<PAGE>
Filed Pursuant to Rule 497(e)
Registration File No.: 2-94996
THE HUDSON RIVER TRUST
Principal Office Located at
1345 Avenue of the Americas -- New York, New York 10105
The Hudson River Trust (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 offered by this
prospectus are Alliance Conservative Investors, Alliance Growth Investors,
Alliance Growth and Income, Alliance Equity Index, Alliance Common Stock,
Alliance Global, Alliance International, Alliance Aggressive Stock and Alliance
Small Cap Growth, Alliance Money Market, Alliance Intermediate Government
Securities 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 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, 1998 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
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PAGE
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<S> <C>
Financial Highlights .............................. 2
The Trust ......................................... 5
Investment Objectives and Policies ................ 5
Investment Techniques ............................. 17
Certain Investment Restrictions ................... 23
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
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, 1998
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HRT103 (5/98) V.6 Copyright 1998 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, 1997
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.
FINANCIAL HIGHLIGHTS
PER SHARE INCOME AND CAPITAL CHANGES
(FOR A CLASS IB SHARE OUTSTANDING THROUGHOUT THE PERIOD)(C)
<TABLE>
<CAPTION>
ALLIANCE
MONEY MARKET
-------------------------------
OCTOBER 2,
YEAR ENDED 1996 TO
DECEMBER 31, DECEMBER 31,
1997 1996
-------------- ----------------
<S> <C> <C>
Net asset value, beginning of period(a) ........ $ 10.16 $ 10.16
-------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ......................... 0.52 0.11
Net realized and unrealized gain on
investments .................................. -- 0.01
-------- ---------
Total from investment operations .............. 0.52 0.12
-------- ---------
LESS DISTRIBUTIONS:
Dividends from net investment income .......... (0.51) (0.02)
Dividends in excess of net investment
income ....................................... -- (0.10)
Distributions from realized gains ............. (0.00) --
Distributions in excess of realized gains ..... -- --
-------- ---------
Total dividends and distributions ............. (0.51) (0.12)
-------- ---------
Net asset value, end of period ................. $ 10.17 $ 10.16
======== =========
Total return(d) ................................ 5.16% 1.29%
======== =========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) .............. $123,675 $ 3,184
Ratio of expenses to average net assets ........ 0.63% 0.67%(b)
Ratio of net investment income to average
net assets .................................... 5.02% 4.94%(b)
Portfolio turnover rate ........................ -- --
Average commission rate paid ................... -- --
<CAPTION>
ALLIANCE
INTERMEDIATE ALLIANCE
GOVERNMENT ALLIANCE GROWTH AND
SECURITIES HIGH YIELD INCOME
---------------- ------------------------------- ----------------
MAY 1, 1997 OCTOBER 2, MAY 1, 1997
TO YEAR ENDED 1996 TO TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1997 1996 1997
---------------- -------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period(a) ........ $ 9.27 $ 10.01 $ 10.25 $ 13.42
--------- ------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ......................... 0.32 1.05 0.19 0.05
Net realized and unrealized gain on
investments .................................. 0.22 0.71 0.15 2.91
--------- ------- --------- ---------
Total from investment operations .............. 0.54 1.76 0.34 2.96
--------- ------- --------- ---------
LESS DISTRIBUTIONS:
Dividends from net investment income .......... (0.38) (0.95) (0.03) (0.09)
Dividends in excess of net investment
income ....................................... -- -- (0.25) --
Distributions from realized gains ............. -- (0.43) (0.01) (0.93)
Distributions in excess of realized gains ..... -- -- (0.29) --
--------- ------- --------- ---------
Total dividends and distributions ............. (0.38) (1.38) (0.58) (1.02)
--------- ------- --------- ---------
Net asset value, end of period ................. $ 9.43 $ 10.39 $ 10.01 $ 15.36
========= ======= ========= =========
Total return(d) ................................ 5.83% 18.19% 3.32% 22.41%
========= ======= ========= =========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) .............. $ 5,052 $66,338 $ 685 $ 32,697
Ratio of expenses to average net assets ........ 0.81%(b) 0.88% 0.82%(b) 0.83%(b)
Ratio of net investment income to average
net assets .................................... 5.15%(b) 9.76% 8.71%(b) 0.43%(b)
Portfolio turnover rate ........................ 285% 390% 485% 79%
Average commission rate paid ................... -- -- -- $ 0.0586
</TABLE>
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Footnotes appear on page 4.
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The Hudson River Trust 2
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<TABLE>
<CAPTION>
ALLIANCE
EQUITY ALLIANCE
INDEX COMMON STOCK
---------------- -------------------------------
MAY 1, 1997 OCTOBER 2,
TO YEAR ENDED 1996 TO
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1997 1996
---------------- -------------- ----------------
<S> <C> <C> <C>
Net asset value, beginning of period(a) ........ $ 16.35 $ 18.22 $ 17.90
------- ------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ......................... 0.14 0.10 0.02
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions ................................. 3.48 5.11 1.52
------- ------- -------
Total from investment operations .............. 3.62 5.21 1.54
------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income .......... (0.17) (0.08) (0.00)
Dividends in excess of net investment
income ....................................... -- -- (0.03)
Distributions from realized gains ............. (0.07) (1.77) (0.16)
Distributions in excess of realized gains ..... -- -- (1.03)
Tax return of capital distributions ........... -- -- --
--------- --------- ---------
Total dividends and distributions ............. (0.24) (1.85) (1.22)
--------- --------- ---------
Net asset value, end of period ................. $ 19.73 $ 21.58 $ 18.22
========= ========= =========
Total return(d) ................................ 22.28% 29.07% 8.49%
========= ========= =========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) .............. $ 110 $ 228,780 $ 1,244
Ratio of expenses to average net assets ........ 0.62%(b) 0.64% 0.63%(b)
Ratio of net investment income to average
net assets .................................... 1.10%(b) 0.46% 0.61%(b)
Portfolio turnover rate ........................ 3% 52% 55%
Average commission rate paid ................... $ 0.0309 $ 0.0579 $ 0.0565
<CAPTION>
ALLIANCE ALLIANCE
GLOBAL INTERNATIONAL
------------------------------- ----------------
OCTOBER 2, MAY 1, 1997
YEAR ENDED 1996 TO TO
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1997
-------------- ---------------- ----------------
<S> <C> <C> <C>
Net asset value, beginning of period(a) ........ $ 16.91 $ 16.57 $ 11.39
------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ......................... 0.12 0.02 0.02
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions ................................. 1.76 0.81 (0.31)
------- ------- ---------
Total from investment operations .............. 1.88 0.83 (0.29)
------- ------- ---------
LESS DISTRIBUTIONS:
Dividends from net investment income .......... (0.33) -- (0.28)
Dividends in excess of net investment
income ....................................... -- (0.11) --
Distributions from realized gains ............. (1.19) (0.10) (0.56)
Distributions in excess of realized gains ..... -- (0.28) --
Tax return of capital distributions ........... -- (0.00) --
--------- --------- ---------
Total dividends and distributions ............. (1.52) (0.49) (0.84)
--------- --------- ---------
Net asset value, end of period ................. $ 17.27 $ 16.91 $ 10.26
========= ========= =========
Total return(d) ................................ 11.38% 4.98% (2.54)%
========= ========= =========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) .............. $ 21,520 $ 290 $ 3,286
Ratio of expenses to average net assets ........ 0.97% 0.86%(b) 1.38%(b)
Ratio of net investment income to average
net assets .................................... 0.67% 0.48%(b) 0.20%(b)
Portfolio turnover rate ........................ 57% 59% 59%
Average commission rate paid ................... $ 0.0412 $ 0.0418 $ 0.0294
</TABLE>
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Footnotes appear on page 4.
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3 The Hudson River Trust
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<TABLE>
<CAPTION>
ALLIANCE
AGGRESSIVE STOCK
---------------------------------
OCTOBER 2,
YEAR ENDED 1996 TO
DECEMBER 31, DECEMBER 31,
1997 1996
-------------- ------------------
<S> <C> <C>
Net asset value, beginning of period(a) ........ $ 35.83 $ 37.28
-------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .................. (0.11) (0.01)
Net realized and unrealized gain on
investments and foreign currency
transactions ................................. 3.77 0.85
-------- ----------
Total from investment operations .............. 3.66 0.84
-------- ----------
LESS DISTRIBUTIONS:
Dividends from net investment income .......... (0.03) --
Dividends in excess of net investment
income ....................................... -- (0.02)
Distributions from realized gains ............. (3.33) (0.23)
Distributions in excess of realized gains ..... -- (2.04)
-------- ----------
Total dividends and distributions ............. (3.36) (2.29)
-------- ----------
Net asset value, end of period ................. $ 36.13 $ 35.83
======== ==========
Total return(d) ................................ 10.66% 2.32%
======== ==========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) .............. $ 73,486 $ 613
Ratio of expenses to average net assets ........ 0.81% 0.73%(b)
Ratio of net investment income (loss) to
average net assets ............................ (0.28)% (0.10)%(b)
Portfolio turnover rate ........................ 123% 108%
Average commission rate paid ................... $ 0.0571 $ 0.0263
<CAPTION>
ALLIANCE ALLIANCE
SMALL CAP CONSERVATIVE ALLIANCE
GROWTH INVESTORS GROWTH INVESTORS
------------------ ---------------- -------------------------------
MAY 1, 1997 MAY 1, 1997 OCTOBER 2,
TO TO YEAR ENDED 1996 TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1997 1997 1996
------------------ ---------------- -------------- ----------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period(a) ........ $ 10.00 $ 11.29 $ 17.19 $ 16.78
---------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .................. (0.01) 0.31 0.36 0.07
Net realized and unrealized gain on
investments and foreign currency
transactions ................................. 2.65 1.01 2.43 0.71
---------- --------- --------- ---------
Total from investment operations .............. 2.64 1.32 2.79 0.78
---------- --------- --------- ---------
LESS DISTRIBUTIONS:
Dividends from net investment income .......... (0.00) (0.36) (0.43) (0.02)
Dividends in excess of net investment
income ....................................... -- -- -- (0.09)
Distributions from realized gains ............. (0.30) (0.37) (1.03) (0.02)
Distributions in excess of realized gains ..... -- -- -- (0.24)
---------- --------- --------- ---------
Total dividends and distributions ............. (0.30) (0.73) (1.46) (0.37)
---------- --------- --------- ---------
Net asset value, end of period ................. $ 12.34 $ 11.88 $ 18.52 $ 17.19
========== ========= ========= =========
Total return(d) ................................ 26.57% 11.84% 16.58% 4.64%
========== ========= ========= =========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) .............. $ 46,324 5,694 $35,730 $ 472
Ratio of expenses to average net assets ........ 1.15%(b) 0.80%(b) 0.82% 0.84%(b)
Ratio of net investment income (loss) to
average net assets ............................ (0.12)%(b) 3.82%(b) 1.88% 1.69%(b)
Portfolio turnover rate ........................ 96% 206% 121% 190%
Average commission rate paid ................... $ 0.0488 $0.0413 $0.0460 $0.0495
</TABLE>
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(a) Date as of which funds were first allocated to the Portfolios are as
follows:
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.
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The Hudson River Trust 4
<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, 1998, 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.
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 Growth Investors Portfolio's fundamental investment
objective is to achieve the highest total return consistent with the
investment adviser's determination of reasonable risk. It will pursue
this objective by investing in a diversified mix of publicly traded
equity and fixed income securities, including at times common stocks
issued by intermediate and small-sized companies and at times lower
quality fixed income securities commonly known as "junk bonds."
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.
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5
The Hudson River Trust
<PAGE>
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
the investment adviser, 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 the investment adviser, have favorable
growth prospects.
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 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 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 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
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The Hudson River Trust 6
<PAGE>
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.
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.
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
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7 The Hudson River Trust
<PAGE>
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, 1997, the duration of a 10-year Treasury bond was
considered by Alliance to be 7.3 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 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, 1997, approximately 19% of the Portfolio was invested in fixed
income securities. 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.
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The Hudson River Trust 8
<PAGE>
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 A.
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.
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
Composite Stock Price 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
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9 The Hudson River Trust
<PAGE>
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.
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.
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The Hudson River Trust
<PAGE>
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, 1997, 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.
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
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11 The Hudson River Trust
<PAGE>
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.
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 pursues its objective by investing
primarily in U.S. common stocks and other equity-type securities issued by
smaller companies with favorable growth prospects. The
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The Hudson River Trust 12
<PAGE>
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 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
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13 The Hudson River Trust
<PAGE>
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.
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.
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<PAGE>
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, 1997, the duration of a 10-year Treasury bond was considered by
Alliance to be 7.3 years. The Portfolio may also invest a substantial portion
of its assets in money market instruments. See "Investment Techniques--Certain
Money Market Instruments," below.
It is a fundamental policy of the 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.
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<PAGE>
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 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
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<PAGE>
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 A,
"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, 1997, 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: 10% in securities rated
AAA or its equivalent, 6.8% in securities rated BB or its equivalent, 69.2% in
securities rated B or its equivalent and 4% in securities rated CCC or its
equivalent. Of these securities, 90% were rated by an NRSRO and 10% were
unrated. All of the unrated securities were considered by the investment
adviser to be of comparable quality to the Portfolio's investments rated by an
NRSRO.
The Portfolio may also invest in fixed income securities which are providing
high current yields because of risks other than credit, such as prepayment
risks, in the case of mortgage-backed securities, or currency risks, in the
case of non-U.S. dollar denominated foreign securities. 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
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 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
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17 The Hudson River Trust
<PAGE>
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 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
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The Hudson River Trust 18
<PAGE>
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 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.
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19 The Hudson River Trust
<PAGE>
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 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
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The Hudson River Trust 20
<PAGE>
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, such options
are subject to the risk that the counterparty may fail to meet its obligations
to the Fund, and it may be difficult to enter into closing transactions with
respect to such options. Such options, and the securities used as "cover" for
such options, may be considered illiquid securities.
In instances in which a Portfolio has entered into agreements with primary
dealers with respect to the over-the-counter options it has written, and such
agreements would enable the Portfolio to have an absolute right to repurchase
at a pre-established formula price the over-the-counter option written by it,
the Portfolio would treat as illiquid securities only the amount equal to the
formula price described above less the amount by which the option is
"in-the-money," i.e., the amount by which the price of the option exceeds the
exercise price.
The Portfolios, 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, such options
are subject to the risk that the counterparty may fail to meet its obligations
to the Fund, and 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 and Alliance Intermediate
Government Securities 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 Portfolio) 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 Common Stock, Alliance Aggressive Stock, Alliance Small Cap Growth and
Alliance
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21 The Hudson River Trust
<PAGE>
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.
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. For
these purposes, "foreign securities" are securities of foreign issuers that are
not traded in U.S. markets. Each of the Portfolios, except the Alliance
Intermediate Government Securities Portfolio, may invest in American depositary
receipts and securities of foreign issuers that are traded in U.S. markets.
These securities may involve certain of the risks described below for 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
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The Hudson River Trust 22
<PAGE>
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 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.
- --------------------------------------------------------------------------------
23 The Hudson River Trust
<PAGE>
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.
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 Hudson River Trust 24
<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>
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 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 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 AND ALLIANCE GROWTH INVESTORS PORTFOLIOS
Robert G. Heisterberg has been the person principally responsible for the
Alliance Conservative Investors 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.
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 1996 and Mr. Kuck since the Portfolio's inception. Mr. Rissman, a Senior
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. DeVivo has been the person principally responsible for the Alliance
Equity Index Portfolio's investment program since its inception. Ms. DeVivo, 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
Bruce Calvert and Ronald L. Simcoe have been the persons principally
responsible for the Alliance Global Portfolio's investment program, Mr. Calvert
since 1998 and Mr. Simcoe since 1988; and the
- --------------------------------------------------------------------------------
25 The Hudson River Trust
<PAGE>
Alliance International Portfolio's investment program, Mr. Calvert since 1998
and Mr. Simcoe since its inception. Mr. Calvert, the Vice Chairman and Chief
Investment Officer of Alliance, has been associated with Alliance since 1973.
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 Senior 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 Senior
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 Senior Vice President of Alliance, has been associated
with Alliance since 1988.
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 Senior 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
- --------------------------------------------------------------------------------
The Hudson River Trust 26
<PAGE>
information for Class IB shares for the year ended December 31, 1997 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, 1997 and
(ii) estimated accounting expenses for the year ended December 31, 1997.
<TABLE>
<CAPTION>
ALLIANCE
ALLIANCE ALLIANCE GROWTH ALLIANCE ALLIANCE ALLIANCE
CONSERVATIVE GROWTH AND EQUITY COMMON SMALL CAP
INVESTORS INVESTORS INCOME INDEX STOCK GROWTH
TYPE OF EXPENSE PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------------ -------------- ----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Investment Advisory
Fees .................. 0.48% 0.52% 0.55% 0.32% 0.37% 0.90%
12b-1 Fees ............. 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
Other Expenses ......... 0.07% 0.05% 0.04% 0.04% 0.03% 0.05%
---- ---- ---- ---- ---- ----
Total Expenses ......... 0.80% 0.82% 0.84% 0.61% 0.65% 1.20%
==== ==== ==== ==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
ALLIANCE
ALLIANCE ALLIANCE INTERMEDIATE ALLIANCE
ALLIANCE AGGRESSIVE MONEY GOVERNMENT HIGH ALLIANCE
GLOBAL STOCK MARKET SECURITIES YIELD INTERNATIONAL
TYPE OF EXPENSE PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------------ ----------- ------------ ----------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Investment Advisory
Fees .................. 0.65% 0.54% 0.35% 0.50% 0.60% 0.90%
12b-1 Fees ............. 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
Other Expenses ......... 0.08% 0.03% 0.04% 0.06% 0.04% 0.18%
---- ---- ---- ---- ---- ----
Total Expenses ......... 0.98% 0.82% 0.64% 0.81% 0.89% 1.33%
==== ==== ==== ==== ==== ====
</TABLE>
Actual investment advisory fees, other expenses and total expenses for the
period ended December 31, 1997 were as follows:
<TABLE>
<CAPTION>
ALLIANCE
ALLIANCE ALLIANCE GROWTH ALLIANCE ALLIANCE ALLIANCE
CONSERVATIVE GROWTH AND EQUITY COMMON SMALL CAP
INVESTORS INVESTORS INCOME INDEX STOCK GROWTH
TYPE OF EXPENSE PORTFOLIO* PORTFOLIO PORTFOLIO* PORTFOLIO* PORTFOLIO PORTFOLIO*
- ------------------------ -------------- ----------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Investment Advisory
Fees .................. 0.48% 0.52% 0.55% 0.33% 0.36% 0.90%
12b-1 Fees ............. 0.25% 0.25% 0.25% 0.25% 0.25% 0.20%
Other Expenses ......... 0.07% 0.05% 0.03% 0.04% 0.03% 0.05%
---- ---- ---- ---- ---- ----
Total Expenses ......... 0.80% 0.82% 0.83% 0.62% 0.64% 1.15%
==== ==== ==== ==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
ALLIANCE
ALLIANCE ALLIANCE INTERMEDIATE ALLIANCE
ALLIANCE AGGRESSIVE MONEY GOVERNMENT HIGH ALLIANCE
GLOBAL STOCK MARKET SECURITIES YIELD INTERNATIONAL
TYPE OF EXPENSE PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO* PORTFOLIO PORTFOLIO*
- ------------------------ ----------- ------------ ----------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Investment Advisory
Fees .................. 0.63% 0.53% 0.35% 0.50% 0.60% 0.90%
12b-1 Fees ............. 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
Other Expenses ......... 0.09% 0.03% 0.03% 0.06% 0.03% 0.23%
---- ---- ---- ---- ---- ----
Total Expenses ......... 0.97% 0.81% 0.63% 0.81% 0.88% 1.38%
==== ==== ==== ==== ==== ====
</TABLE>
* Annualized expenses for the period May 1, 1997 to December 31, 1997.
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
- --------------------------------------------------------------------------------
27 The Hudson River Trust
<PAGE>
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.
YEAR 2000
Many computer software systems in use today cannot properly process
date-related information relating to periods from and after January 1, 2000.
Should any of the computer systems employed by the Trust's major service
providers fail to process this type of information properly, that could have a
negative impact on the Trust's operations and services that are provided to the
Trust's shareholders. Alliance has advised the Trust that it is reviewing all
of its computer systems with the goal of modifying or replacing such systems
prior to January 1, 2000, to the extent necessary to foreclose any such
negative impact. In addition, Alliance has been advised by the Trust's
custodian that it is also in the process of reviewing its systems with the same
goal. As of the date of this prospectus, the Trust and Alliance have no reason
to believe that these goals will not be achieved. Similarly, the values of
certain of the portfolio securities held by the Trust may be adversely affected
by the inability of the securities' issuers or of third parties to process this
type of information properly.
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
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.
- --------------------------------------------------------------------------------
The Hudson River Trust 28
<PAGE>
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, other than the Alliance Small Cap
Growth Portfolio, attributable to its Class IB shares. With respect to the
Alliance Small Cap Growth Portfolio, the Distributor will receive an annual fee
not to exceed the lesser of (a) 0.25% of the average daily net assets of the
Portfolio attributable to Class IB shares and (b) an amount that, when added to
certain other expenses of the Class IB shares, would result in the ratio of
expenses to average daily net assets attributable to Class IB shares equalling
1.20%. 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 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.
- --------------------------------------------------------------------------------
29 The Hudson River Trust
<PAGE>
All shares may be 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.
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.
- --------------------------------------------------------------------------------
The Hudson River Trust 30
<PAGE>
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 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 The Hudson River Trust
<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 The Hudson River Trust
<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.
- --------------------------------------------------------------------------------
The Hudson River Trust A-2
<PAGE>
APPENDIX B
PERFORMANCE INFORMATION
The following tables provide performance results for The Hudson River Trust
Portfolios, 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.
Performance results shown for periods prior to the commencement of operations
with respect to Class IB shares represent the performance of Class IA shares,
restated to reflect the distribution fees payable by Class IB shares.
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. If the fund scores in the top 10% of its class it receives 5
stars; if it falls in the next 22.5% it receives 4 stars; a place in the middle
35% earns it 3 stars; those in the next 22.5% receive 2 stars; and the bottom
10% get 1 star.
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 The Hudson River Trust
<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 Aggressive Stock
Portfolio 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 Growth and Income Portfolio on October 1, 1993; the Alliance
Equity Index Portfolio on March 1, 1994; the Alliance International Portfolio
on April 3, 1995; and the Alliance Small Cap Growth Portfolio on May 1, 1997.
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 Small Company Growth Funds Average, 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.
- --------------------------------------------------------------------------------
The Hudson River Trust B-2
<PAGE>
TABLE I
ANNUALIZED RATES OF RETURN
PERIODS ENDING DECEMBER 31, 1997
<TABLE>
<CAPTION>
SINCE
1 YEAR 3 YEARS 5 YEARS 10 YEARS 15 YEARS 20 YEARS INCEPTION
PORTFOLIO/Benchmarks ----------- ----------- --------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
THE ASSET ALLOCATION SERIES
ALLIANCE CONSERVATIVE INVESTORS ................ 12.97% 12.52% 8.53% -- -- -- 9.25%
Lipper Flexible Portfolio Average .............. 18.69 19.44 13.14 -- -- -- 12.15
70% Lehman Treasury/30% S&P 500 ................ 16.71 17.18 11.87 -- -- -- 11.39
- -------------------------------------------------------------------------------------------------------------------------------
ALLIANCE GROWTH INVESTORS ...................... 16.58 18.22 12.92 -- -- -- 15.45
Lipper Flexible Portfolio Average .............. 18.69 19.44 13.14 -- -- -- 12.15
70% S&P 500/30% Lehman Gov't Corp. ............. 26.28 25.64 17.02 -- -- -- 14.48
- -------------------------------------------------------------------------------------------------------------------------------
THE EQUITY SERIES
ALLIANCE GROWTH AND INCOME ..................... 26.61 23.40 -- -- -- -- 15.64
Lipper Growth & Income Funds Average ........... 27.14 26.49 -- -- -- -- 18.48
75% S&P 500/25% Value Line Convertible ......... 29.54 28.62 -- -- -- -- 20.14
- -------------------------------------------------------------------------------------------------------------------------------
ALLIANCE EQUITY INDEX .......................... 32.26 30.07 -- -- -- -- 23.13
Lipper S&P 500 Index Funds Average ............. 32.60 30.49 -- -- -- -- 23.31
S&P 500 ........................................ 33.36 31.15 -- -- -- -- 23.84
- -------------------------------------------------------------------------------------------------------------------------------
ALLIANCE COMMON STOCK .......................... 29.07 28.39 20.81 17.74% 17.00% 17.30% 15.58
Lipper Growth Equity Mutual Funds
Average ....................................... 25.30 25.11 16.47 15.93 14.37 15.73 15.50
S&P 500 ........................................ 33.36 31.15 20.27 18.05 17.52 16.66 15.44
- -------------------------------------------------------------------------------------------------------------------------------
ALLIANCE GLOBAL ................................ 11.38 14.74 15.89 13.49 -- -- 11.49
Lipper Global Mutual Funds Average ............. 13.04 15.20 13.76 11.50 -- -- 9.10
MSCI World ..................................... 15.76 16.62 15.34 10.57 -- -- 8.22
- -------------------------------------------------------------------------------------------------------------------------------
ALLIANCE INTERNATIONAL ......................... (3.23) -- -- -- -- -- 6.12
Lipper International Mutual Funds Average ...... 5.44 -- -- -- -- -- 9.87
MSCI EAFE ...................................... 1.78 -- -- -- -- -- 6.15
- -------------------------------------------------------------------------------------------------------------------------------
ALLIANCE AGGRESSIVE STOCK ...................... 10.66 21.04 14.66 18.74 -- -- 19.17
Lipper Small Company Growth Funds
Average ....................................... 19.63 22.51 15.24 16.50 -- -- 14.06
50% S&P 400/50% Russell 2000 ................... 27.31 24.88 17.11 17.74 -- -- 15.12
- -------------------------------------------------------------------------------------------------------------------------------
ALLIANCE SMALL CAP GROWTH ...................... -- -- -- -- -- -- 26.57*
Lipper Small Company Growth Funds
Average ....................................... -- -- -- -- -- -- 29.36
Russell 2000 ................................... -- -- -- -- -- -- 27.66
- -------------------------------------------------------------------------------------------------------------------------------
THE FIXED INCOME SERIES
ALLIANCE MONEY MARKET .......................... 5.16 5.24 4.44 5.52 6.34 -- 6.92
Lipper Money Market Mutual Funds
Average ....................................... 4.90 5.05 4.31 5.40 6.18 -- 6.89
3 Month T-Bill ................................. 5.23 5.41 4.71 5.61 6.33 -- 6.87
- -------------------------------------------------------------------------------------------------------------------------------
ALLIANCE INTERMEDIATE GOVERNMENT SECURITIES 7.01 7.80 5.68 -- -- -- 6.74
Lipper Intermediate Government Funds
Average ....................................... 8.08 8.68 6.00 -- -- -- 7.19
Lehman Intermediate Government Bond ............ 7.72 8.65 6.39 -- -- -- 7.47
- -------------------------------------------------------------------------------------------------------------------------------
ALLIANCE HIGH YIELD ............................ 18.19 20.15 15.63 12.54 -- -- 11.78
Lipper High Current Yield Mutual
Funds Average ................................. 12.96 14.17 11.36 10.66 -- -- 9.78
ML Master ...................................... 12.83 14.54 11.72 12.09 -- -- 11.39
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Unannualized
- --------------------------------------------------------------------------------
B-3 The Hudson River Trust
<PAGE>
TABLE II
CUMULATIVE RATES OF RETURN
PERIODS ENDING DECEMBER 31, 1997
<TABLE>
<CAPTION>
SINCE
PORTFOLIO/Benchmarks 1 YEAR 3 YEARS 5 YEARS 10 YEARS 15 YEARS 20 YEARS INCEPTION
- ---------------------------------------- ------------- ----------- ----------- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
THE ASSET ALLOCATION SERIES
ALLIANCE CONSERVATIVE INVESTORS ........ 12.97% 42.47% 50.60% -- -- -- 107.51%
Lipper Flexible Portfolio Average ...... 18.69 71.00 86.52 -- -- -- 160.04
70% Lehman Treasury/30% S&P 500 ........ 16.71 60.91 75.18 -- -- -- 143.55
- -----------------------------------------------------------------------------------------------------------------------------------
ALLIANCE GROWTH INVESTORS .............. 16.58 65.20 83.56 -- -- -- 227.07
Lipper Flexible Portfolio Average. ..... 18.69 71.00 86.52 -- -- -- 160.04
70% S&P 500/30% Lehman Gov't Corp. ..... 26.28 98.32 119.42 -- -- -- 205.24
- -----------------------------------------------------------------------------------------------------------------------------------
THE EQUITY SERIES
ALLIANCE GROWTH AND INCOME ............. 26.61 87.89 -- -- -- -- 85.41
Lipper Growth & Income Funds
Average ............................... 27.14 102.81 -- -- -- -- 106.17
75% S&P 500/25% Value Line
Convertible ........................... 29.54 112.80 -- -- -- -- 118.17
- -----------------------------------------------------------------------------------------------------------------------------------
ALLIANCE EQUITY INDEX .................. 32.26 120.07 -- -- -- -- 121.90
Lipper S&P 500 Index Funds Average ..... 32.60 122.21 -- -- -- -- 123.31
S&P 500 ................................ 33.36 125.60 -- -- -- -- 127.24
- -----------------------------------------------------------------------------------------------------------------------------------
ALLIANCE COMMON STOCK .................. 29.07 111.63 157.35 411.86% 953.20% 2331.80% 2302.90
Lipper Growth Equity Mutual Funds
Average ............................... 25.30 97.08 117.56 356.18 710.84 2037.84 2757.78
S&P 500 ................................ 33.36 125.60 151.62 425.67 1026.40 2080.13 2248.74
- -----------------------------------------------------------------------------------------------------------------------------------
ALLIANCE GLOBAL ........................ 11.38 51.04 109.06 254.37 -- -- 206.46
Lipper Global Mutual Funds Average ..... 13.04 53.69 92.92 205.52 -- -- 151.76
MSCI World ............................. 15.76 58.59 104.13 173.01 -- -- 126.45
- -----------------------------------------------------------------------------------------------------------------------------------
ALLIANCE INTERNATIONAL ................. (3.23) -- -- -- -- -- 17.74
Lipper International Mutual Funds
Average ............................... 5.44 -- -- -- -- -- 30.12
MSCI EAFE .............................. 1.78 -- -- -- -- -- 17.83
- -----------------------------------------------------------------------------------------------------------------------------------
ALLIANCE AGGRESSIVE STOCK .............. 10.66 77.31 98.19 457.07 -- -- 630.91
Lipper Small Company Growth
Funds Average ......................... 19.63 84.83 105.11 371.28 -- -- 398.38
50% S&P 400/50% Russell 2000 ........... 27.31 94.76 120.25 412.08 -- -- 436.52
- -----------------------------------------------------------------------------------------------------------------------------------
ALLIANCE SMALL CAP GROWTH FUND ......... -- -- -- -- -- -- 26.57
Lipper Small Company Growth
Funds Average ......................... -- -- -- -- -- -- 29.36
Russell 2000 ........................... -- -- -- -- -- -- 27.66
- -----------------------------------------------------------------------------------------------------------------------------------
THE FIXED INCOME SERIES
ALLIANCE MONEY MARKET .................. 5.16 16.57 24.25 71.18 151.32 -- 201.04
Lipper Money Market Mutual
Funds Average ......................... 4.90 15.94 23.52 69.20 146.11 -- 200.21
3 Month T-Bill ......................... 5.23 17.13 25.87 72.64 150.97 -- 199.34
- -----------------------------------------------------------------------------------------------------------------------------------
ALLIANCE INTERMEDIATE GOVERNMENT
SECURITIES ............................ 7.01 25.28 31.83 -- -- -- 55.30
Lipper Intermediate Government Funds
Average ............................... 8.08 28.40 33.93 -- -- -- 59.98
Lehman Intermediate Government Bond 7.72 28.25 36.31 -- -- -- 62.74
- -----------------------------------------------------------------------------------------------------------------------------------
ALLIANCE HIGH YIELD .................... 18.19 73.46 106.72 225.98 -- -- 240.42
Lipper High Current Yield Bond
Funds Average ......................... 12.96 48.92 71.52 177.35 -- -- 181.23
ML Master .............................. 12.83 50.26 74.04 213.08 -- -- 227.68
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
The Hudson River Trust B-4
<PAGE>
TABLE III
ANNUAL RATES OF RETURN
<TABLE>
<CAPTION>
ALLIANCE ALLIANCE ALLIANCE ALLIANCE ALLIANCE
YEAR ENDING COMMON MONEY AGGRESSIVE HIGH ALLIANCE CONSERV.
DECEMBER 31 STOCK MARKET STOCK YIELD GLOBAL INVESTORS
- -------------- ------------ ------------ ------------ ------------ -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
1976 ......... 9.16%*
1977 ......... -9.48
1978 ......... 7.98
1979 ......... 29.57
1980 ......... 49.82
1981 ......... -6.10 6.23%*
1982 ......... 17.31 12.76
1983 ......... 25.84 8.69
1984 ......... -2.20 10.61
1985 ......... 33.17 7.93
1986 ......... 17.09 6.36 35.63%*
1987 ......... 7.22 6.38 7.05 4.43%* -13.52%*
1988 ......... 22.19 7.07 .89 9.50 10.64
1989 ......... 25.34 8.93 43.24 4.88 26.49 2.84%*
1990 ......... -8.36 7.97 7.91 -1.36 -6.32 6.16
1991 ......... 37.64 5.93 86.62 24.22 30.24 19.58
1992 ......... 2.96 3.28 -3.42 12.06 -.73 5.54
1993 ......... 24.58 2.73 16.52 22.90 31.85 10.52
1994 ......... -2.39 3.76 -4.07 -3.03 4.98 -4.35
1995 ......... 32.20 5.49 31.39 19.67 18.57 20.15
1996 ......... 24.03 5.08 21.95 22.64 14.37 4.96
1997 ......... 29.07 5.16 10.66 18.19 11.38 12.97
- -------------- ------ ------ ------ ------ -------- ------
<CAPTION>
ALLIANCE ALLIANCE
ALLIANCE ALLIANCE GROWTH ALLIANCE SMALL
YEAR ENDING GROWTH INTERMEDIATE AND EQUITY ALLIANCE CAP
DECEMBER 31 INVESTORS GOVT. SECURITIES INCOME INDEX INTERNATIONAL GROWTH
- -------------- ----------- ------------------ ------------ ---------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
1976 .........
1977 .........
1978 .........
1979 .........
1980 .........
1981 .........
1982 .........
1983 .........
1984 .........
1985 .........
1986 .........
1987 .........
1988 .........
1989 ......... 3.74%*
1990 ......... 10.36
1991 ......... 48.66 11.82%*
1992 ......... 4.69 5.35
1993 ......... 15.01 10.33 -.50%*
1994 ......... -3.39 -4.62 -.82 .83%*
1995 ......... 26.12 13.08 23.83 36.23 11.04%*
1996 ......... 12.36 3.53 19.84 22.14 9.57
1997 ......... 16.58 7.01 26.61 32.26 -3.23 26.57%*
- --------------- ------ ------ ------- ------ ------ -----
</TABLE>
- ----------
*Unannualized from the inception date described in the Prospectus through the
end of the calendar year indicated.
- --------------------------------------------------------------------------------
B-5 The Hudson River Trust
<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 fifteen full calendar years during which
Alliance has managed the Historical Portfolios. As of December 31, 1997, the
assets in the Historical Portfolios totaled approximately $988.4 million and
the average size of a Historical Portfolio was $54.9 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.
- --------------------------------------------------------------------------------
The Hudson River Trust 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 FIFTEEN YEARS ENDED DECEMBER 31, 1997*
<TABLE>
<CAPTION>
RUSSELL LIPPER SMALL 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, 1997 ......... 17.58% 22.37% 12.94% 15.05%
December 31, 1996 ......... 36.91% 16.50% 11.26% 14.37%
December 31, 1995 ......... 54.59% 28.45% 31.04% 31.62%
December 31, 1994 ......... -3.47% -1.82% -2.43% -0.48%
December 31, 1993 ......... 14.35% 18.88% 13.36% 16.93%
December 31, 1992 ......... 4.85% 18.41% 7.77% 11.18%
December 31, 1991 ......... 40.96% 46.04% 51.19% 48.53%
December 31, 1990 ......... -23.46% -19.48% -17.41% -13.78%
December 31, 1989 ......... 25.81% 16.26% 20.17% 21.06%
December 31, 1988 ......... 25.63% 25.02% 20.37% 20.34%
December 31, 1987 ......... -7.66% -8.80% -10.48% -5.48%
December 31, 1986 ......... 15.30% 5.68% 3.58% 6.04%
December 31, 1985 ......... 42.57% 31.05% 30.97% 27.27%
December 31, 1984 ......... -11.73% -7.30% -15.83% -9.18%
December 31, 1983 ......... 32.53% 29.13% 20.13% 29.80%
</TABLE>
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* 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, 1997, 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
---------------------------------------------------------------
RUSSELL LIPPER SMALL CO.
HISTORICAL RUSSELL 2000 GROWTH GROWTH
PORTFOLIOS 2000 INDEX INDEX FUND INDEX
------------ ------------ ------------- -----------------
<S> <C> <C> <C> <C>
Three years ................... 35.51% 22.34% 18.09% 20.09%
Five years .................... 22.40% 16.41% 18.74% 15.05%
Ten years ..................... 17.25% 15.77% 13.49% 15.38%
Since January 1, 1983 ......... 15.53% 13.34% 10.30% 13.04%
</TABLE>
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B-7 The Hudson River Trust
