-GAINS-PRIOR> (525,390)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,759,520
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,905,820
<AVERAGE-NET-ASSETS> 279,351,662
<PER-SHARE-NAV-BEGIN> 10.02
<PER-SHARE-NII> 1.04
<PER-SHARE-GAIN-APPREC> 0.75
<PER-SHARE-DIVIDEND> (0.97)
<PER-SHARE-DISTRIBUTIONS> (0.43)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.41
<EXPENSE-RATIO> 0.62
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000759751
<NAME> THE HUDSON RIVER TRUST
<SERIES>
<NUMBER> 052
<NAME> ALLIANCE HIGH YIELD PORTFOLIO - CLASS IB
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 401,820,273
<INVESTMENTS-AT-VALUE> 409,444,270
<RECEIVABLES> 12,899,260
<ASSETS-OTHER> 3,867,754
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 426,211,284
<PAYABLE-FOR-SECURITIES> 4,100,000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 300,406
<TOTAL-LIABILITIES> 4,400,406
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 412,006,119
<SHARES-COMMON-STOCK> 6,386,424
<SHARES-COMMON-PRIOR> 68,416
<ACCUMULATED-NII-CURRENT> 29,459
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,151,303
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 7,623,997
<NET-ASSETS> 66,337,592
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 31,369,008
<OTHER-INCOME> 0
<EXPENSES-NET> (1,905,820)
<NET-INVESTMENT-INCOME> 29,463,188
<REALIZED-GAINS-CURRENT> 19,038,590
<APPREC-INCREASE-CURRENT> 2,081,485
<NET-CHANGE-FROM-OPS> 50,583,263
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,657,724)
<DISTRIBUTIONS-OF-GAINS> (2,518,666)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,872,392
<NUMBER-OF-SHARES-REDEEMED> (51,149)
<SHARES-REINVESTED> 496,765
<NET-CHANGE-IN-ASSETS> 221,765,413
<ACCUMULATED-NII-PRIOR> 23,927
<ACCUMULATED-GAINS-PRIOR> (525,390)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,759,520
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,905,820
<AVERAGE-NET-ASSETS> 20,775,812
<PER-SHARE-NAV-BEGIN> 10.01
<PER-SHARE-NII> 1.05
<PER-SHARE-GAIN-APPREC> 0.71
<PER-SHARE-DIVIDEND> (0.95)
<PER-SHARE-DISTRIBUTIONS> (0.43)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.39
<EXPENSE-RATIO> 0.88
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000759751
<NAME> THE HUDSON RIVER TRUST
<SERIES>
<NUMBER> 061
<NAME> ALLIANCE GLOBAL PORTFOLIO - CLASS IA
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 1,077,021,016
<INVESTMENTS-AT-VALUE> 1,221,659,645
<RECEIVABLES> 17,711,631
<ASSETS-OTHER> 16,893,430
<OTHER-ITEMS-ASSETS> 113,847,792
<TOTAL-ASSETS> 1,370,112,498
<PAYABLE-FOR-SECURITIES> 28,420,108
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 116,305,395
<TOTAL-LIABILITIES> 144,725,503
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,067,798,356
<SHARES-COMMON-STOCK> 69,624,563
<SHARES-COMMON-PRIOR> 58,938,705
<ACCUMULATED-NII-CURRENT> 451,087
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 7,714,386
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 149,423,166
<NET-ASSETS> 1,203,866,924
<DIVIDEND-INCOME> 12,928,478
<INTEREST-INCOME> 6,100,385
<OTHER-INCOME> 0
<EXPENSES-NET> (7,978,101)
<NET-INVESTMENT-INCOME> 11,050,762
<REALIZED-GAINS-CURRENT> 101,771,496
<APPREC-INCREASE-CURRENT> 14,062,715
<NET-CHANGE-FROM-OPS> 126,884,973
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (23,003,562)
<DISTRIBUTIONS-OF-GAINS> (76,503,591)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 13,465,598
<NUMBER-OF-SHARES-REDEEMED> (8,663,149)
<SHARES-REINVESTED> 5,883,409
<NET-CHANGE-IN-ASSETS> 228,055,511
<ACCUMULATED-NII-PRIOR> (3,212,284)
<ACCUMULATED-GAINS-PRIOR> (258,562)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 7,017,899
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 7,978,101
<AVERAGE-NET-ASSETS> 1,135,597,542
<PER-SHARE-NAV-BEGIN> 16.92
<PER-SHARE-NII> 0.17
<PER-SHARE-GAIN-APPREC> 1.75
<PER-SHARE-DIVIDEND> (0.36)
<PER-SHARE-DISTRIBUTIONS> (1.19)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 17.29
<EXPENSE-RATIO> 0.69
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000759751
<NAME> THE HUDSON RIVER TRUST
<SERIES>
<NUMBER> 062
<NAME> ALLIANCE GLOBAL PORTFOLIO - CLASS IB
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 1,077,021,016
<INVESTMENTS-AT-VALUE> 1,221,659,645
<RECEIVABLES> 17,711,631
<ASSETS-OTHER> 16,893,430
<OTHER-ITEMS-ASSETS> 113,847,792
<TOTAL-ASSETS> 1,370,112,498
<PAYABLE-FOR-SECURITIES> 28,420,108
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 116,305,395
<TOTAL-LIABILITIES> 144,725,503
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,067,798,356
<SHARES-COMMON-STOCK> 1,246,147
<SHARES-COMMON-PRIOR> 17,143
<ACCUMULATED-NII-CURRENT> 451,087
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 7,714,386
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 149,423,166
<NET-ASSETS> 21,520,071
<DIVIDEND-INCOME> 12,928,478
<INTEREST-INCOME> 6,100,385
<OTHER-INCOME> 0
<EXPENSES-NET> (7,978,101)
<NET-INVESTMENT-INCOME> 11,050,762
<REALIZED-GAINS-CURRENT> 101,771,496
<APPREC-INCREASE-CURRENT> 14,062,715
<NET-CHANGE-FROM-OPS> 126,884,973
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (319,694)
<DISTRIBUTIONS-OF-GAINS> (1,359,092)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,232,644
<NUMBER-OF-SHARES-REDEEMED> (103,224)
<SHARES-REINVESTED> 99,584
<NET-CHANGE-IN-ASSETS> 228,055,511
<ACCUMULATED-NII-PRIOR> (3,212,284)
<ACCUMULATED-GAINS-PRIOR> (258,562)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 7,017,899
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 7,978,101
<AVERAGE-NET-ASSETS> 12,587,803
<PER-SHARE-NAV-BEGIN> 16.91
<PER-SHARE-NII> 0.12
<PER-SHARE-GAIN-APPREC> 1.76
<PER-SHARE-DIVIDEND> (0.33)
<PER-SHARE-DISTRIBUTIONS> (1.19)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 17.27
<EXPENSE-RATIO> 0.97
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000759751
<NAME> THE HUDSON RIVER TRUST
<SERIES>
<NUMBER> 071
<NAME> ALLIANCE CONSERVATIVE INVESTORS PORTFOLIO - CLASS IA
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 291,515,613
<INVESTMENTS-AT-VALUE> 311,255,843
<RECEIVABLES> 2,659,947
<ASSETS-OTHER> 39,071
<OTHER-ITEMS-ASSETS> 29,663,095
<TOTAL-ASSETS> 343,617,956
<PAYABLE-FOR-SECURITIES> 113,315
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 29,963,727
<TOTAL-LIABILITIES> 30,077,042
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 289,318,998
<SHARES-COMMON-STOCK> 25,886,381
<SHARES-COMMON-PRIOR> 25,019,109
<ACCUMULATED-NII-CURRENT> 35,314
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4,312,256
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 19,874,346
<NET-ASSETS> 307,846,822
<DIVIDEND-INCOME> 1,057,328
<INTEREST-INCOME> 12,801,311
<OTHER-INCOME> 0
<EXPENSES-NET> (1,657,535)
<NET-INVESTMENT-INCOME> 12,201,104
<REALIZED-GAINS-CURRENT> 13,986,324
<APPREC-INCREASE-CURRENT> 10,167,050
<NET-CHANGE-FROM-OPS> 36,354,478
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (11,954,796)
<DISTRIBUTIONS-OF-GAINS> (9,269,071)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,875,061
<NUMBER-OF-SHARES-REDEEMED> (3,816,982)
<SHARES-REINVESTED> 1,809,193
<NET-CHANGE-IN-ASSETS> 31,138,513
<ACCUMULATED-NII-PRIOR> 9,815
<ACCUMULATED-GAINS-PRIOR> (387,954)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,458,313
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,657,535
<AVERAGE-NET-ASSETS> 291,315,725
<PER-SHARE-NAV-BEGIN> 11.29
<PER-SHARE-NII> 0.49
<PER-SHARE-GAIN-APPREC> 0.97
<PER-SHARE-DIVIDEND> (0.49)
<PER-SHARE-DISTRIBUTIONS> (0.37)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.89
<EXPENSE-RATIO> 0.57
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000759751
<NAME> THE HUDSON RIVER TRUST
<SERIES>
<NUMBER> 072
<NAME> ALLIANCE CONSERVATIVE INVESTORS PORTFOLIO - CLASS IB
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> MAY-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 291,515,613
<INVESTMENTS-AT-VALUE> 311,255,843
<RECEIVABLES> 2,659,947
<ASSETS-OTHER> 39,071
<OTHER-ITEMS-ASSETS> 29,663,095
<TOTAL-ASSETS> 343,617,956
<PAYABLE-FOR-SECURITIES> 113,315
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 29,963,727
<TOTAL-LIABILITIES> 30,077,042
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 289,318,998
<SHARES-COMMON-STOCK> 479,176
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 35,314
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4,312,256
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 19,874,346
<NET-ASSETS> 5,694,092
<DIVIDEND-INCOME> 1,057,328
<INTEREST-INCOME> 12,801,311
<OTHER-INCOME> 0
<EXPENSES-NET> (1,657,535)
<NET-INVESTMENT-INCOME> 12,201,104
<REALIZED-GAINS-CURRENT> 13,986,324
<APPREC-INCREASE-CURRENT> 10,167,050
<NET-CHANGE-FROM-OPS> 36,354,478
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (74,433)
<DISTRIBUTIONS-OF-GAINS> (163,419)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 467,751
<NUMBER-OF-SHARES-REDEEMED> (8,774)
<SHARES-REINVESTED> 20,199
<NET-CHANGE-IN-ASSETS> 31,138,513
<ACCUMULATED-NII-PRIOR> 9,815
<ACCUMULATED-GAINS-PRIOR> (387,954)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,458,313
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,657,535
<AVERAGE-NET-ASSETS> 1,884,714
<PER-SHARE-NAV-BEGIN> 11.29
<PER-SHARE-NII> 0.31
<PER-SHARE-GAIN-APPREC> 1.01
<PER-SHARE-DIVIDEND> (0.36)
<PER-SHARE-DISTRIBUTIONS> (0.37)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.88
<EXPENSE-RATIO> 0.80
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000759751
<NAME> THE HUDSON RIVER TRUST
<SERIES>
<NUMBER> 081
<NAME> ALLIANCE GROWTH INVESTORS PORTFOLIO - CLASS IA
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 1,482,735,753
<INVESTMENTS-AT-VALUE> 1,657,357,208
<RECEIVABLES> 13,159,012
<ASSETS-OTHER> 2,638,254
<OTHER-ITEMS-ASSETS> 159,509,187
<TOTAL-ASSETS> 1,832,663,661
<PAYABLE-FOR-SECURITIES> 5,464,664
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 161,080,282
<TOTAL-LIABILITIES> 166,544,946
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,462,182,116
<SHARES-COMMON-STOCK> 87,899,970
<SHARES-COMMON-PRIOR> 75,693,420
<ACCUMULATED-NII-CURRENT> (1,463,848)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 28,847,706
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 176,552,741
<NET-ASSETS> 1,630,388,457
<DIVIDEND-INCOME> 10,909,405
<INTEREST-INCOME> 30,543,074
<OTHER-INCOME> 0
<EXPENSES-NET> (8,658,184)
<NET-INVESTMENT-INCOME> 32,794,295
<REALIZED-GAINS-CURRENT> 121,986,091
<APPREC-INCREASE-CURRENT> 78,749,885
<NET-CHANGE-FROM-OPS> 233,530,271
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (37,426,355)
<DISTRIBUTIONS-OF-GAINS> (84,649,354)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 9,706,135
<NUMBER-OF-SHARES-REDEEMED> (4,231,449)
<SHARES-REINVESTED> 6,731,864
<NET-CHANGE-IN-ASSETS> 364,003,732
<ACCUMULATED-NII-PRIOR> (1,135,946)
<ACCUMULATED-GAINS-PRIOR> (1,817,216)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 7,843,703
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 8,658,184
<AVERAGE-NET-ASSETS> 1,490,382,602
<PER-SHARE-NAV-BEGIN> 17.20
<PER-SHARE-NII> 0.41
<PER-SHARE-GAIN-APPREC> 2.43
<PER-SHARE-DIVIDEND> (0.46)
<PER-SHARE-DISTRIBUTIONS> (1.03)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 18.55
<EXPENSE-RATIO> 0.57
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000759751
<NAME> THE HUDSON RIVER TRUST
<SERIES>
<NUMBER> 082
<NAME> ALLIANCE GROWTH INVESTORS PORTFOLIO - CLASS IB
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 1,482,735,753
<INVESTMENTS-AT-VALUE> 1,657,357,208
<RECEIVABLES> 13,159,012
<ASSETS-OTHER> 2,638,254
<OTHER-ITEMS-ASSETS> 159,509,187
<TOTAL-ASSETS> 1,832,663,661
<PAYABLE-FOR-SECURITIES> 5,464,664
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 161,080,282
<TOTAL-LIABILITIES> 166,544,946
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,462,182,116
<SHARES-COMMON-STOCK> 1,928,937
<SHARES-COMMON-PRIOR> 27,468
<ACCUMULATED-NII-CURRENT> (1,463,848)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 28,847,706
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 176,552,741
<NET-ASSETS> 35,730,258
<DIVIDEND-INCOME> 10,909,405
<INTEREST-INCOME> 30,543,074
<OTHER-INCOME> 0
<EXPENSES-NET> (8,658,184)
<NET-INVESTMENT-INCOME> 32,794,295
<REALIZED-GAINS-CURRENT> 121,986,091
<APPREC-INCREASE-CURRENT> 78,749,885
<NET-CHANGE-FROM-OPS> 233,530,271
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (527,651)
<DISTRIBUTIONS-OF-GAINS> (1,840,006)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,855,983
<NUMBER-OF-SHARES-REDEEMED> (85,261)
<SHARES-REINVESTED> 130,747
<NET-CHANGE-IN-ASSETS> 364,003,732
<ACCUMULATED-NII-PRIOR> (1,135,946)
<ACCUMULATED-GAINS-PRIOR> (1,817,216)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 7,843,703
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 8,658,184
<AVERAGE-NET-ASSETS> 17,513,177
<PER-SHARE-NAV-BEGIN> 17.19
<PER-SHARE-NII> 0.36
<PER-SHARE-GAIN-APPREC> 2.43
<PER-SHARE-DIVIDEND> (0.43)
<PER-SHARE-DISTRIBUTIONS> (1.03)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 18.52
<EXPENSE-RATIO> 0.82
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000759751
<NAME> THE HUDSON RIVER TRUST
<SERIES>
<NUMBER> 101
<NAME> ALLIANCE INTERMEDIATE GOVT. SECURITIES PORTFOLIO-CLASS IA
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 113,600,359
<INVESTMENTS-AT-VALUE> 114,937,264
<RECEIVABLES> 10,202,214
<ASSETS-OTHER> 150,271
<OTHER-ITEMS-ASSETS> 8,514,530
<TOTAL-ASSETS> 140,167,319
<PAYABLE-FOR-SECURITIES> 5,013,423
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 14,988,000
<TOTAL-LIABILITIES> 20,001,423
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 127,643,383
<SHARES-COMMON-STOCK> 12,190,330
<SHARES-COMMON-PRIOR> 9,517,076
<ACCUMULATED-NII-CURRENT> 17,556
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (8,831,948)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,336,905
<NET-ASSETS> 115,114,412
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 6,319,864
<OTHER-INCOME> 0
<EXPENSES-NET> (565,114)
<NET-INVESTMENT-INCOME> 5,574,750
<REALIZED-GAINS-CURRENT> 995,258
<APPREC-INCREASE-CURRENT> 715,736
<NET-CHANGE-FROM-OPS> 7,465,744
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (5,646,086)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,317,481
<NUMBER-OF-SHARES-REDEEMED> (2,249,794)
<SHARES-REINVESTED> 605,567
<NET-CHANGE-IN-ASSETS> 31,781,471
<ACCUMULATED-NII-PRIOR> 3,160
<ACCUMULATED-GAINS-PRIOR> (9,831,366)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 512,659
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 565,114
<AVERAGE-NET-ASSETS> 101,506,744
<PER-SHARE-NAV-BEGIN> 9.29
<PER-SHARE-NII> 0.53
<PER-SHARE-GAIN-APPREC> 0.13
<PER-SHARE-DIVIDEND> (0.51)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.44
<EXPENSE-RATIO> 0.55
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000759751
<NAME> THE HUDSON RIVER TRUST
<SERIES>
<NUMBER> 102
<NAME> ALLIANCE INTERMEDIATE GOVT SECURITIES PORTFOLIO-CLASS IB
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> MAY-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 113,600,359
<INVESTMENTS-AT-VALUE> 114,937,264
<RECEIVABLES> 10,202,214
<ASSETS-OTHER> 150,271
<OTHER-ITEMS-ASSETS> 8,514,530
<TOTAL-ASSETS> 140,167,319
<PAYABLE-FOR-SECURITIES> 5,013,423
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 14,988,000
<TOTAL-LIABILITIES> 20,001,423
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 127,643,383
<SHARES-COMMON-STOCK> 535,399
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 17,556
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (8,831,948)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,336,905
<NET-ASSETS> 5,051,484
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 6,319,864
<OTHER-INCOME> 0
<EXPENSES-NET> (565,114)
<NET-INVESTMENT-INCOME> 5,574,750
<REALIZED-GAINS-CURRENT> 995,258
<APPREC-INCREASE-CURRENT> 715,736
<NET-CHANGE-FROM-OPS> 7,465,744
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (90,108)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 536,124
<NUMBER-OF-SHARES-REDEEMED> (10,301)
<SHARES-REINVESTED> 9,576
<NET-CHANGE-IN-ASSETS> 31,781,471
<ACCUMULATED-NII-PRIOR> 3,160
<ACCUMULATED-GAINS-PRIOR> (9,831,366)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 512,659
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 565,114
<AVERAGE-NET-ASSETS> 1,682,820
<PER-SHARE-NAV-BEGIN> 9.27
<PER-SHARE-NII> 0.32
<PER-SHARE-GAIN-APPREC> 0.22
<PER-SHARE-DIVIDEND> (0.38)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.43
<EXPENSE-RATIO> 0.81
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000759751
<NAME> THE HUDSON RIVER TRUST
<SERIES>
<NUMBER> 111
<NAME> ALLIANCE QUALITY BOND PORTFOLIO - CLASS IA
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 197,176,185
<INVESTMENTS-AT-VALUE> 199,082,370
<RECEIVABLES> 2,445,930
<ASSETS-OTHER> 1,850,749
<OTHER-ITEMS-ASSETS> 20,317,896
<TOTAL-ASSETS> 223,696,945
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 20,463,467
<TOTAL-LIABILITIES> 20,463,467
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 201,320,004
<SHARES-COMMON-STOCK> 20,863,418
<SHARES-COMMON-PRIOR> 16,343,116
<ACCUMULATED-NII-CURRENT> 321,561
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (541,234)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,133,147
<NET-ASSETS> 203,233,478
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 12,027,150
<OTHER-INCOME> 0
<EXPENSES-NET> (1,017,485)
<NET-INVESTMENT-INCOME> 11,009,665
<REALIZED-GAINS-CURRENT> 5,117,055
<APPREC-INCREASE-CURRENT> (291,468)
<NET-CHANGE-FROM-OPS> 15,835,252
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (11,132,504)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,108,456
<NUMBER-OF-SHARES-REDEEMED> (1,749,691)
<SHARES-REINVESTED> 1,161,537
<NET-CHANGE-IN-ASSETS> 48,210,006
<ACCUMULATED-NII-PRIOR> (220,079)
<ACCUMULATED-GAINS-PRIOR> (4,993,810)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 946,523
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,017,485
<AVERAGE-NET-ASSETS> 177,921,641
<PER-SHARE-NAV-BEGIN> 9.49
<PER-SHARE-NII> 0.60
<PER-SHARE-GAIN-APPREC> 0.24
<PER-SHARE-DIVIDEND> (0.59)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.74
<EXPENSE-RATIO> 0.57
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000759751
<NAME> THE HUDSON RIVER TRUST
<SERIES>
<NUMBER> 121
<NAME> ALLIANCE GROWTH & INCOME PORTFOLIO - CLASS IA
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 511,226,533
<INVESTMENTS-AT-VALUE> 584,091,770
<RECEIVABLES> 5,794,575
<ASSETS-OTHER> 136,662
<OTHER-ITEMS-ASSETS> 83,697,400
<TOTAL-ASSETS> 673,720,407
<PAYABLE-FOR-SECURITIES> 1,517,259
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 84,447,255
<TOTAL-LIABILITIES> 85,964,514
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 507,451,775
<SHARES-COMMON-STOCK> 36,099,131
<SHARES-COMMON-PRIOR> 17,833,887
<ACCUMULATED-NII-CURRENT> (7,871)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 7,446,752
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 72,865,237
<NET-ASSETS> 555,058,953
<DIVIDEND-INCOME> 5,855,617
<INTEREST-INCOME> 528,528
<OTHER-INCOME> 0
<EXPENSES-NET> (2,389,403)
<NET-INVESTMENT-INCOME> 3,944,742
<REALIZED-GAINS-CURRENT> 40,626,845
<APPREC-INCREASE-CURRENT> 45,313,202
<NET-CHANGE-FROM-OPS> 89,934,789
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3,997,147)
<DISTRIBUTIONS-OF-GAINS> (31,316,552)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 17,042,406
<NUMBER-OF-SHARES-REDEEMED> (1,171,007)
<SHARES-REINVESTED> 2,393,845
<NET-CHANGE-IN-ASSETS> 355,675,505
<ACCUMULATED-NII-PRIOR> 11,797
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,241,190
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,389,403
<AVERAGE-NET-ASSETS> 399,997,446
<PER-SHARE-NAV-BEGIN> 13.01
<PER-SHARE-NII> 0.15
<PER-SHARE-GAIN-APPREC> 3.30
<PER-SHARE-DIVIDEND> (0.15)
<PER-SHARE-DISTRIBUTIONS> (0.93)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.38
<EXPENSE-RATIO> 0.58
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000759751
<NAME> THE HUDSON RIVER TRUST
<SERIES>
<NUMBER> 122
<NAME> ALLIANCE GROWTH & INCOME PORTFOLIO - CLASS IB
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> MAY-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 511,226,533
<INVESTMENTS-AT-VALUE> 584,091,770
<RECEIVABLES> 5,794,575
<ASSETS-OTHER> 136,662
<OTHER-ITEMS-ASSETS> 83,697,400
<TOTAL-ASSETS> 673,720,407
<PAYABLE-FOR-SECURITIES> 1,517,259
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 84,447,255
<TOTAL-LIABILITIES> 85,964,514
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 507,451,775
<SHARES-COMMON-STOCK> 2,128,126
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> (7,871)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 7,446,752
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 72,865,237
<NET-ASSETS> 32,696,940
<DIVIDEND-INCOME> 5,855,617
<INTEREST-INCOME> 528,528
<OTHER-INCOME> 0
<EXPENSES-NET> (2,389,403)
<NET-INVESTMENT-INCOME> 3,944,742
<REALIZED-GAINS-CURRENT> 40,626,845
<APPREC-INCREASE-CURRENT> 45,313,202
<NET-CHANGE-FROM-OPS> 89,934,789
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (65,287)
<DISTRIBUTIONS-OF-GAINS> (1,815,517)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,001,059
<NUMBER-OF-SHARES-REDEEMED> (266)
<SHARES-REINVESTED> 127,333
<NET-CHANGE-IN-ASSETS> 355,675,505
<ACCUMULATED-NII-PRIOR> 11,797
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,241,190
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,389,403
<AVERAGE-NET-ASSETS> 13,201,616
<PER-SHARE-NAV-BEGIN> 13.42
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 2.91
<PER-SHARE-DIVIDEND> (0.09)
<PER-SHARE-DISTRIBUTIONS> (0.93)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.36
<EXPENSE-RATIO> 0.83
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000759751
<NAME> THE HUDSON RIVER TRUST
<SERIES>
<NUMBER> 131
<NAME> ALLIANCE EQUITY INDEX PORTFOLIO - CLASS IA
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 717,317,746
<INVESTMENTS-AT-VALUE> 938,556,102
<RECEIVABLES> 5,699,776
<ASSETS-OTHER> 99,549
<OTHER-ITEMS-ASSETS> 109,536,553
<TOTAL-ASSETS> 1,053,891,980
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 110,150,956
<TOTAL-LIABILITIES> 110,150,956
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 722,427,560
<SHARES-COMMON-STOCK> 47,791,119
<SHARES-COMMON-PRIOR> 25,484,413
<ACCUMULATED-NII-CURRENT> (17,221)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (46,439)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 221,377,124
<NET-ASSETS> 943,630,904
<DIVIDEND-INCOME> 11,411,812
<INTEREST-INCOME> 789,772
<OTHER-INCOME> 0
<EXPENSES-NET> (2,446,589)
<NET-INVESTMENT-INCOME> 9,754,995
<REALIZED-GAINS-CURRENT> 3,560,666
<APPREC-INCREASE-CURRENT> 159,119,452
<NET-CHANGE-FROM-OPS> 172,435,113
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (10,027,043)
<DISTRIBUTIONS-OF-GAINS> (3,323,415)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 25,418,356
<NUMBER-OF-SHARES-REDEEMED> (3,834,705)
<SHARES-REINVESTED> 723,055
<NET-CHANGE-IN-ASSETS> 557,491,843
<ACCUMULATED-NII-PRIOR> (5,276)
<ACCUMULATED-GAINS-PRIOR> (22,547)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,197,395
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,446,589
<AVERAGE-NET-ASSETS> 669,441,936
<PER-SHARE-NAV-BEGIN> 15.16
<PER-SHARE-NII> 0.26
<PER-SHARE-GAIN-APPREC> 4.64
<PER-SHARE-DIVIDEND> (0.25)
<PER-SHARE-DISTRIBUTIONS> (0.07)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 19.74
<EXPENSE-RATIO> 0.37
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000759751
<NAME> THE HUDSON RIVER TRUST
<SERIES>
<NUMBER> 132
<NAME> ALLIANCE EQUITY INDEX PORTFOLIO - CLASS IB
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> MAY-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 717,317,746
<INVESTMENTS-AT-VALUE> 938,556,102
<RECEIVABLES> 5,699,776
<ASSETS-OTHER> 99,549
<OTHER-ITEMS-ASSETS> 109,536,553
<TOTAL-ASSETS> 1,053,891,980
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 110,150,956
<TOTAL-LIABILITIES> 110,150,956
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 722,427,560
<SHARES-COMMON-STOCK> 5,580
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> (17,221)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (46,439)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 221,377,124
<NET-ASSETS> 110,120
<DIVIDEND-INCOME> 11,411,812
<INTEREST-INCOME> 789,772
<OTHER-INCOME> 0
<EXPENSES-NET> (2,446,589)
<NET-INVESTMENT-INCOME> 9,754,995
<REALIZED-GAINS-CURRENT> 3,560,666
<APPREC-INCREASE-CURRENT> 159,119,452
<NET-CHANGE-FROM-OPS> 172,435,113
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (648)
<DISTRIBUTIONS-OF-GAINS> (392)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7,451
<NUMBER-OF-SHARES-REDEEMED> (1,926)
<SHARES-REINVESTED> 55
<NET-CHANGE-IN-ASSETS> 557,491,843
<ACCUMULATED-NII-PRIOR> (5,276)
<ACCUMULATED-GAINS-PRIOR> (22,547)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,197,395
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,446,589
<AVERAGE-NET-ASSETS> 64,701
<PER-SHARE-NAV-BEGIN> 16.35
<PER-SHARE-NII> 0.14
<PER-SHARE-GAIN-APPREC> 3.48
<PER-SHARE-DIVIDEND> (0.17)
<PER-SHARE-DISTRIBUTIONS> (0.07)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 19.73
<EXPENSE-RATIO> 0.62
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000759751
<NAME> THE HUDSON RIVER TRUST
<SERIES>
<NUMBER> 141
<NAME> ALLIANCE INTERNATIONAL PORTFOLIO - CLASS IA
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 195,035,943
<INVESTMENTS-AT-VALUE> 182,951,529
<RECEIVABLES> 4,662,938
<ASSETS-OTHER> 8,347,523
<OTHER-ITEMS-ASSETS> 15,052,581
<TOTAL-ASSETS> 211,014,571
<PAYABLE-FOR-SECURITIES> 1,563,213
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 15,554,182
<TOTAL-LIABILITIES> 17,117,395
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 210,004,133
<SHARES-COMMON-STOCK> 18,568,973
<SHARES-COMMON-PRIOR> 13,214,071
<ACCUMULATED-NII-CURRENT> (1,256,432)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (4,700,245)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (10,150,280)
<NET-ASSETS> 190,610,696
<DIVIDEND-INCOME> 2,632,662
<INTEREST-INCOME> 1,090,065
<OTHER-INCOME> 0
<EXPENSES-NET> (2,112,763)
<NET-INVESTMENT-INCOME> 1,609,964
<REALIZED-GAINS-CURRENT> 8,394,226
<APPREC-INCREASE-CURRENT> (15,340,188)
<NET-CHANGE-FROM-OPS> (5,335,998)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (5,505,067)
<DISTRIBUTIONS-OF-GAINS> (9,560,102)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 17,702,398
<NUMBER-OF-SHARES-REDEEMED> (13,816,916)
<SHARES-REINVESTED> 1,469,420
<NET-CHANGE-IN-ASSETS> 41,990,341
<ACCUMULATED-NII-PRIOR> (614,431)
<ACCUMULATED-GAINS-PRIOR> (50,107)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,762,245
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,112,763
<AVERAGE-NET-ASSETS> 194,803,800
<PER-SHARE-NAV-BEGIN> 11.50
<PER-SHARE-NII> 0.10
<PER-SHARE-GAIN-APPREC> (0.45)
<PER-SHARE-DIVIDEND> (0.32)
<PER-SHARE-DISTRIBUTIONS> (0.56)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.27
<EXPENSE-RATIO> 1.08
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000759751
<NAME> THE HUDSON RIVER TRUST
<SERIES>
<NUMBER> 142
<NAME> ALLIANCE INTERNATIONAL PORTFOLIO - CLASS IB
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> MAY-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 195,035,943
<INVESTMENTS-AT-VALUE> 182,951,529
<RECEIVABLES> 4,662,938
<ASSETS-OTHER> 8,347,523
<OTHER-ITEMS-ASSETS> 15,052,581
<TOTAL-ASSETS> 211,014,571
<PAYABLE-FOR-SECURITIES> 1,563,213
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 15,554,182
<TOTAL-LIABILITIES> 17,117,395
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 210,004,133
<SHARES-COMMON-STOCK> 320,403
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> (1,256,432)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (4,700,245)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (10,150,280)
<NET-ASSETS> 3,286,480
<DIVIDEND-INCOME> 2,632,662
<INTEREST-INCOME> 1,090,065
<OTHER-INCOME> 0
<EXPENSES-NET> (2,112,763)
<NET-INVESTMENT-INCOME> 1,609,964
<REALIZED-GAINS-CURRENT> 8,394,226
<APPREC-INCREASE-CURRENT> (15,340,188)
<NET-CHANGE-FROM-OPS> (5,335,998)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (69,625)
<DISTRIBUTIONS-OF-GAINS> (161,535)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 317,031
<NUMBER-OF-SHARES-REDEEMED> (19,496)
<SHARES-REINVESTED> 22,868
<NET-CHANGE-IN-ASSETS> 41,990,341
<ACCUMULATED-NII-PRIOR> (614,431)
<ACCUMULATED-GAINS-PRIOR> (50,107)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,762,245
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,112,763
<AVERAGE-NET-ASSETS> 1,734,240
<PER-SHARE-NAV-BEGIN> 11.39
<PER-SHARE-NII> 0.02
<PER-SHARE-GAIN-APPREC> (0.31)
<PER-SHARE-DIVIDEND> (0.28)
<PER-SHARE-DISTRIBUTIONS> (0.56)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.26
<EXPENSE-RATIO> 1.38
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000759751
<NAME> THE HUDSON RIVER TRUST
<SERIES>
<NUMBER> 151
<NAME> ALLIANCE SMALL CAP GROWTH PORTFOLIO - CLASS IA
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> MAY-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 153,110,020
<INVESTMENTS-AT-VALUE> 153,853,714
<RECEIVABLES> 1,797,272
<ASSETS-OTHER> 380,306
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 156,031,292
<PAYABLE-FOR-SECURITIES> 7,702,919
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 7,328,921
<TOTAL-LIABILITIES> 15,031,840
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 141,856,917
<SHARES-COMMON-STOCK> 7,666,635
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> (461)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,600,698)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 743,694
<NET-ASSETS> 94,675,696
<DIVIDEND-INCOME> 138,366
<INTEREST-INCOME> 273,322
<OTHER-INCOME> 0
<EXPENSES-NET> (395,330)
<NET-INVESTMENT-INCOME> 16,358
<REALIZED-GAINS-CURRENT> 1,627,719
<APPREC-INCREASE-CURRENT> 743,694
<NET-CHANGE-FROM-OPS> 2,387,771
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (16,325)
<DISTRIBUTIONS-OF-GAINS> (2,163,100)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 12,473,113
<NUMBER-OF-SHARES-REDEEMED> (4,992,168)
<SHARES-REINVESTED> 185,690
<NET-CHANGE-IN-ASSETS> 140,999,452
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 349,889
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 395,330
<AVERAGE-NET-ASSETS> 42,511,760
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.01
<PER-SHARE-GAIN-APPREC> 2.65
<PER-SHARE-DIVIDEND> (0.01)
<PER-SHARE-DISTRIBUTIONS> (0.30)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.35
<EXPENSE-RATIO> 0.95
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000759751
<NAME> THE HUDSON RIVER TRUST
<SERIES>
<NUMBER> 152
<NAME> ALLIANCE SMALL CAP GROWTH PORTFOLIO - CLASS IB
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> MAY-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 153,110,020
<INVESTMENTS-AT-VALUE> 153,853,714
<RECEIVABLES> 1,797,272
<ASSETS-OTHER> 380,306
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 156,031,292
<PAYABLE-FOR-SECURITIES> 7,702,919
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 7,328,921
<TOTAL-LIABILITIES> 15,031,840
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 141,856,917
<SHARES-COMMON-STOCK> 3,752,576
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> (461)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,600,698)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 743,694
<NET-ASSETS> 46,323,756
<DIVIDEND-INCOME> 138,366
<INTEREST-INCOME> 273,322
<OTHER-INCOME> 0
<EXPENSES-NET> (395,330)
<NET-INVESTMENT-INCOME> 16,358
<REALIZED-GAINS-CURRENT> 1,627,719
<APPREC-INCREASE-CURRENT> 743,694
<NET-CHANGE-FROM-OPS> 2,387,771
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (904)
<DISTRIBUTIONS-OF-GAINS> (1,071,973)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,666,066
<NUMBER-OF-SHARES-REDEEMED> (5,055)
<SHARES-REINVESTED> 91,565
<NET-CHANGE-IN-ASSETS> 140,999,452
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 349,889
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 395,330
<AVERAGE-NET-ASSETS> 16,265,111
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> (0.01)
<PER-SHARE-GAIN-APPREC> 2.65
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.30)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.34
<EXPENSE-RATIO> 1.15
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
